China - Sixth Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 23318 IMPLEMENTATION COMPLETION REPORT (CPL-35810) ONA LOAN IN THE AMOUNT OF US$420 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SIXTH RAILWAY PROJECT April 9, 2002 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective October 1, 2001) Currency Unit = Yuan Yuan 1.00 = US$ 0.12 US$ 1.00 = Yuan 8.28 FISCAL YEAR January I December 31 ABBREVIATIONS AND ACRONYMS CETE Cost-Effective Technology Evaluation EIRR Economic Internal Rate of Return FCTIO Foreign Capital and Technology Import Office MOF Ministry of Finance MOR Ministry of Railways NPV Net Present Value PSR Project Status Report SAR Staff Appraisal Report SDPC State Development and Plamning Commission TMIS Telecommunications and Traffic Management Information System Vice President: Jemal-ud-din Kassum, E-APVP Country Manager/Director: Yukon Huang, EACCF Sector Manager/Director. Jitendra N. Bajpai, EASTR Task Team Leader/Task Manager: Richard Scurfield, TUDTR  FOR OFFICIAL USE ONLY CHINA SIXTH RAILWAY PROJECT CONTENTS Page No. 1. Project Data I 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 12 6. Sustainability 13 7. Bank and Borrower Performance 14 8. Lessons Learned 15 9. Partner Comments 16 10. Additional Information 28 Annex 1. Key Performance Indicators/Log Frame Matrix 29 Annex 2. Project Costs and Financing 33 Annex 3. Economic Costs and Benefits 35 Annex 4. Bank Inputs 48 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 51 Annex 6. Ratings of Bank and Borrower Performance 52 Annex 7. List of Supporting Documents 53 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   Project ID: P003570 Project Name: RAILWAY VI Team Leader: Richard G. Scurfield TL Unit: EASTR ICR Type: Core ICR Report Date: April 12, 2002 1. Project Data Name: RAILWAY VI L/C/TFNumber: CPL-35810 Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: TW - Railways KEY DATES Original Revised/Actual PCD: 09/23/91 Effective: 07/14/93 07/14/93 Appraisal: 06/10/92 MTR: Approval: 03/25/93 Closing. 06/30/99 06/30/2001 Borrower/Implementing Agency: PEOPLE'S REPUBLIC OF CHINA/MINISTRY OF RAILWAYS Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Gautam Kaji Country Manager: Yukon Huang Shahid Javed Burki Sector Manager: Jitendra N. Bajpai Daud Ahmad Team Leader at ICR: Richard G. Scurfield ICR Primary Author: Richard G. Scurfield 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The main objectives of the project were to support the Ministry of Railways' efforts in undertaking: (a) railway policy and management reform initiatives; (b) institutional development of the railway system; (c) expansion of railway capacity; and (d) modernization of railway technology on a system-wide basis.  This project was one in a series. There were five national railway projects before this project and there have been two since. The first went to the Board in 1984 and the most recent on January 29, 2002. Hence, the Bank has developed a long term relationship with the Ministry of Railways and with individuals within that organization. Given this special relationship, the Bank has been able to establish an extended dialogue with MOR about reform, starting with the design of the foundations (pre-Railway VI), laying the foundations with Railway VI, and only very recently seeing the superstructure beginning to appear (post Railway VI). The specific objectives of this project were ambitious and reflect the desire of the Bank to expand the scope of the Bank's railway program in China beyond the financing of physical improvement, expansion of the railway system, and some rather ineffectual studies. It is more difficult to tell if these objectives were really shared by MOR at the time of project preparation. Discussions held in the mid-90s did not suggest that even then there was significant ownership of the reform elements of the project's agenda. However, fortuitously, the appetite for reform grew significantly during the latter half of the decade, because of pressure from the highest levels of government. Since, this project provides some of the essential building blocks for reform, it is concluded that the project objectives were well chosen and timely. 3.2 Revised Objective: The project objectives were not revised during the life of the project. 3.3 Original Components: The project included seven components which are listed in the table and then each is briefly described below. Component Total Cost Bank Loan (US$ million) (US$ million) At Appraisal Actual At Appraisal Actual Capacity Expansion. Beijing-Zhengzhou Line 366.4 518.5 112.0 101.6 Chengdu to Kunming Line 407.2 597.1 90.0 60.5 Track Maintenance(l) 48.0 103.3 48.7 95.2 Locomotives and Rolling Stock 25.4 20.6 22.0 17.6 Telecommunications and TMIS 272.5 194.7 120.0 102.7 Pilot Container Transport 54.3 31.0 19.0 20.0 Policy and Technical Assistance 9.7 8.1 9.2 7.5 TOTAL 1,183.5 1473.3 420.0 405.1 Note. (i) The scope of this component is larger than originally envisaged. See Section 3.4 below, Revised Components. Capacity Expansion. The project included the electrification of two sections of railway. For this component, the project financed equipment for electrification, signalling and communications. The two sections of railway were: Beijing-Zhengzhou line. This section of line is part of the heavily used Beijing-Guangzhou corridor and is also one of China's most severely "bottle-necked" railway sections. It had previously been double tracked. -2 -  Chengdu-Kunming line. This is one of the main railway lines in southwest China, connecting Sichuan and Yunnan provinces. The line passes through mountains reaching 2,800 m above sea level. It is only a single track line but the costs of doubling it are considered prohibitive given the difficult terrain. Track Maintenance. The main purpose of this system-wide sub-component was to assist MOR in modernizing the previous track maintenance system, which was largely manual, into a fully mechanized system of preventive and planned maintenance. This sub-component included the procurement of two types of material: (i) equipment to facilitate routine track rehabilitation and track maintenance (ii) heavy-duty, high-performance track maintenance machines; special calibration devices and track inspection cars; and a computerized track monitoring system. It was based on a short-term action plan prepared under the Railway V project to modernize MOR's track maintenance. Locomotive and Rolling Stock Manufacturing. The main objective of this systemwide sub-component was the introduction of modem machine tools for manufacturing critical parts for both locomotives and rolling stock and included a technology transfer component. This subcomponent incorporates some of the highest-priority items recommended in a study, prepared under Railways V, to improve the manufacturing and maintenance of MOR's fleet of locomotives and rolling stock. Telecommunications and Traffic Management Information System (TMIS). The objectives of this systemwide subcomponent were: (i) to support expansion and modernization of MOR's telecommunications network, in accordance with the Master Plan developed under the Railway V project; (ii) to implement Phase I of a computerized TMIS, thereby automating MOR's wagon operations on a systemwide basis; and (iii) to strengthen MORs information technology capabilities through human resource development. This subcomponent represents an initial phase of MOR's long-term effort to upgrade its railway information technology so as to increase the flow of vital information for decision-making, and to make railway operations more efficient so as to meet better the needs of both shippers and passengers. Pilot Container Transport Modernization. The main purpose of this subcomponent was to demonstrate the operational and economic feasibility of a frequent and regularly scheduled container transport service. The other objectives were: (i) to encourage MOR to shift priority from domestic cargo to international cargo; (ii) to upgrade container handling equipment and container rolling stock; (iii) to modernize container operations by eliminating damage-prone hump-yard operations and minimizing the number of stations to be served; and (iv) to strengthen the institutional capability in the marketing and handling of international cargo. Policy Components and Technical Assistance. The policy component comprised four subcomponents or studies which supported MOR's initiatives to improve: (i) investment planning; (ii) tariff structures; (iii) accounting system; and (iv) the design management and economic contracts between government and the railway. The TA component specifically financed three studies for a: Rail-Based Container Transport Study; Cost-Effective Technology Evaluation (CETE) Study; and an Environmental Protection Study. These were designed to prepare action plans for the implementation of systemwide improvements and modernization, for possible implementation under future railway projects. Assessment. The project met the capabilities of MOR. However, this project was a veritable "christmas tree" which proved difficult and expensive to implement. As discussed in the remaining sections of this report, it becomes clear that it would have been preferable to restrict the number of components to those with really high economic and policy impact. -3 -  3.4 Revised Components: There were accrued savings of approximately $45 million. The majority were due to lower than expected equipment prices. In particular, the international prices for telecommunications and electronic equipment decreased substantially between the appraisal and implementation. Following the receipt of a request from MOF, in May 1999, Bank management approved the use loan savings to purchase additional heavy duty track maintenance machines. 3.5 Quality at Entry: The project was well prepared. In addition to the SAR, a supplementary report was produced at the time of appraisal and circulated to the Board. This contained 25 Working Papers which detailed the individual components of the projects. However, despite this attention to detail it is noted that the implementation of some components, most noticeably the telecommunications component, was delayed substantially. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project outcomes are discussed below by objective. (i) To provide assistance for the government's policy initiatives. This project included several studies designed to support the reform of China railways, specifically for investment planning, tariff rationalization, and accounting. The project also included a series of self-managed studies to help MOR with the development of management and economic contracts, focused on the following topics: (a) enhancement of the economic contracting system between MOR and the Government; (b) improvement of the productivity and quality of the railway transport function; (c) expansion of the scope of railway financial resource mobilization; (d) possible divestiture of non-railway functions and restructuring of the railway transport function; (e) development and rationalization of railway human resources; and, (f) railway housing reform. Outcome. This objective of the project has been achieved. There was extensive discussion and debate of all the related issues during the life of this project. Furthermore, particularly since 1999, China has actually taken a number of important steps to reform its railway system so as to meet the needs of the market economy. In the Outline of the Tenth Five-Years Plan For National Economic And Social Development (Approved by the Fourth Session of the Ninth National People's Congress on March 15, 2001), it is stated that the purpose of the government is "To accelerate the reform of transportation management system and operation mechanisms with the core focus on the separation of the governmentfunctions and the enterprisefunctions, railways will "separate infrastructurefrom transport operations". (ii) To support institutional development of the railway system. The project also financed a series of studies to support institutional reforrn including those for accounting, housing reform, and human resources development. Outcome. This objective has been achieved, even if it is difficult to identify the "direct impacts" of our interventions. Over the last decade, substantial institutional reforns have taken place within MOR. At the beginning of the last decade the Ministry employed about 3.4 million people, or about one-third of all the rail employees in the world. As is common in planned economies, about half of these employees were engaged in a vast range of social, industrial and commercial activities outside the rail - 4 -  operational sphere. However, recently, all these non-railway activities have been fornally "separated" from MOR and currently the Ministry now claims only 1.5 million employees. Also, within China Railways, many changes have already taken place. By the emerging definition, MOR is the "government" and the administrations, sub-administrations and the MOR level industrial functions are the "railway enterprises", which now have substantial operational autonomy. Officially, in 1999, the central staff of MOR was cut from 809 to 400, and the number of departments and divisions has been cut by 30 to 40 percent. In fact, many of the staff were transferred to new "organizations" such as the Centralized Railway Transport Commanding (dispatching) Center and the Railway Construction Management Center which will provide centralized services but whose employees will not be "government" employees. Within the administrations, the Passenger Transport Enterprises and Freight Transport Enterprises are being established to provide the rail services within their respective territories. (iii) To support the expansion of railway capacity. The project financed the electrification of two railway lines, and the installation of new signalling and communications equipment, between Beijing and Zhengzhou and Chengdu and Kunming. When assessing the outcomes of these two sub-components, it is necessary to take into account that, since the appraisal of this project, China railways has been subject to a major shift in its traffic mix-passenger volumes have assumed greater significance than before. Specifically, following several years of decline, railway passenger volumes have been growing in absolute terms. Compared with 1996, for example, railway passenger kilometers in 2000 were up by 36.3 percent. Reflecting these increases, the railway share of total passenger traffic (all modes) rose from 35.5 percent in 1998 to 36.6 percent in 1999 and to 37.0 percent in 2000. At the same time, railway freight traffic has not expanded as rapidly. Since 1996, railway freight ton kilometers are up by just 7.2 percent - or only about a fifth as much as the passenger increase. As a consequence, the railway share of total freight traffic has declined from 35.6 percent in 1996 to 31.3 percent in 2000. See Annex 3 for more details. Outcome. The Beijing-Zhengzhou sub-component was completed and commissioned at the end of 1998. At the time of appraisal the different segments of the Beijing-Zhengzhou line carried between 50 to 67 pairs of freight trains per day and 29 to 39 pairs of passenger trains per day. In 2000, there were 29 freight and 56 passenger train pairs per day. For a passenger train, the average travel time has decreased from 13 hours 53 minutes to 10 hours and 30 minutes. In sum, while the number of passenger trains has increased, the number of freight trains has actually decreased. In part, this change is due to the national traffic trends discussed above. However, it also reflects a change, since appraisal, of the dispatch philosophy for the trains operating in this corridor, and specifically the split of the traffic between this line and the Beijing-Kowloon line. After this latter, a new line was completed in 1997, MOR decided to concentrate a greater proportion of the freight traffic on it. Hence, while the SAR projected substantial increases for both freight and passenger traffic, MOR's latest estimates suggest that only passenger volumes will increase substantially in the coming years. Freight traffic will increase only moderately. On balance, however the usefulness of the project investments is still assured with a rate of return in excess of 20%. - 5 -  The implementation of the Chengdu-Kunming sub-component was delayed by about three years. The delay was caused by non-availability of electric power and the time taken for land acquisition, particularly in Kunming and Chengdu. The Chengdu-Panzihua, (764 km, North section) and Panzihua-Kunrming, (347 kin) were eventually commissioned at the end of December 1999 and October 2000 respectively. In 1992, different segments of the line carried 12 to 13 pairs of freight trains per day and 2 to 7 pairs of passenger trains per day. It has increased to 16-18 pairs per day and 5-9 pairs per day respectively. For a passenger train, the average travel time has decreased from 20 hours 50 minutes to 19 hours and 20 minutes. The maximum load on each freight train has increased to 3,800 tons (with two locomotives) from 3,000 tons. In the SAR, it was assumed that freight and passenger volumes also would rise at similar rates, 108 percent and 122 percent respectively between 1992 and 2005 as compared to the most recent estimates of 20% and 54%, respectively. These lower than expected increases, particularly for freight, mean that the project rate of return is rather less than previously projected but still satisfactory, at about 20%. (iv) To support the modernization of railway technology on a system-wide basis. This project supported the introduction of a number of new technologies for China Railways. These included: * A modem telecommunications system * A Traffic Management Information System (TMIS) * Equipment to support the introduction of mechanized track maintenance * Improved manufacturing equipment for rolling stock and locomotives * Equipment for the piloting of modem container transport services Outcome. The overall impact of these interventions was positive although the impact of some components is not so easy to assess directly. The TMIS is undoubtedly the most valuable component of this project when measured against its importance for railway reform. Also, the introduction of a modem telecommunications system was a prerequisite for the implementation of the traffic management information system. After 10 years of development, MOR now has the ability to manage its railway system on a real time basis--to track the movement of all its freight wagons, track shipments through the system, track revenues and has a modem train dispatch capability. The introduction of modem mechanized track maintenance procedures has also had a very significant impact. This has allowed MOR to speed-up its services and compete more effectively with other modes of transport. MOR have implemented three changes to the national timetable over the last two years, with the objective of speeding up passenger services. It is not so clear that the subcomponents for manufacturing and containers were nearly as useful. Both were implemented as planned but their direct impact is not apparent. The introduction of the new equipment was accompanied by only limited reform of the enterprises. There is still only reluctant recognition of the importance of railway based container services, even though the number of containers carried by the railways has increased significantly over the last decade, from 45,000 TEU year in 1992 to over 2 million per year in 2001. - 6 -  4.2 Outputs by components: Capacity Expansion. The outputs for the two related components is as follows: Output. Construction of the Beijing-Zhengzhou line was completed and the line opened to electrified services in 1998. Cost of this sub-component was 42% more (in terms of US$) than budgeted at the time of appraisal even though the Bank financed equipment cost less than expected. The reasons for this increase are fairly clear. Between 1991 and 1997 accumulative domestic inflation was about 78%. This is off-set in part by an effective devaluation of about 50% on 1 January 1994. However, the net result is that domestic inflation accounts for a large part of the cost increase. The opening of the electrified Chengdu-Kunming line was delayed by about three years for three reasons: shortage of local funds, non-availability of electric power, and the time taken for land acquisition, particularly in Kunming and Chengdu. The section from Chengdu to Panzihua, (764 km, North section) and from Panzihua to Kunming, (347 kIn, called South section) were actually commissioned at the end of December 1999 and October 2000 respectively. The cost of this sub-component was 47% more than budgeted (in terms of US$) at the time of appraisal even though the Bank financed equipment cost less than expected. Major reasons for this increase are domestic inflation, as noted above, and increased land acquisition costs. Implementation of safeguards. Up until the end of 1998, implementation of both the resetflement and environmental policies of the Bank was not satisfactory. This resulted in the project being rated as unsatisfactory against these criteria in the PSRs. However, the performance of the project improved sufficiently to allow these items to be rated satisfactory in 1999. The basic difficulty was, and is, that direct responsibility for the implementation of environmental and resettlement policies rests with provincial and local government entities wholly independent of MOR. In other words, the Bank's main interlocutor has no direct involvement in implementing either activity. Resettlement activities for the Zhengzhou-Beijing line were completed in 1998 with no significant issues outstanding. However, contract disputes with municipal officials regarding land acquisition impeded implementation along much of the Chengdu-Kunming line until 1999. Hence, it is not coincidental that the FCTIO appointed a resettlement coordinator in 1999. This marked a major change in attitude within MOR to the implementation of the Bank's safeguard policies. While FCTIO continues to assert (correctly) that it cannot fully control the actions of local governments actually responsible for land acquisition and resettlement implementation, the resettlement coordinator has played a useful role in facilitating joint planning with local officials and in resolving many of the issues that surfaced. It is fair to say that following this action, the quality of implementation of resettlement activities associated with all on-going railway projects has improved and is now generally acceptable. Nonetheless, given the poor start, some aspects of resettlement implementation associated with the Chengdu line remained unsatisfactory when the loan closed. In particular, some displaced persons in Panzhihua will continue to require subsidies for living expenses until more permanent income-generating opportunities are provided to them. This issue will require continued Bank supervision even though the project is now closed. With respect to environment, it must be understood that when the project was processed in 1991/92, the Bank's Safeguard policies were still in early stages of development. However, by the mid-90s the environmental requirements in the Bank and in China had strengthened and MOR was under pressure -7-  to comply with and implement more stringent environmental measures. Earlier, in January 1994, the Labor and Health Institute of MOR in Beijing had prepared an EIA for the line (in Chinese). The EIA had identified noise as a major issue along the Anyang - Zhenzhou corridor and identified one school, five dormitories, six office buildings and four living quarters which were susceptible to railways generated noise. Although there were early hiccups in timely implementation of environmental mitigation measures related to noise, wastewater treatment and electrical interference to TV signals, MOR and the local Administrations, to their credit, had implemented most of the mitigation measures. At the Zhengzhou No. I Railway School (Railway Middle School of Zhengzhou), the construction of a noise barrier had profound impact on the reduction of noise in the classrooms (by an average of 10.4 dBA) and rendering all classrooms facing the rail useable. At other locations along the Anyang - Zhengzhou corridors, noise mitigation measures have included construction of fences to stop pedestrians from crossing the rail tracks, resulting in fewer train whistles; installation of heavy duty welded rails; a 10m wide by I km long greenbelt at Kunming Rail Station; installation of double glazed windows; monetary compensation, etc. A number of wastewater treatment plants have been constructed (Anyang, South Xinxiang and North Zhengzhou Locomotive Turnaround Points) and in most cases the treated wastewater is being recycled. Where electrical lines interfere with TV reception, MOR has provided/promoted communal cable or dish antennae to reduce impact on the communities. Boilers are being converted from buming coal into burning gas More importantly, MOR, with the local Admninistrations, has embarked on a long-term environrnental program to shut down old boilers and convert others from coal to gas. A large number of wastewater treatment facilities and hospital medical waste management facilities are under construction by the local Administration with assistance from MOR. At critical locations, MOR is also installing nickel-cadmium treatment plants to combat heavy metal pollution. MOR attributes these measures to long-term strategy outlined in the "China Rail Environmental Protection Management Plan - An AgendaforAction: 1996-2010" Track Maintenance. A full list of the equipment purchased through the project is provided by the client in section 9 of this report. This list includes additional equipment which was purchased out of savings from the loan. Output. The component has been very successful and appreciated by MOR. It is a component with high client ownership, as demonstrated by the enthusiasm for purchasing additional equipment of a simiilar nature. It has allowed them to mechanize maintenance, make moderate reductions in the labor force, reduce track closure times, and improve maintenance quality, as shown by the indicators listed in Annex 1. Locomotive and Rolling Stock Parts Manufacture. The equipment purchased through this project is being used for the manufacturing of (i) connecting rods, electric rotating equipment governors, injection pumps and nozzles, and turbo superchargers, for diesel locomotives; (ii) brake cylinder equipment and wheel sets, for freight wagons; and (iii) spot welding equipment for passenger coaches. A second objective of this subcomponent was to finance the foreign exchange cost (estimated at $880,000) of transferring modem technology for (i) designing and manufacturing airbrakes (including the empty/load box); and (ii) casting equipment part. Only the first of these two-components was implemented. MOR chose to use their own funds for the other sub-component, working with a foreign joint venture partner. -8-  Output. The equipment was installed in six factories then owned by MOR in Meishan, Nankou, Shenyang, Changchun, Tianjian and Qishuyan--formally all now operate independently from MOR. The performance indicators listed in Annex 1 suggest the component was worthwhile. Locomotive reliability has improved. Telecommunications and Transport Management Information System (TMIS). The telecommunications equipment procured included telephone switching equipment, fiber optic cable, a digital data communication network, video conference facilities at 12 locations, telecommunication equipment for local use at stations and yards at six locations, test and measuring equipment and radio dispatch equipment. For the TMIS component the project financed mainframe computers, yard computers and terminal. Output. The procurement of the telecommunications equipment was seriously delayed and problematic with the rebidding of some contracts proving necessary in 1998. However, by 1999, the problems had been overcome and this sub-component was "back on track". The new systems are greatly valued by railway staff. In contrast, the implementation of the TMIS component proceeded according to schedule. During the course of the project MOR decided to build a dedicated computer center on the site of their headquarters in Beijing and this is where the bulk of the equipment purchased under this project was installed Other related equipment has been purchased under the Railway VII project. The system is now "up and running". Each of the administrations is connected to the center by a high-speed data transmission connection which allows for real-time updates of the data-bases. The managers of this system also greatly benefited from the technical assistance provided through this project. They have a very clear understanding of the importance of what they are doing and how to do it. Under the National Railway Project, MOR will prepare a feasibility study for development of an even more sophisticated management tool. This will integrate the TMIS with their current costing system and network evaluation model, RIS, both of which were also developed through previous Bank projects. Pilot Container Transport Modernization. This subcomponent financed the purchase of rubber-mounted gantry cranes, top lifters, tractor-trailers, ISO containers, flat cars, other equipment and technical assistance. The design of this sub-component was based on a recommended action plan developed through the Rail-Based Container Transport study. Output. This component was implemented in accord with the SAR but there has been no change in the institutional structure of the operating agency. Policy Components. The policy component comprises four studies which supported MOR's initiatives to improve (i) investment planning; (ii) tariff rationalization; (iii) its accounting systems; and (iv) the quality and content of the management and economic contracts between the railway and government. The project also included training equipment for a new international training center being created within MOR. Investment planning. The development of a computer based transport planning model, RIS, was initiated in 1989 using a PHRD grant and the results were available to the team that prepared the 1992 Sector Report--China Railway Strategy. The activities funded under this project were designed to strengthen the functionality of the model. The activity was completed in 1997, somewhat later than envisaged in the SAR. Most importantly, recent discussions with MOR -9-  confmed that the model is still in use and is being improved by MOR and its consultants. Specifically, MOR used this model to evaluate and rank investment options for inclusion in the 10th Five Year Plan. Furthermore, a TA activity funded through the National Railway Project will examine the feasibility of integrating this model with their costing model and TMIS, thus providing senior management with an advanced management tool for system planning. Tariff rationalization. This study was completed in accord with the SAR. However, since MOR does not set fares--they are set by SDPC--it has had only limited impact. Accounting study. This study was completed by one of the major international accounting companies. Also, MOR claim that it was of some value. However, given that national accounting standards are established by MOF, it is not clear that it gave "value for money". Management and Economic contracts. The purpose of this group of studies was to help MOR understand how they should re-organize their business. Each of the studies was "driven" from within the Ministry and each followed a common pattern. They were initiated with a foreign study tour to gather information on the current practice in advanced market based economies. Following the study tours, the teams analyzed MOR's problems and prepared a report. All the studies began in the summer of 1993, and all were completed by the end of July 1995. The main value of these studies was that they acted as internal discussion for MOR staff, of a variety of reform issues. The following studies were included under this heading. Government-railway relationship. This study examined all aspects of the govemment/railways relationship. It provided a useful forum for discussion of some of the basic issues associated with change. Diversified economy. The creation of diversified industries to absorb surplus labor is a common practice in China. This practice is a mixed blessing as it diverts the attention of managers from their core businesses. This apparent conflict was evident in the studies' recommendations which in the Bank's view were not very useful. Railway resource mobilization. The TOR for this study was changed after the project was approved. It was to have looked at how to enlarge the role of the private sector within the railways in China. However, MOR changed the TOR so they could study how they could establish a "Railway Bank". The World Bank only reluctantly agreed to this change. The Railway Bank was created but there is still only limited involvement by the private sector in the railway operations in China. Labor productivity. This study allowed MOR staff to consider the basic issues associated with improving labor-productivity. There have been some reductions in the labor-force in recent years. However, there is much left to do if manning levels are to be reduced to levels comparable with railways in the advanced market economies. This remains one of the major challenges for the railways in China, given that labor costs will inevitably increase over time. Human resource development This study was moderately useful. It allowed MOR to examine the issues related to the reform of their organization and development of their human resources so that they are better able to meet the challenges of operating in a market based organization. - 10 -  Housing reform. This study had some value as a vehicle for allowing MOR to think through the issues associated with housing reform. However, it was premature. The Central Government announced a national policy for housing reform only in the late '90s and until then MOR had no authority to implement changes to the existing policies. Technical Assistance The TA component provided technical assistance and training for MOR to carry out three major studies, plus other activities. The three studies were a Rail-Based Container Transport Study, a study of Cost-Effective Technology Evaluation (CETE), and an Environmental Protection Study. Each was designed to prepare action plans for possible implementation under future railway projects. The first two studies have received funding of $300,000 each from the Japan Grant Facility, and the third study received UNDP funding of $200,000, and only $400,000 was covered by the proposed loan. Four other smaller activities were also included in the loan: (i) a small investigation to be conducted by MOR staff to adapt technology for steel-wheel casting from abroad; (ii) technical assistance and training program designed to provide MOR staff with state-of-the-art knowledge and skills in telecomnmunication; (iii) a technical assistance program for preparing computerized container information systems to support the pilot container operation; and (iv) a technical assistance program for adapting and testing TMIS software, and an extensive training program for MOR personnel on how to operate TMIS (in more than 1,000 locations). Rail Based Container Study. This study, and the related investment, has had little obvious impact. The study was completed. However, container operations within MOR are still operated much as before and no separate and commercial "line of business" organization has been established to manage these functions. Cost-Effective Technology Evaluation. Two topics were studied in-depth, (i) raising the axle load to 25 tons from the current limit of 20 tons, and (ii) the appropriate technologies to use for the proposed high-speed passenger line from Shanghai to Beijing. These were two contrasting themes. The first was purely technical and was influential. The design axle load has been raised for many lines and MOR have continued to make good use of the studies of appropriate technology for the high speed passenger line. The second study had very obvious political dimensions given the limited number of international suppliers that could supply the equipment. In this latter case the Bank was able to help MOR make a balanced assessment of the options. The activity was organized as an integrated series of reports, seminars and field trips for MOR staff supported by an array of international experts.  Environmental Protection Study. This study was completed in February 1998 and its direct impact is uncertain, although China Railways is now much more cognizant of its environmental responsibilities. The final product was entitled China Rail Environment Protection Management Plan. An Agendafor Action 1996-2010. It included sections on environmental management, pollution control during construction, pollution control from existing sources, recycling and reuse of waste resources, implementation of clean production technologies, and research and development. The Bank provided comments on the document. However, while we know from our supervision missions that MOR is now tackling environment problems much more vigorously, we have no way of knowing how much impact this study has had or how influential it was in advancing the institution's policies and practices. It is likely, however, that it did assist the staff of MOR as they sought to implement more restrictive national standards. Miscellaneous activities. The investigation of wheel-casting technology was not completed. However, the smaller TA components for telecommunications was completed, the proposed container tracking system has been developed as part of the TMIS and the TMIS training activities were completed. 4.3 Net Present Value/Economic rate of return: For the purposes of preparing this report, the project team only undertook an economic reevaluation of the Capacity Expansion subcomponent of the Sixth China Railway project. Specifically, these include the electrification and modemization of (a) the 694 km double-track Beijing-Zhengzhou line and (b) the 1,094-km single-track Chengdu-Kumning route. Based on the analyses that follow, the reevaluation concludes that based on a discount rate of 12 percent the economic rate of return (EIRR) for the Beijing-Zhengzhou project is equal to 21.9 percent -- slightly higher than the 19.8 percent figure reported in the SAR. For the Chengdu-Kunming component, the economic rate of return calculated here (using the same 12 percent discount rate) is 15.1 percent, lower than the 28.7 percent derived in the SAR. See Annex 3 for more details. 4.4 Financial rate of return: Not calculated 4.5 Institutional development impact: While it is not always clear how the Bank has influenced individual decisions about reform within MOR, the overall impact of our involvement has been very positive. Our advice is frequently sought on railway reform related issues. Over the last few years a number of high level meetings have been held between Bank staff and the Minister and Vice-Ministers of Railway to discuss these issues. Also, given the high irnpact of some of the specific project components, in particular the TMIS and track maintenance, it is clear that this project is having an important and continuing impact on how the railways in China are operated and managed. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: The completion of the works was delayed in both Chengdu and Kunming because of MOR's inability to reach agreement with the local governments about land acquisition. Also, the timely availability of power to this line proved a problem despite assurances given by SDPC at appraisal. - 12-  5.2 Factors generally subject to government control: On the positive side, State Council determined that MOR should reform to meet the needs of a market economy. This forced MOR to make good use of the policy and institutional components included in this project. However, some of the broad reform issues which are under the control of other ministries, such as housing policy and tariffs have still not been fully resolved at the national level. This has meant that the related studies financed under this project have had little or no impact at present but they could still be useful when reform takes place. More parochially, the central procurement agencies lengthened the time required to prepare bid packages and evaluate bid-evaluation reports. This is a persistent problem in China and not a project specific issue. It is also highlighted in the current Country Procurement Assessment Review for China. 5.3 Factors generally subject to implementing agency control: The most serious project problem has been the implementation of the associated resettlement activities. These problems continued for many years. It was only at the tail-end of the project implementation period, in 1999, that MOR took action to appoint a resettlement coordinator in the FCTIO. However, it is acknowledged that since this happened these issues have been handled much more effectively by MOR in all the on-going railway projects. 5.4 Costs andfinancing: The overall cost of the project increased by 25% (in US$ terms). As noted above, these increases were exclusively due to increases in the costs of the capacity expansion works. The cost of the Beijing to Zhengzhou line increased by 42% and the Chengdu to Kunming line by 47%, due to domestic inflation. However, the overall cost of the Bank financed activities was slightly lower than expected. All equipment components yielded savings except track maintenance, the scope of which was increased. 6. Sustainability 6.1 Rationale for sustainability rating: The physical implementation of most projects in China is rarely in doubt. This project is no exception. The two capacity expansion components were completed as expected even if one of them took rather longer to complete than originally anticipated. MOR also knows how to use their physical assets effectively. The smaller components were also implemented satisfactorily and are generally being used effectively. Some, such as the TMIS, are now at the center of MOR's reform efforts. The overall thrust of the policy and institutional programs supported by this project are very likely to be sustained. With the strong encouragement of the State Council, MOR is changing the way China Railways operates. It is adjusting to the needs of a mnarket economy and "back-tracking" is unlikely. 6.2 Transition arrangement to regular operations: The project was implemented by a working railway. Most of the components had a degree of ownership by a part of the organization and are being used effectively. The container component is perhaps an exception. However, even then, the number of containers carried each year by the railways has increased dramatically since appraisal given the increasing importance of container traffic in China. - 13 -  7. Bank and Borrower Performance Bank 7.1 Lending: The Bank managed project preparation efficiently and effectively, and with the active participation of the client. However, in responding to reported pressures from senior management to provide a worthwhile policy framework, the task manager developed an overly complex project Several of the components seem to have had either marginal impact, for example the manufacturing component, or very limited ownership by the client, for example the container component. Also, some of the many studies financed by the project have had only limited impact, either because of a lack of ownership, for example containers, or were in areas of reform over which MOR had no direct control, for example, accounting and housing reform. 7.2 Supervision: In the early years of implementation of this project, the Bank put extensive resources into the preparation of the project. Each component was supervised very diligently. However, once the major studies were completed in the mid-90s the Bank's attention to these issues waned for several years, with a revival in late 1997. However, since 1999 the Bank has not had to force the client to address reform issues. The motivation for further discussions on these issues has come from within MOR. The most obvious manifestation is the two day meeting which the Bank's Railway Advisor had with the Minister of Railways himself-an almost unheard of event in the Chinese context. A QAG review of "supervision quality and safeguard oversight" in 2000 rated the quality of supervision as "marginally satisfactory" because of a lack of attention to the policy components, and inadequate attention to safeguards in the early years of the project. The reviewers considered that the Bank team was too patient with MOR as efforts were made to correct issues related to safeguards, and made overly optimistic assessments of project performance. While the report recognized that supervision quality had improved recently, it was very critical of the quality of reporting between 1995 and 1997. It could be argued that, over the whole life of the project, supervision was satisfactory given the satisfactory project outcomes. However, conservatively, given that there are residual resettlement problems, project supervision is rated as unsatisfactory. 7.3 Overall Bankperformance: Overall, the Bank's performance is rated as satisfactory, despite the lack of attention to the implementation of some of the policy components in the "middle years" of the project. The project has generally achieved its objectives and the physical components have all been implemented. More significantly, a decade after the Bank began preparing the project, MOR is now very serious about reform and some of the tools developed through this project are key to that effort, especially the TMIS. Borrower 7.4 Preparation: MOR worked very closely with the Bank during the preparation of the project. For each of the policies and studies, working groups were established to support the preparation of the study TORs. 7.5 Government implementation performance: No other agency apart from MOR had a significant role in the implementation of this project. - 14 -  7.6 Implementing Agency: Overall, MOR implemented this project satisfactorily. However, there were some significant procurement delays and perhaps of even greater concern is the lack of recognition of the importance of safeguard issues during the early years of project implementation. The legacy of this early lack of attention is still with us since there are some residual resettlement issues associated with the Chengdu to Kunming line which must still be addressed. 7.7 Overall Borrower performance: Overall, MOR's performance was satisfactory. 8. Lessons Learned On balance, this was a successful project. As noted previously, the physical investment components were implemented successfully and some of these are proving to be enormously influential as catalysts of change. Of particular note is the influence the project had on the design and implementation of the Traffic Management Infornation System. This system is proving to be one of the key tools for railway restructuring and reform. It came "to life" through this project. Other components such as the track maintenance component have also been highly beneficial. Also some of the institutional components, such as the further development of the RIS model and the CETE studies have had important impacts. However, some of the components were much less valuable. Hence, it is likely that this project could have had a similar impact with fewer components. There are four important lessons. Firstly, if the Bank expects to influence reform and change, it must make a long term commitment, and build a long-term relationship with its client agencies. Genuine railway reform takes time in most countries (as it also did in the US and Europe). We began working in China in the early 80s, sent the first railway project to the Board in 1984, initiated the preparation of this project and the related discussions about reform in 1991, but reform only began to occur in 1999. This is the sixth national railway project in China and the first completion report in which we can honestly report progress in the area of railway reform. The previous five had only sketched out the layout of the foundations for the reform effort. Secondly, we should never lose sight of the fact that factors well beyond the scope of this project can be major determinants of project success, or failure. If China's economy had faltered or the political developments had been otherwise, then China could have easily shelved railway reform and the policy impact of the project would have been minimal, however much money we had invested in supervising it. The third lesson relates to the excessive complexity of the project. "Christmas trees" are expensive when too well decorated! If a very large project has many investment and institutional development components, they will be expensive for both the Bank and our clients to manage and supervise. A project must examine the costs and benefits of each ornament at the inception stage. There were three categories of components which this project could have done without: (i) The first group of components are those over which MOR has little or no policy influence and where the potential change agents were not in the Ministry of Railways. The accounting, housing and tariff rationalization studies are examples of these types of components. MOF is responsible for the first, State Council for the second, and SDPC for the third. However, it may be too early to discount the potential for positive impacts in the future. - 15-  (ii) The second group consists of those components which have had limited "value-added" and do not support the core railway business. The most obvious case is the manufacturing component. (iii) The last group consists of those which MOR clearly did not want and which have served little purpose. The most obvious example is the container component. While the Bank and MOR now belatedly share the belief that the development of container transport services is important for China, even now we do not share a vision about how to provide them. MOR are still providing these services through a department within its own organization rather than establishing a commercial line of business operation. The mistakes embedded in this project were also built into the later Railway VII project which included an ill-fated container component which was subsequently cancelled. The final lesson relates to safeguards. It is essential that the client fully appreciates the importance and value of the Bank's safeguard policies at the inception of the project. However, in this case, the Bank aggravated the problem by continually "raising the bar". 9. Partner Comments (a) Borrower/implementing agency: 1. Capacity Expansion Component: 1.1 Outcome/Achievement of Objective: 1.1.1 Beijing-Zhengzhou Line: This double-tracked section of line is part of the heavily used Beijing-Guangzhou Line. It passes through an econornically important area in the north central region of China. It carries both freight and passengers between Huabei, Dongbei area and Zhongnan, Huanan, Xinan, Xibei area, at relatively high intensities. The electrification of this line relieved the congested conditions of railway transport form north to south of China, and accelerated the economic development of the areas along the line. It also reduced the pollution to the environment, and enforced the sustainable energy strategy of China. Meanwhile, it reduced the transportation cost of railway enterprises. The overall perfonnance rating of the project is 100%, and good-quality rating is more than 90%, with excellent safety during construction and no significant operating accidents even though construction continued along busy existing lines for long periods. The technical standards used were suitable and the overall planning and design rational. The overall evaluation of the design and quality is very satisfactory. The project represents a great improvement in the scientific and technological standards. In respect of communication, signal, power and so on, a large amount of advanced technologies and equipment have been imported, which accelerated the research and development of the best domestic equipment and the modernization of China' electrified railway system. To increase the loadings of the trains and to speed-up transportation and reduce waste, some matching projects were implemented at the same time as the electrification: the sidetracks of stations have been expanded 1500 m; at grade crossings have been changed into flyovers; new high-speed switches have replaced the old ones. - 16 -  While electrifying the busy main line, the problem of managing the interference between construction and running trains has been managed well. This experience can be applied during the electrification of other busy main lines in the future. The environmental protection measures introduced at the Zhengzhou Railway No. 1 Middle School were important and were highly praised by the School.. Also, tests were made on a 24-hour basis to monitor noise levels at sensitive spots before and after construction, according to the requests of MOR and the World Bank. 1.1.2 Chengdu-Kunming Line: The improvements along this line included the following: * After completion of the project, all receiving and departure tracks of stations have been expanded from 650 m to 850 m, the 50 kg tracks of main line have been changed into 60 kg rail, and the 43 kg tracks of departure tracks have been changed into 50 kg rails. All the tracks of this line were continuously welded which will allow for increases in speed along this line. * The signal equipment along this line (north section) have been interlocked together and more powerful electric/hydraulic switches introduced to ensure the safe transportation. * Optical fiber communication and wireless networks have been provided alongside the line. * The technologies and equipment for the overhead electric system were imported from France, and those of traction substations were imported from Japan, both using advanced technology, and will ensure the reliability of traction power supply. * The wiring for the signalling and power supply have been updated, which ensures the safety and reliability of signals, and power supply and also creates favorable conditions for any increase of power supply. * After electrification, the efficiency of the locomotive depots have reached the highest domestic standards. * In 19 stations along the line, the passenger waiting rooms have been updated, which offers safer and more comfortable conditions for passengers. In 1999, the converted tumover of this line (north section) was: up-direction 8.981 billion ton/kIn; down-direction 4.649 bil.ton/lkm. From January to October 2001: up-direction 8.056 bil.ton/km; down-direction 4.046 bil.ton/km. The passengers originated in 1999: 5.16 million. Form Jan. to Oct. 2001: 4.29 mil.ton/km. Freight originated in 1999: 8.76 rnil. ton; freight delivered in 1999: 9.88 mil.ton. Form Jan. to Oct. 2001: Freight originated 8.02 mil. ton; freight delivered 9.20 mil. ton. Density of goods flow in 1999: up-direction 11.97 mil.ton; down-direction 6.24 mil.ton. Form Jan. to Oct. 2001: up-direction 10.87 mil.ton; down-direction 5.38 mil.ton. Density of passenger wagons: form 27 pairs to 37 pairs. The operating speed rose form 30 km/h to 80 km/h. - 17-  1.2 Sustainability Both the Beijing-Zhengzhou Line and Chengdu-Kunming line are main railway lines in the network of the Chinese Railways. With the rapid economic development of areas along the two lines, the demand for freight and passenger transportation rose quickly. In the future, not only the local volume but also the through volume of freight and passenger transportation will increase steadily. In the "Tenth Five Plan", it is planned to increase the speed of passenger trains. The proposed improvements will include, adjustment of the curves, strengthening and stabilizing the contact system, and reinforcement of bridges. Through the increase in operating speed, the runmning time of the project lines will shortened, so as to satisfy passengers' demand for rapid and convenient transportation. The two projects were implemented while these busy lines continued in operation. The coordination of design, implementation, and construction and the high consciousness of the need to maintain quality were all very important. Advanced and reliable technologies and methods were adopted to ensure the principle of "first, safety; second, quality; third, speed". There were no accidents during the implementation of the project. Under the direct help of experts form the Bank, the environmental protection has assisted the objective of sustainability. All the staff had been trained to use the new equipment and new technologies. All the imported equipment included the required spare parts for more than 2 years of operations. 1.3 The Reasons for Increase of Investments 1.3.1 Beijing-Zhengzhou Line: The Beijing-Zhengzhou Railway Line was an important project in national "Eighth Five Plan". In the 1993 Staff Appraisal Report of the World Bank, the overall estimated budget of this project was $366 millions, of which $112 million was to be provided by the Bank. The actual investment is $518 million , including $102 million from the Bank. It is more than 10 years since the start of the project the actual costs of the investment have increased. The main reasons lay in the rapid development of new technologies, change of technical policies, the national transformation from a planned to a market economy, and rising commodity prices due to domestic inflation. 1.3.2 Chengdu-Kunming Line: * According to the records from MOR, the overall budget of this project was 5.702 billion RNMB, 3.252 billion RUB higher than the initial estimate (2.45 billion RMB). The following are the main reasons: i. An increase of 1.224 billion RMB is due to the difference of cormmodity prices: the initial overall budget was prepared in 1991. With the rapid development of Chinese economy, because of the national transformation from a planned economy to a market economy, prices increased rapidly. For example, from 1991 to 1997, the price of cement increased from 180 RMB/ton to 360 RMB/ton, and that of rolled steel, 1200 RMB/ton to 3400 RMB/ton. - 18-  ii. The initial overall budget was compiled on the basis of Tiejian No. 36 [1991] (an official paper from MOR). With the continuous evolution of Chinese reform, the Additional Regulation of the Budgetary Compiling Method of National Railway Foundation Construction Project, Tiejian No. 55 [1997] was published subsequently. This changed the basis for the calculating the costs and led to an increase of 178 mil. RMB. iii. Furthermore, part of increase of investment (176 million RMB) was for land expropriation. The local economy along the line developed quickly, and the number of buildings rose quickly between the initial investigation to implementation of this project. To protect the benefits of people resettled, and ensure their living standards, the cost of this item had to be increased. iv. Chinese loan regulations were changed. The project used a loan from the National Development Bank, which resulted in additional interest of 349 million RMB. v. Other additional project items, included: a. Chengdu Xihuan Center line: to accelerate local economic development and make Chengkun Line more efficient, a line connecting Chengkun Line and Baocheng Line was added. Cost increased: 274 million RMB. This included the Chengdu West Goods Yard. * b. To perfect the quality of freight transportation and package and parcel service, improve the level of service and working conditions of staff, and protect passengers' safety, four passenger and freight transportation facilities were added to the project, which caused additional investment of 98 million RMB. * c. To improve the operational characteristics of the line, some facilities (such as bridge, culvert, tunnel and so on) had improved, which caused additional investment of 133 million RMB. d. To ensure the quality of potable water, the water supply facilities of Yangang, Nanchangnan has been improved, which caused additional investment of 19 million RMB. e. The cost of using foreign funds, which resulted in a cost increase of 102 million RMB. f. To ensure the maintenance of this line, new quarries were built, which caused additional investment of 20 million. RMB. g. To solve the problem of that the down-direction train started from Xichangnan Station crossed the entry and exit line of depot, a new down-direction connection line was built. This required additional investment of 142 million RMB. h. To improve operation conditions, protect the environment, some additional works were added, which resulted in additional investment of 512 million RMB. - 19-  1.4 Lessons Learned 1.4.1 Beijing-Zhengzhou Line: For a variety reasons, (such as the change of technical policies, actual market conditions, the quick development of new technology, and insufficient up-front preparation), implementation time for Jingzheng project was a little longer than expected. Also, the cost estimates had to be adjusted several times. Following completion of the Zhengzhou to Wuhan electrification project, the electrification project for the Beijing to Zhengzhou line was one of the first construction projects in which the heavy load technology have been regarded as technical policy for a railway with higher operating speeds. But there were no suitable technical standards, specifications and mature domestic equipment and this caused delays. Some of the electrification equipment which it was planned to use originally were not considered suitable for higher speed railway operations. Furthermore, the locomotive signal equipment (TVM-300), imported in 1994-1995, has not been installed. The reason is TVM-300 is not only unsuitable to the data interface of the locomotive monitoring equipment currently in use, but also not satisfactory for a higher-speed railway. The equipment has been in storage for 6-7 years, and the electronic components have aging. 1.4.2 Chengdu-Kunming Line: One of the most important principles of ICB procurement has caused some difficulties--specifically that the bidder with lowest evaluated price wins the bid. In practice, some bidders reduced the price of their bids (even lower than the price of materials) in order to win, but could not carry out the contract or provide the quality of goods specified. This factor influenced the project.implementation time for the project. The bidding documents were compiled according to the initial design in 1993, but the installation and commissioning took place in 1998-1999. So the specification, type, and quantity of equipment imported were not always in accord with actual needs, which caused supplemental procurement, and some surplus procurement, and influenced the implementation time of the project (waiting for the installation and commnissioning of additional equipment procured) The "Three Same Time Project", which means "waitingfor the approval, design at the same time, and construction at the same time", accelerates the infrastructure investment and project input, but because of the differences between initial design, bidding documents and construction design, the specification, type, and quantity of equipment imported were not in accordance with actual need, which caused supplemental procurement, and surplus, and influenced the actual implementation time. 1.5 Land Expropriation and Environmental Protection 1.5.1 Land Expropriation: The land expropriation work of Chengkun Line was monitored by Southwest Jiaotong University from 1993. Meanwhile, the resettlement experts from the World Bank guided and checked the work annually. In 1999, the delegation of the Bank came to Chengkun Line and checked the resettlement conditions, which it then thought satisfied the Bank's requirements. - 20 -  The land expropriation work of Chengkun Line involved in 19 cities and counties along this line. Up to Dec. 2000, 1604 mu land was expropriated, and more than 60,000 square meter of housing were demolished. These activities were managed by the local governments. There were three methods for compensating the affected persons: 1. Redistribution of land; 2. Providing alternative development sites: for example, in cooperation with local government, the Xichangnan Shang District was built to accommodate the affected persons; 3. Cash compensation. The basic assumption of this method was that all who accepted these payments would be volunteers. Beijing-Zhengzhou line was open in 1998. Because of the serious attention of MOR and local governments, the land expropriation work was fulfilled on time. All the people affected were resettled and compensated, and both they and local government were satisfied. Through the above-mentioned policies, the production and living standards of the families affected had been well taken care of and their living conditions were much better than before. Most of them were satisfied with their new houses. In respect of arrangement of production, some people got new land, or were found work after getting compensation. Their incomes generally increased after this arrangement. After getting the compensation for land expropriation, the villages used the money to improve the welfare of their villagers, or to improve the conditions for cultivation. 1.5.2 Environmental Protection Most of the Chengdu to Kunming line passes through a mountainous areas, thus the protection of environment and vegetation was very important. During construction, the slopes have been stabilized, and some additional afforestation took place along the line. Some additional protection has also been included for the trees that have been transplanted during construction. In E'mei and Xichang locomotive and rolling depot, the discharge of wastewater and waste oil has been managed more effectively. Using electric trains, compared with diesel ones, eliminated C02 in tunnels. Th noise protection measures implemented for the Zhengzhou Railway No. 1 Middle School were much appreciated 2. Track Maintenance Component: From 1993-2000, the Engineering & Maintenance equipment procured through the China Railway VI project included: Insulated Joint and Technology, 1500 sets; Track Stretcher, 20 sets; Longitudinal Power Determiner, 2 sets; Ballast Cleaner, 6 sets; 08-32 Damping Machine, 18 sets; 09-32 Damping Machine, 9 sets; 08-475 Damping Machine, 7 sets; Stabilizer, 14 sets; Ballast Regulator, 10 sets; Rail Grinder, 1 set; Rail Welder, 1 set; Inspection Equipment for Large Maintenance Equipment, 3 sets; Demarcating Equipment of Rail Inspection Car, 1 set; Maintenance component of Rail Inspection Car, I set; Demarcating Equipment of Rail Detector Car, 1 set; Computer Auxiliary Design Station, 4 sets; Computer Management System, 1 set, utilizing totally foreign loan 96.5317 mil. USD, and domestic fund 8.086 mil. USD. The operational results of using this equipment achieved or surpassed the predictions at the outset of the project. After the completion of the Railway VI project, there are in total 8 overhaul teams, 26 maintenance teams, and four switch tamping teams. The teams can over-haul 16,000 km of line, maintain 23,400 km of line, and 7200 switches, which ensures more efficient overhaul and maintenance of a significant part of the main - 21 -  lines in China, especially benefiting efforts to increase operating speeds. With the large maintenance equipment, 26 maintenance teams reduce the closed time by about 10,400 hours per year; the interval between overhauls is improved from 7 years to 10 years; and, 8 overhaul teams reduce the closed time about 1,200 hours per year. Meanwhile, the using of large maintenance equipment reduces the labor intensity of works and makes them more consistent. Rail Grinders can cover about 600 km of rail per year, expanding the life of the tracks by about 1.5 times, improving the quality of railway transport, and improving the quality of service for passengers. Rail Detector Cars can cover detection about 6000 track km per year on average, and detect about 80% of rail flaws, which raises efficiency and improves the safety of transportation. With the new track strengthening technologies imported using this foreign loan, the length of the sections of railway line which are jointless has been extended greatly. The lengths of the sections ofjointless track vary from 2 km to 144 km. The total length of jointless track now exceeds 10,473 km, which satisfies the target set in the feasibility report. A data bank management system was created, which can provide many types of reports, statistics, figures and drawings, compile lay-out plans and drawings, and prepare bridge drawings. Flood damage management systems and flood control management system have also been created. Based on the static and dynamic data bank, track maintenance management, plans and forecasting sub-systems were created. With the data collected by inspection equipment, such as the Track Inspection Car, it has been possible to develop statistical models to estimate the deterioration and damage of track components and usable life of tracks can be predicted, and appropriate maintenance plans can be compiled. The computer system can collect, transport, store and handle information accurately, and can provide condition and decision making information on a timely basis. The scientific management of engineering and maintenance department, and rational allocation of funds, materials, and labor can be achieved steadily, which can reduce investment needs, maintain in better condition equipment, and ensure the safety of transportation. The Railway VI Project has played an important role in the improvement of the engineering and maintenance activities of China Railway. Due to the great benefits from this component, the govenmuent has developed an additional program for engineering and maintenance work during "Tenth Five Plan". We hope that special arrangement can be supported by the World Bank. 3. Locomotives and Rolling Stocks 3.1 Project Background Prior to the Railway VI project, MOR had used earlier loans from the World Bank to improve the performance of locomotives, freight cars and passenger cars and to improve their design. Through the Railway VI project, MOR imported equipment to improve the quality of production of key components so as to improve reliability and extend the life of selected components. MOR's factories that benefited from the project, included Tianjin Locomotive and Rolling Stock Machinery Factory, Beijing Nankou Locomotive and Rolling Stock Machinery Factory, Shenyang Locomotive and Rolling Stock Works, Changchun Passenger Car Works, Meishan Locomotive and Rolling Stock Works and Qishuyan Locomotive and Rolling Stock Works. - 22 -  3.2 The Usage of Equipment a. Changchun Passenger Car Works procured a spot welding machine for use when constructing stainless-steel wagons. Unfortunately, initially the machine could not be used normally, because of a shortage of auxiliary equipment. Fortunately, this machine could still be used to help staff learn about spot welding technology and how to choose the correct technical parameters. Now, this machine is used in a key segment of passenger wagon production line. b. Three axis control internal grinding machines and a digital control lathe were procured by Beijing Nankou Locomotive and Rolling Stock Machinery Factory. They were put into operation without significant problems. The digital lathe is used to drill inner holes, and chamfering of oil sprinklers. With its self-diagnosis function, this machine can work in two positions simultaneously, which improves the speed of operation and improves reliability and the expected working life. c. The equipment procured by the Shenyang Locomotive and Rolling Stock Works is mainly used to examine wheel axles. With this equipment, the production rate and repair quality have very obviously improved, and the number of wheel pairs repaired has increased from 150-160 per day (in 1997) to 200 per day. d. In Tianjin Locomotive and Rolling Stock Machinery Factory, the funds were used to purchase a honing machine and horizontal processing center. These machines are used for producing sliding valves, micro moving cylinders and some other high-accuracy components. A CNC cold spring coiling machine was also purchased and is used to produce 240 types of piston springs and other unusual springs. e. The equipment procured by Meishan Locomotive and Rolling Stock Works are mainly used to improve the efficiency and quality of the brake systems. f. The equipment procured by Qishuyan Locomotive and Rolling Stock Works is mainly used in the testing of 410 traction motors and 3000 main power generators, so as to raise the quality of motor repairing and checking. It is estimated that the use of this equipment will reduce the economic loss to MOR by about 8 mil. RMB. 3.3 Result of Project From the above analysis, it is clear that the original objectives of the Railway VI Loan have been fulfilled, playing an active role in the improvement of the quality of products, efficiency, technologies and lowering the cost of railway operations. There were some problems with respect to some components-some equipment can not be used fully or is left unused. The reasons are: 1) the types of equipment purchased were not always suitable 2) the change of agents for particular manufacturers is frequent and the after-sales service is unsatisfactory. 3) to import of spare-parts takes too long and is expensive, which increases the cost of use and maintenance of the equipment. - 23 -  4. Telecommunication and TMIS 4.1 Telecommunication: 4.1.1 General: This sub-component included the telephone switching network, transmission network, data telecomrnunication network, satellite communication network, microwave transmission network and conference telephone network. Through the construction and commissioning of these networks, the performance of the telecommunication network of China Railways was significantly improved. It now meets the needs of a modem railway system and is reliable enough to meet the needs of modem railway dispatching, passenger ticket reservation system, TMIS (Traffic Management Information System) and DMIS (Dispatch Management Information System). 4.1.2 China Railways Communication Network Study (l)Background to the project In support of China's economic reform policies and using the support offered by the World Bank, the Chinese Ministry of Railways has been making great efforts to improve railway communication network over the last decade. By the end of 1996, the total length of the optical cables was over 15, 000 kilometers. This provided digitized connections from the Ministry of Railway to all the railway bureaus and digitized connections between the railway bureaus and 75% of the railway subsections with the total number of digital switches reaching 700,000 units. The first phase of the packet-digital switching network covering all 14-railway bureaus has been put into operation. The first video-conferencing facilities have been constructed using optical and satellite connections. (2)Preparation of Inception Report In accordance with a contract between the Ministry of Railway and America AT& T Solution, the project included 5 sub-items: network optimization, clock synchronization, No.7 signaling, teleconmnunication management network, and the provision of access networks. The project was divided into three parts, beginning in 1997 and ending in 1999. In 1997, experts from AT&T made a field survey and conducted research, discussed with China's experts a working outline and report framework, listed key technologies for each sub-item, held discussions with railway communications departments, and completed some initial studies with China's experts. In 1998, China technology experts went to America AT&T Bell Lab and the AT&T network operation department so as to get to learn about America's telecommunication networks, and studied the key technologies in collaboration with AT&T Bell Labs, completed key sections of the report, and provided a final report to the senior management of the Ministry of Railway. In 1999-2000, additional training was provided for communications personnel within the Ministry of Railway, network optimization software was installed and network management technology experiments were undertaken. - 24 -  (3)Application The recommendations of the Inception Report have been applied in the railway communications' projects in recent years. i. Network optimization A transmission network was implemented using a SDH technical system and network hierarchic structure, composed of trunks, local relay networks and user access networks. The allocation and protection of networks adopted self-healing ring DXC protection and select modes, which have been widely used in the construction of main trunks of railway communications networks, with a total length of 30,000 kilometers. The structure of telephony networks had been optimized from 6 ways to 4 ways (2 ways respectively for long distance and local, reducing the need for nodes, thus facilitating unified management and software development). At present, the total capacity of the telephony networks constructed in this way has exceeded 10 million lines. ii. User access networks Adopting optical access mode, using local central nodes as concentration points, taking advantage of railway stations as network elements, adopting V.5 digital interfaces to connect switches and meeting basic station-sections' digitalization requirements, the access network, at present, boasts of the total length of over 10,000 kilometers. iii. Clock synchronization networks The inception report recommended changing the previous master-slave synchronization mode between the railway clock synchronization networks and ground clock infornation transmission to the current synchronization networks featuring combination of GPS clock and ground clock. The railway networks synchronized in this way have been constructed to support 1 master clock (caesium clock + GPS) and 60 slave clock (Gallium Clock + GPS), addressing all service networks requirements for clock. iv. No.7 Signaling networks The TA report recommended changing the previous 3-leveled signaling networks organized through the independent signaling transition equipment which were all set up in pair for path stations and substations (different nodes set up in one city) to the current 3-level or 2-level hybrid signaling networks structure set up in part of the path stations and substations (one pair of equipment are set up in 510 cities). Currently, 6 pairs of HSTP have been installed, and A and B surfaces have been organized, to support voice services as well as other value-added services. v. Telecommunication management networks In the previous plan, the telecommunication management networks set up two-level management centers, the Ministry of Railway and Railway Bureaus. Now, it has been changed to set up one management center, that is the Ministry of Railway, enabling centralized dispatching and full-network management. - 25 -  In accordance with the inception report, the Ministry of Railway has implemented the first phase of the railway telecommunication management network (transmission fault management system TFMS, network management data transmission system DCN), and established a long distance railway switching network management system (fault management section). Meanwhile, it is undertaking the preliminary preparation works for the network management project with the Railway 7 loan. According to the feasibility report, railway communications have network management system, introduced sub network management system (SNMS, e.g. Lucent ITM-NM , MARCONI MV 38), and implemented full-network and unified circuit management for the transmission equipment from the same vendors. (4) Conclusion It can be concluded that some valuable instructive suggestions had been brought forward in the technical assistance report and adopted, with remarkably beneficial effects. 4.2 TMIS: 4.2.1 Execution of project (1) TMIS Central Processing System The procurement of TMIS central processing system started in 1994. The Borrower published the procurement notice in the newspaper and held the bid opening on May 31 and August 1, 1994 respectivelv. The evaluation lasted for more than 2 years. In August 1996, the World Bank approved the proposal. Two large sets of IBM main system for TMIS arrived on site in 1996. The installation of the hardware and software was completed in December 1996. At the beginning of 1997, the system was tested. Since April 1, 1997, it has been formally operating on a 24-hour basis. Up to now, the operated main projects for Central system are as follows: (a) The first phase of the project for the dispatching system for the Ministry and Bureau was put into operation in July 2000. Manual operations have been stopped totally after adopting the new system. (b) The automatic recognition system for wagon number began tests on a trial basis on March 1, 2001. This system is an important tool for tracking freight wagons. At present, the number of freight wagon, the locomotive number, the freight wagon number and other information can be identified and confirmed in real time at the request of the owning administration and records are kept in the central data base of TMIS. (c) The container tracking system was put into operation fully on March 1, 2001. This system provides real time information about the location of each container. This not only raises the efficiency of management of the containers, but also allows the owners of cargo to check the location of their shipments. (d) The actual report information system has been fully implemented. This system has fully replaced the old telecommunication sending and receiving system. In most branch bureaus, the effective reporting rate is 100%. - 26 -  (e) The application of ticket & freight waybill analysis system. Currently, this system provides a information data base for the Ministry, the railway administration and sub railway administration. When fully developed this system provide information a full set of transport and finance statistics for each administration. Judging from the results of the operation of Central system, the resources of system satisfied the requirements of MOR. The equipment procured is in good working condition. IBM gives satisfactory technical support and provides good quality service. 4.2.2 Consultant's service for the central system CANAC, Canada was awarded the contract for the consulting services associated with the development of the central system. It provided these services between March 1994 to July 1998. The TMIS system was designed to meet the special needs of China Railways with the help of the staff from CANAC. The achievements of MOR and CANAC were as follows: * Design of the TIvUS system, after studying the TRACS system in depth and analyzing the needs of Chinese Railways; * Completing the modifications of the TRACS system; * Building interfaces with the communication network; * Building the required data-bases and developing application software; * On-line testing, in 1997, of the TMIS central system and the interface with the station system information, * The implementation of a pilot was held in the Shanghai Railway Administration in 1998. * Based on the above experience, the software of TMIS Central System has been made amended, improved and the functions enlarged. * The tracking and information systems for freight wagons and container has been set up and put into operation in 1999. The current system has a major problem because of the fact that the basic unit for the information is the station. The TMIS center system adopted the original 80 row input format for TRACS. This is different from the information exchange format for train formation schedule. Hence, the information about the train composition has to be transmitted twice, once for sub-administration, and then to the center mainframe IBM/ES9000 via the server in the sub-administrations. Therefore, the information is transmitted repeatedly and there is congestion on the network. On the other hand, the way that the basic station and depot is reported to the center was inefficient and does not ensure that reports were timely, complete and accurate. So, the method of collecting the information for center system will be changed. The information will be reported from the sub-administration, to the railway administrations and then on to MOR, instead of getting reports from the stations directly. The required 80-row format of TRACS system will be generated in MOR and entered into the TMIS central mainframe. - 27 -  4.2.3 Procurement of small machines in container station and UPS The project procured UPS (Uninterrupted Power Supply) equipment which was installed and utilized in selected container stations. Performance was generally good but in a few stations less than satisfactory. The stations where the machines perform satisfactorily are the following: Guanganmen, Fuzhoudong, Yantai; The stations with fairly good performance of main machine are following stations: Manzhouli, Binjiangxi, Nanjingxi, Lanzhoubei, Tongliao, Dalianbei, Siping; The stations with worse performance are: Liuzhounan, Shenzhenbei, Alashankou. There were some technical problems. Also, in some cases, the end-users do not have confidence in the performance and stability of locally manufactured machines. Further, the time required for bidding is long and tedious, which is not suitable for technologies development of IT. Finally, the guarantee time for the equipment should be expanded, and the technical training should be strengthened. However, despite these difficulties the usage of the UPS is good. 4.2.4 Conclusions: In a word, the TMIS components in the Railway VI project have been implemented satisfactorily. Through competitive bidding, MOR got low priced goods. Furthermore, MOR imported advanced technologies, trained many railway computer skilled staff, and improved the whole level of our technological teams. Due to the complicated processing for procurement and the length of time this took, there were problems. The technology for IT develops very fast and it is inappropriate to spend one or two years preparing the bid documents, bidding and then taking delivery of the goods. During this time the design of the equipment changes very fast so MOR would like to propose that faster procurement procedures should be introduced. 5. Pilot Container Transport Component: This component initiated the modernization of China Railways container transportation. It included to purchase the standard containers, flat wagons dedicated to container transport and some of advanced container loading/unloading equipment and monitoring system. (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10. Additional Information None to add - 28 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: IndicatoriMatrix Projected in last PSR Actual/Latest Estimate CAPACITY EXPANSION COMPONENTS. See text and economic evaluation See text and economic evaluation TRACK MAINTENANCE COMPONENT. Number of locations that exceed 51 (in 1992) 24 (in 2000) emergency repair values per 1 00km of track. LOCOMOTIVE & ROLLING STOCK (In 1991) (In 2000) COMPONENT. DF4 looDmotives Upgraded 0 550 Wagon Upgraded 0 22,000 Ineffectives(%) DF4 locomotives 11.0 7.0 Wagons(in comercial use only) 3.2 2.2 Availability (%) 89.0 94 DF4 locomotives 78.6 80 Reliability (%) 99.6 99.7 DF4 locomotives 9. Absolute ReliabUity (failures/l 00,000 bco-km) 2.75 1.8 DF4 locomotives Productivity (km/day) 478 495 DF4 locomotives TELECOM AND TMIS COMPONENT. TELECOM: (In 1998) (In 1999) Transit Switch Cap. (trunks) 230,000 300,000 Local Switch Cap. (000 lines) 1,500 1,500 Connected Subscribers (000) 1,050 1,100 O.F. Tran. Syst. 140Mb/s (km) 8,110 8,110 O.P. Tran. Syst. 8Hb/s (km) 4,200 4,200 Satellite Earth Stations 15 15 Mobile Sat Earth Stations 1 1 Data Telecom Network Nodes 6 9 Data Telecom NetSubnodes 42 45 Data Telecom Intel. PAD (No.) 111 431 Data Telecom Term. PAD (No.) 110 431 Data Telecom Net Man. Ctrs. 2 2 Conference Network Locations 15 15 TMIS: no required. PILOT CONTAINER TRANSPORT The data below for the year 1992 (in 2000) - 29 -  COMPONENT. Intl. ISO Containers Handled 0.5 330 (000 TEUlyear) Total Container Throughput 45 2209 (000 TEU/year) 1/ PSR: Project Status Report - 30 -  Output Indicators: IndicatorlMatrix Projected in last PSR Actual/Latest Estimate CAPACITY EXPANSION COMPONENTS. Beijing-Zhengzhou; Chengdu-Kunming Beijing-Zhengzhou; Chengdu-Kunming (in 1992) (in 1992) (in 2000) (in 2000) annual traffic volume 28.7 ML.Trips 5.59 MIl.Trips 35.56 MiI.Trips: 6.27M.Trips 218.56Mil.Ton. 12.46Mil.Ton 186.96 Mil.Ton. 16.55Mil.Ton annual throughput (tumover' in ton-km and 19972Ml.Pkm; 3513 Mil.Pkm 24712 MiI.Pkm; 4437 Ml.Pkm pass.-km) 56792Ml.Tkm. 15516Mil.Tkm 33142 Mil.Tkm. 20998Mil.Tkm types of service offered Passenger and Freight Transport Passenger and Freight Transport average speed for trains on the line by (Passenger)50km/h; 52.5km/h; (Passenger)66.4km/h; 56.3km/h; serv%o type (Freight) 29.6km/h; 24.3km/h. (Freight) 41.9kni/h. 26.8kmlh. service reliability (on-time performance by (Passenger)96.1 %; 93.8%; (Passenge098.9%; 95.9%; service type) (Freight) 92%. 99.9% (Freight) 94%. 99.9% accidents by type 0; 1.611time/Mil.km 0; 1.639Ume/Mil.km percent of freight wagon requests granted 65% 60% 75% 75% average unit operating costs (Yl1 0,000 combined ton-km) for each year of operation. 105.45; 359.3 471.115; 540.78 (excludes repair cost) (includes repair cost) TRACK MAINTENANCE COMPONENT. (in 1994) (in 2000) staff savings for track maintenance crews 6,686 2,627 (increased again to increase in track (cumulatve); lengh in service) staff savings for track rehablitaton crews 1,735 7,488 (cumulatve); rail failures due to maintenance; 0.70/1 00km 0.61/100mn accidents due to rail defects 83/per year 65/per year delays due to accidents. (Beijing to 64hrs in total 2hrs and 45rnin in total Zhengzhou and Kuming to Chengdu) LOCOMOTIVE & ROLLING STOCK (In 1996) (In 2000) COMPONENT. average number of kilometers between 260,000 km 300,000 km scheduled maintenance delays due to DF4 locomotive failures 3.2 0.9 (hours/failure); number of DF4 locomotive failures 133 7 44 1km/hr 50.5km/hr average train speed (freight and passenger) DF4 locomobve fuel consumption; 25kg/1 Othousand ton 24.6kg/i Othousand km average unit wagon Maintenance costs 38,000 RMB Yuan 35,000 RMB Yuan average unit coach mintenance costs. 350,000 RMB Yuan 320,000 RMB Yuan TELECOM AND TMIS COMPONENT. TELECOM: (In 1998) (In 1999) Long Distance Automabon (%) 90 95 Intemal Effectve Call Completion Rate (%) 60 80 Speech Satisfacton Degree (%) 99 99 - 31 -  No. of Faults/1 00 DELe/Month 55 30 Average Duration of Fault (hrs) 1.28 0.3 No. of staff/l,000 DELs 50 35 No. of staff/i 00 km Cable 104 90 No. of staff (000) 52.592 69.168 TMIS: (In 1999) (In 2001) loaded wagon kilometers; 284km/per day 266km/per day empty wagon kilometers; 189km/per day 191km/per day wagon tumaround time; 5.48 days 5.09 days average time to obtain a wagon; 15days 1 day staffing level (information system activities). 1600(in 1995) 2000(in 2000) PILOT CONTAINER TRANSPORT (in 1992) (in 2000) COMPONENT. number of unit trains operated in each Harbin-Beijing-Zhengzhou-Guangzhou(H-B- Harbin-Beijing-Zhengzhou-Guangzhou(H-B- corridor; Z-G):8 Z-G):30 Shanghai-Zhengzhou-Xi'an(S-Z-X):3 Shanghai-Zhengzhou-Xi'an(S-Z-X):9 number of container wagons provided by H-B-Z-G: 1600 H-B-Z-G: 4100 corridor (flat care and gonddas); S-Z-X: 500 S-Z-X: 1200 sta on-to-station tme between major O-D H-B:7days;B-Z:3days;Z-G:8days H-B:6days;B-Z:3days;Z-G:6days S-Z:5days;Z-X:3days S-Z:4days;Z-X:2days percentage of on-time service (percent of unit train service arriving within the 12 hour H6B-Z-G: 74% H-B-Z-G: 78% service window) S-Z-X: 72% S-Z-X: 77% End of project 1/ PSR: Project Status Report - 32 -  Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal ActualULatest Percentage of Estimate Estimate Appraisal Project Cost By Component US$ million US$ million BEITING-ZHENGZHOU LINE 327.00 518.49 CHENGDU-KUNMING LINE 363.00 597.12 TRACK MAINTENANCE 45.40 103.30 LOCOMOTIVES & ROLLING STOCK 23.60 20.59 TELECOMMUNICATIONS & TRANSPORTATION 246.40 194.66 MANAGEMENT INFORMATION SYSTEM(TMIS) PILOT CONTAINER TRANSPORT 50.70 31.02 POLICY & TECHNICAL ASSISSTANCE(TA) 9.30 8.05 Total Baseline Cost 1065.40 1473.23 Physical Contingencies 47.80 0.00 Price Contingencies 70.30 0.00 Total Project Costs 1183.50 1473.23 Total Financing Required 1183.50 1473.23 Project Costs by Procureme nt Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method Expenditure Category ICB NCB Other2 N.B.F. Total Cost 1. Works 0.00 0.00 0.00 560.50 560.50 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 399.90 0.00 14.00 186.30 600.20 (399.90) (0.00) (10.00) (0.00) (409.90) 3. Services 0.90 0.00 9.20 1.30 11.40 (0.90) (0.00) (9.20) (0.00) (10.10) 4. Miscellaneous 0.00 0.00 0.00 11.40 11.40 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 400.80 0.00 23.20 759.50 1183.50 (400.80) (0.00) (19.20) (0.00) (420.00) 2/ Local shopping and consultants services. - 33 -  Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) _ _ _ Procurement Method _ _ Expenditure Category ICB NCB Othod N.B.F. Total Cost 1. Works 0.00 0.00 0.00 900.51 900.51 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 397.64 0.00 0.00 167.03 564.67 (397.64) (0.00) (0.00) (0.00) (397.64) 3. Services 3.50 0.00 3.95 0.60 8.05 (3.50) (0.00) (3.95) (0.00) (7.45) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00). (0.00) (0.00) (0.00) Total 401.14 0.00 3.95 1068.14 1473.23 (401.14) (0.00) (3.95) (0.00) (405.09) " Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. 2'Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. Project Financing by Component (in US$ million equivalent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Bank Govt CoP. Bank Govt. CoF. Bank Govt. CoF. BEIJING-ZHENGZHOU 112.00 254.40 0.00 101.58 416.91 0.00 90.7 163.9 0.0 LINE CHENGDU-KUNMING 90.00 317.20 0.00 60.52 536.60 0.00 67.2 169.2 0.0 LINE TRACK MAINTENANCE 47.80 0.20 0.00 95.22 8.08 0.00 199.2 4040.0 0.0 LOCOMOTIVES & 22.00 3.40 0.00 17.56 3.03 0.00 79.8 89.1 0.0 ROLLING STOCK TELECOMMUNICATION 120.00 152.50 0.00 102.74 91.92 0.00 85.6 60.3 0.0 S & TRANSPORTATION MANAGEMENT INFORMATION SYSTEM(TMIS) PILOT CONTAINER 19.00 35.30 0.00 20.02 11.00 0.00 105.4 31.2 0.0 TRANSPORT POLICY & TECHNICAL 9.20 0.50 0.00 7.45 0.60 0.00 81.0 120.0 0.0 ASSISSTANCE(TA) TOTAL 420.00 763.50 0.00 405.09 1068.14 0.00 96.5 139.9 0.0 - 34 -  Annex 3. Economic Costs and Benefits Introduction This Annex presents the economic reevaluation of the Capacity Expansion subcomponent of the Sixth China Railway project. Specifically, these include the electrification and modernization of (a) the 699-km double-track Beijing-Zhengzhou line and (b) the 1,094-km single-track Chengdu-Kunming route. Based on the analyses that follow, the reevaluation concludes that based on a discount rate of 12 percent the net present value (NPV) for the Beijing--Zhenzhou project is Yuan 4.1 billion and the economic rate of return (EIRR) is equal to 21.9 percent -- slightly higher than the 19.8 percent figure reported in the SAR. For the Chengdu-Kunming component, the NPV is just under Yuan 1 billion and the economic rate of return is 15.1 percent, lower than the 28.7 percent derived in the SAR. See SAR, Sixth Railway Project, Report No. 11357-CHA (February 25, 1993) Table 4.1 and Supplementary Volume (February 25, 1993) Working Paper No. 23 [hereafter Working Paper No. 23] Tables 3 and 4. While these reevaluated results are within the range of acceptability, it should be noted that since the preparation and implementation of this project, China railways has been undergoing a major shift in its traffic mix whereby passenger volume has assumed greater significance than heretofore had been the case. To illustrate: following several years of decline, railway passenger volume in absolute terms has been growing. Compared with 1996, for example, railway passenger km in the year 2000 was up by 36.3 percent. Reflecting these increases, the railway share of total passenger traffic (all modes) rose from 35.5 percent in 1998 to 36.6 percent in 1999 and to 37.0 percent in 2000. In the context of the last three decades, these year-to-year increases in railway passenger modal share are unprecedented. National Bureau of Statistics of China, China Statistical Yearbook 2001, Table 15-7. At the same time, railway freight traffic has not expanded as rapidly. Since 1996, railway freight tkms are up by just 7.2 percent - or only about a fifth as much as the passenger increase. As a consequence, the railway share of total freight traffic has declined from 35.6 percent in 1996 to 31.3 percent in 2000. Id, Table 15-9. In part, the growth in railway passenger business is consistent with the Ministry of Railways (MOR) recent emphasis on this sector. Over the last several years, there has been a concerted effort to attract passengers through such service improvements as raising the speed of passenger trains, putting in place more air-conditioned rolling stock, and instituting reliable ovemight service between major cities. This increased emphasis on passenger transportation is reflected in the history of both of the Railways VI line capacity expansions. At the time of project preparation, it was assumed that the growth in freight and passenger traffic would be comparable. Thus, for the Beijing-Zhengzhou line, the SAR anticipated that between 1992 and 2005 freight tkms would increase by 68.3 percent, while passenger traffic on the line would grow by 64.6 percent over the same timneframe. Similarly, on the Chengdu-Kunming route, the SAR assumed that freight and passenger volumes also would rise at similar rates, 108 percent and 122 percent respectively. Working Paper No. 23, Table 1. Nonetheless, consistent with the recent national trends noted above, the contemporary estimates for the two lines that are utilized in this analysis reveal that the growth in passenger traffic will substantially exceed the increases expected in freight traffic. On the Chengdu-Kunming line, passenger-kms between 2000 and 2015 will increase by 53 percent according to MOR -- far faster than the 38 percent expansion estimated for freight tkns (see Tables 4 and 5). The story is the same for the Beijing-Zhengzhou route. Compared with 1998 levels, passenger volumes here are expected to rise 73 percent by 2015, but freight traffic will increase only by a modest 12 percent (see Tables I and 2). In the wake of the completion of the parallel Beijing-Kowloon line in 1996, MOR concluded that the existing route between Beijing and Guangzhou (of - 35 -  which the instant Beijing-Zhengzhou line represents the northernmost portion) should become a primary artery for passenger traffic. See, China: Seventh Railway Project Loan (Loan No. 3897-CHA) Proposed Restructuring and Amendment to Loan Agreement, R99-2 (January 13, 1999) [hereafter Railways VII Restructuring] p. 3, para 9. Consequently, freight traffic that had been anticipated to flow via Beijing-Zhengzhou-Guangzhou would be diverted to Beijing-Kowloon as that line would become the chief freight route for this north-south corridor. The markedly greater growth of passenger traffic for Beijing-Zhengzhou that is now forecast by MOR is consistent with this post-project functional differentiation. Despite this major change in traffic assumptions, the capacity expansion of these two routes continues to be justified from an economic standpoint. THE BEIJING-ZHENGZHOU LINE Direct Project Costs On a financial basis, the total direct outlays of the Beijing-Zhengzhou electrification and modernization project amounted to Yuan 3.9 billion (see Table A). Direct project costs on an economic basis were derived from the financial costs by shadow pricing the labor component of local costs. According to MOR, about 11 percent of local costs were classified as labor expenses. This amount (Yuan 359 million) was shadow priced at a rate of 1.6 reflecting the factor employed in the SAR. Working Paper No. 22, Table 1. TABLE A: ICR Financial and Economic Direct Project Costs (Yuan million) Local Foreign Total Financial 3,344.4 556.7 3,901.1 (current) Economic 3,742.2 513.3 4,255.4 (constant, 2000) The resulting local costs plus foreign outlays were then transforned into constant 2000 Yuan using the annual overall Gross Domestic deflator and the annual Imports of Goods and Nonfactor services deflator respectively. With these adjustments, the economnic direct costs of the project in constant 2000 values are equal to nearly Yuan 4.3 billion as detailed in Table 3. By restating the economic costs of the SAR in 2000 Yuan, it is possible to compare the direct project costs of the ICR and the SAR. The results are shown in Table B. The annual economic costs presented in the SAR are apportioned into local and foreign categories on the basis of the designations presented therein. SAR, Table 3.1, p. 2. Table B: Economic Direct Project Costs (Yuan millions, 2000 prices) ICR SAR ICR/SAR 1992 n.a. 2,171.4 n.a. 2000 4,255.4 3,423.4 1.24 Source: SAR, Working Paper No. 23, Table 3 and Table A. - 36 -  Employing the same domestic and foreign deflators referenced above, these outlays were converted into constant 2000 Yuan. As can be seen in Table B, the ICR direct project cost figure of Yuan 4.3 billion is 24 percent higher than the comparable 2000 Yuan 3.4 billion derived from the SAR. Complementary Costs Several types of complementary expenditures should be included in the overall cost stream of the project. These include capital outlays for railway equipment and the incremental electrical generating capacity necessitated by changing the line from diesel power to electric traction, as well as an annual operating cost for catenary maintenance. Each is quantified in Table 3 and discussed in turn here. Additional Railway CapitaL MOR provided an annual schedule of locomotives and passenger coach acquisitions required to handle the incremental traffic made possible by the project. For the period 1996-2015, these include 273 electric locomotives and almost 4,600 passenger coaches. Based on the economic unit prices provided by MOR (Yuan 8.4 million per electric locomotive and 1.83 million per passenger coach) and allowing for the retirement of diesel locomotives no longer required, the total net amount of additional investment required for railway equipment was derived for each forecast year. New Electrical Generation Costs. In the SAR, the capital cost of the additional electrical generation capacity needed to supply power to the line also was included as a complementary cost. At a unit cost of Yuan 5 rnillion per MW and an estimated 101 MW of new capacity required, the total outlay for this investment is Yuan 505 million. For the unit cost of electrical generating capacity, see Project Concept Document for China National Railways, Annex 4 [hereafter National Railways]; for the capacity needed for the line, see Working Paper No. 23, p. 2. In Table 3, this amount is allocated in equal amounts over the two-year period immediately preceding operation of the new line. Allowance for Catenary Maintenance. Because MOR's costing system does not fully cover the operating expense associated with maintenance of the electrical catenary, the SAR included an annual amount of Yuan 48.9 million as a complementary cost. This was based on a unit cost of Yuan 70,000 per track-kilometer. Updating this figure to a year 2000 value (Yuan 112,000) and utilizing the same 699-km distance, yields a cost of Yuan 78.2 million per year. Project Benefits The benefits of the project fall into three categories (see Table 3). For both passenger and freight traffic, respectively, there are two types of cost savings. One relates to the lower operating cost of electric as contrasted with diesel power, while the other is associated with the modal cost savings achieved by using railway rather than highway transportation. The third benefits category concerns the value-added obtained from the induced traffic made possible by the project. Operating Cost Savings. MOR estimates that the cost savings achieved by converting from diesel to electric traction are Yuan 0.005 per km. Applying this amount to the 50.4 billion tkms of annual volume "base" freight traffic (that is, the amount of traffic that would use diesel power in a "without project" scenario) results in a yearly benefit of Yuan 252 million. For the "base" passenger traffic (18.7 billion pkms), the comparable figure is Yuan 93.5 million per year. - 37 -  Modal Cost Savings. For freight traffic, MOR indicates that the unit cost of electric traction is Yuan 0.04 per tkm. The analysis for Railways VII indicated that the unit cost of highway transportation is about three times that of railway electric traction, or about Yuan 0.12 per tkm here. Railways VII Restructuring, Annex 4, p. 22. The difference in these amounts - Yuan 0.08 per tkm - applied to the annual incremental freight volume, yields the year-to-year modal savings benefits for freight. For incremental passenger traffic, the SAR assumed that the portion that was local and involved comparatively shorter distances was diverted from the highways. In its current projections, MOR indicates that about 25 percent of the incremental passenger traffic is local. With respect to passenger locomotives, the unit cost for electric traction, according to MOR, is Yuan 0.06 per pkm. Utilizing the same three-fold highway multiple noted above, a conservative estimate of the unit cost of bus and automobile transport is Yuan 0.18 per pkm. Thus, the unit cost savings for railway is equal to Yuan 0.12 per pkm. Value-Added. In the SAR, a benefit was also calculated for "induced" freight traffic -- i.e., "new freight traffic that would not have taken place without the project." Working Paper No. 23, p. 4. In light of the transformation of the traffic mix that has occurred on the project line, this category of benefits is more properly attributed to passenger traffic. Consistent with the SAR, it is assumed here that portion of the incremental traffic not already assumed to be diverted (75 percent) should be regarded as induced. To produce an annual benefit, this volume is multiplied by the Yuan 200 value-added per passenger developed for National Railways. Economic Rate of Return and Sensitivity Analysis For the economic reevaluation, net benefits are calculated for the 24-year period 1992-2015 to derive estimates of the NPV (a discount rate of 12 percent was used) and the economic intemal rate of return (EIRR) . As reported in Table 2, the estimated NPV is Yuan 4.1 billion and the EIRR is 21.9 percent. Adjustments were made in three of the base case assumptions in order to test the sensitivity of these results (see Table C). Table C. Sensitivity Analysis NPV EIRR (Yuan millions, 2000 prices) (%) Base Case 4,125 21.9 Reduce operating cost savings by 50 percent 3,491 20.4 Reduce modal cost benefit by 50 percent 3,567 20.9 Reduce value-added Benefit by 50 percent 1,071 15.2 - 38 -  Operating Cost Benefits. The base case postulates the unit operating cost benefit for both freight and passenger traffic at Yuan 0.005. If this value is reduced by half, the NPV falls to Yuan 3.5 billion and the EIRR declines to 20.4 percent. * Modal Cost Savings. With this benefit, the base case assumes that the unit cost savings for freight traffic is Yuan 0.08 and for passenger traffic Yuan 0.12. If these values are adjusted downward by half, the NPV amounts to Yuan 3.6 billion and the EIRR is equal to 20.9 percent. * Value-Added for Passenger Traffic. The sensitivity of this benefit was tested by lowering the unit value-added from Yuan 200 to Yuan 100. This yielded an NPV of just under Yuan 1.1 billion and an EIRR of 15.2 percent. All of these adjustments result in acceptable NPV and EIRR outcomes. THE CHENGDU-KUNMING LINE Direct Project Costs Table D presents the financial and economic direct project costs for the Chengdu-Kunming line. The sources and methodology supporting these calculations are identical to those employed for the analysis of the Beijing-Zhengzhou line described earlier. Compared to a current financial cost of Yuan 4.7 billion, the project after shadow pricing of the labor costs (about 10 percent of overall local expenses) and conversion to constant 2000 values is equal to Yuan 5.0 billion. Table D: ICR Financial and Economic Direct Project Costs (Yuan million) | Local Foreign Total Financial 4,409.4 292.4 4,701.8 (current) . . Economic 4,724.4 287.4 5,011.8 (constant,2000) When translated into constant 2000 Yuan, the direct project costs estimated in the SAR amount to almost Yuan 3.7 billion. Thus, the comparable ICR figure is about 36 percent higher than the restated SAR value (see Table E). Table E: Economic Direct Project Costs (Yuan million, 2000 prices) ICR SAR| ICR/SARP 1992 n.a. 2,354.6 n.a. 2000 5,011.8 3,698.7 1.36 Source: SAR, Working Paper No. 23, Table 4 and Table D. - 39 -  Complementary Costs The categories of complementary costs are the same as those described earlier for the Beijing-Zhengzhou line (see Table 6). There are only modest changes in the calculations. Since no additional freight wagons or passenger coaches are anticipated for the Chengdu-Kunming route, the only additional equipment involves the substitution of electric for diesel locomotives. This results in a minimal net impact on economic costs. In the SAR, the incremental electrical capacity required for the Chengdu-Kunming line amounted to 380 MV. Using the same unit cost of Yuan 5 million per MV in the prior discussion of complementary costs, the total amount here is equal to Yuan 380 million spread over the two-year period immediately prior to the commencement of electrical operations. Catenary maintenance is again valued at a unit cost of Yuan 112,000 per track-km or a total of Yuan 122.5 million per year for the 1,094 km Chengdu-Kunming route. Project Benefits Again the methodology for categorizing and calculating project benefits accords with the approach described for Beijing-Zhengzhou. The operating cost savings for both freight and passenger operations stemming from the conversion to electric traction is Yuan 0.005 per freight or passenger km. This unit cost is applied to the volume of traffic that would have traversed the line in a "without project" scenario. Similarly, the modal unit cost savings from diverting traffic from the highway to the railway are the same as described earlier: Yuan 0.08 for freight and Yuan 0.12 for passenger. These values are applied to 20 percent of the incremental freight kms and to 40 percent of the incremental passenger kms. For the remaining 60 percent of the passenger traffic, it is assumed, as in Beijing-Zhengzhou, that this is "induced" and the unit figure of Yuan 200 per person is again used. In contrast to Beijing-Zhengzhou, the amount of "induced" freight business is significant for Chengdu-Kunming, and therefore merits being regarded as a project benefit. The 80 percent of the incremental freight volume not already categorized as being diverted from the highways is considered to be "induced," and the unit amount ascribed to the value-added freight traffic is Yuan 400 per ton as developed most recently in National Railways. Ibid. Economic Rate of Return and Sensitivity Analysis For the economic reevaluation, net benefits are calculated for the 23-year period 1993-2015 to derive estimates of NPV (a discount rate of 12 percent was used) and the EIRR. As reported in Table 6, the estimated NPV is Yuan 881 million and the EIRR is 15.1 percent. Adjustments were made in the base case assumptions in order to test the sensitivity of these outcomes. The results are reported in Table F. When the unit modal cost benefit is reduced by half, the NPV declines to Yuan 739 million and the EIRR falls to 14.7 percent. Similarly, cutting the operating cost savings benefit by 50 percent reduces the NPV to Yuan 724 million and lowers the EIRR to 14.6 percent. If the value-added benefit associated with the passenger traffic is only half of that in the base case, the NPV drops to Yuan 832 million and the resulting EIRR is 15.0 percent. Should the freight value-added benefit decline by half, the NPV would be equivalent to Yuan 606 million and the EIRR would be 9.2 percent. - 40 -  Table F: Sensitivity Analysis NPV EIRR (Yuan mnillions 2000) % Base Case 881 15.1 Reduce modal cost benefit 739 14.7 By 50 percent Reduce operating cost 724 14.6 Savings by 50 percent Reduce value-added pass. 832 15.0 Benefit by 50 percent Reduce value-added freight 606 9.2 Benefit by 50 percent With the exception of the last adjustmnent, these NPV and EIRR outcomes are satisfactory. - 41 -  Table I Beijing-Zhengzhou Line Freight Traffic, 1990-2015 ons (thousands) . Ton-kilometers (mi lions) _ ________ Without With Without With Year Proiect Proiect Increment Project Proiect Increment 1990 215,379 215,379 - 53,391 53,391 - 1991 219,735 219,735 - 54,641 54,641 - 1992 218,560 218,560 - 56,792 56,792 - 1993 222,219 222,219 - 57,478 57,478 - 1994 218,437 218,437 - 58,429 58,429 - 1995 223,762 223,762 - 59,320 59,320 1996 222,598 222,598 - ___ 56,403 56,403 - 1997 218,562 218,562 - 50,400 50,400 - 1998 218,562 184,523 (34,039) 5 50,400 41,190 (9,210) 1999 218,562 185,028 (33,534j 50,400 33,035 (17,365) 2000 218,562 186,958 (31,604) 50,400 33,142 (17,258) 2001 _ 218,562 209,605 (8,957j 50,400 49,544 (856) 2002 218,562 213,794 (4,768) 50,400 50,005 (395) 2003 218,562 218,112 (450j 50,400 50,471 71 2004 218,562 222,564 4,002 50,400 50,941 541 2005 . 218,562 227,161 8,599 50,400 51,415 1,015 2006 218,562 230,826 12,264 50,400 51,892 1,492 2007 218,562 234,555 15,993 _ 50,400 52,373 1,973 2008 218,562 238,346 19,784 50,400 52,859 2,459 2009 218,562 242,203 23,641 50,400 53,349 2,949 2010 218,562 246,130 27,568 50,400 53,850 3,450 2011 218,562 250,191 31,629 50,400 54,350 3,950 2012 218,562 254,324 35,762 50,400 54,855 4,455 2013 218,562 258,528 39,966 50,400 55,364 4,964 2014 218,562 262,807 44,245 50,400 55,878 5,478 2015 218,562 267,174 48,612 50,400 56,394 5,994 -42 -  Table 2 Beijing-Zhengzhou Line Passenger Traffic, 1990-2015 Tri )s (thousands) Pass-kilometers (millions) Without With Without With Year Prolect Proiect Increment Proiect Proiect Increment 1990 24,116 24,116 16,783 16,783 - 1991 26,527 26,527 _ 18,462 18,462 - 1992 28,701 28,701 - 19,972 19,972 - 1993 30,151 30,151 = 20,982 20,982 - 1994 30,085 30,085 _ 20,936 20,936 - 1995 28,166 28,166 = 19,592 19,592 - 1996 25,306 25,306 17,574 17,574 - 1997 26,932 26,932 _ 18,691 18,691 - 1998 26,932 27,891 959 18,691 19,355 664 1999 26,932 31,152 4,220 18,691 21,632 2,941 2000 26,932 35,557 8,625 = 18,691 24,712 6,021 2001 _ 26,932 36,518 9,586 _ 18,691 25,377 6,686 2002 26,932 37,503 10,571 18,691 26,061 7,370 2003 26,932 38,524 11,592 - 18,691 26,766 8,075 2004 26,932 39,573 12,641 18,691 27,491 8,800 2005 26,932 40,652 13,720 18,691 28,238 9,547 2006 26,932 41,761 14,829 18,691 29,008 10,317 2007 26,932 42,900 15,968 = 18,691 29,799 11,108 2008 26,932 44,071 17,139 18,691 30,613 11,922 2009 26,932 45,274 18,342 _ 18,691 31,447 12,756 2010 26,932 46,511 19,579 = 18,691 32,306 13,615 2011 26,932 46,511 19,579 18,691 32,306 13,615 2013 26,932 46,511 19,579 18,691 32,306 13,615 20 13 2692 46,511 1 9,579 1 8,691 32.306 1 3,15 2014 26,932 46,511 19.579 18,691 32,306 13,615 2015 26,932 46,511 19,579 18,691 32,306 13,615 - 43 -  Table 3 Beijing-Zhengzhou Electrification Economic Rate of Return Calculation COSTS BENEFITS Additional Electric Electric Operating Cost Modal Cost Savings Value- Total Net Savings Added Benefit Year Direct Rwy Equip. Genera- Cat. Total Freight Passenger Freight Passenger Passenger Benefits Cash Project tion Maint. Costs Flow 1992 57.1 57.4 (57.4) 1993 406. 406.4 (406.4) 1994 700.q 700.9 (700.9) 1995 587.1 _ 587.1 (587.1) 1996 935.s 554.4 252.5 1,742.E . ._ _ (1,742.8 199 683. (141.1 252.5 795. . (795.3) 199 835. 1305. 78. 2,219. 252. 93.5 19 . 143.S 509.2 (1,709.8 1999 48.' 42.1 78. 169.i 252.C 93. '- 88. 633.C 1.066.j 897.1 2000 (70.5 78.3 7. 252. 93. 180.6 1,293.E 1.819.8 1,812.1 2001 (10.0. 78. 68. 252. 93. 200.4 1,437.5 1,983.9 1,915. 2002 54._ 78. 133.1 252.( 93.' 221.1 1,585.-, 2,152.2 2,019.1 2003 64. - 78. 143.2 252.( 93.' _ 242.3 1,738. 2.326.5 2,183.3 2004 . 112.' _ 78.3 191. 252.( 93.5 5.7 264.0 1,896.2 2,511.3 2,320.1 2005 455._ 78. 533. 252. 93. 43.3 286. 2,058.C 2,733.1 2,199.6 2006 170.( 78. 248. 252. 93. 81.4 309. 2,224.4 2,960.. 2,712.3 2007 214.( 78.3 292.3 252.( 93. 119. 333.4 2,395.2 3,193.3 2,900.9 2008 262.' 78.3 340. 252. 93. 157. 357., 2,570.S 3.431. 3,091. 2009 299. 78. 377. 252. 93. 196., 382.1 2,751. . 3,676.2 3,298.5 201C 327. 78.3 406.1 252.( 93.' 235. 408.' 2,936.S 3,926.7 3,520.6 2011 319.z 78. 397. 252. 93. 276. 408.' 2,936.5 3,966. 3,569. 2012 319.z 78.3 397. 252.C 93.' 316.( 408.' 2,936.S 4,006. 3,609.( 2013 311.( 78.3 389.3 252.( 93.5 356.i 408. 2,936.S 4,047. 3,657,8 201 311. 78.3 389.3 252. 93. 397.1 408.' 2,936.S 4,087. 3,698. 2015 _ . . 3 1 1L.( 78.3 389. 252.( 93. 438.2 408. 2,936.S 4,129.C 3,739.,7 Total 4,255.4 5,214.5 505.00( 1,409.2 11,384.1 4,536.C 1,682.2 2,623.1 5,336. 38,349.5 52,528.8 41,144.7 .________ ___ _ _______ ________ 68 22; _________ ____ _NPVC 4,125 _____ ____ _____ ____ ~~~~~~~~~~~ ~~ ~~ ~~~~120/c _ _ _ _ _ 44IRR 21.9/ -44 -  Table 4 Chengdu-Kunming Line Freight Traffic, 1990-2015 Tons (thousands Ton-kilometers (millions) Without With | Without With Year Project Proiect Increment Proiect Proiect Increment 1 990 10,880 10,880 - 15,385 15,385 - 1991 11,220 11,220 - 15,290 15,290 - 1992 12,460 12,460 - 15,516 15,516 - 1993 13,340 13,340 - 15,718 15,718 - 1994 13,140 13,140 - 15,633 15,633 1995 13,190 13,190 - 17,750 17,750 - 1996 13,470 13,470 - _ 19,206 19,206 - 1997 14,100 14,100 - _ 19,327 19,327 - 1998 14,210 14,210 - _ 19,375 19,375 - 1999 14,710 14,710 - 18,998 18,998 - 2000 16,550 16,550 - 20,998 20,998 - 2001 17,000 17,200 200 = 21,000 21,600 600 2002 17,000 17,900 900 21,000 22,200 1,200 2003 17,000 18,600 1,600 = 21,000 22,900 1,900 2004 17,000 19,400 2,400 21,000 23,600 2,600 2005 17,000 20,000 3,000 _ 21,000 24,300 3,300 2006 17,000 21,000 4,000 21,000 25,000 4,000 2007 17,000 21,800 4,800 21,000 25,800 4,800 2008 17,000 22,600 5,600 21,000 26,600 5,600 2009 17,000 23,500 6,500 = 21,000 27,400 6,400 2010 17,000 24,500 7,500 21,000 28,200 7,200 2011 17,000 25,000 8,000 21,000 29,000 8,000 2012 17,000 25,000 8,000 21,000 29,000 8,000 2013 _ 17,000 25,000 8,000 21,000 29,000 8,000 2014 _ 17,000 25,000 8,000 21,000 29,000 8,000 2015 5 17,000 25,000 8,000 21,000 29,000 8,000 - 45 -  Table 5 Chengdu-Kunming Line Passenger Traffic, 1990-2015 TrT Ds (thousans) ____ Pass-kiometers_ (illions) Without With Without With Year __ _ Proiect Project Increment =_ Project Project Increment 1990 5,590 5,590 - 2,967 2,967 1991 5,200 5,200 - 3,145 3,145 1992 5,590 5,590 - 3,513 3,513 - 1993 6,790 6,790 - _ 3,692 3,692 1994 __ __ 7,030 7,030 - = 3,940 3,940 1995 6,370 6,370 - _ 3,773 3,773 1996 5,990 5,990 - 3,673 3,673 1997 6,610 6,610 - 3,978 3,978 1998 6,540 6,540 - 4,123 4,123 1999 _ 6,570 6,570 - 4,720 4,720 2000 6,270 6,270 - 4,437 4,437 - 2001 6,300 6,330 30 = 4,500 4600 100 2002 6,300 6,400 100 _ 4,500 4800 300 2003 6,300 6,460 160 4,500 5000 500 2004 6,300 6,500 200 4,500 5200 700 2005 6,300 6,590 290 4,500 5400 900 2006 6,300 6,650 350 4,500 5600 1,100 2007 6,300 6,700 400 4,500 5800 1,300 2008 6,300 6,790 490 _ 4,500 6100 1,600 2009 6,300 6,850 550 = 4,500 6300 1,800 2010 6,300 6,900 600 _ 4,500 6500 2,000 2011 6,300 7,000 700 4,500 6800 2,300 2012 6,300 7,000 700 4,500 6800 2,300 2013 6,300 7,000 700 4,500 6800 2,300 2014 6,300 7,000 700 4,500 6800 2,300 2015 6,300 7,000 700 4,500 6800 2,300 -46 -  Table 6 Chengdu-Kunming Electrification Economic Rate of Return Calculation COSTS BENEFITS Additional Electric Electric Operating Cost Modal Cost Savings Value-Added Total Net _______ Sa vings Benefit Year Direct Rwy Equip. Genera- Cat. Total Freight Passenger Freight Passenger Passenger Freight Benefits Cash Flow Project tion Maint. Costs 1993 145. 145.7 (145.7 1994 196. - 196.3 (196.3 1995 259.7 - 259.7 (259.7) 1996 241.5 - 241.- (241.5 1997 471. - _ 471. (471.7 199E 1069. - 190.( 1259.- (1259.8 19 1563.1 77. 190.C 1830.7 (1830.7 2000 1063. 729.0 122. 1915.3 (1915.3 2001 (1090.0) 122. (967.51 105. 22. 9. 4. 3.< 64.( 209. 1177.( 2002 - 122. 122.5 105. 22. 19. 14.4 12.( 288.( 461.1 338. 2003 - 122. 122.5 105.( 22. 30. 24.C 19.: 512.( 713.1 590. 2004 - 122. 122.5 105.( 22.' 41./ 33.( 24.( 768.( 994. 872.2 2001 - 122. 122.5 105.( 22. 52.1 43.2 34. 960.q 1218.: 1095.8 200 118.3 122. 240.8 105.1 22. 64. 52. 42.( 1280. 1566. 1325.5 200 - 122. 122.1 105.( 22.! 76.0 62.1 48.( 1536.( 1850.' 1728.2 200 - 122. 122. 105. 22. 89. 76. 58. 1792. 2144. 2022. 200 - 122. 122.5 105.( 22. 102.- 86.4 66.( 2080.( 2462.: 2339.q 2010 155.1 122.1 277.1 105.( 22. 1 15.' 96.( 72.( 2400.( 2810. 2533.1 2011 - 122. 122.6 105.1 22. 128. 110.C 84.( 2560. 3009. 2887.4 2012 _ 122. 122.5 105.( 22. 128.( 110.4 84.q 2560.( 3099. 2887. 2013 122. 122.5 105.( 22. 128.( 110., 84.( 2560.( 3009. 2887. 2011- 122.5 122.f 105.( 22.! 131.~ 110., 84.( 2560.( 3013.1 2890.6 2015 122. 122. 105. 22. 128. 110. 84. 2560. 3009. 2887. Total 5011. (10.1 380.0_ 1960. 7342.1 1575. 337. 1244. 1046. 800. 24480. 29484.1 22142. _ = == = = ==NPV@ = 986 _ _ _ _ _ _ ______ ____ _ _ _ _ _ _____ _ _ _ _ ______ ~~~~ ~~~~~ ~ ~~120/c _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ IR R : . 15.10/ _ -47 -  Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 10/91 8 1 Railway Specialist, I Railway Engineer, 2 Financial Analysts, I Management Information System Specialist, I Railway Advisor, 1 Transport Specialist, I Economist 3/92 11 I Railway Costing Specialist, 2 Economists, 1 Financial Analyst, I Telecommunications Engineer, 1 Railway Equipment Engineer, 1 Railway Engineer, 1 Management Information System Specialist, I Railway Advisor, I Railway Specialist, 1 Transport Specialist 5/92 2 2 Resettlement Specialists Appraisal/Negotiation 6/92 12 1 Railway Costing Specialist, 2 Economists, 1 Financial Analyst, I Telecommunications Engineer, I Railway Equipment Engineer, 1 Railway Engineer, 1 Management Information System Specialist, 1 Container Transport Customer Service Specialist, I Container Transport Specialist, I Transport Specialist, I Operations Supervision 3/93 6 1 Railway Specialist, 4 Railway Engineers, 1 Transport Economist 6/93 7 1 Railway Specialist, 5 Railway Engineers, 1 Transport Economist 6/93 7 1 Financial Analyst, I Railway S HS Advisor, 1 Management Information System Specialist, I Economist, 1 Railway Engineer, 1 Container Transport Specialist 10/93 5 1 Financial Analyst, 1 Railway S HS - 48 -  Specialist, I Transport Specialist, 1 Economist, 1 Railway Engineer 3/94 1 Telecommunications Engineer 5/94 1 1 Railway Equipment Engineer 10/94 9 7 Railway Engineers, I Railway Investment Specialist, I Railway Specialist 12/94 1 Railway Management Specialist 5195 1 Railway Management Specialist 6/95 3 1 Telecommunications Engineer, S S 2 Railway Engineers 6/95 1 Telecommunications Specialist 8/95 I I 1 Railway Specialist, 8 Railway Engineers, 2 Transport Economists 10/95 J 1 Environment Specialist 11/95 6 1 Management Information S S System Specialist, 1 Railway Management Specialist, 1 Financial Analyst, I Transport Specialist, I Railway Engineer, I Railway Costing Specialist 3/96 4 1 Financial Analyst, I S S Economist, 1 Transport Specialist, I Railway Engineer 5/96 1 Railway Investment Specialist 6/96 2 1 Telecommunications Specialist, S S 1 Railway Engineer 10/96 1 1 Railway Engineer S S 10/96 10 1 Railway Specialist, 6 Railway Engineers, 1 Transport Economist, I Container Transport Specialist, I Operations 3/97 1 1 Railway Engineer S S 5/97 1 1 Environment Specialist 9/97 1 1 Environment Specialist 10/97 1 1 Railway Engineer S S 12/97 1 1 Resettlement Specialist 3/98 1 1 Railway Engineer S S 6/98 3 1 Environment Specialist, I S S Resettlement Specialist, 1 Telecommunications Specialist ICR 5/99 3 Supervision - 1 S S Environment Specialist, 2 Resettlement Specialists 9/99 5 Supervision - 1 Financial S S Specialist, 1 Railway Advisor, I Telecommunications Specialist, 1 Operations, 1 Financial -49 -  Management 11/99 5 Supervision - 2 Resettlement S S Specialists, 1 Environment Specialist, I Engineer, I Operations 12/99 1 Supervision - I Resettlement S S Specialist 12/00 5 Supervision - 1 Transport S S Specialist, I Railway Specialist, I Engineer, 1 Economist, I Operations 6/01 1 Supervision - 1 Environmental S S Specialist 11/01 3 ICR - I Transport Specialist, 1 S S Resettlement Specialist, 1 Engineer (b) Staff: Stage of Project Cycle [ Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 126.1 389.3 Appraisal/Negotiation 127.3 401.9 Supervision 250.1 731.6 ICR 9.9 25.5 Total 513.4 1,548.3 - 50 -  Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating L Macro policies O H OSUOM O N * NA O Sector Policies O H *SUOM O N O NA L Physical O H *SUOM O N O NA L Financial OH OSUOM ON *NA L Institutional Development 0 H * SU O M 0 N 0 NA O Environmental O H OSUOM O N O NA Social O PovertyReduction OH OSUOM ON O NA O Gender O H OSUOM O N O NA f Other (Please specify) O H OSUOM O N O NA Resettlement Li Private sector development 0 H O SU O M 0 N * NA Li Public sector management 0 H 0 SU O M 0 N 0 NA O Other (Please specify) O H OSUOM O N O NA - 51 -  Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU-Highly Unsatisfactory) 6.1 Bank performance Rating 2 Lending OHS Os OU OHU FX Supervision OHS OS * U O HU fZ Overall OHS OS O U O HU 6.2 Borrowerperformance Rating * Preparation OHS OS O U O HU Z Government implementation performance O HS OS O U 0 HU 5J Implementation agency performance OHS OS O U O HU Z Overall OHS OS O U O HU - 52 -  Annex 7. List of Supporting Documents The World Bank, Staff Appraisal Report, China Sixth Railway Project, February 25, 1993. The World Bank, Loan Agreement, China Sixth Railway Project Between The People's Republic of China and Intemational Bank for Reconstruction and Development. The World Bank, Office Memorandum, China: Sixth Railway Project(Railways VI)(Loan 3581-CHA), Proposal to Use Loan Savings. May 31,2000. The World Bank, A QAG Assessment, Supervision Quality and Safeguard Oversight in Six Projects in China, August 25, 2000 The World Bank, No. 1 to No. 19 Project Status Reports for the Sixth Railway Project, from 1993 to 2001 - 53 -