China - Jiangsu Provincial Transport Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-S047-CHA 4 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO $100.0 MILLION AND A PROPOSED CREDIT OF SDR 38.5 MILLION ($53.6 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE JIANGSU PROVINCIAL TRANSPORT PROJECT March 18, 1991 tis document has a resricted diskfibutlon and may be used by redplent oly In the perfon_ence of thidr oficW dutits content may not othewise be dWdosed wihout Wold Bank autdhaotIo  CURRENCY EQUIVALENTS (as of February 1991) Currency name - Renminbi Currency unit = Yuan (Y) = 100 Fen $1.00 = Y 5.22 $0.19 Y 1.0 $1.0 million = Y 5.22 million $191,570 Y 1.0 million FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 mete-r (m) e 3.28 feet (ft) 1 kilometer (km) 0.62 mile (mi) 1 square meter (m2) 10.76 square feet (ft2) 1 square kilometer (k2) = 0.4 square miles (mi2) 1 hectare (ha) = 0.01 km2 = 2.47 acres (ac) = 15 mu 1 mu 666.7 m2 - 0.0667 ha 1 kilogram (kg) = 2.2046 pounds (lbs) 1 metric ton (m ton) = 2,204 pounds (lbs) ABBREVIATIONS AND ACRONYMS ERR - Economic Rate of Return FYP - Five-Year Plan GOC - Government of China ICB - International Competitive Bidding JPCD - Jiangsu Provincial Communications Department JPG - Jiangsu Provincial Government JPTPDI - Jiangsu Provincial Transport Planning, Survey and Design Institute MOC - Ministry of Communications MR - Ministry of Railways O-D - Origin-Destination SAM - State Audit Administration VOC - Vehicle Operating Costs vpd - Vehicles per day  FOR OMCUAL USE ONLY CHINA JIANGSU PROVINCIAL TRANSPORT PROJECT Loan/Credit and Project Summary Borrower: People's Republic of China Beneficiary: Jiangsu Province Amounts Loans $100.0 million equivalent Credit: SDR 38.5 million ($53.6 million equivalent) Terms: Loan: 20 years, including 5 years grace, at the standard variable interest rate. Credit: Standard, with 35 years maturity. On-lending Terms: Between the Ministry of Finance and Jiangsu Prov- ince: 20 years, including 5 years of grace, at 5.925 percent interest per annum with 0.75 percent per annum commitment fee on outstanding balance. Financing Plan: Provincial Government $159.2 million IBRD $100.0 million IDA $ 53.6 million Total $312.8 million Economic Rate of Return: 42 percent for the first phase of the program of road network rehabilitation; 64 percent for the upgrading of the Nanjing-Shanghai road; 19 percent for the rehabilitation of the Grand Canal at Danyang; and 20 percent for the construction of the new Nantong shiplock. Staff Appraisal Report: Report No. 7706-CHA IBRD 21331 This document has a restricted distribution and may be used by recipients on.y in the fforma= of their ofcil duties. Its contents may not otherwise be disclosed without Wo d Bavkut ton.  MEMORANDUM AND RECOMMENDATION OF THE 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 JIANGSU PROVINCIAL TRANSPORT PROJECT 1. The following memorandum and recommendation on a proposed loan and development credit to the People's Republic of China is submitted for approval. The proposed loan for $100.0 million would have a 20-year maturity including 5 years of grace at the Bank's standard variable interest rate; the proposed credit for SDR 38.5 million ($53.6 million equivalent) would be issued on standard IDA terms with 35 years maturity. The loan and credit would help to finance the expansion and improvement of the transport network. Proposed on-lending terms between the Ministry of Finance and Jiangsu Province are: 20 years, including 5 years of grace, at 5.925 percent interest per annum with 0.75 percent per annum commitment fee on outstanding balance. Jiangsu Provincial Government will bear the foreign exchange risks. 2. Background. China's growth in the 1980s was well in excess of plan targets and placed a heavy strain on the transport system. In spite of very high rates of utilization, regional transport bottlenecks have become apparent and they have begun to affect, adversely, the pace of economic activity. The need to loosen these constraints has been fully recognized by the Chinese government, which has assigned a high priority to an expansion of the trans- port infrastructure. During 1989190, investment in the transport sector was increased significantly at a time when capital spending in most other sectors was either constant or declining. This has helped to accelerate the growth of traffic carrying capacity, but further effort will be needed before the gap between demand and supply is narrowed. 3. The most critical need is to expand road capacity,'especially in areas where increased agricultural and small-scale industrial production have created a demand for better farm-to-market transport services. Road transport will have to absorb a growing share of the demand for passenger transportation as urbanization increases and the population becomes more mobile. Inland waterways--the least costly mode of transport for bulk cargo--also need to be developed so as to supplement other modes and enhance the efficiency of the system. 4. By the end of the Seventh Five-Year Plan (1986-90), freight traffic was estimated to be 45 percent higher than in 1985, and passenger traffic 50 percent higher. Although substantial investments have gone into highway network expansion, new rail lines, double-tracking and electrification of existing lines, maintenance and expansion of navigable waterway systems, and capacity improvements at coastal ports, much more will be needed during the Eighth Plan period (1991-96). The new Plan also proposes to secure efficiency gains in transportation frow aperational improvements; these include the development of integrated t1..nsportation networks for coal transportation and the importlexport trade, and technological improvements such as container handling facilities and intermodal transport centers. To facilitate these developments, the Government of China (GOC) envisions significant institu-  - 2 - tional changes in the sector, including an extension of the policy of separat- ing the functions of government from those of operating enterprises and dele- gating authority to local management. 5. The Bank fully subscribes to the Government's objectives for devel- oping the transport sector and is supporting its initiatives with financial and technical assistance. Four railway projects (Loans 2394-CHA, 2540-CHA, 2678-CHA/Credit 1680-CHA, and Loan 2968-CHA) are helping to expand capacity on key routes and increase the manufacture of electric locomotives, passenger coaches, and signaling equipment. Six port projects (Loans '207-CHA, 2689- CHA, 2907-CHA, and 2877-CHA, 3006-CHA, and 3007-CHA) will effect improvements at Tianjin, Shanghai, Dalian, Huangpu, Ningbo, and Xiamen ports. The five Bank-assisted highway projects (Loan 2539-CHA/Credit 1594-CHA, Loan 2811-CUAl Credit 1792-CHA, Loan 2951-CHA/Credit 1917-CMA, Loan 2952-CMA, and Credit 1984-CHA) involve the construction and improvement of national and rural roads, the first expressway in China, and several major provincial trunk roads. The proposed project would allow the Bank to become involved for the first time in a provincial transport investment and rehabilitation program. The project also represents the first attempt to review the road and waterway systems together as part of an integrated plan for transport system develop- ment. If successful, this operation could pave the way for full-scale sector lending to China in the future. 6. Rationale for Bank Involvement. Owing to the gradual devolution of responsibility for investment and development from central government agencies in Beijing to counterpart units in the provinces, the Bank's operational dia- logue is increasingly directed to regional and local development priorities at the provincial level. Consistent with this trend and in order to maximize the impact and improve the efficiency of its lending operations, the Bank agreed with the central authorities that Jiangsu, Shanghai, and Tianjin should be the foci of a more direct lending relationship through operations in transport infrastructure, industry, and urban development. In parallel to the project- based provincial dialogue, the Bank is also assisting in carrying out of the Yangtze Economic Zone Transport Study involving Jiangsu and its neighboring provinces of Anhui and Zhejiang, and the municipality of Shanghai. Given the Bank's comparative advantage in economic and sector work, it is well posi- tioned to help the provincial authorities concerned formulate and implement integrated multimodal strategies, investment, rehabilitation, maintenance and operational plans. It is this broad strategic goal which is the principal rationale for Bank involvement in the proposed project. 7. Proiect Obiectives. The proposed project has two objectives: (i) in the short term, to help mitigate the most serious constraints posed by the province's inadequate transport infrastructure on its fast developing economy and that of its neighbors; and (ii) in the long term, to assist the province in upgrading the planning, budgeting and implementation of transport works, and in developing more efficient construction entities. A large tech- nical assistance component is designed to help improve the skill and quality of provincial transport staff more efficiently plan and implement the proposed project and achieve the long-term institutional objectives. 8. Project Description. To accomplish these objectives, the project includess (a) a three-phase slice of Jiangsu Provincial Government's (JPG) road network rehabilitation prog-am, the first such program within the Bank's  -3- transport projects in China; (b) rehabilitation of the Nanjing-Shanghai corri- dor road; (c) rehabilitation of the Danyang section of the Grand Canal; (d) construction of a new shiplock at Nantong and an adjacent bridge at Jiuweigang; (e) consulting services to help train Jiangsu Provincial Coimmuni- cations Department (JPCD) staff in the supervision and quality control of civil works included in the project; (f) assistance to JPCD in devising an immediate and long-term plan of action to develop independent construction units; and (g) technical assistance fort (i) evaluating existing road pave- ments and preparing a pavement strengthening and maintenance programS; * (ii) improving the design and planning of roads and waterways, including establishment of a road data bank, and introducing computer-aided design; (iii) assistance in carrying out the provinci4i transport corridor study; and (iv) staff training. The main thrust of the technical assistance component is to strengthen the ability of transport staff at both the provincial and county levels in the areas of project management, transport investment planning, and implementation. 9. Environmental Effects. The project would have a positive environ- mental impact. Construction will take place in the flatter area of Jiangsu province, where little erosion is expected, while JPCD will protect any sig- nificant embankments and cuts with stone pitchings. Given that the project highways, by helping separate motorized and nonmotorized traffic, will make vehicle flows more uniform, emissions and accidents will be reduced. The waterway components, by enlarging their cross-sections, are expected to help improve water quality by increasing the water discharged from the Yangtze river into the canals. Finally, land for construction of the project will be acquired and measures will be taken during project construction to protect the environment in accordance with GOC regulations found by the Bank to be fair and equitable and that are strictly enforced, with penalties set for any devi- ations. Detailed land acquisition schedule, environmental and resettlement plans were prepared by JPCD and submitted for review by the Bank and found satisfactory. 10. Schedule A shyws the estimated project costs and financing plan. Schedule B shows procurement methods and estimated disbursements. Retroactive financing of up to SDR 11.0 million ($15.3 million equivalent) would be made for expenditures made after November 15, 1988. Schedule C shows a timetable for project processing, and Schedule D shows the status of Bank Group opera- * tions in China. A map depicting the project components is attached. A Staff Appraisal Report, No. 7706-CHA dated March 18, 1991, is being distributed separately. 11. Actions Agreed. Agreements were reached during negotiations with Jiangsu Province ons (a) the criteria and procedures to be followed in selecting subprojects for the second and third phases of the provincial road upgrading program, and the submission to the Bank/IDA for concurrence of the subprojects for the second and third phases of the program by Octo- ber 31, 1991 and October 31, 1992, respectively; (b) studies for developing independent construction units and for the provincial transport corridor according to terms of reference and timing agreeable to the Bank/IDA;  -4- (c) training under a program agreed with the Bank/IDA; (d) the resettlement under the project to be carried out in accordance with the plan agreed with the Bank/IDA; and (e) the accounts of project-related expenditures will be audited by independent auditors and sent to the Bank/IDA for review within six morths of the close of each fiscal year. State Council approval of the Loan Agreement and Development Credit Agreement will be a condition of effectiveness. 12. Project Benefits and Risks. The principal benefits accruing to users of the newly rehabilitated highway and waterway would be savings in vehicle operating costs, savings in ship and barge waiting times and reduced accidents. JPCD will benefit from reduced costs and greater longevity of assets resulting from improvements in planning, tendering, and supervision of construction. No technical risks are foreseen for the project because the technology to be used in all works is well established. However, this is the first Bank project with Jiangsu province, and it contains a large uumber of subprojects involving the construction units of cities and counties for which JPCD will have to rearrange their responsibilities. In order to minimize these implementation risks, the Bank hass (i) agreed with JPCD on an imple- mentation organ