RESTRICTED Report N0.T.O 236a This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE AMAGASAKI-RITTO EXPRESSWAY PROJECT JAPAN March 7, 1960 Department. of Technical Operations FILE COPY CURRENCY EQUIVALENTS U.S.$1 - 360 Yen 1 Yen - 0.278 U.S. cents I million Yen- U.S.$Z,780 1 billion Yen - U.S. $2.78 million NIHON DORO KODAWS FISCAL YEAR - APRIL 1 - MARCH 31 JAPAN APPRAISAL OF THE AiJAGASAKI-RITTO EXPRESSICY PROJECT Table of Contents Page Summary i I MINTRODUCTION 1 II BACKGROUND 1 III ROAD TRANSPORT 2 IV ROAD CONSTRUCTION PROGRkM 3 V NIHON DORO KODAN 4 Present Scope of Activities 4 Organization and Management 4 Finance and Earnings 4 VI THE PROJECT 8 Description of Project g Location of Route 8 Length Profile 8 Design Standards g Cost Estimates 9 Award and Procurement Procedures Execution of the Project 12. Provision of Access Roads and Other Works 12 VII ECCNOMIC JUSTIFICATION OF THE PROJECT 14 Financial Return 16 Fiscal Return 46 VIII CONCLUSIONS 16 Table 1. Number of Registered Vehicles in Japan.as of March 31 2. Doro Kodan Income Statement 1956/57-1959/60 3. Balance Sheet of Doro Kodan as of September 30, 1959 !k. length of bridges, viaducts and tunnels in relation to total length of project expressway 56 Principal Design Standards (Vertical and Horizontal Alignments). 6. Detailed Construction Cost Estimate 7. Doro Kodan Traffic Forecast 8. Forecast Repayment of Project Costs from Revenue 9. Estimated Fiscal Return from Construction of AnAagXaki Rit tv SJeC t%,ori yap r Japan 1V'aticiaI Lig1w.r ":'Ste.r Ama g'asakj4U.tto Exprc.5swny SUiYIARY i. The Japanese Government has requested that a loan of US$hO million equivalent be made to the Nihon Doro Kodan, a public corporation in charge of the most important public toll roads in Japan, to meet part of the cost of a toll expressway between Amagasaki and Ritto connecting the Osaka metropolitan district with that of Kyoto. ii. Japan has recently begun to modernize its road network to meet the rapid growth of motor traffic. An important step is a planned express- way traversing the heavily industrialized and densely populated area betweern Kobe and Nagoya. The project proposed for Bank financing is the first sec- tion, the one between Amagasaki and Ritto, where traffic is heaviest. iii. The total cost of the project is estimated at US$131 million equivalent including administrative overhead and interest during construc- tion; the proposed loan of US$40 million equivalent would cover about 31% of the investment. iv. The design and planning of the Amagasaki-Ritto Expressway were done by Doro Kodant s orm staff with the aid of competent consultants. The Doro Kodan will be responsible for execution of the works and subsequent management of the Expressway. Construction was started in 1958 and should be completed early in 1963. v. All the construction will be done by contractors under the super- vision of Doro Kodan staff. International competitive bidding will be used, for the first time in the construction of Japanese roads, for some of the most important works. vi. Doro Kodan's financial position is weak. However, this need mot interfere with the good execution of the project or the good management of the Expressway, in view of the Governmentts policy of ensuring that the corporation has all the funds it needs for continued, efficient operation. vii. It will take time for the Amagasaki-Ritto Expressway to become self-supporting but it should pay for itself within 25 years, a shorter period than its probable service life. viii. The Amagasaki-Ritto Expressway should make an immediate substantial contribution to the development of one of the most important areas in Ja'an by providing a high-capacity, high-speed limited access road. Its construc- tion can be justified by potential savings in freight transport charges alone, apart from other large economic benefits. ix. The project is considered to be suitable for a Bank loan to the Nihon Doro Kodan of US$!0 million equivalent. An appropriate term would be 23 years including a 3 year period of grace. I. NETRODUCTION 1. The Government of Ja½an has requested a Bank loan of uS$hO million equivalen.t to help finance the construction of a 72 km limited- access toll expressway from 1nagasaki to Ritto, linking the Osaka metro- politan area with that of Kyoto. The cost of the project, including interest during construo:tionp is estimated at U°S$131 million equivalent. Amagasaki-Ritto will be the first section to be constructed of a future 190 km expressway traversing the Kc.,;z-Nagoya region. 2. Ihe Government wishes the loan to be made to the Nihon Doro Kodan (Japan Highway Public GTrporation), a Government agency established for the construction, cperat,.,n, and maintenance of to]l transportation facilities (roads, tunnels, 1xidges, and ferries). 3. Thin report is based on the findings of a Bank mission to Japan in October 1959, on discuss-.-;ns in Washington with representatives of the Government and the Doro Kodan in April 1959 and February 1960, and on the report of a Bank mission to Japan in February 1958. II. BACKGROUND 4. The 1958 mission appraised the entire Kobe-Nagoya Expressway. Its main findings were: a) The need for an expressway across the Kobe-Nagoya area was well established, but the project as it then stood was not suitable for a loan. b) A project suitable for Bank consideration could be developed by measures to reduce costs, such as more economic design and location and constructing the sections in order of econcmic priority; by re- taining consultants to improve design; by making suitable arrangements for the provision of access roads; and by coordinating the plans for construc- ting the expressway with plans for urbanizing and improving various communities en route, and for modifying irrigation and drainage facilities affec- ted by the expressway. 5. The 1958 mission also reported also that it would take time for a Kobe-Nagoya Expressway to pay its way from tolls and for the Lbro- Kodan to earn the financial charges on its existing and planned toll facilities. However, the Doro-Kodan was administratively and technically efficient; the Government had made arrangements to provide the necessary funds for financial charges and capital needs and the project itself.7 gave promise of adequate economic benefits. 6. The above views were transmitted by the Bank to the Goverrment. - 2 - 7. The Government thereupon caused a separate project to be pre- pared for the section of the Expressway with the heaviest potential traffic density, the one between Amagasaki and Ritto. Consultants were retained to advise on location and design, and soil conditions; an access-road pro- gram was prepared by the Ministry of Construction and the local authorities: and the Doro Kodan's planning was coordinated with that of all other authorities affected by the project. III. ROAD TRANSPORT 8. Until recently, little has been done in Japan to modernize the road network. Of some 150,000 km of roads now in use,only 35,000 km are improved, and a third of the improved mileage is less than 5.5 m wide. Gravel roads predominate, ev-en near metropolitan are2s; less than 10% of the total network is paved, including a few short limited-access roads. A map of the primary national highways of Japan is attached. 9. The main highways serving the industrial areas of Japan are narrow and winding. They run through the centers of the towns served and have attracted ribbon development along their routes. The results are growing traffic congestion, prolonged travel time and high accident rates. It is impossible to utilize the more efficient types of modern vehicles, such as large truck-trailer combinations. 10. In spite of poor and inadequate highways, road transport is growing rapidly. The number of trucks, buses and automobiles has multi- plied several times since 1950 (see lAble 1). Ihe volume of road traffic measured in ton-km and passenger-km has been increasing at average annual rates of 15-20% for trucks and buses and 40% for automobiles. Trucks ncow carry close to 10% of total internal freight traffic as against 6% in 1950, and buses carry 15% of the passenger traffic as against 7%. 11. For-hire truckink services are available in all industrial areas and many industrial and commercial firms have their own truck fleets. Tourist charter-bus services operate out of all important towns in Japan. The use of buses for local and inter-urban transit while still in the form- ative phase is expanding. 12. The privately owned trucking and bus industries are closely regulated by the public authorities. Regulation includes licensing of routes, safety measures and setting of tariffs. An important motor car manufacturing industry has grown up in Japan. It produces trucks, buses and automobiles, mainly for the home market. IV. RMAD CNUSTRUCTICN PPGCRAi,i 13. Construction of modern roads started in Japan as part of a program of highway development for tlae years 1952/57, and is continuing under a second and larger program for the years 1958/63. 14. These programs comprise the construction of primary and secondary national routes, the improvement of local roads, and the creation of a series of expressways and urban by-passes to be operated initially as toll roads. The ivinistry of Construction is responsible for the nation- al highways, and works in cooperation with local authorities on mainten- ance, The prefectural and municipal roads are administered by the local authorities who receive financial assistance from the Government. 15. All toll roads, with a few exceptions including a planned Tokyo lietropolitan Expressway, are the responsi;bility of the Doro Kodan which was created in 1956, when it acquired most of the then existing public toll roads. It has since built several new toll roads, and is charged with the construction of most of the expressways to be built under the 1958/63 highway development programn 16. The Government plans to spend X 1,000 billion (equivalent of US$2.8 billion) on the 1958/63 program. The amounts allocated to the main components,and the proposed financing, are shown below: Bo rrowing by Public Local Corporations Estimated Government Authorities and Local Expenditure Contribution Contribution Authorities (X billion) General road projects 610 463 109 38 Local projects without aid 190 - 190 - Toll road projects a) Nihon Doro Kodan 141 23 - 118 b) Tokyo I4ietropolitan Ex- pressway Public Corporation 59 3 11 45 Total 1,000 489 310 201 17. The Government contribution is derived mainly from gasoline taxes paid into a Road Fund. The amounts allocated from this Fund to particular projects are decided annually by the Government, - 4 - V. NIHON DCLO KODAN Present_Scope of Activities 18, The Doro Kodan operates and maintains at present the following toll facilities! 22 limited-access roads with a total length of about 300 km; 5 tunnels, including a large sub-marine tunnel for road traffic; 11 bridges; 3 ferries. 19. The roads are short and are not built to modern expressway standards. They are scattered throughout Japan; a number of them are tourist, scenic or resort routes0 Organization and IManagement 20. The Governmentts decision to create the Doro Kodan as a special agency for toll roads was taken in the belief that the design, construc- tion, finance, and management of toll expressways raised complex problems, which could best be resolved by a semi-autonomous body on the model of U.S. turnpike authorities. 21. The Doro Kodan is by statute a public corporation, but is in substance the executive agent of the iviinistry of Construction for plan- ning, building and managing toll facilities. Doro Kodants policies, programs and capital and operating budgets are subject to approval by the Ninister of Construction. 22. The Doro Kodan is headed by a President, who is appointed by the Minister of Construction. The President, with the approval of the Iinister of Construction, appoints a Vice President and directors to assist in supervising operations; each director is responsible for a particular function, such as engineering, administration and finance. 23. The management of Doro Kodan is good and the staff is com- petent. 24. Headquarters are in Tokyo and there are several regional branch offices, all organized on the departmental plan. A special organization has been set up within Doro Kodan for the construction of the Kobe- Nagoya Expressway, including the kmagasaki-Ritto section. Finances and Earnings 25. The basic principles which underlie the Doro Kodants financial status as a public corporation are:- a) Doro Kodan was created to provide and manage toll-charging road transport facilities considered essential to the growth of the econoimy regardless of the short run earning power of part icl r.T'aci hti.es - 5 - b) Each facility (except ferries) must become toll free if and when its cost has been repaid from its own revenues. (The Kobe-Nagoya Expressway, of which the project is a part, may be an exception). c) Each facility is considered to have repaid its cost when the cumulative revenues equal the sum of the cum- ulative operating expenses, the original cost, and 6% annual interest on the original cost. d) As a matter of Government policy, Doro Kodan is re- quired to finance construction primarily by borrow- ing, but in so doing is limited to an amount of debt such that the aggregate annual interest does not ex- ceed 6% of the cost of the new facilities. To the extent that the interest rate of borrowed funds ex- ceeds 6%, the formuJa limits the borrowings to less than 100% of the cost of the new facilities; the Government provides grants-in-aid to supply the bal- ance of the required capital. e) The terms of the debt incurred for construction are not in general related to the service life of the facilities financed by the debt, and the revenues of specific facilities in excess of their actual operating costs and 6% interest on the original cost are not applied to amortize particular debt issues. 26. A particular facility may be able to accumulate earnings in excess of 6% on original cost faster than the rate at which the debt incurred for its construction has to be repaid. In this event, part of that debt 'would be outstanding when the facility became toll free. However, it would have producedby then an amount of excess revenue equal to the unredeemed balance; all of this excess revenue would have been applied to reduce or slow the growth of debt chargeable to other facilities, to diminish the amount of grants-in-aid required from the Government, or to replenish working capital. 27. The income statements from the establishment of the Doro Kodan to September 30, 1959 (Table 2) show a cumulative loss after interest of X 1 billion (US$2.8 million). Much of this loss arises from the operation of light traffic facilities such as a tunnel for road vehicles between Kyushu and Honshi. Islands and some tourist routes, which the Doro Kodan had to take over from other entities by decision of the Government. Furthermore, the new toll facilities built since 1956 are still in theearly phases of realizing their traffic potential. Although the Doro Kodan is not earning its full interest charges, the ratio of available income to charges has grad- ually improved to about 60% at present. 28. This inability to earn interest charges shou.ld continue for some time mainly because the Kabe4Nagoya. 2xpressvs- cost,.ng severt-l -6- times the book value of all present fixed assets, is not expected to earn its interest charges until 5-10 years after completion and be- cause the Honshu-Kyushu tunnel and several of the tourist routes may be inherently uneconomic. However, earnings should improve as some of the new roads, such as an essential by-pass around Yokohama, and some works now under construction, such as an underground parking facility in central Tokyo, begin to develop their full earning power. 29. The Seoptember 30, 1959 balance sheet (Table 3) shows an excess of current liabilities over current assets of Y 740 million (US$2 million equivalent),, Funded debt is 80% of the net value of the toll facilities including construction in progress. A third of this debt, the Road Bonds, will mature serially over the next seven years, 30. The Doro Kodants inability to operate at a profit and its poor current position do not impede its work. The funds needed for construction and debt service above those available from revenue are provided directly or indirectly by the Government as grants-in-aid, as loans from Government souurces, and as borrowing from outside sources guaranteed by the Government0 31. New construction since the inception of Doro Kodanin L956 has been financed mainly by loans from private and Government sources, now outstanding to the amount of Y 27.8 billion and to a lesser degree, by Government grants-in-aid to the cumulative amount of I 3.5 billion. The bulk of the outstanding debt consists of (i) 7-year Road Bonds pay- ing 7 to 72% sold to ccmmercial banks and other private investors, and (ii) 20 to 25 year locns at 61.% from the Trust Funds of the postal savings system anid the social insurance reserves. The Road Bonds are guaranteed by the Government as to interest and principal and are a first charge on all assets and revenues of the Doro Kodan. 32. Any Bn-k loan would rank equally with the Road Bonds by the terms of legislation enacted in early 1959e 33. The Doro Kodan borrows, as a rule, for general corporate pur- poses, not for a particular facility. The proposed Bank loan is an exception, Neither the Road Bonds nor the Trust Fund Loans are secur- ed by the pledge of revenue from any particular toll facility, nor is such a pledge contemplated for the proposed Bank loan. 34. The Doro Kodan plans to spend about ;114 billion (US$317 million equivalent) for construction in the four years ending iJlarchl1, 1963. Of this, 384 billion (US$233 million) has been or would be -,pent on the Amagasaki.Ritto section and other sections of the Kobe-Nagoya Expressway and 930 billion (US$84 million equivalent) has been allocated to other projects. The proposed timing of expenditure for construction is as follows:_ -7- X billion 1959/6o 1960/61 1961/62 1962/63 Total Kobe-Nagoya Expressway Amagasaki-Ritto section 6.3 12.9 140. 4.6 37.8 Other sections a) 1.9 3.0 18.3 23.1 46.3 Sub total 8.2 15Q9 32.3 27.7 84.1 Other toll projects a) 7.1 8.8 7.4 6.3 29.6 Total 15>3 24.7 39.7 3h.0 113.7 a) Extent of works to be executed depends on availability of capital funds; execution of works could be deferred or slowed if necess- ary. 35. The Doro Kodan estimates that it would need a total of Y155.7 billion (US$6432.5 million) for new construction, debt service and curr- ent operations in the four years to JAarch 31, 1963. It plans to fin- ance this total as shown below: billion US$ equivalent _ _ million Road Bonds 5°.° 138.9 Trust Fund Thans 37.1 103.1 IBRD Loan for Amagasaki-Ritto 1h.4 40.0 Planned further borrowing for other sections of Kobe-Nagoya Fxpressway 21.6 60o0 Grants-in-aid 21.0 58.3 Other sources, including net toll revenue ll.,6 32.2 155l 7 432.5 36. The above construction program and its planned financing have the approval of the Government,, The Doro Kodan will give priority to the Amagasaki-Pitto Expressway before any other project and the Bank is there- fore satisfied that sufficient funds should be available for completing thne project. It will be observed that the Doro Kodan plans to borrow US$60 million equi.valent for constructing the sections of the Kobe4Tagoya Express- way extending beyond Amagasaki and Ritto. If the full amount of U5060 million cannot be raised in the next few years, the construction of the later sections of the Kobe-Nagoya Expressway would be deferred or slowed. -8- VI. THE P2OJECT Description of Project 37. The project, part of the Kobe-Na-oya Expressway, is a 71.5 km section from Amagasaki, near Osaka, to Ritto, near Kyoto. It will be a four-lane, divided, limited access highway by-passing all towns en route. There will be six interchanges at convenient intervals, from which the built-up areas will be reached by access roads. A map of the route and service area of the Amagasaki-Ritto Expressway is attached. Location of Route 38. The alignment generally parallels the railroad line and the e-ist- ing national highway between Osaka and Kyoto. Though the railroad and the highway traverse flat areas for the whole distance, about 64 krm of the Ex- pressway will be through adjacent foothills. This location was chosen because of the e.xpense of acquiring right-of-way in the densely populated, intensely cultivated rice growing flat lands, the difficulties of displac- ing and resettling the farmers who would have been affected by a routing through the flat lands, and the costliness of the frequent overpasses, long viaducts and related facilities which would have been needed in the vicinity of large towns. 39. The interchanges are located 5 to 10 km from the centers of the towns served. Service areas for food, fuel, etc., and bus stops for trans- fer to local bus lines will be installed at several points. 40. Distances over the Expres3way and its access roads are generally shorter than distances between the same towns ovcr existing roads; thus the distance between Amagasaki ancl Ritto via the Expresswa/ will be 78 km, compared with 95 km over the existing roads. Iength Profile 41. Nearly 20 km of the Expressway will be structures such as bridges. viaducts and tunnels (see Table 4). This is an unusually high proportion for a total length of 72 km, but it could not be avoided for reasons explai;- ed below. 42. Steel bridges and concrete viaducts, the longest 2,120 meters, must be built to cross sevoral large rivers and their adjacent flood plains. High earth emba.nukments with openings would have been cheaper than viaducts in some cases, but the local population objected to emoankments which they feared would increase the damage from floods if breaks in the river levees were to occur. Viaducts will also be built over urban districts and areas zoned for future urbanization. Earth embankments with underpasses would be cheaper in cases where urbanization is planned, but the local authorities were opposed to the acquisition of right-of-way except 2or eie,7atee. struc- tures allowing unobstructed passage betwreen adjacent lands, and for reaSori; of niublic poLi^'y the Government w-,all alct e1rc:ise its right of eminent doman, D. - 9 - 43. Several large tunnels ranging froim 350 to 1,300 meters must be built in the foothill country. A substan-tial number of ovesrpasses will be needed to cross intersecting roads and railroad lines. Design Standards 44. The design speeds range from 120 km per hour in flat rural coun- try, to 80 km per hour in the mountains and urban areas. Grades, curves, and other design standards vary to conform with the speeds. (See Table 5) 45. The standard cross section is two asphalt-concrete pavements, each 7.2 m wide, divided by a median strip 3.0 m wide, and flanked by paved shoulders 2.5 m wide. Pavement widths will be maintained, but the median and shoulder strips will be narrowed at bridges, viaducts and tun- nels. The minimum clearance height of 4.5 m in tunnels and 4.7 ma elsewhere, is greater than the legal maximum height of 3.6 m for motor vehicles includ- ing load. 46. The standards are siailar to those of expressways in other coun- t±ies. The shoulder width is only sufficient to harbor disabled vehicles without impeding traffic, but this disadvantage had to be accepted because of the difjiiculties of acquiring land for a broader right-of-way. Cost Estimates 47. The estimated cost of the project is X 47.2 billion (US%. 131 million). This amount includes X 7.5 billion (US' 21 million) for admini- strative overhead and interest during construction. Construction cost is estimated at 4 39.7 billion (US$ 110 million). This estimate is given in ietail in Table 6 and can be summarized as follows: Item 4 Billion Payments to construction contractors 23.1 Materials to be supplied by Doro Kodan 4- Construction proper 27.2 Right-of-way including compensation for loss of income 6.5 Compensatory works outside right-of-way to protect drainage systems, etc. o.8 Design and supervision including con- sultantst services 1.7 Maintenance and operation facilities to be built during construction 1.2 Special paving equipment to be provided by Doro Kodan 0.3 Contingencies (5%) 2Q.J. Total 39.7 - 10 - 48. About X 1.9 billion ha. been spent on the Amagasaki-Ritto sec- tion when the decision was reached in the npring of 1959 to make it a separate project. Expenditure of the remaining construction cost is ex- pected to take place as shown below: Fiscal Year X Billion 1959/60 6.3 1960/61 12.9 1961/62 14.0 1962/63 4.6 Total 37.8 49. The cost estimates are based on detailed design and quantity data. The 5% contingency is low by Bank standards, but acceptable in this case because the cost estimates already contain a safety margin due to legal price restrictions on contract awards (see Paragraph 53) and be- cause there are possibilities to reduce costs, as explained below. In the circumstances, the cost estimates are considered to be reasonable. 50. The estimated construction costs areequivalent to US* 1.1 million per km, a high figure, even in U.S. experience. This is partly due to the large proportion of bridges, viaducts and tunnels. The main causeY however, is the high cost of aarthmoving. Unit prices for earthmoving in Japanese road construction are higher than in other industrialized countries, though unit prices for concrete and pavement works are equal to or lower than thoso abroad. The only ready explanation of the high price for earthmoving is that road construction contracts are usually awarded for short sections, necessitating the extensive employment of hand labor and precluding the extensive use of big earthmoving equipment. 51. The cost estimates reflect Doro Kodan's previous policy of award- ing construction contracts for short sections of road. Agreement has now been reached to increase the length of the contract sections. This should encourage the use of mechanized methods and thereoy reduce costs. In addi- tion, Doro Kodan has agreed to make the bidding for contracts more comnpeti- tive than is now the case. This is described later. 52. The requested loan of US$ 40 million (the equivalent of X 14.4 billion) would cover 31% of the estimatbed total costs of the project (Us% 131 million equivalent) and 37% of the estimated construction costs alone (USe 110 million equivalent). It is not a measure of the foreign echange cost. Estimated direct imports are only Y 1.4 billion, the equivalent of US$ 3.9 million, most of which represents depreciation and spare-part charges for the foreign construction equipment used by Japanese contractors. The bulk of the expenditure, X 38.3 billion, the equivalent of US$ 106 million, less an indeterminate amount if construction contracts were awarded to foreign firms, would pay for local goods and services. Award and Procurement Procedures 53. Doro Kodan uses Government procedures for awarding public works contracts. A few pre-qualified contractors, ordiaarily 3 to 5, are invited to tender. The lowest bidder is awarded the contract if his price does not exceed the engineers' cost estimates. If no acceptable bid is submitted, the original firms and a few additional contractors are invited to re-bid. 54. All Japanese highway construction has been done by Japanese firms. There is no legal exclusion of foreign firms, but in practice they are not invited to bid. Furthermore, existing foreign exchange regulations make it unattractive for foreign contractors to do business in Japan. 55. Japanese contractors are competent but they lack experience in modern expressway construction, particularly in large-scale earthmoving and asphalt paving works. Only 12 of them, at most, would qualify for the larger road construction contracts, ranging from 2 1 to X 2 billion, which the Doro Kodan intends to award. Only 27 at most would be qualified to bid on the other wrorks, including major structures (bridges, tannels, etc.j. 56. The Bank considers that foreign contractors with e:perience in ex- pressway construction should be invited to bid for the earthrnoving and pave- ment contracts on the same terms as Japanese firms. Their participation in the works would introduce more efficient methods of construction and reduce ultimate costs. 57. The Japanese firms are proficient and well equipped for construc- ting large bridges, viaducts and tunnels. There would probably be no cost advantage in having foreign firms compete for such works. However, costs might be reduced if iaore Japanese firms than is now the practice, were ir- vited to tender for each contract. 58. Agreement with the Doro Kodan has been reached as follows: a) Several pre-qualified foreign contractors will be in- vited to bid on two major road construction contracts involving prinarily large quantities of earthmoving; b) The contracts for these sections will be awarded before those for similar large ,rorks onl other sections of the same nature; c) Qualified foreign contractors will also be invited to bid on contracts for the construction of base course and pavement, unless the Doro Kodan can satisfy the Bank that Japanese contractors are competent to do such rork and are a'--le to do it at lower cost than foreign firms; d) A larger number o-f Japanese contractors than usual will be invited to bid on contracts for major structures and other large works. - 12 - 59. International competitive bidding will therefore be used for the first time in Japanese highway construction. A wider use than the Doro Kodan has agreed might ultimately be desirable on economic and technical grounds but cannot be effected at once because of understandable considera- tions of public policy. 60. The Government is willing to authorize foreign contractors who obtain construction awards under 58 (a) and (c) to transfer reasonable sums for profit and overhead, depreciation of equipment and foreign personnel. Assurances on this matter have been given to the Bank. Execution of the Project. 61. Surveys, plans, designs, and bidding documents for the expreseway are virtually complete. They have been prepared by the Doro Kodants staff with the aid, since mid-1958, of German and U.S. consultants engaged at the Bank's suggestion. 62. Over 60% of the right-of-way has been acquired and the remainder should be acquired by mid-1960. However, formal acquisition has not yet started in some communities because of local difficulties which are now being resolved. 63. All construction will be done ly contractors supervised by the Doro Kodan staff with the advice of consultants. The Doro Kodan has agreed to retain its present consultants for the duration of the works. 64. Certain works are already complete or in progress under a few small contracts awarded in 1953/59 to a total value of X 2.9 billion. The sub-structures of the major river bridges have been completed and the steel superstructures will have been erected by iay 1960. A short by-pass, which is part of the expressway, is now being built around Kyoto as a pilot prc- ject to train the Doro Kodan supervisory personnel and to test paving design. 65. By mid-1960, the major works should have started on all parts of the project. Tenders for tunneling and earthwork contracts will be invited early this year. The project is scheduled to be completed by early 1963. Provision of Access Roads and Other Works 66. Adequate access roads are essential to the project but are not in- cluded therein. The Ministry of Construction is responsible for their cen- struction, and has developed, with the local authorities concerned, an access road program which should be sufficient for the expected flow of traffic to and from the Expressway in its first few years of operation. This program is part of the 1953/63 highway development plan. It calls for widening, surfac- ing, and partly relocating 25 roads and streets to a combined length of 55 km. Host are national highways, while a few are prefectural or municipal roads. - 13 - 67. The total cost is estimated at X 6.5 billion (US< 13.1 million equivalent). The Government has undertaken to make available about X 4.5 billion from gasoline tax revenue assigned to road improvement, and the local authorities are ready to contribute about d 2.0 billion from their own revenues. 68. Some works have started. Detailed construction schedules are being prepared to coordinate with the Expressway constructior, schedule. All the access roads should be ready before the Expressway is completed. 69. The local authorities concerned agree with the construction schedule and its planned finazcing as it affects their individual com- munities. Their cooperation is essential to the timely esecution of the program because the C)overnment cannot make these authorities pay their share of the costs as the need arises. 70. River improvement works costing X 490 million, are being accel- erated to allow the use of simpler crossing structures on the E*pressway, and land improvement works costing X 325 million are being accelerated to facilitate the acquisition of right-of-way. These projects are part of long-term river improvement and agricultural developmrent programs financ- ed jointly by the Government and local entities. The Doro Kodan is not contributing to their cost. - 21 - VII. ECONOMIC JUSTIFICATION OF THE PROJECT 71. The Kobe-Nagoya area contains 20% of the population of Japan, generates 25% of the national income and produces about 35% of the value both of manufactures and exports. 72. The part of this area traversed by the Amagasaki-Ritto Express- way is densely populated and heavily industrialized. It has a population of 8.7 million and contains 57,000 factories, employing 971,000 workers. The annual industrial output of X 1,500 billion, includes the whole range of Japanese manufactures from iron and steel to electronic equipment. There is also considerable agricultural production. 73e Half the population is concentrated in a narrow zone, essen- tially the Osaka-Kobe metropolitan district, facing Osaka Bay. This dis- trict accounts for 62% of the industrial output of the whole Amagasaki- Ritto region. It immediately adjoins the ports at Kobe and Osaka, and is connected by rail and road with another port at Nagoya. Another con- centration of industry and population exists in and around Kyoto. 74. The roads between Kobe and Nagoya, including those in the service area of the Amagasaki-Ritto Expressway, are low standard, narrow and wind- ing and are heavily congested by a variety of vehicles of different sizes and speeds. Housing has developed for considerable stretches immediately along the roadway, and there are few bypasses to avoid the built-up areas. As a consequence, motor vehicles cannot average more than 30-40 km an hour for runs of any length. 75. The rail facilities are well developed. However, they are being used to capacity and have such a large volume of passenger traffic that their ability to carry freight is seriously impaired. Discussions with industrialists indicate that so much time is required to procure freight cars and assemble them into trains that trucks carry 50 to 75% of all short-haul high-value goods produced in all parts of the Kobe-Nagoya area. 76. The Watkins Survey Mission, a group of US experts, advised the Government several years ago (1956) that the Kobe-Nagoya area would even- tually need a limited access, high-speed, heavy volume expressway. They based this advice on a detailed study of the economic benefits, such as reduction of transport costs, growth of new industrial districts, better town planning, increased farm-to-market trade, and interest savings on inventories. The Bank concurred in these conclusions; there remains only the question of whether the Amagasaki-Ritto section by itself can return sufficient benefits for its cost. 77. A study of the economic benefits, made by competent Japanese experts, concludes that as a result of the construction of the Amagasaki- Ritto Expressway, industry would spread out from the coastal strip where it is increasingly difficult to build new plants because of shortage of water and the demand on the drainage system; that population wo-ald also - 15 - spread out, thereby relieving congestion and pressure in the built up districts; and that the industry, agriculture and trade of the region would function more efficiently. 78. The Doro Kodan's traffic forecast is based on its own studies of the origin and destination of existing road and rail traffic in the Amagasaki-Ritto area and on studies by the Economic Planning Board of the future growth of production, trade and transportation. Both studies take into account not only the increased road transport capacity resulting from the planned construction by the Doro Kodan of the Amagasaki-Ritto Ex- pressway but also the increased rail transport capacity resulting from the planned construction by the Japanese National Railway of a new, high speed main line from Tokyo to Kobe-Osaka via Nagoya and Kyoto which the Bank has been asked to consider financing. 79. The above studies conclude that there should be no material diver- sion from road to rail haulage or vice versa in the Amagasaki-Ritto area once the Expressway and the new line are in service. Based on this concla- sion, which the Bank considers to be reasonable, Amagasaki-Ritto Expressway traffic would start at the equivalent of about 5,700 vehicles a day running the entire length of the route; practically all this initial traffic would be vehicles diverted from the existing roads. Expressway traffic ,Tould grow thereafter at an average rate of about 8% annually, corresponding to the ex- pected economic growth of the area, to an estimated 26,000 vehicles daily by 1979 (see Table 7). 80. These estimates are conservative considering that average travel time between Amagasaki and Ritto would be reduced from 3.2 to 1.2 hours, including time on access roads, and that vehicle operating costs for this trip would be reduced by 35%. The potential savings in freight transport charges in the first year of operation have been estimated by the Japanese experts at X 8.7 billion after tolls. The estimate is based on a survey of trucking costs made among representative factories in the area. It assumes tariff reductions proportional to lower costs per vehicle-km, shorter di3- tances and faster vehicles turn-around and also gives effect to loading, discharge and packaging economies. All trucks on the Expressway are assiome-' to run loaded. A 75% load factor vould be more realistic and tolls payable to the Doro Kodan should be added back to the economic benefits. This girves potential freight transport economies of Y 7.3 billion, or 14]l return in 'Lte first year of operation,on the estimated cost of the project and acces3 roads. 81. This by itself would be sufficient to justify the investment. mThere would be additional large savings, which have not been estimated, for the operation of buses and passenger cars. As traffic grows, the return would increase proportionately. 82. Apart from direct transport cost economies, land values would rise from more productive use of land, traffic accidents would be reduced, and congestion in cities would be relieved. These additional and other benefits cannot be accurately assessed. - 16 - Financial Return 83. Part of the benefits from the iuaagasaki-Ritto Expressway will go to the Doro Kodan in the form of tolls. The proposed tolls conform with those on other Doro-Kodan roads; they range from X 7 per km for a small size passenger car (about US 0 3 a mile) to T 20 for big trucks and buses (about US 0 9). The 5-10 ton trucks which predominate on Japanese roads would pay X 10-15. A 7-ton track should save an amount equivalent to 2 to 3 times the toll charge on each trip over the Expressway, compared with the vehicles operating costs for the same trip using the alternative public roads. 34. hlthough from an economic point of view there may be room for higher toll rates, the proposed rates are high compared with those levied on expressways in other countries. The question of higher rates has there- fore not been raised by the Bank. Also, as shown in paragraph 85 below, the Expressway should be able to repay its cost out of the proposed tolls over a shorter period than its economic service life. Furthermore, the Doro Kodan feels it is bound by public policy to have a uniform tariff- scale on its toll roads and is uncertain of the reaction of road users to higher tolls than prevail elsewhere in Japan. 85. Doro Kodan estimates that annual toll revenue of the Expressway would start at Y 2.2 billion and increase to X 6.1 billion in about 15 years. However, net operating revenue would be insufficient to meet in- terest charges for about 6-7 years. Thereafter it should exceed interest charges by growing annual amounts and there should be enough net revenue to repay the construction cost plus 6% interest in 25 years, a period which +,he Bank considers to be shorter than the economic service life of the Ex- pressway (see Table 8). Fiscal Return 96. There would be a fiscal return from the Amagasaki-Ritto Express- way to the Government and local authorities as well as to the Doro lKodan. Real estat.e tax yield would grow because of the development, induced by the Expressway, of new industrial and residential areas. Increasing motor traffic attributable to the Expressway would bring in more excise revenue from increasing consumption of motor fuel. Larger payrolls and profits resulting from induced additional production and trade would increase income tax yields. Doro Kodan estimates, which the Bank considers to be reasonable, show that the total fiscal return would amortize the entire cost of the Expressway with 6% interest in 10 years (see Table 9). VIII. CONCLUSIONS 37. The project is economically justified on its merits, independent of the remainder of t.he Kobe-Nagoya Expressway and &holild be able to pal' its cost from toll revenue in 25 ysars, a shortuer period than its economic service life. 17 - 88. The project is well designed and engineered. The Doro Kodan, an efficient agency, will carry out the project. The Doro Kodan will continue to be assisted by foreign consultants during construction. 89. Acceptable construction and contract award procedures will be used, including international competitive bidding for important parts of the project. Assurances have been given by the Government regarding re- mittances by foreign contractors. 90. A satisfactory program of access roads has been prepared and its execution is being ciordinated with construction of the project. The Governmentts share of the necessary funds will be made available promptly as needed, and adequate arrangements have been made with the local author- ities who are responsible for part of the costs. 91. The successful completion of the project and its good maintenance and repair depend on adequate grants-in-aid from the Government to the Doro Kodan. Assurances have been obtained from the Government that all funds needed for executing the project and for its future operation and main- tenance will be made available promptly as needed. 92. The project provides a suitable basis for a Bank loan of USO40 million equivalent to the Doro Kodan, with the guarantee of the Govern- ment of Japan. An appropriate term would be 23 years, including a three year period of grace. Table 1 JAPAN AMAGASAKI-RITTO EXESSWAY Number of Registered Vehicles in Japan a~ of MarCh L1 - 000Xs - Year Trucks Automobiles Buses Total 1951 276 - 20 - 1953 418 72 26 516 1954 529 102 29 660 1955 612 120 33 765 1956 693 135 35 863 1957 809 163 39 1,011 1958 925 201 44 1,170 1959 1,094 249 48 1,391 Table 2 JAPAM .t L4GA3.u.I - RIT70 EXPRESSWAY Doro Kodan Income Statement 1956/57-1959/60 E million Six months to 1956/1957 1957/1958 1958/1959 September 1959 Toll revenue 261.2 471.2 885.1 627.6 Other revenue 2.4 6.1 8.6 7.8 Operating revenue 263.6 477.3 893.7 635.4 Working costs 172.2 263.6 460.0 233.0 91.4 213.7 433.7 102.1 Provision for making properties toll free_/ 25.9 52.2 67 97 Depreciation of buildings and equipment 1.6 5.9 20 10 Provision for pension reserve - 27 8 Total 27.5 58.1 114.0 115.0 Net operating income 63.9 155.6 319.7 287.4 Non-operating incomey/ 110.9 57.5 48.4 36.0 Gross Income 174.8 213.1 368.1 323.4 Interest charges2/ 287.3 382.1 896.1 536.o Loss after interest 112.5 169.0 528.0 212.6 Amortization of road bond discount and other accrued charges 0.3 11.9 3.5 6.4 Net loss 112.8 180.9 531.5 219.0 a/ Equals earnings in excess of working costs, administrative overhead, and 6% interest on original cost of toll facili- ties which have such excess earnings. y/ Largely interest on short-term Government securities held in lieu of cash resulting FrDm undisbursed loan proceeds. c/ Excluding capitalized interest during construction. Table 3 JAPAN AdiAGASAKI-RITTo EXPRSSWAY Balance Sheet of Doro Kodan as of September 30, 1959 N Million Current Assets 1,034 Current Liabilities 1,774 Fixed Assets Funded Debt Toll Facilities 20,777 Road Bonds 9,320 Toll Facilities Trust Fund under con- Loans 17,784 struction 13,975 Other Loans 723 Other Fixed Assets 2.052 Total 27,827 Total 36,804 Reserve for making pronerties toll free 254 a-/ Deferred Assets 249 Reserve for depreci- Deficit 1.044 ation of buildings and eguipmrent - 122 Reserve for Pensions 177 Government Investment (grants-in-aid) 3,539 2/ Capital Reserve 5,438 S Total 39,131 Total 39.131 a/ Cumulative earnings in excess of cumulative working costs, administrative overhead, and 6% interest on original cost of any toll facilities which have such excess earnings. 1/ Non-interest paying and non-amortizable. c/ Largely a counterpart item for toll facilities taken over from Ministry of Construction and local authorities. Table 4 JAPAN AYAGASAKI - RITTO EXPRESSWAY Length of bridges, viaducts and tunnels in relation to total length of project ex- _ressway Type of Structure Number Total Length in Meters Percent Bridges (over 100 rieters) 10 1,644 (5 - 100) 95 Sub-total bridges 3,838 6 Flood relief viaducts 16 2,989 4 Urbanization viaduct3 More than 100 meters 12 6,240 Less than 100 metl;lrs 2 137 6,377 9 Tunnels 6 3,000 4 Larth embankmTent 55.29 77 Total 71.498 100 Table_ JAPAN AEAGASAKI-RITTO EXPRESSI.AY Principal Desifn Standards (Vertical and Horizontal Alignments) Type of Terrain Flat-Rural Hilly Mountainous or ______________ Country Country Urban Areas Design speed 120 km/hr 100 km/hr 80 km/hr Minimum radiusz of curvature 580 m. 400 m. 260 m. M;inimum sight distance 210 m. 160 m. 110 m. Maximum grade 2% 3% 5% Length accelera- tion lane 280 m. 240 m. 200 m. Length decelera- tion lane 180 m. 150 m. 120 m. Table 6 JAPAN AMAGASAKI-RITTO EXPRESSt4AY Detailed Construction Cost Extimate Y million 1. Construction Earthworiks 6,965 Pavements l.,612 Median strip 217 Ttunnels 3,602 Bridges 3,90o4 Viaducts 3,021 Flood relief openings 1,396 Interchanges 1,314 Traffic signs and markings 509 Construction access roads, etc. 851 Miscellaneous 3,738 Subtotal 27,169 2. Right of LW 6,542 3. Compensation Works 758 4. Design and Supervision Surveys and testing 577 Transportation,radio, etc. 245 Field offices 512 Central cdministration 277 Consultants 79 Subtotal 1,690 5. Facilities and equipment for Maintenance and apetions Maintenance buildings, etc. 1439 Toll booths, etc. 423 Maintenance equipment 187 Toll collection equipment 116 Subtotal 12165 Total 37,324 6. Construction Equipment Pro- vided by Doro Kodan 356 7. Contingency 2,0n?c Grand Total 39,7(0 Table 7. JAPAN, AIAAGASAKI-RI TTO EXPRES SWAY Doro Kodan Traffic Forecast Equivalent Daily Number of Vehicles Running Entire Length of Route Calendar Passenger Year Cars Trucks Buses Total 196'3 1,047 4,497 122 5,666 1961 1,756 6,81.o 607 9,203 1965 2,009 7,558 664 10,231 1966 2,298 8,351 724 11,373 1967 2,520 9,031 776 12,327 1968 2,766 9,761 828 13,355 1969 3,035 10,548 88L 14,467 197o 3,328 11,!402 943 15,673 1971 3,652 12,331 1,006 16,989 1979 and thereafter 5,77!1 18,564 1,383 25,721 Table 8 JAPAN AT,JAGASAKI-RITTO EXPRESSWAY Forecast Repayment of Proiect Costs From Revenue Yen Billion Construction costs 39.7 Administrative overhead 1.8 Interest during construction 5.7 Project costs 47.2 ( Y Billion) Toll Operating Interest Earnings or Losses Y e a r s Revenue Cost_XL Chara-s Period Cumulative 1963-1968 13.5 2.2 14.7 -3.4 -3.4 1968-1973 20.0 2.4 15.0 2.6 -0.8 1973-1978 27.2 2.5 13.3 11.4 10.6 1978-1983 30.4 2.5 8.8 19.1 29.7 1983-1987 24.3 2.6 2.6 19.1 48.8 (a) Except provision for making facility toll-free. Table 9 JAPAiW AMAGASAKI-RITTO EXPRESSWAY Estimated Fiscel Return from Construction of M asaki-Ritto Section - Y billion - Income Expense Unamortized Increased revenue to project Doro Kodan,Government 6% interest Available cost and local authorities on unaamor- to amor- start of Toll Tax a/ tized proj- Operating tize pro- Y6Iar year Revenue revenue Total ect cost Expenses b Total ject co.st 1963 47.2 2.2 3,2 5.4 2c8 0.5 3.3 2.1 196L4 45.1 2.4 3.5 5.9 2.7 005 3,2 2.7 1965 42.24 2.7 3.9 6.6 2.5 0.5 3.0 3.6 :iS66 38.8 2.9 4.3 7.2 2.3 0.5 2.8 4.4 196? 34.4 3.2 4.7 7.9 200 0.5 2.5 5.4 1s.68 29.0 3.4 5.2 8.6 1.7 0,5 2.2 6.4 2.969 22.6 3.7 5.5 9.2 1.4 0.5 1.9 7.3 1970 15.3 24.o 5.7 9.7 0.9 o.6 1.5 8.2 1971 7.1 24.3 5.9 10.2 0.5 o.5 1.0 9.2 a/ (i) includes increased yield to Government from personal and corporation income taxes and from gasoline taxes; and(ii) to local authorities from real estate, property, personal income, corporation income, and automobile taxes. J lDoro Kodan operating expenses for Amagasaki-Ritto section, plus allowance for increased tax callection expense. MAP I 130° 1340 1380 142° 146 440 - 44' JAPAN NATIONAL HIGHWAY SYSTEM EXISTING PRIMARY NATIONAL HIGHWAYS aie PROPOSED EXPRESSWAY (See inset map) 40° 400 36. 361 32' 0 50 10 150 2010 Kilometers 32° AOL I I IRC 301j ~ ~ ~~~~~~~II1421~ DECEMBER 1959 134, 138, IRD-646 Mop U JAPAN AMAGASAKI-RITTO EXPRESSWAY Tasorazual sa 5 o s lo K- I~~~~ U1 -.__ '\' ui - INTERCHANGE -,,. . ------ Principal access roads i 0 '^ O llflvr ... ;.: 1e . Existing nMain roads 0 _ _ _ _ _~~~~~~~~~~~~~~Main railroad 5 S!* r-cj LMU5 Doantown areas I *- r 'i ----- Rivers DECEMBER 1959 IBRD-645