China - Jiangsu Provincial Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7706-CHA STAFF APPRAISAL REPORT CHINA JIANGSU PROVINCIAL TRANSPORT PROJECT March 18, 1991 Transport Operations Division Country Department III Asia Regional Office This document has a restricted distribution and may be used by recipients only In the perfonmance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of February 1991) Currency :iame Renminbi Currency unit Yuan (Y) = 100 Fen $1.00 Y 5.22 $0.19 Y 1.0 $1.0 million Y 5.22 million $191,570 Y 1.0 million FISCAL YEAR January 1 - DecembeL 31 WEIGHT AND MEASURES 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 0.621 mile (mi) 1 square meter (m2' 10.76 square feet (ft2) 1 square kilometer (km2) 0.4 square miles (mi2) 1 hectare (ha) = 0.01 km2 2.47 acres (ac) = 15 mu 1 mu 666.7 m2 = 0.0667 ha 1 kilogram (kg) 2.2046 pounds (lbs) 1 metric ton (m ton) 2,204 pounds (lbs) ABBREVIATIONS AND ACRONYMS CAD - Computer Aided Design 8FYP - Eighth Five-Year Plan ERR - Economic Rate of Return GOC - Government of China GOVAI - GLoss Output Value of Agriculture and Industry ICB - International Competitive Bidding JPCD - Jiangsu Provincial Communications Department JPG - Jiangsu Provincial Government JPTPDI - Jiangsu Provincial Transport Planning, Survey and Design Institute MR - Ministry of Railways LCB - Local Competitive Bidding MOC - Ministry of Communications O-D - Origin-Destination pcu - Passenger car unit PPC - Provincial Planning Commission SAA - State Audit Administration 7FYP - Seventh Five-Year Plan SPC - State Planning Commission VOC - Vehicle operating costs vpd - Vehicles per day  FOR OMCIAL USE ONLY CHINA JIANGSU PROVINCIAL TRANSPORT PROJECT Table of Contents Page No. Loan/Credit and Project Summary . . . . . . . . . . . . iv I. THE TRANSPORT SECTOR........ . . i A. Introduction . . . . . . . . . . . . . . . . . . . . . 1 B. Traffic . . . . . . . . . . . . . . . . . . . . . . . . 1 C. Investment .... . . . . . . . . . . . 2 D. Transport Issues and Objectives . . . . . . . . . . . 2 E. Bank Group Participation in Transport Sector . . . . . 4 II. JIANGSU PROVINCE ....*................. 6 A. Economic Background . . . . . . . . . . . . . . . . . . 6 B. The Tratisport System . . . . . . . . . . . . . I . 7 C. Traffic Growth and Characteristics . . . . . . . . . . 9 D. Transport Administration . . . . . . . . . . . . . . . 10 E. .;anning, Budgeting, and Financing Inland Waterways . . 11 F. Engineering, Construction, and Maintenance . . . . . . 13 G. Development Objectives and Strategy . . . . . . . . . . 13 III. THE PROJECT ................. . 15 A. Background and Preparation ... .15 B. Project Objectives . . . .. . . 15 C. Detailed Features . . . . . . . . . . . . . . . . . . . 16 D. Cost Estimates . . . .. . ... . . 25 E. Financing.. . . ... 26 F. Implementation .. .. 27 G. Procurement ....28 H. Disbursements . . .. . . . . . 30 I. Auditing, Reporting, and Monitoring . . . . . . . . . . 31 J. Environmental Effects . . . . . . . . . . . . . . . . . 31 This report is based on the findings of an appraisal mission to China in January 1989. Mission members included S. Teravaninthorn (Economist/Task Manager); A. Sabeti (Transport Specialist); J. Veniard (Sr. Operations Officer); G. Mahoney, P. Malone, and A. Hochstein (Engineers/Consultants). This report was subsequently revised on the basis of short visits to Jiangs- and information provided by provincial authorities. The peer reviewers for this project were Messrs. G. Trnka, I. Mobarek, and Ms. F. Johansen. The Division Chief is Daud Ahmad and the Country Director is Mr. Shahid Javed Burki. 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.  - At - Page No. IV. ECONOMIC EVALUATION . . . . . . . . . . .. . . . . . . . . 33 A. Main Benefits and Beneficiaries . . . . . . . . . . . . 33 B. Rehabilitation of the Southern Jiangsu Road Network . . 34 C. Upgrading of the Nanjing-Shanghai Road . . . . . . . . 34 D. Rehabilitation of the Grand Canal at Danyang . . . . . 37 E. Construction of the Nantong Shiplock and Jiuweigang Bridge 41 Nantong Shiplock . . . . . . . . . . . . . . . . . 41 Jiuweigang Bridge . . . . . . . . . . . ; . . . . . 43 V. AGREEtENTS REACHED AND RECOMMENDATIONS . . . . . . . . . . 43 TABLES 1.1 China: Freight Traffic Intensities in Selected Countries 46 1.2 China: Road and Railway Network Density in Selected Countries 47 1.3 China: Freight Traffic . . . . . . . . . . . . . . . . . . 48 1.4 China: Passenger Traffic . . . . . . . . . . . . . . . . 49 1.5 China: Transport Investment vs. Economic Output . . . . . 50 1.6 China: Investment in the Transport Sector . . . . . . . 51 2.1 Jiangsu: Economic Data, 1988 . . . . . . .. . . . 52 2.2 Jiangsu: Density of Transport Network By Region and Mode, 1989 53 2.3 Jiangsu: Provincial Road Network, 1989 . . . . . . . . . . 54 2.4 Jiangsu: Provincial Inland Waterway Network, 1989 . . . . 55 2.5 Jiangsus Freight and Passenger Traffic Growth, 1980-89 . . 56 2.6 Jiangsus Provincial Vehicle Fleet, 1980-89 . . . . . . . . 57 2.7 Jiangsu: Estimate of Highway Expenditures and Road User's Contribution, 1985-89 . . . . . . . . . . . . . . . . . . . 58 2.8 Jiangsu: Fuel Prices . . . . . . . . . . . . . ... . . . . 59 3.1 China: Highway Design Standards . . . . . . . . . . . . . 60 3.2 Estimated Disbursement Schedule . . . . . . . . . . . . . . 61 4.1 Economic Cost Conversion Factors, 1990 . . . . . . . . . . 62 4.2 ERRs for Southern Road Network Rehabilitation for Selected Phase 1 Components. . .. . 63 4.3 Traffic on the Nanjing-Shanghai Road Without the Project . 64 4.4 Projected Traffic on the Upgraded Nanjing-Shanghai Road and on Existing Road with Project . . . . . . . . . . . . . . . 65 4.5 Traffic on the Rehabilitated Nanjing-Shanghai Highway in Passenger Car Equivalent Units (PCUs) . . . . . . . . . . . 67  - ili - Page No. 4.6 Economic Rates of Return (ERR) and Sensitivity Analysis of Nanjing-Shanghai Reod . . . . . . . . . . . . . . . . . . . 68 4.7 Economic Analysis of the Rehabilitation of the Grand Canal at Danyang . . . . . . . . . . . . . 69 4.8 Economic Analysis of the Construction of the Mew Nantong Shiplock.0 . .. . . . . . . . . 70 FIGURE 1. Capacity of Nantong Lock as a Function of Chamber Dimensions . . 71 CHARTS 1. Organization of the Provincial Communications Department . . . . 72 2. Organization of the Highway Bureau of the Provincial Cor inications Department...... 73 ANNEXES 1. Economic Evaluation and Procurement Guidelines for Preparing the Second and Third Phases of the JPCD Road Network Rehabilitation Program 2. Terms of Reference for Consultant Services for Construction Supervision 3. Terms of Reference for Jiangsu Highway Data Bank Preparation, Pavement Evaluation and Strengthening Program, and Maintenance Management Study 4. Project Implementation Schedule 5. Project Monitoring Indices 6. Roads Selected for First Phase of Provincial Road Network Rehabilitation 7. Selected D-,cuments and Data Available in the Project File MAPS 1. Jiangsu Province Transport Project: The Project Components - IBRD 21331 2. Jiangsu Provincial Transport System and its Future Development Plan - IBRD 21332R  - iv - CHINA. JIANGSU PROVINCIAL TRANSPORT PROJECT Loan/Credit and Project Summary Borrower: People's Republic of China Beneficiary: Jiangsu Province Amount: Loan: $100.0 million equivalent Credits SDR 38.5 million ($53.6 million equiva- lent) Terms: Loan: 20 years, including 5 years of grace, at standard variable interest rate Credit: Standard, with 35 years maturity On-Lending Terms: Between the Ministry of Finance and Jiangsu Prov- ince: 20 years, including 5 years of grace, at 5.925 percent with 0.75 percent commitment fee on outstanding balance. Project Objectives: The proposed project has two objectivess (i) in the short-term, to help mitigate the most serious constraints posed by the province's inadequate transport infrastructure on its fast-developing economy and that of its neighbors; and (ii) in the long-term, to assist the province in upgrading the planning, budgeting, and implementation of trans- port works, and in developing more efficient con- struction entities. A large tecimical assistance component is designed to help strengthen the abil- ity of provincial transport staff to efficiently plan and implement the proposed project und to achieve the long-term institutional objectives. Project Descriptions: The project includess (a) a slice of JPG's road network rehabilitation program, the first such pro- gram within the Bank Group's transport projects in China; (b) rehabilitation of the Nanjing-Shanghai corridor road; (c) rehabilitation of the Danyang section of the Grand Canal; (d) construction of a new shiplock at Nantong and an adjacent bridge at Jiuweigang; (e) consulting services to help train JPCD staff in the supervision and quality control of civil works included in the project; (f) assist- ance to JPCD in devising an immediate and long term plan of action to develop independent construction units; and (g) technical assistance for: (i) eval-  ua*irng existing road pavements and preparing a pavement strengthening and maintenance program; (ii) improving the design and planning of roads and waterways, including establishment of a road data bank, and introducing computer-aided design; (iii) assistance in carrying out the provincial transport corridor study; and (iv) staff training. The main thrust of the technical assistance compo- nent is to strengthen the ability of transport staff at both the provincial and county levels in the areas of pro3ect management, transport invest- ment planning, and implementation. Pro3ect Benefits The principal benefits accruing to users of the and Risks: newly rehabilitated highway and waterway would be savings in vehicle operating costs, savings in ship and barge waiting times, and reduced accidents. Technically, there are no risks foreseen because the technology to be used with all the works is well established. This is a multi-faceted and fairly complex project and yet is the first project the Bank Group has initiated with Jiangsu Province. The project contains a large number of subprojects (the provincial road rehabilitation program) which will be carried out by construction units of cities and counties with JPCD fully responsible for over- all implementation. Ir order to minimize implemen- tation risks, the Bank hass (i) agreed with JPCD on an implementation organization with clear lines of authority and responsibility; and (ii) required JPCD to carry out, with consultant assistance, Independent supervision of all civil works con- struction including that by city and county con- struction units. The performance of project imple- menting agencies since Appraisal (January 1989) has been quite good despite funding delays.  _ vi - Project Costst Local Foreiyn Total ---------- ($ million) --------- Civil Works Road Network Rehabilitation Program 87.0 58.0 145.0 Nanjing-Shanghai Road 25.0 30.5 55.5 Grand Canal Rehabilitation at Danyang 7.3 4.8 12.1 Nantong Ship Lock 3.5 4.7 8.2 Jiuweigang Bridge 2.3 2.7 5.0 Supervision of Construction 2.1 1.6 3.7 Development of Construction Units 0.1 0.2 0.3 Equipment 1.3 9.5 10.8 Technical Assistance and Training 0.5 1.8 2.3 Base Cost 129.2 114.1 243.3 Physical Contingencies 11.2 9.9 21.1 Price Contingencies 13.6 12.2 25.8 Subtotal 154.0 136.2 290.2 Land Acquisition 22.6 - 22.6 Total Project Costs la 176.6 136.2 312.C Financing Plans Provincial government 159.2 - 159.2 IBRD 17.4 82.6 100.0 IDA - 53.6 53.6 Total Financing Required 176.6 136.2 312.8 Estimated Disbursements: Bank Group FY 1992 1993 1994 1995 1996 ---------------- ($ million) --------------- An.aual 41.3 43.3 31.0 23.0 15.0 Cumulative 41.3 84.6 115.6 138.6 153.6 Economic Rate of Returns 42 percent for the first phase of the program of road network rehabilitation; 64 percent for upgrading of the Nanjing-Shanghai road; 19 percent for rehabilitation of the Grand Canal at Danyang; and 20 percent for construction of the new Nantong shiplock. /a Import duties and taxes are not included in project costs, as the Government will exempt the project from import duties and taxes.  CHINA JIANGSU PROVINCIAL TRANSPORT PROJECT I. THE TRANSPORT SECTOR A. Introduction 1.1 The transport system in China is characterized by intensive freight traffic in relation to economic output, heavily suppressed demand, high utili- zation of assets, a strong emphasis on railways, and distortions in tariffs and costs. Freight traffic intensity in China, measured in ton-km per dollar of GNP is even higher than in the Soviet Union, and is much higher than in India, Brazil or the United States (Table 1.1). The major reasons behind China's high freight traffic intensitv are a relatively large heavy industry sector, a large volume of other low value-added products, and reliance on coal as the major source of energy. In addition, energy efficiency in China is relatively low, and there is still little pre-processing of raw materials before shippi.g. On the other hand, the density of China's transport network, measured both on the basis of geographic area and population, is among the lowest in tne world (Table 1.2). B. Traffic 1.2 Freight Traffic. The economic reforms introduced since 1979 have provided the impetus for a large upsurge in both freight and passenger traf- fic, severely taxing the transport system. Freight traffic has grown at about 9 percent per annum; port freight traffic also has grown at about 9 percent per annum; and intercity highway freight traffic has grown at about 1l percent per annum--consistently higher than the growth of gross domestic production (Table 1.3). These rates would have been even higher were it not for the capacity constraints which are now evident in all modes. Many power plants and factories have fallen short of their production goals because the trans- port system has not been able to deliver the needed raw materials in time. Coal production in Sbanxi province, the largest coal producer, continues to be hampered by inadequate rail capacity. Rural areas throughout the country are short of transport services, both for crops and for local light industry. The capacity of navigable waterways has declined due to insufficient investment for upgrading and maintaining navigation channels. At the ports, lack of proper facilities limits the handling in bulk of commodities such as fertiliz- ers, cement, and grain. 1.3 Passenger Traffic. The transport system is further taxed by the marked growth in the demand for passenger travel in recent years. Since the economic reforms of 1979, passenger traffic has grown at about 12 percent per annum, illustrating the positive relationship between growth in income and growth in demand for travel (Table 1.4). Nonetheless, passenger travel per capita in China remains very low, in part because of severe capacity con- straints. Civil aviation is very limited, and most long-distance journeys are made by rail.  CHINA JIANGSU PROVINCIAL TRANSPORT PROJECT 1. THE TRANSPORT SECTOR A. Introduction 1.1 The transport system in China is characterized by intensive freight traffic in relation to economic output, heavily supDressed demand, high utili- zatior. of assets, a strong emphasis on railways, and distortions in tariffs anid costs. Freight traffic intensity in China, measured in ton-km per dollar of GNP is even higher than in the Soviet Union, and is much higher than in India, Brazil or the UJnited States (Table 1.1). The major reasons behind China's high freighL traffic intensity are a relatively large heavy industry sector, a large volume of other low value-added products, and reliance on coal as the major source of energy. In addition, energy efficiency in China is relatively low, and there is still little pre-processing of raw materials before shipping. On the other hand, the density of China's transport network, meL,3ured both on the basis of geographic area and population, is among the low-.- in the world (Table 1.2). B. Traffic 1.2 Freight Traffic. The economic reforms introduced since 1979 have provided the impetus for a large upsurge in both freight and passenger traf- fic, severely taxing the transport system. Freight traffic has grown at about 9 percent per annum; port freight traffic also has grown at about 9 percent per annum; and intercity highway freight traffic has grown at about 18 percent per annum--consistently higher than the growth of grocs domestic production (Table 1.3). These rates would have been even higher were it not for the capacity constraints which are now evident in all modes. Many power plants and factories have fallen short of their production goals because the trans- port system has not been able to deliver the needed raw materials in time. Coal production in Shanxi province, the largest coal producer, continues to be hampered by inadequate rail capacity. Rural areas throughout the country are short of transport services, both for crops and for local light industry. The capacity of navigable waterways has declined due to insufficient investment for upgrading and maintaining navigation channels. At the ports, lack of proper facilities limits the handling in bulk of commodities such as fertiliz- ers, cement, and grain. 1.3 Passenger Traffic. The transport system is further taxed by the marked growth in the demand for passenger travel in recent years. Since the economic reforms of 1979, passenger traffic has grown at about 12 percent per annum, illustrating the pos:.tive relationship between growth in income and growth in demand for travel (Table 1.4). Nonetheless, passenger travel per capita in China remains very low, in part because of severe capacity con- straints. Civil aviation is very limited, and most long-distance journeys are made by rail.  -3- (e) severe shortages of human resource skills in specific key ares, particularly in multimodal planning and policy analysis, economic analysis, and user-centered logistics management; and (f) structural weaknesses in highway construction capabilities related to procurement procedures, quality control of works, and project and company management. 1.7 Achieving a better balance between demand and supply is vital because chronic shortages of transport services have been increasingly con- straining the growth of the Chinese economy. Its effects have been seen in the past in electric power shortages due to lack of coal transport capacity. But transport constraints are an economic problem well beyond their effects on tne energy sector. The poor quality of transport services resulting from shortages of often outmoded equipment and substandard, often congested infra- structure imposes high costs and impedes the integration of markets, which is one of the major sources of economic efficiency in modern societies. The ability of China to compete in world export markets is also reduced, particu- larly for light manufacturing and high-value agricultural exports, which require flexible, fast door-to-door services. 1.8 Pricing distortions are also a major problem. Cost analyses con- ducted during the Guangdong Comprehensive Transport Study suggest that nation- wide long-distance coal transport, for example, is underpriced by as much as 40 percent relative to long-run incremental costs, thus generating uneconomic excess demands which clog the transport system. Distortions in the opposite oirection occur in highways and aviation, where tariffs may exceed long-run incremental costs by wide margins, thus distorting the choice of modes. 1.9 China has so far failed to exploit the full spectrum of modern transport technology. It still telies on the railway to handle much traffic that could be better served by the two major transportation innovations of the 20th centurys the modern highway vehicle and the airplane. There is some traffic on certain railway routes which could be more economically served by coastal shipping. The rai.lway needs to shed as much of that traffic as possi- ble in order to free capacity to concentrate on other traffic where its com- parative advantage is greatest, namely long-haul bulk commodities. The Minis- try of Railways (MR) recognizes this and has taken measures in that direction in recent years. 1.10 Over the long run, however, China's choice of which modes to expand and by how much should be based on an understanding of the differences in costs and service characteristics of the different modes, on the one hand, and prospective changes in the structure and level of transport demand, on the other. At the present time, however, China has too few planners and policy analysts who have the analytical tools or perspective to delineate those choices or to identify the instruments to effect the necessary changes. 1.11 The Government has already taken steps to respond to some of these challenges. It has made major adjustments in transport tariffs and further adjustments may be anticipated. In addition, it has allowed local authorities more autonomy to plan, finance, and implement projects which will expand  -4- trauisport capacity. It has also allowed private individuals to provide pas- senger and freight transport services on roads and inland waterways and has encouraged provincial authorities to develop local railway systems. The Gov- ernment is introducing more modern technology in the transport system primar- ily by imp:oving rolling stock technology in the railway subsector; enhancing container and bulk handling capacity in the port subs3ctor; improving road pavement desigt. and geometric standards for the expansion of motorization in the lhighway subsector; and increasing the use of computers in operations in. all modes. These actions have spurred the growth and modernization of the transport system in recent years. E. Bank Group Participation in Transport Sector 1.12 The Bank Group has supported the initiatives of the Government in the transport sector through lending, sector studies, technical asslstance, and training. Through 1989, the Bank Group had loaned about $2.1 billion to China under 17 projects for the transport sector and presently is preparing several new transport sector projects. 1.13 The railway subsector has received ahout $1,035 million in Bank Group funding under five projects (Loan 2394-CHA; Loan 2540-CHA; Loan 2678- CHA/Credit 1680-CHA; Loan 2968-CHA; and Loan 3060-CHA/Credit 2014-CHA). These projects have assisted wi;:h the expansion of capacity on key routes and tne manufacture of electric locomotives, passenger coaches, and signaling equip- ment. The most recent project--construction of a new line in Inner Mongolia-- is the first time the Bank is financing the development of a provincial rail- way in China. A pilot railway operations costing system and a management information system are being introduced in MR and a strategic planning study is under way as a result of a collaborative Bank/MR effort. 1.14 The highway subsector has received ebout $569 million in Bank Group financitng under six projects (Loan 2539-CHA/Credit 1594-CHA; Loan 2811-CHA/ Credit 1792-CHA; Loan 2951-CHA/Credit 1917-CHA; Loan 2952-CHA; Credit 1984- CHA; and Loan 3073-CHA/Credit 2025-CHA). These projects provide for the con- struction of high-quality national and provincial roads totalling about 1,100 km, and the expansion and improvement of some 2,800 km of rural roads and major bridges. When completed, some of these roads will help to provide vital missing links in the national highway ne-work; others will help to ease severe congestion in parts of the network or provide access to remote areas. The projects are also designed to provide foreign technical assistance and training of Chinese personnel in areas such as supervision and quality control of road construction, design, and planning. Finally, the proiects support studies on key issues of highway development such as road safety, pavement management, user charges, and methods of financing the expansion, improvement, and rehabilitation of the road network. The First Highway Project (Loan 2539- CHA, Credit 1594-CHA) is essentially completed; a PCR will be prepared next year. 1.15 The ports subsector has received $495 million of Bank Group financ- ing under six projects (Loans 2207-CHA, 2689-CHA, 2907-CHA, 2877-CHA, 3006- CHA, and 3007-CHA). Most of the loan funds are being used in Shanghai, Tianjin, Dalian, Huangpu, Ningbo, and Xiamen for construction of terminals, jetties, and berths for handling bulk commodities, general cargo, and contain-  ers, as well as the dredging of navigation channels. Funds also have been used for training, technical assistance, and various studies such as port planning, operations management, and containerization. 1.16 The dialogue betweon the Government and the Bank Group on transport sector operattions and strategy has been strengthened both through the project. preparation activities and project-financed studies mentioned above and through independent studies carried out in collaboration with Chinese authori- ties. A provincial transport study has been conducted in Guangdong Province to support the design of a new multimodal transport plan in the province. The Bank Group also conducted a survey of the national water transport system, which has reaffirmed the need tc further exploit the large potential of the Chinese waterways. Chinese authorities and the Bank Group are in the process of undertaking new transport studies which will focus on long-term strategies for the country transport system. These studies include a multi-port optimi- zation study which will evaluate medium- to long-term options for developing the deep-water seaport at Ningbo; a study of strategic issues in ports and shipping in southern China; a multimodal transport study which will examine strategic options in developing the transport system for the Yangtze Economic, Zone; a coal transport study which will evaluate strategies for alleviating coal shortages, through the year 2005; and a railway investment study. 1.17 These actions have spurred the growth and modernization of the transport system in recent years. However, much more needs to be done to bring about the changes required to effectively deal with the emerging issues. In order to significantly alleviate the transport bottlenecks and rationalize the transport system, the government should, by the year 2000, take the fol- lowing measures: (a) step up the total level of transport investment in relation to GNP, to expand capacity to meet the new traffic demands and to clea&r up the backlogs caused by past underinvestment; (b) realize the most economical balance of investments among the major freight transport modes of railway, highway, and water; (c) realign further the prices of freight transport services and those of the major commodities, especially coal, to bring them closer to their true costs; (d) increase further the productivity of existing transport assets through technological modernization; and management reforms; and (e) improve multimodal investment decisions, both across and'within modes, through the use of analysis and planning tools that more optimally determine the economic priorities of transport investments under budget constraints. 1.18 The Bank strategy has been, and will continu to be, to support the government in implementing the above measures. In the past, the Bank has focused its efforts primarily on traffic capacity expansion and operational efficiency improvement. While this emphasis will remain, the Bank will as far  -6- as practical broaden its strategy to assist the government in other areas, including investment planning, operational management, and the reduction of transport demand through industrial efficiency improvements. II. JIMAGSU PROVINCE A. Economic Backg-round 2.1 Jiangsu is one of the most developed provinces in China. It is characterized by a gentle terrain, long coastline, and the presence of many lakes and rivers. Although Jiangsu lacks raw materials and energy resources, its privileged situation at the edge of the subtropical zone--close to the Shanghai economic center--and its fertile soils, well-developed urban centers, and large system of waterways have helped the province to become the leading producer of agricultural and industrial goods in the country. 2.2 Jiangsu's agricultural and industrial products are among the top producers in the country. In the agricultural sector, grain, cotton, and oil crops are dominant. In the industrial sector, textile products, electronics, and chemicals stand out. Growth in both agriculture and industry has spurred the development of commerce, banking, education and tourism in the province. Industrial gross output value in 1988 (at current prices) was Y 215 billion ($58.0 billion) or about 11.8 percent of the country's total; agricultural gross output value was Y 49.8 billion ($13.4 billion) or about 8.5 percent of the country's total. Since 1980, the economy of the province has grown at an annual rate of 16 percent. 2.3 The Yangtze River, located in the lower reaches of the province, has been a major factor in the development of Jiangsu over the centuries. The river divides the province into Northern Jiangsu, covering about two-thirds of the territory, and Southern Jiangsu which is smaller but more populous. Southern Jiangsu is the most developed area of the province, and it accounts for a large part of the province's industrial and agricultural production. Southern Jiangsu contains five major cities: N'anjing, Zhenjiang, Changzhou, Wuxi, and Suzhou. All have populations of above 1.0 million and rank among the country's top cities in terms of industrial output value (Table 2.1). 2.4 The dynamic, fast-growing economy of Jiangsu poses large and varied demands on the transport system, and these demands must be considered in fur- ther developing the provincial transport system. Though extensive, the pre- sent system poses significant limitations on economic development in the pro- vince and surrounding areas.  -7- B. The Transport System 2.5 The density of the transport network for highways, waterways, and railways in Jiangsu is higher than the national average. However, it is not sufficient to service the vigorous economic activities of the area. The den- sity of roads in Jiangsu is 2.3 times the national average, the density of. inland waterways is 21 times the national average, and that of the railways 1.3 times the national average (Table 2.2), and all parts of the province are served by at least one mode. The province is exceptional in its heavy reli- ance on inland waterways; in Southern Jiangsu, waterways provide direct access to 75 percent of all townships. However, for such an economically active area, where per capita GOVAI is four times the national average (Table 2.1), transport facilities are inadequate, constraining current demand and inhibit- ing future economic growth. Highways and waterways are seriously congested, particularly near the major cities. Engineering standards are low, and main- tenance of the highways is especially poor. 2.6 Except for the railways, the transport network is extensive and distributed widely throughout the province. Four major traffic corridors can be identified; two running east-west and two running north-south. Of the two east-west corridors one is located at the northern tip of the province and is erved by the Xuzhou-Lianyungang railway and highway; the other is located along the Yangtze axis and is served by the Nanjing-Shanghai road and railway. Of the two north-south corridors, one is located in the coastal area of the province and is served by shipping lines, two sea ports, and one low standard road; the other is located in the center of the province and is served by the Grand Canal, the Lianyungang-Nanjing road, and the Nanjing bridge, as well as a number of ferry crossings on the Yangtze (see Map 2133-). 2.7 It should be noted that the configuration of the entire transport network in the broad Shanghai-Nanjing-Nantong cQrridor has been fundamentally shaped by the presence of the Yangtze River. The Yangtze is both a vital artery of waterborne transport and a formidable barrier to land transport (rail and road). It not only constrains development in the northern, predomi- nantly agricultural, part of Jiangsu province, but also hinders access of the major industrial zone in the south (including Shanghai) to the north and northeast of China. The road-rail bridge at Nanjing is the closest fixed crossing of the Yangtze to the sea, yet Nanjing is some 350 km (by river) from the estuary. Between Nanjing and the river mouth, close to Shanghai, only ferries are available to serve traffic crossing the Yangtze. A second fixed river crossing is being proposed for the Eighth Five-Year Plan. 2.8 qighways: At the end of 1989, the provincial highway network totalled 24,609 km of roads. Of this only 231 km (0.9 percent) were of Class I (four lanes) standard; 2,533 km (10.4 percent) were of Class II stan- dard; 17,578 km (71.4 percent) were of Class III and IV standard; and 4,-267 km (17.3 percent) were unclassified earth roads. About one third of the roads in the province (7,800 km) are located in Southern Jiangsu. Table 2.3 shows the technical and administrative classification of the network. 2.9 Similar to elsewhere in China, most of the road network in Jiangsu was built during the 1960s when the demands for road transport were small. As  a result, most roads in use today were designed for lighter vehicles and traf- fic of less than 5,000 ADT and now no longer can meet the demand. This is compounded by the resulting deterioration of these roads under increasing traffic and heavier modern trucks. These paved roads need immediate strength- ening if they are not to be damaged beyond repair. Pavement reconstruction is needed, as is the upgrading of geometric standards of many roads where align- ments, widths, bridge widths, and strength no longer satisfy the traffic demand. On much of the paved network, the rapid growth of traffic has resulted in congestion, low vehicle speeds, reduced capacity, and poor safety conditions. In fact, accident rates in the province and throughout China are among the highest in che world. 2.10 Provincial authorities consider improving the condition of roads and upgrading their standards as crucial for economic growth in the province and have embarked on an ambitious program of rehabilitation and modernization. The province has been investing about Y 300.0 million per year during the Seventh Five-Year Plan in these works and plans to increase the investment during the Eighth Five Year Plan. 2.11 Waterways. The inland waterway network of the province, with close to 24,000 km is exceptionally extensive. Of this, 500 km (2 percent) of waterways are of Class II and III standard (accommodating 1,000 ton/barges); about 3,600 km are of Class IV-VI standard (100-500 tons); and of the remain- der, about 14,800 km (62 percent) is navigable for 3.0 tons barges (Table 2.4). The network is well distributed throughout the province, its two prin- cipal features being the Yangtze River and the Grand Canal. The Yangtze River flows within the province at the river's lowest 390-km stretch. In this sec- tion the river can handle ships up to 10,000 dwt. About 680 km of the Grand Canal lies within Jiangsu and directly serves the most economically developed areas of the province--the southern cities of Zhenjiang, Changzhou, Wuxi, and Suzhou. In addition, there are four main canals in the southeastern direction between Zhenjiang and Shanghai, and three north-south canals connecting with the Yangtze. There are nine ports on the Yangtze, some 70 inland waterway ports, and about 400 minor piers; the inland ports, however, are poorly equipped. 2.12 The low standard of both canals and ports has stunted the develop- ment of water transport in the province. Many narrow and low clearance bridges, low capacity locks, and narrow, shallow channels have limited the size of ship fleets to an average of 22.5 tons. Heavy congestion occurs in many places and in key sections of the main canals, particularly during the low water level season. Low lock capacity and heavy traffic bring long delays, estimated at 20 percent of the total navigation time in the northern section of the Grand Canal alone. The situation is worse in tributary canals. 2.13 Provincial authorities are concerned about the capacity constraints within the secondary canals and have ambitious U.lans to upgrade the entire system. The goal is to bring the canals up to a Class VI standard, in order to provide navigation to 100 ton barges. The rehabilitation of the Grand Canal is under way; its 400 km-long north section has been upgraded to Class IV. After an investment of Y 600.0 million this section now can accom- modate vessels of 500 tons. Major rehabilitation of the remaining 212 km-long  -9- south section of the Grand Canal and its tributaries is included as part of the Eighth Five-Year Plan (8FYP). 2.14 Railways: The railway network in the province is composed of two lines: the Longhai line close to the northern provincial boundary, and the Nanjing-Shanghai trunk line in the south, together totalling 710 km. Despite the relatively short length of track in the province, the Nanjing-Shanghai high-density line is an important link to the major industrial production and large population in southern Jiangsu. For example, in 1989, 29.2 billion ton- km of freight were transported on the railways and 13.8 billion pkm of passen- gers were transported, representing 43 percent and 40 percent, respectively, of the total freight and passenger transport in the province. C. Traffic Growth and Characteristics 2.15 Between 1980 and 1985, freight and passenger traffic in Jiangsu Province grew at about 8 percent and 14 percent per annum, respectively. Although these growth rates have slowed down over the past two years, they were still sizable at about 5 percent and 6 percent per annum, respectively, between 1985 and 1989. Freight transport, which in the past relied heavily on railways, (52 percent of total ton-km in 1980) seems to have become a more balanced mode (42 percent of the total in 1989) as non-official truck and barge fleets have become a competitive force in recent years. The relaxation of trucking and barge regulations, besides revitalizing the industry, has increased the share of the non-official track fleet to over 70 percent of freight traffic on highways and that of barges to 35 percent of waterways traffic. For passenger traffic, highways appeared to be the most competitive mode, with a 58 percent share of traffic in 1989. In contrast, the participa- tion of waterways in passenger transport has fallen drastically in recent years (Table 2.5). This trend, due to the development of competitive road transport, was accelerated as a consequence of delays experienced due to con- gestion along the main canal routes. 2.16 The competitiveness of the highway subsector has been supported by the rapid expansion of the vehicle fleet. The vehicle fleet was about 258,000 units in 1989 having increased close to four times since 1980. In addition to vehicles, there are close to 300,000 units of full and part-time transport tractors (Table 2.6). On the one hand, the rapid growth of vehicle .fleets supported the competitiveness of highway transport at a time when the rolling stocks of the rival railways were more restrictive. On the other hand, this method of expanding highway transport was not very efficient because it was done by keeping a large stock of old, outmoded vehicles with low engine power and low fuel efficiency. Moreover, the resulting mix of fast and slow moving traffic makes the motorization pattern inefficient and further reduces the capacity of roads. However, this should be considered an interim process before the country finally can move to full motorization.  - 10 - D. Transport Administration 2.17 As in other provinces in China, the railways in Jiangsu are the responsibility of the Hinistry of Railways, and certain elements of the high- way and waterway system are the direct responsibility of the Ministry of Com- munication (MOC). Otherwise the transport system in the province, and partic- ularly the waterways and highways, falls under the responsibility of the Jiangsu Provincial Communications Department (JPCD). HOC provides general policy guidance and support through its national policies and regulations and its design and construction standards. For some large projects of national importance MOC's approval and financial support is required. Otherwise JPCD is financially independent of MOC in carrying out all planning, construction, maintenance and administration of roads and waterways in the province. Coun- ties and major cities participate in this process with JPCD. 2.18 JPCD reports directly to the provincial government and acts as its administrative arm for planning, budgeting and financing of the transport sector. The department conforms to the professional, technical, and general transport policy guidances issued by MOC, but administratively conforms to the development plans and project approvals issued by the Provincial Planning and Economic Commission--the provincial counterpart of the State Planning Commis- sion. JPCD is organizationally sound (Chart 1) and appears to have an ade- quate number of competent staff to carry out its major functions. Nonethe- less, training is needed in certain areas to be addressed in this project (para. 3.25) 2.19 The inland waterways in the province are administered by at least three levels of authority: the Central Government, the Provincial Government, and Township Governments. The Yangtze River and the Grand Canal north of the Yangtze River within Jiangsu Province are under the control of the Central Government via the Ministry of Communications (MOC). The vast network of tributaries and canals, including the Grand Canal south of the Yangtze River, is basically under the control of the Provincial Government via JPCD. Finally, specific segments of inland waterways in the province are under the control of city and county communications bureaus. 2.20 The main flow of the Yangtze is managed by the Chrangjiang Adminis- tration, which is a part of MOC. MOC's authority over waterways in the pro- vince is limited to: (a) technical assistance, especially through its water design and research institutes; (b) regulations for technical and operating standards; (c) coordination and leadership in the national planning of ports and waterways; and (d) representation in the Central Government and other water-related ministries such as the Ministry of Water Resources and Electric Power. The authorities which directly administer the waterways are responsi- ble for the flow of the Yangtze River and local communications bureaus for other maintenance and the construction and safety of waterway infrastructures such as channels and locks. 2.21 Cargo handling is performed at public ports, which usually belong to cities or counties, and at berths that belong to independent, non-transport enterprises. Fleets operating in the inland waterways are owned by a wide variety of entities: the Central Government, local governments, enterprises,  - 11 - collectives, and private fleets. Most of the traffic is generated in the open market; however, some portion is still being allocated by the Changjiang Administration and local communications bureaux. E. Planning, Budgetins, and Financing Highway System 2.22 Planning. JPCD has overall responsibility for planning investments in and maintaining the provincial highway network. However, the highway administration units at the prefecture, county, and village levels have con- siderable autonomy in planning smaller road investments. These smaller in vestments are subject to the approval of JPCD, largely as a formality. The administration of the road network in the province takes place at three lev- els: (a) JPCD; (b) the county highway bureau; and (c) the village highway units. Chart 2 illustrates the relationship between the highway bureau of JPCD and its lower-level highway units. JPCD administers mainly provincial and trunk roads and a small number of important county roads; the county high- way bureaus administer the county and rural roads; the village highway units administer the village roads. These three administrative groups prepare investment plans for the highway network under their jurisdiction and submit them to the planning division of JPCD by September of each year for the next year's plan starting January lst each year. Before the end of November, JPCD approves the next year's plan for each county or local authority concerned. Similarly, JPCD prepares the five-year road development plan using inputs from lower level administrative groups revised to reflect national or provincial development policy guidelines and objectives for the plan period. 2.23 Budgeting. As is done in almost all sectors in China, JPCD's plan- ning division adopts a balanced budget policy. The proposed highway invest- ment is always balanced against the revenue earmarked for highway development; the amount of investment approved for each year is closely related to the amount of road maintenance fees and other revenues expected for the same year. In October of e h year and before JPCD approves the following year's pro- jects, the current year's planned investments are reviewed against actual investments and revenue receipts and adjustments are made where needed. 2.24 Financing. The road maintenance fee provides the main source of funds to finance construction and maintenance of the highway sector. This fee is collected by JPCD from motor vehicles throughout the province. JPCD deter- mines the fee rates and, through the provincial government, reports the fee to the State Council for approval before ft becomes effective. The rates vary according to the type and size of vehicles, as follows: (a) vehicles owned by state transport companies are charged 15 percent of their gross revenue; (b) vehicles owned by collective and private transport cormpanies are charged Y 120 per month per one payload ton, or Y 120 per month per 10 passenger seats; and (c) passenger cars are charged Y 70 per month. The rates reflect increases effected in 1986 for state owned transport companies and in 1988 for collective and private transport companies. 2.25 In addition to the road maintenance fee, other resources for highway works are obtained from: (a) MOC, who contributes to new construction and  - 12 - major upgrading of national and provincial roads on a selective basis; and (b) the provincial finance bureau, who provides budgetary resources for new provincial road construction and emergency programs for flood damaged roads. 2.26 Total resources allocated for road uses in Jiangsu amounted to Y 770.0 million in 1989 implying a growth in real terms since 1985 of 12 per- cent per annum. These funds originated 85 percent from the road maintenance fees, the rest from MOC allocation assistance and tolls collection. The MOC assistance, amounting to Y 85.0 million was less than the provincial contribu- tion to MOF (Y 119.0 million) from the road maintenance fees collected from highway users in Jiangsu, not counting fuel taxes (Table 2.7). 2.27 Fuel prices in China are not subsidized. Fuel taxes are charged to road users but may not be allocated back to road works. These taxes are heav- ily levied by MOF. They currently amount to 43 percent of the base price of gasolines and 13 percent of the base price of diesel fuels. Total fuel pri- ces, including taxes, show that prices at the pump for planned fuel alloca- tions are comparalle to intermational market prices, while those charged in the open market are well above international market prices and. are increasing at a rate comparable to the consumer price index (Table 2.8). 2.28 The revenues from road maintenance fees are distributed as follows: (a) 15 percent is remitted to MOF as the Energy and Transport Fund; (b) 2 per- cent is remitted to the Public Security Bureau (starting 1987) for highway patrol; and (c) 83 percent is retained by JPCD for highway works. Table 2.7 shows road maintenance fees and other resources and expenditures in Jiangsu province in 1985-89. Over the period road maintenance revenues and expendi- tures increased at a rate of about 20 percent per annum. The five cities in Southern Jiangsu contributed over 50 percent of the province's maintenance revenues but expended only about 40 percent of provincial expenditures. In other words, revenues from this part of the province helped to subsidize road construction in poorer parts of the province. Of the total budget of Y 770.0 million in 1989, about 32 percent was expended on new highway con- struction and modernization; 26 percent on road rehabilitation; 34 percent on road maintenance; and 8 percent on administration and overhead costs. Inland Waterways 2.29 The financing of maintenance, operation, and construction costs of inland waterways is, as in the road sector, dependent on user charges and government contributions, on the basis of a balanced budget policy. On a provincial level, the intent is to collect user charges sufficient to cover at least all maintenance and operational costs. Sources of funds for construc- tion include grants from the central and provincIu1 governments. User charges are levied as a percentage (6.5 percent) of gross revenues for larger shipping companies and as a combination of license fees and taxes per available horse- power for small barge operators. Lockage tolls are also charged at navigation locks.  - 13 - F. Engineering, Construction, and Maintenance 2.30 Engineering of major works is carried out by JPCD through the Jiangsu Provincial Transport Planning and Design Institute (JPTPDI) or other design institutes on contract to JPTPDI. Although the work appears thorough and well presented, geometric and structural design work is intensively manual and could benefit from the use of computer-aided methods. Engineering of minor works such as small rehabilitation jobs and betterments is carried out directly by the Highway Administrations of the cities and counties. 2.31 Road and bridge construction typically has been carried out as a force account operation by city and county construction units (presently num- bsring about 90). The one construction unit of the JPCD is used only for special projects including waterway construction. The city and county units operate entirely within their political boundaries and have a lot of indepen- dence in scheduling work and maintaining quality control. The quality of completed structural work appears adequate; the quality of earthwork and pave- ment construction is less uniform, although generally acceptable. However, there appears to be no independent supervision of works. Following the State Planning Commission's directive, the JPCD now has adopted a policy of competi- tive bidding for all but minor works. The road, bridge, and waterway con tracts to be financed under the project will provide opportunitits to begin implementing this policy. In addition, the project will assist the construc- tion units in converting into independent entities that can participate in competitive bidding (paras. 3.27-3.29); it also will provide assistance to initiate independent supervision of work (para. 3.21). 2.32 Highway maintenance is carried out entirely by city and county units, and the quality of maintenance varies widely. Maintenance operations are appropriately labor-intensive, but there is a need for basic equipment to improve quality. Maintenance expenditures average about Y 21,000 per km in southern Jiangsu, a level somewhat higher than for other provinces. However, this level is justified because of the poor condition of most roads and the recent growth in traffic. Under the project, the planning and operation of both routine and periodic maintenance would be improved. Technical assistance would be provided to set up a road data bank to be used as a basis for prepar- ing road maintenance programs. Basic maintenance equipment also would be provided. G. Development Obiectives and Strategy 2.33 Jiangsu is one of the most advanced provinces in China, but to sus- tain the growtL. of its economy and that of its neighbors the province must augment its transport infrastructure and tmodernize its facilities and opera- tions. It also needs to strengthen the planning of transport investments and look beyond the narrow project-by-project approach in order to integrate the plans in a wider regional and multimodal context. 2.34 The transport policy objectives of Jiangsu province for the Eighth Five-Year Plan emphas,.ze the construction and rehabilitation of infrastructure and the modernization of facilities to increase the adaptability, quality of  - 14 - service and of engineering, and economic efficiency of all modes. It proposes to complete the following before the year 20003 (a) On highways. the province has a long-term plan to construct and rehabilitate eight trunk highways, four on the north-south corridor and four on the east-west corridor (Map 21332). The north-south co.ridor roads consist of the Xuzhoufengxian-Yixing road, the Nanjing-Lianyungang road, the Xinyi-Jiangdu road, and the Lianyungang-Nantong-Shanghai road. The Xuzhou-Fengxian-Yixing road would extend 530 km and run from Fungxian on the northwest border with Shandong province down to Nanjing, Yixing and connect to the road leading to Hangzhou in Zhejiang province. The Nanjing- Lianyungang road would extend 300 km and connect the provincial capital to one of its important coastal port cities. The Xinyi- Jiangdu road would extend 300 km from the Shandong border to a major town on the Yangtze River. The road would connect to the Nanjing- Nantong road on the east-west corridor and would provide important access to a proposed new Yangtze River crossing. The Lianyungang- Nantong road would be a 450 km coastal north-south highway linking the two major provincial ports to Shanghai. The east-west corridor roads consist of Xuzhou-Lianyungang, Nanjing-Nantong, the Yanjiang Road, and the Nanjing-Shanghai corridor road. The Xuzhou- Lianyungang road would extend 250 km and link the first and fourth north-south corridor roads described above. The Nanjing-Nantong road would extend 275 km and connect all major towns along the northern bank of the Yangtze River. The Yanjiang Road would be 300 km long and it would parallel the Nanjing-Nantong road, but on the southern bank of the Yangtze River. The Nanjing-Shanghai road, detailed in paras. 3.11-3.13, ia proposed to be financed under this project. (b) On waterways, the main focus also would be upgrading the main north- south and east-west waterway corridors (Map 21332). The north-south corridor work would consist of major rehabilitation of the Grand Canal. By the end of the Seventh Five-Year Plan, rehabilitation on the northern section of the Grand Canal was completed to a Class IV standard (para. 2.13). Rehabilitation of the southern section to a Class V standard is proposed for implementation during the Eighth and Ninth Five-Year Plans. The longer-term plan for the Grand Canal. is to upgrade it to a Class III (1,000 tons) standard when traffic requires. The east-west corridor work would involve: (i) upgrading the Huai River--one of the major rivers linking central Jiangsu province to neighboring Anhui province; (ii) upgrading facilities of river ports along the Yangtze River and building about 16 ship locks on the important intersection between the canal and the Yangtze. (c) For the province-wide road and waterway rehabilitation program, roads and waterways that serve as secondary networks feeding into the trunk lines would be upgraded, bridges would be constructed, pavements strengthened, and ferry crossings and major city bypasses built.  - 15 _ 2.35 The Rank fully supports the Jiangsu Government in improving the planning and capacity of the transport system. The overall goals of the Bank- Jiangsu relationship are twofolds (i) in the short-term, to help mitigate the most serious constraints posed by the province's inadequate transport .nfra- structure on its fast developing economy and that of its neighbors: and (ii) in the long-term, to assist the province in upgrading the planning, bud- geting, and implementation of transport works, in developing more efficient construction entities. A large technical assistance component is designed to help strengthen the ability of provincial transport staff to efficiently plan and implement the proposed project and to achieve the long-term institutional objectives. III. THE PROJECT A. Background and Preparation 3.1 The processes of economic reform and decentralization of power in China have broadened the Bank's operational dialogue with provinces in the country. As Jiangsu province stands to become a major transport bottleneck in the country, its transport sector needs immediate attention in order not to obstruct economic development. The proposed operation is expected to be the first of a series of loans to provide foreign capital for Jiangsu province over the next several years. Restrictions on government funds are increasing and more and more the provinces are expected to raise their own funds. Jiang'u, a fast growing and relatively rich province, still has limited access to foreign capital for development projects. 3.2 The proposed Bank project would support urgently needed infrastruc- ture improvements and would directly support the planning and implementation of a multi-year program for rehabilitation and maintenance of the road network in Jiangsu. It also would help the provincial transport construction units become more independent, efficient, and competitive. Part of the technical assistance under the project would be used to finance a study of the major transport corridors in the province. In this way the Bank would be able to help the province formulate and implement appropriate strategies and invest- ment plans which will allow the Bank to participate in long term infrastruc- ture development policies. 3.3 The project was prepared by JPCD through the Jiangsu Provincial Transport Planning and Design Institute (JPTPDI). Detailed engineering and tender documents were prepared with tle assistance of MOC's Second Highway Survey and Design Institute (in Wuhan), the Second Railway Design Institute (in Chengdu), and the Jiangsu Provincial Transport Scientific and Research Institute. B. Proiect Obiectives 3.4 In accordance with the overall goal of the Bank-Jiangsu relationship (para. 2.34) and the provincial objectives of the Seventh and Eighth Five-Year Plans (FYP), the Jiangsu government emphasizes the rehabilitation and modern-  - 16 - ization of facilities to increase the adaptability, quality of service and engineering, and economic efficiency of all modes of transport. The programs specifically respond to the need for transport facilities in the southern part of the province which constrains demand and future economic growth. 3.5 The main thrust of the institutional and technological objectives is to strengthen the ability of transport staff at both the provincial and county levels in the areas of transport investment planning, and project management and implementation. These objectives include: (a) assisting in introducing competitive bidding for civil works and in developing the local construction industry; (b) introducing improved technology to evaluate existing paved roads and prepare pavement strengthening and maintenance management programs; (c) introducing improved transport planning techniques by establishing a computerized road data bank; (d) modernizing design, construction and material specifications and contract documentation; and (e) staff training. C. Detailed Features 3.6 To accomplish these objectives, the project would include: (a) rehabilitating about 450 km of provincial roads, as outlined in the province's five-year program for rehabilitating roads in southern Jiangsu; (b) upgrading about 176.5 km of the Nanjing-Shanghai highway to Class II standards; (c) rehabilitating a 17-km section of the Grand Canal near Danyang; (d) constructing a new shiplock at Nantong and an adjacent bridge at Jiuweigang; (e) consulting services to train JPCD staff in supervision and quality control of road construction; (f) assisting JPCD in the immediate and long term plan of action to develop ite transport construction units; (g) evaluating existing road pavements in order to prepare a program of road strengthening, betterment, and maintenance management; (h) assisting JPCD in improving the planning and design of roads and waterways, including establishing a road data bank, equipping the  - 17 - central soils and materials laboratory and introducing computer- aided design; (i) assisting in carrying out the provincial transport corridor study; and (j) staff training. 3.7 Provincial Road Upgrading. The southern part of Jiangsu province-- the area south of the Yangtze--has about 7,800 km of roads, about 90 percent of which are paved. The network was designed for light vehicles and rela- tively modest traffic volumes of less than 5,000 vpd. The explosive growth of economic activity in recent years has resulted in greater traffic volumes and vehicle weights than predicted; the result is damaged pavements and a road geometry unsuited to the present traffic. Traffic movement is slow, economi- cally costly, and accidents abound. Conservatively estimated, traffic volumes will exceed 6,500 vpd everywhere on the network by the mid-1990s. 3.8 Thus, the province is faced with the immediate need to rehabJlitate and upgrade the network. Financial constraints have limited spending on rehabilitation to about 30-35 percent of road maintenance revenues a year, or about Y 200 million in 1989 for the whole province. At this level only the most pressing needs can be addressed. The province thierefore has been selec- tive and, as a rule, has not rehabilitated complete roads, but only the worst sections and the most restrictive bridges. There are no formal economic or technical criteria for the selections made, but the traditional approach of addressing the obvious priority appears to be sound and such "spot" improve- ment programs normally yield high economic returns. An improved methodology still is needed to prepare a longer range rehabilitation program, and this will be initiatei under the project (para. 3.22). 3.9 Using the traditional approach, JPCD developed a five-year (1989- 1994) road rehabilitation and improvement program for southern Jiangsu. The progrum includes bridge reconstruction, pavement overlay, and alignment improvement in addition to major road upgrading. The overall program was fully assessed and could be considered as an extension of the Bank Group's first highway project in China whereby a study to assess the methodology for pavement evaluation was carried out by the Highway Scientific and Research Institute of MOC. The study evaluated and identified about 1,800 imi of paved road network in Jiangsu Province requiring urgent rehabilitation, of which about 450 km will be financed under this project. The program for major road upgrading involves an estimated base cost of about Y 1,600 million ($300 mil- lion). This would rehabilitate about 1,000 km of roads, at an average cost of works of about Y 1.6 million per km at today's bas3 cost. The proposed Bank involvement under this loan would support about 46 percent of JPCD's program to be implemented in three phases, or about 450 km. The base cost of this would be about Y 757.0 million ($145.0 million). The priority roads to be financed b) the Bank include major roads feeding into the trunk corridors of Nanjing-Hangzhou, Nanjing-Shanghai, and the Yanjiang Road, which comprise the most important north-south and east-west arteries in the south of the province (para. 2.34). Rehabilitation and betterment of the supporting network is essential in order to disseminate benefits from the major investment on the  - 18 - important corridor roads, and to avoid the situation where bottlenecks simply are shifted from the major arteries to their supporting network. 3.10 The first phase of Bank-supported program would consist of rehabili- tation work on one bridge and five road sections totalling about 165 km (Map 21331). With some minor exceptions, most existing alignments would be used and the road works would consist mainl- of embankment, shoulder, and bridge widening. Pavement resurfacing and new pavements also will be applied where necessary. The preliminary engineering and feasibility studies for these roads have been reviewed by the Bank and detailed engineering has been com- pleted by various design institutes. In general, roads will be upgraded to Class II standards (Table 3.1) except in some heavily built-up areas. Spec- ific road sections to be rehabilitated in the second and third phases will be identified on a continuous basis and submitted to the Bank for review and approval before they are included in the province's annual program (July 1 to June 30). At negotiations assurances were obtained from Jiangsu Province that: (a) it will select roads to be rehabilitated under provincial road upgrading in accordance with economic criteria and procurement procedures agreed with the Bank Group (Annex 1); and (b) it will provide to the Bank Group for concurrence the list of roads for the second and thiri phases by October 31, 1991 and October 31, 1992, respectively. 3.11 Rehabilitation of the Class II Nanjing-Shanghai Highway. Although it is part of the province's road rehabilitation plan in southern Jiangsu, rehabilitation of the Nanjing-Shanghai trunk highway stands as a separate project component because of its importance and special features. The exist- ing highway represents the principal road element in the heavily-trafficked Nanjing-Shanghai corridor, a corridor which serves about 20 million people in major industrial cities such as Suzhou, Wuxi, Changzhou, and Zhenjiang. In addition to the highway, traffic in the corridor also is carried by rail and inland waterways, although these modes also are saturated. The traffic includes local and provincial movements, and movements between Shanghai and the western and northern provinces of China. Freight and passenger traffic in the corridor is growing rapidly (para. 2.15). The railway has reached capac- ity and is no longer taking short-distance shipments. Inland waterways also are congested and, like the railways, are not suitable for relatively short- haul traffic. The burden of absorbing the increasing passenger and freight movements therefore is falling on the highway. 3.12 Most of the Nanjing-Shanghai Highway lies in Jiangsu province. The highway is a low standard road in poor physical condition; pavements are fail- ing, and partly because of the incidence of non-motorized traffic, accidents are frequent. Traffic flows average 5,000 vpd in the inter-urban sections, rising to 8,000 vpd near the cities; a road journey from Shanghai to Nanjing (about 350 km by the existing road) now takes over 10 hours. In its present condition the road no longer can economically handle the volume of traffic, and future growth will aggravate the situation. To resolve this problem, in 1987 the province undertook a study of the feasibility of rehabilitating and improving the existing road. The study, carried out by JPTPDI, recommended upgrading the entire road to a Class II (2 lanes, paved) standard, except close to the major cities and towns, where a higher, Class I (4 lanes) stan- dard was recommended. After rehabilitation, the length of the rehabilitated  - 19 - road will be 278 km. The proposed work is partly on a new alignment, but wherever practicable ises the existing alignment. Both, concrete and asphalt pavements will be used, where appropriate. Intersections with other roads will normally be at grade. 3.13 For construction administration purposes, the proposed rehabilita- tion has been divided according to the five city boundaries. Because of the urgent need to rehabilitate seriously deteriorated portions of the road, each city already has started work on its worst sections and the remaining sections will be financed under the project (Map 21331). The latter total about 176.5 km and will have a base cost of about Y 290.0 million ($55.5 million). Feasibility studies and preliminary engineering for these sections were pre- pared by JPTPDI and have been reviewed by the Bank. Detailed engineering and bid documents were prepared by JPTPDI with assistance from MOC's Second High- way Survey and Design Institute, the Jiangsu Provincial Scientific and Research Institute, and the Second Railway Design Institute (at Chengdu). CHELBI, a Chinese/US consulting firm, carried out the review of final plans and bid documents. Bidding and contract awards for the entire works is com- pleted. 3.14 Rehabilitation of the Grand Canal At Danyang Section. The Grand Canal is a mojor waterway connecting the southern part of Jiangsu province and the Shanghai Municipality with the north. This canal provides a ma3nr trans- port artery to the industrial cities in southern Jiangsu and access to the Yangtze River system, and also connects a vast network of lesser canals and rivers (para. 2.11). The section of the Grand Canal north of the Yangtze Rivt: having recently been upgraded (para. 2.13), MOC and Jiangsu province carried out a prefeasibility study for rehabilitating the southern section of the canal. This study proposed a Class IV standard (500 t), which was approved by SPC. The preliminary cost estimate for this upgrading is Y 450.0 million aid the works were proposed for implementation during the 8th and 9th FYPs. The section of the canal south of the Yangtze River that would be rehabilitated is 211 km long within the province. In spite of its lower standard and poor condition, this section managed to carry a throughput of 78.0 million tons in 1985. Due to the present poor condition of the canal, heavy congestion occurs in many sections, mainly around large cities and dur- ing the low water level season. The objective of the rehabilitation program is to upgrade the southern canal to a Class IV standard for 500 DWT barges; this will be done through dredging, construction of slope protection, and rectification of the channel alignment at sharp bends. Low road bridges over the canal also will be replaced to meet the appropriate standards for clear- ance. 3.15 The 17-km Danyang section is a major element of the southern canal rehabilitation program, and it is included in this project for Bank financing (See Map 21331). Although dredginb works have been performed in it several times since 1958, this section is subject to heavy siltation from intensive bank erosion. At present, this section is practically closed for navigation at low flow stages and can only accommodate barges of less than 30 tons at high flow stages. As a result, the largest of the existing three locks con- necting the Grand Canal with the Yangtze River cannot be used. This causes considerable congestion at the other locks.  - 20 - 3.16 The design of this section is similar to the channel improvements being constructed at Changzhou and Wuxi with the province's own resources. The proposed rehabilitation work would deepen and widen the canal bed and pave flattened shapes to eliminate erosion. A new road bridge spanning the widened canal also would be included. Feasibility and preliminary engineering studies were prepared by JPTPDI and reviewed by the Bank. Detailed engineering has been completed; civil works are under implementation. 3.17 Nantong Shiplock (see Map 21331). The existing Nantong lock is located on the southern end of the Tongyang canal and flows into the Yangtze River; the northern section of the canal leads into the northern section of the Grand Canal. At that location a low capacity shiplock provides major access between the Yangtze River and Jiangsu's northern portion of the inland waterway system. The present capacity of the lock is about 10 million tons/yr, a level already exceeded by current traffic demand. In order to serve this excess demand, a through-lock method has been practiced in which the lock is kept open during periods when the water level in the Yangtze and in the canals is about equal. This is a very unsafe practice, as the currents caused by water remaining in the chamber can cause accidents. There were 31 accidents recorded in 1985. 3.18 Since the area around the present lock is completely built up, a new lock would be constructed at a site about 10 km to the west. The new facil- ity, which is included in the project, would provide a lock 16 m x 220 m and a 4 km approach canal to connect with the existing canal network. The lock would accommodate barges of 1,000 DWT capacity and provide a throughput of 17 million tons/year. The site has ample area to permit expansion of the lock if needed in the future. The Bank has reviewed the feasibility study and preliminary design for the lock, and JTPDI soon will complete detailed engi- neering and bid documents. JPCD intends to retain a foreign consultant to review the final plans and documents, and the terms of reference for this work have been approved by the Bank. 3.19 Jiuweigang Bridge. This bridge provides the only over-land access to Nantong from the north and west of the province. Nantong is a maJor indus- trial city and a major port with extensive foreign trade. The preseDt bridge crosses a flood canal at Jiuweigang over an existing sluice gate. In the north the bridge connects with the road to Hainan county; in the west and southwest it connects to Jiangdu, Yangzhou, and Nanjing (See Map 21331). At present the road is narrow because of limitations in the sluice gate structure which the road passes over at a place immediately adjacent to the gates them- selves. The sluice gate structure was built around the '960s; since then it has deteriorated to the point that soon the road may have to be closed, possi- bly without warning. To prevent this from happening, a new approach to Nantong from the west is being considered. 3.20 A feasibility study of options for providing dependable highway access to Nantong from the west recommended a new bridge crossing a few hun- dred meters north of the sluice gates. The proposed bridge would be 260 m long and the proposed approach road would be about 3.0 km long--both are included in the project. Traffic on the existing bridge reached 3,150 vpd in 1987 with 62 percent trucks; it is projected to grow to 10,000 vpd by the year  - 21 - 2000. Given this volume of traffic and the plans to upgrade the entire Yangzhou-Nantong road to Class I standards, a four-lane Class I standard bridge has been proposed. The Bank has reviewed the feasibility study for this bridge, and JPTPDI has completed the detailed engineering and bid docu- ments. Final plans and bid documents for the bridge and approach roads were reviewed by the joint venture consultant who reviewed plans for the Nanjing- Shanghai road (para. 3.13), and the contract was awarded after international competitive bidding (para. 3.44). 3.21 Supervision of Construction. Under the present system of construc- tion by force account, there is little or no independent supervision of con- struction activities. In addition, since contracting for civil works is a new procedure in Jiangsu province, local staff have no experience in supervising construction by contract. Therefore, to ensure that project works are carried out in full compliance with the specifications and quality control require- ments, and to provide a much needed element of training, a program of indepen- dent supervision has been established under the project. JPCD will be respon- sible for all supervision and will receive assistance in this from experi- enced foreign consultants. The supervision will take two forms: (a) a joint team of local and foreign engineers has been established to supervise the works to be executed by ICB and LCB contracts; and (b) JPCD staff will supervise the works to be executed by force account after participating in training workshops by foreign engineers. Local expertise from the institutes in the sector will be used as much as possible; foreign consulting assistance only will be sought in areas where local expertise is unavailable. A maximum of about 26 man-years of fcreign assistance will be needed in total. Terms of reference for the consulting services are given in Annex 2 and were agreed at negotiations. 3.22 Evaluation of Existing Road Pavements and Preparation of a Strength- ening and Maintenance Maniagement Program. Recent increases in road traffic have created problems pertaining to the structural soundness of existing road pavements. Most roads were designed for much lower volumes of traffic and smaller axle loads and are showing signs of distress. The road pavements need immediate strengthening before they are damaged beyond repair and require complete reconstruction. JPCD proposes to use part of the Bank loan to carry out an evaluatieon of the existing road pavements in order to determine their bearing capacity and residual life in relation to present and e'timated future traffic. A five-year program of strengthening and paved road maintenance would be prepared to identify the manpower resources, materials, equipment, and funds needed to implement the program. The project would provide exper- tise and equipment to use in training JPCD staff in the methodology of pave- ment evaluation. Terms of reference for the road pavement evaluation and . strengthening and maintenance management program are shown in Annex 3 and were agreed at negotiations. 3.23 Road Planning. The basic data required for the planning, develop- ment, design, construction and maintenance of the road system are not avail- able in an accessible format in Jiangsu province. Under the project, a com-  - 22 - puterized road data bank would be set up which would include road and pavement inventory and traffic volumes. In developing the data bank, JPCD would receive expert help and computer hardware and software. The work would be coordinated by MOC's Highway Planning and Design Institute--the entity charged with overall responsibility for standardizing the road data bank format. Terms of reference for starting up the data collection and developing the road data bank are shown in Annex 3 and were agreed at negotiations. 3.24 Equipment. In addition to training aids and equipment for the road data bank, the project also will finance some basic road maintenance equip- ment, computer equipment for design purposes, and equipment for the central soils and materials laboratory. Proper maintenance of the roads now being upgraded is essential to protect the large investments involved. At present, only a minimum of the equipment needed for maintenance is available. The additional items needed to provide a basic equipment fleet would be identified during preparation of the maintenance management program (para. 3.22) and financed under the project. JPCD recently purchased some equipment for com- puter-aided design (CAD) to improve its capabilities for civil works design. Additional related equipment and software is needed to complete the CAD installation, and this is included in the project. JPCD intends to upgrade its central soils and materials laboratory to provide special testing of con- struction materials and methods not available in field laboratories. The equipment needed to complete upgrading of the laboratory will be financed under the project. Detailed lists of CAD and laborate-y equipment were agreed at negotiations. 3.25 Staff Training. In addition to training for staff who supervise construction and evaluate road pavements, a training program is proposed in order to modernize the skills of technical staff in the transport sector. The program has two major objectives: (a) to improve the proficiency of engineers, economists, and other staff by sending selected personnel abroad to attend relevant interna- tional conferences and academic and practical training courses; and (b) to strengthen the capacity of JPCD highway institutes and technical schools by: (i) purchasing laboratory, computer, and photogrammetry equipment; training aids; and essential technical books and publications; and (ii) inviting foreign academic experts for short visits to help up grade curricula. 3.26 Under the program, about 40 officials from the JPCD would be trained abroad. This training would cover transportation planning, soils and mate rials engineering, transport economics, financial management and accounting, highway maintenance and equipment management, construction management and supervision including quality control, new construction material technology, and technical interpretation. It is expected that, on their return, the trainees would participate in developing and managing the Jiangsu system and  - 23 - in transferring updated technology to other staff. During negotiations, agreement was reached on the scope and schedule for the training program, and an assurance was obtained from Jiangsu that training under the project will be carried out in accordance with a training program agreed by the Bank Group. 3.27 Assistance to the Construction Units. There is a need to improve the quality and capability of city and county construction units (para. 2.31) in the short run and to begin converting these units into independent, self- sustaining enterprises that can operate in an environment of competitive bid- ding in the longer run. The project would provide assistance for introductory seminar-workshops for the units and a study to develop a longer-term plan of action. 3.28 The seminars-workshops would: (a) provide immediate, direct assis- tance to the construction units; (b) introduce the principles of independent contracting and competitive bidding; (c) identify methods for improving organization and management of the units; and (d) cover procedures for pre- qualification, estimating unit prices, equipment and staff requirements, bid preparation, work organization and cost and quality control during construc- tion. Approximately four workshops would be conducted by a team of three to four experts in civil works contracting. Terms of reference defining the scope and content of the workshops were agreed at negotiations. 3.29 The study for the development of independent construction units would help to establish a longer term plan of action for JPCD to achieve its objectives of: (a) introducing competitive bidding for all civil works; (b) establishing a system for independent supervision and administration of construction contracts; (c) reorganizing and consolidating the existing construction units into legally and financially independent enterprises; (d) initiating training programs to improve the management and effi- ciency of construction enterprises and the quality of their work; (e) revising and upgrading JPCD's present contracting practices in areas such as pre-qualification, bidding procedures, contract award, and administration; (f) reviewing the supply and quality of main construction materials and recommending improvements; and (g) reviewing the availability of construction credit and other finan- cial assistance needed by the enterprises and recommending needed changes. The study would be carried out over about three months by three or four experts in the field. Terms of reference for the study would be finalized around August or September 1991, and consultants would be selected by April  - 24 - 1992. In order to provide for speedy implementation of the study, the consul- tant's report should be submitted to the Bank no later than September 30, 1992. During negotiations, assurances were obtained that the study (and the Provincial Transport Corridor Study (para. 3.31)1 would be carried out in accordance with terms of reference and timing agreed with the Bank Group. 3.30 Consulting Services. About 224 staff-months of foreign consulting expertise is expected to be needed under the project. Local expertise avail- able in the institutes will be used as much as possible, and foreign help will be sought only in those areas of advanced technology and practice where local expertise is lacking. Supervision of construction work on the Nanjing- Shanghai road, the Nantong shiplock, and the Jiuweigang bridge will be pro- vided by teams of JPCD staff and foreign consultants. About 160 staff-months of foreign consulting expertise will be needed to provide for the joint super- vision teams, to help set up and implement the organizations and procedures for quality control, and to train JPCD staff on the job. Another 5 staff- months of expertise will be needed to conduct workshops and training for JPCD staff supervising the upgrading work on the provincial road rehabilitation program. This is to initiate independent supervision of work and represents a significant departure from traditional procedures where.-v construction units self-supervise and are responsible for quality control of their own works. An additional 26 staff-months of expertise will be used for preparation of the road data bank and the road pavement strengthening and maintenance programs, in-house training for use of CAD and central laboratory equipment, and review of project designs and bidding documents. A further 30 staff-months will be used to provide workshops and design a long range plan for the constructioi, inidustry and 3 staff-months will be required for the corridor study. 3.31 Provincial Transport Corridor Study. Planning for major short-term developments in the trunk network of southern Jiangsu (para. 2.34) must neces- sarily take a long-term perspective, and over the longer term it must be anticipated that expansion of one or more additional transport corridors may be economically justified. Having advance knowledge of the likely location and timing of any such development could greatly improve short-term decisions concerning route alignment, network configuration and design standards for more immediate investments in important trunk networks, as this information would help to harmonize short-term options with the preferred longer-term development. Consequently a small, preliminary study will be undertaken to: (a) evaluate, from both an economic and engineering perspective, alter- native locations for a possible extension or addition of provincial transport corridors; (b) identify and assess a broad range of technical options and their costs; and (c) estimate the approximate order of magnitude of benefits for each of the alternatives, determine their optimal timing, and estimate the economic losses from either deferring the investment beyond the optimal year or implementing it prior thereto.  - 25 - 3.32 Review of DesiRn. Preliminary and detailed engineering for each component in the project was completed by design institutes at the national or provincial levels. These institutes are well qualified to carry out the engi- neering and design of works to the scale required for this project. However, since this is the first time that procurement under ICB and LCB procedures were introduced in the province, engineering drawing and bidding documents had to be prepared and presented in greater detail and to higher standards than was normal in the past. In order to comply with these requirements, JPCD retained joint-venture and foreign consulting services to review the design and prepare bidding documents for works implemented under ICB and LCB. D. Cost Estimates 3.33 In total, the project is estimated to cost about Y 1,720.2 million, or $312.8 million, including land acquisition and physical anl price contin- gencies. The foreign exchange cost is estimated to be $136.3 million, or about 44 percent of the total cost, as shown below. Base costs are estimated in January 1991 prices. Physical contingencies are calculated at 10 percent of the base cost and are applied to all components. Price escalation factors have been calculated for both foreign and local costs, using international annual inflation factor of 9.0 percent in 1991, 1.1 percent in 1992, and 2.95 percent thereafter. The price escalation factors for the Yuan are 10.0 percent in 1991, 8 percent in 1992, and 5 percent thereafter. Except for civil work contracts, none of the cost estimates include taxes and duties since all materials, equipment, and services to be used in the project would be exempt from duties and taxes. 3.34 The costs of civil works are based on work quantities calculated from detailed designs and are costed at unit prices. For works already con- tracted, actual contract prices are used. The unit prices were computed on the basis of MOC's standard manuals for labor and equipment productivity, the related annually-updated costs, and the current costs of materials. The unit prices were checked against those of recent major road works financed under other highway projects. 3.35 The base cost per kilometer for the Class II Nanjing-Shanghai road improvements is about $0.32 million excluding contingencies and land acquisi- tion costs. The base cost for upgrading the provincial roads is also about $0.32 million per kilometer. These costs are acceptable considering the extent of work required and the difficulties of constructing under traffic and within well developed areas. 3.36 The cost of equipment is based on prices quoted by manufacturers outside China. The cost of consulting services is based on recent contracts for similar work under previous highway projects.  - 26 _ ESTIMATED PROJECT COSTS As of January 1, 1991 et Exchange Rate 81 u V 5.22 Local Forl In Total Local Foresin Total ForeIsn --- (Y ml IIton)- ---(S eti IIon)--- - cost (ts) Civil Work. Ro.i?Network Rehabilitation 454.2 802.6 757.0 87.0 56.0 145.0 40 Nanjing-Shanghai Road 180.8 169.4 289.7 26.0 80.5 65.5 56 Drnyang Canal Rehabilitation as.0 26.2 68.2 7.8 4.6 12.1 40 Nantong Ship Lock 16.4 24.8 42.7 8.5 4.7 6.2 67 Jiuelgang Bridge 11.6 14.8 20.1 2.8 2.7 6.0 64 Subtotal 652.7 526.0 1.178.7 125.1 100.7 ,225.8 f Supervision of construction Supervision of civil works 11.1 6.1 19.2 2.1 1.6 8.7 Training for supervision engineers 0.4 1.1 1.6 0.1 0.2 0.8 Subtotal 11.6 9.2 20.7 2.2 1.8 4.0 45 Eautp nt for Road mina-t nance 5.0 46.0 60.0 1.0 6.6 9.6 Central laboratory 1.6 8.0 4.6 0.8 0.6 0.9 Computer aided design - 1.6 1.6 - 0.8 0.8 Subtotal 6.6 49.5 56.0 1.8 9.5 10.8 s6 Aid to construction units 0.4 1.6 1.9 0.1 0.8 0.4 76 Technical assistance and Equipment and expertise for road data bank 0.4 4.5 4.9 0.1 0.9 1.0 Staff training 0.4 8.8 t.7 0.1 0.6 0.7 Provincial transport Corridor study 0.4 0.7 1.1 0.1 0.1 0.2 Design review 1.1 1.1 2.2 0.2 0.2 0.4 Subtotal 2.8 9.6 11.9 0.5 1.6 2.8 78 Base cost 678.4 595.6 1.269.2 129.2 114.1 248.8 47 Physical contingencies (1OX) 68.6 61.9 110.4 11.2 9.9 21.1 Price contingencies 118.0 104.6 222.6 18.6 12.2 25.6 Subtotal 649.9 752.8 1f02.2 154.0 186.2 290.2 47 Land acquisition cost 116.0 - 116.0 22.6 - 22.6 Total Prolect cost 967.9 762.8 1.720.2 176.6 1Uj.2 il2.! 44 Note: The project Is exempt from Import taxes and duties and all figures are rounded. E. Financing 3.37 The Bank loan of $100.0 million and an IDA credit of SDR 38.5 mil- lion ($53.6 million equivalent) would finance about 49 percent of the total  - 27 _ project cost. At negotiations, an assurance was obtained that the proceeds of the credit and loan will be made available to Jiangsu Province under arrange- ments satisfactory to the Bank Group. The provincial government would provide about $159.2 million to meet the remaining costs of the project. Proposed on- lending terms between the Ministry of Finance and Jiangsu Province are: 20 years, including 5 years of grace, at 5.925 percent interest per annum with 0.75 percent per annum commitment fee on outstanding balance. Jiangsu Provin- cial Government will bear the foreign exchange risks. The details of project financing are shown below: FINANCING PLAN ($ million) Provincial Bank/ Component Government IDA Total Road Network Rehabilitation 72.5 72.5 145.0 Nanjing-Shanghai Road 27.8 27.7 55.5 Danyang Canal Rehabilitation 6.1 6.0 12.1 Nantong Shiplock 4.1 4.1 8.2 Jiuwiegang Bridge 2.5 2.5 5.0 Construction Supervision - 4.0 4.0 Equipment 10.8 10.8 Development of Construction Units - 0.4 0.4 Technical Assistance and Training - 2.3 2.3 Contingencies 23.6 23.3 46.9 Land Acquisition 22.6 - 22.6 Total 159.2 153.6 312.8 F. Implementation 3.38 JPCD will have overall responsibility for implementing all compo-. nents of the project. This represents a departure from traditional procedures in which full responsibility was assigned to the city and/or county in which the work was located. Under the project, JPCD will have direct responsibil- ity, through an assigned Project Engineer, for all contractual arrangements for the retention of cotsultants, for !CB procedures and for the purchase of equipment. Contractual arrangements for work to be done by force account and via LCB will be handled by the cities involved but with prior review and approval of all activities by JPCD. Supervision of all civil works, regard- less of procurement methods, will be the responsibility of JPCD as described in para. 3.21. Detailed arrangements for project implementation were dis- cussed and agreed at negotiations. 3.39 The detailed design and related documents required for the first phase of the provincial roads rehabilitation program were completed in 1989; all necessary land has already been acquir,d. Construction works were started in late 1989 and are expected to be completed by the end of 1994. Preparation and construction for the second and third phases would follow at about annual  - 28 - intervals so that all work on the program would be completed by the end of 1994. While construction on some segments of the first phase program com- menced in late 1989, progress to date has been limited due to delays in secur- ing project funding. The works completed to date (about Y 50 million) would be eligible for retroactive financing. All necessary preparation for full scale launching of the first phase have been completed. 3.40 Upgrading the NanMing-Shanghai road is being carried out under seven contracts using ICB and LCB by prequalified contractors. Detailed engineering and bid documents and prequalification of contractors were completed by April 1989, and bidding and contract awards for the entire works was completed by October 1991 in full compliance with the Bank's conditions on procurement. Construction would be completed by the end of 1992. 3.41 Dredging work for rehabilitating the 17-km Danyang section of the Grand Canal commenced in early 1990 with slope paving to follow as the earth work is completed. All construction on this component is scheduled to be completed by December 1991. The construction of the Jiuweigang Bridge com- menced in November 1990 and is scheduled for completion in December 1992. The construction of the Nantong shiplock is scheduled to start in October 1991 and be completed in two years. Road pavement evaluation will start in mid-1991 and the preparation of programs for road strengthening and maintenance should all be completed by the end of 1992. The consultants to assist in supervising construction were mobilized in November 1989; initial efforts were focused on training workshops for JPCD staff. Foreign experts needed to assist the con- struction industry will be selected by April 1992. The project will be com- pleted by December 31, 1995, and the loan/credit closing date is June 30, 1996. 3.42 An implementation schedule for the proposed project (Annex 4) was agreed at negotiations. G. Procurement 3.43 Not only is this the Bank's first transport project in Jiangsu pro- vince, it is the first attempt to use competitive bidding and contracting for works to convert the civil works construction units into independent entities. Assistance to initiate this conversion is provided under the project (paras. 3.28 and 3.29) but complete conversion will take some ime. In order to compare contracting work with the traditional force account work, a combi- nation of old and new procurement methods will be used under this project. 3.44 Because of the nature of work and city boundaries (para. 3.13), the 176.5 km of the Nanjing-Shanghai road under the project were divided into seven contracts (Map 21331). The two contracts for the Suzhou section of the Nanjing-Shanghai highway (80 km, $9.5 million and $18.4 million), and the contract for the Jiuweigang Bridge ($5.0 million) have been awarded after international competitive bidding by prequalified ,irms in accordance with Bank guidelines. The contract for the Nantong Lock ($8.2 million) will be awarded after international competitive bidding in accordance with Bank guide- lines by August 1991. Local competitive bidding by prequalified coptractors has been used for the three scattered contracts on the Zhenjiang section  - 29 - PROCUREMENT METHOD ICB LCB Other Total --------- ($ million) --------- Civil Works 88.4 61.3 119.7 269.4 (43.7) (30.5) (58.6) (132.8) Equipment 10.6 - 2.3 12.9 (10.6) - (2.3) (12.9) Training - 0.8 0.8 (0.8) (0.8) Consulting Services - 7.1 7.1 (7.1) (7.1) Land Acquisition - - 22.6 22.6 Total 99.0 61.3 152.5 312.8 (54.3) (30.5) (68.8) (153.6) Notes Figures in parentheses represent the amounts financed by the Bank/IDA. All figures include estimated physical and price contingencies and are rounded. (total]ing 60 km, $2.5 million, 2.8 million and 6.7 million), the contract for the Changzhou section (12 km, $3.4 million), and the contract for the Wuxi Section (24 km including 0.7 km of railway underpass and its approach road, $10.6 million for road and $1.6 million for railway underpass and its approach road), since the cost to foreign bidders of preparing ICB bids would have been excessive compared to their chances of success, and consequently they would have not been interested in bidding on them. However, prequalification for local bidding was open to foreign contractors, but none applied. As required by law, the railroad underpass on the Wuxi section will be constructed by the railway construction unit under force account. 3.45 Construction work for the first phase of the provincial network rehabilitation program is not considered suitable for ICB because of the numerous, widely scattered works involved. Therefore, the work will be car- ried out by LCB or force account but with some new arrangements for supervi- sion. In the first phase of the program, force account work will involve twelve sections on five different roads totalling about 165 km; the base cost of this work is estimated at $49.0 million. These sections are located either in comparatively remote and undeveloped areas or within or immediately adja- cent to heavily built-up cities or towns they will be assigned to appropriate construction units in order to avoid the many coordination problems associated with the remote location or with heavy urban traffic, building removal, and maintenance of utility services. 3.46 The second and third phases of the program will include road sec- tions appropriate for ICB and LCB procurement; both will be encouraged in the  - 30 - Bank's continuing dialogue with JPCD. Because of the special nature of the work, however, the excavation of the Danyang Canal is being done by manual labor on a force account basis during the dry season. Slope paving also will be done by force account as sections of the completed excavation become avail- able. The total base cost for these works is $12.1 million. The construction units in the province are fully capable of carrying out the force account work described above with the independent supervision provided by JPCD (para. 3.21). Nevertheless, the staff of the construction units would benefit ftom extensive training in new quality control methods. 3.47 ICB would be used to procure equipment for road pavement evaluation, road maintenance, and the central laboratory, and computer hardware and soft ware for the road data bank and computer aided design ($12.8 million). How- ever, items estimated to cost less than $200,000 per contract, up to an aggre- gate amount not to exceed $1.2 million for all contracts, may be procured by international shopping on the basis of a comparison of price quotations solic- ited from at least three suppliers eligible under the Bank's Guidelines, and in accordance with procedures acceptable to the Bank. JPCD would be responsi- ble for procurement of all equipment. 3.48 Under the ICB contracts for goods, qualifying domestic suppliers and manufacturers would be eligible for a margin of preference in the comparison of bids of 15 percent, or the prevailing customs duties, whichever is lower. Qualifying domestic contractors would be eligible for a 7.5 percent margin of preference in the comparison of civil works bids under ICB. Since procurement by competitive bidding in the highway subsector is still relatively new in China, all contracts for civil works and equipment estimated to cost more than $500,000 would be subject to prior review and approval by the Bank Group. 3.49 All consultants for the services described in para. 3.30 would be selected under terms and conditions acceptable to the Bank Group and in accordance with Bank Group Guidelines for the use of consultants. H. Disbursements 3.50 Disbursements of the Loan would be used to finance the followingt (a) 50 percent of the total cost of civil works procured by ICB, LCB, and force account; (b) 100 percent of foreign expenditures for directly imported equipment, or 100 percent of local expenditures (ex-factory) for locally manu- factured equipment and 75 percent of local expenditures for other items procured locally; and (c) 100 percent of the costs of consulting services and training of staff. 3.51 To facilitate disbursement, a Special Account would be opened with an initial deposit of $11 million, which is the estimated average expenditures for a four-month period. The account would be opened in US dollars in a bank acceptable to the Bank Group. Applications for replenishment of the Special  - 31 - Account would be submitted monthly or whenever the Special Account were drawn down to 50 percent of its initial deposit, whichever comes first. Table 3.2 provides a schedule of estimated disbursements and shows the regional dis- bursement profile for transport projects. Disbursements under tlte project are estimated to follow closely the rate shown in the regional profile. Although competitive bidding methods are new in Jiangsu, delays are expected to be minimized by early, adequate, and frequent Bank Group supervision throughout the project. 3.52 Disbursements would be made against priced contracts for civil works and against priced bills of quantities for force account work. Interim pay- ments for civil works completed and costed at unit rates in the contracts and bills of quantities would be certified by a joint JPCD/Consultant team or by JPCD supervisory staff. All payments would be certified by JPCD. Disburse- ments for training overseas would be made against the actual costs of travel, subsistence, and tuition or training fees. Disbursements against statements of expenditure would be needed for the training component, civil works carried out by force account, ard for contracts for works, goods or services costing less than $200,000. Documents supporting the expenditure statements should not be submitted to the Bank Group but instead retained by the JPCD and made available for review by Bank Group supervision missions. Retroactive finan- cing of up to SDR 11.0 million ($15.3 million equivalent) would be applied to expenditures for consultant services and contract works made after Novem- ber 15, 1988. I. Auditing, Reporting, and Monitoring 3.53 A State Auditing Administration (SAA) has been established to make detailed audits of the government agency accounts. Assurances were obtained from Jiangsu Province during negotiations that the accounts of project-related expenditures would be audited by independent auditors acceptable to the Bank Group and that audit reports would be sent to the Bank Group for review within six months of the close of each fiscal year. The Bank Group currently accepts SAA audits for this purpose. 3.54 Progress reports on the project would be submitted quarterly to the Bank Group by JPCD, based on the project monitoring indices shown in Annex 5. A Project Completion Report would be prepared and submitted to the Bank Group not later than six months after the loan closing date. J. Environmental Effects 3.55 The project would have a positive environmental impact. The highway construction and rehabilitation envisaged is generally in the flatter area of the province, so little erosion is foreseen. Nevertheless, JPCD routinely protects the slopes of the higher embankments and cuttings with stone pitching where there is any risk of significant erosion. The proposed highway work would encourage separation of motorized and nonmotorized traffic. As a result, the motorized traffic stream should move more uniformly, reducing vehicle emissions, pollution, and accidents. Moreover, the project would discourage the current and dangerous practice in China of planting rows of trees on the shoulders of roads. Instead, it would encourage tree planting at  - 32 - the foot of the embankment which should help to reduce the impact of vehicle pollution and may even reduce some vehicle noise pollution. 3.56 The two waterway components in this project would have no negative impact on the existing ecology of waterways. The widening of the Danyang section of the Grand Canal rehabilitation project is expected to actually help improve water quality by increasing the volume of water discharged from the Yangtze River into the enlarged cross section of the canal. Attention given to the broader questions of water quality in the preparation of this project have encouraged preparation of proposals for a comprehensive study of water quality problems in the Grand Canal. 3.57 Land for construction projects is acquired under the "Regulations on the Requisition of Land or State Constructlon" promulgated by the State Coun- cil on May 14, 1982, and as further clarified by the 'Elucidation of the Regu- lations on the Requisition of Land for State Construction" issued by the State Planning Commission, the Ministry of Agriculture, Animal Husbandry and Fish- ery, and the Ministry of Urban and Rural Construction and Environmental Pro- tection on June 9, 1983. These regulations spell out the procedures for acquiring land and the measures to be taken during construction to protect the environment. Compensation for cultivated land is based on the average annual output for three years before the land is acqu'red, multiplied by the State price, the above-quota price, or a negotiated price for products which have no fixed price. The settlement allowance per capita is two to three times the average annual output value per mu of land; it is based on the average area of cultivated land occupied by each farmer. The total allowance for cultivated land compensation and resettlement costs is stipulated not to exceed twenty times the annual output value of the acquired'land. Surplus agricultural laborers are absorbed in other agricultural production units or employed else- where in factories, etc. The regulations appear fair and equitable and are strictly enforced, with penalties set for any deviations. 3.58 Detailed land acquisition schedule, environmental and resettlement plans were prepared by JPCD and submitted for review by the Bank and found satisfactory. At negotiations an assurance was obtained that resettlement will be carried out in accordance with these plans. 3.59 The local governments of Nanjing, Zhenjiang, Changzhou, Wuxi, and Suzhou would be fully responsible for land acquisition and the resettlement of families affected by the project. Resettlement would be done near original villages outside the right of way of the proposed project. The removal and resettlement of households, farmers, workers, etc. would be phased with the construction schedule. To minimize interruptions to farm production and asso- ciated economic losses, the land needed for civil works would be acquired and taken over prior to the start of actual construction on the site in accordance with the work schedule.  - 33 - IV. ECONOMIC EVALUATION 4.1 The economic analysis for the proposed project focuses on the civil work components, which account for about 93 percent of project base cost. These components include: (a) the road rehabilitation program for southern Jiangsu; (b) upgrading of 176.5 km of the Nanjing-Shanghai road; (c) rehabilitation of the Grand Canal at Danyang; and (d) construction of the Nantong shiplock and an adjacent bridge at Jiuweigang. The economic analysis was done separately for each of these components, as reported below. The benefits of the technical assistance components have not been quantitatively assessed, but are expected to far exceed costs (para. 4.4). 4.2 All input and output elements for evaluating the costs and benefits of the new highway were obtained by using January 1991 financial costs and' applying conversion factors to reflect their economic costs (Table 4.1). These conversion factors have taken into account a shadow exchange rate, which is higher than the official rate. A. Main Benefits and Beneficiaries 4.3 The major quantifiable benefits of the project will result from the provision of better and more economical transportation in areas where an existing or potential transport demand has been identified. Project roads and inland waterways will serve densely populated and highly developed areas which include both large-scale and cottage industry and intensive agricultural activities. Most of the motorized traffic on roads and canals is made up of commercial vehicles, which account for as much as 70-80 percent of total traf- fic. Benefits from the project will accrue, in the first instance, to road and canal users mainly in the form of vehicle/vessel operating cost (VOC) and time savings (including in certain cases some significant savings in distance through new routings), and to the provincial government as teduced maintenance cost. Many of these users are own-account carriers for the producer enter- prises and thus will directly capture the benefits. In the case of public carrier freight services, there is increasing competition so that savings would be passed through to the shippers. In the case of road passenger ser- vices, the role of markets is so far limited and prices are controlled, so that financial savings in the short run are likely to be retained by the bus companies; over the longer run, however, future price increases may be held down, allowing passengers to benefit from time savings and greater riding comfort associated with smoother riding surfaces (although these latter bene- fits are not quantified).  - 34 - 4.4 The project also is intended to be used as a vehicle to initiate a better planned road and waterways maintenance program for the JPCD, to strengthen public works procurement procedures, and to upgrade the management of thie construction entities (paras. 3.22-3.30). Substantial (but unquanti- fied) benefixs will accrue to both infrastructure users and the Government. Users will benefit from infrastructure that is better designed and maintained, and thus less costly to operate on; the Government will benefit from the more cost-effective use of its funds, including redvctions in future capital expen- diture due to longer life of existing facilities. 4.5 The project will benefit other local traffic, the population in the area of influence of the roads and canals, and through traffic, especially along the Nanjing-Shanghai corridor, which serves long-distance traffic trav- eling between Shanghai and points south and the north of China. B. Rehabilitation of the Southern Jiangsu Road Network 4.6 The road rehabilitation program financed under the project will help strengthen and improve major provincial roads in southern Jiangsu. The pro- gram will provide substantial benefits to road users on many heavily-traf- ficked primary and regional routes. Bank involvement will concentrate on high-priority roads, especially those that serve as feeder systems to the major corridors (paras. 3.9 and 3.10). Under this project, the Bank will be participating in JPCD's five-year (1989-94) road rehabilitation and improve- ment program by supporting the rehabilitation of about 450 km or 41 percent of planned expenditures for rehabilitation and major upgrading (excluding main- tenance) in three phases. Loan-supported expenditures are expected to total Y 833 million ($159.5 million equivalent) including physical contingencies. 4.7 The first phase of the project was discussed and agreed upon at appraisal between JPCD and the Bank (Annex VI). It comprises five road sec- tions (totaling 162 km) and one 260-meter bridge with an aggregate program cost of Y 253.0 million. As shown in Table 4.2, the estimated overall Econo- mic Rate of Return (ERR) is 42 percent; the ERR of individual components ranges from 21 percent to 63 percent. The sensitivity analysis shows that with a uniform increase in costs and a 20 percent reduction in benefits, the overall ERR would fall to 31 percent with individual components ranging from 14 percent to 49 percent. 4.8 The program of the later two phases will subsequently be defined following the same procedures (guidelines are detailed in Annex 1) and submit- ted for Bank staff evaluation by October/November of the vear before the pro- gram is to start (July 1-June 30). Discrete sections of roads and clusters of bridges or individual bridges would be subject to an indepenxdent economic analysis. The Net Present Value and Economic Rate of Return %RRI would be calculated for individual subcomponents, each of which constitutes a signifi- cant investment. C. Upgrading of the Nanjing-Shanghai Road 4.9 The Existing Naniing-Shanghai Corridor. The Nanjing-Shanghai corri- dor is one of China's most important transportation corridors. It links  - 35 - Nanjing, the capital of Jiangsu Province with 1.4 million inhabitants, with Shanghai, the largest coastal port and industrial city of China containing about 13 million inhabitants. The area between these two cities served by the Nanjing-Shanghai corridor comprises four cities with some 4.5 million inhabit- ants and a diversified economy based on agriculture (grains and sericulture) and industry (including automobile assembly and spare parts manufacturing). Economic growth in the 1980s was about 16 percent per annum. While the growth potential for the next decade would continue to be high, limitations in trans- port capacity are already constraining economic activities and, unless allevi- ated, could become a critical barrier to future growth. 4.10 The corridor is now served by a network of low quality highways. The existing 350 km road from Nanjing to Anting (at the border of Shanghai) is sinuous and detours through a large number of counties and villages along the corridor. The pavement width varies from six to eight meters of Class III standard road, except for about 100 km of roads. On this section, works are underway to upgrade the road to a Class II standard with nine meters pavement width. Due to heavy traffic (including extensive nonmotorized traffic), poor geometric standards, and route alignment through congested areas, the average travel speed has been reduced to about 35 kph. 4.11 This corridor is also served by the Beijing-Shanghai railway main- line and by the Yangtze River and the Grand Canal. However, rapid traffic growth is expected to soon absorb the limited remaining capacity of the double-track railway. Moreover, since the comparative advantage of the rail- way lies in bulk freig't and long-distance traffic, the railway administration substantially increased freight tariffs for distances under 200 km and although they are still lower than for road transport, they have gradually eliminated the bulk of the short-haul railway traffic in the province. As a result, traffic has been diverted from the railway to inland waterways and roads. The inland waterway is (at least potentially) the least costly of the three transport modes, but even if the existing substandard infrastructure is improved and larger, more modern vessels employed, the slow speed of water transport will confine its use to low-value bulk commodities. Shippers of higher-value commodities and passengers are prepared to pay far higher prices for the speed and greater flexibility of road transport; hence normally water- ways do not compete with highways. 4.12 Given the rapid growth of traffic and increasingly severe congestion in the corridor, much attention has been given in recent years to the possi- bility of constructing a major expressway in the Nanjing-Shanghai corridor. A feasibility study for a proposed expressway was completed in 1988, financed by the Japanese International Cooperation Agency (JICA), but no decisions were taken in view of the State Council's curtailment of major capital investments and other priorities in the transport sector. An eastern-most section of the expressway in the Shanghai border might be included in the Eighth Five-Year Plan (8EYP, 1991-95), while the remaining sections could be proposed for con- struction during the Ninth Five Year Plan (1996-2000). Given that the engi- neering design and construction would take seven to eight years before the first section of the road could be opened to traffic, more immediate measures are needed for the interim.  - 36 - 4.13 The Proposed U.igrading of the Corridor Road. The rehabilitation and upgrading of the existing highway is one such measure. As noted in para. 3.13, work is alreao-y under way on a few seriously deteriorated sections (Map 21331), and this project will help finance the remaining sections (for pur- poses of economic analysis the entire road is divided into five sections and the Bank-financed portion into three sections). New alignment is being pro- vided in certain sections where required to alleviate congestion, bypass towns, or shorten distances. In other sections the existing alignment will be retained but the road will be widened, including wider shoulders to provide for separation of nonmotorized traffic. This will permit higher speeds and higher throughput capacity. The entire road will have a new pavement and will be less sinuous, shortening the present 350-km distance from Nanjing to Shanighai by about 72 km. 4.14 The following economic analysis is based on the extremely conserva- tive assumption of a ten-year economic life for the upgraded road (1993-2002), with all traffic thereafter being diverted to the proposed expressway. In reality the road would still have an important economic role in serving local traffic thereafter, but that is ignored here for the sake of simplicity. 4.15 Traffic on the Corridor Roads Existing and Forecast. According to the feasibility report prepared by JPCD, results from 14 origin-destination (0-D) survey points on five road sections in 1986 show through traffic vary- ing from about 3,300 vpd on low-traffic stretches to about 6,000 vpd on high- traffic stretches. Including local traffic the volumes range from 4,000 to 8,000 vpd. The motorized traffic composition is about 80 percent trucks and 20 percent passenger vehicles. Because of the large pent-up transport demand, the historical record shows extraordinarily high growth averaging over 20 per- cent per annum in the early 1980s when there was a relaxation of vehicle import controls. However, growth rates are not expected to continue at such high levels into the 1990s. Assuming a more conservative growth rate of 6- 14 percent per annum (depending on different types of vehicles) the forecast traffic in the year 2002 would be about 16,000 vpd and 26,000 vpd on low- and high-traffic stretches, respectively (Table 4.3). 4.16 Traffic on the upgraded road during the interim years prior to open- ing of the expressway would consist, in the case of those sections constructed on the existing alignment, of all the present traffic plus "normal" traffic growth and "generated" traffic. Generated traffic represents traffic stimu- lated by the reduction in transport costs and travel time. In the case of those sections built on new alignment, it is assumed that 100 percent of through traffic would divert to the new alignment, but that only 25 percen.t of local traffic would divert; traffic on these sections too would be enhanced by both normal growth and generated traffic. 4.17 Based on these assumptions, initial traffic on the upgraded road in 1993 is estimated to be about 5,000 to 10,800 vpd on low- and high-traffic sections, respectively (Table 4.4). When expressed in equivalent passenger car units (PCU), these estimates become 13,000-31,000 vpd (Table 4.5) reflect- ing the high ratio of heavy vehicles.  - 37 - 4.18 Economic Returns. An economic analysis has been performed based on the above traffic projections and the unit vehicle operating costs for the differing conditions shown in Tables 4.3 and 4.4. The analysis is summarized in Table 4.6 for the three sections to be financed by the Bank Group: (i) Zhenjiang-Changzhou (72 km at a cost of Y 134.0 million, including land acqui- sition); (ii) Wuxi-Suzhou (52 km at Y 130.0 million); and (iii) Suzhou-Anting (52 km at Y 147.0 million). 4.19 Benefits are derived from: (a) savings in operating costs of the vehicles driving on the upgraded road sections, whether on the existing alignment or new alignment (in the latter case net of the additional distances to/from the new alignment); comprising 70 percent of total benefits; (b) savings in vehicle operating costs for those vehicles remaining on the old unimproved road which will nonetheless benefit from reduced congestion levels, comprising about 20 percent of the total bene- fits; (c) benefits attributable to generated traffic and equated (on a unit basis) to one-half of the voc savings of "normal" traffic, compris- ing about 10 percent of total benefits; and (d) reduced accident levels; the related benefit was estimated based on average avoided costs of vehicle and goods damage and of the net present value of the .oduction that would have been lost were fatalities not avoided. 4.20 The investment (each and every part) is strongly justified economi- cally, having an estimated overall Economic Rate of Return (ERR) of 64 percent and a Net Present Value (NPV) of Y 1,560 million at a 12 percent discount rate. The results for each section, including their sensitivity to variations in costs and benefits, are shown in Table 4.6. D. Rehabilitation of the Grand Canal at Danyang 4.21 Background. The Grand Canal passes through the city of Danyang. The canal section considered for improvement (also known as the Lingkou Chan- nel) starts 270 meters south of Danyang People's Bridge, and ends 600 meters west of Lucheng Bridge, some 22 km south of Jianbi Locks at the Yangtze River. The total length of the section considered for improvement is 17 km. The area is under the administrative jurisdiction of the City of Zhenjiang located about 6 km west of Jianbi Lock. The present population in the Zhenjiang- Danyang corridor is about 2.5 million. 4.22 The Danyang section offers particularly poor navigation conditions (para. 3.15) and is the most restrictive of the entire Grand Canal within the borders of Jiangsu Province.. The importance of this segment is emphasized by the fact that it provides immediate access to the Jianbi Lock, which is the largest navigation lock in southern Jiangsu Province. Unfortunately, due to the poor navigation condition of the Danyang section, Jianbi lock has not been  - 38 - fully utilized since it opened in 1981, while other locks in the system are forced to accommodate traffic which would more economically move via Jianbi and therefore are highly congested. The bottleneck at Danyang has become worse since 1985 and explains much of the reduction in traffic at Jianbi lock, from 5.8 million tons in 1986 to 5.1 million tons in 1987. 4.23 Navigation Locks and Canal System. Major exits from the southern canal network to the Yangtze River are provided by three navigation locks ard one flood gate (Map 21331). From west to east these includes (a) the Jianbi Lock (230m x 20m x 4m), located at the northern end of the southern portion of the Grand Canal. (b) the Weichun Gate, located in Weichun County on the northern end of the Desheng Canal. The southern end of the canal joins with the Grand Canal at Xinja County in Changzhou. Vessel passage is possi- ble when tidal levels on the Yangtze River and in the Deshang Canal are approximately equal. This occurs twice a day for about three hours each time. (c) the Jianayin Lock (93m x 12m x 2.5m for the old chamber, and 98m x 12m x 2.5m for the new chamber). The second chamber was completed and started operating at the end of 1988. The lock is located on the Xichen approach canal, which joins with the Grand Canal at Wuxi City; and (d) the Zhangiiagang Lock (140m x 13m x 2.5m), located on the approach canal that leads into a canal system in Wuxi and the northern Suzhou area. 4.24 The capacity of channels and locks and the configuration of fleets are closely related. The inland water channels in southern Jiangsu can accom- modate only up to 500-ton tow boats, and tow boats operating in this area vary from 60 tons to 500 tons. Assuming prudent operating practices, the design capacity of the locks has been estimated as followst Design Lock Capacity (per Annum) Jianbi 26,372,000 tons Jiangyin (old) 8,736,000 tons Jiangyin (new) 9,068,000 tons Zhangjiagang 11,818,000 tons Notes Detailed lock capacity input-output data is available in the project file.  - 39 - 4.25 Current Traffic Patterns. JPCD conducted an O-D survey for water borne traffic in 1987. The survey revealed that 84 percent of the traffic moving through the Jiangyin lock was to and from the area upstream of the Yangtze River west of Zhenjiang and the area south of Wuxi (including Suzhou and Shanghai). The movements upstream of the Yangtze River would be most conveniently served by the Jianbi lock, whereas the movements toward the area south of Wuxi would be more conveniently served by the Zhangjiagang loK and canal system south of Wuxi. However, during the six-month dry season the Danyang section of the Grand Canal becomes a constraint to large tows, and consequently Jiangyin lock becomes congested by the large amount of traffic diverted from Jianbi lock. Lock throughput data were collected for each lock in 1987. This information shows that Jianbi lock was far underutilized, han- dling only 20 percent of its lock capacity. Jiangyin lock, on the other hand, was overly congested, with about 100 percent more than the designed capacity of the original chamber: ACTUAL LOCK TRAFFIC (1987) Lock/Gate Freight traffic ('000 ton) Jianbi 5,051 Weichun 4,000 (approximate) Jiangyin 16,984 Zhangjiagang 7,038 4.26 At least three factors enabled the original Jiangyin lock to operate way above its design capacity. First was the hazardous extension of the period of open-pass operations. This highly productive mode of operation is safe only during the two periods of the day during which tidal variations cause water levels in the Yangtze River to approximately equal those of the canal--extending the period of open-pass operation allows several addi- tional millions of tons of freight to pass through, but the strong currents generated more risk of accidents. Second was the uneconomic queuing of ves- sels awaiting passage, since waiting times may exceed two weeks during the high traffic season. This practice does serve to maximize the throughput of the lock. The third factor involves the present fleet mix of large numbers of motor boats and very small tows which made it easy for the lock master to fill any space in the lock chamber after major tows were accommodated. However, the fleet configuration is increasingly adopting larger tow sizes for the sake of efficiency, and factors which allowed the lock to operate beyond its tech- nical design capacity will be diminished. Extended open-pass operations beyond completely safe hours will be more risky, and any accidents involving large tows will be more costly. The opening of the second chamber at Jiangyin has essentially doubled design capacity there; this provides temporary relief of extreme operation conditions there, but by the early 1990s traffic again is expected to exceed the designed capacity of the (expanded) facility.  - 40 - 4.27 Projected Traffic. The opening of the Danyang section will provide not only a sharp increase in available capacity, but also offer the shortest waterway distances serving the hinterland west of Zhenjiang to Wuxi, Suzhou and Shanghai. Traffic here can be expected to revert to the Danyang route as soon as it is opened, thus doubling traffic from 5 million tons in 1987 to 10 million tons 'n 1993 after the opening year of operations. Thereafter, traffic is expected to grow at about 3 percent per annum. 4.28 Benefit-Cost Analysis. The economic analysis comprises two steps: (i) identification of alternative solutions to meet the projected transport demand and selection of the most cost-effective solution; and (ii) comparison of the most cost-effective solution against the alternative of doing nothing. In this case it is readily evident that the most cost-effective solution in to rehabilitate the Danyang section: it provides a more direct routing for the great majority of traf4f. now using the congested facilities at Jiangyin lock and Weichun gate for only a small marginal expenditure to improve the existing channel to the existing underutilized lock at Jianbi, which constitutes a very large but already sunk investment. The next best alternative involves con- struction of new locks and improving channels elsewhere, e.g., at Weichun. This would require both greater capital expenditure and a more indirect rout- ing with higher operating costs for the majority of the traffic. 4.29 Rehabilitation of the Danyang section was then compared against the "do nothing" option. Doing nothing to improve the network would result in continued diversion of traffic to Jiangyin, and, as the capacity of the new chamber at Jiangyin was fully absorbed by traffic growth, congestion would once again build up at Jiangyin and Weichun gates and intensify the pressures to extend risky open-pass operations at those locations. As pressures in those two corridors worsened, traffic would divert further to Zhangjiagang lock (although wind and water conditions there will be restrictive factors) and, finally, would spill over to the much more expensive highway mode. 4.30 Simple queuing modules have been employed to simulate this chain of events in order to quantify the order of magnitude of benefits involved. The benefits consist ofs (a) reduced travel distances for waterborne traffic currently using the Jiangyin and other alternate routings; (b) reduced vessel delay times at alternate locks and gates; (c) reduced number of accidents caused by the need to extend the unsafe open-pass operation practice at the Jiangyin lock and Weichun gate; and (d) elimination of the need to transport via the higher cost highways, cargo that would otherwise have gone by inland waterways. 4.31 The estimated cost for the Danyang section rehabilitation is Y 63.2 million. The annual channel maintenance cost is estimated at approxi- mately 5 percent of total rehabilitation costs. The cost and benefit stream over time and the resulting economic indicators are summarized in Table 4.7.  - 41 - The investment is strongly justified, having an estimated ERR of 19 percent and an NPV of Y 83.5 mii.ion at a 12 percent discount rate. Even if costs were to increase by 20 percent and benefits to decrease by 20 percent, the EU would still be satisfactory at 15 percent. E. Construction of the Nantong Shiplock and Jiuweigang Bridge Nantong Shiplock 4.32 Background. The existing Nantong shiplock (160m x 12m x 3.3m) is a major gateway facilitating traffic flow between the Yangtze River and the inland waterways network of the northern Jiangsu Province. The lock serves Tongyang and Tonglu canals, two of the major waterway trunk lines of northern Jiangsu which link with numerous secondary canals to form a dense and economi- cally important inland water network. 4.33 The existing lock, built in 1958, originally had an annual design capacity of 5 million tons. With rapid traffic growth, the lock was modified in 1981 to allow open-pass operation. Lock traffic in 1986 reached 10 million tons, of which the open-pass operation (about two hours each day) safely facilitates about 3.4 million tons, or 34 percent of total lock traffic. However, when congestion becomes more severe, the lock master tends to extend the open-pass operation hours thereby incurring higher risks of accidents. 4.34 Despite the unsafe extension of open-pass operations, congestion continues to be a serious problem. The average fleet delay was 2.5 days in 1988, with maximum delays reaching five days. The ability to divert traffic to other entry/exist points on the Yangtze River, such as using flood control gates at Jiaogang River, is limited since these points are also congested. Diversion to other modes of transport is not a viable option. There is no railway serving this part of the province and road transport of bulk cargo would be substantially more costly. Moreever, results from the origin-desti- nation survey conducted at the existing Nantong lock show that the highway network in this area does not yet provide an alternative for most of the freight movements, as it is less developed than its corresponding waterway network. 4.35 Traffic. Nantong ship lock and its transshipment facilities around the lock area play a significant role as a waterborne traffic distribution center. The following traffic data collected in 1985 suggests that the water- way accommodates over 85 percent of total freight traffic (in ton-km) handled in the Nantong area.  - 42 - TRAFFIC AT NANTONG CITY (1985) Freight Traffic million tons million ton-km Vaterway 19.3 1,944.4 Highway 10.7 301.6 Total 30.0 2,246.0 Of the total 30.0 million tons of freight traffic handled at Nantong city, 9.0 million tons (30 percent of the total traffic, or 47 percent of waterborne traffic) used Nantong shiplock. 4.36 Ninety-four percent of traffic at the lock in 1986 was north-bound, coming from southern Jiangsu, Zhejiang, and Jiangxi provinces as well as Shanghai municipality, across the Yangtze River to Tongyang and Tonglu canals via Nantong lock. This traffic was predominantly low-value bulk commodities; the two most important commodities were construction materials (45 percent) and coal (22 percent). Such traffic went as far as Yancheng City, about 200 km from Nantong city. The much smaller south-bound traffic includes cot- ton and textile products (20 percent), grain (14 percent), other agricultural products (11 percent), bricks (9 percent), chemical fertilizer and other mis- cellaneous products. The composition and origin-destination of traffic con- firm the need to expand the capacitv of Nantong lock, as much of it is bulk cargo coming from or headed to areas which at present are accessible primarily by waterway. 4.37 The Proposed Lock Capacity ExDansion. Normally the cheapest way to expand lock capacity would be to build another chamber parallel to the exist- ing lock and have both share the same approach canal. However, this is not possible at Nantong, because the vicinity of the existing lock is densely built up with factories. Nantong port and its transshipment area, and the city itself. Based on a careful comparison of several alternatives in the vicinity of Nantong, JPCD proposed a new lock (220m x 16m x 3.3m) at a location about 10 km west of the existing lock and adjacent to the existing Jiuweigang flood control lock. Considering the rapid growth of Nantong City and the future development plan for northern Jiangsu province, the major criterion for selecting the location was the availability of sufficient water area to enable extensive fleet operations and transshipment. 4.38 Fleet Configuration and Lock Capacity. The annual capacity of the proposed lock under prudent operating practices is estimated to be about 18.0 million tons. Assuming the same waterborne traffic growth rates as for southern Jiangsu province, i.e., 13 percent, up to 1990, 3 percent during 1991-2000, and 1 percent in the post-2000 period, the two locks would have sufficient capacity to accommodate traffic at least up to 2010:  - 43 - LOCK CAPACITY AND TRAFFIC FORECAST (MILLION TONS) Traffic at Nantong Traffic Passing Jiaogang River Flood Control Gate 1986 10.2 4.0 (maximum capacity for open-pass operation) 1992 17.6 - 2000 22.5 _ 2010 23.0 1.6 2020 23.0 3.9 By 2010, congestion at the lc:ks is likely to develop, and a portion of traf- fic would again detour to Jiaogang flood control gates to avoid delay at the locks. By 2020, the system would all be congested and expansion of lock capacity would be needed. 4.39 Benefit-Cost Analysis. An analysis similar to the one done for the Danyang canal improvement was performed for the Nantong lock, with similar measures of benefits. The results are shown in Table 4.8. The proposed investment of Y 42.7 million is well justified economically, with an estimated ERR of 20 percent and a NPV of Y 30 million with a 12 percent discount rate. Jiuweitang Bridge 4.40 The Jiuweigang bridge is the only means of land transport for reach- ing Nantong City from the western part of the province. The existing bridge is not designed for heavy traffic and is now structurally damageds there is a risk that it could become unusable in the near future (para. 3.19). This risk is unacceptable to the Nantong government as it would cut off land access from the west and create severe economic and social disruption. Consequently, a new bridge is planned as part of the new Nantong shiplock. After the new bridge is opened for traffic, the old bridge will be used exclusively for nonmotorized traffic. 4.41 No formal analysis of the 'do nothing' alternative was performed since the expected value of losses in the event of closing the old bridge would clearly exceed the cost of the new bridge. The economic analysis hence was confined to the search for the most cost-effective solution for the new bridge. The solution selected was to incorporate the bridge within the new Nantong shiplock at an extra cost of Y 26.1 million. V. AGREEMENTS REACHED AND RECOMMENDATIONS 5.1 During negotiations, agreements with the Government were reached on the followings  - 44 - (a) terms of reference for consulting services to supervise construction (para. 3.21); (b) terms of reference for evaluating existing road pavements and pre- paring strengthening and maintenance management program (para. 3.22); (c) terms of reference for preparing a road data bank (para. 3.23); (d) the list of CAD and central laboratory equipment to be financed under the project (para. 3.24); (e) the scope of an implementation schedule for the training program (para. 3.26); (f) terms of reference for consulting services to conduct workshops to assist the construction industry (para. 3.28); (g) JPCD's arrangements for implementing the project (para. 3.38); and (h) the implementation schedule for the project (para. 3.42). 5.2 During negotiations the following assurances were obtained: (a) from the Borrower: (i) that the proceeds of the credit and loan will be made available to Jiangsu Province under arrangements satisfactory to the Bank Group (para. 3.37). (b) from Jiangsu Province: (i) that: (a) it will select the roads to be rehabilitated under the provincial road upgrading program in accordance with crite- ria and procedures agreed with the Bank Group; and (b) it will provide to the Bank for concurrence the list of roads for the second and third phases by October 31, 1991 and October 31, 1992, respectively (para. 3.10); (ii) that the training under the Project will be carried out in accordance with a training program agreed by the Bank Group (para. 3.26); (iii) the construction industry study and provincial transport corri- dor study will be carried out in accordance with Terms of Ref- erence and timing agreed with the Bank Group (para. 3.29); (iv) that it will provide audits of Project accounts by independent auditors within six months of the end of each fiscal year (para. 3.53); and  - 45 - (v) that it will carry out the resettlement under the Project in accordance with a plan agreed with the Bank Group (para. 3.58). (c) The State Council's approval of the Loan Agreement and the Develop- ment Credit Agreement will be a condition of effectiveness. 5.3 Subject to the foregoing, the proposed project is suitable for a Bank loan of $100.0 million for a term of 20 years, including a grace period of five years, at the standard variable interest rate and for an IDA Credit of SDR 38.5 million ($53.6 million equivalent) on standard IDA terms with 35 years maturity. The Borrower will be the People's Republic of China.  CHINA JIANOSU PROVINCIAL TRANSPORT PROJECT Freight Traffic Intensities in Selected Countries Tons orl- Average Country *r n oginated la Ton-km /a distanc Estimated GNP Tons/81,000 tku/ Country (millIon ki) (illions) (billions) km) (S billion) of