China - Shandong Provincial Highway Project

Dumcut Of The World Bank FOR OFCLAL USE ONLY -MI 3c73-CbIA .. C4sZO sHRepwt N.. P-4973--CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE .NTERNATIONAL RANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$60.0 MILLION AND A PROPOSED CRED'IT OF SDR 38.8 MILLION (US$50 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHANDONG PROVINCIAL HIGHWAY PROJECT APRIL 28, 1989 This docmet has a restricted ditributon and may be used by recipibts only in the pemeroma of their offlial dties Its ontents may not otherwise be dosed witho World Ba ahoriati  CuRRENCY EQUIVALENTS (as of April 1989) Currency name . Renminbi Currency unit - Yuan (Y) - 100 Fen US$1.00 Y3.70 US$0.27 - Y1.0 US$1.0 million 3 Y3.7 million US$270,000 Y 11.0 million FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 mile (mi) 1 square meter (mn) ) 10.76 square feet (ft2) 1 square kilometer (km2) - 0.4 square miles (mi2) 1 hectare (ha) - 0.01 km2 - 2.47 acres (ac) - 15 mu I mu 666.7 m2 - 0.0667 ha i kilogram (kg) m 2.2046 pounds (lbs) 1 metric ton (m ton) - 2,204 pounds (lbs) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CAAC - Civil Aviation Administration of China ERR - Economic rate of return GOVAI - Gross output value of agriculture and industry HPDI - Highway Planning and Design Institute HSRI - Highway Scientific Research Institute ICB - International Competitive Bidding ITC - International Tendering Corporation MOC - Ministry of Communications O-D - Origin-Destination PTD - Provincial Transport Department SM - State Auditing Administration SHAB - Shandong Highway Administration Bureau SPTD - Shandong Provincial Transport Department SSDI - Shandong Survey and Design Institute TDP - US Trade Development Program TRRL - UK Transport and Road Research Laboratiry VOC - Vehicle Operating Costs vpd - Vehicle per day  FOR OMCIAL USE ONLY CHINA SHANDONG PROVINCIAL HIGHMAY PROJECT Loan/Credit and Project Summary Borrower: People's Republic of China Beneficiary: Shandong Province Amount: Loan: US$60.0 million equivalent Credit: SDR 38.8 million (US$50 million equivalent) Terms: Loan: 20 years, including 5 years of grace, at standard variable interest rate. Credit: Standard, with 35 years maturity. On-lending Rate: 20 years, including 5 years of grace, at 5.3?, with 0.752 commitment fee on outstanding balance. Financing Plant Central Government US$ 40.5 million Provincial Government US$273.0 million IBRD US$ 60.0 million IDA US$ 50.0 million Total US$423.5 mlllion Economic Rate of Returns 25? Staff Appraisal Report: Report No. 7602-CMA Map: Shandong Provincial Highway Project (IBRD 20256R) i Ths document ha a nstricted dibtdbution and may be se by ecpnts only in th perfnmumee of thi oflkia due. Its cotents may not othewe be dicmed whout Word ank authonuain  MEMORANDUM AND RECOMMENDATION OF TEE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHANDONG PROVINCIAL HIGUVAY PROJECT 1. The following memorandum and recommendation on a proposed loan and credit for the People's Republic of China is submitted for approval. The * proposed loan for US$60.0 million would be for 20 years maturity, including 5 years of grace, at the Bank's standard variable iuterest rate. The proposed credit of SDR 38.8 million (US$50.0 million equivalent) would be issued on standard IDA terms, with 35 years maturity. The proposed loan and credit would help finance the expansion and improvement of the highway network in Shandong Province. 2. Backaround. The transport system in China has been severely taxed by the pace of recent economic development, and capacity constraints are evident in all modes. The most serious transport need is for dramatically expanded road capacity, especially in rural areas, where increased agricultural and small-scale industrial production have created an urgent demand for better farm-to-market transport services. Road transport will also face a growing share of the demand for passenger transportation from the increasingly mobile population. In the railway subsector, the network capacity has severely hampered delivery of energy supplies (i.e. coal), and even with recently initiated investments in rail line electrification and new line construction, it will take several years to alleviate bottlenecks between major mining areas and coastal cities. China also needs to substantially expand its port and waterway facilities to relieve the growing hindrance to external trade caused by inadequate berth and container handling capacity. China's Seventh Five- Year Plan (1986-90) recognizes all these sectoral needs. By the end of the plan period, freight traffic is projected to be 452 higher than in 1995, and passenger traffic 602 higher, with a disproportionately greater share of the increase falling on road transport. To meet these needs, substantial investments are envisioned, especially in highway network expansion, new rail lines, double-tracking and electrification of existing lines, and more berths at coastal ports. The Plan also proposes to secure efficiency gains in transportation from operational improvements; these include the development of integrated transportation networks, particularly for coal transportation and the import/export trade, and technological improvements such as container handling facilities and intermodal transport centers. To facilitate these developments, the Plan envisions significant institutional changes in the sector, including an extension of the policy of separating the functions of Government from those of operating enterprises and delegating authority to local management. The Bank fully subscribes to the Government's objectives for development of the transport sector and is supporting its initiatives with financial and technical assistance. Four railway projects (Loans 2394-CHA, 2540-CHA, 2678-CHA, and Credit 1680-CHA and Loan 2968-CRA) are assisting with the expansion of capacity on key routes and the manufacture of electric locomotives, passenger coaches, and signalling equipment. Four earlier port projects (Loans/Credits 2207-CHA, 2689-CII, 290i-CRA/Credit 1975-CHA, and 2877-CIA/Credit 1845-CIA) and two additi sal projects approved in  -2- December 1988 vill effect improvements at Tianjir. Shanghai, Huangpu, Dalian, Ningbo (Loan 3006-CIA), and Xiamen (Loan 3007-Cl.. Ports. The five Bank Group-financed highway projects in China (Loan 2539-CHA/Credit 1594-CHA, Loan 2811-CHA/Credit 1792-CQA, Loan 2951-CIAlCredit 1917-CIA, Loan 2952-CHA, and Credit 1984-CMA) involve the construction and improvement of national and rural roads ard construction of the first expressway in China. 3. 'While all the transport modes in China are in urgent need of expansion and modernization, road transport presents the most difficult challenge. Road freight traffic has been increasing at about 172 per annum from 1980 to 1986, mainly due to the burgeoning market economy, and passenger traffic is growing at over 122 p.a. Road congestion was already a serious problem in the early 19808, and near major cities it has now grown worse. Increased road capacity is urgently needed. Furthermore, of the approximately 962,000 km of roads in 1986, only some 22,000 km or 232 have asphaltic or concrete pavement. These pavements are generally of poor quality; most have exceeded their design life and are deteriorating rapidly with the increasing traffic. Accordingly, the highway mode is receiving increased attention under the Seventh Five-Year Plan (S mY). The SFYP for the highway subsector is to upgrade at least 80,000 km of existing roads, and to construct about 60,000 km of new roads, of which 1,580 km would be Expressway or of Class I standard. 4. The main objectives for highway development in the 19809 are to provide adequate capacity in the heavily congested corridors, to upgrade and improve the existing network, and to expand the network in remote rural areas. The proposed 319 km Jinan-Qingdao Road is part of the plan for high standard road investment in Shandong Province. The proposed program for evaluation and strengthening the paved roads in Jining Prefecturate of the province serves the objective of upgrading and improving the existing poor quality and low standard paved road network. There is also an urgent need in the province for more modern techniques in the planning, design, construction, and maintenance of roads. S. Rationale for Bank Involvement. The Bank Group supports the government's objectives and initiatives for development of the transport sector with both financial and techbical assistance to remove the transport bottlenecks impeding economic growth. The strategy for the Bank Group's involvement in the highway subsector is to meet the most urgent needs of road network expansion and to support a program of studies on key policy issues. The Bank Group's involvement in the highway subsector, particularly in terms of policy, institutional and technical matters under the first five projects, aims at helping to modernize the subsector by bringing Bank Group experience to bear on the problems and by expediting the introduction of advanced technology to solve them. Ongoing studies in these projects cover important problems related to roads financing, road safety, road congestion, and the methodology for evaluating existing road pavements. The propostd project, besides helping to alleviate congestion on this most congested corridor of Shandong Province, would continue the Bank Group's support in these matters and encompass new tasks related to road pavement strengthening and planning.  - 3 - 6. Project Obiectives. The existing roads between Jinan and Qingdao are heavily congested. The proposed project would provide a high-capacity, high- standard highway in this important corridor between the capital of Shandong Province and one of the main ports in China. The project would also address the following specific policy, institutional, and technological objectivess (a) improving road planning techniques; (b) evaluatation of e6lsting paved roads and Vreparation of a pavement strengthening and maintenance management program; (c) development of institutional capacity for supervising the construction of civil works; (d) carrying out staff training; (e) strengthening of highway research; and (f) improving road safety. 7. Project Description. The Shandong Provincial Transport Department (SPTD) would be responsible for carrying out the project under the overall supervision of the Shandong Provincial Government and HOC. The project components are: (a) construction of a 319 km four-lane divided highway between Jinan, the capital of Shandong Province and Qingdao, one of the major ports of China; (b) consulting services to assist SPTD in construction supervision and help train SPTD staff in supervising and maintaining quality control over highway construction; (c) specialized equipment and technical assistance to evaluate about 560 km of existing road pavements and prepare a pavement strengthening and maintenance management program; (d) equipment and expertise to set up a computerized road data bank to improve road planning; (e) road maintenance, traffic monitoring, and communications equipment; (f) research equipment for the Central Road Laboratory; (g) training of SPTD staff; and (h) road safety improvements. S. Schedule A shows the estimated project costs and financing plan. Schedule B shows procurement methods and estimated disbursements. Retroactive financing of up to $4.5 million for expenditures made after July 8, 1988 would be permitted. Schedules C and D show a timetable for project processing and statement of Bank Loans, IDA Credits and the IFC operations for China, respectively. A map showing the Shandong Provincial Transport Network and the Jinan-Qingdao Highway is attached. A Staff Appraisal Report, No. 7602-CIA, is being distributed separately. 9. Agreed Actions. During negotiations, agreement was reached with Shandong Province on the followings (a) terms of reference for the supervision of construction, a pavement evaluation study and development of a road data bank; (b) the type and amount of road maintenance, traffic monitoring, and communication equipment to be procured under the project; (c) the type and amount of equipment for the road pavement strengthening program and the Provincial Central Road Laboratory to be procured under the project; (d) the scope, timing, and cost of the proposed training program for SPTD staff; (e) the scope and timing of the road safety program); (f) an implementation schedule for the project; and (g) a sample survey would be carried out by SPTD to determine the impact of resettlement on the families dislocated.  -4- 10. During negotiations, assurances were obtained from Shandong Province thats (a) the account for project-related expenditures would be audited by independent auditors acceptable to the Bank Group and audit reports would be sent to the Bank Group for review within six months of the close of each fiscal year of the Borrower; (b) it would carry out the resettlement under the Project in accordance with a plan agreed with the Bank Group; and (c) the level of toll charges would not exceed 302 of the vehicle operating cost savings for the Jinan-Qingdao highway, and that surh savings would be calculated in a manner agreed with the Bank Group. 11. Risks. There are -o major risks foreseen with the project. Consultants, financed by the United States under its Trade Development Program (TDP), have reviewed the project design and cost estimates and nave helped prepare bid documents. Thorough field surveys and subsurface explorations have been carried out, and adequate and suitable materials will be available for road construction. The risk of delays in cmpleting the highway would be minimized by providing consultant services for supervision and by training local construction supervisory engineers. 12. Recommendation. I am satisfied that the proposed loan and credit comply with the Articles of Agreement of the Bank and the Association and I recommend that the Executive Directors approve the proposed loan and credit. Barber B. Conable President Attachments _ 1989 Washington, DC  Schedule A . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ J SHANDONG PROVINCIIAL HIGHWYPRJC Estimated Costs and Finuancf Plan (US$ millao) Estimated Costss Local Teot1 -------- ( d illion)------- * Construction of the Jinan-Qingdao Highway 152.2 158.4 310.6 Consultant services for supertvision. technical assistance, etc. 5.4 1.3 6.7 Equipment for highway research, road - maintenance, etc. 0.0 10.5 10.5 Staff Training 0.0 0.9 0.9 Base Cost (March 1989 prices) 157.6 171.1 326.7 Physical contingencJes 15.8 17.1 32.9 Price contingencies 24.9 27.0 51.9 Subtotal 198.3 215.2 413.5 Land acquisition 10.0 - 10.0 Total Proiect Costs 208.3 215.2 423.5 Financing Plan: Local Foreign Total --------