Road Blog No. 3: On the opportunity costs of road closures and construction delays

By: Lykke E. Andersen*

For more than a year now (since 20 July 2016), the road between Santa Barbara and Caranavi (on the primary road between La Paz and Rurrenabaque) has been closed from 7 am to 5 pm, Monday to Saturday, due to road construction activities. We didn’t know that, though, when we left La Paz at 5 am last Tuesday morning in order to drive to Rurrenabaque. When leaving La Paz, well before dawn, we paid the road toll of Bs. 9.50, and the guy in the toll booth didn’t think to warn us that we would soon have to wait for 9.5 hours because the road is closed all day.

We arrived at the road block around 8 am, and despite our best efforts, we could not convince the guy there to let us through. The length of the closed road was about 60 km, so I suggested that we walk instead of just waiting around for 9 hours.

For our own safety we enquired as to what kind of road work was being done ahead. Are they doing rock blasting with dynamite? Yes. Are they putting on asphalt? Yes. We were also informed that the Bolivian Road Authority (ABC) would be making inspections that day.

The engineer among us thought it would be too dangerous to walk in an area with rock blasting, and suggested that we instead drive back to Coroico and drink beer all day. While that was a tempting proposition, I thought we could at least walk for a little while, and perhaps get some photos of the road work, and then return for beer in Coroico if it seemed too dangerous to continue. We left our driver behind with the car and started walking.

The first two workers we saw were a couple of guys with a paint brush and half a litre of white paint each, which didn’t seem too dangerous. We didn’t think to take a photo of them, since we did not imagine that that was the main road work we would see during the next several hours of walking along the road.

We saw plenty of signs about road work, but for hours we didn’t actually see any people working, nor a single piece of equipment.

Knowing that all traffic had been stalled in both directions for hours, we started to make fun of all the danger signs and road work signs.

After three hours of walking we saw the first piece of equipment, but there were no workers anywhere near it, so we took another photo.

The sign below says “Danger: Open trench” (albeit with a spelling error), but there was no open trench anywhere near it. When posing for the photo, though, we realized that it was one of the newly painted signs, because we got white paint on our hands and clothes.

By the 26.46 kilometer sign (from the start of the road work) we met a guy whose house had been scheduled for demolition in 2013, due to the road work, but his house was still there in 2017.

After almost four hours of walking we finally found a small group of men working on making drainage canals next to the road. That is clearly important work, but it didn’t seem to warrant closing down the road completely all day, every day.

The first piece of machinery we actually saw working was this one down by the river. Didn’t warrant closing the road either.

Eventually we reached the last of the two tunnels designed for the project. There were a few people and machines hanging around, but we didn’t actually see or hear any machinery at work. We hope they will have more success with this tunnel than the first tunnel (which was excavated from both directions, but they didn’t manage to meet in the middle).

At this point, after having walked for six hours, we were quite relieved to be picked up by a local family who brought us all the way to Caranavi in their car, easily passing the only remaining piece of machinery actually doing work on the road.

Considering that road improvements have the specific purpose of reducing transportation time, we were rather shocked that authorities have closed this road for 60 hours every week for more than a year, although only minimal road work seems to be happening.

Since our day of visit coincided with a day of scheduled inspection by the ABC, which everybody involved seemed to know, we would have expected the road construction company (Royal) to at least pretend to be working. But what we saw do not even qualify as pretend work. Obviously, it is impossible to prove a negative, so you will just have to trust me on this, or go check for yourself one day. It is a very beautiful stretch of mountain road, so I would actually highly recommend taking advantage of the lack of traffic and do that.

But let’s make a some simple calculations regarding the opportunity costs of closing one of Bolivia’s few primary roads six days per week for a year.

According to the current Bolivian legislation, all public investment projects have to be evaluated using a social discount rate of 12.67%. If the project does not provide an expected social return of at least 12.67% per year, it should not be implemented. Since this road improvement project was indeed approved, it must have shown higher theoretical social returns.

The investment on this piece of road amounts to approximately USD 280 million (1). If we assume the minimum rate of return (12.67% per year), this road should provide us social benefits of about USD 35 million per year, or about USD 4 thousand per hour. Considering that the road has been closed for 60 hours per week during the last 52 weeks, the foregone benefits amount to almost USD 13 million.

Nobody seems to question the decision to completely close one of Bolivia’s primary roads for so many hours every day for more than a year. It is as if they don’t think the time of Bolivians is worth anything. But if that were the case, then all road improvement projects would be unjustified, because their main purpose is to shorten transport time. As it were, our hiking team arrived to Caranavi almost four hours before our driver with the car.

At the very least, and without any inconvenience whatsoever, they could let vehicles pass through during the lunch break. Our suspicion, though, is that they have to completely block traffic all day in order to hide that no real road work is happening.

The lack of progress on the road also has an opportunity cost, as every year of delay in completion means that we lose USD 35 million in social benefits. The road work was scheduled for completion by July 2014, so we are already more than 3 years late. This means that so far we have already lost more than USD 100 million in expected social benefits due to inept project management.

We did see the group of inspectors from ABC meet and talk on the road (far away from any active road work). I wonder what they were talking about, but I hope they have also come to the conclusion that the 10-hours-per-day complete road closures are totally unjustified, given the minimal road work actually taking place.

 

* Senior Researcher at INESAD. The viewpoints expressed in this blog are the responsibility of the author and may not reflect the viewpoints of all members of Fundación INESAD.

Notes:
(1) The initial construction contract was signed for a total value of USD 244 million and awarded to AR-BOL, which is an Argentinean–Bolivian joint venture. The project started in early 2010 and was supposed to be completed by July 2014. However, AR-BOL’s contract was cancelled in August 2015. By that time 87% of the contract value (USD 212 million) had been disbursed. Royal, a small Bolivian firm from Potosí, was handpicked to finish the job and awarded a contract of USD 68 million. They are the ones who are supposed to be working on the road now.