Documentof The World Bank FOROFFICIALUSEONLY ReportNo: 35201-CN PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OF US$320MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FORA FUJIANHIGHWAY SECTOR INVESTMENTPROJECT SEPTEMBER15,2006 Transport Sector Unit East Asia andPacific Region This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwisebe disclosedwithout World CURRENCYEQUIVALENTS (ExchangeRateEffectiveMay 4,2006) CurrencyUnit = RMB Yuan RMB Yuan 1-00 = US$0.124 US$ = RMBYuan8.05 FISCALYEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AADT Average Annual Daily Traffic GOC Governmentof China ADB AsianDevelopmentBank HDM Highway Designand MaintenanceModel BMS Bridge ManagementSystem HMPP Highways MaintenancePilot Program BOT Build Operate Transfer ICB InternationalCompetitiveBidding CAS Country Assistance Strategy ICR ImplementationCompletionReport CNEN ChinaNational Expressway Network ISP Institutional StrengtheningProgram CPS Country PartnershipStrategy LA&R LandAcquisition and Resettlement DA DesignatedAccount M&E Monitoringand Evaluation DOFWBP = Director's Office for World Bank Project MNDF Minority Nationalities Development EA - EnvironmentalAssessment Framework EAP - - EnvironmentalAction Plan MOC Ministry of Communications EASTR = World BankEastAsia and Pacific Region MOF Ministry of Finance Transport Sector Unit MTE Medium Truck Equivalent EIA - EnvironmentalImpact Assessment mu Chinese measureof land area EIRR - Economic Internal Rateof Return (15 muhectare) EMF - EnvironmentalManagement Framework NDRC National Developmentand Reform EMP - EnvironmentalManagement Plan Commission E&M - Electrical and Mechanical NPV Net PresentValue EPB - - EnvironmentalProtectionBureau PAD ProjectAppraisal Document EPO - - EnvironmentalProtectionOffice PAP ProjectAffected Persons FDRC = Fujian Developmentand Reform PCU Passenger Car Unit Commission PMS Pavement Management System FHAB = Fujian Highway Administration Bureau PRC People's Republic of China FHP1 - - First Fujian Highway Project PRO ProjectResettlementOffice FHP2 - SecondFujianHighway Project RAP Resettlement Action Plan FHSIP RPF Resettlement Policy Framework FMM = FujianHighway Sector InvestmentProject - - FinancialManagement Manual RRIF Rural Roads ImplementationFramework FMR - FinancialManagement Report RRIP Rural Roads ImprovementProgram FPAO = Fujian Provincial Audit Office SBD StandardBidding Documents FPCD = Fujian Provincial Communications SEPA State EnvironmentalProtection Department Administration FPECD = FujianProvincial ExpresswayConstruction SWAp Sector Wide Approach Directorate TPRI TransportPlanningand ResearchInstitute FPFB - FujianProvincial Finance Bureau voc Vehicle OperatingCost FPTQIS = FujianProvincial Transport Quality YWE Yong'an - Wuping Expressway InspectionStations Vice President: James W. Adams Country Managermirector: DavidR.Dollar Sector Manager: JitendraN.Bajpai Task Team Leader: Aurelio Menendez CHINA FujianHighway Sector InvestmentProject CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE .................................................................. 5 1. Country and sector issues .................................................................................................... 5 2. Rationale for Bank involvement .......................................................................................... 7 3. Higher level objectives to which the project contributes .................................................... 7 B . PROJECT DESCRIPTION .................................................................................................. 8 1. Lending instrument.............................................................................................................. 8 2. Project development objective and key indicators .............................................................. 8 3. Project components .............................................................................................................. 9 4. Lessons learned and reflected inthe project design.......................................................... 10 5. Alternatives considered and reasonsfor rejection............................................................. 11 C. IMPLEMENTATION ......................................................................................................... 12 1. Partnership arrangements .................................................................................................. 12 2. Institutional and implementation arrangements ................................................................ 12 3. Monitoring and evaluation of outcomes/results ................................................................ 14 4. Sustainability ..................................................................................................................... 16 5. Critical risks and possible controversial aspects ............................................................... 17 6. Loadcredit conditions and covenants ............................................................................... 18 D APPRAISAL SUMMARY . .................................................................................................. 19 1. Economic and financial analyses ...................................................................................... -19 2. Technical ........................................................................................................................... 20 3. Fiduciary............................................................................................................................ 21 4. Social ................................................................................................................................. 22 5. Environment ..................................................................................................................... -23 6. Safeguardpolicies.............................................................................................................. . . 24 7. Policy Exceptions and Readiness...................................................................................... 24 Annex 1: Country and Sector or ProgramBackground .......................................................... 25 Annex 2: Major RelatedProjectsFinancedby the Bank and/or otherAgencies ..................32 Annex 3: Results Frameworkand Monitoring ......................................................................... 34 Annex 4: DetailedProjectDescription ...................................................................................... 37 Annex 5: ProjectCosts ................................................................................................................ 42 Annex 6: ImplementationArrangements .................................................................................. 43 Annex 7: FinancialManagementand DisbursementArrangements ..................................... 50 Annex 8: ProcurementArrangements ....................................................................................... 57 Annex 9: Economic and FinancialAnalysis .............................................................................. 63 Annex 10: SafeguardPolicy Issues ............................................................................................. 79 Annex 11: ProjectPreparationand Supervision ...................................................................... 93 Annex 12: Documents in the ProjectFile .................................................................................. 95 Annex 13: Statementof Loans and Credits ............................................................................... 96 Annex 14: Country at a Glance ................................................................................................ 101 Annex 15: Maps ......................................................................................................................... 103 CHINA FUJIANHIGHWAY SECTOR INVESTMENT PROJECTAPPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASTR Date: September 15,2006 Team Leader: Aurelio Menendez Country Director: DavidR. Dollar Sectors: Roads and highways (100%) Sector ManagerDirector: JitendraN.Bajpai Themes: Regional integration (P);Rural servicesand infrastructure (P);Trade facilitation and market access (S);Infrastructure services for private sector development (S) Project ID: PO91020 Environmentalscreeningcategory: Full Assessment Lending Instrument: Specific Investment Loan [XI Loan [ ] Credit [ 3 Grant [ ] Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US$m.): 320.00 Pronosedterms: VSL_ _ FinancingPlan (US$m) Source Local Foreign Total BORROWER 1,170.00 0.00 1,170.00 INTERNATIONAL BANKFOR 79.00 241.OO 320.00 RECONSTRUCTION AND DEVELOPMENT Total: 1.249.00 241-00 1,490.00 Borrower: PEOPLE'S REPUBLIC OF CHINA ResponsibleAgency: Fujian Provincial Communications Department(FPCD) 19thFloor, Fujian Comms. Admn. Building 18 Dongshui Road Fuzhou, FujianProvince 350001 People's Republic of China Tel: 86-591-8707-7448 Fax: 86-591-8707-7377 shbafjjt,gov.cn :Y 2007 2008 2009 2010 2011 2012 innual 23.98 56.56 76.48 79.22 59.53 24.23 hmulative 23.98 80.54 157.02 236.24 295.77 320.00 Project description [one-sentence summary of each component] Re$ PAD B.3,a, Technical Annex 4 Component A. Rural Roads Improvement Program (RRIP). The RRIPaims at improving conditions ofthe lower class o froads that connect administrative villages to the main provincial road network. The Bank loanwill support the overall program andfinance ruralroad investments following the rural roads implementation fiamework (RRIF) agreedupon with FPCD. The RRIF i s the integrated framework o fthe Procurement Framework, EnvironmentalFramework, Resettlementand MinorityNationalities Framework, and Financial Management Framework, and includes the technical and quality control specifications for the rehabilitationand improvement o f the rural roads andthe implementation arrangements for this component. Disbursementswill be processedbased on completed outputs. The Bank loanwill support a subset o f about 3,500 km out o fthe 10,000 kmo f local road sections already identified based on the demand o f counties, townships and villages that are part o fthe 35,000 km provincial rural roads 2004-20 10program. Component B.Yong'an Wuping Expressway (YWE). - The YWE will be a 195.2kmlong section o fthe Changchun-Shenzhen expressway, which i s one o f the North-South corridors o fthe CNEN. The YWE will connect Yong'an (Sanming Prefecture) with the border o fthe Fujian and Guangdong Provinces, at Yanqian inWupingcity (Longyan Prefecture). This component includes the acquisition and installationo f electrical and mechanical (E&M) works andthe construction o f buildings and annex areas for service and safety operations. The expressway will consist o f four lanes that have beendesigned for a speed o f 80 km/hr inthe mountainous terrain from Yong'an to Liancheng, and o f 100km/hr inthe remaining section. The final alignment o f the expressway has minimized the social and environmental impacts. A joint local-foreignconsultant firm will supervise the construction o f the YWE. Component C. Highways Maintenance Pilot Program (HMPP). The HMPP component consists ofmaintenance by contract intwo highway sections o fthe (non- expressway) provincial highway network. This component seeks to increase the efficiency o f force-account maintenance practices, which are currently beingapplied by FPCD through the city and county Highway Bureaus. This component also includes the supervision o f two contract pilots and it is complemented with technical assistance for FPCD maintenance staff as part o f the ISP described below. Component D.Institutional StrengtheningProgram (ISP). The ISP includes a study on toll rates, the impact evaluation and monitoring for the RRIP, the technical assistance for the HMPP, and training for staff o fthe agencies and institutions involved inthe project. The analysis oftoll rateswill evaluate alternative adjustments to maximize the use o f the expressway network and optimize its economic value, buildingupon, expanding and updating a similar study undertaken under the Second FujianHighway Project. The impact evaluation and monitoring study seeks to establish a knowledge base o fthe impacts o fthe RRIP on rural livelihoods as an analytical base for the design o f future interventions on those types o f roads across FujianProvince. The technical assistancefor FPCD maintenance staff will provide the knowledge and analytical elements for exploring alternative mechanisms for contracting of maintenance activities as well as for the preparation, implementation, supervision, and assessment o f the preferredcontractual scheme under the HMPP. The training activities were built uponthose previouslycarried out underthe SecondFujianHighway Project, and will focus chiefly on: road asset management, operational management o f roads and expressways, construction quality control, road safety, and design and operational safety considerations for tunnels, innovative mechanisms for tolling and traffic surveillance systems, and intelligent transportation systems (ITS). They will include both domestic training and courses and study tours outside of China as defined inthe project training program. Which safeguardpolicies are triggered, if any? Ref: PAD 0.6, TechnicalAnnex 10 EnvironmentalAssessment Involuntary Resettlement Indigenous Peoples Significant, non-standard conditions, if any, for: Re$ PAD C.7 Boardpresentation: None Loadcredit effectiveness: The issuanceofthe relevant legal opinions. Covenants applicable to project implementation: Implementation - Upon receiving reports from city, county andtownships communications bureaus, as applicable, on the monitoring o f compliance with the RRIF, including the social and environmental safeguards, the FPCD will certify compliance with the RRIF before proceeding to disburse from the Bank loan, andthe Bankwill be allowedto supervise such compliance on a sample basis. - The FPCD will disseminate ina proactive manner the RRIFand provide training onthe use o f the RRIFas necessaryto ensure wide and fair participationof local entities. -Safeguards For the RRIP, a Resettlement Action Planand a Minority Nationalities Development Plan would needto be prepared, when applicable, inaccordancewith the provisions contained inthe Resettlement and LandAcquisition Framework and the Minority Nationalities Development Framework and World Bankpolicies to that effect, andbe duly implementedthereafter. - The EMP and RAP for the YWE, satisfactory to the Bank, will be applied while constructing the YWE andthe Bank will be allowed to supervise suchworks. Financial - The proceedsofthe loanwill be on-lent to Fujian Province on the same terms and conditions as the Bank loan, withthe provincebearing the foreign exchangerisk. - The Financial Manual Planfor the YWE, satisfactory to the Bank, will be applied in implementingthe YWE. - FujianProvince mustmaintain a financial management system and provide quarterly project consolidated financial statements inaccordancewith accounting standards acceptable to the Bankand mustmeet standardannual auditing requirements. Reporting - Semi-annual progress reports for all components, including results indicators, as applicable, usingagreedformat. These progress reports will include a summary ofthe actions and activities undertakento disseminate the RRIF and intraining the counties/townships/villages. - Semi-annual reports on the record o f environmental inspection and FPCD certifications under the RRIPcomponent -- Annual reports on the unit cost o f the works underthe RRIP. Annual training report and evaluation forms. A. STRATEGIC CONTEXT AND RATIONALE 1. Countryand sectorissues Fujianprovince, with 35 million people (2004), lies alongthe East coast of Chinabetweenthe prosperous Chinese coastal provinces andcitiesof GuangdongandHongKongto the South and Zhejiang and Shanghaito the North. Beingin mainlandChinafacing Taiwanacrossthe Taiwan Strait, public investment inthe provincewas limitedfrom the 1960s intothe 1980sandonly increasedto levels commensuratewith the socio-economiccharacteristics of the provinceinthe 1990s. By 2004, the province hadlaggedbehindother coastal provincesinterms of quantity of transport infrastructure, which affected its social andeconomic progress (e.g., GDP per capitafalls between75% and 85% of neighboring provinces, while life expectancyis morethan two years lower). Though roaddensity per 1000 square kilometersor per inhabitant is comparableto the country averagesandthose of neighboring provinces, the density of higher class roads is less than half ofthe values inthe provinces of Guangdong or Zhejiang, andthe percentage(81%) of unclassifiedand lowerclass (IV) roads is substantially higher.' Fujian's transport network facilitatesNorth-Southtransport across coastal provincesandprovidesaccess to deep-waterportsto inlandprovinces such as Jiangxi, Hunan, andHubei, andalso to the more distant provincesof SichuanandChongqing. These five provincestogether havea populationof about 300 million. Fujianhastwo major ports-Xiamen andFuzhou-that rank amongthe nation's top 10 container ports. Enhancingtransport conditions acrossthe provincewill improve connectionsto other inlandregionsthat are laggingbehindeconomically. Improvedaccess to its portswill leadto a more balanceddistributionof cargo and reducecongestionacross the Easternports-such as Shanghaiand HongKong. The developedarea ofthe Province is concentratedonthe narrowstrip of land alongthe coast. Seventy percent of its landwestward from the coast is mountainousterrain with largepockets ofpoor populations. Ofthe 207 poorest villages identifiedby the FujianProvincialGovernmentfor special support efforts before 2010, 166are locatedwithin the immediate project areas (73 inLongyan, 47 in Sanmingand 46 in Nanping). Inthese isolatedareas the unclassified and lower class roads providelimitedtransport services, leadingto higher transport costs and disincentives for investment. Ingeneral, ruralpeople in villagesoutside the mainprovincialcorridors-including the 7,500 administrative villagesinthe province's 84 counties-have limitedaccessibility, since the existingroadnetwork largelyconsists of earth or gravel roadsthat are impassableduringthe rainyseason. Improvingthe conditions o fthe rural road network constitutes a key element inachieving a more balancedsocioeconomic development of the Province. The ProvincialGovernment, through its ProvincialCommunications Department(FPCD) has established a well thought-out investment strategy that wouldbringthe transport infrastructure up to the standard necessaryto supportthe social andeconomic development ofthe province, includingthe ruralareas, with particularemphasisonthe road sector, which is shoulderingrapidly-increasingpercentagesof passenger and freight traffic (about 95% ofpassengertraffic andabout 70% ofthe freight-though only 16%ofthe ton-kmfreight traffic). The proposedinvestment strategy for the roadsector has a well-balanced distributionacross all classes of roads, and includes the following elements: 0 rapidexpansion of the expressway network by doublingits current length of about 1,100 km by 2010, andtripling it by 2017; ' Figures refer to end-of-2003 numbers, based on the National Statistical Data, unless otherwise reported. The data for life expectancy corresponds to the latest (2000) population census. 5 0 gradual upgrade o f the national and provincial highways to at least class 11, to complete a road network o f 8,600 km, enhancing the transport connections among cities and counties and integrating them with the expressway network; and 0 aggressive improvement o f the condition o f about 35,000 km o f non-paved class I11and IV rural roads network through the implementation o fa Rural Roads Improvement Program (RRIP)-of which about 8.000 kmhave been completed since the inception o fthe program in 2004-facilitating the connections o f approximately 7,500 administrative villages with the paved arterial provincial and county roads by 2010. This strategy is consistent with the central government strategies and those set underthe Eleventh Five- Year Plan for the period 2006-2010, approved by the State Council at the end o f 2005. The expansion o f the expressway network fits within the so-called "791 8" China National Expressway Network (CNEN) Plan. This plan i s to build 7 radial linksto Beijing, 9 North-South corridors, and 18 East-West corridors totaling 85,000 km o f high-grade highways. The 7918 CNEN has been designed to reach more than 1 billion people by connecting all provincial capitals and large urban centers o f more than half-a-million inhabitantswith cities o f more than 200,000 people (See Map 1 in Annex 15). Interventions in rural roads have received a strong boost recently from the central government with the approval o f a program o f up to RMB100 billion for the period 2006-2010. This strategic shift is consistent with the results o f recent papers and articles that indicate higher economic returns o f investment in lower-class roads in comparison to higher-class roads and the additional impact in reducing rural poverty in China.2 The Ministryo f Communications has embarked on a major effort to define the strategy and allocation criteria for this program. Inthis context, Fujian RRIP has been highlightedas a good practice and a blueprintfor replication inthe rest o fthe Chinese provinces-with necessary adjustments based on each province's unique requirements. Further supporting this initiative, the State Council has published several policy notes that endorse increased investments in rural infrastructure- 3 including roads-while emphasizingthe need to strengthen road management capacity at the county and local levels. The ambitious road investment plans require parallel strengthening o fthe capacity o f sector entities in Fujian to manage the increasingamount o f road assets. Inthis respect, FPCD is gradually upgrading its management information systems and mechanisms for the upkeep o f the expressway, national, and provincial roads, partly with financing from international development agencies. Furthermore, through the implementationofthe RRIP, local agencies receive technical support from FPCDthrough its highway bureaus innine cities and through the communications bureaus at the county level. At the provincial level, the amounts allocated to (periodic and routine) maintenance show a rising trend with average resources per kilometer growing at an average o f 8% during the last four years. Though the resources represent less than 4% o f the total amount allocated to the sector, they, nevertheless show an increasing trend. Hence, additional efforts are required in shiftingthe overall sector approach from one that largely focuses on road development towards one with stronger emphasis on asset preservationbased on the technical analyses built upon the set o f currently available road management tools. The road sector strategies seek to achieve a more harmonious development across Fujian's territories and address the following key issues (Annex 1contains a more detailed description): (i)enhanced _ _ _ _ ~ ~ ~ Key amongrecent publicationsis Fan Shenggen and Chan-Kang,Connie, "Road Development Economic Growth, and PovertyReductionin China", ResearchReport 138, InternationalFoodPolicy ResearchInstitute (IFPRI), 2005. Other articles are: "Villagers boardthe transport express," ChinaDaily, June 21,2005. GeneralOffice of the State Council ofthe People's Republic of China, Notice on Institutional Reform Planfor Maintenance and Managementof Rural Roads, GuobanfaNo. 49, September 19,2005; and"Notes of the Central Committee ofthe Chinese CommunistParty and the State Council on Advancing the Constructionof a Socialist New Rural Area," December 31,2005. 6 connectivityand integrationwith neighboringprovinces; (ii) adequatetransport accessibility anda road networkof sufficient quality; and (iii) improvedroad sector administrationwithin an approachthat gradually increasesthe emphasisonthe managementand upkeep of roadassets at all levels. The proposedproject seeks to contribute to addressingthese issues. 2. Rationale for Bank involvement The Government of China(GOC) has requestedthe continuedsupport of the World Bank for the development of key expressway links alongthe North-Southhighwaycorridor within the Fujian Province.The main objective is to attain the full benefitsofthe CNENconnectivityby fosteringits integrationwithin the province andwith the networksof its neighboringprovinces. Two previousWorld Bank loans-Loans 3681-CHA and4502-CHA-helped improve transport conditions onthe coastal corridor from Fuzhouto Xiamen andfrom Xiamen to the border with the GuangdongProvince.The current request includes a parallelcorridor, further inland, from the city of Yong'an to the Fujian- Guangdongborder nearthe city of Wuping. (Annex 15.) Inaddition, the FujianProvincialGovernment hasexpressedits desireto secure a World Bank loanto complement the resourcescurrentlyreceivedby provincialand local entities from tolls, fees, budget allocations (e.g.,transfers from the centraland local governments), and borrowingfrom domestic Banks andbonds4to implementthe ambitious RRIP. Basedon the experience ofthe previoustwo highway projects inFujian,the FPCDwishes to continue workingwith the Bank in the roadsector and expectsto benefitfrom the Bank's internationalexperience, particularly in addressingthe needs ofthe ruralroads network. On ruraltransport, Fujianis the first provincewith a sectorwide program in placefor the improvement of the network of ruralroads. This programprovides a good basis and opportunityfor the Bankto contribute underapproachesthat follow its new innovativelendinginstruments. Inthis respect, the Bank can addvalue to the existingprogramby: (a) improvingthe effectiveness of the existingprogramand its approachthroughthe incorporationof enhancedsafeguardsandfiduciaryarrangements; (b) helpingfine- tune the financial support mechanismfor betterpoverty alleviationeffects, and(c) scaling upthe applicationofthe enhancedframework to the overallruralroadprogramat the provinciallevel, ifthe proposedapproachproves successful. The Bank hasthe technical and financial resourcesto contributeto Fujian's challenging investmentsand will focus primarilyonthe expresswayandruralroadscomponents.Itwill also include technical assistance activitiesto continue addingvalue to those undertaken inprevious operations andto the longer- term strategy of strengtheningthe capacity ofthe road sector institutionsinFujian. 3. Higher level objectives to which the project contributes The FujianHighwaySector Investment Project is aligned with the Bank's assistancestrategy agreedwith the GOC. The projectclosely follows the specific strategies considered underthe secondpillar of both the recently concludedCountry Assistance Strategy(CAS) for 2003-2005, andofthe Country Partnership Strategy (CPS) for 2006-2010(approvedby the Boardon May 23,2006). The secondpillar-"reduce poverty, inequalityandsocial exclusion"-seeks, amongother objectives, to improve the competitiveness of the various regions of China andthe overallinvestmentclimate, and address the needs of disadvantagedgroups andunderdevelopedregions through the financingof infrastructureinkey corridors, particularlythose serving poorer regions andcommunities. These objectives are expectedto In2004these resourcesamountedto aboutUS2billion. About 63% ofthose resourceswere allocatedto new construction, 21% to rehabilitation, 6% to periodicandroutinemaintenance, and the remainder to loan repayment. 7 promote a more balanced urban-rural development, improve sustainable rural livelihoods, and expand access to basic social and infrastructure services. The expressway to be constructed under the project, connecting Yong'an with the border o fthe Fujian and Guangdong Provinces, constitutes an effective inter- and intra-provincial transport system that will increase the regional competitiveness and enhance North-South transport across coastal provinces. The Fujian RRTPwill help reduce poverty in the poorer areas o f Fujian by reducing the cost and time to access economic opportunities and social services. Other initiatives to be piloted under the project and its technical assistance activities will help in strengtheningthe transport management framework. The institutional strengtheningwill contribute to modernization o f public institutions. Ultimately, these strategic interventions will lead to improved productivity in rural areas and inter- and intra-provincial trade, fostering social and economic development o f Fujian province. The project also seeks to explore new approaches to deliver external assistance. Inparticular, the project incorporates elements o f the so-called Sector Wide Approach (SWAP) in the design o f its RRIP component. Although there is a constrained leverage o f the Bank in support o f the RRIP, given that its contribution represents about 20% o fthe total amount o f resources required, its design seeks to build- upon and improve the existingframework. It is expected that the Bank's contribution to the RRIPwill instill better practices inthe application of social and environmental safeguards, procurement and fiduciary arrangements, and technical engineering quality among the counties, townships, and villages participating in the RRIP.The disbursement approach and the monitoring and financial reporting procedures o f the RRIPcomponent will apply innovative mechanisms which, ifproved successful, should be replicated in similar investment initiatives in China. B. PROJECTDESCRIPTION 1. Lending instrument The Bank will finance the project through a specific investment loan. The Borrower has selected the variable-spread loan (VSL) option inwhich the spread over LIBOR is reset every semester. The Borrower's main reason for selecting a VSL rather than a fixed-spread loan (FSL) is because FSL charges are slightly higher than VSL charges and the Borrower does not foresee usingthe conversion options o f the FSL. VSL repayment terms are governed by standard country terms. 2. Project development objective and key indicators The project aims to increase the effective use o fthe road infrastructure inFujian Province to support its social and economic development. This objective seeks to contribute to: (i)improving living conditions inrural areas -particularly those inthe areas o f the Province where poverty rates are higher- by enhancing the transport accessibility o f the rural communities to economic opportunities and social services; (ii) stimulating higher economic growth in Fujian Province by reducing transport costs; and (iii)facilitatingtheinterconnectionacrossthecoastalprovinces. Inthisrespect,theprojectwillmeetboth the provincialgovernment objective to improve the transport network to support the social and economic development o f the province (especially inthe economically lagging counties), and the central government objective to facilitate transport interconnections across Coastal Provinces. The assessmento fthe achievement ofthe project development objective will be carried out through the measurement o f outcome indicators, including: reduction in average freight rates and travel times and increased traffic volumes on the corridors to be constructed or rehabilitated, increased supply o f passenger services along the rehabilitated rural roads, application o f alternative mechanisms for road maintenance, and enhanced knowledge and application of updated road management approaches. 8 3. Projectcomponents5 Component A. RuralRoadsImprovementProgram(RRIP) (estimatedcost US$502.05million - 33.7% ofthetotal project cost of which US$98.26 millionwouldbe financed by the Bank Loan) - The RRIPaims at improvingconditions ofthe lowerclass of roadsthat connect administrative villagesto the mainprovincialroadnetwork. The Bank loanwill support the overallprogram and finance ruralroad investmentsfollowingthe rural roads implementationframework (RRIF)agreeduponwith FPCD. The RRIF is the integratedframework ofthe ProcurementFramework, EnvironmentalFramework, Resettlement andMinority NationalitiesDevelopmentFramework, andFinancialManagement Framework, and includesthe technical andquality controlspecifications for the rehabilitationand improvement ofthe ruralroads and the implementationarrangements for this component. Disbursements will be processedbasedon completed outputs. The Bank loan will support a subset of at least 3,500 km out ofthe 10,000 km of local road sections already identifiedbased onthe demandof counties, townships andvillages that are part ofthe 35,000 km provincialruralroads 2004-2010 program. The civil works for the RRIP include the improvement andrehabilitationof lower class rural roads (Class I11and IV) andconsist mostlyof resurfacingthe unpavedroadswith concrete pavement. A local consultingfirm will provide consultingsupport services inthe implementation ofthe RRIPcomponent. FPCDwill cover the necessary costsfor the dissemination ofthe RRIF andthe trainingof county and local unitsthat wish to implementthe framework. Component B. Yong'an -Wuping Expressway(YWE) (estimatedcost US$984.17 million-66.1% of the totalprojectcost - of whichUS$218.55 million would be financed by the Bank Loan) The YWE will be a 195.2 km longsection ofthe Changchun-Shenzhen expressway,which is one ofthe North-South corridors of the CNEN. The YWE will connect Yong'an (Sanming City) with the border of the Fujianand GuangdongProvinces, at Yanqian in Wuping(Longyan City). This component includes the acquisition and installationof electricaland mechanical(E&M) works andthe construction of buildingsandannex areas for service and safety operations. The expresswaywill consist of four lanes that havebeendesigned for a speed of 80 Whr inthe mountainousterrainfrom Yong'an to Liancheng, andof 100 km/hr inthe remaining section.The final alignment ofthe expressway has minimizedthe social and environmentalimpacts. A joint local-foreignconsultant firm will supervisethe construction o f the YWE. The project's expresswaywill connectto the Northwith another expressway currentlybeingcompleted by the FujianProvince and to the Southwith another expressway currentlyunder construction in Guangdongprovince (expectedto be completed in 2008), leadingto one of China's most industrialand populatedcities, Guangzhou. The construction of the expressway segmentunder the projecthowever will help achieve project's development objective andtherefore no linkage issues are present inthis case. Component C. HighwaysMaintenancePilot Program (HMPP) (estimatedcost US$0.66million 0.04% of the totalproject cost - of which US$0.18million would be financedby the Bank Loan) - The HMPPcomponentconsists of maintenanceby contract intwo highway sections of the (non- expressway) provincialhighway network. This component seeks to increasethe efficiencyof force- s The project costs for eachcomponentincludephysicalandpricecontingencies andthe percentagesare calculated from a total project cost of US$1,490million. No Front-endFee neededto be includedas the WorldBank Boardof Directorswaived the Front-endFee duringthe fiscal year (FY07)within whichthe legal agreementsrelatedto the Project havebeennegotiated. 9 account maintenance practices, which are currentlybeingapplied by FPCDthroughthe city and county HighwayBureaus. This component also includesthe supervisionoftwo contract pilots and it is complementedwith technical assistancefor FPCDmaintenancestaffas part of the ISPdescribedbelow. ComponentD.Institutional StrengtheningProgram (ISP) (estimatedcost US$3.12 million - 0.2% of the total project cost ofwhich US$3.01millionwould be financedby the Bank Loan) - The ISP includes a study on toll rates, the impact evaluation andmonitoringfor the RRIP, the technical assistance for the HMPP, andtrainingfor staffofthe agenciesand institutionsinvolvedinthe project. The analysis oftoll rateswill evaluate alternative adjustmentsto maximizethe use ofthe expressway network and optimize its economic value, buildingupon, expandingandupdatinga similar study undertakenunderthe SecondFujianHighwayProject. The impact evaluation andmonitoringstudy seeks to establisha knowledgebaseofthe impactsofthe RRIP onrural livelihoodsas an analyticalbasefor the design offuture interventions onthosetypes of roads across FujianProvince. The technical assistance for FPCDmaintenance staffwill providethe knowledge and analytical elements for exploringalternative mechanismsfor contracting of maintenanceactivities as well as for the preparation, implementation, supervision, and assessment ofthe preferredcontractualscheme under the HMPP. The trainingactivities were built uponthose previouslycarried out underthe SecondFujianHighwayProject, andwill focus chiefly on: roadasset management,operationalmanagementof roadsand expressways, construction quality control, road safety, and designandoperationalsafety considerations for tunnels, innovative mechanismsfor tolling andtraffic surveillancesystems, and intelligenttransportation systems (ITS). They will include both domestic trainingand courses and study tours outside ofChina as defined inthe projecttraining program. 4. Lessons learnedand reflectedin the project design Most highwayprojects in China havehada combinationof an expressway component with a relatively smaller local roads component. Inmost cases, the attentionandeffort has beenfocused on the expresswaycomponentwhich is typically the largest component, andthe one that requiresmost ofthe financialresources. Underthe proposedproject, FPCDhas agreedto providea morebalancedapproach to attentionand resourcesamongthe mainprojectcomponents, thereby contributingin a moreproactive manner, to the growthandpovertyagendas ofthe FujianProvince. Hence, the project's structure includes a comparatively large componenton ruralroads. Inaddition, giventhe extensiveBankexperience inthe construction ofexpressways inChina, several lessons learnedwith regardto projectdesign have beenincorporatedunder the proposedproject. Among the most relevant are: (i) To ensure the bestquality at the designstage, the FujianProvincialExpresswayConstruction Directorate(FPECD) has entrustedthe reviewofthe preliminarydesign to the Transport Planning andResearchInstitute(TPRI) in Beijing. Inaddition, a foreign expertteam (Spanish Consultants) has been commissionedby the Bankto conduct a thoroughdesign review,includinga road safety audit. (ii)GiventhefactthatmajorvariationsoccurredduetoinsufficientsoiltestinginanumberofBank financedprojects, supplementalgeological investigationwill be carried out duringthe detailed designstage, especially on road sections where large bridges, tunnels, deep cuts, andhigh fills are located. (iii)TheasphaltpavementdesignusedforexpresswaysinChinahasbeenreplacedbecausethetypical structurewith semi-rigidbase failed much earlier than expected. The new pavement designconsists of 10 cm of asphalt concrete layers, 15 cm ofbitumenmacadambase course, 16cm of graded crushedstone, and 30 cm of low strength cementstabilized crushedstone sub-base. The gradation 10 for each layer, includingasphalt concrete mixture,follows the new asphalt pavement specifications issuedbythe Ministry of Communications (MOC). The definition anddesignofthe institutionalstrengtheningsubcomponents builduponthe studies and subsequentactions carried out under previousWorld Bank projects, some ofwhich are still under implementationas part ofthe SecondFujianHighwayProject (see box below). By focusing onthose criticalactivitiesthat complement previousactions and in additionhavea potentialto create a demonstrationeffect and further enhance key capacities of the FPCD in managinghighway assets (and in providingtechnical leadershipto county and local highway entities), the scope ofthese subcomponents seeks to ensurethe ownership andcommitment of FPCDin carryingout the studies, andreducingthe possibilitiesof the type of delays that havearisen inprevious studies inthe Province. Institutionalstrengtheninginitiativesadvancedunder previous two WorldBank-financedprojectsinFujian 0 The organizationalrestructuringofFPCD. 0 The strengtheningof datacollectionontraffic androadcondition, withthe designandimplementationof a pavementmanagementsystem andabridgemanagement sys remphasisisrequiredto integrate the outputs ofthose two systems into planning,programmingandbudgetingprocess. The assessmentofthe resources, equipment, andstaffneedsfor further strengtheningmaintenancemanagement (ongoing). A traffic safetyprogram:that included:(i)the designofhighwayengineeringsafety manualfor construction sites, (ii) a highway safety auditprogramto identify safety shortfallsinthe design, constructionandoperation of Fujianhighways andproposeremedies,(iii) blackspot identificationandimprovement program, and(iv) annualtraffic safety seminarsto providea forumfor discussion, integrationandimprovement ofhighwaysafety programs in Fujian. 5. Alternatives consideredand reasons for rejection At the project pre-identificationstage, it was suggestedthat the projectconsider applyinga Sector Wide Approach (SWAp) to the RRIPcomponent. While acknowledgingthat some ofthe elements ofthis component are conducive for the application of a SWAp; the sheer size ofthe RRIPandthe low percentage of financingprovidedby the Bank-about 20% of the total investmentrequired-implied Bank's reducedleverage inenforcing(andmonitoring)the applicationof specific policiesto the broader provincialinvestment program. Therefore, an incrementalapproachthat adopts elements of SWAPand preservesthe necessary compliance with proven fiduciary, safeguards, andtechnical requirements-while monitoringon a sample basisthe application ofthe approachover the entire program- was the preferred optionto implementthe RRIP. These arrangements(described in greater detail in Annexes 4 and9)are expectedto achieve, over the project implementationperiod, the aims of SWAp; namely, the strengtheningo fthe current framework ofthe RRIP-including its fiduciary and safeguardselements- through its convergencewith projectseligiblefor WorldBank financing. Severalmechanismswere considered for the implementation framework for the RRIP. Initially, considerationwas givento a mechanismthat reliedon the ex-ante definitionofthe counties andofthe roadsegmentsthat could becomeeligiblefor World Bank financing, basedon a series of indicators and criteria. This mechanism; however, was discarded infavor ofan easier-to-monitoralternative that rests on a demand-base, first-come-first-serveapproachandestablishesthe incentivesfor compliance a-priori with the framework for World Bank financing(the RRIF). Inaddition, the selected mechanismis better alignedwith the approachcurrentlybeingapplied by FPCDfor the implementationofthe ongoing RRIP, buildingupon its key operational concepts. For instance, disbursementswill take place on the basisof completedeligible roadsegments-those completedto satisfactory engineering quality and in compliance with the RRIF-constituting an output-basedapproach. The initial alternative ofthe moretraditional disbursementarrangement-based onthe financingof a percentageofthe cost ofthe eligible road segments defined ex-ante-was replacedwith a mechanismthat gives stronger support to investmentsin 11 rural areas with high incidence o f poverty, and to investments with engineering standards that more closely fit the average travel demand and pattern on those roads. The original feasibility study o f the YWE considered the analysis o f 16 segments for careful consideration o f alternative alignments, for a cumulative length o f 67% o f the distance between the beginning and end points on the route. The alignment finally selected minimizes the social and environmental impacts, and resettlement requirements; and maximizes the overall benefits to the project beneficiaries by taking into account local development plans. Furthermore, the selected alternative avoided most o fthe unfavorable geological locations while achieving appropriate horizontal curves and vertical slopes. Several alternatives were considered for the financing percentages o f the Bank loan o f different project activities or disbursement categories. These alternatives were assessed against the value-added by the Bank's partial financing, the capacity o f the local consultants or suppliers in providing the specific item, and the concerns o f the FPCD on the need to minimize the possibilityo f cost savings by the end o f the project. Uponthe consideration o f these factors, several activities and expendituresthat had been typically financed partially by the Bank were now to be financed solely with local funds. These included: the E&M works, buildings and annex areas, the local supervision o f the Y W E and the RRIP, and the physical and price contingencies for the YWE. For all these items local procurement methods and procedures will be applied and it is expected that this option will contribute to simplify the project's procurement and financial management processes. However, as an integral part o f the project, the implementation progress o fthese components, the technical standards, and timing o f the procurement process, will be subject to Bank supervision and to FPCD reporting to the Bank. C. IMPLEMENTATION 1. Partnershiparrangements Project preparationhas taken place in coordination and partnership with a broad spectrum o f agencies involved inthe road sector in Fujian, includingthe Fujian Provincial Communications Department, the ProvincialFinance Bureau, the ProvincialDevelopment and Reform Commission, and the communications and highway bureaus in various counties o f the province.6 This partnership will be maintained during project implementation through continued involvement o fthese agencies inthe supervision o f project implementation. Within the FPCD, the project will require the coordination of activities by its three deputy directorates: Planning Deputy Directorate, Construction Directorate, and Expressway Construction Directorate. 2. Institutional and implementationarrangements The Office o f the Director o fthe FPCD will include the Director's Office for World Bank Project (DOFWBP) that will be responsible for the overall coordination o f the project, and for monitoring the activities o f the implementation agencies. In addition, the DOFWBP will serve as the main counterpart for the submission o f progress and audit reports to the Bank. It will organize supervision missions, and oversee project implementation in accordance with the Loan and Project Agreements. The "highway bureaus" ofthe counties are de-concentratedbranches ofthe Highway Bureauunder the ConstructionDeputy Directorateof the Provincial CommunicationsDepartment. An intermediatelevel-f the highway bureaus inthe so-calledcities-further coordinatethe monitoring and flow of funds from the provincial level to the counties. The "communications bureaus" ofthe counties represent their own local road agencies in charge ofthe management o fthe localroadnetworks (those roads that are not provincial or national). 12 Underthe overall directionof the Director's DOFWBP, specific units (Sub-PMOS)within FPCDhave beenidentifiedthat will be responsiblefor the implementationof each investment component ofthe projectas follows: The PlanningandConstruction Divisionsofthe FPCDwill be responsible for the implementation andmonitoringo fthe RRIP. These Divisionsshall provideinformationandcomply with requirementsrelatedto environmental issues, landacquisitionandresettlement,technical standard and construction quality, andfinancial managementandprocurementprocedures; and assist with the reportingo fthe physicalcompletion of works and contract payments.It will also coordinate the activities ofthe Communications andHighwayBureausofthe municipalities,counties, townships, andvillages. The FPECD, andthe newly established LongyanYWE and SanmingYWE Companies, will be responsiblefor the procurementandcontract implementationandsupervision, financial management,and compliance with safeguardspolicies ofthe YWE component. A procurement agent has beenselectedfor the (ICB) YWE component. The FPECDwill conduct the procurement process untilthe signingo fthe contract, while LongyuanYWE Company and SanmingYWE Company will be responsible for all the activitiesanddocumentation relatedto the executiono fthe works for the YWE at the site includingthe localconstruction supervision. The Construction Deputy Directorate of the FPCD, incoordinationwith the ProvincialHighway Bureau, will be responsible for the implementationof HHMP component.These responsibilities include hiring ofthe foreign consultant who will provide technical support andthe monitoringo fthe activitiesof the ProvincialHighwayBureau inthe procurement, contracting, andsupervisionofthe maintenancecontracts. The technical assistanceactivities and studies, which are part of the ISP andother components, will be split betweenthe FPECD andFPCD, dependingonthe subject of application. The resourcesto finance trainingactivities will be shared by the participatingagencies, accordingto the planagreed with the Bank at appraisal. Implementationarrangementsfor the RRIP. A summary ofthe implementationarrangements ofthe RRIPis providedhere(Annex 6 providesfurther details.) The WorldBank loanwill supportthe existing FujianRRIP. Under the current program, localvillages, townships or countiestake the initiativeto rehabilitate the roadsunder theirjurisdiction. Those roadsegmentscontainedinthe officially-sanctioned RRIPdatabank are eligiblefor atransfer offunds fromFPCD ifthe completedworks meetthe quality and eligibility standardsrequired by FPCD. The amount ofthe transfer varies dependingon the characteristics ofthe roadandthe socio-economic characteristics of the area of influence. The Bank loanwill finance aportiono fthe RRIProads in compliance with the agreedRRIPFramework (W). Bankloanwillsupportasubsetofabout3,500 kmoutofthe10,000kmofroadsections The already identifiedbasedon the demando fthe counties, townships andvillages,that are part o fthe 35,000 km overallruralroads program. FPCD, through its FujianHighwayBureau, will be responsible for the dissemination ofthe conditions as well as providingtrainingto the local communitiesto helpthem learn and implementthe proceduresand conditions requiredto obtainthe financing support from the Bank loan. The FPCDwill includeinthe bi-annualprogressreportsto be submitted to the Bank during project implementationa summary o fthe actions and activitiesundertakento disseminate the framework and intrainingthe counties/townships/villages. The RRIF has beenestablishedfor identifyingthe completedthe roadsthat wouldbe eligible for Bank financing, andconsists o fthe following elements: 0 The eligible road segments shall be part ofthe 10,000 km subset ofthe 35,000 km ofthe rural roads improvementprogram. 13 Application of environmentalframework and its proceduresfor appropriate considerationof environmentalmitigationmeasuresduringthe executionofthe improvement works, as well as the provisionsregardingthe chance of findingculturalrelics. Resettlementframework and its proceduresto guide the planningand implementationof mitigationmeasures when landacquisitionandresettlementis required, andthe related consultation processes. Minority nationalitiesdevelopment framework that describesthe principlesandmeasuresto guide road planning and implementation inminority nationalitiesareas, andthe provisions regarding consultationandparticipationandbroad support to the projectby the corresponding communities. Applicationof engineeringtechnical standardsduringthe implementation ofworks; as well as those for the supervisionand monitoringoftheir quality. Requirementsfor procurementofworks. Conditions for proper financial managementof the contractsandthe contract payments.These include: book keeping, auditing, andreportingofthe completion ofworks, and evidenceofthe on-time paymentto contractors in line with contract clauses. Collectionof indicators to measurethe most immediate transport impactsofthe RRIP investments. After FPCDhas certified, on the basisof a reportissuedby the DOFWBP (withthe support ofthe necessaryspecialists on engineering, environmentaland social safeguards, andprocurementandfinancial management), onthe adequatecompliance with the elementshequirementsof the framework, the resources of the loan wouldbe usedfor reimbursingthe applicableportionofthe cost ofthe rehabilitation works to the local entities. This has been established onthe basis of predefinedUnit Costs per kilometer7, andvaries dependingon the physicalcharacteristics of the roadandits locationineither poor or non-poor areas or mountainousor coastalregions. The correspondingUnit Costsrepresentbetween40% and 80% of the current costs for undertakingthe works, with the most frequent percentageexpectedinthe range of 60% to 70%. Highervalues correspondto the poorer and mountainousrural areas (43 counties). The values are higher than current transfersprovidedby the FPCD, except for those regionsthat are less-poor (10 counties) where the amount to be coveredby the World Bank loanwill be equal or slightly higher than the one currentlyprovidedby the FPCD. The higher World Bank financingfor the poorer area providesa stronger incentive to seek the resourcesfrom the loan, inexchangefor the compliancewith the proceduresof the RRIF. The incentive for less poor areas is limitedto the institutionalstrengtheningthat is associatedwith the applicationo f the elements/proceduresof the RRIF and FPCD's own willingnessto implementthe RRIFonthe rest ofthe RRIP. The following section describes the mechanismsfor the monitoringofthe compliance with the applicationofthe RRIF. 3. Monitoring and evaluationof outcomes/results This section describes two differentmonitoringissues:(a) the monitoringofthe compliance with the RRIFfor the rural roads component, and (b) the evaluationof the achievementofthe results indicators (as listedinAnnex 3) andofthe impactsofthe ruralroads(througha formal impact analysis to be supported with resourcesfrom the loan). UnitCostsrefer to the associatedcosts per kilometerof improvementandrehabilitationworks ofthe various classes of roadsunderthe RRIP component o f the project to be applied as the multiplier for determiningthe eligible amountof financingout ofthe proceedsofthe loan. Their values havebeenestablishedonthe basisofcurrent values usedby FPCDunder the RuralRoadsImprovementProgramandincomparisonwith a detailedassessmentof the actual costs of undertakenthe rehabilitationand improvement works. 14 Monitoring of compliance with RRIF. When requestingdisbursement from the loan for the REW component(based on quarterly disbursement) the FPCDwill certify that the disbursementscorrespondto transfers of funds for completedworks that havecompliedwith the RRF, includingthe relatedsocial and environmental safeguards documents, andwill retainthe documentationthat provides evidence ofthat compliance for WorldBank post-review. The WorldBankwill review samples ofthe completedworks subject to financingfromthe Bank loan, with the aim of checking compliance with the above undertakings. The Bank will also review, for reference, another sample of completedworks not subject to Bank financing. The transfer to bewithdrawn from the Bank loan shall not be inany case higher thanthe actual cost ofthe completedworks. FPCDwill provide an annual summary of the actual costs ofthe completedworks and an assessment ofthe transfer levelswill be undertakeninorder to ensurethat the previousconditionis compliedwith at alltimes. UnitCostsare subject to reviewandrevisionannually. Buildinguponthe existingFPCDproceduresfor the delivery of funds transfers under the RFUP, the FPCDwill monitorthe implementation ofthe REUPFramework (RRIF). It will also keep records of all the dissemination and trainingactivitiescarried out by FPCDto take stock ofthe diffusionof the framework at the local leveland ofthe weaknessesthat might havebeenidentifiedduringthe application of the RRIF. The FPCDwill provide informationon the possible substantial applicationof the RRIF in roadsnot subject to Bank financingunder the 10,000 km subset ofthe ruralroadsprogram. All this informationwill be usedto readjustthe disseminationandtrainingefforts andthe incentivesbuilt intothe RRIF approach, and assess its levelof replicabilityacross the RRIP. The FujianHighwayAdministrationBureau(FHAB) andthe FujianProvincialTransport Quality Inspection Stations (FPTQIS) havebeendelegatedby FPCDto verify the compliance of the elements of the RRF. They will review the informationafter it has beenelaborated andreviewedby the townships/villages/countiesandfurther reviewedby the communicationbureaus inthe corresponding counties andcities. The FHAB andthe FPTQIS are staffed with specialists inall the areas ofthe RRF- includingthose versed inenvironmentaland social safeguards, and inprocurementandfinancial management-who will undertakethe necessaryverificationsofcompliance with the RRIF. Upon receivingtheseverifications,FPCD, through the Director's Unit ofthe WorldBank Project, will undertakethe necessarycomplementarychecks and issuethe certificationof compliance with the RRIF. Inaddition, the ProvincialAudit Office will bethe auditor of FujianHighwaySector Investment project. This office, besidesthe normalannual financialaudit for all the components ofthe project, will also audit the verificationprocedureslistedabove for the ruralroads component. The Bank loanwill support a subset of about 3,500 km out of the 10,000 km o f road sections already identifiedbasedon the demandofcounties, townships andvillages, that are part ofthe 35,000 km FPCD's overallprogram. The assessment ofthe substantial applicationof the RRIFto the rest ofthe RRIPwill provide informationonthe overalllevelof dissemination ofthe framework under the RRIP. It i s estimatedthat 6,500 km of roadswill be rehabilitatedor improvedwith transfer of resourcesfrom the provincialgovernment to completethe already identified 10,000 kmwith substantial applicationof the RRIF. Assessment of achievementof results indicators and of the impacts of rural roadsprogram. The achievementofthe projectobjectives will be measuredbasedon a combination of output and outcome indicators, as shown inthe ResultsFramework(Annex 3). These indicators will track final and intermediate project outcomes. For the RRIPcomponent, specific subprojects are not specified fromthe outset but are identifiedthrough the dissemination ofthe RFUPframework (RRIF)andultimatelythrough the completionof the works in compliance with that framework. Duringprojectpreparation, FPCD collectedthe baselinevalues reportedinAnnex 3 for the ruralroads component, andprovidedestimates based on a sampleof 20 rural roads. These 20 roads were selectedfrom those programmedto be improved, andrepresentativeof the 15 following three types o f typical rural links: (a) all-weather roads that are in bad condition; (b) roads open only duringgood weather conditions; and (c) roads that may require major improvements. FPCD will collect, annually duringthe project implementation, the three selected results indicators for the rural roads component (travel time reduction, traffic volume, and passenger services) from a sample o f at least 20 roads, ahead o f the initiation o f the works on thoseroads and about four months after the completion o f the works. The 20 roads shall be selected out o f the sub-set of the 10,000 km roads programmed to be improved, and should represent three types of typical rural links as stated above. The possibility o f increasingthe sample size in the collection o f this inforpation, with the support o fthe townshipshillages benefited by the RRIP investments, will be assessed duringproject supervision. The FPCD will use the resources o fthe Bank loan to conduct studies to assess the impacts o fthe implementation o f the RRIP on the socioeconomic conditions o f the communities inthe territories inthe area o f influence o f the rehabilitated roads and on their productive activities. The system would incorporate the collection o f data in areas not subject to FUUP interventions for purposes o f comparison. The Planning Deputy Directorate will be responsible for carrying out these analyses with support o f the relevant consultants. The FPECD has collected the baseline values for the indicators on freight tariffs, travel times, and accidents on the existingG205 road, for the YWE component, according to the entries required and presented inAnnex 3. This informationwould be collected by FPECD on an annual basis over the course o f the project implementation period and untilthe preparation of the Project's Implementation Completion Report. Separate assessmentswill be undertaken for: (a) the implementation o f the maintenance pilot, with support from the technical assistance related to this pilot; and (b) the quality and effectiveness o f the training program. For the latter, specific evaluation forms based on a format agreed upon with the Bank will be provided to participants upon completion o fthe training or study tour and will be used for assessmento fthe impact o f these training activities on the knowledge and professional development o f the participants. 4. Sustainability Two strategic approaches, that complement each other, provide a solid base for the overall sustainability o f the project. The first approach, pertainingto RRIP, i s based on: (i)the strong boost that the central government has given to interventions in rural roads; which is consistent with the objective o f reducing rural poverty; and (ii) the State Council further supportingthis initiative, and endorsingthis strategy, while emphasizingthe need to strengthen road management capacity at the county and local levels to adequately preserve the extensive rural road network. The second approach, pertaining to the YWE, involves: (i) current central government's policy to the complete and maintain the national expressway system; (ii) the Fujian provincial government's commitment to complete its ambitious plan to enhancetransport conditions across its territory, targeting inthis project the expressway and rural roads network; (iii)the constantly growingtraffic along the Changchun-Shenzhen Expressway corridor that links several coastal provinces and that should lead to sustain the resources required for the proper upkeep o fthe expressway network; and (iv) a successful mechanism to carry out the overall management o fthe expressway after it is constructed, which includes the operation, toll collection, and rehabilitation and routine maintenance o fthe expressway and its annex areas. This arrangement, with adequate revenues, should lead to the sustainability o f the expressway component. Inaddition, the project's sustainability is enhanced by: (i) continued institutional strengthening the activities to support FPCD inmanaging the high-level highway assets, and inproviding technical leadership to cities, counties, townships and villages inmanaging and upgrading the road networks under 16 their responsibilities; and (ii)the matured and well established relationship between the Bank and Fujian province inthe highways sector, after two successful lending operations. 5. Critical risks and possiblecontroversial aspects The FPCDhas maintained good implementation track record inthe transport sector and has demonstrated satisfactory project management capabilities through the successful implementation o ftwo Bank-financed projects. Under both projects, the FPCD has proven to have a robust capacity to develop the high-grade highway network and simultaneously implement a rural road development program. This experience has helped reduce the preparation and implementation riskso fthe project. The following table summarizes the various risksassociatedwith the project. Overallthe project risk has beenrated as modest. Mitigation Ratinghv Mitigation Inadequatebalance 0 Carefulconsiderationhas beengiven to the distribution ofresponsibilities Low betweenexpressway amongthe selected implementationagencies andto the institutional and non-expressway arrangements, with the location ofthe DOFWBP directly under the Office componentsreduces of the Director of FPCD, as well as carefuldefinition of Bank financial effectiveness of either resourcesinorder to achieve the properbalance between all project ofthose two components. components The requirements ofthe 0 Special attentionhas beengiven to the design ofthe incentiveframework Medium RRIP component are for the RRIP. The Bank resources were allocatedto finance ahigher not followed and transfer than the amount currently providedby FPCDtowardsthe cost of incentivesdo not elicit roadrehabilitation or improvementworks eligible under FWF. This the expecteddemand framework is expectedto add value to the existing FPCD's RRIP, and hence and institutional leadto upgradesofthe currentmechanisms ofthe RRIP. changes given the low 0 FPCD has agreedto take a proactivestance inthe disseminationofthe leverage of the RRIF and the provision oftraining. FPCDwill submit to the Bank reports financing from the on these activities. The M&E mechanism will also requirethe collection World Bank andreportingofthe necessary information. The certification of 0 The current mechanismsbeingusedby FPCD for the implementationof the Medium compliancewith RFUF RFUPhave shown satisfactoryresults after morethan8,000 kmofrural does not meet the roads improved. requiredstandards in 0 The procedures agreed uponfor checkingcompliancewith the RRIF include terms of documentation several levels(including the FPTQIS) and the certification procedureswill and effective fulfillment be subjectto annual audits by the Provincial Audit Office. of all the elements of Training of local entities has been initiated at an early stage (during project the RRIF preparation)and the response from these entities has beenhighly positive to the proposedframework. These efforts will be continuedthroughoutproject implementation. The pilot on contract 0 The inclusionof an externaltechnicalassistance that would cover the Medium maintenancedoes not specific design ofthe pilot and overseeing ofthe relatedsupervisioni s elicit the interestof expectedto mitigate this risk. The Bankteam acknowledges the inherent local contractorsor of risksofundertakingthese initiatives inChina as it impliesthe possibility of the FPCD, failing to be major changes inthe way current maintenanceactivities are being completed adequately undertaken; however,these high risks are compensatedby the high payoffs or to be ifthe pilot is successfulandprovidesthe necessarydemonstrationeffects. institutionalizedwithin FPCD Changes in work 0 The technical designs were basedon geologicaland sub-surface Low quantities, delays in investigations,and were subject to detailedreviewsby a design institute in construction,and/or Beijingand ateam of foreign consultants. Supplemental geological increasedcosts inthe investigationswere undertaken during the detailed design stage especially expressway component on the roadsections where largebridges, tunnels, deep cuts and high fill were located. 17 The supervisionwill be carried out by an independentjoint local/foreign supervisionteam, which will provide specializedexpertise on the more complexengineeringelements, namely: geotechnicalissues, tunnels, structureshridges,andpavement. The YWE does not The combinedactionofthe various project componentsshould leadto Low attract or generate the enhance transportconditions across the roadnetwork, and facilitate the expectedtraffic levels interconnectionswith the expressways and, inparticular, with the YWE. In addition, the study on toll rates will seek to optimize the use ofthe expressway and the complementaryexistingroadnetwork, ofbothtolled andnon-tolled sections. Deficient applicationof The FPCDhas agreedto implementthe environmentalmanagementand Low socialand resettlement actionplan for the YWE. The RRIP framework is demand environmental driven and the correspondingdisbursements for completedworks will only safeguards take place when the safeguards components are applied.Nonetheless,the RRIP consistsof works largely limitedto the existing right-of-way and hence social or environmentalrisks are expectedto be small. The final alignment ofthe YWE was selectedto avoid major adverse impacts on the environment.The EIA of the YWE singles out environmentallysensitivespots, and emphasizes the needfor noise control measures. No protectedareas or primary forests are within a generousarea of influenceof the YWE. Environmentaland social development specialists have participatedsince the early stages ofproject identification to evaluatethe safeguard requirements. These specialists will be part ofthe supervisionteam to closely monitor the applicationofthe agreed safeguards. I. Loanlcredit conditions and covenants Effectiveness conditions: 0 The issuance ofthe relevant legal opinions. Covenants: Implementation Upon receiving reports from city, county and townships communications bureaus, as applicable, on the monitoring of compliance with the RRIF, includingthe social and environmental safeguards, the FPCD will certify compliance with the RRF before proceedingto disburse from the Bank loan, and the Bankwill be allowedto supervise such compliance on a sample basis. 0 The FPCDwill disseminate in a proactive manner the RRlF and providetraining on the use o fthe RRIFas necessaryto ensure wide and fair participation of local entities. Safeguards For the RRIP, a Resettlement Action Plan and a MinorityNationalities Development Plan would need to be prepared, when applicable, in accordance with the provisions contained inthe Resettlement and Land Acquisition Framework and the Minority Nationalities Development Framework and World Bank policies to that effect, and be duly implemented thereafter. 0 The EMP and RAP for the YWE, satisfactory to the Bank, will be applied while constructing the YWE and the Bank will be allowed to supervise such works. Financial 0 The proceeds ofthe loan will be on-lent to FujianProvince on the same terms and conditions as the Bank loan, with the province bearingthe foreign exchange risk. 0 The Financial Manual Plan for the YWE, satisfactory to the Bank, will be applied in implementing the YWE. 18 Fujian Province must maintain a financial management system and provide quarterly project consolidated financial statements in accordance with accounting standards acceptable to the Bank and must meet standard annual auditing requirements. Reporting 0 Semi-annual progress reports for all components, including results indicators, as applicable, using agreed format. These progress reports will include a summary o f the actions and activities undertaken to disseminate the RRIF and intraining the counties/townships/villages. 0 Semi-annual reports on the record of environmental inspection and FPCD certifications under the RRIPcomponent 0 Semi-annual reports on the unit cost o f the works under the RRIP. Annual training report and evaluation forms. D. APPRAISAL SUMMARY 1. Economicand financialanalyses Economic(Cost benefit) EIRR =24.8,NPV(12%) = US$1,891million This economic evaluation covers two project components that account for all the investment costs o fthe project: (a) construction ofthe 195.2-kmYWE, and (b) upgradingabout 27,000 km for 5,500 rural roads in the overall RRIF'. The principal measured benefits o fthe project are savings invehicle operating costs, time savings to vehicle occupants and enhanced road safety. The estimated overall economic internal rate o f return (EIRR) for the project is 24.8%, with those for YWE and RRIP being 16.6% and 34.7%, respectively. The overall economic net present value (NPV), based on a 12% discount rate, is estimated at RMB 15,13 1.4 million, o f which the YWE is estimated to contribute RMB 3,210.2 million and the RRIP is estimated to contribute RMB 11,921.2 million. An analysis o f the evaluation results and a description o fthe method used to derive them are provided inAnnex 9 and are summarized as follows: Summary ofEconomicEvaluationResults ERR(in%) NPV(RMBmillion, 12%) Rural Roads ImprovementProgram (RRIF') 34.7 11,921.2 Yong'an -WupingExpressway(YWE) 16.6 3,210.2 TOTAL PROJECT - 24.8 15,131.4 The maintenance pilot component consists o factivities that attempt to restore good riding conditions to two segments on the provincial network. These activities are expected to have rates of return well above 50%, as is usual with this type o fmaintenance works. Financial FIRR = 1.0,NPV (5.02%) = US$ 518 million - The financial evaluation o fthe project is comprised ofthe financial analyses o fthe YWE (the revenue earning entity), the RRIP (the non-revenue earning entity), and the FPCD. The construction o f YWE is one o fthe main components o fthe project (the total cost o fYWE constitutes about 65 percent o fthe project costs). The FPCD is planningto use the toll revenue from YWE to cover the amortization charges o fthe Bank and domestic loanson the expressway. Although the highway will generate enoughtotal revenue over the loanperiodto finance operations, maintenance and debt service, with a standard amortization schedule, there will be low profit margins inthe early years of operation. The high construction costs, resultingfrom the mountainous/ hilly terrain, combined with a low toll growth assumption, affect the financial rate ofreturn ofthe investment, expectedto be about 1.O percent. Despite the low FIRR, the YWE will not needany external cash assistancebecause o fthe strong cash flow. The YWE 19 will be able to meetall financial obligationsand maintainabalanceofat least RMB 140millionavailable in their cash account for the life ofthe project, without any assistance. The financial evaluation, includingthe RRIP, focuses on provincial capacity to minimize financial risks in the road sector, and having available adequate counterpart funds for construction, includingthe future maintenanceexpenditure, of the project roads. For this financial evaluation, the assessmentincludeda review ofthe sector fund allocation, financial dependency and the long-term sustainability of road development. The indicators show that the financial risks are modest. A detailedassessmentis provided in Annex 9. 2. Technical RRIP Component. Under the RRIP, a programmatic approachwill be followed to improve, with the Bank loan, asubset of 3,500 km of the 10,000 kmofroad sections already identifiedas part ofthe provincial rural roads improvement program. These rural roads link administrative villages to township and counties.This provincial programwhich started in2004 covers a total of 35,000 km-of which about 8,000 had been improved by February2006-and is expectedto be completed in 2010. Most roads are Class IV (3.5m pavement on 4.5m base for single lane, or 6m pavement on 6.5m base for dual lane); and only a few Class I11(6.5m pavement on 7.5m base). The RRIPtechnical standards are basedon MOC regulations which the province reissuedas "Technical Standards for Fujian Rural RoadEngineering" (August 2004), focusing on the types of roads under the program inthe Fujiancontext. These standards have been used by FPCD since the inception of the RRIP and have been reviewed and found generally satisfactory by the Bank. Specific adjustmentshave been incorporated into these standards. The final document has become part of RFUF. The technical choice for pavement is cement concrete, selectedon the basis of several factors validated by the longexperience in Fujian: (i)high intensity of rainfalls; (ii) mostly hilly terrain with high gradients; and (iii)good quality asphalt not readily available, while cement is producedlocally and its unit cost is relatively low. Ifthe construction meets the necessary standards and traffic remainswithin the projected volume, this technology has low maintenancerequirements. Annex 4 presentsthe estimatedaverage unit costs for reconstruction and new construction works, atable summarizing the broadgeneral characteristicsof the roads included inthe RRIPdata bank, and the agreed support amounts for Bank financed subprojects. YWE Component. The design features ofthe YWE have been evaluated-with the support of a foreign engineeringexpert-team-and found adequate for the expectedtraffic volumes and composition. Key design features include: (a) Adoption oftwo different technical standards, reflecting the topographical and geological conditions: (i) speedof80Mhandsub-gradewidthof24.5m;and(ii)designspeedof100kmhandsub- design grade width of 26 m. (b) Specialstructures with 126bridges and 27 tunnels required over one-third ofthe total lengthdue to the difficult topography. Detailed geological investigations were undertakento address the geological complexities inthe sectionswhere large bridges, tunnels, deep cuts or high fills were located. (c) 11 interchanges, 4 service areas, 3 rest areas, 9 toll stations at interchange ramps, and one mainline toll station. (d) Specialattention to pavementdesign to avoid the problems typically encounteredwith semi-rigid pavements.Asphalt concretewill be applied to most of the alignment. Tunnels and toll plazas will have cement concrete. 20 The estimatedconstruction period of the civil works for YWE is 36 months. Inaddition to the civil works, the YWE requiresthe installation E&Mfacilities andthe construction of buildings and annex areas for service and safety operations. Maintenancepilot. This component will involve the contracting out of routine maintenance activities- all within the right of way-in two segments ofthe (non-expressway) provincial network. The technical characteristics of the maintenanceactivities are well knownto FPCD. This component, however, seeks to explore alternatives to the force-accountmaintenancepracticescurrently being applied inFujian. Technical assistance support has been included under the project to provide FPCD with the expert knowledge and the analytical support for exploring those alternative mechanismsas well as for the preparation, implementation, and supervision ofthe preferred contractual scheme. 3, Fiduciary Financial Management. The Bank assessedthe adequacy of the financial management system ofthe project. The assessment8 concludedthat the project meets minimum Bank financial management requirements, as stipulated inBP/OP 10.02. It was confirmed that the project will have inplace an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project inthe reporting format agreed upon betweenthe Bank and FPCD, as required by the Bank. Funding sources for the project include the Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into the project designated account (DA) to be set up at and managed by Fujian Provincial FinanceBureau (FPFB). For the RRIPcomponent, upon FPCD's certification of compliance with the RRF and in agreement with the proceduresand amounts described inthe disbursement letter, the Bank loan will flow from the D A to Fujian Provincial Communications Department (FPCD). The FPCD will be responsiblefor transferring the correspondingsupport funds as applicable to county or local (townshiphillage) communications bureaus or highway stations, respectively, that would have paidthe contractors. For the YWE component, the Bank loan will flow from the DA to Fujian Provincial Expressway Construction Directorate (FPECD), and finally to contractors. The Bank loan will be signed betweenthe Bank and the People's Republic of China through the Ministry of Finance (MOF) and an on- lending agreement for the Bank loan will be signed betweenthe MOF and the Fujianprovincial government through the FPFB. Finally, the FPFB will sign the agreement with both the FPCD and the FPECD. The FPECD will be responsible for repayment o fthe YWE and RFUP components. The counterpart funds comprise contributions from governmentsat different levels and domestic commercial loans. Retroactive financing will be available for this project inthe amount of US$l5 million for paymentsmade underthe RRlpprior to the signing o fthe loan agreement and after April 30,2006', upon certification of compliance with the RRIF. No outstanding audits or audit issues exist with any ofthe implementing agencies involved inthe proposedproject. However, the task team will monitor closely financial management matters during project supervisions. Procurement. The procurementfor the project will be carried out inaccordance with the World Bank's "Guidelines: Procurement under IBRDLoans and IDA Credits" dated May 2004; "Guidelines: Selection a The assessmentwas carried out followingthe guidelines issuedbythe Bank's FinancialManagementSector Board on November3,2005. 9 This date reflectsthe date by when all the elementsofthe RRIF hadbeenadoptedby FPCD and disseminated appropriatelyto the cities, counties,townships and villages, and by when the overall 35,000 km roaddatabase was approvedby FDRC. 21 and Employment of Consultants by World Bank Borrowers" dated May 2004; and the provisions stipulated inthe legal agreements (and Annex 8). The documents for ICB and NCB will follow the Bank's StandardBidding Documents includingthe provisions for ALDS/HIV awareness campaigns and training of workers. Inthis effort, when necessary, the Bank will seek trust fund resources to complement those from contractorsto provide additional guidance and support on construction-relatedAIDS/HIV issues. The Bank carried out an assessment ofthe capacity of the implementing agencies to perform procurement actions inAugust 2005 and January 2006. The assessment reviewedthe organizational structure for implementingthe project andthe interaction betweenthe project's staffresponsible for procurementin the FPCD and the relevant unitfor administration and implementation at each level. The Borrower developed a Procurement Plan for project implementation that provides the basis for the application of the approvedprocurementmethods. This planhas beenagreed betweenthe Borrower and the Bank on January and April, 2006; and is available at the DOFWBP inFuzhou, China and inthe project files. 4. Social RRIP Component. Given its focus on rehabilitation, the RRIPis not expectedto require land acquisition or structure relocation. Nevertheless, a Land Acquisition and ResettlementPolicy Framework was developed, should exceptional cases arise where land acquisition or relocation is required. It describes the overall legal framework, planning principles, procedures, compensatory and rehabilitation approach, consultation and participatory requirements, grievanceredress mechanisms, and organizational and monitoringarrangements. Inaddition, consideringthe possibility of financing roads inethnic minority areas a stand-aloneMinority Nationalities Development Framework has also been preparedwith provisions regardingthe basic principles to be followed inthe rehabilitation of the roads, includingthe needfor consultation and participation of ethnic minority groups as well as development of culturally appropriate measures. These policy frameworks have been developed accordingto local laws and regulations on land and ethnic minorities as well as World Bank OP 4.12 on Involuntary Resettlementand OP 4.10 on Indigenous People. All roads to be financed under the project will follow these frameworks in identifying negative impacts, and developing and implementing the necessary mitigation measures. As part ofthe post-review arrangements, only roads that comply with these frameworks (as elements ofthe RRIF)will be consideredeligible for financing under the World Bank loan. YWE Component. The expressway component will require land acquisition and relocation of houses. Detailed census and inventory surveys show that this component will require the acquisition of 22,738 muloof land, including 8,996 mu of cultivated land and 11,612 mu of forest and unutilized land. The project will also require the demolition of 281,251 square-meters of housing. The component would affect a total of47,990 people in 10,784 households from 69 villages. This includes 39,141 people from 9,522 householdswho will lose land and 1,638 householdswho will lose houses. Following Chinese laws and regulations and World Bank OP 4.10 on Involuntary Resettlement,the FPECD developed a ResettlementAction Plan (RAP) for this component. Inconsultation with local villages and various government agencies, the FPECD has formulated an economic rehabilitation strategy combining land-for-land measures and cash payment option. Initialvillage plans have also been developed for the 10 seriously-affected villages inthe RAP. lomu: Chinese measure of land area (15 mu= 1hectare). 22 All relocatinghouseholdswill be resettledwithin existingvillages. They will be compensatedat replacement cost for their houses andwill be allocated free new housingplots. Infrastructureaccess will be provided; either through sharingexistinginfrastructure or new infrastructurewill be providedby the project. The project will also impact some enterprisesand infrastructure such as power, telecommunication,water conservancy, andtransportation facilities,as well as roads. Their compensatory and rehabilitationarrangementsare detailed inthe RAP. The RAP also describes indetail the organizationand implementation arrangements. FujianProvincehas set up a multi-levelorganizationfor the RAP implementationat provincial,city, county andtownship level. Their arrangements, responsibilities, staffingandtrainingplans are detailed inthe RAP. The RAP also detailsthe consultation and participationprocess, as well as the mechanismfor grievance redress. An independentagency will also be contractedto monitorthe RAP implementation. The total resettlementcost is RMB 577.97 million, equivalent to aboutUS$71.79 million (at 1USD= 8.05 Yuan). All resettlementcosts will be financedwith domestic funds. 5. Environment An EnvironmentalImpactAssessment (EM)and an EnvironmentalManagementPlan(EMP) for YWE were developedby the HighwayResearchInstituteofMOC. For the RRIP, given its programmatic nature, an EnvironmentalManagementFramework(EMF) was developedbythe FPCD incollaboration with the FujianProvincialEnvironmentalResearchInstitute. Basedon the EMF, an Environmental Assessment (EA) is to be executed on a county basis. The drafts ofEIA, EMP, EMF andtheir Summary were preparedin compliance with the Bank PolicyOP 4.01 (Category A), and found satisfactory to the Bank after its extensive reviews. Detailsof EIA, EMP andEMF are providedinAnnex 10. RRIP Component. The EMFwas developed includingbaseline environmentaldata, environmental managementandthe supervisionscheme, EA procedures,trainingplan, andsupervisionandreporting system. The FPCDwill be responsiblefor the overallguidance andmonitoring,whilethe city highway bureauswill be incharge of compliance monitoring,and county communications bureaus for the implementationofthe EMF. The county communications bureauswill report from the environmental safeguardsperspectiveon the completion ofthe construction activities and final quality of each road usingchecklists developed inthe EMF. Forthose roads applyingfor Bank funding, a record of inspection will be submittedto the Banktogether with the certificationby the FPCDon the compliance with the EMF. Duringsupervision, the Bankwill randomly check county EAs andthe checklists for a sample of Bank-fundedroads. For reference, a similar procedure will be appliedto a sample of non-Bank funded roads. W E Component. The alignment generallyruns parallelto the existingcorridorof a national highway where intensivehuman activitiesexist. A nationalleveltourism resort is located 1.5 kmaway from the alignment. Itattractedmorethan 1million tourists in2005 and its potentialcapacity is far above this number. Eventhoughthe resort is expectedto havethe managementcapabilityto handlea likely increase of tourists inducedbythe project, further strengtheningthat capabilitywill be considered, ifnecessary. Also, three national levelnaturereserves are locatedmorethan 10km away from the alignment, but it is highly unlikelythat the project will haveany adverse impacts on them due to the distance. To prevent and mitigatesoil erosion and subsequentwater pollution,various measureshavebeen developed inthe EMP. A Contingency Plan for Traffic Accident involvingHazardousMaterialshas been established in2004 to address spills of hazardousmaterialscaused by traffic accidents. Duringthe preparationof the project, 16 segments were subject to carefulconsiderationo falternatives, includingthe potentialenvironmentaland social impacts in additionto engineering, economic, and 23 financial factors. This analysis covered about 110km or about two-thirds o f the total length o fthe route. The final alignment takes into account local development plans and attempts to minimizethe environmental impacts and resettlement requirements; and maximize the overall benefits to the project beneficiaries. Furthermore, the selected alternative avoided most o f the unfavorable geological locations, further reducingthe amount of earth movements or highvertical cuts. A stand-alone EMP has beenprepared involving an environmental management system, training, monitoring and supervision plans, and mitigation measures. The FPCD will be responsible for the EMP's coordination and guidance, and the LongyuanYWE Company and the Sanming YWE Company for its implementation. Environmental monitoring will be executed by the monitoring centers at Longyuan and Sanming City. Three rounds o f public consultation were carried out inNovember 2004, July 2005 and November 2005. A total of more than 900 project-affected individuals, as well as NGOs, local government officials and village committees were consulted, and their concerns and requests were well addressed inthe EMP. The EA documentationwas disclosed locally inMarch 2006 and at the InfoShop inApril 2006. Culturalproperty. For the YWE, a cultural relics survey was conducted by cultural property authorities o f Sanming and Longyancities. Two surveys concluded that no valuable cultural relics sites are located along the expressway alignment. For the RRIP, the EMF establishes that if any cultural relics were found duringconstruction, the work will be suspended immediately, and the localcultural authority will be notified. The work will not resume untilthe cultural relics are examined by the authorized institution and necessary preservation measures are taken. 6. Safeguard policies Environmental Assessment (OPBP/GP 4.01) [JI [JI [I Natural Habitats (OPBP 4.04) [I Pest Management (OP 4.09) [JI Cultural Property (OPN 11.03, beingrevised as OP 4.11) [JI InvoluntaryResettlement (OPBP 4.12) Indigenous Peoples (OD 4.20, beingrevised as OP 4.10) Forests (OPBP 4.36) Safety o f Dams (OPBP 4.37) Projects inDisputedAreas (OPBP/GP 7.60)' [I Projects on International Waterways (OPBP/GP 7.50) [I [JI Note: The demand-drivennatureof the RRIP does not allow ex-ante knowledge ofwhether investments will actually take place in areas with ethnic minorities, thoughthe possibility is low giventhe general conditions in Fujian." Consideringthe possibility that potentialroads could be locatedin ethnic minority areas a stand-alone Minority Nationalities DevelopmentFrameworkhas beenprepared. 7. Policy Exceptions and Readiness The project meets the readiness criteria for project implementation, closely follows all the applicable Bank policies, and does not requireany exceptions. * By supporting theproposedproject, the Bank does not intend toprejudice thefinal determination ofthe parties' claims on the disputedareas ]IHan Chinese is the dominant ethnic groupamongthe 35 million inFujian and ethnic minorities account for about 1.7%. The mainethnic groups are She and Hui, mostly spreadalong the relatively developedcoastal areas, particularly the HuiMuslims (some of whose ancestorsare Arabiantraders centuries back who stayedon). The rural program focuses on the central and western Fujian areas which are the poorer parts ofthe province. 24 Annex 1: Country and Sector or Program Background CHINA: FujianHighway Sector InvestmentProject Road SectorDevelopmentinthe People's Republicof China (PRC) Sincethe early 1990s,the economy of China has movedfrom a centrally plannedenvironmentto one which is morecommercialized and competitiveand with a highdegreeof openness. These changeshave ledto the rapidgrowth in passengerand freighttraffic, puttingheavy demands onthe infrastructure. In responseto these demands,and given the previousunderinvestmentinthe sector, since the mid 1990s,the country has seen a rapidincreasein the rate of roadconstruction. By 2005 the total roadnetworkwas roughly 1.8 million km, with about 34,000 km of expresswaysand about 30,000 km o f high-grade(Class I) highways inoperation. As a result, and complementedby the railwayand waterways networks, over the last 15 years, China hasdevelopedone ofthe most extensive transportationsystems inthe world. Inthe late 1990s,governmentsat all levels embarkedon majorhighway investmentprograms. At the core of this program is the originalNationalTrunk Highway System(NTHS) which is the backboneand most importantelementofthe nationalsurfacetransportation network. The NTHS is a 35,000 km networkcomposedof twelve major highways. FiveNorth-Southcorridors:Beijing-Fuzhou,Beijing- Zhuhai, Chongqing-Zhanjiang, Erlianhaote-Hekou, and Tongjiang-Sanya; and seven East-Westcorridors: Dandong-Lhasa,Hengyang-Kunming, Lianyungang-Huoerguosi, Qingdao-Yinchuan, Shanghai-Chengdu, Shanghai-Ruili,and Suifenhe-Manzhouli. With an estimatedcost of $150 billion, the NTHSwill connect all provincialcapitalsand cities with populations exceeding500,000 inhabitants (100 majorcities). By the end of2005, roughly34,000 kmor 97 percent of the total lengthhas beencompleted. InDecember 2004, the Chinesegovernmentapproveda renewednationalexpresswayplan, the so-called 7918 ChinaNationalExpresswayNetwork(CNEN). This planconsists of buildingsevenlinksto Beijing, nineNorth-Southcorridors, and 18 East-Westcorridorstotaling85,000 km of high-grade highwaysby 2020. The CNENhas beendesignedto reachmorethan 1 billionpeople inChinaby connectingall provincialcapitals and large urbancenters of morethan half-a-million inhabitantswith cities of morethan 200,000 people. The standardschosen matchthose of the US Interstateor European motorwaysandthe network locationintendsto allow people ineasternareas to access an expressway within halfan hour, the central provinces within an hour, andthe western areas within two hours. In addition, the CNENwill improve the communicationsbetweeneconomicallydevelopedareas, such as the Yangtze and Pearl River Deltas in the East; andthe MidwestandNorth-Eastareas; it will enhancethe connectionwith the West and facilitate the economic growth of Centraland Western provinces.(See Map 1 inAnnex 15.) FujianProvince Fujianprovincehas an area of 123,700 km2or 1.29percentofthe whole nation. Locatedalongthe southeastcoast of China, Fujianfaces Taiwan acrossthe Taiwan Strait, and is neighboredby Zhejiangto the north, Jiangxito the west, andGuangdongto the south. The provincehas a populationof 35.1 1 million (2004), it has 8 cities (municipalities)and 85 administrativeunits as follows: 45 counties (includingone specially designatedcity); 14 cities, and 26 districts. Ruralpopulationaccounts for 69% of the total population(24.25 million in 2004). The provinceis highly mountainous; mountainscover 75% of its land, hills 15%hills, andplains 10%. The terrains andnaturalbarriers divide Fujianintofour regions:the Northwestmountainousregion; the Southwestmountainousregion, where the expresswaycomponent ofthe projectis located; the East mountainousregion; andthe Southeasthillsandcoastalplains. Fujian's coastline is about 3,324 km long, which is 18.3 percent of the nation's total and secondlongestonly after Guangdongprovince. The 25 provincehas 125 portsof various sizes, six ofwhich are deep water ports includingSha ChengPort, San Du Ao, Luo Yuan Wan, MeiZhou Wan, Xiamen Port and DongShan Wan. Xiamen and Fuzhou (connectedthrough inlandwaterway to the ocean) are amongthe nation'stop 10 container ports. Fujianis China locatedbetweenthe prosperous Chinesecoastal provinces and cities of Guangdongand HongKongto the South andZheijangand Shanghaito the North. Beingthe mainlandarea directly facingTaiwan acrossthe Taiwan Strait, public investmentwas limited from the 1960sintothe 1980sand only increasedto levels commensuratewith the socio-economiccharacteristicsofthe provinceinthe 1990s. Inspite of havingan averagerate of growthover the last 20 years higher thanthe nation's average, by 2004, the provincehad laggedbehindother coastal provinces interms of quantityoftransport infrastructure,affectingsocial andeconomic progress (e.g., GDP per capitafalls between75% and 85% o f neighboringprovinces,while life expectancy is morethan two years lower). Thoughroaddensity per 1000 square kilometersor per inhabitantis comparableto the countryaveragesandthose ofneighboring provinces, the density of higher class roads is less than half ofthe values inthe provinces of Guangdon or Zhejiang, andthe percentage (81%) of unclassifiedand lower class (IV) roads is substantially larger.52 Fujian's transport networkfacilitates North-Southtransport across coastalprovinces andthe access to deep-waterports from inlandprovinces such as Jiangxi, Hunan, and Hubei,and beyondthese, Sichuan and Chongqing. These five provinces combinedhave about 300 million people. Enhancingtransport conditionsacrossthe province will improveconnections to other lagginginlandregionsand, by enhancingaccess to its ports, leadto a morebalanceddistributionof cargo and reducedcongestion across the Easternports-such as those in Shanghaiand HongKong. Inaddition,the developedarea ofthe Province is concentratedonthe narrow strip of land alongthe coast. Seventy percent of its landwestward from the coast is mountainousterrainwhere largepockets ofpoor populations are located. Inthese isolated areasthe unclassifiedand lower class roadsprovidelimited transport services, leadingto higher transport costs and disincentives for investment. Ingeneral, rural people in villages outside the mainprovincialcorridors-including the 7,500 administrativevillages in the province's 84 counties-face limited accessibility, since the existingnetworklargelyconsistsof earth or gravel roadsthat are impassableduringthe rainy season. Improvingthe conditionsofthe ruralroad networkconstitutes a key elementto achieve a more harmonious socioeconomic development ofthe Province. Fujian's TransportationSystem Fujian's transport network is composedof highways, railways,inlandwaterways, ports and aviation systems. By the end of 2004, the provincehad56,208 km of highways;1,452.8 kmof railways, and 3,701 km of waterways. Highways. Highwaysare the mainmodeoftransportationinthe Fujian. They play an importantrole in servingfreightand passengertransport needs within the provinceas well as with neighboringprovinces. In2004, 69.7% of freighttons-though only 16%of the ton-km-and 94.3%of passengertraffic used highways. The highwaynetworkreached56,208 km in 2004, with 1,043 kmexpressways; 336 kmClass Iroads;and6,150 kmClassI1roads. Theprovincehas5nationalhighways,mostofwhichareClassI1 standard. The total lengthof nationalhighways is 2,269 km, which provides connections amongthe province's 8 cities and 84 counties. The provincialroadnetworkhas 17 provincialcorridors:eight horizontaland ninevertical. '* Figuresreferto end-of-2003numbers,basedontheNationalStatistical Data, unlessotherwisereported. The data for life expectancy correspondsto the latest (2000) populationcensus. 26 Class Length(km) Percentage Expressway 1,043 1.9% Class Iroads 336 0.6% Class I1roads 6,150 10.9% Class 111roads 4,097 7.3% Class IV roads 32.969 58.7% .. Unclassifiedroads 11,613 20.7% Total 56,208 100.0% Railways. The railwaynetwork inFujianbelongsto the southeastpart ofthe nationalrail network. By the endof 2004, Fujianhad 1,565 kmrailway in operation, 892.3 km of which are electrifiedrail lines. Currently, there are 11major rail lines inFujian, with three linesprovidinginter-provincialaccess: Yingtan Xiamen line (615.6 km), Meizhou-Kanshiline(47 km), andZixi-NanpingSouth, so-called - HenNanline(186km). Fujian's railcapacity is expectedto improvewith the implementationofthree additionallines which havebeenplanned:Fuzhou-Wenzhouline, Fuzhou-Xiamen line, andLongyan- Ganzhouline. It is expectedthat Fujian's railnetwork will carry more inter-provinciallongdistance freight andpassengertraffic. Ports. In2003, Fujianoperatedover 125.16million-tonof cargosthrough its coastalports (a 22.8% increase from 2002). Xiamen, Fuzhou, and Quanzhouindividuallyoperatedover 10 million tons of freight. With Xiamen andFuzhou, Fujianhouses two of the nation'stop 10container ports, and among the 20 most important nodal ports inChina. Through coastalports, Fujianis connectedto HongKong, Macao, Taiwan (line opened in 1997)andover 60 other ports inover 40 countries. Moreover, with support from Fujian's maritimetransport system, the province established commercial relationship with over 140countries andregions. Fujian's maritimetransportationhas beengrowingsteadily and it is expectedthat this trend will be maintainedinthe future. Waterways. Fujian's inlandwaterways have a total length of 3,701 km; of which 1,980 km are middle class waterway, and 1,72 1 km are non-classifiedwaterways. Passenger transport through waterways has longbeendecreasing. The decline of inlandwaterway transport can be attributedto three factors: the installationofa major hydrologypower plant (Watergatepower plant); the upper streamforest damage with the subsequent loss ofwater andearth; andthe problemswith the capacity structure ofwater transport enterprises. Air Transport. Fujiancurrentlyhas five civil airports: FuzhouChangle InternationalAirport, Xiamen Gaoqi InternationalAirport, Wuyi MountainAirport, QuanzhouJinjiangAirport, andLongyan GuangmaoAirport. Fujianhas sufficientaviationcapacity, particularlyinthe context of limiteddemand with a rather low share inpass-km(12.9% in2003), which is expectedto remain low. Fujian RoadManagementIssues OrganizationalFramework. The operationandmaintenanceofthe expresswaynetwork is entrustedto expressway companiesthat are subsidiaries ofthe FujianExpressway Company, the sister organization of the FujianExpresswayConstruction Directorate(FPECD) underthe FujianProvincialCommunications Department(FPCD). Responsibilityfor the non-expresswaynetworkfalls upontwo deputy directorates under FPCD:the PlanningDeputy Directorate andthe Public Works Deputy Directorate. They havea roleof funding, oversight, andtechnical support on maintenanceactivities. 27 The actual maintenanceoperations onthe non-expresswaynetworkare carried out at a decentralized level: 0 Cities(municipalities)are in charge of maintenanceofthe nationaland provincialnetwork intheir jurisdictions. There are nine HighwayBureausat municipallevel in chargeof about 7900 km of national andprovincialroads. These HighwayBureausprovidetechnical guidanceto the counties. 0 Counties are in chargeof maintenanceofthe county networkintheirjurisdictions. There are 84 Communications Bureausat county levelin charge of about 6600 km of county roads. These Communications Bureausassist the township governments inthe managementofthe township and village roads. Maintenance of National/Provincial/County Roads. FPCDhas developedthree maintools to assist in managingtheir network: 0 A RoadConditiondatabank,which includes informationon the attributesandtechnical specifications o f the roads. Informationinthe databank is renewedevery year. 0 A BridgeManagementSystem, containing informationon bridge attributesandconditions. Basedon informationcollected, the bridge conditionswill be categorized intofive categorieswith category 1 representingbest condition, category 4 beingbadcondition, and 5 beingdangerousconditionthat requiresimmediatereparation.The informationis updatedevery year. 0 A PavementManagement System, containinginformationon the roadgeometryandpavement structure andcondition. The dataand informationinputted intothe three systems are collectedthrough field surveys usingthe relevant datacollectionchecklists developedby MOC. The field data are initially collected at the county level and submitted to the municipalhighwaybureauandthen to the provincialhighway bureau. Priority of maintenancework is determined basedonthe informationgainedfrom the three systems. However, emphases are generally givento national highway, and secondly provincialroads. Interms of maintenancefundingallocationmechanism, the HighwayAdministration Bureau(FPHAB) under FPCD is responsible. In2005, FPHAB hada recordof 14,400 km roads under its managementfor maintenance,amongwhich, about 7,900 kmare nationaland provincialhighways, and 6,000km are county roads.To allocate the maintenanceresources, eachyear the nine municipalhighway bureaus would sendmaintenancefundingrequeststo the FPHAB, who will reviewand evaluatethe validity ofthe fundingrequestsbasedon its field exams, carried out at leastonce a year, on each municipality'sroad condition. At the municipallevel, the 9 municipalhighway bureaus(with their engineering and financial divisions) manage the maintenancefund from the FPHAB andallocate the funds to the 84 county road sub-bureaus- one for each county. Eachofthe county roadsub-bureausmanages severalhighway maintenancestations (gangs).As ofthe end of 2005, there are nearly 600 maintenancestations in Fujian,whose size varies dependingonthe length of network they maintain. Maintenanceoperationsare categorizedintotwo types: (1) majormaintenanceor the repair of major damages, and(2) minormaintenance, includingroutinemaintenance andthe repair of minor damages. Themajor maintenance works are normallycarried out by privatemaintenancecompaniesthrough an open biddingprocess withinthe province. Incase ofparticularlylarge maintenanceworks, the bidding couldbe opento companiesnationwide. CurrentlyFujianhas about 90 maintenancecompanieswith each beingcertifiedby FPCDaccording to the MOC standards.FPCDalso performs annualreviewonthe qualificationsof maintenancecompanies andrecertifiesthem every three years. Theminor maintenance works are normally carried out by highway maintenancestations. The works are allocatedto the stations through a highway bureauinternalbiddingprocessthat is carried out once every two to three years. 28 Interms ofbudget allocation, in2005 FPHB allocatedabout 1billion RMBsonthe maintenance ofthe 14,000 kmroads under its responsibility, among which, 300 million RMBs are for routine maintenance. Ofthe 300 million RMBs,about 60% are for the salaries o f Fujian's 8,000 maintenance staff, the remaining funds were spent on materials and machines. Maintenance of Township/Village Roads. Fujian has a total o f 69,000 km rural roads, which are maintained by counties, townships, and villages. Specifically, maintenance is managed by county communication bureaus and their subdivisions-the township road stations. Township road stations are management units, who are in charge o f hiringlocal people to carry out the maintenance work in exchange for salaries. For routine maintenance o f village roads, the salary is at about 300-500 RMBs/ km. Families or individuals interestedin taking the maintenance work o f a specific road segment can also compete for it. Individuals maintaining a road segment will sign a contract with the township road bureau that sets out the specific conditions o f the work and payment. Maintenance works are fundedthrough various funding sources including: municipality, county, township governments, and from other sources like local enterprises, donations from people overseas etc. Hence, information on maintenance expenditures for village roads is subject to caution. Sector Issues in Fujian The following issues are highlighted as key inthe strengthening o f Fujian's road sector: Enhanced connectivity and integration with neighboringprovinces. Fujian's transport network facilitates North-South transport across coastal provinces and improves access to deep water ports from inland provinces such as Jiangxi, Hunan, and Hubei, and beyond them, Sichuan and Chongqing. As explained before, Fujian houses two major ports-Xiamen and Fuzhou-that rank among the nation's top 10 container ports. Enhancingtransport conditions across the province will improve connections to lagging inland regions and, by enhancing access to its ports, lead to a more balance distribution o f cargo and reduced congestion across the Eastern ports-such as those in Shanghai and HongKong. Adequate transport accessibility and a road network of suficient quality. The developed area o f the Province is concentrated on the narrow strip o f land along the coast. Seventy percent o f its land westward from the coast is mountainous terrain where large pockets o f poor population are located. In these isolated areasthe unclassified and lower class roads provide limited transport services, leading to higher transport costs. In general, villages outside the main provincial corridors lack appropriate access, since the existing network largely consists o f earth or gravel roads that are impassable during the rainy season. Improvingthe conditions o fthe rural road network constitutes a key element to achieve a more harmonious socioeconomic development o f the Province. Building up a scientiJic approach to maintenance management. The tools developed available in FPCD are usedmostly for informationon the road network, not for the preparation o f multi-year programs o f maintenance and rehabilitation and prioritizationo f annual budgets. In particular, there i s no linkage between budget allocation and road network condition. This issue was considered under the ongoing Second Fujian Highway Project, through a Study on Highway Maintenance Management, aiming at developing a suitable framework for assessment o f maintenance needs and allocation o f funds. Gradualpromotion of a more balanced allocation of resources for the development and preservation o f the road assets. At the provincial level, the amounts allocated to (periodic and routine) maintenance have been risingwith average resources per kilometer growing at a average o f 8% duringthe last four years. However, these resources still represent lessthan 4% o fthe total amounts 29 allocatedto the sector. Hence, additionalefforts are required in shiftingthe overall sector approach from one that largely focuses onroaddevelopment towards one that bestowsa stronger emphasis on asset preservationonthe basisof the technical analyses built uponthe set of currentlyavailableroad managementtools. This issuewas also part ofthe dialogue betweenthe Bank andFPCDunder previousBank-financedhighway projects, but additionaleffortsmust be put in place. 0 Gradual incorporation of alternative strategiesfor carrying out maintenanceactivities. Current force account practicescan be improvedthrough the explorationof alternative contractual mechanismsfor roadmaintenance. These mechanisms-as has beendemonstratedin other countries-can bringin added efficiency inthe use of resourcesallowingFPCDto improvethe conditionof a larger number ofroadassets within the currentlyconstrainedbudget allocations. Government Strategies and Interventions To achievea more harmoniousdevelopment across Fujian's territoriesandenhancetransport accessibility across the Province-including the ruralareas- the ProvincialGovernment,through its Provincial Communications Department(FPCD) has established a well thought-out investment strategythat would bringthe transport infrastructure upto the standard necessaryto support the social andeconomic development ofthe province, with particularemphasis on the road sector. The proposedinvestment strategy for the road sector has a well-balanced distributionacross all roadclasses, and it includes the following elements: 0 continuingthe expansionof the expressway network by doubling its current lengthof about 1,100 km by 2010, andtripling it by 2017; 0 gradually upgradingthe nationaland provincialhighwaysto at least class 11,to complete a network of 8,600 km, enhancingthe transport connectionsamongcities andcounties andofthem with the expresswaynetwork; and 0 aggressively improvingthe conditionof about 35,000 km of non-pavedclass I11andN rural roads network throughthe implementation o fa RuralRoads ImprovementProgram(RRIP)-of which about 8,000 kmhavebeencompleted sincethe inception ofthe program in 2004-facilitating the connections of approximately 7,500 administrative villages with the paved arterialprovincialand county roads by 2010. This strategy is consistent with the central government strategiesandthose set under the EleventhFive- Year Planfor the period2006-2010, approved by the State Councilat the end of 2005. The expansion of the expresswaynetworkfits squarely within the CNENPlan. The FujianRRIPhas beenhighlightedas a good practiceanda blueprintfor replicationto the restofthe Chinese provinces-with the necessaryadjustmentsto reflectthe varied characteristics ofprovinces across China. This type of interventions inrural roadshas received a strongboost recently from the central government with the.approval of a programof up to RMB100 billion for the period2006-2010. Further supportingthis initiative,the State Councilhaspublished severalpolicy notesthat endorse increasedinvestments in rural infrastructure-including roads-while emphasizingthe needto strengthen road managementcapacity at the county and local levels. The ambitious road investment plans requireparallelstrengtheningof the capacity of sector entities in Fujianto managethe increasingamount of roadassets. Inthis respect, FPCD is gradually upgradingits managementinformationsystems and mechanismsfor the upkeep ofthe expressway, national, and provincialroads, partlywith financingfrom internationaldevelopment agencies. Furthermore,through the implementationofthe RRIP, local entities currentlyreceivetechnical support from FPCDthrough its de-concentratedhighwaybureaus in nine cities andthroughthe communicationsbureausat the county level. 30 Issues to be addressed by the Project The project seeks to contribute to address the issues discussed inthis Annex, in linewith the Fujian Government's own strategies and interventions. Specifically, the project seeks to contribute to (a) the construction of a key link o f the CNEN inthe Fujian Province; (b) the implementation o f the province- wide rural roads program; and (c) key technical assistance activities related to buildingupthe capacity of FPCD inmanaging road assets, through a study on toll rates, a pilot on the contracting of road maintenance, carryingout an impact analysis of rural roads, and an intensive training program with a focus on road safety and quality control and management skills. 31 Annex 2: Major RelatedProjectsFinanced by the Bank and/or other Agencies CHINA: Fujian Highway Sector InvestmentProject Latest Supervision (PSR) Ratings* Sector Issue Project' (Bank-financed projectsonly) Implementation Development Progress(IP) Objective (DO) Bank-financed RemoveHighway Capacity Bottlenecks (1) Institutional StrengthenindTraining(2) RuralRoads and Poverty Alleviation (3) Highway Safety (4) Operation& Maintenance of High-GradeHighways (5) Cost Recovery(6) I I Planned Projects ShaanxiAnkang RoadDevelopment(1-6) Anhui RoadRehabilitation& Improvement(1-6) GuiyangTransport Project (1-6) Ningxia Transport Project(1-6) 32 ITHERDEVELOPMENT .GENCIES ONGOINGPROJECTS ~~ isian Development Bank Hebeiand LiaoningExpressways Liaoning and Jilin Expressways HebeiRoadsDevelopment Chengdu-NanchangExpressway Changchun-HarbinExpressway ShanxiRoads Development SouthernYunnanRoad Development Chongqing-GuizhouRoads Development GanlongRailway Project (GanzhodJiangxi- LongyadFujian) PLANNEDPROJECTS ShanxiExpressway Chongqing-GuizhouExpressway GuangxiHighway Development Shanxiand Shaanxi Roads Western Yunnan Road Development Southern SichuanRoads Development Japan Bank for International ONGOING PROJECTS Cooperation HainanDevelopment (formally OverseasEconomic QingdaoDevelopment Cooperation Fund of Japan) Guiyan-Xinzhai Highway Hangzhou-QuzhouExpressway Wanxian-LiangpingHighway Liangping-ChangshouHighway HainanEast Expressway Xinxiang-ZhengzhouHighway 33 Annex 3: ResultsFramework and Monitoring CHINA: FujianHighway Sector Investment Project ResultsFramework PDO To increase the effective use of the Reductionof freight rates on Assess impact of improved road infrastructureinthe Fujian Yong'an-Wuping Corridor expressway and ruralinfrastructureon Province in support of its social and users' behaviors and the effective economic development. Reductionoftravel times on rural transfer of benefitsto roadusers roads IntermediateOutcomes IntermediateOutcome Use ofIntermediateOutcome Indicators Monitoring (a) Transportflows on rural roads Traffic volumes on rural roads Assess level ofuse of upgraded improved:rehabilitation of about increased infrastructure, including increased 3,500 kmof rural roads under provision of passenger services, and Fujian's Rural RoadsImprovement Supply of bus passenger services reductionintravel access to social Program(RRIP) enhanced services and economic activities Pace of loandisbursementsunder Verify and evaluate applicability and RRIP component accelerated replicability of RRIF. This evaluation also provides indirect assessment of Number ofkm of completedworks enhancedcapacities at the local level not subjectto Bank financing with substantial compliancewith the RRIF (b) Transportconditionsenhanced Traffic volumes on YWE and G205 Assess level of use of upgradedroad on the corridor betweenYong'an increased conditionsonthe Yong'an-Wuping and Wuping (border with corridor, in a faster and safe manner. GuangdongProvince):construction Average travel times on YWE and Traffic accidents on existing G205 of the 195.2-kmYong'an-Wuping G205 decreased at the opening ofthe would be collectedfor the purposes of Expressway (YWE) YWE comparisonwith those after the openingofthe YWE. Accident rates on corridor (YWE and G205) reducedat the opening ofthe YWE (c) Alternative maintenance Contract maintenanceapproachesin Verify applicability of alternative mechanisms testedand appliedto Fujian applied maintenancemechanisms for road provincial roadnetwork: two pilot maintenance,through the contracting initiatives of maintenanceby out maintenanceactivities contractintwo segments ofthe provincial roadnetwork. (d) Roadmanagementcapacities at Enhancedknowledgeand application Continuedknowledgeacquisitionof FPCD strengthened:institutional of updatedroadmanagement updatedapproaches on road strengtheningcomponent approaches including: (a) toll rate managementtopics, building on setting; and (b) measurement of previousinstitutional development impacts. actions, towardsensuringenhanced technicaland managementcapacity at Effective completiono ftraining FPCD. programs. 34 r P E 62 m M - E - 2 2 .-Y Y 5 V P U E I Y y. % 39 v) Annex 4: Detailed Project Description CHINA: Fujian Highway Sector InvestmentProject ComponentA. RuralRoads ImprovementProgram (RRIP) (estimated cost US$502.05 million 33.7% ofthe total project cost of which US98.26 million would - - be financed by the Bank Loan) l3 The RRIP aims at improvingconditions ofthe lower class roadsthat connect administrative villages to the main provincialroad network. The Bank loan will supportthe overall program and finance ruralroad investmentsthat are carried out following the rural roads implementation framework (RRIF) agreed upon with FPCD. The FUUF is the integratedframework of the Procurement Framework, Environmental Framework, Land Acquisition and ResettlementFramework, the Minority Nationalities Development Framework, and Financial ManagementFramework, as well as with the technical specifications and construction quality standards agreedupon with FPCD (building on existing specifications and standards that had beenused by FPCD since the program inception in 2004). The works eligible for World Bank financing will be incompliance with all the elements of the RRIF. Disbursementswill be processed based on completed outputs. The Bank loan will support a subset of about 3,500 km out of the 10,000 km of road sections already identified based on the demandraisedfrom the requests received by the counties, townships and villages, that are part ofthe 35,000 km FPCD's overall program. The civil works for the RRIP include the improvement and rehabilitation of lower class rural roads (Class I11and IV) and consist mostly of resurfacingthe unpavedroads with concrete pavement, in line with technical standards basedon MOC regulations reissued by the Fujian Province as "Technical Standards for Fujian RuralRoadEngineering" (August 2004). These standards have been used by FPCD since the inception of the RRIPand have beenreviewed and found generally satisfactoryby the Bank. Specific adjustmentshave been incorporated into these standards. The final document has become part of the ruralroads implementation framework (RRIF). FPCD will cover the necessary costs for the disseminationof the RRIFand the training of county and local unitsthat wishing to implement the framework require strengtheningtheir capabilities. This component is complementedby an impact evaluation and monitoring study that will help measurethe impacts of a rural roads sample to establish a complementary knowledge base that can help incorporate adjustmentsto the RRIP to better tailor the interventions to the needs of rural areas. This study is includedunderthe Institutional StrengtheningComponent. Component B.Yong'an Wuping Expressway(YWE) - (estimated cost US984.17 million -66.1% of the total project cost o f which U S 2 18.55 million would - be financed by the Bank Loan) The YWE will be a 195.2 km long section ofthe Changchun-Shenzhen expressway, which is one ofthe North-South corridors of the CNEN. The YWE will connect Yong'an (Sanming City) with the border of the Fujian and GuangdongProvinces, at Yanqian in Wuping (Longyan City). This component includes the acquisition and installation of electrical and mechanical(E&M)works and the construction of buildings and annex areas for service and safety operations. The project's expressway investmentwill connect to the North with another expressway currently being completed by the FujianProvince and to l3The projectcosts for each component include physical and price contingenciesand the percentages are calculated from a total project cost of US$1,490 million. No Front-endFeeneededto be included as the World BankBoardof Directorswaived the Front-endFee during the fiscal year (FY07) within which the legalagreements relatedto the Projecthave beennegotiated. 37 the Southwith another expresswaycurrentlyunderconstructioninGuangdongprovince(expectedto be completedin2008), leadingto one of China's most industrialand populatedcities, Guangzhou. The constructionofthe expresswaysegmentunderthe projecthowever will help achieve by itselfthe project's development objectiveandtherefore no linkage issues are present inthis case. The proposedYWE passesthroughYong'an (SanmingCity), and LianchengCounty, ShanghangCounty, WupingCounty (LongyanCity). The table below summarizesthe key socioeconomic conditionsofthe cities traversedby the proposedYWE. Area Pop. GDP UrbanAve RuralAveInc (km') (mill) (bY) Inc(Y) (Y) The expresswaywill consist of four lanesthat have beendesignedfor a speed o f 80 kdhr inthe heavy mountainousterrain from Yong'an to Liancheng, and of 100km/hr for the remainingsection. The final alignment ofthe expresswayhas been selectedupon in-depth analysis ofalternatives in 16 segmentsof the roadcoveringtwo thirds ofthe total route length. The selectedalternative scheme avoids most of the unfavorablegeologicallocations and follows optimalhorizontalcurves and vertical slopes, while minimizingsocial and environmental impacts. Inadditionto the civil works, this componentincludesthe installationofelectrical andmechanical (E&M)facilities andthe constructionofbuildingsandannex areas for serviceand safety operations. . Designfeatures. The maindesign featuresof the YWE are the following: Technical standards: The proposedprojectalignment onthe feasibility study was optimizedbasedon preliminarysurvey results. Two differenttechnicalstandardswere adopteddue to complex topographic and geologic conditionsalongthe route: (i) from Km 0 to Km 75,the designspeed is 80kdh and sub-gradewidth of 24.5 m; and (ii) from Km 75 to K195,the designspeed is 100kmh and sub-gradewidth of 26 m. . Interchanges: 11 interchangeswere designedto servethe needs ofthe localandthrough traffic. For each interchange,alternative designswere consideredbefore adoptingthe best suited. Structures: the difficult topography ledto almost one-thirdofthe total lengthrequiringspecial .. structures, as follows: (i) 126 bridges for a total lengthof about 39 km (20% oftotal length); and (ii)27tunnelsforatotallengthofabout25km(12% oftotallength). Facilities: include4 service areas, 3 restareas, 9toll stations at interchangeramps, and one mainline toll station(at the borderwith Guangdong). Soiltesting: The project was subject to supplementalgeologicalinvestigationduringthe detailed design stage.The investigationincludedsufficientboretests especially onthe roadsections where large bridges,tunnels, deep cuts and highfillwere located. Pavement Design. Specialattention was paidto pavementdesignto avoidthe problemstypically encounteredwith semi-rigidpavements. Asphalt concrete will be usedexceptfor tunnels andtoll plazas where cement concretewill be utilized.The typicalasphalt pavement designcurrently beingusedfor expresswaysinChina has beenreplacedwith an improveddesignbecause a number of sections using suchtypicalstructurewith semi-rigidbasehave failed muchearlierthan expected. The new pavement 38 designconsists o f 10 cm of asphaltconcrete layers, 15 cm of bitumenmacadambasecourse, 16 cm of gradedcrushedstone, and 30 cm o f low strengthcement stabilizedcrushed stone sub-base. The gradation for each layer includingasphalt concrete mixturefollowsthe new asphalt pavement and construction specifications issuedby MOC. Implementation Schedule. The prequalificationdocumentswere soldto the public inMay, 2006. The biddingdocumentsfor the earthwork contractswould be issuedinJuly, 2006 andthe initiation of construction is expectedfor December 2006. It is estimatedthat constructionof the civil works for YWE will require a total of 36 months, Construction Supervision. A joint foreign/localsupervisionteam will be set-up for the supervision o f YWE. The foreign supervisionteam will mainly consist ofthree experts. A team leaderthat will be assignedas ChiefSupervisionEngineer's Representativefocusingon projectand contract management; a sub-gradeengineer; and a structuralengineer. Duringthe peak constructionperiod, one additionalsub- grade engineer from the foreign consultingfirm will be hired.After completionofthe earthworks, one pavementengineer will replacethe sub-gradeengineersandthe structureengineer. A total of 120person- months for the foreign supervisionteam has beenestimated; these includefour person-monthsallocated for trainingand eight person-monthsfor contingency. The estimateddomestic supervision input for YWE is about 7,200 person-monthswith 200 engineers. The domestic supervisionteam will comprise five resident engineer's offices with each responsible for one pavement contract and corresponding earthwork contract. Component C. HighwaysMaintenancePilot Program (HMPP) (estimatedcost US$0.66 million 0.04% ofthe total projectcost - ofwhich US$O.18 million would be - financed by the Bank Loan) The Highways Maintenance Pilot Programcomponent will apply maintenanceby contract approachesin two highway sections ofthe (non-expressway) provincialhighwaynetwork. Preliminarily, one ofthe sections will consistof routinemaintenancewhile the other will includebothperiodicand routine maintenance. This component seeks to increase the efficiencyof force-account maintenancepractices, which are currently beingappliedby FPCDthrough the city and county HighwayBureaus.This component also includesthe supervision ofthe two contractpilotsand it is complementedwith a technical assistance for FPCD maintenance staff as part of the ISPfurther describedbelow. Alternativesapproachesfor contractingmaintenance can vary from one basedon labor-intensiveactivities performedby a micro-enterprisecomposedof people living inthe vicinitiesof the roadto be maintained to moreencompassingactivities-that can includesome periodic activitiesthat require equipment- performanceby privatecontractors. Thesetwo schemes-or variations thereof-in additioncan be subjectto contractualterms where paymentsare given onthe basisof quantities actuallycarriedout, or the basisof compliancewith contractually-specifiedperformancestandards. The definitionofthe final approachwill be part ofthe technicalassistancefor FPCDmaintenance staff (includedin the component on institutionalstrengthening) that will providethe knowledgeand analytical elementsfor exploringthose alternative mechanismsas well as for the preparation,implementation, and supervision ofthe preferred contractual scheme. 39 ComponentD.Institutional StrengtheningProgram (ISP) (estimatedcost US$3.12 million 0.2%of the totalprojectcost of whichUS$3.01million wouldbe - - financedby the Bank Loan) The institutionalstrengtheningprogramincludes a study ontoll rates, the impact evaluationand monitoringfor the RRIP, the technical assistance for the HMPP, and trainingfor staffofthe agencies and institutionsinvolvedinthe project. Morespecifically, in brief 0 The analysis oftoll rateswill evaluatealternative adjustments to maximizethe use ofthe expressway network and optimize its economic value, buildingupon, updating, andexpandinga study undertaken underthe SecondFujianHighwayProject for the Zuzhou-QanzuExpressway. The analysis will be approachedwith a comprehensiveperspectiveoftoll ratesacrossthe province andtheir influence on traffic demand. 0 The impact evaluationandmonitoringstudy seeks to establish a knowledge base ofthe impacts of the ambitious RRIPon rural livelihoodsas an analyticalbase for the design of future interventions on thosetypes of roadsacross FujianProvince. Itwill includetwo separateconsultant services: (a) the definition of the impact evaluationmethodology andthe analysis of results and impacts, and(b) upto three data surveys to be completedinrepresentativesamples of ruralareas within the territoriesinthe areaof influenceofthe rehabilitated roadsto collect amongothers: demographic andethnic data, gender information,quality of infrastructure provided, transport services, access to social and other infrastructureservices, willingness-to-payfor improved services, enhancementsto agriculture production, or changes ineconomic activities-e.g., towards non-agriculturalproductive activities. 0 Technical support inthe design ofthe pilot of maintenanceby contract andto its implementation and supervision. This technical assistancewill consist of several stages, allto be undertakenin collaborationwith FPCD, as follows: (i)discussionof options and assessment of current practicesto define the road segments andmaintenanceapproachesto be included inthe pilot component; (ii) definitionofthe tender documentationandcontract model; (iii)supervision oftender processand implementation oftwo pilot experiences;and(iv) assessment of experience for the considerationof FPCD in future maintenancemechanisms. 40 Program 2007 2008 2009 2010 201i Total Designand Operational Safety 72,ooc 72,OOC 72000 216000 InnovativeTolling Mechanisms 42,000 72,000 114000 Qua tty C o n t ~ l 42,000 72,000 114,000 ExpresswayManagement 114 000 114 000 228 ooo Road Sa'ety 42,000 42 000 RoadAsset Manasement 114 000 186 000 156003 456,000 Road Operational Management 42000 84000 42,000 42,000 210000 Mairtenanceand Traffic Surfeillance 72,000 42,00t? 72,030 186 000 Others 8,000 $2 000 42 000 42003 'I34 000 Total 270,000 350,000 312 000 384 300 384,003 1,700 000 Program 2007 2008 2009 2010 2011 Total YWE 270,030 350,000 312,000 384,000 384,000 I 700 000 RRiP 436 OOC 302 000 218 000 44,003 1,000000 Total 706.000 652 000 530 000 384 000 423 003 2 700,000 41 Annex 5: Project Costs CHINA: Fujian HighwaySector InvestmentProject Therefore, the share of project cost net of taxes is 88%. . . Cost by Financing Source Cost by Component US$million') Non-Bank Bank Financed Financed Total [A] Rural Roads Improvement Program (RRIP) Civil Works 401.740 98.260 500.000 ConstructionSupervision 2.050 0.000 2.050 Subtotal 403.790 98.260 502.050 [B] Yong'an - Wuping Expressway(YWE) Civil Works 439.678 216.558 656.236 Electrical and MechanicalFacilities 24.800 0.000 24.800 Buildings and Annex Areas 25.700 0.000 25.700 ConstructionSupervision(local) 25.130 0.000 25.130 ConstructionSupervision(foreign) 0.000 1.992 1.992 Land Acquisition and Resettlement 106.300 Subtotal 621.608 [C] Highway Maintenance Pilot Program (HMPP) Maintenance by ContractPilot Program 0.420 ConstructionSupervision 0.060 Subtotal 0.480 0.180 0.660 [D] Institutional StrengtheningProgram (ISP) Studies (Toll Roads) 0,110 0.000 0.110I ImpactEvaluationand Monitoring RRIP 0.000 0.250 0.250 Maintenanceby Contract Technical Assistance 0.000 0.060 1II 0.060 Training 0.000 2.700 I 2.700I Subtotal 0.110 3.010 3.120 Total Baseline Costs 1,025.988 PhysicalContingencies 94.540 0.000 94.540 Price Contingencies 49.472 0.000 49.472 Total Project Costs 1,170.000 Front-endfee 0.000 Total Financine Reauired 1.170.000 42 Annex 6: ImplementationArrangements CHINA: FujianHighway Sector InvestmentProject Institutional Framework The graph below shows a schematic representationofthe institutional framework of the highway sector in Fujian Province. The construction and management ofthe expressway network is entrustedto the Fujian Expressway Construction Directorate and its sister organization the FujianExpresswayCompany, respectively. The planning and management ofthe non-expresswaynational/provincial network falls within the realm of two deputy directoratesof the Fujian ProvincialCommunications Department:the Planning Deputy Directorate inthe planningof road interventions and design and transfer provision under the RFUP and the Construction Deputy Directorate inthe construction and oversight ofthe management of provincial and national roads. Ruralroads are managedby the Traffic/Highway Bureausof the counties with support from the Cities' Highway Bureaus andthe FPCD. Organizationalarrangementsand responsibilities The Office of the Director of the FPCD will include a Project ManagementOffice (DOFWBP) responsiblefor the overall coordination ofthe project, and for monitoringthe activities ofthe implementation agencies. Inaddition, the DOFWBP will serve as the main counterpart for the submission of progress and audit reports to the Bank, organization of the supervision missions, and oversight of project implementation in accordance with the Loan and Project Agreements. An implementing agency has been identified to carry out each investmentcomponent of the project as follows: (i) The FPECD, and the newly establishedLongyan YWE Company and SanmingYWE Company will be responsible for the procurementand implementation ofthe YWE component. 43 (ii) The ConstructionDeputy Directorateofthe FPCD incoordinationwith the ProvincialHighway Bureauwill be responsiblefor the implementationofthe maintenanceby contract pilot program. (iii) The PlanningDivisionandConstruction Divisionof the FPCDwill beresponsible for the implementationofthe RRIP, andwill monitorand coordinatethe activities ofthe Communications and HighwayStationsofthe local entities. (iv) The technical assistance activitiesand studies whichare part ofthe InstitutionalStrengthening Program(ISP), or under each component, will be split betweenthe FPECDand FPCD, depending on the subject of application. The resourcesto finance trainingactivitieswill be sharedbythe participatingentities, according to a training planagreedwith the Bank. Implementation arrangementsfor the RRIP Component. The PlanningDivision andConstruction Division ofthe FPCDwill be responsiblefor the implementationofthe RRP,through the monitoringof the activitiesofthe Communications andHighway Stationsofthe local entities. However,the RRPwill be actually implementedby the counties, townships and administrative villageswithjurisdictionover the roadsto be rehabilitated.Nonetheless,the FPCDwill ultimatelyremainresponsiblefor monitoringthe implementationofthat program in accordancewith the preceptsof the LoanandProjectagreements and the ruralroads framework designedfor the RRProadsto be supportedwith the WorldBank loan. The Bank will supportthe existingFujianRuralRoadImprovementProgramthat aims at improving conditions of the lower class roads (mainlyClass I11andClass N roads) and connectall administrative villages inthe provinceto the mainroadnetwork.Under the existingRRP,local villages andtownships take the initiativeto rehabilitatethe roads underthejurisdiction.Those contained inthe RRPdatabank are eligiblefor a budgetarytransfer from FPCD-which varies depending on the characteristics of the roadandthe socio-economiccharacteristics ofthe area of influence, upto a maximumof 60 percent- if the completedworks meetthe quality and eligibility standardsrequiredby FPCD. The Bank loanwill finance the RRIProads in linewith the criteria already beingappliedby FPCD, as well as other World Bank requirements,such as those relatedto procurement, financial management, resettlement, and environmental issues, as describedbelow. This componentwill provide the opportunityto instill better practicesinthe implementationofthe investment programand inthe managementand maintenanceofthe network (largely underthe responsibilityo fthe highway bureausofthe 84 counties inthe province). A framework has been agreeduponwith FPCDthat includes the elements for compliance with World Bank requirementsrelatedto environmental issues, land acquisition and resettlement,technical standard andconstruction quality, andfinancial management(FM) andprocurementprocedures, as well as the reportingofthe necessaryevidenceabout the physicalcompletionofworks and contractpayments. FPCDand its sub-unit -the FujianHighwayBureau- will be responsiblefor the disseminationofthe conditions as well as providingtrainingto the local communities to help them learn and implementthe proceduresandconditions required underthe framework. The FPCDwill include inthe quarterly progressreportsto be submitted to the Bank duringprojectimplementationa summary o fthe actions and activitiesundertakento disseminate the framework and intrainingthe counties/townships/villages. Rural Roads Implementation Framework (RRIF).A ruralroads framework has beenestablishedfor identifyingthe completedroadsthat will be eligible for Bank financingunder this component.This framework includesthe following elements: 0 The conditionthat road segments shall be part ofthe 10,000 km subset ofthe 35,000 km of the ruralroads improvement program. 0 The environmentalframework and its proceduresto be appliedfor appropriate considerationof environmentalmitigationmeasuresduringthe execution ofthe improvementworks, as well as the provisions regardingthe chanceof findingculturalrelics. 44 The resettlementframework and its proceduresthat would guide the planningand implementation of mitigationmeasureswhen landacquisition andresettlementi s required, andthe related consultation processes. The minoritynationalitiesdevelopment framework that describesthe principlesand measures to guide roadplanning and implementation in minoritynationalitiesareas, andthe provisions regardingconsultation andparticipationandbroadsupport to the projectby the corresponding communities, so they can benefit from the project ina social andculturalmanneracceptableto them. Engineeringtechnical standardsshouldbe applied duringthe completionof works; as well as those for the supervision andmonitoringof their quality. The requirementsfor procurementof works. The conditions for proper financialmanagementofthe contractsandthe contract payments. These include: book keeping, auditing, and reportingof the completionofworks, andevidenceof the on-time paymentto contractors in line with contract clauses. The collectionof indicators to measurethe most immediatetransport impactsof the RRIP investments. The RuralRoads ImprovementProgram(RRP)in FujianProvinceobjective is to connect all administrationvillages through a pavednetwork of about 35,000 kmbythe year 2010. Currentlythe program is based onthe construction of concrete pavementsfor the segmentsthat link 7,500 administrative villages to the provincialnetwork. Rural Roads DataBank. The universe of roads is stored ina databankthat includesthe locationand main characteristics of the area of influence ofthe road. (Sample road networkscan be seen inAnnex 15.) The followingtable summarizesthe broadgeneralcharacteristics ofthe roads included inthe databank and showsthat the size of the projects is small, with most ofthem involvingClass Ivroads; andmost of the works involvingimproving(paving) of existingroads. Fujian Rural Road Improvement Program Data Bank Number of projects * Number of km Average Number Percent Number Percent distance According to size 7,475 34,868 Less than 5 km 5,184 69% 14,346 41% 2.77 of which less than 3 km 3,400 45% 6,778 19% 1.99 Between 5 and 10 km 1,739 23% 12,485 36% 7.18 Between 10 and 15 km 401 5% 5,020 14% 12.52 More than 15 km 151 2% 3,017 9% 19.98 According to road class 7,475 34,868 Class IV 7,003 94% 31,567 91% 4.51 Classs 111 472 6% 3,301 9% 6.99 According to type of construction 7,475 34,868 Upgrading 7,245 97% 34,043 98% 4.70 New construction 230 3% 825 2% 3.59 The number of projects is equivalent to the number of administrative villages to be connected The program is managedby the owner ofthejurisdictionwhere the road is located; that is, the Communications Bureauor Highway Stationat the corresponding local entity (county, township, or village). At the provinciallevel, FPCD is responsiblefor policy andoversightthrough: (i)trainingof local staff, (ii)issuanceof guidelinesfor constructionand management, and (iii) checkson spot complianceandconstruction quality. 45 Largelyall the ruralroads underthe RRIPare locatedwithin 53 ofthe 84 counties in Fujian,as those counties within the two urbanmunicipalitieswith higher incomesdo nothaveany ruralroads inneedof rehabilitation. Uponagreementof the draft contents ofthe elementsofthe RRIFat the completionofthe pre-appraisalmission(in January2006), FPCD initiatedthe disseminationofthose elementsand requestedcounties/townships/villagesto submit proposalsofroadsfor considerationunder the project. Out ofthe almost 13,584 km of proposals, the FPCDconsideredthe following three factors for the selection ofthe 10,000 km subset from which roadseligible for Bank financing will be drawn from: 0 Maintainthe initial priority order ofthe projects givenby each municipality. The proportionpercentagesfor the poorer mountainousregionand for the less poor coastalregion were taken as 70% and 30 %, respectively. 0 The comprehensiveperformanceability of the county or township, includingdesign, construction, and institutionalcapabilityas well as experiencedachievementinthe recentpastyears. The table below showsthe distributionofthe 10,000-kmsubset of roads in each of the seven municipalities(cities)that containthe 53 counties mentionedabove. The implementationofthe project will focus on this subsetwithin the context of the 35,000 km ofthe five-year province-wideRuralRoads ImprovementProgram(RRIP). The technical standards and unit costs. The technical standards are basedon MOC regulations issuedin 2003 for class 111and class IVroads. The designrequirements dependon whether the project is large or small. "Large" projects include:(i)class I11roads, (ii) class IVroadsiflongerthan 20km, and (iii) projects costing morethan 6 millionRMB. Forthese projects the designhas to be contracted out to a qualifiedfirm. The estimatedaverage unit costs for eachtype ofworks, basedon an in-depthanalysis of previous projects and ofthe quantities and current market practices for inputs, are as follows: 0 For reconstructionof existingroadswhere only the pavement is concerned. For class I11(7.5m .roadbed, 6.5mpavement), the cost is around 1,000,000 RMB/km (or about US$125,000), becoming up to 80% higher inmountainousareas. Forthe lower levelclass IV under the RRIP (4.5m roadbed, 3.5m pavement), the cost is around300,000 RMB/km (or about US$37,500). Forhigher-levelclass IV roads, the cost can be as highas 550,000 RMB/km (or about US$68,750). 0 For major improvements(where adjustmentsto the alignment mightbe requiredand subgrademust be reconstructed), the cost is 2 to 3 million RMB/km for class 111and 600,000 to 1,000,000 R M B h for class IV roads. 0 The programhas beenplannedto involve 97.6% reconstruction, and 2.4% of major improvements. 0 All county roads should be class I11standard. This type of roadsrepresents9% of the program. 46 Annually FPCD and the Bank will reviewand, ifneeded, updatethe estimatedaverage unit costsfor each type ofworks androadbasedon the experience ofthe roads completedduringthe previoustwelve months. Basedon the followingfactors, validated by the long experience in Fujian, the FPCDhas decidedto use cement concrete pavement:(i)highintensityof rainfalls; (ii) a majorityof hilly terrainwith high gradients; and(iii)good quality asphalt is not easily available, while cement is producedlocally and cost is relativelylow. Reconstructed County Location Roads as Class 111 Reconstructed Township, Village Roads as Class IV No. Units in 1,000 RMBskm Mileage 6.5 m pavement 4.5m Pavement 25m Pavement Domestic Domestic Domestic Units in 1,000 U S % h (h) BankStandardsI Standards Bank StandardsI Standards BankStandardsI Standards Poverty-stricken Regions 3,410 YSOO Y-00 Y230 Y 160 Y230 Y I60 - 1 Llnder- developed (17 counties) s 1 w w . 5 s28.8 $20.0 szaa $20.0 The list of counties by eachtype is the following: Under-developedRegions (46 counties) Poverty-stricken Regions (I7 counties): PingTan,Yong Tai, Xian You, PingHe, HuaAn, ChangDing, Lian Cheng, ShangHang, Wu Ping, DaTian, Jian Ning, NingHua, GuangZe, Zheng He, PingNan, ShouNing, Zhou Ning Other Under-DevelopedRegions with Transfer Paymentporn the Exchequer (29 counties): Min Qing, ChangTai, Dong Shan, LongHai, NanJing, Yun Xiao, Zhang Pu, Zhao An, Yong Ding, Zhang Ping, Jiang Le, MingXi, QingLiu, TaiNing, You Xi, Jian Ou, Jian Yang, PuCheng, Shao Wu, Shun Chang, Wu Yi Shan, FuAn, FuDing, GuTian, Jiao Cheng, Xia Pu, ChengXiang, HanJiang, Xiu Yu Other Regions (7 counties) Mountainous (3 counties): Xin Luo, Yong An, Yan Ping 0 Coastal (4 counties): Jin An, Lian Jiang, Min Hou, MeiZhou The amount of additional transfers abovethe domestic levelto be providedfor the roads eligible for disbursementsunderthe Bank loanwouldvary dependingon the locationofthe road, andthe overall development characteristics of the regions where the road is located. 47 The levelofthe Bank disbursement will be reevaluatedevery six months onthe basis ofthe updated average costsofthe works andthe responseto the Bank portionofthe RRPby the local entities. The levelofthe Bank disbursement shall not surpassedin any case 100%ofthe actual contractualcosts ofthe reconstructionworks. After certificationof FPCD, on the basisof a report issuedby the DOFWBP(with the support ofthe necessary specialists on engineering, environmentaland social safeguards, andprocurementand financial management), ofthe adequatecompliance with the elementdrequirements ofthe framework, the resourcesofthe loanwould be used for reimbursingthe applicableportionofthe cost o fthe rehabilitation works to the local entities. This portionhas beenestablished onthe basis of predefinedvalues per kilometer,andvaries dependingonthe physicalcharacteristics ofthe roadand its locationin either poor or non-poor areas or mountainousor coastalregions. The correspondingvalues representbetween40% and 100%ofthe current costs for undertakingthe works, with the most frequent percentageexpectedin the range of 60% to 70%. Highervalues correspondto the poorer and mountainousrural areas (46 counties). The values are higher than current transfers providedby the FPCD, except for those regionsthat are less-poor (7 counties) wherethe amountto be covered'bythe World Bank loan will be equal or slightly higher than the one currentlyprovidedby the FPCD. Insum, for the poorerareas, the higher World Bank financingprovides a stronger incentive to seek the resourcesfrom the loan, in exchangefor the compliance with the proceduresof the RRIF. For the less-poor areas the incentive is limitedto the institutionalstrengthening that is associatedwith the applicationofthe elements/proceduresofthe RRIF andFPCD's own willingnessto implement the RRF on the rest ofthe RRIP. When requestingdisbursement from the loan for the RRIP component(on the quarterly basisof disbursementperiodicrequestagreed), the FPCDwill certify that they correspondto completedworks that havecomplied with the RRIF, includingthe safeguardsdocuments, andwill retainthe documentation that provides evidenceof that compliance for WorldBank post-review. The World Bank will review samplesofthe completedworks subject to financingfrom the Bank loan, with an aim at checking compliancewith the framework, and another sample of completedworks not subject to Bank financing, to assess the level of compliance with the agreedframework within the broader ruralroads program.FPCD will try to make substantial compliance with the framework inthe non-Bank financed portionofthe 10,000 kmdata set. The transfer to be withdrawnfrom the Bank loan shall not be in any case higher than the costs ofthe completedworks. Annually, the FPCDwill providea summary ofthe actual costs o fthe completedworks and an assessment ofthe transfer levels will be undertakeninorder to ensurethat the previous condition is compliedwith at all times. Buildinguponthe existingFPCDproceduresfor the deliveryoftransfers underthe RRP,the FPCDwill mmitor the implementationof the RRlpFramework.The RRF is the integratedframework ofthe ProcurementFramework, EnvironmentalFramework,LandAcquisitionandResettlement Framework, Minority NationalitiesDevelopment Framework, andFinancialManagementFramework, as well as the technical standardsfor the completion ofthe works. Itwill also keeprecordsof all the disseminationand training activitiescarried out by FPCDto take stock of the diffusionofthe framework at the local level andofthe weaknesses that might have beenidentifiedfor the adequateapplicationofthe RRIF. The FPCDwill provideinformationonthe possible substantial application ofthe RRF in roads not subject to Bank financing. All this informationwill be usedto readjust the disseminationand trainingefforts and the incentives built intothe RRIFapproach, andassess its levelof replicabilityacrossthe RRIP. Every six months, the World Bank will reviewsamplesofthe completedworks subject to financingfrom the Bank loan with an aim at checkingcompliance with the RTUF,includingthe safeguardsdocuments. 48 In addition, the World Bank will review samples of other completedworks underthe overallRRP but not subject to Bank financing, to take stock ofthe approaches beingtaken inoverallterms for the rest of the program andassess the divergencesfrom the provisionsinthe RRIF. The pace of use ofthe Bank resources for the RRIPcomponentwill be comparedto that agreedat appraisalas a way of gaugingthe interest for the approach advancedwith the RFUFandthe adequacy ofthe incentive approach impliedby the RRIF. The Bank loanwill support a subset of not less than 3,500 kmout ofthe 10,000 km of road sections already identifiedbasedon the demandraisedfrom the requestsreceivedbythe counties, townships andvillages, that are part ofthe 35,000 kmFPCD's overallprogram. The assessment of the substantial applicationofthe RRIFto the rest ofthe 10,000 km subsetofthe RRIPwill provide informationon the overalllevelof dissemination ofthe framework province-wide. The results framework (Annex 2) includes an indicator for this assessment. Implementation arrangementsfor the YWE Component. The responsibilityfor the procurementand implementation ofthe YWE componentofthe projectrests underthe FPECD, andthe newly established LongyuanYWE Company and SanmingYWE Company. The project will buildonthe existing implementation capacity of the FPECD, LongyuanYWE Company, and SanmingYWE Companyfor the procurement, contract implementationand supervision, contract payments, financial management, compliance with safeguards policies,and submissionof reportsto the Bank (throughthe DOFWBP at the Office of the Directorofthe FPCD). FPECDhas hadextensive experiencewith the implementation of World Bank projectsofthe same type and scope: the Quanzhou-XiamenExpressway underthe Fujian ProvincialHighwayProject(Loan 36810-CNA), andthe Zhangzhou-ZhaoExpressway under the Second FujianHighwayProject(Loan 45020-CNA). Another projectoffice (DOFWBP) has beenestablished in FPCDwith stafffrom the PlanningDivisionand ConstructionDivisionof FPCDfor the managementof the non-expresswayinvestmentcomponents ofthe SecondFujianHighwayProject. Inbothprojects, the performance of FPECDandDOFWBPhas beensatisfactory. Two Yong'an-WupingExpresswayLimited Companies (for construction managementofthe YWE) and two YWE directorates (for resettlementand environment management) inLongyanMunicipalityand SanmingMunicipalityhave beenestablished anda procurementagent-the ChinaNationalTechnical ImportandExportGeneralCompany-has beenselected for the (ICB) procurementofYWE. The FPECDwill organizeand supervisethe companies inLongyanand Sanminginthe conducting o fthe procurementprocessuntil contract signing, while LongyanYWE Company and SanmingYWE Company will be responsiblefor all the activitiesand documentationrelatedto the execution of the works for the YWE at the site includingconstruction supervision. Implementation arrangementsfor theHMPP Component.The ConstructionDeputyDirectorateof the FPCD in coordinationwith the ProvincialHighwayBureauwill beresponsiblefor the implementation of the pilot programof contract maintenance. These responsibilitieswill implythe hiringof the foreign consultant who will provide support on the topic and on supervisingthe procurementand supervision activitiesofthe ProvincialHighwayBureau inthe contractingand executionofthe maintenance contracts. The Bank will share with FPCDother experiencesin other countries andthe definitionof the scope and approach for this componentwas finalized at appraisal. 49 Annex 7: Financial Management and Disbursement Arrangements CHINA: Fujian Highway Sector Investment Project Introduction 1. The Bank assessedthe adequacy ofthe projectfinancial managementsystem ofthe project. The assessment, basedon guidelines issuedby the FinancialManagementSector BoardonNovember 3,2005, concludedthat the project meetsminimumBank financial managementrequirements, as stipulatedin BP/OP 10.02. Itwas confirmed that the project will haveinplace an adequateproject financial managementsystemthat can provide, with reasonableassurance,accurate andtimely informationonthe status ofthe project inthe reportingformat agreeduponbetweenthe Bank and FPCD, as requiredby the Bank. 2. Fundingsourcesfor the project include the Bank loanandcounterpart funds. The Bank loan proceedswill flow from the Bank intothe project designatedaccount (DA) to be set up at andmanaged by FujianProvincialGovernmentthough its FinanceBureau(FPFB). For the RRIPcomponent, upon FPCD's certificationof compliancewith the RRIF and inagreement with the procedures and amounts described inthe disbursement letter, the Bank loanwill flow from the DA to FujianProvincial Communications Department(FPCD). The FPCDwill be responsiblefor transferringthe corresponding funds as applicableto county or local (township/village)communications bureausor highwaystations, respectively, that would havepaidthe contractors. For the YWE component, the Bank loanwill flow from the DA to FujianProvincialExpressway ConstructionDirectorate (FPECD), and finally to contractors. The Bank loanwill be signed betweenthe Bank andthe People's Republic of Chinathrough the Ministry of Finance(MOF) and an on-lendingagreementfor the Bank loanwill be signed betweenthe MOFandthe FujianProvincialGovernmentthroughthe FPFB. Finally,the FPFBwill sign the agreementwith boththe FPCDandthe FPECD. The counterpartfunds comprise contributionsfrom governmentsat different levels anddomestic commercialloans. 3. No outstandingaudits or audit issuesexist with any ofthe implementingagencies involvedinthe proposedproject. However, the task team will continue to be attentiveto financialmanagementmatters duringprojectsupervisions. Audit Arrangement 4. The Bank requiresthat projectfinancial statementsbe audited in accordancewith standards acceptableto the Bank. In linewith other Bank financed projects in China, the projectwill be audited in accordancewith InternationalAuditing Standardsandthe Government Auditing Standardsofthe People's Republic of China. The FujianProvincialAudit Office (FPAO) has beenidentifiedas auditors for the project. Annual audit reports will be issued by FPAO. 5. The annualaudit report ofprojectfinancial statementswill be due to the Bank within 6 months after the end ofeach calendaryear. This requirement is stipulatedinthe loan agreements. The responsibleagencyandtiming are summarized as follows: Audit Report Submittedby I Duedate ConsolidatedProject financialstatements 1 DOFWBP June 30 50 FundsFlow and DisbursementArrangements 6. Fundsflow for Bank loanwill follow Bank andMOFrequirements. One designatedaccount (DA) will be establishedandmanagedby FPFB. The funds flow is as follows: Exuresswav comuonent: The DA managed - FPECDI Suppliersand WorldBank -----* by FPFB YWE Companies 4 contractors in Longan and Sanming - - Rural Road Component: The DA managed FPCD Municipal County WorldBank by FPFB 7. A single disbursementcategory for RRIPcomponent and multiplecategoriesfor YWE component may be set up basedonthe needsof projectmonitoring.The disbursementarrangements agreedare as follows. 8. Forthe RRPcomponent, the expenditureseligible for bank financingare recognizedwhen the paymentsare made, providedthat i) it is confirmedthat the Unit Cost for the Bank funds is lowerthan the average actual cost o fthe ruralroadconstruction, so the chancethat the Bank funds finance ineligible expenditures is very small; ii)the outputs on the completed roadsare reported by the local authorities and certifiedby the FPCD. No advancesfrom the Bank funds are paidagainst the RRIP component, while the Bank funds will be reimbursedonly after the outputs are certified. 9. The quarterly financial reportingpackageincludingfor bothcomponentsare usedfor monitoring projectimplementationand supportingdisbursement. The reportingformat usedfor disbursementhas beendiscussedand agreedwith the Borrower. Disbursementswill be arrangedon quarterlybasisandthe applicationstogether with quarterlyfinancial reportingpackageshould be submittedto the Bankwithin 45 days after the end of each quarter. Bank loanproceedswould be disbursedagainst eligible expendituresas noted in the following table. 51 10. The Unit Coststo be providedfor the ruralroads eligiblefor financingunderthe Bank loan differ by type of roadandtype of county. The namesof the counties by type are listedinAnnex 6. The Unit Costsrefer to the associatedcosts per kilometerof improvementand rehabilitationworks o fthe various classes of roadsunderthe RRIP component of the projectto be applied as the multiplierfor determining the eligible amount of financingout of the proceedsofthe loan. Their values havebeenestablishedon the basis ofcurrent values usedby FPCD underthe RuralRoads ImprovementProgramand in comparisonwith a detailedassessmentofthe actual costs of undertakenthe rehabilitationand improvement works. The Unit Costs(US$/km)are the following: County roads inpoverty-strickenregions: US$lOO,OOO County roads inother under-developedregions: US$75,000 e County roads inother regions (mountainous or coastal): US$37,500 0 Townshiphillageroads in poverty-strickenregions: US$28,800 e Township/villageroads in other under-developedregions: US$25,000 Townshiphillageroads in other regions (mountainouscounties): US$18,800 0 Townshiphillageroads in other regions (coastal counties): US$12,500 11. Four disbursementmethods:reimbursement, advance, direct payment and special commitment are all available for the project. 12. One DesignatedAccount (DA) will be established inFPFB. There will be no limitationon authorizedallocationofDA, the reimbursementofDA will be basedonthe project's quarterly financial reportingpackage,which will includeforecasts (expressway) andoutputs completed(rural road). Disbursementwill occur once the Bank determinesthe financialreportingpackage is acceptable. 13, FPFBwill be directlyresponsiblefor the management,monitoring,maintenanceand reconciliationofthe DA activitiesofthe project. The quarterly financial reportingpackagewill serve as the supportingdocumentationfor reimbursementandreportingeligibleexpenditures paidfrom both Bank's loans and counterpart funds. Includedinthe quarterly financialreportingpackageare the interim un-auditedfinancial statements inthe format agreedbetweenthe Bank andthe Borrower. The flow of the withdrawal application is as follows: l4The estimated percentage of financing providedby the Bank of the total investment required by the RRIP is 20%; however, the actual disbursementsfor the RRIP will be 100% ofthe eligible (under the Bank loan) Unit Cost standards, as presentedbelow. 52 r-+- Local Counties Municipal PMO of FPCD DOFWBP I Contracting- 1 I Entities WorldBank - W E Comuonent: Sub- FPECD DOFWBP FPFB World Companies __* + Bank FinancialManagementand ReportingArrangements ImplementingEntities.The Director's Office for World Bank Project(DOFWBP) has beenestablished on January 11,2006, under the leadershipofthe director ofthe FPCD. The DOFWBP is already staffed with 5 specialistsin charge of different aspects. The DOFWBPwill serve as the main counterpartfor the submissionof progress and audit reportsto the Bank, organizationof supervisionmissions, and overall oversightof project implementationinaccordance with loanand project agreement. A PMO have beenestablishedwithin FPCD. The PFECDand FPCDPMOwill be responsiblefor the implementationof expresswayand ruralroadcomponent, respectively. For the expressway component, two new companies (LongyanYWE Company and Sanming YWE Company) have been establishedto be in-chargeof projectconstructionfor two municipalities. For the rural roadcomponent, the projectwill be managedand supervised by the communicationsdepartmenthureausat provincial, municipal and county level, and implementedby the counties, townships and administrativevillages. The project's institutional structure is as follows. 1 PMO within FPCD 4 MunicipalCommunications Longyan YWE Sanming YWE Bureaus 1 County communications bureaus Entities 53 Budgeting 14. The FPECDpreparedconsolidated annualbudget andquarterly reports were providedto the Bank. The consolidated annualbudgetwould benefit from improvementsto the reportingof its details. For the budgetingsystemwithin the FPCD, the consolidatedannual budgetwas not preparedalthoughall county communications bureausare requiredto submit their annual plan, includingvariance analysis of budgetexecution. The FMS will work with the relatedagenciesto improve their budgetingsystemduring projectimplemenation. Accounting 15. The administration, accountingandreportingofthe project will be set up inaccordancewith the Circular#13: "Accounting Regulations for World Bank FinancedProjects" issuedinJanuary 2000 by MOF. The circularprovides in-depthinstructions of accountingtreatment of projectactivitiesand covers the following: 0 Chart of account Detailedaccountinginstructions for each projectaccount 0 Standardset of project financial statements Instructionsonthe preparation ofprojectfinancial statements 16. The project financialreportingpackage,includingdetailformat andcontent of project financial statementswas agreedto betweenthe Bank andMOF. Suchprojectfinancial reportingpackagewill serve bothfor periodicfinancial reportingand as supportingdocumentation for disbursementof Bank funds. Inorder to meetthe disbursementrequirements, some minor changes havebeen madeto the standardized format ofprojectfinancial reportingpackage. Giventhe project will utilize report-based disbursementmethod; the un-auditedquarterly financial reportingpackage shouldbe submittedto the Bank within 45 days after the end of each quarter which is in accordance with the disbursement requirement: This set ofprojectfinancial reportingpackage includes the following: 0 Balance Sheet 0 Summary o f Sources and Uses of Fundsby Project Component 0 Uses of Loans by Project Category 0 DesignatedAccount (DA) Activity Statement Expenditures for Contracts subject to PriorReview 0 Expendituresfor Contracts not subject to Prior Review 0 Summary Statementsof RRIPUnit Costs 17. The Bank has discussedandagreedwith the FPCDandFPECDthe format andcontents of financial reportingpackage. 18. The DOFWBPwill be managing, monitoringandmaintainingrespectiveprojectaccounting records. The DOFWBPwill also prepareproject financial reportingpackageand submit it to the Bank for reviewandcomments on a quarterly basis. Originalsupportingdocumentsfor projectactivitieswill be retained by implementingagenciesat different levels. 19. Accountingstaffwith sufficient educationalbackgroundandwork experience are expectedto performthe project financial managementwhich is one ofthe critical factors for the successful implementationo fthe project.Basedon discussions, observations, andreviewofeducational background andwork experienceofthe staffidentifiedfor financial andaccountingpositions in implementing 54 agencies,the task team concludedthat the staff is qualifiedto performthe identifiedtask. However, given that most financial staff inthe two sub-companies andat municipaland county levels is new to Bank projects, and some innovationswill be introducedto the project, adequateFMtrainingshould be provided to the financial staffs before project effectiveness. 20. The counties, which are subsequentlydeterminedto be eligible for Bank financingunder rural roadcomponent, should follow the framework agreedby the Bank and government. The FMframework should focus onthe followingtwo aspects which are further elaborated andreflectedinthe FMmanual. 0 Goodbookkeepingsystemshouldbe maintainedby the participatingentities at provincial, municipal, county, township, andvillage levelsto make sure all the project-relatedactivitiesandpayments are recordedappropriated andtimely. The relevantdocumentationthat pertainsto good bookkeeping system comprises, amongothers: (a) signedcontracts; (b) any amendmentto the contracts; (c) the certificationof completedworks; (d) the paymentsto the contractors; (e) the receiptshnvoices from the contractors; (f) the ledgersreflectingall projectexpenditures. 0 Except for the retention fund, which is 10% of the contract amount and is paid one year after the completion of constructionandthe verificationof satisfactory quality of roadconstruction, the portionfinanced by municipal,county, township, andvillages shouldbe paidaccording to contract conditions. 21. To strengthenthe financialmanagementcapacity and achieve consistent quality of accounting work, it was agreedthat a project FinancialManagementManual (FMM - theFMManual) will be preparedfor the project. The FMMwill provide detailedguidelines on financialmanagement, internal controls, accountingprocedures, fundandasset managementandwithdrawalapplicationprocedures. Giventhat the RRIPandYWE components will be implementedbythe FPECDandFPCDseparately, two draft manualshave beenby the FPECDand FPCD, respectively. The Bank has reviewedthe final draft of the manuals and found they are acceptable. The Manuals are expectedto be finalizedand distributedto all the relevantfinancial staff beforeendofJune 2006. 22. The FPECD is usingthe accountingsoftware named"Yongyou" to processtheir transactions and it is possiblethat they will continue to usethis software for this project. Although a database was establishedfor the ruralroadcomponent, it is not usedfor accountingandfinancialreporting. It is anticipatedthat the accounting for rural roadactivitieswill be done manuallywith financialreporting generatedusingMicrosoftExcel. The Bank will monitor the processingof accountingwork closely, especially inthe initial stage to ensurethat complete and accurate financial informationis providedina timely manner. InternalControl and Internal Auditing 23. Boththe FPECDand FPCDhaveestablished several regulationsto standardizethe implementation ofthe Bank's project. For the RRIP component, the Bank's loan will complement governmentbudget, it will be disbursed to the beneficiaries inthe form of a transfer andwill follow the government's existingfunds flow procedures.The funds flow will be arrangedandmonitoredthrough the FPFBthat has extensiveexperienceon Bank's projects. 24. Although boththe FPECDand FPCDhave an internalaudit department, they are unsatisfied with their internalaudit department's staffing, independence, andquality. However, this will not have a substantial impact onthe project's financial managementas the FPFB's monitoringandannualexternal audits will serve as the mechanismto ensurethat financial managementcontrols are functioningproperly. 55 Retroactive Financing 25. Retroactive financing will be available for this project in the amount of US$15 million for payments made under the RRPprior to the signingo f the loan agreement and after April 30,2006, upon certification of compliance with the RRIF. Financial Covenants 26. No additional financial covenants are proposed for the project, other than the standard financial covenants, (e.g. maintaining project accounts in accordance with sound accounting practices and audit requirement), as described inthe legal documents. FinancialManagement Action Plan Action ResponsibleEntity CompletionDate 1. Financialmanagementtraining to all FPFBand DOFWBP July-AuguSt, 2006, relevantproject staff. April 2007 2, Financialmanagementmanuals finalized FPFBand DOFWBP June 30,2006 and issuedto relatedfinancial staff. 56 Annex 8: ProcurementArrangements CHINA: Fujian Highway Sector Investment Project A. General procurement for the projectwill be carriedout inaccordancewith the World Bank's "Guidelines: Procurementunder IBRDLoans andIDA Credits" datedMay2004; and"Guidelines: Selectionand Employment of Consultantsby World Bank Borrowers" datedMay2004, and the provisionsstipulated in the LegalAgreement. The generaldescription of various items under differentexpenditure categoriesare describedbelow. For each contract to be financed by the Loan, the differentprocurementmethods or consultant selection methods, the needfor prequalification,estimatedcosts, priorreview requirements, and time frame are agreedbetweenthe Borrower andthe Bank projectteam inthe ProcurementPlan. The ProcurementPlanwill be updatedat least annually or as requiredto reflectthe actual project implementationneeds and improvementsin institutionalcapacity. Procurement of Works: Works procuredunder this project, will include(i) Implementation of FPCD's RuralRoads ImprovementProgram(RRIP)to improve conditions ofthe lowerclass roads(largely Class I11and IV) that connect administrative villages to the mainprovincialroadnetwork; (ii)Constructionof an expressway of about 195km, connectingYong'an with the border ofthe Fujianand Guangdong Provinces, at Yanqian inWuping city (YWE). There will be 16 ICB contracts for the civil works of YWE: 11contractsfor the earthworks andsub-gradewith estimatedaverage contract value of US$84 million inthe preliminarydesign and 5 pavement contractswith an averagecontract estimate of US$37 million inthe preliminarydesign. The pavementcontracts include pavementworks and traffic engineeringworks. BuildingsandE&M works will be financed with domestic funds and following domestic procurementprocedures;and(iii) A HighwayMaintenancePilotProgram(HMPP) applying maintenanceby contract approaches ontwo segments ofthe non-expresswaynetworkin Longyan Municipality, The procurementwill be done usingthe Bank's StandardBiddingDocuments(SBD) for all ICB andMOF's MBDdated May 1997agreedwith the Bank for all NCB, and sample documents for Shopping(only for RRIP)preparedby FPCD inthe Procurement ManagementFramework for RRIP. The documents for ICB andNCB will includethe provisions for AIDS/HIV awarenesscampaigns and trainingof construction and supervisionworkers. Inthis effort, when necessary, the Bank will seek trust fund resourcesto complement those from contractors to provideadditionalguidanceand support on construction-relatedAIDSHIV issues. Procurement of Goods: Goods procured underthis projectwill not be financed by the Bank. Procurement of non-consulting services: Not applicable. Selection of Consultants: Consultant services procured underthis project, will include: (i) ajoint local- foreign consultantteam for the construction supervisionof the YWE; (ii)local consultantsfor the RRlp impact evaluation component; (iii)a local consultant firm supportedby an individualforeignconsultant for the HMPP component; (iv) an analysisof toll rates for the YWE inthe context of the roadnetwork in the Fujianprovince. Short lists of consultants for services estimatedto cost less than $300,000 equivalent per contract may be composedentirely ofnational consultants in accordancewith the provisionsof paragraph2.7 ofthe Consultant Guidelines.ConsultantsengagingUniversitiesandGovernment Research institutionswill be selectedin accordancewith the provisionsof paragraphs 1.1l(c) and2.8 ofthe Consultant Guidelines. OperationalCosts:Not applicable 57 Others: Institutionalstrengtheningthroughthe training of staffofthe agencies/institutionsinvolvedin highwayresearch, planning, construction, operation and maintenanceof highwaysandrelated social aspects. B. Assessment of the apency's capacityto implement procurement Procurement activitieswill be carried out by FPCD, FPECD, and each levelinmunicipalities,counties andtownships under FPCDand FPECD.The Director ofthe FPCDhasappointedthe DeputyDirectorof the FPECD, as the headof the DOFWBP underthe Office ofthe Directorof the FPCD.Though boththe FPECDandthe FPCDandtheir own subordinators,FPCDwill be responsiblefor the implementationof the respective investment components ofthe project(YWE, RRPand HMPP), the DOFWBP at the Office of the Directorofthe FPCDwill serve as the main counterpart for the submissionofprogressand audit reportsto the Bank, organization ofthe supervisionmissions, and overall oversight of project implementation inaccordancewith the preceptsof the Loan andProjectAgreements. The PlanningDivisionandConstructionDivisionof the FPCDwill be responsiblefor the implementation of the RRIP, throughthe monitoringof the activitiesof the Communications and HighwayBureausof the municipalities,counties, townships and villages. However, the RRIP will be actually implementedby the counties, townships andadministrative villages withjurisdictionover the roadsto be rehabilitated. Nonetheless,the FPCDwill ultimatelyremainresponsiblefor monitoringthe implementation of that program in accordancewith the preceptsofthe LoanandProjectagreementsand the RuralRoads ImplementationFramework (RRIF) designedfor the RRIProadsto be supportedwith the World Bank loan. A procurementagent-the ChinaNationalTechnical ImportandExport GeneralCompany- has been selectedfor the (ICB) procurementofYWE. The FPECDwill conductthe procurementprocessuntil contract signing, while LongyuanYWE Company and SanmingYWE Company will be responsible for all the activitiesand documentationrelatedto the execution ofthe works for the YWE at the site, includingconstruction supervision. The Construction Deputy Directorate ofthe FPCD in coordination with the ProvincialHighwayBureauwill be responsiblefor the implementationof the HMPP component. An assessment ofthe capacity ofthe ImplementingAgency to performthe procurementactions for the projecthas beencarried out by Bank projectteam inAugust 2005 andJanuary 2006. The assessment reviewedthe organizationalstructure for implementingthe project andthe interactionbetweenthe project staffresponsiblefor procurementinFPCDandthe relevantunitfor administrationand implementation at each level. FPCDhas successfully preparedand completedthe First and SecondFujianHighwayProjects and obtainedvaluable experience of projectsfinanced bythe Bank. The FHSIP is the Third Bank financed highwayproject to be implementedby FPCD and its' affiliated implementationunitsandthe local governments and community levels. There are some deviations from the Bank's guidelines in government procurementpractices.Bracketing and merit point system are the major deviationswhich are only usedin government financed procurement.The provisions inthe legal documents for NCB procurement,Bank prior review and post reviewonthe procurementactivities, as well as trainingon the Bank's policiesandprocedureswill addressthese issues.Bank's procurementpoliciesandproceduresfor Bank financed contracts are expectedto be followed.The overall prospectsfor the managementof procurementinthe projectare mixed. Onone hand, FPCDhas a goodprocurementtrack recordin Bank financedprojects; while onthe other, deviationsof local laws andregulations and lackof experience on Bank procurement proceduresby 58 lower levels in municipalities,counties, townships, and villagesconstitute the weak side ofthe picture. Therefore, the overall risk ofthe projecthas beenassessedas average. Most ofthe issuesand risksconcerningthe procurementcomponent for implementationofthe project havebeen identifiedand includedinthe procurementcapacity assessmentreportwhich is available inthe projectfiles. C. ProcurementPlan The Borrowerhas developeda ProcurementPlanfor projectimplementationwhich provides the basisfor the procurementmethods.This planhas beendiscussedandagreedbetweenthe Borrowerandthe Bank on January andApril, 2006 and is available in FPCD and inthe projectfiles. It will also be available in the Project'sdatabase and inthe Bank's externalwebsite. The ProcurementPlanwill be updatedin agreementwith the Bank annually, or as requiredto reflectthe actual project implementationneeds and improvements in institutionalcapacity. The prior reviewthresholds for the projectare: In addition,the Bank reviewedthe model documentsto be usedunder the RRIP componentfor Invitation for Shopping. The procurementmethodthresholds for the projectare: 1stnotmoret <300,000 (shortlistcanbe only from nationalconsultants) newspaper NCB I <2 million >200,000: QCBS advertisement <200,000: CQS or IndividualConsultant(IC) on a provincial I I I *Note: Shopping is only for RRIP. Advertisement: in additionto a nationalnewspaper, all ProcurementNoticesfor ICB and consultant contractsabove $200,000 for firms shall be advertised onthe UnitedNationsDevelopmentBusiness (UNDB) on line and dgmarket. Contract awards for ICB shall also be published in accordancewith the paragraph2.60 of Bank`s Guidelines.The advertisement for Expressionof Interest (EOI) shall be on a nationalnewspaperfor selectionof consultingfirm, regardlessofthe contract value. 59 Bid/proposalevaluation and contract awardshall be publishedin accordance with paragraphsofthe Guidelines 2.60 for works and goods and2.28 for consultant services. The procurementdocuments for contractseligiblefor the retroactive financingunder RRIP shall be kept inthe locationof the procurement activities,andthese will be subject to Bank post review. Procurementframework for Bank financingon eligible contracts under the RRIP The procurementof RRIF' shall follow the principlesand regulations includedinthe agreedprocurement sections of the RRIF in accordancewith the Bank's "Guidelines, Procurementunder IBRDLoans and IRA Credits May 2004". The specialprocurement criteriafor eligibility of Bank financingfor RRIF'has started to be disseminatedto all villagesandtownships inthe RRIPdatabank. (The dissemination will continueduringprojectimplementation.) FPCD and municipalcommunication departments andhighway bureausshall conduct trainingfor staffinvillages, townships andcounties, develop and introduce the model biddingdocumentsand contract forms for procurementmethodsof shopping. The ProcurementCriteria for the RFUPComponent D. FreauencvofProcurementSupervision The Bank will monitor procurementclosely through itsprior reviewprocedures,regular supervision missions, and procurementpost-review missions. Inadditionto the priorreview supervision to be carried out from Bank offices, the capacity assessment of the ImplementingAgency has recommended supervisionmissionsto visit the field to carry out post reviewof procurementactions every 6 months. ProcurementArrangementsfor International CompetitiveBidding 1. Works (a) List of contract Packageswhich will beprocuredfollowing ICB andDirect Contracting: (The estimated costs inthe followingtable represent an upper boundofthe costsfor each contract, as estimated at appraisal.) 60 (b) YWE Contracts estimated to cost above $4 millionfor Works per contract will be subject to prior review by the Bank. (d) Contracts for the periodic or routine maintenance oftwo road sections on the provincial non- expressway network under Highway Maintenance Pilot Program will be subject to prior review by the Bank. The table below presents a preliminary allocation on the assumption that one contract will be a shorter routine maintenance contract and the other a longer periodic maintenance contract. 1 2 3 4 5 6 Ref. Description of Estimated Selection Review by Expected bids No. Assignment Cost, USD Method Bank Submission Date (Prior/ Post) NT2 Routine maintenance under HMPP $60,000 Shopping Prior July. 2007 Highway periodic N T I maintenance under $540,000 NCB Prior July. 2007 WMPP 61 2. Consulting Services (a) List o f consulting assignments with short-list of international consultants Note: The consultingassignments for RRIP evaluation(Bank financing) and study ofthe rates for roadtolls (Non Bank Financing)are in the ProcurementPlanretainedin FPCD in Fuzhouand Bank's web site. (b) Consultancy services estimated to cost above $200,000 per contract and Single Source selection o f consultants (firms) for assignments estimated to cost above $50,000 for individual consultant will be subject to prior review by the Bank. (c) Short lists composed entirely o f national consultants: Short lists o f consultants for services estimated to cost less than $300,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 ofthe Consultant Guidelines. 1 2 3 4 5 6 7 Ref. Description of Estimated Selection Review by Expected Proposals Comments No. Assignment Cost, USD Method Bank Submission Date (Prior I Post) NZ1.l RRIP impact analysis $100,000 CQS Prior Sep. 2006 Lump Sum study 1 contract NZ1.2 RRIP impact analysis $1 50,000 CQS Prior Oct. 2007 Lump Sum study 2 contract 62 Annex 9: Economic and FinancialAnalysis CHINA: FujianHighway Sector InvestmentProject EconomicAnalysis Preface The economic evaluationofthe projectcoversthe followingtwoprojectcomponents: (a) Constructionof a 195.2km expresswaybetweenYong'an andYanqian (Wuping)(YWE). (b) Upgradingandimprovementofthe existingroadnetwork(about 27,000 kmfor 5,550 ruralroads)from 2006-2010, whichhavebeenidentifiedas a key linkagefor eitherthe village or the township to the local mainroadunderthe RuralRoadImprovementProgram(RRIP). The analysis is basedon the actual andforecast data on traffic volume, vehicle operatingcost, user's time cost savings, reductionaccident cost and economic projectcost. The maininputs for the evaluation are: (a) capital investmentandmaintenancecosts, reflectingDecember2005 prices; (b) the benefit stream, also reflectingDecember 2005 prices, that comprises of savings in VOC, traveltime savings, andreductionin accident costs; (c) a capital investment period from 2006-2010 and an evaluation of benefits period of 20 years; and (d) benefits startingto accrue in June 2010 for the YWE and 2007 or after, dependingon the road, for the RRIP. The economicevaluation is comprisedofthree sections: the economic evaluationofYWE; the economic evaluation of the RRIPandthe overall economic evaluation ofthe project,including probabilisticrisk analysis. Yong'an-Wuping (Yanqian) Expressway (YWE) Overview. The Fujianprovince is locatedinthe southeasterncoastalregionofChina. The total landarea ofFujianprovince is about 121,400 km2or about halfofthe sizeofthe UK. The majorityterrains ofthis province are either mountainous(75%) or hilly lands (15%). The plains(10%) are mainlyconcentratedon the 30-50 km stripalongthe eastern seashore which generatesthe mostofthe economicactivitiesfor the province. The deep mountainousregionlies on central andwestern regionsfrom northto south. Sincethe open door policyadoptedbythe State in 1980's, muchofthe economic developmenttook place inthe coastalareas. The economic development ininlandregionofthe Fujianlagsbehindits coastal region. The latest available data(2003) revealed,for example, that the total six coastal metropolitan cities sharedonly aboutone thirdofthe provincialland, butwere inhabited71 percent ofthe provincialpopulation and generated88 percent ofthe provincialGDP. The sealedlandscapecrippledcommunicationsbetween coastalandinlandregions, causingthe severe economic development disparity withinthe province. Highway DevelopmentPlan Justificationfor Investment. To reducethe imbalanceddevelopment - betweencoastaland inlandregions, the State is launchinga largescale highway developmentplan. One of the highwaysis to verticallyconnect Changchun(the capital ofJilin provincein northeastChina) to Shenzhen (Guangdongprovince insouthernChina). Thetotal lengthofthe highwaywill be about 3,600 km. The total lengthofthe highway in Fujianwill be about 490 km, andwill passthroughfrom north to southat the middleofthe province. The YWE isthe last sectionofthe highway insouth- easternFujian whilethe other partsofthe highway are either completedor under construction. The completionofthe 63 YWE will improve the accessibility for this remote hilly and mountainous regionand balance the income and economic development within the province. With the completion o f the YWE, the nearest internationalseaport- Xiamen will be only 210 km away from the expressway. Giventhe important role o f the YWE for the State as well as for the province, the proposed project has the highestpriority inFujian's highway development plan. Current Conditionof the YWE Corridor (without the project): There are several local roads inthis highway corridor, but only one road (G205) would be significantly affected by the proposedYWE. The pavement condition o f most o f G205 is poor. The low grade pavements combined with narrow alignments cause low speeds and highsafety risks. The estimated motorized traffic in 2005 is about 3,300 - 5,250 motorized vehicles per day throughout its length. The non motorized and other traffic (bicycles, animal carts, small farm tractors and motorcycles etc) will add about 400 vehicles per day. The current traffic may reach the road's designed capacity before 2011-the proposed full opening year, throughout its most length. The optimumtiming for construction o fthe new road is now. G205HIGHWAY THE W E COMPARISONS AND Section 1 Section 2 Section3 Yong'an - Liancheng - Shanghang - Liancheng Shanghang Yanqian Roadlength-km (G205 Ithe YWE) 84.7 173.92 102.5180.98 51.46 140.30 RoadClass (G205 I the YWE) I11Expressway I1I Expressway I1IExpressway RoadCondition(G205 Ithe YWE) PoorIGood PoorIGood Fair IGood Terrain Mountainous Hilly Hilly Capacity (ADTlday) (G205 Ithe YWE) 7,000140,000 7,000 / 45,000 7,000 145,000 MotorizedTraffic -2005 (AADTlday) 3,300 4,220 5,250 ProposedOpeningYear 2010 2010 2010 Sources: FPCDandthe Bankstaff. The Estimated Traffic Growth on the YWE Corridor: FPCD's estimates o f traffic on the YWE corridor were made on the basis o f routine traffic counts and a comprehensive origin and destination (OD)survey that took place on February 2004 (updated on May 2005). The projections o f normal, generated and diverted traffic were made for 31 zones on the basis o f a conventional growth model. The traffic on the proposed YWE would include diversion from G205 and other existingroads inthis highway corridor. Given the historical GDP growth rate o f Fujian was 12 percent and the traffic growth for this highway corridor was 16 percent during 1995-2004, the current GDP growth forecast is 8-9 percent in coming years and the projected traffic growth rates inthe project corridor are estimated to be 8 percent per year in 2005 2011,6 percent per year in 2011-2020, and 4.3 percent per year in 2020-2030. The traffic growth - rates are summarized as follows: Annual Traffic Growth Rate Car Bus& Truck Average Actual: 1995-2005 16.2% 14.6% 15.6% Projection: 2005-2011 8.3% 7.5% 8.0% 2011-2020 6.3% 5.3% 6.0% 2020-2030 4.3% 4.3% 4.3% Sources: FPCDandthe Bankstaff. Alignment Alternatives. The YWE feasibility study considered and comparedthree mainalternative route alignments between Yong'an and the Yanqian (Wuping), on the basis ofthe local economic development, the shortest traveling route, the lowest engineering cost and coordination with the entire highway networks. The other major criteria for selection o f an alternative were to seek an alignmentthat would: (a) avoid areas which have complex conditions geologically, (b) avoid the possible engineering difficulties, and 64 (c) coordinatethe commentsfromthe local governments andpeoples. The preferredalignmentwas selected becauseof better coordinationwith the localeconomic developmentplanand local/ nationaltransport networks. Details are available inthe feasibility studyreports. Traffic on the Highway (with the project). The YWE is plannedto becomeoperational inJune 2010. Diversionratios ofthe corridor traffic onthe YWE are basedon the informationprovidedby the O/D survey andthe traffic studies. They were calculatedby using financial VOC for the roadusers, with the impacts ofthe levelofproposedtolls onthe new highway, traveldistance, andexperiencefrom other recentlyBankfinanced highways inChina. The results ofthe analysis indicatethat between61- 62 percentof motorizedvehicles, dependingon the road section, may be divertedto the new highway. The traffic diversionis expectedto increaselinearly inthe first ten years to reach 65 percentby the year 2020 and stabilize thereafter. Traffic generatedbythe new highwayis assumedto be 10percentofthe normaltraffic. This assumptionis consistentwith the experienceonother recenthighwayprojectsinChina. No diversionoftraffic from the railwayto the new highwayhas beentaken intoaccount, althoughthere is an railwayinthe projectarea. This is because of the railway carries mainlythe longdistance bulk freighttransport while the highway carries a muchshorter distance (the averagerailwaytransport distance in2004 was 461 km compared with 83 km for highwaytransport). Inaddition,a muchhigher highwaytariffalso does not encourage traffic diversionfromthe railway(highway tariff is about RMB 0.20- 0.22 per ton-kmcomparedwith RMB0.10- 0.12 perton-kmfor railway). The highwaycorridortraffic forecast, by sections, is summarized as follows: Normal Highway Corridor TI ffic, by Sec ins (ADT) Section 1 Section2 Section3 Yong'an - Liancheng - Shanghang - Liancheng Shanghang Yanqian Traffic on the existing corridor: 1995 1,024 1,757 3,100 2000 1,917 3,344 5,401 2001 2,794 4,088 7,516 2002 2,67 1 4,875 7,635 2003 3,648 5,898 11,241 2004 3,745 7,063 12,583 2005 4,077 7,361 13,635 Traffic without the proiect: 2011 6,400 12,100 21,400 2020 10,500 21,200 35,500 2030 15,700 33,700 53,100 Traffic with the proiect: a. Traffic on the existing corridor 2011 2,500 4,600 8,450 2020 3,500 7,050 12,400 2030 5,300 11,200 18,650 b. Traffic on the new W E 2011 3,900 7,500 12,950 2020 7,000 14,150 23,100 2030 10,400 22,500 34,500 c. Traffic diversion (in %) 2011 60.9% 62.0% 60.5% 2020 66.7% 66.7% 65.1% 2030 66.2% 66.8% 65.0% Sources:FPCDandthe Bank staff. Economic Costs. Investmentcosts havebeenconvertedto economic costs by the eliminationof price contingency, taxes, and customduty on importedmaterials. The resultingoveralleconomic cost is about 84 percentof the financialcost. 65 Economic Benefits. The economic analysis includesthe benefits derived from: (a) VOC savings on the new highway for normal and generatedtraffic, (b) time savingsthrough relieved congestionon the existing road, and (c) lower accident costs. The benefitsresulting from the lower level of congestion were quantified. The value of passenger time savings was estimatedat RMB 1.50 per passenger-hour, on the basis ofupdatedvalues from a report on feasibility study methodology for highways inChina (Rust PPK. Australia Feasibility Study Methodology Report, May 1996). The same sources were used for vehicle accident rates on different classes of roads. The major assumptions and formulas used inthis analysis are summarized as follows: ECONOMIC VEHICLE OPERATING COSTS (Yuan per km, December 2005 prices) The Expressway Section 1 Section 2 Section 3 Section1 Section Z The Existingroad Section 3 Car 1.021 0.990 0.990 1.223 1.197 0.933 Medium bus 1.729 1.543 1.543 2.430 2.246 1.780 Large bus 3.828 3.300 3.300 5.242 4.684 4.004 Small truck 1.876 1.631 1.631 2.235 1.965 1.696 Medium truck 2.433 2.047 2.047 2.828 2.439 2.086 Large truck 3.462 2.924 2.924 3.959 3.460 2.993 Tractor/trailer 5.109 4.225 4.225 5.970 5.070 4.471 Sources: FPCDand the Bank staff. Accident Rates and Costs in China Road class Accidents per 100 millionvehicle km Damage (RMBI accident) Expressway -40 + 0.005 AADT 12,000 MotorwayClass I 37 + 0.003 AADT 9,000 MotorwayClass I1 83 + 0.0065 AADT 7,000 Highway Class I1 133 + 0.007 AADT 6,000 Highway Class I11 140 + 0.03 AADT 4,000 Source: Table E4.1, page E21, Rust PPK. Australia Feasibility Study Methodology Report, May 1996. Economic Evaluation. Total costs and benefits streams, Economic Internal Rate of Return(EIRR) and Net PresentValue (NPV) for each section of the expressway were calculatedby using the VOC model. The overall ERR for the YWE is estimatedat 16.5 percent, with the following results for each road section: Economic Evaluationof YWE EIRR(in %) NPV(12%, RMB million) Yong'an-Liancheng 17.0 808.5 Liancheng- Shanghang 25.7 2,690.2 Shanghang-Yanqian 10.9 (335-0) WHOLE ROUTE 16.6 3,210.2 The distribution ofthe estimatedbenefits show that: (a) the road users on this highway corridor are the main beneficiaries; (b) cars will receive 67.3 percent ofthe project benefits, while trucks will receive 28.2 percent, and buses passengers will receive 4.1 percent (these proportions are proximately the same as the proportion oftraffic). Those latter benefits are more likely to accrue to lower income people; and (c) about 10 percent of total benefits will accrue to the long distance traffic. 66 The breakdown o fbenefits is as follows: Distribution of the Net Benefits(RMBmillion) Roaduser Roadagency Society Total benefits 10,090.7 (6,880.5)/-1 3,210.2 By vehicles: Truck- - Buses Cars Trucks Trailers Total 6,793.4 418.0 2,840.4 38.9 10,090.7 67.3% 4.1% 28.2% 0.4% 100.0% /-1: Roadagency is negativebecause it bear the investmentcost. Sensitivity Analysis. The basic evaluation o f the project, by section and on the whole, shows that the investmentis economically viable. Sensitivity tests with respect to one year delay in project completion, zero value o f time, no generated traffic and the lower traffic projection on the new highway confirm this result. Sensitivity Tests on the EconomicEvaluationof YWE EIRR (YO) NPV(12Y0, RMB million) Delay the completion by one year Higher capitalcost (+lo%) (a) 15.0 2,208.3 15.4 2,5 09.2 Lower benefits(-10%) (b) 15.3 2,179.4 Combine(a) and (b) 14.2 1,524.9 Zero value ofpassenger time 14.5 1,638.2 Zero generatedtraffic 16.3 2,927.2 Lower traffic projection (-20%) 13.6 963.O Switching values YOchange Cost increaseto reduceEIRRto 12% (c) 149% Benefit reductionto reduceEIRRto 12% (d) 67% Combine(c) and (d) to reduce EIRR to 12% Cost: + 120%, benefit: -80% The results of sensitivity tests (ERR in %) to cost and benefit variation are summarized below: SENSITIVITY OF EVALUATION RESULTS( E mIN yo) TO COSTAND BENEFITVARIATION -40% 9.0% 11.9% 14.4% 16.6% 18.5% 20.4% 22.0% 23.6% -30% 7.5% 10.3% 12.7% 14.7% 16.6% 18.3% 19.9% 21.3% -10% 5.3% 7.9% 10.0% 11.9% 13.6% 15.2% 16.6% 17.9% 0% 4.3% 6.9% 9.0% 10.8% 12.5% 13.9% 15.3% 16.6% 20% 2.8% 5.3% 7.3% 9.0% 10.5% 11.9% 13.2% 14.4% 30% 2.1% 4.6% 6.5% 8.2% 9.7% 11.1% 12.3% 13.5% RuralRoadsImprovementProgram(I") Selectionof RuralRoads and Its Traffic. The total road network inFujian, at the end of 2004, was about 56,000 kmand 86 percent o f the network were low grade roads (Class I11and under). The large portion o f low grade roads cause many rural villages to not have an adequate road to the local market centers. In 2004, the provincial road network was recorded into the FPCD's road databank system for daily operation and management. These data include the county, township, and village roads for the entire province. Based on these data, the FPCD is planning to accomplish, by 2010: (a) have the 67 majority o f low grade roads paved, and (b) ensure at least that at least one paved road which leads to the localmain road will be available for each administrative village. The scope o fthe plan is to rehabilitate 5,500 low grade roads, total 27,000 km, during2006-2010. These low grade roads represent about 42 percent o f current road network and the most o f these roads are less than 4.5 meters inwidth with an average lengthof only 4.9 km per road. The construction standard ofthe RRIPcan be categorized by eight different types o froad as the follows: RRIP: Construction Standard(RMB'000/km) County Roads TownshipNillage Roads 6.5 METERS 3.5 meters 4.5 meters 5 metersand over Mountainous roads (1) 1,800 (2) 300 (3) 400 (4) 550 Coastal roads (5) 1,000 (6) 250 (7) 350 (8) 400 Source: FPCD. The economic evaluation covers all eight types o f road. The current traffic level for those roads are inthe range o f 110 -1,050 ADT. The majority o f the roads inthe RRIP are the upgrading o fthe existing unclassified road to Class IV road which is designed for the traffic o f 400- 2,000 pcu. Since all the roads are located inthe same province, the traffic patterns are quite similar. The traffic growth rates have been conservatively estimated to be 5.0 percent from 2005-2010, reduced by 0.5 percent for each ofthe 5 years from 2010-2030. There i s no generated traffic i s assumed. Economic Costs and Benefits. Financial costs have been convertedto economic costs by usingthe same method and factors as for the YWE. Similar to the YWE, the VOC equations were usedto quantify the economic costs and analyze benefits o f the eight differenttypes o f roads. The main evaluated benefitswould be reduced VOCs through the providing o f a better road surface, and the associated upgrading o f road class would also result in higher traffic speeds, improvement o f road roughness index and a shorter average transport distance ensured by all-weather conditions. The main design characteristics are listed below: RURAL ROAD IMPROVEMENTPROGRAM(RRIP) Traffic No.of Length Class Speed (kdhr.) Maxi. Slop Road width 2005-pcu roads (km) (Oldhew) (Old/ new) (Oldhew) Mountainous: 1. County roads 6.5 meters 605 160 1,550 uI111 8 / 3 0 9 / 7 2' Township/ 3.5 meters 110 450 2,700 U / I V 8120 11 19 3' 4.5 meters 275 3,400 16,500 uI IV 10120 11/ 9 4. village roads =>5.0 meters 320 150 800 U I I V 10I 20 918 Coastal: 5. Country roads 6.5 meters 1,050 90 830 IV 1111 15140 515 " Township/ 3.5 meters 250 150 700 U I I V 10120 6 / 6 7' 4.5 meters 25 1 980 3,500 IV I IV 15120 6 / 6 8. village roads = >5.0 meters 599 120 420 U I I V 15120 616 Total 5,500 27,000 U:Unclassifiedroad. Sources: The FPCD and the Bank staff. EconomicEvaluationand SensitivityAnalysis. The estimates o f EIRRs for the eight types ofrural roads range from 20.3 percent to 51.4 percent. The overall EIRR and NPV (at 12 percent discount rate) 68 for the RRIP are estimated to be 34.7 percent and RMB 11,921.2 million, respectively. Summarize the EIRRfor eachtype ofroad as well as the total RRIP inthe following: FUUP: EIRRSUMMARY EIRR Cost multiplier Traffic threshold (pcu)* Roadwidth (in %) to EIRR=IZY~ to EIRR=12% I n YO Mountainous: 1. Country roads 6.5 meters 37.6 3.85 170 24.8 2' Township/village 3.5 meters 37.2 3.78 40 24.5 4.5 meters 51.4 8.30 27 10.2 4. 3* roads =>5.0 meters 45.5 6.00 48 15.0 Coastal: 5. Countrv roads 6.5 meters 21.8 1.28 150 78.1 " Township/village 3.5 meters 49.1 7.30 27 10.8 7* 4.5 meters 20.3 1.12 25 89.6 8. roads =>5.0 meters 26.2 1.79 60 55.9 Total 34.7 2.45 40.9 * Note:The traffic thresholds correspondto the particular characteristicsof the universeof roads under the RRP. The reconstructionconditions vary from one type of roadto another (e.g.,in some cases it would imply improvingan existing paved road while in another the works will imply pavinganon-pavedroad, or it couldrequire readjustmentsto the alignment), hencethe values do not necessaryfollow a linear patterninline with the widths ofthe roads. The thresholds for traffic to lower the ERR to 12% correspond to the case where the works imply the pavingof an unpavedroad. The risks considered for economic evaluation are: 0 slower than projected growth o f traffic; 0 higher than projected cost of civil works; and 0 lower than expected VOC savings. All these riskswere analyzed through sensitivity tests and the evaluation results were found to be robust for all o fthem. For the project component to be non-acceptable (i.e. an EIRR lower than 12 percent or a nilNPV at 12 discount rate), the benefitswould have to fall to lessthan 40.9 percent ofthose inthe base case with no change in costs, or the costs would have to increase to more than 2.45 times those o fthe base costs, or the costs would have to increase by 1.71times and the benefits fall to 70 percent at the same time. Additional benefits, not included inthe EIRR calculation, expected from the project are: increase inthe income o f rural farmers, who live inthe poor areas, becauseo f better access to town markets andjobs, and increased accessibility to schools and hospitals. The quantifiable beneficiaries are estimated at (a) about 5,640 extra children attending school (average about 0.21 student per km inthe directly served areas) and (b) about 210,000 extra people attending health services (average about 7.76 people per km would benefitthe new road). 69 THEEXTRA BENEFITS FOR W P Extra children attending Extrapeople attending school/ year healthserviced year Mountainous: 1. City roads 6.5 meters 185 10,400 2. County roads 3.5 meters 465 13,500 3. 4.5 meters 3,417 136,000 4. = >5.0 meters 170 7,500 Coastal: 5. City roads 6.5 meters 1I O 4,950 6. County roads 3.5 meters 162 3,000 7. 4.5 meters 995 29,400 8. =>5.0 meters 138 4,800 Total 5,642 209,550 Sources: The FPCD and the Bank staff. THE OVERALL ECONOMIC EVALUATION OF THE PROJECT Overall Economic Internal Rate of Return (Em). The overall EIRR o f the project (including YWE and IUUP) i s 24.8 percent and the NPV (12 percent) is RMB 15,13 1.4 million. The overall EIRR and NPV o f the project are summarized as follows: Total Project: Economic Evaluation Summary EIRR(in YO) NPV(RMB million,12%) RuralRoadImprovementProgram(RRIP) 34.7 11,921.2 Yong'an-Wuping Expressway(YWE): 16.6 3,210.2 TOTAL PROJECT - 24.8 15.131.4 Project Risks. Most sections o f the YWE and RRIP show acceptable economic returns. FPCD has extensive experiences in construction and operation of high grade highways and rural road projects, thereby minimizing the technical risksassociated with the implementation o f the project. The main tangible risk i s that o f prolonged delays affecting the construction schedule. The impact o f uncertainty was tested through the probabilistic risk analysis The uncertainty factors associated with the economic evaluation o fthe project have been identified as: (a) traffic growth rate, (b) traffic diversion ratio to the new expressway, (c) the value o f vehicle operating costs, (d) the changes o f capital investment, and (e) delay the opening by one year. The results of probabilistic risk analysis show that the ERR for the most likely scenario is 24.6 percent, the low scenario is 22.0 percent and the high scenario is 28.0 percent. The standard error o fthe mean is 0.2 percent. The detailed results o fthe Monte Carlo test and probabilistic risk analyses are shown as follows: SUMMARY OFPROBABILISTIC RISK ANALYSES Most likely Standard error Range of EIRR EIRR of the mean Yong'an-WupingExpressway(YWE): 11.5% 24.5% 18.0% 0.4% RuralRoadImprovementProgram(RRIP) 32.8% --36.9% 34.8% 0.1% Total Project 22.0% -28.0% 24.6% 0.2% 70 Financial Analysis Preface The financial evaluation ofthe project is comprised ofthree sections: (a) an assessmento f the revenue earning entity (YWE), focusing on consolidated financial statement; and (b) an assessmento fthe financial capacity and risks inthe province to sustain highway activities, focusing on the adequacy o f fundingallocations with the provincial road development plan. The Financial Evaluation of the W E The financial cost o f capital for YWE is assumedto be 5.02 percent for the project (18.4 percent from the Bank at 4 percent, 42.0 percent from the local bank at 5.5 percent and 39.6 percent from the grants at a normative 5 percent). YWE will be openedonJune 2010 andwill be operatedby a financially independent entity, responsible for the day-to-day management, operation, maintenanceofthe expressway. The main income ofthe YWE would be derived from toll chargedto roadusers; Fujiangovernment will set toll rates. FinancialForecast Tolls. The toll will be charged on the basis o f vehicle size (small passenger cars, buses, small trucks, mediumtrucks, large trucks and trailers) and distance traveled. Some traffic may not pay toll, including the toll exempted vehicles (police, ambulance and military) which are estimated to account for 10percent o f total traffic. The toll charges are assumedto increaseonce every five years (15 percent or an average o f 3.6 percent per year). The proposed toll rate for the YWE is as follows: Toll Charges(RMB/ vehicle-km) Small Medium Large Heavy vehicle vehicle vehicle vehicle 0.65 1.30 1.95 2.60 Sources: FPCD. Operations. The operating costs o fYWE can be broken down between working cost (a. wage and benefits, b. maintenance, c. operating materials and supplies, d. administration, e. others) and depreciation. Profitability. All other expenses, including interest payments on the loans, are also taken into account in the calculation o fthe YWE profitability. It is estimated that the highway will generate enough revenue over the loan period to achieve the above mentioned financial objective. However, low profitability will take place inthe early years with repayment o f the loans (20 10- 2015). The total interest payment alone in 2012 (Rh4B 277.3 million), for example, is about 93.1 percent o fthe total operating costs (RMB 297.8 million), or consuming about 59 percent o f the total revenue (RMB 467.6 million) in that year. Because o f the low toll growth assumptions, the profitability of YWE for the first six years will be low (Income Statement, page 1 o f 4, Appendix A). Cash flow. Despitethe low profitability and the financial pressure o fthe loan repayments, the YWE's cash flow should be sufficient to meet all project needs, includingthe repayment o f the Bank loan as from 2012, because o f the large sum o f depreciationreserve and the flexible principal payment terms agreed by domestic banks on their loans which allow the YWE to reduce cash outflows inthe early years operations. In2012, for example, the total annual depreciation reserve (RMB 255.7 million) will represent about 6 times the total annual working cost or about 92 percent o ftotal interest payments, thereby generating 71 strong internalcash flow and providingsufficient funds for the YWE's operations, maintenanceexpenses and loan repayments. It is estimatedthat the YWE will not requireany external cash injectionand be able to maintaincash available aboveRMB 140million every year for the life ofthe project (Sources and Applicationsof Funds, page 2 of4, Appendix A). Leverageand Liquidity. The lowprofitabilityandhighproportionofborrowings(about60%) will dilute the equity ofthe YWE andcause a debt/ equity ratio anddebt/capitalratio(thefinancial leverageofthe company) above 50 percentuntil2021. Butthis will not affectthe liquidity ofYWE, as it is ensured bythe strongcashflow. The currentratiowill be inthe soundrangeof 1.5 andhigher, whereas it shouldbe at least 1.O to avoidshort-term solvency problems(BalanceSheet, page 3 of 4, Appendix A). Inaddition, the expresswayauthorityhas reiteratedits full commitmentto the YWE, inan official documentto the Bank that confirms its full financial support, which guarantees the projectfinancial viability. The major assumptionsandresultsofthe financial evaluationare shown inpage 4 of 4, Appendix A. Financial Internal Rate of Return (FIRR). The low profit margin inearly years' operations will impact the FIRRon the capital investment. The financial evaluation concludesthat the FIRR is expectedto be 1.0 percentwith NPV of RMB -4,141.8 million, at the discount rate of 5.02 percent. Because of the low profitability in early years, the FIRRandNPV will not changemuch ifcompletion is delayedby one year. Financial ProbabilisticRiskAnalysis. To determinethe degree of financial uncertainty for the project, a probabilisticrisk analysis usingMonte Carlo techniques was carried out. The six most uncertainfactors which may affect the financial evaluationhave beenidentified:(a) traffic growthrate, (b) the basic toll level, (c) toll chargesgrowthrate(d) total workingcosts, (e) capital investment, and (f) delay in opening the highway to December 2011, The risk analysis reveals that the most likely FIRRwouldbe 0.9 percent, while the worst and the best FIRRwould, respectively, be 0.1 percent and 1.9 percent. Details are summarizedas follows. SUMMARY OFFINANCIAL SENSITIVITY AND PROBABILISTIC RISK ANALYSIS Financial Sensitivity Tests Financial SimulationandRiskAnalysis Open in Open in Range of MostLikely Std.Errorof 2010 2011 FIRR/ NPV FIRR/NPV TheMean FIRR (in YO) 1.0 1.1 0.1 -1.9 - 4,215 0.9 0.1 NPV (5.28%, RMB million) -4,142 -4,095 - 4,907 - - 3,431 42 The Financial Evaluation of the Sector (includingthe RRTP) The financialevaluationofthe RRIPcomponentsfocuses onthe provincialcapacity to minimize financial risks, inthe sector, that is, the availabilityof counterpart funds for the construction, includingthe future maintenance expenditureofthe project roads. Roadsector budgetforecasts show that the investment andmaintenance/ operation ofthe RRIP constitute only a small fractionof provincialfund flows. Basedon the expendituresplan, the capitalinvestment of RRIPwill require less than 13 percent ofthe projectedannual total sector revenues. Inaddition, the required maintenanceand operation expenditure of RRIP is less than 35 percentofthe total maintenance expenditure inthe province. These low ratios indicatethat the projectpresentsa modest financialrisk as regardsthe availabilityof a counterpart fund for the construction and maintenanceofthe projectroads. The details are shown in Appendix Dand summarized as follows: 72 Investments, Revenueand MaintenanceExpenditures(RMBmillion) 2006 2007 2008 2009 2010 InvestmentsandRevenue: RRIP Investments(a) 2,649.5 2,461.5 2,405.5 2,289.5 2,194.0 Total Sector Revenue(b) 20,996.0 22,051.0 23,218.0 24,512.0 25,950.0 Ratios(a)/(b) 12.6% 11.2% 10.4% 9.3% 8.5% Maintenance Expenditures: RRIp(c) 78.2 165.1 267.0 382.0 Total Sector MaintenanceExpenditure(d) 709.0 789.0 879.0 980.0 1,091.0 Ratios(c)/(d) 9.9% 18.8% 27.2% 35.0% Sources: FPCD and the Bank staff. FPCD has providedthe financingplanforecasts on total revenueand expenditureduringthe TenthFive Year Plan (lothFYP, 2001-2005) and EleventhFive Year PZan (1lth 2006-2010). Basedonthe FYP, available information,the financing planhastwo features: (a) an emphasis on new constructionbut in decreasing share oftotal expenditure, and (b) increasingthe share oftotal maintenanceexpenditures. Basedonthat plan, the total budgetonthe newconstructionfor the 1I*FYP(2006-2010) will be about 58.3 percent oftotal revenue, comparedwith 60.5 percent of the total revenue for the 10* FYP(2001- 2005). The lower percentage onthe new constructionwill allow the provincialroadsector entitiesto allocate more financialresourcesto the maintenancesduring2006- 2010. The average unit maintenance budget has increasedfrom RMB 9,430/ km for the lothFYPto about RMB 14,450 /km for the 1lth FYP. The emphasison maintenancewill reducethe deteriorationof the existingroadnetworkandresult in lower rehabilitationexpenditures inthe longrun, though further efforts are requiredinthis respect. (Annex 1). Thoughthe budgetaryplan includesa grant from the MOCevery year, a moderate self- financingratio (total internalcash generation againstthe total revenue) for the 1lth FYP(35.1%) should ensurethe im lementationofthe development planevenwithout the MOC grant. This ratiohas improvedsince the 10 FYP (29.3 percent). The detailed sources of highwayrevenueand expenditures for 2001-2010 are tR shown inAppendix B. With regardsto the longterm sustainabilityof road maintenancewith allocated resources,the average yearly increasein maintenanceexpenditures duringthe 1Oth FYP(4.4 percent) exceededthe growth ofthe roadnetwork(2.2 percent), which meansa net increasein the averagemaintenanceexpenditureper kilometer. The trend should continue duringthe 1lth FYPwith percentagesat 4.9 percent and 1.8 percent, respectively. FPCD: AverageIncreaseinthe RoadNetwork and Road MaintenanceExpenditures(in YO) 10" FYP 1l"FYP (2001-2005) (2006-2010) Average annualincreaseinthe roadnetwork 2.2% 1.8% Average annual increaseinmaintenanceexpenditures 4.4% 4.9% Sources: FPCD and the Bank staff. 73 ANNEX 9 APPENDIX A Page 1 of 4 FujianHighway Sector InvestmentProject Income Statement- the YWE (RMB million, year endingDecember31) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Traffic (millionveh-km) /L 170.18 567.27 602.44 639.88 679.66 721.90 766.83 814.65 865.49 919.50 Revenue Tolls 132.74 440.56 467.57 496.32 526.84 559.13 684.12 726.29 771.10 818.77 Others Total ---------- 132.74 440.56 467.57 496.32 526.84 559.13 684.12 726.29 771.10 818.77 Ooerating Costs Wages and benefits 0.45 1.50 14.45 14.88 15.33 15.79 16.26 16.75 17.25 17.77 Maintenance 2.04 6.81 7.01 7.22 7.44 7.66 7.90 95.70 8.38 8.62 Materials andsupplies 3.97 13.23 13.62 14.03 14.45 14.89 15.33 - 15.79 16.27 16.76 Administration 0.18 0.60 5.78 5.95 6.13 6.32 6.50 6.70 6.90 7.11 Others 0.36 1.20 1.24 1.28 1.31 1.35 1.39 1.44 1.48 1.52 Totalworking costs 7.00 23.34 42.10 43.36 44.66 46.01 47.38 136.38 50.28 51.78 Depreciation 76.71 255.70 255.70 255.71 255.71 255.76 255.81 256.45 256.51 256.56 Total operatingcosts ------- 83.71 279.04 297.80 299.07 300.37 301.77 303.19 392.83 306.79 308.34 OperatineProfit 49.03 161.52 169.77 197.25 226.47 257.36 380.93 333.46 464.31 510.43 Financialcharges: IBRD - 69.54 65.99 62.31 58.48 54.49 50.34 46.03 41.53 Local Bank - 221.55 207.80 205.05 199.55 194.05 185.80 169.30 161.05 136.30 Other income (expenses) ProfitBeforeTaxes 49.03 (60.03)(107.57) (73.79) (35.39) 4.83 140.64 113.82 257.23 332.60 Incometax 12 NetProfitAfter Taxes 49.03 (60.03)(107.57) (73.79) (35.39) 4.83 140.64 113.82 257.23 332.60 Workingratio 5 5 9 9 8 8 7 19 7 6 Operatingratio 63 63 64 60 57 54 44 54 40 38 /L: The highwaywill be openedto traffic in June 2010. /2: Incometax is exempted. 74 ANNEX 9 APPENDIX A Page 2 of 4 FujianHighway Sector InvestmentProject Sourcesand Applicationsof Funds-the YWE (RMB million, year endingDecember31) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: Net profits 49.03 (60.03)(107.57) (73.79) (35.39) 4.83 140.64 113.82 257.23 Depreciation -- 76.71 255.70 255.70 255.71 255.71 255.76 255.81 256.45 256.51 State contribution 62.15 248.60 372.90 310.75 248.60 Province contribution 127.80 511.20 766.80 639.00 511.20 Borrowing: IBRD 88.00 352.00 528.00 440.00 352.00 Local 201.40 805.63 1,208.45 1,007.05 805.63 Others Total 479.35 1.917.43 2.876.15 2396.80 2.043.17 195.67 148.13 181.92 220.32 260.59 396.45 370.27 513.74 ADplications: Capital expenditure 479.35 1,917.43 2,876.15 2,396.80 1,917.43 10.02 10.32 10.63 10.95 11.27 11.61 11.96 12.32 Other expenditure Loan repayment: IBRD - 87.63 91.18 94.86 98.69 102.68 106.83 111.14 Local - 250.00 50.00 100.00 100.00 150.00 300.00 150.00 450.00 Change w/ capital - (22.12) (70.13) (4.29) (4.58) (4.86) (5.13) (19.90) (6.71) (7.13) Total 479.35 1.917.43 2,876.15 2.396.80 1.895.31 189.89 143.66 197.23 200.95 254.83 394.39 262.08 566.33 Net Funds Flow _- _ 147.86 _ - -(15.31) 19.37 5.78 4.47 - -- - 5.76 2.06 108.19 Open balance - 147.86 153.64 158.11 142.80 162.17 167.93 169.99 278.18 Closing balance - 147.86 153.64 158.11 142.80 162.17 167.93 169.99 278.18 225.59 DIS Cover __ __ _- __ -- 0.88 1.03 0.98 1.06 1.02 0.99 1.24 0.94 75 Page3 of 4 Fujian Highway Sector Investment Project BALANCE SHEET- THE YWE (RMB million, year endingDecember31) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Assets: Fixed Assets At cost 7,671.09 7,671.09 7,671.13 7,671.17 7,671.22 7,672.75 7,674.33 7,693.47 7,695.15 7,696.87 Less: Depreciation 255.70 511.40 767.10 1,022.81 1,278.52 1,534.28 1,790.09 2,046.54 2,303.05 2,559.61 Net fixed assets 7.415.39 7.159.69 6.904.03 6,648.36 6.392.70 6.138.47 5.884.24 5,646.93 5.392.10 5.137.26 Current Assets Inventory 2.20 2.34 2.48 2.63 2.80 3.42 3.63 3.86 4.09 Receivable -- 1.10 1.17 1.24 1.32 1.40 1.71 1.82 1.93 2.05 Cash 147.86 153.64 158.11 142.80 162.17 167.93 169.99 278.18 225.59 194.01 Subtotal 147.86 156.94 161.62 146.52 166.12 172.13 175.12 283.63 231.38 200.15 Other Assets Total Assets Liabilities & Eauity State funds- Equity 1,752.97 1,705.04 1,587.19 1,502.81 1,456.52 1,451.61 1,582.22 1,703.22 1,949.81 2,271.44 LIT loans: IBRD 1,760.00 1,760.00 1,672.37 1,581.19 1,486.33 1,387.64 1,284.96 1,178.13 1,066.99 951.35 Local 4,028.16 3,778.16 3,728.16 3,628.16 3,528.16 3,378.16 3,078.16 2,928.16 2,478.16 1,978.16 Subtotal 5,788.16 5.538.16 5.400.53 5.209.35 5,014.49 4.765.80 4.363.12 4.106.29 3.545.15 2,929.51 CurrentLiabilities 22.12 73.43 77.93 82.72 87.81 93.19 114.02 121.05 128.52 136.46 Other Liabilities Total Liabilities & Equity zshw7.316.637.065.656.794.886.558.826.310.606.059.365.930.565.623.485.337.41 Debt/ equity ratio 77/23 77/23 78/22 78/22 78/22 77/23 74/26 71/29 65/35 57/43 Current ratio 6.7 2.1 2.1 1.8 1.9 1.8 1.5 2.3 1.8 1.5 76 ANNEX 9 APPENDIX A Page 4 of 4 Fujian HighwaySector InvestmentProject ASSUMPTIONS FOR FINANCIAL FORECASTS THE W E - I.NormalTraffic(ADT): Small Medium Large Small Medium Large Tractor Section I: Yong'an - Liancheng car bus bus truck truck Truck -Trailer Total 2011 2,287 104 207 440 380 474 15 3,907 2020 4,181 161 378 675 585 943 30 6,953 Section 11: Liancheng- Shanghang 2030 6,189 217 559 908 787 1,688 54 10,402 2011 4,793 82 197 1,313 768 313 15 7,48 1 2020 9,528 138 391 2,197 1,288 571 28 14,141 2030 15,521 637 3,253 1,906 930 46 22,498 Section 111: Shanghang - Yanqian205 2011 8,752 134 269 1,269 1,504 898 66 12,892 2020 16,018 226 535 2,131 2,522 1,517 112 23,061 2030 23,711 334 872 3,154 3,733 2,471 182 34,457 2. Toll Rates(Yuan/ veh-km): Increase 15% every five year. Small Medium Large Small Medium Large Tractor car bus bus truck truck truck -Trailer 2011 0.65 1.30 1.95 0.65 1.30 1.95 2.60 3. Operating Cost: Increase 3 % pa. a. Wages and benefits: RMB25,000/ staff/ year, 35 staffs/ toll station and 11toll stations. b. Maintenance: Routine Medium Major (annual) (17 years) (/Iyears) 4 RMB million/ km 0.035 0.400 0.80 c. Operating materials and supplies 0.068 millionRMB per km. d. Administration 40% of wage and benefits. e. Others 0.006 millionRMBper km. f. Depreciation 30 years straight-linemethod. 4. Borrowing: TheIBRD 4.0% on 20 year maturities, LIBOR US$based single currency including5 years grace period. The local Bank 5.5% flexible principal payment. 77 ANNEX 9 APPENDIX B Fujian Highway Revenueand ExpenditureDuringits lothand llfh(RMB million ) Fyp ThelothFiveYear Plan - The 1Ith Year Plan Five 2001 2002 2003 2004 2005 'otal 2006 2007 2008 2009 2010 Total Revenue 1 Roadmaintenancefee 931 1,016 1,116 1,232 1,369 5,664 1,470 1,551 1,631 1,711 1,785 8,152 2 Capital constructionfee 1,217 1,295 1,385 1,489 1,606 6,992 1,668 1,593 1,520 1,449 1,38( 7,6 10 3 MOC subsidy 1,126 1,236 1,365 1,515 1,691 6,933 1,788 1,779 1,765 1,748 1,72; 8,807 4 Local government 3,735 3,991 4,290 4,635 5,027 21,678 5,492 5,355 5,211 5,061 4,905 26,028 5 Bankloan 4,427 4,898 5,450 6,094 6,843 27,112 7,057 7,607 8,174 8,758 9,35! 40,95 1 6 Toll revenue 1,329 1,640 2,034 2,536 3,175 10,714 3,521 4,166 4,917 5,785 6,79( 25,179 Total 12.765 14.076 15.640 17.501 19.711 79.693 20.996 22.051 23,218 24.512 25,95(16.727 Exoenditure: 1 New construction 6,675 7,908 9,369 11,100 13,148 18,200 13,210 13,408 13,610 13,816 14,02( 68,070 2 Rehabilitation 3,322 3,449 3,581 3,718 3,860 17,930 4,267 4,527 4,803 5,096 5,40; 24,100 3 Periodicalmaintenance 196 213 231 251 275 1,166 290 312 336 362 39( 1,690 4 Routinemaintenance 229 256 286 320 357 1,448 419 477 543 618 701 2,758 5 Managementexpense 326 371 422 480 548 2,147 591 660 737 823 921 3,732 6 Loan repayment 2,017 1,879 1,751 1,632 1,523 8,802 2,219 2,667 3,189 3,797 450: 16,377 Total 12.765 14.076 15.640 17.501 19.711 79.693 20.996 22.051 23,218 24,512 25.950 116.727 Total RoadNetwork (km) -(a) 53,547 54,155 54,876 56,208 58,394 59,400 60,500 61,500 62,600 63,70( Average annual increase 0.1% 1.1% 1.3% 2.4% 3.9% 2.2% 1.7% 1.9% 1.7% 1.8% 1.8% 1.8% Total roadmaintenanceexpenditure (millionY)-(b) 1-1 425 469 517 571 632 709 789 879 980 1,091 Average unit maintenanceexpenditure ('000 Y/km)- (b)/(a) 7.94 8.66 9.42 10.16 10.82 11.94 13.04 14.29 15.65 17.13 Average annual increase 9.1% 8.8% 7.8% 6.5% 4.4% 6.5% 9.3% 9.6% 9.5% 9.4% 4.9% - /-I: Sumofperiodicalandroutinemaintenance 78 Annex 10: SafeguardPolicyIssues CHINA: Fujian HighwaySector InvestmentProject Annex 10 is presentedintwo parts. Part A on Environmental SafeguardIssues, andPartB on Social Safeguard Issues. PART A. ENVIRONMENTAL SAFEGUARD ISSUES Al. PREPARATIONOF ENVIRONMENTALASSESSMENT Environmentalassessment(EA) for the YWE componenthas beencarriedout by the HighwayResearch InstituteofMOC, an independentorganizationfrom FPCD. The drafts of EL4andEAPwere reviewed by the Bank andtheir final versions were submittedto the Bank inMarch2006. The final EIA was submittedto SEPA inJune 2006 andexpectedto be approvedby end of September 2006. Giventhe programmatic nature of RRIPcomponent, an EnvironmentalManagementFramework (EMF), which providesproceduresto be followedfor the assessment of environmental impacts and consideration of mitigationmeasures,has beendevelopedby FPCD in collaborationwith the FujianProvincial Environmental ResearchInstitute. The EMF includes a policyand legal framework, baseline data and an overallenvironmentalmanagementscheme. Basedonthe EMF, the EA is to be executedon a county basis prior to the commencementofconstructionworks. The final EMFwas reviewedandpublishedby the Bank inApril 2006. A2.. YONG'AN-WUPING EXPRESSWAY W E ) A2.1. BaselineEnvironmentalConditions Ecologicalenvironment. A nationalleveltourism resort, GuanzhaishanTourismArea established in 1993, is located 1.5 km away from the alignment. Itsrichvegetation andunique landscapehas attracted morethan 1 million tourists in 2005. The area is managedby LianchengCounty Tourism Bureauand awarded an IS014000 certificatefor its excellentmanagementpractice. Accordingto its Master Plan 2004-2020, its capacity is about 20,000 tourists a day, which is far above the actualtourist number. Three nationallevelnature reserves, Liangyeshan, MeihuashanandTianbaoyanNatureReserves,are located 10 km, 30 km, and 50 km away from the alignment, respectively. They distinctthemselvesby their rich andunique mountainousecology and access to those areas is strictly controlledundertheir management practice. Becauseof their distance from the alignment and strict access control, it is highly unlikelythat the project will haveany adverse impactson them. A detailedecological survey showedthat there was no indicationaboutthe presenceof criticalor valuable natural habitatswithin the projectarea. As the proposedexpressway runs generally parallelto the existingcorridor ofa nationalhighway G205 where intensivehumanactivitiesexist, the mainecology features agriculturefarmland and productionforest. Water,Noise and Air Quality. The qualities ofriverwater were measuredat three locationswhere the alignmentwill cross over, and the applicable water quality standardwas met at all locations. Among the identified85 sensitive sites (residentialareas, schools, etc.), noise levelswere monitoredat 5 schools and 13 residential areas. The noise levels generally met the applicablenoise standardswith slight excesses against day-time standardat 3 locations due to traffic noise from existingG205 highway. The qualities of ambient air were measuredat three representativesensitive sites, andthe applicableair quality standard was met at all locations by a wide margin. 79 Cultural Relics. Culturalrelicssurvey havebeenconductedby culturalproperty authorities of Sanming and Longyancity. Two survey reports concludedthat no valuable culturalrelics sites are found along the expressway alignment. Due Diligence. The task team reviewedthe EMSof linkedexpressways for due diligence, one for the northernsection in FujianProvinceandthe other for the southern section in GuangdongProvince. Regardingthe northern section, Quanzhou-SanmingExpressway (QSE), it is notedthat QSE will traverse throughthe Experimental Zone of DaxianfengProvincialNatureReservewith a bridgehiaduct(ca. 5 km, along an existingprovincialroad) and its Buffer/CoreZone with a tunnel (ca. 3km). A detailed ecological survey and impactassessment hadbeenconducted andnecessary mitigationmeasureswere well developedinthe EM. The E Mwas approved by SEPA inFebruary, 2006. The southern section in GuangdongProvince is under constructionandwill be in operationwithin 2006 priorto the construction ofYWE. The E Mfor this southern sectionwas approvedby GuangdongProvincialEPB inNovember 2004. The task team didnot find any outstandingenvironmental issueswhich mightbringreputational risk to the Bank. A2.2. PotentialEnvironmentalImpactsand MitigationMeasures (a) Design Phase EcologicalEnvironment. The final alignment was selectedto minimize impactson ecological environment such as naturalforestlandsthrough an alternative analysis(see A2.3). Since the project wouldoccupy 605 haof forestlands including405 ha of productionforests mainlyconsist of cedar and pine plantations, the design incorporatesas muchplantingas possible at road sides, medianstrips, interchanges, as well as borrowpitsand spoildisposal sites. The design also fully considers harmonizationwith the landscapeof surrounding areas. Water Pollution. Sincethe project would clear 1,3 17 haof landand involve 54 million m3of soillstone works, soil erosion and subsequentwater pollutionduringconstruction phasewill be one ofthe major environmentalproblems. To preventand mitigatesuch potentialimpacts,the design gives careful attentionto balancedcuttings and fillings, bridge foundation structures and roaddrain systems. A Contingency Planfor Traffic Accident involvingHazardousMaterialshas already beenestablished in 2004, which stipulates institutionalarrangementsand contingency proceduresto address traffic accidents. Noise. Among the 85 sensitive sites, noise levelswere predictedto exceedthe standardsat 3 locations duringday time andat 27 locationsduringnighttime in2010. Appropriate insulationmeasureshave beendesignedto be implementedat those locations with predictedclear noise excess together with the expressway construction. For those locationswith predictedmarginalnoise excess, insulationmeasures may be put inplace as appropriate basedonthe result ofmonitoring. (b) ConstructionPhase EcologicalEnvironment. Althoughthere are no protectedareas or other valuable natural,habitatswithin the project area, significantamount ofvegetation will be cleared duringthe execution ofthe project. To mitigatethis impact, extensive soil erosionpreventionmeasureswill be put in place includingslope protectionandre-vegetation, timely re-vegetationor reclamationof soil borrows and spoil disposal sites, and contingency measures in case of heavy rain. Educationfor constructionworkers aboutvegetation and wild life protectionas well as fire preventionwill be provided. Water Pollution. The discharge of untreatedwastewater from construction sites, camps, material handlingsites may cause water pollution. The wastewaters will betreated on-sitebeforereleasing into water bodies. Stricter managementwill apply for the construction works of bridges andaround water 80 source protectionzone. Solidwastes from constructionsites and camps will be collectedand recycledor disposedof in an appropriate manner. Noise and Air Pollution. Constructionworks includingheavy machinery operation and earth works may cause noise and air (dust) problems. The employment of lower-noisemachineryand strict regulationon the schedule of construction works will be implemented, for example, heavy machinery operationwill be suspendedbetween 1O:OO p.m. and 6:OO a.m.near residentialarea. Temporary noise-barrierswill be installedfor sensitive sites protection. Materialstorage sites and asphaltkoncrete mixingplantswill not be locatednear residentialareas, and constructionsites and major access roadswill be regularlywater- sprayed. Cultural Relics. The survey didn't foresee but ifany culturalrelics are found duringconstruction, the work will be suspendedimmediately,andthe localculturalauthoritywill be informedof it. The work will not resumeuntil the culturalrelics are examinedby the authorizedinstitutionand necessary preservationmeasuresare taken. (c) OperationPhase Water pollutionmay be causedby the dischargeof untreatedwastewater from service areas andtoll stations as well as spilledoil and hazardousmaterials. The wastewaterswill betreated on-sitewith a rapid-filtrationtreatmentmethod, andthe treated effluent will be reusedfor irrigation. The re-vegetation practices using localplant specieswill be regularlymonitoredandnecessarymaintenancewill be provided. Vehicles with excessive noise/gaseousemission will notbe allowedto use the expresswayto minimizetraffic noise and gaseous emissions. knvironmental Responsible problem Actions taken or to be taken Implementingorganizationorganization Fujian Provincial Expressway General :ommanding Office, Sanming Yong-Wu Highway Company, Yong-Wu Longyan Highway Company 'Except for the actions in item "l", sufficient measures such as Design unit 6.Noise removaland sound barrierhavebeen confirmed and incorporated into the design and tender documents. 81 Sanming Sanming Municipal Cultural Yong-Wu Highway 7.Cultural Cultural relic investigationhas been carried out and no cultural relics Relic Management Company, .elks sites were found along the route. commission, Longyan Municipal Culture and Yong-Wu Longyan PublishingBureau Highway Company Bridge and culvert havebeen sufficiently designedso as to satisfy Sanming $.Flood flood dischargerequirement (1/300 years for great bridge, lil00 Design unit Yong-Wu years for others). Highway Drainage system will be designed, contingency plan will be Designunit Company, ).Hazardouas formulatedso as to prevent impact on water body because of Longyan :argo hazardouscargo transportation accident. Yong-Wu ransport Highway Sanming Yong-Wu Highway Company, ad buildingmaterials must also be covered tc Contractors Longyan Yong-Wu Highway Company Fujian Provincial pondare damaged, they wil Expressway General Zommanding Office, Contractors Sanming Yong-Wu Highway Company, Longyan Yong-Wu Highway Company Contractors Contractors hinery and vehicle maintenancewill be strengthenedto keep 82 mobile sound barrier should be established. When there are large-sizedresidences50m within detour roads, transportationof constructionmaterials shouldbe forbidden at night on these detour roads. .Inorder to protect forestlandfrom damage, earth shallnot be a'Protection borrowed from forestland, and materials shall not be piled and temporary campsite shall not be built in forestland. ,Farmlandshallnot be usedas earth borrowingpits, if inevitable, the Of cological topsoil (30cm) will be retained, and promptly backfilled. .Educationon constructionworkers will be strengthenedto protect Contractors natural resources and wildlife animals and plants, hunting is strictly forbidden. Constructionvehicles will run on temporary detour roads so as not to damage farmland and vegetation. .In order to guarantee constructionsecurity, effective lighting devices] and safety signals will be installedon temporary roads, and at the same time full traffic regulationswill be adopted and enforced. .Duringconstructionstage, the blastingtime, signal and security guard will be regulated; vehicles in dangerousareas will be b!yident immediately evacuated. 1,Beforeblasting, careful and thoroughinspectionmust be taken. Contractors 11SK Safety watch out post will be set up so as to prevent people and II vehiclesfrom passingbefore blasting; during rush peak hours, blasting will not be conductedso as to avoid trafficjam and personnel casualty. ,Blasting materialmanagementand use will strictly follow public security department's safety requirements. Fujian Provincial ultural Relic Iftherediscoveredany fossils, ancientcoins, architecture or other Sanming MunicipalCultura .dministratio emains of archaeological and geologicalvalue, constructionshould Relic Management Sanming Yong-Wu relics :top immediately, and such discovery shall be reportedto local commission, Longyan cultural relic department immediatelyuntil authorized protection Municipal Culture and Highway department completes the cultural relic confirmation. Publishing Bureau Company, Longyan Yong-Wu Highway Company Fujian Provincial Expressway General :ommandink Office, Contractors Sanming Yong-Wu Highway Company, constructionmaterialtransportationplan will be formulated to Longyan Yong-Wu Highway Company C. Operationstage 'Prefectural or municipal transportation departments will set up Local 1.Hazardous transportation. respective coordinating organizations for chemical hazardous cargo Sanming Yong-Wu bureaus, loca transportatioi cargo leakage Chemical hazardouscargo transportation implements the system of Highway Company, public securit risk "cargo license" ,"driver license" and "guardian license" issuedby Longyan Yong-Wu and fire transportationdepartment.All vehicles engaged in hazardous Highway Company bureaus, loca chemical freight transportationshould use unified special-purpose environmenta 83 protection lic security, transportationmanagementand fire fighting bureaus, mentsshall designate driving routeto vehicles transporting Sanming dous cargo. The vehicles transportingchemicalhazardouscargc Yong-Wu Highway ect's hazardouscargo transportationmanagement Company, istration department will manage through Longyan Yong-Wu Highway Company vehicle's noiseexceeds the allowed standardor does not with discharge standard, they are not allowed to runon the Sanming Yong-Wu ement and education will be strengthenedto people on Highway aws and regulation concerningvehicle air pollution and Company, Longyan ive cargo transportationof coal, cement, sand and simply- Yong-Wu ged chemicalfertilizer and others may possibly spill alongthe Highway and pollute the road. Entrance inspectionwill be strengthened Company ehicles that do not haveenough measures to prevent such Sanming Yong-Wu ccording to the monitored results, sound barriersandother noise- Sanming Yong-Wu Highway ducing measureswill be taken in placeswith serious noise Highway Company, Company, Longyan Yong-Wu Longyan Highway Company Yong-Wu Highway Company Sanming Yong-Wu .Maintenance Highway f drainage rainage systemwill be desalted periodically so as to ensure a Company, ystem Longyan Yong-Wu Highway Company New buildings are forbidden to build within lOOm from the roadside Land .Other and schools and hospitalsare forbidden to build within 200m from Land management department management department IJ D. Environmentalmonitoring Constructionstage a. Monitoring item : TSP, bituminous smoke Supervising b. Monitoring frequency : twice/month company, c. Monitoringtime : 1 day Sanming d. Monitoring point : one unpavedconstructionroad near residence Yong-Wu .Ambient air and one concrete mixing stationsnear residence Local monitoring station Highway 0 Operation stage Company, a. Monitoring item : NOx Longyan b. Monitoring frequency : twice/year (winter) Yong-Wu Highway c. Monitoring time : 2 days, continuousmonitoring in 24 hours Company d. Monitoring point : Tangwei, Xizhaishang, and Shifang G Monitoringfrequency Supervising a. Constructionstage : once/month, one day for each time company .Noise b. Operation stage : twice/year, 2 days for each time EP supervisingengineer or Sanming 0 Monitoring point Local monitoring station Yong-Wu a. Constructionstage Highway Monitoring points needto be set up in villages and schools within Company, 84 150mfrom the road. Monitoring pointscan be properly set up in Longyan residencesnearby earth borrow pits, stone quarries and haulingroads. Yong-Wu b. Operation stage Highway Wangcuo, Maopu, Jiqingtang, Lijiafang, Xibei, Gushibei, Company Shizhencun, Laojunkeng, Liantangxia, Laoxiongwu Xizhaishang, Woli, Longjing village, Xincun, Yanqian Supervising 0 Constructionstage company a. Monitoring item : pH, petroleum, SS, permanganate index, BOD5 Sanming b. Monitoring frequency : onceimonth, 2 days for each time Yong-Wu Water c. Monitoring time : once inthe morning and afternoonof each day Highway Jality Local monitoring station d. Monitoring point : about 200m downstream the bridge sites of Company, Maping Bridge, Chetou Bridge, Shanghang Bridge, and Shangduan Longyan Bridge, 3 drop lines in 20 m from each river bank and in the river Yong-Wu center Highway Company Operation stage a. Monitoring item : pH, petroleum, SS, permanganate index, BOD5 b.Monitoring frequency : 2 times/year from 2010 to 2025,2 days for each time c. Monitoring time : once in the morning and afternoon o f each day d. Monitoring point : sewage outlets of 4 service areas and 4 parking lots A2.3. Alternative Analysis During the preparationof the project, alternative analysis was carefully conducted for both "without project" and "with project" scenarios. (For details, please see the YWE EMReport, Chapter 7 Comparisonand Selectionof Alternative Alignments) For "with project" scenario, the analysis was conductedin three steps, i.e. pre-feasibility, feasibility and preliminary design stages. Stage 1: Pre-feasibility study Three corridors were identified, which are all situated in mountainous and heavy hilly terrain, and all will exert some impacts on the natural ecology along the alignment. Considerationswere given to environmental impact (rivers, soil erosion, noise on local communities etc.), social impact, engineering and operation aspects. As a result, Corridor 1 was recommended, and Yong'an-Liancheng Nankeng section of Corridor 2 and Sanjiaoyang-Shanghangsection of Corridor 3 were used as alternative alignmentsfor further comparison. Therefore, a total of 8 possibleroute alignmentscombinations for 4 sections were concluded at this stage for further analysis. Stage 2: Feasibility study A total 9 possible combinations were further developedbased on Stage 1findings. Eachcombination was analyzed in terms oftimes of crossingrivers, resettlementamount, soil erosion, amount of earthhtone works, land occupation, construction difficulties, etc. As a result, Alignment 1was recommendedat this stage. Stage 3: Preliminarv Design Based on recommendedalignment from feasibility study, further fine-tuning was considered for 16 sections ofthe recommendedalignment. In-depth comparisonwas conducted, includingthe potential 85 environmental and social impacts inadditionto engineering, economic, and financial factors. The alignment finally selectedminimizes the social and environmentalimpacts, andresettlement requirements; and maximizesthe overallbenefitsto the projectbeneficiariesby taking into account local development plans. Furthermore,the selectedalternative avoidedmost ofthe unfavorablegeological locationswhile achievingappropriatehorizontalcurves and vertical slopes. A2.4. EnvironmentalManagementand Monitoring Plan An EnvironmentalManagementPlan (EMP) includes environmentalmanagementsystem, environmental managementplan, trainingplan, environmentalmonitoringplan, andsupervisionplan. The WBPMO established underthe Office ofthe DirectorofFPCDhas the responsibilityof overallcoordinationand guidance for implementing EMP. Under the guidance ofthe WBPMORPCD, LongyuanYWE Company and SanmingYWE Company are responsiblefor the implementationof EMP. Environmentalmonitoring will be carried out primarily by the monitoringcenters of LongyuanCity and SanmingCity. Trainingfor environmentalmanagementstaffs, construction supervisors, contractors and hazardouscargo transportation inspectorswill be held in Fuzhouanda foreigncountry. The trainingprogramwill include environmentalregulationsand standards, major environmental issuesassociatedwith the project, mitigationmeasures, supervision and responsibilities. Environmentalmonitoringon noise, surfacewater, ambient air andwaste will take place at selectedsensitive sites as well as construction sites, soil borrows and spoil disposal sites. The major variables to be monitoredinclude constructionandtraffic noise, pH, Oil, SS, BODandpermanganateindexfor surfacewater, TSP andNO2 for ambientair. The implementationcost of environmentalsupervision, monitoringandmitigationmeasuresis estimated as about RMB217.83 million. A2.5. Public Consultation and Information Disclosure Three roundsof public consultationwere carried out inNovember 2004, July 2005 andNovember 2005 accordingto the Bank policy. The first roundof consultation was conductedby meansofvisit interview to 100householdsinwhich 83 valid answers were collected. The secondand third roundof consultation included householdvisit interviews to 520 households(452 valid answers) and public meetings (17 places, 418 people). Duringthis process,project-affectedindividuals,NGOs, local governments and village committeeswere intensivelyconsulted. The consultedpeople generally supportedthe construction ofthe expresswaywhile showedconcerns about noise, dust and air pollutionproblems. They requestedmeasures such as minimizingagricultural land occupation, tree planting, construction/trafficnoise control, roadsafety for students and other measures. Mitigationmeasures respondingto these requestswere incorporatedinthe engineering designs andthe EMP. The draft EIA and EAPwere disclosedlocally at Yong'an City, Liancheng County, ShanghangCounty and WupingCounty inMarch2006, as well as in Washington D.C. inApril 2006. A3. RURALROADS IMPROVEMENT PROGRAM(RRIP) A3.1. Baseline EnvironmentalConditionsin Fujian Province Ecologicalenvironment. The total forest area inFujianProvince is 12.15km2,which correspondsto 62.96%of itstotal land area. Despite soil erosionmitigationefforts, 1.08km2or 8.8% oftotal landarea has not beenrestoredyet at the end of 2004. 95 naturereserveshavebeenestablished at the endof 2005, including 10 national level,29 provinciallevel, 6 city leveland 50 county levelnature reserves. 86 Water, Noise and Air Quality (in 2004). Water quality measurementswere carried out at 121locations in 12 rivers,andthe water quality standardswere satisfiedat 83.6% ofall monitoringlocations. The ambient air quality levels in23 cities mostlymet the standards,however, the frequency of acid rain occurrencewas high(42.2%). The annual averagetraffic noise levelinall citieswas 69.2dB, andthose in 7 cities exceededthe day time standardo f 70dB. The annual average ambient noise level inall cities was 55.5dB, andthose in9 citiesmet the day time standardof 55dB. A3.2. EnvironmentalManagementFramework As the core ofEMF, developedare: (a) environmentalmanagementand supervisionscheme; (b) EA preparation and approval proceduresincludinga checklist to identifypotentialenvironmental issuesand translation of proposedmitigationmeasuresintocontractualobligations; (c) trainingplan; (d) supervision andreportingsystem. The FPCDwill be responsiblefor the overall guidanceandmonitoring,while the city highway bureauswill be incharge of the monitoringof compliance, andcounty communications bureausfor the implementationofthe EMF. Basedon the EMF, each county that couldbe potentiallysubject to Bank financingwill prepareone EA for all the ruralroadswithin the databank inthe county. The county EA will be approved by a County EnvironmentalProtectionBureau, and submittedto FPCDfor filing. The county communications bureauswill reportfrom the environmental safeguards perspectiveonthe completionofthe construction activitiesandfinal quality of each roadusingchecklistsdeveloped inthe EMF. For those roads applying for the Bank fund, a recordo f inspectionwill be submittedto the Banktogether with the approval verificationof FPCDon the compliance with the EMF. Duringsupervision, the Bankwill randomly check county EAs and the checklistsfor a sample of Bank-fundedroads. For reference,a similar procedurewill be appliedto a sample of non-Bankfunded roads. FPCDwill establisha Project Supervision Groupthat is responsiblefor final verificationandapproval for releaseof support transfers. For those roads applyingfor the Bank fund, the ProjectImplementation InspectionTable ofeachroadwill be submittedto the Bank, together with the approvalverificationofthe Project SupervisionGroup. A3.3. Public Consultation and Information Disclosure The basicsandproceduresfor public consultationand informationdisclosure are developed, which are to be followed inthe preparation of county EAsto meetthe Bank's requirement. Includedare objectives, executive organizations, target groups, methodology, contents includinga sample of questionnaire, and so forth. A3.4. EnvironmentalMitigation Measures (a) DesignPhase The design of roadswill follow the originaltopography as far as possibleto minimizevegetation disturbanasand keep balancesbetweencuttings andfillings. Drainsystems are designedso as to prevent soil erosionwhile avoidingadverse impactson surroundingirrigationsystems, and, in particular, to protectdrinkingwater resourcesfrom pollutedwater discharge. Borrowpits and spoil disposal sites will employ erosion preventiondesigns. 87 (b) Construction Phase Ecologicalenvironment. Construction workers will be trained and supervised to minimize impacts on ecological environment. Borrow pits and spoil disposal sites will be carefully managed to prevent soil erosion and re-vegetated after their use. Inhear protected areas or tourism resorts, borrow pits, spoil disposal sites, concrete mixing sites and construction camps will not be allowed to place. Noiseand Air Pollution. Lower-noise construction machinery will be employed as far as possible. Heavy machinery operation will be suspendedbetween 1O:OO p.m. and 6:OO a.m. as well as noon and 2:30 p.m.within 50 m from schools and residential areas. Concrete mixing sites will be located on the downwind directions at least 200 m away from schools and residential areas. Material storage sites will be located at least 200 m away from schools and residential areas. Construction sites within 50 m from schools and residential areas will be regularly water-sprayed. Soil erosionand Water pollution. Mitigation measures to prevent soil erosion and subsequentwater pollution will be undertaken including (a) avoiding earth works duringrainy season; (b) minimizing vegetation clearance and immediate re-vegetation; (c) employing slope protection techniques; and (d) temporal storage and reuse o f excavated fertile topsoil. Wastewater usedfor machinery and vehicle washing will be allowed for discharge only after oil separation and sedimentation. Discharging hazardous substances into drinkingwater resources will be strictly prohibited. Cultural Relics. Ifany cultural relics are found duringconstruction, the work will be suspended immediately, and the local cultural authority will be informed o f it. The work will not resume untilthe cultural relics are examined by the authorized institution and necessary preservationmeasures are taken. (c) OperationPhase Regulation on transport o f hazardous materials will be strictly implemented. Traffic signs will be installed to prevent loud horn noise near schools and residential areas, and to raise safety awareness at school gates. Village people will be encouraged to collect animal wastes left on roads and reusethem as a fertilizer to prevent them from running into water bodies. In case o f road works inhear protected areas or tourism resorts, the capacities o f managing organizations will be strengthened to prevent potential indirect impacts due to increased accessibility. ANNEX 10. PART B. SOCIAL SAFEGUARD ISSUES The project has two major civil works components, i.e. the expressway andthe ruralroad development program. The former would require land acquisition and population relocation. The social economic survey has also confirmed that there are no minority nationalities communities inthe project areas o f the expressway component. The latter is to give existing rural roads a concrete surface and land acquisition and relocation is not expected. Following the Chinese laws, regulations and World Bank OP 4.10 on InvoluntaryResettlement, FPCD and FPECD have prepared a Resettlement Action Plan (RAP) for the expressway component and a Resettlement Policy Framework (RPF) and a Minority Nationalities Development Framework for the rural road program for exceptional eventualities. B.1. EXPRESSWAYCOMPONENT The proposed expressway is 195 km, runningthrough Yong An City and three counties of Lian Chen, Shanghang and Wuping. Social economic surveys were conducted inthe project areas along the expressway. The project areas are located inthe western and mountainous part o f Fujian Province. This area i s less developed in its social economic development and is particularly lagging behind in infrastructure. Apart from Yong An County which is the most developed in the project areas, the per 88 capita income inthe other three counties are all below the average inthe province. Agriculture remains the main income source for most o f the rural farming households. There are altogether 280 villages in 15 townships inthe four city and counties. Only 69 villages will be affected by the project. The average farmland holding per householdranges between 0.25 to 2.15 mu, mostly around one mu. According to the representative household sample survey conducted with about 10% the total affected population, the average household size is about five people, with a total land holding o f 6.25 mu per family, including 2.6 mu o f cultivated land. Main agriculture products include paddy, vegetables, sweet potato, tobacco and bamboo. Average household income ranges between 23,000-15,000 Yuan. Agriculture income remains the main income source, about 67%, o f which planting industryaccounts for 63%. Much considerationhas been given to minimizing the adverse impacts inthe planning process. Different alternatives have been compared in terms alignment selection, design o f highway passes, scheduling project construction, selection o f borrow and spoil areas. These are detailed in the RAPS. Major impacts relate to land acquisition and structure demolition. This component will require the acquisition o f land, relocation o f houses and tombs, and cutting down o f trees. The component will also have an impact on some infrastructure, such as roads and power and communication lines. This component will requirethe acquisition o f 22,738 mu o f land, o f which cultivated land is 8,996 mu, 40% o f the total, forest and non-used land 11,6 12 mu, about 5 1%. The component would affect a total o f 47,990 people in 10,784 households from 69 villages. This includes 39,141 people from 9,522 households who will lose land and 1,638 households who will lose houses. Project impacts are detailed inthe RAP by category and by village, Temporary land needs would be required duringthe construction period for quarries, borrowing areas, construction camps and access roads etc. These will be confirmed as the engineering construction drawings and construction arrangements are finalized. The project would affect 10 enterprises. Most o f them are small private enterprises and business. Project impacts on them are relatively minor, related only to the attached structures. Only one enterprise would need relocation. SUMMARY OF MAJOR IMPACTS The project has also identified vulnerable population among the affected, such as women headed families, the extremely poor, the disabled and widowed, There are 204 people belonging to 57 families belonging to the vulnerable groups. They are listed by category by villages inthe RAP. 89 Principles. The followingwere the guidingprinciplesfor developingthe RAPs: The affectedpeople should improveor at least restoretheir living standardsto pre-resettlement level. Resettlement plans, sites of new houses, standards and buildingareas shouldbe determinedafter consultation with the affected people. For all affected buildings,the compensation should becalculatedon the basisofthe current replacement cost without considerationof depreciation. The salvageablematerialsfrom the houses to be demolishedbelongto the owners ofthe houses. The affectedfarmers will determinetheir own livelihoodrehabilitationmeasures. The project office and local governmentswill assistthem indevelopingthese measures. Redistributionof remainingfarmland amongthe farmers is the hndamentalmeasurefor livelihooddevelopment andmust be carried out for all seriously affected villages. Cashpaymentto individualhouseholdis only allowedincase of minor impact andonly at the endorsementat the villager councils. Lack of title wouldnot bar affectedpeople from resettlemententitlements. All compensationshouldbe paidbefore acquisitionand priorto the start of the works causingthe displacement . Differences in output will be paidto the farmers on temporarilyborrowedland until its productivityis restoredpriorto use ofthe borrowedland. Economic rehabilitation. Village rehabilitationapproachwas developed in consultation with affected farmer groups. The project will follow a rehabilitationstrategy combiningland-for-landmeasuresand cash paymentoption. Redistributionofthe remainingvillage land is the primarymeasure. Landto be redistributed will be from village reservedland, returnedcontract land and landto be developed. This measureis plannedfor all seriously affected villages. Ifland loss is marginaland farmers prefer cash compensationto goingthrough the processof landredistribution,cash compensationwill beprovidedas an option. Additional assistancewill also be providedto the farmers inthe affectedvillagesintheir economic rehabilitation. Inthe 10 seriously affectedvillages, the project office, local governmentsandthe farmers worked together and formulated an initial livelihooddevelopment planfor eachvillage. They have identified areas of needanddevelopedmeasuresfor each of these villages. These measuresinclude development of cash crops, improvement of on-farmworks, reinforcingextension services, introductionofnew varieties, farmer training, agro-processingandreclamationofbarrenmountainousareas, and livestock development. Theseare detailed inthe RAPS.These initial plans will be further developed in close consultations with the villagers. They will be reviewedby relevant agenciesand implementedwith support from relevantgovernmentextensionagencies. Relocationof households. The projectwould requirethe relocationo f 1,5 14 householdsspreadout in 69 villages. Mostvillages would have a small number of relocatinghouseholdsexcept a few villages near interchangesthat would have a larger number of householdsto relocate. All relocatinghouseholdswill be resettledwithin existingvillages. Mostofthem will be allocatednew plotsfor their new house construction. These sites will be selectedin consultationwith the relocatinghouseholds. Group resettlementsites will be developed invillages with larger number of relocatinghouseholds. County and township government will be responsible for their designand construction. All relocatinghouseholds will be providedaccess to basic infrastructure services either through sharing existinginfrastructureor new infrastructure to be providedby the project. Thosehouseholds living in semi-urbanareas who requestrelocatingto urban areas will be paid in cash and assisted inrelocatingto urbanareas. All houses will be paid at replacement cost without depreciation, andwithout deductionof salvageable materials. The resettler householdswill be responsiblefor their newhouseconstruction themselves. 90 Rehabilitationof infrastructureand business. Infrastructureaffected is mainlypower and telecommunication lines, water conservancyandtransportation facilities as well as roads. For these facilities,compensation basedon the reconstructioncost will be paidto the government departments who are responsiblefor these facilities. The government departments will be in charge ofthe reconstruction. Mostbusinesswill be affectedthrough loss of some attachedstructures such as walls, some lands or temporary stop of operations during the construction period. They will be compensatedincash. One enterprisewill require relocationand it will be assistedin its relocationandre-establishmentoftheir operation. Consultation and participation. The resettlementplanningfollowed a participatoryprocess. Affected villagersandvarious government agenciesparticipated inthe social economic survey, impact census, inventoryandformulationofthe compensatoryand livelihoodrehabilitationplan. They will continue to participate inthe formulationand implementationo f detailed village livelihooddevelopment plans. Project information,relevant government policiesand regulations were broadly disseminatedthrough village meetings inthe project areas. A project informationhandbookwill be developedand distributed to every affected farmer household. The project RAPhas also beendisclosed. ImplementationSchedule. The RAP implementationwill be aligned with civilworks construction. New house constructionwill occur inaccordancewith the civilworks schedule. Resettlersmust be given at least four monthsto buildtheir new houses before the demolitionof the old houses. Before new house construction, a noticewill be providedthree months inadvance to allow for resettlementsite selection, planning, anddevelopment. Civilworks will start after landacquisitionis completed. All affected infrastructure will be reconstructedbeforedemolitionofthe old ones. Resettlementorganization. FPECD is in charge ofthe implementation of the resettlementprogram.A multi-levelresettlementorganizationhas been established for the implementationofthe project, including two FPECDbranchcompanies ineach of the municipalities,and resettlement offices at provincial, municipal,county andtownship levels. These offices will employ competent andexperienced staff. Their respectiveresponsibilitiesand functions are detailedinthe RAPS.Trainingwill be providedto the projectstaff, Grievanceredress. A mechanismhas been establishedfor grievanceredress. Grievances can be filed both orally and inwriting. Startingat village level, the grievances can be elevated to township, county, city andFPECDlevelifthey are not happy with the resolutionat the lower level. The affected couldalso file a case incourt ifthey are not happy with the resolutionby the project authority. All grievances and their resolutionswill be recorded. A timeline is establishedfor their resolutionat each level. This mechanismhas beendisclosedto the local populationandwill be further disseminatedthrough the Resettlement InformationBooklet. Monitoring and Evaluation. Bothinternaland externalmonitoringis plannedfor resettlement implementation.The resettlementoffices will be responsiblefor the internalmonitoring. An external institutewill be appointedto undertakethe independentmonitoringof the resettlementprogram. The monitoringscope, targets, indicators, procedures,methodologyandreportingrequirementsare described inthe RAP. ResettlementCost. The total resettlementcost is about RMB 855 million, equivalent to US$106.3 million. This budget includes the compensationfund for land, houses andattachedstructures, infrastructure and trees, various relocationallowances, business loss duringtransition, specialallowance for vulnerable groups, managementandmonitoringcosts, contingencies.All resettlementcosts will be financed by domestic funding. 91 B.2.RURALROADIMPROVEMENTPROGRAM(RRIP) The projectwill finance part ofthe provincialruralroadprogramfrom a database of ruralroadsthat have been identifiedfor rehabilitationbefore 2010. Forthe projectpurpose, samplingpost-review will be adopted inplace of upfrontreviewand approval in screening, review andapprovalofprojectroads.Only roadsthat meetthe agreed implementationcriteriawill be consideredas eligible for project financing. A policy framework has beendevelopedfor this purposeand it lays out the planningand implementation criteriafor projectfinanced roads. This framework includes policiesthat governs issuesrelatedto landandminoritynationalities. Giventhe concreting nature of the project, negative impactof landacquisition or relocationis not expected. These land acquisition, resettlementpolicyand minoritynationalitiesdevelopment frameworks are developed for the eventuality of exceptional cases where land acquisition or relocationcannot be avoided or activitiesare carryingout in areas where minoritynationalitiesreside or use for their livelihood. In such cases, the project roadswould follow these frameworks in identifyingsuch impacts, developing and implementingnecessarymitigationmeasures. HanChinese is the dominant ethnic group inFujian, with only 1.7% of its 35 million peoplebelongingto minoritynationalities. Mostof itsminority nationalities are spreadalongthe coastalareas. However, consideringthe possibilityof financingroads in minority nationalitiesareas, the policyhas also built inprovisions in complianceto addressissuesrelatingto Minority nationalities. These resettlementandminoritynationalitiespolicyframeworks are developedaccording local laws and regulationson landandminoritynationalitiesas well as World Bank OP 4.12 on Involuntary Resettlementand OP4.10 on Indigenous People. They describethe overall legal framework, planning principles,procedures,compensatoryandrehabilitationapproach, consultation, broadsupport to the project, and participatoryrequirements, grievance redressmechanisms, organization andmonitoring arrangements. Where minority nationalitiescommunitiesare involved, they will be fully informedand consulted over the design ofthe project, includingassessment and identificationofpossible adverse impacts, and development of appropriate mitigationmeasures. The township government will informthe local population of the project characteristics, the possible impactsandthe action plan of mitigation measures,whichmust be socially and culturalacceptable to the minoritynationalities, and should obtain the broad support of the minoritynationalitiesbeingaffected by the project. When a projectis located in a minority nationalitiesarea andrequires land acquisition or relocation, township governments and land offices must also informthe local populationof the landneeds, anddiscussandagree on the compensatory and rehabilitationarrangements. The township governmentswill documentthe action plan in the form of a Minority NationalitiesDevelopment Planand, ifthe project requires land acquisitionor relocation, a ResettlementAction Plan. These frameworks will be broadly distributedto projectareas for compliance. At completion and request for financingunderthe project, each candidate roadwill be reviewedfor its planningand implementation compliance with these frameworks. Only at its full compliance, FPCDwill consider the eligibility of the completedworks for financing under the proposed project. 92 Annex 11: Project Preparation and Supervision CHINA: FujianHighway Sector Investment Project Timetable Planned Actual PCNreview 06130105 08131/05 InitialPIDto PIC 07/01/05 07123/O5 Initial ISDS to PIC 09/09/05 10/24/05 Appraisal 05115/06 04118/06 Negotiations 07/05/06 08130106 BoardRVPapproval 10112/06 Planneddate of effectiveness 02115/07 Planneddate of mid-termreview 05115/09 Plannedclosingdate 12131111 Key institutionsresponsiblefor preparationof the project: 0 FujianProvincialCommunications Department:(a) Officeof the World Bank FinancedProjects; (b) PlanningDivision;(c) Construction Division;and (d) FinancialDivision 0 FujianProvincialExpresswayConstruction Directorate: (a) Planningand Investment Division; and (b) EngineeringDivision 0 FujianProvincialExpressway Company, Ltd: o SanmingYong'an -Wuping Expressway Company Ltd. o LongyanYong'an -Wuping Expressway Company Ltd. FujianProvincialFinancialDepartment(Foreign Debt Division) 0 FujianProvincialDevelopment and ReformCommission 0 FujianProvincialCommunications and PlanningDesign Institute 0 FujianProvincialEnvironmentalResearchInstitute 0 BeijingTransport Planningand ResearchInstitute(YWE Design Review) 0 BeijingHighwayResearchInstituteof MOC (Environmental Review) 0 SENER Ingenierosy Sistemas, SA. (SpanishConsulting Firm-YWE DesignReview) 93 Bankstaff and consultants who workedonthe projectincluded: Name Title Location Aurelio Menendez Task Team Leader Washington DC LeadTransport Specialist Carlos Ricardo Escudero LeadCounsel Beijing Andres Liebenthal Country Sector Coordinator Beijing Environmental and Social Safeguards Han-KangYen ResearchAnalyst Washington DC Economic andFinancialAnalysis ChaohuaZhang Senior Social Sector Specialist Washington DC Youlan Zou Senior Social Sector Specialist Beijing NaoyaTsukamoto (Ident.) EnvironmentalSpecialist Beijing HiroshiOno (Prep./Appr.) Senior EnvironmentalSpecialist Beijing PeishenWang EnvironmentalSpecialist Beijing Gao Boping Transport Specialist Beijing Jacques Tollie LeadHighwayEngineer Washington DC PanWen RuralRoads Specialist Beijing Jinan Shi Senior Procurement Specialist Beijing DaweiYang Procurement Specialist Beijing Yi Dong FinancialManagementSpecialist Beijing Junxue Chu FinanceOfficer Washington DC Alejandro Gamboa FinanceSpecialist Washington DC WenlingChen Transport Analyst Washington DC Albert0 Nogales Transport Consultant Washington DC MariaLuisaJuico ProgramAssistant Washington DC ImogeneJensen Senior Economist Washington DC Quality Review Supee Teravaninthorn Peer Reviewer Washington DC Aymeric-AlbinMeyer Peer Reviewer Washington DC Michel Bellier Peer Reviewer Washington DC Fundsexpendedto date on projectpreparation: 0 Bank resources:EstimatedBank funds for preparation:US$287,230(FY05: US$78,307; FY06: US$208,923) 0 Trust funds: SpanishTrust Funds administeredby the Bank US$150,000, for undertakinga specialized reviewofthe preliminaryanddetailedengineeringdesigns ofthe YWE. 0 Total:US$437,230 EstimatedApprovaland Supervisioncosts: 1. Remainingcosts to approval: US$35,000 2. Estimatedannual supervisioncost:US$80,000 94 Annex 12: Documentsin the ProjectFile CHINA: Fujian Highway Sector InvestmentProject e EngineeringFeasibilityStudy Report. Changchun- ShenzhenExpressway.Yong'an-Wuping ExpresswaySection inFujianProvince inthe Border of Fujianand GuangdongProvinces.Fujian ProvincialCommunications Planningand DesignInstitute. March2005. e Technical Standardsfor FujianRuralRoadEngineering.FujianProvince.August 2004. e WorldBank, 2004, ImplementationCompletionReport for the FujianProvincialHighwayProject, ReportNo. 29288 (June 9). e World Bank, 1999,Project AppraisalDocumentfor the SecondFujianHighwayProject, Report No. 19286-CHA (June3). e ResettlementAction Plan, Ministry of CommunicationsHighwayResearchInstitute,March, 2006 (English& Chineseversiordelectronicfiles). ProcurementCapacity AssessmentReport. FHSIP. World Bank.March6,2006. FinancialManagementAssessmentReport. World Bank. February 15,2006. EnvironmentalImpact Assessmentfor the YWE, March2006. e EnvironmentalManagementPlanfor the YWE, March2006. e ResettlementAction Planfor YWE, March2006. e EnvironmentalManagementFrameworkfor the RRIP, March2006. 0 PreliminaryDesignReviewReport(carriedout for the Bank by SENER), February2006. e Resettlementand LandAcquisition PolicyFramework, March2006. e EthnicMinoritiesPolicyFramework,April 2006. e Draft Terms of Referencefor Toll Rates Study, June 2005 95 Annex 13: Statement of Loans and Credits CHINA: FujianHighwaySector Investment Differencebetween expected and actual OriginalAmount in US$ million disbursements ProjectID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Fnn Rev'd PO75732 2006 CN-SHANGHAIURBANAPL2 180.00 0.00 0.00 0.00 0.00 18000 0.00 0.00 PO67828 2005 CN-RenewableEnergy Scale-up Program 87.00 0.00 0.00 0 00 0.00 87 00 0.00 0.00 PO68752 2005 CN-Inner MongoliaHighway & Trade 100.00 0.00 0.00 0 00 0.00 100 00 0.00 0.00 Corrid PO69862 2005 CN - AgriculturalTechnologyTransfer 100.00 0.00 0.00 0 00 0.00 10000 2.20 0.00 PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0 00 0.00 55 77 3.32 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0 00 0.00 10000 0.00 0.00 Development PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0 00 0.00 17200 7.00 0.00 PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0 00 0.00 13000 0.00 0.00 PO81161 2005 CN-CHONGQMG SMALL CITIES IIP 180.00 0 00 0.00 0 00 0.00 18000 0.00 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT 100.00 0.00 0.00 0 00 0.00 10000 0.00 0.00 MGMT PO69852 2004 CN-WuhanUrbanTransport 200.00 0.00 0.00 0 00 1.00 18800 154.20 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0 00 0.00 55 26 10.62 0.00 Development PO84003 2004 CN-GEF GUANGDONG PRD URB 0.00 0.00 0.00 I O 00 0.00 1000 0.40 0.00 ENV PO81749 2004 CN-Hubei ShimanHighway 200.00 0.00 0.00 0 00 1.oo 16741 28.41 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0 00 0.00 12182 -4.43 0.00 PO73002 2004 CN-BasicEducationin WesternAreas 100.00 0.00 0.00 0 00 0.00 86 30 36.87 0.00 PO75035 2004 CN - GEF-Hai Basin Integr.Wat. 0.00 0.00 0.00 17 00 0.00 15 06 2.88 0.00 Env.Man. PO75602 2004 CN-2nd National Railways (Zhe-Gan 200.00 0.00 0.00 0 00 1.oo 186 00 17.00 17.00 Line) PO75728 2004 CN-GUANGDONGPRDUR ENVMT 128.00 0.00 0.00 0 00 0.64 12072 1.26 0.00 PO77615 2004 CN-GEF-Gansu & Xinjiang Pastoral 0.00 0.00 0.00 I O 50 0.00 9 50 3.30 0.00 Develop PO65463 2004 CN - Jiangxi IntegratedAgric. Modern. 100.00 0.00 0.00 0 00 0 00 93 44 12.84 0.00 PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0 00 0.46 90 09 6.55 6.04 PO67337 2003 CN-2ndGEF Energy Conservation 0.00 0.00 0.00 26 00 0.00 I 440 25.10 0.00 PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0 00 0.00 80 I6 30.16 0.00 PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0 00 0.00 129 16 1.86 0.00 PO70191 2003 CN-SHANGHAIURB ENVMT APLl 200.00 0.00 0.00 0 00 0.00 I7729 28.29 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0 00 0.00 89 49 -10.51 0.00 PO40599 2003 CN-TIANJM URB DEV I1 150.00 0.00 0.00 0 00 0.00 I39 51 13.28 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0 00 0.00 207 79 35.79 0.00 PO60029 2002 CN-GEF-Sustain.Forestry Dev 0.00 0.00 0.00 I 6 00 0.00 1145 9.40 0.00 PO64729 2002 CN-SUSTAINABLE FORESTRY DEV. 93.90 0.00 0.00 0 00 0.00 52 06 14.90 0.00 PROJECT PO68049 2002 CN-Hubei HydropowerDev in Poor 105.00 0.00 0.00 0 00 0.00 60 47 21.41 0.00 Areas PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0 00 0.00 0 00 0.00 56 17 9 17 0.00 PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0 00 0.00 24 55 19.55 0.00 PO71147 2002 CN-TuberculosisControl Project IO400 0.00 0.00 0.00 0.00 65 37 23.57 0.00 PO58845 2001 CN-Jiangxt I1Hwy 200 00 0.00 0.00 0.00 54.77 30 OS 27.82 0.00 PO56596 2001 CN-ShijlazhuangUrbanTransport 10000 0.00 0.00 0.00 0.00 13 15 64.75 0.00 PO56516 2001 CN - WATER CONSERVATION 74 00 0.00 0.00 0.00 0.00 21 97 13.47 0.00 PO56199 2001 CN-3rd InlandWaterways 10000 0.00 0.00 0.00 0.00 50 80 12.30 0.00 PO51859 2001 CN-LlAO RIVER BASIN 100 00 0.00 0.00 0.00 0.00 40 70 28.I O 0.00 PO47345 2001 CN-HUAIRIVER POLLUTION 105 50 0.00 0.00 0.00 0.00 67 54 -37.96 0.00 CONTROL PO45915 2001 CN-Urumqi UrbanTransport 10000 0.00 0.00 0.00 0.00 34 47 34.47 0.00 PO64730 2000 1CN - YangtzeDike Strengthening 210 00 0.00 0.00 0.00 0.00 92 85 92.85 -0.45 Project PO64924 2000 CN-GEF-BEIJMG ENVMT I1 0 00 0.00 0.00 25.00 0.00 22 67 23.01 13.44 PO42109 2000 CN-BEIJING ENVIRONMENT I1 349 00 0.00 0.00 25.00 0.00 255 73 213.85 0.00 PO45264 2000 CN-SMALLHLDR CATTLE DEV 93 50 0.00 0.00 0.00 0.00 0 74 -0.16 0.00 PO45910 2000 CN-HEBEI URBAN ENVIRONMENT 15000 0.00 0.00 0.00 0.00 81 61 48.61 0.00 PO49436 2000 CN-CHONGQMG URBAN ENVMT 200 00 0.00 0.00 0.00 3.70 I25 33 100 03 0.00 PO56424 2000 CN-TONGBAI PUMPED STORA 320 00 0.00 0.00 0.00 100.00 60 85 114.25 0.00 PO58844 2000 3rd Henan Prov Hwy 15000 0.00 0.00 0.00 0.00 34 36 29.36 0.00 PO58843 2000 CN-Guangxi Highway 200 00 0.00 0.00 0.00 19.70 30 88 36.58 0.00 PO36953 1999 CN-HEALTH IX (Shiyong Wang, Back- I O 00 50.00 0.00 0.00 0.40 24 26 23.55 5.10 UP) PO41890 1999 CN-Liaoning UrbanTransport 150 00 0.00 0.00 0.00 0.00 5 57 5.57 -2.11 PO42299 1999 TEC COOP CREDIT IV I O 00 35.00 0.00 0.00 0.00 28 63 -18.23 0.00 PO43933 1999 CN-SICHUAN URBANENVMT 15000 2.00 0.00 0.00 0.00 65 20 97.22 38.72 PO38121 1999 CN-GEF-RENEWABLEENERGY 0 00 0.00 0.00 35.00 0.00 1893 34.38 17.50 DEVELOPMENT PO46051 1999 CN-HIGHER EDUC REFORM 20 00 50.00 0.00 0.00 0.00 3 81 5.41 0.00 PO46564 1999 CN - Gansu& Inner Mongolia Poverty 60 00 100.00 0.00 0.00 13.30 1121 20.80 -12.42 Red PO46829 1999 CN-RENEWABLE ENERGY 10000 0.00 0.00 0.00 0.00 2 62 89.62 2.62 DEVELOPMENT PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350 00 0.00 0.00 0.00 0.00 32 81 32.81 0.00 PO49665 1999 CN-ANNING VALLEY AG.DEV 90 00 30.00 0.00 0.00 0.00 736 8.49 -11.51 PO50036 1999 Anhui ProvincialHwy 200 00 0.00 0.00 0.00 9.60 5 53 15.13 0.00 PO51705 1999 CN-FujianI1Highway 200 00 0.00 0.00 0.00 0.00 39 24 39.24 0.00 PO57352 1999 CN-RURAL WATER N 16 00 30.00 0.00 0.00 0.00 1043 10.20 10.20 PO58308 1999 CN-PENSIONREFORMPJT 0 00 5.00 0.00 0.00 0.00 0 52 0.50 0.00 PO51888 1999 CN - GUANZHONG IRRIGATION 80 00 20.00 0.00 0.00 0.00 14 56 14.93 0.00 PO51856 1999 ACCOUNTING REFORM& 27 40 5,60 0.00 0.00 0.00 1438 14.29 0.00 DEVELOPMENT PO35698 1998 HUNAN POWER DEVELOP 300 00 0.00 0.00 0.00 161.90 4 62 166.52 3.51 PO03619 1998 CN-2nd InlandWaterways 123 00 0.00 0.00 0.00 37.00 7 80 44.80 7.80 PO03566 1998 CN-BASIC HEALTH (HLTHS) 0 00 85.00 0.00 0.00 0.00 23 09 20.29 0.00 PO03614 1998 CN-Guangzhou City Transport 200 00 0.00 0.00 0.00 20.00 82 81 102.81 82.81 PO03539 1998 CN - SUSTAINABLE COASTAL 100 00 0.00 0.00 0.00 2.06 38 52 40.58 3.38 RESOURCESDEV. PO03606 1998 ENERGY CONSERVATION 63 00 0.00 0.00 22.00 0.00 1920 15.40 0.00 PO51736 1998 E. CHINNJIANGSU PWR 250 00 0.00 0.00 0.00 86.00 21 06 107.06 17.97 PO36414 1998 CN-GUANGXI URBANENVMT 72 00 20.00 0.00 0.00 13.48 50 29 63.17 4.75 PO46952 1998 CN - FOREST. DEV. POOR AR 10000 100.00 0.00 0.00 0.00 642 -92.01 7.99 PO45788 1998 CN-Tri-Provincial Hwy 230 00 0.00 0.00 0.00 0.00 15 14 15.14 0.00 97 PO40185 1998 CN-SHANDONGENVIRONMENT 95.00 0.00 0.00 0.00 1.40 10.18 11.58 0.51 PO44485 1997 SHANGHAI WAICAOQIAO 400.00 0.00 0.00 0.00 0.00 50.10 50.10 49.65 PO03637 1997 CN-NAT'L RURAL WATER 3 0.00 70.00 0.00 0.00 0.00 0.41 3.62 3.20 PO03650 1997 TUOKETUO POWEWINNER 400.00 0.00 0.00 0.00 102.50 16.08 118.58 16.08 PO36405 1997 CN- WANJIAZHAI WATER TRA 400.00 0.00 0.00 0.00 75.00 10.57 85.57 10.57 PO34618 1996 CN-LABOR MARKET DEV. 10.00 20.00 0.00 0.00 0.00 2.38 4.48 0.00 PO03594 1996 CN- GANSU HEX1CORRIDOR 60.00 90.00 0.00 0.00 0.00 62.21 61.58 -3.80 PO03639 1995 CN-SOUTHWEST POVERTY 47.50 200.00 0.00 0.00 0.01 0.15 24.21 24.21 REDUCTION PROJECT PO03632 1993 CN-ENVIRONMENT TECH ASS 0.00 50.00 0.00 0.00 0.00 0.04 0.61 0.29 Total: 10,902.07 962.60 0.00 186.50 704.92 5,186.07 2,549.78 313.05 98 CHINA STATEMENTOF IFC's Heldand DisbursedPortfolio (US$million) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2004 Antai 40.00 0.00 0.00 30.00 30.86 0.00 0.00 23.14 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 2005 Babei 11.oo 5.00 0.00 0.00 0.00 5.00 0.00 0.00 I999/00/02 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.61 0.00 0.00 2002 CDH ChinaFund 0.00 7.15 0.00 0.00 0.00 2.03 0.00 0.00 2003 CSMC 0.00 8.92 0.00 0.00 0.00 8.92 0.00 0.00 2004 CUNA Mutual 0.00 12.00 0.00 0.00 0.00 1.47 0.00 0.00 I998 ChengduHuarong 5.16 3.20 0.00 5.47 5.16 3.20 0.00 5.47 1992 ChinaBicycles 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 2004 ChinaGreen Ener 20.00 0.00 0.00 0.00 11.50 0.00 0.00 0.00 2004 China I1 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 ChinaRe Life 0.00 1.54 0.00 0.00 0.00 1.54 0.00 0.00 1994 ChinaWalden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2004 Colony China 0.00 16.07 0.00 0.00 0.00 3.41 0.00 0.00 2002 Darong 10.00 ISO 0.00 8.00 6.67 1SO 0.00 5.33 1994 DynamicFund 0.00 5.64 0.00 0.00 0.00 3.99 0.00 0.00 2005 FangXin SHMT 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Fang Xin Limited 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 2005 FangXin SHDX 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 FangXin SHPM 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 FangXin SZFX 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 19.00 0.00 6.00 18.00 12.45 0.00 6.00 11.62 2003 Great Infotech 0.00 3.22 0.00 0.00 0.00 2.52 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2002 HuarongAMC 9.00 2.51 0.00 0.00 9.00 0.49 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2002 IEC 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 2004 Jiangxi Chenming 60.00 12.90 0.00 0.00 30.00 12.90 0.00 0.00 1998 LeshanScana 2.92 0.00 0.00 0.00 2.92 0.00 0.00 0.00 2001/05 MaanshanCarbon 11.00 1.oo 0.00 0.00 0.00 0.00 0.00 0.00 2001/05 MinshengBank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996104 NanjingKumho 34.00 2.23 0.00 0.00 34.00 2.23 0.00 0.00 2001 New ChinaLife 0.00 13.21 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.39 0.00 0.00 0.00 0.39 0.00 0.00 2005 North Andre 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 Orient Finance 0.00 0.00 4.76 5.95 0.00 0.00 4.76 5.95 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2000 SEAF SSIF 0.00 3.95 0.00 0.00 0.00 1.29 0.00 0.00 2004 SIBFI 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 1998 ShanghaiKrupp 24.50 0.00 0.00 52.49 24.50 0.00 0.00 52.49 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 2002 Sino Gold 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 1995 SuzhouPVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 Wanjie High-Tech 12.19 0.00 0.00 0.00 12.19 0.00 0.00 0.00 2004 Wumart 0.00 3.90 0.00 0.00 0.00 3.90 0.00 0.00 2004 X Colony China 0.00 0.84 0.00 0.00 0.00 0.17 0.00 0.00 2003 XACB 0.00 19.94 0.00 0.00 0.00 3.25 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 I993 Yantai Cement 1.53 0.00 0.00 0.00 1.53 0.00 0.00 0.00 2003 Zhengye-ADC 15.00 0.00 0.00 7.00 11.59 0.00 0.00 5.41 2002 Zhone Chen " 0.00 5.00 0.00 0.00 0.00 5 00 0 00 0.00 Total portfolio. 387 41 275 84 87 36 126.91 239.48 211 76 10 76 109.41 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 BCCB 0.00 0.06 0.00 0.00 2005 Babei Silk Tie 0.00 0.00 0.00 0.01 2005 BioChina 0.00 0.01 0.00 0.00 2004 CCB-MS NPL 0.00 0.00 0.00 0.00 2005 ChangyuGroup 0.00 0.02 0.00 0.00 2004 ChenmingLWC 0.00 0.00 0.00 0.16 2004 ChinaGreen 0.00 0.00 0.01 0.00 2005 FangXin SHDX 0.00 0.00 0.00 0.00 2005 FangXin SHMT 0.01 0.00 0.00 0.00 2005 FangXin SZFX 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 0.01 0.00 2002 HuarongAMC 0.02 0.00 0.00 0.00 2002 IEC 0.00 0.00 0.01 0.00 2005 MSShipping 0.02 0.01 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 2004 SIBFI 0.00 0.00 0.00 0.00 2002 SML 0.00 0.00 0.00 0.00 2002 Sino Mining 0.01 0.00 0.00 0.01 2005 Vetroarredo 0.01 0.00 0.00 0.00 2002 ZhonnChen 0.00 0.00 0.00 0.03 Total pendingcommitment: 0.07 0.11 0.05 0.21 100 Annex 14: Country at a Glance CHINA: Fujian Highway Sector Investment China at a dance 9/8/05 East Lower- POVERTYand SOCIAL Asia 8 middle- China Pacific Income Developmentdlanwnd. 2004 Population mid-year (mi/lions) 1,296.5 1,870 2 430 GNI per capita (Atlasmethod US$) 1,290 1.280 1,580 Lfe expectancy GNI (Atlas method US$billions) 1,672.5 2,389 3,847 T Average annual growth, 1998-04 PopulationI%) 0.7 0 9 1 0 Laborforce (%) 0.8 1 1 0 7 GNI Gross per primary Most recent estlmate [latest year avallable, 1998-04) capita enrollment Poverty(% ofpopulationbelownationalpoverty IineJ 5 Urbanpopulation (% of total population) 40 41 49 Life expectancyat birth Wears) 71 70 70 Infant mortality(per 1,000live births) 30 32 33 Child malnutrition(% ofchildren under 5) 10 15 11 Access to improvedwater source Access to an improvedwater source(% of population) 77 78 81 Literacy(% of pmulabon aqe 15+) 91 90 90 - Gross primaryenrollment I%of school-agepopulation) 115 113 114 China Male 115 113 115 Lower-middle-incomegroup Female 115 112 113 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1984 1994 2003 2004 Economic ratios. GDP (US$ billions) 256 1 542.5 14163 16538 GrosscapitalformationlGDP 34 4 41.2 43 8 45 2 Exportsof aoods and services/GDP 11 3 25.3 342 39 7 Trade Grossdomestic savings/GDP 34 5 42.7 42 5 44 9 Grossnational savingslGDP 35 3 42.7 43 2 46 1 T Currentaccount balancelGDP 0 7 1.9 3 2 4 2 Interestpayments/GDP 0 4 0.9 0 5 0 4 Total debVGDP 4 7 18.5 136 107 Total debt servicelexports 7 3 7.7 7 2 3 6 Presentvalue of debUGDP 13 3 1 Presentvalue of debVexports 364 Indebtedness 1984-94 199444 2003 2004 2004-08 (averageannualgrowth) GDP 9 4 8 3 9.3 9 5 6 0 __I_ China GDP per capita 7 9 7 4 8.6 6 9 7 3 . . Lower-middle-incomegroup Exportsof goods and services 8 1 173 26.8 28 4 144 STRUCTUREof the ECONOMY /% of GDPl . _ Agriculture Industry Manufacturing 355 344 367 373 Services 247 31 9 332 31 9 Householdfinal consumptionexpenditure 512 445 449 431 02 03 04 Generalgov t final consumptionexpenditure 142 128 126 120 Imports of goods and services 114 234 317 367 (average annualgrowth) Agriculture 4 0 3 3 Industry Manufactunng Services 9 6 8 2 Householdfinal consumptionexpenditure 8 1 7 9 Generalgov t final consumptionexpenditure 9 4 8 6 Gross capitalformation 9 1 9 5 169 130 Importsof goods and services 9 9 155 248 225 Note 2004 data am preliminaryestimates *The diamonds show four key indicators inthe country (in bold) comparedwith its income-groupaverage If data are missing the diamond will be incomdete 101 1984 1994 2003 2004 ..... ............... .......... inflatim(U) * t,i 8 3 242 1 2 63 5 9 4 9 199 2 1 183 184 1 3 1 9 "28 -1 7 1884 1994 2003 2004 26,139 12*i,C06 438 223 593389 3,232 IO015 17533 18876 6,027 4Gb9 11 110 14478 tam5 tat 298 433 560 552 818 27.410 115814 4i2 760 563 423 2,331 3 137 5959 9755 139 d$35 29274 48003 7,245 51 487 $92869 252 624 50 103 98 to2 74 96 102 112 56 107 95 9 i 1984 la94 2003 2004 29.039 131375 485003 655827 29 183 127210 448 $24 836 843 144 70168 35079 49284 1534 1036 7838 -3523 442 1337 '7834 226W 1832 I0469 45975 68858 2,383 20056 71,*48 1 3 7 v 5 531 30527 % 17.023 +2D8364 97 710 416 2.06 622.945 2 8 8 6 8 3 8 3 1984 1994 21103 2604 12082 I00457 19356' 177 709 73 5933 10657 %la35 i?c35 18" 6097 10314 I0670 2285 11 I35 37073 24498 5 879 2690 1124 4 50 219 262 G 729BP 112 337 831 3.177 -3 OD2 -2 405 240 6.8B -1 1'78 -13,373 1419 33787 55507 e?OQOci 0 3975 7129 10923 959 4035 1.250 1250 197 2060 1.816 1246 0 323 2.459 99B 197 1737 "843 247 9 4f.13 450 387 187 1,331 -1.293 -140 IBRD 34578 CHINA FUJIAN HIGHWAY SECTOR INVESTMENT PROJECT HanjiayuanHanjiayuan Gulian Gulian Heilong NATIONAL EXPRESSWAY NETWORK R U S S I A N F E D E R A T I O N Jiang Heibaoshan Heibaoshan Jagdagi Jagdagi Aihun Aihun Yitulihe tulihe Wuyilingyiling K A Z A K H S T A N Nenjiang Nenjiang ManzhouliManzhouli To jiang Ton Yakeshi keshi Beian Beian Hegang Hegang Qianjin Qianjin Hailaer Hailaer Boketu Boketu H E I L O N G J I A N G Dongfanghong Dongfanghong Qiqihar Qiqihar Suihua Suihua Nancha Nancha Jiamusi Jiamusi AltayAltay FuyunFuyun Ranghulu Ranghulu Jixi Jixi HARBIN 44
Группа Всемирного банка · Project Appraisal Document
China - Fujian Highway Sector Investment Project : China - Fujian Highway Sector Investment Project
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