China - Third Railway Project

 Third railway project Report No: ; Type: Report/Evaluation Memorandum ; Country: China; Region: East Asia And Pacific; Sector: Railways; Major Sector: Transportation; ProjectID: P003459 China: Third Railway Project (Loan 2678/Credit 1680-CHA) The Implementation Completion Report (ICR) on the China Third Railway project (Loan 2678/Credit 1680-CHA, approved in FY87) was prepared by the East Asia and Pacific Regional Office with the Borrower's contribution. The loan, for US$70 million, and the credit for US$160 million, approved in April 1986, were fully disbursed and closed in December 1994, two years behind the schedule. The project's objectives were to: (i) expand transport capacity in order to support the growth of mining, agriculture, and timber industries; (ii) improve operational efficiency of the railroads; and (iii) increase managerial and technical capabilities in the Ministry of Railways (MOR). The project consisted of: (a) providing additional capacity on the 465 km Chongqing-Guiyang line serving mining and agriculture in the southwest; (b) providing additional capacity on the 704 km Yingtan-Xiamen line serving the special economic zone at Xiamen; (c) improving technology and increasing production at the Xi'an Railway Signaling Factory to serve the needs of the railroads in the entire country; (d) providing for better maintenance of the track on heavily-used lines; and (e) continuing the traffic costing study begun under the First Railway project. At appraisal, technical assistance and training of staff in new technologies was included in all the components, but not specified in content. The project's objectives were achieved. Both rail capacity expansion projects were successfully implemented albeit with delays due to addition of extra equipment and delay in the availability of local counterpart funds. Traffic volumes exceeded the forecast values. The Xi'an Signaling Factory increased its output and quality as planned through the installation of better manufacturing equipment, expanded facilities and training. Improved track maintenance was realized through the procurement of mechanical equipment and organization of maintenance teams. The traffic costing study was completed and the recommended financial accounting procedures introduced in one of the sub-regions on a pilot basis. This will be phased in throughout the railway over time. Technical assistance and training were not implemented as a separate component, as planned at appraisal. However, the MOR largely succeeded in training its staff with the help of the equipment suppliers. The economic rate of return (ERR) of the project was reestimated at 24.7 percent in the ICR (vs. 30 percent at appraisal). The rate is lower because the costs of the capacity expansion components increased by 23 percent due to the addition of safety equipment for the Chongqing-Guiyang line and increases in local costs. The benefits also were lower, because they were calculated in the ICR using lower, more realistic assumptions about traffic composition and its value added. The Operations Evaluation Department rates the project's outcome as satisfactory, institutional development impact as moderate, and sustainability as likely. Bank performance is rated as satisfactory. The ICR shows identical ratings except on institutional development where it rates the achievements of the stated objectives as partial to negligible. While China's railroads are in need of substantial restructuring, especially with regard to customer service, the project's modest objective to increase managerial and technical capacity was in line with the developmental phase of China's railroads, and the Borrower was able to benefit from some capacity building components associated with the project. A key lesson of experience from this project is the importance of clearly specifying and developing Borrower commitment to technical assistance objectives if they are to reach beyond what is embedded in the infrastructure and the equipment which the project provides. In order to enhance the likelihood of the project's sustainability in the face of the rapidly changing environment in the entire transport sector in China, it would have been especially relevant to start tackling the most urgent structural and policy issues regarding China's railroads. These include tariff reform and regulation, the role of privatization in the entire transport sector, and customer service. The ICR is of satisfactory quality. It provides a good account of the problems and accomplishments of the project. The project may be audited together with other transport projects in China.