China - 7th Railways

 ICRR 12122 Report Number : ICRR12122 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 07/01/2005 PROJ ID : P003571 Appraisal Actual Project Name : China-7th Railways Project Costs 1747.5 1506.7 US$M ) (US$M) Country : China Loan/ US$M ) 400 Loan /Credit (US$M) 256 Sector (s): Board: TR - Railways Cofinancing (99%), Central government US$M ) (US$M) administration (1%) L/C Number : L3897 Board Approval 95 FY ) (FY) Partners involved : Closing Date 12/31/2002 09/30/2004 Prepared by : Reviewed by : Group Manager : Group : Peter Nigel Freeman Roy Gilbert Alain A. Barbu OEDSG 2. Project Objectives and Components a. Objectives i) To redefine the relationship between the Railways and the Government; ii) To reshape the railway's organization and strengthen its internal management; iii) To expand the railway's transport capacity, raise its investment efficiency, and enhance its finance; iv) To modernize the railway's technologies and bolster the efficiency and quality of its transport operations and service. b. Components i) Expansion of corridor capacity; line electrification and upgrading; US$ 955.3 m. (54.7%) of costs at appraisal; US$1160m. final cost. ii) Modernization of information systems; hardware, software and training; US$ 199.6m. (11.4%) of appraisal costs; US$202.9m. final cost. iii) Upgrading of telecommunications; equipment and training; US$ 131.9m. (7.5%) of appraisal costs; US$138.8m. final cost. iv) Commercialization of container transport; equipment, IT support and technical assistance; US$ 153.1m. (8.8%) of appraisal costs; not utilized . iv) Enhancement of environmental protection; pilot programs and training; US$ 6.7m.(0.4%) of appraisal costs; US$2.0m. final cost. v) Expansion of system capacity; locomotives, equipment and spares; US$ 123.8m. (7.1%) of appraisal costs; not utilized. vi) Technical assistance; studies covering enterprise reform, tariffs, productivity, passenger rail, decision support, information systems, network systems, diesel engine design, sector manufacturing restructuring and training to strengthen the Treasury function; US$ 7.4m. (0.4%) of appraisal costs; US$3.0m. final cost. vii) Physical and price contingencies .US$169.7m. (9.7%) of appraisal costs; mostly utilized . There appears to be a mismatch between the components and the first two objectives which are very loosely formulated, seriously reducing their relevance . c. Comments on Project Cost, Financing and Dates A decision by the Ministry of Railways (MOR) to accord a higher priority to the Beijing -Kowloon line (part of a separate project) slowed the pace of implementation of the Wuhan -Guangzhou line because it created a shortage of counterpart financing, while the container transport and electric locomotive components were also canceled . Supplier and procurement problems caused further delays . The closing date was first extended to June 30, 2003 and subsequently to September 30, 2004. Project restructuring took place in January, 1999. This formalized the cancelation of the container and electric locomotive components, but increased the Bank allocation to the Wuhan-Guangzhou corridor. The stated objectives remained the same, but the project loan was reduced to US$ 371 million. At closure a further US$133 million of the loan amount was cancelled . Some of this cancellation was due to overestimation of equipment costs . 3. Achievement of Relevant Objectives: Redefine the relationship between the Railway and the Government . (Partially achieved) There is a disconnect between this vaguely worded objective, the actual project components and the resources allocated to achieve it. The one component relevant to this objective is the technical assistance, covering studies to deal with issues such as a revised framework on railway law, public service obligations and labor productivity . Several years elapsed between project effectiveness and a decision in 2001 by the People's Congress to approve a Five Year Plan in which it directed that the reform of the transport management system should go ahead, (with the core focus on the separation of government functions and enterprise functions ); in this plan railways would separate infrastructure from operations. It is not possible to measure the impact that the Bank -funded studies had on the decision making process, nor the impact of the high level Ministerial meetings requested by the Government to seek the Bank's advice. Presumably, they did contribute towards the overall goal . However, while some aspects such as the separation of the passenger transport accounting were achieved, a substantial number of the necessary steps towards the reform goals still need to be implemented . The timing of this initiative was premature and the implementation period unrealistic. Reshape the railway's organization and strengthen its internal management . (Partially achieved) Similarly, it is likely that the studies and intensive discussions with railway management did have an influence on reshaping the organization and strengthening its internal management . "Reshaping" is vague, but appears to have meant focusing on the railway's core business and improving management efficiency . Studies were concluded on improving labor productivity and on reviewing public service obligations . There was progress in separating some non-core activities, the creation of three new special purpose companies and the introduction of new regulations to permit foreign investment in the railways . However, as with the first objective there was no clear plan, no performance indicators and no obvious relationship with the project components . The Bank's advice and the technical assistance probably contributed to the achievement of the objective, but the extent of the impact cannot be measured. Expand the railway's transport capacity, raise its investment efficiency and enhance its finance . (Partially achieved) Most of the key performance indicators were achieved or exceeded . For example, freight capacity increased by about 24% and there was an increase in average train speed of between 10 and 20%. However, the container transport commercialization component (US$26.3million) was dropped because it was concluded that the concept was premature and could not be implemented within the timeframe of the project . Similarly, the procurement of US$92.5million of AC-electric locomotives was not carried out under the loan because the technical specifications and procurement procedures could not be agreed on between the Borrower and the Bank . These items represented a third of the original loan. The efficiency of the project is also questionable . The rate of return as originally calculated in the SAR (29%) was based on questionable assumptions and the ex post ERR was estimated at 12.4%. Substantially less international competitive bidding (ICB) was used than anticipated, while local expenditure overran by 40%. Modernize the railway's technologies and bolster the efficiency and quality of its transport operations and service . (Fully achieved). For most indicators, such as number of lines, number of subscribers and reduction in staff costs, the technical performance of the upgraded telecommunications system was well above target . The Transport Management Information System is fully implemented and successfully providing the required information, while the environmental protection activities and technical assistance have been satisfactorily undertaken . 4. Significant Outcomes/Impacts: The MOR can now manage its railway system on a real time basis and the management of train operations is much more effective than before the introduction of management information systems . Staff deployed on transport services was reduced by 25% between 1995 and 2003. 5. Significant Shortcomings (including non-compliance with safeguard policies): Bank and Borrower performance during preparation was unsatisfactory and the Quality at Entry was also rated unsatisfactory. The project design was too ambitious and did not take into account institutional constraints and the degree of commitment of the implementing agency . There was no specific component or strategy to assist with the achievement of the first two objectives . The objectives were not simplified or scaled -back at restructuring. Project costing was poor. The cost estimates for equipment procured through Bank funding were too high, while the local cost was 40% higher than appraisal estimates . Most of the provision for ICB was not used . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately OED rates a project as moderately Unsatisfactory unsatisfactory (a rating which does not exist under the ICR's 4-point scale) when it achieves most of its relevant objectives, but with major shortcomings. See sections 3 and 4 above.  Institutional Dev .: Substantial Modest The evidence concerning the impact of the project on institutional development is too thin to justify a substantial rating . Sustainability : Likely Likely Bank Performance : Satisfactory Unsatisfactory Poorly formulated objectives which were not simplified at restructuring. Poor quality at entry and failure to ensure proper utilization of ICB allocation. Borrower Perf .: Satisfactory Satisfactory But only marginally so. Lack of ownership of some aspects of the project and the size of the cost overruns are shortcomings. Quality of ICR : Satisfactory NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. NOTE: 7. Lessons of Broad Applicability: All objectives including those related to strategic and institutional goals need to be explicit and clearly described with milestones and performance indicators if they are to succeed and be monitorable . There must also be a clear commitment to the objectives by the borrower and its implementing agency and project components should be designed to help meet the achievement of objectives . Cost estimates need to be compared with both market and historical prices to ensure that they are realistic . Monitoring indicators should be selected that are practical and meaningful for the borrower to collect . Where ICB is a substantial part of project design it should be costed carefully and the borrower must be committed to using it. 8. Assessment Recommended? Yes No Why? This project should be evaluated as part of a cluster of transport projects in China . In particular it would be useful to see the extent of further progress with the strategic and institutional objectives . 9. Comments on Quality of ICR: Although the ICR is candid (and for this reason has been rated satisfactory, albeit marginally so ), it is sometimes difficult to follow the arguments provided, while the cost tables in Annex 2 contain some different figures from those in the text boxes. It is also unclear in some cases as to exactly which technical assistance studies were carried out and which were not and what was their outcome . While it optimistically rates the overall project outcome as satisfactory, in section 7.3 it advises that the first two objectives were only partially achieved and in sections 7.1 and 7.2 that some physical components were dropped either as premature or because of lack of agreement on procurement . At restructuring there was an opportunity to revise the objectives, but this was not done even though the ICR notes that the project was too complex and could have been simplified . More could have been made of this .