China - Guangxi Highway Project

Document of The World Bank Report No: 1997 1-CHA PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$200 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A GUANGXI HIGHWAY PROJECT FEBRUARY 28, 2000 Transport Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective November 1999) Currency Unit = RMB Yuan RMB Yuan 1.00 = US$0.12 US$1.00 = RMB Yuan 8.26 FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS BDB Bridge Data Bank CAS = Country Assistance Strategy CPMS = Chinese Pavement Management System EA Enviromnental Assessment EAP = Environmental Action Plan EIA = Environmental Impact Assessment E & M Electrical and Mechanical EMDP = Ethnic Minority People's Development Plan GCD = Guangxi Conmnunications Department HGHAB High Grade Highway Administration Bureau HNIMP Highway Network Improvement and Maintenance Program IST = Institutional Strengthening and Training LACI Loan Administration Change Initiative MOC = Ministry of Communications MOF Ministry of Finance NTHS National Trunk Highway System PAD Project Appraisal Document PCD = Provincial Communications Department PIC Public informnation Center PMO Project Management Office PQI - Pavement Quality Index RAP Resettlement Action Plan RDB = Road Data Bank SDPC = State Development and Planning Committee SNH Shuiren - Nanning Highway VOC = Vehicle Operating Cost Vice President: Jemal-ud-din Kassum Country Director: Yukon Huang Sector Director: Jitendra N. Bajpai Task Team Leader: Supee Teravaninthom  CHINA GUANGXI HIGHWAY PROJECT CONTENTS A. Project Development Objective ....................................................................2 1. Goals .....................................................................2 2. Key performance indicators .....................................................................2 B. Strategic Context ....................................................................2 1. Sector-related Country Assistance Strategy (CAS) goals supported by the project ........... 2 2. Main sector issues and Government strategy .....................................................................2 3. Sector issues to be addressed and strategic choices ...........................................................4 C. Project Description Summary ....................................................................6 1. Project components ....................................................................6 2. Key policy and institutional reforms supported by the project .................. ........................7 3. Benefits and target population ................... .................................................7 4. Institutional and implementation arrangements .................................................................8 D. Project Rationale .....................................................................9 1. Project alternatives considered and reasons for rejection ......................... ..........................9 2. Major related projects financed by the Bank and/or other development agencies ............. 9 3. Lessons learned and reflected in the project design .......................................... ............... 10 4. Indications of borrower commitment and ownership ................................. ...................... 11 5. Value added of Bank support ....................... ............................................. 11 E. Summary Project Analysis .11 1. Economic assessment ...1.......................... 1 2. Financial assessment ............................ 12 3. Technical assessment ............................ 12 4. Institutional assessment ............................. 13 5. Social Issues ............................. 13 6. Environmental assessment ............................. 14 7. Participatory approach ............................ 15 F. Sustainability and Risks ............................ 15 1. Sustainability ............................ 15 2. Critical risks ............................. 16 3. Possible controversial aspects ............................ 16 G. Main Loan Conditions ............................ 16 1. Effectiveness ............................ 16 2. Others ............................ 16  H. Readiness for Implementation ................................................................................................... 18 I. Compliance with Bank Policies ................................................................................................... 18 ANNEXES Annex 1 Project Design Summary ..................... 19 Annex 1-1 Key Performance Indicators ..................... 20 Annex 2 Poverty Alleviation Impacts ..................... 21 Annex 3 Project Description ..................... 26 Table A Summary of Highway Network Improvement and Maintenance Program . 29 Table B Summary of IST Plan .30 Annex 4 Estimated Project Costs .31 Annex 5 Economic Cost Benefit Analysis Summary .32 Table A EIRR Simulation and Probabilistic Risk Analysis .40 Annex 6 Financial Summary and Evaluation .41 Table A Income Statement .44 Table B Sources and Application of Funds .45 Table C Balance Sheet .46 Table D Assumptions for the Financial Forecasts .47 Table E FIRR Simulation and Probabilistic Risk Analysis .48 Table F Revenue and Expenditures of Highway Sector .49 in Guangxi Province (1996-2005) Annex 7 Procurement and Disbursement Arrangements .51 Table A Project Costs by Procurement Arrangement .54 Table B Thresholds for Procurement Methods and Prior Review .55 Table C Allocation of Loan Proceeds .56 Table C-1 Estimated Disbursement Schedule .57 Table C-2 Financing Plan .58 Annex 8 Project Processing Budget and Schedule .59 Annex 9 Implementation Program .60 Table A Overall Implementation Schedule .61 Table B Implementation Schedule for SNH .62 Annex 10 Review of Financial Management System .66 Annex 11 Summary of the Resettlement Action Plan and .71 Ethnic Minority People's Development Plan Annex 12 Environmental Assessment and Action Plan Summary .73 Annex 13 Documents in the Project File .77 Annex 14 Statement of Loans and Credits .78 Annex 15 Country at a Glance .81 Map No: 1. IBRD 30387-February 2000 2. IBRD 30388-February 2000 3. IBRD 30389-February 2000  Project Appraisal Document Page 1 China: Guangxi Highway Project Main Text CHINA GUANGXI HIGHWAY PROJECT Project Appraisal Document East Asia and Pacific China Country Department Date: February 28, 2000 Team Leader: Supee Teravaninthom Country Manager/Director: Yukon Huang Sector Manager/Director: Jitendra N. Bajpai Project ID: P058843 Sector: Transport Lending Instrument: SIL Theme(s): Poverty Targeted Intervention: [ ] Yes [X] No Project Financing Data [X] Loan [ I Credit [ ] Grant [ ] Guarantee [ ] Other [Specify] For Loans/Credits/Others: Amount (US$m): 200 Proposed terms: f ] To be defined [ 3 Multicurrency [X] Single currency Standard Variable [ ] Fixed [X ] LIBOR-based Grace period (years): 5 Years to maturity: 20 Commitment fee: 0.75% Service charge: N/A Front-end fee on Bank loan: 1.0% Financing plan. [ To be defined Source Local Foreign Total Central Govenrnent 106.7 0.0 106.7 Guangxi Provincial Government 256.7 3.4 260.1 IBRD 0.0 200.0 200.0 Total: 363.4 203.4 566.8 Borrower: The People's Republic of China Guarantor: N/A Responsible agency: Guangxi Communications Department (GCD) Estimated disbursements (Bank FY/US$M): FY j 2001 1 2002 2003 2004 2005 2006 Annual 26 44 50 36 30 14 Cumulative 26 70 120 156 186 200 Project implementation period: March 2000 to December 2005 Expected effectiveness date: July 2000 Expected closing date: June 30, 2006 Implementing agency: Guangxi Communications Department (GCD) Contact person: Mr. Li Shangyan, Deputy Director of GCD Address: 67 Xinmin Road, Nanning, Guangxi, China Tel: (0771) 2804365 ext. 2123 Fax: (0771) 2805550 E-mail: <GxjjOl@Public.Nn.Gx.Cn>  Page 2 Project Appraisal Document Main Text China: Guangxi Highway Project A: Project Development Objectives (see Annex 1) 1. Goals include: a) Providing efficient, safe and cost effective inter-provincial transport links among the land-locked interior provinces of Guizhou, Yunnan, Sichuan and the city of Chongqing with Guangxi Zhuang Autonomous Region and the coastal province of Guangdong. These will help stimulate social and economic development, reduce poverty and thus improve regional disparities; b) Helping the Guangxi government strengthen its institutional capacity to plan, design, supervise, operate and maintain its highways. 2. Key performance indicators include: a) Reduced time for inter-provincial trips due to a more efficient highway system involving lower cost and shorten distance; b) More staff trained, formally and on-the-job, in technical and managerial skills, to respond to the needs of an expanded, high-grade highway network; c) An increased budget to rehabilitate and maintain provincial roads (other than the high-grade network); d) Fewer traffic accidents, especially on the heavily traveled corridors. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goals supported by the project: (see Annex 1) Document number: R98-107 (CAS Progress Report) Date of latest CAS discussion: May 28, 1998 The proposed project is consistent with the CAS objectives to reduce infrastructure bottlenecks and channel the country's scarce resources to a relatively poor province which has a per capita income about two- thirds the national average. The CAS stipulated that an investment priority would be to expand the infrastructure so as to reduce the bottlenecks that have constrained growth and affected the quality of life. However, due to the country's large size and huge demand, Bank investments need to be selective. Because reducing poverty is a priority, lending was increased for the poorer, inland provinces. The proposed highway (238 km) from Nanning (the provincial capital of Guangxi) to Shuiren in the north, will be an important section of the national trunk highway system (NTHS): It will connect the relatively poor, land-locked provinces of Guizhou, Yurman, Sichuan and the city of Chongqing to the southem seaport of Beihai and Fangcheng in Guangxi and Zhanjiang in Guangdong province. The project will help promote inter- city and inter-provincial trade, and stimulate the economic development of these provinces, thereby reducing regional disparities. 2. Main sector issues and Government strategy Demand for all transport modes has risen steadily, and the share for highways continues to increase. Thus, the proposed highway is vital for China to re-orient its planned and centralized economy to one that is increasingly dynamic, decentralized and market-based. Year __________ Passenger Transport (100 mil. p-km) Freight Transport (100 mil. ton-km) Highway Railway Waterway C.Aviation Highway Railway Waterway C.Aviation 1980 729 1,383 129 39 764 5,716 5,052 1 (% of total) (32) (60.6) (5.66) (1.73) (6.35) (43.05) (42.02) (0.01) 1997 5,541 3,548 155 773 5,271 13,097 1,9235 29 (% of total) (55.3) (35) (1.55) (7.72) (13.8) (34.3) (50.3) (0.08) Source: China Statistical Year Book, by China Statistical Publishing House, 1998.  Project Appraisal Document Page 3 China: Guangxi Highway Project Main Text Main Sector Issues. During the past five years, when investments for highways expanded rapidly, the Bank reviewed various sectoral conditions. The studies included: (a) China Highway Development and Management: Issues, Options and Strategies (February 1994), (b) China - Forward with One Spirit: A Strategy for the Transport Sector (April 1998), (c) Review of Highway Technical Assistance (December 1998), (d) Transport in China: An Evaluation of World Bank Assistance (January 1999), and (e) Issues Note for China Highway Strategy (May 1999). These studies confirmed that the system's capacity, although substantially expanded over the past two decades, still falls far behind demand, and that lack of capacity has led to bottlenecks that restrict national economic development. These problems stem mainly from inadequate investment, insufficient reforms and management/operational weaknesses. * Inadequate investment. With the recent Asia crisis and a fragile local financial sector, the daunting challenge for the Government is to mobilize enough resources to meet road investment and maintenance needs. However, the number of highway projects (those with strong traffic revenue potential) that can be marketed to private investors is insignificant when compared to the vast requirements. Given such constraints, authorities are interested in establishing a stable road user, fee-based financing framework. A fuel tax, approved by the People's Congress on November 1, 1999, which awaits final promulgation by the State Council, promises higher revenues than the current provincial road maintenance fee. Moreover, it should offer new options for debt financing. At the same time, regulatory reforms will be needed to open opportunities for different modes of public-private partnerships, mobilize domestic savings by issuing bonds and broaden the investor base. * Insufficient reforms and management/operational weakness. To sustain the highways, provincial and local institutions must be able to meet the growing challenges in managing and operating modem systems, such as maintaining roads, expanding the network, promoting road safety, and improving construction standards and controls. To support reforms, staff will need new skills and a better understanding of new practices. Further, the institutions, which are fragmented within and between levels of government, must be altered. Other problems include: * Road maintenance. While the highway network was expanding, funds were routinely diverted from maintenance to new construction. Thus, the new roads will deteriorate unless they are properly maintained. To accomplish this, highway agencies must develop comprehensive policies and reform their institutions. Also, provincial communications departments (PCDs) must promote sustainable road maintenance policies and funding mechanisms, refine the road information systems to help plan and operate maintenance activities, and adjust the organizational structures and training programs to direct more resources to maintenance. * Construction quality. Although highways were expanded over the past 15 years, little attention was paid to quality. Now, officials are aware of bridges and roads failing or surfaces wearing away prematurely. The problems have been both technical and administrative: Contractors, most of whom were domestic, were not always well managed, often paid irregularly and pressured to shorten the construction period. While Bank involvement in the highway sector, which generally leads to improved design reviews, supervision and construction quality, current quality control is not sufficient, and standards need to be more rigidly monitored in future Bank highway loans. * Accessibility to remote, low-income areas. China's geography makes it difficult to provide basic road access in various regions, particularly in the interior provinces where incomes are low. The task is enormous and requires significant public resources. Although authorities have always stressed the importance of access to stimulate growth in these areas and ensure the poor have mobility, they often do not borrow for this purpose since it is difficult to identify dedicated revenue sources to repay the loans (unlike for toll roads). Thus, the Bank must renew its efforts to support road development in low-income areas-so as to reduce poverty-through targeted interventions. This should be part of the Bank's future lending and non-lending services to the sector.  Page 4 Project Appraisal Document Main Text China: Guangxi Highway Project Traffic safety. Accidents are one of the major problems in highway sector and, according to official police statistics, caused 71,494 deaths and 159,308 injuries in 1995. Moreover, the numbers are expected to rise substantially in the next few years, since the motorized vehicle fleet is increasing at about 18% a year, which means it will double in roughly five years and quadruple in 10 years. More problematic, while safety conditions in the industrialized countries and some developing countries appear to be improving, they are worsening in China. In recent years, the World Bank, Asian Development Bank and other agencies have become increasingly concerned about China's growing traffic safety problems. Government Strategy. In the medium term, central and provincial authorities expect the highway system to help integrate the national economy and facilitate the movement of goods and services, given the system's comparative economic and technological advantages--vis-a-vis other modes of transport and available financial resources. Investment priorities identified for the Ninth Five-Year Plan (9FYP, 1996-2000) include: Rapidly developing the national trunk highway system (NTHS);11 * Developing provincial and rural roads that will feed into the NTHS; * Reforming policies and regulations that relate to financing, to ensure funds are used efficiently. The strategy has already succeeded in some respects. Of the 17,000 km scheduled to be constructed in Phase I, about 7,500 km have already been completed and another 4,500 km will be built by the end of 2000. However, policy reforms have lagged. The National People's Congress recently approved a fuel tax to replace the old system of financing road maintenance, which is an important step, along with increasing the decentralization of investment decisions to provincial levels. In the 21 st century, under the Tenth Five-Year Plan (1 OFYP), highway reforms are expected to intensify. But, officials must also: (a) strengthen managerial efficiency under decentralization, (b) identify appropriate ways to finance highways, (c) balance resources between construction and maintenance, (d) improve the quality of construction and (e) promote highway safety. 3. Sector issues to be addressed by the project and strategic choices Although the Government is aware of the urgent need for reforms, it does not have the capacity to finance and implement them. This has led to the following: (a) quick and easy methods were adopted to finance highways through an across-the-board toll of every possible new investment-'; (b) maintenance of existing roads was deferred because priority was given to construct new ones; (c) construction was sub- standard due to unrealistically short timeframes; and (d) highway safety was not adequately considered. Under the proposed project, the Bank will try to improve highway maintenance, the quality of construction and safety conditions on the Guangxi highway network. Besides expanding highway capacity on the SNH corridor, the project will focus on the relatively underprivileged areas and stimulate their economic growth by providing a cost-effective transport network that offers a shorter distance to seaports. Also, the institutional development and policy initiatives will aim to improve the balance between road maintenance and construction, assure that construction meets higher standards, relieve poverty, address environmental and resettlement needs and develop institutional capacity in provincial and local transport departments. 1/ The Ministry of Communications (MOC) identified about 35,000 km of highways as the NTHS. These are scheduled to be completed by 2010. The first phase of the NTHS investment (which would involve 17,000 km) concentrates on two north- south, two east-west corridors and three exits to seaports. According to MOC estimates, the entire 17,000 km should be completed by 2003. Construction in the second phase (another three vertical and five horizontal trunk highways) will continue until 2010, when the entire system is scheduled to be completed. 2/ Authorities are beginning to reconsider if this is an appropriate way to finance highways in the long term.  Project Appraisal Document Page 5 China: Guangxi Highway Project Main Text Sustaining road maintenance. The dialogue about maintenance with GCD during project preparation helped raise awareness about the extent of the problem. GCD has developed road and bridge data banks (RDB and BDB) to feed into the provincial version of the Chinese Pavement Management System (CPMS), but neither is used to its fullest when maintenance activities are planned, mainly because of budget constraints. Thus, of the roads that RDB and BDB recommend be maintained, only 30% can be covered each year and the rest are put on a waiting list until extra funds are available. Moreover, political interests are involved, and maintenance cannot easily compete with the program to expand the road network. To correct this, the project will earmark about 10% of its funds to rehabilitate and maintain the roads that are most in need of work. It will also support GCD efforts to contract out more of the maintenance and hopefully will provide a model for this practice. Improving the quality of construction. Besides ensuring that all safeguards are enforced in the procurement and selection of contractors, the project will improve the engineering design and strengthen the supervision of construction. During project preparation, the design was scrutinized by intemational experts, and the project will try to optimize the foreign partner's involvement in the joint local-foreign supervision team. Relieving poverty. The project will focus on a few of the counties classified as national and provincial poverty targets, because the income and capital investment here is substantially below the national average (see the table below). The project's investment in the important north-south corridor of the province through SNH, and the Highway Network Improvement and Maintenance Program (HNIMP) is expected to be an important catalyst for development. Annex 2 provides a more detailed discussion of the poverty alleviation impact. Data on the Areas Benefiting from the Project (1997) Expected Social Benefit from Project Admin. Cultivated Total Population Minority GDP per Farmers' Increase Job Increase Increase Area Area Crops (10,000 Populations Capita Income/ Opportunity Education Health Care Counties/Cities (km2) (10,000 (10,000 persons) (10,000) (RMB) Cap (10,000 nim) Opportunity Opportunity Ha.) Tons) (RMB) (10,000) (10,000) Hechi City 2,340 1.57 8.90 30.40 Zhuang, 23.14 5,288 1,843 17 6 1.3 Miao & Yao: Du'an Yao 4,095 3.53 13.95 60.18 Yao & 59.31 1,216 1,257 31 10 0.7 Autonoumous Zhuang: County Dahua Yao 2,731 1.62 6.58 41.29 Yao & 37.90 2,950 1,306 19 7 0.4 Autono-mous Zhuang: County Mashan 2,365 2.40 11.16 48.55 Yao & 41.09 1,436 1,225 40 8 0.3 County Zhuang: Wuming 3,366 5.60 30.88 64.00 Zhuang: 49.59 4,959 2,298 34 13 0.9 County TianeCounty 3,196 1.49 4.94 13.86 Zhuang & 8.46 2,500 1,654 13 2 0.3 Yao: Nandan 3,916 1.82 8.72 27.69 Zhuang, 18.65 5,716 1,686 11 6 0.7 County Yao & Miao: Donglan 2,415 1.39 5.96 27.75 Zhuang 25.36 2,035 1,392 12 5 0.2 County & Yao: Fengshan 1,738 0.95 4.69 18.64 Zhuang 12.17 1,717 1,458 9 3 0.2 County & Yao: Bama Yao 1,970 1.02 6.42 23.41 Zhuang 20.14 2,280 1,412 11 4 0.4 Autonomous & Yao: County Guangxi 4,350 Province China Country 6,080 Ave. Source: Guangxi Almanac, Volume of 1998  Page 6 Project Appraisal Document Main Text China: Guangxi Highway Project Highway safety. In 1997, there were about 5,700 traffic accidents on Guangxi highways, of which 2,079 involved injuries and a rate of 18 deaths per 10,000 vehicles-a high figure by any standards. Thus, the project will improve safety conditions on the SNH, as these are included in the design. Other efforts to improve safety will include treating "black spots" on the existing network in big towns and cities where serious accidents occurred frequently. Developing institutional capacity. The recent decentralization of much administrative decision- making to provincial PCDs will greatly tax the capacity of existing staff who are not quite equipped to meet the challenge. Also, due to the expanded mandate of the GCD and its lower level authorities, a new cadre of agency officials will need to be trained to administer, regulate, manage, operate and monitor its new responsibilities. Thus, from preparation through implementation, project staff from various GCD departments will be trained, both on-the-job and in well designed courses in transport planning and economics, engineering, quality control, enviromnental monitoring and assessment and highway safety. In addition, design and research institutes and technical schools under GCD will benefit from the project's Institutional Strengthening and Training (IST) component. An IST report with a full account of the training activities planned is available in the project files. C: Project Description Summary 1. Project components (see Annex 3 for a detailed description and Annex 4 for a detailed cost breakdown) [ndicitive %fTtl ak a Oemp_R1