China - Shijiazhuang Urban Transport Project

The World Bank Report No: 21838-CHA PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$100 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHIJIAZHUANG URBAN TRANSPORT PROJECT February 27, 2001 Transport Operations Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective February 2001) Currency Unit = RMB RMB1 = US$0.12 US$1 = RMB 8.26 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS ATC Area Traffic Control NMV Non Motor Vehicle CAS Country Assistance Strategy PFBEED The Extemal Economy Division of Provincial CAS Country Assistance Strategy PFBEED Finance Bureau CBD Commercial & Business District PIC Public Information Center CIF Cost Insurance and Freight PIP Project Implementation Plan CNAO China National Audit Office QCBS Quality and Cost Based Selection CNTIC China National Technical Import and Export RAP Resettlement Action Plan Corporation I EA Environmental Assessment RMB Renminbi EMP Environmental Management Plan SBD Standard Bidding Document FDPO Financial Division of Shijiazhuang Urban SCL Single Currency Loan Transport Project Management Office _ GDP Gross Domestic Product SFB Shijiazhuang Finance Bureau GPN General Procurement Notice SJZ Shijiazhuang IBRD International Bank for Reconstruction and SMEDI Shanghai Municipal Engineering Design Institute Development ICB Intemational Competitive Bidding SMG Shijiazhuang Municipal Govemment IDA Intemational Development Association SOE State-owned Enterprise ITC Intemational Tendering Company SOEs Statements of Expenditures LACI Loan Administration Change Initiative SPD Standard Procurement Document LIBOR London Inter-Bank Offered Rate SPN Specific Procurement Notices MBD Model Bidding Document SPTC Shijiazhuang Public Transport Company MEIEAD Mechanical and Electronics Products Import SUTP Shijiazhuang Urban Transport Project and Export Department MOF Ministry of Finance SUTPO Shijiazhuang Urban Transport Project Office MOFTEC Ministry of Foreign Trade and Economic TAIS Traffic Accident Information System Cooperabon NCB National Competitive Bidding UNDB United Nations Development Business Vice President: Jemal-ud-din Kassum Country Manager/Director: Yukon Huang Sector Manager/Director: Jitendra N. Bajpai Task Team Leader/Task Manager: Richard G. Scurfield  CHINA SHIJIAZHUANG URBAN TRANSPORT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context I. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Govermment strategy 4 3. Sector issues to be addressed by the project and strategic choices 5 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforms supported by the project 9 3. Benefits and target population 10 4. Institutional and implementation arrangements 11 D. Project Rationale 1. Project alternatives considered and reasons for rejection 12 2. Major related projects financed by the Bank and other development agencies 13 3. Lessons learned and reflected in proposed project design 13 4. Indications of borrower commnitment and ownership 14 5. Value added of Bank support in this project 14 E. Summary Project Analysis 1. Economic 15 2. Financial 15 3. Technical 16 4. Institutional 16 5. Environmnental 17 6. Social 19 7. Safeguard Policies 20 F. Sustainability and Risks 1. Sustainability 20 2. Critical risks 21 3. Possible controversial aspects 22  G. Main Loan Conditions 1. Effectiveness Condition 22 2. Other 22 H. Readiness for Implementation 23 1. Compliance with Bank Policies 24 Annexes Annex 1: Project Design Summary 25 Annex 2: Detailed Project Description 29 Annex 3: Estimated Project Costs 40 Annex 4: Cost Benefit Analysis Summary 41 Annex 5: Financial Summaries 45 Annex 6: Procurement and Disbursement Arrangements 52 Annex 7: Project Processing Schedule 61 Annex 8: Documents in the Project File 62 Annex 9: Statement of Loans and Credits 64 Annex 10: Country at a Glance 68 Annex I1: Summary of Environmental Assessment 70 Annex 12: Summary of Resettlement Action Plan 79 Annex 13: Review of Financial Management Systems 88 MAP(S) IBRD 31281 City Center Network Improvements  CHINA SHIJIAZHUANG URBAN TRANSPORT PROJECT Project Appraisal Document East Asia and Pacific Region Transport Sector Unit Date: February 27, 2001 Team Leader: Richard G. Scurfield Country Manager/Director: Yukon Huang Sector Manager/Director: Jitendra N. Bajpai Project ID: P056596 Sector(s): TU - Urban Transport Lending Instrument: Specific Investment Loan (SIL) Theme(s): Poverty Targeted Intervention: N Project Financing Data [X] Loan [ I Credit [ Grant [1 Guarantee [ I Other: For Loans/Credits/Others: Amount (US$m): 100 Proposed Terms: Variable Spread & Rate Single Currency Loan (VSCL) Grace period (years): 5 Years to maturity: 20 Commitment fee: standard w/waiver Front end fee on Bank loan: 1.00% Financing Plan: Source Local Foreign Total BORROWER 167.70 18.50 186.20 IBRD 34.30 65.70 100.00 Total: 202.00 84.20 286.20 Borrower: PEOPLE'S REPUBLIC OF CHINA Responsible agency: MUNICIPALITY OF SHIJIAZHUANG Shijiazhuang Urban Transport Project Office (PO) Address: #271, Shengli Beijie, Shijiazhuang, 050041 Contact Person: Liu Shuitian Tel: 86-311-6816540 Fax: 86-311-6816540 Email: cjtzbgsq@public.sj.he.cn Other Agency(ies): Shijiazhuang Public Security Transport Management Bureau (SPSTMB) Address: #9 Jian She Nan Da Jie, Shijiazhuang, Post Code: 0500] 1 Contact Person: Wang Yong Cai Tel: 86-311-6081962 Fax: Email: Shijiazhuang Public Transport General Company (SPTGC) Address: # 88 Jian She Nan Da Jie, Shijiazhuang, Post Code: 050011 Contact Person: Tian Shi Run Tel: 86-311-6014443 Fax: Email: Shijiazhuang Environmental Bureau Address: #32 Huai Ling Lu, South Tiyu Street, Shijiazhuang Contact Person: Mr. Jia Jianhe, Director Tel: 86-311-5814980 Fax: 86-311-5811615 Email: gingbing-aa 263.net Estimated disbursements ( Bank FYIUS$M):  FY 2000 2001 2002 2003 2004 2005 2006 Annual 0.00 10.80 21.10 21.50 19.80 18.40 8.40 Cumulative 0.00 10.80 31.90 53.40 73.20 91.60 100.00 Project implementation period: September 2000-June 2006 Expected effectiveness date: 09/01/2001 Expected closing date: 12/31/2006 OCS PAD F-: P. M. , OD -2 -  A. Project Development Objective 1. Project development objective: (see Annex I) To foster the development of an efficient and environmentally sustainable urban transport system in the city of Shijiazhuang while providing a wider set of travel choices for users. 2. Key performance indicators: (see Annex 1) Key performance indicators are listed below, along side lists of sub-objectives and actions. Objective Action Indicators Develop a stronger and more *Selected new road investments *Cross-town travel times efficient urban road network including east-west routes across the railway and new roads to complete selected "missing links" Improve the efficiency and safety *Planning and implementation of a *Mode-split across screenlines for of the road system for all modes of coherent network of bicycle and vehicles and persons transport while preserving the pedestrian routes *Trip times along selected corridors benefits of the bicycle *Introduction of modem traffic *Length of dedicated cycle-ways engineering techniques *Bicycle traffic across selected screenlines *Incidence and severity of accidents Develop stronger and more * Development of a coherent bus *Total bus transit ridership effective public transport services development plan for the city *Number of routes * Investments to improve the *Staff/bus ratio effectiveness and efficiency of bus *Revenue and expenditures per bus operations and per passenger Improve the quality and efficiency *Development of a road maintenance *Network condition indicators of road maintenance activities in planning system *Road maintenance budget the city *Increases in the road maintenance .Road maintenance expenditures budgets Environmental protection and *Develop local monitoring and *Proportion of fleet tested improvement analysis capacity eNumbers of vehicles tested *Support the implementation of a motor vehicle emissions control I program _ Strengthen local institutional *Strengthen local planning, design, *Development and implementation capacity and integration within implementation, and management of policies, plans and programs urban transport sector of the transport sector agencies I B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: R98-107 Date of latest CAS discussion: 05/28/98 China: Country Assistance Strategy Full Report, 16321-CHA, February 27, 1997 Progress Report, R98-107, May 6, 1998 The CAS highlights the importance of reducing infrastructure bottlenecks as a key component of Government's development strategy. The country strategy also recognizes the importance of managing - 3 -  urban development. The objectives of the senior leaders in Shijiazhuang are not dissimilar. They recognize the importance of developing a more effective urban transport system within their city if the quality of life for their residents is to improve. 2. Main sector issues and Government strategy: Sector Issues in China. The urban population in China is forecast to increase from 30.2% of the population (319 million) in 1995 to 49.1% of the population (711.7 million) in 2020. Over the same period, car ownership in cities is projected to increase from an average of 10 per 1000 residents by a factor of more than ten. The main sector issues stem from these trends; they are as follows: * Urban traffic congestion is increasing rapidly. It is already an important constraint to urban productivity. * Vehicular air pollution is increasing and posing a serious health threat to urban populations, even though lead-free fuel was introduced recently and there is some experimentation with alternative and cleaner fuels. * Inadequate facilities for pedestrians. Pedestrians are generally not accorded adequate priority by the city officials responsible for planning and managing the roads in Chinese cities. * Bicycles are losing favor. The bicycle is the traditional mode of transport in most cities in China. However, it is becoming more dangerous to use them due to the progressive domination of the roads by motor vehicles. Despite this unsatisfactory state of affairs, cycling remains the dominant mode of transport in many cities, including Shijiazhuang. * Roads are poorly managed. Efficient use is not being made of the existing road space. Both traffic management and road maintenance are often inadequate. Although modern traffic management practices are developing in some cities, experience in most is limited to the use of traffic signals. * New roads are needed. In addition to managing existing roads more efficiently, additional capacity is needed. In China's cities, the density of the road network (proportion of the surface area devoted to roads) is typically lower than in many other countries. * Accidents are increasing in numbers and severity. Due to poor driver behavior and larger traffic volumes, the number road accidents is increasing. More objective assessment of the causes of accidents is hampered by the lack of adequate data collection and application of appropriate analysis techniques. Further, poor coordination between the relevant agencies also hampers efforts to address this issue. * Public transport services are poor in many cities. The development of public transport is often hindered by a lack of capacity, slow operating speeds, outdated equipment and outdated management practices. Public transport enterprise reforn is taking place in various cities in China, increasingly accompanied by the participation of private operators. However, these reforms are constrained by employment regulations, uneconomic fare levels, unclear subsidy policies, and inadequate regulatory structures. * Institutions are often not up to the complex task of managing urban transport in Chinese cities. Within most cities in China there are multiple agencies who have an interest in urban transport planning and operations. These agencies often have little day to day contact with one another and their activities are poorly coordinated. They include, the urban planning bureau, the municipal construction bureau, (responsible for road construction and maintenance), the public utilities bureau (responsible for public transport provision and regulation), the traffic police (responsible for traffic management and enforcement) and the environmental protection bureau (responsible for vehicle emission controls). Government Strategy. A symposium was held in Beijing in late 1995, to discuss China's Urban Transport Development Strategy, sponsored by the Ministry of Construction, the World Bank, and the Asian Development Bank. Agreements reached provide the policy framework for this project. These were brought together as five principles, four criteria, and eight actions. -4 -  * Thefiveprinciples represent themes that should guide urban transport planning and operations in China: transport is about moving people and goods, not vehicles; transport prices should reflect full social costs; transport refortns should deepen to align with socialist market principles so as to increase efficiency; the role of govemment should be to guide transport development; and the role of the private sector in providing transport services should be encouraged. * City plans and policies for managing transport should meetfour criteria: environmental sustainability; economic viability; financial affordability; and social acceptability * Consistent with these principles and criteria, eight actions were recommended: reformn urban transport administration; upgrade the status of traffic management; prepare a strategy to mitigate motor vehicle air and noise pollution; develop policies to manage traffic demand; develop a strategy for mass transit; reform public transport management and operations; develop a financing strategy for the transport sector; and strengthen the framework for transport planning and capacity building. 3. Sector issues to be addressed by the project and strategic choices: Preparation of the feasibility study for the project. The investment proposal presented in the initial feasibility study for this project (dated April 1998), included investments for road infrastructure, public transport, and traffic management. After the Bank expressed concern that the proposal over-emphasized road infrastructure investment and the purchase of high-tech equipment (for both bus operations and traffic management), Shijiazhuang modified the proposal to achieve a balance of investments and policy actions. In particular, two new components were added for the control of motor vehicle pollution and road maintenance. In addition, more attention was given to public transport priority, traffic management, bicycles and pedestrians. The city's transport development strategy is summarized in a Traffic Circulation Plan which was prepared at the same time as the latest feasibility study. This document provided a solid foundation for the planning and design of this project. Some background material and elements of the Plan are described below. The city of Shijiazhuang. The Shijiazhuang (SJZ) Municipality is the capital of Hebei Province. The municipality consists of the city and 17 suburban counties, with a total population of over 8.6 million. It is expected to grow to 9.6 million by 2010. The city has a population of 1.5 million (including floating population) which is expected to grow to 1.9 million by 2010 and is located at the junction of two major railways and two major highway. Around this transport hub, the city has developed into an important industrial and commercial center with many manufacturing industries and wholesale businesses. Between 1993-98, the municipality's real per capita GDP grew at 9 percent per year and is expected to continue to grow rapidly. Land use distribution. The built-up area is divided into four sections by two intersecting national railways. The first is the main line between Beijing and Guangzhou, which passes through the city in a north-south direction (within the first ring road) and divides the city center into two parts. The second railway is the main line between Taiyuan, Shijiazhuang, and Dezhou, which runs east-west between the first and second ring roads to the north of the city center. The major industrial areas are located in both northern and southern parts of the city, while residential and commercial land uses occupy much of the central area, which is expanding towards both the east and west. In addition, six (suburban) districts are developing along radial highways outside the central core. Land use and transport plans. The current master plan was formulated in 1991 and modified recently to accommodate changes in urban land use distribution. The road network incorporated in the plan includes three concentric ring roads, an arrangement which is very common in China. The city's first comprehensive - 5 -  urban transport study was completed in 1991, along with the formulation of the urban master plan. In 1996, the city carried out a transport development strategy, which subsequently became the basis for the identification of the project. Vehicle ownership. Some brief statistics: * There are 72 vehicles/1000 residents, including taxis and motorcycles. * Between 1990 and 1998, the number of registered motor vehicles (excluding motorcycles) increased at 10.3 percent per year within the municipality with higher growth rates for motorcycles. * Vehicle ownership is projected to reach 150 vehicles/1000 residents by 2010, of which approximately 50% are expected to be passenger vehicles. * Despite the rapid growth of motor vehicles, the role of non-motorized transport has not declined; the number of bicycles and tricycles increased at 5.7 percent per year between 1990 and 1998. Travel demand and mode split. Currently, the dominant modes of passenger transport are bicycles and walking. According to the 1998 transport surveys, an average resident makes 3.4 trips per day, this compared to 2.5 trips in 1986. Of all daily person trips, 34 percent are made on foot, 54 percent by bicycle, 6 percent by bus (very low even by Chinese standards), with the balance made by cars, taxis and motorcycles. The travel projections prepared for this study show that the number of person trips generated each day in the city (excluding trips by pedestrians) will increase from 2.9 million in 1998 to 5.4 million in 2010. The proportion of persons using cars, taxis and motorcycles will increase slowly while the percentage of persons using public transport services is expected to increase more rapidly, providing the supply of public transport services increases at an appropriate rate. However, the use of bicycles is expected to decrease as the opportunities to use other motorized modes expand. Road Network. The road network within the central area is a planned grid system with the First and Second Ring Roads imposed on top of the original grid. The First Ring Road is currently not well delineated but is formed by two north-south arterial roads and two east-west arterial roads. This ring is approximately 5 km. wide and 3.5 km. deep. Th Second Ring Road is complete; it is approximately 12 km. wide (east-west) and 8.5 km deep (north to south). The city is linked to other parts of the province by nine radial roads that connect to provincial highways at the outer or Third Ring Road. This project is concerned with the area within the Second Ring Road. Within this ring, there are only four east-west routes compared to 12 north-south routes (six of which have been designated as arterial roads within the city's strategy). The shortage of alternative east-west routes results in congestion, particularly at the railway crossings. The five railway crossings to the north of the city center are also a source of congestion. Other problems include, the lack of a clear functional road hierarchy (due in part to inconsistent standards) and the fact that there are a number of important "missing links" within the secondary road network. This omission forces traffic to use primary roads when, functionally, it should have stayed on the secondary roads. Finally, the development of the road network has failed to keep pace with the demands created by new land use developments, particularly those outside the Second Ring Road. Road congestion and management of the road space. Congestion is concentrated within the "box" created by the First Ring Road, particularly in the vicinity of the Railway Station and at the railway crossings. Average vehicle speeds are estimated to be around 11 km/hr. in this area Roads are poorly managed. The deficiencies include: * Road and junction capacity is limited. Junction layouts are poor with no channelization, and only limited measures to manage conflicts. There is also inadequate control over parking. In sum, - 6 -  traffic management is generally limited to enforcement by the traffic police and the traffic signals, installed at 54 intersections. However, recently, the traffic police have been experimenting with new junction layouts and control arrangements. * Facilities for bicycles are inadequate putting their riders at risk. Bicycles are the dominant mode of transportation within the city. Over time it is to be expected that usage will decrease as public transport services improve even though they will remain a very important mode of mechanized transport, for the foreseeable future. However, bicycle users are too often at risk and the network of segregated bicycle lanes is fragmented. Further, while roadway rights of way are wider than average in the city, the specific arrangements for the large flows of bicycles are inadequate, particularly at junctions. * Faciliffes for pedestrians are often inadequate. Most existing roads have adjacent pedestrian sidewalks. However, road crossings both between and at junctions are inadequate. At junctions, pedestrian facilities are designed to control flows rather than improve pedestrian convenience. Vehicle parking on sidewalks is also a common problem. * Roads are poorly maintained. Visual inspection confirms that road maintenance is inadequate. Commonly observed failures include: cracking, settlement of asphalt concrete pavement structures, bleeding, raveling and potholes. The main factors contributing to this situation include lack of equipment, poor maintenance management and the under-funding of maintenance activities. To address these concerns the city's transport strategy is designed to: 3 Reinforce the existing road network including strengthening the First Ring Road (to reflect its functional importance), the expansion of the capacity of the east-west road capacity within the Second Ring Road (especially the expansion of the rail crossings), and the "completion of missing links" (in particular, the completion of the six north-south arterial roads within the Second Ring Road). * Manage existing road space more effectively and efficiently including the provision of additional facilities for bicycles and other NMVs and improved facilities for pedestrians particularly at junctions and crossings of major roads. * Strengthen the road maintenance organization and provide additional funding. * Control vehicular emissions through improved inspection and maintenance of vehicles. Public Transport Provision. Public transport services are provided by the Shijiazhuang Public Transport Company (SPTC). It currently employs 5200 operating staff, and operates 1140 buses on 63 fixed routes in the urban, suburban and outlying areas. In addition, the city has issued licenses to 86 individually owned and operated minibuses. Between 1987-97, annual ridership declined from 152 million to 136 million passenger trips, despite an increase in operating kilometers from 17 million to 36 million. The proportion of small buses within the operating fleet has grown in recent years from 50% in 1994 to 66% in 2000. Until this year, the smaller buses were allowed to charge a higher fare and were more profitable. Compared with many cities in China, the volume of bus services, the number and proportion of persons using public transport are all low. Further, the management of the bus company reflects the needs of a planned economy. Market based management practices are lacking. To support the city's strategy for the development of public transport the project will: * Finance the provision of additional facilities to improve the quality, quantity and efficiency of -7-  public transport services in the city. * Promote the implementation of reforms to separate more clearly the roles of government, as the regulator, and the bus company as the operator of the services. * Promote changes in the structure of the bus company designed to promote efficiency and market responsiveness. Institutions. Unusually for China the relevant municipal agencies report to a single Vice-Mayor. However, the authority of the agencies is still fragmented with the Urban Construction Commission being responsible for construction, the traffic police for traffic management, the Shijiazhuang Public Transport Company for bus operation, and the Environmental Bureau for all environmental matters. The Shijiazhuang Maintenance Department, part of the Urban Construction Commission, performs maintenance on all city roads, except the Second Ring Road, which is maintained by a separate Department. To address these deficiencies the city agreed, at the beginning of the project preparation process, to establish a Leading Group to coordinate the preparation of the project and urban transport activities within the city. In addition the project will finance technical assistance and training to strengthen the municipal agencies who assist with the provision and management of urban transport infrastructure and services. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project will finance a critical subset of the investments included in the municipality's transport development strategy. These include, strengthening of the urban road network, introduction of modem traffic management facilities , provision of additional public transport facilities, the provision of additional resources for road maintenance, measures to control vehicle emissions, and technical assistance and training to strengthen the urban transport institutions in the city. A. Road infrastructure. This component will result in the stronger delineation of the First Ring Road, increased capacity of the rail crossings and complete "missing links" in the basic grid of arterial streets. It includes three major elements: road works (25.15 km), railway overpasses and underpasses (4.9 5 kim), and road bridges and interchanges (2.82 kin). B. Traffic management. This component will specifically finance 2.0 kilometers of bikeway in addition to the 33.0 kilometers of segregated bicycle lanes which will be financed as part of the infrastructure component. The project will also finance the channelization of 130 junctions, 8 pedestrian overpasses, a pilot bus priority scheme and an Area Traffic Control System (computer coordinated traffic lights), plus a number of smaller traffic engineering and road safety works and activities, and equipment. C. Public transport. This component will rationalize the layout of the bus station adjacent to the central Railway Station. It will also finance the construction of two bus depots, five suburban bus terminals, bus stop improvements and the procurement of a management information system. D. Road maintenance. This component will finance the introduction of modem planning tools and procedures, and the procurement of key pieces of equipment. Project indicators require an increase in the road maintenance budget. -8 -  E. Control of vehicle emissions. The component will support the implementation of a vehicle emissions control program and improved air-quality monitoring. F. Institutional development and technical assistance. This component will strengthen existing institutions and enhance the skills of staff working in these agencies. Indaive SBan-k- % of Component Sector Cosft % of finawcn Sank- _U3$M) TOL f in Road Infrastructure 204.50 71.5 66.10 66.1 Traffic Management 29.80 10.4 15.70 15.7 Public Transport 12.20 4.3 5.30 5.3 Road Maintenance 15.40 5.4 8.70 8.7 Control of Vehicle Emissions 2.40 0.8 1.00 1.0 Institutional Development 3.50 1.2 2.20 2.2 Total Project Costs 267.80 93.6 99.00 99.0 Interest during construction 17.40 6.1 0.00 0.0 Front-end fee 1.00 0.3 1.00 1.0 Total Financing Required 286.20 100.0 100.00 100.0 2. Key policy and institutional reforms supported by the project: The project will: Strengthen the coordination of transport sector programs and operations. The establishmnent of the Leading Group for the management of this project was an important first step in ensuring that all the relevant agencies in the city were involved in the planning and management of urban transport services and facilities in the city. Promote better management of the available road space. The project will support the introduction of the technical skills necessary to implement modem traffic management techniques in the city, including the implementation and operation of a computerized Area Traffic Control system. Promote more effective management of the public transport system. The project will support some initial changes in the regulatory structure of the city's public transport system and strengthen management of the city's public transport operations during a period of growth. Promote more effective management of road maintenance. The project will strengthen the road maintenance management agency through the introduction of a maintenance planning system and increases in the size of the road maintenance budget. Develop the ability to manage and control motor vehicle emissions. The project will support the city's environmental objectives. Specifically it will assist with the implementation of an emissions control program which has been developed by the city. -9-  3. Benefits and target population: With network-wide improvements and the provision of improved facilities for buses, bicycles and pedestrians, the project is designed to benefit all users of the urban transport system. Major benefits will include: (1) reduced travel time; (2) reduced vehicle operating costs; (3) improved road safety; (4) reduced auto emissions; and (5) improved management of the urban transport system. The benefits by sub-objective, are as follows: Objective Actions Direct Benefit Secondary Benefit Develop a stronger * Selected new road *Travel time and vehicle *The regional and local and more efficient investments principally to operating cost benefits will business community will urban road network increase the capacity of the be realized by the users of benefit from improved east-west routes across the both freight and passenger access for both employees railway and to complete vehicles and clients "missing links". * Preventing or reducing the severity of accidents Improve the overall *Planning and *The implementation of *Efficient use of existing efficiency and safety implementation of a more coherent bicycle and infrastructure defers the of the road system for coherent network of bicycle pedestrian networks will need for new road all modes of and pedestrian routes allow for more comfortable investment transport while *Introduction of modern and safer travel *Well managed road space preserving the traffic engineering *Improved traffic contributes to "livability" of benefits of the bicycle techniques and equipment management increases the the city effective capacity of roads. Develop stronger and *Development of a coherent * Improved maintenance will *Better quality public more effective public bus development plan for reduce vehicle operating transport services will transport services the city costs increase the attractiveness *Investments to improve the * Improved bus facilities will and "livability" dif city effectiveness and efficiency result in improved bus of bus operations services. Improve the quality *Development of a road *Better quality road surfaces *Improved road and efficiency of road maintenance planning will reduce the operating maintenance reduces the maintenance system costs for all vehicles need for capital activities in the city *Increases in the road expenditures _______ maintenance budgets. Environmental *Develop local monitoring *Health benefits from the *Increased local knowledge protection and and analysis capacity. reduction of emissions of and capabilities in improvement *Support the implementation emissions. control and of a motor vehicle management will improve emissions control program sectoral decision making Strengthen local *Strengthen local planning, *Improved quality of *Increased local knowledge institutional capacity design, implementation, transport services through of and capabilities in and integration management and better resource transportation planning within urban maintenance management and will lead to improved transport sector coordination decision-making - 10 -  4. Institutional and implementation arrangements: Shijiazhuang Municipal Government will sign the Project Agreement with the World Bank. It will also be responsible for project implementation, the provision of counterpart funds, loan repayments to Central Government, and ensuring compliance with World Bank policies. The estimated completion date of the project is June 30, 2006, with a project closing date of December 31, 2006. The municipality, in consultation with the province of Hebei, has put in place the institutional framework, described below, to prepare and implement the project. Leading Groups. Two Project Leading Groups, one at the provincial level (for general coordination) and the other at the municipal level, have been established to provide overall guidance during both project preparation and implementation. The municipal group, chaired by a Vice-Mayor, has been very active during project preparation and has provided strong support and guidance. It is expected that the same group will be equally, if not more, active during the implementation phase of the project. Project Office. A municipal Project Office (SUTPO) has been established to manage both project preparation and implementation activities. Within the SUTPO, there is a permanent project team comprising technical staff from all the governnent agencies which have an interest in the project. This group is being strengthened in readiness for project preparation. Project implementation agencies. Responsibility for implementation of the individual components will be as follows: Component Responsible Agency Road Infrastructure Shijiazhuang Construction Commission Traffic Management Traffic Police Public Transport Shijiazhuang Public Transport Company Emission Control Shijiazhuang Environmental Monitoring Center Road Maintenance Road Maintenance Department Institutional Developmentl Shijiazhuang Urban Transport Project Office and Technical Assistance Each of these agencies has been actively involved during project preparation. Specific project management activities * Procurement. Procurement activities will be managed by the procurement division of the Shijiazhuang Urban Transport Project Management Office. It will be advised by a Procurement Agency on the commercial aspects of the bidding and award processes. * Financial management. The Shijiazhuang Urban Transport Project Management Office (SUTPO) will be responsible for all aspects of financial management of the project. * Environment. Shijiazhuang Environment Monitoring Center will be responsible for the management of environmental matters during project implementation. An independent agency has been selected as the environmental monitoring agency. * Resettlement. The resettlement division of SUTPO, together with the resettlement office of the Municipal Construction Investment Management Office and the District Resettlement Offices, will - 11 -  have full responsibility for the implementation of the resettlement activities. An independent agency has been hired to monitor these activities. * Construction supervision. Construction supervision will be handled by a joint local and intemational team. The local team has been selected. The intemational team will be selected by competitive tender. Project Implementation Plan. The SUTPO and all the other implementing agencies have worked together to prepare the Project Implementation Plan (PIP). The PIP will guide the implementation of the project and will be updated from time to time. Progress Reporting and Planning. SUTPO will be responsible for preparing quarterly and annual progress reports and annual implementation programs. The quarterly reports will focus on physical and financial progress, outline implementation problems for all components, and suggest corrective actions. The Annual Progress Report will be used to review the progress achieved in the preceding year, update the PIP, and set-out the implementation program for the following year. Half way through the implementation period, there will be a Mid-term Review which will consider if any major changes are required in the project structure. Finance and On-lending arrangements. The Ministry of Finance will on-lend the World Bank funds to the Hebei Province (through the Finance Bureau), who will in turn on-lend them to Shijiazhuang Municipal Government. The loan type will be a LIBOR-based floating rate Single Currency US Dollar Loan (VSCL). On-lending terms from MOF to the Province and from the Province to the city will be identical to the World Bank's lending rate to MOF. The 1% Front End Fee will be paid out of the loan. World Bank Supervision arrangements. The project has been prepared by a team based in both Beijing and Washington, and led from Beijing. The same team will supervise the project including the specialist supervision of the financial management systems, procurement activities, disbursement, and the implementation of resettlement and environmental plans. Specifically, the supervision plan includes the following: a project launch workshop; two formal supervision missions every year, including an annual review mission. A Mid-term Review of the project is scheduled for the second half of 2003. D. Project Rationale 1. Project alternatives considered and reasons for rejection: For each of the four major investment components, alternatives were considered, as described below: Road network. Within the context of the city's Master Plan, alternative investment plans were evaluated to reinforce the role of the Inner Ring Road, to address transport bottlenecks at railway crossings, to improve road connectivity between the city center and outer areas. In addition, for each of the major investment items, alternative functional designs were evaluated to ensure that the most economic design was chosen. Traffic management. A major objective is to create more coherent networks for both bicycles and pedestrians. Hence, options were developed for managing the road space which included alternative definitions of the cycle network, and studies of the desirable degree of segregation for the pedestrian network. In addition, the study team studied alternatives to deterrmine the most appropriate size and function of the proposed Area Traffic Control system (computerized traffic signal control). - 12-  Public transport. One of the city's objectives is to increase public transport ridership. Within this policy context, the city examined alternatives for improving both the quality and quantity of the bus services in the city, including the possibility of allowing the private sector to operate a greater proportion of the services. However, given the current moderate level of subsidy, it has little incentive to introduce radical reforms. The project will support a number of incremental changes designed to make the provision of the city's bus services more effective, improve service levels, and make them more responsive to the demands of their users. Road maintenance. Options for strengthening the road maintenance operations within the city were examined, including the future contracting out of some activities. However, it was agreed that the pre-requisites for change must be the introduction of a modem planning system and the provision of a maintenance budget of a more appropriate size. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Str Issue Profect (PSR) Ratings (Bank-flnanced projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Lack of commitment to traffic Shanghai Metropolitan S S management with too much emphasis Transport Project I (complete) on road construction Fragmented transport responsibilities Shanghai Metropolitan S S Transport Project II (complete) Liaoning Urban Transport Project (ongoing) Importance of developing multi-agency Guangzhou City Center S S imnplementation teams Transport Project (ongoing) Changes in underlying development Liaoning Urban Transport S S strategy during construction Project (ongoing) Other development agencies IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: Useful lessons can be drawn from the experience of the five ongoing Bank urban transport projects in China-Shanghai (two projects), Guangzhou, Liaoning and Urumqi. These can be sununarized as follows: The need for more than roads. At the beginning of the project preparation process for each of these projects, there was limited recognition that the solution to the city's urban transport problems must be multi-faceted. It was poorly understood that the preferred solution will include not only the provision of new roads but also improved management of the existing road space, the provision of more facilities for pedestrians and bicycles, improved public transport services, improved road maintenance and financing, measures to limit vehicle emissions, and last but not least, measures to strengthen relevant institutions and the way they work together. - 13 -  Need for participation by all interested agencies. The Chinese experience is no different to the Bank's experience in every other country. One of the keys to developing a sustainable project is ensuring the active participation and ownership from all institutions who have some responsibility for parts of the urban transport system. Furthermore, all our past projects have demonstrated how important it is for our municipal clients to be fully involved with the design of all components. It is too easy for them to rely on both their international and local consultants and for the essential transfer of knowledge and ownership not to occur. Pace of reform is determined locally. The World Bank has found that it can only assist with the formulation and implementation of reform. What happens on the ground is determiined locally. Neither the wholesale privatization of companies, nor cost based competitive tendering for service supply, are politically acceptable at the present time in China. There is some on-going experimentation in many cities but the provision of public transport is still largely a public sector activity. Within China, we have found that it is most effective if the Bank's support is designed to make this public sector activity more efficient through the separation of regulatory/service planning functions, the commercialization and corporatization of operating SOE companies, the development of the regulatory agencies in government, and facilitating private sector participation to the extent possible. Strong support is required to develop the designs for the traffic management components. The traffic engineering groups in each of these cities had limited knowledge of advanced traffic engineering techniques. However, the inclusion of an Area Traffic Control system can be used as an incentive to encourage the Traffic Police to take a broader view of the importance of traffic management. Need for solid project implementation arrangements. Urban transport projects in China present a particular challenge, the need to assure close inter-agency cooperation during both implementation and preparation. 4. Indications of borrower commitment and ownership: The provincial and municipal Leading Groups were established early in the project preparation process. Strong teams of local consultants were also appointed at an early date. It is evident from the volume and quality of the preparation work that both the provincial and city accord very high priority to this project. Following the August 1998 Bank project identification mission, the Shijiazhuang Municipal Government appropriated 12.2 million RMB to update the transport database, revise the SUTP Feasibility Study and prepare the Project Implementation Plan. Enthusiasm for implementation is also high with major works planned for 2001 and 2002. There is very strong local ownership of this project and project preparation activities have proceeded very smoothly. As project preparation has advanced, the staffing of the project office (SUTPO) has gradually been strengthened to cope with the additional work load and the challenges of implementing the project. In addition, local supervision teams have been appointed, procurement activities for this year's works are well advanced and one retroactively financed NCB contract has been awarded. 5. Value added of Bank support in this project: The Bank's value added to the project is provided in the form of its technical and policy advice which is based on best practice both in China and internationally. As this project has been prepared, the Bank has been able to assist the city with the development of appropriate policies and practices which benefit all modes of transport. In particular, the Bank helped identify practical options to reverse the declines of public transport services and ridership and for managing road space more effectively, for all modes of - 14-  transport. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): * Cost benefit NPV=US$390 million; ERR = 29 % (see Annex 4) O Cost effectiveness 0 Other (specify) A cost-benefit analysis was used to evaluate the components that were expected to contribute to the improvement of transport network performance. The quantified network benefits included savings in personal travel time and vehicle operating costs, and overall reductions in traffic accidents and motor vehicle emissions. These benefits represent the majority of the total project benefits, and were estimated through a network-based travel demand model. The model was calibrated using data from a city-wide travel origin and destination survey and traffic counts at various locations, and was capable of simulating network traffic performance under scenarios with and without the project. The ERR was calculated based on savings in personal travel time and vehicle operating costs against the total project costs. Under the most likely traffic growth scenario the ERR is 29%. Sensitivity tests were performed using alternative traffic growth rates, likely cost overruns, likely benefit reductions, or a combination of all of these. The test results suggest that the project economic viability is robust. Moreover, the project benefit distribution among users of different modes was assessed, and used as a rough indication of benefit distribution among different income groups. The results show that all modes will benefit from the project. While bicycle and public transport trips will enjoy only 22% of the traffic performance benefits, they are expected to enjoy the majority of the traffic safety benefits. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Fiscal Impact: The project analyses focused on two issues, the availability of counterpart funds, and the financial health of the public transport company. Municipal Finance. In order to assess the ability of the municipality to provide the necessary counterpart funds, total municipal revenues and expenditures, and urban construction revenues and expenditures have been reviewed in detail. The analysis indicates that the project is affordable. As a proportion of total municipal revenues, the project counterpart funding requirement varies between 5% and 8%. As a proportion of the revenues that are normally earmarked for infrastructure capital investment, the proportion of funds used by the project varies between 34% and 53%. Hence, the counterpart funding requirements, including interest during construction and commitment fee, is well within generally accepted limits of affordability for the municipality. Public Transport. The financial information for Shijiazhuang Public Transport Company (SPTC) has been reviewed in some detail. This has provided the Bank with a good basis for understanding the current financing situation of the company. The company receives an operating subsidy of about RMB 12 million ($1.5 million) each year from the municipality and a capital subsidy of RMB 9 million ($ 1.1 million). The municipality has advised the Bank that it wishes to gradually reduce subsidies and, specifically, proposes to eliminate the capital subsidy in 2002. Further details are provided in Annex 5. - 15 -  3. Technical: A thorough technical review of each component was carried out by the task team including an assessment of the overall coherence of the proposals. Particular attention was given to the evaluation of the traffic management, public transport management, and road maintenance management components which are less familiar to our client. The review included the evaluation of the functional design for each individual road scheme, including a review of altematives. Finally, the city's own vehicle emission control plan was evaluated by the Bank's appraisal team and found to be satisfactory. 4. Institutional: The client is the Municipality of Shijiazhuang and agencies of this municipality will be responsible for implementation of all project components 4.1 Executing agencies: The Shijiazhuang Urban Transport Project Office (SUTPO) will have overall responsibility for the implementation of the project. Past experience of working in cities in China suggests that most project offices have the necessary skills to ensure the satisfactory physical implementation of the project. Experience during project preparation indicates that the project office in Shijiazhuang is also likely to have the necessary capacity. 4.2 Project management: Individual components will be implemented by the responsible municipal agencies, as summarized in Section C.4. Each agency will establish a sub-project office. The project team is satisfied that these agencies will have the necessary technical skills to implement each of the components. 4.3 Procurement issues: All procurement activities will be managed by the Procurement Division of SUTPO. A procurement assessment was undertaken by the Bank to determine its capability for this task. Further details are given in Annex 6. It was concluded that the proposed arrangements for managing the procurement function were appropriate and the risk of problems developing was assessed as average. The division has been staffed appropriately for this function. Additional procurement staff have been recruited by the project implementation units located in the municipal agencies responsible for the implementation of individual components. Also, additional training programs will be provided by the SUTPO so as to ensure that all relevant staff are fully conversant with the Bank's guidelines and procedures. Retroactive-financing will be provided to finance some civil works in the amount of $6 million. This is limited to a single contract procured using NCB procedures, plus some consultant services and training. 4.4 Financial management issues: A financial management assessment was carried out by the Bank to determine the capability of the relevant agencies to carry out the financial management arrangements as required by OP/BP 10.02. Certain elements of the required systems were not in place at the time of the assessment. Annex 13 more fully describes the financial management arrangements and outlines the major actions that have been taken for this project to meet the minimum requirements for financial management. The SUTPO will be responsible for the financial management of this project, including accounting, internal controls and project reporting. The project will use "Construction Accounting Standards" . In terms of - 16-  disbursement, the project will be producing project financial management reports in line with format and content agreed to between the Bank and government. Traditional disbursement techniques will be used as opposed to the PMR-based disbursement. The project will produce project financial statements on a semi-annual basis, including Balance Sheet, Summary of Sources and Uses of Funds by Project Component, Statement of Implementation of Loan Agreement, and Statement of Special Account. The project will use reports of the standard formats agreed to between the Bank and the MOF. In line with other Bank-funded projects in China, the project will be audited in accordance with Government Auditing Standards of the People's Republic of China. The Foreign Investment Audit Bureau of the China National Audit Office (CNAO) would have the overall responsibility for auditing the project accounts. Shijiazhuang Audit Bureau will be authorized by the CNAO as the auditors for this project. Auditors' reports will be submitted to the Bank within six months after the end of each reporting year, with a separate opinion on the statement of expenditures and special account. 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. The project complies with the requirements of O.P. 4.01. The project is classified 'A' since it involves involuntary resettlement, major road construction (partly on new alignments) and increased air pollution and noise, particularly adjacent to the new road structures. A comprehensive environmental assessment has been carried out by the Shijiazhuang Environmental Protection Research Institute and China No. 4 Nuclear Industrial Research & Design Institute in accordance with the policies and procedures of China and the Bank (see Annex 1 1). As the environmental documents were prepared, there were two stages of public consultation and information disclosure. Also, the reports were reviewed and commented upon by the Bank. The revised reports meet the Bank's requirements. The important potential impacts relate to the proposed road construction, partly on new alignment, and increased air pollution and noise caused by the increased volume of traffic using the enlarged road system. Also, significant impacts will occur during construction, including excavation, dust, noise, spoil disposal, and the disruption of urban services. On the positive side, the more optimum transport network will lead to savings in personal travel time, vehicle operating costs, reduction in traffic accidents and the overall level of motor vehicle emissions. Environmental institutions will be strengthened through environmental monitoring equipment upgrading, staff training, vehicle emission control strategy study and setting up a vehicle emission inspection and maintenance (T/M) system. 5.2 What are the main features of the EMP and are they adequate? This plan specifies the appropriate mitigation measures, environmental monitoring plans, institutional arrangements, training and equipment requirements, and cost estimate of implementing the mitigation measures. The proposed mitigation measures include: Design phase. Mitigation measures included in the project designs include additional facilities for pedestrians to reduce severance between and within communities, double glazing and air conditioners to mitigate noise impacts at sensitive sites, and greening along the proposed project roads. Project designs have been reviewed to ensure the careful positioning of facilities with appropriate landscaping - 17 -  and buffer zones to control noise and to mitigate the impact of increased vehicle emissions adjacent to the new roads and to reduce severance. Construction phase. During construction, measures will be introduced to limit noise, dust and other impacts of construction. Full time environmental protection staff will be appointed at each construction site. If construction at night is unavoidable, then the contractors will be required to give advance notice to all affected residents, and to undertake additional monitoring and mitigation measures. Operational phase. The project also includes a component for the development of a vehicle emissions control program. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: January 23rd, 2001. The detailed EA report and a summary EA report have been received and found to be satisfactory. Early final drafts of these documents also have been available to the public in Shijiazhuang, in Chinese, since December 1999. Later drafts of the reports were sent to the Bank's Public Information Center (PIC) in November 2000 and copies are held in the project files. Final reports (incorporating minor changes) were received on January 23rd 2001 and these too have been disclosed at the PIC. 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 environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Public and stakeholder consultations were carried out in two stages: firstly between August and October 1998 and secondly between September 1999 and April 2000. Local communities were consulted through (1) meetings with neighborhood committee, representatives of local district government, and deputies of the local People's Congress; (2) questions and answer sessions using a telephone hot-line; and (3) public opinion questionnaires supplemented by interviews. The availability of the draft EA report was announced in newspapers and on radio and the public was invited to comment on the reports by telephone or by visits to the Project Office and to the EA team. Evening and weekend public meetings were held in four different locations in the project areas to inform the public of the modifications made in the design, as a result of the first round of consultation, and to solicit further comments. The major concerns from the public were resettlement related issues, noise, tree cutting, and air pollution during the construction phase. Details of the public consultation process are presented in Section 6 of Annex 11. 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? A five-year contract has been signed with Shijiazhuang Environmental Monitoring Center to monitor the environmental impacts of the project both during construction and after the project is operational. Appropriate monitoring indicators have been chosen to measure air quality and noise impacts during construction and operation. - 18 -  6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The project requires 1,592 mu (106 hectares) of land of which 63% are State-owned land and 37% are collectively owned land. The project will further require 1,315 households, 158 shops, 62 enterprises and 27 non-profit institutes to move out of the project area. In total, 6366 people will be affected. RMB493 million, 21% of the total project cost, will be paid for compensation and rehabilitation. The Project Office undertook baseline social analyses and resettlement planning studies to show how incomes and living standards will be improved, or at least restored, for all persons adversely affected by the project. Annex 12 reviews adverse impacts related to land acquisition or changes in land use for the Project, and summarizes the measures included in the Resettlement Action Plan (RAP) for mitigating them. Related public consultation and disclosure activities are also summarized in the same Annex. The project authorities also undertook a social assessment during project preparation. The stakeholders' attitude towards the project was investigated. It showed that there was strong support for the project. It also collected suggestions from people, of all walks of life, about how to minimize the adverse impacts of the project. 6.2 Participatory Approach: How are key stakeholders participating in the project? Neighborhood groups were consulted about the impact of the proposals. Neighborhood meetings were held between September 1999 and April 2000, and newspaper announcements were placed in a local newspaper, "Yanzhao City News." 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? Not Applicable 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? Resettlement activities will be managed by the resettlement office established in the SUTPO. 6.5 How will the project monitor performance in terms of social development outcomes? Resettlement outcomes will be monitored by the National Research Center for Resettlement. Reports will be submitted to the SUTPO and the Bank every year. These will examine whether implementation is in compliance with the RAP and will also evaluate the adequacy of resettlement measures in restoring incomes and living standards. - 19-  7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 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 0 No Pest Management (OP 4.09) 0 Yes * No Cultural Property (OPN 11.03) 0 Yes 0 No Indigenous Peoples (OD 4.20) 0 Yes * No Involuntary Resettlement (OD 4.30) 0 Yes 0 No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The resettlement and environmental monitoring arrangements proposed by the Project Office are considered appropriate by the Bank. However, specialist Bank staff will supervise these activities at least twice a year during the first three years of the project and once a year thereafter. F. Sustainability and Risks 1. Sustainability: The sustainability of the physical assets is very likely. However, there is a risk that some of the policy prescriptions will not be followed in the medium to long term. The risks have been mitigated by very close cooperation between the Bank and the Municipality during preparation, the extensive use of local consultants during preparation, who had a thorough knowledge of Chinese practice, coupled with application of the solutions which have been well tested around the world. Overall, the sustainability of the benefits is more likely given the following: 3 A Leading Group has been established to coordinate the development and management of urban transport facilities and services in Shijiazhuang. 3 The city government recognizes the need to improve management of the available road space, and the enforcement of traffic regulation. These have been a major foci during project preparation. * The municipality is very keen to raise the modal share of the buses. It also recognizes the importance of revising the current regulatory framework for public transport and strengthening the management of bus company operations. * Through the project, budgets for road maintenance need will be set at levels which are adequate to maintain existing assets, while strengthening the ability of the municipal agencies to undertake this task. * There is broad recognition, within government, that the city has a serious air pollution problem. Consequently, the government is well aware of the importance of controlling vehicle emissions and enforcing the relevant regulations. * The government has agreed to use project funds to finance a series of formal training courses, study tours and other forms of technical assistance. - 20 -  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 Adequate priority continues to be given to N The high importance given to this project by the the provision of transport infrastructure municipal government suggests this is not and services. significant risk. The municipality will not implement some M Close cooperation between the Municipality and of the agreed policy prescriptions and the Bank during project preparation plus enforce regulations. attentive Bank supervision. The municipality will not coordinate M The creation of appropriate institutional transport planning and operations arrangements was a condition of the Bank's effectively. involvement. Roads. Road maintenance continues to be M The project strengthens institutions and budgets. given adequate priority. Traffic Management. The municipality M The project provides new technology, training continues to manage road space and strengthens institutions. appropriately Public Transport. Services must be M The strong commitment of the client to allowed to develop within an appropriate increasing public transport usage and the policy framework. development of their own reforn program. Emission Controls. That the municipality M China is putting great emphasis on improving will not implement their proposed air quality in cities. program. Institutional Strengthening. That the M This is risk has been extensively discussed agreed institutional arrangements for during preparation and the project team believes managing traffic in the city will not be that the current arrangements are adequate. This maintained. is risk has been extensively discussed during preparation and the project team believes that the current arrangements are adequate. From Components to Outputs The Project Office and the associated N The implementation arrangements were agreed municipal agencies will not have the prior to appraisal and the same institutions have ability or resources to implement the proved effective during preparation. project effectively. The implementation of the agreed policy M This possibility cannot be ruled out but the commitments will falter. extensive exchanges during project preparation do make this less likely. Overall Risk Rating M Sound preparation and the development of appropriate institutions. Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) - 21 -  3. Possible Controversial Aspects: This is a non-controversial project for China, and is similar to many others financed by both the Bank and domestic sources. G. Main Loan Conditions 1. Effectiveness Conditions Standard conditions of effectiveness 2. Other [classify according to covenant types used in the Legal Agreements.] Board conditions NONE Covenants on Implementation (i) Throughout the period of implementation, Shijiazhuang shall maintain a Municipal Project Leading Group. (ii) Throughout the period of implementation, Shijiazhuang shall employ a team of construction supervision experts; (iii) Shijiazhuang shall implement the EAP and RAP agreed with the Bank. Dated covenants Bus Priority Facilities along Zhongshan Road. Implementation of the bus priority facility along Zhongshan Road (09/30/2002). Public Transport. (i) Provide Bank with draft proposals for the separation of the regulatory and operating responsibilities of SPTC (06/30/2002). (ii) Provide Bank with draft regulatory framework for bus franchising (06/30/2002). Traffic Management. (i) Implementation of the first phase of the traffic management works (defined during appraisal) (09/30/2002). (ii) To establish an organization for managing the Area Traffic Control System, of a form and structure agreed with the Bank (12/31/2002). Completion of the following studies as defined in the TORs reviewed by the Bank: (i) Design studies for the proposed Area Traffic Control Scheme, including proposed institutional arrangements for implementing and managing the system (09/30/2001). (ii) Study of parking management and control in the city center (12/31/2002). (iii) Studies for this pilot bus priority facility along Zhongshan Road (12/31/2001). (iv) Road safety studies (06/30/2003). (v) Road Maintenance Studies (6/30/2002). (vi) Bus Route Development and Priority Study (06/30/2003). - 22 -  Monitoring and Reporting As from April 30th 2001, Shijiazhuang shall prepare quarterly reports (using the format agreed at negotiations), and furnish them to the Bank not later than April 30, July 31, October 31, January 31 each year to: (i) establish the physical progress of each component and sub-component (including traffic management during construction) including all Technical Assistance activities; (ii) list expenditures by component and sub-component and to discuss the availability of counterpart funds; (iii) summarize environmental and resettlement monitoring and evaluation activities (including monitoring by the independent entities); and (iv) review all other current issues which will have an impact on the successful completion of the project. After furnishing each such report, the Municipality shall review it with the Bank and take all measures required to ensure the efficient completion of the Project, based on the recommendations of the report and the Bank's views. Annual Review Shijiazhuang shall prepare annual reports not later than January 31 each year, beginning in 2002. This report will: (i) evaluate physical and financial progress with a comparison against the plans agreed during the preceding year; (ii) set out the construction program for the next year; (iii) set out the Technical Assistance program for the next year; (iv) update the road maintenance plan, including the annual budget; (v) update the 5 year Plan for Bus Operations; (vi) provide an analysis of the Performance Indicators. H. Readiness for Implementation X 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. D 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. 1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. C 4. The following items are lacking and are discussed under loan conditions (Section G): Note. The procurement documents for all the larger contracts to be implemented during the first year and have been reviewed by the Bank and procurement processes have been initiated. However, documents for two smaller contracts, included in the first year's program are not yet complete but will be available by April 30th. - 23 -  1. Compliance with Bank Policies Z 1. This project complies with all applicable Bank policies. ED 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Ric . Sc Jitendia N. Bajpai Yukon Huang Team Leader Sector Manager Country Manager -24-  Annex 1: Project Design Summary CHINA: SHIJIAZHUANG URBAN TRANSPORT PROJECT Key Porfon6nmce Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Promote economic growth Measures of Municipal Sound governance and through the relief of Product policies, continue to allow infrastructure bottlenecks the benefits of new infrastructure to reach the poor. Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: OVERALL OBJECTIVE 1. Selected cross-town Annual Review, Mid-term Adequate priority continues To foster the development travel times by mode review and Implementation to be given to the provision of an efficient urban Completion Report of transport infrastructure transport system while and services. providing a wider set of travel options for users. - 25 -  7Hwrarphy of O*2tW.. blilcatQrs Monitoring A Evauation Critical Assumptions Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: A. Develop a stronger and I Cross-town travel times "Before and After" surveys For All Components: more efficient urban road The Municipality adopts the network policy measures and institutional reforms agreed with the Bank and views their implementation as integral to the project's success. B. Improve the overall 1. Mode share at "Before and After" surveys The Municipality continutes efficiency and safety of the screen-lines to manage the use of the road system for all modes of 2. Vehicle delay ratio available road space transport while preserving 3. Length of dedicated through the implementation the benefits of the bicycle bicycle track of appropriate policies and 4. Traffic volumes across the creation of appropriate selected screenlines by institutional structures. mode 5. Incidence and severity of accidents. C. Develop stronger and 1. Total bus ridership Joint annual review of PT Public transport services are more effective public 2. Number of fixed routes operations and supporting allowed to develop within transport services 3. Staff/bus ratio data. "Before and After" an appropriate policy 4. Revenues and surveys for on road service framework which provides a expenditures per bus and improvements sound basis for the per passenger development of public transport services in the city. D. Environmental 1. Number of testing Annual Review, Mid-term That the proposed program protection and improvement stations review and Implementation will be implemented 2. Number of vehicles tested Completion Report E. Improve the quality and 1. Network condition Annual Review, Mid-term The appropriate institutions efficiency of road indicators review and Implementation are sustained and adequate mainternance activities in the 2. Maintenance budget Completion Report maintenance budgets are city 3. Maintenance provided. expenditures F. Strengthen local Adoption of agreed policies, Annual Review, Mid-term Appropriate institutional institutional capacity and plans, training programs, review and Implementation and policy reforms are integration within urban and institutional reforms Completion Report sustained. transport sector -26 -  Key Perfomance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) For all Components: For all components: The PO provides the Bank That the Project Office is with quarterly progress well organized with reports which compare adequate human and planned and actual progress financial resources to for each project component effectively manage the in terms of cost, physical implementation of the and financial progress and project. disbursements. A. Road Network $204.5 million The municipality continues Development to prioritize its infrastructure investments appropriately. B. Bicycles and Traffic $ 29.8 million There must be a genuine Management commitment to assisting all modes of transport. C. Public Transport $ 12.2 million The municipality must accept the need to broaden the basis for the provision of public transport services. D. Environmental $2.4 million There must be a Improvement commitment by the municipality to a policy to control emissions. E. Road Maintenance $15.4 million 1. An appropriate institutional structure must be put in place. 2. A road maintenance planning procedure must be developed. F. Institutional $3.5 million The Municipality must be Development and supportive of all the Technical Assistance activities funded under this component - 27 -  Table A.l. Performance Indicators Objective Indicators Defined As 1998 Mid-2003 End-2006 Responsible A. Develop a stronger Cross-town Joumey a). Heping Road (east to west 15.06 kmi/hr 18 km/hr 25 km/hr Infrastructure and more efficient urban (Travel) Speed Second Ring 12.5km Subproject road network b). Zhonghua Road (Heping to 15.13 km/hr 20 km/hr 25 km/hr Office, South SRR) 5.9km Shijiazhuang c). Tiyu Road (North SRR to 14.9 km/hr 18 km/hr 25 km/hr Public Utility South SRR) 7.6km Bureau d). Shigang Road (North SRR 14.76 km/hr 18 km/hr 30 kn/hr to Heping) 3.1 km B. Improve theoverall 1. Numberof 1. In City Proper 1325 1193 1060 Traffic efficiency and safety of accidents, Management the road system for all - dead persons, 428 385 340 Subproject modes oftransport while - injured persons. 1040 936 832 Office, preserving the benefits of 2. Vehicle delay 2a. Zhonghua Street 43.5% 35.6% 25.7% The City the bicycle ratio (Note: total (Gongnong to Heping) Traffic stop time/total trip 2b. Zhongshan Road 28.4% 28.4% 15.5% Management time) (Zhonghua to Tiyu) Bureau 3. Length of 3. In City Proper 66.2 km 106.42 km 130 km dedicated cycle-ways 4. Mode-split across screen-lines for 4a. Jingguang Rail Line vehicles and bicycle (east-west) (1) PCU/peak hour 17649/hour 24000/hour 27000/hour (2) Bicycle volume 52455/hour 45000/hour 42000/hour 4b. Zhongshan Rd. (north-south) (I) PCU/peak hour 25896/hour 32000/hour 36000/hour (2) Bicycle volume 78399/hour 94400/hour 10500/hour C. Develop stronger and 1. Buses in operation 1. In City 919 1174 1429 Public more effective public 2.Bus ridership Transport transport services 3. Bus occupancy 2. In city Sub-project 4. Staff/Bus ratio 3. In City 70% 72% 75% Office 5. Revenue per bus 4. For buses of SPTC To be To be To be Shijiazhuang 6. Expenses per bus 5. For buses of SPTC determined determined determined Public 6. For buses of SPTC Transport Company D. Improve the quality 1. Increase Road Ia. Percentage for high quality 57.8% 60% 65% Road and efficiency of road Condition of main trunk road Maintenance maintenance activities in lb. Percentage for high quality 46% 50% 60% Subproject the city of second road Office, 2. Increase Road 2a. City Budget (RMB mil) 20.45 21.01 21.13 Shijiazhuang Maintenance (RM) 2b. Required RM (1,000 m2) 315.8 339.1 341.6 Road Budget and 2c, Actual Funds Spend for 8.82 15.85 21.13 Maintenance Expenditure RM (RMB million) Department 2d. Actual Roads Maintained 149.5 265 341.6 (1000 m2) E. Environmental 1. Establish Vehicle 1. In City Proper 0 I 4 Environment protection and Emission Inspection Office, improvement and Monitor Stations Environment 2. Increase Numbers Monitoring of Vehicle Emission 2. In City Proper 0 6000 24000 Center Inspections -28 -  Annex 2: Detailed Project Description CHINA: SHIJIAZHUANG URBAN TRANSPORT PROJECT This project includes components for road infrastructure development, traffic management, public transport, road maintenance, emission control and institutional strengthening. Land acquisition and resettlement costs, plus the recurrent costs for design, construction supervision and management are included in the cost summaries as separate items. By Component: Project Component I - US$204.50 million A. Road Infrastructure Development (RD) This component will strengthen the primary and secondary road networks within the second ring road, as shown on the plan attached to this report. In particular, it will: * result in stronger delineation of the First Ring Road (road works items RD 1. I RD 1.5 RD 1.6 RD 1.9 the construction of interchanges (items RD 3.1 to 3.6 inclusive), construction of railway overpasses and underpasses (item RD 2.1 * completion of other road works to complete "missing links" and widen existing roads, in particular several sections of the six north-south arterial roads within the Second Ring Road (items RD 1.2 RD 1.3 RD 1.4 RD 1.7 RD 1.8 plus railway overpasses and underpasses (items RD 2.4 to RD 2.7 inclusive), * and the increased capacity at the railway crossing (items RD 2.1 to RD 2.7 inclusive). These investments have been grouped into three types of infrastructure investments in the client's Project Implementation Plan, road works, railway overpasses and underpasses, and bridges and interchanges. Each contract will include for road signs and markings, street lighting, surface drainage, greening works, and noise barriers, where required. RD 1 Road Works. This sub-component includes for the construction, upgrading and widening of nine street sections within the second ring road. RD 1. I Zhonghua Street (3.64 kin). In part, this road forms the western leg of the First Ring Road and, together with Shigang Street (its northern extension) is one of the six north-south arterial roads within the Second Ring Road. The widened road section will provide 6-lanes for motor vehicles, with a 6 meter bicycle lanes and 5.5 meter pedestrian sidewalks on either side of the central core. Grade separated interchanges will be provided at the Heping Road/Zhonghua Street (item RD 3.4) and Zhonghua Street/Cangan Road junctions (item RD 3.3 All other junctions will be at grade and signalized. (Contract #: NCB CN/01. 1.) RD 1.2 Jianshe Street (1.27 km). This investment involves the completion of "a missing link" immediately north and within the Second Ring Road. The project is also one of the six north-south arterial roads within the Second Ring Road. The proposed road section will provide 4-lanes for motor vehicles, with 6 meter bicycle lanes and 4 meter sidewalks on either side. All junctions will be at-grade and signalized. (Contract #: NCB CN/02.2) - 29 -  RD 1.3 South Jianhua Street (1.55 kIn). This investment will involve the completion of a "missing link" (immediately north of the Second Ring Road) which forms another of the six north-south arterial roads within the Second Ring Road. The new road will provide for 6-lanes of motorized traffic, with 6 meter bicycle lanes and a 3.75 meter sidewalk on either side. Junctions will be at-grade and signalized. (Contract #: ICB CI/03.1) RD 1.4 North Jianhua Street (2.36 km). This investment involves the construction of second "missing link" (immediately south of the Second Ring Road) within this north-south road (see also item RD 1.3). The road section will provide for 6-lanes of motorized traffic, plus 6 meter bicycle lanes and 4 meter sidewalks on either side. A railway underpass (item RD 2.6) will be built at the Shide (Shijiazhuang to Dezhou) railway and Jianhua street junction. All other junctions will be at-grade and signalized. (Contract #: ICB CI/03.1) RD 1.5 East Huainan Road (4.4 kIn). This road constitutes the part of the southern leg of the First Ring Road, and its eastern extension. Together with Cangan Road and West Huainan Road (item RD 1.6), this constitute the major east-west arterial roads in southern part of the central city. The proposed road section is 6-lanes wide for motor vehicles, with 6 meter bicycle lanes and 4 meter pedestrian side-walks on either side. The junction at East Huainan Road/Tiyu Street will be grade-separated (item RD 3.1). All other junctions will be at-grade and signalized. (Contract #: ICB CIIO 1.2) RD 1.6 West Huainan Road (2.70 kIn). This road forms part of the southern leg of the First Ring Road. It is the westerly extension of the improvements financed by item RD 1.5. This item begins west of Pingan street and ends east of the First Ring Road. The road section will provide for 6-lanes of motorized vehicle, plus 6 meter bicycle lanes, and 6.0 meter pedestrian sidewalks on either side. The junctions at Pingan StreetlWest Huainan Road and West Huainan Road/Jianshe Street will be grade-separated (items RD 3.6 and 3.5). All other junctions will be at-grade and signalized. (Contract #: ICB CI/01.1) RD 1.7 Shigang Street (2.97 kIn). This investment involves the widening of this road between the north leg of the Second Ring Road and the First Ring Road. This street is the northerly extension of Zhonghua Street (item RD 1.1) and is part of the six north-south arterial roads within the Second Ring Road. The proposed road cross section will provide 6-lanes for motor vehicles plus 6 meter bicycle lanes and 4.0 meter pedestrian sidewalks on either side. The junction between Shigang Street and Heping Road will be a grade separated interchange (item RD3.40). A flyover will be provided to cross the Shitai (Shijiazhuang to Taiyuan) railway line (item RD 2.4). All other junctions will be at-grade. (Contract #: ICB CI104. 1) RD 1.8 Northern Tiyu Street (2.64 kIn). This investment involves the widening of the northerly extension of the east leg of the First Ring Road, also one of the six north-south arterial roads within the Second Ring Road. The proposed road section is 4-lane wide for motor vehicles with 6 meter bicycle lanes and 3.75 meter pedestrian sidewalks on either side. The junction at Heping road will be grade-separated (item RD 3.2). There will be an overpass at the Shide (Shijiazhuang to Dezhou) railway (item RD 2.5). All other junctions will be at-grade with signals. (Contract #: ICB CI/04.2) RD 1.9 Southern Tiyu Street (3.62 kIn). This investment involves the widening of the east leg of the First Ring Road and links with the road works financed by item RD 1.8. The proposed cross-section will provide for 6 lanes of motorized traffic, plus 6 meter bicycle lanes and a 3.75 meter pedestrian sidewalks on either side. As noted above, the junction at Heping Road and Huinan Road will be grade-separated (item RD 3. 1). All other junctions will be at-grade and signalized. (Contract #: ICB CI/04.2) - 30 -  RD 2 Railway Overpass and Underpass RD 2.1 Heping Road elevated crossing of the Jingguang (Beijing to Guangzhou) Railway (1.92 Iam). This road constitutes the north leg of the First Ring Road. It crosses the Jingguang railway and passes over Pingan North Street. The width of the flyover will be 25 meter with six lanes of traffic. At-grade facilities will be provided for local traffic, bicycles and pedestrians. (Contract #: ICB CI/05.2) RD 2.2 Cangan Road elevated crossing of the Jingguang Railway (1.07 k1m). This investment involves the construction of a 26 meter wide elevated road for 6-lane of motorized traffic. The existing railway underpass will be retained for use by bicycles and pedestrians. (Contract #: ICB CI/02. 1) RD 2.3 Yuhua Street Railway Underpass (68 meter). The project involves the widening of the current underpass under the Jingguang railway with the construction of an two 8 meter boxes for bicycles and pedestrians on either side of the existing roadway. The existing underpass will be used to provided 6 lanes for motorized traffic. (Contract #: NCB CN/05.3) RD 2.4 Shigang Street Railway Flyover (820 meter). This is an elevated crossing of the Shitai ( Shijiazhuang to Taiyuan) railway as links with item RD 1.7. This flyover will be provide for 4-lanes of motorized traffic with a width of 18.5 m.. The existing underpass will be retained for local traffic, pedestrians and bicycles. (Contract #: ICB CI/04. 1) RD 2.5 Tiyu Street Railway Flyover (1.01 Iam). This is an elevated crossing of the Shide (Shijiazhuang to Dezhou) railway and links with item RD 1.8. This flyover is 18.5 meter wide for 4-lanes of motorized traffic. The existing underpass will be retained for use by local road traffic, pedestrians and bicycles. (Contract #: ICB CI/04.2) RD 2.6 Jianhua Street Railway Underpass (32 meter). This is an underpass of the Shide railway. It will provide for 4-lanes of motorized traffic (two one-way carriageways each 12.75 meters wide), with 8.0 meter boxes on either side for bicycles and pedestrians. (Contract #: ICB CI/03.1) RD 2.7 Heping Road Rail Underpass (25 meter). This will widen an existing underpass of the Shide railway. The cross-section of this widening constructs 8.0 meter box on either side for bicycles and pedestrians. (Contract #: ICB CI/05. 1) RD 3 Interchanges RD 3.1 Huainan Road-Tiyu Street Interchange (506 meter). This will be a two-level interchange Traffic traveling in the north/south direction along Tiyu Street will remain at-grade level, with a simple bridge along Huainan Road to carry east-west traffic. The proposed bridge width is 18.5 meters with 2-lanes of traffic in each direction. Turning vehicles, pedestrians and bicycles will remain at ground level. (Contract #: ICB CI/01.2) RD 3.2 Heping Road-Tiyu Street Interchange (395 meter). This will be a two-level interchange. North-south traffic using Tiyu Street will remain at-grade level, with a simple bridge along Heping Road to carry east-west traffic. Turning vehicles, pedestrians and bicycles will remain at ground level. (Contract #: ICB CI/06.1) RD 3.3 Cangan Road-Zhonghua Street Interchange (486 meter). This will be a two-level interchange. North-south traffic using Zhonghua street will remaining at ground level, with a simple bridge along - 31 -  Cangan Road. The width of the bridge will be 18.5 meter with 2 lanes in each direction for motor vehicles. Turning vehicles, pedestrians and bicycles will remain at ground level. (Contract #: ICB CI/02. 1) RD 3.4 Heping Road-Zhonghua Street Interchange (629 meter). This will be a two-level interchange. North-south traffic using Zhonghua Street will remain at ground level, with a simple bridge along Heping Road to carry east-west traffic. The proposed section is 26 meter wide with 6 lanes for motor vehicles in both direction. Turning vehicles, pedestrians, and bicycles will remain at ground level. (Contract #: ICB CI/05.1) RD 3.5 Huainan Road-Jianshe Street Interchange (400 meter). This will be a two-level interchange. North-south traffic using Jianshe street will remain at ground level with a simple bridge along Huainan Road for four lanes of traffic. The proposed section is 18.5 meter wide with 4 lanes for motor vehicles. Turning vehicles, pedestrians and bicycles will remain at ground level. (Contract #: ICB CI/O 1.1) RD 3.6 Huainan Road-Pingan Street Interchange (406 meter). This will be a two-level interchange. North-south using Pingan Street will remain at ground level with a simple bridge along Huainan Road carrying east-west traffic. The proposed section is 18.5 meter wide with 4 lanes for motor vehicles. Turning vehicles, pedestrians and bicycles will remain at ground level. (Contract #: ICB CI/O 1. 1) Land Acquisition and Resettlement The whole project will require 1,592 mu (106 hectares) of land acquisition of which 1,007 mu or 63% are State-owned land and 585 mu or 37% are collectively owned land. In addition, these components will require the acquisition and resettlement of 1,315 households, 158 shops, 62 enterprises and 27 non-profit institutes. 6366 people will be affected. The total resettlement cost is estimated at Y493.15 million, 21% of the total cost of the components. DesignlSupervision/Management The costs of engineering design, local construction supervision, and administration will be financed by the municipal government. Project Component 2 - US$29.80 million B. Traffic Management and Road Safety (TM) This component includes for the provision of additional facilities for bicycle users, the provision of additional facilities for pedestrians, the application of modem traffic engineering techniques, principally within the area bounded by the First Ring Road, and smaller sub-components to address issues such as road safety and parking. TM 1 Bicycle System Improvement In summary, once the project is complete the bicycle network in the city will consist of the following components: * 2 km new bicycle predominant road within the CBD area (constructed as part of the project as item TM 1.2; * 32.9 km of segregated bicycle lanes on all new arterial roads (included in the infrastructure component); * 13.4 km of new segregated bicycle lanes on existing roads (using separation facilities provided under item TM 1.1; * the conversion of 24.4 km of existing local roads to "Bicycle Dominant" roads; * 66.2 km existing bicycle roads; and * 5.8 km new bicycle roads to be financed by the local government. - 32 -  TM 1.1 Bicycle Management Facilities. The investment will provide separation barrier, plus roads signs, and road markings along city streets. (Contract #: NCB CN/02.2) TM 1.2 Bicycle Exclusive Road TM 1.2.1 Gongnong Road. This investment involves the construction of a new bicycle and pedestrian only road in the CBD area. The total length is 132 meter and includes two 7 meter bicycle lanes (one in each direction) and two 4.75 meter pedestrian sidewalks. (Contract #: NCB CN/04. 1) TM 1.2.2 Huaibei Road. This investment involves the construction of a 1.53 km meter new bicycle exclusive road which will include two 7 meter bicycle lanes (one in each direction) and two 4.75 meter sidewalks. (Contract #: NCB CN/04.1) TMI .2.3 From Gongnong Road to Huaibei Road, a bicycle and pedestrian exclusive underpass will be constructed. The total length will be 340 meter with an 8.5 meter cross-section. (Contract #: NCB CN/04 .1) TM 2 Pedestrian System Improvement The total program of improvements to aid pedestrians also includes extensive works which will be included in road infrastructure components, other traffic management components and the public transport components. This investment will provide for (1) the construction of eight pedestrian bridges across major arterial roads; and, (2) markings to improve the continuity of sidewalks by regulating motor vehicle parking on sidewalks, the removal of utility poles and other obstacles, and the strengthening enforcement so as to reduce bicycle riding on sidewalks. TM 2.1 Pedestrian Overpasses in Zhonghua Street to Yuhua Road, to Zhongshan Road, and to Xinkai Road. (Contract #: ICB CV/06. 1) TM 2.2 Pedestrian Overpass in Huainan Road to Qingyuan Street. (Contract #: ICB CIV01.1) TM 2.3 Pedestrian Overpass in Yuhua to Qingyuan Street and to Dajing Street. (Contract #: NCB CN/05.3) TM 2.4 Pedestrian Overpass in Heping Road to Guangan Street, and to Yucai Street. (Contract #: ICB CI/06.1) TM 2.5 Pedestrian System Improvement. (Contract #: NCB CN/02.2) TM 3 Traffic Facilities on Primary Roads This program will improve road markings and signs (warning and directional signs) on existing roads. (Contract #: NCB CN/02.2) TM 4 Junction Channelization The program will channelize 130 junctions and associated works. These will be separated into different phases, 49 junctions will be included in the 2001 program and 81 junctions in 2002. (Contract #: CS/01. 1, CS/01.2) - 33 -  TM 5 Pilot Bus Priority Scheme This program will complement the Public Transport Component. The project will finance a bus priority development study and the implementation of an experimental bus priority lane along Zhongshan Road. (Contract #: NCB CN/02.2) TM 6 Traffic Signal System The component will finance the procurement of an Area Traffic Control system covering 62 intersections and single control system covering 68 intersections. (Contract #: ICB EU/04. 1) TM 7 Parking Management The program will strengthen management and enforcement of both on-street and off-street parking. TM 7.1 Providing 155 parking signs, and additional road markings. (Contract #: NCB CN/02.2) TM 7.2 Purchase of four tow trucks. (Contract #: El/01.5) TM 8 Road Safety and Accident Blackspot Analysis A locally financed program will be implemented with the following objectives: (l) to reduce the number and the rate of accidents, especially those involving conflicts between cyclists/pedestrians and motor vehicles (2) to develop an accident remedial program focusing on engineering, education and enforcement measures; (3) to improve the national Chinese Traffic Accident Infornation System (TAIS) to reflect the needs and capabilities of local traffic police. This program will be supported by a study financed through the project. The project will provide finance safety barriers and markings. (Contract #: NCB CN/02.2) TM 9 Road User Education and Enforcement This locally financed program aims to strengthen road user education and enforcement by assisting with the development of better publicity and road safety handbooks and a Manual for Road Users; provide traffic enforcement equipment, breathalyzer equipment, and speed meters. TM 9.1 The project will provide equipment for traffic management education and law enforcement. (Contract #: Shopping EN/02. 1) TM 10 Institutional Strengthening This program aims to provide training equipment and a domestic training program to enhance the traffic management planning, design and operations of the main agency responsible for traffic management, the Shijiazhuang traffic police. TM 10.1 Traffic Management Training. The contact will finance training facilities for the traffic management agencies. (Contract #: Shopping EN/02.2) TM 11 Railway Station Forecourt Improvement This program will rationalize the railway station forecourt traffic arrangements to provide better and safer access and circulation for passengers arriving by bus and taxi. (Contract #: NCB CN/02.2) TM 12 Design/Supervision/Management This component includes for the costs of engineering design, local construction supervision, and administration financed by municipal government. - 34 -  Project Component 3 - US$ 12.20 million C. Public Transport This component includes for the purchase of a computer system to provide information for the bus company managers, a bus-stop improvement program, the construction of one bus parking depot, one bus maintenance depot, one railway station terminal, and five bus termini. PT 1 Bus Terminal Reconstruction at the Railway Station This terminal handles about 15% of the buses coming in and out of the city. However, because of the poor layout and management, the terminal is a source of congestion in the area around the station. This component will rationalize the use of the available space. (Contract #: NCB CN/03.1) PT 2 PT Computer Management System The project will procure an information system equipment to serve the bus company HQ, branch companies, depot managers, and the long distance bus companies. (Contract #: ICB El/05. 1) PT 3 Bus Stop Reconstruction A program to provide improved stops, shelters, signs and markings for 10 bus stops. (Contract #: NCB CN/02. 1) PT 4 Northern Second Ring Road Bus Depot Construction This depot will provide routine bus maintenance services for about 120 buses. The project will finance the construction of the depot, parking facilities, and equipment. (Contract #: NCB CN/03. 1) PT 5 Eastern Second Ring Road Bus Depot Improvement This is a new depot which will provide bus repair facilities for about 750 buses annually. The project will finance the construction of the depot, parking facilities and equipment. (Contract #: NCB CN/04.3) PT 6 Bus Maintenance Facility This component will provide bus maintenance facilities for the east ring road depot. (Contract #: ICB EL'06.1) PT 7 to PT 11 Construction of Bus Terminal Facilities This program provides five new bus terminals. These investments will each include passenger shelters, and a small management building on each site. PT 7 Tianyuan Bus Terninal is located in the north-west of the city. (Contract #: NCB CN/03. 1) PT 8 Shijiazhuang Economic Development Zone Bus Terminal is located in the east of the city. (Contract #: NCB CN/04.3) PT 9 Baifu Village Bus Terminal is located on the eastem edge of the city, close to the Second Ring Road. (Contract #: NCB CN/04.3) PT 10 Taoyuan Bus Terminal is located in the northem part of the city. (Contract #: NCB CN/05.2) PT 11 Xigucheng Bus Terminal is located in the northem part of the city. (Contract #: NCB CN/02. 1) - 35 -  PT 12 Design/Supervision/Management The component includes for the costs of engineering design, local construction supervision, and administration financed by municipal government. Project Component 4 - US$15.40 million D. Road Maintenance This component will finance road maintenance works and equipment and the provision of a road maintenance planning system. RM 1 Maintenance of Existing Roads This components involve the maintenance of some of the most heavily damaged roads in the city. RM 1.1 CanganlZhonghua (3.000 km) (Contract #: NCB CN/04.2) RM 1.2 Yuhua Road (1.390 km) (Contract #: NCB CN/05.3) RM 1.3 Caiying Street (3.52 km) (Contract #: NCB CN/05. 1) RM 1.4 Yuejin Road (1.422 km) (Contract #: NCB CN/05. 1) RM 2 Road Maintenance Management System Improvement RM 2.1 Maintenance Equipment. The major equipment to be procured includes road rollers, road milling machine, pavement machine, cleaning-up vehicles and others. RM 2.1.1 Bitumen equipment with the capacity of 160T per hour. (Contract #: ICB E/0 1. 1) RM 2.1.2 Milling machine and excavator. (Contract #: ICB EIl01.2) RM 2.1.3 Six machines for bitumen, and crane. (Contract #: ICB El/01.3) RM 2.1.4 Five machines for pavement, pipe and watery. (Contract #: ICB EI/0 1.4) RM 2.2 Pavement Management System. After the review and study of the current pavement management system, the project will finance the provision of the pavement management computer system facilities which include both hardware and software, and other related facilities. (Contract #: ICB ElV02. 1) RM 3 Design/Supervision/Management This component includes the costs of engineering design, local construction supervision, and administration, to be financed by the municipal government. Project Component 5 - US$2.40 million E. Environment Protection The project will support the development of environmental monitoring, noise mitigation and an emissions control program. A Motor Vehicle Emission Control Strategy Study is included in the Technical Assistance Component. - 36 -  EN1 Environment Monitoring and Monitoring Equipment Provision EN 1. I Environment Monitoring. This is a locally financed component and will conduct environmental monitoring and supervision during the project construction and operation phases. EN 1.2 Monitoring Equipment. The project will finance the provision of environment monitoring equipment which includes auto data collection and analyses facilities, and hardware and software system equipment (Contract #: ICB EL/03.1) EN 1.3 Inspection/Measurement (I/M) System and Air Quality Monitoring System. 4 I/M inspection stations will be provided. (Contract #: ICB EI/0.3.2) EN 2 Noise Mitigation The project will provide facilities for the noise mitigation, including noise barriers for use on elevated roads, air conditioners, double-glazed windows and ventilation facilities for residential buildings, protection for noise sensitive sites, e.g. hospitals and schools. EN 3 Environment Protection and Pollution Control Facilities for the Bus Depots The project will finance the provision of pollution control facilities for use in the bus depots, including equipment to treat waste water and waste oils as well as financing noise mitigation measures to protect sensitive buildings around the depots. The project will also provide finance greening works around the depots. EN 4 Design/Management This component includes the costs of engineering design, local construction supervision, and administration fmanced by municipal government. Project Component 6 - US$3.50 million F. Technical Assistance In order to strengthen the technical skills, quality of management, and coordination among different agencies, this component will finance overseas training, local training,, and research on selected topics, using consultant services from international and domestic experts. The project will also finance the procurement of some office equipment for the project management units. TA 1 Overseas Training TA 1.1 Urban Planning and Construction for staff of the Urban Planning Bureau. TA 1.2 Road Maintenance System Improvement for staff of the Road Maintenance Agency TA 1.3 Bus Priority Implementation for staff of the Public Transport Company and the Traffic Police TA 1.4 Traffic Management System Improvement for staff of the Traffic Police units. TA 1.5 Road Transport Pollution Control for staff of the Environment Protection Bureau. TA 1.6 World Bank Project Management Training for project office staff - 37 -  TA 2 Local Training TA 2.1 Design of Public Transport Priority Measures for staff of the Public Transport Company, Traffic Police units, and the Project Office. TA 2.2 Use of computer based Management Information Systems for staff of the Public Transport Company TA 2.3 Road Maintenance Management Training for staff of the Road Maintenance Agency TA 2.4 Project Management Training for all project staff TA 2.5 Financial Management and Procurement Training for all project staff TA 3 Research and Studies: International and Domestic Consultant Services, and Related Training and Research: (a) Road Infrastructure TA 3.1.1 a International Construction Supervision TA 3.1.1 b Local Construction Supervision TA 3.1.2 Urban Transport Planning and Computer Software Development TA 3.1.3 Shijiazhuang Urban Road Network Planning Study TA 3.1.4 Long Tunnel Research TA 3.1.5 High Intensity Bituminous Concrete Pavement Research (b) Traffic Management TA 3.2.1 ATC System Design Services TA 3.2.2 Parking Planning Study TA 3.2.3 Road Safety Study TA 3.2.4 Traffic Management Education and Enforcement (c) Public Transport TA 3.3.1 Public Transport Computer Management System TA 3.3.2 Bus Route Development and Priority Study (d) Road Maintenance TA 3.4.1 Road Maintenance Planning System Technical Specification TA 3.4.2 Road Maintenance Improvement Study -38 -  (e) Environment TA 3.5.1 Motor Vehicle Emission Control Strategy TA 4 Office Equipment TA 4.1 Office Equipment Provision for Road Infrastructure Component TA 4.2 Office Equipment for Public Security Bureau TA 4.3 Office Equipment for Public Transport Component TA 4.4 Office Equipment for Shijiazhuang Road Management division and Road Maintenance Management Center TA 4.5 Office Equipment for Project Office - 39 -  Annex 3: Estimated Project Costs CHINA: SHIJIAZHUANG URBAN TRANSPORT PROJECT A. Road infrastructure 136.60 33.70 170.30 B. Traffic Management 15.30 9.70 25.00 C. Public Transport 7.30 3.10 10.40 D. Road Maintenance 7.60 5.20 12.80 E. Environment 1.30 0.80 2.10 F. Technical Assistance 0.00 3.00 3.00 Total Baseline Cost 168.10 55.50 223.60 Physical Contingencies 16.80 5.60 22.40 Price Contingencies 17.10 4.70 21.80 Total Project Costs 202.00 65.80 267.80 Interest during construction 17.40 17.40 Front-end fee 1.00 1.00 Total Financing Required 202.00 84.20 286.20 Goods 1.30 11.40 12.70 Works 120.60 51.10 171.70 Services 0.00 1.88 1.88 Training 0.00 0.32 0.32 NBF 80.10 1.10 81.20 Total Project Costs 202.00 65.80 267.80 Interest during construction 17.40 17.40 Front-end fee 1.00 1.00 Total Financing Required 202.00 84.20 286.20 Identifiable taxes and duties are 0 (USSrn) and the total project cost, net of taxes, is 286.2 (US$m). Therefore, the ptoject cost sharing ratio is 34.94% of total project cost net of taxes. -40 -  Annex 4: Cost Benefit Analysis Summary CHINA: SHIJIAZHUANG URBAN TRANSPORT PROJECT [For projects with benefits that are measured in monetary terms] Present Value of Fhws Fiscal mpat Economic Financial Analysis ___ _ sAnyis Taxes Sub"" Benefits: Network traffic $535 m $595 m benefits only Costs: Total project costs $145 m $162 m Net Benefits: $390 m $433 m IRR: 29% 29% If the difference between the present value of financial and economic flows is large and cannot be explained by taxes and subsidies, a brief explanation of the difference is warranted, e.g. "The value of financial benefits is less than that of economic benefits because of controls on electricity tariffs." Summary of Benefits and Costs: A state-of-the-art urban travel demand model, EMME/2, was used to estimate the transport network traffic benefits from all project components that are designed to improve traffic performance. These benefits included both savings in personal travel time and vehicle operating costs, and were expected to be the "lion's share" of the total project benefits. Other project benefits, such as improved traffic safety and an overall reduction in auto emissions, were assessed, but not in monetary terms due to lack of reliable data. These benefits were based on the difference between the estimated total vehicle-kilometers with and without project, assuming overall accidents and emissions were positively correlated with total vehicle-kilometers. The ERR and NPV for the project were estimated using the savings in personal travel time and vehicle operating costs against the total project costs. As traffic safety and environment benefits were not included in the calculation, the ERR and NPV presented in this Annex are conservative estimates. The components have been designed to improve traffic performance and include the following: (a) upgraded peripheral roads linking the city to the surrounding provincial highways; (b) new multi-level interchanges; (c) new or upgraded major arterial roads within the second ring road; (d) new major rail overpasses; (e) new pedestrian crossing facilities; (f) intersection channelization; (g) low-cost physical street improvements; (h) area traffic control system; and (i) bus priority schemes on several major arterial roads. The transport network traffic benefits were computed for normal traffic and generated traffic, and the benefits for diverted traffic (redistribution of traffic resulting from traffic diverted from alternate routes and modes because of changes in relative trip costs) were implicitly estimated through the network model. - 41 -  The costs of each component included costs for physical works, detailed engineering design, and implementation supervision, and physical contingencies. Annualized operations and maintenance costs were also included in the evaluation. The network traffic simulation model was used to simulate traffic perfornance under scenarios with and without project. The traffic data were obtained from city-wide household interview survey, motor vehicle survey, and traffic counts. Traffic accident statistics and bus operation statistics were also used for the analysis. Alternatives analysis was performed through traffic simulations for a number of partially built scenarios. This exercise assisted the project design, especially in fine-tuning the design of individual major components and ensuring their economic viability even when treated as a stand-alone project. The project under the most likely traffic growth scenario was calculated to have an ERR of 29% and an NPV of $390 million. Table 1. Daily Traffic Forecast by Mode (most likely growth scenario) Mode Year 1999 Year 2004 Year 2010 Personal Trips (in '000) Bicycle 2,207 2,833 3,459 Bus 164 357 777 Employer provided bus 58 79 104 Taxi 215 286 346 Car 152 258 465 Motorcycle 126 187 264 Total 2,921 3,999 5,415 Truck Trips (in '000) Small truck 48 68 88 Medium truck 25 36 37 External truck 43 49 74 Total 117 153 200 As Proportion of Year 1999 Personal trips 100% 137% 185% Truck trips 100% 131% 171% Main Assumptions: Traffic growth rates by mode were estimated on the basis of projected population and income growth under low, medium, and high scenarios. The medium scenario was used as the base case for sensitivity analysis. The discount rate or economic cost of capital used in the analysis was 12%. The impact of generated traffic was tested in the sensitivity analysis. It was assumed that the generated traffic -42 -  response would occur in the midday hours, and not in the peak hours of travel. In the peak hours, the great majority of trips are worktrips and school trips, and it is unlikely that more of these types of trips will be made in response to the network improvement. A price elasticity of demand for travel of -0.33 was assumed for estimating the likely level of generated traffic. A standard conversion factor of 0.9, which is the latest World Bank estimate for China, was used to convert financial costs to economic costs. For physical components, annual maintenance cost was assumed to be 0.5% of capital cost, and periodic (every 6 years) maintenance cost, 3% of capital cost. The assumed project life for the purpose of economic analysis was 25 years with no assumed salvage value for capital investments. Unit vehicle operating costs by vehicle type and passenger travel time costs by mode were estimated based on locally provided basic cost data. Value of travel time was assumed to be 30% of hourly income of the travelers. Sensitivity analysis / Switching values of critical items: The sensitivity analysis tested the project viability under a number of scenarios. The major sources of down-side risks were estimated to be lower than expected traffic growth rate, cost overruns, reduction of benefits due to lower than expected travel speeds, and loss of road capacity due to poor traffic enforcement. The results of the analysis, shown in Table 2, suggest that the project is robust to traffic, cost, and benefit variations. However, the results also show the importance of effective traffic enforcement in the realization of expected traffic benefits. Moreover, the analysis suggests that the project will yield slightly higher net benefits with the presence of generated traffic during the mid-day hours. This is plausible as mid-day hour traffic is generally not congested and the presence of a small amount of generated traffic would not reduce the travel speeds of existing traffic. A detailed technical document on the economic analysis is included in the project file. -43 -  Table 2. Sensitivity Analysis Results Scenario NPV Benefit/Cost Ratio ERR Baseline scenario $386 m 3.2 29% 1. Project delayed one year $373 m 3.4 31% 2. Operating cost savings half of $241 m 2.4 23% what is expected 3. Operating cost savings $96 m 1.6 17% eliminated 4. Traffic impacts only half of $253 m 2.4 25% what is expected 5. Trip growth only half of what $240 m 2.4 27% is expected 6. Value of time is 25% higher $518 m 4.0 32% 7. Value of time is 25% lower $277 m 2.6 26% 8. Real incomes grow at 8% $554 m 4.2 32% instead of 5% 9. Operating costs computed on $36 m 1.2 15% marginal basis, plus (4) and (5) described above 10. Generated traffic impact $398 m 3.3 30% included -44 -  Annex 5: Financial Summary CHINA: SHIJIAZHUANG URBAN TRANSPORT PROJECT Years Ending Year1 I Year 2 Year 3 Year4 4 Year5 I Year 6 I Year 7 Total Financing Required Project Costs Investment Costs 4.0 51.1 46.5 48.2 59.0 38.2 5.2 Recurrent Costs 0.1 3.2 3.0 3.4 4.6 1.3 0.0 Total Project Costs 4.1 54.3 49.5 51.6 63.6 39.5 5.2 Interest during 1.2 1.5 2.8 3.8 4.9 3.2 construction Front-end fee 0.0 1.0 0.0 0.0 0.0 0.0 0.0 Total Financing 4.1 56.5 51.0 54.4 67.4 44.4 8.4 Financing IBRD/IDA 0.0 11.8 21.1 21.5 19.8 18.4 8.4 Government 4.1 44.7 29.9 32.9 47.6 26.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User Fees/BeneficiarIes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 4.1 56.5 51.0 54.4 67.4 44.4 8.4 Main assumptions: 1. The objectives of the financial analyses for this project were limited: (a) to review the municipality's fiscal capacity to provide counterpart funds and make loan repayments; and (b) to study the fmances of the bus company. A. Shijiazhuang Municipal Fiscal Capacity 2. The availability of counterpart funds was assessed from a review of the revenues and expenditures of the Municipality of Shijiazhuang. The scope of the analysis included (1) reviewing the on-budget revenues and expenditures, and (2) analyzing the extra-budgetary revenues from urban construction and funds allocated for urban construction from other sources. Detailed tables for revenues and expenditures are available in the project file. 3. Most municipalities in China operate on the basis of a balanced budget. Nonnally, the tax revenues (i.e. on-budget revenues) will be used for routine expenditures such as maintenance. However, most municipalities also raise some extra-budgetary revenues to funance capital investment, as well as some routine expenditures. Hence, in practice, extra-budgetary funds are also used to finance routine budget expenditures. 4. The ability of the city to provide the counterpart funds is based on an analysis of all the urban construction revenues and takes into account all recurrent expenditures and maintenance costs. The major -45 -  revenue sources for capital investment are taken from the (1) urban construction tax, (2) urban construction fund, (3) land leasing fees, and (4)a key project fund. 5. In recent years, revenues and expenditures have increased rapidly in Shijiazhuang, demonstrating strong economic growth, underlining the financial capacity of the city and confirming the affordability of the project. Counterpart requirements for the project would vary between 5.3% and 8% of municipal revenues or between 34% and 53% of the funds allocated for capital investments (see Table I for details). Table 1: Shijiazhuang Municipal Finance (RMB million, current terms) 2000 2001 2002 2003 2004 2005 2006 1. Total Municipal Revenue 3457.59 3789.49 4165.84 4557.78 4988.85 5516.99 6101.04 2. Financial Capacity for Capital Investments 525.20 556.87 617.34 656.49 700.5 796.29 913.47 3. Annual Counterpart Fund Requirement 39.50 222.20 255.90 323.00 368.30 312.40 96.70 Proiect as % of Total Revenue 1% 6%1 7% 8% 8% 6%1 2%. Proiect as % of Total Capital Investment 8% 40%1 41% 49% 53% 39% 11% 6. To evaluate the implications of any shortfall in counterpart funds, the assumed growth in revenues was reduced to 5%. Even in this situation, the city of Shijiazhuang will still be able to provide the necessary counterpart funds. However, if the municipal government wishes to embark on other major investment programs then it may have a negative impact on the availability of counterpart funding for this project. In order to mitigate this risk, the municipality will discuss its five year investmnent program, with the Bank supervision team, on an annual basis. B. Public Transport 7. With the help of both domestic and intemational consultants, the Shijiazhuang Public Transport Company (SPTC) has undertaken a comprehensive review of its financial operations. The main purposes of the review were to understand the current financial situation of the company and to provide guidance for the development of public transport operations within the city. The scope of the financial analysis included: (1) a review of the current financial situation of the public transport company in Shijiazhuang, (2) financial projections for the company up to the year 2004. 8. Current Situation. SPTC operates the majority of the public transport services in the city. The company has 919 standard buses, operating on 63 routes with a total length of 843 km in 1999. However, with the development of taxis, mini-buses and motor cycles, the company's mode share has been cut from 5.13% in 1986 to 2.91% in 1998. 9. In 1999, the normal bus fare was RMB 0.5 yuan per bus trip while mini-buses were allowed to charge a fare of RMBL.00. The company has made a small operating loss every year during the last decade, which the municipal government has made good. The government has also provided capital investment to purchase buses. However, there is no clearly defined relationship between SPTC and the municipality. As a consequence, public transport development in Shijiazhuang faces an unstable future. Like many other Chinese cities, SPTC and the municipal government are seeking ways to solve this problem. -46 -  10. Future Objectives and Plans. The municipality's stated goals are (1) to increase the bus mode share in the city, (2) to rationalize the bus route network so as to improve service efficiency, (3) to increase the operational efficiency by reducing the number of operating staff per bus, (4) to reduce operational losses through regular fare increases, (5) to more clearly define the functions of the government and the company, and (6) to define more precisely responsibilities of SPTC's headquarters and the sub-companies. 11. Operating Assumptions. For the purposes of this analysis, a number of assumptions were made: * The number of buses in operation would increase from 919 to 1234 between 1999 and 2004 based on fleet sizes of 1141 and 1445 respectively. Hence, there is an underlying assumption that availability will increase from 80% to 85% over the same period. * The average size of the buses in operation is also expected to increase, between 1999 and 2004, with the percentage of full sized and midi-buses increasing at the expense of the minibuses. * The number of operating staff per bus would decrease from 4.57 in 1999 to 3.51 in 2004. * Annual service kilometerage would increase only marginally. 12. Financial assumptions. The municipality has made two recent decisions which will require the bus company to change and reform their modus operandi. Firstly, it was agreed that the basic bus fare should be increased from RMB 0.5 fares to RMB 1.0 on I July 2000. Secondly, it was agreed that, as from 2002, the bus company would receive no further capital investment grants from the municipality (currently about RMB 9 million each year), and capital purchases would be financed using bank loans. Hence, the base case for the financial analysis was that: * Fares were increased on 1 July 2000. * From 2002, replace annual capital subsidy with bank loan at interest rate of 5%, repayable over 5 years. * Policy subsidy for operating loss was capped at RMB 12 rnillion. * Fares to be increased to cover any shortfall. In calculating the impact of the fares increase, an elasticity of -0.3 had be used to calculate the effect of fare increases on ridership, i.e. for every 100% increase in fares, ridership drops immediately by 30%. Ridership will return to the previous level after one and half years. 13. Based on these assumptions, SPTC and their consultants analyzed the current and projected financial situation of the company (see Annex A. Table 5. Public Transport Company Financial and Operational Overview). The company expects to make an operating loss in every other year, except for 2001. Hence, in discussion with the company, the city will have to decide how to cover these losses. Should it be by reducing the expected increase in the supply of services, increasing productivity, or reducing staff levels more quickly? 14. To meet their stated objectives, the bus company is going to have to manage their operations more pro-actively than in the past. Furthermore, if they do expand services as planned, financial success will only be achieved if they are successful in attracting passengers. Losses would very quickly mount if they begin to operate services which fail to attract enough ridership. External factors could also have an important impact on the success and viability of their plans. Fuel prices have increased very rapidly over the last year, but even though they are at historically high levels, this is no guarantee that they will not rise further. Finally, political factors may impact the speed at which the company can adopt a comnercial approach to the management of its staff. -47 -  15. Sector Development and Reform Initiative. Based on discussions during the project preparation, and the analyses undertaken by the company's consultants, the Shijiazhuang municipal government and SPTC propose to initiate a public transport sector reforrn program aimed at clarifying the responsibilities between government and the company, so as to increase the efficiency of the operations. This program will include three basic components: * The separation of government's regulatory function and company's operational functions. * The reform of the organizational structure of SPTC. * Introduction of bus route franchise management regulations so as to allow the introduction of third-party operators. 16. The detail strategies and actions and schedule to achieve these three major public transport improvements are as the follows: The separation of government's regulatoryfunctions and the company's operationalfunctions. * End 2001. The municipality will define the division of responsibilities between the municipal government and SPTC and will prepare proposals separating the regulatory and operating responsibilities, including an action plan for implementation of the proposals. * 2002. Municipal government to prepare regulations for the separation of responsibilities, including the clear definition of the financial framework within which SPTC is expected to operate. * 2003. Municipal government to enact the proposed actions in accord with the new regulations. The reform of the organizational structure of SPTC. The objectives are: (1) to transform the current state owned company into a group company, with four branch companies, each with clearly defined responsibilities; (2) to establish financially independent sub-companies, including a tour company and a bus maintenance company. * March 2001. SPTC, in consultation with the city, will determine the division of responsibilities between the headquarters company and the branch-companies. * December 2001. An operational sub-company will be selected and transformed into a financially independent stock corporation with a high degree of managerial autonomy. * January 2003. SPTC will be converted into a Public Transport Group Company. * January 2004. After construction of the Dongerhuan Major Maintenance Depot is complete, an independent maintenance company will be established, which will have responsibility for the third and fourth level vehicle maintenance for all buses operated by group company. * January 2004. Independent companies will be established to operate non-core functions such as the Tour Operating Company. The establishment of the bus routefranchise management regulations. * By June 2002. SPTC will draft bus route franchise management regulations for review by the government. * By end 2002. Municipal government will review draft regulations. * 2004. Regulations become effective. 17. Technical Assistance will be provided through the project to assist with these reforms, as follows: * To develop alternatives for the separation of regulatory and operating responsibilities of SPTC. * To develop a framework for the preparation of the annual 5 year bus development plans. * To prepare a bus route development and priority study. - 48 -  Attachment Public Transport Company Financial and Operational Overview Table I Publi Transoo Fleet and Bus I Fleet and Bus 1999 2000 2001 2002 2003 2004 a. Fleet Size __L_= 1. Reoular Bus 362 382 402 422 442 462 2. Midibus 159 179 199 219 238 253 __ = 3. Minibus . 620 645 670 690 710 730 ____ 4. All Buses 1141 1206 1271 1331 1390 .1445 Average Annual Increase Rate 5.7% 5.4% 4.7% 4.4% 4.0% b. Fleet and Bus in Operation __ ____ 1. Regular Bus 249 275 302 329 358 388 2. Midibus 137 154 171 188 205 218 I Minibus _53 555 576 593 611 628 4. All Buses _ 919 984 1049 1110 1174 1234 _____ Average Annual Increase Rate 7.1% 6.6% 5.8% 5.8% 5.1% Availability rate 81%, 82% 83% 83% 84% 85% _ I of which SPTC 36& 409 450 492 537 577 Annual increase rate 22% 91 7 10% .. /2 9