Technical Assistance Report

Project Number: 36455 April 2006

People’s Republic of : Preparing the Central Roads Development Project

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

CURRENCY EQUIVALENTS (as of 17 April 2006)

Currency Unit – yuan (CNY) CNY1.00 = $0.1249 $1.00 = CNY8.0064

ABBREVIATIONS

ADB – Asian Development Bank EIA – environmental impact assessment GMS – Greater Mekong Subregion GDP – gross domestic product IPSA – initial poverty and social assessment PRC – People’s Republic of China REA – rapid environmental assessment TA – technical assistance VOC – vehicle operating cost YPCD – Yunnan Provincial Communications Department

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – General intervention Sector – Transport and communications Subsector – Roads and highways Themes – Sustainable economic growth and regional cooperation Subthemes – Promoting economic efficiency and enabling markets, and fostering physical infrastructure development

NOTE

In this report, "$" refers to US dollars.

Vice President C. Lawrence Greenwood, Operations Group 2 Director General H.S. Rao, East and Central Asia Department (ECRD) Director N. Rayner, Transport and Communications Division, ECRD

Team leader M. Ojiro, Principal Project Economist, ECRD Team members S. Ferguson, Senior Resettlement Specialist, ECRD Y. Li, Young Professional, ECRD

Map 1

99o 00'E 104o 00'E

CENTRAL YUNNAN ROADS DEVELOPMENT PROJECT IN THE PEOPLE'S REPUBLIC OF CHINA X I Z A N G

S I C H U A N

Shuifu 28 o 00'N 28 o 00'N Maliuwang Zhongdian

Shaotong

Lanping

Pangxieqing Huize G U I Z H O U

Dongchuan Daipu Fuyuan Xiangyun Shengjingguan Pingpo Dali Wuding Lianghe Baoshan Chongming Chuxiong Anning Lunan Longling Shilin

R e d Mile R G U A N G X I i v e r Suo Long Si Luocunkou r Shiping e

v

i R Jinggu Yuanjiang Kaiyuan Funing g Jianshui n Yanshan o k e M Pu'er MYANMAR Mohei Simao JiIangcheng

Hekou Xiaomengyang o o 24 00'N VIET NAM 24 00'N LAO PEOPLE'S DEMOCRATIC REPUBLIC Mohan

N Provincial Capital Proposed Project Road City/Town ADB-Financed Road 0 50 100 150 Railway Expressway River Expressway (under planning Kilometers or construction) Provincial Boundary Major Road International Boundary Boundaries are not necessarily authoritative.

99o 00'E 104o 00'E

06-0267a HR Map 2

o 99 00'E 104 o 00'E CENTRAL YUNNAN ROADS DEVELOPMENT PROJECT IN THE GREATER MEKONG SUBREGION G A N S U Q I N G H A I S H A A N X I

M

i n j i a n g

R Guangyuan i v e r J i a l i n g j i a n Mianyang g Dazhou R . Wanxian Nanchong . R o o 30 00'N g 30 00'N n a i j g H U B E I n a h T C S I C H U A N u o j X I Z A N G ia n g R Ya'an . CHONGQING H U N A N

Y a l o Leshan n g j i a n g

R N i v

e r r e v i R Lugu

g 0 50 100 150 200 n a i Maliuwang j Zhongdian Xichang a h s Kilometers n i J Shaotong Lijiang National Capital G U I Z H O U Provincial Capital Lanping Panzhihua City/Town Huize Pangxioqing Proposed Project Road Daipu Fuyuan ADB-Financed Road Pingpo Shengjingguan Xiangyun Expressway Dali Wuding Qujing KUNMING Expressway )under planning Chongming or construction) Lianghe Baoshan Chuxiong Anning Major Road Lunan Shilin Longling R Railway e d Yuxi Mile Ruili R River i Y U N N A N v e r Suo Long Si Luocunkou Provincial Boundary r Shiping Lincang e

v i Yuanjiang International Boundary R Jinggu Kaiyuan Funing Jianshui g Yanshan Boundaries are not necessarily authoritative. n o k Gejiu e Pu'er M Lashio Mohei G U A N G X I Simao Jilangcheng Hekou Lao Cai Xiaomengyang 24 o 00'N 24 o 00'N Jinghong MYANMAR

. g n Kengtung oR k e Mohan Loilem M Xay Gulf of Tonkin

Houayxay

Luangprabang VIET NAM Chiang Rai H A I N A N LAO PEOPLE'S DEMOCRATIC REPUBLIC THAILAND Pakxane

VIENTIANE M e k o n o o g 99 00'E R 104 00'E .

06-0267b HR

I. INTRODUCTION

1. During the 2006 Country Programming Midterm Review Mission for the People’s Republic of China (PRC), the Government confirmed its request for technical assistance (TA) to prepare the Central Yunnan Roads Development Project.1 The Asian Development Bank (ADB) Fact-Finding Mission (i) visited the PRC in February 2006; (ii) traveled to the project area; (iii) carried out an initial poverty and social assessment (IPSA) and rapid environmental assessment (REA), and held consultation meetings; and (iv) discussed economic, social development, and project-specific issues with officials of the central and local governments. This report is based on the agreement reached with the Government on the objectives, scope, costs, financing, terms of reference, and implementation arrangements for the TA, and the Mission's observations in the field.

II. ISSUES

2. Since 1979, the PRC’s gross domestic product (GDP) has grown by 9.6% annually. Per capita GDP increased from CNY379 in 1979 to CNY11,200 in 2005. More than two decades of economic growth and industrial restructuring have substantially increased demand for road transport to accommodate increased flows of goods, services, and people. From 1990 to 2004, the volume of road passengers grew by 9% annually, reaching 877 billion passenger-kilometers (km) in 2004 and accounting for 54% of total passenger transport. During the same period, road freight volume grew by 6% annually, reaching 760 ton-km and accounting for 11% of the total freight transport. Road transport was especially preferred by medium- and short-distance travelers as it carried 92% of total passengers and 74% of total freight in 2004. Despite rapid economic growth, the coastal and western regions face large and rising disparities. In 2004, GDP per capita was CNY55,307 in but only CNY6,733 (70% of the national average) in Yunnan Province. The long distance from major economic growth centers and inadequate transport infrastructure, together with geographical disadvantages, have impeded the development of the western region.

3. To facilitate the western region’s economic development and mitigate regional disparities, the Government launched the Western Region Development Strategy in 2000. Yunnan, a southwestern province with 44.5 million people and 394,000 square kilometers (km2), is among the 12 western provinces targeted by the strategy. It is one of the least-developed provinces, with the third-lowest GDP per capita among all provinces in 2004. Its average GDP growth rate in 2001–2005 was 8.9%, lower than the national average of about 10.0%. Poverty and the urban–rural disparity are the major issues. Of the province’s 128 counties, 73 are officially designated as poor. In 2005, the average annual disposable income was CNY9,250 for urban residents but only CNY2,000 for rural residents. Per capita GDP in the most developed urban district is almost 44 times that in the poorest rural county. Only 23% of the counties have a per capita GDP reaching the provincial average, and less than 10% reach the national average.

4. Inadequate road infrastructure, particularly in rural areas, has been a major obstacle to economic development and poverty reduction. The province’s road network is among the least developed in the PRC. By the end of 2004, expressways and high-standard highways (classes 1 and 2) amounted to 1,291 km and 3,326 km, respectively, of the total 167,050 km of roads in the province. In total, high-standard roads accounted for only 2.8%, which was much lower than the national average of 12.0%, and more than 90.0% of the roads are class 4 or unclassified. Road density is about 3.8 km per 1,000 inhabitants and 0.4 km per km2. Vehicle ownership grew by more than 15% annually in the past 10 years to 2.8 million in 2004, but road transport

1 The TA first appeared in ADB Business Opportunities on 8 February 2006.

2 development has lagged behind economic development: total freight transport volume in 2005 was 65 billion ton-km, in which road transport accounted for 58% or 38 billion ton-km, but the annual growth rate of road freight volume was only 5.1% in 2001–2005, lower than the total freight growth rate of 6.2% and much lower than the provincial GDP growth rate of 8.9%. Similarly, total passenger transport volume in 2005 was 34 billion passenger-km, in which roads accounted for 71% or 24 billion, but the annual growth rate of road passenger volume in 2001– 2005 was 7.3%, also lower than the total passenger growth rate of 7.5% and the provincial GDP growth rate.

5. Studies and evaluations of several completed road projects financed by ADB2 and the World Bank 3 show that road investments reduce poverty. Road development that is well integrated with local roads and supports transport services helps ensure that the benefits derived from expressways filter down to the poor. The Government plans to invest CNY100 billion in developing rural roads during the 11th Five-Year Program (2006–2010). The Government’s commitment to reducing poverty through transport infrastructure is reflected in the poverty partnership agreement between the Government and ADB.4 In Yunnan in the past 5 years, the Government has invested CNY77.8 billion in road development, CNY32.3 billion of which in local roads, but it has difficulty sustaining this level of investment even with the Government’s grant.

6. Yunnan has abundant natural resources. It has about 17.7 billion tons of coal reserves, ninth highest in the PRC; its reserves of 25 minerals are among the top three; its reserves of high-quality iron and ore, lead, zinc, and tin rank first, and copper and nickel, third. It is the richest in indium and cadmium, and the second richest in silver, germanium, and platinum. Three billion tons of phosphorus ore reserves have been proven, ranking first. High-value cash crops include tobacco and sugar cane, both ranked first. Yunnan is also rich in tourism resources. It has more than 2 million hectares (ha) of nature reserves, the largest in the country, making up 5.1% of the province’s total area. It has 6 national reserve parks, 43 provincial reserve parks, and 55 prefecture or county reserves. The province’s tourism revenue in 2005 was CNY41 billion, accounting for 12% of its total GDP. The revenue growth rate during 2001– 2005 was 14%, much higher than the industrial growth rate of 9% and the agriculture growth rate of 5%. Mountainous terrain and inadequate transportation have limited the shipping of natural resources and the travel of domestic and international tourists. Investment in roads is expected to substantially improve accessibility, and thereby provide jobs and income for local people. Township and village enterprises, facilitated by road development, will be a major source of rural jobs and economic development.

7. Since the PRC’s membership in the World Trade Organization in December 2001, promoting international trade has assumed increasing importance for the Government. Located in the PRC’s southwest, adjoining Lao People’s Democratic Republic, Myanmar, Thailand, and Viet Nam, Yunnan is well placed. In 2000–2005, the province’s international trade grew by 21% annually, reaching $4.7 billion in 2005, and Myanmar is the province’s largest trade partner. Since 1995, the average trade growth rate between the PRC and the Association of South East Asian Nations has reached 15% annually. Ten Association of South East Asian Nations

2 In Liaoning and Yunnan provinces, construction of expressways, complemented by upgrading of local roads, was associated with a significant increase in rural incomes in the project area (ADB. 2000. Project Completion Report on the Liaoning Expressway Project in the People’s Republic of China. Manila; ADB. 2001. Project Completion Report on the Yunnan Expressway Project in the People’s Republic of China. Manila; and ADB. 2006. Project Completion Report on the Southern Yunnan Road Development Project in the People’s Republic of China. Manila). 3 Hajj, Hatim, and V. Settee Pendakure. 2000. Roads Improvement for Poverty Alleviation in China. Working Paper No. 1. Washington, DC: World Bank, Transport Sector Unit, East Asia and Pacific Region. 4 Available: http://www.adb.org/Documents/Poverty/pa_prc.pdf 3 members and the PRC reached an agreement in November 2004 to create the world's largest free trade zone by 2010 with 2 billion people. ADB supports regional integration and launched the Greater Mekong Subregion (GMS) initiative in 1992. The GMS Cross-Border Transport Agreement was ratified by all the six GMS governments by 2005, and is expected to be fully implemented by 2008. In Yunnan, ADB has financed three road projects, all part of the GMS transport network planned to ease cross-border trade and investment. Major traded products include agriculture produce, textile products, natural resources, home electric appliances, and motorcycles. An efficient and safe road transport system is more flexible and responsive to the needs of the market economy than other transport modes.

8. The proposed Project represents the fourth road project in Yunnan under ADB financing. The first two projects 5 have been successfully completed while the third one 6 is being implemented satisfactorily. The fourth will be an important section of the transport link between western PRC and the GMS countries. The proposed project expressway, connecting Kunming and Wuding (Map 1), constitutes a 66 km access-controlled four- to six-lane expressway with designed speed of 80–100 km per hour. The Project expressway will be supported by associated local road upgrading and other complementary components. The project area includes Xishan district; and Fumin, Luquan, and Wuding counties. The existing class-2 road between Kunming and Wuding comprises the 9 km Wuding–Luquan section and the 71 km Luquan–Kunming section. With the development of the western economic corridors, the road is saturated with about 6,600 vehicles daily and cannot meet rapidly increasing traffic demand. Its technical standard confines the average speed on the road to less than 40 km per hour, which cannot meet rising demand for movement of goods and passengers.

9. From a broader regional perspective (Map 2), the proposed Project will be an important link to extend the cross-border expressway network from Kunming to Chengdu, the capital city and economic center of Province; then to Mianyang, a manufacturing production base in Sichuan; and onward to Xi’an, , and finally . It forms the starting section of the economic corridor of Kunming–Chengdu–Xi’an, a part of the Beijing–Kunming section that is one of the seven national expressways radiating from Beijing in the National Expressway Network Plan approved in 2005. It is also an important link in the Kunming– corridor in the PRC’s Western Corridors Development Plan. There are three ADB-financed road projects in this corridor: from Xichang to Panzhihua;7 from Ya’an to Lugu;8 and from Wudu to the Sichuan– Gansu border, which is under processing for ADB consideration in 2006. These expressways will support regional integration and facilitate the movement of goods, services, and people between western PRC and the GMS countries.

10. ADB’s operational strategy in the PRC’s road sector focuses on (i) constructing roads that connect major growth centers and improve access in the western and central regions; (ii) integrating the national trunk highway system with local road networks; (iii) developing roads that support the regional cooperation initiatives, including GMS; (iv) promoting road safety and reducing vehicle emissions; (v) strengthening the corporatization and commercialization of expressway organizations; (vi) adopting pricing policies to ensure optimum use of road transport

5 ADB. 2001. Project Completion Report on the Yunnan Expressway Project in the People’s Republic of China. Manila; and ADB. 2006. Project Completion Report on the Southern Yunnan Road Development Project in the People’s Republic of China. Manila. 6 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Western Yunnan Roads Development Project. Manila. 7 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Southern Sichuan Roads Development Project. Manila. 8 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Central Sichuan Roads Development Project. Manila.

4 capacity; and (vii) using alternative methods of financing, including private sector participation. Since 1991, ADB has provided 32 loans, totaling nearly $6.4 billion, to finance about 4,455 km of expressways, together with 8,366 km of associated local road networks. Since 1995, local roads have been included in the scope of road projects to make ADB’s interventions in the road sector more pro-poor.

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

11. The TA will help develop an integrated road transport system supporting sustainable economic growth in Yunnan Province and facilitating cooperation among GMS countries. The TA will (i) help the Yunnan Provincial Communications Department (YPCD) upgrade the feasibility study, including an environmental impact assessment (EIA) and a resettlement plan, to ensure that the Project conforms with ADB’s requirements; and (ii) review road sector issues and provide the basis for strengthening the ongoing policy dialogue with the Government in key areas, focusing on poverty reduction, road safety, vehicle emission, trade facilitation and regional integration, commercialization and corporatization, private sector participation, pricing policies for road users, and transport services. The output will be a project suitable for ADB financing. A design and monitoring framework, outlining the expected impact, outcome, outputs, and activities is in Appendix 1.

B. Methodology and Key Activities

12. The IPSA and REA (Appendix 2) carried out during fact-finding helped identify the social and environmental issues that need to be addressed during project preparation. The Fact- Finding Mission also reviewed the need to assess the social and environmental aspects for which ADB has established policies and norms of good practice. The IPSA examined poverty conditions, minority issues, resettlement effects, gender issues, and vulnerable groups, and concluded that the key social issues to be assessed during project preparation are poverty impact, resettlement effects, and an impact on ethnic minorities. The IPSA concluded that the Project should be in involuntary resettlement category A,9 requiring a full resettlement plan. The REA concluded that the Project should be in environmental category A, requiring a full EIA. The TA will examine the project documents, and prepare a Project that is feasible technically, economically, and financially and in compliance with ADB’s safeguard policies on the environment, resettlement, and indigenous people. The TA will help develop a results-based monitoring system with adequate baseline data. The key activities will include field surveys, document review, data analysis, and discussion with stakeholders, including government officials, project beneficiaries, and project-affected people.

C. Cost and Financing

13. The total cost of the TA is estimated at $625,000, of which the Government has requested ADB to finance $500,000 (Appendix 3). The TA will be financed on a grant basis by ADB’s TA funding program. The Government will finance the balance equivalent to $125,000 by providing counterpart staff, office facilities, and other support services. The Government has been informed that TA approval does not commit ADB to finance any ensuing project.

9 The proposed Project is likely to require about 416 ha, affecting about 5,000 people. 5

D. Implementation Arrangements

14. The TA will require 34 person-months of consulting services (12 international and 22 domestic), spread over 4.5 months, to carry out the work as defined in the terms of reference (Appendix 4). The consulting firm will be engaged by ADB using the simplified technical proposal procedures and quality- and cost-based selection method in accordance with the Guidelines on the Use of Consultants by the Asian Development Bank and Its Borrowers and other arrangements satisfactory to ADB for the engagement of domestic consultants. The international consultants will have expertise in (i) highway engineering, (ii) transport economics, (iii) financial analysis and expressway operations, and (iv) poverty and social analysis. Expertise required for domestic consultants will be in (i) highway engineering, (ii) transport economics, (iii) financial analysis and expressway operations, (iv) environmental analysis, (v) resettlement planning, (vi) poverty and social analysis, and (vii) transport service and trade facilitation.

15. YPCD will be the Executing Agency and appoint counterpart staff to coordinate and supervise TA activities, including (i) monitoring progress, (ii) resolving issues that arise during implementation, (iii) assisting in arranging meetings, and (iv) liaising with various government agencies and organizations. The Ministry of Finance will ensure coordination among the National Development and Reform Commission, Ministry of Communications, State Environmental Protection Administration, Ministry of Land and Resources, YPCD, and other government agencies relevant to the TA. Workshops involving the Government, ADB, and the consultants will be held in the PRC to review the consultants’ reports. The consultants are expected to be fielded by July 2006, and their work will be carried out over 4.5 months, and completed in November 2006.10 The consultants’ final report will be posted on ADB’s website upon TA completion.

IV. THE PRESIDENT'S DECISION

16. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $500,000 on a grant basis to the Government of the People’s Republic of China for preparing the Central Yunnan Roads Development Project, and hereby reports this action to the Board.

10 The TA account is expected to be closed on or before 31 January 2007, allowing time to receive all the necessary documents from the consultants and YPCD.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Performance Data Sources/ Assumptions Summary Targets/Indicators Reporting and Risks Mechanisms Impact Assumptions An integrated road GDP and rural income Provincial and county • Government and transport system increase, and poverty statistics bureaus ADB sign a loan supporting decreases in the project area. agreement. sustainable economic growth International trade between National and • The Project is in Yunnan Yunnan and neighboring GMS provincial statistics designed as Province and countries increases. bureaus agreed upon facilitating regional during appraisal. cooperation in GMS countries A road transport system Provincial • Forecast integrating expressway, local communications economic growth roads, and transport services department and rates are realistic is established. project completion and achievable. report Outcome Assumptions Project design, Memorandum of Memorandum of • The Government feasibility study, understanding signed by the understanding is willing to and related project Government and ADB during change its documents the Appraisal Mission in March priorities. improved to a level 2007 suitable for ADB • The Government financing and obtains necessary agreed upon by sources of Government and funding. ADB Outputs Assumption 1. Technical Inception report and interim ADB document • Stakeholder assessments report submitted to the registration participation and completed Government and ADB by July ownership are 2006 and August 2006, Government effective. respectively document registration Risk 2. Project design Summary EIA and EMP, • Availability and requirements poverty and social analysis, TA workshops to access to accomplished resettlement plan, ethnic report findings of the information and minorities development plan, consultants at government and results-based monitoring inception, interim, personnel may be system submitted to and draft final report restricted. Government and ADB by stages October 2006

Draft final report and final report submitted to the Government and ADB by

Appendix 1 7

Design Performance Data Sources/ Assumptions Summary Targets/Indicators Reporting and Risks Mechanisms October 2006 and November 2006, respectively Activities with Milestones Inputs 1.1 Analyze transport demand in the region (by August 2006). • 12 person-months 1.2 Assess road infrastructure (by August 2006). of international 1.3 Assess transport services (by August 2006). and 22 person- 1.4 Review the technical and financial aspects of local road maintenance months of (by August 2006). domestic 1.5. Develop a results-based monitoring system, including performance consulting indicators (by August 2006). services 1.6 Recommend policy reform measures and institutional development • ADB: $500,000 needs (by August 2006). • Government: 1.7 Review the potential for private sector participation (by August 2006). $125,000 1.8 Complete the baseline survey (by August 2006).

2.1 Consult stakeholders, including government officials, project beneficiaries, and project-affected people, including women and the poor (by September 2006). 2.2 Carry out a social and poverty assessment (by September 2006). 2.3 Carry out financial and economic analyses (by October 2006). 2.4 Carry out institutional analysis (by October 2006). 2.5 Complete summary EIA, EMP, RP, and EMDP (by October 2006). 2.6 Finalize the project design and monitoring framework (by November 2006). ADB = Asian Development Bank, EIA = environmental impact assessment, EMP = environment management plan, EMDP = ethnic minorities development plan, GDP = gross domestic product, GMS = Greater Mekong Subregion, RP = resettlement plan, TA = technical assistance.

8 Appendix 2

SOCIAL AND ENVIRONMENTAL ASSESSMENTS

Table A2.1: Initial Poverty and Social Analysis

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? No

Contribution of the sector or subsector to reduce poverty in the People’s Republic of China:

The transport sector helps reduce poverty (i) directly by improving access to markets, jobs, and social services; and (ii) indirectly by stimulating economic development. Poverty in the project area is mainly caused by the poor environment in this mountainous area and by lack of good transportation. The project road will link to Kunming, the capital of Yunnan. The expressway will be an important transport link in the Kunming–Lanzhou corridor, one of the PRC’s eight western development corridors and a missing link of the Beijing–Kunming section, one of the seven radiating expressways from Beijing in the PRC’s National Expressway Network approved in 2005. The Project will (i) reduce travel distance, time, and cost for passenger trips and freight transport; and (ii) improve trade between western PRC and the GMS countries, thereby developing the economy, creating jobs, and improving access to social services.

B. Poverty Analysis Targeting Classification: General intervention

The Project will directly reduce poverty by creating construction jobs in the short term; improving access to markets for cash crops such as medicinal herbs, tobacco, sugar cane, and tea leaves; and attracting tourists. The Project will help develop the economy and thereby indirectly provide jobs and income-generating opportunities for local people.

The Project will improve access to social services in the county centers and larger cities. Transportation is inconvenient and education and medical facilities are basic. Per capita GDP in Luquan County, a major project- affected area, was only CNY2,600 in 2003, 46% of the provincial and 26% of the national average. The project area (three counties and four urban districts) has two nationally designated poverty counties. Many of the poor are members of ethnic minorities living in remote mountainous areas.

A detailed poverty analysis will identify the causes of poverty in the project area and demonstrate how the Project will help reduce poverty by incorporating specific measures in its scope. The analysis will be based on the Handbook on Poverty and Social Analysis.

C. Participation Process

Is there a stakeholder analysis? Yes No

Major stakeholders include YPCD, local government, transport companies, local businesses, and local residents. Consultation began during the preparation of the preliminary feasibility study, which focused on the alternatives for the expressway alignment. Further consultation will be carried out for the EIA, resettlement planning, poverty and social analysis, and ethnic minorities development plan.

Is there a participation strategy? Yes No

Local people will be consulted during the feasibility study, TA implementation, and preliminary design to (i) determine the expressway alignment; (ii) prepare village resettlement plans; (iii) formulate poverty reduction measures, including local roads and public transport services; (iv) identify special measures for ethnic minorities; and (v) prepare for construction jobs.

D. Gender Issue

Strategy to maximize impacts on women:

The TA will investigate opportunities to enhance the benefits to women through (i) improved public transport service, (ii) local road improvement, and (iii) rural business development, all of which lead to better access to education, health care, and markets. Focus will be on remote villages, where females tend to drop out of school and have limited skills for outside work. The ethnic minorities development plan and the resettlement plan will also include special measures

Appendix 2 9 to improve conditions for women.

Has an output been prepared? Yes No. This will be prepared during the TA.

E. Social Safeguards and other Social Risks

Significant/ Nonsignificant/ Strategy to Address Issues Plan Required None

Significant A resettlement plan will be prepared in accordance with Government regulations and ADB’s policy on involuntary Resettlement Full RP to be Not resettlement.a The plan will be disclosed to the public and prepared significant project-affected people. Internal and external monitoring arrangements will be put in place. None

Significant Affordability The Project will reduce the cost of transportation and Yes Not goods purchased from outside. Tolls are already charged significant on the existing highway. No

None

Significant In the short term, the Project will create construction jobs; Yes Labor in the long term, it will create jobs through economic Not multiplier effects. The Project will not have adverse impact significant No on labor issues.

None

Significant The EMDP will be prepared in accordance with ADB’s

Indigenous policy on indigenous peoples.b The plan will be disclosed EMDP to be Not Peoples to the public and project-affected people. Monitoring prepared significant arrangements will be put in place.

None

Significant

Other Risks/ The risk of HIV/AIDS and other STDs will be assessed Yes Vulnerabilities Not during the TA. Prevention measures will be prepared. significant No

None ADB = Asian Development Bank, EIA = environmental impact assessment, EMDP = ethnic minorities development plan, GMS = Greater Mekong Subregion, GDP = gross domestic product, HIV/AIDS = human immunodeficiency virus/acquired immunodeficiency syndrome, PRC = People’s Republic of China, RP = resettlement plan, STD = sexually transmitted disease, TA = technical assistance, YPCD = Yunnan Provincial Communications Department.

a ADB.1995. ADB’s Policy on Involuntary Resettlement. Manila. b ADB. 1998. ADB’s Policy on Indigenous Peoples. Manila.

10 Appendix 2

Table A2.2: Rapid Environmental Assessment

Screening Questions Yes No Remarks

A. Project Siting Is the project area adjacent to or within any of the following environmentally sensitive areas?

(i) cultural heritage site, X

(ii) protected area, X Several small rivers will be crossed, but (iii) wetland, X no wetland areas will be affected.

(iv) mangrove, X

(v) estuarine, X

(vi) buffer zone of protected area, and X To be confirmed during the TA

X None reported (vii) special area for protecting biodiversity. To be confirmed after receiving the EIA report

B. Potential Environmental Impacts Will the project cause: (i) encroachment on historical and/or cultural areas? X None reported on the alignment To be confirmed by specialists during the (ii) disfiguration of landscape by road embankments, X TA cuts, fills, and quarries? The alignment goes through mainly mountain valley; measures for landscape preservation will be reviewed during the TA. (iii) encroachment on precious ecology (e.g., sensitive X Routing indicates no encroachment on or protected areas)? protected areas. (iv) alteration of surface water hydrology of waterways The alignment will cross small creeks but crossed by roads, resulting in increased sediment in X no major rivers; mitigation measures will streams affected by increased soil erosion at be included in the environment construction site? management plan.

(v) deterioration of surface water quality due to silt Sanitation measures will be required to runoff and sanitary wastes from worker-based camps X prevent water pollution. and chemicals used in construction?

(vi) increased local air pollution due to rock crushing, Siting and operation of construction cutting and filling works, and chemicals from asphalt X equipment will minimize any potential processing? pollution.

(vii) noise and vibration due to blasting and other civil X Mitigation measures will be required in works? some places.

(viii) other social concerns relating to inconveniences in Possible risk because of air pollution and living conditions in the project areas that may trigger X fuel leaks; mitigation measures will be cases of upper respiratory problems and stress? included in the environment management plan.

Appendix 2 11

Screening Questions Yes No Remarks (ix) hazardous driving conditions where construction Construction procedures will be required interferes with pre-existing roads? X to minimize hazards.

(x) poor sanitation and solid waste disposal in X Sanitation and solid waste facilities will be construction camps and work sites, and possible provided. transmission of communicable diseases from workers to X Public health awareness will be provided local populations? to construction workers and nearby communities. (xi) creation of temporary breeding habitats for X During construction, some prevention is mosquito vectors of disease? required.

(xii) dislocation and compulsory resettlement of people A full resettlement plan will be prepared. living in right-of-way? X

(xiii) accident risks associated with increased vehicular Road safety program will be strengthened traffic, leading to accidental spills of toxic materials and X with the Project, thereby reducing loss of life? accident risk. Emergency response measures will need to be implemented. (xiv) increased noise and air pollution resulting from Emissions are expected to increase traffic volume? X slightly with increasing traffic, but will be offset by introduction of more stringent emission standards. (xv) increased risk of water pollution from oil, grease Road conditions will improve, thereby and fuel spills, and other materials from vehicles using X reducing accident risk. the road? EIA = environmental impact assessment, TA = technical assistance.

12 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($’000)

Total Item Cost A. Asian Development Bank (ADB) Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 245 ii. Domestic Consultants 120 b. International and Local Travel 40 c. Reports and Communications 15 2. Office Equipmentb 12 3. Surveys, Workshops, and Miscellaneous Administration Support Costs 38 4. Representative for Contract Negotiationsc 5 5. Contingencies 25 Subtotal (A) 500

B. Government Financing 1. Office Accommodation and Transport 75 2. Remuneration and Per Diem of Counterpart Staff 40 3. Others 10 Subtotal (B) 125

Total 625 a Financed by ADB's technical assistance funding program. b Including computer hardware and software, photocopier, facsimile machine, and other office equipment to be procured under the consultant's contract and its ownership will be transferred to the Government. c Includes the cost of government observers to attend contract negotiations at ADB headquarters. Source: ADB estimates.

Appendix 4 13

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

A. Highway Engineering

1. Review all technical aspects presented in the feasibility study and available engineering designs. In view of the difficult topography in the project area, a thorough technical review is required, including (i) horizontal and vertical alignment; (ii) subsurface investigation, particularly where tunnels are proposed; (iii) pavement, bridge, and tunnel design options; (iv) drainage facilities; (v) siting and configuration of interchanges, toll stations, and service areas; (vi) provision for cross expressway access; and (vii) road safety features. Assess the need for a review of the pre-final design documents for major structures depending on the complexity, and if found necessary, carry out the review prior to its finalization. Based on traffic volumes, forecast traffic, traffic mix, and axle loads, review the adequacy of the proposed road capacity and pavement design, and recommend measures to prevent overloading on the project expressway. Review current design methodology in relation to road safety and road safety monitoring system and latest accident statistics in Yunnan and the project area. Design a suitable road safety component for inclusion in the Project.

2. Prepare an inventory of the local roads for each county of the project area. Identify an improvement program for secondary and tertiary road networks, including provincial, county, and township roads. Give particular attention to including roads in poverty and minority counties and townships. In cooperation with the social and poverty specialist and transport economist, explore the possibility to introduce “roadside station” concept as part of the Project. If feasible, prepare design, costs, financing, rental rate, cost recovery, and facilities.

3. Review bills of quantities, unit prices, and costs of (i) civil works for expressway construction and road improvement, and (ii) equipment and other facilities to be procured under the Project. Review the current road maintenance operation and management systems. Estimate the costs of routine and periodic maintenance for the expressway and local road development components. Recommend suitable road maintenance operation and management systems and necessary equipment.

B. Transport Economics

4. Review the current status and future plans of road development in the People’s Republic of China (PRC) and Yunnan Province, including the project area. Identify the role of the Project in the framework of the Government’s Western Region Development Strategy in supporting pro-poor growth and reducing poverty in western PRC in general and in Yunnan in particular.

5. Review traffic counts and origin–destination surveys, and obtain any additional necessary information on the present pattern of traffic by vehicle type and mode in the zone of influence of the Project. Assess the capacity of the existing road networks and the effects of the capacity constraints on vehicle operating costs (VOCs), travel time, and patterns of transport movement. Review VOC information by vehicle type, calculate VOCs for existing and proposed road networks, and quantify the benefits using shadow prices. Assess the extent of the benefits which will be passed onto transport users from reduced VOCs through lowered passenger fares and freight charges.

6. Undertake economic evaluation in accordance with the Asian Development Bank’s (ADB) Guidelines for Economic Analysis of Projects for the Project, comprising various components, during construction and operation by calculating the economic internal rate of return. A standard

14 Appendix 4

conversion factor or a shadow exchange rate factor will be used. The analysis should take into account construction, operation and maintenance costs, VOCs, passenger and freight time savings, producer surplus, accident savings, and any other quantifiable benefits attributable to the Project. Undertake sensitivity analysis, calculate switching values, and carry out risk analysis.

7. Carry out distribution analysis of project benefits, calculate the poverty impact ratio, and undertake a cause-and-effect analysis. Develop a results-based monitoring system, using the design and monitoring framework in an ADB format, including monitoring indicators that will be used to assess project performance, and baseline and target values for the selected indicators.

C. Financial Analysis and Expressway Operations

8. Review and update the proposed financing plan of the Project. Calculate a discounted return to equity over the project life, and assess its attraction for private investment. Financially evaluate the Project during construction and operation by calculating the financial internal rate of return, using proposed toll rates, and compare it with a weighted average cost of capital. Determine and justify appropriate toll rates by vehicle type, taking into account the relationship between the toll rates and cost of providing the road services. Undertake sensitivity tests and risk analysis.

9. Assess and prepare financial projections for a proposed expressway operating entity over 10 years of expressway operation based on ADB’s Guidelines for the Financial Management and Analysis of Projects (2005). The financial assessment of the operating entity should include (i) corporate planning and budgetary control, (ii) financial and management accounting, (iii) cost accounting, (iv) internal control and audit system, and (v) data processing. In light of ADB’s policy on governance,1 recommend ways to improve corporate governance of the expressway operating entity.

10. Review the current status of private sector participation in expressway development and operations in Yunnan and assess the potential for operating the project expressway as a corporation or as a concession by the private sector. Identify arrangements to implement such a strategy, considering options such as leasing, securitization, joint venture, build-operate-transfer, and other arrangements for operation and maintenance.

D. Social and Poverty Analysis

11. Prepare socioeconomic and poverty profiles for the project area. The information should include population, income levels, occupations, unemployment, education levels, health conditions, transport expenditures, and other relevant socioeconomic data, separated by gender and ethnicity. Poverty incidence will be assessed based on the government poverty lines and $1 a day (equivalent to CNY900 per year). Review the government’s policy, strategy, and programs for poverty reduction and regional economic development. Conduct surveys to develop a profile of transport services and costs, which are available in the project areas, and assess whether accessibility is affordable for low-income groups.

12. Based on the initial poverty and social analysis, conduct a full poverty and social analysis in accordance with ADB’s Handbook on Poverty and Social Analysis (2001) and Policy on Indigenous Peoples (1998). Assess how the proposed Project may help improve people’s livelihoods. Assess gender issues, ethnic minority issues, identify vulnerable groups, and

1 ADB. 1995. ADB’s Policy on Governance. Manila.

Appendix 4 15 recommend measures to address impacts and promote development opportunities during construction, and operation and maintenance of the Project. Estimate (i) the number of project beneficiaries by area, occupation, and income; and (ii) the number of adversely affected people by type of impact. Assess the risks of HIV/AIDS and human and drug trafficking caused by the Project and propose mitigation measures for any high-risk groups. Quantify how the Project will improve benefits for local people by income group and ethnicity. Formulate an ethnic minorities development action.

13. Help establish consultation and participatory processes during project preparation that will continue throughout project design, construction, and operation. Stakeholders should be identified and representatives consulted so their needs and demands can be considered for incorporation into the Project or as parallel initiatives. Prepare a stakeholder participation and consultation report.

E. Environmental Impact Assessment 14. Review the project environmental impact assessment (EIA) to ensure it conforms to ADB’s Environment Policy (2002). Assist the Yunnan Provincial Communications Department (YPCD) to carry out further investigations and analysis, and to finalize the environmental impact statement, management plan, and monitoring plan. Prepare a summary EIA in accordance with ADB requirements and a loan-processing schedule. Ensure that an EIA includes (i) mitigation of construction activity impacts; (ii) investigation and excavation procedures for cultural relics; (iii) road safety measures; (iv) containment and cleanup of hazardous or toxic chemical spills; and (v) the benefits of proposed environmental enhancement measures that include the construction of sewer mains, trees, and other green space within the right-of-way.

15. Assess the environmental conditions in the project area through site investigation, including natural resources, forests, cultural sites, and historical monuments, as well as the current negative environmental impacts resulting from industrial activities and road traffic. Review the secondary environmental impacts arising from mineral exploitation, tourism, etc., and propose mitigation measures. Review the Government’s plan to reduce adverse environmental impacts. Assess the direct and indirect environmental impacts of the Project resulting from construction activities or operation.

F. Resettlement Planning

16. Review the draft resettlement plan and help YPCD make modifications as required to comply with ADB’s policy on involuntary resettlement.2 The resettlement plan should address all project components. Prepare a socioeconomic profile of project-affected households based on a socioeconomic survey of 10% of the project-affected population (including 20% of the seriously affected population), including income levels and sources, housing conditions, expenditure patterns, landholdings, skills base, and assets. Using primary and secondary data, assess the socioeconomic condition of affected townships and villages/neighborhoods. Assess the socioeconomic conditions, needs, and priorities of women affected by land acquisition and resettlement; identify specific measures to assist them; and ensure that land acquisition and resettlement do not disadvantage women. The resettlement plan must include a social impact assessment of project-affected people, land, assets, and occupations, indicating how the project impacts on different groups.

2 ADB.1995. ADB’s Policy on Involuntary Resettlement. Manila.

16 Appendix 4

17. Assess and justify that (i) the compensation standards are based on replacement value; (ii) the overall resettlement budget is sufficient to implement the resettlement plan based on the proposed entitlements and rehabilitation plans; (iii) land is to be redistributed, confirm that adequate land is available for reallocation without negatively affecting the host population; and (iv) if relocation sites will be developed, ensure that project-affected people are consulted on the selection of sites and services. For seriously affected villages, prepare village economic rehabilitation plans to restore incomes of project-affected and host people. For affected households, assess the risks from land acquisition and related project impacts and formulate appropriate rehabilitation measures in consultation with project-affected people to ensure they are not worse off as a result of the Project.

18. Help YPCD prepare a public consultation and disclosure plan, develop a format for documenting consultation with project-affected people, and initiate a participatory process for resettlement plan preparation and implementation among affected communities, local leaders, proponents, and other stakeholders. Help the YPCD prepare a resettlement information booklet for distribution to all project-affected villages and households. Review the organizational structure and capacity for resettlement implementation and recommend improvements and actions required before the start of land acquisition. Provide training to YPCD and local government staff on the ADB’s Policy on involuntary resettlement (footnote 2) requirements and procedures.

G. Road Transport Services and Trade Facilitation

19. Assess the provision of trucking and public transport services in the project area in terms of pricing, quality, and frequency of service. Assess the degree of competition and the proportion of the reduced transport costs that are likely to be passed on to end users. Review the conditions of road transport services, including passengers and freight in Yunnan in general, and in the project area in particular, and examine how such services can be improved to provide efficient services in the poor remote areas. Recommend suitable components, e.g., public transport center, freight distribution center, improvement of bus services, and any others, for inclusion in the Project.

20. Review the current status of trade between Yunnan and neighboring Greater Mekong Subregion (GMS) countries. Evaluate the potential of trade development between western PRC and the GMS countries after the completion of the proposed Lanzhou–Kunming corridor and the Beijing–Kunming corridor. Assess the impact of the Project on trade in the short and long terms. Recommend practical project components to facilitate trade, considering physical infrastructure, policy and institutional measures, and capacity building in selected cities, such as Hekou and Kunming, e.g., intermodal transfer stations, warehouses and centralized distribution centers, economic development zones, trade and logistic management information systems, staff training in international trade standard, promotion measures, trade documentation and practice accepted by international importers and exporters, carriers, banks and insurance companies, and cross-border supply-chain management.