China - Inland Waterways Project

Documentof The World Bank ReportNo.: 34595 PROJECTPERFORMANCE ASSESSMENT REPORT PEOPLE'S REPUBLIC OF CHINA INLANDWATERWAYS (CREDIT 3910-CHA) December5,2005 Sector, Thematic and GlobalEvaluation Division Independent Evaluation Group  Currency Equivalents(annual averages) Currency Unit = Chinese Yuan Renminbi (CNV 1995 US$1.oo CNY 8.35 1996 US$1.oo CNY 8.31 1997 US$1.oo CNY 8.29 1998 US$1.oo CNY 8.28 1999 CNY 8.28 CNY 8.28 US$1.oo US$1.oo US$1.oo 2000 2001 CNY 8.28 2002 US$1.oo CNY 8.29 2003 US$1.oo CNY 8.29 2004 US$1.oo CNY 8.29 Abbreviations and Acronyms CAS Country Assistance Strategy DWT Deadweight tons (weight of a ship including cargo) ERR Economic rate o f return F D I C FCdCrationInternationale d'IngCnieurs-Conseils FRR Financialrate ofreturn Guangxi Province Guangxi Zhuang Autonomous Region GCD NationalElectricity Grid GWh Gigawatt hours (=lo00 KWh) GXWCDC Guangxi Xijiang Waterway Construction and Development Corporation HPCD HunanProvincial Communications Department HXNCDC HunanXiangjiang Navigation Construction andDevelopment Corporation IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IEG IndependentEvaluation Group IWW InlandWaterways MOTC MinistryofTransport andCommunications P A 0 Project Administration Office PPAR Project Performance Assessment Report Rmb Renminbi; Chinese Yuan (currency) S A R StaffAppraisal Report TEU TwentyFoot Container Equivalent ZPPWA Zhejiang Provincial Port and Waterways Administration FiscalYear Government: January 1-December 31 Director-General, Evaluation : Mr.VinodThomas Director, Independent Evaluation, World Bank : Mr.Ajay Chhibber Manager, Sector, Thematic and Global Evaluation : Mr.AlainBarbu Task Manager : Mr.PeterFreeman  i m n h a n c i n gdevelopmenteffectivenessthrough excellenceand independencein evaluation. I About this Report The Operations EvaluationDepartmentassessesthe programsand activitiesof the World Bank for two purposes:first, to ensurethe integrityof the Bank`sself-evaluationprocessand to verifythat the Bank'swork is producingthe expected results,and second, to helpdevelop improveddirections,policies,and proceduresthrough the disseminationof lessonsdrawnfrom experience.As partof this work, IEGannuallyassessesabout 25 percentof the Bank`s lendingoperations. Inselectingoperationsfor assessment,preferenceis givento those that are innovative, large, or complex;thosethat are relevantto upcomingstudies or countryevaluations;those for which ExecutiveDirectorsor Bank managementhave requestedassessments;and those that are likelyto generate important lessons. The projects,topics, and analyticalapproachesselectedfor assessmentsupport larger evaluation studies. A Project PerformanceAssessment Report (PPAR) is based on a review of the ImplementationCompletion Report (a self-evaluation by the responsibleBank department)and fieldwork conducted by IEG.To prepare PPARs, IEG staff examine project files and other documents, interview operationalstaff, and in most cases visit the borrowing country for onsite discussionswith project staff and beneficiaries.The PPAR thereby seeks to validate and augment the information provided in the ICR, as well as examine issues of special interest to broader IEGstudies. Each PPAR is subject to a peer review process and IEG managementapproval. Once cleared internally,the PPAR is reviewed by the responsible Bank departmentand amended as necessary.The completed PPAR is then sent to the borrower for review; the borrowers'comments are attached to the document that is sent to the Bank`s Board of Executive Directors.After an assessment report has been sent to the Board, it is disclosed to the public. Aboutthe IEG RatingSystem The time-tested evaluation methods used by IEG are suited to the broad range of the World Bank's work. The methods offer both rigor and a necessary level of flexibility to adapt to lending instrument, project design, or sectoral approach. IEG evaluators all apply the same basic method to arrive at their project ratings. Followingis the definition and rating scale used for each evaluation criterion (more information is available on the IEG website: http://worldbank.org/OED/eta-mainpage.html). Relevanceof Objectives: The extent to which the project`s objectives are consistent with the country's current development priorities and with current Bank country and sectoral assistancestrategies and corporate goals (expressed in Poverty ReductionStrategy Papers, CountryAssistance Strategies, Sector Strategy Papers, Operational Policies). Possible ratings: High, Substantial, Modest, Negligible. Efficacy: The extent to which the project'sobjectiveswere achieved, or expected to be achieved, taking into account their relative importance.Possible ratings: High, Substantial, Modest, Negligible. Efficiency:The extent to which the project achieved, or is expected to achieve, a return higher than the opportunity cost of capital and benefitsat least cost compared to alternatives. Possible ratings: High, Substantial, Modest, Negligible.This rating is not generally applied to adjustment operations. Susfainabilify:The resilienceto risk of net benefitsflows over time. Possible ratings: Highly Likely, Likely, Unlikely, Highly Unlikely, Not Evaluable. lnsfitutional DevelopmentImpact: The extent to which a project improves the ability of a country or region to make more efficient, equitable and sustainable use of its human, financial, and natural resources through: (a) better definition, stability, transparency, enforceability,and predictability of institutionalarrangements and/or (b) better alignment of the mission and capacity of an organizationwith its mandate,which derives from these institutionalarrangements. InstitutionalDevelopment Impact includes both intended and unintended effects of a project. Possible ratings: High, Substantial, Modest, Negligible. Outcome: The extent to which the project's major relevant objectives were achieved, or are expected to be achieved, efficiently. Possible ratings: Highly Satisfactory, Satisfactory, Moderately Satisfactory, Moderately Unsatisfactory, Unsatisfactory,Highly Unsatisfactory. Bank Performance: The extent to which services provided by the Bank ensured quality at entry and supported implementationthrough appropriatesupervision (including ensuring adequate transition arrangements for regular operation of the project). Possible ratings: Highly Satisfactory, Satisfactory, Unsatisfactory, Highly Unsatisfactory. BorrowerPerformance: The extent to which the borrowerassumed ownership and responsibility to ensure quality of preparationand implementation,and complied with covenants and agreements, toward the achievement of development objectives and sustainability. Possible ratings: Highly Satisfactory, Satisfactory, Unsatisfactory, Highly Unsatisfactory.   ... 111 Contents PrincipalRatings .............................................................................................................. iv Key StaffResponsible ...................................................................................................... iv Preface ................................................................................................................................. v Summary .......................................................................................................................... vu .. 1 Background . .................................................................................................................. 1 Project Objectives.................................................................................................... 3 Sub-project Components and Costs.,....................................................................... 3 2 Results . ........................................................................................................................... 4 Zhejiang ProvinceProject (River ports 'of Hangzhou, Jiaxing and Huzhou) ..........4 Guangxi ProvinceProject...................................................................................... 10 3 Ratings . ........................................................................................................................ 14 Outcome................................................................................................................. 14 Relevance............................................................................................................... 14 Efficacy .................................................................................................................. 15 Efficiency ................................................................................................................ 15 Institutional Development Impact.,........................................................................ 16 Sustainability.......................................................................................................... 17 Bank Performance ................................................................................................. 18 Borrower Performance .......................................................................................... 19 4. Conclusionsand Lessons ........................................................................................... 19 Annex A BasicDataSheet . .............................................................................................. 22 Annex B ProjectStatistics . .............................................................................................. 25 TableB2InlandWaterway ProjectERRSummary .................................................... 26 This reportwas preparedbyPeterFreemanand Thomas Kennedy. who assessedthe projectin June 2005. The reportwas editedbyWilliam Hurlbut. andRomaynePereiraprovidedadministrative support.  iv PrincipalRatings ICR* ICR Review* PPAR Outcome Satisfactory Satisfactoj Satisfactory Sustainability Likely Likely Likely Institutional Development Impact Substantial Substantial Substantial Bank Performance Satisfactory Satisfactory Satisfactory Borrower Performance Satisfactory satisfactory Satisfactory * The Implementation Completion Report (ICR) is a self-evaluation by the responsible operational division of the Bank. The Evaluation Summary (ES) is an intermediate IEG product that seeks to independently verify the findings of the ICR. Key StaffResponsible Project TaskManager/Leader Division Chief/ Country Director Sector Director Appraisal Mohammed Rasheed Richard Scurfield Nicholas C. Hope Completion Toshiro Tsutsumi Jitendra N. Bajpai Yukon Huang  V Preface This is the Project PerformanceAssessment Report (PPAR) preparedbyIEGfor the China:InlandWaterwaysProject (Loan 3910-CHA). The loanwas approved on June 20, 1995 for an amount o f US$210million equivalent. The Chinese Government (central government, provinces, and municipalities) was to provide an additional US$319.3 million and a Chinese bank was to provide a further US$27.5 million. The borrowers were the Departments o f Communications o fZhejiang, Hunan, and Guangxi provinces, and their allocations were guaranteed by the People's Republic o f China. The date o f loan effectiveness was November 29, 1996, and the loanwas closed on schedule on June 30,2001, with US$185.9 milliono f the funds disbursed. An amount o f US$24.1 millionwas cancelled. The unusedportion o f the loan resulted from savings due to competitive biddingfor power generation units inGuangxi Province. The project was chosen for assessment because it was the first Bank loan for the inlandwaterway sub-sector inChina andbecause it i s one o f only a few such projects funded by the Bank worldwide. The project consisted o f separate subprojects ineach o f the three provinces. IEGpreparedthis report based on an examination o fthe relevant StaffAppraisal Report (SAR), Implementation Completion Report (ICR), legal agreements, project files and archives, as well as other relevant reports, memoranda, and working papers. Discussions were also held with a number o f existing and former Bank staff in Washington DC, as well as inChina. An IEGmission visited China inJune 2005, conducted site visits, and discussed both the project and the effectiveness o f Bank assistance with government officials and stakeholders. Their kindassistance is greatly appreciated. Following standard IEGprocedures, copies o f the PPAR was sent to relevant government officials and agencies for their review and comments but none were received.   vii Summary China has benefited from one o f the highest sustained growth rates inthe world over the last 25 years, but the pace at which infrastructure can be provided has not always matched this extraordinary growth. Nevertheless, the transport network is extensive and expanding rapidly. Inlandwaterways are particularly attractive for bulk transportation because they are environmentally friendly, andthe China InlandWaterwaysProject (Loan 3910-CHA) was an opportunity to establish a platform for future similar projects elsewhere. An interesting feature is the dual nature o f the project - to improve waterway capacity by constructing dams that could also be used for power generation. Inthe case ofthe HunanandGuangxi provinces the project aimedto improveport facilities and construct ship locks around the dams. Sources o f income from the project were expectedto include sales o f electric power and fees paidby vessel owners for passage through the ship locks. The Bank also supported the expansion o f capacity and modernization o f the facilities inthe Zhejiang province, which hadno power generation component. The three provinces were selected because o f their potential for economic growth, the expectations o f traffic increases along their inlandwaterways, and the year- round navigability o f these waterways. Ineffect the scheme ineach o f the three provinces was a separate sub-project, but as the objectives were common it made sense to package the sub-projects into one aggregate project under a single loan. The project had five specific objectives: to (i)improve inlandwaterway management through organizational and financial reforms; (ii) expand waterway capacity by constructing dams to increase the water level and deepen channels to improve navigation; (iii) improve connections between waterway and landtransport bybuilding new and equippingexisting ports; (iv) generate hydroelectric power by using waterway dams (Hunan and Guangxi); and (v) enhance the capabilities o f the waterway management entities inthe three provinces. The outcome o f the project i s rated as satisfactory. Construction o f all planned infrastructure was completed to a highstandard, but traffic to some o f the transfer port facilities didnot materialize inthe volumes expected due to changes inthe market following the deregulation o f the transport sector. There was also some delay in compensation payments to residents affected by the creation o f the reservoir inGuangxi Province, but all o f these payment issues have now been resolved. No safeguard contraventions were recorded and a good overall rate o f return o f 22 percent was achieved for the project. Average vessel size increased and power output from the dams equaled or exceeded projections. The assessment considers the objectives o f the project fully achieved. The institutional development impact i s rated substantial.The project has ledto the development o f two corporatized entities responsible for the implementation o f the project inGuangxi andHunanprovinces, where a power generation component was included. InZhejiang Province, the project was implemented by a Project Administration Unito ftheZhejiang ProvincialPort andWaterways Administration andthe repayment o f the loanwas effected through the provincial treasury; control systems for quality o f work,  viii timingandpayment were inaccordance withthe Federation Internationale d'hgknieurs- Conseils (FIDIC) conditions, and dam safety panels were set up under the project and continue to be used for similar projects o f this nature. The assessment considers the sustainability o fthe project likely.With the improvedinfrastructure inplace, a competitive tariff structure for inlandwaterway transport as well as a strong income base from sale o f electric power, the project enables the provinces to benefit from both these income streams. The training component was also successfully completed, increasingthe likelihood o fproject sustainability. Several progressive ideas and innovative concepts were developed as a result o f this training. Bankandborrower perfonnance are rated satisfactory.Preparationo fthe project took about 31months. However, the result was a project that was successfully implemented andresulted ina sustainable stream o fbenefits. The implementation organizations ineach province coordinatedwell with Bank staff and prepared the project consistent with Bank regulations. Lessons Learned 9 Inland waterways can be an eficient and environmentallyfYiendly transport mode for bulk goods conveyance where the market demand is strong and when such projects are developed incoordination with the other modes o f transportation. Additional benejts can be derived when dams constructed to deepen water channels are also usedfor hydro-electric power generation. Insuch cases a separate corporate entity is required to operate the facility effectively. 9 A thoroughassessmentof both themarket and the risks in the realization of trafic projections is essentialfor inland waterwayprojects. Traffic forecasts and monitoring indicators should be analyzed carefully and the risks assessed thoroughly duringpreparation. 9 Inland waterwayprojects should consider the inclusion of guidelines to encourage andexpedite the modernization process o f shippingusingthe waterways, inorder to help ensure that vesselfleet eficiency keepspace with the level of service provided by the improved infrastructure. Vinod Thomas Director-General Evaluation  1. Background 1.1 Since 1980, China has had one o f the highest sustained rates o fper capita income growth inthe world. Per capita GDP (at constant prices) doubledbetween 1980 and 1990; thendoubled again between 1990 and 2000. The sustained stability inChina's economy throughout this period o fhighgrowth i s generally attributed to the gradual approach to reform inChina inwhich institutional changes have preceded or accompanied policy changes. 1.2 Despite these dramatic economic growth statistics, some shortcomings are being urgentlyaddressedbythe government as well as through project implementationby internationalfinancial institutions. Such shortcomings include inequality o f development betweenregions and environmental degradation. The outcomes ofthe ChinaInland VatenuaysProject indirectly relate to both o f these issues, although they were not part o f the project objectives. 1.3 Strong economic growthhas beenconcentrated primarily inthe coastal provinces, as it has beeninthese regions that economic reforms and strong economic development have taken place duringrecent years. Many of the inlandprovinces face risingunemployment and increasing social tensions between the people and the government. This rising disparity inregional growth has adversely affected China's otherwise admirable progress inpoverty reduction. Between 1990 and 2000 the number o fpeople living on the equivalent o f one dollar a day fell by 170million; while during the sameperiodthe population increasedby 125 million. Over the past 20 years, China has accounted for nearly 75 percent o fpoverty reduction inthe developingworld. 1.4 Withregard to the environment, China's air andwater quality are a cause o f concern; seven of the ten most polluted cities inthe world are loiated inChina. Appropriate investmentprojects which include economically stagnant regions and which support environmentally favorable transport modes clearly assist the easing o f these economic inequalities and helpreverse the trend o f degradation o f the environment. 1.5 Chinahas an extensive transport network o f railways, highways, waterways, and ports, but this network remains unable to fully meet all the needs o f its rapidly growing economy. Evenwith recent increasesinthe country's highway andrailway networks, lack o ftransport capacity continues and a highpriority i s placed on alleviating congestion. 1.6 Inlandwaterways, taking advantageo f existing large navigable rivers, are an important element o fthe transport system. They are a cost-effective transport mode for bulkygoods such as agriculturalproducts, buildingmaterials, coal, andother commodities over medium to long distances. The waterways also have an environmental advantage, with a low fuel consumption rate per unit-kilometer hauled compared with other transport modes. Nevertheless, China's once extensive waterway network has, over time, been reduced from 172,000 kilometers in 1961to approximately 110,000  2 kilometers today due to underinvestment, removal of some sections o f the network, and constructiono f dams without ship locks (effectively eliminating waterway transport on some rivers). 1.7 The project assessedinthis PPARwas intendedto stem the trendtowards a diminishingwaterwaynetworkby expanding capacity andmodernizingthe waterways of Zhejiang, Hunan, and Guangxiprovinces. These provinces were selected for the project becauseo f their potential for economic growth, the expectations o ftraffic increases along their inlandwaterways, and the year-round navigability o fthe waterways concerned. Guangxi has the highest incidence o f poverty among the three provinces' with nearly 35 percent o f its counties designated as "poverty counties". Per capita income during 2004 was Rmb 5,944 inZhejiang, Rmb 2,838 inHunan, and Rmb 2,305 inGuangxL2Although the latter provinces were not the poorest areas inChina, they had substantial navigable waterways and met the criteria for inclusion. Through this mix o fprovinces, the project contributedto the government's objective o f reducingthe development imbalance between the fast-growing coastal provinces and the less prosperous inland regions. 1.8 InZhejiang, the needto removewaterwaybottlenecks hadlong ago been identified. Some construction projects innearby Shanghai hadbeeninterruptedbecause o f delays inthe transportation o f construction materials from Zhejiang, while a local power planthad on occasion ceasedoperations for lack o f coal. Botho f these key commoditieswere carried by the inlandwaterway system. InHunanand Guangxi, the project was designedto improve shippingchannels on the Xingjiang (a tributary o f the Yangtze River, and the Xijiang, which flows into the Pearl River to Guangzhou). An interestingfeature inthese provinces was the dual nature ofthe project to improve waterway capacity by constructing dams that could also be usedfor power generation. 1.9 Theproject aimed not only at improving infrastructure along the waterways but also at improving the organization andmanagement o f the waterway network. Market reforms already begunby the government were strengthenedand deepenedthrough the implementation o f the project. 1.10 The rationale for the Bank's involvement was fully consistent with the Country Assistance Strategy (CAS) for China, discussed by the Boardin 1995. This strategy aimed to help alleviate infrastructure bottlenecks, reduce poverty, safeguard the environment, and introduce macroeconomic and structural reforms. Although this was not an explicitly poverty-focused project, the benefits would clearly help to reduce imbalances between Hunan, Guangxi and the better-off coastal provinces. 1.11 Nineprevious Bank-fundedhydro projects inChinahave demonstrated the need to enhance implementationquality and accelerate sector and enterprise reform to increase efficiency. Based onprevious experience this project provided for technicalpanels responsible for ensuringdam safety and for assisting inreaching agreement on adequate 1.Analysis and Evaluation of thePresent Situation of Socioeconomic and Rural Roads in China'sMajor Poverty Stricken Area, State DevelopmentPlanningCommission, Beijing, November 1998. 2. China Statistical Abstract; 2005.  3 pricing o fpower suppliedby the project. The panels provedto be highly successful in both Hunan and Guangxi andthe concept will be continued for similar projects inthe future.The Project Project Objectives 1.12 The project had five objectives: to (i) improve inlandwaterway management through organizational and financial reforms; (ii) waterway capacity by expand constructing dams to increase the water level and deepenchannels to improve navigation; (iii)improve connections betweenwaterway andlandtransport bybuildingnew and equippingexistingports; (iv) generatehydroelectric power byusingwaterway dams; and (v) enhance the capabilities ofthe waterway management entities inthe three provinces. The objectives generally apply to project components ineacho fthe three provinceswith the exception o fZhejiangProvince, where the project didnot include dam constructionor power generation facilities. I t should benotedthat, except for the last objective the focus was on outputs rather than outcomes. 1.13 The project financing plan, amounting to US$ 556.8 million, consisted of a US$210 million loan from the Bank,US$319.3 million from government (central government, provinces, andmunicipalities) and US$27.5 million from a localbank loan; the actual cost was US$592.4 million, or six percent higher than the appraisal estimate, primarilydue to increasedcivilworks andresettlement costs inHunanandZhejiang provinces. 1.14 The loan from the Bank was to cover the fareign exchange portion o ftotal project cost. Only US$185.9 milliono f the Bank loanwas disbursed, however, primarily becauseo f savings from competitivebiddingfor the power generation units inGuangxi; US$24.1 millionwas cancelled. Sub-projectComponentsand Costs Table 1: InlandWaterways Sub-projectComponentsandTotal Costs Components Total Project Costs (US$ millions) Appraisal Actual Guangxi: Construction of dam and ship lock at Guiping channel, improvement of 246.4 229.0 the Xijiang channel, and installation of power generation facilities at the dam. Technical assistance, training, land acquisition, and resettlement. Hunan: Construction of dam and ship lock at Dayuandu, channel improvement of 211.8 237.7 . the Xiangjiang waterway, installation of hydropower generation facilities at the dam, and expansion of two ports, Hengyang and Zhuzhou. Technical assistance, training, land acquisition, and resettlement. Zhejiang; Improvement of four major waterway channels and construction of 98.6 125.7 three river ports at Huzhou, Jiaxing, and Hangzhou to link with land transport. Technical assistance, training, land acquisition, and resettlement. Total cost 556.8 592.4  4 1.15 Three independent sub-project components were separately located inGuangxi, Hunan,andZhejiangprovinces (the percentage shares incomponent costs are shown in brackets ineach case). The Guangxi components included construction o f a dam, ship lock and channel improvement (5 1.O percent), power generation and ship lock equipment (27 percent), technical assistance andtraining (12.5 percent), and land acquisitionand resettlement (9.5 percent). The Hunan components consisted o f construction o f a dam, ship lock, channel improvement andterminals at two ports (55.1 percent), power generation and ship lock equipment (34.0 percent), technical assistanceand training (4 percent), and land acquisition andresettlement (6.9 percent). The Zhejiang components comprised channel improvements and construction works at three ports (66.0 percent), supply o f equipment for port operation (2.7 percent), technical assistanceandtraining (1.9 percent), as well as land acquisition andresettlement (29.4 percent). 1.16 Exogenous events ledto unavoidable increases insome project costs. Heavy flooding inthe Hunan and Guangxi provinces during 1996, delayed project implementation and requiredmodification o fthe dam designs to increase reinforcement works and raise the level o fthe cofferdams. InZhejiang, the channel design was modified andupgradedto allow passageof larger vessels of 500 dwt andto beconsistent with the standards inneighboring Jiangsu Province. Landacquisition and resettlement costs were also increased to add embankment protectionthat would reduce inundated landin reservoir areas. 2. Results Zhejiang Province Project (River ports of Hangzhou, Jiaxing and Huzhou) Objective I:Improve waterway management by introducing organizationa1 and financial reforms in line with the market economy 2.1 The implementationo fthe project was the responsibility o f a Project Administration Office (PAO) within the Zhejiang Provincial Port and Waterways Administration (ZPPWA). A development corporation similar to that inHunanand Guangxi provinces was not established inZhejiangbecausethe Zhejiang project didnot include dam andpower generation capability. 2.2 Income from waterway transport inZhejiang consists o f four elements: (i) waterway maintenance fees (57 percent); (ii) transport management fees (14 percent); (iii) servicesfees(18percent),and(iv)vesselfees(11percent).Historically,the port waterways were subsidized by the province so there was little incentive to collect additional revenue, but the tariff systemwas radically overhauled andmade self- financing under the inlandwaterways project. Financialmanagement and accounting practices were upgraded to conformwith internationalbest practice. By 2004, the total  5 incomehadrisento Rmb 290.3 million (about US$35 million). This canbe compared with operating costs o fthe waterways systemthat amounted to Rmb 108.3 million(about US$13 million), indicating a strong financial performance by the waterways system in 2004 inthe province. Proceeds from these charges are collected by the local municipalities and deposited inthe general revenue account o f the province. Funds neededfor the operation andmanagement ofthe waterways arerequestedbythe Port and Waterways Administration from the provincialtreasury and are not directly linkedto revenue. 2.3 The overall financial performance o fHangzhou was satisfactory with operating and working ratios within an acceptable range (40-60%). Jiaxing and Huzhou showed less revenue than anticipated and short-term liquidity problems, but profitabilitywas better than expected. 2.4 Figure 1shows trends inincome andexpensesofwaterway charges onthe 190 kilometers o fwaterways improved under the Inland Waterway Project inZhejiang. It can be seenthat the profitability increased markedly after project completionin2001. Figure 1: Zhejiang Province: Profitability of lWWl Waterways (Rmb millions) -.-._Expenses Income 2.5 The operation o fthe port facilities inHangzhouimproved under the project i s also now the responsibility o f a private company, a move inline with both borrower and Bankobjectives to increase therole oftheprivate sector inthe emergingmarket-driven economy. Formerly, the HangzhouPort Services CompanyLtd. was partially ownedby the government, but inJune 2004, with the encouragement of the government, the company became ajoint stock company, with 40 shareholders and no government participation. This company is making a profit (annual revenues o f about Rmb 50 million andcosts ofRmb40 million) on its operations, including chargingfull depreciation for assets. Similar options (not part o f the project) are under consideration for Jiaxing and Huzhou. The assessmentconsiders this objective to befully achieved.  6 Objective 2: Expand waterway capacity by widening and deepening channels to improve navigation 2.6 A total of 190.3 kilometers of canal channelswere reconstructed; 140kilometers were reconstructed to Class 43and 50.3 kilometers to Class 5.4Inaddition, 49 bridges were constructed. 2.7 Three channels were improved to Class 4 standard: Beijing-Hangzhou Canal, Hangzhou-Shanghai Channel, and the downstream section o fthe Changxing-Huzhou- Shanghai Channel. Reconstructionwas originally intendedto be to Class 5 standards, but the standardwas upgraded to Class 4 to be consistent with the standards inneighboring Jiangsu Province. Two channels were improvedto Class 5 standard: Zhapu-Jiaxing- Suzhou Channel and the upstream section o fthe Changxing-Huzhou-ShanghaiChannel. 2.8 These channel improvements have catalyzed a strong increase inaverage vessel size on the waterways o f the province. Figure2 shows that the average vessel size has increased steadily since 1995 strengthening the economic benefits o fmovingbulk goods inlargevessels. Figure 2: Zhejiang Province: Average Capacity of Vessel (net tons) Hangzhou ' .......Jiaxing -.-._Huzhou ~ 2.9 At a locationbetweenHangzhou and Jiaxing, anew 3 kilometer-longwaterway was also constructed to avoid a low bridge that was limitingtraffic on the old channel. Thebridgewas ahistorical monument and couldnot be dismantled, but was the cause o f manywaterway accidents as the structure narrowed the effectiveusableportion ofthe channel. The assessment considers this objectivefully achieved. Objective 3: Improve connections between waterway and land transport services 2.10 Port infkastructure was improved inHangzhou, Jiaxing, andHuzhouto permit more efficient transfer to landtransport. These investmentswere conceived when China 3. Class 4 channel accommodates vessels up to 500 tons carrying capacity. 4. Class 5 channel accommodates vessels up to 300 tons carrying capacity.  7 had strong centralplanninginthe transport sector, throughwhich traffic was "directed" to eachmode. Duringproject implementation, the market changed overnight when each mode became free to compete for traffic. This deregulation affected the usage o fthe ports and hence the type o f facility required. 2.11 InHangzhouthe originalintentionwas to buildabulkmaterials transfer port primarilyfor sand. However, duringproject implementationthe ZPPWA realizedthey should construct port facilities suitable for handling steel products. This modificationwas carried out (withBank approval) and the facility handledapproximately 1.5 million tons o f steel bars in2004. It was estimated that the steel berthconstructed underthe project now accounts for about 40 percent o f all steel handled at Hangzhouport; the total quantityofsteelmovedduring2004 was approximately 3.75 milliontons, while the S A R estimate was 3.3 milliontons by 2000. 2.12 In Jiaxing andHuzhouthe funds from the InlandWaterways Projectwere used to construct coal transfer facilities. The Jiaxing coal facility was later sold, however, following the radical market changes andthe government has usedthe sale proceeds to modifythe terminal to handle grain. It will commence operations shortly. InHuzhou, the Bank financed a coal transfer facility, construction o f a warehouse, and handling equipment for the transfer of commodities from railto river androadtransport. During 2004 the IEGmission found that a modest 325,000 tons were beinghandledby the Bank- financed component ofwhich 162,000 tons were coal. The grain terminal was still under construction. 2.13 While the facilities are not now beingusedintwo o f the three ports as originally envisioned, they will be usedproductivelyinventures that support increased competition, animportant element ofthe transitionof China's market economy. The Borrower and the Bank deserve recognition for their adaptability and resourcefulness inthe circumstances. Currently only at Hangzhouare the traffic projectionsbeingmet infullbecauseo f these unforeseen circumstances, but the imminent opening o fthe grain terminal at Jiaxing and changes inoperations at Huzhou are expected to increase traffic handledat these terminals substantially. The assessmenttherefore considers this objective modestly achieved. Objective4: Generatehydroelectricpower by using waterway dams 2.14 The project inZhejiang Provincedidnot include a component for dam construction or electric power generation. Therefore the evaluation o f this objective i s not applicable inthis province. Objective5: Enhance the capabilitiesof waterway management entities 2.15 Overseas training comprising 121.5 person-months for 141persons was carried out. This training resulted inseveral important changes to the ZPPWA approach to the water transport business. Examples include a pilot development o f container transport by waterway and the introductiono f landscaping along the banks o f the waterways.  8 2.16 Although the container pilot project i s still inthe initial stages, during2003 a total o f 10,000 containers (TEUs) were already beingmovedthrough the ports o f Hangzhou, Jiaxing, and Huzhou. Facilities for handling containers at these ports are now under improvement (not part ofthe Bank-fundedproject) andit is expected that tonnages will continue to increase inthe foreseeable future. 2.17 The landscaping concept hasbeen applied along the banks o fthe canals in Zhejiang Province and will be continued as part o f aninlandwaterway beautification program. The assessmenttherefore concurs that training definitely enhanced the capabilities o fthe ZPPWA significantly and this objective wasfully achieved. Hunan Province Project Objective 1:Improve waterway management by introducing organizational and jinancial reforms in line with the market economy 2.18 HunanXiangjiangNavigationConstruction andDevelopment CorporationLtd. (HXNCDC) was authorized bythe Hunanprovincial government and established by the HunanProvincial Communications Department (HPCD) inNovember 1994. This state- owned corporation is responsible for planning, construction, and operational management o fXiangjiang navigation infrastructure projects. Income from the power generation at the Dayunduhydropower station hlly funds the operating costs o f the facility, administration expenses, andrepayment o fthe debt. While the project includes the construction o f a ship lock to enable waterway traffic to pass the dam site, it i s the policy o f HPCD not to impose ship lock charges on vessels. The reasoning i s to promote waterway traffic on the Xiangjiang and becausethe power generation provides a good source o f income to finance the ship lock construction costs and operating expenses. This strategy was agreed withthe Bank duringimplementationo fthe project. 2.19 The HXNCDC's finances haveresultedinaprofitable positionand acceptable operating ratios. The IEGmissionreported that the operating ratio has improved consistently since 2000 and that the working ratio has increased slightly; both ratios are within an acceptablerange. (See Annex B, Table Bl).Financialmanagement and accounting practices conforming to internationalstandards were introduced. The assessmentconsiders this objectivefully achieved. Objective 2: Expand waterway capacity by widening and deepening channels to improve navigation 2.20 Theprimarycomponent ofthe project was the construction o f a dam, ship lock, powerhouse, and dam-crest highway bridgeon the Xingjiang at Dayuandu, some 62 kilometers downstream o fHengyang. Behind the Dayuandudam, the water level was raised, making the channel deeper andwider. With the completiono fthe Zhuzhou dam byAugust 2006, the section o fthe Xiangjiang betweenDayuandudam and Zhuzhou will bewider and deeper as well. This improvement intheriver transport system canbe seen inthe increased averagenet tons pervessel. From 1999to 2004, the averagenet tons per vessel increased by approximately 10percent, from 176net tons to 192net tons. During  9 the early 1 9 9 0 the Xiangjiang south ofChangsha couldnot accommodate vessels ~ ~ greater than 1,000 tons capacity. Now, with the completiono fthe Dayuandudam, as well as other river improvements under other projects, vessels o f over 1,000 tons can navigate as far south as Henyang. 2.21 A total of4.38 milliontons was movedalongthewaterway throughthe ship lock during2004; traffic inprevious years is shown inFigure3. It canbe seen that the completion o fthe project resulted ina markedincrease inthe number o f vessels. This has held steady duringthe last few years and there has beena marginal increase inthe total net tons carried, aresult o f the increasing vessel size on the waterway. Major commoditiesmoving throughthe ship lock are shown inAnnex B, Figure B1.The assessment considers the objectivefully achieved. I Figure 3: Vessels and NetTons passing through ~ Dayuandu Shiplock 1 #.................................. ~ 25000 20000 15000 Number of Vessels 10000 .......Net Tons (000) 1 . . 5000 ...................................... 0 - - - - - _ - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -* ~ Objective 3: Improve connections between waterway and land transport services 2.22 Theproject includedport improvements at Zhuzhou andHenyang, specifically, the addition ofone berthat theport ofZhuzhou and two berths at the new port o f Henyang.Primary commodities handled at theport o fZhuzhou are containers, and at Henyang, timber andbuildingmaterials. At both locations, the inlandmovementof goods i s by road transport. During2004, traffic handledat the Henyangport amounted to 13,750 cubic meters o ftimber and 6,700 tons o fbulk commodities; at Zhuzhou, a total o f 8,655 TEUs were handledduringthe same period. 2.23 Theports o fZhuzhou and Henyangare operated bythe administrative entities o f their respective municipalities. Fundsusedfor upgradingthese portswere from the domestic funding component o f the InlandWaterway Project. Includedinthe Monitoring Indicators o f the S A R are year 2000 port tonnages for Henyang and Zhuzhou o f 4.3 and 3.3 million tons, respectively. As the HXNCDC does not have full authority over each individualport along the river at these municipalities, the PPAR mission was unable to obtain comparative tonnage data. However, port improvements were completed andthe ports are functioning as planned, the assessment therefore considers this objective substantially achieved.  10 Objective 4: Generate hydroelectricpower by using waterway dams 2.24 The powerhouse has four through-flow bulbturbine generator units, eachwith a capacity o f 30 megawatts with a total capacity o f 120megawatts, the average annual output i s 585 kilowatt hours. Electricity was generatedby the new facility beginningin December 1998, six months,aheado f schedule. Annual power output and income from the sale o fpower are showninTable 2. Inthe SAR it was projected that by the year 2000, annual power output from the Dayuandudam would be 430 gigawatt hours (GWh); actual power generation was 404 GWhin2000 and has grown steadily since (except in 2003). The amount o frainfall, which varies from year to year, affects the output that can beachieved. This objective essentially hasbeensubstantially achieved. Table 2: Power Output andIncomefromDayuanduHydropowerJunction 1999 2000 2001 2002 2003 2004 Output (GWh) 160 404 487 521 458 526 lncome(OO0 Rmb) 32,000 118,660 123,240 140,560 125,230 149,540 Objective 5: Enhance the capabilities of waterway management entities 2.25 Duringthe 90 person-months ofoverseastrainingprovidedfor HXNCDC staff, construction techniques o f dam andpower generation projects were studiedindetail. One uniquefeature ofsuch facilities inChinawas implementedat Dayuandu: apowerhouse with a removable roof. This designprovides easy access to the powerhouse facilities by means o f a gantry crane mountedon the dam. This construction technique increased the effective utilization o fthe facility, as the crane can move along the entire lengtho fthe damto maintainsluice gates duringoperation as well as to install generator unitswithin the powerhouse. The traditional designofthe powerhouse is ahighstructure, with difficult access. Dayuanduwas the first dam inChina to include such an innovation and this feature has also beenincorporated inthe designo f the dam andpower generation facility at Zhuzhou, due to be completed in2006. 2.26 The trainingprovidedcritical instructionandexperience for many o fthe younger engineers o f HXNCDC. Itresultedinthe project being successfully implementedand some innovations indam construction, as noted above. Infact, the construction project was awarded the National HighQuality Award o fthe People's Republic o f Chinaby the Ministry o f Construction. The IEGmission commends this development and considers the capability objective to befully achieved. GuangxiProvinceProject Objective1:Improve waterway management by introducing organizational and financial reforms in line with the market economy 2.27 The Guangxi Xijiang Waterway ConstructionandDevelopment Corporation (GXWCDC) is a state-owned corporation and was established in 1999by the Guangxi Provincial Government for the purpose o f operating the Guigangship lock andpower  11 generation facility as well as to undertake future navigationimprovement projects on the Xijiang. As aresult ofthe overseastraining of GXWCDC staff, a financial system consistent with internationalaccounting standards was established for cost control and to establish procedures for debt repayment, project maintenance, and new project construction. The GXWCDC finances are sound with an (after tax) profit and acceptable operating and working ratios. (See Annex B, Table Bl). The IEGmissionreportedthat this positivetrendhadbeenmaintainedthrough2004. 2.28 Theprimary income o ftheproject is from sales o f electric power to the Guangxi power gridfrom the Guigangpower station. Revenue from this power has enabled the GXWCDC to maintain financial self-sufficiency while generating sufficient cashboth for operation as well as for loan repayments. This objective i s deemedfully achieved. Objective2: Expand waterway capacity by widening and deepeningchannels to improve navigation 2.29 Theprimaryfocus ofthe project was construction o f a dam, power generation capability, and a ship lock at Guigang, approximately 110kilometers downstream from Naming on the Xijiang. Constructiono f the damraised the water level upstreamto permitvessels of class 3 (1,000 tons). Inaddition, channel improvements (primarily dredgingandreefdemolition) were made over approximately 105 kilometers o fthe river betweenGuiyang andNaming. The improvement o fthis section o fthe river was an important component inimproving the 847 kilometers o fthe Xijiang betweenNaming andGuangzhou. This project complemented arecentlycompleted dam and ship lock at Guiping, 110kilometers downstream from Guigang. 2.30 Currently vessels must pay a fee o fRmb 0.40 per ton to pass through the ship lock. The annual yield from these charges i s about Rmb 1million, or about US$120,000 (2004). Compared with income from power generation, this i s relatively minor and discussion i s under way to possibly eliminate this charge inthe future. The policy o f assessingship lock charges varies byprovince -Hunandoes not have such charges, but Zhejiang does. The combination o f channel improvements and construction o fthe Guigang dam and ship lock have resultedinsteadily increasing average vessel size. For example, in 1998, the average vessel rated capacity passing Guigang was 132 tons; the project was completed in2001 and by 2004 average vessel size had increased to over 250 tons. Average capacity and number o f vessels passing through Guigang ship lock are shown inFigure 4 for 1998 through 2004.  12 Figure 4: Vessels Passing Through Guigang Shiplock Awrage capacity .-.-...Numberofwssels (000) 2.31 A negative aspectofthe results inGuangxi is that the traffic volume expected through the Guigang ship lock projected at appraisal o f 7.5 million tons bythe year 2000 proved overoptimistic. To realize the projected traffic on the river, several independent projects unrelated to the InlandWaterway Project should have beenundertaken. Constructiono f a coal terminal at Baise (with a plannedcapacity o fbetween 4 and 5 million tons per year) has not beencompleted, deprivingthe system o f a major intermodal transfer point from roadhailto inlandwaterway transport downstream. Another uncompleted project i s an additional ship lock at Xijing, whose single two-step ship lock and damfacility constructed duringthe 1960scontinues to be abottleneck. Completion o f the Naming-Kunming railway line in 1997 was expected to bring coal to the river transshipment center for further movementby inlandwaterway but, thoughthe railway line was constructed the transshipment facility has yet to bebuilt. Consequently, coal traffic that was to have movedby inlandwaterway i s now movedby rail. 2.32 Theprimary reason for delaying the constructiono fthe Baise coalterminal is the outstanding requirementto prepare an environmental impact assessment, inaccordance with the Chinese regulations. This study has not yet beenundertaken. The Xijing ship lock i s under the authority o f the national electricity grid and GCD has no authority to enforce more strict operating conditions at the ship lock. On average, the Xijing ship lock i s opened about five times per day; the Guigang ship lock, however, i s opened 10-12 times per day. This means the waiting time i s much longer at the Xijing facility. While the traffic projectionsfor the year 2000 were not achieved, the assessmentfinds no element o f the project implementationor design that could have preventedthis situation. The assessmenttherefore considers this objective modestly achieved. Objective 3: Improve connections between waterway and land transport services 2.33 The project provided an improvedwaterway systemthat enhanced accessibility within the regionand complimentedthe existing landtransport links intheregion, including the newly completed (1997) Nanning-Kunming railway and the Tanlou-Baise highway (an expressway to the northwest o fNanning funded with an Asian Development  13 Bankloan approved in2005). While therewere no specific infrastructure improvements as part o f the InlandWaterway Project to facilitate intermodal linkages, the existence o f the improvedwaterway, with increased capacity, with other port improvement projects will intime make the Xijiang corridor amulti-modal linkinsouthwestern China. 2.34 The assessment considers this objective not applicableto the specific components o f the project inGuangxi, though incombination with other port improvement projects this objective likelywill be achieved inthe future. Objective 4: Generate hydroelectricpower by using waterway dams 2.35 A hydropower station with a capacity o f 120megawatts and an annual power output o f 600 GWhwas constructed including a 60 kilometer-longpower transmission line5.Inthe SAR, the target for power generation duringthe year 2000 was 555 GWh; actual power production during that year from the Guigang facility was 560 GWh. During2004, powerproductionwas 544.5 GWh, while during2003 itreached 645.7 GWh. Annual actual power productionis variable and subject to the availability o fthe amount o frainresultinginhighwater levels; duringyears o f lower rainfall, generating capacity o fthe facility i s decreased. Taking into account the monitoring indicators identifiedinthe SAR, andthe power production data during recent years, the assessment considers this objectivefully achieved. Objective 5: Enhance the capabilities of waterway management entities 2.36 Theproject included 1,228 person-months oftraining (506 person-months o f domestic training and 722 person-months o f overseastraining), coveringpolicy support, implementation support, and institutional strengthening. This training provedto be self- sustaining, as the persons trained are now training other GXWCDC staff. 2.37 Moreover, the training was instrumental inequippingthe GXWCDC management for the transition to working as a corporatized entity.An important aspect o f the trainingwas the introduction of strong financial management. Internationally accepted accounting principleswere applied to the GXWCDC and enhancedthe level o f both financial reporting and cost control. 5. The price paidby the power transmission organization to the GXWCDC i s 30 fenper kilowatt hour. This price resulted from negotiations between the power supplier and transmission company. However, such negotiated prices mustbe approvedby the Provincial Pricing Bureauand ReformDevelopment Commission. Prices approved by these organizations are the result o f submissions by the power producing organization demonstrating their cost o fproduction, as well as the political realities inthe region o f establishmg a particular price for energy. There is not a uniform sellingprice o f electricity to the power transmission company inGuangxi. For example, with the recent increase inthe price o f coal, thermal power generating units have had higherprices approved. Inaddition, some foreignjoint venture enterprises have also had higher rates approved, on the basis that foreign loans mustbe repaid.  14 2.38 A further impact ofthe technical training ledto aredesign ofthe pressure oil pump inthe power generation facility. The original design includedcontinuous running o f the pump, resulting inhightemperatures and the needfor frequent water coolingto preventoverheating. A pump systemthat included intermittentrunning, which greatly reduced the need for cooling water, was implemented(the cost o fproviding this cooling water was reduced by two-thirds). The capabilities o fwaterway management inGuangxi were enhancedas aresult o fthe project andtherefore the assessment considers this objectivefully achieved. 3. Ratings Outcome 3.1 The aggregate outcome o f the entire project (which comprises three sub-projects) i s rated satisfactory. While the five project objectives did not apply uniformly in each o f the three provinces, construction o fall civil works were completed, and insome cases standards exceededthose indicatedinthe original project specifications. Although the objectives are stated inoutput rather than outcome terms, reducedtransport costs, relative to the alternatives o froad and rail, were clearly a major outcome. This reductionwas derivedfrom lower transit time at ship locks andport terminals as well as economies o f scale from the use o f larger vessels. Table 3 summarizes the achievement o f all the objectives for each o f the sub-projects. Table 3 Summary ofthe Achievementof Objectivesinthe InlandWaterways Project I Sub-project Objl Obj2 Obj3 Obj4 Obj5 I Type Reform Capacity Connections Generation Training Zhejiang ,Substantial Full Modest Not Applic. Full Hunan Full Full Substantial Substantial Full Guanaxi Full Modest Not Applic. Full Full Overall Full Full Modest Substantial Full Outcome:Satisfactory Relevance 3.2 The relevance o fthe project objectives is high.The infrastructureimprovements coupled with the organizational and financial reforms included inthe objectives are fully consistent with the Bank's Country Assistance Strategy (CAS) and Government o f China's commitment to transition to a market economy. The Bank's strategy inthe transport sector was to alleviate infrastructure bottlenecks, reduce poverty, safeguard the environment, andintroducemacroeconomic and structural reforms. The project i s consistent with this strategy by (a) improving and expanding transport andpower generation infrastructure where supply constraints existed; (b) increasing transport  15 efficiency by improving inter-modal linkages; (c) introducing financial and organizational reforms inthe inlandwaterway sub-sector aimed at commercialization of operations and financial independence; and although not direct project objectives, (d) focusing 79 percent o f project investment intwo relatively poor provinces and (e) promoting an environmentally preferable type o f transport. Efficacy 3.3 The efficacy o f the project i s rated substantial. Most major elements o f each objective have been achieved ineach province, resulting inincreasedpower generation capability, larger vessel sizes and a more productive inlandwaterway system. There were differences inthe structure o f the implementing organizations: inZhejiang Province, a Project Administration Unitwithin the existing Zhejiang Provincial Port and Waterways Administration while inHunanand Guangxi, corporatized entities were created. The assessment finds these two different types o f organizations for implementation both worked according to the prevailing circumstances ineach case and didnot affect the quality o f implementation. InZhejiang Province investments incoal transfer facilities (rail-river transfer) at Huzhou and Jiaxing were not fully utilizedbecause o f the impact o f ongoing reforms inChina's transport sector. Overall, however, waterway traffic increasedinZhejiang Province and because the average size o f vessels increased, the realization o f project benefits was achieved. 3.4 Interms o fachievement ofpower generationtargets as set out inthe monitoring indicators at appraisal, Hunan Province is close to target ( S A R estimate 430 GWhby 2000, actual production was 404 GWh), while the Guigang DaminGuangxi exceeded the appraisal estimate ( S A R estimated 555 GWh, actual production was 560 GWh) during2000. Generationpotential, however, is variable depending onthe rainfall. 3.5 Average vessel size on the waterway systems ineach province increased, though actual traffic on the waterways was slightly lower than projected duringthe early years o f the project (particularly inGuangxi). InZhejiang, average capacity per vessel at all three project ports (Hangzhou, Huzhou, and Jiaxing) increased from less than 50 tons to well over 100 tons from 1996 to 2004. InHunan average vessel capacity increased from 176 tons in 1999 to 192 tons by 2004. InGuangxi average vessel capacity increased from less than 150 tons in 1998 to over 250 tons in2004. The forecasts o f inlandwaterway traffic inGuangxiwere dependent uponthe completion o fother projects that subsequently were not realized. This risk could have been more fully explored duringproject preparation. Efficiency 3.6 The efficiency of the project i s rated substantial. The ERR for the project as computed at appraisal was 22.1 percent, with most benefits derived from transport cost savings from user larger vessels and from power generation. Inthe ICR, the ERRwas recalculatedbased on actual shippingvolumes andpower sales, and was estimated to be 22.3 percent; Inthe ICR, the ERR for the Hunanproject was 16.8 percent, nearly identical to that inthe SAR. Zhejiang showed a stronger return based on the charges on  16 vessel traffic through the ship locks rather thanthe performance o f the individual port facilities, while Guangxi showed a poorer performance due to unrealistic demand forecasts. The assessment concurs with the revisedproject ERRresults presented inthe ICR. (See Annex ByTable B2). 3.7 River traffic inGuangxi has not reached the levels projected inthe S A R and the assessment finds that the traffic projections were overoptimistic. The reason that projected traffic didnot materializewas because other projects were not implemented. This was arisk inthe traffic forecasts for Guangxi and should havebeenhighlightedin the SAR. Inthis early transport project the selection o f indicators retroactivelywas rather weak since they were not really outcome orientated. This detracted from the ability to undertake effectivemonitoring and evaluation as implementationproceeded. The absence o f indicators concerning environmental and resettlement progress i s unfortunate. 3.8 Onmost provincialwaterways, bothtraffic andvessel sizes have increased, resulting inan increase inpayments by the vessel operators. Some examples o f decreasing vessel operating costs per ton kilometers as vessel size increases are shown in Annex B, table B3. 3.9 Receipts from sales o fpower generated from the project represent a significant income source for repayment o f the project loan. InZhejiang, the loanrepayment was made from the provincial treasury. InstitutionalDevelopmentImpact 3.10 The institutional development impact is rated substantial.The project has ledto the development of autonomous state-owned enterprises inboththe Guangxi andHunan provinces which were responsible for the implementationo f the project, while in ZhejiangProvince, theproject was implementedby a Project Administration Office (PAO) within the Zhejiang Provincial Port and Waterways Administration. The HangzhouPort Services Company, a privately owned company, i s operating the steel berththat was constructed withproject funds. 3.11 Where the project includeddam construction (Hunanand Guangxiprovinces), a Dam Safely Panelwas established for the purpose o f (i) reviewingthe adequacy o fthe design construction procedures o f the dam and associated structures; (ii) preparinga detailed planfor construction and quality assurance, instrumentation, operations and maintenance, and emergency preparedness; and (iii) carrying out periodic safety inspections after completion. The Dam Safety Panel consisted o fmembers with expertise inhydraulic structures, engineeringgeology, hydropower, resettlement, andport and waterway engineering. All costs o fthe Dam Safety Panelare borne by local government. Dam safety panels continue to be usedinHunanand Guangxi for similar projects and dam safety hasnot beenanissue inthis project. 3.12 The EnvironmentalAction Plans andResettlement Action Plans were for the most part followed and implementation was generally satisfactory. There was even an increase inresettlement costs due to addedbankprotectionworks, which resulted ina  17 reduction inthe amount o f land inundated inthe reservoir areas andwas welcomed by the affected communities. More care could have been taken, nonetheless, to give more information on these non-engineering issues. Although the S A R states that the project as proposed involved the relocation o f 2,295 persons there i s no informationoffered inthe I C R on this matter. There i s also no evidence to show that the monitoring agencies were satisfied with the resettlement process other thanto observe that it hadbeen "satisfactorily handled". Moreover, there was a temporary difficulty with the compensation payments to residents affected by the creation o f the reservoir inGuangxi Province, because inthe preliminary design, the number o f residents affected and the costs o f relocation were underestimated, which meant that the payment amount to each affected resident had to be increasedduringproject implementation. However, the IEG mission confirmed that all relocationpayments have now beenmade satisfactorily and the relocationprocess completed. The institutional capability o f all agencies was strengthened though training to handle environmental and resettlement issues inline with international practice. A note o f caution i s appropriate here, however, since an OED background paper for the China Country Assistance Evaluation6observed that there was little evidence to support the ICR assertion that there was an adequate level o f cooperation between the various authorities responsible for power, water and transport. Sustainability 3.13 The assessment rates the sustainability o f the project likely. With the improved infrastructure inplace, a competitive tariff structure for inlandwaterway transport, as well as a strong income base from the sale o f electric power, the project enables the province to benefit from both o f these important streams o f income. The training component was also successfully completed, and several specific applications o f innovations developed as a direct result o fthe training have been implemented. 3.14 The InlandWaterway Project is significant because it paved the way for the implementation o f subsequent projects and created a platform for a long-term program o f sustainable inlandwaterway improvements. One aspect that will require future attention, however, is the modernization o f the shipping fleet itself, which has not been upgraded in keeping with the infrastructure improvements; this, however, was not part o f the project. Sustainability has been substantially enhanced by a set o f generic reforms which have significantly improvedthe framework within which the project inlandwaterways now operate. The first was the adoption o f financial and accounting procedures inline with international best practice. The second was the deregulation o f transport tariffs which were deregulated step by step. At first, the tariff was fully regulated, then it became negotiable within a range o f 20 percent o f the tariff at the start o f the project and, finally, fullderegulationwas accomplished. The last umbrellareformwas introducedbythe Ministry o f Power and ensured that the price o f power was gradually adjusted untilit reflected the true market price. 6. The World Bank and China's Environment, 1993-2003; OED BackgroundPaper for the China Country Assistance Strategy, 2003.  18 Bank Performance 3.15 Bank performance i s ,rated satisfactory. Preparation o f the project was fairly lengthy at 31months from the identification through appraisal, but this was the first project o f this type for the Bank inChina. A good mix o f team members was achieved with wide specrum of specialized skills. The project was as a result successfully implemented and yielded a sustainable stream o f benefits. 3.16 Since the Bank hadbeen active inthe railway sub-sector inChina and hadbeen promotingthe implementation o f market reforms to enable the railway to actively compete for profitable traffic, the redundancy o f inter-modal terminals at Huzhou and Jiaxingprobably should have been foreseen duringthe identificationphase o fthe project. 3.17 The Bank monitored implementation appropriately, and ensured conditionality and safeguard compliance. It also ensured that competitive tendering procedures were followed and that the FIDIC conditions and supervision system were used. Ensuring compliance was made easier because the same core team was retainedthroughout from preparation to completion and this enabled the team to buildtrust with the client agencies. Seven separate supervision missions in 1998, however, does appear excessive and it may have been more efficient to have combined some o f these visits. 3.18 Duringthe PPARmissioninGuangxi, an issue was raisedbythe Deputy Director o f GXWCDC regarding procurement regulations under Bank projects. The existing regulations specify that payments are made for procurement based on 10 percent prepayment, 80 percent upon delivery and 10percent upon completion. The Deputy Director made the comment that many suppliers inChina have other financiers that pay on more favorable terms (i.e., more money inthe early stages o f the procurement process). An alternative payment schedule o f 10percent advance payment; 20 percent after design; 20 percent uponpurchase o f materials; 40 percent upon delivery and 10 percent upon completion. This proposal was discussed briefly with Bank procurement staff inBeijing.' 7. The procurementoffice generallyagreedthat somemodificationsto the payment schedulefor the supply and manufacturingofheavymachinerywere possible. The paymentschedulesuggestedbythe Bankwas 10percent upon contract signingand submissionofperformance security;20 percent upondesignapproval andplacementoforders for materials; 10percent uponstartingofmanufacturingofmaincomponents; upto 40 percent additionalto bepaidprior to deliverywiththe remainderpaidupondelivery.The Bankprocurementoffice asks that suchrequestsfor payment schedulemodificationbemadeinwritingfor consideration. Suchmodifiedpayment scheduleswill beconsidered, providingthey reflect the actual cashflow ofthe suppliedmanufacturer.  19 Borrower Performance 3.19 Borrower performance is rated satisfactory, as the implementation organizations ineachprovince coordinatedwellwithBank staffandpreparedthe project consistent with Bankregulations. 3.20 The implementation agencies complied with the conditions andrequirements o f the legal agreements. Boththe Environmental Action Plan and the Resettlement Action Plans were subsequently implemented appropriately. The borrower has furthermore begun to develop guidelines to encourage the modernization o f vessels using the waterways because this aspect hadnot been considered inthe original project design and the services and the quality o f the ships provided was not on a par with the standard o f the port facilities that have now been established. 4. Conclusionsand Lessons Inland waterway transport and tariffs 4.1 Where there are large navigable rivers inlandwaterways should be encouragedto thrive because they provide an extremely environmentally friendly form o f transport. However, the tariffs must be set to ensure that such waterways are self-financing and there should be a level playing field whereby all competing modes o f transport are deregulated. Organizational models 4.2 Intwo o fthe three sub-projects the improvement ofthe waterways was coupled to a hydro-electric generation facility and the whole complex was managed as an autonomous development corporation or state enterprise. This model was successful both technically and financially and can be replicated elsewhere. However, the project also showed the provincial modelwas effective as a waterway authority without the hydro- electric component, while the waterway port was operated successfully and efficiently by the private sector. Inother words, it is important to customize the component according to local prevailing circumstances and requirements. Targets and projections 4.3 The assessment concludes that the financial, power output, vessel size and volume targets o f the monitoring indicators have been fully achieved under the project. Traffic to individualport facilities, however, sometimes didnot always materialize inthe volumes projected. This was due, inpart, to other facilities not being constructed, but whose traffic contribution was included inthe forecast methodology. The forecasts were thus optimistic. While bothBankandthe implementing agencies are to be commended for their flexibility inaddressing such problems, there was clearly inadequate risk analysis duringpreparation as the deregulation o f the railways was clearly on the government's agenda.  20 River shipping 4.4 The improvements inthe waterway infrastructure threw into sharp contrast the inadequate state o f the existingriver vessels; this could be addressedas part o f a future project. It i s clear that guidelines are necessaryto encourage the modernizationprocess o f shippingusingthe waterways. Lessons Learned 4.5 The following lessons may be derivedfrom this project: 9 Inland waterways can bean efficient and environmentallyfriendly transportmode for bulk goods conveyance where the market demand i s strong andwhen such projects are developed incoordinationwith the other modes o f transportation. Additional benefits can be derived when dams constructed to deepen water channels are also usedfor hydro-electric power generation. Insuch cases a separate corporate entity i s requiredto operate the facility effectively. 9 A thoroughassessmentof both the market and the risks in the realization of traflc projections is essentialfor inland waterwayprojects. Traffic forecasts and monitoringindicators, should be analyzed carefully and the risks assessed thoroughly duringpreparation. 9 Inland waterwayprojects should consider the inclusion of guidelines to encourage and expedite the modernizationprocess o f shippingusingthe waterways, inorder to help ensure that vesseljleet eflciency keepspace with the level of service provided by the improved infrastructure.  22 Annex A. Basic Data Sheet InlandWaterwaysProject ( Credit 3910-CHA) Appraisal Actual or Actual as % of Estimate current estimate appraisal estimate Total projectcosts 517.5 592.4 114.5 Loan amount 210.0 185.9 88.5 Cofinancing Cancellation 24.1 "..l..".l"."l.l_..""".". Actual " ........._................_lll(.lll,,,.,.,,.,.. ""..l "ll."..."ll ........................ ..,.._ .- .., Original........ _...l_._.l,.-,,-....lll.-" .... ." ".."..."ll.l Board approval " " _" " 06/20/95 06/20/95 Signing 08/31/95 08/31I95 Effectiveness 11/29/95 11/29/95 Closina date 06/30/01 06/30/01 No. Staff Weeks US$ ('000) IdentificationIPreparation 136.4 324.2 AppraisaIINegotiation 74.3 161.5 Supervision 134.1 340.2 ICR 2.4 7.1 The supervision cost figures include the cost of trust funds.  23 Mission Data Stage of Project Cycle Date No. of Specializations Performance Rating trend (month/vearl Dersons rem-esented rating Identification/ Preparation 4/93 2 1 FinancialAnalyst, 1 ~ PodMaritime Engineer 4/93 6 1 FinancialAnalyst, 1 Port/ Maritime Engineer, 1 Economist, 1 Operations Officer, 1 Environment, 1 OrganizationalExpert 4/94 7 1 FinancialAnalyst, 2 Port Engineers, 1 Economist, 1 Operations Officer, 1 Organizationaland ManagementExpert, 1 Environment AppraisallNegotiation 11/94 11 2 FinancialAnalyst, 1 Port Engineer, 1 Economist,2 Environment, 1 Operations Officer, 1Organizational and Management Expert, 1 Resettlement, 1 Procurement, 1 Staff Assistant Supervision 9/95 6 1 FinancialAnalyst, 1 Port S S Engineer, 1 Resettlement, 1 InstitutionalReform, 1 Project Officer, 1 Procurement 5/96 4 1 Port Engineer, 1 s S Economist/Financial Analyst, 1 Environment, 1 Resettlement 11/96 1 1 Port Engineer s S 4/97 2 1Port Engineer, 1 s S EconomistIFinancial Analyst 10197 3 1 Port Engineer, 1 s s Environment, 1 Resettlement 3/98 2 1Port Engineer, 1 Environment 5/98 1 1 EconomisffFinancial Analyst 5/98 1 1 EconomisVFinancial Analyst 6/98 1 Port Engineer 7/98 1 1 Environment 7/98 1 1 Resettlement 9/98 2 1Port Engineer, 1 S S Economist/ Financial Analyst 1199 3 3 Resettlement (Thematic) 6/99 4 1 Port Engineer, 1 s s Economist/Financial Analyst, 1 Resettlement, 1 Environment 12/99 3 1 Port Engineer, 1 S S EconomistlFinancial Specialist, 1 Environment 1/00 1 1 Resettlement 1/00 1 1 Resettlement  Stage of Project Cycle Date No. of Specializations Performance Rating trend (monthlyear) persons represented rating 8/00 1 1 Port Engineer S S 9/00 1 1 Resettlement 12/00 1 1 Port Engineer, 1 S S Environment,1 EconomistlFinancial Analyst 5101 1 1 Resettlement ICR 8101 2 1Port Engineer, 1 S S EconomistlFinancial Analyst  25 Annex B. Project Statistics Table B1Achievementof SAR MonitoringIndicators Indicator Projectionfor 2000 Achievement for 2000 Traffic: Zhejiang: Hangzhou (dry bulk) 3.2 million tons 3.2 milliontons Huzhou (public berths) 1.Imillion tons 10.8 million tons (total port)* Jiaxing (public berths) 1.5 million tons 5.1 milliontons (total port) Hunan Henyang 4.3 million tons nla Zhuzhou 3.3 million tons 0.083 million tons Dayuanduship lock 4.2 million tons 3.7 milliontons Guanaxi 7.5 million tons 1.4 milliontons I Dayuandu Dam 430 GWh 404 GWh Guigang Dam 555 GWh 560 GWh Zhejiang; Working ratio 57% 61% Operating ratio 70% 53% FRR 4% Hunan Working ratio 26% 8% Operating ratio 61% 77% FRR 5% Guangxi Working ratio 26% 11% Operating ratio 40% 50% FRR 8% Overall FRR 6% Sources: Staff Appraisal Report; ICK; PPAR mission. Note: Or Henyang and Zhuzhou ports was available. There are many ind .dualports along the river at these - - locations and the HXNCDC does not have full access to all port data, making a direct comparison with the monitoring indicators difficult. 8. Detailedbreakdown for the various districts o fHuzhouport was not available during PPAR mission, but 162,000 tons o f coal was handled in2004. 9. For the portion o f Jiaxing port that was the focus o f InlandWaterway Project improvement (installation o f coal transshipment equipment) there were no throughput tons, resulting inthe disposal o f the equipment.  26 TableB2InlandWaterwav ProjectERRSummary SAR (percent) ICR Guangxi Hunan Zhejiang Total Guangxi Hunan Zhejiang Total 21.1 16.9 30.1 22.1 9.9 16.8 37.4 22.3 VesselOperating Costs (US cents/t/km) 50 dwt 100 dwt 300 dwt 500 dwt 1000 dwt 3000 dwt Economic Cost 10.85 9.31 5.12 2.80 1.45 1.17 Financial 10.12 9.87 5.59 3.15 1.70 1.69 cost Figure 61: Commodities Moving through Dayuandu Shiplock Hunan Province I Other Salty fluid 6% Chemicalfertilizer 5% Nonferrous metalsY 13% Timber i 6% 1 1 Buildingmaterials 9% l L Cement I 2%