China - Beijing - Tianjin - Tanggu Expressway Project

rocument Of The World Bank FOR OFMCL USE ONLY Report No. P-4527-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO g25.0 MILLION AND A PROPOSED CREDIT OF SDR 98.9 MILLION ($125.0 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A BEIJING-TIANJIN-TANGGU EXPRESSWAY PROJECT April 17, 1987 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY E2VALENTS Currency Unit - Yuan (Y) I Yuan - 100 Fen Calendar 1986 January 1987 $1.00 = Y 3.45 $1.00 = Y 3.71 Y1.0 = $ 0.28 Y1.0 - $ 0.27 FISCAL YEAR January 1 to December 31 WEIGHfS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 miles I hectare (ha) - 2.47 acres 1 ton (t) - 1000 kg - 2,205 pounds 1 kg - 2.2 pounds PRINCIPAL ABBREVIATIONS AND ACRONYMS USED MOC - Ministry of Communications SDR - Special Drawing Right  FOR OFFICIAL USE ONLY CHINA BEIJING-TIANJIN-TANGGU EXPRESSWAY PROJECT Loan/Credit and Project Summary Borrower: The People's Republic of China Amount: Loan: US$25.0 million equivalent Credit: SDR 98.9 million (US$125.0 million equivalent) Terms: Loan: 20 years, including 5 years of grace, at standard variable interest rate Credit: Standard Onlending Terms: Not applicable Financing Plan: Government $125.8 million IBRD 25.0 million IDA 125.0 million TOTAL $275.8 million Economic Rate of Return: 15% Staff Appraisal No. 6344-CHA Report: Maps: IBRD No. 19291 IBRD No. 19661 This document has a restricted distribution and may be used by recipients only in the perfomane of their official duties. Its contents may not otherwise be disclosed without World lank authoriaztion.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RLCONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROpOSED LOAN AND CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR A BEIJING-TIANJIN-TANGGU EXPRESSWAY PROJECT 1. I submit the following memorandum and recommendation on a proposed loan and credit to the People's Republic of China to help finance a Beijing-Tianjin-Tanggu Expressway Project. The loan for US$25.0 million would have a term of 20 years, including 5 years of grace, with standard variable interest rate. The credit for SDR 98.9 million (US$125.0 million equivalent) would be on standard IDA terms. 2. Background. The transport system in China has been severely taxed by the pace of recent economic development, and capacity constraints are evident in all modes. The most serious transport need is for dramatically expanded road capacity, especially in rural areas where increased agricultural and small-scale industrial production have created an urgent demand for better farm-to-market transport services. Road transport will also face a growing share of the demand for passenger transporation from the increasingly mobile population. In the railway subsector, the network capacity has severely hampered delivery of energy supplies (i.e. coal), and even with recently initiated investments in rail line electrification and new line ^- -truction, it will take s-veral years to alleviate bottlenecks between major mining areas ard coastal cities. China also needs to substantially expand its port and waterways facilities to relieve the growing hindrance to external trade caused by inadequate berth capacity and container handling capacity. China's Seventh Five-Year Plan (1986-90) recognizes all these sectoral needs. By the end of the plan period, freight traffic is projected to be 45% higher than in 1985, and passenger traffic 60% higher, with a disproportionately greater share of the increase falling on road transport. To meet these needs, substantial investments are envisioned, especially in highway network expansion, new rail lines, double-tracking and electrification of existing lines, and more berths at coastal ports. The Plan also proposes to secure efficiency gains in trans- portation from operational improvements; these include the development of integrated transportation networks, in particular for coal transportation and for import/export trade, and technological improvements such as container handling facilities and intermodal transport centers. To facilitate these developments, the Plan envisions significant institutional changes in the sector, including an extension of the policy of separating the functions of Government from those of operating enterprises and delegating authority to local managements. The Bank fully subscribes to the Government's objectives for development of the transport sector and is supporting its initiatives with financial and technical assistance. Three railway projects (Loans 2394-CHA, 2540-CHA and 2678-CHA, and Credit 1680-CHA) are assisting the expansion of capacity on key routes and the manufacture of electric locomotives, passenger coaches and signalling equipment. Two port projects (Loans 2207-CHA and 2689-CHA) will effect improvements at Tianjin, Shanghai, and Huangpu Ports.  -2- The first Bank Group financed highway project in China (Loan 2539-CHA and Credit 1594-CHA) involves the construction and improvement of national and rural roads. 3. Road freight transport ircreased by about 18% p.a. from 76.4 billion ton-km in 1980 to 177.0 billion ton-km in 1985. Road passenger transport increased by 16%p.a. over the same period from 73 billion passenger km to 154 billion passenger km. Road traffic is growing at a rate as high as 18-19% ahnually in the vicinity of some major cities where road congestion is already a serious problem. The Seventh Five-Year investment plan for the highway subsector is to upgrade at least 80,000 km of existing road, and to construct about 60,000 km of new road of which 1,580 km will be expressway or Ciass One standard road. The proposed 142 km Beijing-Tianjin-Tanggu Expressway is part of the plan for high standard road investment. There is also an urgent need for more modern techniques in the planning, design, construction and mainte- nance of roads. The first Bank Group financed operation in the highway subsector in China, which is progressing satisfactorily, is supporting the Government's policy and institutional objectives related to (a) modernizing highway design, including updating and improving construction and material specifications; (b) increasing the cost effectiveness of highway investments by improving economic evaluation techniques for road investments and support- ing the move to competitive bidding for civil works; (c) supporting the high- way research program, including studies on pavement evaluation, strengthening, rehabilitation and maintenance of the existing paved road network, road capacity in congested areas, and road safety; and (d) staff training. 4. Project Objectives. The proposed project aims to assist the Government in meeting the road transport demand in one of the most important corridors in China, and increasing the efficiency and cost-effectiveness of the subsector. Specific policy, institutional and technological objectives to be addressed by the project would be: (a) the identification of the most appropriate method of financing roadworks; (b) examining the economic and financial efficiency of tolling; (c) introduction of improved road planning techniques; (d) assistance in research to upgrade the quality of local bitumen to be used for road paving; (e) assistance in identifying the appropriate type of organization for operation and maintenance of the expressway; (f) staff training; and (g) continued assistance (started in the first Highway Project) to modernize design, construction and materials specifications and contract documentation. 5. Project Description. The project would be carried out under the overall responsibility of the Ministry of Communications (HOC) with an expressway company, formed by the two municipalities and one province in which the expressway will be located, responsible for supervision of the expressway construction. The project would include: (a) construction of a 142 km, four- lane divided, controlled access, tolled expressway connecting Beijing and Tianjin with the new port of Xingang at Tanggu, as well as two connecting roads (12 km); (b) consultants' services to help train the MOC's and the expressway company's staff in the supervision and quality control of construc- tion; (c) provision of road maintenance, operation and traffic monitoring equipment for the expressway; (d) assistance, through the provision of equip- ment and expertise, in improving road planning by setting up a computerized  -3- road data bank; (e) studies on (i) the method of financing the expansion, improvement and rehabilitation of China's highway network, (ii) the appro- priate organization for operation and maintenance of the expressway upon completion, and (iii) the potential for using local bitumen for road pave- ments; and (f) training of staff from MOC's Highway Bureau and the Provincial Highway Bureaus, in the area of transport planning and other highway and transport-related topics. 6. Rationale for Bank Involvement. Government is seeking Bank Group help in removing the transport bottlenecks impeding economic growth. The Seventh Five-Year Plan recognizes the need to expand and improve the highway system, moderrize the planning, construction and maintenance of highways, expand and improve road transport and set up improved strengthened institutions capable of managing a modern highway system and road transport industry. The present relatively low level of highway network development in China allows the appli- cation of the concept of intermodal planning or modal complementarity in important transport corridors. The design and construction of the first expressway in China will introduce important new technology. The Bank's involvement in the highway subsector under the first project, and particularly in policy, institutional and techuical matters aims at helping to modernize the subsector by bringing the Bank's experience to bear on the problems and by expediting the introduction of advanced technology to solve them. The proposed project would provide continued support to the Government in these matters and would encompass new tasks involved with the financing, management and operation of China's first tolled expressway. 7. Agreed Actions. The Government has agreed on the following actions: (a) to establish before the completion of construction and in consultation with the Bank Group, an expressway operating organization which would include a special monitoring group to carry out the monitoring work agreed with the Bank Group; (b) to take all steps necessary to ensure that the two principal connecting roads (7.5 km and 4.5 km in length) would be open to traffic upon completion of the expressway; (c) to carry out the three studies in accordance with the terms of reference and timing agreed with the Bank Group and thereafter to exchange views with the Bank Group on the studies and implement the agreed recommendations; (d) to carry out a training program acceptable to the Bank Group; (e) to ensure that the toll rates would not exceed 30 percent of the estimated vehicle operating cost savings (an under- standing was also reached on the method of calculating vehicle operating costs which would be refined jointly by MOC and the Bank prior to the opening of the expressway); and (f) as a condition of effectiveness, to enter into a project implementation agreement among MOC, the two municipalities and one province. 8. Justification. Transport demand in the Beijing-Tianjin-Tanggu corridor currently far exceeds capacity and is expected to grow very rapidly in the next decade due to the expansion of the Tanggu port to accommodate increases in foreign trade and investment, the opening up of market activity, urban expansion and the overall rapid growth of the national economy. There is thus an urgent need to expand road and railway capacity in the corridor and to ensure that the two modes are used in the most cost effective manner. Based on origin-destination surveys conducted in the corridor, the expressway will cater to short- and medium-haul traffic, freeing the rail system to  -4- increasingly supply the long-haul demand, which is also consistent with the Government's recent policy to use rail primarily for long distance traffic. The principal benefits accruing to users of the expressway would be savings in vehicle operating costs and reduction in accidents. The comparision of benefits and costs yields an economic rate of return of aDproximately 15 percent. In comparison to non-tolled highways, there are additional costs (of tolling facilities and their operation) and potentials for lost benefits (particularly in the early years) on toll roads as some operators will prefer the higher vehicle operating costs on local (untolled) roads to paying the tolls. Experience gained through the expressway monitoring unit will refine understanding of this critical relationship. However, based on Bank Group studies and experience elsewhere in the world, a toll set no higher than about 30% of attributable vehicle operating cost savings would likely result in a traffic diversion not greater than about 15% (on which basis the economic rate of return would still be at an acceptable level of 13%) and produce revenues sufficient to cover at least the operation and maintenance costs of the expressway. Based on sensitivity analysis, the project would remain viable should costs exceed estimates by 10% or benefits be reduced by 10%, or for combinations of higher cost/lower benefit in the 10% range. 9. Risks. Aside from the possible risks of having costs exceed estimates and/or benefits reduced by 10% (discussed in the preceding paragraph), a principal risk would be a substantial delay in the completion of the expressway. The project seeks to deal with these risks by providing special assistance in procurement and training of construction supervisory engineers. Sensitivity analysis shows that the project with a one-year delay in expressway completion would remain viable. 10. Recommendation. I am satisfied that the proposed loan and credit would comply with the Articles of Agreement of the Bank and the Association and recommend that the Executive Directors approve the proposed loan and credit. Barber B. Conable President Attachments Washington, DC April 17, 1987  _ 5 _ Schedule A Page 1 of 1 CHINA BEIJING-TIWJIN-TANGGU EXPRESSWAY PROJECT Estimated Costs and Financing Plan (US$ million) Local Foreign Total Estimated Costs: Expressway construction 87.2 115.5 202.7 Equipment for maintenance, - 5.0 5.0 operation and monitoring of expressway Consultant services for 0.3 5.0 5.3 supervision, studies, etc. Staff training - 0.8 0.8 Base Cost (1987 prices) 87.5 126.3 213.8 Physical contingencies 8.8 12.6 21.4 Price contingencies 7.4 11.1 18.5 Subtotal 103.7 150.0 253.7 Land acquisition 22.0 - "22.0 Total Project Cost a/ 125.8 150.0 275.8 a/ Project-financed goods are exempt from import duties and taxes. Financing Plan IBRD - 25.0 25.0 IDA - 125.0 125.0 Government 125.8 0.0 125.8 Total 125.8 150.0 275.8  6- Schedule B Page 1 of 2 CHINA BEIJING-TIANJIN-TANGGU EXPRESSWAY PROJECT Procurement Method and Disbursements (US$ million) Procurement Method Project Element ICB LCB Other Total Expressway contracts 240.7 - - 240.7 (137.4) - - (137.4) Equipment 6.0 - - 6.0 (6.0) - - (6.0) Training and consultants - - 7.0 7.0 - - (6.6) (6.6) Land acquisition - 22.1 22.1 _ * (-{) (-) Total 246.7 29.1 275.8 (143.4) (6.6) (150.0) Note: Figures in parentheses are the respective amounts (including contingencies) to be financed by the Bank/IDA. Disbursements (US$ million) Civil works 93,950,000 53% of total expendi- tures Equipment for expressway 21,600,000 80% construction Equipment for maintenance, 5,250,000 100% of foreign expend- operation and monitoring itures; 100% of local of expressway expenditures (ex-factory) and 75% of local expenditures for other items procured locally Consultants' services 5,800,000 100% and training Unallocated 23,400,000  - 7 - Schedule B Page 2 of 2 Estimated Bank/IDA Disbursements Bank/IDA FY 1988 1989 1990 1991 1992 Annual 18 32 45 35 20 Cumulative 18 50 95 130 150  -8 - Schedule C Page 1 of 1 CHINA BEIJING-TIANJIN-TANGGU EXPRESSWAY PROJECT Timetable of-Key Project Processing Events Time taken to prepare project: Two years Project prepared by: Ministry of Communications, assisted by consultants First presentation to Bank/IDA June 1984 and first mission: Departure of appraisal mission: October 1986 Negotiations: March 1987 Planned date of effectiveness: September 1987  - 9 - Schedule D Page I of 2 STATUS OF BANK GROUP OPERATIONS IN THE PEOPLE'S REPUBLIC OF CHINA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1987) Loan or Amount in US$ million Credit Fiscal (less cancellations) Number Year Borrower Burose hank IDA Undisbursed/a 2021/1167 81 People's Republic of China University Development 100.0 100.0 0 1261 82 People's Republic of China North China Plain Agriculture - 60.0 9.42 2207 82 People's Republic of China Three Ports 69.0 - 13.94 1297 82 People's Republic of Chin" Agric. Education & Research - 75.4 13.46 2226/1313 82 People's Republic of China Industrial Credit 40.6 30.0 10.64 2231 83 People's Republic of China Daqing Petroleum 162.4 - 53.62 2252 83 People's Republic of China Zhongyuan-Wenliu Petroleum 100.8 - 44.79 2261/1347 83 People's Republic of China Heilongjiang Land Reclamatloe~ 25.3 45.0 11.58 1411 83 People's Republic of China PolytechnIdTV University - 85.0 32.59 1412 83 People's Republic of China Technical Cooperation - 10.0 2.66 1417 84 People's Republic of China Ruboer Development - 100.0 49.13 2382 84 People's Republic of China Lubuge Hydroelectric 145.4 - 80.14 2394 84 People's Republic of China Railway 220.0 - 54.40 1462 84 People's Republic of China Rural Credit - 50.0 24.60 1472 84 People's Republic of China Rural Health & Medical Educ. - 85.0 38.16 2426 84 People's Republic of China Karamay Petroleum 99.5 - 62.42 2434/1491 84 People's Republic of China Second Industrial Credit 105.0 70.0 50.36 2444/1500 84 People's Republic of China Second Agricultural Education 45.3 23.5 23.82 1516 84 People's Republic of China Second Agricultural Research - 25.0 13.83 1551 85 People's Republic of China Second University Development - 145.0 118.49 2493 85 People's Republic of China Second Power 117.0 - 83.86 2501 d5 People's Repub tc of China Changcun (Luan) Coal Mining 126.0 - 121.55 1557 85 People's Republ-c of China Seeds - 40.0 24.14 1578 85 People's Republic of China Rural Water Supply - 80.0 76.91 2539/1594 85 People's Republic of China Highway 42.6 30.0 61.25 2540 85 People's Republic of China Second Railway 235.0 - 215.11 2541 85 F.ople's Republic of China Fertilizer Rehabilitation and 97.0 - 88.83 Energy Saving 1605 85 People's Republic of China Forestry Development - 47.3 52.22 2579/1606 85 People's Republic of China Pishihang-Chaohu Area Development 17.0 75.0 90.12 2580 85 People's Republic of China Weiyuan Gas Field Technical 25.0 - 22.23 Assistance 1642 86 People's Republic of China Second Rural Credit - 90.0 87.82 2659/1663 86 People's Republic of China Third Industrial Credit 75.0 25.0 76.42 1664 86 People's Republic of China Second Technical Cooperation - 20.0 21.13 1671 b6 People's Republic of China Provincial Universities - 120.0 131.79 2678/1680 86 People's Republic of China Third Railway 160.0 70.0 240.99 2689 86 People's Republic of China Tianjin Port 130.0 - 130.0 1689 86 People's Republic of Ch.na Freshwater Fisheries - 60.0 62.35 2706 86 People's Republic of China Beilungang Thermal Power 225.0 - 223.32 2707 86 People's Republic of China Yantan Hydroelectric 52.0 - 42.26 2708 86 People's Republic of Chins Liaodong Bay Petroleum Appraisal 30.0 - 26.11 2723/1713/b 86 People's Republic of China Rural Health & Preventive 15.0 65.0 88.54 Medicine 1737 87 People's Republic of China Red Soils Area Development - 40.0 43.71 2257 87 People's Republic of China Shuikou Hydroelectric 140.0 - 140.0 2783/1763 87 People's Republic of China Fourth Industrial Credit 250.0 50.0 302.58 c/ 87 People's Republic of China Shanghai Machine Tools 100.0 - 100.0 c7/ 87 People's Republic of China Xinjiang Agricultural Dev't - 70.0 70.0 Total 2,949.9 1,786.2 Total now held by Bank and IDA 2,949.9 1,786.2 Total Undisbursed 22121.35 1,217.63 3,338.98 /a As credits are denominated in SDRs (since IDA Replenishment VI), undisbursed SDR credit balances are con- verted to dollars at the current exchange rate between the dollar and the SDR. In some cases, therefore, the undisbursed balance indicates a dollar amount greater than the original principal credit amount expressed ir dollars. /b Not yet effective. /c Not yet signed. Notes: The status of the projects listed in Part A is described in a separate report on all Bank/IDA financial projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31.  -10 - Schedule D Page 2 of 2 B. STATEMFNT OF IFC INVESTMENTS (as of Marcb 31, 1987) Amount In US$ million Year Obligor Type of business Loan Total 85 Guangzhou Automobile 15*0 2*0 17.0 and Peugeot Automobile Co. Total Gross Commitmepts 15.0 2*0 17.0 Less cancellations, terminations, repayment and sales - - - Total Commitments now held by IFC 15.0 2.0 17.0 Total Undisbursed 15.0 0.6 15.6  5c. s5-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~- I,~~~~~~~~~~~~~~~$ tar h cne-e"tU readW S Sli Is O. kMW* f me onThs msap has been penpard y. on * ofThe W o'd8a'kSnkandxc ,'rty9 ; tathonven.ence ofs SIte efVnyeontS!us ofheiord a any endorhementronf acceptance o Th Copoap tonS Theden oesnafroest>j< sued band te"budnsSoe on? thesma do??notert*. on th?e, plertn fthse Wot h rld Bakand ther b Nt tleat,ontealow F,nnc arpoahonI.-( on tyis n?ap udo n otv In on the thetle s t/ Pr\ * Ot any' femltoy or anyt I endorement Or acceptance do' ' -' .r\ort .urh b?oedan.-Je\i\ / Mco PortsA} g Special Cities ~ ~ ~ ~ ~ ~ ~ ~ C ?~ [ ' 'lProject e . Cxp .sl Mcior TQWM~'4 Provinces Included in the First Highway Projec U ~~~~~~~~~~~~~~Railrad5 7