China - Guangdong Provincial Highway Project

Document of The World Bank FOR OmFCAL USE ONLY MICROFICHE COPY Report No. :P- 5846-CHA Type: (PR) Title: GUANGDONG PROVINCIAL HIGHWAY P Author: STARES, S. Rqit No. P-58A6-c Ext.:84025 Room:A7 093 Dept.: EA2TP MEMORANDUM AND RECONEDATION OF THE PRESIDENT OF THE IRTIONAL BANK FOR RECONSTRUCTION AND DEVELOPNENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO $240 MILLION TO THE PEOPLE'S REPUBLIC OF CHGIN FOR A GUANGDONG PROVINCIAL HIGHWAY PROJECT OCTOBER 20, 1992 This document has a restricted distribution and may be used by recipients only in the perfonnance of their offrial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS (as of June 30, 1992) Currency name - Renminbi Currency unit e Yuan (Y) - 100 ?en $1.00 - Y 5.48 $0.19 - Y 1.0 $1.0 million m Y 5.370 million $186,220 Y 1.0 million WEIGHTS AND MEASURES 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 mile (mi) I square meter (m2) m 10.76 square feet (sq ft) I square kilometer (km2) ' 0.4 square U.iles (sq mi) 1 hectare (ha) - 0.01 km2 2.47 acres (ac) - 15 mu 1 mu 666.7 sq m - 0.0667 ha 1 kilogram (kg) - 2.2046 pounds (lbs) 1 metric ton (m ton) 2,204 pounds (lbs) ABBREVIATIONS AND ACRONYMS EA - Environmental Assessment EAP - Environmental Action Plan HOC - Ministry of Communications RAP - Resettlement Action Plan RIP - Road Improvement Program FISCAL YEAR January 1 - December 31  FOR OMCIL USE ONLY GUANGDONG PROVINCIAL HIHOWAY PROJECT Loan and Proiect Summary Borrower: People's Republic of China Beneficiarv: Guangdong Province AaouBts $240 million equivalent Terms: 20 years, including 5 years of grace, at the Bknk's standard variable interest rate Fiaceina Plan: Local Forei Total ---- ($ million ) ------- Provincial Goverrment 436.7 60.0 496.7 central Government 58.4 - 58.4 IBERD 0.0 240.0 240.0 Total 495.1 300.0 795.1 Sconamic jael of Returns 30 percent on components comprising 99 percent of the total project costs Staff Ali,raisal Re*ort: Report No. 10799-CHA NMbos IBRD 24225, IBRD 23927 This document has a restricted distributioe -'d may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  HEMORANDUN AND RECOMMENDATION OP TEE PRESIDENT OF THE INTERNATIONAL MANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE PEOPLE'S REPUBLIC OF CHINA FOR A GUANGDONG PROVINCIAL BTIHWAY PROJECT 1. I submit for your approval the following memorandum and recommenda- tion on a proposed loan to the People's Republic of China for the equivalent of $240 million to help finance the Guangdong Provincial Highway Project. The loan would be at the Bank'. standard variable interest rate, with a maturity of 20 years, including five years of grace. The proceeds of the loan would be onlent to Guangdong Province for 20 years, including five years of grace, at a rate equivalent to 90 percent of the rate payable to the Bank by the Borrower with a 0.75 percent per annum commitment fee on the outstanding balance. Guangdong Province would bear the foreign exchange risk. 2. Backaround. Guangdong Province has a population of 63 million and a land area of about 170,000 km'. While the province lacks raw materials and energy sources, its proximity to Hong Kong, entrepreneurial propensities, and extensive ties with overseas Chinese, combined with having three of the five Special Economic Zones of Southern China--Shenzhen, Zhuhai and Shantou--have placed Guangdong at the cutting edge of the national cxport-led development strategy, enabling it to supplant Shanghai as China's leading export center. Annual growth in provincial gross output value of industry and agriculture has averaged nearly 20 percent per year since 1980, and recent data indicate no slackening in this pace. However, the growth has not been evanly distributed: the central Pearl River Delta has benefited most and the more remote eastern, western and inland regions have gained much less. 3. Rapid development has put considerable pressure on the transport system. To address transport issues in a systematic manner, the Bank collabo- rated with central sad provincial agencies on the Guangdong Province Compre- hensive Transport Study, which looked at the role and relative priorities of all modes of transport in the province. A major conclusion from the study was that the role of the highway sector must be expanded in order to satisfy the burgeoning demand for faster, more flexible transport stemmir_, from the growth of exports and light industry, and associated with rising incomes. 4. The Eighth live-Year Plan '1991-95) for the province puts consid- erable emphasis on highway development, wbich is set within the context of a 20-year highway development program. An important objective is to open up the less developed eastern and western regions by upgrading existing highways in the regions, and by constructing nem highway. linking them to the prosperous Pearl River Delta region. Specific projects in this latter category include the Poshan-Kaiping and Longgang-Tanxi Highways. In 1990, a nationwide highway screening exercise carried out jointly by the Government and the Bank con- cluded that these two highways were among the highest priority of projects screened in terms of the expected economic internal and first year rates of return. The two highways, together with support of the province-wide road network upgrading program, form the main infrastructure components of this project.  -2- 5. Lessons Learned from Previous Bank Onerations. China's highway sector has received about $788 million in Bank Group financing under seven projects. These projects provide for the construction of high-quality national and provincial roads totalling about 1,276 km, and the expansion and improvement of some 3,250 km of rural roads and major bridges. The projects also provide foreign technical assistance and training of Chinese personnel in highway-related areas and support studies on key issues of highway development auch as pavement management and methods of financing the expansion, improve- ment, and rehabilitation of the road network. 6. Thr. first of these projects (Loan 2539-CHAICredit 1594-CMA) was completed in mid-1991 and a Project Completion Report was issued June 29, 1992. The project clearly demonstrated the benefits accruing from improved accessibility to communities deprived of adequate transport infrastructure in economically less developed regions. The main lessons drawn from the project include the need to complete engineering design during project preparation and to more carefully matc1' the Borrower's requirements with the technical assis- tance selected. With respect to tho ongoing provincial highway projects, several major iasues have been identified. These include the relatively fre- quent changes in design, insufficient experience of contractors leading to slow start-up of contracts and poor overall planning and worksite mangagment. These experiences were reflected in the design of the proposed project, which devotes particular attention to: (a) the readiness and appropriateness of design; (b) the criteria for the prequalification of contractors; (c) packag- ing civil works into large packages to attract foreign contractors as well as _> the larger Chinese contractors; and (d) the composition of tochnical assis- tance components. 7. Rationale for Bank Involvement. The Bank Group's assistance strat- egy for China involves support for implementing economic reforms, modernizing and rationalizing productive sectors, and developing infrastructure. Specifi- cally in the transport field, assistance focusses on eliminating bottlenecks in the transport system, improving rural infrastructure, reform of transport finanoes and operations, and promoting modal interaction. The proposed proj- ect is consistent with these assistance strategy objectives. Although China has a fundamentally sound approach to highway development, it still lacks experience in the construction of high class, limited-access, highways which are needed to eliminate bottlenecks in economically more developed corridors, and would also benefit from technological improvements in the construction of lower-level roads. The Bank's assistance in these areas is well placed, par- ticularly when combined with its catalytic role In promoting greater invest- ment for rural infrastructure, as well as policy changes, Institutional devel- opment and technology transfer. S. Proiect Obiectives. The project has the following objectives: (a) to relieve congestion in two major traffic corridors by constructing highways on new alignments to serve long-distance traffic and leaving the existing road to carry local traffic, including bicycles and agricultural vehicles; (b) to improve other national and provincial roads carrying substantial volumes of traffic; (c) to promote the transfer of highway technology through training and the provision of equipment; (d) to further develop institutional capability in highway design, planning and prioritisation; and (e) to support reforms of the highway financing systm.  -3- 9. Proiect Desceiction. The project includess (a) construction on new alignments of the four-lane divided, access controlled, Foshan-Kaiping Highway (80 km) and Longgang-Tanxi Highway (146 km); (b) a Road Improvement Program (RIP) for upgrading and rehabilitation of about 1,260 km of provincial sad national roadst (c) consultant services for construction supervision of the two highways; (d) technical assistance to support the analysis of highway fioances in Guangdong Province and to formulate an action program for imple- muting reformat (e) a road safety pilot project; (f) further development of the Road Data Bank and Pavement Management System; (g) purchase of equipment for road laboratories, environmental protection, road research, the Road Data Bank, the Ptvament Xanagement System, road maintenance and highway operations; and (h) staff training. 10. Prolect Im1lementation. The proposed project would be carried out by Guangdong Province. The project cost is estimated at $795.1 million equiv- alent, with a foreign exchange component of $300.0 million equivalent (38 per- cent) and identifiable taxes and duties estimated at about $15 million equiva- lent. The Bank would finance $240.0-million equivalent (80 percent) of the foreign exchange and 30 percent of the total cost. The costs and financiug plan are shown in Schedule A. Amounts and methods of procurement and dis- bursements, and the disbursement schedule, are shown in Schedule B. A time- table of key project processing events and the status of Bank Group operations in the People's Republic of China are given in Schedules C and D, respec- tively. Two maps (IBID 24225, 23927) are also attached. The Staff Appraisal Report No. 10799-CIA, dated October 20, 1992, is being distributed separately. 11. Proiect Sustainabilitv. The sustainability of highway projects is closely linked to maintenance and pavement strengthening policies; China gen- erally has a good past record in this respect. Because higher traffic volumes and heavier vehicles are likely to stretch current pavement management tech- niques, the RIP component has been planned to strengthen the capability of the province to anticipate and program highway maintenance and pavement strengthening. The two new highways will be important links in the Ministry of Communications (HOC) network of high class highways for China, and as such are likely to receive priority attention. With anticipated traffic growth, they are both expected to generate significant revenues through user tolls. The proposed highway funding component should provide guidance, both to the province and to the country, on practical ways to finance highway operations and investment, tbus also contributing to project sustainability. 12. utrged Actions. During negotiations, agreement was reached with the Borrower regarding (i) the arrangements for the proceeds of the loan to be onlent to Guangdong Province, and (ii) the conditions of disbursement for the RIP component. Assurances were also obtained from the Guangdong Province concerning: (a) the completion of about 1,000 meters of highway at Xieben; (b) criteria and procedures for selection of subprojects to be included in the RIP, and the organizational arrangements and staffing for RIP; (c) the execu- tion of Environmental Action Plans (RAPs) satisfactory to the Bank for all project roads; (d) the resettlement of individuals affected under the project in accordance with plans satisfactory to the Bank; (e) monitoring of the effectivenss and socioeconomic impact of resettlement; (f) the preparation and taking of appropriate steps to implement highway financing reforms; (g) staffing levels and training for project supervision of the infrastructure  -4- components; and (h) recommendations on appropriate level of toll charges for the loshan-Raiping and Longgang-Tanxi Highways. Retrvactive financing of $3.1 million is recommended for eligible expenditurea made after March 31, 1992, to test uncertain 8oil conditions and start construction in one road section of the Longgang-Tanxi Highway, accelerate work on hd.hway financing, and review bidding documents. 13. Environmental Aspects. An Environmental Assessment (EA) for the Foshan-Kaiping Highway was prepared by the Shanghai Ship and Shipping Ressarch Institute, and for the Longgang-Tanxi Highway by the Highway Scientific Research Institute of HOC. The EAe indicate that the highways would not adversely affect ecologically sensitive areas and, if appropriate actions are taken, should not have an adverse impact on the environment. Based on the EA's findings and discussions between representatives of Guangdong Province and Bank staff, an RAP has been prepared which specifies the measures and organizational and monitoring arrangements required to mitigate potential adverse effects on the environment during the construction and operation of the highways. The main measures, which have been included in the bid docu- ments for contractors, relate to social disruption, air quality, noise con- trol, water management and control of traffic, and the operation of quarries and waste disposal. 14. With respect to the RIP, since most of the works would be directed to the upgrading of facilities and rehabilitation and maintenance, they are not expected to have a significant impact on the enviroment. Nevertheless, the potential adverse effect of each subproject on the environment would be fully assessed, and UAs and RAPs would be prepared as appropriate. 15. Resettlement Issues. Land acquisition and resettlement is well regulated in China, and the procedures and compensation requirements outlined conform to the Bank's policies on involuntary resettlement. Resettlement Action Plans (RAPs) have been prepared for the Foshan-Raiping and Longgang- Tanxi Highways by the Guangdong Provincial Highway Design Institute and the Guangdong Provincial Freeway Company, respectively. The plans have been reviewed by Bank staff and found to be satisfactory. The Foshan-Kaiping High- way would affect approximately 8,040 people through permanent land acquisition and 1,100 people through temporary land acquisition; a total of about 890 persons would require new housing. The Longgang-Tanxi Highway would affect 7,760 people through permanent land acquisition and 980 people through temporary land acquisition; a total of about 1,740 persons would require new housing. The land acquisition and resettlement procedures for the upgrading/rehabilitation of the provincial/national roads would be the same as for the two major highways, and RAPs would be prepared for all subprojects of the RIP which involve resettlment. 16. Prolect Benefits. Primary benefits from road construction under the project and the Road Improvement Program will be in the form of road user cost savings resulting from lower vehicle operating costs and time savings due to improved pavements and reduced travel distances along the new highway. Other benefits will stem from reduced congestion on the existing roads, including better conditions for bicycles and agricultural traffic, and accelerated industrial and agricultural growth based on improved transport facilities. While tolling of the highways will result in additional costs for construction  - 5 - and operation of the tolling system, and a potential lose of benefits as some operators opt to use untolled routes, appropriate toll levels should result in limited traffic diversion and produce revenues sufficient to cover at least the operating and maintenance costs. Additional benefits due to the RIP would accrue from maintenance cost savings on the impr wed provincial/county road network. The proper design of all highways included in the infrastructure componeuts of the project should reduce the number of accidents, and the Road Safety Pilot Program can also be expected to result in a reduced number of accidents due to more road-safety-conscious designs. Technical assistance to be provided under the project to help introduce a revised highway financing system is also expected to improve maintenance of the province's highway system through augmented funding, and this would be bolstered by project support for further development of the Road Data Bank and Pavement Management System, and by the procurement of road maintenance equipment. The estimated economic return for the project is 30 percent. 17. Risks. Because of the difficult subsoil conditions along the align- ment of the Foshan-Kaiping and Longgang-Tauxi Highways, the major risk is delay in the completion of the highway and the quality of construction. To counter this risk, two test embankments are being built in advance of the main vorks to investigate the extent and method of soft soil treatments. Since the Implementing agency for the two highways is a first-time executing agency for a Bank project, there is also a risk in implementing the major highway compo- nents of the project in a timely manner. However, the preparation of the project was assisted by the Bank's experience in five previous provincial highway projects, and by a more active involvement of the HOC then usual; this enhanced role of the Ministry is expected to continue into future projects. Tio minimize the riskss the project was designed with the assistance of foreign experts, prequalification of contractors was made particularly stringent, and supervision arrangements were carefully formulated to ensure regular monitor- ing and effective quality control. 18. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Lewis T. Preston President Attachments Washitgton, D.C. October 20, 1992  -6- EheJ A GDINGDW1S ROVIQ WAY lU egtimtod Costs and FIGcIng Plan ($million) Project costs Local vore4p Total A* Yi tIo - Ci) Clvll boro 1126.97 91.38 218.35 (1i) Electrical Electronic and Mechanicl s ~~~~~~~(EXr Supply apd '.nstall-tl 2.75 6.42 9.17 (b) Louggang-l Highways (1) Civil Works 139.45 100.73 240.18 (ii) USE supply and Installtion 1.10 2.75 3.85 (C) toad Improvemeut Program 65.79 30.96 96.75 (d) Roed Safety Pilot Program 0.25 0.15 0.40 Subtotal 336.31 232.39 566.70 3. hnenlion of Constnructioa ?_) Foaham-FAIplUS h0Eiay 2.33 1.70 4.53 (b) LonSaa-Tanxuzlibway 3.82 1.94 5.76 Ce) Road Xajrovement Program 1.15 0.00 1.1S Subtotal 7.80 3 11.44 C. h1A (a) H3ighWay ConstructIons Ci) 8u p rvision/Laboratortse 0.10 0.88 0.98 Cii) Operation and Maintenance 0.47 7.33 7.80 Ciii) Bvironmenatal/Besearch 0.37 0.99 1.36 Cb) Road Improvement Progrims (1) Supervision 0.04 0.69 0.73 C(i) Provincial Road Maintenane 0.00 2.23 2.23 Cini) PHS/BDB 0.08 0.53 0.61 (C) Road Safety Pilot Program 0.00 0.07 0.07 Subtotal i.O 12.72 13.78 D. 8tsffTrainisa/lechical Malstance a) Gear la* satety 0.13 1.17 1.30 Cb) Supervlsion Training 0.34 0.41 0.75 (c) High*ay Einancing TA 0.07 0.06 0.13 Subtotal 0.5 1.6 2.18 Rase Cost 345.21 250.39 ,S96.10 Physical Contingency la 34.41 23.60 58.01 Price Contingency /b 65.32 26.04 91.56 Base Cost vith Contingency 4,.4 300.03 ,7.67 S. Land Acuisit_ion and Resettlement 49.46 0.00 49.46 Total Prolect Cost LA 495.10 300.03 795.13 -law;s;ivineinaL Government 436.70 60.03 496.73 Ceatral Government 58.40 0.00 58.40 IIID 0.00 240.00 240.00 Total Ptsumelnt Regired 495.10 300.03 79S.13 percent of Items A and B. Price contin8gcy for locl and forelpg costa: 14 percent and 6 percent, respctively, for ite A(c) and Ad)S 18 percent and 10 prcentspect vely, for the remainin ites. Idfentliable tame end duties ate about S15 .Zhi.  -7 _8heulo B Page 1 GUANGDONG PROVINCIAL =IOVWAY PROJECT Procurement Methods ad Disbursements ($ million) Procurement method Total TC8 LCB Other NDp Project Cost Civil works: Highways 511.09 60.00 7.00 - 578.09 (152.32) (18.07) (2.12) (172.51) RIP/Road Safety - 59.58 59.48 - 119.06 (17.97) (17.96) (35.93) Equipment: For project highways - supply & install 16.10 - - - 16.10 (11.27) (11.27) Other 9.30 - 5.96 - 15.26 (8.56) (5.48) (14.04) Consultant/Training - - 17.16 17.16 (6.25) (6.25) Land Acquisition and Resettlement - - - 49.46 49.46 Total 536.49 119.58 89.60 49.46 795.13 (172.15) (36.04) (31.81) (0.00) (240.0) Notest Figures in parentheses represent the amounts finarced by the Bank. All figures include estimated contingencies; NBF: Not Bank-Financed  -8- Schedule B Page 2 Disbursoments Category Amount Z ($ million) Civil Works Highways 144.4 322 of total costs RIP/Road Safety 30.8 322 of total costs Supply and Installation of Highways Equipment 9.1 701 of total costs Other Equipment 12.7 100l foreign or ox-factory local expenditures and 751 of local expenditures for other items procured locally. Consultants/Training 5.3 1OO1 of total costs Unallocated 37.7 Total 240.0 Estimated Disbursements: Bank Grouo PY 1993 1994 1995 1996 1997 1998 1999