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REPORT0411S DF KReport No. TO-464a

This report was prepared for use within the Bank and its affiliated organizations.

They do not accept responsibility for its accuracy or completeness. The report may

not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

THIRD HIGHWAY PROJECT

IRAN

April 14, 1965

Projects Department

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CURRENCY EQUIVALENTS

1 U.S. Dolla' = Rialo 75RIO. 1 million = U.S. $13, 330

IRAN: THIRD HIGHIWAY PROJECT

Table of Contents

Page

Summary i

I. INTRODUCTION 1

II. BACKGROUND 1

A. General 1B. Modes of Transportation 1

III. THE HIGHWAY SYSTE4 2

A. Recent Developments 2B. Road Organization and Finance 3C. Maintenance of Roads h

IV. THE PROJECT 4

A. Description of the Project 4B. Cost Estimates 5C. Design and Lxecution 7D. Financing of the Project 7

V. ECONTOMIC JUSTIFICATION 8

A. Economic Benefits of Road Investments in Iran 8B. The Mlethod of Evaluation of Benefits 9C. Sirjan-Kerman Road 10D. Nain-Kerman Road 11E. Shahpasand-Meshed-Afghan Border Road 12F. Tehran-Rudehen-Babol Route 13

VI. CONCLUSIONS AND RECO?1MENDATIONS 14

TABLES: 1. Annual Budget of the IMinistry of Roads2. Cost Estimate3. Design Standards4. Consumption of Motor Fuels, 1953-19635. Number of Motor Vehicles, 1948-19636. Estimated Operating Cost of an Average Truck

MAP

IRAN: THIRD HIGIGWAY PROJECT

Summary

i. The Government of Iran has asked the Bank for a loan of US$32 millicnequivalent to finance the foreign exchange cost of a road project consisting ofconstruction, improvement and paving of 1,680 km. of highways as well as theengineering and supervision of field works. The project is part of the Govern-ment's Third Five-Year Economic Development Plan and will be the Bank's thirdroad loan to Iran.

ii. The previous two Bank loans of $72.0 million and $18.5 million res-pectively helped finance road projects which included construction and improve-ment of some 3,700 km. of main roads, or one-fifth of the country's highwaynetwork. The Bank's financial assistance was also instrumental in introducinginto the country improved methods of road construction and a more efficientorganization.

iii. The project includes construction and irnprovement of three roads(1,450 km.) in the country's southeast, central and northeast regions andpaving of the arterial highwqay between Tehran and the Caspian region (230 km.).

iv. The total cost of the project is US$90.0 million, including US$5.2million for the cost of engineering and supervision. The cost estimates arebased partly on final engineering and partly on preliminary surveys, and aretherefore subject to possible variation when the final engineering is completedon all roads, but an allowance of 20 percent included in the estimate shouldsuffice to meet such contingency. The designs and specifications are satis-factory. The foreign cost components are 35 percent of the construction costand 50 percent of the engineering and supervision costs. The local currencycost of the project will be provided by the Plan Organization (P.O.) out ofits development budget.

v. The execution of the project would be the immediate responsibilityof the Ministry of Roads under the financial and technical control of the P.O.The field works would be supervised by qualified consultants. The contractswould be awarded to local and/or foreign contractors on the basis of unitprices and international competitive bidding.

vi. The maintenance of roads is the responsibility of the Ministry ofRoads. Its maintenance budget will be increased and a special fund will beestablished for renewal of maintenance equipment and purchase of spare parts.

vii. The project is economically justified by savings in transportationcosts. In addition, the project will stimulate agricultural, industrial andmining development in the affected regions.

viii. The project provides a suitable basis for a loan of US$32 million fora period of 25 years, including a 4½-year period of grace.

I. INTPODUCTION

1. The Government of Iran has asked the Bank for a loan of US$32 millionequivalent to finance the foreign exchange cost of a road project consisting ofconstruction, improvement and paving of 1,680 km. of highways. The total costof the project is estimated at US$90,0 million equivalent.

2. The project is part of the Government's overall investment programn forroads planned for execution during the Third Five-Year Plan Period from 1962-1967. The project would be the third highway loan to Iran. The first loan of$72.0 million, 227-IRN, was signed in May 1959, and the second, $18.5 million,381-IRN, in June 1964.

3. The appraisal of the project is based on feasibility studies and,partly, final engineering undertaken by consulting firms under the Bank's firstroad loan and on the findings of a Banlc Mission which visited Iran in August-September 1964.

II. BACKGROUND

A. General

4. Iran's territory of more than 630,000 square miles is larger than thecombined total area of Italy, Spain, France and Great Britain. About 90 percentof the land area consists of deserts and high mountains with inhabited areasscattered throughout the country. The vast size of the country and thescattered population make transportation costly and, consequently, many import-ant sections of the country are not adequately served.

5. About 70 percent of the total population of 21 million reside inrural areas, engaging in production of staple crops, mainly wheat, and live-stock raising. The agricultural yields are generally low due to antiquatedfarming methods, little application of fertilizers and scarcity of water. Asystematic development of water resources for irrigation has begun only recently.

6. The relatively small industrial sector of the economy is based mainlyon agricultural raw materials. Important industries include textile, sugarrefining, cement, chemicals, tobacco, vegetable oils and fertilizers. Cottontextile and cement production generally meet the total domestic demand.

7. The mainstay of Iran's economy is petroleum which presently producesan annual revenue of about $400 million to the Government. Iran accounts forover 20 percent of the Middle East oil output.

B. Modes of Transportation

8. The main transport media in Iran, besides pipelines for oil, are roadsand railways with air transport playing a supplementary role. The road networlkconsists of about 6,100 km. of asphalted roads, of which 1,200 km. are underconstruction, 16,000 km. of gravel roads and about 12,000 km. of dirt roads andtracks. The railroad has about 3,600 km. of track. A pipeline from Abadan toTehran and the vicinity conveys the oil products consumed in and around thecountry's capital.

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9. The Gulf ports of Khorramshahr and Bandar Shapur are the principalgateways of Iran's foreign trade. A new port is under construction in BaridarAbbas in the southeast. Iihen the port construction is completed in 1967, apart of the general cargo traffic of the Khorramshalhr port will be diverted tothe new port to relieve the congestion in the former port. The airports inTehran and Abadan accomnodate international as well as local flights. Otherprincipal airports for local traffic are located at Isfahan, Shiraz, Kerman,Meshed and Tabriz.

10. The railway is operated by the Iranian State Railways, a subdivisionof the Ministry of Roads and Communications. The principal line extends fromthe Gulf ports of Khorramshahr and Bandar Shapur to Tehran and further to BandarShah on the Caspian Sea (Trans-Iranian Line). iMeshed in the northeast andTabriz and Julfa in the northwest are also connected with Tehran by rail. AtJulfa the railway is linked, by transshipment, with that of the U.S.S.R. A140 kmi. extension beginning near Tabriz towards the Turkish border is under con-struction to provide a connection with the Turkish railway system.

11. Railway freight traffic is composed mainly of petroleum products,Government's imports of bulk commodities and general merchandise. The mainpart of the railway freight revenue is derived from the operation of the north-south Trans-Iranian Line, on which most of the traffic is from south to north.

12. Both freight and passenger traffic, which had been growing steadilyuntil recently, have begun to decline somewhat. The railway is today in keencompetition with road and pipeline transport. Although, with the expansion ofthe road network and the resultant growth of highway transport services, theGovernment would eventually have to take measures to regulate road transportto coordinate with the railway operation, the presently available indicationsdo not suggest that the railway is faced with unfair competition from roadtransport. The principal and immediate measures that will have to be taken inIran to realize a better coordination between road and railway transport appearto be the improvement of railway's operating efficiency and organizationalchanges that will enable the railway to operate as a business enterprise.

13. The organization and operation of the railway need to be improved ifit is to compete with road transport. The railway is today heavily overstaffedand its equipment is less than fully utilized. The lack of authority by therailway's management to adjust tariff rates causes loss of even the long-distance traffic to highway transport. The railway management is acutelyaware of these problems, and the Government has been considering a streamliningprogram, but no step has yet been taken.

III. THE HIGHWJAY SYSTEM

A. Recent Developments

1h. During the past five years the Iranian Government has undertaken anextensive road development program, which was assisted by the two previous Bankloans.

15. The first Bank project financed the construction and improvement of

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roads connecting the Tehran region with the ports in the south, the Caspianlittoral region and the southwestern region bordering Iraq. The project whichis now complete, added some 2,500 km. of modern paved roads to the country'shighway network. Together with about 2,400 km. of roads reconstructed orimproved by the Ministry of Roads, the 4,900 km. of paved roads form the vitalarterial highways serving the most important and productive regions of thecountry. The economic impacts of this project are discussed in paragraphs 47through 51.

16. The Second Road Project included the reconstruction of about 1,200 km.more of main roads, the most important of which being the main trunk-road tothe northwest from Takestan through Tabriz to Bazargan on the Turkish border,traversing the rich agricultural region of Azerbaijan. When the Second Projectis completed, some 6,100 km., or about one-third of the country's main roadnetwork, will have been improved to modern highway standards.

B. Road Organization and Finance

17. The Plan Organization (P.O.) is the Government agency responsible forplanning and execution of development projects including road construction.The immediate responsibility for road construction and maintenance, however, isin the Hands of the Ministry of Roads under the law go-verning the Third Five-Year Plan. The P.O., nevertheless, continues to be responsible for planning,design and survey, and retains control of project funds.

18. The performance of the Ministry of Roads as the executing agency ofroad works is satisfactory. Foreign consultants for supervision of field worksare now under the jurisdiction of the Ministry. There is close cooperationbetween the Ministry and the consultants, and relations between the P.O. andthe Ministry are also satisfactory.

19. The Ministry has organized a special division which deals exclusivelywith the execution of road projects financed by the P.O. and supervised by theconsultants. A revolving credit, established by the P.O. in behalf of theMinistry, is used to pay contractors and consultants. The payments are madepromptly.

20. Road construction is financed by the P.O. from its development budgetwhiich is made up of a part of the Government's oil revenue as prescribed by theThird Plan Law. The cost of road maintenance is met by the M4inistry of Road'sannual budget. Taxes collected from users of roads, such as fuel tax and importtariff on vehicles and parts, become part of the Government's general revenue.As no consistent record is available on these tax receipts, it is difficult toestimate the contribution of road users toward the costs of road constructionand maintenance. The fuel tax collected in recent years is estimated at aboutRls. 2.5 billion per annum (US$33 million). No estimate is available of thetax receipts on imports of vehicles and parts. But it does not appear likelythat the total collection from all these sources of revenue can cover thecapital as well as maintenance costs of the country's road system. There ishowever room for increasing the levels of taxes on diesel oil and imports ofvehicles and parts.

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C. Maintenance of Roads

21. The maintenance division within the Ministry of Roads has beenstrengthened during the past few years and its operations improved substan-tially. The set-up of its central and regional organizations is good. BranchOffices and modern repair shops have been established in each province (Ostan).The improved maintenance organization and operation are due largely to theassistance given by the U. S. Bureau of Public Roads (B.P.R.) which since 1958acted as advisor to the M5inistry. Funds for mechanizing maintenance operationswere made available in several U. S. Exitr-Bank loans over the last five years.

22. Although further improvement of maintenance operation is both desir-able and necessary, the basic organization now exists and the roads are for themost part adequately maintained. The annual budgetary allocation for mainten-ance has been gradually increased and is now about Rls. 700 million (see Table1). This amount, mainly devoted to payment of salaries and operating costs ofequipment on routine maintenance is still insufficient and should be increased,particularly because the rapidly developing traffic on the new roads will soonrequire increased periodic road maintenance. In addition, a special fundshould be created for renewal of equipment and supply of spare parts. Estab-lishment of such a fund is under consideration by the P.O. During negotiationsthese matters were discussed with the Govern.ment and assurances were obtainedon the implementation of the necessary measures.

IV. THE; PROJECT

A. Description of the Project

23. The project consists of the construction, improvement and paving ofabout 1,680 km. of main roads in the northeast and south of the country. Thedesignation and the length of the roads included in the project are as follows:

1. Sirjan-Kerman = 170 km.2. Nain-Kerman = 540 km.3. Shahpasand-Meshed-Afghan Border = 740 km.4. Tehran-Rudehen =55 km.5. Rudehen-Amol-Babol = 175 km.

Total 1,680 km.

24. The Sirjan-Kerman road is a part of the Bandar Abbas-Kerman roadwhich will become the main trunk road to serve the new port under constructionat Bandar Abbas. The project includes the improvement and asphalt paving ofthe existing road, including relocation of certain sections through a flat andpartially rolling area. The construction of the section between Bandar Abbasand Sirjan was started two years ago with the P.O. 's own financing and issupervised by the consulting firm, Kampsax. About half of the work has nowbeen completed.

25. The existing road between Nain and Kerman is a gravel road traversinga flat to rolling country. The road is virtually the only link betwreen central

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Iran and the southeastern provinces. The current traffic volume over the roadis already relatively heavy and its importance is expected to increase when theconstruction of the Bandar Abbas port is completed. A comprehensive reconnais-sance survey and an economic feasibility study were carried out on the road byconsultants retained under the First Road Project. Final survey and design bythe consultants are needed before construction work can start.

26. The Shahpasand-Meshed-Afghan Border road is a continuation of theSari-Shahpasand road towards the east, along the northern foothills of theElbruz Mountains and extending to the Afghanistan border. The Sari-Shahpasandroad is being improved by the P.O. under the supervision of the consulting firm,Kampsax. The proposed project road is an important trunk-road serving Meshed(pop. 250,000), one of the largest cities of the country and the administrativeand commercial center of northeastern Iran, and provides international roadconnection with land-locked Afghanistan to the east.

27. The first section of the proposed road between Shahpasand and Ghuchanwas rebuilt by the Ministry some years ago with a new base and gravel surfacing.The road has a generally good alignment which needs correction only in a fewlocations before paving.

28. The Ghuchan-Meshed section which serves a rich agricultural valley isan old gravel road with poor alignment. Realigmaent is therefore proposed inthe middle of the valley to serve better the numerous villages on both sides.The Ministry of Roads has recently completed a preliminary survey of the newroad, wJhich has been reviewed by the P.O., and will serve as the basis for thefinal design by consu'ltants.

29. The section from Ileshed to the Afghan border also needs to be recon-structed. The existing road has poor alignments and is of little value. Apreliminary survey has been completed by the linistry.

30. The Tehran-Rudehen-Babol route forms a modern trunk-road facilityserving traffic betwieen the Tehran metropolitan area and the Caspian regionacross the Elbruz Mountain ranges. The Rudehen-Babol road, constructed underthe First Road Project, received a surface treatment on one section and anasphalt binder-course on the remainder. Because of the heavy traffic (up to3,00 vehicles a day), the road surface has to be covered with an asphalt con-crete carpet. The Tehran-Rudehen road, completed about four years ago by theMinistry, needs minor relocations, improvement and an asphalt carpet over theexisting surface treatment.

B. Cost Estimates

31. The total cost of the project is estimated at Rls. 6,750 million,including 20 percent contingencies, or US$90.0 million equivalent, of whichabout Rls. 2,415 million, or US$32 million, represent the foreign exchange costproposed to be financed by the Bank. Table 2 gives details of the cost

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estimates, which are summarized as follows:

Total Cost Foreign Cost- - - in mllion USN - - --

1. Road construction, improvementand paving 70.0 2h.5

2. Engineering and supervision 5.0 2.53. 20 percent contingencies on

construction cost 15.0 5.0

Total 90.0 32.0

32. After final engineering the contracts on both sections of the Sirjan-Kerman road have recently been awarded to local firms on the basis of inter-national competitive bidding. The cost of Rls. 507 million used in the Tableis the consultant's estimate, on which the contractors offered prices slightlybelow the consultant's estimate.

33. On the Nain-Kerman road a comprehensive study including preliminarysurvey and design was undertaken by the consulting firm of Amman & Whitney.As the terrain is level and the project work is mainly the improvement of theexisting road, rather than realignment, the cost estimate indicated by theconsultants of Rls. 3.8 million (or US$50,000) per km., should be consideredfairly reliable. However, final engineering will have to be prepared beforethe cost estimate can be finalized.

34. On the Shahpasand-Meshed-Afghan Border road, the cost of paving theShahpasand-Ghuchan section was estimated by the consulting firm, Kampsax, andappears reliable. For the Ghuchan-Meshed section, a preliminary survey anddesign was undertaken by the Msinistry, with a cost estimate. As no engineeringis yet available for the Meshed-Afghan Border section, the Ministry's estimateof Rls. 3.5 million per km. was raised to Rls. 4 million after review by theconsultants. The same unit cost is used in estimates for the Ghuchan-Meshedsection which will be improved to higher standards (Class I) than the Meshed-Border section (Class II). The estimated cost should be adequate to cover thereasonable contingencies that might occur in the course of the project.

35. The estimate for pavement of the Rudehen-Babol road is based on thefinal designs prepared by the consultants, Kampsax, and is reliable.

36. For the Tehran-Rudehen road, a tentative estimate was prepared by theconsultants, which should approximate fairly closely, based on previous ex-perience, the estimates to be prepared on the basis of final designs.

37. The estimated cost for engineering and supervision (for details seeTable 2) is based on estimates prepared by the consultants and reflects theiractual experience under the First and Second Road Projects.

38. While the cost estimates of the proposed project appear to be con-sistent with the experience of the two previous road projects, they are based

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mainly on preliminary surveys, so that there may be some variations in thefinal estimates. For this reason, a contingency of 20 percent has been addedto the construction costs to meet any possible shortfaUl in the estimates.

C. Design and Execution

39. The project roads will be built to first class standards (Class I),with the exception of the Sirjan-Kerman road and the Meshed-Afghan Bordersection of the Shahpasand-Meshed-Border road, which will be built to secondclass standards (Class II). The design standards adopted by the Ministry ofRoads are generally satisfactory. (See Table 3). The same design standardswere applied to the roads constructed and improved under the First and SecondProjects.

40. Final engineering is available only for two of the roads included inthe project or about 20 percent of the project works; the Sirjan-Kerman roadis already under contract, and pavement of the Rudehen-Babol road ready fortendering. For the other roads final survey and design is scheduled to becarried out by consultants.

41.. The project will be carried out under the immediate responsibilityof the Ministry of Roads. Competent consultants should be retained to preparefinal plans and designs and to supervise works in the field. During negotia-tions, assurance has been obtained on the employment of consultants.

42. The construction work will be carried out by qualified local and/orforeign contractors, on the basis of unit price contracts and internationalcompetitive bidding.

43. One of the beneficial results of the road construction program hasbeen the growth of a local construction industry. When the Bankts first roadproject was initiated in 1959, there were few local contractors in Iran capableof undertaking road construction works of the magnitude required by the project.Today, a considerable number of competent and well-equipped construction firmshave emerged as a direct result of the road projects. Their capacity andexperience are adequate to carry out many future road programs in Iran.

D. Financing of the Project

44. It is expected that for the sections not yet finally engineered theconsultants would complete this work for about 90 percent of the roads by theend of 1965 and the remainder in the first half of 1966; the project would becompleted in 1968.

45. Accordingly, the disbursement of the loan may be as follows:

First Year Second Year Third Year Fourth Year Total

$5.5 million $12.6 million $9.8 million $4.1 million $32.0 million

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46. The amount of local currency required annually for execution of theproject would be approximately as follows:

In Million Rials

First Year Second Year Third Year Fourth Year Total

750 1,705 1,325 555 = Rls. 4,335 million($10.0) ($22.8) ($17.8) ($7.4) = ($55.0 equivalent)

The P.O. provides local currency from devenopment funds made available fromthe Government's annual oil revenues during the Third Plan Period. Duringnegotiations, assurance has been obtained from the Government that it rillmake available the necessary allocations in its development budget.

V. ECONOMIC JUSTIFICATION

A. Economic Benefits of Road Investments in Iran

47. The results of road investment in Iran in the recent past lend con-siderable support to proposals for further road investments. The First RoadProject financed by the Bank in 1959 is complete and the mission could ascer-tain some indications of its favorable impact on the economy of Iran, althoughit is not always possible to obtain quantitative data. There are three princi-pal indicators of the favorable impact of the project, namely, the increase intraffic volumes, reductions in the levels of charges by public carriers, andgrowth in productive activities in the service areas of the project roads.

48. The increase in the traffic volumes on the roads improved or recon-structed under the First Project is remarkable. On the basis of ratherincomplete traffic counts conducted ainually by the Ministry of Roads, itappears that the traffic volumes on the Project roads, opened to trafficbeginning in 1962, grew rapidly and have now approximately doubled the 1958level. Tnis relatively high rate of growth was registered on tne Project roadswhile most of the lower standard roads in the country showed far lower rates ofgrowth (mostly under 5 percent per annum or about 30 percent increment duringthe 6-year period). The current daily volumes of traffic on most of theseFirst Project roads are over 1,000 vehicles, and the proportion of commercialvehicles (trucks and buses) varies between 50 and 80 percent of total trafficvolumes.

49. The effects of the improved road conditions were directly registeredin the levels of charges by public carriers - buses and trucks. The ratescharged by these commercial carriers on the improved roads were just abouthalved compared with the levels prevailing before the improvement - bus farefrom Rls. 0.50 (US$0.7¢) per passenger/km. to Rls. 0.25 (US$0.3¢) and truckcharges from Rls. 2.50 (US$3.3¢) per ton/km. to Rls. 1.25 (US$1.7¢). Theinformation was supplied by T.B.T., the largest bus company in Iran and theTruckers Syndicate in Tehran.

50. The reduction of fares by half would appear to squeeze profit margins

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of the public carriers to a level considerably below the previous level. But,according to the carriers, while lowering of the unit profit margin is inevi-table because of the intensified competition among many carriers on improvedroads, the increased volume of business resulting from road improvementsusually produces the same or a higher total return on the capital invested. InIran there is no government regulation of rates and charges collected by publiccarriers.

51. The effects of road improvement on the economic growth of the serviceareas are difficult to evaluate in quantitative terms, and, moreover, the pro-ject is too recent to have produced its full effects. However, it is notedthat, in the regions served by the project roads, there is a large expansionof the areas of agricultural cultivation, and a considerable diversificationof farming, which includes a switch from traditional staple crops to cash crops.In order to obtain full benefits of the road investment, construction offeeder-roads is necessary to connect isolated areas with the new main roads.For this reason, many of these areas served by the First Project roads areincluded in a proposed feeder-road project the Bank has appraised simultaneous-ly with the appraisal of the Third Highway Project.

B. The Method of Evaluation of Benefits

52. Three of the five roads included in the project, Sirjan-Kerman,Nain-Kerman, and Shahpasand-Meshed-Afghan Border, serve areas relativelyunderdeveloped but which show large potentials for growth. The main objectiveof improvement of these roads, therefore, is to induce and accelerate economicdeve'lopment of the affected areas.

53. The two other roads, Tehran-Rudehen and Rudehen-Babol, serve excep-tionally heavy traffic volumes between the Tehran area and the Caspian littoralregion which is one of the best developed agricultural areas in Iran. Thepurpose of investment in these roads is to prevent the deterioration of theroad surface by application of a permanent type of asphalt pavement, ratherthan to correct any existing unsatisfactory conditions of the roads.

54. The estimates of economic benefits have been made for each road and,where traffic volumes and costs of improvement vary considerably between dif-ferent sections of the same road, such estimates have been made for each sectionof the road. For those roads serving the presently underdeveloped areas(Sirjan-Kerman, Nain-ICerman, and Shahpasand-Afghan Border), the rate of trafficgrowth is assumed to be at 10 percent per annum during the first five years ofoperation of the improved roads and thereafter gradually declining to 5 percentper annum toward the end of the 20-year economic life of the investment. Theunit savings of an average size truck, after improvement of these roads, areconsidered to be about Rls. 3.7 per km. For the roads connecting Tehran withthe Caspian littoral (Tehran-Rudehen and Rudehen-Babol) the rate of trafficgrowth is assumed to be 7.5 percent per annum during the first five years,declining to 5 percent by the end of the 15-year economic life of the invest-ment. The unit savings of an average truck on this road would be Rls. 1.6 perkm.

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55. The bases of these assumed figures are the statistics of motor fuelconsumption and registered motor vehicles of the country as a whole, and theestimates of vehicle operating costs prepared mainly from information suppliedby the consultants. The details of this information are given in Tables 4, 5and 6. The basic data used are generally the same as those used for theappraisal of the Second Road Project. As review and interpretation of the datawere made in the Second Project appraisal report (TO-403b, May 1964) and thereis no significant change since then, the detailed discussion of the data is notrepeated here.

56. The rates of return showsn for each road are calculated on the basisof the presently available cost estimates which include 20 percent contingen-cies.

C. Sirjan-Kerman Road

57. The 170 km. road betwieen Sirjan and Kerm.an traverses the northwesternpart of the Kerman province. The province, located in the extreme southeastof Iran, consists predominantly of deserts and salt deposits. Extremely dryclimate permits little productive activity except herd grazing in primitivefashion. The road's service area, however, is probably one of the few areasbetter suited for agriculture in the region. The soil is better and weatheris more favorable for cultivation than in the rest of the province. Conse-quently, a large part of the estimated population of the province of 800,000is concentrated in this area. Although at present the main pursuit of thepeople of the area is limited to growJing nuts, a large part of the unused landarea could be cultivated if adequate irrigation were provided.

58. The city of Kerman (pop. 70,000) is the capital of the province andthe center of economic activities. The area surrounding Kerman is rich inmineral resources but very little is being exploited. The construction of thenew port in Bandar Abbas in the south should encourage development of miningactivities by providing convenient and economical ocean transport. The miningresources include coal, iron, chromite, lead, copper, zinc, manganese ore,asbestos, etc. Exploitation of these mining resources is being planned by bothpublic and private concerns.

59. The port of Bandar Abbas is being built by the Government at a costof about $22 million, of which $15 million is financed by a TISAID loan grantedin 1963. The construction started early in 1964 and is planned to be completedwithin three years. The port will have three general cargo berths with anannual handling capacity of 300,000 tons, and bulk loading facilities for oreson a separate berth to handle 300,000 tons a year.

60. In anticipation of the opening of the new port in Bandar Abbas, theGovernment has already started construction of a new road from Bandar Abbas toSirjan. This road was proposed to be included in the Bank's Second Road Projectlast year, but the Bank mission at that time found it difficult to justifybecause the existing traffic volume was too low (about 50 vehicles a day) andthe design standards proposed too high. Despite the recommendation of the con-sultants that the initial improvement should be undertaken on a modest scale

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and the standards raised later if port traffic should materialize, the Govern-ment persisted in building a high standard highway. The Government is, there-fore, financing the construction of this road without the Bank's assistance.

61. However, the Sirjan-Kerrman road, which is an extension of the BandarAbbas-Sirjan road, is considered justified and included in the proposed project.The reasons are manifold: first, the section in question has a higher trafficvolume (about 100 vehicles a day); second, the area served has better agricul-tural potential than the areas along the Bandar Abbas-Sirjan road; third, dueto the favorable terrain, the cost of improvement is only about one-half ofthat for the Bandar Abbas-Sirjan section (Rls. 3 million per km. againstRls. 6.2 million); and last, but not least, since the Government has decidedto go ahead with the construction of the Bandar Abbas port, a certain volumeof port cargo will move over the road, although perhaps not as much as the200,000 tons a year projected by the Government for 1967.

62. Assuming that only about one-half of the projected cargo materializesby 1970 instead of 1967, the total traffic volume over the road, which includesthe present traffic and its projected growth during the 20-year economic lifeof the investment, would produce an annual return of about 11 percent on theinvestment.

D. Nain-Kerman Road

63. This road connects the Kerman area with the industrial and marketingcenter around Isfahan. As the 138 km. section from Isfahan to Nain is beingimproved and paved by the Ministry, the project includes improvement of thesection starting from Nain. The city of Isfahan, with a population approach-ing 300,000, is the second largest city of the country.

64. The proposed road is an important part of the arterial highwlay betweenthe capital region around Tehran and the southeastern provinces of Kerman andBaluchestan. It would also be an essential link in the highway system connect-ing the port of Bandar Abbas with central Iran.

65. Until recently, the development of the region east of Isfahan wassomewhat neglected because of its relative remoteness from the country'spopulation centers. Consequently, the area has been isolated from moderninfluences and the majority of its people even now are engaged in primitiveagriculture or cattle grazing. According to the Government's consultants,only about one quarter of the potentially productive land area is presentlycultivated.

66. The region is rich in mineral resources. Several teams of foreigngeologists recently carried out extensive investigations of the area andestablished that the region's underground reserves of lead, zinc, iron andcoal are sufficient to permit large scale exploitation for many years. Anumber of foreign mining concerns are currently engaged in negotiations withlocal companies to form joint ventures for exploitation and exportation ofmineral ores of the region.

67. In recent years, many industrial establishments have grown up in the

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cities and towns along the roads. These industries include food processingand canning, and production of beet sugar, flour, chemicals, cement, metals,bricks and furniture. Many of them are, of course, small industries. Thetraditional industry is carpet weaving for which the region is noted for itsfine products.

68. The current daily traffic on this road is about 250 vehicles, ofwhich more than two-thirds are trucks. The total savings in vehicle operatingcosts together with some savings in road maintenance cost after the improvementis estimated to yield an annual return of 13 percent on the investment costduring the 20-year economic life of the investment.

E. Shahpasand-Mesbed-Afghan Border Road

69. The road runs laterally through the northern part of the Ostans ofMazandaran and Khorassan, paralleling throughout most of its length the Russianborder running about 50 km. to the north. The railway betwneen Tehran andMeshed is located on the southern side of the mountain range whereas the pro-posed road is located in the northern foothills of the same mountain range.The railway runs through mostly a desert area and therefore serves few popu-lated or productive areas, except the Meshed region where it terminates. Mostof the service area of the proposed road, on the other hand, is not served bythe railway. For this reason, competition between the road and railway afterthe improvement of the former is expected to be minimal. At any rate, thepurpose of road improvement is to develop the presently isolated areas throughwhich the road runs rather than providing an alternative connection betweenthe central and northeastern parts of the country.

70. The area extending about 100 km.. eastward from Shahpasand is a partof the fertile agricultural plain of Gorgan, where cotton, wheat and rice arethe main crops. Next to this plain there is a mountainous region where culti-vation of sugar beet is the main agricultural activity. About halfway betweenBujnurd and Meshed the mountainous region ends and a wide plain reappears,extending to the Afghanistan border. Currently the wihole area is devoted toproduction of sugar beets, cotton and wheat.

71. The VWestern half of the road's service area is under the favorableclimate of the Caspian region and is shielded by the paralleling mountainrange in the south against the influence of the dry air of the "Dasht-i-Kavir"or the great salt desert. With annual precipitation of over 400 mm, it ispossible in normal years to grow one crop without irrigation. From Ghuchanto the Afghan border the amount of rainfall is lower, 200-300 mm per annum.In this area, however, an extensive underground irrigation system, called"Qanats", provides additional water for cultivation. The part of the regionwith sufficient rainfall has achieved a rapid development of its agricultureduring the past 15 years, particularly in cotton and sugar beet cultivation.

72. Mineral resources are rich but not adequately exploited at presentbecause of the remoteness of the region and poor transportation. Currently,only coal mining is relatively active. Other mineral resources include iron,copper, magnesite, lead and chromite.

- 13 -

73. The area surrounding Meshed is fairly well developed industriallyusing raw materials supplied from the poad's service area. Cotton ginningand beet sugar production are the most important industries. Other industriesinclude a cement plant, manufacture of beverages and matches, food processing,drying and canning of fruits, and vegetable oil extraction. The area is alsoone of the important carpet producing centers of Iran.

74. The Meshed-Border section of this road serves the internationaltraffic between Iran and Afghanistan. Beside the general merchandise, theannual export of about 25,000 tons of Iranian petroLeum products toAfghanistan is transported over this route.

75. The present traffic volume on the road varies from about 150 to 250vehicles depending on sections. As a whole, the savings on vehicle operatingcosts and road maintenance would yield an annual rate of return of 13 percenton the investment cost, including Rls. 525 million which was already put inby the Govermnent on the sections between Shahpasand and Ghuchan. The differ-ent sections yield different rates as follows:

Section Km. Current Daily Traffic Annual Rate(In Truck Equivalent) of Return

Shahpasand-Bujnurd 255 250 16%Bujnurd-Ghuchan 125 200 18%Ghuchan-Meshed 120 210 13%Meshed-Border 240 150 9%

76. The last section, Meshed-Afghan border, produces a relatively lowrate of return. But, as the road improvement will facilitate both the develop-ment of the region and trade with Afghanistan, this section should be improvedas part of the project roads. The road on the Afghanistan side is beingreconstructed with financing by the USAID.

F. ,ehran-Rudehen-Babol Route

77. The present road between Tehran and Rudehen was constructed fouryears ago by the Ministry of Roads, and its extension to Babol on the Caspianshore was constructed as part of the First Bank Project two years ago. Bothsections have only a binder course of hot asphalt or surface treatment. Thetraffic has been increasing very rapidly in recent years and the currentvolumes vary between 1,200 and 3,000 vehicles a day depending on sections anddays of the week.

78. Because of the heavy volume of traffic the road surface needs apermanent type of pavement. If the pavement work is postponed by a few years(say three to four years) the existing surface would be completely disintegratedand some destruction of base and sub-base courses would result. The postpone-ment of investment would, in other words, result not only in increasing thecost of vehicle operation but also in a partial loss of the investment alreadymade.

79. The savings on. vehicle operating costs an.d road maintenance wouldyield, during the 15-year economic life of the in.vestment, annual rates ofreturn. of 21 percent and 22 percent for Tehran-Rudehen and Rudehen-Babol roads,respectively.

VI. CONCLUSIONS AND RECOMUENDATIONS

80. The cost estimates of the several roads included in. the project arebased partly on.preliminary engineering and partly on final engineering, buton. the basis of past experience on.road pzojects in Iran and with an.allowanceof 20% for contingencies they are considered to be realistic.

81. Assurances have been obtained from the Government on. the provisionof local funds for the project, on. the employment of consultants and the bid-ding procedures to be followied, and on. increases in the MYinistry of Roads'maintenance budget and the establishment of a special fund for equipment re-newal and purchase of spare parts.

82. The Project is economically justified from benefits accruing toroad-users and savings in. road maintenance costs. The Project, moreover, willcontribute to the agricultural, industrial, and mining development of the af-fected regions.

83. The Project provides a suitable basis for a loan.of US$32 million.equivalent to the Iranian. Government. A 25-year term including a Le½-yearperiod of grace would be appropriate.

April 14, 1965

TABLE 1

IRAN: THIRD HI&hHAY PROJECT

Annual Budget of the Mvinistry of Roads

(Million Rials)

Ordinary ExpenditureYear and iNew Construction tIaintenance Total

1959 574 426 1,000

1960 400 550 950

1961 790 550 1,340

1962 265 635 9co

1963 180 720 900

1964 180 737 917

Source: Ministry of Roads and Coinrunications

Table 2Page 1

IRAN: THIRD HIGHITAY PROJECT

Cost Estimate

A. Total Costs

Roads Km. Million Rls.

1. Sirjan-Kerman 170 5072. Nain-Kerman 540 2,0503. Shahpasand-Meshed-Afghan Border

a. Shahpasand-Bujnurd 255) 640b. Bujnurd-Ghuchan 125) 188c. Ghuchan-Meshed 120) 480d. Meshed-Afghan Border 240 ) 960

4. Pavement Tehran-Rudehen 55 1555. Pavement Rudehen-Babol 175 260

Sub-total 1,680 5,240

6. Engineering, supervision 3877. Contingencies: about 20%

of construction 1,123

Total Ris. 6,750

US$ 90.0 mill.equiv.

B. Costs for Supervision and Thousand MillionEngineering by Consultants US$ Rls.

1. Sirjan-KermanSupervision: 2 sects. x 24 mths. x$12,000 580 43.5

2. Nain-KermanFinal Survey: 540 km. @ $1,500 801 60.0Supervision: 8 sects. x 20 mths. x$8,000 1,280 96.0

3. Shahpasand-Meshed-Afghan Border

a. Final survey Shahpasand-Ghuchan )380 km. @ $700 = $266,000 )

b. Final survey Ghuchan-Afghan Border )360 km. @ $500 = $180,000 )

c. Supervision Shahpasand-Afghan Border)200 sect/mths. @ $8,000 = $1,600,000)2,046 154.0

Table 2Page 2

IRAN: THIRD HIGHmWAY PROJECT

Thousand MillionUS$ RLS.

4. Pavement Tehran-BabolFinal Design: 55 km. @ $1,500 = $82,000 )Supervision: 20 mths. @ $10,000 = $200,000) 282 21.0

5. Pavement Rudehen-BabolSupervision: 2 sects. x 12 mths. @ $6,700 161 12.0

Total 5,150 386.5

C. Foreign Exchange Costs

1. Construction cost and contingencies35% of Rls. 6,363 million 2,220

2. Engineering fees =50% of Rls. 387.0 million 195

Total Rls. 2,415

US$ 32 mill. equiv.

TABLE 3

IRAN: THIRD HIGH.JAY PROJECT

Design Standards

Class I Class II

Terrain Level & Rolling iiourtai-nous Level & Rollin, -'iounta½nous

Design speed (km/h) 80-100 50-65 70-90 45-60

Max. grade (%) 5-6 6-8 6-8 8-1o

Ifin. radius (m) 4co-500 100 200=300 60

Min. sight distance (m) l00-150 60 100-150 60

!.Jidth of roadway (m) 11.00 10.00 9.0C 8000

Width of pavement tm) 7.00 70co 6.oo 60oo

W4idth of shoulders (m) 2.00 1.00 1e50 lo00

Surface pavement asphalt concrete surface treatment

Structure design H20 - S16 - 44 H20 - S16 - 44

Source: Plinistry of Roads and Communications

TABLE 4

IRAN: THIRD 'ITl-,HWAY PEOJECT

Consu.2ti.on of Miotor Fuels

(in Cubic iHeters)

D I E S E L O I LOf 14hich For

Year Gasoline Motor Transport Use Total

1953 296,459 148,293 (n.a.) 444,752

1954 334,079 169,419 (n.a.) 503,498

1955 383,494 234,544 (n.a.) 618,038

1956 425,871 297,424 (in.a.) 723,295

1957 46o,7743 385,172 140,252 845,915

1958 522,491 517,254 168,765 1,039,745

1959 564,688 701,444 225,CO4 1,266,132

1960 625,674 851,195 292,158 1,476,869

1961 644,851 973,769 341,319 1,618,620

1962 663,216 1,083,121 368,912 1,746,337

1963 702,493 1,157,903 (n,a.) 1,860,396

Source: lNational Iranian Oil Company

TABLE 5

IRYN: THIPOD ;.GHVAYPROJECT

Number of Motor Veihicles 1.948 - 1963

(Excluding Military Vehicles)

Year Passenger Cars Buses Trucks Total

1948 12,412 4,075 119667 28,154

1949 16,003 4,503 14,119 34,625

1950 19,710 5,.148 15,269 40,127

1951 21,344 4,722 14,613 40,679

1952 23,647 5s283 15,453 44S,383

1953 25,4116 5,211 16,523 47,150

1954 29,245 5,781 18,740 53,766

1955 33,773 6,315 20,612 60,7CO

1956 41,210 6,685 19,911 67,806

1957 52,669 7,001 25,543 85,213

1958 67,297 7,057 28P549 102,903

1959 79,580 7,372 31,925 118,877

1960 94,380 8,047 35,512 137,939

1961 97.,7G9 8,244 34,9268 140,221

1962 106,093 8,917 30,440 145,450

1963 122,098 10,820 36,486 169,404

Source: lIinistry of Roads and Communications

TABLE 6

IRAN: TqTD HIGHIJAY PROJECT

Estimated Operating Cost of an Average Truck"

(Rials per Km)

R O A D S U R F A C ELJnimTDroved Earthor Deteriorated Improved

Gravel G _ravel Paved

Assumed average speed (Kmph) 50 65 75

Cost of Operation:

Depreciation 6.25 5.36 4.68

Maintenance 3.32 2084 2h48

Fuel 1.15 1.00 .82

Lubricant .17 .15 .12

Tires .9L .75 .62

Drivers' wa-e 2,26 1.93 1,69

Total 14.o9 12.03 1O4hl

(US18.8¢) (USi6.0¢) 0U313.90)

2-axle, 15 tons gross weight.

Note: The tax element is excluded in the estimate of the cost.

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DECEMBER 1964 IBRD-1088RI