China - Second Anhui Highway Project

Document o f The World Bank Report No: 25335-CHA FOROFFICIAL USEONLY PROJECTAPPRAISALDOCUMENT ONA PROPOSEDLOAN INTHEAMOUNTOFUSS250MILLION TO THE PEOPLE'SREPUBLICOF CHINA FOR SECONDANHUIHIGHWAY PROJECT May 23,2003 Transport Sector Unit East Asia and Pacific Region has a restricted distribution and may be used by recipients only inthe performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective December 16,2002) Currency Unit = RMB Yuan RMB1.00 = US$0.12 US$l.OO = RMBS.26 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS ADT Average Daily Traffic APCD AnhuiProvincialCoimnunications Department APFB AnhuiProvincial Finance Bureau APHAB AnhuiProvincial HighwayAdministration Bureau CAS Country Assistance Strategy CPMS China Pavement Management System EA Environmental Assessment EL4 Environmental Impact Assessment EMP Environmental Magement Plan E&M Electrical and Mechanical FYP Five-Year Plan GOC Government o f China IST Institutional Strengthening and Training M O C Ministryo f Communications MOF Ministryo fFinance NTHS National Trunk Highway System P A D Project Appraisal Document PCD Provincial Coimnunications Department PIC Public Information Center PEO Project Execution Office PRC People's Republic o f China RAP Resettlement Action Plan RDB RoadData Bank RFUP Rural RoadImprovement Program SDRC State Development and Reform Coinmission voc TTH Tongling-Tangkou Highway Vehicle Operating Cost Vice President: Jemal-ud-din Kassum, EAPVP Country ManagedDirector: Yukon Huang, EACCF Sector ManagedDirector: Jitendra N.Bajpai, EASTR Task Team LeadedTask Manager: Yasuhiro Kawabata, EASTR  FOROFFICIALUSEONLY CHINA SECOND ANHUIHIGHWAY PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 6 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforms supported by the project 10 3. Benefits and target population 10 4. Institutioiial and implementation arrangements 11 D.Project Rationale 1. Project alternatives considered and reasons for rejection 11 2. Major relatedprojects financed by the Bank andor other development agencies 13 3. Lessons learned and reflectedinthe project design 14 4. Indications o fborrower commitment and ownership 15 5. Value added o f Bank support inthis project 15 E. Summary ProjectAnalysis 1. Economic 16 2. Financial 16 3. Technical 17 4. Institutional 18 5. Environmental 19 6. Social 22 7. Safeguard Policies 24 I This document has a restricted distributionandmay be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed [without World Bank authorization. 1  F.Sustainability and Risks 1. Sustainability 24 2. Critical risks 25 3. Possible controversialaspects 25 G. MainLoan Conditions 1. Effectiveness Condition 25 2. Other 26 H. Readiness for Implementation 27 I.CompliancewithBankPolicies 28 Annexes Annex 1: Project Design Summary 29 Annex 2: Detailed Project Description 33 Annex 3: Estimated Project Costs 38 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 39 Annex 5: Financial Suinmary for Revenue-Earning Project Entities, or Financial Summary 51 Annex 6: (A) Procurement Arrangements 62 (B)FinancialManagement and Disbursement Arrangements 68 Annex 7: Project Processing Schedule 74 Annex 8: Documents inthe Project File 75 h e x 9: Statement o f Loans and Credits 76 Annex 10: Country at a Glance 80 Annex 11: Environmental Assessment and Action Plan Summary 82 Annex 12: Social Assessment and Poverty Alleviation Impacts Assessment 91 Annex 13: Summary o f the Resettlement Action Plan 93 Annex 14: Study on Construction Supervision 96 Annex 15: Study on Overloading of Vehicles 98 MAP(S) IBRD32133 - Rural RoadImprovement Program IBRD31970 - Anhui Transport System IBRD31971 Tongling - TangkouHighway -  CHINA Second Anhui Highway Project Project Appraisal Document East Asia and Pacific Region EASTR Date: M a y 23,2003 Team Leader: Yasuhiro Kawabata Sector ManagedDirector: Jitendra N.Bajpai Sector(s): Roads and highways (SO%), Sub-national Country ManagedDirector: Yukon Huang goveminent administration (20%) Project ID: PO76714 Theme(s): Regional integration (P), Rural services and Lending Instrument: Specific Investment Loan (SIL) i~frastructure(PI, Other Public sector governance(s), Export development and competitiveness (S) For LoanslCreditslOthers: Loan Currency: United States Dollar Amount (US$m): 250.00 Borrower Rationale for Choice of Loan Terms Available on File: Yes Proposed Terms (IBRD): Fixed-Spread Loan (FSL) Front end fee (FEF) on Bank loan: 1.00% Initial choice of Interest-rate basis: Type of repayment schedule: [XI Fixed at Commitment, with the following repayment method (choose one): [ ] Linked to Disbursement Borrower: PEOPLE'S REPUBLIC OF CHINA Respondble agency: ANHUIPROVINCIAL COMMUNICATIONS DEPT. Address: 1lthFloor, Huayi Mansion, No. 95 Shouchun Road, Hefei, Anhui,China 230001 Contact Person: Mr.WangXingyao, Director ofAPCD  A. Project Development Objective 1. Project development objective: (see Annex 1) The project aims to support the social and economic development o f AnhuiProvince by providing an efficient, safe, and cost-effective highway infrastructure and improve transport links. To meet this development objective, the project will produce the following outputs: 0 transport capacity increased and market integration promoted in the low-income southeast area o f Anhui; 0 accessibility to low-income areas inthe province improved; 0 safety o f roadtransport improved; and institutional capacity o f the Anhui Provincial Coinmunications Department (APCD) and related sector institutions strengthened, through policy, institutional, and organizational refonn and provision o f training, technical assistance, and equipment. 2. Key performance indicators: (see Annex 1) The principal output indicators selected for monitoring the development objective are: 0 travel time inthe Tongling-Tangkou corridor; 0 average daily traffic (ADT) on a new expressway and on existing proviiicial road PH103; 0 ADT onruralroads inaffected areas; 0 householdincomes inthe areas affected by the project; 0 number o f poor population inthe areas affected by the project; 0 number o f traffic accidents causing fatalities and serious injuries; 0 percentage o f training completed; and action plans based on conclusions o f two technical studies. B. Strategic Context 1.Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 25141 dated 11/21/2002 Date of latest CAS discussion: December 19, 2002 The Bank's assistance strategy i s designed to help China: (a) improve the business environment and help accelerate the transition to a market economy; (b) address the needs o f the poorer and disadvantaged people and lagging regions; and (c) facilitate an environmentally sustainable developineiit process. To reach these strategic objectives, the CAS identifies transport infrastructure development as a key area for Bank support. The sector-specific goals supported by the project inline with the CAS objectives are to: 0 promote macroeconomic growth and regional market integrationby providing much needed transport access to southeastern Anhui Province, where economic developinelit lags far behind the country's average; 0 address provincial inequalities and contribute to poverty reduction by improvingaccessibility to low-income counties; - 2 -  improve construction quality by supporting the introduction o f independent supervision o f works; and promote a sustainable transportation agenda through continued attention to traffic safety and environmental and social considerations inhighway design, construction, operation and maintenance. 2. Main sector issues and Government strategy: MAINSECTOR ISSUES The Bank has completed several key sector works on China in recent years, including: China Highway Sector Strategy Review (2001); 0 China Review o f Highway Technical Assistance (1998199); OED Reporton China Transport (1998/99); and A Strategy for the Transport Sector (Forwardwith One Spirit, 1997/98). The China Highway Sector Strategy Review was completed and discussed with the Chinese Government inNovember 2001.This review identifiedthe mainchallenges that China's highway sector faces: improving accessibility to low-income areas and western provinces; supporting economic growth; and improving governance o developing a market economy; o managing roadfinancing; and o improving traffic safety. ImprovingAccessibility to Low-Income Areas and Western Provinces Despite the Government's remarkable efforts to reduce poverty, more than 200 million people in China s t i l l live on expenditures o f less than US$ 1 a day. The highest incidence o f poverty i s found in inland provinces and inthe remote mountainous areas o f all provinces. Both central and local governments recognize the value o f providingbasic transport to improve the living conditions inpoor areas. Access improvements have a strong effect on income and provide people with more convenient access to a broad range o f social and econoinic opportunities. The Bank's highway program inChina has aimed to have a favorable impact on poverty levels in low-income areas. The Bank recommeiids a renewed effort to support road development inthese areas for its lending and non-lending services for the sector. The Western Region-12 provinces that cover about 71 percent o f China's land area--accounts for about 28 percent o f the population. For the past two decades, development inChina acceleratedmore inthe east than in the west, so that by 1998, per capita income inthe east hadrisen to three times that o f the Western Region. To support the Government's major objective in its Tenth Five-Year Plan (FYP), the development o f the western provinces, the Bank recommends financing higher class roads inthe central and western provinces to economicallyjustified standards. - 3 -  SupportingEconomic Growth Roads and road transport indirectly support economic growth ina broad macroeconomic sense. With the construction o f China's National Trunk Highway System (NTHS) well advanced, it is essential for China to develop the national roadnetwork and connect provincial networks that will improve interprovincial itineraries as well as accessibility within the province and to deep-water ports and border crossings. For westem and central provinces particularly, the roadnetworks should link to large urban centers inthe coastal areas to develop interprovincial trade and integrate lagging provinces into the national economy. ImprovingGovernance Developing the Role of the Market in the Highway Sector ImprovingConstruction Quality. Since early 1999, the quality o f highway construction has been recognized as a serious issue inChina, with the State Council taking up the issue after some bridges collapsed. Muchprogress still must be made to change the mindsets o f the Bank's clients, contractors, and supervisors with respect to quality. Reasonable construction implementation schedules must be drawn up to improve quality. Inthis regard, the role o f supervision engineer i s important. The supervision o f construction o f high-grade highways inBank-financed projects inChina has been undertaken byjoint intemationalAoca1 teams composed o f mostly local staff and a few international experts. However, because the management group o f the local team comes from the employer and its institutes, the independence o f the supervisioii team is limited. A system o f supervision and contract management needs to be introducedthat i s based on the independence o f the members o f the tripartite relationship o f employer-engineer-contractor.This should lead to a higher quality o f construction. Maintenance Work by PrivateEntities.Most roadconstruction works inChina are already carried out by contract rather than force account. However, all maintenance work (periodic and routine) is still undertaken by force account. Inrecent years, some Bank projects have tried new ways o f carrying out maintenance, mainly with a view to introducing competition. Competitive approaches encourage the effective utilizationo f manpower and equipment and result in a better quality o f work. While the role o f the market is being established, regulations for entering contracts needto be developed to ensure construction quality and transparent contractual relationships between the employer and the contractors. OperatingToll Roads.Managing toll roads more efficiently is a concern of the Government. A study was undertaken under the ongoing Anhui Highway Project on the planning, financing, and operation o f the toll highway network inAnhui. The study focused on the integration o f these functions to ensure that when the proposed expressway i s completedi t will fonn part o f the existing expressway system. ImprovingTransportServices. Since the mid-l98Os, China has emphasizedthe constructiono fnew highway infrastructure. Ithas given less attention to improving transport services to draw the full benefits o f infrastructure development. The modernizationo f road transport services for both freight and passengers, includingdeveloping regulations for the industry,is one area to be addressed inthe highway sector, A comprehensive transport system usingintelligent transport systems (ITS) and logistics would be highlybeneficial. Information technology can transform the intermodal freight industryby enabling it to integrate operations across the supply chain (logistics). ITS have been introducedrecently in China to maximize the use o f the transport system while minimizing new infrastructure investment. The development o f ITS is requiredto support a modem logistics system. Both ITS and logistics have gained highpolitical visibility inChina. - 4 -  Managing Road Financing Road Expenditure Allocations. The allocation o f funds between new construction and inainteiiance is a major problem inChina. Less than 4 percent o f total annual highway expenditures went to maintenance in 1999 and 2000. Iffinding for periodic maintenancecontinues at such low levels, China will face major reconstruction costs inthe future. Another important fundingissue i s the balance o f expenditures betweenvarious classes o f roads. The NTHS currently consumes 30 percent o f highway resources. Concentrating resources less onjust a few large projects would have the advantage of spreading the effects o f improved roads to a larger number of users, thus broadeningthe development impact o f the expenditures. It i s the Chinese Government's policy to balance expenditures economically and equitably between various classes o f roads inthe context of the total provincial road network. This is consistent with CAS objectives to direct more resources to the alleviation o f poverty. Road Revenues and Financing, It i s clear that public spending will be insufficient to meet the increasing demands placed on road infrastructure by a growing economy. Developing other sources of road financing, such as user fees, domestic borrowing, and private financing (investors' equity, proceeds o f loans, and bonds and share issues) i s necessary. Private Sector Financing. Several provinces have raised funds froin investors throughjoint venture agreements and the securitization o f toll roads. However, toll-road shares have reached their limit inthe Hong Kong market interms o f what the market can absorb froin a single sector. It is therefore time to review ways o f mobilizing private financing for roads as well as the toll road policy. The increasing maturity o f loans available from domestic banks and the reform o f the bond market and its opening at some time inthe future to corporate issuers will widen funding sources accessible to toll-road companies. Improvements to the legal and regulatory framework, which now constrain private participation in infrastructure, are also required. Fuel Tax. China has been discussing the introduction o f a fuel tax for some years, but no implementation i s decided yet. There i s no decision on either the level o f such a tax and the amount o f revenue desired, or on what proportion o f these revenues would go back to the road system,or how these revenues would be allocated between Ministryo f Communications (MOC) and the provinces. The matter is clearly political, because the new road law o f January 1998, which mandates the introduction o f such a fuel tax, has not yet been decided. Improving Trafjc Safety The traffic accident rate and the death rate from roadaccidents are high inChina, despite the relatively low rate o f motorization. In2000, 93,900 people were killed and 418,700 injured in over 617,000 accidents. Internationalcomparisons o f traffic accident deaths per 10,000 vehicles show that the rate in China is about 20 times higher than rates inEurope and North America. The Bank has been concerned for many years about China's poor record of traffic safety. However, this issue ranks low among the preoccupations o f officials at the highest levels o f Government. The diffusion o f responsibilities makes addressingthe problem o f traffic safety ina comprehensive manner difficult. The question is how can the dialogue on this problembe taken to higher levels o f Government to improve coordination among the various agencies and authorities. Meanwhile, the traffic safety component o f the proposed project will be confined to matters under thejurisdiction of the project executing agencies-namely, the engineering aspects o f road safety. - 5 -  GOVERNMENTSTRATEGY To achieve a sound market economy by 2010, the following general objectives are specified inthe Tenth FYP(2001-2005): 0 stimulate demand to foster growth and narrow the incoine gap between urban and rural areas; accelerate development o f the Western Region; 0 redefine the role o f Government and restructure industries; 0 improve education; and 0 balance development with ecological conservation and protection o f the environment. The objectives o f the Tenth FYP for the transport sector, and for the highway sector inparticular, reflect most o f these general objectives. The objectives o f the Tenth FYP for the highway sector are primarily to support economic growth and spreadthe benefits o f growth to lower-income populations by continuing to develop and improve the highway networks, mainly through capacity increases in infrastructure, and by developing transport services usingthis infrastructure. The planfocuses on: 0 continued construction o f the NTHS inorder to complete the 35,000-km network by 2010; 0 improved transport to and within the Western Region; improved accessibility to low-income populations in all regions o f China; development o f logistic concepts and their implementation, particularly for container transport from major ports to the interior; development o f a market economy inthe construction and operation o f infrastructure and in the provision o f transport services; and improved traffic safety. 3. Sector issuesto be addressed by the project and strategic choices: The project will address the sector issues discussed inB.2 while buildingon the ongoing Anhui Provincial Highway Project funded by the Bank. The proposed project has four main objectives. Meeting Investment Needs for Sustaining Economic and Social Development, Trade and Integration Anhuiis a landlockedprovince ineast central China with apopulationo f about o f 60 inillion (in2000) neighboredby Shangdong, Jiangsu, Zhejiang, Jiangxi, Hubei, and Henan provinces. Ithas experienced sustained economic development inthe past 10 years, and its GDP per capita reached Y 4,870 in2000, up fromY 1,182 in 1990. However, Anhui still lags far behindthe neighboring coastal provinces: Shangdong (Y 9,559, Jiangsu (Y 11,773), and Zhejiang (Y 13,460). The highway density inAnhui i s about 0.32 ludlun2 (2000), which is about 25 percent lower than that o f Zhejiang Province (0.42 k1dlun2).High-grade highways (expressways and Class Ihighways) made up 1.6 percent o f total highway length in2000, while inZhejiang they constituted 3.9 percent o f highway length. Inthe early 1990s, Anhui Province developed a highway network plan for north-to-south and east-to-west highways. According to the plan, the Tongling Yangtze River Bridge was completed duringthe EighthFYP and the Bank-financed Hefei-Anqing Expressway was completed duringthe NinthFYP. The Hefei-Anqing Expressway is part o f the overlapping section sharedby both interprovincial north-south and east-west - 6 -  maintrunk highways. The proposed project, with the construction o f Tongling-Tangkou Highway (TTH), will address north-southtransport needs and intraregional disparities inthe province; this infrastructure aims to increase highway capacity and improve transport services ina north-soutli corridor crucial for the economic development o f Anhui. Improving Accessibility to Low-Income Areas Anhui'sGDP per capita in2000was about Y 4,870, which is about 30 percent less than the Chinese national average o f Y 7,080 and 64 percent less than the GDP o f neighboring coastal Zhejiang Province (Y 13,460). Anhui's mountainous southern areas have laggedparticularly far behindbecause o f a lack of transport infrastructure. The educational and health services inthese inountainous areas are woefully inadequate and the living standards in remote areas are far below the provincial average inurban areas. In 2000, the poor population inthe project-influenced areas numbered 39,185, in 11,301 poor households. In 1996, the Anhuigovernment issuedthe Annual Poverty Eliinination PlaninPoor Regions, which has succeeded inreducing absolute poverty. However, much reinains to be done to consolidate achievements and fully address poverty; for example, the demand remains strong for iinproveinents inhighway infrastructure to ensure all-weather access, which i s a challenge in many mountainous areas. The project therefore includes the Rural Road Improvement Program (RRIP) inremote and low-income areas with the goal of stimulating economic development and alleviating poverty by providing an efficient road network, ensuring better accessibility to social services and markets, and connecting these communities to the provincial arterial highways. Traffic Safety The traffic safety component o f the proposed project will intensify safety efforts launched under the ongoing Anhui Highway Project. The traffic safety program under the ongoing project includes: 0 a pilot program o f accident blackspot improvements; and 0 a study o f highway traffic accidents on major highways to determine the main factors contributing to accidents and identify the needs for actions to reduce their frequency and severity. The safety program to be included inthe proposed project will buildon the work done under the highway accident study conducted under the ongoing highway project. The project will also undertake the preparation o f a Highway Safety Action Plan, which will include all the elements o f highway safety engineering, a public safety education campaign, and staff training in safety audits o f the design, construction, operation, and maintenance o f highways. Institutional Development and Sustainability of Road Sector Management The project will pursue institutional development efforts inthe following three main areas: 0 developing institutional capacity; 0 sustaining roadmaintenance; and 0 improving construction quality. Developing institutionalcapacity. Recent decentralization transferred inuch administrative decision-making authority to the provincial coimnunications departments, which has affected the organizational and human resource capacity o f provinces. Strengthening and inodernizing APCD started under the ongoing Anhui Highway Project and will continue under this project. Duringpreparation and implementation o f the project, staff o f APCD and its related agencies will be trained, both on the job and - 7 -  inwell-designed courses intransport planning, economic analysis, engineering, quality control, project management, environmental and social aspects o f highway transport, and highway safety. Sustaining road maintenance. Expandinghigh-grade highways and the provincial highway network increases the risk that insufficient funds will be devoted to maintaining existing roads. While in 1999 and 2000, when less than 4 percent o f total annual expenditures went to maintenance for highways inChina, APCD spent 9.5 percent o f highway expenditures for maintenance. Untilthe NTHS i s completed in2010, provinces are under pressure to spend more to buildmajor new highways. APCD intends to spend about 11percent o f highway revenues for maintenance annually for the next 10 years. Duringthe Tenth FYP, the highway mileage inAnhui will increase by 1.7 percent annually, while the province plans to increase expenditures for maintenance by 3.9 percent annually. Another shortcoming is the lack o f rational maintenance policy and practices. Untilrecently all periodic and routine maintenance work has been undertaken by local maintenance crews through force account. For routine maintenance, APCD uses standard M O C guidelines for unit costs inyuan per kilometer, and allocates the corresponding funding to the road maintenance units at the various administrative levels. Work priorities are decided by eachunit.For periodic maintenance, priorities are decided by Anhui Provincial Highway Administration Bureau, which provides additional funding for these works. The ongoing Anhui Highway Project includes the highway maintenance component, which will promote stabilization o f the condition o f the existing highway network. The experience gained through implementation o f the maintenance component, particularly the selection criteria o f roads and prioritizing process, will be fully utilized inthe proposed project. APCD has installed the RoadData Bank (RDB) and China Pavement Management System (CPMS) to identify priorities and the type o f work to be done but neither o f these systems is fully operational. This project will operationalize both the RDB and CPMS so that maintenance planning can be incorporated into a decision support system covering the entire provincial highway network. APCD recognizes the necessity of introducing a competitive and market-based maintenance service to increase the efficiency o f maintenance work and reduce costs. APCD is planning to introduce the outsourcing o f maintenance operations on a pilot basis. The project will closely monitor the sustainability o f maintenance by contract. Improving construction quality. The supervision o f expressway construction under Bank-financed highway projects has been conducted byjoint international and local teains headed by chief and deputy chief supervision engineers from the employer. This arrangement was a great improvement over previous practices but has failed to establish the independence o f the supervision team. Under the project, a study will be undertaken to review practices inconstruction supervision and recommendpotential areas of improvement. C. Project Description Summary 1. Project components(see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): All project components have been designed to address the sector issues described inSection B.3. Sustain Economic and Social Development. The mainproject component is construction o f the 116 kmTTH. It is part o fthe Tianjian-Shanwei (Fujian) highway, which is a National TrunkHighway. The TTH will linkthe low-income areas insoutheastern Anhuiwith major provincial cities and eventually with coastal provinces through the NTHS. It will help promote interprovincial trade and tourism-related industries inthe area, particularly inHuangshan. - 8 -  Improving Accessibility to Low-Income Areas. To help improve accessibility inremote areas, the proposed project includes a component to improve the rural road network. The RRIP will upgrade about 240 luno f rural roads in seven counties, including four poor counties, from Class IIIiIVto Class IVIII standards. The improved rural road network will strengthen the liiiltage between rural areas and inajor urban centers and promote the integrationo f regional markets. Traffic Safety. The project will buildon the knowledge and experience gained under the ongoing Anhui Highway Project. The objective o f this program i s to mainstream blackspot iinproveinents into the long-term highway investment and maintenance program. Some segments and blackspots identifiedunder the Highway Accident Study will be improved. Urgent needs for human resource development will be addressed through the training o f APCD staff and other provincial offices, including traffic police. Road experts from Chinese universities and research institutes will provide training on safety audits for the design, construction, operation, and maintenance o f highways. Institutional Development and Road Sector Management. The previous project began to address certain institutional issues, and the proposed project will continue to strengthen Anhui road agencies to enable them to adapt to market-based methods for roadmaintenance and management as well as road safety. The project will provide training, technical assistance, and equipment to APCD and related agencies. ndicative Bank- 0%of Component costs % of financing Bank- (US$M) Total (US$M) financing 1. Expand highway capacity and promote regional 496.46 78.6 216.21 86.5 integration by constructing approximately 116 kmo f trunk highway 2. Improve accessibility to low-income counties by 69.13 10.9 27.65 11.1 rehabilitating and improving 243 kmo f the Class IIVIV highway network 3. Improve road safety byupgrading selected dangerous 2.51 0.4 1.oo 0.4 sections (blackspots) that are key to the road network 4. Strengthen the highway management capacity o f APCD 19.00 3.0 2.64 1.1 through technical assistance and training, including: -- Study Study on construction supervision on overloading o f vehicles 5. Land acquisition and resettlement 20.35 3.2 0.00 0.0 Total Project Costs 607.45 96.1 247.50 99.0 Interest duringconstruction 21.88 3.5 0.00 0.0 Front-end fee 2.50 0.4 2.50 1.o Total FinancinE Reauired 631.83 100.0 250.00 100.0 - 9 -  2. Keypolicy and institutionalreforms supportedbythe project: The proposed project will focus on the following key policy and institutional refonns: support economic growth and spread its benefits to lower-income populations by improving accessibility to low-income areas. The project will include the followiiig activities: o expand highway capacity by constructing a 116 lunhighway inpoor areas; and o carry out a 243 kmrural road improvement program; improve traffic safety. The project will leverage the results achieved under the ongoing AnhuiHighwayProjectandconduct the following activities: o prepare a Highway Safety Action Planbased on the results o f the Highway Accident Study from the ongoing project; o generalize the programming o f the improvement o f blackspot segments into the long-term highway investment and maintenance program; and o conduct focused staff training on safety audits for the design, construction: operation and maintenance o f highways; 0 improve construction quality by studying supervision practices inChina, recommending changes to these practices, and introducing independent supervision o f worlcs according to FIDIC rules; and 0 improve the sustainability o f road maintenance. Inthe absence o f stable and comprehensive fundingo froad activities from the fuel tax yet to be implementedbythe central government, the project will assist Anhui Province inimproving the efficiency o f roadmaintenance, preservingthe road network, and optimizing the use o f available resources. 3. Benefitsand targetpopulation: The project will accelerate economic growth and promote the market integrationo f southeastern Anhui Province, where economic development lags far behind the rest o f the country. The major quantifiable benefits are intenns o f reduction intravel time and vehicle operating costs for roadusers in the Tongling-Tangkou corridor, through shorter trips, improved safety and comfort, and reduced traffic congestion. Long-distance users will benefit from a more cost-effective route between this remote area and the coastal provinces. It is expected that most long-distance traffic and some local traffic will be diverted to the TTH. As a consequence o f a reduced congestion level on the existing parallel roads, traffic on those roads will also benefit froin time savings. An estimated 4 inillion people live inthe Tongling-Tangkou corridor (in2000) and potentially could benefit from the project. Inthe mediumand longtenn, indirectbenefits are expectedfromTTHintenns ofenhancedtourismto the historical relics and natural scenic areas o f Jiuhua Mountain and Huangslian. In2000, about 7 million tourists visited these mountains, and more than 14 million tourists are expected to visit these sites by 2007, when the TTH opens to traffic. Tourism holds great promise for increasedjob opportunities. The project will also be o f benefit to residents o f low-income counties, especially those where rural roads will be improvedunder the RRIP. Better accessto markets and health, education, and other social services will be ensured. -10-  Other benefits, which are difficult to quantify, will include the strengthening o f policy and of the institutional and technical capabilities o f the implementing agency, APCD, and other institutions that are responsible for the planning, design, supervision, construction, operation, maintenance, and financing of highways inAnhui Province. Furthermore, the project will foster the strengthening and improvement of environinental practices, land acquisition practices, and the resettlement o f affectedpeople, and participatory approaches to project preparation and iinplementation. 4. Institutional and implementation arrangements: The institutional and implementation arrangements will follow those o f the previous Anhui Highway Project. APCD will have overall responsibility for project preparation and implementation. The Project Execution Office (PEO), established within APCD under the ongoing Anhui Highway Project, will be responsible for project preparation and implementation and the coordination o f all project components, including procurement, supervision, and environmental and resettlement aspects. It will be responsible for the preparation and supervision o f TTH construction and for the institutional and road safety components. APHAB will implement the RRIP. The overall direction o f the project at the central level will rest with M O C inBeijing, which will assume an oversight role and provide some technical support. The Bank loan will be lent to the Borrower, the People's Republic o f China, which will onlend the loan proceeds through the Ministry o f Finance (MOF) to Anliui Province on the same conditions. The project will be iinpleinented during2003-2008. Financial management and funds flow. The PEO will be headed by Mr.He Guang, Director o f APHAB. The PEO will assume overall implementationand coordinationresponsibility and directly implement every component o f the project. The Foreign FundDivision o f APFB will play a major role in project implementation, including overall monitoring, implementing o f financing arrangements, and financial management. APFB also will be responsible for maintaining, monitoring, and reconciling the project special account and reviewing, verifying, and approving withdrawal applications before submittingthem to the Bank for disbursement processing. The division has experience with Bank projects and is familiar with Bank disbursement procedures. Inaddition, the Bank's experience with APFB interms o f special account management and disbursement processing indicates that APFB meets and coinplies with the Bank's relevant policies and procedures. For smooth and successful project implementation, close cooperation and coordination between APFB and PEO are critical. The Bank loan proceeds will flow from the Bank to the project special account and to APCD for reimbursement o f expenditures incurred for the project and advancedby the APCD, or directly to contractors or suppliers. Counterpart funds include contributions made by M O C and funds raised by APCD, including lending from commercial banks. The contributions will be appropriated by M O C directly to APCD, and domestic loan proceeds will also be injected directly to the project. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Tongling-Tangkou Highway Public or Private Provision TTH will be a toll highway generating income from toll revenue. AnhuiProvince considered private financing for TTH as an option and conducted a brief feasibility study. The preliminary financial assessment concluded, however, that the project would not be viable without a government contribution -11 -  o f 30 to 40 percent o f the investment cost. APCD is aware that private investors are reluctant to invest in greenfield road operations with the risks involved inthe legal and regulatory framework inChina. APCD made a strategic choice to provide the infrastructure froin public funds and to work on improving toll road operations inAnhui while pursuing the possibility o f commercializing the toll road agency, including operation o f the completed TTH. This is consistent with the policy o f asset securitization currently followed by several provinces, which the Bank supports. ImprovingExistingRoadsor New Construction APCD considered two options for TTH: constructing a new four-lane highway or upgrading the existing two-lane PH103 by constructing two additional lanes and bypasses o f urbanized areas. Upgrading PH103 was rejected because it would have created a dangerous mix o f traffic modes, raised traffic safety issues at urban crossings, had muchhigher environmental and resettlement impacts on housing and coinmercial and industrial activities, and created technical difficulties (especially in mountainous areas) because the existing road would had to have been kept open to traffic . The environmental and resettlement issues and the technical difficulties would have resulted inhigher costs. For these reasons, the option selected is the construction o f a new high-grade highway. AlternativeAlignments An alternative alignment analysis was made considering the socioeconoinic conditions inthe Tongling-Tangkou corridor, the level o f economic development and poverty, and the mountainous area in its southern part. The proposed alignment was chosen on the basis o f topographical and geological conditions, technical feasibility, level o f social and environmental impacts, degree o f econoinic return, and support for the project from local governments. DesignStandard The current PHI03 i s built to Class IVIIIstandards with a 9-12 meter roadway width. To accommodate the forecast traffic, a four-lane divided highway was selected as the more cost-effective and safer design. RRIP APCD proposed 10road sections totaling about 450 km as candidates for Bank financing under the RRIP component. After these were screened through six criteria -- current road condition; lack o f alternative transport infrastructure; expected impact on the population's access to education, health, and other social activities; contribution to a provincial plan; support from local government and people; and economic rate o f return -- five road sections were chosen as high-priority candidates to be financed under the project. The length o f rural roads to be improvedtotals 243 lun, o f which 191lunto Class IVIIIstandards and 52 km to Class I11standards. - 12-  2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings [Bank-finance lrojectsonly) nplementation Development lank-financed Progress (IP) 3bjective (DO) . Removehighway capacity AnliuiProvincial Highway S S ottlenecks (ongoing) (sector issues 1-5) . Institutional strengtheningand SecondHenanProvincial S S -aining Highway (ongoing) (sector issues 1-6) . Rural roads andpoverty alleviation SecondNational Highway S S (ongoing) (sector issues 1,2, 4-6) . Highway safety ThirdNational Highway: S S (ongoing) (sector issues 1,2, 4-6) . Operationandmaintenance of Third HenanProvincial S S .igh-gradehighways Highway (ongoing) (sector issues 1-6) I.Cost recovery Tri-Provincial Highway S S (ongoing) (sector issues 1-6) FourthNationalHighway S S (ongoing) (sector issues 1-5) SecondFujianHighway S S (ongoing) (sector issues 1,2, 4-6) Guaiigxi Highway (ongoing) S S (sector issues 1-6) SecondJiangxi Highway S S (ongoing) (sector issues 1-6) Inner MongoliaHighway S S (ongoing) (sector issues 1-6) XinjiangIIIHighway S S (ongoing) (sector issues 1-6) - 13-  Hubei Xiaogan-Xiangfan Highway (ongoing) (sector issues 1-6) Ither development agencies 4sian Development Bank Ongoing projects: Southern Sichuan Roads Dev. Guangxi Roads Development Shaanxi Roads Development Chongqing-Guizhou Roads Dev. (Leichong Expressway) Southern Yunnaii Road Dev. Shanxi Roads Development Changchun-Harbin Expressway: Chaiigyu Expressway Changchun-Harbin Expressway: Hashuaiig Expressway Chengdu-Nanchong Expressway apaii Bank for Intemational Ongoing projects: :ooperation Hangzhou-Quzhou Expressway Wanxian-Liangping Expressway Liangping-Changshou Expressway Haiiiaii East Expressway Xinxiang-Zhengzhou Highway Heilongjiang Heife-Beian Roac '/DO Ratings: HS (Highly Satisfactory),S (Satisfactory),U (Unsatisfactory),HCI (Highly Unsatisfactory) 3. Lessons learned and reflectedinthe project design: Although the overall performance o f the Bank highway portfolio in China (26 projects to date) has been satisfactory, a number o f issues have arisen and are being taken into consideration inthe design o f the proposed project. Most project feasibility studies made optimistic assumptions on traffic growth and anticipated diversion rates from existing roads to a new highway. For the proposed project, a sensitivity analysis based on more realistic assumptions derived from actual observations was undertaken. Previous Bank-financedprojects experienced the late coimnenceineiit o f tendering for an electrical and mechanical facilities component. Tendering activities under the proposed project are planned to start as soon as the civil works commence. - 14-  The quality control o f construction has sometimes been inadequate. The previous Anhui Highway Project showed the need for inore rational supervision mechanisms. The proposed project will introduce a study on practices inthe supervision industry and recommendations on its future directions. The development o f the road network inChina has not balanced the need for maintenance o f existing roads and the construction o f new highways. The proposed project design attempts to ensure that the highway network i s balanced between high-growth areas and impoverishedareas by apportioning a substantial share o f investment to lower classes o f roads. 4. Indications of borrowercommitmentand ownership: The central government, including the State Development and Reform Commission (SDRC), MOF, and MOC, and the Anhui Provincial Government strongly support the project. TTH is part o f a strategic north-south interprovincial link inthe maintrunk highway system. Anhui Province included this highway inits provincial Tenth FYP, andthe northern connecting section to TTHcrossing over the Yangtze River i s already under construction. The prefeasibility study was approved by the State Council inMarch 2003 and the feasibility study and financing plan inM a y 2003. Government financial contributions o f UW05.91 million from MOC and US275.03 million from AnhuiProvince have been approved. APCD has demonstrated strong ownership o f the poverty alleviation objective by committing to implement the RRLP. 5. Value added of Banksupport in this project: By sustaining a policy dialogue and with its experience froin involvement inthe China highway sector for the past 17 years, the Bank will continue playing a catalytic role at the provincial level inpromoting sustainable roadmanagement practices, enhancing awareness o f the needto better manage sector externalities such as traffic safety, environmental and social dimensions, accelerating the move towards market-based activities inthe road sector, and developing institutional and staffing capacity inhighway planning, design, supervision, construction, operation, maintenance, and finance. The Chinese Government lias paid more attention recently to environmental aspects o f highway projects as people have become more concemed about the environment. Bank involveinent also will strengthen provincial practices inanalyzing and implementing environmental, land acquisition, resettlement, social, and participatory aspects o f highway projects. The rural road improvement program under the ongoing project lias achieved significant benefits for local coinmunities and has demonstrated that such a program i s an effective means o f reducing poverty in rural areas when combined with programs for socioeconomic development. Through its involvement ina new project inAnhui Province, the Bank will contribute financial resources needed to help increase traffic capacity inthe proposed project area and strengthen the linltage o f the highway network to the low-income areas inAnhui. Furthermore, Bank consultants reviewed engineering designs and helped APCD inimproving their quality. Experience from the ongoing Anliui Highway Project shows that with the Bank's review, design changes and variations led to an increase o f less than 2 percent o f the contract price. This figure i s far below the increase normally seen in similar non-Bank financed projects. - 15-  E. Summary Project Analysis (Detailed assessmentsarc inthe project file, see Annex 8) 01. Economic (see Annex 4): Cost benefit NPV=US$439.4 million; ERR= 20.8 ?4 (see Annex 4) ' 'Cost effectiveness ~ Other (specify) The economic evaluation covers two project components that entail capital costs: 0 the construction o f the 116.15 lunTTH; and 0 upgrading o f five rural roads (total 243 lun)in the poor areas of Anhui Province under the RRIP. The principal measured benefits o f the project are savings invehicle operating costs (VOC), reduction intravel time, andenhanced roadsafety. The overall economic internal rate of return (EIRR)for the project is estimated at 20.8 percent: 20.7 percent for TTH and 21.4 percent for the RRIP. The overall economic NPV, based on a 12 percent discount rate, is estimated at Y 3,467.1 million, consisting o f a contribution o f Y 3,320.6 million from TTH and Y 326.5 million froin the RRIP. A description o f the economic evaluation method and an analysis o f the results are provided in Annex 4. RIUP will have positive social impacts, not quantifiable for the purpose o f the economic evaluation, but that social impacts will be monitored through performance indicators. The followiiig table summarizes the results o f the economic evaluation. EconomicEvaluation Results EIRR (in %) NPV (Y million, 12%) Tongling-Tongkou Highway. (TTH) - . Section I: Tongling-Yangmeicbn 24.3 2,027.30 Section 2: Yangmeicun-Tanjiaqiao 20.5 1,400.00 Section 3: Tanjiaqiao-Tongkou 9 -136.4 Subtotal 20.7 3,320.60 Rural Road Improvement Program (RRIP) 21.4 326.5 Total 20.8 3,647.10 2. Financial (see Annex 4 and Annex 5): NPV=US$ -159.5 million; FRR= 1.3 % (see Annex 4) TTH is the mainproject component and constitutes about 88 percent o ftotal project investment. Although not designed as financially viable initself, with projected toll levels the TTH will generate enough revenue throughout the Bank loan periodto finance debt service with a standard amortization schedule, cover operating costs, and make a contribution towards capital costs. No external cash injection will be required after the road i s inoperation, even inthe early years while traffic i s still relatively low and inthe "rainp-up" period. The projected toll level, at YO.6/car-lun (US 7 cents), is higher than the tolls inthe nearby toll roads and comparable to tolls o n other expressways inChina. It is high by U S standards, where the toll rates are on the order o f U S 5 cents/ car-km, and even higher when considering GDP per capita intwo countries. It i s estimated that a higher level o f toll will significantly riskthe fulfillment o f the project objectives o f stimulating the economy o f the region inwhich the road is located and would detract from the economic benefits o f this project component. - 16-  Because the TTH is an integral part o f the Hefei-Tangkou corridor, the financial return o f the TTH section has to be seen inthe wider context o f that corridor. Most traffic on the TTH will be long-distance travellers that will also travel other sections o f the corridor. The two sections o f toll highway to the north of the TTH (the Lujiang-Tongling Highway, under construction, and the Hefei-Lujiang Highway, financed under a previous Bank-supported project) have higher financial rates o f return (10.1 percent and 12.0 percent respectively) because they have more traffic and lower construction costs. The TTH has traffic levels about halfthose on the more northern section (because it is farther from tlie urban area o f Hefei, the provincial capital) and construction costs about 50 per cent higher (US$4.3 million per km instead o f US2.9 million per km) because it passes through mountainous terrain rather than level terrain inthe other two sections. Given the highconstruction costs and lower traffic volumes o f the TTH, an alternative development program would be to construct the highway intwo stages. Experience with other highways in inountainous areas, however, shows that this strategy has significantly higher overall discounted costs, lower benefits, and much higher accident rates. For these reasons constructing the highway inone stage i s preferred. For the non revenue-eaming project entities, the five rural roads under the RRIP, the financial evaluation focused on the availability o f sufficient counterpart funds and on operating expenses. All the indicators show that the financial risks are modest. A detailed assessment is provided in Annex 5. Fiscal Impact: Anhui's roadbudgets duringthe project implementation years have beendiscussed with the Anhui Provincial Government during project preparation and are shown in Annex 5. Revenue and expenditure forecasts during the Tenth FYP (2001-2005) and the EleventhFYP (2006-2010) take project funding into full account and show that APCD will have sufficient budget resources to inalce its contributionto project capital investments while increasing maintenance funding faster than the road network i s extended. This means that road maintenance will be as integral to the new project as new highway construction. In addition, investment costs o f the RRIP road improvements constitute only a small fraction o f APCD's planned investment expenditures, at 0.6-1.8 percent per year over the implementation period; and the maintenance expenditure for the RRIP is about 0.3 percent o f total roadmaintenance budgets. Therefore, the fiscal impact o f the RRIP will be minimal, and the overall financial risk o f lack o f availability o f counterpart funding for construction and maintenance o f the project i s low. 3. Technical: The issues that need special attention from a technical point o f view are: e a proper review o f highway design standards and any traffic safety hazards introduced through design; e sufficient geological investigations at the design stage to avoid tlie need for major changes in designs at the construction stage, especially ininountainous areas; and e an appropriate level o f electrical and mechanical works at the opening o f the highway to traffic. -17-  The feasibility study o f TTHwas approved by MOC, SDPC, and the State Couiicil inApril 2003, and the preliminary design was acceptedby M O C inApril 2003. The design has been reviewedby an international engineering consultant under Japanese Trust Fundgrants and was found satisfactory. The cost estimates o f the project reflect December 2002 prices and are based on the latest available engineering studies, prevailing unit rates for civil works checked against effective rates in similar works under Bank-financed projects, recent costs o f foreign experts froin other highway projects, and recent price quotations for equipment. Total project costs also include physical and price contingencies: Physical contingencies are calculated at 10 percent o f the baseline costs o f civil works, and price contingencies at 4.2 percent o f all baseline costs (excluding land acquisition) on tlie basis o f forecasts o f domestic and foreign inflationrates duringproject implementation. 4. Institutional: APCD has demonstrated project management capabilities by successfully implementing the previous project. All institutional issues relatedto capacity building still will require special attention. The successful implementation o f the institutional components will require continued strong commitment from APCD and its associated road sector agencies. 4.1 Executing agencies: APCD has been an executing agency for the ongoing Anliui Highway Project since January 1999. I t i s familiar with Bank requirements and has displayed capacity to execute the proposed project successfully. 4.2 Project management: APCD will handle overall project management . It will also be primarily responsible for the institutional and policy components and the traffic safety components. The PEO, established under the ongoing project, will be responsible for both the TTH and RRIP components, including construction, supervision, quality control, and monitoring o f enviroiiineiital aspects and resettlement activities. The study undertaken under the ongoing project on the planiiing, financing, and operation of the toll highway network inAnhui focused on ways to integrate the Bank-financed highways into the existing expressway system. The operation o f the project toll facility will be based on tlie recoimneiidatioiis made under this study. 4.3 Procureinent issues: The assessment o f the procurement capacity o f the implementing agency, APCD, and o f the procurement agent (CMC International Tendering Company [ITC-CMC]) confirms that both have adequate experience worlung with the Bank and are conversant with Bank procedures and guidelines. APCD i s implementing the ongoing project satisfactorily, and the procurement agent has 17 years o f experience inI C B procurement business under Bank-financed projects. All procurement activities under the project will beundertaken inaccordance with Bank guidelines. Biddingdocuments for the various procurement packages will be basedonthe detailed engineering design. The Anliui Design Institutewill prepare the technical part and the procurement agent will prepare the coinmercial part o f the biddingdocuments. APCD will review the completed documents and ensure that commercial andtechnical aspects are well integrated. -18-  4.4 Financial management issues: The financial management assessment conducted during project appraisal according to the guidelines of the Bank's Financial Management Sector Board issued June 30,2001, has concluded that the project meets minimumBank financial management requirements as stipulated inBP/OP 10.02.Inthe team's opinion, the project will have inplace an adequate project financial management system that can provide, with reasonable assurance, accurate and timely informatioil on the status o f the project ina reporting format agreed to by the Bank and meeting its requirements. The Financial Management Assessment Report is available inproject files and summarized inAnnex 6B. Fundingsources for the project include the Bank loan and counterpart funds. The Bank loan will be signed between the Bank and the People's Republic o f China (PRC) through MOF, and on-lending arrangements for the Bank loan will be signed betweenMOF and Anhui Provincethrough APFB, and between APFB and APCD. The Bank loan proceeds will flow from the Bank into a special account maintainedby APFB for the reimbursable expenditures incurred, or to contractors or suppliers through accounts with major commercialbanks acceptable to the Bank. The project will disburse usingtraditional disbursement techniques and will not use FMR-based disbursements, in accordance with the agreement between the Bank and MOF.The counterpart funds to be contributed directly to the project will come from three sources: appropriations by MOC, appropriations by APFB, and loans to the province from domestic commercial banks. None o f the implementing agencies involved inthe proposed project has any outstanding audits or audit issues to be addressed. The task team, however, will continue to be attentive to project financial management and audit covenants during supervision. 5. Environmental: Environinental Category: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis The main environmental issues associated with the Second Anhui Highway Project are: 0 selection o f an optimal alignment for the highway taking into consideration the environmental and social impacts; direct and indirect impacts o f the project on Huangshan, and Jiuhuashan mountains (scenic zones and forest parks), and Taiping Lake; and 0 noise, dust, water pollution, soil erosion, traffic management and safety, waste management and disposal, and aesthetics during construction and operation. A large part o fproject preparation was devoted to the selection of an environmentally benign alignment avoiding and minimizing impacts on villages and coimnunities, agricultural lands, cultural relic sites, and sensitive and mountainous terrain. The selection process was conducted intwo phases. Four major alternatives were evaluated inthe first phase and the selected alternative was refined by considering five sub-alternatives inthe secondphase. The selection took into account environmental, cultural, social, technical, economic, and political considerations. The proposed Tongling-Tangkou alignment runs very close to the Huangslianand Jiuhuashan scenic sites and passesthrough Taiping Lake, a popular scenic lake. Huangshan is one o f the top ten protected sites inChina and has been recognized by UNESCO as a World Cultural and Natural Heritage site. Jiuhuashan has 93 temples and many cultural properties that make it an important sacred - 19-  place o f BuddhisminChina. A cultural relics investigation was conducted along the recoinmended alignment, alternative sections, and five rural roads under tlie RRIP, and at all 22 borrow and disposal areas. The alignment was adjusted to avoid cultural relics sites as much as possible. Tlie selected alignment avoids Jiuhuashan Mountainby about 2.5 km, Sliibasuo Nature Reserve by 2.0 lun, Shilishan NaturalReserve by 0.5 km, and six cultural relics sites. Only one low-level local cultural relics site (lower than county level) will be affected, and rescue excavation is planned before construction begins. Special attention has been paid to the potential impact o f increase in tourisin on the Huangshan and Jiuhuashan mountains and Taiping Lake inducedby the construction o f TTH. The current protection status for these areas was investigated, and protection plans for these reserves and parks addressing the increase intourisin were carefully evaluated, and further recoinmendations were made by the Bank. The impact o ftraffic usingthe existing highways to haul construction materials and the resultant noise, dust, congestion, and safety problems are o fpotentialconcern. The safe disposal o f excess excavated material from cuts and tunnels inthe mountainous areas will also require close attention duringdesign and supervision. A comprehensive environmental impact assessment (EIA) was conducted, and mitigation measures are planned for noise, air, and water pollutionand soil erosion, biodiversity, cultural property, aesthetics, safety and public health, management, and planning. The Nanjiiig Environment Institute, a leading institute o f natural ecology and biodiversity inChina, was subcontracted by the EL4 consultant to undertake specialized impact assessments on natural ecology and biodiversity inthe project area. The EIA report states that "the project will not reduce biodiversity through species extinction, the impact to biodiversity i s mainly fragmentation o f ecosystem and possibly wildlife re-grouping." The report concludes that the proposed highway does not "involve the significant conversion o f natural habitats" or "involve the significant conversion or degradation" o f any "critical natural habitat." Tlie EIA also indicates that the Huangshan Mountain Authority is outstanding interms o f scenic park management-it has received inany awards, including the 1999 UNESCO International Prize for Safeguarding and Management o f Cultural Landscapes. I t i s one of the only three park authorities inthe world to be so recognized. The Huangshan Mountain Authority is fully aware o f the expected increase in tourism and the environmental pressure the increase will exert. The Huangslian Mountain Master Plan i s under revision, and a series o f actions are being or will be undertaken to accoinniodate tlie anticipated increase intourism. Two rounds o f public consultation (during the preparation o f the TOR and after the completion o f the first draft) were undertaken through public meetings, site visits, questionnaire surveys, interviews, group discussions, and opinion-soliciting letters. A total o f 3,109 people such as fanners and villagers, representatives o f local communities, and nongovernmental organizations, experts inenvironmental and social fields, and officials o f relevant government agencies were consulted, and their views were incorporated inthe design o f the project. 5.2 What are the main features o f the EMP and are they adequate? APCD engaged the Shanghai Ship and Shipping Research Institute (SSSRI) to undertake the EIAand the EMP. The EMP identifies the institutional responsibilities for environmental management and supervision for both the construction and operation phases o f tlie project. It includes measures for avoiding, minimizing, mitigating, or otherwise compensating for the adverse impacts o f the project. It includes feasible and cost-effective measures necessary to mitigate project-related impacts by incorporating them inproject design and implementing them during the construction and operation phases. It also includes clauses for the contract documents and links to tlie biddingdocuments. The E M P contains an environmental monitoringplan and specifies capacity training arrangements and the budget - 20 -  needed to implement the proposed mitigation and monitoring measures. The contractors compliance with the environmental provisions o f contract documents will be supervised by APCD and the supervision consultants duringconstruction and monitored by the Bank during tlie supervision missions. 5.3 For Category A and B projects, tiineline and status o f EA: Date o f receipt o f final draft: December 2002 The initial terms o f reference for preparing the EIA and EMP were compiled in February 2002 and were reviewed, revised, and approved by the State Environmental Protectioii Agency inApril 2002. The first draft EL4report was prepared inAugust 2002. Following comments by the Bank, the draft EIA was revised and submitted to the State EnvironmentalProtection Agency inDecember 2002 and to the Bank as well. Taking into account the Bank's comments, the final drafts o f the environmental assessment documents were submitted to the Bank on December 27,2002, and were found to be satisfactory. APCD has informedthe Bank that the State Environmental ProtectionAgency approved the Chinese version o f the EINEMP inApril 2003. 5.4 How have stakeholders been consulted at the stage o f (a) eiivironinental screening and (b) draft EA report on tlie eiivironmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted? Duringthe preparationo fthe EIA,two rounds ofpublic consultation were undertaken. Public meetings were held, site visits, questionnaire surveys, interviews, and group discussions were conducted, and opinion-soliciting letters were sent. Fanners and villagers who may be affected by the construction and operation o f the proposed TTH and the improvement o f the rural roads were consulted. Also consulted were local communities, nongovernmental organizations, experts invarious environmental and social fields, and relevant government agencies, particularly the authorities o f the scenic zones. The first round of consultationfor TTH was undertaken April 5-29, 2002, after draft TOR were prepared, when the public was informed about the project and initial feedback was collected. The second round o f consultationwas undertaken from June 17-July 5,2002, when the results o f the draft environmental assessment and the proposed mitigation measures were presented to the public. A total o f 2,348 persons were consulted, and their views and general findings are incorporated inthe design and the construction implementation and supervision o f the project. Similar consultation with 770 persons was conducted along the five rural roads. Inaddition, ahotline was establishedsothat stakeholders couldexpress their concerns throughout the EL4preparation period. Information received from the hotline has beenrecorded inthe eiivironmental assessment and incorporated into project designprocess when appropriate. Incompliance withEL4processrequirements inChinaandthe WorldBank's safeguardpolicies, the TOR o fthe EIAhave been disclosed by beingmade available inprovincial and city libraries since June 19,2002, and the public being informed about the availability o f the report by advertisement inthe Anhui Daily (of June 20, 2002), the website o f APCD, and local radio and television. The completeddraft EL4 and E M P reports were displayed inpublic places along the expressway and the rural roads under the project, and the public was advised o f project information and the availability o f these reports by advertisement inDecember 2002 as well as on the website o f APCD. -21 -  5.5 What mechanisms have been established to inonitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the E M P ? The E M P includes environmental monitoring programs for both the construction and operation phases. Noise levels, air quality, and water quality will be monitored. APCD will engage independent and accredited professional environmental monitoring institutes to undertake the enviroiimental monitoring: e duringthe construction phase-once a month for noise, water quality, and dust (once a month for lime and earth-mixing sites, and once a week for asphalt-mixing stations); and e duringthe operation phase-twice a year for air quality and noise and once a year for water quality. Inaddition, visual inspectionfor water anddustpollution, simple monitoringofnoisewithportablenoise meters, and supervision o f other environmental issues such as soil erosion, waste disposal, management o f labor camps, and safety during construction will be conducted by trained environmental staff from the contractors, supervision engineers and the PEO o n a daily basis. Contractors and supervision engineers are required to submit monthly environmental monitoring reports to the PEO. Duringloan negotiation, the Bank obtained assurances from APCD that: (a) the environmental protection measures stipulated in the EMP with regardto the mainhighway and rural roads would be implementedin a manner satisfactory to the Bank; and (b) APCD would f i n i s h to the Bank quarterly and annual environmental monitoring reports for TTH and the rural roads duringthe construction phase and annual reports during the first three years o f operation following the completion o f the project. 6. Social: 6.1 Summnarizekey social issues relevant to the project ObjeL"es, and specify the project's social development outcomes. TTHwill be locatedinthe poorer areas o fAnliuiProvince, and the RRIP is a poverty-reduction intervention. Consequently, the project will strengthen and complement Government poverty alleviation efforts by providing more efficient and less costly means o f transportation to people inthe poor areas. Besides the social assessment, a separate study was conducted by Zhongshan University from Guangdong Province to assess the project impacts o n poverty reduction. The study was conducted through collection and analysis o f government statistics and poverty target programs, meetings with local government leaders and fanners, focus group discussions, interviews and case analysis. The social assessment was conducted incommunities affected both directly and indirectly by the project. It screened the socioeconomic settings, brought out the key social development issues inthe project areas, and facilitated community consultation through focus group discussions, interviews, and questionnaire surveys, and made recoinmendations for the project design. Feedback givenduring consultations with the communities was incorporated into the project design. According to govemment statistics, there are no ethnic minority coinmunities inthe project areas. Field work conducted duringthe social assessment confirmed this infonnation. Duringthe project planningprocess, the PEO conducted a survey along the project alignment to determine impacts on cultural properties. Professional experts from Anhui Archaeology and Sociology Institutejoined the survey team. The screening, the survey process, and findings were documented inthe project environmental assessment. - 22 -  The inajor adverse social impacts o f the project are related to land acquisition and the resettlement o f affected households. Minimizing resettlement was a key criterion for selecting the alignment for the TTH froin the alternatives considered. APCD engaged Anhui Highway Design Institute and East China Hydropower Survey and Design Institute to carry out the resettlement planning. The resettlement planning process included an inventory o f all affected assets, a ceiisus o f tlie affected population, a socioeconomic survey, detailed consultation with the resettlers about livelihoodrehabilitation measures, and a social assessment conducted by the Across-Cultural Research Center o f Zhongshan University in Guangdong Province. The TTH component o f the project will require: acquisition o f 9,365 muo f land, 4,440 inuo f which i s fannland, affecting a population o f 9,963 people in 2,611 households; 0 demolition o f 86,614 square meters o f housing requiring the relocation o f 1,8 15 people in430 households; and 0 relocation o f 24 small business. The RRIP component meets criteria that include poverty and other social indicators. Field surveys confirm that the RFUP will not require land acquisition or the relocation o f households. The Resettlement Action Plan (RAP) contains details about census, inventory, legal framework, relocation programs, livelihoodrehabilitation programs, resettlement budget, iinpleiiieiitation schedule, institutional setup, consultations, and monitoring arrangements and has been reviewed by the goveniinent and the Bank.The RAP is suimnarized inAnnex 13. 6.2 ParticipatoryApproach: H o w are key stakeholders participating inthe project? All the affected households andvillages have been identifiedthrough the census and social assessment. Project information was provided to the affected villages aiid local goveriiineiits through newspaper announcement, posters, and public meetings. Particular attention was given to the screening for ethnic minority groups inthe project areas to ensure that they were identified. Focus group discussions, key infonnant interview, and questionnaire surveys were conducted to disseminate project infonnation, collect people's concerns, needs with people affected by the project, and recoinmeiidatioiis, and consult with tlie affected people inthe development o fthe resettlement and rehabilitation strategy. Infonnationdissemination and consultation will continue duringproject implementation. A resettlement infonnation booklet, including detailedinfonnation about entitlements and compensation o f each householdas well as entitlement policies and grievance procedures will be distributed to the affected people before resettlement implementation. The affected coimiiuiiities will play a key role in finalizing and implementing their livelihoodrestoration programs. Both intenial and independent monitoring o f the resettlement will be designed inthe Resettlement Action Plan for project iinpleinentation. The resettlement action plans were placed inlocal libraries and their availability were advertised inlocal newspapers. 6.3 H o w does the project involve coiisultations or collaboration with NGOs or other civil society organizations? The Cross-Cultural Research Center o f Zhongshan University in Guangdong conducted the social assessment and assessedthe project's impact on poverty reduction. East China Hydropower Survey and Design Institute and the Anhui Highway Design Institute carried out resettlement planning. At the same - 23 -  time, village committees and farmer groups were consulted and participated inthe resettlement planning process and the preparation o f the project. 6.4 What institutional arrangements have beenprovided to ensure the project achieves its social development outcomes? APCD has developed experience inpreparing and implementing the ongoing Anliui Highway Project. It will establish a siinilar institutional setupfor the implementation o f the proposed project. The institutional arrangements for resettlement implementationare detailed inthe RAP. A monitor who i s independent o f the Anhui Provincial Government and the PEO will be contracted to conduct the independent monitoringo f the resettlement program. The project will be monitored and the living standards o f the project-affected people will be evaluated throughout project implementation. The monitoring results will be reportedregularly and, ifnecessary, remedial actions will be designed. 6.5 H o w will the project monitor performance interms of social development outcomes'? See E. 6.4. Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Natural Habitats (OP 4.04, BP 4.04, GP 4.04) Yes 0 KO Forestry (OP 4.36, GP 4.36) YCS e NO Pest Management (OP 4.09) Yes 0 NO Cultural Property (OPN 11.03) .Yes N o Indigenous Peoples (OD 4.20) Yes 0 NO Involuntary Resettlement (OP/BP 4.12) 0 Yes NO Safety of Dams (OP 4.37, BP 4.37) Yes 0 KO Projects in InternationalWaters (OP 7.50, BP 7.50, GP 7.50) Yes 0 NO Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* Yes 0 NO 7.2 Describe provisions made by the project to ensure compliance with applicable safeguardpolicies. For OP 4.01, Environmental Assessment, see Section E.5.For OP 4.12, Involuntary Resettlement, see Section E.6. F. Sustainability and Risks 1. Sustainability: Experience from completed and ongoing Bank-financed highway projects indicates a strong commitment among Chinese officials to implement the physical components. Counterpart funds are generally made available on time. However, when the province faces financial constraints due to the general policy o f speeding up investment inthe highway sector, funds are sometimes diverted from maintenance to construction. T o mitigate this tendency, about 10percent o f project funds is allocated to improvingthe existing roads, especially inpoorer areas. - 24 -  The level o f tolls will be reviewed periodically so that the project proves to be financially and economically viable and the province can repay the Bank loan and provide inaiiiteiiaiice when required. Recommendations from the studies on toll rates and toll highway operation conductedunder the ongoing Anhui Highway Project will be taken hlly into consideration inthe proposedproject. 2. Critical Risks (reflecting the failure o f critical assumptions found iiithe fourth column o f Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputsto Objective Traffic does not grow as projected in M Critical review o f traffic studies by the Bank. the Tongling-Tangkou corridor Sector organization, operation, and M The Bank will maintain an effective dialogue management are not improved. with the proviiicial government duringproject implementation. Training programs are not relevant and M Proper training subjects and trainees will be managers are unwilling to give selected according to the established criteria. opportunities to trainees to apply new skills. From Componentsto Outputs Political pressures interfere with M A realistic implementationprogram was implementation and adversely affect the prepared and assurance was sought during quality o f construction. project preparation that the agreed iinpleineiitatioii schedule will be followed. Counterpart resources are not made M Assurance was sought froin the central and available ina timely manner. local governments during project preparation that providing counterpart resources will remain a highpriority. Traffic safety audit i s not implemented. M Supervision inissioiis will focus on the implementationo f the traffic safety audit. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Ris , M (Modest Risk), N(Negligib1eor Low Risk) 3. Possible Controversial Aspects: None. G. Main Loan Conditions 1. Effectiveness Condition The effectiveness condition i s the issuance o f acceptable legal opinions. - 25 -  2. Other [classify according to covenant types used intlie Legal Agreeinelits.] 2.1 Agreement reached with the Government: The Borrower ensured that the proceeds o f the loanwould be on-lent to the Beneficiary (AnhuiProvince) on the same terms and conditions as the Bank loan, with the Beneficiary bearing tlie foreign exchange risk. 2.2 Agreement Reached with the Beneficiary: a. Tongling-Tangkou Highway APCD shall carry out the EMP and RAP ina manner satisfactory to the Bank and furnishto the Bank for its prior approval any proposed revision to such plans; APCD shall prepare and furnish to the Bank: (i) an annual enviroiiiiiental inonitoring report by May 15 o f each year, commencing May 15,2004, and untilcompletion o f the project; and (ii) by May 15 and November 15 o f each year, coinmencing November 15,2003, through the second year following completion o f the project, an internal monitoring report o f tlie resettlement implementation activities and results thereof during the immediately preceding six-month period; APCD shall prepare and furnish to the Bank by February 15 and August 15 o f each year, coinmencing on February 15,2004, through the second year following completion o f resettlement activities under the project, an external monitoring report on the resettlement implementation activities and the results thereofprepared by an independent entity acceptable to the Bank, during the same six-month period referred to in clause (ii) above; APCD shall prepare and furnish to the Bank monthly progress reports on the TTH civil works, commencing February 15, 2004, and untilcompletion o f the civil works under the project; and APCD shall undertake and furnish to the Bank for its review and comments an aiialysis and recommendation o f the structure o f toll rates on TTH by June 30, 2006, taking into consideration the results o f studies about this issue conducted under other Bank-financedhighway projects in China, the experience with toll rates on major roads inAnliui and other parts o f China, and the results o f surveys o f user responses to tolls. b. Rural RoadImprovement Program 0 APCD shall carry out the EMP in a manner satisfactory to the Bank and furnishto the Bank for its prior approval any proposed revision to such plans; and APCD shall prepare and furnishto the Bank an annual monitoring report by May 15 o f each year commencing May 15, 2004, and untilcompletion o f the project. c. Highway safety 0 APCD shall, by December 31, 2005, complete the program o f improvements o f black segments and blackspots; and 0 APCD shall complete under tenns o f reference acceptable to the Bank a training program on a safety audit schedule by March 31,2005. - 26 -  d. Institutional strengtheningand training e APCD shall, by November 15 o f each year, commencing November 15, 2003, and until coinpletion o f the project, furnish to the Bank an annual training program and cai-ry out such program taking into account the Bank's comments, if any; APCD shall complete and furnish, by June 30, 2005, the recoinmendations of the study on construction supervision and promptly prepare and carry out an action plan, taking into account the Bank's coinments on the recommendations, if any; and e APCD shall coinplete and furnish, by June 30, 2005, the recoinmendations o fthe study on the overloading o f vehicles and promptly prepare and carry out an action plan, taking into account the Bank's coinments on the recoinmendations, if any. e. Reporting,monitoringand auditing APCD shall maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, inaccordance with indicators acceptable to tlie Bank, the carrying out o f the project, including the implementation o f the EMPs, tlie RAP, and the achieveinent o f the objectives o f the project; APCD shall prepare and furnish to the Bank, not later than February 15, M a y 15, August 15 and November 15 o f each year, commencing February 15,2004, and untilcoinpletion o f the project, quarterly progress reports on the implementation o f the project; and APCD shall prepare and furnish to the Bank, on or about February 15 o f each year, commencing February 15, 2004, a report integrating the results o f the inonitoriiig and evaluation activities on the progress achieved inthe carrying out o f the project duringthe period preceding the date o f said report and setting out the measures recommended to ensure the efficient carrying out of the project and the achievement o f the objectives thereof duringtlie period following such date and thereafter, take all measures required to ensure the efficient coinpletion o f the project and the achievement o f the objectives thereof, on the basis o f tlie conclusions and recoinmendations o f the said report and the Bank's views on the matter. H. Readiness for Implementation 1.a) The engineering design documents for the first year's activities are complete and ready for the ~- start o f project implementation. - 1. b) Not applicable. 2. The procurement documents for the first year's activities are complete and ready for the start o f x3.The project implementation. Project Implementation Planhas been appraised and foundto be realistic and o f satisfactory 3 quality. 4. The following items are lacking and are discussedunder loan coiiditioiis (Section G): - 27 -  1.Compliance with Bank Policies 3 1. This project complies with all applicable Bank policies. 2. The following exceptions to Bankpolicies are recommended for approval. The project complies with all other applicable Bankpolicies. Jitendra N.Bajpai Team Leader Sector ManagerlDirector - 28 -  Annex I: Project Design Summary CHINA: Second Anhui Highway Project Key Performance Data Collection Strategy Hierarchy of Objectives Indicators Critical AssumDtions Sector-related CAS Goal: ,ectorIndicators: iectorlcountryreports: 'romGoal to Bank Mission) Strengthen transport links conoinic activity increases withinand to lagging regions nd accessibility improves in I1 areas in the province. )pportunities are enhanced in 11 sectors and contributions re made to sustainable nd equitable development. htcome I Impact 'roject reports: ?om Objectiveto Goal) Objective: idicators: Support the social and ieduced time spent on 'ravel speed and average konomic conditions inthe economic development o f intraprovincial trips lady traffic (ADT) on existing ountry and provinces remain Anhui Province byproviding oads 3bust. an efficient, safe, and Lower traffic accident cost-effective highway fatality rate Progress on rural road Counterpart hnds are not infrastructure ehabilitation verextended and road iaintenance is sustained. Progress on traffic safety Output from each Iutput Indicators: Jrojectreports: from Outputs to Objective) Component: 1. Transport capacity along .1 ADT on new highway 'roject performance iector organization, operation, the TTH corridor increased mndexisting road nonitoring reports nd management improve. and market integration inthe .2 Average travel time on low-income areas promoted he new highway and :xistingroad 2. Existing road network !.1 ADT on rural roads in Project performance inlow-income areas tffected areas nonitoring reports improved L.2 Household incomes in tffected areas L.3 Number o f poor )opulation in the project iffected area 3. Traffic safety on existing 3.1 Number o f traffic Project performance report network improved iccidents causing fatalities anc ;erious injuries reduced 4. Technical and 1.1 Qualitative evaluation Quarterly progress and annual rraining programs prove management capacity of indicating the sharing o f new monitoring reports .elwant and managers willing - 29 -  APCD and its related nowledge and the exercising o give opportunities to departments strengthened I fnew skills b y staff trained rainees to apply new skills. inder the project, as well as inprovement o f performance n specific functions and ctivities 'roject Components I nputs: (budgetfor each 'roject reports: from Components to ;ub-components: :omponent) )utputs) . Construction o f TTH JSS496.46 inillion 4onthly reports for civil 'olitical pressures do not iorks nterfere with implementation .nd adversely affect the luality o f construction. !. RuralRoadImprovement JSS69.13 million !uarterly progress report for 2ounterpart resources are Prograin i e entire project nade available in a timely nanner, 3. Highway safety JSS2.51 million innual monitoring reports rraffic safety audit is niplemented. 1. Strengthening o f highway JS$l1.35 inillion lpportunities are opened to management capacity and rainees to apply new skills in training he workplace. 5. Provision o f road maintenance equipment 6. Land Acquisition and US$20.35 million Resettlement Total Project Cost LJS$607.45 million Interest during construction US$21.88 inillion Front-end fee US$2.50 million Total FinancingRequired US$631.83 million - 30 -  Annex 1-1 Key Performance and Development Indicators Attainment of 2002 2005 2006 2008 JrojectObjectives MonitoringIndicators Baseline Benchmark Benchmark Benchmark 'rovide an efficient, Traveltime in the TTH Corridor ,afeand cost @in.) 230 255 265 85 :ffective highway nfrastructure f i T on TTH (veh./day in absolute number) Tongling - Xiaxichong 7,900 Xiaxichong Qingyang 7,900 Qingyang Yangmei 7,900 Yangmei Gantang 7,700 Gantang ---Tanjiaqiao - 7,700 Tanjiaqiao - Shancha 6.800 ADT on existing S103 and G205 (veh./day inabsolute number) Tongling 6,800 8,000 5,500 Qingyang Yangmei 6,800 7,700 8,000 5,500 Yangmei Gantang 6,600 7,700 7,700 5,400 Gantang --Tanjiaqiao --Qingyang 6,600 7,400 7,700 5,400 Tanjiaqiao Shancha - 6,100 7,400 6,400 7,200 6,700 ADT on RRIP roads (veh. /day in MTEN Shitai- Qiaotoudian 1,900 2,200 2,300 2,400 Jingxian - Maolin 1,700 1,900 2,000 2,200 Xianyuan -Xinilling-Sanxi 1,900 2,200 2,300 2,400 Hongmen - Jinde 1,600 1,800 1,900 2,000 Xinqiao - Dabeifu 1,700 1,900 2,100 2,200 Household incomes in affected (2001) areas (yuan) Qingyang 2,194 2,600 2,700 3,000 Shitai 1,152 1,400 1,500 1,600 Jingxian 2,384 2,800 3,000 3,200 Huangshan 1,510 1,800 1,900 2,100 Jinde 2,436 2,900 3,000 3,300 Ningguo 2,506 3,000 3,100 3,400 Qimen 2,042 2,500 2,600 2,800 Accident rates (timesikrdyr) on (200 1) Hefei-Huainan (3206 1.80 2.28 I.46 1.53 Maanshan-Nangling G205 1.49 1.89 1.21 1.26 Number of poor population (200 1) Qingyang 48,500 36,000 33,400 20,186 Shitai 57,700 42,800 39,700 -A 24,886 Jingxian 58,400 43,400 40,300 25,55 1 Huangshan 14,700 I1,600 10,900 7,158 Jinde 13,700 10,900 10,300 6,4 19 Ningguo 26,000 22,000 21,100 13,857 Qimen 18,500 14,100 13,200 9,883 - 31 -  2003 2004 2005 2006 2007 2008 YOofcivil works completedon TTH 35 66 90 I00 YOof highwaysiniprovedi rehabilitatedunder RRIP %of unprovedblackspotsisegments I 50 I loo I I I Y ofpreparationofaction plans(two 15 45 35 5 studies) % ofperson-monthsof completed 20 40 60 80 too training - 32 -  Annex 2: Detailed Project Description CHINA: Second Anhui Highway Project By Component: Project Component 1 US$524.05 million - Highway Capacity Expansion Constructionof the Tongling-TangkouHighway-- US$496.46 million 1. Construction o f the 116 kmTongling-Tangkou Highway (TTH) i s tlie main project component. The proposed TTH is a segment o f the Tianjin-Shanwei Highway originating inTianjin in the north and terminating in Shanwei, Fujian, inthe south. It forms part o f the National Trunk Highway (not NTHS). TTH traverses the low-income southeastern areas o fAnhui and linkswith tlie major provincial cities and eventually with coastal provinces through NTHS. The TTH alignment runs near the UNESCO-recognized Huangshan and Jiuhuashan scenic sites and passes through Taipiiig Lake, a popular scenic lake inthe province. Inthe north, TTH links to Lujiang-Tongling Expressway, which is under construction and i s expected to be completed by December 2005. Construction o f the southern link from Tangkou to the AnhdZhejiang border is scheduled for the eleventh Five-Year Plan, which starts in 2006. The extended southern section will connect to the Tunxi-Jingdezlien Expressway to the west and Huizhou-Hangzhou Expressway to the east at Huangshan City. When tlie plannedhighwaynetwork is complete, improved accessibility to these low-income areas will result in an increase injob opportunities inagriculture and tourism-related industries and consequently will promote social and econoinic development in the area. 2. TTH is divided into two sections, one o f 57 kmbetween Toiigling and Yangmei village with a design speed o f 100 Whr, and another o f 59 kmfrom Yanginei village to Tangkou with a design speed o f 80 ludhr.The existing road from Shancha interchange to Tangkou township with a total length o f 6 kmwill be improvedbefore the proposedTTHopens. TTHincludes nine tunnels o fa total o f 12,600 meters, six interchanges, five toll stations, and three rest areas. It also includes one management and maintenance center near Gantang. The TTH will operate as a closed toll highway system. I t also will include electrical and mechanical facilities for tolling, monitoring, telecoimnuiiications. and lighting. Supervisionof Construction US$8.13 million -- 3. A supervision team o fboth local finns and international consultants, headedby a chief supervision engineer, will supervise the construction o f TTH in accordance with FIDICprovisions. The following aspects o f the construction supervision teain's organization have been determined: e The chief supervision engineers' office will have 30 staff in four divisions (engineering and technical, laboratory, administrative, and finance). e Four resident offices will be established along tlie alignment o f TTH. These offices will be responsible for the field supervision o f international competitive bidding (ICB) contracts for civil works, and o f national competitive bidding (NCB) contracts for electrical and mechanical (E&M) facilities and buildingworks. 0 Resident offices will be staffed with 150 domestic supervisors (for about 5,000 person-months), corresponding to one personper lun. - 33 -  0 Three foreign engineers (full time and part time) will be integrated into tlie core supervision team. They will provide services for project and contract management, earth and pavement works, bridge construction, and training o f local supervision staff before contractors are mobilized. These services are estimated at 79 person-months, including about 3 person-months for the training services. 0 Foreign consultants will be recruitedthrough international competitive selection, and the Bank and the Borrower will agree on their terms o f reference and schedule. 0 Local supervisor engineers will be hired according to MOC regulations and procedures. LandAcquisition andResettlement US$20.35 million -- 4. The construction o f TTH will affect 2,611 families (9,963 persons) and require tlie acquisition o f about 9,365 inuo f land and the relocation o f 470 households. Inaddition, an estimated 2,525 muo f land will be occupiedtemporarily duringconstruction, generally at sites o fmajor bridges and tunnels. Surveys undertaken during project preparation have determined baseline data on income levels and standards o f living. Coinpensation rates have been fixed after consultations with local governments and affected people to ensure that the living standards o f the affected population are restored or improved and that affected assets are compensatedat replacement cost. Landacquisition and resettlement costs include coinpensation to affected individuals and the reconstruction o f public facilities. The land acquisition and resettlement component i s discussed in detail inAnnex 13. ProjectComponent 2 US$69.13million - Rural Road Improvement Program 5. The rural road improvement prograin (RRIP) has been designed to help people in poor counties increase their incomes by improving access to product markets, employment opportunities. and social services and facilities. This program includes roads totaling about 243 kilometers in length, o f which 118 kmare Class I11roadand 125 kmare Class IV.The current Class IIUIV roads will be upgraded to the Class IUIIIstandard. Intlie long term, these road improvements will provide the poor in these counties the opportunity to increase their incomes and improve their general welfare. 6. Among 13 prescreenedroad sections inlow-income counties, 5 sections with a total length o f 243 kmwere selected on the basis o f the following criteria (see Map IBRD 32133): 0 current road condition; 0 lack o f altemative transport infrastructure; 0 expected impact on people's access to education, health, and other social activities, and on economic development; 0 contribution to a provincial plan to improve the functional responsiveness o f the highway network; 0 strong support by local government and residents; and 0 expected EIRRo f higher than 20 percent. The five road sections are incounties with a per capita cash income o f households o f between Y 1,164 and Y 2,697, which i s less than halfthe average inAnhuiProvince. - 34 -  7. Implementation.The five roadsections to be improvedwill be divided into 13 contracts with an average length o f about 19 kmand a total cost o f about USS60.5 million, o f which the Bank loan will finance 40 percent. All contracts will be procuredusingthe N C B procedure. The supervision o f the works will be organized by a local construction headquarters established by the Anhui Highway Administration Bureau under APCD, and the domestic supervisors will be selected according to M O C regulations. Supervision efforts are estimated at US$1.2 million. The sections will be improved from 2003 through 2007. The details are shown inTable A. 8. Monitoringand performanceindicatorsThe monitoring indicators include the following: 0 average daily traffic inabsolute number and medium truck equivalents (MTE); 0 number o f daily bus services along the route; 0 ratio o f children attending secondary schools; 0 number o f poor population; per capita cash income o f households; and 0 gross output value o f farming, forestry, animal husbandry, and fisheries. Baseline data for these indicators will be established, and target values will be estimated. The Bank and APCD will review the implementationo f the programduring supervision missions, and results will be compared with those agreed on duringthe previous year. Table A: RuralRoadImprovement Program(RRIP) GOV of Estimated Per Capita Total Poor Farming, No. Road County Length Class of Cost Cash Income Population in Population Forestry, Section (km) Road* (Y o f 2000 in 2000 Animal million) Households Husbandry ......................................... .......".."....."......""".."l...._ll_._ll" ......-" .... .... ..... I!!.2999..(UI.... ..,, ...................., .. ........................... iX.!!!i!!.i?!!L 1 S325, Shitai- Qingyang, 74 ll/lII 148 2,237 280,000 527 459 Qiaotoudian Shitai (III) 1,164 1 11,000 19,133 162 Section 2 S322, Jing- Jing 35 ll/lII 70 2,285 359,000 1,582 709 Maolin (IV) Section 3 Xianyuan- Huangshan 44 Il/l I I 88 2,697 162,000 1,806 986 Xinming- District, (I I I) 2,321 152,000 4,445 368 Sanxi Jinde 4 S323, Ningguo, 38 ll/lII 90 2,136 381,000 332 1,023 Hongmen- Jinde (IV) 2,32 1 152,000 4,445 368 Jinde Section 5 S221 Xinqiao- Qimen 52 1 1 1 104 1,856 185,000 1,148 348 Dabeitun (IV) Total Seven 243 500 5,293 62;780,000 463,726 *--Roman numeral in parentheses indicates the current class o f the road. Source: 2001 Anhui Statistical Yearbook and Feasibility Study Report for Tongling-Tangkou Highway - 35 -  Project Component 3 US$2.51 million - Highway Safety 9. APCD has undertaken a highway safety component uiider the ongoing highway project. However, because o f the diffusion o f responsibilities between the APCD and the traffic police, the first project included a relatively small safety component, priinarily inthe APCD's domain: a study on highway traffic accidents; a pilot program for treatment o f blackspots; aiid provisioii o f iiistitutioiial strengthening and training. The ongoing highway safety prograin was reviewed and it was found that it i s s t i l l difficult to address highway safety issues in a comprehensive manner. While coiitiiiuiiig to inake efforts to establish good coordinationbetween the Commuiiicatioiis Department and the traffic police, the project will continue working on the engineering aspects o f highway safety. The safety component for the proposed project consists o f the treatment o f black segments aiid blackspots and safety training. 10. Black segments and blackspots.The proposedprogram was derived froin the results o f the Study o f Highway Accidents completed under tlie previous project. An analysis o f traffic accident data for the period December 26, 1998, to May 25, 2001, identified 42 black segments and 13 black spots on 3,253 kmroad sections inAnhui.After due consideration, it was agreed that tlie followiiig highway sectioiis would be targeted for remedial actions under the project: Hefei to Huainan section o f G206 (114 km); and 0 Maaiishanto Nanling section o f G205 (88 lun). The proposed remedial actions will consist o f : i)improveineiit o f black segments; ii)iinproveineiit o f black spots; iii)improvement o f intersections; and iv) sigiiiiig aiid marking. t 11. Improvement works for the black segments and black spots are estimated at USS2.51 million. Detailed designs o f the first batch o f civil works, including installing traffic safety facilities, will be completedby July 2003, aiid the entire prograin will be implementedfroin 2004 to 2005. Work on about 20 locations will be grouped into two coiitract packages aiid procuredthrough NCB. 12. Safety training. The proposedtraining prograin will focus on safety audits for designs, construction, operation, and maintenance o f highways. Safety audit procedures aiid inaiiuals were developed uiider other Bank-financed highway projects aiid these will be good sources o f training materials. Project Component4 US$2.78 million - Institutional Development and Road Sector Management 13. The objective o f this component i s to improve the efficiency and sustaiiiability o f the highway sector management inAnhui Province. This coinponent iiivolves a training program for staff o f APCD and its related agencies and technical assistance on policy reform 011 highway maiiiteiiaiice (overloading vehicles) and construction supervision. Subcomponent4.1 -- Training Program -- US$2.28 million 14. A training programunder the previous project has startedto streiigtheii the capacity o fAPCD and its related agencies. The proposed training program was developed 011 the basis o f tlie following principles: - 36 -  The training program will take into consideration organizational reform and restructuring duringthe Tenth Five-Year Plan. Training aspects will be directly related to the implementation o f various components o f the project. Tlie training programwill buildon training begununder tlie previous project without duplicating those programs. All instructors will be requiredto produce proper and up-to-date written training materials, and participants will receive copies o f these course materials. Training courses will reflect the ongoing activities o f Aiihui Highway Project and will be designed to add value to various aspects o f the project. The training program will cost an estimated USS2.28 million and will include overseas study tours (14 person-months), training courses abroad (93 person-months) and domestic courses (848 person-months). The training program will be updated periodically duringproject implementation. Subcomponent4.2 -- Study onPracticesandFutureDirections in Construction Supervision -- US$0.26 million 15. The study will examine the status o f tlie supervision industry, tlie way supervision firms are selected, the composition o f supervision teams, the roles and responsibilities o f members on a supervision team, the relationships between clients and contractors, and reporting procedures. The study will take into consideration the experiences o f other provinces and other countries. Tlie study will investigate the possibility o f introducing a separate and independent quality control team. Subcomponent4.3 -- Study on OverloadingVehicles US$0.24 million -- 16. The purpose o f this subcomponent is to provide APCD with a modern tool for managingroad assets to address the overloading o f vehicles, which is one o f tlie more difficult asset management questions. The proposed task will support the preparation and evaluation o f a pilot program on control practicalities and applicable measures, with a view to developing a comprehensive provincial policy and regulation framework. The study will be organized as follows: a practical study o f the nature and extent o f overloading; selection o f the four most serious locations; investigation o f the feasibility o f mobile inspection stations; staff training; development o f rules and regulations; construction o f four inspection stations, ifnecessary; implementation o f inspection and enforcement, including regulations; monitoring o f the pilot inspectionprogram and development o f a comprehensive inspection policy; and drawing up o f regulations on overloaded vehicles applicable to tlie whole province. - 37 -  Annex 3: Estimated Project Costs CHINA: Second Anhui Highway Project I Project Cost by Component Local Foreign Total US $million US $million US $million 1. Works a) Tongling-TangkouHighway(TTH) 256.54 178.13 434.67 i)CivilWorks 246.83 163.22 410.05 ii)E&MFacilities 3.09 12.09 15.18 iii)Buildings 6.62 2.82 9.44 b) RRIP 42.46 18.07 60.53 I Total Proiect Cost' I 377.69 1 229.76 1 607.45 I 8. Interest during construction 0.00 2 1.88 21.88 9. Front-end fee 0.00 2.50 2.50 Total Financing Required 377.69 254.14 631.83 Project Cost by Category Local Foreign Total US $million US $million US $million Note 1: ldcntifiable taxes and duties arc USS13.69 million, and the total projcct cost, net oftaxes. i s IJSShl7.14 million. Therefore, the project cost sharing ratio is 41.23% oftotal project cost net ufraxcs. - 38 -  Annex 4: Cost Benefit Analysis Summary CHINA: Second Anhui Highway Project Summaryof BenefitsandCosts: 1. The economic internal rate o f return (EIRR) o f the project is 20.8 percent and the net present value (NPV) i s Y 3,647.1 million (12 percent). The economic evaluation o f the project covers the following two project components: construction o f the 116.15 kmTongling-Tangkou Highway (TTH); and 0 upgrading of the five rural roads (total 243 km) in the low-income areas included inthe Rural Road Improvement Program (RRIP). 2. The EIRRs of the project coinponents and the overall project EIRR, calculated usingvehicle operating cost (VOC), are summarized inthe following table. "" y of*EconomicEvaluationResults (ill%I) NPV (Y 111 Tongling-TongkouHighway(TTH). Section 1. Tongling- Yangmeicun 24 3 2,027 3 Section2. Yangmeicun- Tanjlaqiao 20 5 1,400 0 Section3. Tanjiaqlao-Tongkou 9 0 (1364) Subtotal 207 3,320 6 RuralRoadImprovementProgram(RRIP) 21 4 326 5 Total 3,647.1- I_-_-c--- Main Assumptions: 3. The analysis is based on the actual and forecasted data on traffic volume, VOC, economic project cost, and benefits to transport users. The evaluation relied on the following main inputs and assumptions: 0 capital investment and maintenance costs, reflecting March 2003 prices; the benefits stream, also reflecting March 2003 prices, which comprises savings inVOC and travel time, and a reduction inaccident costs; a capital investment period o f 2003-2007, depending on the roadbeing evaluated, and an evaluation o fbenefits over 20 years; and 0 fullbenefits beginningto accrue in2008 for TTH and 2006 for RRIP. 4. This annex has three parts: the economic evaluation o f TTH; the economic evaluation o fthe five rural roads under RRIP; and the overall economic evaluation o f the project, iiicluding a probabilistic risk analysis. - 39 -  ECONOMICEVALUATION TONGLING-TANGKOU OF HIGHWAY 5. For evaluation purposes, TTH has been divided into three sections: Length of the Length of the new existingroad (km) expressway (km)-- Section 1: Tongling - Yangmeicun 77.00 57.02 Section2: Yangmeicun-Tanjiaqiao 63.00 48.95 Section3: Tanjiaqiao -Tongkou 15.00 10.18 Total 155.00 116.15 Highway Expansion Plan and Justification for Investment 6. Anhui is a landlockedprovince inthe eastern central regionofChina o f about 139,200 sqkm. Mountains (29.6 percent o f total area o f the province) predominate inthe west and south, and plains (44.3 percent) inthe north, east, and central regions; hilly sections (26.1 percent) are scattered between the mountains and plains. The provincial capital, Hefei, i s inthe center of the province. The Yangtze River flows from the southwest to the east. AnliuiProvince's east-central inland location and the Yangtze River make Anhui a major hub for both east-west transport (linking inland provinces and the coastal provinces) and north-south transport (liilking the Yellow River region and the Yangtze River region) in the eastern central region o f China. 7. Anhui is apoor province. Its GDP per capita in2001 was Y 5,199, or only 70.3 percent o fthe national average (Y 7,392). Anhui's major economic activities are concentrated along the northern Yangtze River. The southern part o f Anhui -- the project area -- i s hilly and mountainous. The economic development inthis area lags behind the rest o f the province. The proposed TTH will link three major cities on the south side o f the Yangtze River: Tongling, Chizhou, and Huangshan. The total land area served will be about one seventh o f the province (13.8 percent), and the population served makes up one-sixteenth o f the province's population (5.9 percent) but about one-tenth (9.5 percent) o f the poor population. The proposed project involves the first high-grade highway linking these three cities. It will improve the localpeoples' access to the outside world and will balance economic development inthe province. 8. The Government o f China is planning to construct five north-south highways, seven east-west highways, and three main highway corridors throughout the country before 2020, according to its National Key Trunk Roads Construction Plan, which calls for linking all major cities and seaports. The AnhuiProvincial Communications Department (APCD) is planning to complete a cross-shaped highway system before 2010, centered at Hefei and extending east (completed), west (under construction), north (partially completed), and south (partially completed). Except for the proposed TTH, all other sections are either completed or under construction. The proposed TTH i s also part o f the Tianjiii-Shanwei (Fujian province) Expressway (TSE), which is part o f the National Key Trunk Roads Construction Plan inAnhui Province. The total lengthofthe TSE is about 2,136 kmandthe lengthofthe TSE inAnhui is about 330 lun.Because o f the important role this expressway plays for the country and its role inthe Anhuiroadnetwork, the proposed project has the highest priority inAnhui's regional highway development plan. The economic evaluation i s based on project impacts on traffic in served areas o f Anhui Province with the roadnetwork at the time ofits opening. Longerterm andmore distant impacts (beyond Anhui Province) are not taken into consideration. - 40 -  Level and Timing of Investment 9. Motorized traffic on the existing roads inthe project corridor increased on an average o f 10.4 percent per year during 1995-2001; it reached 15,300-16,300 motorized vehicles per day throughout its alignment in 2001. Because the current design capacity o f the existing roads is 8,000-15,000 vehicles per day - a limit that was exceededbefore 2001 - the optiinuin timing for constructing a new highway i s as quickly as possible. Section 1 Section 2 Section3 Tongling - Yangmeicun- Tanjiaqiao - Yangmeicun "_ Tanjiaqao Tongkou RoadClass (oldroad/ newroad) I1I Expressway I1/Expressway 111 ' Expressway RoadCondition (old roadI new road) Bad/ Good BadI Good Bad1Good Terrain (old roadI newroad) Hilly/ Hilly Mount. /Mount. Mount. /Mount. Capacity(AADTiday) (old road/ new road) 15,000 / 64,000 10,000 / 54,000 8,000 151,000 MotorizedTraffic -2001 (AADT/day) 16,300 15,800 15,300 Year for Capacity Before 2001 Before2001 Before2001 ProposedOpening Year October 2007 October 2007 October. 2007 Corridor Traffic 10. Estimates o f base-year traffic were made on the basis o f routine traffic counts and a comprehensive origin and destination (OiD)survey that took place inNovember 2000 (and were updated inApril 2002). Projections o fnormal, generated, anddiverted traffic were made for 26 zones following a conventional growth model. The traffic on the proposed TTH is mostly from diversion from existing roads. Because the growth o f total traffic inAnhui (7.5 percent) and on two main local roads (G103 and G205) inthe project area (6.4 percent) were lower than the growth o f total GDP in 1995-2000 (10.4 percent), and because annual econoinic growth i s expected to be about 8-9 percent during 2001-2010, the projectedtraffic growth rates inthe project corridor were estimated at an overall 4.2 percent per year for 2000-2008, 3.2 percent per year during2008-2017, and 2.3 percent per year during2017-2027. The overall traffic growth rates are summarized inthe following table. Annual Traffic Growth Rate: TTH Car Bus & Truck Average Actual: 1995 -2001 20 8% 6 7% 8 3% Projection: 2001 - 2008 5.0% 4 0% 4 2?4 2008 -2017 4.3% 3 0% 3 2% ** 2017 -2027 3 7% 2 0% 2 3% .x_ Alternatives 11. The TTH feasibility study considered four altemative routes, comparing costs, benefits, service to local cities, and relationship to future econoinic development. The other major criteria for selecting an altemative alignment were: avoiding interference with existing facilities (such as highways and dams), avoiding house demolition (and resettlement), and minimizing construction costs, taking into account local terrain and geology. The preferredalignment was selected because it had the lowest overall cost and a higher EIRR, and offered better coordination with the local econoinic development plan and local transport networks. -41 -  Traffic on the TTH 12. The new highway is plannedto become operational in October 2007. Currently, there are five main roads inthis corridor (S215, G104, G206, S103 and G205). The traffic on the two main roads (S103 and G205) constitutes the major corridor's traffic. The new highway traffic will be diverted mainly from these two roads. Diversion ratios were calculated with the data from the feasibility study, by using financial VOC for road users, the impact o f the level o f proposed tolls on the new highway, travel distance, and experience from recent Bank-financed highways in China. The analysis indicates that the majority o f traffic on S103 and G205, which i s equivalent to 33-36 percent o f the total corridor traffic, depending on the road section, may be diverted to the new highway in2008. This proportioii will increase to 37-40 percent by 2017. The traffic diversion is expected to increase linearly in the first 10 years and stabilize thereafter. 13. Traffic generatedby TTH i s assumed to be 10 percent o f the base traffic. This assumption i s consistent with other recent expressway projects inChina. No diversion o f traffic from the railway to TTH has beentaken into account. This is because the railway is mainly for long-distance transport, with different origiddestination (O/D) than the highway, which serves mostly local transport needs. (The average rail passenger and freight transport distances for Anhui in 2000 were 628 lunand 928 km, respectively, compared with 78 kmand 100lun,respectively, for roads). Inaddition, a much higher highway tariff does not encourage traffic diversion from the railway. (The highway tariff i s about Y 0.28 per passenger-lun and Y 0.50 per ton-km; the railway tariff is about Y 0.10 plunand Yuan 0.33 tkm). The corridor traffic forecast i s summarized by section inthe following table. Section 1 Section2 Section3 Tongling - - - Yangmeicun Tanjiaqiao - Yangmeicun - Tanjiaqiao Tongkou The existing road traffic 1995 10,236 9,711 9,50 I I999 14,887 14,402 13,912 2000 15,53 I 15,072 14,477 2001 16,364 15.862 15.279 2008 13,850 13,432 13,537 2017 17,356 16,85 I 17,083 2027 22,059 2 1,457 2 1,207 TTE traffic 2008 7,93 I 7,688 6,790 2017 I1,753 I1,397 9 3 4 I 2027 14,903 14,457 12,216 Traffic diversion 2008 36.4% 36.4540 33.4% 2017 40.4%) 40.3Vo 36.6% 2027 40.3540 40.3% 36.5% Economic Costs 14. Investment costs have been converted to economic costs by eliminating price contingency, taxes, and custom duty on importedmaterials and by applying a shadow price factor. The resulting overall economic cost is about 106.4 percent o f the financial cost. - 42 -  Economic Benefits 15. Project benefits were estimated by usingthe VOC equation that was developed by the Highway Design and Maintenance Standards Model (HDM-III).The economic analysis includes the benefits derived froin VOC savings on the new highway for normal and generated traffic, time savings through relieved congestion on the existing road, and lower accident costs. The benefits resulting froin lower levels o f congestion were quantified. The value o f passenger time savings was estimated at Y 2.0 per passenger-hour, on the basis o fupdated values for highways in China (Rust PPK, Australia Feasibility Study Methodology Report, March 1996). The table below presents the VOC o f the project. Economic Vehicle Operating Cost New Highway Existing Roads Section 1 Section 2 Section 3 Section 1 Section 2-- Section 3 Car 0.635 0.655 0.655 0.750 0.767 0.767 Medium bus 1.862 2.086 2.086 2.480 2.683 2.683 Large bus 2.6 I O 3.028 3.028 3.615 4.046 4.046 Small truck 0.727 0.836 0.836 0.838 0.953 0.953 Medium truck 1.530 1.819 1.819 1.978 2.293 2.293 Large truck 2.078 2.460 2.460 2.723 3.116 3.116 Tractorkrailer 4.099 4.956 4.956 5.333 6.279 6.279 Sample of Economic Vehicle Operating Cost Calculation (Yuan per 1,000 vehicle-km, March 2003 prices) Medium Large Small !Medium Large Trailer/ Car bus bus truck truck truck Container New Highway Fuel 286 743 693 365 618 689 1,417 Tires 3 27 506 54 293 620 1,107 Maintenance 249 852 912 33 I 758 015 1,882 Crew 22 28 52 33 45 48 50 Depreciation 19 75 I88 53 105 188 500 Subtotal - 1.725_ 579 2.351 836 1.8192.460 4.956 Time value of passengers 76 361 677 Total - 2.086 655 3,028 - 836 1,8192.460 4.956 Existing Road Fuel 308 1,052 1,126 409 935 1,130 2,323 Tires 3 27 572 59 323 680 1,220 Maintenance 277 947 1.013 368 842 1,017 2,09 1 Crew 43 54 I04 59 76 80 89 Depreciation 21 83 208 58 117 209 556 Subtotal - 2,163 652 3.023 - 953 6,279 Time value of passengers 1 I 5 520 1.023 Total - 2.683 161 4,046 - 953 2J933,116 6,279 Economic Evaluation 16. Total costs and benefits streams, the EIRR and NPV, for each section o f the expressway were calculated by usingthe VOC equation. The overall ERR for the TTH i s estimated to be 20.7 percent, with the following results for each road section: - 43 -  Economic Evaluation of TTE EIRR (in %) NPV (12%, Yuan........million) ___ ~ ".ll__ "" Tongling - Yangineicun 24.3 2,027.3 Yangmeicun - Tanjiaqiao 20.5 1,400.0 Tanjiaqiao - Tongkou 9.0 (136.4) Whole route 20.1 3,320.6 17. The distribution o f the estimated benefits shows that the main beneficiaries are the road users on this highway corridor, and that trucks willreceive 44.4 percent o fproject benefits, cars 18.5 percent, and buspassengers 31.2percent. Benefits to bus passengers are inore likely to accrue to lower-income people. The breakdown o f benefits is as follows: Roaduser Road agency Society Total benefits: 6,726.9 (3,406.3) 3,320.6 Byvehicles: Cars Buses Tmcks Trailers Total 1,245.2 2,095.7 2,984.9 400.9 6,726.9 18.5% 31.2% 44.4% 6.0% 100.0% Sensitivity and Switching Values Analysis 18. The evaluation o f the project (base case) shows that the selected aligninelit i s econoinically viable. The sensitivity tests with respect to a two-year delay inproject completion, zero value o f time, no generated traffic, and lower traffic projections on the new highway confinn this position. Sensitivitv Tests on Economic Evaluationof TTH "" " " ... ............. ....................... EIRR(.ah) .?!V1l?.o!i?uY"!!an ................ mi!!i, ?!!I.... ...... Delay in completion by two years " 18.1 2,496.8 " Zero value o ftime 19.7 2,854.0 Zero generated traffic 20.1 3,039.5 Lower traffic growth rate projection (-20%) 18.9 2,433. 1 Switchingvalues % increase Cost increase to reduceEIRR to 12% 210% Benefit reductionto reduce EIRR to 12% 48Yo 19. Inaddition, the sensitivity tests, with variations inproject costs andbenefits, indicatethat the conditions causing the project's viability to fall below the acceptable -- that is, a negative NPV or an EIRRlower than 12percent -- are unlikely to occur. Benefits would have to fall to less than 48 percent o f those inthe base case with no change incosts, or the costs would have to increase to more than 2.1 tiines those o fthe base costs, or costs would have to increase by 125 percent and benefits fall to 60 percent at the same time. The sensitivity o f the project's success to cost and benefit variations i s shown inthe following table. - 44 -  Se Variation Variation in benefits incosts -70% -60% -50% -40% -30% -20% -10% 0% -40% 12.5% 15.6% 18.3% 20.7% 22.9'h 24.9Yo 26.7% 28.5% -30% 10.9%/13.9% 16.4% 18.7% 20.7% 22.6% 24.3% 25.9% 17.0% 18.9% 20.7% 22.3% 23.9% 15.6% 17.5% 19.1% 20.7% 22.2% 0% 14.4% 16.2% 17.8%) 19.3% 20.7% 13.4% 15.1% 16.6% 18.1% 19.4% ECONOMICEVALUATION THE RRIP OF Selection of RRIP and Traffic 20. APCD identified 13 sections o f roads (totaling 1,188 la)that need to be rehabilitated urgently. Of these, five (totaling 243 lun)were selected for Bank financing under the RRIP. All five ruralroads are inpoor areas intheprovince. The proposedrehabilitationplan would improve not only localroad conditions but also accessibility to the TTH. The main objective o f the RRIP i s to upgrade the existing Class I11or Class IV roads to Class I1or Class I11roads with adequate pavement. The inain characteristics o f the RRIP are listed inthe following table. Length Traffic Road class Grade - A k m ) ........ (Old/new) I, Shitai-QiaotoudianRoad 74 (MTE,E!"!.l..".~~Q!V!C-.".~Old/new)Max. 1,842 61 I.23 III111-111 8.0% / 6.5% 2. Jingxian -Maolin Road 35 1,658 48 I.66 IV I 11-111 7.7% 16.5% 3. Xianyuan - Sanxi Road 44 1,830 42 1.22 111/ 11-111 8.0% / 6.0% 4. Hangmen - Jinde Road 38 1,535 41 1.54 IV/II-III 10.0%/8.0% 5. Xinqiao - Dabeifu Road 52 1,662 48 1.66 IV / I11 9.0% 17.5% Total 243 21. The current motorized traffic levels o f three roads are inthe range o f approximately 1,500-1,800 inediuin truck equivalent (MTE). Because all five roads are inthe same region, the local economic development and traffic patterns are similar. Based on actual traffic levels and local econoinic growth rates, traffic growth rates were estimated conservatively to be 4.0 percent for 2000-2005 and then reduced by 1.0 percent for each five-year period froin 2005 to 2025. Inthese less densely populated rural areas, it is assumed that there i s no generated traffic. Economic Costs and Benefits 22. Financial costs were converted to economic costs usingthe same method and factors as for the TTH, with the following results: - 45 -  FinancialandEconomicCostsof RRIP (Yuanmillion) Financial.""..... E:?"?- ........ consw,r! ,,period 1. Shitai - Qiaotoudian Road 148.00 157.39 Oct. 2003 - June 2006 2. Jingxian -Maolin Road 70.00 74.44 Oct. 2003 -June 2006 3. Xianyuan - Sanxi Road 88.00 93.58 Oct. 2003 -June 2006 4. Hongmen- Jinde Road 90.00 95.7 1 Oct. 2003 - June 2006 5. Xinqiao - Dabeifu Road 104.00 1 10.60 Oct. 2003 - Jmie 2006 Total 500.00 531.I2 23. The VOC equation was used to quantify the economic costs and benefits on each iura1road under the RRIP. The main evaluated benefits are reduced VOCs because o f better road surfaces; upgrading roadclasses also results inhigher traffic speed and a higher road roughness index. EconomicEvaluationand Sensitivity Analysis 24. The best estimates of EIRRs for the five rural roads range froin 17.2 percent to 29.4 percent. The overall EIRR for the RRIP i s 21.4 percent and the NPV (12 percent) i s Y 326.5 million. EIRRandNPVfor RRIP I - _I_I- -xx_II NPV (12%, Yuan mil 1. Shitai- Qiaotoudian Road 19 2 74 0 2. Jingxian - Maolm Road 20 6 36 5 3. Xianyuan - Saiixi Road 22 0 56 9 4. Hongmen -Jiiide Road 29 4 120 8 5 Xinqiao - Dabeifu Road I 7 2 38 3 * - s w * ^ - Total- 21.4 ~ ~ 326.5 25. The following risks are associated with the evaluation o f the rural roads: slower than projectedgrowth o f traffic; higher thanprojectedcost o f civil works; and a less than expected VOC savings. 26. All these risks were analyzedthrough sensitivity tests, and the evaluation results were found to be robust for all o f them. For the project component to be unacceptable (Le., with an EIRR lower than 12 percent or a nil NPV), benefits would have to fall to less than 62 percent o f those inthe base case with no change incosts, or the costs would have to increase to more than 1.62 times those o f the base costs, or the costs would have to increase by 125 percent and the benefits fall to 77.5 percent at the same time. 27. Additional benefits, not included inthe EIRRcalculation but expected froin the projects are: an increase inthe incomes o f local farmers who live along the roads because o f better access to town markets andjobs, and an improvement in accessibility to scliools and hospitals because o f improved and all-weather roads. The quantifiable benefits are estimated to be about 11,360 extra children attending school (15 percent o f 75,771 children inthe directly influenced areas) and 59,440 extra people receiving health services (15 percent of 396,270). Benefits for each road are as follows. - 46 -  Extra Benefits for RRIP Extra children Extra people attending attending school health services 1 . Shitai - Qiaotoudian Road I.490 7 850 2. Jingxian - Maolin Road 3,090 14,700 3. Xianyuan - Sanxi Road 2,100 I1,830 4. Hongmen- ShengdeRoad 2,940 15,900 5. Xinqiao - Dabeih Road 1,740 9.160 Total 11,360 59,440 OVERALLECONOMIC EVALUATIONTHEPROJECT OF Overall EIRR 28. The overall ERR o f the project is 20.8 percent and the NPV (12 percent) i s Y 3,647.1 million. The overall EIRR o f the project calculated usingVOC equation is summarized as follows: Summary of Economic Evaluation Results -,,*- NPV (YuanI111illoi1, 12%)" Tongling-TongkouHigliwav (?THY Section 1. Tongling - Yangnieicun 24 3 2,027 3 Section2: Yangmeicun - Tanjiaqiao 20 5 1,400 0 Section3: Tanjiaqiao -Tongkou 9 0 (136 4) Subtotal 207 Rural RoadImprovementProgram(RRIP) 21 4 326 5 Total 20.8 3,647.1 " / Project Risks 29. The TTH and RRIP show acceptable economic returns. APCD has extensive experience inthe constructioii and operation o f expressways and rural roadprojects, which minimizes the technical risks o f implementing the project. The main tangible risk is prolonged delays affecting the construction schedule. This will be testedthrough the probabilistic riskanalysis to estimate the degree o f uncertaintyfor the project. Probabilistic Risk Analysis for Economic Evaluation of TTH 30. To detennine the degree o f uncertainty for the project, a probabilistic risk analysis usingMonte Carlo techniques was carried out. Ina Monte Carlo analysis, each uncertainty factor i s allowed to vary at random between set limits and all uncertainty factors are allowed to change simultaneously. Monte Carlo simulation provides probability distributions o f the potential outcomes of decisions. By analyzing these distributions, i t is possible to assess the risk associated with making various decisions (or probabilistic riskanalysis). The outcome o fthe analysis is ajudgment 011 the possible range o f the decision variable, and on the likelihood o f each value within this range. 31. Interms o fthe capital cost, because the five ruralroads constitute only about 11.8 percent o f total capital investment, and their EIRR is higher than the returnon the TTH, the probabilistic risk analysis for the project focuses on the construction o f the TTH. The highest uncertainty factors associated with the economic evaluation o f the TTH were identifiedas: (a) traffic growth rate, (b) traffic diversion ratio to the new highway, (c) the value o f VOC, (d) changes in the amount o f capital - 4 7 -  investment, and (e) a delay inopening the new highway by one year. The results of the probabilistic risk analysis indicate that the EIRRfor the most likely scenario i s 19.6 percent. Inthe low scenario case, it is 10.5 percent, and the high scenario case is 28.8 percent. The standard error of the mean i s 0.5 percent. The detailed results of the Monte Carlo test and probabilistic risk analyses are shown inAppendix A and suinmarized as follows: Rangeof EIRR Mostlikely EIRR StandardError of the Mean Section I:Toagling - Yangmeicun 13.I%32.8% - 23.0% 0.6% Section 2: Yangmeicun -Tanjiaqiao 10.1% 28.3% 19.4% 0.6% Section 3: Tanjiaqiao -Tongkou I.4% 9.1% 0.4% TotalTTE 10.5% ---16.8% 28.8% 19.6% 0.5% - 48 -  APPENDIX A TONGLING-TANGKOUHIGHWAY EIRRSimulationand ProbabilisticRiskAnalysis Suminaiy: Display Rangc is from -10.0% to 70.0% Entire Rangc is from -8.2% to 92.5% Aftcr 1,000 Trials, the Std. Error o f thc Mcan is 0.5% Statistics: Valuc Perccntilcs: - Trials I000 Mean 2 I.4% Pcrccntilc Valuc Mcdian 19.6% 0Yo 43.2% Mode _ _ _ 10% 1.3% Standard Dcviation 16.5% Low Scciiario 20% 6.1% Variancc 2.7% 30% 10.5% Skcwncss 0.61 Most Likciy 40% 15.3% Kurtosis 3.16 I 50% 19.6% Cocff. of Variability 0.77 High Sccnario 60% 24.1% Range Minimum -8.2% I 70% 28.8% Range Maximum 92.5% 80% 34.4% Rangc Width 100.7% 90YO 43.8% Mcan Std. Error 0.52% 100% 92.5% Forecast: EIRR- T T E (open in 2009) Total Project 1,000Trials Frequency Chart 6 Outliers -10.0% 10.0% 30 0% 50 0% 70 0% Assumptions Traffic Growth Rate Traffic Diversion Normal distribution with paramctcrs: " m a l distributioii with paramctcrs: Mean 100.0% Mcan I00.0"/0 Standard Dcv. 10.0% Standard Dcv. 10.0% Sclcctcdrangc is from -Infinity to +Infinity Sclcctcd rangc is fi-om -Infinity to +Infinity Mcan valuc in simulation was 100.8% Mcan valuc in siiiiiilation was 99.8% VOC Value Capital Cost Triangular distribution with paramctcrs: Triangular distribution with paramctcrs: Minimum 90.0% Minimum 100.0% Likclicst 100.0% Likclicst I 10.0?/a Maximuin 110.0% Maxiintiin I15.0% Selccted rangc i s from 90.0% to 110.0% Sclcctcd rangc is from 100.0% to I15.0% Mcan valuc in simulation was 99.8% Mean vniiic in simulation was 108.4% -49-  Sensitivity analysis / Switching values of critical items: ___..._....l_l.____"" _I___._..."................................................. "...__I_"............................... EIRR ( O h ) NPV (12%, Yuan million) " .................. ..................... ...... .. ..................................... ................................... ..... Delay in completion by two years 18.1 2,496.8 " Zero value o ftime 19.7 2,854.0 Zero generated traffic 20.I 3,03 9.5 Lower traffic growth rate projection (-20%) 18.9 2,433.1 Switching values % increase Cost increase to reduce EIRRto 12% 210% Benefit reduction to reduce EIRRto 12% 48% - 50 -  Annex 5: Financial Summary CHINA Second Anhui Highway Project 1. The financial evaluation o f the project covers the revenue-earning entity (TTH), the lion revenue-earning entity (RRIP), and the financial capacity o f APCD to sustain highway activities. FINANCIAL EVALUATION TTH OF 2. TTH is the only income-generating component, and its cost constitutes about 82 percent o fthe total project cost. TTH funding will come from the World Bank loan (47 percent) and grant capital (53 percent); an overall average cost o f capital o f 5 percent i s appliedto both sources o f funds. APCD plans to open TTH to traffic inOctober 2007. After the TTH is completed, the operation entity will be responsible for the day-to-day management, operation, and maintenance o f TTH. The main financial revenue o f the TTH will be toll income from roadusers. Financial Objective 3. APCD has indicatedthat the purpose o f toll collection on TTH is to repay the Bank loan and cover operation and maintenance expenditures insteado f maximizing the financial rate o f return on the investment. The toll rate will be set accordingly. For 2008, the weighted average toll rate i s estimated at Y 0.91 per vehicle-km, which is about equivalent to the average toll rate charged under the Bank-financed expressways intwo coastal provinces (Zhejiang and Guangdong) in2000. The toll charges are assumed to increase once every five years (15 percent over 5 years, or an average o f 2.8 percent per year). Financial Forecasts 4. Toll. The toll will be charged on the basis o f vehicle size (small passenger cars, large buses, small trucks, mediumtrucks, large trucks and trailers) and distance traveled. Toll-exempted vehicles (ambulances and police and military vehicles) are expected to make up 10 percent o f total traffic. The proposed toll charges are as follows: Sma!!ve!c!F: ...................Mediumvehicle n.m !!e!lk!e. ..... 0.90 Large1.20 ve'ic'e ................HeavyI.60 5. Operations. The operating costs o f TTH can be broken down into working costs (wages and benefits, maintenance, operating materials and supplies, administration, other) and depreciation. All other expenses, including interest payments on the loan, are also taken into account inthe calculation o f the profitability o f TTH. 6. Profitability. It is estimated that TTH's revenue will generate low profits inthe early years o f operation (2009-20 12)primarily because o f lower traffic and higher financial charges than inthe later years. (See the income statement, page 1o f 3, Appendix A.) 7. Cash flow. The slower toll increase assumptionmay cause lower profits, but it will not affect the cash flow o f the TTH. This is because o f the large depreciation reserves. For example, the total aimual depreciation reserve in2008 (Y 100.07 million) will be about 1.85 times total annual working -51 -  costs (Y 54.21 million), which will generate sufficient internal cash flow and provide sufficient funds for TTHoperations. These include the funds needed to repay the IBRDloan and for inajor maintenance work. The revenue forecast shows that TTH will not need any external cash iiijection over the life o f the project (See Sources and Applications o f Funds, page 2 o f 3, Appendix A). 8. Leverage and Liquidity. The low profitability inthe early years o f operation and the high proportion o f loans (weighted to about 47 percent o f the total project cost) will affect the financial leverage o f TTH, which will cause the debtlequity ratio and debticapital ratio (the financial leverage o f the expressway company) not to be sound until2013. But this will not affect the liquidity o f TTH, mainly because o f the strong cash flow status. The current ratio will be in the sound range o f 7.2 or inore (to avoid short-term solvency problems, the current ratio should be at least 1.0). (Balance sheet, page 3 o f 3, Appendix A). To ensure the financial viability o f the project, APCD has reiterated its full coimnitment to the TTH and released an official document to the Bank. The inajor assumptions for the financial evaluation are shown inAppendix B. 9. Financial Internal Rate of Return (FIRR). The FIRR for the TTH i s estimated at about 1 percent. Because the TTH is an integral part o f the Hefei-Tangkou corridor, the financial retum o f the TTH section has to be seeninthe wider context o f that corridor. Most traffic onthe TTH will come from long-distance travellers that will also travel other sections o f the corridor. The two sections o f toll highway to the north o f the TTH (the Lujiang-Tongling, currently under construction, and Hefei and Lujiang Highways, the latter financed under a previous Bank-supported project) have higher financial rates of return (10.1 per cent and 12.0 percent respectively) because they have higher traffic levels and lower construction costs. The TTH has traffic levels about halfthose on the inore northern section because it is farther from the urban area o f Hefei, the provincial capital and construction costs about 50 per cent higher (U$4.3 millionper kminstead o f US2.9 millionper km) because it passes through inountainous terrain rather than the level terrain o f the other two sections. 10. Financial Probabilistic RiskAnalysis. To detenniiie the degree o f financial uncertainty for the project, a probabilistic risk analysis usingMonte Carlo techniques was carried out. The six most uncertain factors that may affect the financial evaluationwere identified: (a) traffic growth rate, (b) the base toll rate, (c) increase intoll rates, (d) total working costs, (e) capital investment, and (f) a one-year delay in opening TTH. The risk analysis reveals that the most likely FIRR i s 1.2 percent, while the worst and the best FIRRsare 0.3 percent and 2.6 percent, respectively. Details are inAppendix C and summarized inthe following table. ....,............ FIRR.......................%)........,...,....... " ............................... " " " " ........". FIRR I NPV ~ (in 1.3................ ... 1.1 - 0.3 I.2 0.1 NPV (5.0%, Yuan million) - 1,324 -1,422 - 1,135 - 694 ---2.6 - 1,250 29.3 Impact on Level of the Toll Charge 11. Most traffic is long distance and thus little sensitive to changes in tolls. Raising tolls, which are already high, would be very detrimental to local short-distance users and along the project corridor there would be vastly different toll rate levels, which would not be acceptable. The evaluation o f the EIRR and FIRRat different toll levels is suinmarized inthe following table. - 52 -  0.91 20.7 I.3 1.00 19.9 2.6 2.00 18.7 10.1 3.00 16.2 13.3 4.00 13.3 15.4 5.00 9.7 15.7 FINANCIAL EVALUATIONOF W P 12. All five ruralroads under RRIP are toll free. The financial evaluationof these non revenue-earning roads will focus on the APCD's capacity to minimize financial risks, i.e., the lack o f counterpart funds for construction and future operating expenses for these roads. 13. APCD budget forecasts show that the investment and maintenance expenditures for the free-access roads included inthe project constitute only a small fraction o f APCD's funds flow. Therefore, the fiscal impact would be minimal. According to APCD's plan, the capital investment in RRIP is less than 2.0 percent o f annual revenue. The requiredinaintenance expenditure for RRIP i s about 0.3 percent o f total maintenance expenditures o f APCD. These low ratios indicate that the project presents a modest financial risk with regard to the availability o f a counterpart fund for construction and maintenance o f RRIP roads. Details are shown inAppendix D. 2004 2005 2006 2007 2008 InvcstmcntsandRevenue: ~ RRIPInvcstinents(a) 178.00 235.00 87.00 _ _ __ Total APCD Revenue(b) 12,450.30 13,382.85 14,294.34 14,793.42 15.311.88 Ratios(a)/(b) 1.4% 1.8')/" 0.6% _ _ _ _ Maintenance Exuenditures: RRIP(c) _ _ I.60 5.1 I 5.29 5.48 Total APCD MaintcnanccExpcnditurc (d) 1,345.61 I.42I.94 1,493.59 1,569.02 1,648.42 Ratios (c)/(d) -- 0.1% 0.3YO 0.3% 0.3% FINANCIAL ASSESSMENT APCD OF 14. APCD has provided its financing plan and forecasts on revenue and expenditures for the Tenth Five Year Plan (2001-2005) and the Eleventh Five Year Plan (2006-2010). According to the Anhui highway development plan, APCD should acquire sufficient funds to finance the increased length o f the provincial roadnetwork and allocate resources for the maintenance o f the existing road network. A inoderate self-financing ratio (27.3 percent for the Tenth Five-Year Plan) will ensure the implementation o f the proposed development plan. This ratio will remain at the same level (26.5 percent) for the Eleventh Five-Year Plan. The details on highway revenues and expenditures for 2001-2010 are shown inAppendix D. 15. T o avoid a capital squeeze effect (Le., given limited annual capital resources, high priority is given to new construction while maintenance costs for existing roads are reduced), APCD has also given special attention to roadmaintenance. With regards to the sustainability o f road maintenance, the increase inmaintenance expenditures during the Tenth Five-Year Plan (3.9 percent a year) exceeds the - 53 -  expansion rate o f the roadnetwork (1.7 percent a year), which causes an increase inthe average maintenance expenditure for each kilometer. Duringthe Eleventh Five-Year Plan, maintenance expenditures will increase by 3.6 percent annually, although the road network will expand by only 1.4 percent annually. APCD: Average Increase inthe RoadNetwork and 10thFYP 11th FYP ........................................................................ Average annual increase in.................................................................................. - " .................................. ? E O ) the road network .................. .......(2001 2005). ...... (?006 : ......... 1.7 1.4 Average annual increase inmaintenance expenditures 3.9 3.6 - 54 -  APPENDIX A Page 1 of3 Second Anhui Highway Project IncomeStatement- TTH (Yuan million,year ending December 31) 2008 2009 2010 2011 2012 2013 2014 2015 2010 2017 2018 Traffic (million veh-km) /I 395.02 409 35 424 29 439 81 456 01 472 83 490 33 508 54 527 46 547 16 567 67 Revenue Tolls 359.86 372.63 385.93 399.69 414.08 494.39 512.29 530.86 550.10 570.15 680.48 Othcrs Total - 359.86 372.63 - 385.91 - 399.69~414.08 ~ 494.39 512.29 _ 530.86_550.10 ~ 570.15 680.48 ~ ~ - Ooerating Taxes Busiiicss tax 17.99 18.63 19.30 19.98 20.70 24.72 25.61 26.54 27.5 I 28.51 34.0 City tax 1.26 I.30 1.35 I.40 I.45 I.I3 I.79 I.86 I,93 2.00 2.3 Education lcvy 0.54 0.56 0.58 0.60 0.62 0.74 0.77 0.80 0.83 0.86 I .o Total 19.79 20.40 21.23 21.98 22.77 27.19 28.17 2').20 30.27 31.37 - 37.4 Net Revenue 340.07 352.14 364.68 377.71 301.31 467.20 484.12 501.(16 519.83 538.78 643.0 Ooeratine Costs Wagcs and bcncfits 6.00 6.30 6.62 6.95 7.30 7.67 8.05 8.45 8.87 9.31 9.7 Maintcnancc 5.81 6.09 6.40 6.72 5 I.89 7.4 1 7.78 8.17 X.58 117.13 9.4 Opcrating inatcrials and supplies 33.22 34.88 36.62 38.46 40.38 42.40 44.52 46.74 49.08 51.53 54.1 Administration 81 management 3.60 3.78 3.97 4.17 4.38 4.60 4.83 5.07 5.32 5.59 5.8 Othcis /2 5.58 5.85 6.15 6.45 6.78 7.12 7.47 7.84 X.24 8.65 9.0 Total working costs 54.21 56.90 59.76 62.75 110.73 (,0.20 72.65 75.27 8o.oL) 192.21 - 88.3 Dcprcciation 100.07 100.07 100.07 100.07 100.42 100.47 100.52 100.58 100.63 101.41 101.4 Total operatingcosts 154.28 156.97 159.83 162.82 211.15 16').67 173.17 176.85 Ixo.72 293.62 189.7 Ooerating Profit -195.17-214.89- 297.53 185.79 204.85 180.16 - 324.81339.11 310.95 ~245.16- ~ ~ 453,2 Financial chargcs: IBRD - 92.20 87.84 83.27 78.46 73.41 68.10 62.53 50 07 50.52 44.0 Local Bank Othcr incoinc (cxpcnscs) - (13.38) (13.38) (13.38) (13.38) (13.38) (13.38) (13.38) (13.38) (13.3E Profit Before Taxes ~ 103.63 185.79 102.97 118.24 88.32 210.74 229.47 248.90 269.06 181.26~395.8 Incoinctax 61.31 33.98 34.20 39.02 29.15 69.54 75.73 82.14 8X.7') 59.82 130.6 Net Profit After Taxes ~ 12448 6899 6943 ~ 7922 59 ~ 14120 17 15374~I6676 18027 ~ 2652 12144 _ _ Working ratio 16 16 16 17 2X 15 15 15 15 36 14 Operating ratio 45 45 44 43 54 36 36 35 35 54 30 Rate of return on average net fixed assets 4.3 2.4 2.5 2.9 2.3 5.6 6.4 1.2 8.1 5.1 13.1 /l:willbcopcncdtotrafficonOctobcr2007. TTH 12: Othcrs: Includinghighway rcsearch, studics and misccllancous. - 55 -  APPENDIXA Page 2 of 3 Second Anhui Highway Project Sources andApplicationsof Funds- TTH (Yuan million, year endingDecember 31) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: Nct profits - 124.48 68.99 69.43 79.22 59 17 141.20 153.74 166.76 1X0.27 121.44 265.22 Deprcciation - 100.07 100.07 100.07 100.07 100.42 100.47 100.52 IO058 100.63 101.41 101.48 State contribution 156.62 280.81 280.81 156.61 Local contribution 181.04 324.59 324.59 181.03 Borrowing: IBRD 333.88 598.62 598.62 333.88 Local Others Total _ 671.54 1204.02 1204.02 _ 671.52 224.55~169.06 169.50 17'1.29 ~ lS9.59 241.67 254.26 267 34 2X0.90 222.85 366.70 Aaalications: Capital expcnditurc 671.54 1204.021204.02 671.52 11.62 11.85 12.08 12.33 12.57 12.82 13.08 13.34 13.61 13.88 14.16 Other cxpenditurc Loan rcpaymcnt: IBRD - 86.02 90.38 9495 99.76 104.Xl l10.12 115.09 121.55 127.70 134.17 Local Changc w/ capital - (0.91) (0.90) (089) (0.89) (6.40) (0.87) (1.86) (185) (1.85) (8.18) Total 671.54 1204.021204.02 671.52 96.96 101.56 111.44 122.33 127.17 133.31 139.73 140.15 NetFundsFlow - 212.93 72.10 67.94 72.90 48.15 13044 131.93 14017 147.59 83.12 226.55 Opcn balancc - 212.93 285.03 352.97 425.87 474.02 00446 736.39 876.56 1,024.15 1,107.27 Closing balancc - 212.93 285.03 352.97 425.87 474.02 604.46 736.39 876.56 1,024 15 1,107.27 1,333.82 D/SCover _ _ __ -- -- -- 1.47 1.48 1.51 1.36 1.83 1.87 1.92 1.97 1.58 2.41 - 56 -  APPENDIXA Page 3 o f 3 SecondAnhui HighwayProject Balance Sheet- TTH (Yuanmillion, year ending December31) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Assets: Fixcd Asscts At cost 3002.04 3002.10 3002.16 3002.22 3012.60 3014.08 3015.64 3017.27 3018.99 3042.42 3044.31 LCSSDcprcciation 100.07 200.14 300.21 400.28 500.70 601.17 701.69 802.27 902.90 1004.31 1105.79 Nct fixed asscts -------~-~- 2901.97 2801.96 2701.95 2601.94 2511.90 2412.91 2313.95 2215.00 2116.09 2038.11 1938.52 Currcnt Asscts Invcntoly 1.80 1.86 1.93 2.00 2.07 2.47 2.56 2.65 2.75 2.85 3.40 Rcccivablc 0.90 0.93 0.96 1.00 1.04 1.24 1.28 1.33 1.38 1.43 1.70 Cash 212.93 285.03 352.97 425.87 474.02 604.46 736.39 876.56 1024.15 1107.27 1333.82 Subtotal - -287.82- 355.86 215.63 ~ 428.87~ 477.13_ 608.17 _ 740.23 ~ 880.54 1028.28 1111.55 1338.92 _ _ ~ - - Othci Assets Total Assets - 31176Q 3089-72 305781 3 ~ ~ m 298903 3021 OX ~ 3054 I 8 309514 314417 114966 327144 - _ _ _ Liabilities & Eauitv Statc funds- Equity 1222.60 1279.80 1337.21 1404.16 1461.14 1591.00 1733.22 1888.27 2056.65 2187.64 2440.59 L/TIoans IBRD 1865.00 1778.98 1688.60 1593.65 1493.89 1359.08 1278.96 1163.27 1041.72 914.02 779.85 Local Subtotal --~----~--- 1865.00 1778.98 1688.60 1593.65 1493.89 1389.08 1278.96 1163.27 1041.72 914.02 779.85 Current Liabilities 30.00 31.00 32.00 33.00 34.00 41.00 42.00 44.00 46.00 48.00 57.00 Othci Liabilitics Total Liabilities & Equity - - - - - ~ ~ ~_ _ _ _ ~ - - - ~3089.78 _ _ _ _ _ - _3021.08~3054.18 3095.54 3144.37 3149.66 3277.44 3117.60 - - 3057.81 3030.81 2989.03 - Debt: capital ratio 60.4 58.2 55.8 53.2 50.6 46.6 42.5 38.1 33.6 29.5 24.2 Debt/ equity ratio 61/39 59141 56/44 54/46 51/49 47153 43/57 39161 35/65 31169 26/74 Current ratio 7.2 9.3 11.1 13.0 14.0 14.8 17.6 20.0 22.4 23.2 23.5 Fixcdasscts: 80% of capital investment and20% of maintcnance. Equity=Total assct - Total Liabilities. - 57 -  APPENDIX B SecondAnhui Highway Project Assumptions for FinancialForecasts-TTH 1. Norinal Traffic (AADT): Sinall Medium Large Sinall Mcdiuin Largc Tractor car bus bus truck truck tiuck -Trailer Total Scction 1 Tongling Yangineicun - 2008 1,328 2,179 324 1,045 I.:55 1,206 494 7,93 1 2017 2,199 3,153 469 1,515 1.959 1,744 714 I I.I53 2027 3,256 3,844 572 1,847 2,388 2,126 870 14.903 Scction 11: Yangmcicun - Tanjiaqiao 2008 1,298 2,193 229 998 1,315 1,171 484 7,688 2017 2,156 3,171 331 1,448 1,901 1,692 698 I 1,397 2027 3,191 3,866 404 1,765 2,3 I 7 2,063 85 I 14,457 Scction 111: Tanjiaqiao - Tongkou 2008 1,095 1,779 382 905 1.166 1,038 425 6,790 2017 1,752 2,597 558 1,323 I.702 1,355 554 9,841 2027 2,354 3,166 68 I 1,613 2.075 I,65I 676 12,216 2. Toll Rates (Yuan/ veh-kin : 7 Sinall Medium Largc Small Mcdiuin Largc Tractor car bus bus tnick truck truck -Trailer 2008 0.600 0.900 1.200 0.600 0.900 1.200 1.600 3. Opcrating Taxcs: a. Busincss Tax 5% of total rcvcnuc. b. City Tax 7% of businesstax. c. Education lcvy 3% of busincsstax. 4. Opcrating Cost: lncrcasc 5 % pa. a. Wages and bcnefits: Y 30,000/ staff/ ycar, 40 staffs/ station, 5 stations. b. Maintcnancc (million Yuad kin): Routinc Mcdium Major (annual) (i5 ycars) [.:10ycars) 0.05 0.35 0.65 c. Operatingmatcrials andsupplies 0.286 inillion Yuan pcr km. d. Administration 60.0% of wagc andbenefits. c. Othcrs 0.048 million Yuan pcr kin. f. Dcprcciation 30 ycars straight-line mcthod 5. Incoinctax 33.0% of total profit bcforc taxa 6. Borrowing: The IBRD 5.00% on 20 ycar maturities, LIBOR US$bascd singlc currciicy including 5 years gracc period. - 58 -  APPENDIX C TONGLING-TANGKOU HIGHWAY FIRRSimulationandProbabilisticRiskAnalysis Summary: Display Rangc is from -5.0% to 10.0%(in %) Entire Rangc i s from -5.7% to 10.3% (in %) - Aftcr 918 Trials, thc Std. Error o f thc Mcan is 0.1% Statistics: Value Pcrccntilcs: Trials 918 Mcan I.2% Pcl-ccntilc (in %) Mcdian I.2% 0% -5.7% Modc ___ 10% -2.3% Standard Deviation 2.6% Low Sccnario 20% -I.3%, Variance 0.1% 30% -0.3% Skcwness 0.18 Most Likclv 40% 0.5% Kurtosis 2.64 a=- 50% 1.2% Cocff. o f Variability 2. I 8 High Sccnario 60% I.Y% Range Minimum -5.7% 70% 2.6% Range Maximum 10.3% X0% 3.4% Range Width 16.1% 90% 4.6% Mean Std. Error 0.09% 100% I0.3%, Forecast: FIRR (2009) 918 Trials Frequency Chart 2 Outliers x -5 0% -13% 2.5% 6 3% 10 0% (in %) . Assumptions Traffic growth Basic toll Noiinal distribution with parametcrs: Normal distribution with paramctcrs: Mean 100.0% Mcan 100.0% Standard Dev. 10.0% Standard Dcv. 10.0% Sclccted rangc is from -Infinity to +Infinity Sclcctcd rangc i s fro111-1nfinlty to +infinity Mcan valuc in simulation was 1OO.I% Mcan valuc in sim~ilationwas 100.I% Total working cost Capital Investment Triangular distribution with paramctcrs: Triangular distribution with paraamctcrs: Minimum 90.0% Minimum 90.0% Likcliest 100.0% Likeliest 105.0% Maximum 110.0% Maximum 110.0% Sclccted range IS from 90.0% to 110.0% Sclcctcd ra11gcIS froill 90.0% to I10.0% Mcanvaluc in simulation was 99.9% Mcan valuc in simulation was IOl.G% Toll charges growth Triangular distribution with paramctcrs: Minimum 90.0% Likclicst 100,0% Maximum 110.0% Sclcctcd rangc is from 90.0% to 110.0% Mcan value in simulation was 100.0% - 59 -  APPENDIX D Page 1 o f 2 Anhui: HighwayRevenue andExpenditureDuringTenthFiveYear Plan (Yuan million) 2001 2002 2003 2004 2005 Total Revenue: 1 Road maintenance fee 1,230.1 9 1,292.69 1,356.28 1,424.09 1,495.30 6,798.55 2 Toll revenue 1,200.00 1,260.00 1,323.00 1,389.15 1,458.60 6,630.75 3 Surcharge on passenger tickets 192.57 202.19 2 12.30 224.19 235.40 1,066.65 4 Surcharge on freight tickets 252.19 264.77 278.01 293.56 308.24 1,396.77 5 Vehicle purchase fee 25.00 - 25.00 6 Financial allocation 75.00 75.00 75.00 75.00 300.00 7 MOC subsidy 923.00 800.00 850.00 900.00 950.00 4,423.00 8 State (SDPC) subsidy l00.00 100.00 100.00 100.00 100.00 500.00 9 Bank loan 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 12,500.00 I O Fund-raised by enterprise 400.00 400.00 400.00 400.00 400.00 2,000.00 11 Other funds 3,200.48 3.883.86 4,489.41 5,144.3 1 5,860.31 22,578.37 Total 10.023.43 10,778.51 11.584.00 12,450.30 13,382.85 58,219.09 Exoenditure: INewconstructionandrehabilitation 7,840.56 8,467.80 9,145.23 9,876.85 10,667.00 45,997.44 2 Tax 81.87 95.14 102.47 110.43 1 19.06 508.97 3 Traffic safety supervision 28.42 31.81 35.34 38.49 41.98 176.04 4 Major maintenance 475.65 504.19 534.44 566.5 I 600.50 2,68 1.29 5 Medium maintenance 407.70 432.16 458.09 485.58 514.71 2,298.24 6 Routine maintenance 257.21 268.78 280.88 293.52 306.73 1,407.12 7 Adnunistration and study 180.00 189.00 198.45 208.37 218.79 994.61 8 Repayment o f interest and principle 752.02 789.63 829.I O 870.55 914.08 4,155.38 Total 10,023.43 10,778.51 11,584.00 12.450.30 13,382.85 58,219.09 Total Road Network (hi) -(a) 65,353 67,000 68,000 69,000 70,000 -- Average annual increase 46.9Yo 2.5yo 1.5% 1.5%) 1.4% 1.7% Total maintenance expenditure (million Yuan)-(b) /-I 1,140.56 1,205.13 1,273.41 1,345.61 1,421.94 6,386.65 Average unit maintenance expenditure (`000 Y/hl)- (b)/(a) 17.99 18.73 19.50 20.31 18.82 Average annual increase __17.45 3.1% 4.1% 4.1%) 4.2% 3.9% /-I:Sumofrehabilitation,major,mediumandroutinemaintenance. Actual :2001; Best estimate: 2002; Forecast: 2003 thereafter. - 60 -  APPENDIX D Page 2 o f 2 Anhui: Highway RevenueandExpenditure DuringEleventhFive Year Plan (Yuan million) 2006 2007 2008 2009 2010 Total Revenue: 1 Road maintenance fee 1,570.07 1,648.57 1,73 1.OO 1,817.55 1,908.43 8,675.62 2 Toll revenue 1,531.52 1,608.10 1,688.50 1,772.93 1,861.57 8,462.62 3 Surcharge onpassenger tickets 247.17 259.53 272.50 286. I 3 300.44 1,365.77 4 Surcharge on freight tickets 323.65 339.83 356.82 374.67 393.40 1,788.37 5 Vehicle purchase fee 6 Financial allocation 100.00 100.00 l00.00 100.00 100.00 500.00 7 M O C subsidy 900.00 850.00 900.00 900.00 900.00 4,450.00 8 State (SDPC) subsidy 100.00 100.00 100.00 100.00 100.00 500.00 9 Bank loan 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 10,000.00 I O Fund-raised by enterprise 500.00 500.00 500.00 500.00 500.00 2,500.00 11 Other funds 7,02 1.93 7,387.39 7,663.06 7,999.33 8,346.65 38,418.36 Total 14,294.34 14,793.42 15.31 1.88 15.850.61 16,410.49 76,660.74 Expenditure: 1 New construction and rehabilitation 11,500.00 11,845.00 12,200.35 12,566.36 12,943.35 61,055.06 2 Tax 128.36 138.40 149.21 160.87 173.44 750.28 3 Traffic safety supervision 45.79 49.94 54.47 59.40 64.79 274.39 4 Major maintenance 634.13 669.64 707.14 746.74 788.56 3,546.21 5 Medium maintenance 543.53 573.97 606.11 640.06 675.90 3,039.57 6 Routine maintenance 315.93 325.41 335.17 345.23 355.58 1,677.32 7 Administration and study 225.35 232.11 239.08 246.25 253.64 1,196.43 8 Repayment o f interest andprinciple 901.25 958.95 1,020.35 1,085.70 1,155.23 5,121.48 Total 14.294.34 14.793.42 15.31 1.88 15,850.61 16.410.49 76,660.74 Total RoadNetwork (km) -(a) 71,014 72,044 73,088 74,147 75,222 -- Average annual increase 1.4% 1.5% 1.4% 1.4% 1.4% 1.4% Total maintenance expenditure (million Yuan)-@) /-1 1,493.59 1,569.02 1,648.42 1,732.03 1,820.04 8,263.10 Average unit maintenance expenditure (`000 Y/km)- (b)/(a) 21.03 21.78 22.55 23.36 24.20 22.61 Average annual increase 3.5% 3.5% 3.6% 3.6% 3.6% 3.6% /-1: Sum of rehabilitation, major, medium and routine maintenance. Actual :2001; Best estimate: 2002; Forecast: 2003 thereafter. -61 -  Annex 6(A): Procurement Arrangements CHINA: Second Anhui Highway Project Procurement Summary of PPCA'sFindings 1. A procurement capacity assessment ofthe project executing agencies was begun inSeptember 2002 and completedinJanuary 2003. The Procurement Capacity Assessment Report is intlie project file, and this annex summarizes its findings. 2. APCD will be responsible for all project-related procurement activities. It has developed relevant experience as the implementing agency for tlie Bank-financed Anhui Provincial Highway Project. APCD established a dedicated Project Execution Office (PEO) under tlie previous project that will conduct the day-to-day management o f the proposed project. The PEO has about 30 experienced staff fully versed in Bank procurement processes and procedures and will increase the number o f staff to as many as 40 duringthe project implementation. As a government organization, PEOhas been authorized to implement the project. 3. APCD has selected C M C InternationalTendering Company (ITC-CMC) as procurement agent. ITC-CMC has 17 years o f experience inBank-financed projects, especially ininternational competitive bidding(ICB) procurement. APCD and ITC-CMC are also fully familiar with national competitive bidding(NCB)procedures inBank-financedprojects. 4. The procurement capacity assessment found the overall risk o f the procureinelit process "average" and confinned the capacity and capability o f APCD and tlie other agencies iiivolved to manage project procurement activities satisfactorily. The assessment took tlie following factors into consideration: APCD has experience with a Bank-financed project. PEO has set up a unitwith an experienced procureinelit agent to inanage project procurement. Staff who worked on the previous project will continue to serve for the new project and have enhanced their knowledge o f the Bank's requirements for procurement and tlie selection o f consultants duringproject preparation. APCD has agreedto implement recommendations inthe procurement assessment to strengthen the capacity o f implementing agencies, including the preparation and distribution o f a procurement manual to all procurement staff, on-the-job training, and occasional procurement seminars and workshops. The Bank will monitor procurement closely through its standard review procedures, seminarslworkshops, supervision missions, and procurement post-review missions. 5. As the procurement capacity assessment indicates, China's procurement procedures has variations from the Bank's procurement guidelines (for example, by pennittiiigbracketing and merit point system for bid evaluation), and tlie Chinese Govemineiit has yet to finalize new model bidding documents or reach agreement with the Bank on new guidelines for use inBank-financed projects. However, Anhui provincial government and APCD are committed to followiiig the Banli`s guidelines, and if discrepancies arise between domestic policy and Bank guidelines, tlie Bank's policy and guidelines will prevail. - 62 -  6. The Project Agreement provides the following: a. All invitations to prequalify or to bid shall be advertised in a newspaper with iiatioiiwide circulation inChina and ina local newspaper of province-wide circulation in the project entity. b. Such advertisement shall provide adequate time for prospective bidders to obtain prequalification or biddingdocuments and prepare and submit their response; and inany event a minilnuino f 30 days shall be given to bidders between the date of advertisement and the deadline for submission o f bids, and the advertisement and the biddingdocument shall specify the deadline for such submission. C. Qualification requirements o f bidders and the method o f evaluating tlie qualification o f each bidder shall be specified indetail inthe biddingdocuments. d. All bidders shall be requiredto provide security inan amount sufficient to protect the project entity in case o f breach o f contract by the contractor, and the biddingdocuments shall specify the required form and amount o f such security. e. The time for opening o f all bids shall be the same as the deadline for receipt o f bids. f. All bidsshallbeopenedinpublic; allbidders shallbe afforded anopportunity to bepresentif they so desire (either inperson or through their authorized representatives) at the time o f bid opening. g. N o bidmay be rejected solely on the basis that the bidprice falls outside any standard contract estimate, or margin, or bracket o f average bids established by the bidding entity. 11. Each contract shall be awarded to the lowest evaluated responsive bidder, that is to say, the bidder who meets the appropriate standards o f capacity and resources and whose bidhas been detenninedto be substantially responsive to the biddingdocuments issued to bidders and to offer the lowest evaluated price. 1. The winningbidder shall not be required, as a condition of award, to undertake responsibilities for work not stipulated inthe biddingdocuments or otherwise to modify the bid as originally submitted. 1. A provision requiring suppliers and contractors to permit tlie Bank to inspect their accounts and records relating to the performance o f the contractor and to have them audited by auditors appointed by the Bank. ProcurementMethods(Table A) 7. Procurement arrangements are outlined inTable A. The procurement o f goods and works will be carried out incompliance with the World Bank's Guidelines: procurement under IBRDLoans and IDA Credits (January 1995,revised January and August 1996, September 1997, and January 1999) and the procurement o f services will comply with Guidelines: Selection and Employment o f Consultants by World Bank Borrowers (January 1997, revised September 1997, January 1999, and May 2002). The Chinese goveminent and the Bank standardized the documentation for procurement, which covers the prequalification o f contractors, I C B and N C B for civil works, and ICB for goods, for Chinese conditions on the basis o f model documents with appropriate changes to reflect the latest Bank Standard Bidding Documents that will be used for all relevant procurement processes under the project. When no agreed model documents exist, Bank standard documents will be used. The general procurement notice for the project was published inU.N.Development Business, issue No. 593, o f October 31, 2002 and will be - 63 -  updated annually. For ICB, differences between the Chinese model biddingdocuments and the Bank standard biddingdocuments will be addressed through the preparation and issuance o f a change list that will be included inthe biddingdocuinents. 8. Works (US$568.5 million,includingcontingencies).Civil works for Tongling-Tangkou Highway (TTH) will be divided into 18 contracts with an average size o f about USS23 million. The contract packagingwas determined takmg into consideration construction volumes, inajor tunnels and bridges, construction procedures and approaches, the source o f materials, andjurisdictional divisions. The 18 civil works contracts for TTH will be procuredunder ICB procedures. There will be one tender call for the 18 civil works contracts, which will be bid on a slice-and-package basis; to attract international contractors and large Chinese contractors, qualified finns will be allowed to bid for inore thanone contract. Contractors biddingfor civil works under ICB will be prequalified. The specific procurement notice for the civil works and consulting services requiredto supervise TTH was published inthe UNDevelopment Business onNovember 16,2002. Eachcontract for works estimatedat US$50 million or inore will provide for a dispute review board inthe standard biddingdocuinents (referred to in paragraph 2.42 o f Guidelines: Procurement under IBRDLoans and IDA Credits). For contracts estimated at less than USS50 million, a dispute review expert will be used. Chinese contractors are no longer eligible for domestic preference under I C B works procurement. Electromechanical works will be procured with local funds following local procedures. 9. Other works, including buildings (estimated at US$10.78 million, with three contract packages), rural road improvement (US$69.13 million, with 13 contract packages), the highway safety program (US$2.5 1 inillionwith two contract packages), and weighing stations (US$0.44 inillion with one contract package), for which each contract has a value of less than US$l0 million, will be awarded following NCBprocedures acceptable to the Bank. Because the contracts will be relatively small, scattered throughout the province, and implemented over four years, ICB i s notjustified or practical; however, foreign f i r m s will not be prevented from participating. 10. Equipment(US$7.65 million). Under the previous Anliui Provincial Highway Project, APCD procured some maintenance equipment. Taking into account the convertibility o f spare parts among the existing equipment fleet, APCD intends to procure equipment under this project as well. APCD decided to procure additional equipment with local financing. 11. Consultants(US$10.91 million, includingcontingencies).This component includes consultants financed by the Bank for an estimated US$2.32 million, and consultants financed from domestic sources for an estimated USS8.59 million and procured through domestic procedures. Consultants financed by the Bank and required for construction supervision (international finn),staff training, and studies will be selected and employed under tenns and conditions acceptable to the Bank according to Guidelines: Selection and Employment o f Consultants by World Bank Borrowers (January 1997, revised inJuly 1997, January 1999 and May 2002). The Standard Request for Proposals (July 1997, revised inApril 1998, July 1999 and March 2002) will be used for these consultant services. Consulting services from firms with an estimated contract cost o f more than US$l00,000 to a total value o f US$1.46 million will be procured through quality- and cost-based selection (QCBS). For training programs and studies, services from firms with an estimated contract o f less than USS100,OOO to a total value o f USSl.O million will be selected through consultant's qualification selection. Services that are estimated to cost less than USS100,OOO per contract, may, with the Bank's prior agreement, be procured by single-source selection inaccordance with the provisions o fparagraphs 3.8 through 3.11 o fthe Consultant Guidelines. Local experts froin various independent provincial universities and institutes will be used to the extent possible ensuring that eligibility requirements stated inthe Guidelines are met and - 64 -  their participation i s consistent with Bank requirements on hiring universities and institutes. All consultant services financed by the Bank for inore than US$200,000 will be advertised inDevelopment Business and all consultants' contracts will be nationally advertised. Prior Review Thresholds (Table B) 12. Prior review procedures will be used for civil works contracts with an estimated cost o fUS$5 million or more and consulting services with an estimated contract cost o f more than USS350,OOO for firms and US$lOO,OOO for individuals. This will apply to 97 percent o f the total contract values of works and 53 percent o f the total contract values o f services financed by the Bank. For contracts below these limits, post-review procedures will be followed, with a sample ratio o f 1:10. Single-source selections, regardless of the value o f the contract, will be subject to the Bank's prior review. Advance Contracting 13. APCD has requested advance contracting and retroactive financing for consultants for construction supervision o f TTH. This would allow for the training o f local staff, setting up o f the supervision offices, and the startup of construction supervision by the time contracts are signed with contractors. Expenses to be incurred by the implementing agency are estimated at USS400,000, and the amount subject to retroactive financing is estimated at US$364,000. - 65 -  Procurement methods (Table A) (2.50) (2.50) Total 468.34 82.86 4.96 75.67 631.83 (212.03) (33.15) (4.82) (0.00) (250.00) - 66 -  Selection Method Consultant Services Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total cos( A. Firms 1.46 0.00 0.00 0.00 0.99 0.00 8.45 10.90 (1.33) (0.00) (0.00) (0.00) (0.99) (0.00) (0.00) (2.32) 8. Individuals 0.00 0.00 0.00 0.00 0.01 0.00 0.00 0.01 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) Total 1.46 0.00 0.00 0.00 1.00 0.00 8.45 10.91 (1.33) (0.00) (0.00) (0.00) (0.99) (0.00) (0.00) (2.32) ContractValue Contracts Subject to ~~ ~ Expenditure Category Threshold Procurement Prior Review IUS5 thousands) Method (US5 millionsl 1.Works > 10million ICB, Prior Review 18 contracts (TTH) USS468.34million >5 million <10million NCB, Prior Review 13 contracts (RRIP) USS69.13inillion < 5 inillion NCB, Post Review 6 contracts USS 13.73million 2. Services > 100,000 QCBS, Prior Review 2 contracts (supervision, for >S 350.000 firins study) U S $ 1.46million < 100,000 CQ, PostReview, Individuals 10 contracts (study, training US%1.OO million Total value of contractssubject to prior review: 32 contracts, USS538.77 million Overall Procurement RiskAssessment: Average Frequency of procurement supervisionmissions proposed: One every 6 months (includes special procurement supervision for post-review/audits) - 67 -  Annex 6(B): Financial Management and Disbursement Arrangements CHINA: Second Anhui Highway Project Financial Management 1. Summary of the FinancialManagement Assessment 1. Conclusion of financial management assessment.The task team has assessedthe adequacy o f the project financial management system for the Second Anhui Highway Project. The assessment, conducted according to guidelines issued by the Financial Management Sector Board on June 30,2001, has concluded that the project meets the Bank financial management requirements stipulated inBP/OP 10.02. Inthe task team's opinion, the project will have an adequate project financial management system inplace that can provide, with reasonable assurance, accurate and timely information on the status o fthe project inthe reporting format agreed with the project and as requiredby the Bank. 2. Fundingsources for the project include the Bankloan and counterpart funds. The Bank loanwill be signed betweenthe Bank and the People's Republic o f China through its Ministry o f Finance (MOF), and on-lending arrangements for the Bank loans will be signed between MOF and the Government of Anhui through the Anhui ProvincialFinance Bureau(APFB), andbetween APFB andthe Anliui Provincial Communications Department. The Bank loan proceeds will flow from the Bank into the special account maintained by APFB for the project inrespect o f reimbursable expenditures incurred, or to contractors or suppliers via bank accounts with major commercial banks acceptable to the Bank. The project will disburse according to traditional disbursement techniques and will not use FMR-based disbursements, inaccordance with the agreement between the Bank and MOF. The counterpart funds to be contributed directly to the project will come from three sources: appropriations by the Ministryo f Communications (MOC), contributions by APCD, and loans from domestic commercial banks. 3. N o outstanding audits or audit issues exist with any o f the implementing agencies involved inthe proposed project. The task team, however, will continue to be attentive to financial management matters and compliance with audit covenants duringproject supervision. 4. Country Issues. N o country financial accountability assessment (CFAA) has beenperformed for China, although dialogue with the Chinese Government inrespect o f the C F A A exercise i s underway. The planned approach to CFAA i s to build on the Asian Developinent Bank's Study o f Financial Management and Governance Issues in China in2000 and analyze areas that have changed rapidly inthe past few years or that deserve further scrutiny and over time cover all major areas usually assessedas part o f a full CFAA. Currently, for reference purposes, the Bank relies on the Asian Development Bank study. 5. Nevertheless, developments inpublic expenditures, accounting, and auditing, and the Bank's recent experience with projects inChina, show that substantial achievement has been made infinancial accountability, and further improvement is expected inthe next few years. As economic reformunfolds, the Chinese Government has come to realize the importance o f establishing and maintaining an efficient and effective market mechanismto ensure transparency and accountability and minimize potential fraud or corruption. 6. According to a unique arrangement with PRC, funding o f Bank projects (inparticular Bank loans) i s controlled and monitored by MOF and its extension, i.e., finance bureaus at provincial, municipaUprefecture, and county levels. However, project activities usually are carried out by implementing agencies o f a specific industry or sector because o f the technical expertise required for - 68 -  project implementation. This arrangement usually requires close coordiiiatioii for projects, because the multilevel management o f funding and implementation mechanisms often presents a great challenge to smooth project implementation. This assessment therefore focuses on APFB, which will handle special-account activity for the project, and the Project Execution Office, which will be responsible for implementing the project. 7. StrengthandWeakness The project personnel who have been identified to assume financial or accounting positions have relevant work experience and educational background, and most o f them have had experience with the ongoing Bank-financed project. Inaddition, the project execution office will benefit from the extensive experience that APFB has had with Bank projects. However, an accounting software that will be used to track financial activities has been developed only recently and introduced in the accounting department o f APCD. Although the software i s considered appropriate for the proposed project, i t has not been widely used inChina, and project accounting staff have not receivedtraining on it. A monitoringmechanism and a backup plan should be inplace incase the accounting software package does not function as expected. The task team will inoiiitor accounting work closely, particularly at the initial implementation stage, to ensure proper setup and accounting activities. 8. ImplementingEntity.A project leadinggroup will be formed to provide overall guidance and coordination and monitor project implementationat the provincial level. The group will be chairedby Mr.HuangYuezhong, the vice govemor ofAnhuiProvinceincharge o fcoinmunication-related matters and will consist o f representatives from line departments o f the provincial goveniinent, such as Anhui Provincial Development and Planning Commission, Anhui State Land Resources Administration, APFB, and APCD. M O C will provide coordination and supervision guidance at the central level. 9. The PEO, established under APCD and headed by Mr.H e Guang, director o f APHAB, has been formally established. PEO will assume overall iinpleinentatioii and coordination responsibility and directly implement all project components. 10. Inaddition, the ForeignFundDivision ofAPFB willplay amajor role inproject implementation, including overall monitoring, implementing financing arrangements, and financial management. APFB also will be responsible for maintaining, monitoring, and reconciling the special account to be established for the project, and reviewing, verifying, and approving withdrawal applications prepared by the project before submitting them to the Bank for disbursement processing. The foreign fund division has experience with Bank projects and i s familiar with Bank disbursement procedures. Inaddition, the Bank's experience with APFB interms o f special account management and disbursement processing indicates that APFB meets and complies with the Bank's relevant policies or procedures. For smooth and successful project implementation, close cooperation and coordination between APFB and PEO are critical. 11. FundsFlow. One special account for the project will be set up and managed directly by APFB, and on-lending agreements will be signed between MOF and APFB, and between APFB and APCD. The Bank loan proceeds will flow from the Bank to the project special account, to APCD for reimbursement o f expenditures incurred for the project and advancedby the APCD, or directly to contractors or suppliers. Counterpart funds include contributions made by M O C and funds raised by APCD, including lending from commercial banks. The contributions will be appropriated by M O C directly to APCD, and domestic loan proceeds will also be injected directly to the project. - 69 -  12. Staffing. Adequate project accounting staff with educational background and work experience commensurate with the work they are expected to perform is one o f the factors critical to successful implementation o f project financial management. Onthe basis of discussions, observation, and the review o f the educational backgrounds and work experience of the staff identified for financial and accounting positions, the Bank task team considers that the staff are appropriate for the responsibilities to be assumed. Inaddition, the task team notes that most o f the project financial staff have experience from the ongoing AnliuiHighway Project. 13. T o strengthen financial management capacity and achieve consistent quality o f accounting work, the task team has suggested that a project financial management manual be prepared. The manual will provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management, and withdrawal application procedures. APCD has prepared a draft manual and submitted i t to the Bank inOctober 2002. It was found satisfactory and appropriate for the project. A finalized copy will be available to all relevant project staff before project effectiveness. 14. Accounting policies and procedures. The administration, accounting, and reporting o f the project will be set up inaccordance with the following MOF regulations and circulars: 0 Circular no. 127, Temporary Regulations on Financial and Accounting Management for Projects Financedby the World Bank, issued in 1993. Inline with other Bank-financed projects inChina, the project will use this circular as a basis for bookkeeping and preparation o f project financial statements and management reports. Accrual accounting and double-entry bookkeeping will be adopted by the project. 0 Circular no. 12, Regulation for the Submission o f Withdrawal Applications. issued in December 1996. This circular includes detailed procedures for preparing and submitting withdrawal applications and retention o f supporting documentation. 0 Circular no. 13, Accounting Regulations for World Bank-Financed Projects, issued January 2000 by MOF. The circular provides in-depth instructions for the accounting treatment of project activities and covers the following: o Chart o f account o Detailed accounting instructions for each project account o Standard set o f project financial statements o Instructions on the preparation o f project financial statements. 15. This standard set o fproject financial statements has been agreed to betweenthe Bank and MOF and applies to all Bank projects appraised after July 1, 1998. It includes the following financial statements: 0 Balance sheet 0 Statement o f source and use o f fund 0 Statement o f implementation o f credit/loan agreement Statement o f special account. 16. Circulars 127 and 13 are simplified versions o f the Accounting Standards for State-owned, InfrastructureOriented Projects (the "Standards"), taking into consideration unique characteristics o f Bank projects. The Standards are modeled after the principles o f International Accounting Standards and provide detailed guidelines for accounting for activities o f an infrastructure-oriented project. -70-  17. The PEO will manage, monitor, and maintain accounting records o f the project, prepare financial statements, and subinit them to the Bank for review and coinmelit on a regular basis. 18. Internal Audit. The internal audit department and fiiiaiicial division o f APCD, as well as APFB will assume internal audit responsibilities. The task team will evaluate work performed by such internal auditors and determine the degree o f coinpliaiice inrespect of project implementation and Bank supervision mission. 19. ReportingandMonitoringandFormatof FinancialStatements. The following financial statements represent the standardproject financial reporting package agreed to between the Bank and MOF, and have been discussedand agreed with the proposedproject office. The project financial statements will be submitted as part o f the Financial Monitoring Report to the Bank 011 a semiannual basis no later than August 15 and February 15 o f the subsequent year and include the following four statements: 0 Balance sheet 0 Summary o f Sources and Uses o f Fundsby Project Component 0 Statement o f Implementationo f Loan Agreement 0 Statement o f Special Account. 20. InformationSystems.As stated inparagraph 7, an accounting software developed byAPCD and approved by the provincial scientific coimnittee will be used to track project financial activities. The Bank task team will monitor accounting work closely, particularly at the initial implementation stage, to ensure proper accounting setup and operations. 21. Supervision Plan. Conductingtwice yearly supervision missions for financial management is recommended at the initial implementation stage to ensure proper accounting setup and operations and assess the need for further assistance or training. From the inidpoint on, an annual supervision mission for financial management aspects may be sufficient. To maximize the efficiency and effectiveness o f supervision missions, reviews o f procurement and financial manageinent, statements o f expenditure, and disbursement should be carried out simultaneously. 2. Audit Arrangements 22. The Bank requires that project financial statements be audited inaccordance with standards acceptable to the Bank. Inline with other Bank-financedprojects inChina, the project will be auditedin accordance with the Government Auditing Standards o f PRC (the 1997 edition). The Anliui Provincial Audit Bureauhas been identified as auditor for the project. Annual audit reports will be issuedinthe name of Anhui Provincial Audit Bureau and will be subject to reviews by the China National Audit Office (CNAO). The Bank accepts audit reports issued by CNAO or provincial audit bureaus for which CNAO i s ultimately responsible. 23. Audit reports on annual consolidated financial statements will be due to the Bank within 6 months o f the end o f each calendar year, with a separate opinion on statements o f expenditures and the special account. -71 -  3. Disbursement Arrangements 24. The project will disburse using the traditional disbursement method and will not use FMR-based disbursements, inaccordance with the agreement between the Bank and MOF. 25. Bank loan proceeds will be disbursed against eligible expenditures as stated inTable C. 26. Disbursement methods such as replenishment, direct payment, and special commitment are available to the project. The statement o f expenditure limits will be set up inline with procureineiit post-review thresholdas follows: (i)each contract for civil works estimated to cost the equivalent o f USSS million or less; (ii) each contract for consulting firms estimated to cost the equivalent o f USS350,OOO or less and (iii) each contract for individual consultants estimated to cost the equivalent o f US$lOO,OOO or less. 27. One special account will be established for the project and maintainedby APFB. The authorized allocation of the special account will be equivalent to about 4 months of eligible expeiises reimbursable through the special account. The allocation o f the special account is proposed to not exceed US$18 million equivalent. However, the authorized allocation will be limited to US$12 inillion equivalent untilthe aggregate withdrawals and outstanding special commitments are equal to or exceed US$75 million equivalent. 28. APFB will be directly responsible for the management, monitoring, maintenance, and reconciliation o f the special account activities o f the project. Supporting documents required for Bank disbursements will be prepared or collected by the PEO inAPCD and submitted to APFB for verification and approval before the APFB sends them to the Bank for further disbursement processing. 4. Retroactive Financing 29. Retroactive financing o f up to USS364,OOO will be appliedto expenditures made after June 1,2003 for the training under construction supervision. - 72 -  Allocation of loan proceeds(TableC) Table C: Allocation of Loan Proceeds Expenditure Category Amount in US$million Financing Percentage Works \ TTH Civil Works 196.82 48% II RRIP TTH Buildings III 3.78 40% 24.2 1 III 40% III Blackspot Improvement 0.88 40% Weighing Station 0.16 40% IServices I I I Construction Supervision 1.25 919'0 o f foreign expenditures Training 0.90 100% o f foreign expenditures Studies 0.21 91% o f foreign expenditures Unallocated 19.29 Total Project Costs with Bank Financing - 247.50 I Interest during construction 0.00 Front-end fee1I 2.50 I 100% I ITotal 250.00 - 73 -  Annex 7: Project Processing Schedule CHINA: Second Anhui Highway Project 1 Proiect Schedule I Planned I Actual I /Timetaken to prepare the project (months) I 14 I I First Bank mission (identification) 03/29/2002 03/29/2002 Appraisal mission departure 03/03/2003 0211612003 Negotiations 04/2112003 05/12/2003 Planned Date of Effectiveness 1211012003 Prepared by: AnhuiProvincial Communications Department Preparation assistance: Japanese Trust Funds Bank staff who worked on the proiect included: Speciality Task Team Leader Han-Kang Yen, EASTR EconomicIFinancial Evaluation Toshiyuki Yokota, TUDTR EngineeringJRural Roads Tony Whitten, EASES EnvironmentlBiodiversity Ani1 Somani, EASES Environment Peishen Wang, EACCF Environment Zhang Chaohua, EASES Social/Resettlement Zhefu Liu, EACCF SocialIResettlement KarinNordlander, LEGEA Legal Robert O'Leary, LOAG3 Disbursement Yang Dawei, EACCF Procurement Cliau-Ching Shen, EACCF Financial Management Zhang Fang, EACCF Disbursement Teresita Ortega, EASTR ProgramAssistant Xin Clien, EACCF Operation Assistant Setty Pendakur SafetyITraininglSocial Assessment ~ h Kumar n ConstructionQuality - 74 -  Annex 8: Documents in the Project File* CHINA Second Anhui Highway Project A. ProjectImplementationPlan Project Implementation Plan * January 2003 B. Bank Staff Assessments Project Procurement Capacity Assessment January 2003 Project Financial Management Assessment ** November 2002 C. Other Pre-Feasibility Study Report (Hetongliuang (Tongling to Taolin) Highway) November 2001 Feasibility Study Report (Tongling-Tangkou Expressway) December 2001 Supplementary Report to Feasibility Study Report June 2002 Traffic volume at each interchange and road crossing June 2002 Feasibility Study Report for Shitai-Qiaotoudian Road Improvement Program April 2002 Feasibility Study Report for Jingxian-Maolin Road Improvement Program April 2002 Feasibility Study Report for Xianyuan-Xinmingsanxi Road Improvement April 2002 Feasibility Study Report for Hongmen-Jinde Road Improvement Prograin April 2002 Feasibility Study Report for Xinqiao-Dabeifu Road Improvement Program April 2002 Environinental Impact Assessment TOR for Tongling-Tangltou Highway(TTH)* May 2002 Environmental Assessment Summary for TTH * December 2002 Environmental Assessment Report (TTH) December 2002 Environmental Management Plan (TTH) December 2002 Environmental Impact Report (Jingxian-Maolin Section) December 2002 Environmental Impact Report (Xinqiao-Dabeifu Section) December 2002 Environmental Impact Report (Shitai-Qiaotoudian Section) December 2002 Environmental Impact Report (Hongmen-Jinde Section) December 2002 Environmental Impact Report (Xianyuan-Xinmingsanxi Section) December 2002 Resettlement Action Plan * November 2002 Appraisal Report on Poverty Alleviation inAffected Areas July 2002 Report on Cultural Relic Investigation October 2002 Social Appraisal Report for TTH August 2002 Phase IFinal Report -- Review o f Engineering Designs andBiddingDocuments August 2002 Institutional Strengthening and Training Report August 2002 Study o f Rural Road Improvement Prograin October 2002 Study o f Highway Maintenance Component Concept report on Road Safety ImplementationPrograin Financial Manual Strengthening and Reforming Highway Maintenance (a backgroundnote) *Including electronic files - 75 -  Annex 9: Statement of Loans and Credits CHINA: SecondAnhui Highway Project 23-May-2003 Difference between expected and actual OriginalAmount in US$ Millions disbursements' Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 145.00 0.00 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0 00 0.00 247.50 22.83 0.00 PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 141 50 6.50 0.00 PO60029 2002 Sustainable Forestry Dev(Natura1Forest) 0.00 0.00 16.00 0.00 16.57 0.30 0.00 PO64729 2002 SUSTAINABLE FORESTRY DEVELOPMENTPRO 93.90 0.00 0 00 0.00 88.46 -2.30 0.00 PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 65.33 -7.17 0.00 P070459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0 00 95.50 0.50 0.00 PO68049 2002 CN-Hubei HydropowerDev in Poor Areas 105.00 0.00 0.00 0.00 105.00 8.50 0.00 PO71147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 95.33 -8.67 0.00 PO58845 2001 Jiangxi II Hwy 200.00 0.00 0.00 0.00 161.23 -1.77 0.00 PO51859 2001 CN-LIAO RIVER BASIN 100.00 0 00 0.00 0.00 83.15 14.23 0.00 PO56199 2001 CN-3rd Inland Waterways 100.00 0.00 0.00 0.00 93.34 2.84 0.00 PO45915 2001 CN-Urumqi UrbanTransport 100.00 0.00 0.00 0.00 65.26 31.16 0.00 PO56596 2001 CN-Shijiazhuang UrbanTransport 100.00 0.00 0.00 0.00 92.28 41.68 0.00 PO56516 2001 WATER CONSERVATION 74.00 0.00 0.00 0 00 50.59 3.14 0.00 PO47345 2001 CN-HUAI RIVER POLLUTIONCONTROL 105.50 0.00 0.00 0 00 98.31 -7.19 0.00 PO56424 2000 TONGBAI PUMPED STORA 320.00 0.00 0 00 0.00 301.06 75.46 0.00 PO49436 2000 CN-CHONGQINGURBAN ENVMT 200.00 0 00 0.00 0.00 17986 37.26 0.00 PO42109 2000 CN-BEIJING ENVIRONMENT II 349.00 0.00 25.00 0 00 312.22 142.08 0.00 PO45264 2000 SMALLHLDRCATTLE DEV 93.50 0.00 0 00 0.00 32.43 17.48 0.00 PO45910 2000 CN-HEBEI URBAN ENVIRONMENT 15000 0.00 0 00 0.00 135.81 36.56 0.00 PO58844 2000 3rd Henan Prov Hwy 150.00 0.00 0.00 0 00 105.29 32.29 0.00 P064730 2000 Yangtze Dike StrengtheningProject 210.00 0 00 0.00 0.00 140.48 79.48 0.00 PO58843 2000 Guangxi Highway 200.00 0.00 0 00 0.00 137.17 44.67 0.00 PO64924 2000 CH-GEF-BEIJINGENVMT II 0.00 0.00 25.00 0 00 24.19 13.76 0.00 P042299 1999 TEC COOP CREDIT IV 10.00 35 00 0.00 0.00 37.39 -7.35 0.00 PO41890 1999 CN-Liaoning Urban Transpor! 150.00 0.00 0 00 0.00 56 61 45.41 0.00 PO36953 1999 CN-HEALTH IX 10.00 50.00 0 00 0 00 40 86 16.62 0.00 PO38121 1999 CN-GEF-RENEWABLEENERGY DEVELOPMENT 0.00 0.00 35 00 0.00 26.93 19.72 2.46 PO43933 1999 CN-SICHUAN URBAN ENVMT 150.00 2.00 0.00 0.00 97.50 55.12 12.17 PO46829 1999 RENEWABLE ENERGY DEVELOPMENT 100.00 0.00 0.00 0.00 12.87 99.87 0.00 PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350.00 0.00 0.00 0.00 107.40 39.65 0.00 P046564 1999 Gansu & Inner Mongoiia Poverty Reduction 60.00 100.00 0.00 0.00 79.01 35.76 -8.01 PO46051 1999 CN-HIGHER EDUC. REFORM 20.00 50.00 0.00 0.00 27.96 27.70 0.00 PO49665 1999 ANNING VALLEYAG.DEV 90.00 30.00 0.00 0 00 34.04 7.65 0.00 PO03653 1999 CN-Container Transport 71.00 0.00 0 00 18.61 3.89 22.35 0.00 PO51856 1999 ACCOUNTING REFORM& DEVELOPMENT 27.40 5.60 0.00 0 00 20.83 20.53 0.00 PO60270 1999 CN-ENTERPRISEREFORMLN 0.00 5.00 0.00 0.00 2.75 4.44 2.93 PO51888 1999 GUANZHONG IRRIGATION 80.00 20.00 0.00 0.00 54.25 32.55 0.00 PO51705 1999 Fujian II Highway 200.00 0.00 0.00 0.00 94.56 77.06 0.00 PO50036 1999 Anhui Provincial Hwy 200.00 0.00 0.00 0.00 70.08 28.58 0.00 PO56216 1999 LOESS PLATEAUII 100.00 50.00 0 00 0.00 60 60 48.82 0.00 PO58308 1999 CN-PENSION REFORMPJT 0.00 5.00 0.00 0.00 1.89 2.04 0.00 PO57352 1999 CN-RURALWATER IV 16.00 30.00 0.00 0.00 27.99 15.95 1.08 PO37859 1998 CN-GEF Energy Conservation 0.00 0.00 22.00 0.00 4.11 21.97 0.00 PO49700 1998 IAlL-2 300.00 0.00 0 00 0.00 16.67 6.59 0.00 PO46952 1998 FOREST.DEV. POOR AR 100.00 100.00 0 00 0.00 54.11 -52.96 9.39 PO40185 1998 CN-SHANDONGENVIRONMENT 95.00 0.00 0.00 1.40 28.29 25.29 0.00 PO51736 1998 E. CHINNJIANGSU PWR 250.00 0.00 0.00 86.00 62.95 148.95 4.36 PO46563 1998 TARIM BASIN II 90.00 60.00 0.00 2.67 45.26 39.17 0.00 PO03619 1998 CN-2nd Inland Waterways 123.00 0.00 0.00 0.00 69.06 61.06 0.00 PO35698 1998 HUNAN POWER DEVELOP. 300.00 0.00 0 00 145.00 84 76 211.76 9.16 PO03614 1998 CN-Guangzhou City Transpor! 200.00 0 00 0 00 0.00 12954 128.46 0.00 - 76 -  Differencebetween exoected and actual OriginalAmount in US$ Millions disbursements" Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO03566 1998 CN-BASIC HEALTH (HLTH8) 0.00 85.00 0.00 0.00 36.28 21.88 0.00 PO03606 1998 ENERGY CONSERVATION 63.00 0.00 22.00 0.00 42.34 15.01 0.00 PO03539 1998 SUSTAINABLE COASTAL RESOURCES DEV. 100.00 0.00 0.00 2.31 50.84 40.65 4.27 PO45788 1998 Tri-Provincial Hwy 230.00 0.00 0.00 0.00 48.00 29.20 0.00 PO36949 1998 CN-Nat Hwy3-Hubei 250.00 0.00 0 00 0.00 33.00 10.50 0.00 PO36414 1998 CN-GUANGXI URBAN ENVMT 72.00 20.00 0 00 0.00 76.87 58.92 8.47 PO03590 1997 QINBA MOUNTAINS POVERTY REDUCTION 30.00 150.00 0.00 0.00 47.61 51.05 0.00 PO03643 1997 CN-2nd Xinjiang Hwy 300.00 0.00 0.00 60 00 9.78 69.78 9.78 PO03637 1997 CN-NATL RURAL WATER 3 0.00 70.00 0 00 0.00 3.84 6.43 6.26 PO44485 1997 SHANGHAI WAlGAOQlAO 400.00 0.00 0 00 0.00 122.29 79.59 19.34 PO36405 1997 WANJIAZHAI WATER TRA 400.00 0.00 0.00 75 00 49.86 124.86 24.86 PO35693 1997 FUEL EFFICIENT IND. 0.00 0.00 32.80 0.00 8.79 32.81 0.00 PO38988 1997 HEILONGJIANG ADP 120.00 0.00 0.00 0 00 13.08 13.08 0.00 PO34081 1997 XIAOLANGDI MULTI. II 430.00 a.00 0.00 78.53 0.28 118.73 7.88 PO03654 1997 Nat Hwy21Hunan-Guangdong 400.00 0.00 0 00 0.00 71.59 71.59 0.00 PO03650 1997 TUOKETUO POWEWINNER 400.00 0.00 0.00 102.50 41.31 129.86 -3.43 PO03599 1996 CN-YUNNAN ENVMT 125.00 25.00 0 00 19.48 53.28 72.17 -4.56 PO40513 1996 2nd Henan Prov Hwy 210.00 0.00 0.00 0.00 42.88 42.88 12.88 ~oo36112 1996 CN-HUBEI URBAN ENVIRONMENT 125.00 25.00 0 00 28.32 44.54 74.90 7.90 PO03649 1996 SHANXI POVERTY ALLEV 0.00 100.00 0 00 0.00 2 12 11.40 0.00 PO03648 1996 CN-SHANGHAI SEWERAGE II 250.00 0.00 0.00 0.00 60.16 60.16 -0.70 PO34618 1996 CN-LABOR MARKET DEV. 10.00 20.00 0.00 0.00 5.54 7.77 0.00 PO03646 1996 CN-CHONGQING IND POL CT 170.00 0.00 0.00 164.82 1.31 166.13 1.31 PO03589 1996 CN-DISEASE PREVENTION (HLTH7) 0.00 100.00 0.00 0.00 13.07 22.68 0.00 PO03594 1996 GANSU HEXI CORRIDOR 60.00 90.00 0.00 0.00 78.39 57.14 0.00 PO03638 1996 SEEDS SECTOR COMMER. 80.00 20.00 0.00 16 00 5.20 22.25 -0.57 PO03571 1995 CN-7th Railways 400.00 0.00 0.00 119.00 50.25 169.25 40.28 PO03585 1995 SHENYANG IND. REFORM 175.00 0.00 0.00 0.00 33.112 33.02 0.00 PO36947 1995 CN-Sichuan Power Transmission Project 270.00 0.00 0.00 95.00 11.79 106.79 6.59 PO03647 1995 China Economic Law Reform -LEGEA 0.00 10.00 0 00 0.00 3.40 3.92 0.00 PO03642 1995 CN-ZHEJIANG POWER DEVT 400.00 0.00 0.00 0 00 34.79 40.29 0.00 PO03598 1995 CN-LIAONING ENVIRONMENT 110.00 0.00 0.00 8.50 0.30 8.80 8.80 pa03603 1995 CN-ENT HOUSING & SSR 275.00 75.00 0.00 50.36 59.67 108.34 7.31 PO03404 1994 SICHUAN GAS DEV. CON 0.00 0.00 10.00 0.00 0.02 0.78 0.00 PO03644 1994 XIAOLANGDI RESETTLEMENT 0.00 110.00 0 00 0.00 0.114 -1.85 -1.95 PO03626 1994 Fujian Prov Highway 140.00 0.00 0.00 18.11 6.65 24.76 24.74 PO03609 1994 SICHUAN GAS DEV & CONSERVATION 255.011 0.00 10.00 37.67 9.11 46.78 0.00 PO03595 1994 RED SOILS II AREA DEVELOPMENT PROJECl 0.00 150.00 0.00 0 00 4.95 0.10 -1.73 PO03473 1993 CN-ZHEJIANG MULTlClTlES DEVELOPMENT 0 00 110.00 0.00 0 00 0.14 0.30 -2.02 PO03592 1993 REF. 1NST'L.B PREINV 0.00 50.00 0.00 0.00 2.07 2.48 2.48 Total: 12902.30 1752.60 197.80 1129.27 5543.44 3721.53 211.72 - 77 -  CHINA STATEMENT OF IFC's HeldandDisbursedPortfolio Jun30 2002 - InMillionsUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1997 Orient Finance 9.52 0.00 0.00 11.90 9.52 0.00 0.00 11.90 1997100 PTP Holdings 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1997 PTP Hubei 11.72 0.00 0.00 23.29 1 1.72 0.00 0.00 23.29 1996 Pacific Ports 0.00 2.54 0.00 0.00 0.00 2.54 0.00 0.00 2001 Peak Pacific 0.00 0.00 25.00 0.00 0.00 0.00 0.00 0.00 1998 Rabobank SHFC 0.90 0.00 0.00 0.90 0.90 0.00 0.00 0.90 2000 SSIF 0.00 6.00 0.00 0.00 0.00 0.45 0.00 0.00 1998 Shanghai Krupp 30.00 0.00 0.00 68.80 19.74 0.00 0.00 45.26 1999 Shanxi 17.87 0.00 0.00 0.00 15.32 0.00 0.00 0.00 1993 ShenzhenPCCP 3.76 0.99 0.00 0.00 3.76 0.99 0.00 0.00 200 1 Sino-Forest 25.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1995 Suzhou PVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 1998 WIT 5.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 2000 Wanjie Hospital 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1996 Weihai Weidongri 1.92 0.00 0.00 0.00 1.92 0.00 0.00 0.00 1993 Yantai Cement 11.13 1.95 0.00 0.00 11.13 1.95 0.00 0.00 1998 Zhen Jing 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2002 Advantage 0.00 0.25 0.00 0.00 0.00 0.00 0.00 0.00 1999100102 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 1996 Beijing Home1 2.50 0.50 0.00 I.65 2.50 0.50 0.00 1.65 1998100 CIGHoldings PLC 0.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 CPEF 0.00 20.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Caltex Ocean 18.53 0.00 0.00 28.64 18.53 0.00 0.00 28.64 1998 ChengduHuarong 1.40 3.20 0.00 8.60 3.70 3.20 0.00 4.30 1998 Chengxin-IBCA 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 198ll92194 China Bicycles 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 China Walden Mgt 0.00 0.0 I 0.00 0.00 0.00 0.01 0.00 0.00 1994 China Walden Ven 0.00 0.21 0.00 0.00 0.00 0.21 0.00 0.00 1994 Dalian Glass 0.00 2.40 0.00 0.00 0.00 2.40 0.00 0.00 1999 Dujiangyan 25.59 0.00 0.00 30.00 16.1I 0.00 0.00 18.89 1995 Dupont Suzhou 12.46 4.15 0.00 10.40 12.46 4.15 0.00 10.40 1994 Dynamic Fund 0.00 9.75 0.00 0.00 0.00 8.09 0.00 0.00 1999 Hansom 0.00 16.10 0.00 0.00 0.00 16.10 0.00 0.00 2002 Huarong AMC 31.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Jingyang 32.50 0.00 0.00 69.23 32.50 0.00 0.00 69.23 1998 LeshanScana 6.10 I.35 0.00 0.00 4.50 1.35 0.00 0.00 2001 Maanshan Carbon 9.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996 Nanjing Kumho 6.82 3.81 0.00 19.38 6.82 3.81 0.00 19.38 2001 New China Life 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 NewbridgeInv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 Total Portfolio: 304.22 166.98 25.00 277.79 206.13 127.02 0.00 233.84 - 78 -  Aoorovals PendingCommitment FY Approval Company Loan Equity Quasi Partic 2002 Darong 10.00 0.00 ISO 8.00 2002 NaradaBattery 6.60 0.00 0.00 0.00 2002 Zhong Chen 25.00 0.00 0.00 32.00 2002 ASIMCO 0.00 13.50 0.00 2002 Sino Mining 1.so 5.00 0.00 0.00 5.00 2002 Shuang Deng 12.50 0.00 2.80 0.00 2002 KHIT 0.00 0.00 3.00 0.00 2002 SML 0.00 0.00 6.00 0.00 1996 Jingyang 4.00 0.00 0.00 0.00 1998 PTP HubeiBLINC 0.00 0.00 0.00 1.50 2000 CIG Zhapu 6.00 5.00 0.00 0.00 2000 Meijing 9.00 0.00 0.00 7.30 2000 CIMIC Tile 15.00 5.00 0.00 15.00 2001 Daning Coal 0.00 0.00 2.00 15.00 2001 AACI 0.00 0.00 2.00 0.00 2001 Minsheng 0.00 23.50 0.00 0.00 2002 Huarong AMC 15.00 0.00 3.00 0.00 2002 IEC 0.00 5.00 0.00 0.00 Total PendingComniitment: 108.10 52.00 21.80 83.80 - 79 -  Annex I O : Country at a Glance CHINA: Second Anhui Highway Project East Lower- POVERTY and SOCIAL Asia B middle- .- ~ China Pacific income Developmentdiamond' 2001 Population,mid-year(millions) 1,271.9 1,826 2,164 GNI per capita (Atlas method, US$) 890 900 1,240 Life expectancy GNI (Atlas method, US$ billions) 1.129.3 1,649 2,677 Average annual growth, 1995-01 Population (%) 0.9 1.1 1.o Laborforce (%) 1.o 1.3 1.2 GNI - Gross Most recent estimate (latest year available, 1995-01) per primary capita enrollment Poverty (% of population below nationalpoverty line) 5 Urban population (% of totalpopulation) 38 37 46 Life expectancyat birth (years) 71 69 69 Infant mortality (per 1,000live births) 32 36 33 Child malnutrition (% of children under 5) 10 12 11 Access to improved water source Access to an improvedwater source (% ofpopulation) 75 74 80 Illiteracy(?Aofpopulation age 75+) 15 14 15 Gross primaryenrollment (% of school-agepopulation) 107 107 107 * China Male 106 106 107 Lower-middle-incomegroup Female 109 108 107 KEY ECONOMIC RATIOS and LONG-TERMTRENDS 1981 1991 2000 2001 GDP (US$ billions) 228.3 402.6 1,077.5 Economic ratios' 1,150.' Gross domestic investmenffGDP 32.5 34.8 36.1 37.9 Exportsof goods and services/GDP 8.6 19.4 25.9 25.8 Trade Gross domestic savings/GDP 32.9 38.1 38.8 40.3 Gross nationalsavingsiGDP 32.8 38.5 38.0 39.4 Current account balance/GDP 0.4 3.8 1.9 1.5 /l Interestpayments/GDP 0.2 0.7 0.6 0.6 Domestic savings Investment Total debVGDP lqi 2.5 15.0 13.9 14.8 Total debt service/exports 6.9 10.1 7.4 6.8 Presentvalue of debffGDP 12.5 11.7 Presentvalue of debffexports 46.0 43.5 inaemeaness 1981-91 1991-01 2000 2001 2001-05 (average annual growth) GDP 10.0 9.7 8.0 7.3 6.9 China GDP per capita 8.4 8.6 7.1 6.6 6.1 Lower-middle-incomearou~ EXDO~~Sof aoods and services 12.1 8.3 30.6 5.0 7.7 (?Aof GDP) I991 2ooo 2o01 Growth of inves?m%and GDP(%)F ~ Agriculture 31 8 245 159 152 :E I Industry 464 42 1 509 51 1 Manufacturing 385 327 345 354 lo Services 21 8 334 332 336 0 Privateconsumption 96 97 98 99 00 01 General governmentconsumption 145 131 13 1 13 7 Imports of goods and services 8 2 161 232 234 '*'GDI -GDP (average annualgrowfh) 1981-91 1g91-01 2ooo Growth of exports and imports (%) I ~~ __ ~~~ I Agriculture 5 2 4 0 2 4 2 8 40 I Industry 114 126 9 6 8 7 20 Manufacturing 11 1 11 6 9 1 9 0 Services 126 8 7 7 8 7 4 O Private consumption 8 3 8 6 8 7 6 2 Generalgovernmentconsumption 9 9 8 5 122 115 Gross domestic investment 104 103 4 2 128 Imports of goods and services 9 6 6 4 245 108 Note:2001 data are preliminaryestimates. *The diamonds showfour key indicators in the country(in bold) comparedwith its income-groupaverage. If data are missing,the diamondwill be Incomplete. - 80 -  PRICES and GOVERNMENT FINANCE 1981 1991 2000 2001 ~ Domestic prices Inflation (%) (77change) Consumer prices 25.7 3.4 0.4 0.7 Implicit GDP deflator 2.3 6.7 0.9 0.0 Government finance (% of GDP, includes currentgrants) Current revenue 24.2 16.9 15.3 17.2 Current budget balance .. 2.3 0.6 1 0 Overall surDlus/deficit 0.8 -1.1 -3.6 -3 2 GDP deflator ""OICPI I TRADE I 1981 1991 2000 2001 (US$ millions) Export and import levels(US$ tnk) Total exports (fob) 22,007 71,843 249,210 266,155 Food 2,924 7,226 300 000 12,282 12,780 Fuel 5,228 4,754 7,851 8,420 Manufactures 11,759 55,698 223,752 239,800 Total imports (cif) 22,015 63,791 225,097 243,610 Food 3,622 2,799 4,758 4,980 Fuel and energy 83 2,113 20,637 17,490 I Capital goods 5,866 19,601 91,934 107,040 Export price index (1995=100) 16 51 67 65 95 96 97 98 99 00 01 Import price index (1995=100) 13 49 75 73 M Exports IImports Terms of trade (1995=100) 118 103 90 90 BALANCE of PAYMENTS I981 1991 2000 2001 ~. ._ (US$ mi//ions) current account balanceto GDP (a) Exports of goods and services 24,410 78,909 279,561 299,410 5 Imports of goods and services 23,426 65,339 250,688 271,324 Resource balance 984 13,570 28,873 28,086 Net income -124 840 -14,666 -19,173 Net currenttransfers .. 830 6,311 8,492 Current account balance 860 15,240 20,519 17,405 Financingitems (net) .. -4,149 -9,971 29,920 Changes in net reserves .. -11,091 -10,548 -47.325 95 96 97 98 99 00 01 Memo: Reserves including gold (US$ millions) .. 48,154 171,753 219,970 Conversion rate (DEC, /ocal/US$) 2.1 5.4 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 ~ -..- (US$ millions) Composition of 2001 debt (US$ mill.) Total debt outstanding and disbursed 5,798 60,259 149.800 170,000 IBRD 0 3,494 11,118 11,479 IDA 0 3,672 8,771 8,550 G: 17,682 A. 11.479 Total debt service 1,744 8,305 21,728 20.900 IBRD 0 357 1,291 1,716 IDA 0 23 131 164 Composition of net resourceflows Official grants 19 406 147 Official creditors 506 2,044 1,927 Private creditors 89 2,493 -2,302 Foreign direct investment 0 4,366 42,096 47,052 Portfolio equity 0 565 7,814 2,404 World Bank program Commitments 196 2,622 1,536 1230 A - IBRD E - Bilateral Disbursements 0 1,280 1,907 1,947 B IDA - D - Other multilateral F Private Principal repayments 0 131 644 999 C - IMF G Short-term -- Net flows 0 1,149 1,263 948 Interestpayments 0 250 778 881 Net transfers 0 899 485 67 -81 -  Additional Annex 11:EnvironmentalAssessment and Action Plan Summary CHINA Second Anhui Highway Project A. Background 1. The Second Anhui Highway Project, to be financed by a World Bank loan, is classified as a Category A project as per OP 4.01. The environmental assessment (EA) for the Tongling-Tangkou Highway (TTH) component o f the project was carried out by the Sliangliai Ship and Shipping Research Institute (SSSRI), with support from an independent environmental specialist. A separate assessment was carried out on each rural road section. Drafts o f EA documents, including the environmental impact assessment (EIA), the environmental inanageinent plan (EMP), and the executive suimnary were reviewed and discussed indetail during project.preparation. The final drafts o f the EA documents were submitted to the Bank inDecember 2002 and were found to be satisfactory. 2. The preparation o f the EA reports followed the policy and administrative requirements for the environmental assessment o f development projects inChina and the Bank's safeguard policies. The inajor Chinese laws and regulations appliedto the EA assessment include: (a) Eiiviroiiineiital Protection Law o f the People's Republic o f China (PRC), 1989; (b) Water and Soil Conservation Law, 1991; (c) Air PollutionPreventionLaw, 2000; (d) Water Pollution Prevention Law, 1996; (e) Noise Pollution PreventionLaw, 1996; (f) Circular on Strengthening EIA for Construction Projects Receiving International Financing; and (g) Technical Rules for Enviroiiinental Impact Assessment, State Environmental ProtectionAgency (SEPA), 1997. Of the 10 World Bank safeguardpolicies, the project triggered OPIBPIGP 4.0 1 on Environinental Assessment; OP 4.12 on Involuntary Resettlement; and OP 4.11 on Cultural Property. OPIODs on Forestry (OP/GP 4.36), Natural Habitats (OP/BP 4.04), and Pest Management (OP 4.09) were consulted inpreparingthe EA. B. ProjectDescription 3. The project includes a new 116 lun,four-lane, access-controlled expressway from Tongling to Tangkou inAnhui Province with an XOi100 kndhdesign speed. Other project coinpoiieiits include the upgrading o f five rural roads under the Rural Road Improvement Program (RRIP) with a total length o f 234 luninseven counties, including four poor counties, from Class III/IV to Class IIIIIIstandards. The total investment for the project i s about US$630 million, o f which the World Bank loan will be US$250 million. The construction o f the TTH i s scheduled for 2003-2007, and the RRIP i s scheduled for October 2003-June 2006. C. BaselineEnvironment 4. Several significant natural reserves, scenic sites, and forest parks are located in the project region and their distances from the TTH range from 0.3 kmto 4 lun,except for Taiping Lake. a inaninade scenic lake, which the TTH traverses for about 9 lun.The natural reserves were the focus o f impact assessments on the ecosystems, while the scenic sites are more sensitive to increasedvisitors and visual impacts from the proposed highway. Some o f the sites, such as Huangshan mouiitaiii and Jiuliuashan mountain, are world-renowned scenic sites and tourist attractions. Tourism is a inajor source o f income inthe impoverishedregion and plays an important role inthe local economy. One o f the rural roads inthe RRIP passes through the test (buffer) area o f the provincial Guniujiang nature reserve but does not require a new alignment. - 82 -  5. The ecosystem inthe project area is primarily forest, with 70 percent forest coverage inmost parts o f the project region, including plantedwoodland and secondary forest. Other vegetation coverage includes bamboo, bush,tea garden, and agricultural crops. There is one protected species o f vegetation within 1kmo fthe TTH alignment-one tree inHuangslian Districtnear the end o f the highway. A site wildlife investigation inthe project area found a number of provincially protected species, but most o f the wildlife is found inhigher altitudes inmountainous areas away froin areas with liuinan activities. 6. A total o f 64 villages andtownships, 5 schools, and 2 senior houses were identified through field investigation as sensitive or otherwise vulnerable sites along the TTH alignment. Noise monitoring was conducted July 9-1 1, 2002 for 13 sensitive sites. Monitoring shows that both daytime and night-time noise levels fall mostly below the applicable standards, except at one priinary school, where noise levels exceededthe standards slightly at night.This indicates the high acoustic quality inthe area. 7. For the five rural roads, there are 33 schools, four clinics, and 23 villages along the roads. A similar noise-monitoring program was conducted. The results show that all recorded levels fall below or far below the applicable standards, indicating a high-quality acoustic environinent in these rural areas. 8. Existingambient air quality was determinedusingdata froin monitoring stations supplemented by a monitoring programduringthe EApreparation (July 2002). Two representative monitoring points were selected for the air quality baseline. The results show that total suspended particulate, NOx, and NO2 measured at these locations all fell below applicable standards (Class I1inthe Air Quality Standards), indicating highambient air quality and highassiinilative capacity inthe project areas. Similar monitoring results were obtained for the rural roads. All air quality parameters met applicable standards, confirming the highambient air quality o f the existing environinent. 9. The proposed TTH will intersect several inajor surface water bodies, including Shuiqiao Lake, Taiping Lake, Puxi River, and Machuan River, as well as several smaller water bodies. Surface water quality was monitored in Shuiqiao Lake near the TTH bridge in July 2002 and previous water quality data for other lakes and rivers are used inthe baseline assessment. The inonitoring results show that water quality mostly complies with the standards, except for the permanganate index inthe Puxi River. The rivers intersected by the existing rural roads are o f a high quality. 10. A survey by a professional archaeology and cultural relics institute was conducted betweenMay and June 2002 and again in October 2002, covering the main highway alignment, the alternative alignments, and all proposed borrow pits and waste disposal sites. The survey included data collection and evaluation, walk-through o f the entire alignment, visual observation, and subsurface investigation through boring. A total o f nine cultural relics were discovered, including seven froin the highway alignment and one each froin a borrow pit and disposal site, including a dinosaur egg fossil site, residential sites, a kilnsite, a cultural temple, and several tomb groups. None i s significant enough to be classified as a state, provincial, or city-level protected cultural relic site. There are four county-level relic sites along two o f the five rural roads (two pagodas and two bridges). D. Analysis of Alternatives 11. Four corridors were proposed, analyzed, and compared. A preferredcorridor was selected on the basis o f the least overall environmental and socioeconomic impact. Five alternatives in short segments were further analyzed within the preferred corridor. The alternative selected had relatively low impact to inajor scenic sites; low impact on the ecosystem, including natural vegetation, ecosystem integrity, and wildlife; low incremental increases innoise levels; the next-to-lowest impact on surface water bodies; - 83 -  better compliance with urban development plans; better topography and geological conditions; and better connection to the Huangshan mountain scenic site for effective promotion o f tourism in the region. The selected altemative also received the support o f the local governments. Details o f the analysis o f alternatives studied are discussed inthe EA report. E. Environmental Impacts and Mitigation Plan 12. The major potential environmental impacts associated with the project and mitigation measures are presented in detail inthe project EIA reports. These impacts include soil erosion, construction noise, borrow pits and disposal o f excessive materials, construction camps, construction safety, temporary access roads during the construction phase, and increased noise, motor vehicle emissions; and community severance during the operation phase. The EA has developed a series o f measures to avoid, minimize, mitigate, or otherwise compensate for the adverse impacts o f the'project. Design Phase 13. For biodiversity protection, the following mitigation measures have been incorporated into the highway design: The highway alignment has been selected carefully to avoid occupying the core o f or otherwise sensitive ecosystems. Vegetation species will be selected carefully during landscaping planning. At the highway sections where wildlife may be active, 1.5-2 ino f thick bushwill be planted to avoid the impacts o f motor vehicle lights at night. A number of animal pathways will be constructed at Huangshanmountain, Shilishan mountain, and inYangmei village areas to facilitate crossings by animals. Creeping plants will be used at interchanges, bridges, and other buildings and structures to promote aesthetics. 14. Measures to minimize noise have been incorporated into the design for sensitive receptors where the noise level is predictedto exceed standards. These measures include noise insulation windows, noise barriers, tree planting, increasing perimeter walls, and relocation. Inaddition, in several villages where no mitigationmeasures are plannedbecause the noise levels are predictedto fall below the standards, noise monitoringwill be increased to ensure that noise levels duringexpressway operation comply with the predictions. Mitigation measures will be taken ifthe monitoring data show that noise levels exceed the standards. Similar measures and applicationprinciples will be taken at sensitive receptors along the connecting roads and rural roads where the noise level i s predicted to exceed standards. 15. To minimize the impact on water quality, wastewater treatment facilities will be designed and built at the service areas along the highway, including motor vehicle maintenance and repair shops, car washing operations, and other domestic facilities. Two treatment processes are to be applied: For car-washing water, the processes include sedimentation, oillwater separation, and filtration, with the final effluent to be recycled for car washing. For domestic sewage, the treatment process will be sludge bed reactor, and then discharge to the environment. These processes are based on mature and reliable technologies and are capable o f meetingthe discharge standards. - 84 -  16. To minimize project impacts on community and farmland severance in the 15 townships and 48 villages directly impacted, 139 vehicle and pedestrian underpasses, 11overpasses, and 16 grade separations were planned inthe project design. On average, there will be one crossing every 580 ino f highway, which intheory is the greatest distance residents will have to walk to find a pass for crossing the expressway. There are 4.1 crossings on average per village. Crossings allow farm vehicles to pass and couldbe widened inthe future. 17. Two sets o f mitigation measures will be implementedduring the design stage to minimize impacts to the cultural relic sites already identified. For tlie Waiijiashong and Huangnixiang sites, preservative excavation at the cultural relic sites will be conducted and completed before expressway construction begins. Duringthis process, all valuable archaeological and cultural articles from the sites will be uncovered, studied, andkept by tlie county museum. The excavated sites will bephotographed, measured, documented, and modeled ifnecessary before being handed over to contractors for expressway construction. For all other sites, the highway alignment will be altered to avoidpassing directly through the site. Warnings and public notice boards will be erected inthose sites to alert the public for site protection duringconstruction and operation o f the highway. 18. The construction o f the TTH will encourage an increase intourisin to the scenic sites inthe project regions. There are several environmental programs inthese reserves, including a inajor environmental upgrading program for Huangshan mountain and Jiuhuashan mountain, funded partially by the ADB. Furthermore, pollutioncontrol and environmental protection are major components inthe master plans for the reverses and scenic sites. These programs will be implemented, mostly prior to the opening o f tlie TTH in2008. Mitigation measures will include locating motor vehicle parking lots 300 in from the reserve areas, providing sufficient garbage bins and washroom facilities, careful designing and locating o f the tourist facilities such as hotels, encouraging tourists to have accommodations o f f the mountains, and movingpollution-generating operations such as laundry o f f the mountains. 19. To control soil erosion and stabilize the exposed surface, permanent engineering works such as concrete and stone pavement on deep slopes and other cut and fill areas are included in the design to completely stabilize the soil surface. Other works include interceptionditches and landscaping. The six borrow pits will be rehabilitatedby converting them into ponds or landscaping them after earth-borrowing operations are completed. For the 16 construction waste disposal sites, retaining walls, settling ponds, and drainage systems will be built. The stockpiles o f waste will be covered with soil and landscaped. The same measures will be taken at all borrow pits and disposal sites used for the connecting and rural roads. 20. The design o f the highway will follow the natural terrain as much as possible and will avoid deep cutting and highfilling. For areas where deep cuts or highfills cannot be avoided, mild slopes will be adopted inthe design so that they look natural. The channel entrance and exits will be shaped to match tlie surrounding environment. For the service areas, the color o f tlie structures will be selected to blend into tlie backgroundcolors. For outstanding and eye-catching structures such as interchanges and bridges, the architecture will have local characters and configurations that harmonize with the surrounding scenery and landscape. Highway supporting facilities, such as drainage, will be hidden under greenery where possible. Construction Phase 21. Experience with previous World Bank-financed highway projects in China, including the ongoing Anliui Highway Project inthe same province, indicates that contractors' awareness o f and participation inenvironmental management during construction are critical for ensuring environmental - 85 -  performance and pollution control at the construction sites. The environmental impact mitigation measures and environmental management and monitoring plans will be incorporated into bidding documents. Short training courses will be providedto all winning contractors and construction supervisors on environmental policies and regulations, potential impacts, mitigationmeasures, daily monitoring and reporting, and handling o f emergencies. 22. The temporary-use sites will be restoredpromptly. For the most sensitive construction activities, i.e., those in woodlands or near natural habitats, the forest authority will bc notified. Whcn nccessary, protected zones will be defined or protection walls or slopes built. Construction noise such as explosions will be avoidedat nightwhen wildlife is most active. Other mitigation measures duringconstruction include careful selection o f sites for borrow pits and waste disposal, strict control o f the use o f wood products froin outside, education and training for contractors, and close supervision and monitoring. 23. Large and noisy construction activities will be kept at least 150 infroin populated areas. Operation of loud construction machinery and major construction activities will be restrictedto the daytime. Temporary noise barriers will be constructed to protect the sensitive receptors froin the impact of construction noise. Construction vehicles will be directed to avoid sensitive locations and will be banned at night. 24. To ininiinize adverse impacts to surface water duringcoiistruction, cofferdam techniques will be used inbridge-column construction, with complete isolation o f work areas. Bridge construction activities will be scheduled to the extent possible duringlow-flow periods. Sewage froin plant sites and construction camps will be held either at the sites and transported to treatment facilities regularly or treated through on-site treatment such as septic tanks to meet the irrigation discharge standards. 25. Unpaved access road and construction sites will be sprayed with water twice a day (once inthe morning and once inthe aftemoon), or more frequently on dry and windy days to suppress airbome dust. The mixingplant stations and other point sources o f air emissions will be located at least 300 inleeward o f sensitive receptors. Trucks loaded with soil and other dusty materials, as well as stockpiles o f material, will be covered with canvas. Temporary access roads will be located away froin residential areas to the extent possible, and exits to truck parking will be covered with bamboo or straw sheets ifnecessary to prevent dust from becoming airborne. 26. All contractors and supervision engineers will receive basic training on identifying and protecting cultural relics and the procedures to follow when they encounter chance finds during construction. A procedure for handling chance finds -unexpectedly encountering a cultural relic during construction -will be prepared and provided to the contractors, who will be requested to halt construction until any chance finds have been studied by professional archaeologists. Contractors may resume work at the site only if so instructed by authorities and cultural relics specialists following their on-site investigation. The requirements will be included inconstruction contracts as contractors' contractual obligations. Operation Phase 27. Pest management stations will be built on both ends of the highway, and motor vehicles suspected o f carrying forest pest will be inspected and controlled. Honking o f car horns will be banned in sections frequented by wildlife. The highway operators will be requested to establish contacts with Wannan (South Anhui) Wildlife Emergency Center to exchange inforination and save wildlife during incidents involving wounded animals along the TTH. - 86 -  28. No new school, hospital, or other sensitive facility will be allowed to be built within 200 ino f the central line o f the highway. No new villages will be allowed to be sited within 50 ino f the highway. Traffic management will be enforced and motor vehicles will not be allowed to speed or honk while going through sections near sensitive receptors such as schools and homes for seniors. 29. Motor vehicle emissions control requires an integrated approach froin numerous government agencies as well as private sector stakeholders. The province will enforce standards for inotor vehicles and fuels and will implement motor vehicle inspection programs to minimize air emissions from the increased motor vehicle traffic on the highway. 30. The province will set up a leading group involving relevant government agencies to handle the transportation o f hazardous materials and emergency response inthe event o f a traffic accident involving trucks loadedwith hazardous materials, particularly in sensitive locations such as bridges and places near surface water bodies. Licensing and permitting procedures will be strictly enforced to control the traffic involving hazardous materials on the provincial expressway and rural roadnetwork. 31. Extensive environmental monitoring programs will be implementedduring both construction and operation phases (details below) to ensure that adverse environmental impacts are as projected during the EA andthat the mitigation measures proposedwill be implementedand effective. Inadequatemitigation and unexpected adverse impacts will be detected promptly by the monitoring programs and appropriate new actions will be taken to address them. F. EnvironmentalManagementPlan 32. An environmental management plan (EMP) has been developed and is a separate document. The EMPprovides a framework for implementingmitigation measures and environinental management and monitoring during project implementation. 33. Two layers o f organizations will be responsible for environmental performance o f the project. At the first layer are found environmental management organizations, including the Environmental Office of MOC, APCD, PEO, the expressway company to be established, and various technical groups for environmental monitoring and design. The other layer i s made up o f the environineiital supervisory organizations, which include SEPA and the environmental protection bureaus o f different levels o f government inthe province. 34. The E M P includes environmental monitoring programs for both the construction and operation phases. The parameters to be monitored include resettlement, soil erosion, noise, dust, degradation o f water quality, stream sedimentation, solid waste disposal, and electroinagnetic radiation. Duringthe constructionphase, environmental monitoring will be conducted following two approaches: daily and routine monitoringconsisting mainly o f visual observations and liinited equipment measurements such as hand-held noise meters; and periodic monitoring byprofessionals usingstandard methods recognizedby regulatory authorities. Monitoring reports will be compiled once every three months, summarizing the findings o f the monitoring. The reports will be submitted to PEO as well as relevant agencies and the World Bank. Duringthe operation phase, air quality and noise levels will be monitored once every six months, and water quality will be monitored once a year. G. PublicConsultation andInformationDisclosure 35. Two rounds o fpublic consultation were carried out during the preparation o f the EIA: the first round at the preparationo f the terms o f reference for the EA April 5-29, 2002, and the second round at - 87 -  draft EA reports June 17-July 5 2002. Various techniques were used to consult the public, including conducting public opinion surveys through questionnaires, holding public meetings at villages and with local people's representatives, and holding interviews with affected groups and individuals. The people consulted included mainly those who will be affected directly by the project. Relevant government and nongovernmental organizations and experts on various environmental and socioeconomic issues also were consulted. Intotal, 2,348 people participated inthe public coiisultatioii program. 36. The EA team interviewed 60 people, including relocated persons, teachers, and management staff from the scenic sites. Inaddition, they consulted eight township governments, seven local People's Congresses, the local tourisin bureau, tlie forest bureau, and the nature reserve management authority. These individuals and groups expressed their views on the highway construction and made suggestions for mitigating adverse impacts. 37. The public consultation was extended to tourists who will be affected by the projects. One hundred copies o f a questionnaire were distributed randoinly to tourists at Huangshan mountain, including 20 foreign tourists. The EA team received 97 completed copies. Among those surveyed, only 17.5 percent came to the site through the highway corridor (using S103), and inany felt tlie transportation is inconvenient or very inconvenient (57.7 percent and 28.0 percent, respectively). The majority o f the tourists wished to see the highway constructed (8 1.4 percent) and considered the protection o f Huangshan mountain and convenient transportation equally important (78.4 percent). 38. The EA teain also consulted tlie affected public along tlie five rural roads M a y 10-3 1, 2002. In total, 291 affected local residents, local government officials, and local schoolteachers participated in public meetings, 211ininterviews, and 245 in a questionnaire survey. The primary concern raisedduring the public consultation is increased noise and the impact on traffic during construction. 39. The EA teain has responded to the public's concerns. It has made provisions for setting up land acquisition and resettlement offices under the APCD to develop, supervise, and iinpleiiieiit a resettlement action plan (RAP). 40. hicompliance with EIAprocess requirements ofthe Chinese government andthe WorldBank, the completed draft EL4 and EMP reports as well as part o f the public consultation records were distributed inpublic places along the highway, such as libraries and townships. Tlie concerned public can have access to and review the reports at these places. Inaddition, project iiifonnatioii and the availability of the reports were advertised inAnhui Daily, the province-wide newspaper, and two o f tlie most popular InternetWeb sites inthe province (one o f which is a nationwide Web site). The dates and places o f public consultation and information disclosure are summarized inthe tables below. Tlie final EA reports were disclosed to the general public inDecember 2002. - 88 -  PublicConsultation Substance By whom,with whom When Where Bank's requirement EA TOR, using By SSSRIwith eight April 13-26, group discussion, township 2002 governineiit offices, personal interview governments, seven school offices Peoples Congresses, andfour schools Draft EA TOR By SSSRIwith two April 23-27, Offices o f these sites OP4.01 Public meetings and nature reserves and 2002 interviews one scenic site Draft EA reports, By SSSRI, with June 19-26, Village coinmittee public meetings, affectedrural residents 2002 halls, school yards I OP4.0i group discussion, in32 villages andtwo and interviews homes forseniors Draft EA using By SSSRI, with 1,684 June 2002 Villages and OP4.01 public opinion affected rural residents Huangslian questionnaires and 97 randomly iiiountain and selected tourists Jiuhuashaii mountain scenic sites EA,usingpublic By HDRI,with a total May 2002 Villages along the OP4.01 meetings, o f 747 affected five rural roads interviews and residents along the questionnaire five rural roads survey - 89 -  InformationDisclosure Time Location Description 2002-4-11 AnhuiTransportation Daily Report of Tongling -Tangkou Expressway 2002-6-20 Anhui Daily Public notice for information disclosure for Tongling -Tangkou Highway 2002-6-27 AnhuiMarket Daily The Tongling -Tangkou Highway will be constructed soon 2002-6-21 Web site o f Anhui Provincial 1. Information notice Transportation Bureau 2. Project briefing (www.ghj tt.ah.gov.cn) 3. Diagram o f alignment 2002-6-19 AnhuiProvincial Library TOR for EA for the Tongling -Tangltou Highway 2002-6-18 Radio station o f Huangshan Public notice for project information District 2002-6-21 Library o f HuangshanDistrict TOR for EA for the Tongling -Tangltou Highway 2002-6-22 Web site o f Qingyang County Public notice for information disclosure Transportation Bureau (www.ahqyjt.gov.cn) 2002-6-26 TV station of Qingyang County Public notice for information o f project 2002-6-25 Library o f Qingyang County TOR for EA for the Tongling-Tangkou Highway 2002-12 Qingyang County and EA report of Tongling-Tangkou Highway Huangshan District libraries 2002-12 Village coinmittees o f Panlong, Sumnary o f EA for TTH Hongshan, Dongbao,Fenshi, Yangmei, Sankou and Shancha 2002-12 Village halls, county libraries, Draft EA reports for the five rural roads township government; and announced inlocal broadcasting svstein -90-  Additional Annex 12: Social Assessment and PovertyAlleviation Impacts Assessment CHINA Second Anhui Highway Project 1. At the suggestion ofthe World Bank, APCD engaged the Cross-cultural Research Center of Zhongshan University inGuangdong Province to conduct a social assessment in the project areas and an assessment o f the impact o f the project on poverty reduction. The center conducted its fieldwork inMay and July 2002 inareas affected directly and indirectly and completed the reports inJuly and August 2002. Social Assessment 2. The social assessment was conducted to: 0 identify the broad socioeconomic environmental and social development issues inthe project area; 0 facilitate community participation and mobilization in project plaiining activities; 0 solicit the stakeholders' perceptions, concerns, and recommendations for the project; 0 assess the social impacts o f the project; 0 propose measures to address these impacts inline with Bank policies; 0 identify any ethnic minority communities inthe project areas; and 0 assess project impacts o n thein and propose necessary mitigation measures. 3. The social assessmentwas conducted ina sample o f 16 farming villages inboth directly and indirectly affected areas. Participatory rural appraisal methodologies were used, including focus group discussions, interviews, and questionnaire surveys. During group discussions and village meetings, the assessment teain also employed community mapping, resource diagramming, preference ranking, problem trees, seasonal calendars, and daily activity charts to facilitate fanners' participation and thorough analysis. Analytical data come inainly from government statistics, historical records, and field surveys. 4. Data collected through statistics, records, and fieldwork were analyzed and the following conclusions were reached: The project areas are situated inmountainous areas and are among the underdeveloped areas o f the province. Among the project counties, one ranks as a national-level poverty county and four are provincial-level poverty counties. Livelihood patterns are largely o f three types, with core activities based on cultivation, cash crops, and tourism. A large number o f local laborers have migrated to urban areas for employment, and the number o f migrants appears to be the deciding factor incharacterizing the economic status o f a village or a household. There are 110 ethnic minority villages inthe project areas. Gender discrimination has become less obvious over the years. The number o f women going out for employment is increasing. -91 -  e Traffic conditions are generally poor and there i s great deinaiid for improving communication conditions. The project will improve access to markets, employment opportunities, and investment conditions. This project, with improved coimnuiiicatioii conditions, will facilitate economic development and reduce income disparity. 0 Tlie biggest concern o f the local people is that different levels o f government will reduce their land compensation payment. They request establisliinent o f a complaint hotline regarding payment o f the compensation funds. Assessmentof ProjectImpactonPovertyReduction 5. This assessment was conducted 011 the basis o f the social assessment. The teain also conducted fieldwork inanother 12 villages ineight counties. The assessment was conducted through PRA exercises intlie villages, key informant interviews, focus group discussions, and analysis o fdata collected. The assessment was to enable a better understanding of: i)tlie natural eiiviroiiiiieiit and social and economic developineiit o f the local areas; ii)poverty status, reasons for the poverty, the government's strategy and measures to reduce poverty; and iii)perceptions o f local people o f the project's impact. 6. The team analyzed the collected infonnation. Its findings are described below. 7. The project lies inthe south o f Ailhui Province, a mountainous underdeveloped area. It i s rich in natural resources, with great potential for tourism. However, the transport system is poorly developed and this poses one o f the biggest constraints for local development. This i s reflected inthe lack o f road systems and the low grade o f roads. 8. The project covers several state and provincial level poverty counties. There also are also pockets o fpoverty inother counties, and seveii townships are targeted as key poverty townships. The poverty population as defined by the government is about 140,000 inthe project areas. 9. There are many reasons for the poverty situation. They include poor natural conditions (mountainous area, little arable land), frequent natural disasters (flood, drought, wind, snow, hail), little investment ininfrastructure development, low exposure to the outside world, and a mentality o f dependence. 10. The government has been implementing a multisectoral poverty reduction strategy intlie province and the project areas. APCD has given priority to these poor areas iniiivestinent, and road systems have seen gradual improvement. 11. The project, with an expressway and five rural roads, will significantly improve the transport system inthe project areas. Indirectly, it will facilitate the socioeconomic development of the project areas by promoting tourism, improvingthe overall investment environment, and facilitating tlie transfer of information and new ideas and the implementationof the 10thFive-Year Plan, which is geared towards poverty reduction. 12. Tlie local population i s divided in its opinion o f the project. The majority o f tlie population ardently supports the project, believing the project will benefit them directly. Some are indifferent to or are against the project. This is a small group that belongs mostly to the affected group that will lose their land and houses. - 92 -  Additional Annex 13: Summary of the Resettlement Action Plan CHINA: Second Anhui Highway Project Background 1. The TTH component requires land acquisition and the relocation o f households. APCD entrusted Anhui Highway DesignInstituteand the East China Hydropower Survey and DesignInstitute inZhejiang Province to carry out the resettlement planning. DuringMay-June 2002, these institutes completed the inventory, census, and socioeconomic survey. The East China Hydropower Survey and Design Institute carried out consultations with the affected villages to determine specific resettlement and rehabilitation measures for each. A t the same time, the Cross-cultural Research Center o f Zhongshan University in Guangdong Province was engaged to conduct a social assessment. The Resettlement Action Plan (RAP) was prepared on the basis o f this fieldwork. Further fieldwork was carried out inOctober 2002 following Bank recoinmendations, and the RAP was revised, incorporatingthe Bank's comments and the findings o f the fieldwork. 2. Much consideration has gone into the resettlement planning. Project alternatives were compared, and the current alignment has the least resettlement impact. The RAP was prepared in accordance with the LandAdministration Law o f the People's Republic o f China, which became effective inJanuary 1999, and with World Bank OP 4.12 on involuntary resettlement. The objective o f the resettlement program i s to ensure the restoration o f livelihoods and production o f the affected people. ProjectImpacts 3. The project will require the acquisition o f land, relocation o f houses and tombs, and cutting down o f trees. The project also will have an impact on some infrastructure, such as roads and power and coimnunication lines. TTH will require the acquisition o f 9,365 inuo f land, of which cultivated land makes up 4,440 mu, or 47 percent o f the total, and uncultivated land makes up 4,925 mu, or 53 percent. The total number o fpeople affected through land acquisition is 9,963 in2,611 households. It i s estimated that TTH may require 2,525 muo f land temporarily duringconstruction. The project also will require the demolition o f 86,6 14 square meters of housing, including 79,832 square meters o f residentialhousing, which will make it necessary to relocate 1,8 15 people in430 households. - 93 -  Tonglin Qingyang Shitai County Huangshan Total County County District Pennanently Acquired Land Total: mu 616 4,058 209 4,481 9,365 Cultivated land 409 2,558 31 1,442 4,440 Orchard 0 52 0 24 76 Pond 58 136 0 25 219 Forest land 83 1,047 178 2,744 4,050 Other lands 64 265 1 246 575 Number of HouseholdsAffected By land acquisition 238 1,303 36 1,034 2,611 By house demolition 7 48 0 120 175 Bybothland and house 15 150 0 90 255 Number of PAPS Byland acquisition 944 4,943 130 3,946 9,963 By house demolition 84 160 0 479 723 By both land and house 139 566 0 387 1092 Strategy for Livelihood Restoration 4. Principles. The following were the guidingprinciples for developing the RAP: 1. The affectedpeople should improve or at least restore their original living standards. ii.Anyonewholoseshisorherhouseshouldgetnewfreeplotsfornewhousecoiistructioninhisor her current village. ... 111. Resettlement plans, sites o f new houses, standards, and building areas, as well as the corresponding compensation standards, should be determined after consultation with the affected people. iv. For all affected buildings, the compensation shouldbe calculated on the basis o f the current replacement cost without consideration o f depreciation. The construction materials froin the houses to be demolished belong to the owners o f the liouses. V. The affectedbusinesses should be relocated as near as possible at their preference. vi. Landwill be redistributed to fanners losing land. Anyone who opts for self-resettleinent with non-farm employment can receive a resettlement subsidy. 5. Relocation of households. Given the linear nature o f the project and the sinal1 number o f affected households ineach village, all houses to be replaced are plannedto be built intheir existing villages. The villages will provide new residential plots, and the specific house sites will be finalized through consultation with the affectedhouseholds. Farmers will buildtheir own liouses with cash compensation for replacement costs. A detailed unit rate analysis has been conducted for the replacement cost of the different types o f affectedbuildings.Resettlement i s sclieduled to be completedbefore civil works start. 6. Rehabilitation of infrastructure. The infrastructure affected is mainly power, telecoimnunications, water conservancy, and transportation facilities as well as roads. For these facilities, compensation based on the replacement cost will be paid to the owners. The owners or the government departments responsible for the facilities will be incharge o f the reconstruction. - 94 -  7. Enterprises and institutions. The sinal1businesses to be affectedare mostly family-run operations, such as shops and haircutters. Field surveys and consultations indicate that their customers come mainly froin their own villages. They would be given a free location for new business at their preference intheir villages. The buildingand structures will be compensated incash at replacement cost. 8. Livelihood restoration. Livelihoodrestoration for farmers losing agricultural land will follow land and agricultural based strategy. All affected farmers will receive cultivated land through the redistribution o f the remaining village collective land. Ifland loss is marginal and farmers prefer cash compensation to going through the process o f land redistribution, cash coinpensation will be provided. In the seriously affected villages, consultations with the affected village ineinbers on livelihood development have identified areas o f need and formulated village-specific development measures, including cash crops, reinforcing extension services, farmer training, agro-processing, and reclamationo f barren mountain. For villages losing more than 25 percent o f their land, further coiisultations have resulted invillage-specific strategies inlivelihood development. These are detailed inthe RAP. Implementation Schedule 9. The RAP implementationwill be alignedwith civil works construction. New house construction will occur inphases, inaccordance with the civil works schedule. Resettlers inust be given at least four months to buildtheir new houses before the demolition o f the old houses. Before new house construction, a notice will be provided three months inadvance to allow for resettlement site selection, planning, and development. Ifnecessary, housing construction time will be extended. Civil works will start after land acquisition i s completed; land redistributionwill be done during winter. Infrastructure rehabilitation will be completed before civil works start or resettlers move into their new houses. Resettlement Organization 10. APCD i s incharge o f overall RAP implementation. A resettlement office with a coordinating leading group has been established inAPCD. The RAPwill be implementedby resettlement offices at countylcity or district and township levels. Their respective responsibilities and functions are detailed in the RAP. Monitoring and Evaluation 11. Both internal and external inonitoring is plannedfor resettlement implementation. Project management will be responsible for the internal monitoring system. An independent monitor will be engaged to undertake the external monitoring o f the resettlement program. The scope o f monitoring and the monitoring targets, indicators, procedures, methodology, and reporting requirements are described in the RAP. Resettlement Cost 12. The total resettlement cost is 168.13 inillion yuan, equivalent to USS20.35 million. This budget includes the coinpensation fund for land (which makes up 49.4 percent o f the fund), houses and attached structures (12.5 percent), infrastructure, various relocation allowances, business loss duringtransition, support fund for vulnerable groups, management andmonitoring costs, and contingencies. All resettlement costs will financed by domestic funding. - 95 -  Additional Annex 14: Study on Construction Supervision CHINA: Second Anhui Highway Project 1. Construction quality i s a serious concern for China because o f the rapid development o f its highway sector. The problem i s o f both technical and administrative natures. Untilrecently, the supervision o f highway construction was carried out by provincial coinmunications departments but this i s changing. Under Bank-financed projects, joint localiforeign supervision teams now carry out construction supervision. Generally, provincial communications departments either appoint a retired engineer or one o f their own staffmembers as the chief supervision engineer. This does not establish truly independent relationships among the client (the employer), the engineer, and the contractor. This may result in some lack o f independence on the engineer's part and may affect the quality o f construction. Hence, there i s a needto develop the relationship framework to make construction supervision more independent and enhance the quality o f construction inChina. Study Objectives 2. The study has the following objectives: evaluate fonns o f construction supervision currently used in provincial coinmuiiications departments and the quality o f construction inAnliui, Guanxi, Jiangxi, Henan and Shaanxi provinces; 0 review and evaluate best practices from similar construction projects in four other provinces (Guanxi, Jiangxi, Henan and Shaanxi) and a foreign country; and 0 make recommendations and develop guidelines and operational procedures for construction supervision inAnhuiProvince (and other provinces) to for improving the quality o f construction to bringit inline with international best practices. These guidelines should specify the composition o f the supervision team, including clearly defined roles and responsibilities. Specific Issues 3. The study will evaluate five issues and develop an operational framework reflecting best practices for construction supervision. The study will address the following issues: 0 status o f current construction supervision industry; 0 selection procedures o f local supervision firms; roles and responsibilities o f a supervision team; relationships between the Employer (Client) and the Contractor; and 0 current reporting and administrative procedures for supervision. 4. Status of current construction supervision industry. The study will review the supervision industry inthe provinces o fAnhui, Guanxi, Jiangxi, and Shaanxi. The review will include the number and size o f firms, the firms' capabilities, the experience o f their staff, the size o f projects they have supervised, the quality o f construction o f the works supervised, and other aspects o f the business. The study also will investigate to what extent consultants migrate from one province to another and their willingness to do so. Local employees' international work experience and knowledge o f international construction supervision practices also will be assessed. Guidelines for minimumqualification - 96 -  requirements and for engaging consulting firms and their future plans will be evaluated and recommendations for improvement will be suggested. 5. Selection procedures of local supervisionfirms. The study will identify the selection procedures o f local construction supervision firms for construction projects. Procedures include guidelines, tendering processes, work experience, and other criteria. The study will evaluate these and make recommendations for improvement. 6. Roles and responsibilities of a supervision team. The study will review the existing roles and responsibilities inconstruction supervision contracts, hold extensive interviews at various levels to identify the strengths and weaknesses of the current framework and study their effectiveness inthe delivery o f road construction. The study will evaluate these strengths and weaknesses, identify areas for improvement, and redefine the roles and responsibilities to improve clarity and efficiency. 7. Relationships between the client and the contractor. The study will evaluate the relationships betweenthe chief supervision engineer and h i s team (including the international consultant), as well as the relationship between the employer (client) and the contractor. This evaluation will examine the impact o f processes and administrative procedures on relationships, as well as language barriers, documentation, turnaround time in decision-making and approvals, and other aspects o f the client-contractor relationship. The study will assess the difference inperformance between selecting the chief supervision engineer from an independent consulting coinpany and hiring a retired engineer or existing employee from the same province. 8. Current reporting and administipative procedures,foi- supervision, The study will review and evaluate the reporting and administrative procedures relating to the chief supervision engineer (and the international supervising consultant), the employer (client), and the contractor(s). The study will review the effectiveness o f the procedures and identify barriers to achieving quality in construction. The study also will examine procedures for preparing study reports, malting progress payments, issuiiigvariations and changes to design, and other relevant issues and their impact on construction quality. The study will make recommendations for improvingreporting and administrative procedures. Timeliness 9. The study, including 20 days o f training on construction supervision practices in a developed country for two APCD staff members, will be completed within 18 months o f the date o f acceptance o f the proposal. - 97 -  Additional Annex 15: Study on Overloading of Vehicles CHINA: Second Anhui Highway Project The Impactof Overloading on Highway Asset Management 1. The transport network infrastructure, which includes roadpavement and bridges, is constructed and managed to withstand standard vehicle weights. Ifthe weight o f a vehicle exceeds the standard limits, it causes excessive pavement deflection. This leads to premature pavement failure requiring extra funds for maintenance. Therefore, for cost-effective highway asset management, it is essential to control the overloading o f vehicles. Current Status inChina 2. InChina, the responsibility for controlling overloading is divided betweenprovincial coinmunications departments and the traffic police. The control and inspection o f vehicles only with regard to permissible axle loads are under thejurisdiction o f APCD but Anliui currently has no inspection and control stations to check overloading. M O C has initiatedmeasures requiring some provinces to formulate policies on the overloading o f vehicles and initiating regular inspections with regard to the weight o f vehicles. Tasks 3. The study will address the following tasks: 0 investigate the extent o f overloading on highways inAnhui Province and recoimnend strategies for implementing and improving control measures; 0 training and staff development; and monitoring for effectiveness. 4. Study the status and extent of overloading on highways in Anhui Province. The study will investigate the status and extent o f overloading on highways inAnliui Province together with examples o f best practices inthree other provinces and at least one developed country. The study will cover the busiest highways inAilhui and recommend the best locations for buildingfour inspection stations. The study also will cover the feasibility o fusingmobile stations and weigli-iii-motion bridges. 5. Training and staffdevelopment. The study will include foreign training for two members o f the APCD staff for a 15-day period. The staff will be trained inhandling overloading issues in a developed country. The study also will include a study tour for Anhui staff to visit three other provinces and staff training inAnhui Province. 6. Monitoringfor effectiveness. The study will develop a plan for periodically monitoring the effectiveness o f weigh stations. - 98 -  Recommendationsbythe Study 7. The study will evaluate these factors and others that finds appropriate with a view to addressing best practices on managing overloading inAnhui Province. The study will take into consideration discussions with MOC, other government units, other provinces, and at least one foreign country. 8. A report basedonthis research and incorporatingrecoinmendations for bestpractices to inanage overloading of vehicles inAnhui Province will be prepared and submitted. Timeliness 9. The study will take 18 calendar months to complete. - 99 -  - 100-  MAP SECTION