People’s Republic of China: Xinjiang Changji Integrated ... · Xinjiang Changji Integrated Urban-Rural Infrastructure Demonstration Project (RRP PRC 49029-002) DETAILED ECONOMIC

Xinjiang Changji Integrated Urban-Rural Infrastructure Demonstration Project (RRP PRC 49029-002)

DETAILED ECONOMIC ANALYSIS

Project Number: 49029-002

People’s Republic of China: Xinjiang Changji Integrated Urban-Rural Infrastructure Demonstration Project

February 2017

http://www.adb.org/Documents/RRPs/?id=49029-002-3

TABLE OF CONTENTS

1 Introduction and rationale .................................................................................................... 1

Introduction .................................................................................................................. 1 1.1 Macro-economic and planning context ......................................................................... 1 1.2

1.2.1 Macro-economic context ....................................................................................... 1 1.2.2 Planning context ................................................................................................... 2 1.2.3 Fungibility ............................................................................................................. 3

2 Basic assumptions .............................................................................................................. 4 Introduction .................................................................................................................. 4 2.1 Price adjustments ........................................................................................................ 4 2.2 Land and resettlement ................................................................................................. 5 2.3 Roads .......................................................................................................................... 6 2.4 Solid waste management (SWM), water supply and shelterbelts ................................. 7 2.5 Poverty ........................................................................................................................ 7 2.6 Least cost options ........................................................................................................ 7 2.7

3 Evaluation of road sub-components .................................................................................... 8 Introduction .................................................................................................................. 8 3.1 Scope of benefits – general discussion ........................................................................ 8 3.2 Review of LDI approach ............................................................................................... 9 3.3 Approach to evaluation ...............................................................................................11 3.4

3.4.1 Roads with existing demand ................................................................................11 3.4.2 Roads with no existing demand ...........................................................................11 3.4.3 Treatment of auxiliary infrastructure .....................................................................14 Evaluation of Hutubi County roads proposals ..............................................................14 3.5

3.5.1 Introduction ..........................................................................................................14 3.5.2 Dongfeng Avenue ................................................................................................15 3.5.3 Hufang Road........................................................................................................16 3.5.4 Changhua Road ...................................................................................................18 3.5.5 Combined economic performance .......................................................................19 Evaluation of new Fukang City roads ..........................................................................19 3.6

3.6.1 Introduction ..........................................................................................................19 3.6.2 Ruiying Road .......................................................................................................19 3.6.3 Boya Road ...........................................................................................................20 3.6.4 Ankang Road .......................................................................................................21 3.6.5 Huiyuan Road ......................................................................................................22 3.6.6 Guangyuan Road .................................................................................................23 3.6.7 Combined economic performance .......................................................................24 Evaluation of Fukang City road upgrades ...................................................................24 3.7

3.7.1 Introduction ..........................................................................................................24 3.7.2 Evaluation of upgrades ........................................................................................25 Assessment of Ganhezi Town roads proposals ..........................................................26 3.8

3.8.1 Introduction ..........................................................................................................26 3.8.2 Evaluation of new roads .......................................................................................27 3.8.3 Evaluation of upgrades ........................................................................................28 3.8.4 Combined economic performance .......................................................................30 Evaluation of Qitai County roads proposals ................................................................30 3.9

3.9.1 Introduction – new roads ......................................................................................30 3.9.2 Wenhua West Road .............................................................................................31 3.9.3 Urumqi West Road...............................................................................................32 3.9.4 Urumqi East Road ...............................................................................................32 3.9.5 Bajiahu Road .......................................................................................................33 3.9.6 Xingfu Road .........................................................................................................34 3.9.7 Combined economic performance .......................................................................34

4 Evaluation of water component ..........................................................................................35 Evaluation of Qitai County water supply ......................................................................35 4.1

4.1.1 Current situation ..................................................................................................35 4.1.2 Project outline ......................................................................................................35 4.1.3 Alternatives considered ........................................................................................36 4.1.4 Scope of benefits .................................................................................................37 4.1.5 Willingness to pay for improved water supplies ....................................................37 4.1.6 Demand assessment ...........................................................................................38 4.1.7 Evaluation ............................................................................................................40

5 Evaluation of shelter-belt subcomponents ..........................................................................41 Component outline ......................................................................................................41 5.1 Benefits .......................................................................................................................41 5.2

5.2.1 Outputs ................................................................................................................41 5.2.2 Valuation of outputs .............................................................................................42 5.2.3 Evaluation results ................................................................................................42

6 Evaluation of TVET subcomponent ....................................................................................44 6.1.1 Outline of project proposal ...................................................................................44 6.1.2 Scenarios and scope of benefits ..........................................................................44 6.1.3 Demand assessment ...........................................................................................44 6.1.4 Evaluation ............................................................................................................44

7 Evaluation of SWM subcomponent ....................................................................................47 Existing situation .........................................................................................................47 7.1 Demand assessment ..................................................................................................47 7.2

7.2.1 Current demand ...................................................................................................47 7.2.2 Expected life of the existing landfill site ................................................................48 7.2.3 Future demand ....................................................................................................48 Alternatives .................................................................................................................48 7.3

7.3.1 Qitai County’s preferred site .................................................................................48 7.3.2 Comparison of alternative sites ............................................................................50 Economic evaluation ...................................................................................................51 7.4

7.4.1 Household survey results .....................................................................................51 7.4.2 Economic evaluation ............................................................................................52

8 Summary of results and sensitvity tests .............................................................................54 Introduction .................................................................................................................54 8.1 Fukang City subproject ...............................................................................................54 8.2 Hutubi County subproject ............................................................................................56 8.3 Qitai County subproject ...............................................................................................58 8.4 Project ........................................................................................................................61 8.5

8.5.1 All subcomponents ..............................................................................................61 Sensitivity tests ...........................................................................................................62 8.6

9 Appendix: road user and road agency costs ......................................................................65 Introduction .................................................................................................................65 9.1 Vehicle characteristics ................................................................................................65 9.2 Fuel costs ...................................................................................................................66 9.3 Labor costs .................................................................................................................66 9.4 Journey time savings ..................................................................................................66 9.5 Road user costs ..........................................................................................................68 9.6 Normal traffic growth ...................................................................................................69 9.7 Generated traffic benefits ............................................................................................69 9.8 Road agency costs .....................................................................................................69 9.9

9.9.1 Cost of do-minimum access road .........................................................................69 9.9.2 Road maintenance costs .....................................................................................70 9.9.3 Fukang City upgrades: intervention assumptions .................................................70

LIST OF FIGURES Figure SD20-1: Hufang Road plot development ........................................................................17 Figure SD20-2: Changhua Road plot development ...................................................................18 Figure SD20-3: Ruiying Road plot development ........................................................................20 Figure SD20-4: Boya Road plot development ...........................................................................21 Figure SD20-5: Ankang Road plot development .......................................................................22 Figure SD20-6: Huiyuan Road plot development ......................................................................23 Figure SD20-7: Guangyuan Road plot development .................................................................23 Figure SD20-8: Revised Zhenxi-Weiqi-Guangming road layout ................................................28 Figure SD20-9: Roads in the Guangming Road area of Ganhezi Town ....................................29 Figure SD20-10: Wenhua West Road plot development ...........................................................31 Figure SD20-11: Urumqi West road plot development ..............................................................32 Figure SD20-12: Urumqi East Road plot development ..............................................................33 Figure SD20-13: Bajiahu Road plot development ......................................................................33 Figure SD20-14: Xingfu Road plot development .......................................................................34 Figure SD20-15: Propensity to pay for improved water supplies ...............................................37 Figure SD20-16: Sketch of waste disposal sites ........................................................................49

LIST OF TABLES Table SD20-1: Calculation of shadow exchange rate factor (SERF) .......................................... 5 Table SD20-2: PPTA LAR cost estimates .................................................................................. 6 Table SD20-3: Development characteristics .............................................................................11 Table SD20-4: Trip production and attraction rates ...................................................................12 Table SD20-5: Modal split .........................................................................................................13 Table SD20-6: Calculation of journey time benefit of new urban road .......................................13 Table SD20-7: Timing of land use changes ...............................................................................14 Table SD20-8: Proposed Hutubi County roads..........................................................................15 Table SD20-9: 12 h observed traffic on agricultural college access road, Hutubi County ..........16 Table SD20-10: Dongfeng Avenue evaluation results ...............................................................16 Table SD20-11: Hufang County road evaluation results ............................................................17 Table SD20-12: Changhua Road evaluation results ..................................................................18 Table SD20-13: 12 h observed traffic on Hufang Road at junction with Changhua Road ..........19 Table SD20-14: Proposed new Fukang City roads ....................................................................19 Table SD20-15: Ruiying Road evaluation results ......................................................................20 Table SD20-16: Boya Road evaluation results ..........................................................................21 Table SD20-17: Ankang Road evaluation results ..................................................................22

Table SD20-18: Huiyuan Road evaluation results .....................................................................23 Table SD20-19: Guangyuan Road evaluation results ................................................................24 Table SD20-20: Proposed Fukang City road upgrades .............................................................24 Table SD20-21: 12 h observed traffic on Fukang City roads .....................................................25 Table SD20-22: Fukang City road upgrades: typical evaluation results .....................................26 Table SD20-23: Fukang Cityupgrades: evaluation results .........................................................26 Table SD20-24: Proposed Ganhezi Town roads .......................................................................27 Table SD20-25: Ganhezi Town: Zhenxi-Weiqi-Guangming benefit estimates ...........................28 Table SD20-26: Zhenxi-Weiqi-Guangming: evaluation results ..................................................28 Table SD20-27: 12 h observed traffic on Ganhezi Town roads, June 2016 ...............................29 Table SD20-28: Ganhezi Town: Changqing and Honglingjin benefit estimates .........................30 Table SD20-29: Changqing and Honglingjin: evaluation results ................................................30 Table SD20-30: Proposed new Qitai County roads ...................................................................31 Table SD20-31: Wenhua West Road evaluation results ............................................................31 Table SD20-32: Urumqi West Road evaluation results ..............................................................32 Table SD20-33: Urumqi East Road evaluation results ...............................................................33 Table SD20-34: Bajiahu Road evaluation results ......................................................................34 Table SD20-35: Xingfu Road evaluation results ........................................................................34 Table SD20-36: Qitai County water supply financial base cost ..................................................36 Table SD20-37: WTP for improved water supplies ....................................................................38 Table SD20-38: Demand assessment assumptions ..................................................................39 Table SD20-39: Qitai County water supply evaluation results ...................................................40 Table SD20-40: Fukang City shelterbelts ..................................................................................41 Table SD20-41: Shelterbelt outputs ..........................................................................................42 Table SD20-42: Shelterbelt evaluation results ..........................................................................43 Table SD20-43: TVET evaluation assumptions .........................................................................45 Table SD20-44: TVET evaluation results ..................................................................................46 Table SD20-45: Future landfill requirements .............................................................................48 Table SD20-46: Site B development costs ................................................................................50 Table SD20-47: Comparison of alternative landfill sites ............................................................51 Table SD20-48: WTP for SWM .................................................................................................52 Table SD20-49: SWM site B evaluation results .........................................................................53 Table SD20-50: Fukang City subcomponent evaluation results ................................................55 Table SD20-51: Fukang City subproject costs and benefits ......................................................56 Table SD20-52: Hutubi County subcomponent evaluation results .............................................57 Table SD20-53: Hutubi County subproject costs and benefits ...................................................58 Table SD20-54: Qitai County subcomponent evaluation results ................................................59 Table SD20-55: Qitai County subproject costs and benefits ......................................................60 Table SD20-56: Summary of subcomponent evaluation results ................................................61 Table SD20-57: Project costs and benefits ...............................................................................62 Table SD20-58: Sensitivity Test Results ...................................................................................63 Table SD20-59: Sensitivity test results – roads subcomponents ...............................................63 Table SD20-60: Sensitivity test results – water supply subcomponent ......................................63 Table SD20-61: Sensitivity test results – SWM subcomponent .................................................63 Table SD20-62: Sensitivity test results – shelterbelt subcomponents ........................................63 Table SD20-63: Sensitivity test results – TVET subcomponent .................................................64 Table SD20-64: Vehicle characteristics .....................................................................................65 Table SD20-65: Fuel costs ........................................................................................................66 Table SD20-66: Vehicle labor costs ..........................................................................................66 Table SD20-67: Wage rates etc. ...............................................................................................67 Table SD20-68: Economic values of vehicles, tires, labor and time...........................................68

Table SD20-69: Representative road user costs .......................................................................69 Table SD20-70: Road maintenance costs .................................................................................70 Table SD20-71: Fukang City maintenance interventions ...........................................................70

1 INTRODUCTION AND RATIONALE

Introduction 1.1

1. This appendix describes the economic evaluation of project subcomponents and their economic rationale. It also summarizes the necessary economic background for the economic evaluation, the detail of which is covered in the work of the project regional economist.

2. Xinjiang Uygur Autonomous Region Government (XUARG), the executing agency, together with the three implementing agencies (Fukang City Government (FCG), Hutubi County Government and Qitai County Government) plans the construction of urban roads, a water supply scheme, solid waste management (SWM) facilities, ecological shelterbelts and a technical and vocational educational and training (TVET) establishment.

3. Common to all three beneficiary areas (Fukang City, Hutubi County and Qitai County) is the provision of urban roads. In general the purpose of these roads is to provide access to as yet un-developed peri-urban areas, although some of the proposals for Fukang City amount to upgrades of existing roads that are in poor condition.

4. The water supply scheme will alleviate shortages experienced in Qitai County’s urban area. These shortages arise from groundwater depletion and are expected to get worse as Qitai County’s population grows. The focus of the Qitai County SWM component is on expanding landfill capacity, current facilities being close to exhaustion. The three ecological shelterbelts are essentially small areas of tree planting in Fukang City whose aim is to reduce soil erosion and sequestrate carbon. All three counties/city will receive technical assistance (TA) support for their technical and vocational education and training (TVET) activities, while a new center will be established in Fukang City.

Macro-economic and planning context 1.2

1.2.1 Macro-economic context

5. Historically, gross domestic product (GDP) per head has of course grown rapidly in the People’s Republic of China (PRC), achieving an average of 9.4 percent over the ten year period 2005-14. More recent and future growth rates are expected to be rather lower, at 6.3 percent (2015), 6.0 percent (2016) and 5.7 percent (2017). Xinjiang’s historic GDP growth rate for 1994-2014 was rather higher than that of the PRC as a whole, at 9.8 percent, while historic growth rates in the project area are reported (at 10-14 percent) to have been higher still. Average annual population growth over the period 1994-2014 was 1.7 percent, giving an average annual Xinjiang growth rate for GDP per head of 7.2 percent. Using official Xinjiang statistics, Xinjiang real wage growth over the period 2005-14 has been much higher than this, at 11 percent per year. 6. Xinjiang has been a beneficiary of the National Strategy for Development of the Western Region but in common with other regions faced slowing economic growth between 2012 and 2013.1 The region also suffers from poor industrial performance and low worker educational attainment.

1 State Council of the PRC. 2000. The National Strategy for Development of the Western Region. Beijing. The PRC’s

western region covers six provinces, five autonomous regions (including Xinjiang), and one municipality.

2

7. The beneficiary counties/city are in a good position to take advantage of the One Belt One Road (OBOR) initiative, as they all lie close to the central branch of the Silk Road economic belt connecting Beijing and eastern China with Central Asia and beyond. The 2015 OBOR initiative (known formally as Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road) emphasizes connectivity, policy co-operation and unimpeded trade. 1.2.2 Planning context

8. The first phase of this consultancy2 concluded that a stronger enabling environment was urgently required within Changji’s urban centers. The timing is opportune as the PRC is beginning implementation of its New-Type Urbanization Plan (2014-2020). This is based on a number of fundamental principles that revise the approach of the past two or three decades, are new to Xinjiang and Changji, and align well with ADB’s Urban Operational Plan 2012-2020 and current country program strategy. 9. The key points of the New-Type Urbanization Plan that are relevant to subcomponent economic appraisal include:

promote universal coverage of basic urban services to include all residents

put people-centered urbanization first

advance the conversion of rural migrants into urban citizens

use city clusters as the main form, promoting the development of small and medium cities

optimize intensive and efficient resource utilization

urbanize in accordance with resource profiles and environmental tolerance

use integrated transportation to develop sensible city clusters

strictly contain the supply of urban construction land

control urban development boundaries

strengthen environmental protection and ecological restoration 10. In terms of compliance with the points made above:

the TVET subcomponent is clearly compliant with the aim of improving low worker educational attainment

the water supply and SWM subcomponents comply with the "universal coverage" requirement, albeit not in a cost-effective way

the shelterbelt subcomponent complies with the "ecological restoration" requirement

the new roads generally do not comply with the "clustering" requirement; indeed they are a manifestation of extensive development inconsistent with strict containment of urban construction land

11. To the best of the project preparatory technical assistance (PPTA) consultants' knowledge there are no potential conflicts with local policies and procedures or those of other foreign aid agencies in the Xinjiang Uygur Autonomous Region (XUAR).

2 ADB. 2016. TA8922 Xinjiang Changji Integrated Urban-Rural Infrastructure Demonstration Project, Final Report.

Manila

3

1.2.3 Fungibility

12. The fungibility of development partner (DP) assistance has been a concern to the development community since the 1990s. Development assistance is said to be fungible when the recipient would have undertaken the project anyway and the consequence of the aid is to release resources for the government to spend on other items. With so-called perfect fungibility DP funds effectively finance the government's marginal project, not the one for which the funds are nominally intended. Hence the argument that development assistance might as well be budget assistance. 13. Uncertainty over the counterfactual makes it difficult to determine whether assistance is fungible or not. In the case of Changji it must be unlikely that the solid waste management (SWM) or ecological restoration components would go ahead in the short to medium term without Asian Development Bank (ADB) support. There is more doubt over the proposed roads, as their construction is part of local governments’ financial imperative to develop land. Similarly there is doubt over the water supply project, as the scale and timing of this component is effectively locked in by private sector involvement in water treatment works, which are already under construction. There would of course be no ADB technical assistance without the ADB project. 14. In conclusion, while there is likely to be some fungibility, it is offset by (a) swifter project execution with ADB support, (b) better project design and (c) ADB's TA support.

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2 BASIC ASSUMPTIONS

Introduction 2.1

15. Analyses are in accordance with ADB's Guidelines for the Economic Analysis of Projects (1997) and other good practice guides, especially ERD (Economics and Research Department) Technical Note No. 23 (Good Practices for Estimating Reliable Willingness-to-Pay Values in the Water Supply and Sanitation Sector, December 2007). 16. Conditions over a 25-year period from the assumed year of completion are compared for at least two cases: a do-minimum (reference) case and a project case. (Wider consideration of alternatives and selection of the least cost alternative are generally not available at present). The price date is 2016 and the official exchange rate (OER) is $1 = CNY6.9. In all cases construction is assumed to take place over the period 2018-19, with full benefits from 2020. 17. 12 percent is the discount rate conventionally applied by ADB and will be applied here. However, in anticipation of changes to ADB guidance, an EIRR of at least 9 percent is judged acceptable for all subcomponents apart from the Fukang City shelterbelts. Shelterbelts are in large measure investments in carbon sequestration, i.e. they are climate change investments. Based on considerations of inter-generational equity (i.e. that it is unethical to discount the welfare of future generations when failure to invest will lead to irreversible change), an EIRR threshold of 6 percent is adopted. (Note that road FSRs in the PRC adopt a threshold discount rate of 8 percent).

Price adjustments 2.2

18. The domestic price system is used as it tends to be more straightforward when benefits (in particular journey time savings and willingness-to-pay values) are measured in domestic prices. In practical terms this means that:

the prices of tradable goods will be adjusted by the shadow exchange rate factor (SERF)

unskilled labor (labor in excess supply) is valued at 0.8 times the market wage3, while skilled labor (in excess demand) is valued at the unadjusted market wage

incremental land taken as part of the project is valued as net agricultural income foregone

19. An SERF of 1.04 is adopted; its estimation is set out in the table below.

3 Taken from an analysis of rural and urban incomes in Xinjiang; see LD08 for Hubei Enshi Qing River Upstream

Environmental Rehabilitation Project, 2014

5

Table SD20-1: Calculation of shadow exchange rate factor (SERF)

2010 2011 2012 2013 2014

Imports of goods & services, US$ billion (CIF) (Z) 1,396 1,742 1,819 2,127 2,192

Exports of goods & service, US$ billion (FOB) (X) 1,578 1,899 2,049 2,363 2,476

Import duties, US$ billion (TZ)a 205.4 280.0 310.0 363 374

Export subsidies, US$ billion (SX) 108 142 165 190 199

Tax on production of exports, US$ billion (TX)b 252 304 328 378 396

SERFc 1.02 1.03 1.04 1.04 1.04

CIF = cost, insurance and freight, FOB = free on board Sources: China National Statistics to 2012 for imports, exports and export tax rebates, International Monetary

Fund (IMF) International Financial Statistics for duties in 2010 and imports and exports from 2013. IMF

Notes: (a) for 2011-14, import duties factored from China National Statistics data for value added tax (VAT) and consumption taxes on imports

(b) estimated at 16 percent of exports (c) SERF = (Z+TZ+X-TX+SX) ÷ (X+Z)

20. Physical contingencies are assumed to amount to 5 percent of base cost. Price contingencies and working capital allowances are not included as part of economic costs.

Land and resettlement 2.3

21. PPTA land and resettlement (LAR) budgets for each subcomponent were received in early September 2016. 22. The opportunity cost of land can be approximated by the present value of net agricultural margins, converted to economic prices. Xinjiang is a winter wheat and maize growing area, often irrigated. Net margin data are not available but gross margins for wheat and maize are available in a paper by Wang Ye and Sun Dong-Sheng4. Based on the results from 2012 and 2013 reported in this paper, yields and gross margins for wheat are 6 t/ha and CNY4,100/ha and for maize 10 t/ha and CNY5,900/ha. Assuming sequential planting of wheat and then maize, total gross margin is CNY10,000/ha. Expressed as a present value over 25 years at a 12 percent discount rate gives CNY75,000 per ha, which is taken as the opportunity cost of land. This unit cost is similar to the financial rate of compensation for agricultural land, but considerably less than the amount paid for residential land. It is considerably greater than the financial value of land for the SWM landfill site (CNY10,000/ha), but the preferred site (site A) has considerable environmental value (see section 7.3.2) and the full CNY75,000/ha is taken here. 23. In the case of the Fukang City shelterbelts one of the aims is to preserve land for agricultural use. The economic cost of taking land for this component has therefore been set to zero. 24. Other items in LAR budgets are shadow-priced as follows. Compensation for house demolition is taken at its financial cost times the shadow price factor for unskilled labor, as are allowances for survey, implementation, skills training and special support for vulnerable groups.

4 Xinjiang Agricultural Sciences 52(8). 2015. Analysis of the Comparative Advantage of Main Crops in Xinjiang (in

Chinese). Xinjiang

6

Fees and contingencies are assigned a shadow price of zero. (Physical contingencies are added to all costs during subcomponent evaluation). 25. LAR estimates are summarized below. Some subcomponents have no associated LAR cost. This is either because there is no associated land acquisition or resettlement, or because LAR costs have already been incurred and represent sunk costs.

Table SD20-2: PPTA LAR cost estimates

County / City Subcomponent Financial cost Economic cost

CNY m CNY m

Hutubi Dongfeng Avenue 21.9 4.7

Changhua Road 20.6 10.5

Hufang Road 35.6 15.9

Fukang Ruiying Road 11.0 5.9

Guangyuan Road 20.1 11.3

Ankang Road 17.7 10.7

Boya Road 6.7 0.3

Shelterbelt 40.6 0.0

Qitai Wenhua West Road 17.7 8.9

Urumqi East Road 15.0 6.2

Bajiahu Road 35.1 19.8

Xingfu Road 63.7 36.9

Qitai water supply 3.6 0.0a

Qitai SWM 0.51 1.7

Source: PPTA consultants Notes: (a) no permanent land acquisition

Roads 2.4

26. In the absence of the usual schedule of inputs, the financial base cost (i.e. excluding all contingencies, working capital) is adjusted to economic prices as follows:

unskilled labor costs are taken as 7 percent of civil works costs and adjusted by the shadow wage rate factor (SWRF)

steel is taken as 5 percent of civil plus mechanical and electrical equipment costs and adjusted using the SERF

construction composite tax is 3.4 percent and deducted from civil and installation costs

value-added tax (VAT) at 17 percent is deducted from mechanical and electrical equipment and design and supervision fees

fees other than design and supervision are deducted 27. Applying these adjustments generates a conversion factor (CF) of 0.92. The economic cost of each road investment is calculated as:

7

Economic cost = CF x (direct road financial cost + ancillary infrastructure + design & supervision) + economic LAR cost + physical contingencies at 5%

28. To account for the value of the project remaining at the end of the evaluation period, a negative cost is included equivalent to the remaining unused portion of the project’s life (i.e. its residual value). Assuming that land has a life of 100 years, earthworks 50 years, pavement 20 years and structures 25 years a weighted average life of 37 years is obtained. At the end of a 25-year evaluation period this implies a residual value that is 30 percent of the initial investment cost.

Solid waste management (SWM), water supply and shelterbelts 2.5

29. The approach adopted is the same as that adopted for roads; in the case of SWM the CF is 0.91 and in the case of water supply it is 0.97. Shelterbelt establishment is likely to have a high unskilled labor content and a CF of 0.91 is adopted. 30. The residual value of a landfill site at the end of a 25-year evaluation period is essentially zero. Ductile iron pipes account for 65 percent of the cost of the Qitai County water supply project and have an expected life of 80 years, implying a residual value of 45 percent. The value of shelterbelts as carbon sinks may increase or decrease over time, so forecasting their status in 25 years’ time is highly problematic. A nominal 30 percent residual value is assumed.

Poverty 2.6

31. A high incidence of poverty may provide support for subcomponents that fail to meet the 12 percent EIRR threshold. Unfortunately, the draft poverty and social analysis (DPSA), received in October 2016, provides little supporting evidence:

3.4 percent of household baseline survey respondents receive poor household subsistence allowances (table D.19 of the DPSA)

3 percent of households receive the lowest living guarantee (a local government program to support the most vulnerable urban households) (table D.13 of the DPSA)

0.14 percent are Five-Guarantee households (a rural support program) (table D.13 of the DPSA)

32. Ganhezi Town is a town suffering from industrial decline. The DPSA does not quantify poverty in Ganhezi Town, although those interviewed as part of focus group discussions (FGDs) and key informant interviews (KIIs) did mention large numbers of retired soldiers, single earners and couples whose children have left home.

Least cost options 2.7

33. It is an ADB requirement that least cost options are selected. Despite the consultants’ best efforts, project scale as proposed seldom represents least cost.

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3 EVALUATION OF ROAD SUB-COMPONENTS

Introduction 3.1

34. There are 22 proposed road sections. In Hutubi County there are three proposed roads; each has an existing road or track that uses a similar alignment to that proposed for at least some of its length. Including ancillary infrastructure the total financial base cost for the 8 km of roads is CNY186 m (CNY23 m/km). In Fukang City there are five roads on completely new alignments, four roads proposed for rehabilitation and five roads proposed for the small town of Ganhezi. Their total financial base cost is estimated at CNY281 m, or CNY16 m/km. Qitai County proposes five new roads (11.4 km) at an estimated base cost of CNY169 m (CNY15 m/km). (Base costs quoted here exclude LAR costs as in most cases the allocation of LAR costs to individual road sections is unknown). 35. The high unit costs reflect excessive capacities rather than high earthworks costs. Nearly all proposed roads have four or six motorized traffic lanes; typically also slow moving traffic lanes as well as sidewalks. 36. Lack of current demand or network rationale, and speculative future demand away from current urban centers combine with high unit construction costs to make for weak economic cases.

Scope of benefits – general discussion 3.2

37. The benefits of most roads projects are made up of savings in journey time and vehicle operating costs (VOCs), collectively known as road user cost (RUC) savings. In the case of urban roads journey time savings predominate, although where existing roads have very poor pavement conditions VOC savings may also be significant. 38. RUC savings do not capture all the impacts of transport investments, however, especially in situations where they improve employment “density” by bringing employers and actual or potential employees closer together. Employment density is the product of work-place based employment and generalized travel cost, summed across all areas. The effect is only significant where employment densities are high and the transport investment makes a significant difference to travel cost. In such instances it represents a positive externality (of the investment) and is referred to as an agglomeration benefit, to be added to RUC savings. Transport investments can also generate “disagglomeration”, however, by encouraging dispersal of activities as a result, for example, of congestion. 39. Note that agglomeration benefits, where they are significant enough to be estimated, typically add 5-15% to conventional benefits and are therefore only significant if conventional benefits are themselves significant. 40. There is little ADB guidance on agglomeration benefits. In Toward a Sustainability Framework for Transport5 it is suggested that benefits may be large if the project improves accessibility to the central business district of a city of more than one million inhabitants, and that they should be disregarded for smaller towns. 41. RUC savings arise in different ways, as follows:

5 ADB. 2012. Toward a Sustainability Framework for Transport (Sakamoto and Veran-Okamoto). Manila

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journey time and VOC savings accruing to normal traffic assigned to the road in question, themselves arising from capacity and pavement condition improvements

diverted traffic: time and VOC savings accruing to corridor traffic diverting from an alternative route

generated (or induced) traffic: traffic not currently using the corridor but does so in response to a drop in perceived user costs. Benefits are estimated by constructing a stylized demand curve and calculating the consumer surplus beneath it (an approach known as the “rule of a half”)

crash cost savings. The usual methodology currently adopted is that of iRAP (International Road Assessment Programme)6. It relies heavily on having historic crash data and specialist assessment of changes brought about by road improvements (including traffic management interventions).

42. Urban road improvements such as those proposed here cannot properly be assessed in isolation. A change in one link affects traffic on another link, and so on. Assessment of this network effect really requires a transport model. Constructing a reliable (i.e. calibrated) transport model is time-consuming and data-hungry. Once constructed and calibrated, the model can be run with and without improvements and network total vehicle-hours and vehicle-km estimated, and benefits assessed. 43. From the above it will be clear that a transport modelling approach is costly and, unsurprisingly, the local design institute (LDI) has not followed it. Instead it has estimated the benefits of each section of road improvement by looking at journey time savings etc. accruing to trips made by those occupying residential and commercial land developed alongside each section. Their work is reviewed in the next section. (Development of transport models is also beyond the capacity of the current PPTA contract). 44. The benefits discussed here may be plausibly estimated when there is quantified evidence of existing demand and reliable forecasts for the factors that explain future demand (GDP and population growth, for example). In this case, however, most of the proposed roads are on entirely new alignments and have no network rationale. Demand for them is to an uncomfortable extent speculative. The evaluation approach adopted is discussed below.

Review of LDI approach 3.3

45. The LDI approach is essentially the same for each of the three counties/city. In reality its purpose is to estimate peak hour traffic flows in 2030 and use those to justify road capacity. The economic assessment is a by-product of this process rather than its goal. There is no indication that the LDI has undertaken any traffic counts, observed vehicle speeds, and taken account of local vehicle ownership or undertaken origin and destination (OD) surveys. Their work is therefore somewhat divorced from reality. 46. From a review of the text of the Qitai County FSR we see the following sequence of steps for each proposed road section, in each case followed by PPTA consultants’ comments in square brackets:

Land use adjacent to any road is split into residential and commercial (approximately 70:30). The area tabulated indicates an average development plot depth of

6 iRAP. 2008. The True Cost of Road Crashes. London

10

approximately 450 m (giving 5.1 km2 plot area for a total road length of 11.4 km at Qitai County).

The 2030 population adjacent to each road section is estimated (FSR p52-3). The density per square kilometer of residential land is 9,900, i.e. just short of the 10,000 implied by the New-type Urbanization Plan standard of 100 m2/person.

A 24 h trip generation rate per residential person of 4.24 is adopted (the source is not given but subsequent enquiries revealed that this is simply an LDI estimate), giving an average daily trip generation rate per road section in 2030 of 29,000 (note that a “trip” is a one way movement). [This rate is very high and suggests that the LDI’s demand assessment is unrealistic. In Pingxiang in 2015 survey results indicated daily trip rates of 0.1-0.2 per household; standard US 24 h trip rates for apartment-dwellers are 6-7 per household, equivalent to 2.5 per head for a household size of 3.16].

24 h trip attraction rates are estimated from 25.071 x residential ha + 355.13 x commercial ha (source not given), giving an average daily trip attraction rate per road section in 2030 of 12,700 (FSR p54). [Trip attraction rates depend hugely on the type of business. Trips per employee are a better basis than area.]

30 percent is deducted from generated trips for internal trips and the balance split by mode. Motorized traffic takes 45 percent of trips, of which cars and taxis represent 57 percent and the balance of trips are made by bus; no source is given for any of these assumptions. [In Pingxiang bus was the overwhelming mode of choice – around 80% of trips.]

The resulting generated trips are added to adjusted trip attractions (the adjustment is obscure but slight, reducing trip attractions by a few percent) and scaled by passenger car unit (PCU) factors to give two-way traffic on each road section, which averages 24,000 PCU/day.

The final stage is to use standard factors to estimate peak hourly traffic of between 1,300 and 1,700 PCU/h, estimated by taking 60 percent of the two-way traffic and assuming that 11 percent falls in the peak hour. Assuming a capacity of 800 PCU/h leads to the conclusion that four-lane roads are required (FSR p56). [11 percent is at the high end of the PPTA reviewer’s experience of hourly traffic in the PRC. 800 PCU/h is however a low lane capacity].

47. Benefits estimates in section 11 of the Qitai County FSR are not clearly tied in to the LDI’s traffic forecasts. In order of relative importance the benefits are:

cargo “loss” estimated at 0.1% of 7.75 m tons of goods per year with an economic value of CNY5,000/t (“loss” appears to be related to VOCs but it is not clear how. 7.75 m tons at CNY5,000/t implies an annual output of CNY39 billion from plots along 11 km of road, four times Qitai County’s 2013 GDP)

journey time savings. The assumption is that both passenger and goods vehicles (although no goods vehicle classes appear in the traffic forecasts) would, without the project, have to travel an additional 10 km at 15 km/h compared with 40 km/h in the project case (i.e. a saving of 0.42 h per passenger trip). Passenger time savings are valued at CNY6.1/h and goods in transit at CNY0.05 per ton hour (but note the annual number of tons, given in the previous bullet) [time savings value for passengers is low]

crash cost savings. The project is assumed to save 80 crashes per year at a cost per crash of CNY5,000 [without special measures the project is likely to increase the incidence of crashes]

11

urban land value-added. A fairly arbitrary calculation estimates a 30 percent increase on a land value of CNY5/m2 over a 100 m width, giving CNY1.7 m per year for the total 11.3 km of roads [this would generally be thought to amount to double counting]

Approach to evaluation 3.4

3.4.1 Roads with existing demand

48. Roads with existing demand are evaluated using with and without project RUCs as detailed in section 9.6. 3.4.2 Roads with no existing demand

49. The roads with no existing demand, which form the great majority of project roads, are speculative to the extent that there is no certainty over the nature, timing and intensity of plot development. They fill existing street grids and enable access to potential residential and commercial areas. They are, in effect, access roads, although the LDI typically describes them as “trunk” or “distributor” roads. 50. The principle adopted is that benefits accrue to plots which, in the absence of the project road, would have to be provided with single lane access roads that connect to the urban road network, and ancillary infrastructure; otherwise the plot would have little or no value. Using such a single-lane road incurs journey time costs that are not faced in the project case. In many cases, however, plots do have ready access to existing roads and do not require any special access arrangements. For them there are no project benefits. 51. The demand for travel by occupants of benefiting plots is taken as exogenous and based on estimates of the type and timing of future land use, plot by plot. These estimates are made by county and city authorities and not by the PPTA consultants. 52. In the project case, then, full project road investment and maintenance costs are incurred, but none of the additional time costs associated with walking or driving through the site, nor the cost of constructing the access road, put at CNY450,000/km (financial base cost; source: LDI). 53. This approach requires assumptions concerning development timing and intensity, trip production and attraction, modal split, road user speed and journey time values. Table SD20-3 summarizes development characteristics.

Table SD20-3: Development characteristics

Value

Residential:

Floor area ratio 0.70

Floor area per head 40 m2

Commercial:

Floor area ratio 0.40

Floor area per employee 5 m2

Source: PPTA consultants’ estimates

12

54. Several schools are planned for the project area. In some cases potential enrolments are available. Where they are not, the following Xinjiang averages are taken from table 3 of a World Bank report7 as follows: primary school 500 pupils, secondary school 1,100 pupils. 55. Table SD20-4 summarizes trip production and attraction rates. The basis for the rates adopted is as follows. The residential rate (which in practice dominates benefit estimates) is consistent with observed rates in the PRC (see Zegras and Srinivasan8) and guidance by a standard US source for households with zero to one vehicle (table 6 of9). The adopted rate of 2.5 per person per day is well below the rate of 4.24 seen in the FSRs but is emphatically not low – see for example an unpublished thesis by Ho Hing in the late 1990s of commuting patterns in Hong Kong that reported an overall average trip rate of 1.2 per person per day10. 56. The commercial rate is taken from the 355 trips per gross ha per day in the FSRs, but adjusted upwards to reflect the 0.4 floor area ratio (see table above). By assuming 5 m2 per employee (a standard rate in the PRC for small retail spaces), this rate is equivalent to 0.4 trips per employee per day. 57. The rate for park recreational facilities is taken from NCHRP 3659: 2.2 trip attractions per acre is converted into 5.4 per gross ha. School trip attractions are simply assumed to amount to one per pupil per day, scaled by 5 days’ attendance out of 7 days.

Table SD20-4: Trip production and attraction rates

24 h trip rate

Residential (home to work and other non-educational) 2.5 per person

Commercial 900 per ha of floor area

Educational facilities 0.7 per student

Park and recreation 5.4 per ha


58. No attempt is made to distribute trips, as would normally be done in a full, four-stage transport planning exercise. Instead total return trips per plot are simply taken as double the number of productions and/or attractions, although in the few cases of mixed development, 30 percent is deducted for internal trips (the FSR assumption). 59. Trips as discussed so far are by all modes. The next stage is to split them by mode. The key mode is car/taxi, as this mode is associated with the highest value of time. FSR assumptions (see below) are too heavily weighted in favor of cars and against bus transport. Any assumptions are bound to be rough, but the adopted split acknowledges that many residents in project areas are likely to be resettled from elsewhere and have very low access to cars and in general (given also the project area climate) are likely to use bus and motor-cycle transport.

7 SABER (Systems Approach for Better Education Results). 2014. Xinjiang Workforce Development. Washington DC

8 MIT. 2006. Household Income, Travel Behavior, Location and Accessibility. Cambridge

9 NCHRP (National Cooperative Highway Research Program). 1998. Report 365: Travel Estimation Techniques for

Urban Planning 10

Hong Kong University. 1999. The Inter-relationship between Household Income and Trip Generation. Hong Kong

13

60. Over time the modal split will undoubtedly favor increased car use; in the evaluations this is dealt with by assuming real terms income growth (see annex).

Table SD20-5: Modal split

Source Car/taxi Bus Motor-cycle Cycle Walk Other

FSR 26% 19% - 29% 25% 1%

Pingxiang PPTA (2014-5)a 9% 21% 50% 7% 13% -

Pingxiang PPTA (2014-5)b 13% 77% 7% 0% 0% 3%

Xiguan, Guangzhou (2012)c 3.6% 55.1% - 3.2% 18.6% 19.5%

d

Adopted 5% 60% 20% 15% -

Source: PPTA consultants’ estimates a

Jiangxi Pingxiang Integrated Rural-Urban Infrastructure Development: mode choice for trips to local township

b Jiangxi Pingxiang Integrated Rural-Urban Infrastructure Development: mode for trips to regional center

c Sustainable Urban Transport Planning and the Commuting Patterns of Poor Workers in a Historic Inner City in

Guangzhou (Lau, Habitat International 39 (2013) 119-127) d trips by metro

61. The final stage is to estimate the value of the additional journey time faced by road users who are unable to make immediate access to the urban road network. This is shown as an example in the table below. In this case 500 return trips are assumed and the additional distance faced by residents is 500 m. The daily value (CNY543) depends on the modal split within the plot (row 2), the assumed speed of travel within the plot (row 3) and the working and non-working values of time (row 4: for source see annex). The final value is modest and amounts in this case to approximately CNY1 (=543÷500) per round trip.

Table SD20-6: Calculation of journey time benefit of new urban road

Unit Car Bus Walk to bus Walk/cycle to work etc. MC Total

Mode for trip external to plot: % of trips 5% 60% - 15% 20% 100%

Mode for trip internal to plot: % of trips 5% - 60% 15% 20% 100%

Speed within plot km/h 20 - 4 4 20

Value of working time CNY/h 30 - 15 10 10

Value of non-working time CNY/h 8 - 4 3 3

Total daily value of timea CNY/day 15 - 436 73 19 543

Source: PPTA consultants’ estimates a for 500 round trips and an additional without-project distance of 500 m

62. Local government land use forecasts are recorded as “very short term (1-2 years)”, “short term (3-5 years)” or “long term”. For use in the evaluations these terms need to be converted into calendar years, as shown in the table below.

14

Table SD20-7: Timing of land use changes

Qualitative description Year development fully occupied Year access road built

Very short 2020 2018

Short 2024 2022

Long 2027 2025


3.4.3 Treatment of auxiliary infrastructure

63. Auxiliary infrastructure (AI), generally comprising water supply, drainage and heating pipelines, adds 10-20 percent to the direct financial cost of road construction. Pipelines by themselves cannot be evaluated: they form but part of a chain of supply from source to consumer. With the information to hand AI cannot realistically be evaluated; it is an intrinsic part of urban development in the same way as access roads. 64. In the case of new roads, AI is included both as part of do-minimum costs and in project costs. The net impact on the roads evaluations is small as AI costs therefore appear in both the do-minimum and project cases (although there are small timing differences). 65. In the case of upgrades, however, replacement of AI is treated as part of project incremental cost. (AI amounts to 34 percent of the direct costs of upgrading Fukang City roads and the need to replace AI is claimed as a significant part of project justification).

66. It is evident from the FSRs that AI capacity assumes full development. Provided full development takes place, there is a benefit from initial provision of AI at relatively modest incremental cost rather than rip up the road after a few years in order to add to AI capacity as demand increases. 67. With the exception of Zhenxi Road in Ganhezi Town, all new roads have water mains. The average cost of installing the mains as part of initial construction is approximately CNY700/m (civil works, installation and pipe materials). It should not need replacing throughout the evaluation period. The alternative would be to lay a somewhat smaller pipe initially, which would reduce initial cost slightly, say to CNY650/m, but accept that after a period of time it would need either to be replaced or to have a parallel pipe installed, at a cost of say CNY1,000/m. (It is impossible to be precise about this as it depends crucially on the type of pavement, the depth of the trench and the pipelaying technique adopted). Assuming additional capacity is needed after ten years, the present value (PV) of the reduction in cost achieved by installing high initial capacity is CNY0.3 m per km. This is included as a “pipeline benefit” in the roads evaluations.

Evaluation of Hutubi County roads proposals 3.5

3.5.1 Introduction

68. Three roads are proposed in Hutubi County. Each has an existing road or track that uses a similar alignment to that proposed for at least some of its length. Outline details are shown in the table below. Ancillary infrastructure adds 30 percent to the direct cost of the roads. In order of cost, heating adds the greatest amount (CNY23 m), followed by drainage (CNY7.5 m), water supply (CNY4.3 m) and gas (CNY4.1 m).

15

Table SD20-8: Proposed Hutubi County roads

Name km Current status Cross-sectiona

Financial cost, CNY m Economic cost, CNY m

Rd AI LAR D&Sb Totc Rd AI LAR D&S Totc

Dongfeng 2.35 Track over western 1 km, then no road

6L+S+P 45.0 11.3 21.9 3.8 86.1 41.4 10.4 4.7 3.5 63.0

Hufang 3.68 6-7 m gravel road 4L+P 57.3 18.4 35.6 6.0 123 52.7 17.0 15.9 5.5 95.6

Changhua 1.93 Narrow paved track 2L+S+P 27.1 9.2 20.6 3.1 63.1 24.9 8.5 10.5 2.9 49.2

Total 8.0 129 38.9 78.1 13.0 272 119 35.9 31.1 11.9 208


6L+S+P = six lanes (for motorized traffic) plus lanes for slow-moving traffic (S) and pedestrians (P) b

design and supervision at 7.7% of subtotal c totals include physical contingencies at 5% of subtotal

3.5.2 Dongfeng Avenue

69. Dongfeng Avenue is one of Hutubi County’s existing east-west thoroughfares. The proposed project seeks to extend the existing road eastwards through nursery land and scrub, finally meeting the minor paved road that serves as the access road to Xinjiang Agricultural Vocational and Education Technical College's Dongquan campus. It lies to the east of the area covered by the proposed master plan and well outside the “core city” area. 70. The FSR shows seven plots adjacent to the road, running from 11 through to 17. With the exception of plot 17, existing and future land use is shown as nursery. Plot 17 is occupied by the agricultural college, which has an enrolment of 3,200. 71. The first kilometer or so of the proposed alignment amounts to a gravel track running between nurseries and is the only section that can currently be accessed by a motor vehicle. 72. Dongfeng Avenue will connect the agricultural college to Hutubi County urban area; at present the college can only be accessed by a narrow road which connects it to the S201. This access road, approximately 3.5 km long, has a poorly maintained bituminous pavement. In addition to the college it serves the transport needs of scattered rural settlements north of the S201. 73. Project benefits are as follows:

trips from Hutubi County center to the college will be 3.25 km shorter than in the reference (without-project) case, generating RUC savings

villagers around the access road will on (rough) average also enjoy 1 km shorter trips to Hutubi County center

transport costs faced by the nurseries will drop slightly

some traffic from Dongfeng Avenue west would probably divert to the project road, but the proportion would be tiny and should be ignored

74. Thus the road’s rationale is that of minor journey time and road user cost savings. The counterfactual for evaluation purposes is the existing road system. 75. Observed traffic on the college access road close to its junction with the S201 is shown below. (The revised count was received on 21 July 2016, i.e. well after the deadline for traffic

16

counts. It differs little from the original data and was not used). For use in the evaluation it is assumed that 24 h traffic is 1.25 times 12 h traffic, that 80 percent would divert to the new road and that normal traffic growth rates (see annex) would apply.

Table SD20-9: 12 h observed traffic on agricultural college access road, Hutubi County

Motorcycle Car Bus Medium goods Heavy goods Total

Vehicles counted 137 320 29 21 10 517

Revised count 128 311 29 21 10 499

Source: 09h00-21h00 manual classified traffic count, weekday, early July 2016

76. In the without-project case it is assumed that potentially diverted traffic travels 3 km on the high quality western Hutubi County ring road and the S201 (IRI=3) and 3.4 km on the poor quality college access road (IRI=7). In the project case traffic uses the new road (2.35 km, IRI=3) and 0.8 km of the unimproved college access road (IRI=7). 77. The table below summarizes the results of the economic evaluation.

Table SD20-10: Dongfeng Avenue evaluation results

PVa incremental costs, CNY m

PV

a of benefits, CNY m

NPVa EIRR, %

Investment cost Maintenance cost RUC savings Generated traffic Pipeline

52.3 -0.14 33.2 1.7 0.7 -16.6 8.7%

Source: PPTA estimates a

PVs calculated at a social time preference rate of 12%

78. The case for a new road on the proposed alignment rests on reduced RUCs as a result of traffic diversion, and generated traffic. The rationale is reasonable but is let down by high initial costs, a result of its excessive proposed capacity. 3.5.3 Hufang Road

79. The project road runs approximately north-south between the S201 and the S115 on the southern edge of the town. The S115 has an interchange with the G30 expressway approximately 1.3 km west of the Hufang Road/S115 junction. The project road also runs approximately 500 m east of, and parallel to Jixiang Road, a six-lane dual carriageway that is the urban area’s principal access road from the south. 80. At present the project road is a narrow (c 6 m) gravel road in poor condition: a field visit sport utility vehicle (SUV) travelled at an average of 19 km/h. 81. The FSR shows plots 18 through 26 adjacent to the project road. However, plots 18 and 26 are north of the S201 and are already developed. Plot 19 is also already developed, as a mixed residential/commercial development and has an access road to the S201; plot 25 will also have easy access to the S201. Plot 22 is proposed for a long distance bus station, but this is irrelevant to the project road as it has direct access to the S115 and Jixiang Road and does not depend for its operation on an upgraded project road. 82. This leaves plots 20, 21 and 24 with the potential to generate trips using the project road.

17

Figure SD20-1: Hufang Road plot development

Jixiang Road to Hutubi County center (6 lanes)

>5 yrs Rec 3-5 yrs

Project road Existing road 1-2 yrs Com Com

Current 22 Nur 21 Ind 20 Vill/nur 19 – comm/res

Current 23 Nur 24 Shanty 25 Shanty Rec Recreational

1-2 yrs

Res Residential

3-5 yrs

Com Commercial

>5 yrs

Res Res

Nur Nursery

S115

S201

83. County officials give as the rationale for an upgrade to Hufang Road the need to offer a separate truck route from the urban center to the S115. They state that truck trips originate in the agricultural area north of Hutubi County. While this is likely to be true, it is perfectly possible to use the existing ring road that skirts the western and northern perimeters of the urban area to handle heavy goods vehicles and keep them away from the center. 84. The road’s justification is improvement commensurate with the light traffic expected to use it; the counterfactual will be the existing road (unpaved, assumed IRI=15). 85. As there is some existing traffic on this road the PPTA consultants asked for a classified count to be undertaken. The LDI did undertake a count north of the S201, close to the urban center, where the 12 h total was 8,800 veh/day, clearly irrelevant to the proposed road. 86. For the evaluation it is assumed that existing traffic is 200 veh/day. Based on land use changes on plots 20, 21 and 24, an additional 800 veh/day (excluding motor-cycles) are added from 2021. Benefits are RUC savings from using an upgraded road, generated traffic (but based only on existing use) and some maintenance savings, as shown below. RUCs are discussed and tabulated in section 9.6 and the approach to generated traffic in section 9.8.

Table SD20-11: Hufang County road evaluation results


PV


NPVa EIRR, %

Investment cost Maintenance cost RUC savings Generated traffic Pipeline

79.4 -0.64 61.6 0.2 1.1 -15.8 9.9%

Source: PPTA estimates a PVs calculated at a social time preference rate of 12%

87. As currently envisaged this road represents poor value for money. It is away from the current urban center and represents extensive rather than intensive development, there is a parallel six lane urban road 500 m to the west and, finally, development is not scheduled for some years. A minor upgrade at say one third of the proposed cost would generate attractive economic returns.

18

3.5.4 Changhua Road

88. The project road is the proposed eastern extension of the existing Changhua Road. The proposed alignment runs through an area of single story Hui informal housing. While there is a narrow, thinly paved track that provides access to the informal housing, there is currently little direct access to the proposed alignment. The existing track is a cut-through between the busy commercial area around the junction of Hufang and Changhua Roads and the main east-west artery, the S201. 89. Table SD14-1 in the interim report shows ten plots adjacent to the proposed road. Short-term (next 1-2 years) proposals are for residential development (plots 4, 5, 7 and 8) and commercial development (plot 9). Plots 2 and 3 are earmarked for regeneration (i.e. residential development) in the short-term plan (3-5 years) and plot 6 for commercial development.

Figure SD20-2: Changhua Road plot development

Dongfeng Avenue

>5 yrs

3-5 yrs Comm

Project road Existing road 1-2 yrs

Res Res Comm

Current 6 Res/shanty 7 Res 8 9 10

Current 1Res/shanty 2 3 4 5 Rec Recreational

1-2 yrs

Res Rec

Res Residential

3-5 yrs

Res Res

Com Commercial

>5 yrs

90. The counterfactual will be short access roads for plots 3, 7 and 8 to adjacent existing roads; remaining plots have access to existing roads.

Table SD20-12: Changhua Road evaluation results


PV


NPVa EIRR, %

Investment cost Maintenance cost RUC savings Pipeline

40.9 0.2 78.5 0.6 38.0 21.0%


91. The proposed Changhua Road project scores comparatively highly because (a) development is likely to take place very soon, (b) three plots have no existing access and therefore will benefit from the proposed road and (c) its unit cost is slightly lower than Hufang Road or Dongfeng Avenue. Of the three proposed Hutubi County roads, Changhua Road is the only one that could be said to assist an intensification of urban development. 92. In addition to trips generated by developments adjacent to the road there should be small amounts of traffic diverted from the western end of Changhua Road. Table SD20-13 shows observed traffic on Hufang Road at its junction with Changhua Road, indicating that this central area is busy and likely to lead to some traffic diversion.

19

Table SD20-13: 12 h observed traffic on Hufang Road at junction with Changhua Road

Motor-cycle Car Bus Medium goods Heavy goods Total

Vehicles counted 2,138 3,435 112 24 0 5,709

Source: 09h00-21h00 manual classified traffic count, weekday, July 2016

3.5.5 Combined economic performance

93. When combined, the three proposed Hutubi County roads have an NPV of CNY5.5 m and an EIRR of 12.3 percent.

Evaluation of new Fukang City roads 3.6

3.6.1 Introduction

94. Five new roads are proposed for future development areas. They are listed in the table below. AI adds 23 percent to the direct cost of the roads.

Table SD20-14: Proposed new Fukang City roads

Name km Cross-sectiona


Rd AI LAR D&Sb Totc Rd AI LAR D&S Totc

Ruiying 1.54 4L+P 15.9 1.9 11.0 1.2 31.5 14.6 1.8 5.9 1.1 24.6

Guangyuan 1.46 4L+P 14.2 1.9 20.1 1.1 39.1 13.1 1.7 11.3 1.0 28.4

Huiyuan 1.07 4L+P 11.6 1.3 0.0 0.9 14.5 10.7 1.2 0.0 0.8 13.3

Ankang 2.10 4L+P 22.2 6.6 17.7 2.0 50.9 20.4 6.1 10.7 1.8 40.9

Boya 1.03 4L+P 10.5 2.3 6.7 0.9 21.3 9.7 2.1 0.3 0.8 13.5

Total 7.2 74.4 14.0 55.5 6.0 157 66.9 12.9 28.2 5.5 121


4L+P = four lanes plus pedestrian sidewalks. 4L width is 12 m instead of usual 14 m with one lane for slow moving traffic b


3.6.2 Ruiying Road

95. Ruiying Road has an east-west alignment and is the only road (amongst the project roads) proposed for the NW corner of the urban area. It is around 5 km from the existing commercial center. A hospital is under construction approximately 500 m south of the proposed road, but the area is otherwise completely undeveloped. 96. In early November 2016 (i.e. well after the 5 August 2016 deadline) revised plot layouts and areas were received. Figure 1 shows 9 plots associated with Ruiying Road. Only plots no. 6, 9, 10 and 11 would be dependent on Ruiying Road for access. No. 6 is residential, no. 9 is referred to as a “social car park” (assumed to be recreational) and numbers 10 and 11 are commercial or administrative. 97. An EIRR of 9.1 percent is indicated.

20

Table SD20-15: Ruiying Road evaluation results


PV


NPVa EIRR, %


20.4 0.19 13.4 0.5 -6.3 9.1%


Figure SD20-3: Ruiying Road plot development

3.6.3 Boya Road

98. The remaining five roads are clustered in the NE corner of the urban area and are around 2.5 km from the existing urban center. Boya Road has an east west alignment and is close to the existing road that forms the northern boundary of Fukang City’s long-term urban area. Table SD9-1 of the interim report shows seven plots (numbers 30-36) adjacent to the proposed road. Plot 34 has already been secured and fenced for a wholesale store and has direct access to the northern boundary road. It will go ahead regardless of the project road. Five remaining plots (31 to 36) are relevant, of which four (31, 32, 35 and 36), with a combined plot area of approximately 0.4 km2, are shown as moving to residential/commercial use within 3-5 years. Plot 32 is the only one that has no access to existing roads and therefore the only plot that generates benefits.

21

Figure SD20-4: Boya Road plot development

Fukang northern perimeter road

>5 yrs

3-5 yrs Com Com

Project road Existing road 1-2 yrs

Current 34 Com 35 36

Current 31 32 33 Ed Educational

1-2 yrs Res Residential

3-5 yrs Res Com

Com Commercial

>5 yrs

Distance to existing urban center: 2.5 km

Table SD20-16: Boya Road evaluation results


PV


NPVa EIRR, %


11.3 0.13 11.3 0.3 0.2 12.2%


3.6.4 Ankang Road

99. Ankang Road is the longest of the proposed roads and runs from east to west. It is the closest of any proposed new roads to the existing urban center. Fifteen plots are shown in Table SD9-1 as being adjacent to the new alignment, although two (plots 15 and 29) are beyond the western and eastern ends of the proposed road and are readily accessed from existing roads. Ankang Road provides access to plots 16, 18, 24 and 25 that are also assigned to Guangyuan Road and to plots 16, 17, 22 and 23 that are also assigned to Huiyuan Road. Any benefits accruing to these plots are assigned to Ankang Road (only). 100. An electrical substation already occupies plot 17. Nearly all the remaining plots are scheduled for development in the short term. On the northern side of the alignment, plot 23 represents an extension to the substation on plot 17, while plots 24-28 are earmarked for residential and commercial development. On the southern side, plots 18 and 19 are earmarked for residential development and plot 20 for a primary school. Plot 21 is earmarked for a secondary school in the long term.

22

Figure SD20-5: Ankang Road plot development

>5 yrs 3-5 yrs Social El Res Com Res Res Com

1-2 yrs

Project road Existing road Current

22 23 24 25 26 27 28

Current

17 El 18 19 20 21

1-2 yrs 16 Ed

Ed Educational

3-5 yrs Res Res Ed

Res Residential

>5 yrs

Ed

Com Commercial

MP Master plan

Distance to existing urban center: 2 km

101. The rationale for Ankang Road is fairly strong. It is close to the urban center and is therefore expected to be intensely developed in approximately five years from project completion. Four plots (16, 20, 22 and 27) are not viable without the proposed road.

Table SD20-17: Ankang Road evaluation results


PV


NPVa EIRR, %


34.0 0.3 40.0 0.6 6.3 13.6%


3.6.5 Huiyuan Road

102. Huiyuan Road has a north-south alignment and connects to the northern boundary road. Seven plots are shown adjacent to the proposed alignment, but plots 16, 17, 22 and 23 are already considered as part of the Ankang Road evaluation. In the medium term (3-5 years) two (numbers 39 and 40, 0.21 km2) are shown moving to commercial use and one (plot 38, 0.08 km2) is earmarked for a school.

23

Figure SD20-6: Huiyuan Road plot development

Fukang City northern perimeter road

Ed

38 39

Com

Huiyuan Road

Com

40

Ankang Road (part of)

22 23

El

Ed Educational

16 17 El

Com Commercial

>5 yrs 3-5 yrs 1-2 yrs Current Current 1-2 yrs 3-5 yrs >5 yrs El Electrical substation

Distance to existing center: 2.4 km

103. The allocation of plots 16, 17, 22 and 23 to Ankang Road and the fact that only one plot (40) is not viable without the project road reduces returns, as seen in the table below.

Table SD20-18: Huiyuan Road evaluation results


PV


NPVa EIRR, %


11.1 0.1 9.2 0.3 -1.7 10.6%


3.6.6 Guangyuan Road

104. The alignment of Guangyuan Road also runs from north to south and is parallel to Huiyuan Road. Six plots are shown as being adjacent to the new alignment. One plot, plot 37 (0.12 km2) is earmarked for commercial use in the long term (plots 16 and 18 shown in the figure are associated with Ankang Road). No other land use changes are shown.

Figure SD20-7: Guangyuan Road plot development

Fukang City northern perimeter road

Guangyuan Road

Com

37 30

Ankang Road (part of)

24 25

Ed Educational

Ed 16 18

Res

Com Commercial

>5 yrs 3-5 yrs 1-2 yrs Current Current 1-2 yrs 3-5 yrs >5 yrs Res Residential

Distance to existing center: 2.2 km

24

105. As with Huiyuan Road, the allocation of plots 16 and 18 to Ankang Road and the fact that, in reality, all plots would be viable without the project road reduces returns, as seen in the table below.

Table SD20-19: Guangyuan Road evaluation results


PV


NPVa EIRR, %


23.6 0.2 17.1 0.4 -6.2 9.4%



106. When combined, the five proposed new Fukang City roads have an NPV of –CNY8.2 m and an EIRR of 11.3 percent. There is a reasonable case for aggregating Boya, Ankang, Huiyuan and Guangyuan roads as they all serve the same part of Fukang City and indeed have some plots (i.e. demand) in common. They have a combined NPV of –CNY1.4 m and an EIRR of 11.8 percent.

Evaluation of Fukang City road upgrades 3.7

3.7.1 Introduction

107. Fukang City proposes upgrading four existing roads in its urban center. AI adds 28 percent to the direct costs of road construction. The scope of the AI varies widely from road to road and sits uncomfortably with the assertion during the interim mission that the rationale behind the road upgrades was water mains replacement: the cost spreadsheets made available to the PPTA team show that neither Tianshan nor Tianchi Roads has a water mains replacement cost, whereas Yingbin Road shows CNY10 m for heating pipes. 108. Two roads, Bofeng and Tianshan, have evidently been subject to periodic maintenance (probably an overlay in the case of Bofeng Road) very recently.

Table SD20-20: Proposed Fukang City road upgrades



Rd AI D&Sb Totc Rd AI D&S Totc

Tianshan 1.24 4L+P/S 15.4 3.6 1.3 21.2 14.1 3.3 1.2 19.5

Tianchi 1.32 4L+P/S 17.6 2.8 1.4 22.8 16.2 2.5 1.3 21.0

Yingbin 1.46 4L/6L+P/S 25.7 13.9 2.7 44.4 23.6 12.8 2.5 40.8

Bofeng 2.36 4L+P+S 30.8 9.9 2.8 45.7 28.3 9.1 2.5 42.0

Total 6.4 89.4 30.2 8.1 134 82.3 27.8 7.5 123


4L+P/S = four lanes plus pedestrian/slow-moving traffic lane b


25

3.7.2 Evaluation of upgrades

109. Given pavement condition and traffic data it would have been relatively straightforward to establish whether the proposed rehabilitation interventions represented good value for money. Traffic counts were requested and were reported to the PPTA consultants on 5 July 2016; they are shown, marked as “A”, in the table below. They lacked credibility, however. This was reported to the PMO. 110. Revised values were received on 21 July 2016; they are shown as “B” in the table. It seems unlikely that this second set represents a second set of counts. The counts suggest 12 h traffic excluding motor-cycles ranging from 5-13,000 veh/day.

Table SD20-21: 12 h observed traffic on Fukang City roads

Road/site Motorcycle Car Bus Medium

goods

Heavy

goods

Total Total

excluding MC

Bofeng A (jn Tianchi) 4,880 11,099 120 133 0 16,232 11,331

Bofeng B (jn Tianchi) 4,901 10,024 125 135 0 15,185 10,284

Tianchi A (jn Bofeng) 5,769 12,290 198 182 11 18,450 12,681

Tianchi B (jn Bofeng) 4,701 7,949 335 107 0 13,092 8,391

Tianshan B (jn S111) 3,089 7,213 114 129 0 10,545 7,456

Tianshan A (jn S111) 3,178 8,116 117 129 0 11,540 8,362

Tianshan A (jn Fuxin) 3,370 6,002 125 145 0 9,642 6,272

Tianshan B (jn Fuxin) 3,314 5,311 119 142 0 8,886 5,572

Yingbin A (jn Bofeng) 1,214 6,559 121 241 0 8,135 6,921

Weighted average (24h)

a

4,749 10,995 189 201 1 16,136 11,387

jn = junction Source: 09h00-21h00 manual classified traffic count, weekday, June 2016 Note: (a) weighted by length and expanded to 24 h using an expansion factor of 1.25 111. Pavement condition data have never been received. Fukang City authorities did however provide some evidence for expenditure on the four roads over the period 2012-15. Water mains repairs were carried out 108 times over this period and expenses of CNY35,000 per km per year were incurred. This is sufficient to convince an impartial observer that above-average expenditure has been incurred, but not that replacement beneath the existing pavement is necessarily the most cost-effective solution. 112. In the absence of reliable and specific local data, HDM-4 was run for a range of plausible conditions and traffic levels. In both project and without-project cases, maintenance interventions are assumed as per Table SD20-71. In the project case a two-year asphaltic concrete (AC) upgrade is assumed in 2018-19, at an economic cost of CNY19 m/km (this being the average unit cost implied by Table SD20-20). 113. Traffic volumes of 2,000, 4,000, 6,000 and 8,000 veh/day excluding motorcycles were tested. A single fleet distribution, derived from Table 25, was used (96.5 percent cars, 1.8 percent buses, 1.7 percent medium goods vehicles and 0.01 percent heavy goods vehicles). To this was added an additional 45 percent motor-cycles. Traffic growth is at the normal traffic growth rates in section 9.7. Evaluation runs were truncated at 20 years from assumed opening;

26

this was to obviate distortion of the results arising from high levels of congestion in the latter years of the evaluation period. 114. The existing road is in all instances assumed to be a four-lane road with a 15 m wide carriageway and an AC pavement last rehabilitated in 2009. 115. Results are shown below. They show that upgrades would be justified subject to:

pavement condition data

confirmation of traffic volumes

exclusion of roads that have already received an overlay in recent months

Table SD20-22: Fukang City road upgrades: typical evaluation results

Initial traffic, veh/day (excluding motor-cycles) Initial IRI NPV, CNY ma EIRR

2,000 7 -56.9 6.1%

4,000 7 +11.8 13.1%

6,000 7 +55.9 17.4%

8,000 7 +143 23.6%

Source: PPTA consultants’ estimates Note: (a) for a 10km section of road

116. As all the urban roads earmarked for upgrade are interconnected, and there are no pavement condition data on which to base individual evaluations, it was decided to evaluate them as a single unit. We took the weighted average traffic in Table SD20-21 and applied it to a single representative section 6.4 km long. The initial IRI was taken as 7. The results are shown in the table below.

Table SD20-23: Fukang Cityupgrades: evaluation results


PV


NPVa EIRR, %

Investment cost Maintenance cost VOC Journey time

100 -0.03 85.5 52.2 37.7 16.1%

Source: PPTA estimates using HDM-4 a PVs calculated at a social time preference rate of 12%

Assessment of Ganhezi Town roads proposals 3.8

3.8.1 Introduction

117. Ganhezi Town is a former manufacturing town approximately 33 km east of Fukang City urban area. Five road improvement projects are planned, two of which are entirely new and three that represent upgrades. The town’s main thoroughfare is the S303. Away from this road there is very little traffic; vehicle ownership appears to be very low.

27

Table SD20-24: Proposed Ganhezi Town roads

Name km Current status Cross-sectiona


Rd AI D&Sb Totc Rd AI D&S Totc

Changqing 0.72 Poor quality concrete 4L (14 m) 15.0 1.7 1.1 18.8 13.8 1.6 1.0 17.3

Zhenxi 0.95 No road 4L (14 m) 8.4 0.8 0.6 10.3 7.7 0.7 0.6 9.4

Weiqi 0.65 No road 2L (7 m) 6.3 1.1 0.5 8.2 5.8 1.0 0.5 7.6

Guangming 0.48 Track 4L (14 m) 8.7 1.1 0.7 11.0 8.0 1.0 0.6 10.1

Honglingjin 0.55 Poor quality concrete 2L (9m) 12.7 1.7 1.0 16.2 11.7 1.6 0.9 14.9

Total 3.4 51.1 6.4 3.9 64.4 47.0 5.9 3.6 59.2


4L (14 m) = four lanes with total carriageway width of 14m b


3.8.2 Evaluation of new roads

118. The scope of the new roads in Ganhezi Town was changed in late October 2016. The proposed Weisan Road was dropped, the alignment of Zhenxi Road changed and Weiqi Road added. The result can be seen as a single new road, approximately 2 km long, around the southern part of Ganhezi Town, as shown schematically below. 119. The proposed new layout will provide access (though not in a cost-effective way) to three proposed industrial exhibition halls. It will also facilitate future development of the southern part of Ganhezi Town, an area that is currently home to few economic activities and little housing. 120. Benefits of the proposed new road (comprising Zhenxi, Weiqi and Guangming roads) are:

diversion benefits for an assumed 25 percent of traffic observed at Guangming Road (see Table SD20-27) wishing to access the S303 and whose destinations are to the west of Ganhezi Town (a saving of approximately 1 km)

access benefits for the two southerly exhibition hall sites. The approach is the same as that adopted elsewhere and described in section 3.4.2. In this case, based on information supplied by Ganhezi Town, it is assumed that each site will attract 7,000 visitors per year, travelling by bus. In the absence of the project road, short, narrow access roads would have to be built; avoiding their cost is a project benefit. (The project road does not offer the third exhibition hall site, close to Guangming Road, any improvement over a do-minimum access road.)

28

Figure SD20-8: Revised Zhenxi-Weiqi-Guangming road layout

121. Benefits and evaluation results are shown below.

Table SD20-25: Ganhezi Town: Zhenxi-Weiqi-Guangming benefit estimates

2016 savings CNY m PV of savings, 2018-2044, CNY m

Diversion benefits 0.54 26.3

Access benefits 0.02 0.02

Pipeline benefit 0.34

Total benefits 26.6

Source: PPTA consultants’ estimates Note: for RUCs and traffic growth assumptions, see section 9

Table SD20-26: Zhenxi-Weiqi-Guangming: evaluation results

PVa incremental costs, CNY m PV

a of benefits, CNY m NPV

a EIRR, %

22.5 26.6 4.1 13.5%


3.8.3 Evaluation of upgrades

122. Honglingjin and Changqing roads connect and serve the south-eastern corner of the town (known as the Guangming Road community), currently separated from the main town by a bridge that is impassable to anything larger than a motor-cycle. 123. The road layout is shown in Figure SD20-9 and two traffic counts in Table SD20-27. The high traffic flows are attributable to the extensive residential areas south of Changqing road. Longkou Road also extends well south of the Ganhezi Town urban area to a residential area

29

approximately 2 km south of urban Ganhezi Town, finally connecting to mining or quarrying areas in the foothills.

Figure SD20-9: Roads in the Guangming Road area of Ganhezi Town

Table SD20-27: 12 h observed traffic on Ganhezi Town roads, June 2016

Road/site Motorcycle Car Bus Medium goods Heavy goods Total

Guangming Road 567 2,955 52 109 0 3,683

Changqing Road 378 2,029 43 73 0 2,523

124. No new developments depend on the proposed upgrades. Benefits accrue only to existing traffic. Upgrading the existing roads will reduce road user costs. In addition, with removal of the width restriction on Changqing Road, some traffic will divert from Honglingjin and Longkou roads to Changqing Road. Diversion would save around 1 km from trips to and from the local government and retail area on Guangming Road. 125. In order to estimate RUC savings it is assumed that 2016 Honglingjin Road traffic is 25 percent of Changqing Road traffic. Without- and with-project IRI roughness values are taken as 7 and 3 respectively. RUCs for different IRI values are shown in Table SD20-69.

126. In order to estimate diverted traffic benefits it is assumed that 50 percent of the combined Honglingjin and Changqing traffic would find it advantageous (in perceived cost terms) to divert. Benefits calculations and a summary of the evaluation are shown in the tables below. The evaluation result is poor, attributable to the high unit costs of Changqing and Honglingjin roads.

30

Table SD20-28: Ganhezi Town: Changqing and Honglingjin benefit estimates

2016 savings CNY m PV of savings, 2018-2044, CNY m

RUC savings passenger traffic 0.42 7.60

goods traffic 0.01 0.17

Total 0.44 7.76

Diversion benefits passenger traffic 0.21 3.80

goods traffic 0.01 0.08

Total 0.22 3.88

Total benefits 11.64

Source: PPTA consultants’ estimates Note: for RUCs and traffic growth assumptions, see section 9

Table SD20-29: Changqing and Honglingjin: evaluation results

PVa incremental costs, CNY m PV

a of benefits, CNY m NPV

a EIRR, %

26.8 11.6 -15.1 5.8%



127. When combined, the proposed Ganhezi Town road improvements have an NPV of –CNY11.1 m and an EIRR of 9.9 percent. As both the new and the upgraded roads are effectively all part of the urban road system south of the S303 it is reasonable in this case to present them as a single project.

Evaluation of Qitai County roads proposals 3.9

3.9.1 Introduction – new roads

128. Five new roads are proposed for future development areas. They are listed in the table below. Note that the cross-sections given here are those recommended in the PPTA interim report and not those in the FSR. Ancillary infrastructure only includes water supplies. Their costs are not allocated by road and appear to be considered by the LDI as part of the transmission mains project (see below).

31

Table SD20-30: Proposed new Qitai County roads



Rd AId LAR D&Sb Totc Rd AI LAR D&S Totc

Wenhua West 1.97 4L+P/S 26.0 1.5 17.7 2.2 49.7 23.9 1.4 8.9 2.0 38.0

Urumqi West 2.21 4L+S+P 26.0 1.7 0.0 2.2 31.4 23.9 1.6 0.0 2.0 28.9

Urumqi East 2.38 4L+S+P 33.9 1.8 15.0 2.8 56.2 31.2 1.7 6.2 2.6 43.7

Bajiahu 1.87 4L+S+P 26.0 1.7 35.1 2.1 68.2 23.9 1.6 19.8 2.0 48.6

Xingfu 3.01 4L+S+P 37.1 2.8 63.7 3.1 112 34.1 2.6 36.9 2.8 80.3

Total 11.4 149 9.5 132 12.4 318 137 8.7 71.8 11.5 241


4L+P = four lanes plus pedestrian sidewalks b


d cost of water distribution mains (see Table SD20-36) allocated to individual roads pro rata to length

3.9.2 Wenhua West Road

129. Of the five proposed roads, Wenhua West Road is by far the closest to the existing urban center. The eastern end of the road is currently built up and occupied by low rise informal housing. It is a busy commercial area. The area will be cleared shortly and replaced by Wenhua West Road and become a residential area, probably for those resettled from this and other areas.

Figure SD20-10: Wenhua West Road plot development

>5 years 3-5 years Res Res Res Res Res Res Res

1-2 years

Project road Existing road

Current 17 18 19 20 21 22 23

Current 11 12 13 15 16 1-2 years Ed Educational 3-5 years Res Res

Res Residential

>5 years Com Commercial


130. As the road is earmarked for quite intense development and many plots cannot be easily reached from the existing road network, benefits are comparatively high.

Table SD20-31: Wenhua West Road evaluation results


PV


NPVa EIRR, %


31.6 0.2 67.1 0.6 35.9 19.4%


32

3.9.3 Urumqi West Road

131. Urumqi West Road is well to the south-west of the existing center. Development is just starting in this area. Plot 1 is an existing corporate headquarters, but this could not be verified during a field visit in June 2016. Plot 2 is reported to be a vehicle testing station under construction, of which there was similarly little evidence.

Figure SD20-11: Urumqi West road plot development

>5 years Project road Existing road

3-5 years Com Com Rec

1-2 years Current 6 7 8 9 10

Ed Educational

Current 1 – Com 2 – Veh test 3 4 5

Res Residential 1-2 years Ed - 4,000

Com Commercial

3-5 years Rec

Rec Recreational >5 years Res


132. Plots 3, 8, 5 and 10 are sufficiently far from the existing road network to require single lane access roads in the without-project case. Despite this, development is insufficiently intense or soon to generate significant benefits. 133. Once Urumqi West and Urumqi East roads are complete (and a sugar beet processing factory that lies between them is removed), they will form a new 5 km long east-west route. This will undoubtedly attract some diverted traffic. Only a rough estimate of this is possible: it is assumed that 1,500 veh/day will divert (with a 50% car, 30% bus and 20% medium goods fleet composition) and save 1 km. This yields an annual benefit of CNY2.9 m. Strictly, this accrues to a project comprising both Urumqi West and Urumqi East Roads, but for presentational purposes the benefit is divided equally between the two road sections. Diversion benefits are ramped up over three years.

Table SD20-32: Urumqi West Road evaluation results


PV


NPVa EIRR, %

Investment cost Maintenance cost RUC Pipeline Diversion

24.0 0.3 9.9 0.7 8.0 -3.2 10.5%


3.9.4 Urumqi East Road

134. Urumqi East Road is the mirror image of Urumqi West Road. They do not at present connect, although will probably do so in the near future (see above).

33

Figure SD20-12: Urumqi East Road plot development

>5 years

Res Res Res Res Project road

Existing road 3-5 years

1-2 years 36 – Res

Current

37 38 39 40 41 42

Ed Educational

Current 50 Ind 49 48 47 46 45 44 43

Res Residential 1-2 years

Com Commercial

3-5 years

Rec Recreational >5 years


135. Development along Urumqi East Road is comparatively long term, as can be seen from the figure above. Only plot 37 and some of plot 36 are sufficiently far from the existing road network to require single lane access roads in the without-project case. This, plus the lack of immediate development, generates low returns.

Table SD20-33: Urumqi East Road evaluation results


PV


NPVa EIRR, %

Investment cost Maintenance cost RUC Pipeline Diversion

36.6 0.3 21.6 0.7 8.0 -6.2 10.4%


3.9.5 Bajiahu Road

136. In network terms Bajiahu Road is similar to Urumqi East Road, but being slightly closer to the urban center it is expected to develop slightly earlier.

Figure SD20-13: Bajiahu Road plot development

>5 years Project road Existing road

3-5 years

1-2 years Res Current 24 25 Res 26 Res 27 Hosp 28 Hosp 29

Ed Educational

Current 36 35 34 33 32 31 30

Res Residential 1-2 years Res Com Commercial 3-5 years Res Res Res Res Rec Recreational >5 years


Comm = Commercial, Ed = Education, Hosp = Hospital, Rec = Recreational, Res = Residential

137. Plots 25 and 35 are sufficiently far from the existing road network to require single lane access roads in the without project case. This, plus the prospects for immediate development, generates reasonable returns.

34

Table SD20-34: Bajiahu Road evaluation results


PV


NPVa EIRR, %


41.2 0.2 32.1 0.6 -8.7 9.8%


3.9.6 Xingfu Road

138. Xingfu Road runs broadly north-south, parallel to the S303. A revised set of plot and land use details was made available in late October 2016, i.e. well after the August 2016 deadline for new information. The number of plots and their numbering were quite different from the set received prior to the interim report but, despite requests, by early December 2016 no revised plot layout had been received. The figure below is therefore out of date. 139. In the absence of a revised plot diagram it has been assumed that all those plots (a) as yet undeveloped, (b) with a specified floor area, (c) with a clearly specified future land use and (d) a clear time horizon to development, a do-minimum access road length of 200 m was assumed. Of the revised total of 25 plots, seven met these criteria. The revised land use schedule gave floor areas and these were used in place of the standardized values in section 3.4.2.

Figure SD20-14: Xingfu Road plot development

>5 years Project road Other project

roads

3-5 years Res Res

1-2 years Current 29 31 41 44 51 53 56 Village

Hosp Hospital

Current 28 Hosp 32 40 45 52 54 CA 55 CA

Res Residential

1-2 years CA Reserved for

CA 3-5 years Res Res

>5 years Res

Distance to existing urban center: 2-5 km CA = Civil aviation, Hosp = Hospital, Res = Residential

Table SD20-35: Xingfu Road evaluation results


PV


NPVa EIRR, %


66.7 0.4 57.5 0.9 -8.6 10.7%



140. When combined, the five proposed new Qitai County roads have an NPV of CNY9.1 m and an EIRR of 12.4 percent.

35

4 EVALUATION OF WATER COMPONENT

Evaluation of Qitai County water supply 4.1

4.1.1 Current situation

141. Raw water in Qitai County is drawn from local aquifers. Groundwater levels are falling. They have fallen at an average of 1.0 m per year since 2001, a rate that has increased to 1.8 m per year since 2010 (source: Table SD18-3, PPTA interim report). Aquifer depletion is likely to be the result of the extensive irrigation around Qitai County, and industrial abstractions. 142. In 2015, 9.23 million m3 (25,000 m3/day) were put into supply, of which 5.90 million were sold to residential and non-residential consumers. Physical losses and (unpriced) water used to irrigate Qitai County’s municipal plantings account for the remainder, some 3.33 million m3. 143. Of the 5.90 million m3 sold, 0.6 million m3 are sold to non-residential users. The balance is sold to 123,000 residential consumers, implying consumption per head per day of 120 liters. Many non-residential users have their own groundwater sources; these independent supplies are estimated to abstract around 2.5 million m3 per year. (Data from technical assessment supplementary document; interpretations of the data differ slightly from those in technical assessment supplementary document, however). 144. The current Qitai County water supply network extends to 31.5 km (smallest diameter 100 mm), implying approximately 0.7 m of distribution pipe per household (a low value, even considering that most residents live in apartment blocks). 145. Anecdotally, it is reported that there are seasonal shortages of potable public water in Qitai County, hardly surprising in view of the decline in groundwater levels. Limited support for this assertion is to be found in the household survey. Respondents were asked to identify up to three characteristics of their water supplies. The first characteristic identified was almost universally favorable, with 70 percent of respondents in the entire project area describing their water as being of both good quality and high reliability. The second characteristic was much less favorable, however. Of 553 valid responses from the total project area, 39 percent said they experienced low pressure or supply cuts and a further 12 percent complained of tap water that was turbid or smelt bad. Qitai County was similar: 40 percent said they experienced low pressure or supply cuts. 4.1.2 Project outline

146. Contrary to appearances, the ADB project is a transmission mains project and only the transmission mains subcomponent is evaluated. 147. As presented by the PMO, however, the subcomponent has two parts: 77 km of large (700-1,000 mm diameter) transmission mains and 11.5 km of large (400 and 500 mm diameter) distribution pipes. There is no physical or logical connection between the two parts. The distribution pipes are intended to run along the proposed new Qitai County roads; they are of larger diameter than is usual for distribution pipes and it is unclear what their future network role might be. Table SD20-36 summarizes the costs of both the transmission mains and the distribution pipes.

36

Table SD20-36: Qitai County water supply financial base cost

Item Financial costs

CNY m

Economic cost of transmission mains

CNY m

Transmission mains, 77.17 km 184 178

Distributions mains, 11.46 km 9.56 0

Subtotal, direct construction cost 195.3 178

Design and supervision 14.7 13.5

Physical contingencies at 5% 10.5 9.6

Total 221 201

Source: LDI and PPTA calculations

148. The bigger picture is as follows. The ADB transmission mains subcomponent is one part of a larger scheme to augment Qitai County’s water supplies through to the 2030 planning horizon. The components that make up this larger scheme are as follows:

two multipurpose reservoirs: Biliu (complete) and Zhonggegen (under construction)

ADB co-financed transmission mains from Biliu and Zhonggegen to a water treatment works (known as WSP3) on the southern outskirts of Qitai County. Water from Biliu has a high suspended load and will be subject to pre-treatment before transmission to WSP3.

ADB co-financed transmission mains from WSP3 to the distribution system 149. Both WSP3 and the pre-treatment works are being financed (and will be operated) under a PPP arrangement; WSP3 is under construction. Thus the scope and design of the ADB project is effectively fixed. 150. The economic cost of the transmission mains alone, using the approach in section 2, is CNY201 m (see table above for calculation). This is the only incremental project investment cost: all other investment costs (of WSP3, the pre-treatment plant and the reservoirs) are sunk or committed and cannot be affected by a decision to proceed (or not) with the ADB project. 151. WSP3 design assumes an average daily demand of 100,000 m3/day in 2030. This is made up of residential consumers, those non-residential consumers who switch from private wells to the public supply, and a continuation of the existing municipal irrigation and street-cleaning activities. A separate water treatment works will serve an industrial estate; it will draw raw water from other sources. The two existing water treatment works will be closed once WSP3 is operating, although one will be retained as a stand-by facility. 4.1.3 Alternatives considered

152. No alternative projects have been considered. Reducing losses and cutting back on municipal irrigation seem obvious first steps, especially in view of the high unit cost of the proposed scheme (see below).

37

4.1.4 Scope of benefits

153. In the reference, without-project case supplies will continue to be unreliable. The operating expenses of WSP1 and WSP2 will continue to increase as aquifer levels fall. 154. In the project case reliability will improve; the operating expenses associated with WSP1 and WSP2 will cease as largely gravity supplies replace them. 155. In the longer term the project will provide water for an increased population, but this will require additional investment in distribution pipes, service reservoirs and house connections. (The Qitai PMO was asked for estimates of the cost of extending services but without result). 156. The value of a reliable water supply is measured by household willingness to pay, as described in the following section. 4.1.5 Willingness to pay for improved water supplies

157. As part of the household survey, respondents were asked whether they would be willing to pay an additional sum for improved supplies. The respondent is invited to answer "yes" or "no" to the particular amount proposed. If a respondent indicated that they did not favor increased spending, this was taken as willingness-to-pay (WTP) of zero. Bid amounts, chosen by enumerators at random, varied from CNY10 to CNY50. 158. Construct validity was checked by seeing whether propensity to pay falls as the bid amount is increased. Figure SD20-15 confirms that this is so.

Figure SD20-15: Propensity to pay for improved water supplies

159. Having confirmed internal validity, the next stage is to find a good model for WTP and use it to estimate mean WTP (and confidence limits and other statistics of interest). The dependent variable throughout is the binary variable WTP (1 means a WTP>0; 0 indicates a

38

WTP=0). Both logit and probit models are widely used to derive a regression between the dependent binary WTP and regressors such as bid amount, household income etc. Both models give similar results; the probit model is used here. 160. The survey throws up many potential explanatory variables, or regressors (household income, location, occupation, age etc.). Many of these are approximately linearly related to each other (e.g. education and household income) and including them does little for the quality of the model. In this case no regressors (excluding the bid amount and the constant term) had coefficients that were significant at the 5 percent level. (Household expenditure performed better than household income, but was only significant at the 15 percent level). 161. Probit regression results are shown in the table below.

Table SD20-37: WTP for improved water supplies

i Regressor, Xi Coefficient, Bi t-statistic [probability] Sample mean, Mi

1 Proposed bid (BID) -0.04074 -11.4572 [.000]

2 Regression constant (CONST) 0.7785 4.4513 [.000] 1.00

Sample size, n 725

Goodness of fita 0.732

SICb -410

Mean WTP (CNY/household)c 19

Source: PPTA consultants using Microfit 5.0 Notes: (a) standard deviation of observed values about the estimated regression line

(b) Schwarz Information Criterion = measure of out of sample forecast performance (lower absolute values indicate better performance)

(c) Calculated as -1 x B2.M2÷B1 = 0.7785÷0.04074 = 19.1 162. A monthly value of CNY19 per household is adopted, increased in line with expected real GDP per head at 3.5 percent per year (the same value is used to increase the value of journey time savings – see section 9.5). 163. Non-household use (both industrial and municipal) is significant; this group must also place a value on more reliable supplies. No survey results are on hand for this group, however, and benefits are assumed to be pro rata to the volume of water consumed. 4.1.6 Demand assessment

164. The FSR’s long term planning horizon is 2030. Water demand in 2030 is assessed at a domestic demand for a population of 450,000 consuming 170 liters per head per day (i.e. 76,500 m3/day) and an industrial demand of 24,000 m3/day based on consumption rates per unit area. Adding losses and allowances for watering municipal land etc. gives a design demand of 150,000 m3/day, which cannot be readily reconciled with current and likely future populations. 165. An alternative demand forecast has therefore been devised. The residential demand component of this alternative forecast rests on the following assumptions:

39

2014 populations as follow: Qitai County 243,295, Qitai County urban 89,242 (registered)

Assume that 15 percent urban residents are unregistered, bringing the total 2014 urban population to 103,500 (rounded)

Historic annual growth of the county population has been 0.56 percent. Assuming this continues into the future, the county population will be 252,000 in 2020, 266,000 in 2030 and 281,000 in 2040

urbanization goals of 60, 80 and 90 percent (of the county population) for 2020, 2030 and 2040 respectively, implying urban populations of 151,000, 213,000 and 253,000

the 2015 service area population was 123,000. This is assumed to remain constant until 2020. It is then assumed to grow steadily until 95 percent coverage of the urban population is achieved in 2030, remaining at this level thereafter

daily consumption per head of 120 liters (Fukang City data suggest a lower figure of 110 liters)

166. Non-residential demand is taken from interim report SD18. The adopted demand forecast is shown in the table below. Note that no account has been taken of either price or income elasticity effects. The 2030 forecast demand is a little under half of that envisaged in the FSR.

Table SD20-38: Demand assessment assumptions

Item Unit 2015 2020 2030 2040

County population Number 244,700 252,000 266,000 281,000

Urban population Number 110,000 151,000 213,000 253,000

Service area population Number 123,000 124,000 202,000 241,000

Service area households Number 42,400 42,700 70,000 83,000

Domestic water consumptiona Million m

3/year 5.39 5.42 8.86 10.5

Industrial water useb Million m

3/year 0.55 0.55 3.80 3.80

Municipal usec Million m

3/year 2.5 5.1 5.1 5.1

Physical lossesd Million m

3/year 1.2 1.5 1.8 1.8

Commercial lossese Million m

3/year 1.1 1.3 1.6 1.6

Beneficial usef

Million m3/year 8.4 11.1 17.8 19.4

m3/day 23,000 30,000 49,000 53,000

Water into supply Million m

3/year 10.7 13.9 21.2 22.9

m3/day 29,000 38,000 58,000 63,000

Source: PPTA consultants’ estimates a at 120 lcd

b increases from 1,520 m

3/d in 2020 to 10,404 m

3/d in 2021 (see SD18)

c watering gardens and street cleaning

d constant in volumetric terms from 2030

e referred to as “unanticipated demand” in SD18 in interim report

f total water delivered to residential and non-residential consumers

40

4.1.7 Evaluation

167. Unit cost. Taking only the investment cost of the transmission pipes and demands in the table above, the unit costs of water into supply and water delivered and paid for are CNY1.4 and CNY2.6 per m3 respectively. Adding the direct operating expenses of WSP3 (CNY0.3/m3, taken from the LDI and including energy, chemicals and labor) brings unit costs to CNY1.7 and CNY2.9, compared with current retail tariffs of CNY1 and CNY2.6 for residential and non-residential use respectively. Were the costs of the additional infrastructure to be included, it is clear that this is part of a very costly water supply project indeed. 168. The basis for evaluation is as follows:

increased WSP3 operating expenses of CNY0.3/m3

reduced water company head office staff by 40 (of a total of 85) at an assumed CNY2,500/person/month

reduced groundwater pumping costs as WSP1 and WSP2 are closed, based on a reported 35 m depth to groundwater in 2015, increasing by 1 m per year, water into supply as in Table SD20-38, pumping efficiency of 70 percent and an economic price of energy of CNY0.6/kWh

WTP for more reliable water supplies as described in section 4.1.5 above

additional distribution and house connection costs as the service area population increases from 123,000, estimated at CNY100 per additional person (based on a population of 15,000 in a gross area of 1km2, distribution pipe at CNY500/m and house connection service pipes at CNY2,000 per 30 people)

169. Results are shown below.

Table SD20-39: Qitai County water supply evaluation results

Incremental costs as PVs, CNY m

Benefits as PVs, CNY m

NPV EIRR% Investment Operations

New

infra Total

WTP –

res

WTP –

non-res

Labor cost

savings

Pumping

cost savings Total

166 36.2 28.7 230 129 143 11.1 13.4 297 +66.1 15.8%

Source: PPTA estimates

41

5 EVALUATION OF SHELTER-BELT SUBCOMPONENTS

Component outline 5.1

170. A substantial investment of CNY173 m in shelter-belts is proposed for Fukang City, amounting to a direct financial cost of CNY180 per tree. It is sub-divided into three parts, as shown below.

Table SD20-40: Fukang City shelterbelts

Sub

component

Description Direct cost

in CNY m

LAR cost

in CNY ma

S303

shelterbelt

235,950 trees plus irrigation systems on both sides of the

S303 covering an area of 2.2 km2

21.8

Northern

loop

38,500 trees plus irrigation systems on both sides of the

northern loop road covering an area of 0.87 km2

84.4

Southern

zone

674,000 trees plus irrigation systems, covering a roughly

rectangular area of 3.77 km2 in the Sigong river catchment

66.9

Total (excluding physical contingencies and design & supervision) 173 41

Source: LDI Note: (a) only the total for all three shelterbelts is available

171. As each area is irrigated, at least for the first few years, there are also operating expenses. For evaluation purposes it is assumed that each tree requires 100 liters per week for six months of the year and that a cubic meter has a unit cost of CNY0.3 (see section 4.1.7). (Each S303 shelterbelt tree occupies 9 m2 and 100 liters/tree/week is equivalent to a low evapotranspiration rate of approximately 2 mm/day). 172. Operating expenses calculated in this way come out to a total of approximately CNY1,200/ha/yr. Although operating expenses are not specified in the FSR, a separate official note prescribes an annual operating expense for roadside shelterbelts of approximately CNY2,100/ha. Such high expenses are not supportable by the benefits of the shelterbelts and the calculation presented here makes use of the lower figure of CNY1,200.

Benefits 5.2

5.2.1 Outputs

173. Tangible and quantifiable outputs (when compared with lack of forestation) include:

avoidance of soil (and therefore crop) loss

increased water retention

carbon sequestration

increased oxygen release during photosynthesis 174. Tangible but not readily quantifiable outputs include:

re-establishment of lost biodiversity values

42

other micro-climatic effects, including protection from dust storms

175. Table SD20-41 shows those physical outputs for which it was possible to estimate values.

Table SD20-41: Shelterbelt outputs

Output Unit S303 Northern

loop

Southern

zone

Area protected from agricultural lossa ha/year 500 200 800

Water conservationb m

3/year 66,000 - 113,100

Carbon sequestrationc kg CO2e/tree/yr 40 40 40

Source: PPTA environmental team Notes: (a) scaled from southern zone range of 700-900 ha protected pro rata to planted area (b) based on 300 m

3/ha/year

11

(c) PPTA environment team, using LDI values adjusted for international data 5.2.2 Valuation of outputs

176. The soil loss benefit is estimated as avoiding gross margin loss of CNY4,600 per ha per year (source: PPTA environment team. This value is similar to that reported in section 2.3 of this report). 177. The scope for carbon sequestration benefits is subject to much uncertainty, arising both from uncertainty over the social cost of carbon and, more importantly, over the rate at which shelterbelt trees store carbon. Forthcoming ADB guidance is expected to recommend a social cost of carbon of $35/ton of CO2e at 2015 prices, rising at 2 percent per annum. At 2016 prices and converted at the OEM, $35/ton is equivalent to CNY245/ton. 178. Incremental water conserved is valued at an estimated long run marginal cost of CNY7/m3, taken from a World Bank study12. 179. No valuation of increased oxygen release is available. 5.2.3 Evaluation results

180. Results are shown below. Essentially, net benefits are inversely related to the investment cost per tree, which rises from CNY90 (S303) to CNY2,200 (northern loop). The northern loop appears to represent very poor value for money (its cost has risen nearly fourfold since the interim report). 181. There is a strong case for treating these three subcomponents as a single project, however, as the benefits are not strongly locational. (In particular, carbon sequestration is valuable wherever it takes place). On that basis, and given that the threshold EIRR is 6 percent for this type of investment (see section 2.1), this subcomponent should be accepted.

11

ADB. 2016. Qinghai Haidong Urban-Rural Eco-Development Project, TA 8846.Manila 12

World Bank. 2007. Water Supply Pricing in China. Washington DC.

43

Table SD20-42: Shelterbelt evaluation results

Sub component


Benefits as PVs, CNY m NPV

EIRR

% Investment Opex Total Erosion Carbon Water Total

S303 24.2 2.7 26.8 14.4 18.0 2.9 35.3 8.5 16.0%

Northern

loop 72.4 0.3 72.7 5.8 2.9 0 8.7 -64.0 -3.8%

Southern

zone 56.7 2.4 59.2 23.0 51.5 5.0 79.5 20.3 16.1%

All 153 5.4 159 43.1 72.5 7.8 123 -35.3 9.1%


44

6 EVALUATION OF TVET SUBCOMPONENT

6.1.1 Outline of project proposal

182. All three counties/city have TVET capabilities, and all three will receive support via the project’s soft component during implementation. In December 2016 it was decided to drop the new Fukang City campus. Civil works and equipment replacement will now take place at the existing Fukang City campus, to be renamed as the Fukang Technician College (FTC). The total base cost investment is estimated at CNY42.5 m, excluding contingencies and design and supervision. The soft component is estimated at CNY5.5 m, including physical contingencies. Costs are shown in Table SD20-43. 183. The improved campus will increase the output of those receiving three-year vocational training by approximately 400 per year. The expected incremental wage attributable to training is CNY2,000/month (entry level Fukang City graduate wage of CNY4,500-5,000 less unskilled wage of CNY2,500). The Changji Vocational Education Research Center claims a graduate employment rate of 97 per cent. 184. At the suggestion of PPTA consultants the sponsors also propose developing new short courses that will produce an additional 350 graduates per year, with an incremental monthly wage of CNY400. Short skills upgrading courses will also be provided to people already employed, at an incremental productivity benefit estimated at CNY50 per month. 6.1.2 Scenarios and scope of benefits

185. No alternatives have been brought forward and so the only scenario evaluated compares the development of the extension training campus, and the development of more short courses, with doing nothing. 186. Benefits are simply incremental wages multiplied by the number of graduates (see above). Real wages (and labor costs) are assumed to increase by 3.5 percent per year (see section 9.5). A conversion factor of unity is applied to all outputs; this is slightly pessimistic if the without-project output is unskilled labor. 6.1.3 Demand assessment

187. The sponsors cite the rapid growth of the Fukang City economy as evidence of demand. The high employment rate supports this (see above). It is also supported by the relative lack of TVET provision in Xinjiang, where enrolment accounts for only 16 percent of secondary (construction and manufacturing) employment, compared with a national average of about 50 percent. 6.1.4 Evaluation

188. The table below summarizes the assumptions made. 189. Civil works and equipment costs are predominantly domestic and the only adjustment is to add 5 percent physical contingencies. The TA element is tradable and is adjusted using the SERF.

45

Table SD20-43: TVET evaluation assumptions

Item Unit Value Comment

Inputs

Civil works

Existing campus CNY m 22.5 Direct financial cost excluding physical contingencies

Equipment & furniture Replaced at 10 year intervals

Existing campus CNY m 20.0 Direct financial cost excluding physical contingencies

Soft component CNY m 5.5 Includes physical contingencies

Design & supervision CNY m 3.3

Operating expenses:

Teaching staff CNY m/year 1.9 24 teachers at CNY6,500/mon

Managers CNY m/year 0.48 8 managers at CNY5,000/mon

Admin staff CNY m/year 0.3 5 administrative staff at CNY5,000/mon

Ancillary staff CNY m/year 0.13 3 ancillary staff at CNY3,500/mon

Total wage expenses CNY m/year 2.8 At 2016 prices

Utilities, transport etc. CNY m/year 0.4

Maintenance CNY m/year 0.3

Other operating expenses CNY m/year 0.2

Total operating expenses CNY m/year 3.7

Outputs

Regular (3 yr) course graduates

No/year 400 From 2022, incremental wage at 2016 prices CNY2,000/mon

Open (2 yr) course graduates

No/year 350 From 2020, incremental wage at 2016 prices CNY400/mon

Skills upgrade courses No/year 400 From 2022, incremental productivity gain at 2016 prices of CNY50/mon

190. Evaluation results are summarized below. In addition to the base case, sensitivity was tested to (a) dropping short open and skills upgrade courses and (b) reducing incremental wages and productivity gains by 50 percent. 191. The case for the TVET subcomponent remains quite strong. It is reasonably robust even if no short courses are developed, but is inevitably vulnerable to a fall in incremental wages.

46

Table SD20-44: TVET evaluation results

Case


Benefits as PVs, CNY m

NPV EIRR

% Investment OPEX Total Long

course

Short

course Total

Base case 51.9 31.4 83.3 70.2 17.0 87.2 3.9 12.8%

No short coursesa 51.9 25.6 77.5 70.2 0 70.2 -7.3 10.4%

50% x incremental wage 51.9 31.4 83.3 35.1 8.5 43.6 -39.7 -0.9%

Source: PPTA estimates Note: (a) assumes that the incremental number of teachers drops by a third

47

7 EVALUATION OF SWM SUBCOMPONENT

Existing situation 7.1

192. Qitai County has an existing waste transport and disposal system that, according to the FSR, clears approximately 150-165 t/day of municipal waste from street bins and containers and dumps it at a landfill site 8 km from the urban center. The system uses four three-axle tipper trucks without compactors. This lack of compaction limits the payload per truck to around 3 t. 193. The existing landfill was opened in late 2010 with an effective capacity of 787,000 m3. By the end of 2014, 471,000 m3 were reportedly filled, implying an annual volume of disposal of around 80,000 m3. (A field visit in June 2016 suggested that around two-thirds were full). The remaining life of the existing site depends crucially on the compaction rate assumed. Compaction rates range plausibly from 300 kg/m3 (low), through 600 kg/m3 (medium) to 1,200 kg/m3 (high compaction rate). The absence of compactors in the trucks suggests that a low rate is achieved, but if that were so the landfill would by now be completely full. A compaction rate of 600 kg/m3 and 150 t/day of MSW is consistent with exhausting existing capacity by the end of 2018. This approximately matches forecasts in the FSR. 194. There are several non-residential sites a few hundred meters from the existing landfill and some industrial sites, including a power station, on the S303 perhaps a kilometer away. The area is not zoned for residential accommodation on the Qitai County master plan; Qitai County is in fact expanding southwards, away from the existing site. 195. The existing site is not well managed; comments to this effect can be found elsewhere.

Demand assessment 7.2

7.2.1 Current demand

196. There are inconsistencies between the FSR’s account of the rates of disposal and the observed facts. 197. The FSR claims that the waste generation rate is 1 kg/head/day and that a fleet of four trucks dispose of 150-165 t/day at the landfill site. As the trucks do not have compactors, the rate of compaction must be low, probably in the range 300-500 kg/m3. If 80,000 m3 per year is disposed of, a fairly reliable top-down figure (see above), the daily tonnage would be 70-110 t, say 90 t, and not 150-165 t/day. 198. A daily generation rate of 1 kg per head is plausible. For example, Sogreah used 0.86 kg/head in 201113 and the EU average is 1.4 kg, varying from 0.9 kg (Romania) to 2.3kg (Denmark) (see Eurostat14). If true, it suggests a service area population of roughly 90,000, just under 90 percent of Qitai County’s current urban population of 103,500 (see section 4.1.6). This conclusion is also consistent with the household survey, which reported that very few non-urban households receive any SWM service (see below).

13

ADB. 2011. Solid Waste Management for Small Cities and Towns, ADB project 40645. Manila 14

http://ec.europa.eu/eurostat/statistics-explained/index.php/Municipal_waste_statistics

48

199. Fifty trucks per day are said to arrive at the landfill site. If each truck has a payload of 3 t (reasonable in the absence of compaction), this is consistent with five day per week operation and an average disposal rate of 90 t/day. 7.2.2 Expected life of the existing landfill site

200. Assuming no change to the current annual disposal rate of 80,000 m3, the 316,000 m3 remaining at the end of 2014 will be full by the end of 2018, i.e. at least two years before the proposed ADB project would come on stream. 7.2.3 Future demand

201. The table below shows required landfill volumes in 2040 (although the FSR adopts 2030). It uses the same population forecasts as those adopted for Qitai County water supply. The service area population is assumed to rise from 60 percent in 2020 to 95 percent in 2030. The compaction rate is sure to increase significantly with the new truck fleet; here it is assumed that the rate doubles from 400 to 800 kg/m3.

Table SD20-45: Future landfill requirements

Item Unit 2015 2020 2030 2040

County population Number 244,700 252,000 266,000 281,000

Urban population Number 110,000 151,000 213,000 253,000

Service area population Number 90,000 91,000 202,000 241,000

Waste arising per head kg/head/day 1.0 1.0 1.0 1.0

Tons per day t/day 90 91 202 241

Compaction kg/m3 400 800 800 800

Volume to landfill m3/year 82,000 41,000 92,000 110,000

Cumulative volume from 2020 m3 0 0 660,000 1,700,000

202. If the county population continues to increase by 0.56 percent per year the cumulative volume in 2044 would be slightly greater than 2 million m3. 203. The planned capacity of Qitai County’s proposed site B (see below) is 1.8 million m3. At a compaction rate of 800 kg/m3 this planned capacity is evidently excessive for a 2030 planning horizon and would be sufficient for a 2044 horizon using current projections. A more cost-effective approach would be to allow for future expansion but not to incur those additional costs now.

Alternatives 7.3

7.3.1 Qitai County’s preferred site

204. The original FSR countenanced just one new landfill site, at what is now referred to as site A, along the provincial road S204 due north of the existing site. From the current urban center the haul to site A is 22.5 km.

49

205. In November 2016, site B, close to an existing wastewater treatment works, replaced this. This site is 21 km NNW of Qitai County center. 206. The LDI has not considered expansion at the existing site, referred to here as site 0. (During the interim mission the PPTA team asked that it should be). 207. A sketch showing the disposition of the three sites relative to Qitai County is shown below.

Figure SD20-16: Sketch of waste disposal sites

208. Development at site A was costed in the original FSR at CNY98 m (financial base cost excluding fees, contingencies and working capital). This cost excluded the costs of closing the existing site. Development at site B was costed in November 2016 (see table below) at a similarly defined cost of CNY70 m. The difference is striking, especially given that there are no significant differences in haul distance or landfill capacity, and appears attributable to greatly reduced costs of developing the new landfill site. 209. The table below summarizes project costs. A feature of the proposals for site B is the inclusion of a transfer station and a fleet of three 10 t transfer trucks. The proposed location for the transfer station is unknown. Broadly speaking, a transfer station may be justified if the scale economies and higher operating speeds of large trucks from the transfer station to the landfill outweigh the costs of constructing and operating the station.

50

Table SD20-46: Site B development costs

Item Financial cost CNY m

Collection & transport Roadside bins etc.a 1.32

3 t compactor trucks (15 No.)b 2.25

5 t compactor trucks (8 No.)b 3.20

10 t transfer truck (3 No.)b 1.50

Other items (road sweeper etc.) a

1.97

Subtotal 10.24

Landfill site (1.8 million m3) 31.03

Leachate collection & treatment 12.4

Closure of existing site 26.06

Site equipment (bulldozer etc.) a 4.35

Office & utilities 3.04

Transfer station Buildings 3.65

Equipmenta 10.82

Subtotal 14.47

Design & supervision etc. (items II-1, 3-5, 8, 10) 8.80

Total 110

Source: LDI Note: (a) replaced at ten year intervals

(b) in the economic evaluation, truck costs are replaced by heavy goods vehicle road user costs per veh-km taken from Table SD20-69

210. The case for a transfer station grows with long haulage distances and high volumes of waste. No case has been made in the FSR. Approximate calculations made by the PPTA team suggest that including a transfer station would reduce transport plus transfer station costs at annual tonnages of around 150,000 t and a total haul (i.e. round trip to the transfer station plus round trip from transfer station to landfill) of at least 80 km. Such an annual tonnage is not expected until 2027 using Table SD20-45 projections, while 80 km is approximately double that envisaged if site B were developed. 211. On current evidence, therefore, there is no case for a transfer station. 212. The FSR includes a qualitative comparison of landfill, incineration and composting. Incineration is dismissed on grounds of initial cost and composting on grounds of low organic content and high processing costs. 7.3.2 Comparison of alternative sites

213. In view of the lack of development costs for use of the existing site (site 0), only limited evaluation is possible. Accordingly, the table below is limited to a comparison of transport and any road upgrade costs and a qualitative assessment of the immediate environment of each site.

51

214. Based on this comparison, development at the existing site is preferred. Of sites A and B, which are the only sites costed, site B is preferred.

Table SD20-47: Comparison of alternative landfill sites

Characteristic Development at:

Site 0 (current site) Site A Site B

Location Expansion at existing site North of site 0 adjacent to S204

NNW of urban center, close to WWTW

Distance to existing urban center

8 km 22.5 km 21 km

Cost per ton transported

a

CNY36 CNY74 CNY68b

Road upgrade required

Approximately 1km Negligible Approximately 6 km, but may be included in WWTW project.

Immediate environment

Non-residential properties 300 m distant. Degraded grassland without significant natural value

Environmentally fragile sandy desert area. Significant value for combating land degeneration and desertification.

Degraded grassland and secondary dry shrubland. Shallow topsoil; limited grazing potential. Low-medium natural value

Costs at existing site

Existing basins to be closed; opportunity to combine poor existing leachate arrangements with those for expanded site

Closure and remediation required

Source: PPTA consultants a PV of transport plus road upgrade costs over 25 years from 2020 divided by PV of waste arising. Calculation based

on Table SD20-45 demands b Does not include road upgrade costs

Economic evaluation 7.4

7.4.1 Household survey results

215. The household survey elicited values placed on SWM. 216. The responses to the survey can be sensibly divided into those living in urban areas (referred to as “urban”, “sub-urban” and “shanty”) and those in rural areas. Amongst urban residents (428 responses), three-quarters paid a solid waste fee. Of those providing a valid fee response (275) the average paid is CNY20/household/month (far higher than the CNY1.2/person/month cited as the Qitai County fee). Just under half of those providing a valid fee response said that they paid a property management company (rather than a government agency). Respondents were asked whether they felt the fee was “too high”, “high” or “reasonable”. The average monthly payment judged “reasonable” was CNY15. We can expect respondents asked for their maximum WTP to place a higher value on the service than this, so CNY15 can be seen as the minimum value of the service. 217. Very few non-urban households received any SWM service. This group provided 298 responses, of which only three paid solid waste management fees. Amongst those who did not, 216 provided valid responses when asked whether they would pay a bid amount to receive a service.

52

218. The analysis followed the same approach as that used to place a value on improved water services (see above). Respondents were asked their willingness to pay a monthly amount per household drawn from CNY1 to CNY15. As before the probit model, appropriate to finding the characteristics of a binary variable such as the WTP a bid amount. The only regressor (in addition to the bid amount and the constant term) whose coefficient is significant is household income; even so it is only significant at the 6 percent level rather than the more usually adopted level of 5 percent. 219. The table below shows the probit regression results.

Table SD20-48: WTP for SWM

i Regressor, Xi Coeff, Bi t-statistic [prob] Sample mean, Mi

1 Proposed bid (BID) -0.14846 -5.1863 [.000]

2 Household income (INC), CNY 1.083x10-5 2.7852 [0.006] 164,000

3 Regression constant (CONST) 1.5754 4.5208 [.000] 1.00

Sample size, n 216

Goodness of fita 0.829

SICb -88.3

Mean WTP (CNY/household)c 23

Source: PPTA consultants using Microfit 5.0 Notes: (a) standard deviation of observed values about the estimated regression line

(b) Schwarz Information Criterion = measure of out of sample forecast performance (lower absolute values indicate better performance)

(c) calculated as -1 x (∑(Bi.Mi) for i=2 to 3)÷B1 = 3.3568÷0.14846 = 22.6

220. In conclusion, the average WTP lies in the range CNY15 to CNY23. 7.4.2 Economic evaluation

221. The economic evaluation is of site B, being Qitai County’s preferred site the only site fully costed, but without transfer station investment or operating costs. 222. Financial costs in Table SD20-46 are converted into relevant economic costs by (a) deducting transfer station costs, (b) deducting truck costs (as their capital costs are already included in the RUCs taken from section 9.6), (c) adding physical contingencies and (d) multiplying by the appropriate conversion factor (section 2.2). The resulting economic cost is CNY71 m. Note that remedial costs at the existing site are not included. 223. LDI information gives an annual site A operating cost of CNY3.69 m. No details are given. For the economic evaluation an estimated CNY0.6 m for the transfer station is deducted, made up of labor costs (an assumed ten people at a 2016 wage of CNY2,500/month) and compactor energy costs (30 t/h capacity and a rating of 45 kW). 224. Base case benefits are taken as CNY23/household/month, rising, as with similar values elsewhere in this report, at 3.5 percent annually (see section 9.5). The results are summarized below.

53

Table SD20-49: SWM site B evaluation results

Case Incremental costs as PVs, CNY m

WTP benefits

PV, CNY m NPV EIRR%

Investment Opex Transport Total

No transfer station 75.7 19.2 23.5 118 156 37.8 16.3%

With transfer stationa 92.5 22.4 23.5 138 156 17.8 13.8%

Source: PPTA estimates a Includes additional transfer station capex and an estimate of compactor OPEX, but no change in transport costs

225. Development at site B can be justified. The costs and benefits of the case with the transfer station are carried forward to summaries in section 8. However, it remains the case that based on the information available development at the existing site is to be preferred, on both cost-effectiveness and environmental grounds.

54

8 SUMMARY OF RESULTS AND SENSITVITY TESTS

Introduction 8.1

226. This section summarizes the results for all subcomponents by geographical subproject and by sector across the entire project. Base case results for each subproject include all proposed subcomponents, regardless of their economic performance.

Fukang City subproject 8.2

Table SD20-52 shows the returns by subcomponent and the results of plausible combinations of subcomponents, while

55

Table SD20-51 shows aggregated results for each sector within the Fukang City subproject area. Each column in

56

227. Table SD20-51 includes all relevant subcomponents. 228. There is a reasonable case for aggregating Boya, Ankang, Huiyuan and Guangyuan roads as they all serve the same part of Fukang City and indeed have some plots (i.e. demand) in common. Similarly, both upgrades and new roads in Ganhezi Town are part of a common road system in the southern part of the town. Ganhezi Town is also the most deprived of the three subproject areas (see section 2.6). 229. Provided Ganhezi Town roads are treated as a single project, there remain only two subcomponents whose EIRRs are less than nine percent: the northern loop and southern zone shelterbelts.

Table SD20-50: Fukang City subcomponent evaluation results

Subcomponent Subcomponent Combined

NPVa EIRR, % NPV

a EIRR, %

Fukang City new roads

Ruiying -6.3 9.1%

Boya 0.2 12.2%

6.8 13.0% Ankang 6.3 13.6%

Huiyuan -1.7 10.6%

Guangyuan -6.2 9.4%

Total -7.7 11.3%

Fukang City upgrades Combined evaluation of 4 roads 37.7 16.1%

Ganhezi Town roads New roads (Zhenxi, Weiqi and Guangming)

4.1 13.5%

Upgrades (Honglingjin and Changqing) -15.1 5.8%

Total -11.1 9.9%

TVET 3.9 12.8%

Shelterbelts S303 8.5 16.0%

Northern loop -64.0 -3.8%

Southern zone 20.3 16.1%

Total -35.3 9.1%

All subcomponents -12.4 11.7%

Source: PPTA estimates aPVs calculated at a social time preference rate of 12%

57

Table SD20-51: Fukang City subproject costs and benefits

Year Investment & O&M costs, CNY m Benefits, CNY m Net benefit, CNY m New

roads Upgrades Ganhezi

Town roads

TVET Shelter-belts

New roads

Upgrades Ganhezi Town roads

TVET Shelterbelts

2018 60.3 61.3 29.65 26.9 92.2 0.0 -1.3 0.0 0.0 0.0 -271.7

2019 60.3 61.3 29.65 26.9 92.3 0.0 -0.9 0.0 0.0 0.0 -271.5

2020 0.0 0.0 0.00 4.1 1.0 0.3 13.7 2.8 2.1 18.2 32.1

2021 0.0 -2.1 0.00 4.2 1.0 0.3 15.6 3.1 2.2 18.4 36.5

2022 0.0 0.0 0.00 4.3 1.0 10.0 16.2 3.3 13.5 18.6 56.4

2023 0.0 0.0 0.00 4.4 1.0 0.3 18.1 3.7 13.9 18.8 49.4

2024 0.0 0.0 0.00 4.6 1.0 16.6 20.2 4.0 14.4 19.0 68.7

2025 0.0 0.0 0.00 4.7 1.0 18.6 22.6 4.4 14.9 19.3 74.1

2026 0.0 0.0 0.00 4.8 1.1 17.8 25.4 4.8 15.5 19.5 77.0

2027 0.0 0.0 0.00 5.0 1.1 20.5 28.7 5.2 16.0 19.7 84.0

2028 0.0 -2.1 0.00 5.1 0.5 21.2 32.7 5.7 16.6 19.9 92.6

2029 0.0 0.0 0.00 5.2 0.2 21.9 34.2 6.2 17.1 20.2 94.2

2030 0.0 2.1 0.00 26.4 0.2 22.6 38.2 6.8 17.7 20.4 77.1

2031 0.0 0.0 0.00 5.6 0.2 23.4 42.6 7.4 18.4 20.7 106.8

2032 0.0 0.0 0.00 5.7 0.2 24.2 47.7 8.1 19.0 20.9 114.1

2033 0.0 -4.3 0.00 5.9 0.2 25.1 53.7 8.9 19.7 21.2 126.7

2034 4.5 0.0 0.00 6.1 0.2 25.9 10.5 9.7 20.4 21.4 77.2

2035 0.0 0.0 0.00 6.2 0.2 26.8 10.7 10.7 21.1 21.7 84.5

2036 0.0 2.1 0.00 6.4 0.2 27.7 10.5 11.7 21.8 22.0 85.0

2037 0.0 0.0 0.00 6.6 0.2 28.7 10.6 12.8 22.6 22.2 90.1

2038 0.0 0.0 0.00 6.8 0.2 29.7 11.5 14.0 23.4 22.5 94.1

2039 0.0 0.0 0.00 7.0 0.2 30.7 12.7 15.4 24.2 22.8 98.6

2040 0.0 0.0 0.00 28.2 0.2 31.8 13.6 16.9 25.0 23.1 82.0

2041 0.0 0.0 0.00 7.5 0.2 32.9 14.3 18.5 25.9 23.4 107.4

2042 0.0 0.0 0.00 7.7 0.2 34.0 14.9 20.3 26.8 23.7 111.9

2043 0.0 2.1 0.00 7.9 0.2 35.2 14.6 22.3 27.7 24.0 113.7

2044 -36.1 -38.9 -17.8 8.2 -37.8 36.4 16.1 24.5 28.7 24.3 252.6 PVs: 101 100 49.3 83.3 159 93.4 138 37.9 87.2 123 -12.4

EIRR 11.7%


Hutubi County subproject 8.3

Table SD20-52 and

58

230. Table SD20-53 show the returns by subcomponent and the combined results respectively. There is a reasonable case for aggregating the evaluation results as Changhua and Dongfeng roads are linked and an increase in demand for transport on one is likely to lead to an increase in demand on the other.

Table SD20-52: Hutubi County subcomponent evaluation results

Subcomponent Subcomponent

NPVa EIRR, %

Hutubi County new roads

Dongfeng -16.6 8.7%

Hufang -15.8 9.9%

Changhua 38.0 21.0%

Total 5.5 12.3%


59

Table SD20-53: Hutubi County subproject costs and benefits

Year Investment & O&M costs, CNY m Benefits, CNY m Net benefit, CNY m

Dongfeng Hufang Changhua Total Dongfeng Hufang Changhua Total

2018 31.5 47.8 24.6 104 0.0 0.0 0.0 0.0 -103.9

2019 31.5 47.8 24.6 104 0.0 0.0 0.0 0.0 -103.9

2020 0.0 0.0 0.0 0.0 3.1 0.6 8.9 12.7 12.6

2021 0.0 0.0 0.0 0.0 3.4 8.5 9.2 21.1 21.1

2022 0.0 0.0 0.0 0.0 3.6 8.6 10.1 22.3 22.3

2023 0.0 0.0 0.0 0.0 3.9 8.6 9.6 22.1 22.1

2024 0.0 0.0 0.0 0.0 4.2 8.6 12.5 25.3 25.3

2025 0.0 0.0 0.0 0.0 4.5 8.6 12.8 25.9 25.9

2026 0.0 0.0 0.0 0.0 4.8 8.7 13.1 26.6 26.6

2027 0.0 0.0 0.0 0.0 5.2 8.7 13.5 27.3 27.3

2028 0.0 0.0 0.0 0.0 5.6 15.1 13.8 34.5 34.5

2029 0.0 0.0 0.0 0.0 6.0 15.2 14.1 35.3 35.3

2030 0.0 0.0 0.0 0.0 6.5 15.2 14.5 36.1 36.1

2031 0.0 0.0 0.0 0.0 6.9 15.2 14.9 37.0 37.0

2032 0.0 0.0 0.0 0.0 7.5 15.3 15.2 38.0 38.0

2033 0.0 0.0 0.0 0.0 8.0 15.3 15.6 39.0 38.9

2034 0.0 0.0 1.2 1.2 8.7 15.4 16.0 40.0 38.8

2035 0.0 0.0 0.0 0.0 9.3 15.4 16.4 41.1 41.1

2036 0.0 0.0 0.0 0.0 10.0 15.5 16.8 42.3 42.3

2037 0.0 0.0 0.0 0.0 10.8 15.6 17.2 43.6 43.5

2038 0.0 0.0 0.0 0.0 11.6 15.6 17.6 44.9 44.9

2039 0.0 0.0 0.0 0.0 12.5 15.7 18.1 46.3 46.3

2040 0.0 0.0 0.0 0.0 13.5 15.8 18.5 47.8 47.8

2041 0.0 0.0 0.0 0.0 14.5 15.9 19.0 49.4 49.4

2042 0.0 0.0 0.0 0.0 15.6 16.0 19.5 51.1 51.1

2043 0.0 0.0 0.0 0.0 16.8 16.1 19.9 52.9 52.9

2044 -18.9 -28.7 -14.8 -62.3 18.1 16.2 20.4 54.8 117.1

PVs: 52.4 79.4 41.1 173 35.7 63.6 79.1 178 5.5

EIRR 12.3%

Qitai County subproject 8.4

231. Table SD20-54 shows the returns by subcomponent and the results of plausible combinations of subcomponents, while Table SD20-55 shows aggregated results for each sector within the Qitai County subproject area. Each column in Table SD20-55 includes all relevant subcomponents.

60

232. In economic terms Xingfu, Urumqi East and Urumqi West Roads are the weakest performers, although all exceed 9 percent EIRR. Note that some diversion benefits are included in Urumqi East and West Roads.

Table SD20-54: Qitai County subcomponent evaluation results

Subcomponent Subcomponent

NPVa EIRR, %

Qitai County new roads

Wenhua West 35.9 19.4%

Bajiahu -8.7 9.8%

Xingfu -8.6 10.7%

Urumqi West -3.2 10.5%

Urumqi East -6.2 10.4%

Total 9.1 12.4%

Water supply 66.1 15.8%

SWM 17.8 13.8%

All subcomponents 93.0 13.9%


61

Table SD20-55: Qitai County subproject costs and benefits

Year Investment & O&M costs, CNY m Benefits, CNY m Net benefit, CNY m

New roads Water supply SWM Total New roads Water supply SWM Total

2018 120.3 101 51.9 272.6 0.0 0.0 0.0 0.0 -272.6

2019 120.3 100 51.9 272.6 0.0 0.0 0.0 0.0 -272.6

2020 0.1 4.2 5.6 9.9 9.4 25.5 13.5 48.4 38.5

2021 0.1 6.1 6.1 12.3 10.6 34.2 14.7 59.5 47.2

2022 0.1 6.8 6.1 13.0 15.2 36.1 16.0 67.3 54.2

2023 0.1 7.6 6.2 13.8 12.3 38.0 17.4 67.7 53.9

2024 0.1 8.4 6.7 15.2 35.1 40.1 18.9 94.1 78.9

2025 0.1 9.3 7.3 16.6 37.2 42.4 20.5 100.0 83.4

2026 0.1 10.2 7.3 17.6 37.4 44.7 22.3 104.4 86.9

2027 0.1 11.1 8.0 19.1 43.4 47.3 24.2 115.0 95.8

2028 0.1 12.1 8.0 20.2 44.8 50.0 26.4 121.2 101.0

2029 0.1 13.2 8.6 21.9 46.3 52.9 28.7 127.8 106.0

2030 0.1 14.3 24.4 38.7 47.8 56.0 31.1 134.9 96.2

2031 0.1 14.7 8.7 23.4 49.3 58.4 32.8 140.5 117.1

2032 0.1 15.1 8.7 23.8 50.9 60.9 34.5 146.4 122.6

2033 0.1 15.5 9.3 24.9 52.6 63.5 36.4 152.5 127.6

2034 7.2 15.9 9.3 32.5 54.3 66.3 38.3 158.9 126.4

2035 0.1 16.3 9.4 25.8 56.1 69.1 40.3 165.6 139.8

2036 0.1 16.8 8.8 25.6 57.9 72.1 42.5 172.6 147.0

2037 0.1 17.2 9.4 26.7 59.8 75.3 44.8 179.9 153.2

2038 0.1 17.7 8.8 26.5 61.8 78.6 47.1 187.5 160.9

2039 0.1 18.1 9.5 27.7 63.9 82.0 49.6 195.5 167.8

2040 0.1 18.6 24.6 43.3 66.0 85.6 52.3 203.8 160.5

2041 0.1 18.8 9.5 28.3 68.2 88.8 54.4 211.3 183.0

2042 0.1 18.9 8.9 27.9 70.4 92.1 56.6 219.1 191.2

2043 0.1 19.1 9.6 28.7 72.8 95.5 58.9 227.2 198.5

2044 -72.1 -71.2 9.0 -134.4 75.2 99.1 61.3 235.6 370.0

PVs: 201 230 138 570 210 297 156 663 93

EIRR 13.9%

62

Project 8.5

8.5.1 All subcomponents

233. Table SD20-52 shows the returns by sector for the entire project. All subcomponents are included. All subcomponents have EIRRs of at least 9 percent, or can be grouped with other subcomponents such that the group EIRR exceeds 9 percent.

Table SD20-56: Summary of subcomponent evaluation results

Subproject: Fukang City Hutubi County Qitai County

Project

Component

Ga

nh

ezi

To

wn

Ro

ad

s

Fu

ka

ng

Cit

y

ne

w r

oa

ds

Fu

ka

ng

Cit

y

up

gra

de

s

TV

ET

Sh

elt

erb

elt

s

Ro

ad

s

Ro

ad

s

Wa

ter

su

pp

ly

SW

M

All

co

mp

on

en

ts

NPV, CNY m -11.1 -7.7 37.7 3.9 -35.3 5.5 9.1 66.1 17.8 86 EIRR (%) 9.9% 11.3% 16.1% 12.8% 9.1% 12.3% 12.4% 15.8% 13.8% 13% PVc, CNY m 49.3 101 100 83.3 159 173 201 231 138 1,235 PVb, CNY m 38.2 93.4 138 87.2 123 178 210 297 156 1,321

EIRR = economic internal rate of return Source: Asian Development Bank estimates. 234. The overall EIRR is estimated at 13 percent. The PV of benefits is CNY1,321 million and that of costs is CNY1,235 million, giving a benefit-cost ratio (BCR) of 1.07.

63

Table SD20-57: Project costs and benefits

Year Investment & O&M costs Benefits Net benefit, CNY m

Roads Water supply

SWM Shelter-belts

TVET Roads Water supply

SWM Shelter-belts

TVET

2018 375 101 51.9 92.2 26.9 -1.3 0.0 0.0 0.0 0.0 -648

2019 375 100 51.9 92.3 26.9 -0.9 0.0 0.0 0.0 0.0 -648

2020 0.1 4.2 5.6 1.0 4.1 39.0 25.5 13.5 18.2 2.1 83

2021 -2.0 6.1 6.1 1.0 4.2 50.7 34.2 14.7 18.4 2.2 105

2022 0.1 6.8 6.1 1.0 4.3 67.2 36.1 16.0 18.6 13.5 133

2023 0.1 7.6 6.2 1.0 4.4 56.6 38.0 17.4 18.8 13.9 125

2024 0.1 8.4 6.7 1.0 4.6 101 40.1 18.9 19.0 14.4 173

2025 0.1 9.3 7.3 1.0 4.7 109 42.4 20.5 19.3 14.9 183

2026 0.1 10.2 7.3 1.1 4.8 112 44.7 22.3 19.5 15.5 190

2027 0.1 11.1 8.0 1.1 5.0 125 47.3 24.2 19.7 16.0 207

2028 -2.0 12.1 8.0 0.5 5.1 139 50.0 26.4 19.9 16.6 228

2029 0.1 13.2 8.6 0.2 5.2 144 52.9 28.7 20.2 17.1 235

2030 2.2 14.3 24.4 0.2 26.4 152 56.0 31.1 20.4 17.7 209

2031 0.1 14.7 8.7 0.2 5.6 160 58.4 32.8 20.7 18.4 261

2032 0.1 15.1 8.7 0.2 5.7 169 60.9 34.5 20.9 19.0 275

2033 -4.2 15.5 9.3 0.2 5.9 179 63.5 36.4 21.2 19.7 293

2034 13.0 15.9 9.3 0.2 6.1 140 66.3 38.3 21.4 20.4 242

2035 0.1 16.3 9.4 0.2 6.2 145 69.1 40.3 21.7 21.1 265

2036 2.2 16.8 8.8 0.2 6.4 150 72.1 42.5 22.0 21.8 274

2037 0.1 17.2 9.4 0.2 6.6 156 75.3 44.8 22.2 22.6 287

2038 0.1 17.7 8.8 0.2 6.8 162 78.6 47.1 22.5 23.4 300

2039 0.1 18.1 9.5 0.2 7.0 169 82.0 49.6 22.8 24.2 313

2040 0.1 18.6 24.6 0.2 28.2 176 85.6 52.3 23.1 25.0 290

2041 0.1 18.8 9.5 0.2 7.5 183 88.8 54.4 23.4 25.9 340

2042 0.1 18.9 8.9 0.2 7.7 191 92.1 56.6 23.7 26.8 354

2043 2.2 19.1 9.6 0.2 7.9 198 95.5 58.9 24.0 27.7 365

2044 -227 -71 9.0 -37.8 8.2 207 99 61 24 29 740

PVs 625 230 138 159 83 658 297 156 123 87 86

EIRR 12.8%

Sensitivity tests 8.6

235. Sensitivity results are shown in the table below. Three sensitivity scenarios are tested. The switching value for a cost overrun is just 7 percent. The switching value for a decrease in consumer benefits is 7 percent. The degree of uncertainty of the project’s economic analysis is high for all subcomponents.

64

Table SD20-58: Sensitivity Test Results

Test EIRR NPV, CNY m Switching valuea

Base case 12.8% 86

Costs +20% 10.7% -161 7%

Benefits -20% 10.2% -178 -7%

Costs +20% & benefits -20% 8.3% -425

Source: PPTA calculations Note: (a) for an EIRR of 12%. For an EIRR of 9% the switching values are 40% (costs) and -29% (benefits)

236. Sensitivity results by sector are shown in the tables below.

Table SD20-59: Sensitivity test results – roads subcomponents

Test EIRR NPV, CNY m Switching value

Base case 12.5% 33.5

Costs +20% 10.7% -91.4 +5%

Benefits -20% 10.4% -98.1 -5%

Costs +20% & benefits -20% 8.8% -223 Source: Asian Development Bank estimates.

Table SD20-60: Sensitivity test results – water supply subcomponent



Costs +20% 13.0% 20.0 +29%

Benefits -20% 12.4% 6.8 -22%

Costs +20% & benefits -20% 9.9% -39.3 Source: Asian Development Bank estimates.

Table SD20-61: Sensitivity test results – SWM subcomponent



Costs +20% 11.1% -9.9 +13%

Benefits -20% 10.5% -13.5 -11%

Costs +20% & benefits -20% 7.9% -41.1 Source: Asian Development Bank estimates. Table SD20-62: Sensitivity test results – shelterbelt subcomponents

Test EIRR NPV, CNY m Switching valuea

Base case 9.1% -35.3

Costs +20% 7.2% -67.0 N/A

Benefits -20% 6.9% -60.0 N/A

Costs +20% & benefits -20% 5.2% -91.7 Source: Asian Development Bank estimates. Note: (a) not calculated as threshold EIRR is 6% rather than 12%

65

Table SD20-63: Sensitivity test results – TVET subcomponent


Base case 12.8% 3.9

Costs +20% 9.6% -12.7 +5%

Benefits -20% 8.8% -13.5 -5%

Costs +20% & benefits -20% 5.5% -30.2 Source: Asian Development Bank estimates.

66

9 APPENDIX: ROAD USER AND ROAD AGENCY COSTS

Introduction 9.1

237. Appraisal of road projects relies on significant detailed information on vehicle characteristics, time costs and fuel costs. This appendix sets out values drawn from a similar urban-rural integration PPTA in Pingxiang in 2014-15 and a roads PPTA in Shaanxi in 2014-15, amended and updated as appropriate for current Changji conditions. 238. Estimates are shadow priced to the domestic price system, i.e. unskilled wages are scaled using the SWRF (see main text section 2.2) and tradable goods (principally fuel and vehicles) by the SERF (also shown in section 2.2).

Vehicle characteristics 9.2

239. Vehicle characteristics, taken from other ADB PPTAs in the PRC, are shown in the table overleaf, and vehicle and tire prices, appropriately shadow-priced, are in Table SD20-68.

Table SD20-64: Vehicle characteristics

Vehicle class Motor-cycle

Car Small bus

Heavy passenger

vehicle

Light goods

Medium goods

Heavy goods

Truck-trailer

HDM-4 base type Motor-cycle

Car medium

Minibus Bus medium Light truck

Truck medium

Truck heavy

Art truck

Fuel type Gasoline

Gasoline Gasoline Diesel Diesel Diesel Diesel Diesel

Number of tires 2 4 4 6 6 10 12 18

Tyre type Radial Radial Radial Radial Radial Bias Bias Bias

Number of axles 2 2 2 2 2 3 4 5

km/year 10,000 25,000 50,000 70,000 50,000 60,000 70,000 70,000

Hours driven/year 600 600 1,000 2,000 1,000 1,500 2,500 2,500

Working time, hours/yeara 1,500 1,200 2,000 3,000 2,000 3,000 5,000 5,000

Service life (year) 5 10 10 12 10 10 10 12

Average number of passengers

1.5 3 8 20 1.5 1 0 0

% time private use 50 50 10 0 20 0 0 0

Work related passenger trips, %

50 60 60 50 0 0 0 0

Gross vehicle weight, t 0.2 1.2 2.5 6 2 7.5 13 28

Source: manufacturers’ and consultant’s estimates Notes: (a) working time = driving time + time spent loading, unloading and waiting for work. Working time has to be specified for

HDM-4. Large values used for cars and motor-cycles in order to avoid spurious savings in time related VOCs

67

Fuel costs 9.3

240. The shadow price of gasoline and diesel is estimated at CNY5.3 per liter. This estimate is based on a World Bank price forecast for crude oil at $67/barrel for the period 2016-25 (source: World Bank Commodity Markets Outlook, April 2016, converted from current dollars to constant 2016 prices), and estimated refining etc. costs as shown in the table. In anticipation of the transition to ultra-low sulfur diesel fuel in the PRC it is no longer meaningful to distinguish the refining costs of gasoline and diesel. 241. June 2016 pump prices in Changji were CNY5.58 and CNY6.01 per liter for 93 and 97 octane gasoline respectively, and CNY5.2 for diesel. If Table SD20-65 is adjusted to reflect June 2016’s FOB oil price (US$50/bbl), the economic price drops to CNY4.6/liter, consistent with pump prices and a reasonable profit margin.

Table SD20-65: Fuel costs

Unit Gasoline & diesel

Crude oila $/liter 0.42

Sea transport $/liter 0.03

Petrol refining: US$0.60/US gallon (3.785 l) $/liter 0.15

Distribution and retail $/liter 0.20

Application of SERF to tradable items $/liter 0.02

Economic price at the pump $/liter 0.82

Economic price at the pump CNY/liter 5.3

Sources: Market statistics, US Department of Transportation, GTZ: International Fuel Prices 2005 Notes: (a) based on forecast average FOB spot price of $67/bbl (1bbl = 159 liter) for 2015-25 (see text)

Labor costs 9.4

242. The costs of employing drivers, other crew members and maintenance staff are part of vehicle operating costs. Wages vary enormously; social costs are also not standard. The values in the table below are representative of wages plus social costs incurred during the employment of vehicle crews and maintenance labor. They are consistent with skilled wages reported for the project area (see section below).

Table SD20-66: Vehicle labor costs

CNY per annum CNY per hour

Driver and crew 37,000 19

Maintenance labor 37,000 19

Note: hourly rates assume 1,920 hours worked per year

Journey time savings 9.5

243. Journey time savings are the principal benefit accruing to all the proposed new roads. The values placed by travelers on travel time savings are best established using revealed or

68

stated preference surveys. In the absence of survey results it is usual to base values on incomes. 244. A wide range of incomes is reported in a wide range of sources, summarized in the table below.

Table SD20-67: Wage rates etc.

Rate CNY per houra

Official Xinjiang daily labor rate, 2016b CNY86/day 11

Teacher’s wage, project area, 2016c CNY5-6,000/month 30-40

Migrant electronics worker, eastern China, 2012d CNY2,500/month 15

Average manufacturing wage, China, 2015e CNY55,300/year 30

Shenzhen minimum wage, 2015d CNY2,650/month 17

Unskilled labor, Pingxiang PPTA, 2015 CNY2,000/month 12

Xinjiang GDP per headf CNY40,607/year 21

DPSA project area household wages in 2015g CNY4,900/hhld/mon 10

h

Staff wage at Tianlong Mining Co, Ganhezi Towni CNY4,000/mon 25

a hourly rates assume 1,920 hours worked per year

b LDI sources

c PPTA TVET team

d media sources

e tradingeconomics.com

f Xinjiang statistical yearbook g table D.15 of draft PSA h assumes three people per household I appendix G.1 of draft PSA

245. Drawing on the table above, the following rates for working time are adopted: (a) car passengers CNY30/h, (b) bus and motorcycle passengers/drivers CNY15/h and (c) pedestrians CNY10/h, reflecting use of the SWRF for unskilled labor. Non-working time is valued at 25 percent of working time. 246. The real value of passenger travel time will increase as income rises. The impact of real changes in journey time values on project returns is significant. It is usually assumed that the value of journey time savings rises in line with GDP per head. 247. Historically, GDP/head has grown rapidly in the PRC, achieving an average of 9.4 percent over the ten year period 2005-14 (source: Asian Development Outlook (ADO)). More recent and future growth rates are expected to be rather lower, at 6.3 percent (2015), 6.0 percent (2016) and 5.7 percent (2017). Longer term growth rate forecasts are not easy to find; the OECD’s 2012 forecast was for 6.4 percent for 2011-30 and 2.8 percent for 2030-60. 248. Xinjiang’s historic GDP growth rate for 1994-2014 was rather higher than that of the PRC as a whole, at 9.8 percent (source: PPTA interim report), while historic growth rates in the project area are reported (at 10-14 percent) to have been yet higher. Average annual population growth over the period 1994-2014 was 1.7 percent, giving an average annual Xinjiang growth rate for GDP per head of 7.2 percent. Using official Xinjiang statistics (table 3.27 of the 2015

69

yearbook) Xinjiang real wage growth over the period 2005-14 has been much higher than this, at 11 percent per year. 249. Estimates made as part of the regional economics work during this study forecast annual average increases in output per head over the period 2017-30 of 2.5 percent (Hutubi County), 7.7 percent (Fukang City) and 6.0 percent (Qitai County). Being a resource-based regional economy, and given the elasticity of the supply of labor, real wage increases are unlikely to match high output growth. Our considered estimate for the annual increase in the value of journey time savings is 2.5 percent in Hutubi County, with higher rates of 3.5 percent in Fukang City and Qitai County.

Table SD20-68: Economic values of vehicles, tires, labor and time

Vehicle class Unit Motor-cycle

Car Small bus

Heavy passenger

vehicle

Light goods

Medium goods

Heavy goods

Truck-trailer

Vehicle cost CNY 5,000 100,000 100,000 375,000 150,000 245,000 395,000 590,000

Replacement tire CNY 150 290 300 470 350 620 700 700

Maintenance labor CNY/h 10 19 19 19 19 19 19 19

Driver CNY/h 10 0 19 19 19 19 19 19

Driver’s helper CNY/h - - - 10 10 10 10 10

Total crew CNY/h 10 0 19 29 29 29 29 29

Annual overhead CNY 600 3,000 5,000 20,000 7,500 14,000 19,000 19,000

Passenger working time CNY/h 15 30 15 15 10 10 0 0

Passenger non-working time

CNY/h 4 8 4 4 3 3 0 0

Source: manufacturers’ and consultant’s estimates

Road user costs 9.6

250. Using the information tabulated in the previous section, HDM-415 was run in order to estimate RUCs for a selection of vehicles and values of IRI roughness.

15

Highway Development and Management v2.09: software for highway evaluation

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Table SD20-69: Representative road user costs

Pavement IRI

Road user cost in CNY/veh-kma

MC Car Heavy passenger vehicle MGV HGV Truck-trailer

Bituminous 3 0.21+0.38 2.12+1.2 3.73+5.30 4.18 6.51 9.4

5 0.22+0.38 2.30+1.23 3.90+5.42 4.34 6.81 9.8

7 0.23+0.38 2.54+1.29 4.23+5.69 4.65 7.19 10.4

9 0.24+0.40 2.75+1.37 4.50+6.00 4.90 7.50 10.7

Gravel/earth 10 0.25+0.40 2.90+1.37 4.58+6.1 4.99 7.78 -

15 0.25+0.40 2.93+1.37 4.64+6.2 5.04 7.84 -

20 0.26+0.40 3.03+1.40 4.78+6.3 5.16 7.98 - a Table shows vehicle operating cost (VOC) + value of journey time. Sum is total RUC for any given vehicle and IRI.

251. For the SWM transport cost calculations trucks with compactors were treated as heavy good s vehicles (HGVs) and transfer vehicles without compactors as mid-way between HGVs and truck-trailers.

Normal traffic growth 9.7

252. It is appropriate to factor in normal traffic growth for roads that carry traffic at present and which will carry increased traffic as the economy grows. The usual approach is to link traffic growth to GDP growth using an income elasticity, typically around unity. Drawing on findings from other studies goods traffic is assumed to have an elasticity of 0.9 and passenger traffic an elasticity of 1.2. ADO GDP growth for 2015-17 (ADO 2016 update) averages 6.6 percent, giving normal traffic growth rates of 5.9 and 7.9 percent for goods and passenger traffic respectively.

Generated traffic benefits 9.8

253. Where a road already carries traffic, improvements to the road will generate additional traffic. Estimates of generated traffic, typically as a percentage of normal traffic, are made by calculating perceived cost savings arising from project improvements and applying price elasticities. The “rule of a half” is then used to estimate the area beneath the demand curve, defined by the increase in traffic and the change in RUC. Few roads in the project area carry existing traffic and so generated traffic benefits are not, generally, significant. Generated traffic is taken as 10 percent of normal traffic.

Road agency costs 9.9

9.9.1 Cost of do-minimum access road

254. The financial direct project cost of a single-lane access road is put at CNY0.45 m/km (source: LDI). Adding 5 percent for physical contingencies and adjusting to economic costs using the roads CF of 0.92 (see section 2) gives an economic cost of CNY0.43m/km. The do-minimum case will also require other infrastructure services, i.e. the ancillary infrastructure listed in tabulated set of roads costs, and these are therefore added to the do minimum economic road cost.

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9.9.2 Road maintenance costs

255. The economic costs of road maintenance are taken from previous studies in the PRC and are tabulated below.

Table SD20-70: Road maintenance costs

Pavement Intervention Unit cost, economic prices

Paved 40 mm overlay CNY45/m2

Paved – trunk road Routine maintenance CNY5,000/km/year

Paved – minor road Routine maintenance CNY2,200/km/year

Unpaved All maintenance CNY30,000/km/year

9.9.3 Fukang City upgrades: intervention assumptions

256. For the HDM-4 analysis of proposed Fukang City road upgrades, assumptions concerning the timing, cost and nature of maintenance interventions. They are set out below.

Table SD20-71: Fukang City maintenance interventions

Intervention Economic cost Intervention criteria

40 mm overlay CNY45/m2

Preparatory works:

- patching CNY13/m2

- crack sealing CNY4/m2

IRI>10, interval ≥5 years, first

intervention ≥2020

Reseal CNY22/m2

Preparatory works:

- patching CNY13/m2

- crack sealing CNY4/m2

5% ≤ wide structural cracking ≤ 15%,

average rut depth < 20 mm

Pothole patching CNY108/m2 Potholes > 5/km (85% patched within

12 months)

Drain clearing and

other off-carriageway

CNY5,000/km Annual