China - Henan Highway Transport Project

Page 1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB173 Project Name CN-Henan Highway Transport Project Region EAST ASIA AND PACIFIC Sector Roads and highways (98%);Sub-national government administration (2%) Project ID P081113 Borrower(s) THE PEOPLE'S REPUBLIC OF CHINA Implementing Agency Henan Provincial Communications Department No. 91, Zhongyuan Avenue Henan 450052 Tel: 86-371-7449770 Fax: 86-371-7449862 The People's Republic of China Environment Category [X] A [ ] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S 1 [ ] S 2 [ ] S 3 [ ] S F [X] TBD (to be determined) Date PID Prepared July 28, 2003 Estimated Date of Appraisal Authorization April 1, 2004 Estimated Date of Board Approval August 3, 2004 1. Key development issues and rationale for Bank involvement 1.1 The rapid growth of the Chinese economy continues to put pressure on the national highway network to expand its capacity, lower its costs and improve the responsiveness of its services. At the same time there is growing concern about the widening development disparities between the coastal areas and the western provinces in China. Hence, the government long-term plan for the road sector, to develop a series of transport corridors totaling about 15,000 km to link the Western Region with Eastern China. Several of these arterial corridors traverse Henan, a central province strategically located as a transport hub. As a result of our four highway operations to date in Henan (one National and three Provincial Highway Projects), the Henan Provincial Communications Department (HPCD) has come to value the combination the Bank offers of financing, access to international technology, and advice on institutional and policy reforms, and it wishes to continue this relationship. 1.2 The Bank's assistance strategy to China aims to: (a) improve the business environment and help accelerate the transition to a market economy; (b) address the needs of the poorer and disadvantaged people and lagging regions; and (c) facilitate an environmentally sustainable development process. In the transportation sector, the Country Assistance Strategy (CAS) identifies the strengthening of regional integration and competitiveness through a well- Page 2 functioning multi-modal system as a key objective. Specifically, the project contributes to the sector-related CAS objectives of facilitating trade, improving regional and market integration and fostering the development of lagging western regions. These objectives involve improving the capacity of the road network sector to serve less-developed areas and reach provinces further west and enhancing the efficiency of the highway sector to meet transport demand at lower costs and support the transition to a market economy. 1.3 Findings from past and ongoing Sector Work, Bank-assisted projects and Operations Evaluation Department (OED) assessments show that, while the overall performance of the Bank highway portfolio in China is in general satisfactory, the policy dialogue between China and the Bank in the highway sector needs to be elevated and maintained. The pace of policy and institutional reform needs to be speeded up, specifically relating to sector revenues and expenditures management, and sector externalities (in particular traffic safety). Policy issues like the fuel tax reform have an important bearing on sector revenues, but they are best discussed at the macro-level as a country wide issue. Other issues dealing with sector governance are best dealt with at the provincial level given the state of decentralization in China. The Bank is well placed to assist China in its efforts to modernize the sector through its mix of instruments available to sustain a policy dialogue at the central level while strengthening institutions through a series of lending operations at the sub-national level. 1.4 This will be the fifth operation in the province. The needs are huge (Henan is the most populated province in China with about 95 million inhabitants, with a low 1999 GNP per capita of $540 compared to the country average of $750), and the potential remains to improve the responsiveness of the provincial road network to the regional challenges, both in terms of infrastructure and services. A sustained engagement is therefore warranted. 2. Proposed objective(s) 2.1 The project aims to improve transport infrastructure and sector governance in support of social and economic development in Henan. The province is a strategic land transport hub where north-south corridors, connecting the Yellow River basin with the Yangtze River basin, intersect east-west corridors that link coastal areas with the western provinces. Thus the project would meet both the provincial government objective to improve the responsiveness of the transport infrastructure to support the social and economic development of the province, and the central government objective to facilitate trade between the Western Region and the coastal areas. 2.2 The project would foster inter- and intra- provincial trade by reducing user costs, improving road safety and creating conditions for economic growth in a densely populated area. It is expected that the major quantifiable outcome will be the reduction on vehicle operating costs and time costs of road users. The highways improved under the project will have shorter length, improved surface conditions and riding comfort, improved geometry, reduced traffic interference, and better safety facilities than the existing roads. The project will also benefit residents of poor counties in the province, through improved access to health, education and other social services as well as to markets. The project performance indicators will relate to these expected benefits. Page 3 3. Preliminary description 3.1 Alternative development instruments have been considered, among the options for centralized/decentralized approaches mentioned in section 1.3 above. The Bank is maintaining a high level policy dialogue with central agencies (Ministry of Communications, Ministry of Finance, National Development and Reform Commission) and stands ready to engage them when necessary, for instance when more progress is made on internal government discussions about the fuel tax reform. Issues like traffic safety or trade facilitation warrant a dual approach. The Bank is pursuing actions at the provincial level which are under the purview of the Provincial Communications Departments, but will also strengthen its dialogue at the central level to solicit a multi-sector approach in these areas. AAA activities are under way or planned this FY to highlight both traffic safety and trade facilitation issues and solutions for China, by engaging government agencies and the relevant stakeholders in private sector and civil society. Other objectives of the sector will be addressed through investment lending operations. In the case of Henan, the long-term relationship with the Bank has allowed a good quality dialogue on institutional issues (the latest project