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Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 45 164-CN

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$150 MILLION

TO THE

PEOPLE’S REPUBLIC OF

FOR A

HUBEI YIBA HIGHWAY PROJECT Public Disclosure Authorized

March 2,2009

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

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World

Public Disclosure Authorized Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective June 30,2008)

Currency Unit = Yuan (RMB) Y 1.00 = US$0.14 US$l.OO = Y 6.90

FISCAL YEAR January 1 - December 31

ABBREVlATIONS AND ACRONYMS

AADT Average Annual Daily Traffic AusAID Australian Government Overseas Aid Program CESC Client’s Environmental Supervision Consultants CFAA Country Financial Accountability Assessment CLS Complaint Logging System CPS Country Partnership Strategy CQ Consultant Qualification DA Designated Account EIA Environmental Impact Assessment EM Environmental Monitors EMDP Ethnic Minorities Development Plan EMP Environmental Management Plan EPB Environmental Protection Bureau ESRP Environmentally and Socially Responsible Procurement NEN National Expressway Network FIRR Financial Internal Rate of Return FM Financial Management FSL Fixed Spread Loan GOC Government of China HERO Expressway Resettlement Office HPAO Hubei Provincial Audit Office HPCD Hubei Provincial Communications Department HPFB Hubei Provincial Finance Bureau HPHDI Hubei Provincial Highway Design Institute HPYECH Hubei Provincial Yiba Expressway Construction Headquarters HYEMD Hubei Yiba Expressway Management Division ICB International Conipetitive Bidding ICR Implementation Conipletion Report IEC Information, Education and Consultation Communication Km Kilometer M Million M Meter m2 Square meter MOC Ministry of Communications MOCN2 Second National Survey and Design Institute from MOC MOF Ministry of Finance Mu Chinese measure of land area (15 niuihectare) NCB National Competitive Bidding NDRC National Development and Reform Commission NEN National Expressway Network NPV Net Present Value NTHS National Trunk Highway System PCU Passenger Car Units PDO Project Development Objective PDRC Provincial Development Reform Commission PRC People’s Republic of China QCBS Quality-Cost Based Selection RAP Resettlement Action Plan RPF Resettlement Policy Framework SA Special Account SBD Standard Bidding Documents SCMS Safeguards Compliance Monitoring System SEA Strategic Environmental Assessment SEPA State Environmental Protection Agency SIA Social Impact Assessment SIDA Swedish International Development Cooperation Agency SIL Specific Investment Loan SMS Short Message Service: a way of sending text messages via mobile telephone SOE Statements of Expenditure TA Technical Assistance TOR Terms of Reference VSL Variable Spread Loan WBFPO The HPCD World Bailk-Financed Project Office YBE -Badong Expressway

Vice President: James W. Adams Country Director: David Dollar Sector Director John Roome Sector Managers: Junhui and Ede Jorge Ijjasz-Vasquez Task Team Leader: Christopher R. Bennett FOR OFFICIAL USE ONLY This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

CHINA Hubei Yiba Highway Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B . Rationale for Bank involvement ...... 2 C . Higher level objectives to which the project contributes ...... 3

I1. PROJECT DESCRIPTION ...... 4 A . Lending instrument ...... 4 B. Project development objective and key indicators.,...... 4 C . Project components ...... 4 D. Lessons learned and reflected in the project design...... 6 . Alternatives considered and reasons for rejection ...... 9

I11. IMPLEMENTATION...... 10 A . Partnership arrangements (if applicable) ...... 10 B . Institutional and implementation arrangements...... 10 C . Monitoring and evaluation of outcomes/results ...... 12 .. D. Sustainability ...... 12 E. Critical risks and possible controversial aspects ...... 12 F . Loadcredit conditions and covenants ...... 14

IV. APPRAISAL SUMMARY ...... 15 A . Economic and financial analyses ...... 15 B. Technical ...... 16 C . Fiduciary ...... 17 D. Social ...... 17 E. Environment ...... 19 F . Safeguard policies ...... 21 G. Policy Exceptions and Readiness ...... 21

Annex 1: Country and Sector or Program Background ...... 22 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 28 Annex 3: Results Framework and Monitoring ...... 30 Annex 4: Detailed Project Description ...... 33 Annex 5: Project Costs ...... 39 Annex 6: Implementation Arrangements ...... 41 Annex 7: Financial Management and Disbursement Arrangements ...... 44 Annex 8: Procurement Arrangements ...... 50 Annex 9: Economic and Financial Analysis ...... 59 Annex 10: Safeguard Policy Issues ...... 75 Annex 11: Project Preparation and Supervision ...... 95

Annex 12: Documents in the Project File ...... 97 Annex 13: Statement of Loans and Credits ...... 98 Annex 14: Country at a Glance ...... 102 Annex 15: Pilot Testing Environmentally and Socially Responsible Procurement...... 105 Annex 16: Safeguards Compliance Monitoring System ...... 110 Annex 17: Maps...... 114

CHINA

HUBEI YIBA HIGHWAY PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASTE

Date: March 2, 2009 Team Leader: Christopher R. Bennett Country Director: David R. Dollar Sectors: Roads and highways (1 00%) Sector ManagerdDirector: Junhui Wu and Ede Themes: Regional integration (P);Trade Jorge Ijjasz-VasquedJohn Roome facilitation and market access (S) Project ID: P101258 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan Project Financing Data [XI Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 150.00 Proposed terms: Payable in 27 years including 8 years of grace and level principal repayments at six-month LIBOR for US Dollar plus variable spread for Variable-Rate Single Currency Loans Financing Plan (US%m) Source Local Foreign Total Borrower 1,689.48 354.54 2,044.02 International Bank for Reconstruction and 115.27 34.73 150.00 Development Total: 1,804.75 389.27 2,194.02 Borrower: People's Republic of China, represented by Ministry ofFinance San Li He, West China 100820 Fax: +86-10-6855-1125

Responsible Agency: Hubei Provincial Communications Department No. 428, JianShe Avenue , W uhan China Tel: (86-27) 8346-0753 Fax: (86-27) 8346-0754 E-mail: proiectoffice@,hbt.crov.cnii- I Estimated disbursements (Bank FY/US$m) FY 2010 2011 2012 2013 2014 2015 2016 Annual 22.50 30.00 35.00 30.00 17.50 10.00 5.00 Cumulative 22.50 52.50 87.50 117.50 135.00 145.0 150.00 Project implementation period: Start: March 3 1, 2009 End: June 30, 2015 Expected effectiveness date: June 30, 2009 Expected closing date: December 31,2015 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD I.C. Does the project require any exceptions from Bank policies? Re$ PAD IKG. [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Re$ PAD IILE. Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref: PAD 1KG. Project development objective Re$ PAD II.C., Technical Annex 3 To improve passenger and freight flows in the Yichang-Badong corridor by construction of an expressway with enhanced environmental management practices.

Project description [one-sentence summary of each component] Re$ PAD ILD., Technical Annex 4 COMPONENT A: YICHANG - BADONG EXPRESSWAY (YBE) - US$2,188.7 million (US$149.7 million Bank financing). The construction of an expressway of about 173.6 km with a design speed of 80 km/hour connecting Yichang City and at the border ofHubei and Municipality including land acquisition and resettlement, the relevant electrical and mechanical (E&M) facilities, annex areas, toll plazas and buildings, seven interchanges, and about 35.4 km ofinterconnecting roads to improve integration with the local road network.

COMPONENT B: INSTITUTIONAL STRENGTHENING - US$5.4 million (USS0.3 million Bank financing). Four institutional strengthening activities: (a) training program; (b) preparation of guides to improve environmental monitoring and management; (c) carrying out: (i)a study on tunnel safety, (ii)research on Hubei’s comprehensive transport and logistics development plan, and (iii)a study on design approaches to reduce the risk oflandslide and other geological disasters during expressway construction and operations; and (d) provision ofequipment for expressway management and environmental monitoring.

Which safeguard policies are triggered, if any? Re$ PAD IKF., Technical Annex 10 Environmental Assessment (OPIBP 4.01) Natural Habitats (OP/BP 4.04) Physical Cultural Resources (OP/BP 4.1 1) Involuntary Resettlement (OP/BP 4.12) Significant, non-standard conditions, if any, for: R& PAD III.F. Board presentation: None Loadcredit effectiveness: None

Covenants applicable to project implementation:

0 The proceeds ofthe loan will be onlent to Hubei Province on the same terms and conditions as the Bank loan, with the province bearing the foreign exchange risk; 0 Project is carried out in accordance with the provisions ofthe Anti-Corruption Guidelines; 0 The Financial Manual Plan, satisfactory to the Bank, will be applied in implementing the project; 0 The EMP, RAP, and RPF satisfactory to the Bank, will be applied to implement the project; 0 Technical specifications reflecting the requirements ofthe EMP, satisfactory to the Bank, will be included in the bidding documents, together with the specification of sanctions to be imposed for failure to carry out said requirements; 0 A framework for ensuring compliance with the EMP, satisfactory to the Bank, will be adopted, including procedures for supervision ofthe civil works activities and supervision ofcompliance with the EMP by separate supervision consultants to be mobilized prior to the start of construction activities; 0 An environmental supervision consultant will be procured under terms ofreference satisfactory to the Bank to monitor and audit the Compliance with the EMP; 0 An environmental impact assessment, EMP, and resettlement action plan will be submitted to the Bank for approval ahead ofthe start ofconstruction ofthe interconnecting roads;

0 During the implementation ofthe project, the implementing entity will maintain HPCD, Hubei Provincial Yiba Expressway Construction Headquarters (HPYECH), Hubei Yiba Expressway Management Division (HYEMD), the World Bank-Financed Project Office (WBFPO), and Hubei Expressway Resettlement Office (HERO), with terms ofreference, powers, functions, and resources satisfactory to the Bank, and competent staff in adequate numbers, for the purpose of assisting in the implementation ofthe Project; 0 The implementing entity shall monitor, on a semi-annual basis, through independent consultants or other agencies satisfactory to the Bank, under terms of reference satisfactory to the Bank, compliance with the implementation ofthe RAP and EMP as well as the resettlement action plan and the environmental management plan in respect of the interconnecting roads, and provide to the Bank written reports of finding and recommendations within 30 days of each semi-annual review detailing the measures, if any, to be taken to improve compliance or any changes to the made to any such plan. The implementing entity shall implement said measures, as may be approved by the Bank, in a manner satisfactory to the Bank; and, 0 The implementing entity shall operate and maintain the infrastructure constructed under the Project, after the Yiba Expressway is opened for traffic, through HYEMD under arrangements satisfactory to the Bank. The following reports will be submitted to the Bank for its approval and comment:

0 Prior to carrying out any construction of the interconnecting roads, prepare and submit to the Bank a resettlement action plan pursuant of the RPF, an environmental impact assessment , and an environmental management plan;

0 Semiannual progress report on all components using agreed standard format; Semiannual monitoring reports reporting compliance with the implementation ofthe RAP and the EMP as well as the resettlement action plan and the environmental management plan for the interconnecting roads; 0 Hubei province must maintain a financial management system and provide semiannual project consolidated financial statements in accordance with accounting standards acceptable to the Bank and must meet standard annual auditing requirements; and, 0 Annual financial statements audited by independent auditors acceptable to the Bank. I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. The Government of China (GOC) is committed to developing an efficient multimodal transport system to enhance competitiveness and promote development. At the core of their highway investment program was the National Trunk Highway System (NTHS), a 44,000 km network comprised of twelve major corridors (five north-south and seven east-west), completed in 2005. The initial NTHS backbone made great progress toward providing the core network connectivity, and development is now shifting toward linking poorer western regions with eastern China, the engine of China’s economic growth. In 2004 the GOC approved the so-called ‘79 18’ China National Expressway Network (NEN), comprised of 27 major expressway corridors (nine vertical and 18 horizontal). The NEN is designed to reach more than one billion people in China by linking all provincial capitals and large urban centers of more than 500,000 inhabitants with cities ofmore than 200,000 inhabitants.

2. Hubei, with a population of 60.2 million, is a land-locked province in and one of the key industrial and agricultural production bases in the country. Despite its strategic location, Hubei’s lack of transport accessibility, especially in the more landlocked mountainous areas in the west of the province, has hindered its social and economic development and prevented it from meeting its development potential. As a result, and in accordance with the State Council’s National Expressway Network Planning mandate approved in December 2004, the province is significantly improving its highway network. By 2020 Hubei will have 12 major expressway corridors: six vertical, five horizontal, and one ring trunk road. This comprehensive transportation system will provide a main communication node for north-south, east-west traffic and a gateway to the less-developed western provinces, thereby giving way to the full development ofthe area’s regional and economic potential.

3. The province has a need for improved high grade access to key facilities. The proposed Yichang-Badong Expressway (YBE) runs along the northern bank of the River from Yichang to Badong in western Hubei province. The YBE is the last section not yet open to traffic or under construction of the expressway linking to ’. Passing through , , and , the YBE will traverse mountainous terrain in an environmentally sensitive area. The YBE constitutes an important section of the Hurong (-Chengdu) national trunk expressway, one of the 18 trunk expressways connecting China’s eastern and western regions. A major component of the Chinese ‘Western Development Strategy’, this expressway network will facilitate the growth ofthe non-coastal regional hubs by providing access from the developed eastern coastal area to the developing markets in central and western China such as Chengdu. Promoting linkages with the inlandwestern regions is part ofthe GOC’s efforts to reduce regional development gaps.

I The section immediately to the east ofthe YBE (the Hubei Jingyi Expressway) opened to traffic in December 2007. To the west, the - Fengjie Expressway started construction in November 2005 and is expected to be open to traffic December 2009, some six months after the YBE construction commences. B. Rationale for Bank involvement

4. The east-west linkages of the NEN are critical for the development of China’s lagging regions. The YBE will be a key contributor to the development of the NEN and will stimulate trade-led growth in this part of China. It will further strengthen regional integration and the competitiveness of Hubei province as well as its neighboring land-locked provinces. Within Hubei itself, the YBE will expand communications to the region’s natural and cultural resources promoting tourism and supporting economic growth. The YBE will provide greater access to the ‘ National Geological Park’* and other area resources leading to growth in the tourism industry and increased utilization of the network.

5. The GOC has requested the World Bank to support the YBE project. Under the current proposal, the Bank will provide US$lSO m financing towards the project, the total cost ofwhich is estimated at US$2,194 m. The Government of Hubei was particularly interested in the Bank’s support to help them properly manage the major challenges of this investment: (i)technical difficulties due the very mountainous terrain; and (ii)the need to take special care during planning and construction due to the environmental and ecological sensitivity ofthe project area. The Bank will be involved in all aspects of this project, offering technical assistance and support where needed, and supervising all components, even those not financed by the Bank. This will ensure that the project fully complies with the Bank’s safeguard policies.

6. The Bank has been Hubei’s development partner for over ten years and has provided financing for one inland waterway and four expressway projects. The Bank has added value through supporting the design, preparation, implementation, operation, and management of Hubei’s infrastructure in an environmentally, socially and safety conscious manner. The Bank has supported the Hubei Provincial Communications Department (HPCD) through a range of institutional strengthening and policy activities, which have enhanced the HPCD’s abilities in areas ofenvironmental management, traffic safety3, road management and operations.

7. The YBE traverses entirely through the Three Gorges National Geological Park and crosses the Scenic Area. Although previous experiences with Bank-financed highway projects have helped the HPCD to improve their operations in a number of key areas such as safety and road maintenance, environmental protection, still remains an issue. This project will see a number of innovative practices adopted; some based on the Bank’s experiences in other countries, others being introduced for the first time. These include:

As described at htt~:ilwww.unesco.orglsciencelearth/geo~arks.shtml:“A Geopark is an area with a geological heritage ofsignificance, with a coherent and strong management structure and where a sustainable economic development strategy is in place. A Geopark creates enhanced employment opportunities for the people who live there bringing sustainable and real economic benefit, usually through the development of sustainable tourism. In the framework ofa Geopark, geological heritage and geological knowledge is shared with the broad public and linked with broader aspects ofthe natural and cultural environment, which are often closely related or determined to geology and landscape.” The project has the full support ofthe National Park Authority, as well as the local governments. As described in the EIA, the development plans of the park were considered in the project preparation and there will be no major negative induced impacts ofthe project on the area. The previous four highway projects in Hubei all undertook specific institutional strengthening activities. This work led to the HPCD establishing the ‘Hubei Road Traffic Safety Training Centre’ in 2007, with Bank support and financing through the Global Road Safety Facility. These efforts have contributed in 2000 - 2007 to a 44% reduction in the number of fatalities due to accidents, during which the number ofvehicles grew by 148%.

2 i. improved methods for environmental supervision; .. 11. improved linkages between the safeguards documents and the bid documents/contracts4; ... 111. introduction of an environmental compliance framework for contractors; iv. pilot testing of ‘Environmentally and Socially Responsible Procurement’ (see Annex 15); and v. pilot testing of a ‘Safeguards Compliance Monitoring System’ (SCMS) which is described in Annex 16.

8. These innovations reflect Hubei’s request that the Bank support them in making the project as environmentally ‘benign’ as possible. This is called for because of the particularly sensitive environment in the project area. It is expected that these innovations will: (i)reduce the impact of the construction activities on the environment; (ii)improve compliance with the project’s environmental safeguards; (iii)improve employment and living conditions for workers; and (iv) provide a demand driven system for the rapid identification and resolution of safeguard grievances. These activities are a major advancement in the area of safeguards application and are potentially replicable on other transport projects in China and elsewhere.

9. Building upon past experiences in Hubei and elsewhere, the Bank is technically and financially in good position to contribute to this challenging investment, especially to support Hubei with preparing and implementing the project in an environmentally benign manner.

C. Higher level objectives to which the project contributes

10. The project contributes to Pillar 2 ofthe 2006 Country Partnership Strategy (CPS) ‘Reducing Poverty, Inequality, Social Exclusion’. The enhanced highway sector management and lower transportation costs will expand the economic opportunities for the rural poor by providing greater access and supporting expansion oftrade, as well as through opportunities created by the project itself’. The Project Development Objective (PDO) is consistent with the Bank’s recommendations listed in the CPS for China, in particular its recommendations to: (i)reduce internal and external barriers to trade and investment; (ii)reduce poverty, inequality and social exclusion through expanding affordable access to basic social and infrastructure services; and (iii)manage resource scarcity and environmental challenges.

Annex 4 of the EMP contains the specific mitigation measures that need to be implemented during construction. Each contract will have the appropriate measures included in the specifications, and there will be associated items in the Bills of Quantity. These will be reviewed by the Bank prior to bidding. The technical note ‘Using Involuntary Resettlement on Highway Projects to Alleviate Poverty: A Case Study from the Hubei Shiman Highway Project in China’, available for download from www.worldbank,orn/eaptransport, shows how, by focusing on sustainable land development, improving housing standards, better access, and centrally- planned communities, an expressway project can lead to an improved quality of infrastructure and livelihoods for most affected residents. These activities will be enhanced on the YBE project, and in conjunction with the work opportunities created by the project, will lead to increased wellbeing for many of the local poor. HPCD’s previous experience in this work will support these efforts.

3 11. PROJECT DESCRIPTION

A. Lending instrument

11. The Bank will finance the project through a specific investment loan. The Borrower has selected the variable-spread loan (VSL) option in which the spread over LIBOR is reset every semester. The Borrower’s main reason for selecting a VSL rather than a fixed-spread loan (FSL) is because FSL charges are slightly higher than VSL charges and the Borrower does not foresee using the conversion options ofthe FSL. VSL repayment terms are governed by standard country terms.

B. Project development objective and key indicators

12. The proposed Project Development Objective (PDO) is to improve passenger and freight flows in the Yichang-Badong corridor by construction of an expressway with enhanced environmental management practices.

13. The objectives will be measured using the following outcome indicators:

in the Yichang-Badong corridor: (i)decreased freight and passenger tariffs; (ii)decreased travel time from Yichang to Badong; and (iii)decreased accident rates in the corridor6; pilot testing of improved: (i)compliance with the Environmental Management Plan (EMP) through environmental compliance framework; and (ii) guidelines for management of environmental impacts during construction; independent environmental supervision during construction; and 0 implementation of key policies and procedures from the institutional strengthening components with regard to environmental management and tunnel safety.

C. Project components

COMPONENTA: YICHANG- BADONGEXPRESSWAY (YBE) - US$2,188.7 m (US$149.7 m Bank Financing)

14. The construction of an expressway of about 173.6 km connecting Yichang City and Badong County at the border of Hubei and Chongqing Municipality including land acquisition and resettlement, the relevant electrical and mechanical (E&M) facilities, annex areas, toll plazas and buildings, seven interchanges, and about 35.4 km of interconnecting roads to improve integration with the local road network. The expressway will be built with four lanes and 80 km/hour design speeds. The expressway alignment was selected to minimize the negative environmental and

’ Of the six areas of potential health risks in transport projects identified in the 2007 IEG evaluation entitled ‘The health benefits of transport projects: A review of the World Bank transport sector lending portfolio’, the project will address three: (i)traffic safety-by reducing the accident rate in the corridor through the provision of improved quality of transport infrastructure; (ii)disease transmission-through the execution of an HIViAIDS awareness campaign; and (iii)water pollution-by reducing runoff from the expressway into the natural water systems. It is not possible to quantify the impact of the project reliably on air and noise pollution. While improved quality of travel and shorter travel distances will reduce emissions, this may be offset by increased speeds. The provision of noise barriers will reduce noise pollution, but it will likely be higher than before the YBE was constructed.

4 social impacts of the project, while the interchanges were located based on the network needs and access requirements of local road users.

15. The total cost of the expressway is estimated at US$2,189 million, of which the Bank is financing US$149.7 million-approximately 6.8%. The Bank’s financing will be focused on the first 48.5 km of the project where the works are in particularly environmentally sensitive areas. The Bank will finance eight subgrade and civil works contracts and one paving contract in this area. It will also finance the tolling system and telecommunications equipment for the entire expressway.

16. This component also includes the supervision of the construction activities. As described in Section 111, the project will adopt an innovative approach towards supervision through the appointment of a separate environmental supervision consultant, in addition to the usual practice of having the environment supervised by the same consultant as the civil works. This environmental supervision consultant will monitor and audit compliance with the project’s EMP. Two domestic consulting teams will be procured to act as the ‘Engineer’ for the civil works on the project, and a third for the E&M works. This is the first time this FIDIC based approach is fully used in Hubei Province’. A foreign consulting firm shall provide supervision support to the project office. There will be eight consulting firms providing resident engineers.

COMPONENTB: INSTITUTIONALSTRENGTHENING - US$5.4 m (US$0.3 m Bank Financing)

17. There will four institutional strengthening activities: (a) training program; (b) preparation of guides to improve environmental monitoring and management; (c) carrying out: (i)a study on tunnel safety, (ii)research on Hubei’s comprehensive transport and logistics development plan, and (iii)a study on design approaches to reduce the risk of landslide and other geological disasters during expressway construction and operations; and (d) provision of equipment for expressway management and environmental monitoring. These activities will support the sustainability of the project through improvements to environmental protection, environmental monitoring, and safety for tunnel construction. The equipment will be used to enhance road maintenance, while the overall capacity ofthe HPCD will be improved through training.

Training: Domestic and foreign training activities will cover a range of topics including design, safety, maintenance, management, finance and the environment. Improved Environmental Supervision: During project preparation a ‘Strategic Environmental Assessment’ (SEA) of Hubei’s road transport sector was undertaken by international and domestic consultants with SIDA grant financing . Based on the recommended action plan from the SEA, it was agreed that priority would be given to improving the effectiveness of environmental supervision on the HPCD’s projects. This will be done through the preparation of two guides by the environmental supervision consultant: (i)an EMP implementation guide for contractors clearly identifying their responsibilities and the HPCD’s requirements; and, (ii)a guide for environmental supervisors on how to undertake supervision, including monitoring of effectiveness. These guides will be supported by a training program.

7 On previous projects, the role ofthe Engineer was performed by the client’s project office. 8 The final report can be downloaded from www.worldbank.org/eautransuort.

5 0 Tunnel Safety: The study, to be conducted prior to the beginning of the major tunnel construction period, will: (i)provide recommendations on different alternatives for the improvement of tunnel construction practices; and, (ii)identify methods for improved tunnel safety supervision intended to reduce potential dangers and accidents. 0 Hubei Comprehensive Transport and Logistics Development Plan: The GOC has recently released a document “Comments on Promoting Central area Grow-up.” With its geographically central position, and rapidly expanding expressway network, Hubei is seen as having opportunities to become a multi-modal centre for transport in China. This study will identify policies, infrastructure and institutional constraints which need to be addressed in order for Hubei to fill its role as the “Comprehensive Transport Complex”. For both freight and passenger transport, the research will consider road, rail, waterways and air transport. It will indentify possible solutions for infrastructure, institutional framework, and management practices, based on experiences from other countries, and respecting existing national appraisal requirements. Reducing Geological Landslide Disasters on Expressways in Mountainous Regions: The purpose of the study is to review design approaches to identify ways in which designs can be enhanced to reduce the risk of landslide and other geological disasters during construction and operations. 0 Equipment: Equipment will be procured for expressway management and maintenance, and environmental monitoring. These will include weighing stations, quality control sets and road condition monitoring equipment.

18. The institution will also be strengthened through an HIV/AIDS education program, which will be financed through the AusAID ‘Infrastructure for Growth’ trust fund. This will build upon the success of previous similar programs in the Bank financed Hubei Shiman Highway’ and Inland Waterway V projects. The program will pilot test the new HN/AIDS IEC Toolkit” ‘The Road To Good Health’, developed by EAP specifically to educate construction workers, local residents, and commercial sex workers on HIV/AIDS risks and mitigation. At the same time, the education program will also include information on worker’s rights under the new 2008 China labor law, part of the project’s ‘Environmentally and Socially Responsible Procurement Initiative’ (see Annex 15).

D. Lessons learned and reflected in the project design

19:The YBE will be the fifth Bank-financed highway project in Hubei, so the client has developed good experience and knowledge of the various stages of preparation and implementation of highways. The extensive experience that the Bank has developed based on the numerous highway projects in China and the corresponding lessons learned were incorporated in the project design. Among them are:

9 The Hubei Shiman project is recognized as an example ofexcellent practice, leading to behavioral changes as evidenced by increased condom usage and decreased sexually transmitted disease prevalence. For more information see “Combating HIV in the East Asia and Pacific Region Transport Sector: Success on the Road in China”. Report from the World Bank Global HIVIAIDS Program, November 2007. Available for download from www.worldbank.org!eaptransport. IO Available for download from www.theroadtogoodhealth.org.

6 0 Importance of the Alignment Selection Process: There is a tendency of domestic design institutes to select their alignments based only on engineering considerations. However, to truly optimize the alignment, it is necessary to also take into account the social and environmental impacts-especially when the project is in an environmentally sensitive area such as the YBE traverses. During project preparation the task team worked closely the client, design institute, resettlement team, and the environmental consultant to minimize the overall impact of the project. As described in the EIA, the final project alignment considerably reduces the impacts of the project on the sensitive environment from the preliminary alignment. 0 Insufficient Information Leads to Cost Overruns: Major cost variations have arisen, and in some instances projects been halted to allow redesigns, due to the contractors experiencing quite different geological conditions than were reflected in the designs. With some 75% of the project comprised of roads and bridges, the risk is exceptionally high in the YBE. To address this risk, more detailed than usual geological investigations were undertaken during the design stages. Special attention was paid at locations of tunnels. Impact of Access Roads: Access roads are often an afterthought, with contractors allowed to decide upon their location and designs. On some projects this has led to many negative environmental issues. Because of the remoteness of the area traversed by the YBE, there is a need for more numerous, and longer, access roads to construction sites than in previous Bank financed projects. To minimize the potential environmental impacts, particular attention was taken during preparation to reduce the number and impacts of access roads. All access roads are to be properly designed” with appropriate drainage facilities. The location of access roads are to be specified in the bidding documents along with their general design requirements. Waste Deposit Sites: On many projects waste deposit sites have also been an afterthought. The contractors often locate them in the most convenient places, irrespective of environmental impact, and they are not properly engineered. For the YBE the location of all 63 waste deposit sites, three of which are for tunnel waste, are identified in the EMP. These have been carefully designed with toe walls, slope protection, drainage facilities, access roads, etc. in order to reduce their environmental impacts. Where possible, they have been located in order to provide suitable land for agriculture and resettlement upon completion of the project ’*. The local appropriate authorities agreed in writing to the preliminary designs of all waste deposit sites during project preparation. Contractors Not Complying With the Environmental Management Plan: On many previous projects, the work had a negative impact on the environment during construction and, upon completion of works, the contractors tried to restore as best as possible the damage infli~ted’~.To address this issue, two innovations were adopted for the YBE project :

I1 In the Gaolan and Xiaofen Scenic areas the access roads will also be properly landscaped. For more information see the EIA which contains a detailed discussion on access roads. ’’As described in the RAP, it estimated that over 90 ha of cultivatable land will be developed from the waste areas. These will be reallocated by the respective villages with priority given to the poorest families. 13 For an example, on the Second Highway Project over US$ 3 million was spent to correct environmental damages caused by construction and poorly implemented greening works.

7 i. The contract packaging and bidding documents, including technical specifications, were designed in order to clearly show contractors their responsibilities for preserving the environment and minimizing the environmental impact oftheir activities during construction. Key clauses from the EMP were ‘translated’ into technical specifications in a manner understandable by contractors, and included in the bidding documents and contracti4.

ii. An EMP compliance framework was adopted which clearly identifies the contractor’s obligations when non-compliance with the EMP is identified, and how compliance will be enforced.

0 Poor Supervision of the EMP: The standard practice on Bank financed projects in China is to have the same supervision consultants responsible for supervising both civil works and the environment. When trade-offs had to be made, they were usually at the expense ofthe environment. It was difficult to hold consultants accountable for their poor environmental supervision performance. For the YBE a separate environmental supervision consultant, reporting directly to the borrower, will monitor and audit compliance with the project’s environmental standards. Impact on Karst Cave Biodiversity: Since karst caves can have unique biodiversity which can be irreparably damaged through projects in the vicinity, the project undertook biodiversity surveys for all caves within 500 m of the alignment15, collecting samples of different plants, mammals and invertebrates for species identification. The EMP includes specific mitigation measures for caves, as well as a chance find procedure should additional caves be encountered. 0 Risk of HIV/AIDS: In parts of China, some two-thirds of new HIV/AIDS infections have been amongst migrant workers. Because of the large number ofmigrant workers on the project, there is a risk of transmission ofHIV/AIDS. The HIV/AIDS information and education campaign conducted on the Hubei Shiman Highway Project is recognized as extremely effective. A similar campaign will be undertaken on the YBE project using a new standard education course, financed through the AusAID Infrastructure for Growth Trust Fund. 0 Importance of Road Safety: On previous projects problems were encountered with unsafe designs of interconnecting roads and junctions. A safety audit was done of the entire alignment during preparation, including interconnecting roads and junctions, to ensure that the safety was properly considered. Environmentally and Socially Responsible Procurement (ESRP): A common problem in China is that workers are not paid promptly or are underpaidi6. In 2008, the GOC

14 The Ministry ofTransport publishes standard specifications which are typically used with little, if any, customization to reflect the project specific requirements of EMP. I5 The YBE does not directly impact any caves. Four caves were within 500 m of the YBE, only two sinkholes were indirectly impacted by the YBE. Appropriate mitigation measures were adopted for these two caves as well as a third cave to protect its biodiversity. Chance find procedures for other caves that may be found were included in the EMP. l6 See “China’s Modernizing Labor Market: Trends and Emerging Challenges”. Synthesis Report for the ESW Component of the China Labor Market AAA Program. EAP Human Development Unit, August 2007. Available for download from http:/lgo. worldbank.org/8AMHE779HO.

8 introduced a new labor law which clearly identifies the rights of workers and grievance procedures. The project will support adherence to this new law through worker training and the availability of a grievance redress mechanism. Elements of other ESRP issues, such as responsible procurement and disposal of materials, shall be addressed where practical (see Annex 15). Affected Persons Not Receiving Compensation Payments: Although it has not been a problem with Hubei Province’s previous projects, the failure of project affected persons to receive their appropriate compensation payments is a risk on all World Bank financed projects in China and elsewhere. To facilitate the ability for persons affected by the project to lodge complaints the project will pilot an innovative ‘Safeguards Compliance Monitoring System’ (see Annex 16). 0 Ownership of Institutional Strengthening Program: A common complaint of the HPCD on previous Bank financed projects in Hubei was that the number of institutional strengthening activities was too many and that they were supply as opposed to demand drivenI7. The topic areas were proposed by the HPCD to the Bank since they address current issues in Hubei province. The program should therefore have the full support of the HPCD and therefore a higher likelihood of success than on previous Bank financed projects.

E. Alternatives considered and reasons for rejection

20. Alignment: As described in Annex 4, and in detail in the EN, three corridors were considered at the pre-feasibility study stage: southern corridor along the Yangtze, central corridor and northern corridor. The northern corridor was finally adopted because: (i)it better serves the area; (ii)geological and topographical conditions are most favorable of the alternatives; (iii)the alignment minimizes negative impacts to environmental and cultural resources 18; and (iv) it limits the resettlement activity where possible. Overall, the selected alignment shall provide the best overall benefits to the people living in the project area.

21. Type ofhvestmerzt: As shown in Annex 5, the Bank is financing less than 8% of the total project cost. Consideration was made as to whether a ‘Structured Investment Loan’ (SIL) was the most appropriate vehicle given the Bank’s relatively small investment. The HPCD confirmed that they wanted the Bank to finance infrastructure investments as opposed to policy or other activities so the SIL, which is standard for China, was the appropriate vehicle.

22. What to Finance: In light ofthe relatively small contribution ofthe loan to the total project costs, the project considered whether to: (i)mainly finance a small percentage of all subgrade and civil works as well as pavements; (ii)mainly finance pavements only; or (iii)to finance a few of the individual contracts fully. The decision was taken to finance several contracts located in particularly environmentally sensitive areas. This will maximize the opportunity for the Bank to provide guidance to the HPCD on achieving their goal of an environmentally benign

~~ ~ ~~~ ~~~~ 17 For example, see borrower comments in the Implementation Completion Reports for the NH4 and Xiaoxiang Highway Projects. I8 Four cultural relics were found along the alignment. The alignment was shifted and changed from a tunnel to a viaduct to protect the Xinping Suspended Tomb site. The Baihuguan Ruin site will be excavated prior to the start of the construction. The Niejiahe Ancient Camp Ruins and Pingyikou Tomb were avoided.

9 expressway. The Bank shall also fund one of the four pavement contracts, one E&M contact covering the whole length of the project (including tolling, monitoring, and communication systems), as well as foreign supervision, maintenance equipment and overseas training. This is discussed in detail in Annex 8.

23. Institutional Strengthening Activities: The Hubei SEA identified a large number of activities which could be undertaken to improve the holistic planning of road and waterway infrastructure in Hubei Province. The decision was made to focus on the key major issues under control of the HPCD for the institutional strengthening activities since the HPCD cannot influence the participation of other government agencies outside the transport sector. The activities selected will have immediate benefit to the HPCD, and particularly the Yiba project.

111. IMPLEMENTATION

A. Partnership arrangements (if applicable)

24. None

B. Institutional and implementation arrangements

25. The Borrower is the People’s Republic of China (PRC), which will onlend the loan proceeds through the Ministry of Finance (MOF) to Hubei Province on the same conditions as the Bank loan to PRC. The overall direction of the project at the central level will rest with the Ministry of Communications (MOC) located in Beijing.

26. At the provincial level the project will be implemented by the HPCD, responsible for road management in Hubei Province. The World Bank-Financed Project Office (WBFPO) in Hubei coordinated project preparation and will be responsible for the institutional strengthening and policy development components. It will also coordinate the implementation of activities and will remain the Bank’s main counterpart during implementation. The Hubei Provincial Yiba Expressway Construction Headquarter (HPYECH) established by the HPCD, will implement the YBE and manage construction works as the “Client”, with the assistance of the Hubei Yiba Expressway Management Division. (HYEMD) established under the Hubei Expressway Administration Bureau who will operate and manage the YBE after opening. The HPCD shall be responsible in the long-term for continued maintenance and sustainability of the expressway. Monitoring and evaluation activities shall be performed by the HPCD and the supervision entities (described below). Monitoring of institutional strengthening activities to ensure capacity building shall be performed by the relevant implementing unit (see Institutional Strengthening table under Annex 4).

27. There are several innovations on the project with regard to supervision. These are summarized briefly and the chain ofreporting is illustrated in the diagram below.

10 Project Office L Client

.t I Supervisionc Supervision Supervisim Foreim Supervision Engineer 3 Engineer 1 Engineer 2 Supervision Engineers

Resident Engineers

31 SUM& Codrodas Contractors 3 EBM Cm&as 4 Pavemant Cm&m 8 Buildtng ndAmax &-ea Cornactors 3 tntercmmading Road Cwacta’s

I I I I

RE = Rrsidem bglneer: BRE = Building RE; E8M = Eectncal and Mchanical Cornnotor: Direotiond Repding; General Reporlinglnd yet dstriMed)

The HPCD will assign three engineers in the sense of FIDIC: one for civil works ofthe section from Yichang to Xingshan, one for civil works of the section from Xingshan to Badong, one for E&M works. Each engineer will be a firm signing a contract with HPCD. Under the two engineers for civil works there will be eight resident engineering firms. Each resident engineer would be a domestic firm having a contract with HPCD, but acting under the engineers. The HPCD proposed a foreign team including a tunnel expert, a pavement expert, and a bridge expert, who would advise the client. Since the YBE is in an environmentally sensitive area, a separate environmental supervision consultant, in addition to the usual practice of having the environment supervised by the construction supervision consultant for civil works, will monitor and audit the contractor’s compliance with the EMP. They will advise the supervision engineers and report to the client. During construction, the designers from the Hubei Provincial Highway Design Institute (HPHDI) and the Second National Survey and Design Institute from MOC (MOCN2) will update the designs to account for issues encountered in the field.

28. The Resettlement Action Plan (RAP) for the project was prepared by the dedicated Hubei Expressway Resettlement Office (HERO), who will lead resettlement operations. The resettlement under the project will be implemented by a three-level coordination organizational structure: i.e., city, county (district), and town. To facilitate the implementation of the land acquisition and resettlement under the project, Yichang and Enshi will establish local

11 coordination headquarters and undertake the implementation of land acquisition and the RAP under the lead ofprovincial government sector.

C. Monitoring and evaluation of outcomes/results

29. Annex 3 contains the performance indicators adopted for the project. The baseline data and target values were agreed and will be included as part of the project’s monitoring reports. The WBFPO will assemble the necessary data and submit to the Bank semi-annual progress reports using guidelines and standards agreed to with the Bank. These reports will include physical progress, as well as information on compliance with safeguards and institutional strengthening. Annual independent audits of the special accounts will be carried out, and an implementation completion report (ICR) will be prepared within six months ofthe closing date ofthe Bank loan.

D. Sustainability

30. The overall sustainability of the project is ensured by: (i)the GOC’s policy to improve accessibility to the western and central provinces; (ii)the Hubei provincial government’s commitment to establish a transport corridor with access to an international seaport; and (iii)the constantly growing traffic in the corridor, sustained economic growth of the province and rapid development ofthe cities ofYichang and Badong. All ofthe above are enhanced by the matured and well-established relationship between the Bank and Hubei province through the previous successful lending operations.

3 1. Road maintenance is crucial to ensuring the physical sustainability of the Yiba Expressway. The HPCD has a proven history of success in road maintenance. For example the Bank financed NH3 (opened 2001), NH4 (opened 2002), and Xiaoxiang (opened 2005) expressways have been properly maintained since opening. While maintenance funding for much of the road network is low, this is not the case for expressways where maintenance activities are financed through tolls. Because of the difficult terrain that YBE passes through, the HPCD plans to devote a greater percentage of the toll revenue to support its maintenance than on other expressways. It will also cross-subsidize the costs using income from its other expressways.

32. With a road network of over 182,000 km, including over 1,700 km of expressways currently in operation, the HPCD has a proven track record of institutional and management capabilities. The institutional strengthening activities from the previous Bank financed projects have improved the HPCD’s management and operations, and it is envisaged that the current studies will further increase the HPCD’s capabilities.

E. Critical risks and possible controversial aspects

33. The construction of an expressway through an environmentally sensitive area always has the potential for controversy; this project in particular as it passes through the Three Gorges National Geological Park and scenic areas. To address this, during preparation the project team focused intensely on how to minimize the environmental impact of the project. The risks will be mitigated through a number ofmeasures, including:

12 i. using bridges and tunnels to reduce the impacts of the project on the sensitive environment;

11. proper consideration of access road location and design; *.. 111. careful design and locations for waste deposit sites; iv. undertaking biodiversity surveys in karst caves potentially affected by the project to obtain samples. Chance find procedures for karst caves and other mitigation measures specifically included in the EMP;

V. converting the key elements of the EMP to technical specifications to include in the bidding and contract documents thereby improving understanding and ensuring clear contractual obligation for compliance; vi. implementing an enforcement framework for EMP compliance; vii. enhancing supervision through the use of a separate environmental consultant to monitodaudit compliance with the EMP; ... v111. pilot testing ‘Environmentally and Socially Responsible Procurement’; and,

1x. pilot testing a ‘Safeguards Compliance Monitoring System’, which will simplify project affected persons to make complaints about non-compliance.

The table below summarizes the main project risks, their mitigation and residual risk rating.

Risk Ratings: H (High, more than 7S%), S (Substantial, 50 to 75%), M (Modest, 25 to SO%), N (Negligible or low risk, less than 25%) Risk Description Changes in work quantities, delays Improve technical design based on sufficient H in construction, and increased costs topographical, geological and sub-surface investigation Active and continued involvement ofdesign institutes with changes during construction Environmental impacts to Include EMP measures in contracts and bidding M environmental and ecological documents as technical specifications so contractors sensitive locations clear on responsibilities Implement more detailed EMP than usual, with explicit framework for non-compliance included in contract documents Environmental supervision strengthened through separate consultant to monitor and audit compliance with the EMP Pilot test ‘Environmentally and Socially Responsible Procurement’ Traffic volume too low Independent validation ofthe assumptions used in M the traffic modeling for the feasibility study. Ensure appropriate toll rate Integrating local government development plans with the expressway planning to ensure adequate access

13 Insufficient attention to safeguards Project has an EIA, EMP, RAP and RPF reflecting N local conditions fully disclosed Cultural relics report fully disclosed Plan in place, with training, for chance findings of archaeological or paleontological significance In the unlikely event ethnic minorities are encountered, an EMDP will be prepared and submitted to the Bank Chance find procedures for karst caves to minimize the environmental impact A Safeguards Compliance Monitoring System (SCMS) will be available to community members and construction workers for information and alerting the Bank, client, and independent monitoring consultant ofproblems with safeguard compliance Limited impacts from Institutional Work closely with the HPCD to ensure that the N Strengthening institutional strengthening activities are ofvalue to the HPCD Provide assistance by Bank technical specialists to ensure activities reach their full potential Monitor continuously the effectiveness of institutional strengthening activities and training Appropriately modify these efforts based on monitoring results and the changing needs ofthe HPCD Overall Risk Rating M

F. Loadcredit conditions and covenants

34. The legal covenants specify the following stipulations:

The proceeds of the loan will be onlent to Hubei Province on the same terms and conditions as the Bank loan, with the province bearing the foreign exchange risk; Project is carried out in accordance with the provisions of the Anti-Corruption Guidelines; The Financial Manual Plan, satisfactory to the Bank, will be applied in implementing the project; The EMP, RAP, and RPF satisfactory to the Bank, will be applied to implement the project; Technical specifications reflecting the requirements ofthe EMP, satisfactory to the Bank, will be included in the bidding documents, together with the specification of sanctions to be imposed for failure to carry out said requirements; A framework for ensuring compliance with the EMP, satisfactory to the Bank, will be adopted, including procedures for supervision of the civil works activities and supervision of compliance with the EMP by separate supervision consultants to be mobilized prior to the start ofconstruction activities; An environmental supervision consultant will be procured under terms of reference satisfactory to the Bank to monitor and audit the compliance with the EMP;

14 An environmental impact assessment, EMP, and resettlement action plan will be submitted to the Bank for approval ahead of the start of construction of the interconnecting roads;

0 During the implementation of the project, the implementing entity will maintain HPCD, Hubei Provincial Yiba Expressway Construction Headquarters (HPYECH), Hubei Yiba Expressway Management Division (HYEMD), the World Bank-Financed Project Office (WBFPO), and Hubei Expressway Resettlement Office (HERO), with terms ofreference, powers, functions, and resources satisfactory to the Bank, and competent staff in adequate numbers, for the purpose of assisting in the implementation ofthe Project; 0 The implementing entity shall monitor, on a semi-annual basis, through independent consultants or other agencies satisfactory to the Bank, under terms of reference satisfactory to the Bank, compliance with the implementation of the RAP and EMP as well as the resettlement action plan and the environmental management plan in respect of the interconnecting roads, and provide to the Bank written reports of findings and recommendations within 30 days of each semi-annual review detailing the measures, if any, to be taken to improve compliance or any changes to the made to any such plan. The implementing entity shall implement said measures, as may be approved by the Bank, in a manner satisfactory to the Bank; and, The implementing entity shall operate and maintain the infrastructure constructed under the Project, after the Yiba Expressway is opened for traffic, through HYEMD under arrangements satisfactory to the Bank.

35. The following reports will be submitted to the Bank for its approval and comment:

0 Prior to carrying out any construction ofthe interconnecting roads, prepare and submit to the Bank a resettlement action plan pursuant of the RPF, an environmental impact assessment , and an environmental management plan;

0 Semiannual progress report on all components using agreed standard format; Semiannual environmental monitoring reports reporting compliance with the implementation of the RAP and the EMP as well as the resettlement action plan and the environmental management plan for the interconnecting roads; 0 Hubei province must maintain a financial management system and provide semiannual project consolidated financial statements in accordance with accounting standards acceptable to the Bank and must meet standard annual auditing requirements; and, 0 Annual financial statements audited by independent auditors acceptable to the Bank.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

36. The detailed economic and financial analyses are in Annex 9.

15 37. The YBE is economically viable. The overall EIRR of YBE is estimated at 14.2% and the ENPV of YBE is US$499 m at a discount rate of 12%. The benefits to the road users on this highway corridor account for US$2,571 m and the benefits of road agency are negative (US$ - 1,866 m) because it bear the investment cost. In addition, the benefits of waterway transport operators (especially the ro-ro ship owners) are negative (US$ -148 m) since traffic diverted to the highway.

38. The low profit margin will impact the FIRR on the capital investment to the YBE. The financial evaluation concludes that the FIRR is expected to be at -1.9% with NPV ofUS$ -1,601 m, at the discount rate of4.85%. Because of high cost, limited traffic volume in early years, the profitability of YBE is predicted to be low until 2023. YBE’s cash flow will not be sufficient until 2024. The cumulative negative cash flow in 2024 will reach US$ -615 m.

39. Furthermore, the liquidity of YBE is poor. The current ratio can only be in a sound range (>1.0) after 2025, indicating that YBE will have short-term solvency problems. However, the HPCD has reiterated its full commitment to the expressway, in an official document to the Bank that confirms its full financial support, which guarantees the project financial viability.

B. Technical

40. The detailed project description is in Annex 4. The YBE design and traffic studies were subjected to in-depth technical reviews by the Bank and independent consultants. The expressway standards adopted are justified by the traffic forecasts and the fact that the project belongs to the national “7918” expressway system. Safety conditions in tunnels do not allow bidirectional two-lane highways. Highways without expressway standards would have resulted in numerous access points and the presence of pedestrians, bicycles, animals and slow vehicles, which would not be compatible with one of the project’s objective of improving road safety. The MOC expressway standards with a design speed of 80 km/h were adopted, taking into consideration the very difficult mountainous terrain of the project area. The following issues needed special attention from a technical point ofview:

0 proper consideration of traffic safety and tunnel hazards throughout the design process, especially given the long steep slopes and numerous tunnels; 0 proper consideration of access roads to the work sites due to the lack ofroads in the area, appropriate locations and sizes ofwaste deposits;

0 suitable contract packaging and technical specifications in order to ensure adequate environmental protection, given the very sensitive environment ofthe whole area; sufficient geological investigations in technically challenging locations to minimize the risk of encountering major problems at the construction stage, given the mountainous terrain; and fully operational electrical and mechanical (E&M) works at the opening of the highway to traffic, especially those dealing with tunnel safety.

41. The design was performed by the Hubei Provincial Planning and Design Institute from the starting point to KP95, by the MOC Design Institute No. 2 in Wuhan from -95 to the end point. The two institutes collaborated to ensure consistent designs. During preparation two seminars on tunnel design were conducted ,by Japanese consultants, funded by Japanese

16 Consultant Trust Funds. The tunnel designs were also reviewed by an international consulting firm financed by a Spanish Trust Fund grant, and a Japanese consultant financed by a Japanese Trust Fund grant and some changes were made to reflect the recommendations from these reviews. The alignment was reviewed by the Bank appraisal team. The traffic analysis was reviewed by an international consultant.

42. Cost estimates reflect July 2008 prices and are based on the preliminary engineering design. The prevailing unit rates for civil works were checked against effective rates in similar projects in Hubei and other provinces in China.

C. Fiduciary

43. Financial Management. The adequacy of the project financial management system was assessed based on guidelines issued by the Financial Management Sector Board on November 3, 2005 (see Annex 7). The assessment concluded that the project meets minimum Bank financial management requirements, as stipulated in OPBP 10.02. A project Financial Management Manual has been prepared and will be adopted before the start of the project. The HPCD has appointed project financial staff with capacity to perform their duties. It was confirmed that the project will maintain financial management arrangements that are acceptable to the Bank and that, as part of the overall arrangements that the borrower has in place for implementing the operation, provide reasonable assurance that the proceeds of the loan will be used for the purposes for which the loan was granted. Financial management risk is the risk that World Bank loan will not be used for the purposes intended and is a combination of country, sector and project specific risk factors. Taking into account the risk mitigation measures proposed under the project, a “low” FM risk rate was assigned to the project at the appraisal stage.

44. Procurement. A procurement capacity assessment ofthe implementing agencies was carried out during pre-appraisal (see Annex 8). The assessment concluded that the overall risk of the procurement process is average. The HPCD and the dependent entities involved in the project have allocated adequate resources, including experienced staff, to implement the project. These agencies are familiar with Bank procurement procedures and appear adequate for procurement implementation. An action plan to strengthen the procurement capacity of the implementing agencies was discussed with the HPCD and agreed upon. The plan calls for the preparation and dissemination of a project-specific procurement manual, training workshops, along with measures to avoid excessive cost overruns and improve procurement economy and efficiency. The ways in which the Tendering and Bidding Law of China differs from the Bank guidelines were addressed in the assessment, and the need for application of the Bank’s anti-corruption guidelines across the entire project was discussed with the HPCD.

D. Social

45. The major social impacts of the project stem from land acquisition associated with the YBE construction. The project will affect 9,845 people in 53 villages though acquisition of 8,395.3 mu (559.7 hectares) of land. In addition, structural demolition of private residential housing is expected to total 302,652 square meters, with 99 1 households (4,277 individuals) affected. A total of 1,543 households with 5,568 individuals will be affected only by land acquisition. A detailed land reclamation plan has been designed similar to that successfully used on the Bank-

17 financed Hubei Shiman Highway Project. This will see construction waste materials used to create new land suitable for farming equaling approximately 45% of the farmland acquired for the project. The HPCD prepared the RAP to mitigate resettlement impacts. It summarizes applicable policy principles and regulations, determines measures for restoring the income of affected people when necessary, compensation rates, and the resettlement budget; it also identifies institutional and monitoring arrangements.

46. Public consultations and participation are essential elements to achieving satisfactory resettlement outcomes. These were done during project preparation by Beijing University and through a social assessment and resettlement action plan. These were used to help optimize the expressway alignment to limit the adverse impacts on farming land and household relocation, confirm appropriate replacement cost for structures, identify vulnerable people who would receive special assistance from the HPCD, confirm the approach for a land development fund to support local communities, identify how to enhance woman’s entitlements and roles in family livelihood restoration, as well as promoting public accountability and oversight’ ’.

47. There are existing roads which can be used to connect the YBE to neighboring towns, however, the province is still considering the construction activities for these possible roads, with about 35.4km in length. Since these roads would be linked to the project, even though they would not be Bank financed, the Bank’s safeguard policies would apply. A resettlement policy framework (RPF) for these interconnecting roads was therefore disclosed during preparation. If the construction activities for these roads proceed, a RAP, EIA, and EMP satisfactory to the Bank will be submitted ahead of the start of the activities. The preparation of these documentation can take the form of an update of the existing RAP, environmental impact assessment, and EMP, or separate documents depending on the nature of the scale of the works to be undertaken on the interconnecting roads and the potential social or environmental impacts from those works.

48. A social assessment was undertaken examining potential impacts and benefits of the project to local residents. The living standard in the project area is relatively low, with the local GDP per capita being lower than the provincial average. The houses in the area are primarily one- or two- story, made of stick and mortar, or mud.

49. The social assessment screened the potential social impacts on the local communities to identify those with distinct identities in the project area. Residents of the Yiling District are primarily of nationality (90%). Only a few ethnic minorities, such as Tujia and Miao, make up the remaining population. Xingshan and Zigui Counties are also both over 99% Han. The population of ethnic minorities in Badong County is relatively large, accounting for approximately 46% of the total population. In this county, the Tujia residents make up the largest portion of the minority population while Miao residents account for less than 1% scattered in the villages. Overall, the percentage of Han persons affected by the project is 79%, Tujia persons 21%, and Miao residents less than 1%. The social assessment team, based on an examination of

l9 As described in Annex 10, the fund to support the poor is FWB 0.5 m. The HPCD set up a land development fund with RMB 13.7 m to reclaim the waste disposal areas and return them to farmland. Some ofthe displaced farmers, particularly women, may prefer non-farming activities so a training fund of RMB 0.89 m was established to assist with this.

18 relevant documents, field visits and interviews at locations ofthe project affected peoples (PAP), concluded that the YBE will not result in the Miao or Tjuia becoming especially vulnerable, i.e. they will not have their human dignity, political representation, economic activities, standard of living or social and cultural life diminished, abridged or curtailed by the proposed project. The World Bank OP 4.10 is therefore not triggered and Indigenous People or Ethnic Minority Development Plans are not required.

50. Information dissemination. The RAP, social assessment, and RPF were made available in provincial libraries in local counties served by the project. Project information was provided to the affected villages through reports and public meetings. A resettlement information booklet will be distributed to affected people before resettlement begins. As part of the ‘Safeguards Compliance Monitoring System’ (see Annex 16), there is an internet based web site available for downloading project information.

5 1. Participation Strategy. Affected villagers and various government agencies participated in impact surveys and formulation of the compensatory and livelihood rehabilitation plan. The affected people will continue to participate in the formation and implementation of detailed village livelihood development plans. Arrangements to ensure continued participation are included in the RAP.

52. Complaints. As in previous World Bank financed projects in Hubei province, there is a well established protocol for handling complaints. This will be supplemented by the ‘Safeguards Compliance Monitoring System’ developed for this project will enable project affected persons to also lodge complaints via the internet, e-mail or SMS messaging (see Annex 16). These will be relayed to appropriate parties for resolution and data will be stored on the time it took to resolve, as well as other information.

E. Environment

53. As described earlier, the YBE traverses environmentally sensitive areas, including the Three Gorges National Geological Park and the Shennongjia Scenic Area. Four cultural relics sites were found along the proposed project alignment: Baihuguan Ruin, Pingyikou Tombs, Xinping Overhanging Coffins, and Niejiahe Ancient Camp Ruins. Portions of the YBE pass through an area with karst caves. Because of this, in addition to the normal environmental impacts of this project-occupation ofboth fertile and barren land by the expressway; an increase in dust, noise, and motor vehicle emissions; disposal of excess waste material; community severance; soil erosion; resettlement; and safety-there was a need to ensure in the project design that the YBE’s impact on the unique environmental conditions in the project area was minimized.

54. Alignment Selection. As discussed earlier, during the YBE design, three corridors were evaluated to select the most environmentally and socially benign alignment possible. The selected corridor has the lowest overall impact to environmental and cultural resources. This included: (i) optimizing the alignment where possible to minimize waste; (ii) further optimization was done to enable the use the waste deposits from tunnels for land reclamation; (iii)the water quality of the Guanzhang drinking water reservoir was protected by shifting the alignment away from the Guanzhang watershed; (iv) the design was modified to reduce visual impacts on the Xiaofeng, Shennonglia and Gaolan Scenic areas; and, (v) at the Xinping Tombs

19 the alignment was changed from a tunnel under the tombs to a viaduct to protect the tombs from possible damage during construction. The final alignment minimizes the impacts to sensitive resources, including cultural relics and the Three Gorges National Geological Park. It has also received support from the local people and governments.

55. Mitigation. As described in Annex 10, to mitigate environmental concerns, the stand-alone EMP includes environmental standards, mitigation measures, chance find procedures for caves and cultural relics, monitoring plans for the construction and operation phases, health and safety measures, including a program to increase awareness about the transmission of HIV/AIDS, a safety training program, and an institutional strengthening plan to support agency effectiveness in continuing these programs. The compliance with the EMP has been strengthened by: (i) ‘translating’ key aspects of the EMP into technical specifications which are included in the bidding document and contract-this ensures that the contractors fully understand the EMP at the time ofbidding and bind themselves to complying; and (ii)the establishment of a compliance framework wherein there are clear consequences and actions taken for failure to comply with the EMP. These are both described in Annex 10.

56. For the first time on transport projects in China, there will be a separate consultant to monitor and audit the contractor’s compliance with the EMP. This, coupled with the EMP compliance framework, should improve the supervision from earlier projects. The first task ofthis consultant will be to prepare the two guides to enhance contractor recommended by the SEA study: (i)an EMP implementation guide for contractors clearly identifying their responsibilities and the HPCD’s requirements; and (ii)a guide for environmental supervisors on how to undertake supervision, including monitoring ofeffectiveness, These guides will be used in a comprehensive training program to increase the knowledge and understanding of contractors and the construction supervision consultants in minimizing negative environmental ’ impacts from the project.

57. Public consultation. The public environmental consultations for this project has been divided into three phases:

March 2004: At project initiation, the EA team conducted preliminary site investigations and visited relevant government agencies along the alignment to solicit concerns in terms ofenvironmental protection and pollution control. September 2005: At the official start of the project EA, the first formal round of public consultation, primarily for the affected people along the proposed alignments, was launched. Interviews and opinion questionnaires were used to receive concerns about expressway construction and operation activities June 2007: Two months after disclosure, the second round of public consultations were performed to gather opinions on environment and resettlement measures for affected persons along the alignment.

58. The primary concerns identified during these public consultations were: (i)land acquisition and resettlement, particularly related to timing and compensation; (ii)road blockages; (iii) construction activities, particularly impacts to water for irrigation; and (iv) noise.

20 59. The project design responded to these concerns by: (i)situating access ramps and interchanges to meet the needs of the local road network and residents; (ii)disclosing resettlement and compensation standards to residents; (iii)considering impacts to local traffic when designing passages and bridges; (iv) developing plans for irrigation system restoration; (v) installing noise insulation and tree plantings to minimize noise impacts; and (vi) establishing the ‘Safeguards Compliance Monitoring System’ allowing affected persons to easily file grievances related to resettlement, compensation, construction impacts or environmental on an ongoing basis, throughout the project.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) 1x1 [I Natural Habitats (OP/BP 4.04) [XI [I Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP/BP 4.11) [XI [I Involuntary Resettlement (OPIBP 4.12) [XI 11 Indigenous Peoples (OPIBP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)* [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI

G. Policy Exceptions and Readiness

60. There are no policy exceptions in this project. The project meets the readiness filters for the EAP region. A Financial Management has been prepared and duly qualified financial management staff is assigned to the project. A procurement plan is in place and a Procurement Agent has been appointed. Design consultants have been working since 2006 and preliminary designs are completed. The civil work bidding documents will be completed by March 2009. Safeguard requirements have been met; all relevant documents were initially disclosed on July 2008, and final documents disclosed on September 25, 2008.

21 Annex 1: Country and Sector or Program Background CHINA: Hubei Yiba Highway Project

A. China and road sector development

1. Since the early 1990s, the has moved from a centrally planned environment to one which is more commercialized and competitive and with a high degree of openness. These changes have led to the rapid growth in passenger and freight traffic, putting heavy demands on the infrastructure. In response to these demands, and given the previous underinvestment in the sector, since the mid 1990s the country has seen a rapid increase in the rate of road construction. By 2006 the total road network was roughly 3.46 million km, with 45,339 km of expressways and 45,289 km of high-grade (Class I)highways in operation. As a result, and complemented by the railway and waterways networks, over the last 15 years China has developed one ofthe most extensive transportation systems in the world.

2. Over the last 10 years governments at all levels embarked on major highway investment programs. At the core oftheir program was the NTHS, the backbone and most important element of the national transportation network. With an estimated cost of $150 billion, the 44,000 km NTHS was comprised oftwelve major corridors (five north-south and seven east-west corridors) and was completed in 2005. It now connects all provincial capitals and cities with populations exceeding 500,000 inhabitants (some 100 major cities).

3. As a follow-on to the NTHS, and in support of China’s Western Development Strategy, the State Council approved in December 2004 the so-called ‘7918 China National Expressway Network’ (NEN), comprised of 27 major expressway corridors (nine vertical and 18 horizontal) and designed to reach more than one billion people in China by linking all provincial capitals and large urban centers of more than half-a-million inhabitants with cities of more than 200,000 inhabitants. The standards chosen match those of the US Interstate or European motonvays and the network location intends to allow people in eastern areas to access an expressway within half an hour, the central provinces within an hour, and the western areas within two hours. In addition, the NEN will improve the communications between economically developed areas, such as the Yangtze and Pearl River Deltas in the East; and the Midwest and North-West areas; it will enhance the connection with the West and facilitate the economic growth of central and western provinces, including Hubei (see Map 1 in Annex 17).

B. Hubei Province

4. Hubei province, with an area of 185,900 km2,is a land-locked province in central China and one of the key industrial and agricultural production bases in the country. Its total population is 60.2 million people, of which 56.3% are rural. Hubei is a central focus of the Yangtze River economic belt, one of the major economic axes in China. The Yangtze belt includes seven provinces (, Hubei, , , Jiangxi, and ) and two municipalities which have the administrative status of a province (Shanghai and Chongqing). It constitutes some 15% of Chinese territory, 38% of Chinese population, and 46% of total GDP.

22 5. Despite its strategic location, Hubei’s lack of transport accessibility, especially in the more landlocked mountainous areas in the west of the province, has hindered its social and economic development and prevented it from meeting its potential role in China’s regional economic exchange and development. A lack of road network development has also kept a considerable percentage of the province’s population from benefiting in Hubei’s ongoing development. As a result, and in accordance with China’s Western Development Strategy and the State Council’s NEN plan, the province is endeavoring to improve its highway network.

6. By 2020 Hubei will have 12 major expressway corridors: six vertical, five horizontal, and one ring trunk road. This comprehensive transportation system will provide a main communication node for a good portion of China’s north-south and east-west traffic, making Hubei a gateway to the less-developed western provinces. This will facilitate the full development of the area’s regional and economic potential. Within Hubei itself, the YBE will expand access to the region’s natural and cultural resources promoting tourism and supporting economic growth. The YBE will provide greater access to the Three Gorges National Geological Park and other area resources leading to growth in the tourism industry and increased utilization of the network.

7. The YBE is located in the west of Hubei province, north of the Yangtze river (see Maps 2 and 3, Annex 17). The YBE crosses Badong and Yichang Prefectures, Xingshan and Zigui Counties, as well as Yiling District. The region surrounding the alignment of the YBE is mountainous and heavily forested with complicated geology. Rivers, tributaries of the Yangtze, run north-south through deep mountain valleys. These rivers, which are upstream of the , have experienced higher water levels as a result ofthe dam construction.

8. The economic development of the area has been hampered by the lack of transport accessibility. With the area containing people resettled due to the construction of the Three Gorges Dam, there is a need to improve the road infrastructure. Cities located along the Yangtze River are less disadvantaged, due to the use of the river for cargo and passenger transport. The River is a popular tourist destination due to the unique ecological features ofthe area. Success of this program will be evidenced by the increase in traffic, freight, and tourists going through Hubei province, specifically the economic growth due to the increase in visitors to the area.

C. Hubei’s transportation system

9. Increased access of remote areas to Hubei’s transportation system is one component of the province’s poverty reduction strategy. Comprehensive transport systems provide the rural poor with greater access to markets and services; it may also allow them to seek more opportunities in urban areas. The HPCD has the goal ofmaking every village in Hubei Province accessible to all weather roads. Since 2005, HPCD has annually improved 20,000 km ofroads to villages.

10. The current transportation systems of Hubei Province include substantial highway and railway networks, a well-developed network of inland waterways, a large and suitably-equipped airport, and many vehicles, personal, public and commercial. These systems are detailed below.

11. Highways. In 2006 total road mileage reached 181,791 km. The table below shows the distribution ofroads by type and classification.

23 Road Type Length Road Classification Length (km) ( km) National Roads 4,477 Expressways 1,747 Provincial Roads 11,545 Class I 1,278 County Roads 17,321 Class I1 15,560 Other Minor Township and Class I11 11,893 Village Roads 148,448 Class IV 105,350 Others 45.963 Total 181,791 181,791 Source: HPCD

12. As stated earlier, Hubei has the goal of completing 12 major expressway corridors by 2020. At the same time, it is investing in other roads in the province. Investment in roads Class lV and above amounted in 2006 to US$103 m, an increase of 386% from 2005 and 0.22% of total investment in the province’s fixed assets. The province is also making a concerted effort to develop local (county, township, and village) road networks. Financing on local roads for 2006 was US$lOO m, an increase of 7% in investment from 2005. Local road developments are ongoing in the YBE project area, which is why there is no specific local road investment program under this Bank-financed project.

13. Road transportation is the main mode in Hubei’s transportation system. Annual average daily traffic volume in Hubei’s national trunk system for 2006 was 36,207 veh/day. In 2006 Hubei had 145,003 road transportation business operators, 5 14,232 people in transportation employment, 28,155 operating vehicles, and 8,035 passenger routes (including 1,156 inter-provincial lines). This same year, Hubei also reached a total passenger volume of 6.91 m persons and 145.7 m tons of cargo volume.

14. Railways. The total length of Hubei’s railways in operation is 2,525 km out of the national length of about 76,600 km. The network, with four arterial and 35 secondary lines, includes three parallel north-south trunk lines, crossing the Yangtze at , Wuhan and Xinjiangkou. Although the Yangtze is the main east-west transport artery, there is also a rail route which links Jiujiang and Wuhan on the southern bank of the Yangtze and then continues northwest to Xiangfan and Xi’an. The main line is Jingguang Line, traveling from Beijing to and traversing the eastern part of Hubei province. In 2005, the province’s railways carried 37 m passengers (30 billion passenger-km) and 53 m tons (72 billion net ton-km).

15. Waterways. Hubei has one of the most developed networks of inland waterways. There are 194 navigable rivers (out ofthe 1,193 in the province), with some 9,880 km of navigable length (out of a potential 35,000 km). The network includes 269 km of Class Inavigational routes, 769 km of Class 11, and 52 km of Class 111. There are three major ports: Wuhan, Yichang and Xiangfan. Most ports are concentrated along the Yangzi and Han Rivers, with 24 ports along the Yangzi River and 13 ports along the .

16. Passenger capacity in Hubei’s inland waterways is 39,097 seats, while its twenty-foot equivalent units (TEU) capacity is 2,072 TEUs. Hubei has 2,054 inland harbor berths (1 13,634 m in length). By the end of 206, Hubei had 5,459 civilian transport vessels that provided a capacity of 2,072 TEU and 39,097 passenger spaces. With the development of vessel capacity, a large

24 number of old-fashioned wooden boats became obsolete and were replaced by steel, large tonnage, multifunctional, and energy-efficient vessels. In terms ofroute development, Hubei has started reaching its goals of stabilizing inland waterways, developing Yangtze River transport, extending business toward the coastal areas, and exploring maritime transportation opportunities.

17. Air Transport. Wuhan Tianhe Airport is the biggest and best equipped airport in Hubei and central China. It is designed as a first class national civil airport and a standby international airport. Civil aviation mileage in the province reached 121,295 km in 2004. Other airports in Hubei include Yichang Airport and Enshi Airport, the first of which serves the growing tourism industry attracted by the Three Gorges Dam Project and surrounding areas ofinterest.

18. Vehicle Fleet. The number of automobiles in the province reached 987,423 (2006). There were a further 653,895 buses and 309,641 trucks. During the period 2000-2006 the number of private automobiles increased annually by an average of20% and buses by 10%.

D. Sector issues for China and Hubei Province

19. Financing Issues and the Need to Increase Road Maintenance Budgets. While China continues to expand its expressway network, the first generation ofhighways is already reaching the point where they need resurfacing and repairs. Due to widespread overloading by trucks, pavements have deteriorated faster than planned and will need substantial strengthening. Thus provinces will need to allocate a growing share of their road budgets to maintenance, rehabilitation and strengthening, and enhance their ability in making informed decisions on the allocation of maintenance resources. The HPCD currently has plans to devote a greater percentage of funds to support maintenance efforts. The truck overloading issue has been partially addressed by adopting higher tolls for overloaded vehicles, however, more work, is required by Central Government to have a consistent enforcement framework for overloading.

20. Throughout China, tolls are currently the main mechanism for financing expressways2’. Toll rates have been set at levels similar to, or higher than, equivalent tolls charged in many developed countries making travel on expressways relatively unaffordable 21 . This often contributes to lower traffic volumes and higher levels of truck overloading. Provinces must find additional sources of financing such as a surcharge on fuel in order to relieve the financial burden on expressway users. This is a national level issue, which the Bank has been actively discussing with Central Government for some time.

21. Traffic Safety. Road safety is a major issue throughout China as 100,000 people are killed and some five million injured every year as a result of traffic accidents22. On a national level, these rates are increasing, but at the provincial level, road accidents and fatalities are on the decline for Hubei Province.

2o See ‘China’s Expressways: Connecting People and Markets for Equitable Development”, EASTE Working Paper No. 13, January 2007. Available for download from www,worldbank.org/eaptransport. ’’See Carruthers, R. and Basu, R. (2005). “The Theoretical and Practical Bases for Setting Road Tolls. Internal Report”. The World Bank, Washington, D.C. --7J It should be noted that the World Health Organization has estimated the number of fatalities at some 250,000.

25 22. As evidenced by their support for the Hubei Road Traffic Safety Training Center, established in 2007 with World Bank support, the HPCD continues to have a strong commitment towards traffic safety. As a result of the HPCD’s and others 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 Injured Registered Accidents Fatalities Vehicles 2000 15,997 3,810 12,590 2,334,890 200 1 18,302 3,042 14,883 2,736,850 2002 20,469 2,794 12,045 3,473,370 2003 20,047 2,729 14,25 1 3,827,773 2004 13,680 2,554 11,813 4,152,553 2005 9,585 2,4 17 10,555 4,336,446 2006 9,593 2,304 1 1,979 5,017,196 2007 8,986 2,142 11,355 5,791,035 Change in% - 44% - 44% - 10% + 148% 2007:2000 Source: HPCD

23. Environmental and Social Safeguards. Throughout China, there must be consideration of environmental and social impacts related to new construction projects, as specified in Chinese national law, including China’s new labor law (in effect as of 1 January 2008). Hubei Province has consistently applied successful environmental and social safeguard measures on their transport projects, as in the NH3, NH4, Xiaoxiang, and Shiman projects. The Shiman project, for example, serves as a model for successful resettlement activities for work in China23.

24. HIV/AIDS. The relationship between the construction of new transport corridors and the movement of HIV/AIDS has been identified, and the need to address the spread of this disease on transport projects is pressing. which will be financed through the AusAID ‘Infrastructure for Growth’ trust fund. This will build upon the success of previous similar programs in the Bank financed Hubei Shiman Highway24and Inland Waterway V projects. The program will pilot test the new HIV/AIDS IEC Toolkit25‘The Road To Good Health’, developed by EAP specifically to educate construction workers, local residents, and commercial sex workers on HIV/AIDS risks and mitigation.

25. Government and Administration. China’s government bodies need to adapt to their new roles as regulators. Because the central government has only limited powers over provinces, and China lacks a single, national ministry responsible for all transport modes, the pace of administrative reform varies from province to province. Furthermore, because government bodies have been reluctant to cross jurisdictional boundaries, services that require cooperation across such boundaries have developed slowly. Key cross-jurisdictional coordination issues

’’ The technical note ‘Using Involuntary Resettlement on Highway Projects to Alleviate Poverty: A Case Study froin the Hubei Shiman Highway Project in China’, available for download from www.worldbank.org/eautransuort, 24 The Hubei Shiman project is recognized as an example of excellent practice. See “Combating HIV in the East Asia and Pacific Region Transport Sector: Success on the Road in China”. Report from the World Bank Global HIViAIDS Program, November 2007. Available for download from www.worldbank.ora/ear,transuort. 25 Available for download from www. theroadtogoodhea1th.org.

26 requiring attention include improving transport standards of central provinces like Hubei as well as the management of entries and exits to cities, road safety, logistics, and land use.

26. Regional Disparities. Provinces along China’s eastern seaboard have benefited from logistical accessibility and well-developed infrastructure, thereby growing more quickly than their central and western counterparts. The northeast, the seat of much of China’s early and still dominated by state-owned enterprises, is now highly polluted and suffering high unemployment. Current central government efforts aim to narrow the widening wealth and income disparities among regions by attracting more domestic and foreign investment to the interior.

27. The Need for Improved High-Grade Access to Key Facilities. Lack of transport accessibility is one of the constraints to the social and economic development of Hubei’s central and westem landlocked mountainous areas. Hubei could attain the full benefit from improved NEN connectivity, improve its competitiveness, and facilitate trade by integrating better with its neighboring provinces. The boundary region between Hubei and Chongqing includes the resettlement area for Three Gorges Dam Project, rich in agricultural, biological, hydropower and mineral resources. This area is also a growth point in China’s tourism industry. A lack of appropriate transport networks has constrained the area to low levels of development in past years.

28. At the provincial level, the YBE is a key section of the transverse expressways planned in Hubei for 2020: it will link Hubei’s western area (eventually extending to Chongqing) with the provincial capital and eastwards, speeding up regional economic development and allowing for the exploitation of the region’s resources and tourism industry. Further, at the national level, the YBE is a critical section ofthe Shanghai to Cheiigdu Expressway which will link large economic nodes including Shanghai, , Wuhan, Chongqing, and Chengdu. By means of this expressway, this western region will be properly connected to the more affluent eastern provinces and promote western development as intended by China’s Western Development Strategy.

29. The Need for Improved Sector Management. The previous Bank highway projects (NH3, NH4, Xiaoxiang and Shiman) have helped the HPCD improve their operations in a number of key areas, such as safety and road maintenance. However, more needs to be done to promote more effective ways of integrating policy formulation, regulation, planning, operations and enforcement. This project will further improve planning and safety processes, particularly tunnel safety, as well as to assist the HPCD in implementing better quality assurance. The design ofthis project will pilot several initiatives to reduce the impact of construction on the environmentally sensitive terrain through which the expressway will pass. The delivery of HIV/AIDS education will also be pursued, building upon earlier success of the initiatives in the Bank financed Hubei Shiman Highway and Inland Waterway V projects.

27 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: Hubei Yiba Highway Project

Completeti ~rojects Sector Issues IEG Review Outcome Rating ’ (last five years)

Remove Highway Capacity Bottlenecks

Institutional Strengthening1 Training

Rural Roads and Poverty Alleviation

Highway Safety

Operation & Maintenance of High-Grade Highways

Cost Recovery Inner Mongolia Highway (1-6) Latest ISR Rating ’ 7. Maintenance ofNetwork Ongoing Projects 8. Road Safety

9. Environmental and Social Safeguards

10. HIViAIDS Highway Sector Investment (1-6) S S Road Development (1-6) S S Anhui Hwy Rehab. & Improvement (1-6) S S Transport Infrastructure (1-6) 4 4 Planned Projects

28 OTHER DEVELOPMENT AGENCIES

Cooperation (formerly Ongoing Projects Overseas Economic

I Hunan Province Road Construction

29 Annex 3: Results Framework and Monitoring CHINA: Hubei Yiba Highway Project

Results Framework

PDO Project Outcome Indicators Use of Project Outcome Information To improve passenger and Freight rate for a shipment by Assess the overall impact of freight flows in the road from Yichang to Badong for improvements to transport flows Yichang-Badong corridor a sample of products. along the corridor as a proxy for by construction of an transport integration. expressway with enhanced environmental Travel time savings on YBE over Assess improved efficiency of management practices. existing road corridor. travel in corridor.

Accident rates on expressway Assess improved safety of travel reduced compared to road in corridor. corridor. Confirm the effectiveness of the No major EMP non-compliance environmental management incidents innovations being tested on the project. Intermediate Outcomes Intermediate Outcome Use of Intermediate Outcome Indicators Monitoring Improved road Average daily traffic on the Assess the effectiveness of the infrastructure in the YBE YBE. investments in increasing the corridor. overall capacity along the Average daily traffic on existing corridor. roads. Strengthened institutional Completion and adoption of Assess progress of Hubei in capacity guides for improved improving its environmental environmental management management. during construction.

Adoption of improved safety Verification of commitment to practices for construction and improved safety in long tunnels. operation of long tunnels.

Completion of an effective Improved management capacity training program. for HPCD staff

30 a n n n i i i i

n K t

0

0 0

0

M or-0 0 YO "%

0 I 000 0 0 II

Annex 4: Detailed Project Description CHINA: Hubei Yiba Highway Project

1. The project has two components: (i)an expressway of about 173.6 km connecting Yichang City and Badong County at the border of Hubei and Chongqing Municipality; and (ii) institutional strengthening.

COMPONENTA: YICHANG- BADONGEXPRESSWAY (YBE)

2. The YBE will be a section of about 173.6 km of the Shanghai-Chengdu expressway, which is one of the east-west corridors of the 7918 plan (see Map 1, Annex 17). With the main north- south corridors now largely complete, the focus is shifting to providing east-west linkages, thereby completing network connectivity. The YBE will start in Yichang City, at a point located in the north-east of Yichang, at a point located on the - Yichang expressway which is was completed late 2007. It will end north-west of Badong, at the border of Chongqing municipality, linking with the Wushan (border with Hubei) - Wanzhou expressway section which is already under construction. The YBE is the last section not yet open to traffic or under construction of the expressway linking Wuhan to Chengdu.

3. With an estimated total cost ofUS$2,194.02 m, averaging over US$12.6 dkm, this is one of the most demanding expressway projects in China-approximately 35% of the length will be tunnels; 40% bridges and viaducts. Whilst on previous projects it was possible to avoid many of the most difficult areas, it is not possible here since the entire area is mountainous. The environmental sensitivity of the area makes it important to ensure that the expressway is constructed in the most environmentally benign manner possible; this further increases the costs and technical challenges.

4. The main characteristics of the YBE as reflected in the designs are presented in the next section below.

Location and general description of area

5. The YBE crosses Yichange and Badong (under Enshi Tujia and Miao Autonomous Region) Prefectures, Xingshan and Zigui Counties, as well as Yiling District. Since most ofZigui county and part of Badong county are located south of the Yangtze river, the population served by YBE totals about one million: 500,000 are located in Yiling District (from the starting point to KP SO), 200,000 in Xingshan county (KP 80 to 142) and 250,000 are located in Badong county on the northern bank of the Yangtze (KP 142 to the ending point). The eastern part of the area is therefore more densely populated than the western part ofYBE.

6. The area presents very complex geological and tectonic features. Some geological layers are very ancient. The seismicity of the area is class VI (0.05 g). The diversity of the materials and the complexity of the movements that have affected the whole area during long geological periods are rather unique and all of the area crossed by the YBE is part of the Three Gorges National Geological Park.

33 Major YBE Characteristics

Item I Description

Cost estimate IUS$\ ,, rn) I 2.194.02 Average cost (US$ dkm) 12.6 Class ofroad 4 lane expressway (2 x 2 lanes) Travel speed 80Mh Min. curve radius 400m Max. longitudinal slope 5 yo Width of road Integration 24.5m. Additional climbing lanes are implemented in the base long and steep uphill gradients; emergency beds are : implemented along long and steep downhill gradients; I Separation 1 12.25m Road Surface I Asphalt and Concrete Frequency of flood return Super bridge: 11300 period other: 1/100 Bearing load of bridge Road: Class 1 Bridges 70.08 km of bridges, with 148 bridges in total, 17 super- long (the biggest one has piers 200 m high and a span 320 m long), 119 long and 12 medium Tunnels 61.1 km of tunnels, with 45 tunnels in total, 7 super-long (the longest one is 7.5 km long), 8 long, 9 medium and 21 short Earthworks 3.7 million m3of earthworks Stoneworks 6.4 million m’ of stoneworks Facilities Two service areas Two parking lots One main toll station at the border with Chongqing Six toll plazas at interchanges One main operation center Various sub-centers Interconnecting roads About 35.4 km of interconnecting roads on existing and new alignments

7 I. The area is constrained in the south by the Yangtze river which goes from west to east, is parallel to the YBE, and forms a natural barrier. Only a few bridges cross the river: two in Yichang, one in Badong and one near the Three Gorges Dam. Tributaries of the Yangtze River are responsible of major erosion phenomena leading to deep valleys. The main tributaries of the Yangtze river are the Bailing, Huangbai, Xiangxi, Liangtai and Shenlongxi rivers. These have a north-south general direction and therefore have to generally be crossed by the YBE with long bridges.

8. The Three Gorges Dam project has a significant impact on the water level ofthe Yangtze and its tributaries. The water level reached 156.56 m of elevation in December 2007, and will reach 175 m in 2009. Various villages and towns are relocated and sections of roads under the water level (like portions ofPR 3 12 and NR 209) are restored on new alignments.

34 9. A tectonic fault is responsible for providential east -west valleys dug by the Wudu and Yang rivers which can be used by the YBE between KP 30 and 80. The existing Provincial Road 312 already uses these valleys and an old railway project, started in the 1930s and never completed used them also.

10. The area has a magnificent and very well preserved natural environment. Mountainous landscapes are noticeable with Xiaofeng, Gaolan and Shenlongxi scenic spots. Deep and narrow valleys form gorges like the downstream part ofthe Wudu river valley.

Existing roads and railways

1 1. The existing infrastructure network is very poor in the area for three reasons: (i)very curved horizontal alignments and steep gradients; (ii)frequent landslides and rock falls; and, (iii)all sections of roads above 800 meters face snowdrifts in winter and sections above 1,000 meters are closed during long periods in winter.

12. NR 318 going from Wuhan to Chengdu is located on the southern bank ofthe Yangtze River. NR 209 is a north-south road crossing the project linking Xingshan to Badong; this road is in poor condition.

13. On the northern bank of the Yangtze river, the existing route from Yichang to Badong is the Class I1 provincial road PR 312 from Yichang to Xingshan, with a pass at 950 meters of elevation, and the Class II/III NR 209 from Xingshan to Badong, with two passes at 1,400 and 1,100 meters. The Class II/IV PR 327 goes from Badong to Wushan in Chongqing municipality with a pass at 900 meters at the border. Because of the raise of the Yangtze River water level, about 10 km ofPR 3 12 and 28 km ofNR 209 have been restored with new alignments.

14. There is no railway in the area, the railway from Wuhan to Chengdu makes a very long detour in the north via Xiangfan, and Anltang.

15. In such a remote area, the YBE will open up the territory and provide accessibility as well as major time and cost savings in transportation. The interchanges for the project were located in consultation with local government officials and residents to ensure that the YBE would provide adequate local access.

Alignment Selection

16. Early in the preparation process the HPCD commissioned three definitive technical studies in order to preserve the integrity of, and to minimize the impacts of YBE on the Three Gorges National Geological Park. The studies were: (i)Soil Conservation Plan for Yiba (YBE) Project", by the China Hydro geological Institute, 2006; (ii)'I Feasibility Study for Impact of Project on Three Gorges National Geological Park" by the China Geological Environmental Monitoring Institute, 2006; and (iii)"Geological Disaster Risk Evaluation report for YIBA Project" by the China Geology University, 2004.

17. All three studies were used to establish corridors and to select the final alignment, to avoid karst and unstable geological areas, to minimize soil erosion, to minimize hydrological and hydro geological impacts, to identify waste disposal areas, to avoid scenic areas, etc.

35 18. Three corridors were identified at the pre-feasibility study stage: southern corridor along the Yangtze, central corridor and northern corridor. The northern corridor was finally adopted because: (i)it better serves the area, (ii)has much better geological and topographical conditions; and, (iii)minimized the overall negative environmental and social impact of the project. The expressway alignment was selected after careful comparison ofvarious alternatives:

0 The starting point is located on Jingmen-Yichang expressway in order to optimize the expressway node. 0 From KP5 to KP30, the alignment is located downstream of the Guangzhuang reservoir which constitutes a main storage of drinking water for Yichang city. Upstream alternatives were considered too risky for the preservation ofthis drinking water area. From KP25 to KP55, the alignment crosses Xiaofeng scenic spots along the Wudu river. Alternatives avoiding this valley were considered but were: (i)technically much more difficult; (ii)upstream ofthe Guangzhang reservoir; and (iii)had greater negative impacts on the environment. The horizontal and vertical alignments of the YBE in the Wudu valley were carefully optimized with viaducts and tunnels in order to reduce the impacts on environment and cultural relics. From KP55 to 95, the proposed alignment follows valleys and there is no feasible other alternative. 0 From KP95 to KP145 the YBE crosses very challenging topography with the longest tunnels of the project. Four main alternatives were considered and the alignment selected minimizes the length of tunnels and has the best geological conditions. However it is the one which is more distant from neighboring towns so improved interconnecting access roads might be required. 0 From KP145 to 155, the alignment follows the flank ofa mountain and is located along a steep transverse slope, mostly in viaducts. Alternatives would result in very long tunnels.

0 From KP155 to -16.5, three alternatives were considered. The alignment adopted has a very high cable stayed bridge but minimizes quantities. The ending point has been fixed in accordance with an agreement reached with Chongqing municipality.

19. Overall, the final alignment minimizes the negative environmental impacts and impacts on cultural relics, and reducing resettlement activity where possible, allowing for reallocation of land within existing villages. It will provide the best overall benefits to the people living in the project area.

Design considerations

20. The YBE design reflects the experiences of the HPCD on their previous projects, as well as inputs from domestic and international reviewers. Key elements include, but are not limited to:

0 Increased frequency ofhydrological and geological surveys to confirm site conditions; 0 Use ofviaducts and tunnels to reduce the environmental impact ofthe YBE; 0 Alignment optimization to achieve a good balance of materials in order to minimize waste deposits; Limiting slope heights to 40 m by adjusting embankment heights, thereby reducing waste material and simplifying slope protection requirements;

36 0 Improved tunnel safety through features such perpendicular galleries and handicapped friendly barrier doors;

0 Traffic safety audit ofalignment, intersections, annex and service areas; and, 0 Ensuring frequency and location of interchanges provides sufficient access to the local road network.

COMPONENTB: INSTITUTIONALSTRENGTHENING

2 1. The HPCD has proven capacity and demonstrated effectiveness in managing road networks, as evidenced by the successes of the NH3 and NH4 projects. Their successful management is further highlighted by the continued operation of road sections in Hubei province during the heavy snows ofFebruary 2008 that closed down the roadways of surrounding provinces.

22. The activities in the table below will be implemented as part of the project. The institution will also be strengthened through an HIV/AIDS education program, which will be financed through the AusAID ‘Infrastructure for Growth’ trust fund. This will build upon the success of previous similar programs in the Bank financed Hubei Shiman Highway26and Inland Waterway V projects. The program will pilot test the new HIV/AIDS IEC Toolkit27 ‘The Road To Good Health’, developed by EAP specifically to educate construction workers, local residents, and commercial sex workers on HIV/AIDS risks and mitigation.

Institutional Strengthening Activities

’ Description Implemyting Unit Training Domestic and foreign training activities will HPCD and . Procurement of cover a range oftopics including design, consultants appropriate trainers and safety, maintenance, management, finance adoption ofrelevant and the environment. materials and curricula

1 Increased knowledge and understanding of environmental supervision, tunnel and road safety, HIVIAIDS, and ESRP.

Improved During project preparation a ‘Strategic HPCD and 1 Improved environmental Environmental Environmental Assessment’ (SEA) of environmental supervision

Supervision Hubei’s road transport sector was supervision 1 Creation ofan EMP undertaken by international and domestic consultant implementation guide for consultants with SIDA grant financing2*. contractors with their Based on the recommended action plan responsibilities and the from the SEA, it was agreed that priority HPCD’s requirements would be given to improving the clearly defined

effectiveness ofenvironmental supervision 1 Creation ofa supervision on the HPCD’s projects. This will be done guide for environmental

26 The Hubei Shiman project is recognized as an example ofexcellent practice. See “Combating HIV in the East Asia and Pacific Region Transport Sector: Success on the Road in China”. Report from the World Bank Global HIViAIDS Program, November 2007. Available for download from www.wor1dbank.orgieautransuoi.t. 27 Available for download from -. The final report can be downloaded from www.worldbank.orgleautraiisuort.

37 through the preparation of two guides by the supervisors, including environmental supervision consultant: (i)an monitoring of EMP implementation guide for contractors effectiveness. clearly identifying their responsibilities and the HPCD’s requirements; and, (ii)a guide for environmental supervisors on how to undertake supervision, including monitoring of effectiveness. These guides will be supported by a training program.

Tunnel Safety The study, to be conducted prior to the HPCD and tunnel 1 Procurement of a tunnel beginning of the major tunnel construction specialist expert

period, will: (i)provide recommendations 1 Preparation of a tunnel on different alternatives for the safety study

improvement of tunnel construction 1 Adequate procedures in practices; and, (ii)identify methods for place for tunnel improved tunnel safety supervision intended monitoring during to reduce uotential dangers and accidents. construction Hubei The GOC has recently released a document HPCD Creation of a series of Comprehensive “Comments on Promoting Central area key transport Transport and Grow-up.” With its geographically central performance indicators Logistics position, and rapidly expanding expressway to assess relative Development network, Hubei is seen as having transport efficiency with Plan opportunities to become a multi-modal other provinces centre for transport in China. This research Creation of a strategy will identify policies, infrastructure and and action plan for 5, 10, institutional constraints which need to be and 20 year horizons addressed in order for Hubei to fill its role as the “Comprehensive Transport Complex”. For both freight and passenger transport, the study will consider road, rail, waterways and air transport. It will identify possible solutions for infrastructure, institutional framework, and management practices, based on experiences from other countries, and respecting existing national appraisal requirements. ~ Reducing The purpose of the study is to review design HPCD 1 Recommendations on Geological approaches to identify ways in which how to minimize Landslide designs can be enhanced to reduce the risk geological risk during Disasters on of landslide and other geological disasters project design and Expressways in during construction and operations. operations Mountainous Regions: __ Equipment Equipment will be procured for expressway HPCD and 1 Procurement of management and maintenance, and consultants equipment appropriate to environmental monitoring. These will the needs of the project include weighing stations, quality control and meeting the sets and road condition monitoring standards of the HPCD equipment. and World Bank

38 Annex 5: Project Costs CHINA: Hubei Yiba Highway Project

Cost by Financing Local and Foreign Costs in Foreign Source in US$ m US%m Total in Component Exchange US%m Component Non- Bank Bank Local Foreign Financed Financed

[A] Yichang - Badong Expressway” - Civil works 21% 1,399.59 130.60 1,208.85 321.34 1,530.19 - Electrical and Mechanical Facilities 28% 97.59 16.69 82.28 32.00 114.28 - Buildings, annex areas 0% 15.45 0.00 15.45 0.00 15.45 - Construction supervision (Domestic) 0% 30.94 0.00 30.94 0.00 30.94 - Construction supervision (Foreign) 100% 0.00 2.00 0.00 2.00 2.00 - Land acquisition and resettlement 0% 82.86 0.00 82.86 0.00 82.86 Subtotal 1,626.43 149.29 1,420.38 355.34 1,775.72 [B] Institutional Strengthening - Studies (*) 0% 0.65 0.00 0.65 0.00 0.65 -Training 77% 0.10 0.33 0.10 0.33 0.43 - Equipment 0% 4.20 0.00 4.20 0.00 4.20 Subtotal 4.95 0.33 4.95 0.33 5.28 Total Baseline Costs 1,631.38 149.63 1,425.33 355.67 1,781 .OO Physical Contingencies 21% 11 1.73 0.00 88.28 23.45 111.73 Price Contingencies 21% 45.91 0.00 36.13 9.77 45.91 Total Project Costs 1,789.01 149.63 1,549.74 388.90 1,938.64 Project management fee, financial fee, 0% 255.00 0.00 250.00 0.00 255.00

Front-end fee 100% 0.00 0.38 0.00 0.38 0.38 2,044.01 150.00 1,799.74 389.27 2,194.01

Notes: 1/ As shown in Annex 8, the Bank financing is focused on the first 48.5 km of the expressway for civil works, and is also financing the tolling and telecommunication system for the entire expressway.

Taxes US$63.93 m Project Cost Net ofTaxes US$2,130.08 m Overall Tax Impact 97.1 yo

39 I

I

0 d Annex 6: Implementation Arrangements CHINA: Hubei Yiba Highway Project

1. The project will be implemented by the HPCD, the provincial agency responsible for road management in Hubei province. The WBFPO of the HPCD has coordinated project preparation and will remain the Bank’s main counterpart during implementation. Similar arrangements have been made on the four previous Bank-financed highway projects in Hubei and have proved very effective.

2. The HPCD has established a dedicated project headquarters, the newly created Hubei Provincial Yiba Expressway Construction Headquarters (HPYECH), to implement the YBE, and the Hubei Yiba Expressway Management Division (HYEMD) established under the Hubei Expressway Administration Bureau to operate and maintain it after it opens to traffic. The HPCD has staffed the HPYECH by transferring staff from the previous expressway projects which have had their infrastructure opened to traffic. The HPCD has hired the Hubei Provincial Highway Design Institute (HPHDI) and the Second National Survey and Design Institute fi-om MOC (MOCN2) to carry out design studies for YBE.

3. The HPYECH will manage construction works as the “Client” with the assistance of HYEMD and a supervision organization made of domestic firms and specialist international consultants. The environment will be supervised by a separate environmental supervision consultant. Figure A6.1 shows these arrangements which are as follows:

The HPCD will assign three engineers in the sense ofFIDIC: one for civil works ofthe section from Yichang to Xingshan, one for civil works of the section from Xingshan to Badong, one for E&M works. Each engineer will be a firm signing a contract with HPCD. Under the two engineers for civil works would be several resident engineers, each supervising a maximum of six contracts. Each resident engineer would be a domestic firm having a contract with HPCD, but acting under the engineers. The HPCD proposed a foreign team including a tunnel expert, a pavement expert, and a bridge expert, who would advise the client. Since the YBE is in an environmentally sensitive area, the contractor’s compliance with the EMP will be monitored and audited by a separate Client’s Environmental Supervision Consultant (CESC) team. They will independently audit the compliance with the EMP on behalf of the client, advise the supervision engineers and report to the client. The Terms of Reference for the CESC is included in the EMP. They will commence work at least three months prior to the commencement of construction to prepare the EMP implementation and supervision guides. During construction, the designers from the Hubei Provincial Highway Design Institute (HPHDI) and the Second National Survey and Design Institute from MOC (MOCN) will update the designs to account for issues encountered in the field.

4. The Resettlement Action Plan (RAP) for the project was prepared by the dedicated Hubei Expressway Resettlement Office (HERO). The office will lead resettlement operations under the

41 oversight of the provincial resettlement office and manage multi-level resettlement units established along the alignment with local governments at City, county/banner, and township levels. Staff in this office have been assigned from the Bank-financed Hubei Shiman Highway Project team so their experience with the Bank’s safeguard policies can be utilized on this proje~t~~.

Supervision Arrangements

Project Office Client t t t t Y

Supervision Supervision I Supervision Engineer 1 Engineer 2 Supervision Engineers

Resident Engineers

31 Subgad@Codradm Contractors 3 EBM Cmtradas 4 Pavement Contradm 8 Building and AmxArea CorhaEtors 3 Interconreding RoadCmtram

RE = Resident hgineer; ERE =Building RE; E&td = Eectricai and hkchsnical Ccntnctor; Directionof Reporting: General Reporting(not dstrituted)

5. The HERO has been staffed with experienced experts, their responsibilities have been specified in the RAP, and training programs will be organized. Other relevant government agencies responsible for planning, financing, communications and land administration will also be involved at different levels. The HPCD has prepared and included in the RAP a detailed training program for the capacity building of project offices. Moreover, the HPCD will issue a specific regulation for the approval and usage of resettlement funds. The payment process to beneficiaries will be streamlined to avoid possible fund deductions during disbursement, and each affected village will have a specific account with a local Bank. The appointed bank will report daily on the usage ofresettlement funds items to the project office for internal monitoring. The HPCD will also strengthen the capacity of township-level and county-level to manage

29 For a brief summary oftheir performance, see the technical note ‘Using Involuntary Resettlement on Highway Projects to Alleviate Poverty: A Case Study from the Hubei Shiman Highway Project in China’, available for download from www.worldbank.org/eaptransport.

42 resettlement funds. The ‘Safeguards Compliance Monitoring System (see Annex 16) will contribute to ensuring proper disbursement ofresettlement funds.

6. For the environment, the HPCD has prepared an EMP that includes practical and cost effective measures necessary to mitigate the project related impacts by incorporating them in the design and by implementing them during the construction and operation phases. The EMP also specifies the appropriate monitoring plans, training, institutional arrangements, implementation schedule, budget needs, etc. necessary to implement the mitigation measures and strengthen the borrower’s capacity.

7. To ensure that the EMP is properly implemented it EMP has been defined in terms of technical specifications which are included in the bidding documents. This will make the enforcement by the Environmental Supervision Consultant more straight forward than in previous projects. This is described in detail in Annex 10.

8. Finally, the WBFPO is preparing the institutional strengthening component and will coordinate the implementation of activities. The WBFPO will also be responsible for procurement on the project. WBFPO staff has experience in procurement from the previous World Bank-financed projects in Hubei and hence is familiar with the Bank’s procurement principles and procedures.

43 Annex 7: Financial Management and Disbursement Arrangements CHINA: Hubei Yiba Highway Project

A. Introduction

1. The Bank’s preparation team conducted an assessment of the adequacy of the project financial management system for the YBE project. The assessment, based on guidelines issued by the Financial Management Sector Board on November 3, 2005, concluded that the project meets minimum Bank financial management requirements, as stipulated in OP/BP 10.02. In the team’s opinion, the project will maintain financial management arrangements that are acceptable to the Bank and that, as part of the overall arrangements that the borrower has in place for implementing the operation, provide reasonable assurance that the proceeds of the loan will be used for the purposes for which the loan was granted. Financial management risk is defined as the risk that World Bank loan will not be used for the purposes intended and is a combination of country, sector and project specific risk factors. Taking into account the risk mitigation measures proposed under the project, a “low” FM risk rate was assigned to the project at the appraisal stage.

2. Funding sources for the project include Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into project designated account (DA) to be set up at and managed by Hubei Provincial Finance Bureau (HPFB). The Bank loan will flow from the DA to the Hubei Provincial Communications Department (HPCD), then to Hubei Yiba Highway Construction Headquarters (HYHCH) and finally to the contractors. The Bank loan will be signed between the Bank and the People’s Republic of China through its Ministry of Finance (MOF). The MOF will onlend the loan to the HPCD through HPFB. Counterpart funds consist of government appropriation and commercial debt.

3. No outstanding audits or audit issues exist with any of the above implementing agencies involved in the project. However, the task team will continue to be attentive to financial management matters during project supervisions.

B. Audit arrangements

4. The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards of the People’s Republic of China. The audit will be done by an auditor designated by the China National Audit Office.

5. The annual audit report ofproject financial statements will be due to the Bank from HYHCH within six months after the end of each calendar year (Le. June 30). This requirement is stipulated in the loan agreements.

44 C. Disbursement arrangements

6. The funds flow for the Bank loan will follow the Bank and MOF requirements. One designated account (DA) will be established and managed by HPFB. The funds flow is as fo 110 w s : pi+ Suppliers and World managed HYHCH contractors by HPFB I Bank I

7. The Bank loan proceeds will be disbursed against eligible expenditures as indicated in the Disbursement Schedule below.

Disbursement Schedule

Amount of the Loan Percentage of Expenditures to be Allocated financed Category (expressed in USD) (inclusive of Taxes)

(1) Civil works for Eligible Activities under Part A of the Project 147,291,000 42% relating to sub-grade and pavement construction and erection and installation of electrical and mechanical systems

(2) Consultants’ services, training 2,334,000 100% and studies I (3) Front-end Fee 3 75,000 Amount payable pursuant to Section 2.03 of this Agreement in accordance with Section 2.07(b) of the General Conditions TOTAL AMOUNT 150,000,000

8. Four disbursement methods: reimbursement, advance, direct payment and special commitment are all available for the project. The minimum value of applications for reimbursement, direct payment, and special commitment will be agreed during negotiation.

9. For contract amounts subject to the Bank prior review, the list of payments against the contracts, and records evidencing eligible expenditures, e.g., copies ofreceipts, supplier invoices, will be furnished as supporting documentation to request for reimbursement and reporting eligible expenditures paid from the DA.

10. For expenditures against contract amounts subject to Bank post review, Statements of Expenditure (SOE) will be furnished as supporting documentation to request for reimbursement

45 and reporting eligible expenditures paid from the DA. The (SOE) limits will be set up in line with procurement post-review threshold.

Supporting Documentation by Contract Limits

Supporting Documentation by Contract Value Expenditure Threshold More than or Equal Less Than Threshold Category To Threshold Civil Works US$4,000,000 List ofpayments Firm Consultant us$200,000 against the contracts, Statements of Training All eligible and records evidencing Expenditure eligible expenditures

11. One DA, a segregated US$ account, will be established in HPFB. The authorized allocation ofDA is proposed to not exceed US$10 m. The frequency of reporting eligible expenditures paid from the DA is monthly.

12. The HPFB will be directly responsible for the management, monitoring, maintenance and reconciliation of the DA activities of the project. To be consistent with the on-lending arrangement and using the government appropriations channel, the flow of the withdrawal application is as follows:

HYHCH - HPCD - HPFB __* World Bank

D. Risk assessment and mitigation

13. The following risks with corresponding mitigating measures have been identified during project preparation:

Risk Mitigating Measures Incorporated into Project Design

46 The task team will work with all the relevant agencies to improve Modest budget preparation, execution and budget to actual variation monitoring and evaluation. ; z1;ting ~ LOW Accounting policies and procedures are already in place. Circular Low #13 has been issued by MOF and adopted for all World Bank financed projects. Modest Internal control procedures and policies will be documented in the Low Control FM manual and all project implementing agencies are required to follow them. In addition, internal audit activities will be conducted regularly by the HPCD and will focus on compliance and I transaction examinations. Funds Flow Modest The funds flow arrangement is straight forward. To avoid delayed Low disbursement, related requirements and procedures will be documented in the FM manual and require all concerned parties to follow. The financial reporting responsibilities are established. The form, Low Reporting content and periodicity of financial reports are well defined by MOF and understood by the reporting agencies. The external auditors, Hubei Provincial Audit Office, have Low extensive experience with Bank project audits. The audit will be conducted in accordance with acceptable auditing standards and the I audit reports will be due to the Bank every June 30th. Overall I Modest Low

14. Therefore, the overall FM risk-rating assigned to this project at the appraisal stage is provided the proposed mitigating measures are carried out. The task team will monitor the effectiveness of the measures and project FM risk during project implementation.

15. Strengths: The HPCD and the HPFB have implemented four Bank financed highway projects and one inland waterways project. The successful implementation of these projects has demonstrated their ability to effectively manage World Bank financed projects. Their overall management and review on this project will ensure the proper usage ofproject funds.

16. Weaknesses and Action PZam Besides the FM risks identified in the risk table above, no other significant weakness are identified.

E. Implementing agencies

17. As described in Annex 6, to implement and manage this project on site, the HPCD will establish the HYHCH to manage the day to day work of expressway component. In addition, the HPCD will utilize the WBFPO, a department established within the HPCD, as the agency responsible for coordination project preparation and implementation of institutional strengthening component.

F. Budgeting

18. In accordance with the project implementation plan and construction progress, the HYHCH will prepare annual budget. This budget will be reviewed and approved by the HPCD and the HPFB. Based on the approved budget, the HPCD and central government will provide appropriations and the HYHCH will raise domestic loans. For budget variances arising during

47 execution, necessary authorization and close monitoring will be conducted. Timely and accurate information on variances will be used as the basis for mid-term adjustments.

G. Accounting

19. The administration, accounting and reporting of the project will be set up in accordance with the Circular #13: “Accounting Regulations for World Bank Financed Projects” issued in January 2000 by the MOF. The circular provides in-depth instructions of accounting treatment ofproject activities and covers the following:

Chart of account; 0 Detailed accounting instructions for each project account;

0 Standard set ofproject financial statements; and

0 Instructions on the preparation ofproject financial statements.

20. The project financial reporting package, including detailed format and content of project financial statements was agreed to between the Bank and the MOF. This set ofproject financial reporting package includes the following:

Balance Sheet; 0 Summary of Sources and Uses ofFunds by Project Component; Uses ofLoans by Project Category; 0 Designated Account (DA) Activity Statement; and

0 Notes to Financial Statements.

2 1. The HYHCH will be managing, monitoring and maintaining project accounting records. The HYHCH will also prepare the project financial reporting package and submit it to the Bank for review and comments on a regular basis.

22. Adequate project accounting staff with educational background and work experience commensurate with the work they are expected to perform is one of the factors critical to the successful implementation of project financial management. Based on discussions, observations and a review of educational background and work experience ofthe staff identified for financial and accounting positions in the implementing agencies, the task team noted that they were qualified and appropriate for the work they are expected to assume.

23. To strengthen financial management capacity and achieve consistent quality of accounting work, a project financial management manual (the Manual) was prepared. The Manual provides detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures, etc. The Manual was finalized and distributed to all the relevant financial staff by negotiations.

24. The computerized financial management system “User Friend (Yong You)”, a well established accounting software package approved by the MOF, will be utilized by the HYHCH for this project. The task team will closely monitor the processing of its accounting work especially in the initial stages to ensure complete and accurate financial information is provided on a timely basis.

48 H. Internal control and internal auditing

25. The project has established internal control procedures and policies, including approval and authorization controls, segregation of duties, clear staff functions, and safeguarding assets. The funds flow will be arranged and monitored through the finance bureau channel and will include their substantive review.

26. The HPCD has its own internal inspection divisions, who normally conduct compliance and transaction oriented examinations on regular basis. The preparation team did not, and will not, assess its competency. As such, reliance will not be placed on work performed by the internal inspection division. Instead, the HPCD and the HPFB’s management and monitoring and annual external audits will serve as the mechanism to ensure that financial management controls are functioning appropriately.

I. Financial reporting

27. The format and content of the project financial statements represents the standard project financial reporting package agreed to between the Bank and the MOF, and have been discussed and agreed to with all parties concerned.

28. The HYHCH will prepare financial statement on the implemented components then will consolidate the information of project designated account managed by the HPFB to prepare the overall project financial statements and submit it to the Bank for review and comment on a regular basis. In line with the updated World Bank’s Operation Manual, the interim un-audited project financial statements should be submitted as part ofprogress report to the Bank on a semi- annual basis (prior to August 15 and February 15 ofthe following year).

J. Supervision plan

29. The FM supervision strategy for this project is based on its FM risk rating, which will be evaluated on regular basis by the task team.

49 Annex 8: Procurement Arrangements CHINA: Hubei Yiba Highway Project

A. General

1. Procurement for the project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004 (Revised October 2006); and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 (Revised October 2006), and the provisions stipulated in the Legal Agreement. Procurement activities under the whole project shall adhere to the Bank’s safeguards and anti-corruption policies, as stipulated in the aforementioned documents. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Standard methods of procurement will also be utilized for the YBE project. Details of procurement arrangements for this project are provided below.

3. In addition to regular Bank procurement, this project will pilot environmentally and socially responsible procurement (ESRP). ESRP, described in Annex 15, will reduce the environmental and social impacts of the project by considering sustainability of the environment, as well as worker protection3’. Project supervisors shall perform or ensure completion of the following activities as part of the ESRP pilot program instituted on this project:

0 Adhere to all current labor standards for worker protection; Minimize waste to landfills; and,

0 Maintain vehicles and machinery at national level to reduce air and water emissions and leakages.

4. A training program will also be put into place to educate contractors, supervision consultants (including foreign supervision ofworks), agency staff, and workers on the principles of ESRP in order to maintain the program beyond the scope ofthis project.

5. Civil Works Activities Finance,d by the Bank: Bank financing constitutes approximately 7.5 percent of the total project costs. Rather than have a low disbursement ratio for all contracts on the project, the Bank’s financing is concentrated on those sections of the project with the greatest environmental and social impacts.

6. Procurement of Works: Works procured under this project for the expressway component (the YBE) will include: (i)31 subgrade works contracts, with an average size of about US$45.5 m, and four pavement works contracts of about US$28.4 m each, including greening and traffic

30 See http://www.sustaiiiableprocurement,net for an overview of ESRP and sustainable procurement.

50 facilities; (ii)three contracts for electrical and mechanical works (E&M works) with an average size of about US$38.9 m; (iii)two contracts for interconnecting roads with an average cost of US$3.8 m; and, (iv) eight contracts for the construction ofbuildings and ancillary works with an average cost ofUS$1.9 m.

7. Eight of the 31 subgrade contracts and one of the four pavement contracts (tentatively along the C1 design contract), will be financed by the Bank. One E&M contract covering the whole length of the project and including tolling, and monitoring and communication systems shall be financed by the Bank. The procurement will be done using the Bank’s current Standard Bidding Documents (SBD) for all ICB contracts.

8. The 23 subgrade contracts, three pavement contracts with traffic and greening works, and two E&M Works contracts for tunnel power supply, ventilation and lighting, and building construction works in annex areas that will be financed by the Borrower will be procured using local competitive procedures. With the Bank financing less than 10% of total project costs, this arrangement focuses the Bank’s financing on those areas where there is the greatest potential for international competition.

9. Procurement of Goods. Goods procured under this project will include contracts for equipment for expressway management and maintenance and the environment , which will be financed by local counterpart funds. The total estimated cost for the contracts is about US$4.2 m.

10. Selection of Consultants and Training. The domestic supervision consultants (with an estimated cost of US$30.9 m to be financed by local counterpart funds) will be procured using domestic procedures. The foreign supervision consultants (estimated cost of US$2.0 m) will be procured using quality-cost based selection (QCBS) procedures in accordance with the provisions ofthe Consultant Guidelines. Services for individuals will be procured in accordance with the provisions ofparagraphs 5.1 through 5.4 ofthe Consultant Guidelines.

11. The project includes a program for domestic and overseas training activities with a total budget of US$0.43 m (US0.33 m financed by the Bank and US$O.lO m financed by local counterpart funds) will be included in the project. Firms will be engaged to manage this process using the CQS procedure in accordance with the provisions of the paragraphs 3.7 through 3.8 of the Consultant Guidelines for consulting services.

12. The Standard Request for Proposals (May 2004) may be used. Short lists of consultants for services estimated to cost less than US$0.3 m equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraphs 2.6, 2.7 and 2.8 of the Consultant Guidelines.

13. Operating Costs: The Bank will not finance any operating costs.

14. Others: There are no other arrangements.

15. The following table summarizes the thresholds for the procurement methods and prior review.

51 Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Threshold Procurement Contracts Subject to Prior Review Category Method (US$ m) (US$ m) 1. Works Paving Contracts ICB 1 contract YBE32 (US35.6 m) Other civil works contracts ICB 8 contracts YBE1-8 (US286.38 m) E&M Works ICB 1 contract YBE36 (US$32.15 m) 2. Goods NIA Equal to or above US0.2 m (firms) QCBS, QBS All contracts equal to and above US$0.2 m 3. Services Less than US$0.2 m (firms) CQ All contracts equal to and above US$0.2 m Total value of contracts subject to prior review: US$356.12 m Overall Procurement Risk Assessment: Average Frequency ofprocurement supervision missions proposed: One every 12 months (includes special procurement supervision for post-reviewiaudits)

B. Assessment of the agency’s capacity to implement procurement

16. Procurement activities will be carried out by HPCD World Bank financed Project Office (WBFPO) and YBE Construction Headquarters. The agency is staffed by sufficient procurement staff that have experience in the Bank financed highway projects in the province who will handle procurement. More staff will be on board along with the project moving from preparation to implementation.

17. An assessment of the capacity of the Implementing Agency to implement procurement actions for the project was carried out in July 2008. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the Ministry’s relevant central unit for administration and finance.

18. The key issues and risks concerning procurement have been identified and included in the procurement capacity assessment report (available in the project file). The issues deviating from Bank’s Guidelines are common as for other projects in China and already addressed in the Operation Procurement Review (OPR) dated March 2003 for China. The issues will be stated in the Loan Agreement as for other projects in China. The corrective measures that have been agreed are: (i)sending procurement staff to attend various procurement workshops and seminars for Bank-financed procurement; (ii)invite Bank procurement specialist to deliver Bank policy and procedures in project site; and (iii)sending key procurement staff for short term training and study tours in universities and abroad. The action plan was stated in the procurement manual provided to the Bank for review.

19. The overall project risk for procurement is average.

52 C. Procurement Plan

20. The Borrower has developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team in July 2008 and is available at the WBFPO in Wuhan. The Procurement Plan will be available in the Project’s database and posted to the Bank’s external website after loan approval. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity .

21. The table below shows the project costs by procurement arrangement as embodied in the procurement plan.

Project Costs by Procurement Arrangements (US$ m)

Procurement Method’ Expenditure Total Category ICB NCB Other’ NBF3 cost 1. Works 354.12 0.00 0.00 1,305.80 1,659.92 (147.30) (147.30) 2. Goods 0.00 0.00 0.00 4.20 4.20 (0.00) 3. Services 0.00 0.00 2.33 3 1.69 34.02 (2.33) (2.33) 4. Land Acquisition 0.00 0.00 82.86 0.00 82.86 (0.00) 5. Contingencies 0.00 0.00 157.63 0.00 157.63 (0.00) 6. Front-end fee 0.00 0.00 0.38 0.00 0.38 (0.38) (0.38) 7. Other fees 0.00 0.00 255.00 255.00 (0.00) Total 354.12 0.00 498.20 1,341.69 2,194.0 1 (147.30) (0.00) (2.71) (0.00) (150.00)

Notes: I Figures in parentheses are the amounts to be financed by the loan. All costs include contingencies. Includes civil works and goods to be procured through national shopping, consulting services, training and technical assistance services. /3 Not Bank-financed.

53 D. Frequency of Procurement Supervision

22. In addition to the prior-review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended supervision missions at 12 month intervals to visit the field to carry out post-review of procurement actions when some procurement activities have been carried out, or when some post-review contracts have been signed and implemented during the review period.

E. Details of the Procurement Arrangements

Goods, Works, and Non Consulting Services

23. International .Competitive Bidding (ICB) will be used to procure the contracts of 8 subgrade, 1 paving, and 1 E&M works for traffic surveillances, tolling, and communication system. With the Bank financing less than 10% of the total costs, it was agreed during appraisal to focus the Bank’s financing on an area where there were the greatest chances for international competition. All ICB contracts will be subject to prior review.

Consulting Services

24. There will be two foreign consultancy services:

0 Construction Supervision. Estimated to cost US$2.0 m, this Bank-financed assignment is for a firm to provide specialist construction supervision services. This will be procured using quality and cost based selection (QCBS), and is anticipated to be procured by late 2008; and, 0 Training. Estimated to cost US$0.3 m, this assignment will arrange overseas study tours and will be procured using Consultant’s Qualifications (CQ) in 2009.

54 Attachment 1

PROJECT PROCUREMENT PLAN 1 2 6 7 81 10

Ref. Contract Estimated Procurement No. NO. Contract Description cost Method Review Start Date End Date - (US%m) jmm/dd/y y) [mm/dd/yy)

Part A Expressway Component (YBE) Sub-grade and Civil (1) Works 06/01/09 1 213 1/12 1 YBEl K4.9 - KI 1.4 6.5 26.92 ICBiWorks Prior 2 YBE2 K11.4-K19.1 7.7 33.20 lCB/Works Prior 3 YBE3 K19.1 - K25.4 6.3 31.55 ICBiWorks Prior 4 YBE4 K25.4 - K29.8 4.4 35.44 ICBiWorks Prior 5 YBE5 K29.8 - K35.4 5.6 33.48 ICB/Works Prior 6 YBE6 K35.4 - K41.1 5.7 47.12 ICBIWorks Prior 7 YBE7 K41.1 -K48.8 7.7 42.31 ICBiWorks Prior 8 YBE8 K48.8 - K53.4 4.6 36.35 ICBiWorks Prior 9 YBE9 K55 - K62.3 7.3 39.05 NBF/Works Not Req. IO YBElO K62.3 - K67 4.7 48.48 NBFiWorks Not Req. II YBEl1 K67 - K73.9 6.9 61.59 NBFlWorks Not Req. 12 YBEl2 K73.9 - K81.3 7.4 71.33 NBF/Works Not Req. 13 YBE13 K81.3 - K85.7 4.4 46.29 NBFiWorks Not Req. 14 YBE14 K85.7 - K90.6 4.9 46.75 NBFiWorks Not Req. 15 YBE15 K90.6 - K95.9 5.3 52.12 NBF/Works Not Req. 16 YBEl6 K95 - K101.35 6.3 69.61 NBFiWorks Not Req. 17 YBE17 K101.35 -K107.5 6.2 56.38 NBFIWorks Not Req. 18 YBE18 K107.5 - KI 12.1 4.6 48.35 NBF/Works Not Req. 19 YBE19 KI12.1 - KI17.1 5.0 45.37 NBFiWorks Not Req. 20 YBE2O K117.1 -K122.8 5.7 58.07 NBFiWorks Not Req. 21 YBE21 K122.8 - K130.6 7.8 85.53 NBFlWorks Not Req. 22 YBE22 K130.6 - K135.1 4.5 36.58 NBFiWorks Not Req. 23 YBE23 K135.1 - K139.7 4.6 36.87 NBFiWorks Not Req. 24 YBE24 K139.7 - K144.6 4.9 51.34 NBFiWorks Not Req. 25 YBE25 K145 - K150.2 5.2 33.48 NBF/Works Not Req. 26 YBE26 K150.2 - K155.4 5.2 36.79 NBFIWorks Not Req. 27 YBE27 K155.4 - K159.7 4.3 37.67 NBFIWorks Not Req. 28 YBE28 K159.7 - K160.9 I.2 32.72 NBFiWorks Not Req. 29 YBE29 K160.9 - K168.1 7.2 25.1 1 NBF/Works Not Req. 30 YBE30 K168.1 - K174.1 6.0 62.72 NBF/Works Not Req. -31 YBE31 K174.1 - K178.6 4.5 39.92 NBF/Works Not Req. Subtotal

(2) Pavenrenf, Traffic Works and Greening 04/0 1/I 2 I213 1/ 1 3 32 WE32 K4.9-K53.5 48.6 35.59 ICB/Works Prior 33 YBE33 K55 - K95.9 40.9 26.26 NBFiWorks Not Req. 34 "BE34 K95 -K144.6 49.6 24.48 NBF/Works Not Req. 35 YBE35 K144.5 - K178.6 34.1 27.17 NBFlWorks Not Req.

55 (3) Interconnecting Roads 0910 1109 1213 111 2 36 LJXI Badong 28 (paved)/ 4.64 NBFlWorks Not Req. 0.9 (new)

37 LJx2 Shennongxi 6.5 2.97 NBF/Works Not Req , Subtotal 2 contracts 7.60 (4) E&M Works 06/01/12 12/31/13 Tolling system, 38 YBE36 telecommunication system, surveillance systeni [K4.9 - K178.6431 32 15 ICB/Works Prior E&M works including 39 YBE37 power, ventilation, lighting, fire-fighting [K4.9 - 110.81 40 47 NBF/Works Not Req. E&M works including power, ventilation, lighting, 40 YBE38 fire-fighting [K110.8 - K178.61 41 66 NBFiWorks Not Req. - Subtotal 3 contracts 114.28 Annex Areas and (5) Buildings 06/0 1/I 2 1213 111 3 Monitoring and 41 FSQl management sub-centre, tunnel monitoring centre 120 NBFiWorks Not Req. Ramp and toll station 42 FSQ2 - Baihe 118 NBFlWorks Not Req.

Ramp and toll station, 43 FSQ3 maintenance and parking area, tunnel fire fighting station - Huanghua 150 NBF/Works Not Req. Ramp and toll station, serwce area, maintenance 44 FSQ4 area, tunnel fire fighting station - Wuduhe 2 69 NBF/Works Not Req. Ramp and toll station - 45 FSQ5 Gaolan, Xingshan parking area 2.15 NBF/Works Not Req.

Ramp and toll station, 46 FSQ6 maintenance and parking area, tunnel fire fighting station - Xingshan 138 NBFiWorks Not Req.

Ramp and toll station, 47 FSQ7 maintenance and parking area, tunnel fire ti gh ti tig station - Badong 2.90 NBFlWorks Not Req. 48 FSQ8 Ramp and toll station - - Shengnongxi 2.46 NBFlWorks Not Req. Subtotal 8 contracts 15.45 (6) Supervision Consultants 06/01/09 1213 1/I 3 49 CSOl Domestic construction supervision consultant 96.5 6.04 NBFILCP Not Req.

50 cs02 Domestic coiistruction supervision consultant 83.6 6.83 NBF/LCP Not Req.

51 CS03 Domestic E&M supervision consultant 1.53 NBF/LCP Not Req. 52 RSO 1 Domestic resident engineer consultant 1.90 NBFiLCP Not Req. 53 RS02 Domestic resident engineer consultant 2.15 NBF/LCP Not Req.

56 54 RS03 Domestic res’ident engineer consultant 2.92 NBF/LCP Not Req.

55 RS04 Domestic resident engineer consultant 2.90 NBF/LCP Not Req. 56 RS05 Domestic resident engineer consultant 2.33 NBFILCP Not Req.

57 RS06 Domestic resident engineer consultant 2.47 NB F/ LCP Not Req. 58 RSOBl Domestic resident engineer building consultant 0.51 NBFiLCP Not Req.

59 RSOB2 Domestic resident engineer building consultant 0.46 NBFILCP Not Req.

Domestic environmental 60 ESO consultant (includes $0.07m SEA Institutional Strengthening activity) 0.88 NBFILCP Not Req.

61 FSC Foreign construction supervision consultant 2.00 QCBS Prior - Subtotal 13 contracts 32.94 Total of YBE 1,692.86 Institutional Strengthening (IS) Part B Component Hubei Provincial 62 IS1 Comprehensive Transport Complex 0.23 NB F/LC P Not Req. 02/01/09 06/01/12 63 IS2 Tunnel safety 0.22 NBFi LCP Not Req. 02/01/09 I2/31/13 Geological disasters and 64 IS3 landslides on expressways in mountainous areas 0.20 NB F/LC P Not Req. 02/01/09 12/31/13 65 TI Overseas study tour 0.1 1 CQ/SOE Post 07/01/09 12/31/11 66 T2 Overseas training 0.22 CQ/SOE Post 07/01/09 1213 111 0 67 T3 Domestic training 0.10 NBFiLCP Not Req. 07/01/09 12/31/11 68 IC01 Equipment Procurement - Foreign 0.70 NB F/C ood s Not Req. 12/3 1/12

69 AI Equipment Procurement - Domestic 1.23 NBF/Goods Not Req. 01/01/09 0 1/06/09 70 A2 Equipment Procurement - Domestic 0.96 NBF/Goods Not Req. 0 1/O I/13 1213 111 3 71 A3 Equipment Procurement - Domestic 0.74 NBF/Goods Not Req. 0 1/O 1/I 3 1213 1/13 72 BI Equipment Procurement - Domestic 0.17 NBFiGoods Not Req. 0 110 1/09 01/06/09

73 82 Equipment Procurement - Domestic 0.14 NBFiGoods Not Req 0 1/01/09 01/06/09

74 83 Equipment Proc tirement - Domestic 0.20 NBFiGoods Not Req. 0 1/01/09 01/06/09 74 B3 Equipment Procurement - Domestic 0.06 NBF/Goods Not Req. Ol/Ol/l3 12/3 1/13

Total of IS 5.28

57 The following table provides the detailed breakdown for the T1 Overseas Study Tour and the T2 Overseas Training.

1 2 3 5 6 7 8 9 Ref. Contract Estimated Procurement Bank No. No. Contract Description Length cost Method Review Start Date - Personhonth (US$ m) YYYY Overseas study tour 66.1 T1.I Construction Management 8/0.5=4 0.0275 CQiSOE Post 2009 Overseas study tour 66.2 TI .2 Environment Management 810.5 =4 0.0275 CQiSOE Post 2009 Overseas study tour Project 66.3 TI .3 Management 8/0.5=4 0.0275 CQ1SOE Post 2010

66.4 TI.4 Overseas study tour E&M works 8/0.5=4 0.0275 CQ1SOE Post 201 1

66 TI Overseas study tour Total 3210.5=16 0.1 1 CQ1SOE Post 2009-201 1 Overseas training site 67.1 T2.1 environment management 811 =8 0.05 CQ/SOE Post 2009 Overseas training construction management for expressway in 67.2 T2.2 mountainous area 8/1=8 0.05 CQ/SOE Post 2009 Overseas training quality control 67.3 T2.3 for construction 8/1=8 0.05 CQ/SOE Post 2010 Overseas training tunnel safety 67.4 T2.4 management 8/1=8 0.05 CQ1SOE Post 2010 67 T2 Overseas training total 3211=32 0.22 CQ/SOE Post 2009-2010

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58 Annex 9: Economic and Financial Analysis CHINA: Hubei Yiba Highway Project

A. Introduction

1. This annex presents the economic and financial evaluation ofthe YBE The evaluation ofthe project covers construction of the 173.6 km YBE. The analysis is based on the actual traffic volume and forecasts, vehicle operating costs (VOC), cost and time savings for users, reduction in accident costs and economic project costs. The main inputs for the evaluation are:

capital investment and maintenance costs, reflecting December 2007 prices; the benefit stream, reflecting December 2007 prices, that comprises savings in VOC, travel time savings, and reduction in accident costs; 0 implementation of investments during 2009-2012 and an evaluation ofbenefits over a 20 year long period; and benefits accruing from 2013.

2. This Annex contains: (a) traffic analysis and adjustment of the YBE; (b) the economic evaluation of the YBE; (c) a financial analysis of the YBE; and, (d) a financial analysis of the HPCD.

B. Traffic Forecast

Overview

3. Hubei Province, located in the south central region of China, is the central inland location of the Yangtze River making the Province a major transport hub for both East-West and North- South movements in . All major long distance transport modes (highways, railways, inland waterways and air transport) in South Central China converge at Wuhan. Hubei’s major economic activities are located in an East-Northwest corridor, which starts from Wuhan (East), crosses the provinces and reaches Shiyan (the major metropolitan city in the northwest region of the Province).

4. The proposed YBE is a critical section ofthe Shanghai-Chengdu Expressway which will link large economic nodes including Shanghai, Nanjing, Wuhan, Chongqing, and Chengdu. By means of this expressway, the western region will be properly connected to the more affluent eastern provinces and promote western development as intended by China’s Western Development Strategy. This expressway network will facilitate the growth of the non-coastal regional hubs by providing access from the developed eastern coastal area to the developing markets in central and western China such as Chengdu. Promoting linkages with the inlandlwestern regions is part of the GOC’s efforts to reduce regional development gaps. It is expected that the YBE will alleviate pressures on regional transport networks while increasing transport and freight movement along the East-West corridor.

59 Current Condition of the YBE Corridor

5. The proposed YBE will be on the northern bank of the Yangtze River. The existing route from Yichang to Badong is the Class II/IIIprovincial road PR 312 from Yichang to Xingshan, with a pass at 950 meters of elevation, and the Class II/III NR 209 from Xingshan to Badong, with two passes at 1,400 and 1,100 meters. The Class II/IV PR 327 goes from Badong to Wushan in Chongqing Municipality with a pass at 900 meters at the border. Because of the raise of the Yangtze River water level, about 10 km of PR 312 and 28 km of NR 209 have been restored with new alignments. The current pavement conditions of these existing roads are fair. Located in mountainous area, the alignments result in low speeds and high safety risks.

6. YBE will need to be timed in order to minimize disruption of local traffic flows and to maximize efficiency of the project. The total capacity for the existing roads is about 5000 pcu each day in average. It is relevant to plan construction of the YBE with consideration of current transport movement and needs. Construction ofthe many project tunnels (approximately 35% of the total alignment) and bridges (approximately 40% of the total alignment) will also be timed appropriately to road construction to ensure proper access and usability ofproject components.

7. For purpose of evaluation, YBE is divided into three sections, as shown below, and the comparisons ofYBE and existing roads are listed in Comparisons table following.

Length of the Existing Road and YBE

Length of the Existing Road Length of YBE (km) (km) Section 1 : Yichang(Baihe)-Huanghua 30.0 22.2 Section 2: Huanghua-Badong 195.5 118.8 Section 3: Badong-Provincial Border 44.0 32.6 Total 269.5 173.6 Note: Existing roads contains PR3 12 (Yichang to Xingshan), NR209 (Xingshan to Badong) and PR327 (Badong to Wushan) Source: HPCD and the Bank Staff.

60 Comparisons of the Existing Roads and YBE

Note: pcu=passenger car unit. Source: HPCD and the Bank Staff.

The Estimated Traffic Growth on the YBE Corridor

8. The HPCD has estimated future traffic on YBE from results of routine traffic counts and a comprehensive origin and destination (O/D) survey that took place on April 24, 2003. The projections were made for 25 zones on the basis of a conventional growth model. The forecasts were further assessed and confirmed in the following table. The projected traffic growth rates in the project corridor are estimated to be 11.O percent per year in 2013-2015, 7.6 percent per year in 2015-2.020, 6.8 percent per year in 2020-2025, and 6.3 percent per year in 2025-2032. The traffic growth rate from 2013 to 2032 (the whole evaluation period) is 7.3 percent per year.

Annual Traffic Growth Rate in YBE Corridor

Vehicle Type 2013-2015 2015-2020 2020-2025 2025-2032 2013-2032 Car 13.1% 8.8% 7.9% 7.4% 8.5% Bus 11.8% 8.1% 7.2% 6.8% 7.8% Truck 10.0% 7.0% 6.2% 5.7% 6.6% Average 11 .O% 7.6% 6.8% 6.3% 7.3% Sources; HPCD and the Bank staff.

Traffic on the Highways

9. The YBE is planned to become operational at the end of 2012. Diversion ratios of the corridor traffic on the YBE are based on information provided by the O/D survey and the traffic studies. The estimates were calculated by using generalized cost, including financial VOC for the road users, the level of proposed tolls on the new expressway, travel distance and experience from other similar projects. The existing roads were assumed to be Class I1roads after 2020.

10. The results of the analysis indicate that between 65 and 75 percent of motorized vehicles, depending on the road section, may be diverted to the new expressway. The diversion ratio of

61 Section 3 (Badong-Provincial Border) is higher because of more through traffic will be diverted to the expressway while local traffic on that section is relatively lower.

Normal Traffic, by Sections (pcu/d)

~~ Road Section Items 2013 1 2015 2020 2025 2032 Traffic on YBE 9,050 11,150 16,000 22,500 32,100 Section1 Traffic on existing road 4,600 5,400 7,600 9,800 13,400 Y ich an g- Hu an gh ua Traffic without project 13,650 16,550 23,600 32,300 45,450 Traffic Diversion 66.3% 67.4% 67.8% 69.7% 70.6% Traffic on YBE 7,150 8,950 12,950 18,350 26,400 Section2 Traffic on existing road 3,550 4,200 5,900 7,600 10,350 Huanghua-Badong Traffic without project 10,700 13,150 18,850 25,950 36,750 Traffic Diversion 66.8% 68.1% 68.7% 70.7% 71.8% Traffic on YBE 5,200 6,750 10,500 16,000 24,750 Section3 Traffic on existing road 2,450 3,050 4,350 5,750 8,150 Badong- Provincial Border Traffic without project 7,650 9,800 14850 21,750 32,900 'Traffic Diversion' 68.0% 68.9% 70.7% 73.6% 75.2% Traffic on YBE 7,050 8,850 12,900 18,450 26,800 Traffic on existing road 3,500 4,150 5,850 7,550 10,350 Whole Route Traffic without project 10,550 13,000 18,750 26,000 37,150 Traffic Diversion 66.8% 68.1% 68.8% 7 1.o% 72.1 yo

11. Traffic generated by the new expressway is about ten percent of the total traffic. It is consistent with experience on other recent highway projects located in mountainous area in China.

12. In the project corridor, Yichang to Wanxian Railway is under construction and will be opened at the end of 2009. This railway will mainly share the passenger and freight transport with Xiangfan to Chongqing Railway and Xiang (Hunan) - Qian (Guizhou) - Chuan (Sichuan) Railway. Based on the analysis of O/D of the railway and highway, no diversion of traffic from the highway corridor to the railway has been taken into account.

13. YBE runs along the Yangtze River. In recent years, passenger and freight volume shared by waterway have increased significantly. The annual average growth rate of the freight volume turning over the Three Gorges Dam is more than 20%. With the improvement of highway corridor, part ofthe traffic in the roll-odroll-off ships and some passenger and freight volume in the waterway will be diverted to the YBE. The YBE traffic forecast, by sections, is summarized below.

62 Traffic Forecasts for the YBE (pcu/d)

Road Section Items 2013 2015 2020 I 2025 2032 Normal Traffic 9,050 11,150 16,000 22,500 32,100 Section1 Induced Traffic 1,050 1,650 2,550 2,950 3,250 Y ichang-Huanghua Diverted Traffic 2,600 2,950 3,800 4,750 5,950 Total 12,700 15,750 22,350 30,200 41,300 Normal Traffic 7,150 8,950 12,950 18,350 26,400 Section2 Induced Traffic 850 1,350 2,050 2,400 2,700 Huanghua-Badong Diverted Traffic 2,600 2,950 3,800 4,750 5,950 Total 10.600 13.250 18,800 25.500 35.050 Normal Traffic 5,200 6,750 10,500 16,000 24,750 Section3 Induced Traffic GOO 950 1,500 1,750 1,950 Badong- Provincial Border Diverted Traffic 2,600 2,950 3,800 4,750 5,950 Total 8.400 10,650 15,800 22.500 32.650 Normal Traffic 7,050 8,850 12,900 18,450 26,800 Induced Traffic 800 1,300 2,050 2,350 2,650 Whole Route Diverted Traffic 2,600 2,950 3,800 4,750 5,950 Total 10,450 13,100 18,750 25,550 35,400 Note: Diverted Tra: c refers to traffic diverted from waterway. Source: HPCD and Bank Staff.

C. Economic Analysis

Economic Costs

14. Investment costs have been converted into economic costs by eliminating price contingencies, taxes, and custom duties on imported materials. The resulting overall economic cost is about 96% ofthe financial cost.

Economic Benefits

15. The economic analysis includes the benefits derived from: (a) VOC savings on the project corridor, (b) time savings through relieved congestion on the existing road, and (c) lower accident costs. The benefits resulting from the lower level of congestion were quantified on the basis ofa report on feasibility study methodology for highway in China (financed by the Bank). The value of passenger time savings was estimated based on the increase of GDP per capita in the project area. The parameters in the same report mentioned above were used for vehicle accident rates on different classes of roads. The values used in this analysis are summarized as follows:

63 With Project Without Project Vehicle Type YBE Existing road Existing road Section I Section 2 Section 3 Section I Section 2 Section 3 Section 1 Section 2 Section 3 Car 1.21 I .21 1.20 1.55 1.54 1.57 1.89 1.85 2.1 1 Large bus 3.13 3.1 I 3.10 4.57 4.55 4.65 5.61 5.50 6.23 Small truck 1.42 1.41 1.41 1.71 1.70 1.73 2.08 2.03 2.32 Medium truck 2.64 2.63 2.61 3.97 3.94 4.05 5.06 4.94 5.13 Large truck 3.31 3.35 3.33 4.66 4.64 4.73 5.51 5.42 6.03

Time Value of Passenger Vehicle (RMB/km)

Bus 29.3 2.9 24.8 45% 0.5 219.7 Car 40.0 4.0 3.0 48% 0.5 37.9 2032 Bus 40.0 4.0 24.8 43% 0.5 29 1.2

Accident Rates and Costs in China

Accidents Damage Road class (per 100 million vehicle km) (MB/ accident) Expressway -40 + 0.005 AADT 12,000 Highway Class I1 133 + 0.007 AADT 6,500 Highway Class I11 140 + 0.03 AADT 4,500 Hidiwav Class IV 140 + 0.03 AADT 3.500 Source: Study of Prioritization of Highway Investments and Improving Feasibility Study Methodologies, Rust PPK. Australia, May 1996

Economic Evaluation 16. Total costs and benefits streams, Economic Internal Rate of Return (EIRR) and Economic Net Present Value (ENPV) for the YBE were calculated. The overall EIRR of YBE is estimated at 14.2% and the ENPV of YBE is USs498.9 m at a discount rate of 12%.

64 Distribution Analysis 17. The distribution ofthe estimated benefits shows that:

0 road users on this highway corridor are the main beneficiaries;

0 trucks will receive 47.6% of the project benefits, while cars will receive 26.3%, and bus passengers 26.2% (these proportions are proximately the same as the proportion of traffic). Those latter benefits are more likely to accrue to lower income people;

0 the benefits to the road agency are negative (US$ -1,865.5 m) because it bear the investment cost. In addition, the benefits of waterway transport operators (especially the roll-odroll-off ship owners) are negative (US$ -148.4 m) since traffic diverted to the highway; and,

0 about half oftotal benefits (49.0%) will accrue to the long distance traffic.

18. The breakdown ofbenefits is as follows:

Distribution of the Net Benefits (US$ m)

Benefit Road user Road Waterway Society recipient: agency Total benefits 2,5 12.7 -1,865.5 -148.4 498.7 By vehicles: Cars Buses Small Medium Large Truck .Total Trucks Trucks 660.4 657.5 234.1 614.6 346.1 2,5 12.7 26.3% 26.2% 9.3% 24.5% 13.8% 100.0% Source: World Bank analysis

Sensitivity and Switching Values Analysis

19. The basic evaluation of the project shows that the investment is economically viable. Sensitivity tests with respect to a two-year delay in project completion, zero value of time and lower traffic projections on the new highway confirm that result.

Sensitivity Tests on the Economic Evaluation of YBE EIRR (%) NPV (12%0, US$ m) Delay in completion by two years 13.5 360.6 Zero value of time 11.1 -163.3 Lower traffic projection (20%) 12.1 21.4 Switching values YOincrease Cost increase to reduce EIRR to 12% 27% Benefit reduction to reduce EIRR to 12% 21%

20. The results of sensitivity tests (EIRR in percent) to cost and benefit variations are summarized below:

65 Sensitivity of Evaluation Results (EIRR in%) to Cost and Benefit Variation Variation I Variation in benefits in cost -30% -20% -10% 0% 10% 20% 30% -30% 14.2% 15.5% 16.7% 17.8% 18.8% 19.8% 20.7% -20% 12.9% 14.2% 15.3% 16.4% 17.4% 18.3% 19.2% - 10% 14.2% 15.2% 16.2% 17.1% 17.9% 0% 13.2% 14.2% 15.1% 16.0% 16.8% 10% 15.0% 15.8% 20% 9.4% 10.5% 14.2% 15.0% 30% 8.7% 9.8% 13.4% 14.2%

Project Risks

21. The YBE show acceptable economic returns. HPCD has extensive experience in the construction and operation of expressways projects, which minimizes technical risks associated with the implementation of the project. The project is located in the national trunk corridor, which may guarantee the traffic volume and benefit to the road users.

D. Financial Analysis

Overview 22. The YBE will be operated from its opening for traffic by a financially-independent entity, responsible for the day-to-day management, operations and maintenance of the expressway. The main income ofYBE will be derived from tolls charged to road users; Hubei government will set toll rates.

23. The HPCD has clearly indicated that the financial purpose of the toll collection on YBE is to repay the project’s Bank’s and domestic loans, cover operating and non-operating expenses and cover routine maintenance, and not to maximize the financial rate of return on the entire investment.

Financial Forecasts 24. Tolls. The toll will be charged on the basis of vehicle size (small passenger cars, large buses, small trucks, medium trucks, large trucks and trailers) and distance traveled. Toll exempted vehicles (police, ambulance and military) are expected to account for 3%. for buses, medium trucks, large trucks and trailers and 5% for cars and small trucks based on the experience in Hubei and China. Toll charges are assumed to increase once every five years (15% or an average of 2.8% per year).

25. Because of the higher average construction cost for this mountainous terrain and large debt amount in the financing plan, the toll on YBE has to be set on the high side compared with other

66 expressway in Hubei Province to meet the above minimum financial requirements. For example, toll charges will be about 50% higher than those applied on the -Xiangfan Expressway, another expressway financed in Hubei by the Bank and was opened to traffic in 2006. Furthermore, a current study led by HPCD on the toll rates of Hurong West Expressway, which is on the southern bank of Yangtze River, shows that only when the toll rate is more than 1.00 RMB/km for a car, nearly three times of the current toll rate all over the province, then the debts of the expressway can be covered.

Small Medium Large Heavy Overall vehicle vehicle vehicle vehicle average YBE- 2013 (a) 0.80 1.50 2.00 3.00 1.66 XXE- 2006 (b) 0.40 0.75 1.oo 1SO 0.83 Increase (a)/(b) 50.0% 50.0% 50.0% 50.0% 50.0%

26. Operations. The operating costs of YBE can be broken down between working costs, i.e. wages and benefits, maintenance, administration, and others; and depreciation.

27. Profitability. All operation and other expenses, including interest payments on the loans, are taken into account in the calculation of the YBE profitability. It is estimated that the expressway will generate enough revenue over the loan period to achieve the above mentioned financial objective. However, deficits will take place in the early years of operation (2013-2020, 2023) with the repayment of the Bank and domestic loans. For example, in the first four years of operation, the total interest payments (RMB 689.7 m, RMB 667.9 myRMB 644.1 m and RMB 617.8 m) are higher than the total operating costs, and even higher than the total revenue (RMB 597.0 m and RMB 641.0 m) respectively in first two years. Because ofhigh cost, limited traffic volume in early years and the low toll growth assumptions, the profitability of YBE is predicted to be low until 2023 (see Income statement, page 1 of4, Attachment 1).

28. Cash flow. Though the large sum of depreciation reserves and the flexible principal payment terms agreed by domestic banks on their loans which allow YBE to reduce cash outflows in the early years of operations, YBE’s cash flow will not be sufficient until 2024. The cumulative negative cash flow in 2024 will reach -4,242.4 RMB m (US$ -629.5 m). Thus YBE will require external cash injection, such as short-term loans to meet all project needs (see. Sources and Applications ofFunds, page 2 of 4, Attachment 1).

29. Leverage and Liquidity. The low profitability and high proportion of debt in the financing plan will dilute the equity of YBE and cause the debt/equity ratio and debt/capital ratio (the financial leverage ofthe company) to exceed 50% until 2026. Furthermore, the liquidity of YBE is poor. The current ratio can only be in a sound range (>1.0) after 2025, indicating that YBE will have short-term solvency problems (see Balance Sheet, page 3 of 4, Attachment 1). However, the HPCD has reiterated its full commitment to the expressway, in an official document to the Bank that confirms its full financial support, which guarantees the project financial viability. Major assumptions for and results of the financial evaluation are shown in page 4 of 4, Attachment 1.

67 Financial Internal Rate of Return (FIRR) 30. The low profit margin will impact the FIRR on the capital investment. The financial evaluation concludes that the FIRR is expected to be at -1.9% with NPV of US$ -1,601.3 m, at the discount rate of 4.85%. FIRR will not change much if completion of YBE is delayed by two years (-1.5%).

Financial Probabilistic Risk Analysis 31. To determine the degree of financial uncertainty on the project, a probabilistic risk analysis using Monte Carlo techniques was carried out. The six most uncertain factors which may affect the financial evaluation have been identified: (a) traffic growth rate, (b) the basic toll level, (c) toll charges growth rate (d) total working costs, (e) capital investment, and (f) two years delay in opening the expressway. The risk analysis reveals that the most likely FIRR would be -1.9%, while the worst and the best FIRR would respectively be 2.9% and -0.7%.

Summary of Financial Sensitivity and Probabilistic Risk Analysis Financial Sensitivity Tests Financial Simulation and Risk Analysis Open in Dec Ouen in Dec Ranee of Most Likely Std. Error of 2012 2014 FIRR: NPV FIRR / NPG The Mean FIRR (in%) -1.9 -1.5 - 2.9-0.7 -1.9 0.1 NPV -2,084.9-- - 1 ,GO 1.3 1,454.5 -- 1,591.7 6.7 (4.78%. US$ rn) - 1.113.5

E. Financial Evaluation of HPCD

32. HPCD has provided its financing plan, including forecasts on total revenues and expenditures during the Tenth Five Year Plan (loth FYP, 2001 -2005) and Eleventh Five Year Plan (1 lthFYP, 2006 -2010). Based on available information, the financing plan entails an emphasis on new construction, and an increase in maintenance expenditures which are largely dependent on the grants from the government.

33. Over the loth FYP, it is estimated that new construction will consume about 63% of total revenue while maintenance expenditures will be budgeted at only about 6% oftotal revenue. The low emphasis on maintenance will accelerate the deterioration of the existing road network and cause higher rehabilitation expenditures (about 26% of total revenue). During the 1lth FYP, the new construction will still account for 63% while the maintenance will be 5% of the total revenue. The need for road rehabilitation works will reduce to 17% oftotal revenue.

34. Road maintenance expenditures are calculated on the basis ofstandards issued by the MOC, which are expected to be revised during the 1lth FYP. Facing the possibility of a sharp increase in maintenance expenditures, the HPCD has budgeted a large increase in grants from the MOC. Without these grants, the HPCD would have to seek other external resources to fund its operations. The proportion of loan will reduce from 40% during the lothFYP to 38% during the 1lth FYP. The detailed sources of highway revenue and expenditures for 2001 - 2010 are shown in Attachment 2 of this Annex.

68 The average unit maintenance budget has increased from RMB1,2570/km for the loth FYP to about RMB 1,05 1O/km in the 11 t” FYP.

35. With regards the long-term sustainability of road maintenance with allocated resources, the average yearly increase in unit maintenance expenditures during the loth FYP (1.7%) indicates that the growth in maintenance expenditures (3.2%) exceeded the growth of the road network (1.5%). The trend should continue during the llthFYP with percentages at 3.4% and 2.0%, respectively.

Average Increase in the Road Network and Road Maintenance Expenditures (in%)

lothFYP 1lthFYP Average annual increase in the road network 1.7% 2.0% Average annual increase in maintenance expenditures 3 2% 3.4% Sources: HPCD and the Bank staff.

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Assumptions for Financial Forecasts - YBE 1. Traffic: as in economic evaluation.

Small Large Small Medium Large. Tractor- Car Bus Truck Truck Truck Trailer Total

Toll (Yi vkm) Toll (Y/ vktn) i-1 0.80 1.50 2.00 0.80 1.50 2.00 3.00 Increase 15% every 5 years.

1. Baihe-Huanghua 2013 3,244 755 2,647 2,329 882 146 10,003 2015 4,258 956 3,029 2,665 1,164 238 12,310 2020 6,371 1,382 3,933 3,464 1,748 417 17,315 2025 9,064 1,908 4,833 4,257 2,497 671 23,230 2032 13,029 2,665 5,954 5,248 3,602 1,067 3 1,565 2 Huanghua-Badong 2013 2,7 13 63 1 2,214 1,948 738 122 8,367 2015 3,579 804 2,546 2,240 978 200 10,347 2020 5,374 1,166 3,318 2,923 1,474 352 14,607 2025 7,650 1,610 4,079 3,593 2,107 567 19,606 2032 11,041 2,258 5,045 4,447 3,052 904 26,747 3 Badong-End point 2013 2,137 497 1,744 1,535 581 96 6,590 2015 2,876 646 2,046 1,800 786 161 8,3 15 2020 4,501 977 2,779 2,448 1,235 294 12,234 2025 6,752 I ,42 1 3,601 3,172 1,860 500 17,306 2032 10,310 2,109 4,711 4,153 2,850 844 24,977

/ 1 : Increase 0% every 5 years. 2. Oaeratine Taxes : a. Business tax 0% of total revenue. (Source: HPCD) b. City tax 0% ofbusiness taxes. c. Education levy 0% ofbusiness taxes.

3 Operating Costs: a. Wages and benefits, administration 8.65 Y million (annual) b. Maintenance (Y million/km) Increase 3% pa.

Routine Medium Major maint./ year maint./ 5 years maint./ 10 years -0.5 -2.5 -6.5

c. Others 0.00% of total revenue e. Others: - million Yuan per kin d. Depreciation: 30 years straight-line method.

4. Income Tax Rate: 0.0% ofprofit before tax. (Source: HPCD)

5. Loan: IBRD 4.2% , 20 year maturaties, LIBOR US$ based single currency including 5 years grace period. Local 7.8% , IOyear inaturaties, tlexiable principal payment.

73 Attachment 2

HPCD Revenue and Expenditure During lofhand 1lthFYP

The 10th Five Year Plan The 11th Five Year Plan 2001 2002 2003 2004 2005 Total 2006 2007 2008 2009 2010 Total

Revenue 1 Road maintenance fee 1,405 1,542 1,672 1,870 1,882 8,37 1,907 2,108 2,365 2,610 2,871 11,861 2 Toll revenue 1,014 1,015 960 972 ,150 5,11 1,210 1,290 1,360 1,400 1,520 6,780 3 Surcharge on passenger tickets 276 279 294 325 327 IS0 338 345 358 365 371 1,777

4 Surcharge 011 iieight tickets I I4 119 128 143 163 66 170 175 181 189 193 908 6 MOC subsidy 1.402 811 1,257 1,743 ,800 7,Ol 1,865 1,942 1,997 2,002 2,090 9,896 . 7 National debt (SDPC) 767 376 520 385 380 2,42 397 40 I 4,023 4,027 4,100 12,948 8 Local Bank loan 5,706 5,772 5,490 9,010 9,000 34,97 10,000 10,020 10,180 11,200 12,140 53,540 9 Fund-raised by local 1,045 1,160 1,823 1,823 1,687 733 1,790 1,820 1,942 2,018 2,170 9,740 10 Other funds 529 2,840 5,495 4,732 6,157 19,75 5,946 6,370 6,450 6,720 6,910 32,396

Total 12.257 13,916 17.639 21,004 22.546 23.623 24.471 28,856 30,531 32.365 139.846

Expenditure: I New Construction 7.516 8,025 10,926 12,908 I15,283 54,65 15,960 16,720 17,300 18,860 19,753 88,593 Rehabilitation 3.161 4,044 4,810 5,905 4,717 22,63 4,675 4,320 4,805 5,024 4,936 23,760 Tax 13 13 14 15 16 7 16 17 17 18 18 86 Traffic safety supervision 17 18 19 19 20 9 22 22 21 22 23 111 Major maintenance 138 146 134 151 150 71 157 161 170 172 180 840 Medium maintenance 74 84 74 86 85 40 90 93 91 97 100 47 1 Routine maintenance 832 857 880 90 I 950 4,41 970 985 997 1,004 1,110 5,066 Managementiresearch 2 70 325 361 382 461 1.80 502 526 535 55 1 568 2,683 Repayment of interest and principle 236 404 422 627 941 2.63 1,220 1,485 1,690 1,753 1,846 7,994

Total 12.257 13.916 17.639 20,995 22.623 &l&23,612 24.329 25,626 26.598 27.535

Total Road Network (km) -(a) 85,757 86,098 87,813 89,673 91,131 440,472 32,000 94,300 95,900 98,000 99,500 479,700 Average annual increase -- 0.4% 2.0% 2.1% l.6?4 1.5% 1.0% 2.5% 1.7% 2.2% 1.5% 2.0% Total road maintenance expenditure 1.044 1.086 1,088 1,138 1,185 5,540 1,217 1,239 1,258 1,273 1,390 6,377 Average annual increase -- 4.0% 0.1% 4.6% 4.1% 3.2% 2.7% 1.8% 1.5% 1.3% 9.2% 3.4% Average unit maintenance expenditure (Y’OOO/km) - (b)/(a) 12.17 12.61 12.38 12.69 13.00 12.57 13.23 13.14 13.11 12.99 13.97 13.29 Average annual increase -- 3.6% -1.8% 2.5% 2.5% 1.7% 1.7% -0.7% -0.2% -0.9% 7.5% 1.4Yo

74 Annex 10: Safeguard Policy Issues CHINA: Hubei Yiba Highway Project

A. Introduction

1. The project includes the Yichang to Badong segment (the YBE) of the Shanghai-Chengdu Expressway, and consists of constructing a 173.6 km of four lane expressway. The project will include land acquisition and resettlement, the relevant electrical and mechanical (E&M) facilities, annex areas, toll plazas and buildings, seven interchanges, and 35.4 km of interconnecting roads to improve integration with the local road network.

2. As shown in the maps of Annex 17, the YBE is located in the west of Hubei province, north of the Yangtze River. The expressway crosses Yichange and Badong Prefectures, Xingshan and Zigui Counties, as well as Yiling District. Since most ofZigui county and part ofBadong county are located south of the Yangtze river, the population served by YBE totals about one million people: 500,000 are located in Yiling District (from the starting point to KP SO), 200,000 in Xingshan county (KP 80 to 142) and 250,000 are located in Badong county on the northern bank ofthe Yangtze (KP 142 to the ending point).

3. The YBE traverses environmentally sensitive areas, including the ‘Three Gorges National Geological Park’, the Shennongjia Scenic Areas, the Xiaofeng Tourism Area and karst areas. According to the ‘Three Gorges National Geological Park Master Plan’, there are 21 geological remains sites, 12 paleontology areas, nine geological and geomorphic areas, five geological disaster remains and two hydrologic engineering areas within Badong, Zigui and Yichang. Most sites are at least one kilometer from the final alignment; however, three sites will be affected by the project, the impacts of which are addressed below. Four cultural relics - Baihuguan Ruin, Pingyikou Tombs, Xinping Overhanging Coffins, and Niejiahe Ancient Camp Ruins - were identified along the project alignment.

4. The YBE passes through a region of mild terrain at the east end of the project and steeper elevations as the project moves west. The surrounding area is forested, mountainous and with complicated geology. The terrain in the project area varies from 100 to 1,800 m. The project area lies in a semi-tropical zone with an average annual between 1,065 and 1,132 mm. The expressway, which will cause some loss of natural habitats, is in area that has patches of natural vegetation and karst caves. Much of the land along the alignment is already disturbed by human activities; the remaining undisturbed areas are highly fragmented and unable to sustain large wildlife.

5. The project alignment crosses the Xiangxihe and Shennongxi Rivers. These rivers, which are upstream of the Three Gorges Dam, have experienced higher water levels as a result of the dam construction. The water quality of the project area is fairly good, with indicators satisfying the zoning requirements of Class I1 and I11 of the Environmental Quality Standards for Surface Water.

6. Field investigations along the YBE alignment identified 11 townships, 53 administrative villages, and 138 village groups that would be directly affected by the project; two schools are also in the affected project area. The acoustic environment in the project area is fairly good, with

75 most area villages and schools meeting Class Iof the Standard of Environmental Noise of Urban Areas.

7. The project will have both positive and negative impacts to the region. The YBE will improve the transportation links, promote tourism development, support communication within and outside the project area, and increase accessibility to the Three Gorges National Geological Park. Without the proposed project, it is anticipated that passenger and freight flows in the YBE corridor would not be markedly improved. Access to resources and trade would be limited due to limited mobility, and economic development would be constrained.

World Bank Safeguard Policies

8. The project is classified as a Category A Project since it involves major expressway construction on a new alignment, increases in noise and motor vehicle emissions, occupation of fertile lands and scenic areas, soil erosion, resettlement, and other environmental and social safeguard triggers. The World Bank Safeguard Policies and guidelines applicable to this project are listed below. The preparation of the safeguard documents followed the regulatory and policy requirements for social and environmental assessment of development projects in China and the World Bank’s Safeguard Policies.

World Bank Safeguard Policies Triggered by the YBE Project

Policy Application A full Environmental Impact Assessment report was prepared as the Environmental Assessment expressway is “greenfield” project passing through The Three Gorges (OPIBPIGP 4.01) National Geological Park. Physical Cultural Property number of cultural properties were identified along the project alignment (OP 4.1 1) A Policy is applied since the highway construction will affect natural habitats Natural Habitats (OP 4.04) (vegetation and caves). However, no critical natural habitats are involved. Involuntary Resettlement Policy is applied due to involuntary relocation of populations along the (OP 4.12) proposed corridor. Disclosure of Operational Policy is applied in support of public disclosure and coordination with local Information (BP 17.50) population.

9. Project Innovations Related to Safeguards. In addition to abiding by the standard Bank safeguard policies, environmental and social safeguards will be further strengthened through a number ofinnovative approaches which include:

Environmental Supervision: The environmental supervision will be strengthened by engaging a separate consultant to inonitor and audit the compliance ofthe contractors with the provisions ofthe EMP; EMP as Technical Specifications: The key environmental requirements from the EMP will be ‘translated’ into technical specifications; and will be included in the bid and contract documents for civil works; Compliance Framework: The project will adopt a binding compliance framework designed to motivate contractors to comply with the EMP;

76 0 Safeguards Compliance Monitoring System: A system to facilitate PAPSlodging complaints via the internet or SMS will be adopted.

10. Environmentally and Socially Responsible Procurement (ESRP). The project will. also pilot test elements of ESRP for the first . ESRP aims to identify where procurement can be enhanced to improve its environmental and social impacts. ESRP identifies best practices and supports implementation of these measures to reduce impact and to increase safeguarding measures associated with projects.

1 1. Worker protection the focus of the ESRP initiative for the Yiba project. The new Law of the People’s Republic of China on Employment Contracts (known hereafter as China’s Labor Law), effective 1 January 2008, greatly strengthens worker protection and is consistent with the ESRP initiative. Adherence to the terms of China’s Labor Law is a legal obligation of the contractor. The ESRP initiative will focus on three key aspects of the new law: (i)ensuring all workers have employment contracts; (ii)ensuring that the minimum wage rate is respected; and (iii)ensuring that wages are not paid late. In addition, the law’s health and safety provisions will be enforced.

12. HIV/AIDS. Consistent with the regional strategy for HIV/AIDS in transport, the project will undertake an HIV/AIDS Information, Education and Consultation Communication (IEC) campaign. This will be financed by a grant from AusAID. The campaign will target project supervisors, road agency staff, construction workers, and local residents with the goal of increasing awareness and reducing transmission. It is expected that lessons learned from implementation of the HIV IEC campaign here will be brought to other projects throughout China and the region.

B. Environmental safeguards

13. In September 2002, the Hubei Provincial Transport Bureau engaged the Second Navigation Engineering Exploration and Design Institute (NEEDI) to undertake the feasibility study for the YBE. In December 2003, the Shanghai Ship & Shipping Research Institute (SSSRI) was contracted to carry out the EA for the project. An initial EA was made publicly available and disclosed locally on March 2007. Subsequently, a number of drafts were reviewed by the Bank. In July 2008, all EA reports were disclosed locally and in the Info Shop in China and Washington. A draft EA Executive Summary was submitted to the Board ofDirectors in August 2008.

14. Due to the sensitivity of the Three Gorges National Geological Park and its resources, the HPCD contracted the China Geological Environmental Monitoring Institute to prepare a Feasibility Study, which was approved by the Ministry of Land Resources. Impacts to the Park from this project will be mitigated, managed and monitored according to recommendations provided by the Feasibility Study and the measures incorporated in the EMP. Areas impacted by the construction phase of the project will be rehabilitated. Additionally, the area around the hanging tombs will be reinforced to protect them from the construction and vibration impacts.

77 Environmental impacts

15. Environment. The project will produce environmental issues of concern, such as the generation of solid waste, wastewater, and pollution from vehicles as a result of direct and induced development. As well, there will be short-term environmental impacts such as dust, soil erosion, noise, etc. associated with construction of the expressway. Mitigation measures will therefore be put into place to minimize impacts, and monitoring of environmental and social resources will occur throughout the project construction and operation.

16. The project will permanently occupy about 560 ha of land, about 37% of which will be farmland and approximately 32% will be woodland. The woodland areas, which do not include virgin forest or commercial forestry, could not be avoided. The project will result in increases in noise and motor vehicle air emissions, occupation of fertile lands and scenic areas, soil erosion, resettlement, and other environmental and social issues.

17. Non point source pollution from roadway runoff-which may contain oil, diesel or gasoline-will be the primary contributor to water pollution as a result of the project. Surface runoff will be small compared to the receiving river flows and its impact, based on modeling, is expected to be insignificant. Treated wastewater from service and administrative areas will be discharged to the local stream systems.

18. Increased vehicle emissions in the area will occur as a result of the YBE. It is predicted that this would cause a slight increase in NOz, carbon monoxide (CO) and total hydrocarbon (THC) emissions. In addition, the movement of motor vehicles-especially during construction-will cause fugitive airborne dust from the road surface to be airborne. Sensitive receptors, such as schools, hospitals , and community facilities , would be impacted.

19. Motor vehicle noise on a highway arises from tire friction, motor engines, cooling systems, and brakes. Introducing highway systems to areas without vehicle traffic causes new noise impacts. Sensitive receptors, such as villages/townships and schools, would be impacted by noise generated by the expressway but they will receive noise barriers or improved windows to mitigate the impact.

20. Traffic accidents on the YBE involving the transportation hazardous materials could result in spills and pose a risk ofwater contamination. Though the probability of such accidents occurring is minimal, the consequences could be severe as a spill would impact aquatic life as well as the health and safety of the people living downstream. Viaducts and bridges crossing designated water bodies are designed to limit the potential of contamination through proper drainage systems collecting water and pollutants and carrying them to a tank equipped with a valve before outflow in the natural environment. In case of an accident with spills, rescue teams can remove the hazardous materials from the tank for treatment and safe disposal.

21. The following table lists the environmental resources along or surrounding the YIBA project alignment, and the proposed actions taken during the design stage to limit the effect of the project. Rigorous consideration of social and environmental issues in alignment selection has significantly reduced impact ofthe YBE on the environmental and social resources in the project area.

78 Level of Distance to Impact after Affected Resource Actions to Limit Affect Resource Design Modifications

1 Use ofbridges and tunnels to limit land Alignment is Three Gorges National acquisition and ground-level impacts entirely Low Geological Park 1 Proper engineered waste disposal sites within Park 1 Land rehabilitation and revegetation

Three Gorges Dalaoling less than 1 By passed None Natural Reserve 1Okm a

less than 8 Reduce visual impact ofthe Expressway Three Gorges Scenic Area Low 15km through alignment selection Gaolan Scenic Area Crosses Low Visual imvact Xiaofeng Scenic Area Crosses Low Visual impact Shennongiia Scenic Area Crosses Low Visual impact Zhuchaogou Protection less than None 1 By passed Zone 15km 8 Tunnel changed to viaduct to minimize blasting and vibration impacts Xinping Tomb less than 1km Low 1 Reinforcement ofsite and protection ofrelics to be carried out before and during construction Baima Big Gorge less than None 1 By passed Protection Zone 15km

Guanzhang Reservoir 1 Alignment shifted downstream ofthe Drinking Water Protection less than 5km None Guanzhang reservoir to prevent potential Area imvact

22. The National Yangtze River Geology Park features geologic relics and manmade tourist resources. The core geological area ofthe Park occupies 1,000 km2.All alignment alternatives of the proposed road are within the Park, and cross Badong, Zigui and Yichang geological areas. Most scenic sights are about one or more kilometer from the proposed road alignment and are not expected to be impacted by the Expressway.

23. According to the ‘Three Gorges National Geological Park Master Plan’, there are 21 geological remains sites, 12 paleontology areas, nine geological and geomorphic areas, five geological disaster remains and two hydrologic engineering areas within Badong, Zigui and Yichang. Most sites are about one kilometer from the proposed road, however, as shown below three sites will be affected by the project.

79 Key Geological Sites and Their Relation to the Project

Basic Item Main Scenic Spot Location Relation to Project Category

1, Cross-section of The proposed road will pass Xinping, Taishan Temple, Simian Period and Xinping, but avoid the rest of the Yanjia River, Cambrian Period site

Geological The proposed road will pass Stratum and 2. Lower Ordovician Huanghuachang of Remains Huanghuachang, but avoid the layer denominate section Yichang Scene rest of the site

Cross-sectionof The proposed road will pass 3. Huanghuachang of middle and lower Huanghuachang, but avoid the Yichang Ordovician rest of the site

24. Natural Habitats: There are some natural habitats-forests and caves-along the highway alignment that may be affected by construction, although the total area of vegetation is rather small. Much ofthe biodiversity in the project area has already been disturbed by human activities through a variety of extensive and intensive agricultural ecosystems, especially commercial farming of trees. There are no officially, nationally or globally recognized threatened flora or fauna in the area whose known conservation status would be affected by this project. At the western end ofthe alignment some bird species have been seen which have been given Class I1 national protection, but none of these is regarded as Vulnerable or Endangered by IUCN-The World Conservation Union.

25. No animals or wildlife of interest were observed in the vegetated parts of the project areas. Kites and Eurasian Kestrel have been recorded in the project area. They typically build their nests on the top of large trees or small cavities on the high cliffs. Since the expressway alignment runs adjacent to the existing economic and human activity corridors, far from the habitats frequented by these birds, the impacts ofthe YBE on these birds are expected to be limited. Also, because over 75% of the expressway is in the form ofbridges, viaducts and tunnels, the impacts on the ground are expected to be minimal.

26. The negative impact of the project on karst caves was mitigated firstly by selecting an alignment which avoided karst areas as much as practical. However, since karst caves can have unique biodiversity which can be irreparably damaged through projects in the vicinity, the project undertook biodiversity surveys for all identified caves within 500 m of the alignment, collecting samples ofdifferent plants, mammals and invertebrates for species identification. The surveys confirmed the species distribution and risks as a result of the project. No caves were directly impacted by the project. Two caves were indirectly impacted by the project, being located at a distance of 200 - 300 m from the alignment, and had appropriate mitigation measures included in the EMP. Two other caves were 500 m from the alignment, but neither were even indirectly impacted by the project. However, one ofthese caves contained biodiversity worthy of protection so mitigation measures to protect the cave from human activities will be implemented. Furthermore, the EMP specifically includes “chance find procedures” with actions to be taken during construction with regard to caves. This requires the mobilization of a Cave

80 Team to visit and assess what, if any, steps are required to protect the caves and recommend mitigation measures. There is agreement on possible future biological surveys and on refining the relevant part of the EMP as identification of invertebrates are collected. Although the alignment deliberately avoids certain dolomite and other limestone areas, it still passes across or through other similar areas which could not be avoided.

27. Cultural Property: Four cultural relics - Baihuguan Ruin, Pingyikou Tombs, Xinping Overhanging Coffins, and Niejiahe Ancient Camp Ruins - were identified along the proposed project alignment; these resources will need to be either excavated or protected.

Resource Impact Protection area of culture relic is 30,000 m2.The project affects Baihuguan Ruins some 5,000m2.The road will go through the ruin protection area. Pingyikou Tombs (End of The area covers 3,000 m2.The alignment will avoid the Eastern ) Pingyikou Tombs.

Xingping Overhanging Coffins Tombs are located on the cliff over the banks of Xiaofeng River. (from the Warring Sates, Song The road will be on a viaduct, about 195m from the edge of the Dynasty, and Mingqing Dynasty) tomb area.

Niejiahe Ancient Camp Ruins The alignment bypasses the relic about 200 m from the eastern (from Chunqiu Period to “Six side. There may be indirect impacts. Dynasty”)

28. The proposed alignment will completely avoid the Pingyikou tomb site (no protection level) and bypass the Niejiahe Ancient Camp Ruins (Provincial protection level) by about 200m. The Baihuguan Ruin (no protection level)-part of which will be affected by the alignment--will be excavated before the start of the construction. To minimize the risk to the Xinping Suspended Tombs (Provincial protection level), the alignment was changed from tunnel to viaduct and shifted about 195m from the . Consideration has also been given to protect sensitive sites from the construction and vibration impacts by requiring contractors to use smaller explosive charges during construction, as stipulated in the EMP.

29. Chance Finding Procedures will be utilized to ensure proper attention is paid to any artifact of cultural, archaeological, or paleontological significance found during construction activities. These are clearly defined in the EMP. Site workers will be notified and trained on these procedures in an effort to protect and preserve these resources during construction.

30. Solutions for mitigating the impact to these cultural resources include: (i)minimize project footprint; (ii)limit waste disposal along the alignment; (iii)reinforce retaining walls or structure on site to reduce runoff or erosion; (iv) implementing Chance Finding Procedures; and (v) monitoring all construction activities occurring in the area of cultural resources.

Construction impacts

3 1. Some cultivated areas on lands to be occupied by the YBE will be lost forever to the project. The impact of temporary loss of land for disposal sites will be mitigated upon completion ofthe

81 YBE. Construction will cause disturbance to small areas of natural habitats but will not cause significant impacts to vegetation or wildlife. The EMP requires that efforts be made to minimize the impacts and to allow the restoration ofnatural habitats where possible.

32. The primary impact on water quality during construction includes discharge of sanitary sewage from construction camps, and surface runoff from storage areas and mixing plants. Bridge construction could result in the re suspension of river sediments; the risk of oil contamination from leaks and spills of construction materials will also increase. The contractors will be supplied standard designs for septic tanks as part of the bidding documents and required to install these for construction camps. They will be required to have protection barriers around other potential sources ofwater contamination during the project.

33. Fugitive dust from unpaved access roads, disposal areas, material storage areas, and construction machinery will be the primary source of air contamination during construction. All access roads passing through villages and near schools will be paved with the pavement extending 25 m beyond the village boundary. Depending on the climatic conditions at the time of construction, the impact area for air pollution from asphalt plants may range from 50 m from the source to 300 m. Personal protection equipment (e.g. masks) will be provided for workers as necessary and roads will be watered to keep the dust levels down.

Analysis of alternatives

34. As described in the main text and Annex 4, the alignment was selected after careful review by engineering, environmental and resettlement specialists. Three corridors were evaluated to select the most environmentally and socially benign alignment possible. The selected corridor has the lowest overall impact to environmental and cultural resources. For example, the water quality of the Guanzhang drinking water reservoir has been protected by shifting the alignment away from the Guanzhang watershed. Similarly, the expressway design has been modified to reduce visual impacts on the Xiaofeng, Shennongjia and Gaolan Scenic areas. In the case of the Xinping Tombs, the viaduct option was selected in favor of the tunnel option and shifted about 195 m from the hanging coffins to minimize the impacts on the tombs. Additionally, the alignment was optimized where possible to use the waste deposits from tunnels for land reclamation, as well other factors to minimize waste. The final alignment minimizes the negative impacts on environment and on cultural relics, and reduces resettlement activity where possible.

Mitigation measures

35. The mitigation measures for the YBE during construction and preparation, as well as during the operational phase ofthe project, are summarized in the table below.

Environmental management plan

36. A standalone EMP was developed by the HPCD to mitigate the environmental impact of the project. The EMP defines environmental management, supervision mechanisms and procedures with the assignment of dedicated staff. Specifically, the EMP includes impacts to environmental resources, such as water, air, land, caves, archaeological/cultural resources, etc. Mitigation measures to reduce these impacts are included in the EMP, including an “independent” agency responsible for monitoring the implementation of the EMP. A monitoring and evaluation

82 framework to ensure adherence to the guidelines set in the EMP and adherence to both Chinese national and World Bank standards is also proposed.

Mitigation Measures

Design Phase Construction and Preparation Operation Construct along existing right of Alignment selected to 1. Alignment ways where possible to minimize environmental and minimize land acquisition social impacts Cave chance find procedure Improved environmental supervision EMP compliance framework Road aligned to minimize Conserve top soil for reuse impact to land and natural Train workers on environmental resources protection Access road alignment 2. Conservation of Waste disposal in designated designed to minimize Environmental Resources areas impacts on landscape and Minimize high filling and deep Geological Park cutting to conserve landscape of Natural areas will be Geological Park rehabilitated Ban borrow and deposit pits, service and road maintenance stations in Class Iareas ~~~ Limit construction activities to Noise monitoring will occur 3. Traffic and Noise daylight hours near sensitive receptors. Install noise barriers Noise barriers/plantings Culverts and drainage Treat wastewater and manage ditches will reduce runoff to solid waste streams Water Pollution Properly handle leaks and spills 4. Waste from administrative Cover open piles on rainy days and service areas will be Maintain good drainage system treated Spray water to control dust during construction activities Monitoring of air pollutants Cover delivery vehicles in order 5. Air Pollution will occur near sensitive to reduce spills receptors a Locate asphalt mixing sites 500 m from residences Roads aligned to avoid sites Reinforcement of sites and protection ofrelics will occur during construction a Road alignment limits Cultural Relics Chance Finding procedures will 6. impacts to cultural sites be utilized should artifacts of cultural, archaeological, or paleontological surface during construction activities

83 Trees and grasses along the Rebuild irrigation or drainage 7. Soil Erosionl Irrigation roadside will reduce erosion systems damaged during Channels Retaining walls will limit construction soil movement and runoff Adhere to national drinking Iwater standard 8. Construction Camp Not applicable Maintain sanitary conditions of camps Environmentally and socially responsible procurement to inform workers ofrights Education campaigns Provide information on disease 9. Health and Safety Offer seminar on safety prevention, especially issues to local public HIViAIDS Provide adequate protective gear to workers Separate environmental consultant for auditing and monitoring EMP compliance 10. Management of Provide environmental Not applicable Contractor protection training to contractor and local supervisors Include EMP in bidding documents

37. To facilitate supervision of the key environmental issues, stand-alone alignment sheets are provided with the EMP. The alignment sheets identify (with photos) major environmental issues along the alignment, proposed mitigation measures, and responsible entities for mitigating these impacts. The alignment sheets, together with the EMP, will be utilized in monitoring and supervision of environmental impacts in the project. The HPCD is responsible for the implementation of the EMP, adherence to the alignment sheets, and overall monitoring of environmental protection associated with the project.

38. During the construction and operation phases, environmental monitoring will be carried out at selected sensitive sites. The parameters to be monitored include: noise, dust, and water quality. During construction, environmental monitoring will be conducted on a daily basis using primarily visual observations and portable equipment (e.g. hand-held noise meters). Periodic reports will be submitted to the relevant Provincial agencies and the World Bank. During the operational phase, noise levels will be monitored once quarterly, while air and water quality will be monitored twice a year. To ensure proper environmental performance of the project, the EMP includes detailed programs for training oftechnical personnel and contractors.

39. The cost of environmental management and mitigation measures is estimated at about US$27.5 m.

84 Environmental supervision innovations

40. To improve the implementation of the EMP and environmental supervision on the project, several innovations have been introduced, which were not done on previous Bank financed projects in China:

Separation of Responsibilities. In the YBE Project, the implementation ofthe EMP will involve three parties:

o The Contractor’s Environmental Team (CET). They will be responsible for implementing the EMP and other construction related environmental and safety

’ issues. o The Construction Supervision Engineers (CSE) who will be responsible for supervising and monitoring all construction activities and for ensuring that contractors comply with the requirements ofthe contracts and the EMP; and, o A “Client’s Environmental Supervision Consultants” (CESC). The Client’s Environmental Supervision Consultant (CESC) will check, review, verify and validate the overall environmental performance ofthe project through regular inspections and audits. This auditing will provide confirmation that the reported results are valid and that the relevant mitigation measures and monitoring program provided in the Project EMP are fully complied with. They will also supply specialized assistance to the client in environmental matters.

Each contractor’s CET will have the responsibility for ensuring compliance with the project EMP and contract conditions while undertaking the works. This will be overseen by the CSE. The CESC will therefore be an independent monitor to ensure compliance with the EMP and will ensure adequate performance ofthe CSE and the contractors (including CET) on environmental issues.

The CESC will report directly to the Project Office but will be expected to work closely with the CSE to whom they can make recommendations to improve the environmental responses, which may potentially include recommendations for design modifications. However, the responsibility for all design modifications will rest with the CSE and the Project Office. HPCD has agreed to hire the CESC at least three months before the start ofthe construction so as to allow the CESC to review the relevant EA documents and conduct training.

Implementation and Supervision Guides. The CESC will prepare two guides: (i)an EMP implementation guide for contractors clearly identifying their responsibilities and the HPCD’s requirements; and, (ii)a guide for environmental supervisors on how to undertake supervision, including monitoring of effectiveness. These guides will be supported by a training program.

EMP as Technical Specifications. On many previous projects in China the contractors when bidding were not fully aware ofthe EMP, or the implications that its enforcement would have on their work. Often, it was only at the time of the project ‘Launch Workshop’ that they became familiar with the EMP. For the YBE project the environmental regulations from the EMP will be ‘translated’ into technical specifications, similar to the engineering technical

85 specifications that contractors normally follow, and will be included in the bid and contract documents for civil works.

Compliance Framework. The HPCD and the Bank jointly devised a compliance framework for the YBE designed to motivate contractors to comply with the EMP. This compliance framework will be based on the environmental requirements established by the EMP and will be strictly enforced. For minor infringements-an incident which causes temporary but reversible damage-the contractor will be given 48 hours to remediate the problem and to restore the environment. If restoration is done satisfactorily during this period, no further actions will be taken. If it is not done during this period, the Project Office will arrange for another contractor to do the restoration, and deduct the cost from the offending contractor’s next payment. For major infringements-an incident where there is long-term or irreversible damage-there will be a financial penalty in addition to the cost for restoration activities. Full details of the application ofthe compliance framework are provided in the EMP.

0 In accordance with international experience, contractors will sign a statement acknowledging their awareness ofthe environmental regulations and the compliance framework.

41. The work sites will be inspected by the CESC on a weekly basis. A simple form will be utilized identifying the activities conducted during that week and a list of environmental requirements. The CESC will evaluate for each environmental requirement whether the contractor is in compliance or not. For minor infringements, the contractor will be allowed a 48 hour period to rectify the problems. For major infringements, the contractor will be required to remedy the problem in a time frame agreed with the CET, CSE and the CESC. In either case, as mentioned above, if the contractor does not address the situation satisfactorily, the PMO with the recommendations from CESC will levy fines and engage an outside contractor to rectify the problems..

42. Training will be provided by the CESC to both the CSE staff and the contractors to ensure the successful implementation of the compliance framework. The training program will be designed by the CESC and training sessions consisting of one or two days each will be conducted for contractors and workers upon their initiation with the project in order to: (i) provide them with additional knowledge of environmental protection practices; (ii)reinforce the types of conditions as established in the EMP that they are bound to follow; and (iii)promote awareness regarding consequences of non-compliance with the EMP as established by the Project Office and the CESC.

43. The ‘Safeguards Compliance Monitoring System’, (see Annex 16) being piloted on this project will help ensure effective supervision. The SCMS will enable local residents and affected persons to lodge complaints with regard to the social aspects ofthe project. These will be relayed to the supervision consultant for follow up. During the initial stages ofthe project the SCMS will only be used for resettlement monitoring. Depending upon the success of the SCMS it may be extended to also include environmental monitoring.

86 C. Social safeguards

44. The HPCD in consultation with the Land Resources Department and local governments undertook the necessary studies to ensure compliance with the Bank’s safeguard policies. A ‘Social Assessment’ was conducted by Beijing University August to September 2007. A ‘Resettlement Action Plan’ and ‘Resettlement Policy Framework’ were prepared by the HPCD. These were disclosed in accordance with the Bank’s disclosure policies.

45. A summary of the project’s land acquisition and resettlement impacts is given below. These are further detailed in the RAP.

Summary of Project Resettlement Impacts

Item Total Impact

Land acquisition (mulha) including: 8,395.31559.7

0 Farmland (mdha) 3,08 3,21205.5

0 Orchard land (mulha) 1,386.8192.5

0 Forest land (mu/ha) 2,673/178.2 Waster land (mu/ha) 792.4152.8 House plots (mu/ha) 430.7128.7

0 Water pools (mu/ha) 29.211.9 House demolition (m2) 302,652.1 Number ofhouseholds relocated 99 1 Number ofenterprises affected 18 Number ofschools affected 2 Number ofvillages affected (administrative villageslvillager groups) 53/138 Total number ofpeople affected by relocation, land acquisition, or a combination ofboth 9,845 Total resettlement cost ($US m) 82.9

46. The compensation and resettlement budget is US$82.9 m. This budget includes compensation for land, houses and attached structures, infrastructure and trees, relocation allowances, business loss during transition, special allowances for vulnerable groups, management and monitoring costs, contingencies as well as relevant taxes. Resettlement will be financed entirely through counterpart funds.

Social Impact Assessment

47. A social assessment team screened the potential social impacts on the local communities and identified those with distinct identities in the project area. Residents of the Yiling District are primarily of Han nationality (90%). Only a few ethnic minorities, such as Tujia and Miao, make up the remaining population. Xingshan and Zigui Counties are also both predominantly Han, both over 99%. The population of ethnic minorities in Badong County is relatively large, accounting for approximately 46% of the total population. In this county, the Tujia residents make up the largest portion ofthe minority population while Miao residents account for less than

87 1%. There is no clear difference between the Han, Tujia and Miao minority groups in terms of cultural and economic resources.

48. Though Miao and Tujia ethnic groups are located in the project areas, the assessment concluded that these groups are scattered and do not constitute separate, cohesive ethnic communities. Furthermore, there is a long history of interaction between the Han and the Tujia, who have no separate political or cultural institutions and do not use a separate language distinct from the Han. The social assessment team, based on examination of relevant documents, field visits and interviews at locations ofthe project affected peoples (PAP), concluded that the YBE will not result in these persons becoming especially vulnerable (Le. they will not have their human dignity, political representation, economic activities, standard of living or social and cultural life diminished, abridged or curtailed by the proposed project). World Bank OP 4.10 is therefore not activated and Indigenous People or Ethnic Minority Development Plans are not required.

49. The level of economic development varies greatly over the project impact area; the living standard is relatively low, with the local GDP per capita being lower than the provincial average. The houses in the area are primarily one- or two-story dwellings, made of stick and mortar, or mud.

50. In Yiling District, the planting industry is the main agricultural activity in the project area with the primary crops being corn and . The average yield in this region is comparatively low, and land holding per capita is about 0.09 ha. In impacted areas, women have most of the responsibility for agricultural production and are therefore concentrated in the planting business. It is expected that this project will give local women opportunities to break away from agricultural production and engage in other industries, particularly during the construction stage ofthe project.

5 1. Non-farm activities have become an important source of income for male villagers-the Social Assessment found that 60.4% of income was from non-agricultural activities. Farmers normally go out as wage laborers, some long-term and some seasonal. This project will therefore be useful in helping these villagers get to and from work.

52. According to a field survey questionnaire conducted during the social impact screening, the project has significant support from all levels of local government and by the majority of villagers who will be resettled3’. Some of the social benefits to the project have been identified below.

31 Seven households that will be relocated as a result of the proposed project are migrants from the ‘Three Gorges Dam’ project. According to surveys, these residents support the proposed project despite the need to be resettled again.

88 Social Benefits to Proposed Project

Strengthen connections outside of the region Improve Support three-dimensioned communications network, with railways Communications and airways Promote the development of China Yangtze River Economic Belt Socioeconomic Benefit Reinforce socioeconomic relations between regions L Social Effect 1 Provide job opportunities during construction

53. Several issues were raised by residents in the project area. Of primary concern for affected villagers is embezzlement of compensation for land expropriation and resettlement-something which the ‘Safeguards Compliance Monitoring System’ (Annex 16) is specifically designed to address. They therefore suggest that each family be issued a savings account for the direct deposit of funds. Other areas of concern include environmental and noise pollution, safety, and access. Local residents suggested more stringent regulations on vehicles for emissions and road safety, and for the inclusion ofadditional passages beneath the YBE, to increase access to fields, and sufficient exits off the highway, to support villager access to the new infrastructure. A final suggestion was for the use of local labor forces, structural materials and equipment for the construction phase ofthe project to increase the income ofaffected residents.

Resettlement Action Plan

54. A Resettlement Action Plan (RAP) was prepared in accordance with relevant Chinese laws and regulations, as well as the World Bank Operational Policy 4.12 on Involuntary Resettlement. HERO will lead resettlement operations under the oversight of the provincial resettlement leading group, and manage multi-level resettlement units established along the alignment with local governments at city, county, and township levels. The county resettlement agencies established in the county communication departments will be responsible for the detailed implementation of resettlement. The HPCD has prepared a detailed training program for the capacity building ofproject offices. The HPCD will issue a specific regulation for the approval and usage of resettlement funds. The HPCD will also strengthen the capacity oftownship-level and county-level to manage resettlement funds. The World Bank supported ‘Safeguards Compliance Monitoring System’ will supplement the existing complaints procedures to confirm that resettlement information is delivered to the displaced persons in a timely and transparent manner, and that complaints are addressed quickly.

55. Internal monitoring of resettlement implementation is organized and performed by the resettlement officials, while the external monitoring is implemented by the Resettlement Research Center of Wuhan University which acts as an independent consultant. The main indicators for monitoring include: economic and environmental conditions, employment, community development, and vulnerable groups. The external monitoring will be conducted every six months and will evaluate livelihood restoration efforts and their effectiveness.

56. Land redistribution and development are likely to start from June 2009. It is anticipated that by November 2009 all buildings will have been demolished and some 70% of the land required for construction will be acquired. All affected households will be moved from their former residence after completion oftheir new one. Enterprises and schools will be similarly relocated.

89 All relocation costs, including road access to the new area, will be paid from the resettlement budget.

57. The waster materials from project tunnels will be utilized to develop agricultural land. It is estimated that the developed land could be 45% of required farming land. This measure will mitigate the adverse impacts to the land acquisition. HPCD establishes a land development fund of RMB 13.7 m and the land will be redistributed among the respective communities. The following table shows the planned land development plan.

Land development plan by waste deposits in affected areas

90 Place of waste

Cultivated land

58. A training fund with RMB 0.89 m was established to provide training courses to the displaced farmers, with particular emphasis on displaced women. All of the displaced farmers are entitled to attend the training courses to be designed to meet their specific needs, especially focusing on agricultural productive activities.

59. Poor displaced farmers, identified during the resettlement inventory aspect survey jointly by local communities and local agencies, will be supported by an HPCD poverty alleviation funds with RMB 0.5 m 168 households with 584 people in the project area will be the beneficiaries from this policy. They are entitled to be reallocated into 70 square meters ofbricwtimber houses if their structure compensation do not meet the real cost ofthe reallocated houses.

60. The resettlement planning followed a participatory process. Affected villagers and various government agencies participated in impact surveys and formulation of the compensatory and livelihood rehabilitation plan. The affected people will continue to participate in the formation and implementation of detailed village livelihood development plans. Arrangements to ensure continue7d participation are included in the RAP.

61. The exact project impacts will be verified and finalized when engineering construction drawings are completed. However, the approach is to locate access roads, waste deposits, precasting yards, and construction camps to minimize their impact. The RAP inventory and budget as well as the resettlement cost will be updated accordingly. Implementation of the RAP will be aligned with civil works construction.

62. Complaints are dealt with in up to four stages. Stage 1-The DP’s may present their grievances either orally or in writing to the village committee or local resettlement office. If oral, a written record must be made and a clear response given within two weeks. If it is a serious matter, it must be reported to a higher level resettlement office and a reply received within two weeks. Stage 2-If the complainant is not satisfied with the outcome of Stage 1, they may appeal to the higher level resettlement office within one month after receiving the Stage 1 reply. The

91 county or district level resettlement office must reply within three weeks to this appeal. Stage 3-If the complainant is not satisfied with the district or county resettlement office response they may appeal to HERO within one month of receiving the Stage 2 response. HERO shall respond within one month. Stage 4-If the matter is still not satisfactorily resolved the complainant may appeal to civil court within 15 days ofreceiving HERO’Sresponse.

63. As mentioned above, the ‘Safeguards Compliance Monitoring System’ (see Annex 16) will be piloted as part ofthis project. It will allow for workers, residents and farmers to access project information as well as file grievances and concerns related to project actions, specifically issues related to resettlement, environment, or worker rights, using the text messaging feature on their cell phones, or through the internet - via e-mail or web-based form. Complaints can be filed anonymously or with contact information in order to receive a follow-up message. These complaints, which will be received by the Bank, the client, and an independent monitor, will be logged and addressed appropriately and in a timely manner.

Resettlement Policy Framework

64. The possibility ofimproving about 35.4 kilometers of interconnecting roads was added to the project late in the preparation period. If the construction activities of these interconnecting roads proceed, it will take place later in the project implementation period and so the final design of these activities were not available at the time of appraisal. A resettlement policy framework (RPF) for these roads was disclosed during preparation, and a RAP, environmental impact assessment, and environmental management plan, satisfactory to the Bank will be submitted prior to carrying out any construction activity for these roads. These plans shall be implemented in a manner satisfactory to the Bank.

Land compensation

65. The compensation for private properties will be paid through local bank to the owners and women are authorized to endorse the requests if the displaced family members draw their compensation from local bank accounts.

66. The land compensation consists of two parts, one is resettlement subsidies and the second land compensation for villages:

Resettlement subsidies. These will be paid to the displaced laborers through villages. County resettlement offices will set up special accounts for the displaced villages in the county without going through the township. Villages are authorized to distribute the resettlement subsidies to the displaced labors through village meeting and township/city resettlement office observes the activities. Land compensation for villages. Up to 70% of the land Compensation for villages could be distributed as compensation to each displaced laborer in the same way as the resettlement subsidies. For the remaining 30%, the village committees would use it for improving village facilities or agricultural production through public consultations. The township/city resettlement office will be required to review the proposed use of these funds by the village committees.

92 67. Compensation rates. A review was performed on April 20, 2008 which compared land and structure compensation rates associated with the Yiba project to similar efforts in the surrounding area. The following two tables indicate generally higher than average compensation rates compared to those provided in the surrounding area. This is consistent with the Bank’s efforts to minimize impact to persons and environment associated with the project.

Land Compensation Rate Comparison

Yiba Expressway 1 Yichang City Shanghai -Chongqin -Chongqin (Year 2004) (Year 2005)

Yearly Rates Yearly Rates Yearly output (RMB output (RMB output of land /mti) of land /mu) of land of land (RMBI (RMBI (RMBI (RMBI mu) mu) mu)

Yiling 1,000 19,000 1,000 19,000 950

Yichang City Xinshan 850 16,150 700-800 13,600

Zhigui 800 15,200 800 13,600

Emshi Badong 1 1,520 City County 800 15,200 +

Structure Compensation Rate Comparison

Note: Shanghai-Chongqin, is an expressway from Shanghai to Chongqin throughout Yichang City

Public Consultation and Information Disclosure

68. In accordance with OP4.01 requirements, relevant project information was disclosed to the public, as summarized in the table below.

93 Location Disclosed Content &March 2006 Government office ofLongquan, Public notice - providing brief Huanghua, Wuduhe, Shuiyusi, Xiakou, project description of Shanghai to Xiquwan and Yanduhe Towns Chagndu Expressway Hubei Yichang to Bandong section Environmental Impacts March 2007 Cityicounty libraries to ofYichang, Draft EA report for Shanghai to I------Hugui, Xinshan and Badong Chagndu Expressway Hubei Yichang to Bandong section April 5, 2007 Hubei Communication Website Public Notice ofYiba (www.hblt.gov.cn); Hubei Daily, Expressway environmental information; Advertisement of Yiba Expressway environmental information April 10, 2008 Hubei Daily; Cityicounty libraries Resettlement Action Plan and Social Assessment: Local newspaper advertisement of Yiba; Documents available in local and provincial libraries; Hotline established July 2008 Locally within project affected areas Public Notice of Yiba I Expressway environmental information; Advertisement of Yiba Expressway environmental information

69. Disclosure activities included booklets being distributed to the roadside residents. Project information in the booklets included the necessity of the project, road alignment, and potential environmental impacts. Bulletins were placed at the township government gate, schools, and stores to provide project information and the contact information for the project owner. Multiple public consultations have occurred throughout the process and are recorded in the safeguard documents.

94 Annex 11: Project Preparation and Supervision CHINA: Hubei Yiba Highway Project

~~ ~~~ ~ ~~______~ Planned Actual PCN review 27 August 2007 13 December 2006 Initial PID to PIC 18 September 2007 4 January 2007 Initial ISDS to PIC 17 October 2007 27June2007 Appraisal 11 August 2008 11 August 2008 Negotiations 27 October 2008 19 February 2009 Board/RVP approval 31 March 2009 Planned date of effectiveness June 2009 Planned date ofmid-term review October 2012 Planned closing date December 2015

Key institutions responsible for preparation ofthe project: 0 HPCD is in charge of the implementation of the YBE. The Second Reconnaissance and Design Institute prepared the feasibility design 0 The Second Reconnaissance and Design Institute and Hubei Provincial Communications Design Institute were in charge ofpreliminary design and final design. The Shanghai Shipping Research Institute was in charge ofthe EIA and EMP. Non-voluntary Migrant Research Centre ofWuhan University was in charge ofthe RAP 0 The Social Assessment and Research Center of Beijing University was in charge of the Social Assessment. Hubei Provincial Archaeology Institute was in charge of cultural relics investigation and protection.

Bank staff and consultants who worked on the project included:

Name Title Unit Ani1 Somani Environment Consultant EASTE Anthony Whitten Biodiversity Specialist EASRE Aurelio Menendez Peer Reviewer/ Lead Transport Specialist EASTE Christopher Bennett Task Team Leader/ Sr. Transport Specialist EASTE Christopher de Serio Operations Analyst EASTE Dominique Brief Sustainable Procurement Consultant EASTE Emily Dubin Junior Professional Associate EASTE Ian Nightingale Lead Procurement Specialist EAPCO Imogene Jensen Peer Reviewer/ Senior Economist EASOP Jean- Marie Braun Highway Engineer Consultant EASTE Jose Arevalo Tunnel Engineer Consultant EASTE Juan Quintero Lead Environmental Specialist EASRE Julie Babinard Peer Reviewer ETWTR Luc Lecuit Peer Reviewer/ Senior Operations Officer EAPCO Martin Humphreys Peer Reviewer/ Senior Transport Economist ECSSD

95 1 SusanaBezv Environment Consultant EASTE 1 Syed Ahmeh Lead Counsel LEGES Teresita Ortega Program Assistant EASTE Tian Feng Economic Consultant EASTE Yang Dawei Procurement Specialist EAPCO Yi Geng Financial Management Specialist EAPCO Zhefu Liu Social Development Specialist EASSD Zhi Liu Peer Reviewer/ Lead Infrastructure EASTE Specialist

Bank funds expended to date on project preparation: 1. Bank resources: US$488,38 1 2. Trust funds32:US$52,000 3. Total: US$540,381

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$lO,OOO 2. Estimated annual supervision cost: US$95,000

32 The total trust fund expenditure represents those activities directly related to the preparation of the project. This excludes the ‘Strategic Environmental Assessment’ (US$144,000) and ‘Improved Environmental Management’ (US$81,000) which were undertaken at the same time as the preparation but which, while related to the project, were mainly focused at wider sector applications.

96 Annex 12: Documents in the Project File CHINA: Hubei Yiba Highway Project

Typsa Tunnel Design Review Report Three Gorges National Geological Park Master Plan Feasibility Study for Impact ofProject on Three Gorges National Geological Park Soil Conservation Plan for Yiba Project Geological Disaster Risk Evaluation report for YIBA Project

EIA Documentation Yiba EIA Summary Yiba EIA Main Report Yiba EIA Annex 1- SEPA Approval Yiba EIA Annex 2- Deposit Sites Yiba EIA Annex 3- Access Roads Yiba EIA Annex 4- Cave Survey Yiba EIA Annex 5 - Impact Three Gorges Park Yiba Caves Report Yiba Cultural Relics Report

EMP Documentation Yiba EMP Yiba EMP Annex 1 - Alignment Sheets Yiba EMP Annex 2 - Disposal Sites Yiba EMP Annex 3 - Access Roads Yiba EMP Annex 4 - Mitigation Measures in Tender Documents Yiba EMP TOR Environmental Supervision

Social Safeguard Documents Yiba Resettlement Action Plan Yiba Resettlement Policy Framework Yiba Social Assessment

97 Annex 13: Statement of Loans and Credits CHINA: Hubei Yiba Highway Project

~~~ Difference between expected and actual Original Amount in US$ Millions disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel Undisb Orig Frm Rev’d PI 14107 2009 CN-Wenchuan Earthquake Recovery 7 10.00 0.00 0.00 0.00 0.00 7 10.00 0.00 0.00 Project PO96556 2009 CN-Eco-Farming 120.00 0.00 0.00 0.00 0.00 120.00 0.00 0.00 PI01988 2009 CN-Jiangxi Shihutang Navi & 100.00 0.00 0.00 0.00 0.00 99.75 0.00 0.00 Hydropower PO93963 2008 CN-Guiyang Transport 100.00 0.00 0.00 0.00 0.00 94.20 12.78 0.00 PO93882 2008 CN-Shandong Flue Gas Desulfurization 50.00 0.00 0.00 0.00 0.00 49.88 8.17 0.00 PO9263 1 2008 CN-Xi’an Sustainable Urban Transport 150.00 0.00 0.00 0.00 0.00 150.00 0.00 0.00 PO91949 2008 CN-Gansu Cultural & Natural Heritage 38.40 0.00 0.00 0.00 0.00 38.40 2.24 0.00 PO87224 2008 CN-Han River Urban Environment 84.00 0.00 0.00 0.00 0.00 83.55 -0.24 0.00 PO85376 2008 CN-Migrant Skills Dev. and Eniployment 50.00 0.00 0.00 0.00 0.00 49.88 0.00 0.00 PO84874 2008 CN- Energy Efficiency Financing 200.00 0.00 0.00 0.00 0.00 166.48 -28.83 0.00 PO84437 2008 CN-Rural Health 50.00 0.00 0.00 0.00 0.00 49.88 0.00 0.00 PO96925 2008 CN- Bengbu Integrated Environment 100.00 0.00 0.00 0.00 0.00 97.75 -2.00 0.00 Improv PO99062 2008 CN-ShiZheng Railway 300.00 0.00 0.00 0.00 0.00 299.25 0.00 0.00 PO991 12 2008 CN-Anhui Highway Rehab & 200.00 0.00 0.00 0.00 0.00 199.50 2.33 0.00 Improvement PO99224 2008 CN-Liaoning Med. Cities (LMC) Ill 191.OO 0.00 0.00 0.00 0.00 190.52 17.50 0.00 PO81 776 2007 CN-GUANGDONGIPRDZ 96.00 0.00 0.00 0.00 0.00 95.61 13.94 0.00 PO83322 2007 CN-SICHUAN URBAN DEV 180.00 0.00 0.00 0.00 0.00 150.35 66.35 0.00 PO865 15 2007 CN-3rd National Railway 200.00 0.00 0.00 0.00 0.00 74.16 -64.24 0.00 PO88964 2007 CN- Integrated Forestry Dev 100.00 0.00 0.00 0.00 0.00 45.91 -42.25 0.00 PO91020 2007 CN-Fujian Highway Sector Investment 320.00 0.00 0.00 0.00 0.00 75.66 .136.13 0.00 PO92618 2007 CN-LIAONING MED CITIES INFRAS 2 173.00 0.00 0.00 0.00 0.00 162.57 5.00 0.00 Po953 15 2007 CN-W. Region Rural Water & Sanitation 25.00 0.00 0.00 0.00 0.00 21.94 -1.17 0.00 PO96285 2007 CN-MSE Finance 100.00 0.00 0.00 0.00 0.00 5.00 5.00 0.00 PO77752 2007 CN-SHANDONG ENVMT 2 147.00 0.00 0.00 0.00 0.00 81.72 -43.62 0.00 PO75613 2007 CN-Shaanxi Ankang Road Development 300.00 0.00 0.00 0.00 0.00 250.51 24.62 0.00 PO86629 2006 CN-Heilongjiang Dairy 100.00 0.00 0.00 0.00 0.00 86.14 45.97 33.64 PO70519 2006 CN- Nantai Island Peri-Urban Dev 100.00 0.00 0.00 0.00 0.00 94.57 36.24 0.00 PO75732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 136.53 55.70 0.00 PO93906 2006 CN-3rd Jiangxi Hwy 200.00 0.00 0.00 0.00 0.00 22.22 -71.95 0.00 PO96158 2006 CN-Renewable Energy II (CRESP 11) 86.33 0.00 0.00 0.00 0.00 69.44 45.77 0.00 PO99992 2006 CN-Liaoning Medium Cities Infrastructure 2 18.00 0.00 0.00 0.00 0.00 154.73 0.89 0.00 PO81348 2006 CN- TOWNS M’ATER 150.00 0.00 0.00 0.00 0.00 125.71 30.71 0.00 PO81255 2006 CN-Cliangliang/PearlRiver Watershed 100.00 0.00 0.00 0.00 0.00 89.13 30.79 0.00 Reha PO84742 2006 CN-IAIL Ill 200.00 0.00 0.00 0.00 0.00 42.93 -14.22 0.00 PO85124 2006 CN-Ecnomic Reform Implementation 20.00 0.00 0.00 0.00 0.00 17.11 10.61 0.00 PO85333 2006 CN-5th Inland Waterways 100.00 0.00 0.00 0.00 0.00 24.83 11.50 0.00 PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 14.84 12.32 0.00 PO81 346 2005 CN-LIUZHOU ENVIRONMENT MGMT l00.00 0.00 0.00 0.00 0.00 31.02 -2.04 0.00 PO81 161 200s CN-CHONGQING SMALL CITIES 180.00 0.00 0.00 0.00 0.00 88.18 33.50 0.00 PO68752 200s CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0.00 0.00 7.73 -17.69 0.00 Corrid PO86505 2005 CN-NMGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 45.77 -10.65 0.00 PO69862 200s CN - Agricultural Technology Transfer IOO.00 0.00 0.00 0.00 0.00 60.16 40.86 0.00 PO75730 200s CN-HUNAN URBAN DEV 172.00 0.00 0.00 0.00 0.00 136.39 71.22 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 47.78 40.71 0.00 Development PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 65.91 49.64 0.00 P0 65 4 63 2004 CN-Jiangxi Integrated Agric. Modern. 100.00 0.00 0.00 0.00 0.00 25.47 17.39 0.00 PO8 1749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 0.00 1 .oo 0.73 1.73 0.00 PO73002 2004 CN-Basic Education in Western Areas 100.00 0.00 0.00 0.00 0.00 15.97 15.97 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 4.23 1.24 0.00 Development PO771 37 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 18.61 14.98 14.48 PO69852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 1 .oo 17.32 18.32 I.26 PO75728 2004 CN-GUANGDONGIPRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 67.96 55.00 0.00 PO40599 2003 CN- URB DEV II 150.00 0.00 0.00 0.00 0.00 108.03 91.70 I1.77 PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 4.58 4.58 0.00 PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 0.00 34.46 34.46 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0.00 0.00 48.28 40.86 0.00 PO767 14 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 11.16 11.16 0.00 PO71 147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 0.00 30.17 27.39 0.00 PO64729 2002 CN-Sustainable Forestry Development 93.90 0.00 0.00 0.00 0.00 3.80 3.80 0.00 PO49436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 29.50 3.68 33.18 -1.30 PO42 I09 2000 CN-BEIJING ENVIRONMENT II 349.00 0.00 0.00 0.00 28.02 28.76 56.78 -23.03 PO5 1856 1999 CN-Accounting Reform & Development 27.40 5.61 0.00 0.00 0.00 3.84 3.69 3.74 PO42299 1999 CN-Tec Coop Credit IV 10.00 35.00 0.00 0.00 5.84 8.02 1 I.24 1.03 Total: 9,179.30 40.61 0.00 0.00 66.46 5,158.66 682.80 41 S9

CHINA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars

Committed Disbursed IFC JFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCIB 0.00 0.00 12.04 0.00 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 200s Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Babei Necktie 11.oo 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 2000 Bank of Shanghai 0.00 3.84 0 00 0.00 0.00 3.84 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2005 BioChina 0.00 3.70 0.00 0.00 0.00 3.13 0.00 0.00 2002 CDH China Fund 0.00 2.02 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH China I1 0.00 17.99 0.00 0.00 0.00 11.38 0.00 0.00 2006 CDH Venture 0.00 20.00 0.00 0.00 0.00 0.51 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 10.53 0.00 0.00 0.00 0.00 0.00 0.00 2006 Capital Today 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 Changyu Group 0.00 18.07 0.00 0.00 0.00 18.07 0.00 0.00 1998 Chengdu Huarong 3.36 3.20 0.00 3.13 3.36 3.20 0.00 3.13 2004 China Green Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0.00 2004 Colony China 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 Dagang NewSpring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deq ingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.21 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 Fenglin HJ MDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00 2006 GDIH 50.85 0.00 0.00 0.00 50.85 0.00 0.00 0.00 2003 Great Infotech 0.00 1.73 0.00 0.00 0.00 I.03 0.00 0.00 2006 RCB 0.00 10.85 0.00 0.00 0.00 0.00 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2006 HiSoft Tech 0.00 4.34 0.00 0.00 0.00 I.74 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52. I8 0.00 0.00 2004 Jiangxi Chenming 40.00 12.90 0.00 18.76 40.00 12.90 0.00 18.76 2006 Launch Tech 0.00 8.35 0.00 0.00 0.00 8.33 0.00 0.00 2001 Maanshan Carbon 5.25 2.00 0.00 0.00 5.25 2.00 0.00 0.00 2005 Maanshan Carbon 11.00 I.oo 0.00 0.00 5.00 I.oo 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng & IB 25.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Minsheng Bank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2005 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 8.94 0.00 0.00 0.00 8.82 0.00 0.00 1996 Nanjing Kumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2004 Nanjing Kumho 3 1.38 2.23 0.00 0.00 31.38 2.23 0.00 0.00 2006 Neophotonics 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 New China Life 0.00 5.83 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 2005 North Andre 8.00 6.74 0.00 0.00 0.00 4.25 0.00 0.00 2003 PSAM 0.00 2.01 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 13.00 0.00 0.00 0.00

100 2006 Renaissance Sec 0.00 0.00 20 04 0.00 0.00 0.00 0.00 0.00 2006 Rongde 0.00 35.00 0.00 0.00 0.00 3 1.38 0.00 0.00 SAC HK Holding 0.00 1.60 0.00 0.00 0.00 1 .oo 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2.00 0.00 0.00 2000 SEAF SSIF 0.00 3.74 0.00 0.00 0.00 3.37 0.00 0.00 SH Keji IT 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 2 1.78 2004 SlBFl 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1998 Shanghai Krupp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75 2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00 I999 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 SinoSpring 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 Stora Enso 20.83 0.00 0.00 4.17 1 1.oo 0.00 0.00 0.00 2005 Stora Enso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00 2006 Stora Enso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00 2006 TBK 4.00 0.00 0.00 0.00 2 .oo 0.00 0.00 0.00 2006 VeriSilicoii 0.00 1 .oo 0.00 0.00 0.00 1 .oo 0.00 0.00 Wanjle High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00 2004 Wumart 0.00 1.62 0.00 0.00 0.00 1.62 0.00 0.00 2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 2006 Zhejiang Glass 50.00 24.96 0.00 18.00 0.00 0.00 0.00 0.00 2003 Zhengye-ADC 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87 2002 Zhong Chen 0.00 4.78 0.00 0.00 0.00 4.78 0.00 0.00 2006 Zhongda-Yanjiii 2 I .89 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2002 SML 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2007 Xinao CTC 0.04 0.01 0.00 0.14 2004 China Green 0.00 0.00 0.01 0.00 2006 Launch Tech 0.01 0.00 0.00 0.00 2005 MS Shipping 0.00 0.01 0.00 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 Total pending commitment: 0.05 0.03 0.03 0.14

101 Annex 14: Country at a Glance CHINA: Hubei Yiba Highway Project

East Lower- POVERTY and SOCIAL Asia & middle. 1 evelo pment dlamo nd. China Pacific Income 2007 Population, mid-year (miilions) 1,320 0 3,437 1914 Life expectancy GNlpercapita (Atiasrnelhod, US%) 2,360 2,BO 1887 GNI(AtIasmethod, US$ billions) 3,PO 9 4,v4 6,465 T Average annual growth, 2001.07 Population (%) 0.6 08 11 GNI Gross Laborforce (%) 0.9 12 15 per --- primary Most recent estimate (latest year available, 2001-07) capita enrollment Poverty (%of population belo wnatlonaipoveftyline/ Urban population (%oftotalpopulation) 42 43 42 Life expectancyat birth (years) 72 71 69 I Infant moiiality(per 1000 live binhs) 20 24 41 Child mainutrition (%of children under 5) 7 t3 25 Access to improvedwatersource Access to an improvedwatersource (%o fpopulation) 88 87 88 Literacy (%ofpopulation age 159 91 89 Gross primaryenrolirnent (%of school-agepopulation) 111 16 111 --China Male 111 It? 1P ~ Lowr-middle-incomegroup Female 111 69 69

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1987 1997 2006 2007 Economic ratios' GDP (US$ bdlions) 2682 9527 2,657 9 3,280 1 Gross capital formationlGDP 373 379 44 4 Trade Exports of goods and serviceslGDP e4 218 39 9 Gross domestic savingsiGDP 373 424 52 3 Gross national savingslGDP 373 418 53 8

Current account baiancelGDP 00 39 94 11 5 Interest paymentslGDP 04 06 01 Total debtlGDP t32 154 P1 Total debt servicelexports 85 85 24 Present value of debtlGDP 11 9 Present value of debtlexports 27 7 Indebtedness 1987.97 1997.07 2006 2007 2007-11 (average annual gro vdh) GDP 63 95 116 119 64 china GDP percapita 69 87 110 11 2 97 Lo wr-middle-income group Exports of goods and services 68 227 233 228 158

STRUCTURE of the ECONOMY

102 1987 1997 2006 2007 Growth of capital and GDP (%) (%of GDP) I20 T Agriculture 268 81 11 7 I Industry 439 475 48 1 Manufacturing 347 332 Sewices 293 344 40 2 Household final consumption expenditure 487 434 33 5 I ' 02 03 04 05 b d, General gov t final consumption expenditure 140 142 142 , ----GCF -GDP Imports of goods and sewices 64 773 32 1 I

1987-97 1997-07 2006 2007 Growth of exports and Imports (Oh) (average annual growth) Agriculture 44 37 50 40 40 T Industry a9 05 P5 a4 30 Manufacturing a1 03 Services 94 02 P4 P2 I:: Household final consumption expenditure 98 38 -2 5 I General gov't final consumption expenditure x)6 95 n9 Gross capital formation 122 115 02 143 Exports -0-Irrports Imports of goods and services 00 81 143 82 I

Note 2007 data are preliminaryestimates This table was produced from the Development Economics LDB database 'Thediamonds showfourkeyindicators in the country(in bold) comparedwth its income-groupaverage If data are missing,thediamond~nll be incomplete

PRICES and GOVERNMENT FINANCE 1987 1997 2006 2007 Inflation (%) Domestic prices (%change) I Consumer prices 73 28 15 46 Implicit GDP deflator 51 15 33 52 Government finance (%of GDP, includes current grants) Current revenue 00 110 83 84 Current budget balance -E 7 -0 1 30 30 1 ---GDPdeflator -CPI Overall surplusideficil -22 1 -17 -0 7 -0 9 I

TRADE 1987 1997 2006 2007 (%ofGDP) Agriculture 26 8 81 11 7 Industry 43 9 47 5 48 1 Manufacturing 34 7 33 2 Services 29 3 34 4 40 2

Household final consumption expenditure 48 7 43 4 33 5 General gov't final consumption expenditure 140 142 142 Imports of goods andsewices 64 73 32 1 -

1987-97 1997-07 2006 2007 (average annual gro wth) Agriculture 44 37 50 40 140 T Industry 09 05 125 04 Manufacturing a1 03 Services 94 02 a4 a2 Household final consumption expenditure 98 38 -2 5 General gov't final consumption expenditure n6 95 n9 02 03 M 05 OB 07 Gross capital formation 22 115 a2 143 -Exports -0-lrrports Imports of gQods and sewices a0 81 143 82 I

Note 2007 dataare preliminaryestimates This table was producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators inthecountry(in bold)comparedwthits income-groupaverage If dataaremissing,thediamondwll be incomplete

103 BALANCE of PAYMENTS 1987 1997 2006 2007 [Current account balance to GDP (Oh) (US$ millions) , Expons of goods and sewices 43,868 207,239 1061,681 Imports of goods and sewices 43,950 84.48 852,769 Resource balance -82 42,823 208,90 Net income -2 15 -11,004 11,755 Net current transfers 224 5,143 29,200 Current account balance -73 36,962 249,867 377,6P Financing items (net) 1,733 -105 -2,842 -20,000 Changes in net reserves -1,660 -35,657 -247,025 -357,6P 1 01 02 03 04 05 06 07 Memo: Reserves including gold (US$ miilions] 22,439 146,439 1,046,465 1427.8Q Conversion rate (DEC, iocai/US$) 45 83 80 76

EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 Composition of 2006 debt (US$ mill.) (US$ millions] Total debt outstanding and disbursed 35.340 146.697 322,845 IBRD 1,427 6,239 11415 11762 A:WE ~:9,~97 IDA 1,330 7.830 9,997 fl,151 D 6326 Total debt sewice 3.852 18.445 27,677 2 7,6 t? IBRD 208 658 1,443 1561 IDA a 81 316 349 Compositionof net resource flows G Official grants 2fl 266 363 173 377 Official creditors 626 4,315 901 F 94 118 Private creditors 5,462 6,t34 7,500 Foreign direct investment (net inflows) 2.314 44,237 78,095 Portfolio equity(net inflows) 0 5,657 42,661 World Bank program Commitments 1,306 2,425 1,154 1361 A - IBRD E-Bilatwd 702 2.275 1.169 1,206 Disbursements B .IDA D .Othw rmltilatwd F. Private Principal repayments 97 377 1,144 184 C-IMF G- Short-twr Net fiows 605 1,896 25 24 Interest payments a4 562 615 727 Net transfers 462 1,335 -590 -703

Note This tablewas producedfrom the Development Economics LDB database 9/24/08

104 Annex 15: Pilot Testing Environmentally and Socially Responsible Procurement CHINA: Hubei Yiba Highway Project

A. Introduction to Environmentally and Socially Responsible Procurement

1. Procurement is considered ‘‘environmentally responsible” when environmental aspects are incorporated into purchasing choices along with economic factors such as price, quality, and performance. Similarly, procurement is “socially responsible” when issues ofpoverty reduction, income inequality, labor standards, human rights, and human health and safety are considered in the purchase and use ofvarious products and services.

2. ESRP aims to identify where procurement can be enhanced to improve its environmental and social impacts. ESRP identifies best practices and supports implementation of these measures to reduce impact and to increase safeguarding measures associated with projects.

3. The GOC has a ‘Green Procurement’ initiative33underway, which is still in its early stages. The effort to date has been focused on ‘green products’ for public procurement, as well as energy efficient labels. While several product standards are available, none have yet been published for construction activities or materials. The focus of the efforts on the ESRP initiative under the YBE will therefore primarily be on the social aspects ofESRP.

B. Worker protection

4. As described in “China’s Modernizing Labor Market: Trends and Emerging challenge^"^^, Chinese workers face a number of challenges, particularly those in the construction industry. The key issues include:

Ensuring the workers have safe working conditions; Ensuring the local minimum wage is respected; and, Ensuring wages are not paid late.

5. The worker health and safety conditions are addressed through the ‘Health and Safety’ clauses in Section 6.7 of the Bank’s SBD for civil works. These are also part of the EMP. Some ofthe other issues are also addressed in Section 6 ofthe SBD, but not in detail.

6. Worker protection is one element of the ESRP initiative for the Yiba project. The new Law ofthe People’s Republic of China on Employment Contracts (known hereafter as China’s Labor Law), effective 1 January 2008, greatly strengthens worker protection and is consistent with the ESRP initiative. Adherence to the terms of China’s Labor Law is a legal obligation of the contractor. The ESRP initiative will focus on three key aspects of the new law: (i)ensuring all workers have employment contracts; (ii)ensuring that the minimum wage rate is respected; and (iii)ensuring that wages are not paid late. In addition, the law’s health and safety provisions will be enforced.

33 See www.c.gpn.cn for further details. 34 Synthesis Report for the ESW Component of the China Labor Market AAA Program. EAP Human Development Unit, August 2007. Available for download from ht~://~o.worldbank.or~/8AMHE779HO.

105 7. Contractors will be required to provide employment contracts to workers. China’s Labor Law has been formulated to “specify the rights and obligations ofparties to employment contracts, to protect lawful rights and interests of Employees and to build and develop harmonious and stable employment relationships.” Article 16 in Chapter 2 of China’s Labor Law states that contracts are effective when the Employer and Employee have reached a negotiated consensus on terms of employment and have signed a contract. The Employer and Employee shall each hold one copy of the contract, and shall adhere to its guidelines for issues of concern and termination ofem~loyment~~.

8. Contractors will be required to avoid late payments. Article 30 in Chapter 3 of China’s Labor Law states: “Employers shall pay their Employees labor compensation on time and in full in accordance with the employment contracts and state regulations.” Article 85 under Chapter 7 says that, if payment is not made within the time limit, “the Employer shall be ordered to additionally pay damages to the Employee at a rate ofnot less than 50% and not more than 100 of the amount payable.”

9. Contractors will be required to uphold local minimum wage. Article 55 under Chapter 5, Section 1 says that the rates for labor compensation under contract cannot be lower than the minimum rates prescribed by the local People’s Government. Article 85 in Chapter 7 states: “If labor compensation is lower than the local minimum wage rate, the Employer shall pay the shortfall.”

10. Contractors will be required to adhere to health and safety standards. According to Article 32 in Chapter 3 of China’s Labor Law, Employees shall not be penalized for refusing to perform dangerous operations. Further, Employees have the right to report or lodge accusations against their Employers if working conditions may endanger their lives or health. In addition to the safety clauses provided in China’s Labor Law, ESW recommends inclusion of the following actions in support ofworker health and safety:

Provide basic protective clothing to all site employees and supervisors, including steel toe-capped safety boots, gloves, and raincoats (as appropriate); Provide additional protective clothing and equipment for specific tasks, including safety helmets for workers engaged in the construction at a height of2m and above, dust masks for work in dusty conditions, and ear defenderdplugs for work in noise conditions; Ensure effective utilization ofsafety equipment; Nominate and train one employee per lot as Safety Officer; Establish a safety committee during the mobilization period comprising the Contractor’s Safety Officer, the Engineer’s Representative and one worker’s representative from each site; Nominate and train one employee per site to be responsible for first aid and management ofthe first aid kit; and, Establish emergency evacuation procedures to enable rapid response to accidents.

35 The upcoming Bank financed ‘Rural Migrant Skills Development and Employment Project’ will prepare ‘templates’ for migrant workers to encourage employers to sign employment contracts.

106 C. Environment

11. Environmental supervision for this project will be different from previous expressway supervisions in China. The Client and the Bank have jointly devised a compliance framework designed to support monitoring and enforcement of environmental safeguards. Environmental management measures, as defined in the EMP, will be included in contract documents to ensure compliance and support enforcement of these measures. The following considerations of the contractor are also detailed in the EMP.

12. Contractors will be requested to minimize waste to landfills and describe landfilling methods. It is requested that, wherever possible, construction materials are recycled or, if necessary, disposed of appropriately. Landfilling methods are requested in order to ensure “clean” landfilling methods (proximity of sites to sensitive locations, awareness of materials disposed of, etc.), and consideration ofland area required for waste disposal.

13. Contractors will be requested to maintain vehicles and machinery at the national level with regard to air and water emissions and leakage standards. Contractor will be requested to provide a management plan demonstrating how they will promote environmental sustainability.

14. The ESRP measures described above will be monitored and evaluated by an independent consultant. Success of implementation and impacts of these requests and requirements will be reported throughout project construction by the consultant. Implementation or enforcement measures may be slightly modified as appropriate to ensure maximum compliance with Chinese law and principles ofESRP.

D. Procurement

15. During the pre-bid meeting, the HPCD will provide information and Q&A opportunities to suppliers and industry representatives regarding ESRP knowledge-building.

16. Contractors will be requested to provide certification that certain construction materials are procured from an environmentally managed source (e.g. quarry, pit borrow, timber).

17. The HPCD will ensure that the contract clauses and Bill of Quantities adequately represent the above ESRP considerations.

E. Implementation of ESRP

18. The following table summarizes the requirements for contractors, benchmarks and monitoring mechanisms for successful implementation ofthe ESRP program.

19. To ensure compliance with these key aspects of China’s Labor Law, the project will distribute brochures to all workers outlining their rights under the law and information about lodging complaints. The compliance with the law is the responsibility ofthe labor administration authorities of local People’s Governments at the county level and above. The Bank supervision missions will confirm that they are monitoring the implementation on the YBE project.

107 Contractor Requirements Benchmarks I Monitoring Mechanisms Ensure workers have safe working Adhere to health and safety Survey workers to gauge their conditions standards: 1 understanding of their worker rights under China’s new labor Provide protective clothing law. Ensure effective utilization of Number ofgrievances filed. safety equipment Nominate and train a Safety Officer Establish a Safety Committee Train one employee on use of first aid Establish emergency evacuation orocedures Ensure the local minimum wage is resDected Ensure wages are not paid late redress mechanism Minimize waste to landfills and Develop options to reduce Observed reduction in materials to describe landfilling methods landfilling, including recycling or landfills reuse ofmaterials on site Maintain vehicles and machinery at Assess quality of existing machinery Inventory of vehicles and machinery the national level with regard to air and vehicles and determine whether operating to the national level. and water emissions standards new machinery or parts must be procured before operation.

F. Monitoring Effectiveness

20. In light of the finding of the Bank’s AAA study into the challenges faced by construction workers, the HPCD agreed to support the Bank, who will procure a consultant, in undertaking a study into the effectiveness of an ESRP initiative focusing on worker rights. It is anticipated that lessons from the piloting of ESRP on the YBE project will be of value to other Bank-financed projects in China and elsewhere.

21. The project will undertake an education program to inform workers of their rights under China’s 2008 Labor Law with regard to: (i) all workers having employment contracts; (ii) all workers must receive the minimum wage rate; and (iii) wages must not be paid late. A short brochure highlighting these issues will be prepared for distribution to the workers. Group meetings will be held to discuss their rights under the 2008 Labor Law.

22. Surveys will be conducted to assess the effectiveness and impact of the ESRP initiative related to worker rights. The goals ofthe surveys are to:

Obtain an understanding of existing knowledge and expectations among workers, supervisors, and staff; Identify areas where knowledge of ESRP was lacking, especially with regard to worker protection. This will be used to develop meaningful training workshops; and, Determine the effectiveness ofthe planned ESRP efforts and modify accordingly.

108 23. For effectiveness monitoring, similar surveys will also be conducted on another World Bank financed expressway project in China, which is yet to be identified. This project will not have the information campaign conducted. The rationale for sampling elsewhere in China is to reduce the risk of data contamination so an appropriate assessment of ESRP training effectiveness can be measured.

24. The surveys will be undertaken at the start of the project with a sample of approximately 600 persons (contractors, supervision consultants, fixed terms workers, short-term migrant workers and staff at the YBE headquarters) to provide baseline data on their understanding ofESRP. The surveys will be repeated after 12 months on all three groups to show the overall impact of the initiative. A report will be prepared showing the impact of the ESRP program and the results used to guide future efforts. These results will be used to design a worker advocacy training program for the workers, contractors and staff.

109 Annex 16: Safeguards Compliance Monitoring System

A. Introduction

1. There is a well established protocol used in Hubei province for handling resettlement complaints on previous World Bank financed projects. Due to the environmental sensitivity of the area traversed by the YBE, it was decided to strengthen this to include environmental complaints through a 'Safeguards Compliance Monitoring System' (SCMS). The objective ofthe SCMS is to:

0 Provide environment and resettlement information on the project to the public (e.g. download EMP, RAP, resettlement information booklets, etc.); 0 Record information on the environment and resettlement performance against key indicators (e.g. pollution ofwaterways, damage to sensitive areas, compensation rates for main structures and land, how long it takes for DPs to receive compensation, land occupation before/after land taking, income recovery after resettlement rehabilitation); and Provide a mechanism for complaints to be automatically logged and forwarded to the appropriate parties.

The figure below gives an overview ofthe SCMS.

Report! S C M a s hdependent S bnitar c- :1e

110 2. The SCMS will support the evaluation of environment and resettlement performance and, at the ICR stage, the assembly of the necessary data would be straightforward. The SCMS will further ease the grievance filing process for DPs and others impacted by the project. Follow-up with complainants ensure satisfactory resolutions.

B. SCMS description

3. The SCMS has two components: (i)the web site interface and (ii)the complaint logging system.

4. The web site, accessible through www.isafeauards.com, is used to store and disseminate information on the project environment and resettlement status. It will have downloads available, such as the RAP and information booklet, as well as summary statistics showing the progress of resettlement. There is also a mechanism to log complaints, as described below.

Basic Introduction To The Project News

The Ylchairg-Berloiig Expressway ' 08-07-31 Safeguards Review Meeting The Yichang-Badong Expressway NBE) runs along the northern bank ofthe Yangbe river from Yichang to Badong in western Hubei province The YBE is the last section not yet open to trafk or under construction ofthe expressway linking Wuhan to ChengdU Passing through Yiling District, Xingshan Countf and Zigui Couniy the YBE will traverse mountainous terrain in an environmentally sensitive area

Map Of Sections Downloads

* Social Assessment

~ Enwonmental Impact Em Assessment E! Environmental El Management Plan E!

Map data aR008 AND, NFOIS, EU

Note This map is powered by Google Maps Country borders or names do not necessarilyrerlectthe Wnrlrl Rark Omiin's nfirial nnsitinn

5. The web site has two areas:

0 Public Area: This is an area accessible to the public. In this area the public will be able to download the various materials and also submit complaints. 0 Private Area: This will have restricted access and will be used by the various parties involved in the project to store key data and to generate reports.

111 6. In addition, there will be user administration functions accessible only to special users.

7. The ‘Complaint Logging System’ (CLS) allows complaints to be logged in three ways: (i) through a form on the web site; (ii)by sending an SMS message; and (iii)via e-mail. The SMS part of the system is important since those affected by the project may not have access to the Internet to visit the web site, but they can send an SMS message since mobile phones are ubiquitous.

Web Logging: The user opens the ‘Feedback’ page at the site and enters key information (name, contacts, etc) along with details ofthe complaint. SMS Logging: Upon receipt of an SMS complaint an acknowledgement message is returned to the complainant indicating that the message was received and will be processed. The sending phone number is matched to an individual’s existing records, if available. Upon resolution the complainant receives a message which they can confirm that the resolution was satisfactory or otherwise. If the latter, additional steps will need to be done as part of the grievance procedure. Email Logging: An e-mail would be sent to an e-mail address. An auto-responder would send out an acknowledgement and the business flow would be the same as for SMS logging.

8. Upon receipt of a complaint, the message is automatically forwarded via e-mail to: (i)the HPCD; (ii)the Bank; and (iii)the resettlement and environmental monitoring consultants. The system is designed to permit the message to be forwarded to others as well should this be required. The reporting facility in the system records the details of the message, sender information, when received, etc. Later, when resolved, the complainant will be notified of resolution if possible. The reporting system will record the elapsed time for dealing with the complaint as well as the outcome. The system is designed to allow for anonymous complaints to be made should the displaced person wish to do so.

9. It should be noted that complaints may be received by any affected persons, for example those impacted by a damaged drainage channel, excessive noise, etc. Construction workers employed by the contractor may also file grievances using this system if they are not paid on time or experience any other problems on the job. It is not just limited to persons directly affected by resettlement.

10. During the pilot testing of the system, persons affected by the project will be notified of how to make complaints through brochures and information posters. These will cover the web interface, e-mail as well as the ability to send SMS messages. In addition, the regular voice hotline for complaints will also be covered.

C. Expected outcomes

11. There are several outcomes and impacts from the SCMS on several levels:

It will ensure that environmental, resettlement, and labor law information is widely disseminated.

112 The provision of resettlement progress statistics will be of use to those affected by the project in the event that resettlement is not proceeding as planned. 0 It will provide the HPCD, the Bank and the independent monitoring consultants with an independent way ofmonitoring compliance with safeguards policies. The data collected will be available for progress reporting, ISRs and ICRs in real-time. 0 The complaint logging system will help ensure that the local resettlement agencies are doing their jobs effectively since there is an independent mechanism for recording complaints.

113

Annex 17: Maps CHINA: Hubei Yiba Highway Project

Map 1 -National Expressway System [IBRD 358711 Map 2 - Hubei Province [IBRD 358721 Map 3 - Project Location Map [IBRD 358731

114

MAP SECTION

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