ASIAN DEVELOPMENT BANK RRP: PRC 33442

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO THE

PEOPLE'S REPUBLIC OF CHINA

FOR THE

GANZHOU-LONGYAN RAILWAY PROJECT

September 2001

CURRENCY EQUIVALENTS(as of 1 September 2001)

Currency Unit – Yuan (Y)Y1.00 = $0.1208$1.00 = Y8.2768

ABBREVIATIONS

ADB – Asian Development BankBOEPTC – Beijing Oasis Environmental Protection Technology CompanyEA – executing agencyEIA – environmental impact assessmentEPB – environmental protection bureauFCTIC – Foreign Capital Technical Import CenterFYP – five-year planGDP – gross domestic productGLR – Ganzhou-Longyan Railwayha – hectareJBIC – Japan Bank for International Cooperationkm – kilometerm – meterMOR – Ministry of RailwaysPRC – People’s Republic of ChinaRCF – railway construction fundRCSO – railway construction support officeRI-SJU – Research Institute of the Southwest Jiatong UniversityRP – resettlement planTA – technical assistanceTMIS – transport management information systemUS – United StatesWTO – World Trade Organization

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December.(ii) In this report, "$" refers to US dollars.

CONTENTS

Page

LOAN AND PROJECT SUMMARY ii

MAPS v

I. THE PROPOSAL 1II. INTRODUCTION 1

III. BACKGROUND 2

A. Sector Description 2B. Government Policies and Plans 6C. External Assistance to the Sector 6D. Lessons Learned 7E. ADB’s Sector Strategy 8F. Policy Dialogue 9

IV. THE PROPOSED PROJECT 11

A. Rationale 11B. Objectives and Scope 11C. Technical Justification 12D. Cost Estimates 14E. Financing Plan 15F. Implementation Arrangements 16G. The Executing Agency 20H. Environmental and Social Measures 21

V. PROJECT JUSTIFICATION 26

A. Financial and Economic Analyses 26B. Social Dimensions 27C. Risks 31

VI. ASSURANCES 32

VII. RECOMMENDATION 34

APPENDIXES

LOAN AND PROJECT SUMMARY

Borrower The People’s Republic of China (PRC)

ProjectDescription

The Project is designed to promote sustainable economic growth, in anarea that includes six poverty counties in two provinces (Jiangxi andFujian) by constructing a 277-kilometer (km) railway linking Ganzhouand Longyan.

Classification Thematic: Economic Growth

EnvironmentalAssessment

Category: AAn environmental impact assessment was completed; the summary wascirculated to the Board on 29 March 2001.

Rationale The project area in southern Jiangxi and western Fujian is mountainous,less developed, and poor. This region has natural resources and isknown for its scenic landscape and historical sites. Poor accessibilityand lack of economic transport have limited the development of theseresources and the region has remained less developed withconsiderable poverty. The poverty incidence is 21 percent comparedwith 12 percent in the PRC as a whole. The main cause of poverty isinsufficient opportunity for earning income. Transport capability needs tobe developed to catalyze economic activity, and create employment andincome-generating activities. The Project will provide efficient and low-cost transportation for passengers and goods, which will increase thedevelopment of natural resources and industry bringing more income tothe local community and thus help reduce poverty. The Project'sconnections to the national railway network will improve trafficmaneuverability, reduce constraints, and increase overall railwayefficiency.

Objectivesand Scope

The goal of the Project is to promote sustainable economic growth thatwill help reduce poverty in the project area. This will be achieved byproviding economic railway transportation in unserved, less developed,and poor areas to create the conditions necessary for developing localresources, and generating employment and income-enhancingopportunities that will raise living standards. The project scopecomprises (i) constructing a 277 km single-track, standard-gauge railwaybetween Ganzhou and Longyan, including subgrades, bridges, culverts,and tunnels; (ii) laying railway track; (iii) constructing new railwaystations; (iv) providing modern technology and equipment for signaling,communications, management information system, freight and containeryard operation, and track maintenance; (v) providing training on the useand maintenance of modern equipment; (vi) protecting the environmentand mitigating adverse environmental effects; (vii) acquiring land andresettling affected people; (viii) providing consulting services for design,construction supervision and quality control, procurement, environmentalmonitoring, and monitoring of resettlement and social impact; and (ix)strengthening institutional capabilities.

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Cost Estimates The total cost of the Project is estimated at $775 million equivalent,consisting of a foreign exchange cost of $254.7 million and a localcurrency cost of $520.3 million equivalent.

($ million)

Financing Plan SourceForeign

ExchangeLocal

CurrencyTotalCost

ADB 200.0 0.0 200.0

CDB 0.0 266.0 266.0

Ministry of Railways 54.7 254.3 309.0

Total 254.7 520.3 775.0Percentage 33% 67% 100%

ADB=Asian Development Bank, CDB=China Development Bank.

Loan Amountand Terms

The Asian Development Bank (ADB) will provide a loan of $200 millionfrom its ordinary capital resources under ADB's London interbankoffered rate (LIBOR)-based lending facility. The loan will have a 25-yearterm, including a grace period of 5 years, an interest rate determined inaccordance with ADB's LIBOR-based lending facility, a commitmentcharge of 0.75 percent per annum, a front-end fee of 1 percent,conversion options that may be exercised in accordance with the termsof the draft Loan Agreement, the Loan Regulations and ADB'sConversion Guidelines, and such other terms and conditions set forth inthe draft Loan Agreement.

Period ofUtilization

Until 30 December 2006

Executing Agency Ministry of Railways (MOR)

ImplementationArrangements

The Nanchang and Shanghai railway administrations of MOR will beresponsible for project implementation, resettlement, construction, andcommissioning of the railway project. Overall coordination will be doneby MOR’s project coordination office, which is supported by relevantdepartments of MOR and the Foreign Capital Technical Import Center.

Procurement Procurement of ADB-financed components will be carried out by theForeign Capital Technical Import Center in accordance with ADB’sGuidelines for Procurement. Other items will be procured followingGovernment procedures acceptable to ADB, for local competitivebidding. Advance action for procurement of civil works was approved on9 April 2001.

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ConsultingServices

The ADB loan will finance consulting services for marketing andbusiness development, and reviewing impact on the railway sector of thePRC’s accession to the World Trade Organization. The consultants willbe recruited internationally in accordance with ADB’s Guidelines on theUse of Consultants. Suitable domestic consulting services for projectdesign, construction supervision and quality control, procurement,monitoring and evaluation of resettlement and poverty reduction, andmonitoring of environmental management will be engaged and financedby MOR in accordance with Government procedures acceptable to ADB.

Estimated ProjectCompletion Date

30 June 2006

Project Benefits And Beneficiaries

Construction and operation of the railway will accelerate economicgrowth by lowering transport costs, which should lead to thedevelopment of natural resources and new industries. Thesedevelopments will create new employment and income-generatingopportunities that will benefit people in general, and the poor inparticular. The project design incorporates special measures for passingon the Project’s benefits to the poor. During the five-year projectconstruction period, a total of 110,000 person-years of employment willbe created, of which 47,500 person-years will be provided to poorhouseholds. Economic activities induced by the railway are expected tocreate 20,100 person-years of employment in 2007, increasing to60,000 person-years in 2026. About 40 percent of the new employmentis expected to go to poor people. The resulting increase in income willimprove living standards and decrease the number of people livingbelow the poverty line. Distribution analysis shows that 26 percent of theproject benefits will go to the poor. Quantifiable benefits from the Projectinclude transport cost savings for diverted traffic that will accrue toowners of freight and passengers. The economic internal rate of returnis estimated at 14.4 percent and the financial internal rate of return at6.4 percent.

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vi

I. THE PROPOSAL

1. I submit for your approval the following Report and Recommendation on a proposed loanto the People's Republic of China (PRC) for the Ganzhou-Longyan Railway (GLR) Project.

II. INTRODUCTION

2. Experience with completed railways1 in the PRC financed by the Asian Development Bank(ADB), i.e., Shanxi-Xiaoliu Railway, Yaogu-Maoming Railway, Guang-Mei-Shan Railway, Hefei-Jiujiang Railway, and Jing-Jiu Railway, and the ongoing railway projects2 shows that theconstruction and operation of railways can contribute significantly to stimulating economicdevelopment in relatively poor areas. These projects, together with the developments andactivities induced by the lower cost of transport are catalyzing rapid economic growth,transforming local economies, enhancing the investment environment in the project areas,enabling access to wider markets and better prices for local products, and generating large-scaleemployment for local people. Consequently, these projects have significant impacts on improvingthe incomes and living standards of people in general and reducing poverty in particular.

3. The proposed Project involves the construction of a new railway from Ganzhou toLongyan, traversing eight counties in two prefectures, one each in western Fujian and southernJiangxi provinces (maps 1 and 2). It will link the poor and underdeveloped project area with othermore prosperous parts of the PRC. The eight counties have a population of 4.1 million, of which3.4 million people, or 83 percent, live in rural areas. In 2000, the incidence of rural poverty basedon rural per capita income of Y1,000 per year was 21 percent compared with 12 percent for thePRC as a whole. In terms of poverty classification, the Project has been categorized as Other.3

The Project supports the thematic priority of economic growth. The improved accessibility andlower transportation costs made possible by the GLR will accelerate economic growth bydeveloping industries, and natural and agricultural resources. New employment opportunities andincome-generating activities will be created that will raise incomes and improve living standardsbenefiting the people, particularly the poor. The Project has been designed to enhance its pro-poor features. Without the Project, transport constraints would continue and the sustainedeconomic growth necessary to reduce poverty would not take place.

4. During the 2001 Country Programming Mission, the Government reconfirmed its requestfor ADB assistance for the Project. A feasibility study4 and an environmental impact assessment(EIA)5 were prepared by the Fourth Survey and Design Institute of the Ministry of Railways(MOR). MOR prepared a resettlement plan (RP). ADB provided technical assistance (TA)6 tosupplement the Government studies, including the RP. In addition to TA supervision missions,

1 The completed railway projects include Loan 948-PRC: Shanxi-Xiaoliu Railway Project, for $39.7 million, approved

on 31 January 1989; Loan 1087-PRC:Yaogu-Maoming Railway Project, for $67.5 million, approved on 20 June1991; Loan 1167-PRC:Guang-Mei-Shan Railway Project, for $200 million, approved on 25 June 1992; Loan 1221-PRC: Hefei Jiujiang Railway Project, for $110 million, approved on 30 March 1993; and Loan 1305-PRC:Jing-JiuRailway Technical Enhancement Project, for $200 million, approved on 14 July 1994.

2 The ongoing railway projects include Loan 1439-PRC: Daxian-Wanxian Railway Project, for $100 million, approvedon 4 June 1996; Loan 1553-PRC: Shenmu-Yan'an Railway Project, for $200 million, approved on 29 September1997; Loan 1626-PRC: Guizhou-Shuibai Railway Project, for $140 million, approved on 18 August 1998; and Loan1748-PRC: Hefei-Xi'an Railway Project, for $300 million, approved on 17 August 2000.

3 This classification is used in view of the non-excludable nature of the project benefits.4 The feasibility study was approved by the PRC’s State Development Planning Commission in August 2001.5 The EIA was approved by the State Environmental Protection Administration on 21 May 2001.6 TA 3486-PRC: Ganzhou-Longyan Railway Project, for $665,000, approved on 30 August 2000 (completed).

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ADB missions7 visited the PRC from 27 February to 16 March 2001 (fact-finding) and from 10-26May 2001 (appraisal). Loan negotiations were conducted in PRC from 27-29 August 2001 withauthorized representatives of the Government. Formulation of the Project is based on the findingsof the ADB missions, information provided by the Government, beneficiary consultations,discussions with other funding agencies, and recommendations of the feasibility study and TAconsultants. A project framework that outlines the goal, purpose, outputs, and inputs or activities isin Appendix 1.

III. BACKGROUND

A. Sector Description

1. Transport

5. Infrastructure and Traffic. The implementation of the Government's economic reformpolicies since 1978 has resulted in rapid growth of the PRC economy, and a sharp increase in thedemand for transportation services. Despite the Government's efforts to increase transportcapacity, serious constraints and bottlenecks remain. The land transport system comprises about68,000 route-kilometers (km) of railways, 1.35 million km of highways, and 116,100 km of inlandwaterways. In addition, there are 1.5 million km of civil aviation routes. The density of the transportnetwork ranks among the lowest in the world relative to either population or geographic area.8

Although infrastructure networks expanded rapidly in the past decade, they have not kept pacewith the demand generated by the country's economic growth. Inadequate transportation is aconstraint to the sustained efficient growth of the PRC economy.

6. Between 1985 and 2000, all modes of freight transport grew from 1,837 billion to 4,366billion ton-kilometer (ton-km) or at 5.9 percent per annum. In 2000, the modal split for freighttransport (in ton-km) was (i) coastal and inland waterways 54 percent, (ii) railways 31.9 percent,(iii) roads 14 percent, and (iv) civil aviation 0.1 percent. Railway freight traffic increased from813 billion ton-km in 1985 to 1,257 billion ton-km in 1999 and 1,334 billion ton-km in 2000, or anannual increase of 3.4 percent, with a 6.1 percent increase in 2000 compared with 1999.Railway passenger traffic increased from 242 billion passenger-km in 1985 to 406 billionpassenger-km in 1999 and 441 billion passenger-km in 2000, or an annual increase of 4.1percent, with an 8.5 percent increase in 2000 compared with 1999. In 2000 road trafficaccounted for 54.1 percent of total passenger-km, railways for 36.8 percent, civil aviation for 8.2percent, and coastal and inland waterways for 0.9 percent. The railway's share of the totalfreight and passenger traffic moved by all transport modes declined during 1985-1999; theshare increased in 2000.

7. Investments. Transport in the PRC lags behind the rapidly developing economy, whichdepends on the efficient transportation of goods and passengers for growth and sustainability.Inadequate investment in transport up to the early 1990s resulted in transportation inefficienciesthat severely constrained the growth of the national economy. To address this situation theGovernment substantially increased investment in transport infrastructure in the Ninth Five-YearPlan (FYP) (1996-2000). Investment in transport infrastructure as a percent of gross domestic

7 The missions comprised R. Soin, Senior Project Engineer and Mission Leader; H. Sakurai, Financial Analyst; Hong

Wei, Senior Financial Economist, PRC Resident Mission; S. Price, Senior Social Development Specialist; D. Tang,Environment Specialist; and X. Peng, Senior Counsel. F. Agnello, Poverty Reduction Specialist, and S. Curry, Sr.Project Economist, assisted the Mission at headquarters.

8 In terms of density per square km of land area, the PRC's transport network is one sixth of India's network and onefifth that of the Republic of Korea.

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product (GDP) more than doubled from 0.8 percent in 1990 to 1.9 percent in 1999. To meet theincrease in transport demand, more infrastructure investments are needed. A World Bank study9

indicates that total transport investment should be increased to at least 3 percent of GDP to avoidthe economic costs associated with transport constraints. The Government has accorded priorityto transport in the Tenth FYP (2001-2005). Substantial investments in the railway and roadsectors are envisaged. The Government realizes that to sustain large investments an increasingproportion of financing will have to come from both domestic and international private sectorsources.10

8. Institutions. At the national level, the State Development Planning Commissionformulates the five-year development plans, and establishes transport priorities and targets inconsultation with the administrative units responsible for the various transport sectors, andrepresentatives of transport users. MOR administers the national railway system; the Ministry ofCommunications, national highways, inland waterways, coastal shipping, and major ports; and theCivil Aviation Administration, air transport and airports.

2. Railway

9. The 68,000 route-km railway system11 in the PRC comprises 58,000 route-km of the state-owned national railway and 10,000 route-km of local railways.12 Under the administrative control ofMOR the national railway is operated by 14 railway administrations.13 The 1990 Railway Lawprovides the framework for the regulation and operation of railways in the PRC.14 Given the vastdistances between locations of industry and natural resources, as well as the socioeconomicdifferences between the PRC's inland and coastal regions, the current dimensions of the railwaynetwork do not provide adequate geographic coverage.15

10. The railway system remains the preferred mode of medium- to long-distance intercitytransport. This, combined with economic growth and technological improvements for therailways, ensures a continuing role for railway transport in the future. The railway's competitiveadvantage is in the transport of bulk and semibulk commodities over medium to long distances,long-distance passenger traffic, and containerized freight. In 2000, the national railwaytransported almost the same amount of freight traffic and more than 16 times the volume ofpassenger traffic as all the railway lines in the United States (US) combined, includingcommuter lines.

11. As the PRC moves toward a more dynamic, decentralized, and market-driven economy,and in the light of increasing competition from the expanding road network, structural reforms

9 World Bank. 1995. Infrastructure Development in East Asia and the Pacific: Towards a New Public-Private

Partnership. Washington: World Bank.10 ADB has promoted the Asian Infrastructure Fund, China Asset Holdings Ltd., Asian Infrastructure Mezzanine Capital

Fund, and Asian Infrastructure Development Company Limited to help tap private sector resources for investment ininfrastructure development.

11 In terms of route length, the PRC’s railway network ranks fourth worldwide after the US, Russian Federation, andIndia.

12 Local railways are those constructed under the sponsorship of provincial governments and others, and areoperated by enterprises independent of MOR.

13 The railway administrations are responsible for day-to-day operation and management of the national railway linesin their respective geographic jurisdictions.

14 The Railway Law covers the operation and safety of railway transport, railway construction, service quality, andlegal liability. The law also specifies the rights and obligations of the Government, MOR, local governments, otherrailway operators, shippers, and railway users.

15 Railway network density in terms of route-km per square km of land area is one third that of India and one tenththat of Japan.

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touching all aspects of railway operation and management are being implemented (beginning inthe 1980s) to modernize and improve the efficiency of the railway system. Major reforms werepreceded by extensive studies and pilot programs. Considering the size and spread of therailway and its critical importance to the PRC’s economy, the reforms were carefully sequencedand designed to suit local conditions. A summary of the railway sector reforms is given inAppendix 2.

12. The first important reform initiative was the productivity contract system introduced in1986. However, productivity targets alone are not sufficient to operate profitably in a marketenvironment. After a series of pilot studies on management methods, in 1999, the assetsoperation liability system was introduced for the national railway. Under this system, MOR enteredinto management contracts with the railway administrations to improve profitability.16 Themanagement contracts have helped improve the operational and financial performance of therailway administrations17 and the national railway as a whole. In 1999, the national railwaytransported a total of 1,662 billion converted ton-km, an increase of 4.2 percent over 1998, and1,775 billion converted ton-km in 2000, an increase of 6.8 percent over 1999. The safety ofoperation of the railway network also improved during 1999-2000 compared with previous years.18

In the drive to improve profitability, MOR has divested its construction enterprises; productionfacilities for locomotives, passenger coaches, freight wagons, and signaling and communicationsequipment; and 11 captive educational universities.19

13. To improve productivity and efficiency, operation and maintenance is being modernized,with over 97 percent of the needed traction power provided by modern electric and diesellocomotives. Commercialization is progressing steadily, and excess transportation staff, a legacyof the past, are being reduced.20 To provide employment for redundant employees, MOR helpedset up diversified businesses (independent of the core transportation business) to supplyequipment, goods, and services to the railway industry.21 Several measures have been taken toimprove management information systems, including a point-to-point costing system,22 arevised revenue settlement system23 and a transportation management information system

16 Under the assets operation liability system the performance of railway administrations is evaluated by using

agreed targets for simultaneously improving profitability, maintaining and increasing fixed assets, and ensuringsafety of operation.

17 For example the two project implementing agencies, the Nanchang Railway Administration increased operatingprofit from Y62 million in 1998 to Y400 million in 1999 and Y480 million in 2000; while the Shanghai RailwayAdministration earned a profit of Y140 million in 2000 compared with a loss of Y205 million in 1998 and a loss ofY153 million in 1999.

18 The incidence of accidents per million locomotive-km in 1999-2000 was 21 percent less than that during 1996-1998, and 41 percent less during 1991-1995.

19 In September 2000, MOR divested the following six large nontransportation entities, along with the associateddebt: (i) South Locomotives and Rolling Stock Industries Corporation, (ii) North Locomotives and Rolling StockIndustries Corporation (iii) China Railway Telecom and Signaling Corporation, (iv) China Railway ConstructionCorporation, (v) China Railway Engineering Corporation, and (vi) China Civil Engineering (Group) Corporation.

20 The number of employees employed by MOR decreased from 1.93 million in 1996 to 1.49 million in 2000.Correspondingly, productivity in terms of converted ton-km per employee increased from 0.84 million in 1996 to1.19 million in 2000, an increase of 9 percent per year.

21 These enterprises have provided alternative employment to 0.4 million surplus employees of the national railway.In 1999, the total revenue of these companies was Y36 billion with annual profits of Y2.6 billion. This program is aneffective and socially acceptable approach for reducing staffing levels.

22 A point-to-point costing system covering 1,200 locations systemwide will be operationalized in 2002. This systemcan evaluate the costs and profitability of individual traffic movements.

23 The existing revenue settlement system will be improved by helping railway administrations evaluate interlinerevenue taking account of the commodity carried and the tariff rate.

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(TMIS).24 Since 1999, various restructuring measures have been taken to improve productivityand reduce operating losses on 120 branch lines that comprise about 7,800 km (or 13.4percent) of the national network.25 Consistent with the global trend for multimodal transport,container traffic is a key area for development. Since the mid-1990s container traffic has beenincreasing by more than 10 percent per year, more than three times the growth rate for freighttraffic.26 These measures will improve service quality, asset utilization and productivity, andfinancial performance of the national railway, and help focus on more profitable traffic.

14. The Government, through the State Council, regulates tariff charges on the nationalrailway. The Government is cautious when considering tariff increases because of the adverseimpact on inflation, which has economywide implications. During 1967-1982, tariff rates remainedunchanged. Since 1983, tariff rates and structures have changed significantly. From Y0.0148 perton-km in 1983, the nominal freight tariff increased to Y0.0791 per ton-km in July 2000, anaverage annual increase of 10.4 percent, which compares with the average annual inflation rate of8.4 percent during the same period. The freight tariff includes increases in basic freight tariff andsurcharges to generate resources for railway development. In March 1990, a constructionsurcharge was added to most commodity freight tariffs, the proceeds of which are credited to aseparate railway construction fund (RCF) account with the Ministry of Finance.27 The RCF ismainly used for railway construction.28 In April 1993, the Government approved the policy of "newline, new tariff" to generate revenue for cost recovery and service debt incurred to finance theconstruction of new lines. 29 In the same year an electrification surcharge30 was levied on all trafficmoving on electrified lines to raise capital for electrification. In 1999, a new commodity-basedfreight tariff structure and additional charges for freight loading and unloading were introduced.

15. The basic passenger tariff per passenger-km was raised in stages from Y0.017 in 1985to Y0.0586 in 2000, or an average annual increase of 8.6 percent. Since 1992, additional faresare being charged to passengers availing of premium and value-added services.31 Theexpansion of such services to meet demand increased the revenue collection from passengerservices. On a passenger-km basis the ratio of actual revenue to basic tariff increased from

24 Following successful trials on the Shanghai Railway Administration, installation of the TMIS on the national

network was completed in 2000. Similar management information tools have been successfully used for railwaysin the US and Canada. Significantly, the TMIS has been connected to the Internet enabling shippers to monitorshipments and passengers to access train schedules on-line. The TMIS will improve the quality of services andensure more efficient utilization of assets. Under the Project, the TMIS will be extended to cover the projectfacilities.

25 The measures taken include restructuring of branch lines into separate/independent entities or joint ventures withprovincial governments and close monitoring of their operational performance. As a result of these measures,revenue on branch lines increased from Y7.5 billion in 1999 to Y8.45 billion in 2000, an increase of 12.6 percent,and operating losses on branch lines decreased from Y1,139 million in 1999 to Y915 million in 2000, a fall of 6percent.

26 In 2000, container traffic was 2.6 percent of total freight traffic. To meet demand for container traffic MOR isplanning to set up 250 container stations on the national network during the Tenth FYP (2001-2005).

27 From Y0.003 per ton-km in March 1990, the construction surcharge increased in stages to Y0.033 per ton-km in1999. Fertilizers and yellow phosphate are exempt from the construction surcharge, and a lower surcharge isapplied to rock phosphate and cotton, Y0.0224 per ton-km, and pesticides, Y0.0192 per ton-km. In 2000, Y37.1billion was credited to the RCF.

28 Since 1993, the RCF has also been used to pay interest on debt incurred for capital investments.29 ADB helped MOR to carry out a tariff study to determine a special higher tariff for the Jing-Jiu Railway under TA

2122-PRC: Policy Support to the Ministry of Railways, for $600,000, approved on 14 July 1994 (completed).30 The electrification surcharge increased from Y0.004 per ton-km in April 1993 to Y0.012 in February 1999.31 The fare for (i) an airconditioned seat is 50 percent more than for nonairconditioned; (ii) express trains is about 50

percent more than standard trains, (iii) a soft seat is about 70 percent more than a hard seat; and (iv) sleeper seatis 75 percent more than a sitting seat. During the peak holiday season up to a 30 percent premium is charged onsome trains.

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1.218 in 1996 to 1.422 in 2000, reflecting increased demand for improved value-addedpassenger transportation services.

16. In spite of the general and selective tariff increases, the current tariffs of Y0.0791 per ton-km and Y0.0586 per passenger-km are still low by comparison with other transport modes in thePRC and by world standards. The selective tariff increases helped augment revenue, but they didnot compensate for the phase-out of subsidies on material and energy inputs in the early 1990s,which adversely affected the profitability of the national railway. However, between 1996 and2000, unit revenues from both freight and passenger services increased more than the unitoperating costs, which improved the financial performance of the national railway.

B. Government Policies and Plans

17. The lack of railway capacity to meet the increasing demand for transportation services isconstraining economic growth. The Government’s plan for railway development gives priority to(i) expanding the railway network by constructing new railway lines to provide economictransportation and catalyze growth in poor inland regions; (ii) encouraging the construction ofjoint venture railways to develop local economies; (iii) improving the efficiency of the existingsystem by using new technology and modern management tools; (iv) increasing cost recovery bycommercializing services and adopting appropriate pricing policies; (v) improving efficiencythrough institutional and structural reforms; and (vi) encouraging nongovernment investment32 ininfrastructure and related services.

18. The Tenth FYP, covering 2001-2005, envisages (i) constructing 6,000 km of new lines toprovide access to unserved areas with the network length reaching a total of 74,000 route-km;(ii) providing 3,000 km of double lines and electrifying 5,000 km of key lines to increasecapacity; and (iii) increasing operating speeds on 5,000 km with the total length of such linesreaching 15,000 km. The Tenth FYP envisages a total outlay of Y350 billion for railwaydevelopment, consisting of Y270 billion for capital construction33 and Y80 billion for rolling stock.About one third of this investment will be internally generated; the remaining will be arrangedfrom domestic markets and foreign sources.

C. External Assistance to the Sector

19. Japan provides largest amount of external financing for the railway sector, followed by theWorld Bank and ADB (Appendix 3). Japan and the World Bank have been mainly involved inexpanding the capacity of the national railway. In the past 20 years, Japan34 has provided ¥558billion for 15 railway projects to expand rail transport capacity, particularly in major coal transportcorridors. Japan has also financed the development of new sections of the national railwaynetwork in inland provinces. Since 1984, the World Bank has provided loans totaling $2.2 billionfor seven national railway projects and one local railway project.

20. ADB has focused on railway development in less-developed and poor regions topromote sustainable economic growth and reduce poverty. Since 1989, ADB has provided nineloans totaling about $1.4 billion to help finance the construction of 1,754 km of new railway linesunder seven local railway projects, and 3,484 km of new railway lines under two national railway

32 The Guangshen Railway Company, operating between Guangzhou and Shenzhen, raised $200 million through a

worldwide offering of shares to finance investments.33 During the Ninth FYP (1996-2000) the actual investment for railway capital construction totaled Y250 billion.34 Financing from Japan was initially sourced from the Overseas Economic Cooperation Fund, which was merged on

1 October 1999 with the Export-Import Bank of Japan to form the Japan Bank for International Cooperation.

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projects. These projects have financed the construction of railway lines in less-developed andpoor areas, introduced modern technology, and improved the efficiency of railway operationthrough institutional and structural reforms. ADB has promoted the commercial operation ofrailways to achieve full cost recovery and has helped improve the management of railways byenhancing their knowledge of (i) commercial operation, traffic costing, and pricing; (ii) market-oriented business planning and strategies; (iii) financial management and efficient resourceallocation; and (iv) modern management tools. ADB is supporting the transformation of therailway sector to provide efficient, safe, and quality transport services; maintain financial self-sufficiency; and enhance subregional cooperation with neighboring countries in Central Asia(covering Kazakhstan, Kyrgyz Republic, and Uzbekistan) and Southeast Asia (covering LaoPeople’s Democratic Republic, Myanmar, and Viet Nam).

21. ADB coordinates with the Japan Bank for International Cooperation (JBIC) and WorldBank to ensure complementarity of aid involvement in the railway sector. During projectprocessing, discussions were held with JBIC and World Bank staff regarding their operationalexperience with ongoing railway programs. The Project is in line with the national priorities forrailway development and ADB's strategy in the sector, and complements the investments andpolicy dialogue of JBIC and the World Bank.

D. Lessons Learned

22. Experience from completed and ongoing ADB-financed railway projects in the PRC showsstrong commitment and generally satisfactory capabilities of the executing agencies (EAs) forproject implementation. The speed of implementation has generally exceeded the expectations atthe time of appraisal. The EAs generally complied with the loan covenants. Resettlement andenvironmental management were carried out satisfactorily. Audit covenants were complied with ina timely manner, and the audited financial statements were found generally acceptable. Of ADB’snine railway projects, five (footnote 1) are complete, and four (footnote 2) are underimplementation. The major lessons learned and accomplishments under these projects are givenin Appendix 4.

23. The key lessons from the previous railway projects highlight the need to (i) ensure thatthe EA established for project processing and implementation is also responsible for theproject’s operation; (ii) prepare realistic traffic forecasts; (iii) review constraints to traffic on anetwork basis, and the impact on project viability of the existing and/or planned railway lines andother transportation modes that may compete with the project facilities; and (iv) finance railwayprojects with appropriately determined debt-equity ratios.

24. Previous railway projects have sparked socioeconomic development in the projects'influence areas. The main impacts experienced were (i) new railway lines in less-developed andpoor regions stimulated economic development resulting in higher growth rates of GDP and ruralincomes compared with the without the project scenario;35 (ii) construction activities generateddemand for unskilled labor and employment of poor workers who would have otherwise remainedunemployed or underemployed;36 (iii) service roads built for construction activities opened up and

35 In the project area of the Jing-Jiu Railway (footnote 1) the GDP of 10 counties in Jiangxi Province increased from

Y4.9 billion in 1993 to Y15.4 billion in 1998, an annual increase of 25.5 percent compared with 10.2 percent for theprovince as a whole. Rural income per capita in Xinfeng County increased from Y802 in 1993 to Y2,222 in 1998,an annual increase of 18.5 percent compared with 10.3 percent during 1985-1992 (before the project).

36 During the first two years of construction of the Guizhou-Shuibai Railway (footnote 2), a total of about 7.5 millionperson-days of employment was generated, of which 4.1 million person-days or about 55 percent were provided tolocal poor people thereby raising them above the poverty line.

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benefited rural communities in inaccessible areas; (iv) domestic resource mobilization improved,providing additional resources for social programs37 and generating employment; (v) supply andtransportation of local materials generated employment; (vi) low cost railway transport, comparedwith the high cost of motorized transport, extended the market spatially by increasing the distanceto breakeven locations resulting in lower prices of agricultural inputs (such as fertilizers), whichstimulated cash-crop farming and provided more income to farmers; and increased mobility ofrural residents and allowed access to more employment opportunities and social services beyondtheir immediate community neighborhoods; (vii) counties provided with railway access recordedhigher GDP growth rates than those without the railway; (viii) the investment environment wasenhanced; resulting in rapid development of secondary and tertiary industries that generatedemployment;38 the consequent shift in the structure of employment from low productivityagriculture to higher productivity agroprocessing and light industry increased employmentopportunities for women whose incomes and social status then improved;39 (ix) tourism developedbecause of more affordable and convenient railway travel; and (x) environmental protection andmitigation measures were taken under the projects as agreed at appraisal;40 and environmentalimpacts of induced developments were addressed in accordance with the EIAs and summaryEIAs for those projects. In summary, the railway projects have contributed to a dramatictransformation of the local economies. The per capita rural incomes in the project areas increasedsubstantially compared with those before the project. Living standards were raised and povertywas reduced. The lessons learned and experiences with the previous railway projects have beenappropriately incorporated in the design of the Project.

E. ADB's Sector Strategy

25. ADB’s strategy for the PRC emphasizes three broad objectives: (i) improve economicefficiency; (ii) promote growth in poor inland provinces to reduce poverty; and (iii) protect theenvironment and manage natural resources. In pursuit of these three broad objectives, thestrategy supports developing efficient and integrated transport networks to meet the needs of agrowing market economy and contribute to reducing poverty through investment targeting poorerareas coupled with policy and institutional reforms.

26. Recognizing the importance of railway transport in the development of the nationaleconomy, ADB’s strategy for the railway sector focuses on (i) expanding the railway system byconstructing new lines in unserved, less-developed, and poor areas; (ii) modernizing andincreasing the capacity on key routes of the national railway system to improve transportefficiency; and (iii) commercializing railway operation to sustain efficient operation. Through thisstrategy ADB's overarching goal is to reduce poverty. The location of the Project in a less-developed and poor region is in line with ADB’s strategy and will promote economic growth and

37 The financial revenue of 10 poverty counties in Jiangxi Province that are traversed by the Jing-Jiu Railway

(footnote 1) increased from Y0.5 billion in 1993 to Y1.4 billion in 1998, an annual increase of 22.7 percentcompared with 12.3 percent during 1985-1992, before construction of the Jing-Jiu Railway.

38 The Jing-Jiu Railway facilitated the setting up of a large number of resource- and agriculture- based industries inXingfeng County of Jiangxi Province. Their number increased from 3 in 1992 to 39 in 1998, after projectcompletion. The number of businesses grew from 8,005 in 1992 to 19,287 in 1998, and the number of personsemployed in these increased from 18,484 in 1992 to 52,153 in 1998, an annual increase of 23 percent. In thesame county the number of people living below the poverty line reduced from 30,400 in 1993 to 11,580 in 1998, adecline by 62 percent.

39 Beneficial income and social impacts particularly on women were noted in the influence areas of the Yaogu-Maoming Railway (footnote 1) and Guang-Mei-Shan Railway (footnote 1).

40 The China Academy of Railway Sciences, which monitored environmental management on the Jing-Jiu Railway,reported that the environmental requirements in the EIA and the summary EIA were complied with.

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provide poor people with more access to a broad range of socioeconomic activities, includingemployment and income opportunities that will improve living standards and reduce poverty.

F. Policy Dialogue

27. Policy dialogue has been a significant component of ADB assistance to the railway sectorand has effectively complemented the lending operations. The issues addressed includecommercializing operations, supporting management autonomy of railway operations, developinghuman resources, and improving financial management and accounting systems. During thepolicy dialogue for the Project, poverty reduction aspects of the Project were strengthened. Otherareas covered included institutional reforms, cost recovery and commercialization, market andbusiness development, private sector participation, and nongovernment financing.

1. Poverty Reduction

28. Poverty reduction through pro-poor economic growth is a key aspect of the policydialogue. The Project is located in a poor area. Because of the high incidence of poverty in theproject area, poverty reduction was an integral part of project planning and design. Specificfeatures included in the project design are aimed at transferring the benefits of the Project to thepoor. Issues discussed include (i) obtaining commitment from the project proponent,implementing agencies, monitoring agencies, and the concerned prefecture and countygovernments to pursue pro-poor policies to maximize the benefits to the poor during projectplanning, implementation, and operation; (ii) providing employment during construction andoperation of the GLR on a preferential basis to poor workers; (iii) supplying local materials thatmeet the requirements of quality and economy from poor villages; (iv) providing station accessroads and link roads to widen the Project's benefits to poor interior areas; (v) supporting povertyreduction programs of local governments to complement the poverty reduction efforts under theProject; and (vi) obtaining commitment from local governments to implement pro-poor policies inthe project influence area.

2. Institutional Reform

29. ADB has supported institutional reform of the PRC's railway sector to separate theGovernment's ownership and regulatory role from operation, giving full play to market forces forimproving efficiency. Passenger and freight operations will be undertaken by enterprises thatoperate in a competitive environment. The ongoing restructuring of railways will help create anenvironment that will attract private sector capital for railway development, including developingspecialized railway transport services and improving efficiency and the quality of service. Fornew investments, railway enterprises will have to ensure financial viability through increasingcommercialization of operations (para 31). New railways that the Government requires to bebuilt mainly to develop unserved inland areas and directly reduce poverty will continue to befinanced by the Government. MOR will pursue these areas of reform.41

30. The PRC's entry to the World Trade Organization (WTO) 42 will open up railway transportservices to foreign investors and operators.43 This development needs to be taken into account

41 Due consideration will also be given to the lessons learned from reforms on railway systems in other countries

(i.e., the United Kingdom, US, and Japan).42 Under WTO accession commitments, foreign investors would be able to (i) acquire minority shareholding in joint

ventures for freight services after the PRC's accession to the WTO, (ii) acquire majority shareholding within threeyears thereafter, and (iii) set up solely foreign-owned companies within six years after the PRC's accession to theWTO.

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for future restructuring of the national railway along market principles. In addition, the structureof transport demand may change with trade liberalization. MOR will therefore need to considervarious institutional, operating, and technical options in its strategy for the structural adjustmentof the railways. Under the Project, MOR will receive assistance in evaluating the implications ofWTO accession commitments on railway operation, including measures necessary forimproving operational performance.

3. Commercialization

31. ADB has supported commercializing the railway operations with full cost recovery toensure financial sustainability. A key element of the policy dialogue under ADB-financed railwayprojects has been the establishment of pricing policies that facilitate optimal intermodal choicesand efficient use of the railway. Tariffs will be set for full cost recovery while considering marketconditions and the socioeconomic situation in the area served. MOR will apply the policy of newline, new tariff to the GLR and ensure full cost recovery, covering operation and maintenancecosts, depreciation, and debt service in excess of depreciation, taxes, and a reasonable profit,duly considering the price elasticity of traffic. This policy will be reflected in a tariff study that willbe carried out by MOR to determine the tariffs to be applied on the GLR before the start ofcommercial operation (para. 84). Marketing efforts will be strengthened to include analysis andforecast of passenger and freight customers’ demands for railway services. MOR will continueto eliminate excess staff to improve productivity. The performance of passenger transportationcompanies will be monitored with greater emphasis on improving service quality consistent withdemand.

4. Marketing and Business Development

32. The Government is addressing transportation constraints by constructing new railwaylines and expanding the capacity of existing lines. As the PRC progresses to a market-driveneconomy, the railway will compete on service quality for demand-based transportation services.It will need to rely more heavily on new marketing and business initiatives and cost-effectiveoperations. To be able to do this, the railway should offer new and improved customer servicesand increase productivity through marketing and business initiatives in freight and passengerservices. MOR will pursue these initiatives; assistance will be provided under the Project.

5. Private Sector Participation and Nongovernment Financing

33. In line with ADB's private sector development strategy, a wider role for the private sectoris envisaged during project implementation. MOR has taken steps to create the conditionsnecessary to attract investment in the project facilities and services from nongovernment andprivate sector sources. Possible areas include construction of industrial sidings, tourism, andcontainer and luggage-related businesses. The strategic proximity of the GLR to Xiamen Portwill provide a good impetus to private sector operations in the project influence area.44 The GLRwill expand the hinterland of Xiamen Port into interior areas that are largely poor and help createthe conditions necessary for local governments to attract private investments for industrialdevelopment.

43 In August 2000, MOR and the Ministry of Foreign Trade and Economic Cooperation jointly promulgated

regulations on approval and management of foreign-funded railway freight transport enterprises.44 ADB is providing assistance under Loan 1584-PRC: Xiamen Port Project, for $50 million, approved on 27

November 1997, to expand the port's cargo-handling capacity to meet demand and provide market access toresource-rich but less-developed neighboring inland areas.

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IV. THE PROPOSED PROJECT

A. Rationale

34. Located in a poor and less-developed area, the Project will catalyze economicdevelopment and help reduce poverty. Progress in reducing poverty in the PRC has beensignificant particularly in the coastal areas and urban centers where markets, skillsdevelopments, and new technologies are easily accessed. Nevertheless poverty has persistedin some inland regions, such as the eight counties/district (footnote 49) in southern Jiangxi andwestern Fujian provinces, which comprise the project influence area. Reducing the moreintransigent poverty in this largely mountainous area will require reaching out to the remote ruralpopulation with small-sized and low-quality agricultural land, little access to modern technologyand training, and no cost-effective means to transport raw materials and products. This regionhas rich natural resources (i.e., metallic ores, coal, limestone, and granite) and is known for itsscenic landscape and historical sites. But poor accessibility and the high cost of motorizedtransport have limited development and this region has remained less developed and poor.Based on experience with previous railway projects, cost-effective railway transportation willinduce the sustainable development of natural resources and industries, and market-basedagriculture that will improve productivity and raise individual households out of poverty. It willhelp increase domestic resource mobilization by local governments. In view of these reasons,the Government characterizes the GLR as a key poverty reduction project in the Tenth FYP(2001-2005).

35. The GLR’s strategic positioning between the port of Xiamen and the Jing-Jiu Railway (amajor north-south railway artery, which ADB helped finance), and its connections to the nationalnetwork will improve traffic maneuverability, reduce transportation constraints, and lower networktransportation costs. The GLR will provide an important transit link to the less-developed and poorsouthwest regions of the PRC when the proposed railway link from Ganzhou to Chenzhou andLiuzhou in Guangxi is constructed.45

B. Objectives and Scope

36. The Project's goal is to promote sustainable economic growth that will help reducepoverty in the project area. This will be achieved by providing economic railway transportation inunserved, less-developed, and poor areas to create the conditions necessary for developinglocal resources and generating employment and income-enhancing opportunities that will raiseliving standards, particularly for the poor.

37. The project scope comprises (i) constructing a single-track, standard-gauge railway(about 277 km long)46 between Ganzhou and Longyan, including subgrades;47 141 bridges witha total length of 33 km; 970 culverts; and 99 tunnels with a total length of 61 km;48 (ii) layingrailway track consisting of rails and accessories, concrete sleepers, and stone ballast; (iii)constructing 14 new railway stations complete with facilities; (iv) providing modern technology

45 Preliminary investigations and survey of the proposed railway link to the PRC's southwest are in progress.46 About 120 km or 43.3 percent of the GLR’s total length, in Jiangxi Province, falls in the jurisdiction of the Nanchang

Railway Administration, and the remaining 157 km, or 56.7 percent, in Fujian Province, is in the jurisdiction of theShanghai Railway Administration.

47 The subgrade includes retaining walls, protection of earth slopes from erosion, protection against scouring,groundwater drains, and other works that support environmental protection.

48 There are 13 bridges more than 500 m, and four tunnels more than 4 km long.

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and equipment for signaling, communications, transportation management information system,freight and container yard operation, and mechanized maintenance of track; (vi) providingtraining on the use and maintenance of modern equipment; (vii) protecting the environment andmitigating adverse environmental effects; (viii) acquiring land and resettling affected people; (ix)providing consulting services for design, construction supervision and quality control,procurement, environmental monitoring, and monitoring of resettlement implementation andpoverty reduction; and (x) strengthening the institutional capacity of the EA.

C. Technical Justification

1. Project Area

38. The GLR, connecting the cities of Ganzhou and Longyan, crosses eight counties/districtin two prefectures and two provinces.49 The western half of the alignment is hilly terrain withgenerally favorable conditions for agriculture. From the center section eastward, the topographyis moderately mountainous with complex and faulted strata. At the western end, the GLR willconnect to the existing Ganxian station of the Jing-Jiu Railway (footnote 1). The existing Jing-Jiufacilities at the Ganzhou passenger station and Ganzhou east district station will be improvedunder the Project. On the eastern end, the GLR will connect to the existing Longyan westpassenger station (on the Zhangping-Longyan-Meizhou Railway), which will be expanded byMOR together with the Tieshanyang district station on the Zhangping-Longyan line. The recentlyupgraded national highways 319 and 323 are within a few kilometers of the GLR and aregenerally parallel to it (map 2).

2. Traffic Forecast

39. Though a relatively small link in the overall national network, the GLR provides a directrailway link to the port of Xiamen (footnote 44) from the north-south Jing-Jiu Railway. Xiamen'srapid growth in the 1990s is expected to continue, with the port traffic also maintaining its growthtrend. Relatively little of this traffic is moving currently by rail, mainly because direct rail serviceto the port's natural hinterland to the west is not yet available and the existing railway link iscircuitous and congested. The GLR’s direct link to the Jing-Jiu Railway will also help reducecongestion along the north-south movement of freight to and from the already congestedsouthern ports by diverting some traffic to Xiamen.

40. Freight traffic was forecast by commodity (i.e., metallic ores, grain, coal, iron and steel,timber, fertilizer, petroleum, and others), and in three categories differentiated by their economicimpact: (i) diverted rail traffic from other lines to the GLR based on projected traffic on thenetwork by major commodity groups, and reduced overall railway operating costs in the nationalnetwork as a result of the GLR; (ii) traffic diverted from the road based on an assessment of therelative service and cost competitiveness of the GLR; and (iii) additional generated traffic thatwould not move except due to the GLR. The forecast of diverted traffic is based on MOR's

49 The eight counties/district are Ganxian, Huichang, Ruijin, and Yudu counties in Ganzhou City (prefecture-level);

and Changting, Liancheng, and Shanghang counties, and Xinluo District in Longyan City (prefecture-level).Excepting Ganxian County and Xinlou District, the remaining six intermediate counties are national-level povertycounties with the exception of Ruijin, which is a provincial-level poverty county.

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railway investment strategy model.50 The forecast of generated traffic is based on marketsurveys and the assessment of consultants for TA 3486 (footnote 6), which was prepared inconsultation with local communities and industry representatives.51 The forecast of freight traffictakes into consideration the lessons learned on previous railway projects as well as the trend ofdeclining freight traffic intensity in the PRC.52 A summary of the traffic forecasts is given in Table1 and details are given in Appendix 5.

Table 1: Summary of Traffic Forecasts(million)

Type of Traffic 2007 2011 2016 2021 2026Freight (tons )Transit 6.3 7.6 9.5 11.7 14.5Other than Transita 3.8 5.2 7.6 11.2 16.3

Total (tons) 10.1 12.8 17.1 22.9 30.9Total (ton-km) 1,979.0 2,453.0 3,219.0 4,258.0 5,681.0Passenger (number) 2.7 5.2 7.9 10.9 11.1Total (passenger-km) 377.0 719.0 1,091.0 1,516.0 1,535.0

a Includes originating, terminating, and local traffic.Source: Staff estimates.

41. Freight volume on the GLR is forecast to increase from about 2 billion ton-km in 2007 to5.7 billion ton-km in 2026, an annual growth rate of 5 percent. Passenger traffic is forecast toincrease from 377 million passenger-km in 2007 to 1,535 million passenger-km in 2026, anaverage annual increase of 7.6 percent. These growth rates are lower than the actual andforecast growth rates for the Jing-Jiu Railway (7.1 percent for freight and 8 percent forpassengers). The assumed growth rates for traffic are considered realistic and achievable forthe new line. Transit traffic, utilizing the shorter distances and the higher efficiency that the GLRwill provide to the national network, accounts for about 62 percent of the total traffic in 2007 and47 percent in 2026. Generated traffic accounts for the remainder.53 Poor access and the highcost of motorized transport (about Y0.70 per ton-km) have limited the development of naturalresources that have low commodity value in relation to weight and bulk. Cheaper transportationon the GLR (with freight tariff of about Y0.21 per ton-km) will foster the sustainable developmentof natural resources and industries that will increase generated traffic. As the economyliberalizes, both business and personal travel are expected to expand. The PRC's 0.8passenger trips per capita by rail in 2000 is low compared with other developing countries.Railway passenger traffic is expected to grow faster than the economy as a whole.

42. The port of Xiamen handles 18 million tons per year including 1.1 million containers (20-foot equivalent units). The increase in container traffic has been dramatic, largely due to relaxationof trade restrictions with Taipei,China, enabling direct trade instead of through Hong Kong, China.The GLR will provide a significant gateway to the east-west raiIway system connecting to the portof Xiamen. The Project is already acting as a powerful stimulus to improve infrastructure includingroads in the project influence area. To develop container traffic on the GLR and the adjoiningnetwork, the Project will provide equipment for handling and transporting containers. MOR has

50 The Railway Investment Strategy model developed by MOR is used for traffic forecasting and evaluating railway

capacity expansion. Traffic forecasting was done by simulation trials using field survey data under with and withoutproject line scenarios to obtain commodity-specific traffic volume on the project line by traffic type, i.e., divertedfrom other railway lines, diverted from road, and generated. Validation of the results under TA 3486 show that themodel provided sufficiently accurate traffic estimates both for the national network and the GLR.

51 The final report for TA 3486 contains a comprehensive list of potential shippers.52 Between 1985 and 1999, freight intensity in the PRC per dollar of GDP declined from 17 ton-km to 4 ton-km.53 The GLR's generated freight traffic on ton per route-km basis is conservatively estimated at about 10 percent less

than the average for the national network.

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given assurance that it will efficiently operate these facilities.54 Transportation improvements willcatalyze the development of natural resources and associated industries. Local governments areseeking private sector companies to invest in their areas.55 Given the growth potential of theregion, the Government’s priority for developing the project influence area, as well as the directtransportation link to Xiamen Port provided by the GLR, the freight and passenger trafficforecasts are considered reasonable.

3. Design Standards

43. Consistent with the traffic forecasts, the GLR will be built as a single-track railway withdiesel traction. Conversion to electric traction will take place after a suitable buildup of traffic. Thealignment of the GLR was selected from various alternatives after consultation with the localresidents and taking into account technical feasibility and the need to minimize involuntaryresettlement and environmental impacts. The TA consultants and ADB missions reviewed thealignment and concluded that it was an optimal and economic solution for meeting thetransportation needs of the region.

44. The GLR will be constructed to MOR’s class I technical standards. For track facilities, 50kilogram per meter (m) rail will be used on concrete sleepers (with a density of 1,760 sleepers perkm) laid on stone ballast. The gradient will generally be 0.6 percent and the minimum curvature1,200 m, except in the mountainous sections where the maximum gradient will be 1.5 percent andthe minimum curvature 550 m. Crossing lines at stations will have a length of 880 m enablingfreight trains of 3,500 tons to be hauled matching the standard train size for the Jing-Jiu Railway.For train control, a semiautomatic block relay signaling system with electric interlocking and colorlight signals will be used, and fiber-optic cable for communications. Operational safety will beenhanced by providing equipment to detect hot bearings of the rolling stock. Initially 14 stations (9for passengers and freight, and 5 for passengers only) will be constructed. Additional stations andpassing loops will be constructed in the future to meet increases in railway transport demand.

D. Cost Estimates

45. The total cost of the Project, including provision for physical and price contingencies,interest and other charges during construction, and front-end fee of 1 percent of the loan amountis estimated at $775 million. This comprises $254.7 million (33 percent) in foreign exchange costand $520.3 million (67 percent) in local currency cost. The cost estimates are based on quantitiesderived from the technical designs and market prices for goods and materials, and include thecosts of land acquisition, resettlement, compensation, environmental protection, and measures tomitigate adverse effects, and provide for resettlement and environmental monitoring. The projectcost estimates are summarized in Table 2 and detailed in Appendix 6. The GLR's cost of $2.9million per km compares well with the $3.2 million per km for the Guizhou Shuibai Railway(footnote 2) and $3.0 million per km for the Hefei-Xi'an Railway (footnote 2 ).

54 The operation and management of container facilities will be done in consultation with the China Railway

Container Transport Center, which has the necessary expertise.55 Counties traversed by the GLR are providing various incentives to attract investors. A number of inefficient state

enterprises have been restructured as joint ventures that are planning substantial investment.

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Table 2: Cost Estimates($ million)

ItemForeign

ExchangeLocal

CurrencyTotalCost

A. Base Cost1. Railway Works, Facilities, and Equipment 201.8 386.5 588.32. Administration, Land Acquisition, Resettlement,

Consulting Services, and Environmental Protection1.0 63.6 64.6

Subtotal (A) 202.8 450.1 652.9B. Contingencies

1. Physical Contingencies 13.4 29.6 43.02. Price Contingencies 14.1 19.1 33.2

Subtotal (B) 27.5 48.7 76.2C. Front-End Fee 2.0 0.0 2.0D. Interest/commitment charges during construction 22.4 21.5 43.9

Total 254.7 520.3 775.0Source: Staff estimates.

E. Financing Plan

46. The PRC has requested a loan of $200 million from ADB's ordinary capital resources tohelp finance the Project. The loan will have a 25-year term, including a grace period of 5 years, aninterest rate determined in accordance with ADB's London interbank offered rate (LIBOR)-basedlending facility, a commitment charge of 0.75 percent per annum, a front-end fee of 1.0 percent(the fee will be capitalized in the loan), conversions options that may be exercised in accordancewith the terms of the draft Loan Agreement, the Loan Regulations and ADB's ConversionGuidelines, and such other terms and conditions set forth in the draft Loan Agreement. TheGovernment has provided ADB with (i) the reasons for the PRC's decision to borrow under ADB'sLIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertakingthat these choices were the PRC's own independent decision and not made in reliance on anycommunication or advice of ADB.

47. MOR and the China Development Bank will finance all other project costs, includinginterest and commitment charges during construction on the loan amount. A summary of thefinancing plan is given in Table 3.

Table 3: Financing Plan($ million)

Foreign LocalSource Exchange Currency Total PercentADB 200.0 0.0 200.0 25.8CDB 0.0 266.0 266.0 34.3MOR 54.7 254.3 309.0 39.9

Total 254.7 520.3 775.0 100.0ADB=Asian Development Bank, CDB=China Development Bank, MOR=Ministry of Railways.Source: Staff estimates.

48. MOR will provide $309.0 million equivalent of internally generated funds from the RCF.The China Development Bank will provide a term loan of $266 million equivalent to be repaidover 9 years after a 6-year grace period. Because of the poverty reduction aspects of theProject, the loan will carry an interest rate of 5.9 percent per annum. MOR will cover any costoverruns including cost increases that could arise from higher than projected inflation andunanticipated exchange rate variations. The Government and MOR have agreed to make timelyprovision of sufficient counterpart funds to complete the Project as scheduled.

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F. Implementation Arrangements

1. Project Implementation

49. The Nanchang and Shanghai railway administrations, in whose jurisdiction the GLR willbe located (footnote 45), will be responsible for all aspects of project implementation, includingplanning and scheduling of works, contract preparation, bidding, supervision, quality, andpayments.56 The construction organizations under the two railway administrations have qualifiedstaff with experience on similar projects. Both implementing agencies will ensure that the qualityof construction conforms with national standards.57 Implementation of the Project by the twoimplementing agencies will be coordinated by MOR’s project coordination office supported byit’s planning, construction, financial, and technical departments, as well as the Foreign Capitaland Technical Import Center (FCTIC). FCTIC will undertake the procurement of ADB-financedcomponents, monitor utilization of the ADB loan, and maintain liaison with ADB. FCTIC haswell-qualified and experienced staff who have undertaken similar tasks satisfactorily in thepast.58 Preliminary preparations for construction will start in the second half of 2001; the civilworks are scheduled to start in early 2002. The construction of civil works and track laying willgenerally proceed from both ends of the Project. The Project will be constructed over a five-yearperiod and be completed in June 2006. The project implementation schedule is given inAppendix 7.

2. Procurement

50. Civil works and goods to be financed by ADB will be procured following internationalcompetitive bidding or international shopping procedures, in accordance with ADB's Guidelines forProcurement, and using ADB’s standard bidding documents. Each supply contract estimated tocost less than $500,000 equivalent may be awarded on the basis of international shopping. ADB-financed civil works contracts will be packaged on the basis of vertical slicing.59 A list of contractpackages to be financed by ADB is given in Appendix 8. For procurement of the ADB-financedcontract packages, international tendering companies selected in accordance with competitivenational procedures will assist FCTIC. MOR-financed civil works and goods will be procuredfollowing the Tendering and Bidding Law.60 MOR has agreed to include the relevant sections ofADB’s Anticorruption Policy61 in all bidding documents and contracts.62

56 Both railway administrations have set up project implementation offices with qualified and experienced staff. These

offices are carrying out initial preparations for the Project.57 Contractors risk a three-year disqualification for substandard work.58 FCTIC successfully completed procurement under Loan 1305 (footnote 1), and is carrying out procurement under

Loan 1748 (footnote 2) satisfactorily.59 To ensure homogeneity of civil works, each contract will include subgrade, bridges, tunnels, and other works, but

will exclude specialized items such as track, signaling, telecommunications, and electric power supply, which willbe undertaken by contractors with the required experience.

60 The Tendering and Bidding Law, which took effect on 1 January 2000, prescribes bidding conditions for large-scale infrastructure construction projects that are fully or partly financed by the Government or by internationalfinancing organizations. ADB provided assistance for preparing standard bidding documents for domesticprocurement under TA 2845-PRC: Establishment of National Procurement Regulations for the Public Sector, for$565,000, approved on 20 August 1997.

61 ADB.1998. Anticorruption Policy (On-line). Available: http://www.adb.org/work/Policies/Anticorruption.62 The bidding documents and contracts for civil works will include special conditions requiring contractors to (i) hire

50 percent of the unskilled workers from poor households, (ii) procure local materials that meet the requirement ofquality and economy from poverty villages, (iii) implement environmental protection and mitigation measures inaccordance with the EIA and summary EIA, and (iv) ensure the health care of construction workers.

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51. The Government’s request to undertake advance action for procurement of civil workswas approved by ADB on 9 April 2001.63 Advance action will enable MOR to make preparationsto start construction of civil works according to the schedule. A delay in construction would delaythe start of commercial operation and realization of project benefits. Timely construction isimportant because the Project is part of the Government’s policy to expand infrastructureinvestment to stimulate economic growth and reduce poverty in a poor and less-developed region.The advance action includes all procurement activities up to the stage of contract award. TheGovernment and MOR were advised that approval of the advance procurement action would notcommit ADB to finance the Project. An imprest account will be established to facilitate projectimplementation in accordance with ADB’s imprest fund procedures.64 The Mission ascertainedthat MOR has sufficient capabilities for accounting, internal control, and auditing procedures toensure smooth operation of the imprest account.

3. Consulting Services

52. The ADB loan will finance eight person-months of international consulting services tohelp MOR (i) evaluate the implications of PRC's accession to the WTO on the development,operation, and management of the railway system, and propose measures for sustainableoperation in an evolving market environment; and (ii) strengthen marketing and businessdevelopment functions, including training of key railway staff (for a total period of eight staff-months). Terms of reference for the international consultants, who will be recruited in accordancewith ADB’s Guidelines on the Use of Consultants, are given in Appendix 9. The provisions ofADB’s Anticorruption Policy will be included in all invitation documents and contracts forinternational consultants.

53. MOR, through FCTIC and the implementing agencies, will engage and finance suitabledomestic consultants for project design, international procurement, construction supervision andquality control, monitoring of environmental management, monitoring and evaluation ofresettlement, and evaluation of poverty reduction. Past experience with similar projects confirmsthe availability of adequately qualified and experienced domestic consultants to satisfactorilyundertake these tasks. The engagement of domestic consultants will be done in accordance withGovernment procedures acceptable to ADB.65

4. Land Acquisition

54. For GLR construction, a total of 1,017 hectares (ha) of land will be permanently acquiredand an additional 200 ha will be acquired for temporary use during construction. The institutionalresponsibility for implementing land acquisition will rest with the provinces, prefectures, andcounties traversed by the GLR. MOR will pay compensation to the provincial governments inaccordance with the land administration laws of the PRC.66 The provinces will compensate therelevant local governments, which will deal directly with the village collectives and individualsaffected. The two prefectures and eight counties crossed by the GLR have established railwayconstruction support offices (RCSOs) to facilitate land acquisition in consultation with the countyland administration bureaus. The total cost of land acquisition and resettlement is estimated at$38 million equivalent and will be financed by MOR. The Government has assured that these

63 Advance procurement action was reported in the May 2001 issue of ADB Business Opportunities.64 MOR is operating an imprest account under Loan 1748 (footnote 2).65 MOR has engaged the Fourth Survey and Design Institute for survey, design, and environmental impact

assessment of the Project.66 The compensation for land acquired will be based on the agreements negotiated by MOR with the provincial

governments of Fujian and Jiangxi.

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funds, including funds necessary to finance cost overruns, will be made available in a timelymanner. Resettlement under the Project is discussed in paras 72 to 76.

5. Reports, Accounts, and Audit

55. MOR has agreed that arrangements satisfactory to ADB will be made for reporting onproject implementation progress. MOR will submit to ADB quarterly progress reports on projectimplementation covering progress with procurement, civil works, environmental management,land acquisition, compensation, resettlement, employment created, and other socioeconomicimpacts during construction and initial operation of the GLR. The progress reports will comparethe original implementation schedule with actual progress during the period under review; providecontract award and disbursement projections; assess compliance with loan covenants; provideinformation on operations, problems that would affect the implementation schedule, together withaction taken or proposed to be taken; and include a program of activities during the followingquarter. They will also document the progress of station access and link roads. A midterm reviewof the Project will be undertaken by ADB in consultation with the Government and MOR during thethird year of project implementation.

56. MOR's financial management system has the capacity to provide accurate and timelyreports on the financial status of the Project and MOR's overall operation. During projectimplementation MOR will maintain separate project accounts for all project expenditures financedfrom the ADB loan and domestic sources.67 MOR will produce annual financial reports comprisingan income statement, balance sheet, and cash flow statement. The project accounts and financialstatements of MOR will be audited by the PRC’s National Audit Office, which has undertakensimilar work on previous projects financed by ADB and the World Bank.68 Within nine months ofthe end of each related fiscal year, MOR will submit to ADB the audited project accounts and itsaudited financial statements, including the auditor's opinion in English. To facilitate postevaluationof the Project, MOR will furnish to ADB within three months of the physical completion of theProject, a report on project implementation, in such detail as ADB may require.

6. Implementation of Related Facilities

57. Connected Railway Improvements. The impact of the GLR on traffic on the adjoiningnetwork was reviewed. Construction of the GLR will increase traffic on the Longyan-Zhangpingline (map 2). To cope with this increase, the existing track and operations on this line will needimprovements. The Shanghai Railway Administration is developing plans for improving theterminal facilities at Longyan and enhancing capacity on the Longyan-Zhangping line. MOR hasassured that the required improvements will be completed in a timely manner. The progress of theconnected railway improvements will be monitored by MOR and reported to ADB through thequarterly progress reports on project implementation.

58. Industrial Sidings. Industrial sidings improve transport efficiency by linking the railwayand the manufacturing and warehouse facilities of major shippers thereby eliminating handlingand road transport costs for local delivery. Providing industrial sidings to handle large volumes of

67 The Mission confirmed that MOR has the expertise to prepare accounts and conduct internal auditing in

accordance with the Government’s standards.68 ADB is providing assistance under TA 3103-PRC: Strengthening the Government Auditing System, for $700,000,

approved on 26 November 1998, to strengthen auditing standards and procedures to conform with therequirements of the Audit Law and international auditing standards and procedures. A training program will becarried out for Government auditors to promote full and consistent adherence to the auditing standards andprocedures.

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freight will improve the competitiveness of railway services. The study under TA 3486 (footnote 6)identified potential industrial sidings whose construction would open up resource-rich areas fordevelopment. Both Nanchang and Shanghai railway administrations are pursuing opportunities toincrease traffic and freight revenue and have been proactively discussing the provision ofindustrial sidings with potential customers. MOR has given assurance that potential majorshippers along the GLR will be encouraged, and assistance will be provided as necessary toconstruct and operate industrial sidings.

59. Service Roads, Station Access Roads, and Link Roads. About 150 km of serviceroads will be built to facilitate GLR construction. These service roads will be laid out inconsultation with local governments to provide access to villages and communities in the interiorthat currently have no access. On completion of railway construction, the service roads will behanded over to local governments for use by local people. About 17 access roads (with totallength of about 25 km) will connect the new railway stations on the GLR route with the nearestcounty/township. Eight link roads (with a total length of 570 km) will be upgraded to provideconnections between the railway and the hinterland (Appendix 10). These roads will maximize thebenefits of the GLR to townships and villages in the interior and provide wider market access forpeople living in those areas. Local governments will construct the station access roads and linkroads concurrently with the Project using their own resources. MOR will report the progress ofconstruction of the station access roads and link roads to ADB through the quarterly progressreport on project implementation.

7. Operation and Maintenance

60. The GLR will be operated by the Nanchang and Shanghai railway administrations of MORin their respective jurisdictions (footnote 46). GLR operation will be integrated with that of theserailway administrations, which will be responsible for the management, operation, repair, andmaintenance of the GLR facilities. The performance of MOR in the repair and maintenance offacilities under previous projects has been satisfactory. MOR has assured that a sufficient numberof trained staff and resources will be made available to meet the operational needs of the GLR,and a sufficient quantity of rolling stock (locomotives, freight wagons, and passenger cars) will beprovided to meet the traffic demand and operate the GLR efficiently.

8. Safety of Operation

61. The Railway Law requires that the safety of passengers and freight transport be ensuredduring operation. MOR has the management and organizational capability to monitor thecondition of the railway infrastructure and its operation, and ensure the safety of passengers andfreight. MOR is implementing programs for human resource development and equipmentmodernization that have significantly improved the safety on the national network (footnote 18).MOR has assured that upon completion, the GLR will be operated and maintained efficientlyensuring the safety of freight and passengers. Railway travel is safer than travel by road,particularly in mountainous areas. Consequently, net traffic safety benefits are associated withthe Project.

9. Project Performance Management System

62. MOR and ADB have agreed on a set of indicators for monitoring and evaluating projectperformance. These include indicators for (i) sustainable economic growth and poverty reduction,(ii) resettlement of affected people, and (iii) performance of the Project and MOR as the EA.During construction and initial operation, employment created, particularly that benefiting poor

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households, will be monitored and reported through the quarterly report on projectimplementation. Indicators for economic growth (i.e., GDP per capita, net rural income per capita,and number of people living below the poverty line will be monitored on an annual basis andcompared with the baseline values before the start of construction. Indicators for physicaloperation of the GLR and financial performance of MOR will be monitored on an annual basis andthe results compared with the appraisal forecasts. MOR will prepare and maintain records ofphysical operation on the GLR and MOR's financial performance for five years, starting from thefirst full year of commercial operation, which will be provided to ADB within nine months of the endof each fiscal year. The details of indicators for performance monitoring, monitoring and reportingagencies, and the frequency and duration of monitoring are given in Appendix 11.

10. Anticorruption Measures

63. During project processing ADB's anticorruption policy was explained to MOR. Attentionwas drawn to the section on fraud and corruption in ADB's Guidelines on Procurement andADB's Guidelines on the Use of Consultants. Special attention was drawn to the need forcontractors, suppliers, and consultants to observe the highest standards of ethics in the biddingand execution of ADB-financed contracts, as well as the sanctions if fraud and corruption arediscovered. MOR, through its inspection bureau, ensures that the Government's policies oneliminating fraud and corruption are followed. The inspection bureau investigates all complaintsto detect corrupt practices; action is taken as necessary. ADB is supporting broad governanceactivities through its TA program. Support for the public procurement law, its standard biddingdocuments and implementing regulations (footnote 60), and strengthening the auditing system(footnote 68) are examples. In addition, ADB provided support for preparing various economiclaws, and construction industry regulations and registration procedures. The Government andMOR have indicated their commitment to ADB's Anticorruption Policy.

G. The Executing Agency

1. Organization

64. MOR will be the EA responsible for overall project implementation. MOR satisfactorilycompleted the Jing-Jiu Railway (footnote 1) and implementation of the Hefei-Xi'an Railway(footnote 2) is progressing on schedule. MOR has extensive exposure to other internationallenders, such as the World Bank and JBIC, and bilateral assistance from Australia, Austria,Canada, and Germany. The internal capacity and the level of transparency are satisfactory. MORhas adequate capacity to fulfill ADB's financial management and reporting requirements, as wellas anticorruption and corporate governance requirements. MOR will ensure compliance with loandocuments, report on implementation progress to ADB, and coordinate with Governmentorganizations implementing the Project.

2. Financial Performance of MOR

65. MOR's financial statements reflect the consolidation of accounts of individual railwayadministrations. A projection of MOR's financial performance was prepared for 2002 to 2010,taking into consideration the investments planned during that period. The results aresummarized in Table 4 and details are given in Appendix 12.

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Table 4: Financial Performance of the Ministry of Railways(Y million)

Year Ending31 December 2002 2004 2006 2008 2010Operating Revenuea 160,936 180,058 202,133 222,848 245,495Operating Expense 108,026 120,195 133,947 149,176 164,766Operating Ratio (%) 69.9 69.5 69.0 69.7 69.9a Including proceeds of the railway construction fund.Source: Staff estimates.

66. MOR will maintain an operating ratio of not more than 70 percent on its operationsduring the commercial operation of the GLR. MOR's operating ratio is expected to steadilyimprove because of revenue growth based on the adjustment of tariffs for inflation, improvementin service quality, increase in efficiency, and adoption of market-oriented policies. MOR ispursuing organizational restructuring and management reforms to increase productivity, reducecosts, and improve operational efficiency. Management contracts with the railwayadministrations under the assets operation liability system (footnote 16), have improved theirfinancial performance. Establishment of passenger transportation companies by railwayadministrations with more focus on marketing and customer services will improve theprofitability of passenger business. The divestiture of nontransportation businesses andactivities in 2000 and the improvements in management by applying new tools, such as thepoint-to-point costing system (footnote 22), the revenue settlement system (footnote 23), andthe TMIS (footnote 24) will have beneficial effects on the financial performance of MOR. Giventhe robustness of MOR's financial base, and the expected positive effects of the ongoingreforms, and restructuring and business reengineering, the financial performance of MORduring 2002-2010 is expected to be satisfactory.

H. Environmental and Social Measures

1. Environment

67. The Project is classified as environmental category A. The overall conclusion of the EIA,which was confirmed by the TA consultants and the Mission, was that the adverse environmentalimpacts arising from the construction and operation of the GLR can be appropriately mitigated byundertaking suitable measures. The implementation of mitigation measures and monitoringprograms included in the Project will ensure compliance with the environmental guidelines andprocedures of ADB and the Government. A summary EIA was circulated to ADB’s Board ofDirectors on 29 March 2001. The EIA (in Chinese) was provided to the RCSOs in the countiestraversed by the GLR for the information of the public.

68. Adverse environmental impacts will be minimized by the selection of an appropriatealignment. The Project was designed to avoid forests and nature preserves, and to minimize theacquisition of arable land. The use of bridges and viaducts was favored in lieu of embankments,and tunnels in place of cuts. Specifically, the GLR uses extensive tunneling to preserve the forestsin the project area. The trees to be cut down will be from orchards and secondary woodlands, andprimary/old growth forests will be untouched. Adequate buffer zones will be maintained betweenthe railway and environmentally fragile conservation areas. The rare and endangered flora andfauna species in both the small animal preserves operated by the forestry department and theworld-class Meihuashan nature preserve (which is separated from the railway by a minimumdistance of 5 km) will not be adversely affected by the Project. Potential environmental impactsinclude those related to tunnel spoil disposal, soil erosion, air pollution, degradation of water

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quality, noise pollution, impairment of aesthetics, disposition of solid wastes, and encroachmentonto areas set aside to protect plants and wildlife. In each case the stressors that caused theimpact, and the receptors, the people and/or ecosystems affected, were studied. Whereveradverse impacts were identified, comprehensive mitigation measures were specified. A summaryof the environmental impacts and mitigation measures is presented in Appendix 13.

69. MOR has assured that the environmental mitigation measures identified in the EIA and thesummary EIA will be incorporated in the design and construction stages of the Project.69 Duringconstruction the Nanchang and Shanghai railway administrations through their projectimplementation offices70 will coordinate with local environmental protection bureaus (EPBs) tomonitor the contractor’s compliance with the requirements for environmental protection andmonitoring as detailed in the EIA and the summary EIA. Although most of the constructionworkers will be housed in the cities along the GLR route, monitoring the quality of potable waterand sanitation (i.e., wastewater and solid wastes) in large workers’ construction camps isimportant for protecting the health of both the workers and the downstream users of thewatercourses. The environmental mitigation and monitoring measures are estimated to cost Y91.2million ($11 million equivalent), which is included in the project cost estimates.

70. MOR has engaged the Beijing Oasis Environmental Protection Technology CompanyLimited (BOEPTC) 71 to independently monitor environmental protection and mitigation measuresand to ensure that all applicable national, provincial, and local environmental laws, regulationsand guidelines, and standards, as well as ADB’s guidelines and procedures on environment willbe met during project implementation. BOEPTC is staffed with well-qualified professionals whohave experience with the environmental management of similar projects. It will liaise with theNanchang and Shanghai railway administrations, the project implementing agencies, EPBs, andlocal governments, as necessary.72 Monitoring of such measures will be reported in the quarterlyprogress reports on project implementation, annual reports on environmental monitoring, and anevaluation report one year after completion of construction. MOR will provide these reports toADB.

71. The cheaper transportation provided by GLR will facilitate the sustainable development ofnatural resources and industries.73 The Mission confirmed that as part of the approvalrequirements for all projects that are likely to have adverse impacts on the environment, acomprehensive EIA will be prepared in compliance with the national environmental laws andprovincial regulations.74 The State Environmental Protection Administration and the EPBs haveassured that all forthcoming projects, including induced activities, will follow the same procedure,and that during the construction and operation of such projects the Government's environmental

69 MOR will include in the bidding documents and contracts for the civil works the environmental requirements on

which contractors need to take action as specified in the EIA and the summary EIA.70 Both railway administrations will strengthen their project implementation offices with environment specialists before

the start of construction to provide support on all environmental matters.71 BOEPTC is a joint venture enterprise set up by the Environmental Assessment Center of the China Academy of

Railway Sciences and the Environmental Protection Committee of the China Railway Association. BOEPTC hasbeen assigned environmental monitoring work for the World Bank-financed Baoji-Lanzhou Railway Project.

72 Before the start of construction, BOEPTC will familiarize railway staff and contractors’ personnel with theenvironmental requirements in the EIA and the summary EIA.

73 Adverse environmental impacts were minimized in the project areas of previous railway projects (e.g., Jing-JiuRailway). Natural resources were developed and manufacturing industries set up taking advantage of cheaperlabor and cheaper transportation compared with motorized transport.

74 The consultants under TA 3486 (footnote 6) and the Mission reviewed samples of EIAs of natural resourcedevelopment projects and industrial projects, that were found to be satisfactory. Ganzhou Prefecture confirmedthat in the case of developments induced by the Jing-Jiu Railway, environmental impact assessments wereprepared and appropriate measures were taken to mitigate and minimize adverse environmental effects.

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policies, laws, and regulations will be followed to ensure minimal adverse environmental impact.75

Review by the Mission confirmed that the Nanchang and Shanghai railway administrations andthe EPBs possess adequate professional capability to manage environmental monitoringprograms. They have both the qualified personnel and the necessary facilities to monitorenvironmental parameters, including ambient noise, air, and water conditions, as well asconcentrations of specific pollutants. Consequently, environmental impacts of induceddevelopment projects are expected to be addressed adequately.

2. Resettlement

72. The alignment of the GLR was selected through a combination of (i) technical suitability forensuring economic efficiency of project design, (ii) minimizing involuntary resettlement by avoidingfarmland and urban areas wherever feasible, and (iii) minimizing environmental impacts byavoiding fragile conservation areas. The design includes tunnels, viaducts, bridges, overpasses,and underpasses that reduce the area of land to be acquired as well as the disrupting effects onthe local community. The Fourth Survey and Design Institute carried out the detailed specificationof the alignment and location of stations in consultation with prefecture, county, and townshipofficials and representatives of local farmers. The alignment selected is both socially responsiveand economically efficient.

73. The acquisition of land for the construction of the GLR will affect an estimated 19,340people in 4,300 households, including those who will lose land or houses or both. MOR hasprepared an RP for the affected people based on the land administration laws of the PRC. TheRP was reviewed and refined by TA consultants and the Mission in accordance with ADB'srequirements for involuntary resettlement. It incorporates the results of a socioeconomic samplesurvey76 of affected households, and feedback from field visits and meetings by the TAconsultants and the Mission with various stakeholders. The RP includes the compensationentitlement of affected people based on the nature of their losses. It will also apply to peoplewho might be affected due to land acquisition for station access roads and link roads. Wherenecessary, affected people, particularly those from poor households and households headed bywomen will be given additional assistance as provided by law. Affected people will be relocatednear their current location, and communities will not be broken up. The total cost of landacquisition and resettlement is estimated at $38 million equivalent and will be financed by MOR.The Government has assured that funds, including cost overruns, will be made available in atimely manner, and that the entitlements specified in the RP will be disclosed and delivered to theaffected people. The RP meets with ADB's requirements for involuntary resettlement. Itssummary is given in Appendix 14.

74. MOR will assume lead responsibility for implementing the RP. The institutionalresponsibility for implementing land acquisition and resettlement will rest with the provinces,prefectures, and counties traversed by the GLR. MOR will compensate the governments of thetwo provinces crossed by the GLR for the costs incurred for resettlement.77 The provinces willcompensate the relevant local governments, which deal directly with the affected villages andpeople. The county land administration bureaus responsible for land acquisition, surveying andrecording the amount of land involved, and categorizing land into quality levels, will work jointly

75 For violation of environmental laws in respect of wastewater, and dust and gas emissions, about 37 factories and

two mines were closed down in the counties and districts along the GLR.76 Under TA 3486, the baseline sample survey covered 600 affected households.77 The agreements on land acquisition and compensation between MOR and Fujian and Jiangxi provinces will be the

basis for payment of resettlement compensation by MOR.

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with the RCSOs to set specific compensation values for the land involved. Periodic resettlers’meetings will be held at the local level to discuss the RP, the implementation schedule, andpolicies and standards of compensation, and to receive feedback from the affected people. Localunits of the All China Women’s Federation will participate in this process to ensure that theinterests and concerns of women, particularly households headed by women are fully addressedunder the Project.

75. Construction of the 277 km GLR will proceed by contract section. Before the start ofconstruction in each section, detailed surveying of housing and related residential areas will bedone. Public consultation and negotiation with the affected people will be carried out to determinecompensation and resettlement locations. The overall schedule for implementation will ensure thatall affected people will be relocated as well as provided with means of livelihood before theconstruction begins. Because of the careful planning and public consultation done,78 no significantproblems are envisaged in land acquisition and resettlement implementation. Local officials haveexperience with resettlement on previous projects notably the Jing-Jiu Railway and the Longyan-Meizhou Railway.

76. On 10 March 2001, MOR distributed copies of the RP (in Chinese) to the countygovernments and RCSOs for the information of the affected people. In addition MOR preparedan information booklet covering the important aspects of the RP, including the Government’spolicies, privileges of the affected people, entitlements for compensation, legal rights of affectedpeople, and the system for redress of grievances; it was distributed (on 23 March 2001) totownships and villages along the GLR route for the information of the affected people. TheRCSOs are responsible for receiving the comments of the affected people and addressing theirconcerns. MOR will report the progress of land acquisition and resettlement to ADB through thequarterly progress reports on project implementation. MOR has engaged the Research Institute ofthe Southwest Jiaotong University (RI-SJU)79 to independently monitor RP implementation,conduct annual survey updates during resettlement implementation, report on completion of theresettlement, and evaluate the resettlement process two years after completion of resettlement.MOR will provide RI-SJU's monitoring and evaluation reports to ADB. MOR has given assurancethat the resettlement will be completed satisfactorily as per the RP and in accordance with thePRC's land administration laws and ADB's resettlement requirements.

3. Social Analysis

77. The detailed social analysis carried out under TA 3486 examined the broader socialtrends, as well as the needs of people in the project area, and their ability to benefit from theProject. Gender issues were taken into account in the analysis. Adequate consultations wereheld with people living in the project area, including formal and informal interviews and meetingswith leaders and residents of local communities as described in the RP, the EIA, and the finalreport for TA 3486 (footnote 6). The widespread knowledge and information about the Projectamong the people living in the project influence area was confirmed during the Mission’s fieldvisits. The social analysis incorporates the results of a sample household survey in the projectarea that provides a baseline for monitoring the impact of the Project and associateddevelopments.

78 The village representatives and households, including households headed by women, met by the Mission were all

aware of and supported the Project. They expressed belief that the Project would provide new employment andincome-generating opportunities, and that cheaper transportation on the railway will open distant markets and helpget better prices for local produce and labor.

79 RI-SJU is independent of MOR and is staffed by qualified personnel with experience necessary to undertakeresettlement monitoring. It has undertaken similar assignments satisfactorily on World Bank projects.

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78. About 4.1 million people live in the eight counties/district on the GLR route; 83 percent inrural areas. Because of the mountainous terrain, cultivated land is limited and farms are smallproviding rural families with less than half of their income. Over 20 percent of rural income is fromwage labor and nearly 30 percent from small business activity. Over 60 percent of farmers’houses are made of traditional earth and wood construction and are relatively small. Primaryeducation is almost universal in the project influence area. Basic health care is generally available.Water supplies are mostly safe, except in Changting County; but running water is quite rare. Outof eight counties/district (footnote 49), except Ganxian County at the west end and Xinlou Districtat the east end, the remaining six intermediate counties that do not have railway service atpresent comprise the main impact area of the GLR. Ganxian County and Xinluo District whichhave existing railway service, will also benefit.

79. The project area is rich in natural resources (i.e., metallic ores, limestone, coal, granite,and forests), but lack of economic transport has limited the sustainable development of naturalresources and associated industry.80 Without railway transport, many of these assets will remainunderdeveloped. Local governments are providing incentives to promote investments that willbenefit from the externalities arising from the Project.

80. The Project will have major direct and indirect social and poverty reduction impacts thatsignificantly strengthen its justification. Formulation of the Project has sought to maximize positivesocial impacts, and avoid and mitigate the negative ones. During the early stages of projectdesign and preparation, continuous publicity on radio and television and in the newspapersensured that the people living along the line became familiar with the main features of the Project.In the course of fieldwork for the feasibility study and the EIA, and during the study under TA3486, the Fourth Survey and Design Institute and the TA consultants carried out intensivedialogue with local government officials, representatives of townships and villages, and localresidents on the choice of the alignment as well as resettlement options. Questionnaires weredistributed to many local citizens to solicit their opinion on the Project. The Mission visited villagesalong the GLR route and interviewed a selection of local residents to assess the socioeconomicsituation and awareness of the Project among local people. A list of those who participated in thepublic consultations at various stages of project preparation is given in Appendix 15.81 Theimplementation strategy focuses on the participation of local people to improve the distribution ofbenefits to them. Local people consulted during the Mission's field visit supported the Project andbelieve that the railway will provide employment and income-generating opportunities that willimprove their standard of living.

81. In conjunction with the Project, local governments are pursuing the objective of povertyreduction through (i) market-based agriculture, (ii) microurbanization,82 and (iii) development ofinland areas. Local governments have initiated a number of programs for increasing rural incomesby growing cash crops for markets. A shift to market-based agriculture is dependent on theavailability of cost-effective transport that will be provided by the Project. A summary of thedevelopment programs initiated by local governments is given in Appendix 16. A reduction of therural population through microurbanization will increase the per capita availability of the cultivatedland among the rural people. Consequently, rural incomes will increase. Local governments are

80 The natural resources to be moved are bulky in nature with relatively low commodity value in relation to weight and

volume making trucks inefficient as transportation providers.81 This list is indicative only, and exhaustive details of public consultation (other than those covered in the sample

survey – footnote 76) are available in the feasibility study, EIA, summary EIA, and the TA consultant's final report.82 Under the microurbanization program, new urban centers will be developed targeted at reducing the rural

population from 73 percent to 50 percent.

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developing urban centers along the GLR with associated programs for industrialization. Thecheaper transportation provided by the GLR will facilitate access of farmers to markets outsidetheir immediate communities.

82. The social analysis indicates that no negative gender impacts will be associated with theconstruction and operation of the GLR. GLR construction, and the activities induced by it, willemploy local labor at a wage rate of about Y20 per day. Given the extent of ruralunderemployment, the demand for local labor will increase worker productivity and wages. ThePRC law gives equal rights to women in employment. Labor-absorbing growth and the resultingexpansion in employment opportunities in secondary and tertiary industries will bring manywomen into the workforce. The wages paid to women who are provided employment will increasefamily incomes. Prefecture and county representatives of the All-China Women’s Federation willtake part in resettlement implementation and advise on wider social and economic developmentimpacts on women. The Project provides opportunities for gender-related employment grievancesto be redressed. The rise in female participation in the workplace during GLR construction andoperation and the increase in women’s income, will have important consequences for povertyreduction and improving the status of women. When monitoring and evaluating the Project’ssocioeconomic benefits, special attention will be given to households headed by women. TheGovernment and MOR will ensure that ADB’s policy on gender and development83 is followed.

4. Indigenous People

83. Along the GLR route, the only known ethnic minority with a significant population is theShe community, found mainly in Shanghang County, and in some contiguous mountain areas.The She account for 90 percent of about 59,000 minority people living in the eight counties/districttraversed by the GLR. Minority people comprise less than 1.4 percent of the total population of 4.1million. The She are economically and socially integrated and are not disadvantaged with respectto their cultural and economic position, nor are they likely to be disproportionately affected by theProject on account of their cultural identity. No special measures are needed for them. Smallnumbers of at least 17 other minority nationalities live in the project influence area. Most live therebecause of intermarriage with the Han people. These people are also fully integrated into themainstream and are not disadvantaged.

V. PROJECT JUSTIFICATION

A. Financial and Economic Analyses

1. Financial Analysis

84. Based on the policy dialogue under the Project, MOR will set GLR tariffs under the newline, new tariff policy at full cost recovery,84 while ensuring economy and efficiency of operation.The Project's financial internal rate of return was estimated at 6.4 percent, based on anassumed freight tariff of Y0.2143 per ton-km85 and unit passenger revenue of Y0.113 perpassenger-km, (Appendix 17). The proposed level of freight tariff is competitive compared with

83 ADB. 1998. The Bank’s Policy on Gender and Development. Manila.84 Considering operation and maintenance costs, depreciation, debt service charges in excess of depreciation, taxes,

and a reasonable profit.85 This compares with a freight tariff of Y0.0791 per ton-km on the national network, Y0.16 per ton-km on the

Meizhou-Kanshi Railway, and Y0.15 per ton-km on the Baotou-Shenmu Railway and Hefei-Jiujiang Railway.Because of socioeconomic and affordability considerations, the passenger tariff was assumed to be the same asfor the national network.

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the cost of motorized transport of Y0.70 per ton-km. The projected level of traffic and tariffs willresult in sufficient revenues to fully meet the project costs under the full cost recovery policy.Sensitivity analysis shows that the Project has robust financial viability since the financialinternal rate of return exceeds the weighted average cost of capital of 3.4 percent in the testedadverse scenarios. Tariffs to be applied on the GLR will be based on a tariff study to be carriedout by MOR before the start of commercial operation. This study will consider various tariffalternatives and analyze the impact of the proposed tariff on traffic demand. The results of thisstudy will be provided to ADB.

2. Economic Analysis

85. The scope of economic evaluation includes financial evaluation, link roads, and stationaccess roads. The economic internal rate of return was calculated by comparing the with andwithout GLR scenarios. The benefits from the GLR comprise (i) benefits derived from freight andpassenger transport such as operating cost savings, time savings, and net economic valueadded through additional production that would occur consequent to GLR construction; (ii)benefits associated with link roads and station access roads such as vehicle operating costsavings and net economic value added due to station area development attributed to the GLR;(iii) avoided road rehabilitation and maintenance costs for the existing highways; (iv) avoidedfatality costs on the existing roads; and (v) incremental tourism benefits from spending bytourists attributed to the GLR. The economic internal rate of return was estimated at 14.4percent (Appendix 17). The Project remains economically viable in the tested adversescenarios.

B. Social Dimensions

1. Poverty in the Project Area

86. Of the eight counties/district traversed by the GLR, six counties are officially designatedpoverty counties. Lack of economic transport has been one of the major reasons why this regionwas bypassed and remained poor. In 2000 the incidence of poverty in the project influence areawas 21 percent compared with 12 percent in the PRC as a whole. The main cause of poverty isinsufficient opportunity for earning income, insufficient arable land, and lack of skills.86 Jobopportunities are scarce, especially those that do not require displacement to a far-off part of thecountry. Jobs created within the project influence area allow the family member to maintain tiesand nonmonetary responsibility to family at the same time. They also bring revenue to thecommunity for reinvestment either to generate economic development and jobs or to invest inthe longer term needs, i.e., education, health care, and the cultural life of local people. Thesmall size of the cultivated land allocated per family is not enough to gainfully employ allhousehold members. Therefore, at least one family member seeks wage employment to meetthe basic needs and improve the standard of living of the family. Data from the householdsurvey shows that families with higher dependence on agricultural activities are the poorerfamilies, and those that have risen above the poverty line are getting a larger share of theirincome from wage earning and running small businesses on a commercial basis.

86 Poverty reduction efforts in the past have highlighted the importance of access to markets, availability of cost

effective means to transport raw materials and products to market, training, and new technologies for developingcash crops and increasing farm production.

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2. Impact on Poverty

87. The Project will have direct effects on poverty reduction by providing employment andincome-generating opportunities to poor people during the five-year construction period.Cheaper railway transportation facilitated by the Project will induce sustainable economicactivity as evidenced under previous railway projects. The induced activities will have significantimpacts on the people in the project influence area and help to reduce poverty. A detailedpoverty impact analysis that demonstrates the impacts on poverty reduction of both the Projectand the developments induced by it is presented in Appendix 18.

a. Impacts During Construction

88. A detailed assessment of the employment created during the construction and operationof the GLR was carried out under TA 3486. Each construction contractor will be required to hireat least half of the unskilled labor required for the project construction works from poorhouseholds. During construction, a large quantity of materials (such as sand and stone) will beobtained from poor villages.87 For materials that are locally produced, at least 30 percent of theunskilled labor requirement will likely be met by poor households. Access and link roads to beconstructed by local governments will create new employment, half of which will be availed of bypoor households.88 Operation of the GLR will require about 2,500 staff. No new staff will be hiredbut surplus staff from the national network will be relocated to operate the GLR, in pursuance ofMOR’s policy of reducing excess staff. To load and unload freight wagons and to work assecurity guards at stations and warehouses, the GLR will hire contract labor, 70 percent of whowill be sourced from poor households.

b. Impacts of Induced Developments

89. The project area is rich in natural resources, including metallic ores, minerals, and forestresources. Low cost transport provided by the GLR will facilitate sustainable industrialdevelopment in the project influence area. Poverty reduction programs by local governments willfoster technical skills, managerial expertise, and financial means needed to add value toprocessing industries. The Project will stimulate economic development that will enable poorhouseholds to increase income, raise their standard of living, and decrease their vulnerability toeconomic and social adversities. It will also increase the revenue base for local governments,which can be used to increase expenditures on social services. These outcomes have beendemonstrated in the previous railway projects, particularly the Jing-Jiu Railway (footnote 1).

90. Before the Jing-Jiu Railway was constructed, lack of economic transportation inGanzhou Prefecture constrained development and this region remained less developed andpoor.89 In the aftermath of the Jing-Jiu Railway the economic development of western Ganzhouaccelerated. During the five-year operation of the Jing-Jiu Railway since 1996, the majoreconomic impacts in Ganzhou Prefecture were (i) GDP growth averaged 10.1 percent per year,

87 During the field survey by the Fourth Survey and Design Institute, local availability of materials that meet the

required quality standards was ascertained.88 During the Mission’s field visit, local governments supported the special measures under the Project to provide

employment to poor households. The Mission was assured that lists of poor households in the villages along theGLR will be made available to the contractors for hiring poor workers. Similar measures were implementedsuccessfully on previous infrastructure projects.

89 The Jing-Jiu Railway traverses 262 km in the western part of Ganzhou Prefecture across 7 counties (i.e., Xingguo,Ganxian, Zhanggong, Nankang, Xinfeng, Longnan, and Dingnan), 33 townships, and 133 villages.

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exceeding the national and provincial growth rates of 8.3 percent and 9.8 percent;90 (ii) 387foreign-financed projects (with total investment of Y503 million), and 3,271 domestic-financedprojects (with total investment of Y8,560 million) were set up, which was 15 times theinvestment during the previous five years (1991-1995); (iii) new and expanded industriesprovided employment to 395,000 people, including 186,000 poor people; (iv) during 1995-2000the change in the economy was dramatic, with the tertiary sector improving its share in GDP atthe expense of the primary and secondary sectors;91 (v) productivity and demand for labor alongthe Jing-Jiu Railway increased, increasing worker’s wages from Y3,775 in 1995 to Y6,190 in2000; (vi) the total number of poor people in two national poverty counties (i.e. Xingguo andGanxian) was reduced from 283,650 in 1995 to 240,000 in 2000;92 (vii) access to wider marketsencouraged production of cash crops (such as fruits and vegetables), livestock, poultry,floriculture, and agro-based industry;93 (viii) a total of 10 million passengers and 8 million tons offreight were transported, or an average annual increase of 36.5 percent and 65.6 percent,respectively; (ix) business and commercial activity was stimulated; at the end of 2000, Ganzhouhad 178,000 self-owned businesses and 5,086 private enterprises employing a total of 561,000people;94 the annual industrial and commercial tax income from individual self-ownedbusinesses was Y610 million, accounting for about 30 percent of the budget revenue ofGanzhou Prefecture; the revenues of county governments also grew;95 and (x) tourismdeveloped rapidly; in 2000, Ganzhou received 4.6 million tourists (including 37,700 foreigntourists) or about 20 percent of the total visitors to Jiangxi Province.96

91. The study under TA 3486 showed that the GLR will facilitate significant expansion ofexisting industrial and commercial activity in the region. The study identified 33 specific economicdevelopment opportunities that were directly attributable to the GLR, including sustainabledevelopment of natural resources, agricultural processing, microurbanization, and tourism. Forexample the Fujian Minxi Zijin Mining Industry Group, a public-private joint venture, owns a copperore deposit of 200 million tons near Longyan that can be economically developed using low costrailway transportation. This activity will create about 6,000 new jobs, including 2,400 jobs for local

90 In the project influence area of the Hefei-Jiujiang Railway (footnote 1), which includes seven counties, the GDP per

capita during the construction period (1992-1997) increased by an average 20 percent per annum.91 The percentage share of primary, secondary, and tertiary sectors in GDP was 34.7:29.3:36 in 2000 compared with

44.3:30.2:25.5 in 1995.92 In seven counties in the project influence area of the Hefei-Jiujiang Railway, the number of poor persons was

reduced from 834,926 in 1992 (before the project) to 493,264 in 1997 (after the project). In two districts traversedby the Guang-Mei-Shan Railway (footnote 1) the number of poor people was reduced from 347,520 in 1992(before the project) to 56,318 in 1996 (after the project).

93 Along the Jing-Jiu Railway a number of products, as for example, salted duck from Ganxian County, sweetgrapefruit from Nankang, navel orange and straw mushroom from Xifeng, gray goose from Xingguo, have beenpromoted. The total area of orchards increased to 110,000 ha, with total yield of 350,000 tons. Nearly 1,000 firmsfocusing on processing and marketing of agriculture products have been set up. The Southern Jiangxi FruitIndustry Company Limited, with daily processing capacity of 160 tons of fresh fruits, is listed on the stock market.Agro-products are being supplied to more than 20 inland provinces, cities and districts, and exported to Japan,Pakistan and other Asian countries.

94 The rapid development of self-owned businesses promoted the development of large-scale commodity markets.Over 600 trading markets with a total area of 2.36 million square meters and business volume of Y125 million havebeen set up. Ganxian County has attracted Y280 million to build the Gannan Guangcai Market at the Ganzhoueast freight railway station in an area of 6.67 ha, with 1,200 shops and employing more than 3,700 people and anannual revenue of Y10 billion. At Dingnan County, 12 production bases of agricultural by-products, such as piglets,pears, and nonseasonal vegetables have been set up with a sales network extending to Shanghai, Guangzhou,and Beijing.

95 In the project influence area of the Hefei-Jiujiang Railway (footnote 1) the revenue of the seven counties increasedby an average 30 percent per year from 1992 (before the project) to 1997 (after the project).

96 After completion of the Guang-Mei-Shan Railway (footnote 1) tourism to the project influence area doubled everyyear because of the safety, comfort, and connectivity provided by the railway.

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people. Two existing cement plants in Yudu, two in Liancheng, and one each in Huichang, Ruijin,Changting, and Shanghang will expand their manufacturing capacity with the construction of theGLR. As a result 3,300 additional jobs will be created. The GLR will enhance the competitivenessof 10 granite mining enterprises in Changting County. These will create 180 additional jobs. In thearea of agriculture-related development, the existing Liancheng sweet potato processing plant(capacity 80,000 tons) will be expanded by 50 percent, creating 700 new jobs. Both Yudu andLongyan poverty reduction offices are planning to expand the production of green plums, forestryproducts, and other cash crops following the Liancheng example. The GLR will provide a synergyfor speeding up the Government's microurbanization program, which has targeted development ofindustrial and commercial activity at six GLR stations. Under this program a shoe manufacturingfacility is planned to be set up at Xijiang, which will create an estimated 2,500 jobs.

92. The employment effects of induced developments estimated on the basis of freight trafficgenerated by the GLR from production in new industries and expansion of existing industries97

are summarized in Table 5.

Table 5: Employment Impact of the Ganzhou-Longyan Railwayand Induced Developments

(person-years)Employment for PoorTotal Employment

Created HouseholdsType of Employment Construction Operation Construction Operation(Unskilled) 2002 to 2006 2007 to 2026 2002 to 2006 2007 to 2026Direct

Construction of GLR 76,020 — 38,010 —GLR operation (MOR staff) — 49,380 — —Loading/Unloading — 103,360 — 72,350Security guards — 1,280 — 900

IndirectGLR induced jobs (generatedtraffic)

— 734,020 — 293,610

Materials sourced locally 20,230 — 6,150 —Access and link roads 3,320 — 1,660 —

Rest of the PRC 10,070 — 1,200 —Total 109,640 888,040 47,020 366,860—=not applicable, GLR=Ganzhou-Longyan Railway, MOR=Ministry of Railways, PRC=People's Republic of China.Source: TA 3486-PRC: Ganzhou-Longyan Railway Project. Final Report, February 2001.

93. During the five-year construction period, the Project will generate about 109,600 person-years of unskilled employment, of which about 47,000 person-years will be provided to the poor.During operation, incremental production attributable to the GLR will result in 20,100 person-years of employment in 2007 increasing to 60,000 person-years in 2026. Therefore during the20 years from 2007 to 2026, a total of 734,000 person-years of employment will be created.Assuming that about 40 percent98 of the new employment will go to poor households, a total of294,000 person-years of employment would be passed on to poor people during 2007 to 2026.

97 The generated traffic and employment created were estimated in the study under TA 3486. The study provides a

list of main industrial and mineral enterprises that would be heavily impacted by the GLR. The benefits frominduced developments are not included in the financial and economic analyses of the Project.

98 Based on the incidence of poverty in areas close to the GLR route as per the sample household survey.

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c. Distribution Analysis

94. The financial and economic analyses have been integrated through a distribution analysisthat disaggregates the net financial and economic benefits to various beneficiaries. The impact onthe poor was measured by quantifying the direct benefits that would accrue to poor people fromthe Project. The proportion of total benefits passed on to poor people was determined as thepoverty impact ratio of the Project, and evaluated as 26 percent (Appendix 17).

95. The poverty impact ratio compares favorably with the national poverty incidence of 12percent. It does not capture the indirect benefits that would accrue to the poor from the economicgrowth, higher incomes, and better living standards from the Project. If these were also included,the benefits accruing to the poor would be substantial. The impact of the Project and induceddevelopments as well as local programs for poverty reduction will be monitored by localgovernments, RI-SJU, and MOR under the project performance management system (Appendix11) and reported to ADB through the periodic and annual monitoring reports.

C. Risks

96. The Project was designed to minimize potential risks. Based on experience with previousrailway projects, traffic demand was conservatively estimated. The forecast for freight traffic wasadjusted in the initial years of operation based on generally slower growth experienced onprevious railway projects. Sensitivity tests have shown that economic circumstances must turnsubstantially adverse for the Project to lose economic viability. A potential risk is delay inimplementation, which would delay the realization of benefits. MOR and both railwayadministrations have successfully built railway lines over difficult terrain, such as the Nanning-Kunming Railway, the Jing-Jiu Railway, and the Meizhou-Kanshi Railway. The support that theProject has from the Government, MOR, and the provinces; the thorough preparation of theProject; and the approval of advance procurement action, all contribute to reducing the potentialrisk of delays in implementation. The major environmental risks will be mitigated and monitoredduring project implementation. Land acquisition and resettlement may be a potential risk.Considering that these activities have been well planned, have the support of MOR and the twoprovinces on the GLR route, are adequately budgeted in the project cost estimates, and will beimplemented by experienced provincial and the local governments, the potential risk ofresettlement problems is considered low.

97. For a project generating revenue in domestic currency, exchange rate changesconstitute a risk. Since the share of foreign exchange in the total cost is only 33 percent, theforeign exchange risk is not significant. Sensitivity tests indicate that the Project will befinancially viable even with depreciation of the yuan by as much as 30 percent. The risk ofunderachievement of the expected poverty reduction impact if employment and incomegeneration opportunities do not accrue to the poor has been mitigated by the strong commitmentof the Government, MOR, the two provinces, and the local governments to poverty reduction inthe project influence area.

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VI. ASSURANCES

98. The Government and MOR have given the following assurances, in addition to thestandard assurances, which have been incorporated in the legal documents:

(i) Connecting Railway Lines. MOR will ensure that the connected railwayimprovements on the Longyan-Zhangping line and expansion of yards at theterminals of the project railway are completed in a timely manner.

(ii) Construction Quality. MOR will ensure that the GLR is constructed inaccordance with national technical standards, and that construction supervision,quality control, and contract management are performed satisfactorily.

(iii) Counterpart Financing. MOR will provide, on a timely basis, all funds andresources necessary for construction, and operation and maintenance of theGLR. MOR will cover any project cost overruns.

(iv) Environment. MOR will ensure that the GLR is constructed and operated inaccordance with the national environmental laws and provincial regulations, andmeets ADB guidelines and procedures for the environment. MOR will also ensurethat any adverse environmental impacts arising from construction and operationof the GLR are minimized by implementing the mitigation measures andmonitoring the program recommended in the EIA and the summary EIA. MOR,together with the provincial and county EPBs, will ensure that the station accessand link roads are constructed in accordance with the national environmentalrequirements. BOEPTC will carry out environmental monitoring in accordance withthe EIA and the summary EIA. The results of environmental monitoring will bereported by MOR to ADB through the quarterly progress reports on projectimplementation, annual reports on environmental monitoring, and an evaluationreport one year after completion of construction. The Government through Fujianand Jiangxi provinces will ensure that any project-induced economic activities,particularly mining and industrial developments, will undergo appropriateenvironmental assessment and review under the national laws and provincialregulations, and any adverse environmental impact will be appropriatelymitigated.

(v) Financial Performance and Tariffs. MOR will monitor the operationalperformance of the GLR on the basis of agreed indicators of physical operationand MOR's financial performance; the results of such monitoring will be providedto ADB for the first five full years of GLR operation within nine months after theend of the fiscal year. The Government and MOR will ensure that the tariffs areset at levels sufficient to ensure full cost recovery, including operation andmaintenance costs, depreciation, debt service, taxes, and a reasonable profit. Sixmonths prior to opening the GLR for commercial traffic, MOR will carry out a tariffstudy to determine the tariffs to be applied. This study will be provided to ADB.MOR will maintain an operating ratio of not more than 70 percent on itsoperations during the commercial operation of the GLR.

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(vi) Gender and Development. MOR will follow and cause Fujian and Jiangxiprovinces to follow ADB’s policy on gender and development, and will take allnecessary actions to encourage women living in the project area to participate inimplementing the Project. MOR, with the help of RI-SJU, and in consultation withthe local representatives of the All-China Women’s Federation, will monitor theProject's effects on women through gender-disaggregated data.

(vii) Industrial Sidings. MOR will ensure that potential major shippers along the GLRwill be encouraged and assisted as necessary to construct and operate industrialsidings.

(viii) Land Acquisition and Resettlement. MOR will ensure that all land and rights-of-way required for the Project are made available in a timely manner. MOR,under arrangements with Fujian and Jiangxi provinces, will ensure that the RP iscarried out promptly and efficiently in line with the PRC Land Administration Law1998, the provincial guidelines on land acquisition and resettlement, and ADB’spolicy on involuntary resettlement. MOR will ensure that all persons arecompensated and assisted prior to displacement from their houses, land, andassets in accordance with the RP such that they are at least as well off as theywould have been in the without Project scenario. The Government will ensurethat funds for land acquisition and resettlement are provided as scheduled in theRP and meet any unforeseen obligations in excess of the cost estimate. TheGovernment, through Fujian and Jiangxi provinces, will ensure that, for stationaccess and link roads, the provinces will provide the same compensation andassistance as set out in the RP. MOR will ensure that RI-SJU carries outindependent monitoring and regular reporting during resettlementimplementation, and evaluates resettlement achievement two years aftercompletion. Monitoring and evaluation will include annual survey updates duringresettlement implementation as required in the RP. MOR will report to ADB onthe progress of land acquisition and resettlement through quarterly progressreports, and a report to be submitted on completion of the resettlement, and twoyears thereafter.

(ix) Monitoring and Evaluation. MOR will monitor the Project's performancethrough the project performance management system to ensure that theobjective of poverty reduction is achieved and the project facilities are managedefficiently. MOR will collect the necessary information on project performance asagreed to by ADB.

(x) Poverty Reduction. Through appropriate stipulations in the contracts, MOR willensure that subject to satisfying the requirements of suitability and economy (a)half of the total requirement of unskilled labor for the construction of the projectfacilities will be hired from poor households, and (b) local materials that meet therequirements of quality and economy will be arranged by contractors from poorvillages. The Government will cause Fujian and Jiangxi provinces and thecontractors to implement the poverty reduction programs in the project area, andprovide half the unskilled jobs for the construction of station access roads andlink roads to poor households. MOR will monitor the impacts on poverty with thehelp of RI-SJU. MOR will provide to ADB annual monitoring reports of RI-SJUand an evaluation report to be submitted two years after the start of operation.

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(xi) Railway Operation. MOR through the Nanchang and Shanghai railwayadministrations will ensure (a) efficient and economic management, day-to-dayoperation, and repair and maintenance of the GLR; (b) provision of an adequatenumber of trained staff and resources to meet the GLR's operational needs; and(c) provision of sufficient rolling stock (locomotives, freight wagons, andpassenger cars) to meet the demand for transportation on the GLR. MOR willensure the safety of passengers and freight in accordance with the PRC’sRailway Law.

(xii) Station Access and Link Roads. The Government will cause Fujian and Jiangxiprovinces to take all measures to construct the station access and link roads in atimely manner to maximize the benefits of economic transport to the poor.

(xiii) Worker Safety and Health . MOR will ensure that measures are taken to ensurethe safety of workers during construction, and contractors disseminateinformation on the risks of socially transmitted diseases to those employed duringconstruction.

VII. RECOMMENDATION

99. I am satisfied that the proposed loan would comply with the Articles of Agreement of ADBand recommend that the Board approve the loan of $200,000,000 to the People's Republic ofChina for the Ganzhou-Longyan Railway Project from ADB's ordinary capital resources, withinterest to be determined in accordance with ADB's LIBOR-based loan facility, an amortizationperiod of 25 years, including a grace period of 5 years, and such other terms and conditions asare substantially in accordance with those set forth in the draft Loan Agreement presented to theBoard.

Tadao Chino President

19 September 2001

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APPENDIXES

Number Title Page Cited on(page, para.)

1 Project Framework 36 2, 4

2 Reforms in the Railway Sector 38 4, 11

3 External Assistance of World Bank, Japan Bank for 41 6, 19International Cooperation, and Asian DevelopmentBank to the Railway Sector

4 Lessons Learned from ADB-Financed Railway Projects 42 7, 22

5 Traffic Forecasts 44 13, 40

6 Cost Estimates and Financing Plan 45 14, 45

7 Implementation Schedule 46 16, 49

8 ADB-financed Contract Packages 47 16, 50

9 Terms of Reference for International Consulting Services 48 17, 52

10 Station Access and Link Roads 50 19, 59

11 Project Performance Management System 51 20, 6231, 95

12 Financial Performance 53 20, 65

13 Summary of Environmental Impacts and Mitigation Measures 56 22, 68

14 Summary of the Resettlement Plan 58 23, 73

15 Public Consultations for the Project 61 25, 80

16 Poverty Reduction Programs 63 25, 81

17 Financial, Economic, and Distribution Analyses 64 26, 8427, 8531, 94

18 Poverty Impact Analysis 70 28, 87

SUPPLEMENTARY APPENDIXES(Available on request)

A Summary Environmental Impact Assessment

B Resettlement Plan

Appendix 1, page 1

PROJECT FRAMEWORK

Design SummaryPerformance

Indicators/Targets Monitoring Mechanisms Risks/AssumptionsGoal• To promote economic

growth and reducepoverty in poor areas oftwo provinces traversedby the Ganzhou-Longyan Railway (GLR)

• To increase per capitaincomes

• To reduce the incidenceof rural poverty

• Surveys and statisticsregarding the projectarea at preproject,postproject, two yearsafter start of operationContents: Grossdomestic product percapita, rural net income,and poverty incidence

• Planned development ofindustries and naturalresources along the GLR

• Timely completion ofinfrastructure and withinbudget

• Supporting socialprograms

Purpose• Develop rail transport to

improve accessibilityand integrate lessdeveloped and poorareas with moredeveloped regions

• Increase productivityand reducetransportation costs fordomestic andinternational shippers

• Induce industrial andnatural resourcesdevelopment

• Trends in freight andpassenger volumes forthe GLR

• Trends in railway androad tariffs

• Number ofdevelopmental projectsset up

• Financial performanceof the GLR

• Progress reports• Project administration

(PA) missions

• Progress reports

• Project performancemonitoring system

• Realizing traffic forecastsfor the GLR

• The GLR can competesuccessfully with othertransport modes

• Satisfactory operation andmanagement of the GLR

• Coordinated economicgrowth

Outputs1. Land acquisition,

compensation, andresettlement

• Final location survey,land acquisition, andresettlement to becompleted as per theresettlement plan

• Progress reports• Monitoring by the

Research Institute ofthe Southwest JiatongUniversity (RI-SJU)

• Strong implementationcapacity of localgovernments

• Adequate compensationand funds as perresettlement plan (RP)

2. Construction of the 277km GLR line

• Start of constructionpreparation in early2002

• Completion ofconstruction by June2006

• Contract awards• Progress reports• PA missions• Construction contracts

awards

• Advance action forprocurement

• Strong implementationcapacity

• Adequate counterpartfunds

3. Construction of accessroads between GLRstations and townshiplink roads, and provisionof industrial sidings

• Completion of roadsand industrial sidings inaccordance withagreed upon schedules

• Progress reports• PA missions

• Funding is forthcoming forindustrial sidings and linkroads

4. Procurement ofequipment for operationand maintenance

• Equipment procuredduring 2003 to 2005

• Contract awards• Progress reports• PA missions

• Strong implementationcapacity

• Provision of adequatecounterpart funds

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Appendix 1, page 2

Design SummaryPerformance

Indicators/Targets Monitoring Mechanisms Risks/Assumptions5. Minimization of adverse

environmental impacts• Agreed upon

environmentalmeasures in theenvironmental impactassessment ( EIA) andthe summary EIA

• Surveys during and postconstruction

• Monitoringenvironmentalprotection andmitigation measures byBeijing OasisEnvironmentalProtection TechnologyCompany Limited(BOEPTC)

• Strong commitment ofGovernment andprovinces

• Commitment andexperience ofenvironmental protectionbureaus (EPBs)

• Expertise of BOEPTC

6. Institutionalstrengthening

• Development of aneffective marketingprogram to attract newindustry along the GLR

• Surveys of newindustrial location in theproject area

• Progress reports

• Suitable consultant input

7. Additional employmentand hiring of workersfrom poor householdsthat will raise incomesand living standards andreduce poverty

• Creation of 76,000person-years ofconstruction-relatedemployment and33,600 person-years ofemployment insupplying materials,roads construction, andrest of PRC

• Hiring of local poorworkers up to thestipulated limits

• Progress reports• Monitoring by

implementing agencyand RI-SJU

• Implementation as perschedule and commitmentof local governments

Inputs1. Land acquisition • To be completed by

December 2002• Progress reports • Adequate compensation

as per the agreed RP.

2. Resettlement of affectedpersons

• Complete resettlementprior to starting ofconstruction (bysection)

• Monitoring by RI-SJU • Local governments’ abilityto complete resettlementprior to the start ofconstruction

3.Technical design • To be completed byDecember 2001

• Progress reports • Strong technical capabilityof the Fourth Survey andDesign Institute

4. Civil works • To be completed byJune 2006

• Progress reports• PA missions and project

completion report

• Strong implementationcapability

• Availability of counterpartfunds

5. Communication,signaling, and power

• To be completed byDecember 2005

• Progress reports • Strong implementationcapability

• Availability of counterpartfunds

6. Completion of buildingsand other associatedworks

• To be completed byJune 2006

• Progress reports • Strong implementationcapability

• Availability ofcounterpart funds

7. Implementation ofenvironmental protectionand mitigation measures

• Comply with the EIAand summary EIA

• To be completedconcurrently with theproject works

• Progress reports• Annual monitoring

reports

• Technical capability ofBOEPTC

• Supervision capability oflocal EPBs

8. Construction ofassociated facilities,including link roads,access roads, andindustrial sidings

• To be completed byJune 2006

• Progress reports • Commitment of localgovernments

• Availability of local funds

Source: Staff assessment.

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Appendix 2, page 1

REFORMS IN THE RAILWAY SECTOR

YearStarted Brief Description and Purpose Experience and Status

1980 Incentive system based on work output wasintroduced, associated with employee bonuses andwelfare programs.

Successful in increasing productivity

1981 The 1980 incentive system was modified and linkedto profit.

Successful in treating the railway as a profit center

1982 Management functions (such as wage setting,material purchasing, human resource management)were diversified to railway administrations (RA) .

Management was successfully diversified fromMinistry of Railway (MOR) to RAs. This has sincebeen expanded.

1983 As a step to a market economy, the Governmentallowed MOR to retain all profits and pay a tax onprofits.

Was successful as an experiment with treating therailway as a separate enterprise from a financialviewpoint

1986 Government approved the economic contract system(ECS) with the objective of increasing transportationproductivity. Under the ECS, the Governmententered into annual contract with MOR to undertakespecified transportation turnover. In turn, MORentered into contracts with RAs to meet productivitytargets, which formed the basis for an incentivecompensation system. The Government providedsupport by (i) allowing MOR to retain profits afterbusiness tax, (ii) reclassifying the funds given toMOR from budget allocation to interest-free loan, (iii)increasing railway tariffs, and (iv) allowing the railwayto set up diversified economy companies.

The ECS changed the financial relationshipbetween the Government and MOR in thefollowing ways: (i) railways earned profits andinvested more in infrastructure construction androlling stock; (ii) significant investments were madeto increase capacity in the Seventh Five-Year Plan(1986-1990); and (iii) traffic capacity was increasedby 31 percent in 1990 compared with 1985. As thePRC progressed to a market economy, problemsrelating to customer service, marketing, andcompetition with other modes were faced thataffected railway profitability. Diversified economycompanies provided employment to over 420,000surplus transportation staff, and generated Y37billion in revenues and Y2.6 billion in profits in2000.

1989 The PRC Railway Law was enacted. Established a legal relationship between theGovernment and the railway

1990-2001

Reducing transportation staff through (a) normalattrition, (b) transfer to diversified economycompanies, and other companies, (c) early voluntaryretirement with full pension for employees nearingretirement age, and (d) encouraging employees toreturn to school to increase professional capabilities.

The number of employees in transportationbusiness was reduced from 1.93 million in 1997 to1.51 million in 2000. Productivity in terms ofconverted ton-km per employee increased from0.85 million in 1997 to 1.15 million in 2000, or 10.6percent per year.

1991-2001

Tariffs were reformed to increase revenue fromfreight and passenger services. Both freight andpassenger tariffs have been steadily raised since1995.

To finance new railways development, in 1991 asurcharge was levied on freight traffic that wascredited to a railway construction fund. In 1992, anadditional charge of 50 percent was levied on fullyairconditioned passenger trains. In 1993, asurcharge on freight carried on electrified lines waslevied, and a new line new tariff policy for full costrecovery was introduced. In 1995, 30 percenthigher passenger fares were charged during thespring festival. In 1999, the freight tariff structurewas reclassified and a separate charge was leviedfor loading and unloading freight.

1993-2000

bout 120 branch lines (with total length of 7,800 km)were restructured as separate entities under therailway administrations with independentaccounting systems; some were established as joint

Operation and management were simplified.Staff was reduced as per operational needs;coordination with local shippers was improved;and higher tariff rates were charged with the

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Appendix 2, page 2

YearStarted Brief Description and Purpose Experience and Status

stock ventures. approval of provincial governments. In 2000,transportation revenue from branch lines wasY8.45 billion, an increase of 12.6 percentcompared with 1999. The losses from branch linesin 2000 were Y915 million, a decrease of 6 percentcompared with 1999.

1993 Guangzhou Railway Administration was reorganizedinto Guangzhou Railway Group Corporation.

This pilot program has been successful.

1994-2001

A modern transportation management informationsystem (TMIS) was developed for efficientmanagement of assets, and to improve servicequality and efficiency of operation.

Following successful pilot implementation by theShanghai Railway Administration, The TMIS wasextended to cover the national network in 2000.Similar management tools have been successfullyused on North American railways.

1994 Several pilot programs of enterprise restructuringwere carried out covering Da-Qin Railway;Guangzhou and Jinan RAs; Dalian, Fuzhou, andNanning sub-RAs; and the Guangshen Railway.

Pilot programs provided important lessons intransfer of assets; valuation of assets and liabilitiesfor encouraging outside investment; and increasingmanagement autonomy with responsibility andaccountability.

1996-2000

Computerization of passenger ticketing system forimproving service quality.

Since 1996, the computer ticketing system wasexpanded and connected to 700 stations and7,000 ticket sale points. These accounted for 85percent of total ticket sales and 94 percent ofpassenger revenue in 2000.

1996-2001

Container traffic reforms included adjustment ofcontainer tariffs, introducing five special trains forintercity container traffic, setting up of containermarketing group, and extending the TMIS to covercontainer traffic management.

Consequent to these measures container traffichas been increasing by over 10 percent per annumor about three times the growth rate of railwayfreight.

1997-2000

Market-friendly operating practices were introduced,including (a) changes in train operation to meetmarket demands; (b) reducing ordering time forfreight wagons to 3 days instead of 20 days; (c)encouraging industrial sidings for customers withlarge capacity requirements; and (d) improving thequality of service by increasing train speeds.

Market-friendly business reengineering is helpingrailways to compete in the marketplace. Forpassengers high-speed, intercity, and tourist trainshave been introduced. Five special intercity freighttrains with fixed schedules have been introducedon which negotiated tariffs are charged. Increasein train speeds during 1997-2000 reduced thetravel time between Beijing and 33 major cities by22 percent on average.

1998 Nonrail businesses were divested and five majornonrail companies established as independententerprises.

Completed. Separation of nontransportationbusinesses has helped focus on the transportationbusiness.

1998 MOR administrative structure reforms aimed tostreamline internal organization and separateregulation and enterprise functions at the MOR level.

MOR reduced its departments and bureaus from23 to 16, division level structures from 133 to 74,and staff from 809 to 400 (a reduction by 51percent).

1998-2001

A point-to-point costing system was implemented toevaluate costs and profitability of individual trafficmoves.

A costing system for 1,200 locations on thenational network was completed in 2000.

1999 Institutional reform under the assets operationliability system (AOLS) was to separate regulatoryand commercial functions. Under AOLSmanagement contracts, MOR devolved operationand management to RAs. AOLS contracts increased

AOLS management contracts clarified theresponsibility of RA as legal persons to improveoperating efficiency of assets. AOLS has resultedin good results in 1999 and 2000. In 1999 therailway transported 1,662 billion converted ton-km,

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Appendix 2, page 3

YearStarted Brief Description and Purpose Experience and Status

the responsibilities and authority of RAs comparedwith ECS, particularly in the following specific areas:(i) MOR is responsible for financing infrastructure,and RAs are responsible for operating assets; (ii)RAs are responsible for meeting agreed financialtargets (a) increasing the net worth, (b) producingprofits expressed as a percent of the RA's grossoperating assets, and (c) paying dividends to MORexpressed as a percent of the capital investment;and (iii) RAs are focused on financial results as wellas improving the quality and efficiency of freight andpassenger transportation. RAs are accountable forfailure to achieve AOLS targets

an increase of 4.2 percent over 1998. The nationalrailway achieved breakeven in 1999, after 5 yearsof losses. The Nanchang and Shanghai RAs thatwill operate the GLR showed significantimprovement in financial performance. ShanghaiRA showed a profit of Y140 million in 2000compared with operating losses of Y205 millionand Y153 million in 1998 and 1999 respectively.Nanchang RA increased operating profit from Y62million in 1998 to Y400 million in 1999 and Y480million in 2000. The safety of operation has alsoimproved.

1999 Separate passenger companies were established infour RAs (Huhehot, Kunming, Liuzhou, andNanchang) as a pilot program. The GuangzhouRailway Group Corporation also set up a separatepassenger company in 2000.

The pilot program focused attention on passengeroperation in a competitive environment. Profitabilityof passenger business has improved.

1999 Administration of the railway's social security andretirement plans was transferred to local socialsecurity organizations.

As a part of the Government's reforms, therailway's social security coverage (includingretirement benefits, insurance, and unemployment)were transferred to local social securityorganizations.

2000 Railway educational facilities were divested to thelocal governments/Ministry of Education.

Primary and middle schools, colleges, and 11universities were transferred

2000 Major nontransportation enterprises were divested tofulfill the Government's reform policy of separatingnonrail activities from the railway and to reduceMOR's debt for large nontransportation entities

On 30 September 2000, MOR transferred sixnontransportation entities, along with theassociated debt to the State Large EnterprisesWorking Committee (i.e., China RailwayConstruction Corporation, China RailwayEngineering Corporation, China Railway Telecomand Signaling Corporation, China CivilEngineering Group Corporation, North and SouthLocomotive and Rolling Stock Industriescorporations.

2000-2001

Reform of the health care system and medicalfacilities was initiated.

MOR has been in the forefront of health carereform. Consistent with the reforms initiated by theGovernment, railway staff are participating in cost-sharing of medical costs. About 4,456 health carefacilities will be divested as soon as the localauthorities are prepared to take these over formanagement and operation.

2000-2001

Development of the interline revenue settlementsystem commenced.

When completed, the system will help distributeinterline revenue among RAs taking account of thecommodity transported.

2001 Development started for computer-based financialmanagement information system to supportenterprise decision-making.

Under development. It will provide financialinformation system for decision support.

40

41Appendix 3

EXTERNAL ASSISTANCE OF JAPAN BANK FOR INTERNATIONAL COOPERATION,WORLD BANK, AND ASIAN DEVELOPMENT BANK TO THE RAILWAY SECTOR

A. Japan Bank for International Cooperation

Loan ProjectYear

ApprovedAmount

(¥ million)1. Yangzhou-Shijiusuo Railway Construction 1980-1983 39,710.02. Beijing-Qinhuangdao Railway Construction 1980-1983 87,000.03. Hengyang-Guangzhou Railway Transportation Reinforcement 1980 3,320.03A. Hengyang-Guangzhou Railway Transportation Reinforcement 1984-1987 70,294.04. Zhengzhou-Baoji Railway Electrification 1984-1988 69,191.05. Datong-Qinhuangdao (East Section) Railway Construction 1988-1989 18,410.06. Beijing-Subway Construction 1988-1989 4,000.07. Shenmu-Shouxian Railway Construction 1991-1993 26,985.08. Baoji-Zhongwei Railway Construction 1991-1993 29,800.09. Hengshui-Shangqiu Railway Construction 1991-1993 23,603.010. Nanning-Kunming Railway Construction 1991-1994 57,696.011. Fujian Province Zhang Quan Railway Construction 1993 6,720.012. Beijing Subway Second Phase Construction 1991-1994 15,678.013. Shouxian-Huanghuagang Railway Construction 1996-1997 60,420.014. Xian-Ankang Railway Construction 1996-1997 35,039.015. Guiyang-Loudi Railway Double Tracking 1996-1997 29,960.0

Total 577,826.0

B. World Bank

Loan ProjectYear

ApprovedAmount

($ million)1. Railway I: Construction of a single track between Xinxiang and Heze, and others 27 Jun 1984 220.02. Railway II: Upgrading and electrification of Zhengzhou-Wuhan line and others 14 May 1985 235.03. Railway III: Upgrading and electrification of the Chongqing-Guiyang lines, and others 15 Apr 1986 230.04. Railway IV: Double-tracking of the Yueshan-Xiangfan section, and others 23 Jun 1988 200.05. Inner Mongolia Local Railway: Construction of Jining to Tongliao line, and others 12 May 1989 150.06. Railway V: Double-tracking of the Zhuzhou-Hangzhou line, and others 24 Sep 1991 330.07. Railway VI: Electrification of double-track Beijing-Zhengzhou line, and others 25 Mar 1993 420.08. Railway VII: Electrification of Wuhan-Guangzhou-line, and others 1 Jun 1995 400.09. National Railway: Construction of Qinghuangdong-Shenyang line, and others FY 2001

(planned)300.0

Total 2,485.0

C. Asian Development Bank

Loan ProjectDate

ApprovedAmount

($ million)1. 948 Shanxi-Xiaoliu Railway 31 Jan 1989 39.72. 1087 Yaogu-Maoming Railway 20 Jun 1991 67.53. 1167 Guang-Mei-Shan Railway 25 Jun 1992 200.04. 1221 Hefei-Jiujiang Railway 30 Mar 1993 110.05. 1305 Jing-Jiu Railway Technical Enhancement 14 Jul 1994 200.06. 1439 Daxian-Wanxian Railway 4 Jun 1996 100.07. 1553 Shenmu-Yanan Railway 29 Sep 1997 200.08. 1626 Guizhou-Shuibai Railway 18 Aug 1998 140.09. 1748 Hefei-Xi'an Railway 17 Aug 2000 300.0

Total 1,357.2

Technical Assistance ($'000)1. 1117 Institutional Assistance to Provincial Railway Operations 31 Jan 1989 450.02. 1523 Institutional Strengthening of Guangdong Sanmao Railway Company 20 Jun 1991 965.03. 1524 Regional Railway Sector Study 20 Jun 1991 275.04. 1720 Institutional Strengthening of Guang-Mei-Shan Railway Company 25 Jun 1992 250.05. 1721 Institutional Strengthening of Guangdong Planning Commission 25 Jun 1992 250.06. 1861 Strengthening Business and Commercial Practices of the Hefei-Jiujiang

Railway Company and Anhui Province30 Mar 1993 600.0

7. 2122 Policy Support to the Ministry of Railways 14 Jul 1994 600.08. 2578 Institutional Strengthening of Local Railways in Sichuan 4 Jun 1996 400.09. 2878 Institutional Strengthening of Local Railways in Shaanxi 29 Sept 1997 400.0

Total 4,190.0

Appendix 4, page 1

LESSONS LEARNED FROM ASIAN DEVELOPMENT BANK-FINANCED RAILWAY PROJECTS

Loan and TA Project Objectives Major Accomplishments and Lessons Learned

1. Shanxi-XiaoliuRailway(Loan 948-PRC)

Executing Agency (EA):Shanxi-Xiaoliu

Railway Company

To (i) promote efficient andeconomic transport of mineralsand agricultural outputs; (ii)facilitate industrial development inthe poor project area; and (iii)provide efficient passengerservices linking the project area tonational railway system

Loan: The project is classified as unsuccessful due to shortfall intraffic and resulting low economic internal rate of return, due to poorinstitutional set up and operational constraints on the adjacent locallyfunded section.a The project highlighted the need to (i) have a fullyfunctional and committed EA responsible for construction andoperation at the project planning stage; (ii) prepare realistic trafficforecasts; and (iii) ensure adequate institutional setup. Freight traffichas improved but is still below appraisal forecast.

Institutional Assistanceto Provincial RailwayOperations

(TA 1117-PRC)

To strengthen the EA’s financialmanagement and accounting,tariff setting, and managementinformation systems

TA: Part 1 of the TA assisted the EA with construction management.Part 2 helped address the areas of concern for improving operation.

2. Yaogu-MaomingRailway(Loan 1087-PRC)

EA: Guangdong SanmaoRailway Company

To (i) permit efficient andeconomic rail transport; (ii)improve connections to thenational railway network; and (iii)improve transport links to threespecial economic zones inHainan, Zhuhai, and Shenzhen

Loan: The project completion report (PCR) concluded that theproject was successful.b Traffic exceeded forecast, and commercialoperation was successful. Rapid economic growth and substantialsocial changes resulted in the project area. More jobs were createdin tertiary industry that helped women improve their social status.The EA was restructured into a joint stock company. An importantlesson was to ensure appropriate capital adequacy for such projectsavoiding 100 percent debt financing.

InstitutionalStrengthening ofGuangdong SanmaoRailway Company

(TA 1523-PRC)

To computerize financial andoperational systems and studyways to introduce market-basedreforms to enhance efficiency

TA 1523: The TA supported the establishment of a market-orientedand profit conscious management. The organizational structure wasrationalized, corporate profitability objectives established, andassociated management policies implemented. Computerizationaided management decision making and financial reporting.

Regional RailwaySector Study

(TA 1524-PRC)

To assist in railway planningfocusing on local railways in thesouth and southeast

TA 1524: The TA helped to identify railway projects for developmentof unserved areas. Some of these projects have been built.

3. Guang-Mei-Shan Railway

(Loan 1167-PRC)

EA: Guang-Mei-ShanRailway Company

To (i) permit efficient andeconomic rail transport within theproject area and to other regions;and (ii) establish the essentialtransport infrastructure to developmining, industry, agriculture, andtourism

Loan: The PCR concludes that this project was successful.c

Commercial operation was started one year ahead of schedule.Traffic and revenues exceeded the forecast. The railway hadsubstantial socioeconomic impact.d Incomes and living standards inthe project area were raised and poverty reduced. A shift inemployment to service industry increased opportunities for women.Debt servicing problems were addressed by restructuring.

InstitutionalStrengthening ofGuang-Mei-ShanRailway Company

(TA 1720-PRC)

To (i) improve managementinformation and financial systemsthrough computerization; and (ii)undertake a study for additionalmarket-based reforms to enhanceefficiency and accountability

TA 1720: Finance and marketing functions were strengthened;computer applications for improving management information systemwere extended. The TA helped establish the EA as a commercialentity, focusing on corporate and organizational reform, commercialoperation, and effective information flow. Transfer of knowledge toother local railways was promoted.

InstitutionalStrengthening ofGuangdong PlanningCommission

(TA 1721-PRC)EA: GuangdongPlanning Commission

To develop and implement asustainable monitoring systemtransferable to other projects andprovinces

TA 1721: Socioeconomic evaluation showed that the projectfacilitated the development of tertiary industry, which generatedemployment and promoted the welfare of rural people. The incomeof resettled households was increased and living conditionsimproved.

4. Hefei-JiujiangRailway

(Loan 1221-PRC)EA: Hefei-JiujiangRailway Company

To (i) foster economic growth bycompleting part of the secondrailway between Beijing andKowloon; (ii) provide essentialtransport infrastructure in less-developed inland provinces

Loan: The PCR concludes that the project was partly successful dueto lower than expected traffic.e Environmental management andresettlement were completed satisfactorily. The lessons learnedwere (i) undercapitalization led high short-term debt financing; (ii)traffic forecasts need to be prepared considering alternative routes;and (iii) tariffs should consider those on alternative railway lines.

42

Appendix 4, page 2

Loan and TA Project Objectives Major Accomplishments and Lessons LearnedStrengtheningBusiness andCommercial Practicesof the Hefei-JiujiangRailway Company andAnhui Province

(TA 1861-PRC)

To (i) promote commercialdiscipline in local railwaycompanies; and (ii) examine thefeasibility of local railwaycompanies’ diversifying ownershipthrough broader equityparticipation

TA 1861: The TA helped the railway company to enhancecommercial orientation and knowledge of market-orientedbusinesses. The railway company was assisted in forecastingfinancial performance during 1999-2003. The EA was helped toassess year 2000 readiness of the project facilities and take remedialmeasures.

5. Jing-Jiu RailwayTechnicalEnhancement

(Loan 1305-PRC)

EA: Ministry of Railways

To (i) enhance operationalefficiency of the Jing-Jiu Railway(JJR) by acquiring modern railwaytechnology, and human resourcedevelopment; and (ii) supportMOR in formulating reforms toimprove efficiency andcommercialize operations

Loan: The PCR concludes that the project was successful.f MORacquired modern technology and implemented organizational andtariff reforms that improved efficiency. The project helped tostimulate economic growth in its areas, particularly in the povertycounties in Jiangxi Province. Per capita income was substantiallyincreased and poverty reduced. This project also highlighted theneed to forecast freight traffic more realistically.

Policy Support to theMinistry of Railways

(TA 2122-PRC)

To (i) recommend organizationalarrangements for the commercialoperation of the JJR; and (ii)formulate a tariff policyconsidering alternative routes

TA: The study under the TA concluded that (i) a separate entity forcommercial operation of the JJR is not desirable as it would placethe JJR at a competitive disadvantage and (ii) the operation shouldbe integrated with the national network. Higher tariff for the north-south corridor including the JJR was accepted.

6. Daxian-WanxianRailway

(Loan 1439-PRC)EA: Sichuan DawanRailway Company

To provide economictransportation for facilitatingeconomic growth in northernSichuan to reduce poverty

Loan: After a delayed start due to administrative separation ofSichuan Province and Chongqing Municipality, physicalimplementation is progressing satisfactorily.

InstitutionalStrengthening of LocalRailways in Sichuan

(TA 2578-PRC)EA: Sichuan ProvincialPlanning Commission

To (i) corporatize the railwaybureau; and (ii) promotecommercialization, corporate andfinancial management, market-based tariffs, and human resourcedevelopment.

TA 2578: The TA identified excessive staffing, undercapitalization,and underutilization of assets as current problems of local railways inSichuan. Organizational commitment to meet customer needs wasfound lacking. An action plan for reforms in local railways to developthe required business environment is under implementation.

7. Shenmu-YananRailway

(Loan 1553-PRC)EA: Shaanxi XiyanRailway Company

To promote economicdevelopment and reduce povertyin the northern Shaanxi Provinceby providing economictransportation

Loan: Implementation of the project started in 1997, and isprogressing satisfactorily.

InstitutionalStrengthening of LocalRailways in ShaanxiProvince

(TA 2878-PRC)EA: Shaanxi ProvincialPlanning Commission

To convert Shaanxi Local RailwayCompany (SLRC) into a corporateentity and help Shaanxi XiyanRailway Company (SXRC) andSLRC develop financiallycommercial operations

TA 2878: The study made recommendations for efficient commercialoperation of SXRC and SLRC, including corporatization of SLRC.Other areas covered include management information systems,traffic costing and tariffs. Implementation of the action plan under theTA is in progress.

8. Guizhou-ShuibaiRailway(Loan 1626-PRC)EA: Guizhou ShuibaiRailway Company

To promote economic growth andto create conditions necessary toreduce endemic poverty

Implementation of the project started in 1998, and is progressingsatisfactorily.

9. Hefei-Xian Railway(Loan 1748-PRC)

EA: Ministry of Railways

To promote economic growth inpoor provinces to raise livingstandards and reduce poverty

Implementation of the Project started in 2000, and is progressingsatisfactorily.

a PPA: PRC 22105: Shanxi-Xiaoliu Railway Project, March 1998; b PCR: PRC 21228: Yaogu-Maoming Railway Project, June 1994;c PCR: PRC 23043 Guang-Mei-Shan Railway Project, June 1998; d Evaluation study under TA 1721-PRC: Institutional Strengthening

of Guangdong Planning Commission, for $250,000, approved on 25 June 1992 (completed); e PCR: PRC 22276 Hefei-JiujiangRailway Project, February 2000; f PCR: PRC 26462 Jing-jiu Railway Technical Enhancement Project, April 2000.

Source: Staff assessment.

43

44 Appendix 5

Item 2007 2011 2016 2021 2026Freight('000 Tons) 10,152 12,845 17,113 22,901 30,888 By Commodity (ton-km)Metallic ores 395 490 715 934 1,246Grain 300 372 434 488 651Coal 98 121 153 188 251Iron and Steel 81 100 138 173 231Timber 66 82 104 130 174Fertilizer 46 57 66 75 101Petroleum 23 29 34 41 55Others 970 1,202 1,574 2,228 2,973

Total 1,979 2,453 3,219 4,258 5,681By Type of Traffic (ton-km) Diverted from Rail 1,433 1,769 2,244 2,830 3,569Diverted from Roads 126 132 149 171 196Generated 420 552 827 1,257 1,916

Total 1,979 2,453 3,219 4,258 5,681

Average Length of Haul (km) 195 191 188 186 184

Passengers (thousand) 2,725 5,188 7,876 10,944 11,082

By Category of Passenger (passenger-km)

Local a 45 93 153 212 215Interlineb 143 266 360 500 506Transitc 189 359 578 803 813

Total 377 719 1,091 1,516 1,535By Type of Traffic (passenger-km) Diverted from Buses 226 424 624 846 842Diverted from Rail 85 162 260 362 366Generated 66 133 207 308 327

Total 377 719 1,091 1,516 1,535

Average Length of Journey (km) 138 139 139 139 140

a Traffic that both originates and terminates on the Ganzhou-Longyan Railway.b Traffic that either originates or terminates on the Ganzhou-Longyan Railway.c Traffic that runs through the line but neither originates nor terminates on the Ganzhou-Longyan Railway.Source: Staff estimates.

TRAFFIC FORECASTS(million)

45 Appendix 6

Item

A. Base Cost

1. Civil Works 113.5 240.3 353.8 95.2 18.3 240.3

2. Railway Track and Bridges (including 45.1 79.6 124.7 45.1 0.0 79.6

rails, sleepers, ballast, bridge beams)

3. Signaling, Communications, and TMIS 10.3 16.3 26.6 10.3 0.0 16.3

4. Electric Power 2.8 14.6 17.4 2.8 0.0 14.6

5. Operational Equipment 23.2 8.2 31.4 23.2 0.0 8.2

6. Buildings and Facilities 6.8 27.5 34.3 0.0 6.8 27.5

7. Land Acquisition, Compensation, 0.0 34.4 34.4 0.0 0.0 34.4

and Resettlement

8. Environmental Protection, Mitigation, 0.8 9.2 10.0 0.8 0.0 9.2

and Monitoring

9. Administration, Consulting Services, 0.3 20.0 20.3 0.3 0.0 20.0

and Miscellaneous Costs

Subtotal (A) 202.8 450.1 652.9 177.7 25.1 450.1

B. Contingencies

1. Physicala 13.4 29.6 43.0 11.7 1.7 29.6

2. Priceb 14.1 19.1 33.2 8.6 5.5 19.1

Subtotal (B) 27.5 48.7 76.2 20.3 7.2 48.7

C. Interest and Other Charges During 24.4 21.5 45.9 2.0 22.4 21.5

Construction and Front-End Fee c

Total 254.7 520.3 775.0 200.0 54.7 520.3

ADB=Asian Development Bank, CDB=China Development Bank, MOR=Ministry of Railways, TMIS=transportation management information system.a Physical contingencies vary from 5 percent to 12 percent based on the type of work and status of preparation of the

Project, except track, signaling/telecommunications/electric, for which 2 percent is provided. b Based on international price escalation factor of 2 percent to 2.4 percent during 2002-2006.c

Source: Staff estimates.

COST ESTIMATES AND FINANCING PLAN($ million)

Financing Plan

Front-end fee is 1 percent on the ADB loan.

Cost Estimates

ForeignExchange Currency

Local TotalCost

ForeignExchange

MOR/CDBForeign

ExchangeLocal

Currency

ADB

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

1. Detailed Design, Engineering,and Documentation

2. Prequalification and Tendering

3. Acquisition of Land, Compensation, and Resettlement

4. Civil Works and Buildings

5. Track Laying

6. Telecommunications, Signaling,

and Electrical

7. Test/Commercial/Operation

Source: Staff estimates.

Appendix 7

IMPLEMENTATION SCHEDULE

20052001 2002 2003 2004 2006

46

Appendix 8

CONTRACT PACKAGES FINANCED BY ASIAN DEVELOPMENT BANK

DescriptionCost

($ million)Mode of

Procurement

A. Materials

1. Rails, Turnouts, Sleepers, and Accessories (various packages)

23.4 ICB

2. Bridge Beams (various packages) 24.9 ICB

B. Equipment

1. Communications and Equipment (various packages)

7.9 ICB/IS

2. Signaling Equipment (various packages) 3.1 ICB/IS

3. Electric Power (various packages) 3.0 ICB/IS

4. Water Supply and Drainage Equipment (various packages)

0.9 ICB/IS

5. Operational Equipment (various packages) 25.5 ICB/IS

C. Civil Works a

(civil works – 16 packages and track laying) 109.0 b ICB

D. Consulting Services 0.3 c d

Total 198.0

ADB=Asian Development Bank, ICB=international competitive bidding, IS=international shopping.a ADB-financed civil works are divided into 16 contract sections, of which 6 are in the jurisdiction of Nanchang Railway

Administration and 10 are in the jurisdiction of Shanghai Railway Administration. Bids for all contract sections will beinvited at the same time and bidders will be free to bid for any combination of one or more contract sections.

b Represents the portion of civil works cost financed from the ADB loan.c The total cost of consulting services is expected to be $0.40 million, of which $0.10 million will be financed by the Ministry

of Railways from own resources.d International consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants.Source: Staff estimates.

47

Appendix 9, page 1

TERMS OF REFERENCE FOR INTERNATIONAL CONSULTING SERVICES

A. Introduction

1. The Ministry of Railways (MOR), the Executing Agency, is implementing the Ganzhou-Longyan Railway (GLR) Project that will link Ganzhou in southern Jiangxi Province withLongyan in western Fujian Province. The objective of the Project is to promote sustainableeconomic growth by enhancing transportation capability in a less accessible and mountainousregion, create employment and income-enhancing opportunities, and raise incomes and reducepoverty. To achieve this objective, induced developments such as value-added and labor-intensive industries need to be facilitated to the project area. The construction of the GLR willcreate the conditions for a significant number of companies to invest in the area. From thefinancial perspective of the GLR, it is the industry on the route of the GLR that will generate thegreater proportion of the traffic. To capture the potential for economic development and traffic inthe region and foster railway-local industry cooperation, institutional strengthening in railwaymarket development will be necessary. The purpose of the consulting services will be to assistthe railway in defining what the service should be, plan its future operation, and assist increating appropriate customer-oriented services for the GLR and the connection to Xiamen Port.The consulting services will review the impact on the railway sector of the country’scommitments for accession to the World Trade Organization.

B. Scope

2. The scope of the consulting services will include the following.

1. Part A

3. The consultants will (i) determine the level of industry and market development expertisein the Nanchang and Shanghai railway administrations; (ii) determine the programs andincentives available for attracting industry at the county, prefecture, and province levels; (iii)meet with a selection of potential shippers located or planning to locate along the route of theGLR; (iv) meet with officials of Xiamen Port and the railway serving the port, to determinecurrent operations and future inland transport requirements; (v) develop plans for improvingrailway services, in particular intermodal services; (vi) propose measures to develop industrialsidings; (vii) develop a plan for supplying special purpose wagons to attract industry to theproject area; and (viii) improve marketing of railway services to industries, specifically for theGLR and Xiamen Port.

4. The consulting services will develop suitable training programs in the country and aforeign country where successful industrial and railway marketing programs are in place. Theforeign training program will be for eight key railway staff, four from MOR and two each from theNanchang and Shanghai railway administrations. The trainees will specifically study thefollowing: (i) operating intermodal container services, with specific attention to intermodal hubsand dedicated container trains; (ii) serving shippers directly with industrial sidings as well astracks to industrial parks; (iii) economics and financing of special purpose wagons; (iv) overallrailway operation in Xiamen Port with particular reference to bulk transportation of grain,cement, sugar, and other products that are applicable to the GLR and the port; (v) developingindustries and the various approaches to attracting industries to locate along the railway; and(vi) marketing of railway services to potential shippers.

48

Appendix 9, page 2

2. Part B

5. Under the country’s commitments for accession to the World Trade Organization, foreigninvestors would be able to (i) acquire minority shareholding in joint ventures for freight servicesafter the PRC's accession to the WTO, (ii) acquire majority shareholding within three yearsthereafter, and (iii) set up solely foreign-owned companies within another three years. Thistransition needs to be factored in to future restructuring of the national railway. The consultingservices will evaluate the existing competitive strengths and weaknesses of the national railwayin the light of imminent entry of foreign operators in the rail freight transport market. Strategicoptions for railway administrations, including establishing partnerships with foreign operators willbe identified. Possible benefits and risks of railway administration-foreign operator partnershipswill be analyzed and measures will be recommended for mitigating risks. The consultingservices will evaluate the implications to the competitiveness and financial viability of thenational railway of allowing majority and eventually full foreign ownership of railway freightoperation. Considering these and other competitive developments, the consulting services willpropose various institutional, operating, and technical options, while evaluating alternativestructural reforms. The consulting services will evaluate the implications of the country’saccession to the World Trade Organization on the railway sector, and propose measures formaximizing the benefits of foreign operator entry into the railway freight transport market.

C. Expertise and Cost Estimates

6. About eight person-months of international consulting services will be engaged inaccordance with the ADB's Guidelines on the Use of Consultants. The international consultantswill have expertise in industrial development and marketing, international trade, and railwayoperation. The loan will finance the services of international consultants and the cost of foreigntraining of key railway staff for a total of eight staff-months.

7. MOR will (i) assign appropriate counterpart staff to liaise with and facilitate the work ofconsulting services; (ii) provide suitable office accommodation and communication facilitiescommensurate with the requirement; (iii) assist the consultants in scheduling field visits anddiscussions with field agencies in connection with the study; and (iv) provide all facilities,documentation, and assistance as may be reasonably requested by the consultants to completethe work.

49

Appendix 10

STATION ACCESS AND LINK ROADS

Length CostCounty/Location (km) ($ million)A. Station Access Roads

Yudu Sanmen Station 1.0 0.2Shantang Station 2.2 0.4Yudu - Freight Station 1.6 0.5Yudu - Passenger Station 1.3 0.2

Huichang Xijiang Station 1.5 0.2Ruijin Chaotian Station 2.4 2.0

Ruijin - Freight Station 2.3 2.8Ruijin - Passenger Station 3.0 1.8

Changting Gucheng Station 1.8 1.0Changting Station 0.3 0.2Hetian Station 2.2 1.2Zhongfu Station 1.2 0.6

Liancheng Pengkou Station 0.3 0.2Lejiang Station 1.2 0.6

Shanghang Zhuyuan Station 0.8 0.4Jiaoyang Station 0.6 0.3

Xinluo Xiaochi Station 1.1 0.6Total (A) 24.8 13.2

B. Link Roads1. New Roads Yudu Xianxia-Chengjiang 32.5 34.1

Yudu-Pangushan 34.0 24.6Yudu-Quanchangkeng 42.4 13.3

Ruijin Shicheng-Ruijin 38.5 5.9 Changting Southern Ring Road 5.3 3.6

Subtotal (1) 152.7 81.52. Road Improvements Huichang 131.2 31.8 Shanghang 50.8 10.8 Liancheng 235.0 20.5 Subtotal (2) 417.0 63.1

Total (B) 569.7 144.6 Source: Ganzhou and Longyan local governments.

50

Project Performance Management System

Description

Monitoring/Reporting Agency Frequency and Duration of Monitoring and Reporting, and Content of Reports

A. Poverty Reduction1. Hire 50 percent of unskilled workers required for

civil works construction from poor households, ofwhich 30 percent will be hired from remotevillages

Contractor, RailwayAdministration (RA),and Ministry ofRailways (MOR)

MOR will report progress through the quarterly progress reports (QPR) giving (i) total number ofworkers hired, (ii) local workers hired, (iii) workers hired from poor households (in person-months), and (iv) average monthly wage of workers.

2. Supply local materials for construction frompoverty villages; and hire 30 percent of unskilledworkers for production from poor households

Contractor, RA, andMOR

MOR will report progress to the Asian Development Bank (ADB) through the QPR, covering (i)type of material/s supplied locally and village from which supplied, (ii) amount paid to villagecooperative, and (iii) number of workers hired from poor households (same as for item 1).

3. Civil works of station access roads and link roadsby local governments (LG), 50 percent of unskilledworkers will be hired from poor households

LGs and MOR LGs will submit progress to MOR regularly, providing information similar to that indicated for item1. MOR will provide the information to ADB through the QPR.

4. During operation hire 70 percent of unskilledworkers to load and unload freight wagons and towork as security guards at stations from poorhouseholds

RA and MOR MOR will submit annual reports to ADB, covering information on hiring of poor workers during thefirst two years of operation.

5. Poverty reduction programs of LGs LGs, MOR, andResearch Institute ofSouthwest JiatongUniversity (RI-SJU)

LGs will provide annual reports to MOR, covering implementation of poverty reduction programsand their impacts on poor people in the project area, including the effects on women. The annualreports will be provided to ADB by September of the following year, for the first two years ofoperation.

6. Monitoring and evaluation of the poverty reductionimpacts of the Project

RI-SJU and MOR RI-SJU will prepare annual monitoring reports on employment created, and other impacts on thepoor and the effects on women and evaluate the Project's poverty reduction impacts, 2 yearsafter the start of operation based on a sample household survey, covering the relevantsocioeconomic indicators,a which will be compared with the results of the baseline sample surveydone under TA 3486, GDP per capita, rural net income, poverty incidence, increase in financialrevenue of local governments, and amount spent on social programs. MOR will provide themonitoring and evaluation reports to ADB.

7. Monitoring of poverty indicators LGs and MOR The main poverty indicators, i.e., net rural income per capita, and the poverty incidence will beannually monitored and compared with the baseline values before construction. MOR will provideto ADB annual reports and an evaluation report to be submitted two years after the start ofoperation

B. Sustainable Socioeconomic Growth1. Induced impacts of the Project will be monitored

annuallyLGs and MOR Number of projects (i.e., industries and mining) that have been set up; economic value added;

employment created and number of persons employed from poor households. MOR will provideannual reports to ADB within six months of the end of the year, for a period of 2 years after startof commercial operation of the Ganzhou-Longyan Railway (GLR).

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Description

Monitoring/Reporting Agency Frequency and Duration of Monitoring and Reporting, and Content of Reports

2. Socioeconomic county-level indicators to bemonitored annually

LGs, RI-SJU, andMOR

Population; GDP (including for primary, secondary, and tertiary sectors); financial revenue ofcounties; net rural income per capita; income distribution; literacy rate; life expectancy; and infantmortality rate.

C. ResettlementImplementation of land acquisition andresettlement as per the resettlement plan

LG, RA, RI-SJU, andMOR

MOR will provide progress of land acquisition and resettlement to ADB through the QPR. RI-SJUwill submit annual reports of resettlement implementation, including the results of annual surveyupdates; a report on completion of resettlement; and an evaluation report 2 years aftercompletion of resettlement. The effects on women will be monitored and evaluated throughgender-disaggregated data. MOR will provide the monitoring and evaluation reports to ADB.

D. Environmental ImpactsEnvironmental protection and monitoring as perthe EIA and summary EIA in compliance withADB's guidelines and procedures on environmentand those applicable at the national and provinciallevels.

RAs, EPBs, LGs,MOR, and BeijingOasis EnvironmentalProtectionTechnologyCompany (BOEPTC)

BOEPTC will carry out monitoring independently in coordination with RAs and EPBs. The resultsof monitoring will be reported in the quarterly progress reports, annual reports on environmentalmonitoring, and an evaluation report one year after completion of construction. MOR will providethese reports to ADB. BOEPTC and LGs will confirm that the induced projects follow theGovernment's environmental policies, laws, and regulations on the environment; and whetherEIAs of induced projects were prepared and implemented.

E. Project Implementation (Construction)Monitor the progress of project implementation asper agreed schedule

MOR, ForeignCapital TechnicalImport Center(FCTIC), and RAs

The progress of implementation covering all relevant aspects, including procurement, civilworks, land acquisition, compensation, and resettlement will be monitored and the progressreported through the QPR on project implementation. This report will be submitted by FCTIC toADB by the end of the month following the quarter. The QPR will compare the originalimplementation schedule with the actual progress, assess compliance with loan covenants andproblems, if any. The QPR will be submitted up to the loan closing date.

F. Project Operation1. Parameters to be monitored during operation will

be freight tons, freight ton-km, passengers,passenger-km, converted ton-km, average freighthaul, average passenger trip length, number ofstaff, and tariffs on the GLR.

RAs and MOR RAs will submit annual reports to MOR, comparing actual performance of operation withappraisal forecast, and explain the reasons for any variation. MOR will submit audit reports toADB by September of following year, for the first 5 years of operation.

2. The financial performance of MOR will bemonitored on an annual basis. MOR

MOR will prepare and submit to ADB annual financial statements (including income statement,balance sheet, and cash flow statement). These statements will be audited and the annualreports submitted to ADB by September of the following year, for the first five years of operation.

a The indicators will include (i) household size and composition (males and females) and gender of household head; (ii) educational level, literacy, and current school attendance (males and females); (iii)access to health care, safe water, electricity, telephone, and postal communications; (iv) residence permit (rural or urban) and nationality status of household head; (v) source of income of all residentincome-earning members (agriculture, mining/industry, other) by gender, including the type and location of employment, full time, part time or seasonal; for mining/industry workers, record type of workunit (state-owned enterprise, town and village enterprise, family enterprise, private enterprise, others); (vi) number of household members absent seeking work elsewhere (location, employment status,income, by gender); (vii) if agricultural, amount of cultivated land; (viii) value and quantities of major agricultural products produced and sold; (ix) major household spending (food, health care, education,and durables) (x) number of durable goods owned (radio, television, tape recorder); and (xi) travel on, and use of, train for freight. For baseline data reference should be made to the final report of TA3486-PRC: Ganzhou-Longyan Railway Project.

Source: Staff estimate.

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Appendix 12, page 1

FINANCIAL PERFORMANCE

1. The financial performance of the Ganzhou-Longyan Railway (GLR) and the Ministry ofRailways (MOR) were prepared at current prices reflecting the forecast domestic andinternational inflation1 from 2002 onward and assumed currency fluctuation. The mainassumptions for the financial statements are as follows: (i) freight tariff, including railwayconstruction fund (RCF) surcharge, are assumed to remain constant in real terms; unit freightrevenue was assumed lower than the nominal freight tariff due to reduced tariffs applicable tosome commodities; (ii) unit passenger revenue is taken at 50 percent higher than the nominaltariff for hard seat because of additional charges for value-added services such as higherspeed, air-conditioning, and soft and sleeper seats; and passenger revenue was assumed toannually increase in real terms by 5 percent up to 2006 and 1.5 percent thereafter for value-added services;2 (iii) working expenses are assumed to increase according to domestic inflation,and traffic volume and real increase were assumed in line with the historical trend of each costcomponent between 1992 and 1999; (iv) annual depreciation expenses are computed based oneach asset’s economic life; and (v) financial expenses are calculated based on assumedinterest rate and outstanding borrowings; business tax of 3.24 percent on the gross revenue;and income tax of 33 percent on profit before tax that exceeds the accumulated loss.

2. The financial statements of the GLR (Table A12.1) were prepared on a pro-forma basisfor 10 years from 2002 to 2011 according to the assumed financing plan, terms and conditions,construction schedule, revenue based on the forecast traffic, tariff, and the estimated costs.Annual asset revaluation is assumed. Sufficient cash flow and sound operations3 are forecastfor the project life.

3. The financial statements of MOR (Table A12.2) include actual figures from 1997 to 1999and tentative figures for 2000, and consider MOR’s investment plan, and are adjusted tointernational accounting practices. These were based on the following additional assumptions:(i) staff reduction is assumed at 0.75 percent per year to result in 21.6 employees per route-kmat the end of 2010 compared with 34 and 25.6 in 1997 and 1999; (ii) freight and passengertraffic are assumed to grow annually by 1.5 percent and 3.5 percent, respectively; (iii) no capitalinfusion or subsidy by the Government is assumed; (iv) nominal freight tariff for 2001 isassumed at Y0.0791 per ton-km, including Y0.33 per ton-km of railway construction fundsurcharge and the assumed unit passenger revenue for 2001 is Y0.0875 per passenger-km,4 or49 percent more than the hard seat rate; (v) annual net profits derived from the enterprisesunder the diversified economy program are assumed based on the net return on assets of theenterprises; (vi) the divestment of nontransportation entities in September 2000 is reflected asestimates, which would reduce losses in nonoperating expenses from 2001 onward; and (vii)interest rates for domestic and foreign loans are assumed at 6.2 percent and 6.5 percent peryear with repayment period of 12 years and 20 years, respectively.

1 Domestic inflation is assumed at 2.5 percent for 2002, 3 percent for 2003, 3.3 percent from 2004 to 2006, and to

vary from 3.5 percent to 2.2 percent between 2007 and 2026. International inflation is forecast at 2 percent for2002, 2.2 percent for 2003, 2.3 percent for 2004, 2.4 percent from 2005 to 2008, and to vary from 2.3 percent to 2percent between 2009 and 2026.

2 The historical trend of annual real increase of passenger unit revenue was approximately 5 percent since 1996.3 Average and minimum debt service coverage ratio for the first 10 years are 1.6 and 1.2, respectively, and operating

ratio for 20 years is 51.8 percent on average. These indicators are sustainable in the tested adverse scenarios.4 The latest applicable nominal freight tariff per ton-km since July 2000 was Y0.0791, including Y0.033 of RCF

surcharge, and Y0.0586 per passenger-km for a hard seat.

53

Item/Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Operational Statistics Freight Ton-Km (million) 0 0 0 0 0 1,979 2,087 2,202 2,323 2,453Passenger Pas-Km (million) 0 0 0 0 0 377 460 543 625 719Average Freight Unit Revenue/Ton-km (Yuan) 0 0 0 0 0 0.2469 0.2556 0.2645 0.2738 0.2833Average Passenger Unit Revenue /Pas-Km (Yuan) 0 0 0 0 0 0.1365 0.1418 0.1473 0.1530 0.1589Proforma Income Statement Freight Revenue 0 0 0 0 0 488.7 533.4 582.4 636.0 695.0Passenger Revenue 0 0 0 0 0 51.5 65.3 80.0 95.6 114.2Other Revenue 0 0 0 0 0 119.9 132.1 145.4 160.1 176.3Gross Revenue of GLR Line 0 0 0 0 0 660.1 730.8 807.9 891.7 985.5Less : Business Tax and Associated Levies 0 0 0 0 0 21.4 23.7 26.2 28.9 31.9Net Revenue 0 0 0 0 0 638.7 707.1 781.7 862.8 953.5Working Expenses 0 0 0 0 0 192.5 216.0 234.5 254.3 277.0Depreciation and Amortization Expenses 0 0 0 0 0 250.1 259.5 267.3 275.4 288.3Less : Other Expenses 0.0 1.8 4.9 8.8 14.3 18.3 18.1 19.4 19.0 18.5Less : Interest Expenses 4.7 23.7 48.6 83.2 117.1 118.7 183.7 243.5 230.7 217.0Transfer of RCF Surcharge 0 0 0 0 0 74.3 81.2 88.6 96.8 105.7Pre-Tax Profit (Loss) (4.7) (25.6) (53.6) (92.0) (131.4) (15.3) (51.2) (71.5) (13.4) 47.0Income Tax 0 0 0 0 0 0 0 0 0 0Net Profit (Loss) for the Year (4.7) (25.6) (53.6) (92.0) (131.4) (15.3) (51.2) (71.5) (13.4) 47.0Proforma Balance SheetAssets Cash, Bank 0 0 0 0 (0) 174.4 338.5 401.9 523.7 554.0Other Current Assets 0 0 0 0 0 159.1 176.7 194.9 214.7 236.9Total Current Assets 0 0 0 0 (0) 333.5 515.2 596.8 738.3 790.9Net Fixed Assets in Operation 0 399.5 1,284.0 2,711.7 4,880.1 5,825.3 5,876.3 5,864.2 5,851.6 5,990.2Construction in Progress 1,140.8 1,408.5 2,225.6 2,968.9 1,116.2 0 0 0 0 0Net Deferred Asset 0 345.5 392.5 465.7 625.0 668.5 633.3 598.2 563.0 527.8Total Fixed Assets 1,140.8 2,153.4 3,902.1 6,146.2 6,621.3 6,493.8 6,509.6 6,462.3 6,414.6 6,518.0Total Assets 1,140.8 2,153.4 3,902.1 6,146.2 6,621.3 6,827.4 7,024.8 7,059.1 7,153.0 7,309.0Capital and Liabilities Current Liabilities 0 0 0 0 0 48.1 54.0 58.6 63.6 69.2Borrowing from ADB 233.3 502.2 1,000.7 1,628.1 1,702.5 1,676.4 1,646.4 1,613.7 1,576.5 1,534.2Borrowing from CDB 0 316.6 526.5 1,961.7 2,077.4 2,200.0 2,178.5 2,000.8 1,812.6 1,613.3Total Long-Term Debt 233.3 818.9 1,527.2 3,589.7 3,779.9 3,876.3 3,824.9 3,614.5 3,389.1 3,147.5Paid-In Capital 912.2 1,364.8 2,458.6 2,732.3 3,148.6 3,148.6 3,148.6 3,148.6 3,148.6 3,148.6

(4.7) (30.2) (83.8) (175.8) (307.2) (245.7) (2.7) 237.4 551.7 943.6Total Capital 907.5 1,334.6 2,374.9 2,556.5 2,841.4 2,902.9 3,145.9 3,386.0 3,700.3 4,092.2Total Capital and Liabilities 1,140.8 2,153.4 3,902.1 6,146.2 6,621.3 6,827.4 7,024.8 7,059.1 7,153.0 7,309.0Proforma Cash Flow Statement Funds from Operations 0 0 0 0 (0) 337.6 482.1 536.5 596.9 663.5Injection of Counterpart Funds from MOR 912.2 452.6 1,093.8 273.7 416.3 0 0 0 0 0Drawdown of Loans 233.3 583.7 703.4 2,053.7 197.2 122.6 64.9 0 0 0 Total Source of Funds 1,145.5 1,036.4 1,797.3 2,327.4 613.4 460.2 547.0 536.5 596.9 663.5Capital Expenditure 1,140.8 1,012.6 1,748.6 2,244.2 475.1 122.6 64.9 0 0 156.0Debt Service 4.7 23.7 48.6 83.2 138.3 163.2 318.1 473.1 475.1 477.1 Total Application of Funds 1,145.5 1,036.4 1,797.3 2,327.4 613.4 285.8 383.0 473.1 475.1 633.1Net Cash Position 0 0 0 0 (0) 174.5 164.1 63.4 121.8 30.4Cash at the Beginning 0 0 0 0 0 (0) 174.4 338.5 401.9 523.7Cash at the End 0 0 0 0 (0) 174.4 338.5 401.9 523.7 554.0ADB=Asian Development Bank, CDB=China Development Bank, RCF=railway construction fund, Pas-km=passenger-kilometer. Source: Staff estimate.

Table A12.1: Proforma Financial Statements of Ganzhou-Lon gyan Railwa y(Y million)

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Actual Actual Actual Estimate Forecast Forecast Forecast Forecast Forecast Forecast Operational Statistics 1997 1998 1999 2000 2001 2002 2004 2006 2008 2010Freight Ton-Km (billion) 1,305.0 1,226.0 1,257.8 1,333.6 1,353.6 1,373.9 1,415.4 1,458.2 1,504.5 1,550.0Passenger Pax-Km (billion) 332.0 354.0 369.0 404.6 441.5 456.9 506.6 542.7 581.3 622.7Average Nominal Core Freight Tariff 0.0424 0.0424 0.0461 0.0461 0.0461 0.0473 0.0503 0.0536 0.0575 0.0616Nominal Railway Construction Fund Surcharge 0.0280 0.0280 0.0330 0.0330 0.0330 0.0330 0.0360 0.0384 0.0411 0.0441Average Unit Revenue (Passenger) 0.0714 0.0736 0.0777 0.0823 0.0833 0.0875 0.1013 0.1117 0.1151 0.1185MOR Network Route-km 56,678 57,566 57,583 57,923 58,075 59,275 62,875 64,460 65,230 66,000Number of Transportation Employees 1,926,257 1,899,309 1,556,497 1,509,077 1,488,759 1,477,593 1,444,596 1,431,611 1,427,319 1,423,041Income Statement Freight Revenues 81,196 84,663 86,673 93,737 95,143 98,984 108,501 119,280 131,832 145,491Passenger Revenues 26,093 28,677 33,289 36,793 39,984 43,453 51,319 60,609 66,889 73,818Other Revenues 13,994 14,702 16,247 17,493 17,768 18,499 20,237 22,244 24,127 26,186Gross Revenues 121,283 128,042 136,209 148,022 152,895 160,936 180,058 202,133 222,848 245,495Less: Taxes and Levies 4,943 5,138 5,504 5,947 6,122 6,430 7,166 8,014 8,839 9,741Net Revenues 116,340 122,904 130,705 142,075 146,773 154,506 172,891 194,119 214,009 235,754Less: Working Expenses 69,910 72,457 77,555 82,850 85,330 89,262 98,136 108,421 119,716 132,334Less: Depreciation Expenses 11,316 12,379 12,735 13,465 15,822 18,764 22,058 25,527 29,459 32,432Non-Operating Income (Espenses) (4,310) (4,614) (5,582) (8,096) (2,024) (631) (417) (485) (623) (679)Profit (Loss) from Subsidiaries (453) 1,993 2,589 2,600 2,651 2,783 3,069 3,383 3,730 4,112Less: RCF Appropriation 32,964 33,636 32,470 37,132 37,689 39,211 42,981 47,251 52,224 57,634Less : Income Tax Payable 0 546 786 858 875 918 5,094 6,337 6,417 6,897Net Profit for the Year (2,613) 1,265 4,165 2,116 7,683 8,503 7,273 9,482 9,299 9,890Operating Ratio 69.8% 69.0% 69.1% 67.8% 68.9% 69.9% 69.5% 69.0% 69.7% 69.9%Balance SheetCash and Bank Deposits 32,561 46,693 59,724 56,952 54,719 58,948 79,571 89,756 88,036 97,375Others 34,092 66,323 66,574 69,656 71,926 75,712 84,764 95,199 105,355 116,485Total Current Assets 66,653 113,016 126,298 126,608 126,645 134,661 164,335 184,955 193,391 213,860Net Fixed Assets in Operation 310,554 356,747 393,392 462,663 559,071 680,383 794,801 910,710 1,041,072 1,172,727Construction in Progress 182,165 200,068 192,105 177,070 143,535 77,500 75,000 90,000 90,000 90,000Long-Term Investment and Others 65,380 84,130 95,395 89,611 90,651 91,759 94,179 96,875 99,850 103,109Total Fixed Assets 558,099 640,945 680,892 729,345 793,257 849,642 963,981 1,097,585 1,230,923 1,365,835Total Assets 624,752 753,961 807,190 855,952 919,902 984,303 1,128,316 1,282,540 1,424,313 1,579,695Total Current Liabilties 77,281 110,456 114,980 108,809 112,110 113,962 121,196 137,281 141,116 151,734Total Long-Term Debt 154,542 187,179 217,931 229,148 241,991 253,324 280,162 300,853 308,817 310,021Total Equity 392,929 456,326 474,279 517,995 565,800 617,017 726,957 844,406 974,380 1,117,941Total Liabilities and Equity 624,752 753,961 807,190 855,952 919,902 984,303 1,128,316 1,282,540 1,424,313 1,579,695Cash Flow Statement Funds from Operation 60,925 46,334 58,245 65,918 78,432 81,590 90,624 98,671 114,271 126,778Funds from Financing 20,214 49,612 30,752 28,743 30,762 29,313 31,439 26,582 19,249 19,430Total Sources 81,139 95,946 88,997 94,661 109,194 110,903 122,064 125,254 133,519 146,208Capital Expenditure 45,845 49,422 45,566 61,000 71,000 65,000 67,000 77,000 80,000 80,000Equipment Replacement and Major Repair Expenses 11,696 12,242 7,712 11,702 15,194 15,041 16,661 19,560 21,686 23,996Debt Services 17,499 20,150 22,688 24,731 25,233 26,632 28,917 31,677 33,368 34,288Total Applications 75,040 81,814 75,966 97,433 111,427 106,673 112,578 128,237 135,053 138,284Net Cashflow for the Year 6,099 14,132 13,031 (2,772) (2,234) 4,230 9,486 (2,983) (1,534) 7,925Cash at the Beginning 26,462 32,561 46,693 59,724 56,952 54,719 70,085 92,739 89,570 89,450Cash at the End 32,561 46,693 59,724 56,952 54,719 58,948 79,571 89,756 88,036 97,375Source: Staff estimate.

Table A12.2: Pro jected Financial Statements of MOR (Y million)

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Appendix 13, page 1

SUMMARY OF ENVIRONMENTAL IMPACTSAND MITIGATION MEASURES

Environmental Impact Mitigation Measures Action byA. Groundwater ContaminationConstruction. Oil and fuel leaks fromvehicle parking and maintenance areas

Collect and recycle lubricants. Avoid accidentalspills through good practice.a

Ministry ofRailways(MOR)a andcivil workscontractors

B. Earth Works/ErosionConstruction. Excavation quantity,22,020,000 m3; fill quantity of 21,397,000m3; spoil and muck from tunnel works,4,147,000 m3. Potential soil erosion fromspoil and stockpiled material. Landslides,slumps, slips, and other massmovements in open cuts. Alteration ofoverland and subsoil drainage (whereconstructed roadbed intercepts perchedwater table, springs, etc.). Transmissionof communicable diseases from workforce to local population

Choose areas for deposition of spoils and muckcarefully. Adhere to good engineering practiceand specifications, such as subgrade slope tobe protected by retaining walls, slopeprotection, and antiskidding piles in areas withdeep excavation or high fill; providing drainagesystems (gutters and side ditch); reclaimingareas formerly farmlands; avoiding disposal toforested land, revegetating spoil heaps. Alignroute to avoid inherently unstable areas.Stabilize open cuts with structures (e.g.,concrete or dry masonry breast walls orretaining walls, gabions, or similar devices).Install adequate drainage works. As part ofvigorous public health program, includemandatory lectures on the origin and spread ofcommunicable diseases, conduct periodichealth examinations of workers.

MOR and civilworkscontractors

Operation. Soil erosion during operationfrom steep cuts and embankments

Concrete face, and landscape all unstable cuts.Replant embankments and provide adequatedrainage.

MOR and civilworkscontractors

C. NoiseConstruction. Pile driving, blasting, anduse of heavy equipment

Meet with local officials to (i) scheduleoperating hours of equipment areas, (ii) locateall heavy machinery at least 1 km fromsensitive areas, (iii) use new and well-maintained equipment, and (iv) equip operatorswith ear protection.

MOR and civilworkscontractors

Operation. Noise from passing trains anduse of shop equipment

At source, follow relevant regulations. Forreceptors, apply mitigation measures: (i)relocate Liushilidian, Dongxi, and Nanduanprimary school; (ii) construct 3 m high soundbarriers at Huangjiazhuang Primary School.

MOR

D. Atmospheric PollutionConstruction. Dust and pollution fromborrow pits, excavation areas, and haulroads

Use modern machinery, wet down roads, andregularly maintain vehicles.a

MOR and civilworkscontractors

km=kilometer, m=meter, m3=cubic meter.a MOR will include appropriate requirements in the bidding documents and contracts to ensure compliance with

the environmental requirements by contractors.

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Appendix 13, page 2

Environmental Impact Mitigation Measures Action by

E. Surface Water QualityConstruction. Contamination of local anddownstream water supplies by temporarywork camps; and turbid water from tunnelconstruction

Wastewater from large (more than 500workers) camps to be treated by series ofstabilization ponds (minimum of 1 anaerobic).

MOR

Operation. Total discharge of 2,750m3/day, comprising 2,200 m3/daydomestic and commercial sewage and550 m3/day industrial wastes.Contamination of watercourses byrailway personnel or equipment

Develop mitigation measures for five newstations and the terminal stations at each endto include one of the following measures: (i)construction of secondary (biological) treatmentplants; (ii) utilize existing oil separation andaeration plants to treat oily wastes; (iii)discharge into existing municipal activatedsludge treatment facility; build sewage liftstation and 300 meters of cast-iron main toconvey sewage into existing Ganzhou Citysystem.

MOR

F. Solid WasteConstruction. Overloading rural dumpcapability with wastes from largetemporary contractor’s camps for workers

Provide adequate storage. Where camps arelarge (>500 workers), contractor will operatesanitary landfill.a

MOR and civilworkscontractors

Operation. Disposal of solid wastes frompassenger trains (estimated at 1,624tons/year)

Equip passenger trains with garbage cans andbags. The garbage will be sorted by the station.The tins and bottles will be recycled, and theremainder landfilled by local sanitationdepartment.

MOR

Domestic refuse (estimated at 836tons/year)

Domestic refuse from railway residentialquarters will be collected and landfilled by localsanitation department.

MOR

Slag from the boilers (estimated at 298tons/year)

Slag will be collected and recycled forconstruction and road paving.

MOR

G. Plants, Wildlife, and PreciousEcology

In the lowlands, trees will be lost to theright-of-way from orchards andsecondary forests. Some old-growthforests are located in high, mountainousareas. Multiple species ofendangered/threatened flora and faunaare endemic to the general area, butwildlife population along the alignmenthas long been depleted. The railway linewill not cause significant impact onwildlife and its habitat.

The Ganzhou-Longyan Railway (GLR) will notimpact nature preserve areas and maintains aminimum 5 km distance from the world-classMeihuashan nature preserve. The area alongthe railway line will be planted with trees andvegetation to harmonize with the environment.MOR will comply with the Forestry Law of thePeople’s Republic of China as well as AsianDevelopment Bank’s forestry policy by plantingnew areas to compensate for trees cut down bythe GLR construction.

MOR and civilworkscontractors

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Appendix 14, page 1

SUMMARY OF THE RESETTLEMENT PLAN

A. Introduction

1. The 277 km Ganzhou-Longyan Railway (GLR) will traverse eight counties/district in twoprefectures (Ganzhou and Longyan) in southern Jiangxi and western Fujian.1 For theconstruction of the GLR, 1,017 hectares (ha) will be acquired for the right-of-way, yards,stations, and associated facilities. An additional 200 ha will be acquired for temporary useduring construction. Forty-three percent of the permanently acquired land and 12 percent of thetemporary land is agricultural land. About 460,000 square meters (m2) of buildings will beremoved for construction purposes. Most of the buildings to be demolished are farmers’ housesand outbuildings. Loss of land or housing, or both, will affect about 19,340 people in 4,300households. The number of affected people constitutes less than one half of 1 percent of thetotal population of 4.1 million in the counties and districts on the route of the GLR. The proposedalignment was selected from various alternatives to minimize acquisition of farmland as well asminimize involuntary resettlement in rural and urban areas. The design includes viaducts andbridges, overpasses, and underpasses to reduce the requirement of land for right-of-way andminimize disrupting effects on the local community. The alignment and stations locations werediscussed with local officials, representatives of villages and a selection of farmers. Theselected alignment is both socially responsible and economically efficient.

2. For the people affected by the Project, the Ministry of Railways (MOR), the ExecutingAgency, prepared a resettlement plan (RP) in accordance with the 1998 Land AdministrationLaw of the People's Republic of China (PRC). The RP was refined by the consultant under theproject preparatory technical assistance (TA)2 to address the concerns of the AsianDevelopment Bank (ADB) and incorporate the results of a socioeconomic sample survey carriedout under the TA. The RP meets ADB's requirements for involuntary resettlement. As requiredby ADB, copies of the RP, in Chinese, were provided on 10 March 2001, to the counties and therailway construction support offices (RCSOs)3 for information of the affected people. To ensurethat affected people are made aware of their rights regarding compensation, relocation, andprotection of their economic security, a resettlement information booklet was prepared by MORand distributed by local governments to the villages and townships along the GLR on 23 March2001.

B. Socioeconomic Analysis

3. As part of project preparation, a socioeconomic analysis was carried out with theparticipation of local officials, project beneficiaries, and people affected by the Project. Asocioeconomic sample household survey was carried out by the TA consultant in associationwith the Fourth Survey and Design Institute during June-December 2000. During this period theviews and concerns of the affected people were sought several times. Except Ganxian Countyand Xinlou District at the ends of the GLR, the remaining six intermediate counties are povertycounties. The incidence of rural poverty in the project area based on rural per capita income ofY1,000 per year was 21 percent. No indigenous people lived along the alignment. Less than 1.5percent of the people were nonindigenous members of minority nationalities who areeconomically and socially integrated and not disadvantaged compared with their Han (majority)

1 The eight counties/district are Ganxian, Huichang, Ruijin, and Yudu counties in Ganzhou City (prefecture level);

and Changting, Liancheng, and Shanghang counties and Xinlou District in Longyan City (prefecture level).2 TA 3486-PRC: Ganzhou-Longyan Railway Project, for $750,000, approved on 30 August 2000.3 The involved prefectures and counties have set up RCSOs to facilitate acquiring land, relocating buildings, and

other resettlement activities.

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Appendix 14, page 2

neighbors. The local people strongly support the Project. Ninety-six percent of householdssurveyed favored the Project. Local people, especially in the six intermediate counties that donot have railway transport service, see the GLR as the key to greater mobility, economicdevelopment, and prosperity.

C. Resettlement Plan

4. The primary objective of the RP is to restore the income and living standards of theaffected people within a short period after resettlement, with as little disruption as possible totheir economic and social environment. The RP has set out criteria for identifying projectaffected people, including those who might be affected by the acquisition of resettlement land,and access and link roads. Provision of compensation for land acquisition and resettlement isbased on the agreements between MOR and Jiangxi and Fujian provinces, which follow thePRC's Land Administration Law and provincial regulations. The RP includes an entitlementmatrix to compensate affected people based on the nature of losses and includes compensationfor loss of buildings, costs of relocation, acquiring replacement land, loss of crops and ofincome-producing trees, costs of relocating graves and tombs, and subsistence allowance dueto loss of income or wages during the transition. The RP provides for alternative employment,assistance for those desiring to begin or improve small business activities, and assistanceduring relocation.

5. Short- and long-term strategies envisaged in the RP will provide access to land andemployment so that the affected people can regain and improve their livelihoods in thepostresettlement period. The strategies will allow them to benefit from the Project by exploitingthe commercial and economic opportunities it induces. Should people experience particularhardship in restoring their livelihood, the monitoring teams and local government officials willprovide necessary assistance. In addition, several avenues for redressing grievances (throughlocal land administration bureaus, local governments, MOR, and law courts) are available underthe PRC law. Where necessary, the affected people will be assisted by increased resettlementsubsidy as specified in the 1998 PRC Land Administration Law. The RP will ensure that project-affected people receive assistance so that they are at least as well off as they would have beenin the absence of the Project.

D. Cost Estimates

6. The cost of land acquisition and resettlement, including contingencies, is estimated atY313.7 million ($38 million equivalent). The amount is included in the project cost estimates andwill be financed by MOR, including any cost overrun to meet the objectives of the RP.

E. Organization and Implementation

7. MOR will have lead responsibility for implementing the RP. The institutionalresponsibility for implementing land acquisition and resettlement will rest with the provinces,prefectures, and counties traversed by the GLR. MOR will pay compensation to thegovernments of the two provinces crossed by the GLR. The provinces will compensate therelevant local governments, which deal directly with the affected individuals and villagecollectives. The RCSOs are in charge of plans for land acquisition, and compensation,disbursing compensation received, and implementing resettlement. The county landadministration bureaus are in charge of acquiring land, surveying, recording the area involved,and categorizing land into quality levels. Periodic resettlers’ meetings will be held at the locallevel to discuss the RP, the implementation schedule, policies, and standards of compensation;

59

Appendix 14, page 3

and to receive feedback from the affected people. Local units of the All China Women’sFederation will participate in the process to ensure that the needs of women, particularly womenwho head a household, are understood and met at all stages of the process.

8. Building the 277 km GLR will be carried out under 19 contract sections. Construction ofdifferent contract sections will be started in early 2002 after the award of civil works contracts.The land acquisition and resettlement implementation timetable will match the civil worksconstruction. Land acquisition will be done before civil works construction is started, andsufficient time will be allowed for the removal and reconstruction of new housing. Detailedidentification and classification of land to be acquired will be started in April 2001, followed byquantifying of housing and attachments, public consultation and negotiation with the affectedpersons, and preparation of compensation and resettlement details. Disbursement ofcompensation and housing restoration will follow. Activities related to removal andreconstruction with anticipated completion times and primary institutional responsibilities aredetailed in the RP.

9. Local officials are experienced in resettlement and compensation. Most counties andboth prefectures have just completed resettlement related to the upgrading and reconstructionof national highways 323 and 319, which parallel much of the GLR. In addition, officials inLongyan Prefecture have experience with resettlement for the ADB-funded hydroelectricproject,4 as well as for the Longyan-Meizhou Railway. Ganzhou Prefecture officials haveresettlement experience with the Jingjiu Railway.5 Local officials are familiar with the LandAdministration Law, and provincial regulations and are committed to realizing its principles.Because of the detailed planning done and consultation with affected persons, no significantproblems are envisaged in acquiring land and resettling the affected persons.

F. Monitoring

10. MOR will report the progress on land acquisition and resettlement to ADB through thequarterly progress reports on project implementation. MOR will engage a suitable domesticconsultant to independently monitor the implementation of the RP, conduct annual surveyupdates6 during resettlement implementation, report on completion of the resettlement, andevaluate the resettlement process two years after completion of resettlement. MOR will providethese reports to ADB. MOR has given assurance that the resettlement will be completedsatisfactorily as per the RP and in accordance with the land administration laws and ADB'sresettlement requirements.

4 Loan 1417-PRC: Fujian Mianhuatan Hydropower Project, for $170 million, approved on 14 December 1995.5 Loan 1305-PRC: Jingjiu Railway Technical Enhancement Project, for $200 million, approved on 14 July 1994

(completed).6 The household and village samples surveyed during 2000 for the RP will be treated as a tracking sample and

resurveyed periodically during the construction period, as well as two years after the end of construction.

60

PUBLIC CONSULTATIONS FOR THE PROJECT

Year Agency Participant Topic of Discussion and Response1998/1999 FSDI Ganzhou: City local government (LG)

officialsAlignment of the Ganzhou-Longyan Railway (GLR) route, and impacts on futuredevelopment of county and township areas. Based on the inputs received,changes were made in the alignment to minimize involuntary resettlement inurban areas. Cultivated land was minimized.

FSDI Ganzhou: Land Administration Bureau(LAB)

Land acquisition and resettlement experience in the implementation of previousprojects.

FSDI Ganzhou: Environmental Protection Bureau(EPB)

Experience and capacity to undertake environmental monitoring.

FSDI Jiankou Township: Resident's committeeand farmers

Information about the project; impacts on farmland and houses of villageresidents, and resettlement.

FSDI Liantang: Hamlet in Xiaomi Villagerepresentatives and villagers

Project's effects on farmland and village properties and alternatives.

1998/1999 FSDI Jiuxing, Nanchang, and Xibei Villages inRuijin County:Farmers and entrepreneurs

Discussing alternatives and best solution with least effect on farmlandand properties.

FSDI County local governments in Longyan City Best alignment to serve the needs of remote communities; minimizing effects onfarmland and village properties, implementation of land acquisition andresettlement, and cooperation with local governments.

FSDI Longyan City: EPB officials Environmental protection and monitoring measures; EIAs prepared in the pastand status of monitoring; capacity of EPB.

FSDI Longyan City: Poverty officials Integrating poverty reduction work with project implementation, including supplyof labor and local materials.

FSDI Wenfang Village, Zhanjiayung Village, andPengkon village: representatives andfarmers

Seeking public participation, minimizing effects on local residents, andmaximizing benefits.

10/2000 TAConsultantsand FSDI

Ganzhou City: local government officialsfrom RCSO, EPB, LAB, and PRO.Yudu County: officials and selection ofaffected persons

Alignment and station locations; minimizing involuntary resettlement, integratingenvironmental protection with design and implementation of the Project;measures for poverty reduction by generating employment and incomeopportunities.

EIA=environmental impact assessment, EPB=environmental protection bureau, FSDI=Fourth Survey and Design Institute, LAB=land administration bureau,PRO=poverty reduction office, RCSO=railway construction support office, TA=technical assistance.

61A

ppendix 15, page 1

Year Agency Participant Topic of Discussion and Response

10/2000 TAConsultants

Ganzhou: All China Women's Federation(ACWF)

Impacts on women; measures to involve women during implementation;employment and income opportunities for women.

Yudu County: ACWF Measures for involving women in the development through the Project.

11/2000 TAConsultantsand FSDI

Mengjiang Township, Yonghong village,Jintan village, Wanking village, Tuxia village:Representatives and farmers

Discussed effects on local people, location of station, and best ways to involvevillages in project work.

TAConsultants

Longyan City: Local government officials ofall concerned departments

GLR route and station location; economic development expected.

3/2001 ADB Mission Ganzhou City and counties: localgovernment officials

Involvement of public during project implementation to maximize povertyreduction; environmental protection and monitoring during civil worksconstruction and operation; socioeconomic programs implementation togetherwith the Project; and construction of link roads to widen the area of the Project'sinfluence.

3/2001 ADB Mission Longyan City and counties: localgovernment officials

Involvement of public during project implementation to maximize povertyreduction; environmental protection and monitoring during civil worksconstruction and operation; socioeconomic programs implementation togetherwith the Project; and construction of link roads to widen the area of the Project'sinfluence.

3/2001 ADB Mission Jiankou, Xiashan, Liangkou, and Pengkouvillages: Village representatives and farmers

Existing socioeconomic conditions in villages; information about the Project andawareness; Project's effects on villagers; participation of villagers duringconstruction; and expectations from the Project. The response of all villagers,including households headed by women was very positive.

ADB=Asian Development Bank, GLR=Ganzhou-Longyan Railway,TA=Technical Assistance.Note: For exhaustive information on public consultation, reference may be made to the feasibility study, the environmental impact assessment, the summary environmentalimpact assessment, and the final report under TA 3486-PRC: Ganzhou-Longyan Railway Project.Source: Final report under TA 3486.

62A

ppendix 15, page 2

POVERTY REDUCTION PROGRAMSFunding Source (Y10,000)

County Items and DescriptionConstruction Period (Year)

TotalInvestment(Y million) Government Province Prefecture

CommercialBank County Socioeconomic Impact Status

All Counties Develop rice seeds in200,000 hectares (ha) of modelfarms

5 2.0 75 50 25 25 25 Increased production andincome by Y93.6 million

Feasibilitycompleted

Shanghang Develop improved bambooshoots in 20,000 ha and buildproduction line

1 1.0 10 50 10 10 20 Improved industry structurein mountainous areaAnnual profit/ tax Y3 million

Feasibilitycompleted

Shanghang Develop agricultural productsmarket including packagingfacility, cold storage

1 4.0 40 200 40 40 80 Improved marketing of localproducts. Annual profit Y2.3million

Proposalprepared

Xinluo District Develop agricultural byproductsmarket including cold storage

3 5.8 58.3 291.4 58.3 58.3 116.5 Improved marketing of localproducts. Annual profit Y11million

Proposalprepared

Xinluo District Seed development center 3 2.0 100 50 50 0 0 Increased production andfarmers' income

Proposalprepared

GutianTownship

Develop mushrooms (2.7 millionbags per year)

1 5.6 56 280 56 56 112 Increased production andfarmers’ income. Annualprofit Y2 million

Proposalprepared

GutianTownship

Model base for growing offseason vegetables (200 ha)

1 1.3 13 63 13 13 26 Produce 4,000 tons of off-season vegetables. OutputY10 million, and increaserural income by Y7 million

Proposalprepared

Liancheng Develop orange base (330 ha) 3 15.0 150 750 150 150 300 Annual profit Y42.7 million Feasibilitycompleted

Liancheng Develop sweet potato andprocessing

5 2.0 20 10 10 80 80 Increased farmers’ income Inprogress

Juxi Township Develop orange varieties (67ha)

3 4.4 88 22 22 100 208 Annual profit is Y3 millionIncreased rural income

Proposalprepared

Xinluo,Changting

Develop new rice seeds 4 4.0 0 100 250 0 50 Increase in production andfarmers’ income

Proposalprepared

Liancheng Develop model peach farms (67ha)

3 1.2 0 50 0 50 20 Increased farmers’ incomeProfit Y1.2 million

Inprogress

Changting Develop lotus root and itsprocessing

2 2.2 0 100 0 100 20 Increased farmers' income Inprogress

Shanghang Develop 33 ha red persimmonbase

3 0.9 0 40 0 10 40 Increased farmers’ incomeAnnual profit Y600,000

Inprogress

Source: Ganzhou City and Longyan City local governments.

63A

ppendix 16

FINANCIAL, ECONOMIC, AND DISTRIBUTION ANALYSES

1. General. The financial, economic, and distribution analyses for the Ganzhou-LongyanRailway (GLR) Project was conducted for 5 years of the construction period from 2002 to 2006and 20 years of operation from 2007 to 2026, in 2001 constant prices.1

2. Financial Evaluation. The financial internal rate of return was calculated based on thecapital costs for the Project covered by the cost estimates and rolling stock, the revenue streamfrom the assumed traffic and tariff, the recurring costs, and the taxes paid (Tables A17.1 andA17.2). The capital costs include physical contingency and construction of additional stationsscheduled in 2011 and 2016, but excludes the financial charges during construction andchanges in working capital.

3. To achieve full cost recovery nominal freight tariff is assumed at Y0.2143 per ton-kilometer (km) (providing unit freight revenue of Y0.205 per ton-km), including railwayconstruction fund (RCF) surcharge of Y0.033 per ton-km (providing RCF surcharge revenue ofY0.032 per ton-km). The passenger unit revenue is assumed at Y0.1133 per passenger-kmreflecting a real increase of 5 percent per year up to 2006 and 1.5 percent thereafter.2 Theweighted average cost of capital was calculated at 3.4 percent based on the after-tax realinterest rate of each debt,3 including 0.18 percent of the annualized front-end fee for the AsianDevelopment Bank loan and the opportunity cost for the RCF.

4. Economic Evaluation. The economic internal rate of return was calculated based on acomparison of with- and without-project scenarios (Tables A17.2 and A17.3). The economiccosts and benefits were presented in the domestic numeraire. The economic costs include therailway construction and operating costs and those for the station access roads and the linkroads. Each cost component, divided into tradable and nontradable, was calculated fromfinancial prices by using the corresponding conversion factor and a shadow exchange ratefactor of 1.08 applicable for tradable goods. The opportunity cost was estimated at 0.75 and 1.0of the wages for unskilled and skilled labor. Land opportunity cost, which is represented as theeconomic value of land, was computed annually taking into account the productivity increases ofcultivated land by different types of land use.

5. The transport economic benefits consist of (i) operating cost saving in diverted freightand passenger traffic from existing railway routes and roads; the difference of net economicoperating cost per ton-km between the GLR and the roads was Y0.245 per ton-km and Y0.0752per passenger-km in the base case; (ii) operating cost saving in generated passengers in localand interline traffic calculated by the estimated passenger-km multiplied by one half of thesavings of the economic operating cost between the railway and the buses; (iii) time saving indiverted passenger traffic from the existing railway and buses operating at 35 km per hour onaverage, based on the value of time per passenger-km estimated from the average net incomeof rural people in each province; and (iv) the net economic value in the project area calculated 1 As project physical completion is scheduled in mid-2006, followed by a half-year of trial operation. Revenue from

the half-year trial operation was excluded, but the half-year expenses were reflected as the cost for preparation ofcommercial operation.

2 Considering the socioeconomic situation and affordability by poor people the passenger tariff for a hard seat isassumed to remain constant. For 2006, the unit passenger revenue is estimated to be higher than the hard seattariff by 93.4 percent, ranging from 86 percent for local traffic and 112 percent for transit traffic.

3 The interest rate for the ADB loan is assumed at 6.9 percent, which is an interpolated 25-year fixed rate interestbased on the current swap market. The China Development Bank loan will carry an interest rate of 5.9 percent perannum. The opportunity cost of the RCF is taken at 8 percent assuming the 25-year swap-based fixed rate plusrisk premium to be offered to the PRC Government in the current market.

Appendix 17, page 164

based on the economic value per additional ton of each commodity of generated traffic as aresult of the construction of the GLR. The production of commodities was estimated from astudy of the envisaged expansion and setting up of new industries in each county. Time savingin diverted freight traffic from the railway was negative as the GLR causes an additional lengthof haul to the national network for 2007 onward, although it is insignificant. Similarly, duringinitial years of project operation time dissaving occurs in the diversion from the roads due to thedifference of average speed between trucks (50 km per hour) and the GLR (40 km per hour)4

based on the assumed same length of haul for both transportation means.

6. Without the GLR, the national highways 323 and 3195 will be considerably burdened. Asmost trucks are heavily loaded, the road degradation is fast and significant. The costs of roadimprovements necessary to accommodate the assumed growth of traffic6 was included asavoided maintenance costs for roads. Ganzhou and Longyan local governments will upgrade570 km of existing link and county roads to facilitate the access to the GLR stations.7 Thebenefits derived from vehicle operating cost saving are 25 percent of the economic operatingcost due to the improved road conditions multiplied by generated freight traffic discounted at theassigned rate for Longyan’s link roads. Due to the number of overloaded trucks andmountainous topography, the existing roads are prone to accidents. Avoided accident costs intraffic diverted from roads were calculated only for fatal accidents, which were assumed to havean incidence of 1.2 fatal accidents per million vehicle-km.

7. Economic development in the GLR station areas was quantified through the neteconomic value based on the estimated earnings per square meter along the station accessroads.8 Approximately 30 percent was ascribed to the GLR. Incremental tourists are consideredas another source of economic benefits for the project area. Each tourist is assumed to spendabout Y500 per day in the project area. The incremental tourism income was multiplied by 19.3percent representing operating surplus and taxes in the sector and further by 7 percent as ashare of the GLR. The environmental benefits from saving of emission of nitrogen oxides thatwould have been caused by the transportation by truck were not included.

8. Distribution Analysis. The distribution of project benefits was analyzed to determinethe extent to which the Project benefits poor people (Tables A17.4 and A17.5). The distributionanalysis brings out the differences between the financial and economic values arising from theProject, which have been reflected as distributional impacts to various beneficiaries. The netfinancial return to MOR, and the difference between net economic benefits and net financialbenefits was disaggregated for poor people in the project area, and the Project’s poverty impactratio was evaluated.

4 The calculated time dissaving for freight is multiplied by the economic value of each commodity and the opportunity

cost ranging from 2.5 to 8.5 percent per annum.5 The national highways are located within a few kilometers of the GLR.6 Without the GLR, freight traffic to be carried on roads in the eight on-route counties/district is estimated at 12.2

million tons for 2006, 16.3 million tons for 2011, and 21.8 million tons for 2016.7 Unit cost per km for upgrading the local roads is estimated at $0.25 million and 10 percent of the cost is assignable

to the GLR. As the Ganzhou local government has already improved 70 percent of the link roads to all-weathertype, no benefits were counted for the link roads in Ganzhou.

8 Local governments collect annual lease charges ranging between Y0.45 to Y0.75 per square meter.

65Appendix 17, page 2

Appendix 17, page 3

Table A17.1: Financial Internal Rate of Return(Y million)

Capital Operating and Freight Passenger Other Taxes Net CashYear Costs Other Costs Revenue Revenue Revenue Paid Flow2002 1,096.7 0.0 0.0 0.0 0.0 0.0 (1,096.7)2003 948.8 0.0 0.0 0.0 0.0 0.0 (948.8)2004 1,576.7 0.0 0.0 0.0 0.0 0.0 (1,576.7)2005 1,920.9 0.0 0.0 0.0 0.0 0.0 (1,920.9)2006 296.5 0.0 0.0 0.0 0.0 0.0 (296.5)2007 0.0 159.9 405.7 42.8 99.5 15.7 372.52008 0.0 173.3 427.9 53.0 106.0 16.8 396.82009 0.0 181.8 451.4 63.4 112.9 18.0 427.82010 0.0 190.5 476.3 74.0 120.1 19.3 460.62011 112.9 200.4 502.8 86.4 127.9 20.7 383.12012 0.0 208.6 529.4 96.4 135.6 22.0 530.82013 0.0 218.3 558.8 107.7 143.9 23.4 568.72014 0.0 228.7 590.2 120.2 152.7 57.4 577.02015 0.0 237.8 623.5 130.3 161.8 109.3 568.52016 331.8 248.0 658.9 141.0 171.5 125.1 266.42017 324.9 258.8 704.5 152.8 181.5 142.3 312.82018 162.4 270.5 745.3 165.7 192.6 163.1 507.52019 0.0 282.7 787.8 179.6 204.3 186.8 702.32020 11.7 295.8 833.4 194.7 216.8 208.9 728.52021 66.4 309.8 882.0 211.1 230.2 231.4 715.62022 0.0 318.2 933.6 214.8 243.2 253.7 819.62023 0.0 327.7 988.7 218.5 257.1 277.3 859.32024 0.0 338.8 1,048.3 222.4 271.9 302.3 901.62025 0.0 350.2 1,110.7 226.3 287.7 328.5 945.92026 (2,356.1) 362.4 1,176.7 230.2 304.4 381.0 3,324.1

WACC = 3.4% FIRR = 6.4%

FIRR=financial internal rate of return, WACC=weighted average cost of capital

Table A17.2: Sensitivity Analysis

Scenario EIRR NPVSwitching

Value FIRR ROE PIRBase Case 14.40% 1,112.5 — 6.43% 7.3% 26.0%Decrease of freight 14.33% 1,081.7 366.9% 6.02% 6.7% 27.0% tons diverted from rail by 10% (a)Decrease of freight 14.36% 1,095.9 668.6% 6.40% 7.3% 26.2% tons diverted from road by 10% (b)Decrease of commodities of generated traffic in

13.55% 697.7 26.8%(each

6.24% 7.0% 33.2%

tons by 10% (c) commodity)Decrease of number of 14.39% 1,107.8 2,225.0% 6.36% 7.2% 26.2% passengers by 10% (d)Increase of working 14.22% 1,024.5 126.5% 6.21% 7.0% 25.5% expenses by 10% (e)Delay in completion for 14.26% 903.3 — 5.89% 5.4% 27.5% one year (f)Devaluation of Yuan — — — 5.77% 6.2% 39.4% against $ by 30%Combined Downside = 13.11% 426.4 — 4.94% 3.6% 42.2% (a) + (b) + (c) + (d) + (e) + (f)—=not applicable, EIRR=economic internal rate of return, FIRR=financial internal rate of return, PIR=poverty impactratio, ROE=return on Ministry of Railway's equity investment, WACC=weighted average cost of capital, NPV=net presentvalue.Source: Staff estimates.

66

Year2002 932.4 0.0 0.0 0.0 5.7 0.0 0.0 0.0 0.0 0.0 (938.1)2003 894.8 10.5 0.0 0.0 5.7 0.0 0.0 0.0 0.0 0.0 (911.1)2004 1,479.8 50.6 0.0 0.0 5.8 0.0 0.0 0.0 0.0 0.0 (1,536.1)2005 1,796.0 107.7 0.0 0.0 5.8 0.0 0.0 0.0 0.0 0.0 (1,909.5)2006 265.4 31.5 0.0 0.0 5.8 0.0 0.0 0.0 0.0 0.0 (302.8)2007 0.0 0.0 150.0 12.4 5.9 649.1 24.9 84.9 42.8 22.8 680.32008 0.0 0.0 162.7 12.4 5.9 702.2 30.4 84.9 45.5 25.3 732.62009 0.0 0.0 170.6 12.4 5.9 759.9 35.8 84.9 55.9 27.8 802.02010 0.0 0.0 178.7 12.4 6.0 822.6 41.2 84.9 160.2 30.3 970.42011 107.1 0.0 188.0 12.4 6.0 890.8 47.2 84.9 78.7 32.8 850.72012 0.0 0.0 195.6 12.4 6.1 959.5 51.9 84.9 58.8 35.3 1,008.02013 0.0 0.0 204.7 12.4 6.1 1,038.2 56.9 84.9 148.4 37.8 1,176.82014 0.0 0.0 214.4 12.4 6.1 1,123.8 62.6 84.9 74.3 40.3 1,189.02015 0.0 0.0 222.8 12.4 6.2 1,216.7 66.6 84.9 83.5 42.8 1,291.52016 306.9 0.0 232.3 12.4 6.2 1,317.7 71.1 84.9 51.8 44.1 1,052.72017 292.4 0.0 242.3 86.9 6.3 1,449.6 75.7 84.9 87.9 45.4 1,159.42018 146.2 0.0 253.1 12.4 6.3 1,570.9 80.8 84.9 100.9 46.8 1,513.02019 0.0 0.0 264.4 12.4 6.3 1,702.5 86.1 84.9 207.9 48.2 1,896.32020 9.8 0.0 276.6 12.4 6.4 1,845.7 91.9 84.9 117.0 49.6 1,937.32021 55.3 0.0 289.6 12.4 6.4 2,001.4 97.9 84.9 194.8 51.1 2,123.22022 0.0 0.0 297.2 12.4 6.5 2,170.6 98.1 84.9 205.4 52.7 2,356.42023 0.0 0.0 305.8 12.4 6.5 2,354.6 98.1 84.9 89.5 54.2 2,421.62024 0.0 0.0 315.8 12.4 6.5 2,554.7 98.3 84.9 100.3 55.9 2,628.92025 0.0 0.0 326.2 12.4 6.6 2,772.3 98.3 84.9 104.1 57.5 2,846.32026 (2,211.5) 0.0 337.3 12.4 6.6 3,008.9 98.5 84.9 75.3 59.3 5,261.7

EIRR=economic internal rate of return, NPV=net present value.Source: Staff estimates.

0.0

Projectand

RollingStock

Access/LinkRoads

0.00.0

79.7

65.060.8

74.569.6

NPV = 1,112.5 EIRR = 14.4%

56.953.2

38.436.0

43.741.0

49.846.7

30.028.3

33.831.7

0.0

23.90.0

26.725.2

Operatingand Other

Costs

MaintenanceCosts for

Access/LinkRoads

RailwayLand

OpportunityCost Freight Passenger

BenefitsfromLink

Roads

Benefitsfrom Station

AccessRoads

Table A17.3: Economic Internal Rate of Return(Y million)

TourismBenefit

NetBenefit

AvoidedRoad

MaintenanceCosts

67A

ppendix 17, page 4

Financial EconomicNPV Conversion NPV Difference Local Central Local Local Pro ject

Benefits/Costs (at 12%) Factor (at 12%) (Econ-Fin) MOR Government Government Labor Econom y Users LendersBenefits:

Freight Revenue 2,836.8 0.0 0.0 (2,836.8) 2,836.8 0.0 0.0 0.0 0.0 (2,836.8) 0.0Passenger Revenue 757.6 0.0 0.0 (757.6) 757.6 0.0 0.0 0.0 0.0 (757.6) 0.0Benefit from Diverted 0.0 — 737.0 737.0 0.0 0.0 0.0 0.0 0.0 737.0 0.0

Freight Traffic Benefit from Passenger 0.0 — 234.2 234.2 0.0 0.0 0.0 0.0 0.0 234.2 0.0

Traffic Net Economic Value in 0.0 — 4,141.5 4,141.5 0.0 0.0 0.0 0.0 0.0 4,141.5 0.0 Generated Freight

TrafficAvoided Maintenance 0.0 — 381.5 381.5 0.0 0.0 0.0 0.0 381.5 0.0 0.0

Cost for Roads Benefit from Station 359.9 1.0 359.9 0.0 0.0 359.9 0.0 0.0 0.0 0.0 0.0 Access Roads

Benefit from Link Roads 0.0 — 114.8 114.8 0.0 0.0 0.0 0.0 114.8 0.0 0.0Tourism Benefit 0.0 — 154.0 157.8 0.0 0.0 0.0 0.0 154.0 0.0 0.0

Total Benefits 3,954.2 — 6,122.8 2,168.5 3,594.3 359.9 0.0 0.0 650.2 1,518.3 0.0

Costs: Resource Costs 4,185.7 0.9427 3,945.9 (239.8) 4,036.4 149.3 (36.4) (70.3) (133.1) 0.0 0.0

Net Financing Flow (954.5) 0.0 0.0 954.5 (954.5) 0.0 0.0 0.0 0.0 0.0 954.5Operating Costs 939.2 0.9367 879.7 (59.4) 939.2 0.0 0.0 (25.4) (34.1) 0.0 0.0

(the Project Railway)Station Access Road 3.2 0.8405 2.7 (0.5) 0.0 3.2 0.0 (0.4) (0.1) 0.0 0.0 Maintenance CostsLink Road Maintenance 74.5 0.8330 62.1 (12.4) 0.0 74.5 0.0 (11.1) (1.4) 0.0 0.0

CostsLand Acquisition and 264.9 0.7376 195.4 (69.5) 254.3 10.6 0.0 0.0 0.0 (69.5) 0.0

Resettlement Compensation

Net Taxes 352.1 0.0 0.0 (352.1) 352.1 0.0 (352.1) 0.0 0.0 0.0 0.0 Total Costs 4,865.1 — 5,085.7 220.6 4,627.5 237.6 (388.6) (107.2) (168.6) (69.5) 954.5

Net Benefits from (910.9) — 1,037.0 1,947.9 (1,033.1) 122.2 388.6 107.2 818.8 1,587.9 (954.5) the ProjectGain (Loss) — — — 1,947.9 (1,033.1) 122.2 388.6 107.2 818.8 1,587.9 (954.5)

Source: Staff estimates. .

Table A17.4: Distribution of Net Economic Benefits (Y million)

—=not applicable, MOR=Ministry of Railways, NPV=net present value.

68A

ppendix 17, page 5

Local Central Local Local Pro jectBeneficiaries / Pro ject Stakeholders MOR Government Government Labor Econom y Users Lenders TotalNet Economic Benefits 0.0 0.0 388.6 107.2 818.8 1,587.9 (954.5) 1,947.9

Financial Net Benefits to the Project Stakeholders (1,033.1) 122.2 0.0 0.0 0.0 0.0 0.0 (910.9)

Net Project Benefits (1,033.1) 122.2 388.6 107.2 818.8 1,587.9 (954.5) 1,037.0

Proportion of Poor 12.0% 21.0% 12.0% 50.0% 16.5% 15.6% 12.0%

Benefits to Poor (124.0) 25.2 46.6 53.6 134.9 248.2 (114.5) 270.0

Source: Staff estimates.

Table A17.5: Povert y Impact Ratio

PIR = 26.0%

Note: The value of the PIR is based on the percentages assumed for distribution of net benefits to the poor, which is based on the assumed poverty incidence relevant to the beneficiary category and the measures built in to the design of the Project such that the benefits may be passed on to poor people. Benefits to the poor are

(Y million)

MOR=Ministry of Railways, PIR=poverty impact ratio .

disaggregated in the following proportions: (i) for MOR, the Government, and the lenders = the national incidence of poverty based on rural per capita income of Y1,000 per year (12 percent); (ii) for local government = the incidence of poverty based on rural per capita income of Y1,000 per year in the project area (21 percent);

20 percent, same as for item (iii); the national incidence of poverty (12.0 percent) is used for diverted traffic beneficiaries; the incidence of generated poverty in

(iii) for local economy = same as (ii) except that it was reduced by 20 percent considering that benefits may not reach some poor people in remote areas (16.5 percent); (iv) for project users = the weighted average of the incidence of poverty for different types of traffic (freight and passenger, diverted) and reduced

the project area (21 percent) was applied to freight beneficiaries, reduced by 20 percent (15.6 percent); and (v) for local labor, the special measures under the Project require that 50 percent of the unskilled labor for construction will be sourced from the poor households (50 percent). The difference between the

the GLR to quantitatively reflect the measures under the Project for employment opportunities to unskilled labor. financial wages and its economic value was allocated to local labor after the validation of data against the estimated wages during construction and operation of

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Appendix 18, page 1

POVERTY IMPACT ANALYSIS

A. Introduction

1. The Government has prioritized the 277 kilometer (km) Ganzhou-Longyan Railway(GLR) Project as a poverty reduction project in the Tenth Five-Year Plan (2001-2005). The GLRtraverses eight counties/district,1 situated in a mountainous area that is less developed andpoor. The Ministry of Railways (MOR) will be the Executing Agency, and the Nanchang andShanghai railway administrations will construct the GLR and operate it in their jurisdiction. TheGLR will facilitate sustainable economic development by (i) providing the necessaryinfrastructure, (ii) improving access to wider markets, and (iii) encouraging labor mobility. Cashcrops, agricultural processing, tourism industry, as well as service-oriented activities in theregion will particularly benefit from the GLR. Incremental economic activities derived from therailway will increase fiscal revenue to the local governments. This will expand local governmentresources to improve basic education, basic health, and other social programs for the poor,which account for more than 50 percent of their fiscal expenditures.

B. Poverty Reduction

2. The achievements of the People’s Republic of China (PRC) with reducing poverty havebeen exemplary with one of the best success records in the world over the last two decades.The number of rural poor (with income less than Y635 per capita per year) decreased from 260million in 1978 to about 80 million in 1994. Since the beginning of the Government's Eight-Seven Poverty Reduction Program in 1994,2 poverty has been significantly reduced from 80million people in 1994 to an estimated 30 million poor in 2001.

3. The PRC’s general success in poverty reduction efforts can be explained by the widevariety of programs and funding channels involved in the effort. Poverty reduction ismainstreamed among most central and local ministries, and an obligation for private sectorinvestment and institutional partnerships. The national poverty reduction effort is coordinated bythe Leading Group for Poverty Reduction of the State Council. Government agencies are guidedby three overarching objectives: (i) improving the subsistence standards of the poor (e.g.,income, land, employment opportunities, and other income-generating opportunities); (ii)improving rural infrastructure for the poor; and (iii) providing essential social services. A majorreason of the success in poverty reduction stems from this equity approach. The strongcommitment of the Government to poverty reduction, increased annual budgetary allocations topoverty programs, and institutional accountability are other factors critical to the PRC's successin reducing poverty.

4. The Government is pursuing the poverty reduction objectives through the Tenth Five-Year Plan (2001-2005) and the Ten-Year Poverty Reduction Strategy approved in 2001.

C. Poverty Impact Analysis

5. General Approach . The detailed poverty impact analysis carried out for the Project wasbuilt on the experience with previous projects with particular reference to the policies and

1 The eight counties/district are Ganxian, Yudu, Huichang, and Ruijin counties in Ganzhou City (prefecture level; and

Changting, Liancheng, and Shanghang counties and Xinlou District in Longyan City (prefecture level).2 This program recognized 592 national-level poverty counties nationwide to which the poverty reduction efforts and

funds were directed.

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programs that facilitate employment and income generation for the poor. The analysis wasbased on the exclusive work done under the project preparatory technical assistance (TA), 3

including the results of a sample household survey, and discussions by ADB missions with localgovernments. Qualitative and quantitative assessments were made of the impact of the Projecton the poor. Links were established between the project intervention and associated programsfor poverty reduction. The qualitative assessment is supported by the quantitative analysis,which follows the relevant guidelines for social, financial, and economic analyses, with particularattention to distributional effects of the project benefits. The financial and economic analyseshave been brought together through the distribution analysis, and the net economic benefits ofdifferent stakeholders were assessed. Poverty outcomes have been considered in the projectdesign and specific measures have been incorporated to ensure that the envisaged benefits willbe passed on to the poor.

6. Poverty Situation. The area traversed by the GLR in western Fujian and southernJiangxi has poor accessibility and is less developed; the people are poor. Except for GanxianCounty and Xinlou District at the ends of the GLR, the remaining six intermediate counties arenational-level poverty counties with the exception of Ruijin, which is a provincial-level povertycounty. Official statistics of the eight involved counties/district give the incidence of rural povertybased on per capita rural income of Y1,000 per year at 21 percent compared with 12 percentnationwide. Since the Project is beneficiary nonspecific, therefore in accordance with the criteriaset out in ADB's loan classification system the Project has poverty classification of other.4 TheProject supports the thematic priority of economic growth.

7. Results of Sample Household Survey . The sample household survey (of 1,000households) done under the TA, showed a high incidence of rural poverty along the GLR. Thesurvey shows that having a wage-earning member in the household is important to raisehousehold income. The importance of providing employment for the underemployed andunemployed to raise the poor from poverty is underscored.

Table A18.1: Income of Households With/Without Wage Earner

Percent ofHouseholds

Percent of Householdswith Wage Earner

Net Rural IncomePer Capita Per Year Ganzhou Longyan All Ganzhou Longyan AllLess than Y635 18.5 11.6 15.6 25.0 9.1 20.4Y636-Y1120 46.2 28.0 38.6 29.3 19.8 26.4Y1,121-Y1,600 28.4 16.9 23.6 24.1 22.9 23.7Y1,601-Y2,500 5.0 21.2 11.7 48.3 30.7 26.8

Source: Socioeconomic household survey.

8. Details of household income by source of income are provided in Table A18.2. Poorhouseholds rely more on agriculture as an income source than do households with higherincomes. Nearly 65 percent of the income of rural households with a net income of less thanY635 per capita per year was from agriculture (crops and livestock), compared with only 43percent for households with incomes of Y1,601-Y2,500.

3 TA 3486-PRC: Ganzhou-Longyan Railway Project, for $750,000, approved on 30 August 2000. The TA consultants

and ADB missions held consultations with prefecture and county governments, including officials from the povertyreduction offices, representatives and village leaders, and a selection of farmers. Home visits were made to poorfamilies and households headed by women to assess the actual poverty situation, the reasons for poverty, and theiropinions about the Project. The sample household survey under the TA covered 1,000 households.

4 Asian Development Bank. 2000. Staff Instruction on Loan Classification System, Manila.

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Table A18.2: Net Rural Income Per Capita by Source of IncomeNet Rural Income Per Capita Crops Livestock/Poultry Small Business WagesLess than Y635 44.7 20.0 18.1 17.2Y636-Y1120 40.3 18.1 20.1 21.6Y1121-Y1600 35.8 19.3 26.6 18.2Y1601-Y2500 28.2 14.9 29.0 27.9Source: Socioeconomic household survey.

9. Table A18.3 shows the percent of the labor force with little or no education by prefecture.Lack of education is correlated with lower income levels.

Table A18.3: Net Rural Income Per Capita Versus Education LevelLongyan (Percent) Ganzhou (Percent)

Net Rural Income Per Capita Per Year No School Primary No School PrimaryLess than Y635 8.8 51.0 9.2 46.3Y636-Y1,120 3.9 54.6 4.4 31.7Y1,121-Y1,600 9.7 42.6 0.7 34.0Y1,601-Y2,500 3.0 50.9 3.8 24.1

Source: Socioeconomic household survey.

10. A measure of consumption poverty is house size. For the six intermediate povertycounties, the average house size was 28.9 square meters per person. The house poor werecharacterized as those households with 65 percent or less of the square meters per person ofthe average house size (28.9 square meters per person). The socioeconomic characteristics ofhouse poor and other households are given in Table A18.4. The house poor have largerfamilies, less cultivated land per capita, and less income per capita.

Table A18.4: Socioeconomic Indicators of the House Poor

Indicator House Poor Other HouseholdsHouse Poor as Percent

of OthersMean Family Size 4.5 4.2 107.7Mean Per Capita Cultivated Land (km2) 0.46 0.54 85.2Disabled Household Members /1000 1.2 0.4 300Median Per Capita Net Rural Income (y) 800 1,163 68.8Mean Per Capita Net Rural Income (y) 910 1,606 56.7Percent of Ganzhou Households 28 72 —Percent of Longyan Households 26 74 —

—=not applicable. Source: Socioeconomic household survey.

11. A comparison of the standard of living in terms of possession of consumer durablegoods by households is given in Table A18.5. Twenty-four of the 100 households (or 24 percent)in the sample survey were headed by women. All were poor. The average household was 3.4persons. This indicates a vulnerable category.

Table A18.5: Consumable Goods Owned Per 100 HouseholdsVersus Net Rural Income Per Capita

Item Less than Y635 Y636-Y1,120 Y1,120-Y1,600 House Poor All HouseholdsMotorcycle 9.6 15.8 20.3 11.9 24.0Color TV 14.1 21.8 30.1 14.8 33.6Black & White TV 41.7 54.4 50.0 44.4 50.3Refrigerator 1.9 1.6 3.4 1.9 4.3Washing Machine 0.0 2.1 3.4 2.2 5.1Telephone 7.7 13.5 21.2 10.0 25.5Sewing Machine 19.9 32.9 30.9 25.2 37.0Source: Socioeconomic household survey.

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D. Poverty Reduction Effects of the GLR

12. The project area is rich in natural resources. The Project will provide economic railwaypassenger and freight services to some counties and townships for the first time, therebycreating the opportunities for the economic and social development to significantly reducepoverty. The Project will facilitate the development of natural resources and industries, therebycreating employment. Substantial opportunities for employment will be passed on to theunskilled workers in the area, and support the efforts of local governments to provide anenvironment in which new opportunities are created for the poor to raise themselves above thepoverty line.

13. The Project will reduce poverty by (i) providing employment opportunities during theconstruction and operation of the GLR, (ii) providing employment opportunities in poor villagesfrom which suitable local materials will be supplied and transported, (iii) supporting the chain ofsocial and economic improvements brought by the poverty reduction strategy, and (iv) fosteringtourism by facilitating cheap and convenient travel from other parts of the PRC. Theemployment created by the GLR will be (i) direct—to support the tasks and functions related toGLR construction and operation, and (ii) indirect—created by suppliers of goods and services tothe railway, and employment created throughout the economy by the multiplier effects of directbenefits. The estimates of employment are based on the study under the TA as well as acomprehensive input-output analysis of the PRC economy.

14. Employment During Construction. For civil works construction, the contractors willhire at least 50 percent of their unskilled workers from the list of poor households maintained bythe villages and poverty reduction offices.5 The benefit will be distributed to poor households inremote villages because contractors will be required to engage 30 percent of the totalrequirement of unskilled workers from remote villages. Construction of the GLR will create atotal of 76,000 person-years of unskilled employment, 38,000 of which will go to poorhouseholds. An additional benefit of this type of employment is the on-the-job training thatcomes with it. Each worker will be able to seek other construction work with experience andskills learned on the GLR. The county poverty reduction offices will tailor some of their programsto ensure follow-up of households that gain additional income to ensure sustained gains fromemployment.

15. Construction of the GLR requires a large investment in materials and supplies. Materialsthat meet the requirements of quality and economy will be procured from the poverty villages.6

For materials that are locally produced, at least 30 percent of the labor component is assumedto benefit poor households.7 The Project is estimated to create a total of about 20,200 newindirect person-years of employment to produce the required materials; 6,150 of these will go toworkers from poor households. Materials supplied from other parts of the PRC will create10,070 person-years of employment; of which 1,200 person-years will go to poor households

5 During the field visit the Mission confirmed that the villages in both Longyan and Ganzhou prefectures maintain lists

of poor households, which are used to prioritize employment to the poorest. MOR and the Nanchang and Shanghairailway administrations, the implementing agencies, assured that at least 50 percent of the total requirement ofunskilled labor will be engaged from the lists of poor households in consultation with the railway construction supportoffices.

6 Based on the distribution of natural resources along the GLR alignment, about 30 exploitation sites for the supply ofsand and stone will be established to meet the needs of the GLR. The value of the labor is paid to the worker and thevillage retains the value of the materials.

7 This assumption is based on the assurance by the local governments and the experience gained on previousinfrastructure projects in this region.

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based on the poverty incidence of 12 percent for the PRC as a whole. Local governments willbuild station access and link roads that connect remote and poor areas to the railway to capturethe benefits from the GLR. The construction of the roads will require about 3,300 person-yearsof unskilled labor. Assuming that poor households would do 50 percent of the work,8 about1,660 person-years of new employment will be generated.

16. In summary, during the five-year construction period, the Project will utilize a total of76,000 person-years of direct unskilled employment and 33,600 person-years of indirectemployment. Of these a total of 47,500 person-years of employment will be provided to thosefrom poor households.

17. Employment during Operation. Staff for operation of the GLR (about 2,500) will beprovided by MOR by transferring surplus staff from elsewhere in the network under its staffreduction program. Spending by the railway employees and their families will have multipliereffects in the local economies. The GLR will hire contract workers to load and unload freightwagons and to work as security guards for the stations and warehouses. Of the totalrequirement for unskilled workers in these categories, 70 percent will be hired from poorhouseholds. Based on the estimates of diverted and generated traffic for the GLR, the numberof contract workers required was estimated at 2,866 in 2007 and 8,510 in 2026. This would totalabout 103,400 person-years of employment during the 20-year period from 2007 to 2026, ofwhich 70 percent or 72,350 person-years will be passed on to poor households.

18. Among the categories of freight traffic carried by the GLR is generated traffic, whichconsists of goods that would not have been produced without the GLR. The new and expandedindustries will create additional employment. After the completion of construction, employment isexpected to be about 20,100 person-years in 2007 increasing to about 60,000 person-years in2026. This would total about 734,000 person-years of employment during the 20-year periodfrom 2007 to 2026, of which 293,600 person-years would be passed on to poor households (i.e.,in the same proportion as the poverty incidence in the vicinity of the GLR—38.6 percent).

19. Local governments are promoting tourism to scenic and historical sites along the GLR.Because tourism is labor-intensive, tourism-linked employment will particularly benefit the poor.The study under the TA estimated that 43,500 new tourism jobs will be created in the eightcounties/district along the GLR. Using the railway's modal share of 7 percent of the total numberof passengers in the PRC, about 3,050 new tourism jobs in 2007 are attributable to the GLR.

20. The employment impact of the GLR is summarized in Table A18.6

8 During the Mission’s field visit, local governments confirmed arrangements for employing 50 percent of the total

requirement of unskilled labor for roads construction from poor households.

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Table A18.6: Employment Impact of the GLR(person-years)

EmploymentCreated (Unskilled)

Employment Passed on toPoor households

Construction Operation Construction OperationType of Employment 2002 to 2006 2007 to 2026 2002 to 2006 2007 to 2026DirectGLR construction 76,020 — 38,010 —GLR operation (existing MOR staff) — 49,380 — —Loading/unloading of goods — 103,360 — 72,350Security guards — 1,280 — 900IndirectGLR induced jobs(generated traffic) — 734,020 — 293,610Materials sourced locally 20,230 — 6,150 —Access and link roads 3,320 — 1,660 —Rest of PRC 10,070 — 1,200 —

Total 109,640 888,040 47,020 366,860—=not applicable, GLR=Ganzhou-Longyan Railway, MOR=Ministry of Railways, PRC=People’s Republic of China.Source: Final report under TA 3486.

21. The GLR will support the Government's programs for poverty reduction, such as (i)microurbanization will reduce the rural population from 73 percent to 50 percent, therebyincreasing the share of cultivated land per capita in rural areas and thus increasing income andreducing poverty;9 (ii) agricultural programs designed to increase production and farmers'incomes have been prepared;10 the disadvantages caused by lack of land are being overcomethrough technological inputs and growing higher value commodities and two or three crops in ayear; in addition food packaging, canning, and processing are being developed to add value tothe commodity; and (iii) women’s programs will support specific needs and development ofwomen; the All China Women's Federation is active in representing the interests of women tolocal governments and in carrying out a variety of programs such as the Spring Bud programthat provides support to needy households to keep girls in school when their parents cannotafford it; and operates a small business fund for women. The mobility provided by the GLR willincrease the effectiveness of these programs.

E. Distributional Analysis and Poverty Impact Ratio

22. The distribution of project benefits was analyzed to determine the extent to which theProject benefits poor people. The distribution analysis highlights the differences between thefinancial and economic values arising from the Project, which have been reflected as

9 Along the GLR, various towns have been identified for infrastructure and economic development. The county local

governments are preparing proposals for townships, including station towns for improving transport linkage, roads,market facilities, warehouses, and factories. As for example, Jiangkou on the GLR will be upgraded into a county-level town as one of the 100 pilot national microurbanization towns in the PRC.

10 Local government programs for poverty reduction include technological improvements in farming, husbandry,forestry, village infrastructure, transportation, basic health, basic education, irrigation, drinking water supply, villageroads, extensions and microfinance. These are funded by government grants and low interest loans from theAgricultural Bank of China. International and bilateral sources (i.e., the World Bank, International AgricultureDevelopment Fund, United Nations Development Program, and Germany) are also providing assistance in theseareas.

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distributional impacts to various beneficiaries.11 The net financial return to MOR and thedifference between net economic benefits and net financial benefits was disaggregated for poorpeople. The Project's poverty impact ratio was estimated to be 26 percent, which is consideredsatisfactory for an infrastructure project.12

F. Monitoring and Reporting

23. The Nanchang and Shanghai railway administrations through their projectimplementation agencies and the contractors will maintain records of total workers hired, localworkers hired, workers hired from poor households, and average monthly wage paid.Employment provided to workers hired from remote villages will be recorded separately. Povertyvillages that supply local materials for GLR construction will compile similar reports on workersemployed from poor households, and the revenue earned by villages by supplying materials.This information will be provided to the project implementing agencies. Improvement of socialconditions in the village made possible with the revenue earned from GLR construction will beindicated separately. The county governments will report on the number of poor personsemployed and wages paid during the construction of station access and link roads. Duringoperation, Nanchang and Shanghai railway administrations will monitor the hiring of unskilledworkers to load and unload freight wagons and as security guards for the stations andwarehouses. The railway administrations will provide regular monitoring reports to MOR. MORwill report this information to ADB in the quarterly progress report on project implementation.

24. The Project’s poverty reduction impact will be monitored with the assistance of theResearch Institute of the Southwest Jiatong University (RI-SJU). RI-SJU will monitor thebenefits of the Project, including (i) number of businesses set up by poor households; (ii)village/township improvements made possible as a result of GLR construction; and (iii)socioeconomic and other impacts of the Project that will benefit poor people. This informationtogether with a socioeconomic sample survey in the project area to be undertaken two yearsafter start of operation will be used to evaluate the poverty reduction impact of the GLR. RI-SJUwill prepare annual monitoring reports and an evaluation report two years after the start ofoperation, to cover all relevant parameters. MOR will provide these reports to ADB.

11 ADB. 2000. Integrating of Poverty Impact in Project Economic Analysis: Issues in Theory and Practice.

Methodologies Series No. 2. Economics and Development Resource Center. Manila.12 The results of the distribution analysis are detailed in Appendix 17 of this report.

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