China - Zhejiang Provincial Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 20921 IMPLEMENTATION COMPLETION REPORT (CPL-347 10; SCL-347 IA; SCPD-347 1 S) ON A LOAN IN THE AMOUNT OF US$ 220.0 MILLION TO THE PEOPLES REPUBLIC OF CHINA FOR THE ZHEJIANG PROVINCIAL HIGHWAY PROJECT NOVEMBER 16, 2000 Transport Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective August 2000) Currency Unit = Chinese RMB RMB I = US$ 0.12 US$ 1 = RMB 8.3 FISCAL YEAR January I December 31 ABBREVIATIONS AND ACRONYMS AADT Average Annual Daily Traffic AR Accounts Receivables DF Diversion Factor EA Environmental Assessment E&M Electrical and Mechanical Works EIRR Economic Intemal Rate of Return FIDIC Federation Intemationale des Ingenieurs Conseils FRR Financial Rate of Return HNH Hangzhou-Ningbo Highway ICB International Competitive Bidding ICR Implementation Completion Report km Kilometers MOC Ministry of Communications NCB National Competitive Bidding NPV Net Present Value NTHS National Trunk Highway System PCU Passenger Car Unit PMS Pavement Management System RDB Road Data Bank RDP Road Development Program SAR Staff Appraisal Report SDPC State Development and Planning Committee VOC Vehicle Operating Cost ZECL Zhejiang Expressway Company Limited ZPEPEC Zhejiang Provincial Expressway Project Executive Commission ZPG Zhejiang Provincial Government ZPHAB Zhejiang Provincial Highway Administration Bureau ZPTD Zhejiang Provincial Transport Department Vice President: Jemal-ud-din Kassum, EAPVP Country Manager/Director: Yukon Huang, EACCF Sector Manager/Director: Jitendra N. Bajpai, EASTR Task Team Leader/Task Manager: Yasuhiro Kawabata, EASTR  FOR OFFICIAL USE ONLY FOR OFFICLAL USE ONLY CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings I 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 7 6. Sustainability 9 7. Bank and Borrower Performance 10 8. Lessons Learned 12 9. Partner Comments 13 10. Additional Information 20 Annex 1. Key Performance Indicators/Log Frame Matrix 21 Annex 2. Project Costs and Financing 22 Annex 3. Economic Costs and Benefits 25 Annex 4. Bank Inputs 42 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 43 Annex 6. Ratings of Bank and Borrower Performance 44 Annex 7. List of Supporting Documents 45 MAP 1 Zhejiang Provincial Highway Project (IBRD 30981) MAP 2 Zhejiang Provincial Highway Project: Hangzhou-Ningbo Highway (IBRD 30982) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   Project ID: P003534 Project Name: ZHEJIANG PROVINCIAL HIGHWAY PROJECT Team Leader: Yasuhiro Kawabata TL Unit: EASTR ICR Type: Core ICR Report Date: November 16, 2000 1. Project Data Name: ZEEJIANG PROVINCIAL HIGHWAY PROJECT L/C/TFNumber: CPL-34710; SCL-3471 A; SCPD-3471S Country/Department: CHINA Region: East Asia and Pacific Region Sector/subsector: TH - Highways KEY DATES Original Revised/Actual PCD: 05/12/89 Effective: 09/02/92 09/02/92 Appraisal: 06/06/91 MTR: Approval: 05/19/92 Closing: 06/30/98 06/30/2000 Borrower/Implementing Agency: PEOPLE'S REPUBLIC OF CHINA/ZHEJIANG PROVINCIAL EXPRESSWAY PROJECT EXECUTIVE COMMISSION Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Russell J. Cheetham Country Manager: Yukon Huang Shahid Javed Burki Sector Manager: Jitendra N. Bajpai Daud Ahmad Team Leader at ICR: Yasuhiro Kawabata Otto Ragambi ICR Primary Author: Jacques G. Yenny 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time:  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: 3.1.1 The objectives of the project were: (a) to relieve congestion in the Hangzhou-Ningbo corridor by providing a fast and reliable highway; (b) to promote economic development through the provision of road access to population presently deprived of motorized vehicle access and to improve the provincial and county roads carrying substantial volumes of traffic; (c) to further develop institutional capabilities for transport planning and investrnent prioritization; and (d) to promote the transfer of highway construction and maintenance technology. 3.1.2 The objectives were clear and in line with the sector assistance strategy and the government's request to the Bank for continuous highway subsector assistance. In early 1990 the Bank undertook a joint screening mission, with SDPC and MOC. to make a preliminary assessment of nine highway proposals which had been submitted to the Bank. The mission concluded that the Hangzhou-Ningbo highway had the highest priority of the screened projects and should form the basis of provincial highway projects for Bank financing. 3.2 Revised Objective: Project objectives were not revised. 3.3 Original Components: 3.3.1 The original components of the project were: (a) construction of a 138 km section of the Hangzhou-Ningbo four-lane divided, access-controlled highway (HNH); (b) construction and improvement of about 33 road sections (970 km) of the provincial/county road network and five bridges (2,000 m); (c) construction supervision of the HNH and the provincial/county road construction and improvement components; (d) purchase of equipment for laboratories, environmental protection, operation, maintenance and for the development and application of the Road Data Bank (RDB) and Pavement Management System (PMS); and (e) staff training programs. 3.3.2. Since the implementing agency was a first-time executing agency of a Bank project, and the project was the first expressway to be built in the province, the project was fairly demanding on the agency. However, preparation of the project was aided by Bank experience with previous provincial highway projects, assisted by the active involvement of the Ministry of Communications (MOC). 3.4 Revised Components: Components were not revised. 3.5 Quality at Entry: Quality at entry was rated as satisfactory. The objectives were consistent with Govemment priorities and the Bank's sector strategy. The design was reviewed by foreign consultants and a test embankment was constructed to deal with the difficult sub-soil conditions along the alignment of the expressway. Safeguard policies on environment and resettlement woere followed by the province and found satisfactory. -2 -  4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: 4.1.1 Despite some minor shortcomings during implementation, the project is considered satisfactory and the objectives have been met. The main project component, the construction of the HNH, was completed and opened to traffic by December 1996, as scheduled. The objective of reducing congestion in the corridor has been met with traffic on the expressway constituting about 60% of total corridor traffic in 1999. Furthermore, the economic benefits are considered to be sustainable without any predictable elements of risk as traffic has been growing rapidly in the three years since opening. In fact, because of the favorable prospect for continued strong economic activity in the influence area of the HNH, the Zhejiang Provincial Government established a shareholding company that successfully raised about $440 million on the Hong Kong Stock Exchange in May 1997 by securitizing revenues from the completed HNH (section 8.1). 4.1.2 The provision of road access, to promote the economic development of population previously deprived of such access, is also expected to be fully achieved and sustained. Already, the annual per capita income, which was RMB 550 at the time of project appraisal in six counties located in areas served by the roads, increased to about RMB 3,200 in 1998. The re-estimated EIRR confirms the expected level of viability of the investments made and highlights the high priority of investing in areas with economic potential but with poor road infrastructure. 4.1.3 The impact of technology transfer through training is not easy to measure due to difficulties in defming baseline parameters. However, the overseas training and study tours provided a satisfactory level of exposure to new concepts and incentives for adoption in the Chinese enviromnent. Similarly, technology transfer through acquisition of modem equipment for operation and maintenance of the Zhejiang provincial highway network including HNH should achieve its objectives and ensure that the Zhejiang highways will be adequately maintained. 4.1.4 Institutional capabilities for planning and investment prioritization were developed through the successful expansion of the road data bank (RDB) and pavement management system (PMS) programs for the core arterial road network of the province. This was achieved through the adoption of the Chinese RDB and PMS programs, which were developed for nationwide application and required some adjustrnent to the system evolved from the local pilot study. At present, the RDB and PMS programs are operational in all 11 municipalities of the province and cover the primary paved network of 26,000 km. The results of the PMS are not yet fully used in programming annual maintenance expenditures. 4.2 Outputs by components: Hangzhou-Ningbo Highway (HNH) 4.2.1 Civil Works. The HNH was successfully completed. About half of it was substantially completed and opened to traffic in December 1995 and the remaining half one year later in December 1996. Construction quality was a major issue throughout Bank supervision and agreed remedial work, financed by the government, was performed in the first two years after opening (see also para 5.2). During implementation of the project, local governments requested the Zhejiang Provincial Government (ZPG) to allow them to build additional interchanges (Guali, Keqiao, Guzhu, Moushan and Dayin). Since the timing of construction of these interchanges did not fit in the implementation schedule for the whole project, the - 3 -  local governments decided to finance their construction from their own budget. Consequently, the original average interval of interchanges, 24.2 km, was shortened to 13.2 km, and the level of service provided by the expressway to these communities was greatly enhanced. 4.2.2 Electrical and Mechanical Works (E&M). The supply and installation contract was delayed for a number of reasons described more fully in section 5.3. As a result, the loan closing date was extended by two years to June 30, 2000. Fortunately, the delays had no substantive adverse effect on the operation of the ENH. Traffic had been using the highway since December 1995, and tolls were collected using temporary toll collection facilities. 4.2.3 Construction Supervision. A foreign consulting firm engaged to assist ZPEPEC in construction supervision, provided 172 person-months of services. Foreign and local engineers were jointly responsible for on-site supervision and quality control, as well as ensuring that works on the HNH were carried out in fall compliance with technical specifications. The performance of the supervision team was generally satisfactory. On the job training by foreign engineers was a significant means of technology transfer, and an essential measure for the effective control of construction quality. 4.2.4 Environmental Protection. Since the HNH traverses flat terrain and partially rolling terrain, the construction of the highway was expected to have only limited adverse impact on the enviromnent. The environmental assessment (EA) report specified measures related to social disruption, air quality, noise control, water management and waste disposal. The engineering design and technical specifications incorporated the mitigating measures required during implementation. During the construction of the HNH, no adverse environmental problems emerged. It was confirmed that there has been a reduction of noise and air pollution in towns and villages along the arterial roads, due to the diversion of traffic to the HNH from the parallel arterial roads once the HNH was opened to traffic. 4.2.5 Land Acquisition and Resettlement. The land acquisition and resettlement activities were executed between January and May 1992 before the conmmencement of civil works for the HNH. The cost of land acquisition and resettlement related costs increased from RMB 129.1 million to RMB 147.8 million. The expenses covered the removal and relocation of communication and electricity cables, intersecting and service roads, drainage and irrigation systems, dwellings and other buildings, and compensation payments for land and resettlement. Even though the land acquired was increased only 14 percent over appraisal estimates, the total area of houses demolished was increased 17 percent over appraisal estimates. The actual number of"people affected was also slightly increased from 12,940 to 13,206. As confirmed by the Bank's July 1999 Resettlement Review Mission, the land acquisition, resettlement and compensation procedures agreed at negotiations were substantially followed. Independent monitoring of the living standards of the Project Affected Persons indicates that no significant problems have arisen. Road Development Program (RDP) 4.2.6 The original RDP comprised 33 road and bridge subprojects with a total length of 970 km with a provision that, subject to further assessment, subprojects may be deleted or added to the program within the budgeted scope of the RDP. Most of the o:riginally proposed 33 subprojects were substantially completed as scheduled in December 1996. Since there were cost savings, six subprojects with a total length of 38 km were added to the program. Consequently, the scope of the RDP was expanded, eventually involving 39 subprojects with a total length of 1,066 km. -4 -  4.2.7 Environmental Protection. Most of the works under the RDP involved upgrade, rehabilitation and maintenance of existing infrastructure. Nevertheless, the potential adverse impact of each subproject on the environment was assessed. For subprojects with an established risk of adverse impact, an EA was prepared. For those with no potential environmental risk, an environmental code of practice was applied to the actions to be taken in the design and implementation stages. 4.2.8 Land Acquisition and Resettlement. The assessment at appraisal indicated that about 12,700 individuals could require resettlement and compensation under the program. Most of the roads under the RDP were located in mountainous areas, thus efforts were made to minimize the occupation of cultivated land. Affected farmers received direct benefits from better access to roads and recovered their physical and economic loss easily. The compensation rates were comparatively low; however, per capita income in these regions increased dramatically. For instance, in Dongzhuang Village of Chunan County the per capita income rose from RMB 500 in 1992 to R.MB 3,160 in 1998. The rehabilitation of the livelihood of affected people is considered successful. Equipment Procurement 4.2.9 The cost of the equipment to be purchased under the project was estimated at US$13.7 million including contingencies. During the project implementation, the original equipment lists were changed in type and number to allow flexibility for changing circumstances and needs. The actual amount spent to procure equipment (about US$9 million) was lower than the amount estimated at appraisal. Staff Training 4.2.10 The implemented training program was comprised of training courses (domestic and abroad) and study tours to several foreign countries. The covered topics included: highway design, construction, project management, finance and highway management. Most of the overseas training courses and study tours were prepared and administered under a program coordinated by MOC, and involving the staff of several other provincial transport departments. These departments were executing agencies of other ongoing Bank-financed highway projects with staff training components. The training program commenced in 1992 and was completed by October 1998. 4.2.11 A total of 100 persons participated in the overseas training courses, involving 102.5 person-months, at an overall cost of $853,000, or about $8,300/person-month. Another 51 persons involving 33.8 person-months participated in the study tours abroad at an overall cost of $311,000, or about $9,200/person-month. The person-month cost of training is similar to those incurred under other recently completed Bank-financed highway projects in China. The training program was a useful means of technology transfer and provided a satisfactory exposure to new concepts and modem business procedures in foreign countries. Pavement Evaluation, Road Data Bank (RDB) and Pavement Management System (PMS) 4.2.12 By the early 1990s, good progress had been made with both the RDB and PMS programs in China. Therefore, MOC and the Bank agreed that it would be more efficient and consistent to develop local capability for both of these systems, rather than approach them separately in each of the provinces with external assistance. To introduce the PMS, 15 provinces/municipalities were selected, including Zhejiang. The Bank supported MOC's endeavor, and the Bank-financed highway projects helped finance the acquisition of equipment, including computer hardware and software, instruments for land-based land -5 -  surveys and geographic information systems. The RDB and PMS programs are now operational in all 11 municipalities and cover the primary paved network of 26,000 km. 4.3 Net Present Value/Economic rate of return: Hangzhou-Ningbo Highway (HNH) 4.3.1 The Economic Internal Rate of Return (EIRR) on the HNH is estimated to be 16.8% versus the Staff Appraisal Report (SAR) estimate of 19.9%, and the Net Present Value (NPV) at RMB 2,064 million versus RMB 4,249 million. The recalculated EIRR and NPV are lower than estimated at appraisal mainly due to significant increases in project costs and less traffic diversion from the existing road than anticipated. Nonetheless, traffic on the five sections of HNH increased 21-35% from 1997 to 1999. The detailed economic analysis is in Annex 3. Road Development Program (RDP) 4.3.2 The EIRR for the RDP as a whole is estimated at 44%. At appraisal, the economic analysis covered only the first phase. In the ICR, the EIRR for the first phase is estimated at 69.5% versus 26% as estimated in the SAR, and the NPV is estinmated at RMB 1,100 million versus RMB 539 million. The estimated EIRR for the subsequent phases of RDP ranges from 16% to 35%. The main reason for lower returns on subprojects implemented in the later stages is that these projects are located in more remote areas with less traffic volume. The detailed economic analysis is in Annex 3. 4.4 Financial rate of return: Hangzhou-Ningbo Highway 4.4.1 The entire HNH was opened to traffic in December 1996. In May 1997, ZPG established a shareholding company responsible for the day-to-day managernent, operation, and development of other highways. The highway company immediately took over the responsibility for operation of the HNH. The company also bears the financial obligations for its own operation and for repayment of loans. Its main income source is the toll revenue from the users of HNH, but the level of toll charges is controlled by ZPG. The basic principle for toll collection on the HNH is repaying the Bank's loan, rather than maxirnizing the financial rate of return (FRR) on the investment. The level of toll charges, therefore, was set on the low side with low annual growth increases (10 percent increase every three years or an average increase of 3.2 percent per year). 4.4.2 Financial Evaluations. Two financial evaluations were made for HNH. The first was to determine the rate of return on equity from the point of view of the highway agency and the central government. For this evaluation, equity of the project was assumed to be the total investment cost less the debts, such as the World Bank loan. The net revenues were determined by subtracting the loan servicing costs and road operating and maintenance costs from the total toll revenue. The second evaluation was the incremental benefits of the project as a whole, taking into account the total project costs. The results of the financial evaluations show that the FRR on equity would be 14.8 percent, and that for the entire project is expected to be 9.6 percent. The revenue stream generated is expected to cover future operating and maintenance costs of the HNH and also meet outstanding debt service obligations. The detailed financial analysis is in Annex 3. -6 -  4.5 Institutional development impact: 4.5.1 Measures were taken within the project to strengthen ZPTD and its relevant institutions. Experiences with competitive bidding (ICB and NCB) and having works done by contract rather than by force account have been successfully integrated; all new construction and major maintenance works are now done by contract. The construction of highways was supervised by a joint foreign /local team and the Federation Intemationale des Ingenieurs Conseils (FIDIC) system was adopted for the implementation of the project. However, the construction quality has not improved as expected and the independence of the supervisor (Engineer) remains a major issue which needs to be confronted to secure better quality control. The staff training program financed by the project is described in sections 4.2.10 to 4.2.11. Since 1996, some provinces including Zhejiang have recognized the value of expressways with growing traffic volumes and toll revenues. Through the securitization of existing highway assets, the Chinese authorities found that they were able to raise large sums of new capital from foreign investors. The HNH was securitized in May 1997; details are in section 6. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: 5.1.1 Although contractors were prequalified under ICB procedures, awarded local contractors lacked managerial skills, material and financial resources and experience in carrying out major highway works of comparable magnitude and complexity. Particularly, the contractor who was assigned to contracts 5 and 6 continuously lacked financial and human resources. Consequently, during the construction period this contractor's work was found incomplete and the remaining work was subcontracted, under the Tri-Parties Agreement, to another contractor who had completed its own contract section under the project. The subject contractor also disputed price adjustments with the Employer. Although this arbitration case was raised to the China Intemational Economic and Trade Commission, the final price adjustments were settled through negotiations between the Employer and said contractor. 5.1.2 The Bank continuously insisted that foreign supervisors be fully utilized to assist with quality control in general and with the critical phases of earth works and asphalt paving works in particular. However, since many of the quality problems stemmed from contractors' fundamental lack of experience and poor performance, or inadequate design, much of the Bank's advice influenced the Employer's attitude but could not address the root cause of the problems. The construction supervision inputs were much higher than estimated at appraisal, totaling about 8,122 person-months (including 172 person-months by foreign engineers) instead of the 6,342 person-months estimated. The foreign engineering personnel helped establish the framework and procedures for the supervisory work and trained the Zhejiang Provincial Transport Department (ZPTD) staff, local engineers and technicians. Such training was not only a significant means of technology transfer but also an essential measure for trying to ensure effective control of the quality of HNH construction with adequately trained personnel. The performance of the supervision team was generally satisfactory. 5.2 Factors generally subject to government control: 5.2.1 Construction of the highway section between Qianjiang and Dazhujia (ICB contract sections 2 through 7) was scheduled to commence in October 1992 and be completed by the end of 1996, in about 50 months. However, the first half, Xiaoshan-Shangya section (about 65 kin), was opened to traffic in December 1995, one year earlier than planned at appraisal. When the Bank's supervision mission made - 7 -  field inspections of these completed sections in April 1996, it observed noticeable differential settlement at the approaches of bridges and underpasses. During preparation of the project, it was already understood that the proposed HNH traverses geologically difficult terrain with extensive soft, highly compressible soils over two thirds of its length. Based on the recommendation of foreign experts, a 3 km long embankment was constructed for testing purposes to help identify, through continued monitoring of settlement, the appropriate measures for mitigating the extent of consolidation. However, results of this experiment were not utilized in the implementation of succeeding construction works, nor was the recommended embankment settlement monitoring of other highways sections properly done. On the contrary, construction was prematurely completed one year earlier than planned. 5.2.2 The speed of construction, therefore, substantially affected the construction quality. Because of geological conditions, settlement could not be avoided. However, if settlement had been continuously monitored and evaluated, additional corrective works would have been minimized and associated costs would have been reduced. Since the opening of the HNH in 1995, major repair works (particularly at bridge approaches) have been regularly uidertaken. Culverts in soft ground areas were affected by differential settlement and the original gradient of their foundations could not be maintained. Consequently, water in the drainage channels did not flow as designed, and often accumulated in the underpass culverts. The Zhejiang Provincial Expressway Project Executive Commission (ZPEPEC) has been continuously adjusting the gradients of drainage culverts and underpasses to alleviate the problem. Lessons leaned from the sections in the first half of the project wvere finally reflected in the second half, and the degree of settlement in the latter sections is less than the first half sections. 5.3 Factors generally subject to implementing agency control: 5.3.1 The two-year delay in project completion was predominantly due to the delay in the preparation, procurement and implementation of the E&M works. This was the first highway project in China to include, from the project preparation stage, all the required E&M facilities needed to operate the expressway, including: tolling, traffic monitoring, telecommunications and lighting. Bidding for the E&M contract was originally scheduled to be completed in May 1995, with supply and installation to be completed in December 1996 when the road was to open for traffic. However, because ZPTD primarily focused on the timely completion of the civil works and lacked experience with the type of E&M works required for expressway operations, the formulation and design of this component was delayed. The bidding documents were issued only in June 1996, and further delays were encountered during Intemational Competitive Bidding (ICB) procurement procedures, particularly in bid evaluation and clearance of the contract award at the provincial and national levels. Consequently, the E&M works supply and installation contract was awarded in April 1997. There were further delays in establishing the letter of credit, mobilizing the contractor and importing equipment for this contract. Thus, the systems were only commissioned in late 1998 and trial operations commenced in early 1999. 5.3.2 After realizing that an overall delay of about two years could no longer be avoided, due to the delay in E&M works, completion of the minor components of the project was also delayed, because of the lower priority accorded by the borrower to these components. Thus, equipment procurement and some of the training program were finalized only by the end of 1998. The main administration building was also completed only during the second half of 1999. The delay was caused by: (a) substantial change of design of the building, (b) change of procurement procedures from the originally proposed NCB to ICB, and (c) the late arrival of some imported equipment for the building. -8 -  5.4 Costs andfinancing. 5.4.1 Project financing differed slightly from the plan at appraisal. The project cost decreased during implementation to a final total cost of $486.1 million, this represents a 13 percent decrease from the appraisal estimate of $558.9 million. In local currency terms, the total project cost was RMB 3,621.8 million, a 22 percent increase from the appraisal estimate of RMB 3,001.0 million, reflecting substantial devaluation of the Chinese Renminbi during the earlier implementation period (before December 1993) and a change in the scope of the work. 5.4.2 The substantial cost increases occurred in the main highway (HNH) construction components where civil works cost increased by 51 percent, supply and installation of E & M facilities increased by about 200 percent, and the cost of land acquisition and resettlement increased by 41 percent. Training costs were RMB 9.63 million compared to estimated RMB 6.66 million. Project costs in nearly every category except supervision outpaced appraisal estimates. Most of the cost increase resulted from expanded project scope, but an underestimation of cost and quantities for key inputs is also evident. 5.4.3 As discussed in section 5.3, the project completion was delayed by two years, because of delays with the E&M works. For the first four fiscal years (FY1993-FY1996), loan disbursements were almost in line with the estimated disbursement schedule. However, during FY97, payments to one contractor were suspended, following a dispute regarding price escalation, and disbursements slowed. Loan proceeds were reallocated in February 1998, when the closing date was extended. 6. Sustainability 6.1 Rationale for sustainability rating: 6.1.1 During construction of the HNH, soil settlement problems were noticed and, to some extent, immediately rectified. Based on the Bank's recommendations in early 1997, a long-term restoration program for pavement was prepared with the assistance of a foreign expert who reviewed the original geo-technical designs made in 1991. Since then, major restoration works have been continuously undertaken in accordance with the recommended long-term restoration program. The operating rights granted to the public-private expressway development company provide incentives for the provision of a reasonable level of service to road users, including adequate routine and periodic maintenance. The rapidly increasing traffic ensures sustainability of the project benefits. 6.1.2 The sustainability of rural road investments under the project (RDP) depends upon subsequent adequate routine and periodic maintenance of the roads. The management of maintenance of these roads is the responsibility of counties that have to rely on local revenues for the additional capital and recurring expenditures for the roads. However, since the subject rural roads under the RDP were paved with Portland cement concrete, it is considered that minimal maintenance works (cleaning drainage and line marking) are required. 6.1.3 The equipment for maintenance and operation of highways procured under the project should provide adequate long-term service, since sufficient stock of essential spares have been purchased and maintenance facilities have been provided. -9-  6.1.4 The lessons and knowledge learned from the staff training program are expected to be disseminated within the provincial institutions involved and will have a long-term influence on provincial road administration and management methods for highway-specific technology. 6.1.5 The methodology of the pavement evaluation and application of the Chinese RDB and PMS programs have been deployed in all prefectures and municipalities of the province. With regularly collected input data, it is expected that the system will provide the necessary output information to improve investment decisions for road improvement and maintenance. 6.2 Transition arrangement to regular operations: 6.2.1 An important change in project ownership and management occurred in 1997. In May 1997, the operating right for the HNH was transferred to a public-private expressway development company, which successfully issued "H" shares on the Hong Kong Stock Exchange, by securitizing revenues from the completed HNH and the Shanghai-Hangzhou Expressway (another Bank-financed highway). The proceeds of about US$440 million were used and will be used for additional investments in the HNH (for improvement of E&M facilities), the Shanghai-Hangzhou Expressway (civil works) and other high-grade highways in the province. 6.2.2 Before the prospectus for share issuance was distributed, the Bank reviewed and found satisfactory the technical, financial, legal, commercial amd institutional aspects included in the document to ensure effective operation and maintenance of the HNH. The Loan Agreement was amended on April 20, 1997 to reflect the above transaction. The Expressway Company achieved satisfactory results and rapid growth in 1999. Following the opening of the Shanghai-Hangzou Expressway in December 1998, which was also partly financed by the Bank, the toll revemne generated by the whole Shanghai-Hangzhou-Ningbo Expressway reached RMB 974.9 million, representing a sharp increase of approximately 85.2 percent over 1998. The 1999 profit before tax was approximately RMB 706 million, representing a year-on-year increase of 29.1 %. The return on shareholders' equity for the past three years was still low (6.5 % in 1999), but has been growing steadily. The earnings per share have increased from 7.77 RMB in 1997 to 12.62 RMB in 1999. The share price of the company as of November 6, 2000 was HK$1.27, which was the second highest among the 5 expressway companies listed in the Hong Kong H-share market. 6.2.3 As mentioned above, for about two years the HNH was operated without mechanical equipment and tolls were collected in temporary facilities. After completion of the E & M facilities, the toll collection time was substantially reduced and thus, the congestion at the toll plaza significantly decreased. With the installation of emergency telephones along the HNH, the accident response time of emergency health services has improved. 7. Bank and Borrower Performance Bank 7.1 Lending: 7.1.1 The project was identified in a joint mission of Bank and Government officials (section 3.1). Bank resources utilized during preparation were above average; about 212 person-days were spent on field preparation missions from the identification through the appraisal stages of the project. The Bank secured consultant trust funds to help ZPEPEC finalize feasibility studies and engineering designs. - 10 -  7.1.2 During appraisal, the major risks were considered to be the on-time completion of the HNH and the quality of construction due to the difficult subsoil conditions along the project corridor. Furthermore, the institutional capacity of the implementing agency was considered to be a risk, since the implementing agency was a first-time borrower of Bank funds. Alternative alignments were assessed and a 3 km long section of highway embankment was constructed for testing and to help identify appropriate measures for mitigating the extent of consolidation. The final engineering and technical specifications were reviewed and found satisfactory by Bank staff and foreign consultants. 7.2 Supervision: 7.2.1 The Bank conducted 13 supervision missions from 1992 to 2000, on average about two missions per year. However, the project should have been more frequently supervised in the field during the critical periods of 1992 - 1995 during heavy earthworks (embankment) construction. When a Bank supervision mission made a field visit in May 1994, it found that the embankment had been constructed with poor-quality material and without proper monitoring of settlement. The Bank wrote a warning letter to the Vice-Governor, seeking his direct involvement in maintaining a higher quality of construction. However, the recommended remedies were not exercised in the field, and under provincial government pressure, some sections were completed one year earlier than originally planned. Consequently, serious settlement occurred in these sections after opening to traffic and major restoration of pavement surface has been continuously undertaken for the past three years. 7.2.2 Continuity of staffing on the project was generally achieved, but the skill mix was limited: the project was primarily supervised by staff using highway engineering skills with the bulk of the time consumed by inspection of construction sites. Specialized reviews were provided by a resettlement specialist in the early implementation stage, environmental specialists during the construction and operation stages and highway maintenance consultants during implementation of the RDP. In April 1997, the Bank agreed to retrofitting the key performance indicators; starting in May 1997, tables were prepared by the borrower and sent to the Bank annually (Annex 1). 7.2.3 The Bank has shown flexibility in dealing with the changes in the project's scope, such as approving major change in the design for the central administration building and upgrading the E&M supply to include installation, rather than just equipment acquisition as originally planned. Also, in response to the Borrower's request to extend the loan closing date, the Bank concluded that a two-year extension of the project was reasonable for completing outstanding works. The Bank gave a no objection to constructing additional interchanges, although these works had to be financed entirely by the local governnents, because the timing of construction did not fit with the Bank's standard processing period. 7.3 Overall Bankperformance: Despite some difficulties in convincing the provincial governnent not to sacrifice construction quality to save time, and the two year delay in implementing parts of the project, overall Bank performance is considered satisfactory. It should be recognized that the development of a strategic inter-provincial expressway network was in a transitional phase at the beginning of the 1 990s, and that ZPEPEC was a first-time Bank borrower not familiar with international business practices and FIDIC conditions. - 11 -  Borrower 7.4 Preparation: The ZPTD's preparation of the project was reasonable, considering the limited base of technical and managerial experience in developing large scale, complex highway projects. The experience under this project highlighted several deficiencies in the Chinese planning and preparation process, such as improper cost estimating methods, failing to recognize the technical complexity of the project, and not anticipating the difficulties of procuring major works. 7.5 Government implementation performance The Government was fully committed to the project, even pushing construction beyond prudent practice. Counterpart funds were provided on time. :However, the process for obtaining internal clearances for bidding documents and evaluation reports was much slower than expected, due to the cumbersome intemal process involving both provincial and central government agencies. Even though the risks of weak institutional capacity and difficult subsoil conditions were identified during appraisal, the HNH was of inadequate quality due to lack of attention to construction quality and pressures to open the highway early. 7.6 ImplementingAgency: ZPTD demonstrated strong commitment and effort to the project scope, in both physical objectives such as construction of the HNH and RDP, and institutional development in establishing and equipping management offices. Despite problems with contractors' occasional material supply shortages and lack of financial resources and contract administration skills, ZPTD was able to help overcome such difficulties with its managerial and technical experience and the support of the supervision units. The road management (RDB/PMS), staff training, equipment components in the project also experienced strong commitment and allocation of additional resources as necessary. Since the experience with the supply and installation work of modem traffic monitoring, telecommunications and tolling systems in China was very limited in the early 1990s, it is understandable that ZPTD had problems in designing the proper E&M works for the HNH. 7.7 Overall Borrower performance- The borrower and ZPTD have complied substantially with the conditionalities of the loan and project agreements. The Bank's procedures and requirements were substantially followed, although there were gaps and delays in ZPTD's fulfillment of progress reporting requirements. The cooperation between the Borrower, ZPTD and the Bank was cordial throughout preparation, appraisal and implementation of the project. Consequently, the overall borrower's performance is rated as satisfactory. 8. Lessons Learned 8.1 Securitization of Bank financed assets. Although the Bank was informed only two months in advance of the Government's intention to issue stock and change the ownership and management of the HNH and thus alter the status of Bank-financed highway assets, the Bank responded positively to this request for increased private sector participaltion. Without formally endorsing the share offering, the Bank gave its no-objection to the use of these asse;.s on the balance sheet of the new company. Appropriate alterations were made in the Loan Agreement to reflect the above changes. Subsequently in December 1997, to guide the Bank's evaluation of similar requests for no objection, the Board of Directors approved - 12-  a policy guidance titled "Securitization and other Capital Mobilization Transactions using Bank-IDA Financed Assets." The criteria set out in this document include whether or not the transaction will: (1) enhance the government's objectives in the sector, (2) support public purpose and the Bank's reputation as a development institution, and (3) have no material effects on the government's ability to service the remaining Bank loans or on the Bank's ability to enforce implementation of the project. Securitization of existing highway assets was found to be a financial technique that could raise large sums of new capital from foreign investors, and this technique has achieved a high degree of acceptance among investors in the Hong Kong, Shenzhen and Shanghai Stock markets. 8.2 Monitoring construction implementation. The remedial works needed to counter the soil settlement problem were previously noted in Section 5.2. Since the soil settlement problem was identified during project preparation, monitoring of the embankment settlement rate should have been more strictly enforced, and the pavement work should have been delayed until the settlement had reached a more stable condition. The experience on the HNH project (including special consolidation piles and pre-loading embankment) was reflected in the next highway project in Zhejiang, the Shanghai-Zhejiang Highway Project, which has had far fewer soil settlement problems. 8.3 Preparation and Execution of E&M Works for HNIH. The two-year delay in project implementation was mostly attributab!e to the delay in E&M works (section 5.3). Similar delays occurred under other Bank-financed highway projects being implemented in the early 1990s. To prevent the occurrence of delays, the Bank now mandates that: (1) the bidding documents and engineering designs for E&M works are completed more or less at the same time as those for the civil works contracts, and (2) the tendering activities commence at least two years before the civil works are expected to be completed. 8.4 Road Development Program. The original Road Development Program included 33 road and bridge subprojects, all located in the poorer southern region of the Province. The Bank's supervision mission visited most of these road sections and confirmed that significant expected benefits were accrued and that living standards of the population along the corridor had improved. People living in the corridor directly expressed their appreciation to the Bank for its support and involvement in poverty targeted projects. Savings under the RDP were used to include six additional subprojects. The Bank's future lending program should include more involvement in rural road projects, as these projects directly help local communities alleviate poverty. 9. Partner Comments (a) Borrower/implementing agency: A. General 1. The Zhejiang Provincial Highway Project was pre-appraised in June 1991, and appraised in December, 1991 by the World Bank. In Washington D.C, the Negotiation was held in March 1992, and the Loan Agreement for USS 220 million and Project Agreement were signed in June 1992. The Loan was declared effective on August 19, 1992. The original loan closing date was June 30, 1998, but this date was extended to June 30, 2000. All tasks referred to in the Staff Appraisal Report, Loan and Project Agreements, have been finished. The implementation of these tasks is officially appraised in this Report. - 13-  B. Project Descriptions 2. Project Objectives: (a) build a high standard highway between Hangzhou-Ningbo to relieve traffic congestion which is restraining economic growth in the Hangzhou- Ningbo corridor, and promote agricultural and industrial development of the Corridor; (b) support a Road Development Program primarily in the economically less developed southwestern region; (c) develop institutional capabilities in transport planning and determination of investment priorities; and (d) promote the transfer of highway construction and maintenance technology through training and provision of up-to-date equipment. 3. The project includes: (a) construction of a 138 km long four-lane divided, access controlled Hangzhou-Ningbo Highway;(b) construction and improvement of about 313 sections of provincial and county roads (970km) primarily in the southwestern region of the Province; (c) consultant services for the construction supervision of the Hangzhou- Ningbo Highway; (d) staff training; (e) provision of equipment for road test, environmental protection, road research, road data bank, pavement management system, road maintenance and highway operation. C. Attained the Objectives 4. The project has attained all major objectives of different components as follows: (a) built the 138 km long Hangzhou-Ningbo Highway (except 7 km of the second Qiantang River Bridge and its access link) and Traffic Surveillance\ Telecommunication\ Tolling Systems and Service Facilities; (b) completed construction and improvement of 33 sections of provincial and county (970 km), primarily in the southwestern region of the Province; and additional six subprojects (47 km highway, a 1 085 meter tunnel); (c) completed consultant services for the construction supervision and training for the Hangzhou-Ningbo Highway; (d) completed staff training; (e) completed purchase of equipment for road test, environment protection, road research, road data bank, pavement management system, road maintenance and highway operation; and (f) completed development and application of the road data bank and pavement management system. D. Project Formulation and Preparation 5. Before 1988, the World Bank investigated the project many times, and showed great interest and intention. In March 1989, the Bank's project identification mission visited Zhejiang Province, made discussions about the finance of the World Bank for Hangzhou-Ningbo Highway, studied and identified this project, and confirmed it to be the World Bank financed project. 6. From 1989, the Bank was involved in the preparation of Hangzhou - Ningbo Highway project, required to perfect the Engineering Feasibility Study according to international general practice and the - 14 -  requirement of the Bank. The three consultant engineers from Louis Berger Intemational Co. were employed through Bidding, with the grant from the Technological Bureau of UNDP. They reviewed and finished the Final Report (Draft) in June 1990, and sent the Engineering Feasibility Study Report (Final) of Hangzhou-Ningbo Highway to the World Bank and ZEPEC in January 1991. 7. In June and November 1990, the Bank's task team visited Hangzhou twice, and discussed the matters in the Engineering Feasibility Study Report of Hangzhou-Ningbo Highway, project scope and procurement method etc. To appraise the project, relevant data was submitted to the Bank Mission for the SAR by ZFPEC at this time. 8. The Engineering Feasibility Study Report of Hangzhou-Ningbo Highway was approved by SPC on December 6, 1990. The Preliminary Design of Hangzhou-Ningbo Highway was approved by MOC in August 1991. 9. The Bank Mission pre-appraised the Zhejiang Provincial Highway Project in March 1991. The aide-memoire reached agreement as for search of the Bank Loan, revision of Hangzhou-Ningbo Highway final engineering design and technical specifications by Bank staff with the assistance of the Finnish Road Administration and Finnish Consulting Engineering Ltd., contract division, procurement methods, procurement planning, construction supervision, equipment procurement, environment protection, staff training, land acquisition and resettlement, testing section of the soft soil base and road development program. 10. In June and December 1991, the Bank Mission appraised the project, and discussed the major questions in design, reviewed the PQ and the Bidding Documents for the Expressway. The Mission was satisfied with the design documents, reviewed the works of the testing section of soft soil base and considered that it provided valuable information of soft soil treatment for subsequent works of the project and for the whole country. The Mission discussed in detail the E&M supply and installation, tolling and service facilities, construction supervision, equipment procurement list and plan, environment action plan, land acquisition and resettlement action plan, Road Development Program, staff training, Road Data Bank and Pavement Management System, and construction plan as well and reached agreement. 11. In March 1992, the negotiation for the Project and Loan Agreements was held in Washington D.C. The Loan Agreement for US$ 220 million (US$ 180 million to Hangzhou-Ningbo Highway and USS 40 million to Road Development Program) was signed in June 1992. The Loan became effective on August 19, 1992. E. Project Implementation 12. Hangzhou-Ningbo Highway: the total length of the highway is 145 km, of which 138 km, and a 2.6 km access road to Ningbo City, were constructed under the project. The construction of a 7 km section of the Highway, including a major bridge over the Qiantang River, was completed during 1988-1991 and opened to traffic in January 1992. High priority was given to this section, and construction be advanced, in order to relieve the serious bottleneck caused by old and narrow Qiantang bridge located just south of Hangzhou City. According to the understanding reached with the World Bank, the civil works and traffic engineering were divided into nine contracts. International Tendering Company of China National Technical Import & Export Corporation was authorized by the employer as the procurement agency for ICB to invite bids in accordance with " Procurement Guidelines under IBRD Loans and IDA Credit " and the bidding documents were approved by the Bank. - 15-  13. Road Development Program (RDP): This program has 39 sub-projects (including additional six subprojects). The objective of RDP is to promote economic development, through the provision of road access to population presently deprived of motorized vehicle access and to improve the provincial and county roads. The implementation of the RDP was divided into five phases. The seven subprojects of the first phase started in November 1992, and were completed in December 1995. The six subprojects of the last (fifth) phase by using loan savings started in January 1997, and were completed in June 1999. 14. Consultant Services for construction supervision and training: KAMPASAX INTERNATIONAL A/S in association with THE DANISH ROAD DIRECTORATE was employed. The estimated cost in SAR was US$ 3 million. The contract price was 15,682,274 DKK, and the actual payment was US$ 2.63 million. This contract was completed together with the civil works and E&M facilities. The 172 person/month consultants services were provided by KAMPASAX, include training for the local construction supervision personnel. 15. Equipment Procurement: Because of improvement of the national technical standards and equipment performance, the equipment list was adjusted, with an approval by the Bank. Equipment involving about 30 items for the Central Laboratory and Environment Monitoring was procured through International Shopping procedures in 1994 and 1995 with a total contract value of US$ 605,000. Equipment under the first package for maintenance and operation was procured in 1995 with a total contract value of US$ 1.89 million. The second package for maintenance and operation, was procured through ICB procedures in 1998 with a total contract value of US$ 1.90 million and JPY 29,550,000. All the equipment has been delivered and has been used for monitoring, maintenance and operations of expressways. 16. Electrical and Mechanical Facilities: The contract for the Supply and Installation of Electrical and Mechanical Facilities was procured through ICB, and was signed with the contractor (Sainco Traffic Spain) on April 14,1997. The estimated cost was US$ 6.88 million in SAR. The contract price was US$ 12,345,221, and the actual payment was US$ 12,780,703. All site equipment including emergency telephones, communications and power rectification, and the traffic control and surveillance systems were installed by the end of 1998. Installation and pre-commissioning of the traffic surveillance system (TSS) have been completed and a machinery completion certificate was issued to the contractor in February 1999. Due to some problems regarding field equipment and software, the trial run period was extended. The TSS was accepted in June 2000. Major components of the telecommunication system (including emergency telephones and cable system) have been completed, and a partial machinery completion certificate was issued in February 1999. The final acceptance of this system was made in June 2000. The tolling system has been installed and pre-commissioning has been completed. The final acceptance was made in June 2000. The lighting system was completed and accepted in February 1999. 17. Construction of Administration Building: The construction of administration building was procured through ICB in March 1997. The contract price was RMB 84.13 million, and works commenced on June 8, 1997. However, due to delay of delivery of some imported equipment and materials (including elevators and cooling refrigerators), the building was completed on September 1, 1999 with a delay of 9 months. 18. Staff Training: According to the SAR, the program included 52 person/month study tour, and 182 person/month training (including 55 person/month local training and 127 person/month overseas training), with a total cost of US$ 1.24 million. All the staff training programs were completed by October, 1998. These programs involved 33.8 person/month overseas study tour with a total cost of US$ 310,814, and - 16-  102.2 person/month overseas training, with a total cost US$ 852,505. The total cost of the overseas training/study tours was USS 1,163,319 with the person/month of 136.3. 19. Settlement and Restoration of HNE: As the SAR foresaw, the major risk of the highway was the difficult subsoil conditions along the alignment, and the embankment settlement of the HNH has not yet been stabilized. Thus, ZECL has been monitoring the settlement amount at different typical cross sections along the HNH. The first major restoration works were completed in 1998/1999. F. Operation of Hangzhou-Ningbo Highwav 20. The operation of HNH and other components of Zhejiang Provincial Highway Project are satisfactory. 21. HNH: Contract No. I (Pengbu Interchange) was opened to traffic on April 1, 1994, and relieved the traffic bottleneck at the interchange. Contracts Nos.2/3/4 were opened to traffic in December 1995, and contracts Nos.5/6/7 in December 1996. After the HNH opening to traffic, the traffic congestion in Hangzhou-Ningbo corridor has been relieved. The driving mileage was shortened by 59 Km, and the time reduced by 5 hours. It produced high social and economic benefit. The operation and maintenance is managed by ZECL. The revenue for FY1997 was RMB 388.48 million, and the expenditures were RMB 127.09 million (including depreciation fee). The revenue was RMB 469.51 million, and the expenditures were RMB 189.14 million (including depreciation fee) in 1998. 22. Traffic Surveillance, Telecommunication and Tolling Systems: These systems were constructed by Sainco Traffic, Spain and are managed by ZECL. The operation of the systems is satisfactory, and gives much help for the expressway operation management. G. Works by Contractors and Consultants 23. According to the LCB or ICB, the Hangzhou-Ningbo Highway was divided into 9 contracts. Contracts No.1 through No.7 were civil work contracts. The No.8 was electrical and mechanical facilities contract, including traffic surveillance, telecommunication, lighting and tolling systems. The contract No.9 was for construction of the administration building. The main quantities of civil works were: earthwork 20,134,850 cubic meter, special large bridge 3,511.38 meter/3 sets, large bridge 2,982.63 meter/16 sets, medium bridge 5,217.6 meter/99 sets, small bridge 1,541.54 meter/56 sets, underpass 238 sets, culvert 10,211.03 meter/288 sets, interchange 6 sets, grade separated junction 19 sets, asphalt surfacing 2,798,300 square meter. The HNH was accepted and evaluated as excellent works by the State in June 1999. 24. Consultants Services: KAMPASAX INTERNATIONAL A/S in association with the DANISH ROAD DIRECTORATE was employed for the construction supervision and training. They sent three engineers to supervise the civil works construction of HNH for four years, one for supervision of the traffic engineering, and five persons to train the local medium/senior engineers in China and abroad. According to the duties and scope of services in the contract, they have managed and supervised construction in cooperation with the local engineers. The 172 person/month of consultants services were given by KAMPASAX, including training the local technical personnel. The supervision mnission of the World Bank was satisfied with their consultant work. 25. Works By supervision engineers: The responsibility of Engineers was to carry out the construction supervision for HNH. The Joint Supervision Team was headed by the Chief Supervision Engineer. The supervision organization was comprised of the Engineer's Office (EO) and the Resident - 17 -  Engineer's Office (REO) for various Contracts. The EO consisted of the HNH Supervision team of MOC, KAMPASAX and supervision engineers of ZEPEC. Such a organization was confirmed by the World Bank. According to the "FIDIC" conditions, construction contract, supervision procedures and methods, supervision engineers made control to the quality, progress and payment. To guarantee quality, supervision engineers made all-direction management to the works quality (e.g. not allowing construction to start before the material and equipment are checked for acceptance). During construction, the on-going works were checked and tested. When the works did not reach the standard of quality after checking, it was redone at the contractors' own cost. Thus, the quality and investment were controlled effectively. 26. Experience: Through implementation of HNH, we have obtained much experience: (a) To set up the rigorous supervision procedures is an effective way for ensuring quality, progress, investment and satisfactory construction management; (b) Before the commencement of different works, to help contractor improving its production capability according to the contract conditions and technical specifications is the basis for expediting the construction progress and attaining the quality standanrs; (c) To strengthen the on-site control, in the key phase of construction process, and supervise the construction, because inspection is the guarantee for meeting required works quality; (d) To maintain the checking activities before commencement of a new construction item is the effective method for meeting quality requirements; (e) The Employer is the organization center of implementation who makes control to the quality, progress and investment through coordinating activities of relevant units; (f) To take the advice of the World Bank camestly and cooperate actively is the guarantee for successful completion of the Project. H. Works By Implementation Agency 27. Project Preparation: ZPTD made full preparation for the Hangzhou-Ningbo Highway. This project was listed in the third package of the World Bank financed projects. From January 1989, the project identification, pre-appraisal, appraisal and negotiation were fulfilled in succession, and the Loan Agreement and Project Agreement were signed with the Bank in Washington D.C. in June 1992. 28. Design: The Hangzhou-Ningbo Highway was designed by Zhejiang Provincial Transport Design Institute, Highway Planning & Design Institute of MOC, Highway Scientific Institute Research of MOC, Liaoning Provincial Transport Survey & Design Institute and Heilongjiang Provincial Highway Survey & Design Institute. 29. An Environmental Impact Assessnient for the Hangzhou-Ningbo Highway was conducted by the Zhejiang Provincial Environmental Protection Research Institute in 1989/90. The Report of Environment Impact Assessment for HNE was prepared in June 1988 and approved by the State Environment Protection Bureau in February 1991. The Environmental Protection Implementation Report was fulfilled in September 1998. In the same year, the State Environment Protection Monitoring Center made monitoring to the Project and completed a Monitoring Report. In November 1998, the environment protection facilities passed the completion acceptance organized by the State Environment Protection Bureau and MOC. 30. Project Implementation: The Hangzhou-Ningbo Highway was given great attention by Zhejiang Provincial People's Govermment. The Zhejiang Provincial Shanghai-Hangzhou-Ningbo Expressway Project Steering Committee(ZPESC) was found in January 1990. ZPEPEC was the executive agency for implementation of HNH under the direction of ZPESC. ZPEPEC was responsible for concrete activities of - 18 -  construction organization, coordination, land acquisition and resettlement, tendering management, planning and financial management and procurement of equipment. 31. Experience in construction of HNE: Hangzhou-Ningbo Highway was the first expressway, and also the first highway project constructed by using loans from international financial institution and managed by introducing "FIDIC" conditions in the province. Its construction provided many lessons and experience for infrastructure construction in Zhejiang province. Construction units were selected through ICB. The overall quality control was carried out by supervision engineers. The personnel engaged in supervision, construction, management and design were trained by the project construction, and the implementation of this project has provided effective and successful practice for the key construction projects in Zhejiang province. The successful completion of HNH has brought the highway construction and project management of Zhejiang province to a new level. After completion and opening to traffic, the toll fee is collected from road users to repay the Bank loan and support the management and maintenance of the highway. I. Project Risks 32. Because of the difficult subsoil conditions along the alignment of the Hangzhou-Ningbo Highway, the major risk was delay in completion time of the expressway and quality of construction. Since ZPEPEC executed the Bank financed project for the first time, there was also a risk in implementing the project in a timely manner. However, the experience of the Bank-financed highway projects in other provinces was utilized in the preparation of this project. Furthermore, MOC involvement in project preparation was widened and also broadened for project implementation. To minimize the risks, the design was undertaken with the assistance of foreign experts, prequalification of contractors was made strictly, and supervision activities were carefully arranged so as to ensure regular supervision and effective quality control. J. Works by the World Bank 33. Project Preparation: The Bank's project identification mission visited Zhejiang Province in March 1989, and subsequently cooperated closely with SPC, MOC and ZPEPEC to formulate the scope of the project, and secured the grant from UNDP for reviewing the Engineering Feasibility Study Report. 34. Project Implementation: During the implementation, the Bank missions visited Zhejiang province many times, supervised the Project, and provided many practicable good suggestions to works quality, fnancial management and organization. Under the assistance of the Bank, a Joint Supervision Team (JST) consisted of local staff and foreign engineers was set up to supervise the Expressway construction and traffic engineering (supply and installation of E&M facilities). Consequently, works' quality was guaranteed and the local staffs were trained. 35. Cooperation of Implementation Agency with the Bank: The Bank officers fully understood the urgent demand for developing transport infrastructures, and gave much help to our province. The World Bank agreed to extend the Loan closing date. ZPTD were sincerely grateful to the World Bank for their cooperation and support. 36. Experience: The main experience are: (a) through the highway project under the Bank Loan, the competitive Bidding, FIDIC conditions, and supervision system have been used extensively in Zhejiang Provincial Highway Projects; (b) through staff training, many technical personnel were trained in highway design/ plan, construction - 19 -  management, financial management, maintenance and traffic engineering. They received good training, used and developed their knowledge in thie project implementation, and play important role in their work; and (c) the application of Road Data Bank (RDB) promoted Zhejiang Provincial Highway Management System. Through implementation of RD13, the staffs have studied many new advanced techniques and obtained much experience. K. Planning 37. Planning: (a) Hangzhou-Ningbo Highway: With the upgraded National Road No. 104, the HNH was opened to traffic. While the traffic congestion in Hangzhou-Ningbo corridor has been relieved basically, it would not suit the needs of the economical development of this area in the future. Particularly, after China joins WTO, a car will become one of consumer goods of medium/high income families in China and the automobile industry and consumption would be promoted. The urban traffic would become even more congested, and the highway traffic linking cities would become even busier. On holidays, passengers would increase greatly. With the expressway network of Zhejiang Province being built, many vehicles will divert from normal roads to expressways. According to the 1997/98/99 data of HNH, the growth rate of ADT reached 20%, and some sections will lower its service level after five or six years. At present, the whole alignment has a 26 meter subgrade with four lanes, in which: the width of carriageway is 2 X 7.5 meters, median divider is 3 meters, shoulder is 2 X 3.25 meters. It is now proposed to widen the Hangzhou-Guzhu section of HNH to six lanes with a 35 meter subgrade, in which carriageway is 2 X 11.25 meters. (b) RDB/PMS: According to the standard software developed by MOC, the technical staffs of local management units were trained in 1998. The new data of road conditions have been recollected starting September 1998. The RDB is consisted of several sub-systems as pavement, bridges and road conditions. The preparation works for RDB have been completed. It would combine with investigation results of road conditions by MOC to investigate, and the basic data for RDB will be collected to obtain the required information for RDB/PMS. (b) Cofinanciers: N/A (c) Other partners (NGOs/private sector): N/A 10. Additional Information N/A - 20 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: Projected in SAR (1) Actual/Latest Estimate 1997 1998 1999 1997 1998 1999 PCU on HNE Hangzhou-Xiaoshan 27,900 29,900 32,000 38,800 46,600 55,300 Xiaoshan-Shaoxing 25,800 27,600 30,000 17,900 21,500 26,900 Shaoxing-Shangyu 24,000 25,700 27,400 13,900 16,500 21,000 Shangyu-Yuyao 17,100 18,300 20,000 6,700 8,400 12,000 Yuyao-Ningbo 15,600 16,700 17,800 6,000 7,300 9.600 PCU on Existing Road Hangzhou-Xiaoshan 18,000 19,400 20,800 19,600 22,600 26,700 Xiaoshan-Shaoxing 10,400 11,200 12,000 20,400 20,000 21,900 Shaoxing-Shangyu 9,100 9,800 10,500 15,400 12,700 12,900 Shangyu-Yuyao 5,200 5,700 6,200 14,300 16,300 15,300 Yuyao-Ningbo 4,000 4,400 4,800 14,700 17,700 15,600 Output Indicators: Indicator/Matrix Projected in SAR (1) Actual/Latest Estimate Hangzhou-Ningbo Highway Construction 138 km 138 km Road Development Program 970 km 1,066 km Persons Trained (person-months) 234 191 1 End of project - 21 -  Annex 2. Project Costs and Financing Annex 2a-1. Project Cost by Component (in US$ million equivalent) Project Cost By Component Appraisal Actual/Latest Percentage Estimate/a Estimatelb of Appraisal US$ milHion US$ million % HNE (Civil Works) 313.11 307.41 98.2 Supply and Installation 6.88 12.78 185.8 (E&M) -_ RDP /c _ 76.09 121.10 159.2 Supervision -. 9.04 5.23 57.9 Equipment 13.72 8.83 64.4 Staff Training _ 1.24 1.16 93.5 Total Baseline Cost 420.08 456.51 108.7 Contingencies 106.44 Land acquisition _ 32.34 29.58 91.5 Total Project 558.86 486.09 87.0 Costs _ Total Financing 220.00 213.6 Required . Note: (a) SAR Estimate 1 US$=5.37RMB, (b) US$=8.279RMB (c) 1 US$=5.37RMB Annex 2a-2. Project Cost by Component (in RMB million equivalent) Project Cost By Component Appraisal Actual/Latest Percentage Estimate Estimate of Appraisal _RMB million RMB million % HNE (Civil Works) 1.681.38 2.545.34 151.4 Supply and Installation 36.95 105.83 286.4 (E&M _ _. RDP 408.58 650.32 159.2 Supervision 48.57 43.28 89.1 Equipment _ 73.68 72.46 98.3 Staff Training _ 6.66 9.63 144.6 Total Baseline Cost 2,255.81 3,426.86 151.9 Contingencies 571.58 Land acquisition 173.64 244.91 141.0 Total Project 3,001.03 3,671.77 122.4 Costs = Total Financing Required - 22 -  Annex 2b-1. Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) Procurement Method Expenditure Category I Cost ICB NCB Other N.B.F. 1. Works Civil Works: 374.9 13.1 5.8 393.8 (153.0) (5.3) (2.4) (160.7) E&M 8.7 8.7 (5.8) (5.8) Road Development 53.7 42.0 95.7 _________________________ (18.5) (14.4) (32.9) 2. Equipment (Goods) 12.7 3.0 15.7 (12.5) (2.9) (15.4) 3. Services 12.6 12.6 (Consultants/training) (5.2) (5.2) 4. Other (LAR) 32.3 32.3 (0.0) (0.0) Total 396.3 66.8 63.4 32.3 558.8 (171.3) (23.8) (24.9) (0.0) (220.0) "Other" includes LS, international shopping, and consultant selection. Annex 2b-2. Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) Procurement Method Expenditure Category . 1 Cost ICB NCB Other N.B.F. 1. Works Civil Works: 289.4 18.0 307.4 (151.8) (7.4) (159.2) E&M 12.8 12.8 (8.9) (8.9) Road Development 104.3 16.8 121.1 (34.7! (