China - Second Jiangxi Highway Project

Document of The World Bank Report No: 21826-CHA PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT OF US$200 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SECOND JIANGXI HIGHWAY PROJECT May 7, 2001 Transport Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective January 2001) Currency Unit = RMB Yuan RMB Yuan 1.00 = US$0.12 US$1.00 = RMB Yuan 8.29 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS = Country Assistance Strategy EA = Environmental Assessment EAP = Environmental Action Plan EIA = Environmental Impact Assessment E & M Electrical and Mechanical IST = Institutional Strengthening and Training JPCD = Jiangxi Provincial Communications Departrnent JPH2 = Second Jiangxi Highway Project JPHAB = Jiangxi Provincial Highway Administration Bureau JPHCHAB = Jiangxi Provincial High-Class Highway Administration Bureau 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 Information Center PO = Project Office RAP Resettlement Action Plan RIPC Road Improvement in the Poor Counties SDPC = State Development and Planning Committee TGE = Taihe - Ganzhou Expressway VOC = Vehicle Operating Cost Vice President: Jemal-ud-din Kassum Country Manager/Director: Yukon Huang Sector Manager/Director: Jitendra N. Bajpai Task Team Leader/Task Manager: Yasuhiro Kawabata  CHINA SECOND JIANGXI HIGHWAY PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 5 C. Project Description Summary 1. Project components 6 2. Key policy and institutional reforms supported by the project 7 3. Benefits and target population 8 4. Institutional and implementation arrangements 8 D. Project Rationale 1. Project alternatives considered and reasons for rejection 9 2. Major related projects financed by the Bank and other development agencies 10 3. Lessons learned and reflected in proposed project design 11 4. Indications of borrower commitrnent and ownership 12 5. Value added of Bank support in this project 12 E. Summnary Project Analysis 1. Economic 12 2. Financial 13 3. Technical 13 4. Institutional 14 5. Environmental 15 6. Social 17 7. Safeguard Policies 19 F. Sustainability and Risks 1. Sustainability 19 2. Critical risks 19 3. Possible controversial aspects 21  G. Main Loan Conditions 1. Effectiveness Condition 21 2. Other 21 H. Readiness for Implementation 22 I. Compliance with Bank Policies 23 Annexes Annex 1: Project Design Summary 24 Annex 2: Detailed Project Description 27 Annex 3: Estimated Project Costs 33 Annex 4: Economic Cost Benefit Analysis Summary 34 Annex 5: Financial Summary and Evaluation 44 Annex 6: Procurement and Disbursement Arrangements 49 Annex 7: Project Processing Schedule 58 Annex 8: Documents in the Project File 59 Annex 9: Statement of Loans and Credits 61 Annex 10: Country at a Glance 66 Annex I 1: Jiangxi Highway Sector Revenues and Expenditures 68 Annex 12: Review of Financial Management System 71 Annex 13: Environmental Assessment and Action Plan Summary 77 Annex 14: Social Assessment and Poverty Alleviation Impacts 85 Annex 15: Summary of the Resettlement Action Plan 88 MAP(S) IBRD 31243 March 2001 IBRD 31244 March 2001 IBRD 31245 March 2001  CHfNA Second Jiangxi Highway Project Project Appraisal Document East Asia and Pacific Region EASTR Date: May 7, 2001 Team Leader: Yasuhiro Kawabata Country Manager/Director: Yukon Huang Sector Manager/Director: Jitendra N. Bajpai Project ID: P058845 Sector(s): TH - Highways Lending Instrument: Specific Investment Loan (SIL) Theme(s): Poverty Targeted Intervention: N Project Financing Data pq Loan [ ] Credit [I Grant [ ] Guarantee [ ] Other: For LoanslCredits/Others: Amount (US$m): $200.00 Proposed Terms (IBRD): Varable Spread & Rate Single Currency Loan (VSCL) Grace period (years): 5 Years to maturity: 20 Commitment fee: 0.75% Front end fee on Bank loan: 1.00% Financing Plan: Source Local Foreign Total BORROWER 335.10 0.60 335.70 IBRD 0.00 200.00 200.00 Total: 335.10 200.60 535.70 Borrower: PEOPLE'S REPUBLIC OF CHINA Responsible agency: JIANGXI PROVINCLkL COMMUNICATION DEPT. World Bank Loan Project Office Address: No.12 Xi'er Road, Provincial Govenment Courtyard, 69 Beijing Road (W), Nanchang, Jiangxi, China Contact Person: Mr. Xia Zengyu, Director of World Bank Loan Project Office (PO) Tel: (0791) 6243046 Fax: (0791) 6281344 Email: Zengjy@public.ncjx.cn Estimated disbursements ( Bank FYIUS$M): FY 2002 2003 2004 2005 2006 Annual 13.00 32.00 46.00 52.00 57.00 Cumulative 13.00 45.00 91.00 143.00 200.00 Project implementation period: June 2001 to June 2006 Expected effectiveness date: 10/20/2001 Expected closing date: 12/31/2006 r<..M DOD  A. Project Development Objective 1. Project development objective: (see Annex 1) The project aims to provide more efficient, safe and effective transport infrastructure in support of so,:ial and economic development in Jiangxi Province. To meet the above development objective, the project will produce the following outputs: (a) Traffic congestion relieved and mobility increased in the Nanchang-Shenzhen transport corridor, a key section of the Beijing-Shenzhen expressway; (b) Accessibility to low-income areas in the province improved; (c) Safety of road transport improved; and (d) Institutional capacity of the Jiangxi Provincial Communications Department (JPCD) and related sector institutions strengthened, through policy, institutional and organizational re-2orm, provision of training, technical assistance and equipment. 2. Key performance indicators: (see Annex 1) The principal output indicators selected for monitoring the above development objectives are: (a) Travel time reduction in the Taihe-Ganzhou corridor; (b) Average daily traffic on new expressway and existing national road (NH105); (c) Average daily traffic on rural roads in affected areas; (d) Number of days that rural roads in low-income areas are closed to traffic; (e) Number of traffic accidents (fatalities and serious injuries) reduced; (f) Increased maintenance work by independent companies; and (g) Number of staff trained domestically and overseas. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: R98-107 (CAS Progress Report) 05/06/98 Date of latest CAS discussion: 05/28/98 The CAS, which reflects the Bank's strategic objectives of fostering growth, reducing poverty, supporting better govemance, and improving the environment, has identified infrastructure improvement as a key area of China's development agenda to be supported by the Bank. The sector-specific goals supported by the project are: * contribution to growth through removal of highway bottlenecks, thus facilitating inter-provincial trade and commerce and improving regional and national integration, * contribution to poverty reduction through improving accessibility in low-income counties of southem Jiangxi, (a transition province between the coastal areas and the western provinces), better governance through improving highway maintenance management, and environmental improvement through continuous attention to traffic safety and environmental/social impacts. 2. Main sector issues and Government strategy: A number of important pieces of sector work have been carried out by the Bank in the last several yeai s. These, together with several high-level highway policy seminars, have led to the identification of five n-tain challenges facing China in its attempt to cope with the rapid expansion of its highway network, summarized -2-  in a brief note on "China Highway Sector Issues" of February 1999, as well as in more recent - and still ongoing - discussions on an updated highway sector strategy, as follows: Building sector institutions. The sustainability of the highway sector greatly depends on the strength of its provincial and local highway institutions to address the growing challenges of road safety, construction quality standards and control, road asset preservation, network expansion, market-responsive facility provision and resource mobilization. Institutional fragmentation within and between levels of government needs stronger attention. For instance, any effective solution to the daunting road safety issue will require stronger coordination between the provincial communications departments (PCDs) and the traffic police, which is under different jurisdiction. Sirnilarly, to commercialize and corporatize the provincial road agencies, particularly those with stable toll-based revenues, there is a need to restructure them into commercial entities such as shareholding companies or toll road authorities. To support such reforms, sector institutions will require new skills and a better understanding of new practices to effectively play the roles of tomorrow. Strengthening resource mobilization. The Chinese government faces a difficult challenge of resource mobilization to meet future needs for the construction and maintenance of its highway system. The past regional crisis and a fragile local financial sector are severe constraints on borrowings, specifically in the intemational markets, while the potential for private financing remains limited under the current economic and regulatory environment. The number of highway projects that can be marketed to private sector investors (those with strong traffic revenue potential), are insignificant compared to the sector's resource requirements. Under these conditions, the focus should be on building a reliable and stable road user fee based financing framework. In parallel, regulatory reforms would be necessary to open opportunities for different modes of public-private partnerships, to mobilize domestic savings through the issuance of bonds and to broaden the investor base. A fuel tax, still under consideration, promises revenues substantially higher than the current provincial road maintenance fee over the longer term, while at the same time it would offer new options for debt financing. Enhancing accessibility to remote/low-income areas. The geography of China poses heavy demand and difficulties on the provision of basic road access in various parts of the country, particularly in inner and low-income provinces. Although the role of transport access to integrate the national economy, to stimulate growth in remote areas, and to insure basic mobility needs of the poor has been emphasized, the task is enormous and requires significant public resources. The Bank's provincial highway program in China aims to favorably impact poverty levels, through targeted interventions in low-income areas. However, provincial and central government agencies often refrain from borrowing for this purpose since no dedicated revenue source for loan repayment is readily available (unlike for toll roads). A renewed effort is recommended to support road development in low-income areas as part of the Bank's future lending and/or non-lending services for the sector. Sustaining road maintenance. Due to the rapid pace of expansion of the road system, maintenance funds are sometimes diverted to the construction of new roads. The current trend and practice may soon become unsustainable unless sector institutions and the existing framework for resource mobilization are developed to address future maintenance needs. In the past, central and provincial road agencies have resisted Bank funding for road maintenance on grounds that loan funds are urgently needed for the construction of new revenue-generating high-grade highways. A stronger effort on behalf of the Bank and the relevant Chinese sector institutions is recommended to make road maintenance a more integral and prominent part of future Bank highway projects. In this increasingly challenging area, comprehensive policy and institutional reform initiatives are specifically important to put sector agencies in a position to conduct and sustain road maintenance activities. PCDs need to be encouraged to: l) develop sustainable road maintenance policies, -3 -  2) refine their road information systems for direct use in maintenance planning and operations, 3) develop sustainable funding mechanisms, 4) adjust their organizational structures and training programs to devote more resources to maintenance, and 5) develop cost efficient maintenance structures. Improving construction quality. Highway construction quality remains a serious concern of the seclor. Past incidences of bridge and road failings or premature wear and tear of highway pavements have raised awareness of the issue to high-level government officials. The problem has both technical and administrative roots. Contractors, mostly domestic, are not always well managed, frequently face irregular payments, and often come under pressure to shorten the construction period. In some cases, quality control suffers due to the lack of authority assigned to the construction supervision agency by the owner vis-aivis contractors. While the central government appreciates Bank involvement leading generally to improved design reviews, supervision and resulting construction quality, there is a definite need to reinforce strict construction quality standards, control and enforcement in future Bank highway loans. Government Strategy. In the mediumn term, the main concerns of the central and provincial highway authorities are to ensure that the highway system helps to integrate China's national economy and facilF.tate mobility of goods and services. This should correspond to the comparative economic and technological advantages of highways vis-a-vis other modes of transport and to available financial resources. Under such strategy, the priorities for the highway sector during its Ninth Five-Year Plan (1996-2000) were identified as follows: 1. High priority was given to rapidly developing the National Trunk Highway System. The Ministry of Communication (MOC) has identified about 35,000 km of highways throughoat the country that would constitute a network of modem inter-provincial highways under the NTHS. These are targeted for completion by the year 2010. The first phase of the NTHS investment (totaling 17,000 kIn), concentrates on two vertical, two horizontal and three connections to seaports. According to MOC's estimates, the entire 17,000 km of NTHS Phase I should be completed by 2003. The construction of the second phase (an additional three vertical and five horizontal trunk highways), will continue until 2010 when the entire systern is expected to be completed. 2. The development of some 130,000 km of provincial and rural roads that feed into the NTHS was planned and undertaken simultaneously to maximize the benefit of NTHS investment. 3. High priority was also given to providing all-weather access roads to remote/ low income aieas in the poor counties. 4. Policy and regulatory reforms were to be intensified, with priority attention given to financing issues and ensuring the efficient utilization of funds. This strategy is succeeding in several respects. Of the identified 17,000 km of NTHS Phase I, construction of about 12,000 km has been completed. Many provinces have been able to provide all weather road access to nearly all villages (9FYP and IOFYP). However, institutional and policy reforms have lagged behind. The plan to introduce a fuel tax to replace the old system of road maintenance fees would represent an important step, along with increasing the decentralization of investment decisions from the central to provincial levels. However, these changes have been delayed and the date has yet to be confirmed for the introduction of the fuel tax. -4 -  Under the Tenth Five-Year Plan (2001-2005), which has already been confirmed by the State Council, highway sector institutional reforms are expected to intensify in the context of the country's move towards a more open and competitive economy. 3. Sector issues to be addressed by the project and strategic choices: Jiangxi Province has an area of 160,000 km2 and a population of 42 million (1999). Its GDP per capita in 1999 was 4661 yuan, which is approximately 30% below China's average. Jiangxi is strong in agriculture (rice represents 80% of products produced) and rich in mineral resources including coal, copper, and iron. Jingdezhen is famous for its production of Chinese ceramics. To reach markets for its products, land-locked Jiangxi has long relied on transporting its products via poor quality class n1 roads to the major trade centers along the coast (Shenzhen and Guangzhou). The proposed Taihe-Gangzhou Expressway will correct this deficiency by serving as an important segment of the north-south transport corridor, part of the skeleton that makes the planned "big cross" transport network in Jiangxi and provides crucial links with the important industrial northem city of Wuhan. The project will help promote inter-provincial trade and stimulate the economic development of the region. To meet the project's objectives, key sector issues identified will be addressed in the project: (a) expansion of highway capacity to remove bottlenecks and expedite socio-economic growth and economic integration; (b) relieving poverty; (c) highway safety; (d) developing institutional capacity; and (e) highway maintenance. Expansion of Highway Capacity. China's 9FYP (1996-2000) emphasized a reduction in transport bottlenecks that were recognized as a growing constraint on rapid economic development. The diversification and structural transformation of the economy, toward more light and agro-industry and more inter-provincial trade, coupled with severe capacity constraints of the railways, are causing an accelerating demand for road transport. This national pattem also applies to Jiangxi Province in general, and in particular to the heavily traveled corridor between Nanchang and Shenzhen, which is Jiangxi's major outlet to the south. Relieving Poverty. One of the main strategic objectives of the project is to enhance the government's poverty alleviation efforts through accelerated improvement of accessibility and opening up of employment and product market access at lower costs. About 5% of the people in Jiangxi live below the poverty line of annual 700 RMB per capita. Most of these poor people live in southem Jiangxi, the project impact area. The government has increased its investments in the provision of basic access in recent years, especially during the 9FYP (1996-2000). It is estimated that all the villages will have all-weather basic road access by the end of the 1OFYP (2001-2004). However, there still remains an urgent need to improve and upgrade major roads in the poor counties. The project will focus on seven counties, four of which are designated poor counties. The proposed "Road Improvement in the Poor Counties (RIPC)" is designed to assist the poor in increasing their incomes, by providing improved access to employment opportunities, pioduct markets, social services and facilities at a lower travel time and cost. The RIPC consists of improving and upgrading selected highways in these counties, as detailed in Annex 2. In the long term, these improvements will benefit the poor by decreasing their travel time and cost as well as increasing their incomes and social welfare because of enhanced access. Highway Safety. Traffic accidents are now a major problem in China, and by most measures it has the world's highest road accident rate. In recent years, the Bank, as well as ADB and other institutions, have become increasingly concemed about the growing problems of highway safety. Under the proposed project, highway safety would be addressed in a sustained fashion through development and implementation of a broad highway safety program consisting of, inter-alia: developing safety audit procedures for new - 5 -  highway design; conducting a highway safety seminar; and developing a manual for roadwork safety cturing construction and maintenance of roads. The program would also include a physical road safety enhancement component, which will include the development of a black-spot program, identification of remedial measures and the implementation of such measures. Developing Institutional Capacity. The recent decentralization of much administrative decision-making from MOC to provincial PCDs will greatly tax the organizational and human resource capacity of JPCD. Also, due to the expanded mandate of JPCD and its lower level authorities, a new cadre of agency offizials will need to be trained to administer, regulate, manage, operate and monitor its new responsibilities. The project will address the issues of decentralization and organizational changes. JPCD has substantial experience in corporatization and securitization. Jiangxi Gan-Yue Expressway Company (JGYEC) is already corporatized and securitized. JGYEC is 66% owned by Jiangxi Expressway Investment Development Company (JEIDC), a Jiangxi Provincial Holding Company and 34% owned by investors as A shares (domestically traded shares) listed on the Shanghai Stock Exchange. The project will provide training to meet the challenges of corportization, securitization and sustained profitability of these new enterprises, expecially in relation to toll highways. Highway Maintenance. On the highway sector in China, a vertical administrative and management system prevails. The Highway Administration Bureau (JPHAB), as a unit of JPCD and Highway Divisions at the Prefecture and County levels as subsidiary units, maintain the national and provincial highways. Under the Highway Divisions, maintenance groups are assigned certain rights of road maintenance. Efficiency and quality are often poor because the maintenance groups are too small and not well equipped. Furthermore, employee qualifications are poor and often there is a surplus of labor. Often supervision and monitoring work is not done properly as there is no "anns length" relationship between maintenance groups and quality inspection groups. The project will address the issues of adequacy and quality of maintenance as well as potential for competition. A study will be undertaken, to deternine the organizational and structural requirements of independent competitive maintenance centers, by January 2002 and a pilot "center" will be established during the project implementation period. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project's primary objective is to provide more efficient, safe and effective highway infrastructure in the most important transport corridor in Jiangxi, between the provincial capital, Nanchang, and the coastal cities of Shenzhen and Guangzhou in Guangdong Province. The project will help stimulate social and economic development, reduce poverty and thus decrease disparities within the region. To meet the proposed objective, the project will address these issues in the following components. - 6 -  Indicative Bank- % of Component Seotor Cots % of financing Bank- (US$M) Total (US$M) financing Component 1. Highway capacity Physical-Instituti 447.20 83.5 185.00 92.5 expansion onal - Construction of TGE - Construction of Interconnecting roads - Equipment - Construction supervision Component 2. Road Improvement in the Highways 39.60 7.4 10.70 5.4 Poor Counties (RIPC) Component 3. Highway safety Physical 2.50 0.5 0.70 0.4 including black spot improvements and Institutional supporting guidelines Policy Component 4. Institutional Institutional 2.10 0.4 1.60 0.8 strengthening/capacity building Development including training and establishment of maintenance centers Land acquisition cost 42.30 7.9 0.00 0.0 Total Project Costs 533.70 99.6 198.00 99.0 Front-end fee 2.00 0.4 2.00 1.0 Total Financing Required 535.70 100.0 200.00 100.0 Note: Indicative costs include contingencies 2. Key policy and institutional reforms supported by the project: These include: Reducing regional disparities so lower income groups can benefit from the country's economic growth, Undertaking institutional improvements and training, increasing awareness of safety problems, safety for road works, safety audit procedures, and the identification and implementation of physical remedial measures, Strengthening managerial efficiency under decentralization, and Creating some competition in highway maintenance work and establishing "independent" maintenance companies. -7 -  3. Benefits and target population: The major quantifiable benefits of the project are the reduction in vehicle operating costs and time costs of road users. The expressway will have shorter lengths, improved surface conditions and riding comfort, improved geometry, reduced traffic interference, and better safety facilities than existing roads. Theref:are, most of the long-distance traffic and some of the local traffic is expected to divert from the existing roads to the new expressway, reducing vehicle operating and time costs for future expressway users. Because many users will take the expressway, there will be a reduction in the current congestion levels on existing roads. Thus, traffic that continues to use existing roads will also benefit in the form of time savings due to the resulting higher travel speeds on existing roads. Other quantified project benefits are due to traffic that is generated as a result of the lowering of transport costs, and which previously did not exist on the existing roads, or existed on other transport modes such as rail, inland water or air transport. The newly generated traffic includes traffic resulting from increased industrial and agricultural production. Other project benefits that have not been quantified are the reduction in accident costs, generated traffic on the existing roads due to the reduction of the current congestion levels, and the positive effects on non-motorized traffic that uses existing roads. Major indirect long-term benefits expected from the construction of TGE will be the development of tourism to historic relics (City Wall of Song Dynasty, Ancient Passage in Dayu) and natural scenic spots (Jinggangshan and Sanbei mountains) in the province. Once the TGE is completed and open to traffic, southem Jiangxi will have substantially improved access to and from the existing high quality port and airport facilities of Shenzhen, an important economic center in Guangdong Province and the major entry and exit point for trade, commerce and tourism in southeastem China. The project will also benefit residents of poor counties in the province, through improved access to healti, education and other social services, as well as to employment opportunities and markets. The influence area is in seven counties (Taihe, Wan'an, Suichuan, Shangyou and Ganxian, the county level city of Nankang and the county level district of Zhanggong). Of these seven counties, four are designated poor counties (Wan'an, Suichuan, Shangyou, and Ganxian). The population of the seven impacted counties i, 3.3 million, equivalent to 7.8 % of Jiangxi's total population. Most of Jiangxi's poor people live in this region. In the long term, these improvements will benefit the poor by decreasing travel times and costs, while increasing incomes and social welfare due to enhanced access. Other benefits will include strengthening the policy and institutional capabilities of the primary sector agency, JPCD, and related institutions, which are responsible for the planning, design, supervision, construction, operation, maintenance and finance of highways in the province. Also, the project is expect ed to result in lower traffic accident rates on the highway network through the implementation of the traffic safety component. The project will also foster improved practices in the areas of environment, land acquisition and resettlement of affected people and participatory approaches to project preparation and implementation. 4. Institutional and implementation arrangements: The Jiangxi Provincial Communications Department (JPCD) has the overall responsibility for project preparation and implementation. The proposed project would be implemented by the World Bank Loan Project Office (PO) of JPCD. The PO is responsible for project preparation, implementation, and coordination of all project components, and is staffed by a Director and three full time Deputy Directors. One of Deputy Directors is the Deputy Director of JPHAB. The PO will be organized into 8 units/divisions with about 60 staff. The project would be implemented during 2001-2006. - 8 -  After the TGE construction is completed, it will be operated and maintained by an Expressway Company, which currently manages 240 km of expressways in Jiangxi. The International Tendering Company (ITC) has been retained as the procurement agent for all aspects of civil, electrical and mechanical works of the project requiring ICB and for equipment to be procured from abroad. The supervision of construction of the TGE and interconnecting roads would be carried out by a joint foreign/domestic supervision team. Overall direction of the project at the central level would rest with the Ministry of Communication (MOC) in Beijing. The Borrower is the People's Republic of China, which in turn would onlend the loan proceeds through the Ministry of Finance (MOF) to Jiangxi Province on the same conditions as the Bank would lend to the PRC. D. Project Rationale 1. Project alternatives considered and reasons for rejection: 1.1 Public/Private provision. Private sector development and financing for TGE was considered but not chosen for two main reasons: (i) China is still developing an appropriate policy, legal and regulatory framework for the private provision of toll highways. Work in this area has been ongoing for several years with Bank and IFC support; and (ii) there is growing evidence on a worldwide scale that green field toll road projects are difficult to develop and finance from private sector sources, due to the risk profile of such projects. Besides the country risk (legal and regulatory) and the commercial risk (traffic demand), there are substantial construction and completion risks which most private toll road developers and their conmmercial lenders are not prepared to accept at this time. Therefore, a strategic choice was made to: (i) provide infrastructure from public funds, and (ii) work with the province on an improved framework for commercialization of the agency that would operate TGE once completed. This is consistent with the ultimate goal of asset securitization or concessioning, currently the preferred method from the government for involving the private sector in investment funding/managing. 1.2 Highway/Railway options. The new Beijing-Kowloon railway line between Nanchang and Ganzhou is located to the east of the Gan river and serves Xingguo county and popular tourist areas. The new expressway would be located to the west of the river. The distance between the railway and the proposed expressway in most locations is rather large, 50 - 100 kin, so the expressway will serve different areas. In addition, studies on the functions of expressways and railways in other provinces in China show that railways are used mostly for long distance passenger and low value bulk freight movement, while expressways serve shorter distance traffic and high value and/or less bulky freight. 1.3 Design standard. Considering the existing and future socio-economic conditions in Jiangxi Province, the level of economic development, the volume and composition of traffic in the Nanchang - Jian - Ganzhou corridor, and the capacity of the existing road infrastructure, the proposed expressway is the most cost-effective and appropriate way to improve transport while helping stimulate economic development and reducing poverty in low-income areas along this north-south corridor. The existing road will continue to serve, besides longer distance traffic, all local traffic. 1.4 Route alternatives. Southem Jiangxi is a mountainous area. After comparison of several alternatives, the proposed alignment was chosen on the basis of topographical and geological conditions. An altemative running close to Ganzhou and comprising the minimal length of tunnels and viaducts was proposed. Environmental and resettlement considerations were well integrated into the selection of the final alignment, and some alignment adjustments were made during preparation of the detailed designs. -9-  2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue:1 Project (PSR) Ratings (Bank-financed projects on_W Implementation Development Progress (IP) Objective (DO) Bank-financed - Remove Highway Capacity Shanghai-Zhejiang Highway S S Bottlenecks (1) (ongoing) 1-3, 5 - Institutional Strengthening/ Second Shaanxi Provincial S S Training (2) Highway (ongoing) 14, 6 - Rural Roads and Poverty Second Henan Provincial S S Alleviation (3) Highway (ongoing) 1-6 - Highway Safety (4) Second Xinjiang Highway S S (ongoing) 1-5 - Operation and Maintenance of Second Nat'l Hwy: S S High-Grade Highways (5) Guangdong/Hunan (ongoing) 1, 2, 4-6 - Cost Recovery (6) Third Nat'l Hwy: Hubei S S (ongoing) 1, 2, 4-6 Tri-Provincial Highway S S (ongoing) 1-6 Anhui Provincial Highway S S (ongoing) 1-5 Fourth National Highway: S S Hubei/Hunan (ongoing) 1, 2, 4-6 Second Fujian Highway S S (ongoing) 1, 2, 4-6 Third Henan Provincial S S Highway (ongoing) 1-6 Guangxi Provincial Highway S S (ongoing) 1-6 Inner Mongolia Highway (planned) 1-6 Xinjiang III Highway (planned) 1-6 - 10-  Other development agencies Asian Development Bank ONGOING PROJECTS Hebei and Liaoning Expressways Liaoning and Jilin Expressways Hebei Roads Development Chengdu-Nanchong Expressway Changchun-Harbin Expressway Shanxi Roads Development Southern Yunnan Road Development Chongqing-Guizhou Roads Development PLANNED PROJECTS Shanxi Expressway Chongqing-Guizhou Expressway Guangxi Highway Development Shanxi and Shaanxi Roads Western Yunnan Road Development Southem Sichuan Roads Development Japan Bank for International ONGOING PROJECTS Cooperation Hainan Development (formally Overseas Economic Qingdao Development Cooperation Fund of Japan) Guiyan-Xinzhai Highway Hangzhou-Quzhou Expressway Wanxian-Liangping Highway Liangping-Changshou Highway Hainan East Expressway Xinxiang-Zhengzhou Highway . _ _ _ _ _ _ _ _ _ _ _ _ _ I IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The summary of lessons learned and reflected in the design of the proposed new project includes those principal and relevant lessons as recorded in the ICR for the Jiangxi Provincial Highway Project (Credit 1984-CHA) dated December 20, 1996. This first Bank highway project in Jiangxi Province was approved on February 7, 1989 and closed on December 31, 1995. While the overall performance of the large Bank highway portfolio in China (25 projects to date), is by and large satisfactory, a number of problems have occurred, which were taken into consideration in the design of the proposed project. These problems primarily include: inadequate engineering designs and bidding - 11 -  documents, including the costing of civil works; quality control of construction; late commencement of electrical and mechanical facilities work (which has delayed completion of some projects and necessitaled the extension of the closing date of several Bank loans); and a lack in the scope and speed of policy and institutional reforrns, specifically relating to road maintenance, improved high-grade highway management and operation, and traffic safety. A recent OED assessment on the China portfolio has clearly stated that the policy dialogue between China and the Bank in the highway sector needs to be further strengthened. During preparation of the proposed project, JPCD was engaged in a continuing policy dialogue which had started with the identification of -he proposed project. While the results of these efforts are encouraging, in that policy and institutional refonns now enjoy a higher degree of visibility and ownership with JPCD, much remains to be done during implementation of the new project to make policy and institutional reform components as important as load construction and network capacity expansion. Rural roads were improved under the Second Shaanxi Highway Project and the Second Henan Highwa) Project in China Improvement of local roads through the provision of all-weather roads, combined with programs for socio-economic development, are effective means of reducing poverty in rural areas. 4. Indications of borrower commitment and ownership: There is strong support for the proposed project from the various levels of government in China. SDPC, MOF, MOC and the Jiangxi Provincial Government strongly support the project. In addition, the various local governments that the Bank missions met with during field trips in the project area expressed their robust support and emphasized the need for the project. JPCD has completed all feasibility studies, preliminary engineering designs and ELAs, EAPs and RAPs for the proposed expressway and other roads. The section between Ganzhou-Yuezhuitang (Guangdong border), the last gap in the Nanchang-Shenzhen corridor, has already been programmed during the lOFYP. JPCD has shown strong ownership of the poverty alleviation objective by committing to implement the RIPC. 5. Value added of Bank support in this project: The involvement of the Bank would result in much needed additional financial resources to help remove highway bottlenecks and increase traffic capacity in this high priority transport corridor. Bank involvement would accelerate policy, institutional and manpower development in highway planning, design, supervision, construction, operation, maintenance and finance. Bank involvement would also be expected to benefit the design and the quality of construction of the roads to be undertaken. Furthermore, the Bank would help JPCD to emphasize the need for proper maintenance of the highway network through the introduction of modemn maintenance equipment, training of staff and allocation of adequate maintenance funds. In addition, it would raise the awareness of the highway safety problem and make improvements in this regard. Similarly, Bank involvement would improve provincial practices in the analyses and implementation of environmental, land acquisition and resettlement, and participatory aspects of highway projects. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=USS413.5 million; ERR = 20.0 % (see Annex 4) O Cost effectiveness O Other (specify) - 12 -  The estimated economic internal rate of return (EIRR) of the entire project, including the Taihe - Ganzhou Expressway (TGE), the interconnecting roads and the RIPC roads, is 20.0%. The EIRR of the TGE is 19.2%. The sensitivity analysis indicates that if construction costs are increased by 25% and user benefits are reduced by 25%, the project EIRR would be 14.1%, which indicates that even under this pessimistic scenario the project is justified. The switching values analysis indicates that construction costs have to be multiplied by a factor of 2.0 or user benefits have to be multiplied by a factor of 0.5 to yield a project EIRR of 12.0%. The risk analysis indicates that the most likely project EIRR is 17.3%; the worst case scenario EIRR is 14.7%, while the best case scenario EIRR is 19.7%. There is a zero percent probability that the project EIRR will be less than 12%. Therefore, the project is economically well justified. The net present value is 3,428 Yuan million (US $413.5 million) at a 12% discount rate 2. Financial (see Annex 4 and Annex 5): NPV=US$ 509.3 million; FRR = 7 % (see Annex 4) The financial evaluation focuses on the TGE, which is the main component of the project and the only one that will generate financial income with profit making and repayment capability. Tolls will be charged as a function of vehicle type, size and distance traveled, and will be slightly lower than the tolls currently being collected on the Changjiu Expressway located on the same corridor in the north of the Province. Toll charges were set relatively low and annual growth was assumed to be low, because the tolls are only set to repay the Bank loan and cover operating costs, not to maximize financial rates of return. The estimated weighted average cost of capital is 6.0%, considering that the World Bank will finance about 47% of the investment. The expressway financial rate of return (FIRR) is 7.0% with a net present value of 4,222 Yuan million (US $509.3 million) at a 6.0% discount rate. Fiscal Impact: The expenditures on road construction and maintenance for the "toll-free" roads included in the project constitute only a small fraction of JPCD fund flow. Therefore, the fiscal impact would be minimal. Based on the JPCD plan, the capital investment for the RIPC program is less than 1.6% of annual total JPCD revenue. In addition, the required maintenance expenditure for RIPC is less than 0.6% of total maintenance expenditure of JPCD. These low ratios indicate that the project presents a modest financial risk regarding availability of counterpart funds for construction and maintenance of the project roads. 3. Technical: A thorough review of the engineering designs was done in two phases. First, all engineering designs prepared by the Jiangxi Provincial Design Institute were reviewed by the China Communications Second Highway Survey, Design and Research Institute (Wuhan). Second, preliminary designs were reviewed by Spanish engineering consultants financed by a Spanish Trust Fund. Issues which needed special attention included: The appropriateness of application of lower engineering design standards and its consequent highway safety hazards; Sufficient geological investigations at the design stage to avoid encountering major problems at the construction stage, as experienced in other expressway projects in China. The mountainous terrain implies viaducts, tunnels and earthworks in steep transversal slopes, civil works which can be negatively affected by geological conditions leading to longer construction periods, cost overruns and problems of stability during both the construction and operation periods; and An appropriate level of E&M works and monitoring of long tunnels at the operation stage. - 13 -  The Bank's comments and recommendation on designs were well considered by JPCD, and the resulting engineering designs were found to be technically sound and appropriate to the country's needs. 4. Institutional: 4.1 Executing agencies: JPCD has overall responsibility for project preparation and implementation. With about 60 staff, the P0 will manage the project during implementation. Senior staff of the PO have extensive experience working with Bank and ADB-fmanced highway projects, resulting in better design and preparation than would have been possible otherwise. 4.2 Project management: Due to its experience managing the first Jiangxi Highway Project, JPCD is familiar with Bank procedures. JPCD management has taken full ownership of the project objectives, especially the institutional components which will require continued strong commitment from JPCD. The PO has carefully prepared the Project Implementation Plan (PIP), where all implementation arrangements and responsibilities have been clearly defined. A procurement specialist from the World Bank Office in Beijing will be involved early in preparation to conduct a workshop to ensure procurement is handled appropriately. 4.3 Procurement issues: A procurement assessment was performed during project preparation, a sunmmary of which is presented in Annex 6. The procurement agency is the PO. CMC-ITC has been appointed by the PO to handle the commercial aspects of ICB. With the assistance of CMC-ITC, the PO is expected to fulfill its procurerment function and administer procurement in an efficient and transparent way over time. The risks in the procurement process are considered average. In the regulations and administrative procedures issued by the central and local governments for National Competitive Bidding (NCB) using local funds, there are some inconsistencies with Bank requirements. The main inconsistencies are the use of bracketing and the merit point system in prequalification, bid evalualion and contract award for locally funded NCB civil works contracts. They will be waived in favor of Bank NCB procedures in a supplemental letter to the Loan Agreement, further details of which are provided in Annex 6. 4.4 Financial management issues: Financial Management. During preparation, an assessment of the adequacy of the project financial management system was undertaken (see Annex 12). The assessment concluded that this project meets minimiun Bank financial management requirements. The project entities would produce project financial management reports in line with the format and content agreed to between the Bank and China. In addition, traditional disbursement methods would be used as opposed to the PMR-based disbursement systems. No outstanding audits or audit issues exist with any of the executing agencies involved in the project. (See Annex 12: Project Financial Management System, para 16: Audit Arrangements, for further informatior.) The Bank and China have agreed to a standard set of project financial statements and the frequency of submission. (See Annex 12: Project Financial Management System, para 10: Project Financial and Accounting System, para 15: Reporting Requirements, for details.) - 14 -  Auditing Arrangements. As with other Bank-financed projects in China, the Foreign Investment Audit Bureau of the China National Audit Office (CNAO), established in 1983 under the name of State Audit Administration, would have overall responsibility for auditing the accounts of the project. The Jiangxi Provincial Audit Bureau, under CNAO's supervision, would conduct the actual auditing work. The Bank currently accepts audits perforned under the supervision and responsibility of CNAO. Audits of the financial statements of the project, the Special Account and the Statements of Expenditure would be submitted to the Bank within six months after the end of the financial year. The audit reports of the project would also include an opinion on whether the project was in compliance with financial covenants, if any. 5. Environmental: Environmental Category: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. Environmental Assessment (EA) activities for the preparation of the project started in December 1999 with the completion of the Feasibility Study Report of the Taihe-Ganzhou Section of the Gan-Yue Expressway and the appointment of the Highway Research Institute of the Ministry of Communications to prepare the EA for the TGE and the interconnecting roads. The EA is prepared as per the Chinese national procedures and the World Bank's OP 4.01. The Environmental Impact Assessment (EIA), the Environmental Action Plan (EAP) and the EA Summary reports were discussed with JPCD during the preparation and preappraisal missions in 2000. The final EA reports for the TGE, the interconnecting roads and the RIPC components were submitted to the Bank at the end of December 2000. The reports were reviewed by the Bank and were found satisfactory. These documents were placed in the Bank Info Shop in January 2001. The major fndings and discussions are summarized below. More detailed information is given in Annex 13. The major issues associated with the project are: (i) the selection of an optimal alignment, to avoid and minimize impacts on villages and communities along the alignment; (ii) minimization of the use of agricultural land; (iii) avoidance of cultural relic sites and unstable geological terrain; (iv) adequate public consultation; and (v) integration of the proposed environmental mitigation measures in the Environmental Action Plan (EAP). The EIA report found that the proposed highway would not affect ecologically sensitive areas, and that its construction and operation would have no significant impact on the environment provided the mitigation measures as given in the EAP are properly implemented. The final selected alignment minimizes the loss of agriculture land and loss of residences; minimizes the impacts and disruptions on the livelihood and day-to-day activities of the affected people and communities, and decreases the potential risks of landslides and erosion in the mountain areas. It also avoids disturbing cultural heritage sites along the alignment. The nearest cultural relics found were about 0.7 km from the selected alignment. The major environmental impacts which may occur during the construction of the Expressway and the other roads are: increase in noise, potential increase in soil erosion and generation of dust during construction and transportation of materials. Lesser impacts include alteration of hydrogeological regimes, interference with the local people and traffic and impacts on local ecology and irrigation system. The impact of construction materials hauled in traffic (noise, dust, congestion, traffic safety, etc.) using the existing highways is also a potential concem. Safe disposal of excess excavated material from cuts and tunnels in the mountain areas will require close attention and supervision during construction. Traffic noise, air pollution from vehicle exhaust emission, soil erosion and water pollution from service and administration areas are identified as potential major adverse impacts during the operation period. The key project stakeholders are the Jiangxi Provincial Communication Department (JPCD), farmers who may lose land and livelihoods, villagers and communities that may be displaced or impacted because of the - 15-  alignment passing through or near their villages, communities which may become divided by the alignmrent, and hospitals, schools, libraries and individual households which may be impacted by the construction and operation of the proposed Expressway and interconnecting roads. Extensive consultation was carried out with the affected people, and information and documents were provided at the village/townhall meeting, . The availability of the draft EA reports was advertised in local newspapers in September and October 2000 and complete sets of the reports and documents were delivered to all Cities and County and Township Resettlement Offices in September 2000. 5.2 What are the main features of the EMP and are they adequate? The major aspects of the EAP include the integration of appropriate mitigation measures in the engineering design and technical specifications for the TGE, its interconnecting roads and the RIPC component. Th- EAP reports include practical and cost effective measures necessary to mitigate the project related impacts by incorporating them in the design and by implementing them during the construction and operation phases. The EAP specifies the appropriate mitigation measures, environmental monitoring plans, training, institutional arrangements, implementation schedule, budget needs and others necessary to implement the EAP. Major mitigation measures include: watering to prevent dust, installation of noise barriers, reloca:ion of households and schools to protect against excess noise, implementation of safety measures during transport of materials, safe disposal and reclamation of excess waste materials. It also includes extensi- e revegetation and replantation of disturbed areas and slopes. Proper implementation of the EAP should result in minimal impact during the construction and operation of the highways. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: December 2000 The first draft of the EIA and EAP reports for the TGE and the interconnecting roads were reviewed anc commented on by the Bank in May 2000. The second draft reports were reviewed by the Bank in July 2000. During the November 2000 preappraisal mission, the Bank reviewed and commented on the third draft of the ELA/EAP reports for the Expressway and the first draft of the EIA/EAP reports of the RIPC component. At that time, the Expressway alignment was still being finalized. At the same time, the Bank also reviewed the first draft of the EA Surmnary report which did not include the RIPC component. The final EIA/EAP and EA Summary reports included the final selected alignment and all the components consolidated in the EA Summary report. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed enviromnent management plan? Describe mechanisms of consultation that were used and which groups were consulted? In developing the EIA and EAP, JPCD and the Environmental Consultant carried out public consultation and held public participation meetings at selected locations in cooperation with the Social Assessment unit of JPCD. Input was sought and opinions solicited from the impacted public and communities (farmers, villagers, rural residents, schools, hospitals, etc.) along the proposed alignment, local government units ir the counties, municipal Environmental Protection Bureaus, Research Institutes, etc. The meetings were supplemented by questionnaires and individual interviews. The opinions and concems expressed were taken into account in developing the Terms of Reference for preparing the EIA and EAP for the Expressway and the interconnecting roads. Following the completion of the draft EIA and EAP reports, ihe Consultant held meetings in impacted communities to both disclose the reports and seek additional public inputs from the affected people. Newspaper advertisements, radio and television were used to advertise the meetings and to inform the public about the availability of documents. - 16 -  5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? Assurances have been obtained at negotiations from JPCD that: (a) the environmental protection measures stipulated in the EAP with regard to the main expressway, its interconnecting roads and the RIPC component, will be implemented in a manner satisfactory to the Bank; and (b) Jiangxi shall funish to the Bank quarterly and armual environmental supervision and monitoring reports on the implementation of the EAP during the construction of the Expressway, the interconnecting roads and the RIPC component. Thereafter, JPCD will furnish, quarterly, environmental monitoring reports during the first two years of operation following the completion of the project. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The project is targeting one of the poorest areas of Jiangxi Province. The project would complement the govemment's on-going poverty alleviation efforts, particularly in agricultural development and local access improvement, by providing easier, more efficient and less costly means of transportation. The local road rehabilitation and imnprovement program is designed as a poverty target intervention. A set of selection criteria has been designed to target the poor areas. The project will affect 167 villages, largely as a result of land acquisition and structure demolition. The project will require the acquisition of 16,283 mu of land, 8,362 mu of which are farmland, and the demolition of 240,175 square meters of houses, 232,953 square meters of which are farmer residential areas. The project will affect 10,109 people in 2,396 households through land acquisition and house demolition. About 4,525 people in 1,109 households will need to be relocated. Given the linear nature of the project and the minimization efforts, the project impacts are scattered. For example, in the expressway component, only two villages will lose more than 20% of their fannland, and 78 villages will lose less than 10% of their farmland, including 58 villages who will lose less than 5% of their fannland. Resettlement planning for the expressway and RIPC components started in early 2000 and October 2000, respectively. Planning activities included a detailed census of affected people, the inventory of affected assets and a sample socioeconomic survey in the directly affected areas. On the basis of these planning activities, a Resettlement Action Plan (RAP) was prepared in line with local laws and World Bank OD 4.30 on Involuntary Resettlement. The resettlement and rehabilitation strategy follows the traditional Chinese approach, which is based on land and agriculture, and depends on village collectives for livelihood restoration. Given the scattered impact (an average of six households per village for relocation), all relocating households will be relocated within existing villages. The RAP contains the details of: i) the census, ii) inventory, iii) analysis of impacts, iv) legal fi-amework and resettlement principles, v) entitlements, vi) institutional arrangements, vii) grievance mechanism, viii) implementation arrangement and schedule, ix) budget and x) monitoring arrangements. A summary of the RAP is in Annex 15. A social assessment was conducted, within a 30 kilometer corridor of the road alignment, to assess the general impact of the project and facilitate the consultation process. The social assessment covers social demographics of the project areas, economic development in local areas and poverty status, employment and labor migration, gender, basic infrastructure, ethnic minority cormmunities, local needs, concerns and suggestions for the project. The total ethnic minority population in the seven project counties is only - 17 -  0.75% of the total population, and most of them belong to the She group. All, except one of the minority community villages, are farther than 15 km from any of the proposed roads. The one exception is 13.5 km from a connecting road. There are no direct adverse impacts of JHP2 on the ethnic minorities. Nevertheless, the social assessment specifically covered some of these ethnic minority villages for possible indirect impact and their feedback on the project. They are expected to receive direct and indirect benefits from the project. Details of the social assessment are in Annex 14. 6.2 Participatory Approach: How are key stakeholders participating in the project? All affected households and conmmunities have been identified through the census and inventory. Project information was provided to affected communities and local govermments through newspapers, posters nd public meetings. Focus group discussions and key informant interviews have been extensively conducted with local government officials and affected communities to: i) further disseminate project information, ii) understand people's concerns and needs, iii) consult the affected people over the resettlement and rehabilitation strategies. People's needs and concems have been incorporated into the RAP. Information dissemination and consultation is designed to continue during project implementation. A resettlement information booklet, including detailed entitlements of each household, compensation and entitlement policies and grievance procedures would be distributed to affected people prior to resettlement implementation. The affected communities would play the key role in finalizing and implementing their livelihood restoration programs. Both internal and independent monitoring of the resettlement program would be conducted regularly during project implementation. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Academic institutions were extensively consulted during project preparation. The Resettlement Researc-i Center of Wuhan University in Hubei Province has been contracted as the project resettlement advisor. This center has advised and guided the project office on resettlement planning. The China Cross-Cultural Consulting Center at Zhongshan University in Guangdong Province was contracted to carry out the social assessment under the project. Their inputs have significantly contributed to the project design. The Population Research Institute of Jiangxi Normal University has been contracted for the independent monitoring of resettlement implementation. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The project has designed a resettlement program that contains detailed institutional arrangements for its implementation. The project will be monitored and the living standards of the PAPs will be evaluated oxer the course of project implementation. Results of monitoring will be regularly reported, and, if necessary remedial actions will be taken. 6.5 How will the project monitor performance in terms of social development outcomes? Internal and Independent monitoring will include physical indicators of resettlement and rehabilitation, as well as qualitative evaluation, which are indicated in the TOR for monitoring. - 18 -  7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Policy Applicabiliry Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) _ Yes 0 No Natural habitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes * No Forestry (OP 4.36, GP 4.36) 0 Yes * No Pest Management (OP 4.09) 0 Yes 0 No Cultural Property (OPN 11.03) 0 Yes 0 No Indigenous Peoples (OD 4.20) 0 Yes 0 No Involuntary Resettlement (OD 4.30) * Yes 0 No Safety of Dams (OP 4.37, BP 4.37) 0 Yes * No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes * No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes * No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. To meet the environmental safeguard policies of the Bank, JPCD hired an independent consultant (Environmental Research Institute of MOC, Beijing) to prepare the EIA and EMP reports. The Consultant held public consultation meetings and incorporated the comments from those meetings in the TOR for the preparation of the EA reports. JPCD also retained the Jiangxi Provincial Cultural Relics Bureau to investigate the presence of relics along the proposed alignment. In the final decision process, the selection of the alignment took environmental and social issues into account. Additionally, the RAP was reviewed by the Bank and found satisfactory. F. Sustainability and Risks 1. Sustainability: Experience from completed and ongoing Bank-financed highway projects in China demonstrates a high borrower commitment towards implementation of the physical components of the project, which accounts for the majority of the project cost. In addition, JPCD has shown strong commitment to the institutional and policy objectives of the project. Toll levels and the need for their periodic review are important for: 1) the financial viability of the expressway, 2) the ability to repay the Bank loan, and 3) the provision of timely and needed maintenance. More generally, project sustainability would be enhanced by an early enactment of fuel tax reform. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Government stays fully committed to M Maintain effective dialogue with central and implementing the project provincial governments Training program will not prove relevant M Careful design of program in coordination with and managers will not apply new skills other donors, clear selection criteria for trainees, prior training in English language, mandatory evaluation report on effectiveness of training -19-  From Components to Outputs Accurate engineering designs N The engineering design will be reviewed by international experts at an early stage of the project Delays in land acquisition and N Proper training in these areas and guidmce from resettlement Bank staff will reduce this risk Sufficient counterpart funds, materials N (a) Ensure sufficient financial resources are and human resources not available on available through annual review of provincial time highway revenues and expenditures (b) MOF, MOC and the provincial governments' strong support and JPCD's strong commitment to the project will ensure availability (c) Dialogue with the provincial goverrment and MOC Selection of incompetent contractors M Careful pre-qualification of contractors in consultation with Bank will reduce this risk Inadequate quality of construction M (a) Selection of competent contractors will reduce this risk (b) Adequate construction supervision arrangements will reduce this risk Early selection of black spots to be M Proper training in this area and guidance from improved based on criteria established the Bank will reduce the risk Proper design for improvement M Designs will be reviewed by intematioral experts Training program will not prove M (a) Well designed and implementable training successful and managers will not apply program new skills (b) Criteria for selection of trainees will. be established and implemented (c) English language training will be prerequisite for any training abroad (d) Reports on the effectiveness of training will be prepared and reviewed regularly (e) Provide trainees with opportunity to apply acquired skills and tie promotions/salary increases to effective training Policy Reform and Highway Safety M (a) Bank ensures that Policy Reform and Program will not receive large ownership Highway Safety Program are well designed and from JPCD and will be unsuccessful already enjoy large degree of ownership from JPCD (b) Bank will conduct workshops to ensure sustainable implementation of programs Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) - 20 -  3. Possible Controversial Aspects: No major controversy is foreseen. G. Main Loan Conditions 1. Effectiveness Condition Issuance of acceptable legal opinions. 2. Other [classify according to covenant types used in the Legal Agreements.] 2.1 Agreement Reached with the Government: The borrower will ensure that the proceeds of the loan are onlent to the Beneficiary (Jiangxi Province) on the same terms and conditions as the Bank loan, with the Beneficiary bearing the foreign exchange risk. 2.2 Agreement Reached with the Beneficiary: a. Taihe-Ganzhou Expressway ([GE) JPCD shall undertake, complete and furnish the Bank an analysis and recommendation for toll rates on TGE by June 30, 2004, taking into account the findings of studies about this issue under other Bank-financed highway projects in China, the experience with toll rates on major roads and the results of a survey of user responses to tolls. b. Road Improvement in Poor Counties (RIPC) JPCD shall prepare and furnish the Bank an annual monitoring report by May 15 of each year starting 2002, until two years after the program is completed. c. Highway safety JPCD shall complete under terms of reference acceptable to the Bank by December 31, 2004: (i) a study on safety measures regarding maintenance works and (ii) a safety audit schedule; and By December 31, 2004, JPCD will complete the pilot program of black-spot improvements. d. Institutional strengthening and training * By November 15 of each year, beginning in 2001, JPCD will furnish an annual training schedule to the Bank and carry out the program, as agreed; and JPCD would by December 31, 2002, complete a study on the establishment of maintenance centers under terms of reference acceptable to the Bank. e. Environment, land acquisition and resettlement JPCD shall carry out the EAP and RAP, in a manner satisfactory to the Bank, and furnish any proposed revision of these plans to the Bank for its prior approval; JPCD shall maintain policies and procedures adequate to enable them to monitor and evaluate - 21 -  on an ongoing basis, in accordance with indicators acceptable to the Bank, the implementation of EAP and RAP; and Under terms of reference acceptable to the Bank, JPCD will prepare and furnish to the Bank: (i) a quarterly report and an annual environmental monitoring report through the period of implementation, with the first report submitted by February 15, 2002; (ii) by May 15, and November 15 of each year, starting November 15, 2001 until two years after completion of the Project, an internal resettlement report prepared by agencies of Jiangxi responsible for resettlement activities on the implementation and results of such activities during the preceding six-month period; and (iii) by February 15 and August 15 of each year, starting February 15, 2002 until two years after completion of the Project, an external resettlement report prepar-d by an independent entity acceptable to the Bank, on the implementation and results of the resettlement activities during the same six-month period referred to in clause (ii) above. f. Reporting, monitoring and auditing Using guidelines acceptable to the Bank, JPCD shall prepare and submit to the Bank: * A monthly progress report on the civil works of TGE; * A quarterly progress report on implementation of all project components; * An annual monitoring report, in a form satisfactory to the Bank, that assesses the degree to which implementation and development goals were achieved for all components, by February 15, of each year, beginning in 2002 through 2006; * An implementation completion report, in a format acceptable to the Bank, within six months of the closing date of the Bank loan; and * Audited accounts for the project, statements of expenditures and special accounts prepared by independent auditors acceptable to the Bank, within six months of the close of each fiscal year. H. Readiness for Implementation 1 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [O 1. b) Not applicable. Z 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. 0 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. O 4. The following items are lacking and are discussed under loan conditions (Section G): - 22 -  1. Compliance with Bank Policies 1 1. This project complies with all applicable Bank policies. OI 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. ov2, CLA. iro Kakaj~6 Jitendra N. Bajpai Yukon Huang Team Leader Sector Manager Country Manager - 23 -  Annex 1: Project Design Summary CHINA: Second Jiangxi Highway Project ! ;0: ; |g : ; tli 7Key Performance m Hierarchy Of Objectives Indicators Monitoring & Evaluation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector) country reports: (from Goal to Bank Mission) Enhance China's economic Increased economic activity growth through continuing and accessibility -o all areas infrastructure development to in the province enhance alleviate capacity bottlenecks opportunities in all sectors, and contribute to sustainable and equitable development Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: Provide a more efficient and Time reduction on ADT and speed on the Govemment stays fully effective transport inter-provincial trips via a Expressway and existing committed to implementing infrastructure in support of more efficient highway national roads the project social and economic development in Jiangxi GOVIA in the project Tonnage of goods Counterpart funds not Province influence areas transportation to coastal over-stretched anil provinces maintenance is sustained Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1. Approximately 130 km of 1. I Travel time reduction in Project performance Govemment stays fully Taihe-Ganzhou Expressway the TGE corridor monitoring reports committed to implementing (TGE) constructed 1.2 Average daily traffic on the project new expressway and exiting road 2. Approximately 180 km of 2.1. Average daily traffic on Project performance Training program will prove existing roads in low-income rural roads in affected area monitoring reports relevant and managers will areas (upgraded/improved) apply new skills 2.2. Number of days roads are closed to traffic reduced 3. Traffic safety on existing 3.1. Number of traffic Project performance network improved accident (fatalities and serious monitoring reports injuries) reduced 4. Technical and management 4.1 Increased maintenance Quarterly progress and annual capacity of JPCD and its work by independent monitoring related agencies strengthened companies 4.2 Number of staff trained domestically and overseas - 24 -  Key Perfornance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) 1. Construction of expressway US$ 483 million Accomplishment of inputs Accurate engineering designs and interconnecting roads will be reviewed bi-annually 1.1 Taihe-Ganzhou during supervision missions No delays in land acquisition Expressway (130km) and resettlement 1.2 Interconnecting Roads Project entity will arrange for (IR) quarterly progress reports for Sufficient counterpart funds, 1.3 Equipment for: (i) Bank review materials and human construction quality control resources available on time and environmental monitoring; (ii) operation Selection of competent and maintenance of TGE; contractors (iii) maintenance of the provincial road network Adequate quality of 1.4 Construction supervision construction services for TGE, and IR 1.5 Land acquisition and resettlement 2. Road Improvement in Poor US$ 46 million Counties 2.1 About 180 km roads in low-income areas 3. Highway Safety Component US$ 2 million Early selection of black spots Black spot improvements to be improved based on the criteria established Proper designs for improvement 4. Institutional US$ 3 million Training program will prove Strengthening/Capacity successful and managers will Building apply new skills 4.1 Studies/technical assistance in highway Policy Reform and Highway maintenance and highway Safety Program will receive safety large ownership from JPCD 4.2 Staff training programs and will be successful 5. Front-end Fee US$ 2 million -25 -  Annex 1-1 Key Performance and Development Indicators Attainment of Project . . 2000 2003 2005 Benchmark: 2008 Objectives Montorng Indicators Baseline Benchmark 1lt operational year Benchniark Provide a more Travel time reduction in the efficient and cost TGE Corridor (min.) 140 14( effective transport ADT on TGE (veh./day) infrastructure Taihe-Suichuan 15,400 19,20(0 Suichuan-Tangcun 14,200 17,80( TanLgcun-TanL,kou 15.200 19.10C ADT on existing NH 105 Taihe-Suichuan 7,000 14,300 4,300 5,70( Suichuan -Tangcun 5,800 13,200 1,900 2,60t Tanecun-Tankou 10.300 14.100 6.200 7.40C Accident rates on existing NH 105 (times/km) Taihe-Suichuan 1.6 1.9 1.3 0.8 Suichuan-Tangcun 3.7 4.1 2.5 IL(1 Tangcun-Tankou 2.3 2.7 1.8 0.8 Routine maintenance work by independent companies 5 1( ADT on roads under RIPC (veh. /day) Suichuan - Cheziao 2,000 2,800 3,200 3,700 YuTian - Xingjiang 570 700 800 1,100 Shashibu - Wangmodu 760 1,800 2,000 2,300 Tani ianz - Taneshan 940 1.300 1.600 2.000 Number of closed-days under RIPC Suichuan - Cheziao 0 0 0 0 YuTian - Xingjiang 30 50 15 15 Shashibu - Wangmodu 20 30 10 IC Taniiang - Tangshu 0 0 0 0 Tonnage of goods transported to coastal 122 164 197 262 _rovinces (1000ton/vr) GOVIA in the project influence area (million yuan) 4,644 5,689 6,514 8,911 Taihe county 452 554 634 867 Wan'an county 621 761 871 1,192 Suichuan county 1,170 1,433 1,641 2,245 Nankan city Implementation Indicators FY 2002 FY 2003 FY 2004 . FY 2005 FY 206 % of civil works completed on TGE 5 35 65 90 100 % of highways improved/rehabilitated 5 10 30 80 100 under RIPC Highway safety: % of improved black- 0 0 30 60 100 spots Number of person-months of completed 30 50 80 90 100 training . __ . - 26 -  Annex 2: Detailed Project Description CHINA: Second Jiangxi Highway Project By Component: Project Component 1 - US$447.20 million Highway Capacity Expansion Construction of the Taihe-Ganzhou Expressway (TGE): US$ 398.1 million 1. Construction of the 130 km Taihe - Ganzhou Expressway (TGE) is the project's main component. The proposed TGE is a section of the Beijing-Shenzhen expressway traversing through Jiangxi province from north to south via Nanchang and part of NTHS. From the Hubei/Anhui border in the north, the section linking Jiujiang with Nanchang was the main component of the first Jiangxi Highway Project. The Nanchang-Changfu section has also been completed and opened to traffic. The section from Changfu to Taihe will be locally financed and open to traffic before TGE. All these sections are located in flat or slightly hilly terrain while the TGE part is located in mountainous areas. The TGE will serve Ganzhou, the second largest city in the province. Jiangxi is much poorer than the surrounding provinces, and the southem part of Jiangxi is the poorest part of the province. The TGE will substantially reduce travel distance and time to Guangdong province, bypassing Ganzhou and connecting with NR323 to Shaoguan (the main city of the northem Guangdong) and NR105 to Shenzhen. 2. The TGE is designed according to MOC's standards, with 2x2 lanes, a design speed of 100 km/h and a subgrade width of 26 m. It includes two long tunnels totaling 3,320 m, 4 interchanges, 4 toll stations, 2 service areas and 2 rest areas. It also includes one management and maintenance center near Ganzhou and two monitoring centers. The TGE will operate as a closed toll expressway system. It will also include electrical and mechanical facilities for tolling, monitoring, telecommunications and lighting. Interconnecting roads: US$ 33.4 million 3. The component includes three Class 2 interconnecting roads totaling about 49 km and linking TGE with Wanan, Suichuan and Ganzhou. With these connecting roads, the TGE will be well linked with the highway network in southern Jiangxi. Equipment: US$ 6.9 million 4. Equipment would be used to: (a) maintain national and provincial highways (including expressways); (b) support laboratories and quality control work; and (c) strengthen JPCD and its relevant agencies and institutions. The equipment list, which includes cost estimates, is available in the project file. Supervision of construction: US$ 8.8 million 5. Based on experience gained from on-going Bank-financed highway projects in China, a combined team of local engineers, technicians and other personnel and institutional consultants would be created to supervise the construction of the TGE. The international engineers would be integrated with the supervisory organization and would help establish supervision standards and procedures at all levels, including on-site inspections and laboratory testing. They would also train local staff through formal sessions and on-the-job training. Four international experts (required for about 130 person-months) are - 27 -  envisaged to supervise construction, of which 4 person-months will be for training and 10 for contingencies. To supervise 9 ICB civil works contracts, one ICB contract for E & M facilities, and NCB contracts for buildings, nine resident engineer's offices will be created with 125 staff. Estimated domestic supervision inputs would be about 5,100 person-months. Project Component 2 - US$39.60 million Road Improvement in Poor Counties (RIPC) 6. A road improvement program has been designed to help people in poor counties increase their incomes through improving road access to product markets, employment opportunities, social services and facilities. This program includes roads totaling about 180 kilometers in length, of which 81 km will be Class 2 highways and 99 km will be Class 3. In the long run, these road improvements would provide the poor in these counties the opportunity to increase their incomes and overall social welfare. 7. Based on agreed criteria, JPCD screened 40 road sections and selected 8 sections with a total length of 180 Km. These 8 road sections are located in four counties, three of which are designated poor counties. The EIRR ranges between 14.8 and 33.1 %. 8. Implementation. The road sections will be packaged into eight contracts, with an average length of about 23 km and a total cost of about US$ 46.3 million, of which the Bank loan would finance 30 0Ao. All contracts will utilize the procurement method of national competitive bidding (NCB). A group will be established within JPHAB to supervise implementation; this group will be assisted by county level subgroups who will investigate and supervise road construction in their areas. The sections will be improved from 2002 through 2005. The details are shown in Table A below. 9. Monitoring and performance indicators. The monitoring indicators would include the following: Average daily traffic in MTE; Availability and cost of bus services from villages to townships; Number of days the road is closed and not available for use; Number of children attending schools in other villages or towns; Number of people able to visit hospitals and clinics in other towns; and Increase or decrease in the County Per Capita GOVAI. Monitoring values will be estimated. The Bank and JPCD will review the implementation of the program during the yearly supervision missions, and results will be compared with those agreed in the previous year. On the basis of each year's results, the program for the next year will be agreed upon. - 28 -  Annex 2, Table A: Road Improvement in Poor Counties (RIPC) Length of Length After Class Cost N Hi2hwav Existing L Completion After Construction Estimate No Highway (Km) Project Period (million (Km) _ _ I *Suichuan PH338 Suichuan- 26 11 63 Hengdian 84 2003- 2005 2 *Suichuan PH245 53 111 42 CheZhiao 3 *Suichuan Yutian- 26 50 CH630 51 Yaqian III 2002 -2004 4 *Suichuan Yaqian- 20 50 Xiniiangy 5 Ganzhou Shashibu- 14 50 PH234 30 1i 2002- 2004 6 * Ganxuan Niuaibu 12 50 Tangjiang 7 Nankang ilangbu 15 43 PH339 30 Hangbu 11 2003 -2005 8 'Shangyou m195mHangbu- 14 42 Total_ __ __ _ __19__ __ __ _180 _ _ _ _ _ 39 * State designated poor county. Project Component 3 - US$ 2.50 million Highway Safety Component 10. Introduction. JPCD and its related organizations are concerned about highway safety. In 1999, 2, 800 people were killed on Jiangxi roads. If appropriate action is not taken, the number of people killed in road accidents is likely to accelerate in the future. The accident rate is about 3-5 times higher than that of Western European and North American countries. The situation is already serious, and due to rapidly increasing motorization and vehicle use, highway safety is growing more serious as time passes. 11. In Jiangxi Province, as in other Provinces, responsibility for highway safety rests with JPCD and the Traffic Police. JPCD is responsible for all aspects of road related measures, while the Traffic Police handle driver and pedestrian education, law enfofcement, traffic surveillance and administration. Under the project, the road safety unit within the PO has been established and will act as the primary liaison unit to implement various safety enhancement elements included in the project, with the cooperation of various agencies involved in road safety. 12. Proposed program. The Traffic Safety component includes: i) Road Safety at Roadwork sites; ii) Road Safety Audit checklists; and iii) a Pilot Project on the identification and remedy of hazardous - 29 -  locations, black spots. 13. Road Safety at Roadwork sites. In order to organize roadwork under tolerable and economically acceptable conditions to road users and workers, the proposed study on "road safety at roadwork sites" will include development of a manual for road safety at roadwork sites during construction and maintenance of roads. 14. Road Safety Audit checklists. The improvement of road safety conditions starts with good planning and design of expressways, other new roads and interconnecting roads. Therefore, the development of Road Safety Audit checklists would consist of a series of checklists and guidelines that explain how to check highway designs to ensure that they do not contribute towards the occurrence of accidents. 15. Pilot Project on identification and remedy of hazardous locations, black spots. A major rcad safety action is the identification and improvement of hazardous spots on existing roads. The Nanchang- Jiujiang Expressway has been chosen as a pilot project. The program covers: identification of hazardous locations, analysis, development of a remedial program, implementation and follow up. Under the project, USS 2.3 million is allocated for engineering solutions of black spots. Project Component 4 - US$2.10 million Institutional Stren-thenine/ Capacity Buildin2 16. The strategic objectives of institutional strengthening are to restructure the institutional framework in such a way that it is able to respond rapidly to the changing economic and competitive environment in China. While the size and scope of administrative reform of the highway sector in Jiangxi is still uncertain, the project will provide the necessary TA to assist JPCD to have the readiness and competence to meet the demands of reforms as they occur. The institutional strengthening component will cover the above aspects in a pilot way and include the necessary training in a prioritized way. This component includes: i) studies to exarnine organizational changes, ii) study on the feasibility of and the establishment of at least one competitive maintenance center, iii) provision of modem equipment for various institutes, environmental protection and maintenance, and iv) the related training programs at home and abroad. 17. Training. In a rapidly developing country such as China, training of personnel at all levels is essential; given the ongoing Policy Reform in the Transportation sector, a new cadre of people will need to be trained. In addition to the Design/ Research institutes and technical schools under JPCD, all need technical improvements introducing modem methods and systems and equipment. Therefore, training will be systematic. The training program is built upon the institutional analysis carried out. The training program includes new subjects such as road traffic safety, environment protection and quality control: Study tour Abroad: 27.5 person/month (8 subjects) Training Abroad: 71 person/month (9 subjects) Domestic Training: 372 person/month (14 subjects) 18. Minor Organization structural changes. The Project Office will be furnished with some specialists in road traffic safety. These specialists would have a controller function and advise the Director of the Project Office in matters concerning road traffic safety from the design stage until the project haw been finished. The road safety specialist would also be responsible for managing the execution of road safety activities under the project. - 30 -  19. Establishment of Maintenance Centers. In order to create some competition in the highway sector, JPCD/ JPHAB should start development of "Maintenance Centers." Under the project, a study will be undertaken, by December 2002, to detennine the organizational and structural requirements of independent competitive maintenance centers, and a pilot "center" will be established during the project implementation period. The development would include the following steps: (i) create competition within the highway sector, by establishing a number of internal Maintenance Centers and giving them manpower, know-how and equipment needed; (ii) these "companies" should develop their competence and could also bid in competition on various maintenance activities; (iii) successful "centers" could earn more money than the less successful ones; and (iv) after a certain period of time, the most successful "centers" could become independent companies and establish themselves on the market. 20. Equipment for institutional strengthening, environment protection, and road maintenance. This sub-component is discussed under Equipment above. Land Acauisition and Resettlement Component - US$42.3 million 21. The land acquisition and resettlement component is discussed in detail in Annex 15. Implementation Schedule 22. Table B shows the implementation program for the project components. - 31 -  Annex 2, Table B: Overall Implementation Schedule 2000 2001 2002 2003 2004 2(105 2006 GENERAL PROCUREMENT NOICE (11/30/2000) Works 1) Taihe-Ganzhou Expressway - Civil Works I~T - Supply and Installation | - Building - 2) Interconnecting Road L I iI 3) Road Improvement - First Package - Second Package 4) Black Spot Improvements Supervision of Construction - Taihe-Ganzhou Highway i Procurement of Equipment - Maintenance for National and Provincial Highways - Laboratories - IST Training Studies - Highway Maintenance - Highway Safety Preoualiflication/oreoaration of biddino documents/TOR Co>nstructon/suDervision/delivervlexecution of studies l Biddina orocess/comDetition amona consultants l:. Defects liabilitv oenod - 32 -  Annex 3: Estimated Project Costs CHINA: Second Jiangxi Highway Project Million Yuan Miflion USS Domestic Foreign Total Domestic Foreign Total 1. Works a) Expressway i) Civil Works 1,579.51 1,119.26 2,698.77 190.30 134.85 325.15 ii) E & M Facilities 13.71 54.78 68.49 1.65 6.60 8.25 iii) Buildings 44.12 18.92 63.04 5.32 2.28 7.60 b) Interconnecting Roads 165.89 71.05 236.94 19.99 8.56 28.55 c) RIPC 196.67 84.25 280.92 23.70 10.15 33.85 d) Black Spots Improvement 11.62 4.98 16.60 1.40 0.60 2.00 Subtotal 2,011.52 1,353.24 3,364.76 242.36 163.04 405A0 2. Supervision of Construction 49.83 18.43 68.26 6.00 2.22 8.22 3. Equipment 16.18 37.77 53.95 1.95 4.55 6.50 4. Training 0.66 12.45 13.11 0.08 1.50 1.58 5. Studies 4.73 0.00 4.73 0.57 0.00 0.57 Total 2,082.92 1,421.89 3,504.81 250.96 171.31 422.27 6. Physical (10%) 205.09 131.39 336.48 24.71 15.83 40.54 7. Price 142.08 95.20 237.28 17.12 11.47 28.59 Total Contingencies 347.17 226.59 573.76 41.83 27.30 69.13 8. Land Acquisition and Resettlement 350.96 0.00 350.96 42.28 0.00 42.28 9. Front-end Fee 0.00 16.60 16.60 0.00 2.00 2.00 Grand Total 2,781.05 1,665.08 4,446.13 335.07 200.61 535.68 - 33 -  Annex 4: Cost Benefit Analysis Summary CHINA: Second Jiangxi Highway Project Summary of Benefits and Costs: See paragraph #11 below. Main Assumptions: See details and tables in paragraphs #1, #5 and #6 below. Sensitivity analysis / Switching values of critical items: See paragraphs #12, #13, #14, #t16 and Table B below. 1. Preface. The economic evaluation focuses on: a) the Taihe - Ganzhou Expressway (TGE), which accounts for 84% of civil works project costs, b) three interconnecting roads (7% of civil works projezt costs) and c) four RIPC roads (9% of civil works project costs). The expressway was subdivided into three homogeneous sections, which were analyzed independently as well as part of the entire project. The following table presents each section length and construction costs including physical and price contingencies. Section Length Cost __(kml (M Yuan) Taihe - Suichuan 45.4 1,127 Suichuan - Ganzhou 68.6 2,226 Ganzhou - Tankou 14.2 371 Subtotal (Expressway) I128.L 3.724 Wan'an 13.9 107 Suichuan 20.6 103 Ganzhou 14.2 109 Subtotal (Interconnecting roads) 48.7 319 Suichuan- Chezhiao 79.0 104 Yutian - Xinjiang 46.0 100 Shashipu - Wangmudu 26.3 100 Tangjiang - Dongshan 28.7 85 Subtotal (RIPC) 180.0 L -L39.0. Total 356.8 4.432 A. Expressway Econoniic Evaluation 2. Benefits and Beneficiaries. The TGE is an important component of the north-south transport corridor, part of the skeleton that makes the planned "Big Cross" transport network in Jiangxi Provinc-. The project will satisfy the needs of accelerating economic development, improving the investment environment, and meeting the requirements of rapid traffic growth in Jiangxi Province. The existing north-south Class II national highway NH No.105 has the following characteristics: a) heavy mixed traffic that is reaching maximum capacity; b) poor physical condition; and c) an alignment that passes through densely populated villages and towns, causing traffic congestion and frequent traffic accidents. The table below lists the towns being served by NH No.105 along the expressway route. - 34 -  Towns Along NHNo.105 in 1999 in Ji'an and Ganzhou Prefecture NH NH No. 105 No.105 Length Length County or Population Number in Region Through Towns City (million) of Towns (km) (k!rn Taihe County 0.51 3 42 13 Wanan County 0.28 3 30 10 Shuichuan 0.51 3 48 3 County Gan County 0.53 2 30 12 Ganzhou Citv 0.78 3 29 19 Total 2.61 14 178 57 3. The major quantifiable project benefits are vehicle operating costs, travel time and road accident costs savings. Compared with the existing parallel road (NH No. 105), the TGE will have a shorter length (26% distance savings), an improved surface condition that enhances riding comfort, no congestion and no pedestrian, bicycle or non-motorized vehicle traffic interference. Therefore, most long distance traffic and some local traffic is expected to diverge from the existing road to the TGE. Because many users will use the TGE, current congestion levels on the existing road will be reduced. Thus, motorized and non-motorized users who continue to use the existing road will also benefit from the project. Other quantified project benefits are generated and induced traffic as a result of lower transport costs and increased industrial and agricultural production. From a conservative evaluation, other non-quantified project benefits are generated traffic on the existing road and positive effects on non-motorized traffic using the existing road. Project benefits were estimated using the Highways Design and Maintenance Standards Model (HDM-Ill) road user cost equations. For diverted traffic from the existing road, benefits were taken to be the reduction on total transport costs; and for generated traffic, benefits were taken to be one-half of the unit benefits of the diverted traffic, assuming traffic would have developed in proportion to the reduction in transport costs. 4. Data Collection. A preliminary evaluation compared two to three alignment altematives, on parts of the expressway, based on economic, engineering, influence on economic development, environment and network system considerations. The recommended alignment was then subdivided into three homogeneous sections, for the final economic evaluation, taking into account different traffic levels and construction costs. Table A presents the characteristics of each section. The TGE sections will be constructed as 2x2 lanes with a design speed of 100km/hour and an average financial construction cost of 28 Yuan million per kmn (economic costs being 88% of financial costs eliminating taxes, custom duties, price contingencies, and interest payments during construction). The TGE will be designed according to MOC's expressway standards, with access restricted to normal motor traffic and agricultural tractor and non-motorized traffic excluded. 5. Data was collected on vehicle fleet characteristics, utilization and unit costs. Economic costs were derived from financial costs by deducting taxes and duties, and the value of time was estimated to be 2.2 Yuan/hour, calculated on the basis of the annual income of the region. Direct accident benefits were computed assuming that, a) the accident rate on the existing road NH No. 105 is 200 accidents per 100 million vehicle-km, b) accidents on the expressway will reduce to 40 accidents per 100 million vehicle-kIn, and c) the direct cost per accident is 8,00OYuan. On NH No. 105, the average rates for road accident - 35 -  injuries and fatalities are 55 and 36 per 100 million vehicle-km respectively; and, for example, on the Changjiu Expressway, opened to traffic in 1994 in the north of Jiangxi Province, the average rates for road accident injuries and fatalities are 17 and 6 per 100 million vehicle-km respectively. This comparison indicates that there will be a substantial reduction in injuries and fatalities with the construction of TGE. The table below presents the basic vehicle characteristics and typical road user costs. Vehicle Characteristics and Road User Costs Small Light Medium Heavy Articulated Buses Buses Trucks Trucks Trucks Trucks Vehicle Characteristics Gross vehicle weight (tons) 2.50 8.00 4.00 8.00 17.00 28.00 Number of passengers(#) 5 35 0 0 0 0 Service life (years) 10 10 10 8 8 11 Kilometers driven per year 25000 60000 40000 50000 50000 50000 (Ian) Hours driven per year (hours) 1000 2800 2000 2000 2320 2320 Economic Costs New vehicleprice (Yuan) 108000 310000 105000 210000285000 310000 New tire price (Yuan) 450 900 720 1260 2060 2060 Maintenance labor 2.4 3.5 4.7 7.5 11.8 19.3 (Yuan/hour) Driver wages (Yuan/hour) 3.5 3.5 3.5 3.5 3.5 3.5 Time costs (Yuan/hour) 2.0 2.0 2.0 2.0 2.0 2.0 Fuel price (Yuan/liter) 2.3 2.2 2.2 2.2 2.2 2.2 Lubricants price (Yuan/liter) 4.0 4.0 4.0 4.0 4.0 4.0 Typical Road User Costs (Yuan per vehicle-kilometer) New Expressway 1.04 2.55 0.87 1.64 2.76 3.34 Class 2 Road (1,250 AADT) 1.33 3.14 1.14 2.11 3.49 4.27 Class2Road(5,OOOAADT) 1.34 3.16 1.14 2.11 3.49 4.28 Class 2 Road (10,000 AADT) 1.37 3.27 1.16 2.13 3.50 4.29 Class 2 Road (20,000 AADT) 1.45 3.55 1.19 2.18 3.53 4.32 Class 2 Road (30.000 AADT) 1.63 4.09 1.28 2.32 3.64 4.44 6. Projected Traffic. Origin-destination (OD) surveys were conducted and provided the basis for estimating diverted and generated traffic. The surveys revealed the following: (a) average annual daily traffic (AADT) was around 8,000 vehicles per day in 1998, (b) trucks constitute about 63% of AADT, (c) current truck speeds are about 37 km/hour on NH No.105 and (d) the traffic during the peak hour is about 10% of the average daily traffic. The following table presents, for each section, the estimated motorized traffic on the existing road in 2000 and 2005 and the expected diverted and generated traffic on the expressways at opening. NH No.105 NH Diverted to Generated on in 2000 No.105 in TGE in 2005 TGE in 2005 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 2 0 0 5 _ _ _ _ _ _ _ _ _ _ _ _ Taihe - Suichuan 8,726 11,617 7,407 1,743 Suichuan - Ganzhou 7,828 10,367 7,187 1,555 Ganzhou - Tankou 12,227 1 16,445 6,678 2,467 - 36 -  7. Based on OD surveys and considering that tolls to be charged on the TGE will be at the same level as those charged for other expressways in the province currently, diverted traffic from the existing road was estimated to be on average 65% and generated traffic on average 15% of the normal traffic on the existing road. Although a railway line runs between Nanchang and Ganzhou, no traffic diversion from the railway to the expressway was taken into account because the railway carries mainly long-distance bulk freight. Taking into consideration the economic development and traffic growth in the past and based on the expected economic growth in the influenced project area in the future, traffic is projected to increase on average at the following annual rates: a) for the period 2000 - 2004, 9% for buses and 6% for trucks, b) for the period 2005 - 2014, 8% for buses and 6% for trucks and c) for the period 2015 - 2023, 6% for buses and 4% for trucks. The traffic on NHNo.105 in the project area has increased, on average, 11% per year during the period 1990 - 1998. 8. Results. The following table presents the resulting economic intemal rate of return (EIRR) and net present value (NPV), at 12% discount rate, in Yuan million, obtained for each TGE section and the entire TGE. The entire TGE EIRR is 19.2% and none of the sections has an EIRR below 12.0%. The TGE section with lower EIRR is Suichuan - Ganzhou, which has the highest construction costs due to the hilly terrain and 2 tunnels with total length of 3,320 m. The expressway section with higher EIRR is Taihe - Suichuan, which has the highest distance savings (34%) and lower construction costs due to flat terrain. Section Econonic Net Intemal Present Rate of Return Value (%) (M Yuan at 12 %) Taihe - Suichuan 23.1 1348 Suichuan - Ganzhou 17.2 1028 Ganzhou- Tankou 18.1 237 Entire TGE 19.2 2613 B. Interconnecting Roads and RIPC Roads Economic Evaluation 9. Interconnecting and RIPC Roads. In order to make the TGE connect rationally with other roads in the area, three interconnecting roads are included as part of the project. Also, four RIPC roads are part of the project as a separate component. The table below presents the main characteristics of each road and Table A presents the remaining characteristics. All these roads are existing Class IV or unclassified roads in poor condition, some of them unpaved, that will be rehabilitated and upgraded to paved Class III or Class II standard. It is estimated that the average traffic at opening will be around 3,600 AADT for the interconnecting roads and 1,900 AADT for the RRIP roads. - 37 -  Road Leneth Current Traffic New Costs (km) Class 2004 Class (M Yuan) Interconnecting road Wan'an 13.9 U/IV 1,888 II 107 Suichuan 20.6 U/IV 3,531 II 103 Ganzhou 14.2 IV 5,336 II 109 RIPC Suichuan - Chezhiao 79.0 U/IV 2,982 HIII/I 104 Yutian - Xinjiang 46.0 U 716 III 100 Shashipu - Wangmudu 26.3 U 2,073 II 100 Tangjiang - Dongshan 28.7 U 11671 II 85 10. Results. The following table presents the resulting EIRR and NPV (at 12% discount rate in Yuan million) obtained for each road. The main project benefits are the reduction in vehicle operating costs and travel time costs due to improved road pavement and road condition, wider road width and the assurance of all weather passability of unsealed roads. Road Economic Internal Net Present Value Rate of Retum (%+ (M Yuan) Interconnecting road Wan'an 18.9 62 Suichuan 24.4 119 Ganzhou 33.7 260 RIPC Suichuan - Chezhiao 33.1 236 Yutian - Xinjiang 14.8 22 Shashipu - Wangmudu 20.4 74 Tangjiang - Dongshan 18.2 43 C. Overall Project Economic Evaluation 11. The overall project, which includes the TGE sections, the interconnecting roads, and RIPC roads, yields a NPV of 3,428 Yuan million and an EIRR of 20.0%. The modified EIRR is 15.5%, assuming a 12% financing and reinvestment rate. The following table shows net benefits distribution, wherein cars and buses will receive 39% of the roject net benefits and trucks 61%. Net Modified Benefits EIRR EIRR (M Yuan) (%) '0/6 Society 3,428 20.0% 15.5% Road Agency -3,371 Road Users 6,799 Net Benefits - Net Benefits Benefits Percent Cars & Buses Trucks Total Cars & Buses Trucks Total (M Yuan) () (M Yuan) (M Yuan) (M Yuan) (%) (%M (%) Road User 6,799 100"/o 2,631 4,168 6,799 390/o 61% 100% Expressway diverted traffic 5.695 83% Expressway generated traffic 647 10% Existing roads traffic 392 6% Road safety 65 1%