Document of E The World Bank FOR OFFICIAL USE ONLY Report No. P-2421-KO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF KOREA FOR A FOURTH HIGHWAY PROJECT November 29, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit - Won US$0.0021 = W 1 US$1.00 = W 485 US$2.06 = W 1,000 US$2,062 = W I million US$2.06 million = W I billion WEIGHTS AND MEASURES Metric System Metric British/US Equivalents 1 meter (m) - 3.2808 feet (ft) 1 kilometer (km) = 0.6214 miles (mi) 1 square kilometer (sq km) = 0.3861 square miles (sq mi) 1 kilogram (kg) = 2.205 pounds (lbs) I liter (1) = 0.2759 US gallons (gal) = 0.2207 British gallons (imp gal) 1.1023 US short tons (sh ton) I metric ton (m ton) = 0.9841 British long tons (lg ton) ABBREVIATIONS ADB - Asian Development Bank BPR - Bureau of Public Roads (MOC) BRD - Bureau of Regional Development (MOHA) EPB - Economic Planning Board ERR - Economic Rate of Return FFYP - Fourth Five-Year Plan GNP - Gross National Product KHC - Korea Highway Corporation KNR - Korean National Railroad MOC - Ministry of Construction MOF - Ministry of Finance MOT - Ministry of Transportation NHMO - National Highway Maintenance Office (MOC) PCB - Provincial Construction Bureau TCMO - Territorial Construction and Management Office (MOC) TCC - Transport Coordination Committee TCO - Transport Coordination Office (MOT) MOHA - Ministry of Home Affairs FISCAL YEAR January 1-December 31 FOR OFFICIAL USE ONLY KOREA FOURTH HIGHWAY PROJECT Loan and Project Summary Borrower: Republic of Korea Amount: $143 million equivalent Terms: The loan would be for a term of 17 years, including 4 years of grace, with interest at 7.35% p.a. Project Description: The proposed project would consist of: (a) construction and improvement, including paving and supervision by consultants, of 36 sections of national roads totalling about 950 km; (b) construction and improvement, including paving and supervision by consultants, of 10 sections of provincial roads totalling about 280 km; (c) procurement of additional road maintenance equipment for maintaining national roads; (d) a study by consultants of the institutions involved in the planning, design, maintenance, construction, administration and financing of provincial and county (gunl) roads, and the preparation of a program for improving the organization and functions of such institutions, upgrading provincial and gun road main- tenance and the future development of the gun road system, to be followed by detailed engineering of about 2,000 km of gun roads. (e) provision of fellowships for training staff of the MOC. As the project encompasses a wide variety of major roads in many, disparate regions in Korea, it will raise the overall efficiency of Korea's transport system and thereby contribute to general economic growth. Measurable benefits of the project are mainly in vehicle operating cost savings due to the improved conditions of the paved roads. The construction of project roads will create about 300,000 man-months of employment. There are no special risks associated with the project. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Estimated Cost: foreign US$ (million) exchange Project element Local Foreign Total component A. Construction and improvement of national roads 114.98 83.26 198.24 42 B. Construction and improvement of provincial roads 34.21 24.78 58.99 42 Subtotal A+B 149.19 108.04 257.23 42 C. Road maintenance equipment 1.20 3.80 5.00 75 D. Consultants' services: (i) supervision of A and B 1.82 0.90 2.72 33 (ii) Studies and engineering of provincial and gun roads 4.55 0.45 5.00 9 E. Fellowships for training staff of MOC 0.03 0.10 0.13 77 F. Contingency allowances: (i) Physical /a 15.68 11.33 27.01 (ii) Price /b 25.45 18.38 43.83 Subtotal F 41.13 29.71 70.84 Total A-F 197.92 143.00 340.92 42 G. Right of Way 37.30 - 37.30 Total cost of project 235.22 143.00 378.22 38 /a 10% on all items. /b Price escalation assumed to be at annual rates of 7 1/2% in 1979 and 7% during each year thereafter for both local and foreign costs. - ili - F iancin Plan: Foreign Local --- ($ million) -- Proposed Bank Loan 143 Korean Government - 235 Estimated Disbursements: ---------- $ million ---------------- Bank FY 1979 1980 1981 1982 1983 Annual 0.2 27.8 52.0 52.0 11.0 Cumulative 0.2 28.0 80.0 132.0 143.0 Rate of Return: The weighted average economic rate of return for all project roads, which account for 96% of the total project costs, is 26%. Staff Appraisal Report: No. 2186-K0, dated November 16, 1978 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF KOREA FOR A FOURTH HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Korea for the equivalent of $143 million to help finance a proposed fourth highway project. The loan will have a term of 17 years, including 4 years of grace, with interest at 7.35% p.a. PART I - THE ECONOMY 2. The latest Economic Report ("Growth and Prospects of the Korean Economy") was distributed under cover of SecM77-158, dated March 4, 1977./l The Country Data Sheets are attached as Annex I. Recent Economic Developments 3. Korea's economic position at the commencement of the Fourth Plan period (1977-81) was stronger than ever before. Despite the balance of pay- ments difficulties of 1974 and 1975 and a much less favorable international economic environment than expected, most of the economic objectives set in the Third Plan (1972-76) were achieved. The economy has shown continued strength since the commencement of the Fourth Plan period. The exports and balance of payments targets for 1977 were realized. The rate of growth of GNP in real terms was 10.3% (as compared with the annual average of 9.2% postulated in the Plan), and per capita income in current dollars rose from $700 in 1976 to $864 in 1977. Export value increased by about 29% (albeit at a considerably lower rate than the 56% registered in 1976), and exceeded the target of $10,000 million. Continued success was achieved in diversifying the markets for, and composition of, Korean exports. Although there was a trade deficit of $477 million, resultiLng from a 25% increase in imports, net receipts from services ($266 million) and net transfers of about $223 million offset this deficit and resulted in a current account surplus of $12 million, as compared with a def:Lcit of $314 million in 1976. The rapid improvement in the balance of payments was the result of a substantial improvement in the terms of trade, due in part to quality improvements, and the sharp increase in the earnings from construction contracts abroad. Furthermore, net trans- fers averaged nearly $300 million over the past two years. The net gain from all these factors, together with the increase in tourism receipts, was nearly equivalent to the total of the current account deficits in 1974 and 1975. /I The latest Bank Economic Mission visited Korea in October 1978 and its report is presently under preparation. - 2 - 4. Although price increases averaged about 10% in 1977, due, in part, to the continued stability of import prices and, in part, to the success of anti-inflation policies, including price controls, inflationary pressures began to accelerate again during the second half of 1977 and have persisted in 1978. The Government has tended to view this as being mainly the result of. the high rate of growth of the money supply caused almost entirely by the large inflows of foreign exchange earnings, especially from construction contracts abroad. In response to this view of the inflation problem, the Government has attempted to reduce the net inflow of foreign exchange by inducing more cash imports and reducing credit imports, and by neutralizing the possible monetary impact of some of the foreign exchange earnings through various monetary measures. Furthermore, the Government announced a wide ranging import liberalization scheme which took effect on May 1, 1978. In addition, interest rate adjustments have been made, the most recent being the raising of deposit and loan rates in June 1978 in an attempt to reduce the prevailing excess demand and dampen inflationary pressures. 5. The balance of payments position in 1978 is expected to remain sound with nominal increases of 24% and 32% in the values of exports and imports, respectively. The resulting trade deficit of about $1,400 million is expected to be partially offset by a projected surplus in the invisibles account of about $950 million (including net transfers), leaving a current account deficit of some $445 million. Net inflows of medium- and long-term capital would be about $1,600 million and, in spite of the substantial repay- ment of some of Korea's short-term debt, Korea's gross holdings of foreign exchange would be augmented by an estimated $775 million in 1978. This re- vised estimate takes account of the impact of the additional import liberali- zation measures which is already reflected in the rate of increase of imports since the first quarter of 1978. The outlook in 1979 is also expected to re- main strong with a continued high growth of exports and a gross level of capital inflow of about $3,000 million, including an allowance for an in- crease in reserves to about $6,000 million, or about four months of imports, a level considered prudent in view of Korea's trade dependency. Longer-Term Problems and Prospects 6. The preparation of the Fourth Plan (1977-81) afforded an opportu- nity for a comprehensive review of Korea's economic problems, prospects and priorities. Korea's longer term goals as specified in the Plan are "growth with enhanced self-sufficiency" and "greater equity and social development." The firm intention of the Government as stated in the Plan is to achieve a maximum rate of growth consistent with a sound balance of payments and also with the maintenance of internal price stability. National savings are ex- pected to finance as much as 92% of total investment as compared with about 72% in the Third Plan period (1972-76). 7. Growth and stability are not the only objectives. Enhanced equity and greater social development are also of importance in the Korean plans. The main emphasis is on achieving a wider distribution of the benefits of growth. Health outlays will increase as a proportion of total investment with special stress on preventive care and an innovative health delivery - 3 - system to service low-income families, particularly in the rural areas. Rural incomes are expected to increase as a result of greater agricultural productivity and diversification and of increased opportunities for non-farm employment primarily through the Saemaeul (New Community) Movement and small industries development, and also because of increasing construction activities in the rural areas. The quality of life in these areas is to be further enhanced by the provision of additional infrastructure facilities. 8. The achievement of these goals would not require a change in the basic development strategy of export-led growth, which Korea has followed so successfully since the mid-sixties. The Fourth Plan postulates an annual rate of incease of exports of 16% in real terms, and a real growth rate of 14% per year will be required during the rest of the Plan period if the target is to be met. The ratio of commodity exports to GNP is expected to rise from the level of about 30% in 1976 to about 42% in 1981, with the manufacturing sector providing about 92% of total commodities compared with 90% in 1976. This demands the achievement of continuous gains in efficiency and productivity, further success in diversifying both exports and markets and the maintenance of a favorable domestic policy environment. More than half of Korea's manufactured goods still consists of textiles, garments, electronics and footwear, but clearly Korea's comparative advantage is starting to shift from unskilled labor-intensive items to more capital- and skill-intensive products. Although not a critical factor at present, Korea will in future face increasingly severe competition from the less industri- ally advanced countries which are more amply endowed with natural resources and where unskilled labor is cheaper. Furthermore, Korea is beginning to experience constraints on the expansion of several traditional manufactured exports due to its already dominant position in some cases (e.g., plywood) and due, in other cases, to the trade restrictions imposed by some developed countries (e.g., textiles and footwear). 9. A changing pattern of exports reflecting and responding to shifting comparative advantage is, therefore, essential for sustained export expansion. Korean planners are conscious of the need to effect structural changes in ex- ports and industrial output and are focusing on electronics and machinery to achieve this. The achievement of the targets set for the export of electronics, machinery and other capital goods generally requires a concerted effort on a number of fronts. As the World Development Report points out, the essential problems in expanding these exports are technological and organizational. Action is required to bring about the assimilation or learning of new technology, its adaptation to local needs and conditions, technology innovation, the rationalization of production processes, quality improvement and market devielopment, including the provision of export credits on a significant scale if market penetration in the less developed countries is to succeed. 10. In the Korean context, the continued high rate of growth of the economy is essential, since significant progress toward the basic equity -;4 _ goals of improved income distribution and reduced poverty could be more easily affordable when the growth of incomes is high. The predominant role the export sector is expected to play is appropriate in view of Korea's limited natural resources. Moreover, Korea has the manpower and the entrepre- neurial capacity to implement the Plan's investment programs. The Fourth Plan's priorities, strategy and programs, therefore, remain appropriate. The Plan strikes a reasonable balance between the various objectives of increas- ing employment, maintaining a minimum growth of per capita incomes, strength- ening the balance of payments and making progress towards diversifying the industrial structure so as to sustain export growth in the 1980s. 11. Notwithstanding the efforts being made to increase the mobilization of domestic resources, Korea will continue to need sizeable gross capital in- flows. It is estimated that foreign capital commitments of about $3,000 mil- lion would be required annually over the next several years. While Korea is extending its use of commercial financing from the traditional suppliers and private barik credits to Euro-dollar syndicated loans and bond issues in the Furo-bond and Asia bond markets, the magnitude of its external capital requirements is such that it will have to continue to rely on considerable capital inflows from official sources, including Eximbanks. Servicing of the debt should not pose serious difficulties given the present debt service ratio and the prospects for continued export growth, provided that the proportion of external debt incurred on shorter term and at high interest rates is not excessive. On the assumption that Korea can obtain the required inflow of capital on reasonable terms, the debt service ratio which now stands at just over 10% is expected to remain at 10-11% until the end of the decade and decline slowly thereafter. PART II - BANK GROUP OPERATIONS 12. As of September 30, 1978, Korea had received 39 Bank Loans (including one Third Window Loan) and 8 IDA Credits, totalling $2,004.5 million in loans and $106.8 million in credits (taking into account cancellations and the refinancing of one IDA Credit in a subsequent Bank Loan). As of that date $889.7 million of the total Bank lending remained undisbursed on effective Loans and Credits, mostly from commitments in the past two years. Annex II contains a summary statement of Bank Loans, IDA Credits, and IFC Investments as of that date and notes on the execution of ongoing projects. As indicated in the notes, progress on project implementation is generally satisfactory. 13. In recent years, the thrust of the Bank Group's lending operations in Korea has been directed towards assisting the Government's efforts: (a) to secure the external resources required to supplement domestic savings in sustaining a high GNP growth rate by following a policy of rapid export- oriented industrialization; (b) to avoid the emergence of infrastructure bottlenecks; and (c) to complement industrial development with agricultural and rural development schemes aimed at bringing about a better dispersal of the fruits of growth through raising incomes and improving the quality of life in the rural areas. - 5 - 14. A substantial part of Bank financing has been directed towards the vital industrial sector through our lending to Korea's three major development banks. The Korea Developnment Finance Corporation has received $220.0 mil- lion, the Korea Developmernt Bank $252.5 million and the Medium Industry Bank $85 million in Bank loans for relending to private industry. This has re- sulted not only in the overall development of the industrial sector, but has also contributed to the achievement of institutional improvements and of the Government's objective of decentralizing industry. The loan of $80 million for a Heavy Machinery Project was intended to assist in achieving the structural shift to more skill-intensive industries, which is necessary to ensure the long-term viability of Korea's export strategy. 15. As Korea's economy continued to grow and the pace of industrializa- tion has quickened, there has had to be a parallel expansion of transport fa- cilities. The Bank Group,, through its assocation with the Government's effort to modernize and expand the transport sector dating back to 1962, has played an important role in these developments. Some $340 milion has been provided for six railway projects designed to increase the railroad's capacity and im- prove its operations; three loans totalling $191.5 million have been made for highway construction and paving of high priority sections of the national network and for a countrywide maintenance organization; and two loans amount- ing to $147 million have been provided for the expansion of port facilities at Busan, the premier port, and Mugho, primarily for improving coal handling facilities. 16. Korea's paucity of natural resources and dependence on the manufac- turing segment of its economy has resulted in the adoption of a strategy based on maximizing the advantages of a skilled and hard working labor force. The Bank Group has been involved in helping to meet the requirements for appropriately trained workers and certain categories of skilled manpower through its lending for four education projects which have pursued the broad objectives of technical manpower development either through the expansion of relevant subsectors or through specific quality improvements. Together they have catered to a broad range of manpower training needs within agriculture, fisheries, industry and services. 17. Korea's record of achievement in modernizing its agricultural sector, although less spectacular than the gains made in the industrial sphere, are nevertheless commendable. The past fifteen years have seen agricultural output grow at about 4% per annum, which has resulted in the country becoming near self-sufficient in its staple food, rice, and made possible a steady and perceptible improvement in the living standards of the 40% of Korea's population who live in the countryside and rely primarily on agrarian pursuits for their livelihood. The Bank has lent $325.5 million for the improvement of irrigation facilities, land and seed development and the provision of agricultural credit to farmers and processors of agricultural products. In addition, $155 million has been provided for two rural infrastructure projects in support of the Government's rural development program initiated in 1971 to improve the quality of life and the standard of living in the rural areas. - 6 - 18. The Bank's first essay into the field of regional development in Korea through the project approved in January 1975 (Loan 1070-KO) has proved successful. The project was designed to support the Government's policy by financing high priority investments in the poor, primarily agricultural, southwest region. 19. Excluding one project that was cancelled subsequently, IFC had by September 30, 1978, entered into 20 commitments totalling $71.3 million (net of participation and cancellation). Korea's industrial development programs have required large capital expenditures in the private sector, a situation which has enabled a substantially enhanced IFC presence in the past few years. 20. A primary objective of the Bank's future lending to Korea is to assist it in sustaining its growth momentum. The basic issue in this connec- tion is whether Korea can deepen and diversify its industrial structure to the extent necessary to ensure that it attains its export targets. In addi- tion to the proposed loan to KDFC, further loans are planned for the other development banks. Lending to industry will be diversified by the provision of a loan for a second machinery project which will provide financial and technical assistance to small- and medium-scale machinery industries. It will also be necessary to introduce RD&E programs which are better adapted to the technological needs of industrial development. Projects for technologi- cal development of the electronics and machinery industries are envisaged in the program. 21. Korea's industrialization program, which calls for entering into more complex fields of manufacturing than hitherto, will require increasingly high levels of technical competence on the part of its labor force. A loan to modernize and expand the system of higher technical education so as to increase its flexibility and responsiveness to the changing requirements of the economy is, therefore, proposed. 22. Another strand in the lending strategy is increased support of the Government's efforts to spread the fruits of growth even more equitably by the diversification and expansion of the output of the agricultural sector and through nationwide development programs. Projects are envisaged for land/ water resource development, for agricultural credit, marketing and processing and for the further development of rural infrastructure. 23. The further development of the industrial and agricultural sectors and the anticipated growth of exports will require concurrent infrastructural development. Although the transport sector will be given less emphasis than in the past, the investments required are large, and thus there is considerable support for this sector in the proposed program. 24. The share of the Bank Group in Korea's total external debt dis- bursed and outstanding at the end of 1977 was about 11%, and the share of debt service was of the order of 6.0% at that time. These ratios are expected to increase to around 13% and 7%, respectively, by the end of the present decade. - 7 - PART III - THE TRANSPORT SECTOR 25. The fundamental changes in Korea's economy in the past decade were accompanied by significanit changes in the transport sector. The railway system, which had been rehabilitated following the Korean War and remained for many years the only means of large-scale movement of goods and passengers, has lost its preponderant position, although it still remains an important mode of transport particularly for bulk commodities. A diversified road transport network has been developed and about 5,500 km (nearly 60%) of the national highway system is now paved. The number of private cars in relation to population is lower than in such countries as Indonesia and the Philippines although incomes are higher. The share of coastal goods transport in total traffic has also increased markedly, primarily due to the movement of oil products. The country's export drive and reliance on foreign trade has led to a sixfold increase in the volume of port traffic and an eightfold increase in Korea's international fleet in the last decade. 26. As indicated in para. 15, the Bank Group, through its association with the Government's efforts to modernize and expand the transport sector dating back to 1962, has played an important role in these developments. 27. As Korea's economy continues to grow and the pace of industrializa- tion intensifies, there will have to be a corresponding expansion of transport facilities. The internal transport system will have to cope with the movement of large volumes of widely used bulk commodities such as coal, cement, oil, iron and steel, and fertilizer. The industrial complexes which are burgeoning on the south and southeastern coast and are planned in the southwest will require the import of large amounts of raw materials and the transport of intermediate products between plants. Some of these plants are likely also to export large volumes of their output. In addition, a more diffuse pattern of growth in non-bulk freight traffic and passenger traffic is expected to result from the general growth of the economy. 28. The preparation of the Fourth Plan (1977-81) afforded an opportunity to formulate and review :investment proposals related to the transport sector on a more systematic basis than hitherto. Traffic trends were analyzed in detail and the proposed investments are based on the assumption that Korea's economy will continue to grow at about 9% per annum and that the deepening of the industrial structure will intensify. The investments proposed amount to about W2,800 billion and represent just over 14% of the total investment called for in the Plan. The modal allocation, compared with that undertaken during the Third Plan, is as follows: -8- 1972-76 1977-81 $ $ (million) % (million) % Railways 655 17 829 14 Road transport 1,717 45 2,527 44 Ports and shipping 1,075 28 29052 36 Aviation 251 7 122 2 Urban systems 117 3 208 4 Other 10 - - - 3L825 100 5 738 100 The Fourth Plan allocation of total investment to the transport sector is about the same percentage as in the Third Plan period, but represents an increase of 50% in real terms. About half of the investment will be under- taken by the public sector (mainly for highways, railways and ports) and the other half by the private sector, for vehicles and ships. In broad terms, the investment program appears to respond satisfactorily to the growing demand for transport facilities and the intermodal allocation of investment reflects the changing composition of demand. Specific investment projects will continue to be subject to detailed economic and technical studies to ensure that their objectives are met in the most economical manner. Transport Policy Planning and Coordination 29. The Government set up in 1970 a Transport Planning Office on the recommendations of a study by consultants under a Bank Technical Assistance Project and with assistance provided under subsequent road and railway projects. Over the past three years, the Government has taken steps to further improve transport coordination by establishing, in 1975, a Transport Coordination Committee (TCC) consisting of nine directors, representing ministries most directly concerned with transport matters, and a Transport Coordination Office (TCO) in the Ministry of Transportation. TCO's main functions are to collect data and assist in the formulation and review of transport policies, especially those related to pricing and regulations. 30. While the charter of the TCC includes intermodal coordination of transport sector investments, the TCC has not in fact exercised this function. The Economic Planning Board (EPB), which exercises budgetary control and plays a senior role with regard to all other ministries, has the dominant role in decisions on investment projects. EPB intends to make much more intensive reviews of investment projects and has established a separate Bureau of Project Evaluation to this end. Sector studies covering major aspects of transport coordination are being partly financed under the Sixth Railway Loan (1542-KO). They will be carried out under the supervision of EPB. -9- The Transport Modes 31. The past and planned development of the various transport modes has been influenced by: the nature of Korea's terrain (about two thirds of the country is hilly); the concentration of economic activity and population around the Seoul-Incheon and Busan areas; the location of the country's major coal deposits, limestone and cement plants in the northeast; a long coastline along which industrial activity is increasing; and the economic dependence on the export of manufactured goods and import of bulk raw materials. The major features of the transport system (illustrated in the attached Map) are summarized below. 32. Railways. The semi-autonomous Korean National Railroad (KNR) operates 3,097 route-km of standard gauge and 47 km of narrow gauge lines; 567 km are double track. The single track industrial lines between the northeast mining and industrial areas and Seoul are electrified, as well as suburban lines around Seoul. 33. As indicated above, the share of rail transport fell considerably over the last decade; the railways now carry only about 42% of the total freight ton-km versus 78% in 1966, and 28% of intercity passenger-km versus 42% in 1966. Nevertheless, cost comparison indicates that rail transport is still the most economic means of moving bulk traffic over medium and long distances, and also has an important role to play in serving long distance passenger traffic. In 1976, about 81% of rail freight traffic consisted of six bulk commodities, coal, cement, ore, oil, fertilizer, and grain, as against 69% in 1966. In addition to its long distance hauling of bulk freight and passengers, KNR is expecteci to play a growing role in providing rapid transit service for Seoul and its suburbs. 34. Ports and Shipp:Lg. Freight traffic through the ports has increased from about 13 million tons in 1966 to over 80 million tons in 1976. This tremendous increase resulted in serious port capacity problems, particularly at Busan, the largest port, which handles 20% of the country's external trade. The Bank has assisted the development of the port of Busan through two projects and the Asian Development Bank (ADB) is financing the expansion of Incheon, the port nearest to Seoul. The Saudi Fund for Development participated in the financing of the First Port Project (Loan 917-KO). The Government has also developed a number of specialized ports serving specific industrial sites, e.g. Bugpyeong handles cement and Pohang handles inbound and outbound material for the steel mill located there. 35. The role of coastal shipping has greatly increased in the last decade from 10% of the ton-km moved in Korea in 1966 to 27% in 1976. This is mainly due to the construction of industrial complexes at coastal locations, and, to a lesser extent, to shortages in rail and road capacity. Korea's share in the merchant shipping of its external trade has been increasing and reached about 38% of total tonnage in 1976. 36. Aviation. Although domestic air passenger traffic has grown rapidly, it still amounts to less than 1% of total passenger-km; airfreight - 10 - is also negligible. Domestic routes are served by the privately owned Korean Airlines (KAL), which also operates internationally. Most international traffic is handled at the Seoul-Kimpo International Airport; other inter- national airports are at Busan and at Jeju Island, a major tourist center. 37. Highways. The public road network totals about 80,000 km consisting of 9,400 km of national highways, 10,900 km of provincial roads, 12,500 km of gun or county roads and some 47,000 km of village access roads. About 36,000 km of village roads had been constructed and improved under the self-help Saemaul Movement at the end of 1977. The national highways include about 640 km of grade separated toll expressways, of which about 500 km are four-lane and 140 km are two-lane. Up to 1967, little had been done to improve the roads, only 15% of the national roads were paved. Even now only 58% of the national highway system is paved, and 8% of the provincial roads (compared with about 95% and 20% respectively in Thailand). The rapidly growing demand for road transport requires the extensive improvement of the highway network. 38. During both the Second and Third Plan periods, road freight traffic grew twice as fast as all freight traffic, averaging 38% p.a. in 1967-71 and 10.5% p.a. in 1972-76. Intercity passenger traffic on highways also grew rapidly, at 16.6% p.a. in 1972-76. Despite the rapid road traffic growth, the motor vehicle fleet in Korea is still small when compared with other countries of similar and even lower income levels. The 275,000 four wheel road vehicles presently registered in Korea amount to only 7.9 per 1,000 persons. The ratios are 14.3 in Thailand, 15.4 in the Philippines, and 48.2 in Malaysia. Only Malaysia has a higher per capita income than Korea. There are many reasons why Korea's vehicle fleet is small: the high taxation of private cars, the restrictive licensing of commercial vehicles, the high cost of locally manufactured vehicles, and the fact that the road network was developed only recently. With rapidly increasing incomes, however, there is a growing demand for motor vehicles which could lead to a considerably larger ratio of vehicles to population than at present. 39. Recognizing the need to improve the highway system, the Government plans to spend a total of W 458 billion at 1975 prices ($940 million) during the FFYP (1977-81). This represents a 30% increase in real terms over the previous Plan. Proposed road expenditures in the FFYP still reflect the Government's priority of completing the improvements of the basic national road system. However, the share of national roads expenditures in the total is gradually being reduced. Under the FFYP, 3,700 km of national roads will be improved and paved, bringing the proportion of national roads paved to about 90% of the total. Improvement and paving of provincial or secondary roads will gather momentum with a program of about 450 km. These roads come under the jurisdiction of the Ministry of Home Affairs (MOHA) and not under the Ministry of Construction (MOC) as in the case of the national roads. A study financed by the proposed loan will review the need to improve and strengthen the institutions dealing with lower class roads and, together with a study of provincial roads under the Third Highway Project, determine programs for the maintenance and improvement of such roads. The Government will retain consultants for carrying out the studies of the institutions - 11 - concerned with provincial and gun roads, and of the maintenance and develop- ment of such road systems; and will review with the Bank the findings of the studies to be followed at appropriate stages with the selection of roads for detailed engineering (Section 3.05 of the draft Loan Agreement). 40. The importance of maintenance was recognized early in the Bank Group's lending operations for highways in Korea. In 1972, the HOC field organization for maintain,ing national roads was set up in a pilot province with technical assistance and equipment financed under the First Highway Project. The organization was gradually extended to the entire country with financing under the Second Highway Project, and in accordance with an agreed time schedule modified under the Third Highway Project. However, since the organization became fully operational in 1977, budgetary provisions have been only half the target: figures agreed during negotiations of the Third Highway Project. During negotiations agreement was reached with the Govern- ment on adequate provision for maintenance through annual budgetary approp- riations (Section 4.05 of- the draft Loan Agreement). Maintenance of lower class roads under the MOHIA will be studied under the proposed project (Section 3.05 and Part B of Schedule 2 to the draft Loan Agreement). 41. The three previous Bank financed highway projects have had a major impact in assisting the Government with the construction and improvement of its national road system, with institution building in MOC, and with formulat- ing revised policies affecting the whole transport sector. Assistance with institution building was provided for setting up the Bureau of Public Works (BPR), the MOC's field oganization for maintaining the national highways, and for improving the MOC's planning capability. Technical assistance was also extended to help set up the Transport Coordination Office in HIOT. Significant policy changes which were evolved through the highway projects include the adoption of more appropriate road standards, relaxation of restrictive licensing of the road transport industry, revision of regulations governing vehicle weights and dimensions, and a modified Government policy on toll roads requiring financial and economic studies prior to levying tolls on any road. A major advance is the introduction of a satisfactory organization for maintaining national roads, which should be fully effective when it receives adequate budgetary provision. Indirectly, the three highway projects have helped promote the Korean contracting industry through a steady and gradually increasing stream of contracts, and Korean consulting firms through their association with foreign consultants on the design of the projects. PART IV - THE PROJECT 42. The objectives of the proposed project are to assist in improving the highway system to cope with the growing traffic by extending the network of paved highways by some 1,230 ki, and by preparing a program for improving the maintenance and development of the provincial and county (gun) road systems. The project was appraised in April 1978. A Staff Appraisal Report based on the findings of the mission (No. 2186-KO dated November 16, 1978) is - 12 - being circulated separately. Supplementary project data are provided in Annex III. Negotiations were held in Washington from October 30 to November 3, 1978 with a Government team led by Mr. Hung-Ki Kim, Director- General, Bureau of Foreign Capital Management, Economic Planning Board. 43. The project consists of: (a) construction and improvement, including paving and supervision by consultants, of 36 sections of national roads totalling about 950 km; (b) construction and improvement, including paving and supervision by consultants, of 10 sections of provincial roads totalling about 280 km; (c) procurement of additional road maintenance equipment for maintaining the national roads; (d) a study by consultants of the institutions involved in the planning, design, maintenance, construction, administration and financing of provincial and county (gun) roads, and the preparation of a program for improving the organization and functions of such institutions, upgrading provincial and gun road maintenance and the future development of the gun road system, to be followed by detailed engineering of about 2,000 km of gun roads; and (e) provision of fellowships for training staff of the MOC. Cost and Financing 44. The estimated total cost of the project, including contingencies, is about $378 million. The foreign exchange component, which will be fi- nanced by the proposed loan, is $143 million. Detailed cost estimates are given in the Loan and Project Summary. The foreign exchange component of the cost of highway construction and improvement has been estimated at 42% (ex- cluding right of way), on the assumption that all contracts would be won by local contractors, as was the case under the previous three projects. The Korean Government would be responsible for financing the local cost component and confirmed its ability to do so from its budgetary resources. Execution 45. The MOC will be responsible for carrying out the project, through its BPR, as for the three previous highway projects, except for the studies of provincial and gun roads for which the MOHA will be responsible. The MOC will be assisted in supervising the construction and improvement work by the same consultants who carried out the engineering. The MOHA will be assisted by consultants in carrying out the studies of the institutions concerned with provincial and gun roads, and of their maintenance, and the detailed engineer- ing of gun roads for preparation of future projects. The estimated cost per man-month of consultants' services (excluding travel and local subsistence allowance), for supervision of construction and the study of provincial and gun roads is $7,500 for the small number of senior foreign consultants staff to be employed, and $3,100 for Korean consultants; the corresponding costs, including travel and allowances, are $9,700 and $3,600. - 13 - Procurement and Disbursement 46. Contracts for road construction and improvement will be awarded on the basis of international competitive bidding among prequalified firms, in accordance with the Bank's "Guidelines for Procurement". Road maintenance equipment will be procured through contracts awarded after international competitive bidding, also in accordance with the "Guidelines for Procurement"; a margin of preference equal to the import duties and taxes, or 15%, whichever is lower, will be allowed to domestic manufacturers. 47. Disbursements from the loan will be made over 4 years on the basis of: (a) 42% of the total cost of construction and improvement; (b) 100% of the c.i.f. cost of imported road maintenance equipment; or the ex-factory price, excluding identifiable taxes and duties, of locally manufactured equipment; (c) 100% of the foreign exchange costs of consultant's services; and (d) 100% of the foreign exchange costs of fellowships. A disbursement schedule is given in the Loan and Project Summary. Benefits and Economic Return 48. Together with tbhe ongoing Third Project, this project will help the Government in achievin,g its targets for road improvement during the FFYP (1977-81). The two projects will assist in financing about 50% of the national road paving program (1,750 km out of 3,700 km). ADB will finance another 760 km, and the Government will fund the remaining 1,200 km entirely from its own resources. I'he proposed project will also partially finance 60% of the provincial road paving program (280 km out of 450 km). ADB is consider- ing assistance for another 120 km, leaving 50 km for the Governmenl to finance entirely on its own. The project supports the Government's strategy of paving existing gravel roads, which still account for 40% of the national network, rather than constructing new high standard highways. This approach of minimizing and phasing investments increases the rate of return of road projects and enables the highway system to meet a much larger total transport demand at lower cost; it follows the recommendations of the Bank. 49. The project roads are scattered throughout the northern two thirds of the country, with some concentration on the west coast and in the eastern mountains. Roads in the west will improve general transport and communications in a heavily populated, well endowed, agricultural area, and provide faster access to the provincial capital of Daejon. They will also enable fuller use of potential distance sav:Lngs between the western coastal area and Seoul afforded by roadways built on new dams on the Asan Bay. Roads in the eastern mountains which produce primarily coal and cement will reduce the transport cost of these commodities and improve the living conditions in these less - 14 - developed areas by increasing mobility and reducing dust pollution. The other project roads will improve access and transport facilities within predominantly rural areas, which are presently isolated by the poor condition of existing roads. 50. Traffic on project roads ranged from 120 to 2,500 vehicles per day in 1975, with a median around 250 vehicles/day. The typical distribution of vehicles is cars and taxis 20%, buses 25%, and trucks 55%. Traffic is expected to continue growing rapidly at around 7% p.a. for trucks and buses and over 10% p.a. for cars and taxis. In 1982, when the project roads would be completed, traffic on them is expected to range from 300 to over 5,000 vehicles/ day, with a median over 500 vehicles/day. 51. As the project encompasses a wide variety of major roads in many, disparate regions of Korea, it will raise the overall efficiency of Korea's transport system and thereby contribute to general economic growth. While this contribution is real, it cannot readily be fully quantified. Measurable benefits of the project are mainly in vehicle operating cost savings due to the improved conditions of the paved roads compared with the existing rough gravel roads. For the typical road, total benefits following paving would be distributed among various users as follows: cars and taxis less than 10%, buses about 40%, trucks over 50%. The roads in isolated rural areas will stimulate a diversification of agricultural production as well as favor socioeconomic contacts between the rural population and other parts of the country. The construction of project roads will require an average of about 9,000 workers over a 33 month period, creating a total of about 300,000 man-month of employment, 60% of which would be for unskilled labor. The new pavements would also bring non-quantified benefits, such as quicker and better services and improved environmental conditions through a reduction of heavy dust and mud which cover villages and fields along existing gravel roads which carry much traffic. 52. The economic rate of return (ERR) for the project roads, calculated over an assumed 20 years service life, range from 16% to over 40% excluding passenger time savings. The weighted average ERR for all project roads which account for 96% of total project cost is 26%. This rate of return excludes investment in road maintenance equipment totalling 2% of project cost; and studies and training totalling 2% of project cost. Sensitivity tests assuming substantial increases in construction cost and decreases in benefits have shown that, even under the pessimistic assumptions of a 20% increase in costs or a 20% reduction in benefits, the project would have a weighted average ERR of over 20% and would thus remain well justified. There are no special risks associated with the proposed project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 53. The draft Loan Agreement between the Republic of Korea and the Bank, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank are being distributed to the Executive - 15 - Directors separately. The draft Loan Agreement follows the general pattern of Loan Agreements relating to highway projects. Special conditions of the project are listed in Section III of Annex III. 54. 1 am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 55. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments November 29, 1978 ANNEX I Page 1 of 6 pages KOREA REPUBLIC OF - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVRAGES LAND AREA (THOUSAND S0. KM.) KOREA REPUBLIC OF - MOST RECENT ESTIMATE) TOTAL 98.5 SAME SANE NEXT HIGHER AGRICULTURAL 24.4 HOST RECENT GEOGRAPHIC INCOME INCOME 1960 lb 19701Lb ESTIMATE Lb REGION Ic GROUP /d GROUP /e GNP PER CAPITA (US$) 120.0 290.0 810.0 616.0 867.2 1796.4 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 258.0 815.0 1038.0 522.0 578.3 1525.0 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 25.0 32.2 36.5 URBAN POPULATION (PERCENT OF TOTAL) 28.0 41.2 48.5 30.1 46.2 52.2 POPULATION DENSITY PER SQ. KM. 254.0 327.0 371.0 156.8 50.8 27.6 PER SQ. KM. AGRICULTURAL LAND 1168.0 1371.0 1496.0 794.8 93.3 116.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.5 42.1 38.6 40.8 42.9 34.8 15-64 YRS. 55.7 54.5 57.9 55.4 53.5 56.0 65 YRS. AND ABOVE 3.8 3.4 3.5 3.2 3.5 5.7 POPULATION GROWTH RATE (PERCENT) TOTAL 2.8 2.3 1.8 2.3 2.5 1.6 URBAN 5.9 6.4 5.4 5.1 4.7 3.4 CRUDE BIRTH RATE (PER THOUSAND) 39.7 35.0 28.8 34.6 37.8 27.0 CRUDE DEATH RATE (PER THOUSAND) 22.9 11.4 8.9 8.7 10.8 9.9 GROSS REPRODUCTION RATE 3.1 /f 2.6 1.9 2.6 2.5 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 672.0 686.0 USERS (PERCENT OF MARRIED WHOEN) .. 42.0 34.2 22.1 20.0 19.3 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 81.6 100.0 104.5 106.8 107.3 103.8 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 85.0 114.0 115.0 108.7 105.3 110.4 PROTEINS (GRAMS PER DAY) 53.0 65.0 75.7 57.7 63.0 77.7 OF WHICH ANIMAL AND PULSE 13.0 IL 19.0 16.3 17.0 21.7 22.2 CHILD (AGES 1-4) MORTALITY RATE .. .. .. 4.0 8.0 1.9 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 56.0 65.0 68.0 59.0 57.2 63.0 INFANT MORTALITY RATE (PER THOUSAND) 82.9 /h .. 38.0 44.0 53.9 38.2 ACCESS TO SAFE WATER (PERCENT OP POPULATION) TOTAL .. 58.0 66.0 21.9 56.8 67.7 URBAN * 84.0 95.0 58.3 79.0 83.5 RURAL .. 38.0 38.0 9.8 31.8 41.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 25.0 64.0 28.6 30.9 70.3 URBAN .. 59.0 80.0 66.6 45.4 90.7 RURAL .. .. 50.0 14.8 16.1 38.3 POPULATION PER PHYSICIAN 3220.0 2110.0 2100.0 4103.1 2706.8 1310.8 POPULATION PER NURSING PERSON 3220.0 /i 2170.0 /j 1440.0 /i 1520.2 1462.0 849.2 POPULATION PER HOSPITAL BED TOTAL 2510.0 1900.0 1760.0 657.1 493.9 275.4 URBAN *- *- *- 145.5 229.6 129.9 RURAL .. .. .. 1011.8 2947.9 965.9 ADMISSIONS PER HOSPITAL BED .. 14.9 .. 19.0 22.1 18.9 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.6 5.3 5.1 5.2 5.2 3.9 URBAN 5.4 5.0 4.9 5.2 5.0 RURAL 5.6 5.5 5.3 5.4 5.4 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.5 2.3 *- 2.0 0.9 URBAN 2.8 2.7 *- *- 1.5 0.8 RURAL 2.4 2.2 .. .. 2.7 1.0 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 28.0 50.0 .. 39.1 64.1 59.2 URBAN 67.3 92.3 *- *- 67.8 78.0 RURAL 12.0 30.0 64.9 .. 34.1 12.5 ANNEX I Page 2 of 6 pages KOREA REPUBLIC OF - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES KOREA REPUBLIC OF La M OST RECENT ESTIMATE) SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 Lb ESTIMATE lb REGION Le GROUP /d GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 94.0 105.0 109.0 95.6 99.8 97.6 FEMALE 88.0 105.0 109.0 93.7 93.3 87.4 SECONDARY: TOTAL 27.0 43.0 59.0 43.3 33.8 47.8 FEMALE 14.0 34.0 50.0 38.6 29.8 42.6 VOCATIONAL (PERCENT CF SECONDARY) 14.0 16.0 16.0 11.3 12.8 22.7 PUPIL-TEACHER RATIO PRIMARY 58.0 57.0 52.0 30.0 34.9 25.4 SECONDARY 34.0 37.0 38.0 25.4 22.2 24.9 ADULT LITERACY RATE (PERCENT) 70.6 87.0 92.0 Li 84.0 71.8 96.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0.4 2.0 2.4 9.3 12.4 32.3 RADIO RECEIVERS PER THOUSAND POPULATION 32.0 126.0 144.0 97. 6 104.5 201.9 TV RECEIVERS PER THOUSAND POPULATION 0.3 13.0 48.0 21.8 28.1 97.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 69.0 138.0 175.0 25.9 45.2 70.9 CINEMA ANNUAL ATTENDANCE PER CAPITA 4.0 5.0 3.0 4.6 4.6 4.4 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 7500.0 10200.0 13100.0 FEMALE (PERCENT) 25.8 32.7 32.8 33.2 25.7 17.4 AGRICULTURE (PERCENT) 66.0 50.4 44.6 48.4 46.2 38.4 INDUSTRY (PERCENT) 9.3 20.1 22.8 PARTICIPATION RATE (PERCENT) TOTAL 33.4 35.0 36.6 38.9 33.8 33.7 MALE 49.5 46.8 48.8 48.6 48.1 50.8 FEMALE 17.2 23.0 24.2 28.4 17.3 12.6 ECONOMIC DEPENDENCY RATIO 1.5 1.4 1.2 1.2 1.4 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 15.1 /k 17.1 16.1 17.3 23.6 20.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 42.3 k 44.5 45.3 45.6 52.3 47.9 LOWEST 20 PERCENT OF HOUSEHOLDS 5.7 /k 7.1 5.7 6.5 4.3 3.2 LOWEST 40 PERCENT OF HOUSEHOLDS 19.0 /k 17.7 16.9 17.3 13.1 13.6 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN 220.0 140.8 191.9 RURAL 200.0 112.8 193.1 157.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN 194.0 D 319.8 448.8 RURAL 176.0 76.8 197.7 313.1 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN 9.0 27.7 19.8 23.2 RURAL '' '' 14.0 40.4 35.1 54.5 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c East Asia & Pacific; /d Intermediate Middle Income ($551-1135 per capita, 1976); Ie Upper Middle Income ($1136-$2500 per capita, 1976); /f 1950-55; /g 1962; /h 1957; /i Registered, not all practising in the country; /1 Aged 10 years and over; 1k 1965. September 1978 ANNEX I KEY TO COUNTRIeS IY REGION AND LNCOHE CROUP/I Page 3 of f; pa ges RonClcome ..o p Lrv l-ocomeb Lrver Middle :etert edi.te Middle Upper Kiddie High I-oemeLf. BenIrMaleri Agole Chore DJibo.ti Cabor Ro,rocdl Ocli Roeaeen_ Ivory Co..t R-unirn Cencral Afric-n Ep. Mo-biq.e C-nero.. K.anrini. ChOd Niger Cape Verde Nemibie Corrorra Reend. CongO, P.R. SRythelle. UShiepsi Sierr Leo-e EquetcrinL G.Lee. 3 c 30c*nO tUX32eAO _ noH v 1- b 3 = 0- < O n cv tH v v g E i '~ vg00000000g 7 0 nt n 0 n O C~~~~0 0( 0 0 ( 0 0 0 000 * C W 00CV H (00 @ 'oH0' 00 -XoPn 00 0 (0 00 (- I--0 0 o1o'o 00 0 00 0 0 (0{ OH,v P H O O- 000 _0 -0 No .0 P0. rI No O ~ ~ ~ ~ ~ ~ 0 9 0 Ho H. 0 0N 0 _l( 1 U -WJ V~~~~~~~~~~ P . Hf _ _ 0_ OH O O~O~ 0 O 0 HO 000 <3 ~ ~ 0 V0 D - W0 0 - a HOW NF OP)NOS 0 ~ ~ ~ ~ 0 0 . |3 ' O 0SN. D 0 .0 0 o 0 00 001 H r 0wW ow-0ro ; N- 0 HW W 00 oJ (00 X fit p r O Uo p_WOWNN .0 w0 - 0 0lDgDt O_ONS _- NNP O Ot; HOo H 00 00000 V0. 01-0 V,1- p 00.000 00We 00 00 0000- 0 00 .0 0 _ 00U - >WNN O W-O D oN sS D0 F o1< ..0 °0 04000 00w 00 00 0 00 0(0. 0 .oo_ t = >>L nw _ tn O w _ = _ _ I H 0 04.W0_0N00O1N0O000000s =0 D- W00 W00 N 0 1. Js ~ ~ ~ -0.0 . _ 00_ 0- 0o.o-- 000__000- .! -.004 P- H ~ ~ ~ Us -> W ' 100 0 00 '0 *-00 000000000- 00 . ~ ~ . . F~ .00 00 0 0.0!|,0 .F W oH~u 00o.0 00 0 00 0 0 00 o000 000.0w00. HO 000000 000'-' 000 000.0 00_0_0_ _ _ _ .0g Og s ANNE-XI faze 6 of 6pae BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE Aottal ProJetted 1969 1970 1971 197 2 1973 1979 1905 - 197 6 1977 1-980 1985 1990 ..c -o.y o~f Molso-eof fay.e-ot o,o-rts (tool. 47S) 998 1,221 1,478 2,075 3,962 5,125 5,679 9,111 12,508 21,753 55,907 141,361 2. lop-rt (itool. NSf) 1,880 2.064 2,490 2,577 4,368 7,209 7,464 9,493 12,331 21,906 55,243 139,112 3. Re--re balane -682 -843 -1,012 -502 -806 -2,004 -1,785 -382 -23 -153 664 2,2499 4. rt to-tru-oic is-oe: II) -o Intee- pay,e-t 2 -29 -91 -139 -166 -229 -398 -411 -479 -665 -013 -534 cc otInteret 00fOli n T I...loan -A47 -68 -09 -120 -150 -201 -290 -343 -437 -900 -1,296 -1,475 (21 icccctjooeotenot jocose ~~~~~ ~ ~~-6 -o -2 1 -N -5 -37 -63 -52 -150 -215 -4-sn lco enlelte (e) 91 7P 84 101 72 74 76 167 354 400 350 300 1. Scorcc-0 Per (e- 246 18 17 10 19 224 226 349 223 205 250 289 6. arr s oreo ac-o- -549 -623 -848 -371 -309 -2,023 -1 887 -314 12 -220 29_9 2,090 7. Pluodretjosen 16 65 43 74 137 104 53 76 90 260 360 503 0. ffc u cptlgao 150 131 84 97 61 64 - - - - - - Iobic 1.4 T boot 9. lluburjcnnto s ~~~~ ~~~~ ~~~~~~~660 414 625 735 757 1,155 1,687 1,701 2218 3,041 3,316 4,209 Ic. becoc macIon ~~~~~~~~ ~~~~~~~~109 203 215 289 334 391 369 504 77 1,322 2,681 3.394 II. Art dloborunnasts ~~~~ ~~~~ ~~~~~551 209 410 446 423 764 1,319 1,197 1,301 1,719 635 825 ~2. Ililsb......ntj 17 78 33 49 71 174 65 120 50 162 390 802 13. bsrcnaj 3 9 10 10 15 23 18 66 73 79 272 668 Io diob-raeon- 14 70 23 39 56 151 57 34 -23 84 118 334 13.In cf IMP cenor. n - /L - -10 -8 -10 - 132 130 97 -24 -78 - - l6b .... bic-oc. caitl nco os57 122 135 -19 62 -43 660 357 39 -250 50 150 17. Cfi.aiul rnctoe(Etc -78 71 112 -07 _110 868 141 -48 -270 -300 - - 1.Chu-gt trsnos6 in--an) /d -161 -35 49 -159 -340 -15 -493 -1,419 -1,345 -1,165 -1,462 -3,904 19. F-cignochesgerorcoI 549 584 535 694 1,834 1,049 1,542 2,961 4,356 7,302 13,811 29,981 Incd ot peiod) tac an .d Loon Co-st1-cet 1972 1973 1974 1975 976 1977 Debt and DEbt Semvites 1. dlco ro 150 131 84 87 61 644 - - Poblit debt suonceoding 4 2,691 3,199 3.982 , 2717 6,650 6,477 I. Idl pubI Li 4 HU & Lcai..s 753 475 689 813 1,073 1,972 1,304 3,613 3,465 disbursd (ned of perlad) Ill logo ~~~ ~~~ ~~~ ~~~~~~~~~63 40 63 73 150 85 382.5 372 426 Inten-t onpbicdb 120 150 201 290 309 437 () IDA 15 15 7 26 20R-- Spaseoes onpublic debt 289 334 391 568 504 711 C3) Otb-cutcaeri/f 25 20 81 68 46 99 101 .5 114 135 nTal public dab t seite 409 484 392 656 093 1,154 l4) Gccc--st - 132 161 255 4 79 383 477 360 917 427 Ctber debt seIe nt 23 33 54 60 L10 1251 31eb ...oocally plas-d --ienosj… - - - - Tota detsrI Inec 432 57 66 71 996 1,70 (1) Soppyller 374 134 240 94 223 496 252 669 1,067 (6 fic-- ba-ka 144 1014 13 73 240 737 193 1, 446 1,341 Banden oe Esport E-nings (21 (7) Outdo ~~~~~~~~~~~~~~~~~~~~~~~~: - 19 - 60 68 Poblic debt seric- 19.7 12.2 11.6 11.6 9.8 9.2 (0) PublIc bass StI lb 8 1 - - 1 79 34 - - Tetul debtne-i-e 20.8 13.1 12.6 12.6 10.9 llc.2 Idiotl It A IT loan /1100 26 67 74 213 10 138 97 16 TED + Dicect Incet, Inc 20.7 13.1 1.4 12.6 11.3 10.7 Denose t Int~~~~~~~~~~~~~~~.Lenota I pj yea. 0DI0 0.3 9.6 6.3 7.6 6.2 7.3 Icteccal Dcbt (dlabucntd only) aaartleation as I prinr Onon EOID 12.9 12.9 12.2 9.2 10.9 11.9~~~~~~~I P. -tD. L.9 i. I.2 92 I09 i IBRD80 (835.1) (9.9) 2. l'o I'll,y/j 946.2 11.2 IBRD debt outtading & dtsoarsd 9A,7 139.9 223.9 403.5 659.3 035.1 ot~er nutltrLk/ 322. 3.8 0 s2 public dabt 04D 5.5 4.4 5.6 7.7 9.9 9.9 Ccn tnnn 2,917.7' 34.4 public debt a-reoc 1.7 2.5 3.3 4.9 5.7 6.7 cf --Occotaly p1a-ed n Ioolo 5. O.yylicco ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'1,50.0 10.4 Ilu dabs osctno.dlng A b.tebnd 47.1 38.5 78.3 92.7 102.4 1111.1 6. flooci. Intttio 1 2,58.6 30.2 0 sIpnblicdebt 040' 1. 1. 2. 1. 1. 13 bood 167.1 2. an 1 publlc debt ncL- 0.1 0.1 0.1 C.1 0.1 0.1 PuolI dolt c.r.ic. 3.Total obl ic 916LT debt 8,472.3 100.0 10. Otbo 04LT debt549 - It. Occol public debt (hod. ondlab-cand) 13,483.- focal 1. 94LT dnbe (disbosed only) 9,0O17.1 1 cta- 044T deb i_lte. _ onibred 4,053.1 of raiga' and 'rePaye..et by p-tnhase" (IFS). /c lclod-n $580 nillion bonroond by the banking ypets io 1974. Sis- bulk of ftee t-caso of Inno- and Osiasio, en. . att-ptna de . obt...c pnc(j-oi.sa for 1989 aod 1 990. ,d ojd-o c - n of IMF ---ute ehlch ar sh.-n sop-nteiy Icootbo eotoo lIPS). 0 ~ . ,c 1 Inluod- biiuoteo OM, Eoisbook., off iciu1 enp-t -rdlss, in-ldisg U1.9. CCC cedits hOctor guun-t-ed pcliote loans j_Eclcdcu1C Ocatei, backs and cber fi... labl i-attiatino.- uN--bnr If, 1978 ANNEX II Page 1 of 12 pages KOREA THE STATUS OF BANK GROUP OPERATIONS IN THE REPUBLIC OF KOREA A. Statement of Bank Loans and IDA Credits (as of September 30, 1978) Loan or Amount ($ million) Credit (less cancellations) Number Year Borrower Purpose Bank TW IDA Undisbursed Ten loans and nine credits fully disbursed 466.5 106.8 795 1972 ADC Irrigation 33.0 0.1 863 1972 Republic of Korea Railways IV 40.0 0.7 906 1973 Republic of Korea Education II 23.0 17.6 917 1973 Republic of Korea Ports I 80.0 16.2 942 1973 Republic of Korea Seeds Production 7.0 3.8 953 1974 Republic of Korea Tourism 25.0 7.1 956 1974 Republic of Korea Highways II 47.0 0.1 994 1974 AFDC Agriculture 13.0 5.7 1070 1975 Republic of Korea Secondary Cities 15.0 5.3 1096 1975 Republic of Korea Education III 22.5 14.9 1101 1975 Republic of Korea Railways V 100.0 13.0 1145 1975 KDFC V Dev. Fin. Co. 55.0 0.2 1175 1975 MIB - I Dev. Fin. Co. 30.0 1.8 1193 1976 Republic of Korea Second Integrated 15.0 4.6 Dairy Development 1203 1976 Republic of Korea Highways III 90.0 46.9 1216 & 1976 Republic of Korea Rural Infra- 20.0 2.1 1218-T structure I 40.0 4.2 1319 1976 ADC Irrigation 29.0 28.1 1328 1976 Republic of Korea Agricultural Credit 20.0 12.7 1338 1976 KDB II Dev. Finance Co. 82.5 26.1 1364 1977 ADC Irrigation 95.0 92.8 1401 1977 Republic of Korea Ports II 67.0 67.0 1461 1977 KDFC VI Dev. Finance Co. 70.0 38.8 1466 1977 Republic of Korea Heavy Machinery 80.0 63.0 1474 1977 Republic of Korea Vocational Training 23.0 23.0 1503 1978 ADC - Ogseo Stage I Agriculture/Irri- gation 36.0 36.0 1507 1978 MIB - II Dev. Finance Co. 55.0 35.1 1530 1978 Republic of Korea Rural Infrastruc- ture II 95.0 92.8 1542 1978 Republic of Korea Railway VI 120.0 120.0 1574 1978 KDB III DFC 110.0 _ 110.0 Total 1,964.5 40.0 106.8 889.7 of which has been repaid 68.3 - 1.1 Total now outstanding 1,896.2 40.0 105.7 Amount sold 7.1 of which has been repaid 1.9 5.2 - - Total now held by Bank and IDA (prior to exchange adjustment) 1,891.0 40.0 105.7 Total undisbursed 885.5 4.2 0.0 889.7 ANNEX II Page 2 of 12 pages B. Statement of IFC Investments (as of September 30, 1978) Fiscal Amount ($ million) Year Obligor Type of Business Loan Equity Total 1968 KDFC Development Financing - 0.7 0.7 1969 Honan Silk Co. Textiles 1.4 0.3 1.7 1970 Atlas Paper Pulp and paper 4.5 0.5 5.0/a 1971 Korea Investment Finance Corp. Capital Market Development - 0.6 0.6 1974 KDFC Development Financing - 0.4 0.4 1974 Korea Investment Finance Corp. Capital Market Development - 0.3 0.3 1975 Gold Star & Co., Ltd. Electronic Products 16.0 1.3 17.3 1975 Korea Securities Finance Corp. Capital Market Development 5.0 0.6 5.6 1975 Tong Yang Nylon Company, Ltd. Synthetic Fibers 6.9 2.1 9.0 1975 Hae Un Dae Develop- ment Company, Ltd. Tourism 2.8 0.7 3.5 1976 Korea Investment Finance Corp. Capital Market Development - 0.4 0.4 1976 Chungju Paper Mfg. Co. Paper 5.0 0.5 5.5 1976 Korea Zinc Co., Ltd. Zinc 15.0 4.0 19.0 1976 KDFC Development Financing 17.8 - 17.8 1976 Gold Star & Co., Ltd. Electronic Products 10.0 0.4 10.4 1977 Gold Star & Co., Ltd. Electronic Products 0.2 0.2 1977 KDFC Development Financing 0.3 0.3 1977 Korea Securities Finance Corp. Capital Market - 0.5 0.5 1977 Korea Development Leasing Corp. Capital Market 15.0 0.4 15.4 1978 KDFC Development Financing - 0.1 1.1 1979 Gold Star & Co., Ltd - 1.7 1.7 Total gross commitment 99.4 17.0 116.4 less cancellations, terminations, repayments and sales 44.1 1.0 45.1 Total commitments now held by IFC 55.3 16.0 71.3 Total undisbursed - 1.1 1.1 /a Cancelled at the request of the Company. ANNEX II Page 3 of 12 pages PROJECTS IN EXECUTION /1 Agricultural Sector Loan No. 795 Yong San Gang Irrigation Project; $33.0 Million Loan Credit No. 283 and $15.0 Million Credit of February 2, 1972; Effective Date: September 15, 1972; Closing Date: December 31, 1978 The project, located in one of the most drought-prone areas of Korea, provides four storage! dams, canal systems and land development to irrigate 33,700 ha. The project was delayed initially by modifications in the design of the dams and later when rapid inflation outpaced the allocation of local funds. The dams have now been completed and about 19,000 ha was irrigated in 1977. Good progress is being made on other works which are expected to be completed before the end of 1978, about 18 months behind schedule. Consequently, the Closing Date has been extended from September 30, 1977 to December 31, 1978. The project cost is estimated at about $151 million compared to $88.6 million at appraisal, but because of increases in rice and barley prices, the economic rate of return is expected to be close to the appraisal estimate of 13%. Loan No. 942 Seeds Project; $7.0 Million Loan of November 16, 1973; Effective Date: April 24, 1974; Closing Date: December 31, 1979 Progress of implementation is satisfactory and physical implemen- tation should be completed by June 1979, one year later than the appraisal estimate. The closing date has been postponed from December 1978 to December 1979. The four seed potato storage and processing plants are expected to be completed in 1978. The final two cereal plants should be completed and ready for operations by June 1979. Disbursements are now 46% of the loan amount, however, it is estimated th,at disbursements will be nearly completed by June 1979. All plants will operate on a pilot basis in 1979 and would reach an average of 75% of capacity by 1980. Loan No. 994 Integrated Agricultural Products Processing Project; $13.0 Million Loan of June 7, 1974; Effective Date: March 19, 1975; Closing Date: June 30, 1979 This project provides long-term funds to the Agriculture and Fisheries Development Corporation (AFDC) for onlending to subborrowers in the /1 These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 4 of 12 pages private sector for the purpose of integrating on-farm production of fruits and vegetables with modern, hygienic processing facilities, using land that was idle or underutilized. The vegetables and fruits involved are mainly asparagus, shiitake (oak mushroom), spinach, mushroom, strawberry and peach. Implementation of the project was delayed by about 18 months owing to lack of loan demand for some of the processing facilities included in the project. However, the project is now progressing satisfactorily since September 1977 when the Bank approved AFDC's proposal to widen the project's scope to meet changed investor demand. Under the revised scope, AFDC will finance processing and cold storage of fish, meat, fruits and vegetables, and also fruit juice extraction and concentration and vegetable drying, for which the loan demand is strong. Subloan applications and approvals have increased significantly, and AFDC expects to disburse all the project funds by the end of 1979. Disbursements as of September 30, 1978 were over 56% of the loan. Loan No. 1193 Second Integrated Dairy Development Project; $15.0 Million Loan of June 4, 1976; Effective Date: November 11, 1976; Closing Date: December 31, 1982 The project consists of: (a) the establishment of about 450 new dairy farms; (b) the continuation of the development begun as part of the First Integrated Dairy Beef Project on about 400 dairy farms; (c) the expan- sion of existing processing plants, the diversification of their production, the establishment of 2 milk collection centers and 50 small milk cooling units and the construction of a milk products plant at Yeongnam; and (d) the expansion of technical services for bot'i farm development and milk processing. Effectiveness of the project was delayed for about a year, but farm develop- ment is progressing rapidly and the project may be completed within the period originally foreseen. Although technical assistance for new farmers has been somewhat weak, the Korea Dairy Beef Company (KDBC) is in the process of strengthening its farm advisory staff. Construction of KDBC's new processing plant and expansion of one of the existing plants are under way. KDBC's financial situation improved over the course of 1976 and the company showed a profit for the first time in 1977. Prospects are for continued, gradual improvement. As of September 30, 1978, disbursements were over 69% of the loan. Loan No. 1216 Rural Infrastructure Project; $60.0 Million Loan of which Loan No. 1218T $40.0 Million Third Window of March 19, 1976; Effective Date: June 4, 1976; Closing Date: June 30, 1979 Project implementation is proceeding very well. The Fuelwood, Roads and Bridges, Water Supply and Rural Electrification components were completed by the end of 1977. Minor Irrigation has experienced some delays, mainly the result of budgetary shortages and a cost overrun of 18%, but should be substantially completed by early 1979. Upland reclamation is proceeding in accordance with the revised time schedule and will be completed in 1978. Project monitoring and reporting continue to be satis- factory and a good start has been made on the Hydrologic Services Study and a ANNEX II Page 5 of 12 pages major project evaluation study. The estimated cost of the project is likely to be 16% above the appraisal estimate, mostly as a result of cost overruns for Minor Irrigation and Rural Electrification and an increase in the size of the Water Supply component. Disbursements are practically in line with appraisal estimates. Loan No. 1319 Miho Waterslhed Area Development Project; $29.0 Million Loan of August 5, 1976; Effective Date: October 21, 1976; Closing Date: December 31, 1982 This project, located in the central region of Korea, is being financed under the first Bank loan for area development in Korea. A project office has been established, and construction work has started on the first of five major civil work contracts. Altogether, the five contracts will involve construction of 8 large and 19 small earthfill dams, 284 km of main and secondary canals and land development for irrigating 12,700 ha. The project, which will require five years to complete, also involves construction of 80 km of river channel improvement and 150 km of village access roads, as well as feasibility studies for a second stage project in the Miho Watershed. Loan No. 1328 Second Agricultural Credit Project; $20.0 Million Loan of October 12, 1976; Effective Date: March 10, 1977; Closing Date: June 30, 1981 The project is a continuation and expansion of the agricultural program financed under the First Agricultural Credit Project (Credit 335-KO). It provides funds to the National Agricultural Cooperative Federation (NACF) for medium and long-term loans to farmers, through selected Gun (county) cooperatives of NACF, for investments in apple orchard development, silkworm rearing houses, sprinkler irrigation for orchards, greenhouses for vegetable production, and on-farm storage. The project became effective on March 10, 1977 and lending to subborr,awers commenced in the following month. Project implementation and lending to farmers are generally progressing satisfactorily, with lending in 1977 exceeding the appraisal estimate. As of September 30, 1978, disbursements were about 37% of the total loan. Loan No. 1364 Yong San Gang Irrigation Project Stage II; $95.0 Million Loan of February 11, 1977; Effective Date: April 22, 1977; Closing Date: December 31, 1984 The project will provide irrigation and land development on 20,700 ha in the lower reaches of the Yong San River. Project works include an estuary dam, sea dike, pumping stations, irrigation canals, reclamation of 5,500 ha of tidal lands, conversion of 3,250 ha of uplands for irrigation of paddy, land consolidation of 3,200 ha, and irrigation of 1,050 ha of uplands. Construction of the access roads and a portion of the estuary dam was recently completed. The main contract for estuary dam construction was awarded in December 1977, in line with, the appraisal schedule. ANNEX II Page 6 of 12 pages Loan No. 1503 Ogseo Area Development Project - Stage I; $36.0 Million Loan of January 4, 1978; Effective Date: March 29, 1978; Closing Date: June 30, 1983 The project will benefit some 23,000 farm families by providing new irrigation on 7,100 ha, improved irrigation and drainage on 3,700 ha and a more assured water supply on an additional 1,500 ha. Project work consists of nine pumping stations, 190 km of main and secondary canals and land development including 5,800 ha of land consolidation, 2,500 ha of improved drainage (of which 1,500 ha would also be consolidated), 2,200 ha of tertiary irrigation and conversion of 1,800 ha of upland and forest to paddy land. Loan No. 1530 Rural Infrastructure Project II; $95.0 Million Loan of March 13, 1978; Effective Date: June 8, 1978; Closing Date: June 12, 1982 The project would assist the Government's program to intensify agricultural production, thereby raising rural incomes and foodgrain produc- tion, and to improve the quality of rural life. The project includes 60 irrigation subprojects on about 9,200 ha, construction of water supply systems in about 7,400 villages, construction or improvement of about 2,500 km of river banks, connnection of about 2,700 villages to the telephone network and the installation of about 75,000 subscriber's lines, and training and project monitoring and evaluation. The project would benefit about 7.7 million people or about 48% of Korea's rural population. Industrial Sector Loan No. 1145 Fifth Korea Development Finance Corporation Project; $55.0 Million Loan of July 23, 1975; Effective Date: September 5, 1975; Closing Date: June 30, 1980 The loan covered about half the KDFC's foreign exchange require- ments through the end of 1977. The proceeds are being used to finance direct imports of machinery and equipment, and the foreign exchange component of domestically-produced capital goods and of civil works. Over 99% of the loan proceeds have already been disbursed. KDFC's performance in using the loan has been highly satisfactory. Loan No. 1175 Medium Industry Bank (MIB); $30.0 Million Loan of November 26, 1975; Effective Date: January 28, 1976; Closing Date: March 31, 1980 The project provides funds to MIB to make subloans to small and medium-sized manufacturing enterprises. The project is progressing satisfactorily. Disbursements are 94% of the total loan. ANNEX II Page 7 of 12 pages Loan No. 1338 Second Korea Development Bank Project; $82.5 Million Loan, of which $7.5 Million for the Korea Industrial Leasing Cornpany, of December 23, 1976; Effective Date: March 21, 1977; Closing Date: December 31, 1980 The project provides $75.0 million to be used by KDB to make subloans and investments to finance direct imports for industrial subprojects during the period 1977-78; ithe remainder of the loan, $7.5 million, was relent by KDB to its wholly-owned subsidiary KILC, to acquire machinery, equipment, facilities and other property to be leased to investment enter- prises. Commitment of funds is progressing as expected; as of September 30, 1978, disbursements were over 68% of the total loan amount. Loan No. 1461 Sixth Korea Development Finance Corporation Project; $70.0 Million Loan of June 30, 1977; Effective Date: September 15, 1977; Closing Date: December 31, 1981 The loan was made to help cover the foreign exchange requirements of industrial subprojects to be financed by KDFC subloans in 1977-78. KDFC's performance has been very satisfactory. As of September 30, 1978, commitments reached $69.0 million. Loan No. 1466 Heavy Machinery Project; $80.0 Million Loan of June 30, 1977; Effective Date: December 1, 1977; Closing Date: December 31, 1980 The project is designed to manufacture equipment required for power generation, steel mills, and chemical and petrochemical plants. It consists of: (a) foundry aLnd forge shops; (b) fabrication shops; (c) machine shops; (d) assembly and test shops; (e) support facilities; (f) other auxili- ary facilities; and (g) technical assistance. Project costs have been increased by 24% above the appraisal estimate due to addition of equipment to meet increased emphasis in nuclear power plant in KECO's construction program; and depreciation of the US Dollar since appraisal. Project imple- mentation is proceeding well, although increased project scope and some procurement delays have extended the targeted completion date to April 1980. The company has submitted a plan of action to achieve, by year-end the debt equity ratio to 70:30 level specified in the Project Agreement. As of September 30, 1978, disbursements were over 20% of the total loan amount. Loan No. 1507 Second Medium Industry Bank Project; $55.0 Million Loan of January 4, 1978; Effective Date: March 10, 1978; Closing Date: December 31, 1982 The project provides $55.0 million, to be used by MIB to help cover the foreign exchange requirements of industrial subprojects over four years. A substantial portion of the loan - $20.0 million - would be earmarked to assist small-scale, labor-intensive subprojects creating employment at a gross capital cost per job not greater than $6,000 or enterprises whose fixed assets are not greater than $250,000. As of September 30, 1978, disbursements were over 36% of the loan amount. ANNEX II Page 8 of 12 pages Loan No. 1574 Third Korea Development Bank Project; $110 Million Loan of June 21, 1978; Effective Date: September 14, 1978; Closing Date: December 31, 1982 The loan would be used to help cover the foreign exchange require- ments of subprojects to be financed by KDB; apart from direct imports, the loan would be utilized by KDB to finance the foreign exchange component of domestically produced capital goods. An amount of up to $10.0 million of the proceeds of the proposed loan would be made available to KDB's subsidiary, the Korea Industrial Leasing Corporation Ltd. (KILC), by way of subloans in order to finance small- and medium-sized leasing projects. Overall progress is satisfactory. Commitments started in October 1978. Education Sector Loan No. 906 Second Education Project; $23.0 Million Loan and Credit No. 394 $20.0 Million Credit of June 13, 1973; Effective Date: September 10, 1973; Closing Date: December 31, 1979 The project provides equipment for, and extensions to, 85 educa- tional institutions at secondary, post secondary and university levels. It also includes preinvestment studies on health and management education. The Loan/Credit funds are mainly used to finance equipment, with the Government financing the related civil works. Project execution is now about two years behind schedule. Initial project actions were slow owing to staff shortages in the Project Implementation Unit and the Office of Supply (OSROK), causing delays in the preparation of designs and equipment lists. A government internal review of procurement procedures halted equipment procurement for almost a year. These problems are now largely resolved and the project has been making steady progress. About 70% of the equipment has been contracted, and 40% delivered; furniture procurement has been completed; civil works are about 90% complete; and the fellowship program is well under way. However, because of the initial delays and some project changes recently requested by the Borrower, the project is now expected to be completed by June 1979; consequently, the Closing Date was extended to December 31, 1979 to allow time for the completion of procurement. The Credit has been totally disbursed as well as 33% of the total loan amount. Disbursements are expected to improve rapidly as an additional 45% of the Loan is fully committed. Loan No. 1096 Third Education Project; $22.5 Million Loan of March 31, 1975; Effective Date: June 6, 1975; Closing Date: June 30, 1980 The project includes assistance for extensions and equipping of nine institutions (technical, agricultural and fisheries) under the Ministry of Education (MOE) and seven vocational training institutes (VTIs) under the Administrator of Labor Affairs (ALA). Project implementation is about one year behind schedule. Lack of counterpart funds for consultants' fees during the first 20 months delayed preparation of the design and bidding documents in the MOE component. Changes of the training program of the ALA ANNEX II Page 9 of 12 pages component during implementation necessitated revisions and subsequent delays; however, because of recent progress in both MOE and ALA components, these delays will not affect the Closing Date of June 30, 1980. Project costs are below the appraisal estimaltes. As of September 30, 1978, disbursements were around 34% of the total loan and should improve significantly in the months ahead. Loan No. 1474 Vocational Training Project; $23.0 Million Loan of July 22, 1977; Effective Date: October 25, 1977; Closing Date: June 30, 1982 The loan provides funds to help finance: (a) construction of and equipment for 8 Vocational Training Institutes (VTIs), with 450 places each with boarding facilities; (b) equipment for the Central Vocational Training Institute (CVTI); and (c) expert services for the Vocational Training Bureau (VTB), and specialist services to the CVTI and VTIs. Since effectiveness, overall progress has been satisfactory. About 25% of the civil works had been tendered by June 1978 (two' of the eight VTIs), equipment lists for the two VTIs (25% of the total) have also been prepared by the Project Implementation Unit and approved by the Bank. Adequate local funds have been provided. Tourism Sector Loan No. 953 Kyongju Tourism Project; $25.0 Million Loan of January 4, 1974; Effective Date: May 6, 1974; Closing I)ate: December 31, 1978 The project forms part of the first phase of the planned develop- ment of the Bomun Lake resort near Kyongju. It provides for a multipurpose dam; an irrigation system for about 1,200 ha; improvement and expansion of the water supply and sewerage and solid waste disposal systems for the city of Kyongju and the resort area; installation of electrical supply and tele- communication facilities for the resort area; the construction and/or realign- ment of about 57 km of roads, infrastructure, including storm water drain- age, environmental sanitation, community facilities, and a golf course; and and a school for training hotel personnel. Project implementation is now progressing satisfactorily although completion of some project components is likely to be delayed by about a year, due mainly to budgetary constraints. The Government has now taken steps to provide all needed funds. The delay has had no adverse effects on hotel development. The first two hotels with 600 rooms are under construction and are scheduled to commence operations in the spring of 1979. Negctiations with other private investors are under way for a third hotel and also for apartments and restaurants in the Bomun resort area. About 72% of the loan had been disbursed as of September 30, 1978. ANNEX II Page 10 of 12 pages Regional Development Loan No. 1070 Secondary Cities Regional Project; $15.0 Million Loan of January 15, 1975; Effective Date: August 18, 1975; Closing Date: March 31, 1979 Implementation of the Secondary Cities Regional Project is pro- ceeding satisfactorily. Three housing sites, two access roads and a city market have been completed. Construction contracts on the remaining two subprojects are nearly on schedule. Tenders for the ninth subproject are being evaluated. Allocation of housing plots has been completed at all three sites and construction of core houses is under way. After the initial delays, mainly in fulfilling conditions of effectiveness and establishing the Gwangju Regional Development Unit, the project has moved extremely well. Total project costs are now estimated at $22.6 million compared to the appraisal estimate of $25.0 million ($20.8 million at current exchange rate). As of September 30, 1978, disbursement was about 65% of the loan amount. Transportation Sector Loan No. 863 Fourth Railway Project; $40.0 Million Loan of November 22, 1972; Effective Date: February 26, 1973; Closing Date: March 31, 1979 The main elements of the project are: electrification of lines in the Seoul suburban area; purchase of electric railcars and locomotives; the completion of electrification of 350 km of line running from Seoul to the northeastern part of Korea; track and bridge renewal; provision of yard facilities; acquisition of passenger and freight cars; and improvement of facilities for the maintenance and repair of motive power and rolling stock. No major problems have been encountered; most of the loan proceeds have been committed, and over 98% already disbursed. The Closing Date has been extended to March 31, 1979 to allow time for the completion of procurement. Loan No. 917 Ports Project; $80.0 Million Loan of June 27, 1973; Effective Date: September 18, 1973; Closing Date: June 30, 1979 Nine civil works contracts and ten equipment supply contracts are already let and work is proceeding satisfactorily. Contract work is also progressing on the grain handling facil:ity and the grain silo; work on the head house foundations has been completed. All cargo-handling equipment is on site and under erection. Overall the project is about 90% completed. Total cost is currently estimated to be $144 million with a foreign exchange component of about $102 million. The loan provides $80 million foreign exchange and the overrun is being financed by a loan of $35 million from the Saudi Fund for Development (SFD). The Korea Maritime and Port Authority ANNEX II Page 11 of 12 pages (KMPA) is adequately staffed, but there has been a delay in implementing operational and financial procedures recommended by consultants appointed to advise KMPA on these matters. Consultants for the implementing phase have now been selected by KMPA and the contract recently awarded. Around 81% of the loan proceeds have already been disbursed. Loan No. 956 Second Highway Project; $47.0 Million Loan of January 25, 1974; Effective Date: April 4, 1974; Closing Date: December 31, 1978 The works, consisting of construction, chiefly on new alignments, of about 130 km of highways and paving, chiefly on existing alignments, of a further 634 km of national highways were completed on schedule and the highways opened to traffic: in October 1975. The cost, in US dollar equi- valent, exceeded the estimate by about 5%. Feasibility studies for future projects of about 1,000 krm of roads were started in August 1975, followed by detailed engineering. Delay occurred in setting up a new nationwide highway maintenance organization but the organization has now been established in accordance with decrees published in June 1975. All the maintenance offices have been constructed and staffed and equipment procured under the loan. The Government has agreed to increase the budgetary allocations to enable an adequate program of periodic maintenance to be carried out. By the end of September 1978, disbursements exceeded 99%, after extending the Closing Date by a year to allow for procurement of spare parts needed for the maintenance equipment. Loan No. 1101 Fifth Railway Project; $100.0 Million Loan of April 10, 1975; Effective Date: July 15, 1975; Closing Date: December 31, 1978 The project will help the Korean National Railroad (KNR) continue as a major carrier of freight and passengers by providing for: the upgrading, modernization and expansion of track, rolling stock, motive power, and other equipment; the improvement of the efficiency of operation; and the strengthening of its financial position. The main components of the project are: an increase in station and line capacity and improvements in signaling; acquisition of rolling stock, diesel and electric locomotives, spare parts and repair facilities; track renewal and improvement; bridge strengthening; completion of electrification of 71 km of industrial lines; and other miscellaneous items. Contracts, financed by the loan, have been signed for procurement of passenger and freight cars, wheel sets, spares for locomotives, rail, bridge girders and track maintenance machinery, amounting to about $95 million equivalent. Ninety-two percent of the loan proceeds have already been disbursed. ANNEX II Page 12 of 12 pages Loan No. 1203 Third Highway Project; $90.0 Million Loan of February 20, 1976; Effective Date: May 17, 1976; Closing Date: December 31, 1979 The loan provides funds to help finance: (a) the construction, chiefly on new alignments, including paving, of about 195 km of four national highways, including supervision of the work by consultants; (b) paving and improvement, chiefly on present alignments, of nine national highways totaling about 600 km, including supervision of the work by consultants; and (c) feasibility studies by consultants of about 1,200 km of national and provincial roads, to be followed by detailed engineering. Contracts for construction and paving are progressing substantially on schedule. Feasi- bility studies by consultants were not started until January 1978, but are now proceeding satisfactorily. DisbursemerLts to the end of September 1978 were about 48% of the total loan. The Saudi Fund for Development is providing a loan of $35 million to assist in financing the project. Loan No. 1401 Second Ports Project; $67.0 Million Loan of April 28, 1977; Effective Date: July 27, 1977; Closing Date: December 31, 1982 The project consists of: (a) a 700 m extension of container berths being financed under the First Ports Project and a 335,000 sq m expansion of the container stacking area provided under that project; dredging to provide an alongside depth of 12.5 m; construction of an access road, inside the port limits, a guard house, and an 8,000 sq m container freight station, and the necessary ancillary facilities; rehabilitation of piers 3 and 4, the central wharf, and lighter wharf No. 5; (b) procurement of container cranes, mobile container handling equipment, and two tugboats; (c) Engineering Consultant Services - to carry out detailed design and supervision of construction and procurement; and (d) Technical Assistance and Training - to assist in cargo handling (including the handling of containers), maintenance, port planning, and accounting. Engineering consultants for the civil works have recently been appointed. Loan No. 1542 Sixth Railway Project; $120.0 Million Loan of April 10, 1978; Effective Date: August 3, 1978; Closing Date: June 30, 1982 The project would provide KNR with the capacity required to meet forecast traffic, and reduce operating and maintenance costs. It includes continued double tracking and electrification of lines, extension of yards and terminals, continued installation of centralized traffic control, track and rail renewal, separation of road and rail at crossings, installation of a permanent way workshop, procurement of diesel locomotives, passenger cars and freight cars, provision of a new passenger car workshop, installation of additional telecommunication and power facilities and provision of technical assistance to KNR. The loan will also finance transport sector studies. Bids have been received for about 95% of the Bank-financed items. ANNEX III KOREA FOURTH HIGHWAY PROJECT Supplementary Data Sheet Section I - Timetable of Key Events (a) Time taken to prepare The project was prepared through a project: consultations during regular supervision of the ongoing Third Highway Project. (b) Agency which prepared the Ministry of Construction and project: Consultants. (c) Date of the first Bank October 1976. mission to consider the project: (d) Departure of appraisal March 1978 mission: (e) Negotiations completed: November 5, 1978 (f) Planned date of effectiveness: March 30, 1979 Section II - Special Bank. Implementation Action No specific action is considered necessary. Section III - Special Conditions (a) The Government will make adequate arrangements, satisfactory to the Bank, for carrying out the studies of the institutions concerned with provincia:L and gun roads, and of the maintenance and development of such road system, and will review with the Bank the findings of the studies to be followed at appropriate stages with the selection of roads for detailed engineering (para. 39). (b) The Government will cause the national roads (including its toll highways) to be adequately maintained and will make adequate arrangements satisfactory to the Bank for timely provision of funds, personnel, equipment and other resources for that purpose, including provision for maintaining its maintenance equipment, and the procurement of spare parts (para. 40). | / 7 _- 11 15W I KORE 2 ' 1550 ~~~~~~~~~~~~~~~~~~~~~~~~~~2e ,USSR NORTH KOREA CHINA -' 1A SEA "It JAPAN YELLOW - JPNn SEA hurahe3Bn PACIFIC OCEAN _ I 'K A 5,~~ ~ ~ ~ ~ ~ ~ ~ , IVR - Ye//ow 5e a / *ti~- S ' It ir 7p2p2p11epA e5p ~~~~~~~~~NATIONAL AND PUOVNCAL. 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