China - Anhui Highway Rehabilitation and Improvement Project

Documentof The World Bank FOROFFICIAL USEONLY ReportNo: 42642-CN PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHE AMOUNT OFUS$200MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FORA CHINA: ANHUI HIGHWAY REHABILITATION AND IMPROVEMENT PROJECT March14,2008 Transport, EnergyandMining Sector Unit SustainableDevelopmentDepartment EastAsia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization.  CURRENCYEQUIVALENTS (ExchangeRateEffectiveJune 5, 2007) CurrencyUnit = RMB (ChineseYuan Renminbi) RMB 1.00 = US$0.13056 US$l.OO = RMB7.65911 FISCALYEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AC Asphalt Concrete LIBOR LondonInterbankOffered Rate ADRC Anhui Developmentand Reform MBD ModelBiddingDocument Commission MOC Ministry of Communications AHAB AnhuiHighway AdministrationBureau MOF Ministry of Finance APAO Anhui ProvincialAudit Office mu Chinese measureof landarea APCD AnhuiProvincialCommunications (15 muhectare) Department NCB NationalCompetitiveBidding APFB Anhui ProvincialFinanceBureau NDRC NationalDevelopmentand Reform CNAO ChinaNationalAudit Office Commission CPS Country PartnershipStrategy NPV Net Present Value CPMS Chinese Pavement ManagementSystem PAD Project Appraisal Document CQS SelectionBasedon Consultant's PCMO Project Construction ManagementOffice Qualifications PEO Project ExecutingOffice DA DesignatedAccount PFM ProjectFinancialManagement EA EnvironmentalAssessment PMS Pavement ManagementSystem EASTE World BankEast Asia andPacific Region PQI Pavement Quality Index Transport, Energyand Mining Sector Unit QBS Quality-Based Selection EFYP EleventhFiveYear Program QCBS Quality-and Cost-BasedSelection EIA EnvironmentalImpactAssessment RAP ResettlementAction Plan EIRR Economic InternalRate ofReturn RIOH ResearchInstituteof Highway EMP EnvironmentalManagementPlan RONET RoadNetworkEvaluationTools FM FinancialManagement ROW Rightof Way FMS FinancialManagementSpecialist RPF ResettlementPolicyFramework FSL Fixed-SpreadLoan SBD StandardBiddingDocuments HDM Highway DesignandMaintenanceModel SOE StatementofExpenditures IC IndividualConsultant Selection SWAp Sector-wideApproach ICB InternationalCompetitiveBidding voc Vehicle OperatingCost ICR ImplementationCompletionReport VSL Variable-SpreadLoan ITC InternationalTenderingCompany Vice President: Mr.James W.Adams, EAPVP Country Director: Mr.DavidDollar,EACCF Transport andEnergy Sector Manager: Ms.Junhui Wu, EASTE Task Team Leader: Mr. Aurelio Menendez. EASTE  FOR OFFICIAL USEONLY CHINA AnhuiRoadRehabilitationand ImprovementProject CONTENTS Page I STRATEGICCONTEXTANDRATIONALE . .................................................................. 1 A . Country and sector issues .................................................................................................... 1 B . Rationale for Bank involvement......................................................................................... -3 C . Higher level objectives to which the project contributes .................................................... 3 I1 . PROJECTDESCRIPTION .............................................................................................. 4 A. Lendinginstrument.............................................................................................................. 4 B. [IfApplicable] ProgramobjectiveandPhases.................................................................... 4 C. Project development objective and key indicators .............................................................. 4 D Project components.............................................................................................................. 5 . E . Lessons learned and reflected inthe project design ............................................................ 7 F . Alternatives considered and reasons for rejection.............................................................. -8 I11. IMPLEMENTATION ....................................................................................................... 9 A. Partnership arrangements (ifapplicable) ............................................................................. 9 B. Institutional and implementation arrangements .................................................................. 9 C . Monitoring and evaluation of outcomes/results ............................................................... -10 D. Sustainability ..................................................................................................................... 10 E . Critical risks and possible controversial aspects ............................................................... 11 F . Loadcredit conditions and covenants ............................................................................... 13 I V. APPRAISAL SUMMARY .............................................................................................. 14 A. Economic and financial analyses ....................................................................................... 14 B. Technical .......................................................................................................................... -16 C. Fiduciary............................................................................................................................ 17 D. Social ................................................................................................................................. 18 E. Environment ..................................................................................................................... -19 F. Safeguard policies.............................................................................................................. . . 20 G . Policy Exceptions and Readiness ...................................................................................... 20 This document has a restricted distribution and may be used by recipients only in the performance o f their official duties.Its contents may not be otherwise disclosed without World Bank authorization.  Annex 1:Country and Sector or ProgramBackground .......................................................... 21 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies ..................30 Annex 3: Results Frameworkand Monitoring ......................................................................... 32 Annex 4: Detailed ProjectDescription ...................................................................................... 35 Annex 5: Project Costs ................................................................................................................ 44 Annex 6: ImplementationArrangements .................................................................................. 45 Annex 7: FinancialManagementand DisbursementArrangements ..................................... 49 Annex 8: PublicFinancingand FiscalCapacityof AnhuiProvince ....................................... 56 Annex 9: ProcurementArrangements ....................................................................................... 63 Annex 10: Economic and FinancialAnalysis ............................................................................ 72 Annex 11:SafeguardPolicy Issues ............................................................................................. 83 Annex 12: Project Preparationand Supervision ...................................................................... 94 Annex 13: Documents in the ProjectFile .................................................................................. 96 Annex 14: Statement of Loans and Credits ............................................................................... 97 Annex 15: Country at a Glance ................................................................................................ 102 Annex 16: Map ........................................................................................................................... 104  CHINA ANHUI HIGHWAY REHABILITATION AND IMPROVEMENT PROJECT PROJECT APPRAISAL DOCUMENT EASTASIA AND PACIFIC EASTE Date: March 14,2008 Team Leader: Aurelio Menendez Country Director: David Dollar Sectors: Roads and highways (100%) Sector ManagedDirector: Junhui Wu Themes: Trade facilitation and market access (P);Rural services and infrastructure (S);Other public sector governance (S) Project ID: PO99112 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan [XI Loan [ ]Credit [ ]Grant [ 3 Guarantee [ ]Other: For Loans/Credits/Others: Total Bank financing (US$m.): 200.00 Proposedterms: Payable in26 years, including 5 years of grace and annuity principal repayment, at six-month LIBOR for US Dollar plus variable spreadfor Variable-Rate Single Currencv Loans Source Local Foreign Total Borrower 210.00 0.00 210.00 International Bank for Reconstruction and 131.08 68.92 200.00 Development Total: 341.08 68.92 410.00 Borrower: People's Republic of China- Ministry of Finance San LiHe Street, Xicheng District, Beijing 100820 People's Republicof China Tel: 8610-68551124 Fax: 861068551125 Responsible Agency: Anhui Provincial Communications Department Jinhuan Mansion, 528 Tunxi Road Anhui Province, People's Republic of China Tel: 86551-3623511 Fax: 86551-3623530 apcdpeo@mail.hf.ah.cn  F Y 08 09 10 11 12 13 Annual 10.75 45.67 72.80 52.33 16.45 2.00 Cumulative 10.75 56.42 129.22 181.55 198.00 200.00 Expected effectiveness date: July 1, 2008 Expected closing date: December 31,2012 Does the project depart from the CAS incontent or other significant respects? Ref: PADA.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Ref: PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 I s approval for any policy exception sought from the Board? [ ]Yes [ IN0 Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Ref: PAD B.2, TechnicalAnnex 3 The project aims to increase the effective use o fthe road infrastructureinthe Anhui Provinceto support its social and economic development, as evidenced by the increase inthe flows o f passenger and freight traffic along key corridors across the province at lower costs and with improved safety. Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 ComponentA. RoadRehabilitation [estimated cost US$193.61 million-47.3% ofthe total project cost - o f which US$97.70 million will be financed by the Bank Loan] This component will support the provincial rehabilitation and maintenance program from 2007- 2010 under the EFYP. The Bank contribution will help finance eligible investmentsunder the rehabilitation component o f the program. A list o f 18 segments to be rehabilitated, for about 890 km, hasbeenevaluated and found acceptable inthe context ofthe province-wide program ofthe road network rehabilitation. ComponentB. RoadImprovement [estimated cost US$209.85 million- 51.2% ofthe total project cost - o f which US$99.79 million will be financed by the Bank Loan] Improvement or upgrading o f about 320 kmo f key provincial and national roads located on the Central-Eastern and Southeastern areas of the Province. These improvements or upgrades would include in some cases the duplication o f existing roads following the same alignment with specific bypasses inbuilt-upareas (inorder to minimize resettlement actions) or with short segments o f new alignments ifnecessary to avoid difficult topographical conditions. ComponentC. Pilot on RoadMaintenanceby Contract [estimatedcost US$1.95 million- 0.5% of the total project cost -o f which US$0.96 million will be financed by the Bank Loan] Under this component, APCD will implementmaintenance by contract approach inat least two highway segments o f the provincial highway network for a cumulative number o f 120 kilometers by the end o fthe project.  ComponentD. InstitutionalStrengtheningProgram[estimated cost US$4.09 million- 1.O% o f the total project cost -o f which US$l.O5 million will be financed by the Bank Loan] This component includes the provision o f improvedtools for road management (technical, environmental, and economic) and a training program. Note: The project costs for each component include physical and price contingencies. The percentages are calculated from a total project cost o f US$410 million, inclusive o f a front-end- fee o f US$0.5 million (0.25% of the total loan amount). Which safeguard policies are triggered, ifany? Re$ PAD 0.6, TechnicalAnnex 10 Environmental assessment. Cultural property. Involuntary resettlement. Significant, non-standard conditions, if any, for: Ref: PAD C.7 Board presentation: None Loadcredit effectiveness: Furnishto the Bank legal opinions satisfactory to the Bank on behalf o fthe Borrower andthe Project ImplementingEntityby counsel acceptable to the Bank that the Loan and Project Agreements have beenduly ratified and are legally bindinginaccordance with their respective terms. Covenants applicable to project implementation: Safeguards For the improvement component, the RAPs as agreed with the Bank will be implemented when undertaking the improvement works. For the rehabilitation component, incase o f land acquisition and resettlement, RAPs would be preparedinline with the agreed RPF. 0 For the physical components o f the project, the EMPs as agreed with the Bank will be implementedwhen undertakingthe rehabilitation and improvement works. Financial The proceeds o fthe loanwill be on-lent to Anhui Province on the same terms and conditions as the Bank loan, with the province bearingthe foreign exchange risk. 0 Project financial statements audited inaccordance with standards acceptable to the Bank. Inline with other Bankfinanced projects inChina, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards o f the People's Republic o f China. The Anhui Provincial Audit Office has been identified as auditors for the project. Annual audit reports will be issued by above audit office and subject to reviewsby the ChinaNational Audit Office (CNAO). The Bank currently accepts audit reportsissuedby CNAO or provincial/regionalaudit bureaudoffices for which CNAO i s ultimatelv resuonsible.  Reporting and Monitoring 0 Progress reporting: The APCD is to submit, by February 15 and August 15 of each year, starting with August 2008 and untilthe project i s completed, a semi-annual progress report on project implementation covering the period of July-December and January- June, respectively. Specific section will cover the progress inthe implementation of the road segment on the S322 corridor. 0 Reportsdetailing the annual rehabilitation and maintenanceprogram, includingthe executedannual maintenance budget of the APCD andthe plan for the following year. (One retrospectiveby February 15, and one inNovember 15 for the planfor the next year.) Starting in2009, this annual retrospective report will cover an analysis of the progressduring the previous year inimprovingthe conditions of the road network. Anti-Corruption 0 The Borrower andthe APCD shall ensure that the Project is carried out inaccordance with the provisions ofthe World Bank Guidelines on Preventing and Combating Fraud and Corruption inProject Financedby IBRDLoans and IDA Credits and Grants, dated October 15, 2006.  I. STRATEGICCONTEXTANDRATIONALE A. Country and sector issues 1. Anhui Province, with about 65 million people, is one of the most populous and densest provinces of China. Its density-of about 460 persons per km2-is more than three times the national average. The province i s crossed by the Yangtze River and Huai River, and is adjacent to six provinces. Compared to its more successful neighborsto the east and north-Zhejiang, Jiangsu, and Shandong-Anhui has lagged markedly behindinsocio-economic development, with a GDP per capita around one third the average level of those three provinces and two years inreducedlife expectancy (73 vis-a-vis 75 years). Comparedto those to the west andsouth- Hubei, Henan, andJiangxi-Anhui has more similar-though slightly lower-socio-economic indicators. Within Anhui, there is great regional disparity, with most of the wealth concentrated inindustrial regionsclose to the Yangtze River. 2. Anhui's geographic location-right to the west of Shanghai and Hangzhou metropolitan areas-makes the province anatural crossing area for the interchangeof industrial products and technology betweenthe more developedcoastal provinces and those less prosperousto the center andwest. Inline with the Central Government's initiative of "Rise of Central China" which is part of the EleventhFive-Year Program (EFYP), definedas crucial for a coordinated and harmonized developmentbetweeneastern, central and western areas, the Anhui Government has elaboratedits own strategy of "Development to the East", with an aim at expediting the incorporation of the various regions of Anhui to the comparatively more affluent regions of the Yangtze Delta, including those poorer areas (inthe north and south of Anhui). Transport is one of the priorities inthat development strategy. 3. Although the existing highway network of Anhui Province (of about 71,000 km) represents a sizable network interns of kilometers per inhabitant, the average service level i s limiteddue to the relatively low technical standards. Comparedto the six surrounding provinces, the density ofthe network (kmperpopulation) is abovethe average, while the percentageof pavedroads (as a proxy for the quality of the infrastructure) is the lowest.2 This results inlikely shortcomingsof the existing highway network inmeeting futuretransport demand. Other major issues of current highway network include: (a) connections on the east-forward corridors consisting of lower-class type of roads: (b) poor quality of pavement and weak resistanceagainst disaster; and (c) unbalanced distribution of network across the regions inAnhui Province. The Government of Anhui has then advancedaprogram for upgrading and reconstructing existing national andprovincial trunk highway network-the so-called "5 15 Engineering Program"-to enhance the level of service and traffic capacity, while minimizing the needs for land acquisition. This program-which is part of the national EFYP-involves severalconcurrent actions that 1Agricultural activitiesinAnhui vary accordingto the climate zones that the provincecrosses. North ofthe Huai He river wheat and sweet potatoesare grown, while south of that river it is rice and wheat instead. Natural resources ofAnhui also include iron inMa'anshan, coal in Huainan, and copper inTongling. There are industries relatedto these natural resources (e&, steel industry at Ma'anshan). One ofthe famous Anhui-basedcorporations is the automobile company Chery which is based in Wuhu. 2Source:Ministry of Communications, 2005, "China Highwayand Waterway Transport Statistics Yearbook," Beijing, People's Republic of China. 1  builduponthe progress made inthe last few years,3 with highway and waterway investments for about US$13 billion, as follows: (a) Expansion o f the expressway network to the Yangtze Delta and to regional central cities inthe Province, reaching a total lengtho f 3,500 km (from about 1,500 km completed at the end o f 2005), realizingthe goals o f (a) three-hour travel from east to west and six-hour from north to south inthe Province; (b) round trip on the same day from provincial-governed cities to Hefei; and (c) expressways accessible to 90% counties (cities) and one-hour trip to nearbyexpressway for all counties. (b) Enhanced connections ofthis expressway network to the national andprovincial trunkhighway network, constituting amutually supporting layout, which could provide a more effective infrastructure for the economic development o fthe province. The "5 15 Engineering Program" includes the rehabilitation and improvement o f about 5,700 km o f national and provincial trunk highways, with about US$1.25 billion allocated to improving road geometries, structural strength, and pavement roughness. This program seeks to enhance the level o f service o f the existing road infrastructure under the direct responsibility o f the provincial communications department while reducing the encroachment into scare land resources. (c) A rural roads program to support the expansion o f the network towards ensuring village access to the provincial network by 201Os4 (d) Improvementsto inlandwaterways to achieve 5,600 kmo ftotal mileage in inland navigation and 280 million-ton capacity o f harbors. 4. Inparallel to that investmentprogram, highway maintenance inthe Province requires to be strengthened, with enhancedmethodologies andtools for the programming o fpreventive and periodic maintenance activities and improvements to the implementation o fthose activities. In Anhui, roadcondition is rankedusingfour levels ofrating system, Le., excellent, good, bad and very bad, and each level is determinedon the basis of five attributes or road asset component^.^ Based on such a ranking system and measurements that are often carried out visually, statistics would show that about 80% o f the road network inAnhui i s in good or excellent condition. This assessmenthowever appears optimistic and has to be adjusted to take into account the 3 During"the tenth five-year plan" period, Anhui Province increased investmentand accelerated constructionto realizerapid growth of transport infrastructure scale, substantiallyforming a comprehensivetransport system framed by trunk railways, expressways, main navigation waterways and important airports. 4 As part ofthat strategy, the Provincial Governmentalso intendsto speed up investments for enhancingthe condition of rural roads. The constructionprogram of "bitumen (cement) road accessible to every village" has been started in 2006. By 2010, it is expectedto form arural roadnetwork which connects with national and provincial trunk highways,complies with rural socio-economic development,and meets living and production demands of rural populations. Investmenton rural roads is expected to reachUS$2.25 billion, through support to the (re)construction and improvement of about 60,000 kmofrural roads and realizing the goal of 80% of administrative villages having access to apavedroad. 5 The five attributes are: (a) pavementcondition; (b) roadbedand sub-grade condition; (c) bridge and culvert condition; (d) safety facilities along the road; and (e) landscaping. Each ofthese attributes is assigned aweighting factor in the overall assessment. 2  particularities o f each factor and the higher importance o f the pavement condition as key element whenmeasuring overall road condition; also the fact that Anhui Provincial Communications Department's (APCD) current plan is to improve/rehabilitate about 5,700 kmo f national/provincial roads seems to suggest that more than half o f the national/provincial network i s inless than fair condition. Based on the above considerations, an estimate o f the condition o f the national and provincial network would indicate that only up to 46% are ingood and fair conditions. Enhanced measurement and a cutting-edge management system-which would improve from the older version o fthe Chinese Pavement Management System (CPMS) with limitedanalytical capabilities-would allow better assessment o f road conditions and optimal programming of maintenance activities. 5. Inaddition, currently, maintenance activities are carried out through the so-called maintenance stations composed o f APCD own-administration (force-account) labor. This mechanism appears to have room for improvement, particularly through the establishment o f incentive-based contractual relationships. The APCD i s aware o f the importance of maintenance and seeks to establish improved road management and maintenance approaches, alongside those currently beingimplementedfor the control o f overloading, more efficient toll collection mechanisms, and a wide-ranging road safety program. The proposed project seeks to contribute to these efforts. B. Rationalefor Bankinvolvement 6. The Government o f China has requested the World Bank to support the implementation o f the rehabilitationand improvement o f provincial/national trunk highways within Anhui Province and attain the full benefits o f an efficient transport network by fostering its integration o f villages and towns withinthe Province and o f those networks with its neighboring provinces. The Anhui Provincial Government has further expressed its desire to secure a World Bank loan to complement APCD's own resources in support o fthe "5 15 EngineeringProgram." As a result o f the previous two highway operations inAnhui Province, APCD wishes to continue with the value added cooperation through the Bank's support infinancing projects that require broad strategic approaches and benefit from the exchange o f international experiences and institutional strengtheningmechanisms. The Bank is technically and financially ina good position to contribute to the incorporation o f up-to-date approaches and tools for strengthening APCD's capacity inmanagingthe national and provincial road networks inAnhui. C. Higher levelobjectives to which the projectcontributes 7. The interventions being considered under the project are inline with the Bank's FY06-10 Country Partnership Strategy (CPS) with China particularly under the second pillar where the upgrading o f transport infrastructure, while improving network management and traffic safety, i s singled out as an element for poverty reduction, inequality, and social exclusion. Enhancingthe linkages o f the inlandprovinces to the dynamic coast i s seen as a critical step to widen the benefits of accessibility to the larger population and, particularly, to its poorer segments. Ultimately, those interventions should help improve the productivity inAnhui Province, enhance 3  its competitiveness, and increase the inter- and intra-provincial trade, which will consequentially foster the development o f Anhui and the provinces to the west. 8. Inthis respect, the project seeks to contribute to the highergoals of (a) improving living conditions across the province-particularly inthe areaswhere poverty rates are higher-by enhancing the transport accessibility to economic opportunities and social services, and (b) stimulating higher economic growth inthe Anhui Province by reducingtransport costs within the province and betweenAnhui and, particularly, the neighboring provinces o fJiangsu and Zhejiang, to the east o f Anhui. 11. PROJECT DESCRIPTION A. Lendinginstrument 9. The Bank will finance the project through a Specific Investment Loan. The Borrower has selected the Variable-Spread Loan (VSL) option, with annuity payment and a repayment period of 26 years, inclusive o f a grace period o f five years. The Borrower's main reason for selecting these terms i s because they follow more closely the construction and life cycle o f the investments,with more evenrepayment amounts. B. [IfApplicable]Programobjectiveand Phases 10. Not applicable. C. Projectdevelopment objectiveand key indicators 11. The project aims to increase the effective use o fthe road infrastructureinthe Anhui Province to support its social and economic development, as evidenced by the increase inthe flows of passenger and freight traffic along key corridors across the province at lower costs and with improved safety. The objective would be achieved through priority interventions to improve the condition o f the roads across the province, pilot more efficient initiatives for road maintenance, and enhancements to the programming and management capacity o f APCD, towards optimizing the use o f resources for the upkeepo f road assets. 12. The assessmento fthe achievement ofthe project development objective will be carried out through the measurement o f the following outcome indicators: reduction inaverage freight rates along a representative sample o f key provincial and national road corridors, and reduction intravel times onthe rehabilitatedor improved roads. The results ofthe project will also be measured by another set o f intermediate outcome indicators such as (a) increased traffic volumes on the corridors to be upgraded or rehabilitated; (b) reduction inaccident rates; (c) percentage o f APCD budget allocated to maintenance and rehabilitation; (d) application o f alternative mechanisms for road maintenance and recycling approaches for road rehabilitation; (e) progress inthe implementationofenhanced programmingtools for the allocationofresources for the preservation o f road assets; and (f) APCD's enhanced knowledge and application o f road management approaches through specialized training and study tours. The proposed set o f results indicators is included inAnnex 3. 4  D. Projectcomponents 13. Buildinguponthe investmentsand activities accomplished underthe previous two World Bank projects inthe province and inthe context o f strengtheningthe current overall framework for the management and upkeepo f road assets inthe Anhui Province, the project will include the following components:6 ComponentA. RoadRehabilitation [estimated cost US$193.61 million-47.3% o f the total project cost - o f which US$97.70 million will be financed bythe Bank Loan] 14. This component will support the provincial rehabilitation and maintenance program from 2007-2010 under the EFYP. The Bank contribution will help finance eligible investmentsunder the rehabilitation component ofthe program. A list of 18 segments to be rehabilitated, for about 890 km, has beenevaluated and found acceptable inthe context o f the province-wide program o f the roadnetwork rehabilitation. Activities under this component consist of improving pavement conditions o f the roads by resurfacing, specific structural strengthening, and limitedadjustments to the alignment when requiredto improve safety. This component includes the pertinent supervision activities o f the rehabilitationworks to be undertaken by local supervision firms. 15. Inthe event that any resettlement might be requiredunderthis component, a resettlement action framework has been prepared. Similarly, simplified environmental impact assessments and standardized environmental specifications have beenprepared for their application inthe rehabilitation works (as part o fthe environmental documentation for the project). ComponentB. RoadImprovement [estimated cost US$209.85 million- 5 1.2% o f the total project cost -of which US$99.79 million will be financed by the Bank Loan] 16. Improvement or upgrading o f about 320 km o f key provincial and national roads located on the central-eastern and southeastern areas o fthe Province. These improvements or upgrades would include in some cases the duplication o f existing roads following the same alignment with specific bypasses inbuilt-upareas (inorder to minimize resettlement actions) or with short segments o fnew alignments ifnecessary to avoid difficult topographical conditions. Intwo cases (roads S311 and S322), this component will include the construction o f a limited number o f kilometers to increase the transport capacity o f the existing corridor or complete missing segments. Inaddition, for road S322, this component includes the relevant complementary elements to make the road an eco-friendly road. The supervision o f the works under this component will be undertaken by local supervision firms and financed with local funds. 6The projectcosts for eachcomponentincludephysicalandprice contingencies. The percentagesare calculated from a total projectcost of US$410 million, inclusiveof a front-end-feeofUS$0.5 million (0.25% of the total loan amount). 5  17. This component is the only one that will require resettlement. Itwill also include the implementation o fthe relevant environmental management plans. The cost o f the actions to take into account the safeguards requirementsare included inthe estimated cost reported above. ComponentC.Pilot on RoadMaintenanceby Contract [estimated cost US$1.95 million - 0.5% o f the total project cost - o f which US$0.96 million will be financed by the Bank Loan] 18. Underthis component, APCD will implement maintenance by contract approach inat least two highway segments o fthe provincial highway network for a cumulative number o f 120 kilometers by the end o f the project. The maintenance activities will be limitedto routine or periodic interventionswithin the existing road pavement width. The final design o f this component will be supported by a technical assistance, as further described below, that will help APCD with additional knowledge and analytical elements for exploring the alternative maintenance mechanisms as well as for the preparation and implementationo f the selected contractual schemes. The supervision will be carried out by local firms supported by the previously mentioned technical assistance. ComponentD.InstitutionalStrengtheningProgram [estimated cost US$4.09 million- 1.0% o f the total project cost - o f which US$1.05 million will be financed by the Bank Loan] 19. This component includes the provision o f improved tools for road management (technical, environmental, and economic) and a training program, as follows: a study on technological options for the recycling o f pavement materials when a pavement needs to be rehabilitated; the technical assistancefor the pilot on maintenance by contract to provide the knowledge and analytical elements for exploring alternative mechanisms for contracting o f maintenance activities as well as for the preparation, implementation, supervision, and assessment o f the preferred contractual scheme under the pilot; the preparation o fstandardized environmental specifications; support to APCD's Anhui Highway Administration Bureau (AHAB) in implementingthe enhanced version ofthe Chinese Pavement Management System (CPMS) inAnhui Province, to be financed with local funds; the analysis o f socio-economic impacts o f key roads to be improvedunderthe project, towards establishing an enhanced knowledgebase o f the impacts o f road investmentson the livelihoods of the population living within the area o f influence of the roads targeted for improvement, through the incorporationo f specific surveys and data collection at the time o f undertaking the resettlement completion reporting effort; and 6  (f) a training program buildinguponthose activities previously carried out under the Second Anhui Highway Project, for staff not only o f APCD but also o f city and county highway bureaus, and focusing on: (a) overseas training inroad management (inconjunction withthe activity insupport to AHAB inimplementingthe new CPMS); (b) overseas training on improved technologies for the use o f recycled pavement materials (inconjunction with the study on technological options for the recycling o f these materials); (c) road safety; (d) project management; (e) environmental supervision o f road construction; (f) environmental design o f scenic/ecological routes; (g) highway planning and design; (h) highway information systems management; and (i) training to communities along the S322 road to be upgraded under the project on road safety and on starting up or developing productive activities to helpthem realize the benefits o f improved accessibility across the corridor. E. Lessonslearnedand reflectedinthe projectdesign 20. The proposedproject departs from previous Bank highway projects inChina with its exclusive focus on the rehabilitationand maintenance o f the existing road network. Its design buildson lessons learned from similar projects inother countries as well as from the implementation o f the previous two transport projects inAnhui Province. The resulting lessons assimilated for project design are summarized below: (a) Refocusing the sector agenda. Duringproject identification and preparationthe dialogue has emphasized the exchange o f views on road asset management issues, seekingto refocus the provincial strategies from one with a largeprominence on road construction to one that stresses management o f roads assets and the serviceability o f the network. (b) Gradual approach to shgt in sectorfocus. Changes inthe overall sector approach needto be built gradually as capacity and financing conditions constrainwhat can realistically be achieved inthe short term interms o f addressing maintenance and rehabilitation needs. Attention mustthen be given to key cost effective and appropriate solutions and to pilot initiatives that can create the demonstrationeffects that will encourage buildingupon those initiatives towards more encompassing shifts in sector approaches. (c) The dejbition and design of the institutional strengthening subcomponents build upon the studies and subsequentactions carried forward under previous World Bank projects (see box below). By focusing on those critical activities that complement previous actions and inaddition have a potential to create a demonstration effect and further enhancekey capacities o fthe APCD inmanaging highway assets (and in providing technical leadership to county and local highway entities), the scope o f these subcomponents seeks also to ensure a strong ownership and commitment o f APCD incarrying out the studies on time and with the expected application o f their results. Given the progress in streamliningroad safety investments and (currently) addressing truck overloading, the new project refocuses on strengthening other road 7  management skills, with an emphasis on maintenance programming, technologies, and contractual mechanisms. Institutional strengtheningactivitiesin previousWorld Bank projects The project has beenbuilt onthe previouseffortsby the Bank andother internationallendinginstitutes to strengthen Anhui's capacitiesindesign, planning,highway operation, roadmanagement, androadsafety. Particularly,underthe ongoing WorldBank SecondAnhuiHighwayProject, the Banksupportedthe APCD in: (a) appropriatemeasuresandpolicies to mitigatethe overloadingproblem; (b) carryingout roadsafety spot improvements); and(c icalassistance onhighway ationandimplementationofthis uchas highwaydesignstandards improvement, constructionquality, androadsafety. (d) Treatmentofproject contingencies. The first Anhui project was finishedwith about 15% o f the loan funds un-disbursed,hence loan allocations for contingencies require a different treatment than other usedfunds to avoid provincial entities to pay commitment fees on large amounts o f funds that remain largely unuseduntil greater certainty i s reached inthe estimation o f the final costs o f the various components o f the project. F. Alternatives considered and reasonsfor rejection 21. The main alternative considered was the application o f a Sector-Wide Approach (SWAp) instead o f a more traditional lending approach. The former alternative was rejected by the client primarily becausethis option would not suit their needs, reasons being (a) the low percentage o f financing provided by the Bank - about 5% o f the total investment required for the rehabilitation and maintenance program under the EFYP -implies that Bank's leverage on enforcing the application o f specific policies to the broad provincial investment program i s very limited; (b) some ofthe work under the broadrehabilitationand maintenance program has already been done and some are ongoing. It i s difficult to have a consistent and solid impact on framework strengthening with such a multi-phased complicated program; and (c) the selection o fthe 25 roads to be rehabilitated and improved under this Project is based on well-designed criteria such as macro-level strategic plan o f provincial socio-economic development and road network optimization, hence there i s no need for a more flexible program such as SWAp. 22. Under the improvement component, analyses (and site visits) were undertaken to explore the most adequate alignments inconsideration o f potential economic benefits and social and environmental factors. Since the options were somewhat limitedgiventhat the improvements were to be implemented largely within existing rights-of-way, the analysis o f alternatives often involved the fine tuning o f specific segments that involve bypasses or new construction. A more extensive description o f these analyses i s included inAnnex 4 and Annex 11. 8  111. IMPLEMENTATION A. Partnershiparrangements(if applicable) 23. Though project preparation has been carried out with the leadershipof the APCD (and the technical support of its AHAB), it has also beencoordinated with abroaderspectrumof agencies involved inthe road sector inAnhui, including the Anhui Provincial Finance Department, andthe Provincial Development and Reform Commission. This coordination will be maintained during project implementationthrough the exchangeof views with these other provincial agencies inthe context of the supervision of project implementation. B. Institutionaland implementationarrangements 24. The APCD (through the AHAB), with the support of the Project Executing Office (PEO) that is currently supporting the implementation of the ongoing SecondAnhui Highway Project, will carry out the execution of the project. The proposedproject will be the third World Bank financed transport project inthe Anhui Province and under the responsibility of the APCD. 25. The PEO was establishedin 1997 within the APCD under the first Anhui Highway Project (1999-2005) and has beensatisfactorily conducting day-to-day management of the previous two Bank financed projects inAnhui. As a government organization, PEO has been authorized to implementthe project. The APCD has agreedto retain the PEO over the implementation period of the proposednew project, with staff composition and skills acceptable to the Bank. APCD will remain ultimately responsiblefor the monitoring of the execution of the project and ultimately responsiblefor its satisfactory implementation. 26. Sub-project Construction Management Offices (Sub-PCMOs) will be set up ineach city' where project investmentsare expectedto take place, for managementand supervision of the project civil works (both rehabilitation and improvement). These sub-PCMOs will be specially set up for management of the World Bank project but will draw from staff of the cities' highway bureaus. These bureaus are affiliated to the AHAB (though staffing issues needto be agreed upon with the city public authorities). They will be incharge of construction management, and APCD (through AHAB) will monitor their activities to ensure compliance with World Bank fiduciary and safeguardsrequirementsand those includedinthe legal agreements.The specific duties of each sub-PCMO will dependon the characteristicsofthe road sectionwithintheir jurisdiction and, where needed, they will count with the support of the relevant specialists. They will report directly to the AHAB and the central PEO. 27. The APCD, through the PEO, and with support from the Project Construction Management Office of AHAB, will be responsiblefor the procurement of the civil works under the project. The maintenancepilot and technical assistance componentsofthe project will be directly under the responsibility of the PEO. A project management manual has beenprepared and adoptedby April 30, 2007, clarifying the responsibilities and reporting requirementsamong the PEO, PCMO, and Sub-PCMOs, inrespect of the procurement and supervision activities of the physical components ofthe project. 7There are 17 cities (and prefectures) in Anhui Province. The project activities are located in 12 o f those cities. 9  C. Monitoringandevaluationof outcomes/results 28. The assessmento fthe achievement o fthe project objective will be carried out through the measurement o f outcome indicators, including the reduction inaverage freight and passenger tariffs along a representative sample o f provincial and national road corridors, and intravel times on the rehabilitated or improved roads, as shown inthe Results Framework (Annex 3). 29. The results of the project will also be measured by another set o f intermediate outcome indicators such as (a) increased traffic volumes on the corridors to be upgraded or rehabilitated; (b) reduction inaccident rates; (c) progressinthe completion ofthe milestones for the implementation o f the upgraded CPMS; (d) application o f alternative contractual mechanisms for road maintenance; (e) percentage o f APCD budget allocated to maintenance and rehabilitation; (f)implementation o f enhanced environmental manuals; (g) the number o f initiatives with the application of recycling approaches to the rehabilitationo f the pavement; and (h) the quality and effectiveness o f the training program inenhancing knowledge and application o f road management approaches through specialized training and study tours. For the latter, specific evaluation forms based on a format agreed upon with the Bank will be provided to participants upon completion o fthe training or study tour and will be used for assessment o f the impact o f these training activities on the knowledge and professional development o f the participants. 30. For the road improvement and rehabilitationcomponents, duringproject preparation, APCD ha collected the baseline values reported inAnnex 3, and provided estimates based on a sample of provincial roads. These roads were selected from those programmed to be improved under the project. APCD will collect, annually duringthe project implementation and untilthe preparation o f the Project's ImplementationCompletion Report (ICR), the selected results indicators for the corridors along the project roads (travel times, traffic volumes, and freight rates) from a sample o f the improved or rehabilitatedroads. 3 1. Inaddition, as part ofthe project implementation evaluation, the APCD will collect relevant socio-economic information as collected inthe socioeconomic surveys for resettlement planningfrom the communities inthe area influenced by the road improvements. This information will be usedto assess the impacts of the implementation o f the road improvement component on the socioeconomic conditions and the productive activities o fthe affected communities. D. Sustainability 32. The proposed project represents the first o f the recent highway projects in China without a major tolled expressway as part o f its components. The less-complex physical characteristics o f the investmentsreduce the engineering risks and provide a higher probability o f ensuring high quality constructionstandards and completion o f schedule. Supervision efforts will also be less onerous-hence the use of domestic consultants to performthis activity. 33. The long-term sustainability ofthe road assets, however, will dependon the designo f a comprehensive maintenance strategy and program as well as the effective and timely implementation of the programmedmaintenance activities. Support i s provided under the 10  project to improve both the collection o f data to measure the condition o f road assets and the mechanisms used to incorporate the data into the revamped APCD management systems- through the implementation o f a new (enhanced) CPMS. The goal o f these improvements i s the enhancement o f the knowledge base in order to improve the maintenance planning decisions. Similarly the pilot on maintenance by contract seeks to instillmore efficient maintenance practices towards an enhanced sustainability o f the road investments. 34. Roadmaintenance budgetsinAnhui are planned for an average 8% annual increase duringthe next five year plan. However, an analysis carried duringproject preparation has shown that the budget growth needs to be higher ifmaintenance and rehabilitation requirements based on the actual road network condition are to be met towards improving the overall condition and serviceability o f the network. Infact, during 2006, the first year o fthe EFYP, has seen a substantial increased to the amounts allocated to maintenance and rehabilitation, from 45% to 57% o f AHAB resources, with an increase o f about 34% inthe amount allocated per kilometer o f (national and provincial) highway. On the basis o f a preliminary analysis o f networkneeds, the increase inthe percentage o f AHAB resources would needto be upped slightly more (by another 4% points) and sustained to ensure a steady good condition o f the road network. Inthis respect, a loan covenant requiring annual reviews of APCD's road maintenance budget and plan has beenagreed upon. The goal o fthe reviewwill be to assess the appropriateness o f the allocation o f resources betweennetwork development and preservation. 35. Nonetheless, the fundamental problem lies not so much on the overall funding (as shown by the fiscal capacity assessment inAnnex 8 which concluded with a sound rating for the province), but rather on the need for a more rational and scientific approach to road network management and maintenance. Hencethe project focus i s on providing APCD with the proper tools to better assess the linkages betweenactual network condition and budget allocation requirements. Another loan covenant relates to the timetable o f actions for the installation o f the enhanced CPMS and the gradual improved analysis and forecast o f roadpreservationneeds (further supporting the assessment o fthe budgetallocation to be reviewed annually as explained inthe previous paragraph). 36. The types o froads to be improved or rehabilitated underthe proposedproject, with only a few tolled (and with tolls set a low levels giventhat they are at or below Class II), be must framed ina different dynamic interms o f the ultimate financial or fiscal sustainability o fthe investmentscompared to expressway investments with a secure (at least partially) stream o f toll income. The analysis o f the overall fiscal framework at the provincial level (Annex 8) and the implications for the road sector exhibit a robust overall financial framework within the foreseeable future. This provides a positive outlook for the sustainability o f the investments granted, as indicated inthe previous paragraph, key strengthening actions are implementedin APCD's road management approaches and systems. E. Critical risks and possible controversial aspects 37. The APCD and its units-including the AHAB, more directly responsible for this project-have maintained a good implementation track record for the Bank transport projects in Anhui. The FirstAnhui Provincial Highway Project was completedonAugust 31,2005, andthe 11  ICR ratedthe project implementation as satisfactory. The ongoing SecondAnhui Highway Project, with about 60% of the loan funds disbursed, is progressing well. Under both projects, the APCD showed a robust capacity to develop the high-grade highway network and simultaneously implement aprovincialroad development program. This experience substantiates a reduced implementation risk. Furthermore, the proposedproject does not present the engineeringcomplexities of other highway projects because it does not include construction of new expressways. Nonetheless, given that the unit of APCD-AHAB-that will be more closely related to the implementation ofthe physical components of the project has more limited experiencewith World Bank-financedprojects, severalrisks are rated as medium. The following table shows the various risks associatedwith the project. The overall project risk i s medium. Risk Low sustainability of Duringpreparation, an in-depthanalysis of APCD's management system and investmentsdue to deficient database, as backbone for the applicationof adequate roadmanagement maintenanceapproaches systems, has beenundertaken. Specific support to strengthenthose systems has (Medium) beenincludedunderthe project. The APCD (and its responsible maintenance managementunit, AHAB) has expressed strongcommitment and agreedto implement the new version of the CPMS with appropriate data collectionto better monitor and manage road assets. A specificresults indicator has been includedto monitor this implementation. The project includesa pilot on roadmaintenanceby contract to initiatethe transfer ofknowledge on alternative maintenance mechanisms. Specific legalcovenantshave been includedto exchange views on the budget ahead of the next fiscal year and on the execution ofthe previous year budget after the completionof the fiscal year to monitor effective shift in emphasis towards sustainable maintenance-financingand more efficient approaches. Low quality of construction, 0 Works are largelyof a simple technologicalnature, with no major earthworks large changes inwork or complex engineeringstructures. quantities, or delays inthe 0 Improvedtechnical designs basedon sufficient topographical, geologicaland execution (Medium) sub-surface investigations, have been carried out duringprojectpreparation. Thoughthe APCD has 0 The APCD will remainresponsiblefor the overallpreparatiom'implementation experience in Bankprojects, o f the project. its relianceon the AHAB 0 Support from current Project ExecutionOffice will be sustained. The PEOhas for technical matters slows demonstrateda satisfactoryproactivestance inthe implementationofthe downproject previousBank-financedprojects. implementation (Medium) 0 Project designis focused on roadnetwork preservationand hence provides AHAB with a strong incentiveto succeed as the mainrecipientof bothcivil works and TA investmentsunder this project. Safety conditions on 0 Roadsafety audits havebeen be undertakenas part of sub-project engineering national/provincialroads design. deterioratesdue to higher 0 Traffic safety trainingwill continue as part ofthe technical assistance activities vehicle speeds following underthe project. improvementsin the road 0 APCD appears firmly committedto confrontingroad safety issues. As an network (Low) indication,under previousproject APCD expanded markedly the black-spot improvement with own finds. Deficientdefinition and 0 Building uponthe existingproceduresand policies, the APCD has developed: ipplication of social and (a) full EnvironmentalImpact Assessment (EIA) for the improvement works mvironmentalsafeguards component, and (b) simplified EIAs for the rehabilitationcomponent. :Low) ResettlementAction Plans (RAPS)have been preparedfor the Highway ImprovementComponent. For the Highway RehabilitationComponent, no resettlementis expectedand a resettlementpolicy framework has been 12  prepared. Environmentaland social development specialists haveparticipatedsincethe early stages of project identificationto evaluatethe safeguardrequirements and current capacity to enforcetheir application.8 Lack oftoll revenues on Manyroads under the project are andwould betoll free. For a few tolledroads, most ofthe projectroads the toll chargesare set at low levelsbecausemostofthe roadsarebelow Class11. affects negatively the fiscal The financial evaluationhas focused onthe overall fiscal analysisof provincial sustainabilityofthe project revenues, includingthe availabilityof sufficient counterpart funds, the future and availability of maintenance and operatingexpensesas well as the loanrepayments. The review counterpart funds (Low) has revealedthat the fiscal impact and financial risks ofthe projectare low. A specific indicator hasbeenincludedinthe results framework to monitor allocationofresourcesto roadrehabilitation andmaintenance. Values are set to meetgradually needsofroadnetwork in line with current preliminary estimates to ensure stable conditionof roadassets. F. Loadcredit conditions and covenants 38. Effectiveness conditions: (a) Furnish to the Bank legal opinions satisfactory to the Bank on behalf o f the Borrower and the Project Implementing Entity by counsel acceptable to the Bank that the Loan and Project Agreements have been duly ratified and are legally bindinginaccordance withtheir respective terms. 39. Covenants: Safeguards For the improvement component, the RAPs as agreed with the Bank will be implementedwhen undertaking the improvement works. For the rehabilitation component, in case o f land acquisition and resettlement, RAPs would be prepared in line with the agreed Resettlement Policy Framework (RPF). For the physical components of the project, the Environmental Management Plans (EMPs) as agreed with the Bank will be implementedwhen undertaking the rehabilitation and improvement works. The proceeds o fthe loan will be on-lent to Anhui Province on the same terms and conditions as the Bank loan, with the province bearingthe foreign exchange risk. *Under the previoustwo Bank projects, APCD has developedin-housecapacity to implement, superviseand monitor environmentaland social safeguards. For environmentalsafeguards, the APCD has retainedthe Shanghai Ship and Shipping Design Institute,which is quite familiar with Bank's safeguards policiesthrough EA preparation for previous Bank projects includingSecondAnhui Highway, HubeiXiao-XiangExpressway,and Hubei Shi-Man Expressway Projects. The APCD has also engaged East China Survey and DesignInstituteto assist inthe resettlementplanningand implementation. This institutehas a longhistory of engagement with World Bank operations and has accumulatedmuchexperience and expertise dealing with resettlement issues. 13  (b) Project financial statements audited inaccordance with standardsacceptableto the Bank. Inline with other Bank financed projects inChina, the project will be audited inaccordancewith InternationalAuditing Standardsandthe Government Auditing Standards of the People'sRepublic of China. The Anhui Provincial Audit Office has beenidentifiedas auditors for the project. Annual audit reports will be issuedby above audit office and subject to reviews by the China National Audit Office (CNAO). The Bank currently accepts audit reports issued by CNAO or provincialhegional audit bureaudoffices for which CNAO is ultimately responsible. Reporting and Monitoring (a) Progressreporting: The APCD is to submit, by February 15 and August 15 of each year, starting with August 2008 and until the project is completed, a semi-annual progressreport on project implementation covering the period of July-December and January-June, respectively. Specific sectionwill cover the progress inthe implementation of the road segment on the S322 corridor. (b) Reports detailing the annual rehabilitation and maintenanceprogram, including the executedannual maintenance budget of the APCD and the planfor the following year. (One retrospective by February 15, and one inNovember 15 for the planfor the next year.) Starting in2009, this annualretrospective report will cover an analysis of the progress during the previous year inimprovingthe conditions of the road network. Anti-Corruption (a) The Borrower andthe APCD shall ensure that the Project is carried out in accordancewith the provisions of the World Bank Guidelines on Preventing and Combating Fraud and Corruption inProject Financedby IBRDLoans and IDA Credits and Grants, dated October 15,2006. IV. APPRAISAL SUMMARY A. Economicand financial analyses EIRR=27.0%, NPV (at 12%) =US$507.5 million Economic 40. Economic sustainability of theproposedproject. According to the latest analyses that updatethe results of the feasibility study, the EIRRofthe project is about 27.0%. This estimate i s based on the following main assumptions: (a) No diversion of traffic from railway lines, with benefits focusing on those relatedto existing roadtraffic and a generatedtraffic equal to 10% of normal traffic; (b) Traffic growth ratesthat start at 5.1% until2012 andthendecrease to 3.3% to 2020 and 1.7%to 2030; and 14  (c) Conversion factors mostly reflect scarcity o f skilled labor and imported materials. 41. Overall the project appears economically feasible based solely on the transport benefits along the road corridors. Inaddition, the project roads are either part o f the road network connecting the coastal provinces (Jiangsu and Zhejiang), located inthe poorer mountainous regions, or the local bottlenecWmissing link segments. The investments will enhance the accessibility o f the villages and towns along the areas o f influence o f the roads. The possible additional benefits from enhanced access to social services, which are harder to quantify, would provide higher rates o f economic returns. 42. The economic evaluation covered two project components that account for all the project physical costs: (a) rehabilitation o f 13 roads (18 segments, 885.6 km) and (b) improvement of 4 roads (7 segments, 318.1 km). The principal measured benefits o f the project are savings in vehicle operating costs, time savings to vehicle occupants and enhanced road safety by using the Highway Designand Maintenance Standard Model (HDM-4). 43. The proposed project roads were selected from 50 candidate roads inthe province. The main selection criteria were based on location factors and on pavement conditions, such as roads: (a) located in areas with prevalence o f poverty and/or with low accessibility, (b) low technical standards, (c) adjacent to Jiangsu or Zhejiang provinces with low traffic capacity and hightraffic volume (over 12,000 vehicles per day), (d) with pavements badly damaged with traffic o f over 1,000 vehicles per day, (e) with missinglinks or major physical bottlenecks, and (f) reduced environmental and resettlement impacts. 44. The estimated overall EIRRfor the project, usingthe HDM-4 model, is 27.0%. The EIRR for the rehabilitationroads and the improvement roads are 28.2% and 26.0%, respectively. The overall economic Net Present Value (NPV), based on a 12% discount rate, i s estimated at RMB 3,958.4 million, o f which the rehabilitation roads are estimated to contribute RMB 1,935.0 million and the improvement roads are estimated to contribute RMB 2,023.4 million. An analysis o f the evaluation results and a description o f the method usedto derive them are provided inAnnex 10 and are summarized as follows: Summaryof EconomicEvaluationResults EIRR(in%) NPV(RMB million, 12%) Rehabilitation 28.2 1,935.0 Improvement - 26.0 2,023.4 Total Project 27.0 3.958.4 Financial 45. Financial viability of theproposedproject. Manyproject roads are toll free. For the toll roads, the toll charges are set on the low side becausemost o fthe roads are Class I1andunder. Financialevaluation i s focused on fiscal impact analysis. The financial data confirmedthe availability o f sufficient counterpart fhds andthe capacity o fthe APCD to finance the project as well as the future maintenance and operating expenses o fthe project roads. All the indicators show that the fiscal impact andrisksare modest. The total capital requiredfor the entire project, for example, representsonly 3.9% o fthe total revenue o fAPCD duringthe constructionperiod (2007- 15  2011). And, the future annual maintenance andoperation expenseso fthe entire project roads are lessthan 1.5% o f its annualbudgetedmaintenance expenditures. Inaddition, the total financial obligations o fthe project (principal and interest for domestic and the IBRDloans) for 2012-the first loanrepayment year-constitutes areasonable 19.1% oftotal budgetedprincipalandinterest repayment o fthe APCD inthat year. And, it i s estimated that the total APCD budget(2006- 2015) constitutes only about 8-12% o f the overall the government budget o f Anhui province. These low financial ratios indicate that the project presentsa very modest financial risk with respect to: (a) the availability of resources to cover the project cost; (b) the maintenance and operating needs, (c) the loan service requirements for the project roads, and (d) the financial burdensto the province. A more extensive assessmentis provided inAnnexes 8 and 10. B. Technical 46. The project will include the following two civil work components: ComDonentA - Rehabilitation of 890 km National and Provincial Roads. 47. This component will support the provincial rehabilitationand maintenance program from 2007-2010 underthe EFYP. The Bank contribution will help finance eligible investments under the rehabilitationcomponent o f the program. A list o f 18 segments to be rehabilitated, for about 890 km, has beenevaluated and found acceptable inthe context o fthe province-wide program o f the roadnetwork rehabilitation. 48, The interventions include primarilyrehabilitationo f damaged road sections and structures, together with reconstruction o f pavements on the existing roads. The existing bridges, which have deteriorated, will be reinforced or rehabilitated. Defects inthe existing sub-grade are to be identifiedand repaired before overlaying the pavement. Necessary drainage and protection works are to be provided inorder to minimize premature road deterioration. 49. Road safety issueshave been addressed inthe designs. A safety-audit exercise, following the Ministryof Construction(M0C)-sponsored programo fhighway safety audit engineering, has beenapplied to review the safety-related elements inthe designs. Necessary safety facilities have been provided inthe designto mitigate accident risks. Additional measures have been taken into account to mitigate the impacts o f higher vehicles speeds with the improvement inthe condition o f the pavements after rehabilitation. ComponentB - Im-provement/UDgradingof 320 km Key National and Provincial Roads. 50. This component consists o f improvementhpgrading o f seven key national andprovincial roads located inthe central-eastern and southeastern areas o f the Province for a total lengthof about 320 km. These improvements or upgrades will include widening and optimizing the geometric features o f the existing road following the same alignment, with specific bypasses in built-upareas (inorder to minimize resettlement actions), or with short segments o fnew alignments in some cases to avoid hard topographical conditions and to complete missing segments. 16  5 1. Alternative analyseshave been conductedon two roads (S3 11and S322), which involve specific segments of new construction, with an attempt at optimizingthe functionality of the road alignment, reducing overall construction costs and minimizingthe amount of new construction. 52. Geological investigations have beenconducted, and necessarytreatment methods have beenidentifiedinthe design. The biddingdocumentswill be preparedbasedon detailed designs. At appraisal, a review ofwork quantities and cost estimates, basedon these detailed designswas conductedto ensure that they reflect more precise marketestimatesand will reducethe future amounts of work variations. 53. Roadsafety issues have beenaddressed inthe designs ofthis component as well, and a safety-audit exercise, following the MOC-sponsored program of highway safety audit engineering, has also been applied to review the safety-relatedelements inthe designs of the improvement works. Attention has beengiven to existing high accident locations, which were identifiedat the design stage, andnecessary treatment measures have beenprovided inthe design. Appropriate safety facilities have beenprovided inthe design to mitigate crash risks. C. Fiduciary 54. Financial Management. An assessment was conductedof the adequacy of the project financial management systemof the project. The assessment, based on guidelines issuedby the Financial ManagementSector Board on November 3,2005, concluded that the project meets minimumBank financial management requirements, as stipulated inBP/OP 10.02. The project will maintain financial managementarrangementsthat are acceptableto the Bank and that, as part ofthe overall arrangements that the borrower has inplace for implementing the operation, provide reasonableassurance that the proceedsof the loan are usedfor the purposesfor which the loan was granted. Financial managementrisk is the riskthat World Bank loan will not be used for the purposesintendedand is a combination of country, sector and project specific risk factors. The financial management (FM) risk rating proposedfor this project is modest. 55. The loan proceeds will be disbursed from Anhui Provincial Finance Bureau(APFB) to APCD's PEO, and thento AHAB, for AHAB to further disburse to sub-PCMOs invarious prefectures. Since this funds-flow arrangement involves several disbursement layers, an efficient cooperationamong all concernedparties will be critical for timely disbursement. With this purpose, the detailed disbursementprocedureshave been documentedina financial management manual submittedto the Bank on May 15,2007, and adopted by APCD on that same date. 56. Retroactive financing will be available for this project inthe amount of US$20 million for payments made under any of the components of the project prior to the signing of the loan and project agreementsand after July 1,2007. The works undertakenduring that period will needto comply with the fiduciary requirementsfor the entire project. No outstanding audits or audit issues exist with any of the implementing agencies involved inthe proposedproject. 57. Procurement. A procurement capacity assessment of the implementing agencies, PEO of APCD and PCMO of AHAB, was carried out during the pre-appraisal mission from February 7- 17  9,2007. The assessment concluded that the overall procurement risks o f the project are consideredaverage. 58. Boththe PEO and PCMO have committed to allocate adequate resources including staff having procurement experience inprevious Bank financed Anhui Highway Iand I1projects to implement the project. An action plan to strengthen the procurement capacity o f the implementing agencies has beendiscussed and agreed. This includes selection o f qualified procurement agents, provision o f procurement training workshops for the relevant staff o f the implementing agencies, drafting PCMO's internal procedures for procurement review and clearance, cost variations review and clearance, as well as defining respective procurement functions and responsibilitieso f PEO, PCMO and Sub-PCMOs. A procurement plan was agreed between APCD and the Bank task team, which is attached to Annex 9. The APCD will ensure that the project is implemented inaccordance with the "Guidelines on Preventing and Combating Fraud and Corruption inProjects Financed by IBRDLoans and IDA Credits and Grants," dated October 15, 2006. 59. A more detailed summary ofthe assessmentand the procurement arrangement are provided inAnnex 9. D. Social 60. A socioeconomic survey was conducted inthe project areas duringthe project preparation. Social impacts o f the project are mainly related to the land acquisition and structure relocation underthe road improvement component. The APCD has completed the resettlement planning and prepared four RAPSto address those impacts. No resettlement impacts are expected under the road rehabilitationcomponent. To address any possible such impacts during construction, a resettlement policy framework has also been prepared inline with relevant Chinese and World Bank policies. No communities with minority nationalities were found to be impacted by the project. 61. Detailed impact inventory and census surveys show that the road improvement component would require 6,549 muo f land (436 ha), including 4,561 mu (304 ha) o f cultivated lands, affecting the lands o f about 2,875 households (encom assing 10,408 people). The project would also require house relocation with a total o f 3 1,194 m ,affecting 680 people in 175 'I households. About 20 small-business shops will be affected as well. These impacts will be further confirmed whenthe engineering constructiondrawings are completed. 62. Inline with Chinese laws, regulations and World Bank Operational Policy OP 4.10 on Involuntary Resettlement, detailed livelihood rehabilitation and resettlement planshave been developed. The overall strategy i s a combination o f land-for-land measures and cash payment option. Redistribution o fthe remainingvillage land i s the primary measure. Invillages where land loss i s marginal and farmers prefer cash compensation, cash compensation will be provided as an option. The planswere developed with the affected villagers based on village resources potential analysis, their willingness and capabilities for various options. The 175 households to be relocated are planning to move withintheir current villages. The households beingrelocated will be responsible for their own house constructionwith the compensation fund and allowances. 18  Affected facilities will be compensated at reconstructioncost and will be reconstructed by the governmental departments of the location o fthe owner. All affected shops will be compensated and helped to be reestablished nearby. 63. The RAPs describe the resettlement implementation arrangements. The APCD is in charge o f the implementation o f the resettlement program. A multi-level resettlement organization has beenestablished for the implementation o f the project, including resettlement offices at provincial, municipal, county and township levels. Their respective responsibilities and functions are detailed inthe RAPs. An independent monitor will be appointed for the implementation o f the resettlement program. All resettlement will be completed before civil works start. Detailed implementation schedules are included inthe RAPs. The total resettlement cost i s estimated to be RMB 165 million (US$21million). All RAPs and the RPFhave been disclosed locally. They have beenplaced incity public libraries and local project offices. Their availability has been announced inlocal newspaper. E. Environment 64. The project i s classified as Category A due to the new construction segments being designed as part o f the improvement o f subproject S322 on the Taohuatan-Tangkou road, which will traverse a mountainous area o f highscenic value with tourism potential. FullEIAshave beenprepared for all the S322 and6 road improvement subprojects; anda simplified EIA for all the 18 road rehabilitation subprojects. 65. Based on the 7 individual full EIAs and the simplified EIAs, an IntegratedEnvironmental Assessment Report inEnglishhas beenprepared for the entire roadprogram under guidelines and table o f contents agreed with the Bank. The EAP Safeguards Secretariat approved this approach to the Environmental Assessment (EA) and translation into English.All environmental management actions for construction activities are included ina comprehensive set o f standardized environmental specifications that will be part o f bidding documents and contracts. 66. The road infrastructure to be improved or rehabilitatedwill be mostly locatedalongside the existing alignments requiringonly the expansion ofthe right ofway (ROW) andacquisition o f additional land. Most o f the impacts identified will be easily managed through sound engineering design and construction practices. The areas o f influence along the project roads are largely developed. There are no natural habitats or critical natural habitats along the existing or future right of ways. However, there still remain some patches o f native vegetation, especially along S322 that still harbor some native species albeit without any significant biodiversity value. There i s no evidence o fpaleontological or archeological resources along the corridor. And there are no minority nationalities inthe area o f influence o f the project. 67. The APCD has prepared a comprehensive and detailed draft EMP inaccordance with Bank policy. The EMP addresses all potential environmental and social issues of concern and proposes adequate mitigation measures for each negative impact identifiedas well as measures for enhancing each identifiedpositive impact. The EMP includes a summary chart where all the problems encountered and proposed mitigation and enhancement measures are mentioned, and their location is provided inalignment sheets for all road improvements and new construction 19  segments. Chance finding procedureswill be included instandardized environmental specifications for the managementof construction. Monitoring and supervision arrangements, as well as an institutional strengtheningprogram for the APCD are also included inthe EMP. Project bidding documents under preparationwill includeall specifications regarding these programs. The following table summarizesthe environmental activities: RoadRehabilitation StandardizedEnvironmentalSpecificationsfor ConstructionManagement All 890 Km RoadImprovement StandardizedEnvironmentalSpecificationsfor ConstructionManagement S311, G 205, S105 Additionalspecificmeasuresfor identifiedeachsub-project.These measuresare representedinthe Environmentaland SocialAlignment map for each sub-project.Mitigations measuresare includedinprojectdesigns and costs. New Construction(S322) 0 StandardizedEnvironmentalSpecificationsfor Constructionmanagement 0 Additional specific measures for this road: o landscapedesign("green" road") o urbanenhancement inKmO-Km0+800 o special constructiontechniques o over-designeddrainage(km 18-km24) o special assistance to communities Environmentalsupervision Procedures andresponsibilities for environmentalsupervisionofeachtype of sub-project Institutionalstrengthening Training ofcontractorsandsupervisors Preparationofenvironmentalmanualfor designand construction Specific environmentaltrainingfor APCD: environmentalroaddesign, right-of-waymanagement,environmentalsupervision, strategic environmentalassessmentofroadnetworks, designand constructionof scenic/ecologicalroutes, and study tours to visit green corridors. EnvironmentalMonitoring 0 Environmentalmonitoringduring constructionand operation. F. Safeguard policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X 1 [X 1 [I Natural Habitats (OP/BP 4.04) [I Pest Management (OP 4.09) [X 1 [I [X 1 Physical Cultural Resources(OP/BP 4.1 1) [I Involuntary Resettlement(OP/BP 4.12) [X 1 [I Indigenous Peoples(OP/BP 4.10) [I [X 1 [X 1 Forests (OP/BP 4.36) [I Safety of Dams (OP/BP 4.37) [I [X 1 ProjectsinDisputedAreas (OP/BP 7.60)* [I [X 1 [X 1 Projectson International Waterways (OP/BP 7.50) [I G. Policy Exceptions and Readiness 68. There are no policy exceptions. The Project meets regional criteria for implementation. 'By supporting theproposedproject, the Bank does not intend toprejudice thefinal determinationofthe parties' claims on the disputed areas 20  Annex 1: Countryand Sector or ProgramBackground CHINA: Anhui HighwayRehabilitationand ImprovementProject RoadSector Developmentin China 1, Since the early 1990s, the economy of China has moved from a centrally planned environment to one which is more commercialized and competitive and with ahigh degree of openness. These changes have ledto the rapid growth inpassenger and freight traffic, putting heavy demands on the transport infrastructure. Inresponseto these demands, all modes of transport have seen their networks expanded. Giventhe previous underinvestment inthe sector, since the mid 1990sthe country has seen arapid increaseinthe rate of construction oftransport infrastructure, particularlyroads. By 2005 the total road network was roughly 1.8million km, with about 41,000 kmof expressways and about 38,000 kmof high-grade (Class I) highways in operation. As a result, amongthe surface modes, roadtransport has seen its share grow from about 45% to 60% interms of passenger-kmand from 24% to 30% interms of ton-km (not considering pipelinesor waterways). Complementedby the railway and waterways networks, over the last 15 years, China has developed one of the most extensive transportation systems in the world. 2. Inthe road network, the national and provincial roads, linkingrural roadsto expressways, have become a key for facilitating the continuous economic and social development of the country. As shown inthe table below, by 2005 the total length of the national and provincial roads (excluding expressways) was about 325,000 km, representingapproximately 18% of the total road network. The average annual daily traffic on the national and provincialroads amountsto 7,458 vehicles per day. Year 2005 Length Veh-kmlday Vehlday National Roads * 91,674 886,763 9,673 Provincial Roads 233,783 1,540,530 6,590 TotallAverage 325,457 2,427,293 7,458 Source:www.moc.gov.cn/06jiaotonggk/ and own calculations. * The length does not include the kilometers of the expressway network. 3. The rapid growth intraffic volumes on national and provincialroads (with, as an example, a 9.7% increaseinaverage annual daily traffic in2005 compared to 2004) requires a rigorous and sustainableroad asset managementprogram to maintain and improve the network. This is essential for promoting the urbanization process, strengthening linkages between developed and lagging provinces, facilitating the distribution of economic opportunities, stimulating the adjustment of industrial and labor structures to increase income, and more generally enhance accessibility to education, health care, and employment opportunities. The Anhui Province 4. Anhui Province, with about 65 millionpeople, is one ofthe most populousand densest provinces of China. Its density-of about 460 persons per km2-is more thanthree times the national average. The province is crossedby the Yangtze River and Huai River, and is adjacent 21  to six provinces. Comparedto its more successful neighborsto the east and north-Zhejiang, Jiangsu, and Shandong-Anhui has laggedmarkedly insocio-economic development, with a GDP per capita aroundone thirdthe average level of those three provinces and areducedlife expectancy (73 vs. 75 years). Comparedto those to the west and south-Hubei, Henan, and Jiangxi-Anhui has more similar-though slightly lower-socio-economic indicators. Within Anhui, there is great regional disparity, with most ofthe wealth concentratedinindustrial regions close to the Yangtze River.' 5. Presently, Anhui province encompasses 17 provincial-level cities, five county-level cities, and 56 counties. The main advantages of the Anhui province include: (a) abundant water resources; (b) widely spread tourism resourceswith unique characteristics; and (c) abundant mineralresourcesandreserves. At present, an industrial systemhas beenformed, centeredby the energy andthe raw material industriesand supported by the manufacturing industry. Basedon different features of each area, five economic zones are formed inAnhui province. However, Anhui province is still heavily dependant on agriculture whereby rural population accounts for 79% of its total population (22% percentagepoints higher than the national average). 6. In2004, farmer's net annualincome er capitawas 2,499 RMB(15% lower thanthe national average), and the Engel coefficientI of rural householdliving standardwas 47.5%. f Total provincial GDP reached 481.3 billionRMB, and achieveda year-on-year growth of 12.5% in2006. The Province hastwenty national-level poverty countiesandtenprovincial-level poverty counties, accounting for 49.2% oftotal counties inthe Province. In2004, the total poor population inrural areas was 1.42million, representinga proportion (comparedto the total number of poor inChina) that is slightly higher than the one that would correspondto the provincial population percentage. 7. To speed up balanceddevelopment, Anhui Province decidedto implement the so-called "861 Action Plan", Le., constructing eight major industrial bases and six key development programs. The eight industrial bases refer to processingand manufacturebase, raw material industry base, chemical industry base, energy and coal base, high-tech fundamental industry base, high-quality and safe agricultural products production, processingand supply base and national famous tourism base; andthe six key programs refer to anti-flood andpublic security program, accessibility program, information program, geological program, credit program and intelligence program. 8. The maineconomic goals during the EFYP period include: (a) annual growth rate of provincialGDP exceeds 10%; (b) structure of three industries (primary, manufacturing, services) shall be adjustedto 12:45:43 (from 19:45:36, in2004), while the employment structure inthree industriesshall be adjustedto 40:25:35, urbanizationratio shall exceed42%; and (c) annual increaserate of disposable income of urbanresidence and farmers' net annual income per capital would exceed 7%, reaching 12,000 RMB and 3,800 RMBrespectively. The economic growth in 9Agricultural activitiesin Anhui vary accordingto the climate zones that the province crosses. North of the Huai He river wheat and sweet potatoesare grown, while southofthat river it is rice andwheat. Natural resources of Anhui also include iron in Ma'anshan, coal in Huainan, and copper inTongling. There are industriesrelatedto these natural resources (e.g.,steel industry at Ma'anshan). One ofthe famous Anhui-based corporations is the automobile company Chery which is based in Wuhu. loEngel coefficientrefers to the proportionof householdexpendituresallocatedto food purchases. 22  Anhui is forecastedto remain steady over the next decade, with growth ratesbetween7% and 10%. 9. Anhui's geographic location-right to the west of Shanghaiand Hangzhou metropolitan areas-makes the province anatural crossingarea for the interchangeof industrial productsand technology betweenthe more developed coastalprovinces andthose less prosperous to the center and west. Inline with the Central Government's initiative of "Rise of Central China" which is part of the EFYP, defined as crucial for a coordinated andharmonized development between eastern, central and western areas, the Anhui Governmenthas elaboratedits own strategy of "Development to the East", with an aim at expediting the incorporation of the various regions of Anhui with the comparatively more affluent regions ofthe Yangtze Delta, includingthose poorer areas (inthe north and south of Anhui). Transport is one of the priorities inthat development strategy. Surface Transport Sector Overview 10. Highways. By the end of year 2006, the total lengthof highways inAnhui province had reached 71,214 km, within which national andprovincial highways representedabout 16%. (Village roads amountedto another 75,400 km, mostly consisting of Class IV or unclassified roads. By highway classes, the network includes 1,747 km of expressway and about 9,500 km of Class Ior I1roads. Hence, the total lengthof highways with Class I1or above accounts for about 13%of the total highway length(excluding village roads). The table below summarizes the length ofthe roads by class and administrative categories. Provincial 936 142 5,7 18 910 295 7 8,008 County 5 1,438 12,014 10,178 186 23,821 Township 45 370 30,797 4,933 36,145 Special purpose 13 85 716 190 1,004 V iIlage 4 266 55,412 19,711 75,393 Total 1,747 346 9,163 13,793 97,535 25,027 147,611 11. Waterways. By the end of year 2005, the total length of inland waterways inAnhui province had reached6,504 km, ranking the 7`h inChina. Inland waterways with Class V or above totaled 1,758 km, accounting for 27% of the total lengthof inland waterway inthe province. Anhui province contains 1,359 operative berths, within which 32 berths have capacity of 5000 ton or above, and 159berthshave capacity of 1000-3000ton. 12. Railways. By the end of year 2004, the total length of railway inAnhui province had reached 2,305 km, serving 36.23 million passengers, with aturnover volume of 28,253 million personkm; and freight transport capacity hadreached 88.7 million ton, with aturnover volume of about 86,300 million ton km. 23  Sector Issues and Government Strategies 13. Two main overarching issues can be highlighted for the road sector at the provincial level: (a) Roadnetwork responsiveness. (i) Current statistics on highways show that only about 13% oftotal lengthis Class I1or above and have high-standardpavements. These figures suggest that although the existing network of Anhui Province represents a sizable network interms ofkilometers per inhabitant, the averagelevelof service is comparatively low given the low technical standardsof the road network. Comparedto the six surrounding provinces, the density of the network (kmper population) is above the average, while the percentage of pavedroads (as a proxy for the quality of the infrastructure) is the lowest." This results in shortcomings of the existing highway network inmeeting future transport demand. (ii)Inaddition,thenetworkexhibits:(i) low class connections on the east-bound corridors; (ii) poor quality of pavement and limitedprotection against disaster; and (iii) unbalanceddistribution of network across the regions inAnhui Province. The Government of Anhui has advanced a plan for upgrading and reconstructing existing national and provincial trunk highway network to enhance the level of service andtraffic capacity, while minimizing the needs for land acquisition. This plan-which i s part of the national EFYP-involves several concurrent actions that build upon the progress made inthe last few years,I2 with highway and waterway investments for about US$13 billion, as follows: Expansionof the expresswaynetwork to the Yangtze Delta and to regional central cities inthe Province, reaching a total length of 3,500 km(from about 1,500 kmcompletedat the end of 2005), realizing the goals of (a) three-hour travel from east to west and six-hour from north to south in the province; (b) roundtrip onthe same day from provincial-governed cities to Hefei; and (c) expressways accessibleto 90% of cities and one- hour trip to nearby expressway for all counties. The national andprovincial trunk highway network will connectwith the expressway network, forming a mutual support layout, which could help support and guarantee the provincial macro-economic development. The "5 15 Engineering" planincludesthe rehabilitation and improvement of about 5,700 km of national and provincial trunk highways, with about "Source:MinistryofCommunications,2005, "ChinaHighwayandWaterwayTransportStatisticsYearbook," Beijing, People's Republic of China. 12During "the tenth five-year plan" period, Anhui Provinceincreasedinvestmentand speeded up constructionto realize rapid growth of transport infrastructure scale, substantially forming a comprehensivetransport system framed by trunk railways, expressways, main navigation waterways and important airports. 24  US$1.25 billion allocated to improving road geometries, structural strength, and pavement roughness. Thisprogram seeks to increase the level o f service o f the road infrastructure while minimizing land acquisition. A rural roads program to support the expansion ofthe network towards ensuring village access to the provincial network by 2010.'3 Improvementsto inlandwaterways to achieve 5,600 km o f total mileage in inlandnavigation and 280 million-ton capacity of harbors. (b) Roadmaintenance approaches (i) Inparallel to that investment program, highway maintenance inthe province requires strengthening,with enhanced methodologies and tools for the programmingo f preventive and periodic maintenance activities and improvements to the implementation o f those activities. Although the APCD claims that about 80% o f the roadnetwork i s ingood condition, the data upon which this figure i s based remains unreliable. This assessment i s indeed optimistic and needs to be adjusted for several reasons: 0 looking at the pavement which i s traditionally the most important element when speakingo f road condition, some data from roughness surveys show IRIvalues which are more indicative of fair condition than good condition (while confirming that the "excellent" and "good" ratings can be merged into "good", for about 21YOo f the sample); and APCD's current plan i s to improvehehabilitate about 5,700 km o f national/provincial (N+P) roads, that is. 52% o f the N+P network length; this would suggestthat at least 52% oftheN+P network is inless than fair condition. Length Percent Condition Oun) (YO) Good: No capital works needs 2,354 21% Fair: Needperiodic maintenance 2,943 27% Poor: Needrehabilitatiodimprovement 5,700 52% Total 10.997 II 100% 13 As part of that strategy, the Provincial Governmentalso intendsto speed up investmentsfor enhancingthe condition of rural roads. The constructionprogramof "bitumen (cement) road accessibleto every village" was started in 2006. By 2010, it is expectedto form arural roadnetwork which connects with national and provincial trunk highways, complies with rural socio-economic development, and meets living and production demands of rural populations. Investmenton rural roads is expectedto reach US$2.25billion, through support to the construction and improvementof about 60,000 km ofrural roads and realizing the goal of 80% of administrative villages having access to a pavedroad. 25  15. The condition surveys on which basis the above estimates are made cover only a subset o f the network composed o f about 12,000 kmofthe most trafficked routes and on which APCD are focusing their efforts. Inaddition, data collection and other procedures are mostly manual and, although thorough, they lack some key factors that are useful for decision-making on maintenance and rehabilitationneeds. There i s no systematic use o f the road data bank or o fthe current CPMS for operational purposes. APCD i s aware o fthe importance o f maintenance and seeks to establish improved road management and maintenance approaches, alongside those currently being implementedfor the control o f overloading, more efficient toll collection mechanisms, and a wide-rangingroad safety program. 16. The sources o f highway maintenance funds inAnhui province mainly consist o f road maintenance fee, toll charge, motor vehicle fee, and bank loans. Analyses o f maintenance activities and funding inrecent years illustrate the main shortcomings that have impeded a satisfactory outcome inthis area: (a) funding for maintenance not in accordance with the actual needs; and (b) lack o f rational maintenance strategy. Although the maintenance budget has increased steadily at about 6% per year duringthe last five years and i s planned to be sustained at an elevated level inthe next five years, periodic maintenance was carried out on less than 5% of the network, far from beingadequateto keep upwiththe actual condition ofthe network as assessedabove. To investigate the implications o f this situation for the province, an application based on HDM-4 called RONET (Road Network EvaluationTools) was runto assess the overall performance o f the road sector inAnhui. Based on the current condition and a selected level o f road standards for different parts o fthe network, the model calculates road works distribution, benefits to road users and to society, consequences to asset values and road condition, and the corresponding budgets required for types o f works for different parts o f the network. (Details o f the RONET assessmentare available inthe project files.) The mainfindings o fthe exercise were as follows: (a) As far as the overall network is concerned, the required expenditures for the next 5 years, under the "desirable standard'' which minimizes total society costs and eliminates the rehabilitationbacklog, are around two times larger than the currently planned expenditures for rehabilitation, periodic maintenance and routine maintenance (the range depends on the way the sample data are extrapolated to cover the entire network). (b) With the currently plannedexpendituresfor rehabilitation, periodic maintenance and routine maintenance for the next 5 years, the network would be kept more or less at its current condition (that is, with an average IRI of 6.9). 17. These findings are consistent with the shortcomings identifiedpreviously. The assessment i s based on a macro-evaluationo f the networkdone with limited data; therefore, it provides only indicative figures that should be corroborated with a study with more refineddata and evaluation tools. It i s expected that such enhanced network evaluation will be part o f the new CPMS outputs. Attachment A details the plan for the installation and implementation o f the revamped CPMS. 26  Overallfinancialframework 18. The overview o fthe fiscal framework o fthe Anhui Provincial Government i s summarized inAnnex 8. Itshows that investments inroadshave amountedto about 4% oftheprovincial GDP over the last three years and to around 25% o fprovincial expenditures. The analysis shows that the Anhui highway sector exhibits apositive trendinrevenue generation with a sustainable financial path. Furthermore, provincial indebtednesslevels appear manageable for the foreseeable future. This favorable context will allow the APCD to face the increased requirements inroad maintenance and rehabilitation, and better manage the transition towards a more balanced allocation o f resources between road network development and preservation. Issuesto be addressedby the Project 19. The project seeks to contribute to addressthe issues discussed inthis Annex, inline with the Anhui Government's own strategies andinterventions. Specifically, the project seeks to support; (a) the upgrading o f road conditions across the network, through the rehabilitation and upgrading o f key segments o f the national and provincial roads; and (b) the enhancement of management capacities at APCD,particularly inthe areas of programming maintenance interventions on the road network and on the mechanisms to undertake those interventions. 27  Annex 1-AttachmentA StrengtheningRoadManagementinAnhuiProvince Introduction 1. AHAB has drafted a proposal and an action planon the Application and Strengtheningof pavement management inAnhui province. To achieve their goals there is a needto: (a) provide an effective pavement management system (PMS) for monitoring and managing roads; and (b) ensure that the systemis provided with appropriate and timely data. The project proposesto achievethis by implementing the new version of the CPMS with appropriate data collection. Overview of the CPMS 2. The CPMS was firstly developed inearly 1990sunder the support of the MOC, and the early version was implemented inmost of Chinese Provincial highway administration bureaus during 1991-2000.Since 2000, further developments of the CPMS were undertaken, incorporating the results of severalnational key researchprojects. More recently, the latest version of CPMS N H K P is an integratedroad managementsystem composedof more than ten individualmodules providinga full-process computerized road managementtool. 3. The newversion ofthe CPMS has an integrateddatabase which is usedfor managing inventory data and condition dataof different components of roads, including: (a) road geometry; (b) sub-grade, shoulder, slope and side ditch; (c) pavement; (d) bridges and tunnels; (e) traffic facility; (0virescence; (g) right-of-way information; and (h) traffic flow and composition. The Network PavementManagement Module is the key module of the CPMS which allows undertaking the following assessments/analyses: (a) pavement performance assessment; (b) maintenanceneeds analysis; (c) maintenancecost prediction; (d) maintenance investment- effectivenessanalysis; (e) budgets assignment and project selection; and (0maintenance scheduling. With a cycle cost analysis (including project cost, deferred maintenance costs, operation costs androad user costs, etc.), the Economic Evaluation module can further provide the economic evaluation results for aproposedmaintenanceprogram. 4. This new version is being installed inseveral provinces with the assistance of the system developer, the ResearchInstituteof Highway (RIOH). PMS in Anhui 5. Considerationson the use of pavement management systems are not newto Anhui. The CPMS was introduced inAnhui in 1995/96and resourceswere provided for its implementation inthe province, butthis was discontinued in2000/01 becauseof difficulties relatedto: (a) shortcomings inthe initial version ofthe program (no user-friendly interface, extent of datato be collected, applications mostly at project level and not network analysis, consideration only of asphalt pavements whereas cement concrete pavements form part of about 40% o f the network); (b) the highdemandinresourcesinterms of manpower and equipment for data surveys; 28  (c) a decentralization drive between year 2000 and 2003, duringwhich period AHAB had very minimal leverage on road network administration; and (d) the emphasis put on new constructionand network development. 6. As a result, the CPMS is no longer beingusedeffectively inAnhui and the preparation of maintenance and rehabilitationprograms i s made on the basis of multi-criteria analysis based on sample data. Technical data are provided from annual road condition surveys entrusted to the Anhui Highway EngineeringTestingand InspectionCenter that includes roughness, surface distress and deflection measurements taken on sample sections. As for traffic surveys, they are carried out routinely by the local maintenance stations and centralized by AHAB. At present, there is no computerized management system or informationplatform to integrate the road condition and traffic survey data. The two sets o f data are submittedto the planning division o f AHAB for reference inits decision making process. AHAB is fully committed to improve this situation and acquire modernroad management tools, with full support from the project. The planto achieve this objective is summarized inthe attachment to Annex 4. 29  Annex 2: Major RelatedProjectsFinanced by the Bank and/or other Agencies CHINA: Anhui HighwayRehabilitationand Improvement Project Latest Supervision (PSR) Ratings* (Bank-financed projects only) (DO) Bank-financed Recently Completed Projects RemoveHighway Capacity Bottlenecks(1) Institutional StrengthenindTraining(2) Rural Roads and Poverty Alleviation (3) Highway Safety (4) Operation & Maintenance of High-GradeHighways (5) Cost Recovery (6) Notes: l/Thevaluesinparenthesis1through6correspondtothesectorissuesaddressedineachproject. 2/ The IPDO Ratings are: HS (Highly Satisfactory), S (Satisfactory), MS (moderatelysatisfactory), U (Unsatisfactory), MU (Moderately Unsatisfactory), HU(Highly Unsatisfactory) 30  OTHERDEVELOPMENT AGENCIES - Asian Development Bank ONGOING PROJECTS Hebei and LiaoningExpressways Liaoningand Jilin Expressways Hebei Roads Development Chengdu-NanchangExpressway Changchun-HarbinExpressway Shanxi Roads Development SouthernYunnan Road Development Chongqing-Guizhou Roads Development GanlongRailwayProject (GanzhodJiangxi- LongyadFujian) PLANNEDPROJECTS D Shanxi Expressway D Chongqing-GuizhouExpressway D Guangxi HighwayDevelopment Shanxi and ShaanxiRoads s Western Yunnan Road Development D Southern Sichuan Roads Development Japan Bank for International Cooperation ONGOING PROJECTS (formally Overseas Economic Cooperation Fund of Japan) HainanDevelopment Qingdao Development Guiyan-XinzhaiHighway Hangzhou-QuzhouExpressway Wanxian-LiangpingHighway Liangping-ChangshouHighway HainanEast Expressway Xinxiang-ZhengzhouHighway 31  Annex 3: ResultsFrameworkand Monitoring CHINA: AnhuiHighwayRehabilitationand ImprovementProject ResultsFramework come Reductionin average freight rates Assess overall impact of infrastructure inthe Anhui Province alongarepresentativesample of improvementsto transport flows provincial and nationalroad alongthe corridor as a proxy for corridors transport integration Travel times on the rehabilitatedor Assess improvement intime saving improvedroads and accessibilityof projectaffected areas IntermediateOutcomes IntermediateOutcome Use of Intermediate Indicators OutcomeMonitoring Road Rehabilitation Component Road Rehabilitation Component Supportto the provincial Increasedtraffic volumes on the Assess effectivenessof investments rehabilitationand maintenance corridorsto be rehabilitated inincreasingoverallcapacity along program from 2007-2010under the the corridors EFYP Reductioninaccidentrates Assess effectiveness of investments in addressingroad safety issues Percentageof AHAB budget along the corridors allocatedto maintenanceand Assess effectiveness of APCD's rehabilitation programfor roadasset management Road Improvement Component Road Improvement Component Improvementor upgradingof about Increasedtraffic volumes on the Assess effectiveness of investments 320 km of key provincialand corridors to be upgraded in increasingoverall capacity along nationalroadslocatedon the central- the corridors eastern and southeasternareas ofthe Province Reduction in accident rates Assess effectiveness of investments in addressingroadsafety issues alongthe corridors Maintenance by Contract Maintenance by Contract Component Component Pilot on maintenanceby contract Applicationof alternative Verify applicability of alternative (contractual) mechanisms for road mechanismsfor road maintenance maintenance through the contractingout maintenanceapproach ISP Component ISP Component Institutionalstrengthening Progress in implementingrecycling Assess progress in implementing approaches in roadrehabilitation resourcesavings approaches in the roadsector Progress inthe completionof the Assess progresstowards the milestonesfor the implementation of application of new roadpavement the new (enhanced) CPMS management system Enhancedknowledge and Assess progress in acquisitionof application ofroadmanagement knowledgetowards the application approaches through specialized o f enhancedroadmanagement trainine and studv tours practices 32  n un 5 2 a s 3 s 2 m q W s 2 $ $ m W s 2 m vl 0-? 2 s 2 N W 2 CJ W 0L" 2 x vl Nv! 0 x vl N N v! 0 c? 0 I x vl NL" CJ 0 2 4g 5 t: 8  u n ua u n 2 2 % E E $ W N 0 2 8 -s W 0 \o 0 m -2 0 VI -2 s  Annex 4: DetailedProjectDescription CHINA: AnhuiHighway Rehabilitationand ImprovementProject 1. Buildinguponthe investments and activities accomplished underthe previous two World Bankprojects inthe province and inthe context of strengtheningthe current overall framework for the management and upkeepo f road assets inthe Anhui Province, the project will include the following components: ComponentA. Rehabilitationof 890 kmNationaland ProvincialRoads. [estimated cost US$l93.61 million47.3% o f the total project c o s t - o f which US$97.70 million will be financed by the Bank Loan] 2. This component will support the provincial rehabilitationand maintenance program from 2007-2010 under the EFYP. The Bank contribution will help finance eligible investmentsunder the rehabilitation component ofthe program. The 18 segments to be rehabilitated, for about 890 km, have beenevaluated and found acceptable inthe context ofthe province-wide program o f rehabilitationo fthe road network. 3. The interventions include primarily rehabilitation o f damaged road sections and structures, and resurfacing whole length o f the existing pavements on the road sections. Defects inthe existing sub-grade would be identifiedand repaired beforeoverlayingthe pavement. The deteriorated bridgeswill be reinforced or rebuilt. Necessary drainage and protection works will be provided inorder to minimize premature road deterioration. 4. Key design features of the 18roads for rehabilitation are as follows: Alignment: The 18 roads will be rehabilitatedby following the existingalignments. No land acquisition will be requiredunder this component. Some local optimization o f the existing longitudinal and horizontal profiles would be undertaken, without the need for land acquisition, to improve the driving conditions. Pavement: The existing asphalt or cement concrete pavement will be rehabilitated. Asphalt concrete (AC) will be generally adopted for the new pavement, except for several road segments at mountainous terrain which are overtopped with cement concrete pavement. Major structures: 18 bridges for a total lengtho f 823 meters will be reconstructed, and 170 existing bridgesfor a total lengthof 7,047 meters will be rehabilitatedand reinforced. Drainage and Slope Protection: Necessary drainage and slope protection works are provided inthe designsto avoid premature deterioration o f the roads. Defects inthe existing sub-grade are to be repaired before overlaying the pavement. Road Safety Facilities: Road safety issues have beenproperly addressed inthe designs. A safety-audit exercise, following the MOC-sponsoredprogramo f highway safety audit engineering, has been applied to reviewthe safety-related elements in 35  the designs. Safety facilities havebeenprovided inthe designto mitigate accident risks and enhance the safety of pedestrianand users of non-motorized modes of transport. 5. Onthe road safety issue, inorder to reduce potential accident risks associated with high traffic speed, the following measures have beenincorporated into the design and the Bill of Quantities: (a) rubbedplastic rumble strips, bumps or stone-pavedsurface, dependent on the actual road conditions, will be addedto the branchroads at the approachesto at-grade intersectionsto force the traffic from the secondaryroads giving way to the traffic on main roads; (b) transverse rumblepainting or other traffic calming measures, as well as speed limit signalization, will be addedto alert the traffic to slow down at the areas such as the approaches to the populated townships, villages and schools, and road stretches with big curve and longitudinal gradient; (c) longitudinal rumblemedianand side painting should be provided at the stretches inthe townships and villages, to refrain motorized traffic from invading the opposite lane and the side lane usedby pedestriansand non-motorizedtraffic; and (d) pedestrianzebra lines will be provided inthe townships, villages and nearby the school gates. The above measures, as providedto the rehabilitation roads, are also applied to the improvement roads. 6. Inaddition, AHAB has agreedto considerthe selectionofone or two Bank-funded roads to provide pilot urbanized road sections crossing larger townships. This pilot will incorporate design features often applied to the design of urban roads, suchas underground draining ditches, pavedpedestriansidewalks, and divisionbetweenmotorized and non-motorized traffic. The pilot sections would be selected from the roads to be procured in2008 or 2009. ComponentB. ImprovementKJpgradingof 320km Key Nationaland ProvincialRoads. [estimated cost US$209.85 million-51.2% of the total project cost - of which US$99.79 million will be financed by the Bank Loan] 7. This component consists of improvementhpgrading of sevenkey national andprovincial roads locatedon the central-eastern and southeasternareas of the Province for atotal length of about 320 km (Refer to Table A4.1,No.19-25). 8. Alternative Analysis. The improvement of the roads S322 (Taohuatan-Gaotang) and S3 11(Chuzhou-Wuyi) include the construction of some sections as to increasethe transport capacity of the existing corridor or complete missing segments. An in-depthanalysis of the two roads was conducted. For the road S322, the analysis includedathoroughjustification of alternative alignments and of the expectedeconomic benefitsof interconnecting the two existing segments of this road northand south of the Taiping Lake, with an attempt at optimizing the functionality of the road alignment while reducing overall construction costs. For road S311the analysis focused on the possibilities of using longer stretches of the existing road (65%), trying to minimize the amount of new construction. 9. GeotechnicalInvestigation. The project involves unfavorable geological features, such as soft ground, expansive soil, weatheredrock slope, karst and coal minecaves. Geological investigations have beenproperly conducted, and necessary treatment methods have been provided inthe designs. The bidding document will be preparedbasedon detailed designs. With 36  more reliable work quantities and cost estimates being available, the work variations are expectedto be controlled. 10. Key design features of the seven roads for imurovement/uugrading are as-follows. Alignment: The alignment of the existing roads are utilized as muchas possible, in order to minimize the resettlement and land acquisition. New alignments are provided inthe following cases, suchas by-pass roads outside built-upareas; new road stretchto complete the missing segments (S322 Taohuatan-Gantang); new alignments to avoid hard topographic conditions. Geometricfeatures: Basedon the design speeds, local adjustments of the existing longitudinal and horizontal profiles were made to improve the driving conditions. Geometric features are improved on the existing high crash locations, which were identified through safety-audit exercises. Pavement: AC is adoptedinfive of the seven roadsunder this component. Cement concrete pavement is adopted for the tunnels andthe two road segments of the G205 which are located at mountainousterrain. Major structures: New constructions consist of two tunnels (1,345 m and 340 m) and 67 bridges for atotal length of 3,920 m. And additional 8 existing bridges for a total lengthof 990 metersare to be rehabilitated and reinforced. Drainage and Slope Protection: Necessarydrainage and slope protection works are provided inthe designs to avoid prematuredeterioration of the roads. Road Safety Facilities: As inthe case of componentA, road safety issues have been addressed inthe designs of the projects under the improvement component.A safety-audit exercise, following also the MOC-sponsored program of highway safety audit engineering, was appliedto review the safety-relatedelements inthe designs. And provisions havebeen incorporated for mitigatingaccidentrisks and enhancing the safety ofpedestriansandusers of non-motorized modesoftransport. (See discussion at the end of the rehabilitation component on additional road safety features incorporated into the design ofthe improvement works). 37  No. Road Segments Length Total Estimate Civil Works coswkm Construction (W (RMB mil) (RMB mil)] (USS)II(RMB RoadClass mil)I (US$ mil) Period ComponentC. Piloton Road Maintenanceby Contract [estimated cost US$1.95 million-0.5% o f the total project c o s t - o fwhich US$0.96 million will be financed by the Bank Loan] 11. Under this component, APCD will implement maintenance by contract approaches for at least two highway sections o f the provincial highway network, with a cumulative number o f 120 kilometers by project's end. The maintenance activities will be limited to routine or periodic interventions within the existing road pavement width. The final design o f this component will be supportedby technical assistance, as further described below, that will helpAPCD with additional knowledge and analytical elements for exploring the alternative maintenance mechanisms as well as for the preparation and implementation o f the selected contractual schemes. This component seeks to increase the efficiency of force-account maintenance practices, which are currently being applied by APCD through the city and county Highway Bureaus. 38  12. Alternatives approaches for contracting maintenance can vary from one based on labor- intensive activities performed by a micro-enterprise composed o f people living inthe vicinities o f the road to be maintainedto more encompassing activities-that can include some periodic activities that require equipment-performance by private contractors. These two schemes-or variations thereof-in addition can be subject to contractual terms where payments are given on the basis o f quantities actually carried out, or the basis o f compliance with contractually- specified performance standards. The definition o fthe final approach will be part o fthe technical assistancefor APCD maintenance staff (included inthe component on institutional strengthening)that will provide the knowledge and analytical elements for exploring those alternative mechanisms as well as for the preparation, implementation, and supervision o f the preferredcontractual scheme. ComponentD.InstitutionalStrengtheningProgram [estimated cost US$4.09 million-1 .O% o f the total project cost-of which US$l.O5 million will be financed bythe Bank Loan] 13. This component includes the provisionof improved tools for roadmanagement (technical, environmental, and economic) and a training program, as follows: A study on technological options for the recycling ofpavement materials when a pavement needs to be rehabilitated. Inan attempt to reduce the consumption o f resources for the rehabilitation o f the network, through this study APCD would like to acquire knowledge on practices, approaches and technologies for the utilization o f existing materials when road pavementneeds to be rehabilitated. The study would be carried out byjoint teams o f international and local consultants, to be selected in the early phase o fthe project since AHAB expects the results o fthe study to beused as soon as possible for the civil works program under the project. The technical assistancefor the pilot on maintenance by contract to provide the knowledge and analytical elements for exploring alternative mechanisms for contracting o f maintenance activities as well as for the preparation, implementation, supervision, and assessment o fthe preferredcontractual scheme under the pilot. The preparation of standardized environmental specifications. This study seeks to streamline the elaboration o f environmental impact assessments and environmental management plans inroad works, for maintenance, rehabilitation, upgrading, or construction. Support to the AHAB in implementingthe (enhanced) CPMS inAnhui Provinceto establish a stronger analytical base upon which to make decisions on the maintenance and rehabilitation program across the national and provincial network. This sub-component will be financed with local funds. More extensive background information i s included inthe attachment to Annex 1,and details o f this sub- component are included inthe attachment to this Annex. The analysis o f socio-economic impacts o f the key roads to be improved under the Project, working towards the goal o f establishing an enhanced knowledge base o f 39  the impacts ofroadinvestments onthe livelihoods ofthe populationlivingwithin the area o f influence o f the roads targetedfor improvement, through the incorporation of specific surveys and data collection efforts concurrent with the resettlement completion reporting effort. (f) A training program buildinguponthose activities previously carried out under the Second Anhui Highway Project, for staff not only o f APCD but also o f city and county highway bureaus, and focusing on: (a) overseas training inroad management (inconjunction with the activity insupport to AHAB inimplementingthe new CPMS); (b) overseas training on improved technologies for the use o f recycled pavement materials (inconjunction with the study on technological options for the recycling o f these materials); (c) road safety; (d) project management; (e) environmental supervision o f road construction; (0environmental design o f scenic/ecological routes; (g) right-of-way management; (h) highway planning and design; (i) highway information systems management; and (j)training to communities along the S322 road to be upgraded under the project to help them realize the benefits o f improved accessibility across the corridor and on road safety education. The consolidated training plan (with approximate cost estimates) in shown inthe table below.l4 ~ 14The estimatedcosts do not exactly matchthose includedin other tables due to roundingbasedon average cost per staffand number of weeks of eachtrainindstudy tour activity. 40  Scope of Training I Project Management 246,590 Training for Pilot EnvironmentalProtection 67,231 Environmental Supervision 67,231 Highway Programming and Design 142,538 Research for Asphalt 83,897 86,462 Highway Engineering 78,462 142,564 FinancialAdministration 91,282 Intelligent Traffic- Highway Information 144,923 Quality Supervision & Monitoring for Highway 8 100,897 Bridge Engineering I Total Domestic training for ordiinary staff YSOOORMB yuan /man-month Foreignpersonneltraining & tour study: USD$ 8000/man-month 41  Annex 4 Attachment - Details of the Sub-Component for the Strengtheningof Road Management Tools at AF'CD 1. The implementation will draw uponthe recent work undertakenby the Bank" to ensure that the work adequately balancesthe issues of technology, businessprocessesand staffing resources.The AHAB agreedto an implementation period of three years, with the goal of having the PMS with the capability of covering the entire network of national/ provincialroadsinAnhui fully operational by December2009. 2. The work will have three distinctphases that would runinparallel: (a) PhaseI:Business ProcessAnalysis. An analysiswas done during appraisalofthe business operations of the AHAB to confirm the role of the PMS inthe agency, how it will be institutionalized and managed, and how the outputs will be usedin the business. AHAB is coordinatingwith APCD andthe prefecturalhighway administration bureaus to establishan institutionalized multi-level working group that will be directly involved inroad management improvement. 34 engineers or technicians from the 17 regional AHABs (2 persons from each region) will participate inthis assignment as regional level users of the CPMS, about 5 people from AHAB (2 from RoadMaintenanceDivision, 2 from Budgeting and Project Planning Division, and 1 or 2 from AHAB Director office) will be directly involved as provinciallevel users and investment decision makers, and 1 or 2 staff from the Planning Division of APCD will use the application to verify and audit annual pavement rehabilitation programsand investments. Also, adequate resourceswill be allocated for data collection, as indicated below. Continuous attention needs to be paidto this topic, to ensure that the PMS has the correct institutional and logistical support to be of value. This will be an important part ofthejoint annual reviews of CPMS during implementation. (b) Phase11: Implementationof CPMS Software. The AHAB will procure the new CPMS software which will be installed by the provider (RIOH). Training and technical support will be includedinthe system procurement. The technical support would include assistance to HABto modify the pavement deterioration models, unit costs information, economic parameters and customization of reporting functions required by AHAB. CPMS implementation will be gradual, dependingon progress inproper data collection. This will start with two regional highway networks (Chuzhou and Wuhu regions, with approximately 1100km) in 2007, and five regional highway networks (Hefei, Ma'anshan, Anqing, Huangshan, Suzhou, with approximately 4200 km) in2008. Application o f the system to manage the whole national and provincial highway network inAnhui is then scheduledfor end December2009. l5Success Factorsfor RoadManagementSystems (2006). Availablefor download from www.road- management.info. 42  (c) Phase 111: Sustainable Data Collection Services. The AHAB plans to contract the Anhui Highway EngineeringTesting and Inspection Center to collect road condition data periodically to meet the requirement o fthe new CPMS. The Bank's new generic terms o f reference for data collection services will beusedto develop the specification for data collection services. This will ensure that the data collection i s done in a sustainable manner, focusing on key data collected at an appropriate frequency and level o f detail. A key aspect to the work will be proper calibration and validation o f equipment. AHAB is fully committedto provide the necessary resources for data collection. It i s expected that these resources will grow gradually to attain an expected level of about .Y5,000,000 (approximately US$640,000) annually for fiscal year 2009 and later when the system is fully operational. Milestones 14. B y June 30,2008, AHAB will be able to produce reports on (a) progress inCPMS institutionalization; and (b) network performance and needs, based on the data collected from two regions (about 1100 km o f national and provincial highways). 15. By December 31,2008, AHAB will be able to producereports on (a) progress inCPMS institutionalization; and (b) network performance and needs, based on pavement condition surveys and previous year data collected from five regions (about 4200 km). 16. By December 31,2009, AHAB will be able to produce reports on (a) progress inCPMS institutionalization; and (b) network performance and needs, based on condition surveys in2009 and historic data collected from the entire national and provincial highway network inAnhui (about 11100 km). 17. B y December 31,2010 and 2011, AHAB will be able to produces reports on (a) progress inCPMS institutionalization; and (b) network performance andneeds, based onprevious year's road condition surveys and historic data collected from the entire network (about 11100 km). 43  Annex 5: Project Costs CHINA: Anhui Highway Rehabilitation and Improvement Project Proiect Costs hv Comoonent (US%thousand) I . World Bank %Bank Counterpart financing Total Financing Works Civil works (rehabilitation) (Part A) 65,135 97,702 162,837 60 00% Civil works (improvement)(Part B) 66,525 99,788 166,313 60 00% Pilot on Maintenanceby Contract (Part C) 640 960 1,600 60 00% Supervision Supervisionof road rehabilitation program 4,530 4,530 0 00% Supervisionof road improvementprogram 3,994 3,994 0 00% Supervisionof road maintenancepilot 94 94 0 00% Studies and Training Technological issues on pavement change and recycling (int ) 150 150 10000% Technological issues on pavementchange and recycling (dom ) I50 150 0 00% Foreignassistance to establish and supervisethe maintenancepilot 90 90 10000% Preparation of standardized environmentalspecifications 60 60 10000% Strengtheningof CPMS (Analytical tools) 1,900 1,900 0 00% Impact analysis (as part of resettlementcompletion reports) 140 140 0 00% Training and study tours * 850 750 1,600 10000% Land Acquisition and Resettlement 12,749 12,749 0 00% Total baselinecost 156,707 199,500 356,207 Contingencies Contingencies 53,293 53,293 0 00% Front end fee 500 500 10000% Grandtotal 210,000 200,000 4 10,000 * The financing of 100%corresponds to the overseas study tours and training activities The domestic activities will be covered wth local funds 'Identifiable taxes and duties are US$47.8 million, and the total project cost, net of taxes, is US$362.2 million. Therefore, the share of project cost net of taxes is 88%. Cost by Activity US$million Local Foreign Total Road Rehabilitation 146.553 16.284 162.837 Road Improvement 124.735 41.578 166.3 13 Pilot on Maintenanceby Contract (Part C) 1.440 0.160 1.600 Supervision 8.618 8.618 Institutional Strengthening 2.529 1.561 4.090 Front end fee * 0.500 0.500 Total 341.075 68.925 410.000 44  Annex 6: ImplementationArrangements CHINA: Anhui Highway Rehabilitationand Improvement Project 1. The overall development and implementation o fthe laws, policies and regulations related to transport inthe Anhui Province rests withinthe APCD. APCD i s responsible directly or by providing financial support and technical guidance for the construction o f highway infrastructure (as well as waterway infrastructure). To undertakethese responsibilities, APCD has about 53 high-level managerial and technical staff, dividedineight operational divisions, depending from one General Director, three Deputy Directors, and one Chief Engineer, located at its headquarters inHefei. Attachment 1includes a schematic representation ofthe organization structure of APCD. 2. The APCD is directly responsible for investments on Anhui's national and provincial highways (with a current lengtho f about 11,250 km). Inaddition, APCD, through the cities and counties inthe province, i s responsible for supporting the development o f the county and township roads. APCD conforms to the general sector policies and technical guidelines issues by the MOC. This division o f responsibilities for investments translates into a similar division o f responsibilities for the administration and maintenance o f the road network inAnhui. The administration and maintenance o f the network takes place at three levels: (a) APCD's AHAB; (b) the eleven traffic bureaus o fthe citiedprefectures; and (c) local-level highway unitsofthe county highway bureaus. AHAB provides resource transfers and technical guidance on the maintenance of county and township roads. The development and maintenance o f village roads i s managed by the communication departments at the municipal and county level and operated locally. 3. The AHAB is the department responsible for highway construction andthe management and maintenance o fthe national and provincial road network. It includes 143 staff at its core units. UnderAHAB there are another 13,470 staffresponsible for the maintenance and rehabilitation o f the provincial and national roads, including 1,562 staff inadministrative and managerial positions and 11,908 maintenance employees. Inaddition, there are several other deconcentrated units-such as the Anhui Highway Technical School or the Anhui Huan'an Highway Construction and Development Center-that specialized intechnical and strategic research. OrganizationalArrangements and Responsibilitiesfor ProjectImplementation 4. The overall responsibility for project execution and coordination will rest with the APCD. The APCD will ultimately be responsible for ensuring compliance with the provisions of the legal agreements. The APCD will retainthe current World Bank PEO to coordinate project implementation, process and authorize disbursements,manage procurement, monitor implementationprogress, collect data for the results indicators, and make arrangements for Bank supervision missions. The PEO will act as the main counterpart contact with the Bank team. 5. The APCD has assigned a high-levelprofessional to headthe PEO. The PEO is headed by a Director and three Deputy Directors, with about 30 staff spread over 6 subdivisions, including those incharge o f monitoring compliance with safeguards policies (land acquisition and resettlement, and environmental protection), and for the control of technical and engineering 45  quality. The PEO was created inMarch 1997for the purpose of implementing the first World Bank-financed highway project inAnhui and continued as a unit for the implementation of the SecondAnhui Highway Project. Basedon the proven value-added, quality control, and overall monitoring and reporting, shown during the previous two World Bank-financedoperations, the PEO will remain inplace over the course of the implementation of the new proposedproject. Readjustmentsto the skills mix of the PEO staff will be carried out gradually given the different focus of the proposednew project on provincial and national roads rather than on expressways- the main investment componentsunderthe First and SecondAnhui Highway Projects-and the emphasis on the strengtheningof road management capacities at APCD (and AHAB, in particular). 6. While APCD, through the PEO, will remain responsiblefor overall project management and coordination, the AHAB, through its PCMO, will be incharge of the implementation of the rehabilitation and improvement componentsofthe project as well as of the contracting of the related supervision activities. Experiencedpersonnelwho have beeninvolved inthe procurement of the First and SecondAnhui Highway Projects will be assignedthe responsibility of overall supervision and guidance for the procurement activities of the proposedproject, supporting the PCMO incarrying out the procurement activities, andthe daily overall management of the execution ofthe works under the first two components ofthe project. The PCMO will also have the professional assistance by procurement agents inperforming its procurement functions. 7. The maintenancepilot andtechnical assistance components ofthe project will be directly underthe responsibility of the APCD, through the PEO, and with the technical inputsfrom, and coordination with, the AHAB, as relevant. Lastly, the APCD, through the PEO, will also be responsiblefor the implementation of the training program, ensuring the participation of key APCD professionalsfrom across the Province. 8. Given that the 25 project roadsare scattered in 12 citiedprefectures of Anhui province,16 for a more efficient project implementation, the AHAB will use its deconcentratedunitsat the 12 local city/prefecture highway administration bureauswhere the rehabilitation and improvement works will take place. Sub-PCMOs will then be set up ineach affected city/prefecture for the management and supervision of the project civil works (both rehabilitation and improvement). The local highway administrationbureauswill assignexperiencedstaffto the Sub-PCMOs. With the technical guidance and financing support by AHAB, these Sub-PCMOs will act as local implementing agencies. The APCD (through AHAB) will monitor their activities to ensure compliance with World Bank fiduciary and safeguardsrequirementsandthose included inthe legal agreements, as pertinent. The specific duties of each sub-PCMO will depend on the characteristicsof the road sectionwithin their jurisdiction and, where needed, they will have the support of the relevant specialists. They will report directly to AHAB andthe central PEO. A project management manual has beenprepared(by May 31,2007), clarifying the responsibilities and reporting requirementsamongthe PEO, PCMO and Sub-PCMOs inrespect of the procurementactivities. The chart below summarizesthe organizational arrangements for project implementation. 16There are 17 cities (and prefectures)in Anhui Province. 46  9. More details on responsibilities for procurement and financial management are described inAnnex 7 and 9. Schematic Representationof InstitutionalArrangementsfor ProjectImplementation 7PEoI ~~~~ Rehabilitation Improvement 47  Annex 6 Attachment 1: SchematicRepresentationof APCD's OrganizationStructure - I I I 48  Annex 7: FinancialManagementand DisbursementArrangements CHINA: Anhui Highway Rehabilitationand ImprovementProject Introduction 1. An assessmentofthe adequacy ofthe project financial management system ofthe Anhui Road Rehabilitation and Improvement Project was conducted. The assessment, based on guidelines issued by the Financial Management Sector Board on November 3,2005, concluded that the project meets minimumBank financial management requirements,as stipulated in BP/OP 10.02. The project will maintain financial management arrangements that are acceptable to the Bank and that, as part o f the overall arrangements that the borrower has inplace for implementingthe operation, provide reasonable assurancethat the proceeds ofthe loan are used for the purposes for which the loan was granted. Financial management risk i s the risk that World Bank loan will not be usedfor the purposes intended and i s a combination o f country, sector and project specific risk factors. The FMrisk rating proposed for this project duringthe appraisal stage i s modest. 2, Fundingsources for the project include Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into project designated account (DA) to be set up at and managed by APFB. The Bank loan will flow from the DA to Anhui Provincial Communications Department World Bank PEO, to AHAB, to the Sub-PCMOs inthe 12 project prefectures, then finally to the contractors. The Bank loan will be signed between the Bank and the People's Republic o f China through its Ministryo f Finance (MOF), and the subsidiary loan agreements will be signedbetween MOF and the provincial government o f Anhui through APFB, and then APFB will further on lendto APCD, who will be responsible for the final repayment. Counterpart funds consist o f government appropriation and commercial debt. 3. No outstanding audits or audit issues exist with any o fthe above implementing agencies involved inthe project. However, the task team will continue to be attentive to financial management matters duringproject supervisions. Audit Arrangements 4. The Bank requires that project financial statements be audited inaccordance with standards acceptable to the Bank. Inline with other Bank financed projects in China, the project will be audited inaccordance with InternationalAuditing Standards andthe Government Auditing Standards ofthe People's Republic of China. The Anhui Provincial Audit Office (APAO) has beenidentifiedas the auditor for this project. Annual audit report will be issuedby APAO. 5. The annual audit report ofproject financial statements will be due to the Bank within 6 months after the end o f each calendar year. This requirement is stipulated inthe loan agreements. The responsible agency and timing are summarized as follows: Audit Report Submitted by Due date ConsolidatedProject Financial PEO June 30 Statements 49  Disbursement Arrangements 6. Fundsflow for Bank loanwill follow Bank and MOFrequirements. One DA will be establishedandmanagedby APFD. The funds flow is as follows: The - - - - DA Sub- + Suppliers World managed APCD AHAB PCMOs and Bank by APFB PEO contractors 7. The Bank loanproceedswill be disbursedagainst eligible expendituresas indicatedinthe followingtable: Table C -Allocation of Loan Proceeds Expenditure Amount Financing Category in US$ Percentage (1) CIVIL WORKS 198,450,000 Civil works (rehabilitation) (Part A) 97,702,200 60.0% Civil works (improvement) (Part B) 99,787,800 60.0% Pilot on Maintenance by Contract (Part C) 960,000 60.0% (2) CONSULTANT SERVICES 300,000 Technological issues on pavement change and recycling (int.) 150,000 100.0% Foreign assistance to establish and supervise the maintenance pilot 90,000 100.0% Preparation of standardized environmental specifications 60,000 100.0% (3) TRAINING 750,000 Training and study tours 750,000 100.0% (4) FRONT-END-FEE 500,000 Front-end-fee 500,000 100.0% Total 200,000,000 "The training program includes activities financed with local funds and activities financed with resources from the loan. Of the latter. the loan will finance 100% of the costs. 8. Fourdisbursementmethods:reimbursement,advance, direct paymentandspecial commitment are all available for the project. The minimumvalue ofapplicationsfor reimbursement,direct payment, andspecialcommitment will be agreedduringnegotiation. 9. For expendituresagainst contract amountsindicatedinthe table below, Statements of Expenditure(SOE)will be furnishedas supportingdocumentationto requestfor reimbursement andreportingeligible expenditurespaidfromthe DA. 50  ExpenditureCategory Contracts Equivalentor LessthanUS$ Equivalent Civil Works 5,000,000 Consultingfirm 100,000 Individual Consultant 50,000 Training All 10. For contract amounts subject to the Bank prior review indicated inthe table below, the list o f payments against the contracts, and records evidencing eligible expenditures, e.g., copies o f receipts, supplier invoices, will be furnished as supporting documentation to request for reimbursement and reporting eligible expenditures paid from the DA. ExpenditureCategory ContractsMorethan US$Equivalent Civil Works 5,000,000 Consulting firm 100,000 Individual consultant 50,000 11. One DA, a segregated USD account, will be established in APFB. The authorized allocation o f DA i s proposed to not exceed $20 million. Frequency o f Reporting Eligible Expenditures Paid from the DA i s monthly. 12. APFB will be directly responsible for the management, monitoring, maintenance and reconciliation of the DA activities of the project. To be consistent with the on-lending arrangement and usingthe government appropriations channel, the flow o f withdrawal application i s proposed as follows: Sub- + World PCMOs AHAB -b APCDPEO + APFB + Bank FinancialManagementand ReportingArrangements Risk Assessment and Mitigation 13. The following riskswith corresponding mitigating measureshave been identifiedduring assessment: 51  Risk Risk Risk Mitigating Measures Incorporated into Project Conditions of Rating Design Negotiations, Board or Effectiveness Inherent Risk Country level Modest Legal and institutionalframework is acceptable and current Project Financial Management(PFM) systems are functioningreasonably well. See the following mitigating measures utilizedin the project. Entity Level Low Both APCD and AHAB have extensive experience in World Bank financingand knowledge in compliance with PFM and Bank procedures. Project Level High The major part ofthis project, road rehabilitationand improvement components, will be implementedby various Sub-PCMOs in 12 projectprefectures. Most ofthe Sub- PCMOs are new to Bank project. Thus, to furnish them with knowledgeand informationin managingthe project, FM trainingwill be providedto the project financial staff and a FM manual is required to standardize their financialwork. Furthermore, overall management and supervisionby APCD PEO and AHAB will ensure the proper usageof project funds. Control Risk Budgeting Modest The Financial ManagementSpecialist (FMS) will work with all the relevant implementingagencies to improve budget preparation, execution and budgetto actual variation monitoringand evaluation. Accounting Low Accounting policies and proceduresare already in place. Circular#I3 has been issuedby MOF and adoptedfor all World Bank financed projects. Properguidelines for accountingof beneficiary contributionswill be documented in the FM manual. Necessary training will be providedto the accountingstaffto improve their knowledge and qualifications. Internal Modest Internal control proceduresand policies will be documented Control in the FM manualand all project implementingagencies are requiredto follow them. Inaddition, internalaudit activities will be conductedregularlyby APCD and AHAB and will focus on compliance and transaction examinations. Refer to paragraphs23 and 24 for details. FundsFlow Modest Fundsflow arrangementhas been streamlinedto improve efficiency.To avoiddelayed disbursement, related requirementsand procedures will be documented in the FM manual and require all concernedpartiesto follow. Financial Low The financialreportingresponsibilitiesare established. The Reporting form, content and periodicityof financial reports are well defined by MOF and understoodby all the reporting agencies. Auditing Low The external auditors, Anhui ProvincialAudit Office, have extensive experiencewith Bank project audits. The audit will be conducted in accordance with acceptableauditing standards and the audit reports will be due to the Bank every June 30'. 52  14. Therefore, the overall FMrisk-rating of this project at the appraisal stage i s modest. The FMS will monitor the project FMrisk duringproject implementation. 15. Strengths. APCD and AHAB have been incharge of, or involved with, the implementation o f the Anhui Highway Project Iand 11. The successful implementationo fthese projects has demonstrated their ability to manage World Bank financed projects. Their overall management and supervisionon this new project will ensure the proper usage o f project funds. Additionally, the local highway administration bureaus inthe six of the 12 project citiedprefectures also participatedinthe First and Second Anhui Highway Projects, so they should be able to implement this project without much difficulty. 16. WeaknessesandAction Plan, Besides the FMrisks identified inpara. 13 above, no other significant weakness are identified. ImplementingAgencies 17. Similar to previous Bank financed highway projects, APCD PEO will be responsible for overall project management and coordination and specifically for the implementation o f the institutional strengthening component. AHAB will implementthe road rehabilitation and improvement components. As the 25 project roads are scattered in 12 prefectures of Anhui province, for better project implementation and improving local government's accountability, each o f the 12 local prefecture highway administration bureaus (deconcentrated units o f the AHAB) will assign experienced staffto form the Sub-PCMOs. With the technical guidance and financing support by AHAB, these Sub-PCMOs will act as local implementingagency for this project. Budgeting 18. Inaccordance with project implementation planand construction progress, the PEO and AHAB will prepare annual budgets. This budget will be reviewed and approved by APFB and Provincial Development Reform Commission. Based on the approved budget, APCD will provide annual government appropriations and AHAB and local highway administration bureaus will arrange domestic loans. For budgetvariances arising duringexecution, necessary authorization and closely monitoring will be done. Timely and accurate information on variances will be used as the basis for mid-termadjustments. Accounting 19. The administration, accounting and reporting ofthe project will be set up inaccordance with the Circular #13: "Accounting Regulations for World Bank Financed Projects" issued in January 2000 by MOF. The circular provides in-depth instructions o f accountingtreatment o f project activities and covers the following: Chart o f account; Detailed accounting instructions for each project account; Standard set o f project financial statements; and 53  (d) Instructionson the preparation ofproject financial statements. 20. The project financial reporting package, including detail format and content o fproject financial statements was agreed to between the Bank and MOF. This set of project financial reporting package includes the following: (a) Balance Sheet; (b) Summary of Sources and Uses of Fundsby Project Component; (c) Uses o f Loans by Project Category; (d) DA Activity Statement; and (e) Notes to Financial Statements. 21, The PEO, AHAB and Sub-PCMOs will be managing, monitoring and maintaining respective project accounting records. The PEO will also prepare a consolidated project financial reporting package for the whole project and submit it to the Bank for reviewand comments on a biannual basis. Original supporting documents for project activities will be retained by respective implementingagencies. 22. Adequate project accounting staff with educational background and work experience commensurate with the work they are expected to perform i s one o f the factors critical to the successful implementation o fproject financial management. Based on discussions, observation and review o f educational background and work experience o f the staff identifiedfor financial and accounting positions inthe implementing agencies, the task team noted that they are qualified and appropriate for the work they are expected to assume. For those unidentified project financial staff, the required qualifications, including but not limited to educational background, relevant work experience, and accounting qualifications, have been assessed as acceptable to the Bank and stipulated inthe project financial management manual. During project implementation, the Bank will review their capacity through discussions and review and necessary training will also be provided to strengthentheir capacity. 23. To strengthen financial management capacity and achieve consistent quality o f accounting work, a project financial management manual (the Manual) has beenprepared. In addition to the aforementioned required qualification o f project financial staff, the Manual will provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal applicationprocedures, etc. The first draft o fthe Manual has been prepared and submittedto the Bank for review. The FMS has provided feedback and the Manual has beenfinalized and distributed to all the relevant financial staff. 24. This project will use the computerized financial management system, RuanZhi Xin, a well-established China accounting software package approved by MOF and which beenwidely used withintransportation sector inAnhui. The task team will monitor the processing of accounting work closely, especially inthe initial stages to ensure complete and accurate financial information will be provided in a timely manner. 54  Internal Control and InternalAuditing 25, The project has established internal control procedures and policies, including approval and authorization controls, segregation o f duties, clear staff functions, and safeguarding assets. The funds flow will be arranged and monitoredthrough the finance bureau channels and will include their substantive review. 26. BothAPCD and AHAB have their own internal inspection divisions, who will function as the internal audit for this project, by conducting compliance and transaction oriented examinations on regular basis. Duringproject implementation, the Bank will review their project examination reports and determine whether the Bank can rely on their work. Financial Reporting 27. The format and content o fthe project financial statements represents the standard project financial reportingpackage agreed to betweenthe Bank and MOF, and have beendiscussed and agreed to with all parties concerned. 28. Each implementing agency will preparefinancial statements on its implemented components, which will then be usedby the PEO for preparing consolidated project financial statements and submittedto the Bank for review and comment on a regular basis. Inline with the updated World Bank's Operation Manual, the interimun-audited project financial statements should be submitted as part o f progress report to the Bank on a semi-annual basis (prior to August 15 and February 15 o f the following year). RetroactiveFinancing 29. Retroactive financing will be available for this project inthe amount o f US$20million for payments made under any o f the components prior to the signingo f the loan agreement and after July 1,2007. Financial Covenants 30. No additional financial covenants are proposed other than the standard financial covenants, (e.g. maintaining project accounts inaccordance with sound accounting practices, audit requirement and SOE), as described inthe legal agreements. Supervision Plan 3 1. The supervision strategy for this project i s based on its FMrisk rating, which will be evaluated on regular basis by the Task Team (withthe support o fthe team's FMS). 55  Annex 8: Public Financingand FiscalCapacity of Anhui Province CHINA: Anhui HighwayRehabilitationand ImprovementProject Introduction 1. The challenge facing many provinces inChina inthe highway sector is how to maintain and expand road assets to support the desiredeconomic growth withintheir fiscal envelopes. This Annex summarizes the public finance framework for the highway sector inthe Anhui Province. The purpose o f this analysis was to ascertain whether inAnhui Province: (a) there i s a healthy fiscal situation; (b) the appropriate linkage i s made between macroeconomic and revenue projections and public expenditure proposals; (c) the policy and planning process i s tightly linked to the annual budget; and (d) the highway sector policy and planning provides a realistic resource framework to cover the expected development and preservation o f assets. 2. The fiscal system inChina is characterized by the sharingoftax revenues between the central government and sub-national (Le. provincial, prefecture, county, and township) governments. According to their respective responsibilities, the central government is responsible mainly for expenditures for national defense, foreign affairs, and the operation o f central government agencies, as well as expendituresfor economic restructuring, development coordination among regions and macroeconomic adjustment. The provinciaMoca1governments are mainly responsible for expenses on the operation o f government agencies under their respective jurisdictions, as well as expenditure for economic and social development intheir regions. As a result, nearly 70 percent o f total public expenditure inChina takes place at the sub- national level, of which more than 55 percent takes place at sub-provincial levels. 3. Inthis context, the public budgetis definedand executed inahighlydecentralized manner amongthe 31provincial-, 331prefecture-, 2,109 county-, and44,74 1township-level units.The national budgetis composed ofthe centralgovernment budgetand sub-national government budgets.As stipulated by the Budget Law o f the People's Republic o f China, the budget draft and budget implementation o f the central and local governments must be reviewed and approved by the National People's Congress and Provincial People's Congresses, respectively. The central and local budget adjustment plans and final accounts must be reviewed and approved by the Standing Committee o f the National People's Congress and local congresses. 4. As mentionedabove, sub-national governments inChina are responsible for financing, infrastructure investmentsthat support the supply o f services and are critical for promoting economic growth and development. This i s inline with efficiency considerations -the level o f government responsible for providing the services should make decisions regarding investments necessary for them. The sub-national governments inChina are only permitted to borrow through on-lendingo f external loans contracted by the Central Government or from the state development banks". The Budget Law (1994) clearly prohibits sub-national governments to carry any deficit or debts intheir annual budgeting process. " Stale Council Notice to Ban Erroneous Fundraising and Strengthen Bond Issuance Supervision (April 1993): "In approving debt new issues, all regions and departments shall comply with the State Council Notice in Strengthening Macro 56  OverallFiscalStatus in AnhuiProvince 5. Following the policies set out by the tax reform o f 1994,Anhui province shares the revenues from value-added tax and enterprise income tax with the central government. This policy increases the central government's share o f revenues; however, a large portion o f the central revenuesare designated as tax rebates (value-added tax rebate and consumption tax rebate) and transfer payments, which are reallocated to the provinces. 6. InAnhui province, local budgetary revenue is usedinterchangeably with fiscal revenue. The total budgetary revenue includes local budgetaryrevenue andtotal tax rebates; the total disposable revenue comprises local budgetary revenue as well as transfer payment and tax rebates from the central government; the total revenue i s total budgetary revenue plus off- budgetaryrevenue and local matching funds. 7. China's Budget Law-enacted in 1995 and currently under revision-explicitly defines and regulates the following public finance practices: fiscal administration, disciplines, budgeting, review and approval process, execution, adjustment, and auditing. Inaccordance with the Budget Law, each sector inAnhui Province formulates its own budgetproposal consistent with the pertinentsectoral development plan and submitsit to the Provincial Finance Bureau. The Provincial Finance Bureau consolidates all the budgetproposals and formulates an overall provincial budget based on budget constraints and strategic priorities (taking socio-economic development master planinto consideration). Subsequently, the overall provincial budget i s presented to the Provincial People's Congress for review and approval. Once the budget i s approved by the Provincial People's Congress, the Provincial Finance Department allocates the funds to various provincial sectoral units/departments. 8. The review o fthe current practices o fpublic finance management inAnhui Province shows that the public expenditure proposals are generally consistent with the macroeconomic and revenue projections inthe Province. Moreover, the policy andplanningprocess is acceptably linkedto the annual budget.However, as inother provinces in China, the off-budget revenueand contingent liability management remainareas to be improved inAnhui province. The current practice o fthe off-budget revenue and contingent liability management hindersthe APFB from monitoring the overall effectiveness o fpublic spending and optimizing investment among sectors, given budget constraints. The APFB i s inthe process o f correcting these weaknesses for strengthening the current public finance management approach at the same time as the ongoing reform agenda proceeds at the central level. Control of the SecuritiesMarket and other relevant regulations." Article 3: "Sub-national governmentsare prohibitedfrom, either directly or indirectly, issuing bonds." Budget Law (January 1995): "All levels of local governments shall prepare their budgets on the basis of spending within their means and to achieve balanced budgets, and not to incur deficits; apart from changes conferred by law and the State Council, local governments are prohibitedfrom issuing any type of local governmentbonds." (Article 28) (Issued by NPC). GuaranteeLaw (July 1995): "All government organs are not allowed to provideguaranteesfor any institutions, unless otherwise approved by the State Council, for utilization of bilateral loans and loans from international monetary institutions." (Article 8). (Issued by NPC). 57  OverallEconomic SituationinAnhuiProvince 9. Anhui has beenenjoying rapid growth both interms of GDP per capita and fiscal revenue for the past several years. The average growth rate of nominal GDP per capita between2003 and 2005 has beena remarkable 17 percent (21% in2004 and 12% in2005); while the real average growth rate was approximately 11.5 percent (14% in2004 and 9% in2005) by applying national average GDP deflators. The average fiscal revenue increase during that period has been at around 24 percent (26.2% in2004 and 26.1% in2005). Table A8.1 and Figure A8.1 show the GPD growth rates from 2003 until2005 and the expenditures on selected sectors for the 2000 to 2004 period, respectively. Total Nominal GDP Nominal GDP Per Capita (Billion RMBYuan) (RMBYuan) 2005 537.58 8.597 FigureAS.1: AnhuiProvinceBudgetaryExpenditurein SelectedSectors (2000-2004) 12,000 __ _____~___ 10,000 - > 1 8,000 - 6,000 - 4,000 - 2,000 - 0 , --eInfrastructureExpenditure --Education Agricutlure. forestry and water -n+ Health --cSocialprotection 10. Table A8.2 shows total fiscal revenuesand total expenditures. The discrepancy between each year's revenue and expenditures is covered mostly b ycentral government subsidy, transfer payment, andtax rebates. The main revenue inAnhui province comes from various tax revenues". Figure A8.1 shows the actual budgetary expenditure inselected sectors inAnhui province. The actual disposablerevenue is equivalent to the expenditures. i sKey revenue sources are: value-added tax, sales tax, enterprise tax, enterprise income refund tax, income tax, resourcetax, fixed assets investment orientation regulation tax, urban maintenance tax, property tax, stamp tax, urban and county land tax, land appreciation tax, vehicles usage tax, slaughter tax, agriculture tax, agriculture specialty tax, tax on till-land occupation, deedtax, and other state assets incomes and fees. 58  Year Total FiscalRevenue Total Expenditures(Billion (BillionRMB Yuan) RMB Yuan) 2001 30.95 40.38 2002 34.67 45.69 2003 41.26 50.74 2004 52.07 60.15 2005 65.64 70.04 11. The fiscal space for infrastructure development remains at a steady level, roughly 10 percent o f the total budgetary revenueo f each year from year 2000 to 2004. O f all the sectors, the education sector represents the largest share o f the expenditures, accounting for more than 16 percent o f the annual total budgetary revenueon average. The prioritization o f investments i s based on the socio-economic master plan o f the province, minimumexpenditure growth set for inthe respective sectoral laws'' and sectoral public expenditure proposals. Highway Sector PublicExpenditure Management 12. As highway construction accounts for more than 90 percent o fthe transport construction inAnhui Province, the analysis focuses onthe highway sector. 13. The revenue and expenditure related to the highway sector inAnhui Province are currently under the responsibilitieso f the APCD,incompliance with the planning/resources allocation process at the provincial level as mentioned inthe previous section. The planningh-esources allocationprocess i s subject to thejoint reviews o f Anhui Development and Reform Commission (ADRC) and APFB before the effective use o f the resources can start. As it i s generally the case, the revenues raised at the provincial level are not sufficient to meet the demands for infrastructuredevelopment. Therefore, subsidiesfrom the central government, as well as loans from domestic banks play an important role inbridgingthe gap. Major revenue resources for the highway sector encompass: (a) road maintenance fees; (b) tolls; (c) surcharges on passenger tickets; (d) MOC subsidies; and (e) funds raised by enterprises. 14. The APCD prioritizes planningand allocates resources inthe following order: (a) wages for highway sector employees; (b) safety management o f roads to ensure fair service levels o f the road network; (c) routine maintenance, medium and large repairs; and (d) new construction or improvement o f highways (including rehabilitation works) based on the remaining estimated disposable revenue. Table A8.3 presents the Anhui highway sector revenue and expenditure from 2003 to 2005. The highway sector expenditure inAnhui Province has beenat a steady and moderate level o f 4 percent o f its GDP from 2003 to 2005. Inthe educationandhealthsectors, the provincialgovernmentsare requiredby law to achieve specific annual increases in the allocatedbudgetaryamounts. 59  Other funds 2,929 5,030 809 906 Expenditure 14,651 18,513 21,888 22,933 New construction 12,212 15,940 19,176 20,139 o f which, rehabilitation 1,977 2,439 Tax 102 110 120 128 Traffic safety supervision 35 38 42 46 Largerepair 534 567 599 634 Middlerepair 458 486 514 544 Routine maintenance 281 294 307 316 Management and study 198 208 218 225 Repaymentof interestandprincipal 829 871 912 901 15. As shown inFigureA8.2, the overall Anhui transport sector revenuehas been strongly increasing (56 percent from 2003 to 2006) and i s expected to continue increasing. Revenuesare collected from a variety o f sources, and the relative contribution from these sources i s expected to change over time. Key trends are the following: Revenues from road maintenance fees and tolls have increased significantly (especially tolls from 2004 to 2005), andthe trend i s expected to continue, representing more than 50 percent o f the total revenuefrom 2009 onwards. (This trendmay vary inlight o f discussions about the implementation o f a fuel charge policy that may imply changes to the structure and level o f the road maintenance fee). Revenues from surcharges on passengertickets and MOC subsidies are also expected to increase steadily, but less drastically and from a lower base. Bank loans peaked at 6,155 millionRMB in2005 andare expected to decrease and stabilize at 5,000 million RMB and 4,000 million RMB respectively for the Eleventh and Twelfth FYP. Bank loans account for 37 percent o f total revenueinAnhui highway sector inthe year 2003 and are expected to steadily decrease to 12 percent o f total revenue by the year 2015. 60  (d) The indebtedness as measured by debt over disposable revenue is at a healthy level and on a downward trend. 16. Insum, the Anhui highway sector revenuesappear on a satisfactorily sustainable path in the mediumterm, owing inparticular to the availability of increasing toll revenues which are recycled inthe sector. Figure A8.2: Anhui Highway Sector Revenuein 1lthand 12'hFYP* 12,000 10,000 8,000 6,000 4,000 2,000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 +Road maintenance fee +Tolls -Local +Surcharge on passenger tickets -I--MOCsubsidy financial allocation -Bank loan --o-Fundraisedbyenterprise -a- Other funds "003-2006 revenues are actual, 2007-2015 revenues are estimates. 17. On the expenditure side, the overall Anhui transport sector expenditures have been strongly increasing (56% increase from 2003-2006) and are expected to continue increasing. Most o f the expenditures are for new constructionand improvements: on average 76% o f actual and expected expenditures for 2003-2015 (without including rehabilitation, activity which often i s included as part o f the budget line for improvement). These expenditures are expected to increase steadily. Expenditures on repair and maintenance (including large and mediumrepair and routine maintenance) represent on average 9% o f the actual and expected expenditures for 2003-2015. Other expenses include taxes, traffic safety supervision, management and study, and repayment o f interest and principle. These expenses represent on average 7% o f actual and expected expendituresfor 2003-2015 and are also expected to increase steadily. 18. Focusingon the AHAB-unit responsible for the upgrade, rehabilitationand maintenance of the national and provincial road network-Table A8.4 presents the resources allocated to various activities over the last three years. (The differences with the values in Table A8.3 are due to the investments undertaken by APCD on expressways, inland waterways, and rural roads.) The picture shows a decreasing trend for construction and an increasing relevance of rehabilitation and maintenance activities. The shift has been more pronouncedin2006, when 61  the increaseson periodic androutine maintenance activities continuedincreasing while those for construction decreased markedly. The expenditures allocated to rehabilitation and maintenance are expected to increase slightly higher as the APCD-and its AHAB unit-translates its commitment to the preservation o f road assets, and the more so once the new CPMS provides reliable information on, and confirms the need for, appropriate sustained allocation o f budgetary resources to maintenance. The percentage o f resources allocated to rehabilitation and maintenance. Table A8.4. AHAB Expenditures (RMB Million), 2004-06 2004 2005 2006 Amount Percent Amount Percent Amount Percent Reconstruction/upgrading 2,032 47% 1,894 42% 804 21Yo Rehabilitation 1,355 31% 1,550 34% 1,493 40% Periodic maintenance 194 4% 257 6% 391 10% Routine maintenance 231 5yo 222 5% 252 7yo Management and studies 167 4% 170 4% 169 5yo Taxes and other 27 1% 28 1% 23 1% Interest and principal 339 8Yo 432 9% 608 16% Total 4,344 100% 4,552 100% 3,740 100% Percent for rehab. and maint. 41.O% 44.6% 57.1% Conclusion 19. This analysis shows that Anhui highway sector is strong inrevenue generation and will continue to be strong though more forceful emphasis should be placedto the upkeep o f an increasing number o f road assets. The indebtedness i s o f a manageable level. Debt service does not create any significant fiscal burdento Anhui province as it only accounted for 0.56% o f the total revenue in Year 2003, although it may increase to single digit numbers by the end of the 12thFYP. This favorable context will allow APCD and AHAB to face the increased requirementsfor roadmaintenance and rehabilitation, and better manage the transition towards a sustainable and more balanced allocation o f resources betweenroad network development and preservation. 20. The analysis of the specific impact of the proposed project on the sector finances and fiscal position i s provided at the end o f Annex 10. 62  Annex 9: ProcurementArrangements CHINA: Anhui HighwayRehabilitationand ImprovementProject A. General 1. Procurement for the project will be carried out inaccordance with the World Bank's "Guidelines: Procurement under IBRDLoans and IDA Credits" dated May 2004 (Revised October 2006), and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004 (RevisedOctober 2006), and the provisions stipulated inthe Legal Agreement. The general description ofvarious items under different expenditurecategories is included below. 2. For each contract to be financed by the loan, the different procurement methods, consultant selection methods, the need for prequalification, estimated costs, prior review requirements,andtime frame are agreed to inthe Procurement Plan. The Procurement Planwill be updated at least annually or as requiredto reflect the actual project implementation needs and improvements in institutional capacity. 3. Procurement of Works. Bank funds underthe project will be used to mainly finance the construction works under the three components o f the project, i.e. Component A Road- Rehabilitation, Component B - Road Improvement, and Component C - RoadMaintenance. Several considerations have beentaken into account inplanning the procurement packaging, mainly among them: (a) the physical and location characteristics o f the works; (b) specific engineering requirements (e.g., tunnels, bridges, pavement); (c) limits o f administrative jurisdictions (cities) that would provide the technical staffing for construction supervision and management; (d) phasing o f civil works activities to avoid major affection to traffic on the road corridors; and (e) for the rehabilitation component, balance o f contract sizes to encourage local companies to participate as larger companies would not likely be interested (or, if they are, would likely attempt to sub-contract most o f the works to those local companies). Component A (rehabilitation works) has 41 contracts for widening and consolidating bridges, pavement works and grade intersectionworks with a total amount o f US$ 190.71million and an average value o f US$4.65 millionper contract; Component B (improvement works) has 16 contracts for sub- grade, bridge, culvert, tunnel and pavement works with a total amount of US$204.69 million and an average value o f US$12.79 million per contract. A number o f contracts under Component B for an amount o f about US$87.95 million will be procured following International Competitive Bidding (ICB) procedures with biddersto be prequalified. Other contracts under Components A and B will be procured on National Competitive Bidding (NCB) basis with postqualification process. Under Component C-Road Maintenance, at least two roads will be selected from the existing highways to pilot new mechanism o f road maintenance with a total amount o f US$1.60 million. 4. Works estimated to cost at or more than US$15 million equivalent per contract will be procuredthrough ICB procedures, estimated to cost less thanUS$15 million equivalent per contract through N C B procedures, and estimated to cost less thanUS$200,000 equivalent per contract through Shoppingprocedures. NCB procurement o f works will be advertised inat least one newspaper of national circulation, except those contracts costing less than US$2 million each 63  which may be advertised inat least one newspaper o f provincial level. The procurement will be done usingthe Bank's current Standard BiddingDocuments (SBDs) for all ICB contracts and the Bank-approvedChinese Model Bidding Documents (MBDs) (dated May 1997 and issued by MOF) for all NCB contracts. Whenthe MBDsare adopted, all new revisions made to the Bank's SBDs since 1997 will be incorporated. 5. Procurement of Goods. N o procurement o f Goods has beenplannedunder this project. 6. Procurement of ConsultingServicesand Training. Services andtraining required for the project include: (a) a study on technological issues o f pavement change and recycling with a cost estimate o f US$O.15 million; (b) technical assistance for the pilot on road maintenance with a cost estimate o f US$0.09 million; (c) training and study tour with a cost estimate of US$0.75 million; and (d) preparation for environmental standard with a cost estimate o f US$0.06 million. Services by firms estimated to cost at or more than US$0.2 million will be procured through Quality- and Cost-Based Selection (QCBS); services meetingthe requirements o f paragraph 3.2 o f the Consultant Guidelines will be procuredthrough the procedures o f Quality-Based Selection (QBS); those services estimated to cost less than US$0.2 million equivalent per contract may be procuredthrough procedures of Selection Based on the Consultants' Qualifications (CQS) in accordance with the provisions o f paragraphs 3.7 through 3.8 o f the Consultant Guidelines. Services by individuals will be procured inaccordance with the provisions o f paragraphs 5.1 through 5.4 o f the Consultant Guidelines.Expendituresfor training workshops and study tours will be disbursedagainst reasonable actual costs. 7. The Standard Request for Proposals (May 2004) shall be used for recruitment o f consultants. Short lists of consultants for a service estimated to cost less than US$0.3 million equivalent may be composed entirely o f national consultants inaccordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 8. Table A9.1 summarizes procurement method and prior/post review thresholds: Table A9.1: Thresholdsfor Procurement Methods and Prior Review Expenditure Contract Value Threshold Procurement ContractsSubject to Prior Category (US$ million) Method Review (US$ million) 1. Works Equalto or Above US$l5 m ICB All contracts (US$87.95m) Less than US$l5 m NCB All contractsequalto or above US$5mand all contractsunder ComponentC regardlesstheir values (US$308.95m) Less than US$0.2 m Shopping First contract regardlessits value (ifany) 2s Services Equal to or above US$0.2 (firm) QCBS All contractsequal to or above US$0.lm (US$0.75m) Less than US$0.2 (firm) All contractsequal to or above `QS US$O.lm 64  Individual All contracts equalto or above IC US$50,000(US$0.30m) Total value of contracts subjectto prior review: US$279.48 million OverallProcurementRisk Assessment: Average Frequencyof procurementsupervision missions Once every six months proposed: (includes special procurement supervision for post- review/audits) B. Assessment of the Agency's Capacity to ImplementProcurement 9. Procurement activities under this project will be carried out by PEO o f APCD and PCMO o f AHAB. 10. PEO o f APCD i s a project management unit experienced inhandlingBank-financed procurement by implementing the previous Bank-financed Anhui Highway Iand I1projects. For the proposed project, PEO will continue to provide the overall supervisionand guidance on procurement to the implementing unit, PCMO o f AHAB. 11. This is the first time for PCMO o f AHAB to implement a Bank-financed project. PCMO will carry out the procurement activities and the daily overall management o fthe project implementation with support o f Sub-PCMOs, which will be established inmunicipalities for site construction management and supervision. PCMO procurement staff has highway engineering background and experience inhandlingdomestic-funded procurement of works. PCMO has hiredCMC International TenderingCompany (ITC) as procurement agent to assist incarrying out ICB andN C B procurement. CMC ITC has handled several Bank-financed highway projects inChinaand is quiteexperienced inBank-financedprocurement. To familiarize staffofboth PCMO and Sub-PCMOs with Bank's procurement policies and procedures, procurement staff o f the Bank Office inBeijingprovided one training workshop inearly March2007. PCMO and Sub-PCMOs will also send their staff to other training courses on Bank-financed procurement available in five Chinese Universities duringthe project implementation. 12. Inview ofthe above arrangements and commitments, the overall project risk for procurement i s assessed as: AVERAGE. C. ProcurementPlan 13. The Borrower, at pre-appraisal, developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This planwas agreed between the Borrower and the Project Team on April 25,2007 and i s available at the APCD's office inHefei (Attachment 1). It will also be available inthe Project files and postedinthe Bank's external website after Loan approval. The Procurement Planwill be updated inagreement with the Project Team annually or as requiredto reflect the actual project implementation needs and improvements ininstitutional capacity. 14. Table A9.2 shows the project costs by procurement arrangement as embodied inthe procurement plan. 65  ible A9.2: Project Costs by Procurement Arrangements (US$ million) Expenditure Procurement Method' Category ICB NCB Other N.B.F. Total Cost 1. Works 87.95 296.09 0.00 12.75 396.79 (43.98) (154.47) (198.45) 2. Consulting 4.98 11.11 Services 0.00 0.00 (0.30) 6.13 (0.30) 3. Training & 0.75 1.60 Study Tour 0.00 0.00 (0.75) 0.85 (0.75) 4. Front-endFee 0.00 0.00 0.50 0.50 (0.50) 0.00 (0.50) Total 87.95 296.09 6.23 19.73 410.00 (43.98) ( 1 54.47) ( 1 3) (200.00) iotes: I/Figuresinparenthesesaretheamountstobefinancedbytheloan.Allcostsincludecontingencies. D. Frequencyof ProcurementSupervision 15. Inaddition to the prior reviewsupervision to be carried out by the Bank's supervision team, the capacity assessment o f the ImplementingAgency has recommended a supervision mission every six months to carry out post review o f procurement actions upon completion of a sufficient number of procurement activities, or when post review contracts are signed and implemented duringthe review period. E. RetroactiveFinancing Advance contracting may be applied for some contracts under components for rod rehabilitation and improvement. Their expenditures incurred after July 1,2007 and within one year before the signing date o fthe Loan Agreement would be retroactively financed by the Loan. The estimated amount for retroactive financing under this project would be about US$20 million intotal. Procurement o f those contracts subject to retroactive financing will be carried out inaccordance with the Bank's Guidelines,and the related Bank conditions on land resettlement mustbe satisfied first. 66  0 3 3 m 0 0 c;' 8 2 ~ N 2 0 0 I. Q 8Q 0P- 0 P- s Q s 3 . . 3 3 2 0 0 - 0 0 P- m 0 0 P- 0 00 0 Q VI Q Q 1 1 VI 0 s 3 2 3 .8 I 4- 6 .E k a 8 .-k8 a8 m 0 z P- m ": 9 m m m 2 2 - - I .. H vi c, 0 1 P 6 3+ P 4+ 0 I 9 Y Q\ t - x - e 0 vi z - a 3 m  I 0 2c?2 Y s 0m 0m 0 m 0 m 0 m 2 2 2 2 2 00 +- Q s s N 000 - - - - 0 3 3 -0 3 P - m 0 0P- P- 0 0 P- 00 0 00 0 0 P- 0 0 0 0 Q s Q -- - - - s Q e Q Q Q Q e I 2 P I 3 I 3 8 P s sQ 3 I I 0 m 0 0 m 0 O P- 0 P- 0 0 m 0 I - P- 8 0 P - P0 - P- 0P- P- 0 O P- 0 P- 0 P- 0 O Q 0 0 Q Q 8 Q 5 Q Q Q Q 4 5 5 3 - m E 2 2 vi m m I 3 8 Q Q Q 44 I -- - - - 0 vl 0 0Ici 0 - 2 e e e * a8 P 8 2 .-Et:8 'C a 8 I-- -- - - - .-Et:8 $ $ $ 9 9 9 $ m g I - 8z a Bm Bm gPm u u m m z z U B8z V u V I -- - - - % z z z I - z P- 2 W v! 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E ---- c m Q Q Q d e m c c 2 2 2 m d m Q m Q mQ c c c 2c c  Annex 10: Economic and FinancialAnalysis CHINA: Anhui HighwayRehabilitationand ImprovementProject ECONOMIC EVALUATION Preface 1. The economic evaluation o fthe project covers all the project roads, totaling 1,203.7 kmand can be further dividedinto 2 categories: (a) rehabilitation o f 13 roads (18 segments, 885.6 km); and (b) improvement of4 roads (7 segments, 318.1km). 2. The analysis is basedonthe actual and forecast data ontraffic volume, vehicle operating cost, user's time cost savings, reduction inaccident cost and economic project cost. The main inputsfor the evaluation are: (a) capital investmentand maintenance costs, reflecting April 2007 prices; (b) the benefit stream, also reflecting April 2007 prices, that comprises of savings in vehicle operating cost (VOC), travel time savings, and reductioninaccident costs; (c) a capital investmentperiod fiom 2007-2011 and anevaluation o fbenefits periodo f 20 years; and (d) a full benefits starting 2008- 2012, dependingonthe roads. HighwayDevelopmentPlan 3. Anhuiis a land-lockedprovince (about 140,000 km2)located inthe centralregionofChina. The province is animportant inlandtransport hubo f China serving the north- south boundtransport (as a landbridge betweenthe Yellow River tributary and the Yangtze River tributary) as well as links the western inlandprovinces to the easterncoastal provinces. The western and southern part of the province is mountainous terrain. The Yangtze Riverruns across fiom the south- western o f the province to the east passing Jiangsu province, Shanghai and flows to the easternChina sea. The provincial capital city o f Hefei is locatedat the center o fthe province. All the major long distance transport modes (railways, highways and air transport) converge at the city. 4. Anhui is apoor provinceinChina. Basedonthe latest available data, in2005, the annual GDP per capita ofAnhui (RMB 8,597) constitutes only about 61-2%ofthe national's average (RMB 14,040) or 35.1%, 31.3% and 16.7%% ofthe easterncoastalprovinces ofJiangsu (RMB 24312), Zhejiang(RMB 27,458) and Shanghai (RMB 51,489, respectively. To reduce the income and the economic disparities, Anhui province is undertaking a highway development plan as a part o f the overall efforts to narrowthe differences between the inlandprovinces withthe coastal provinces. The objectives o fthe plan are: (a) to improvethe quality of the road services (about two thirds o fthe provincial road network is the low class roads-Class IV and under, and 72  about 50% o fthe roads are unpaved); (b) to enhance the road connections with the coastal regions; and (c) to improve the localroadnetworks particularly for the remote mountainous areas. 5. After completion o fthe project, the east- west bond traffic will be able to cross the province within 3 hours, and, 6 hours for the north- south boundtraffic. Inaddition, all the main local cities would have an expressway that links to Hefei. Supported by a better paved local road networks, every prefecture would be able to access the expressway within one hour traveling time. Furthermore, by the end of 2010, every village inAnhui will have at least one pavedroad available to the local residents. The project will greatly increasethe mobility o fthe rural residents insearchoftrade, education andworking opportunities withthe outside world. Selection of Roads 6. The APCD prescreened 50 road segments as candidate roads for the proposed project and 17 roads (25 segments) were selected. Depending on the road's condition, the selected roads can be dividedinto two differenttypes o f investments-rehabilitation and improvement. The economic analysis tested each road segment as well as the total project roads. 7. All selected roads were either with a lower PQI(Pavement Quality Index) and/or with the higher V/C value (traffic density). The other main selection criteria were: (a) The roads were located inpoverty areas and/ or mountainous regions. (b) The technical standards ofthe roads were low and without the services over 8 years. (c) The roads connect to Jiangsu or Zhejiang provinces with low traffic design capacity and hightraffic volume (over 5000 vehicles per day). (d) The roadpavements were badly damaged with the traffic over 1,000 vehicles per day. (e) The roadwas a missinglink or a bottleneck o fthe provincial main truck road. (0 Minimized environmental and/or resettlement impacts. The Traffic 8. The traffic census for the proposedroads was made onthe basis ofroutine traffic counts and a comprehensive origin and destination (O/D) survey that took place in2005 (updated in November 2006). Projections o f normal, generated and diverted traffic were made for about 300 zones on the basis o f a conventional growth model. The overall traffic growth rates for long- term (1995 -2006) and short-term (2000-2006) were quite similar. Only inthe last 6 years, the growth rate for buses and trucks traffic was faster then before. However, the main growth force i s still the car. This trend i s expected to be maintained in the future. The projected traffic growth rates are estimatedto be 5.1% per year in2006 2012, 3.3% in2012-2020, and 1.7% in - 2020-2030. The overall traffic growth rates are summarized as follows: 73  TableA1O.l: AnnualTraffic Growth Rate Car Bus81Truck Average Actual: 1995-2006 10.9% 0.7% 5-9% 2000-2006 10.4% 2.0% 5.9% Projection: 2006-2012 6.0% 4.1% 5.1% 2012-2020 4.0% 2.3% 3.3% 2020-2030 2.0% 1.2% 1.7% Sources: APCD andthe Bank staff. 9. Alignment Alternatives: There was no alternative alignment issue for the rehabilitation roads, because all the works will take place within the existing alignment. For the improvement roads, the alternatives alignments were tested for each of the road segments and it was found that the proposedalignment was welljustified on the basis of the local economic development, the lowest engineering cost and the higher EIRR. The other major criteria for selection of an alternative were to seek an alignment that would: (a) avoid areas which have complex conditions geologically; (b) avoid the possible engineeringdifficulties; and (c) coordinate the comments from the local governments and peoples. Details are available inthe feasibility study reports. 10. The generatedtraffic was assumedto be 10percent of the normal traffic. This assumptionis consistent with the experienceon other recenthighway projects inChina. No diversion oftraffic from the railway to the new highway was taken into account, because not every road has aparallel railway inthe project site and the railway carries mainly the long distance traffic while the highway services mainly for local traffic with a muchshorter distance. In2005, for example, the averagetransport distancefor the railway freight andpassenger were 85 1km and 863 km, respectively. Duringthe same period, the average transport distances for highway freight andpassenger were 85 kmand 70 km, respectively. Inaddition, the much higher highway tariff (0.40-0.50 RMB/t-km) also does not encouragetraffic diversion from the railway (0.15- 0.25 RMB/t-km). Table A10.2 summarizesthe traffic census and forecast with the lengthof each road segment. 74  Table A10.2: NormalTraffic (ADT) Roads Old-km New-km 1995 2000 2006 2012 2020 2030 Rehabilitation: 1 G104 Chuzhou Chahe - 33.6 31.4 4,042 5,086 4,803 6,520 8,470 10,030 2 G206 SuzhouSouth Huiyuan North - 77.5 75.3 4,435 5,129 3,003 4,000 5,090 5,950 3 G311 SuzhouSection 36.9 35.7 2,705 4,547 4,060 5,470 7,060 8,320 4 G318 Muzhen-Nanling 18.5 17.6 2,627 3,255 3,702 5,080 6,710 8,010 5 G318 Dadukou Yinhui - 31.0 29.7 3,287 1,456 3,483 4,690 6,020 7,070 6 G318 Yuexi Section 87.5 76.0 118 519 1,441 1,960 2,550 3,020 7 S l O l HefeuChuzhouBorder Bengbu - 93.0 88.9 3,187 4,508 3,191 4,290 5,530 6,500 8 S103 Hamoling- Qingyang 31.8 31.3 2,354 2,253 4,208 5,700 7,390 8,720 9 S211 Zhuping Dashan 86.9 82.0 819 368 1,587 2,210 2,950 3,550 10 S212 Huaining Section -- 53.6 50.0 668 1,747 3,492 4,730 6,150 7,270 11 S215 Jixi Section 49.2 47.3 2,177 2,788 3,466 4,680 6,060 7,150 12 S303 Suzhou Provincial Border - 106.3 102.7 1,535 2,991 3,280 4,440 5,770 6,830 13 S303 Huaibei Section 23.8 23.0 3,132 2,322 2,272 3,060 3,940 4,640 14 S3 10 Shouxian Huoqiu - 74.8 70.0 1,417 1,614 3,050 4,150 5,430 6,440 15 S3 10 Huoqiu Zhongxing 38.7 35.1 877 887 2.695 3,710 4,920 5,880 16 S320 Changhe Hengbu 44.7 41.9 708 1,918 2,843 3,840 4,960 5,850 17 S321Zhufan Jiangkou - - - 25.9 23.6 2,485 2,179 3,255 4,410 5,690 6,710 18 S321Fanchang Boyangpo - 25.8 24.1 1,876 943 4,336 5,790 7,380 8,620 Subtotal -- 939.5 885.6 Imm-ovement: 19 S3 11Chuzhou Dingyuan - 70.0 68.0 4,452 2,936 3,155 4,220 5,400 6,320 20 S3 11Chuzhou - Wuyi 25.9 19.8 2,317 2,987 4,780 3,920 5,480 6,460 21 S322 Taohuatan Gantang 82.0 29.8 459 620 1,396 1,840 2,320 2,690 22 G205 Caijiaqiao Tanjiaqiao 47.5 37.2 582 811 2,246 3,060 4,020 4,780 23 G205 Taohuatan Gantang --- 49.1 43.7 966 1,291 2,455 3,360 4,420 5,260 24 G205 Tunxi Provincial Border - 68.4 53.4 748 814 2,173 2,940 3,820 4,510 25 S105 Wuhu- Xexian- Wujiang 79.0 66.2 2,210 3,020 6,214 8,340 10,710 12,580 Subtotal -- 421.9 318.1 Total 1,361.4 1.203.7 Sources: APCD and the Bank staff. 11. The Economic Cost: Investmentcosts were converted to economic costs by the elimination o fprice contingency, taxes, custom duty on imported materials and by the application o f shadow price factors. The resultingoverall economic cost i s about 90 percent o f the financial cost. 12. The ProjectBenefits: Project benefitswere estimated by usingthe HDM-4. The economic analysis includes the benefits derived from: (a) VOC savings on the new highway for normal and generated traffic; (b) time and distance savings through relieved congestion on the existing road; and (c) lower accident costs. The value of passenger time savings was estimated at RMB 2.0 per passenger-hour, on the basis o f updated values from a report on feasibility study methodology for highways in China. The same sources were used for vehicle accident rates on different classed o froads. The vehicle fleet characteristics, economic cost androaduser costs are summarized as follows: 75  Table A10.3: Vehicle eet Characteristicsand Econolr 2 costs : Truck Passenger Small Medium Large Trailer Small Medium Large Economic Unit Costs New Vehicle Cost (`000 RMB/vehicle) 90 180 270 520 90 170 310 New Tire Cost (RMB/tire) 720 1,300 2,000 2,300 450 720 1,300 FuelCost (RMBKter) 4.80 4.80 4.80 4.80 4.80 4.80 4.80 Lubricant Cost (RMBAiter) 24.00 24.00 24.00 24.00 24.00 24.00 24.00 Maintenance Labor Cost (RMBhour) 10.91 13.64 13.64 13.64 9.09 10.91 18.18 Crew Cost (RMBhour) 10.91 13.64 13.64 13.64 9.09 10.91 18.18 Overhead(RMB) 54,512 19,432 28,628 34,524 7,620 15,540 24,660 Discount Rate (%) 12.00 12.00 12.00 12.00 12.00 12.00 12.00 Working PassengerTime (RMBhour) 0.00 0.00 0.00 0.00 2.00 2.00 2.00 Non-working Passenger Time (RMBhour) 0.00 0.00 0.00 0.00 0.50 0.50 0.50 Cargo Delay (RMBhour) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Utilization and Loading KilometersDriven per Year (`000 km) 40 60 70 100 25 80 100 Hours Drivenper Year (hr) 1,000 1,500 1,750 2,500 625 2,000 2,500 Service Life (years) 12 12 12 12 12 12 12 PercentofTime for PrivateUse (%) 0 0 0 0 100 0 0 Number of Passengers 0 0 0 0 4 20 40 Work RelatedPassengerTrips (YO) 0 0 0 0 75 75 75 Gross Vehicle Weight (tons) 1.20 3.20 4.80 6.40 3.10 7.00 12.00 ESA LoadingFactor 0.00 0.10 0.70 1.25 0.00 1.25 2.30 Road I TableA10.4 Typical Road User Costs (RMB pr vehicle-km) Roughness Truck Passenger Small Medium Large Trailer Small Medium Large 2.40 2.19 2.73 4.57 1.32 2.59 4.29 4 2.26 2.21 2.77 4.75 1.29 2.40 3.88 6 2.57 2.45 3.10 5.31 1.43 2.81 4.68 8 2.76 2.63 3.35 5.77 1.53 3.00 5.06 10 3.06 2.88 3.67 6.36 1.66 3.27 5.70 Class I11 2 2.22 2.13 2.65 4.47 1.29 2.45 4.02 4 2.27 2.22 2.79 4.75 1.33 2.53 4.17 6 2.38 2.38 3.02 5.20 1.40 2.66 4.41 8 2.55 2.55 3.25 5.64 1.48 2.83 4.73 10 2.80 2.76 3.53 6.16 1.59 3.06 5.28 Class I1 2 2.08 2.12 2.62 4.45 1.29 2.37 3.91 4 2.13 2.21 2.76 4.73 1.33 2.45 4.06 6 2.23 2.36 2.98 5.18 1.39 2.58 4.30 8 2.38 2.52 3.20 5.58 1.45 2.72 4.55 10 2.59 2.69 3.45 6.03 1.54 2.91 4.97 Class I 2 2.02 2.15 2.65 4.50 1.32 2.37 3.95 4 2.07 2.25 2.79 4.79 1.36 2.45 4.11 6 2.17 2.39 3.01 5.23 1.42 2.57 4.33 8 2.30 2.52 3.21 5.60 1.46 2.68 4.51 10 2.48 2.67 3.42 5.98 1.52 2.83 4.81 `ources:APCD and the Bani staff. 76  The Resultsof EconomicEvaluation 13. The overall EIRRof the project (including rehabilitation and improvement) is 27.0% and the NPV, at the discount rate of 12%, i s RMB 3,958.4 million. The details are summarized in Table A10.5. Table A105 EconomicEvaluationSummary Roads EIRR (inO h ) NPV (12%, RMB million) Rehabilitation: 1 (3104 Chuzhou-Chahe 42.6 160.3 2 (3206 SuzhouSouth - HuiyuanNorth 22.5 133.1 3 G3 11 SuzhouSection 27.6 70.5 4 G318 Muzhen-Nanling 23.1 32.2 5 G318 Dadukou- Yinhui 31.6 81.0 6 G318 Yuexi Section 22.4 82.2 7 S101 Hefei/ChuzhouBorder Bengbu - 27.2 183.1 8 S103 Hamoling- Qingyang 22.6 62.0 9 S211 Zhuping - Dashan 23.8 61.1 10 S212 Huaining- Section 40.9 175.8 11 S215 Jixi Section 31.4 137.1 12 S303 Suzhou ProvincialBorder - 25.3 175.9 13 S303 HuaibeiSection 25.7 36.9 14 S310 Shouxian-Huoqiu 30.3 179.2 15 S310 Huoqiu-Zhongxing 28.1 96.6 16 S320 Changhe - Hengbu 30.9 102.9 17 S321 Zhufan- Jiangkou 28.6 58.8 18 S321 Fanchang- Boyangpo 43.0 106.4 Subtotal 28.2 1,935.0 Improvement: 19 S3 11 Chuzhou- Dingyuan 18.1 117.6 20 S3 11 Chuzhou- Wuyi 16.8 100.4 21 S322 Taohuatan - Gantang 55.2 606.2 22 G205 Caijiaqiao-Tanjiaqiao 29.2 187.1 23 G205 Tangkou- Qiankou 31.1 167.5 24 G205 Tunxi - ProvincialBorder 33.4 237.1 25 SI05 Chaohu- Wujiang 22.4 607.5 Subtotal 26.0 2,023.4 Totalproject 27.0 3,958.4 Sources: APCD and the Bank staff. 14. The distribution of the estimated benefitsshow that: (a) the main beneficiaries are the road users on this highway corridor; and (b) cars will receive about 60% o f the project benefits, while tricks will receive about 31%, and buses passengerswill receive about 9% (these proportions are approximately the same as the proportion oftraffic). Those latter benefits are more likely to accrue to lower income people. The breakdown o f benefits i s shown inTable A10.6. 77  Table A10.6: Distribution of the Net Benefits(RMBmillion) Roaduser Roadagency Society Total benefits 7,134.3 (3,175.9) /I 3,958.4 By vehicles: Truck- Cars Buses Trucks Trailers Total 4,2 16.4 677.7 2,097.4 142.8 7,134.3 59.1% 9.5% 29.4% 2.0% 100.0% /-1: Roadagency i s negative because it bear the investment cost. 15. The basic evaluationofthe project, by section and on the whole, shows that the selected alignment i s economically viable, and the sensitivity tests with respect to a one-year delay in project completion, zero value o f time, no generated traffic andthe lower traffic projection on the newhighway confirm this result. Table A10.7: EIRR,SensitivityTests and SwitchingValue EIRR (Yo) Delay the completion by one year 24.4 Highercapital cost (+10%) (a) 25.3 Lower benefits(-10%) (b) 25.1 Combine (a) and (b) 23.1 Zero value ofpassenger time 25.6 Zero generated traffic 26.3 Lower traffic projection(-20%) 25.6 Switching values YOincrease Cost increaseto reduceEIRRto 12% 242% Benefitreductionto reduceEIRRto 12% 41.3% 16. Inaddition, the sensitivity tests with variations incosts andbenefits ofthe project indicate that the conditions for the project's viability to fall below the minimumacceptable, e.g. a negative NPV by using 12% discount rate or an EIRR lower than 12%, are unlikely to occur. Benefits would have to fall to less than 41.3% o f those inthe base case with no change incosts, costs would have to increase to more than 2.42 times those o f the base costs, or costs would have to increase by 45% and benefits fall to 60% at the same time. The results o f sensitivity tests (EIRRin%) to cost and benefitvariation are summarized below: 0% 11.6% 14.7% 17.6% 20.2% 22.9% 25.1% 27.0% 29.6% 10% 10.4% 13.3% 16.0% 18.5% 20.9% 23.1% 25.3% 27.4% 20% 9.3% 12.1% 14.7% 17.1% 18.3% 21.5% 22.0% 25.5% 78  17. Additional benefits, not included inthe EIRRcalculation, expected from the project are: increase inthe income o f rural farmers, who live inthe poor and /or mountainous areas, because o f better access to town marketsandjobs, and increased accessibility to schools and hospitals. The quantifiable beneficiaries are estimated at: (a) about 5,600 extra childrenattending school (average about 4.6 students per km inthe directly served areas); and (b) about 37,800 extra peoples attending health services (average about 31.3 peoples per km would benefit the new road). Table A10.9: The Extra Benefits for Project Extra children Extra people attending attending school/ year health se-rviceslyear- Rehabilitation 30,700 4,700 Improvement 7,100 900 Total Project 37,800 5,600 Sources:The APCD andthe Bank staff. ProbabilisticRiskAnalyses 18. The sensitivity test has various limitations. For example, the test cannot determine the degree o f uncertainty; thus, a probabilistic risk analysis usingMonte Carlo techniques was carried out. Each uncertainty factor i s randomly varied between set limits and all uncertainty factors are allowed to change simultaneously. Monte Carlo simulation provides probability distributions o f the potential outcomes o f decisions. By analyzing these distributions, the risk associated with making various decisions (or probabilistic risk analysis) can be assessed. The product of the analysis is ajudgment on the possible range o f the decision variable, and on the likelihood o f each value within this range. 19. The uncertainty factors associated with the economic evaluation o fthe project were identified as: (a) traffic growth rate; (b) the value o f vehicle operating costs; (c) the changes o f capital investment;and (d) delay the opening by one year. The results of probabilistic risk analysis show that the EIRR for the most likely scenario i s 28.8%, the low scenario i s 21-4% and the highscenario is 36.5%. The standard error ofthe meanis 0.5%. The detailed results ofthe Monte Carlo test and probabilistic risk analyses are summarized as follows: Table A10.10: Summaryof ProbabilisticRiskAnalyses (in YO) Most likely Standard error Range of EIRR EIRR of the mean Rehabilitation 21.2 36.4 - 28.6 0.5 Improvement 16.4 32.2 - 23.6 0.4 Total Project 21.4 36.5 - 28.8 0.5 FINANCIAL EVALUATIONOF APCD 20. The APCD provided its highway financing plan coving the 11th Five- Year Plan (FYP 2006 - 2010) and 12'h FYP (2011- 2015). The plan has three mainfeatures: (a) a decrease in fundingto the new construction- from 76.2% of the total revenuein 1lth to 73.0% in 12th FYP FYP; (b) an increase inmaintenance expenditures- from 8.7% o fthe total revenue in 11th FYP to 79  11.3% in 12`h FYP; and (c) a decrease inportion o f the M O C grants- from 21.1% o f the total revenuein 11th FYPto 13.6% in 12`h FYP. During the same period, a moderate self- financing ratio (total internal cash generation against total revenue) for 2011- 2015 (64.3%) will ensure the implementation o f the development planeven without the grant from MOC. This ratio has improvedby 11.1% from 53.2% for 2006 -2010. 21. Interms ofthe long-term viability ofroadmaintenance with the resources allocated, despite average 0.3% increases inthe road networks during2006 -2010, the average yearly increase inmaintenance expenditures also increased by 9.0%. This means a net increase in average maintenance expenditures per kilometer, from 11,650 RMB/km in 2006 to 16.460 RMB/kmin2010. This trend should continue from 2011-2015 (see Table A10.14 revenueand expenditures2006-2015). Table A10.11: APCD: Average Increasein the RoadNetwork and Road Expendituresin (%) 1lth FYP 12th FYP Average annual increase in the road network 0.3% 0.7% Average annual increase in maintenance exuenditures 9.0% 9.3% Fiscal Impact of the ProposedHighway Investments 22. Not all the project roads are tolled. For the tolled roads, the toll charges are set on the low side because most o f the roads are Class I1and under. The financial evaluation o fthe project roads are focused on APCD maintaining a sound financial practice to minimize the financial risks, i.e. the lack o f counterpart funds for the construction, including the future maintenance and operating expenses to the project roads as well as the loan repayments. 23. The APCD budget forecasts show that the capital required for the investments, maintenance and operations o f the project roads constitute only a small fraction o f APCD's fund flow. Based on the APCD's plan, the annual capital investments o f the project roads will require less than 6.6% o f the projected annual total APCD revenue in any given year during the construction period. The total capital requiredfor the entire project represents only 3.4% o f the total revenueduring 2007-2011. Inaddition, the annual maintenance and expenditure o f the project roads i s less than 1.5% o f its annual budgeted maintenance expenditure. The total maintenance required for the project roads represents only 1.0% o f the total budgeted maintenance expenditures o f APCD in2007-201 1. These low ratios indicate that the project presents a very modest financial risk with regards to the availability o f a counterpart funding for the construction and the future maintenance and operating ofthe project roads. Summarized these figures are summarized inTable A10.12. 80  Table A10.12: APCD: Investments, Revenue and MaintenanceExpenditures (RMB million) 2007 2008 2009 2010 2011 Total Investment and Revenue: Total Capital Investments (a) 427.00 1,458.93 1,582.94 624.49 86.84 4,180.20 Total APCD Revenue (b) 23,228.0 23,680.0 24,161.0 24,666.0 26,088.0 121,823.0 Ratios (a)/(b) 1.8% 6.2% 6.6% 2.5% 0.3% 3.4% Maintenance/ operating Expenditures: Total RoadMaintenance Required(c) 8.27 27.08 39.68 75.03 Total Budgeted Maintenance (d) 2,249.00 2,461.00 2,706.00 7,416.00 Ratios (c)/(d) 0.4% 1.1% 1.5% 1.0% Sources: APCD and Bank staff. 24. About 60% o fthe total project cost will be financed inthe form o f borrowings (the Bank, about 40%, and the local banks about 22%). For the loan repayments, the APCD also budget sufficient reserves to meet its financial obligations. In2012, for example, the total loan repayment o f the project (principal and interest payments for foreign and domestic loans) i s estimated to be Rh4B 267.7 1 million which constitutes only 19.1% of the total budgeted loan repayment reserves (1,398 million RMB) o f the APCD inthat year. Compared to the total revenueo f APCD, the total loanrepayments only weight 1.O%. These low ratios indicate the loan repayment o f the project will not generate any financial pressure on the APCD's cash flow. It is estimated that the total the APCD budget (2006-2015) constitutes only about 8-12% o fthe overall the government budget o f Anhui province. All the financial indicators show that the fiscal impact and risks are modest. A detailed data are provided inTable A10.14 and summarized as follows: TableA10.13: APCD: FiscalImpactCy million) L U l L - A 1 9 Total Loan Repayment o fthe Project (a) 267.71 Total Loan Repayment Reserves (b) 1,398.00 Total APCD Revenue (c) 27,600.00 Ratio (a) / (b) 19.1% Ratio (a) / (c) 1.O% Sources: APCD and Bank staff. 81  Table A10.14: Anhui Highway Revenue and Expenditure During its llth 12fhFYI' (RMB million) and The 11" Five Year Plan The 12" Five Year Plan 2006 I2007 I 2008 I 2009 I 2010 [Total 2011 I 2012 I 2013 I 2014 I 2015 I Total Revenue 1 Road maintenance fee 2,691 2,965 3,555 4,268 5,121 18,60C 5,633 6,197 6,818 7,497 8,247 34,392 2 Toll revenue 5,803 6,540 7,194 7,914 8,705 36,156 9,140 9,597 10,077 10,581 11,110 50,505 3 Surcharges on transport 664 777 855 940 1,034 4,27C 1,086 1,140 1,197 1,257 1,320 6,OOC 4 MOC subsidy 2,212 1,952 2,049 2,152 2,260 10,625 2,305 2,351 2,398 2,446 2,495 11,995 5 Localfinance 20 30 40 50 60 20c 70 80 90 100 1I O 45c 6 Bankloans 5,000 5,000 5,000 5,000 5,000 25,OOC 4,000 4,000 4,000 4,000 4,000 20,ooc 7 Fund-raisedby enterprise 5,637 5,164 4,187 3,037 1,686 19,711 3,154 3,535 3,930 4,438 4,860 19,917 8 Others 906 800 800 800 800 4,106 700 700 700 600 600 3,30C Total 22.933 23.228 23.680 24.161 24.666 118.668 26.088 27.600 29.210 30.919 32.742 146.559 Expenditure: 1 New roads 17,700 18,000 18,002 18,306 18,412 90,42C 19,333 20,495 21,293 22,397 23,502 107,020 2 Rehabilitation 2,439 2,200 2,400 2,300 2,400 11,739 2,520 2,450 2,800 2,900 3,060 13,730 3 Taxes 128 138 149 161 173 749 187 202 217 234 252 1,092 4 Roadsafety 46 50 54 59 65 274 71 78 86 95 104 434 5 Major maintenance 634 698 767 844 928 3,871 1,021 1,123 1,236 1,359 1,495 6,234 6 Mediummaintenance 544 598 658 723 796 3,319 875 963 1,059 1,165 1,282 5,344 7 Routinemaintenance 316 348 382 421 463 1,930 509 560 616 677 745 3,107 8 Management and study 225 237 248 261 274 1,245 301 33 I 365 401 441 1,839 Repayment of interestand principle 901 959 1,020 1,086 1,155 5,121 1,271 1,398 1,538 1,691 1,861 7,759 Total 22.933 23,228 23.680 24,161 24.666 118.668 26.088 27.600 29,210 30,919 32.742 146.559 Total RoadNetwork (km) -(a) 147,611 148,000 148,500 149,000 149,500 -- 50,000 151,000 152,000 153,000 154,000 -- Average annual increase __ 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.7% 0.7% 0.7% 0.7% 0.7% Total maintenanceexpenditure (million Yuan)-(b) /-I 1,719 1,881 2,055 2,249 2,461 10,365 2,706 2,977 3,276 3,602 3,963 16,524 Average unit maintenance expenditure ('000 Y/km)- (b)/(a) 11.56 12.71 13.84 15.09 16.46 13.96 18.04 19.72 21.55 23.54 25.73 21.74 Average annual increase -- 9.1% 8.9% 9.1% 9.1 9.0% 9.6% 9.3% 9.3% 9.2% 9.3% 9.3% /-I: Sumofmajor,medium,routineandruralroadmaintenance. 82  Annex 11: SafeguardPolicyIssues CHINA: AnhuiHighwayRehabilitationandImprovementProject Introduction 1. When completed, the project will have (a) improved or upgraded about 320 kmo fkey provincial and national roads (around 7 segments) located on the central-eastern and southeastern areas o f the Province; and (b) supported the provincial rehabilitation and maintenance program from 2007-2010 under the EFYP o f 18 segments, for about 890 km. 2. Improvement works would include insome cases the duplication o f existing roads following the same alignment with specific bypasses inbuilt-upareas (inorder to minimize resettlement actions) or with short segments o f new alignments if necessary to avoid hard topographical conditions. Intwo cases (roads S311 and S322), this component will include the construction o f a limitednumber o f kilometers to increase the transport capacity o f the existing corridor or complete missingsegments. Rehabilitation works o f improving pavement conditions o f the roads by resurfacing and specific structural strengthening and limitedadjustments to the alignment when requiredto riding conditions and improve safety. 3. The project triggered and addressedthe following Bank safeguards: Environmental Assessment (OP 4.01) and Involuntary Resettlement (OP4.12). The project designincorporates the mitigationmeasures for each policy, as described below. EnvironmentalAssessment 4. Environmental Assessment Approach. Based on the type o f works environmental screening, road segments were grouped inthree groups for environmental purposes. RoadRehabilitation Improvingpavementconditions of the All 18 proposedrehabilitation roads by resurfacingand specific segments structural strengtheningand limited adjustments to the alignment when requiredto improve safety RoadImprovement Duplicationof existingroads following Six road subprojects with a total the same alignment with specific length of 290 km bypasses inbuilt-up areas (in order to minimizeresettlementactions) or with short segments of new alignments if necessary to avoidhardtopographical conditions New Construction Construction of a limitednumber of One segment kilometersto increasethe transport S322: Taohuatang - Guantang capacity ofthe existingcorridor or with total length of 30km (about complete missing segments. 16.5 km new constructionl 5. The project is classified as Category A due to the new construction segments involved in the subproject of road S322, Taohuatan-Tangkou road, which will traverse a mountainous area of highscenic value with tourism potential. Followingthe Bank's and Chinese EIA requirements, 83  full EIAshave been prepared for all the S322 and 6 road improvement subprojects; and a simplifiedEIA for all the 18 roadrehabilitationsubprojects. 6. Based on the 7 individual full EIAs and the simplified EIA, an Integrated Environmental Assessment Report inEnglishhas been prepared for the entire road program under guidelines and table o f contents agreed with the Bank.All environmental management o f construction activities i s included ina comprehensive set o f technical environmental specifications that will be included inall biddingdocuments and contracts. 7. Environmental and Social Setting. Anhui Province is located inthe interior China, with a total area o f 139,427 km2and the total population o f about 65 million. Anhui Province has a complex topography, covering a wide range o f topographical features with mixed hills, plains and low basins. From north to south, the province can be classified into five basic topographical categories as Huaibei Plain, Jianghuai Hilly region, Dabieshan Mountainous region, Yanjiang Plain and Wannan Mountainous region. Anhui province i s abundant inwater resource. There are three major river systems passing through this province, i.e. Xinanjiang River, Yangzte River and Huai River. 8. Anhui Province is richinwildlife andplant resources. According to the statistics, there are totally 3200 species of vascular plants, 2108 species o f herbs and 1300 species o f woody plants. Inaddition, the statistics also shows that there are 509 species o f wild animals, 54 o f which are nationally protected. Currently, there are 3 1 natural reserves inAnhui Province, among which five are at the national level, 25, the provincial level and one, county level. The total combinedarea o f all nature reserves i s 346,803 ha. It i s also rich intourism resorts, including two World Natural Cultural Heritage Sites (Huangshan Mountain and Wannan Ancient Residence Buildings) and a number o f national scenic areas and forest parks. 9. Lying inthe heart o f easternpart o f China, Anhui Provinceranks the 22"d inlandarea in China, with a population density three times o f the nation-wide average. It i s rich innatural resources, particularly inmineral and tourism resources. However, its economic development i s below the average nation-wide. Five project counties are among state-level poverty counties and four districthounties are among provincial level poverty counties. 10. Improving road network conditions i s a major task facing Anhui Province. Anhui Province has already developed a road network o f a total lengtho f 72,807 km. However, roads above Class I1accounts for only 15.8% and paved or simple-paved roads accounts for only 5 1%. Overall, its state and provincial roads are o f low grade surface and mid and low class roads take up a highproportion. Additionally, roaddevelopment is not balanced region-wise. The mountainous areas inthe south and Dabieshan Mountainous areas have low and poor road access and difficulty inroad transportation has not beenresolved. Some villages inthe mountainous areas inthe poverty counties still do not have access to roads. No or poor road access i s the primary factor constrainingthe social and economic development inthese project areas. For example, 81% o f the interviewed villagers in Road S311 list improving road conditions as their number one priority. 84  11. The roadinfrastructure to be improvedor rehabilitated will be mostly locatedalongside the existingalignments requiringonly the expansion ofthe ROW and acquisition o fadditional land. The area o f the project i s heavily developed. There are no natural habitats or critical natural habitats along the existing or future right o f ways. However, there still remain some patches o f native vegetation, especially along S322 that still harbor some native species albeit without any significant biodiversity value. There i s no evidence of paleontological or archeological resources along the corridor. There are no indigenous peoples inthe area o f influence of the project. 12. Environmental and social baseline information i s thoroughly presentedinthe Integrated EIA report. It is confirmedthat there are no protected areas or cultural sensitive site within the impact scope o f the proposed subprojects. 13. Potential Environmental Impacts and Mitigation Measures. For all Road Rehabilitation subprojects, most impacts will be circumscribed to existingright o f ways which will likely be easily managed through sound engineering designand constructionpractices. 14. For all road Improvement subprojects, the main impacts will be landacquisition for bypassing or new construction sections, common construction relation impacts (e.g. dust, noise soil erosion, water pollution, ecological protection, safety, social disturbance, traffic management etc.), and noise and safety concerns during operation. 15. For the new construction in S322, additional environmental issues include the expansion o f the road in an urban area (800 m), crossing a highly unstable area (km 5 - km 6) and the need for integrated landscape design (scenic area). Mitigation measures include special urbanworks inits initial segment (sidewalks, pedestriancrossings, and bicycle paths), special construction techniques incritical segment, and landscape design for the entire road. A special program to provide technical assistance (to communities along the road will be included. 16. These impacts and corresponding mitigation measures are thoroughly addressed inthe individual EIA reports and summarized inthe Integrated EIA report. A comprehensive set o f standardized Environmental Specifications were developed, with additional specific measures for new construction and road improvement subprojects. These are summarized inthe tables at the end o fthis Annex. 17. Environmental ManagementPlan. The APCD has prepareda comprehensive and detailed draft EMP inaccordance with Bank policy. The EMP addresses all potential environmental and social issues o f concern and proposes adequate mitigation measures for each negative impact identified as well as measures for enhancing each identified positive impact. The EMP includes a summary chart where all the problems encountered and proposed mitigation and enhancement measuresare mentioned, and their locationis provided inalignment sheets for a1road improvements and new construction corridors. Monitoring and supervision arrangements, as well as an institutional strengthening program for the APCD are also included inthe EMP. Project bidding documents under preparation will include all specifications regardingthese programs. 85  RoadRehabilitation StandardizedEnvironmentalSpecificationsfor Construction management Road Improvement StandardizedEnvironmentalSpecificationsfor Construction management Additional specificmeasuresfor identifiedeach sub-project. These measuresare representedinthe Environmentaland social Alignment map for each sub-project.Mitigations measuresare includedin projectdesigns and costs. New Construction(S322) StandardizedEnvironmentalSpecificationsfor Construction management Additional specific measuresfor this road: o landscapedesign ("green" road") o urbanenhancement in KmO-Km0+800 o special constructiontechniques o over-designeddrainage (km 18-km24) o special assistanceto communities Environmentalsupervision Proceduresand responsibilitiesfor environmental supervision of eachtype of sub-project Institutionalstrengthening Trainingof contractors and supervisors Preparationof environmentalmanual Specificenvironmentaltrainingfor APCD: environmental roaddesign, right-of-aymanagement,environmental supervision, strategic environmentalassessmentofroad networks, design andconstructionof scenic/ecological routes, and study tours to visit green corridors. EnvironmentalMonitoring environmental monitoring during construction and 18. Analysis o f Alternatives. For S322, two major alternative options were evaluated and compared from environmental as well as the engineering aspects. These alternatives are: (a) Alternative I,the section from start point to K14+473, K27t-301 to end point K29+740, will be reconstructed to the Class I1road inhilly area, and the other sections (from K14+473-K27+301, abut 12.83 km)will be improved on road surface; and (b) Alternative 11: the road inwhole lengthwill be upgradedto Class I1road. 19. After comparing alternatives, Alternative Iwas recommended due to avoidance o fa tunnel andrelated spoiled soil disposal, less environmentally sensitive receptors andthus less impacts to the environment and ecosystem, less investment and still meeting demand o f projected traffic forecast. 20. Inthe first 3.1 kmo fthe proposed road section, K0+000 to K3+100, and 3.2 kmat K16+400 to K19+600, there are existing roads o f basically gravel pavement and 6-7 m wide. 86  Along the existing road there are residential houses. Improvement o f the road on the existing pavement would result in increased noise, air emission and traffic safety concerns. But the area i s along Qingyijiang River with valuable cultivated and highly productive land. Avoiding the existing road would mean to occupy agriculture land, affecting farming and agricultural ecological system. Inaddition, exiting road improvement would bringother benefits for the residents living near road: increased property value, income opportunities, and future developments. And yet, there are engineering considerations for smooth alignment, good configuration, and minimumengineering costs. With all these considerations, for the first section o f the road, most part will be along the existingroadwith some exceptions which to be constructed on green field. For example, section K2+860 to K3+410 go through the middleo f Lianhong village. The road at this section will be detoured to the left avoiding going through the village which would have substantial disturbance to village life. 21. Besides S322, alternative alignment analysis was also conducted for small sections (bypasses) for S3 11 Chuzhou-Wuyi, G205 Caijiaqiao-Tanjiaqiao, S105 Chaohu-Wujiang, G205 Tangkou-Qiankou, and G205 Tunxi-Provincial Border. The final selection was based on integrated consideration o f technical, environmental and social criteria, i.e. avoidance o f environmentally sensitive areas, less social interference and resettlement, shorter length, less landoccupation, and compatibility with local master planning. 22. Public Consultation and InformationDisclosure. According to the World Bank's safeguard policies, two rounds o fpublic consultation were carried out for all subprojects during the EIA preparation. The first round was conducted duringa site survey, inSeptember, 2006. The secondround was after the completion ofthe draft EIA report, inOctober 2006. The consultation was conducted usinga combination o fpublic meeting, individual interview, and information disclosure and questionnaire survey. Inaddition, a hot line was set up duringthe project development to enhance the communication between the affected people and the EA team. There were total about 850 people involved inthe public consultationprocess. 23. The main concerns from public include landcompensation, safety o f construction, damage to irrigation facilities, community severance, noise etc., for which proper mitigation measures are developed inthe EMP. 24. According to the OP 4.01 requirements, relevant project information were disclosed to the public indifferent stages ofthe EA process. Duringthe first round of public consultation, booklets were distributed among the residents along the project road to introduce the project components, necessity and alignment, as well as the potential environmental impacts associated with the project. The APCD also placed the draft EIA report inselected townships and counties o f the project areas. Inaddition, public bulletins were distributedalong the project roads to promulgate the brief information and the project and the location to review the draft ETA report. The draft EIA report and other relevant informationwere also disclosed throughthe APCD website at www.ahg;li.com on October 30, 2006, and incounty libraries, township government offices and selected local schools on March 23,2007. 87  ResettlementAction Plan(RAP) 25. Background. Resettlementimpact i s only expected under the improvement component. The APCD engaged Anhui the Province Communications Design Institute and East China Planning & DesignInstituteto carry out the resettlement planning. The two design institutes, together with local governments, carried out the impact inventory and census surveys during August-November 2006. At the same time, a socio-economic survey was carried out inthe project areas. These studies contributedto the resettlement planning. Four resettlement action plans encompassing the entire project were prepared. 26. Project Impacts. The main project impacts are landacquisition and house demolition. The project will require6,550 muo f land, including 4,560 muo f cultivated lands. The acquisition o f this landwill affect about 2,875 households (about 10,408 people). The project will also requirethe acquisition ofhouses for a total of 31,194 m2, affecting 680 people in 175 households. About 20 small shop businesses will be affected as well. Main ProjectImnactsSummarv Populationlosing house Population Losing land Housing Road Land area Household People Household People Area S 105 80 273 816 3,020 12,127 1,924 S 322 39 150 217 834 8,064 696 S311 21 95 981 3,507 3,201 1,773 S 205 35 162 861 3,047 7,802 2,154 Total 175 680 2,875 10,408 31,194 6,549 27. Basic Principles. The RAP i s prepared inline with Chinese laws, regulations and World Bank Operational Policy OP 4.10. The following principles were followed: Land acquisition and relocation should be minimized through engineering, technical measures. Ifunavoidable, necessary measures should be planned; Compensation will be paid at replacement cost; Resettlement planning, based on the actual inventory and agreed compensation rates, should aim at improving, or at least restoring livelihoods for the affected; Approach for livelihood restoration will be land-based; Resettlers and the host population should be encouragedto participate inthe resettlement planning process; and Priority should be given inconsideration to resettlement within existing communities. 88  28. Livelihood Rehabilitation. The planning team worked with the affectedvillages to develop their livelihood rehabilitationprogram. Planning meetings were held inevery village to review the village impact, village resources potentials for development, their willingness and capabilities for various options. A village livelihood development strategy and options were formulated through these working meetings. The rehabilitation strategy follows a combination o f land-for-land measures and cash payment option. All affected villages have developed livelihood plans based on their resources available and their preference. Redistribution o fthe remaining village land i s the primary measure. Invillages where land loss i s marginal and farmers prefer cash compensation to going through the process o f land redistribution, cash compensation will be provided as an option. These are detailed inthe RAPs. 29. Relocation. The project will needto relocate 175 households and they are all scattered among the proposed roads. They are planning to move all within their existing villages and no group resettlement sites are considered necessary. The relocating households will be responsible for their own house constructionwith the compensation fund and allowances. The project offices and local governments would assist them inhousehold plot selection, development and house construction. 30. Rehabilitation o f Infrastructureand Businesses. The project affected infrastructure i s mainly power and telecommunications lines. These facilities will be compensated at reconstruction cost and will be reconstructed by the owner government departments. All affected businessare small family business and shops. They will be compensated and helpedin their reestablishment close by. 3 1. Resettlement Organization. The APCD i s incharge o f the implementation o f the resettlement program. A multi-level resettlement organizationhas been established for the implementation o f the project, including resettlement offices at provincial, municipal, county and township levels. These offices will employ competent and experienced staff. Their respective responsibilities and functions are detailed inthe RAPs. Training will be provided to the project staff. 32. Monitoring and Evaluation. Both internal and external monitoring i s planned for resettlement implementation. The resettlement offices will be responsible for the internal monitoring. Anhui Communication College will be appointed as the independent monitor for the implementation o f the resettlement program. The monitoring scope, targets, indicators, procedures, methodology and reporting requirementsare described inthe RAP. 33. Implementation Schedule. The exact project impacts will be verified and finalized when engineeringconstructiondrawings are completed. The RAP inventory and budgetas well as the resettlement cost will be updated accordingly. RAP implementation will be aligned with civil works construction. The process for acquisition, detailed livelihood planning, house construction, relocation and infrastructure reconstruction i s detailed inthe RAP. 34. Public Consultation and Participation. The resettlement planningfollowed a participatory process. Affected villagers and various government agencies participatedinthe social economic survey, impact survey and formulation o f the compensatory and livelihood 89  rehabilitationplan. These are described inthe RAP. The affected people will continue to participate inthe formulation and implementation o f detailed village livelihood development plans. Arrangements to ensure continued participation are planned inthe RAP. Project information, relevant government policies and regulations were broadly disseminated through village meetingsinthe project areas. Project RAPSwere also disclosed inproject county libraries and local project offices for public review and feedback. Their availability, project contact person, telephone numberwere announced inAnhui Daily on March 23,2007. 35. Grievance Redress. A mechanism has been established for grievance redress. Grievances can be filed both orally and inwriting. Starting at village level, the grievances can be elevated to township, county, city and provincial level ifthey are not satisfied with the resolution at the lower level. The affected people could also resort to the courts ifthey are not satisfied with the resolution by the project authority. All grievances and their resolutions will be recorded. This mechanism has beendisclosed to the local population and will be further disseminated through the Resettlement Information Booklet. 36. Resettlement Cost. The total resettlementcost i s RMB 165 million, equivalent to US$21 million (US$1 = 7.8 RMB). This budget includes the compensation fund for land, houses and attached structures, infrastructure and trees, various relocation allowances, business loss during transition, special allowance for vulnerable groups, management and monitoring costs, contingencies as well as relevant taxes. All resettlement costs will be financed by domestic funding, 90  inex 11-Attachment 1: Environment; Mitigation Measures Design phase Design Phase Construction Phase The alignment is selectedin terms of e Construction along the existingright of ways environmental, socio-economic and will minimizethehemandfor landacquisition 1. Alignment engineering issues; and resettlement The recommendedoptions has been acceptedby the Anhui Transport Bureau and localgovernment; The roadwill be carefully aligned to the 0 Trainingworkers on the knowledgeof flora and maximalextent on the existingroads, The fauna protection; roadis aligned in such away that the good 0 Dumpingwaste into designated sites; farmland and forest will be avoided; e Providingsettlingtank to prevent surface Temporary landto be occupiedwill runoff; selectedon the landplanedfor construction e Reclaimingthe temporary occupied land; of existingfacilities, e Coveringthe site inraining days; 2. Conservation The designofbridges over the animal 0 Conservingthe top soil for reuse; of Eco-resources passageswill be inharmoniousnesswith e Schedulingconstruction work to fit the weather the naturalsetting. condition; For S322 road, specialrecommendations 0 Maintaininggood drainage system for over-designeddrainage structures for small fauna crossings inKm 18-Km24. 0 Top soil shouldbe collectedseparate from sub- soils for reuse inthe landreclamation; 0 Immediatelyafter the pit is completed,the pit should be leveledand top soil be returnedfor vegetative establishment; e The original land use shouldbe restored Noise barrierwindows; In construction sites within 150m where there Planting; are residences,noisy construction should be Detailedmeasures in the EIA reports stoppedfrom 22:OO to 6:OO; 3. Traffic Maintenanceof machinery and vehicles should /noise be enhancedto keep their noise at a minimum; Temporary noisebarriers, whereas necessary, shouldbe installedat the site boundary in urban area or denselypopulatedarea The domestic wastewater from toll stations e Wastewater and solid waste should be carefully will be collected into septic tanks; managedso as not to enter rivers, causingwater 0 The roadedge ditches will not connected pollution; with irrigationcanals; Chemicalssuch as asphalt and oil, should be Drainagewill be designedto the natural kept far away from rivers, irrigationcanaland setting. other water bodies; S105 Qingxi bridge (K8+600), the bridge 0 Leakagefrom machinery should be avoided by 4. Water over the water diversioncanal in Sumashan propermaintenance; pollution Mountain(K65+200), S205 Fenglehe e Educationon water pollution prevention should Bridge(K37+787), G205 Xinanjiang be providedto workers. Bridge(K0+500), MachuanheBridge For S322, special construction techniques and (K37+100) will be providedwith deck mitigationmeasures for the area in which the drains andthe anti-crack measures will be roadcrosses above an existingwater reservoir, intensified; and crosses a highly unstablearea (Km5- Km7) The water intake 50 m downstreamof Shibahe Bridge(S105) will be relocatedto 200 m upstreamof the bridge. 91  Water shouldbe sprayedduringconstruction leewardofthe nearestresidences. phase, inthe line and earthmixing sites, asphalt mixing site, andtemporary roads; 0 Vehicles deliveringmaterials should be covered 5. Air pollution to reduce spills; 0 Residenceshould be 500 m from leewardwind direction of asphaltmixing sites; Mixing equipment shouldbe well sealed, and vibratingequipment shouldbe equippedwith dust-remove device. 6. Tunnel mountaincuttingwill be minimized inthe (G205Tanjiaqiao- QuelinmgTunnel( K28+230%9+520) and Caijiaqiao) Xiling Tunnel( K31+340-K3 1+650) ; The entranceand exit oftunnels will be well planted; The entranceand exit oftunnels will be designedto the natural settings 0 Special emphasis will be put on S322 for Slopes on either side ofthe roadcan be varied "environmental friendly road" design: to matchthe site's natural topography; reforestation of right of way with native Vegetation will be usedto harmonizewith or 7. Aesthetics and species; reforestationof micro-watersheds improvethe landscape; landscape alongthe corridor to enhance scenic value; 0 The high fills will be moderately slopedto fit applicationof vegetative measures for the natural surroundings andwell planted; slope stabilization;specialsigns leading 0 Whereas possible, particularlythe retaining roadusers to local attractions; lookout walls, vine plants will be plantedto cover the points and rest areas. wall. 0 S105 Qingxi bridge (K8+600), the bridge over the water diversioncanal in Sumashan Mountain(K65+200), S205 Fenglehe Bridge(K37+787), G205 Xinanjiang Bridge (KO+500), MachuanheBridge 8. Accidental (K37+100) will be providedwith deck risks drains and the anti-crack measureswill be intensified; 0 Emergencypone lines will be providedon the bridges; Check points will be set up for dangerous materialson bridge The roadswill be carefully alignedto avoid 0 Inthe construction phase, the professionalsfrom the culturalsites and warning signs will be provincialcultural department will assist the set up near the sites. contractor inthe protectionof cultural 9. Culturalrelics properties. Ifvaluable or invaluablerelics are discovered, the local relateddepartmentsshould be notified immediately.The excavationshould be stoppeduntil authorized department identifiesrelics 92  ~~~~~~~~ 0 The peripheral ditch will be constructedat 0 Inslopes and other suitableplaces alongthe the sites for soil borrow; roadside,trees and grass shouldbe planted; The deposit site will be provided with 0 On sections with high fillings and deep cutting, retaining wall and surface runoff ditch their slopes shouldbe coveredby stone walls 10. Soil erosion/ 0 Temporary ditch or retaining wall will be and plantedwith grass, etc. Ifexisting irrigation irrigation constructedat the sites to be filled; and drainage system ponds are damaged, they channels 0 On the geological unstablesites to be shouldbe rebuilt or recoveredby suitable excavated, retaining wall, concrete piles or means; slope cutting will be used; Insections alongthe river, earth and stone will be properly disposed of so as not to block rivers, resulting in adverse impact on water quality 0 Sufficient measureswill be taken inthe constructioncamps, i.e. provision of garbage tanks and sanitation facilities. Waste in septic tanks will be clearedperiodically; 11 Construction 0 Drinkingwater quality will meet national camp standard; 0 Garbage will be collected in tank and disposed of periodically; 0 Special attentionshould be paid to the sanitary condition of camps 0 The power and other necessary supply should be separate from the public lines; 0 The route oftransporting material should be carefully plannedso as not to cause impact on local traffic; 12. Public 0 Where the road is to be reconstructed,half of services the road surface should be closedso as not to interference cause trafficjam; 0 A bulletin will be set up at each bidding segment to indicatethe phone for contractor, supervisionagency and local EPB, so as to contactthese agencies by local affectedpeople inthe case ofpublicdisturbance 0 Disease preventionknowledge, particularly on HIV, shouldbe deliveredto workers; 0 Adequate protective gear shouldbe provided to workers; 13. Health and 0 Seminar on safety issues should be provided to Safety local public; 0 Where the potential dangers are present, warning signed should be installed; 0 Explosive and blasting operation should be well managed. 0 Training on environmentalprotection shouldbe 14. Management provided to the contractorand local supervisory of Contractor people; 0 The EMP shouldbe included as terms and conditions inthe bidding document. 93  Annex 12: ProjectPreparationand Supervision CHINA: Anhui HighwayRehabilitationand ImprovementProject Planned Actual PCNreview 10/12/2006 10/12/2006 Initial PID to PIC 01/30/2007 01/30/2007 Initial ISDS to PIC 01/30/2007 01/3 0/2007 Appraisal 05/15/2007 04/29/2007 Negotiations 09/05/2007 03/04/2008 Board/RVP approval 04/22/2008 Planneddate of effectiveness 07/01/2008 Planneddate of mid-term review 04/15/20010 Plannedclosing date 12/31/2012 Key institutions responsible for preparation of the project: 0 AnhuiProvincial Communications Department(APCD) 0 AnhuiHighway Administration Bureau(AHAB) 0 AnhuiProvincial FinanceDepartment (APFD) 0 Anhui Provincial Development and Reform Commission (ADRC) 0 Ministry of Communications (MOC) 0 Ministryof Finance (MOF) 0 National Development and Reform Commission (NDRC) 94  Bankstaffandconsultants who worked onthe project included: Name Title Unit Aurelio Menendez Task Team Leadershiu EASTE Carlos RicardoEscudero LeadCounsel/Legal Issies LEGEA Junxue Chu Disbursemenb'Financial LOAFC Management Juan D. Quintero Environmental Engineering EASRE Han-KangYen Economic and FinancialAnalysis EASTE WenlaiZhang HighwayEngineering EASCS Jacques Tollie RoadManagement EASTE RodrigoArchondo-Calla0 HighwayEngineering and Road ETWTR ManagementSystems Chen Shenshen RoadManagementSystems EASTE LiNingyuan RoadManagementSystems EASTE Chaohua Zhang Social SafeguardsResettlement EASSO FeiDeng InfrastructureEconomics EASTE Peishen Wang Environmental Safeguards EASRE HongkunYang Procurement EASTE Xiaoping Li Procurement EAPCO Jingrong He Procurement EAPCO YiGeng FinancialManagement EAPCO Teresita OrtegahlariaLuisaJuico Technical/AdministrativeSupport EASTE XiaofengLi/Xuan Peng Technical/AdministrativeSupport EACCF ImogeneJensen Quality Assurance EASOP Supee Teravaninthorn Peer Review(PAD) AFTTR Andres Pizarro Peer Review (PAD) LCSTR Olivier Le Ber Peer Review (PAD) ECSSD Marcela Silva Peer Review (PCN) LCSTR Piers A. Vickers Peer Review (PCN) SASE1 Bank funds expended to date on project preparation: 1. Bank resources: $262,000 2. Trust funds: $0 3. Total: $262,000 Estimated Approval and Supervision costs: 1. Remaining costs to approval: $10,000 2. Estimated annual supervision cost: $65,000 95  Annex 13: Documentsinthe ProjectFile CHINA: AnhuiHighwayRehabilitationandImprovementProject 1. EngineeringFeasibilityStudy Reportof Anhui World Bank HighwayProject 111(Main Report), June 2006. 2. FeasibilityStudy for the Anhui HighwayRehabilitationandImprovementProject,June 2006. 3. EnvironmentalImpactAssessment for the Anhui HighwayRehabilitationandImprovement Project,April 2007. 4. ResettlementAction Plan the Anhui HighwayRehabilitationandImprovementProject, March2007. 5. EnvironmentalAssessment Summary for the Anhui HighwayRehabilitationand ImprovementProject, June 2007. 96  Annex 14: Statementof Loans and Credits CHINA: Anhui HighwayRehabilitationand ImprovementProject Differencebetween expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO93963 2008 CN-GuiyangTransport 100.00 0.00 0.00 0.00 0.00 100.00 0.00 0.00 PO87318 2007 CN--GEF-Guangxi IntegratedForestry 0.00 0.00 0.00 5.25 0.00 4.65 0.18 0.00 Dev. PO83322 2007 CN-SICHUAN URBAN DEV 180.00 0.00 0.00 0.00 0.00 170.70 28.54 0.00 PO81776 2007 CN-GUANGDONGIPRD2 96.00 0.00 0.00 0.00 0.00 96.00 5.67 0.00 PO88964 2007 CN-Guangxi IntegratedForestry Dev 100.00 0.00 0.00 0.00 0.00 76.11 -21.39 0.00 PO90377 2007 CN-GEF-2nd ShandongEnvironment 0.00 0.00 0.00 5.00 0.00 4.50 0.00 0.00 PO91020 2007 CN-Fujian HighwaySector Investment 320.00 0.00 0.00 0.00 0.00 320.00 43.50 0.00 PO92618 2007 CN-LIAONMG MED CITIES MFRAS 2 173.00 0.00 0.00 0.00 0.00 173.00 0.00 0.00 PO86035 2007 CN-CF-Tianjin Landfill Gas Recovery 0.00 0.00 0.00 0.00 0.00 8.44 0.00 0.00 PO75613 2007 CN-ShaanxiAnkang RoadDevelopment 300.00 0.00 0.00 0.00 0.00 290.00 7.39 0.00 PO86515 2007 CN-3rd NationalRailway 200.00 0.00 0.00 0.00 0.00 200.00 18.67 0.00 PO77752 2007 CN-SHANDONG ENVMT 2 147.00 0.00 0.00 0.00 0.00 131.16 -10.01 0.00 PO96285 2007 CN-MSE Finance 100.00 0.00 0.00 0.00 0.00 100.00 100.00 0.00 PO95315 2007 CN-W. Region Rural Water & Sanitation 25.00 0.00 0.00 0.00 0.00 25.00 0.00 0.00 PO75732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 144.90 18.23 0.00 PO82992 2006 CN-GEF-TermiteControl Demonstration 0.00 0.00 0.00 14.36 0.00 14.36 1.47 0.00 PO81348 2006 CN-HENAN TOWNS WATER 150.00 0.00 0.00 0.00 0.00 139.63 14.63 0.00 PO81255 2006 CN-Changjianflearl River Watershed 100.00 0.00 0.00 0.00 0.00 95.61 17.27 0.00 Reha PO70519 2006 CN-FuzhouNantai IslandPeri-UrbanDev 100.00 0.00 0.00 0.00 0.00 98.25 22.00 0.00 PO86629 2006 CN-HeilongjiangDairy 100.00 0.00 0.00 0.00 0.00 91.76 16.93 0.00 PO99992 2006 CN-Liaoning MediumCities 218.00 0.00 0.00 0.00 0.00 175.65 -17.77 0.00 Infrastructure PO96158 2006 CN-RenewableEnergy I1(CRESP 11) 86.33 0.00 0.00 0.00 0.00 71.95 30.50 0.00 PO94388 2006 CN-HFC-23 EmissionsReduction 0.00 0.00 0.00 0.00 0.00 1,045.5 1 0.00 0.00 PO93906 2006 CN-3rdJiangxi Hwy 200.00 0.00 0.00 0.00 0.00 151.92 -8.08 0.00 PO90649 2006 CN-CF-FacilitatingAfforestationProgram 0.00 0.00 0.00 0.00 0.00 2.01 0.00 0.00 PO90336 2006 CN-GEF-NMGBOWATER & ENVMT 0.00 0.00 0.00 5.00 0.00 4.39 1.67 0.00 PO85333 2006 CN-5th InlandWaternays 100.00 0.00 0.00 0.00 0.00 65.42 25.59 0.00 PO85124 2006 CN-Economic Reform Implementation 20.00 0.00 0.00 0.00 0.00 18.44 4.61 0.00 PO84742 2006 CN-IAIL I11 200.00 0.00 0.00 0.00 0.00 106.86 6.09 0.00 PO82993 2006 CN-GEF-PCB Mgnt & Disposal 0.00 0.00 0.00 18.34 0.00 17.57 10.06 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT MGMT 100.00 0.00 0.00 0.00 0.00 55.04 -5.41 0.00 PO81161 2005 CN-CHONGQMG SMALL CITIES 180.00 0.00 0.00 0.00 0.00 144.82 40.16 0.00 PO86505 2005 CN-NNGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 85.89 -4.61 0.00 PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 155.62 56.46 0.00 PO57933 2005 CN-TAI BASM URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 29.77 17.16 0.00 PO67625 2005 CN-GEF-RenewableEnergy Scale-up 0.00 0.00 0.00 40.22 0.00 37.67 -0.35 0.00 Program PO67828 2005 CN-RenewableEnergy Scale-upProgram 87.00 0.00 0.00 0.00 10.00 2.40 8.90 0.00 PO68752 2005 CN-Inner Mongolia Highway& Trade 100.00 0.00 0.00 0.00 0.00 28.66 -21.76 0.00 Corrid 97  PO69862 2005 CN - AgriculturalTechnology Transfer 100.00 0.00 0.00 0.00 0.00 70.38 29.82 0.00 PO87291 2005 CN-CF-Jincheng Coal Bed Methane 0.00 0.00 0.00 0.00 0.00 49.24 0.00 0.00 Project PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 72.21 44.01 0.00 Development PO72721 2005 CN-GEF-Heat Reform & Bldg Egy Eff. 0.00 0.00 0.00 18.00 0.00 14.56 8.24 0.00 PO75728 2004 CN-GUANGDONGIPRDUR ENVMT 128.00 0.00 0.00 0.00 0.64 74.54 28.78 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 16.93 7.01 0.00 Development PO65463 2004 CN-Jiangxi lntegratedAgric. Modern. 100.00 0.00 0.00 0.00 0.00 54.61 32.08 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 85.34 40.08 0.00 PO84003 2004 CN-GEF GUANGDONG PRD URB 0.00 0.00 0.00 10.00 0.00 9.45 6.66 0.00 ENV PO75035 2004 CN - GEF-Hai Basin Integr. Wat. 0.00 0.00 0.00 17.00 0.00 9.92 11.68 0.00 Env.Man. PO73002 2004 CN-Basic Education in Western Areas 100.00 0.00 0.00 0.00 0.00 31.32 28.83 0.00 PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 47.17 26.46 25.96 PO69852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 1.oo 62.13 60.79 0.00 PO81749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 0.00 1.oo 9.19 -8.I4 0.00 PO77615 2004 CN-GEF-Gansu & Xinjiang Pastoral 0.00 0.00 0.00 10.50 0.00 5.28 8.66 0.00 Develop PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 12.25 12.25 0.00 PO40599 2003 CN-TIANJIN URB DEV I1 150.00 0.00 0.00 0.00 0.00 126.17 83.35 4.08 PO67337 2003 CN-2nd GEF Energy Conservation 0.00 0.00 0.00 26.00 0.00 7.17 25.86 0.00 PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 0.00 46.41 35.85 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0.00 0.00 81.53 50.85 0.00 PO767I 4 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 20.54 -0.30 0.00 PO70459 2002 CN-Inner MongoliaHwy Project 100.00 0.00 0.00 0.00 0.00 7.84 3.84 0.00 PO60029 2002 CN-GEF-Sustain. Forestry Dev 0.00 0.00 0.00 16.00 0.00 4.59 14.58 0.00 Po71147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 0.00 41.63 29.49 0.00 PO64729 2002 CN-SustainableForestry Development 93.90 0.00 0.00 0.00 0.00 12.11 5.81 0.00 PO68049 2002 CN-Hubei Hydropower Dev in Poor Areas 105.00 0.00 0.00 0.00 0.00 14.39 8.52 0.00 PO47345 2001 CN-HUAI RIVER POLLUTION 105.50 0.00 0.00 0.00 0.00 10.36 10.36 -2.08 CONTROL PO51859 2001 CN-LIAO RIVER BASIN 100.00 0.00 0.00 0.00 0.00 12.17 11.97 0.00 PO56596 2001 CN-Shijiazhuang Urban Transport 100.00 0.00 0.00 0.00 0.00 30.86 30.86 0.00 PO64924 2000 CN-GEF-BEIJMG ENVMT I1 0.00 0.00 0.00 25.00 0.00 18.95 25.00 12.15 PO49436 2000 CN-CHONGQING URBANENVMT 200.00 0.00 0.00 0.00 29.50 48.63 78.13 -0.68 PO64730 2000 CN-Yangtze Dike Strengthening 210.00 0.00 0.00 0.00 0.00 64.12 64.12 47.78 PO45910 2000 CN-HEBEI URBAN ENVIRONMENT 150.00 0.00 0.00 0.00 0.00 27.83 27.83 7.87 PO42109 2000 CN-BEIJING ENVIRONMENT I1 349.00 0.00 0.00 25.00 26.51 146.62 173.13 10.02 PO38121 1999 CN-GEF-Renewable Energy 0.00 0.00 0.00 35.00 0.00 2.21 34.77 28.90 Development PO51856 1999 CN-Accounting Reform & Development 27.40 5.60 0.00 0.00 0.00 5.23 5.02 4.74 PO42299 1999 CN-Tec Coop Credit N 10.00 35.00 0.00 0.00 5.84 9.59 12.82 0.00 PO36953 1999 CN-Health IX 10.00 50.00 0.00 0.00 0.40 6.71 5.00 5.00 Total: 7,803.40 90.60 0.00 270.67 75.35 5,853.84 1,480.37 143.74 98  CHINA STATEMENTOF IFC's Heldand DisbursedPortfolio InMillions ofUSDollars ~~~ ~~ Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCIB 0.00 0.00 12.04 0.00 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 2005 Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Babei Necktie 11.00 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 2000 Bank of Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.61 0.00 0.00 2005 BioChina 0.00 3.70 0.00 0.00 0.00 3.13 0.00 0.00 2002 CDH ChinaFund 0.00 2.02 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH ChinaI1 0.00 17.99 0.00 0.00 0.00 11.38 0.00 0.00 2006 CDH Venture 0.00 20.00 0.00 0.00 0.00 0.51 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 10.53 0.00 0.00 0.00 0.00 0.00 0.00 2006 CapitalToday 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 ChangyuGroup 0.00 18.07 0.00 0.00 0.00 18.07 0.00 0.00 1998 ChengduHuarong 3.36 3.20 0.00 3.13 3.36 3.20 0.00 3.13 2004 ChinaGreen Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0.00 2004 Colony China 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony ChinaGP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 DagangNewspring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deqingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.21 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 FenglinHJ MDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00 2006 GDlH 50.85 0.00 0.00 0.00 50.85 0.00 0.00 0.00 2003 Great Infotech 0.00 1.73 0.00 0.00 0.00 1.03 0.00 0.00 2006 HangzhouRCB 0.00 10.85 0.00 0.00 0.00 0.00 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2006 HiSoft Tech 0.00 4.34 0.00 0.00 0.00 1.74 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 99  2004 Jiangxi Chenming 40.00 12.90 0.00 18.76 40.00 12.90 0.00 18.76 2006 LaunchTech 0.00 8.35 0.00 0.00 0.00 8.33 0.00 0.00 2001 MaanshanCarbon 5.25 2.00 0.00 0.00 5.25 2.00 0.00 0.00 2005 MaanshanCarbon I1.00 1.oo 0.00 0.00 5.00 1.oo 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng & IB 25.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Minsheng Bank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2005 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 8.94 0.00 0.00 0.00 8.82 0.00 0.00 1996 Nanjing Kumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2004 Nanjing Kumho 31.38 2.23 0.00 0.00 31.38 2.23 0.00 0.00 2006 Neophotonics 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 New China Life 0.00 5.83 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 2005 North Andre 8.00 6.74 0.00 0.00 0.00 4.25 0.00 0.00 2003 PSAM 0.00 2.01 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 13.00 0.00 0.00 0.00 2006 RenaissanceSec 0.00 0.00 20.04 0.00 0.00 0.00 0.00 0.00 2006 Rongde 0.00 35.00 0.00 0.00 0.00 31.38 0.00 0.00 SAC HK Holding 0.00 I.60 0.00 0.00 0.00 1.oo 0.00 0.00 2003 SAlC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2.00 0.00 0.00 2000 SEAF SSlF 0.00 3.74 0.00 0.00 0.00 3.37 0.00 0.00 SH Keji IT 3.00 0.00 0 00 0.00 0.00 0.00 0.00 0.00 2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 21.78 2004 SlBFl 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1998 Shanghai Krupp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75 2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 SinoSpring 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 StoraEnso 20.83 0.00 0.00 4.17 1I.oo 0.00 0.00 0.00 2005 StoraEnso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00 2006 StoraEnso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00 2006 TBK 4.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2006 VeriSilicon 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 Wanjie High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00 2004 Wumart 0.00 1.62 0.00 0.00 0.00 1.62 0.00 0.00 2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 2006 ZhejiangGlass 50.00 24.96 0.00 18.00 0.00 0.00 0.00 0.00 2003 Zhengye-ADC 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87 2002 Zhong Chen 0.00 4.78 0.00 0.00 0.00 4.78 0.00 0.00 2006 Zhongda-Y anjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03 100  Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2002 SML 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2007 Xinao CTC 0.04 0.01 0.00 0.14 2004 China Green 0.00 0.00 0.01 0.00 2006 Launch Tech 0.01 0.00 0.00 0.00 2005 MS Shipping 0.00 0.01 0.00 0.00 2003 Peak Pacific2 0.00 0.01 0.00 0.00 Total pendingcommitment: 0.05 0.03 0.03 0.14 101  Annex 15: Country at a Glance CHINA: Anhui HighwayRehabilitationand ImprovementProject Eaat Lower. POVERTY and SOCIAL Asia & middle. Chlna Paclflc Income 1evelopment dlamond' 2006 Population,mid-year(millions) 13n8 1900 2,216 GNIpercapita (Atlas method,US$) 2,000 1863 2 037 Lifeexpectancy GNI(Atlas method, US$ billions) 2,6236 3,539 4 635 Average annual growth, 2000-06 Population (4 0.6 09 0 9 Laborforce (%) 10 13 14 GNI Gross per primary M o a t recent eitlmate (latest year avallaEle, 2000.06) capita enrollment Poverty (%of population belownationalpovertyline) Urbanpopulation (%of totalpopulation) 41 42 47 Lifeexpectancyat birth(ears) 72 71 71 1 infant mortality(per IOOOlivebirths) 23 26 31 Child malnutrition (%ofchildren under5) 8 15 t3 Access to improvedwatersource Access to an improved watersource (%ofpopulation) 77 79 81 Literacy(%ofpopulation age rS+J 91 91 69 Gross primaryenrollment (%ofschool-age population) m ri4 lu - China Male m m M -Lover-middle-incomegroup Female 112 to n4 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1986 1996 2005 2006 i c o nomlc ratlo 8' GDP (US$ billions) 295.7 856.1 2 243 9 2 644 7 Gross capital formationiGDP 386 40.4 439 44 6 Exports of goods and services/GDP 118 20.1 37 3 40 1 Trade Gross domestic savings/GDP 35.8 42.5 494 52 5 Gross nationalsavings/GDP 359 413 510 541 Current account balance/GDP -2.8 0.8 72 9 4 Interest payments/GDP 0.2 0.5 0 1 Domestic Capital Total debt/GDP 8.0 15.0 P6 savings formation Total debt servtce/exports 8.2 8.7 3 0 Present value of debtlGDP P 3 Present value of debt/exports 306 Indebtedness 1988.96 1996-06 2005 2006 2006-10 (averageannualgmrdh) GDP D l 9.0 0.4 D.7 0.6 -China GDP per capita 8.6 82 9.1 D.1 9.9 Exports of goods and services LOwr-middle-incomeomun DO 218 24.3 23.3 U.4 STRUCTURE of the ECONOMY 1986 1996 2005 2006 (%of GDP) Agnculture 271 295 0 5 Industry 440 475 475 4:; Manufactunng 352 335 335 Services 289 330 399 399 Householdfinal consumption expenditure 493 435 361 332 01 02 03 04 05 08 Generalgov t final consumption expenditure 149 140 145 143 Imports of goods and services 147 8 0 317 322 -GCF &GDP I I faverageannualgrowth) 1986.96 1996-06 2005 /Growth of exports and Imports (Oh) Agnculture 43 35 52 Industry n 5 0 1 Manufactunng P 8 0 2 121 SeNlC0S 94 98 D 5 D 3 Householdfinal consumption expenditure 0 9 7 8 58 Generalgov't final consumption expenditure D 4 95 Gross capital formation 119 D 2 ns 02 -Exports &Imports Imports of goods andservices 119 8 5 n 4 143 Note 2006data arepreiiminaryestimates This tablewas producedfrom theDevelopment Economics LDE database 'Thediamonds showfourkeyindicators Inthecountry(m boId)comparedwithitsincome-groupaverage ndataaremissing thediamondwll be incomplete 102  China PRICES and GOVERNMENT FINANCE 1986 1996 2005 2006 Domestic prices (%change) Consumer pnces 83 18 15 Implicit GDP deflator 46 64 42 3 6 Government finance (%of GDP includes current grants) Current revenus 0 0 1)5 7 2 8 4 Current budget balance - 7 7 0 2 24 3 0 Overall surplusldeficit -248 -24 -23 -07 TRADE 1986 1996 2005 2006 /l,ooo,ooo (US$ mi//ionsj Totalexports (fob) 30.942 151048 761999 969,073 1.250.000 Food 4,448 13,231 22,481 25,722 1 Mineralfuels, lubncants andrelated matenal! 3,683 5,931 17,621 17,776 Manufactures 8,670 P9,P3 7P,960 96,147 Total imports (cif) 42.904 138,833 660.18 791614 Food 1.625 5,672 9,388 9,997 Fuel andenergy 504 6,877 63,957 89.002 ! I Capital goods 6,781 54,763 290.628 357,137 Evertpnceindex(2000-00) 59 P2 134 137 00 01 02 03 04 05 06 Import pnceindex(2000=#Oj 76 '08 518 P 4 B4EXPOIlS ElWOIlS Terms of trade (2000=#oj 77 n3 88 87 BALANCE o f PAYMENTS 1986 1996 2005 2006 (US$ mr/lions) /Current account balance to GDP (Oh) Exports of goods and services 34,952 71678 836 888 1061681 Imports of goods and services 43453 154,127 7P,090 852,769 Resource balance -8,501 7,551 P4,798 208.912 Net income -23 -12,437 13,635 11755 Net current transfers 378 2,P9 25,385 29,200 Current account balance -8,146 7,243 'sO,88 249,867 Financing items (net) 6.48 24,462 46,88 -2,842 Changes in net reserves 1,727 -31705 .207,08 -247,025 00 01 02 03 04 05 05 Memo: Reserves includinggold [US$ miLons) l a 7 7 832427 1046,465 Conversion rate (DEC /ocal/US$j 35 83 8 2 80 EXTERNAL DEBT and RESOURCE FLOWS 1986 1996 2005 2006 (US$ mi//ionsj Composition o f 2005 debt (US$ mill.) Total debt outstandinganddisbursed 2378 P8,87 2816P IBRD 965 76% 11?40 11415 A Il.tl0 IDA 774 7,579 9,741 9,997 B 9741 Totaldebt service 2,973 15.756 27,361 IBRD 66 840 l a 9 1443 IDA 8 73 296 3 8 Compositionof net resource flows Officialgrants 155 245 332 Officialcreditors 1,85 4,401 844 Privatecreditors 3,693 6,454 5 ?44 Foreign direct investment (net inflows) 1,875 40.80 79,P7 Portfolio equity(net inflows) 0 0 20,346 World Bank program Commitments 1,PO 1,900 1,277 0 1 A IBRD Disbursements 607 2,097 . E - Bilateral l a 1 170 1 B-IDA ~ . ~ t ~ r ~ t t i ~ a t ~ r ~ private Principal repayments 0 364 1,004 I'd4 I C - I M F G- Short-lerr Net flows 607 1,734 P 7 27 Interest payments 75 549 430 615 Net transfers 532 1.85 -303 -588 Note This table was producedfrom the Development Economics LDB database 9/28/07 103   MAP SECTION   RUSSIAN CHINA FEDERATION ANHUI HIGHWAY REHABILITATION AND 206 NATIONAL ROADS HEILONGJIANG IMPROVEMENT PROJECT PROVINCIAL ROADS MONGOLIA RAILROADS JILIN SELECTED CITIES ROADS TO BE REHABILITATED Sea of PREFECTURE CAPITALS XINJIANG LIAONING Japan JAPAN ROADS TO BE IMPROVED MONGOL D.P.R. OF NEI PROVINCE CAPITAL BEIJING KOREA BEIJING EXPRESSWAY COMPLETED AIRPORTS HEBEI TIANJIN REP. OF EXPRESSWAY UNDER CONSTRUCTION KOREA RIVERS SHANXI Yellow SHANDONG Sea PROVINCE BOUNDARIES QINGHAI NINGXIA GANSU JIANGSU SHAANXI HENAN East China 115