China - Second Fujian Highway Project

Report No. PID6663 PID6663.TXT Project Name China-Second Fujian Highway Project (@#) Region East Asia and Pacific Region Sector Transport Project ID CNPE51705 Borrower People's Republic of China Implementing Agency Fujian Provincial Transport Department Mr. Zhou Chao, Deputy Director, FPTD 6th Floor, Building 2, Hongyang New Zonc, 118 Yangqiao Road Fuzhou, Fujian, China Tel. No. 86-591-760-1477 Fax No. 86-591-760-1472 Date of Initial PID June, 1998 Date of this PID May 3, 1999 Appraisal Date March, 1999 Projected Board Date June, 1999 Project Cost/Financing IBRD 200 million Central Government 106 million Provincial Government 291.4 million Total costs 597.4 million Background 1. China's economic development since the opening of the economy in the late 1970s has resulted in a 9.5 percent average annual rate of economic growth. Key facets of this growth are rapidly increasing domestic and foreign trade as well as increasing personal mobility and consumption of energy. These, in turn, have caused the demand for transport infrastructure and higher quality transport services to surge. Supply capacity, however, is constrained and recognized as one of the most serious bottlenecks to future economic growth and efficiency. In particular, motorization is growing very rapidly. The road network in China ranks among the sparsest in the world relative to geographic area and population and very few intercity expressways are in existence. 2. The Government of China (GOC), through its Ministry of Communication (MOC) has embarked on a major program of expressway construction, comprising some 35,000 km, at an estimated cost of some US$150 billion, and leading to the development of the National Trunk Highway System (NTHS). This system will consist of 12 interprovincial trunk expressways, spanning China and connecting some 100 major cities. The coastal expressway between Tongjiang at the Russian border and Sanya on Hainan island is among the four highest priority  corridors in this program. It crosses the provinces of Heilongjiang, Jilin, Liaoning, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong and Hainan over a distance of approximately 5,200 km. It is designed as a high-grade- high-performance facility, at four lane - dual carriageway standard, fully access controlled, and will be operated throughout as a toll highway. This major expressway is scheduled for completion by about 2005. 3. Fujian Province, with an area of about 121,000 sq. km, is situated along the southeast coast of China. It has a population of about 33 million inhabitants. Eighty percent of the land area is classified as mountainous while flat and rolling areas with the centers of economic activity are located along the province's 3,300 km eastern coastline. This geographical configuration presents a natural barrier to the flow of communication and has retarded the development of north-south and east-west transport linkages between Fujian and its neighboring provinces. Proximity to Taiwan (China) and Hong Kong, however, coupled with preferential government policy, have led to the establishment of successful special economic zones at Fuzhou, the province's capital city and at Xiamen, its most important port city. Facing the Taiwan Straight on the east, Hong Kong and Southeast Asia on the south, and directly bordering the rapidly developing provinces of Zhejing in the north and Guangdong in the south, Fujian is strategically located for rapid economic development. Project Objectives 4. The proposed project would have the objectives to: (a) relieve traffic congestion and improve the mobility and integration of interprovincial trade, commerce and tourism between Fujian and Guangdong Provinces by assisting in the development of a key section of China's National Trunk Highway System (NTHS) in the principal coastal corridor; (b) strengthen highway institutional capacity at the Fujian Provincial Transport Department (FPTD) and related sector institutions, through provision of training, technical assistance and equipment, in planning, design, construction, operation and maintenance of Fujian's highway network; (c) develop and sustain a policy dialogue in the two key policy areas of the commercialization and corporatization of a provincial toll road authority and of province-wide highway maintenance management; and (d) improve the safety of road transport. Project Description 5. The investment components of the Second Fujian Project would include the construction of: (i) Zhangzhou-Zhao'an Expressway (ZZE) (132.5 km) in Fujian; (ii) an interconnecting road program (about 13 km); and (iii) other roads (about 42 km). These physical components would be strategic investments contributing to the early completion of an interprovincial coastal expressway of about 5,200 km between the Heilongjiang border with the Russian Federation in the North and Hainan Province in the South. The Zhangzhou-Zhao'an expressway is the only section not yet financed linking Fuzhou with Guangzhou and Hong-Kong. 6. The institutional and policy components for the project would comprise: (i) staff training and equipment to improve province-wide highway financing, management, and operation; (ii) road safety program; (iii) studies on highway maintenance management and toll rates; and (iv) construction supervision services for the expressway section, its interconnecting roads, and other - 2 -  priority roads. Project Cost and Financing 7. The estimated total cost of the project will be US$597.4 million with a foreign exchange component of about US$200 million. Implementation 8. The Fujian Provincial Transport Department has the overall responsibility for project preparation and implementation. Under FPTD, Fujian Provincial Expressway Construction Directorate Office (FPECDO), the executing agency for the ongoing Bank-financed Xiamen-Quanzhou and Fuzhou-Quanzhou expressway projects, would also be the executing agency for the proposed Zhangzhou-Zhao'an expressway project. Other project components such as the interconnecting road program, the other road subprojects, the TA, study and training components and the procurement of equipment would be executed by FPTD. The project would be implemented during 2000- 2005. Overall direction of the project at the central level would rest with the Ministry of Communication (MOC). MOC will assume an important role and provide some technical support. The Bank loan would be lent to the Borrower, the Ministry of Finance (MOF) which in turn would onlend the loan proceeds to Fujian Province on the same conditions as the Bank loan would be lent to MOF. Rationale for Bank Involvement 9. The involvement of the Bank results in much needed additional financial resources to help remove highway bottlenecks and increase traffic capacity in this high priority transport corridor. Bank involvement will accelerate policy, institutional and manpower development in highway planning, design, supervision, construction, operation, maintenance and finance. Bank involvement is also expected to benefit the design and the quality of construction of the roads to be undertaken. 10. Furthermore, the Bank will help the Provincial Transport Department to emphasize the need for proper maintenance of the highway network through introduction of modern maintenance equipment, training of staff and allocation of adequate maintenance funds. In addition, it will raise the awareness of the highway safety problem and make improvements in this regard. Similarly, Bank involvement will improve the provincial practices in the analyses and implementation of environmental, land acquisition, resettlement, and participatory aspects of highway projects. Lessons Learned from Past Operations in the Sector 11. Since 1985, the Bank has financed 21 highway projects in China (of which seven have closed), amounting to more than US$4.0 billion in Bank loans and IDA credits. The Bank has been and remains involved in the construction of some 2,800 km of toll expressways and other high-grade toll highways and in the rehabilitation, upgrading and maintenance of some 13,000 km of lower level (including rural) roads. In addition, as revealed during a recent Bank review and assessment of its highway TA, the Bank was and is involved in more than 50 TA tasks, comprising (i) highway planning and prioritization; (ii) highway finance; (iii) highway maintenance; (iv) operation and management of high- grade highways; and (v) traffic safety. Moreover, since mid-1996, the Bank -3 -  has also become heavily involved in the securitization of Bank-financed highway assets in China (so-called "asset-based financing"), through the issuance of highway equity of provincial toll road corporations on the Hong Kong and Shenzhen stock exchanges. 12. While the overall performance of the Bank's highway projects is by and large satisfactory, a number of problems have occurred, which have been taken into consideration in the design of the proposed project. The problems include: inadequate preliminary engineering designs and bid documents including costing of civil works; quality control of construction; late commencement of electrical and mechanical facilities component (which has delayed completion of some projects and necessitated the extension of the closing date of several Bank loans), and some lack in the scope and speed of policy and institutional reform, specifically relating to road maintenance, improved high-grade highway management and operation, and traffic safety. 13. All engineering designs and technical bid documents including cost estimates for the proposed expressways and related roads, including their E&M facilities, will be reviewed by international engineering consultants under grant funding from Japan. These technical reviews are still ongoing and will be completed by end of 1999. The quality of project engineering has also profited from the involvement of a French expressway specialist who participated in all project preparation mission. Quality control of construction, specifically for expressway works will be undertaken by foreign and domestic supervision consultants, with on average one well trained and experienced supervisor per km of expressway. The matter will also be addressed through increasing the frequency and quality of the Bank's supervision, by adding an experienced Chinese construction engineer to the technical staff at RMC who will also supervise the road works under the Second Fujian Highway project. This will be reflected in the proposed supervision mission plan. Timely completion of the E&M component will be achieved through stricter control and early commencement of the design and tendering procedures. 14. Some lack in progress in the highway sector policy dialogue with China constitutes the weakest area in the Bank's highway program. Although highway lending is substantial, with on average US$500-600 million per year in new highway loans, resulting in the Bank's important impact on the fast expansion in China's road capacity, progress in policy and institutional reforms has lacked and continues to lack behind. This deficiency is primarily rooted in the highly decentralized nature of China's highway sector, resulting in a weakened central ministry (MOC) and a consequent lack of national policy and institutional framework for sector reform, as well as in the construction orientation of China's provincial highway agencies. During preparation of the proposed project additional efforts were made to engage the Fujian PTD in a continuing policy dialogue. This was achieved by involving a policy and institutional expert from the Swedish Road Administration who joined all Bank preparation missions for the proposed project. To continue highway sector lending to China in coming years, the Bank needs to develop a more aggressive approach in this arena by staffing project preparation and supervision missions regularly with qualified institutional and policy experts and by advancing the sector policy dialogue more aggressively with MOC. 15. There also is a growing concern that adequate funding for highway maintenance is now not being secured to cover an expanding and more expensive - 4 -  highway system. Previously, this was not a real issue in China; adequate funding was set aside for this purpose. A comprehensive Highway Maintenance study under this project would address the organizational framework and develop a sustainable maintenance policy in the Province. 16. Experience in the area of land acquisition and resettlement has generally been satisfactory in the Bank's highway projects in China. In this area, as in the environmental area, it is particularly important that the Bank makes its requirements well known to the Chinese agencies at an early stage in the preparation of the project. A Bank resettlement specialist was involved from the very beginning in project preparation. The resettlement action plan for the proposed project has been reviewed and cleared by EASES. 17. Experience in the environmental area in China has generally been favorable as well. As in the case of resettlement, a Bank environmental specialist has been involved in project preparation from the very beginning. However, more attention needs to be paid to environmental supervision during construction and to the training of environmental personnel by the Chinese side. The proposed project will provide an adequate institutional setup and training for such environmental supervision and training. The quality of the Bank's resettlement and environmental work has also been improved recently, as part of the Bank's decentralization efforts. More of this work will in future be shifted to RMC due to increasing resident mission capacity in resettlement and environment. Environmental Aspects 18. The project is a category "A" from an environmental point of view. Environmental impact assessments (EIA) and Environmental Action Plans (EAP) have been carried out for the main roads included under the project. Major environmental impacts include noise and air pollution during construction and operation; alteration of hydrological regimes, soil erosion and impacts on local ecology during construction; impacts on cultural relics; and transportation of construction materials during construction. The revised final EIAs, EAPs and EA Summaries were submitted in March 1999 and were found to be satisfactory to the Bank. Land Acquisition and Resettlement Aspects 19. The project will require land acquisition and resettlement. Resettlement Action Plans (RAPs) are in accordance with Bank's Operational Directive 4.30 and have been found satisfactory. Efforts will be made during project preparation to minimize land acquisition and resettlement through modifications in highway alignments and designs. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 -5-  Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending May 21, 1999. - 6 -