The World Bank

Document of The World Bank

Public Disclosure Authorized Report No:ICR000047

IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IBRD-46080 )

ON A

LOAN

Public Disclosure Authorized IN THE AMOUNT OF US$145.2 MILLION

PEOPLE’S REPUBLIC OF CHINA

FOR

SECOND JIANGXI HIGHWAY PROJECT

June 26, 2007 Public Disclosure Authorized

Transport, Energy and Mining Sector Unit Sustainable Development Department East Asia and Pacific Region

Public Disclosure Authorized

CURRENCY EQUIVALENTS ( Exchange Rate Effective December 31, 2006 ) Currency Unit = RMB RMB 1.00 = US$0.128 US$1.00 = RMB 7.809

Fiscal Year January 1 - December 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance Strategy E&M Electrical and Mechanical EAP Environmental Action Plan EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return ENPV Economic Net Present Value FIRR Financial Internal Rate of Return FNPV Financial Net Present Value GOVIA Gross Output Value of Industry and Agriculture ICR Implementation Completion and Results Report ISR Implementation Status and Results JPCD Jiangxi Provincial Communications Department m Million M&E Monitoring and Evaluation MOC Ministry of Communications NEN National Express Network (new name for the NTHS) NTHS National Trunk Highway System PAD Project Appraisal Document PAP Project Affected Persons PCD Provincial Communications Department PDO Project Development Objectives QEA Quality at Entry QSA Quality of Supervision PMO Project Management Office RAP Resettlement Action Plan RIPC Road Improvement in the Poor Counties RMB Renminbi (Chinese Yuan) TGE Taihe-Ganzhou Expressway

Vice President: James W. Adams, EAPVP Country Director: David R. Dollar, EACCF Sector Manager: Junhui Wu, EASTE Project Team Leader: Christopher R. Bennett, EASTE ICR Team Leader: Christopher R. Bennett, EASTE

China Second Jiangxi Highway Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 5 3. Assessment of Outcomes...... 10 4. Assessment of Risk to Development Outcome ...... 18 5. Assessment of Bank and Borrower Performance...... 19 6. Lessons Learned ...... 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 24 Annex 1. Project Costs and Financing...... 25 Annex 2. Outputs by Component ...... 26 Annex 3. Economic and Financial Analysis...... 28 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 35 Annex 5. Beneficiary Survey Results...... 37 Annex 6. Stakeholder Workshop Report and Results ...... 38 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR...... 39 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders...... 44 Annex 9. List of Supporting Documents...... 45 MAP IBRD 31244R

A. Basic Information Second Jiangxi Country: China Project Name: Highway Project Project ID: P058845 L/C/TF Number(s): IBRD-46080 ICR Date: 06/26/2007 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: SIL Borrower: OF CHINA Original Total USD 200.0M Disbursed Amount: USD 145.2M Commitment: Environmental Category: A Implementing Agencies: Jiangxi Provincial Communications Department Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 06/07/2000 Effectiveness: 03/18/2002 03/18/2002 Appraisal: 03/16/2001 Restructuring(s): Approval: 06/05/2001 Mid-term Review: Closing: 12/31/2006 12/31/2006

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Moderately Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Satisfactory Performance: Performance:

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project No Quality at Entry None

i at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status:

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Roads and highways 99 99 Sub-national government administration 1 1

Theme Code (Primary/Secondary) Access to urban services and housing Secondary Secondary Municipal governance and institution building Primary Primary Other financial and private sector development Secondary Secondary Rural services and infrastructure Primary Primary

E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jemal-ud-din Kassum Country Director: David R. Dollar Yukon Huang Sector Manager: Junhui Wu Jitendra N. Bajpai Project Team Leader: Christopher R. Bennett Yasuhiro Kawabata ICR Team Leader: Christopher R. Bennett ICR Primary Author: Jacques G. Yenny

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The project aimed to provide more efficient, safe and effective transport infrastructure in support of social and economic development in Jiangxi Province. To meet the above development objective, the project was to produce the following outputs: (a) traffic congestion relieved and mobility increased in the Nanchang-Shenzhen transport corridor; (b) accessibility to low-income areas in the province improved; (c) safety of road transport improved; and (d) institutional capacity of the Jiangxi Provincial Communications Department (JPCD) and related sector institutions strengthened.

Revised Project Development Objectives (as approved by original approving authority) The PDO and Key Indicators were not revised.

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Time reduction on inter-provincial trips via a more efficient highway Value quantitative or 0 140 min 140 min Qualitative) Date achieved 12/31/2000 12/31/2005 12/31/2006 Comments The opening of the TGE contributed towards a significant reduction in inter- (incl. % provincial travel times. achievement) Average daily traffic on TGE (veh/day) (1) Taihe-Suichuan Indicator 2 : (2) Suichuan-Tangcun (3) Tangcun-Tankou Value (1) 0 (1) 7,366 (1) 6,409 quantitative or (2) 0 (2) 6,103 (2) 6,513 Qualitative) (3) 0 (3) 10,838 (3) 8,893 Date achieved 12/31/2000 12/31/2005 12/31/2006 Comments Inconsistencies in the PAD traffic data made it necessary to adjust the original (incl. % target values. It is therefore impossible to say with any confidence how close the achievement) actual is to the target. Average daily traffic on existing NH 105 (veh/day) (1) Taihe-Suichuan Indicator 3 : (2) Suichuan-Tangcun (3) Tangcun-Tankou Value (1) 7,000 (1) 3,333 (1) 2,174 quantitative or (2) 5,800 (2) 2,761 (2) 1,642 Qualitative) (3) 10,300 (3) 4,904 (3) 2,916 Date achieved 12/31/2000 12/31/2005 12/31/2006 Comments Inconsistencies in the PAD traffic data made it necessary to adjust the original (incl. % target values. It is therefore impossible to say with any confidence how close the achievement) actual is to the target. Average daily traffic on RIPC (veh/day) (1) Suichuan-Cheziao Indicator 4 : (2) Yu Tian-Xingjiang (3) Shashibu-Wangmodu (4) Tanjiang-Tangshan (1) 2,000 (1) 3,200 (1) 2,500 Value (2) 570 (2) 800 (2) 700 quantitative or (3) 760 (3) 2,000 (3) 1,900 Qualitative) (4) 940 (4) 1,600 (4) 1,200 Date achieved 12/31/2000 12/31/2005 12/31/2006 Comments The traffic increased on all the roads, but fell short of the target values. Except on (incl. % Shashibu-Wangmodu road, where the increase was 150% vs the expected 163%,

iii achievement) the increases were 23 – 28%, versus the expected 40 – 70%. Number of days roads are closed to traffic reduced (1) Suichuan-Cheziao Indicator 5 : (2) Yu Tian-Xingjiang (3) Shashibu-Wangmodu (4) Tanjiang-Tangshan (1) 0 (1) 0 (1) 0 Value (2) 30 (2) 15 (2) 15 quantitative or (3) 20 (3) 10 (3) 10 Qualitative) (4) 0 (4) 0 (4) 0 Date achieved 12/31/2000 12/31/2005 12/31/2006 Comments The Yu Tian-Xingjiang and Shashibu-Wangmodu roads both enjoy half the (incl. % number of days closed to traffic over the baseline period, meeting the project’s achievement) target values. Accident rates on existing NH105 reduced (accidents/km) (1) Taihe-Suichuan Indicator 6 : (2) Suichuan-Tangcun (3) Tancun-Tankou Value (1) 1.6 (1) 1.3 (1) 0.8 quantitative or (2) 3.7 (2) 2.5 (2) 1.0 Qualitative) (3) 2.3 (3) 1.8 (3) 0.8 Date achieved 12/31/2000 12/31/2005 12/31/2006 Comments (incl. % The accident rates are lower than the target values. achievement) GOVIA in the project influence areas (1) Taihe county Indicator 7 : (2) Wan'an county (3) Suichuan county (4) Nankan city (1) 4,644 (1) 6,514 (1) 6,912 Value (2) 452 (2) 634 (2) 2,614 quantitative or (3) 761 (3) 871 (3) 2,150 Qualitative) (4) 1,170 (4) 1,641 (3) 2,570 Date achieved 12/31/2000 12/31/2005 12/31/2006 Comments The GOVIA in all project areas increased, most dramatically for Wan’an and (incl. % Suichuan counties. However, it is impossible to confirm what portion of this was achievement) due to the project as opposed to the general development in Jiangxi.

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Routine maintenance work by independent companies (%) Value (quantitative 0 10 10 or Qualitative)

iv Date achieved 12/31/2000 12/31/2006 12/31/2006 Comments Two pilot maintenance companies were established in Nanchang and Yichun (incl. % cities. Their performance is being monitored to confirm the strategy for future achievement) expansion. Indicator 2 : Tonnage of goods transported to coastal provinces (1000 ton/yr) Value (quantitative 122 197 262 or Qualitative) Date achieved 12/31/2000 12/31/2006 12/31/2006 Comments The significant increase in tonnage of goods transported to coastal provinces (incl. % reflects the growing importance of the expressway network in intra-provincial achievement) trade. Indicator 3 : Taihe-Ganzhou Expressway: % of civil works completed Value (quantitative 0% 100% 100% or Qualitative) Date achieved 12/31/2000 12/31/2006 12/31/2004 Comments (incl. % achievement) Indicator 4 : Local Roads: % of highways improved/rehabilitated under RIPC Value (quantitative 0% 100% 100% or Qualitative) Date achieved 12/31/2000 12/31/2006 12/31/2005 Comments (incl. % achievement) Indicator 5 : Highway Safety: % of improved black spots Value (quantitative 0% 100% 100% or Qualitative) Date achieved 12/31/2000 12/31/2006 12/31/2006 Comments (incl. % achievement) Indicator 6 : Training: Number of person-months of completed training Value (quantitative 0 m-m 372 m-m 384 m-m or Qualitative) Date achieved 12/31/2000 12/31/2006 12/31/2006 Comments (incl. % achievement) Institutional Strengthening Studies: Study on the establishment of maintenance Indicator 7 : centers Value 0% 100% 100% (quantitative

v or Qualitative) Date achieved 12/31/2000 12/31/2006 12/31/2006 Comments (incl. % achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/27/2001 Satisfactory Satisfactory 0.00 2 12/10/2001 Satisfactory Satisfactory 0.00 3 03/18/2002 Satisfactory Satisfactory 0.00 4 12/12/2002 Satisfactory Satisfactory 22.86 5 05/06/2003 Satisfactory Satisfactory 38.77 6 10/02/2003 Satisfactory Satisfactory 52.64 7 04/26/2004 Satisfactory Satisfactory 72.80 8 09/09/2004 Satisfactory Satisfactory 88.09 9 05/06/2005 Satisfactory Satisfactory 111.28 10 12/02/2005 Satisfactory Satisfactory 115.18 11 06/12/2006 Satisfactory Satisfactory 118.73 12 12/04/2006 Satisfactory Satisfactory 138.77

H. Restructuring (if any) Not Applicable

vi I. Disbursement Profile

vii 1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

At appraisal, China was growing at 8 to 10% p.a. and continues to do so now. This strong economic growth generated high growth in transport demand and also a rapid shift towards highway transport. Due to its historical underinvestment in transport, China’s road network ranked, and still is, among the sparsest in the world relative to land area or population. This created a need to significantly enhance the road infrastructure to support the economic growth.

During the period of the 8th, 9th and 10th Five-Year Plans (FYP), covering the years 1990 through 2005, China completed nearly 41,000 km of high-grade tolled expressways comprising the National Trunk Highway System (NTHS), or as it is now called, the National Expressway Network (NEN). The second Jiangxi Highway Project formed a key part of the NEN, as a section of the Beijing-Nanchang-Shenzhen corridor. During this period approximately 400,000 km of local and township roads were also improved. This was done by investing upwards of US$40 billion per year, the bulk of which was on the NEN. At the same time, the Government intensified policy and regulatory reforms1.

Sector work carried out in years prior to the project, together with several highway policy seminars, identified five main challenges in the sector, as follows:

• building sector institutions (including for the critical issue of road safety); • strengthening resource mobilization; • enhancing access to remote/low income areas; • sustaining road maintenance; and • improving construction quality.

The sector issues to be addressed by the project were: expansion of highway capacity, relieving poverty, improving highway safety, developing institutional capacity, and improving highway maintenance.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

The project’s development objective was to provide more efficient, safe and effective transport infrastructure in support of social and economic development in Jiangxi Province.

The project was to help stimulate social and economic development, reduce poverty and thus decrease disparities within the region. This would be done through the following

1 See “China’s Expressways: Connecting People and Markets for Equitable Development”. EASTR Working Paper No. 7, August 2006 for further details on the NEN development.

1 outputs: (i) traffic congestion relieved and mobility increased in the Nanchang-Shenzhen transport corridor; (ii) accessibility to low-income areas in the province improved; (iii) safety of road transport improved; and (iv) institutional capacity of the Jiangxi Provincial Communications Department (JPCD) and related sector institutions strengthened.

A number of key indicators for the project were established and are in the Data Sheet, Section F. The main indicators were: (i) travel time reduction in the Taihe-Ganzhou corridor; (ii) average daily traffic on new expressway and existing national road (NH105); (iii) average daily traffic on rural roads in affected areas; (iv) number of days that rural roads in low-income areas were closed to traffic; (v) number of traffic accidents on NH105 (fatalities and serious injuries) reduced; and (vi) increase in the Gross Output Value of Industry and Agriculture (GOVIA) in the project area.

1.3 Revised PDO and Key Indicators (as approved by original approving authority), and reasons/justification

The PDO and Key Indicators were not revised.

1.4 Main Beneficiaries

The major beneficiaries of the project were:

• The communities along the expressway corridor and the local communities and road users in the areas of the local road improvement program. Out of the seven counties in the project influence area, four were designated as poor counties. The population of the seven counties was 3.3 million, or 7.8% of Jiangxi’s total. Most of the province’s poor live in the region. • The intercity traffic between cities in the corridor and beyond through reduced distances, travel time savings, vehicle operating costs, and reduced traffic accidents. • The JPCD and related institutions from institutional strengthening and training activities covered by the project.

1.5 Original Components (as approved)

A. Highway Capacity Expansion: (US$447.2 million including contingencies)

Construction of Taihe-Ganzhou Expressway (TGE): (US$396.8 million including contingencies)

The Taihe-Ganzhou Expressway (TGE) was the project’s main investment. The 128 km expressway formed part of the Beijing-Nanchang-Shenzhen expressway. It serves Ganzhou, the second largest city in Jiangxi. The TGE was designed according to the Ministry of Communications (MOC) standards, with 2 x 2 lanes, a design speed of 100 km/h, and a subgrade width of 26 m. It included two long tunnels totaling 3,320 m, four interchanges, four toll stations, two service areas and two rest areas. It includes one management and maintenance centre near Ganzhou and two monitoring centers. The cost above includes all civil works, buildings, and electrical and mechanical (E&M) equipment.

Construction of Interconnecting Roads: (US$33.2 million including contingencies)

Three Class 2 interconnecting roads totaling 49 km linking the TGE to Wan’an, Suichuan and Ganzhou, and thus to the local highway network in southern Jiangxi.

Construction Supervision: (US$9.6 million including contingencies)

A combined team of local engineers, technicians and other personnel, supported by international engineers integrated into the supervisory organization.

Equipment: (US$7.6 million including contingencies)

Procurement of equipment to: (i) maintain national and provincial highways; (ii) support laboratories and quality control work; and (iii) strengthen the JPCD and its relevant agencies and institutions.

B. Road Improvement in the Poor Counties (RIPC): (US$39.4 million including contingencies)

This component was designed to help people in poor counties increase their incomes by improving road access to product markets, employment opportunities, social services and facilities. The program included roads totaling about 180 km in length, of which 81 km will be upgraded to Class II and 99 km to Class III.

C. Highway Safety: (US$2.3 million including contingencies)

The highway safety component was designed to help reduce Jiangxi’s accident rate. The component included several activities: (i) road safety at roadwork sites; (ii) road safety audit checklists; (iii) a pilot project on the identification and remedy of hazardous locations (i.e. black spots); and (iv) highway safety seminars.

D. Institutional Development: (US$2.5 million including contingencies)

The strategic objectives of the institutional development were to restructure the institutional framework of the JPCD so that it would be able to respond rapidly to the changing economic and competitive environment in China. This was done through: (i) domestic and international training; (ii) organizational changes to improve traffic safety activities; (iii) executing a pilot study to establish ‘maintenance centers’ to undertake maintenance on a commercial basis; and (iv) procuring equipment for institutional strengthening, environmental protection, and road maintenance.

E. Land Acquisition and Resettlement: (US$31.7 million)

This consisted of establishing the framework for resettlement and undertaking all resettlement activities for the TGE, the interconnecting roads, and the 182 km of local roads. This component was financed by the borrower.

1.6 Revised Components

There were three revisions made to the project components:

• The Ganzhou interconnecting road was cancelled. It was replaced by a new expressway section, locally financed. It was considered that an 11 km expressway section would serve Ganzhou better than the original Class II road since it would also ultimately form part of the Xiamen-Chengdu expressway. • Two additional interchanges were added to the project at the request of county authorities to improve the access of local people to the expressway: Wan’an and Hengshi. These were financed entirely with domestic funds; and • One rest area was not completed because it was interfering with the new Wan’an interchange. It was also not needed because without it there were still reasonable distances between the other rest and annex areas along the expressway.

1.7 Other significant changes

In 2004 the JPCD cancelled US$54.77 from Part A.1 (a) of the loan as the main civil works on the expressway were complete and it was considered that the funds were not required.

In 2006 after a final reconciliation of the accounts for the project there was an unpaid sum of US$18.75 m on the civil works component. The financing percentage for civil works under Part A.1 (a) was increased from 44% to 91% to use the remaining loan funds.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

A. Project Preparation

The project objectives were fully consistent with the Government’s priorities and the Country Assistance Strategy (CAS). The major objectives of the CAS were to support growth and assist in poverty reduction and better governance (see Section 3.1). These objectives were clearly supported by the project (see Section 1). The project also had strong support from central as well as provincial agencies. The local governments and people met by Bank preparation missions also expressed their full support and emphasized the need for the project to accelerate development of the area. A remaining section to the Guangdong border, south of the project, which was the last gap in the Nanchang-Shenzhen corridor, was programmed for implementation in the 10th FYP and subsequently completed. The JPCD also showed strong ownership of the poverty alleviation objective through their commitment to the RIPC.

The technical analyses undertaken during project identification and preparation were sound. The project was designed taking into account the relevant economic, financial, technical and institutional factors. Detailed expressway traffic forecasts were developed on the basis of origin-destination surveys and the expected tolls that would be charged on the expressway, although there are inconsistencies in the traffic figures in the Project Appraisal Document (PAD) between Annexes 1-1 and 4, which should have been corrected as part of the quality review. The actual traffic diversion rate is higher than anticipated; although the traffic flows are lower (see Annex 3).

The Bank’s comments and recommendations during preparation were taken into account by the JPCD. Engineering designs prepared by Jiangxi province were reviewed by a domestic design institute in Wuhan and also by a foreign consultant financed by a Spanish Trust Fund. Sufficient geological investigations were done to avoid major problems during construction, which had been experienced in other expressway projects in China. This was particularly important because the mountainous areas traversed by the proposed road required long tunnels and bridges.

Safeguard Policies. An Environmental Impact Assessment (EIA) and Environmental Action Plan (EAP) were prepared for the expressway and the other roads included in the project. They were found satisfactory to the Bank. The major impacts of the project expected during the construction period were noise, soil erosion and dust. Lesser impacts included interference with local people, traffic, and irrigation systems. Proper mitigation measures were included in the EAP. Regarding resettlement, the project design paid particular attention to minimize the impact on agricultural land and on communities along the alignment. To achieve these goals, the resettlement and environment teams of the project carried out public consultation and held public participation meetings at various locations in cooperation with the Social Assessment Unit of the JPCD. These consultations resulted in modifications to the project alignment in several places to

5 reduce the impact of relocation and adverse environmental effect on the communities along the route. Socioeconomic surveys of the people and communities were conducted together with census of Project Affected Persons (PAPs) and their assets. Satisfactory Resettlement Action Plans (RAP) were prepared. Local people were intensively informed through radio and television about the availability of documents related to their resettlement rights.

B. Project Design

The project design was sound and reflected lessons learned on other projects in China. The following key issues were addressed: (i) the selection of an optimal alignment, to avoid and minimize impacts on villages and communities along the alignment; (ii) minimization of the use of agricultural land; (iii) avoidance of cultural relic sites and unstable geological terrain; (iv) adequate public consultation; and (v) integration of the proposed environmental mitigation measures in the Environmental Action Plan (EAP) into the design.

The importance of selecting the optimal alignment cannot be overemphasized. The selected alignment will govern the impact on the environment and resettlement and the preparation team worked closely with the project designers to establish an appropriate alignment. The final selected alignment minimized the loss of agriculture land and loss of residences; minimized the impacts and disruptions to the livelihood and day-to-day activities of the affected people and communities, and decreased the potential risks of landslides and erosion in the mountain areas. It also avoided disturbing cultural heritage sites.

C. Quality at Entry

There was no Quality at Entry rating by QAG for the project.

D. Project Risks

All risks in the PAD were identified as negligible (N) or modest (M) and the overall risk was modest. This was based on the previous experience in the province and the commitment to implementing similar projects in China. The key risks, and how they were addressed in the design, were as follows:

• Inaccurate engineering designs (N): Review by international experts at an early stage of the project. • Selection of incompetent contractors (M): Minimized through careful pre- qualification of contractors; and • Inadequate quality of construction (M): The design called for this to be minimized through careful contractor selection and adequate supervision arrangements.

6 However, as described in Section 2.5, problems found when the expressway became operational with both the designs and construction quality show that the risks were: (i) underestimated and/or, (ii) the mitigation measures adopted were inadequate.

2.2 Implementation

The project was successful in that it met the project development objective of providing more efficient, safe and effective transport infrastructure in support of the social and economic development of Jiangxi Province. The TGE carries significant volumes of long-distance truck traffic with markedly reduced travel times, there have been diversions from the existing roads thereby improving safety, local roads are closed less often, and the TGE and RIPC areas of influence have experienced an increase economic development as evidenced by significant increases in the GOVIA. The JPCD have benefited from the institutional development program.

However, these achievements were made in spite of a number of issues which arose during implementation:

• Speed of Construction: The expressway component completed almost one year ahead of schedule. This undoubtedly contributed towards some of the quality problems encountered after the expressway became operational (see Section 2.5). The MOC has now instituted regulations prohibiting reductions in the construction schedule. • Additional Interchanges: Two additional interchanges were implemented during construction, financed domestically. These, and the associated interconnecting roads, did not have the same reviews (see comments below on supervision) and quality issues arose with the design and construction. • Domestic and Foreign Supervision: During implementation the domestic and foreign supervision consultant’s work was sub-standard. For example, designs were not modified when it was found that the site conditions did not match those upon which the designs were based (eg when the embankment was higher than the design the slope protection should be extended). Design changes were not properly checked (eg a dangerous interchange was constructed at Hengshi which had to be retrofitted with a roundabout to resolve traffic conflicts after the expressway opened). • Bank Supervision: The Bank supervision was lacking during implementation. The Bank team did not carefully review all the designs being implemented. Bank missions did not regularly visit the site for extended periods of time. During SARS missions were cancelled as opposed to being postponed which led to an excessive interval between missions during the key construction period. • Equipment Procurement: The Bank recommended certain packaging for the equipment procurement. This unfortunately proved to be difficult since it called for different types of equipment from a number of different suppliers, sometimes competitors, to be in a single package.

7 These implementation issues meant that significant efforts were required during the post- completion/operating phases (see Section 2.5).

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

The project design adopted a series of physical targets for measuring progress. The M&E indicators were selected where the data was available or could be reasonably collected. In hindsight, better indicators could have been selected. Baseline, intermediate and end of project indicators were collected during the project by the JPCD and provided to the Bank. Unfortunately, differences in the traffic figures in the PAD between Annexes 1-1 and 4 made it impossible to confirm the correct target values for the TGE and NH105. Consensus values were agreed with the JPCD based on their original work and these have been used in this ICR. In spite of the above issue with traffic data, the M&E indicators have allowed for the project’s success to be confirmed.

2.4 Safeguard and Fiduciary Compliance

Environmental Protection

Monitoring of air, water and noise pollution found levels within the contractual limits. Some environmental problems were noted during construction. These deficiencies were pointed out repeatedly by the Bank’s missions and there were gradual improvements, particularly in the sanitation and cleanliness of the worker’s camps. Areas of disposed material were eventually landscaped, although some contractors demobilized without properly reinstating all borrow areas. After opening the JPCD showed a strong commitment towards ensuring environmental issues were rectified. After making the improvements agreed to with the Bank (Section 5.1), the finished product shows a pleasant overall environment and all critical issues have been satisfactorily resolved.

Land Acquisition and Resettlement

As shown in the table below, the total land area acquired was 1,077.1 ha, 7% higher than estimated in the RAP. The area of houses was 246,071 m2, only 2.5% higher than the RAP estimate. It should be noted that a reduction in the house area associated with the refinement of the expressway alignment was offset by an increase in house area due to the decision to widen the RIPC road.

Land Area (ha) House Area (m2) Component RAP Actual RAP Actual TGE – Main alignment 747.9 805.8 129,335 94,370 TGE - Interconnecting Roads 93.1 72.5 43,353 42,074 RIPC 163.6 198.9 67,167 109,628 Total 1,004.6 1,077.1 240,044 246,071

Given their previous experience with Bank requirements, the province was well prepared and resettlement activities proceeded relatively smoothly. There was full information

8 disclosure and transparency. The compensation rates, quantities and compensation costs were made public. The compensation was paid through bank accounts to every impacted household in order to guarantee the PAPs received the funds promptly and in full accordance with the compensation rates stipulated in RAP. The work was audited by both the government and an independent consultant.

There were 11,882 PAPs (see below). During the project only 17 complaints were received due to issues with: (i) design and location of structures; (ii) delays in payments; (iii) temporary traffic disruptions; (iv) damage to local roads; and (iv) land use for works outside of right-of-way. All were addressed by the JPCD and resolved in a satisfactory manner.

Number of Compensation Number of PAPs Component Households (US$ m) RAP Actual RAP Actual RAP1/ Actual TGE – Main alignment 913 1,093 3,718 4,435 20.8 23.0 TGE – Interconnecting 387 556 1,697 2,232 5.0 6.3 Roads RIPC 849 1,325 4,694 5,215 5.9 8.2 Total 2,149 2,974 10,109 11,882 31.7 37.6

Note: 1/ The PAD and the legal agreements have an estimate of US$42.3 m. However, this was from an earlier version of the PAD. The correct value should have been US$31.7 m.

Financial Management

The Financial Management for the project was conducted in accordance with the arrangements agreed upon in the legal agreements. The project found it most effective when the Financial Management and Procurement specialists conducted joint missions as these helped detect issues and mitigate fiduciary risk. The client showed a good grasp of financial management by canceling part of the loan when it became apparent that the funds would not be required, and then modifying the loan agreement prior to the loan closing so as to use remaining undisbursed funds.

Procurement

The full range of procurement methods were used on the project (see Annex 6 of the PAD). The civil works, E&M and equipment components were procured using ICB, and this constituted the bulk of the procurements. The JPCD used tendering agencies to prepare the bidding documents and undertake the bidding.

An issue arose with the procurement of bitumen for the expressway component. Irregularities were found with the way in which the bitumen was procured, although it was done using common practice in China and on Bank projects in other provinces. A review was done in 2006 of how bitumen was procured on the Bank’s transport projects in China and all clients informed of the appropriate approach to use.

2.5 Post-completion Operation/Next Phase

Since its opening in 2004 the expressway and the local roads have been successfully carrying traffic. The High Class Highway Administration Bureau under the JPCD is responsible for the day-to-day management, operations and maintenance of the expressway.

A number of post-construction quality issues arose with the expressway component which required additional works to be undertaken. Some of these were likely due to the accelerated construction schedule. The Bank and the JPCD agreed on an action plan which addressed the issues including: (i) construction of a roundabout at the Hengshi interchange to remedy a dangerous design; (ii) resurfacing of the pavement to eliminate water intrusion—a problem caused by the asphalt specification used in the project which has since been withdrawn by the MOC; (iii) traffic safety improvements such as improved guardrails and protection for drains; (iv) repairs to, and extension of, noise barriers; (v) improvements to side slope protection; and (vi) restoration of borrow areas.

The JPCD withheld funds from the contractors to cover the costs of remedial actions. An action plan was agreed upon with the Bank and implemented by the JPCD. By 2006 the problems had largely been rectified and the expressway was of an appropriate standard in all areas.

The JPCD have used the equipment procured on the project to maintain the expressway and are maintaining the pavement and roadside areas to a high standard.

The JPCD have indicated that the revenue from the tolls collected in the province is sufficient to cover the ongoing maintenance costs for the expressways. The recent adoption of higher weight based tolls will partially address the problem, but they are unlikely to fully recover the damage done to the pavement from overloading. Jiangxi— and China as a whole—needs to implement rigorous overloading enforcement policies.

The training received on the project was put to good use in the preparation of the Jiangxi III highway project in 2005/6. The time from identification to appraisal was less than 11 months which was very fast for an expressway project in China.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

The Government of China has continued to place importance on the development of the National Expressway Network (NEN). During the current 11th Five-Year Program (FYP) and upcoming 12th and 13th FYPs, a further 45,000 km of the NEN are planned to be

10 constructed. Central provinces such as Jiangxi are considered to be particularly important since road investments here provides both a push and a pull effect on the adjacent western and eastern provinces which results in the best overall net economic effect. While investment in the eastern and western provinces tends to stay local, investment in the central provinces benefits all regions. The focus is now on completing network connectivity—which the TGE is an important contributor to as part of the Beijing- Nanchang-Shenzhen corridor.

The development objectives are in line with the Bank’s FY06-10 Country Partnership Strategies (CPS), in particular in its recommendations to: (i) reduce internal and external barriers to trade and investment; (ii) reduce poverty, inequality and social exclusion through expanding access to basic social and infrastructure services; and (iii) manage resource scarcity and environmental challenges. These were addressed by the following goals of the project:

• contribution to growth through removal of highway bottlenecks to facilitate inter- provincial trade and commerce and improve regional and national integration; • contribution to poverty reduction through improved accessibility in low income counties in southern Jiangxi; • better governance through improved highway maintenance management; and • social improvement through improved traffic safety, minimized environmental impact of construction, and adequate resettlement program.

3.2 Achievement of Project Development Objectives

The project aimed to provide more efficient, safe and effective transport infrastructure in support of social and economic development of Jiangxi Province. The project outcome is rated as satisfactory based on its having achieved satisfactory outcomes on most components of the project. The completion of the TGE provided a high-speed, reliable link between Nanchang and Shenzhen. This reduced both the distances and travel times for road transport traveling in the Beijing-Nanchang-Shenzhen corridor. Since expressways are generally safer than local roads, this improved the traffic safety by diverting traffic from local roads, thereby lowering the accident rates on local roads, and by increasing travel on safer roads. Road closures were reduced on local roads. The areas served by the TGE and the RIPC component saw a reduction in poverty and an increase in social and economic development but, as described below, these are likely not entirely due to the project’s investments.

A. Traffic congestion relieved and mobility increased in the Nanchang-Shenzhen transport corridor

The TGE was opened in January 2004, about one year early, together with the interconnecting roads. The E&M equipment was fully functional within six months of the expressway opening.

11 The objective of reducing congestion on the parallel national road was met. In 2005 the TGE was carrying 5% of the total corridor traffic; compared with 69% using traffic data from the PAD (see ICR Annex 3)2. Travel time in the corridor was also considerably reduced. With completion of this link, the land-locked province of Jiangxi now has rapid access to the southern port of Shenzhen.

The economic benefits of the project are considered sustainable, without any appreciable risk, as traffic has been growing steadily since opening.

B. Accessibility to low-income areas in the province improved and poverty reduced

About 182 km of roads were improved in poor counties in the south of the province. The roads were paved and road closures due to bad weather have been virtually eliminated, except in exceptional cases of flooding and landslides. Accessibility to services has been enhanced and the income of the people increased. The proxy measure used for poverty reduction in the key performance indicators of the PAD is the Gross Output Value of Industry and Agriculture (GOVIA). In the two poor counties (Wan’an and Suichuan) covered by the indicators (see ICR Data Sheet, Section F), the GOVIA increased by 5.8 times and 2.6 times respectively from 2000 to 2006. This was much faster than for the province as a whole, for which GOVIA about doubled in the same period. It should be noted that during this time the province had very high rates of economic development— the GDP increased by 16% (2002/3); 23% (2003/4) and 16% (2004/5) so it is very difficult to isolate the economic benefits due to the road investments from the overall economic development.

C. Safety of road transport improved

The province has made significant progress in this area.

The accident rate on the national road adjacent to the TGE has fallen below the target set in the performance indicators of the PAD (see ICR Data Sheet, Section F).

All the manuals listed in the PAD were prepared and widely distributed, together with training of staff and workers at construction and maintenance sites. A safety audit checklist was also prepared and distributed. The pilot black spot program on an existing section of expressway was completed. As the province is in the process of upgrading many roads to deal with the increasing traffic through widening, pavement improvement and realignment, many existing black spots are being eliminated.

2 As described in ICR Annex 5, anomalies and inconsistencies in the PAD traffic data make it impossible to compare the forecast versus actual traffic with any certainty. Assuming the 2000 corridor traffic was 6,723 veh/day, the assumptions in the PAD suggest the 2005 corridor traffic would be 10,276 veh/day. This compares with 8,773 veh/day observed in the corridor, suggesting that the existing traffic is 15% lower than expected.

12 Two road safety seminars were organized in 2002 and 2004. The first one lasted two days and was attended by about 100 persons from the JPCD, the Jiangxi Traffic Police Bureau and the private sector in the transport field. It is clear that safety awareness has greatly increased over the project period among highway personnel as well as in the public at large. As a result of these and other efforts, the number and severity of accidents in the province have decreased substantially since 2000, despite the rapid growth in vehicle registration and traffic, as shown in the following table.

Year Number of Number of Number Registered Accidents Fatalities Injured Vehicles 2000 17,591 3,222 13,988 231,941 2001 17,696 3,355 14,754 256,865 2002 17,772 3,163 14,669 295,408 2003 13,998 2,818 11,542 346,897 2004 10,531 2,760 10,004 394,216 2005 N/A 2,428 8,370 N/A Change in % -40% -25% -40% +70% 2004-5/2000

D. Institutional capacity of the JPCD and related sector institutions strengthened

The project focused on improving institutional capacity in four main areas: training, improving traffic safety, establishing competitive maintenance, and procurement of equipment. Progress was achieved in all four areas.

Training program. The training program was carried out in line with the PAD from 2004 to 2006. Staff was trained in the fields of highway management, highway design and planning, financial management, highway construction and maintenance. The overseas training program ran from 2004 and 2006. Training was found by the JPCD to be very useful and trainees are applying what they learned.

Traffic Safety Organization. The project office was provided with traffic safety specialists who worked on the project, in particular participating in and managing the ‘Highway Safety’ component. The successful completion of this component as well as the increased awareness of traffic safety issues in the JPCD shows that this activity was successful.

Establishment of competitive maintenance. After completing a study, two pilot maintenance companies were established in Nanchang and Yichun cities. These companies are basically independent and perform maintenance work under unit rate contracts. The experience in terms of cost and quality of work will be monitored over the next few years, before a final decision is made as to whether or not to expand the program. There is a preference in China to begin reforms with pilot experiments and to evaluate the results before broader application, rather than adopting the findings of a study to make wholesale changes up-front.

13 Procurement of equipment. The project procured US$5.5 m of equipment to help improve the quality and effectiveness of construction and maintenance. The equipment was employed by the maintenance bureaus to maintain the expressway and was implemented by June 2006.

E. Land acquisition and resettlement

The project land acquisition and resettlement program successfully restored the incomes of the PAPs. The post-project resettlement assessment report found that the PAPs were generally satisfied with the process and compensation they received. The PAPs incomes kept pace with the average incomes of the area, showing that they were not disadvantaged by the project.

After rehabilitation, irrigation facilities were generally improved. For those re-housed, the new dwellings were typically of higher quality than their previous homes. For instance, reconstructed brick and concrete houses constituted 50% of the total versus 27.5% of the houses demolished for the project. The PAPs have improved access to drinking water with 71% having tap water, compared to 1% before the project. The access to power is also improved with 86% having sufficient power, compared to 82% prior to the project.

Vulnerable groups received special treatment including: (i) subsidy aid during the course of house relocation; (ii) provision of free labor to build and move to the new houses; (iii) exemption from obligation of labor services for a year; (iv) priority in choosing the place for new houses and location of readjusted land. Because of the above preferential policies, the farming activity and living standards of the vulnerable families were completely rehabilitated completely in a short time.

The project also adopted specific activities which benefited the PAPs, including:

• Village Investment Plans were developed for villages receiving over RMB 200,000 (US$25,000) in compensation. These set up small-sized processing enterprises and aqua-culture enterprises.

• PAPs were given priority to provide construction materials and labor services to the construction works. This led to a large number of PAPs having well-paid jobs.

3.3 Efficiency

Net Present Value and Economic Rate of Return

The economic evaluation covers the expressway section, the interconnecting roads and the RIPC. The results are summarized in the following table and the details are in Annex 3. The EIRR and ENPV are higher than estimated, despite the 2005 traffic being lower than the PAD estimate. This is due to the expressway construction cost being 22% lower than estimated.

14 EIRR (in %) and ENPV (12%, in RMB million)

PAD ICR Component ENPV ENPV EIRR % EIRR % million RMB million RMB Expressway (TGE) 19.2 2,613 22.4 2,865 Interconnecting roads 25.7 441 62.5 455 RIPC 21.6 375 31.5 496 Total Project 20.0 3,429 23.8 3,624

Financial rate of return

The expressway opened in January 2004 and the High Class Highway Administration Bureau under the JPCD assumed the day-to-day management, operations and maintenance of the expressway. As shown in Annex 3, the main income is from tolls charges to the road users. The toll rates are set by the province and are uniform for all the expressways in the province, regardless to the form of management (public, joint-venture or private). Based on current toll rates, the expressway section is generating enough revenues to finance operation and maintenance and to service the Bank loan, which amounts to about 40% of the fixed assets.

The detailed financial analysis is presented in Annex 3 and summarized as follows:

PAD/1 ICR/1 Component ENPV ENPV EIRR % EIRR % million RMB million RMB Expressway (TGE) 7.0 4,222/2 6.2 596

Notes: 1/ The Financial Cost of Capital which was used to calculate the FNPV was 4.61% for the ICR against 6% in the PAD. 2/ In the PAD, the FNPV is inconsistent with the FIRR. The latter is considered by the ICR team to be of the correct magnitude.

Cost effectiveness

At appraisal, the total project cost, including contingencies and land acquisition, was estimated at US$536 m, of which US$200 m (37%) was to be financed by the Bank loan. The total actual project cost of US$371 m is 69% of the estimate. Detailed cost tables are in Annex 1.

The civil works for the construction of the expressway, accounting for 82% of the final total project costs, were only 68% of the estimated costs. As shown in the following table, the estimated cost per km was higher than for projects done at the same time in neighboring provinces. This higher estimate was due in part to the more mountainous topography in Jiangxi. However, the actual cost per km is similar to that of Hubei and

15 Hunan, clearly illustrating the highly competitive nature of the construction industry in China.

Length in Estimated Cost (US$ m) Actual Cost (US$ m) Province km Total per km Total per km Jiangxi 130 3971/ 3.1 2711/ 2.1 Hubei 110 255 2.3 220 2.0 Hunan 180 321 1.8 418 2.3

Note: 1/ This is the expressway cost only, without the costs of interconnecting roads, construction supervision and equipment. The estimated cost includes contingencies.

The costs of interconnecting roads and RIPC were also lower than estimated (-21%). In the case of interconnecting roads, the large cost reduction was due to dropping the connection to the town of Ganzhou from the TGE. Access to Ganzhou is provided by a local expressway constructed at the same time as the project, financed using local funds. It connects with the start of the Jiangxi III highway project and is part of the Xiamen- Chengdu expressway.

Given the lower cost of the expressway and interconnecting roads, the province cancelled excess loan funds in 2004, upon opening of the expressway to traffic. In 2006 once the final costs could be reliably estimated, the JPCD requested an increase of disbursement percentage for the rest of the project, showing good financial management.

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory

The overall achievement of the project objectives is rated as satisfactory. The project is providing efficient, safe and effective transport infrastructure to Jiangxi and it has also helped with Jiangxi’s social and economic development. This assessment is based on a review of achievements of the five components given in Section 3.2 and the economic and financial returns and the cost management efficiency presented in Section 3.3:

• Key performance indicators benchmarks have generally been met or exceeded. • Traffic diversion to the expressway is greater than anticipated and has relieved congestion on the parallel national road while also reducing accidents. • Growth in economic output and income in the poor counties served by the RIPC has been much faster than predicted, but as noted earlier, it is not possible to isolate the growth due to the project investments from the overall economic development.

Details are in Data Sheet, Section F.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

As described in Section 3.2, the project had a major impact in reducing poverty in the poor counties served by the project roads. The GOVIA in the project influence area increased much more than anticipated, especially for Wan’an and Suichuan counties where it more than doubled. However, as noted earlier, during this time the province had very high rates of economic development so it is not possible to isolate economic benefits due to the roads from the overall economic development.

(b) Institutional Change/Strengthening

The institutional strengthening impact, defined as the extent to which it has improved the JPCD’s ability to make use of its human and financial resources, is rated as satisfactory. As described in Section 3.2, there were four main areas of focus: organizational change, establishing competitive maintenance, supporting training programs, and procurement of equipment. Lasting progress was achieved in all four areas.

Decentralization of responsibility for funding roads has been achieved in the province. The JPCD is interested in competitive maintenance, and in 2006 participated in a project to investigate the viability of performance based maintenance contracts for expressways in Jiangxi (and Hubei). Skills developed in the training program are being used by staff, especially in the area of traffic safety where the JPCD is continuing to advance their efforts. The procured equipment is in use.

Another example of the increased skills in the JPCD came during the preparation of the Jiangxi III highway project in 2005/6. The elapsed time between identification mission and appraisal was less than 11 months, a record for an expressway in China. This was due in no small measure to the high quality of the Jiangxi preparation team and, with two projects prepared, their familiarity with the Bank’s procedures and requirements.

The various issues identified in the Jiangxi II highway project were taken into consideration during the preparation of the Jiangxi III highway project and have been applied to other projects (eg Hubei Shiman). This will enhance the overall quality of other projects. For example: (i) standard designs of septic tanks shall be included in the bid documents thereby ensuring that the contractor’s work camps will have proper sanitary systems; (ii) all construction drawings will be reviewed by the Bank prior to bidding for all ICB contracts and certain NCB contracts (eg Annex areas); (iii) better co- ordination between the designers of different components to ensure consistency and no conflicts (eg signs placed at the same location as noise barriers); and (iv) improved designs for interconnecting roads.

17 One outcome—which is viewed as very positive by China’s Ministry of Finance—is the recognition that the time is past when the use of foreign consultants for general supervision activities is mandatory on all World Bank financed highway projects. With China having successfully constructed over the overwhelming majority of its 41,000 km NEN using local consultants, the role of foreign consultants should be limited to specialist areas where they can make significant contributions. This is the approach being adopted for the proposed Hubei Yiba highway project.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

None.

4. Assessment of Risk to Development Outcome

Rating: Negligible to Low

The project has met its objective of providing more efficient, safe and effective transport infrastructure in support of social and economic development in Jiangxi Province.

The physical investments have resulted in good transport infrastructure, both for the expressway and the local roads. Traffic in the corridor continues to grow, confirming that there was demand for the investments. Congestion on the existing road has been relieved and will likely stay low given the diversion rate to the expressway. The local roads have had major improvements in terms of reduced closures, and the increase in GOVIA is expected to be sustained.

Jiangxi has seen a reduction in traffic accidents, and is committed to further improving the situation, possibly through a stand-alone traffic safety project. The institutional strengthening activities have enhanced the JPCD’s ability to fulfill their responsibility to plan and manage road investments. The manuals and the training provided in the areas of quality control and road safety and their application to date are good indications that the improvements in these matters are durable.

The only identifiable risk to the investment is inadequate financing to maintain and operate the TGE in light of increasing maintenance costs due to overloading (see Section 5.2). The recent adoption of higher weight based tolls will partially address the problem, but they are unlikely to fully recover the damage done to the pavement from overloading. Jiangxi—and China as a whole—needs to implement rigorous overloading enforcement policies.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory

The Bank performance during identification, preparation, and appraisal of the project was satisfactory. The Bank team was led by an experienced highway engineer and included specialists covering environment, social/resettlement, economics, rural roads, expressway engineering, institutional strengthening and highway safety. Potential risks were identified, although in hindsight underestimated given the problems subsequently encountered. The Bank’s Safeguard Policies were adequately addressed. A financial management review was undertaken to ensure compliance with the Bank’s financial management procedures. To improve the overall quality, during preparation the engineering designs and technical bidding documents, including cost estimates for the proposed expressway and related roads, including their E&M facilities, were reviewed by international engineering consultants under grant funding from Spain. The greatest weakness was in the cost estimates, which although reviewed by an international consultant, were significantly higher than the actual costs. This is likely due at least in part to the use of standard values issued by the MOC which do not adequately reflect competitive bidding on projects.

The PAD and the legal agreements would have benefited from a more intense quality review insofar as there were inconsistencies within both documents. As mentioned elsewhere, the PAD had different traffic volumes in different annexes which made it difficult to confirm the end of project indicators.

(b) Quality of Supervision

Rating: Moderately Satisfactory

There was good continuity of staff during implementation. The task manager who appraised the project also supervised it until early 2005, after the major construction was completed. Attention was paid to all components of the project.

The resettlement activities were closely supervised which helped ensure that the objective of restoring the livelihood and productivity of the PAPs was achieved.

The financial management of the project was supervised in an effective manner, and the JPCD were provided financial management training by the Bank to improve their efficiency. Timely advice was provided the client on treating undisbursed funds so as to use the loan funds efficiently.

19 The project would have benefited from spending more time in the field to check technical aspects of the project—especially given the poor performance of the foreign supervision consultants which contributed to the problems described in Section 2.5. Not every supervision mission had time to visit the construction sites which were some distance from Nanchang. Missions in 2003, during the peak of construction, also had to be cancelled, as opposed to postponed, because of SARS. This resulted in a significant elapsed time between field visits.

As described in Section 2.5, in 2005 a new Bank supervision team identified deficiencies with: the incorrectly designed Hengshi interchange which was dangerous; traffic safety deficiencies; incorrect noise barrier implementations; inadequate side slope protection; and improperly restored borrow areas. Some of these issues would likely have been identified had there been better design reviews and more in depth field inspections by the Bank supervision team during construction.

The quality of supervision is therefore rated as moderately satisfactory.

Rating: Moderately Satisfactory

The rating for overall Bank performance as moderately satisfactory is based on the satisfactory quality at entry and the moderately unsatisfactory quality of supervision. The supervision team paid adequate attention to compliance with the Bank policies on environment and resettlement, however it appears that insufficient time was spent in the field resulting in a number of post-construction problems.

5.2 Borrower Performance

(a) Government Performance

Rating: Satisfactory

This was a repeater project in Jiangxi so the familiarity with Bank requirements and procedures helped project preparation. All land for the project was acquired in good time so that construction was not delayed—in fact the expressway was completed about one year early. The performance of the central and provincial government during the project implementation was satisfactory. The Government was fully committed to the project which was contributing to the completion of the Beijing-Nanchang-Shenzhen corridor.

Internal clearance of bidding documents remained cumbersome, particularly for equipment. Documents prepared by the provinces have to go through a number of different national agencies, each with its own requirement and peculiarities and the process is too long.

20 Overloading of trucks remains a serious problem in China. This is a national problem which cannot be addressed separately by each province. The expressway companies have no right to force overloaded trucks to stop and unload. The police do that for grossly overloaded trucks, which they spot while on patrol and divert to a weighing station. However, these stations are too few and far between to have a serious impact. They are also too small to impound more than a sample of the culprits. Some provinces, including Jiangxi, have started levying higher tolls on overloaded trucks, but even a doubling or tripling of the toll rate does not come near matching the amount of damage done to the road by the extra heavy vehicle, since damage increases with the fourth power of the axle load.

(b) Implementing Agency or Agencies Performance

Rating: Satisfactory

Implementing Agency Performance

The performance of the implementing agency was satisfactory. The JPCD demonstrated commitment to achieving the project objectives, including not only construction, but also institutional development through project financed studies, workshops and training programs. For instance, two road safety workshops were Jiangxi Provincial conducted in 2002 and 2004, the one scheduled for 2003 having Communications been postponed due to SARS. Construction of the expressway was Department completed ahead of schedule, extra loan funds cancelled and revenues generated promptly, thus making a very efficient use of borrowed funds. When the post-construction problems were identified the government showed full commitment towards resolving them. They mobilized appropriate resources and funds to correct the issues.

Rating: Satisfactory

The project objectives were achieved and all loan conditions were complied with. The cooperation between the borrower and the Bank was good throughout preparation and implementation of the project.

21 6. Lessons Learned

Closer review of designs and technical specifications are required

There is a common problem on expressways in China wherein different elements of the designs are done by different individuals and/or institutions. This fragmented approach leads to conflicts and inconsistencies such as signs being installed in the same location as noise barriers (creating a break in the noise barrier); noise barriers not being placed in the appropriate location; obstacles such as bridge piers not being adequately protected, etc. It is important to review the designs from a holistic perspective to ensure that these types of problems are eliminated. To achieve this, it is necessary that: (i) the different design teams have collaborative meetings where they jointly review the documents and resolve inconsistencies; and (ii) all bidding documents be thoroughly reviewed prior to bidding by experienced engineers.

Design changes during construction need to be checked more rigorously to make sure they reflect the same standards as were applied to the original design. Importantly, when the field conditions are different to those indicated in the designs, the designs should be updated to reflect reality (eg when the embankment is higher than the design indicates the slope protection should be extended).

Among the details that need to be considered, it is also important to ensure: obstacles are avoided and, if that is impractical, they are properly protected; crossroads for interconnecting roads are properly designed with good sight distances; all road signs must be properly sited and visible; lane markings and transitions are properly designed and painted; annex areas have proper lane marking and channelization; noise barriers are built without gaps, extending an appropriate distance before/after the buildings to be protected, and are built with suitable materials; borrow areas must be carefully selected, preferably in areas without hills, and excavated in an appropriate manner which will allow for eventual reinstatement; slope protections need to be designed to reflect the actual field conditions, and use appropriate techniques.

It is important to ensure that the Bank teams regularly visit the site

Supervision missions in 2005 identified a number of problems with the expressway: the incorrectly designed Hengshi interchange which was dangerous; traffic safety deficiencies; incorrect noise barrier implementations; inadequate side slope protection; and improperly restored borrow areas. In hindsight, some of these would have been avoided by frequent and longer visits to the project site by Bank supervision missions.

Improve the planning and design of interchanges and interconnecting roads

The original project included only four interchanges over a distance of 130 km, i.e. an average distance of over 30 km between interchanges. Realizing that this was not providing sufficient service in the corridor, two interchanges were added during construction. The design of one of them was unsatisfactory from a safety point of view (subsequently rectified by the JPCD). There were also design problems in the new roads

22 connecting the interchanges to the highway network: intersections with existing highways were not properly designed and signaled; in some cases, the standards of the connecting roads were set too low in the original designs, and the roads were upgraded during construction without due planning; and the transition from high speed expressway travel to mixed traffic local roads was too abrupt.

More attention should be paid to the advanced planning of interchanges and connecting roads at the time of preparing designs for the expressway. Design modifications by local governments should be more closely reviewed prior to implementation.

The activities of foreign supervision consultants needs to be carefully designed so as to ensure they add value to the project

The performance of the foreign supervision consultants fell short of what was envisaged in their Terms of Reference. For example, they did not fulfill their contractual obligation to review all designs for the project. This resulted in the construction of an incorrectly designed interchange, which had to be retrofitted with a roundabout at the Bank’s insistence, and inadequate slope protection works. They did not ensure that the safety deficiencies in design and implementation were properly addressed.

The JPCD commented that foreign consultants for supervision were expensive and did not provide value for money. This comment has been made in other provinces as well.

Given these difficulties, for the new project (Jiangxi III), it was agreed that the JPCD would hire foreign expertise as needed in specific areas, such as tunneling, rather than have a consulting firm providing a team for all aspects of the construction, as was previously the case. For the proposed Hubei Yiba Highway Project domestic supervision consultants will be used for earthworks and structures while foreign supervision consultants for tunneling and pavements. This approach of using foreign consultants for specialist activities was endorsed by the Ministry of Finance in Beijing.

Need to continue pressing solutions to the overloading problem

As mentioned earlier, truck overloading remains a problem throughout China—studies typically find that over 75% of trucks are overloaded with the average overload sometimes exceeding 100%. A few years after opening, the right hand lane of many expressways already show signs of rutting due to the high number of overloaded trucks. On other roads there have been catastrophic failures of bridges due to overloading.

To keep transport costs low, the Government has been reluctant to take strong measures to enforce legal axle loads. The measures presently in place seem to do little to persuade truckers to reduce overloading. They include spot checking and fining by the police, and higher tolls based on weight (see Section 5.2). Another aspect of the solution, which may not have been considered sufficiently, would be to increase the design axle load. Designing stronger pavements, while more costly initially, may lower the total cost of transport by allowing heavier trucks. Higher permissible axle loads may also make enforcement more acceptable to the transporters. Axle loads were increased in the

23 European Union after studies showed that they would result in lower overall transport costs, including infrastructure and vehicle operating costs.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

The question of value for money of foreign consultants for civil works construction was raised by the borrower. The Bank agreed to delete this requirement from the new project (Jiangxi III) and replace it by hiring foreign specialists if and when needed to address specific problems, rather then being on the ground for the entire duration of the works.

The JPCD and the Bank should have addressed the potential loan saving issues earlier by increasing the disbursement percentage or adding financed items in order to utilize the loan fully.

(b) Cofinanciers

None.

24 Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$ Million equivalent)

Appraisal Actual/Latest Percentage of Components Estimate Estimate1/ Appraisal (US$ m) (US$ m) Construction of Expressway and Interconnecting Roads, Construction 384.27 303.40 79.0% Supervision, and Equipment Road Improvement in the Poor 33.85 26.80 79.2% Counties Highway Safety 2.00 0.40 20.0% Institutional Development 2.15 1.00 45.1% Land Acquisition and Resettlement2/ 42.30 37.60 88.9% Total Baseline Cost 464.57 369.20 79.5% Physical Contingencies 40.54 N/A Price Contingencies 28.59 N/A Total Project Costs 533.70 369.20 69.2% Front-end fee IBRD 2.00 2.00 Total Financing Required 535.70 371.20 69.3%

Notes: 1/ The contingency costs are included with the actual/latest costs for each component. 2/ The estimate of US$42.3 m at appraisal, and used in the legal agreements, was from an earlier version of the PAD. The correct value should have been US$31.7 m.

(b) Financing

Source of Type of Appraisal Estimate Actual/Latest Estimate Percentage of Funds Financing (US$ m) (US$ m) Appraisal Borrower 335.7 226.0 67.3% IBRD 200.0 145.2 72.6%

25 Annex 2. Outputs by Component

A. Construction of Expressway, Interconnecting Roads, Construction Supervision and Equipment (PAD estimate US$447.3 million ICR actual US$303.4 million – costs include contingencies)

Works were completed some nine months ahead of the contractual deadline and the expressway opened about one year early. Sufficient geological surveys were conducted prior to completing the engineering design and no surprises were encountered in the tunnels, enabling rapid completion of the works. Procurement and installation of the E&M system also proceeded smoothly and in a timely fashion, so that all equipment was operational within six months of the opening of the expressway. Preparation of documents started early for the two stage bidding method which was used satisfactorily.

As noted in Section 3.3, the total expressway costs were only 68% of the estimated costs. This is partially ascribed to a too high estimate being used during preparation (US$3.1 m/km). The actual cost of US$2.1 m/km is similar to costs in other provinces.

In 2005, a Bank supervision mission noticed some signs of pavement damage due to the permeability of the pavement—arising from the use of a pavement standard that MOC has since withdrawn. The matter was discussed with the borrower and agreement was reached to apply a thin layer of sealant on the entire length of the expressway. The result of this treatment has been satisfactory. An improperly designed interchange had been constructed which was remedied by installing a roundabout. The same mission also suggested to extend slope protection works against erosion in a few locations and to correct some safety hazards created by guardrails and drainage ditches. The contractors agreed to pay about US$1.25 m for the corrections to be done by the TGE maintenance unit.

Supervision of works was carried out by domestic consultants supported by a small team of foreign consultants. The issues identified above suggested that the construction supervision had not been as effective as it should have been. The foreign supervision consultant’s work was particularly unsatisfactory since in spite of having a safety engineer, an unsafe interchange was constructed.

Equipment for maintenance of the TGE and other roads in Jiangxi was purchased under the project together with laboratory and quality control equipment for supervision of civil works.

B. Road Improvement in the Poor Counties (RIPC) (PAD estimate US$39.6 million, ICR actual US$26.8 million – costs include contingencies)

The project included improvements to four roads in poor areas of southern Jiangxi. Approximately 78 km were upgraded to Class II highways, and 104 km to Class III highways. Works were completed in 2004. Bank inspection in 2005 identified some minor improvements needed in terms of traffic safety measures, slope protection and

26 flood repairs. The authorities agreed to have them carried out by the contractors while the works were still in the one year guarantee period. This work was subsequently completed.

C. Highway Safety (PAD estimate US$2.3 million including contingencies, ICR actual US$0.4 million)

Safety Manual for the Highway Construction & Maintenance Worksites: The manual was completed in December 2002 and distributed to the contractors, supervisors and consultants at the project’s construction sites. Seminars were held in 2002 and 2004 to discuss the safety at construction sites, along with other elements of traffic safety including highway safety audits, identification and improvement of black spots and black segments, and the role and requirements of highway safety facilities.

Safety Audit Procedures: The safety audit procedures were completed in September 2003 two training sessions on safety audits were held. The May 2004 training focused on safety audits for expressway design and operation. The May 2005 training focused on safety audits for rural road design and maintenance. After the training, a pilot safety audit program was conducted on one section of NH 320.

Black Spot Identification: The black spot identification study was completed by the end of 2003 for a 100 km section of the Nanchang-Jiujiang Expressway. After completing detailed design for remedial works and bidding, implementation started in 2004 and was completed in 2005. It is too early to have meaningful accident statistics following these recently completed works to gauge their overall impact.

Safety Seminars: Two road safety seminars were organized in 2002 and 2004 to increase the understanding of traffic safety among government officials, road designers, contractors, construction units, maintenance units, and the public security bureau.

D. Institutional Development (PAD estimate US$2.2 million, ICR actual US$1.0 million)

The four areas of institutional development were successfully executed: (i) the domestic and international training program was undertaken and met the goals of the PAD; (ii) traffic safety specialists were provided to the project office and assisted with traffic safety activities as well as managing the Highway Safety Component; (iii) two pilot maintenance centers were established to undertake maintenance on a commercial basis; and (iv) the project procured US$5.5 m of equipment to help improve the quality and effectiveness of construction and maintenance.

E. Land Acquisition and Resettlement (PAD estimate US$31.7 million, ICR actual US$37.6 million)

The land acquisition and resettlement program was successfully executed. The 11,882 PAPs received their agreed compensation. They were provided with improved facilities in terms of improved irrigation, improved access to drinking water (71% with access to tap water compared to 1% before the project); improved quality of houses (50% brick or concrete houses compared to 27.5% before the project); and improved access to power.

Annex 3. Economic and Financial Analysis

Table A3.1 summarizes the results of the economic and financial evaluation. The project has an EIRR of 23.8%, and an NPV of RMB 3,624 m. Both of these values are higher than the estimates in the PAD.

Table A3.1: Economic and Financial Evaluation Summary

The PAD The ICR ENPV FNPV ENPV FNPV EIRR (12%, FIRR (4.6%, EIRR (12%, FIRR (6.0%, (%) mRMB) (%) mRMB) (%) mRMB) (%) mRMB)

Taihe - Ganzhou Expressway (TGE) 19.2 2,613 7.0 4,222 22.4 2,865 6.2 596.0 Interconnecting Roads 25.7 441 -- -- 62.5 455 -- -- Subtotal -- 3,054 -- -- 23.3 3,228 -- -- Road Improvement in the Poor 21.6 375 -- -- 31.5 496 Counties (RIPC) Total Project 20.0 3,429 -- -- 23.8 3,624 -- --

The PAD contained two sets of traffic data: Annex 1-1 as ‘Key Performance and Development Indicators’ and Annex 4 as ‘Cost Benefit Analysis Summary’. The 2000 corridor baseline values differ by 28% (6,723 vs. 8,633 veh/day), with the PAD Annex 4 baseline being only 1.6% lower than the 2005 corridor traffic of 8,744 veh/day. The PAD Annex 1-1 2005 forecast traffic for the corridor of 18,497 veh/day suggests an annual growth rate of 23%/yr from 2000, more than double the rate of 11%/yr observed from 1990-1998. The PAD Annex 4 2005 forecast of 13,205 veh/day suggests an increase of 4,571 veh/day over the 2000 baseline data, or an 8.9%/yr increase.

After consultation with the JPCD it was confirmed that the PAD Annex 1-1 baseline data were correct. To obtain a revised estimate of the 2005 data, the PAD 8.9%/yr growth rate was used in conjunction with the same diversion ratio. This resulted in the ‘Modified PAD’ data shown in Table A3.2. These modified data have been used in this ICR.

28 Table A3.2: Number of Motorized Vehicle per Day (2000-2025)

Modified PAD The ICR Old New Diversion Old New Diversion road road Total ratio road road Total Ratio (1) (2) (3=1+2) (4=2/3) (5) (6) (7=5+6) (8=6/7) Taihe - Ganzhou Expressway (TGE) 2000 6,723 - 6,723 - - - - - 2004 9,440 - 9,440 - 1,945 5,717 7,662 74.6% 2005 3,201 7,075 10,276 68.8% 2,216 6,557 8,773 74.7% 2006 3,349 7,399 10,748 68.8% 2,244 6,693 8,937 74.9% 2010 4,010 8,850 12,860 68.8% 2,860 8,790 11,650 75.5% 2015 5,020 11,080 16,100 68.8% 3,420 11,030 14,450 76.3% 2020 6,280 13,880 20,160 68.8% 3,780 12,840 16,620 77.3% 2025 7,860 17,380 25,240 68.8% 3,850 13,870 17,720 78.3% Average growth pa 2005-2025 4.6% 4.6% 4.6% 2.8% 3.8 3.6%

Sources: JPCD and the Bank staff.

29 Table A3.3: EIRR: Taihe - Ganzhou Expressway (million RMB)

Taihe - Ganzhou Expressway Road Improvement in the Total Project and Interconnecting Roads Poor Counties (RIPC) Total Total Net cash Total Total Net cash Total Total Net cash Year costs benefits flow costs benefits flow costs benefits flow

2001 118.65 -118.65 118.65 -118.65 2002 1184.17 -1184.17 1184.17 -1184.17 2003 1476.18 -1476.18 117.09 -117.09 1593.27 -1593.27 2004 220.01 438.74 218.73 151.03 -151.03 371.04 438.74 67.70 2005 7.76 551.34 543.58 -50.20 32.46 82.65 -42.44 583.80 626.23 2006 7.76 616.42 608.66 -52.68 34.07 86.76 -44.92 650.49 695.42 2007 7.76 688.67 680.91 -55.29 35.77 91.07 -47.53 724.44 771.98 2008 7.76 769.89 762.13 -58.03 37.56 95.59 -50.27 807.45 857.72 2009 7.76 860.51 852.75 -60.91 39.43 100.34 -53.15 899.94 953.09 2010 7.76 962.19 954.43 -63.92 41.40 105.32 -56.16 1003.59 1059.76 2011 7.76 1054.37 1046.61 -66.46 43.05 109.50 -58.70 1097.42 1156.11 2012 7.76 1155.53 1147.77 -69.09 44.77 113.85 -61.33 1200.30 1261.62 2013 7.76 1266.57 1258.81 -71.82 46.55 118.37 -64.06 1313.12 1377.18 2014 7.76 1388.49 1380.73 -74.67 48.41 123.08 -66.91 1436.90 1503.81 2015 /_1 54.84 1510.10 1455.26 -77.63 50.34 127.96 -22.79 1560.44 1583.23 2016 /_1 54.84 1511.88 1457.05 -79.93 51.84 131.77 -25.09 1563.72 1588.81 2017 7.76 1514.36 1506.60 -82.30 53.72 136.02 -74.54 1568.08 1642.62 2018 7.76 1517.56 1509.80 -84.74 55.95 140.69 -76.98 1573.51 1650.49 2019 7.76 1521.45 1513.69 -87.25 58.28 145.53 -79.49 1579.73 1659.22 2020 7.76 1390.26 1382.50 -89.84 60.72 150.55 -82.08 1450.98 1533.06 2021 7.76 1449.51 1441.75 -92.50 63.44 155.94 -84.74 1512.95 1597.69 2022 7.76 1512.05 1504.29 -95.25 67.66 162.90 -87.49 1579.71 1667.19 2023 7.76 1578.07 1570.31 -98.07 72.67 170.74 -90.31 1650.74 1741.05 2024 7.76 1647.76 1640.00 -100.98 78.02 179.00 -93.22 1725.78 1819.00 2025 7.76 1873.53 1865.77 -103.98 83.72 187.70 -96.22 1957.24 2053.46

EIRR = 23.3% 31.5% 23.8% NPV (12%) = 3,227.9 496.3 3,623.6

/_1: Major maintenance.

Table A3.4: Income Statement: Taihe – Ganzhou Expressway (million RMB, year ending 31, December) Page 1 of 4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Traffic (million veh-km) 269.11 306.82 325.74 345.82 367.11 389.80 413.86 433.04 453.11 474.11

Revenue Tolls 282.57 325.00 342.03 363.11 385.47 409.29 500.77 523.98 548.26 573.67 Others ------Total 282.57 325.00 342.03 363.11 385.47 409.29 500.77 523.98 548.26 573.67

Operating Taxes Business tax 14.13 16.25 17.10 18.16 19.27 20.46 25.04 26.20 27.41 28.68 City tax 0.99 1.14 1.20 1.27 1.35 1.43 1.75 1.83 1.92 2.01 Education levy 0.42 0.49 0.51 0.54 0.58 0.61 0.75 0.79 0.82 0.86 Total 15.54 17.88 18.81 19.97 21.20 22.50 27.54 28.82 30.15 31.55

Net Revenue 267.03 307.12 323.22 343.14 364.27 386.79 473.23 495.16 518.11 542.12 Operating Costs Wages and benefits 6.78 7.69 8.21 8.71 9.25 9.82 12.02 12.58 13.16 13.77 Road maintenance 3.39 3.90 6.80 7.00 7.21 7.43 49.47 7.88 8.12 8.36 Tunnel maintenance 0.79 0.90 0.96 1.02 1.08 1.15 1.40 1.47 1.54 1.61 Administration 7.52 8.64 9.10 9.66 10.25 10.89 13.32 13.94 14.58 15.26 ------Total working costs 18.48 21.13 25.07 26.39 27.79 29.29 76.21 35.87 37.40 39.00 Depreciation - 98.04 98.09 98.14 98.20 98.25 98.31 98.37 98.44 98.50 Total operating costs 18.48 119.17 123.16 124.53 125.99 127.54 174.52 134.24 135.84 137.50

Operating Profit 248.55 187.95 200.06 218.61 238.28 259.25 298.71 360.92 382.27 404.62 Financial charges: IBRD - 14.96 18.08 47.56 45.13 42.62 40.00 37.27 34.44 31.48 Local Bank ------Others ------

Profit Before Taxes 248.55 172.99 181.98 171.05 193.15 216.63 258.71 323.65 347.83 373.14 Income tax 82.02 57.09 60.05 56.45 63.74 71.49 85.37 106.80 114.78 123.14

Net Profit After Taxes 166.53 115.90 121.93 114.60 129.41 145.14 173.34 216.85 233.05 250.00

Table A3.5: Sources and Applications of Funds: Taihe – Ganzhou Expressway (million RMB, year ending 31, December) Page 2 of 4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: Net profits - - - 166.5 115.9 121.9 114.6 129.41 145.14 173.34 216.85 233.05 250.00 Depreciation - - - - 98.04 98.09 98.14 98.20 98.25 98.31 98.37 98.44 98.50 State contribution 39.59 395.93 506.18 76.30 ------Provincial contribution 28.91 289.14 369.65 55.72 ------Borrowing: IBRD 46.72 467.17 598.33 91.60 ------Local ------Others ------

Total 115.22 1,152.24 1,474.16 390.15 213.94 220.02 212.74 227.61 243.39 271.65 315.22 331.49 348.50

Applications: Capital expenditure 115.22 1,152.24 1,474.16 223.62 15.27 15.73 16.20 16.69 17.19 17.71 18.24 18.79 19.35 Other expenditure 44.98 64.25 77.10 ------Loan repayment: IBRD ------59.94 62.37 64.88 67.50 70.2373.06 76.02 Local ------

Change w/ capital - - - 175.46 (0.32) (1.86) (1.67) (1.78) (1.88) (7.23) (1.85) (1.92) (2.00)

Total 160.20 1,216.49 1,551.26 399.08 14.95 13.87 74.47 77.28 80.19 77.98 86.62 89.93 93.37

Net Funds Flow (44.98) (64.25) (77.10) (8.93) 198.99 206.15 138.27 150.33 163.20 193.7 228.60 241.56 255.13 Open balance - (44.98) (109.23) (186.33) (195.26) 3.73 209.88 348.15 498.48 661.68 855.35 1,083.95 1,325.51 Closing balance (44.98) (109.23) (186.33) (195.26) 3.73 209.88 348.15 498.48 661.68 855.35 1,083.95 1,325.51 1,580.64

D/S Cover ------3.55 3.65 3.75 4.02 4.49 4.54 4.58

Table A3.6: Balance Sheet: Taihe – Ganzhou Expressway (million RMB, year ending 31, December) Page 3 of 4 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Assets: Fixed Assets At cost 2,939.53 2,941.48 2,942.63 2,944.25 2,945.92 2,947.64 2,949.41 2,951.23 2,953.11 2,955.05 Less: Depreciation - 98.04 196.13 294.27 392.47 490.72 589.03 687.40 785.84 884.34 Net fixed assets 2,939.53 2,843.44 2,746.50 2,649.98 2,553.45 2,456.92 2,360.38 2,263.83 2,167.27 2,070.71

Current Assets Inventory 0.13 0.15 0.17 0.18 0.19 0.20 0.25 0.26 0.27 0.29 Receivable 0.09 0.10 0.12 0.13 0.13 0.14 0.18 0.18 0.19 0.20 Cash (195.26) 3.73 209.88 348.15 498.48 661.68 855.35 1,083.95 1,325.51 1,580.64 Subtotal (195.04) 3.98 210.17 348.46 498.80 662.02 855.78 1,084.39 1,325.97 1,581.13

Other Assets ------

Total Assets 2,744.49 2,847.42 2,956.67 2,998.44 3,052.25 3,118.94 3,216.16 3,348.22 3,493.24 3,651.84

Liabilities & Equity State funds- Equity 1,518.06 1,618.14 1,725.49 1,825.51 1,939.90 2,069.57 2,226.97 2,427.40 2,643.54 2,876.13

L/T loans: IBRD 1,203.82 1,203.82 1,203.82 1,143.88 1,081.51 1,016.63 949.13 878.90 805.84 729.82 Local ------Subtotal 1,203.82 1,203.82 1,203.82 1,143.88 1,081.51 1,016.63 949.13 878.90 805.84 729.82

Current Liabilities 22.61 25.46 27.36 29.05 30.84 32.74 40.06 41.92 43.86 45.89

Other Liabilities ------

Total Liabilities & Equity 2,744.49 2,847.42 2,956.67 2,998.44 3,052.25 3,118.94 3,216.16 3,348.22 3,493.24 3,651.84

Debt- to- equity ratio 45/55 43/57 42/58 39/61 36/64 34/66 31/69 28/72 24/76 21/79 Current ratio -8.64 0.15 7.67 11.98 16.16 20.21 21.35 25.86 30.22 34.44

Table A3.7: Assumptions for Financial Forecasts: Taihe – Ganzhou Expressway

1. Toll and Traffic (AADT): Small Medium Large Small Medium Large Tractor car bus bus truck truck truck -Trailer Total

Toll (RMB/v-km) /_a 0.40 0.75 1.00 0.40 0.75 1.00 1.35

1. Taihe - Suichuan 2004 454 594 1,174 443 664 1,169 1,124 5,622 2005 486 636 1,256 474 711 1,251 1,203 6,016 2006 518 677 1,338 505 757 1,333 1,281 6,409 2010 761 906 1,791 676 1,013 1,784 1,714 8,645 2015 1,018 1,129 2,232 842 1,262 2,223 2,136 10,842 2020 1,239 1,309 2,587 976 1,463 2,577 2,476 12,627 2025 1,368 1,410 2,787 1,051 1,576 2,776 2,667 13,635 2. Suichuan - Ganzhou 2004 436 570 1,127 425 637 1,122 1,079 5,396 2005 481 629 1,244 469 704 1,238 1,191 5,955 2006 526 688 1,360 513 770 1,354 1,302 6,513 2010 730 870 1,720 649 973 1,712 1,646 8,300 2015 977 1,084 2,143 809 1,213 2,133 2,051 10,410 2020 1,189 1,257 2,484 938 1,406 2,473 2,378 12,125 2025 1,313 1,354 2,676 1,010 1,515 2,664 2,562 13,094 3. Ganzhou - Tankou 2004 636 833 1,645 621 931 1,638 1,575 7,879 2005 681 891 1,761 665 996 1,753 1,686 8,431 2006 725 949 1,876 708 1,061 1,868 1,796 8,983 2010 1,065 1,270 2,511 947 1,420 2,500 2,403 12,116 2015 1,425 1,583 3,129 1,180 1,770 3,115 2,995 15,197 2020 1,734 1,835 3,627 1,368 2,052 3,611 3,472 17,699 2025 1,914 1,977 3,907 1,474 2,211 3,890 3,740 19,113

/_a: 15 % increase every 5 years.

2. Operating Taxes Business tax 5.0% of the total revenue. City tax 7.0% of the business taxes. Education levy 3.0% of the business taxes.

3. Operating Cost: Increase 5 % pa. a. Wages and benefits 2.40% of total revenue b. Road maintenance 1.20% of total revenue c. Tunnel maintenance 0.28% of total revenue d. Administration 2.66% of total revenue

Depreciation 30 years straight-line method.

4. Capital maintenance (mRMB/km): Increase 5% p.a. Routine Medium Major maint./ year maint./ 5 years maint./ 10 years 0.05 0.35 0.65

5. Income tax rate 33.3% of profit before tax.

6. Borrowing: The IBRD 4.0%, 20 year maturities, LIBOR US$ based single currency, 5 years grace period and the foreign exchange risks.

34 Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Names Title Unit Responsibility/Specialty Lending Anil H. Somani Sr. Environment Specialist EASES Environment Chaohua Zhang Sr. Social Sector Specialist EASES Social and Resettlement Financial Management Chau-Ching Shen EACCF Financial Specialist Dawei Yang Procurement Specialist EACCF Procurement Institutional and Dick Jonson Consultant EASTR Highway Safety Hoi-chan Nguyen Sr. Counsel LEGOP Legal Ian Ferguson Team Assistant EASTR Support Jean-Marie Braun Consultant EASTR Highway Engineer Junxue Chu Finance Officer LOAAS Disbursement R. Gopalkrishnan Consultant EAPCO Procurement Rodrigo Archondo- Highway Engineer INFTD Economic/Financial Callao Setty Pendakur Consultant EASTR Rural Road/Social Simon Bradbury Sr. Finance Officer LOAAS Disbursement Xin Chen Program Assistant EACCF Support Yasuhiro Kawabata Sr. Highway Engineer EASTR Task Team Leader Supervision/ICR Anil H. Somani Consultant EASTE Environment Boping Gao Transport Specialist EASTE Highway Engineer Christopher R. Bennett Sr Transport. Specialist EASTE Task Team Leader Graham Smith Sector Leader EASTE Transport Specialist Han-Kang Yen Research Analyst EASTE Economic Analysis Hongkun Yang Procurement Specialist EAPCO Procurement Jacques G. Yenny Consultant EASTE ICR Jean-Marie Braun Consultant EASTE Highway Engineer Li Xiaofeng Program Assistant EACCF Support Jing Xu Team Assistant EACCF Support Rose Abena Ampadu Program Assistant EASTE Support Teresita Ortega Program Assistant EASTE Support Wenlai Zhang Transport. Specialist EASTE Transport Specialist Youlan Zou Resettlement Specialist EASUR Social and Resettlement

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands No. of staff weeks (including travel and consultant costs) Lending FY99 21.13 FY00 23 118.12 FY01 35 199.99 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 Total: 58 339.24 Supervision/ICR FY99 0.00 FY00 1 4.43 FY01 0.00 FY02 11 60.34 FY03 11 62.56 FY04 9 68.34 FY05 9 54.62 FY06 6 68.88 FY07 7 30.66 Total: 54 349.83

36 Annex 5. Beneficiary Survey Results

None.

37 Annex 6. Stakeholder Workshop Report and Results

None.

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

The main objectives of Jiangxi II were achieved through the successful implementation of various components of the project. The TGE (about 128 km), interconnecting roads (about 26 km) and rural roads (about 182 km) were all completed. The completion and operation of TGE relieves the traffic congestion and reduces the high traffic accident rate on National Highway 105.

Component A: Highway Capacity Expansion

The nine contract sections of the TGE civil works commenced on December 28, 2001 and were completed on January 16, 2004. The one E&M contract commenced October 30, 2003, and was completed July 2004. Nine contract sections of building works commenced August 2003 and were completed March 31, 2004. Three contract sections of civil works for two interconnecting roads commenced in July 2003 and were completed on May 28, 2004.

Design Experience

The project was designed by Jiangxi Provincial Communication Design Institute (JPCDI). During the course of construction, design representatives from JPCDI were assigned to the sites to be in charge of design variations and update drawings. We believe that the design needs to be guided by advanced concepts, based on the creative techniques, guaranteed by the scientific management and improved during the construction.

Implementation Experience

Application of World Bank’s Policies

The managerial staff of the Project Management Office (PMO) was trained through implementation of the project in the application of the World Bank’s policies. The civil works were procured through ICB, and the contracts were awarded to the bidders of the lowest price, thus the construction cost was reduced. FIDIC was adopted for the project which helped with supervision. The Bank’s policies were used in the areas of environmental protection and resettlement. Consequently, the environment along the expressway was preserved well, and the displaced persons were not disadvantaged by the project.

Implementation of the Contract, Timely Communication

The TGE was the first expressway which entered the mountainous area of Jiangxi. It therefore has many tunnels, viaducts, high side slopes and complicated geology and landforms. At the beginning of the project, the PMO paid great attention to the preparation for construction in terms of the access for the equipment and personnel to the sites. By communicating regularly and in a timely manner with the leaders of the contracting companies, the PMO created a positive construction environment.

Strengthening Quality Control

The project adopted several measures to strengthen quality control:

• ‘Quality Responsibility Agreements’ were signed between the PMO, contractors, designer and supervisors; • The procurement of the raw materials was controlled by strict testing in order to ensure the quality of the works; • Quality Assurance Systems were established by each contractor to ensure the quality of the works; and • The supervision consultants were assigned to the construction sites to fully control the construction through site supervision and site testing.

Any quality problems identified at the construction sites were solved through issuing instructions to the contractors. It was subsequently confirmed that the problems had been resolved.

Operational Experience

The TGE was opened to the traffic on January 16, 2004. The JPCD established the ‘Ganzhou Administration Division’ to be in charge of the operation, management and maintenance of the TGE. The TGE is in good condition.

The TGE is creating major economic and social benefits not only for the areas along the TGE, but for Jiangxi province as a whole. It has greatly contributed to the industrial and agricultural development in Jiangxi.

The traffic volume and toll revenue of TGE are rapidly increasing. The annual toll revenue collected from the TGE increased from US$33.3 m in 2004 to US$53.5 m in 2006 (+61%). Since the TGE is a major north-south route, meaning that the vast majority of vehicles do not pass through these stations, the actual income generated by the TGE is much higher.

The diversion of traffic from NH105 to the TGE has greatly reduced the traffic congestion on NH105 as well as improving the traffic safety.

Until 1 July 2006 the JPCD charged the toll by the rated tonnage of the truck and type of vehicles (exceptionally heavy, heavy, medium and small vehicles). However, a new system has been adopted which charges the toll by the actual weight of the cargo vehicles. This is helping to reduce the extent of overloading.

Maintenance of the TGE is done by the ‘Independent Taigan Maintenance Center’. This center is able to timely treat the defects and damages. Maintenance planning is supported by the Nationwide Road Database System (HDBS) and Pavement Management System (CPMS).

Environmental Experience

The State Environmental Protection Administration and Environmental Division of MOC organized the Jiangxi Provincial Environmental Protection Bureau, JPCD, Environmental Protection Bureau of Ji’an City, Environmental Protection Bureau of Ganzhou City and others to conduct an environmental acceptance inspection on the completion of environmental protection for TGE. After inspection, it was found qualified. A copy of the completion acceptance report had sent to the Bank in March 2005.

Local roads damaged during construction of TGE were rehabilitated from September 2003 to March 2004.

Procurement of Equipment

The project procured 15 items (23 units) of equipment with a total contract price of US$5.5 m. The equipments were divided into six packages and procured using ICB procedures. This equipment was to be used for road maintenance. Currently, it is in operation and has proved to be of use to the client.

Component B: Road Improvement in Poor Counties (RIPC)

The RIPC component consisted of improving about 182 km of rural roads. There were four roads, divided into eight different contract sections, in this component. The works started in August 2003 and were completed in November 2004.

The RIPC investments have promoted local economic development, greatly alleviated local poverty, and provided the opportunity for local tourism development. The good transportation links have particularly contributed to local resource exploitation and utilization.

Component C: Highway Safety

This component consisted of four activities: Safety at Highway Construction Sites, Study and Implementation of Highway Safety Audits, Identification of Black Segments and Black Spots on the Nanchang-Jiujiang Expressway and Highway Safety Seminars.

This was the first time to a highway safety program was conducted in Jiangxi Province. The implementation of the highway safety program laid a solid foundation for Jiangxi Province to carry out further highway safety activities. Many staff gained experience from the implementation of the highway safety program and became highway safety specialists. More and more people such as government officials, road designers, staff of road construction units, management and maintenance have become more aware of traffic safety. Under the influence of the highway safety program, some traffic safety studies such as Research on Expressway Pavement Management, Safety Audit of Newly-built Expressway, Research on Expressway Traffic Safety Evaluation System and others are

41 being conducted in Jiangxi Province. In recent years, the traffic accident rate has begun to decrease so it is a good start.

Component D: Institutional Development

The Jiangxi Provincial Highway Administration Bureau (JPHAB) was the implementing agency for the establishment of Independent Maintenance Centers (IMC). Wenzhen IMC and Yuanxiantai IMC were established in Nanchang city and Yichun city respectively. Both centers continue to operate very well.

The domestic training saw 537 persons with 315 person-months in total trained in the areas of resettlement, environmental protection, procurement, financial disbursement, construction supervision and other key areas.

Seven overseas study tours were completed with 45 persons for a total of 22.5 person- months. A further four overseas training courses were completed with 46 persons covering 46 person-months. These tours and courses covered quality management procedure and methods, application of FIDIC, measurement and construction supervision, construction supervision procedures and quality control methods, project financial evaluation methods, disbursement of project loan, fund raising for project construction , the World Bank’s procurement policy, procedure and methods, highway, tunnel and bridge design, planning and implementation of road safety, and maintenance management.

The outcome of the training was staff trained in the fields of highway management, highway design and planning, financial management, highway maintenance, traffic works and other key areas. The trained professional staff played an active role in the implementation of the project by using what they learned from the training.

Component E: Land Acquisition and Resettlement

Land acquisition and resettlement for the TGE was completed in January 2004, and for the interconnecting roads and RIPCs in July 2003. The land area needed for the TGE amounted to 1,077 ha, and the area of the relocated houses reached 246,071 m2. The Resettlement Completion Report was submitted to the WB on September 8, 2004 and the Bank found it to be satisfactory.

Performance of the Bank

The World Bank embarked on the preparation of the Second Jiangxi Highway Project in 2000. The Bank Mission reviewed the Feasibility Study Report prepared by the JPCD. The World Bank sent several missions to review the technical, organizational and economic aspects of the project and prepared the PAD. The PAD described the scope of the project, economic benefit and organization arrangement.

During the implementation of the project, the World Bank Supervision Missions provided practical and helpful recommendations on quality, financial management, project

42 organization and other areas. There was good cooperation between the World Bank and the PMO. The officials of the World Bank understood the high demands for traffic infrastructure in Jiangxi and provided help and advice. The People’s Government of Jiangxi Province and the JPCD appreciated the cooperation and assistance of the World Bank, and look forward to even better cooperation and assistance during the implementation of the Jiangxi III highway project.

Lessons Learned

As a World Bank financed project, the project cycle included project identification, preparation, project appraisal, negotiation and approval of the Board, all of which took nearly two years. The officials involved in the project from Jiangxi were an economist, financial analysis expert, resettlement and environmental experts and various types of engineers. The team learned from the World Bank how to identify the project, compare and select the alternatives, establish the project organization, prepare Project Implementation and Project Procurement Plans, identify and manage the risks etc. Although the preparation of a project was long relative to the construction time, it was a vital major long-term investment. It helped identify the best methods to solve the technical problems, to set up an appropriate organization, and to forecast and pre-treat relevant issues. The time spent was well invested.

The expressway civil works were procured through ICB and the contracts were awarded to the bidders of lowest price, thus the total price of the contracts was comparatively low. This meant that the World Bank’s loan could not be completely utilized. This meant that the PMO had a higher commitment fee and the financing cost was increased. The JPCD and the Bank should have addressed the potential loan saving issue by increasing the disbursement percentage earlier, or adding financed items in order to utilize the loan fully.

We suggest simplifying the procedure for loan withdrawals and disbursement in order to avoid the money shortage of special account, which always influences the financing of the project.

The World Bank financed projects have a great influence on the local resettlement policies and play an active role in formulating the resettlement activities. It would be better for the Bank not to request the Client to prepare the RAP in too much detail at the stages of pre-preparation and pre-appraisal. The living standard base survey should be done when conducting layout of right-of-way and after the construction drawing design. The World Bank actively urges China’s resettlement policy to be compatible with the international practices, but this takes time because China has its own special land ownership system and administration characteristics. For this reason the World Bank should properly takes into account of China’s land ownership system, administration characteristics and traditional conventions in order to implement the resettlement policy smoothly.

43 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

None.

44 Annex 9. List of Supporting Documents

1. The World Bank, Second Jiangxi Highway Project: Project Appraisal Document (No. 21826-CHA), May 7, 2001.

2. The World Bank, Second Jiangxi Highway Project: Loan Agreement (No. 4608- CHA), between the People’s Republic of China and the International Bank for Reconstruction and Development, December 18, 2001.

3. The World Bank, Second Jiangxi Highway Project: Project Agreement (No. 4608-CHA), between the Province of Jiangxi and the International Bank for Reconstruction and Development, December 18, 2001.

4. The World Bank, Aide-Memoires of the Second Jiangxi Highway Project from 2002 to 2006.

5. Jiangxi Provincial Communications Department, Resettlement Action Plan – Volumes 1 and 2, December 2000.

6. Jiangxi Provincial Communications Department, Resettlement Completion Report, August, 2004.

7. Jiangxi Provincial Communications Department, Environmental Monitoring Reports, 2002 to 2005.

8. Jiangxi Provincial Communications Department, Recommendation and Analysis of Toll Rates, August 2004.

9. Jiangxi Provincial Communications Department, Documents for ICR, 2006 to 2007.

45 CHINA SECOND JIANGXI HIGHWAY PROJECT TAIHE - GANZHOU EXPRESSWAY AND LOCAL ROAD COMPONENT

TAIHE - GANZHOU EXPRESSWAY (TGE) PROVINCE HIGHWAYS INTERCONNECTING ROAD COMPONENT COMPONENT NATIONAL HIGHWAYS Wan'an Connecting Road (Class II) TGE INTERCHANGES 1 EXISTING EXPRESSWAYS The total length:13.86 km

RAILROADS 2 Suichuan Connecting Road (Class II) PROVINCE HIGHWAYS The total length: 20.60 km RIVERS NATIONAL HIGHWAYS SEAT OF TOWN GOVERNMENT EXISTING EXPRESSWAYS LOCAL ROAD COMPONENT SEAT OF COUNTY GOVERNMENT RAILROADS Suichuan to Cheziao Highway: 79 km SEAT OF LOCAL GOVERNMENT 1 (Class II Highway: 26 km, Class III Highway: 53 km) RIVERS SEAT OF PROVINCE GOVERNMENT 2 Yutian to Xinjiang Highway: 46 km (Class III) PREFECTURE BOUNDARIES 3 Tangjiang to Dongshanzen Highway: 29 km (Class II) PROVINCE BOUNDARIES 4 Shashibu to Wangmudu Highway: 26 km (Class II)

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