China - Shanghai-Zhejiang Highway Project

Document of The World Bank FOR OFFICLAL USE ONLY Report No. P-6565-CHA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO $260 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SHANGHAI-ZHEJIANG HIGHWAY PROJECT JULY 11, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (as of January 1995) Currency name Renminbi Currency unit = Yuan (Y) = 100 Fen $1.00 = Y 8.5 $0.11 = Y 1.00 WEIGHTS AND MEASURES I kilometer (km) = 0.62 mile 1 square meter (m2) = 10.76 square feet I square kilometer (ki2) = 0.4 square miles (sq mi) I hectare (ha) = 0.01 km2 = 2.47 acres (ac) = 15 mu I mu = 666.7 sq m = 0.0667 ha 1 kilogram (kg) = 2.2046 pounds (Ibs) I metric ton (m ton) = 2,204 pounds (Ibs) ABBREVIATIONS AND ACRONYMS E&M - Electrical and Mechanical EA - Environmental Assessment EAP - Environmental Action Plan EIRR - Economic Internal Rate of Return NR - National Route NTHS - National Trunk Highway System RAP - Resettlement Action Plan FISCAL YEAR January I - December 31  FOR OFFICIAL USE ONLY CHINA SHANGHAI-ZHEJIANG HIGHWAY PROJECT LOAN AND PROJECT SUMMARY Borrower: People's Republic of China Beneficiaries: Shanghai Municipality and Zhejiang Province Poverty: Not Applicable Amount: $260 million equivalent Terms: 20 years, including 5 years of grace, at the Bank's standard variable interest rate Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver Financing Plan: See Schedule A Economic Rate of Return: 33 percent for the project overall 33 percent for the Shanghai-Hangzhou Expressway 54 percent for the Road Safety Program Staff Appraisal Report: Report No. 14034-CHA Maps: IBRD 25817, 25818 and 25819 Project ID Number: CN-PA-3569 This document has a restricted distribution and may be used by recipients only in the performancc of their official duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization. l   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE PEOPLE'S REPUBLIC OF CHINA FOR A SHANGHAI-ZHEJIANG HIGHWAY PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to the People's Republic of China for $260 million equivalent to help finance a Shanghai-Zhejiang Highway Project. The loan would be at the Bank's standard variable interest rate, with a maturity of 20 years, including five years of grace. The proceeds of the Bank loan would be made available to Shanghai Municipality and Zhejiang Province on the same terms, with Shanghai Municipality and Zhejiang Province bearing the foreign exchange risk. 2. Country/Sector Background. Following the open-door economic policy adopted by China in 1978 and the influx of foreign investment, the demand for transport grew substantially: annual freight and passenger traffic across modes increased by about 7 percent and 10 percent per year, respectively. Despite this, investment in transport infrastructure has been extremely low. During 1981-1991, investment equaled 1.3 percent of GNP, lower than the 2-3 percent levels achieved in Brazil and India. The government now recognizes that underinvestment in transport infrastructure has caused serious bottlenecks that are constraints to future sustainable growth of the Chinese economy. 3. Within this context, China's highway sector continues to grow rapidly. The demand for expansion and upgrading of the road network is supported by recent traffic growth in major corridors of 20 percent per year. The vehicle fleet has grown by 255 percent since 1985. Passenger and freight traffic turnover on highways has doubled since 1985; this volume of traffic, coupled with an aging existing road network designed for lower levels of traffic and for a different mix of vehicles, has contributed to serious problems of congestion in major provincial corridors and in most cities. 4. Rationale for Bank Involvement. The main component of the Chinese government's strategy for the highway sector is the development of a National Trunk Highway System (NTHS), comprising 12 major interprovincial highways for the exclusive use of motor vehicles; these routes would connect all provincial capitals and cities with population exceeding 500,000. The construction of 25,000 km of high-standard, access-controlled highways for the NTHS has been accorded the highest investment priority by central government. This scope of construction represents a tremendous challenge: as of 1991, only 500 km of the system had been built, with an additional 4,000 km to be added during the Eighth Five Year Plan (1991- 1995). 5. The proposed project supports the government's strategy for the highway sector and is consistent with the Country Assistance Strategy discussed at the Board on June 1, 1995, specifically addressing one of the Bank's key objectives, the alleviation of infrastructure bottlenecks. In the highway sector, the Bank strategy is to assist in the development, management and financing of the highway system with emphasis on introduction of important new technologies and the avoidance of some of the better-known problems of rapid motorization, including inappropriate pricing and subsidies, neglect of safety and environmental side effects, and urban congestion. The proposed project supports the Bank strategy in several  of these areas. The Shanghai-Hangzhou corridor that is the focus of the proposed project is experiencing rapid econonic growth: this factor, combined with the high density of population and increasing motorization in the project area, is reflected in traffic growth rates of up to 20 percent per year and increasingly serious congestion. The project would help relieve congestion through construction of a new expressway and the upgrading of other roads to increase capacity for high-speed traffic in the corridor. 6. The Shanghai-Hangzhou Expressway that would be constructed under the proposed project forms an important segment of the coastal route of China's NTHS, which will link Heilongjiang Province in the extreme northeast of China with Hainan Island at China's southernmost point. The Bank is financing or has financed the construction of sections of this route and of important provincial roads in several eastern provinces of China, including Guangdong, Fujian, Jiangsu and Zhejiang. The Shanghai-Hangzhou Expressway would provide high-speed linkages with other key expressways, including the Shanghai Inner Ring Road and the Hangzhou-Ningbo Expressway (both being constructed with Bank assistance), to form a continuous, 295-km expressway route between Shanghai and Ningbo, linking the most rapidly developing areas of Zhejiang with the major trade and communications center of Shanghai. 7. Bank participation in this project is beneficial to the highway and planning agencies in Shanghai and Zhejiang by fostering the adoption of more up-to-date technical and project management practices, including the use of design reviews, contracting, and construction supervision. Bank involvement places emphasis on the importance of efficient organization, operation, and maintenance of the new expressway that would be financed by road user charges and operated as a toll road. The use of tolls is increasingly important for sustainability of road investments in China. 8. Development of the Shanghai-Hangzhou Expressway, a bi-provincial highway, will afford opportunities for the Bank to help alleviate constraints in the movement of passengers and goods across administrative boundaries and to promote regional trade. The Bank's involvement in the project is helping to improve coordination and cooperation between the provinces of Shanghai and Zhejiang, with lessons that will be relevant for future Bank projects in China and more generally, for links of China's NTHS that will require coordination across a large number of provinces. 9. The project's pilot program for road safety (the Road Safety Program) supports the Bank's strategy for participation in China's highway sector. The magnitude of the road safety problem in China is receiving increasing attention as vehicle ownership levels and traffic continue to grow at unprecedented rates, and as a high-speed road network is developed, factors that could contribute to the already serious road safety problem. Appropriate interventions and solutions to improve road safety in corridors such as those in the proposed project, characterized by a high volume of mixed traffic with a significant proportion of bicycle traffic, are still being identified and are of central concern both to the Chinese government and to the Bank. Through participation in the formulation of the Road Safety Program, the Bank has provided critical technical expertise to help identify potential solutions, including road safety- conscious designs that would be used to upgrade selected roads in the pilot and a program for strengthening road safety technical capacity in provincial highway agencies. Bank involvement during supervision would afford opportunities to provide additional technical advice on road safety and to disseminate lessons of the pilot to other provinces in China. 10. Because of the dense human settlements along the project route, intensive preparation of environmental and resettlement activities under the project has been critical to the  -3- development of strategies and action plans for adequate environmental protection and income restoration of project-affected people. In particular, the Bank has made a significant contribution to the preparation of and planning for resettlement activities by providing technical expertise for the assessment of resettlement impacts and the formulation of Resettlement Action Plans (RAPs), and by providing guidance on how to meet the institutional requirements for implementation of resettlement, including the monitoring of resettlement impacts. 11. Lessons from Previous Bank Operations. The Bank has accumulated substantial experience on China's highway sector through the preparation and implementation of twelve previous highway projects. Of these, one highway project has been completed and a second was recently closed. 12. Bank experience in China shows generally strong implementation capacity for the main physical components in highway projects and for expressway components in particular. However, delays in implementation often occur for other project components: lack of familiarity with procurement procedures and inadequate planning and design of traffic engineering facilities (traffic monitoring, telecommunications, tolling, and lighting) have resulted in the implementation of traffic engineering and equipment procurement being delayed beyond completion of the highway civil works. Preparation of the proposed project has specifically emphasized the procurement, management and operations of the tolled expressway that would be constructed. The proposed project has also benefited from advance preparation of bidding documentation for major civil works and other components and independent design reviews, which should help reduce delays during implementation. 13. Land acquisition and the resettlement of affected people has also led to implementation difficulties, including delays and cost overruns, in Bank-financed highway projects in China and other countries. The proposed project covers a densely populated and fast-growing corridor and, typical of the southeastern coastal area, a large number of people and properties would be affected by land acquisition and resettlement. Bank experience shows that the institutional requirements, including assessment of resettlement impact, monitoring and reporting, are significant but often underestimated by project authorities. The resettlement activities under the proposed project take into consideration the previous lessons learned, and has addressed a broader range of technical issues than previous transport projects in China (see para 29). 14. The Bank has had considerable involvement with transport infrastructure projects in both Shanghai and Zhejiang. A Shanghai Metropolitan Transport Project was approved by the Board in September 1991, and a Second Shanghai Metropolitan Transport Project was approved in September 1993. The main infrastructure component of both projects is the construction of 27 km of the Inner Ring Road around the center of Shanghai; the projects also provide access via bridges to the new development area in Pudong. The implementation of projects in Shanghai has indicated strong capabilities in civil works design and construction, but relatively weak institutional capacity affecting planning and implementation, weak enforcement of traffic regulations (in part, due to difficulty in interagency cooperation), inefficient public transport operations, poor interagency cooperation, and lack of consideration of environmental impacts. The proposed project would address several areas of weakness: first, the project includes an institutional strengthening component, comprising training courses and the provision of equipment to improve the capacity of highway agencies to plan, manage, and operate roads. The environmental aspects of the project have been addressed jointly with the Bank throughout preparation, resulting in specific action plans for the construction and operation phases of the project that would be monitored throughout implementation; the  - 4 - provision of environmental equipment under this project would also strengthen Shanghai's capacity for environmental testing and management. 15. A Zhejiang Provincial Highway Project was approved by the Board in May 1992; this project includes construction of the Hangzhou-Ningbo Expressway that would adjoin the Shanghai-Hangzhou Expressway in the proposed project. During the first two years of implementation of the ongoing project, there were serious difficulties with expressway construction quality and the monitoring of resettlement activities. Measures were taken to strengthen staff capabilities, improve internal quality controls, and address resettlement monitoring, and the project is now rated as satisfactory. The construction problems resulted from the delegation of authority to lower level agencies that were unfamiliar with contracting procedures, supervision, and quality control, with negative impacts on construction quality, physical progress, and cost of the expressway. Bank experience in many other countries has demonstrated that poorly constructed roads lower economic benefits and vehicle operating cost savings, and may reduce reliability and accessibility of the road. Higher costs may result from premature deterioration, requiring corrective actions in the form of increased maintenance and rehabilitation. The proposed project has taken these findings into consideration. The project would be supervised by a joint supervision team, comprising a core team of international and domestic experts complemented by experienced personnel recruited from other construction supervision firms and local staff. Terms of reference of the international consultants ensure adequate numbers of technical staff and procedures for quality control. The project would also include an important construction supervision training program to be held prior to the start of construction. Regular Bank supervision would focus on the adequacy of construction supervision and quality control procedures. 16. Several of the most important lessons learned in implementation of highway projects worldwide concern road maintenance. Bank policy papers in 1979 and 1988 underscored the fact that neglect of road maintenance can ultimately result in very high costs to restore infrastructure, and that new road construction must be balanced with the need for road maintenance. In previous Bank studies, the maintenance of China's roads was considered adequate. However, the rapidly expanding network size and high rates of vehicle and traffic growth in China suggest that maintenance requirements may accelerate in coming years. The Bank is currently reviewing the implementation experience of Road Data Bank/Pavement Management Systems components that have been included in several previous highway projects. The proposed project has taken these issues into account, and would strengthen the capacity for maintenance of Shanghai and Zhejiang roads through the provision of equipment for operations and maintenance of expressways and other roads. 17. Based on the Bank's experience with institutional and policy aspects of highway projects in China and elsewhere, the phasing of studies and technical assistance and the intensity of Bank supervision are key factors in sustainability of outcomes. Institutional components that are implemented early in the project period tend to have a greater impact than free-standing studies carried out in the advanced stages of a project. Bank experience also shows that road safety programs benefit from careful monitoring of safety conditions and the impact of interventions to improve safety. Institutional components for road safety are most effective when geared to the capabilities of the project agency, taking into consideration staff strength, technical capacity, and operating constraints, and the success of road safety programs depends on effective coordination between highway departments and traffic police. These lessons have been taken into consideration in designing the Road Safety Program in the proposed project, which would pilot road safety-conscious engineering designs and strengthen road safety practices. The scope of this component is small -- well-suited to the capacity of the municipal highway authorities involved in day-to-day implementation. The civil works would be  - 5 - implemented in a manner to maximize the demonstration effect of the program and to allow for learning from implementation of each works package; regular monitoring and reporting are included to measure the impact of road safety interventions. The Road Safety Program would be implemented early in overall project implementation, which would permit earlier review and adoption of the pilot findings. 18. Project Objectives. The project is designed to (a) increase highway capacity in the Shanghai-Hangzhou corridor in order to relieve existing congestion and promote economic development; (b) improve road safety in northern Zhejiang; and (c) develop highway sector institutional capability in Shanghai and Zhejiang. 19. Project Description. The project comprises: (a) construction of the Shanghai-Hangzhou Expressway, a 130-km divided four-lane access-controlled highway, including service facilities and the supply and installation of electrical, electronic and mechanical (E&M) equipment for tolling, traffic monitoring, telecommunication and lighting, and the upgrading of 56 km of crossroads at interchange locations in Zhejiang Province to improve access to the new expressway; (b) construction supervision of the Shanghai-Hangzhou Expressway; (c) the Road Safety Program, a pilot program in northern Zhejiang to improve safety on highways in the Shanghai-Hangzhou corridor after opening of the new expressway, comprising the upgrading of 86 km of National Route (NR) 320 road sections and structures in Jiaxing Municipality, including construction supervision, and the provision of technical assistance, training, and equipment to improve road safety practices in Zhejiang highway agencies; and (d) institutional strengthening of highway agencies in Shanghai and Zhejiang, comprising (i) a staff training program covering highway planning, design, construction, and maintenance and (ii) strengthening of technical capacity through the addition of equipment for central laboratories, environmental protection and research for the Shanghai-Hangzhou Expressway, operation and maintenance of the Shanghai-Hangzhou Expressway, and maintenance of the provincial and county road networks. 20. Project Costs and Financing. The project is estimated to cost $729 million, with a foreign exchange component of $271 million (37 percent). The Bank loan would finance $260 million, about 36 percent of total project cost. The central government would provide an additional $58 million in grant funding, and Shanghai Municipality and Zhejiang Province would finance $177 million and $234 million of the estimated cost, respectively. Local contributions from Shanghai Municipality and Zhejiang Province would be drawn primarily from highway sector user charges. 21. Retroactive financing of $26 million (10 percent of the IBRD loan) has been requested and would apply to payments made after September 1, 1994 (based on a planned date of loan signing of September 1, 1995). The presentation of the proj,.ct to the Board has been delayed while activities essential to the success of the project such as Government approval, financing plans, and preparation of satisfactory RAPs were being completed. Retroactive financing has been requested for necessary start-up activities for expressway construction and advance contracting of a road to bypass Hangzhou. These activities will allow the originally envisaged sequencing of project activities to be maintained and will help avoid implementation delays. Project costs and the financing plan are shown in Schedule A. Schedule B indicates procurement arrangements and the estimated disbursement schedule. Schedules C and D present a timetable of key project activities and the status of Bank Group operations in China, respectively. Maps 25817, 25818, and 25819 are also attached. The Staff Appraisal Report, No. 14034-CHA dated July 11, 1995, is being distributed separately.  - 6 - 22. Project Implementation. The Shanghai-based Shanghai-Hangzhou Expressway Construction Executive Conmmission and the Zhejiang Provincial Expressway Project Executive Conmnission would implement the expressway and institutional strengthening components. A road safety unit within the Zhejiang Provincial Highway Administration Bureau together with the Zhejiang Provincial Communications Department would be responsible for implementation of the Road Safety Program. 23. Implementation should benefit from the previous experience in Shanghai and Zhejiang in implementing major, Bank-financed infrastructure projects. The Zhejiang Provincial Expressway Project Executive Comnmnission is responsible for implementation of the Hangzhou-Ningbo Expressway component of the ongoing Zhejiang Provincial Highway Project: this project had a poor performance rating in 1994, but remedial actions have now been taken and the project is rated as satisfactory. The Zhejiang Provincial Communications Department is implementing the rural road improvement program under the same project, and was previously involved in the Bank-financed Highway Project. The implementation difficulties experienced under other highway projects in China have been addressed during preparation of the current project, and would be revisited during project implementation. 24. Project Sustainability. The sustainability of the physical investments under this project is dependent on quality of the initial construction and adequate funding for routine and periodic maintenance. In the proposed project, the use of an independent construction supervision team comprising international and domestic experts, combined with up-front construction supervision training and regular Bank supervision missions will help to ensure quality control. With regard to maintenance of the Shanghai-Hangzhou Expressway, funds collected from road users in the form of tolls will be earmarked for routine and periodic maintenance. Maintenance of the road sections included under the Road Safety Program would be funded by revenues from user charges collected by provincial highway authorities. 25. Sustainability of the institutional aspects of any project, including the training component (expressway) and the training and technical assistance under the Road Safety Program under this project, typically depends upon Borrower commitment to project objectives and the potential for adaptation of recommendations to local circumstances, the dedication of adequate physical and human resources for implementation of institutional aspects, and high- level commitment to the review of findings. The planning and implementation of the Road Safety Program involves Zhejiang's primary engineering and highway management agencies, which possess the necessary human and physical resources, relevant experience, and authority in the sector to help ensure adequate attention to and implementation of findings of the pilot. Further, the road safety technical assistance, to be initiated early in project implementation, focuses on strengthening of existing road safety practices through training and the development/introduction of new road safety practices within the highway sector agencies. The timing and targeting of road safety activities at the road agency level helps ensure sustainability of the pilot findings and integration of the new approaches to road safety. 26. Agreed Actions. Agreement was reached at negotiations that the central government will make the proceeds of the loan available to Shanghai Municipality and Zhejiang Province on the same terms as those of the Bank loan, with Shanghai Municipality and Zhejiang Province bearing the foreign exchange risk. Additional assurances were obtained from Shanghai Municipality and Zhejiang Province that: (a) proposals for toll operations, methodology for toll setting, and measures to facilitate interprovincial traffic movements will be submitted to the Bank by December 31, 1995; (b) information on the recomnmended toll levels and organizational arrangements for the Expressway will be submitted to the Bank by December 31, 1998; (c) adequate staffing and organizational arrangements for project implementing  - 7 - agencies and supervision teams will at all times be maintained; (d) as a condition of disbursement for works packages under the Road Safety Program, the Bank will receive and approve information on the design, technical aspects, construction supervision, and layout plans for junctions, as well as a report containing an assessment of the likely impact of works on road safety; (e) environment and resettlement activities will be carried out according to action plans acceptable to the Bank, and regular monitoring of resettlement against RAPs will be conducted; (f) each year, a detailed implementation plan for all project activities and a two-year rolling plan for training will be submitted to the Bank; and (g) quarterly monitoring reports measuring the impact of project activities on road safety will be submitted to the Bank. The signature of contracts with international consultants for the provision of construction supervision services is a condition of loan effectiveness. 27. Environmental Aspects. This is a category A project. It has been ascertained that the expressway would not pass through ecologically sensitive areas. However, there are potential environmental problems such as: social disruption, noise, air and water pollution, soil erosion, water management, operation of quarries, waste disposal and control of traffic. Environmental Assessments (EAs) were carried out, and based on their findings, Environmental Action Plans (EAPs) to address the problems identified have been prepared and submitted to the Bank and found satisfactory. When appropriate measures as indicated in the EAPs are taken, expressway construction and operation should have no significant adverse impact on the environment. 28. Resettlement. An estimated 42,300 people would be affected by construction of the Shanghai-Hangzhou Expressway, of whom 34,700 would lose land only, 900 would lose housing only, 5,100 would lose both house and land, and 1,600 would be affected by enterprise relocation. An estimated 13,964 additional people would be affected by resettlement under the Road Safety Program. Resettlement Action Plans (RAPs) covering all project components have been received and are acceptable to the Bank. 29. During project preparation, counterpart staff have worked extensively with Bank experts to improve the planning, execution, and monitoring of the resettlement activities under this project, and have specifically addressed: (a) the establishment of a policy framework to ensure that living standards for all categories of affected persons are, at a minimum, restored; (b) the establishment of transparent mechanisms to redress grievances of affected persons and the procedure for appeals; (c) the necessity to compensate for all affected assets, and housing in particular, at full replacement values; (d) the inclusion of contingencies, especially for inflation, in resettlement budgets; (e) the strengthening of institutional arrangements for both internal and external monitoring of land acquisition and resettlement activities; and (f) the planning and execution of detailed processes of job creation. All of these issues, while complex, have been satisfactorily addressed in RAPs for the proposed project. 30. Due to the advanced state of preparation of this project, resettlement for the Zhejiang expressway section and for the Road Safety Program is complete; the Bank has received an initial monitoring report for these resettlement activities. The already-completed as well as all future resettlement activities are being carried out according to the RAPs found acceptable to the Bank. 31. Project Costs and Benefits. The economic evaluation of the project was based on the economic cost of road investments, operating costs of the new roads, and benefits to the local economies. Economic costs comprise investment costs (project development, design, land acquisition and resettlement, construction, construction supervision, and electrical and mechanical works) and operating costs (routine and periodic maintenance and expressway  - 8 - operations, including toll collection and administration costs). Benefits from the project as a whole would accrue to road users in the form of cost, time, and accident savings, and to the provincial governments in the form of reduced highway maintenance costs and reduced burden on emergency services. Many road users are own-account truck operators for productive enterprises or, in the rural areas, individual farmers, and thus should capture the benefits of the project directly. Public freight and passenger services are also likely to respond to increased competition so that transport cost savings would be passed on to users; at minimum, reduced operating costs would permit future price increases to be held down. Passengers would in any case enjoy the time savings offered by the project. The net present value of the proposed Shanghai-Zhejiang Highway Project is Y 17.0 billion and the EIRR is estimated at 33 percent. 32. The main quantifiable benefits of the Shanghai-Hangzhou Expressway and associated access roads would include (a) reduced traffic congestion for traffic remaining on the existing Shanghai-Hangzhou highway and (b) improved driving conditions, reduced traffic interference, and reduced travel distances and times for expressway traffic due to restricted access and the direct and less congested nature of the new alignment. The EIRR for the Shanghai-Hangzhou Expressway was estimated in the base case, taking into consideration the economic cost of this investment component, reduction in vehicle operating costs, and time savings. The net present value of the Shanghai-Hangzhou Expressway component is Y 15.9 billion, and the EIRR is estimated at 33 percent. The EIRR would be reduced to about 27 percent if there were a cost overrun by 50 percent. If traffic growth and generated traffic were 50 percent lower than the base case, the EIRR would decline to 19 percent. The EIRR would be reduced to the 12 percent discount rate if there were a 200 percent cost increase combined with low traffic growth and little additional generated traffic. 33. The principal direct benefits of the Road Safety Program would derive from savings in vehicle operating costs, reduced congestion, and a reduction in traffic accidents along sections of NR 320 that are improved under the program. The investments in the Road Safety Program are designed to reduce the number and severity of accidents through (a) the separation of slow-moving bicycles and agricultural vehicles from faster vehicular traffic through the provision of separate lanes for the slow traffic and (b) improved intersection layouts. Longer- term (but unquantified) benefits from the Road Safety Program would include (a) generally improved design of highway carriageways and intersections in the region based on training received and experience gained in this project, and (b) reduction in the number of accidents through remedial work at blackspots identified using equipment and training provided under the project. The EfRR of the Road Safety Program was estimated in the base case taking into consideration the economic costs of the physical investments, the economic value of accident reduction, vehicle operating cost savings and time savings. The present value of the Road Safety Program's physical investments is Y 1.1 billion, and the EIRR is estimated at 54 percent. The EIRR would decline to 42 percent in the event of a 50 percent cost overrun. If the accident reduction rate were only one-third of the expected rate used in the base case, the EIRR would fall to 26 percent. The EIRR would be reduced to the 12 percent discount rate if there were both a cost overrun by 200 percent and accident reduction of less than 10 percent of the expected rate. 34. The project has important institutional benefits that would derive from the road safety technical assistance, staff training, and the addition of equipment needed to manage expressways and other roads in Shanghai and Zhejiang. The road safety practices developed under this project would be applicable to most roads in the project corridor, providing potential longer-term safety benefits. The exposure of highway sector staff to subjects included in training and their involvement in the procurement processes under the project would also provide longer-term benefits for the sector: staff in the Shanghai and Zhejiang implementing  -9- agencies are likely to manage the roads included in this project over the long term, and to be involved in the development of other major highway and expressway projects. The equipment included in the project would strengthen the capacity of Shanghai and Zhejiang highway agencies for road maintenance, expressway operations, research, and construction. These institutional benefits, while significant, have not been quantified or included in the EIRR evaluation. 35. Risks. Project preparation has focused on the mitigation of risks specific to this project or risks identified in other Bank-financed highway projects. Preparation has incorporated specific lessons from Bank projects in China and has involved the Ministry of Communications for assistance in technical matters and project formulation. International experts have also been involved in the design of the expressway and road safety project components and in the preparation of bidding documents and technical specifications. 36. The proposed project sustained delays during preparation due to changes in design, complications in preparing action plans to address the impact of resettlement, and difficulty in securing government approvals and financing (including IBRD financing). Bank experience in the highway sector shows that delays caused by these factors are not uncommon and, if not resolved promptly, may seriously delay the implementation of civil works components, typically resulting in cost overruns. However, insistence by Government authorities and the Bank on resolution of key issues prior to startup of this project should reduce the risk of delays during implementation. 37. Bank-wide experience also shows that there are risks of overly optimistic estimates of traffic growth and diversion to the project road, key assumptions in estimating project benefits. The economic evaluation for this project has considered scenarios with low traffic growth, low diversion of traffic, and cost overruns. The project remains economically viable over a wide variety of scenarios. 38. There are also concerns that, in an attempt to accelerate the implementation of works, undue emphasis may be placed on physical progress of works, with insufficient attention to quality. The Bank's experience under the Zhejiang Provincial Highway Project led to considerable emphasis being placed on construction quality, effectiveness of construction supervision, and the adequacy of staffing and organization of implementing agencies during project preparation. This emphasis will be maintained during supervision. 36. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and I recommend that the Executive Directors approve it, including retroactive financing of $26 million. James D. Wolfensohn President Washington, D.C. July 1 1, 1995 Attachments  - 10 - Schedule A CHINA SHANGHAI-ZHEJIANG HIGHWAY PROJECT ESTIMATED COSTS AND FINANCING PLAN ($ million) Project component Local Foreign Total Works Shanghai-Hangzhou Expressway 188.2 180.9 369.1 E&M Supply and Installation (Expressway) 4.4 12.5 16.9 Road Safety Program 11.4 4.9 16.3 Subtotal 204.0 192 402. Equipment Operation & Maintenance 0.8 7.2 8.0 Laboratories 0.1 1.2 1.3 Research 0.1 0.8 0.9 Environmental 0.0 0.1 0.1 Road Safety Program 0.0 0.2 0.2 Other 0.1 0.9 1.0 Subtotal I1 10.4 i15U Technical Assistance Implementation Support (Construction Supervision) Shanghai-Hangzhou Expressway 5.4 5.4 10.8 Road Safety Program 0.3 - 0.3 Subtotal 5u7 5A 11. Institutional Development Staff Training Program 0.6 1.3 1.9 Road Safety Technical Assistance and Training 0.1 0.3 0.4 Subtotal 0.7 1.7 2.4 Base Cost 211.5 215.8 427. Physical Contingencies /a 21.0 20.4 41.3 Price Contingencies 140.2 35.1 175.4 Taxes and Duties /b 26.6 - 26.6 Land Acquisition and Resettlement /c 58.6 - 58.6 Total Project Cost 457.9 271.3 7292 Financing Plan Shanghai Municipal Government 144.8 32.5 177.3 Zhejiang Provincial Government 233.8 - 233.8 Central Government 58.1 - 58.1 IBRD 21.2 238.8 260.0 Total Financing 457.9 271.3 729.2 Note: All figures are rounded. /a Ten percent of works and construction supervision. /b Comprises import taxes and duties payable for equipment and taxes payable for works. /c Figures for land acquisition and resettlement include contingencies.  Schedule B Page I of 2 CHINA SHANGHAI-ZHEJIANG HIGHWAY PROJECT PROCUREMENT METHODS AND DISBURSEMENTS ($ million) Procurement method Not Bank Total Project ICB NCB Other Financed Cost Civil works Shanghai Expressway Section 182.1 25.4 /a 207.6 (48.0) (48.0) Zhejiang Expressway Section 301.3 70.8 372.0 (126.0) (29.6) (155.6) Road Safety Program 25.9 25.9 (8.8) (8.8) E&M Supply & Installation Shanghai Expressway Section 3.8 1.8 /b 5.6 (2.9) (2.9) Zhejiang Expressway Section 20.2 20.2 (14.2) (14.2) Equipment Shanghai 2.2 0.4 0.3 /c 4.8 /e 7.7 (1.7) (0.3) (0.2) (2.2) Zhejiang 9.6 1.1 0.5 /c 11.1 (6.8) (0.8) (0.3) (7.9) Road Safety Program 0.3 0.1 I/c, /d 0.3 (0.2) (0.0) /d (0.3) Consultancies If Implementation Support Lg 17.1 17.1 (17.1) (17.1) Institutional Development /h 3.0 3.0 (3.0) (3.0) Land Acquisition and Resettlement 58.6 58.6 Total 5519.2 98.4 20.9 90.6 729.2 (199.6) (39.7) (20.7) (260.0) Note: All figures are rounded and include estimated physical and price contingencies, taxes, and duties. Figures in parentheses represent amounts financed by the Bank Group; the Bank loan would not be used to finance taxes or duties. /a Ancillary works to be procured under local procedures. Lb Direct contract with the Shanghai Power Administration Bureau (Songjiang Branch). /L National and International Shopping. Ld Represents equipment valued at $62,000, with Bank financing of $45,000. L/ Advance procurement of equipment by the Shanghai Highway Management Department. If Selection of consultants according to "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency." Lg Comprises supervision of construction. /h Comprises training and road safety technical assistance.  - 12 - Schedule B Page 2 of 2 DISBURSEMENTS ($ million) Category Loan amount Percent financed Civil works Construction Shanghai Expressway Section 40.4 35 percent Zhejiang Expressway Section 132.3 43 percent Road Safety Program 7.5 35 percent Electrical & Mechanical Works Shanghai Expressway Section 2.5 79 percent Zhejiang Expressway Section 12.1 73 percent Equipment Shanghai Expressway Section 2.2 100 percent of foreign Zhejiang Expressway Section 6.3 expenditures Road Safety Program 0.6 100 percent of local expenditures (ex-factory), and 75 percent of local expenditures for other items procured locally Consultant Services and Training Shanghai Expressway Section 5.8 100 percent Zhejiang Expressway Section 10.4 100 percent Road Safety Program 0.8 100 percent Unallocated 39.1 Total 260.0 ESTIMATED DISBURSEMENTS ($ million) Bank Group FY 1996 1997 1998 1999 2000 2001 Annual 37 42 54 54 50 23 Cumulative 37 79 133 187 237 260  - 13 - Schedule C CHINA SHANGHAI-ZHEJIANG HIGHWAY PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time taken to prepare: 33 months (identification to Board presentation) (b) Prepared by: Shanghai Municipal Engineering Administration Bureau and Zhejiang Provincial Transport Department (c) First Bank mission: November 1992 (d) Appraisal mission departure: November 1993 (e) Negotiations: June 1995 (f) Planned date of effectiveness: November 1995 (g) List of relevant PCRs and PPARs: PCR 10749, June 29, 1992, Highway Project The project was appraised by Stephen Stares (Mission Leader, Transport Economist); Rita Pasi (Task Manager, Financial Analyst); George Mahoney (Consultant, Engineer); Katsunori Suzuki (Environmental Specialist); Christopher Robson (Consultant, Road Safety Specialist); and Ruwani Jayewardene (Consultant, Resettlement Specialist). Bank staff Maninder Gill, Zou Youlan, Liu E, and Lyra Pinto and consultants Bavani Krishnamurthi and Richard Leonard also contributed to preparation of the project. The peer reviewers include Stein Lundebye, Christopher Hoban, and Robert N. Anderson. The Division Chief is Richard Scurfield and the Department Director is Nicholas C. Hope.  - 14 - Schedule D Page 1 of 3 STATUS OF BANK GROUP OPERATIONS IN THE PEOPLE'S REPUBLIC OF CHINA A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of June 30, 1995) Loan/ Amount (USS million) Credit Bor- (net of cancellations) Number FY rower Purpose Bank IDA Undisb.(a) 36 Loans and 43 credits have been fully disbursed. 3,571.8 2,659.3 - Of which SECAL: 2967/1932 88 PRC Rural Sector Adj. 200.0 93.2 - 2678/1680 86 PRC Third RaiLway 160.0 (70.0)(b) 1.3 2723/1713 86 PRC RuraL Health & Preventive Med. 15.0 65.0 10.9 1764 87 PRC Xinjiang AgriculturaL Dev. - 70.0 0.5 2794/1779 87 PRC Shanghai Sewerage 45.0 (100.0)(b) 2.3 2811/1792 87 PRC Beijing-Tianjin-Tanggu Expressway 25.0 125.0 7.2 2812/1793 87 PRC Gansu Provincial Dev. (20.0)(b) 150.5 13.5 1835 87 PRC Planning Support & Special Studies - 20.7 2.4 2852 87 PRC Wujing ThermaL Power 190.0 - 3.3 2877/1845 88 PRC Huangpu Port 63.0 (25.0)(b) 2.3 1885 88 PRC Northern Irrigation - 103.0 7.0 2943 88 PRC Pharmaceuticals 127.0 - 0.4 2951/1917 88 PRC Sichuan Highway 75.0 (50.0)(b) 8.2 2955 88 PRC Beilungang 11 165.0 - 19.8 2958 88 PRC Phosphate Dev. 62.7 4.9 2968 88 PRC RaiLway IV 200.0 - 4.5 1984 89 PRC Jiangxi Provincial Highway - 61.0 0.8 1997 89 PRC Shaanxi Agricultural Dev. - 106.0 9.1 2009 89 PRC Integrated Reg. HeaLth - 52.0 13.4 3006 89 PRC Ningbo & Shanghai Ports 76.4 - 2.8 3022 89 PRC Tianjin Light Industry 154.0 - 22.5 3060/2014 89 PRC Inner Mongolia RaiLway 70.0 (80.0)(b) 6.0 3066 89 PRC Hubei Phosphate 137.0 22.7 3073/2025 89 PRC Shandong Prov. Highway 60.0 (50.0)(b) 21.8 2097 90 PRC Jiangxi Agric. Dev. - 60.0 0.5 2114 90 PRC Vocational & Tech. Educ. - 50.0 2.7 2145 90 PRC National Afforestation - 300.0 72.8 2159 90 PRC Hebei Agricultural Dev. 150.0 40.8 2172 91 PRC Mid-Yangtze Agricultural Dev. - 64.0 10.1 3265/2182 91 PRC Rural Credit IV 75.0 200.0 23.5 3274/2186 91 PRC Rural Indust Tech (SPARK) 50.0 64.3 21.7 3286/2201 91 PRC Medium-Sized Cities Dev. 79.4 52.9 31.8 2210 91 PRC Key Studies Development - 131.2 27.9 2219 91 PRC Liaoning Urban Infrastructure - 77.8 9.6 3316/2226 91 PRC Jiangsu Provl. Transport 100.0 (53.6)(b) 24.4 2242 91 PRC Henan Agricul. Dev. - 110.0 62.0 3337/2256 91 PRC Irrig. AgricuL. Intensif. 147.1 187.9 79.9 3387 92 PRC Ertan HydroeLectric 380.0 8.7 2294 92 PRC Tarim Basin - 125.0 55.0 2296 92 PRC Shanghai Metro Transport - 60.0 17.8 3406 92 PRC Railways V 330.0 - 73.8 3412/2305 92 PRC Daguangba Multipurpose 30.0 37.0 8.5 2307 92 PRC Guangdong ADP - 162.0 102.4 3415/2312 92 PRC Beijing Environment 45.0 80.0 77.0 2317 92 PRC Infectious and Endemic Disease Cont - 129.6 112.6 3433 92 PRC Yanshi Thermal Power 180.0 - 19.6 2336 92 PRC Rural Water Supply and Sanitation - 110.0 70.9 2339 92 PRC Educ. Development in Poor Provs. - 130.0 62.1 3443 92 PRC Regional Cement Industry 82.7 - 49.2 3462 92 PRC Zouxian Thermal Power 310.0 - 171.9 3471 92 PRC Zhejiang Provincial Highway 220.0 - 128.1 2387 92 PRC Tianjin Urban Devt. & Envir. - 100.0 73.0  - 15 - Schedule D Page 2 of 3 Loan/ Amount (USS million) Credit Bor- (net of cancelLations) Number FY rower Purpose Bank IDA Undisb.(a) 2391 92 PRC Ship Waste Disposal - 15.0 17.3 2411 93 PRC Sichuan Agricultural Devt. - 147.0 97.4 3515 93 PRC Shuikou Hydroelectric II 100.0 - 67.2 2423 93 PRC Financial Sector TA - 60.0 56.2 3530 93 PRC Guangdong ProvinciaL Transport 240.0 - 154.3 3531 93 PRC Henan ProvinciaL Transport 120.0 - 78.7 2447 93 PRC Ref. Inst'L and Preinvest. - 50.0 43.6 3552 93 PRC Shanghai Port Rest. and Devt. 150.0 - 115.4 2457 93 PRC Changchun Water SuppLy & Env. - 120.0 125.9 2462 93 PRC Agriculture Support Services - 115.0 91.1 3560/2463 93 PRC Taihu Basin Flood Control 100.0 100.0 129.6 2471 93 PRC Effective Teaching Services - 100.0 106.8 3572 93 PRC Tianjin Industry II 150.0 - 150.0 3582 93 PRC South Jiangsu Envir. Prot. 250.0 - 227.8 2475 93 PRC Zhejiang Multicities Devt. - 110.0 106.0 3581 93 PRC Railway VI 420.0 - 324.1 3606 93 PRC Tianhuangping Hydroelectric 300.0 - 274.4 3624/2518 93 PRC Grain Distribution 325.0 165.0 487.3 2522 93 PRC Environmental Tech. Assist. - 50.0 49.0 2539 94 PRC Rural HeaLth Workers Devt. - 110.0 104.1 3652 94 PRC Shanghai Metro Transport II 150.0 - 46.8 3681 94 PRC Fujian Provincial Highways 140.0 - 120.1 3687 94 PRC Telecommunications 250.0 - 225.3 2563 94 PRC Second Red Soils Area Devt. - 150.0 137.1 2571 94 PRC Songliao Plain Agric. Devt. - 205.0 197.3 3711 94 PRC Shanghai Environment 160.0 - 155.0 3716 94 PRC Sichuan Gas Devt & Conservatn. 255.0 - 239.1 3718 94 PRC Yangzhou Thermal Power 350.0 - 320.8 3727 94 PRC XiaoLangdi MuLtipurpose 460.0 - 366.4 2605 94 PRC Xiaolangdi Resettlement - 110.0 110.4 2616 94 PRC Loess Plateau Watershed Devt. - 150.0 150.2 2623 94 PRC Forest Resource Devt. & Prot. - 200.0 209.3 3748 94 PRC National Highway 380.0 - 338.9 3773/2642 95 PRC Ent. Housing/Soc Sec Reform 275.0 75.0 347.8 3781 95 PRC Liaoning Environment 110.0 - 98.6 3787 95 PRC Xinjiang Prov. Highways 150.0 - 150.0 2651 95 PRC Basic Ed for Poor/Minorities - 100.0 101.9 3788 95 PRC Shenyang Industrial Reform 175.0 - 175.0 2654 95 PRC Economic Law Reform - 10.0 10.6 2655 95 PRC Comp Maternal/Child Health - 90.0 93.5 3846 95 PRC Zhejiang Power DeveLopment (c) 400.0 - 400.0 3847 95 PRC Technology Development (c) 200.0 - 200.0 3848 95 PRC Sichuan Power Transmission cc) 270.0 - 270.0 3873/2709 95 PRC Fiscal TA (c) 25.0 25.0 50.0 3874/2710 95 PRC Yangtze Basin Water Res Devt (c) 100.0 110.0 210.0 3897 95 PRC Railway VII (c) 400.0 - 400.0 3906/2744 95 PRC Southwest Poverty Reduction (c) 47.5 200.0 247.5 3910 95 PRC Inland Waterways (c) 210.0 - 210.0 3914/2756 95 PRC Iodine Deficiency Dis. ControL(c) 7.0 20.0 27.0 TotaL 13,895.6 8,381.2 10,040.1 of which has been repaid 1,172.8 18.1 Total now held by Bank and IDA 12,722.8 8,363.1 Amount sold: Of which repaid - - Total Undisbursed 6,761.7 3,278.3 10,040.0 (a) As credits are denominated in SDRs (since IDA Replenishment VI), undisbursed SDR credit balances are converted to dollars at the current exchange rate between the doLLar and the SDR. In some cases, therefore, the undisbursed balance indicates a dollar amount greater than the original principal credit amount expressed in dollars. (b) Credit fully disbursed. (c) Not yet effective.  - 16 - Schedule D Page 3 of 3 B. STATEMENT OF IFC INVESTMENTS (As of June 30, 1995) Invest- Type of Loan Equity Syndicate Total ment No. FY Borrower Busiress --------- (USS MiLLion) ---------- 813/2178 85/ Guangzhou Auto AutomobiLe 15.0 4.5 - 19.5 86/91 974 87/88 China Investment Co. DFCs 3.0 - - 3.0 1020 88/ Shenzhen China Bicycle 17.5 3.4 - 20.9 92/94 Bicycles Co. Ltd. Manufacture 1066 89 Crown ELectronics ELectronics 15.0 - - 15.0 1119 89 Shenzhen SoLar ELectric 2.0 1.0 - 3.0 Light/Power 3423 93 Shenzhen PCCP Manufacturing 4.0 1.0 5.0 3150 93 Yantai Mitsubishi Cement Cement 28.7 2.0 - 30.7 3881 94 China Walden Mgt. Capital Mkts. - 7.5 - 7.5 4470 94 Dynamic Growth Fund Venture - 20.0 - 20.0 Capital 4534 95 Newbridge Inv. Securities Mk 10.0 - 10.0 Financing Instit. 3746 95 Dalian Glass GLass 30.5 - 30.5 61.0 4755 95 Mantong Wanfu Food/ 7.9 3.4 10.2 21.5 Agribusiness Total Gross Commitments 123.6 52.8 40.7 217.1 Less cancellations, terminations, 28.5 - 10.2 38.7 repayments, write-offs, and sales Total Commitments now Held by IFC 95.1 52.8 30.5 178.4 Total Undisbursed 13.4 32.8 16.5 62.7 7/3/95 EA2DR  IBRD 25817 RUSSIAN ln+_, ~~~~~~~~FEDERATION > KAZAKHSTAN HEILONGJIANGO/ / UI.MN3AMTAR ,< UZBEKISTAN A ,OGOI J ~~ATMA' MONGOLIA f) >t FRUNZE "ATA l _JI ;_@KYRGYZ < r JIL , INGO -T REPUBLIC \, syz MONGOL < t f~ S Qhn;VX r- JAPAN TAJIKISTAN 4%J.N BEIIN 1> IIA / NIENO ) {/ ~~~ ~ ~ ~~~~~~~~~~\ \> ~ ~ BIlIGI> / { ondong OF KOREA \ C~~~-\_ t E r l s *s~~~~~~~~~~~~) / 4BElJl;;==>t~~~REJI , Tsog.on 3olian - TIANJ!N SH REP OF The boundor,ies. colors, KOREA d.nom,notion dan a wny \YCW othr inf-rmoton shown imply, an the port of Ax The World Bank Group SH anyj judgm-nt on th. legol Status of any teritory, HNDp or any endo rsomet -,,,NGHAS 0or$ accptance of s-ch bound-i.s.r5 NGe ' J SU East Ch,ma TA lazANG l! ~ HEAN It Sea HUBEI l Zb _SK,f '\ 3iXSee IBRD 25818 IDU_ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PACIFIC NEPAL 7 SICHUAN ZHEIANG _ ________________________________ OCEAN CHINA < 9 o MAJOR HIGHWAY DEVELOPMENT PROGRAM HUNA JIANG ^ NATIONAL TRUNK HIGHWAY SYSTEM(NTHS) MAJOR HIGHWAYS - COMPLETED IAN - UNDERCONS5TRUCTIONITHFVEYEAR tMMlI99-199I5) YUNNAN C_- - 9TH FIVE YEAR PLAN 11 996.2000I \|9 __ PLANNED BEYOND 2000 NTiS PRIORIrY CORRIDORS S PROCMNCE CAITALS VIET NAM PHILIPPINES NnHS LONGrERM CORRIDORS NATIONAL CAPITAS PROVINCE BOUNDARIES LAO PEOPLE'S INTERNATIONAL BOUNDARIES THIADEMUHINN0.J N0W0Y THAILAND HAINAN19 JULY 1995   CHINA 1i9