Document of The World Bank Report No: 19287-CHA PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOA-N IN THE AMOUNT OF US$350 MILLION TO THE PEOPLE'S REPUBLIC OF CHIA FOR A FOURTH NATIONAL HIGHWAY PROJECT May 19, 1999 Transport Sector Unit East Asia and Pacific Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective May 1999) Currency Unit = RMB RMB 1.00 = US$0.12 US$ 1.00 = RMB 8.3 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS 9FYP - Ninth Five Year Plan (1996-2000) MOC - Ministry of Communications 1 OFYP - Tenth Five year Plan (2001-2005) MOF - Ministry of Finance ADB - Asian Development Bank MTE - Medium Truck Equivalent AIS - Accident Information System NAO - National Audit Office BMS - Bridge Management System NH - National Highway BOT - Build-Operate-Transfer NCB - National Competitive Bidding CAS - Country Assistance Strategy NPV - Net Present Value E&M - Electrical, Electronic and Mechanical NR - National Road EA - Environmental Assessment NTHS - National Trunk Highway System EAP - Environmental Action Plan OECF - Overseas Economic Cooperation Fund (of Japan) EASES - Environment and Social Development Sector Unit OED - Operations Evaluation Departnent EASTR - Transport Sector Unit PAD - Project Appraisal Document EIA - Environmental Impact Assessment PAP - Project Affected People EIRR - Economic Internal Rate of Return PCD - Provincial Communications Department ENPV - Estimated Net Present Value PCU - Passenger Car Unit EPB - Environmental Protection Bureau PEO - Project Execution Office EPO - Environmental Protection Office PMS - Pavement Management System ERR - Economic Rate of Return PPI-PSD - Private Participation in Infrastructure Group in Private Sector Department ES - Executive Summary (Environmental Report) PRC - People's Republic of China ESW - Economic and Sector Work PSB - Public Security Bureau FIAS - Foreign Investment Advisory Services RAP - Resettlement Action Plan GNP - Gross National Product RDB - Road Data Bank GOC - Governnent of China RMC - Resident Mission China GOVAI - Gross Output Value of Agriculture and Industry RMF - Road Maintenance Fee HDM - Highway Design and Maintenance Model SOE - Statement of Expenditures HPCD - Hunan and Hubei Provincial Communications SDPC - State Development and Planning Commission Departments HPECDC - Hunan Provincial Expressway Construction and TA - Technical Assistance Development Corporation HPFB - Hunan Provincial Finance Bureau TCE - Tucheng-Changsha Expressway ICB - International Competitive Bidding TEA - Traffic Engineering Association IFC - International Finance Corporation WBFPO - World Bank Finance Project Office/Hubei ITIC - International Trade and Investmnent Corporation Y - Yuan RMB JINGZHU - Beijing-Zhuhai Expressway ZTE - Zhengdian-Tucheng Expressway LA&R - Land Acquisition and Resettlement Regional Vice President: Jean-Michel Severino, EAPVP Country Director: Yukon Huang, EACCF Sector Manager: Jitendra N. Bajpai, EASTR Task Tearn Leader/Task Manager: Alfred Nickesen, Pr. Transport Specialist, EASTR CHINA Fourth National Highway Project CONTENTS Page No. A. Project Development Objective .............................................................2 1. Project development objective and key performance indicators ................ ...................2 B. Strategic Context .............................................................2 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project .......2 2. Main sector issues and Govermment strategy ..............................................................3 3. Sector issues to be addressed by the project and strategic choices .............. .................4 C. Project Description Summary ..............................................................7 1. Project components ..............................................................7 2. Key policy and institutional reforms supported by the project .................. ...................7 3. Benefits and target population .............................................................. : . 9 4. Institutional and implementation arrangements .......................................................... 10 D. Project Rationale ............................................................. 11 1. Project alternatives considered and reasons for rejection ........................................... 11 2. Major related projects financed by the Bank and/or other development agencies ...... 14 3. Lessons learned and reflected in the project design .................................................... 15 4. Indications of borrower commitment and ownership .................................................. 16 5. Value added of Bank support in this project ........................................................ 16 E. Summary Project Analysis .................. 17 1. Economic ................. 17 2. Financial ................. 17 3. Technical ................. 17 4. Institutional ................. 18 5. Social ................. 18 6. Environmental assessment ................. 19 7. Participatory approach ................. 20 F. Sustainability and Risks ................ 21 1. Sustainability ................ 21 2. Critical Risks ................ 22 3. Possible Controversial Aspects .................... 23 Page No. G. Main Loan Conditions ................................... 23 1. Effectiveness Conditions ................................... 23 2. Agreement Reached with the Government ................................... 23 3. Agreements Reached with the Beneficiaries .......... .......................... 23 H. Readiness for Implementation ................................... 25 L Compliance with Bank Policies ................................... 26 Annexes Annex 1. Project Design Summary ...................................................... 27 Annex 2. Hunan and Hubei Highway Sector Revenues and Expenditures, 1996-2005 .............. 43 Annex 3. Project Description ...................................................... 46 Annex 4. Policy and Institutional Reform Program ............................. ......................... 49 Annex 5. Road Traffic Safety Program ...................................................... 63 Annex 6. China's Evolving Highway Program and Financing Issues ........................................ 69 Annex 7. Bank Involvement and Achievements in China's Highway Sector .............. .............. 74 Annex 8. Estimated Project Costs ...................................................... 78 Annex 9. Financing Plans ...................................................... 81 Annex 10. Implementation Schedule .84 Annex 11. Procurement and Disbursement Arrangements .100 Annex 11, Table A: Consolidated Project Costs by Procurement Arrangements . 102 Annex 11, Table A-a: Project Costs by Procurement Arrangements Hunan Section 103 Annex 11, Table A-b: Project Costs by Procurement Arrangements Hubei Section . 104 Annex 11, Table B: Thresholds for Procurement Methods and Prior Review .105 Annex 11, Table C- 1: Estimated Disbursement Schedule .108 Annex 11, Table C-2: Allocation of Loan Proceeds .109 Annex 12. Economic and Financial Evaluation .110 Annex 13. Environmental Assessment and Action Plan Summary .127 Annex 14. Resettlement Action Plan Summary .134 Annex 15. Financial Management System .139 Annex 16. Project Processing Budget and Schedule .146 Annex 17. Documents in the Project File .147 Annex 18. Statement of Loans and Credits .149 Annex 19. Country at a Glance .152 Maps 1. China: National Trunk Highway System (NTHS), IBRD 29904 2. Zhengdian (Wuhan)-Changsha Expressway, IBRD 29905 CHINA Fourth National Highway Project Project Appraisal Document East Asia and Pacific Regional Office Date: May 19, 1999 Task Team Leader/Task Manager: Alfred Nickesen Country Director: Yukon Huang Sector Manager: Jitendra N. Bajpai Project ID: CN-PE-41268 Sector: Transportation Program Objective Category: Lending Instrument: Special Investment Loan Program of Targeted Intervention: [ Yes [X] No Project Financing Data [X] Loan [ Credit [] Guarantee [] Other [Specify] For Loans/Credits/Others: Amount (US$M): 350.0 Proposed terms: [] Multicurrency [X] Single currency, specify -US dollars Grace period (years): 5 [] Standard Variable [7] Fixed [X] LIBOR-based Years to maturity: 20 Commitment fee: 0.75% Front-end fee: 1% Financing plan (US$ M): Source Local Foreign Total Central Government 228.1 - 228.1 Hunan Provincial Government 199.3 - 199.3 Hubei Provincial Government 174.6 - 174.6 IBRD - 350.0 350.0 Total 602.0 350.0 952.0 Borrower: People's Republic of China Guarantor: Responsible agency(ies): Hunan and Hubei Provincial Communication Departments Estimated disbursements (Bank FY/US$ M): 2000 2001 2002 2003 2004 2005 Annual 33 92 92 87 36 10 Cumulative 33 125 217 304 340 350 Project implementation period: 5 years 9 months (October 1999-June 2005) Expected effectiveness date: October 1999 Expected closing date: December 2005 Project Appraisal Document Page 2 Fourth National Highway Project County: China A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The aim of the proposed Fourth National Highway (NH4) Project is to increase economic activity along the Wuhan-Changsha high-priority transport corridor through relieving congestion, facilitating trade and mobility and helping increase efficiency and traffic safety in Northern Hunan and Southern Hubei. The proposed project would have the following objectives: (a) relieve traffic congestion and improve the mobility and integration of inter-provincial trade and commerce between Hunan and Hubei Provinces by assisting in the development of a key section of China's National Trunk Highway System (NTHS) in the principal Beijing-Zhuhai corridor; (b) strengthen highway institutional capacity at the Hunan and Hubei Provincial Communications Departments (HPCD) and related sector institutions, through policy and institutional reform, provision of training, technical assistance and equipment, in planning, finance, design, construction, operation and maintenance of highway networks; (c) develop and sustain a policy dialogue in the two key policy areas of the commercialization and corporatization of provincial toll road authorities and of province-wide highway maintenance management; and (d) improve the safety of road transport. B: Strategic Context 1. Sector-related Countiy Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 16321-CHA Date of latest CAS discussion: March 18, 1997 and Progress Report (R98-107), May 28, 1998. A major objective of the CAS is to alleviate infrastructure bottlenecks. This, among other infrastructure sectors, also applies to China's highway sector and specifically to the construction of the NTHS. By implementing the Wuhan-Changsha Expressway as part of the NTHS, the proposed project would contribute directly to removing highway bottlenecks, facilitating inter-provincial trade and commerce, and promoting long-distance highway transport between the capital cities of Hubei and Hunan Provinces and beyond. The Wuhan-Changsha Expressway is the central element of the much larger Beijing-Zhuhai Expressway Corridor (Jing-Zhu) which, with a total length of some 2,500 km, constitutes China's highest priority highway investment. The Bank is already heavily involved in the financing of several other high priority sections in this corridor through the First, Second and Third National Highway Projects which are all ongoing and progressing well. Since expressway construction between Wuhan and Shanghai and between Changsha and Guangzhou is already partially completed and partially still ongoing, the NH4 project region of Northern Hunan and Southern Hubei would in the near future become well connected to fast growing coastal areas with their deep- water ports by high-grade highways. This will in tum help alleviate growing income disparities between interior and coastal provinces, through improved access to those coastal port cities and increased integration of Hunan and Hubei into the world trading system by contributing more to Chinese imports and exports. Project Appraisal Document Page 3 Fourth National Highway Project County: China 2. Main sector issues and Government strategy: China's strong economic growth has resulted in high growth in transport demand and a rapid shift toward highway transport. However, China has historically underinvested in transport and its road network ranks among the sparsest in the world relative to geographic area or population and is quite unsafe. Few inter- provincial expressways are in existence today and about 20 percent of rural communities have no all-weather vehicular access. Governments at all levels have embarked on a major highway investment and improvement program. At the central level, the basic strategy is to develop a National Trunk Highway System (NTHS) for the exclusive use of motorized vehicles, giving priority to two north-south and two east-west corridors and to corridors serving border areas and cross-border trade. The Ministry of Communications (MOC) has been developing the NTHS, consisting of 12 inter-provincial trunk expressways, spanning China and totaling some 35,000 km. The Bank is heavily involved in the construction of substantial sections of the NTHS. At the provincial and local levels, the strategy is to concentrate on road network maintenance and the expansion and improvement of provincial and rural road networks, currently totaling about 1.26 million km, to provide greater mobility and to stimulate socioeconomic development. On the road transport policy agenda, growing attention is being paid to removing administrative and physical barriers to inter-provincial trade and commerce, and to a redefinition of government's role in transport in light of rapid administrative decentralization and growing non-state sector involvement. MOC needs to be further strengthened to carry out its reform mandate in matters such as finance, and standards of planning, design and operation of the NTHS. Provincial, municipal and county governments are expected to continue to mobilize most investment resources required, including access to private investment and capital markets, and to seek greater expenditure and system efficiency through improved highway planning and investment strategies, as well as to modernize maintenance capacity and improve cost recovery. Local governments are also expected to further the development of the road user services and road construction industries through deregulation and promotion of competition, access to modem technology and better management. The Bank prepared a report (No. 11819-CHA dated February 1994), "CHINA - Highway Development and Management Issues, Options and Strategies", which provides recommendations for action in the foregoing areas and which have formed the basis for Bank Group assistance in the sector. The Bank, jointly with MOC held a high-level highway policy seminar in Beijing during May 6-7, 1997, to discuss the major highway policy areas to be addressed in the Bank's future lending program for highways. These are: (1) planning and prioritization of the highway network; (2) highway finance comprising public and private sources; (3) maintenance of highways; (4) highway safety; and (5) operation of the highway network with emphasis on high-grade highways. In addition to the Bank and MOC, this seminar was attended by Ministry of Finance (MOF), State Development and Planning Commission (SDPC), the China Road Association (for highway safety), selected provinces, the Asian Development Bank (ADB) and the Overseas Economic Cooperation Fund of Japan (OECF), which are also key participants in the highway sector in China. A one-day follow-up seminar was held on May 6,1998. Furthermore, the Bank, in cooperation with MOF and MOC is presently reviewing the effectiveness of past and present World Bank-financed technical assistance in the highway sector with a view to assist the government and the Bank in establishing a new policy and strategy framework for the Bank's future lending in the sector. A workshop to discuss results and future directions is being scheduled for July 8-9, 1999. Also, the Bank's Operations and Evaluation Department (OED) has recently completed and published an evaluation of World Bank assistance to the transport sector in China which, inter alia, contains a detailed assessment of the performance of Bank-funded highway projects as well as a well thought-out set of recommendations for the future highway sector policy dialogue. OED's assessment of past and ongoing Bank highway lending and non-lending services is positive and it recommends a reorientation of future lending and non-lending activities Project Appraisal Document Page 4 Fourth National Highway Project County: China towards broader Bank involvement in institutional and policy reform. As part of the NH4 appraisal review, a Regional Operations Committee (ROC) meeting was held on February 28, 1999 which also discussed broader China highway sector issues. The ROC meeting agreed that the China highway team would prepare a China Strategic Highway Framework paper as part of the FY2000 economic and sector work (ESW) program. Annexes 6 and 7 contain pertinent information on China's evolving highway program and financing issues, and Bank involvement and achievements in China's highway sector, respectively. 3. Sector issues to be addressed by the project and strategic choices: The two recent Bank reviews, i.e. OED's China transport sector evaluation of World Bank assistance conducted during most of 1997-98 and EASTR's internal review of China highway TA conducted during late 1998 and early 1999, have identified as key sector issues which would also be addressed by the proposed project the following: (a) expansion of highway capacity to remove bottlenecks and expedite socio-economic development; (b) highway safety; (c) highway maintenance; and (d) commercialization and corporatization of high-grade highways. (a) Highway Capacity Expansion. China's 9FYP (1996-2000) emphasizes a reduction in transport bottlenecks that are now being recognized as a growing constraint to rapid economic development. The diversification and structural transformation of the economy, toward more light and agro-industry and more interprovincial trade, coupled with severe capacity constraints of the railways, are causing an accelerating demand for road transport. This national pattern also applies to the two project provinces of Hubei and Hunan, and in particular to the heavily traveled north-south transport corridor along National Road (NR) 107 between Beijing and Shenzhen, the spine of the densely populated and economically dynamic eastern part of China. This corridor, the location of the new Beijing-Zhuhai (Jing-Zhu) Expressway, linking the north and south of China, crosses the city of Beijing and the provinces of Hebei, Henan, Hubei, Hunan, and Guangdong over a distance of approximately 2,500 km and has the highest priority among the 12 national trunk routes in the NTHS. Once completed, it will connect Beijing with Guangdong's fast growing Pearl River Delta, Hong Kong and Macao. The Bank is already heavily involved in the construction of substantial sections of Jing-Zhu expressway, between Beijing and Guangzhou (see IBRD map 29904). Under the ongoing National Highway (NH1) Project, two important sections have recently been completed in southern Hebei and northern Henan provinces. Under the Second National Highway (NH2) Project, two priority sections in northern Guangdong and southern Hunan are being undertaken and are progressing well. Under the Third National Highway (NH3) Project several important expressway sections are being undertaken in northern and central Hubei province and are at an early stage of construction. Finally, the newly proposed Fourth National Highway (NH4) Project will cover two important expressway sections in northern Hunan and southern Hubei. These four National Highway Projects constitute a well thought-out and well balanced series of investment operations, which assist the Government of China (GOC) and the concerned provinces in the timely completion of China's highest- priority expressway corridor. Annex 2 contains details of Hunan's and Hubei's Highway Sector Revenue and Expenditure Programs for the ongoing 9th Five Year Plan (9FYP - 1996/2000) and the coming 10th Five Year Plan (IOFYP - 2001/2005) periods. (b) Highway Safety. Traffic accidents are nIow a major problem in China, and by most measures it has the world's highest road accident rate. In recent years, the Bank, as well as ADB and other institutions, have become increasingly concerned about growing problems of highway safety. In Hunan and Hubei, road safety activities have been initiated under NH2 and NH3 projects, respectively. These activities are concentrating on institutional improvements, training, accident data collection and analysis, and the identification and selected implementation of physical measures to remedy these accident "black spots". The road safety activities Project Appraisal Document Page 5 Fourth National Highway Project County: China initiated under the NH2 and NH3 projects are intended to be continued and extended under the NH4 project. The basic strategy for integrating road safety as an important component in World Bank highway projects is to create a higher level of awareness and understanding among sector agencies and their officials about the road safety situation. This will be achieved through the activities agreed earlier under the NH2 and NH3 projects, i.e. safety seminars, safety at road works, safety in highway design, and identification and treatment of "black spots". The next step would be to deepen the know-how and the understanding gained among officials concerned and involved in the process. This would mainly be carried out by: (i) training activities which would be based on the results of studies carried out in the first phase (NH2 and NH3); and (ii) the systematic introduction of simple short and medium term road safety measures in the daily routine work of highway sector employees ( e.g. checklists). These measures would be linked to road improvement and maintenance works. Therefore, as a complement, a study would be carried out under NH4, defining the most cost-effective safety related measures (low cost) within the field of road improvement and maintenance. The study should result in a number of accident prevention measures related to road improvement and maintenance activities. These could serve as good examples of actions that will improve the road safety situation, and serve as guidance in supervision of the road network. The examples from the study should be analyzed in detail and well documented so that they could easily be understood and applied in the daily maintenance work of the road agencies. The following step would be the design of a long term road safety program with road sector activities to be coordinated with activities of other organizations involved in the road safety improvement process such as the traffic police, rescue services, schools, etc. However, this step needs an improved cooperation over administrative boundaries in Hunan and Hubei and could, possibly, at least in its initial stage, be carried out under NH4. (c) Highway Maintenance. To improve and modernize highway maintenance management, the PCD in both provinces would proceed with the implementation of the results from the two highway maintenance management studies that are being carried out under NH2 and NH3 in Hunan and Hubei, respectively. The focus would be on those parts of the studies which are interrelated with other ongoing development processes under the NH2-NH3-NH4 projects; i.e. development of road and traffic information systems, such as Road Data Bank (RDB), Pavement Management System (PMS) and Bridge Maintenance System (BMS). The overall objective is to create efficient maintenance organizations in Hunan and Hubei, adjusted to modem management philosophy and using modem know-how and technology. The two Leading Groups, which were established in 1997 in Hunan and Hubei and which are managing the studies under NH2 and NH3 would also be in charge of the overall implementation process under NH4. The implementation phase will commence in the beginning of 2000, or as soon as the two studies will be completed. Implementation of some of the major activities which have been brought forward in the studies would lay a good foundation for efficient maintenance organizations and management systems in the two provinces. However, it is equally important to continue the development in a longer term perspective because the development strategy involves many collaborating organizations and staff in the transport sectors of Hunan and Hubei. Recent experience from other (including developed) countries which have gone through the same process shows that it takes between 8 and 10 years to change the management system of road agencies. This is mainly due to the fact that the implementation has to go hand in hand with education, training, purchasing of equipment and the adaptation of existing systems and techniques to new demands. Under NH4, Maintenance Cost and Fund Allocation studies would be carried out in Hunan and Hubei in order to find a suitable system (a Policy) for allocation of funds for road maintenance. The first step would be to define the lowest acceptable maintenance standard level for each class of the road network. A cost per kilometer of road would be identified in order to reach the defined minimum level. This would make it possible to optimize the fund distribution on various administrative levels (Provincial, County and City) considering demands from society's point of view. The studies are closely related to the Highway Maintenance Management studies under NH2 and NH3. Therefore, they will be integrated as a part of that work. These studies would take advantage of the Highway Design and Maintenance (HDM-4) model, which recently has been developed by initiative of the Project Appraisal Document Page 6 Fourth National Highway Project County: China World Bank and other research institutions. The studies would: (a) review the institutional arrangements, policies and procedures for highway maintenance, consistent with the economic reform process; (b) identify expenditures required to maintain the existing road network, taking budget constraints into consideration; and (c) formulate and prioritize multi-year highway maintenance programs for the IOFYP period in Hunan and Hubei. (d) Highway Commercialization and Corporatization. China is presently accelerating the construction of high-grade toll highways to the extent that by early 2000, it is likely to exceed 10,000 km of expressways. All of these roads are new constructions and, as revenue-generating infrastructure assets, lend themselves to more commercialized and corporatized forms of operation and management. This general trend towards the commercialization and corporatization of toll roads which is already well advanced in coastal provinces such as Guangdong and others also applies to Hunan and Hubei provinces where it is in an early stage of deliberation. To improve and modernize high-grade highway management, the Provincial Communications Departments (PCDs) in both provinces would proceed with the implementation of the results from the two toll highway commercialization and corporatization studies that are being carried out under NH2 and NH3 in Hunan and Hubei, respectively. The overall objective is to create efficient high-grade highway organizations in Hunan and Hubei, adjusted to modem management philosophy and using modem know-how and technology. The two Leading Groups, which were established in 1997 in Hunan and Hubei and which are managing the two studies under NH2 and NH3 would also be in charge of the overall implementation process. The implementation phase will commence in the beginning of 2000, or as soon as the two studies will be completed. Implementation of some of the major activities which have been brought forward in the studies would lay a good foundation for efficient high-grade highway organization and management systems in the two provinces. Organizational and ownership forms envisioned that are being analyzed in the NH12 and NH3 studies, are either public corporations ("provincial toll road authorities") or forms of public-private partnerships adjusted to Chinese conditions. Recent experience from other (specifically developed) countries which have gone through the same process shows that it takes a substantial amount of time to establish and make operational such corporations and to change the management style and systems of traditional road agencies. This is mainly due to the fact that the implementation has to go hand in hand with education, training, purchasing of equipment and the adaptation of existing systems and techniques to the new demands. Project Appraisal Document Page 7 Fourth National Highway Project County: China C: Project Description Summary 1. Project components (see Annex 3 for a detailed description and Annex 8 for a detailed cost breakdown): The proposed project would include: Cost Incl. Contingencies Bank-financing % of Bank- Component Category (US$M) % of Total ('LS$) financing Component 1. Construction of Physical- expressway and interconnecting roads Institutional 1.1 Construction of TCE in Hunan; 438.2 46.0 180.7 41 1.2 Construction of ZTE in Hubei; 349.0 36.7 126.4 36 1.3 Interconnecting roads in Hunan; 19.6 2.1 8.9 45 1.4 Interconnecting and other roads in Hubei; 43.4 4.6 12.1 28 1.5 Equipment 10.0 1.1 8.9 89 1.6 Construction supervision services 22.8 2.4 7.1 31 Component 2. Institutional Institutional- Strengthening and Capacity Building Policy 4.9 0.5 2.4 49 2.1 Studies/technical assistance in Highway Maintenance Management, Transport and Trade Integration, Expressway Commercialization and Corporatization; and Road Safety 2.2 Staff training programs, covering all aspects of highway planning, design, construction, operation, finance and maintenance. Component 3. Front-end Fee 3.5 0.4 3.5 100 Component 4-Land acquisition and Implementat resettlement ion support 60.6 6.4 0.0 0 Total 952.0 100.0 350 37 2. Key policy and institutional reforms supported by the project: In line with principal OED recommendations as outlined by its 1999 China highway sector evaluation, the proposed project would focus on key policy and institutional reforms as described below. These have been developed and agreed with the Hunan and Hubei PCDs during a series of preappraisal and appraisal missions during 1998-99 which coincided with the timing of the OED review and enabled early OED feedback for incorporation into the NH4 project design. To that effect, OED' s staff member who was Task Manager for the China Transport Sector Evaluation served as a peer reviewer for the NH4 project. Also, the NH4 operation is the successor project to NH2 in Hunan and NH3 in Hubei. The policy and institutional reform elements as proposed under NH4 would build on earlier agreements reached with the Hunan and Hubei PCDs during NH2 and NH3 preparation. NH2 became effective on 11/24/1997 and implementation of the policy and institutional reform components as well as road traffic safety initiatives is underway. NH3 became effective on 9/11/1998 and policy and institutional reform components as well as road traffic safety initiatives have started. The Bank has also conducted a two-day policy workshop with the Hubei and Hunan PCDs in Wuhan in November 1997 Project Appraisal Document Page 8 Fourth National Highway Project County: China which helped identify major reform areas for NH4. Annex 4 to the PAD contains the details of the Policy and Institutional Reform Programs as agreed with the two PCDs while Annex S contains the details of the Road Traffic Safety Programs that have also been agreed during appraisal and loan negotiations. Institutional and Policy Development Plans: Under NH12 and NH3 projects in Hunan and Hubei, respectively, institutional analyses of the two HPCDs and each of their subordinate units were carried out. These analyses were reviewed and refined during N1H4 preparation. This effort has resulted in draft Development Plans comprising planned institutional development activities such as organizational changes, the development of new systems and the purchase of equipment. The Institutional and Policy Development Plans cover a 6 year period and are the basis for activities under NH2 and NH4 projects in Hunan and NH3 and NH4 projects in Hubei. The main purpose of the plans is to ensure that institutional and policy activities which are related to each other are adequately coordinated and that the role of each organization is properly reflected in the development process. There are three important areas which can be regarded as new competencies where modem thinking and know-how to a great extent are still lacking in Hunan's and Hubei's road administrations. These areas are road safety, quality control and environmental protection and they (or their lack) will have a direct effect on the overall quality of the NH2, NH3 and NH4 projects. It was agreed during NH4 appraisal and confirmed at negotiations that the Hunan and Hubei development plans would be updated and reviewed annually with the Bank. Competition in the Highway Sector: To increase the efficiency of the highway sector, there is a need to use the power of competition. Competition will affect both the competing contractors outside the Highway Administration in Hunan and Hubei and the force account units within the Highway Administration. Different strategies have been suggested for the two Provinces to benefit from experiences to be gained during the change processes. In Hunan Province a stepwise process has been agreed as follows: (a) creating competition within HPCD, by establishing a number of internal maintenance "companies" and giving them both manpower and equipment needed. These "companies" would bid in competition on various maintenance contracts within a specified area of the road network; (b) successful "companies" will earn more money than the less successful ones; (c) after a certain period of time, the most successful "companies" would become independent companies and establish themselves in the market. In Hubei Province the process would be as follows: (a) an identification study would be carried out to identify the organizations outside the Highway Administration which possibly, in the near future, could become a competent partner for carrying out maintenance work; (b) after having analyzed the list of such organizations a decision would be made on the competent companies; (c) a test in a limited test area would be carried out to compare the cost as well as the results of the work carried out by contractors with similar work carried out by force account units. Maintenance Cost and Fund Allocation Framework: Under NH4 a Maintenance Cost and Fund Allocation framework for the Hunan and Hubei PCDs will be developed to establish a suitable system (a Policy) for allocation of funds for road maintenance. The first step would be to define the lowest acceptable maintenance standard level for each class of the road network. A cost per kilometer of road should be identified in order to reach the defined minimum level. This would make it possible to optimize the fund distribution on various administrative levels (Provincial, Prefecture and City) considering demands from society's point of view. This TA is closely related to the Highway Maintenance Studies under NH2 in Hunan and NH3 in Hubei; therefore it will be integrated as a part of that ongoing work. This TA would take advantage of the HDM model which has been developed through initiative of the World Bank. Commercialized Toll Road Corporations: Two high-grade highway commercialization and corporatization studies (one in each Province) are being carried out under the NH2 and NH3 projects in Hunan and Hubei, respectively and constitute the first steps in assisting the PCDs in developing modem thinking in how to finance and manage their new expressways and also analyze the longer-term options available in financing, managing and organizing their high-grade highway corporations. This task would help design modem organizations in compliance with international standards of financial management and ensure that toll revenues Project Appraisal Document Page 9 Fourth National Highway Project County: China are properly collected and managed and that expenditures (both for new investment and for adequate maintenance) are well planned. The studies under NH2 and NH3 are being managed by Provincial Leading Groups established in 1997. Once confirmation from MOC is obtained that the result of the studies are in compliance with MOC requirements, implementation would be undertaken during NH4. Road and Traffic Information Systems: The basic prerequisite for all modern management of roads is the information base about the actual status of the road networks, its traffic and its environment. This information is used on a day by day basis both for planning, construction and maintenance activities, and for monitoring and evaluation of works carried out. This information is normally stored in a Computerized Data Bank (Road Data Bank, RDB). Without this easily accessible information it would not be rational to have other management systems such as PMS and BMS developed. Under the NH2 and NH3 projects two studies were initiated on Highway Maintenance Management. These studies will also cover the development needs of PMS and BMS. These two systems are directly interrelated with the Road Data Bank as they receive input data from the RDB. Past experience from other countries has clearly shown that it is feasible to build up in a stepwise fashion an Information System based on a Road Data Bank (RDB). Hunan-Hubei Transport and Trade Integration: A Hunan-Hubei Transport and Trade Integration (regional economics) TA would be jointly executed under NH4 by Hunan and Hubei Communication Departments. This TA would examine the long-term transport and trade integration effects in the expressway corridor between Changsha and Wuhan. This will be a direct continuation of the TA that is presently being carried out by Guangdong Province in the corridor between Hong Kong/Macao-Guangzhou-Changsha under the ongoing NH2 project which is connecting the inland province of Hunan to the highly economically active Pearl River Delta in Guangdong, a coastal province. Once the Guangzhou-Changsha expressway under NH2 is completed, the long-distance movement of freight and passengers will no longer be dependent on the much overloaded railway link. The completion of the Wuhan - Changsha expressway will help to foster faster economic growth in the affected provinces and promote economic integration of areas along the expressway corridor. The TA would also analyze the advantages of the various transport modes in an inter-modal transport framework and their impact on regional economics and development. Road Traffic Safety: In Hunan and Hubei, the road safety activities have been initiated under NH2 and NH3, respectively. These activities are concentrating on institutional improvements, training, accident data collection and analysis. The identification and implementation of physical steps under NH4 would be to spread the know-how and what is being developed under NH2 and NH3 projects out into Prefecture and City levels where most of the operational work is carried out and where most of the traffic accidents happen. Further development as regards the road safety area under NH4 concerns the accident information system. The accident information system which is with the Public Security Bureau (the Traffic Police) needs to be further developed and modernized in order to be able to serve the main purposes for road safety work in a broader perspective. 3. Benefits and target population: The major quantifiable benefits of the project are the reduction on vehicle operating costs and time costs of road users. The expressways will have shorter lengths, improved surface conditions and riding comfort, improved geometry, reduced traffic interference, and better safety facilities than the existing roads. Therefore, most of the long-distance traffic and some of the local traffic is expected to divert from the existing roads to the new expressways, reducing the vehicle operating and time costs for the future expressway users. Because many users will take the expressways, there will be a reduction in the current congestion levels on the existing roads. Thus, traffic that continues to use the existing roads will also benefit in the form of time savings due to the resulting higher travel speeds on the existing roads. Other quantified project benefits are due to the traffic that is generated as a result of the lowering of transport costs and which previously did not exist on the existing roads or is existing on other transport modes such as rail, inland water and air. The newly generated traffic Project Appraisal Document Page 10 Fourth National Highway Project County: China includes traffic resulting from increased industrial and agricultural production. Other project benefits that have not been quantified are the generated traffic on the existing roads due to the reduction of the current congestion levels, and the positive effects on non-motorized traffic that uses the existing roads. The total affected population in the expressway corridor between Wuhan and Changsha in an indirect sense is estimated at about 40 million (based on 1997 data), about 22 million people living in northern Hunan and about 18 million people living in southern Hubei. Other benefits which are non-quantifiable, would include strengthening the capabilities in both provinces, through policy and institutional reforms, of all the agencies and their related institutions which are responsible for the planning, design, financing, supervision, construction, operation and maintenance of highways in Hunan and Hubei. Also, the project is expected to result in lower traffic accident rates on the highway network through the implementation of the traffic safety component in both provinces. Furthermore, the proposed project should lead to improvements in the quality of construction of highways through the continuing introduction of improved technology and stricter arrangements for supervision of construction. The project would also foster improved practices, in both provinces, in the areas of the environment, land acquisition and resettlement of affected people and participatory approaches to project preparation and implementation. 4. Institutional and implementation arrangements: Implementation period: 5 years 9 months, from October 1999 to June 2005. (Annex 10) Executing agencies: In Hunan, the Hunan Provincial Communications Department (HPCD) has overall responsibility for project preparation and implementation. Under HPCD, Hunan Provincial Expressway Construction and Development Corporation (HPECDC) will be the executing agency for the Tucheng (Hubei border) - Changsha Expressway (TCE) section. To strengthen the management of the project, HPECDC has established a Tucheng Expressway Construction and Development Branch Corporation, to be specifically responsible for the preparation and implementation of the TCE section. In Hubei, the Hubei Provincial Communications Department (HPCD) has overall responsibility for project preparation and implementation. A special World Bank Finance Project Office (WBFPO) and an Expressway Construction Directorate (including the Chief Supervision Engineer's Office), both under HPCD have been created for the preparation and implementation of the World Bank-financed highway (NH3 and NH4) projects. They will be executing agency for the Zhengdian-Tucheng Expressway (ZTE). Both the Hunan and Hubei project offices are staffed with sufficient and qualified manpower that is already being strengthened under the ongoing NH2 project in Hunan and the NH3 project in Hubei. Procurement: The Intemational Tendering Company in Hubei and the China Communications Import & Export Corporation for civil works and the CMC International Tendering Co. for E&M works in Hunan have been retained as the procurement agencies for all aspects of civil, electrical and mechanical works of the project requiring ICB and for equipment to be procured from abroad. The supervision of construction of the TCE and ZTE would be carried out by two joint foreign/domestic supervision teams, one each in Hunan and Hubei. As per Bank requirements, detailed Procurement Capacity Assessments were conducted by Bank procurement staff in Hunan and Hubei as part of NH4 project preparation and procurement capacities in the two provinces were found to be satisfactory. The two provinces are already successfully implementing Bank- financed highway projects. The Procurement Capacity Assessment reports (dated April 1999) are on file and are available on request. Project oversight (policy guidance, etc.): Overall direction of the project at the central level rests with the Ministry of Communications (MOC) in Beijing. The Bank loan would be given to the PRC (through MOF) which in turn would onlend the proceeds to the two provinces on the same conditions as the Bank loan. Project Appraisal Document Page II Fourth National Highway Project County: China Consequently, there would be a loan agreement with the PRC and a project agreement with Hunan and Hubei. Similar to what is being done in ongoing highway projects in China, all project accounts, special accounts, and all statements of expenditures will be audited by the National Audit Office. Financial management: Similar to the situation in on-going Bank-financed highway projects in China, the Hunan and Hubei Provinces have the systems and staff in place to carry out adequate financial management of the project. Both Provinces will use "Accounting Standards Applicable to State-owned Construction Project (the "Standards") issued by MOF as a basis for bookkeeping and preparation of financial statements and management reports. Both Provinces have ongoing Bank-financed projects and their Provincial Finance Bureaus are well familiar with Bank procedures. In accordance with Bank OP/BP 10.02 and the Guide for Review and Design of Accounting and Reporting System for World Bank projects, the task team undertook and completed Financial Management System assessments in Hunan and Hubei provinces which have been cleared by the Bank. The results of these assessments are contained in Annex 15 of the PAD "Financial Management". Accounting, financial reporting and auditing arrangements: The Foreign Investment Audit Department of the National Audit Office (NAO) would be responsible for auditing the project expenditures. Actual audits would be carried out for NAO by the Hubei and Hunan Branches of NAO or the Hubei and Hunan Provincial Audit Bureaus. In the case of the SOEs, the audit reports would contain a separate opinion by the auditors as to whether the SOEs submitted during the fiscal year, together with the procedures and intemal controls involved in their preparation, can be relied upon to support the related withdrawals. The Bank Group currently accepts NAO audits for this purpose. Monitoring and evaluation arrangements: The project would be supervised through Bank missions whose frequency would be guided by the progress of the works and the studies/TA. However, on average, a mission at about six to nine-month intervals would be mounted, depending on the stage of project implementation. The initial implementation stage of a China highway project usually requires a higher supervision intensity than the later stages when expressway construction and study/TA activities are fully underway or nearing completion. In addition to field missions, staff input would be provided at headquarters and RMC for project- related activities comprising, inter alia, supervision reports, procurement documentation and contracts, staff training and equipment, and follow-up and review of the agreed studies and TA activities, as well as for efforts related to coordination between the two project provinces. Moreover, the Bank would monitor progress of implementation of all project components through semi-annual progress reports to be submitted to the Bank independently by Hubei and Hunan PCDs on their respective project components. In addition, both PCDs would submit to the Bank monthly reports on works progress for ZTE and TCE. It is estimated that over the implementation period of the project, the total time expended on supervision would be in the order of 120 person-weeks. During implementation, project performance, including the achievement of physical targets and attainment of policy and institutional objectives, will be monitored by both PCDs through the use of annual monitoring reports. The first annual monitoring report would be submitted by January 31, 2001 and the last by January 31, 2006. In addition, upon completion, the project will be reviewed in an Implementation Completion Report, to be submitted to the Bank not later than six months after the closing date of the loan. D: Project Rationale 1. Project alternatives considered and reasons for rejection: The proposed expressway between Wuhan and Changsha, with a length of about 300 km, is the central element of the much longer Beijing-Zhuhai expressway which has a length of about 2,500 km. Since 1992, the Bank is actively assisting China through the NHI, NH2 and NH3 projects which are all located in the Project Appraisal Document Page 12 Fourth National Highway Project County: China Beijing-Zhuhai corridor, helping China build several other expressway sections in Hebei, Henan, Hubei, Hunan and Guangdong. The Bank has already committed loan funds under NH1, NH2 and NH3 amounting to more than US$1.0 billion. Beijing-Zhuhai is China's highest priority expressway corridor which is scheduled for completion by 2003/4. In its 1994 highway sector strategy paper, the Bank fully supports construction of the NTHS and specifically the "two vertical and two horizontal" expressway corridors of which Beijing- Zhuhai forns one of the two verticals. The Wuhan-Changsha expressway section, once completed and open to traffic, will - to a small extent only - be in competition with the existing Wuhan-Changsha railway line which itself is part of the much longer Beijing-Guangzhou railway connection. This railway has a two track capacity and is presently utilized at near equal shares for both freight and passenger services. After the recent restructuring of the Bank's Seventh Railway Project which was approved by the Board on January 26, 1999, the Wuhan to Guangzhou railway section will soon be electrified and will in future primarily be utilized for faster passenger service while more freight will be shifted to the new - but more distant - parallel Beijing-Kowloon line. Electrification of the Wuhan - Changsha subsection is scheduled for completion by the end of 2000. Given the fast growing demand for passenger and freight services between Beijing and Guangzhou/Hong Kong of which Wuhan and Changsha is a sub-corridor, there is little risk of ending up with overcapacity in transport infrastructure, once the expressway and the electrified railway line are completed and in operation. Competition between the expressway and the railway, to the small extent it will materialize, will generate cheaper and more efficient passenger and freight services, in that tolls on the expressway and tariffs on the railway will be kept lower and will force the railway as well as trucking and busing operators to offer more reliable and efficient services. Detailed feasibility studies conducted by the Hunan and Hubei PCDs for the NH4 project and verified by the Bank's task team have shown that those passenger and freight market segments which will either use the new expressway or remain on the improved railway are substantially different. Rail transport in China, for passenger and freight services is of substantially longer trip length than road transport (for details see para. 8 in Annex 12). Private sector development and financing for the Wuhan-Changsha expressway, or parts thereof, was considered and discussed in great length with SDPC, MOF, MOC and the Hunan and Hubei PCDs over an extended period of time. It was discarded for a number of reasons: (i) China is still developing an appropriate policy, legal and regulatory framework for the private provision of toll highways. Work in this area has been ongoing for several years, with Bank and IFC support and has led to a provisional BOT law/decree for private infrastructure projects but this law/decree has still not been approved by the State Council. At the recent request of SDPC, the Bank Group is presently in the process of undertaking a new BOT/private infrastructure TA which, inter alia, will review, and recommend improvements, to China's existing BOT framework. The Bank Group team which is coordinated by the China department consists of experts from IFC, FIAS and PPI in PSD; (ii) An earlier BOT pilot project in the highway sector, the Junshan Yangtze bridge at Wuhan which was part of the NH3 project and was prepared with Bank support for private financing did not obtain State Council approval for BOT treatment and is now being built with public sector resources; (iii) There is growing evidence on a worldwide scale that greenfield toll road projects are difficult to develop and finance from private sector sources, due to the risk profile of such projects. Besides the country risk (legal and regulatory) and the commercial risk (traffic demand), there are substantial construction and completion risks which most private toll road developers and their commercial lenders are not prepared to accept. Many private toll road projects around the world (e.g. Dulles Greenway in Virginia; M1/15 Motorways in Hungary, among others) which have been built during the 1990s are failing to generate sufficient revenues to enable timely debt service and therefore need complex restructuring, often connected with substantial government Project Appraisal Document Page 13 Fourth National Highway Project County: China bailouts (e.g. Mexican toll road program where some 52 private sector concessions failed and were taken over by the central government at a cost of US$8 billion); (vi) The International Trade and Investment Corporation (ITIC) crisis in China will make it more difficult for provincial and municipal governments to obtain foreign loan financing for large-scale infrastructure projects, including toll highways. The Changsha BOT pilot power plant in Hunan which is one of SDPC's original BOT pilot projects is presently unable to reach financial closure with the British developer National Power (who has won the concession) due to the unavailability of sufficient long-term foreign commercial debt financing. In Hunan, the alignment of the Wuhan-Changsha Expressway was selected after comparison of many alternatives. The upgrading of the existing class 2 highway (NRI07) to expressway standard would not be feasible due to the mix of traffic, crossing of urban areas and poor geometrical characteristics. In addition, the aligmnent of the existing highway is not direct and, therefore, implies a greater length of the road. The chosen alignment was selected after comparison of two major alternatives, one passing near the city of Yueyang and using the existing class 2 highway, and another more direct one passing Yueyang in the east. After comparison, the alignment located in the east of Yueyang was chosen. The city of Yueyang will be connected through a 16-km long new class I highway. The proposed alternative is the best compromise from technical, economical, environmental and resettlement points of view. In the south the alignment links to the existing Changsha-Xiangtan expressway section which was ADB financed and is open to traffic. Near this connecting point, it crosses a development zone of Changsha city, and this crossing also required a good coordination with the Changsha city authorities which HPCD achieved with Bank assistance. At the Hunan/Hubei border it connects to the Hubei expressway at Tucheng. This connecting point at the border was selected after comparison of several alternatives involving both provinces. The alignment, toll stations, rest and service areas and interchanges near the border were designed with a good coordination between the two provinces. In Hubei, the alignment of the Wuhan-Changsha Expressway was selected after comparison of four major alternatives. Two alternatives located in the west of the selected one, although they were more direct, were discarded due to the crossing of an extensive flood area of the Yangtze river These two alignment options would require long viaducts and high embankments and could possibly modify negatively conditions for future flooding of the Yangtze river. A third alternative located in the east of the chosen one was rejected because it increased too much the length of the expressway without providing clear advantages. The chosen alignment is parallel to the existing NR107 (a narrow two-lane road) and is located to the west of it. The alignment was adjusted in order to reduce the impacts on environment and to decrease the number of project affected people. The main cities, Xianning and Puqi, will be well served by the chosen alignment. In the north, the aligmnent links to the NH3 project at Zhengdian interchange, connecting the new expressway to Beijing, Chengdu in Sichuan province and Shanghai. Project Appraisal Document Page 14 Fourth National Highway Project County: China 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): Latest Supervision (Form 590) Ratings (Bank-financed projects only) S Implementation Development Progress Objective (IP) (DO) Bank-financed - Remove Highway Highway Project (completed) 1, 2* S S Capacity Beijing-Tianjin-Tanggu Expressway (completed) 1-6 S S Bottlenecks (1) Sichuan Provincial Highway (completed) 1, 2, 6. S S - Institutional Shaanxi Provincial Highway (completed) 1-3, 6 S S Strengthening/ Jiangxi Provincial Highway (completed) 1, 2, 6 U s Training (2) Shandong Provincial Highway (completed) 1, 2, 4, 6 S S - Rural Roads and Jiangsu Provincial Transport (completed) 1-3, 6 S S Poverty . Zhejiang Provincial Highway (ongoing) 1-3, 6 S S Alleviation (3) Guangdong Provincial Highway (ongoing) 1-4, 6 S S - Highway Safety (4) Henan Highway (ongoing) 1-3, 6 S S - Operation and Fujian Highway (ongoing) 1, 2,3, 6 S S Maintenance of High- National Highway: Hebei/Henan (ongoing) 1, 2, 5, 6 S S Grade Highways (5) Xinjiang Highway (ongoing) 1, 2,4, 6 S S - Cost Recovery (6) Shanghai-Zhejiang Highway (ongoing) 1, 2,4, 6 S S Second Shaanxi Provincial Highway (ongoing) 1-4, 6 S S Second Henan Provincial Highway (ongoing) 1-5, 6 U S Second Xinjiang Highway (ongoing) 1, 2, 6 S S Second Nat'l Hwy: GuangdongflHunan (ongoing) 1, 2, 4, 5, 6 S S Third Nat'l Hwy (ongoing): Hubei 1, 2, 4, 5, 6 S S Tri-Provincial Highway: Gansu/Ningxia/lnner Mongolia (ongoing) 1, 2, 3, 5, 6 S S Anhui Provincial Highway (ongoing): 1, 2, 5, 6 S S Fourth National Highway: Hubei/Hunan (planned) 1, 2, 4, 5, 6 Second Fujian Highway (planned): 1,2,4, 5,6 Third Henan Provincial Highway (planned): 1, 2, 5, 6 Guangxi Provincial Highway (planned): 1, 2, 5, 6 Asian Development Bank Shenyang-Be-xi Highway (completed) Yunnan Expressway (completed) Hunan Expressway (completed) Julin Expressway (completed) Heilongiiang Expressway (ongoing) Yunan Expressway (ongoing) Hebei and Liaoning Expressway (ongoing) Chongqing Expressway (ongoing) Liaoning and Jilin Expressway (ongoing) Hebei Expressway (ongoing) Liaoning Expressway (ongoing) Shenyang-Jinzhou Expressway (ongoing) Hebei Roads Development (ongoing) Chengdu-Nanchong Expressway (ongoing) Changchun-Harbin Expressway (ongoing) Jiangxi Highway Project (ongoing) Southem Yunnan Road Development (planned) Shanxi Expressway (planned) Chongqing-Guizhou Expressway (planned) Guangxi Road (planned) Shanxi and Shaanxi Expressways (planned) Overseas Economic Cooperation Fund of Japan Hainan Development Hefei-Tongling Highway and Tongling Yangtze River Highway Bridge Construction Second Chongqing Yangtze River Bridge Construction Qiqihar Nenjiang River Highway Bridge Construction IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) * The numbers correspond to the sector issues in first column of this tabulation Project Appraisal Document Page 15 Fourth National Highway Project County: China 3. Lessons learned and reflected in the project design: Since 1985, the Bank has financed 21 highway projects in China (of which seven have closed), amounting to more than US$4.0 billion in Bank loans and IDA credits. The Bank has been and remains involved in the construction of some 2,800 km of toll expressways and other high-grade toll highways and in the rehabilitation, upgrading and maintenance of some 13,000 km of lower level (specifically rural) roads. In addition, as revealed during a recent Bank review and assessment of its highway TA, the Bank was and is involved in more than 50 TA tasks, comprising (i) highway planning and prioritization; (ii) highway finance; (iii) highway maintenance; (iv) operation and management of high-grade highways; and (v) traffic safety. Moreover, since mid-1996, the Bank has also given its no-objections to the securitization of Bank-financed highway assets in China (so-called "asset-based or asset-backed fmancings"), through the issuance of highway equity of provincial toll road corporations on the Hong Kong and Shenzhen stock exchanges. Annex 6 contains a detailed description of China's evolving highway program and the financing issues it faces while Annex 7 describes Bank involvement and achievements in China's highway sector to date. While the overall performance of the Bank's highway projects is by and large satisfactory, a number of problems have occurred, which have been taken into consideration in the design of the proposed NH4 project. These problems include: inadequate engineering designs and bid documents including costing of civil works; quality control of construction; late commencement of electrical and mechanical facilities component (which has delayed completion of some projects and necessitated the extension of the closing date of several Bank loans), and some lack in the scope and speed of policy and institutional reforms, specifically relating to road maintenance, improved high-grade highway management and operation, and traffic safety. All engineering designs and technical bid documents including cost estimates for the proposed expressways and related roads, including their E&M facilities, have been reviewed by international engineering consultants under grant funding from Italy (Hunan) and Spain (Hubei). These technical reviews are complete. The quality of project engineering has also benefited from the involvement of a French expressway specialist who participated in all project missions. Quality control of construction, specifically for expressway works will be undertaken by foreign and domestic supervision consultants, with on average one well trained and experienced supervisor per km of expressway. The matter will also be addressed through increasing the frequency and quality of the Bank's supervision, after adding an experienced Chinese construction engineer to the technical staff at RMC who will also supervise the road works under NH4. Timely completion of the E&M component will be achieved through stricter control and early commencement of the tendering procedures. The policy dialogue between China and the Bank in the highway sector needs to be further strengthened. Although highway lending is substantial, with on average US$500-600 million per year in new highway loans, resulting in the Bank's considerable impact on the fast expansion in China's road capacity, progress in policy and institutional reforms (including in road traffic safety) needs to be accelerated. During preparation of the proposed project substantial efforts were made to engage the Hunan and Hubei PCDs in a continuing policy dialogue which started with the preparation of NH2 in Hunan and NH3 in Hubei and was taken forward throughout the preparation of NH4. This was successfully achieved by involving a policy and institutional expert from the Swedish Road Administration who joined all Bank missions for the NH2, NH3 and NH4 projects, and by conducting a two day highway policy workshop in Wuhan on November 21 and 22, 1997 which brought the senior management of the Hunan and Hubei PCDs together to discuss necessary sector reforms in Hunan and Hubei. While the results of these efforts are encouraging, in that policy and institutional reforms now enjoy a higher degree of visibility and ownership with the Hunan and Hubei PCDs, much remains to be done during implementation of the NH2, NH3 and NH4 projects so as to make policy and institutional reform components rank on an equal level with road construction and network capacity expansion. The Bank will develop a more aggressive approach in this area by, for example, staffing project preparation and supervision missions more regularly with experienced institutional and policy experts and by advancing the sector policy dialogue more aggressively with MOC through more frequent policy workshops of which the Project Appraisal Document Page 16 Fourth National Highway Project County: China next one is scheduled for July 8 and 9, 1999 in Beijing. More such workshops will be held during FY2000 and FY2001. There also is a growing concern that adequate funding for highway maintenance is now not being secured to cover an expanding and more expensive highway system. Previously, this was not a real issue in China; adequate funding was set aside for this purpose. Two highway maintenance studies that are being carried out under NH2 in Hunan and NH3 in Hubei as well as two Maintenance Cost and Fund Allocation studies under NH4 will address the organizational framework and develop sustainable maintenance policies and systems for the two provinces. The NH2, NH3, and NH4 projects are emphasizing road maintenance as a core area for the Bank's future policy dialogue in the highway sector with China. Experience in the area of land acquisition and resettlement has generally been satisfactory in the Bank's highway projects in China. In this area, it is particularly important that the Bank makes its requirements well known to the Chinese agencies at an early stage in the preparation of the project. A Bank resettlement specialist was involved from the beginning in project preparation. The resettlement action plans for the proposed project were reviewed and cleared by EASES and Legal. Experience in the environmental area in China has generally been favorable as well. As in the case of resettlement, a Bank environmental specialist has been involved in project preparation from the beginning. However, more attention needs to be paid to environmental supervision during construction and to the training of environmental personnel by the Chinese side. The proposed project will provide an adequate institutional setup and training for such environmental supervision and training. The quality of the Bank's resettlement and environmental work has also been strengthened recently, as part of the Bank's decentralization efforts. More of this work will in future be shifted to RMC due to increasing resident mission capacity in resettlement and environment. 4. Indications of borrower commitment and ownership: There is strong commitment and support for the project from the various levels of Government. SDPC, MOF, MOC and the provincial governments of Hunan and Hubei strongly support the proposed operation. The Communications Departments in the two provinces show a strong sense of ownership of the project, for both the physical (construction and equipment) and policy and institutional components. They have completed all necessary feasibility studies, engineering designs and documentation for policy and institutional work including organizational development plans and training programs. They also have completed all environmental and resettlement analyses and documentation for all road components. Project Implementation Plans (PIP) have been finalized during project appraisal and were reviewed and reconfirmed at loan negotiations. The equipment needs are well defined and their procurement arrangements have been agreed with the Bank. Procurement arrangements for all civil, electrical and mechanical works and for selection of consultants have also been agreed and reviewed in detail through the Bank's procurement capacity assessments in both provinces. Both provinces have established project execution offices and provided them with sufficient and qualified staff including translators as well as necessary office facilities and equipment. 5. Value added of Bank support in this project: The involvement of the Bank in this operation would result in much needed additional financial resources to help remove highway bottlenecks between Wuhan and Changsha and increase highway capacity in a high priority and high density transport corridor between the two provinces. Bank involvement would also substantially accelerate policy, institutional and manpower reform and development in highway planning, design, finance, supervision, construction, operation and maintenance. Bank involvement has already benefited the quality of engineering design and would improve the quality of construction of the roads to be undertaken. Furthermore, the Bank would help the two provincial communications departments to improve maintenance of the highway network through introduction of modern maintenance methods, techniques and equipment, training of staff and a more rational allocation of limited maintenance funds. In addition, it would Project Appraisal Document Page 17 Fourth National Highway Project County: China help raise the awareness of the highway safety problem and make important improvements in this regard. Similarly, Bank involvement has already improved and would continue to do so the provincial practices in the analyses and implementation of environmental, land acquisition and resettlement activities, and participatory aspects of the proposed operation and future projects. E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 17) 1. Economic (supported byAnnex 12). [x] Cost-Benefit Analysis: NPV=Y 10,879 million at 12% discount rate; EIRR= 26.2%; The estimated economic internal rate of return (EIRR) is 20.9 percent for ZTE (110 km) in Hubei; 27.9 percent for TCE (183 km) in Hunan; and 25.2 percent for the entire expressway corridor between Zhengdian (Wuhan) and Changsha. The EIRR of the entire project civil works (98 percent of total project costs), including the interconnecting link roads and the other roads program is 26.2 percent. The sensitivity analysis indicates that if construction costs are increased by 20 percent and user benefits are reduced by 20 percent, the project EIRR is 20.3 percent, which indicates that even under this pessimistic scenario the project is justified. The switching values analysis indicates that construction costs have to be multiplied by a factor of 3.14 or user benefits have to be multiplied by a factor of 0.32 to yield a project EIRR of 12.0 percent. The risk analysis indicates that the most likely project EIRR is 23.0 percent, the worst case scenario EIRR is 18.9 percent, the best case scenario EIRR is 26.1 percent, and there is a zero percent probability that the EIRR will be less than 12 percent. Therefore, the project is economically well justified. 2. Financial (see Annex 12): NPV=Y 7,405 million at 7.5%discount rate; FIRR= 14.1%; The financial evaluation focuses on the Zhengdian - Changsha expressway, which is the main component of the project and the only one that will generate financial income with profit making and repayment capabilities. Tolls will be charged as a function of vehicle type and size and distance traveled at the same level and structure as the tolls currently being collected on tolled expressways in Hubei and Hunan Provinces. The estimated weighted average cost of capital is 7.5 percent, considering that the World Bank will finance around 32 percent of the investment and 29 percent will be financed locally. The expressway financial rate of return is 14.1 percent with a net present value of 7,405 million RMB Yuan at 7.5 percent discount rate with an investment recovery period of 15 years. If construction costs increase by 20 percent while revenues decrease by 20 percent, the project financial rate of return is 10.0 percent, which indicates that even under the most unfavorable situation, the financial benefits are acceptable. 3. Technical: The technical parameters and estimated costs for construction of the two expressway sections were established by detailed feasibility, design and engineering studies undertaken by the Hunan and Hubei Provincial Design Institutes and were reviewed by internationally recognized Italian and Spanish engineering consultants (for these firms technical reports, see the Project Files) and checked against actual unit costs for the ongoing NH2 project in Hunan and NH3 project in Hubei. These were reviewed and found to be technically sound and appropriate to the country's needs. The cost estimates of the project reflects March 1999 prices and are based on the latest available engineering studies and prevailing unit rates for civil works, recent costs of foreign experts from other highway projects in China including NH2 and NH3 and recent price quotations for equipment. The cost estimates include physical and price contingencies. Physical contingencies were calculated at 10 percent of the base cost of civil works and construction supervision. Price contingencies were calculated for foreign costs, using US$ annual escalation factors of 3.2% in 1999, 2.9% in 2000 and 2.5 percent during 2001-2004. Price contingencies for local costs are based on local annual escalation of 5.0% in 1999 and 5.5 percent during 2000-2004. Project Appraisal Document Page 18 Fourth National Highway Project County: China 4. Institutional. During the preparation of the NH2-NH3-NH4 project series in Hunan and Hubei which has extended over several years, frequent Bank missions have worked closely with the Hunan and Hubei PCDs to help them better understand existing institutional constraints and deficiencies and to develop a long-term vision for their institutional development. To that effect, Bank missions helped the two HPCDs develop draft organizational and institutional development plans covering 6 year periods, the time it takes to complete NH2 and NH4 implementation in Hunan and NH3 and NH4 implementation in Hubei. These two long range development plans now form the basis for agreed policy and institutional reforms, including organizational changes and improvements, manpower training, and implementation of reforms in maintenance management, traffic safety and high-grade highway operation and management. Both HPCDs have demonstrated their project management capabilities through their successful management of the two ongoing Bank projects, NH2 and NH3. Their Projects Offices have competent and sufficient staff who are now quite experienced in managing Bank-financed projects. They will also receive continued assistance from Bank supervision missions and construction supervision consultants, both domestic and foreign. All these measures taken together are expected to enable both HPCDs to efficiently manage the proposed project. 5. Social. The project requires land acquisition for the expressways and the linking roads, which will cause readjustment of agricultural land in affected villages and displacement of affected people. During the feasibility studies of the project attention was paid to minimize the impact on agricultural land. During the preliminary and final design, studies were made on 1/2000 maps to keep the alignment at a distance from settlements to minimize relocation and adverse impact on affected communities. Particular attention was paid to keep the alignment from dividing settlements into two parts wherever possible. To achieve these goals resettlement and environment teams of the project were networked with the design institutes and the corresponding Bank specialists to coordinate their work. Significant improvement in the alignment was achieved reducing the impact of relocation and adverse environmental effects on communities along the route. Socioeconomic surveys of the affected people and communities were conducted and census of Project Affected Persons (PAPs) and their assets were completed on all the alignments considered for the project. Resettlement Action Plans (RAPs) are in accordance with Bank's Operational Directive 4.30 and have been found satisfactory. The RAPs establish the basis for land acquisition and resettlement in the project and respond to the general Bank guidelines on involuntary resettlement. Basic objectives of the RAPs are to: (a) minimize resettlement; (b) improve the standards of living of the PAPs or at least to restore them to the pre-project level; (c) consult the affected communities on the project impact, entitlements, and rehabilitation measures; (d) compensate affected villages for land and the PAPs for their lost assets at replacement value without depreciation; (e) provide land to the PAPs whose land is affected by readjusting the village land; (f) provide alternative jobs to the PAPs losing agricultural land if the land endowment of affected villages do not permit readjustment; (g) ensure that PAPs whose jobs are affected through affected enterprises or lands operated by villages are provided with similar employment in new enterprises and operations; (h) compensate the disrupted infrastructure; (i) establish the time schedule and the budget of the resettlement component of the project; (j) devise a mechanism for grievance and appeals; and (k) devise internal and independent monitoring mechanisms. A summary of project impacts related to land acquisition and resettlement is given below while more detailed information is contained in Annex 14. Project Appraisal Document Page 19 Fourth National Highway Project County: China Land Acquisition and Resettlement Impacts of the Highways Component Province Land Acquisition Affected HHs Affected PAPs Affected (mu) Enterprises Hubei expressway 11,203.20 1,865 8,961 6 and linking roads Dawu-Hongan road 922.30 154 817 Puqi-Tongshan road 1,185.50 330 1,486 Hubei Total 13,311.00 2,349 11,264 6 Hunan expressway 16,282.16 3,809 14,926 14 Linking roads 1,705.97 231 948 Hunan Total 17,988.13 4,040 15,874 14 Project Resettlement Offices (PROs) of the two provinces are responsible for the overall coordination, internal monitoring and implementation of resettlement. Field implementation of resettlement is the responsibility of county Resettlement Offices (COROs) in conjunction with the township and village administrations. City Resettlement Offices (CIROs) will liaise between the PROs and the COROs. All levels of Resettlement Offices (ROs ) have already been established and trained for the project. Further training for the specific needs of the resettlement network is also planned. The RAPs have been prepared through a collaboration of the PROs, Independent Monitoring Organizations (IMO), the Design Institutes, local ROs and the, PAPs. All the PAPs have been contacted and informed about the prospective resettlement and their concerns have been incorporated in the RAPs. All the PAPs will be informed about the exact impact of the project on their households and their entitlements after the official measurement of the impact is completed. Indicators for monitoring have been developed and presented in the RAPs. While internal monitoring will focus on the quantitative aspects of resettlement implementation, independent monitoring will evaluate both its qualitative and quantitative aspects. Internal and external monitoring reports will be submitted to the Bank every six months. Implementation schedules for resettlement have been established. All resettlement will be completed before the commencement of civil works. Resettlement will be funded out of counterpart funds. Cost estimates include adequate allocation for physical and price contingencies. 6 Environmental assessment: Environmental Category[x] A[ ] B [3 C Hubei: Environmental Impact Assessment (EIA), Environmental Action Plan (EAP), and Environmental Assessment (EA) Summary Reports for the main Zhengdian to Tucheng Expressway and Dawu-Hongan and Tongshan-Chongyang-Puqi connecting roads were prepared by the Xian Highway Transportation University and submitted to the Bank at various stages of project preparation beginning November 1997. The documents were reviewed by the Bank and discussed with HPCD during the various missions to Hubei. The revised final EIA, EAP and EA Summary were submitted in December 1998 and were found to be satisfactory to the Bank. Project Appraisal Document Page 20 Fourth National Highway Project County: China Hunan: The EIA, EAP and EA Summary reports for the Tucheng-Changsha Expressway and the Pingjiang connecting road were prepared by the Environmental Engineering Research & Design Division of the Research Institute of Highway of MOC. The reports were submitted to the Bank during various stages of project preparation beginning November 1997. The documents were reviewed by the Bank and discussed with HPCD during the various missions to Hunan. The revised final EIA, EAP and EA Summary were submitted in December 1998 and were found to be satisfactory to the Bank. The major findings and recommendations in the EIA/EAP reports for Hubei and Hunan are summarized below. More detailed information on Environmental Assessment is provided in Annex 13. Potential Impacts: In both Hubei and Hunan sections of the expressway, the major environmental impacts during the construction period include noise, soil erosion, and dust. Lesser impacts include alteration of hydrological regimes, interference with local people and traffic and impacts on the local ecology and on irrigation systems. Traffic noise, air pollution from vehicle exhaust emission, soil erosion and water pollution from service areas are identified as the major adverse impacts during the operation period. Mitigation Measures: The EAPs for Hunan and Hubei specify mitigation measures, environmental monitoring plans, institutional arrangements for their implementation, training and equipment requirements, and budget needs for environmental protection. In the design phase the major emphasis was on the selection of an optimum alignment taking into consideration not only the engineering issues and cost of building the expressway, but also the environmental and resettlement issues. The final expressway alignments in Hubei and Hunan were selected by judicious shift in the alignments to minimize the use of agriculture lands, to minimize resettlement and to minimize the noise and other environmental impacts. Mitigation measures during the construction phase will include planning of earthworks to reduce damage caused by borrow areas and spoil piles and inclusion of overpasses and underpasses to minimize interference with the movements of local people and traffic. Other measures will include reconstruction of agriculture and drainage where appropriate, use of covered trucks to transport borrow materials, and use of water sprinklers to reduce dust. In noise sensitive areas, night time noise will be minimized by restricting construction work during the period from 0600 hr to 2200 hr. Major mitigation measures during the operational phase will include the provision of noise barriers, construction of new walls or raising the heights of existing walls around residences to reduce traffic noise, afforestation to improve landscape and to reduce the impact of air pollution. The engineering designs and technical specifications for the expressway construction incorporate appropriate measures to protect the environment. Neither expressways nor the interconnecting roads will affect ecologically sensitive areas and their construction and operation should have no adverse impact on the environment if the measures outlined in the EAPs are properly implemented. Assurances were obtained at negotiations from Hunan Province and Hubei Province that: (a) the enviromnental protection measures stipulated in the EAPs with regard to the main expressways and their interconnecting roads will be carried out in a manner satisfactory to the Bank; and (b) Hunan Province and Hubei Province shall each fumish to the Bank annual environmental monitoring reports for the expressways and their interconnecting and other roads during their construction phases and for each of the first three years following their construction completion. 7. Participatory approach [key stakeholders, how involved, and what they have influenced; if participatory approach not used, describe why not applicable]: a Primary beneficiaries and other affected groups: The major beneficiaries would be the communities along the Tucheng-Changsha and Zhengdian-Tucheng corridors as well as intercity traffic between cities in the corridor and beyond. Benefits resulting from improving the highway condition would accrue to the population throughout the provinces. Both HPCDs and Project Appraisal Document Page 21 Fourth National Highway Project County: China their related institutions would also benefit through the institutional strengthening and training contained in the project. b. Other key stakeholders. The affected communities were involved in the formulation and comparison of alternative alignments as well as the location of interchanges, underpasses and grade separations. During the EIA preparation, the local people were intensively consulted through meetings with local government representatives and public opinion questionnaires supplemented by interviews. Special attention was given to the consultation with affected people and their representatives during the preparation of the resettlement action plans. Implementation of the resettlement program is intended to be a highly participatory exercise. A resettlement information booklet, including detailed entitlements of each household, main contents of the RAPs, compensation and entitlement policies and grievance procedures will be distributed to the affected people prior to resettlement implementation. Both internal and external (by independent monitors) monitoring of the resettlement program would be conducted. F: Sustainability and Risks 1. Sustainability: Traffic volumes on highways in China, particularly on expressways are expected to continue to grow fast. EIRR calculations of completed highway projects in China at the time of loan closing - when expressways and other high-grade highways have been in operation for a few years - frequently show higher EIRRs than at the time of project appraisal. Experience from completed and ongoing Bank-financed highway projects in China also shows a great commitment for implementation of the physical components of the project, which account for the majority of the project cost. Generally, the counterpart funds are available on time, but lately some of the provinces have become overextended and in some cases some delays have occurred in the availability of these funds which had a slight adverse effect on the timely implementation of the project. The level of tolls and the need for their regular review and increase are important for the financial viability of the project and the project provinces' ability to repay the Bank loan on time as well as to provide timely and sufficient maintenance funding. Construction quality has a major impact on future repair and maintenance cost and will be controlled through tight construction supervision. Given that the Hunan and Hubei PCDs and their related road sector institutions such as design institutes, training schools, research institutes, and supervision stations have developed a high degree of ownership for the policy and institutional reform components of the NH4 operation, it can be expected that sustainability in these project areas can also be achieved. By the time NH2 and NH4 in Hunan and NH3 and NH4 in Hubei will be completed in 2005, both provinces will have worked closely with the Bank and its consultants in the highway sector for over a 10 year period. Project Appraisal Document Page 22 Fourth National Highway Project County: China 2. Critical Risks (reflecting assumptions in thefourth column of Annex 1): Risk Risk Rating Risk Minimization Measure Annex 1, cell "from Outputs to Objective" Lower than expected growth rates of traffic volumes N Critical review of feasibility studies and selection of adequate technical standards Bank will ensure that the training activities are Training program will prove ineffective and managers and M well designed and prepared, and that the two technical staff will not apply new skills HPCDs report regularly on effectiveness of training after training is completed Annex 1, cell "from Components to Outputs" Inadequate quality of construction M (a) Selection of competent contractors will reduce this risk (b) Adequate construction supervision arrangements will reduce this risk Delays in land acquisition and resettlement N Early start of resettlement activities and proper training in these areas as well as close supervision by and guidance from the Bank will reduce this risk Sufficient counterpart funds, construction materials and N (a) Ensure sufficient financial resources are human resources not available on time available through analysis of highway revenues and expenditures annually; (b)MOF's, MOC's and the provincial governments' strong support and HPCDs' strong commitment to the project will ensure availability (c) Regular dialogue with the provincial governments and MOC Deficient engineering design N The engineering designs have been reviewed by international experts Delays in preparation and implementation M (a) MOC and Bank will follow-up project closely and carefully and provide timely advice and support (b) Project launch workshop will be held after board approval and before start-up of inplementation Training program will not prove successful and managers and M (a) Well designed and implementable training technical staff will not apply new skills programs have been prepared (b) Criteria for selection of trainees are logical and implemented in practice (c) English language training is given to trainees before training abroad (d) Reports on effectiveness of training after training is completed are submitted (e) Provide trainees with opportunity to apply acquired skills and tie promotions/salary increases to effective training Policy and Institutional Reform as well as Road Safety M (a) Bank has ensured that Policy and Institutional Program will not receive large ownership from HPCDs and Reform as well as Road Safety Program are well will be unsuccessful designed and already enjoy large degree of ownership from both HPCDs; (b) Bank will conduct annual progress workshop to ensure sustainable implementation of programs. Project Appraisal Document Page 23 Fourth National Highway Project County: China Risk Risk Rating Risk Minimization Measure Selection of incompetent contractors M Careful pre-qualification of contractors in consultation with the Bank will reduce this risk Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible Controversial Aspects: The most likely controversial aspect of project implementation would relate to disagreements among contractors, supervision engineers, the owners (Hunan and Hubei PCDs) and the Bank supervision missions regarding construction quality of expressway civil works and related roads. This makes foreign construction supervision personnel in a mediating role very necessary. Another controversial aspect between Bank supervision missions and the two HPCDs could derive from the extent and speed of implementation of difficult institutional and policy reforms such as organizational changes, creation of new highway entities along commercial lines, "privatization" of force account maintenance units, and increasing road maintenance funding. G: Main Loan Conditions 1. Effectiveness Conditions: Issuance of acceptable legal opinions. 2. Agreement Reached with the Government: The borrower will ensure that the proceeds of the loan are onlent to the Beneficiaries (Hunan and Hubei Provinces) on the same terms and conditions as the Bank loan, with the Beneficiaries bearing the foreign exchange risk. 3. Agreements Reached with the Beneficiaries: Construction Supervision, Toll Rates, and Highway Expenditures (a) Hunan Province and Hubei Province would employ and maintain construction supervision teams on Tucheng - Changsha (TCE) and Zhengdian-Tucheng (ZTE) expressways, as applicable, with qualified staff in adequate numbers to ensure that all works are carried out in accordance with technical specifications and that strict quality controls are exercised on all sites. Construction quality would also be monitored through routine project supervision and monthly and semi-annual progress reports; (b) Hunan Province and Hubei Province shall prepare, under terms of reference satisfactory to the Bank, and provide to the Bank a monthly progress report on the civil works on the Zhengdian-Tucheng Expressway and the Tucheng-Changsha Expressway, respectively; (c) Hunan Province and Hubei Province shall undertake, complete and furnish to the Bank for its review and comments, an analysis and recommendation for the toll rates on TCE and ZTE by March 31, 2002 taking into consideration the results of the similar studies on toll rates conducted under other Bank-financed highway projects in China and the experience with toll rates on major roads in China; Project Appraisal Document Page 24 Fourth National Highway Project Conty: China (d) Hunan Province and Hubei Province would, by March 31 of each year commencing in 2000 and ending in 2005, furnish an annual highway expenditure report for the Bank's review and comments for the previous year, which would: (i) show the length of each class of highway by condition (excellent, good, fair and bad) as of December 31 of the previous year; (ii) show the completed physical works and actual expenditures of the previous year against the planned physical targets and budgeted funds of that year, for new construction, upgrading/improvement, rehabilitation, periodic maintenance, and routine maintenance; and (iii) show the targets of the highway program for the following year, including new construction, upgrading/ improvement, rehabilitation, periodic maintenance, and routine maintenance, in terms of planned physical works and planned expenditures. Policy and Institutional Reform and Road Traffic Safety Programs, and Training (a) Hunan Province and Hubei Province would by December 31 of each year, or such other date as the Bank shall request, each hold a workshop together with representatives of the Bank to evaluate the progress in the implementation of its respective program of institutional and policy development and reform, and more specifically in regard to increase competition in road maintenance, road safety, development of management systems, and road maintenance and fund allocation; (b) Each of Hunan Province and Hubei Province would: (i) by October 1, 2000, complete an institutional development and reform plan for the next 6 years for its respective highway sector, such plan to cover the areas of, inter alia, competition in road maintenance and road safety, and to include organizational development and strengthening, training needs, equipment needs and management systems development; and (ii) furnish said plan to the Bank for its review and comments; (c) Each of Hunan Province and Hubei Province would, on the basis of the institutional development and reform plan referred to in sub-paragraph (b) above, (i) by October 1 of each year, commencing on October 1, 2000, prepare and provide to the Bank for its review and comments an annual program of implementation; and thereafter (ii) take all appropriate actions to implement said annual program, taking into consideration the Bank's view thereon.; (d) Each of Hunan Province and Hubei Province would: (i) carry out the training, in accordance with training programs acceptable to the Bank; and to that end (ii) by June 30 of each year, commencing in June 30, 2000, furnish to the Bank for its prior approval a rolling two-year training program; (e) Each of Hunan Province and Hubei Province would: (i) by December 31, 2001, complete a maintenance cost and fund allocation study under terms of reference acceptable to the Bank; (ii) furnish said study to the Bank for its review and comments; and thereafter (iii) implement the recommendations of said study, taking into consideration the Bank's view thereon; (f) Hunan Province and Hubei Province would: (i) by December 31, 2002, complete a joint study on Hubei- Hunan transportation and trade integration, under terms of reference acceptable to the Bank; (ii) furnish said study to the Bank for its review and comments; and thereafter (iii) implement the recommendations of said study taking into consideration the Bank's view thereon; (g) Each of Hunan Province and Hubei Province would: (i) by December 31, 2003, complete a study on safety measures regarding maintenance works, under terms of reference acceptable to the Bank; (ii) furnish said study to the Bank for its review and comments; and thereafter (iii) implement the recommendations of said study, taking into consideration the Bank's view thereon; Project Appraisal Document Page 25 Fourth National Highway Project County: China (h) Each of Hunan Province and Hubei Province would, by March 31, 2004: (i) complete the development of a road information system, a quality control system and an accident analysis system, under terms of reference satisfactory to the Bank; and (ii) put into effect said management systems; (i) Hunan Province and Hubei Province would: (i) by March 31, 2002, prepare under terms of reference acceptable to the Bank and furnish to the Bank for its review and comments, a safety audit schedule and a schedule of black spot identification and improvement; and thereafter (ii) implement said schedules. Environment, Land Acquisition and Resettlement (a) Hunan Province and Hubei Province shall carry out the EAPs and RAPs in a manner satisfactory to the Bank and furnish any proposed revision of these plans to the Bank for its approval; (b) Hunan Province and Hubei Province shall maintain policies and procedures adequate to enable therm to monitor and evaluate on an ongoing basis, in accordance with indicators acceptable to the Bank, the carrying out of EAPs and RAPs; and (c) Hunan Province and Hubei Province shall prepare, under terms of reference acceptable to the Bank, and furnish to the Bank: (i) on January 31 of each year, starting in 2000 through 2007, an annual environmental monitoring report; and (ii) on January 31, 2000 and July 31, 2000, and thereafter on each January 31 during the period of project implementation, an internal resettlement report prepared by the appropriate agencies of the respective Project Provinces, and an external resettlement report prepared by an independent entity acceptable to the Bank, on the implementation and impact of the resettlement activities during the immediately preceding six months or one year period, as the case may be. Reporting, Monitoring and Auditing Hunan Province and Hubei Province shall prepare on the basis of guidelines acceptable to the Bank and submit to the Bank: (a) a monthly progress report on the civil works of TCE and ZTE; (b) a semi-annual progress report on implementation of all components of the project, by January 31 and July 31, commencing January 31, 2000; (c) by January 31 of each year commencing in 2001 and ending in 2006, an annual monitoring report in a form satisfactory to the Bank covering all components of the Project and assessing the extent to which various implementation and development objectives have been obtained in the course of project execution and operation; (d) within six months of the closing date of the Bank loan to the project, an implementation completion report in a format acceptable to the Bank; and (e) the audited accounts for the project, statements of expenditures, and special accounts by independent auditors acceptable to the Bank within six months of the close of each fiscal year. H. Readiness for Implementation [X] The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ Not applicable. Project Appraisal Document Page 26 Fourth National Highway Project County: China [X] The procurement documents for the first year's activities are complete and ready for the start of project implementation. [XI The Project Implementation Plans have been appraised and found to be realistic and of satisfactory quality. [ ] The following items are lacking and are discussed under loan conditions (Section G): I. Compliance with Bank Policies [X] This project complies with all applicable Bank policies. [ ] [The following exceptions to Bank policies are recommended for approval: The project complies with all other applicable Bank policies.] Task Team ader/Task Manager: Alfred Nickesen Sector Manag Jitendra N. Bajpai C+ry Dirotor-, Huang Project Appraisal Document Page 27 Fourth National Highway Project County: China ANNEX 1: PROJECT DESIGN SUMMARY China: Fourth National Highway Project Narrative Summary Key Performance Indicators' Monitoring and Critical Assumptions Supervision CAS Objective (CAS Objective to Bank Mission) Increase economic activity along Agriculture and Industry Country economic Continued Government the high-priority corridor (GOVAI) in affected counties reports commitment to through continuing infrastructure economic policies development Project Development Objectives (Development Objectives to CAS Objective) I. Relieve congestion, facilitate 1. I Average daily traffic on Project progress and Macroeconomic and mobility and help increase the existing roads annual monitoring political conditions will efficiency and traffic safety in reports remain stable Northern Hunan and Southern 1.2 Average travel speed on Hubei roads parallel to the proposed Traffic counts and Govemnment road accident surveys commitment at central, provincial and local 1.3 Traffic accidents involving levels fatalities No unexpected natural disasters occur (floods, earthquakes) Foreign exchange will remain stable Project Outputs (Outputs to Development Objectives) 1. Expressway sections 1.1 Number of km of Monthly progress Traffic will grow as constructed expressways constructed reports by supervision projected teams 2. Interconnecting and other 2.1 Number of km of Semi-annual progress roads constructed and/or interconnecting roads reports and annual upgraded constructed/upgraded monitoring reports 2.3 Number of km of other roads Reports by Bank's constructed/upgraded supervision missions 3. Equipment and spare parts 3.1 Equipment and spare parts Disbursements to provided for operation and delivered contractors maintenance of highways, quality control of construction, Project progress and environmental monitoring, annual monitoring institutional strengthening, and reports 1 Baseline and targeted values should be shown, with the latter divided into values expected at mid-term, end of project and full impact. Project Appraisal Document Page 28 Fourth National Highway Project County: China support of highway safety component Traffic accident surveys 4. HPCD institutional capacity 4.1 Number of HPCD staff strengthened trained in financing, Semi-annual progress management, operation and reports construction supervision of expressways Procurement reviews and disbursements by 5. Studies on Highway 5.1 Study on Highway Bank Maintenance, Hunan-Hubei Maintenance completed Transport and Trade Integration, Reports of Bank's and Expressway 5.2 Study on Hunan-Hubei supervision missions Commercialization and Transport and Trade Integration Corporatization completed completed 5.3 Study on Expressway Commercialization and Corporatization completed Project Components (Components to Outputs) Component 1. Construction of expressway and interconnecting US$ 883.0 million roads Project progress Selection of competent 1.I Construction of Tucheng reports contractors (Hubei border) - Changsha section (TCE) (183 kin) in Disbursement reports Quality of construction Hunan in accordance with pre- established criteria 1.2 Construction of Zhengdian- Tucheng (Hunan border) section No delays in preparation (ZTE) (109 km) in Hubei and implementation 1.3 Interconnecting roads, No delays in land consisting of new construction acquisition and and upgrading of roads in Hunan resettlement 1.4 Interconnecting and other Sufficient quality of roads, consisting of new engineering designs construction and upgrading of roads in Hubei 1.5 Equipment for: (i) control of construction quality and monitoring of the environment; (ii) operation and maintenance for ZTE and TCE; (iii) maintenance of the provincial road network, RDB and PMS 1.6 Construction supervision services for ZTE and TCE, the interconnecting and other roads programs Project Appraisal Document Page 29 Fourth National Highway Project County: China Component 2. Institutional US$ 4.9 million Training program will Strengthening/Capacity Building prove successful and managers and staff will 2.1 Studies/technical assistance apply new skills in Highway Maintenance Management, Transport and Policy and Institutional Trade Integration, Expressway Reform as well as Road Commercialization and Safety Program will Corporatization; and Road receive large ownership Safety from both HPCDs and will be successful 2.2 Staff training programs, covering all aspects of highway planning, design, construction, operation, finance and maintenance. US$ 3.5 million Component 3. Front-end Fee Component 4. Land Acquisition US$ 60.6 million and Resettlement Project Appraisal Document Page 30 Fourth National Highway Project County: China Annex 1-1-A Key Performance Indicators for Hunan a) Development Indicators Attainment of Monitoring 1998 2003 2006 Project Objectives Indicators Baseline Benchmark Benchmark (15t year of operation) Provide more * ADT on existing efficient, safer and NR 107 (veh/day) productive transport services section A-B 6,412 2,983 4,081 section B-C 8,979 4,711 6,312 section C-D 7,940 3,219 5,199 section D-E 7,660 5,009 7,110 * Average Speed on Existing NR 107 (km/hr) section A-B 45 55 55 section B-C 50 60 60 section C-D 45 55 55 section D-E 50 55 55 * Accident rates involving fatalities on existing NR 107 12 10 8 (Number of accidents per 10,000 vehicles) NOTE: (1) A-B: Tandu-Linxiang; B-C: Linxiang-Wujiang; C-D: Wujiang-Wushi; D-E: Wushi-Changsha. (2) Traffic measurement unit: medium-size truck/bus. Project Appraisal Document Page 31 Fourth National Highway Project County: China b) Implementation Indicators 1999 2000 2001 2002 2003 2005 ICR Year % of civil works 5 35 70 100 100 completed on TCE % of 30 75 100 100 interconnecting roads completed % of equipment 50 75 100 100 purchased % of E&M works 50 100 100 completed Number of person- months of completed t g 242 369 496 496 Domestic 57 93 113 113 Overseas Project Appraisal Document Page 32 Fourth National Highway Project County: China INSTITUTIONAL DEVELOPMENT AND ROAD SAFETY MONITORING PLAN IN HUNAN PROVINCE COMPONENT NOT 1999 2000 2001 2002 2003 2004 Institutional A HPCD and Bank mission Workshop Workshop Workshop Workshop Workshop Development Plan Workshop 10/01/ 10/01/ 10/01/ 10/01/ 10/01/ 10/01/ organtsation Devpt T TEA-seminar and the TEA-seminar and the TEA-seminar and the TEA-seminar and the Final report RS- specialist R. Safety Specialist Workshop Workshop Workshop Workshop Workshop as part of HPCD Training and C Domestic:399, (only NH4) Domestic.182, (only NH4) Domestic:? Domestic:? Education&Study Tour Abroad:T:29+S:6 Abroad:T:28+S:0 Abroad:T:?+S:? Abroad:T:?+S:? (NH2+NH4) Prog.reptWorkshop Prog.repNVorkshop Prog.repiWorkshop Prog.repAWorkshop Koad Intormabon lY Progress report Final rep.Phasel Progress report Progress report Final.report RDB implemented System (RDB) Workshop 10/01/+ Phase 2 starts Workshop 10/01/ Workshop 10/01/ Workshop 10101/ and in operation LG RDB-acceptence Workshop 10/Oi/ Quality Control Units Progress report Progress report Progress report Final.report QCU as part of (QCU) Workshop 10/01/ Workshop 10/01/ Workshop 10/O1/ Workshop IO/0o/ HPCD Competition in the F Progress report on Progress report on trial- Progress report on Progress report on Prog.rept. on completon- Final report to be Highway Sector training and bidding sysm. stage spreading-stage (60%) + spreading-stage+ MBO stage + staff planning presented at the Workshop 10/01/ Workshop 10101/ MBO, Workshop 101011 Workshop 10/01/ Workshop 10/011 Workshop 10/01/ Highway Mainte- 99/12 Agreemt. by LG Priniples on fund Progress report at the Long term maintce.plan nance Study on fund allocation allocaton agreed by Workshop to be presented at the prindples.+ Workshop HPCD+ Workshop Workshop Expressway Com. H Start of study Principles agreed on by Establishment prep Progress report presentn. Progress report presentation Evaluation report & Corp. Study Progress report at the higher Govemmental level Progress report presentaton at the W.shop 10/01 at the Workshop 10/01 to be presented Workshop Prog.rept. at Workshop at the Workshop 10/01 at the Workshop 10/01 Transport & raae I Starting up seminar Concluding seminar Final report lntegratIon Study 03/01/ 10/01/coordinated Prog.rep. at Workshop with the Workshop Development ot AIS J Progress report at the Progress report at the Progress report at the Progress report at the Number of actions taken Decision on AIS on Workshop 10/01/ Workshop 10/011 Workshop 10/01/ Workshop 10/01/ based on AIS+ W-shop Exp.ways + W-shop Road Traffic Safety K TEA-seminar in the TEA-seminar in the TEA-seminar in the TEA-seminar In the TEA-seminar in the TEA-seminar in the Seminars Prefectures+ progress Prefectures+ progress Prefectures+ progress Prefectures+ progress Prefectures+ progress Prefectures+ progress report at the W.shop report at the W.shop report at the Wshop report at the Wshop report at the Workshop report at the Workshop Other Road SaFety L Black-spots identified Checklists and routines Checklists and routines Checklists and routines Black-spots remedied Final report on the Activities acc. to plan+progrs.rept. progress report progress report +progress repport acc. to plan+progrs.rept. outcome from other activs. TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop Project Appraisal Document Page 33 Fourth National Highway Project County: China INSTITUTIONAL DEVELOPMENT AND ROAD SAFETY MONITORING PLAN IN HUNAN Notes on the Various Components Institutional Development Plan A. Outputs: -An annual updated core document for the development of the highway sector. Outcomes: -Continuing dialogue and development process over a period of 6 years, which leads to a continuously improved and extended plan. Indicators: -Annual update and progress report to be presented at the yearly workshop with the Bank on institutional development and road safety. Road Safety Specialists in the Project Office B. Outputs: -Documentation of findings (good as well as bad) and experiences gained, e.g. from countermeasures carried out. -Execution of safety components under the project. Outcomes: -Increased know-how on safety. -Increased road safety activities under NH2 and NH4 projects. -Road safety work to be institutionalized under HPCD. Indicators: -The results should be presented at the yearly TEA meeting and at the annual HPCD and Bank mission progress workshop. -Work reports after completion of each stage of work. -Final reports on lessons leamed and recommendations. -In a longer perspective reduced number of serious accidents (before and after introduction of findings and what has been developed). Training and Education C. Outputs: -Number of people that have taken part in the training according to the program. Outcomes: -New know-how in use. Indicators: -Percentage of trained people who are able to use the new know-how in their daily work. -Progress report presented at the yearly workshop with the Bank on institutional development and road safety. -To fulfill its purpose, the training program shall be revised and extended every second year. Road Information System D. Outputs: -Phase 1, establishment of a provincial RDB by the end of 1999. -Phase 2, establishment and application of RDB in each prefecture and city of the province, by the end of 2003. Outcomes: -Phase 1, an RDB system consistent with the MOC recommendations and adjusted to the needs in Hunan Province. -Phase 2, integrated with the PMS and BMS systems it will lead to increased efficiency in planning and maintenance of roads, which in a longer term perspective will have a positive effect on traffic flow, traffic safety and quality of work carried out. Indicators: -Phase 1, a progress report would be available and presented at the HPCD/Bank mission workshop in October 1999. -Phase 2, by the end of year 1999 the Leading Group shall give its final acceptance for the implementation of RDB in the whole Province (Prefecture and City levels). -The RDB system on all levels shall be in operation by the end of 2003. -Progress reports shall be presented at the yearly workshop with the Bank on institutional development and road safety. Project Appraisal Document Page 34 Fourth National Highway Project County: China Quality Control Units E. Outputs: -Quality assurance key factors checklist. -A system for quality control. -An organizational set up on Provincial and Prefecture levels. Outcomes: -Increased focus on quality. -Increased know how through training and education. -Quality control being institutionalized as part of HPCD. -A systematic operation and management process for improved quality in the Province. -Increased percentage of work with good quality. Indicators: -Progress report on experiences obtained, 1999. -Progress report on checklist preparation, 1999. -Progress report on training in the yearly workshop with the Bank, 1999-2000. -Progress reports on results achieved, 2000- 2002. -Final report on quality improvements made, 2002. -The model should gradually be applied on road activities in the whole Province. -Progress reports presented at the yearly workshop with the Bank should cover problems, measures taken and results. Development of Competition in the Highway Sector F. Outputs: -Organizational simplification and functional changes. -A new maintenance management model (policy). -System reform as regards staffing, labor organization and deployment (policy). -Reform on maintenance operation (policy). Outcomes: -Increased competition in road maintenance. -Adapted market oriented management philosophy. -Increased efficiency in maintenance work. -Improved cost/outcome know-how on all levels. -Improved personnel resource planning. -Increased percentage of roads in good condition. Indicators: -Progress report on training coupled to the component. -Progress report on development and execution of the bidding system for maintenance work. -Progress report on the trial stage. -Progress report on the spreading stage: (i) maintenance firms to be established in 60% of the highway bureaus at the county level in all Prefectures, year 2000; (ii) new employment system to be introduced in highway bureaus on the county level; (iii) management by objectives (MBO) being introduced. -Progress report on the completion stage: (i) establishment of maintenance firms in the whole Province to be completed; (ii) employment system to be executed for leaders in the highway bureaus at Prefecture level; (iii) MBO for leaders developed; (iv) promotion of the new deployment system. -Progress report on staff planning and how it has been solved in practice. -Progress reports to be presented at the yearly workshop with the Bank on institutional development and road safety. -Final report 2004. Project Appraisal Document Page 35 Fourth National Highway Project County: China Highway Maintenance Management and Maintenance Cost and Fund Allocation Studies G. Outputs: -A long term activity plan. -A conceptual model on PMS and BMS systems integrated with the RDB. -A maintenance cost and fund allocation model. Outcomes: -A sustainable system for maintenance activities. -Increased efficiency by using PMS, BMS and RDB. -Principles on fund allocation (policy). Indicators: -Principles on fund allocation approved by HPCD by the end of 2000. -Introduction of PMS and BMS should be coordinated with the RDB development so these three systems could benefit from each other. -Long term maintenance activity plan should be available 24 months after commencing the study. -Progress reports to be presented at the yearly workshop with the Bank on institutional development and road safety. Expressway Commercialization and Corporatization Study H. Outputs: -A report on options to establish a Provincial Toll Road Corporation/Authority. Outcomes: -Increased efficiency to administer toll roads in the Province. Indicators: -The principles agreed on by higher governmental level. -Establishment of such an organization under NH4. -Evaluation report 2 years after the establishment. -Progress reports to be presented at the yearly workshop with the Bank on institutional development and road safety. Hunan-Hubei Transport and Trade integration Study I. Outputs: -Report on the existing situation and a prediction until year 2020. Outcomes: -A basis for planning of investments in various transport modes and facilities. Indicators: -The startup seminar in the beginning. -The seminar at the end of the study. -Progress report at the yearly workshop with the Bank on institutional development and road safety. Development of Accident Information System (AIS) J. Outputs: -An accident information system model adjusted for the needs of HPCD as well as for the Traffic Police on the whole length of NR107. -An accident information system built on the experiences gained on NR107 for the whole expressway network in Hunan Province. Outcomes: -The AIS serves as an important information basis for decisions on measures to improved road safety. -The AIS serves as an important instrument to follow up results of measures taken. -Increased know how about where and under which circumstances the accidents have occurred. -Increased cooperation with the Traffic Police. Indicators: -Progress reports at the yearly workshop with the Bank on institutional development and road safety. -Number of actions taken on NR107 based on the outcome from AIS. -Decision on implementing the AIS on all Expressways in Hunan Province. Project Appraisal Document Page 36 Fourth National Highway Project County: China Road Traffic Safety Seminars K. Outputs: -Documentation of presentations made at the seminars. Outcomes: -Increased know-how about the road safety situation and how to tackle the problems. Indicators: -TEA-seminars to be held once a year during the project period. -During the project period one road safety seminar (TEA) shall be held in each of the six regions of the Province. The regional seminars should be built on experiences from other TEA seminars. Other Road Safety Activities (Grouped) (safety at road work sites, safety audit procedures and the pilot safety program on black-spots) L. Outputs: -Documentation of models to be used in safety audit procedures as well as in safety at road work sites and identification and remedy of black spots. -Training program for concerned staff. -Principles to be followed in the whole Province. Outcomes: -Increased know-how and ideas on some simple routines to be followed in the daily work, which leads to improved road safety. Indicators: -Presentation of findings and experiences gained at the TEA seminar once a year. -Presentation of the result at the annual workshop with the Bank on institutional development and road safety. -Number of prefectures where the new routines are in use. -Number of black-spots remedied in accordance with the agreed plan. Project Appraisal Document Page 37 Fourth National Highway Project County: China Annex 1-1-B Key Performance Indicators for Hubei a) Development Indicators Attainment of Monitoring 1998 2003 2006 Project Indicators Baseline (Bst year of Benchmark Objectives operation) Provide more * ADT on existing NR efficient, safer and 107 (veh./day) productive transport services section A-B 5935 3700 4058 section B-C 6759 3613 3962 section C-D 5499 3493 3829 section D-E 6196 3355 3679 section E-F 5675 3455 3788 section F-G 5384 2941 3224 section G-H 5405 2989 3278 * Average Speed on Existing NR 107 (m/br) section A-B section B-C 50 55 55 section C-D 50 55 55 section D-E 45 50 50 section E-F 35 40 40 section F-G 35 40 40 section G-H 45 50 50 60 65 65 Increase highway * Accident rates on safety conditions existing NR 107 (Number of accidents involving fatalities per 10,000 veh.) 15 13 12 Notes: (1) A-B: Zhengdian-Anshan; B-C: Anshan-Henggou; C-D: Henggou-Xianning; D-E: Xianning-Quankou; E-F: Quankou-Puqi; F-G: Puqi-Zhaoliqiao; G-H: Zhaoliqiao-Tucheng. (2) Traffic measurement unit: medium-size truck/bus. Project Appraisal Document Page 38 Fourth National Highway Project County: China b) Implementation Indicators 1998 1999 2000 2001 2002 2003 2005 ICR Year % of civil works 10 40 70 100 100 completed on ZTE % of E&M works 40 90 100 100 complete % of interconnecting 40 80 100 100 roads improved! rehabilitated % of other roads 40 80 100 100 improved/rehabilitated Number of person- months of completed training Domestic 5 131 182 195 213 213 Foreign 13 23 27 29 29 % of equipment 3 30 75 100 100 purchased Project Appraisal Document Page 39 Fourth National Highway Project County: China INSTITUTIONAL DEVELOPMENT AND ROAD SAFETY MONITORING PLAN IN HUBEI PROVINCE _ _ _ COMPONENT NOT 1999 2000 2001 2002 2003 2004 Institutional A Workshop Workshop Workshop Workshop Workshop Workshop Development Plan io/0o/ 10/01/ 10/01/ 10/01/ 10/01/ 10/01/ *World Bank+ HPCD __ Organisation Devpt. B TEA-seminar and the TEA-seminar and the TEA-seminar and the TEA-seminar and the Final report a. Road Safety Unit Workshop Workshop Workshop Workshop Workshop RSU as part of HPCD b. Quality Control- LG std-approval 99/12 Prog.report Prog.report Prog.report Final report QCU as part of HPCD Unit Workshop Workshop Workshop Workshop Workshop Workshop Training and C Domestic: 18 Domestic: 90 Domestc:4 Domestic:6 Education&StudyTo Abroad:T:20+S:9 Abroad:T:8+S:1 3 Abroad:T:O+S:9 Abroad:T:4+S:4 tNH3+NH4) Prog. rep/Workshop Prog.rep/Workshop Prog.rep/Workshop Road Information 0 Prog.report Prog.report 03/01 Prog.report Prog.report Final. report System (RDB) os/01/ Final rep.Phase1 03/01+09/01 03/01+09/01 RDB implemented Workshop Phase 2 starts Workshop Workshop and in operation Com petition in the E preparation List of potential firms Selection of test firm Test running Test running Evaluation report Highway Sector Progress report at the Progress report at the Progress report at the Progress report at the Progress report at the presented at the Workshop Workshop Workshop Workshop Workshop Workshop Highway Mainte- F 99/12 Agreemt. by LG Long term maintn. plan nance Study on fund allocation Progress report at the Progress report at the to be presented at the principles.+ Workshop Workshop Workshop Workshop Expressway Com. G Start of study Principles agreed by Establishment prep & Corp. Study Progress report at the MOC and MOF Prog.rpt.03/01+09/01 Prog.rpt.03/01+09/01 Prog.rpt.03/01+09/01 Prog.rpt.03/01+09/01 Workshop Prog.rept. at W.shop prestn. at the W.shop restn. at the W.shop prestn. at the W.shop prestn. at the W.shop Transport & Trade H Starting up seminar Concluding seminar Final report Integration Study 03/01/ 10/01/ coordinated _Prog.rep. at W.shop with the Workshop Road Traffic Safety I TEAseminar+ 1 day TEAseminar+ 1 day TEAseminar+ 1 day TEAseminar+ 1 day TEAseminar+ 1 day TEAseminar+ 1 day Seminars seminar in Prefecture+ seminar in Prefecture+ seminar in Prefecture+ seminar in Prefecture+ seminar in Prefecture+ seminar in Prefecture+ _ progr.rep.at the W.shop progr.rep.at the W.shop progr.rep.at the W.shop progr.rep.at the W.shop progr.rep.at the W.shop progr.rep.at the W.shop Other Road Safety J TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop TEA-sem.+ Workshop Activities No of black-spots No of black-spots No of black-spots No of black-spots No of black-spots No of black-spots identified acc. to plan identified acc. to plan remedied acc. to plan remedied acc. to plan remedied acc. to plan remedied acc. to plan Project Appraisal Document Page 40 Fourth National Highway Project County: China INSTITUTIONAL DEVELOPMENT AND ROAD SAFETY MONITORING PLAN IN HUBEI Notes on the Various Components Institutional Development Plan A. Outputs: -An annual updated core document for the development of the highway sector. Outcomes: -Continuing dialogue and development process over a period of 6 years, which leads to a continuously improved and extended plan. Indicators: -Annual update and progress report to be presented at the yearly workshop with the Bank on institutional development and road safety. Road Safety Unit B.a Outputs: -Documentation of findings (good as well as bad) and experiences gained, e.g. from countermeasures carried out Outcomes: -Increased know-how on safety. -Increased road safety activities under NH3 and NH4 projects. -Road safety work to be institutionalized under HPCD. Indicators: -The results should be presented at the yearly TEA meeting and at the annual HPCD and Bank mission progress work shop. -In a longer perspective a reduced number of serious accidents, measured 2 years after project completion. Quality Control Unit and Quality Management System B.b Outputs: -Project Office strengthened by establishment of the quality control unit. -Documentation of standards (policy) for road related products and services. -A system for quality control. Outcomes: -Increased focus on quality. -Quality control being institutionalized as part of HPCD. -A systematic operation and management process for improved quality in the Province. Indicators: -The Leading group has approved the quality standards (policies), by the end of 1999. -The model should gradually be applied on road activities in the whole Province in accordance with the work plan (and not wait until the project period is over). -Progress report presented at the yearly workshop with the Bank (problems, measures taken and results) on institutional development and road safety. Training and Education C. Outputs: -Number of people that have taken part in the training according to the program. Outcomes: -New know-how in use. Indicators: -Percentage of trained people who are able to use the new know-how at their daily work. -Progress report presented at the yearly workshop with the Bank on institutional development and road safety. -To fulfill its purpose, the training program shall be revised and extended every second year. Road Information System D. Outputs: -Phase 1, a small scale development and testing of an RDB system in the test area of Ezhou city (National and Provincial roads only). -Phase 2, distribution and application of RDB in each prefecture and city of the province. Project Appraisal Document Page 41 Fourth National Highway Project County: China Outcomes: -Phase 1, an RDB system consistent with the MOC recommendations and adjusted to the initial needs in Hubei Province. -Phase 2, integrated with the PMS and BMS systems it will lead to increased efficiency in planning and maintenance of -oads, which in a longer perspective it will have a positive effect on traffic flow, traffic safety and quality of work carried out. Indicators: -Phase 1, progress reports should be available every sixth months, and a final report not later than 18 months from project start. -Phase 2, by the end of year 2000 the Leading Group shall give its final acceptance for the implementation of RDB in the whole Province. -The system shall be in full operation in 2003. -Progress reports (phases I and 2) shall be presented during the yearly workshop with the Bank on institutional development and road safety. Development of Competition in the Highway Sector E. Outputs: -A list of firms/companies inside as well as outside the Highway Administration sector that would be capable to carry out periodic as well as routine maintenance work. -Testing of such firms/companies in a limited test area. -Analysis and documentation of the results with regard to costs and quality. Outcomes: -A survey of the local market. -Increased competition. -A comparison between force account and "outside firms" regarding costs and quality which leads to increased know-how about the efficiency level. Indicators: -The list should be available after 2 months from start -Selection procedure finished 2 months thereafter. -Establishment and start of the test 1 month after the firms have been selected. -Test-period would last for 2 years. -Successive follow-up and progress reports every 6 months. -Progress presentation at the yearly workshop with the Bank on institutional development and road safety. -Evaluation report to be presented 2 months after finishing the test. Highway Maintenance Management and Maintenance Cost and Fund Allocation Studies F. Outputs: -A long term activity plan. -PMS and BMS systems integrated with the RDB. -A maintenance cost and fund allocation model. Outcomes: -A sustainable system for maintenance activities. -Increased efficiency by using PMS, BMS and RDB. -Principles on fund allocation (policy). Indicators: -Principles on fund allocation decided on by the Leading Group by the end of 1999. -The introduction of PMS and BMS should be coordinated with the RDB development so these three systems could benefit from each other. -The long term maintenance activity plan should be available 24 months after commencing the study. -Progress reports to be presented at the yearly workshop with the Bank on institutional development and road safety. Expressway Commercialization and Corporatization Study G. Outputs: -A report on options to establish a Provincial Toll Road Corporation/Authority. Outcomes: -Increased efficiency to administer toll roads in the Province. Indicators: -The principles agreed on by MOF and MOC. -Establishment of such an organization under NH4. -Evaluation report 2 years after the establishment. Project Appraisal Document Page 42 Fourth National Highway Project County: China -Progress reports for every 6 months and presentation at the yearly workshop with the Bank on institutional development and road safety. Hunan-Hubei Transport and Trade Integration Study H. Outputs: -Report on the existing situation and a prediction until year 2020. Outcomes: -A basis for planning of investments in various transport modes and facilities. Indicators: -The startup seminar in the beginning. -The seminar at the end of the study. -Progress report at the yearly workshop with the Bank on institutional development and road safety. Road Traffic Safety Seminar L Outputs: -Documentation of presentations made at the seminar. Outcomes: -Increased know-how about the road safety situation and how to tackle the problems. Indicators: -TEA-seminars to be held once a year in Wuhan and during the project period a one day safety seminar shall be held in each of the Prefectures in the Province. Other Road Traffic Safety Activities (Grouped) (safety at road work sites, safety audit procedures and the pilot safety program on black-spots) J. Outputs: -Documentation of good examples and procedures aiming at improved road safety. Outcomes: -Increased know-how and ideas on some simple routines to be followed in the daily work, which leads to improved road safety. Indicators: -Presentation of the results at the yearly TEA-seminar as well as at the annual workshop with the Bank on institutional development and road safety. -Number of black-spots remedied in accordance with the agreed plan. Project Appraisal Document Page 43 Fourth National Highway Project County: China ANNEX 2: HUNAN AND HUBEI HIGHWAY SECTOR REVENUES AND EXPENDITURES Fourth National Highway Project Introduction 1. The following two tables contain highway sector revenue and expenditure data for Hunan and Hubei Provinces. These tables cover the 9th Five Year Plan period (9FYP) from 1996 to 2000 and the I oth Five Year Plan period (10 FYP) from 2001 to 2005. While highway sector revenue and expenditure data is available for 9FYP on an annual basis, planning for the 1 OFYP is only at a preliminary stage and data is not yet available for each of the five years. Revenue Analysis 2. An analysis of the Hunan and Hubei highway sector revenue data indicates that during the 9FYP period Hunan's highway sector revenues amount to US$3.7 billion (equivalent) while those of Hubei reach US$3.4 billion. Anticipated revenues for the IOFYP are US$3.8 billion in Hunan and US$4.2 billion in Hubei. In terms of revenue structure, both provinces essentially have the same revenue sources. While the Road Maintenance Fee provides between 15% and 20% of annual revenues, the Highway Key Construction Fund delivers between 10-15% of sector funding. MOC provides about 10% in Capital Construction Subsidy while local governments provide around 15% in subsidy form to the two HPCDs. The contribution of the national aid-poverty subsidy is very small, only around 1% and will disappear after the year 2000. By far the most important revenue source for the highway sector during the 9FYP and 1 OFYP is domestic and foreign loan funding which includes, inter alia World Bank highway loans for NH2, NH3 and NH4 projects and which ranges between 34% in Hunan (9FYP) and 38% in Hubei (also 9FYP). The large proportion of loan funding of which around 80% is domestic is due to accelerated construction of the NTHS and other high-grade highways. Toll financing and the issuance of bonds and stocks only contribute a modest 5-10% to the overall revenue picture which would indicate that only few toll expressways and other toll roads are operational at this stage in the two provinces. Expenditure Analysis 3. On the expenditure side distinction needs to be made between new road construction, road improvement, and road maintenance, with the latter comprising routine and periodic operations. During the 9FYP Hunan is spending 70% of its highway sector funds on new construction and 12% on road improvement while Hubei is spending 53% of its funds on new construction and 23% on road improvement In addition, Hunan is spending 11% of sector funds on routine and periodic maintenance while Hubei is spending 15% on these two maintenance categories. These maintenance expenditures should be considered as the minimum necessary to keep the road networks operational. Agency overheads and loan servicing require 7% in Hunan and 9% in Hubei. The envisaged expenditure structure for the 1OFYP in both provinces is similar to the patterns of 9FYP. 4. A further distinction can be made for expenditures by road type. During 9FYP, Hunan spends 53% of its sector funds on expressways while Hubei spends 48% on expressways. This is followed by the spending of 32% of sector funds on national and provincial roads in both provinces. Finally, rural roads receive 10% of road sector funds in both provinces (i.e. US$338 million in Hunan and US$337 in Hubei). These calculations include new construction, improvement and maintenance for these three principal road categories. The anticipated expenditure picture for the 1 OFYP follows the one for the 9FYP. Project Appraisal Document Page 44 Fourth National Highway Project County: China EHUNAN HIGHWAY SECTOR REVENUES AND EXPENDITURES, 1996-2005 (Y million) 91YP Total 10FVYP 1996 1997 1998 1999 2000 R1EVENUES Road maintenance fee 1,136 1,142 1,197 1,228 1,283 5,986 7,705 Transfer to financing sector 50 50 55 60 60 275 330 Transfer to public security 25 25 26 27 28 131 115 Transfer to fee collection sector 37 40 50 55 57 239 312 Remaining road maintenance fee 1,024 1,027 1,066 1,086 1,138 5,341 6,777 Highway Key Construction Plan 758 803 819 835 876 4,091 4,793 Capital construction (subsidy) Central government (MOC) 266 376 662 750 910 2,964 3,400 Local government 350 490 1,160 1,200 1,500 4,700 5,500 National aid-poverty road subsidy 60 60 70 70 70 330 170 Domestic and foreign loans 550 545 2,453 2,967 3,750 10,265 8,039 Foreign and domestic investments 130 283 408 170 200 1,191 1,050 Toll revenues and other (issuing bonds & shares) 55 70 140 900 455 1,620 2,145 Total 3,193 3,654 6,778 7,978 8,899 30,502 31,874 EXPENDITURES New Construction 1,666 2,153 4,849 5,974 6,635 21,277 20,842 Expressway 1,021 1,500 3,555 4600 5,250 15,926 14,729 National and Provincial roads 400 380 1,000 1066 1,080 3,926 5,068 Rural roads 245 273 294 308 305 1,425 1,045 Improvement 707 652 773 810 827 3,769 2,915 National and Provincial roads 602 535 644 680 692 3,153 2,410 Rural roads 105 117 129 130 135 616 505 Periodic maintenance 334 320 367 385 406 1,812 2,277 National and Provincial roads 278 263 303 319 336 1,499 1,857 Rural roads 56 57 64 66 70 313 420 Routine maintenance 301 308 337 351 355 1,652 2,110 Expressway 6 10 19 25 29 89 402 National and Provincial roads 206 209 228 233 233 1,109 1,219 Rural roads 89 89 90 93 93 454 489 Overhead & payment of loans 185 221 452 458 676 1,992 3,730 Total 3,193 3,654 6,778 7,978 8,899 30,502 31,874 Source: Hunan Provincial Communication Department Project Appraisal Document Page 45 Fourth National Highway Project County: China HUBEI HIGHWAY SECTOR REVENUES AND EXPENDITURES, 1996-2005 (Y million) 9FYP Total 1oFYP 1996 1997 1998 1999 2000 REVENUES Road maintenance fee 813 854 896 940 987 4,490 Transfer to public security 19 19 20 21 23 102 Transfer to fee collection sector 37 38 40 42 43 200 Remaining road maintenance fee 757 797 836 877 921 4,188 5000 Highway Key Construction Plan 485 511 538 566 595 2,695 3300 Capital construction (subsidy) Central government (MOC) 143 133 564 910 1,010 2,760 3600 Local government 345 338 997 1,396 1,340 4,416 5300 National aid-poverty road subsidy 28 90 50 50 50 268 Foreign and domestic loans 714 479 1,878 2,876 4,585 10,532 12800 Toll revenues 522 574 632 695 765 3,188 4500 Total 2,994 2,922 5,495 7,370 9,266 28,047 34,500 EXPENDITURES New Construction 688 745 2,532 4,535 6,367 14,867 17700 Expressway 650 620 2,232 3835 5,717 13,054 15600 National and Provincial roads 25 200 600 550 1,375 1600 Rural roads 38 100 100 100 100 438 500 Improvement 1,070 917 1,550 1,398 1,373 6,308 7600 National and Provincial roads 927 766 969 952 860 4,474 5400 Rural roads 143 151 581 446 513 1,834 2200 Periodic maintenance 215 161 220 170 180 946 1200 National and Provincial roads 186 140 189 148 157 820 1000 Rural roads 29 21 31 22 23 126 200 Routine maintenance 546 577 619 635 651 3,028 3950 Expressway 48 52 57 63 70 290 450 National and Provincial roads 425 449 485 490 494 2,343 3000 Rural roads 73 76 77 82 87 395 500 Overhead and payment of loans 475 522 574 632 695 2,898 4050 Total 2,994 2,922 5,495 7,370 9,266 28,047 34,500 Source: Hubei Provincial Communication Department Project Appraisal Document Page 46 Fourth National Highway Project County: China ANNEX 3: PROJECT DESCRIPTION Fourth National Highway Project Project Component 1 - Construction of expressway and interconnecting roads US$883.0 million (total cost of component) Project Sub-Component 1.1- Construction of Tucheng - Changsha expressway section (TCE) (183 kn) in Hunan US$438.2 million Tucheng - Changsha Expressway (TCE) is a 182.8 km divided, four-lane, access-controlled toll highway, which would be connected in Changsha with the Changsha - Xiangtan expressway section which is open to traffic. At the Hubei border, it would be connected to the Zhengdian-Tucheng expressway section according to the agreement reached between Hubei and Hunan on July 8, 1994. The Zhengdian-Tucheng expressway section is also part of NH4 project, so both sections will be constructed at the same time. MOC's expressway standards for plain rolling terrain with a design speed of 120 km/h will be applied. TCE would also include: (a) construction of eleven interchanges, (b) three couples of service areas providing facilities for refueling and vehicle repair, restaurants, parking and resting, (c) three additional couples of rest areas providing facilities for parking and resting, (d) three facilities for expressway administration and maintenance, and (e) electrical and mechanical installations for toll collection, traffic monitoring, telecommunications and lighting of all interchanges and annex areas. Project Sub-Component 1.2 - Construction of Zhengdian-Tucheng expressway section (ZTE) (110 km) in Hubei US$349.0 million Zhengdian - Tucheng Expressway (ZTE) is a 109.8 km divided, four-lane, access-controlled toll highway. In Zhengdian, South of Wuhan, it would be connected to the Jingzhu and Hurong expressway sections which are part of Third National Highway Project. In Tucheng, at the border with Hunan, it would be linked to the Tucheng - Changsha expressway section which will also be part of the Fourth National Highway Project. MOC's expressway standards for plain rolling terrain with a design speed of 120 km/h will be applied. ZTE would also include: (a) construction of six interchanges, (b) two couples of service areas providing facilities for refueling and vehicle repair, restaurants, parking and resting, (c) two additional couples of rest areas providing facilities for parking and resting, (d) one facility for expressway administration and maintenance, and (e) electrical and mechanical installations for toll collection, traffic monitoring, telecommunications and lighting of all interchanges and annex areas. Project Sub-Component 1.3- Construction of interconnecting roads in Hunan US$19.6 million The project will include the completion of four class 2, two lane, interconnecting roads totaling 29.9 km and linking the expressway to the main cities and towns of the area. (In addition according to an agreement signed with the local government of Yueyang, a 15.1 km class 1 highway will be opened to traffic before completion Project Appraisal Document Page 47 Fourth National Highway Project County: China of TCE. According to another agreement reached with Changsha municipality, about I km of class 2 highway will be opened to traffic at the same time as TCE and will conmect the expressway and the Xinsha development zone of Changsha. These two latter roads are not part of the project but will be implemented during project execution so as to complement project investments). With the other existing roads in the corridor, the expressway will be linked properly to the highway network and to the cities and towns to be served. Project Sub-Component 1.4 - Construction of interconnecting and other roads in Hubei US$43.4 million The project will include the completion of four class 2, two lane, interconnecting roads totaling 28 km linking the expressway to the main cities and towns of the area. With the other existing roads in the corridor, the expressway will be linked properly to the highway network and to the cities and towns to be served. The project will also include two other roads in Hubei which have to be upgraded to class 2. The first one links the city of Hongan to Jingzhu in Dawu (NH3) with a length of 69 km among which 5 km are a reuse of the existing road, 48 km are a rehabilitation and 16 km are new alignment. The second road links the NRI06 and the cities of Tongshan and Chongyang to Jingzhu in Puqi (NH4) with a total length of 95 km among which 16 kmn are a reuse of the existing road, 57 km are a rehabilitation and 22 km are new alignment. Project Sub-Component 1.5 - Equipment US$10.0 million This component includes equipment for: (i) control of construction quality and monitoring of the environment; (ii) operation and maintenance of ZTE and TCE after their completion; (iii) maintenance of the provincial road network including RDB and PMS. Equipment to be provided under the project has been identified by Hubei and Hunan PCDs and agreed by the Bank. Agreed equipment lists including cost estimates are available in the project file. These lists include, for both provinces, equipment items required for expressway operation and maintenance, strengthening of central laboratories, and environmental monitoring. In the case of Hubei, selected equipment items for RDB and PMS development as well as for the maintenance of the provincial highway network are also included. In Hunan, the equipment list has taken into consideration those items that were already procured under the ongoing Second National Highway Project (Loan 4124- CHA). Project Sub-Component 1.6 - Construction supervision services for expressway sections, interconnecting and other roads US$22.8 million Based on the experience gained from on-going Bank-financed highway projects in China, a combined team of domestic engineers, technicians and other personnel and international consultants will supervise the above- mentioned, main highways and a team of domestic engineers, technicians and other personnel will supervise the interconnecting road programs. The international experts would be integrated into the supervision organization with operational responsibilities and would help establish procedures at all levels of the supervisory work, including on-site inspections and laboratory testing. In Hunan, the construction supervision organization for TCE would consist of a joint foreign/domestic core supervision team to be established with four foreign engineers (with a total of 110 person-months), with expertise in project/contract management, earth and pavement works, and traffic engineering. The core team would also include four domestic engineers and would be supported by a central laboratory to be staffed with 10 qualified domestic experts. For field supervision of 11 ICB civil works contracts, four resident engineer's Project Appraisal Document Page 48 Fourth National Highway Project County: China offices (REO) would be established in Linxiang, Yueyang, Dajin and Guangfu staffed with 110 persons. There would also be a logistics staff comprising 43 persons. A total of 177 domestic supervisors would be engaged corresponding to roughly one person per km of expressway construction. Domestic supervising engineers would provide some 8,400 person-months. In Hubei, the supervision organization for construction of ZTE would consist of a joint foreign/domestic core supervision team to be established with 4 foreign engineers (with a total of 108 person-months) with expertise in project/contract management, earth and pavement works, and traffic engineering. This core team with 30 domestic staff will be located in Wuhan and will be supported by a central laboratory in Xianning to be staffed with 10 qualified domestic experts. For field supervision of 9 ICB civil works contracts, REOs will be established. They will be staffed with 130 domestic engineers for field supervision corresponding to more than one engineer per km of expressway construction. Domestic supervising engineers will provide some 6,200 person-months. Supervision of civil works for other roads would be carried out by qualified domestic supervision teams acceptable to the Bank. Project Component 2 - Institutional Strengthening/Capacity Building US$4.9 million (total cost of component) Project Sub-Component 2.1 - Studies/technical assistance in highway maintenance management, transport and trade integration, expressway commercialization and corporatization; and road safety For detailed information see Annexes 4 and 5. Project Sub-Component 2.2 - Staff training programs, covering all aspects of highway planning, design, construction, operation, finance and maintenance The Training Programs under NH2 and NH3 already included a first attempt of training needs under the NH4 project. These Training Programs under NH2 and NH3, together with the outcome of the draft Institutional and Policy Development Plans have formed the basis for the training and education needs under the NH4 project. Some of the training, as started under NH2 and NH3 will continue under NH4, e.g. training of supervisors. However, under NH4 there will be an extended need of training in the fields of computerized information systems, road safety, and quality control. In both provinces, the training programs for NH4 include the specific needs of training for the Training Institutes, the Design Institutes and the Research Institutes with regard to their important roles in the development of the Hunan and Hubei highway sectors. In a rapidly developing society as at present in China, training and education of personnel on all levels is essential. Therefore, a systematic approach would be taken on training. This would also build upon the outcomes of the World Bank financed TA presently being undertaken which is aiming at analyzing highway sector training activities both in China and abroad and trying to systematize follow-up and evaluation of training activities in the highway sector. Project Component 3 - Front-end Fee US$3.5 million (total cost of component) Project Component 4 - Land Acquisition and Resettlement US$60.6 million (total cost of component) Project Appraisal Document Page 49 Fourth National Highway Project County: China ANNEX 4: POLICY AND INSTITUTIONAL REFORM PROGRAM Fourth National Highway Project 1. Introduction 1.1 The economic system in China is undergoing major changes towards a market orientation and these changes will involve many reforms in the transport sector. These reforms will put substantial pressure on China's highway organizations and specifically on their manpower. Therefore, there is great need for modem and new thinking which can be achieved through training and education, the use of modem methods and equipment and through policy and institutional development. These issues were already discussed in part under the Second National Highway Project (NH2) in Hunan and the Third National Highway Project (NH3) in Hubei. 1.2 In discussions with the two PCDs in Hunan and Hubei, it was agreed that project activities under Policy and Institutional Reform would need to be coordinated for NH2 and NH4 in Hunan and for NH3 and NH4 in Hubei. This approach would generate a good degree of stability for policy and institutional reform over a relatively long period of 6 years. The reform activities would concentrate on Institutional and Policy Reforms. Important areas in the development of modem thinking in infrastructure planning and implementation comprise road traffic safety, environmental issues and quality control. Structural and system consequences of further steps towards a market economy will also need to be analyzed. 1.3 During NH4 preparation it was agreed by the Hunan and Hubei PCDs that the following should serve as the guiding principles for the policy and institutional development process: Since China's development direction is towards a socialist market economy, sector medium to long term objectives would be: (i) to stimulate competition in the highway sector; (ii) to continuously increase the knowledge base of personnel; (iii) to improve the quality of products and services; (iv) to pay greater attention to environmental aspects; (v) to reduce the number of road traffic accidents; and (vi) to increase efficiency by developing and using modem equipment and management systems. A. HUTNAN PROVINCE 2. Institutional Reforms Institutional Development Plan 2.1 To create a framework for the concept of Institutional Development it was agreed that an Institutional Development Plan for the coming 6 years would be developed. The Plan would serve as an overview of and guideline for the entire process and cover organizational development and strengthening as well as training and education needs, necessary equipment, and management systems. A draft Institutional Development Plan Project Appraisal Document Page 50 Fourth National Highway Project County: China was discussed and agreed during the NH4 pre-appraisal and appraisal missions in November 1998 and March 1999, respectively. The Plan covers the NFI12 and NH4 projects; it also outlines an estimated cost splitting between the two projects. The Plan underlines the interrelationships between the development plan, the training program, the management systems to be used and the equipment list. The plan would serve as the basic document for future institutional development under the two Bank highway projects. 2.1.1 Actions agreed (Institutional Development Plan) Outputs: - An annual updated core document for the development of the highway sector. Outcomes: - Continuing dialogue and development process over a period of 6 years, which leads to a continuously improved and extended plan. Indicators: - Annual update and progress report to be presented at the yearly workshop with the Bank on institutional development and road safety. Organizational Development 2.2 Organizational development and strengthening activities as started under NH2 will be evaluated and further developed under NH4. The important role of the Training Institutions in the change process from the former planned economy to the new market oriented system has been reflected in the Training Program and so have the strengthened roles of the Design Institute and the Research Institute. This is also in accordance with the objectives expressed in the Institutional Development Plan. 2.3 During project preparation discussions were held about strengthening the Project Office by furnishing it with specialists in road safety. These specialists would have a controller function and advice the Director of the Project Office in road safety matters from the design stage until a project has been completed. Skilled personnel who will be given special training abroad in management and the use of modem techniques and methods would be appointed. After completing the NH4 project, these professionals would be given permanent positions within HPCD where the best use of their know-how can be made. HPCD has agreed to furnish the Project Office with road safety expertise in accordance with the above. The Bank received a work program for the road safety controller function. The program was jointly reviewed by the Bank and HPCD and agreed at negotiations. 2.3.1 Actions agreed (Road Safety Specialists) Outputs: - Documentation of findings (good as well as bad) and experiences gained, e.g. from countermeasures carried out. - Execution of safety components under the project. Outcomes: - Increased know-how on safety. - Increased road safety activities under NH2 and NH4 projects. - Road safety work to be institutionalized under HPCD. Indicators: - The results would be presented at the yearly TEA meeting and at the annual HPCD and Bank mission progress workshop. - Work reports after completion of each stage of work. - Final reports on lessons learned and recommendations. - In a longer perspective reduced number of serious accidents (before and after introduction of findings and what has been developed). Project Appraisal Document Page 51 Fourth National Highway Project County: China Training and Education 2.4 The Training Program agreed under NH2 together with the Institutional Development Plan have formed the basis for the training and education needs under the NH4 project. Some of the training that was started under NH2 will continue under NH4, e.g. training of supervisors. However, under NH4 there is an extended need of training in the field of computerized information systems, road safety and quality control. There are also specific training needs for the Training Institutes, the Design Institute and the Research Institute with regard to their important roles in the future development of the Highway Sector in Hunan. This has all been reflected in the NH4 training program. It was agreed that the training program that would be adjusted annually would be in accordance with what is outlined in the Institutional Development Plan and what has been stated in the previous two sections above. The training to be executed in 1999 and 2000 has already been coordinated with the training under the NH2 project. In total, there are 110 staff who would attend overseas training and 499 staff who shall attend domestic training under NH4. The total cost for overseas training under NH4 is estimated at about US$ 0.96 million. The revised version of the training program (NH2 and NH4) complete with planned overseas training and domestic training was sent to the Bank and agreed at negotiations. 2.4.1 Actions agreed (Training and Education) Outputs: - Number of people that have taken part in the training according to the program. Outcomes: - New know-how in use. Indicators: - Percentage of trained staff who are able to use the new know-how in their daily work. - Progress report presented at the yearly workshop with the Bank on institutional development and road safety. - To fulfill its purpose, the training program shall be revised and extended every second year. Management Systems Road Information System (Road Data Bank) 2.5. The basic prerequisite for all modem management of roads is precise and timely information about the actual status of the road networks and the traffic and its environment. This information is used on a day to day basis both for planning, construction and maintenance activities as well as for monitoring and evaluation of work carried out. This information is normally stored in a Computerized Data Bank (Road Data Bank or RDB). Without this easily accessible information it would not be rational to have other management systems such as PMS and BMS. 2.6 A study as initiated under NH2 on Highway Maintenance Management will support the development of PMS and BMS. These two systems are directly interrelated with the Road Data Bank since they will receive part of their input data from the RDB. 2.7 In November 1997 the Bank preparation mission was informed that there is an ongoing project aiming at introduction of a Road Data Bank in Hunan Province. This RDB shall be designed and developed in accordance with the model developed by MOC, which has already been introduced in several other provinces in China. In this way, HPCD can benefit from the experiences gained in these provinces where the RDB is already installed. It could possibly also get some TA services from there. In line with this approach, the training of technical staff involved in the development and application of the RDB would take place in China. 2.8 During NH4 pre-appraisal and appraisal the Bank received progress reports on the development of the RDB in Hunan. A technical team has been established, on the provincial level and in each of the prefectures for the development work on RDB. Two training courses on RDB have been carried out in April 1998. Project Appraisal Document Page 52 Fourth National Highway Project County: China Guidelines for data collection are under development by using the experiences gained in other provinces. A leading group at the provincial level will carry out supervision on the progress in each prefecture and a special technical group at the provincial level will supervise the technical staff working on the RDB in the various prefectures. The provincial data bank is planned to be established by the end of 1999 and the RDB on the prefecture level as well as on the provincial level is planned to be in operation in 2003. The concept of RDB development was agreed. It was also agreed that a detailed review of the ongoing RDB development would be carried out during the coming Bank supervision missions under NH4. 2.8.1 Actions agreed (Road Information System, RDB) Outputs: - Phase 1, establishment of a provincial RDB by the end of 1999. - Phase 2, establishment and application of RDB in each prefecture and city of the province, by the end of 2003. Outcomes: - Phase 1, an RDB system consistent with MOC recommendations and adjusted to the needs in Hunan Province. - Phase 2, integrated with the PMS and BMS systems it will lead to increased efficiency in planning and maintenance of roads, which in a longer termn perspective will have a positive effect on traffic flow, traffic safety and quality of work carried out. Indicators: - Phase 1, a progress report would be available and presented at the HPCD/Bank mission progress workshop in October 1999. - Phase 2, by the end of year 1999 the Leading Group shall give its final acceptance for the implementation of RDB in the whole Province (Prefecture and City level). - The RDB system on all levels shall be in operation by the end of 2003. - Progress reports shall be presented at the yearly workshop with the Bank on institutional development and road safety. Quality Management System 2.9 Changes in the Highway Sector in Hunan will create more pressure on quality. Good quality, specifically in the area of civil works construction, is a crucial factor when shifting to an increased use of contractors, and this is a shared responsibility between the Highway Administration as owner, the contractors and the supervision engineers. 2.10 Given that the Bank has been and continues to remain involved in the Highway Sector in China since 15 years, with over 20 highway projects and in excess of US$4.0 billion in lending, substantial experience in engineering, construction, supervision and quality control has been accumulated. Big differences have been noticed by Bank highway staff in the quality of construction among highway projects in different provinces, among highway projects in the same province, and even among contracts on the same highway project. Many of the domestic contractors employed in these projects have shown to be capable of producing good quality high-grade road works but frequently not consistently over time. 2.11 The Bank and HPCD have discussed over an extended period how to improve the Quality Management System for road works. This dialogue would result in recommendations and their implementation on a Quality Management System suitable for the conditions of civil works construction in Hunan Province. The system would focus on the design, construction and maintenance of roads and be easy to understand and apply on road works in the Province. 2.12 The Hunan Provincial Communication and Construction Quality Supervision Station (HPCCQSS) was established in 1994 and ever since has been responsible for all quality control matters within the Highway Administration. It was agreed that a programn would be undertaken to strengthen the HPCCQSS with modem know-how (including four staff to be trained in quality control management), modem equipment and software. Project Appraisal Document Page 53 Fourth National Highway Project County: China After completion of the training, the new quality control management system would be tested and evaluated under the NH4 project. A program on the strengthening of HPCCQSS was jointly reviewed and agreed. 2.12.1 Actions agreed (Quality Control Unit Development Program) Outputs: - Quality assurance key factors checklist. - A system for quality control. - An organizational set up on Provincial and Prefecture level. Outcomes: - Increased focus on quality. - Increased know how through training and education. - Quality control being institutionalized as part of HPCD. - A systematic operation and management process for improved quality in the Province. - Increased percentage of work with good quality. Indicators: - Progress report on experiences obtained, 1999. - Progress report on checklist preparation, 1999. - Progress report on training in the yearly workshop, 1999-2000. - Progress reports on results achieved, 2000- 2002. - Final report on quality improvements made, 2002. - The model should gradually be applied on road activities in the whole Province. - Progress reports presented at the yearly workshop with the Bank should cover problems, measures taken, and results. 3. Policy Reforms Development of Competition in the Highway Sector 3.1 To increase the efficiency of the highway sector, there is an urgent need to use the power of competition. Competition will certainly affect both the competing contractors outside the Highway Administration and the force account units within the Highway Administration. If there is a solid desire to increase the competition in the sector, it should be the responsibility of the Highway Administration. 3.2 Continued discussions were held about how to increase competition in the Highway Sector in a way that could be acceptable and feasible. During the NH4 preparation process, a suggestion on a stepwise process was introduced, as follows: * Creation of initial competition within the Highway Sector for road maintenance, by establishing a number of internal maintenance "companies" and by providing them with manpower and equipment. These "companies" would bid in competition on various maintenance activities within a specified geographical area of the road network. * Successful "companies" would earn more money than the less successful ones. * After a certain period of time, the most successful "companies" could become independent companies and establish themselves in the market, either as public contracting corporations or, preferably, as private or at least public/private contractors. 3.3 It was agreed that the above-suggested development process of the maintenance policy and organizational framework is interrelated with the work being carried out under the Highway Maintenance Study and therefore should be integrated as a part of that process which is underway under NH2. HPCD has drafted a program on how this process could be introduced in a stepwise fashion. This program which was reviewed and discussed during NH4 pre-appraisal and appraisal was found to be well structured and constitutes a realistic first development step towards the contracting out of maintenance works and the creation of a provincial maintenance contracting industry. However, during pre-appraisal and appraisal missions it was agreed that the program needed to be revised, updated and completed. The mission received a revised Project Appraisal Document Page 54 Fourth National Highway Project County: China program as regards development of competition in the highway sector. It was reviewed and agreed at negotiations. 3.3.1 Actions agreed (Development of Competition) Outputs: - Organizational simplification and functional changes. - A new maintenance management model (policy). - System reform as regards staffing, labor organization and deployment (policy). - Reform of maintenance operation (policy). Outcomes: - Increased competition in road maintenance. - Adapted market oriented management philosophy. - Increased efficiency in maintenance work. - Improved cost/outcome know-how on all levels. - Improved personnel resource planning. - Increased percentage of roads in good condition. Indicators: -Progress report on training coupled to the component. - Progress report on development and execution of the bidding system for maintenance work. - Progress report on the trial stage. - Progress report on the spreading stage: (i) maintenance firms to be established in 60% of the highway bureaus at the county level in all Prefectures, year 2000; (ii) new employment system to be introduced in highway bureaus on the county level; (iii) management by objectives (MBO) being introduced. - Progress report on the completion stage: (i) establishment of maintenance firms in the whole Province to be completed;. (ii) employment system to be executed for leaders in the highway bureaus at Prefecture level; (iii) MBO for leaders developed; (iv) promotion of the new deployment system. - Progress report on staff planning and how it has been solved in practice. - Progress reports to be presented at the yearly workshop with the Bank on institutional development and road safety. - Final report 2004. Road Classification 3.4 The functional classification of road networks is a rather permanent but also an evolving process for development of the road network. It must be undertaken periodically, especially when substantial changes have occurred in the location of residences, economic activities, or within geographical area boundaries, when trade routes are recast, when major changes in transport policies occur or when travel patterns have altered. 3.5 Often road reclassification leads to a more efficient road network, one which is consistent either with occurred changes in economic development or planned changes. In both cases the updated functional classification enables better allocation of tight funds for maintenance, rehabilitation/reconstruction, upgrading or new construction to reach the policy objectives. 3.6 In November 1997 the Bank was informed that a review of the classification of the road network in Hunan Province had been ongoing for some time and that this exercise was completed in August 1997. This will lay a good foundation for the future dialogue on, among other things, the development of maintenance standards in the Province (see section on Maintenance Cost and Fund Allocation Study below). Project Appraisal Document Page 55 Fourth National Highway Project County: China Studies Maintenance Cost and Fund Allocation Study 3.7 In China today, there is a great need for new road capacity and the volume of new roads under construction is at present the highest in the world. However, the maintenance of existing roads will in the near future, if maintenance continues to be neglected, become a growing problem. Lack of adequate maintenance will in due time affect the whole transport system, with negative effects on the development of the economy. 3.8 It has been agreed that a study would be carried out to develop a suitable system (including a new Policy) for the allocation of funds for road maintenance. The first step towards such as system and policy would be to define the lowest acceptable maintenance standard level for each class of road in the network. A 'cost per kilometer of road' estimate should be identified to achieve the defined minimum level. This in turn would make it possible to optimize the fund allocation and distribution on various administrative levels (i.e. provincial, prefecture and city) with due regard to identified demands from the economy's point of view. This study will be closely related to the Highway Maintenance Management Study under NH2. It was therefore agreed to integrate the maintenance cost and fund allocation study into the Highway Maintenance Management Study work. 3.9 An Expressway Commercialization and Corporatization Study and a Highway Maintenance Management Study are being carried out under NH2. The Highway Maintenance Management Study is almost a prerequisite for the ongoing development of PMS and BMS. As regards the Expressway Commercialization and Corporatization Study which will analyze the options available to Hunan to establish a provincial toll road corporation or authority, MOF and MOC will need to be involved during implementation of study results under NH4. HPCD confirmed that it has the firm intention to start the implementation of results from the two studies as soon as possible. 3.9.1 Actions agreed (Highway Maintenance Management and Maintenance Cost and Fund Allocation Studies) Outputs: - A long term activity plan. - A conceptual model on PMS and BMS systems integrated with the RDB. - A maintenance cost and fund allocation model. Outcomes: - A sustainable system for maintenance activities. - Increased efficiency by using PMS, BMS and RDB. - Principles on fund allocation (policy). Indicators: - Principles on fund allocation approved by HPCD by the end of 2000. - Introduction of PMS and BMS should be coordinated with the RDB development so these three systems could benefit from each other. - Long term maintenance activity plan should be available 24 months after commencing the study. - Progress reports to be presented at the yearly workshops with the Bank on institutional development and road safety. 3.9.2 Actions agreed (Expressway Commercialization and Corporatization Study) Outputs: - A report on options to establish a Provincial Toll Road Corporation/Authority. Outcomes: - Increased efficiency to administer toll roads in the Province. Indicators: - The principles agreed on by higher governmental level. - Establishment of such an organization under NH4. - Evaluation report 2 years after the establishment. - Progress reports to be presented at the yearly workshop with the Bank on institutional development and road safety. Project Appraisal Document Page 56 Fourth National Highway Project County: China Hunan-Hubei Transport and Trade Integration Study 3.10 The NH4 project would also include a Transport and Trade Integration Study for Hunan and Hubei Provinces, to be jointly executed by the Hunan and Hubei PCDs. Agreement was reached that the study would concentrate on inter-provincial transport and trade issues in the Wuhan - Changsha expressway corridor which will link the two inland economies of Hunan and Hubei more closely together, once the expressway under NH4 is completed. The Bank had earlier provided the two HPCDs with sample TOR of a similar study from Guangdong Province. During appraisal the mission received a revised version of the TOR for the Hunan- Hubei Transport and Trade Integration Study which was agreed. 3.10.1 Actions agreed (Hunan-Hubei Transport and Trade Integration Study) Outputs: -Report on the existing situation and a prediction until year 2020. Outcomes: -A basis for planning of investments in various transport modes and facilities. Indicators: -The startup seminar in the beginning. -The seminar at the end of the study. -Progress report at the yearly workshop with the Bank on institutional development and road safety. B. HUBEI PROVINCE 4. Institutional Reforms Institutional Development Plan 4.1 To create a framework for the concept of Institutional Development it has been agreed that an Institutional Development Plan for the coming 6 years would be developed. The Plan would serve as an overview of and guide for the entire process and cover organizational development and strengthening as well as training and education needs, necessary equipment, and management systems. The Plan will cover the NH3 and NH4 projects, it would also outline the estimated cost splitting between the two projects. The mission received a draft version of the Institutional Development Plan and it was agreed. 4.1.1 Actions agreed (Institutional Development Plan) Outputs: - An annual updated core document for the development of the highway sector. Outcomes: - Continuing dialogue and development process over a period of 6 years, which leads to a continuously improved and extended plan. Indicators: - Annual update and progress report to be presented at the yearly workshop with the Bank on institutional development and road safety. Organizational Development 4.2 Organizational development and strengthening activities started under NH3 and will be evaluated and further developed under NH4. The important role of the Training Institutions in the change process from the former planned economy to the new market oriented system has now been reflected in the Training Program and so have the strengthened roles of the Design Institute and the Research Institute. This is also in accordance with the objectives expressed in the Institutional Development Plan. 4.3 Under the NH3 project, the Project Office has been strengthened by adding competence in the fields of Road Traffic Safety, Quality Control and the Enviromnent. This was achieved by creating three specialist units for these matters. These units will cooperate closely with other organizations concerned and their staff Project Appraisal Document Page 57 Fourth National Highway Project County: China will undergo special training abroad. Part of that training will be carried out under NH4. These three units are now in operation and will concentrate on making sure that these three important project areas are adequately covered in the Bank's two highway projects (NH3 and NH4). The work program for the new units was agreed during pre-appraisal and appraisal missions. 4.3.1 Actions agreed (Road Safety Unit) Outputs: - Documentation of findings (good as well as bad) and experiences gained, e.g. from countermeasures carried out. Outcomes: - Increased know-how on safety. - Increased road safety activities under NH3 and NH4 projects. - Road safety work to be institutionalized under HPCD. Indicators: - The results should be presented at the yearly TEA meeting and at the annual HPCD and Bank mission progress workshop. - In a longer perspective a reduced number of serious accidents, measured 2 years after project completion. 4.3.2 Actions agreed (Quality Control Unit and Quality Management System) Outputs: - Project Office strengthened by establishment of the quality control unit. - Documentation of standards (policy) for road related products and services. - A system for quality control. Outcomes: - Increased focus on quality. - Quality control being institutionalized as part of HPCD. - A systematic operation and management process for improved quality in the Province. Indicators: - The Leading group has approved the quality standards (policies), by the end of 1999. - The model should gradually be applied on road activities in the whole Province in accordance with the work plan (and not wait until the project period is over). - Progress report presented at the yearly workshop with the Bank (problems, measures taken, and results) on institutional development and road safety. Training and Education 4.4 The Training Program that was earlier prepared under NH3 also included a first attempt of training needs under the NH4 project. The agreed Training Program under NH3 together with the draft Institutional Development Plan have formed the basis for the training and education needs under the NH4 project. Some of the training has started under NH3 and will continue under NH4, e.g. training of supervisors. However, under NH4 there will be an extended need for training in the field of computerized information systems, road safety and quality control. This is well documented in the training program for NH4. The training program under NH4 has been structured in the same way as the one under NH3. This is to ensure full compatibility and coordination between the two programs. The Bank has received a final version of the Training Program and it was agreed at negotiations. 4.4.1 Actions agreed (Training and Education) Outputs: - Number of people that have taken part in the training according to the program. Outcomes: - New know-how in use. Indicators: - Percentage of trained staff who are able to use the new know-how at the daily work. - Progress report presented at the yearly workshop with the Bank on institutional development and road safety. To fulfill its purpose, the training program shall be revised and extended every second year. Project Appraisal Document Page 58 Fourth National Highway Project County: China Management Systems Quality Management System 4.5 Changes in the Highway Sector in Hubei will create more pressure on quality. Good quality, specifically in the area of civil works construction, is a crucial factor when shifting to increased use of contractors, and it is a shared responsibility between the Highway Administration as owner, the contractors and the supervision engineers. 4.6 Given that the Bank has been involved in the Highway Sector in China since 15 years, with over 20 highway projects and in excess of US$4.0 billion in lending, substantial experience in engineering, construction, supervision and quality control has been accumulated. Big differences have been noticed by Bank highway staff in the quality of construction among highway projects in different provinces, among highways in the same province, and even among contracts on the same highway project. Many of the domestic contractors employed in these projects have shown to be capable of producing good quality high- grade roads, but frequently not consistently over time. 4.7 The quality problems in Hubei would be tackled in two steps: First, quality standard levels for various products and services would be defined (a policy) to guide the supervision and control of quality. Secondly, a suitable system for how to ensure good quality and how to control it would be developed. The know-how regarding quality matters needs to be available within the organization, given that work for improving the quality is a never ending process. Basically, it is a matter of attitude and know-how. 4.8 A Quality Control Unit has been established in the Project Office. It would develop routines as well as a program on how to identify suitable quality standards for various road related activities (products and services). The work would be based on what has already been developed by MOC and would result in recommendations on quality standards suitable for the conditions in Hubei Province. This development work would focus on the design, construction and maintenance of roads and the resulting quality control system should be easy to understand and apply on road works in the Province. 4.9 The Bank has received a revised program for the Quality Control Unit and it was agreed at negotiations. 4.9.1 Actions agreed (Quality Management System) (see under Organizational Development 4.3.2) Road Informnation System (Road Data Bank) 4.10 The basic prerequisite for modem management of roads is precise and timely information about the actual status of the road networks and the traffic and its environment. This information is used on a day to day basis both for planning, construction and maintenance activities and for monitoring and evaluation of works carried out. This information is normally stored in a Computerized Data Bank (Road Data Bank or RDB). Without this easily accessible information it would not be rational to have other management systems such as PMS and BMS since they receive some input data from the RDB. A study on Highway Maintenance Management is being executed under NH3 and will cover the need of integration between all these systems. 4.11 Past experience from other countries has clearly shown that it is feasible to build up in a stepwise fashion an Information System based on a Road Data Bank (RDB). The information covered in a first phase should include only basic data. A limited geographical test area would be chosen and all types of data as needed would be collected and stored from that test area. This makes it possible to test and adjust the system before implementing it in the whole Province. In Hubei Province Ezhou city has been chosen as test area. To Project Appraisal Document Page 59 Fourth National Highway Project County: China develop and implement an RDB system would normally take 2-3 years. However, by using the experiences gained in other provinces in China the development time can be shortened. Hubei Province has been in contact with Shanxi Provincial Communications Department which has successfully developed an RDB system. Based on the experiences gained in Shanxi Province TOR for the initial phase of the RDB development have been developed and agreed during project appraisal. 4.11.1 Actions agreed (Road Information System, RDB) Outputs: - Phase 1, on a small scale development and testing of an RDB system in the test area of Ezhou city (National and Provincial roads only). - Phase 2, distribution and application of RDB in each prefecture and city of the province. Outcomes: - Phase 1, an RDB system consistent with the MOC recommendations and adjusted to the initial needs in Hubei Province. - Phase 2, integrated with the PMS and BMS systems it will lead to an increased efficiency in planning and maintenance of roads, which in a longer perspective will have a positive effect on traffic flow, traffic safety and quality of work carried out. Indicators: - Phase 1, progress reports should be available every six months, and a final report not later than 18 months from project start. - Phase 2, by the end of year 2000 the Leading Group shall give its final acceptance for the implementation of RDB in the whole Province. - The system shall be in full operation in 2003. - Progress reports (phase 1 and 2) shall be presented during the yearly workshop with the Bank on institutional development and road safety. 5. Policy Reforms Development of Competition in the Highway Sector 5.1 To increase the efficiency of the highway sector, there is an urgent need to use the power of competition. Competition will certainly affect both the competing contractors outside the Highway Administration and the force account units within the Highway Administration. Contractors outside the Highway Administration need to improve their know-how since they have so far in Hubei not been in a situation allowing them to learn how to carry out maintenance activities. Accordingly, they are lacking know- how about, e.g. the requirements of quality and service levels in road maintenance. 5.2 Referring to the basic principles that have been agreed with HPCD in Hubei to guide the work of developing and strengthening competition in the Highway Sector, it should be a responsibility of the Highway Administration to stimulate the organizations outside the Highway Administration to enable them to become competent partners. During NH4 project preparation continued discussions were held about a concept on how to increase competition in a way that could be acceptable and feasible and that would give due respect to the administrative and cultural obstacles which at present are at hand. The Bank was informed that during the last few years HPCD has initiated such steps by establishing a number of internal engineering (i.e. maintenance) "companies" under HPCD and by giving them both manpower and equipment. These "companies" are bidding in competition on various maintenance activities within a specified geographical area of the road network. Successful "companies" earn more money than the less successful ones and they are allowed to use their funds to develop their ability and compete in the market. 5.3 To continue the development of competition in the Highway Sector it has been agreed that a study would be carried out to identify the organizations outside the Highway Administration which possibly, in the near future, could become competent partners for carrying out maintenance works. After having analyzed the Project Appraisal Document Page 60 Fourth National Highway Project County: China list of such organizations a decision would be made on carrying out a test in a limited geographical area to compare the cost as well as the quality of the works carried out by contractors with similar works carried out by force account units (or by "internal companies" under HPCD). During appraisal mission a draft program for this study was discussed and agreed. 5.3.1 Actions agreed (Development of Competition) Outputs: - A list of firms/companies inside as well as outside the Highway Administration sector that would be capable to carry out periodic as well as routine maintenance work. - Testing of such firms/companies in a limited test area. - Analysis and documentation of the results with regard to costs and quality. Outcomes: - A survey of the local market. - Increased competition. - A comparison between force account and "outside firms" regarding costs and quality which leads to increased know-how about the efficiency level. Indicators: - The list should be available after 2 months from start. - Selection procedure finished 2 months thereafter. - Establishment and start of the test I month after the firms have been selected. - Test period would last for 2 years. - Successive follow-up and progress reports every 6 months. - Progress presentation at the yearly workshop with the Bank on institutional development and road safety. - Evaluation report to be presented 2 months after finishing the test. Road Classification 5.4 The functional classification of road networks is a rather permanent but also an evolving process for development of the road network. It must be undertaken periodically, especially when substantial changes have occurred in the location of residences, economic activities, or within geographical area boundaries, when trade routes are recast, when major changes in transport policies occur or when travel patterns have altered. 5.5 Often reclassification leads to a more efficient road network, one which is consistent either with occurred changes in economic development or planned changes. In both cases the updated functional classification enables better allocation of tight funds for maintenance, rehabilitation/reconstruction, upgrading or new construction to reach the policy objectives. 5.6 The Hubei PCD informed the Bank that the review of the classification of the road network in Hubei Province has not yet been started since MOC has not so far initiated this review. However, when such a review will be carried out it will lay a good foundation for the future dialogue on, among other things, the development of maintenance standards in the Province (see section on Maintenance Cost and Fund Allocation Study below). Studies 5.7 An Expressway Commercialization and Corporatization Study and a Highway Maintenance Management Study are being carried out under NH3. The Highway Maintenance Management Study is almost a prerequisite for the ongoing development of PMS and BMS. As regards the Expressway Commercialization and Corporatization Study which will analyze the options available to Hubei to establish a provincial toll road corporation or authority, MOF and MOC will need to be involved during implementation of the study results under NH4. HPCD confirmed that it has the firm intention to start implementation of the Project Appraisal Document Page 61 Fourth National Highway Project County: China results from the two studies as soon as possible. The appraisal mission reviewed and agreed cost estimates for implementation of results of the two studies. 5.7.1 Actions agreed (Highway Maintenance Study) Outputs: - A long term activity plan. - PMS and BMS systems integrated with the RDB. - A maintenance cost and fund allocation model. Outcomes: - A sustainable system for maintenance activities. - Increased efficiency by using PMS, BMS and RDB. - Principles on fund allocation (policy). Indicators: - Principles on fund allocation decided on by the Leading Group by the end of 1999. - The introduction of PMS and BMS should be coordinated with the RDB development so these three systems could benefit from each other. - The long term maintenance activity plan should be available 24 months after commencing the study. - Progress reports to be presented at the yearly workshop with the Bank on institutional development and road safety. 5.7.2 Actions agreed (Expressway Commercialization and Corporatization Study) Outputs: - A report on options to establish a Provincial Toll Road Corporation/Authority. Outcomes: - Increased efficiency to administer toll roads in the Province. Indicators: - The principles agreed on by MOF and MOC. - Establishment of such an organization under NH4. - Evaluation report 2 years after the establishment. * Progress reports for every 6 months and presentation at the yearly workshop with the Bank on institutional development and road safety. Maintenance Cost and Fund Allocation Study 5.8 In China today, there is a great need for new road capacity and the volume of new roads under construction is at present the highest in the world. However, the maintenance of existing roads will in the near future, if maintenance continues to be neglected, become a growing problem. Lack of adequate maintenance will in due time affect the whole transport system, with negative effects on the development of the economy. 5.9 It has been agreed that a study would be carried out to develop a suitable system (including a new Policy) for the allocation of funds for road maintenance. The first step for such a system and policy would be to define the lowest acceptable maintenance standard level for each class of road in the network. A 'cost per kilometer of road' estimate should be identified to achieve the defined minimum level. This in turn would make it possible to optimize the fund allocation and distribution on various administrative levels (i.e. provincial, prefecture and city) with due regard to identified demands from the economy's point of view. This study is closely related to the Highway Maintenance Management Study under NH3. It was therefore agreed to integrate the maintenance cost and fund allocation study into the Highway Maintenance Management Study. 5.9.1 Actions agreed (Maintenance Cost and Fund Allocation Study) have been integrated as part of the Highway Maintenance Study (see para. 5.7.1) Project Appraisal Document Page 62 Fourth National Highway Project County: China Hunan-Hubei Transport and Trade Integration Study 5.10 The NH4 project would also include a Transport and Trade Integration Study for Hubei and Hunan Provinces, to be jointly executed by Hunan and Hubei PCDs. Agreement was reached that the study would concentrate on inter-provincial transport and trade issues in the Wuhan - Changsha expressway corridor which would link the two inland economies of Hubei and Hunan more closely together, once the expressway under NH4 is completed. The Bank had earlier provided the two HPCDs with sample TOR for a similar study from Guangdong Province. During appraisal revised TOR for the Transport and Trade Integration Study were agreed. 5.10.1 Actions agreed ( Hunan-Hubei Transport and Trade Integration Study) Outputs: -Report on the existing situation and a prediction until year 2020. Outcomes: -A basis for planning of investments in various transport modes and facilities. Indicators: -The startup seminar in the beginning. -The seminar at the end of the study. -Progress report at the yearly workshop with the Bank on institutional development and road safety Project Appraisal Document Page 63 Fourth National Highway Project County: China ANNEX 5: ROAD TRAFFIC SAFETY PROGRAM Fourth National Highway Project 1. Introduction 1.1 The road traffic accident situation in Hunan and Hubei Provinces, similar to other provinces and regions in China, is already serious, and as a result of rapidly increasing motorization and vehicle use, road traffic safety is becoming an even more serious problem which needs to be tackled in a systematic way. Actions to reduce road accidents and their consequences in terms of injuries and loss of life, damages to property and economic losses cover many fields. In Hunan and Hubei Provinces, as elsewhere in China, the responsibility for road traffic safety rests with the transport sector (HPCD) as well as with the public security sector (Traffic Police). The coordination lies with the Provincial Governments. The two HPCDs retain full responsibility for all aspects of road traffic safety in highway design, construction and maintenance. A. Hunan Province 2. Road Traffic Safety Development of Accident Information System (AIS) 2.1 The accident information system which is with the Public Security Sector (the Traffic Police) needs to be further developed and modernized to be able to serve the main purposes for road safety work in a broader perspective. Internal discussions in Hunan have started under the Traffic Engineering Association (TEA) in which the Traffic Police as well as HPCD are represented. As a result of these discussions, the Research Institute of the Public Security Sector and the Research Institute of HPCD have formed a working group for the development of a functional AIS covering the needs of both organizations. A prototype of such a system has now been developed and is ready for testing on the northern part of NR1O7. Data has been collected and a field survey is ongoing. The intention is to have it established for the northern part of NR107 during the NH2 project implementation period. The development work will continue aiming at having a system in place which can be used for other roads in Hunan as well. 2.2 Under NH4, HPCD has agreed to establish the AIS over the whole length of NR107 as well as starting up the development of AIS for the existing and fast growing expressway network in the province with the intention to have it in operation during the NH4 project implementation period. The Bank has provided HPCD with several examples of accident register forms used by the traffic police in other countries. 2.2.1 Actions agreed (Development of AIS) Outputs: -An accident information system model adjusted for the needs of HPCD as well as for the Traffic Police on the whole length of NR107. -An accident information system built on the experiences gained on NR107 for the whole expressway network in Hunan Province. Outcomes: -The AIS serves as an important information basis for decisions on measures to improved road safety. -The AIS serves as an important instrument to follow up results of measures taken. -Increased know-how about where and under which circumstances accidents have occurred. - Increased cooperation with the Traffic Police. Project Appraisal Document Page 64 Fourth National Highway Project County: China Indicators: -Progress reports at the yearly workshop with the Bank on institutional development and road safety. -Number of actions taken on NR107 based on the outcome from AIS. -Decision on implementing the AIS on all Expressways in Hunan Province. Provincial Road Safety Council 2.3 Due to the limited coordination and cooperation between HPCD and the Traffic Police and since at present there is no effective body for policy making and planning in the field of road traffic safety, a promising approach would be to establish a more formal and organized form for cooperation, not only involving the traffic police and HPCD but also other organizations concerned with road safety matters, e.g. health sector and education sector institutions. Such cooperative forms have been established in many countries and are often named Road Safety Council (RSC). 2.4 However, HPCD explained to the Bank that the difficulties in arranging such formalized cooperation at this point in time are too many, due to the very strong administrative boundaries between the sectors concerned. The Bank and HPCD therefore have agreed, at least for the time being, to wait with the initiation of such an organization. However, the Bank is of the strong opinion that for the future and within a broader highway sector reform perspective, such joint and well coordinated efforts among all concerned organizations in Hunan are needed, if the continuously increasing number of road accidents is to be reduced and the road traffic safety situation is to be improved in a serious manner. Road Maintenance Safety Measures 2.5 Agreement with HPCD was reached to pay more attention to safety actions related to road maintenance work. Therefore, a small study has been agreed to define the most cost-effective road safety measures (low cost) within the field of maintenance. The study would result in a number of accident prevention measures related to road maintenance activities. These could serve as good examples for maintenance actions that will increase the road safety situation, and serve as guidance in supervision of the road network. The examples from the study should be analyzed in detail and well documented so they are easy to understand and would apply in the daily maintenance work. After their compilation they would be distributed as recommendations to every maintenance unit on the local level (prefecture and city). 2.6 It was agreed that some examples on "road maintenance related safety measures" would be developed. The PCDs in Hunan and Hubei have agreed to develop an increased cooperation regarding the development of safety activities in road maintenance. Accordingly, it was agreed that before further steps with the Bank would be initiated, the outcome of these discussions between the Hunan and Hubei PCDs would need to be awaited. The Bank expressed its support for such an initiative and emphasized the importance of arranging the cooperation in a systematic way, so that both provinces would benefit from it in a long term perspective as well as ensuring that the results will be implemented. 2.7 It was agreed that in the same way as HPCD in Hunan develops an accident information system (AIS) from which Hubei Province will benefit, HPCD in Hubei Province would bare the main responsibility to develop examples on road maintenance related safety measures from which Hunan Province will benefit. The transferring of information and contribution from one another would take place in annual meetings between the two provinces. Project Appraisal Document Page 65 Fourth National Highway Project County: China Road Safety Seminars 2.8 The principal purpose is to create a better understanding of the importance of improved road safety through a series of Road Safety Seminars. The seminars started under NH2 and will continue under NH4. There will be a lot of important outcomes from these, some of the outcomes would be implemented under NH4 project. The outcomes would be evaluated and documented. It was agreed that the TEA seminars would be held on a yearly basis. To spread the road safety know-how more into the whole Province, Hunan will be divided into six regions. During the NH4 project implementation period, seminars will be held once in each of the six regions and an increased number of staff from the Prefectures and Counties will be invited to attend the seminars. In this way, the whole province will benefit from the outcome of the TEA-seminars and this will result in an increased awareness of the road safety problem. 2.8.1 Actions agreed (Road Traffic Safety Seminars) Outputs: -Documentation of presentations made at seminars. Outcomes: -Increased know-how about the road safety situation and how to tackle the problems. Indicators: -TEA-seminars to be held once a year during the project period. -During the project period one road safety seminar (TEA) shall be held in each of the six regions of the Province. The regional seminars should be built on experiences from other TEA seminars. Other Road Safety Activities (grouped) 2.9 Under NH2 a series of checklists is being developed for safety audit procedures in road planning and design. The continuation would be to introduce these principles to the organizations concemed and make them a routine to be used. Training courses need to be arranged for concemed engineers. It was agreed that the Hunan Design Institute (DI) would use these check lists in practical design work to ensure that safety aspects are considered at an early stage of project planning and design. The DI would as a first stage practice the use of the checklists on several projects and thereafter evaluate the results and eventually suggest how to improve the checklists before using them as a routine. 2.10 Under NH2 a study will be carried out on how to apply a scheme of the Safety Handbook issued by MOC (safety at roadwork sites) to verify if the regulations could be improved so as to be used in Hunan Province. A continuation could be to introduce these principles to the organizations concemed and make it a routine to be used. Locally based training courses are needed. Therefore, it was agreed that a test should be carried out in each Prefecture. Each Prefecture shall choose at least one project of significant size and when carrying out the construction work or maintenance work use the manual for "safety at road-work sites" developed under NH2. The results will be followed up with regard to the experienced safety for road workers as well for the road users when passing the work sites. 2.11 Under NH2 a pilot road safety program (identification and remedy of black-spots) for the northem part of NR1 07 will be carried out. The experiences gained will be compiled and a model will be developed on identification and remedy of black-spots. A continuation would be to introduce these principles to the organizations concemed and make it a routine to be used on other roads and road networks in the Province. Locally based training courses are needed. It was agreed that under NH4 project the full length of NR107 will be investigated with regard to existing black-spots. It was also agreed that remedy actions should be carried out on these black-spots under the project period. Further more HPCD has the ambition to spread this know- how on investigation and remedy of black-spots out into the whole Province. This will be done by presenting yearly reports from the work on black-spots in the TEA-seminars. Project Appraisal Document Page 66 Fourth National Highway Project County: China 2.12 Actions agreed (Other Road Safety Activities) Outputs: -Documentation of models to be used in safety audit procedures as well as in safety at road work sites and identification and remedy of black spots. -Training program for concerned staff. -Principles to be followed in the whole Province. Outcomes: -Increased know-how and ideas on some simple routines to be followed in the daily work, which leads to improved road safety. Indicators: -Presentation of findings and experiences gained at the TEA seminar once a year. -Presentation of the result at the annual workshop with the Bank on institutional development and road safety. -Number of prefectures where the new routines are in use. -Number of black-spots remedied in accordance with the agreed plan. B. Hubei Province 3. Road Traffic Safety Development of Accident Information System (AIS) 3.1 The need for an Accident Inforrnation System (AIS) has been discussed during NH4 project preparation. It has been agreed that an Accident Information System is a good tool for planning and follow-up of road traffic safety measures. The discussions have focused on the difficulties surrounding the practical arrangements for introducing an AIS in Hubei, caused by the fact that the Public Security Sector is responsible for the accident recording and the register, and that the register is not "open". The accident information system which is with the Public Security Sector (the Traffic Police) also needs to be further developed and modernized to become better able to serve the main purposes for road traffic safety work in a broader perspective. The Bank has suggested that discussions in this matter should be initiated under the Hubei Traffic Engineering Society (TES) where the Traffic Police as well as HPCD are well represented. A good opportunity would be the forthcoming road safety seminars arranged by the TEA. Provincial Road Safety Council 3.2 Due to the limited coordination and cooperation between HPCD and the Traffic Police and since at present there is no effective body for policy making and planning in the field of road traffic safety, a promising approach would be to establish a more formal and organized form for cooperation, not only involving the traffic police and HPCD but also other organizations concerned with road safety matters, e.g. health sector and education sector institutions. Such cooperative forms have been established in many countries and are often named Road Safety Council (RSC). 3.3 However, HPCD explained to the Bank that the difficulties in arranging such formalized cooperation at this point in time are too many, due to the very strong administrative boundaries between the sectors concerned. The Bank and HPCD therefore have agreed, at least for the time being, to wait with the initiation of such an organization. However, the Bank is of the strong opinion that for the future and within a broader highway sector reform perspective, such joint and well coordinated efforts among all concerned organizations in Hubei are needed, if the continuously increasing number of road accidents is to be reduced and the road traffic safety situation is to be improved in a serious manner. Project Appraisal Document Page 67 Fourth National Highway Project County: China Road Safety Seminars 3.4 The principal purpose is to create a better understanding of the importance of improved road safety through a series of Road Safety Seminars. The seminars started under NH3 and will continue under NH4. There will be a lot of important outcomes from these, some of the outcomes could be implemented under NH4 project. The outcome should be evaluated and documented. It was agreed that besides the TEA seminars to be held on a yearly basis in Wuhan a one day traffic safety seminar shall be arranged in each Prefecture. These seminars should to the extent possible benefit from the TEA-seminars. The objective of these Prefecture seminars is to increase the awareness about the road safety situation and the need to act. 3.4.1 Actions agreed (Road Traffic Safety Seminars) Outputs: -Documentation of presentations made at the seminars. Outcomes: -Increased know-how about the road safety situation and how to tackle the problems. Indicators: -TEA-seminars to be held once a year in Wuhan and during the project period a one-day safety seminar shall be held in each of the Prefectures in the Province. Other Road Safety Activities 3.5 Under NH4 a number of examples on Road Maintenance Safety Measures will be developed. Agreement with HPCD was reached to pay more attention to safety actions related to road maintenance work. Therefore, a small study has been suggested to define the most cost-effective road safety measures (low cost) within the field of maintenance. The study would result in a number of accident prevention measures related to road maintenance activities. These could serve as good examples for maintenance actions that will improve the road safety situation, and serve as guidance in supervision of the road network. The examples from the study should be analyzed in detail and well documented so they can serve as a useful tool in operational maintenance work. They would be distributed to each maintenance unit on the local level (prefecture and city). 3.6 The PCDs in Hunan and Hubei have agreed to discuss an increased cooperation regarding the development of safety activities in road maintenance. Accordingly, it was agreed that before further steps with the Bank would be initiated, the outcome of these discussions between the Hunan and Hubei PCDs would need to be awaited. The Bank expressed its support for such an initiative and emphasized the importance of arranging the cooperation in a systematic way, so that both provinces would benefit from it in a long term perspective as well as ensuring that the results will be implemented. 3.7 Under NH3 a series of checklists will be developed for safety audit procedures in road design and planning. A continuation would be to introduce these principles to the organizations concemed and make it a routine to be used. Training courses need to be arranged for concemed engineers. It was agreed that the Design Institute (DI) should use these checklists in practical design work in order to ensure that safety aspects are considered in an early stage of project planning and design. The DI should as a first stage practice the use of the checklists on several projects and thereafter evaluate the results and eventually suggest how to improve the checklists before using them as a routine. 3.8 Under NH3 a study will be carried out on how to apply a scheme of the Safety Handbook issued by MOC (safety at roadwork sites) to verify if the regulations could be improved so as to be used in Hubei Province. A continuation could be to introduce these principles to the organizations concerned and make it a routine to be used. Locally based training courses are needed. Therefore it was agreed that a test should be carried out in each Prefecture. Each Prefecture shall choose at least one project of significant size and when carrying out the construction work or maintenance work use the manual for "safety at road-work sites" as to be Project Appraisal Document Page 68 Fourth National Highway Project County: China developed under NH3. The results will be followed up with regard to the experienced safety for road workers as well for the road users when passing the worksite. 3.9 Under NH3 a pilot road safety program (identification and remedy of black-spots) for the Wuhan - Yichang Highway will be carried out. The experiences gained will be compiled and a model will be developed on identification and remedy of black-spots. A continuation could be to introduce these principles to the organizations concerned and make it a routine to be used on other roads and road networks in the Province. Locally based training courses are needed. It was agreed that in each Prefecture at least one road of significant length should be chosen and investigated with regard to black spots by using the model developed under NH3. A program for the remedy of these black-spots shall be developed and after implementation a follow-up analysis carried out. The results from the follow-up studies should be presented annually (e.g. on the TEA- seminar) in order to give important safety know-how to the organizations. 3.10 Actions agreed (Other Road Safety Activities) Outputs: -Documentation of good examples and procedures aiming at improved road safety. Outcomes: -Increased know-how and ideas on some simple routines to be followed in the daily work, which leads to improved road safety. Indicators: -Presentation of the results at the yearly TEA-seminar as well as at the annual workshop with the Bank on institutional development and road safety. -Number of black-spots remedied in accordance with the agreed plan. Project Appraisal Document Page 69 Fourth National Highway Project County: China ANNEX 6: CHINA'S EVOLVING HIGHWAY PROGRAM AND FINANCING ISSUES Fourth National Highway Project "Good roads, canals and navigable rivers, by diminishing the expense of carriage, put the remote parts of the country more nearly upon a level with the neighborhood of towns. They are upon that account the greatest of all improvements. " Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations, 1776. 1. Introduction 1.1 China's strong and sustained economic growth over the last 20 years has resulted in transport demand growth faster than the capacity and ability of the system to deal with it. However, China has historically underinvested in transport (less than 1.3% of GDP during 1980s compared to 3% in 1998), and its road network ranks among the sparsest in the world relative to geographic area and population. A few inter-provincial expressways have been built to date and about 20% of rural communities have no all- weather vehicular access. In recent years, governments at all levels have embarked on a major highway capital investment and improvement program. 1.2 At the end of 1998, China's road network exceeded 1.26 million km, but only a small part of the system, some 5,500 km, consisted of high capacity toll expressways, and another 15,000 km of other toll highways. 1.3 China is confronting a demand for new highway development and financing not presently experienced elsewhere in the world. China is making significant progress in revenue raising and construction funding, but continued progress will likely depend on the implementation of: (i) a well- defined legal and regulatory framework for private investors; (ii) a comprehensive system for raising and allocating highway user fees and other forms of finance; and (iii) a mature relationship between central government and the provinces to guide the financing and implementation of projects. 2. Scope of the Development Program 2.1 The focus of the national highway strategy is to complete the National Trunk Highway System (NTHS) of some 35,000 km of high-grade highways during 1999-2015 at a total cost of US$150 billion. Government attaches high priority to completing two north-south, two east-west corridors, and several corridors serving border areas and cross-border trade. The Ministry of Communications (MOC) has been developing the NTHS, consisting of 12 inter-provincial trunk expressways, spanning China and connecting the countries 100 biggest cities. To date, some 7,500 km of the NTHS has been opened to traffic. 2.2 Operating expressways by year-end 1998 totaled over 5,500 km in length. Present toll rates on China's expressways average in the range of US$0.03-0.05 for passenger cars and US$0.10-0.15 for buses, trucks, and other heavy vehicles. These levels are similar to toll rates in most other developing countries in Asia and Latin America. 2.3. In 1997, China invested US$13 billion in highways, of which US$0.7 billion was in World Bank loans (or about 5%). In 1998, to support the government's economic stimulus program (8% growth rate), highway spending was raised to US$26 billion, a 100% increase from 1997. Some 55% of this Project Appraisal Document Page 70 Fourth National Highway Project County: China investment (or US$14 billion) was allocated to NTHS construction, 30% (or US$8 billion) to provincial road development and the remaining 15% (US$4 billion) to rural road improvement. World Bank lending for highways in 1998 reached US$0.68 billion (or about 2.5% of the total). Annual multi- and bilateral lending to the sector in recent years is about US$1.2-$1.5 billion, with about 45% from the World Bank, 30% from ADB, and the remaining 25% from OECF. 2.4 Most observers agree that unless new sources of revenue are identified, China will experience a 30% funding shortfall in the highway sector over the next 15 years. To address these growing requirements, the country is exploring a variety of innovative financing techniques and sources of capital from both the public and private sectors. 3. Ability to Mobilize Capital 3.1 China faces a difficult challenge in mobilizing sufficient resources to meet future needs for the construction and maintenance of its highway system. 3.2 China's expanding financial markets are providing greater amounts of capital for new highway development, and at the same time, insulating the country from the effects of the Asian financial crisis. China's high personal savings rate has produced a total of over US$600 billion in the banking system in 1999, up 16.7% from last year. The government has targeted nearly US$40 billion in domestic debt issuance this year, of which a large part will be used for infrastructure development. 3.3 The challenges are for China to develop more highway projects which are bankable and can be evaluated on commercial lending criteria by local financial institutions. Many segments of the expanding NTHS are without the initial traffic volumes and near-term toll revenue potential necessary for private developers and commercial lenders to receive an adequate early return on their investment. Thus, the responsibility for much of this expressway construction will continue to rest with central and provincial highway agencies, and public revenues. 3.4 The central government has taken steps in recent months to shore-up the local financial sector in the aftermath of the closure of Guangdong International Trust and Investment Corporation (GITIC) and restructuring of many other ITICs due to their high foreign debt burden. Restrictions have been imposed on unauthorized foreign borrowings by the provinces and to limit the flow of foreign capital out of the country. The pace of highway asset securitization to raise private equity for new construction has also slowed considerably in recent months. The number of highway projects that can be marketed (those with strong traffic revenue potential) to private sector investors are insignificant compared to the sector's resource requirements. 3.5 China's new Highway Law, which was passed in 1997 and became effective in January 1998, provides for a new fuel tax to fund road construction and maintenance. This tax will possibly become effective in 1999, and will replace the current road maintenance fee. Public sector revenues will continue to be raised from passenger and freight surcharges, and various local fees and levies, including the vehicle purchase surcharge. Taken together, these sources produce a modest share of the country's total budget for highway development. Additional contributions from provincial entities, foreign and domestic financial markets, and the private sector will be necessary. 3.6 China's capital markets are undergoing a transition, with relatively undeveloped capacity for long- term infrastructure finance to a more dynamic, liquid supply of funding available on commercial terms for major infrastructure projects. The central government attaches a high priority to the attraction of foreign investment in highway projects, but in most cases, outside the coastal regions, these efforts have Project Appraisal Document Page 71 Fourth National Highway Project County: China not been successful so far. There are few bankable projects which are attractive to private investors as start-up toll roads, and this situation will likely not change in the foreseeable future. Coastal provinces such as Guangdong, Zhejiang, and Jiangsu have benefited from a higher concentration of population and economic activity, and thus, are able to attract private developers with projects having greater traffic and revenue potential. 3.7 New toll road projects pose significant construction and start-up risks for private developers. In addition, there are commercial risks which are related to future traffic volumes which are hard to define. China's BOT policy framework for private investors is still in the formative stage and until finally completed and implemented, new toll road projects with private investment are likely to be very few in number. 3.8 China is encouraging its state banks to make commercial loans to provinces for accelerated highway construction. These funds are available for a term of 5-10 years at rates comparable to the cost of U.S. treasury bonds, approximately 6%-8% presently. This new emphasis by the central government on improved capital flows for highways, among other sectors, is intended to help sustain China's GDP growth at a level of 8% for the foreseeable future and to overcome immediate transport bottlenecks that constrain economic growth. 3.9 Asset securitization is looked upon by the government as a viable technique for leveraging the value of existing highway assets to raise new capital for the construction of additional expressways. Asset securitization and China's approach to refinancing existing roads are intended to attract private investors without the construction and traffic risks normally connected to start-up "greenfield" toll roads. 3.10 Since mid-1996, 12 transactions have been completed in Hong Kong and Shenzhen with the issuance of H and B shares to foreign investors and another three transactions in Shenzhen with A shares for domestic investors. Total capital raised from these listings exceeds US$2 billion. 3.11 Until the onset of the Asian financial crisis in 1997/98, provincial agencies were of the opinion that share appreciation in the Hong Kong and Shenzhen equity markets would be enough to meet investors' demands for 20% plus returns without the payment of sizeable dividends from earnings. Now, with the downturn in the markets and flat, or volatile share prices over the past year, provincial attitudes may change. 3.12 To underline the present weakness of the international markets, three (non-highway) H share issues on the Hong Kong Stock Exchange have failed to materialize in early 1999. Circumstances are somewhat different in China's A-share market, where highway transactions are under consideration in the Beijing- Tianjin corridor and in Guangdong and Fujian, and possibly for other provinces in the near future. 4. Potential for Private Sector Participation 4.1 Since 1995, China's demand for private capital to finance its highway program continued at an unabated pace, triggering the flow of an estimated US$5-6 billion in new highway capital from private sources. 4.2 The bulk of the new capital from the private sector is equity investment. Over the past five years or so, provincial highway agencies have engaged in over 70 cooperative joint venture toll road projects valued at an estimated US$3-4 billion. These projects are almost always existing roads and bridges that are refinanced under 20 to 30-year concessions by Hong Kong developers and mainland partners. The proceeds are used to build or expand additional highways in the province. IFC has recently obtained Project Appraisal Document Page 72 Fourth National Highway Project County: China Board approval for its first investment in China's toll road sector, a US$16.1 million equity investment for Shanghai Midway Corporation. 4.3 China's experience with BOT development of highway projects is still evolving. Although the Junshan Bridge project was designated by the State Development and Planning Commission (SDPC) as one of its four original pilot BOT projects in 1994, this bridge is now under construction as a public sector project to connect the Jingzhu and Hurong expressways as part of the Bank's Third National Highway (NH3) Project. The experience gained from the evaluation of the Junshan Bridge as a BOT candidate is being applied in Hubei Province to an 85-km section of expressway northwest from Wuhan, which as a BOT project or public/private partnership, will be part of a future 650-km expressway system in the central region of the province. The Bank and Hubei Province have agreed to try to mobilize grant funding for a network-level analysis of the system in order to develop an adequate base of capital cost, revenue, and traffic data to discuss the new project with the private sector. Hubei is also considering the possibility of using an outside contractor/investor to provide operations and maintenance services for a large part of the expressway system. 4.4 China is continuing to emphasize the importance of securing long-term debt capital at relatively low interest rates as a key factor in making highway facilities affordable to a large segment of the population. The World Bank, OECF, and the Asian Development Bank are making important contributions in this area, and through continued work on a legal and regulatory framework for BOT investment, China hopes to secure the confidence and support of commercial lenders for long-term private borrowings in the highway sector. The country has already experienced some success in this regard through financial closure of BOT pilot projects in the power and water sectors. 4.5 Although China is making progress with the availability of medium-term debt in its domestic capital markets, foreign commercial banks and the capital markets appear quite reluctant at this stage to support new highway projects in China without access to sovereign guarantees. The solutions are in part institutional and policy, or framework, oriented. 4.6 The Bank is working with central and provincial governments to begin the organization of new toll road authorities at the provincial level with the power to raise and spend toll revenues, and to presumably leverage debt financing for construction and operation and maintenance (O&M) of their emerging expressway and other high-grade highway systems. Bank-financed expressway commercialization and corporatization studies are now underway in Hunan and Hubei provinces under NH2 and NH3, respectively. A new technical assistance initiative intended to develop a model highway shareholding company and provincial toll road authority has been agreed to recently with the Ministry of Finance and Fujian Province. 4.7 In the absence of a BOT policy decree to resolve uncertainties and concerns in the relationship between the central agencies and the provinces, international commercial banks and bond investors are reluctant to accept informal arrangements for setting future tariffs and making available hard currency to meet debt service payments and to repatriate profits to foreign developers. 4.8 China has proposed that the requirements for accessing long-term debt financing in the international markets be considered under a new technical assistance initiative with the Bank Group (IFC/FIAS/PPI- PSD) to revise and improve the existing BOT policy decree which has been pending before State Council for more than two years. This review would also include an assessment of recent pilot BOT projects in the power and water sectors, which unlike toll roads, have established markets and creditworthy offtakers. It may be the case in China that the financial returns needed for highway investors relative to the risks involved are different than the water and power sectors. Until these investors are satisfied with Project Appraisal Document Page 73 Fourth National Highway Project County: China the security and long-term financial viability of their venture, a policy decree will do little to alter the fundamental economics in most toll road projects. Certainly, however, the results of this new TA can give China new concepts and ideas for a policy, legal, and regulatory framework for private infrastructure projects and standard documentation for concessions in the highway, power, and water sectors. 5. International Comparison 5.1 A preliminary task team estimate of total private investment in toll roads globally during the period 1991-1998 would be in the range of US$20-25 billion for projects which have been completed. Private investment here is defined as including equity capital and non-government guaranteed commercial debt. A large part of this private sector capital contribution has in fact occurred in China where more than 70 brownfield concession transactions in the highway sector have been completed until end 1998 mobilizing in the order of US$4 billion. In addition, a dozen highway asset securitization (asset-backed financing) transactions have raised additional US$2 billion lifting the total private funding of toll highways in China during most of the 1990s to about US$6 billion. 5.2 On a country-by-country basis, to the extent that reliable information is available, private investments in toll roads appear as follows: (i) United States US$0.65 billion; (ii) United Kingdom US$0.9 billion; (iii) China US$6.4 billion; (iv) Hungary US$0.55 billion; (v) Malaysia US$3.5 billion; (vi) Mexico US$5.0 billion; (vii) Argentina US$2.0 billion; (viii) Brazil US$1.0 billion; (ix) Chile US$0.33 billion; (x) Colombia US$0.4 billion; (xi) Indonesia US$0.5 billion; (xii) Thailand US$0.4 billion; and (xiii) Philippines US$0.7 billion. The total of these 13 countries comes to US$22.33 billion which would amount to about US$2.8 billion per annum for the period 1991-1998. 5.3 It is to be noted that Spain, Italy and France are not included in this preliminary analysis although these three countries operate the largest toll road systems in Europe. However, much of their systems was completed in the 1970s and 80s and those toll road projects that are underway now seem to be quite limited and mostly in the development stage. Furthermore, it would appear that there was extensive government involvement, and continues to be, in motorway development occurring and planned in these three countries. Project Appraisal Document Page 74 Fourth National Highway Project County: China ANNEX 7: BANK INVOLVEMENT AND ACHIEVEMENTS IN CHINA'S HIGHWAY SECTOR Four 'h National Highway Project 1. Introduction 1.1 China has opened some 7,500 km of the National Trunk Highway System (NTHS) to traffic and has established a road network of 1.26 million km. The objective is to complete the NTHS, some 35,000 km of high-grade highways by 2015, and construct 130,000 km of provincial and rural roads by year 2000. The completed road network infrastructure is already contributing to the government's policy of integrating the national economy, removing inter-provincial trade barriers, and providing an all-weather access road system to low-income rural areas. One of the key objectives of the NTHS is to advance economic development in China's inland provinces, which have historically carried much of the country's poverty burden. A high-grade highway network is essential to the achievement of these goals, and it is in this area where the World Bank is making a significant contribution. 1.2 Despite this progress, China's highway sector faces important issues relating to construction quality, resource mobilization, maintenance, institutional management and financing, rural roads, and road safety. As China is making substantial progress, the central and provincial agencies are doing more to address issues in a systematic manner and with a higher sense of urgency and commitment. Sustained development of the NTHS is regarded as a critical means of dealing with remaining poverty in the country. The construction of the system provides an immediate economic stimulus and a permanent framework for long-term economic growth. Sectoral issues are being addressed with the Bank through policy dialogue, lending programs, and technical assistance, and in the context of a long-term strategic framework by focusing on key elements of policy and institutional reforms. 2. China's Evolving Highway Program 2.1 The government in 1998 raised its highway spending to US$26 billion, double the amount of the previous year. China's investment mix for the highway sector is broad-based: about 55% of this allocation was earmarked for the NTHS construction, 30% for the provincial road system, and the remaining 15% for rural road improvement. Public financing remains predominant, with external financing amounting to less than 10% of total. China is committed to maintain highway spending at the 1998 level in the foreseeable future, for which the availability of capital has become a serious, continuing challenge and will likely remain a formidable constraint to development. 2.2 The highway sector remains an important component of the Bank's country assistance strategy, among other things, to promote economic growth and alleviate poverty, close infrastructure bottlenecks, reduce regional disparities, and improve rural road systems for the poor. To this end, the Bank is promoting a new partnership between the central government and provinces to find better approaches to financing and managing the highway system. The Bank is also working with these groups to begin organization of new toll road authorities with financial responsibilities. In addition, the Bank is presently supporting studies related to commercialization and corporatization of expressways, and advising MOF on administrative issues related to a fuel tax. Project Appraisal Document Page 75 Fourth National Highway Project County: China 3. Scope of Bank Participation 3.1 World Bank lending for highways in China in 1998 reached US$0.68 billion (or about 2.5% of the country's US$26 billion program). In real terms and share of total spending, the Bank's contribution is down slightly from 1997, when China invested US$13 billion in highways of which US$0.7 billion was in World Bank loans (or about 5%). Annual multi- and bilateral lending to the sector in recent years is about US$1.2-$1.5 billion, with about 45% from the World Bank, 30% from ADB, and the remaining 25% from OECF. 3.2 Since 1983, the Bank has implemented a total of 21 highway projects with seven projects closed, focusing primarily on the NTHS. Four new highway projects are under active preparation while five more highway projects have been proposed for future Bank loan financing. Bank projects have incorporated institution building features and support both economic growth and poverty reduction objectives. 3.3 By 1998, total lending to China's highway sector exceeded US$4 billion. OED ratings indicate that the seven completed projects had satisfactory outcomes and are likely to sustain their benefits but had only modest institutional development impacts. Recent supervision ratings and the Quality Assurance Group's "projects at risk" report on ongoing projects indicate that all have satisfactory implementation progress and are likely to achieve their development objectives. The economic rates of return (ERR) for China highway projects range from 16%-39% at completion. 3.4 The Bank's highway lending achievements in China can be summarized as follows: (i) Expansion of road capacity to support development of coastal and inland provinces and trade and regional economic integration by adding 2,800 km of expressways; (ii) Upgrading and improvement of some 13,000 km of secondary and rural roads to support the rural development and poverty alleviation objectives; (iii) Institutional capacity building in provinces to sustain road planning and management, construction quality control, road financing, road maintenance, environmental and resettlement requirements, traffic safety, and to develop market-based pricing for highway services such as the establishment of road tariffs (tolls); (iv) Support to the road securitization initiatives by permitting the use of partially Bank-funded highway and bridge assets for securitization in the Hong Kong and Shenzhen equity markets by provincial expressway development companies in Guangdong, Sichuan, and Zhejiang. Similar transactions are under consideration in the Beijing-Tianjin corridor and in Guangdong and Fujian, and possibly for other provinces in the near future. 4. Primary Sectoral Issues and Reforms 4.1 The Bank's long-term involvement in China's highway sector has succeeded in addressing a wide spectrum of sector issues. The OED report (1999) recommends continued Bank participation in the sector with emphasis towards broader policy and institutional reforms. Key sector issues and reforms which the Bank intends to pursue in the future are as follows: (i) Building Sector Institutions: Though in two decades China has taken a major leap from a primitive road system to the fast expanding NTHS, the sustainability of the highway sector greatly depends on the Project Appraisal Document Page 76 Fourth National Highway Project County: China strength of its provincial and local highway institutions to address the growing challenges of road traffic safety, construction quality standards and control, road asset preservation, network expansion, market responsive facility provision, and resource mobilization. China is now placing greater importance on the coordination of agencies in the area of traffic safety improvements. For instance, with some 85 fatalities and 175 injuries per 10,000 vehicles (1997 data), China's roads are among the most unsafe in the world. Any effective solution to the safety issue will require a stronger relationship between the provincial communications departments (PCDs) and the traffic police which is part of the Internal Security Ministry. To support such reforms, sector institutions will require new skills and a better understanding of new practices. (ii) Improving Construction Quality: Highway construction quality is one of the most serious concerns of the sector. Incidences of bridge and road failings or premature wear and tear of highway pavements occur quite frequently. The problem has both technical and administrative roots. Contractors, mostly domestic, are not always well managed, frequently face irregular payments, and often come under pressure to shorten the construction period. In some cases, quality control suffers due to the lack of authority assigned to the construction supervision agency by the owner vis-a-vis contractors. While the central government appreciates Bank involvement in the sector due to better design reviews, supervision and resulting construction quality of the Bank projects as compared to locally financed projects, there is a definite need to reinforce rigid construction quality standards, control and enforcement in future Bank highway loans. (iii) Enhancing Accessibility to Remote and Low Income Areas: The geography of China poses enornous demands and difficulties for the provision of basic road access in various parts of the country, particularly in the inner and low-income provinces. Although the role of transport access to integrate the national economy, to stimulate growth in remote areas, and to insure basic mobility needs of the poor has been emphasized, the task is enormous and requires significant public resources. The Bank's provincial highway program in China aims to favorably impact poverty levels, through targeted interventions in low income areas. Provincial and central government agencies often refrain from borrowing for this purpose since no dedicated revenue source for loan repayment is easily identified (unlike for toll roads). While a renewed effort is needed to support road development in low income areas, China's central and provincial highway agencies are generally self-sufficient in this regard. The Bank's future lending and non-lending services for this sector should be focused on the development and long-term maintenance of major infrastructure projects such as expressways . (iv) Sustaining Road Maintenance: China's highway network is fast expanding in all road categories, with emphasis on high-grade highways. Over time, the demand for routine and periodic maintenance and related resources will substantially increase. Due to the rapid pace of road expansion in many provinces, maintenance funds are diverted to construction of new roads. The current trend and practice will soon become unsustainable unless a new framework is developed to address future maintenance needs. The Bank and China's highway agencies need to look for methods of funding ongoing road maintenance requirements while also supporting the construction of new revenue generating high-grade highways. A stronger effort on behalf of the Bank and the relevant Chinese sector institutions is recommended to make road maintenance a more integral and prominent part of future Bank highway projects. PCDs need to be encouraged to develop a sustainable road maintenance policy, refine their road information systems for direct use in maintenance planning and operations, develop sustainable funding mechanisms, and adjust their organizational structures and training programs to devote more resources to maintenance. Project Appraisal Document Page 77 Fourth National Highway Project County: China 5. Priorities in the Future Highway Program 5.1 The construction emphasis of the Bank's highway program over the last 15 years needs to be expanded to focus more intensively on policy and institutional reforms, where more should be expected. Bank interventions have not always been that successful in the past in dealing with important policy and institutional matters. As time goes on, China and the Bank are developing an understanding which will support a substantive, ongoing effort to address and resolve these issues. For example, traffic safety, road maintenance, and toll road operation and management must be major concerns, and the Bank needs to find new ways of engaging Chinese counterparts more proactively in addressing these issues and taking ownership of reforms and the potential results they can produce. 5.2 Achievement of policy and institutional reforms on a project-by-project basis can only be modest at best. Significant progress and lasting reforms will most likely take place over time with several operations supporting the same initiatives. Performance standards and methods for measuring progress toward implementation and tangible outputs need to be agreed and put in place with the central agencies and provinces. 5.3 The Bank should help China in its transition by shifting its lending orientation to areas where the institution has a comparative advantage in China's highway sector: highway management, financing, integrated planning, and the organization of highway administration. Other key reform areas that have not received sufficient Bank attention include institutional change to retain and increase the benefits of decentralization, the question of restructuring the PCDs to enable them to address the complex future issues they will face, resource allocation between functional road classes, and between new construction and maintenance, as well as lessons learned from the West regarding the need for spatial planning concepts in highway development. 5.4 The Bank is already advocating a new partnership between the central government and provinces in identifying better ways of financing and managing the growth of the highway network, specifically as regards the operation and management of toll roads. The Bank is working with central and provincial governments to begin the organization of new toll road authorities at the provincial level with the power to raise and spend toll revenues for construction and operation and maintenance (O&M) of their emerging expressway and other high-grade highway systems. Bank-financed expressway commercialization and corporatization studies are now underway in Hunan and Hubei. A new technical assistance initiative intended to develop a model highway shareholding company, and provincial toll road authority has been agreed recently with the Ministry of Finance (MOF) and Fujian Province. 5.5 The Bank needs to continue its search for new ways of sustaining and reinforcing the sector dialogue with relevant Chinese authorities. The Bank, jointly with the Ministry of Communications (MOC) conducted a construction quality workshop and a high-level highway policy seminar in Beijing in May 1997. These were followed up with a policy workshop in May 1998. In addition, the Bank, in close cooperation with MOC and MOF, is presently undertaking a self-assessment of the impact of its highway TA. This work is considered as a good vehicle to draw renewed attention to key sector issues and to agree with relevant Chinese authorities on a new strategy for future highway lending and non-lending services. To that effect a new workshop will be held with MOC, MOF, SDPC and selected provinces on May 8-9, 1999 in Beijing. This workshop will also initiate work on a new China Strategic Highway Framework paper which the Bank and China will prepare as part of FY2000 ESW. Several more workshops will be held during FY2000 and FY200 1. Project Appraisal Document Page 78 Fourth National Highway Project County: China ANNEX 8: ESTIMATED PROJECT COSTS (US$ million) Fourth National Highway Project Table 1-Consolidated Project Costs April 1999 Prices ($1.00=Y8.3) Project Component Hubei Section Hunan Section C Consolidated Project Local Foreign Total Local Foreign Total Local Foreign Total component 1. Construction oI expressway and interconnecting roads Expressway Civil Works 150.8 104.3 255.1 187.0 133.8 320.9 337.9 238.1 576.0 AnnexAreas&Admin.Bldgs. 8.7 3.7 12.4 5.9 5.4 11.3 14.6 9.1 23.7 E&MWorks 1.7 6.9 8.6 0.9 10.3 11.2 2.6 17.1 19.8 Interconnecting Roads 8.7 2.2 10.9 8.0 7.4 15.3 16.7 9.5 26.2 Other Roads 18.8 4.7 23.5 0.0 0.0 0.0 18.8 4.7 23.5 Total Works 188.7 121.7 310.5 201.8 156.9 358.7 390.5 278.6 669.1 Supervision 5.3 2.3 7.6 7.7 2.7 10.4 13.0 5.0 18.0 Equipment 0.8 3.3 4.1 0.8 3.0 3.8 1.6 6.3 7.9 Component 2. Institutional Strengthening/Capacity Building Training 0.3 0.3 0.7 0.3 1.0 1.3 0.7 1.3 2.0 Studies 1.0 0.0 1.0 0.6 0.3 0.9 1.6 0.3 1.9 Training and Studies 1.3 0.3 1.7 0.9 1.3 2.2 2.2 1.6 3.8 Total Base Cost 196.2 127.7 323.9 211.1 163.9 375.0 407.3 291.6 698.9 Physical Contingencies 19.4 13.6 33.1 20.9 17.6 38.5 40.4 31.2 71.5 Price Contingencies 45.1 7.2 52.3 48.6 16.5 65.1 93.7 23.7 117.4 Total Contingencies 64.5 20.8 85.4 69.5 34.1 103.6 134.0 54.9 189.0 Component3. Front-end fee 0.0 1.5 1.5 0.0 2.0 2.0 0.0 3.5 3.5 Component 4. Land Acquisition and Resettlement 22.2 0.0 22.2 38.4 0.0 38.4 60.6 0.0 60.6 Total Project Cost 283.0 150.0 433.0 319.0 200.0 519.0 602.0 350.0 952.0 Project Appraisal Document Page 79 Fourth National Highway Project County: China Table la-Project Costs Hunan Section April 1999 Prices ($1.00=Y8.3) Project Component Y mill. US$ mill. Local Foreign Total Local Foreign Total Works Civil Works Expressway 1,552.31 1,110.91 2,663.22 187.03 133.85 320.87 Annex Areas & Admin. Bldgs. 48.80 44.99 93.79 5.88 5.42 11.30 E&M Works Expressway 7.39 85.16 92.55 0.89 10.26 11.15 Interconnecting Roads 66.15 61.09 127.24 7.97 7.36 15.33 Construction Supervision 63.66 22.41 86.07 7.67 2.70 10.37 Equipment 6.31 25.23 31.54 0.76 3.04 3.80 Training 2.74 7.97 10.71 0.33 0.96 1.29 Studies/TA 4.57 2.74 7.30 0.55 0.33 0.88 Training and Studies 7.30 10.71 18.01 0.88 1.29 2.17 Base Cost 1,751.92 1,360.49 3,112.42 211.08 163.92 374.99 Physical Contingencies 173.83 145.70 319.53 20.94 17.55 38.50 Price Contingencies 403.06 137.19 540.25 48.56 16.53 65.09 Total Contingencies 576.89 282.89 859.78 69.50 34.08 103.59 Front-end Fee 0.00 16.60 16.60 0.00 2.00 2.00 Land Acquisition and Resettlement 318.72 0.00 318.72 38.40 0.00 38.40 Total Project Cost 2,647.53 1,659.98 4,307.52 318.98 200.00 518.98 Project Appraisal Document Page 80 Fourth National Highway Project County: China Table lb-Project Costs Hubei Section April 1999 Prices ($1.00=Y8.3) Project Component Local Foreign ltotal Local Foreign Total Y mill. US$ Mill. Works Civil Works Expressway 1,251.89 865.44 2,117.33 150.83 104.27 255.10 Annex Areas & Admin. Bldgs. 72.22 30.95 103.17 8.70 3.73 12.43 E&M Works Expressway 14.32 57.06 71.38 1.73 6.88 8.60 Interconnecting Roads 72.44 18.11 90.55 8.73 2.18 10.91 Other Roads 155.71 38.93 194.64 18.76 4.69 23.45 Construction Supervision 44.27 18.97 63.25 5.33 2.29 7.62 Equipment 6.84 27.36 34.20 0.82 3.30 4.12 Training 2.68 2.79 5.48 0.32 0.34 0.66 Studies/TA 8.30 0.00 8.30 1.00 0.00 1.00 Total Training and Studies 10.98 2.79 13.78 1.32 0.34 1.66 Base Cost 1,628.67 1,059.62 2,688.29 196.23 127.66 323.89 Physical Contingencies 161.08 113.24 274.33 19.41 13.64 33.05 Price Contingencies 374.60 59.68 434.28 45.13 7.19 52.32 Total Contingencies 535.68 172.92 708.60 64.54 20.83 85.37 Fee (Front-end) 0.00 12.45 12.45 0.00 1.50 1.50 Land Acquisition and Resettlement 184.59 0.00 184.59 22.24 0.00 22.24 Total Project Cost 2,348.94 1,244.99 3,593.93 283.01 150.00 433.00 Project Appraisal Document Page 81 Fourth National Highway Project County: China ANNEX 9: FINANCING PLANS Fourth National Highway Project Table 1-Consolidated Financing Plan April 1999 Prices ($1.00=Y8.3) ($ million) Government Bank Total Foreign Costs Provincial Central % of Total component l. construction ot expressway and interconnecting roads Expressway Civil Works 109.7 228.1 238.1 576.0 41 Annex areas & Admin. Bldgs. 14.6 9.1 23.7 39 Expressway E & M Works 2.6 17.1 19.8 87 Interconnecting Roads 16.7 9.5 26.2 36 Other Roads 18.8 4.7 23.5 20 Subtotal Works 162.4 228.1 278.6 669.1 42 Construction Supervision 13.0 5.0 18.0 28 Equipment 1.6 6.3 7.9 80 Component 2. Institutional Strengthening/Capacity Building Training 0.7 1.3 2.0 66 Studies 1.6 0.3 1.9 18 Total Training and Studies 2.2 1.6 3.8 42 Component 3. Front-end Fee 0.0 3.5 3.5 100 Component 4. Land Acquisition and Resettlement 60.6 0.0 60.6 0 Contingencies 134.0 54.9 189.0 29 Total Project Cost 375.2 228.1 350.0 952.0 37 Percent of Total 39 24 37 100 Project Appraisal Document Page 82 Fourth National Highway Project County: China Table la- Financing Plan Hunan Section April 1999 Prices ($1.00=Y8.3) Government Bank lotal Foreign Costs Provincial (entral % of Total Component 1. Construction of Expressway and Interconnecting Roads Works Expressway Civil Works 67.3 119.7 133.8 320.9 42 Annex Areas & Admin. Bldgs. 5.9 5.4 11.3 48 Expressway E & M Works 0.9 10.3 11.2 92 Interconnecting Roads 8.0 7.4 15.3 48 Other Roads 0.0 0.0 0.0 0 Subtotal Works 82.1 119.7 156.9 358.7 44 Construction Supervision 7.7 2.7 10.4 26 Equipment 0.8 3.0 3.8 80 Component 2. Institutional Strengthening/Capacity Building Training 0.3 1.0 1.3 74 Studies 0.6 0.3 0.9 38 Total Training and Studies 0.9 1.3 2.2 59 Component 3. Front-end Fee 2.0 2.0 100 Component 4. Land Acquisition and Resettlement 38.4 0.0 38.4 0 Contingencies 69.5 34.1 103.6 33 Hunan Project Cost 199.3 119.7 200.0 519.0 39 Percent of Total 40 20 40 100 Project Appraisal Document Page 83 Fourth National Highway Project County: China Table lb- Financing Plan Hubei Section April 1999 Prices ($1.00=Y8.3) (Government Bank lotal Foreign Mosts Provincial Central % of Total Component 1. tonstruction of Expressway and Interconnecting Roads Works Expressway Civil Works 42.4 108.4 104.3 255.1 41 Annex Areas & Admin. Bldgs. 8.7 3.7 12.4 30 Expressway E & M Works 1.7 6.9 8.6 80 Interconnecting Roads 8.7 2.2 10.91 20 Other Roads 18.8 4.7 23.45 20 Subtotal Works 80.3 108.4 121.7 310.5 39 Construction Supervision 5.3 2.3 7.6 30 Equipment 0.8 3.3 4.1 80 Component 2. Institutional Strengthening/Capacity Building Training 0.3 0.3 0.7 51 Studies 1.0 0.0 1.0 0 Total Training and Studies 1.3 0.3 1.7 20 Component 3. Front-end Fee 1.5 1.5 100 Component 4. Land Acquisition and Resettlement 22.2 0.0 22.2 0 Contingencies 64.5 20.8 85.4 24 Hunan Project Cost 174.6 108.4 150.0 433.0 35 Percent of Total 40 25 35 100 Project Appraisal Document Page 84 Fourth National Highway Project County: China ANNEX 10: IMPLEMENTATION SCHEDULE Fourth National Highway Project A. Project Implementation Plans This annex presents the implementation programs for both provinces for the various components of the project. Tables 1 and 2 summarize the overall implementation schedule for the project as a whole. These schedules show the estimated time requirements for construction activities as well as for pre- construction activities such as preparation of designs and bid documents, pre-qualification process, bidding process, evaluation of bids, negotiations and signing of contracts. Project Appraisal Document Page 85 Fourth National Highway Project County: China HUNAN PROVINCE Page1 of 6 Table 1. Implementation Program 1998 1999 2000 2001 2002 2003 ID Task Name Duration Start Finish Hi I H2 Hi H2 HI | H2 IHi H2 H H2 Hi H2 1 1. Civil Works 1038 days Mon 8/10/98 Thu 8/1/02 . i m) 2 Expressway Section (ICB) 1038 days Mon 8/10/98 Thu 8/1/02 3 Submitting GNP 0 days Mon 8/10/98 Mon 8/10/98 ati 0 4 Publishing GNP in UN Development Business 21 days Tue 8/1 1/98 Tue 9/8/98 5 The Bank's "no objection" to prequalification documents 30 days Wed 9/9/98 Tue 10/20/98 6 Prequalification docs (PQ) available for sale 60 days Wed 10/21/98 Tue 1/12/99 7 Last date to submit PQ documents 0 days Tue 1/12199 Tue 1/12/99 2 8 PQ documents evaluation report & MOC review 30 days Wed 1/13/99 Tue 2/23/99 9 Bank review & no obj. to PQ does evaluation rep 25 days Wed 2/24/99 Tue 3/30/99 10 Review bidding documents by MOC 30 days Wed 1/6/99 Tue 2V16/99 11 Review bidding documents by the Bank 30 days Wed 2V17/99 Tue 3/30/99 ll 12 Sell bidding does to prequalified contractors 91 days Wed 3/31/99 Wed 814/99 13 Last date to receive bid documents 0 days Wed 8/4/99 Wed 8/4/99 14 Bid evaluation report and review by MOC 30 days Thu 8/5/99 Wed 9/15/99 15 Bank review evaluation report and no objection 30 days Thu 9/16/99 Wed 10/27/99 16 Notify successful bidder 0 days Wed 10/27/99 Wed 10/27/99 0127 17 Negotiate and sign contracts 20 days Thu 10/28/99 Wed 11/24/99 18 Construction period 701 days Thu 11/25/99 Thu 8/1/02 19 20 Task Summary Rolled Up Progress Project: Implementafion Program Split Rolled Up Task Extemal Tasks Date: Tue 5/18/99 Progress Rolled Up Split ,,,,,, Project Summary _ Milestone Rolled Up Milestone s Project Appraisal Document Page 86 Fourth National Highway Project County: China HUNAN PROVINCE Page 2of 6 Table 1. Implementation Program _ 1998 1999 2000 2001 2002 2003 ID Task Name Duration Start Finish HI H2 HI 2 H HI I H2 HI H2 Hi H2 HI1 H2 21 Interconnecting Roads (NCB) 709 days Mon 11/15/99 Thu 8/1/02 22 Completing prequalification documents 0 days Mon 11/15/99 Mon 11/15/99 ' 1t15 23 The Bank's "no objection" to prequalification documents 30 days Mon 11/15/99 Fri 12/24/99 24 Prequalification docs (PQ) available for sale 45 days Mon 12/27/99 Fri 2/25/00 25 Last date to submit PQ documents 0 days Fri 2/25/00 Fri 2/25/00 , 26 PQ documents evaluation report & MOC review 30 days Wed 3/15/00 Tue 4/25/00 27 Bank review & no obj. to PQ docs evaluation rep 30 days Wed 4/26/00 Tue 6/6/00 28 Review bidding documents by MOC 30 days Mon 2/28/00 Fri 4/7/00 29 Review bidding documents by the Bank 30 days Mon 4/10/00 Fri 5/19/00 30 Sell bidding docs to prequalified contractors 91 days Wed 6/7/00 Wed 10/1 1/00 31 Last date to receive bid documents 0 days Wed 10/11/00 Wed 10/11/00 32 Bid evaluation report and review by MOC 30 days Thu 10/12/00 Wed 11/22/00 33 Bank review evaluation report and no objection 30 days Thu 11/23/00 Wed 1/3/01 34 Notify successful bidder 0 days Wed 1/3/01 Wed 1/3/01 ' '1/3 35 Negotiate and sign contracts 17 days Thu 1/4/01 Fri 1/26/01 h 36 Construction period 371 days Thu 3/1/01 Thu 8/1/02 37 38 Annex Areas (NCB) 669 days Wed 11/10/99 Mon 6/3/02 39 Complete bidding documents 0 days Wed 11/10/99 Wed 11/10/99 ' 11/10 40 Bank review and no objection of BD 22 days Mon 1/3/00 Tue 2/1/00 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled UpTask External Tasks g j Date: Tue 5/18/99 Progress Rolled Up Split Project Summary O Milestone * Rolled Up Milestone Project Appraisal Document Page 87 Fourth National Highway Project County: China HUNAN PROVINCE Page3of 6 Table 1. Implementation Program 1998 11999 1 2000 12001 12002 20 ID Task Name Duration Start Finish HI I|_I H l _2_IHII_ HI| H2 H| H2 Hl H2 41 Sell bidding documents 45 days Tue 2/15/00 Mon 4/17/00 42 Last date to receive bid documents 0 days Sat 4/15/00 Sat 4/15/00 4/15 43 Bid evaluation report and review by MOC 21 days Mon 4/17/00 Mon 5/15/00 44 Bank review and no objection 23 days Tue 5/16/00 Thu 6/15/00 45 Negotiate and sign contracts 21 days Fri 6/16/00 Fri 7/14/00 46 Construction period 492 days Fri 7/14/00 Mon 6/3/02 47 48 2. E&M Works (ICB) 807 days Thu 7/1/99 Fri 8/2/02 49 Finalize bid documents & submit to Bank 0 days Thu 7/1/99 Thu 7/1/99 50 No objection to bid documents by Bank 22 days Mon 1/17/00 Tue 2/15/00 51 Specific procurement notice (UNDB) 0 days Wed 2/16/00 Wed 2/16/00 52 Issue bid documents 45 days Wed 3/15/00 Tue 5/16/00 53 Last date to receive bids (stage 1) Odays Thu 6/15/00 Thu 6/15/00 54 Evaluate bid documents 30 days Fri 6/16/00 Thu 7/27/00 55 Contractor prepare financial bids (stage 2) 21 days Fri 9/15/00 Fri 10/13/00 56 Last date to submit financial bids 0 days Sun 10/15/00 Sun 10/15/00 016 57 Bid evaluation report & Govemment review 23 days Mon 10/16/00 Wed 11/15/00 58 Bank review & no objection to bid evaluation report 30 days Thu 11/16/00 Wed 12/27/00 59 Negotiate and sign contract 31 days Thu 2/1/01 Thu 3/15/01 60 Establish letter of credit 33 days Fri 3/16/01 Tue 5/1/01 Task Summary Rolled Up Progress Split ~~~~~~~~Rolled Up TaskExeaTsk Project: Implementation Program Split Exteral Tasks , } Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone Q Project Appraisal Document Page 88 Fourth National Highway Project County: China HUNAN PROVINCE Page40f 6 Table 1. Implementation Program _ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1998 | 1999 12000 |2001 | 2002 12003 ID Task Name Duration Start Finish HI H2 | H H2 H H2 Hi H2 H H2 | H1 I H2 61 Manufacture & delivery of equipment I10 days Wed 51O01 Tue 10/2101 62 Transport of equipment to site 76 days Wed 10/3/01 Wed 1/16/02 63 Installation and commissioning and trial-run of systems 60 days Thu 1/17/02 Wed 4/10/02 64 Completion 82 days Thu 4/11/02 Fri 8/2/02 65 66 3. Construction supervision 1164 days Mon 2/16/98 Thu 8/1/02 67 Specific procurement notice (UNDB) 0 days Mon 2V16/98 Mon 2V16/98 2116 68 No objection of Bank to TOR, LOI & shortlist 30 days Tue 8/25/98 Mon 10/5/98 69 Issue invitations to consultants 45 days Tue 10/6/98 Mon 1217/98 70 Last date to receive proposals 0 days Mon 1217/98 Mon 127/98 71 Evaluation of the quality (technical proposals) 30 days Tue 128/98 Mon 1/18/99 72 Bank review evaluation rpt (tech) & no objection 30 days Tue 1/19/99 Mon 3/1/99 73 Notify consultants on the opening date of the financial proposals 0 days Mon 3/1/99 Mon 3/1/99 74 Opening of financial proposals 0 days Mon 3/1/99 Mon 3/1/99 i,1 75 Complete combined quality & cost evaluation 25 days Tue 3/2199 Mon 4/5/99 76 Bank review proposal evaluation rpt & no objection 30 days Tue 4/6/99 Mon 5/17/99 77 Negotiations with consultant & sign contract 15 days Tue 5/18/99 Mon 6/7/99 78 Prepare training material by consultant 62 days Tue 6/8/99 Wed 9/1/99 79 Train local staff 120 days Wed 9/1/99 Tue 21 5/00 80 Supervision of construction 761 days Thu 9/2199 Thu 8/1/02 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task External Tasks Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone Project Appraisal Document Page 89 Fourth National Highway Project County: China HUNAN PROVINCE Page 5ot 6 Table 1. Implementation Program 1998 [1999 12000 |2001 12002 12003 ID Task Name Duration Start Finish HI H2 Hi H2 Hi H2 Hi H2 H H2 H i1 H2 81* ',,, 82 4. Hunan Maintenance Management Study 686 days Mon 5/17/99 Mon 12/31/01 83 TOR, short list and LOI approved by the Bank 0 days Mon 5/17/99 Mon 5/17/99 5/17' 84 Letter issued to consultants 0 days Tue 6/15/99 Tue 6/15/99 85 Consultants prepare and submit proposals 45 days Tue 6/15/99 Mon 8/16/99 86 HPCD evaluates Consultant's proposals 22 days Tue 8/17/99 Wed 9/15/99 87 Bank approves evaluation report 30 days Thu 9/16/99 Wed 10/27/99 * 88 HPCD negotiates and awards contract 15 days Thu 10/28/99 Wed 11/17/99 89 Consultants mobilize 30 days Thu 11/18/99 Wed 12/29/99 90 Execution of Study 523 days Thu 12/30/99 Mon 12/31/01 .m 91_, ,, I 92 5. Road Safety Activities 1370 days Tue 10/1/96 Mon 12/31/01 * m:* 93 Establishing leading group 0 days Tue 10/1/96 Tue 10/1/96 94 Mobilizing study team 60 days Fn 3/14/97 Thu 6/5/97 95 The Bank approving working schedule I day Thu 4/15/99 Thu 4/15/99 96 Execution of Study 707 days Fri 4/16/99 Mon 12/31/01 . . 97 98 6. Hubei-Hunan Transport and Trade Integration Study 523 days Fri 12/29/00 Tue 12/31/02 99 TOR, short list and LOI approved by the Bank 0 days Fri 12/29/00 Fri 12/29/00 *12/29 100 Lener issued to consultants 0 days Wed 1/31/01 Wed 1/31/01 Task Summary Rolled Up Progress S lit Rolled Up Task _ | Extemal Tasks Project Implementation Program P R Ua Date: Tue 5/18/99 Progress Rolled Up Split ,,,,,, Project Summary _ Milestone Rolled Up Milestone ) Project Appraisal Document Page 90 Fourth National Highway Project County: China HUNAN PROVINCE Page6of 6 Table 1. Implementation Program 1998 1999 2000 12001 12002 2003 ID Task Name Duration Start Finish Hi H2 Hi H2 Hi H2 Hi H2 Hi H2 Hi H2 101 Consultants prepare and submit proposals 45 days Wed 1/31/01 Tue 4/3/01 102 HPCD evaluates Consultant's proposals 22 days Wed 4/4/01 Thu 5/3/01 103 Bank approves evaluation report 30 days Fri 5/4/0l Thu 6/14/01 104 HPCD negotiates and awards contract 15 days Fri 6/15/01 Thu 7/5/01 105 Consultants mobilize 30 days Fri 7/6/01 Thu 8/16/01 106 Execution of Study 359 days Thu 8/16/01 Tue 12/31/02 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task Extemal Tasks Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone Project Appraisal Doctiment Page 91 Fourth National Hig;iway Project County: China HUBEI PROVINCE page 1 of 9 Table 2. Implementation Program 1998 11999 12000 1 2001 12002 12003 ID Task Name Duration Start Finish Hi H2 Hi H2 Hi H2 Hi H2 Hi H2 Hi H2 1 1. Civil Works 1348 days Mon 5/4/98 Wed 7/2/03 2 Expressway Section (ICB) 1053 days Fri 12/1898 Toe 12/31/02 3 Submitting GNP 0 days Fri 12/18/98 Fri 12/18/98 4 Publishing GNP in UN Development Business 21 days Fri 12/18/98 Fri 1/15/99 5 The Bank's "no objection" to prequalirication documents 30 days Mon I/la/99 Fn 2/26/99 6 Prequalification docs (PQ) available for sale 60 days Mon 3/1/99 Fri 5/21/99 7 Last date to submit PQ documents 0 days Fri 5/21/99 Fri 5/21/99 8 PQ documents evaluation report & MOC review 30 days Mon 5/24/99 Fri 7/2/99 9 Bank review & no obj. to PQ docs evaluation rep 25 days Mon 7/5/99 Fri 8/6/99 10 Review bidding documents by MOC 30 days Wed 1/6/99 Tue 2/16/99 11 Review bidding documents by the Bank 30 days Wed 2/17/99 Tue 3/30/99 12 Sell bidding docs to prequalified contractors 91 days Mon 8/9/99 Mon 12/13/99 13 Last date to receive bid documents O days Mon 12/13/99 Mon 12/13/99 2/13 14 Bid evaluation report and review by MOC 30 days Tue 12/14/99 Mon 1/24/00 15 Bank review evaluation report and no objection 30 days Tue 1/25/00 Mon 3/6/00 16 Notify successful bidder 0 days Mon 3/6/00 Mon 3/6/00 17 Negotiate and sign contracts 20 days Tue 3/7/00 Mon 4/3/00 18 Construction period , 716 days Tue 4/4/00 Tue 12/31/02 19 20 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task External Tasks Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone Project Appraisal Document Page 92 Fourth National Highway Project County: China HUBEI PROVINCE page 2 of 9 Table 2. Implementation Program 1998 1999 2000 2001 | 2002 2003 ID Task Name Duration Start Finish Hi l H2 Hi H2 HI H2 Hl H2 Hl I H2 Hl H2 21 Interconnecting Roads (NCB) 1217 days Mon 5/4/98 Tue 12/31/02 22 Completing prequalification documents 0 days Mon 5/4/98 Mon 5/4/98 23 Thc Bank's "no objection" to prequalification documents 30 days Fri 12/3/99 Thu 1/13/00 24 Prequalification does (PQ) available for sale 45 days Fri 1/14/00 Thu 3/16/00 25 Last date to submit PQ documents 0 days Thu 3/16/00 Thu 3/16/00 6 26 PQ documents evaluation report & MOC review 30 days Fri 3/17/00 Thu 4/27/00 27 Bank review & no obj. to PQ docs evaluation rep 30 days Fri 4/28/00 Thu 6/8/00 28 Review bidding documents by MOC 30 days Fri 6/9/00 Thu 7/20/00 29 Review bidding documents by the Bank 30 days Fn 7/21/00 Thu 8/31/00 30 Sell bidding docs to prequalified contractors 91 days Fri 9/1/00 Fri 1/5/01 31 Last date to recei ve bid documents 0 days Fri 1/5/01 Fri 1/5/01 /5 32 Bid evaluation report and review by MOC 30 days Mon 1/8/01 Fri 2/16/01 33 Bank review evaluation report and no objection 30 days Mon 2/19/01 Fri 3/30/01 34 Notify successful bidder 0 days Fri 3/30/01 Fri 3/30/01 0 35 Negotiate and sign contracts 17 days Mon 4/2/01 Tue 4/24/01 36 Construction period 440 days Wed 4/25/01 Tue 12/31/02 37..., , ,, 38 Other Roads (NCB) 881 days Mon 8/16/99 Mon 12/30/02 39 Completing prequalification documents 0 days Mon 8/16/99 Mon 8/16/99 40 The Bank's "no objection" to prequalification documents 30 days Mon 8/16/99 Fri 9/24/99 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task External Tasks Date: Tue 5/18/99 Progress Roiled Up Split Project Summary 1 Milestone Rolled Up Milestone Project Appraisal Document Page 93 Fourth National Highway Project County: China HUBEI PROVINCE page 3 of 9 Table 2. Implementation Program 1998 1999 2000 12001 12002 12003 ID Task Name Duration Start Finish Ht H2 I Hi I H2 HI H2 |H H2 jH H2 |H H2 41tPrequalification does (PQ) available for sale 45 days Mon 9/27/99 Fri 1 1/26/99 42 Last date to submit PQ documents 0 days Fri 11126/99 Fri 11/26/99 ' 1 1/26 43 PQ documents evaluation report & MOC review 30 days Mon 11129/99 Fri I/70OO .V 44 Bank review & no obj. to PQ docs evaluation rep 30 days Mon 1/10/00 Fri 2/18/00 45 Review bidding documents by MOC 30 days Mon 2/21/00 Fri 3/31/00 46 Review bidding documents by the Bank 30 days Mon 4/3/00 Fri 5/12/00 47 Sell bidding docs to prequalified contractors 90 days Mon 5/15/00 Fri 9/15/00 48 Last date to receive bid documents 0 days Fri 9/15/00 Fri 9/15/00 49 Bid evaluation report and review by MOC 30 days Mon 9/18/00 Fri 10/27/00 50 Bank review evaluation report and no objection 30 days Mon 10/30/00 Fri 12/8/00 51 Notify successful bidder 0 days Fri 12/8/00 Fri 12/8/00 52 Negotiate and sign contracts 15 days Mon 12/11/00 Fri 12/29/00 53 Construction period 521 days Mon 1/1/01 Mon 12/30/02 54 55 Annex Areas (NCB) 395 days Thu 12/27/01 Wed 7/2/03 . _ 56 Complete bidding documents 0 days Thu 12/27/01 Thu 12/27/01 t2/27 57 Bank review and no objection of BD 22 days Thu 12/V27/01 Fri 1/25/02 58 Sell bidding documents 45 days Mon 1/28/02 Fri 3/29/02 59 Last date to receive bid documents 0 days Fri 3/29/02 Fri 3/29/02 ./29 60 Bid evaluation report and review by MOC 21 days Mon 4/1/02 Mon 4/29/02 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task Extemal Tasks Date: Tue 5/18/99 Progress Rolled Up Split Project Summary Milestone Rolled Up Milestone Project Apprisal Document Page 94 Fourth National Highway Project County: China HUBEI PROVINCE page 4 Ot 9 Table 2. Implementation Program 1998 11999 12000 12001 2002 12003 ID Task Name Duratfon Start Finish HI I H2 I Hi I H2 I HI] H21 HI I i 2 HI I H2 I Hi I H2 61 Bank review and no objection 23 days Tue 4/30/02 Thu 5/30/02 62 Negotiate and sign contracts 21 days Fri 5/31/02 Fri 6/28/02 63 Construction period 263 days Mon 7/1/02 Wed 7/2/03 64 65 2. E&M Works (ICB) 957 days Mon 5/3/99 Tue 12/31/02 66 Fialize bid documents & submit to Bank 0 days Mon 5/3/99 Mon 5/3/99 67 No objection to bid documents by Bank 30 days Mon 5/3/99 Fri 6/11/99 68 Specific procurement notice (UNDB) 0 days Fri 6o/ 1/99 Fri 6/11/99 69 Issue bid documents 45 days Mon 6/14/99 Fri 8/13/99 70 Last date to receive bids (stage I) 0 days Fri 8/13/99 Fri 8/13/99 71 Evaluate bid documents 30 days Mon 8/16/99 Fri 9/24/99 . 72 Contractor prepare financial bids (stage 2) 30 days Mon 9/27/99 Fri 11/5/99 73 Last date to submit financial bids 0 days Fri 11/5/99 Fri 11/5/99 11/q 74 Bid evaluation report & Government review 30 days Mon 11/8/99 Fri 12/17/99 75 Bank review & no objection to bid evaluation report 30 days Mon 12/20/99 Fri 1/28/00 76 Negotiate and sign contract IS days Mon 1/31/00 Fri 2/18/00 77 Establish letter of credit 45 days Mon 2/21/00 Fri 4/21/00 78 Manufacture and delivery of equipment 120 days Mon 4/24/00 Fri 10/6/00 79 Transport of equipment to site 60 days Mon 10/9/00 Fri 12/29/00 80 Installation and commissioning and trial-run of systems 120 days Mon 1/1/01 Fri 6U15/01 Task Summary Rolled Up Progress Project: Implementaffon Program Split Rolled Up Task Extemal Tasks Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone ) Project Appraisal Document Page 95 Fourth NaUonal Highway Project County: China HUBEI PROVINCE page 5 of 9 Table 2. Implementation Program 1:9:98 1999 2000 12001 12002 12003 ID Task Name Duration Start Finish Hi H2 H H2 2 H1 2HI2 H0 81 Completion 402 days Mon 6/18/01 Tue 12/31/02 82 83 3. Construction supervision 1075 days Tue 8/25/98 Tue 10/8/02 84 Specific procurement notice (UNDB) 0 days Tue 8/25/98 Tue 8/25/98 25 85 No objection of Bank to TOR, LOI & shortlist 30 days Wed 8/26/98 Tue 10/6/98 3 . 86 Issue invitations to consultants 45 days Wed 10/7/98 Tue 12/8/98 87 Last date to receive proposals 0 days Tue 128/98 Tue 12/8/98 e 88 Evaluation of the quality (technical proposals) 30 days Wed 12/9/98 Tue 1/19/99 89 Bank review evaluation rpt (tech) & no objection 30 days Wed 1/20/99 Tue 3/2199 90 Notify consultants on the opening date of the financial proposals 0 days Tue 3/2/99 Tue 3/2/99 . 91 Opening of financial proposals 0 days Tue 3/2/99 Tue 3/2/99 [ /2 92 Complete combined quality & cost evaluation 25 days Wed 3/3/99 Tue 4/6/99 93 Bank review proposal evaluation rpt & no objection 30 days Wed 4/7/99 Tue 5/18/99 94 Negotiations with consultant & sign contract 15 days Wed 5/19/99 Tue 6/8/99 95 Prepare training material by consultant 62 days Wed 6/9/99 Thu 9/2/99 96 Train local staff 120 days Fri 9/3/99 Thu 2/17/00 97 Supervision of construction 808 days Fri 9/3/99 Tue 10/8/02 98 99 4. Hubei Maintenance Management Study 783 days Thu 12/31/98 Mon 12/31/01 100 TOR, short list and LOI approved by the Bank 0 days Thu 12/31/98 Thu 12/31/98 11Ve31 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task External Tasks Lji77-.:71 Date: Tue 5/18/99 Progress Rolled Up Split ,, , Project Summary _ Milestone Rolled Up Milestone Projert Appraisal Document Page 96 Fourth National Highway Project County: China HUBEI PROVINCE page 6 of 9 Table 2. Implementation Program 1998 11999 2000 2001 |2002 2003 ID Task Name Durabon Start Finish Hi H2 HI H2 HI H2 HI H2 I Hi I H2 Hi H2 101 Letter issued to consultants 0 days Mon 1/4/99 Mon 1/4/99 102 Consultants prepare and submit proposals 45 days Tue 6/15/99 Mon 8/16/99 103 HPCD evaluates Consultant's proposals 22 days Tue 8/17/99 Wed 9/15/99 104 Bank approves evaluation report 30 days Thu 9/16/99 Wed 10/27/99 105 HPCD negotiates and awards contract 15 days Thu 10/28/99 Wed 11/17/99 * 106 Consultants mobilize 30 days Thu 11/18/99 Wed 12/29/99 107 Execution of Study 523 days Thu 12/30/99 Mon 12/31/01 108 109 5. Hubei-Hunan Transport and Trade Integration Study 523 days Fri 12/29/00 Tue 12/31/02 110 TOR, short list and LOI approved by the Bank 0 days Fri 12/29/00 Fri 12/29/00 111 Letter issued to consultants 0 days Wed 1/3 1/01 Wed 1/3 1/01 112 Consultants prepare and submit proposals 45 days Wed 1/31/01 Tue 4/3/01 , 113 HPCD evaluates Consultant's proposals 22 days Wed 4/4/01 Thu 5/3/01 114 Bank approves evaluation report 30 days Fri 5/4/01 Thu 6/14/01 115 HPCD negotiates and awards contract 15 days Fni 6/15/01 Thu 7/5/01 116 Consultants mobilize 30 days Fri 7/6/01 Thu 8/16/01 117 Execution of study 359 days Thu 8/16/01 Tue 12/31/02 118._. 119 6. Road Data Bank 1040 days Wed 1/6/99 Tue 12/31/02 120 List of Chinese experts available for Bank review 0 days Wed 1/6/99 Wed 1/6/99 1i6 Task Summary Rolled Up Progress _ I Project: Implementation Program Split Rolled Up Task Extemal Tasks [ E Date: Tue 5118/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone K Project Appraisal Document Page 97 Fourth National Highway Project County: China HUBEI PROVINCE page 7 of 9 Table 2. Implementation Program 1998 1999 200 120 12002 12003 ID Task Name Duration Start Finish Hi H2 |H H2 Hi H2H 2 H H2H 121 Mobilize consultant/study group 192 days Thu 1/7/99 Fri 10/1/99 122 Final proposal and work program review by Bank and no-objection 195 days Mon 10/4/99 Fri 6/30/00 123 Execute study 652 days Mon 7/3/00 Tue 12/31/02 , 124 125 17. Competition in Highway Sector 1022 days Mon 82V99 Tue 7/1/03 , 126 List of Chinese experts available for Bank review 0 days Mon 8/2/99 Mon 8/2/99 127 Mobilize consultant/study group 501 days Mon 8/2/99 Mon 7/2/01 128 Final proposal and work program review by Bank and no-objection 131 days Tue 7/3/01 Tue 1/ I/02 129 Execute study 390 days Wed 1/2/02 Tue 7/1/03 130 131 8. Road Safety Activities 936 days Mon 8/2/99 Mon Y3/03 132 A. Study on Maintenance Safety 285 days Mon 8/299 Fri 9/1/00 133 List of Chinese experts available for Bank review 0 days Mon 8/2/99 Mon 8/2/99 134 Mobilize consultant/study group 7 days Mon 8/2/99 Tue 8/10/99 + 135 Final proposal and work program review by Bank and no-objection 16 days Wed 8/11/99 Wed 9/1/99 136 Execute study 262 days Thu 9/2/99 Fri 9/1/00 137 B. Road Safety Seminars 936 days Mon 82/99 Mon 3/3/03 138 Program of seminars reviewed by the Bank 0 days Mon 8/2/99 Mon 8/2/99 139 Execute program 523 days Thu 3/1/01 Mon 3/3/03 . 140 Task Summary Rolled Up Progress Project: Implementation Program Split RolledUpTask External Tasks L Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone 0 Project Appraisal Document Page 98 Fourth National Highway Project County: China HUBEI PROVINCE page 8 of 9 Table 2. Implementation Program 1998 i1999 12000 2001 12002 2003 iD Task Name Duration Start Finish H1 H2 Hi H2 Hi H2 I Hi H2 Hi H2 H14 i H2 141 C. Safety Audit Procedures 566 days Fri 12/31/9% Fri 3/1/02 q . 142 Review and no-objection of Bank to TOR, LOI and shortlist of consultants 0 days Fri 12/31/99 Fri 12/31/99 4 2I31 143 Issue invitations to consultants 7 days Fri 12/31/99 Mon 1/10/00 144 Last date to receive proposalsComplete proposal evaluation report 35 days Tue 1/11/00 Mon 2/28/00 145 Bank review proposal evaluation report and no-objection 67 days Tue 2/29/00 Wed 5/31/00 146 Negotiate with consultant and sign contract 43 days Thu 6/1/00 Mon 7/31/00 . 147 Start study 24 days Tue 8/1/00 Fri 9/1/00 148 Complete study 390 days Mon 9/4/00 Fri 3/1/02 149 D. Safety on Road work sites 436 days Mon /2/99 Mon 4/2101 150 List of Chinese experts available for Bank review I day Mon 8/2/99 Mon 8/2/99 151 Mobilize consultant/study group 22 days Tue 8/3/99 Wed 9/1/99 * 152 Final proposal and work program review by Bank and no-objection 130 days Thu 9/2/99 Wed 3/1/00 153 Execute study 283 days Thu 3/2/00 Mon 4/2/01 154 E. Identification and Remedy of Black spots 436 days Mon 8/2199 Mon 4/2/01 155 List of Chinese experts available for Bank review 0 days Mon 8/2/99 Mon 8/2/99 156 Mobilize consultant/study group III days Mon 8/2/99 Mon 1/3/00 157 Final proposal and work program review by Bank and no-objection 42 days Tue 1/4/00 Wed 3/1/00 158 Execute study 283 days Thu 3/2/00 Mon 4/2/01 159.. ,, 160 .... . Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task External Tasks Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone 0 Project Appraisal Document Page 99 Fourth National Highway Project County: China HUBEI PROVINCE page 9 of 9 Table 2. Implementation Program 198 119 12000 12001 12002 12003 f ID Task Name Durabon Start Finish HI H2 Hi H2 | Hi H2 H 2H2 Hi H2 Hi0 H2 161 9. Institutional and Policy Activities 1045 days Wed 3/31/99 Tue 4/1/03 162 A. Institutional Development Plan (IDP) 720 days Wed 3/31/99 Tue 1/1/02 _ 163 IDP for Bank review 0 days Wed 3/31/99 Wed 3/31/99 e 31 164 Bank review and no-objection 66 days Wed 3/31/99 Wed 6/30/99 165 Execute 654 days Thu 7/1/99 Tue 1/1/02 166 B. Road Safety Unit program 1045 days Wed 3/31/99 Tue 4/1/03 'g g g y 167 Program for Bank review 0 days Wed 3/31/99 Wed 3/31/99 1.31 168 Bank review and no-objection9 66 days Wed 3/31/99 Wed 6/30/99 169 Execute 979 days Thu 7/l/99 Tue 4/1/03 170 C. Training program 849 days Wed 3/31/99 Mon 7/1/02 171 Program for Bank review 0 days Wed 3/31/99 Wed 3/31/99 172 Bank review and no-objection 66 days Wed 3/31/99 Wed 6/30/99 173 Execute 783 days Thu 7/1/99 Mon 7/1/02 174 D. Quality Unit program 981 days Wed 3/31/99 Wed 1/1/03 175 Program for Bank review 0 days Wed 3/31/99 Wed 3/31/99 176 Bank review and no-objection 66 days Wed 3/31/99 Wed 6/30/99 177 Execute 915 days Thu 7/1/99 Wed 1/1/03 Task Summary Rolled Up Progress Project: Implementation Program Split Rolled Up Task Extemal Tasks Date: Tue 5/18/99 Progress Rolled Up Split Project Summary _ Milestone Rolled Up Milestone Project Appraisal Document Page 100 Fourth National Highway Project County: China ANNEX 11: PROCUREMENT AND DISBURSEMENT ARRANGEMENTS Fourth National Highway Project Procurement Procurement methods (Table A, A-a, and A-b) 1. Procurement under the project would be carried out as shown in Table A. The procurement arrangements for the project have taken into account the Bank's "Guidelines for Procurement under IBRD Loans and IDA Credits" (January 1995, and revised in January, August 1996, September 1997 and January 1999) as well as the experience gained from previous Bank-financed highway projects. The documentation,. for procurement, which covers the prequalification of contractors, International Competitive Bidding (ICB) and National Competitive Bidding (NCB) for civil works, ICB for goods, and consultant services contracts has been standardized for Chinese conditions in cooperation between the Chinese government and the Bank on the basis of model documents which would be used for all relevant procurement processes under the project. Where no model documents exists, relevant Bank standard documents would be used. 2.Works. In Hubei, the civil works for ZTE would be divided into 7 contract sections, with an average contract size of about $36 million equivalent. Electromechanical works would be handled as one contract amounting to about $10.9 million equivalent. Interconnecting roads, administration and maintenance buildings, service areas and toll plazas would be carried out in several small contracts. In Hunan, the civil works for TCE would be divided into 11 contract sections, with an average contract size of $40 million equivalent. Electromechanical works would be handled in one contract amounting to $14.2 million equivalent. Administration and maintenance buildings, service areas, and toll plazas would be carried out in several small contracts. 3. The 7 civil works contracts and one electromechanical works contract for ZTE, the 11 civil works contracts and one electromechanical works contracts for TCE, with an estimated total cost of about $757 million would be procured following ICB procedures. Contracts would be bid on a slice-and-package basis; qualified contractors would be allowed to bid for more than one contract so as to attract international and large Chinese contractors. The 2 contracts for electromechanical works would be bid later during the construction of ZTE and TCE. All bidders for the 18 civil works contracts would be prequalified. Domestic bidders are expected to be competitive for all contracts under this project. 4. Other works, including interconnecting roads in Hubei and Hunan and small service facilities such as toll stations, maintenance depots, service and rest areas, and administrative buildings in Hubei and Hunan would be awarded following NCB procedures acceptable to the Bank. This has been agreed to between the Bank and the implementing agencies. These works would involve contracts estimated to cost less than $10 million per contract, up to an aggregate amount not to exceed $59.1 million for Hubei and $34.0 million for Hunan. Since these contracts are small in value and scattered along ZTE and TCE and would be implemented over a four-year period, ICB would be neither justified nor practical, but international firms would not be precluded from bidding. 5. Equipment. Generally, all contracts for goods and equipment costing more than $250,000 equivalent would be awarded under ICB. Goods and equipment which the Bank agrees can only be purchased from a limited number of suppliers may be procured under Limited International Bidding (LIB). All other Project Appraisal Document Page 101 Fourth National Highway Project County: China items or groups of items covering minor maintenance equipment, equipment for RDB and PMS, laboratories, research and environmental protection purposes estimated to cost less than $250,000 per contract package, in an aggregate amount not exceeding $2.5 million per province, would be procured following shopping procedures on the basis of comparison of price quotations solicited from at least three suppliers from two countries eligible under the Bank Guidelines for Procurement. 6. Consultants. All consultants required for construction supervision, staff training, technical assistance and studies would be selected and employed under terms and conditions acceptable to the Bank in accordance with Bank Guidelines on the "Selection and Employment of Consultants by World Bank Borrowers", dated January 1997, September 1997 and January 1999. Selection of consultants for Construction Supervision, Transport and Economic Integration study, Maintenance Costs and Fund Allocation studies, and Expressway Safety Programs in both provinces will be carried out through Quality and Cost Based Selection (QCBS). Local expertise available from the various provincial universities and institutes would be used as much as possible. 7. Advance Contracting. Both HPCDs have requested advance contracting and retroactive financing in the following areas: (a) Consultants for Construction Supervision of ZTE and TCE. This would allow for training of local staff and start-up of construction supervision by the time contracts are signed with contractors. The amounts subject to retroactive financing are estimated at $1 million for each province. (b) Laboratory Equipment for Joint Local/Foreign Supervision Teams. This would permit effective and timely construction supervision. The amounts subject to retroactive financing are estimated at $0.2 million for each province. (c) Construction of ZTE and TCE Expressway Sections. Early start of construction of the ZTE and TCE sections of expressway would help alleviate severe traffic bottlenecks and reduce traffic on the existing corridors. The amounts subject to retroactive financing are estimated at $18.8 million for Hunan and at $13.8 million for Hubei. Prior review thresholds (Table B, B-a, B-b) 8. Prior review procedures would be used for: (a) civil works with an estimated cost of $ 2 million (Y 17 million) or more per contract; (b) equipment with an estimated cost of more than $ 250,000 per contract; and (c) consulting services with an estimated cost of more than $100,000 per contract for firms and $ 50,000 for individuals. In the case of consultant' service contracts, all terms of reference and single- source selections, regardless of the value of the contract, are subject to prior review. For contracts below the above-mentioned limits,post-review procedures would be followed. The sampling ratio for contracts not subject to prior review is 25 %. Disbursement Allocation of loan proceeds (Table C):Allocation of loan proceeds is shown in Table C. 1. Use of statements of expenditures (SOEs): Withdrawal from the loan account would be made on the basis of SOEs for expenditures for: (a) civil works under contracts costing less than $2.0 million, (b) goods under contracts costing less than $250,000, (c) services provide by consulting firms under contracts costing less than $100,000, (d) services provided by individual consultants under contracts costing less than $50,000, and (e) training. Project Appraisal Document Page 102 Fourth National Highway Project County: China 2. Special account: To facilitate disbursements, a Special Account would be opened for each of Hunan and Hubei with an authorized allocation of $15 million and $12 million, respectively, the estimated average expenditures for a four-month period. Annex 11, Table A: Consolidated Project Costs by Procurement Arrangements] (in US$million equivalent) Procurement method Expenditure Category ICB NUB Other N.B.F. Total Cost Works Expressway Civil Works 731.8 731.8 (283.4) (283.4) Annex Areas & Admin. Bldgs 30.1 30.1 (10.9) (10.9) Expressway E & M Works 25.1 25.1 (18.1) (18.1) Interconnecting Roads 33.4 33.4 (12.7) (12.7) Other Roads 29.6 29.6 (3.0) (3.0) Goods Equipment 8.1 1.9 10.1 (5.3) (0.9) (6.2) Services Construction Supervision 22.9 22.9 (10.0) (10.0) Consultants and Training 4.9 4.9 (2.3) (2.3) Miscellaneous Land Acquisition and Resettlement 60.6 60.6 (0.0) (0.0) Front-end Fee 3.5 3.5 (3.5) (3.5) Total 765.1 93.1 33.2 60.6 952.0 (306.7) (26.5) (16.7) (0.0) (350.0) (a) Other includes intemational shopping, LIB and consultants and training. (b) N.B.F. = Not Bank-financed. (c) Selection of Consultants according to the Bank's Guidelines for Use of Consultants. Notes: (1) Figures in parentheses are the amounts to be financed by the Bank loan. (2) All figures are rounded and include estimated physical and price contingencies but exclude the cost of land acquisition and resettlement which is shown as a separate component. I For details on presentation of Procurement Methods refer to OD11.02, "Procurement Arrangements for Investment Operations." Details on Consultant Services can be shown more easily in the Table Al format (additional to Table A, where applicable). Project Appraisal Document Page 103 Fourth National Highway Project County: China Annex 11, Table A-a: Project Costs by Procurement Arrangements' Hunan Section (in US$million) Procurement method Expenditure Category ICB NCB O(ther N.B.F. Total Cost Works Expressway Civil Works 409.5 409.5 (161.7) (161.7) Annex Areas & Admin. Bldgs 14.4 14.4 (6.6) (6.6) Expressway E & M Works 14.2 14.2 (12.4) (12.4) Interconnecting Roads 19.6 19.6 (8.9) (8.9) Goods Equipment 4.3 0.5 4.8 (3.5) (0.2) (3.7) Services Construction Supervision 13.2 13.2 (3.3) (3.3) Consultants and Training 2.8 2.8 (1.6) (1.6) Miscellaneous Land Acquisition and Resettlement 38.4 38.4 (0.0) (0.0) Front-end Fee 2.0 2.0 (2.0) (2.0) Total 428.0 34.0 18.6 38.4 519.0 (177.6) (15.4) (7.0) (0.0) (200.0) For details on presentation of Procurement Methods refer to ODI 1.02, "Procurement Arrangements for Investment Operations." Details on Consultant Services can be shown more easily in the Table Al format (additional to Table A, where applicable). Project Appraisal Document Page 104 Fourth National Highway Project County: China Annex 11, Table A-b: Project Costs by Procurement Arrangements] Hubei Section (in US$million) Procurement method Expenditure Category lCB NCB Other N.B.F. Total Cost Works Expressway Civil Works 322.3 322.3 (121.7) (121.7) Annex Areas & Admin. Bldgs 15.7 15.7 (4.3) (4.3) Expressway E & M Works 10.9 10.9 (5.7) (5.7) Interconnecting Roads 13.8 13.8 (3.8) (3.8) Other Roads 29.6 29.6 (3.0) (3.0) Goods Equipment 3.8 1.4 5.2 (1.8) (0.7) (2.5) Services Construction Supervision 9.6 9.6 (6.8) (6.8) Consultants and Training 2.1 2.1 (0.8) (0.8) Miscellaneous Land Acquisition and Resettlement 22.2 22.2 (0.0) (0.0) Front-end Fee 1.5 1.5 (1.5) (1.5) Total 337.0 59.1 14.6 22.2 433.0 (129.2) (11.1) (9.7) (0.0) (150.0) For details on presentation of Procurement Methods refer to OD11.02, "Procurement Arrangements for Investment Operations." Details on Consultant Services can be shown more easily in the Table Al format (additional to Table A, where applicable). Project Appraisal Document Page 105 Fourth National Highway Project County: China Annex 11, Table B: Thresholds for Procurement Methods and Prior Reviewl Contract Value Contracts Subject to Prior Review/ (Threshold) Procurement Estimated Total Value Subject Expenditure (US$'000,000) Method to Prior Review (US$ million) Category 1. Works More than 2.0 ICB 20 Contracts $757 million subject to prior review More than 2.0 NCB 42 Contracts $93.1 million subject to prior review 2. Goods More than 0.25 ICB 4 Contracts $9.7 million subject to prior review 3. Services More than 0.10 for QCBS Supervision Contracts $22.8 million, firms, more than 0.05 training and studies $4.9 million subject for individuals to prior review Total value of contracts subject to prior review: $887 million Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. Project Appraisal Document Page 106 Fourth National Highway Project County: China Annex 11, Table B-a: Thresholds for Procurement Methods and Prior Reviewl Hunan Province Contract Vaiue Contracts Subject to Prior Review/ (Threshold) Procurement Estimated Total Value Subject Expenditure (US$'000,000) Method to Prior Review (US$ million) Category 1. Works More than 2.0 ICB 12 Contracts $423.7 million subject to prior review More than 2.0 NCB 23 Contracts $34.0 million subject to prior review 2. Goods More than 0.25 ICB 2 Contracts $5.9 million subject to prior review 3. Services More than 0.10 for QCBS Supervision Contracts $13.2 million, firms, more than 0.05 training and studies $2.8 million subject for individuals to prior review Total value of contracts subject to prior review: $479 million Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. Project Appraisal Document Page 107 Fourth National Highway Project County: China Annex 11, Table B-b: Thresholds for Procurement Methods and Prior Reviewl Hubei Province Contract Value Contracts Subject to Prior Review/ (Threshold) Procurement Estimated Total Value Subject Expenditure (US$'000,000) Method to Prior Review (US$ million) Category 1. Works More than 2.0 ICB 8 Contracts $333.2 million subject to prior review More than 2.0 NCB 19 Contracts $59.1 million subject to prior review 2. Goods More than 0.25 ICB 2 Contracts $3.8 million subject to prior review 3. Services More than 0.10 for QCBS Supervision Contracts $9.6 million, firms, more than 0.05 training and studies $2.1 million subject for individuals to prior review Total value of contracts subject to prior review: $408 million Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. Project Appraisal Document Page 108 Fourth National Highway Project County: China Annex 11, Table C- 1: Estimated Disbursement Schedule ($ million) Lonsolidatea Hubei Llsbursement and Hunan Profile of Projects Hubei Component Hunan Component Component in China Annual Cumulat. % Annual Cumulat. % Annual Cumulat. %/7 % FY 2000 13 13 9 20 20 10 33 33 9 6 FY 2001 42 55 37 50 70 35 92 125 36 16 FY 2002 42 97 65 50 120 60 92 217 62 38 FY 2003 47 144 96 40 160 80 87 304 87 60 FY 2004 6 150 100 30 190 95 36 340 97 78 FY 2005 10 200 100 10 350 100 100 Project Appraisal Document Page 109 Fourth National Highway Project County: China Annex 11, Table C-2: Allocation of Loan Proceeds Amount m US$ Expenditure Category million Financed Percentage Civil works Hubei expressway section 114.7 45% Hubei annex areas & admin. bldgs. 2.5 20% Hubei interconnecting roads 2.2 20% Hubei other roads 2.3 10% Hunan expressway section 154.1 48% Hunan annex areas & admin. bldgs. 2.8 25% Hunan interconnecting roads 3.8 25% Electrical and mechanical works Hubei E&M works 6.9 80% Hunan E&M works 10.3 70% Construction supervision Hubei supervision 2.2 100% Hunan supervision 2.7 100% Equipment Hubei equipment 2.4 100% of foreign expenditures, 100% of local expenditures (ex-factory cost ) and 75% of local expenditures for other items procured locally Hunan equipment 3.0 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 75% of local expenditures for other items procured locally Training and Studies Hubei TA/Studies and training 0.3 100% Hunan TA/Studies and training 1.3 100% Front-end Fee 3.5 100% Hubei unallocated 15.0 Hunan unallocated 20.0 Total 350.0 Project Appraisal Document Page 110 Fourth National Highway Project County: China ANNEX 12: ECONOMIC AND FINANCIAL EVALUATION Fourth National Highway Project 1. The economic evaluation focuses on: (i) the new expressway between Zhengdian and Hunan Border in Hubei Province and Hubei border and Changsha in Hunan Province; (ii) the expressway link roads; and (iii) the other roads program in Hubei, which together account for 98 percent of the project costs. The expressway was subdivided into six sections, based on traffic and construction cost considerations, which were analyzed independently. The following table presents each project component length and financial construction costs including physical and price contingencies. Province Component Length Cost (kIm) (M Yuan) Hubei Zhengdian - Zhang Gong Expressway 36.3 1,081 Zhang Gong - Gang Tang Expressway 17.9 700 Gang Tang - Tu Cheng Expressway 55.6 1,366 Hunan Tu Cheng - Wujiang Expressway 63.2 1,599 Wujiang - Wushi Expressway 54.2 1,371 Wushi - Changsha Expressway 65.4 1,656 Subtotal 292.6 7,773 Hubei Four Link Roads 28.2 138 Two Other Roads 164.0 305 Hunan Four Link Roads 30.0 156 Subtotal 222.2 599 Total 514.8 8,372 A. Expressway Economic Evaluation 2. Benefits and Beneficiaries. The Zhengdian (Wuhan) - Changsha expressway is part of the Beijing - Zhuhai expressway that belongs to the "Two Vertical, Two Horizontal Main Truck Highways" being constructed by the state. The Beijing - Zhuhai Expressway goes via Beijing, Hebei, Henan, Hubei, Hunan and Guangdong cities and provinces. Those areas are the developed zones in the country and the completion of the project is of great significance both to the national economy and social development. The completion of the expressway, which links up the Hubei and Hunan Provinces, will surely assist Hubei and Hunan Provinces consummate its road network and alleviate the bottleneck of traffic congestion on highways. The expressway runs parallel to National Highway No. 107, a class 2 highway that is taken as the main passage in existing highways of south-north direction. National Highway No. 107 is suited for up to a traffic volume of 7,500 vehicles per day and is reaching its capacity. Heavy traffic burden and commercialization of the highway cause frequent traffic jams and traffic accidents being a key factor affecting the economic development in the area. 3. The major quantifiable project benefits are vehicle operating costs, travel time, and road accidents savings. Compared with the existing road parallel to the expressway, the expressway will have shorter length, improved surface condition and riding comfort, and reduced traffic interference due to pedestrians, bicycles and non-motorized vehicles. Therefore, most of the long distance traffic and some of the local traffic is expected to diverge from the existing road to the expressway reducing vehicle operating and time costs for the expressway users. Since many users will take the expressway, there will be a reduction on the current congestion levels on the existing road. Thus, users who remain on the Project Appraisal Document Page 111 Fourth National Highway Project County: China existing road will also benefit in the form of time savings due to the resulting higher travel speeds. Other quantified project benefits are due to the generated traffic as a result of the lowering of transport costs, increased industrial and agricultural production, and traffic diversion from the railway. For a conservative evaluation, other project benefits not quantified in this study are the generated traffic on the existing roads due to the reduction of the current congestion level and positive effects on the non-motorized traffic using the existing roads. 4. The HDM Model. Project benefits were estimated using the 1995 version of the Highways Design and Maintenance Standards Model (HDM) developed by the World Bank. The HDM model predicts vehicle operating costs and travel time costs on a given road as a function of vehicle characteristics, road geometry, road surface condition, and congestion level. The model computes free-flow vehicle speeds and actual speeds as a function of the congestion level. The computed actual speeds are then used to estimate the physical quantities of resource consumption (for example: liters per km of fuel consumption or hours of delay) that are multiplied by unit costs to obtain road user costs. 5. Data Collection. The Zhengdian - Changsha expressway was divided into six sections, three in each Province, to take into account different traffic levels, distance savings, and construction costs. Data describing the expressway sections is presented in Table 12.1. The expressways sections will be constructed to 2x2 lanes, with an average financial construction cost of 28 million Yuan per km, economic costs being 70 percent of financial costs eliminating taxes, custom duties, price contingencies, and interest payments during construction. The expressway will be designed according to MOC's expressway standards with access restricted to normal motor traffic; agricultural tractor and non- motorized traffic would be excluded. Compared with the existing road, National Highway No. 107, there will be an average distance savings of 19 percent. 6. Data was collected on vehicle fleet characteristics, utilization and unit costs, which are given inTable 12.2. The average number of passengers for buses is 40 and the average payload for medium trucks is 4.8 tons and for heavy trucks is 7.5 tons. The number of kilometers driven per year is 70,000 for buses, 50,000 for medium trucks and 30,000 for heavy trucks. The economic costs were derived from financial costs by deducting taxes and subsidies; and the value of time was estimated to be 2.0 Yuan/hour calculated on the basis of annual income for the region and assuming that 70 percent of passengers are traveling on work/business purposes and the value of non-working time is 25 percent of the average income. Based on local data, accident benefits were computed assuming that the accidents rate on the existing roads is 200 accidents per 100 million vehicle-km, there will be a 50 percent reduction in accidents on the expressway, and the cost per accident is 7,700 Yuan. The table below presents some recent accident statistics in the project area. Class of Name of Number per 100 million vehicle-km Highway Highway Accidents Injuries Fatalities Expressway Changsha - Xiangtan 133 32 15 1 Wuhan - Huangshi Road 127 94 30 2 NH107 Changsha Section 139 176 12 2 NH107 Liaxiang Section 279 72 27 2 NH107 Miluo Section 133 85 20 2 NH107 Zhengdian Section 220 122 49 3 Wuhan - Puqi Road 439 260 47 4 NH106 Pingjiang Section 276 327 97 4 Baili - Jieshan Road 842 640 189 Project Appraisal Document Page 112 Fourth National Highway Project County: China 7. Projected Traffic. Traffic counts and comprehensive origin-destination (OD) surveys were conducted that provided a good basis for estimating the expressway diverted and generated traffic. The survey revealed the following: (a) the average daily traffic (ADT) on National Highway No. 107 was on average around 6,700 vehicles per day in 1997; (b) trucks constitute about 76 percent of ADT; (c) medium trucks represent about 50 percent of ADT and heavy trucks represent 16 percent of ADT; (d) on National Highway No. 107, current measured truck speeds in the most congested hour are about 30 km/hour and at night about 60 km/hour; (e) the expected speeds on the expressway are 85 km/hour; and (f) the traffic in the peak hour is about 11 percent of the average daily traffic. The following table presents for each section the estimated motorized traffic on National Highway No. 107 in 1999 and 2003, and the expected diverted and generated traffic on the expressway in 2003. No 107 in No 107 in Diverted to Generated on 1999 2003 Expressway in Expressway in 2003 2003 Zhengdian - Zhang Gong 7239 10410 6863 1540 Zhang Gong - Gang Tang 7049 9933 6546 1480 Gang Tang - Tu Cheng 6363 9557 6468 1621 Tu Cheng - Wujiang 8268 12024 7879 2530 Wujiang - Wushi 8977 13236 10127 2733 Wushi - Changsha 10628 15099 11267 2746 8. On the basis of the OD surveys and considering that the expressway will be tolled at the same levels as currently is being charged on other expressways in the region, the diversion of traffic from the existing road was estimated to be on average 69 percent and the generated traffic to be on average 19 percent of the traffic on the existing road. The generated traffic includes traffic that would divert from the railway, which is on average 11 percent of the total traffic on the expressway and 57 percent of the generated traffic. The railway diverted traffic considers the current railway condition and a diversion from the railway to the expressway on average of 15 percent for passengers and a 2 percent for freight. The railway diverted traffic will not be large due to the fact that the highway and railway transportation is rationalized and share the work economically, with the railway average length of haul for passengers and freight transportation of 762 km and 1338 krn, respectively and highway average length of haul of 42 km and 52 km, respectively. Once the planned improvements to the railway take place, it is estimated that the diverted traffic will reduce by 4 percent. Taking into consideration the economic development and traffic growth in the past and based on the expected economic growth in the project area of influence in the future, the traffic is projected to increase on average at the following annual rates: a) for the period 1999 - 2003, 14 percent for cars and 8 percent for commercial vehicles; b) for the period 2004 - 2013, 1 1 percent for cars and 7 percent for commercial vehicles; and c) for the period 2014 - 2022, 6 percent for cars and 4 percent for commercial vehicles. From 1990 to 1996, National Highway No. 107 had on average a 18 percent annual traffic growth rate and the project area of influence had on average a 12 percent annual GDP growth rate. 9. Methodology. For each expressway section, unit road user costs, in Yuan per vehicle-km, were estimated using the HDM model for vehicles traveling on the expressway and on National Highway No. 107 based on the road data shown in Table 12.1 and vehicle data shown in Table 12.2. A sample of these unit road user costs is given in Table 12.3. Road user costs are a function of the congestion level of a road, therefore, they were computed for a series of traffic levels and a relationship between road user costs and traffic was established for each road. This relationship was then introduced into a customized economic evaluation model created on an Excel spreadsheet. Project Appraisal Document Page 113 Fourth National Highway Project County: China 10. The Excel model estimates benefits due to diverted and generated traffic on the expressway and the remaining traffic on the existing road. For diverted traffic, benefits were taken to be the reduction on total transport costs; and for generated traffic, benefits were taken to be one-half of the unit benefits of the diverted traffic assuming traffic would have developed in proportion to the reduction in transport costs. The Excel model takes as inputs the unit road user costs given by HDM for the "with" and "without" project cases, the length of the expressway and the existing road, the construction and maintenance costs, and the traffic assumptions; and gives as outputs the rate of return and the net present value, at a discount rate of 12 percent, of the proposed project. The expressway is assumed to be constructed in 4 years, opening to traffic in 2003 with an economic life of 20 years and a residual value equal to 50 percent of the initial construction cost. Table 12.4 shows, as an example, the resulting outputs for the Zhengdian - Zhang Gong section. 11. Results. The following table presents the resulting economic internal rate of return (EIRR) and net present value (NPV), at 12 percent discount rate in million Yuan, obtained for each expressway section and the entire expressway. The entire expressway EIRR is 25.2 percent and none of the sections has an EIRR below 12.0 percent. The expressway section with lower EIRR is the Zhang Gong - Gang Tang section, which has the highest construction costs due to the bridges it contains. The section with higher EIRR is the Wujiang - Wushi section, which has distance savings of 14 percent and the second highest traffic. Expressway Economic Net Internal Present Rate of Return Value (%) (M Yuan at 12 %) Zhengdian - Zhang Gong 21.5 828 Zhang Gong - Gang Tang 18.6 338 Gang Tang - Tu Cheng 21.4 1,019 Tu Cheng - Wujiang 28.0 2,328 Wujiang - Wushi 29.1 2,171 Wushi - Changsha 26.7 2,123 Hubei Section 20.9 2,184 Hunan Section 27.9 6,622 Entire Expressway 25.2 8,806 B. Link Roads and Other Roads Economic Evaluation 12. Link and Other Roads. In order to make the Zhengdian - Changsha expressway connect rationally with other roads in the area, eight interconnecting link roads are planned to be constructed as part of this project, which are Ma An Shan, Zhang Gong, Gang Tang, and Quan Kou link roads in Hubei and Liaxiang, Pinjian, Kaihui, and Guangfu link roads in Hunan. Also two other roads are part of the project, which are Dawu - Hongan and Tongshan - Puqi in Hubei. The table below presents the main characteristics of each road. Project Appraisal Document Page 114 Fourth National Highway Project County: China Province Road Length Road Traffic New alignment Costs (km) Class 2002 or upgrading (M Yuan) Hubei Ma An Shan 1.7 2 1034 New 8 Zhang Gong 10.0 2 2443 New 56 Gang Tang 7.1 2 5558 Upgrading 19 Quan Kou 9.4 2 1012 New 55 Tongshan - Puqi 69.0 2 5508 Upgrading 135 Dawu - Hongan 95.0 2 1394 Upgrading 170 Hunan Liaxiang 2.9 2 2780 New 27 Pinjian 16.5 2 5977 New & Upgrading 80 Kaihui 8.0 2 3403 Upgrading 37 Guangfu 2.5 2 1800 New 12 13. Results. The following table presents the resulting EIRR and NPV (at 12 percent discount rate in million Yuan) obtained for each road following the same methodology applied to the expressway. That is, computing the net benefits of vehicle operating costs and travel time savings comparing the with and without project scenario based on available data on the existing roads characteristics, the proposed projects, and the forecasted traffic. Province Road Economic Internal Net Present Value Rate of Return (%) (M Yuan) Hubei Ma An Shan 20.3 4 Zhang Gong 34.2 100 Gang Tang 46.8 76 Quan Kou 20.7 32 Tongshan - Puqi 44.4 779 Dawu - Hongan 33.4 316 Hunan Liaxiang 24.8 28 Pinjian 57.6 480 Kaihui 34.6 75 Guangfu 25.7 12 C. Overall Project Economic Evaluation 14. The overall project, which includes the expressway sections, the link roads, and the other roads, yields a NPV of 10,879 million Yuan and an EIRR of 26.2 percent. The modified EIRR is 17.7 percent assuming a 12 percent financing and reinvestment rate. The sensitivity analysis, the switching values, and the risk analysis indicate that the project economic justification is quite robust with a most likely EIRR of 23.0 percent and a zero percent chance that the EIRR will be less than 12 percent. The following table presents a summary of the results and the net benefits distribution, which shows that cars will receive 28 percent of the project net benefits, buses 21 percent, and trucks 52 percent. Net Modified Likely Benefits EIRR EIRR EIRR (M Yuan) (/) (N) (%) Society 10879 26.2% 17.7% 23.0% Road Agency -5236 Road Users 16116_ Project Appraisal Document Page 115 Fourth National Highway Project County: China Net Net Benefits Benefits Percent Cars Buses Trucks Total Cars Buses Trucks Total (M Yuan) (%/6) (M Yuan) (M Yuan) (M Yuan) (M Yuan) (%/) (%/.) (%/.) (%') RoadUser 16116 100% 4476 3337 8302 16116 28% 21% 52% 100% Expressway Diverted traffic 12627 78% 3403 2429 6795 12627 27% 19% 54% 100% Expressway Generated traffic 1500 9% 356 319 825 1500 24% 21% 55% 100% Existing Roads 1900 12% 701 583 616 1900 37% 31% 32% 100% Safety 88 1% 16 6 66 88 18% 7% 75% 100% 15. Sensitivity Analysis. Table 12.5 presents detailed results of sensitivity tests, which are summarized in the table below. The results show: (a) if construction costs increase by 20 percent and user benefits reduce by 20 percent, the project EIRR is 20.3 percent, which indicates that even under this pessimistic scenario the project is justified; (b) if the traffic diversion reduces by 20 percent and 50 percent, the project EIRR reduces to 23.9 percent and 18.9 percent respectively; (c) if accident benefits reduce by 20 percent, there is a negligible reduction on the project EIRR, (d) if time savings reduce by 20 percent, the project EIRR reduces to 25.5 percent and if time savings are eliminated the project EIRR reduces to 22.1 percent; (e) if generated traffic benefits are eliminated, the project EIRR reduces to 24.7 percent; (f) if there is no diversion of traffic from the railway, the project EIRR reduces to 25.3 percent; (g) the construction costs and diverted traffic have almost the same sensitivity; and (h) a 6 year construction period decreases the project EIRR to 20.6 percent. Case Scenario Entire Project EIRR (%) 0 Base case 26.2 1 Construction costs increased by 20% 23.4 2 User benefits reduced by 20% 22.8 3 Combination of 1 and 2 20.3 4a Time savings reduced by 20% 25.5 4b No time savings 21.1 5 Accident benefits reduced by 20% 26.2 6a Generated traffic reduced by 20% 25.9 6b No generated traffic 24.7 6c No traffic diversion from the railway 25.3 7a Diverted traffic reduced by 20% 23.9 7b Diverted traffic reduced by 50% 18.9 8 Traffic growth rate reduced by 20% 23.7 9 5 year construction period 23.7 10 6 year construction period 20.9 16. Switching Values Analysis. Table 12.5 presents the results of the switching values analysis. The table shows that, for the entire project, construction costs have to be multiplied by a factor of 3.14 or user benefits have to be multiplied by a factor of 0.32 to yield a project EIRR of 12.0 percent. For each expressway section, the construction costs multiplier factor varies from 1.82 to 8.03 and the net user benefits multiplier factor varies from 0.12 to 0.55. The analysis shows that there is a good allowance for possible construction costs increases or reduction of net benefits. One can state that to yield a project EIRR of 12.0 percent, construction costs would have to be multiplied by around 3 or net benefits divided by around 3. Project Appraisal Document Page 116 Fourth National Highway Project County: China 17. Risk Analysis. A risk analysis was done using the @RISK software that adds risk analysis capabilities to an Excel spreadsheet following the methodology that is explained briefly inTable 12.6. The uncertainty for the following inputs was defined using a triangle distribution: (a) construction costs, (b) existing traffic on the existing road, (c) diverted traffic to the expressway, (d) generated traffic, and (e) traffic growth rate. Considering possible sampling errors associated with measured data, model uncertainty, and uncertainties due to forecasting by judgment (e.g., optimistic and pessimistic scenarios of economic growth), it was defined that: (a) there is an equal probability that the construction costs and existing traffic on National Highway No. 107 will be lower or higher than the estimated values, and (b) there is a higher probability that diverted traffic, generated traffic, and traffic growth rate will be lower rather than higher than the estimated values. 18. For construction costs and existing traffic, the most likely value was set to the estimated value, the minimum possible value was set to 80 percent of the estimated value, and the maximum possible value was set to 120 percent of the estimated value. These assumptions indicate that there is a 50 percent probability that the actual values will be lower or higher than the estimated value and there is 74 percent probability that the actual values will be between 90 and 110 percent of the estimated value. For the diverted traffic, generated traffic and traffic growth rate inputs, the most likely value was set to the estimated value, the minimum possible value was set to 50 percent of the estimated value, and the maximum possible value was set to 110 percent of the estimated value. These assumptions indicate that there is an 83 percent probability that the actual values will be lower than the estimated value, 17 percent probability that they will be higher than the estimated value, and 62 percent probability that they will be between the estimated value and 75 percent of the estimated value. Table 12.7 shows the frequency distributions adopted in the study. 19. With this information, the @RISK software evaluated 400 what-if scenarios, varying the inputs described above accordingly to the defined input probability distributions, yielding an estimated EIRR for each what-if scenario. The resulting frequency histogram graph and cumulative frequency distribution graph are given in Table 12.7 for the entire project. Table 12.5 presents the resulting mean EIRR, the EIRR standard deviation, the probability (in percent) that the EIRR will be lower than 12.0 percent, and an assessment of a worst scenario, most likely scenario, and best scenario for all expressway sections. In this study, the worst scenario EIRR is defined as one which has a 10 percent probability that the actual EIRR will be lower than it (10% percentile), the best case scenario EIRR is defined as one which has a 90 percent probability that the actual EIRR will be lower than it (90% percentile), and the most likely scenario is defined as one which has a 50 percent probability that the actual EIRR will be lower than it (50% percentile). The results are summarized in the table below. The risk analysis shows that all sections and the entire project have an EIRR greater than 12.0 percent even for the worst scenario. The entire project EIRR is 18.9 percent for the worst scenario, 23.0 percent for the most likely scenario, and 26.1 percent for the best scenario. Project Appraisal Document Page 117 Fourth National Highway Project County: China Province Component EIRR EIRR Probability Mean Standard. EIRR< 12% (%/6) Deviation (%) (%) Hubei Zheng Dian - Zhang Gong 18.4 2.4 0.8 Zhang Gong - Gang Tang 15.8 2.2 6.8 Gang Tang - Tu Cheng 18.3 2.4 0.8 Hunan Tu Cheng - Wujiang 24.4 2.8 0.0 Wujiang - Wushi 25.5 2.9 0.0 Wushi - Changsha 23.4 2.7 0.0 Hubei Four Link Roads 26.6 3.0 0.0 Two Other Roads 33.9 4.2 0.0 Hunan Four Link Roads 31.9 2.8 0.0 Overall 22.8 2.7 0.0 Project Province Component EIRR EIRR EIRR Worst Most Likely. Best Scenario Scenario Scenario (%/-) (%/0) (%/6) Hubei Zhengdian-Zhang Gong 14.9 18.7 21.4 Zhang Gong - Gang Tang 12.7 16.0 18.5 Gang Tang - Tu Cheng 14.8 18.5 21.2 Hunan Tu Cheng - Wujiang 20.5 24.7 27.8 Wujiang - Wushi 21.5 25.7 28.9 Wushi - Changsha 19.6 23.6 26.7 Hubei Four Link Roads 22.6 26.9 30.5 Two Other Roads 28.2 34.2 39.1 Hunan Four Link Roads 28.1 32.1 35.5 Overall 18.9 23.0 26.1 Project 20. Conclusion. The single point estimation and sensitivity analysis indicate that the EIRRs are greater than 12.0 percent for all sections and for the entire project. The risk analysis indicates that the most likely EIRRs are also greater that 12.0 percent for all sections and for the entire project and that the probability that the entire project EIRR will be lower than 12.0 percent is zero. Therefore, the project is economically well-justified. D. Expressway Financial Evaluation 21. The financial evaluation focuses on the Zhengdian - Changsha expressway, which is the main component of the project and the only one that will generate financial income with profit-making and repayment capabilities. The toll revenue is the only mayor financial income from operation of the Zhengdian - Changsha expressway. Tolls will be charged as a function of vehicle type and size and distance traveled at the same level and structure as the tolls currently being collected on tolled expressways in Hubei and Hunan Provinces. The tables below present the current tolls on Hubei and Hunan expressways and an estimate of the current tolls on Class 2 National Highway No. 107 based on the fact that vehicles pay tolls per toll station and the average distance between toll stations is 59 km. Tolls on National Highway No. 107 being around 80 percent the expressways tolls indicate that the Project Appraisal Document Page 118 Fourth National Highway Project County: China expressways tolls are reasonable considering the much higher level of service provided by the expressways. Vehicle Trucks Cars & Buses Expressways Tolls Class (tons) (seats) (YuanNVehicle-km) A < 2.0 < 17 0.25 B 2.0 - 5.0 18 - 50 0.50 C > 5.0 > 51 0.75 Vehicle Toll per Station Avg. Weight Highway 107 Tolls* Class (Yuan) (tons) (YuanNVehicle-km) Motorcycle 3 0.05 Car 5 0.08 Small Truck or Bus 5 per ton 1.3 0.11 Medium Truck or Bus 5 per ton 4.5 0.38 Heavy Truck or Bus 5 per ton 7.5 0.64 * assuming 59 km between toll stations 22. The financial evaluation was done assuming that: (a) tolls are expected to increase about every five years to take account of inflation, expected to be around 5 percent annually, (b) maintenance costs and operation costs are also expected to increase at around 5 percent annually to take account of inflation, (c) financial costs include investment during construction phase and costs in operation phase including maintenance costs, toll gates management costs, administration costs, and taxes of 3 percent of toll income, and (d) considering that some special vehicles such as: police, ambulance, and military vehicles, will not be charged, tolling traffic volume is 95 percent of the predicted traffic. Considering that around 32 percent of the investment will be financed by the World Bank with 7.85 percent interest rate, 29 percent of the investment will be financed locally with 10.50 percent interest rate, and the opportunity cost of capital is 5 percent, the weighted average cost of capital is 7.5 percent. The table below summarizes the financial evaluation. Financial Net Internal Present Rate of Return Value (%) (M Yuan at 7.5 %) Zhengdian - Zhang Gong 10.9 475 Zhang Gong - Gang Tang 7.8 20 Gang Tang - Tu Cheng 12.6 942 Tu Cheng - Wujiang 14.0 1,478 Wujiang - Wushi 16.2 1,862 Wushi - Changsha 17.3 2,628 Zhengdian - Changsha 14.1 7,405 Project Appraisal Document Page 119 Fourth National Highway Project County: China 23. The entire expressway financial rate of return is 14.1 percent with a net present value of 7,405 million Yuan at 7.5 discount rate and an investment recovery period of 15 years. Three cases were considered in the sensitivity analysis: construction costs increase by 20 percent, revenues decrease by 20 percent, and construction costs increase by 20 percent meanwhile revenues decrease by 20 percent. The corresponding project financial rates of return of 12.2 percent, 11.8 percent, and 10.0 percent indicate that even under the most unfavorable situation, the financial benefits are high with a financial rate of return over the weighted average cost of capital of 7.5 percent. Project Appraisal Docurnent Page 120 Fourth National Highway Project County: China Table 12.1 - Expressway Sections Data expressway Secuons Province Hubei Hubei Hubei Hunan Hunan Hunan Road name Zheng Dian - Zhang Gong - Gang Tang - Tandu - Wujiang - Wushi - Zhang Gong Gang Tang Tu Cheng Wujiang Wushi Niujiaochong Financial construebon oast (million Yuan) 1081 700 136e 1599 1371 1656 Economic construction cost (million Yuan) 757 490 956 1119 960 1159 Project road length (km) 36.3 17.9 55.6 63.2 54.2 65.4 Project road width (m) 23.5 23.5 23.5 23,5 23.5 23.5 Project road average roughness (IRI) 2.5 2.5 2.5 2.5 2.5 2.5 Existng road length (km) 47.0 26.0 70.0 82.0 63.3 66.1 Existing road width (m) 9.0 9.0 9.0 9.0 9.0 9.0 Existing road average roughness (IRI) 5.0 5.0 5.0 5.0 5.0 5.0 Motorized traffic on existing roads in 1999 (ADT) 7239 7049 5363 8268 8977 10628 Motorized traffic on existng roads in 2003, before (ADT) 10410 9933 9557 12024 13236 15099 Motorized traffic on existing roads in 2003, after (ADT) 3547 3367 3089 4135 3219 5009 Diverted motorized traffic on expressway in 2003 (ADT) 6863 6546 6468 7879 10127 11267 Generated motorized traffic on expressway in 2003 (ADT) 1540 1480 1621 2530 2733 2746 Total motorized traffic on expressway In 2003 (ADT) 8403 8026 8089 10409 12860 14013 Total motorized trafc on expressway in 2022 (ADT) 26654 24494 25060 30498 36807 40684 Percent of cars: 13% 8% 5% 18% 20% 21% Percent of small buses: 4% 2% 3% 5% 5% 5% Percent of medium buses: 7% 4% 5% 8% 9% 6% Percent of light trucks (gross weight 3.0 to 6.5 t): 6% 4% 4% 6% 7% 8% Percent of medium trucks (gross weight 5.0 to 16.0 t): 55% 66% 64% 45% 42% 28% Peneantofheavytrucks(grossweight6.0to22.01): 12% 15% 18% 15% 11% 24% Percent of articulated tucks (gross weight 13.0 to 45.0 t): 2% 1% 1% 4% 6% 9% Growth rate for cars for period 1999-2003 (%): 14% 14% 15% 14% 14% 14% Growthrateforcarmtorperiod2004-2008(%): 11% 11% 10% 10% 11% 11% Growthrate forcarsforperiod2009-2013(%): 11% 11% 10% 10% 11% 11% Grwth rate for cars for period 2014-2022 (%): 6% 6% 5% 6% 6% 5% Growth rate for commercial vehicles for period 1999-2003 (%): 8% 8% 10% 8% 8% 7% Growth rate for commerdial vehicles for period 2004-2008 (%): 8% 8% 6% 6% 5% 5% Growth rate for commercial vehicles for period 2009-2013 (%): 8% 8% 8% 6% 5% 5% Growth rate for commercial vehides for period 2014-2022 (%): 4% 4% 4% 3% 3% 4% Cars speeds on existing roads on most congested hour (km/hr): 40 40 40 40 32 34 Cars speeds on existing roads at nght (kmf/r): 70 70 70 52 52 55 Med. trucks speeds on existing roads on most congested hour (kmihr): 30 30 30 38 30 32 Med. truCks speeds on existing roads at night (kmihr): 60 60 60 67 56 59 Predicted passenger cars speeds on new expressway (knihr): 80 80 80 80 80 80 Predicted medium trucks speeds on new expressway (kmihr): 75 75 75 75 75 75 Financial Construction cost per km (million Yuan) 29.8 39.1 24.5 25.3 25.3 25.3 Distance savings (%): -23% -31% -21% -23% -14% -1% Diverted traffic as percent of normal traffic, in 2008 (%) e6% 56% 68% 66% 77% 75% Geweratedtrafficaspercento nofrmltraf c,in2003(%) 15% 15% 17% 21% 21% 18% NH14 I LVJ1.ALb DIWY Project Appraisal Document Page 121 Fourth National Highway Project County: China Table 12.2 - Vehicle Fleet Characteristics Small Light Medium Heavy Articulated Cars Buses Buses Trucks Trucks Trucks Trucks Gross vehicle weight of fully loaded average vehicle (tons) 2.00 4.70 12.00 3.75 12.90 28.00 42.00 Payload of fully loaded average vehicle (tons) 1.00 1.25 6.00 1.25 4.90 9.00 14.00 Gross vehicle weight of average vehicle (tons) 1.20 2.50 8.00 4.00 8.00 17.00 28.00 Payload of average vehicle (tons) 0.24 0.48 1.80 0.85 4.80 7.50 11.00 Number of passengers (#) 3 15 40 0 0 0 0 Service life (years) 12 12 12 12 12 12 12 Kilometers driven per year (km) 30000 30000 70000 50000 50000 30000 20000 Hours driven per year (hours) 850 850 2000 1500 1500 800 700 Economic Costs Newvehideprice(Yuan) 160000 48000 104000 64000 96000 144000 240000 One new tire price (Yuan) 320 320 800 800 800 960 960 Maintenance labor cost for vehice repairs (Yuan/hour) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Driver wages (Yuan/hour) 3.6 3.6 3.6 3.0 3.6 3.6 4.0 Passenger Time costs (Yuantpassenger-hour) 2.0 2.0 2.0 0.0 0.0 0.0 0.0 Cargo Time costs (Yuan/vehicle-hour) 0.0 0.0 0.0 4.0 4.0 4.0 4.0 Gas/Petrol price (Yuan/liter) 2.1 Diesel price (Yuan/liter) 2.0 Lubricants price (Yuan/liter) 12.6 Income Income Working Nonworking Yuani Yuan/ % traveling time time Year Hour work/business value value Yuan/hr 5400 2.6 70% 100% 25% 2.0 Real (without inflation) interest charge on the purchase of a new vehicle: 10 Articulated Trucks 4% Cr Heavy Trucks 14% Typical Vehicle Composition 16% Small Buses 4% Buses 8% Light Trucks 6% Medium Trucks 50% NI-14-1 B02.XLS /5/99 Project Appraisal Document Page 122 Fourth National Highway Project County: China Table 12.3 - Typical Road User Costs Small Light Medium Heavy rticulated Cars Buses Buses Trucks Trucks Trucks Trucks Typical Road User Costs (Yuan per vehicle-kilometer) New Expressway 1.24 0.88 1.92 0.75 1.14 1.92 2.57 Existing Class 2 Road (1250 AOT) 1.52 1.15 2.50 0.95 1.34 2.36 3.46 Existing Class 2 Road (5000 ADT) 1.56 1.21 2.64 0.97 1.36 2.38 3.50 Existing Class 2 Road (10000 ADT) 1.69 1.40 3.03 1.04 1.45 2.47 3.63 Existing Class 2 Road (20000 ADT) 2.51 2.64 5.68 1.51 2.11 3.21 4.76 Existing Road * ar 6.00- 5.00 * Small Bus 4.00 S ;TBuS 3.00A 4 b I x~~~~~~~~~~~~Medium 2.00 Truck 1.00 2 Heavy Truck 0.00 + Articulated 0 5000 10000 15000 20000 25000 Truck Typical Road User Costs Composition (Yuan per vehicle-kilometer) Vehicle Operating Costs Fuel and Lubrcants 0.21 0.20 0.56 0.22 0.58 0.92 0.84 Tires 0.02 0.07 0.12 0.20 0.11 0.19 0.22 Maintenance Labor and Parts 0.38 0.09 0.14 0.14 0.19 0.30 0.48 Crew 0.04 0.04 0.04 0.04 0.04 0.04 0.05 Depreciation and Interest 0.54 0.14 0.13 0.11 0.16 0.42 0.93 Passenger ad Cargo Time Costs 0.06 0.34 0.94 0.05 0.05 0.05 0.05 Total 1.24 0.88 1.92 0.75 1.14 1.92 2.57 NH4-TB03.XLS 515/99 Project Appraisal Document Page 123 Fourth National Highway Project County: China Table 12.4 - Excel Economic Evaluaton Model Sample Zheng Dian -Zhang Gong Expressway Section UDaily I raliC (AWI) Fi.nancoal t EconoW nat (MYu-an) SenaitysAnasis o n cste ucton canoe a vr Generd Road CSnfey | Cnsruct Ur (a) & (b) and Yea D4verId Generated Pried Project (M Yuan) Cost Co=ts Taffc rI T Banafety cants (a) Bneft (b) SeandivityAnalysbs 1999 7239 7239 2162 -151.4 0 0 0 0 0 -151 -1S2 -151 -182 2000 7922 7922 324.4 -227.1 0 0 0 0 0 -227 -272 -227 -272 2001 8674 8674 324.4 -227.1 0 0 0 0 0 -227 -272 -227 -272 2002 9500 9500 216.2 .151.4 0 0 0 0 0 -151 -1S2 -151 -t12 2003 6963 1540 3547 10410 0.0 0.0 -.9 104 12 18 1 13t 130 103 103 2004 7419 1665 3843 11292 0.0 0.0 -3.9 116 13 20 1 147 146 116 116 2005 8020 1900 4165 12185 0.0 -3.9 130 15 23 1 165 164 130 130 2006 8671 1946 4514 13185 0.0 -3.9 145 16 27 1 185 1S4 147 147 2007 9376 2104 4893 14269 0.0 -3.9 162 18 30 1 208 207 165 165 2008 10139 2275 5305 15444 0.0 -39 182 20 34 1 234 232 185 185 2809 10965 2461 5752 16717 0.0 -3.9 203 23 39 2 262 261 208 208 2510 11860 2681 6238 18098 0.0 -3.9 227 25 44 2 293 292 233 233 2011 12830 2879 6765 19595 0.0 -3.9 253 28 49 2 328 326 280 28 2012 13800 3114 7338 21218 0.0 -3.9 282 32 54 2 385 364 290 290 2013 14516 3257 7687 22203 0.0 4.9 299 34 57 2 388 386 308 308 2014 15182 3407 8052 23234 0.0 -3.9 31 36 61 2 41 410 327 327 2015 15879 3563 8436 24315 0.0 3.9 337 38 64 2 437 435 347 347 2016 16609 3727 838 25447 0.0 -3.9 358 40 67 2 463 461 368 368 2017 17374 3898 9259 26633 0.0 -162.2 379 43 70 2 332 330 231 231 201S 18174 4076 9701 27S75 0.0 -3.9 401 45 73 2 518 516 412 412 2019 19011 4266 10165 29177 5.5 -3.9 424 48 76 3 546 544 434 434 2020 19899 4463 10652 30541 0.0 -3.9 448 50 79 3 575 573 457 457 2021 2807 4669 11162 31969 0.0 -3.9 472 53 81 3 605 602 461 481 2022 21769 4685 11698 33467 378.4 -3.9 497 56 82 3 1013 1085 883 956 I otl M Tuan) _ lw Total ,er km (M Yuan) 29.8 Internal Rate of Reaim (%) 21.5% 19.1% 18.5% 16.4% Net Present Value at 12% Discount 828 696 524 401 NH4-TB04.XLS 515199 Project Appraisal Document Page 124 Fourth National Highway Project County: China Table 12.5 - Economic Evaluation Results Sensi"sity Analysis Economic Intemal Rates of Retum (EIRR) Case 1 Case 2 Case 3 Case 4 Case S Case 6 Case 7 Case 8 Case 9 Case 10 20% Incr. 20% Deer. Combined 20% Deer. 20% Decr. 20% Deer. 20% Deer. 20% Deer. 5 Year 6 Year Base Construd. User (1) & (2) Value of Accident Generated Diverted Traffic Construe. Construn. Pnoject Component Case Costs Benefits Time Benefits Traffic Traffic GDrwlh Period Perod ZhengDian -Zhang Gong 21.5% 19.1% 18.5% 16.4% 21.0% 21.5% 21.3% 19.4% 19.3% 19.6% 17.8% Zhang Gong - Gang Tang 18.6% 16.4% 15.9% 13.9% 18.3% 18.6% 18.4% 16.6% 16.6% 16.9% 15.4% GangTang-TuCheng 21.4% 19.0% 18.4% 16.3% 21.1% 21.4% 21.1% 19.3% 19.1% 194% 17.5% Tu Cheng - Wujiang 28.0% 25.0% 24.3% 21.7% 27.2% 28.0% 27.6% 25.4% 25.7% 25.0% 21.9% Wujiang-Wushi 29.1% 26.0% 25.3% 22.6% 28.1% 29.1% 28.7% 26.6% 26.5% 26.1% 22.6% Wushi - Changsha 26.7% 23.8% 23.1% 20.6% 25.9% 26.7% 26.4% 24.3% 24.4% 24.1% 20.5% Hubei Link Roads 30.5% 27.4% 26.6% 23.8% 29.1% 30.5% 30.5% 27.5% 27.2% 26.8% 23.8% Hubei Other Roads 38.9% 35.5% 34.7% 31.7% 37.5% 36.9% 36.9% 36.6% 33.3% 35.3% 32.3% Hunan Unk Roads 35.7% 32.0% 31.2% 27.9% 34.4% 35.7% 34.8% 33.3% 33.2% 30.5% 26.0% Hunan Other Roads 19.5% 17.3% 16.7% 14.8% 18.7% 19.5% 19.5% 18.3% 16.1% 16.3% 16.4% Entire Project 26.2% 23.4% 22.8% 20.3% 25.5% 26.2% 2.59% 23.9% 23.7% 23.7% 20.9% Switching Values Analysis Risk Analysis Construdion Net User Mean Standarnd Pruobabiity Pernentie Casts Benefits EIRR Deviation that EIRR 10% 50% 80% Muotiplier Muafiplier EIRR <12% Worst Likely Best Factorto Factorto Scenario Scenanio Srenario Yeld 12% Yeld 12% EIRR EIRR EIRR Zheng Dian -Zhang Gong 2.29 0.44 18.4% 2.4% 0.8% 14.9% 18.7% 21.4% Zhang Gong - Gang Tang 1.82 0.55 15.8% 2.2% 6.8% 12.7% 16.0% 18.5% Gang Tang - Tu Cheng 2.27 0.44 18.3% 2.4% 0.8% 14.6% 18.5% 21.2% Tu Cheng - Wujiang 3.46 0.29 24.4% 2.8% 0.0% 20.5% 24.7% 27.8% Wujiang - Wushi 3.68 0.27 25.5% 2.9% 0.0% 21.5% 25.7% 28.9% Wushi - Changsha 3.17 0.32 23.4% 2.7% 0.0% 19.6% 23.6% 267% Hubei Link Roads 3.97 0.25 26.8% 3.0% 0.0* 22.6% 26.9% 30.5% Hubei Other Roads 8.03 0.12 33.9% 4.2% 0.0% 28.2% 34.2% 39.1% Hunan Link Roads 4.94 0.20 31.9% 2.8% 0.0% 28.1% 32.1% 35.5% Hunan Other Roads 2.00 0.50 16.4% 2.7% 5.3% 12.8% 16.7% 19.7% Entire Project 3.14 0.32 22.8% 2.7% 0.0% 18.S% 23.0% 26.1% 1N4-ltgsuXLS s/S99 Project Appraisal Document Page 125 Fourth National Highway Project County: China Table 12.6 - Risk Analysis Methodology Standard spreadsheet models analyses combine single 'poinf estimates of the model's input variables to predict a single result. Estimates of the input variables are used because the actual values are not known with certainty. For example: Revenues = 100 Costs = 90 ==> Profits = 10 In reality, however, things don't always turn out as planned because too conservative or optimistic estimates may have been adopted. The combined errors in each input variable estimate could lead to real-life result that is different from the estimated result. With risk analysis, one can explicitly include the uncertainty present in the estimates to generate results that show all possible outcomes. For example, consider a simple case where there is unzertainty in both input variables: Revenues = 100 or 120 Costs = 90 or 80 Possible Profits = > 100-90 = 10 100-80 = 20 120-90 = 30 120-80 = 40 In a risk analysis, one includes the estmate of an input varable and some measure of the likelihood of occurrence for that variable. The risk analysis will then use this information to analyze every possible outcome, executing hundreds of what-if scenarios adopting in each case random inputs accordingly to the input probability distributon. For example, consider this more complex case: Revenues Estmated most likely value = 100 (triangle distributon) Estmated minimum possible value = 90 Estmated maximum possible value = 130 Costs Estimated mean value = 90 (normal distribution) Estimated standard deviaton = 20 Results: Scenario 1 Revenues = 105.9 Costs = 116.8 Profits = -10.9 Scenario 2 Revenues= 119.5 Costs = 87.2 Profits = 32.3 Scenario 300 Revenues = 103.4 Costs = 86.6 Profits = 16.8 In this case, the resuits are presented as probability distributions and statistics that give the decision-maker a complete picture of all possible outcomes. For example, for the case above we have the following results: l~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. . a Proit .... 6 .7 .. .. ....... .. .. .... ....... ..... .............. .... .... . . . . ...... Mean Profits = 16.7 Standard Deviation of Profits = 22.4 Probability that profts will be lower than zero =24.1 percent . S8 ~~LIIII II IIIW NH4-TB06.XLS 515/99 Project Appraisal Document Page 128 Fourth National Highway Project County: China Table 12.7 - Risk Analysis Results Frequency distribution for - Construction costs I - Existing traffic o-1 2 P , lz*-1 ,-z":p 'IF teI-S '', NI " l l p Multiplier Factor Frequency distribution for - Diverted traffic - Generated traffic - Traffic growth f8 (Z
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