Completion Report

Project Number: 35339 Loan Number: 2051 August 2012

People’s Republic of China: –Wanzhou Railway Project

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion (18 November 2003) (22 December 2010) CNY1.00 = $0.1208 $0.1501 $1.00 = CNY8.2770 CNY6.6630

ABBREVIATIONS ADB – Asian Development Bank EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan FIRR – financial internal rate of return FSDI – Fourth Survey and Design Institute of China Railway FCTIC – Foreign Capital and Technical Import Center MOR – Ministry of Railways PRC – People’s Republic of China SEPP – soil erosion protection plan TA – technical assistance WACC – weighted average cost of capital YWR – Yichang–Wanzhou Railway YWRCH – Yichang–Wanzhou Railway Construction Headquarters

WEIGHTS AND MEASURES km – kilometer m2 – square meter m3 – cubic meter mu – a Chinese unit of measurement (1 mu = 666.67 m2)

NOTES (i) In this report, "$" refers to US dollars, unless otherwise stated.

Vice-President S. Groff, Operations 2 Director General R. Wihtol, East Asia Department (EARD) Director H. Sharif, People’s Republic of China Resident Mission, EARD

Team leader F. Wang, Senior Project Officer (Financial Management), EARD Team members W. Zhu, Senior Project Officer (Resettlement), EARD Z. Niu, Senior Project Officer (Environment), EARD Y. Gao, Project Analyst, EARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

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BASIC DATA i I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 3 C. Project Costs 5 D. Disbursements 5 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 7 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 8 J. Performance of Consultants, Contractors, and Suppliers 8 K. Performance of the Borrower and the Executing Agency 9 L. Performance of the Asian Development Bank 9 III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Effectiveness in Achieving Outcome 10 C. Efficiency in Achieving Outcome and Outputs 11 D. Preliminary Assessment of Sustainability 12 E. Impact 12 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 14 C. Recommendations 15 APPENDIXES 1. Project Framework 16 2. Chronology of Major Events 20 3. Project Cost and Financing Plan 21 4. Projected and Actual Contract Awards and Disbursements 22 5. Appraisal and Actual Implementation Schedule 23 6. Organization Chart 24 7. Compliance with Loan Covenants 25 8. Contract Packages Financed by the Asian Development Bank 34 9. Technical Assistance Completion Report for Strengthening Involuntary Resettlement Practices 37 10. Technical Assistance Completion Report for Ensuring Safeguard Practices 39 11. Economic Reevaluation 41 12. Financial Reevaluation 47 13. Social Impact and Poverty Reduction in the Project Area 50 14. Land Acquisition and Resettlement 57 15. Environmental Impact Analysis 63

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 2051 3. Project Title Yichang–Wanzhou Railway Project 4. Borrower People’s Republic of China 5. Executing Agency Ministry of Railways 6. Amount of Loan $500 million 7. Project Completion Report Number PCR: PRC 1332

B. Loan Data

1. Appraisal – Date Started 17 July 2003 – Date Completed 11 August 2003

2. Loan Negotiations – Date Started 5 November 2003 – Date Completed 8 November 2003

3. Date of Board Approval 15 December 2003

4. Date of Loan Agreement 27 May 2004

5. Date of Loan Effectiveness – In Loan Agreement 25 August 2004 – Actual 26 July 2004 – Number of Extensions 0

6. Closing Date – In Loan Agreement 30 June 2010 – Actual 23 December 2011 – Number of Extensions 2

7. Terms of Loan – Interest Rate London interbank offered rate (LIBOR) based – Maturity 26 years – Grace Period 6 years

8. Terms of Relending – Interest Rate London interbank offered rate (LIBOR) based – Maturity 26 years – Grace Period 6 years – Second-Step Borrower Ministry of Railways

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9. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval

26 July 2004 23 December 2011 89 months

Effective Date Original Closing Date Time Interval

26 July 2004 30 June 2010 71 months

b. Amount ($) Original Last Revised Amount Net Amount Amount Category Allocation Allocation Canceled Available Disbursed Civil works 349,000,000 382,077,567 0 382,077,567 382,077,567 Equipment 77,180,000 27,012,740 0 27,012,740 27,012,740 Materials 45,820,000 87,936,233 0 87,936,233 87,936,233 Consulting services and training 1,300,000 473,460 0 473,460 473,460 Front-end fee 2,500,000 2,500,000 0 2,500,000 2,500,000 Unallocated 24,200,000 0 0 0 0 Total 500,000,000 500,000,000 0 500,000,000 500,000,000 Source: Asian Development Bank.

C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 1,085.40 573.76 Local Currency Cost 1,278.10 3,551.32 Total 2,363.50 4,125.09

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 1,693.20 3,334.90 ADB Financed 497.50 497.50 Total 2,190.70 3,832.40 IDC Costs Borrower Financed 170.30 290.19 ADB Financed 2.50 2.50 Total 172.80 292.69 ADB = Asian Development Bank, IDC = interest during construction and commitment charge. Sources: Asian Development Bank.

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3. Cost Breakdown by Project Component ($ million)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Cost Component Exchange Currency Cost Exchange Currency A. Base Costs 1. Civil Works 787.20 849.10 1,636.30 443.73 2,510.03 2,953.76 2. Railway Materials 45.80 34.40 80.20 93.39 118.57 211.96 3. Signaling, Communications, 17.80 21.30 39.10 0.00 94.71 94.71 MIS 4. Electric Power and 17.50 58.70 76.20 0.00 182.36 182.36 Electrification 5. Operational, Safety, and 41.00 12.20 53.20 33.56 34.74 68.30 Maintenance Equipment 6. Land Acquisition and 0.00 42.00 42.00 0.00 95.67 95.67 Resettlement 7. Environmental Protection, 0.90 3.00 3.90 0.00 18.06 18.06 Mitigation, and Monitoring 8. Administration, Consulting 1.30 32.00 33.30 0.58 207.00 207.58 Services, and Miscellaneous Cost Subtotal (A) 911.50 1,052.70 1,964.20 571.26 3,261.14 3,832.40

B. Contingencies 1. Physical 77.30 79.60 156.90 0.00 0.00 0.00 2. Price Escalation 32.30 37.30 69.60 0.00 0.00 0.00 Subtotal (B) 109.60 116.90 226.50 0.00 0.00 0.00

C. Front-End Fee 2.50 0.00 2.50 2.50 0.00 2.50

D. Interest During 61.80 108.50 170.30 0.00 290.19 290.19 Construction Total 1,085.40 1,278.10 2,363.50 573.76 3,551.32 4,125.09 MIS = transport management information system. Sources: Asian Development Bank and the Ministry of Railways.

4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Jul 2004 Mar 2008 Completion of Engineering Designs Aug 2003 Aug 2003 Civil Works Contract Date of Award Aug 2004 Sep 2004 Completion of Work Dec 2008 Oct 2010 Equipment and Supplies Dates First Procurement Jun 2006 Jan 2005 Last Procurement Jun 2009 Jul 2007 Completion of Equipment Installation Jun 2009 Oct 2010 Start of Operations Jan 2010 Dec 2010 Sources: Asian Development Bank and the Ministry of Railways.

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5. Project Performance Report Ratings Ratings Development Implementation Implementation Period Objectives Progress From 1 Dec 2003 to 31 Mar 2004 Highly Satisfactory Satisfactory From 1 Apr 2004 to 31 Aug 2005 Satisfactory Satisfactory From 1 Sep 2005 to 30 Sep 2007 Satisfactory Highly Satisfactory From 1 Oct 2007 to 31 Dec 2011 Satisfactory Satisfactory Source: Asian Development Bank.

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Membersa Fact-finding 19 Nov–6 Dec 2002 5 44 a, b, c, d, e Appraisal 17 Jul–11 Aug 2003 7 66 a, b, d, e, f, g Loan Negotiation Mission 5–8 Nov 2003 3 9 a, e, g Inception Mission 7–13 Dec 2004 2 12 h, i Review Mission 1 6–11 Nov 2005 3 15 h, i, d Review Mission 2 28 Nov–1 Dec 2006 3 4 h, i, d Midterm Review Mission 26–29 Nov 2007 4 8 h, i, j Review Mission 3 7–14 Oct 2008 4 28 i, k, l, m Review Mission 4 9–12 Nov 2009 3 9 i, k, l Review Mission 5 1–3 Nov 2010 3 6 i, k, l Project Completion Review 21–29 Mar 2011 4 30 i, k, l, m aa = financial specialist, b = resettlement specialist, c = transport engineer, d = environmental specialist or consultant, e = project specialist, f = program officer, g = counsel, h = transport specialist, i = project analyst, j = project management officer, k = financial management officer, l = resettlement officer, m = environment officer. Source: Asian Development Bank.

I. PROJECT DESCRIPTION

1. Railways play an important role in transportation in the People’s Republic of China (PRC) due to the large land area and population size. The Government of the PRC has been increasing the railway transport capacity to meet economic and social development needs. During 2001–2010, the rail network expanded by 30%, from 70,057 kilometers (km) to 91,000 km. The total capital investment in the sector was CNY2,431 billion during the Eleventh Five- Year Plan (11th plan) period covering 2006–2010. There have been substantial increases in both passenger and freight traffic. From 2001 to 2011, passenger traffic increased by 101.6%, from 476.7 billion passenger-kilometers (p-km) to 961.2 billion p-km, and freight increased by 100.5%, from 1,469.4 billion ton-km to 2,946.5 billion ton-km. Despite such growth, railway capacity still seriously lagged behind demand. The government’s plan for railway development gives priority to expanding the railway network and constructing new lines in the central and western regions. The Yichang–Wanzhou Railway (YWR) was initially proposed in the Tenth Five-Year Plan, 2001–2005 (10th plan) of the Ministry of Railways (MOR) and was then included in the 11th plan.

2. The YWR provides a new rail link in the national network, connecting Yichang in Province with Wanzhou in Municipality. The 377-km railway was the last missing section of the east–west railway connection between and other economic centers on the east coast and Chongqing and in the western region. It reduced the travel distance significantly compared with other railway routes and alleviated serious network bottlenecks. The railway traverses eight counties and districts in a mountainous region in three prefectures which are less developed due to poor accessibility and expensive motorized transport. The project’s objective was to remove transport barriers, reduce transport and logistics costs, and promote pro-poor economic and social development. The YWR is the first railway link in the region and constitutes a strategic link in the central PRC railway corridor. Its connection to the national network has improved traffic maneuverability, reduced transportation constraints on other parts of the national railway network, and lowered network transportation costs. The project framework is in Appendix 1 and the chronology of major events is in Appendix 2.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

3. The strategy of the Asian Development Bank (ADB) for the railway sector in the PRC focuses on helping to (i) expand the railway system by constructing new lines in unserved and less-developed areas, (ii) modernize and increase the capacity to improve efficiency on key routes of the national railway system, (iii) commercialize railway operations to sustain efficient operations, and (iv) increase railway competitiveness in the transport sector through restructuring and reform. This strategy remained unchanged at the time of appraisal and project completion. ADB has provided a series of assistance programs and projects in the development of railways in poor and less-developed inland provinces to promote sustainable economic growth and reduce poverty. The government’s Western Development Strategy aimed to narrow development disparities between the western and coastal regions, and this was also the key theme of the 10th and 11th plans. The project supported the government’s strategy and was consistent with ADB’s country operational strategy.1

1 ADB. 2002. Country Strategy and Program Update (2003-2005): People’s Republic of China. Manila.

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4. ADB provided project preparatory technical assistance 2 (TA) to review alternative alignments, assess the project’s feasibility, and strengthen arrangements for ensuring compliance with safeguard requirements. In addition to construction of the railway, the project included elements that added value and corresponded to ADB’s strategic priorities, such as providing consulting services to strengthen the capacity of MOR, providing track maintenance equipment, developing container terminals, and improving capacity of railways connecting to the YWR. Recognizing the complexity of project implementation, project design included additional measures for strengthening land acquisition, monitoring resettlement, and mitigating key environmental risks.3 Through the TA for strengthening involuntary resettlement practices,4 the capacity of the project counterpart institutions, including the local government dealing with the land acquisition and resettlement, was enhanced; ADB's resettlement and social safeguard good practices were disseminated; and a computer-based management information system for resettlement reporting was developed. Through the attached TA for ensuring safeguard practices5 an independent environmental panel was engaged to oversee compliance with ADB’s safeguard polices with regard to potential disturbance of the Chinese sturgeon breeding grounds and other sensitive species due to bridge construction over the River. 6

5. The YWR was originally designed as a single-track, electrified, standard-gauge Class I railway. In September 2006 the government approved the proposal to double-track the 288-km section from Yichang to Liangwu (close to Lichuan). The double tracking was considered necessary for the rapid development of the railway network in the PRC.7 The YWR forms part of the Shanghai–Chongqing–Chengdu Railway corridor, which connects the major cities of Shanghai, , , Chongqing, and Chengdu. The YWR is connected at the eastern end with the Wuhan–Yichang railway, and at the western end with the Chongqing–Lichuan Railway8 at Liangwu, and with the Daxian–Wanxian Railway9 at Wanzhou. The Wuhan–Yichang and Chongqing–Lichuan railways, as well as the rest of the sections of the Shanghai–Chengdu corridor, are double-track electrified lines, which required the double tracking of the YWR to ensure consistent specification of the corridor. The original design had anticipated the double tracking,10 and therefore the foundations of bridges and tunnels had been designed to allow for double tracking. Simultaneous construction of the double-tracked section, instead of double tracking at a later stage, was justified because it reduced the impacts on the environment by utilizing the same spoil disposal sites, work camps, and construction access roads, and reduced the need to remobilize construction equipment and vehicles, and thus reduced the cost significantly.

2 ADB. 2002. Technical Assistance to the People's Republic of China for Preparing the Yichang–Wanzhou Railway Project. Manila. 3 The major environmental risk identified was potential adverse impacts on habitats of Chinese sturgeon due to the construction crossing the Yangtze River at Yichang city. 4 ADB. 2002. Technical Assistance to the People’s Republic of China for Strengthening Involuntary Resettlement Practices for the Yichang–Wanzhou Railway Project. Manila. 5 ADB. 2003. Technical Assistance to the People’s Republic of China for Ensuring Safeguard Practices for the Yichang–Wanzhou Railway Project. Manila. 6 ADB. 2006. Ensuring Safeguard Practices for the Yichang–Wanzhou Railway Project. Consultant’s report. Manila. The panel remarked that “This all demonstrates that, with adequate care, even a major bridge can ‘step lightly’ across the natural environment”. 7 In 2004, the State Council of the PRC approved the railway development plan for the period up to 2020, which seeks to expand the railway network to 100,000 km. 8 ADB. 2008. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Chongqing–Lichuan Railway Development Project. Manila. 9 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Daxian–Wanxian Railway Project. Manila. 10 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yichang–Wanzhou Railway Project. Manila (para. 25).

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B. Project Outputs

1. Yichang–Wanzhou Railway

6. The YWR comprises 324 km in Hubei Province and 53 km in Chongqing Municipality. Due to the difficult terrain, the project involves a large number of bridges (including two over the Yangtze River) and tunnels; 74% of the total length is bridges and tunnels, which is the highest percentage among railways constructed before 2010 in the PRC. Construction commenced during September–December 2004. By the end of 2007, subgrades, bridges, most tunnels, and culverts were completed. Overall progress was prolonged by the construction of the 10.5 km Qiyueshan Tunnel, which was at the point with the most difficult terrain. During its construction, about 200 caves, 3 underground rivers, and 15 geological faults were encountered, which required special treatments and mitigation measures. The tunneling works caused the overall construction schedule to be extended by almost 1 year. Track laying was completed in August 2010. Buildings and ancillary facilities were implemented simultaneously to match the implementation schedule of subgrade works. Electrification, signaling, and telecommunication works were completed in October 2010.

7. The YWR was recognized as the most challenging railway project of the period given the complex topographical, geological, engineering, and hydrogeological conditions. Located in the western region of Hubei Province, it passed through the Yungui Highlands at an elevation of 700–1,500 meters, and the watershed of the Yangtze and Qing rivers. Limestone is distributed throughout the entire geological area, and 70% of the route is on karst topography.11 Faults and folds, underground caves, landslides, underground rivers, methane, and high ground stresses are among the prominent problems encountered. Of the 159 tunnels, 32 are longer than 3 km, 3 are longer than 10km, and the longest one is 13.84 km. There are 253 bridges, the highest of which has 135-meter high piers, and the largest concrete span is 275 meters. Track laying on sections with continuous long slopes with the maximum gradient of 18‰ also posed high risks. In overcoming these technical challenges, the MOR has gained valuable experience in constructing complex railways in mountainous areas.

8. Equipment and facilities for power supply, signals and telecommunication, and train control systems were installed and commissioned. Thirteen traction substations were built and the power supply station anticipated at appraisal was not needed because of power supply facilities established under another project in the region. Overhead contact wire of 923 km was installed. Several key design standards and specifications were upgraded, including use of ballastless embankments in tunnels longer than 3 km, seamless track along the whole line, computerized interlocking, synthetic lightning protection, computerized signal control, enhanced tunnel lighting and ventilation, cable trough in subgrades, safety fences, and fire-fighting design. Recognizing the potential risks of the mountainous environment to operational safety, specific measures were incorporated in the design, including using advanced fiber-optic sensor technology to monitor and report natural disasters such as landslides, rockfalls, and rock mass failures, and installing video monitors to monitor key bridges and tunnels. The structure gauge of the YWR permits operation of double-stack container trains, the first national railway to incorporate this requirement in the design. Double-stack container transport operation on electrified track reduces land use; increases carrying capacity by 60% on the same track; improves energy and environmental efficiency by 40%–60%; and allows cargo to move more quickly, safely, and efficiently.

11 Karst refers to porous limestone containing deep fissures and sinkholes and characterized by underground caves and streams.

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9. The MOR issued its provisional acceptance in November 2010 after completing the check on construction quality and the transportation safety assessment. Public safety campaigns were conducted to familiarize the local people with safety issues related to the electrified railway. The local governments also established offices to assist the safety efforts. Trial operation of the YWR started on 22 December 2010 for both passenger and freight operations. Responsibility for operation of the YWR has been assigned to the Wuhan Railway Administration for the Yichang–Liangwu section, and to the Chengdu Railway Administration for the Liangwu–Wanzhou section. The design speeds of 160 kilometers per hour (km/h) for the double-tracked section and 120 km/h for the single-tracked section have been achieved. Five pairs of freight trains and 17 pairs of passenger trains were operated on the YWR for the initial stage. Telecommunication, signaling, electrification, and traffic control system equipment were found in good condition at project completion review.

2. Stations, Freight Yards, and Industrial Sidings

10. The number of new stations was reduced from 24 as originally planned to 10. In addition, Yichang East and Wanzhou stations were expanded from existing stations. Freight yards were established at these stations. The reduced number of new stations was due to the double tracking of the Yichang–Liangwu section, which eliminated the need to construct passing stations. All stations are fully operational with appropriate equipment and facilities. Main station access and link roads have been completed, and public bus services provided. One industrial siding of 5.9 km with an annual capacity of 500,000 tons was constructed in Enshi. Construction of several industrial sidings is planned in Yichang. In addition, 600 km of access roads were constructed and handed over to the local governments; most of these roads have become the main roads in remote mountainous areas, benefiting the local communities.

3. Operational Equipment and Environmental Protection Facilities

11. ADB financed a package of equipment for mechanized track maintenance. Compared with conventional manual methods, the mechanized track maintenance reduces the interruption to operations by 50% for major track repairs and by 60%–80% for routine maintenance; it also improves maintenance quality. The operating speed of the first train after track maintenance has increased from 15 km/h to 45 km/h. The track machines are based at track maintenance depots and are being efficiently used and well maintained. Sufficient rolling stock has been provided by the Wuhan Railway Administration and Chengdu Railway Administration. Environmental protection facilities established under the project included wastewater treatment facilities installed in all stations and sound barriers at sensitive sites. In addition, solar or electric heaters were adopted to replace the originally proposed oil-burning boilers for specified stations and residential quarters. The use of ballastless embankments and seamless track has greatly reduced the noise impact during operation. In particular, shock absorbers were installed on the bridges over the Yangtze River to alleviate the vibration impacts of railway carriages on the habitats of aquatic animals, such as the Chinese sturgeon.

4. Consulting Services and Institutional Strengthening

12. Ten national supervision companies and five consulting firms and/or institutes with a total contract value of CNY155.59 million were engaged for (i) supervision of the civil works contracts, electrification and signaling engineering, and environmental protection measures; and (ii) independent monitoring of resettlement implementation, impacts on Chinese sturgeon habitats, and special monitoring of soil erosion. In view of the geotechnical complexity of the

5 terrain along the alignment, the MOR also employed national experts on tunnels and bridges to evaluate the detailed structural designs and selection of construction methods, and conduct onsite consultation on and diagnosis of technical problems encountered during construction. The use of national expertise effectively helped to overcome the technical challenges.

13. ADB financed the international consulting services to develop the guidelines for appraisal of railway investment projects.12 The guidelines introduced international best practices in economic and financial appraisal methodologies that have been applied in the MOR investment approval process. This component improved the MOR’s capacity to use quantitative methods in project appraisal and decision making. Other consulting components—such as for establishment of the financial system for line-based profitability and investment returns, and diversifying financing sources and improving the utilization of foreign capital—were not undertaken mainly due to the postponed reform timetable under the MOR’s institutional framework. The component for increasing the business development and marketing capacities for the YWR was also canceled, following MOR’s decision that the operating railway administrations will separately develop business development and marketing options for the YWR to enhance its financial viability.

C. Project Costs

14. The project cost at completion was CNY27,490 million, a significant increase from the appraisal estimate of CNY19,563 million. The additional cost due to the double-tracked section of the alignment (para. 5) accounted for 30% of the total cost. Modification to the original design due to the complex topography and geological conditions for construction, upgrading of key design standards, and additional considerations to improve operational safety standards are the main reasons for the cost increase. Other factors are (i) increased land acquisition and resettlement costs because of incremental compensation for building relocation and temporary land use, and relocation of electricity and telecommunication lines; (ii) significantly increased investment for environmental protection; (iii) significantly higher actual costs for administration, consulting services, and miscellaneous expenditures as a result of increased supervision and consulting services (para. 12); and (iv) higher interest during construction. The project cost in US dollars increased from $2,364 million to $4,125 million as a result of the substantial appreciation of the yuan against the US dollar during the implementation period.

15. The financing plan envisaged at appraisal included an ADB loan of $500 million representing 21% of the project cost, a loan from the China Development Bank of $725 million representing 31% of the project cost, and equity inputs from the MOR of $1,138 million representing 48% of the project cost. ADB actually financed $500 million, representing 12% of the project cost. Actual counterpart funds comprised MOR equity investment of $1,429 million (35% of project cost), railway bonds of $698 million (17%), and loans from the China Development Bank of $1,498 million (36%). The project costs and financing plan are in Appendix 3.

D. Disbursements

16. The ADB loan proceeds of $500 million were fully disbursed from July 2004 to December 2011. An imprest account was utilized. The average annual turnover ratio of 2.34 indicated efficient utilization of the imprest account. Direct payment and commitment

12 ADB. 2008. Economic and Financial Appraisal of Railway Investment Projects. Consultant’s report. Manila (Loan 2051-PRC).

6 disbursement procedures were also used. Of the loan proceeds, $382.08 million were used for civil works, $27.01 million for equipment, $87.94 million for materials, $0.47 million for international consulting services, and $2.50 million for front-end fee. The loan closing date was extended from 30 June 2010 to 31 December 2011. The loan account was closed on 23 December 2011. The executing agency applied appropriate disbursement procedures and ADB’s disbursement process was efficient. The projected and actual contract awards and disbursements are in Appendix 4.

E. Project Schedule

17. The project was envisaged to be implemented over 6 years from 2004 to 2009. Prequalification and bidding started on schedule following the advance actions modality, but were completed 5 months later than the planned schedule. Civil works construction started in January 2004 and was completed in October 2010, 22 months later than envisaged at appraisal. Technical difficulties caused by geographic and topographical complexity were the main reasons for the significant delay (paras. 6–7). Track laying could not start until June 2008 due to the construction of tunnels, and was completed in August 2010, 17 months later than the original schedule. Equipment installation for telecommunications, signaling, and electrification was completed in October 2010. Land acquisition and resettlement activities began in late 2003 and were largely completed by the end of 2005, however rehabilitation took much longer due to delay in construction of the resettlement sites. Trial operation commenced on 22 December 2010, which was 1 year later than the original schedule. The appraisal and actual project implementation schedule is in Appendix 5.

F. Implementation Arrangements

18. The implementation arrangements were appropriate. The MOR was the executing agency for the project. A project coordination office consisting of key divisions under MOR’s steering committee was established to provide overall guidance during project implementation. The Railway Administration Bureau and Chengdu Railway Administration Bureau were the implementing agencies until 2007 when the MOR’s Railway Construction Management Center started to supervise the implementation through the onsite YWR Construction Headquarters (YWRCH). The Foreign Capital and Technical Import Center (FCTIC) coordinated the project management office's tasks and was responsible for the procurement of ADB- financed contracts, withdrawals of ADB loan proceeds, and reporting to ADB. The organization chart is in Appendix 6.

19. The MOR assumed lead accountability for the land acquisition and resettlement, and the institutional responsibility for implementing the resettlement plan rested with the local governments in the provinces, prefectures, and counties traversed by the YWR. The resettlement office under the YWRCH had overall responsibility for coordination, fund raising, and internal monitoring and evaluation for land acquisition and resettlement implementation. Railway support offices were established under the Enshi, Wanzhou, and Yichang municipal and/or prefecture governments, which were responsible for implementing land acquisition, house demolition, and relocation. The Fourth Survey and Design Institute of China Railway (FSDI) was engaged to conduct external monitoring and submitted annual reports to the MOR and ADB.

20. The YWRCH was responsible for environmental management and supervision during the implementation period. Effective institutional arrangements were established to implement the environmental management plan (EMP), which is part of the summary environmental impact

7 assessment (SEIA) and the soil erosion protection plan (SEPP) for the project. At the beginning of the project, the YWRCH issued the Implementing Rules for Environment Protection and Soil and Water Conservation to regulate and assess the performance of contractors in implementing the EMP. Monitoring and mitigation measures were included in the covenants of the civil works contracts. Local environmental monitoring stations were engaged to undertake onsite monitoring of surface water and air quality, and noise. The Soil and Water Conservation Monitoring Station of the Yangtze River Commission was contracted to monitor soil erosion as per the SEPP. The FSDI was engaged as the environmental supervision engineer to supervise implementation of the EMP and SEPP. The Yangtze Aquatic Institute of the Chinese Academy of Aquatics monitored the impact on Chinese sturgeon from bridge construction over the Yangtze River. During construction, the OASIS Environmental Protection Technology Company was engaged to oversee the overall project environmental monitoring and submit monitoring reports to the MOR and ADB. Contractors and construction supervision companies had designated staff in the site management team to deal with environmental issues.

G. Conditions and Covenants

21. The loan covenants were considered adequate and major covenants were complied with. The MOR completed the preparation for the trial operation within 2 months after the physical completion, demonstrating strong capacity in operational organization and administration. Adequate wagons and locomotives were provided and specific measures were taken to ensure operational safety. The capacity of connecting lines was significantly expanded during 2003– 2010 through electrification of existing railway lines and construction of new lines. Container terminals were completed in Chongqing (December 2009), Chengdu (May 2010), and Wuhan (August 2010). National railways passenger transport tariffs have been applied on the YWR. Freight tariffs for the YWR are CNY0.24/ton-km for local traffic and CNY0.16/ton-km for transit traffic, which are higher than the national level of CNY0.12/ton-km. The only exception relates to the operating ratio of the MOR of not higher than 75%. The actual values of the ratio fluctuated in the 72%–93% range during the implementation period. Compliance with loan covenants is in Appendix 7.

H. Related Technical Assistance

22. ADB provided two associated TA projects to ensure compliance with ADB’s safeguard policy (para. 4). Under the TA for strengthening involuntary resettlement practices (footnote 3) , a resettlement training workshop was conducted for municipal and county resettlement officials in the project area, a computer-based resettlement management information system was established, and two international engineers with expertise in railway tunnels and bridges conducted structural engineering review to identify technical risk factors. The TA strengthened the resettlement practices and was rated successful (the TA completion report is in Appendix 9). Under the TA for ensuring safeguard practices (footnote 4), the consultants carried out independent review and gave a professional opinion on the project’s compliance with ADB's safeguard policy, particularly with regard to the mitigation measures for endangered species in the Yangtze River. The independent opinion, which was based on observations at site visits, interviews with relevant agencies, and analysis of information, confirmed the adequacy of preventive measures to protect endangered species. Potential issues and risk factors were identified, and precautionary and mitigation measures were taken. Good practices were introduced through specific recommendations and dialogue with MOR officials, contractors, design institute, and monitoring agencies, which improved their capacity to implement the project following international standards. The TA was also rated successful (the TA completion report is in Appendix 10).

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I. Consultant Recruitment and Procurement

23. An international consulting firm was recruited under the loan. The recruitment followed the quality- and cost-based selection method in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). The consultants were fielded in April 2008 and their services were completed in December 2008. ADB-financed procurement packages followed the international competitive bidding method and ADB's Procurement Guidelines (1999, as amended from time to time). In the bidding documents and contracts, relevant sections of ADB's anticorruption policy were incorporated and implemented. The FCTIC was responsible for procurement of ADB-financed contracts. Four domestic procurement agents were engaged by the FCTIC to assist with procurement activities. In May 2003 ADB approved advance procurement action for civil works. Procurement was initiated in October 2003 and ADB approved the prequalification of contractors in February 2004. Twenty five civil works contracts were awarded in two batches—in September 2004 (2 months after loan effectiveness) and December 2004 (5 months after loan effectiveness). The advance action was efficiently utilized in view of the large and complex nature of these contracts. Two packages for track materials (12 contracts) and one package for track maintenance equipment (7 contracts) were procured under ADB loan financing. Because of the substantial increase in metal prices and the appreciation of the yuan against the US dollar, the material contracts were significantly higher than estimates, resulting in the ADB loan being insufficient to procure all the planned equipment. As a result, some equipment was procured using counterpart financing. Seventeen civil works contracts and 123 contracts for materials and equipment followed the national competitive bidding process, and these contracts were fully financed by the borrower. All the bids were processed on time within the project implementation schedule. The ADB-financed packages are listed in Appendix 8.

J. Performance of Consultants, Contractors, and Suppliers

24. The project substantially used national consultant expertise. The national experts were engaged not only for the supervision of civil works contracts but also for the supervision of electrification and signaling engineering, environmental protection measures, independent monitoring of resettlement implementation, the impacts on Chinese sturgeon habitats, and soil erosion impacts. The national experts were also engaged to undertake onsite consultation and diagnosis as well as panel meetings on key technical issues, all of which contributed to overcoming the construction challenges. The international consultants delivered a final report of high technical quality, which detailed the internationally accepted economic and financial appraisal methodologies for the government to follow to improve the feasibility analysis of railway investment projects.

25. Civil works contractors performed well and successfully constructed the difficult tunnels and bridges. With advanced equipment and experienced managers and engineers, these contractors overcame the challenges of complex geological conditions. Many innovative construction methods were utilized, and quality control was strictly exercised. Risk management was exercised and systematic measures were taken to ensure worker safety at construction sites. Equipment suppliers also performed well and all equipment was installed and commissioned as required. The YWR is now fully operational for freight and passenger transport and the design speed has been achieved. The overall performance of consultants, contractors, and suppliers was highly satisfactory.

9

K. Performance of the Borrower and the Executing Agency

26. The MOR successfully addressed the major technical and engineering challenges of constructing railways in mountainous regions. It effectively mobilized the resources of design institutes, contractors, supervision engineers, and foreign and national experts with specific expertise to tackle the difficulties of constructing complex tunnels and bridges. The innovation created and experience gained in overcoming the technical challenges were significant, particularly in the areas of (i) tunnel construction in karst topography, dealing with high ground stress, caves, underground rivers, and flammable and poisonous gases; and (ii) large bridge construction, including high bridges over deep valleys and long bridges spanning the Yangtze River. For the first time in the railway subsector, a risk management system was introduced in project management. Geological detection technology was utilized to forecast characteristics of rock formations and faults, as well as distribution of underground water. To ensure construction safety, a monitoring system was established to provide real-time information about hydrogeological situations and structure changes, with which disaster alarm systems were connected. The MOR is also to be commended for ensuring mitigation of key environmental risks and compliance with ADB’s safeguard policies (para. 20). The design was also optimized to reduce environmental disturbance, improve the capacity for water and soil conservation, and increase the ability to resist natural hazards and the level of operational safety. The performance of the borrower was considered highly satisfactory in promptly processing the loan signing and effectiveness, endorsing the requests of the MOR in a timely manner, and providing guidance on overall project implementation. Overall, the performance of the borrower and the MOR was highly satisfactory.

L. Performance of the Asian Development Bank

27. ADB’s performance was satisfactory. The processing team included social dimensions in the project, incorporated rigorous safeguard monitoring arrangements, assessed major risks, and designed appropriate loan covenants. During implementation, procurement was processed efficiently and the loan proceeds were disbursed in a timely manner. Eight review missions, including a midterm review, were fielded during implementation. The review missions and ADB’s frequent communications with the MOR resolved problems encountered during implementation. The MOR expressed appreciation for ADB’s efficiency in procurement and disbursement processing and in resolving other implementation issues. ADB effectively strengthened the safeguards supervision during project implementation. The resettlement database system provided useful information for resettlement management, and benefited other projects through experience learning and system replication. ADB closely monitored the project impact during the construction period as well as the impact of the railway on the local economy beyond project completion.

III. EVALUATION OF PERFORMANCE

A. Relevance

28. The project was assessed highly relevant. The project is located in the mountainous area in Hubei Province and Chongqing Municipality, where poverty incidence is much higher than the national average level. The project removed transport barriers and reduced transport and logistics costs, and thereby promoted pro-poor economic and social development in this poor area. The government listed the project as a priority in both the 10th and 11th plans. With the completion of the YWR, the railway trunk corridor connecting major economic centers in the east and west of the PRC was established. Under the government’s program, the capacity of

10 several connecting lines has been significantly improved, reaffirming the relevance of the YWR. In 2008, ADB approved two projects in the same region, the Chongqing–Lichuan Railway (footnote 7) and the –Chongqing Railway,13 both double-track electrified railways. The double tracking of the section between Yichang and Liangwu, a change that significantly improved the capacity of the YWR, further improved its relevance in the vital role that the YWR plays in connection with these lines. The project was in line with ADB’s country strategy and program for the PRC, both at the time of approval (footnote 1) and for the current period,14 which has prioritized inclusive growth and balanced development.

29. The project proved to be extremely challenging given the large number of tunnels and bridges, many of them of world-class complexity for construction. ADB anticipated those associated risks and provided much-needed technical support through the project preparatory TA and two related TA projects. Recognizing the challenges in ensuring safeguard compliance, ADB also made special arrangements, including an independent panel of environmental experts and a management information system (MIS) for land acquisition and resettlement monitoring (para. 22), which was the first time such an approach was adopted in ADB funded projects in the PRC. The project adopted advanced technology for signaling, communications, train control system, and mechanized track maintenance. Special designs and facilities were also incorporated to ensure safe operation considering the mountainous environment. Consistent with the target of promoting containerized transport, the YWR was constructed to allow for the operation of double-stack container trains, the first time this has occurred in railways in the PRC.

B. Effectiveness in Achieving Outcome

30. The project is considered highly effective in achieving outcomes because it significantly promoted economic growth in the project area, reduced transport bottlenecks on the national network, increased transportation capacity of the corridor, and lowered transport costs.

31. The direct benefit of the project to the local economy was the increased incomes through direct and indirect employment opportunities. The YWR provided direct job opportunities of 790,830 person-days of unskilled labor, of which 620,660 person-days (78%) came from the local labor market. Of the jobs created locally, 404,750 person-days (65%) of work went to laborers from poor households. A total of CNY13.74 million was disbursed to local poor households during the construction period, contributing greatly to poverty reduction in the project area. Since the YWR began operation, 193 local laborers have been recruited for track maintenance and security. As railway traffic increases, more employment opportunities will be generated for the local labor market, and particularly for the poor. Significantly, the YWR contributed to economic growth in the project area, particularly Enshi Prefecture, by boosting tourism development and attracting 493 enterprises with CNY9.7 billion investments in four counties of the prefecture. Tourism and manufacturing industries are booming, which play an important indirect role in employment of local surplus laborers. This leads to increased fiscal revenues, which in turn increases the capacity of local governments to improve social welfare for the people in the project area.

32. The YWR greatly increased the transportation capacity of the corridor. Completing the last section of the east–west railway corridor between the coast and the heart of the western region, the YWR removed the major bottleneck in the existing railway network. The YWR

13 ADB. 2008. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Lanzhou-Chongqing Railway Development Project. Manila. 14 ADB. 2012. Country Partnership Strategy (2011-2015): People’s Republic of China. Manila.

11 connects with the Chongqing–Lichuan Railway and provides the most direct connection with Chongqing and Chengdu. Once the Chongqing–Lichuan Railway becomes operational in 2014, travel by train between Wuhan and Chongqing will take about 5 hours, compared to the current 22 hours. Alternative railway routes also benefit through shifting passenger trains to the YWR, thus releasing line capacity for freight transport. The number of trains on the YWR will grow from 17 in 2011 to 50–60 pairs per day in 2020 for passenger transport, and from five in 2011 to 18–20 pairs per day in 2020 for freight transport.

33. The YWR demonstrates obvious competitive advantages over other transport modes for its low cost, shorter travel time, better safety and more reliable performance. Waterway transport on the Yangtze River is restricted by the capacity of the five-level lock system of the Dam and Gezhouba Dam, which requires additional 4–6 hours over the journey, and is also affected by the high loading and unloading charges and cargo damage costs. The parallel Yichang–Wanzhou Expressway, a section of the national trunk highway between Shanghai and Chengdu, is constrained by its high toll level, speed limits for tunnels, continuous long slopes with high gradient, and interruptions due to bad weather. With the completion of container terminals in Chongqing, Chengdu, and Wuhan, there is great potential for the YWR to develop container traffic. Passenger traffic on the YWR is growing rapidly. About 70% of the road passenger traffic and 60% of the airline passenger traffic has diverted to the YWR since its opening. The cost advantage of the YWR over other transport modes makes it the preferred transport mode for local people, particularly for the poor and migrant laborers.

C. Efficiency in Achieving Outcome and Outputs

34. Economic and financial reevaluation rated the project efficient.

35. The reevaluated economic internal rate of return (EIRR) is 15.6%, higher than the 14.4% estimated at appraisal. Benefits from passenger traffic are the major source of economic benefits (32.9%), followed by benefits from tourism (31.6%), freight traffic (18.7%), environmental and safety benefits (9.6%), and network benefits (7.2%). The higher EIRR is due to the significantly higher than anticipated passenger traffic and the tourism benefits. The project is considered economically viable. Sensitivity analysis was carried out to test the impacts of (i) a decrease in forecast traffic, (ii) an increase in operation and maintenance costs, and (iii) a decrease in benefit valuation. According to this analysis, the project will continue to be economically viable under these conditions. With the worst-case scenario of a 20% increase in operation and maintenance costs and a 20% benefit reduction, the EIRR falls to 13.5%. The economic reevaluation is in Appendix 11.

36. The financial internal rate of return (FIRR) was recalculated at 3.9%, lower than the 5.8% estimated at appraisal. The variance is mainly due to the substantially higher capital costs, lower passenger tariff, and shortage of freight traffic at the early stage of operation. The after- tax weighted average cost of capital (WACC), in real terms, was calculated using the actual capital mix and costs of various financing sources. The WACC was recalculated as 2.5%, which is much lower than the appraisal estimate, mainly because of the preferential interest rate granted by the China Development Bank and the comparatively low interest rate of the railway bonds. The FIRR is higher than the WACC, and the project is considered financially viable. Sensitivity analysis conducted to test the impacts of variation in operation and maintenance costs and revenues indicated that the project remains financially viable under the sensitivity scenarios. The financial reevaluation is in Appendix 12.

12

D. Preliminary Assessment of Sustainability

37. The project is rated likely sustainable. The YWR forms a link of the Shanghai– Chongqing–Chengdu Railway Corridor, a major east–west corridor connecting the cities of Chongqing, Chengdu, Nanjing, Shanghai, and Wuhan which are all regional economic centers. The strong economic ties between the eastern and western regions will continue to provide robust freight and passenger traffic. The YWR’s competitive advantages over other transport modes in the region make it the preferred mode for passengers and for containerized freight traffic. The capacity of connecting lines at both ends has been increased to remove constraint on the traffic flow of the YWR. The operation of the YWR is integrated into the national railway network through established regional railway administration bureaus, which have demonstrated the capacity to maintain assets in good condition, provide adequate rolling stock, and ensure continuous operations for both freight and passenger transportation. The MOR consistently pursues improvement in operational efficiency along with expansion of network capacity. Its operating efficiency has further improved as measured by a series of indicators, e.g., per day locomotive productivity increased by 22% and turnover days for wagons improved by 9.8% from 4.92 days to 4.48 days from 2005 to 2010. Labor productivity, excluding the price impact, has been improved by 35% over the same period. The national freight tariff for railways was increased by 10% in May 2012, which will significantly improve MOR’s financial situation. All these factors provide a reasonable assurance on the sustainability of the YWR.

E. Impact

38. The project has significant impact on regional socioeconomic development. A total of CNY27.5 billion of project investment in the project area from 2005 to 2010 has strongly stimulated local industrial development, particularly in construction materials, energy, and the services sector. The statistical data show that socioeconomic conditions in the project area have improved rapidly in recent years. From 2002 to 2010, per capita gross domestic product average annual growth rates in project areas ranged from 12% to 24%. With the project area’s rapid socioeconomic growth and the increased fiscal revenues of the local governments, the standard of livelihood and incomes of local people have been significantly improved, particularly for the poor. From 2002 to 2010, the average annual growth of farmers’ per capita incomes ranged from 7% to 17% in counties and cities along the railway alignment. The poverty incidence in project counties and districts along the alignment decreased by 5.8–18.6% during the same period.

39. With the rapid socioeconomic growth and increased fiscal revenues of the local governments, the welfare of local communities and local people have been significantly improved, including access to health care, rural roads, education, telecommunication, and broadcasting. Taking Enshi prefecture for example, from 2002 to 2010, (i) the number of hospital beds increased by 101%, and the number of doctors and nurses increased by 62%, (ii) highway density increased by 18% and the number of villages with highway access reached 100%, (iii) the primary school enrollment rate reached 100% and the middle school enrollment rate reached 98.5%, (iv) telecommunication development boomed as the number of telephones increased by 269% and the number of mobile phones increased by 1,088%, and (v) television coverage increased by 6%. Moreover, as one of the byproducts of railway construction, 600 km of access roads to construction sites were built. These access roads and bridges are now being used by local communities, greatly improving the local transport conditions in remote mountainous areas, and the access to local markets, schools, hospitals, and the highway network.

13

40. The YWR directly increases competition among local freight forwarders and wholesalers, which benefits local farmers with lower delivery costs of local products. Wanzhou is one of the largest orange plantation bases with annual production of around 180,000 tons. After the YWR was opened to traffic in December 2010, the price of oranges increased markedly, from CNY0.4–CNY0.6 per kilogram (kg) to CNY2.0/kg, which significantly boosted the income of local farmers. Rail transportation also reduces the prices of commodities brought from elsewhere, which reduces living costs for local people, particularly the poor. With more railway freight services being provided and multi-modal logistics chains established, it is expected that the transport costs of commodities and materials such as fertilizers will be further reduced.

41. The YWR provides a more affordable, safer, faster, and more comfortable transport service for local people as well as migrant laborers. A large number of surplus rural laborers work outside the region, and most of them return home during the Spring Festival each year. Travel costs from Enshi city to regional cities or counties by train are 70%–80% lower than bus fares. The railway has improved local mobility and consequently changed the lifestyle and social behavior of local people. The project area is rich in tourism resources which were not tapped before the project due to poor transport conditions. The Enshi Prefecture attracted 16.6 million tourists in 2011, the first year after the opening of the YWR, which is 56% more than that in 2010, and the tourism revenues increased by 70.8%. In addition, local governments and the YWRCH took measures to mitigate adverse impacts and ensure minority communities equally received the project benefits in a culturally appropriate manner. The operation of the YWR provides opportunities for ethnic minority communities in remote mountain areas to further develop. A detailed assessment of the social and poverty reduction impacts is in Appendix 13.

42. Land acquisition and resettlement activities began in late 2003 and were largely completed at the end of 2005. In total, 15,498 mu of land were permanently acquired, which was 5% less than estimated in the resettlement plan.15 A total of 628,748 square meters (m2) of buildings were demolished, which was 40% more than estimated in the resettlement plan. The number of displaced persons was 12,336, which was 31% less than the estimate. A total of 10,264 mu of land were temporarily used during construction. A total of CNY637.48 million of land acquisition and resettlement costs were disbursed, 89% more than estimated in the resettlement plan. Although the number of people resettled was significantly less than the estimate, the costs increased mainly because many affected households had to be resettled in concentrated resettlement sites because of the limited availability of resettlement sites due to mountainous terrain. Increased building demolition, temporary land use, and the relocation of electricity and telecommunication lines also contributed to this cost increase. The YWRCH and railway support offices consulted extensively with local communities and affected people, worked proactively to solve the issues during project implementation, and made great efforts to improve the income of the affected households. ADB also provided additional resources to strengthen the management of land acquisition and resettlement. The resettlement monitoring completion report indicates that the level of production and income of affected people are not lower than before land acquisition and resettlement implementation, and that these households have improved living conditions and livelihood opportunities. The detailed evaluation of land acquisition and resettlement activities is in Appendix 14.

43. The environmental management plan (EMP) and monitoring program were adequately implemented during construction and adverse environmental impacts mitigated effectively. Borrow pits and disposal sites have been restored and rehabilitated through retaining structures, drainage systems, and vegetative measures. Cutting surfaces, subgrades, and embankment

15 A mu is a Chinese unit of measurement (1 mu = 666.67 square meters).

14 slopes were generally stabilized through appropriate vegetative and structural measures to prevent soil erosion. Twelve environment monitoring reports were prepared and submitted to ADB, including one summary report for environmental management and one summary report for the Chinese sturgeon conservation program. The monitoring results showed that impacts were mitigated. During operation, potential water pollution will be mainly from domestic wastewater from railway stations and living quarters and partially from wastewater with oil from train maintenance. About 4,170 tons of wastewater will be produced daily when the railway and stations are in full operation. Wastewater treatment facilities were constructed effectively according to the EIA requirements. In particular, the conservation program for the spawning bed of the Chinese sturgeon performed well. The Yichang Extra-Large Bridge was designed and constructed across the Yangtze River and disruption of the riverbed and fish population was minimized. Monitoring reports show that the Chinese sturgeon population is stable, which indicates that mitigation measures were implemented adequately and that the project has not had negative impacts on the population and spawning habitats of Chinese sturgeon. The environmental impact analysis is in Appendix 15.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

44. The project is rated successful. The project is evaluated (i) highly relevant with the government’s and ADB’s development strategy, (ii) highly effective in achieving outcomes, (iii) efficient in achieving outcomes and outputs, and (iv) likely to be sustainable. The project was successfully implemented and has achieved its main objectives of removing transport barriers and reducing transport and logistics costs, and thereby promoting pro-poor economic and social development in the project area. Recognized as the most challenging railway project in the PRC to date, the YWR established the missing link in one of the most important national transport corridors. The MOR gained significant experience in constructing complex mountainous railways, which has benefited other construction projects. The project had a significant social impact, and contributed to economic growth, poverty reduction, and improving welfare of local people. The reevaluated FIRR of 3.9% and EIRR of 15.6% confirmed the financial and economic viability of the project.

B. Lessons

45. Three years after loan approval, the government made the decision to double track a section of the YWR which connects to the subsequent ADB-financed Chongqing-Lichuang Railway. During project implementation, the MOR made the investment to increase the capacity of the congested alternative railway routes, which changed some key assumptions made at appraisal. This highlights the importance of incorporating the overall planning of the sector into the appraisal of a specific project. Moreover, the actual freight traffic in the initial years of operation was significantly lower than the appraisal estimates. Similar to several other completed railway projects in the PRC, the appraisal estimates for freight traffic were overestimated, while passenger traffic was somewhat underestimated. This is mainly because local manufacturing and mining industries, as the main sources for generated freight traffic, take longer time to develop and adjust their shipping patterns.

46. A few factors contributed to the success of the project in mitigating the diverse environmental impacts of the highly complex and challenging construction. A strong institutional establishment ensured effective implementation of the project environmental management plan. Sound environmental management practices were adopted throughout the project design,

15 construction, and operation. For example, shock absorbers were installed on the Yichang Extra- Large Bridge to minimize the vibration impacts of railway carriages on the aquatic habitats of the Chinese sturgeon. Long spans (para. 7) were adopted for bridges over the Yangtze River to minimize the number of piers, so that construction impacts were minimized. The design was also improved to control gas emissions by adopting solar or electric boilers at stations.

C. Recommendations

1. Project Related

47. The YWR needs to strengthen its marketing efforts, especially with regard to container traffic. The quality of service should also be improved. Special attention should be paid to developing the double-stack container service along the Shanghai–Chongqing–Chengdu corridor, for which strong cooperation is needed among the container terminals at Shanghai, Wuhan, Chongqing, and Chengdu and the related railway administration bureaus. Scheduled container trains should be provided to meet the market need for high-speed, reliable, and frequent container transport services. The YWR needs to improve freight handling facilities at stations and coordinate with roads, ports, and inland waterways to formulate multi-modal logistics chains. More industrial sidings should be established to capture local freight traffic from major industry customers in the project area. More passenger trains shall be scheduled, considering the high demand.

48. It is recommended that the project performance evaluation be conducted in 2016. This is because the connecting railway line currently under construction will be operational in 2014, which will significantly increase the traffic of YWR. By 2016 it should be possible to make an accurate assessment of YWR’s traffic situation.

2. General

49. Railway projects tend to have large land acquisition and resettlement impacts. The resettlement costs should be adequately budgeted for and fully incorporated into the project budget and overall financial management. The MOR should also increase the budget for engaging an independent resettlement monitor and continue the strengthening of resettlement monitoring and evaluation. Many affected households have to be resettled in concentrated resettlement sites because of the high level of house demolition for railway stations and the lack of resettlement sites due to mountainous terrain. Given the complexity of the process, the planning and preparation of concentrated resettlement sites should commence as early as possible, particularly for those close to large railway stations.

16 Appendix 1

PROJECT FRAMEWORK

Design Performance Indicators/Targets Monitoring Assumptions (A) Summary At Appraisal At Completion Mechanisms and Risks (R) Goal Pro-poor economic Major socioeconomic GDP grew by 108%–299% in Annual economic (A) Economic growth indicators project areas from 2002 to reporting at the growth will improve 2010. local, provincial, the welfare of regional, and people living in the Growth of local Per capita GDP grew by national level project area, economy 266%–446% in project particularly the counties from 2002 to 2010. poor. Per capita rural income increased from CNY1,210– (R) Inequitable CNY4,027 in 2002 to distribution of the CNY3,243–CNY6,990 in 2010. development impact and Poor population Poverty incidence decreased widening of the by 5.80–18.58 percentage income gap points from 2002 to 2010. (A) Complementary Change of quality of Quality of life improved social services are life for the significantly as measured by in place. project area major welfare indicators for population medical condition, education, roads, and telecommunications as well as broadcast coverage. Purpose/Outcome Promote economic Direct and indirect Employment of 790,830 PPMS and PCR (R) Associated growth in the project employment is person-days was provided statistics of local developments not area provided. during project construction. governments undertaken 193 local laborers have been recruited for YWR operation. (A) Public works and infrastructure Increase production 493 enterprises with CNY9.7 development will of local goods billion investments were stimulate the local established during 2006–2010. economy.

Transport costs Travel costs fell from CNY0.53/km to CNY0.15/km for passengers and from CNY0.85/km to CNY0.22/km for freight transport. Reduce transport Volume of traffic Passenger volume increases PCR (R) YWR fails to bottlenecks on the from about 12.26 million compete national network, passengers in 2011 to 18.05 intermodally to increase transportation million in 2015 and 28.11 attract traffic. capacity of the million in 2025. Freight traffic corridor, and lower grows from 0.59 million tons in (A) Diversion of transport costs 2011 to 5.15 million in 2015 traffic to YWR and 18.45 million in 2025. Access to wider YWR operation directly PPMS results (A) Village roads markets increases the competition will serve as among local forwarders and essential channels wholesalers, reduces the to spread the prices of commodities, and project benefits improves living standards for from each station. local people, particularly for the poor.

Appendix 1 17

Design Performance Indicators/Targets Monitoring Assumptions (A) Summary At Appraisal At Completion Mechanisms and Risks (R) Complementary Over 600 km of constructed Social and (A) The project roads are developed access roads have been poverty reduction line, together with in the project area. handed over to the local impact monitoring the ongoing Loan governments, and have reports 1439-PRC, will become the main roads in be part of the remote mountainous areas backbone of the benefiting local communities. national All villages have road access network. in 2010. Improved operating Per day locomotive PPMS and PCR (A) Connecting efficiency of productivity increased by 22% lines between the existing railway from 2005 to 2010, and Shanghai and system in the turnover days for wagons Chengdu will be east–west corridor decreased by 9.8% from 4.92 completed on time. days to 4.48 days. Labor productivity, excluding price impact, improved by 35% over the same period. Financial Operating ratio fluctuated Statistics of MOR performance of MOR between 72% and 93% during and the reports of the implementation period regional railway administration bureaus Outputs 1. 377 km of railway Final bill of quantity YWR is fully operational for PPMS (R) Delay constructed between against original passenger and freight Cost overrun Yichang and Wanzhou bill of quantity transport Loan review missions and Environmental Contract variations Physical completion was MTR liability achieved on 22 December Physical completion 2010. The final acceptance is PCR Workers’ safety date not conducted yet. Quarterly Social risks Final acceptance of 377 km long electrified, progress report (resettlement, the facilities by MOR standard-gauge, class 1 ethnic railway, of which 288 km is Resettlement minorities, double track and 89 km single monitoring reports vulnerable track. population) Environmental monitoring reports 2. Track laying and Tracks with rails, Tails, accessories, concrete PPMS and PCR electrification sleepers, ballast, sleepers, and stone ballast associated fittings fully installed. 13 traction and fixings; 14 substations and 923 km of traction substations catenary line were installed. and, one power The power supply station was supply station, and not needed. install power lines

3. Freight yards Freight yards and Established in 12 railway Progress reports established associated facilities stations. and PCR

4. Train control system A train control system Equipment for PPMS and PCR installed telecommunication, signaling, and traffic control system installed. A centralized train control system was established and operating; command is provided in

18 Appendix 1

Design Performance Indicators/Targets Monitoring Assumptions (A) Summary At Appraisal At Completion Mechanisms and Risks (R) Wuhan Railway Administration and Chengdu Railway Administration. 5. New stations and 24 new stations and Ten new railway stations were PPMS and PCR expansion of the 2 expanded stations constructed; the existing existing stations Yichang station and Wanzhou constructed, with station were expanded. complete facilities

6. Equipment of Supply of operation Sufficient operation and Statistics of MOR operation and maintenance maintenance equipment, and the reports of equipment for including rolling stock, have regional railway signaling and been provided by Wuhan administration communication, Railway Administration and bureaus electrical facilities, Chengdu Railway transportation and Administration. financial information system, freight and container yard operation, maintenance of tracks, tunnels, and bridges 7. Environmental Supply equipment Wastewater treatment facilities Environmental protection facilities and facilities for and sound barriers were monitoring environmental installed. Solar or electric reports, ADB mitigation and heaters were adopted. The review missions, protection use of ballastless independent embankments, seamless review by track, and shock absorbers on international bridges over Yangtze River consultant reduced adverse impact during operation. 8. Institutional Institutional An international consulting firm Consultant’s strengthening of MOR strengthening was engaged to develop the report performance to be Guidelines for the Appraisal of assessed by MOR Railway Investment Projects; and ADB against the training was provided for standards application of the guidelines.

Activities/Inputs Construction of the Construction 377 km main line constructed PPMS, (A) Estimates and project railway progress, actual ADB review arrangements (including construction performance against 600km access roads missions in prequalification of service roads and PAM constructed of civil works station access roads) contractors are accurate, fair, and Land acquisition and Actual performance 15,498 mua of land were Resettlement adequate. Resettlement against resettlement permanently acquired, 5% less monitoring reports plan; grievances, than the resettlement plan ADB review (A) Local disputes, complaints estimate; 628,748 m2 of missions governments have buildings were demolished, adequate capacity 40% more than the to deal with resettlement plan estimate; resettlement. 12,336 persons were displaced, 31% less than (A) ADB's loan resettlement plan estimate; administration CNY637.48 million of land capacity and acquisition and resettlement capability are

Appendix 1 19

Design Performance Indicators/Targets Monitoring Assumptions (A) Summary At Appraisal At Completion Mechanisms and Risks (R) costs were disbursed, 89% adequate. higher than resettlement plan estimate (R) Unavailability of counterpart Civil works, Tendering quality of Civil works included 25 ICB prequalification of funds from the procurement of service; contracts and 17 NCB civil works local government materials, responsiveness to contracts; 12 contracts for contractors for equipment, and ADB requirements; track materials and 7 contracts civil works (R) Unfavorable locomotives quality of for track maintenance contracts, investment specifications of the equipment were procured with bid evaluation and environment bidding documents ADB financing; 17 civil works contract award contracts and 123 contracts procedures, for materials and equipment disbursement were fully financed by the procedures borrower. Rolling stock was provided by MOR separately from the project.

Consulting services for Construction quality; Ten national supervision Monitoring construction supervision companies and five consulting reports, supervision, quality firms or institutes were consultant’s environmental engaged for the supervision of reports supervision, tendering, civil works, environmental quality assurance, and protection, and monitoring of monitoring resettlement implementation. An international consultant reviewed compliance with ADB's safeguard policy, particularly the mitigation measures for the endangered species in the Yangtze River.

Implementation of Mitigation measures 26 borrow pits and 197 Environmental environmental impact from the disposal sites were employed. monitoring mitigation measures in environmental impact They were restored and reports, ADB project design and assessment and rehabilitated adequately. review missions, construction environmental Domestic solid wastes from independent management plan stations during operation are review by collected and disposed of international according to domestic consultant regulations. Wastewater treatment facilities are operated in all stations. Soil erosion protection plan and Chinese sturgeon conservation programs were implemented effectively.

ADB = Asian Development Bank, GDP = gross domestic product, ICB = international competitive bidding, km = kilometer, m2 = square meter, MOR =Ministry of Railways, MTR = midterm review, NCB = national competitive bidding, PAM = project administration manual, PCR = project completion review, PPMS = project performance management system, YWR = Yichang–Wanzhou Railway. a A mu is a Chinese unit of measurement (1 mu = 666.67 m2). Source: Asian Development Bank.

20 Appendix 2

CHRONOLOGY OF MAJOR EVENTS

Date Events 8 November 2002 Approval of PPTA (Preparing the Yichang–Wanzhou Railway Project) 11 November 2002 Approval of PPTA (Strengthening the Involuntary Resettlement) 19 November–6 December 2002 ADB fact-finding mission 12 May 2003 Management review meeting held Advance procurement action approved 17 July–11 August 2003 ADB appraisal mission 15 September 2003 Staff review meeting held 15–21 October 2003 Prequalification documents submitted 31 October 2003 Environmental impact assessment approved by State Environmental Protection Administration 5–8 November 2003 Loan negotiations 7 November 2003 Feasibility study approved by National Development and Reform Commission 15 December 2003 ADB Board approval 27 May 2004 Signing of loan agreement 26 July 2004 ADB loan effectiveness 20 September 2004 First batch of civil works contracts awarded 7–13 December 2004 ADB inception mission fielded 12 January 2005 First batch of equipment contracts awarded 6–11 November 2005 ADB review mission fielded 24 April 2006 First batch of materials contracts awarded 28 November–1 December 2006 ADB review mission fielded 26–29 November 2007 ADB midterm review/handover mission fielded 31 March 2008 Consulting services contract for economic and financial evaluation of railway investment project awarded 7–14 October 2008 ADB review mission fielded 9-12 November 2009 ADB review mission fielded 30 December 2009 First reallocation of loan proceeds and first extension of loan closing date from 30 June 2010 to 31 December 2010 approved 3 September 2010 Second extension of loan closing date from 31 December 2010 to 31 December 2011 approved 1–3 November 2010 ADB review mission fielded 26 November 2010 Second reallocation of loan proceeds approved 22 December 2010 Trial operation started 21–29 March 2011 ADB completion review mission fielded 23 December 2011 Final disbursement date and loan account closed ADB = Asian Development Bank, PPTA = project preparatory technical assistance. Source: Asian Development Bank.

Appendix 3 21

PROJECT COST AND FINANCING PLAN

Table A3.1: Project Costs ($ million)

At Appraisal At Completion Foreign Local Total Foreign Local Total Cost Item Exchange Currency Cost Exchange Currency A. Base Cost 1. Civil Works 787.20 849.10 1,636.30 443.73 2,510.03 2,953.76 2. Railway Materials 45.80 34.40 80.20 93.39 118.57 211.96 3. Signaling, 17.80 21.30 39.10 0.00 94.71 94.71 Communications, MIS 4. Electric Power and 17.50 58.70 76.20 0.00 182.36 182.36 Electrification 5. Operational, Safety, and 41.00 12.20 53.20 33.56 34.74 68.30 Maintenance Equipment 6. Land Acquisition and 0.00 42.00 42.00 0.00 95.67 95.67 Resettlement 7. Environmental Protection, 0.90 3.00 3.90 0.00 18.06 18.06 Mitigation, and Monitoringa

8. Administration, Consulting 1.30 32.00 33.30 0.58 207.00 207.58 Services, and Miscellaneous Costs Subtotal (A) 911.50 1,052.70 1,964.20 571.26 3,261.14 3,832.40 B. Contingencies 1. Physical contingencies 77.30 79.60 156.90 0.00 0.00 0.00 2. Price Contingencies 32.30 37.30 69.60 0.00 0.00 0.00 Subtotal (B) 109.60 116.90 226.50 0.00 0.00 0.00 C. Front-End Fee 2.50 0.00 2.50 2.50 0.00 2.50 D. Interest during Construction 61.80 108.50 170.30 0.00 290.19 290.19 and Commitment Charge

Total 1,085.40 1,278.10 2,363.50 573.76 3,551.32 4,125.09 a Cost for slope stabilization, ecological rehabilitation, embankment protection, and spoil revegetation is included in the cost of civil works. MIS = transport management information system Sources: Asian Development Bank and the Ministry of Railways.

Table A3.2: Financing Plan ($ million)

At Appraisal At Completion Foreign Local Total Foreign Local Total Source Exchange Currency Cost Exchange Currency Cost Asian Development Bank 500.00 0.00 500.00 500.00 0.00 500.00 China Development Bank 0.00 725.00 725.00 0.00 1,498.42 1,498.42 Ministry of Railways 585.00 553.00 1,138.00 73.76 2,052.91 2,126.67 Total 1,085.00 1,278.00 2,363.00 573.76 3,551.32 4,125.09 Sources: Asian Development Bank and Ministry of Railways.

22 Appendix 4

PROJECTED AND ACTUAL CONTRACT AWARDS AND DISBURSEMENTS

Table A4: Projected and Actual Contract Awards and Disbursements ($ million)

Contract Awards Disbursement Actual/Projected Actual/Projected Year Projected a Actual (%) Projected a Actual (%) 2004 120.14 141.83 118 2.50 26.05 1,042 2005 399.80 452.23 113 397.80 180.34 45 2006 444.80 471.01 106 444.80 320.59 72 2007 465.62 497.50 107 465.62 374.00 80 2008 475.80 497.50 105 475.80 414.99 87 2009 475.80 497.50 105 475.80 452.95 95 2010 475.80 497.50 105 475.80 472.95 99 2011 475.80 497.50 105 475.80 500.00 105 Total 475.80 497.50 105 475.80 500.00 105 a Projected contract awards or disbursement do not include the unallocated amount of the loan. Source: Asian Development Bank.

Figure A4.1: Projected and Actual Contract Awards

600

500

400 300 200

100

Amount ($ million) ($ Amount 0 2004 2005 2006 2007 2008 2009 2010 2011 Year Projected Actual

Figure A4.2: Projected and Actual Disbursement

600

500

400

300

200

100 Amount ($ million) ($ Amount 0 2004 2005 2006 2007Year 2008 2009 2010 2011

Projected Actual Disbursements

Source: Asian Development Bank.

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULE 2003 2004 2005 2006 2007 2008 2009 2010 2011

ONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASOND

A. Land Acquisition and Resttlement 1. Land Acquisition and Resettlement

2. Rehabilitation

B. Civil Works 1. Prequalification (ICB)

2. Bidding (ICB)

3. Mobilization and Construction

C. Track Laying

D. Te s ting

E. Equipment and Supplies 1. Bidding

2. Delivery and Installation

F. Consulting Services 1. Shortlisting Selection

2. Services and Training

G. Project Milestones 1. Provisional Acceptance (Physical * Completion) * 2. Trial Operation

3. Loan Account Closing * * 5 Appendix

Appraisal Actual

ICB = international competitive bidding. 23 Source: Asian Development Bank.

24 Appendix 6

ORGANIZATION CHART

Organization Chart for Yichang–Wanzhou Railway Project

Yichang–Wanzhou Railway Steering Committee Vice-Minister, Ministry of Railways

Yichang–Wanzhou Railway Project Coordination Office

Infrastructure Development and Foreign Capital Technical Department Program Department Import Center

Railway Construction Finance Management Center Department

Hubei Provincial and Yichang–Wanzhou Chongqing Municipality Local Governments Railway Construction and Local Governments Railway Construction Headquarters Railway Construction Support Office and Support Office and Environmental Protection Environmental Protection Bureaus Bureaus

Beijing OASIS Environmental Fourth Survey and Design Protection Technology Institute for Environment Company Supervision and Land Acquisition and Resettlement Monitoring

Soil and Water Conservation Monitoring Station of Yangtze River Commission

Local Environmental Protection Bureau Monitoring Stations

Yangtze Aquatic Institute, Chinese Academy of Aquatics

Source: Asian Development Bank.

Appendix 7 25

COMPLIANCE WITH LOAN COVENANTS

Covenants Reference Status of Compliance 1. (a) The Borrower shall cause the Project to be Loan Complied with. The project carried out with due diligence and efficiency and in Agreement, was designed according to conformity with sound administrative, financial, Article IV relevant standards of the engineering, environmental and railway practices. 4.01 railway sector.

(b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 6 to this Loan Agreement.

2. The Borrower shall make available, promptly as Loan Complied with. Counterpart needed, the funds, facilities, services, land and Agreement, funds were provided in a other resources which are required, in addition to Article IV timely manner. the proceeds of the Loan, for the carrying out of the 4.02 Project and for the operation and maintenance of the Project facilities. 3. (a) In the carrying out of the Project, the Borrower Loan Complied with. All ADB- shall cause competent and qualified consultants Agreement, financed contracts were and contractors, acceptable to ADB, to be Article IV reviewed and approved by employed to an extent and upon terms and 4.03 ADB. Information requested conditions satisfactory to the Borrower and ADB. by ADB was provided satisfactorily. (b) The Borrower shall cause the Project to be carried out in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. The Borrowers shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

4. The Borrower shall ensure that the activities of its Loan Complied with. The departments and agencies with respect to the Agreement institutional arrangements for carrying out of the Project and operation of the Article IV project implementation were Project facilities are conducted and coordinated in 4.04 effective. accordance with sound administrative policies and procedures. 5. The Borrower shall enable ADB’s representatives Loan Complied with. ADB reviewed to inspect the Project, the goods financed out of the Agreement, the project annually. proceeds of the Loan, and any relevant records Article IV and documents. 4.06

26 Appendix 7

Covenants Reference Status of Compliance 6. The Borrower shall ensure through MOR that the Loan Complied with. Operation of Project facilities are operated, maintained and Agreement, the project railway is repaired in accordance with sound administrative, Article IV assigned to Wuhan and financial, engineering, environmental, railway 4.07 Chengdu railway construction, and maintenance and operational administration bureaus which practices. follow uniform operation and maintenance requirements of the sector.

7. Implementation Arrangements. MOR shall be the Loan Complied with. The Executing Agency for the Project, responsible for Agreement, arrangements were followed overall implementation of the Project and assume Schedule 6.1 as described. the responsibility under the Project related agreements. The steering committee established by MOR shall provide overall guidance for Project implementation. The project coordination office (PCO) established by MOR, consisting of key departments of MOR, including, among others, departments for planning, construction, financial and technical matters, and FCTIC, shall coordinate the two Implementing Agencies. FCTIC shall, among others, undertake the procurement of the components financed by the Loan, monitor utilization of the Loan and maintain liaison with ADB.

8. Zhengzhou Railway Administration Bureau (ZRAB) Loan Complied with. ZRAB and and Chengdu Railway Administration Bureau Agreement, CRAB were the implementing (CRAB) shall be the Implementing Agencies. Schedule 6.2 agencies until 2007 when ZRAB, through its Xiangfan Sub-Administration MOR’s Railway Construction Bureau, shall be responsible for operation of the Management Center, with portion of the Project railway located in Hubei ADB’s concurrence, started to Province and CRAB, through its Chongqing Sub- supervise the implementation Administration Bureau, shall be responsible for through the onsite YWRCH. operation of the portion of the Project railway Operation of project railway is located in Chongqing Municipality. assigned to Wuhan Railway Administration Bureau for the Yichang–Liangwu section, and CRAB for the Liangwu– Wanzhou section.

9. Separation of Container Businesses. MOR will Loan Complied with. ensure that its Container Center will be separated Agreement, and be legally and commercially independent by Schedule 6.7 the end of 2005.

10. Container Traffic. The Borrower shall cause MOR Loan Complied with. Container to complete the construction of the large container Agreement, terminals were completed in terminal in Chongqing and Chengdu by the Schedule 6.8 Chongqing (December 2009), commencement of the commercial operation of the Chengdu (May 2010), and Project railway. Wuhan (August 2010).

Appendix 7 27

Covenants Reference Status of Compliance 11. Financial Covenant. Except ADB shall otherwise Loan Not complied with. The actual agree, the Borrower shall cause MOR to maintain, Agreement, ratio fluctuated in the range of for each of its fiscal years commencing from the Schedule 72%–93% during the commercial operation of the Project railway, a ratio 6.24 implementation period, and of total operating expenses to total operating remained at 85% in recent 3 revenues not higher than 75 per cent. years. The national freight tariff was increased by 10% in May 2012, and this will significantly improve the situation.

12. The Borrower shall cause MOR to (i) maintain Loan Complied with. Audit reports separate accounts for the Project during Project Agreement, were submitted annually; by implementation period; (ii) have such accounts and Schedule the end of 2011 seven such related financial statements audited annually, in 4.05 reports were submitted. accordance with appropriate auditing standards consistently applied, by external auditors whose qualifications, experience and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but in any event not later than nine (9) months after the end of each related fiscal year, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of this Loan Agreement as well as on the use of the procedures for imprest account), all in the English language; and (iv) furnish to ADB such other information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request. 13. Tariffs. The Borrower shall ensure through MOR Loan Complied with. Current tariffs that the tariffs for the Project railway are set at Agreement, will be reviewed and adjusted levels sufficient to ensure the financial viability and Schedule if necessary. sustainability of the Project railway. 6.25

14. The Borrower shall ensure that MOR carry out a Loan Complied with. The tariff tariff study 6 months prior to trial operation of the Agreement, applied to the project railway Project railway and will advise ADB of the tariffs Schedule was reported to ADB in time. applied to the trial operation of the Project railway. 6.25

15. The Borrower shall, and shall cause MOR to, Loan Complied with. Passenger ensure that the tariffs applicable to the Project Agreement, tariffs of national railways and railway will not be lower than the currently Schedule freight tariff of applicable standard tariffs for the national 6.25 CNY0.2409/ton-km for local railways in real terms. traffic and CNY0.1600/ton-km for transit traffic (higher than national level of CNY0.1200/ton-km) are applied.

28 Appendix 7

Covenants Reference Status of Compliance 16. Material Institutional and Policy Changes. The Loan Complied with. ADB has been Borrower shall through MOR advise ADB of any Agreement, updated on MOR’s institutional and/or policy changes, including, but Schedule institutional and policy not limited to, organizational changes, tariff policy, 6.33 development in preparation of which may affect the construction and/or operation new projects. of the Project railway and seek ADB’s concurrence if such changes will in a material manner affect the construction and operation of the Project railway and performance of the obligations of the Loan Agreement.

17. Construction Quality. The Borrower shall ensure Loan Complied with. The project through MOR that the Project railway is constructed Agreement, passed MOR’s check on in accordance with the national technical Schedule 6.3 construction quality and standards, and that construction supervision, transportation safety quality control, and contract management is to be assessment before the trial performed satisfactorily. operation started.

18. Electrification of -Wanzhou (Dawan) Loan Complied with. Electrification Railway and Yaqueling-Yichang (Ya Yi) Line. Agreement, of Dazhou–Wanzhou Railway The Borrower shall ensure through MOR that the Schedule 6.4 and Yaqueling–Yichang electrification of Dawan Railway and Ya Yi Line be Railway was completed. completed by the commencement of commercial operation of the Project railway.

19. Connecting Railway Lines. The Borrower shall Loan Complied with. In addition, ensure through MOR that the ongoing and planned Agreement, the new double track and railway lines (-Guichi- and Schedule 6.5 electrified Wuhan–Yichang Changjiangbu-Jinmen) be completed by the Railway was operational in commencement of commercial operation of the July 2012; Chongqing– Project railway. Lichuan Railway is being constructed.

20. Capacity Constraint on Connecting Lines. The Loan Complied with. With the Borrower shall ensure through MOR that the Agreement, above development, there is capacity constraint on Ya-Yi Line and/or Dawan Schedule 6.6 no capacity constraint on Railway, once identified during the operation of the connecting lines. Project railway, be resolved through, among others, increasing the size of a train formation, shortening block section and/or increasing train speed.

21. Supply of Rolling Stock and Electricity. The Loan Complied with. Sufficient Borrower shall ensure that MOR provide sufficient Agreement, rolling stock and electricity rolling stock and adequate supply of electricity for Schedule 6.9 have been provided. the Project railway operation.

22. Safety. The Borrower shall ensure through MOR Loan Complied with. Safety that the safety of passengers and freight will be Agreement, requirements are integrated ensured in accordance with the Borrower's relevant Schedule in the operational procedures laws and regulations. 6.10 of railway administration bureaus and are closely monitored.

Appendix 7 29

Covenants Reference Status of Compliance 23. Safety Dissemination. The Borrower shall ensure Loan Complied with. Public safety that MOR, in cooperation with the local Agreement, campaigns have been governments, will carry out appropriate public Schedule conducted through safety campaigns through media, public 6.11 newspapers, TV, and public announcements, household contacts and schools announcements. The whole to familiarize people living along the Project railway alignment has been fully route with safety issues related to the electrified fenced off for operation. railway.

24. Worker's Safety at Construction Sites. The Loan Complied with. Tunnel and Borrower shall ensure through MOR that (i) the Agreement, bridge construction posed safety of workers employed by contractors is Schedule significant challenges; protected and the necessary measures are taken in 6.30 construction safety was accordance with the Borrower's Labor Laws and systematically managed the relevant regulations; and (ii) the sufficient through a combination of a number of clinics, appropriately equipped monitoring system on the particularly against epidemic, will be established in hydrological situation, the construction sites in order to ensure the health disaster alarm system, and of workers. monitoring system on structure safety; clinics were equipped at construction camps.

25. Industrial Sidings. The Borrower shall ensure Loan Complied with. One industrial through MOR that potential major shippers along Agreement, siding of 5.9 km was the Project railway will be encouraged and assisted Schedule constructed in Enshi with as necessary to construct and operate industrial 6.13 annual capacity of 500,000 sidings. tons. Several industrial sidings are planned to be constructed in Yichang.

26. Station Access and Link Roads. The Borrower Loan Complied with. Station shall cause, through MOR, the local governments Agreement, access and link roads have to construct the station access roads and carry out Schedule been completed and public the improvements on link roads in a timely manner 6.12 bus services are provided at prior to the commencement of commercial all the stations. In addition, operation of the Project railway. 600 km of construction access roads have been handed over to the local governments. 27. Local Road Network. The Borrower shall cause Loan Complied with. All railway through MOR the local governments on the Project Agreement, stations were connected to railway alignment to implement the local road Schedule local road network. network development plan as it is planned in 6.14 conjunction with Project railway construction.

30 Appendix 7

Covenants Reference Status of Compliance 28. Land Acquisition and Resettlement. The Loan Complied with. Local Borrower shall ensure that the institutional Agreement, governments along the responsibility for implementation of land acquisition Schedule alignment were responsible and resettlement is properly carried out by the 6.16 for implementation of land concerned local governments, on the basis of prior acquisition and resettlement; arrangements with MOR, which include, among railway construction support others, setting up of railway construction support offices were set up and offices in the concerned administrative areas. The played important roles in Borrower shall ensure that MOR, and shall through implementation of MOR ensure that the concerned local resettlement plan. Civil works governments, will implement the RP in accordance contracts incorporated social with its terms, all applicable laws and regulations, safeguards requirements. and ADB's Policy on Involuntary Resettlement and Policy on Indigenous Peoples. The Borrower shall, through MOR, advise ADB if there are any substantive changes of the project scope or implementation arrangement with respect to the implementation of the RP, and submit such

changes to ADB for concurrence as necessary. The Borrower shall ensure through MOR that civil works contracts include requirements to comply with the RP and ensure that MOR supervise the contractors to comply with requirements of the RP, applicable law of the Borrower and ADB policy.

29. The Borrower shall ensure through MOR, Hubei Loan Complied with, A total of Provincial Government and Chongqing Municipal Agreement, CNY637.48 million of land Government, the timely provision of funds for land Schedule acquisition and resettlement acquisition and resettlement as determined in the 6.17 costs were disbursed, an RP and meet any unforeseen obligations in excess increase of 89% on the of the resettlement budget. The Borrower, through CNY336.63 million estimated MOR, shall ensure that all affected persons (AP) in the resettlement plan. are compensated and assisted prior to displacement from their houses, land and assets in accordance with the RP such that they will be at least as well off as they would have been in the absence of the Project, and that the resettlement funds for compensation and entitlements as set out in the RP are fully provided to AP through the local governments and the relevant village organizations.

30. The Borrower shall ensure through MOR that the Loan Complied with. YWRCH, local concerned local governments place priority on the Agreement, railway resettlement support vulnerable households as set out in the RP. Schedule offices, and local 6.18 governments provided various forms of assistance for vulnerable groups affected by the project.

Appendix 7 31

Covenants Reference Status of Compliance 31. The Borrower shall cause through MOR the Loan Complied with. Same concerned local governments to ensure that ADB’s Agreement, compensation policies Policy on Involuntary Resettlement and Policy on Schedule applied to associated Indigenous Peoples will be applied to the 6.19 facilities. associated facilities such as the station access roads and construction service roads.

32. The Borrower shall ensure, through MOR that Loan Complied with. Progress adequate staff and resources are committed to Agreement, reports reflected land supervision and internal monitoring of the Schedule acquisition and resettlement implementation of the RP and quarterly reports on 6.20 information; a resettlement such implementation are submitted to ADB. The completion report was Borrower shall cause MOR to ensure that the submitted to ADB. adequate supervision, internal monitoring and reporting requirements for land acquisition and resettlement will be fulfilled, namely, (i) land acquisition and resettlement progress in the quarterly progress reports during implementation, (ii) notice of the completion of land acquisition, and (iii) a resettlement completion report.

33. The Borrower shall cause MOR to contract an Loan Complied with. The Fourth external domestic monitoring agency, in Agreement, Survey and Design Institute accordance with procedures acceptable to ADB, to Schedule of China Railway (FSDI) was carry out systematic monitoring in the contractual 6.21 engaged as the external framework and forward reports to ADB. External agency to conduct external monitoring shall include a baseline socioeconomic monitoring and evaluation for survey of households before the land is acquired. the project. The FSDI The external monitor shall conduct investigations prepared and submitted its and prepare reports annually during the period of first resettlement monitoring land acquisition and resettlement, including report to ADB in March 2005, households to be surveyed once after resettlement and it subsequently submitted or until economic rehabilitation has been the second resettlement completed. monitoring report in May 2006, the third in August 2007, and the fourth in June 2008.

34. The Borrower shall cause through MOR the Loan Complied with. County concerned local governments to ensure that all AP Agreement, governments along the are provided adequate information and regularly Schedule alignment disseminated consulted in advance of signing household 6.22 resettlement booklets in the compensation agreements and making other Chongqing section in October decisions that will affect their livelihoods and living 2003 and in the Hubei section conditions as a result of the Project. The Borrower in July 2004. shall cause MOR to ensure through the concerned local governments that the railway construction support offices maintain records of consultation and grievances.

35. The Borrower shall ensure, through MOR and the Loan Complied with. Consultative concerned local governments, that the AP are Agreement, meetings were held during provided adequate opportunities to participate in Schedule implementation with local

32 Appendix 7

Covenants Reference Status of Compliance resettlement planning and implementation, 6.23 railway support offices, village particularly in income restoration measures, as set committees, and the out in the RP. representatives of affected people.

36. Sexually Transmitted Diseases. The Borrower Loan Complied with. Clinics were shall ensure through MOR that the information on Agreement, established in all construction the risks of sexually transmitted diseases, inter alia, Schedule camps where such HIV/AIDS, will be disseminated to those employed 6.31 information is distributed. for the Project railway's construction. The Borrower Local governments shall ensure that MOR, in collaboration with the conducted various programs local governments, will ensure that the information for disease prevention, dissemination of sexually transmitted diseases, particularly regarding inter alia, HIV/AIDS will be conducted in the local HIV/AIDS. communities of the Project area around the construction sites.

37. Welfare Policy Emphasis. The Borrower shall Loan Complied with. Quality of life cause through MOR the local government of Agreement, improved significantly as Yichang, Enshi and Wanzhou Prefectures to place Schedule measured by major welfare a priority on welfare, social security, health care 6.32 indicators for medical and education, and special measures for the condition, education, roads, economic rehabilitation of the vulnerable people and telecommunication as affected by the Project railway’s construction. well as broadcast coverage.

38. Environment. The Borrower shall ensure through Loan Complied with. The EIA MOR that the design, construction and operation of Agreement, report was approved by the all Project facilities comply with the national and Schedule State Environmental local environmental laws and regulations and 6.26 Protection Administration ADB’s procedures, policy and guidelines on (SEPA), and the SEPP was environment. The Borrower shall cause MOR, approved by the Ministry of together with the environmental protection bureaus Water Resources. The of Chongqing Municipality and Hubei Province and updated EIA was approved the concerned prefectures and counties, to ensure by the SEPA in August 2006 that the station access and construction service for the double-track section. roads are constructed in accordance with the national environmental requirements and ADB’s policy and guidelines on environment.

39. The Borrower shall ensure through MOR that any Loan Complied with. All the adverse environmental impacts arising from Agreement, contractors fulfilled their construction and operation of the Project railway Schedule obligation to protect the will be minimized by implementing the mitigation 6.27 environment and to measures and monitoring program recommended implement mitigation in the EIA and the Summary EIA. measures in their construction schemes. During operation, the impacts on the ambient environment are minor. The project will gain environment benefits from emission reduction.

Appendix 7 33

Covenants Reference Status of Compliance 40. The Borrower shall cause MOR to incorporate the Loan Complied with. The recommendations in EIA into the bidding Agreement, construction schedule was documents, the construction contract and related Schedule strictly arranged according to documentation in an appropriate manner, so that 6.28 the EMP and conservation the mitigation measures for the Chinese Sturgeon program. Mitigation measures will be fully implemented within the contractual were implemented framework and in accordance with the conditions adequately. Monitoring set forth in the notice of approval on the reports concluded that the construction issued by Hubei Provincial Yichang bridge construction Government. crossing the Yangtze River had no impacts on the population and spawning habitats of Chinese sturgeon.

41. Environmental Supervision Scheme. The Loan Complied with. Environmental Borrower shall cause MOR to apply the Agreement, supervision has been strictly environmental supervision scheme to the Project Schedule undertaken. during construction of the Project railway. 6.29

42. Monitoring and Evaluation. The Borrower shall Loan Complied with. Monitoring cause MOR to undertake the implementation of Agreement, reports have been submitted Project Performance Management System (PPMS) Schedule on time. as agreed on with ADB to ensure that the objective 6.15 of the Project is achieved and the Project facilities are managed efficiently. The Borrower shall cause MOR to collect the necessary information on Project performance as agreed to by ADB.

ADB = Asian Development Bank, LA = loan agreement, PRC = People’s Republic of China, MOR = Ministry of Railways, EIA = environmental impact assessment, YWRCH = Yichang–Wanzhou Railway Construction Headquarters. Source: Asian Development Bank.

CONTRACT PACKAGES FINANCED BY THE ASIAN DEVELOPMENT BANK 34 Cat PCSS Contract ADB Financing Contract Description PM Contractor Currency Contract Amount No. No. Date Amount ($) I Civil Works Appendix 8 1 Construction of Section W2 0001 ICB 20-Sep-04 China Railway 16th Bureau Group CNY 226,209,317.00 13,486,611.73 Co., Ltd. 2 Construction of Section W7 0002 ICB 20-Sep-04 China Railway Shisiju Group CNY 190,499,063.00 11,468,855.40 Corporation 3 Construction of Section W8 0003 ICB 20-Sep-04 China Railway Tunnel Group Co., CNY 233,320,796.00 14,281,718.09 Ltd. 4 Construction of Section W13 0004 ICB 20-Sep-04 China Tiesiju Civil Engineering CNY 174,076,282.00 9,912,551.31 Group Co., Ltd. 5 Construction of Section W17 0005 ICB 20-Sep-04 China Railway 13th Bureau Group CNY 264,181,118.00 16,040,531.57 Co., Ltd 6 Construction of Section W18 0006 ICB 20-Sep-04 China Railway Erju Co. Ltd. CNY 116,616,546.00 6,882,407.37 7 Construction of Section W20 0007 ICB 20-Sep-04 China Railway Engineering CNY 79,861,816.00 4,709,574.88 Corporation 8 Construction of Section W21 0008 ICB 20-Sep-04 China Railway 11 Bureau Group CNY 156,655,188.00 9,384,222.66 Corporation 9 Construction of Section W22 0009 ICB 20-Sep-04 China Railway 19 Bureau Group CNY 197,623,979.00 11,843,806.30 Corporation 10 Construction of Section W23 0010 ICB 20-Sep-04 China Railway First Group Co., CNY 211,588,708.00 12,591,661.37 Ltd. 11 Construction of Section W25 0011 ICB 20-Sep-04 The Third Engineering Group Co., CNY 100,005,584.92 6,564,037.63 Ltd of China Railway 12 Construction of Section W1 0012 ICB 28-Dec-04 China Tiesiju Civil Engineering CNY 697,327,393.42 46,231,761.28 Group Co., Ltd. 13 Construction of Section W3 0013 ICB 28-Dec-04 China Railway Engineering CNY 103,888,328.00 6,199,164.29 Corporation 14 Construction of Section W4 0014 ICB 28-Dec-04 The Third Engineering Group Co., CNY 336,369,085.83 20,479,985.41 Ltd. of China Railway 15 Construction of Section W5 0015 ICB 28-Dec-04 China Railway Erju Co., Ltd. CNY 225,590,000.00 13,816,825.18 16 Construction of Section W6 0016 ICB 28-Dec-04 China Railway Bureau 15 Group CNY 431,262,270.00 25,365,575.89 Co., Ltd. 17 Construction of Section W2 0017 ICB 28-Dec-04 China Railway Shiqiju Group CNY 207,362,633.00 12,624,913.99 Corporation 18 Construction of Section W10 0018 ICB 28-Dec-04 China Railway 12th Bureau Group CNY 368,887,549.00 22,591,201.63 Co., Ltd. 19 Construction of Section W11 0019 ICB 28-Dec-04 China Railway 18th Bureau CNY 362,032,776.00 22,661,606.80 (Group) Co., Ltd. 20 Construction of Section W12 0020 ICB 28-Dec-04 The Third Engineering Group Co. CNY 350,295,681.00 21,615,421.30 Ltd of China Railway

Appendix 8 35 Amount ($) Amount 27,012,740.00 27,012,740.00 382,077,566.79 382,077,566.79 ADB Financing CNY 117,096,806.00 16,771,503.30 CNY 32,675,160.00 4,494,707.46 CNY 133,440,349.00 18,304,161.23 USD USD 714,154.00 714,154.00 USD 4,900,000.00 4,900,000.00 USD 3,960,000.00 3,960,000.00 USD 6,480,000.00 6,480,000.00 USD 2,160,000.00 2,160,000.00 USD 7,800,000.00 7,800,000.00 CNY CNY 379,815,961.00 23,128,714.76 310,322,838.00 CNY 19,487,085.43 254,258,040.00 CNY 15,499,169.57 CNY 103,993,643.00 6,184,809.64 150,131,810.00 9,025,353.31 Contractor Currency Contract Amount Contract Currency Contractor Economic & Technical Corp. Cooperation Bridge Co., Ltd. Ltd. Co., Bridge

mechanics Development Co.,Ltd. Development mechanics Machinery Co ., (China) Co .,Kunming Machinery Machinery Co., Kunming (China) Machinery Co., Kunming (China) Machinery Co., Kunming (China) Machinery Co., Kunming (China) Machinery Co., Kunming (China) Corporation Ltd. Corporation Ltd. Corporation Date Contract 28-Dec-04 China Co., Railway Group Tenth 28-Dec-04 China Co. Railway First Group PM

No. 0035 ICB 24-Apr-06 China Shandong International 0034 ICB 24-Apr-06 China Railway Beijing Fangshan Beijing Railway China 24-Apr-06 0034 ICB 0032 ICB 12-Jan-05 Ltd. Yardway 0033 ICB 24-Apr-06 Golden Fuli Electro- Beijing USD 998,586.00 998,586.00 0031 ICB 12-Jan-05 China Maintenance Railway Large 0030 ICB 12-Jan-05 China Maintenance Railway Large 0029 ICB 12-Jan-05 China Maintenance Railway Large 0028 ICB 12-Jan-05 China Maintenance Railway Large 0027 ICB 12-Jan-05 China Maintenance Railway Large 0026 ICB 12-Jan-05 China Maintenance Railway Large PCSS Contract Description Span + 81 PiecesSpan + 81 Span + 59 PiecesSpan + 59 Span + 62 PiecesSpan + 62 Machine (1 Set) Machine Sub-total Machine (2 Sets) Machine Stabilizer (5 Sets) (5 Stabilizer Lining LevelingLining Tamping And (2 Sets) Machine Lifting Lining Leveling And Leveling Lining Lifting Sets) (4 Machine Tamping Leveling And Tamping Tamping Leveling And (2 Sets) Machine Undercutting BallastUndercutting Cleaning (3 Sets) Machines Sub-total

3 647 Girder, Concrete Lot A3: 2 Concrete Lot A2: Girder, 434 1 Concrete Lot A1: Girder, 702 7 Lot 7: Fixed Rail Welding 6 Lot 6: Ballast Regulating 5 Track Lot 5: Dynamic 4 Swift Lifting Duty Lot 4: Heavy 3 Track Action Lot 3: Continuous 2 Lining Lot 2: Track Lifting 1 Full Section Lot 1: On-Track 23 23 W16 of Section Construction 24 W19 of Section Construction 0023 25 W24 of Section Construction ICB 0024 28-Dec-04 ICB 0025 China Group Bureau Railway 19 ICB 28-Dec-04 China Group Bureau Railway 11 21 21 W14 of Section Construction 22 W15 of Section Construction 0021 ICB 0022 ICB 28-Dec-04 China Group Bureau Railway 20 III Materials III II Equipment Equipment II Cat No.

Cat PCSS Contract ADB Financing 36 Contract Description PM Contractor Currency Contract Amount No. No. Date Amount ($) 4 Lot B1: Steel Bearing, 733 0036 ICB 24-Apr-06 CCECC International Trading CNY 14,719,010.00 2,104,435.83

Spans Company Ltd. Appendix 8 5 Lot B2: Steel Bearings, 1151 0037 ICB 24-Apr-06 China Railway Materials Import CNY 23,618,895.00 3,444,597.92 Spans and Export Co., Ltd. 6 Railway Materials, Lot 101- 0038 ICB 15-Jun-07 Consortium Beijing Golden Fuli CNY 19,658,607.90 2,852,032.05

Contrete Sleepers (121,510 Electro- mechanics Development Pieces) Co., Ltd. and the 6th Engineering Company Limited of China Zhongtie Major Bridge Engineering Group Co., Ltd. 7 Procurement Of Railway 0039 ICB 15-Jun-07 China Railway Materials I/E Co., CNY 12,658,479.68 1,798,848.10 Materials (Lot 102,Concrete Ltd. Sleepers, 333,905 Pieces) 8 Railway Materials (Lot 201= 0040 ICB 15-Jun-07 China Railway Turnout Bridge, Inc CNY 57,888,680.00 8,371,586.32 Turnout - 269 Sets) 9 Railway Materials 0041 ICB 15-Jun-07 China National Electric Import & CNY 4,429,774.43 641,563.48 (Lot301fastenings & Fish Plate Export Corp. 328470 Sets) 10 Railway Materials (Lot 302- 0042 ICB 15-Jun-07 China National Electric Import & CNY 11,341,987.24 1,644,729.54 Fastenings And Fish Plates Export Corp. 812,402 Sets) 11 Railway Materials (Rail 17165 0043 ICB 15-Jun-07 World Tender Industrial Ltd. CNY 71,464,625.68 10,272,378.22 Ton+20 Pieces) 12 Railway Materials (Rail 28,428 0044 ICB 15-Jul-07 China Railway Materials I/E Co., CNY 119,896,484.16 17,235,689.76 Ton+38 Pieces) Ltd. Sub-total 87,936,233.21 IV Consulting Services 1 Consulting Services 0045 QCBS 31-Mar-08 Poyry (Beijing) Consulting USD 521,160.00 473,460.00 Company Limited Sub-total 473,460.00 Total 497,500,000.00 Cat No. = category number, PCSS = procurement contract summary sheet, PM = procurement mode, ICB = international competitive bidding, QCBS = quality and cost-based selection. Source: Asian Development Bank.

Appendix 9 37

TECHNICAL ASSISTANCE COMPLETION REPORT Division: EARD/EAOD

TA No. and Name Amount Approved: $250,000 3983-PRC: Strengthening Involuntary Resettlement Practices Revised Amount:$227,567 Executing Agency: Source of Funding: TA Amount Undisbursed TA Amount Utilized Ministry of Railways TASF $22,433 $227,567 Date Completion Date Approval Signing Fielding of Consultants Original Actual 4 Dec 2002 31 Jan 2003 31 Jan 2005 14 Jan 2003 Closing Date 11 Nov 2002 18 Nov 2002 12 Jan 2004 Original Actual 20 Feb 2004 31 Jan 2003 30 Sep 2005

Description The technical assistance (TA) was provided to complement the ongoing project preparatory TA for preparing the Yichang–Wanzhou Railway Project in order to ensure the refinement of the resettlement plan and compliance with the social safeguard policies of the Asian Development Bank (ADB).

Objectives and Scope The purpose of the TA is, as a complement to ongoing project preparatory TA, to (i) ensure that involuntary resettlement under the project will fully comply with ADB policy and guidelines in a sustainable manner; (ii) improve the efficiency and accuracy of processing, recording, and reporting of the land acquisition and resettlement, reduce complaints from affected people and the future administrative costs to the local government, the executing agency, and ADB; (iii) increase the capacity of the project counterparts including the local government dealing with the land acquisition and resettlement for compliance with ADB's safeguard policy and practices; and (iv) assess the impact of the change of the alignment from the structural engineering viewpoint compared with the initial technical review. The outputs of the TA will vary from one component to another and will be designed, as a value-added product of the ADB-financed consulting services, under the concept of enhancing monitorability, durability, replicability, and implementability.

Evaluation of Inputs There were separate terms of reference (TORs) prepared and consultants engaged for four components: (i) preparing village rehabilitation plans and assessment of ethnic minority issues, (ii) resettlement training workshop facilitator, (iii) preparing the resettlement management information system (MIS), and (iv) structural engineering technical review. The TORs were adequate and each consultant generally performed their tasks effectively. The inputs were coordinated by the Ministry of Railways, which provided excellent support and showed good commitment to the outputs. The ADB mission leader and resettlement specialist provided inputs on several review missions. The majority of inputs were for the resettlement MIS and this component took much longer than anticipated, and the efforts provided by the consultant—the Fourth Survey Design Institute of MOR (FSDI)—exceeded the amount covered by the TA.

Evaluation of Outputs Village rehabilitation plans and assessment of ethnic minority impacts. Two reports were submitted to ADB in 2003 which helped form the basis for social safeguard compliance prior to loan appraisal. The methodology for formulating six village rehabilitation plans included a participatory process which can be utilized during project implementation to refine the plans. Through the involvement of county resettlement officials, this process can also be applied in other seriously affected villages.

Resettlement training workshop. In December 2003, a 2-day resettlement training workshop was conducted in Yichang for municipal and county resettlement officials from the project area. The workshop provided good exposure to ADB safeguard policy requirements and permitted detailed discussion on the resettlement plan. Many officials recognized that more detailed implementation documents would need to be prepared to implement the resettlement plan. The MOR agreed to coordinate these activities through the Railway Construction Support Offices.

Resettlement management information system. The outputs included: (i) design and preparation of a resettlement MIS, (ii) collection of survey data and input to the MIS to form the baseline database, (iii) capacity building and training of local officials in use of the resettlement MIS, and (iv) preparation of sample output tables. This work was conducted

38 Appendix 9

by FSDI professionals with experience in resettlement and socioeconomic assessment. The MIS was developed using PRC software so as to facilitate training and use by local officials.

The design of the system was rather complex due to requirements to meet the needs of local officials and ADB. Consequently, the quantity of data to be collected and input was quite high, but fortunately it was decentralized by county. Nonetheless, this required significant effort from the FSDI for training and stronger-than-expected commitment from local officials. Computers were provided to each county to store the database and maintain the MIS locally. However, the MIS was designed to aggregate the data and results for reporting to MOR and ADB. Although the MIS is good, its regular use in operational monitoring and supervision is still uncertain due to traditional reliance on paper reporting. This concern will be monitored by ADB during project implementation. Even if the MIS has limited application for management of resettlement, the database still provides an excellent baseline for subsequent monitoring and evaluation of resettlement results. In June 2005, final reports for the MIS were submitted to ADB; these include (i) a description of the MIS, and (ii) a user manual and formats for data inputs and output tables.

Structural engineering technical review. Two international engineers with expertise on railway tunnels and bridges conducted a technical review mission in the project area in November 2002. The focus was to assess the impact of change of the alignment from the structural engineering viewpoint compared with the initial technical review. A report was submitted to ADB which confirmed the feasibility of the project design, but raised some technical risks that should be addressed during design and implementation.

Overall Assessment and Rating The TA is rated successful. Three of the components involved relatively short inputs and well-defined outputs. The main component to prepare the resettlement MIS met the basic requirements but it was considered a pilot test for large infrastructure projects in the PRC. Consequently, more time is needed to determine the applicability of this particular MIS. Nonetheless, good progress was achieved in preparing this first MIS; subsequent projects may consider further refinements to make it more applicable in the PRC. In terms of the overall objective to strengthen resettlement practices, the TA has had a significant positive impact.

Major Lessons The TA goal of preparing a comprehensive resettlement MIS was quite ambitious for such a large project. Consequently, significant time and effort was spent collecting a comprehensive database and training local officials in eight counties and districts. In hindsight, it may have been better to focus on two pilot counties; however, this would not have achieved the comprehensive baseline data.

Significant efforts were made to get ownership from local officials, since the MIS was designed to benefit them. However, given the reliance on traditional paper systems that already meet their requirements, they saw little value in a system that primarily benefits the MOR and ADB. Such an MIS can still have advantages but, until the regulations require a computerized system, widespread use of MISs for resettlement implementation is unlikely.

Recommendations and Follow-Up Actions ADB will monitor the use of the resettlement MIS for this project and will have further discussions with the MOR regarding its applicability for future projects. However, increased use of resettlement MISs will eventually be decided by local government, since they are responsible for implementation. The resettlement MIS could have application for other transport projects, and perhaps urban resettlement projects. The World Bank has also experimented with resettlement MISs, so there can be further collaboration.

Prepared by: Scott G. Ferguson Designation: Senior Social Development Specialist (Safeguards)

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Appendix 10 39

TECHNICAL ASSISTANCE COMPLETION REPORT Division: EARD/PRCM

TA No., Country and Name Amount Approved: $150,000.00

TA4255-PRC : Ensuring Safeguard Practices Revised Amount: $56,082.64

Executing Agency: Source of Funding: Amount Undisbursed: Amount Utilized: Ministry of Railways TASF $0.00 $56,082.64

TA Approval TA Signing Fielding of First Consultants: TA Completion Date Actual: 30 Sep 2008 Date: Date: Original: 31 Dec 2007 15 Dec 2003 30 Mar 2004 Account Closing Date Actual: 30 Sep 2008 Original: 31 Dec 2007 Description The Yichang Extra-Large Bridge constructed under the Yichang–Wanzhou Railway Project is located in an environmentally sensitive area on the Yangtze River, which required specific actions during construction. The environmental impact assessment (EIA) for the project identified potential disturbance due to bridge construction to the Chinese sturgeon breeding grounds and other sensitive species in the Yangtze. The Chinese sturgeon is a Class 1 protected species. The EIA concluded that the adverse environmental impacts could be mitigated, and recommended appropriate measures. The Yichang Bridge construction was approved with three conditions: (i) construction methods must minimize disruption to the riverbed and fish population, (ii) no foundation work is allowed from 15 September through 30 November (the sturgeon spawning season), and (iii) the construction contractor(s) will have strict liability for any ecological damage caused by construction. Implementation of environmental management and mitigation and monitoring programs included in the EIA will ensure compliance with the environmental guidelines and procedures of the Asian Development Bank (ADB) and the government.

Expected Impact, Outcome, and Outputs The technical assistance (TA) was provided to establish an independent environmental panel to ensure compliance with ADB's safeguard policy, particularly with the mitigation measures for the endangered species in the Yangtze River. The TA was expected to make recommendations on the environmental protection and management of the project with respect to the endangered species in a manner consistent with ADB’s safeguard policies. The consultants were engaged to (i) review the relevant documentation including the project EIA, ADB environmental guidelines, and the provincial government's conditional approval of the construction of the bridge; and (ii) visit the project area, especially the bridge construction site; and discuss and review findings with the executing agency, the independent monitoring agency, the provincial environmental bureaus, and relevant institutes.

Delivery of Inputs and Conduct of Activities The TA formulation and terms of reference (TOR) are appropriate and adequate. The consultants carried out independent review and gave an objective and unbiased professional opinion on top of the environment monitoring arrangements established under the project, which contained the following layers: (i) the Hubei Province Environmental Protection Bureau, as the primary environmental regulatory authority for the area, supervised the environmental mitigation measures; (ii) the Hydrobiology Institute of the Chinese Academy of Sciences, which has specific expertise on the Chinese sturgeon, provided monitoring services; and (iii) the external monitoring agency, the Beijing Oasis Environmental Protection Technology Company, conducted periodic environmental monitoring. The consultant conducted periodic environmental reviews of relevant documentation, including monitoring reports to identify actual and potential problems; visited the project area; held discussions with the concerned executing agency officials, contractors, and affected persons; and provided recommendations and suggested actions to be taken.

The consultant team consisted of one international and one national consultant providing a total of 7 person-months of services from January 2004 to December 2007. The timing of the fielding of the consultants was in accordance with the construction schedule, particularly the schedule of the Yichang Extra-Large Bridge. Three field reviews were conducted by the consultant. Reports reflecting the evaluation of the independent panel were provided at each fielding of the consultants. Performance of the consultants is rated satisfactory.

Evaluation of Outputs and Achievement of Outcome The TA outcome has been achieved. The consultant reviewed environmental monitoring reports, identified information gaps, and advised on measures for improvement. The institutional arrangement for environmental

40 Appendix 10

management was also discussed. The independent professional opinion was established based on observations at site visits, interviews with relevant agencies, and analysis of information, which provided a supplementary and objective assessment of the compliance status regarding ADB safeguard policies. Potential issues and risk factors were identified and precautionary measures were taken in a timely manner. Good practices were introduced through dialogue and specific recommendations with executing agency officials, contractors, design institute, and monitoring agencies, which improved their capacity to follow international standards.

Overall Assessment and Rating The TA is rated successful. The expected impact has been realized. The consultant remarked in his report that “This all demonstrates that, with adequate care, even a major bridge can ‘step lightly’ across the natural environment.” The consultant’s independent opinion, which was based on observations at site visits, interviews with relevant agencies, and analysis of information, confirmed the adequacy of preventative measures to protect endangered species. The China Railway Fourth Survey and Design Institute concluded that the Yichang Extra-Large Bridge constructed across the Yangtze River had brought about no impacts on the population and spawning habitats of Chinese sturgeon. The continuing monitoring by the Yangtze Aquatic Institute of the Chinese Academy of Aquatics also shows the Chinese sturgeon population to be stable.

Major Lessons The consultant should have conducted more field reviews, for which better coordination among the executing agency and other relevant agencies are needed.

Recommendations and Follow-Up Actions With completion of the project, no follow-up action is needed.

Prepared by: Wang Fang Designation: Senior Project Officer (Financial Management)

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Appendix 11 41

ECONOMIC REEVALUATION

A. General

1. The project at completion comprises a 377 kilometer (km) standard-gauge electrified railway between Yichang (324 km in Hubei Province) and Wanzhou (53 km in Chongqing Municipality). Different from the original design of a single-track rail, the 288 km Yichang– Liangwu section of the Yichang–Wanzhou Railway (YWR) was constructed as double-track line. Ten new railway stations were constructed and the existing Yichang and Wanzhou stations were expanded under the project. The YWR started freight and passenger operation on 22 December 2010. The operation of the YWR is assigned to the Wuhan Railway Administration for the Yichang–Liangwu section and the Chengdu Railway Administration for the Liangwu– Wanzhou section. The design speeds of 160 km per hour (km//h) for the double-track section and 120 km/h for the single-track sections were achieved from the start of operation. The reevaluation is undertaken using with- and without-project scenarios in accordance with the Guidelines for the Economic Analysis of Projects1 of the Asian Development Bank (ADB). In the without-project case, the existing roads and waterways in the project corridor and alternative longer railway routes, mainly the Xiangyu Line (Xiangfan–Chongqing), would be relied upon. That would result in growing traffic congestion, higher transport costs, and longer travel times. In the with-project case, the YWR would be used so as to take advantage of its lower transport costs, shorter travel distances, and improved service levels. Capacity of alternative railway routes will also be released due to traffic being diverted to the YWR. The evaluation period covers the implementation period from 2003 to 2011 and the operation period from 2011 to 2043, which is consistent with the evaluation at appraisal.

B. Costs

2. The project costs consist of capital costs, operation and maintenance costs, and the costs for equipment replacement and infrastructure rehabilitation to be undertaken during the evaluation period. The incremental cost of rolling stock is annualized and forms part of the unit operating costs based on the experience of the Wuhan and Chengdu railway administration bureaus which are responsible for operation and maintenance of the YWR. Financial costs were converted to economic costs following the same methodology at appraisal.

C. Traffic

3. Significant multimodal transport development has taken place in the project corridor during the implementation period, including completion of the Yichang–Wanzhou Expressway which forms part of the expressway trunk connecting Shanghai and Chengdu, and completion of which affects the navigation capacity of the Yangtze River. The traffic forecast is based on the actual performance of the YWR in 2011, and the impacts of all transport modes in the YWR catchment area, i.e., the expressway and the national highway, the Yangtze waterway, and the airline services available in the region. The impact of the capacity expansion of the Xiangyu Line, which carried the railway traffic before the opening of the YWR, and the completion of the Wuhan–Yichang Railway and the status of connecting the Chongqing–Lichuan Railway,2 are also considered. Other factors include expected economic growth, local investment plans, and the prospects for tourism development.

1 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila. 2 ADB. 2008. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Chongqing–Lichuan Railway Development Project. Manila.

42 Appendix 11

4. Passenger demand is promising according to the actual performance in 2011 and surveys which indicated that passengers wanted more trains in service, particularly trains that travel to prosperous areas such as , , Nanjing, Shanghai, and , where more job opportunities are available. About 2.4 million people from Wanzhou Prefecture work in the coastal provinces. It was found that Wuhan and Enshi stations sold out of allocated tickets several days in advance, especially during tourism seasons and holidays. This indicates that the YWR has been well received and that project area residents are making good use of the rail service. The opening of the Wuhan–Yichang Railway in July 2012 and the expected opening of the Chongqing–Lichuan Railway in 2014 will have a dramatic impact on YWR passenger traffic levels. The volume will grow rapidly as a result of the diversion from the associated railway lines, road, waterway, and airlines. It is estimated that 70% of the expressway and national highway passenger traffic is diverted to the YWR. The number of trains on the YWR will be increased from 17 train pairs per day in 2011 to at least 25 train pairs per day in 2012 and to 50–60 train pairs per day in 2020. Passenger volume is expected to increase from about 12.26 million passengers in 2011 to 28.11 million passengers in 2025, representing a 3.9% annual increase.

5. Actual freight traffic in 2011 was far below expectations mainly due to two factors: (i) the generated traffic was low; and (ii) the capacity of the Xiangyu Line has been increased and accommodates more freight traffic than anticipated. Local traffic on the YWR will grow gradually from a low level, considering that the primary products to be transported by the railway are coal, iron ore, construction materials, and gold mine products, which are still in the process of being developed. Most local traffic was forecasted to originate in Enshi and Yichang prefecture and be shipped to other provinces of the People’s Republic of China (PRC). Substantial traffic is expected to be diverted from roads and waterways. Based on the survey conducted by the Transport Administration Department of Hubei Province, the current road corridor traffic was about 20–30 million tons in 2011 and has been increasing by 15%–20% annually since 2000. The growth rate will remain at a high level given the strategic location of the corridor, linking the west and southeast PRC. Total freight traffic is forecast to reach 5.15 million tons in 2015 and 18.45 million tons in 2025, representing an annual increase of 5.8%.

6. The YWR is the first national railway to incorporate in the design the dimension requirement for operating double-stack container trains. Container terminals were completed in Chongqing (December 2009), Chengdu (May 2010), and Wuhan (August 2010). The double- stack container transportation network will be further expanded with the completion of the Wuhan–Yichang and Chongqing–Lichuan railways. Experience in other countries has shown that double-stack container transport operation increases carrying capacity by 60% and improves energy efficiency by 40%–60%. Interviews with the Yangtze River Shipping Group Company, Yichang and Wanzhou port authorities, and several logistics companies indicated that at least 1 million twenty-foot equivalent units (TEUs) were transported from Chongqing to Shanghai along the Yangtze River in 2011, in addition to a large number of roll-on-roll-off ships which mainly transported automobiles. Water container traffic has been increasing by 15%–20% annually since 2000. Moreover, the throughput of Chongqing port alone will reach 2.5 million TEUs in 2015. Given the competitive advantages of double-stack container trains and the traffic demand along the corridor, containerization of transportation is expected to develop rapidly.

7. These growth rates are considered reasonable given that the YWR forms one link of the Shanghai–Chongqing–Chengdu Railway Corridor, a major east–west corridor which connects the major cities. The strong economic ties between the eastern and western regions will continue to provide robust freight and passenger traffic. Freight traffic in the initial years has been substantially lower than the appraisal forecast, however it will accelerate in later stages

Appendix 11 43 and is expected to exceed the appraisal estimates by around 2031. The passenger volumes have been substantially higher than the appraisal forecast from the very beginning. The updated traffic forecasts are presented in Table A11.1.

Table A11.1: Traffic Forecast at Project Completion Item 2011 2015 2025 Freight Traffic (million tons) 0.59 5.15 18.45 Diverted from Road 0.41 3.60 12.92 Diverted from Waterway 0.12 1.03 3.69 Generated 0.06 0.52 1.84 Freight Traffic (million ton-km) 119.68 1,779.43 5,658.18 Diverted from Road 83.77 1245.60 3,960.72 Diverted from Waterway 23.94 355.89 1,131.64 Generated 11.97 177.94 565.82 Passengers (million passengers) 12.26 18.05 28.11 Diverted from Road 4.63 6.50 9.62 Diverted from Waterway 1.23 1.80 2.81 Diverted from Air 0.50 0.77 1.23 Generated 2.90 3.93 5.58 Diverted from Existing Railways 3.00 5.05 8.88 Passenger kilometer (million passenger-km) 3,084.31 4,770.31 7,756.81 Diverted from Road 976.48 1,433.63 2,205.40 Diverted from Waterway 308.43 477.03 775.68 Diverted from Air 140.36 221.67 365.20 Generated 527.69 734.93 1,064.51 Diverted from Existing Railways 1,131.35 1,903.05 3,346.01 km = kilometer. Source: Asian Development Bank.

D. Benefits

8. The reevaluation quantified the economic benefits of (i) operating cost savings of diverted freight traffic from roads; (ii) operating cost savings for passengers, estimated as the difference between traveling on the project railway and traveling by bus; (iii) time savings of passengers diverted from the Xiangyu Line, roads, and waterways based on the time value estimated following the average wages in the region; (iv) environmental and safety benefits; (v) network benefits; and (vi) tourism benefits attributable to the YWR. Benefits of generated freight and passenger traffic were estimated as half of the benefits of diverted traffic. Unlike in the appraisal, the net economic value of generated freight traffic and time savings of freight traffic were not included in the benefit calculation.

9. The benefits from environmental and safety improvement, network capacity increase, and tourism development were not anticipated at appraisal but turned out to be important benefits of the project. With the diversion of freight and passengers from road to rail, there will be benefits due to reduced pollution from trucks, buses, and cars as well as fewer accidents. This value is included in the benefit stream as environmental and safety benefits. Such

44 Appendix 11 estimations are considered relevant, taking into account the mountainous topography and foggy weather in the project area, which result in higher energy consumption and more road accidents.

10. The network benefit is justified as the YWR released the capacity on the alternative Xiangyu Line for freight transport by shifting its passenger trains. According to the experience of the Ministry of Railways, one pair of passenger trains will take the line capacity of two pairs of freight trains. Five pairs of passenger trains were shifted from the Xiangyu Line to the YWR in 2011, which generated net revenue of CNY252 million on the Xiangyu Line. This benefit could increase as more capacity of the Xiangyu Line could be released for freight traffic by shifting more passenger trains to the YWR.

11. The tourism benefits are significant. The project area is rich in tourism resources which were not tapped before the project due to the poor transport conditions. Opening of the YWR brought 16.6 million tourists Enshi prefecture in 2011, 56% higher than the previous year; tourism revenues in 2011 were CNY8.6 billion, 71% higher than the previous year. Surveys showed that more than 40% of the tourists in Enshi prefecture and Wanzhou prefecture used the YWR. The value added of the tourism sector was based on the net of output at economic prices less the cost of production (sum of all intermediate input costs, wages, and annualized investment costs). It was estimated that 36% of the incremental value added of the tourism sector is attributable to the railway.

E. Economic Internal Rate of Return Reevaluation

12. The reevaluated economic internal rate of return (EIRR) is 15.6% (Table A11.2), higher than the 14.4% estimated at appraisal. Benefits from passenger traffic are the major source of economic benefits (32.9%), followed by benefits from tourism (31.6%), freight traffic (18.7%), environmental and safety benefits (9.6%), and network benefits (7.2%). The higher EIRR is due to the significantly higher passenger traffic and the tourism benefits that were not anticipated at appraisal. Excluding the network benefit will lower the EIRR to 14.9%, or excluding both the network benefit and environmental and safety savings will lower the EIRR to 14.0%. Despite this, the reevaluated EIRR is higher than the cutoff rate of 12% and the project is considered economically viable.

13. Sensitivity analysis was carried out to test the impacts of (i) a decrease in traffic forecast, (ii) an increase in operation and maintenance costs, and (ii) a decrease in benefit valuation (Table A11.3). According to the results of the sensitivity analysis, the project will continue to be economically viable under these conditions.

Appendix 11 45

Table A11.2: Economic Reevaluation (CNY million) Environment Capital O&M Freight Passenger and Network Tourism Net Year Cost Costs Benefits Benefits Safety Benefits Benefits Benefits Benefits 2003 202 0 0 0 0 0 0 (202) 2004 1,797 0 0 0 0 0 0 (1,797) 2005 3,334 0 0 0 0 0 0 (3,334) 2006 4,530 0 0 0 0 0 0 (4,530) 2007 3,326 0 0 0 0 0 0 (3,326) 2008 3,035 0 0 0 0 0 0 (3,035) 2009 2,639 0 0 0 0 0 0 (2,639) 2010 3,460 0 0 0 0 0 0 (3,460) 2011 1,048 396 54 1,142 141 252 853 999 2012 0 430 83 1,420 170 329 1,035 2,607 2013 0 450 153 1,515 207 358 1,256 3,037 2014 0 483 381 1,775 301 389 1,525 3,887 2015 95 538 886 2,095 496 424 1,852 5,119 2016 0 560 985 2,227 541 458 1,763 5,414 2017 0 584 1,097 2,370 591 494 2,028 5,996 2018 1,403 611 1,223 2,527 648 535 2,332 5,250 2019 0 640 1,365 2,697 711 579 2,682 7,395 2020 95 664 1,527 2,803 779 604 3,084 8,037 2021 0 690 1,711 2,871 856 629 2,827 8,204 2022 0 719 1,921 2,984 943 656 3,110 8,895 2023 0 751 2,162 3,102 1,043 685 3,421 9,662 2024 188 786 2,439 3,226 1,156 714 3,763 10,325 2025 367 825 2,759 3,356 1,287 746 4,139 11,095 2026 1,403 847 2926 3,440 1,357 765 4,139 10,377 2027 0 871 3,104 3,528 1,431 786 4,139 12,116 2028 0 896 3,295 3,617 1,510 807 4,139 12,472 2029 0 922 3,498 3,709 1,594 828 4,139 12,847 2030 95 949 3,716 3,804 1,684 850 4,139 13,150 2031 0 967 3,849 3,875 1,738 865 4,139 13,499 2032 0 985 3,987 3,947 1,793 881 4,139 13,763 2033 0 1,004 4,133 4,021 1,852 897 4,139 14,038 2034 1,403 1,024 4,286 4,096 1,913 913 4,139 12,920 2035 571 1,044 4,446 4,173 1,977 929 4,139 14,050 2036 0 1,053 4,511 4,214 2,004 938 4,139 14,752 2037 0 1,063 4,577 4,256 2,031 946 4,139 14,886 2038 188 1,072 4,644 4,297 2,058 955 4,139 14,834 2039 0 1,082 4,713 4,340 2,087 963 4,139 15,160 2040 367 1,092 4,783 4,383 2,115 972 4,139 14,934 2041 0 1,102 4,854 4,426 2,145 981 4,139 15,443 2042 14 1,112 4,927 4470 2,175 990 4,139 15,575 2043 (13,114) 1,124 5,001 4,531 2,206 1,003 4,139 28,870 EIRR = 15.6% NPV = 8,155 ( ) = negative, EIRR = economic internal rate of return, NPV = net present value, O&M = operation and maintenance.

46 Appendix 11

Source: Asian Development Bank.

Table A11.3: Sensitivity Analysis NPV Change by EIRR Switching Value at 12% Scenario (%) (%) Sensitivity Indicator (%) (CNY million) 1.Base Case 15.6 8,155 2. Benefits –20 13.7 2.92 –34.30 3,400 3. Cost +20 15.5 0.25 402.80 7,750 4.Freight Traffic –20 15.2 0.74 –134.27 6,940 5.Passenger Traffic –20 14.9 1.04 –96.27 6,461 6.Combined 2+3 13.5 2,995 7.Tourism Benefits –20 15.0 0.92 –108.47 6,651 EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank.

Appendix 12 47

FINANCIAL REEVALUATION

A. Basic Assumptions

1. The financial internal rate of return (FIRR) for the Yichang–Wanzhou Railway (YWR) project was reevaluated on the basis of financial and operational information obtained from the Wuhan Railway Administration and several revenue and cost assumptions. Capital cost was based on actual expenditures incurred for the project, excluding interest and other financial charges during construction. All revenues and expenses were expressed in 2010 prices for the financial reevaluation. The calculation period covered the construction period and the operation period from 2011 to 2043, which is consistent with the evaluation at appraisal. Costs of equipment replacement and infrastructure rehabilitation to occur during the calculation period were included. Residual value was calculated based on the economic life of civil works.

2. Project revenues consisted of freight, passenger, and other revenues. Other revenues were assumed to be 10% of freight and passenger revenues, which is consistent with the current situation of the Ministry of Railways (MOR). Business tax and income tax were excluded from the net benefits. The YWR has a freight tariff of CNY0.24 per ton-kilometer (km) for local traffic, CNY0.16 per ton-km for transit traffic, and CNY 0.18 per ton-km for container traffic. On average, the YWR’s freight tariff of CNY0.22 is about 2.0 times the prevailing national freight tariff. The national passenger tariff is applied on the YWR—CNY0.15 per passenger-km for conventional trains, and CNY0.35 per passenger-km for high-speed trains. These compare favorably with the appraisal estimates for freight but less so for passengers, which assumed tariffs of CNY0.10 per ton-km for freight and CNY0.30 per passenger-km for passengers at the initial stage and CNY0.20 per ton-km for freight and CNY0.40–CNY0.60 per passenger-km for passengers at later stages. No increase in the current tariffs in real terms has been assumed in the reevaluation.

3. The YWR’s operating cost is higher than ordinary railways given the large part of track on long slopes with a maximum gradient of 18‰ and that 74% of the alignment is in tunnels and bridges. Based on the first year of operational experience of the YWR and on the experience of similar railways, the operating costs including rolling stock costs were estimated as follows: fixed costs excluding depreciation of CNY794,000 per route-km for double-track line and CNY397,000 per route-km for single-track line, freight variable cost of CNY0.040 per ton-km, and passenger variable cost of CNY0.0524 per passenger-km.

B. Financial Internal Rate of Return

4. The FIRR after tax was recalculated at 3.9% (Table A12.1), compared with the 5.8% estimated at appraisal. The variance is mainly due to the substantially higher capital costs, lower passenger tariff, and lower freight traffic in the early stage. The after-tax weighted average cost of capital (WACC), in real terms, was calculated using the actual capital mix and costs of various financing sources, including (i) the applicable 10-year fixed swap rate plus a provision for the spread of 0.4% as used for Asian Development Bank (ADB) loans, (ii) the interest rate of 3.98% for the domestic loan from the China Development Bank and 4.8% for the railway bonds, and (iii) the cost of equity of 8%. The WACC was recalculated as 2.5%, which is much lower than the appraisal estimate, mainly because of the preferential interest rate rendered by the China Development Bank and the comparatively low rate of the railway bonds. The FIRR is higher than the WACC, and the project is therefore considered financially viable.

48 Appendix 12

Table A12.1: Financial Internal Rate of Return (CNY million) Capital Working Freight Passenger Other Taxes Net Cash Year Costs Expenditures Revenue Revenue Revenue Paid Flow 2003 220 0 0 0 0 0 (220) 2004 1,953 0 0 0 0 0 (1,953) 2005 3,624 0 0 0 0 0 (3,624) 2006 4,924 0 0 0 0 0 (4,924) 2007 3,615 0 0 0 0 0 (3,615) 2008 3,299 0 0 0 0 0 (3,299) 2009 2,868 0 0 0 0 0 (2,868) 2010 3,761 0 0 0 0 0 (3,761) 2011 1,139 430 27 463 49 17 (1,048) 2012 0 467 38 624 66 24 237 2013 0 489 64 710 77 28 334 2014 0 526 145 770 92 33 448 2015 104 585 324 875 120 43 587 2016 0 609 362 932 129 46 768 2017 0 635 405 994 140 50 853 2018 1,525 664 454 1,061 152 54 (577) 2019 0 696 510 1,135 165 59 1,055 2020 104 722 575 1,180 176 63 1,042 2021 0 750 650 1,285 194 69 1,309 2022 0 782 736 1,337 207 74 1,425 2023 0 816 836 1,392 223 79 1,556 2024 204 854 953 1,449 240 86 1,498 2025 399 897 1,090 1,509 260 93 1,470 2026 1,525 921 1,160 1,547 271 97 436 2027 0 947 1,236 1,587 282 101 2,059 2028 0 973 1,318 1,628 295 105 2,162 2029 0 1,002 1,406 1,671 308 110 2,272 2030 104 1,032 1,500 1,714 321 115 2,285 2031 0 1,051 1,546 1,747 329 117 2,454 2032 0 1,071 1,595 1,780 337 120 2,522 2033 0 1,091 1,646 1,814 346 123 2,592 2034 1,525 1,113 1,700 1,849 355 126 1,139 2035 620 1,135 1,756 1,884 364 130 2,119 2036 0 1,145 1,779 1,903 368 131 2,773 2037 0 1,155 1,802 1,921 372 133 2,808 2038 204 1,165 1,825 1,940 377 134 2,638 2039 0 1,176 1,849 1,960 381 136 2,878 2040 399 1,187 1,874 1,979 385 137 2,515 2041 0 1,198 1,899 1,999 390 139 2,950 2042 15 1,209 1,924 2,019 394 141 2,972 2043 (14,254) 1,222 1,950 2,045 400 142 17,285 WACC = 2.5% FIRR = 3.9% ( ) = negative, FIRR = financial internal rate of return, WACC = weighted average cost of capital. Source: Asian Development Bank.

Appendix 12 49

5. The analysis is conservative as there was no increase in the current tariffs in real terms assumed in the evaluation. If the passenger tariff can be increased from CNY0.150 per passenger-km to CNY0.195 per passenger-km, which is equivalent to about 35% of the road tariff, the FIRR will rise to 4.65%. Sensitivity analysis (Table A12.2) was conducted to test the impact of variations in traffic, in operation and maintenance costs, as well as in revenue levels. The project will still remain viable under different sensitivity as the FIRRs are higher than the WACC. Table A12.2: Sensitivity Analysis Switching Change FIRR Sensitivity Value Scenario (%) (%) Indicator (%) 1.Base Case 3.9 2. Passenger Traffic Decrease –20 3.4 0.74 –48.24 3. Freight Traffic Decrease –10 3.7 0.63 –62.87 4. Working Expenses Increase +10 3.7 0.59 61.89 5. Revenue Decrease –10 3.3 1.85 –20.27 6.Container Traffic Decrease –20 3.5 0.53 –55.05 FIRR = financial internal rate of return. Source: Asian Development Bank.

50 Appendix 13

SOCIAL IMPACT AND POVERTY REDUCTION IN THE PROJECT AREA

A. Introduction

1. Construction of the Yichang–Wanzhou Railway (YWR), with a total length of 377 kilometers (km), commenced in February 2004, and it opened to traffic in December 2010. The YWR traverses eight counties and districts in Hubei Province and Chongqing Municipality that are situated in a mountainous area that is less developed and poor. The poverty impact analysis conducted during project preparation indicated that construction of the YWR would (i) promote economic development and indirectly reduce poverty as a result of induced development in the project area; (ii) increase household income through job creation; (iii) improve basic infrastructure, education, and social services resulting from economic growth; (iv) provide the poor with safe and affordable mobility by access to a national network; and (v) increase the competition among local freight forwarders and wholesalers between villages and stations, and benefit poor farmers with increased outputs and fair pricing.

B. Sustainable Socioeconomic Growth

2. Construction of the YWR has significantly contributed to regional socioeconomic development. A total of CNY27.5 billion project investment in the project area within 6 years from 2005 to 2010 has strongly stimulated local industrial development, particularly in construction materials, energy, as well as the services sector. The statistical data shows that socioeconomic conditions in the project area have improved rapidly in recent years. From 2002 to 2010, per capita gross domestic product growth rates in project areas ranged from 142% to 446% (Table A13.1).

Table A13.1: Per Capita Gross Domestic Product Growth in the Project Areas (CNY/person) Chongqing Hubei Province Municipality Item Wujiagang Dianjun Changyang Badong Jianshi Enshi Lichuan Wanzhou 2002 11,993 5,532 5,725 3,237 2,020 2,119 2,385 6,155 2010 43,925 26,067 13,834 11,503 9,117 11,578 7,862 32,350 Growth 266% 371% 142% 255% 351% 446% 230% 426% (2002–2010) Annual 18% 21% 12% 17% 21% 24% 16% 23% Growth Rate Sources: ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yichang–Wanzhou Railway Project. Manila, ; Yichang Municipality Statistics Yearbook, 2010; Enshi Prefecture Statistics Yearbook, 2010; and Wanzhou District Statistics Yearbook, 2010.

C. Increased Rural Income and Poverty Reduction

3. With the rapid economic growth and the increased fiscal revenues of the local governments, the standard of livelihood and income of local people have been significantly improved, particularly for the poor. According to statistics of the county governments, the growth of farmers’ per capita incomes ranged from 74% to 255% in those counties and cities from 2002 to 2010 (Table A13.2). The incidence of poverty in the project area has been reduced

Appendix 13 51

significantly. The poverty incidence in project counties and districts along the alignment decreased by 5.80 to 18.58 percentage points1 from 2002 to 2010 (Table A13.3).

Table A13.2: Rural Per Capita Income in Project Area (CNY/person) Chongqing Hubei Province Municipality Item Wujiagang Dianjun Changyang Badong Jianshi Enshi Lichuan Wanzhou 2002 4,028 2,755 1,808 1,214 1,225 1,220 1,210 1,501 2010 6,993 5,922 3,611 3,244 3,243 3,250 3,250 5,332 Growth (2002–2010) 74% 115% 100% 167% 165% 166% 169% 255% Annual Growth Rate 7% 10% 9% 13% 13% 13% 13% 17% Source: ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yichang–Wanzhou Railway Project. Manila, Yichang Municipality Statistics Yearbook, 2010, Enshi Prefecture Statistics Yearbook, 2010, and Wanzhou District Statistics Yearbook, 2010.

Table A13.3: Poverty Incidence in Project Area

Chongqing Hubei Province Municipality Item Wujiagang Dianjun Changyang Badong Jianshi Enshi Lichuan Wanzhou 2002 14.40% 23.50% 34.90% 49.50% 47.50% 40.70% 45.90% 21.20% 2010 ... 14.06% 29.10% 36.66% 39.98% 33.41% 27.32% 10.90% Reduction 9.44 5.80 12.84 7.52 7.29 18.58 10.30 (pp) ...... = not available, pp = percentage point. Sources: ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yichang–Wanzhou Railway Project. Manila, and railway support offices along the railway alignment.

D. Improved Welfare of Local Communities

4. In addition to increased rural income per capita, with the project area’s rapid socioeconomic growth and the increased fiscal revenues of the local governments, the welfare status of local communities and local people have been significantly improved, including health care, rural roads, education, telecommunication, and broadcasting (Table 13.4).

5. Project implementation directly contributed to local infrastructure and community facilities through provision of access roads, schools, and water supply facilities. As one byproduct of railway construction, a total of 600 km of access roads to construction sites were either constructed or upgraded during construction of the YWR. Those access roads and bridges are now being used by local communities along the railway alignment. The roads have significantly improved the local transport conditions in remote mountain areas, and enabled the local people to have access to local markets, schools, and hospitals through access roads linked with the highway network. For example, the contractor constructed 7 km of access road from Luobutang village and Sanchahe village to Chexi town in Dianjun District, which is the first paved road for these two villages. In Lichuan City, the Railway Support Office proposed to incorporate rural roads network improvement into construction access roads, and 52 km of local roads were constructed at a cost of CNY4 million, which directly benefited about 100,000

1 A percentage point is the unit for the arithmetic difference of two percentages.

52 Appendix 13 villagers in four townships. The water wells and pump stations constructed by contractors also improved the water supply of local communities in the mountainous area. Luobutang village is located at an altitude of 570 meters and frequently suffers from lack of drinking water during dry seasons. A pump station with a head of 110 meters and a water pool with a capacity of 500 cubic meters were constructed to supply water to both construction site and village. Similar water supply facilities were also constructed in 13 locations in the villages of Huangjiapen, Shuangxi, and Tanjiahe in Dianjun District. In addition, the staff of YWR headquarters and contractors donated CNY650,000 to construct a primary school to enable those children from poverty households to enjoy equal education opportunity.

Table A13.4: Improved Welfare of Local Communities in Enshi Prefecture Growth Indicator Unit 2002 2010 (%) A. Health A1.Hospital beds bed 6,259 12,583 101.0 A2.Doctors and nurses person 10,169 16,444 62.0 B. Roads B1.Density of highway km/100 km2 64.59 76.42 18.0 B2.Villages access to highway % 90.00 100.00 11.0 C. Education C1.Enrollment rate of preliminary school % 99.60 100.00 0.4 C2.Enrollmentrate of middle school % 93.29 98.50 6.0 D. Telecommunication D1.Telephone 10,000 households 11.83 43.69 269.0 D2.Mobile phone 10,000 sets 22.24 264.25 1,088.0 E. Broadcast Coverage E1.Radio % 91.00 97.13 7.0 E2.Television % 92.00 97.43 6.0 km/100 km2 = kilometers per 100 square kilometers. Sources: Enshi Prefecture Statistics Yearbook, 2010.

E. Increased Rural Development and Reduced Living Costs

6. Operation of the YWR directly increases competition among local freight forwarders and wholesalers, which benefits poor farmers with fair pricing. Wanzhou District is one of the largest orange plantation bases with annual production of around 180,000 tons. Due to high transportation costs, oranges could be sold in time resulting in deterioration in quality and consequent low market price. After the YWR was opened to traffic in December 2010, the local prices of orange increased markedly from CNY0.4–CNY0.6 per kilogram (kg) to CNY 2.0/kg, which significantly increased the income of local farmers.

7. According to the social and poverty monitoring completion report prepared by the external monitor, local governments improved the infrastructure for horticulture and livestock business during construction and after opening of the YWR. For example, (i) Wujiagan district allocated a total of 375 mu of land for village development in storage, business, hotels, and markets for those villages close to the railway, the annual revenues from which are expected to reach CNY2 million; 2 (ii) the Dianjun district government organized the famers to plant

2 A mu is a Chinese unit of measurement (1 mu = 666.67 square meters).

Appendix 13 53 vegetables, including 300 mu of kidney beans and cucumbers, and 500 mu of potatoes in Luobutan and Sanchakou villages; (iii) Changyang County developed six production bases for mountain vegetables, Boer goats, Qingjiang fish, high-grade fruit, tea, and herbs; and (iv) Lichuan City and Wuqiao district also enhanced development in fruit, animal husbandry, high- grade tea, and vegetable production. These production activities induced by the construction and opening of the YWR have increased rural development in the project area.

8. Operation of the YWR has also reduced the prices of inbound commodities, which has improved the living standards of local people, particularly the poor. Wu Minzhen, a clothes wholesaler in Wanzhou, said that the opening of the YWR has reduced his costs by at least 10% since it only takes 22 hours by train from Wanzhou to Guangzhou. With the further development of freight transportation on the YWR, it is expected that the transport costs of commodities and materials such as fertilizers will be further reduced.

F. Job Creation

9. Local employment was promoted during construction of the YWR. According to the external monitor, construction provided work for 790,830 person-days of unskilled labor, of which 620,660 person-days (78%) came from the local labor market (Table A13.5). Among the local employment, 404,750 person-days (65%) of work went to laborers from poor households. With daily wages at CNY29–CNY42, a total of CNY13.74 million was disbursed to local poor households during the entire construction period, contributing greatly to poverty reduction in the project area. According to a survey conducted by the Enshi Railway Supporting Office, the average annual per capita income of villagers in Gaokanzi village, Lichuan City has increased by CNY2,030 since construction of the YWR.

10. Locally procured construction materials and supplies also provided a great many employment opportunities in the project area. According to the social and poverty monitoring reports, construction of 1 km of railway requires at least 560 tons of cement; 10,000 cubic meters (m3) of macadam and sand; and 3,300 m3 ballast, bricks, and prefabricated parts. For construction of the YWR, large quantities of such construction materials were purchased from local markets. This therefore also created a large amount of indirect employment opportunities for the local labor market.

11. Since the YWR opened to traffic in December 2010, local laborers have been hired to load and unload freight cars, as well as to work as security guards and maintenance staff for the stations and railways. A total of 193 local laborers had been recruited in Enshi and Wanzhou sections by March 2011. With the growth of railway traffic, more direct, indirect, and induced employment opportunities will be generated for local workers, and particularly for the poor.

12. Due to labor shortages and rising land prices, increasing numbers of enterprises and investments from the coastal areas have been gradually transferred to inland areas. Construction and operation of the YWR has greatly facilitated such transfer in the project area. The YWR has given the local governments a significant opportunity to attract external investments. New industrial parks have been constructed close to the YWR, and more enterprises have started operations along the railway alignment. According to the Enshi Prefecture Railway Support Office, from 2006 to 2010, 493 enterprises with CNY9.7 billion of investments started operations in four counties along the YWR alignment. The booming industrial parks play an important role in providing employment to local surplus labor.

54 Appendix 13

Table A13.5: Job Creation during Construction of the Yichang–Wanzhou Railway

Average Wages County/ Number of laborers Local laborers Local poor laborers (CNY/person-day) Province District (person-days) (person-days) (person-days) Min. Max. Hubei Wujiagang 33,210 26,418 12,478 35 42

Dianjun 103,301 79,480 43,848 35 42

Changyang 77,453 63,627 43,303 31 36

Badong 81,913 64,449 43,305 29 35

Jianshi 102,237 79,836 58,356 29 36

Enshi 117,849 87,572 60,616 31 38

Lichuan 147,017 121,168 82,064 30 35 Chongqing Wanzhou 127,850 98,110 60,780 29 38 Total 790,830 620,660 404,750 29 42 Sources: Poverty Reduction Impact Assessment Report of Yichang–Wanzhou Railway Project, Fourth Survey and Design Institute of China Railway, 2010.

G. Safe and Affordable Mobility

13. The opening of the YWR provides safe mobility for local passengers including migrant labor. The local economy has long lagged behind those of other regions in the PRC. Agriculture made up the largest share of the local economy, and the proportion of secondary and tertiary industries was quite low. Thus, there were limited opportunities to absorb the surplus rural labor, and a large number of laborers worked outside the region. Although some migrant laborers have been recruited by local enterprises in recent years, there are still large numbers of surplus rural laborers working outside the region; in Enshi prefecture it is estimated that 700,000 laborers are working elsewhere. Most return home during the Spring Festival every year, and road accidents due to the poor road conditions have been a big concern.

14. The YWR has provided a cheaper, more affordable, and much safer transport service for migrant labor as well as local people, particularly the poor. The cost of train travel is much lower than that of travel by bus. Table A13.6 shows that travel costs from Enshi city to regional cities or counties by train are 70%–87% lower than travel by bus.

15. Improved transport service has greatly improved local mobility and consequently changed the lifestyle of local people as well as their social behavior. It was noted that many young people take the train from Enshi to Yichang to watch IMAX movies, and old people visit their relatives more frequently by train. In addition, the project area is rich in tourism resources, and the opening of the YWR attracts foreign and domestic tourists. According to the Enshi Prefecture Tourism Commission, 16.6 million tourists visited Enshi prefecture in 2011, the first year after the opening of the YWR, compared to 10.6 million in 2010. The tourism revenues hit CNY8.64 billion, which was an increase of 70.8% compared to CNY5.06 billion in 2010.

Appendix 13 55

Table A13.6: Comparison of Travel Costs by Train and Bus from Enshi City to Regional Cities and Counties

Price by Price by Price Distance Hours Train Bus Reduction Destination (km) (by train) (CNY) (CNY) (%) Wuhan 586 7.0 70.0 280 75 Chongqing 562 8.0 39.0 250 84 Chengdu 694 10.0 94.0 310 70 Wanzhou 163 2.0 13.0 70 81 Dazhou 320 5.0 47.0 150 69 Yichang 214 2.0 17.0 130 87 Jingmen 323 4.0 29.0 150 81 Lichuan 61 0.6 7.0 50 86 Jianshi 35 0.4 4.5 30 85 Source: Train Ticket Booking System of China Railway, March 2011.

H. Gender Development

16. The construction and operation of the YWR has promoted gender development in the project area. A significant number of laborers working on the YWR were women, typically engaged in cleaning and maintaining trucks and other equipment, cooking for construction teams, and sanitation work at the construction sites. Female employees enjoyed wages equivalent to those of male employees for similar job types. The YWR has facilitated rapid improvement in local socioeconomic conditions, and increasing numbers of girls and women are working in nearby enterprises. In addition, rail travel also enables women to be engaged as migrant laborers to work outside the region and increase their income. Meanwhile, it is convenient for them to return home by train to look after their families in case of emergency.

I. Ethnic Minority Development

17. Ethnic minorities accounts for 39% of the total population in the YWR project area. Tujia is the major minority, accounting for 92% of the total minority population. The project preparatory technical assistance (TA) study indicates that most minorities have been integrated with Han people without any discrimination and enjoy a series of preference policies issued by the Government of the PRC. The socioeconomic status of minority people is similar to that of Han people. During construction of the YWR and implementation of the resettlement plan, local governments and the YWR Central Headquarters took the following measures to mitigate adverse impacts and ensure that minority communities received equal project benefits in a culturally appropriate way: (i) construction of shops close to railway stations to improve the income of minority households who were affected by land acquisition, (ii) investment in converting sloped land to terraces to increase agricultural output, (iii) engagement of minority laborers as unskilled construction workers for the YWR to increase their incomes, (iv) public investment and railway construction to improve the infrastructure and minority community facilities, and (v) enhancement in protection and promotion of minority culture to sustain self- recognition in the region. For instance, the Enshi railway station was designed by considering many Tujia minority features, such as Tujia hanging houses and totems of white tigers. In general, the operation of the YWR creates development opportunities for those minority communities in remote mountain areas.

56 Appendix 13

J. Monitoring and Evaluation

18. The Fourth Survey and Design Institute of China Railway (FSDI) was engaged as the external agency to conduct monitoring and evaluation of social impact and poverty reduction for the project. The FSDI prepared and submitted the first social and poverty monitoring report to ADB in March 2005, and it submitted subsequent reports in May 2006, August 2007, and June 2008. In August 2010, the FSDI submitted the social and poverty monitoring completion report to ADB. These reports concluded that the construction and operation of the YWR have greatly contributed to regional socioeconomic development, poverty reduction, and gender development.

K. Conclusions

19. Recognized as the most difficult railway line ever constructed in the PRC, the YWR has a very special history3 and represents the realization of a 100-year dream for millions of local people in the project area. Its construction and opening has had significant impacts on regional socioeconomic development and poverty reduction, including (i) significant regional gross domestic product growth; (ii) reduced poverty incidence in project areas; (iii) improved welfare of local communities and local people; (iv) increased agriculture income and reduced living costs as a result of reduced transport costs; (v) job creation during railway construction and operation as well as booming industrial parks and tourism; (vi) safer, faster, and more affordable mobility for local people and migrant labor; and (vii) improved gender development and ethnic minority development.

3 Construction of this railway commenced as early as 1909 by Qing Dynasty Government but had to stop after only 18 months due to the Railway Project Crisis, which subsequently triggered the Revolution of 1911. Dr. Sun Yat-sen also proposed this railway in his ambitious and romantic The International Development of China (1922).

Appendix 14 57

LAND ACQUISITION AND RESETTLEMENT

A. Scope of Land Acquisition and Resettlement

1. The resettlement plan for the Yichang–Wanzhou Railway (YWR) Project was prepared by the Ministry of Railways (MOR) in 2003. The resettlement plan showed that the railway project would involve land acquisition, demolition of buildings and houses, and resettlement of affected persons. Total land acquisition was estimated to be 1,087 hectares (ha) (16,309 mu1), which includes land required for constructing the railway line and for railway stations. Building demolitions were estimated to total 449,169 square meters (m2) and would require the relocation of an estimated 17,752 people. In addition, the temporary land acquired for construction purposes was estimated to be 203 ha (3,047 mu).

2. According to the Yichang–Wanzhou Railway Construction Headquarters (YWRCH), most resettlement activities began in late 2003 and were largely completed by the end of 2005. In total, 15,498 mu of land was permanently acquired, which was 5% less than the estimate in the resettlement plan. A total of 628,748 m2 of buildings were demolished, which was 40% more than the estimate in the resettlement plan. The number of displaced persons was 12,336, which was 31% less than estimated. In addition, 10,264 mu of land were temporarily used during YWR construction. Table A14.1 presents the actual project impacts as compared to those estimated in the resettlement plan.

Table A14.1: Project Land Acquisition and Resettlement Impacts Item Unit Hubei Chongqing Totala A. Permanent Land Acquisition RP mu 15,052 1,257 16,309 Actual mu 14,447 1,051 15,498 Actual vs RP % 96 84 95 B. Temporary Land Use RP mu 2,691 356 3,047 Actual mu 9,202 1,062 10,264 Actual vs RP % 342 298 337 C. Building Demolition RP m2 361,405 87,764 449,169 Actual m2 560,459 68,289 628,748 Actual vs RP % 155 78 140 D. Displaced Personsb RP persons 14,888 2,864 17,752 Actual persons 10,883 1,453 12,336c Actual vs RP % 73 51 69 m2 = square meter, RP = resettlement plan. a The original estimate made provision for double tracking. b The number refers to physically displaced (relocated) persons. The number of economically displaced affected by land loss was not available because the narrow alignment affects a large number of households to a small degree. Nonetheless, resettlement implementation focused on station areas, where land loss was most serious. c An estimate was made due to lack of a census. The estimate was one household per 100 m2, and the average size of households was 200 m2, which accounts for the decrease in the number of displaced persons, even when demolitions were increased. Source: Yichang–Wanzhou Railway Construction Headquarters, Ministry of Railway.

3. Compared with the single-tracked design in the feasibility study report, the change of 163.15 km to double-tracked design did not require additional land acquisition because this future provision was included in the original resettlement plan. In addition, the number of railway stations was reduced from 39 to 12, which reduced the amount of actual permanent land

1 A mu is a Chinese unit of measurement (1 mu = 666.67 square meters).

58 Appendix 14 acquisition. Consequently, the actual amount of permanent land acquisition was slightly less (5%) than that estimated in the resettlement plan. The changes in the amount of temporary land use, building demolition, and displaced persons were mainly due to estimation in the resettlement plan on the basis of the feasibility study report, and the lack of a census of affected persons.

B. Resettlement Policy and Compensation Rates

4. Land acquisition and resettlement was implemented based on the resettlement plan, the 1998 Land Administration Law, and the following government rules, regulations, and agreements: (i) agreements on construction of the YWR among the MOR, Hubei provincial government, and Chongqing municipal government; (ii) circular no. 18 supporting Yiwan Railway construction issued by the Hubei provincial government in 2004, circular no. 4 for land acquisition and resettlement guidance for the Enshi section of the Yiwan Railway issued by the Enshi prefecture government in 2004, and circular no. 55 for implementation guidance on land acquisition and resettlement for the Wanzhou section of the Yiwan Railway issued by the Chongqing Wanzhou municipal government in 2003; (iii) circular no. 97 for adjustment of land acquisition and resettlement compensation rates issued by the Chongqing Wanzhou municipal government in 2005, as well as relevant circulars issued by local government during implementation of land acquisition and resettlement. Table A14.2 compares the actual land compensation rates under the project with the rates estimated in the resettlement plan.

Table A14.2: Land Compensation Rates (CNY/mua) Actual Item RP Hubei Chongqing A. Permanent Land Acquisition Paddy land 10,000 8,000–48,400 16,000–47,500 Dry land 8,000 4,550–36,000 16,000–47,500 Vegetable land 12,000 8,000–48,400 16,000–47,500 Orchard land 7,000 8,000–36,000 16,000–47,500 Fish ponds 8,000 6000–48,400 16,000–47,500 Forest land 5,000 4,500–18,000 16,000–47,500 Housing plots 5,000 6,660–36,000 16,000–47,500 Waste land (hilly area) 1,000 1,080–9,600 ... B. Young Crop Compensation Paddy land 500 400–1,000 700 Dry land 400 400–1,000 300–400 Vegetable land 600 600–1,200 900 Orchard land 350 300–800 300–700 ... = no data available, RP = resettlement plan. a A mu is a Chinese unit of measurement (1 mu = 666.67 square meters).Sources: Local governments’ implemented resettlement and compensation policies.

5. In general, the implemented land compensation rates are much higher than those estimated in the resettlement plan due to rapid increase in land prices during project construction, and some local governments made adjustments in land compensation rates during implementation. Moreover, the rapid increase in land prices also induced significant disparity in land compensation rates in different locations along the YWR alignment. Consequently, the

Appendix 14 59 uniform land compensation rates are no longer applicable during implementation of land acquisition and resettlement. Compensation rates for land occupied temporarily by the project included funds for both compensation and for restoring land to its original use. In formulating compensation rates, consideration was given to the length of occupation, the average annual output value of the land, as well as damage to the land.

6. The implemented compensation rates for house demolition are provided in Table A14.3. The implemented compensation rates were similar to those estimated in the resettlement plan. Local governments formulated more detailed compensation rates on the basis of local context. In addition to policy-based compensation, local government also provided subsidies and assistance in house rebuilding. For example, the Enshi municipal government took a series of measures to help affected households construct their new houses in concentrated resettlement sites, including (i) increasing house compensation rates by around CNY160/m2, (ii) allocating a house plot of 120 m2 for each affected household without additional payment, (iii) constructing new apartments for those new households separating from parents, (iv) subsidizing construction of groundwork at CNY30,000 per household on average, (v) providing a uniform design drawing for new houses and financing wall painting at CNY20,000 for each household, and (vi) spending CNY80 million on land leveling and construction of common infrastructure facilities for concentrated resettlement sites.

Table A14.3: Building Compensation Rates Actual Item Unit RP Hubei Chongqing A. Building Compensation Frame Structure CNY/m2 ... 190–400 ... Brick and Concrete CNY/m2 280 160–350 208–247 Brick and Timber CNY/m2 180 130–230 143–195 Earth and Timber CNY/m2 100 100–180 117–143 B. Relocation Subsidy CNY/HH 200 300 300 ... = no data available, HH = household, m2 = square meter, RP = resettlement plan. Sources: Local governments’ implemented resettlement and compensation policies.

7. The project compensation rates for land acquisition and house relocation were generally higher than those in local infrastructure projects but lower than those in real estate development projects. Considering the railway’s contribution to the public interest, the affected people strongly supported its construction and were generally satisfied with the compensation payments received.

C. Resettlement Measures and Income Restoration

8. All relocated households received compensation for buildings and attached properties from local railway resettlement support offices. Payments were made by local government. The MOR disbursed the funds to government on the basis of the signed agreement. Displaced persons moved into new houses constructed either by themselves in the villages or by local governments in the concentrated resettlement sites. In addition to cash compensation for lost houses and properties, the affected households were provided with new housing plots in (i) their same villages, or (ii) in the case of railway stations, nearby concentrated resettlement sites with public facilities constructed by local governments. Affected households also received relocation subsidies, transition allowances, and additional assistance in rebuilding new houses. Most affected persons moved into concentrated sites in 2005–2007. A few concentrated resettlement

60 Appendix 14 sites, including Enshi station, were delayed until the opening of traffic. Most of the new houses are multi-storied brick-concrete buildings that are much better than those before relocation. Although construction of some concentrated resettlement sites was delayed due to the time- consuming process for consultation and determination of resettlement locations, the displaced persons were satisfied with their new houses and better living conditions. According to the external monitoring report, more than 95% of new houses are brick-concrete buildings as compared with those less than 35% before relocation.

9. All affected villages were aware of the land compensation rates that had been implemented, and they received the full compensation according to resettlement policies. For those villages that still had sufficient land, the remaining lands were readjusted for all farmers within the village; thus the affected persons owned the same land areas as others. These villages used land compensation funds and resettlement subsidies for collective purposes or distributed the funds equally to all villagers. For those villages not able to readjust farmlands or where impacts were lower, the land compensation was paid directly to those farmers who lost land.

10. Local governments and affected villages formulated economic development plans and took various measures to help affected households to restore their income. The measures mainly include (i) promoting cash crops or fruit plantations and animal husbandry, (ii) developing a service industry for those affected communities near railway stations, (iii) engaging affected persons in constructing the Yiwan Railway, (iv) engaging villagers in migrant labor after providing skill training, and (v) formulating an insurance policy for farmers who lost land. The external resettlement monitoring report concluded that the levels of production and income of affected people are not lower than those before land acquisition and resettlement implementation.

11. The YWRCH, local railway resettlement support offices, and local governments provided various forms of assistance for vulnerable groups affected by the project. For example, Zhu Dongxiang, an old woman in Chunfang village, was resettled in a rest home financed by the Sanli township government; and Zhang Xueshan, a poor man in Qiugui village, was moved into a resettled house by the Hongyansi town government. According to the Enshi Prefecture Railway Support Office, CNY1 million was used for subsidies for vulnerable affected people, either in cash or in kind, that enabled them to rebuild their houses and restore their livelihood.

D. Land Acquisition and Resettlement Cost

12. According to the YWRCH, CNY637.48 million of land acquisition and resettlement costs were disbursed, an increase of 89.4% on the CNY336.63 million estimated in the resettlement plan. The main reason for the increase was the increased compensation costs for building relocation, temporary land use, and electricity and telecommunication line relocation and increased land compensation rates. Table A14.4 provides details of the actual land acquisition and resettlement costs. In addition, the local governments claimed to have spent another CNY473 million on resettlement (e.g., concentrated site development) but this amount is not reflected in the MOR project budget.

Appendix 14 61

Table A14.4: Land Acquisition and Resettlement Cost (CNY million) Item Hubei Chongqing Total Est. Variation 1. Permanent Land 100.22 7.43 107.65 106.26 1.3% Acquisition 2. Temporary Land Use 65.27 11.58 76.85 0.96 7,905.2% 3. Building Demolition 275.62 55.62 331.24 147.23 125.0% 4. Ground Attachments 25.54 0.90 26.44 5. Electricity and Telecommunication Lines ...... 95.30* 82.18 16.0% Relocation and Other Costs Total 466.65 75.53 637.48 336.63 89.4% ... = no data available. * The relocation of electricity and telecommunication lines was implemented by Yiwan Railway Construction Headquarters. Source: Yichang–Wanzhou Railway Construction Headquarters, Ministry of Railways.

E. Institutional Arrangement

13. The resettlement office under the YWRCH had overall responsibility for coordination, fund raising, and internal monitoring and evaluation for land acquisition and resettlement implementation. In addition to the railway support offices established under the Yichang, Enshi, and Wanzhou municipal or prefecture governments, eight county or district railway support offices and 39 township railway support groups were also established. The resettlement support offices under the governments at various levels along the alignment were responsible for implementing land acquisition, house demolition, and relocation.

F. Monitoring and Evaluation

14. The Fourth Survey and Design Institute of China Railway (FSDI) was engaged as the external agency to conduct external monitoring and evaluation for the project. The FSDI prepared and submitted the first resettlement monitoring report to ADB in March 2005, and submitted subsequent resettlement monitoring reports in May 2006, August 2007, and June 2008. In August 2010, the FSDI submitted the resettlement monitoring completion report to ADB.

G. Participation and Information Disclosure

15. Consultation and participation activities have been conducted extensively through the entire process of land acquisition, house demolition, and relocation. Representatives from affected villages, local governments, and the YWRCH participated in the process of formulating the resettlement plan. During the detailed measurement survey, the affected households participated in measuring affected lands and properties, and they endorsed the final inventory. Before implementation of land acquisition and house demolition, the county governments along the alignment disseminated resettlement booklets in the Chongqing section in October 2003 and in the Hubei section in July 2004. In addition, many consultative meetings were held during implementation among YWRCH, local railway support offices, village committees, and representatives of affected households to discuss issues regarding the selection of concentrated resettlement sites, house plot allocation and house rebuilding, disbursement and distribution of compensation funds, restoration of community facilities, etc. These timely information disclosures and consultation activities ensured a transparent process of land

62 Appendix 14 acquisition and resettlement implementation. During implementation, it is common to have numerous small complaints from affected persons around the construction sites and concentrated resettlement sites; however, these issues were handled in a proper manner and no serious complaints were formally submitted to the local government.

H. Conclusions and Lessons

16. The YWRCH and railway support offices under local governments at various levels consulted extensively with local communities and people affected by land acquisition and house relocation, worked proactively to solve the issues reported by affected communities and individuals during project implementation, and made great efforts to improve the income of the affected households. ADB also provided additional resources through attached TA and individual consultants to strengthen management of land acquisition and resettlement implementation. The resettlement monitoring completion report indicates that the level of production and income of affected people are not lower than those before land acquisition and resettlement implementation.

17. The resettlement costs were not adequately budgeted for. Given the underestimation of building demolition and relocation costs and increase in land compensation rates, the resettlement costs increased by CNY300 million (89%). Fortunately, the YWRCH and local governments took prompt action to raise funds to ensure timely completion of land acquisition and resettlement. It is suggested that the costs of land acquisition and resettlement should be budgeted adequately in future railway projects and fully incorporated in the project budget and its overall financial management.

18. Construction of some concentrated resettlement sites was delayed. Due to concentrated house demolition in railway stations and difficult mountainous areas, many affected households had to be resettled in concentrated resettlement sites. Given the complexity of preparation and construction of concentrated resettlement sites, construction at some sites was seriously delayed and the transition period of affected households was prolonged. It is suggested that the planning and preparation of concentrated resettlement sites should commence as early as possible in future railway projects, particularly for those sites close to large railway stations.

Appendix 15 63

ENVIRONMENTAL IMPACT ANALYSIS

A. Introduction

1. Under the Yichang–Wanzhou Railway Project, a 377 kilometer (km) railway was constructed, comprising a 288-km double-track section from Yichang to Liangwu and an 89-km single-track section from Liangwu to Wanzhou. Other activities under the project include laying of tracks with rails, sleepers, ballast, associated fittings, and fixings, and construction of (i) 13 traction substations and installation of power lines; (ii) 10 new stations and expansion of two existing stations; and (iii) freight yards and associated facilities.

2. The project was classified as Asian Development Bank (ADB) environment category A. The summary environmental impact assessment (SEIA) was prepared based on the domestic environmental impact assessment (EIA) and soil erosion protection plan (SEPP) in June 2003. The SEIA concluded that the project would have environmental benefits through reduced air pollution and soil erosion. Potential environmental impacts would be minimized to acceptable levels through adequately funded mitigation measures and monitoring programs.

3. The EIA report was approved by the State Environmental Protection Administration (SEPA) in October 2003. The SEPP was approved by the Ministry of Water Resources in March 2003. The updated EIA was approved by the SEPA in August 2006 to reflect the change in scope that the single-track railway in the original design was to be replaced with double-track line for the Yichang–Liangwu section. The completion technical review for the SEPP was undertaken by the Soil and Water Conservation Monitoring Station of the Yangtze River Commission (YRSMS) in November 2010. The completion technical review for the EMP was undertaken by the Environment Assessment and Engineering Center of the China Academy of Railway Sciences in November 2010.

B. Environmental Protection and Management

4. The Yichang–Wanzhou Railway Construction Headquarters (YWRCH) was responsible for coordinating environmental management for the project. The environmental management plan (EMP) and monitoring program were implemented during construction and adverse environmental impacts mitigated effectively. Particularly, the conservation program of the spawning bed of Chinese sturgeon has been successful.

5. The YWRCH established effective institutions to implement the EMP, as part of the SEIA, and the soil erosion protection plan (SEPP) during construction. At the beginning of the project, the YWRCH issued the Implementing Rules for Environment Protection and Soil and Water Conservation to regulate and assess the contractors’ performance in implementing the EMP. During construction, Beijing OASIS was engaged to oversee overall project environment monitoring. Local environment monitoring stations were engaged to undertake onsite monitoring of surface water quality, air, and noise. The YRSMS was contracted to monitor soil erosion as per the SEPP. The FSDI was engaged to supervise implementation of the EMP and SEPP. This is the first time in the development of the railways that a qualified entity has been engaged to supervise implementation of the EMP.

6. Four training workshops were held for contractors and project managers on environmental management. The training included soil and water conservation, biodiversity conservation, and good environmental management practices. The environmental awareness of

64 Appendix 15 contractors has been improved significantly through training, and this contributed to strengthened implementation of the EMP.

7. At appraisal, it was estimated that the total cost of environmental protection and mitigation measures would be about CNY1.9 billion. According to the YWRCH’s completion report, the actual total investment for environmental protection was CNY1.1 billion, which included investments for slope stabilization, ecological rehabilitation, embankment protection, and spoil revegetation and compensation payments for soil and water conservation.

C. Environmental Monitoring

8. Environmental monitoring was conducted adequately according to the monitoring program as stipulated in the SEIA. Environmental monitoring was undertaken at two levels: daily environmental monitoring by contractors and construction supervision companies, and periodic environmental monitoring by environment experts, who took samples for analysis in accordance with environment standards and technical codes.

9. During implementation, the YRSMS was engaged to carry out monitoring for soil erosion and of the ecological environment. Three local environmental monitoring stations—in Yichang, Enshi, and Wanzhou—monitored noise pollution, ambient air quality, and surface water quality along the alignment. Monitoring of the Chinese sturgeon spawning beds and population was undertaken by the Yangtze Aquatic Institute of the Chinese Academy of Aquatics. Based on site visit findings and sampling testing, 12 environmental monitoring reports were prepared and submitted to ADB, including one summary report for environmental management and one summary report for the Chinese sturgeon conservation program. The monitoring results showed no significant environmental damage occurred.

D. Environmental Impacts and Mitigation Measures

1. Noise

10. Noise impacts during construction were limited due to the remote locations of major construction activities. Noise from blasting machinery and earthmoving equipment were mitigated through utilization of low-noise equipment and designated working hours. Mitigation measures for potential noise from passing trains during operation have been fully adopted, and include (i) deployment of seamless tracks, noise reduction fasteners, and shock absorbers; (ii) integral concreted subgrades in tunnels longer than 3 km; and (iii) noise barriers at sensitive locations.

2. Ambient Air

11. During construction, dust was mitigated through frequent wetting of roads as required in the EMP. The EIA identified that there would be minimal impacts from the five diesel shunting locomotives scheduled for operation at Yichang and Enshi stations and five oil-burning boilers for specified stations and residential quarters. However, according to the final design, solar and electric heaters were adopted to replace the proposed boilers. Thus, project-related air pollution as envisaged in the EIA has been reduced significantly because of the utilization of cleaner technologies.

Appendix 15 65

3. Surface and Ground Water

12. During construction, adverse impacts on surface water were limited and were mainly from siltation and waste from construction sites and workers’ camps. All proposed mitigation measures have been undertaken appropriately. During operation, potential water pollution is mainly from domestic wastewater from railroad stations and living quarters and partially from wastewater with oil from train maintenance. About 4,170 tons of wastewater will be produced daily when the railway and stations are in full operation. Wastewater treatment facilities have been constructed effectively according to the EIA requirements. The wastewater will be discharged after treatment and meeting the discharge standards.

4. Solid Wastes

13. During construction, the main solid wastes were from construction disposals. Twenty six borrow pits were employed to provide 3.39 million cubic meters (m3) of earth materials. Twenty two disposal sites were employed to store 3.25 million m3 of excavation materials from subgrade and embankment construction. Fifty five spoil sites were built for disposal of 17.67 million m3 of excavation materials from tunnel construction. Other construction spoil and wastes were disposed of at 117 other controlled sites. The borrow pits and disposal sites have been restored and rehabilitated through retaining structures, drainage systems, and vegetative measures. Domestic solid wastes from stations during operation are collected and disposed of according to domestic regulations.

5. Ecological Environment

14. The project had no negative impacts on protected areas of primary forests. During construction, the contractors carried out the environmental protection provisions in their contracts. All sites temporarily occupied during construction were restored. Cutting surfaces, subgrades, and embankment slopes were generally stabilized through appropriate vegetative and structural measures (i.e., retaining walls, antiskid piles, rock bolts, and side ditches) to prevent soil erosion. Spoil banks were covered with vegetation to control erosion.

15. During construction, six ficus and holly trees older than 100 years were found and have been specially protected through fencing and marking. All contractors were required to report observation of rare and endangered animals. Local animal and tree species management authorities were consulted regarding flora and fauna conservation.

16. The project permanently occupied 1,033 ha of land and temporarily occupied 684 ha. All targets for soil and water conservation have been met according to national regulations.

6. Chinese Sturgeon Conservation

17. The Hubei Provincial Environmental Protection Bureau approved the construction of the Yichang Extra-Large Bridge crossing, providing the special permission under three conditions: (i) construction methods must minimize disruption to the riverbed and fish population, (ii) no foundation work would be allowed from 15 September through 30 November (the sturgeon spawning season), and (iii) the construction contractor(s) will have strict liability for any ecological damage caused during construction.

18. During preconstruction, the Yichang Extra-Large Bridge was designed with three piers in the Yangtze River, thus minimizing disruption to the riverbed and fish population. Bridge

66 Appendix 15 construction started in February 2004. During construction, the construction schedule was strictly arranged according to the EMP and conservation program.1 Mitigation measures were implemented adequately. The summary report by the CRFSDI concluded that the Yichang bridge construction crossing the Yangtze River had had no impacts on the population and spawning habitats of Chinese sturgeon. Continued monitoring by the Yangtze Aquatic Institute of the Chinese Academy of Aquatics also shows the Chinese sturgeon population to be stable.

7. Access Roads

19. A total of 600 km of access roads to construction sites were constructed during implementation. These access roads have been handed over to the local governments and are being used as main roads by the local communities. The access roads were included in the project environmental management plan. All proposed mitigation measures have been effectively implemented to minimize adverse impacts due to construction of these roads according to the project environmental management plan. The environmental management measures are being undertaken for maintenance and operation according to the government regulations and laws.

E. Conclusions

20. During construction, all the contractors fulfilled their obligation to protect the environment and to implement mitigation measures at their construction schemes. The adverse effects of the project on the surrounding environment were thus minimized. No rare natural resources were affected as a result of the project. During operation, the impacts on the ambient environment are minor. During its operations, the project will generate environmental benefits from emission reduction and improved soil and water conservation.

1 The conservation program refers to the government management programs for Chinese sturgeon conservation in the Yangtze River, which set certain requirements for compliance in case of construction activities.