STAFF APPRAISAL REPORT CHINA SECOND … · November 12, 1996 Infrastructure ... 0. Project Supervision, Monitoring, and Reporting ... Graph 5.7: Hunan Province: Majahe-Leiyang Segment

Document of

The World Bank

Report No. 15428-CHA

STAFF APPRAISAL REPORT

CHINA

SECOND NATIONAL HIGHWAY PROJECT

November 12, 1996

Infrastructure Operations DivisionChina and Mongolia DepartmentEast Asia and Pacific Regional Office

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HPDI - Highway Planning and Design InstituteHPDIPS - Hunan Provincial Design Institute of Planning and SurveyHRI - Highway Research InstituteHSDI - Highway Survey and Design InstituteICB - International Competitive BiddingIFC - International Finance CorporationIRP - Interconnecting Roads ProgramIS - Institutional StrengtheningIST - Institutional Strengthening and TrainingITC - International Tendering CompanyJingzhu - Beijing-Zhuhai ExpresswayJST - Joint Supervision TeamLA&R - Land Acquisition and ResettlementLAB - Levying Administration BureauLGTPA - Leading Group for Transportation for Poverty AlleviationLLH - Loudi-Lianyuan HighwayMAAP - Microcomputer Accident Analysis PackageMIGA - Multilateral Investment Guarantee AgencyMOC - Ministry of CommunicationsMOF - Ministry of Financemte - Medium truck equivalentmvpd - Motor vehicles per dayNCB - National Competitive BiddingNH - National HighwayNPV - Net Present ValueNR - National RoadNTHS - National Trunk Highway SystemPAPs - Project-Affected Peoplepcu - Passenger car unitPHRD - Project and Human Resources DevelopmentPIC - Public Information CenterPIP - Project Implementation PlanPMO - Project Management OfficePMS - Pavement Management SystemPR - Provincial RoadPSB - Public Security BureauPTS - Provincial Traffic SchoolPTTS - Provincial Traffic Technical SchoolRAP - Resettlement Action PlanRDB - Road Data BankREO - Resident Engineer's OfficeRIPA - Roads Improvement for Poverty AlleviationRMF - Road Maintenance FeeRO - Resettlement OfficesSAA - State Auditing AdministrationSOE - Statement of ExpendituresSPC - State Planning CommissionSSSRI - Shanghai Ship and Shipping Research InstituteSTC - Staff Training CenterTCU - Technical Coordination UnitTES - Traffic Engineering Societyton-km - Ton-kilometerTOR - Terms of ReferenceTRL - Transport Research LaboratoryVS - Vocational SchoolXGE - Xiaotang-Gantang ExpresswayXLE - Xiangtan-Leiyang ExpresswayXZH - Xiangtan-Zhuzhou Highway

CHINA

SECOND NATIONAL HIGHWAY PROJECT

LOAN AND PROJECT SUMMARY

Borrower: People's Republic of China

Beneficiary: Hunan and Guangdong Provinces

Poverty Category: Not applicable

Amount: $400 million

Terms: 20 years, including 5 years of grace, at the standard interestrate for LIBOR-based US dollar single-currency loans

Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60days after signing, less any waiver

Financing Plan: See para. 4.47

Economic Rate of Return: 22.4 percent for the project overall22.1 percent for the two Bank-financed expressway sections19.6 percent for the Guangzhou-Changsha corridor

Maps: IBRD 27557, 27558

Project ID Number: CN-PE-3654

CONTENTS

1. HIGHWAY DEVELOPMENT AND REFORM . .......................................................1A. Highway Strategy and Policy ........................................................... 1B. Linkage to Country Assistance Strategy ........................................................... 1C. Bank Group Participation ........................................................... 2D. Lessons From Previous Bank Operations ...........................................................3

2. THE EVOLVING FRAMEWORK FOR PRIVATE TOLL HIGHWAYFINANCE .......................................................... 4

A. Current Status of Private Project Finance .......................................................... 4B. Issues in Project Finance in China .......................................................... 6C. Regulatory Framework and Investment Environment ........................................ 9D. Role of the World Bank Group ......................................................... 10

3. THE TRANSPORT SECTOR IN GUANGDONG AND HUNAN ... 12A. Geography and Transport .......................................................... 12B. Traffic Growth and Road Safety .......................................................... 14C. Highway Administration, Planning and Financing ........................................... 15D. Engineering, Construction and Maintenance .................................................... 18E. Highway Development Program 1996-2000 ..................................................... 18

4. THE PROJECT ......................................................... . 22A. Origin and Formulation .......................................................... 22B. Objectives and Rationale for Bank Involvement .............................................. 22C. Project Monitoring ......................................................... 24D. Project Components .......................................................... 25E. Civil Works Construction and Supervision ....................................................... 26

The project was prepared and appraised by Alfred Nickesen (Transport Specialist, TaskManager), Jean-Marie Braun (Highway Engineer, Consultant), Ms. Alla Weinstein(Transport Specialist), Rodrigo Archondo (Transport Economist), Dick Jonsson(Institutional/Traffic Safety/Training Specialist, Consultant), Katsunori Suzuki and AnilSomani (Environmental Specialists) and Tosun Aricanli (Resettlement Specialist).Ms. Tomoko Matsukawa (Project Finance Specialist) and Mitchel Stanfield (PrivateInfrastructure Consultant) prepared the chapter on private highway finance in China. Mr.Liu E of the Bank's Resident Mission in China also contributed to the preparation of theproject. The peer reviewers of the project were Jose Irigoyen (Engineering), AnttieTalvitie (Transport Economics), Stein Lundebye (Institutional Strengthening, TrafficSafety and Training), and Jeff Ruster (Private Highway Finance).

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F. Institutional Capacity Building .................................................. 31G. Environmental Assessment .................................................. 35H. Land Acquisition and Resettlement .................................................. 37I. Cost Estimates ................................................... 38J. Financing ................................................... 40K. Implementation ................................................... 42L. Procurement .................................................. 44M. Disbursements .................................................. 47N. Auditing .................................................. 480. Project Supervision, Monitoring, and Reporting .............................................. 49

5. ECONOMIC EVALUATION ................................................... 51A. Evaluation of the Expressways .................................................. 51B. Evaluation of Other Highways .................................................. 56C. Overall Project Economic Evaluation ................................................... 57

6. AGREEMENTS REACHED AND RECOMMENDATION ................................... 58

TABLES

Table 3.1: Hunan and Guangdong: Comparison of Freight and PassengerVolumes by Mode, 1985 and 1994 ........................................ 62

Table 3.2a: Hunan Highway Revenues and Expenditures, 1986-95 .63Table 3.2b: Guangdong Highway Revenues and Expenditures, 1986-95 .64Table 3.3a: Hunan: Highway Revenues and Expenditures, 1986-2000 .65Table 3.3b: Guangdong: Highway Revenues and Expenditures, 1986-2000 .66Table 3.4a: Highway Construction Plan During 9FYP in Hunan .................................... 67Table 3.4b: Highway Construction Plan During 9FYP in Guangdong ............................ 68Table 4.1 a: Interconnecting Roads Program in Hunan ................................................... 69Table 4. lb: Interconnecting Roads Program in Guangdong ............................................ 69Table 4.2a: Project Cost Summary-Hunan Component ................................................ 70Table 4.2b: Project Cost Summary-Guangdong Component ........................................ 71Table 4.3a: Financing Plan-Hunan Province Portion ................................................... 72Table 4.3b: Financing Plan-Guangdong Province Portion ............................................ 72Table 4.4a: Hunan Project Procurement Arrangements ................................................... 73Table 4.4b: Guangdong Project Procurement Arrangements ........................................... 74Table 4.5: Estimated Disbursement Schedule .75Table 5.1: Vehicle and Maintenance Data .76Table 5.2: Road Sections Data .77Table 5.3: Typical Road User Costs .78Table 5.4: Excel Economic Evaluation Model Sample .79Table 5.5: Economic Evaluation and Sensitivity Results .80Table 5.6: Risk Analysis Methodology .81

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FIGURES

Figure 3.1: Hunan Highway Revenues and Expenditures, 9FYP ..................................... 17Figure 3.2: Guangdong Highway Revenues and Expenditures, 9FYP ............................. 17

GRAPHS

Graph 5.1: Diverted Traffic to the Expressway in 2000 ................................................. 82Graph 5.2: Distance Savings (%) ............................................................. 82Graph 5.3: Construction Costs per Kilometer ............................................................. 83Graph 5.4: Internal Rate of Return (%) ............................................................. 83Graph 5.5: Construction Quota Multiplier ............................................................. 84Graph 5.6: Traffic Assumptions Multiplier ............................................................. 84Graph 5.7: Hunan Province: Majahe-Leiyang Segment ................................................ 85Graph 5.8: Guangdong Province: Xiaotang-Gantang Segment ..................................... 85Graph 5.9: Both Provinces: Majahe-Leyang And Xiaotang-Gantang Segments ........... 86Graph 5.10: Both Provinces: Entire Corridor ............................................................. 86

ANNEXES

Annex 1: Project Monitoring Indicators ............................................................. 87Annex 2: Procurement and Implementation of Northern and Southern Sections ............ 93Annex 3a: Environmental Assessment and Action Plan Summary (Hunan Section) ....... 95Annex 3b: Environmental Assessment and Action Plan Summary (Guangdong

Section) ............................................................. 99Annex 4a: Review of the Resettlement Action Plan Summary (Hunan Section) ........... 103Annex 4b: Review of the Resettlement Action Plan Summary (Guangdong Section) ... 109Annex 5: Implementation Schedule ............................................................. 115Annex 6: Supervision Mission Plan ............................................................. 125Annex 7: Selected Documents in the Project File ......................................................... 127

MAPS

1. China: Major Highway Development Program-National Trunk Highway System(NTHS), IBRD 27557

2. Second National Highway Project, IBRD 27558

1. HIGHWAY DEVELOPMENT AND REFORM

A. HIGHWAY STRATEGY AND POLICY

1.1 At the central level, the basic strategy is to develop a National Trunk HighwaySystem (NTHS). The Ministry of Communications (MOC) is in charge of planning theNTHS, consisting of 12 interprovincial trunk expressways, with a total length of some35,000 km and connecting 95 major Chinese cities. While immediate priority is beinggiven to two north-south and two east-west corridors ("two verticals and twohorizontals") and three other major transport corridors (Beijing-Shanghai, Beijing-Shenyang, Chengdu-Beihai), the Beijing-Zhuhai (Jingzhu) Expressway, which is one ofthe "two verticals," constitutes the highest priority corridor in this program. Thisexpressway crosses the provinces of Hebei, Henan, Hubei, Hunan, and Guangdong over adistance of approximately 2,500 km and will connect, once completed, Beijing withGuangdong's fast-growing Pearl River Delta and Hong Kong. It is designed as a high-grade, high-performance facility, at a minimum four-lane standard, fully access-controlled, and will be operated throughout as a toll highway. Jingzhu is scheduled forsubstantial completion by the year 2000. At the provincial/regional level, the strategy isto concentrate on network maintenance and the expansion and improvement of provincialand rural road networks currently totaling more than 1 million km, to provide greatermobility and to stimulate socioeconomic development, particularly in less developedareas.

1.2 In terms of highway and road transport policy, growing attention is being paid toremoving administrative barriers to interprovincial trade and to redefining the CentralGovernment's role in transport, in light of rapid administrative decentralization andgrowing private sector involvement in highway development and road transport services.Provincial and municipal governments are expected to continue mobilizing mostinvestment resources required, including access to private investment and capital markets,and to seek greater expenditure efficiency through improved highway planning andinvestment strategies, as well as to modernize maintenance management and improvecost recovery from road users. Local governments are also expected to further thedevelopment of road transport services and the road construction industry throughderegulation and promotion of competition, access to modern technology and improvedmanagement. The Bank has prepared a report (No. 11819-CHA dated February 1994),CHINA: Highway Development and Management-Issues, Options and Strategies, whichserves as the basis for the Bank Group sector assistance strategy.

B. LINKAGE TO COUNTRY ASSISTANCE STRATEGY

1.3 In highways, the key problem facing China is its comparative neglect of the sectorover several decades. Accordingly, China's road network ranks among the sparsest in the

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world relative to geographic area or population and is quite unsafe. The Bank's CountryAssistance Strategy (CAS) for China, presented to the Board on June 1, 1995, and theProgress Report on March 26, 1996, support China's needs to rapidly modernize andexpand its highway system. To achieve this, the Government of China (GOC), with Bankand other multi- and bilateral assistance, is giving high priority to developing the systemof expressways leading to the NTHS. Among other priority corridors, the Bank is alreadyheavily involved in the construction of substantial sections of Jingzhu expressway,between Beijing and Guangzhou. Under the ongoing National Highway (NHl) Project,two important sections are presently being built in Hebei and Henan. Under the proposedSecond National Highway (NH2) Project, two priority sections in Guangdong and Hunanwould be undertaken. Under a future Third National Highway (NH3) Project, which isunder preparation, several important expressway sections as well as a major WuhanYangtze River bridge under an agreed Build-Operate-Transfer (B-O-T) arrangementwould be undertaken in Hubei Province. A newly proposed Fourth National Highway IV(NH4) Project would cover two important expressway sections in Hunan and Hubei,which will be linked to the Yangtze bridge B-O-T scheme. These four National HighwayProjects constitute a well thought-out and well-balanced series of investment operationsthat assist GOC and the concerned provinces in the timely completion of China's highestpriority expressway corridor. In general, the Bank's program of support in the highwaysector will continue to assist China in the foreseeable future in the financing,development and management of its priority expressway system.

C. BANK GROUP PARTICIPATION

1.4 The Bank Group has supported initiatives by the Government in the transportsector through loans and credits totaling $5.6 billion for 33 projects. The dialoguebetween the Government and the Bank Group on transport sector strategy and policieshas been strengthened through long-term strategy studies for railways, highways andports development, and through project preparation activities and project-financed studiesas well as sector studies carried out in collaboration with Chinese authorities. The mostrecent Bank Group reports on the transport sector, besides Highway Development andManagement: Issues, Options and Strategies also include China 's Railway Strategy (No.10592-CHA) issued in February 1993, and Strategies for Road Freight Development (No.12600-CHA) issued in January 1995. In addition, studies on the trucking industry and onhighway finance have been completed. Studies on the road construction industry,interprovincial traffic facilitation, highway capacity, intercity passenger transport, andimproved prioritization of highway investments and highway feasibility methodology arepresently being undertaken. On the basis of its strong project and sector work, the Bank isdeepening its involvement and assisting the Government in the design and implementationof institutional and sectoral reforms in areas such as strategy formulation and investmentplanning; policy, legal, and regulatory framework for private transport provision; sectorfinancing; deregulation of transport services, and transfer of advanced technology throughtraining and equipment. Chinese authorities and the Bank Group are currently preparing atransport sector strategy paper to help guide sector development in a consistent andcohesive framework.

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D. LESSONS FROM PREvIous BANK OPERATIONS

1.5 Previous highway projects in China emphasize the importance of rigorous, earlypreparation for major civil and traffic engineering works and for procurement processes,where tendering often takes longer than expected. Advance preparation of biddingdocumentation and independent design reviews have also fostered smoothimplementation and have helped reduce variations during the implementation period.The design of traffic-engineering facilities (traffic monitoring, telecommunications,tolling and lighting) must be advanced so that these works would be finished shortly aftercompletion of the civil works for high-grade highways.

1.6 Land acquisition and resettlement of affected people has also led toimplementation difficulties, including delays, in Chinese highway projects. A largenumber of people are typically affected by resettlement in China, particularly alongimportant economic corridors where highways are being upgraded and constructed. Theinstitutional requirements for resettlement of these numbers of people are significant.Under the proposed NH2 project, resettlement has received considerable attention toensure institutional capability to provide adequate compensation and to implementResettlement Action Plans.

1.7 Experience in the environmental area in China has generally been favorable.However, more attention should be paid to environmental supervision duringconstruction, training of environmental personnel, and environmental monitoring duringboth the construction and operation phases.

1.8 Bank experience emphasizes the importance of adequate construction quality ofroads. Poorly constructed roads lower economic benefits and vehicle-operating costsavings. Higher costs also result from premature deterioration, where corrective actionsin the form of increased maintenance and/or rehabilitation are required. Effectiveremedial actions include stringent contractor prequalification, careful formulation ofsupervision arrangements, including engagement of foreign experts, training of localsupervision staff and equipping the supervision teams.

1.9 Project design must put more emphasis on highway management and operation,especially in the context of toll expressways. There is also a growing concern thatadequate funding for highway maintenance is not now being generated to cover anexpanding and more expensive highway system. Previously, this was not an issue sinceadequate funds were being set aside for this purpose.

1.10 Based on the Bank's experience with institutional and policy aspects of highwayprojects, the phasing of studies and technical assistance and the intensity of Banksupervision are important for positive, sustainable outcomes. Institutional componentsthat are implemented early in the project period tend to have a greater impact, ascompared with free-standing studies carried out in the advanced stages of a project.

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2. THE EVOLVING FRAMEWORK FOR PRIVATE TOLLHIGHWAY FINANCE

A. CURRENT STATUS OF PRIVATE PROJECT FINANCE

2.1 In response to an estimated $600 billion capital requirement for infrastructurefrom 1995 to 2004, China is moving steadily to open certain sectors, mainly highwaydevelopment and power generation, to foreign equity investors and debt financing. Some$300 billion, or half the country's near-term infrastructure needs, are in the transportsector.

2.2 To date, China has used $2 billion in foreign capital to construct 7,000 km ofhighways and expects to do more in the future. Through the year 2000, in fact, Chinaexpects to construct a total of 14,160 km of new limited access highways, of which nearly2,500 km will be fully access-controlled urban or intercity expressways. The size of thisprogram, in terms of distance and cost, well exceeds any similar toll road program nowunderway in the world, outstripping by far the country's public revenues and access to bi-and multilateral bank funds.

2.3 The alternative for China is to raise the needed capital in the external creditmarkets, with the commercial involvement of qualified private firms and internationalinvestors, and minimal government guarantees. The participation of private firms inB-O-T highway projects has been explored, and the issuance of project companysecurities has been tried in offshore capital markets to fund the construction of quasi-public projects.

2.4 By accessing new equity investment and debt capital in global markets, China isseeking to accomplish at least three near-term objectives:

(a) Reduce Sovereign Debt Exposure to Infrastructure. Private capital,including user charges and project debt from domestic and internationalsources, can supplement limited public resources available to the centralgovernment and provinces. This can minimize the need for using thegovernment's credit capacity to fund infrastructure projects;

(b) Improvement in Efficiency and Productivity. Private financing assiststhe country in improving management efficiency and quality ofinfrastructure services because of the for-profit, commercial orientation ofprivate investors and lenders; and

(c) Offloading Construction and Commercial Risks. If properly structured,privately financed projects, unlike publicly funded infrastructure, allow

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government to pass on the completion and commercial risks to those bestable to handle them, the private sponsors.

2.5 China, like most developing countries, continues efforts to build a workablestructure for attracting private capital to infrastructure projects. The process ofaccommodating the needs of private investors while finding a cost-effective way todevelop expressways is not an overnight task in China, but a process of trial and error.The country's experience with privately supported highway projects is evolving and thetransition from traditional public funding to project financing will occur as the result ofspecific projects, with lessons learned, and a regulatory framework built largely onexperience.

2.6 Nearly all of the projects involving foreign investors have been structured as Sino-foreign joint ventures rather than concessions that are owned outright by the sponsors. Inthis way, the Chinese agencies retain a degree of control as equity partners. Foreignsponsors look to their local counterparts to obtain governmental approvals and assurancesat various levels.

2.7 Concession arrangements to construct and operate a highway under a B-O-Tscheme have been constrained by the absence of a well-developed legal framework andlimitations in the joint venture agreement. The public authorities whose decisionsinfluence the financial aspects of the project (State Council, State Planning Commission,State Administration for Exchange Control) are generally not contractual parties to thejoint venture agreement. Separate assurances and acknowledgments that have beensought from these entities are often difficult to secure.

2.8 The result is that foreign commercial banks and financial markets are reluctant toaccept project risk in China, making limited-recourse financing extremely difficult forproject sponsors to mobilize. This situation applies to all infrastructure sectors, and thehighway sector is no exception. In cases where external-debt financing of projectcompanies has occurred, lenders have relied on guarantees and assurances of creditworthygovernmental agencies, banks, and financial institutions, such as provincial internationaltrust and investment corporations (ITICs).

2.9 As in new toll highway projects worldwide, private investors in China areconcerned over revenue loss from a shortfall in traffic volume and/or the inability tosecure adjustments in the tariff structure on a timely basis. To mitigate such risks and toattract foreign investment, minimum revenue guarantees by local partners/governmentalagencies and preferential profit distribution for foreign investors are common in Sino-foreign joint venture highway projects. To enhance toll revenues, foreign investors havereceived land development concessions along the right-of-way and at interchanges and/orrevenues from operating highways.

2.10 There have been a few major highway projects accomplished in China withprivate capital in recent years. The following two are particularly notable:

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(a) Shenzhen-Guangzhou Superhighway (123 km). This facility opened in1994 and is the first phase of the Shenzhen-Guangzhou-ZhuhaiSuperhighway. The $1.2 billion project is sponsored by HopewellHoldings of Hong Kong, responsible also for design, construction andfinancing. The developer has also taken extensive risks including landacquisition in return for profit-sharing and rights for commercialdevelopment at interchanges. One third of the original project cost wasfunded by equity and shareholder loans provided by the foreign sponsorand subordinated domestic loans arranged by a Guangdong provincialjoint-venture partner. The remaining $800 million was financed withsyndicated foreign bank loans, chiefly supported by a cash-flow deficiencyguarantee by the Guangdong ITIC.

(b) Chengdu-Mianyang Expressway (90 km). This toll road was financedas a joint venture between a Sichuan provincial partner and the New ChinaHong Kong Group, which has a number of China-affiliated shareholders.The provincial partner was responsible for land acquisition andconstruction of the expressway for a fixed fee. The foreign sponsorhandled private placement of approximately $100 million equity shareswith offshore investors including private infrastructure funds to financesuch construction. Minimum toll revenue guarantees and preferentialprofit distribution were offered to attract foreign equity investors toSichuan Province, and obligations of the local partner were guaranteed bythe provincial ITIC.

2.11 The foregoing examples illustrate innovative and pragmatic ways to raise capital,but the question to be asked is how should China proceed to develop a workable projectfmance model for highway development. Whether through startup toll road projects orsecuritized financing of existing, high-volume roadways, the answer will depend largelyon the appetite investors and lenders have for project risk and China's willingness toaddress financing constraints, both in an institutional sense and in the context of itsregulatory system.

B. ISSUES IN PROJECT FINANCE IN CHINA

2.12 In response to China's substantial demand for infrastructure capital, the results ofthe country's efforts to attract private funds have lagged behind reasonable expectations.China's success in attracting foreign direct investment to manufacturing, real estate, andservice industries, now at a level of $30 billion annually, has not translated toinfrastructure. Despite a high level of interest among foreign developers and investors,unacceptable project risks have limited the number of deals that were closed. Likewise,the country's solid record as a sovereign borrower of long-term funds in the internationalbond markets is not yet reflected in the critical, but unaccomplished, goal of bringinglong-term debt financing to its infrastructure sectors.

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2.13 In B-O-T projects, a project sponsor is generally responsible for design,construction, financing and operation for a specified concession period, at the end ofwhich ownership of the project is transferred to the host country. When the projects areproperly structured, long-term lenders, rather than equity investors, provide the bulk ofthe financing on a limited-recourse basis to the sponsors. Since export credits arerelatively limited in civil-work-intensive highway projects, the mobilization of long-termcommercial debt at favorable rates is essential to a successful financing package.

2.14 For commercial banks, limited recourse project finance is different fromconventional sovereign or corporate lending, in that project revenues and rights undervarious project agreements are security for repayment, rather than the borrower'sdiversified assets and ability to repay. The return to these lenders is limited comparedwith equity investors since there is no possibility of an up-side gain from earnings. Theseinstitutions are more risk-averse in their credit decisions and to date have demonstratedconsiderable reluctance to support China's B-O-T projects with limited-recourse funds.

2.15 Project developers and lenders require a stable policy and regulatory environmentto assess and properly manage project risks. A commitment is needed by the hostgovernment to manage country or political risks, namely related to policy and regulationsand the performance of public agencies. Most B-O-T projects allocate commercial andpolitical risks among the parties to the transaction. For the public sector, such risksharing mechanisms in the concession agreement enable the government to transfer thesesubstantial commercial risks during project construction and operation to the privatedeveloper and lenders.

2.16 The common difficulties in B-O-T projects in China, as perceived by foreigninvestors and lenders, are related to various policy, legal, regulatory and institutionalissues that affect the investment climate. The principal concerns are as follows:

(a) Regulatory Uncertainty. Unclear lines of authority between theprovinces and central government, a complex approval process, andambiguous criteria and policies, lead to lengthy and costly project delays.

(b) Convertibility and Availability of Hard Currency. Investors andlenders share concern over the absence of legal convertibility of therenminbi, timely availability of hard currency through swap centers, andimpact on payment of foreign denominated debt and repatriation of profit.

(c) Unclear Toll Policy. Automatic tariff adjustment provisions inconcessions are not available, leaving project sponsors and lenders with noassurance that operating and financial costs can be recovered on a currentbasis, or over the life of the concession.

(d) Inadequate Legal Framework. China's legal system has not developedenough to accommodate complex B-O-T transactions, raising concerns

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among lenders on security-related financial and legal issues, including theenforceability of contracts and agreements.

(e) Creditworthiness of Public Entities. Uncertain or insufficientcreditworthiness of provincial/municipal contracting parties and concernfor their ability of honoring financial obligations under contracts.

(f) Lack of Transaction Experience. Most provincial/municipal authoritieshave no direct experience with project finance or B-O-T transactions,causing foreign companies to commit expensive resources to time-consuming negotiation and on-the-job training of public sectorcounterparts.

2.17 In those project financings that have reached closure in China, public and privateparties to the transaction have settled their concerns through negotiation and risk-sharingarrangements. This informal arrangement may be sufficient in many coastal provinces,where foreign banks and developers are more experienced and have reached a reasonablelevel of comfort with the credit of local agencies.

2.18 Even in the developed provinces, however, most foreign institutions do assess arisk premium over the uncertainty of China's policies and regulations, and this can inflatethe cost and pricing of projects. In the country's interior, provincial credit concerns andlack of a track record with the private sector are major obstacles in closing project financetransactions with international firms and lenders.

2.19 The ordinary concerns of project finance lenders are generally multiplied by tollroad projects, which have complex and generic demand-related risks. In this case, atransport service is sold to the discretionary user, whereas power purchase agreements,for example, tend to provide power projects with a clear, defined source of income. Theprimary risks in China's toll road projects are:

(a) Uncertain traffic volume, especially in the inner provinces where futuretraffic growth will depend heavily on economic development andassociated government policies;

(b) Absence of arterial road systems and networks to support toll highways;and

(c) Competition from parallel free roads and other modes of transport that aredeveloped in the future.

2.20 As in virtually all countries, a limited number of highway projects in China willhave the traffic and revenue potential to attract private capital, and the process by whichthese are identified and packaged will be the most important factor in their success. Sincetoll revenues alone in China may not be adequate to support most privately financedhighway projects, other mechanisms may also be necessary. These may include cross-

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subsidies from existing toll roads and other sources, such as a fuel tax and/or landdevelopment incentives and tax concessions.

C. REGULATORY FRAMEWORK AND INVESTMENT ENVIRONMENT

2.21 China's State Planning Commission (SPC) is formulating a provisional regulatoryframework for foreign-owned pilot B-O-T projects in various infrastructure sectors,including highways up to 80 km long, major bridges and tunnels, power stations, andurban sewage and water supply. SPC intends to promulgate the Provisional Decree forConcession Projects with Foreign Investment governing these projects and is nowdrafting model procurement documents for toll road and power projects. Private sponsorsof pilot B-O-T projects are to be selected through competitive bidding. A power project(Guangxi Laibin B Power Plant Project) has already been selected as the first pilot B-O-Tproject, with procurement that was launched in December 1995.

2.22 The Bank supports GOC's efforts to establish a regulatory framework forprivately financed infrastructure and has encouraged the development of a transparentprocurement procedure where sponsors would be selected through competitive bidding.Through Japanese Policy and Human Resources Development (PHRD) grant fundsavailable to SPC, the Bank is supporting the initial feasibility analysis of a pilot B-O-Tproject, known as the Junshan Yangtze River Bridge, and the preparation of modelprocurement documents and a concession agreement for this and future toll highwayprojects.

2.23 Under the proposed National Highway III (Hubei) Project, which would be aBank-financed highway operation, the Borrower and the Bank have agreed to develop theYangtze River Bridge under a B-O-T arrangement with the central government and HubeiProvince. At a project cost of $200 million, the six-lane bridge would be located at theintersection of two National Trunk Highways, the Beijing-Zhuhai North-SouthExpressway and the Shanghai-Chengdu East-West Expressway. The latter projects willbe partially be financed by the Bank and operated as publicly owned toll roads.

2.24 The implementing agency for the National Highway III Project is the HubeiProvincial Communications Department, which has applied for designation of theYangtze River Bridge as a pilot B-O-T project. As the approving agency, SPC hasexpressed interest in this project as an opportunity, with the new policy framework, totest the international market for private investment in highway infrastructure.

2.25 Several pilot B-O-T projects will enable China to experiment with new policyinitiatives to attract private capital and to gain valuable experience from the results. It isimportant at this stage for the public sector to remain flexible with the provisional decreeand concession documents. Adjustments may be necessary to fulfill the requirements ofinvestors and lenders in order to make the first few projects bankable. Successful closureof these projects will provide China with a track record and base of experience, therebycontributing to future B-O-T projects that can be financed in the external financialmarkets.

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2.26 In the longer term, China's success in capturing offshore capital for highwayinfrastructure will require continued development of the regulatory framework andinvestment environment in several specific areas:

(a) Transparent Policy and Regulatory Framework. SPC's initial decreegoverning foreign-owned B-O-T projects should be expanded as a policyinstrument, given the fact that most of China's experience with toll road/bridge/tunnel projects is limited to joint ventures.

(b) Development of Legal System. The regulatory framework for privatelyfinanced infrastructure should be fully integrated with relevant nationaland provincial laws, so as to address various aspects (design, ownership,financing, construction, operation, maintenance, taxation) of B-O-T-typeinfrastructure projects.

(c) Institutional Development of Agencies. Functions and relationships ofcentral and provincial authorities should be clearly defined, along with thelegal status, authority, and financial condition of prospective sponsors ofprivate projects. For example, national and provincial highwaycorporations could be developed as commercial toll road operators withthe capacity to raise capital in the international markets.

(d) Growth of Domestic Capital Markets. For China to meet its near-termcapital requirements for infrastructure, the country must have access to asupply of long-term debt capital. China's financial markets, which benefitfrom a high per capita savings rate, lack the structure and financialinstruments to convert domestic savings to requirements for long-termfunding of infrastructure.

D. ROLE OF THE WORLD BANK GROUP

2.27 The Bank will continue to assist China in developing the policy and regulatoryframework needed to mobilize private financing for infrastructure. Movement in thisdirection will enable the borrower to leverage limited Bank funds with public and privateresources to undertake a greater number of projects and to attract long-term debt capitalfrom the financial markets.

2.28 World Bank support for China will include institutional development and sectoralreforms as well as the development of the NTHS and other priority investments throughdirect loans to public projects. Through a series of National Highway II, III, and IVProjects, the Bank will play an expanded role in encouraging the growth of privatefinance in this sector.

2.29 Technical Assistance. SPC, the Ministry of Finance (MOF) and MOC havegiven the Bank a mandate to support them in the establishment of the framework forprivate highway finance in China. The Bank's assistance through PHRD funds under the

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National Highway II, III, and IV Projects is the major first step in this effort. At China'srequest, the Bank has also indicated that it is willing to permit the use of IDA technicalassistance to fund legal and financial advisory fees for pilot B-O-T infrastructure projectsthat reach the negotiation stage.

2.30 Partial Guarantee. The Bank's partial guarantees would enable private projectsto obtain longer-term limited-recourse debt financing at lower cost than the sponsors orsovereign might obtain. These require a counterguarantee by the host government and sofar China has rejected financial guarantees for privately financed infrastructure. Limitedguarantees for selected policy-related risks, such as contractual compliance orperformance risks of public agencies, may be required to make projects, especially thosein the interior provinces, commercially financeable.

2.31 IFC and FIAS. IFC and the Foreign Investment Advisory Services (FIAS) areassisting China in the development of a policy framework for private projects. IFC isalso discussing the possibility of supporting demonstration projects in key infrastructuresectors including transportation, which are based on sound principles of limited-recoursefinancing. This participation could be in the form of equity investment, A loans andB loans, and/or investment-related advisory services.

2.32 MIGA. MIGA offers long-term coverage for specific political risks, i.e., currencytransfer, expropriation, war and civil disturbance, and breach of contract (in a narrowlydefined manner), with a focus on risk coverage of equity investments and associatedshareholder loans or loans by commercial banks so long as equity in the project is alsoinsured by the agency. In China, the absence of a convertibility law precludes coverageby MIGA of hard currency exchange.

2.33 Coordination among the Bank Group. As to policy dialogue, the Bank willcontinue to collaborate with China to help develop a policy and regulatory frameworkand a transparent procurement process for privately financed highway projects. Asregards credit support, because neither IFC nor MIGA requires counter guarantees, theseorganizations would likely be included in the initial discussion on private projects. TheBank, through its lending and guarantee programs, could play a significant,complementary financing role for large private highway projects that require resourcesbeyond the limited capacity of IFC and MIGA.

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3. THE TRANSPORT SECTOR IN GUANGDONG AND HUNAN

A. GEOGRAPHY AND TRANSPORT

3.1 Guangdong Province is located on the South China Sea at the southeasterncorner of China. As of 1995, Guangdong had a population of 66.9 million covering an

2~~~~~~~area of 178,000 km2. Excluding the many small islands along the coastline, thepopulation density was 376 people per km . Topographically, Guangdong is high in thenorth and low in the south, with wide areas of hills and low mountains. Almost 75percent of the total area is mountainous and hilly. The coastline is long and winding,measuring more than 4,300 km along the mainland area. The province, with Guangzhouas its capital, includes 3 economic zones, 21 provincial administered cities, 30 cities atthe county level, 45 counties and 3 autonomous counties. The economy of Guangdonghas grown by about 20 percent annually since 1980. Gross Output Value of Agricultureand Industry (GOVAI) per capita in the project area was by 1994 at 1.73 times thenational average and the growth has also averaged nearly 20 percent per year since 1980.

3.2 Hunan Province is situated in the middle reaches of the Changjiang River insouth-central China. Stretching 900 km from east to west and 800 km from south tonorth, Hunan has a total area of 210,000 km2. With mountains in the east, south andwest, the land generally slopes from south toward the north. The most common landform in this region are hills that occupy about 50 percent of the total area. At the end of1995, Hunan had a population of 63.0 million and its population density averaged298 people per km2. The province, with Changsha as its capital, is divided into4 prefectures, 1 autonomous prefecture, 9 provincial administrated counties, 21 cities atthe county level, 69 counties and 7 autonomous counties. The economy of Hunan hasgrown by about 9 percent annually since 1980. GOVAI per capita in the project area wasby 1994 at half the national average and the growth has averaged about 11 percent peryear since 1980.

3.3 Transport Networks. The strategic location of both Guangdong and Hunanprovinces at the crossroads of major North-South and East-West expressway, waterwayand railway corridors attracts large amounts of traffic. Transport demand has grownsubstantially over the last five years, in view of sustained economic growth in theprovinces and the rest of the country.

3.4 In Guangdong, roads and inland waterways are the principal modes for short-haultransport; and railways and coastal shipping are the principal modes for interprovincialtransport. Guangdong Province has intersecting waterways open to navigation in all fourseasons. The province has 19 seaports, of which 5 are classified as major. Inlandtransportation is based on the Pearl River system, which has three main navigable

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tributaries. The length of inland waterways in 1994 amounted to 10,808 km. Therailway network is relatively limited, compared to that of neighboring provinces such asHunan. The five main lines connect the ports of Huangpu, Guangzhou and Zhanjiangwith the rest of the country, and also serve as an export link to Hong Kong. At the end of1994, the total mileage open to traffic amounted to 1,725 km.

3.5 Historically railways and inland waterways are the main transport modes inHunan province. Hunan is served by five main railways: Beijing-Guangzhou, Zhejiang-Jiangxi, Hunan-Guinzhou, Hunan-Guangxi, and Zhicheng-Liuzhou, the operationallength of which at the end of 1994 was 2,600 km. Four tributaries of the Yangtze Riversystem flow into Dongting Lake in the north of Hunan, from where they enter theYangtze. Hunan has a total of 10,010 km of inland waterways. The principalcommodities transported by railroads and inland waterways are coal, grain, mineral stoneand construction material.

3.6 The highway network in Guangdong comprises some 83,000 km, of which onlyabout 7,400 km (about 10 percent of the total) include expressways, and class I and IIroads. Between 1981 and 1994, the road network in Guangdong grew in length by about3 percent per year. The highway network in Hunan comprises some 58,800 km, of whichonly 1,747 km (about 3 percent of the total) are class I and II roads. The roads withbituminous and cement pavements amount to only 12,408 km (21 percent of total). Theadministrative classification of the road network in both provinces at the end of 1994 wasas follows:

Guangdong Province Hunan ProvinceRoad Classification km Percent km Percent

National 4,180 5 4,041 7Provincial 9,048 11 6,014 10County 14,673 18 22,187 38Villager 55,053 66 25,434 43Special 102 0 1,127 2

Total 83,055 100 58,803 100

3.7 As in the rest of the country, most of the highways in Guangdong and Hunan werebuilt in the 1960s and 1970s, and their design standards were suitable for the lightvehicles and low traffic levels prevailing in China at the time. Due to the substantialgrowth in traffic levels and steady rise in the use of heavy vehicles, these roads haveincreasingly become inadequate to meet present and future needs.

3.8 Vehicle Fleet. The vehicle fleet in Guangdong grew more than five times in nineyears between 1986 and 1994, on an average of 20 percent per year. The fleet of largetrucks, buses and agricultural tractors grew between 9 and 17 percent per year. The fleet

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of passenger cars, light vans and pickups grew at 22 percent per year, reflecting thegrowth in prosperity as well as the light-vehicle needs of the growing number of smallerenterprises in the evolving socialist market economy. The most rapid growth occurred inthe motorcycle fleet at 32 percent per year, reflecting the desire for personal mobility nowmade affordable through growing prosperity. The vehicle fleets in Hunan have expandedmore than four times between 1980 and 1994, at an average growth rate of 11 percent peryear. Similar to Guangdong, the fastest growth rate occurred in the motorcycle fleet at 30percent per year.

B. TRAFFIC GROWTH AND ROAD SAFETY

3.9 Traffic. In Hunan freight and passenger traffic from 1985 to 1994 grow at about4 and 3 percent per year, respectively (Table 3.1). In freight and passenger traffic, thefastest growing mode during this period was air transport, which grew at 29 and49 percent per year, respectively. The highway mode followed at about an annual4-5 percent. By the year 1994, about 90 percent of all passenger movements wereundertaken by road transport. However, around 52 percent of all passenger-km occurredby rail while about 48 percent of passenger-km occurred by road.

3. 1 0 In Guangdong, traffic growth from 1985 to 1994 was strong. Freight traffic grewat over 9 percent per year, with the strongest growth in road and water transport (Table3.1). Water and air transport dominate freight transport, with rail carrying a muchsmaller proportion of traffic than elsewhere in China. Passenger transport also grew atwell over 6 percent per year, with the strongest growth in air transport at 18 percent peryear, following by rail transport at 8 percent and highway transport at almost 7 percentper year. Similar to Hunan, by 1994, highways accounted for 90 percent of all passengermovements, and 75 percent of passenger-km.

3.11 Safety. Road safety is a serious problem in Guangdong and Hunan Provinces, aselsewhere in China. Generally, the number of traffic accidents has increased less rapidlythan the growth in traffic volume or vehicle registration. In Hunan, while the absolutenumber of accidents and injuries has declined since 1990, as has the fatality rate per10,000 vehicles, the proportion of fatalities has been increasing, suggesting more seriousaccidents with higher frequency of death. Further, despite recent declines, the fatalityrates for both Hunan and Guangdong, like those for China as a whole, remain higher thanrates in many developed and developing countries. International comparisons of thenumber of people killed in traffic accidents per 10,000 vehicles show a rate from 20 timeshigher in Hunan and 5 times higher in Guangdong than that in Western industrialcountries (41.4 for Hunan, 10.0 for Guangdong, 46.0 for China, 2.0 and 2.4 for the UnitedStates and Germany, respectively).

3.12 Primary responsibility for road safety now lies with the Traffic Police of thePublic Security Bureau (PSB), including that for vehicle testing and inspection, licensing,propaganda on safety, enforcement of traffic laws, including imposition of fines,operation of traffic signals, highway patrols, and all aspects of accident reporting,

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investigation and research. However, the Guangdong and Hunan ProvincialCommunications Departments (GPCD and HPCD) retain responsibility for all mattersconcerning safe highway design and traffic signs and markings and driver training. InGuangdong, GPCD and the Traffic Police would work together under the project todevelop an expressway safety program to reduce the growing numbers of expresswayaccidents. In Hunan, HPCD would launch a road safety program primarily dealing withthe matters within the HPCD's jurisdiction.

C. HIGHWAY ADMINISTRATION, PLANNING AND FINANCING

3.13 Administration. The Provincial Communication Departments (PCD) ofGuangdong and Hunan administer most of the highway and waterway transport activitiesin their provinces, and are responsible to their respective provincial governments forhighway planning, budgeting, and financing. The PCDs adhere to the general transportpolicy and technical guidelines issued by MOC.

3.14 The administration of the road network in the two project provinces takes place atthe levels of: (a) the PCDs, (b) the municipal and prefecture highway bureaus, and (c) thelocal highway units of the county highway bureaus. The PCDs administer the provincialhighways through their Provincial Highway Administration Bureaus while the municipaland county transport bureaus administer local highways and village roads. The provincialbureaus are responsible for all highway matters (apart from the high-grade highwayprogram, as described below), including construction and maintenance, and these bureausreceive professional and technical guidance from the Highway AdministrationDepartment of MOC. They have a staff of 382 and 252 at the Guangdong and the Hunanheadquarters, respectively. The 21 municipal and prefectural highway bureaus and the 78county bureaus in Guangdong Province have a total staff of about 63,000, of whichtechnical personnel comprises about 15 percent. In Hunan Province, the municipal andprefectural highway bureaus number 14, and the county bureaus 105, with a total staff ofabout 49,000, of which technical personnel comprise about 18 percent.

3.15 The Guangdong Provincial Freeway Company (GPFC) is a department-levelinstitution that reports directly to GPCD and is responsible for the organization,direction, coordination, planning, design, construction, supervision, traffic surveillanceand control, telecommunication, operation and maintenance of all expressway projects inthe province, as well as for counterpart business service for expressways, such asrefueling, rescue, spare parts supply and real estate management. Also, it is partiallyresponsible for mobilizing construction funds, including the collection of tolls on allexpressways. It currently has a staff of 1,213 people, of which 377 are technicians.There are 14 companies and 2 preparation offices controlled by GPFC (8 expresswaycompanies, I environmental protection division, 2 bridge companies, 2 traffic andhighway engineering companies, 1 development company, and 1 highway equipmentrental company). In Hunan Province, Hunan Provincial Expressway Construction andDevelopment Corporation (HPECDC) is in charge of construction, operation and

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management of high-grade toll roads in the province. HPECDC is a department-levelinstitution that reports directly to HPCD. HPECDC's staff currently numbers 456.

3.16 Planning. The Hunan and Guangdong PCDs have overall responsibility forplanning, construction, operation and maintenance of the provincial highway networks.The highway administration units at the prefecture, county and village levels haveconsiderable autonomy in planning smaller investments, which are nonetheless subject toapproval by the PCDs. Each administrative group prepares investment plans for thehighway network under its jurisdiction and submits these to the planning divisions of thePCDs each year for the next year's plan. The PCDs approve the yearly plans for eachcounty or local authority concerned. Similarly, using inputs forn the lower-leveladministrative groups, the PCDs prepare their five-year road development plans,reflecting national and provincial development policy guidelines and objectives for theplaned period. The current Ninth Five-Year Plan (9FYP) (1996-2000) for highwayinvestment and maintenance in Hunan and Guangdong require a total of Y 95.3 billion(Y 23.8 billion in Hunan, Y 72.5 billion in Guangdong).

3.17 Financing. Funding for highway construction and maintenance comes fromseveral sources, but by far the two largest sources are the Road Maintenance Fee, used formaintenance needs and that provided about 39 percent and 47 percent of all highwayfunding in Hunan and Guangdong during the Eighth Five-Year Plan (8FYP) (1990-95),respectively, and the Highway Key Construction Fund for new construction and thatprovided about 20 percent and 37 percent, respectively. Highway funding sources andexpenditures are summarized in Table 3.2a for Hunan Province and Table 3.2b forGuangdong Province. The Road Maintenance Fee is collected from all motor vehicles.The total amount collected from cars, vans and trucks is retained by the PCDs, while theamount collected from tractors and other agricultural vehicles is managed by prefectures,cities and counties. Such vehicles as military and police cars, fire trucks, city buses andcity garbage trucks are exempted from highway maintenance fees, also the party andgovernment vehicles are partly exempted. Since 1996, the balance of the revenues fromroad maintenance fees is generally distributed as follows: 2.63 percent to the PublicSecurity Bureaus in both provinces and about 4 percent to the transport fees collectionsector in Hunan. The road maintenance fee retained by Hunan Province increased fromY 3,070 million for the 8FYP to Y 5,410 million for the 9FYP and from Y 13,832 millionin 8FYP to Y 25,524 million in 9FYP in Guangdong Province.

3.18 The Highway Key Construction Fund was established by the provincialgovernments for the construction of high-grade highways and bridges and its sources are:(a) fees being collected from vehicles owned by the provinces and operated in highwaypassenger and freight transportation (the standard fees are: Y 20 per month for trucks andY 0.02 per person-km for buses), (b) the car purchasing fee (collected as 3 percent of thetotal transaction), and (c) the highway and bridge toll revenues. Revenues from theHighway Key Construction Fund increased from Y 1,580 million during the 8FYP toY 3,022 million during the 9FYP in Hunan and from Y 10,907 million to Y 13,911million in Guangdong. Other sources of revenue for highways include: (a) subsidies

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from MOC, calculated as Y 4 million per km of new construction; (b) local funds fromgovernments at prefecture, city and county levels; (c) Aid-poverty Fund; and (d) loansfrom foreign and local banks (for details on highway financing see Tables 3.2a and 3.2b).Subsidies from MOC and local governments also substantially increased from Y 1,710million for the 8FYP to Y 4,350 million for the 9FYP in Hunan and from Y 3,620 millionfor the 8FYP to Y 23,881 million for the 9FYP in Guangdong. Figures 3.1 and 3.2 showthe distribution of highway revenues and expenditures for Hunan and Guangdong,respectively, for 9FYP.

FIGURE 3.1: HUNAN HIGHWAY REVENUES AND EXPENDITURES, 9FYP(Y million)

REVENUES EXPENDITURE

Road

Foreign Bank Other loans maintenance Periodic Overtheadloans 3% fee maintenance 5%22% - 25% 17

Routine e*maintenance

8%

Capital Highway Constructionconstruction Construction and(subsidy) Fund Improvement

27% 23% 70%

FIGURE 3.2: GUANGDONG HIGHWAY REVENUES AND EXPENDITURES, 9FYP(Y million)

REVENUES EXPENDITURE

Loan interestDomestic Foreign Bank Road Periodic Overhead and and

loans maintenance ritenance others aniortizationLoan nuntnac7 5 fund 8% 3%

36% RoutineLramintenance g t

Local ~~~~~~~~~~~~15%financing

29% Highway ConstructionSubsidies Construction andfrom MOC Fund Indproverrent

19 69%

3.19 The highway network in Guangdong expanded between 1985 and 1995 from64,100 km to 83,100 km and in Hunan from about 56,000 km to about 59,000 km.During the 7FYP and 8FYP (1986-95), expenditures required for this expansion,including highway construction, rehabilitation, and maintenance totaled Y 44,600

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million, of which Y 9,600 million were spent in Hunan, and Y 35,000 million inGuangdong. Of this total, construction of new highways and highway improvementamounted to Y 33,352 million during the 8FYP, or about 85 percent of total highwayexpenditures in Hunan and Guangdong (Tables 3.2a and 3.2b)

D. ENGINEERING, CONSTRUCTION AND MAINTENANCE

3.20 Engineering. Road and bridge projects are engineered by the planning anddesign institutes at the provincial, prefecture, and county levels. The provincial planningand design institutes are responsible for designing all major road, bridge, and tunnelprojects in the province. These design institutes are, in general, competent and have onstaff experienced personnel for carrying out highway design tasks. Various national andprovincial planning and design institutes designed sections of the Jingzhu Expresswayunder the project.

3.21 Construction. Small-scale roads and bridges in the provinces are constructed bythe construction units of the highway department of each city or county. The HighwayAdministration Bureaus of the PCDs are responsible for the construction of large- andmedium-size highways and bridges. GPFC in Guangdong and HPECDC in Hunan areresponsible for the construction of high-grade highways. Since SPC directed that allmajor civil works are to be awarded after competitive bidding, many of the largerconstruction divisions are being reorganized into financially independent contractingcompanies and have been awarded contracts either individually or as partners in jointventures on previous Bank-financed highway projects.

3.22 Maintenance. Highway maintenance is carried out by county highway bureausunder the control of municipal authorities. Maintenance is generally well organized andcarried out, mainly through labor-intensive operations. Expenditures for periodic androutine maintenance in Guangdong and Hunan increased about 132 percent and74 percent from the 7FYP to the 8FYP, respectively. However, as a percentage of totalexpenditures for the highway sector, they decreased from about 35 percent during the7FYP to about 21 percent during 8FYP in Hunan (Table 3.2a). In Guangdong, routineand periodic maintenance expenditures as a percentage of total highway expenditures alsodeclined during the same period but at a smaller rate, from about 16 percent to 13 percent(Table 3.2b).

E. HIGHWAY DEVELOPMENT PROGRAM 1996-2000

3.23 9FYP for Hunan Highway Sector. The 9FYP comprises a total expenditurevolume of Y 23.7 billion (about $2.9 billion equivalent), of which Y 16.8 billion(70 percent) would be for new road construction and Y 5.8 billion (24 percent) for roadmaintenance and upgrading (Table 3.3a).

3.24 The 9FYP financing volume when compared with the 8FYP highwayexpenditures would increase by a factor of 3.0. While the construction investments inabsolute terms would increase by a factor of 3.0, and the maintenance expenditures in

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absolute terms would grow by a factor of 3.5. The relative share of maintenance wouldincrease from 21 percent to 24 percent, and the relative proportion of new constructionwould remain unchanged at 70 percent.

3.25 Highway sector funding for the 9FYP will come from the following five principalsources:

(a) Y 6.0 billion from Road Maintenance Fund;

(b) Y 5.5 billion from the Highway Key Construction Fund;

(c) Y 2.9 billion financed by prefectures and counties;

(d) Y 3.4 billion in subsidies from MOC and MOF; and

(e) Y 5.8 billion from World Bank loans and other foreign loans.

3.26 The proposed 9FYP (Table 3.4a) contains as the principal investment completionof the 532 km Beijing-Zhuhai Expressway crossing Hunan from north (Hubei border) tosouth (Guangdong Border) and costing Y 12.3 billion (about $1.46 billion equivalent), ofwhich Y 0.7 billion has been invested during the 8FYP and Y 11.6 billion will beinvested during the 9FYP. The Tucheng-Yizhan Expressway will absorb 54 percent ofhighway sector funds for the 9FYP.

3.27 Other important investments of the 9FYP comprise: (a) Y 1.6 billion forconstruction of Changsha-Changde class I auto only national highway; (b) Y 3.5 billionfor eight main provincial highways and two major bridges that are located in the west andnorth of Hunan province; and (c) Y 0.75 billion for construction and upgrading of2,015 km of rural access roads in poverty areas.

3.28 Counterpart Funding. In Hunan, the total project investment for NH2 amountsto Y 4.2 billion ($0.51 billion), out of which the Bank will finance Y 1.7 billion ($0.2billion), Y 0.4 billion ($0.05 billion) will be a grant from MOC and the remaining Y 1.7billion ($0.2 billion) will come from the 9FYP and constitute about 10 percent of the newconstruction expenditures for the 9FYP. The Province places the highest priority on thisproject providing the necessary financing.

3.29 Maintenance Funding. The total expenditures for the road maintenance in 9FYPare projected to total Y 5.8 billion, which amounts to 30 percent of total highwayexpenditures. The main road maintenance source is the road maintenance fee (RMF) thatprovides about 80 percent of the total expenditure for the road maintenance, theremaining 20 percent is provided in the form of subsidies from MOC and localgovernments. Routine and periodic maintenance and road upgrading expenditures wouldbe two times that of the 8FYP.

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3.30 9FYP for Guangdong Highway Sector. The 9FYP comprises a totalexpenditure volume of Y72,464 million (about $8,731 million equivalent), of whichY 49,983 million (69 percent) would be for new road construction and upgrading orimprovement and Y 16,621 million (23 percent) for road maintenance (Table 3.3b).

3.31 Highway sector funding for the 9FYP will come from the following principalsources:

(a) Y 25.5 billion from Road Maintenance Fund;

(b) Y 13.9 billion from the Highway Key Construction Fund;

(c) Y 21.1 billion financed by prefectures and counties;

(d) Y 2.8 billion in subsidies from MOC;

(e) Y 5.4 billion domestic loans; and

(f) Y 3.7 billion from World Bank loans and other foreign loans.

3.32 The 9FYP financing volume, when compared with the 8FYP highwayexpenditures, would increase by a factor of 2.4. While the construction investments inabsolute terms would increase by a factor of 7.0, the maintenance expenditures inabsolute terms would grow by a factor of 4.0. The relative share of maintenance wouldincrease from 13 percent to 23 percent, and the relative proportion of new constructionwould increase from 24 percent to 69 percent.

3.33 The estimated amount of Y 49,983 million will include the implementation ofmajor expressway projects: the construction of the Kaiping-Zhanjiang, Xiaotang-Gangtang and Gangtag-Taihe sections of expressways estimated at Y 20,699 million; theclass I auto-only and class II highways estimated at Y 27,239 million; and theconstruction of local highways and aid-poverty roads at Y 2,045 million (Table 3.4b).

3.34 The investment program is divided into (a) expressway and (b) class I and IIhighway subprograms.

(a) The expressway subprogram comprises 671 km of new construction and382 km of ongoing construction, at an estimated cost of Y 25.5 billion;

(b) The class I and II highway subprogram comprises construction andupgrading of 1,426 km of class I highways at a cost of Y 12.3 billion; andsome 3,735 km of class II highways at a cost of some Y 14.94 billion.

3.35 Counterpart Funding. In Guangdong, the total project investment for NH2amounts to Y 5.2 billion ($0.63 billion), out of which the Bank will finance Y 1.7 billion($0.2 billion), Y 0.4 billion ($0.05 billion) will be a grant from MOC, and the remainingY 3.1 billion ($0.4 billion) will come from the 9FYP and constitute about 6 percent of the

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new construction expenditures for the 9FYP. The Province places the highest priority onthis project providing the necessary financing.

3.36 Maintenance Funding. Funding for maintenance comes from the RMF, which isprojected to total Y 25,524 million in 9FYP and provides about 35 percent of all highwayfunding in Guangdong. About 65 percent of the RMF is allocated for routine andperiodic maintenance, 12 percent for new construction and road improvement orupgrading of the national road classes I and II, 9 percent for repayment of loan interestand the rest (14 percent) for overhead and others. Routine and periodic maintenanceexpenditures would increase by about 26 percent over the 8FYP level. At the present time,GPCD is in the process of adopting the maintenance management systems, such as roaddata bank (RDB), pavement management system (PMS) and bridge maintenance system(BMS) to improve the long-term planning in highway maintenance and management, theestimation of future funding needs for highway upgrading and maintenance and theallocation of funds.

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4. THE PROJECT

A. ORIGIN AND FORMULATION

4.1 China's 9FYP (1996-2000) emphasizes a reduction in transport bottlenecks thatare now being recognized as a growing constraint to rapid economic development. Thediversification and structural transformation of the economy, toward more light andagroindustry and more interprovincial trade, coupled with severe capacity constraints ofthe railways, are causing an accelerating demand for road transport. This national patternalso applies to the two project provinces of Guangdong and Hunan, and in particular tothe heavily traveled north-south transport corridor along National Highway 107, the spineof the densely populated and economically dynamic eastern part of China. This corridor,the location of the new Beijing-Zhuhai (Jingzhu) Expressway, linking the north and southof China, crosses the provinces of Hebei, Henan, Hubei, Hunan, and Guangdong over adistance of approximately 2,500 km and has the highest priority among the 12 nationaltrunk routes in the NTHS. Once completed, it will connect Beijing with Guangdong'sfast growing Pearl River Delta and Hong Kong. It is designed as a high-grade, high-performance facility, at a minimum four-lane standard, fully access-controlled, and willbe operated throughout as a toll highway. Jingzhu is scheduled for substantialcompletion by the year 2000.

4.2 The Bank is already heavily involved in the construction of substantial sections ofJingzhu expressway, between Beijing and Guangzhou (see IBRD map 27558). Under theongoing National Highway (NH1) Project, two important sections are presently beingbuilt in Hebei and Henan provinces and are progressing well. Under the Second NationalHighway (NH2) Project, two priority sections in northern Guangdong and southernHunan will be undertaken. Under a future Third National Highway (NH3) Project that isat an advanced preparation stage, several important expressway sections as well as amajor Wuhan Yangtze River Bridge under a B-O-T arrangement will be undertaken inHubei province. Finally, the newly proposed Fourth National Highway (NH4) Projectwill cover two important expressway sections in Hunan and Hubei that will be linked tothe Yangtze bridge B-O-T scheme. These four National Highway Projects constitute awell thought-out and well balanced series of investment operations, which assist GOCand the concerned provinces in the timely completion of China's highest-priorityexpressway corridor.

B. OBJECTIVES AND RATIONALE FOR BANK INVOLVEMENT

4.3 Project Objectives. The project is the second in the series of NHI-NH2-NH3-NH4 projects of Jingzhu expressway in Guangdong, Hunan, Hubei, Henan, and Hebeiprovinces. It builds on its predecessor NHI and precedes NH3 by about one year and

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NH4 by about two years. All four projects in the series would support an integratedapproach to expressway corridor development, with each of the four operationscontributing selected priority sections that will gradually develop into a full corridorsystem.

4.4 The specific objectives of the NH2 project are to:

(a) relieve road transport congestion and improve the integration ofinterregional trade and commerce between Hunan and Guangdong byassisting in the development of two key sections of the NTHS in theprincipal North-South transport corridor;

(b) strengthen institutional capacity at the Hunan and Guangdong ProvincialCommunications Departments and related institutions, through provisionof training, technical assistance and equipment, in planning, design,construction, operation and maintenance of Hunan's and Guangdong'shighway networks;

(c) develop a policy dialogue in the areas of the commercialization andcorporatization of provincial expressway companies, highwaymaintenance management, and transport and economic integration; and

(d) improve the safety of road transport.

4.5 Rationale for Bank Involvement. The Bank's program of support in thehighway sector will continue to assist China in the foreseeable future in the financing,development, and management of this priority expressway system. By helping GOC toplan and build the NTHS, of which the new Jingzhu Expressway is a key element, theBank supports this essential long-term solution to the serious transport problems facingChina, removing bottlenecks, facilitating interprovincial traffic, and promoting long-distance and transit traffic. This in turn would help arrest a growing regionalism whilefurthering the liberalization, facilitation, and cost reduction of transport, key requirementsfor market-oriented reforms to succeed. Early completion of the expressway corridorbetween Changsha and Guangzhou is vital to rapid future economic development of theaffected regions and would help realize the full economic benefits from large-scaleexpressway development. The transport and economic integration study for the HongKong-Guangzhou-Changsha corridor, by focusing on northern Guangdong and southernHunan, would help integrate these yet underdeveloped rural areas into the fast-growingeconomies of the Pearl River Delta and Hong Kong.

4.6 Bank support is also justified by project assistance to institutional development,which, besides the provision of training and equipment, would include studies onexpressway commercialization and corporatization, and highway maintenancemanagement. This would facilitate the introduction of market principles and mechanismsin highway operation, management and maintenance. Bank involvement is also expectedto benefit the design and quality of construction of expressways as well as the

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improvement of road traffic safety. NH2 would additionally foster improved practices inthe areas of environment and resettlement of project-affected people, thus supporting theBank's country and sector assistance strategies.

C. PROJECT MONITORING

4.7 Project impact would be monitored with respect to the project objectives (PO).The key indicators are as follows.

PO (a): (i) reduced congestion levels on roads parallel to the proposed new road(traffic volume);

(ii) increased average travel speeds on roads parallel to the proposed newroad (km/hr);

PO (b): (i) enhanced institutional capacity of HPCD and GPCD for specificallydefined areas [technical assistance (TA) person-months];

PO (c): (i) improved policy framework for highway commercialization,maintenance, and economic integration (in each policy area establishmentof action plan and its implementation); and

PO (d): (i) reduced numbers of traffic accidents (number of fatalities and injurieson existing roads).

In Annex , the following are delineated:

(a) More specific description of performance indicators;

(b) Baseline values;

(c) Mid-term benchmarks;

(d) Interim benchmark; and

(e) Targets for each value.

Parameters, baselines and targeted values were developed by HPCD and GPCD forreview by the Bank and confirmed at negotiations.

4.8 The achievement of project output would be tracked by monitoring indicators,listed below. Project output can be defined as immediate project targets and initial flowsof services, such as physical quantity (percent of the length of road constructed);institutional strengthening (training achieved), and quality (safety initiatives,environmental requirements). The following monitoring indicators were set up for someof the key project components. There are time-bound monitorable targets that would be

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described either as actual physical outputs or as a percentage of componentsimplemented.

Monitoring Indicators:

(a) Percentage of the length of XLE (out of 169 km) and XGE constructed(out of 109 km);

(b) progress made in the implementation of the training component for HPCDand GPCD and its affiliated institutions (person-months);

(c) number of black spots of the highway safety program completed (out ofidentified black spots);

(d) progress made in purchasing equipment for HPCD and GPCD and itsaffiliated institutions (as a percentage of its dollar value); and

(e) progress made on the studies.

The proposed monitorable targets are shown in Annex 1.

D. PROJECT COMPONENTS

4.9 The project comprises the following components:

(a) Construction of: (i) Xiangtan to Leiyang Expressway (XLE), a 169-kmdivided, four-lane, access-controlled toll highway in southern Hunan; and(ii) Xiaotang to Gantang Expressway (XGE), a 109-km divided, four-lane,access-controlled toll highway in northern Guangdong. The works wouldinclude construction of administration, service and maintenance facilitiesas well as the supply and installation of electrical, electronic andmechanical (E&M) equipment for tolling, telecommunication, trafficmonitoring, and lighting of interchanges, toll plazas and service areas;

(b) Interconnecting roads programs in (i) Hunan, consisting of newconstruction and upgrading of four roads, with a total length of 39 km,including a new 16-km divided, four-lane, class I, Xiangtan-ZhuzhouHighway (XZH), and in (ii) Guangdong, consisting of new constructionand upgrading of 10 short roads, with a total length of 2 km;

(c) Construction of Loudi-Lianyuan Highway (LLH), an auto-only, access-controlled, class II, connecting road of 60 km length;

(d) Construction supervision services for XLE, XGE, the interconnectingroads programs in Hunan and Guangdong including XZH, and LLH;

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(e) Studies/technical assistance in (i) highway maintenance management inHunan, (ii) expressway commercialization and corporatization in Hunan;(iii) transport and economic integration in Guangdong; and(iv) expressway safety in Guangdong and Hunan;

(f) Staff training programs in Hunan and Guangdong, covering all aspects ofhighway planning, design, construction, operation, finance andmaintenance; and

(g) Equipment for: (i) control of construction quality and monitoring of theenvironment; (ii) operation and maintenance of XLE and XGE after theircompletion; (iii) maintenance of the provincial road network and RDB andPMS in Hunan.

E. CIVIL WORKS CONSTRUCTION AND SUPERVISION

4.10 Construction of Xiangtan-Leiyang Expressway (XLE). The existing NationalRoad (NR) 107 between Xiangtan and Leiyang in Hunan is 196 km long and traversesdensely populated and industrial areas, with particularly heavy concentrations in the citiesof Xiangtan, Zhuzhou, Hengyang and Leiyang. The existing road was recently upgradedto class II standard with a subgrade width of 12 m. The pavement is generally 9 m wide,with some bridges remaining only 7 m wide. These widths do not allow for separation offast- and slow-moving vehicles and result in low travel speeds. Moreover, the pavementstructure is generally weak. Recent large increases in traffic and expected future trafficgrowth cannot be accommodated by the existing road beyond 1997 at an acceptable levelof service. Between 1993 and 1994, the average daily traffic (ADT) volume for thewhole road, converted to medium-size trucks, increased from 5,036 to 6,276, a growth of25 percent. The widening of the existing road is not feasible along most of its length, dueto extensive frontage development and the high number of people that would need to beresettled.

4.11 To establish the feasibility of XLE along a new alignment, several alternativeswere compared. The chosen alignment is located to the east of the existing NR 107, witha maximum distance between NR 107 and the expressway alignment of about 20 km inHengyang. The alignment was chosen since it optimizes XLE's technical characteristicsand minimizes cost and the number of people to be resettled. It also provides sufficientspace for city development. XLE would be about 169 km long, consisting of four pavedlanes, each 3.75 m wide, with two shoulders at 3.5 m width and a medium at 3.0 m width,in accordance with MOC's highway design standards. The width of the subgrade is28.0 m. The width of the shoulders was increased from 2.5 m to 3.5 m to improve trafficsafety, in view of the large number of heavy trucks that will use XLE. The maintechnical difficulties of the chosen alignment are (a) the crossing of the Xiangjiang andthe Mishui Rivers, requiring three larle bridges of 938 m, 832 m, and 513 m; and(b) large earthworks of about 125,000 m /km, with about 50 percent in stonework. About5 km of the expressway are to be built on soft soils and about 17 km in flood-prone areas

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require special treatment. The three largest bridges would allow for extension to six lanesat a later stage, if the emergency lanes were to be used for this purpose. The expresswaywould be operated as a closed toll road and also includes 3 long bridges, 14 medium-sizebridges, 7 small bridges, 843 culverts and 155,900 m3 of retaining walls. One railwaybridge, 21 overpasses and 407 mixed underpasses would be constructed.

4.12 XLE would also include: (a) construction of nine interchanges, (b) three serviceareas providing facilities for refueling and vehicle repair, restaurants, parking and resting,(c) three additional rest areas providing facilities for refueling, parking and resting,(d) three facilities for expressway administration and maintenance, and (e) electrical andmechanical installations for toll collection, traffic monitoring, telecommunications andlighting of all interchanges and annex areas. The preliminary and detailed engineeringdesigns for the expressway were undertaken and have been completed by the HunanProvincial Design Institute of Planning and Survey (HPDIPS) for all civil works. MOC'sHighway Engineering Consulting Corporation in Beijing is designing the electrical andmechanical works. Preliminary designs were reviewed and approved by MOC. Adetailed description of the technical characteristics of XLE is presented in the projectfiles. The detailed engineering designs and bidding documents were completed in June.They were reviewed by a team of Swedish consultants under trust-funding during June/July 1996 and were found satisfactory.

4.13 Interconnecting Roads Program (IRP) for XLE. Given the high populationdensity and rapid growth of road transport in the Xiangtan-Zhuzhou-Hengyan-Leiyangcorridor, the opening of XLE would bring significant traffic increases to the existing roadsystem. While some of these roads have recently been upgraded, HPCD plans to improvethe remaining ones by 2000, the year of the planned opening of XLE. On the basis of acomprehensive review of all existing and planned roads that would interconnect withXLE at its nine interchanges, an IRP comprising four longer roads and several shorterones, with a total length of 39 km was developed and would be financed under theproject. This IRP is shown in Table 4.1a. Among these 4 roads, the Xiangtan-ZhuzhouHighway (XZH) is the most important and largest investment. It is a 16-km long, 2x2-lane, class I road that would link two important cities in Hunan with each other and to theexpressway. This interconnecting road would substantially reduce the distance betweenthese two cities and support two new development zones. XZH was designed by theDesign Department of the Changsha Communications Institute (CCI) while all otherinterconnecting roads were designed by HPDIPS. The technical characteristics of XZHare presented in the project files. The appraisal mission reviewed the proposed IRP andconfirmed its appropriateness.

4.14 Loudi to Lianyuan Highway (LLH) in Hunan. Construction of an auto-only,access-controlled class II highway between Loudi and Lianyuan, with a length of 57 km,has high priority under Hunan's 9FYP. This road would link two important industrialcities presently lacking appropriate connection and forms part of a new route fromChangsha to Lianyuan, to be extended in future to western Hunan. It would cross theChangsha-Xiangtan expressway section that is presently under construction with Asian

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Development Bank (ADB) financing, pass through the Xiangtan-to-Dashiqiaosubsection of XLE and the proposed XZH between Dashiqiao and Xiangtan, and wouldlink to a new class I/class II highway between Xiangtan and Loudi where construction isalready ongoing. This new road would improve accessibility to Loudi and Lianyuanfrom XLE and would therefore be an important complementary investment to Jingzhu.The road comprises three interchanges including a 3-km long interconnecting road andthree junctions. The chosen alignment does not encounter any major technicaldifficulties. Engineering design was undertaken and has been completed by the designdepartment of CCI. The technical characteristics of LLH are presented in the projectfiles. All works-related cost estimates for LLH were reviewed and finalized by theappraisal mission.

4.15 Construction of Xiaotang-Gantang Expressway (XGE). The existing NR 107between Xiaotang (Hunan border) and Guangzhou is 395 km long and traverses mostlyrural areas. The road was recently upgraded to class II with a subgrade width of 12 m inthe south and 8.5 m in the north. This narrow pavement is due to the complextopography in northern Guangdong. The main technical difficulty for NR 107 is thecrossing of the cities of Lianxian, Yangshan and Qingyuan. Overtaking along theexisting alignment is difficult and dangerous since strong longitudinal slopes slow downmost vehicles. In 1993, ADT for the whole line, converted to medium-size trucks, was7,500 vehicles. There are two other important north-south roads, NR 106 and NR 105, atclass III or IV standards, and there exists Provincial Road (PR) 1947. These roads arepresently being upgraded, largely under the Bank-supported Guangdong ProvincialHighway Project (Loan 3530-CHA). There is also a new 10-km long class I highway inthe north of Pingshi at the Hunan border and a new class II highway between Pingshi andRuyuan. Widening of the existing roads is not feasible along most of their lengths, due toextensive frontage development and the high numbers of people that would need to beresettled.

4.16 To establish the feasibility of Xiaotang-Gantang-Taihe Expressway along a newalignment, several alternatives were compared. Any new alignment would have to crossmountainous areas in the northern part and other topographical barriers in the south. Thechosen alignment differs substantially from the alignment of the existing NR 107,enabling a large reduction in distance between the Hunan border and Guangzhou, andgiving much improved access to the industrial city of Shaoguan, the largest city innorthern Guangdong with a population of around 3 million inhabitants. While theexisting NR 107, from the Hunan border, takes a southwestern direction, the newexpressway goes to the southeast, in parallel to the existing PR 1947 between Pingshi andRuyuan and to the existing NR 323 between Ruyuan and Gantang. The distance betweenNR 107 and XGE reaches a maximum of about 70 km in Gantang. The feasibility studyinvestigated two separate expressway sections, the northern section between the Hunanborder and Shaoguan (Xiaotang-Gantang), and the southern section between Shaoguanand Guangzhou (Gantang-Taihe).

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4.17 The Chinese authorities have requested Bank funding of the northern section,under the NH2 Project, while the southern section that would be constructedsimultaneously with the northern section, will be financed through Guangdong's ownresources. The southern section between Gantang and Taihe, a distance of 199 km,would be built as a 2x2-lane expressway in a first stage, to be extended to 2x3 lanes at alater stage as traffic increases. The feasibility study compared several alternatives andrecommended an alignment passing near Pingshi and Ruyuan. The chosen alignmentoptimizes the expressway's technical characteristics, minimizes cost and the number ofpeople to be resettled. A detailed procurement and implementation schedule for thenorthern and southern sections is presented in Annex 2.

4.18 XGE would be about 110 km long and is being designed in accordance withMOC's highway design standards. Some 73 km, between Lingshi Ba and Ruyuan, arelocated in mountainous terrain, while some 37 km between Xiaotang to Lingshi Ba,Ruyuan and Gantang are located in heavy rolling terrain. In mountainous terrain, thedesign speed is 80 km/h, and the cross-section consists of four paved lanes, each 3.75 mwide, two emergency lanes 2 m wide, two berms at 0.75 m and a median at 2.5 m. Thewidth of the subgrade is 23 m. In heavy rolling terrain, the design speed is 100 km/h andthe cross-section consists of four paved lanes, each 3.75 m wide, two emergency lanes at2.5 m wide, two berms at 1 m and a median at 2.5 m. The width of the subgrade is24.5 m. The main technical difficulties are: (a) the very mountainous topographyresulting in many tunnels (14 two-lane tubes totaling about 14 km, with 6 more than1,000 m length, the longest being 2,100 m), many bridges and viaducts (3 very largebridges of, respectively, 1,593 m, 1,122 m and 648/2 m; 30 long bridges totaling8,214 m); and (b) substantially more earthworks than usual, about 200,000 m3/km, withabout two thirds in stonework, very deep cuts reaching 50 m and high fills reaching 30 m,and many retaining walls (about 640,000 m3). The expressway would be operated as aclosed toll road and would also comprise 2 medium-size bridges, 7 small bridges, 270culverts and 642,000 m3 of retaining walls. In addition, 25 grade separations, 6interchanges, 29 pedestrian underpasses, and 22 mixed underpasses would beconstructed.

4.19 XGE would also include construction of: (a) six interchanges, (b) two serviceareas providing facilities for refueling, restaurants, hotels, parking and resting, (c) tworest areas providing facilities for parking and resting, (d) two facilities for administrationand maintenance of XGE, (e) electrical and mechanical installations for toll collection,traffic monitoring, telecommunications and lighting of toll plazas and all annex areas.The preliminary and detailed engineering designs for the expressway (northern andsouthern sections) were undertaken and have been completed by MOC's SecondHighway Survey and Design Institute (SHSDI) in Wuhan. MOC's HRI is in charge ofthe electrical and mechanical works. Preliminary designs were reviewecl and approved byMOC. The detailed engineering designs and bidding documents will be reviewed by ateam of Austrian consultants under trust funding during March/April 1997. All worksrelated cost estimates for XGE were reviewed and finalized by the appraisal mission.

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4.20 Interconnecting Roads Program (IRP) for XGE. The Guangdong ProvincialHighway Administration Bureau (GPHAB) under GPCD is presently implementing asubstantial Interconnecting Road Program (IRP) in the influence area of XGE,comprising the upgrading and improvement of 10 national, provincial and county roads,with a total length of some 240 km. This IRP is in part financed by the Bank-supportedGuangdong Provincial Highway Project (Loan 3530-CHA) and in part funded throughGuangdong's own highway resources. The 10 IRP roads are already being linked to thesix interchanges on XGE through a second IRP to be funded under the project, consistingof 10 short access roads, with a total length of about 2 km. This IRP is shown in Table4. lb. The appraisal mission reviewed the second IRP and confirmed its appropriateness.

4.21 Construction Supervision. Training programs in construction supervision forlocal staff in Hunan and Guangdong would be completed prior to the mobilization ofcontractors. This training would be conducted by the two international supervisionconsultants that will be selected. The first phase of the training program, prior to thebeginning of construction, would include lecture courses and site visits while the secondphase would comprise on-the-job training to take place during construction of XLE andXGE.

4.22 In Hunan, the construction supervision organization for XLE would consist of ajoint foreign/local core supervision team to be established around three foreign engineers(with a total of 108 person-months), with expertise in project/contract management, earthand pavement works, and bridge construction. The core team would also include fourlocal engineers and would be located at HPECDC's General Supervisor's Office inHengyang where it would be supported by a central laboratory to be staffed with10 qualified local experts. For field supervision of 11 ICB civil works contracts, fourresident engineer's offices (REO) would be established in Zhuzhou, Hengdong,Hengyang and Leiyang, staffed with 121 persons. There would also be a logistics staffcomprising 34 persons. A total of 169 local supervisors would be engaged correspondingto one person per km of expressway construction. Domestic supervising engineers wouldprovide some 6,500 person-months. Supervision of civil works for XZH and LLH wouldbe carried out by qualified local supervision teams acceptable to the Bank. Thesesupervision arrangements were reviewed and confirmed during negotiations. Assuranceswere obtained at negotiations that Hunan Province would maintain constructionsupervision teams with qualified staff in adequate numbers to ensure that works arecarried out in accordance with technical specifications and that strict quality controlsare exercised on site. Construction quality would also be monitored through routineproject supervision and monthly and quarterly progress reports.

4.23 In Guangdong, the supervision organization for construction of XGE wouldconsist of a joint foreign/local core supervision team to be established around threeforeign engineers (with a total of 120 person-months) with expertise in project/contractmanagement, earth and pavement works, and traffic engineering, as well as tunnel andbridge construction. This core team will be located at GPFC's Supervisor's Office inShaoguan and will be supported by a central laboratory to be staffed with 12 qualified

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local experts. For field supervision of 13 ICB civil works contracts, 10 REOs will beestablished. They will be staffed with 110 local engineers for field supervisioncorresponding to about one engineer per km of expressway construction. Domesticsupervising engineers will provide some 5,000 person-months. These supervisionarrangements were reviewed and confirmed during negotiations. Assurances wereobtained at negotiations that Guangdong Province would maintain constructionsupervision teams with qualified staff in adequate numbers to ensure that works arecarried out in accordance with technical specifications and that strict quality controlsare exercised on site. Construction quality would also be monitored through routineproject supervision and monthly and quarterly progress reports.

F. INSTITUTIONAL CAPACITY BUILDING

4.24 Highway Maintenance Management in Hunan. To improve and modernizemaintenance management in Hunan, HPCD would proceed with a highway maintenancemanagement study. The overall objective would be to create an efficient maintenanceorganization, adjusted to modem management philosophy and using modem technology.The study will be managed by a Leading Group established in 1996. The Leading Groupwill be in charge of the studies and the road safety activities in Hunan Province. Thestudy will commence in January 1997 and finish before the end of 1998. The studywould: (a) review the institutional arrangements, policies and procedures for highwaymaintenance, consistent with the economic reform process; (b) identify expendituresrequired to maintain the existing road network, taking budget constraints intoconsideration; and (c) formulate and prioritize a multiyear highway maintenance programfor the later part of the 9FYP period. The outcome of the study would includerecommendations on (a) organizational changes; (b) equipment needs; (c) training ofpersonnel; (d) a model to estimate medium-term maintenance needs; (e) strengthening ofHunan's RDB and PMS; and (f) development of a BMS. Final terms of reference (TOR)are available in the project file. Final TOR were reviewed and agreed duringnegotiations. Assurances were obtained at negotiations that Hunan Province shall: (a)by June 30, 1997, establish a Leading Group comprising representatives of theconcerned provincial agencies to guide the said study and provide comments on theresults and recommendations thereof; (b) by June 30, 1999, carry out said study inaccordance with TOR satisfactory to the Bank and furnish a draft final report thereof tothe said Leading Group and the Bank for review and comments; (c) furnish the finalreport of said study, taking into account comments made by the Leading Group and theBank, to the Bank not later than six months following receipt of comments made by theBank on said draft final report; and (d) thereafter, take all appropriate steps toimplement the recommendations set out in saidfinal report.

4.25 In addition, assurances were obtained at negotiations that Hunan Province shall,by June 30 of each year commencing in 1997 and ending in 2001, furnish an annualhighway condition report for the Bank's review and comments for the previous year,which would: (a) show the length of each class of highway by condition (excellent, good,fair and bad) as of December 31 of the previous year; (b) show the completed physical

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works and actual expenditures of the previous year against the planned physical targetsand budgeted funds of that year, for new construction, upgrading/improvement,rehabilitation, periodic maintenance, and routine maintenance; and (c) show the targetsof the highway program for the current year, including new construction, upgrading/improvement, rehabilitation, periodic maintenance, and routine maintenance, in terms ofplanned physical works and planned expenditures.

4.26 Expressway Commercialization and Corporatization in Hunan. This studywould assist HPCD in developing modern thinking in how to finance and manage its newexpressways and would analyze the longer-term options available in financing, managingand organizing its high-grade highway corporation(s). It would help design a modemorganization in compliance with international standards of financial management, wouldensure that toll revenues are properly collected and managed and that expenditures (bothfor investment and for adequate maintenance) are well planned. The study will bemanaged by a Leading Group established in 1996. The Leading Group will be in chargeof the studies and the road safety activities in Hunan Province. Final TOR are availablein the project file. Final TOR were reviewed and agreed during negotiations.Assurances were obtained at negotiations that Hunan Province shall: (a) by June 30,1997, establish a Leading Group comprising representatives of the concerned provincialagencies to guide the said study and provide comments on the results andrecommendations thereof; (b) by June 30, 1999, carry out said study in accordance withTOR satisfactory to the Bank and furnish a draft final report thereof to the said LeadingGroup and the Bank for review and comments, (c) furnish the final report of said study,taking into account comments made by the Leading Group and the Bank, to the Bank notlater than six months following receipt of comments made by the Bank on said draft finalreport; and (d) thereafter, take all appropriate steps to implement the recommendationsset out in saidfinal report.

4.27 Road Safety in Hunan. Four road safety components would be undertaken,concentrating on institutional improvements, training, accident data collection andanalysis, and the identification and implementation of physical measures. The safetycomponents will be managed by a Leading Group established in 1996. The LeadingGroup will be in charge of the studies and the road safety activities in Hunan Province.The road safety activities should be initiated under the NH2 project and continued underthe NH4 project. First, Hunan's Traffic Engineering Society (TES), during its annualmeetings, would start incorporating road safety issues in its agenda. This would form abasis toward a developed road safety seminar arrangement that would become an annualevent. The basic concept for the seminar would be to create a better understanding ofroad safety, and to learn lessons from other countries about road safety work. Domesticand international experts would be invited to attend the annual seminar. Second, HPCDwould develop, through TA, a manual on safety at roadworks, enabling the organizationof roadworks under conditions tolerable to road users and workers, and requiringsolutions for, inter alia, comprehensive schemes for work zones and temporary trafficoperations, technological innovations, and monitoring users behavior and traffic. Theoverall aim of this effort would be to develop a guideline suitable for roadworks in

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Hunan. Different types of roadworks would be examined, from mobile and short-duration to long-duration roadworks. Equipment and accessories used for temporarysigning, traffic guidance and the protection of workers would be examined. Third, HPCDwould develop, through TA, a safety audit manual, consisting of a series of checklists andguidelines enabling systematic checking of highway engineering designs to ensure thatthey do not contribute to but help reduce accidents. A start was already made throughvarious design improvements on XLE, for example, on the shapes of its interchanges, theconnections of annex areas to the expressway, or the locations of the maintenance centers.Fourth, HPCD would undertake through TA the in-house development of a black-spotanalysis and improvement system, comprising the identification of black-spots; design,funding, implementation of remedial measures; and conducting before and after studies.The entire length of NR 107 in Hunan would be used to develop and test this system.Final TOR are available in the project file. Assurances were obtained at negotiations thatHunan Province shall. (a) establish a Leading Group comprising representatives of theconcerned provincial agencies to associate with TES and to incorporate road safetyissues into the agenda of its annual meetings, starting in 1997, and organize an annualroad safety seminar in Hunan starting 1998; (b) develop, through TA, a manual on safetyduring roadworks, a safety audit schedule, and a program of selected black-spot analysisand improvement along NR 107, and by June 30, 1999, complete the said three TAcomponents in accordance with terms of reference satisfactory to the Bank, (c) furnishthe TA results to the Leading Group and the Bank for review and comments; and(d) thereafter, take all appropriate steps to implement the recommendations of the saidTA components, taking into account the comments thereon of the said Leading Group andthe Bank.

4.28 Transport and Economic Integration in Guangdong. This study wouldexamine the long-term transport and economic integration effects of the transport corridorbetween Hong Kong-Macao-Guangzhou-Changsha connecting several inland provincesto the highly economically active Pearl River Delta. The movement of freight and peoplewill no longer be dependent on the much overloaded railway link. The completion of theexpressway would help to foster faster economic growth in northern Guangdong andsouthern Hunan and promote economic integration of areas along the expresswaycorridor. The study would also analyze the advantages of the various transport modes inan intermodal transport framework and their impact on regional economics. GuangdongProvincial Economic Research Institute, Xian Highway Transport University andGuangdong Provincial Transport Association would be responsible for execution of thestudy, while coordination would be undertaken by GPCD, with joint involvement of theWorld Bank Finance Office and Research Institute under GPCD. Final TOR areavailable in the project file. Final TOR were reviewed and agreed during negotiations.Assurances were obtained at negotiations that Guangdong Province shall: (a) by June30, 1997, establish a Leading Group comprising representatives of the concernedprovincial agencies to guide the said study and provide comments on the results andrecommendations thereof; (b) by June 30, 1999, carry out said study in accordance withTOR satisfactory to the Bank and furnish a draft final report thereof to the said LeadingGroup and the Bank for review and comments; (c) furnish the final report of said study,

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taking into account comments made by the Leading Group and the Bank, to the Bank notlater than six months following receipt of comments made by the Bank on said draftfinalreport; and (d) thereafter, take all appropriate steps to implement the recommendationsset out in saidfinal report.

4.29 Expressway Safety in Guangdong. With the rapid expansion of the expresswaynetwork in Guangdong, there is an increasing need to review the issue of road safety. Ofparticular importance are the treatment and application of road safety knowledge andtechniques in the areas of traffic engineering design and in the operation and managementof expressways. The proposed TA would address the practical aspects of expresswaysafety, with a view to develop implementable recommendations. In the course of thiswork, standards, manuals, handbooks and operational procedures for incidentmanagement, guarding and lighting of road works, expressway signing, marking andlighting, traffic control and surveillance provisions, traffic management procedures, andpreferred organizational structure for expressway safety management would bedeveloped. Standards and manuals that are to be produced under the study would beadjusted to the situation in Guangdong, in accordance with guidelines from MOC. FinalTOR are available in the project file. Final TOR for this TA were reviewed and agreedduring negotiations. Assurances were obtained at negotiations that Guangdong Provinceshall: (a) by June 30, 1997, establish a Leading Group comprising representatives of theconcerned provincial agencies to guide the said study and provide comments on theresults and recommendations thereof; (b) by June 30, 1999, carry out said study inaccordance with TOR satisfactory to the Bank andfurnish a draftfinal report thereof tothe said Leading Group and the Bank for review and comments; (c) furnish the finalreport of said study, taking into account comments made by the Leading Group and theBank to the Bank not later than six months following receipt of comments made by theBank on said draft final report; and (d) thereafter, take all appropriate steps toimplement the recommendations set out in saidfinal report.

4.30 Training in Hunan. The training program would mainly focus on highwayplanning and engineering design, construction and its supervision, maintenance andoperations management, including, but not limited to quality control, budget planning,engineering economics, and road safety. The program would aim at training ofpersonnel needed for the project to guarantee its smooth implementation and progress. Itwould also cover professional training on the part of personnel in the transport sector andprofessional training for trainers. A training program has been prepared, which willinclude the training of 80 people to be trained overseas for 110 person-months while 721people will be trained in China. Three foreign experts will be engaged for about3 person-months in the domestic training program. Detailed documentation and asummary of the proposed training program is available in the project file. The trainingprogram was reviewed and agreed during negotiations. Assurances were obtained atnegotiations that Hunan Province shall, by June 30 of each year and commencing in1997, furnish a rolling two-year training implementation program to the Bank forapproval and shall carry out the training under the approved program.

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4.31 Training in Guangdong. The proposed program in construction supervisiontraining would focus on contract management, FIDIC conditions of contract, costmanagement, construction management, quality and progress control. In addition to thetraining in construction supervision, a series of training programs would be conducted inproject planning and design, highway engineering, construction, highway maintenanceand operation management. Depending on the nature of the training, the courses wouldbe provided either in China, by local institutions, or abroad, by foreign consultants. It hasbeen proposed that 108 people (122 person-months) will attend overseas training while752 people (672 person-months) will be given domestic training. The proposed trainingprograms build on training that is being undertaken and nearing completion under theongoing Guangdong Provincial Highway Project (Loan 3530-CHA). Detaileddocumentation and a summary of the proposed training is available in the project file.The training program was reviewed and agreed during negotiations. Assurances wereobtained at negotiations that Guangdong Province shall, by June 30 of each year andcommencing in 1997, furnish a rolling two-year training implementation program to theBank for approval and would carry out the training under the approved program.

4.32 Equipment. Equipment to be provided under the project has been identified byGPFC and HPCD and reviewed by the Bank. Agreed equipment lists including costestimates are available in the project file. These lists include, for both provinces,equipment items required for expressway operation and maintenance, strengthening ofcentral laboratories, and environmental monitoring. In the case of Hunan, selectedequipment items for RDB and PMS development as well as for the maintenance of theprovincial highway network are also included. In Guangdong, the equipment list hastaken into consideration those items that were already procured under the ongoingGuangdong Provincial Highway Project (Loan 3530-CHA). All equipment lists asproposed by Hunan Province and Guangdong Province including cost estimates werereviewed and confirmed during negotiations.

G. ENVIRONMENTAL ASSESSMENT

4.33 Hunan. An environmental impact assessment (EIA) for XLE and itsinterconnecting roads was carried out by the Highway Research Institute (HRI) of MOCand an EIA report, an Environmental Action Plan (EAP) and an EnvironmentalAssessment (EA) Summary were submitted to the Bank in March 1995. Thesedocuments were reviewed by the Bank and discussed with HPCD during the preparationmissions in April and July 1995. Based on the Bank's comments, the revised EIAreports, EAPs for XLE including its interconnecting roads, and the EA Summary weresubmitted to the Bank in September 1995 for review. These documents were furtherreviewed and discussed during the preappraisal mission in November 1995. The EIA andEAP for LLH, and an EIA report for XZH were also reviewed by the Bank at that time.The final EIA reports, EAPs and EA Summary covering XLE and its interconnectingroads, LLH and XZH, were submitted in January 1996 and found to be satisfactory to theBank.

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4.34 Guangdong. An EIA for XGE including its interconnecting roads was carriedout by the Shanghai Ship and Shipping Research Institute (SSSRI) of MOC, and an EIAreport, an EAP, and an EA Summary were submitted to the Bank in May 1995. Thesedocuments were reviewed by the Bank and discussed with GPCD during the preparationmission in July 1995. Based on the Bank's comments, the revised EIA reports, EAPs,and the EA Summary for XGE and its interconnecting roads were submitted to the Bankin September 1995 for review. These documents were further reviewed and discussedduring the preappraisal mission in November 1995. The final EIA reports, EAPs and EASummary covering XGE and its interconnecting roads were submitted in January 1996and found to be satisfactory to the Bank.

4.35 Ii both Hunan and Guangdong sections, major environmental impacts during theconstruction period will include noise and dust, alteration of hydrological regimes, soilerosion, interference with local people and traffic, and impacts on the local ecology andon irrigation systems. Among others, noise and dust, and soil erosion would be mostserious. In addition, on XGE, in view of the large quantities of cut and fill works,particular attention was paid to the impacts of transportation of construction materials.Traffic noise and vehicle exhaust, soil erosion, and water pollution from service areaswere identified as major adverse impacts during the operation period.

4.36 The EAPs specify the appropriate mitigation measures, environmental monitoringplans, institutional arrangements for their implementation, training and equipmentrequirements, and budget needed for environmental protection. On both XLE and XGE,major mitigation measures in the construction phase will include optimum planning ofearthworks to reduce damage to be caused by borrow and spoil works, appropriate designof overpasses/underpasses to minimize interference with local people and traffic,reconstruction of irrigation and drainage systems where appropriate, and water sprinklingto reduce dust. On XGE, particular attention will be paid to optimum use of excavatedsoil for filling works, and reduction of impacts of borrow material hauling trucks.

4.37 On both XLE and XGE, major mitigation measures in the operation phase willinclude construction of noise barriers, construction/heightening of fences around theresidences to reduce traffic noise, strengthening of vehicle emission inspections andbetter maintenance of vehicles to minimize air pollution problems, and afforestation toimprove landscape and reduce air pollution. The engineering design and technicalspecifications for the expressways incorporate appropriate measures required forenvironmental protection. It was ascertained that the proposed expressways and theirinterconnecting roads, and other highways included in the NH2 Project in both Hunanand Guangdong will not affect ecologically sensitive areas and that their construction andoperation should have no adverse impacts on the environment through theimplementation of EAPs. The summary of the EIAs and EAPs are presented in Annexes3a and 3b, and copies of the EIAs and EAPs are available in the Project File and are alsoavailable through the Public Information Center (PIC). Assurances were obtained atnegotiations from Hunan Province and Guangdong Province that: (a) the environmentalprotection measures stipulated in the EAPs with respect to XLE and its interconnecting

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roads, LLH, XZH, and XGE and its interconnecting roads shall be carried out in amanner satisfactory to the Bank, and (b) Hunan Province and Guangdong Province shalleach furnish to the Bank annual environmental monitoring reports for XLE and itsinterconnecting roads, LLH, XZH, and XGE and its interconnecting roads during theirconstruction phases and for each of the first three years following their constructioncompletion.

H. LAND ACQUISITION AND RESETTLEMENT

4.38 Resettlement Action Plans (RAPs) for the project were prepared by theResettlement Offices (ROs) of GPFC and HPECDC for the two project provinces basedon the following laws and regulations:

(a) The Land Administration Law of the People's Republic of China for LandAcquisition and Resettlement (1986);

(b) Implementation Regulations for Land Administration of the People'sRepublic of China (1991); and

(c) Provincial and municipal regulations as listed in Annexes 4a and 4b.

4.39 Objectives. The RAPs establish the basis for land acquisition and resettlement inthe project and respond to the general Bank guidelines on involuntary resettlement. Thebasic objectives of the RAPs are to: (a) minimize resettlement; (b) improve the standardsof living of the project-affected persons (PAPs) or at least to restore them; (c) consult theaffected communities on the project impact, entitlements, and rehabilitation measures;(d) compensate the villages for land and the PAPs for their lost assets at replacementvalue without depreciation; (e) provide land to the PAPs whose land is affected byreadjusting the village land; (f) provide alternative jobs to the PAPs losing agriculturalland if the land endowment of affected villages do not permit readjustment; (g) ensurethat PAPs whose jobs are affected through affected enterprises are provided with similaremployment in new enterprises; (h) compensate the disrupted infrastructure; (i) establishthe time schedule and the budget of the resettlement component of the project; (j) devisea mechanism for grievance and appeals; and (k) devise internal and independentmonitoring.

4.40 The RAPs meet the general standards of transport sector RAPs for China and theBank Guidelines for Involuntary Resettlement. The RAPs are reviewed in detail inAnnexes 4a and 4b. Assurances were obtained at negotiations from Hunan andGuangdong Provinces that all land acquisition and resettlement activities with respect toXLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roadsshall be completed in accordance with the RAPs in a manner satisfactory to the Bank.

4.41 Institutional Strengthening. The project addressed this issue by encouraging theunification and computerization of the data at the preparation stage, with the

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collaboration of local administrations and then sharing the data with the same localoffices. This approach also facilitated the consultation process at all levels, whileconnecting the resettlement component of the project with the civil works bysuperimposing the population and asset data on preliminary design maps. This approachcan lead to further reductions in resettlement and its cost in future transport projects byimproving resettlement minimization during preliminary design.

4.42 Adverse Impact of NH2 Project. The project will lead to permanent acquisitionof 32,785 mu, temporary acquisition of 4,958 mu of land, and removal of 1,828 privatehouses in the two provinces. Most of the effect on houses will be in the more denselypopulated Hunan Province. In Guangdong, the expressway will be shorter and passthrough a sparsely populated region of the province, affecting only 281 private houses.Total number of households affected by the project will be 8,816 with a total populationof 39,167. Overall, 8,239 persons will need to relocate their houses, while another 30,926will lose land only, of whom 1,433 would be transferred from agriculture to enterpriseemployment due to limited land availability. Total enterprises affected by the project willbe 14 with an employment of 354 employees. Assurances were obtained at negotiationsfrom Hunan Province and Guangdong Province that the monitoring of the effectivenessand socioeconomic impact of the resettlement activities with respect to XLE and itsinterconnecting roads, LLH, XZH, and XGE and its interconnecting roads shall becarried out in accordance with the RAPs in a manner satisfactory to the Bank

4.43 Outstanding Issues Resolved During the Appraisal. The appraisal missionensured that all the points raised during the Bank's review of the RAPs were addressedby the borrowers. Issues relating to consultation with the local units on land readjustmenthas been completed, and a clear understanding was reached between the ProvincialResettlement Offices and the Local Units on the extent and nature of resettlement impactsand policies of compensation and rehabilitation. Surplus labor is being resettled afterconsultation with them. PAPs will be able to exercise their choice among availableemployment opportunities. Enterprises are being consulted on the terms of compensationand timing of relocation to ensure the continuity of operations and the employment oftheir workers. The mission observed that the PAPs were satisfied with the resettlementaltematives provided and the choices that they made. Selection and compensation ofenterprises that will employ the surplus labor is also being carried out with theparticipation of all affected parties.

I. COST ESTIMATES

4.44 The total project is estimated to cost Y 9.40 billion or $1.13 billion equivalent,including land acquisition, and physical and price contingencies as summarized in thefollowing table and as detailed in the Consolidated Project Cost Summary for Hunan andGuangdong provinces and in Tables 4.2a and 4.2b. This estimate does not include taxeswhich are estimated at Y 240 million. The foreign exchange cost is estimated at about$432 million, or about 38 percent of the total. Base costs were estimated in late 1995prices and were updated to 1996 prices in Hunan and Guangdong during project appraisal

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and reconfirmed during negotiations. Physical contingencies are calculated at 10 percentof the base cost of civil and E&M works and construction supervision services. Pricecontingencies have been calculated for foreign costs, using international annual escalationfactors of 2.3 percent in 1997, and 2.5 percent in each of 1998, 1999, 2000, 2001 and2002. Price contingencies for local costs are based on local annual escalation factors of8.5 percent in 1997, 7.0 percent in 1998, 6.5 percent in 1999, and 6.2 percent in each of2000, 2001, and 2002.

CONSOLIDATED PROJECT COST, HUNAN AND GUANGDONG($ million)

Hunan Component Guangdong Component Consolidated Project ForeignLocal Foreign Total Local Foreign Total Local Foreign Total CostsCost Cost Cost Cost Cost Cost Cost Cost Cost (%)

Expressway Civil Works 149.1 127.0 276.1 267.4 137.7 405.1 416.5 264.7 681.2 39Expressway E & M Works 2.8 8.9 11.7 16.8 39.3 56.1 19.6 48.2 67.8 71Interconnecting Roads la 12.1 10.3 22.4 - - - 12.1 10.3 22.4 46OtherRoads 21.2 14.1 35.3 - - - 21.2 14.1 35.3 40

Total Works 185.2 160.3 345.5 284.2 177.0 461.2 469.4 337.3 806.7 42

Supervision 8.0 2.1 10.1 5.0 3.3 8.3 13.0 5.4 18.4 29Equipment 4.5 6.8 11.3 0.0 7.7 7.7 4.5 14.5 19.0 76Training 0.3 1.0 1.2 1.0 .1.0 2.0 1.3 2.0 3.2 61

Highway Maintenance Manage- 0.1 0.2 0.3 - - - 0.2 0.2 0.3 50ment Study

High-Grade Highway Commer- 0.1 0.2 0.3 - - - 0.2 0.2 0.3 50cialization and CorporatizationStudy

Transport and Economic Integra- - - - 0.2 0.2 0.3 0.2 0.2 0.3 50tion Study

Road Safety Program 0.1 0.0 0.2 0.2 0.2 0.3 0.2 0.2 0.3 50

Total Studies 0.4 0.4 0.8 0.3 0.3 0.5 0.7 0.7 1.3 50

Total TA/Studies/Training 0.6 1.4 2.0 1.3 1.3 2.5 1.9 2.7 4.5

Total Base Cost 198.3 170.6 368.9 290.5 189.3 479.7 488.8 359.9 848.6 42

Physical Contingencies 19.8 16.9 36.7 27.6 18.0 45.6 47.4 34.9 82.3 42Price Contingencies 44.8 17.5 62.3 65.2 19.3 84.6 110.1 36.8 146.9 25

Total Contingencies 64.6 34.4 99.0 92.8 37.3 130.2 157.4 71.7 229.1 34

Base Cost with Contingencies 262.9 205.0 467.8 383.4 226.6 609.9 646.2 431.6 1,077.7 40

Land Acquisition and Resettlement 37.8 0.0 37.8 17.3 0.0 17.3 55.1 0.0 55.1 0

Total Project Cost 300.7 205.0 505.6 400.7 226.6 627.2 701.3 431.6 1,132.8 38

La Expressway civil works contracts in Guangdong include several short sections of interconnecting roads totaling about 2 km inthe amount of Y 10 million.

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CONSOLIDATED PROJECT COST SUMMARY($1.00=Y 8.3, November 1996 prices)

ForeignY million $ million costs as %

Local Foreign Total Local Foreign Total of total

Expressway:Civil Works 3,457.0 2,197.0 5,654.0 416.5 264.7 681.2 39E & M 162.7 400.1 562.7 19.6 48.2 67.8 71Interconnecting Roads /a 100.4 85.5 185.9 12.1 10.3 22.4 46OtherRoads 175.5 117.0 292.6 21.2 14.1 35.3 40

Total Works 3,895.6 2,799.6 6,695.2 469.4 337.3 806.7 42

Supervision 107.9 44.8 152.7 13.0 5.4 18.4 29Equipment 37.4 120.4 157.7 4.5 14.5 19.0 76Training 10.5 16.4 26.9 1.3 2.0 3.2 61TA/Studies 5.5 6.0 10.5 0.7 0.7 1.3 57

Total Base Cost 4,056.8 2,987.2 7,043.0 488.8 359.9 848.6 42

Physical Contingencies 393.1 289.6 682.7 47.4 34.9 82.3 42Price Contingencies 913.6 305.4 1,218.9 110.1 36.8 146.9 25

Base Cost with Contingencies 5,363.5 3,582.1 8,944.6 646.2 431.6 1,077.7 40

Land Acquisition and Resettlement 457.3 0.0 457.3 55.1 0.0 55.1 0

Total Project Cost 5,820.8 3,582.1 9,402.0 701.3 431.6 1,132.8 38

/a Expressway civil works contracts in Guangdong include several short sections of interconnecting roads totaling about 2 km inthe amount of Y 10 million.

4.45 The costs of civil works are based on work quantities calculated from detailedengineering designs in Hunan and preliminary engineering designs in Guangdong. Thecosts were computed on the basis of MOC's standard manuals for labor and equipmentproductivity, the related, annually updated costs, and the current market costs ofmaterials, labor, and equipment. The unit rates were checked against the unit pricesprovided in recent bids for similar highway works executed under Bank financing inGuangdong and ADB financing in Hunan.

4.46 The estimated cost of equipment is based on prevailing prices and those quoted bymanufacturers and suppliers and includes the cost of equipment delivered in Guangzhouunder the Bank's ongoing highway project and in Changsha under the ongoing ADBhighway project, spare parts, and related training, if needed, to operate and maintain theequipment. The estimated cost of consulting services is based on recent contracts forsimilar services under the Bank's ongoing highway project in Guangdong and under theongoing ADB highway project in Hunan.

J. FINANCING

4.47 The Bank loan of $400 million would finance about 35 percent of the total projectcost or about 93 percent of the foreign exchange cost. The Central Government (MOC)

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would provide the equivalent of about $153.8 million (14 percent of the total), while theHunan and Guangdong provincial governments would provide the equivalent of about$579 million (51 percent of the total) to meet the remaining costs of the project, includingcontingencies. MOC's funding would be restricted to the construction of theexpressways. The details of project financing for Hunan and Guangdong are shownbelow and in Tables 4.3a and 4.3b.

CONSOLIDATED FINANCING PLAN, HUNAN AND GUANGDONG COMBINED

($ million)

GovernmentProvincial Central Bank Total

Expressway Civil Works 280.4 155.1 245.7 681.2Expressway E & M Works 19.5 - 48.4 67.8Interconnecting Roads 12.1 - 10.3 22.4Other Roads 21.2 - 14.1 35.3

Subtotal Works 333.1 155.1 318.5 806.7

Construction Supervision 12.9 - 5.5 18.4Equipment 4.5 - 14.5 19.0Training 1.2 2.0 3.2TA/Studies 0.9 - 0.4 1.3Contingencies 170.0 - 59.1 229.1Land Acquisition and Resettlement 55.1 - 0.0 55.1

Total Project Cost 577.7 155.1 400.0 1,132.8

Percent of Total 51 14 35 100

4.48 The Bank loan, of which $200 million would be for Hunan and $200 million forGuangdong, would be at the standard interest rate for LIBOR-based, US dollar, singlecurrency loans. It would be lent to the Borrower for a maturity of 20 years, including5 years of grace. The proceeds of the Bank loan would be made available to Hunan andGuangdong Provinces at the same rate payable to the Bank by the Borrower with0.75 percent per year commitment fee on the outstanding balance, beginning 60 daysafter loan signing, less any waiver. Agreement was reached with the Borrower atnegotiations that it shall onlend the proceeds of the loan to Hunan Province andGuangdong Province on these terms. The Hunan and Guangdong provincialgovernments would bear the foreign exchange risks on their portions of the loan. The

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Government of China and Hunan and Guangdong Provinces have selected LIBOR-based,US dollar, single currency loan terms for the project in order to facilitate management ofthe foreign exchange risk of their borrowings by more closely matching the currency oftheir liabilities with that of their net trade flows, about 75 percent of which are US dollardenominated. They selected the LIBOR-based product in order to preserve the fullmaturity of the loan, compared to the fixed-rate option that would have resulted in a 15-year loan. The Borrower judges that it can manage any interest rate risk.

K. IMPLEMENTATION

4.49 Implementing Agencies. In Hunan HPECDC would be the executing agency forXLE and its interconnecting roads, including XZH. HPECDC would also be theexecuting agency for LLH. HPCD would be the executing agency for the HighwayMaintenance Management and the Expressway Commercialization and Corporatizationstudies and the Road Safety Program. In Guangdong, GPFC would be the executingagency for XGE and its interconnecting roads. GPFC would also be the executingagency for the technical assistance on expressway safety while GPCD would undertakethe transport and economic integration study. The PCDs in both provinces havesubmitted project implementation plans (PIPs) for their respective project componentsthat the Bank found to be generally satisfactory. These PIPs are available in the ProjectFile. The Hunan and Guangdong PIPs were revised and agreed during negotiations.

4.50 Expressways and Interconnecting Roads. Detailed designs and technical biddocuments are being completed in both provinces. Foreign experts from Sweden visitedHunan Province in July/August 1996, while in Guangdong, the experts from Austria willvisit during late 1996/early 1997 to review designs and bid documents. Preparation ofcommercial bid documents is being carried out by China International TenderingCompany (CITC) in Hunan and China Machine International Tendering Company(CMCITC) in Guangdong. Pre-qualification documents, for both provinces, werereleased to applicants at the end of March 1996, and the prequalification process wascompleted by August/September 1996. Acquisition of land and the resettlement processare expected to be completed by end-1997 in both Hunan and Guangdong. Supply andinstallation of electrical, electronic, and mechanical systems for operation of XLE andXGE is scheduled to commence around the end of 1998, and be completed by the end2000. The construction of service facilities along XLE and XGE would be a continuousprocess during the project implementation period. XLE and XGE are expected to becompleted by 2001.

4.51 Construction Supervision. Construction supervision services for XLE and XGEwould be carried out by two joint local/foreign supervision teams headed by chiefsupervision engineers headquarters in Hengyang (Hunan) and in Shaoguan (Guangdong).There would be a resident engineer for each of the 11 contract sections in Hunan and foreach of the 10 contract sections in Guangdong. About 169 and 110 local personnel wouldbe permanently engaged in supervision during construction in Hunan and Guangdong,respectively. Invitations to foreign shortlisted firms were issued separately for the Hunan

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and Guangdong sections in April/May 1996, and the selection of consulting firms isexpected to be completed by December 1996. The consultants are expected to mobilizein early 1997 to help set up the supervision organization in each province prior to thecommencement of civil works and to provide training within the two provinces andabroad to selected local supervision staff. Most of the supervision training is expected tobe completed by March 1997 in both provinces. Actual construction supervision of XLEand XGE is expected to start by April 1997 in both provinces. Construction supervisionof LLH would be undertaken by local supervision consultants acceptable to the Bank.

4.52 Training. Formal selection procedures for candidates to be trained would bedeveloped by the PCDs in Hunan and Guangdong. Those to be trained abroad would begiven two-to-three months of intensive English language training, and each trainee wouldbe required to submit a report on training received to his/her parent department or agency.Moreover, the PCDs of Hunan and Guangdong have indicated that training under theproject would be related to career development and the professional growth of theselected staff. The comprehensive training programs would be open to all highway staffin both provinces and would be administered by the two PCDs, in coordination withMOC.

4.53 Equipment. HPECDC and GPFC would be responsible for equipmentprocurement related to the central laboratories in Hunan and Guangdong, environmentalprotection, and operation and maintenance of XLE and XGE, respectively. Preparation ofspecifications and bid documents for equipment would be carried out by CITC in Hunanand CMCITC in Guangdong. Equipment for the central laboratory and environmentalprotection would be procured during the first year of project implementation while thatfor XLE and XGE operation and maintenance would be procured between 1997 and1999. HPCD would be responsible for the procurement of equipment related tomaintenance of Hunan's highway network, and to RDB/PMS.

4.54 Operation and Maintenance of XLE and XGE. Hunan and GuangdongProvinces intend to operate the XLE and XGE as toll facilities consistent with theirdesigns. HPECDC and GPFC would be responsible for operating and maintaining theXLE and XGE, respectively, following their completion. To ensure that the toll rateswould be appropriately structured and that toll levels would not lead to a substantialreduction in the benefits of highway investment, the rationale for setting the level oftolling would be determined based on the findings of two studies to be undertaken by thetwo project provinces which would take into consideration latest experience withoperation of toll roads in Hunan, Guangdong and the rest of China as well as similarstudies undertaken under Bank-financed highway projects in China. Assurances wereobtained at negotiations that Hunan Province and Guangdong Province shall undertake,and by December 31, 2000, furnish to the Bank for its review and comments, analysesand recommendations for the structure of toll rates on the XLE and XGE, respectively,taking into consideration the results of the toll rate structures under Bank-financed

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highway projects in China and the recent experience with tolls on high-grade highwaysin Hunan, Guangdong and other parts of China.

4.55 The project is scheduled to be completed by June 30, 2002, with the loan closingdate stipulated as June 30, 2003. The implementation schedule for the project ispresented in Annex 5.

L. PROCUREMENT

4.56 Procurement under the project would be carried out as shown in Tables 4.4a and4.4b which details the procurement arrangements separately for the Guangdong andHunan project parts. A consolidated summary of procurement is shown below. Goodsand works would be procured in accordance with the Bank's Guidelines for Procurementunder IBRD Loans and IDA Credits, dated January 1995 and revised in January andAugust 1996. The procurement arrangements for the project have taken into account theexperience gained from previous Bank-financed highway projects in China. Theprocurement documentation, including that for prequalification of contractors,International Competitive Bidding (ICB) and National Competitive Bidding (NCB) forcivil works, ICB for goods and consultant services has been standardized for Chineseconditions in cooperation between the Chinese Government and the Bank. Invitations forprequalifications or for bids concerning large, specialized, or important contracts (i.e.,contracts estimated to cost the equivalent of $ 10 million or more) would be advertised asspecific procurement notices in the UN Development Business and/or well-knowntechnical magazines, newspapers, and trade publications of wide international circulation.Standard documents would be used for all relevant procurement processes under theproject.

4.57 Works. In Hunan, the civil works for XLE would be divided into 11 contractsections, with an average contract size of $32 million equivalent. Electromechanicalworks would be handled as one contract amounting to about $12 million equivalent.Interconnecting roads including XZH, administration and maintenance buildings, serviceareas and toll plazas would be carried out in several small contracts. LLH would bedivided into three contract sections averaging $14 million equivalent. In Guangdong, thecivil works for XGE would be divided into 10 contract sections for road and structuresand 3 contract sections for pavements, with an average contract size of $40 millionequivalent. Electromechanical works would be handled in two contracts, one for trafficfacilities and one for E&M in tunnels. Administration and maintenance buildings,service areas, and toll gates would be carried out in several small contracts. Theinterconnecting roads (several short road sections) would be included in thecorresponding contract sections for XGE because of the small size of the works involved.

4.58 The 11 civil works contracts and 1 electromechanical works contract for XLE, the13 civil works contracts and 2 electromechanical works contracts for XGE, and the threecivil works contracts for LLH, with an estimated total cost of about $943 million wouldbe procured following ICB procedures. Contracts would be bid on a slice-and-package

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basis; qualified contractors would be allowed to bid for more than one contract so as toattract international and large Chinese contractors. The three contracts forelectromechanical works would be bid later during the construction of XLE and XGE.All bidders for the 24 civil works contracts would be prequalified. Domestic contractorscompeting under ICB procedures would be eligible for a 7.5 percent price preference.Domestic bidders are expected to be competitive for all contracts under this project.

PROJECT PROCUREMENT ARRANGEMENTS, GUANGDONG AND HUNAN COMBINED($ million)

Procurement methodICB NCB Other /a NBF /b Total Cost

Works

Expressway Civil Works Ld 812.0 53.2 865.2(269.8) (17.4) (287.2)

Expressway E&M Works 86.2 86.2(56.8) (56.8)

Interconnecting roads 28.4 28.4(11.8) (11.8)

Other Roads 44.7 44.7(18.8) (18.8)

Construction Supervision 23.4 23.4(5.1) (5.1)

Equipment 16.1 8.0 24.1(11.8) (5.3) (17.1)

Consultants and Training /c

Training 4.1 4.1(2.4) (2.4)

Technical Assistance/Studies 1.7 1.7(0.7) (0.7)

Land Acquisition and Resettlement 55.1 55.1(0.0) (0.0)

Total 959.0 81.6 37.1 55.1 1,132.8(357.2) (29.2) (13.5) (0.0) (400.0)

/a Other includes national competitive bidding and international shopping and limited international bidding,and consultants and training.

/b NBF: Not Bank-financed./c Selection of consultants according to the Bank's guidelines.L Expressway civil works contracts in Guangdong include several short sections of interconnecting roads

totaling about 2 km in the amount of Y 10 million.

Notes: (1) Figures in parentheses represent the amounts financed by the Bank Group.(2) All figures are rounded and include estimated physical and price contingencies but exclude the

cost of land acquisition and resettlement which is shown separately.

4.59 Other works, including interconnecting roads in Hunan and small service facilitiessuch as toll stations, maintenance depots, service and rest areas, and administrativebuildings in Hunan and Guangdong would be awarded following NCB proceduresacceptable to the Bank. These works would involve contracts estimated to cost less than

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$10 million per contract, up to an aggregate amount not to exceed $57.0 million forHunan and $24.6 million for Guangdong. Since these contracts are small in value andscattered along XLE and XGE and would be implemented over a four-year period, ICBwould be neither justified nor practical, but international firms would not be precludedfrom bidding.

4.60 Equipment. Generally, all contracts for goods and equipment costing more than$250,000 equivalent would be awarded under ICB. However, for equipment where thenumber of suppliers is small, limited international bidding would be followed, in anaggregate amount not exceeding $2 million for each province. All other items or groupsof items covering minor maintenance equipment, equipment for RDB and PMS,laboratories, research and environmental protection purposes estimated to cost less than$250,000 per contract package, in an aggregate amount not exceeding $3 million for eachprovince, would be procured following international shopping procedures on the basis ofcomparison of price quotations solicited from at least three suppliers from at least twocountries eligible under the Bank Guidelines for Procurement. Domestic manufacturescompeting under ICB would be eligible for a margin of preference in the comparison ofbids of 15 percent for goods, or the prevailing custom duties, whichever is lower.

4.61 Consultants. All consultants required for construction supervision (in theamount of $23.4 million), staff training ($4.1 million), technical assistance and studies($1.7 million) would be selected and employed under terms and conditions acceptable tothe Bank in accordance with Bank Guidelines on the Use of Consultants. Local expertiseavailable in the various provincial universities and institutes in the highway sector wouldbe used as much as possible.

4.62 Advance Contracting. HPCD and GPCD have requested advance contractingand retroactive financing in the following areas:

(a) Consultants for Construction Supervision of XLE and XGE. Thiswould allow for training of local staff and startup of constructionsupervision by the time contracts are signed with contractors. Theamounts subject to retroactive financing are estimated at $1 million eachfor Hunan and Guangdong.

(b) Laboratory Equipment for Joint Local/Foreign Supervision Teams.This would permit effective and timely construction supervision. Theamounts subject to retroactive financing are estimated at $0.2 million eachin Hunan and Guangdong.

(c) Construction of Xiangtan-Leiyang Expressway (XLE). Early start ofconstruction of the 2x2-lane, 169-km XLE would help alleviate severetraffic bottlenecks and reduce traffic in the heavily trafficked Xiangtan-Zhuzhou-Hengyang-Leiyang corridor. The amount subject to retroactivefinancing is estimated at $15 million for Hunan.

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(d) Construction of Xiangtan-Zhuzhou Highway (XZH). Early completionof this 2x2-lane, 16-km long highway would also help alleviate severetraffic bottlenecks and reduce traffic accidents on this heavily traffickedroad. The amount subject to retroactive financing is estimated at$3 million for Hunan.

4.63 Agreement to the above four requests for advance contracting and retroactivefinancing is recommended, subject to HPCD and GPCD completing all Bankrequirements, including those for procurement, environment, and resettlement. The totalamount subject to retroactive financing is estimated at about $20.4 million, well belowthe 10 percent limit of the proposed $400 million loan. All of this amount would apply toexpenditures after June 30, 1996.

4.64 Bank Review. Prior review procedures would be used for: (a) civil workscontracts with an estimated cost of $2 million (Y 17 million) or more; (b) equipment withan estimated value of more than $250,000 per contract, and (c) consulting services withan estimated contract cost of more than $100,000 for firms and $50,000 for individuals.This represents about 83 percent and 78 percent of the estimated value of works andequipment contracts, respectively. For contracts below the above-mentioned limits, post-review procedures would be followed.

M. DISBURSEMENTS

4.65 The proposed Bank loan of $400 million would be disbursed over a period ofabout five years, as shown in the table below. To facilitate disbursements, two SpecialAccounts would be opened, one in Hunan and one in Guangdong, with an authorizedallocation of $14 million in Hunan and $14 million in Guangdong, the estimated averageexpenditures for a four-month period. The accounts would be opened in US dollars inlocal banks acceptable to the Bank and would be managed by the Hunan and GuangdongProvincial Finance Bureaus. Applications for replenishment of the Special Accountswould be submitted monthly or whenever the Special Account is drawn down to50 percent of its initial deposit, whichever comes first. A schedule of estimateddisbursements is given in Table 4.5, which takes into consideration the projectdisbursement profile for transport projects in China and the potential risks of delay inproject implementation.

4.66 Disbursements would be made against authorized payment requests for work doneunder priced contracts for the civil works and for the delivery and installation of theequipment. Interim certification of civil works completed and estimated at unit rates inthe contracts would be prepared by the contractors, reviewed by the supervisionteams/units and payments authorized by the Hunan and Guangdong PCDs. Retroactivefinancing of up to $19.2 million in Hunan and $1.2 million in Guangdong (5 percent oftotal loan amount) would be applied to expenditures made after June 30, 1996, forconsultants for construction supervision of XLE and XGE, laboratory equipment for jointlocal/foreign supervision teams in Hunan and Guangdong, and construction of Xiangtan-

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Leiyang expressway and Xiangtan-Zhuzhou highway. Disbursements for staff training inChina or abroad would be made against the actual costs of travel, subsistence, and tuitionor training fees. For expenditures relating to contracts for works of $2 million equivalentor less, training, and contracts for goods, each valued at $250,000 equivalent or less, andcontracts for services each valued at $100,000 equivalent or less for firns and $50,000equivalent or less for individuals, reimbursement would be made on the basis ofStatements of Expenditures (SOEs). Documentation supporting SOEs would be retainedby the implementation agencies and made available for review by the Bank supervisionmissions.

ESTIMATED DISBURSEMENTS

Category Amount of the Percent of Expenditures to be FinancedLoan Allocated

(S million)

Civil worksGuangdong expressway section 129.7 34% of total expendituresHunan expressway section 134.6 48% of total expendituresHunan interconnecting roads 10.0 48% of total expendituresHunan other roads 16.0 48% of total expenditures

Electrical and mechanical worksGuangdong E&M works 39.3 80% of total expendituresHunan E&M works 9.0 80% of total expenditures

Construction supervisionGuangdong supervision 2.1 100%Hunan supervision 2.2 100%

EquipmentGuangdong equipment 7.7 100% of foreign expenditures for directly

Hunan equipment 6.8 imported equipment or 100% of localexpenditures (ex-factory) for locally manu-factured equipment and 75% of local expen-ditures for other items procured locally

Guangdong training 1.0 100%Guangdong TA/Studies 0.2 100%Hunan training 1.0 100%Hunan TA/Studies 0.4 100%

Guangdong unallocated 20.0Hunan unallocated 20.0

Total 400.0

N. AUDITING

4.67 The Foreign Investment Audit Bureau of the State Auditing Administration(SAA) would be responsible for auditing the project expenditures. Actual audits wouldbe carried out for SAA by the Hunan and Guangdong Branches of SAA or the Hunan andGuangdong Provincial Audit Administrations. Assurances were obtained from Hunan

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Province and Guangdong Province during negotiations that the project accounts and theSpecial Accounts, including SOEs, shall be audited annually by independent auditorsacceptable to the Bank and that audit reports would be sent to the Bank for review withinsix months of the close of each fiscal year. In the case of the SOEs, the audit reportswould contain a separate opinion by the auditors as to whether the SOEs submittedduring the fiscal year, together with the procedures and internal controls involved in theirpreparation, can be relied upon to support the related withdrawals. The Bank Groupcurrently accepts SAA audits for this purpose.

0. PROJECT SUPERVISION, MONITORING, AND REPORTING

4.68 Supervision. The project would be supervised through Bank missions whosefrequency would be guided by the progress of the works. However, on the average, amission at about nine-month intervals would be mounted; a Supervision Mission Plan ispresented in Annex 6. In addition to field missions, staff input would be provided atheadquarters for project-related activities comprising, inter alia, supervision reports,procurement documentation and contracts, staff training and equipment, and follow-upand review of the agreed studies, as well as for efforts related to coordination between thetwo project provinces. Moreover, the Bank would monitor progress of implementation ofall project components through quarterly progress reports to be submitted to the Bankindependently by HPCD and GPCD on their respective project components. In addition,both PCDs would submit to the Bank monthly reports on works progress for XLE, LLH,XZH, and XGE. It is estimated that over the implementation period of the project, thetotal time expended on supervision would be in the order of 100 person-weeks.

4.69 Monitoring. During implementation, project performance, including theachievement of physical targets and attainment of other project objectives would bemonitored by HPCD, HPECDC, GPCD, and GPFC through the use of performanceindicators, reports on the environment and land acquisition and resettlement, progressreports and auditing of project accounts. In addition, upon completion, the project will bereviewed in an Implementation Completion Report. Annex I presents the outlinemonitoring plan for the project. Each of the project components indices will track annualprogress in attaining targets during implementation and impact objectives after the projectis completed. Assurances were obtained at negotiations that Hunan Province andGuangdong Province shall, on the basis of performance indicators acceptable to theBank, prepare and furnish to the Bank a quarterly report, and by June 30 of each yearcommencing in 1997 and ending three years after completion of the project, an annualmonitoring report, in a format acceptable to the Bank, covering all components of theproject and assessing the extent to which different implementation and developmentimpact objectives are being attained in the course ofproject execution and operation.

4.70 Reporting. Based on the monitoring activities described in Annex 1, HPCD andGPCD will submit to the Bank an annual monitoring report. This report will be based onthe following reports, which will be submitted to the Bank during the course of a givenyear:

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(a) A series of internal and external (independent) monitoring reportsassessing the impact of land acquisition and resettlement on varioussegments of the local population, describing the income restorationstrategies followed and the number of people rehabilitated (Annexes 4aandA4);

(b) Annual environmental monitoring reports during the construction phaseand the first three years of the operation phase of the XLE, LLH, XZH,and XGE (Annex 1);

(c) Annual audit reports for the project accounts and financial statements(para. 4.67);

(d) Quarterly progress reports for all project activities (including highwaysafety) and up-to-date performance indicators (para. 4.69);

(e) Reports, by an independent agency/expert, on the completion of theGuangdong and Hunan highway safety components within six months ofthe completion of these component; and

(f) A Project Implementation Completion Report would be prepared andsubmitted to the Bank not later than six months after the loan closing date.

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5. ECONOMIC EVALUATION

5.1 The economic evaluation focuses mainly on the following two segments of theGuangdong-Hunan expressway corridor that the Chinese authorities intend to completeby the year 2000: (a) Xiangtan-Leiyang segment (168.8 km) in southern Hunan, and(b) Xiaotang-Gantang segment (108.7 km) in northern Guangdong. Both segmentswould be financed by the Bank under the proposed NH2 Project and would account forover 91 percent of the project base cost. To assess the overall feasibility of the plannedexpressway corridor, the entire Guangzhou-Changsha corridor was also analyzed. Thecorridor comprises the two segments described above plus three other segments, underconstruction or to be financed by other sources, with a total length of 659.0 km.Additionally, the construction of Loudi-Lianyuan highway and of Zhuzhou-Xiangtanhighway in Hunan was also evaluated which both account for 6 percent of the projectbase cost.

A. EVALUATION OF THE EXPRESSWAYS

5.2 Benefits and Beneficiaries. The proposed expressway corridor passes throughthe provinces of Hunan and Guangdong. This region now enjoys large economic andregional advantages and strategic importance, being the central axis for distribution ofproductive forces, with abundant natural resources and well-developing economies,functioning as an important traffic corridor between Beijing and Hong Kong. However,as the rapid development of the economy in the region has stimulated a rapid growth ofincreasing numbers of vehicles passing through the region from neighboring cities as wellas provinces, transportation in this region has become a bottleneck to the development ofthe national economy and society, with, in general, poor transport facilities, saturatedrailway lines, traffic congestion on highways, and the withering of water transport. Thus,it is urgent to build an expressway connecting Hunan and Guangdong, and particularlythe segment between Xiangtan and Leiyang in Hunan, to link up with the south and northtransportation in Hunan and the segment between Xiaotang and Gantang in Guangdong tolink up Guangdong Province with the inland provinces.

5.3 The major quantifiable benefits of the project are the reduction on vehicleoperating costs and time costs of road users. The expressways will have shorter lengths,improved surface conditions and riding comfort, improved geometry, reduced trafficinterference, and better safety facilities than the existing roads. Therefore, most of thelong-distance traffic and some of the local traffic is expected to divert from the existingroads to the new expressways, reducing the vehicle operating and time costs for the futureexpressways users. Because many users will take the expressways, there will be areduction in the current congestion levels on the existing roads. Thus, traffic thatcontinues to use the existing roads will also benefit in the form of time savings due to the

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resulting higher travel speeds on the existing roads. Other quantified project benefits aredue to the traffic that is generated as a result of the lowering of transport costs and whichpreviously did not exist on the existing roads or is existing on other transport modes suchas rail, inland water and air. The newly generated traffic includes traffic resulting fromincreased industrial and agricultural production. Other project benefits that have not beenquantified are the reduction in accident costs, the generated traffic on the existing roadsdue to the reduction of the current congestion levels, and the positive effects on non-motorized traffic that uses the existing roads.

5.4 The HDM Model. The project benefits described above were estimated using the1995 version of the Highways Design and Maintenance Standards Model (HDM)developed by the World Bank as a result of 17 years of research and analysis carried outcollaboratively by the Bank and major research institutions around the world. The HDMmodel is widely used to analyze the economic consequences of road projects. It predicts,for a user-defined set of vehicles and traffic levels, the vehicle operating costs and traveltime costs on a given roadway as a function of the vehicle characteristics, roadwaygeometry, roadway surface condition (roughness), and congestion level. The model firstcomputes the free-flow vehicle speeds as a function of the road and vehicle characteristicsand, using these speeds, it computes the actual speeds as a function of the congestionlevel. The computed actual speeds are then used to estimate the physical quantities ofresource consumption (for example, liters/km of fuel consumption or hours of delay) thatare multiplied by unit costs to finally obtain the road user costs.

5.5 Data Collection. Data were collected on vehicle fleet characteristics, utilizationand unit costs, and typical road maintenance operations unit costs. The vehicle andmaintenance data were collected from Guangdong and Hunan Provinces separately. Theanalysis has shown that the data from the two provinces were similar and could becombined to yield a unique and high quality set of vehicle and maintenance data thatcould be used for the economic evaluation for both provinces. Table 5.1 shows theresulting vehicle and maintenance input data used in the economic evaluation. Theaverage number of passengers for buses is 40 and the average payload is 3 tons formedium trucks and 11 tons for heavy trucks. The number of kilometers driven per year is65,000 for buses, 50,000 for medium trucks and 75,000 for heavy trucks. The economiccosts were derived from financial costs by deducting taxes and duties, and the value oftime was estimated to be Y 1.00/hour calculated on the basis of annual income for theregion and conservatively assuming that 25 percent of passengers are traveling on work/business purposes.

5.6 Data describing the existing road characteristics and their current traffic were alsocollected in the field. Table 5.2 shows the data collected for each expressway section.For the economic evaluation, the two expressway's segments to be financed by the Bankwere subdivided into three sections, each to take into account different traffic levels,design standards and construction costs. The number of expressway sections identifiedand evaluated for the entire corridor between Changsha and Guangzhou is nine. Eachexpressway section captures the traffic currently on a network of existing roads, which is

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represented in the analysis by a representative existing road based on the data collected inthe field. The expressways would be constructed to four-lane standard with accessrestricted to normal motor traffic; thus, agricultural tractor and nonmotorized trafficwould be excluded. Due to differences in topography, the average construction cost isY 20 million per km in Hunan and Y 40 million per km in Guangdong. The existingroads have an average road width of 12 m in Hunan and 8.5 m in Guangdong; and theaverage gradients are around 3 percent in Hunan and 5 percent in Guangdong. Theaverage distance savings will be I0 percent in Hunan and 17 percent in Guangdong.

5.7 Projected Traffic. Comprehensive origin-destination (O-D) surveys wereconducted in the two provinces, covering 43 influence areas in Hunan and 18 inGuangdong, that provided a good basis for estimating the diverted and the generatedtraffic. The survey revealed the following: (a) the current average daily traffic (ADT) ison average around 10,000 vehicles per day in Hunan and 7,500 vehicles per day inGuangdong; (b) trucks constitute about 85 percent of ADT; (c) medium trucks representabout 40 percent of ADT and heavy trucks represent 17 percent of ADT; (d) currentmeasured vehicle speeds during the most congested hours are about 35 km/hour in Hunanand about 15 km/hour in Guangdong; (e) current measured vehicle speeds at night areabout 55 km/hour in Hunan and 40 km/hour in Guangdong; (f) the expected speeds on theexpressways are 80 km/hour in Hunan and 70 km/hour in Guangdong; and (g) traffic inthe peak hour is about 7 to 8 percent of the average daily traffic.

5.8 On the basis of the O-D surveys, the diversion of traffic from the existing roadswas estimated to be about 74 percent for Hunan and 55 percent for Guangdong; and thegenerated traffic to be about 3 percent of the current traffic in both provinces. Based onthe expected economic growth in the area of influence, traffic is projected to increase atthe following annual rates for the period 1996-2005: 10 percent for cars in bothprovinces, 7 percent for commercial vehicles in Hunan, and 14 percent for commercialvehicles in Guangdong. For the period 2006 to 2019, the growth rate is set at 6 percentfor all vehicles in both provinces.

5.9 Methodology. For each expressway section, the unit road-user costs, in Yuan pervehicle-km, were estimated using the HDM model for vehicles traveling on theexpressway and the representative existing road based on the vehicle data shown in Table5.1 and on the road data shown in Table 5.2. A sample of these unit costs is given inTable 5.3. The road-user costs are a function of the congestion level of a road.Therefore, they were computed for a series of traffic levels, and a relationship betweenroad-user costs and traffic was established for each road. This relationship was thenintroduced into a customized economic evaluation model created on an Excelspreadsheet.

5.10 The Excel model estimates the benefits due to the diverted and generated trafficon the expressways and the remaining traffic on the existing roads. For the divertedtraffic, the benefits were taken to be the reduction in total transport costs; and for thegenerated traffic, the benefits were taken to be one half of the unit benefits of the diverted

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traffic, assuming the traffic would have developed in proportion to the reduction intransport costs. The Excel model takes as inputs the unit road user costs given by HDMfor the "with" and "without" project cases, the length of the expressway and the existingroad, the construction and maintenance costs, and the traffic assumptions; and gives asoutputs the rate of return and the net present value, at a discount rate of 12 percent, of theproposed project. The expressways are assumed to be constructed in 4 years, opening totraffic in 2000; the economic life of the expressways was assumed to be 20 years (2000-2019), and the residual value to be 50 percent of the initial construction cost. Table 5.4shows, as an example, the resulting outputs for the Xiaotang-Daqiao section.

5.11 Results. The following table presents the resulting Economic Internal Rate ofReturn (EIRR) and Net Present Value (NPV) (at 12 percent discount rate in Y million)obtained for each expressway section, each segment to be financed by the Bank, and theentire corridor. None of the sections evaluated obtained an EIRR below 12 percent. Thesections with lower EIRRs are the ones with higher construction costs within eachprovince and the section with the highest EIRR, Honghshi-Leiyang in Hunan with 34.2percent, is the section with the lowest construction costs and high distance savings of 24percent. The EIRR of the segments to be financed by the Bank is 26.3 percent for theHunan segment and 18.1 percent for the Guangdong segment yielding a combined EIRRof 22.1 percent. Compared with the segment in Hunan, the segment in Guangdong, hashigher construction costs, lower traffic, and a lower traffic diversion rate. The EIRR forthe entire corridor is 19.6 percent. Graphs 5.1 to 5.4 present the diverted traffic to theexpressway sections in year 2000, the distance savings, the construction costs perkilometer, and the resulting EIRR for each section being evaluated.

Province Section EIRR(%) NPV (Y million)

Hunan Changsha-Majiahe /a 15.6 366MajiaheLa-Xintang 19.5 1,020Xintang-Honghshi 28.8 1,476Honghshi-Leiyang 34.2 2,380Leiyang-Xiaotang 14.1 507

Guangdong Xiaotang-Daqiao 19.1 981Daqiao-Ruyuan 18.2 731Ruyuan-Gantang 16.5 399Gantang-Taihe/b 29.7 5,664

Bank-Financed SegmentsHunan Majiahe1a-Leiyang 26.3 4,976Guangdong Xiaotang-Gantang 18.1 2,111HunanlGuangdong Majiahela-Leijang & 22.1 7,087

Xiaotang-Gantang

Entire CorridorHunan/Guangdong Changsha-Taihel2 19.6 13,624

La Majiahe is Xiangtan-Majiahe./b Taihe is Guangzhou Northern Ringroad.

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5.12 Sensitivity Tests. Table 5.5 presents the results of the sensitivity tests. In thefirst sensitivity case, construction costs are increased by 15 percent; in the second case,user benefits are reduced by 15 percent; and in the third case, construction costs areincreased by 15 percent and user benefits are reduced by 15 percent. The results of thethird case indicate that both segments financed by the Bank would be economicallyjustified even if this pessimistic scenario occurs. The EIRR of the Hunan segment wouldbe 22.2 percent, the EIRR of the Guangdong segment would be 15.0 percent and thecombined EIRR would be 18.6 percent. In this case, the lower EIRR obtained is 11.4percent for the Leiyang-Xiaotang section in Hunan.

5.13 The fourth sensitivity test eliminates the value of time and yields a smallreduction on the resulting EIRRs. In this case the combined EIRR for the twoexpressway sections is 20.7 percent and for the entire corridor EIRR is 18.4 percent,which confirms the low value of time in China and the low percentage of cars in thetraffic composition. The fifth sensitivity test eliminates the generated traffic and yields anegligible reduction in the resulting EIRRs. In this case the combined EIRR is 21.9percent and the entire corridor EIRR is 19.3 percent, which indicates the low percentageof generated traffic adopted in the analysis. The final sensitivity test reduces drasticallythe diverted traffic to 50 percent of the estimated values. In this case, the combined EIRRfor both expressway sections is 15.9 percent and the entire corridor EIRR is 13.6 percent,which indicates that the project expressways and the corridor are economically justifiedeven under this pessimistic scenario.

5.14 Risk Analysis. A risk analysis for the Bank financed segments and for the entirecorridor was undertaken using the @RISK software that adds risk analysis capabilities toan Excel spreadsheet following the methodology that is explained briefly in Table 5.6.For this analysis, all the input estimates defined in the previous paragraphs were adoptedand the uncertainty for the following inputs was defined using a triangle distribution:(a) the construction costs, (b) the diverted traffic from the existing roads to theexpressways, (c) the generated traffic, and (d) the traffic growth rate.

5.15 For the construction costs, the most likely value was set to the estimatedconstruction costs, the most likely minimum value was set to be 90 percent of theestimated construction costs, and the most likely maximum value was set to be 140percent of the estimated construction costs. These assumptions indicate that there is ahigher probability that the construction costs will be higher rather than lower than theestimated value. For the other three traffic related inputs, the most likely value was setto the estimated values, the most likely minimum value was set to be 60 percent of theestimated values, and the most likely maximum value was set to be 1 10 percent of theestimated values. These assumptions indicate that there is a higher probability that thetraffic related assumptions will be lower rather than higher than the estimated values.

5.16 With this information, the @RISK software evaluated 400 what-if scenarios,varying the construction costs and traffic assumptions accordingly to the defined inputprobability distributions, yielding an estimated EIRR for each what-if scenario. Graphs

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5.5 to 5.10 show the resulting probability distributions for the following cases: (a) theinput multiplier for the construction costs, (b) the input multiplier for the trafficassumptions, (c) the output EIRR for the Bank-financed Majiahe-Leiyang segment inHunan, (d) the output EIRR for the Bank-financed Xiaotang-Gantang segment inGuangdong, (e) the output EIRR for both segments financed by the Bank, and (f) theoutput EIRR for the entire corridor. Finally, the following table presents, for thesegments analyzed with risk analysis, the following: (a) the resulting mean EIRR, (b) theEIRR standard deviation, and (c) the probability (in percent) that the EIRR will be lowerthan 12 percent.

Province Segment Mean EIRR EIRR STD P<12%

Hunan Majiahe-Leiyang 22.7 2.1 0.0Guangdong Xiaotang-Gantang 15.1 1.7 4.2Hunan/Guangdong Majiahe-Leiyang & 18.9 1.9 0.0

Xiaotang-GantangHunan/Guangdong Entire Corridor 16.5 1.8 1.6

5.17 Conclusion. Both the single point estimation of the Excel model and the riskanalysis performned by @RISK indicate that the rates of return obtained for the segmentsto be financed by the Bank and for the entire corridor are greater than 12 percent evenunder the most pessimistic scenarios. Therefore, both the project expressways and theentire corridor are economically justified.

B. EVALUATION OF OTHER HIGHWAYS

5.18 Loudi-Lianyuan. The proposed highway from Loudi to Lianyuan would linkLoudi city and Lianyuan city in central Hunan, an area that is endowed with abundantmineral resources. The Loudi-Lianyuan highway and the Loudi-Xiangxiang highwaywhich is under construction will together connect with the provincial capital, Changsha,and will become an important east-west transport connection in central Hunan. Theexisting roads that are related to this project have substandard alignment and pavementconditions, and carry large traffic volumes leading to serious traffic congestion. Theproposed highway will be a 58.8-km class II, auto-only road with a design speed of80 km/hr and a road width of 2x6 m.

5.19 It is estimated that the project cost is Y 296 million, the distance saving is 10 km,and the traffic on the highway after completion will be 3,700 vehicles per day. Thetraffic on the existing roads at the completion of the highway is estimated to be 500vehicles per day and without the highway 3,800 vehicles per day. The resultingeconomic evaluation yields a net present value of Y 200 million and a rate of return of20.7 percent. The sensitivity tests indicate that the rate of return is 18.8, 18.6, and 16.8

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percent, respectively, for the following cases: (a) costs are increased by 15 percent,(b) user benefits are reduced by 15 percent, and (c) costs are increased by 15 percent anduser benefits are reduced by 15 percent. Therefore, the highway is economicallyjustified.

5.20 Zhuzhou-Xiangtan. The proposed highway from Zhuzhou to Xiangtan wouldlink the two cities and also directly connect with Xiangtan-Leiyang expressway,assuming an important role in strengthening highway development in the "GoldenTriangle" between Changsha, Zhuzhou, and Xiangtan. The proposed highway will be a16.1-km, 2x2 lanes, first-class highway with a design speed of 100 km/hr and a roadwidth of 24.5 m.

5.21 It is estimated that the project cost is Y 101 million, the distance saving is 15 km,and the traffic on the highway after completion will be 5,400 vehicles per day. Thetraffic on the existing roads at the completion of the new highway is estimated to be1,500 vehicles per day and without the highway 6,600 vehicles per day. The resultingeconomic evaluation yields a net present value of Y 453 million and a rate of return of47.0 percent. The sensitivity tests indicate that the rate of return is 43.4, 42.8, and 39.5percent, respectively for the following cases: (a) costs are increased by 15 percent,(b) user benefits are reduced by 15 percent, (c) costs are increased by 15 percent and userbenefits are reduced by 15 percent. Therefore, the highway is economically justified.

C. OVERALL PROJECT ECONOMIC EVALUATION

5.22 The overall project, which includes the expressway sections in Hunan andGuangdong and the other highways in Hunan, yields a net present value of Y 7,733million and a rate of return of 22.4 percent.

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6. AGREEMENTS REACHED AND RECOMMENDATION

6.1 Agreements were reached with the Borrower (the People's Republic of China) atnegotiations that it would onlend the proceeds of the loan to Guangdong and HunanProvinces on the same terms as those of the Bank loan to it: 20 years, including 5 yearsof grace, at the same rate payable to the Bank by the Borrower, with 0.75 percent per yearcommitment fee on the outstanding balance, beginning 60 days after signing, less anywaiver (para. 4.48).

6.2 During negotiations, assurances were obtained that:

(a) Hunan Province and Guangdong Province shall employ and maintainconstruction supervision teams on XLE, LLH, XZH and XGE, asapplicable, with qualified staff in adequate numbers to ensure that allworks are carried out in accordance with technical specifications and thatstrict quality controls are exercised on all sites. Construction quality shallalso be monitored through routine project supervision and monthly andquarterly progress reports (paras. 4.22 and 4.23);

(b) Hunan Province shall: (i) by June 30, 1997, establish a Leading Groupcomprising representatives of the concerned provincial agencies to guide astudy of highway maintenance management and provide comments on theresults and recommendations thereof; (ii) by June 30, 1999, carry out saidstudy in accordance with TOR satisfactory to the Bank and furnish a draftfinal report thereof to the said Leading Group and the Bank for review andcomments; (iii) furnish the final report of said study, taking into accountcomments made by the Leading Group and the Bank, to the Bank not laterthan six months following receipt of comments made by the Bank on saiddraft final report; and (iv) thereafter, take all appropriate steps toimplement the recommendations set out in said final report (para. 4.24);

(c) Hunan Province shall, by June 30 of each year commencing in 1997 andending in 2001, furnish an annual highway condition report for the Bank'sreview and comments for the previous year, which shall: (i) show thelength of each class of highway by condition (excellent, good, fair andbad) as of December 31 of the previous year; (ii) show the completedphysical works and actual expenditures of the previous year against theplanned physical targets and budgeted funds of that year, for newconstruction, upgrading/ improvement, rehabilitation, periodicmaintenance, and routine maintenance; and (iii) show the targets of thehighway program for the following year, including new construction,

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upgrading/improvement, rehabilitation, periodic maintenance, and routinemaintenance, in terms of planned physical works and planned expenditures(para. 4.25);

(d) Hunan Province shall: (i) by June 30, 1997, establish a Leading Groupcomprising representatives of the concerned provincial agencies to guide astudy on commercialization of expressways and provide comments on theresults and recommendations thereof; (ii) by June 30, 1999, carry out saidstudy in accordance with TOR satisfactory to the Bank and furnish a draftfinal report thereof to the said Leading Group and the Bank for review andcomments; (iii) furnish the final report of said study, taking into accountcomments made by the Leading Group and the Bank, to the Bank not laterthan six months following receipt of comments made by the Bank on saiddraft final report; and (iv) thereafter, take all appropriate steps toimplement the recommendations set out in said final report (para. 4.26);

(e) Hunan Province shall: (i) establish a Leading Group comprisingrepresentatives of the concerned provincial agencies to associate with TESand to incorporate road safety issues into the agenda of its annualmeetings, starting in 1997, and organize an annual road safety seminar inHunan starting 1998; (ii) develop, through TA, a manual on safety duringroadworks, a safety audit schedule, and a program of selected black-spotanalysis and improvement along NR 107, and by June 30, 1999, completethe said three TA components in accordance with TOR satisfactory to theBank, (iii) furnish the TA results to the Leading Group and the Bank forreview and comments; and (iv) thereafter, take all appropriate steps toimplement the recommendations of the said TA components, taking intoaccount the comments thereon of the said Leading Group and the Bank(para. 4.27);

(f) Guangdong Province shall: (i) by June 30, 1997, establish a LeadingGroup comprising representatives of the concerned provincial agencies toguide a study on transport and economic integration in Guangdong andprovide comments on the results and recommendations thereof; (ii) byJune 30, 1999, carry out said study in accordance with TOR satisfactory tothe Bank and furnish a draft final report thereof to the said Leading Groupand the Bank for review and comments; (iii) furnish the final report of saidstudy, taking into account comments made by the Leading Group and theBank, to the Bank not later than six months following receipt of commentsmade by the Bank on said draft final report; and (iv) thereafter, take allappropriate steps to implement the recommendations set out in said finalreport (para. 4.28);

(g) Guangdong Province shall: (i) by June 30, 1997, establish a LeadingGroup comprising representatives of the concerned provincial agencies to

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guide a study of expressway safety in Guangdong and provide commentson the results and recommendations thereof; (ii) by June 30, 1999, carryout said study in accordance with TOR satisfactory to the Bank andfurnish a draft final report thereof to the said Leading Group and the Bankfor review and comments; (iii) furnish the final report of said study, takinginto account comments made by the Leading Group and the Bank, to theBank not later than six months following receipt of comments made by theBank on said draft final report; and (iv) thereafter, take all appropriatesteps to implement the recommendations set out in said final report (para.4.29);

(h) Hunan Province and Guangdong Province shall, by June 30 of each yearand commencing in 1997, furnish a rolling two-year trainingimplementation program to the Bank for approval and shall carry out thetraining under the approved program (paras. 4.30 and 4.31);

(i) the environmental protection measures stipulated in the EAPs with respectto XLE and its interconnecting roads, LLH, XZH, and XGE and itsinterconnecting roads shall be carried out by Hunan Province andGuangdong Province in a manner satisfactory to the Bank; and HunanProvince and Guangdong Province shall each furnish to the Bank annualenvironmental monitoring reports for XLE and its interconnecting roads,LLH, XZH, and XGE and its interconnecting roads during theirconstruction phases and for each of the first three years following theirconstruction completion (para. 4.37);

(j) all land acquisition and resettlement activities with respect to XLE and itsinterconnecting roads, LLH, XZH, and XGE and its interconnecting roadsshall be completed by Hunan Province and Guangdong Province inaccordance with RAPs in a manner satisfactory to the Bank (para. 4.40);

(k) the monitoring of the effectiveness and socioeconomic impact of theresettlement activities with respect to XLE and its interconnecting roads,LLH, XZH, and XGE and its interconnecting roads shall be carried out byHunan Province and Guangdong Province in accordance with RAPs in amanner satisfactory to the Bank (para. 4.42);

(I) Hunan Province and Guangdong Province shall undertake, and byDecember 31, 2000, furnish to the Bank for its review and comments,analyses and recommendations for the structure of toll rates on the XLEand XGE, respectively, taking into consideration the results of the toll ratestructures under Bank-financed highway projects in China and the recentexperience with tolls on high-grade highways in Hunan, Guangdong andother parts of China (para. 4.54);

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(m) The project accounts and the Special Accounts, including SOEs, shall beaudited annually by independent auditors acceptable to the Bank and thataudit reports shall be sent to the Bank for review within six months of theclose of each fiscal year (para. 4.67); and

(n) Hunan Province and Guangdong Province shall, on the basis ofperformance indicators acceptable to the Bank, prepare and furnish to theBank a quarterly report, and by June 30 of each year commencing in 1997and ending three years after completion of the project, an annualmonitoring report, in a format acceptable to the Bank, covering allcomponents of the project and assessing the extent to which differentimplementation and development impact objectives are being attained inthe course of project execution and operation (para. 4.69).

6.3 Subject to the foregoing, the proposed project would be suitable for a US DollarSingle Currency Bank Loan of $400 million to the People's Republic of China. The loanwould be for a term of 20 years, including a grace period of 5 years, at the Bank'sstandard variable interest rate for LIBOR-based US dollar denominated single currencyloans.

TABLE 3.1: HUNAN AND GUANGDONG: COMPARISON OF FREIGHT AND PASSENGER VOLUMES BY MODE, 1985 AND 1994

HUNAN GUANGDONGA. Freight Tnraffic

1985 1994 Compound 1985 1994 CompoundProportion Proportion annual growth Proportion Proportion annual growth

Transport Tons of total Tons of total rate (/), Transport Tons of total Tons of total rate (%),mode ('000) traffic (/.) ('000) traffic (%/0) 1985-94 mode ('000) traffic (°/e) ('000) traffic (%/) 1985-94

Rail 42,180 12.8 49,290 10.2 1.7 Rail 34,400 8.7 69,710 8.0 8.2Road 256,990 78.1 399,120 82.4 5.0 Road 226,100 57.2 463,440 53.1 8.3Waterway 29,450 9.0 35,260 7.3 2.0 Waterway 134,400 34.0 338,780 38.8 10.8Air 0 10 0.0 29.2 Air 40 0.0 200 0.0 19.6Pipeline 400 0.1 350 0.1 -1.5

Total 329,020 100.0 4S4,030 100.0 4.4 Total 394,940 872,130 9.2

B. Passenger Trsffic

1985 1994 Compound 1985 1994 CompoundProportion Proportion annual growth Proportion Proportion annual growth

Transport Passengers of total Passengers of total rate (%), Transport Passengers of total Passengers of total rate (%),mode ('000 traffic (I/.) ('000 traffic (%) 1985-94 mode ('000 traffic (°/) ('000 traffic (%/6) 1985-94

Rail 46,860 9.6 41,760 6.4 -1.3 Rail 35,300 6.6 69,200 7.5 7.8Road 415,200 85.3 590,260 91.2 4.0 Road 468,400 87.5 827,060 89.3 6.5Water 24,580 5.1 14,810 2.3 -5.5 Water 29,400 5.5 19,420 2.1 -4.5Air 20 0.0 720 0.1 48.9 Air 2330 0.4 10,330 1.1 18.0

Total 486,660 100.0 647,550 100.0 3.2 Total 535,430 926,010 6.3

Source: Hunan Provincial Communications Departments. Source: Guangdong Provincial Communications Departments.

TABLE 3.2A: HUNAN HIGHWAY REVENUES AND EXPENDITURES, 1986-95(Y million)

7FYP 8FYP1986 1987 1988 1989 1990 Total 1991 1992 1993 1994 1995 Total

REVENUES

Road maintenance fee 395 421 441 460 465 2,182 487 523 632 678 750 3,070Highway Key Construction Plan 0 0 8 15 105 128 115 220 364 391 490 1,580Capital construction (subsidy)

Central govermment (MOC) 35 54 70 120 75 354 32 35 166 275 232 740Local govermment 0 0 8 16 20 44 23 35 165 365 382 970

National Aid-Poverty HighwaySubsidy 8 9 11 11 13 52 14 15 18 41 42 130Domestic Loan 0 0 0 0 0 0 0 0 100 324 256 680Foreign Bank loans 0 0 0 0 0 0 0 0 0 120 250 370Other foreign capital 0 0 0 0 0 0 0 0 0 0 330 330

Total 438 484 538 622 678 2,760 671 828 1,445 2,194 2,732 7,870

EXPENDITURES

Construction and ImprovementExpressway 0 0 50 85 181 316 188 245 312 618 884 2,247Other national & provincial roads & bridges 230 258 217 229 160 1,094 153 177 591 928 1,066 2,915Aid-Poverty Roads 14 14 15 23 24 90 25 34 45 105 150 359

Routine maintenance 96 110 122 137 143 608 156 165 209 215 245 990Periodic maintenance 51 59 72 72 92 346 69 97 142 162 204 674Overhead and others 47 43 62 76 78 306 80 109 145 166 172 672Loan interest and amortization

Total 438 484 538 622 678 2,760 671 827 1,444 2,194 2,721 7,857

Source: Hunan Provincial Communications Departnent.

TABLE 3.2B: GUANGDONG HIGHWAY REVENUES AND EXPENDITURES, 1986-95(Y million)

7FYP 8FYP1986 1987 1988 1989 1990 Total 1991 1992 1993 1994 1995 Total

REVENUES

Road maintenance fee 790 937 1,181 1,412 1,537 5,856 1,625 1,872 2,384 3,806 4,518 14,206Transfer to Central govenmnent 0 0 0 0 0 0 0 0 0 0 0 0Transfer to public security 21 25 31 37 40 154 43 49 49 63 100 374Remaining road maintenance fee 769 912 1,150 1,375 1,497 5,702 1,582 1,823 2,335 3,743 4,418 13,832Highway Key Construction Plan 123 173 232 299 400 1,226 779 1,250 1,867 2,963 4,049 10,907Capital construction (subsidy)

Central government (MOC) 59 60 55 88 76 338 100 150 200 250 300 1,000Local govermment 353 407 401 431 451 2,042 472 502 522 552 572 2,620

Domestic Loan 250 255 150 140 150 945 260 300 280 250 200 1,290Foreign Bank LoansOther foreign capital

Total 2,364 2,768 3,200 3,780 4,151 10,253 4,861 5,947 7,636 11,628 14,157 29,649

EXPENDITURES

Construction and ImprovementExpressway 30 100 120 205 106 561 490 631 810 906 1,004 3,841Other national & provincial roads & bridges 959 1,175 1,268 1,460 1,605 6,466 1,535 2,002 2,429 4,079 4,953 14,998Aid-Poverty Roads 8 9 10 12 12 51 180 260 510 1,010 1,510 3,470

Routine maintenance 274 219 223 257 268 1,241 291 368 427 648 804 2,538Periodic maintenance 71 99 76 91 119 456 132 153 230 360 502 1,377Overhead and others 170 172 214 421 361 1,337 406 420 583 687 696 2,792Loaninterestandamortization 100 120 125 100 120 565 181 228 241 241 181 1,072

Total 1,612 1,893 2,036 2,546 2,591 10,678 3,215 4,062 5,230 7,931 9,650 30,088

Source: Guangdong Provincial Communications Department.

- 65 -

TABLE 3.3A: HUNAN: HIGHWAY REVENUES AND EXPENDITURES, 1986-2000(Y million)

Compoundannual growth

7FYP 8FYP FYxP rate (%)1986-90 1991-95 1996-2000 1986-2000

REVENUES

Road maintenance fee 2,650 3,709 6,418 6.5Transfer to public security 57 100 173 8.3Transfer to fee collection sector 79 112 256 8.8Remaining road maintenance fee 2,182 3,070 5,989 7.5Highway key construction fund 128 1,580 5,545 30.9Capital construction (subsidy)

Central government (MOC) 354 740 3,425 17.6Local government 44 970 2,934 35.0

Domestic loan 0 1,010 0Foreign bank loans 0 370 5,174 30.2Other loans 0 0 770

Total 2,708 7,740 23,837 16.8

EXPENDITURIES

Construction & improvement:Expressway 316 2,247 11,610 29.4Other national & provincial roads & bridges 1,094 2,915 3,648 9.0Aid-Poverty Roads 90 359 1,500 22.3

Routine maintenance 608 990 1,802 8.1Periodic maintenance/upgrade 346 674 4,037 19.2Overhead & others 306 672 1,240 10.5Loan interest & amortization

Total 2,760 7,857 23,837 16.6

Source: Hunan Provincial Communications Department.

- 66 -

TABLE 3.3B: GUANGDONG: HIGHWAY REVENUES AND EXPENDITURES, 1986-2000(Y million)

Compoundannual growth

7FYP 8FYP 9FYf rate (%)1986-90 1991-95 1996-2000 1986-2000

REVENUES

Road maintenance fee 5,856 14,206 26,213 10.5Transfer to public security 154 374 689 10.5Road maintenance fund 5,702 13,832 25,524 10.5Highway key construction fund 1,226 10,907 13,911 17.6Subsidies from central government (MOC) 338 1,000 2,781 15.1Local government financing 2,042 2,620 21,100 16.8Domestic loan 945 1,290 5,413 12.3Foreign bank loans - - 3,735

Total 10,253 29,649 72,464 13.9

EXPENDITURES

Construction & ImprovementExpressway 561 3,843 20,699 27.2Other national and ProvincialOther national & provincial roads & bridges 6,467 14,997 27,239 10.1Aid-poverty roads 51 3,470 2,045 27.9

Routine maintenance 1,241 2,539 10,800 15.5Periodic maintenance 456 1,378 5,821 18.5Overhead and others 1,338 2,792 3,587 6.8Loan interest and amortization 565 1,071 2,273 9.7

Total 10,679 30,090 72,464 13.6

Source: Guangdong Provincial Communications Department.

TABLE 3.4A: HIGHWAY CONSTRUCTION PLAN DURING 9FYP IN HUNAN

Construction Standard & Mileage (km) EstimatedExpress- Class I Auto-only Class II Class III Class IV Bridge Construc- Cost Finance (Y million)

Construction Project way Class II (m) tion Period (Y million) 8FYP 9FYP IOFYP

A. Hunan Section of Jingzhu Expressway 531.7 12,263 712 9,721 1,830

1. Changsha-Xiangtan Highway 44.8 6.8 1994-1996 1,212 712 5002. Xiangtan-Leiyang Highway 172.4 16.1 23 1996-2000 4,374 4,3743. Leiyang-Yizhang Highway 131.8 1997-2000 2,847 2,8474. Changsha-Lingxiang Highway 182.7 1998-2002 3,830 2,000 1,830

B. Changsha-Changde Highway 154.6 1995-1998 1,935 120 1,815

C. 8 Important Provincial Trunk Roads 2,929 579 2,350

1. Yongan-Dongfengjie Highway of National Road 319 8.0 56 1993-1997 457 193 2642. Yueyang-Changde Highway of Provincial Road 1804 224 1992-1997 481 311 1703. Hengyang-Shaodong Highway of Provincial Road 1814 97 1994-1998 445 13 4324. Xiangxiang-Loudi Highway 8.7 48 1994-1997 141 62 795. Changsha Ring Road of National Road 319 34.0 1997-2000 710 7106. Zhangjiajie-Huanglongdong Highway 37 1996-1998 260 2607. Loudi-Lianyuan Highway 57 2 1997-1999 388 3888. Cili Qingshuidong-Huanglongdong Highway 15 1997-1999 47 47

D. Important Bridges 464 10 454

1. Taoyuan Yuanshui River Bridge 5786 1995-1997 50 10 402. Yucyang Dongting Bridge 1648 1998-2000 414 414

E. Aid-poverty Roads Construction (70) 1,830 1996-2000 830 80 750

Total 565.7 194.2 57 502 1,830 7,434 18,421 1,501 15,090 1,830

Source: Hunan Provincial Communications Department.

- 68 -

TABLE 3.4B: HIGHWAY CONSTRUCTION PLAN DURING 9FYP IN GUANGDONG

Express- Class and Mileage EstimatedProject way (km) Cost

(kin) Class I Class II (Y million)

ExpresswayI. Tongjiang-Sanya Expressway

Kaiping-Zhanjiang Section 315.0 110.3II. Beijing-Zhuhai Expressway

Xiaotang-Gantang Section 108.7 54.6Gantang-Taihe Section 196.2 77.3Tangtang-Yinzhan Section 52.4 13.5Tangken-Waisha Section 42.0of Guangzhou-Zhuhai Expressway 56.5

Class I RoadsQingyuan-Lianzhou of No. 107 215.9 29.3Linchen-Mazhou of No. 205 57.3 5.7Maping-Youtou of No. 206 43.6 4.6Luoding-Border with Guangxi of No. 324 32.0 2.6Shuixi-Leizhou of No. 207 58.0 4.4Yangjiang-Dianbai of No. 325 112.0 8.4Other Class I roads 907.3 73.9

Class II Roads 3,735.0 149.4

Total 728.8 1,426.0 3,735.0 575.8

Source: Guangdong Provincial Communication Department.

- 69 -

TABLE 4.1A: INTERCONNECTING ROADS PROGRAM IN HUNAN

Interchange Cross Road Interconnecting RoadName Name Class Name Class Length

Dashiqiao Zhutan I 16.0Sanpu Leitan Road III Sanpu II 0.5Zhuting Zhuting II 5.5Xintang PR 1820 III Xintang II 0.6Dapu PR 1843 III Dapu II 0.4Hongshi NR 322 auto I Hongshi II 1.6Guanshi Guanshi II 0.6Xinshi Xinshi II 3.1Leiyang Sannan Road III Leiyang II 10.4

TOTAL 39.0

TABLE 4.1B: INTERCONNECTING ROADS PROGRAM IN GUANGDONG

(NORTHERN SECTION)

Name of Interchange Interconnecting Length& Cross Road Road no. Class (km)

Pingshi-Lao Pingshi National 107 II 0.2Mei Hua-Yun Yan Provincial 1947 0.2Mei Hua-Sa Ping County 0.3Da Qiao Interchange-Da Qiao Provincial 1947 0.2Dong Tian Interchange-DongTian Provincial 1947 0.3Ru Yuan Interchange-Ru Yuan National 323 III 0.2

Provincial 1948 0.1Provincial 1946 III 0.2

Se Zhu Interchange-Shao Guan National 323 IV 0.2Se Zhu Interchange-Se Zhu County 0.2

TOTAL 2.0

- 70 -

TABLE 4.2A: PROJECT COST SUMMARY-HUNAN COMPONENT

ForeignY million $ million costs %


Civil WorksExpressway 1,237.5 1,054.1 2,291.6 149.1 127.0 276.1 46E&M 23.2 73.9 97.1 2.8 8.9 11.7 76Interconnecting Roads 100.4 85.5 185.9 12.1 10.3 22.4 46Other Roads 175.5 117.0 292.6 21.2 14.1 35.3 40

Total Works 1,536.7 1,330.5 2,867.2 185.2 160.3 345.5 46

Supervision 66.4 17.4 83.8 8.0 2.1 10.1 21

Subtotal 1,603.1 1,347.9 2,951.1 193.2 162.4 355.6

Equipment 37.4 56.4 93.8 4.5 6.8 11.3 60

Training 2.2 8.1 10.3 0.3 1.0 1.2 79TA/Studies 2.9 3.3 6.2 0.4 0.4 0.8 53

Total Training/TA/Studies 5.1 11.5 16.5 0.6 1.4 2.0 69

Total Base Cost 1,645.6 1,415.8 3,061.4 198.3 170.6 368.8 46

Physical Contingencies 164.0 140.4 304.5 19.8 16.9 36.7Price Contingencies 372.0 144.8 516.9 44.8 17.5 62.3

Total Contingencies 536.1 285.3 821.4 64.6 34.4 99.0 35

Total Cost with Contingencies 2,181.7 1,701.1 3,882.7 262.9 205.0 467.8 44

Land Acquisitionand Resettlement 313.7 0.0 313.7 37.8 0.0 37.8 0

Total Project Cost 2,495.4 1,701.1 4,196.5 300.7 205.0 505.6 41

- 71 -

TABLE 4.2B: PROJECT COST SUMMARY-GUANGDONG COMPONENT

ForeignY million $ million costs %


Civil WorksExpressway Civil Works La 2,219.4 1,142.9 3,362.3 267.4 137.7 405.1 34Expressway E&M works 139.4 326.2 465.6 16.8 39.3 56.1 70

Total Civil Works 2,358.9 1,469.1 3,828.0 284.2 177.0 461.2 38

Construction Supervision 41.5 27.4 68.9 5.0 3.3 8.3 40

Subtotal 2,400.4 1,496.5 3,896.9 289.2 180.3 469.5 38

Equipment 0.0 63.9 63.9 0.0 7.7 7.7 100

Training 8.3 8.3 16.6 1.0 1.0 2.0TA/Studies 2.1 2.1 4.2 0.3 0.3 0.5

Total Training/TA/Studies 10.4 10.4 20.8 1.3 1.3 2.5 50

Total Base Cost 2,421.1 1,581.2 4,002.3 291.7 190.5 479.7 40

Physical Contingencies 229.1 149.2 378.2 27.6 18.0 45.6Price Contingencies 541.5 160.5 702.0 65.2 19.3 84.6

Total Contingencies 770.6 309.7 1,080.3 92.8 37.3 130.2 29

Land Acquisitionand Resettlement 143.6 0.0 143.6 17.3 0.0 17.3

Total Project Cost 3,335.3 1,890.8 5,226.1 401.8 227.8 627.2 36

La Expressway civil works contracts in Guangdong include several short sections of interconnecting roadstotaling about 2 km in the amount of Y 10 million.

- 72 -

TABLE 4.3A: FINANCING PLAN-HUNAN PROVINCE PORTION($ million)


Expressway Civil Works 46.3 102.8 127.0 276.1Expressway E&M Works 2.8 - 9.0 11.7Interconnecting Roads 12.1 - 10.3 22.4Other Roads 21.2 14.1 35.3

Subtotal Works 82.3 102.8 160.4 345.5

Construction Supervision 7.9 - 2.2 10.1Equipment 4.5 - 6.8 11.3Training 0.2 - 1.0 1.2Studies 0.4 0.4 0.8Contingencies 69.8 - 29.2 99.0Land Acquisition and Resettlement 37.8 - 0.0 37.8

Hunan Project Cost 202.9 102.8 200.0 505.6


TABLE 4.3B: FINANCING PLAN-GUANGDONG PROVINCE PORTION

($ million)


Expressway Civil Works 234.1 52.3 118.7 405.1Expressway E&M Works 16.7 - 39.4 56.1Interconnecting Roads 0.0 - 0.0 0.0Other Roads - - - -

Subtotal Works 250.8 52.3 158.1 461.2

Construction Supervision 5.0 - 3.3 8.3Equipment 0.0 - 7.7 7.7Training 1.0 - 1.0 2.0TA/Studies 0.5 0.0 0.5Contingencies 100.3 - 29.9 130.2Land Acquisition and Resettlement 17.3 - 0.0 17.3

Guangdong Project Cost 374.9 52.3 200.0 627.2


- 73 -

TABLE 4.4A: HUNAN PROJECT PROCUREMENT ARRANGEMENTS

($ million)

Procurement methodICB NCB Other La NBF /k Total Cost

WorksExpressway Civil Works 321.6 28.6 350.2

(135.2) (11.2) (146.5)Expressway E&M Works 14.8 14.8

(10.6) (10.6)Interconnecting roads 28.4 28.4

(11.8) (11.8)Other Roads 44.7 44.7

(18.9) (18.9)Construction Supervision 12.8 12.8

(2.6) (2.6)Equipment 10.3 4.0 14.3

(6.3) (1.7) (8.0)Consultants and Training L/

Training 1.5 1.5(1.2) (1.2)



Total 391.5 57.0 19.3 37.8 505.6(171.0) (23.0) (6.0) (0.0) (200.0)

La Other includes national competitive bidding, international shopping and limitedinternational bidding, and consultants and training.

L2 NBF: Not Bank-financed.L Selection of consultants according to the Bank's guidelines.

Notes: (1) Figures in parentheses represent the amounts financed by the Bank Group.(2) All figures are rounded and include estimated physical and price

contingencies but exclude the cost of land acquisition and resettlementwhich is shown separately.

- 74 -

TABLE 4.4B: GUANGDONG PROJECT PROCUREMENT ARRANGEMENTS

($ million)

Procurement methodICB NCB Other L NBF lI Total Cost

WorksExpressway Civil Works LZ 490.4 24.6 515.0

(134.6) (6.2) (140.8)Expressway E & M works 71.3 71.3

(46.2) (46.2)Construction Supervision 10.6 10.6

(2.5) (2.5)Equipment 5.8 4.0 9.8

(5.3) (3.8) (9. 1)

Consultants and Training Ld

Training 2.5 2.5(1.2) (1.2)



Total 567.5 24.6 17.7 17.3 627.2(186.1) (6.2) (7.7) (0.0) (200.0)

/L Other includes national competitive bidding, international shopping and limitedinternational bidding, and consultants and training.

/b NBF: Not Bank-financed.L Expressway civil works contracts in Guangdong include several short sections of

interconnecting roads totaling about 2 km in the amount of Y 10 million.Ld Selection of consultants according to the Bank's guidelines.

Notes: (1) Figures in parentheses represent the amounts financed by the Bank Group.(2) All figures are rounded and include estimated physical and price

contingencies but exclude the cost of land acquisition and resettlementwhich is shown separately.

- 75 -

TABLE 4.5: ESTIMATED DISBURSEMENT SCHEDULE($ million)

Hunan Guangdong Hunan and Guangdong DisbursementComponent Component Consolidated profile of

Bank FY Semes- Cumu- Semes- Cumu- Semes- Cumu- transport projects& Semester ter lative ter lative ter lative % in China (0/6)

FY97June 30, 1997 10 10 10 10 20 20 5 6

FY98December31, 1997 10 20 10 20 20 40 10 11June 30, 1998 20 40 20 40 40 80 20 16

FY99December 31, 1998 20 60 20 60 40 120 30 26June 30, 1999 30 90 30 90 60 180 45 38

FY2000December31, 1999 20 110 20 110 40 220 55 48June 30, 2000 30 140 30 140 60 280 70 60

FY2001December31,2000 10 150 10 150 20 300 75 69June 30,2001 30 180 30 180 60 360 90 78

FY2002December31,2001 10 190 10 190 20 380 95 90June 30, 2002 10 200 10 200 20 400 100 100

- 76 -

TABLE 5.1: VEHICLE AND MAINTENANCE DATA

Can Buses Light Medium Heavy ArticulatedTrucks Trucks Trucks Trucks

Gross vehicl weight of fully loaded vehicle (tons): 2.40 13.00 7.00 11.50 40.00 55.00Payload offully loaded vehicle (tons): 0.80 3.00 2.50 5.00 18.00 30.00

LoadGross vehicle weight ofaverage vehicle (tons): 2.08 11.S0 6.00 9.50 32.80 43.00 FactorPayload ofaverage vehicle (tons): 0.48 1.80 1.50 3.00 10.S0 18.00 0.6

Number ofpaasengen (#): 6 40 0 0 0 0Service life (yea): 15 10 12 12 9 9Kilometers driven per year (km): 65,000 65,000 50,000 50,000 75,000 75,000Hours driven per yer (hours): 2,000 2,000 1,500 1,500 2,000 2,000

Financial CostsNew vehicle price (Yuan): 215,000 132,500 S6,000 162,500 279,500 550,000One new tire price (Yuan): 440 1,150 1,150 1,150 1,250 1,250Msintenance labor cost for vehicle repairs(Yuan/hour): 1.9 2.5 1.9 1.9 2.5 2.5Driver wages (Yuan/hour): 2.8 3.1 2.8 2.8 2.9 3.1Time costs (Yuan/hour): 1.0 1.0 1.0 1.0 1.0 1.0Gas/Petrol price (YuanAiter): 2.2Diesel price (Yuan/liter): 2.1Lubricants price (YuanAiter): 13.5

Conv.Economic Coa FactorNew vehicle price (Yuan): 161,250 99,375 64,500 121,875 209,625 412,500 0.75One new tire price (Yuan): 330 863 863 863 938 938 0.75Maintenance labor cost for veiicle repairs(Yuan/hour): 1.9 2.5 1.9 1.9 2.5 2.5 1.00Driverwages(Yun/hsour): 2.8 3.1 2.8 2.S 2.9 3.1 1.00Time costs (Yuan/hour): 1.0 1.0 1.0 1.0 1.0 1.0 1.00Gas/Petrol price (Yuan/iter): 1.7 0.75Diesel price (Yuan/liter): 1.6 0.75Lubricants price (Yuan/iter): 10.1 0.75

6 work days % travelingwork/business

Salaries Guangdong Hunan Avrage Yuan/hr 25% Yuan/hrHigher education, Engineer (Yuan/year): 9,000 6,600 7,800 3.1 nonworking time 1.4Skilled labor, Mechanic (Yuan/year): 7,000 5,400 6,200 2.5 value 1.1Unskilled labor (Yuan/year): 6,400 4,200 5,300 2.1 25% 0.9

Real (without inflation) intaertcharge on the purchase of a newvehicle (%): 10

Financial Factor Economic12 mm reseal coat (Yuan/m2) 8.4 0.75 6.325 nun reeal cost (Yuan/m2) 16.3 12.25 cm overlay cost (Yuan/m2) 30.0 22.58 cm overlay cost (Yuan/m2) 44.0 33.010 cm overlay cost (Yuan/m2) 55.0 41.3Reconstruction cost (Yuan/t2) 85.0 63.8Routine maintenance cost (Yuan/kn/year) 8,500 6,375

- 77 -

TABLE 5.2: ROAD SECTIONS DATA

Provimee: Hunsts Humm Hoe. R n Rum Huemm GH Hgdong Gu sgdong Gtrmadosg Gaaegdosg

Financing ADB IRD IBR13 IBRD Other IBRD IBRD IBRD Other

NH2 NH2 NH2 NH2 NH2 NH2

Expressway section .me: Chsagsho- Majishe- Xistg- Hmnghlhi- Leiyseg- Xiaotueg- Darqii- Rayu.n- Gatarsg.

Myjishe Xitaeg Hmtghahi Leiysag Xiaotsmg Dsqio R.yunn Gmvtam Taihe

Expresswp y yfE ncinl cotction- ost(illio Yean): 1,246 1,562 756 234 3,136 1,539 1,336 1,1152 7,773

Expresnwsy legsth (kQ) 44.8 76.5 4113 51.1 135 3 52.5 3531 21.2 201.3

Expeessesy width (i): 27.5 26.0 26.0 26.0 24.5 23 0 23.0 24.5 24.5

Expressway svnroge gradients (V.): 3 I 3 30 3.0 3.) 30 3 5 3.5 3 5 3.5

Expresway nverage tuaghtss (IRI) 3.0 3.0 3.0 3.1 3.0 3.0 3 (1 3.1 3 I)

Existiogroada leagth Qmk). 47)) S0() 470 6711 139 0 61.0 41.0 25.0 267.5

Exinliogso awidth (i): 12.0 12)) 12.0 12.0 12.0 8.5 8.5 R5 12.11

E.sitiog mad. avenge gradiestr (V.) 3.1) 3 1 3.0 3.01 3)) 5.(1 3.1o 53) 35 I

Exintieg rads average.r gha U(1RI): 6.1) 61) 6.01 6.0 6.0 6.01 6.01 6.0 6 ()

Motoeizedtrsicoe existing sends in 1996 (ADT): 10,64N) 9,120 11,1)20 10,4501 7,130 7,510 7.5(X) 7,531) 7,2(10

Div-i.ed motorized toffic on expreatwny in 2000 (ADTI: 7,1131 101,7441 13,110 11,1211 9,5()1 5,545 6,605 7,283 6,5(18

(diverted fre existing roads at opening of the etpre-sway)

Geertod motoriz trafficon expressy in 2000 (ADT): 32() 34N) 430 46() 41)1 275 330 365 51()

(pgeaeted due to seductica 00 trospotn cos(s)

Percentof rs. 29.2 15.0 15.0 15.) 121.1 15.5 15.3 15.5 17.9

Percnt of bses 1 I 10.0 1(.0 10.( 11.6 66 6.6 6.6 6.3

Percet oflight truacks (gross weight3 0to6.5 t). 16(0 90 9.1 90 121 164 16.4 16.4 185

Percent of medium trucks (groas weight 5.0 to 16.0 t): 27 1 37.0 37.0 37.)) 36.6 401.1 411.1 401.8 41)(

Preotofhrvytucks (gross weight60to22 0t). 138 160 16.)) 16)) 15.3 12.2 18.2 I.2 121

Pec-ot ofnrtj-ututcd trucks (grunt weight 13 ) to 45 0 t) 3 2 13 0 13.)) 13 0 6.3 2 5 2.5 2.5 4.2

Growth ate forc r for perid 1996-20)1))((%): H) 1(1 11) l 1( 10 1It 10 II

Growthrto forcommerci)vehicesforpeied 1996-2010(%): 7 7 7 7 7 14 14 14 14

Gro-th rteforperiod 2011-2019 (Y.): 6 6 6 6 6 6 6 6 6

P.segerc rsspeednooexintisg dsoeostoegesedbohr(km/h,r) 33 35 35 35 35 10 1t 135 1

P-ssengercn -speeds o rexint oodsatnight(hnkfr) 42 55 55 55 56 39 39 39 55

Medium tr"cks peedson existig rodson mon congeted hour Qcmlhr) 33 33 33 33 30 10 1t( 15 12

Medium trocks speed on existigrodsat night(ksflr) 45 53) 51) 5(1 56 41 41 41 45

Predicted passengerca speedsonsewexpreta-y (ksAso). 7)) 2) 2)) 8) 70 70 7)) 71) 75

Predicted medim trucks speeds o exexpyney (km/h) 65 75 75 75 65 7() 7)) 71) 7))

Constuctio co perkm (milliomYou.) 22 2)) 18 16 23 29 38 51) 39

Distmoces tvigs (%.) 5% 4% 12% 24% 3% 14% 15% 15% 253%

Di-eredtraffcuspercmntofonoes"trWf.,c in200(%o): 43% 20%. 21% 73% 91% 5(W. 6(rM. 66% 62%

Generktd trffices. peent of -orm trafc, inW200 (%) 2% 3% 3% 3% 4% 3% 3% 3%M 5%-

NRo: T.Mllc is givn o- vehicles per day

Speeds on existiog roads ur messuned speeds

- 78 -

TABLE 5.3: TYPICAL ROAD USER COSTS

Cars Buses Light Medium Heavy ArticulatedTrucks Trucks Trucks Trucks

Typical Road User Costs (VehicleOperating and Time Costs)

Yuan per vehicle-kilometer, 1995 prices

New Expressway 1.09 1.71 0.80 1.16 2.75 3.65

Existing Road (1996) 1.56 2.07 1.01 1.44 3.28 4.27Existing Road' (2006) 1.78 2.64 1.13 1.63 3.38 4.53Existing Road* (2016) 2.06 3.37 1.30 1.91 3.58 4.88

' if expressway is not constructed and congestion increases

Typical Road User Costs Composition

Vehide Operating CostsFuel and Lubricants 0.23 0.57 0.23 0.51 1.34 1.22Tires 0.03 0.21 0.34 0.17 0.46 0.47MaintenanceLaborandParts 0,89 0.15 0.24 0.43 0.81 1.54Crew 0.05 0.07 0.06 0.06 0.12 0.09Depreciation and Interest 0.25 0.20 0.14 0.27 0.56 0.94

Time CostsPassenger Time 0.11 0.87

Total 1.56 207 1.01 1.44 3.28 4.27

TABLE 5.4: EXCEL ECONOMIC EVALUATION MODEL SAMPLE

Guangdong: Xiaotang-Daqiao Section

New Expressway Length (Iam) 52.5Existing Road Length (kcn) 61.0Existing Road Traffic in 1996 (ADT) 7500Diverted Traffic from Existing Road to Expressway in 2000 (ADT) 5545Generated Traffic on the Expressway in 2000 (ADT) 275

Financial Net Economic Benefits (Y million) Sensitivity AnalysisEconomic Evaluation Daily Traffic AD Constr. Con- Mainte- New Expresswa Existing Total 15 % Incr. 15% Decr. Combined

New Expressway Existing Costs struction nance Diverted Generated Road Construct. User (a) & (b)and Year Diverted Generated Road (Y million) Costs Costs Traffic Traffic Traffic Costs (a) Benefits (b)

Sensitivity Analysis 1996 7,463 308 -231 0 0 0 0 -231 -265 -231 -2651997 8,442 462 -346 0 0 0 0 -346 -398 -346 -3981998 9,553 462 -346 0 0 0 0 -346 -398 -346 -3981999 10,812 308 -231 0 0 0 0 -231 -265 -231 -2652000 5,517 274 6,654 0 -5.3 105 3 5 108 108 92 922001 6,242 310 7,530 0 -5.3 121 3 8 127 127 108 1082002 7,063 350 8,524 0 -5.3 141 3 12 150 150 128 1282003 7,994 396 9,651 0 -5.3 164 4 18 181 181 154 1542004 9,049 449 10,929 0 -5.3 194 5 27 221 221 188 1882005 10,246 508 12,379 0 -5.3 232 6 43 276 276 234 2342006 11,603 575 14,024 0 -5.3 284 7 69 355 355 302 3022007 13,143 652 15,890 0 -5.3 356 9 112 472 472 401 4012008 14,889 738 18,008 0 -5.3 416 10 130 551 551 468 4682009 16,871 837 20,411 0 -5.3 470 12 128 605 605 514 5142010 17,883 887 21,636 0 -5.3 499 12 124 630 630 535 5352011 18,956 940 22,934 0 -5.3 529 13 116 653 653 555 5552012 20,094 997 24,310 0 -5.3 560 14 104 673 673 572 5722013 21,299 1,056 25,768 0 -5.3 594 15 87 690 690 587 5872014 22,577 1,120 27,315 0 -5.3 630 16 62 702 702 596 5962015 23,932 1,187 28,953 0 -54.6 667 17 27 656 656 558 5582016 25,368 1,258 30,691 0 -5.3 707 18 0 720 720 612 6122017 26,890 1,334 32,532 0 -5.3 750 19 0 763 763 649 6492018 28,503 1,414 34,484 0 -5.3 795 20 0 809 809 688 6882019 30,214 1,498 36,553 577 -5.3 843 21 0 1,435 1,522 1,307 1,393

Total (Y million) 1,539Total per kmn (Y million) 29Intemal Rate of Retum (%o) 19.1% 17.6% 17.3% 15.90/oNet Present Value at 12% Discount 981 840 693 553

- 80 -

TABLE 5.5: EcONoMIc EVALUATION AND SENSITIVITY RESULTS

Economic Rates of RetumSensitivity Results

Case I Case 2 Case 3 Case 4 Case 5 Case 6

1 5% Iner. 15% Deer. Combined Value of Generated DivertedBase Construct. User (1)& (2) Time Traffic Traffic

Province Section/Segment Case Costs Benefits 0 o = 0 = 50%

Hunan Changsha-Majiahe 15.6% 14.2% 14.0Y% 12.8% 13.5% 15.4% 10.0%Hunan Mayiahe-Xintsng 19.5% 18.0% 17.8% 16.4% 17.9%/ 19.4% 14.9 %Hunan Xintang-Honghshi 28.8% 26.7% 26.3% 24.4% 26.8% 28.5% 22.0%/6Hunan Honghshi-Leiyang 34.2% 31.7% 31.3% 29.0% 32.2% 33.8% 25.5%Hunan Leiyang-Xiaotang 14.1% 12.8% 12.6% 11.4% 12.5% 13.9% 10.3%Guangdong Xiaotang-Daqiao 19.1% 17.6/ 17.3% 15.9% 18.1% 1899% 12.2%Guangdong Daqiao-Ruyuan 18.2% 16.7% 16.5% 15.1% 17.3% 18.0%/ 11.6%Guangdong Ruyuan-Gantang 16.5% 15.1% 14.9/6 13.6% 15.7% 16.3% 10.4%Guangdong Gantang-Taihe 19.7% 18.2% IS. 0% 16.5% 18.8% 19.4% 1311%

Hunan Majijahe-Leiyang 26.3% 24.3% 24.0% 22.2% 24.5% 26.1% 19.8%Ouangdon Xiaotang-Gantang 18.1% 16.7% 16.4% 15.0% 17.2% 17.9/ 11.5%Hunan/Guangdong Majijahe-Leiyang& Xiaotang-Gantang 22.1% 20.4%/ 20.1% 18.6% 20.7%/ 21.9% 159/

Hunan/Guangdong Changsha-Gantang (Entire Cofridor) 19.6% 18.1% 17.8% 16.4% 18.4% 19.3% 13.6%

- 81 -

TABLE 5.6: RISK ANALYSIS METHODOLOGY

Standard spreadsheet models analyses combine single "point" estimates of the model's input variables topredict a single result. Estimates of the input variables are used because the actual values are not known withcertainty. For example:

Revenues = 100 Costs = 90 ==> Profits = 10

In reality, however, things don't always turn out as planned because too conservative or optimistic estimatesmay have been adopted. The combined errors in each input variable estimate could lead to real-life result thatis different from the estimated result. With risk analysis, one can explicitly include the uncertainty present inthe estimates to generate results that show all possible outcomes. For example, consider a simple case wherethere is uncertainty in both input variables:

Revenues = 100 or 120 Costs = 90 or 80

Possible Profits = > 100-90 = 10 100-80 = 20120-90 = 30 120-80 = 40

In a risk analysis, one includes the estimate of an input variable and some measure of the likelihood ofoccurrence for that variable. The risk analysis will then use this information to analyze every possibleoutcome, executing hundreds of what-if scenarios adopting in each case random inputs accordingly to theinput probability distributions. For example, consider this more complex case:

Revenues Estimated most likely value= 100 (triangle distribution)Estimated minimum possible value =90Estimated maximum possible value = 130

Costs Estimated mean value = 90 (normal distribution)Estimated standard deviation = 20

Results: Scenario I Revenues = 105.9 Costs= 116.8 Profits = -10.9Scenario 2 Revenues = 119.5 Costs = 87.2 Profits = 32.3

Scenario 300 Revenues = 103.4 Costs = 86.6 Profits = 16.8

In this case, the results are presented as probability distributions and statistics that give the decision-maker acomplete picture of all possible outcomes. For example, for the case above we have the following results:

. . .~~~~~~~~~~~~......... .... .. .. ......... .... .. ... ... ............. ....... ............ ....... ............

Mean Profits = 16.7Standard Deviation of Profits = 22.4

Probability that profits will be lowerthan zero = 24.1 percent

2

a- -.v *° nR1dli oRS ilL 1R Profit.

- 82 -

GRAPH 5.1: DIVERTED TRAFFIC TO THE EXPRESSWAY IN 2000

o 2000 4000 6000 8000 10000 12000 14000

Changsha-Majiahe I

Majiahe-Xintang

Xintang-Honghshi |

Honghshi-Leiyang

Leiyang-Xiaotang

Xiaotang-Daqiao

Daqiao-Ruyuan

Ruyuan-Gantang

Gantang-Taihe

Majiahe-Leiyang Segment

iaotang-Gantang Segment

Total Project

Entire Corrdor __.

GRAPH 5.2: DISTANCE SAVINGS (%)

0 5 10 15 20 25

Changsha-Majiahe

Majiahe-Xintang

Xintang-Honghshi

Honghshi-Leiyang

Leiyang-Xiaotang

Xiaotang-Daqiao

Daqiao-Ruyuan

Ruyuan-Gantang

Gantang-Taihe



Total Project

Entire Corridor

- 83 -

GRAPH 5.3: CONSTRUCTION COSTS PER KILOMETER

0 5 10 15 20 25 30 35 40 45 SO

Changsha-Majiahe

Majiahe-Xintang

Xintang-Honghshi

Honghshi-Leiyang

Leiyang-Xiaotang

Xiaotang-Daqiao

Daqiao-Ruyuan

Ruyuan-Gantang

Gantang-Taihe



Total Project

Entire Corridor I

GRAPH 5.4: INTERNAL RATE OF RETURN(%)

0 5 10 15 20 25 30 35

Changsha-Majiahe

Majiahe-Xintang

Xintang-Honghshi

Honghshi-Leiyang

Leiyang-Xiaotang

Xiaotbng-Daqiao

Daqiao-Ruyuan

Ruyuan-Gantang

Gantang-Taihe



Total Project

Entire Coridor

- 84 -

GRAPH 5.5: CONSTRUCTION QUOTA MULTIPLIER

Probability

0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.25 1.30 1.35 1.40 1.45 1 50

Multiplier Factor

GRAPH 5.6: TRAFFIC ASSUMPTIONS MULTIPLIER

Probability

0.50 0.55 0.60 0.65 0700.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.25 1.30 1.35 1.40 1.45 1.50

Multiplier Factor

- 85 -

GRAPH 5.7: HUNAN PROVINCE: MAJAHE-LEIYANG SEGMENT

Probability

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Intemal Rate of Retum 1%)

GRAPH 5.8: GUANGDONG PROVINCE: XIAOTANG-GANTANG SEGMENT

Probability

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Intemal Rate of Retum (%)

- 86 -

GRAPH 5.9: BOTH PROVINCES: MAJAHE-LEYANG AND

XIAOTANG-GANTANG SEGMENTS

Probability

10 I1 12 13 14 15 16 17 1B 19 20 21 22 23 24 25 26 27 28 29 30


GRAPH 5.10: BOTH PROVINCES: ENTIRE CORRIDOR

Probability

10 11 1 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30


- 87 - ANNEX 1

ANNEX 1: PROJECT MONITORING INDICATORS

A. PERFORMANCE AND MONITORING INDICATORS FOR KEY PROJECT COMPONENTS

1. The effectiveness of project implementation in terms of alleviating infrastructurebottlenecks of Guangdong and Hunan at which the project is targeted, will be measuredby reference to a number of monitoring indicators. The specific project objectives andthe associated monitoring indicators are listed in Table 1. Each indicator will require abaseline level against which the effectiveness of the project in achieving the designobjectives can be measured. The base data would be September 1996, and HPCD andGPCD should take the following action to obtain the necessary baseline data and developthe necessary methodologies for monitoring. The parameters, baseline and targetedvalues shown in the table are tentatively estimated by the project team; the baseline data!methodologies were reviewed and discussed with HPCD and GPCD during the appraisaland be finalized during negotiations.

2. The achievement of project output will be monitored by monitoring indicators.The current monitorable targets are set as shown in Table 2.

B. MONITORING INDICATORS FOR ENVIRONMENT

Construction Period

3. Environmental Supervision. One of the environmental supervisors in eachcontract section will be assigned or nominated to carry out the supervision of theenvironmental protection measures addressed in the Environmental Action Plans (EAP)and integrated in the bid documents. The results will be included in the engineeringsupervision reports and reported periodically to the environmental protection staff at thedistrict level. The results of environmental supervision will be annually reported to theWorld Bank through the annual report to the World Bank. The monitoring items willinclude:

(a) brief description on environmental protection measures supervised/inspected during the reporting period; and

(b) brief description of problems regarding environmental protection measuresand their reasons and possible solutions.

-88- ANNEX 1

TABLE IA: DEVELOPMENT INDICATORS

(HUNAN COMPONENT)

2002Benchmark

Project Monitoring 1999 (1st year of 2005Objectives Indicators 1996 Baseline Benchmark operation) Benchmark

Development Reduced traffic Traffic volumeof road congestion on Section A-B = 12,700 18,400 4,800 6,800infrastructure roads parallel to Section B-C = 10,100 14,700 3,800 5,500

the proposed road Section C-D = 11,100 16,200 4,200 6,000Section D-E = 8,900 12,900 3,300 4,800

Increased average Travel speed (km/hr)travel speed on Section A-B = 45 40 55 55roads parallel to Section B-C = 50 45 60 60the proposed road Section C-D = 45 40 55 55

Section D-E = 50 45 60 60

Increase Reduced number Number of accidents Number of Number of Number ofhighway of traffic accidents with fatalities per accidents accidents accidentssafety involving number of vehicles: with with with

fatalities: 20/10,000 vehicles fatalities per fatalities per fatalities pernumber of number of number ofvehicles: vehicles: vehicles:18/10,000 12/10,000 10/10,000vehicles vehicles vehicles

Note: A-B: Changsha-Majiahe; B-C: Majiahe-Xiantang; C-D: Xiantang-Hongshi; D-E: Hongshi-Leiyang.

TABLE 1B: DEVELOPMENT INDICATORS(GUANGDONG COMPONENT)

2002Benchmark

Project Monitoring 1999 (1st year of 2005Objectives Indicators 1996 Baseline Benchmark operation) Benchmark

Development Reduced traffic Traffic volumeof road congestion on Section A-B = 7,500 8,000 3,000 3,000infrastructure roads parallel to Section B-C = 7,500 8,000 2,000 2,000

the proposed road Section C-D = 7,500 8,000 1,000 1,000

Increased average Travel speed (km/hr)travel speed on Section A-B = 50 40 60 60roads parallel to Section B-C = 40 35 50 50the proposed road Section C-D = 40 35 50 50

Increase Reduced number Number of accidents Number of Number of Number ofhighway safety of traffic accidents with fatalities per accidents accidents accidents

involving fatalities: number of vehicles: with with with25/10,000 vehicles fatalities per fatalities per fatalities per

number of number of number ofvehicles: vehicles: vehicles:20/10,000 10/10,000 10/10,000vehicles vehicles vehicles

Note: A-B: Xiaotang-Daqiao; B-C: Daqiao-Ruyuan; C-D: Ruyuan-Gantang.

- 89 - ANNEX I

TABLE 2A: IMPLEMENTATION INDICATORS FOR KEY PROJECT COMPONENTS(HUNAN COMPONENT)

1996 1997 1998 1999 2000 2001 2002 2003Key Monitoring Indicators ICR Year

% of civil works completed of XLE 30 65 100 -- -- 100

Number of person-months ofcompleted training

Domestic 301 457 518 -- -- -- 518Overseas 54 93 110 -- 110

Highway safety: La -- -- -- -- -- -- -- --

% of Equipment purchased 3 59 75 100 -- -- -- 100

Highway Maintenance Study 06/30/b 06/30/c 06/30/dExpressway Commercialization and 06/30/b 06/30/c 06/30/d

Corporatization StudyRoad Safety Study 06/30/b 06/30/c 06/30/d

La Number of black spots to be improved would be agreed between the WB and HPCD duringimplemenation of the project.

lb Establishment of Leading Group and Agreement on TOR./c Draft Final Report./d Final Report.

Note: XLE = Xiangtan-Leiyang Expressway.

TABLE 2B: IMPLEMENTATION INDICATORS FOR KEY PROJECT COMPONENTS(GUANGDONG COMPONENT)

1997 1998 1999 2000 2001 2002 2003Key Monitoring Indicators ICR Year

% of civil works completed of XGE 10 30 60 80 100 -- 100

Number of person-months of completedtraining

Domestic 450 552 672 -- -- -- 672Overseas -- 59 122 -- -- -- 122

% of Equipment purchased 20 70 100 -- -- -- 100

Transport and Economic Intergration Study 06/30/a 06/30/b 06/30LkExpressway Safety Study 06/30/a 06/30/b 06/30/c

La Establishment of Leading Group and Agreement on TOR./b Draft Final Report./c Final Report.

Note: XGE = Xiaotang-Gantang Expressway.

- 90 - ANNEX 1

4. Environmental Monitoring. Environmental monitoring items, methods,frequencies, monitoring sites etc. are clearly specified in the EAP (see Annex 3a for theHunan section and Annex 3b for the Guangdong section). On the Hunan section, allenvironmental monitoring, except motor vehicles noise monitoring, during bothconstruction and operation will be carried out by the local environmental monitoringstations through contract with the Xianglei Highway Company and the Loudi-LianyuanHighway Company. Noise (motor vehicles, construction equipment, etc.) will bemonitored by the environmental supervision engineers at engineering supervisionstations. On the Guangdong section, the Environmental Monitoring Station (EMS) underEPD/GPFC will carry out all environmental monitoring works regarding XGE exceptnoise and dust monitoring during the construction phase, which will be monitored by theenvironmental supervisors at the construction contract section. The results will bereported to the environmental protection staff at the district level and annually to theWorld Bank through the annual report to the World Bank.

5. Environmental Monitoring During the Construction Phase

Hunan section: Air quality: TSP, dustNoise/vibrationWater Quality: BOD, COD, suspended solids (SS), oil

Guangdong section: Air quality: NOR, CO, HC, TSP and dustNoise/vibrationWater quality: BOD, SS, oil, temperature, pH, and DO

Operation Period

6. Environmental Monitoring: Environmental monitoring items, methods,frequencies, monitoring sites, etc., are clearly specified in the EAP (see para. 3 above).The institutions responsible for monitoring are also specified in para. 3. Based on themonitoring results, the environmental protection measures (to be carried out during theoperation period), will be adjusted as appropriate.

7. Environmental Monitoring During the Operation Period

Hunan section: Air quality: CO, NO,, TSPNoise/vibrationWater quality: BOD, COD, SS, oil

Guangdong section: Air quality: NO,, CO, HC, TSPNoise/vibrationWater quality: BOD, COD, SS, oil, temperature, pH, DOLead in soil and crops

-91- ANNEX 1

C. MONITORING OF LAND ACQUISITION AND RESETTLEMENT

8. The monitoring and evaluation of the Resettlement Action Plans (RAP) agreedbetween the Bank and the Borrower will be carried out both internally and externally(Annexes 4a and 4b). Internal monitoring will be carried out by the Planning Departmentand the Land Acquisition and Resettlement Department of ROs of HPECDC and GPFC.An internal monitoring report will be submitted to the Bank every six months, with thefirst one due on March 31, 1996, and the last one on the completion of the landacquisition and resettlement activities. The Academies of Social Sciences of Hunan andGuangzhou will conduct the external monitoring of resettlement and will submit amonitoring report every six months, with the first one to be submitted by June 30, 1997,and the last one at the completion of the project (December 31, 2002).

9. The main indicators of land acquisition and resettlement monitoring have beenidentified. They are:

(a) Timely payment of compensation to affected entities of various categories;

(b) Progress of construction of new houses and quality of construction, alsodistance from old houses

(c) Progress in land redistribution;

(d) The type of productive use to which compensation amounts have been putby the local (township and village) governments;

(e) Restoration of production/business activities of affected enterprises.Payment of all types of compensation to affected enterprises and workers;

(f) Propose linkage of resettlement activities with the project implementationschedule (resettlement to be completed at least one month before start ofconstruction);

(g) Restoration of civic infrastructure at the new sites;

(h) Levels of satisfaction of the affected persons;

(i) Income levels and standards of living after resettlement.

- 92 - ANNEX I

D. MONITORING PLAN FOR INSTITUTIONAL STRENGTHENING

Implementat an Indicators Impact I dicators Remarks andElements Process Completion Short-term Long-term Comments

Strengthened INDICATOR: INDICATOR: INDICATOR: INDICATOR: Baseline Perfonnance inInstitutionsal Capacity Number of Staff Completion of training Staff trained are sharing Improvement of sector functions are

Development program planned under Staff new knowledge and performance in specific specified in TrainingIntensive institutional candidates selected and development program . exercising new skills functions and activities Needs Profiles that arestrengthening programs sent for training SOURCE: SOURCE: targeted by staff kept on file in Projectat SOURCE: * Mid-term Training ' Reports of workshops developinent program Execution Office

' Annual Training Report held by retuming SOURCE: Sample of theseIntensive institutional Plan * Project trainees Implementation Training Needs Profilesstrengthening programs * TORs for Study Implementation * Supervision Completion Review are provided as part ofat the Support and Abroad Completion Report interviews and their * Assessment of Annual Training PlanResearch units ' TORs for reports on trainees institutional submission

Investigation Study INDICATOR performance performance inIntensive institutional Tours Equipment procured in Activities identified at Additional baseline datastrengthening programs operation INDICATOR start of project as are included inat the Schools and INDICATOR SOURCE: Equipment used requiring Training and TORs for StudyTraining institutions Equipment procured * Equipment Status successfully for other institutional Abroad and

within time and budget reports purposes intended strengthening measures TORs forallowed SOURCE: Investigation/StudySOURCE: * Reported use of Abroad.

* Annual equipment Both of these areProcurement Plan included as part of

annual submission of a2-year rolling Training

_______ _______ __ ____ _______ ______ Plan Training INDICATOR: INDICATOR: Training INDICATOR: Trainees INDICATOR: Critical Performance on criticalTraining In Hunan and # of Trainees selected programs completed in assigned to jobs where Function and activities functions and activitiesGuangdong and sent for timely timely manner (as per new skills are (for which training was assessed through

training in China and periodic Plans provided effectively utilized identified as key factor) interviews withTraining in Other China abroad: by HPCD AND GPCD) demonstrate improved Supervisors of Units

performance which requested trainingSOURCE: SOURCE: SOURCE: SOURCE: : e.g. type of analyses

Short-Term Training *Annual Training ' Mid-term Report * Reports from Assessment of undertaken ; successfulAbroad Report ' Implementation interviews of former institutional completion of certain

* Annual Training Completion Report trainees performance (as above) tasks,; operation ofInvestigation Study Plan a Reports from certain kind ofTour fomer trainees' equipment, etc..

supervisors (infonnation included aspart of Training NeedsProfilesInterviews areconducted as part ofassessment ofinstitutionalperfonnance forFunction (activities)identified at start ofproject as requiringTraining and otherinstitutionalstrengthening measures.

-93 - ANNEX2

ANNEX 2: PROCUREMENT AND IMPLEMENTATION OFNORTHERN AND SOUTHERN SECTIONS

1. The appraisal mission discussed with GPCD in detail and agreed on theimplementation schedule for both the northern and southern sections, with a view tocomplete both sections at the same time. The different procurement and implementationstages are shown below:

Northern SouthernSection Section

Approval of the prefeasibility study by the State September 96 October 96Council after review by MOC and SPC

Prequalification documents available September 96 October 96Clearance of the feasibility study by SPC after review September 96 November 96

by MOCRevised preliminary engineering design available September 96 November 96Clearance of the preliminary engineering design by October 96 November 96

MOCRevised final design according to MOC's December 96 January 97

recommendations and bidding documentsInternal review of bidding documents by GPCD and January 97 March 97

MOC and translation into English (northern section)Review of the final design by international consultants February 97

and clearance of the bidding documents by theBank (northern section)

Selling of bidding documents March 97 April 97

2. With these dates for the selling of bidding documents, the prequalification,bidding, selection of contractors and construction process would develop as follows:

- 94- ANNEX2

Northern SouthernSection Section

Selling of prequalification documents October 96 November 96Submit prequalification documents December 96 January 97Evaluation of prequalification documents January 97 February 97Bank review and no objection for prequalification March 97

documents' Evaluation reportReview of the bidding documents by MOC January 97 March 97Review of the bidding documents by the Bank February 97Selling bidding documents March 97 April 97Receive bids July 97 June 97Bid evaluation report and government review August 97 August 97Bank reviews bid evaluation report and no objection September 97Notify successful bidder September 97 August 97Sign contracts with successful contractors October 97 August 97Start construction of the expressway section November 97 September 97Completion of construction June 2000 October 2000

-95 - ANNEX3a

ANNEX 3a: ENVIRONMENTAL ASSESSMENT AND ACTIONPLAN SUMMARY (HUNAN SECTION)

1. Background. An environmental impact assessment (EIA) for Xiangtan-LeiyangExpressway (XLE) was carried out by the Highway Research Institute of MOC. An EIAreport, an Environmental Action Plan (EAP) and an Environmental Assessment (EA)Summary were prepared as per the policy and administrative requirements forenvironmental assessment of development projects in China and the Bank's OD 4.01 onEnvironmental Assessment. The development and review of these documents involvedinputs from various units in the province, the environmental protection bureaus, researchinstitutions, universities and the affected groups and NGOs along the highways. Thesedocuments were reviewed by the Bank and discussed with the Hunan ProvincialCommunications Department (HPCD) during the preparation mission in April 1995 andthe preappraisal mission in November 1995. The EIA and EAP for the Loudi-LianyuanClass II Auto-only Highway (LLH), and an EIA report for the Zhuzhou-XiangtanConnecting Road (ZXH), were also reviewed by the Bank during the preappraisalmission. The final EIA reports, EAPs and EA Summary covering XLE and its eightconnecting roads, LLH and ZXH were submitted to the Bank in January 1996 and foundto be satisfactory to the Bank. A detailed summary of the environmental assessment andthe action plan is available in the project files.

2. Brief Project Description. The main civil component of the Hunan sectionconsists of the construction of a 172-km, four-lane expressway between Xiangtan andLeiyang (XLE); eight connecting roads to XLE; a 16-km, four-lane Class I highwaybetween Zhuzhou Tiantaishan and Xiangtan Yisuhe (ZXH); and a 60-km, two-laneLoudi-Lianyuan Class II Auto-only Highway (LLH). Other components includeinstitutional strengthening, training programs, highway safety and constructionsupervision.

3. Baseline Environmental Description. The proposed alignment of XLE lies inthe mid-south of the Hunan Province, whose altitude decreases from the middle to bothnorth and south. Twenty percent of the area along XLE is subject to heavy surface soilerosion and is becoming more problematic and significant every year. The rivers in theregion belong to the Xiangjiang drainage system, and have water flows all year round.The well-developed surface water system has become the major water source forindustrial and agricultural production. The area along the proposed road is the mostdeveloped zone in Hunan Province and an important economic belt which not only servesas the major production base for rice, cotton and oil, but also serves as the base formetallurgy, building materials, chemistry, textile and food processing industries.

4. Because of the past development and dense settlement, the original vegetation hasbeen gradually replaced by the present state of scattered secondary forest and

- 96 - ANNEX3a

nonindigenous vegetation, mainly mason pine, China fir, oil-tea tree and citrus forest.Two nature reserves, the Nanyue Natural Protection Zone in Hengshan and the NiaozhouProtection Zone (bird sanctuary) in Jiangkou of Hengnan, are both located 23 km and6 km, respectively, from the proposed alignment. No rare or endangered animal or plantspecies were found within the 500-m zone on either side of the proposed roads. Lead,concentrations in soil samples ranged between 31.6 and 90.3 mg/kg, significantly lowerthan 200 mg/kg value recommended by the Ministry of Agriculture as the criterion foracid soil.

5. The areas along XLE are rich in tourism resources including scenic spots andhistorical sites such as the Yuelu Mountain Park, the Leiyang Pagoda in Hengyang, theJiangkou Bird Sand-bar Natural Conservancy, etc. During field investigations, threepotential sites of ancient tombs of Han dynasty were discovered along the alignments.

6. Atmospheric monitoring data of the past five years and air quality monitoring at14 sites along the alignment of XLE indicate that NO, and CO concentrations meet theClass II standards and that TSP (except for two stations) and SO2 (except for one station)also meet the Class II standards. The connecting roads and LLH was also monitored andfound to be acceptable. Daytime and nighttime noise levels at 21 sites along thealignment were found to be below the noise standard.

7. Potential Environmental Impacts and Their Mitigation Measures. The majorpotential environmental impacts of XLE, its eight connecting roads, LLH and ZXH andtheir mitigation measures are incorporated in their respective Environmental Action Plans(EAPs). The EAPs stipulate how the environmental impacts identified in the EIA will bedealt with in the design, construction and operation phases, and what institutionalarrangements have been made for the implementation of the EAPs during the threedistinct phases. The key elements of the EAPs are summarized below.

Design Phase

8. Three alternative alignments were considered in the project design phase of theXLE. The final alignments for XLE, LLH and ZXH were selected to minimize landacquisition and resettlement costs, potential environmental impacts of the project onfarmlands, residences, schools, cultural relics, flood control and poor geographical andgeological conditions. The design includes a number of passageways, overpasses andunderpasses to facilitate the crossing of the expressway by local people, animals andvehicles. To reduce soil erosion, arbor, bush, grass and climbing ivy will be planted inthe central strip, side slopes and along the road sides. Additional measures such assubgrade drainage systems are integrated in the project design, and temporary andpermanent drainage systems will be constructed to minimize soil erosion and alteration ofhydrological regimes. Particular attention will be paid to balance cuts and fills, to locateborrow areas in waste land, to minimize the use of arable land, and minimize dust andnoise problems.

9. During the initial operating phase, noise levels at several sensitive locations willsignificantly exceed the noise standards used in the initial phase. In later years, as the

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traffic increases, the noise levels will significantly exceed the standards at many moresensitive sites. To mitigate the short and medium term noise problems, a combination ofmeasures such as resettlement and installation of noise barriers will be undertaken. In thelong term (2020), noise monitoring will be continued and appropriate mitigationmeasures will be taken when the noise monitoring results significantly exceed thestandards. Construction of schools and hospitals will not be allowed within 200 m oneither sides of XLE, and construction of other buildings, within 50 m of XLE, will beprohibited. Up to the year 2020, CO concentration at all sites is expected to meet theClass II air quality standards. In the long term, NOx concentration at Xinting-Liugongquiao, Liugongquiao-Hongshi and Hongshi-Guanshi sections will slightly exceedthe maximum standards while the daily average NO, concentrations will exceed thestandards at four sections (the three sections mentioned above and the Dashiqiao-ShanpuSection), with maximum value 110 percent higher than the standards. Along the eightconnecting roads, LLH and ZXH, CO and NOx concentrations at all sensitive sites aspredicted to be within the standard. The long-term air pollution problems caused byvehicle exhaust gases will be dealt with by improving vehicle emission controls andstrengthening vehicle emissions inspection to reduce the exhaust emissions.

10. During the cultural relics survey, three ancient tombs, over 2000 years old werefound in the Yangliu village of Guanshi, Hengnan county. An archaeological salvage andprotection plan was developed and integrated in the National Highways 2 Project. All thesalvage activities will be carried out before the start of construction.

11. Additional design measures include provisions for adequate drainage, wastewatertreatment facilities at three service areas, strengthening of crash barriers at pollutionsensitive locations, and adequate bridge and culvert design to minimize flooding.

Construction Phase

12. To minimize dust during construction, road surfaces, excavation areas, materialstockpiles, storage areas, and construction sites will be sprayed with water specially neartowns and villages, water supply sources and near sensitive locations. In particular, coalash will be kept moist with at least 30 percent moisture content. Asphalt and lime stonemixing plants will be equipped with dust collectors and will be located at least 500 mfrom residential areas on the leeside of the wind directions. Additional precautions willinclude covering of haul trucks and material storage piles, control of exhaust gas, etc.Construction activities within 150 m from residences will be suspended between10:00 p.m. and 6:00 a.m., except under exceptional circumstances when a prior writtenapproval of the local government and the environmental protection bureau will berequired.

13. Where possible, borrow areas will be restricted to non-forest and non-arable lands,and topsoil will be saved and returned to the land. Spoil disposal sites will be carefullyselected to minimize disruption to the farmlands. Damage to irrigation systems will beminimized by construction of temporary channels and conduits and measures will betaken to prevent direct discharge of polluted waters and silt from construction activities

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into rivers and irrigation channels. Construction camp wastes and sewage will becollected and treated and disposed of in an environmentally sound manner. Trees andgrass will be planted on side slopes, and along the roadside, particularly on sections withhigh fills and deep cuts.

14. During construction, effective safety and warning measures will be adopted toreduce accidents. This will include, minimization of traffic jams, provision of efficientlighting equipment and safety signs, restriction on blasting time and implementation ofstringent controls at quarries, development of a materials transport plan, etc.

Operation Phase

15. During the operation phase, emphasis will be placed on better vehiclemaintenance and management to promote safety and to minimize vehicle emissions.Low-speed, badly maintained old vehicles will be barred from using the expressway.Periodic campaigns will be undertaken to educate drivers about the unnecessary use ofhorns, reduction in night time speed, safe transport of hazardous materials, etc. To avoidfuture noise and air pollution problems, construction of residential buildings and schools/hospitals will be prohibited within 50 m and 200 m, respectively, from the roadside ofXLE, and 50 m and 100 m, respectively, from the roadside of LLH and ZXH.

16. Environmental Monitoring. During the construction and operation of XLE, itsconnecting roads, LLH and ZXH, environmental monitoring will be carried out to verifythe actual impacts on the environment, identify unexpected environmental problems at anearly stage, and to adjust environmental protection measures as appropriate. Localenvironmental monitoring stations will be responsible for environmental monitoring ofXLE, its connecting roads and LLH during the construction and operation phases. Motorvehicle noise will be monitored by the environmental supervision engineers atengineering supervision stations.

17. The major items to be monitored during the construction and operation phaseswill include air quality, noise and water quality. Seven noise level meters, fourcomputers to process environmental data, two fire engines, and five ambulances will beprocured under the project. The detailed monitoring plan is presented in the EAP.

18. Institutional Arrangements. The Environmental Protection Office (EPO) inHPCD will be responsible for the overall environmental protection and management ofthe highways. The six staff in the EPO will be assisted by the five environmental staff inthe Environmental Protection Section (EPS) who will be responsible for theenvironmental aspects of the project during the construction phase. Environmentalmonitoring during the construction and the operation phases will be carried out by thelocal environmental monitoring stations through contract with the Xianglei and theLoudi-Lianyuan Highway Companies. Environmental training will be undertaken toprovide adequate training for environmental staff at all levels. The detailed staffing andtraining plan is presented in the EAP.

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ANNEX 3b: ENVIRONMENTAL ASSESSMENT AND ACTIONPLAN SUMMARY (GUANGDONG SECTION)

1. Background. An EIA for Xiaotang-Gantang Expressway (XGE) including itsconnecting roads was carried out by the Shanghai Ship and Shipping Research Institute ofMOC. An EIA report, an Environmental Action Plan (EAP) and an EnvironmentalAssessment (EA) Summary were prepared as per the policy and administrativerequirements for environmental assessment of development projects in China and theBank's OD 4.01 on Environmental Assessment. The development and review of thesedocuments involved inputs from various units in the province, the environmentalprotection bureaus, research institutions, universities and the affected groups and NGOsalong the highways. These documents were reviewed by the Bank and discussed withGuangdong Provincial Communications Department (GPCD) and Guangdong ProvincialFreeway Company (GPFC) during the preparation mission in July 1995, and thepreappraisal mission in November 1995. The final EIA report, EAP and EA Summarycovering XGE and its interconnecting roads were submitted to the Bank in January 1996and found to be satisfactory to the Bank. A detailed summary of the environmentalassessment and the action plan is available in the project files.

2. Brief Project Description. The main civil component of the Guangdong sectionconsists of the construction of 110-km, four-lane expressway between Xiaotang andGantang (XGE) and the interconnecting roads of XGE. Other components includeinstitutional strengthening, training programs, long-term studies on transport andeconomic integration, technical assistance on expressway safety, and constructionsupervision.

3. Baseline Environmental Description. The proposed alignment of XGE startsfrom Xiaotang, on the border with the Hunan province, passes through west Lechangmountains area and Ruyuan county, and ends in Guantang in the suburb of ShaoguanCity. Generally, the terrain slopes from northwest to southeast. The 73-km sectionbetween Xiaotang and Ruyuan is located in the mountain terrain, while the 37-km sectionbetween Ruyuan and Gantang is located in the heavy rolling terrain. The area is criss-crossed by the Wujian and Nanshui rivers, neither of which is open to navigation.

4. Plant resources are abundant and forests cover more than 50 percent of the projectarea. However, over the past 100 years, due to the sharp increase in population, variouseconomic activities, etc., forest vegetation has changed from broad-leaved evergreenforests to forests with simple tree varieties. As a result, some of the hilly areas have onlysparse bush slopes or bare rocks, and most fine soil has been washed away. The presentvegetation along the alignment are mostly cropland and woodland (shrub and manmadeforests). Thus, only limited wild animals such as hares and pheasants are found along the

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alignment. Lead concentrations in soil sampled at seven sites ranged between 34 and40 mg/kg, significantly lower than 300 mg/kg value recommended by the Ministry ofAgriculture as the criterion for soil with a pH value of 6.5.

5. The area surrounding Shaoguan City is rich in tourist resources. The tomb ofYujing, a Minister of Soong Dynasty, is located approximately 300 m from the alignmentand a field survey identified ancient tombs at two sites along the alignment.

6. Atmospheric baseline monitoring of TSP, CO, NOx and lead was carried out forfive consecutive days, at five sites along the alignment. At all monitoring sites, CO, NO,and lead concentrations were much lower than the ambient air quality standards for bothmaximum and daily average values. The maximum TSP concentrations were also belowthe standard but at three sites, daily average TSP concentrations slightly exceeded thestandards. Of the eight sites monitored for baseline noise, only the Laopinshi town site,where the alignment is next to the existing National Highway 107, exceeded the noisestandard at night.

7. Potential Environmental Impacts and Their Mitigation Measures. The majorpotential impacts of the XGE and its linking roads and the associated mitigation measuresare summarized below and incorporated in the Environmental Action Plan (EAP) of XGEand its linking roads. The EAP stipulates how the environmental impacts identified inthe EIA will be dealt with in the design, construction and operation phases, and whatinstitutional arrangements have been made for the implementation of the EAP during thethree distinct phases. The key elements of the EAP are summarized below.

Design Phase

8. Three major alternative alignments were considered at the prefeasibility study andthe selected route (the Ruyuan route) was further refined during the feasibility stage,using factors such as land minimization, impacts of air and noise pollution onenvironmentally sensitive areas, etc. The design includes a number of passageways,overpasses and underpasses to facilitate the crossing of the expressway by local people,animals and vehicles. To mitigate soil erosion, trees and grass will be planted on mediandivider, side slopes, and along the roadside. Further measures such as slope protection,temporary and permanent drainage systems are also incorporated in the design. Particularattention was paid to balance the cuts and fills along the XGE, and in selecting quarriesand borrow sites so as to minimize impact on farmlands and dust and noise problems.

9. At 16 environmentally sensitive sites, traffic noise during the operation phase willsignificantly exceed the assessment criteria, particularly in later years. This will bemitigated by constructing noise barriers, constructing high fences beside the first row ofresidences and schools, by resettlement and by rezoning the first row of houses aswarehouses. While CO concentrations at all sites will stay within the assessment criteria,in the later years, NO, concentrations at seven out of nine sites will significantly exceedthe assessment criteria. This will be mitigated by improving vehicle emission controls,strengthening vehicle emissions inspection, planting trees, and by prohibiting the

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construction of new residences, schools, hospitals and other sensitive buildings within the60-m zone on either sides of the highway.

10. Tombs at two sites (K91+700-800, and K105+600-650) will be excavated and theinformation on these sites will be included in the bid documents to ensure that thecontractors take adequate actions.

11. Additional design measures include provisions for adequate drainage, wastewatertreatment facilities at service areas, strengthening of crash barriers at pollution-sensitivelocations, adequate bridge and culvert design to minimize flooding, and planting of a20-m wide and 200-m long forest belt.

Construction Phase

12. To minimize dust during construction, road surfaces, excavation areas, materialstockpiles, storage areas, and construction sites will be sprayed with water, especiallynear towns and villages, and near sensitive locations. Asphalt and lime stone mixingplants will be equipped with dust collectors and will be located at least 500 m fromresidential areas on the leeside of the wind directions. Additional precautions willinclude covering of haul trucks and material storage piles, control of exhaust gas etc.Noisy construction will be prohibited between 10:00 p.m. and 6:00 a.m., except underexceptional circumstances when a prior written approval of the local government and theenvironmental protection bureau will be required. Other measures include, constructionof noise barriers at sensitive locations, equipping machinery with effective mufflers andstrengthening equipment maintenance.

13. Where possible, borrow areas will be restricted to nonforest and nonarable landsand topsoil will be saved and returned to the land. Spoil disposal sites will be carefullyselected to minimize disruption to the farmlands. Damage to irrigation systems will beminimized by construction of temporary channels and conduits and measures will betaken to prevent direct discharge of polluted waters and silt from construction activitiesinto rivers and irrigation channels. Construction camp wastes and sewage will becollected and treated and disposed of in an environmentally sound manner.

14. During construction, effective safety and warning measures will be adopted toreduce accidents. This will include, minimization of traffic jams, provision of efficientlighting equipment and safety signs, restriction on blasting time and implementation ofstringent controls at quarries, development of a materials transport plan, etc.

Operation Phase

15. During the operation phase, emphasis will be placed on better vehiclemaintenance and management to promote safety and to minimize vehicle emissions. Lowspeed, badly maintained old vehicles will be barred from using the expressway. Periodiccampaigns will be undertaken to educate drivers about the unnecessary use of horns,reduction in night time speed, safe transport of hazardous materials, etc. Construction of

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permanent buildings within 60 m on either side of the expressway will be activelydiscouraged.

16. Environmental Monitoring. During the construction and operation of XGE andits interconnecting roads, environmental monitoring will be carried out to verify theactual impacts on the environment, identify unexpected environmental problems at anearly stage, and to adjust environmental protection measures as appropriate. TheEnvironmental Monitoring Station (EMS) under the Environmental Protection Divisionof GPFC will be mainly responsible for environmental monitoring during theconstruction and operation phases. However, noise and dust will be monitored by theenvironmental supervisors at construction contract sections.

17. The major items to be monitored during the construction phase will include airquality, noise, and water quality. These items will be monitored during the operationphase as well. In addition, lead in soil and crops will be monitored during the operationphase. Fifteen sets of domestic sound-level meters will be procured under the project.The detailed monitoring plan is presented in the EAP.

18. Institutional Arrangements: Environmental aspects of the construction of theXGE will be managed and promoted by the Environmental Protection Division (EPD). Itwill be headed by a senior level manager in GPFC and will also include full-timeenvironmental staff assigned to the XGE Preparation Office. Three EnvironmentalProtection Offices will be established and part-time supervisors will be assigned to eachcontract section to carry out environmental supervision and dust and noise monitoring.Other monitoring will be carried out by the Environmental Monitoring Station underEPD/GPFC. During the operating phase, environmental work will be carried out by anEnvironmental Protection Section with environmental staff, set up in the XGE Company,which will operate and maintain the XGE. Environmental training will be undertaken toprovide adequate training for environmental staff at all levels. The detailed staffing andtraining plan is presented in the EAP.

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ANNEX 4a: REVIEW OF THE RESETTLEMENT ACTIONPLAN SUMMARY (HUNAN SECTION)

A. BACKGROUND

1. This Annex presents the Land Acquisition and Resettlement aspects associatedwith Hunan section of the National Highways II project. It is based on the ResettlementAction Plans (RAPs) prepared by the Provincial Resettlement Office (PRO) of the HunanProvince Expressway Construction and Development Corporation (HPECDC) incooperation with the Resettlement Offices (ROs) of affected cities and counties, as wellas Institutes associated with the project.

B. DIMENSIONS OF RESETTLEMENT

2. Project Impact. The Xiangtan-Leiyang Expressway (including the link up roadbetween Xiangtan and Zhuzhou) will affect 124 villages in 31 towns and 5 counties. TheRIP component between Loudi and Lianyuan will be passing through 50 villages in 1 1towns. The impact of the project is summarized in Table 1.

TABLE 1: PROJECT IMPACT

Effect Unit Main Component RIP Component Total

Permanent land acquisition: Total mu 18,732 3,282 22,014Land under agricultural/economic use mu 15,846 3,055 18,901Residence base mu 623 163 786Others mu 2,262 65 2,327

Temporary land occupation: Total mu 3,220 452 3,672Arable mu 2,305 0 2,305

Affected structures: Total m2 275,887 109,774 385,661Private residence-area m2 268,411 108,753 377,164

units no. 1,170 377 1,547Public-area m2 7,476 1,021 8,497

Affected persons-Total no. 18,842 7,128 25,970Households-Total no. 4,547 1,403 5,950

PAPs affected by: Land acquisition only no. 13,997 5,302 19,299House relocation only no. 759 123 882Both house and land no. 4,086 1,703 5,789

House relocation due to noise pollution no. 50 0 50

Economically Active PAPs no. 12,268 3,996 16,264

Persons to be resettled into enterprise jobs no. 483 0 483

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3. Resettlement Action Plans. The PRO of HPECDC prepared two RAPs for theproject based on the Laws and Regulations of PRC and Hunan Province as well as theBank's Operational Directive OD 4.30 on Involuntary Resettlement. The main RAPcovers the Xiangtan-Leiyang expressway including the linkup road between Xiangtan andZhuzhou, the second RAP is presented as an appendix covering the RIP component(Loudi-Lianyuan Highway).

C. POLICY AND STRATEGIES FOR RESETTLEMENT

4. Legal Framework and Resettlement Policy. In addition to the National lawsand regulations mentioned in the main text, the following local regulations govern landacquisition and resettlement in Hunan Province:

Provincial Policy:

* Hunan Provincial Land Administration Implementation Regulations (1992)

* Hunan Provincial People's Government's Xiangzhenban No. 22 Document(1992)

City Policy:

* Xiangtan City People's Government's Tan Zhen No. 3 document:Regulations on Land for State and Town Construction (1989)

o Zhuzhou city Land Administration Regulations (1989 and 1993)

* Hengyang City People's Government's No. 10 document (1991)

5. Resettlement Compensation. The average annual output value for land varies asmuch as 24 percent among the counties which are affected. For this project the highestaverage annual output value (Y 1,002/mu) had been selected as a basis for compensation.The multipliers selected are 6 for irrigated land, and 3 for resettlement grant, the highestmultipliers in the Land Law.

6. Land Redistribution. Preference will be given to land-based resettlement byreadjusting the village land among the laborers in the village, to the extent that theaverage land per person in the village does not fall below the township level. Wheneverthe average falls below the township level, then the surplus labor will be resettled inenterprise jobs. After the readjustment of land, the PRO, local governments, City ROs(CIROs) and County ROs (COROs) will take rehabilitation measures to increase theproductivity of agricultural land.

7. House Relocation. Compensation for affected buildings will be paid atreplacement cost (without depreciation). PAPs will be relocated in original villages, neartheir original house. Construction of new housing will be completed before the

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destruction of the affected structures. Vulnerable groups and those who need assistance,such as, the old, sick and the handicapped will be assisted by the local authorities whilethey reconstruct their houses. Detailed rates of house compensation is provided in theRAP.

8. Affected Public Buildings and Enterprises. Affected enterprises will be rebuiltand will reemploy all the original workers. Construction of new facilities will becompleted before old structures are demolished so that production losses are minimized.Compensation of lost output, work stoppage allowance and production stoppageallowance will be incorporated into the compensation rates for the facilities.

9. Transfer of PAPs from Agriculture to Enterprise Jobs. A tota of 1,221 PAPs(including all family members) will be transferred from agricultural to enterprise jobs dueto limitations in land availability. This figure translates into 483 economically activelaborers. During the waiting period, if any, enterprises will pay the workers a fee ofY 200 per month. PAPs will sign employment agreements with the enterprises whichwill provide lifelong employment and pension after retirement.

10. Job Creation. To provide jobs for the eligible PAPs, 28 enterprises were chosenalong the route which are willing to employ the 483 laborers. Currently, these enterprisesemploy between 80 and 210 workers. After resettlement they will be employing between5 and 28 additional PAPs each. Over the last three years, the rate of growth ofemployment in these enterprises was between 10 percent and 22 percent, and the rate ofgrowth of output has surpassed the employment growth. This record provides a favorableindication on their future performance. It is predicted that the PAPs' income willincrease as a consequence of enterprise employment. Employment environment in theseenterprises has been screened to ensure that it will not cause employment related healthproblems.

11. Infrastructure. Affected infrastructure will be rehabilitated either by the project,or compensation will be paid, at replacement cost, to the owners of infrastructure.Improvement of the standards of affected infrastructure will be ensured throughconsultation with the PAPs during the rehabilitation of the infrastructure.

D. INSTITUTIONS

12. Institutional Responsibility. Leading groups at the project, city and countylevels have been established with the responsibility of coordinating and implementingresettlement. Actual implementation of resettlement will be under the responsibility ofCIROs and COROs. These offices have been equipped with the necessary staff andequipment. The responsibility of the ROs at all levels are to distribute compensation,guarantee the implementation of the RAP, and assist the PAPs to improve their standardsof living. COROs have assigned members from the local government, communications,land acquisition, water conservancy, post and telecommunications bureaus to staff theiroffices. TROs have followed the same procedure.

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13. Staffing of the ROs. PRO has seven staff members including the Director. FiveCOROs have a total of 34 staff members and 29 TROs have a total of 97 staff members.The monitoring data base that the village ROs and TROs will utilize is also available atthe CIRO, CORO and PRO level in electronic form. Monitoring results will flow toCOROs, where the information will be processed in electronic form and transmitted toPRO to complete the monitoring cycle.

E. SCHEDULING

14. Implementation Schedule. Preparation of the RAP has begun in January 1995with the establishment of the PRO. The census survey, consultation with PAPs,establishment of local ROs, and consultation on compensation rates and rehabilitationpackages have already taken place. The schedule for the remaining activities associatedwith the implementation of the RAP is presented in Table 2.

TABLE 2: IMPLEMENTATION SCHEDULE

Activity Date Executing Unit

Baseline survey (Standards of Living Survey-SLS) Apr 96 HASSMeasurement and verification of the extent of land Jun 96 TROs

acquisition and house relocationSigning of resettlement agreement Jun 96 PRO, CIROs and COROsAppraisal for and acquisition Jun 96 TROsAllocation of funds to CIROs and COROs Jul 96 PROCIROs allocate funds for TROs to be paid to units and Jul 96 CIROs & COROs

personsHouse construction and house relocation Jul-Oct 96 TROsInfrastructure Relocation Jul-Oct 96 Power and Telecom BureauPAPs to be relocated into enterprises Sep-Oct 96 EnterprisesTurnover of land Nov 96 TROsLand Readjustment Nov 96 TROs and PROSupervise resettlement and approval Nov 96 PROSLS after resettlement monitoring Jun 97 HASSIndependent monitoring Jun 98 HASS

F. BUDGET

15. Resettlement Budget. The budget for the project is presented in Table 3.Physical and price contingencies as well as the administrative cost have been included inthe budget.

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TABLE 3: RESETTLEMENT BUDGET

RIPCost item Expressway Component Total

Land compensation including residential base 132,481,462 21,065,384 153,546,846Land occupation tax 4,137,596 979,930 5,117,526Temporary land occupation 5,302,581 1,039,600 6,342,181Resettlement fee 33,419,657 12,002,015 45,421,672Private house and asset compensation including 55,396,546 15,112,619 70,509,165moving and transition allowancePublic buildings compensation 1,953,502 278,095 2,231,597Infrastructure compensation 13,786,696 2,754,196 16,540,892Cost of relocation due to noise 2,329,879 0 2,329,879Administrative costs (3%) 7,464,238 1,596,955 9,061,193Monitoring and RAP preparation 4,976,158 1,064,636 6,040,794Contingencies: Physical 24,880,792 5,323,184 30,203,976

Price 24,880,792 5,323,184 30,203,976

Total 311,009,899 66,539,798 377,549,697

G. GRIEVANCE, PARTICIPATION AND CONSULTATION

16. Grievance Process. PAPs with grievances on the process of resettlement andrehabilitation shall consult with the village resettlement offices and TROs. If the resultsare not satisfactory to the PAPs, they can submit their complaint in written form to theCORO. The county will respond to the complaint within 15 days. If the issue is notresolved, an appeal should be made to the PRO which will respond in 15 days. If theissue cannot be resolved within by the project authorities, then grievance will be broughtto the people's court according to 38th article of PRC Administration Lawsuit Law.

17. Participation and Consultation. PAPs have been consulted on the impact of theproject and resettlement measures since January 1995 through surveys, public meetings,consultation on compensation rates and the selection of resettlement sites. As aconsequence of the participation process, the house compensation rate has been increasedto the present level as it was suggested by the PAPs. The PAPs were informed about theproject and already know the location of their new land and house-plots. Consultationwith the PAPs will continue during implementation.

H. MONITORING AND REPORTING

18. Internal Monitoring. PRO is responsible for the organization and execution ofinternal monitoring of the resettlement associated with the project. All levels of ROs willcoordinate their monitoring activities. During implementation, TROs and COROs willrecord their resettlement and rehabilitation activities at the individual and household levelinto their databases and transmit the information to the PRO.

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19. Independent Monitoring. The implementation of the RAP will be monitored byan independent agency to evaluate its progress and the compliance of the implementingorganizations with the principles of the RAP. In addition, the agency will conductsurveys to monitor the Standards of Living of the PAPs to ascertain that remedial actionwill be taken if the living standards fall below preproject levels. HASS will also beresponsible to monitor the: (a) coordination between the schedule of resettlement andcivil works; (b) grievance issues; (c) job creation; (d) rehabilitation of infrastructure; (e)satisfaction of the PAPs.

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ANNEX 4b: REVIEW OF THE RESETTLEMENT ACTIONPLAN SUMMARY (GUANGDONG SECTION)

A. BACKGROUND

1. This Annex presents the Land Acquisition and Resettlement aspects associatedwith Guangdong section of the National Highways II project. It is based on theResettlement Action Plan (RAP) prepared by the Resettlement Office (RO) of theGuangdong Province Freeway Company (GPFC) in cooperation with the Secondhighway Survey and Design Institute of the Ministry of Communications (SHSDI), ROsof affected cities and counties, as well as the institutes associated with the project.

B. Dimensions of Resettlement

2. Project Impact. The Xiaotang-Gatang Expressway will affect 31 administrativevillages of 12 townships in 4 counties. The impact of the project is summarized in Table1.

TABLE 1: PROJECT IMPACT

Effect Unit Magnitude

Permanent Land Acquisition: Total mu 10,771Land under agricultural/economic use mu 9,760Residence Base mu 25Others mu 986

Temporary Land Occupation (Arable) mu 1,286

Affected Structures: Total m2 35,583Private Residence-area m2 20,506Attachments to above m2 8,829

...... units no. 288Enterprises-area m2 6,248

...... units no. 14...... laborers no. 354

Persons Affected by House relocation and no. 13,195Agricultural Land Acquisition-Total

Households-Total no. 2,866

PAPs affected by House Relocation no. 1,568Households no. 281

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3. Resettlement Action Plan. RO of GPFC prepared the RAP for the project basedon the laws and regulations of PRC and the Bank's Operational Directive OD 4.30 onInvoluntary Resettlement. SHSDI, Expressway Construction Command Office (ECCO)of affected cities and counties and local Land Acquisition Offices (LAOs) collaboratedwith the RO during the preparation of the document. Guangzhou Academy of SocialSciences (GASS) provided consulting services for population surveys. The RAP formsthe basis of implementation of land acquisition and resettlement of the project.

C. POLICY AND STRATEGIES FOR RESETTLEMENT

4. Legal Framework and Resettlement Policy. In addition to the National lawsand regulations mentioned in the main text, the following local regulations govern landacquisition and resettlement in Guangdong Province:

Provincial Policy:

* Interim Methods of Land Acquisition for Communication Infrastructure ofGuangdong Province (1992);

* Administrative Methods of Forest Land of Guangdong Province (1992)

• Interim Regulations Development and Administration for Mine Sources ofGuangdong Province (1986);

* Administrative Methods of Taxation for Farmland Occupation of GuangdongProvince (1987)

. Administrative Regulations of Land Acquisition of Guangdong Province(1993)

* Administrative Regulations of Construction Land Acquisition of GuangdongProvince (1994)

* Administrative Regulations for the Protection of (Good) Farmland Areas ofGuangdong Province (1993)

* Administrative Regulations of Urban house Removal of Guangdong Province(1993)

* Several Regulations of the Work of the Scattered Living Minority ofGuangdong Province(1989)

City and ECC Policy:

* Enforcement Methods of Land Requisition, Demolition and Removal ofShaoguan City for Shaoguan Road Section of Beijing-Zhuhai Expressway(1995)

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5. Resettlement Compensation. Compensation for agricultural land, and forstructures fall within the range applied in Bank projects. The multipliers for paddy fieldis 4; dry land, vegetable field, orchard and fish pond is 3; and, woodland and bamboo is6. Multipliers for young crop compensation is 1/2 for paddy and dry land; 1/3 forvegetable land; and, 1 for pond, orchard, woodland and bamboo. As some of themultipliers were low, the Calculated Average Annual Output Value of agricultural landwas adjusted upwards to yield total compensation amounts (per mu) which would becomparable to the figures applied in the Hunan section of the project.

6. Land Redistribution. Preference will be given to land-based resettlement byreadjusting the village land among the laborers in the village, to the extent that averageland per person in the village does not fall below the minimum level. Whenever theaverage falls below the minimum, then the surplus labor will be resettled in enterprisejobs. After the readjustment of land, the RO, local governments, and city and countyROs will take rehabilitation measures to increase the productivity of agricultural land.

7. House Relocation. PAPs will be relocated in their original villages, near theiroriginal house. Construction of new housing will be completed before the destruction ofthe affected structures. Vulnerable groups and those who need assistance, such as, theold, sick and the handicapped will be assisted by the local authorities during thereconstruction of their house.

8. Affected Enterprises. The project will affect 14 enterprises employing 354employees. These enterprises will be compensated and rehabilitated according to thefollowing principles: (a) they will be rebuilt, and will reemploy original workers at theirformer salaries; (b) construction of new facilities will be completed within three monthsafter the signing of the contract to ensure the normal resumption of business; and(c) compensation of lost output, work stoppage allowance and production stoppageallowance will be paid to the enterprises.

9. Transfer of Surplus Labor in Agriculture to Enterprise Jobs. A total of 3,106agricultural laborers will lose some of their land allocation. After land readjustment, only2,156 will be able to continue with their agricultural occupation due to the scarcity ofagricultural land. The remaining 950 surplus laborers, will either be allocatednonagricultural jobs in 15 designated township or county level enterprises, or chose toreceive the resettlement grant to find their own employment.

10. Job Creation. 331 surplus laborers will receive a minimum wage of Y 300/month (at about the twice the rate of earning from cultivation) in the designatedenterprises. During the training period the PAPs will receive a minimum salary of Y 150.Details of the enterprises are provided in the county level RAPs. A total of 619 laborerschose to find work on their own, in activities such as reclaiming deserted land, cultivatingfruit trees on the slopes, and working independently in the service sector. The townshipand village authorities will assist these PAPs in finding new job opportunities byproviding credit and technical advice.

-112 - ANNEX4b

11. Affected National Minorities. The project passes through Ruyuan county wherethe Yao minority is concentrated. During the design of the highway, a special effort wasmade to minimize the impact on the Yao, but, due to the difficulty of the terrain, 1,351Yao will still be affected, where 121 families will lose their houses. GPFC will providerehabilitation benefits to the Yao community beyond the compensation of lost assets.

12. Infrastructure. Compensation for infrastructure has been agreed between GPFCand the owners of the infrastructures. Compensation will be paid by GPFC and theowners will be responsible for the rehabilitation of the affected infrastructure.

D. INSTITUTIONS

13. Institutional Responsibility. Leading groups at the project, city and countylevels have been established with the responsibility of coordinating and implementingresettlement. Actual implementation of land acquisition will be under the responsibilityof county and township ROs. Expressway Construction and Command of Shaoguan City(ECCSC) will be responsible for the signing of contracts and supervising theimplementation of the RAP. GPFC has set up three Resettlement Offices On the Spot(ROOS) in Qujiang, Ruyuan, and Pingshi, to work as the field office of the RO of GPFCand to conduct internal monitoring.

14. Staffing of the ROs. RO of GPFC has 10 staff members. ECCSC has foursections (secretariat, land acquisition, engineering and finance), employing 16 staffmembers. ROOS will have three staff members each. County and Township ROs haveat least two staff members each.

E. SCHEDULING

15. Implementation Schedule. RO of GPFC was established in May 1995. In June1995, SHSDI was given the task of conducting the census of the PAPs and their assets,and GASS was appointed as the advisor for population surveys. The census wasconducted between August-September, and November 1995. The RAP was prepared incollaboration with GASS, SHSDI and local ROs . The schedule for the remainingactivities associated with the implementation of the RAP is presented in Table 2.

-113 - ANNEX4b


Activity Date

Baseline Survey (Standards of Living Survey-SLS) Apr 96Measurement and verification of the extent of land acquisition and Mar 96

house relocationConsultation with the PAPs Mar-Apr 96Submit land acquisition Map to the CIROs and COROS Apr 97Payment of the first installment of compensation May-Dec 97Resettlement implementation Aug 97-Apr 98Removal of buildings May 95SLS after resettlement monitoring Oct-Dec 96

F. BUDGET

16. Resettlement Budget. The budget for the project is presented in Table 3.Contingencies and the administrative cost have been included in the budget.

TABLE 3: RESETTLEMENT BUDGET

Cost item Y '000

Land compensation including residential base 103,643Temporary land occupation 5,083Private house and asset compensation including moving and 4,199transition allowanceCompensation for attached facilities 7,257Enterprise compensation 5,550Administrative costs (3%) 3,771Contingencies 18,852

Total 148,355

G. GRIEVANCE, PARTICIPATION AND CONSULTATION

17. Grievance Process. PAPs with grievances will be able to submit their complaintsto the implementing and supervising authorities of the project to receive a quick response.Local government offices will receive complains at any time and report them to theresponsible authority to receive a response within one month.

18. Participation and Consultation. Consultation with the Yao NationalityCommunity has taken place. Preferential policies are being developed to benefit thePAPs of the minority community. Information campaign and subsequent consultation

-114 - ANNEX4b

with the PAPs is also undertaken on a regular basis. Whenever available, a choice isoffered to the PAPs such as alternative house plots, rehabilitation packages and non-agricultural employment. The Independent Monitors will continue the consultation afterthe completion of implementation.

H. MONITORING AND EVALUATION

19. Internal Monitoring. The RO of GPFC, GPCD and the Shaoguan City areresponsible for the organization and execution of internal monitoring of resettlementassociated with the project. The purpose of monitoring is to ensure: (a) that theimplementation will be competed according to schedule and meet the specified standards;(b) that the PAPs improve their living standards and productivity of their land; and(c) identify potential problems and improve the management of the project. ROOS willbe the primary extension of the RO of GPFC to undertake the monitoring of resettlementactivities under the responsibility of local ROs and LAO.

20. Independent Monitoring. Implementation of the RAP will be monitored by anindependent agency (GASS) to evaluate its progress and the compliance of theimplementing organizations with the principles of the RAP. In addition, the agency willconduct surveys to monitor the Standards of Living of the PAPs to ascertain that remedialaction will be taken if the living standards fall below preproject levels.

-115 - ANNEX5

ANNEX 5: IMPLEMENTATION SCHEDULE

1. This annex presents the implementation schedule for the various components of theproject. Table I summarizes the overall implementation schedule for the project as awhole. Tables 2a and 2b show the detailed implementation schedule for the 24 civilworks contract sections (11 contract sections in Hunan and 13 contract section inGuangdong) of the expressway to be constructed by ICB; administration and maintenancebuildings; and service areas and electrical and mechanical works for the expressway.Tables 3a and 3b depict the detailed implementation schedule for the supervision ofconstruction of the expressway. Table 4a shows the detailed implementation schedule forthe interconnecting roads in Hunan. Tables 5a, 5b, 5c, 5d, and 5e show the detailedimplementation schedule for the Foreign Capital Promotion Study; the HighwayMaintenance Management Study in Hunan; the High-Grade Highway Commercializationand Corporatization Study in Hunan; the Transport and Economic Integration Study; andthe Road Safety Program for both provinces. These schedules show the estimated timerequirements for construction activities, as well as for preconstruction activities, such aspreparation of bid documents, the prequalification process, the bidding process, evaluationof bids, negotiations, and signing of contracts.


1995 1996 1997 1998 1999 2000 2001

CIVIL WORKSXiangtan-Leiyang Expressway

Section

Zhutan Interconnect. Road

Loudi-Lianyuan Highway ...................

Interconnecting Roads in Hunan

Xiaotang-Gantang Expressway ----------------------------

SectionAdministr.& Maint. Buildings,

Serv. Areas, & Toll Plazas in Hunan

Administr. & Maint. Buildings,

Serv. Areas, & Toll Plazas in Guangdong

E & M WORKS -_

XLE Section (Hunan)

XGE Section (Guangdong)

SUPERVISION OF CONSTRUCTION

XLE Section (Hunan)

XGE Section (Guangdong) ......

PROCUREMENT OF EQUIPMENTCentral Lab and Environ. Protection -for XLE Section (Hunan)Operation and Maintenance for -........................

XLE Section (Hunan) zCentral Lab and Environ. Protection

for XGE Section (Guangdong)

Operation and Maintenance for _

XGE Section (Guangdong)

PMS and RDB for LLH,

1995 1996 1997 1998 1999 2000 2001

XZH and Interconnecting Roads (Hunan)

Mainten. for Interc. Roads

(Guangdong)

Institutional Strengthening

PMS for GuangdongINSTITUTIONAL STRENGTHENING

Institutional Strengthening

Supervision Training

STUDIES

Highway Mainten. Manag. Study

High-Grade Highway Commerc. _

and Corport. Study

Transp. and Econom. Integration Study

Road Safety Program in Hunan _

Road Safety Program in Guangdong _

Legend: Prequalificatiordpreparation of bidding documents/TORBidding process/competition among consultants

Construction/supervision/delivery/execution of studies

Defects liability period

i_______ Training/technical assistance/roadway safety

-118 - ANNEX5

TABLE 2A: HUNAN-IMPLEMENTATION PROGRAM FOR CONSTRUCTION OF THE

XIANGTAN-LEIYANG EXPRESSWAY

1. Civil Works

Contract Sections for ICBPrequalification documents available for sale on Mar 20, 1996Last date to submit PQ documents Apr 20, 1996PQ documents evaluation report & MOC review Aug 05-Sep 25, 1996Bank review and no objection to PQ documents Aug 05-Sep 25, 1996Evaluation report Jun 01-Jul 01, 1996Review bid documents by the Bank Oct 3-Nov 10, 1996Sell bidding documents to prequalified contractors Jan 10, 1997Last date to receive bid documents Sep 30, 1996Bid evaluation report and government review Jan 10-Feb 10, 1997Bank review bid evaluation report and no objection Feb 10-Mar 10, 1997Notify successful bidder Mar 15, 1997Negotiate and sign contracts with contractors Apr 20, 1997Start construction on May 20, 1997Complete construction by May 20, 2001

Administration and Maintenance Buildings, Service Areas, and Toll Plazas (NCB)Complete bid documents Mar 20, 1997Review bid documents by Bank and no-objection Apr 20, 1997Invite bids May 30, 1997Receive bids Aug 01, 1997Complete bids evaluation and MOC review Sep 15, 1997Negotiate and sign contracts Nov 30, 1997Start construction on Jan 01, 1998Complete construction by Nov 30, 2000

2. Electrical and Mechanical Works (ICB)Complete bid documents and review by MOC Oct 20, 1997Review bid documents by Bank and no-objection Dec 25, 1997Invite bids Jan 01, 1998Receive bids Apr 15, 1998Prepare bids evaluation report and MOC review Jun 15, 1998Review bid evaluation report by Bank and no-objection Jul 20, 1998Notify successful bidder Jul 25, 1997Negotiate and sign contracts Aug 30, 1998Start construction on Oct 30, 1998Complete construction by May 30, 2001

-119- ANNEX5

TABLE 2B: HUNAN-IMPLEMENTATION PROGRAM FOR CONSTRUCTION OF THE LOUDI-LIANYUAN HIGHWAY

1. Civil Works

Contract Sections for ICBPrequalification documents available for sale on May 10, 1996Last date to submit PQ documents Jun 10, 1996PQ documents evaluation report & MOC review Jun I -Nov 10, 1996Bank review and no objection to PQ documentsEvaluation report Nov 11-Dec 10, 1996Review bid documents by MOC Oct 20-Nov 20, 1996Review bid documents by the Bank Nov 21-Dec 20, 1996Sell bidding documents to prequalified contractors Dec 25, 1996Last date to receive bid documents Feb 28, 1997Bid evaluation report and government review Mar 01-Apr 25, 1997Bank review bid evaluation report and no objection Apr 26-May 25, 1997Notify successful bidder Jun 05, 1997Negotiate and sign contracts with contractors Jul 05, 1997Start construction on Aug 01, 1997Complete construction by Feb 28, 2000

TABLE 2c: GUANGDONG -IMPLEMENTATION PROGRAM FOR CONSTRUCTION OF

THE XIAOTANG-GANTANG EXPRESSWAY

1. Civil Works

Contract Sections for ICB (A-J Contracts)Prequalification documents available for sale on Oct 04, 1996Last date to submit PQ documents Dec 01, 1996PQ documents evaluation report & MOC review Jan 20-Feb 10, 1997Bank review and no objection to PQ documentsEvaluation report Feb 10-Mar 10, 1997Review bid documents by MOC Dec 15, 1996-Jan 15, 1997Review bid documents by the Bank Jan 16-Feb 28, 1997Sell bidding documents to prequalified contractors Mar 8, 1997Last date to receive bid documents Jul 8, 1997Bid evaluation report and government review Jul 9-Aug 23, 1997Bank review bid evaluation report and no objection Aug 24-Sep 8, 1997Notify successful bidder Sep 23, 1997Negotiate and sign contracts with contractors Sep 24-Oct 24, 1997Start construction on Nov 28, 1997Complete construction by Jun 28, 2000

-120 - ANNEX5

2. Civil Works

Contract Sections for ICB (K-M Contracts)Prequalification documents available for sale on Jun 28, 1998Last date to submit PQ documents Aug 30, 1998PQ documents evaluation report & MOC review Sep 01 -Sep 30, 1998Bank review and no objection to PQ documentsEvaluation report Oct 01 -Oct 30, 1998Review bid documents by MOC Aug 01-Aug 30, 1998Review bid documents by the Bank Sep 01-Sep 30, 1998Sell bidding documents to prequalified contractors Nov 01, 1998Last date to receive bid documents Jan 15, 1999Bid evaluation report and government review Jan 16-Feb 30, 1999Bank review bid evaluation report and no objection Mar 01 -Mar 20, 1999Notify successful bidder Apr 01, 1999Negotiate and sign contracts with contractors Apr 15, 1999Start construction on May 13, 1999Complete construction by May 13, 2001

Administration and Maintenance Buildings, Service Areas, and Toll Plazas (NCB)Complete bid documents Nov 01, 1998Invite bids Dec 01, 1998Receive bids Feb 01, 1999Complete bids evaluation Feb 01-Mar 30, 1999Negotiate and sign contracts Apr 01-Apr 15, 1999Start construction on May 13, 1999Complete construction by May 13, 2001

3. Electrical and Mechanical Works (ICB)

Complete bid documents and review by MOC Jul 01, 1998Review bid documents by Bank and no-objection Jul 10-Aug 10, 1998Invite bids Aug 10, 1998Receive bids Dec 10, 1998Prepare bids evaluation report and MOC review Dec 10, 1998-Feb 10, 1999Review bid evaluation report by Bank and no-objection Feb 11-Mar 10, 1999Negotiate and sign contracts Mar 11-Apr1O, 1999Start construction on May 13, 1999Complete construction by May 13, 2001

-121- ANNEX5

TABLE 3A: HUNAN-IMPLEMENTATION PROGRAM OF SUPERVISION OF CONSTRUCTIONOF XIANGTAN-LEIYANG EXPRESSWAY

Review and no objection of Bank to terms of reference, letterof invitation, and short list of consultants Mar 26, 1996

Issue invitations to consultants Apr 01, 1996Receive proposals May 25, 1996Complete proposal evaluation report and MOC review Nov 30, 1996Bank review proposal evaluation report and no objection Dec 30, 1996Negotiate with consultant and sign contract Mar 30, 1997Consultant to prepare training material Apr 01, 1997Train local personnel in China Apr 10-May 10, 1997Train local personnel abroad Apr 20-May 20, 1997Start supervision of construction May 20, 1997Complete supervision of construction May 20, 2001

TABLE 3B: GUANGDONG -IMPLEMENTATION PROGRAM OF SUPERVISION OF

CONSTRUCTION OF XIAOTANG-GANTANG EXPRESSWAY

Review and no objection of Bank to terms of reference, letterof invitation, and short list of consultants Sep 15, 1996

Issue invitations to consultants Oct 02, 1996Receive proposals Dec 04, 1996Complete proposal evaluation report and MOC review Dec 05, 1996-Jan 02, 1997Bank review proposal evaluation report and no objection Jan 03-Feb 23, 1997Negotiate with consultant and sign contract Feb 24-Apr 17, 1997Consultant to prepare training material Apr 18-May 29, 1997Train local personnel in China May 30, 1997-May 30, 1998Train local personnel abroad Jul 10, 1997-Dec 30, 1998Start supervision of construction Nov 05, 1997Complete supervision of construction May 13, 2002

-122 - ANNEX5

TABLE 4: HUNAN-IMPLEMENTATION PROGRAM FOR CONSTRUCTION OF ZHUTANINTERCONNECTING ROAD AND OTHER INTERCONNECTING ROADS

1. Civil Works

Contract Sections for ICBPrequalification documents available for sale on Feb 05-Nov 15, 1997Last date to submit PQ documents Mar 15-Dec 15, 1997PQ documents evaluation report & MOC review Apr 15, 1997-Jan 15, 1998Bank review and no objection to PQ documentsEvaluation report May 20, 1997-Feb 15, 1998Review bid documents by MOC Jan 30-Nov 15, 1997Review bid documents by the Bank Feb 28-Dec 15, 1997Sell bidding documents to prequalified contractors May 20, 1997-Feb 15, 1998Last date to receive bid documents Jul 20, 1997-Apr 15, 1998Bid evaluation report and government review Jul 20, 1997Bank review bid evaluation report and no objection Sep 05, 1997-Jun 10, 1998Notify successful bidder Sep 10, 1997-Jun 15, 1998Negotiate and sign contracts with contractors Oct 10, 1997-Jul 15, 1998Start construction on Nov 10, 1997-Aug 15, 1998Complete construction of Zhutan interconnecting road Jun 10, 1999Complete construction of other interconnecting road Sep 01, 1999

TABLE 5A: IMPLEMENTATION PROGRAM OF THE HIGHWAY MAINTENANCEMANAGEMENT STUDY IN HUNAN

Review and Bank's no objection to terms of reference, letterof invitation, and short list of consultants Oct 01-Nov 01, 1996

Issue invitations to consultants Jan 15, 1997Last date to receive proposals Feb 16, 1997Complete proposal evaluation report Mar 15, 1997Bank review proposal evaluation report and no objection Apr 15, 1997Negotiate with consultant and sign contract May 01, 1997Mobilize consultant/Study Group Apr01, 1997Execute the study Apr 01, 1997-Oct 01, 1998

-123 - ANNEX5

TABLE 5B: IMPLEMENTATION PROGRAM OF THE HIGH-GRADE HIGHWAYCOMMERCIALIZATION AND CORPORATIZATION STUDY IN HuNAN

Review and Bank's no objection to terms of reference, letterof invitation, and short list of consultants Oct 01-Nov 01, 1996

Issue invitations to consultants Dec 15, 1996Last date to receive proposals Jan 16, 1997Complete proposal evaluation report Feb 15, 1997Bank review proposal evaluation report and no objection Mar 15, 1997Negotiate with consultant and sign contract Apr 15, 1997Mobilize consultant/Study Group May 01, 1997Execute the study May 01, 1997-Oct 01, 1999

TABLE 5c: IMPLEMENTATION PROGRAM OF THE TRANSPORT AND ECONOMIC

INTEGRATION STUDY IN GUANGDONG

Review and Bank's no objection to terms of reference, letterof invitation, and short list of consultants Jan 01-Feb 01, 1997

Issue invitations to consultants Feb 15, 1997Last date to receive proposals Mar 16, 1997Complete proposal evaluation report Apr 15, 1997Bank review proposal evaluation report and no objection May 15, 1997Negotiate with consultant and sign contract May 22, 1997Mobilize consultant/Study Group Jun 20, 1997Execute the study Jul 01, 1997-Jan 01, 2001

TABLE 5D: IMPLEMENTATION OF THE ROAD SAFETY PROGRAM IN HUNAN

Establish the Core Leading Group Oct 01, 1996Issue invitations to consultants Dec 16, 1996Mobilize Study Group Apr 01, 1997Work plans by the Study Group reviewand no objection by the Bank Jul 17, 1997

Execute the study Apr 01, 1997-Oct 01, 1998

-124 - ANNEX5

TABLE 5E: IMPLEMENTATION OF THE RoAD SAFETY PROGRAM IN GUANGDONG

Establish the Core Leading Group May 01, 1997Prepare list of Chinese experts, short list of foreign consultants,and letter of invitation for Bank review Jun 15, 1997

Issue invitations to consultants Jul 16, 1997Last date to receive proposals Aug 17, 1997Complete proposal evaluation report Sep 17, 1997Bank review proposal evaluation report and no objection Oct 17, 1997Negotiate with consultant and sign contract Nov 15, 1997Mobilize Study Group Dec 16, 1997Final proposal and work plans by the Study Group reviewand no objection by the Bank Jan 17, 1998

Execute the study Feb 01, 1998-Jul 31, 2000

-125 - ANNEX6

ANNEX 6: SUPERVISION MISSION PLAN

Timing Main Activities Skills requirement Staff-weeks

05/97 Project Launch Highway engineering 4.0The review of all key procedures for Bank Executing ProcurementAgency interactions, such as procurement, Disbursementdisbursement, environment and resettlement, Environmentimplementation schedule, and progress reporting Resettlementrequirements. Review progress on preparation ofstudies

10/97 General Supervision Highway engineering 3.0(a) review of overall progress for each component, Procurement

identification of pending issues, and agreement on Trainingfollow-up actions;

(b) agreement on resettlement monitoringarrangements;

(c) review of proposals for equipment for maintenanceof highway network and institutional strengthening;and

(d) review of proposals for training programs.

02/98 Major Supervision Highway engineering 4.0In-depth review of implementation status with particular Procurementemphasis on: Environment(a) contractors' performance; Transport economics(b) effectiveness of supervision; Highway capacity(c) adequacy of environmental protection measures;(d) review of proposal for equipment procurement for

the operation and maintenance of the highwaynetwork and the expressway;

(e) review of bidding documents for E&M supply andinstallation contract for the expressway; and

(f) review of progress on studies of a foreign capitalpromotion study, a highway maintenancemanagement study, a high-grade highwaycommercialization and corporatization study, atransport and economic integration study, and anexpressway safety study

10/98 General Supervision Highway engineering 3.0(a) review of overall progress for each component, Procurement

identification of pending issues and agreement on Trainingfollow-up actions;

(b) review of progress for procurement of equipmentfor operation and maintenance of the expressway;

(c) review of progress on studies; and(d) review of progress on training programs.

-126 - ANNEX6

Timing Main Activities Skills requirement Staff-weeks

06/99 Major Supervision Highway engineering 4.0In-depth review of implementation status with particular Environmentemphasis on: Resettlement(a) contractors' performance; Transport economics(b) effectiveness of supervision; Traffic engineering(c) adequacy of environmental protection measures;(d) staff training programs; and(e) review of progress on implementation of studies and

their recommendations.

02/00 General Supervision Highway engineering 3.0Review of overall progress for each component, Trainingidentification of pending issues and agreement onfollow-up actions, with emphasis on training andstudies.

10/00 Major Supervision Highway engineering 4.0In-depth review of implementation status with particular Environmentemphasis on: Capacity study(a) contractors' performance; Tolling(b) effectiveness of supervision;(c) adequacy of environmental protection measures;(d) staff training programs;(e) review of progress on implementation of

recommendations of studies; and(f) review of results of toll studies and discuss

operation and maintenance of tolling agencies.

06/01 General Supervision Highway engineering 3.0Review of overall progress for each component, Trainingidentification of pending issues and agreement on Tollingfollow-up actions.

02/02 General Supervision Highway engineering 2.0Review of overall progress for each component,identification of pending issues and agreement onfollow-up actions. Agreement on actions for preparationof Project Implementation Completion Report.

10/02 PICR Mission Highway engineering 4.0A consolidated review of project implementation. Transport economics

EnvironmentResettlementTraining

TOTAL 34.0

-127 - ANNEX7

ANNEX 7: SELECTED DOCUMENTSIN THE PROJECT FILE

ECONOMIC AND ENGINEERING STUDIES

1. Traffic Forecasting in the Corridor and Basic Information for Feasibility Analysis ofXiangtan-Leiyang Expressway of Jingzhu National Trunk Highway within Hunan,prepared by Hunan Communication Design Institute of Planning & Survey, October1995.

2. Beijing-Zhuhai (Jingzhu) Expressway in the Provinces of Hubei, Hunan andGuangdong, prepared by J.-M. Braun, September 1995.

3. Feasibility Study Report of Xiaotang-Gantang Expressway of Jingzhu NationalTrunk Highway within Guangdong prepared by the Second Highway Survey andDesign Institute at MOC, Wuhan, December 1993.

4. Feasibility Study Report ofXiangtan-Leiyang Expressway of Jingzhu National TrunkHighway within Hunan prepared by the Hunan Design Institute of Communications,Planning and Survey, May 1994.

5. Feasibility Study Report for Zhuzhou-Xiangtan Connecting Road (ZhuzhouTiantaishan-Xiangtan Yishue Highway) in Hunan, May 1995.

6. Feasibility Study Report for Loudi-Lianyuan Class II Auto-only Highway in Hunan),May1995.

7. The Location and Shapes of the Annex Areas for Xiaotang-Gantang Expressway ofJingzhu National Trunk Highway within Guangdong, prepared by GPFC, October1995.

8. Prequalification Documents for Xiaotang-Gantang Expressway of Jingzhu NationalTrunk Highway within Guangdong, prepared by GPFC (revised draft), September1995.

9. Traffic Engineering System for Xiaotang-Gantang Expressway of Jingzhu NationalTrunk Highway within Guangdong, Preliminary Design prepared by GPFC and HRIof MOC in Beijing, November 1995.

10. Traffic Engineering Design for Xiangtan-Leiyang Expressway of Jingzhu NationalTrunk Highway within Hunan prepared by China Highway Engineering Consulting& Supervising Corporation, March 1995.

-128 - ANNEX7

11. Letter of Invitation and Terms of Reference for Consulting Services for ConstructionSupervision, GPFC, May 1995.

12. Technical Characteristics of the Main Components (Hunan Section).

13. Technical Characteristics of the Main Components (Guangdong Section.)

EQUIPMENT

1. Plan of Equipment Purchasing for National Highway Project 2 for Hunan, May1996;

2. Contract List of Equipment Purchasing for National Highway Project 2 forGuangdong, May 1996.

ENVIRONMENTAL DOCUMENTS

1. Environmental Impact Assessment for Xiaotang-Gantang Expressway in GuangdongProvince, prepared by the Guangdong Provincial Freeway Company, December1995.

2. Environmental Assessment Summary for Xiaotang-Gantang Expressway inGuangdong Province, December 1995.

3. Environmental Action Plan for Xiaotang-Gantang Expressway in GuangdongProvince, December 1995.

4. Environmental Impact Assessment Report for Xiangtan-Leiyang Expressway inHunan (2nd revised version), prepared by Highway Research Institute, the Ministryof Communications, Beijing, December 1995.

5. Environmental Assessment Summary for Xiangtan-Leiyang Expressway in Hunan,(2nd revised version), prepared by Highway Research Institute, the Ministry ofCommunications, Beijing, December 1995.

6. Environmental Action Plan for Xiangtan-Leiyang Expressway in Hunan (2nd revisedversion), prepared by Highway Research Institute, the Ministry of Communications,Beijing, December 1995.

7. Environmental Impact Assessment Report for Zhuzhou-Xiangtan Connecting Road(Zhuzhou Tiantaishan-Xiangtan Yishue Highway) in Hunan (revised version),December 1995.

8. Environmental Action Plan for Zhuzhou-Xiangtan Connecting Road (ZhuzhouTiantaishan-Xiangtan Yishue Highway) in Hunan (revised version), December 1995.

-129 - ANNEX7

9. Environmental Impact Assessment Report for Loudi-Lianyuan Class II Auto-onlyHighway in Hunan (revised version), December 1995.

10. Environmental Action Plan for Loudi-Lianyuan Class II Auto-only Highway inHunan (revised version), December 1995.

RESETTLEMENT DOCUMENTS

1. Guangdong-Hunan Expressway Corridor Project (National Highways II), HunanSection Resettlement Action Plan, Hunan Academy of Social Science andResettlement Office of Hunan Provincial Xiangtan-Leiyang Expressway, January1996.

2. Resettlement Action Plan (Loudi-Lianyuan Highway), Hunan Academy of SocialScience and Resettlement Office of Hunan Provincial Xiangtan-LeiyangExpressway, January 1996.

3. Social Economic Survey Outline, Hunan Academy of Social Science andResettlement Office of Hunan Provincial Expressway Construction andDevelopment Corporation, January 1996.

4. Training Plan for Resettlement Staff, Hunan Academy of Social Science andResettlement Office of Hunan Provincial Xiangtan-Leiyang Expressway, January1996.

5. Guangdong Province, Xiaotang-Gatang Expressway, Resettlement Action Plan,Guangdong Provincial Freeway Company, January 1996.

6. National Highway II Project: TOR for the Independent Monitoring on Resettlement,Xiaotang-Gatang Expressway in Guangdong Province, Guangdong ProvinceFreeway Company, December 1995.

TECHNICAL ASSISTANCE/TRAINING/STUDIES

1. Terms of Reference for Expressway Commercialization and Corporatization Study,in Hunan, October 1996.

2. Terms of Reference for Hunan Highway Maintenance Study, October 1996.

3. Terms of Reference for Traffic Safety Study of National Road 107, in Hunan, August1996.

4. Terms of Reference for Training including Training Program, in Hunan, June 1996.

5. Terms of Reference for Environmental Monitoring during Construction andOperation, in Hunan, November 1996.

-130 - ANNEX7

6. Terms of Reference for Monitoring Resettlement, in Hunan, November 1996.

7. Terms of Reference for Study on Transport and Economic Integration, inGuangdong, October 1996.

8. Terms of Reference for Study on Expressway Safety, in Guangdong, August 1996.

9. Overall Training Program, in Guangdong, October 1996.

10. Terms of Reference for Environmental Monitoring during Construction andOperation, in Guangdong, November 1996.

11. Terms of Reference for Monitoring Resettlement, in Guangdong, November 1996.

12. Institutional Strengthening and Training Report, GPCD, October 1995.

13. Institutional Strengthening and Training Program, HPCD, October 1995.

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I ~~~~~~~~~~~~~~~National Highoiny, III, Doom H .... g, 1 25 kni,

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a.tion k" 5 o 2{ ( .,' Ikin, Propasad loru, ,.nsr ill,

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World Bank financing

4 > egsngzho , ; _ > ;J- :- I 4ngiIian 180Go kor,-Gprapo hod l uI4 r e cnanO ruO lion 0010

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Inlcnrm. I ,5t consliacliori, Jani. Bank fang

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h LE~~~~~ ~~~~~ITIANG P,Frpased Wnlcrea-strali.., da..a,. noJ.t i6afd

Fi hosb-Kaiping, 00 kin, cnd.r

-~~~~~~~~~~~ ~~~~~INSET A -asrolanml World Bank fin....ing

MONGOLIA 7

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m~~~~~~~~~~~~~~~~~' A.-i rurSn

DONGTIAN lllIN~~~~~~~~~~~~~~~~rU4AN & 6

i ¼,tC~l l

61? 104140540) DEM ( ~China S.a, tllFlE

IMAGING

Report No: 15428 CHA

Type: SAR