RESTRICTED

Report No. TO-384a

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 maynot be published nor may it be quoted as representing their views.

NTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPM[ENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF A THIRD EXPRESSWAY PROJECT

TOKYO-SHIZUOKA

JAPAN

September 12, 1963

Department of Technical Operations

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CURRENCY EQUIVALENTS

US $1 = Y 3601 Yen = USJ 0.28

Fiscal Year

April 1 - March 31

JAPAN

APPRAISAL OF A THIRD EXPRESSWAY PROJECT

TOKYO - SHIZUOKA

TABLE OF CONTENTS

SUMMARY

I. INTRODUCTION 1

A. Application 1

B. Related Bank Loans 1

II. BACKGROUND 1

A. General 1

B. Transport in Japan 2

III. NIHOIT DORO KODAN 4

A. Organization and Management 4B. Scope of Activities 4C. Finances and Earnings 5

IV. THE PROJECT 7

A. Description 7B. Design Standards and Documentation 7C. Administration and Execution 7D. Cost Estimates and Loan Disbursement 8E. Economic Justification 1IF. Financial Aspects 13

V. CONCLUSIONS AND RECOMMENDATIONS 13

TABIES:1. Freight Traffic, by Mode of Transport, 1955-61, 1970 and 19802. Passenger Traffic, by Mode of Transport, 1955-61, 1970 and 1980

3. Number of Registered Vehicles, 1953-634. Nihon Doro Kcdan - Summary Balance Sheets5. Sii:aSLary Statements of Revenues and Expenditures6. It - Memorandum Account of Toll Revenues and Eixpenditures7. " It - Forecast of Revenues and Expenditures8. tt " - Pro-Forma Balance Sheets9. Tokyo-Shizuoka Expressway: Estimate of Project Cost

10. " " ' : Schedules of Expenditures and Revenues11. Freight Traffic in the Tokyo-Shizuoka Region, 1955-6112. Passenger Traffic in the Tokyo-Shizuoka Region, 1955-6113. Schedule of Proposed Toll Charges

APPE?NDIX: Specific Economic Benefits of Tokyo-Shizuoka Expressway.

MAP 1 - Japan: National Highway SystemMAP 2 - Tokyo-Shizuoka Expressway

JAPAN

APPRAISAI OF A THIRD EXPRESSUAY PIDJECT

TOKYO-S}II ZUOKA

SUI%]MA.RY

i. The Government of Japan has requested the Bank to make a loan ofUS$75 million equivalent to the Nihon Doro Kodan (Japanese Public Highway Cor-poration) to help finance the construction of 161 km of toll expressway betweenTokyo and Shizuoka (see Map 1).

ii. The Bank has already made two similar loans to Kodan to finance theconstruction of 183 km of toll expressway between Kobe and Nagoya, part of whichis now open to traffic. Design standards and contractual procedures would bethe same for the proposed project as for the two previous projects.

iii. Total project costs, including construction, land acquisition, engineer-ing and interest during the construction period, are about USa630 million equiva-lent. The proposed Bank loan would represent about 1% of the estimated constri.c-tion and land costs. Construction costs per km average a high US$2.3 millionequivalent, due principally to the difficult terrain and poor soil conditions.

iv. Although no bids have been received from non-Japanese firms on theprevious projects, the Borrower will continue to provide opportunity for inter-national competitive bidding on the major part of earthwork and paving contractsincluded in the Project.

v. The Project is schedulefor completion by March 1969, with some sec-tions being opened to traffic towards the end of 1968. Construction of theremaining 197 km length of expressway between Shizuoka and Nagoya will proceedconcurrently with, but outside, the Bank-financed Project.

Vi. The number of motor vehicles registered in Japan has increased five-fold in the last ten years. Freight and passenger traffic by highway has in-creased at a substantially higher rate than by other modes of transportation.HiglhwJay freight traffic quadrupled and passenger traffic doubled over the pastsix years; the increase is expected to continue but at a somewhat lower rate.

vii. The region served by the Project is one of the most densely populatedand industrialized in Japan, accounting for 17% of the country's population andabout 301% of its production. The comnpletion of the Tokyo-Nagoya-Kobe expresswayof which the Project is an integral part, will be a crucial step in alleviatingthe serious shortage in transportation capacity which now prevails in the region.

viii. The Project has a sound economic justification; the rate of return onthe investment from reduced transportation costs, time savings and fewer accid-ents is estimated at about 185%.

ix. The Project is financially viable and would pay back the total in-vestment costs, including interest at 6%, in a period of 20 years, wnich isconsiderably less than its assumed useful economic life.

x. The proposed Project provides a suitable basis for a Bank loan ofUSMW mi llion equivalent. An appropriate term would be 26 years including a51-year period of grace.

JAPAN

APPRAISAL OF A THIRD EXRESS4AY PFJECT

TOKYO - SHIZUOKA

I. INTRODUCTION

A. Application

1. The Government of Japan approached the Bank in December 1962 forassistance in financing the construction of the 161-km Tokyo-Shizuoka sectionof the proposed Tokyo-Nagoya-Kobe Expressway. The Bank subsequently prepareda comprehensive questionnaire on the proposed project, to which detailedreplies were received in March - April 1963. After reviewing the material sub-mitted, an appraisal mission visited Japan in M4ay - June 1963; this report isbased upon the material received and the findings of the appraisal mission.

B. Related Bank Loans

2. The Bank has already made two loans for expresswvay construction inJapan (see Mvap 1). Loan 248-JA (see Report No. TO-236a dated May 7, 1960) ofUS$4O million helped to finance the construction of a 72-km section of a 4-lanedivided expressway from Amagasaki to Ritto, w.hich was opened to traffic in mid-July 1963. The second loan, 302-JA (Report No. TO-300a dated November 17, 1961)also of US$4C million, is helping to finance the cost of extending the firstsection by 111 km to serve Kobe anc! Nagoya, construction of this project isscheduled for completion towards the end of 1964.

3. The Bank has made one loan in Japan to improve rail transportation.This loan, No. 281-JA of US$80 million (see Report No. TO-266a dated M4arch 24,1961), is contributing towards the cost of the new Tokaido Railway line betweenTokyo, NasOoya and Osaka, serving much the same area as the expressway. The newrail'way line is expected to be opened to traffic in October 196'4.

II. BACKGROUND

A. General

4. Japan, with a population of about 95 million, or one-half that of theUnited States, has an area of 142,000 sq. miles, or about the same as the Stateof California. Its annual rate of population growTth has been declining sharplyfrom 1.5 percent in the early 1950ts to 0.9 percent at oresent.

5. Japan's gross national product reached nearly US$S2 billion equivalentin 1962, or about u3$550 equivalent per capita. Durin- the 195Ofs, G.NP in realterm.s increased by about 8 percent annually, and the increase since 1959 hasbeen at a very high 12 percent. The Government's current goal is to doublenational income during this decade,

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B. Transport in Japan

Modes of Transport

6. Japants main domestic transportation system consists of railways,coastal shipping and highways. Air transport is very limnited and because ofthe relatively short distances between major industrial areas and the efficientrailway system, air transport is not likely to become a major mode of transport.

7. The railway network is dense, carries heavy traffic, and is efficientlyoperated. The main lines are utilized to saturation largely because of heavypassenger traffic into and between the large cities. To relieve this pressure,the new Tokaido line is being constructed from Tokyo to Osaka.

Traffic

8. Freight traffic in Japan relies heavily on coastal shipping: as shownin Table 1, it carried in 1961 about 67 billion ton/kms, or about 45 percent ofthe total; the National Railways accounted for 38 percent and trucks for theremaining 17 percent. Since the average distances of haul are much longer forcoastal shipping and the railway than for trucks, the picture is substantiallydifferent if the traffic is ,neasured in tons, rather than ton/kms: trucks car-ried about 80 percent of the tonnagef, the railwqay about 14 percent and coastalshipping 6 percent. Whlile total freight in ton/kms increased nearly 90 percentbetween 1955 and 1961, the volume carried by trucks nearly quadrupled. Accord-ing to estimates of the Economic Planning Agency and the Mqinistry of Transportatioitot3l freight traffic will increase from about 136 billion ton/kms in 1960 to333 billion by 1980, an increase of nearly 150 percent. Since the volume car-ried by trucks is estimated to more than quadruple from about 21 billion to 86billion ton/kms, the proportion carried by trucks will be about 26 percent by1980.

9. As for passenger traffic, the railways carry by far the largest pro-portion, or about 70 percent; the National Railways alone carry about one-halfof the total traffic (see Table 2). Nearly all of the remainder is carried onhighways, with buses carrying about three tiraes as much traffic as do passengercars. It is the traffic by passenger car, however, which has been growing mostrapidly. While total passenger traffic increased by 55 percent between 1955and 1961, the volume carried on highways more than doubled and that carried bypassenger cars more than quadrupled. Passenger traffic is estimated to reachnearly 800 billion passenger/kms by 1980, nearly 312 times the 1960 level. Thevolume carried on highways is expected to increase about six-fold (and that bypassenger cars nearly eight-fold), so that hijhways will carry more than 40 per-cent of the traffic by 1980.

10. The number of motor vehicles registered in Japan has increased five-fold in the last 10 years (see Table 3); even in the last five years it grewby about 17 percent annually. By far the largest increase wias in passenger cars,more than 30 percent annually since 1958. In spite of this rapid growth, thepotential for further growth is very large when it is considered that thereare about 37 inhabitants per vehicle coinared to about 15 in Italy and 5 in

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France, and that trucks still account for more than two-tnirds of the totalfleet. For-hire trucking services are available throughout the country andmany enterprises have their own private truck fleets. Japan now ranks fifthin the world in motor vehicle production; in 1962 it produced nearly 1 millionvehicles, compared to only 110,000 six years earlier.

The Road Network

11. The road network in Japan now totals about 150,000 km (see Map 1).Only about 11 percent of this length is paved, including a few limited accessroads, mainly Doro Kodan toll roads. Most main roads are less than 5.5 m wide.Even the primary national highways, which serve the principal industrial centers,are narrow and winding, and only 43 percent of their length is paved. The con-sequences are growing traffic congestion, high vehicle operating costs and highaccident rates. It is not possible to use large trailer trucks.

12. The National Government ts expenditures for roads have been increas-ing very sharpl.y, from about * 26 billion in 1955 to * 150 billion :in 1961 and1 188 billion in 1962, and they now account for nearly 8 percent of the nationalbudget; prefectures have contributed about three quarters as much. In recentyears roads accounted for about a quarter of puolic investment. &hqenditureson roads are about 2 percent of the gross national product; this compares toabout 1 percent in the United Kingdom but 2.8 percent in the U.S.

13. To finance highway expenditures, it is the Goverfiment?s policy thatthe tax on gasoline and diesel oil should be a main source of funds. In 1961,the revenue from these sources was g 164 billion, co.mpared to total highwayex. enditures by both the National Government and the prefectures of ' 259billion. The remainder is financed primarily from general revenues.

14. The Governmentts current 5-year Highway Development Program, 1961-1965, is being revised because (a) the growth of traffic has been greater thananticipated; (b) higher design standards are necessary for certain sectionsof essential trunk highways; and (c) the highway program needs to be co-ordinated with the latest overall Government development program. The newProgram for 1964-68 is still only in the prelimunary stage of planning by theMinistry of Construction and has not yet received Government approval. Itwould provide for the investment of about 14,700 billion (US$13 billionequivalent) in highway construction and maintenance over the next f-L.ve years.Of this amount, about 10 percent, or US$1.3 billion,is tentatively allocatedfor the constrLuction of urban and rural national expressways, includLing theproject expressway. The annual level of expenditures under the tentative newProgram would be more than double the anount for 1962; major new sources offunds, in addition to increased gasoline and diesel oil taxes, are thereforeunder consideration.

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Transport Coordination

15. The Ministry of Transportation has the responsibility for assuringeffective coordination between the various modes of transport. For thispurpose it has extensive authority over new investments, rates and fares,and transport operations.

16. The Alinistry's authority appears deficient however in at least oneim.portant respect. While it has responsibility over new railway, airport andseaport construction, it has virtually no authority over highway construction,which is the responsibility of the linistry of Construction. The coordina-tion of highway and railwvay investmients is therefore left largely to ad hocarrangements betwteen the two ministries. The Hlinistry of Transportationalso has no authority over freight rates in coastal shipping.

17. The Governmient recognizes that sound economic co-ordination will besenred by basing rates and fares on costs. However, it appears that whiletrucking rates are in fact based on costs, railway rates are still basedlargely on the value of the particular co-mmodity, that is, what the trafficcan bear. The Government is beginning to face up to the resultant misalloca-tion of traffic.

III. NINHON DORO KODAN

A. Organization and Ianageraent

18. The Nihon Doro Xodan (Japanese Public ITighw.Jay Corporation) is apublic corporation within the Hinistry of Construction, established in 1956 totake over fro>-! the linistry the responsibility for designing, financing, con-structing, imanaging and mlaintaining toll transport facilities, incLuding high-ways, bridges, tunnels, ferries and parking lots. Although the Kodan is auton-omous in lorm, its policies, lDrograas and budgets are subject to approval bytne ilinister of Construction who also appoints the Kodan's President and ap-proves the President's appointment of De.)artmental Directors.

19. The management of Kodan is good and its staff is competent. It hasseveral branch offices throughout Japan with headquarters in Tokyo,; specialorganizations within the Kodan handle the technical aspects of the Kobe -iagoya and Tokyo - Shizuoka - lNagoya expressway sections.

B. Scope of Activities

20. As of Harch 1963 the Kodan was operating and maintaining 29 limitedaccess toll highways, 6 tunnels, 14 bridges, 3 ferries and 3 parkirng lots.The toll highways vary from short scenic routes carrying only light seasonaltraffic to rmodern expressways carrying heavy industrial traffic.

21. The ,odan designs and supervises the construction of its toll facil-ities, seeking outside consultiing advice when necessary. Construction workis executed by contract on a unit price basis; operation and maintenance ofthe facilities is maainly oy force account.

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C. Finnncoes and Earnings

22. Doro Kodan finances its construction expenditures, inclu.dinginterest during construction, partly by borrowings and partly by iinterest-free Government investment. The amount of this Governnent investment isso calculated that the average cost of all funds is about 6%. Debt isnot secured against the revenues from any particular facility. All debtis guaranteed by the Government.

23. Doro Kodan's financial policy is based on the principle thattoll revenues should be sufficient, after meeting operation and mainten-ance expenses, and paying interest and other charges on debt, to repaythe total capital cost of all its facilities.

24. However, since the expected pay-back period of the various facili-ties ranges up to about 30 years; since the revenues from any part-icularfacility in the early years of its operation may not be sufficieni; to coveroperating and maintenance expenses plus its proportionate share of intereston debt; and since the average term of debt is about 12 years, Doro Kodan isobliged to refund a large proportion of its maturing debt.

25. Table 4 contains sumary balance sheets, and Table 5 summaryrevenue an-d expenJiture accounts, for the last five years. It should benoted that Doro Kod.an charges depreciation only on a small part of itsfixed assets; toll facilities are not depreciated in the ordinary sense.It will be seen that in 1958/59 and 1959/60 total revenues were notsufficient to cover cash operating and maintenance expenses and to payinterest on debt; the deficit was made up by borrowing. In 1960/61 forthe first time revenues just covered interest payments, and the coverincreased substantially in 1961/62 and 1962/63. Table 6 shows theLt in thelatter year about half the facilities in operation were earning more thanenough to cover their proportionate share of interest charges, after meetingexpenses for operation and maintenance. These excess earnings are availableto write down the unamortized cost of the facility. Of the 55 toll facili-ties in operation at the end of this year, 42 had been in operation lessthan 7 years.

26. During the five-year period March 1963-March 1968, by the endof which 90%id of the construction cost of Tokyo-Shizuoka expresswayshould have been spent, the financial requirements of Doro Kodan Villbe as follows:

r billion

Construction 495Interest during construction 70

Addition to fixed assets 565Interest 47Repayment of debt 63

Debt service 110Research and miscellaneous 7

682

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27. It is planned to meet these requirements from the follow-ing sources:

Y billion

Internal cash generation 58Decrease in working capital 2Borrowings: local 488 )

IBRD 248 JA 2302 JA 8 )

Proposed loan (all 3but Y 2 billion) 25 ) 523

Government investment 99

682

28. During this period the forecast internal cash generation willfall short of meeting debt service by about Y 50 billion, and this amountof debt will have to be refunded. As will be seen from the forecastrevenue and expenditure accounts in Table 7, interest is covered with arelatively small margin in each year. The large increase in interestduring the period reflects the completion of the Kobe-Nagoya expressway,which is not expected to rmake its proportionate contribution to interestin its first few years of operation.

29. Table 8 contains forecast balance sheets, which show the verylarge increase in fixed assets, and the corresponding increase in debt andGovernment investment.

30. It is not surprising that in a period when the system of tollfacilities is being expanded on such a massive scale, revenues do notprovide much contribution to debt repayment. However, the position shouldimprove as traffic on the new facilities expands, and in the meantinethere is no reason to doubt the ability of Doro Kodan (with the Govern-ment's guarantee) to raise the necessary amounts of debt.

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IV. THE PROJECT

A. Description

31. The Project is a section of expresswzay extending approximately 161km from the wpiestern suburbs of Tokyo to Shizuoka (see Hlaps 1 and 2), con-stituting part of the future Tokyo - N1agoya - Kobe expressw.^ay. The worksincluade the cons-truction of earthworks, structures, paving, in .erchanges,service areas, bus stops, toll stations, trafic control facilities, andconnecting links with tne existing road network. Closely related to theproject, but outside the loan request, are the consLruction and iziprovementof access roads for which the hdinistry of Construction and local authoritieswill be responsible.

32. The 35 km section of expressway between Tokjo and Atsugi will be6-lane divided and the remainder 4-lane dividea. Th'e exTressway wi:Ll traverse,for the most part, t4he densely populated and industrially developed Tokaidocoastal region, complermen-uing such other transportation facilities asNational Highway No. 1, the existing Tokaido Railway Line, and the newTokaido Railway Line. Problems of location have been difficult; with theexception of the eastern 30 kmi section, the expressway passes throughrugged mountainous terrain necessitating -the construction of-nany majorbridges, tunnels and viaducts.

B. Design Standards and Documentation

33. The geometric design standards are exactly the same as t:hoseused in the two previous 3ank-financed projects for constructing the Kobe -'Iagoya expressway and are s atisfactory. Design speeds range from '120 km

per h-iour in level terrain to 80 km per hour in mountainous areas.

34. Conditions of contract and specifications are virtually theseSn?e as those used before on the previous projects with the introductior ofa few refinements reflecting the experience gained during the constructionof those projects 0

Q. Adminvistration and Execution

35. Nihon Doio Kodan will me the executing agency, and will administertl^e Project throughl appropriate branch offices. Associated access roads

will be the responsibility o° eitier the hinistry of Conlstruction, localprefectures, or municipalities. Arrangements between the differentauthorities to insure a coordinated completion of the works are satisfactorr.

36. The working capacity of Japanese construction contractors suitablefor tle execution of a project of this type has been estimated by Xodanat -r 2,000 billion (USS,"5.5 billion) per annum. The highest scheduledanmnual anount of work on the Project represents only about 2- of thiscapacity.

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37. Exxperience in the previous Bank-financed projects has in-dicated little interest on the part of foreign constru.ction contractorsand suppliers, and, in fact, no foreign firra has actually participatedin any bid. However, the Borrower will continue to provide opportuni-ty for international competitive bidding on the major part of roadwayand pavement construction contracts; the value of these contracts will beabove ; 1.25 billion ( U.S. 63.5 million approximately) so as to interestforeign firms.

38. A short section of the project work has already started on thecoast near Fuji, where a recent landslide blocked existing facilities.The bulk of remaining contracts will be awiarded in 1964 and 1965, withcompletion of the whole project scheduled for March 1969. Some sections-.iay be opened to traffic towards the end of 1968. Kodan has also beeninstructed by the MIinistry of Construction to undertake the design andconstruction of the Shizuoka-MEagoya expressway section and is schedulingits corpletion to coincide with completion of the project expressw;ay;thus the whole route between Tokyo and Kobe will be open to traffic byearly 1969.

39. Foreign consulting engineers were retained on a permanent basisin connection with the two previous expresswavy projects, but their advicewas only needed on limited occasions. To the extent deemed necessary bythe Borrower and tuhe 3ank, the Borrower is prepared to employ consultantson a ten,porary basis should difficult engineering problems arise in connec-tion with the third expressway project. The technical competence of the3orrower no longer warrants employing consulting engineers on a permanent

contractual basis, and such arrangements would therefore be satisfactory.

D. Cost Estimates and Loan Disbursement

40. The first expressway project is now virtually complete; after a31-year construction period final costs are aDproximately 12% higler thanthe original estimates. The second project is about 5a3 complete with allmajor contracts awarded; recent estimates of final cost are only 35% to h%above the original estimates. This appears to indicate that the Kodan'scost estimating is reasonably accurate and improving.

41. Detailed estimates of costs for the third Project are given inTable 9, and are summarized below wTith aDpropriate contingency allowancesincluded:

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Category Estimate PercentageX billion $ million of

equivalent Total1. Construction Costs 135.0 375 60

2. Right-ofo-Way and Cdiupensation 44h.0 122 19

3. Survey and Field Supervision 7.1 20 3

Total Field Costs: 136.1 517 82

4. Research and Administration 8.2 23 4

5. Interest during Construction 31.6 88 14

Total Project Costs: 225.9 628 100

42. Estimated costs are high, averaging, for construction alone, US32-3million equivalent per haa including contingency allowances, compared withUS1.3 million per klm for the first and second expressway projects. Therelatively high construction cost is not unreasonable taking into considerationthat almost one-quarter of the project length is six-lane, and also thatmajor bridges, tunnels and viaducts are needed over about 30% of its length(comir'3ared with 15%-20% in the other projects) due to the exceptionallydifficult terrain. lIoreover, earthworks will require special treatment overhalf> tne length of the expressway in the vicinity of ilount Fuji and otherplaces due to the poor nature of the volcanic soil, the cost of such treatmentbeing about twice that of normal earthworks. A further factor contributingto the high estimated cost is the allowTance for possible cost increases overthe relatively long construction period of almost six years. The totalproject costs per km, are TJS%;'3.9 -million equivalent compared with an averageof about US"2 .0 million equivalent for the first and second projects.

43. Reasonable allowances for various contingencies have been includedin the project cost estimates. The estimates for construction include aph,ysical alloTance of about 10% for possible increases in quantities oradditional wqorks, and an escalation allowance of abDout 6% for possible in-creases in labor and materials costs. Although land costs in Japan have in-creased considerably over the past years, there is evidence that the rate ofincrease is now declining. Nevertheless, Kodan has provided for continued in-creases in both right-of-way and com:pensation costs at the former high ratesof 24% and 8%' per annum respectively over 1963 prices through the expecteddate of acquisition. lost of the land purchase agreements are expected to beconcluded by the end of 1964 with final payments being made later.

4L. The estirnated annual project exp-enditures are given in Table 10.The Borrower has requested and it is considered reasonable that expenditureson the Project be eligible for disbursemlent as from January 1, 19653. If, asin the previous projects and in accordance with the Kodan's request, 3ankparticipation were confined to (i) construction costs (that is, payments toconstruction contractors and suppliers of materials and equipmlent), and(iX right-of-way and compensation costs, the total annual arnounts (includingcontingency allowances) eligible for Bank participation would be as follows:

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--------- Fiscal Year (i billion)Eligible Items 1962* 1963 1964 1965 1966 1967 1968 Total

(i) Construction 0o5 1.6 5.7 27.1 41.9 49.6 8.3 13h.7(ii) R. of W. and

compensation 0.3 3.6 21.5 13.8 4.5 0.3 - 4.0

Total 0.8 5.2 27.2 4o.9 46.4 49.9 8.3 178.7(US$496

mill. equivalent)

* Expenditures from January 1-March 31, 1963, only.

45. The items to be included in the List of Goods (as indicated above)were confirmed during loan negotiations. In order to reduce somewhat itscall upon the Japanese capital market in the next two years, the KodLan hasreouested, and it is considered reasonable, that a disbursement rate of 30%be adopted until such time as $30 million of the proposed $75 million loanbe drawn down; thereafter a uniform withdrawal percentage for the remainderof the construction period would be slightly higher than 11%. Assuming theloan to be declared effective towards the end of 1963, and an interval of twomonths approximately between future project expenditures and disbursements(based upon experience in the first two loans), the annual disbursementschedule would then appear approxiimately as follows:

-- Fiscal Years (US$ million)---

1963 1964 1965 1966 1967 1968 Total

4.2 16.4 19.3 14.4 15.5 5.2 75.0

E. Economic Justification

The Tokyo-Shizuoka Region

46. The completion of the Tokyo-Kobe expressway, of which the Tokyo-Shizuoka project is an integral part, will be a crucial step in alleviatingthe serious shortage in transportation capacity Twjhich nowT prevails in theTokaido area.

47. The Tokyo-Shizuoka region is one of the most industrialized areasin the wTorld, iTith one of the largest concentrations of population. But thereis only one highway which traverses its entire length. In addition to beingJapan's most important center of commerce and industry, it is also the centerof the national government and of the country's educational and cultural acti-vities.

48. Thile the Tokyo-Shizuoka region accounts for only 3.3% of Japan'stotal area, its ponulation of 16 million represents 17% of the total; of theurban nopulation, it accounts for about 25%. Twenty-six percent of the busi-nesses of the country are located here and 3%o of its production originateshere. As far as motor vehicles are concerned, the area accounts for nearlyone-half of all passenger cars, about a quarter of all trucks, and a fifthof all buses.

49. The Tokyo-Shizuoka region as a whole is served by the Tokaido Lineof the National Railw^Tay and by Mational Highway No. 1, which runs more or lessparallel to the railway. The capacity of the railway wTill be about doubledi,hen the new Tokaido line is or,ened in 1964+. Some of the districts in theregion are also served by other national highways, which are supplemented bysecondary highways and a large network of local roads. Most of these are builtto inadecuate standards and are heavily congested. A number of private rail-waTrs exist, which are largely limited to passenger traffic, especially com-muter service. There are also numerous ports in the region, which serve bothocean-going and coastal traffic.

50. As far as freight traffic in the region is concerned, coastal ship-ping accotnts for about 45%, the railway for 38%, and the highways for 17% oftotal ton/knms (see Table 11). Since the average distances of haul are muchlonger for coastal shipping and the railway than for trucks, a very differentpicture is presented if the traffic is measured in tons, rather than ton/kms;about 80% of the tonnage is moved by truck, and only 11% by railway and 9% byshiiDs. Te proportion o+ the freight traffic carried by trucks has about dou-bled since 1955, primarily at the expense of the rail-ay. This reflects thefact that w'hile railway traffic has increased about 55%, highway traffic hasquadrupled.

51. As for passenger traffic in the region, the railways account forabout 75% of the passenger/kms, and the highways for nearly all of the re-mainder (see Table 12). Here, too, the proportion carried on highways hasbeen growing, but not as sharDly as for freight. Perhaus the most importantdevelonrient since 1955 is the five-fold increase in tralfic by passengercars; during this period railTay and bus traffic increased by about 70 and

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100 percent respectively. As a result of this sharp growth in highway traffic,the ratio of traffic to theoretical peak capacity on National Highway No. 1is about 2.3, reflecting a very high degree of congestion; before the openingof the expressway in 1969, it is estimated at nearly 3.3, even taking intoaccount continuing highway improvements on Highway No. 1.

Specific Economic Benefits

52. The most important economic benefits of the proposed expressway whichare measurable in monetary terms consist of: a) reduced transportation costs,which are estimated to bring a return on the investment of about 12 percentduring its useful life of 30 years; b) time savings to passengers and freight,which are more difficult to express in monetary terms, but which will probablybring a return of 5 percent; and c) reduced accidents, which are estimated toinvolve a benefit of about 1 percent on the investment. The total return fromthese benefits is therefore about 18 percent. A return of this magnitude isreasonable in a country like Japan. Each of these benefits is explained ingreater detail in an Appendix to this report. The calculations are based onvery extensive studies by the Japanese authorities.

Highway-Railway Competition

53. Since the new expressway will more or less parallel the new Tokaidorailway, in the financing of which the Bank is also participating, special at-tention has been paid to the impact of the two projects on each other. Theappraisal of the railway project in 1961 took the new exp-ressway fually intoaccount and concluded that its impact on the railway would be relatively small.Nothing has happened since 1961 to justify a different judgment.

54. The studies on the future traffic in the Tokaido region, and itsdistribution among the modes of transport, were made jointly by the EconomicPlanning Agency, the National Railways and the Doro Kodan and these agenciesare in full agreement on the matter. These studies take into accouant suchrelevant factors as the types of commodity, lengths of haul and trips, loca-tion of industries, and relative costs of transport, and appear to be reason-able.

55. As far as passenger traffic is concerned, it is estimatedl that ofthe 8,100 passenger cars and buses using the expressway daily in 1969, lessthan 1,600 will carry traffic diverted frcm the railways; of this, about1,400 vehicles represent traffic diverted from the National Railways, and200 from private railways. FromL the point of view of the National Railways,it is estimnated to lose about 4 billion passenger/ims, or slightly more than8 percent of its passenger traffic; of this, about 2.2 billion passenger/kmswill be lost by the new Tokaido line and about 1.8 by the existing line.

56. As for freight traffic, about 1,900 trucks of the 1)4,300 trucksestimated to use the expressway daily in 1969 represent traffic divertedfrom the railways, all from the National Railways. This represents about1 billion ton/kms, or about 5 - 6 percent of the freight traffic on the presentand the new Tokaido lines; nearly all of this will be from the existing linesince the new line is not expected to carry much freight.

- 13 -

57. After completion of the new Tokaido railway line in 1964, the totaltheoretical capacity of the new and existing line will be about 360 trainsper day in each direction. The traffic volume diverted to the Tokro-Shizuokaexpressway in 1969 will involve only about 16 trains in each direction, whichis less than 5 percent of the railway capacity. On balance, taking into ac-count also the likelihood that the new expressway will reach congestion by1980, the probability of inadequate transport capacity in the Tokaido regionby that time is considerably greater than that of excess capacity, unless newfacilities are initiated in the meantime.

F. Financial Aspects

58. The finances of the Tokyo-Shizuoka expressway may be described asfoillows. The toll rates contemplated would bring a financial return of 8percent on the investment during its estimated useful life of 30 years; thesame is also generally true for the individual sections between interchanges.To put the matter somewhat differently, at the 6 percent average interestrete now payable by the Kodan, the expressway is estimated to have a pay-back period of 20 years (see Table 10). Viewing the financial expectationsas a rate of return on net fixed assets of the expressway, there would be areturn of 2 percent in 1969/70, 12 percent in 1979/80, and 24 percent in1989/90 assuming straight-line depreciation for 30 years. These rates ofreturn are satisfactory.

59. The estimates are based on: a) the traffic forecast indicated inTable 10 and explained in detail in an Appendix to this report; b) the workingexpenses shown in Table 10 which are based on experience and are realistic; andc) the toll charges shown in Table 13 which are fixed at less than half toabout two-thirds of the estimated benefits accruing from reduced transportationcosts and tirme-savings and are the same as on the Kobe-Nagoya expressway.

VI. CONCLUSIONS AND RECODY1ENDATIONS

60. The proposed Project will eliminate a serious bottleneck in Japan'shighway transportation system. It is soundly conceived and engineered, and iswell justified both economically and financially. The Kodan is fully capableof executing the Project.

61. The Project provides a suitable basis for a Bank loan of US$75 mil-lion equivalent to the Nihon Doro Kodan. An appropriate term, analagous to theterms of the two previous loans, would be 26 years including a 52--year periodof grace.

Department of Technical OperationsSeptember 12, 1963

Table 1

JAPAN

FREIGHT TRAFFIC, BY MODE OF TR.ANSPORT, 1955-61, 1970 and 1980

Billions of ton/kms ard percentage increases

YEAR TOTAL COASTAL SHIPPING NATIONAL RAILWAYS 1/ TRUCKS

1955 82.6 32.4 42.6 7.612% 14% 10% 12%

1956 92.2 36.8 46.9 8.59% 11% 3% 31%

1957 100.3 31.0 4%8.2 11.1-3% 4~% -6% 17%

1958 97.5 39.2 35.3 13.021% 31% 10% 29%

1959 117.8 51.3 29.7 16.81 5% 20% 8% S

1960 135.9 61.5 53.6 20,81=1% 9% 7% 28%

1961 151.4 67.3 57.5 26.6

1970-/ 217.3 86.o 81.5 49.8

1980./ 333.1 125.2 121.7 86.2

Average distances offreight haulage (min) 967 288 33

1/ The amount of freight traffic carried by private railwaysis insignificant.

2/ The estimates for 1970 and 1980 were prepared by the EconomicPlanning Agency and the Ministry of Transportation.

TABLE 2

JAPAN

PASSENGER TRAFFIC. BY MODE OF TRANSPORT, 1955-61. 1970 AND 1i-980

(Billions of passenger/kn)

YEAR TOTAL RAILWAYS HIGXWAYS COASTAL AVIATIONNational Private Buses Passenger Cars SHIPPINC

1955 170.0 91.2 44.9 29.2 3.6 0.9 0.2

1956 187.0 98.1 47.3 35.6 4.8 0.9 0.3

1957 197.6 101.2 50.9 38.7 5.6 0.9 0.3

1958 210.9 106.2 53*4 43.7 6.3 0.9 0.4

1959 228.8 114.2 56.1 50.4 6.7 0.9 0.5

1960 241.1 124.0 60o0 44.0 11.5 0.9 0.7

1961 263.5 131.8 64.4 49.2 16.0 1.0 1/ lel

1970.2' 500.2 203.9 98.1 144.5 50.4 1.0 2.3

1980a/ 797.6 318.7 147.6 244.0 83.0 1.0 3.3

j2/ Estimate

j The estimates for 1970 and 1980 were prepared by the EconomicPlanning Agency and the Ministry of Transportion.

TABLE_2

JAPAN

NtIMBER OF RJ:JGISTERED VEIHICLW. 1953-63

(in thousand)

PASSENGERYEAR TOTAL TRUCKS CARS BUSES

1953 516 418 72 26

1954 660 529 102 29

1955 765 612 120 33

1956 863 693 135 35

1957 1,011 809 163 39

1958 1,170 925 201 44

1959 1,391 1,094 249 48

1960 1,526 1,167 307 52

1961 1,789 1,316 4.16 57

1962 2,179 1,537 577 65

1963 2,568 1,752 743 73

*/ excluding three or four-wheeled vehicles with cylindervolume less than 300 cc., and motor-cycles; in 1962, thesetotaled about 1.5 million.

TABLE,

JAPAN - THIRD EXPESSWAY PROJECT

NIHON DORO KODAN

SUMMARY BALANCE SHEETS

As at March 311959 1960 1961 1962 1963

---- million-ASSETS

Current Assets 2,003 1,631 4,983 3,624 4,645

Toll Facilities in Operation 18,383 24,712 29,993 34,927 49,654Toll Facilities under Construction 11,747 19,016 31,533 61,601 96,886Other Fixed Assets 1/ 741 886 985 1,233 1,740Sub-total: Fixed Assets 30,871 17 62,511 77,761 148,280

Deferred Assets 2/ 181 363 632 936 950

TOTAL 33,055 46,608 63,126 102,321 153,375

LIABILITIES

Current Liabi'lities 599 674 1,461 1,224 2,359

Road Bonds 7,690 14,010 24,o42 44,580 76,308Long-term Loans 18,810 23,604 28,669 34,614 42,584Sub-total Funded Debt 26,500 37,614 52,711 79,1597 118,892

Depreciation 3/ 107 140 191 27'2 368Periodic MainTenance Reserve - - 11 17 30Retirement Reserve for Employees 143 130 181 259 346Contingency for Deficits - 69 182 343 804Sub-total Reserves 250 339 * 1 T1,4

Government Investment 1,039 3,539 9,039 16,039 25,039Government Grant for Construction 4/ 5,335 5,496 5,496 5,496 5,496Sub-total Capital 6,374 9,035 14,535 2T731 30-,73T

Surplus or Deficit (668) (1,054) (1,146) (523) 541

TOTAL 33,055 46,608 68,126 102,32.1 153,875

1/ Buildings, vehicles, tools, etc.2/ Principally road bond discount and expenses for research.3/ Deoreciation only on other fixed assets and parking places.17/ Paid by Government for certain works built before 1958/59.

TABIE

JAPAN - THIRD EXPRESSWAY PROJECT

NIHON DORO KODAN

STUIMIARY STATEMENTS OF REVENUES ANDEXPENDITURES

Years ending March 311959 1960 1961 1962 1963

- --- Y million )…

Operating Revenues 894 1,409 2,327 3,354 4,793Non-operating Revenues 1/ (net) 27 74 253 170 181

921 1,483 2,580 3,524 4,974

Cash Operating Expenses 433 561 750 922 1,162Interest and Bond Discount 2/ 906 1,188 1,728 1,722 2,177

1,339 1,749 2,478 2,644 3,339

Balance (418) (266) 102 880 1,635

Distribution of balance:

Depreciation 3/ 20 25 51 66 69Reserves: Periodic Maintenance - - 11 6 13

Retirement 27 - 19 24 28Deficits 4 - 69 113 161 461

I47 94 194 257 571

Net balance to surplus 5/r defii(1465) (360) (92) 623 1,061

(418) (266) 102 880 1,635

1/ Principally interest on short-term securities and deposits.

2/ Bond discount is less than 2% of the combined figure in each year.

3/ DeDreciation only on other fixed assets and parking places.

1/ 10% of toll revenues in 1962/63; 5% in earlier years.5/ The surplus is available to write off the book value of toll

facilities when they become toll-free.

Table 6JAPAN: THIRD EXPRESSWAY PROJECT Page i

NIHON DORO KODAN

MEMORANDUM ACCOUNT OF TOLL REVENUES AND EXPENDITURESFrom April 1, 1962 to March 31, 1963

(Unit: Thousand Yen)

Names of Facilities Revenues Expenses SurplusInterest Working / Total or Deficit

1. Akkeshi Ferry 18,233 7,836 23,784 31,619 _ 13,3872. Sennin Tunnel 19,331 21,764 13,680 35,443 - 16,1123. Zao Highway 15,455 12,465 10,671 23,136 _ 7,6814. Bandai-Azuma Highway 54,253 18,477 28,757 47,239 7,0145. Kaimon Bridge 15,439 14,228 9,348 23,577 - 8,1386. Choshi Bridge 27,764 14,930 9,192 24,122 3,6437. Nikko Highway 51,864 11,563 15,904 27,467 24,3978. Ikaho-Uaruna Highway 50,429 17,114 19,982 37,097 13,3329. Kamigo Bridge 58,541 11,824 16,636 28,460 30,082

10. Mefuki Bridge 63,733 20,160 20,763 40,923 22,81011. Keiyo Highway 506,838 52,465 102,912 155,377 351,46112. Yokohama Highway 580,680 72,806 130,264 203,070 377,61013. Shonan Highway 79,550 11,824 33,726 45,549 34,00114. Hakone Highway 243,797 142,525 61,748 204,273 39,52415. Manazuru Highway 171,967 26,012 38,365 64,377 107,59016. Kodaiji Bridge 5,323 8,417 6,551 14,968 - 9,64417. Sasago Tunnel 136,907 49,539 33,026 82,565 54,34218. Higashi-Izu Highway 89,201 44,249 33,063 77,311 11,89019. Togasayama Highway 8,747 31,383 8,415 39,798 - 31,05120. Shimoda Highway 34,260 10,040 13,596 23,636 10,62421. Kaketsuka Bridge 28,367 24,930 13,380 38,310 - 9,94322. Tateyama Highway 11,282 10,661 10,855 21,516 - 10,23323. Takefu Tunnel 74,708 12,866 30,505 43,371 31,33824. Tsuruga Highway 41,277 38,637 15,559 54,196 - 12,91925. Ogaki-Hajima Highway 299 2,305 1,180 3,485 - 3,18526. Nobi Bridge 83,038 30,982 25,806 56,788 26,25027. Kinuura Bridge 48,277 29,419 15,514 44,933 3,34428. Aigi Highway 29,312 25,731 21,376 47,107 - 17,79629. Isegami Tunnel 7,976 25,030 7,944 32,974 - 24,99830. Sangu Highway 88,558 13,527 31,315 44,842 43,71631. Meiyon Highway 36,014 15,090 8,589 23,679 12,33532. Higashiyama Highway 16,513 15,391 11,218 26,608 - 10,09633. Torikai Bridge 146,332 16,072 34,152 50,224 96,10834. Akashi Ferry 152,202 7,355 100,021 107,375 44,82635. Hanna Highway 271,701 66,713 75,047 141,760 129,94136. Koyasan Highway 28,700 34,028 19,589 53,617 - 24,91837. Matsue Highway -31,683 17,255 13,509 30,763 92038. Makunouchi Tunnel 15,885 9,479 9,825 19,303 - 3,41839. Ondo Bridge 38,421 23,527 15,111 38,638 - 21840. Naruto Ferry 90,690 21,263 77,123 98,386 - 7,69641. Eigashi-Iyo Highway 21,452 20,200 11,897 32,097 - 10,64642. Chofu Highway 48,220 31,663 21,902 53,565 - 5,34643. Kanmon Tunnel 558,494 391,483 243,302 634,785 - 76,29044. Kita-Kyushu Highway 114,015 122,084 40,900 162,984 - 48,97045. Wakato Bridge 187,689 174,469 56,942 231,411 - 43,72246. Okawa Bridge 79,581 12,084 20,919 33,003 46,57847. Suminoe Bridge 6,116 13,687 5,576 19,263 - 13,14748. SEkai Bridge 28,915 40,361 13,633 53,994 - 25,07949. Unzen Highway 23,028 16,593 14,529 31,122 - 8,09450. Shimabara Highway 21,696 29,379 11,848 41,227 - 19,53151. Aso Highway 37,010 10,301 14,726 25,027 11,98352. Kirishima Highway 34,758 30,721 24,191 54,912 - 20,155

Sub Total 4,634,520 1,932,907 1,648,369 3,581,275 1,053,24i

1. Zao Parking Place 2,054 220 927 1,147 5072. Hibiya Parking Place 163,290 70,521 82,686 153,207 10,0833. Atagawa Parking Place 756 360 845 1,206 - 450

Sub Total 166,100 71,102 84,458 155,560 10,5X9

Grand Total 4,80o,620 2,004,009 - 1,732,827 3,736,837 1,063,7E3

Note: 1] Because of rounding, totals do not always agree with the sum of individual items./ Also includes provision for continrency reserve for deficits.

7/ Interest and bond discount 2,176,780 less Interest revenues 17?,771.

,ee Table 6, page ii for Note on Accounting System

TaJlez 6

Paege 1ii

JAPAN - THIRD EXPRESSWAY PROJECT

NIHON DORO KODAN

Note on Accounting System

1. As each new facility is undertaken, its expected pay-backperiod is calculated on the basis of assumptions about traflic,rate of tolls, operation and maintenance expenditure, and a notionalinterest at the rate of 6 percent on the unamortized balance of itscost. The facility is then bound to become toll-free by the end ofthis period.

2. Each year the total of interest paid (less interest charged toconstruction and interest rever_ues) is aotiolnlLy ch'ar&ed tothe various facilities in operation in proportion to their originalcost. If the toll revenue from a given facility is less than itsoperation and maintenance expenses plus its share of interest, thedeficit is notionally added to its unamortized cost; any surplus isnotionally deducted from the unamortized cost. In the books, theaggregate deficits and surpluses are accumulated in a general surplus(or deficit) account, which is charged with the book value of facil-

ities written off (at the tine they become toll-free).

3. Some facilities produce more revenue than was forecast. In thatcase they become toll-free as soon as their cost has been fully amortized.Others fail to produce as much revenue as was expected, and so reachthe end of the pay-back period with a balance of cost still unamortized.In order to write off such balances, Doro Kodan is building up a reserve,to which at present 10 percent of the gross revenues of toll facilitiesis credited.

Table 7

JAPAN - THIRD EXPRESSWAY PROJECT

NIHON DORO KODAN

FORECAST OF REVENUES AND EXPENDITURES

Years ending March 311964 1965 1966 1967 1968

(N million)

Operating Revenues 8,363 11,200 15,900 16,500 17,400Non-operating Revenuesj/(net)'56 141 140 138 137

8,519 11,341 16,040 16,638 17,537

Cash Operating Expenses 2,135 2,355 2,842 2,836 2,950Interest and Bond Discount 5,123 6,751 11,613 11,720 11,817

7,258 9,106 14,455 14,556 14,767

Balance 1,261 2,235 1,585 2,082 2,770

Distribution of balance:

Depreciation 2/ 75 88 106 118 136Reserves - Retirement 30 31 33 38 42

Deficits 730 887 1,126 1,257 1,178835 1,006 1,265 1,413 1,356

Net balance to surplus3/ 126 1,229 320 669 1,414

1 261 2,235 1,585 2,082 2,770

1/ Principally interest on short-term securities and deposits.v/ Depreciation only on other fixed assets, parking places and

service facilities./ The surplus is available to write off the book-value of toll

facilities when they become toll-free.

Table 8

JAPAN - THIRD EXPRESSWAY PROJECT

NIHON DORO KODAN

PRO-FORMA BALANCE SHEETS

As at March 311964 1965 1966] 1967 I 1968

X Million

ASSETS

Current Assets 1,151 1,329 1,920 2,321 1,929

Toll Facilities in.Operation 108,206 119,887 200,691 199,972 202,427under Constr. 111;493 191,156 220,675 354j460 503;651

Other Fixed Assets v 1,750 1j750 1,750 1,778 1814Sub-total Fixed Assets 221,449 312,793 423,116 556,2:10 707,892

Deferred Assets 3J 1,572 3,007 4,576 6,3_4 _8268

TOTAL 224,172 3171292612 564,L5 718)089

LIABILITIES

Current Liabilities 966 966 851 834 985

Road Bonds 120,934 190,790 280,981 386,301 502,757Long-term Loans 58.706 63,s355 67,113 71,700 76,737

Sub-total Funded Debt 179,640 254,145 348,094 458,001 579,494

Depreciation 4/ 500 647 815 9595 1,195Periodic Maintenance Reserve 30 30 30 30 30Retirement Reserve for Employees -500 689 -925 1,193 1,471Contingency for Deficits 1,534 2,421 3.47 4,804 5,982

Sub-total Reserves 2,564 3,787 5,317 7,022 8,678

Government Investment 34,539 50,539 70,839 95,539 124,039Government Grant for Constr.5/ 5,496 5,496 _4j751 4,371 4,371

Sub-total Capital 40,035 56,035 75,590 99,910 128,410

Surplus or Deficit 967 2,196 (240) (892) 522

TOTAL 224 172 317 129 L4=,12 5675 718,089

1. In these years toll facilities in operation, government grant for constructionand cumulative surplus reflect the retirement of certain facilities uponamortization: Y 3,501 million in 1965/66 and X 1,701 million in 1966/67.

2. Buildings, vehicles, tools, etc.3. Road bond discount and expenses for research.4. Depreciation only on other fixed assets, parking places and service facilities.5. Paid by Government for certain works built before 1958/59.

Table 9JAPAIT

THITh E-PHESS7,;TAY PiOJICT

TOKYO - SHIZUOKA

Estimate of Project Cost

I. Construction Cost Amount(payments to contractors and suppliers) ( billion)

1. Earthwork 28.62. Pavement 7.53. MIedian Strip 1.84. Tunnels 7e25. Bridges 24.66. Viaducts 19.17. Flood Relief Openings 1.18. Access Facilities 5.69. Traffic Control Facilities 1,4

10. Preparatory Work Including Haul Roads 2.111. Miscellaneous Work 0.412. Provision for Overheads and Profit 14.913. Appurtenant W1orks (old facility relocation) 2.6

Sub-Total 116.9 (72%)

II. Right-of-WIay and Compensation 37.8 (23%)

III. Surve7y and Field Supervision1. Survey and Testing 1.62. ftrsery Garden 0.13. Cormunication Facilities 0.54. 11nchinery and Tools 1.25. Buildings on Site 1.56. Field Office Expenses 1.47. Administration Expenses 0.8

Sub-Total 7.1 (5%)

TOTAL 161.8 (100%)

IV. Contingency Allowances1. ,scalation: Construction (I) 7.1

Right of Wlay & Compensation (II) 6.2

2. Physical : Construction (I) and M1iscellaneous 11.0 1/Right of TW,Jay (II) - 2/

Sub-Total 24..3 (15%)

TOTAL A TLD' E'LD DITURIES 186.:L

V. Associated Research and General Administration 8.2

VI. Interest During Construction 31. 6

GRAND TOTAL 225.9

1/ Bank judgement: Kodants allo-ance is about v 5.0 billion,or only 4he of construction cost.

2/ 51 extra allowed in land area measurements and included in- the amount of Item II.

Table 10

JApATA: THIRD EXPRESSWAY PROJECT

SCHEDUIJE OF EXPEDTITURES ADD REVENUES

TOICYO-SHIZUOKA EXPRESSWAY

Fiscal Total Con- Rt. of Way Survey & Contingencies Research InterestYears Project struc- & Compen- Field t Rt.of & during

Cost tion sation Super- Constr.'Way & Admin. Constr.vision & Misc.tCo2pen._

-------- billion -

1961/62 .2 -- - .2

1962/63 2.2 .8 .3 .8 .2 .11963/64 6.8 1.6 3.6 .9 - - .4 .31964/65 31.7 5.0 19.2 1.8 .7 2.3 1.3 1.41965/66 47.6 23.5 11.1 1.2 3.6 2.7 1.7 3.81966/67 56.0 36.o 3.3 .9 5.9 1.2 1.9 6.81967/68 63.o 42.7 .3 .8 6.9 - 2.1 10.21968/69 18.4 7.3 .7 1.0 - .4 9.0

225.9 116.9 37.8 7.1 18.1 6.2 8.2 31.6

Est.Total Revenues Working Interest * Surplus OutstandingvolumrLe of Expenses or Balance **v/per day ____ _____ _ ____ Deficit_ _ _ _ _

----- Y billion-----

1968/69 1.8 .8 3.8 (2.8) 228.71969/70 22,800 14.2 1.9 13.7 (1.4) 230.11970/71 15.2 2.0 13.8 ( .6) 230.71971/72 16.2 2.0 13.8 .4 230.31972/73 17.4 2.0 13.8 1.6 228.71973/74 18.7 2.1 13.7 2.9 225.81974/75 33,000 20.1 3.4 13.5 3.2 222.61975/76 21.7 2.6 13.4 5.7 216.91976/77 23.3 2.5 13.0 7.8 209.11977/78 25.2 2.5 12.6 10.1 199.01978/79 27.3 3.0 11.9 12.4 186.61979/80 50,000 29.0 3.2 11.2 14.6 172.01980/81 29.0 4.1 10.3 14.6 157.41981/82 29.0 3.0 9.4 16.6 140.81982/83 29.0 3.2 8.5 17.3 123.51983/84 29.0 3.1 7.5 18.4 105.11984/85 50,000 29.0 3.5 6.3 19.2 85.91985/86 29.0 3.3 5.2 20.5 65.41986/87 29.0 4.5 3.9 20.6 44.81987/88 29.0 3.3 2.7 23.0 21.81988/89 29.0 4.0 1.3 23.7 ( 1-9)

* Interest at 6% on balance at beginning of year** In accordance with Kodan practice, outstanding balance is reduced by surplus

and increased by deficit.

TABLE 11

JAPAN: ThIRD EXPRE&SSAY PROJECT

FREIGHT TRAFFIC IN THE TOKYO-SHIZUOIA REGION, 1955-61

(Billions of ton/k1a)

YEAR TOTAL COASTAL SHIPPING NATIOIJAL RAILWAY* 'IRUCKS

1955 18.8 7.4 9.7 1.7

1956 21.9 8.7 11.1 2.1

1957 25.2 10.3 12.1 2.8

1958 25.0 10.0 11.5 3.5

1959 30.1 13.1 12.7 4.3

1960 35.3 16.0 13.9 5.4

1961 39.4 17.5 15.0 6.9

* The axaount of freight traffic carried by private railways is insignificant.

TABLE 12

JAPAN: THIRD EXPRESSWAY PROJECT

PASSENGER TRAFFIC IN' THE TOKYO-SHIZUOKA REGION, 1955-61

(Billions of passenger/km)

YE-AR TOTAL RAILWAYS HIGHWAYSNational Private Buses Passenger Cars

1955 38.2 20.7 10.1 6.6 o.8

1956 43.9 23.2 11.2 8.4 1.1

1957 49.1 25.3 12.7 9.7 1.4

1958 53.3 27.0 13.6 11.1 1.6

1959 58.0 29.1 14.3 12.9 1.7

1960 62.3 32.2 15.7 11.4 3.0

1961 67.9 34.2 16.7 12.8 4.2

JAPM.T: THIERD EXPRESSWAY PROJECT Table 13

ITIHOE DORO KODAN

TO\KYO-SHIZUOIA EXPRESSWAY

SCHEDULE OF PROPOSED TOLL CHARGES

Type of Vehicle Yen Equiva:Lentper KM US Cen-ts

per mi:Le

Passenger CarsSmall 7.5 3.14Ordinary 9*5 4.3

TrucksSmall 7.5 3.14Ordinary 11.5 5.2

Truck or tractor-trailer combinationswith 3 axles 17.0 7.6with 4 or rmore axles 22.0 9.9'

Busesregular service 16.0 7.2other 22.0 9.9

AppendixPage 1

JAPANT: THIRD EXPRESSWATAY PROJECT

APPENDIX

SPECIFIC ECONOMIC BEiEFITS OF TOKYO-SHIZUOKA EXPRESS14AY

A. Introduction

1. The most important economic benefits of the proposed expresswaywhich are measurable in monetary terms consist of a) reduced transportationcosts, which are estimated to bring a return on the investment of about12 percent during its useful life of 30 years; b) time savings to passen-gers and freight, which are more difficult to express in monetary terms,but which will probably bring a return of 5 percent and c) reduepdaccidents, which are estimated to involve a benefit of about 1 porcanton the investment. The total return from these benefits is thereforeabout 18 percent which is a reasonable return in a country like Japan.Each of these benefits is explained in greater detail below.

2. The calculations are based on very extensive studies by theJapanese authorities, including traffic counts, origin and destinationsurveys, investigations of industrial location, comparative transport costanalyses, and other studies. These studies are among the most advancedpresented to the Bank in connection with the appraisal of transport projectsand rank highly in the international field.

B. Reduced Transportation Costs

3. The reduction of transportation costs from the proposed expresswayis estimated to bring a return of 12 per cent on the investment. Of this,Lipercent is accounted for by the benefits to the users of the new express-way and 1 percent by those continuing to use the existing highway, on whichthe congestion will be reduced. This estimate is based on the fo:llowingmajor assumptions which are regarded as reasonably conservative.

4. Traffic: The forecast of traffic on the expressway (see Table i)takes into accoun primarily the traffic growth in the Tokaido area inrecent years, the growth of population and national income in general andof the potential of this region in particular, and the traffic developmentson completed toll roads in the area. The traffic projection takes intoaccount the cormpletion of the Tokyo-Shizuoka-Nagoya expressway in 1969; ifthe Shizuoka-Nagoya section were not completed by that time, the trafficon the Tokyo-Shizuoka section would be temporarily about 8 percent; low.er. Thetraffic on Kational Highway 'No. I has more than doubled in the 4-year periodfrom 1958 to 1962, froma an average daily traffic of about 11,000 vehicles to24,000. Since highway transport in Japan is moving out of its early stages,future growth cannot be expected to continue at such a high rate and it hastherefore been estimated by the Japanese authorities that the normal growth

AppendixPage 2

in the Tokaido region will decline from an average of about 11.5 percentannually in 1962-69 to about 5 percent near the end of the 30-year periodof the expressway's useful life. However, no allowance is made for trafficincreases on the Tokyo-Shizuoka expressway beyond 1979 since in that yearits theoretical capacity will be reached and additional capacity will beneeded.

5. In 1969, of the total traffic of 22,800 vehicles estimated touse the expressway daily, about 17,200 or about 75 percent; representtraffic which is expected to divert from existing highways, mainLy fromNational Highway No. 1. By that time, the average daily traffic on NationalHighway No. 1 is estimated at nearly 50,000 vehicles, so that about one ofevery three vehicles would divert to the expressway. Fifteen percent of theexpressway traffic is expected to be diverted from the railways, primarilythe National Railways, and only about 10 percent can be considered as havingbeen generated by the lower transport costs. The impact of the expresswayon the Railway is discussed more fully in paras. 53-57 of the report.

6. During the 1969-79 period, the annual traffic growth on theexpressway is estimated to average about 8 percent, ranging from a low of1.3 percent for ordinary passenger cars to 15 percent for small passengercars; trucks are estimated to increase by about 5 percent and btuses byslightly less than 7 percent. It is noteworthy that in 1969, truLcks willaccount for more than 60 percent of all traffic on the expressway. Passengercars will account for less than 30 percent, but because of their higher rateof growth, this percentage will increase to about 45 percent by 1979.

7. Vehicle Operating Savings: On the basis of Japanese studieswhich appear reasonable, it can be estimated that the expressway will reducethe operating cost of an ordinary truck by about X 21 per kmi, or about 34percent (US 6 cents equivalent); the savings for a bus would be about thesame and for a small passenger car about Y 4 (see Table ii). These figuresexclude special taxes, such as gasoline taxes, since they are not a costto the economy, and also take into account the fact that between 1958, whenthe Japanese study of operating costs was made, and 1969, when thLe express-way will open, the degree of congestion of the existing highway, as measuredby the ratio of traffic to theoretical peak capacity, will have grown byabout 50 percent, thus increasing vehicle operating costs by at least 5 per-cent; if the new expressway were not built, operating costs would rise evenmore sharply thereafter. These savings per vehicle have been applied fullyto the estimated traffic diverting from other highways, but only one half hasbeen applied to the generated traffic on the assumption that this type oftraffic is induced progressively and proportionately to the amount of re-duction in operating costs. For the relatively small proportion of theexpressway traffic diverted from the railways, the unit cost reductionshave been estimated at about one half of those of the traffic diverted fromhighways. In addition, the expressway will reduce the congestion on NationalHighway No. 1 by reducing traffic volumes to about two thirds of what theywould have been, so that vehicle operating costs on it have been estimatedto be at least 5 percent lower than they would otherwise have been.

AppendixPage 3

C. Time Savings

8, In a country like Japan, where the labor force is fully employed,time is indeed money. The new expressway will reduce transport time forpassengers and freight very substantially, and the return on the investmentfrom this benefit is estimated at about 5 percent: Of this, passengersaccount for about 3 percernt and freight for 2 percent. The major assump-tions on which this estimate is based are as follows:

9. Amount of Time Saved: The present travel time for a passenger carbetween Tokyo and Shizuoka is about 4 hours; due to growing congestion,this will probably increase to 5 hours by 1969. The expressway is estimatedto cut the travel time in half, for a saving of 2-,' hours. For trucks andbuses, the reduction will be even greater, - from about 6,1 hours to 3 hours.These savings in time have only been applied to traffic diverted fronm high-ways; traffic diverted from railways is not likely to benefit significantlyas far as time savings are concerned. The reduction in congestiorL on theexisting highway will also lower the travel time on it; the estimates assumea very modest reduction of 10 percent.

10. Value of Passenger Time Saved: Japanese studies relate the value oftime for passengers to their earnings. For the type of passenger who canafford to t-ravel in a passenger car, time is valued at about X 360 per hour(US$1 equivalent), which would involve a monthly income of about US$200equivalent. For passengers using buses the equivalent figures are X 72per hour (US 20 cents equivalent), or about US$40 per month. These figuresare particularly conservative when allowance is made for the fact that by1969 per capita income will be about double the 1958 level, when the abovestudies were made.

ll, To check on whether these valuations of time savings are realistic,an analysis was made of what people are in fact willing to pay for time bycomparing the surcharges for various types of trains, where the major, andin some cases the only difference is greater speed. For example, betweenTokyo and Nagoya, a tire saving of 45 minutes can be purchased at an extracost of 3 660 for first class and about X 300 for second class service; onan hourly basis, this would be the equivalent of more than US$2 and $1,respectively. On the new Tokaido railway line, the surcharge now under con-sideration of X 660 for a saving of 2 hours would amount to about US$1 perhour. These data indicate that the values used in the estimate are realistic,if not unduly conservative,

12. Value of Freight Time Saved: This estimate is based primarily onwhat shippers are willing to pay for faster service because of such factorsas reduced spoilage and the need for lower inventories. For this purpose,the Japanese authorities examined 12 classes of coumodities, such as fruits,vegetables, fish, dairy products, textiles, etc., since the importance of

A!'pendixPage 4

time savings differs widely for different types of commodity; for example,the value of one hour transport per ton of fresh fish is estimated at aboutX 75 (or about US 20 cents), compared to X 50 for fruit and only 4 3.7for minerals.

D. Reduced Accidents

13. The expressway will most certainly sharply reduce the high accidentrate now prevailing. As far as property damage alone is concerned, thebenefit is estimated to involve a rate of return on the investment of about1 percent' Measuring the value of death and injury prevention in monetaryterms is much more difficult, but on the basis of Japanese calcul;ations,this would increase the total benefit from accident reduction to about 1.5percent. This estimate is based on the following major assumptions:

14 1N1umber of Accidents: The number of accidents on National HighwayNo. 1 is extraordinarily high; per huvdred million vehicle-kms, there areabout 550 accidents involving property damage. The estimate assumes thaton the expressway, the accident rate will decline to 150, which is about50 per cent above the level prevailing on modern American expressways, sincedrivers in Japan are not as disciplined for the time being. On the samebasis, the estimate assumes that the fatality rate will decline from about14 to slightly less than 3, and the rate of injuries from about 200 to 115.

15. Value of Accident Reduction: Japanese police statistics indicatethat the average property damage is about v 225,000 per accident (or aboutUS$625 equivalent). This does not appear unreasonable, since about two-thirdsof the total traffic is accounted for by trucks and buses. The cost ofinjuries is estimated at about X 37,000 (or about US$100 equivalent), andincl-udes an allowance for both loss of earnings and the cost of medical treat-ment; no allowance is made for injuries to those under 14 years of age. Thevalue of a life is estimated by the Japanese authorities at 9 6.9 million(or about US'ql9,000 equivalent). This is based on average annual earrings in1956 of about X 420,000 per working population, capitalized over a 30-yearperiod. This clearly involves a major judgment factor, and while the 30-yearperiod may be on the high side, the average income by 1969 will be doublethe 1956 level and during the life of the project it will increase further.In any case, the benefits from accident reduction are relatively small anddo not significantly affect the overall economic evaluation of the expressway.

E. Other Beniefits

16. There are, in addition, at least two other important benefits whichcannot be expressed in monetary terms. The first is the tremendous increasein comfort and convenience which the new expressway will afford. The secondis the increased productivity of industries locating near the expressway.The expressway will not significantly increase economic development in thesense that resources will be used which would otherwise remain undeveloped.However, the shift of new industries to the area round the expressway is aclear indication that, in addition to the benefits discussed previously,resources can be used more productively there than in other areas.

APPENDIX

Table i

JAPAN: THIRD IXPRESSWAY PROJECT

ESTIMATE OF AVIRAGE DAILY TR1AFFIC, TOKYOM&HIZUOtKA EXTFESSWAY, 19691979 *

(Number of Vehicles)

YEAR TRUCKS BUSES PASSENGER CARS OTHERS TOTALOrdinary Small Ordinary Small -

1969 11,900 2,400 1,100 1,500 5,500 400 22,800

1974 15,400 3,000 1,500 1,600 11,000 500 33,000

1979 20,000 3,600 2,100 1,800 21,800 700 50,000

* For exolanation of underlying assumiptions see Appendix Par.4. The numberof vehicles are the equivalent vehicles travelling the total length ofthe expressway. Traffic is assuxaed to remain at the 1979 level there-after, since this is approxima-tely the theoretical capacity of theexpressway.

JAPAN: THIRD EXPEi"JSSWAY PROJECT

COMPLiISON OF OPERATING COSTS ON THE EXISTING HIGHWAYAND THE TOKYO-SHIZUOKA EXPRESSUAY. 1969*

(Yen per vehicle/km)

P A S S E N G E R C A R S B U S E S T R U C K S

Ordinarz Small Ordinary Small

Type of Cost Existing Express- Existing Express- Existing Express- Existing Express- Existing Express-Highway way H way Highway way Highway __way _ Highway was

Fuel and Oil 5.6 6.9 3.8 4.5 9.0 12.4 9.6 13.5 4.0 5.4Tires 1.0 1.4 0.9 1.2 3.5 4.9 2.9 4.1 1.0 1.4Milaintenance 4.7 3.7 2.3 1.8 4.6 3.6 4.3 3.4 2.0 1.6Depreciation 11.5 6.8 5.7 3.3 16.8 9.8 6.8 4.0 5.4 3.3llages - - - - 13.1 7.8 16.6 9.9 9.9 5.5Ove'rhead and Misc. 3.4 2.2 3,4 2.1 16.8 1O0L 19i9 12.0 11.8 7.1Subtotal, Operating

Costs 26.2 21.0 16.1 12.9 63.8 48.9 60.1 46.9 34.1 24.3Deduction for Taxes _7.0 8 3j Subtotal, OperatingCosts Net of Taxes 18,2 14,0 13.0 10.0 57.9 42.0 55.7 40.0 31.0 21.0Allowance for IncreasedCongestion after 1958* 1.8 - 1.0 - 5.1 - 5.3 - 3.0 -

Total 20.0 14.0 14.0 10.0 63.0 42.0 61.0 40.0 34.0 21.OCost Reduction:Absolute 6 4 21 21 13

% 30 29 33 34 38

ei

* For explanation see paragraph 7. C

MAP IWakkIa no,

opporo

HOKKAIDO

4P JAPAN 42

NATIONAL HIGHWAY SYSTEM : te

EXISTING PRIMARY AomoriNATIONAL HIGHWAYS

FIRST AND SECOND

EXPRESSWAY PROJECTS

_ - -- PROPOSED THIRD AkitaEXPRESSWAY PROJECT

EXPRESSWAY CONSTRUCTION Q

WITHOUT BANE FINANCING

0 50 100 150 200

KILOMETERS

0 50 00 I 50 200 iSends

MILES

Shizuoka ~ ~ CibHiroshimama<_/ :

oi~~~~~~~oh

P A C /F /C O C E A N

AUGUS 93 /,/YUSHU

_ ; y c z c~~~~~~~~~iyzki

AuGusrTI963 IBRD-1224

MAP 2______Expressways roropirered

Eeper.es'eoys pierced for JAPANTOKYO-SHIZUOKA EXPRESSWAY

I Tokeido reil<oey §r -=- = rojeee expresswoy ood ioterchanges

*11r-1 u N-ew T.k,idod- il-_y E-rotiop p,iworoadsecoodory

oational hlh-oys 0 5 0 I5 20 25

- Contouro in meters I . . . . l i l I ____________________d__LProposedprimoryaderodryES

0 5 10 15 20 25

u_< t;; ., 4 ~~~~~~~~~~~~~~~~~KILOMETERSlll

-hid. KAWAGUCHI~~~~~~~~~~~~xx.

/w A \)' ' ) U' ,,Ufts T 0K Y 0

SEPTEM6ER 1963 9