R E S T R I C T E D Report No. TO-256a This report was prepared for use within the Bank. It may not be published nor may it 6e quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE HIGHWAY CONSTRUCTION PROJECT MEXICO October 6, 1960 Department of Technical Operations CURRENCY EQUIVALENTS U.S. $1.00 = 12.49 Pesos 1 Peso = 8 U.S. cents I Million Pesos = U.S. $80, 000 KVIEXICO APPRAISAL OF T-HE HIGHWAY COilSTRIJCTION PROJECT Table of Contents Page SUIl 1ARY i I INTRODUCTION 1 II THE FEDERAL FIVE-YE.AR HIGHW,1AY P11OGRAI 1960 - 64 1 - 3 a. The Program 1 b. Financing 2 c. Road IIaintenance 2-3 III THlE PROJECT 3 -6 a. Description 3 b. Cost Estimates and Financing 3 - h c. Design Standards and Specifications 5 d. Administration and Execution 6 IV ECONOMIC JUS3IFICATION 6 - 8 V COWCLUSIONS 8 Appendices: A. Operating Cost for Tpical Ilotor Vehicles B. Economic Justification Lor Individual Roads Tables: 1. Highway Construction per year 2 Registered Vehicles 3. Gasoline Consumption 4. Prooosed Federal Expenditures for Federal, State, and Local Roads 1960 - 1964 5. Federal Expenditures for Federal, State, and Local Roads 1953 - 1959 6. Actual Revenues from Gasoline Taxes 1953 - 1959, and Forecast for 1960 - 1964 7. Cost Estimates for the Iroposed Bank financed Project 8. IWTork to be Executed during the Period 1961 - 1964 9. Design Standards for Roads Included in the Proposed Highway Project 10. Approximate Operating Cost per 100 km for 8-ton truck and 12-ton semitrailer on typical average roads Map SUDtARY i. The Mexican Government has requested a Bank loan of USC 25.0 million to cover the foreign exchange cost of completing the construction or reconstruc- tion of 13 roads totalling about 3,200 km, all but one being under execution. Including 15 contingencies, the total estimated cost of the project is about US',68.6 million equivalent. ii. The project forms part of a much larger five-year orogram 1960-64 for improvement and extension of the Federal Highway System. This program in- cludes 95 different road construction projects totalling about 14,000 km, and its estimated cost is about US3216 million equivalent. Apart from the requestec Bank loan, the cost of the five-year program will be financed by annual appro- priations in the Federal budget. Since these exceed the requirements of the proposed Bank-financed project by a Tride margin, the local financing of the proposed project is not expected to present any problems. iii. The execution of the project will be the responsibility of the Fed- eral Highwgay Administration (FHA) of the hinistry of Public Works. The FHA organization, its functioning, and its staff are efficient and adequate. All Bank-financed contracts will be awarded on the basis of competitive bidding, the greater part (85% in value) by international tender in which all contract- ing firms registered in Mexico, whether local or foreign, may participate. The contracting industry in 1iexico is well developed and works both efficiently and at reasonable cost. iv. The design standards adopted for the different roads included in the project are adequate. Preliminary surveys have been made for each of the dif- ferent roads, and the cost estimates are reliable. The project is exDected to be completed by the end of 1964. v. The roads included in the project are representative of the five-year program as a whole. Their execution aims at eliminating some of the principal shortcomings of the Federal Hirhway System which have result;c1 fro-i the rapid economic development in l>Iexico over recent years, Individua lry the roads will yield benefits iuhioh are sufficient to justify their execution. vi. The project is considered suitable for a Bank loan of uS;,25.0 million. An appropriate term would be 19 years, including a 4 1/2 year period of grace. MEXICO APPRAISAL OF THE HIGHWAY CONSTRUCTION PROJECT I. INTRODUCTION 1. The Mexican Government has requested a Bank loan of US$25.0 million to cover the foreign exchange cost of 13 road projects which form part of the Federal five-year highway program for 1960-64. The total cost of the 13 proj- ects is estimated at US$68.6 million equivalent. 2. This appraisal is based on preliminary studies made oy the Federal Highway Administration) and on findings of a Bank mission to Mexico in March- Aipril 1960. II. THE FEDERAL FIVE-YEAR HIGHWAY PROGRAM, 1960-64 a. The Program 3. The economic development of Mexico, which has been progressing at a rapid pace requires the reconstruction and expansion of its transportation systems, mainly of the highway network. Since 1946 each successive government of Mexico has further developed the country's highway system on the basis of well planned and executed programs. The road network has continuously expander and has now reached a total length of 45,000 km; the number of vehicles and the consumption of gasoline has more than doubled in the last ten years (see tables 1, 2 and 3). 4. In 1959 the present Government approved a five-year highway program for 1960-64, for improvement and extension of the Federal highway system. The program includes about 95 difierent projects, of which 70 are for improvement of existing roads, and 25 for construction of new roads. The total estimated cost of the program over the five-year period is about Ps. 2,700 million (US$216 million equivalent)g and the projected annual expenditures represent a continuatior of the trend established over recent years. 5. The principal aims of the program are threefold3 (i) to improve ex- isting roads to standards which conform with much increased volumes of traffic; (ii) to connect with the rest of the country some of the isolated areas which are already populated and developed, or areas which have potentials, mainly agricultural, which are presently unutilized; and (iii) to provide shorter and more direct routes between important commercial centers, densely populated areas, and principal ocean ports. 6. Although the Mission did not attempt to appraise the whole prograrn in detail, it is based on extensivereseareh, and appears well balanced and designed to meet the most urgent needs for improvement of the Federal highway system. -2- b. Financing 7. The total estimated cost of construction in thae five-year program, Ps. 2,697.5 million (about US%216 million equivalent, Table 4) would be financed by the Federal budget. Adding the cost of maintenance of Federal highways, overhead expenses for the Federal Highwnay Administration, and the anticipated federal contributions for construction and improvement of state and local roads, the entire Federal outlays for roads over the five-year period are expected to be about Ps. 5,196.2 million (USj415.7 million equivalent, Table 4). 8. The total Federal appropriations for roads have been steadily increas- ing over recent years (Table 5). For example, the appropriations have risen from about Ps. 590 million in 1956 to about Ps. 920 million in 1960, an increase of 55% over the four-year period. The estimated total outlays in 1964 are about Ps. 1,150 million, a further increase over the next four years of 25%. 9. The total Federal appropriations for roads in 1960, Ps. 920 million, correspond to about 9% of total ex-penditures in the Federal budget. Federal taxes and fees wihich are paid by road users, automobile assembly plants, etc. are estimated to yield about 55% oL this amount, as indicated in the following table: Ps. million Federal revenues from gasoline taxes 303 Taxes on automobile assembly plants 150 Taxes on tire plants 35 Various other taxes 17 505 10. Over the last few years the local production and sales of gasoline have been steadily increasing. However, Government revenues from gasoline taxes (Table 6) have been somewuhat erratic due to shortfalls in payments by the Governmrent oTmed oil company Pemex, w.4hich has apoplied part of the funds for its expansion program. In a recent agreement between the Government and Pemex, these arrears have been canitalized as Government equity. The increase in gasoline taxes between 1959 and 1964 is estimated at 30%-, vhich appears a conservative anticipation. Revenues derived from automo- bile and tire plants are expected to incre2se at a faster rate. c. Road Maintenance 11. The lYaintenance Division of the FHA is responsible for the 17,000 kom of roads which oresently comprise the Federal Highway network. The Division is directed by a chief engineer who has a staff of about 84 engineers and techni- cians, 500 administrative employees, and about 12,000 skilled and unskilled laborers. There are 18 geographical districts, each headed by an engineer. The districts are adequately eouipoed wipth the necessary equipment, slops, ma- terials, communication facilities, and housing. E5quipment, materials and labor are properly controlled and used. -3- 12. Roads inspected by the lTission were adequately maintained. 13. Traffic regulations have been introduced since 1951, including the control of weight and dimensions of vehicles. They have been well enforced by traffic nolice forces. III. THE PROJECT a. Description lV. The Government has reouested tha-t the Bank finance the foreign ex- change cost to cornplete 13 road projects excluding bridges over 15 meter span located in various parts of the country (Tahle 7 and 7ap). These projects form part of the Federal five-year highway programr, and have been chosen by the Government among projects which are considered to have the highest priority. 15. The execution of all roads but orne has already been started and the exoected status of construction on November 1, 1960 is shown in Table 8. Ex- penditures still to be made as of that date range between 24h, and 100o of the total estimated cost for individual roads (Table 7). For all projects combined about 28% of the total estimated expenditures will have been made by November 1, 196o. 16. Two of the projects are for reconstruction of existing roads, and the other eleven for construction of new roads. The total length of the roads in- volved is about 3,200 Im. b. Cost Estimates and Financing 17. The cost estimates for the various projects are considered reliable. They are based, on -reliminary surveys conducted by the iiinistry of Public Works, and on unit prices established for the various Darts of the country by the National Commission on Unit Prices, the chairman of w4hich is the Secretary of Pulblic Works. The prevailing unit prices are a result of long experience. 18. The Governnent has appropriated in the Federal Budget all the amolunts necessary for actual Dayments to be made in 1960, on its five-year road program. Payments for highway construction are made with an average delay of about two months after comnletion of the work and therefore the appropriation of funds in the Federal Budget was scheduled to finance all work completed until October 31, 1960. The Government has reouested that Bank financing be applied to payments to be made after January 1, 1961) wghich in practice would mean that the Bank would participate in the financing of the work carried out from November 1, 1960 on7rards when highway construction actively resumes after the rainy season. 19. The total cost of the 13 projects through 1961-64 has been estimated at Ps. 858.5 million, or US;D68.6 million equivalent, including 15, contingencies for unforeseen and possible price increases (see Table 7). T~~~~~~ T -L 20. With a view to determining the foreign exchange cost of the project the Ministry of Public WiTorks has furnished an analysis for three representative projects executed recentlry in different parts of 1M1exico. A summary of the analysis shows the following average foreign exchange cost for the different types of w.ork, i.e. counting depreciation on all irported equiDment, and the cost of imnported materials; % cost % foreign exchange of total cost of total Cuts and fills 49.0 22.05 Subbase and base 19.0 7e64 Surfacing 14.0 4.93 Drainage structures and bridges 18e,0 1.78 l0Oo 36.h 219 On this basis the foreign exchange cost of the proposed project would be Ps. 312.5 million, or US$"25 million equivalent (Table 7) - wfhich is proposed for Bank financing. The local cost, about Ps. 546 million (US`43.6 million equivalent) wfould be financed by the Federal budget from the annual anpropria- tions for the Federal Program of road construction and imDrovement. These ap- propriatioris would orovide a wide margin above the reouirements of the oroject, and the Ministry of Public WTorks is orepared to defer other road works if t1hs should Drove necessary. Therefore the provision of local funds for the project should be assured. 22. The following table gives the annual breakdown between the estimated local currency and foreign exchange expenditures of the project: Total Local currency Foreign exchange Year expenditures expenditures expenditures Ps. (million) Ps. (million) Ps. (million) US=(million) equivalent equivalent 1961 2075) 132 75.5 6.1 1962 307.1 195.3 111.8 8.9 1963 2[9.7 158.8 90.9 7.3 1964 94.2 59.9 3h.3 2.7 Total 85805 5L6.0 312.5 25.0 23. The proposed Bank loan would be equivalent to about 10% of the total contem.plated Federal expenditures for road construction between 1961-64, ex- cluding road maintenance and administrative costs. C. Design Standards and Snecifications 24. Three different types of' design standards (A, B and C, Table 9) are proposed for the various roads included in the project. In each case the standard has been chosen in conformance with the potential volumes of traffic and the tonograohic condi-tions. All three standards and their geometric de- signs are considered adequate. 25. Standard design and construction specifications worked out by the 1iinistry of Public Works are co-plete and regulate all phases of highway works with regard to rlght-of-way, sight distances, super elevations, transition tan- gents, materials, etc. All roads included in the project will have asphalt surfacing and the type of asphalt, as well as other materials, will be control- led by field laboratories in accordance with the prevailing specifications. d. Administration and Execution 26. The M11inistry of Public IWorks is responsible for the planning, con- struction and maintenance of federal highways in the country and shares with other public authorities in the responsibility for planning, financing, con- struction and supervision of all other roads. The Federal Highway Authority (FHA) is the organization within the Iiinistry in charge of all road work and will therefore be responsible for the planning, control and supervision of the project to be financed by the Bank. The FHIA is comoosed of four divisions, each resn-onsible for different functions, i.e. (i) Projects and Laboratories; (ii) Construction of Federal Highways; (iii) liaintenance of Federal Highways; and (iv) Highway Construction in cooperation with states and municipalities. The FHA is staffed Twith about 450 engireers and technicians, and about 1,400 administrative employees counting both the headquarters' staff in Miexico City and the field staff in the various states. There are clear lines of authority, and the FHA organization and the quality of its staff are efficient and adequa+t. Its laboratories, materials-testing and design sections are well equiopped, and the planning, design, execution and supervision of road works are good. 27. Since 1929 highway construction in Mexico has been carried out by local companies. The local road construction industry is now well developed. At present there are about 600 comoanies with total assets valued at -4R65 rmil- lion, 13 among these having assets of over US'J million each. It is estimated by the Government that the local road construction industry can handle about '360 million worth of construction a year. In general roads have been built efficiently and economically. Contracts are given on the basis of unit prices which are reasonable and lower than those --)revailing in Central Armerica or the U.S.A. The contractors also furnish adequate guarantees of performance on all contracts. In addition to the purely domestic comoanies there are some of mixed local and foreign canital and a few of entire foreign capital. 28. All Bank-financed work will be contracted by competitive bidding. Because work is noTw under way and to avoid delays, bidding on some 15% in value of T7!ork to be done will be restricted to 1`1exican contractors. The remaining 85% wqill be let on the basis of international bidding open to all qualified contracting firms, national or foreign, provided the latter become registered in liexico. The registration procedure will be facilited by the Government - 6- after the contractor has been acknowledged to be qualified by the Tlinistry of Public WJorks. Complete plans and specifications wTould be made available to all prenualified contractors interested in biddin-. Furthermore the Ministry has agreed that for the execution of the project it would change its present practice of awarding contracts for one year's work and wJould award instead contracts to completion of the wpiork irresDective of duration. IV. ECOHONIC JUSTIFICATTON 29. Land transportation in IMexico faces difficult topography in many areas, and both highways and railways frequently cross high mountains and deep valleys. In particular, in central and northern Nexico the western Sierra rises and falls steeply to make the approach to the Pacific Ocean difficult, whereas the eastern Sierra hinders the access to the liexican Gulf. Therefore, the co.munication lines of minimunm resistance are directed north-south in these parts of the coun- try. Below the isthmus of Tehuantepec, the western Sierra rises to become the highest mountain range in Central America, thus impeding communication lines in southern Mexico. 30. Paved highway and railway networks totalling about 45,OOO Im and 23,000 ln respeccively, fulfill different purposes throughout the country. As a rule the railways carry long and medium distance traffic, specially bulk com- modities like minerals, wheat, and cotton, while road transportation is mainly used for short and medium distance traffic. 31. Of the roads included in the project one in particular will be in direct competition Twith a railway, i.e. the Arriaga-Tapachula road parallelinry the South-Eastern Railway. However, this is through a densely populated area which has reached a point of development where both road and rail services are justified, (Appendix B-2). 32. A few of the other roads included in the project may tend to eliminate roundabout hauls over some of the railway lines, and thus intensify the compe- tition from road transportation. On the other hand, some of the roads would also serve as feeder lines to the railways. It is not expected that any of the projects wTill cause significant change in the competitive position between rail- ways and roads. 33. Although the highway system in hexico is probably more advanced than in most or all other countries in Central and South America, there are still ir- portant deficiencies which have to be rnet. In particular there are many popU- lated areas which are riore or less inaccessible to modern surface transportation. Also, there are some areas of substantial agricultural potential which need to be opened. Furthermore, the rapid development of the TMexican economy over the last 10-15 years has rendered many highways obsolete relative to the volumes of traffic they noTwT carry. There are also situations which call for more direct a-nd fast lines of communication between principal commercial centers. 34. The oresent five-year program for the Federal Highway System is di- rected at eliminating some of these shortcomings, and comprises about 1l4,300 km of roads to be imiiproved or constructed. The roads included in the proposed Bank-financed project, about 3,200 Ian, are representative of the five-year program as a Twihole. -7- 35. All areas in hicih the project road. are located, have been visited by Bank staff. 36. A separate justification for each of the thirteen roads included in the oroject is given in Appendix B of this renort. Of these, six roads will provide shorter and faster lines of cornmunication between importaint cities and areas of the country. On the basis of present traffic volumes and tiqe average operating cost for standarl vehicles (Annex A) savings in transport costs re- sultin- from reduced distances after the roads have been completed would pro- vide the followinr - ninimuii approximate annual rate of return on the investm,lent: Approximate minimuma rate Road No. Route annual return 1 Rio Verde - Valles Jj% xx 2 Arriaga - Tapachula 10% xx 5 Saltillo - Guadalajara 20;% xx 8 Amayuca - Izucar de hiatamoros 4OiJ x 9 San Luis Potosi - Torreon (Cuencame) 20,-o xx 10 Ciudad Victoria - -luisache 20i x-x 11 Villa Hermosa - Escarceia - Champoton 2O§) xx Substantial additional benefits w1ill be achieved after completion o-I son,Ie of these orojects, such as increase of ae.ricultural Knd cattle productionl, and better teclhnical and econo-mic assistance to the farmers, resulting in more ef- ficient nro-Iuction. 37. Two of the projects are for reconstruction of existing roads wThich are no longer adequate for the volume of traffic they sunrort. The anproximate, minim'1um, annual return on the investment which will result fromi reduced operat- inF cost for current volumes of traffic is: Approximate minimum rate Road No. Route annual return 12 Monterrey - Nuevo Laredo 12% x 13 ilonterrey - Reynosa 60% x The Acapulco-Ninotepa Nacional road (No. 3) has an approximate minimu'm annual return of 10% xx 38. The San Juan del Rio - Xilitla road (Hfo. 4) will serve a populated area wihich is now largely iso'lated from the rest of kexico. Apart from other benefits, the potential savings in transoortation cost alone appear sufficient to justify this project. Note: x) Based on traffic couints. xx) Esti:r,ate. - 8 - 39. The Pinotepa - Puerto Escondido road (io. 6) and thLe Compostela - 'uerto Vallarta road (No. 7) are designed to open uio areas which are quite iso- lated and underdeveloped and have a substantial agricultural potential. At present the vralue of the gross output fromr agriculture, cattle and forestry in the areas influenced by the two ro2ds is estimated at about Ps. 360 million an- nually. About 5 - 10 years after completion of the roads, and principally as a result of the provision of cheao and efficient transportation, it is expected t1hat production iwill re-ch a gross value of roughly Ps. 600 r,million annually. The construction of the two roads is estiraated to cost Ps. 107 rmillion. V. CONCLUSIONS 40. All of the individual roads included in the proposed project are jus- tified and bile project as a whole represents an important contribution toward eliminatinf7 some of the present shortcomiings of the Federal Hi7hwTay System. (Paragranhs 33-39). 41. Design and specifications are well adapted to the needs of individual roa's, and conform with' modern practices for highway engineering. (Para-rsnhs 24-25). 42. The execution of the nroject would be controlled and sunervised by the Federal Highway Administration Twhich is an efficient, well-staffed and well- equipped body. All contracts wTill be awarded by competitive bidding and for thie -,lajor part oF the Droject, 85j in value, international competitive bidding will be used. (Paragranhs 26-28). 43. The local cost of the p)roject would be met from annual appropriations in the Federal Budget for construction of Federal roads. The planned apmropria- tions for the Governmlent's five-year hirghway pro-ram exceed the requiremiients of the -roject by a wide margin, and no particular financial problems are expected to arise. (?aragraphs 17-23). 44. The Project appears suitable for a Dank loan of ',25.0 million for a term of 19 years inclxtding a grace period of h 1/2 years. APPENDIX A :4IEx1C0 Operating Cost for Typical ,otor Vehicles 1. Late last year the Department of Tariffs of the Ministry of Corn- munications undertook an an1aly7sis of the operating cost for the Ttw-o tlypical truck types, i.e., the 8-ton gasoline powered unit and the 12-ton diesel powered seiTitrailer. The analysis was based on actual accounts for 10 uni-ts of each type over 4 years as experienced by tWo of the largest trucking cola- nnnies in Mrexico, and the findings were updated to reflect thle prices and salaries prevrailing in December 1959. 2. A siumary of the analysis (Table 10) shows that the average ner- kilometer onerating cost for the 8-ton truck is about Ps. 2,00 (US˘ 16), and for the 12-ton semitrailer about 7's. 2.50 (US˘ 20). 3. From inforlioation on the per-kilomeiter operating cost of various t,Tes of passenger cars, it apr,ars that these are about Ps. 0.75 (USX 5). 1,.. Traffic statistics for the various roads included in the nroject siliW an apDproximate equal distrib,)ution betTwieen trucks and buses on the one hand, and passenger cars on the other. Therefore, for purposes of simpli- l'ication and with a view to coy,1puting certain savings in operating cost, an average per-kilometer operating cost of Ps. 1.50 (US˘ 12) has been used for the "average"' vehicle. APPENDBn B MEXICO Economic Justification for Individual 7Roads 1. Rio Verde - Valles (Construction L 0ir This road will provide a shorter and better route between important cities like Guadalajara, Torreon and San Luis Potosi on the one side, and the Atlantic port of Tampico on the other. Whereas Guadalajara is the second biggest city in Mexico, Tampico is a principal ocean port. The road will form a section of one of the main routes connecting the Pacific and Atlantic coasts, The actual saving in distance between Tampico and San Luis Potosi will be 97 km compared to the present roundabout route via Santo Domingo (see Nlap). Traffic statistics for the three main roads joining at Val'les show an average daily traffic density varying between 600 and 1300 vehicles per day. Although any forecast is necessarily uncertain, at least 200 vehicles per day may be expected to bene.fit from the shorter distance to San Luis Potosi after the Rio Verde - Valies road has been completed, At Ps. 1.5O per vehicle-km (see Appendix A and Table 7), the resulting annual savings would be about Ps. 10.6 million. i.e. equivalent to about a 15% return on the investment of Ps. 72.6 million. In addition to providing a better link between its two terminal points, the road will also improve transport conditions in the area traversed as the present roads in this area are inadequate and transport costs are corre- spondingly high. 2. Arriaza - aVzachula (2 ruIink Forming part of the proposed north-south highway along the Pacific coast, this road penetrates an area which is in an advanced stage of develop- ment, and has a populiation of about 325,000e About half of its construction has been completed to date. The volume of the agricultural production of the area to be served has increased rapidly, and is presently about 240,000 tons per year, con- sisting principally of coffee, corn, sugar cane, cotton and fruit. Cattle production is also important, and the present stock numbers around 300,000 head. Fish-ng and other industries are also developing. Until now this area has been served by a branch of the Southeastern railway. The roads and tracks in the area are barely passable for motor vehi- cles. At the present state of development an adequate road connection to the exterior is desirable to provide improved flexibility and a better basis for further development, particularly for the rapidly increasing production of perishables, like fruit, vegetables and fish. Since the cargo that can be economically carried over the proposed Arriaga-Tapachula road would be of a different type than that carried by the railway, it is not expected that the operations of the railway would be affected by the new road. A2-?ENDIX B - Page 2 Apart from providing substantial benefits for its irmediate service area, this road w,i.ll also help to shorten tlhe main route dis- tance betuTeen -Hexico and Central America, where it will tie up w,ith the Bank-financed Pacific Highway in Guatemala. Compared wilh the present roundabout route followed by the Pan Arierican High.way through Tuxtla, the new route wrill be about 51 km shorter. The resulting benefits are difficult to forecast. For a minimum return of 10% on the investment as a result of the shorter distance alone, a daily transit volume of about 350 vehicles would be required. Al1though no exact statistics are avail- able, other information seems to indicate that the probable volume of transit traffic would be at least of this magnitude. Considering also the benefits mentioned before which will result for the immediate service area, the construction of -this road is amply justified. 3. Acaplaco - Pinotepa Macional (Construction, 223 !cn) Also forming part of the proposed north-south highway along the Pacific coast, this project will replace very rough gravel and earth roads through areas which are in most cases highly developed and relatively dense- ly populated. At present the principal produce, corn, tobacco, coconut, rice, cotton and cattie is shipped at high cost to Acapulco, a very igportant tourist resort, and also to Puebla and ,Mexico City. In the southern section, the existing road is almost impassable even in the dry season, and air freLąt at excessive cost is therefore used. The southern section also has a sub- stantial production of cattle which is driven out on the hoof. The average loss on account of weight and deaths is 20-25". Apart from the impetus uo further development and production in the area, the road will help to reduce the very heavy operating cost for vehicles passin,g over the existing road. These are estimated to avrerage at least Ps. 2G25 per vehicle kim, as compared to Ps. 1.50 on average modern roads in IHIexico. Cn this basis, to have a minimum 10% return annually on the investment, an average traffic density of about 185 vehicles would be required. Traffic counts about 12 km south of Acapulco show an average dailY density of about 750 vehicles. Although traffic no doubt becomes lighter with increasing distances from Acapulco, where no counts are available, the average density for the entire length of the project is probably above 200 vehicles per day. 4. San Juan del Rio - Xilit7a (Const -uction, 173 !) Tfnis road will serve thiree distinctly different areas, i.e. in t,he western part it will penetrate the relatively densely populated plains of the central high plateau which are in produ,ction; in the central part it will pass through rough mountainous terrain with a few populated fer- tile valleys; and in the eastern part it will serve areas of the coastal plains w1hich have a sizeable agricultural production, principally of fruit, vegetables and coLfee, Apart frora the region near San Juan del Rio, the whaole sr'vice area of the proposed new road is presently al-most isolated from thie rest APPE3LDIX B - Page 3 of the country on account of lack of transportation, the only means of surface cormmunication being miule paths and tracks. The nrevailing transportation costs are therefore excessive, and average about Ps. 5 - 6 per ton-km as cormared Tith about Ps. 0.25 per ton-kmn by truck else-where in ilexico, i.e. showiing a ratio of more than 20 : 1. Assuming an average haul of 50 km, savings in transportation cost for an annual volume of 30,000 tons wt,ould be eouivalent to a 110? return on the investment in the new? road. Exact data are not available, but the volumes moving in and out of the area at present are substantial and could be of a greater order of magnitude. The proposed new road will also be beneficial for the supply of cer- tain food articles as fruit and vegetables for th-le densely populated areas centered on CQueretaro. At Dresent such supplies are obt3ined over roundabout routes from the coastal areas, in somne cases via Plexico City. 5. Saltillo - Guadalajara (Construction, 670 km) The principal justification for this project is that it will provide a direct and much shorter route be-tween the Guadalajara and lIonterrey regions, both very imnortant to the national economy, The city of ionterrey is the third largest one in lJexico, and the orinci-;al industrial center of the coun- try. Guadalajara is the second largest city in Ilexico, and imlportant both as an industrial center and as a distribution center for the rich and wealthy region of the 1iorth-West Pacific. Co-. ared with the present roundabout route via San Luis Potosi the actual reduction in distance will be 138 km. On the basis of traffic counts for the oresent route cormbined wTith certain other informaticn, it is estimataed that a minimum of 1430 Vehicles per day would benefit from the shorter distance. The resulting annual savings would be ecuivalent to about a 20f return on the propoosed investment. Other benefits will also be achieved. For example, the stretches of e-isting roads to be replaced by the proposed project are in many instances rough, although some of them sunnort substantial volumes of local traffic vary- ing between 100 - 450 vehicles per day. In these cases, cons-iderable savings in operatin7 cost will be achieved. Imnortant denosits of nhosphorus w^Till also become accessible in the section between Saltillo and Zacatecas. In general the road will help to boost further develooment in many of the areas it traverses rhere modern transport is either nonexistent or its use unduly expensive. 6. Pinotepa - Puerto Escondido (Construction, 150 km) This project forms a continuation of the Acapulco - Pinotepa road (project 3 above), and will eventually constitute a section of the north-south highway alon_ the Pacific coast. The climate in this area is tropical with a well defined rainy season, and only one annual crop can be grown. The area is only partly developed; the crops grown are principally corn, sesame and fruits, The only means of trans- port to the exterior is from Puerto Escondido by air or by cabotage at exces- sive cost. APPENDIA B - Page . Present production is largely limited to subsistence crops and totals about 165,000 tons, valued at Ps. 140 million. It is estir,mated that the area to be opened up by the new road will eventually be able to oroduce about 530,000 tons, yielding about Ps. 500 million in gross inco:le in addition to present production. Considering the cost of the nroject, about Ps. 45 million, and its -roximity to the highly developed AcaDulco area, the investment is justified. 7. Compostela - Puerto Vallarta (Construction, 140 km) The project, estimated to cost Ps. 62 million, parallels the coastline for some distance and crosses several mountain ranges and valleys. Rainfall in uhis area is low and there is very little agriculture without irrigation. When constructed, the road will serve six smaller existing irrigation nrojects with total area of 27,000 hectares. In addition there is potential for irrigation development of four projezts with a total area of 75,000 hectares. Th1e present cultivated area served `y the new road is 150,000 hectares, =nc1 about 250,000 hecatres of agricult'-ral land can be opened up if a system of feeder roads from the farm areas to the hi7hgay is developed. The -razing areas can be about doubled when the road is constructed. The rmain products of the area, corn and beef, are sold in nearby mar- kets. The value of present production is estimated to be about Ps. 190 million and the potential production wvould add about Ps. 270 million gross. Sizable deposits of iron ore and manganese are reported to exist in this area. Considering the cost of the project and the potential production on the area opened un by this road, the investment is justified, Eventually, this road will also form a section of the proposed north- south highway along the Pacific coast. 8. Amarnca - Izucar de Matamoros (New construction, 47 km) This nroject is necessary to eliminate the nresent deviation via T-uejotzingo for traffic moving on the main roac1 between Mexico City and Caxaca- Tehuantepec. The resulting net saving in distance Trill be 22.8 1km. On the basis of traffic counts along the existing route, it may be expected that a min- irmun of 600 vehicles per day will benefit from the shorter distance. At an average operating cost; of Ps. 1.50 per vehicle-imo, this is eouivalent to about a 40 return on the investment. In the near future the Government is planning to start construction of a toll road between ifexico City and Cuautla, which will add further savings in distance on this iroortant route to the south. 9. San Luis Potosi - Torreon - (Cuencame) (Construction, 365 km) The completion of this project will provide a shorter and more direct route for traffic moving between irmportant centers such as Mexico City and San Luis Potosi on the one side, and Torreon, Chihuahua and other points in the north on the other. APPENDIX B - Page 5 The present route for transit traffic between these cities goes via Saltillo, which is 118 cim longer than the i-ro-osed new route. Any forecast of the -otential future volume of transit traffic likely to benefit from the shorter distance is uncertain. Howe-ver, judged by traffic counts at pertinent points along the existing route, a minimum of about 400 vehicles per day seems a reason- able exDectation. The resulting savinrys in operating cost would be equivalent to about 20-25% return on the investment. Most of the areas penetrated by the new road are rather arid and tninl. populated. Rough local roads to be replaced have a relatively light traffic whiich 7wTill benefit from lower operating cost after coicpletion of the p?roject. 10. Ciudad Victoria Huisache (Construction, 188 km) This oroject will provide a direct line of cofm,munication between the fertile north-eastern coast and San Luis Potosi, Guadalajara and other impor- tant cities and regions in the central and western parts of the country. For traffic moving between San Luis Potosi and Ciudad Victoria tlhe distance will be reduced by 113 kT from the present roundabout route via Ciudad ,iiante. On the basis of traffic counts along the latter rout-e, it seems probable that a least 200 vehicles per day will benefit fronm the reduced transit distance after com- pletion of the project. Tn that case the rasulting savings in onerating cost would be eouivalent to about a 20d5 return on the investment. However, actual future transit traffic is likely to be higher. It is also honed that the oroject will helo promote further agricul- tural develonment in the areas south of Ciudad Victoria, which - although par- tially developed - offer further notentials of some imnoortance. 11. Villa Hermosa - Escarcega - Champoton (Construction, 371 km) The estimated cost of the project is Ps, 226.7 million, Only the western part of the affected area is nopulated and the products which are mar- keted are coffee, cacao, corn, bananas, sugar, timber and cattle; sone of them are shippecl byj air at very high cost. There are four sugar triills in the area producing about 13,000 tons of sugar for local consumption. Close to half of thle area is tropical forest and 1 saw mills are in operation. Timber is at present transr-orted by river. The region has large proved reserves of natural gas which is ber-nning to be processed at 1iacuzpana, Ciudad Pe2nex. Cattle pro- duction in 1957 was about 60,000 head; the total region under cultivation is about 53,000 hectares and there is a notential of an additional 100,000 hectares. The Government has an experiment colonization scheme under way, assisted by credit and technical agencies. The very great agricultural potential of this area requires for its realization large drainage works and flood control; some of these projects are being executed. Savings on transuortation wouild be substantial, but are difficult to estimate. Increased Production fro-n the present cultivated area is dependent on the execution of the road. Over a period of years imoroved transnortation should cause production to increase by about 1/3 and considering a production APPEIDIX B - Page 6 value per hectare of 500 pesos, the gross value increase would be about Ps. 8o5 million a year. Additional production from new land wihich could be brought into use, about 100,000 hectares,should realize by 1970 a potential annual gross valu' of 50 million pesos. Taking 6, annual interest on the cost of construction, plu maintenance per year Ps. 4.5 million, there is a return of about 20% per year or the investment for the project. 12. Monterrry - Nuevo Laredo (Reconstruction, 224 km) Tlis road represents a principal access route for the inflow of tour- ists from the U.SOA., and the project will bring it up to the sarne standards as those prevrailing for most of the distance between Tonterrey and liexico Cit- via San Luis Potosi. Since revenues from tourism account for mrore than 40% of the current foreign exchange earnings, the Government considers this project to war- rant a high Priority. Even though the existing road is in a reasonably good condition, mTidening and imDroved surfacing over the entire distance plus i-rnrove ment of curvature through a difficult mountain pass is considered desirable, on account of safety and comfort. The oresent volume of traffic averages about 1,050 vehicles per day. The prospective reduction in operating cost wtfi eOt < >. ,,Duro,< \ q / . j i. 94 7 . I PROPOSEn BANIK-FINANCED PROJEC'I' _Z, a~~~~~~~~~~~~~~~~~~~~~~~~~---- CONSTRUCTION OF NEW ROADS . I t) MgzginX)' > > > RECONSTRUCTION Or' EXISTNG NROADS CONSTRUCTION RECONSTRUCTION NIIN AILOAD 2, Arriaga_Tapachula 13. Monterrey_.Reynasa 9 tT , 4, , pE 2. AcapoIco-Pinotepa National ~(5ySE-A :0.Sa S.SaltilS-GonalaosralO CPocng O Oo oO \j 2. Sn Ligs PoIoaf-Ta1o S1. C _odad ViStao-Xiaeitle Crz 11. PiSllteraoasa-Esaredrgi-CSempptoad S~~~C OS aS 30 40 5 / TPEBR16tR-8R2 SEESE-RES 555 -RRD-RRStS