Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 45 166-CN

PROJECT APPRAISAL DOCUMENT

ON A Public Disclosure Authorized PROPOSED LOAN

IN THE AMOUNT OF US$300 MILLION

TO THE

PEOPLE’S REPUBLIC OF

FOR A

GUIGUANG RAILWAY PROJECT Public Disclosure Authorized March 5,2009

China and Mongolia Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region

Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS

(Exchange Rate Effective 15 July 2008)

Currency Unit = RMB (Chinese Yuan Renminbi) RMBl.00 = US$0.146 US$l.OO = RMB 6.85

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS ATP Automatic Train Protection CQS Consultants’ Qualifications CR China Railways CTC Centralized Train Control DA Designated Account EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EMDP Ethnic Minority Development Plan EMP Environmental Management Plan EMU DPs Displaced Persons FBS Fixed Budget Selection FCTIC Foreign Capital and Technical Import Center (of MOR) FIRR Financial Internal Rate of Return FM Financial Management FMS Financial Management Specialist FYP Five Year Plan GDP Gross Domestic Product GSG Greenhouse Gas HSR High-speed Rail IBRD The International Bank for Reconstruction and Development ICB International Competitive Bidding ICR Implementation Completion and Results Report IDA International Development Association MLTDP Mid- and Long-Term Railway Development Plan MOR Ministry of Railways NCB National Competitive Bidding NDRC National Development and Reform Commission NPV Net Present Value QBS Quality-based Selection QCBS Quality- and Cost-based Selection PCN Project Concept Note PIC Public Information Center PID Project Information Document FOR OFFICIAL USE ONLY PMO Project Management Office RA Regional [Railway] Administration RAP Resettlement Action Plan SEPA State Environmental Protection Agency SOE Statements ofExpenditure SOEs State-owned Enterprises sss Single Source Selection

Vice President: Mr. James W. Adams, EAPVP Country Director: Mr. David R. Dollar, EACCF Sector Director: Mr. John Roome, EASSD Sector Managers: Mr. Ede Jorge Ijjasz-Vasquez, EASCS Ms. Junhui Wu, EASTE Task Team Leader: Mr. John Scales, EASCS

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

CHINA GuiGuang Railway Project

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B. Rationale for Bank involvement...... -3 C . Higher level objectives to which the project contributes ...... 4

I1. PROJECT DESCRIPTION...... 5 A . Lending instrument...... 5 B. Project development objective and key indicators ...... 5 C . Project components...... -5 D. Lessons learned and reflected in the project design ...... 6 E. Alternatives considered and reasons for rejection...... 7

I11. IMPLEMENTATION ...... 8 A . Institutional and implementation arrangements ...... 8 B. Monitoring and evaluation of outcomes/results ...... 8 C . Sustainability ...... 9 D. Critical risks and possible controversial aspects ...... 10 .. E. Loan conditions and covenants ...... 15

IV. APPRAISAL SUMMARY ...... 17 A . Economic and financial analyses ...... -17 B. Technical ...... 19 C . Fiduciary ...... 20 D. Social ...... -21 E. Environment ...... 22 .. F. Safeguard policies...... 23 G. Policy Exceptions and Readiness ...... 24

Annex 1: Country and Sector Background ...... 25

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 33 Annex 3: Results Framework and Monitoring...... 35

Annex 4: Detailed Project Description ...... 37

Annex 5: Project Costs ...... 41

Annex 6: Implementation Arrangements...... 42

Annex 7: Financial Management and Disbursement Arrangements ...... 44

Annex 8: Procurement Arrangements...... 52

Annex 9: Economic and Financial Analysis ...... 60

Annex 10: Safeguard Policy Issues ...... 72

Annex 11: Project Preparation and Supervision...... 90

Annex 12: Documents in the Project File ...... 92

Annex 13: Statement of Loans and Credits...... 93

Annex 14: Country at a Glance ...... 97

Annex 15: Map ...... 99 CHINA

GUIGUANG RAILWAY PROJECT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASCS

Date: March 5,2009 Team Leader: John Carter Scales Country Director: David R. Dollar Sectors: Railways (100%) Sector Managershlirector: Ede Jorge Ijjasz- Themes: Public expenditure, financial Vasquez; Junhui Wu/John Roome management and procurement (P) Project ID: P107559 Environmental screening category: Full Assessment Lendinn" Instrument: SDecific Investment Loan

[XI Loan [ ]Credit [ 3 Grant [ 3 Guarantee [ 3 Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 300.00 Proposed terms: VSL; the loan would be payable in 25 years including 5 years of grace and annuity principal repayment at six-month LIBOR for US Dollar plus variable spread for

Borrower: Ministry of Finance San Li He Lu, , China 100820 Tel: 86-10-68551 124 Fax: 86-10-68551 125

Responsible Agency: Ministry of Railways Foreign Capital & Tech. Import Center 10 Fuxing Rd, Beijing 100844, China Tel: (86-10) 5184-2825 Fax: (86-10) 5 184-8407 Email: [email protected] hual I 0.00 I 5.00 I 20.00 I 70.00 I 85.00 I 70.00 I 50.00 I I 3umulativeI 0.00 I 5.00 I 25.00 I 95.00 I 180.00 I250.00 I300.00 I Project implementation period: Start: Mid 2009 End: December 3 1, 2015 Expected effectiveness date: July 1, 2009 Expected closing date: December 3 1, 2015 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD I.C. Does the project require any exceptions from Bank policies? ReJ: PAD IKG. [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO 1[ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Re$ PAD IILE. Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD IKG. Project development objective Rex PAD II.C., Technical Annex 3 The development objective of the project is to provide additional transport capacity and reduce transport time between the less developed western region in and the relatively more developed region.

Project description [one-sentence summary of each component] Ref: PAD II.D., Technical Annex 4 The project consists of a single component, which is the construction of a new double track electrified railway line of about 857 km and railway stations between Guiyang in province and in province (GuiGuang line). In addition to the physical construction ofthe GuiGuang line there is related technical assistance.

Which safeguard policies are triggered, if any? Ref: PAD IKK, Technical Annex 10 Environmental Assessment(OP/BP 4.01); Natural Habitats (OP/BP 4.04); Physical Cultural Resources(OP/BP 4.1 1); Involuntary Resettlement(OP/BP 4.12); Indigenous Peoples (OP/BP 4.10)

Significant, non-standard conditions, if any, for: ReJ: PAD III.F.

Board presentation: None.

Loadcredit effectiveness: None. Covenants applicable to project implementation:

The Borrower shall cause MOR and through it the project provinces to implement their respective obligations under the RAP, the RAP Arrangements, the EMP and the EMDP in a manner satisfactory to the Bank including monitoring on a six monthly basis the implementation of the RAP, the RAP Arrangements, and the EMDP; and preparing a post-resettlement evaluation report. In addition, MOR shall supplement the RAP in order to update the implementation measures including for villages severally affected by the project.

The Borrower shall cause the MOR to engage and retain an independent procurement agent, construct the GuiGuang Railway line through the Preparation Group in accordance with appropriate technical standards, ensure that the GuiGuang Railway Line is commissioned for operation no later than December 3 1, 2015 and thereafter take all necessary measures to ensure that it is operated and maintained in a financially and administratively viable manner, and maintain the Preparation Group and FCTIC. The Borrower shall also cause MOR and the project provinces to maintain records and take all necessary actions to facilitate project implementation.

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. The railway sector is vital to China, especially to its continued economic growth and development and its international trade. Railways also enhance China’s ability to extend the benefits of its development more widely through society and to people living in remote regions. China is a vast country where people and freight move over long distances. Aside from specific inland waterway routes, railways provide the most economic means of transport for a wide range of freight and passenger markets. In comparison to highways of similar capacity, railways are also more energy efficient, environmentally-friendly and consume less land; an increasingly important consideration.

2. For the last 10-15 years, the Chinese Government has been pursuing two key objectives in the railway sector. One is to reform the industry to become more responsive to the market economy. The other is to achieve an innovative change in the capacity and quality of infrastructure and services in a railway system that is already the busiest, by a wide margin, of any in the world. Seeking to attain these two goals simultaneously is the most challenging railway industry agenda currently facing any government.

3. Between 1997 and 2007 traffic on the China Railways network grew very rapidly. Passenger traffic (measured in passenger-km) grew by 100% and freight (in tonne-km) grew by 80%. Traffic growth was particularly strong between 2000 and 2007, averaging 7.1YO per year for passengers and 8.1 % per year for freight. The network has been expanded over the last 10 years but has been unable to keep pace with traffic demand. Today, China Railways carries a quarter of the world’s rail traffic on 6% of the world’s track length. Rail infrastructure utilization (measured by traffic units per route-km) is around three times as high as on the United States Class 1 system and over nine times that of the European Union.

4. As a result, much of the system, already intensively used a decade ago, now operates close to or at capacity. Some traffic on these routes is diverting to transport modes with higher economic and social costs. Moreover, with such high levels of utilization there is little scope for introducing more specialist, demand-responsive services sought in the market economy, such as express freight and container services. To avoid railway congestion slowing sustainable economic growth in China, its railway network and services need to be both increased and improved.

5. In 2004, the State Council approved the Ministry of Railways’ (MOR) ‘Mid- and Long- Term Railway Network Plan’, which set out the investment required at the rate of about US$ 12- 15 billion per year through 2020 to keep pace with demand. This plan was subsequently revised and increased (Table l),with an approximate doubling in the length of new construction.

1 Table 1: MLTDP and Five Year Plan (FYP) Targets (km)

1. End of 2006 value.

6. The massive investment required implies that structural changes in the rail industry will be needed to ensure the most efficient use of resources. External funding is also needed to complement public sources. This is currently being mobilized through the proceeds ofrailway bonds and by using the Chinese Social Security Fund through a trust fund. In 2006 these two sources supplied 3 1YO of the funds used, compared to an average of4% during the preceding five years. In response to the strategic goals set by the national leadership, the National Development and Reform Commission (NDRC) has determined the framework for reform ofthe rail industry, among other industries, and has detailed the underlying policy principles in “State Development and Reform Commission: China’s Key Reforms in Seven Fields in 2004”.1 This document sets out three principles that underpin the railway reform process in China:

0 separation of government administration ofthe railways from enterprise management 0 introduction of competition where beneficial; and

0 effective industry regulation

7. MOR will specify the actions and timing that are necessary to implement the principles established by NDRC. MOR has undertaken many reforms over the past two decades and is committed to changes that will enable it to meet the challenge of functioning in a market economy, including competing successfully with other modes. As the reform process makes MOR increasingly investor-friendly it is anticipated that more capital from the private sector will be attracted.

8. MORhas already taken several major steps to facilitate structural and organizational reforms, including the separation ofnon-core units, the separation of the accounting ofthe passenger transport business, granting concessions to some 100 branch lines, the establishment ofregulations to permit foreign investment, and the establishment of special-purpose subsidiaries. It has also eliminated an entire layer ofmanagement, the sub-regional

Xinhua Net Beijing, April 14,2004; report on “Opinion on Implementing the Guidelines ofthe Decision of the Third Plenary Session of the 16” Party Central Committee in Pushing the 2004 Economic Reform”.

2 administration, thereby reducing overhead costs and leading to more flexible and efficient programming of locomotives and crews. All ofthese implemented measures, described in Annex 1, are important for MOR’Ssector reform and service enhancement objectives.

9. In November 2008, in response to a growing global financial crisis, the Government announced an economic stimulus package that included a huge increase in infrastructure spending with an emphasis on railway development. This plan will accelerate the development plans increasing the annual investment in railways to US$60-90 billion per year over the two years ofthe stimulus plan. This will include for the first time a yet unidentified amount of central Government support. One ofthe first eight projects to be targeted is the subject ofthis document.

B. Rationale for Bank involvement

10. The three reform principles cited above - separation ofpolicy functions of government from the management ofenterprises, the introduction of competition, and the enhancement ofthe regulatory system - require MORto continue policy reform in the upcoming years. An implementation program has not yet been established and NDRC has requested the Bank’s advice regarding international experience on these issues. However, NDRC, MOR and the Bank all recognize that progress in implementing the reforms, though partly spurred by the need to generate new sources offinancing, will be driven by political imperatives largely independent of the capital investment program.

11. The three parties, NDRC, MOR, and the Bank, therefore agreed in 2005, to pursue a railway policy dialogue on a parallel but separate path from the implementation ofindividual investments, including this project. The Bank’s ongoing financial involvement with MOR sustains a working relationship oftrust with the relevant government agencies, ensuring it a continuing vital role in the evolving policy discussions. Throughout its 15-year history of support, the Bank has been influential in the physical and policy development ofChina Railways. The Bank’s relationship with the Ministry ofRailways remains strong. This has allowed the Bank to offer MOR independent policy advice based on international experience, while supporting railway management with specific technical assistance products that have improved business performance. As such, the Bank has worked closely with MOR and NDRC through joint workshops and policy work to address issues ofnational transport strategy, alternative financing for capital investment, and managing the progression to greater diversity of ownership and operation in the sector.

12. Following State Council approval ofthe 1lth Five-Year plan (2006-2010), the annual rate of investment in railways has increased significantly above the level envisaged in the MLTDP and in 2008 reached a level of approximately US$45 billion. Although the Bank financing for this project contributes to achieving the overall investment target, an equally important reason for China seeking Bank participation continues to be to access technical advice, especially on the application ofappropriate safeguard policies, as well as international practice in project preparation, procurement and implementation.

3 13. The project will support the innovative efforts ofChina Railways to attract new sources of financing into rail investment as proposed by the Bank throughout its policy dialogue. The key development in this project is the use of a joint venture company into which MOR contributes equity rather than direct project funding. The company, in conjunction with equity from other sources, is then able to obtain debt financing. This approach is likely to become the predominant model for financing much ofthe planned investment over the next fifteen years. The Bank’s involvement in this project maintains the ability ofthe Bank to inform and advise China Railways on international experience gained while pursuing similar policy steps.

14. This loan provides a platform ofcontinued high-level engagement between the Bank, MOR and NDRC, while simultaneously supporting operational development ofthe Chinese railway network through China Railways. This dual-track approach allows the Bank to speak with contextual authority, to be received with respect, and to deliver results along both tracks that inevitably involve different institutions, different personalities, different skills and a different pace ofactivity. Given the sheer size and the breadth ofthe Ministry of Railways, the Bank has been able to leverage its efforts in a way that helps improve the way transport is delivered to every province and to the hundreds ofmillions of individuals who rely on the Chinese railway system for their personal and commercial transport needs.

C. Higher level objectives to which the project contributes 15. The Bank’s Country Partnership Strategy (2006-2010) contains five “pillars” (priorities) for the Bank’s support ofChina’s development. This project directly contributes to three ofthese priorities:

0 Pillar 1. Integrating China into the world economy: This project will substantially improve the transportation services between southwest China and the Pearl River Delta region and its ports, including the provision of fast container services, thereby facilitating export and import ofgoods to and from this region.

0 Pillar 2. Reducing poverty, inequality and social exclusion: This project will provide high quality and relatively lower cost rail transportation services and connectivity to the inhabitants ofthe relatively poor2 provinces of Guizhou, , and with the prosperous Pearl River Delta region. This would act as a catalyst for faster economic development ofthese provinces and thus help reduce poverty.

0 Pillar 3. Managing resource scarcity and environmental challenges: The project will enable railways to retain and also attract traffic that would otherwise be carried mainly by road transport, which would consume substantially more land and energy per traffic unit

In terms of Gross Regional Product per capita, these four provinces rank 3 1,27,29 and 25, respectively out of 3 1 provinces in China.

4 than rail. Moreover, CO2 emissions from equivalent road freight transport would be approximately 400% higher than if it were carried by rail, while emissions from passenger transport would be about 75% higher by motor car and about 200% higher by air transport.

16. The project also indirectly contributes to:

Pillar 4. Improving public and market institutions: The project is the second Bank project in the railway sector that supports a decentralized and pluralist ownership, with a management structure that includes significant provincial government participation in the joint ventures that are being established to deliver the project.

11. PROJECT DESCRIPTION

A. Lending instrument

17. The proposed lending instrument is a Specific Investment Loan (SIL). The Project involves the construction of large-scale infrastructure. The loan funds will be disbursed primarily against goods and procured mostly through international competitive bidding. For this purpose a Specific Investment Loan is the most appropriate lending instrument. The Borrower has selected a Variable-Spread Loan, payable in 25 years, including 5 years of grace.

B. Project development objective and key indicators

18. The objective ofthe Project is to provide additional transport capacity and reduce transport time between the less developed western region in southwest China and the relatively more developed Pearl River delta region.

19. The assessment ofthe achievement ofthe Project development objective will be carried out through the measurement ofoutcome indicators consisting ofthe number oftrains run and the travel time.

C. Project components

20. The project consists ofthe construction of a new double-track electrified railway line of about 857 km and railway stations between Guiyang in Guizhou province and Guangzhou in Guangdong province (GuiGuang line). The loan will finance the procurement of goods associated with the project including communications, signaling and electrification equipment and maintenance vehicles. In addition to the physical construction ofthe GuiGuang line there is a requirement for related technical assistance. Based on recent requests from MOR, this is expected to tend towards management and policy issues such as consultant services, training, and study tours rather than operational and technical topics. The specific scope, if any, will be identified during implementation.

5 21. Existing services between Guiyang and Guangzhou use indirect routes ofnearly twice the length ofthe proposed line (1,490 km via or 1,577 km using the higher-standard route through ), which are congested over much oftheir length. It is proposed to build a new medium-speed line to improve the accessibility ofsouth- (Guangxi, Guizhou, Yunnan and Sichuan provinces) to the Pearl River delta region, as well as to handle the projected growth in passenger and freight traffic by rail.

22. The new line will be capable ofmaximum train speeds of200 km/h for passenger and 120 km/h for freight trains. It is expected that the travel time for passengers between Guiyang and Guangzhou will be reduced from the present 19 hours (express) or 27 hours (ordinary) to a little over 5 hours (for express trains). It will also reduce the travel time between and Guangzhou from the present 11-12 hours (express) to less than 3 hours. In addition, the capacity provided on the new line will enable the transfer oftraffic from the existing routes and thus provide additional train paths necessary to handle growing demand in those corridors.

23. This new GuiGuang line will consist oftwo tracks that run cross-country primarily through relatively remote and lightly-populated regions, passing through a limited number of major centers en- route, principally Guilin and . To accommodate the design speed, it will have a relatively straight alignment with large radius curves of3,500 m or more. As the terrain is mountainous and includes several conservation areas, many tunnels and bridges will be utilized, comprising 77% ofthe route length. The seismicity ofthe route corridor is predicted to be low, except from km 802 to 823. This section has seismic dynamic peak acceleration over 0.1 g and as such is considered prone to earthquakes. Anti-earthquake engineering measures as per the Code for the Seismic Design of Railway Engineering shall be adopted for construction in this area such as for sub-grade, bridges, culverts and buildings. The will permit double-stack container trains to be operated.

24. The planned construction period is six years including six months for operational testing. It is planned to commence construction ofthis line in 2009 and commission the line in 2015.

D. Lessons learned and reflected in the project design

25. The client and the Bank have drawn valuable lessons from preparing and implementing past railway projects and these lessons have been taken into account in the preparation ofthis project. First, a project should not include components to which the client is not fully committed. This can lead to the restructuring ofthe project, as was the case with Railways VII. Projects subsequent to Railways VII, and including the GuiGuang Railways, have had strong client ownership and have exhibited successful implementation commensurate with the development objective.

26. Second, the inclusion of too many components in a project (as with Railways VI and VII) negatively affects implementation, because both the client and the Bank have limited resources for effective supervision and implementation. This is particularly true when the size and urgency of one component greatly overshadows lesser components. Accordingly, this project was designed as a single component consisting ofthe construction ofthe GuiGuang Railway.

6 Nonetheless, the sheer size ofthis greenfield project to be undertaken in demanding terrain means that supervision, by both MOR and the Bank, will need to be carefully planned and implemented.

27. Third, when designing and implementing project components, the project management office, railway staff in MOR in Beijing as well as railway staff in the regional administrations, and other relevant provincial and regional authorities need to work closely with each other to implement the project efficiently. To ensure such cooperation, relevant stakeholders were included in the discussions during project preparation.

28. Fourth, client commitment to the Bank’s safeguard guidelines and procedures is essential. Problems arose with regard to resettlement and environmental issues in Railways VI, VII, the Second National Railways, and the Third National Railways projects. However, recently the Chinese Government has internalized concern over environmental impacts and resettlement to a far greater degree, and domestic safeguards are converging to the standards required by the international financial institutions. Beginning with the ShiZheng Railways project and continuing with this project, the Ministry ofRailways has formed project companies with provinces to help finance and implement railway projects. This has increased the provincial accountability (provinces finance, in part or fully, resettlement and land acquisition) for the appropriate application ofsocial and resettlement practices.

29. Fifth, the progress ofChina Railways towards improving business processes and policy reform has been steady and nearly always in a direction that the Bank supports. (See Annex 1 for details). The Bank’s support in improving the management of China Railways and its business processes has been effective and is being continued. However, it is being done in a manner that separates policy and strategy support from project delivery thereby avoiding national policy conditions embedded in project design as was the case with the National Railways project.

E. Alternatives considered and reasons for rejection

30. The proposed alignment is relatively direct between the two end points and serves eleven urban centers en route. However, the proposed line passes through mostly remote and lightly- populated country. Several alternatives for alignment were considered. The final choice of alignment was based on multiple criteria that included connections with existing rail networks, minimizing cost and land acquisitionhesettlement and environmental degradation as well as connecting potential areas of economic development. Further, efforts were made to avoid forest reserves, places with cultural relics, scenic and historic spots, and areas of poor geology. The design institutes consulted urban planning development officials ofthe various cities in selecting sites for proposed railway stations. The option ofnot constructing the railway but instead providing an equivalent capacity using other modes was not considered because ofthe much larger economic and social costs ofroad and air transport for the medium-distance (500- 1,000 km) trips which will predominate in this corridor.

7 111. IMPLEMENTATION

A. Institutional and implementation arrangements

3 1. This Project, and the previous Bank-financed project, the ShiZheng Railway project, differ from previous Bank-financedrailway projects in China in that it is anticipated that a project company will be formed and MOR will transfer the assets created by the Project to the project company to own. The controlling share (63%) ofthe company, the GuiGuang Railway Company Limited, will be held, through an investment arm. The second largest shareholder (1 8%), also through an investment arm, is Guizhou Province with Guangdong and Guangxi holding 6% and 3% respectively. Prior to the transfer, which is expected to be after the loan closes, the Bank will complete a financial and legal due diligence on the transfer ofthe Bank- financed assets. The Bank will seek appropriate agreements with the Borrower, MORand the GuiGuang Railway Company, as the case may be, before consenting to the transfer.

32. In anticipation ofthe formation ofthe project company, MOR established a group, the Preparatory Group ofthe GuiGuang Railway Company, in late 2007. The group comprises approximately 50 staff appointed from within MOR and is tasked with general responsibility for the implementation of the line including coordinating with the local government entities responsible for resettlement and land acquisition. As with past Bank-financed railway projects in China, the central Ministry of Railways, through their Foreign Capital and Import Center, will be responsible for the financial management ofthe loan and Bank-financed procurement. FCTIC will also continue as the Bank's direct counterpart in the administration and management ofthe loan.

33. Much ofthe nature ofthe eventual project company is yet to be decided, including how the assets will be transferred, who will own the rolling stock and how it will be operated and how the interfaces will be managed, among other questions. MORhas long and extensive experience of supervising complex and large railway projects. Examples are the successful upgrading ofthe -Guangzhou and -Zhuzhou lines, both ofwhich were of similar length as the GuiGuang railway but had the additional complexity ofbeing upgraded under traffic. FCTIC would furnish implementation progress reports every half year along with action plans to remedy any delays in project implementation (see the Covenants section). The Bank will also supervise this project closely through half yearly supervision missions.

B. Monitoring and evaluation of outcomeshesults

34. The objective ofthe Project is to provide the required number oftrain paths to meet growing freight and passenger market demand in the proposed railway corridor between Guangzhou and Guiyang, while substantially improving the level of service offered to customers. These outcomes and results can be achieved only after the completion and commissioning of the project. The following performance indicators will be monitored.

average number of pairs ofpassenger trains ofmaximum speed of200 km/h operated per day between Guiyang and Guangzhou;

8 average number ofpairs of freight trains operated per day between Guiyang and Guangzhou; and average travel time ofpassengers trains ofmaximum speed of 200 kmh achieved between Guiyang and Guangzhou.

35. MOR collects sufficient data to allow satisfactory reporting and monitoring ofthe outcomes and results ofthe project (see Annex 3). The eventual project company will also be asked to collect relevant data that will enable monitoring ofthe above indicators.

C. Sustainability

36. Sustainability in transport systems has financial, economic, operational, environmental and social dimensions.

37. In financial terms, the project will be sustainable if the transport services it facilitates are able to earn a positive contribution above long-run marginal costs; if so, they will make a positive financial contribution to the railway’s financial performance and not be an increasing financial drain that could threaten the survival. The financial analysis indicates that the project financial benefits will recover 3% margin above long-run marginal costs. Whilst this is a relatively low rate, the project is cash-positive from the start of operations, with revenues 50% greater than long-term expenditures and therefore there is little risk that, after services have been implemented, China will not be able to afford to keep them going.

38. The project has a positive Economic Internal Rate ofReturn (EIRR) (18%) and its economic sustainability will be strengthened over time because the unit values ofthe main non- financial benefits ofthe project (passenger time savings, value ofaccident-cost savings and value ofreduced greenhouse gases compared to alternative modes) are all expected to increase in the future. Thus the surplus ofeconomic benefit over pure financial benefit will tend to widen, increasing economic sustainability.

39. There are no obvious threats to operational sustainability. The technical requirements for maintaining medium-speed train services are well known and the project will be using established technologies. Similar train systems have been operated and maintained at very high levels ofreliability and safety in Japan, Germany and France for many years and more recently in Italy and the UK. Since April 2007, China has operated over 8,000 km ofmedium speed train services. In all these other countries there has been no degradation ofservice over time and accordingly there is no reason to expect that China will not be able to sustain the services.

40. The upgraded railway system will contribute to greater environmental sustainability of China’s transportation systems as a whole because it will be (a) more energy efficient, (b) generate lower greenhouse gas emissions and (c) avoid the long-term degradation ofecosystems along the corridor, compared to either the current routing or the alternatives ofroad or air transport that would be used were the additional capacity not provided.

9 Table 2: Energy efficiency and Carbon Emissions in GuiGuang Corridor (l)

Modes* Energy use (kwh for rail, else It) C02 emissions /traffic unit-km (kgtraffic unit-km)

Truck N/A 0.036 (It) N/A 0.095 Train (conventional) 0.021 (kwh) 0.018 (kwh) 0.022 0.018 Train (medium-speed) 0.040 (kwh) N/A 0.041 N/A Airplane 0.030 (It) NIA 0. 153‘2’ NIA

(1) Results based on corridor-specific parameters are given in Annex 9. (2) In addition, aircraft emissions are assumed to have twice the impact of those from surface-based modes as they are emitted at altitude.

4 1. Outside ofthe urban centers, the line passes through sparsely settled countryside and over three-quarters ofthe entire line will be either in tunnels or on structures. As a result, in the rural areas there will be fewer negative impacts on local communities. Indeed, most settlements are keen for the line to be located close to them to improve their accessibility. The social sustainability ofthe project will therefore depend mainly on the affordability ofthe services it offers. To gauge this, Ministry ofRailways has carried out detailed passenger attitude surveys. These have established a strong willingness to pay a surcharge of 50% on high-speed services compared to conventional rail. In addition, even with higher fares on the new services, the cost to most passengers will be less because ofthe substantial distance savings. The overall impact of the project will be to encourage more rather than less passengers to rail. Inter-city railway services in China are used by a very wide range of the population. This is in contrast to either private cars or airlines, which tend to serve higher income groups. To this extent the impact of railway improvements tends to be more equitable, and so more socially sustainable.

D. Critical risks and possible controversial aspects

42. The Bank’s experience in the transport sector in China in general is satisfactory and in the railway sub-sector has been very satisfactory. The Bank team benefits from the participation ofinternational advisors in railways engineering, management as well as economic and financial evaluation. As a result, the Bank’s ability to satisfactorily deliver this project is strong. Based upon the lessons learned from prior Bank-financedrailway projects, the macro-economic, financial, policy-related and political risks of this project not meeting its development objectives are low to moderate. The expected project risks and proposed mitigation measures are discussed in the following table.

10 Complexity ind FCTIC have extensive Cost M and Large size project may lead to time and Schedule experience supervising complex and Schedule of the project cost over runs causing problems S large railway projects. FCTIC will M in implementation. provide half yearly implementation progress reports. The Bank will also conduct half yearly supervision missions. Technical Difficult terrain will require Quality MOR has substantial experience Quality M 77% oftrack to be on bridges S constructing railway lines in difficult and through tunnels. The design terrain and will employ proven speed 200 km/h track may make technology for track, bridges, project implementation more tunnels, signaling and rolling stock. difficult. MOR successfully introduced 200 km/h services over much ofthe network in 2007 and has been interacting with specialist suppliers for technology suitable for high- speed passenger railway lines. Traffic The possibility that estimated S The Bank network model predicted L demand traffic demand will not be met, 26 million passengers and 30 million particularly on a green-field tomes in 2020 confirming the project where traffic does not numbers predicted by the design yet exist. institute. Project The ultimate function of the S No loan repayment responsibilities M company GuiGuang Company and when will be held by the GuiGuang formation it will be incorporated is Railway Company, once unclear. incorporated, or the GuiGuang Railway Company preparation group. The Bank will seek appropriate agreements with the Borrower, MOR and the GuiGuang Railway Company, as the case may be, before consenting to the transfer. or project assets. Sustainability The project’s relatively high Project S The project has a conservatively Project L cost will not be economically Network estimated EIRR of 18% and FIRR of Network L and financially sustainable. L 4%. The sustainability of China Railways is based on its importance to the National Government in the social and economic development of the country. The Bank continually evaluates China Railways and MOR’S ability to ensure sustainability of the investment.

11 Financial M management which is to implement the exclusively maiaged by FCTIC. project is not anticipated to have Additionally, FCTIC will closely prior World Bank project monitor the project implementation. experience. Training will equip the financial staff with necessary financial management and disbursement knowledge. Procurement The project company may lack M Procurement will be mostly carried M required expertise in out by (FCTIC) of MOR with procurement management. assistance by a tendering company Private shareholders and the and the design institutes. This size of the project could process has been employed on all produce potential conflicts of Bank financed railway projects in interest and substantial risks in China and measures would be taken procuring the civil works and to identify and eliminate potential goods. The-specific conflict of interest. The Bank will procurement procedures issued finance only goods similar to several by the Ministry of Railways other on-going Bank-financed may be inconsistent with the railway projects in China. Bank’s procurement guidelines. Social and Environmentalrisk - The area H Environmentalprotection is central M environmental through which the GuiGuang to the Ministry of Railways’ strategy safeguards line will pass is a very sensitive for the planning, design, and project in terms ofpotential construction of this project. As such, environmental impacts. Most of unprecedented funds and resources the alignment goes through were made available to reduce the mountainous areas (via tunnels environmental (and land acquisition, and bridges) with rich native resettlement, and indigenous peoples) vegetation and a potentially impacts and mitigate associated risks. high value of biodiversity. A conservative estimate is that According to the information US$2billion in costs can be available in the pre-feasibility associated with environmental study, there are numerous mitigation mainly through more nature reserves, forest expensive alignment selection and parks/tourism resorts and the extensive use of tunnels and drinking water resources within bridges. Three primary measures the project corridor. have been undertaken by MOR to mitigate the environmental risk. (1) Avoidance: Diligent use of alternative analysis is the most important mitigation measure employed on this project leading to the avoidance of 40 of the 48 potentially environmentally sensitive areas, thereby, greatly minimizing potential adverse environmental impact. (2) Sound Engineering: The project has been designed with state-of-the art engineering digital mapping and design programs. Using tunnel-

12 Mitigation measures

bridge-tunnel schemes will avoid or greatly limit the impact to most of the sensitive environmental locations. Close to 77% of the line comprise tunnels and bridges. (3) Comprehensive Mitigation plans: detailed environmental design plans (green corridors and landscaping) and environmental management plans have been prepared in order to minimize unavoidable impacts from the project. The environmental management plans adequately address construction impacts such as spoil sites, borrow sites, soil erosion, access roads, dust, and noise and operation impacts such as vibration and waste management.

13 Description of risk Mitigation measures

Resettlement and Land H The Project differs from past Bank- S Acquisition - This is a green financed railway projects in several field project and the alignment ways. In the past MOR financed passes through remote land acquisition and resettlement mountainous areas in Guizhou, indirectly through agreements Guangxi and Guangdong reached with provincial authorities. provinces seldom disturbed by In this project, the three provinces, human activities. The Project Guizhou, Guangxi and Guangdong, also requires substantial will be principal shareholders in the acquisition of land and project company, GuiGuang Railway structures, and resettlement Co., which is being established to including some in congested eventually own the assets. Their urban areas of Guangzhou and equity contribution will include a . The implementation of portion ofthe cost of land acquisition land acquisition and and resettlement. Hence, as opposed resettlement on past Bank- to an indirect relation to the Project, financed railway projects has as was the case in earlier Bank- been satisfactory. Awarded financed projects, the provinces are compensation rates, on the other direct stakeholders thereby increasing hand, have at times initially the incentive for appropriate differed from compensation performance and allowing closer rates agreed in the Resettlement monitoring and evaluation. Action Plan (RAP). Apparently the primary contributor to this In addition to the establishment of problem is the lack of official project companies with shared linkage between the RAP and incentive to reduce resettlement and the agreement reached between land acquisition impact the same MOR and the provincial three actions identified above authorities responsible for (avoidance, sound engineering, and resettlement implementation. comprehensive mitigation measures) The Bank though has in the have help to firther mitigate the past, with the support of MOR, impacts associated with resettlement been able to reconcile these and land acquisition. differences through dialogue. Minority Peoples - The route S Alignment selection has greatly M runs through an area with one of avoided damage to local village the highest proportions of buildings and special design of minorities in China. Based on terminals and railway infrastructures preliminary field visits, will be consistent with ethnic minority villages will be minority culture and styles. impacted though often Construction camps will adopt closed positively as was noted by the management approach and workers enthusiastic welcome by the will receive sensitivity training to local population of the respect and value ethnic minority identification mission with cultures. The main actions included minority villages actively in Ethnic Minority Plans competing for selection as sites recommended to mitigate the adverse for railway stations. impacts and enhance positive impacts on affected ethnic minority communities are: - Railway stations in their own counties: The alignment has been

14 Description of rhk Mitigation measures

selected to provide a terminal to each minority county. - Careful resettlement planning and implementation: Resettlement planning engaged full participation from the affected minority communities and households on resettlement impacts, relocation schemes and compensation. - Consultation: the consultation process during project implementation and operation stage will continue. - Handling minority cultural concerns: their traditional culture and custom is respected throughout the project implementation phase. As an example, ancestral tombs, house styles, etc., are expected to be protected. - Building access to the railway: local governments will coordinate with project management to build temporary construction roads with considering local road development programs, and to provide adequate access to the railway. - Training for minority communities: in addition to sensitivity training to local officials and workers, minority communities will also provided training. 1 Overall Risk Rating M

a Rating of risks on a four-point scale - H=High, S=Substantial, M=Moderate, L=Low - according to th likelihood of occurrence and magnitude of potential adverse impact.

E. Loan conditions and covenants

Conditions: 43. None.

Covenants: 44. The Borrower shall cause MOR and through it the project provinces to implement their respective obligations under the RAP, the RAP Arrangements, the EMP and the EMDP in a manner satisfactory to the Bank including monitoring on a six monthly basis the implementation ofthe RAP, the RAP Arrangements, and the EMDP; and preparing a post-resettlement

15 evaluation report. In addition, MOR shall supplement the RAP in order to update the implementation measures including for villages severally affected by the project.

45. The Borrower shall cause the MORto engage and retain an independent procurement agent, construct the GuiGuang Railway line through the Preparation Group in accordance with appropriate technical standards, ensure that the GuiGuang Railway Line is commissioned for operation no later than December 3 1,201 5 and thereafter take all necessary measures to ensure that it is operated and maintained in a financially and administratively viable manner, and maintain the GuiGuang Railway Preparation Group and FCTIC. The Borrower shall also cause MOR and the project provinces to maintain records and take all necessary actions to facilitate project implementation.

46. MOR shall:

0 provide Project Reports covering the period of one calendar semester, and shall be furnished to the Bank not later than forty-five (45) days after the end ofthe period including any interim un-audited financial reports for the Project covering the semester;

0 prepare a report on the execution ofthe Project not later than June 30,2016; and

0 have its Financial Statements audited covering the period of one (1) fiscal year ofthe Borrower and shall furnish to the Bank the audit not later than six (6) months after the end of such period.

16 IV. APPRAISAL SUMMARY

A. Economic and financial analyses

Economic evaluation Economic (Cost Benefit) evaluation EIRR = 18% NPV (30-year period, 12% discount rate) = RMB 102 billion (US$ 15 billion)

47. The GuiGuang line is a new link providing substantial savings in distance and time for traffic between northern Guangxi, Guizhou and Sichuan, and the Pearl River delta. The existing routes are double-tracked and electrified but are indirect and operating close to capacity and, even with the additional capacity planned in the north-south corridor, will remain busy with growth forecast to continue at around 4-5% p.a. for the next twenty years.

48. In 2006 around 12 million tons of freight and 9 million passengers traveled between Guangzhou and south-west China on routes that would be diverted to the new corridor. Assuming additional capacity could be made available on the existing lines, these volumes are forecast to increase by 2015 to 22 million tons of freight and 24 million passengers and, by 2030, 40 million tons of freight and 32 million passengers. These projections will place a severe strain on the existing and planned routes within the corridor.

49. As elsewhere in China, rail is also experiencing growing competition from both air and road transport within the corridor, although both modes currently have only a limited modal share.3 The government requires that passenger services improve their quality. This will allow long-term transport strategy to enhance the role ofrail. This will not only benefit the railway as a business, but also the country, by encouraging the use ofthe more economically and environmentally efficient rail.

50. The project aims to deliver three strategic benefits:

significantly improving the capacity and the level ofservice for both passenger and freight traffic, in particular through offering major travel time savings; freeing up capacity on the existing network to allow it to handle the projected increase in freight traffic, which would otherwise travel by road trucks, or not at all; significantly improving the accessibility of some ofthe poorest provinces in China to the economically developed Pearl River delta, thus creating wider economic benefits (these are technically known as ‘agglomeration’ benefits and are discussed in detail in Annex 9).

For instance, in late 2007 travelling by bus between Guiyang and Guangzhou still required a change of service in Liuzhou

17 5 1. Following construction ofthe new line, the capacity ofthe corridor will be sufficient for at least the next 30 years.

52. The estimated NPV, calculated over a 30-year period from project completion with a 12% discount rate, is about RMB 102 billion in 2006 prices (discounted to 201 1) and the project has an EIRR of 18%. This EIRR is considerably higher than the Ministry ofRailways’ estimate of 11 %. This is partly because of differences in methodology and some parameters, including the inclusion ofthe external and environmental benefits (such as road congestion and reduction in greenhouse gases) but mostly because ofthe inclusion in the evaluation ofthe very significant agglomeration benefits, which reflect the benefits to the Guizhou economy at large from the improved accessibility. However, excluding these benefits from the evaluation still gives an EIRR of 9%.

53. The project is robust against a wide range of sensitivity tests, with most tests, such as excluding the benefits attributed to additional traffic, reducing traffic growth rates by one-half, and increasing investment cost by 50% still giving an EIRR of 12% or better. The project costs would have to treble before the EIRR fell below 10%. Counting only rail operating cost savings and passenger time savings on the base traffic (i.e. excluding any benefits attributable to additional traffic as well as external, environmental and agglomeration benefits) still provides an EIRR of 8%.

Financial evaluation FIRR = 4%

54. Fares will be increased to reflect the higher level of service once the project is completed. This will enable part ofthe users’ surplus to be captured by the railway enterprise. The current tariffs for passenger traffic on the existing network range from RMB 0.12-0.16 per passenger-km for seats and about double for sleeping berths. Road tariffs in this region are typically RMB 0.321 per passenger-km and air tariffs are RMB 0.881per passenger-km. The financial evaluation assumes average yields increase over time from their current level to RMB 0.20 - 0.361 per passenger-km by 2020 (with an average tariff ofRMB 0.301per passenger-km) and then remain constant. Although this is a significant increase on current tariffs, it is still considerably cheaper than bus or air fares and cheaper for most passengers than the aggregate cost by the existing route. By the time the service is introduced, incomes will be about 40% greater than today and willingness-to-pay surveys have shown that, even today, a majority ofpassengers are prepared to pay the higher price for the improved service.

55. Freight tariffs currently average RMB 0.0951net ton-km. However, much ofthe traffic on this line will be higher value containerized freight, for which the tariff is significantly higher at RMB 0.14-0.201net ton-km, compared to RMB 0.40 - 0.601net ton-km by road.

56. Based on these tariffs, the FIRR is 4%, significantly lower than the EIRR. However, the project is cash-positive from the start of operations, with revenue being 50% greater than long- term cost (excluding debt service) and the difference between the FIRR and EIRR emphasizes the strong long-term development emphasis ofthe project.

18 B. Technical

57. The proposed double-track railway line of about 857 km from Guiyang in Guizhou Province to Guangzhou in Guangdong Province (via Guilin in Guangxi Province) is part of the MOR’S network expansion plan. The new line would be capable of passenger and freight train operation at 200 and 120 km/h speed respectively. The travel time by rail for passengers between Guiyang and Guangzhou would be reduced from the current 24 hours (by rail) or 20 hours (by road) to a little over 5 hours. The distance traveled by freight between these two cities would be reduced from the current 1,440 km (via ) to 857 km. This railway line would also provide an efficient and lower cost access to Guangzhou and areas for passengers and freight to and from the western provinces of Sichuan and Yunnan.

58. The project line starts at North Guiyang station and ends about 200 m short ofNew Guangzhou station. It has a total of 30 stations (of which 12 are overtaking stations) including the two terminals at New Guiyang and New Guangzhou stations. All stations except the New Guangzhou stations are included in this project. The New Guangzhou station is already under construction as part of the Wuhan-New Guangzhou high speed railway project and would be operational well before the commissioning of the GuiGuang line. The tracks of the GuiGuang line would be linked with the New Guangzhou station after the completion of construction of the GuiGuang line. The proposed alignment is relatively direct between the two end points and touches urban centers such as Sandu, Rongjiang, Congjiang, Sanjiang, Guilin, Hezhou, Huaiji, Guangning, , Sanshui and Foshan. In general, the proposed alignment traverses through mountainous terrain except for a small eastern section of about 100 km that lies on relatively flat terrain. The line will have 342 bridges and viaducts (approximate length 191 km, 22%), and 233 tunnels (approximate length 472 km, 55%). The longest tunnel shall be about 14.7 km in length. Thus, approximately 77% of track will be on bridges and through tunnels. The track will be laid to technical standards that permit speed up to 200 km/h.

59. The line will have electric traction (25 kV single phase AC). Express trains with a maximum speed of 200 km/h will be operated with Electrical Multiple Units (EMU) while slower passenger and freight trains will be hauled by electric locomotives. Automatic signaling will be used. The planned construction period is 6 years.

Salient technical parameters are:

Distance in center line of two tracks: 4.6m Minimum curve radius: 3,500 m Maximum grade: 18 in 1,000, between Guiyang and Hezhou and 9 in 1,000 between Hezhou and Guangzhou. Effective length of departure track: 850 m Traction: Electric 25kV 50 Hz Train type: Electric Multiple Units for 200 km/h trains and electric locomotives for slower passenger trains and freight trains Train operation control: Automatic Traffic management control: Centralized Traffic Control

19 0 Minimum headway between trains: 4 minutes for passenger trains and 5 minutes for freight trains.

0 Axle load: 25 tons Rail: New 60 kg/m rails of 100 m length, welded from station to station.

6 1. Ballasted track will be used except in tunnels over 6 km in length where ballastless track would be employed. 19 traction transformer sub-stations would be installed. Traction substations would supply traction power at 27.5kV. Traction transformers with 100% standby would be adopted.

62. A 20 core optical fiber cable shall be laid in ducts and an optical fiber monitoring system would be set up. Main communication equipment would be based on multi-service transfer platform technology. GSM-R digital mobile communication system would be adopted for radio communication.

63. The entire line will be fenced to keep people off the track. Bridges and underpasses to carry roads over or under the track shall be provided to avoid level crossings. Underbridges shall be provided to facilitate safe crossing of the railway by people and animals. Cab signaling and train radio system will be provided. Infrared hot box detectors shall be installed to maximize safety.

64. Several measures would be adopted for energy conservation.

C. Fiduciary

Financial Management

65. Based on guidelines issued by the Financial Management Sector Board on November 3, 2005, the financial management assessment has concluded that the project meets minimum Bank financial management requirements, as stipulated in OP/BP 10.02. In the FMS’ opinion, the Foreign Capital and Technology Import Center (FCTIC) of the Ministry of Railways (MOR) and related local railway bureaus will maintain financial management arrangements that are acceptable to the Bank and that, as part ofthe overall arrangements that the borrower has in place for implementing the operation, provide reasonable assurance that the proceeds ofthe loan are used for the purposes for which the loan was granted. Financial management risk is defined as the risk that the World Bank loan proceeds will not be used for the purposes intended and is a combination of country, sector and project specific risk factors. Taking into account the risk mitigation measures proposed under the project, a “low” FM risk rating was assigned to the project at the appraisal stage.

66. Funding sources for the project include Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into project designated account (DA) to be set up at and managed by Foreign Capital and Technology Import Center (FCTIC) ofthe Ministry of Railway (MOR), then to the contractors. The Bank loan agreement will be signed between the Bank and

20 the People's Republic ofChina through its Ministry ofFinance (MOF) and the subsidiary loan agreement will be signed between MOF and MOR. Counterpart funds consist of contributions from MOR and provincial (Guangdong, Guangxi and Guizhou) governments, government railway bonds and domestic loans.

Procurement

67. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in Annex 8. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Social

68. The proposed double-track rail starts from Guiyang in Guizhou Province, travels via Guilin and ends at Guangzhou in Guangdong Province. The project areas are mainly mountainous and poor. There is, however, a major imbalance in social and economic development between the eastern part of Guangdong with a GDP per capita of RMB 69,286 and the western section ofGuizhou and Guangxi, with a GDP per capita of RMB 3,277 per capita in Qiannan Prefecture. The project can reduce travel time by rail for passengers between Guiyang and Guangzhou from current 24 hours (by rail) or 20 hours (by road) to 5 hours. The project will benefit social and economic development in the region directly and promote social and economic exchange among regions. Consequently this will contribute to poverty reduction in Guizhou and Guangxi.

69. However, the project travels through areas populated by minorities including 106 minority villages, about three minority townships, four minority autonomous counties, two minority autonomous prefectures and one minority autonomous region, and entails some degree ofadverse impact on minority people. Based on OP 4.10, an Ethnic Minority Development Plan (EMDP) is needed. A team from the Central Minority University with experience in issues concerning minority people conducted the relevant social assessment and the development ofthe EMDP. The Social Assessment (SA) was carried out in 33 minority villages in 26 townships from 13 counties and concluded that 20% ofthe total affected households are minority people. The investigation further confirmed the existence of broad community support for the project from the affected minority villages and local governments who are all keen to improve their access to the railway. This has been integrated into station location options and all ofthe four minority autonomous counties will have railway stations. Based on the SA findings, the EMDP has identified the possible positive and negative impacts on the minority people by the project. Based on full consultation with the involved minority people the EMDP has further explored

21 measures to enhance the positive impacts and minimize the adverse ones. The EMDP has been placed in county libraries and their availability announced in a local newspaper.

70. Further, the project necessitates a major resettlement related impact on the affected rural and urban households and infrastructure along the alignment due to project construction and operation. The Southwest Communication University (SCU), as resettlement planner for many railway projects, has been engaged to assist with the resettlement planning. On the basis of the alignment option recommended on the basis of preliminary technical design, the project is expected to affect 226 villages in 87 townships of 26 counties in Guizhou, Guangxi and Guangdong provinces/autonomous regions. About 32,617 mu of land is to be acquired, including 18,776 mu of cultivated land, 24,078 mu of land will be temporarily leased. About 23,983 households with 100,190 will be affected, including 14,359 households with 63,164 people through land acquisition and 3,259 households with 11,04 1 people through house demolition in urban areas.

71. The RAP was prepared by the SCU on the basis of preliminary design and in line with OP 4.12 and relevant local laws as well as regulations. The RAP provides details of the project impacts, the legal entitlement framework under the project, the approach and arrangements for resettlement and livelihood rehabilitation, the approach for detailed implementation planning, the organizational arrangements and their respective responsibilities, as well as monitoring arrangements. The MOR and the provincial level governments have agreed on resettlement financial sources and implementation.

E. Environment

72. The proposed project is a Category A project due to its scale of potential environmental and social impact and the sensitivity of the project areas. Five safeguards policies are triggered, including: (1) OP 4.01 Environmental Assessment; (2) OP 4.04 Natural Habitats; (3) OP 4.1 1 Physical Cultural Resources; (4) OP 4.12 Involuntary Resettlement, and (5) Indigenous People. The EA preparation was conducted by Second Survey and Design Institute (SSDI), which has Class A environmental impact assessment accreditation by the Ministry of Environmental Protection (MEP) and has been EA consultant for two recent Bank railway projects (National Railway I1and National Railway 111). The draft EA documents have been reviewed and commented on by the Task Team in several rounds, and the final EA documents were submitted on November 25,2008, including: (1) Consolidated EIA Report; (2) Environmental Management Plan; (3) EA Executive Summary.

73. The major environmental concerns include selection of this route from alternative alignments, waste and spoils disposal, opening of access roads, water pollution and soil erosion, camp and construction site management, social disturbance during construction, and noise, vibration, and safety during operation. These environmental concerns have been adequately addressed during EA preparation. Great effort has been made to avoid environmental sensitive sites through the analysis ofvarious alignment alternatives. The tunnel-bridge-tunnel scheme (whereby nearly 77% of the alignment will be carried by either tunnel or bridge), will also minimize loss of surface vegetation and related ecological impacts. Adequate spoil disposal sites

22 were screened and identified for proper disposal of waste materials from tunnel construction. Existing rural road networks will be used as much as possible as access roads. A strict review/approval procedure was developed in the EMP for opening new access roads or spoil disposal sites by contractors during construction stage. Other potential impacts were also adequately addressed and necessary mitigation measures developed in the EMP. The EMP detailed the environmental management setup and responsibilities, mitigation measures, capacity training plan, monitoring plan, and budget estimates for EMP implementation. The proposed measures shall be incorporated into bidding documents and contracts to ensure effective implementation. Through the proper project design and effective implementation of the EMP, the environmental impact of the project can be minimized and mitigated to acceptable level. See Annex 10 for details.

74. Two rounds of public consultation have been carried out in accordance with Chinese EIA regulations and the Bank’s OP 4.01 requirement by individual interview, public meetings and questionnaire surveys, and public feedback and these have been incorporated in EIA/EMP reports and project design. The first draft EIA report was disclosed in March 2008 through the internet, with announcement of such disclosure in the China Environment Daily. The Environmental Impact Report for New Guiyang-Guangzhou Railway has been reviewed by Ministry of Environmental Protection in July 2008, and it was published in “China Environment Newspaper” on August, 1, 2008. The content of the report is publicly accessible on China Railway Eryuan Engineering Group Co., Ltd., website and the Environment Protection Bureaus in all cities and provinces.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.0 1) [XI [I Natural Habitats (OPBP 4.04) [XI [I Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP/BP 4.1 1) [XI [I Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OP/BP 4.10) [XI [I Forests (OP/BP 4.36) [I [XI Safety of Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)* [I [XI Projects on International Waterways (OPBP 7.50) [I [XI

By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties‘ claims on the disputed areas.

23 G. Policy Exceptions and Readiness

75. The Project meets the readiness criteria for project implementation, closely follows all the applicable Bank policies, and does not require any exceptions.

24 Annex 1: Country and Sector Background CHINA: GuiGuang Railway Project

The Role of the Bank in the Reform and Development of China Railways

1. For the last 10- 15 years, the Chinese railway industry has been pursuing two key objectives. One is to reform the industry to become more responsive to the market economy. The other is to achieve an order of magnitude change in the capacity and quality of infrastructure and services in a system that is already the busiest, by a wide margin, of any in the world and which is still facing rapidly growing demand. Seeking to attain these two goals simultaneously is perhaps the most daunting rail industry challenge currently facing any government.

2. The case for the reform of the China Railway system from its historical structure as a vertically and horizontally integrated, and wholly state-owned monopoly, has been widely accepted for a number of years. The Government has adopted a step-by-step approach to industry reforms, concentrating on reforms within (or grafted on to) the existing framework rather than breaking up China Railways itself. These reforms have included:

Non-core businesses: Separation of non-core activities such as enterprises (construction, manufacture, telecom, design, education and social activities) and reducing the number of working staff from 4.0 million in 1995 to 2.1 million in 2006; a period during which traffic increased by 85%. Many of these enterprises now provide services to China Railways on a competitively tendered basis.

0 New industryparticipants: From the mid-1990s the Ministry of Railways supported the establishment of 29 new joint-venture railways that are owned by national and provincial governments and private investors. (About two-thirds of these railways are understood to be independently profitable.) The Government has now expanded this approach, with greater private participation, to finance new high-speed dedicated passenger lines that would free up freight capacity on existing lines.

0 Commercialization: Implementation in 1999 of the Asset Operation Liability System has made managers of regional railway administrations accountable for returns on capital, output, profitability and safety. It also provides incentives if agreed performance levels are exceeded. China Railway’s operating labor productivity (excluding non-core business) has doubled since 1995 and it has earned profits since 1998, despite controlled tariffs, and is a major net contributor of taxes to the budget (US$ 1.4 billion in 2006).

Management restructuring: In 2004 MOR removed a whole layer of management by eliminating the 44 sub-regional administrations. Management was consolidated at the level of the 18 regional administrations and some 60,000 staff positions were removed. This change brought together management responsibility and accountability at the regional level. It also facilitated and encouraged higher utilization of locomotives and

25 crews, which had normally been changed at sub-regional boundaries. There has also been some separation ofmanagement of low-density lines with emphasis on reducing losses.

Passenger services: Since 1992, MOR has made passenger fares more flexible, introducing higher fares for fast and premium services and a surcharge for peak season. Also passenger business has been separated on an accounting basis.

0 Freight services: In 2003 specialist companies were formed to operate container services, mail and parcels, and special freight. In 2007 MOR agreed with international freight and logistics companies to establish a new container terminals joint venture company to develop and operate 18 new regional container hubs.

Information technology: In the mid-1990s MOR introduced a new world-class Traffic Management Information System with World Bank finance and the Bank is now financing a specification ofthe next generation upgrade ofthe system.

Train operations: China Railways has begun upgrading specific routes to make them capable of carrying double-stack containers. It is building to higher axle loads on a trial basis for heavy haul freight. China Railways managers hope to obtain the substantial benefits that have been demonstrated by these approaches in North America.

3. All of these steps are consistent with advice or recommendations made by the World Bank, but their adoption and detailed implementation has been to the credit ofthe Ministry of Railways and China Rail managers.

4. The Bank has also advocated a policy that would separate the policy and regulatory functions ofthe Ministry from the commercial functions of China Railways. The Government has not yet taken this step. This reluctance is due to:

concern about a possible diminution ofthe role ofpublic interest in railway management decisions at a time when railway capacity and coverage are being seen as an increasing constraint on development; concern that rail service might be disrupted during institutional change at a time when its capacity is already stretched; and higher priority given to system expansion and upgrading; since 1990 the network has been expanded by 20,000 km and a further 30-40,000 km are planned by 2020.

5. The issue of separation is currently still the subject ofdialogue between the MOR, NDRC and the Bank. Alternative models were highlighted by the Bank in a paper on the subject in 2005 (see below). Ultimate responsibility for such institutional restructuring (as opposed to internal reforms) lies with NDRC rather than MOR, but this measure is unlikely to proceed until a wider consensus is reached.

26 6. The Bank’s first railway project with China was completed in 1990. In the following 15 years its involvement has helped shape the debate of China’s railway policy makers regarding reform. The Implementation Completion and Results Report (ICR) for the Sixth Railway Project reported substantial progress in railway reform. The ICR for the Seventh Railway Project recorded that MOR had, as before, executed major civil works quickly and effectively. But a sense of ownership had been lacking for some other components recommended by the Bank, including some technical assistance topics. The project was restructured after three years to adapt it more closely to MOR’Spriorities. The next two projects (First and Second National Railways) continued to engage MOR in a dialogue and provide support by way of international experience and technical assistance related to reform, policy, and operational enhancements.

7. Through its 15-year history of support the Bank has been influential in establishing the direction of the transformation. Today, the Bank’s relationship with the Ministry of Railways is as strong as it ever has been. This has allowed the Bank to offer MOR independent advice based on international experience on railway policy options and issues and to support management with specific items of technical assistance that have improved business performance. At the same time it has made a modest but effective contribution to project financing for China Railway’s infrastructure development program.

8. In 2004, while preparing the Second National Railway Project, the Bank, MOR, and NDRC launched a dual-track approach that reflected the differing responsibilities of NDRC and MOR and the different modes of engagement necessary. Support for sector-wide reform was separated from project development and lending.

9. NDRC is responsible for recommending the major structural steps such as the separation of ministerial policy and regulatory functions from railway commercial enterprises, and major tariff reform. MOR is taking the lead in seeking new sources of finance for the proposed major investment program to 2020. The two issues are related. Accordingly, the Bank now maintains a policy and reform dialog at the higher level of MOR and NDRC, while the project lending work continues at project implementing level.

10. MOR can only raise the financing required in the long-term if three key policy issues - the greater separation ofpolicy functions of the Ministry from the commercial functions of the enterprises, a framework for encouraging a more pluralist and contestable industry, and an improved regulatory system with regard to entry and pricing - are addressed. While these are difficult areas while the network remains congested (requiring centralized control to prioritize traffics and maximize the use of the available infrastructure), they are increasingly being recognized as crucial to accessing risk capital from the private sector (rather than just from large users). They represent the key areas of policy dialogue between the Bank and MOR in recent years, some significant milestones of which have been:

0 In June 2005, at the Bank prepared a report and presentation to MOR titled “China Railway Investment and Financing Reform Forum” arguing that MOR would need to seek substantial non-traditional funding in the next ten years to fully meet the investment requirements for the medium- and long-term plan approved by the State Council. It also

27 demonstrated why some ofthe potential sources offinance were less likely to be secured without structural reforms, particularly separation ofpolicy and regulation from commercial service delivery institutions.

0 In July 2006 the Bank provided to MOR a report on how railways in the developed world cope with multiple operators in a single railway system. It focused on the arrangements used for allocating responsibilities and settling payments among the operators to cover three situations encountered in such systems: (a) passengers buy tickets for trips that run over the networks of more than one company; (b) an operating company runs its trains over the track of another company; and (c) a company makes use ofthe wagons of another company that have entered its network. The note was timely, given the Government’s decision to rely on project companies to finance and operate the proposed network ofhigh-speed dedicated passenger lines.

0 In 2007-08 the Bank financed, inter alia, studies of international experience in forming and implementing their national investment policy on railway construction and development (including the measurement and application of Social Costs). The Report of that Study provided evidence ofhow most countries have granted considerable pricing freedom to their national railway companies. The report recommended that adoption in China’s rail sector ofmore market oriented tariff policies could help meet the challenge of financing its mid to long-term development program.

0 In 2008-09 the Bank is also advising MOR in developing a pilot project that would be suitable for international private sector finding through a concession mechanism, although the Government’s response to the global credit crisis with increased funding as part ofthe stimulus package has reduced its short-term attraction.

11. In 2009-1 0, this dialogue is set to continue with a project that will explore the degree to which the Government could reasonably cede commercial autonomy over railway tariff setting to the Railways and the business process by which tariffs might be more commercially established and altered. The dialogue will be concurrent with preparation and delivery ofthe lending program.

12. This loan provides a platform ofcontinued high-level engagement between the Bank, MOR and NDRC, while simultaneously supporting operational development ofthe Chinese railway network through China Railways. This dual-track approach allows the Bank to speak with contextual authority, to be received with respect, and to deliver results along both tracks that inevitably involve different institutions, different personalities, different skills and a different pace of activity. Given the sheer size and the breadth ofthe Ministry of Railways, the Bank has been able to leverage its efforts in a way that helps improve the way transport is delivered to every province and to the hundreds of millions of individuals who rely on the Chinese railway system for their personal and commercial transport needs.

28 A Brief Overview of the Mid- and Long-Term Railway Network Plan

13. In January 2004 the State Council approved in principle the Mid- and Long-Term Railway Development Plan, setting out the construction priorities ofthe Chinese railways and providing the framework for developing future railway five-year plans.

14. Rail transport is a key element of the national economy but, in spite ofthe major reforms in recent years which have improved efficiency, demand is continuing to outstrip capacity. As a result, both passenger and freight demand has been constrained on many corridors for several years. This plan, the first of its kind approved by the state, addresses this problem in the context ofboth the expected national development and the development ofthe other transport modes. Its key characteristics are the expansion ofrail transport capacity and improvement of service quality, with an emphasis on ensuring maximum value for the proposed investment, while supporting both rural and urban development in a sustainable manner. It encourages both domestic and foreign private capital investment, with the Government’s regulatory role and responsibilities being defined within a market framework.

15. The key principles underpinning the plan are:

e Coordinating its development with that ofother transport modes, as well as the energy sector and other related sectors at both the macro and corridor level; e Separation of passenger and freight transport on constrained busy trunk lines to increase capacity and improve service levels, with the development ofinter-city fast passenger networks in densely populated and developed areas; e Strengthening the links between major economic areas and optimizing line and terminal capacity to ensure the smooth operation ofmajor corridors; 0 Expanding the coverage of the rail network to support and encourage sustainable economic development, territory development and national defense; e Raising the local content ofrailway equipment and promoting local equipment manufacture.

16. By 2020, the plan expects the total operational length ofChinese Railways to reach over 100,000 km, with separate high-speed passenger and freight routes on the main corridors and 50% ofthe network either double-tracked or electrified or both. The high-speed passenger network is based on four north-south and four east-west corridors, with three regional inter-city systems. The target speed in these corridors is over 200 km per hour. Because of the dominant role that coal plays, and will continue to play, in China’s energy structure, it also includes high- capacity coal transport corridors, together with the duplication and electrification ofother trunk corridors where required, and the development ofcontainer transport. In addition, it also sets detailed schemes for strengthening the network in the western region. The following sections discuss the key elements in more detail.

29 17. Since the initial publication of the plan, the timing has been accelerated and it is now expected that the network will reach 120,000 km by 2020, roughly doubling the increase originally included in the MLTDP. Table 1.1 summarizes the original and revised targets for the categories of work.

Table 1.1: MLTDP and Five Year Plan Targets (km)

I Total length of track I 78,000 I 92,000 I 100,000 I 120,000 I

Electrified 24,4001 4 1,400 50,000 72,000 Passenger dedicated lines 405 5,000 10,000 12,000

1. End of2006 value.

Passenger-dedicated network

18. The long-distance passenger-dedicatednetwork is based on four north-south corridors and four east-west corridors:

North-south corridors between: Beijing- via ; Beijing-Shenzhen via Wuhan and Guangzhou; 0 Beijing- and via ; Hangzhou-Shenzhen via , providing a direct link for the first time between the Yangtze and Pearl River deltas through the coastal southeast area.

East-west corridors between:

0 - via , linking the northwest area and ; Hangzhou-Changsha via , joining central and ;

0 Qindao- via , linking north and ;

0 - via Wuhan and , linking southwest and east China.

19. Three inter-city passenger networks are planned for the Bohai Sea ring (Tianjin, Beijing, ), the Yangtze River delta (Shanghai, Nanjing, Hangzhou) and the Pearl River delta (, Guangzhou, Shenzhen), covering the major cities and towns in each area.

30 Upgrading the existing railway network

20. The existing railway network and terminals will be upgraded to increase the capacity of the existing corridors. About 13,000 route-km will be double-tracked and some 16,000 km of existing lines will be electrified.

2 1. In parallel with the construction of dedicated passenger lines, high-capacity coal corridors will be created based on the ten major coalfield^.^ Immediate priorities are expanding the capacity of the -Qinhuangdao Railway5, upgrading the Beitongpu Railway, construction of the -Dajiawa Railway, and expanding the capacity of the Shijiazhuang-Taiyuan line by constructing a separate passenger line.

22. The double-tracking and electrification of seven major corridors will be completed. This will include Beijing-Harbin, Beijing-Shanghai, Beijing-Kowloon, Beijing-Guangzhou, Lianyugang- (the border with Kazakhstan), Shanghai-Wuhan-Chengdu and Shanghai-. In addition, terminal, marshalling and depot facilities will be modernized.

23. Container terminals will be constructed to upgrade railway lines with intensive container transport and to operate double-stack container trains. 18 central container terminals are to be built in the main ports and inland centers6, with a further 40 terminals in major provincial centers and inland border crossings.

Western developmental network

24. Regional economic development will be supported through major expansion of the western railway network and improvements in the central and eastern areas. In total, about 16,000 kilometers of new lines are planned. These include:

New links to international borders in the north-west and south-west:

0 Kashi-Tuergate (China-Uzbekistan-KyrgyzRailway) Reconstruction of the Kunming-Hekou line to Vietnam

0 Kunming--Mohan (China-Lao Corridor)

0 Dali- (China-Myanmar)

0 Taiyuan- () and Linhe- to form a new corridor from the northwest to north China

Datong (including western ), Shenfb, Taipan (including southern ), southeastern Shanxi, , , Yanzhou, and , Guizhou and eastern ’ This was floated on the Shanghai stock exchange in August 2006 as a public company. 6 Shanghai, Kunming, Harbin, Guangzhou, Lanzhou, Urumqi, Tianjin, , Beijing, Shenyang, Chengdu, Chongqing, Xi’an, Zhengzhou, Wuhan, Dalian, , and Shenzhen. MOR is currently inviting expressions of interest from foreign investors.

31 Lanzhou (or ) Xhongqing (or Chengdu) to form a new corridor from the northwest to the southwest Kuerle-Ge’ermu and Longgang--Ge’ermu to provide a direct corridor from to and

0 an extensive regional western railway network serving Xinjiang and Tibet seven new railways in the central and eastern railway network

Phasing

25. The first dedicated passenger lines under construction are those between Beijing- Shanghai, Wuhan-Guangzhou, Xi’an-Zhengzhou, Shijiazhuang-Taiyuan, and Ningbo-. The Bank-financed ShiZheng Railway project (Shijiazhuang to Zhengzhou) is part of the second phase which isjust commencing. The initial intercity lines will be Beijing-Tianjin in the north, Nanjing-Shanghai-Hangzhourailway in the , and Guangzhou-Shenzhen, Guangzhou- and Guangzhou-Foshan railways in the Pearl River Delta.

26. New line construction will begin on a number of sections as represented by this project and the next planned Bank-financed project, NanGuang Railway Project (Naming to Guangzhou). Existing lines are also being upgraded including the Kunming- line (the Bank-financed Third National Railway Project).

32 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: GuiGuang Railway Project

Latest Supervision Sector Issue Projects Ratings’ Implement Develop- (Completed unless shown World Bank-financed -action ment otherwise) Progress Objective . . Address railway capacity Railways I,11, 111, IVYV - )ottlenecks through construction, all including items 1,2 louble-tracking, electrification, Inner Mongolia Railway Project- md the introduction of modern incl. items 1,2 echnology Railways VI-incl. Items 1,2,3 !. Technical assistance/training, Railways VII-incl. items 1,2, 3 ransfer of new technology :oncepts to improve efficiency of National Railways -4ncl. items 1, 3 ailway operations and railways’ Second National Railway -inc. inancial condition items 1,2 and 3. i. Institutional strengthening and Third National Railway - incl. raining in railway reform issues items 1,2 (ongoing) md introduction oftools needed ShiZheng Railway - incl. items 1’2 or making decisions in a socialist and 3 (ongoing) narket economv Other development agencies Project Status Guang-Mei-Shan Railway Completed Asian Development Bank - Railway Completed (since 1992) Jing-Jiu Railway Technical Enhancement Completed -Wanzhou Railway Completed Shenmu-Yanan Railway Completed Guizhou-Shuibai Railway On-going Hefei-Xi’an Railway On-going - Railway On-going -Wanzhou Railway On-going Dali- Railway On-going 3uiyang-Xi’an Railway Launched

Early projects, encompassing Railways Ithrough V and Inner Mongolia Railway Project, were not rated

33 Japan Bank for International -ZhongweiRailway Completed Cooperation - Railway Completed -Kunming Railway Completed 1991) (since Zhang-Quan Railway ( Province) Completed Shouxian-Huanghuagang Railway Completed Xi'an- Railway Completed Guiyang- Railway (double-tracking) On-going Agence Francaise de -Zhangjiaj ie Railway electrification On-going Development

34 N rn d s r- N

N 00 N 0 d N W N2 m

m 3

0 0 2 13

0 0 W 2 12 I1 0 N

t Annex 4: Detailed Project Description CHINA: GuiGuang Railway Project

1. As per the Medium- and Long-Term Development Plan (2004-2020), the Chinese railway network is to be expanded from 75,438 route km in 2005 to 120,000 route km by 2020 (increased in 2007 from 100,000 route km). The proposed network expansion would provide rail connectivity to areas not served by railways, particularly in western China. Provision of railway infrastructure in such areas would help accelerate their economic development by the provision of efficient, relatively lower cost and faster transportation connectivity with the rest of the country.

2. The proposed double-track rail line from Guiyang in Guizhou province to Guangzhou in Guangdong province (via Guilin in Guangxi province) is part of the MOR’Snetwork expansion plan. This line would provide a short and direct linkage of northwestern China with the Pearl River delta region. The new line would be capable ofpassenger and freight train operation at 200 and 120 km/h speed respectively. The travel time by rail for passengers between Guiyang and Guangzhou would be reduced from the current 24 hours (by rail) or 20 hours (by road) to a little over 5 hours. The distance traveled by freight between these two cities would be reduced from the current 1,440 km (via Changsha) to about 857 km. This railway line would also provide an efficient and lower cost rail transport access to Guangzhou and Shenzhen areas for passengers and freight to and from the western China provinces of Sichuan and Yunnan.

3. The project line starts at North Guiyang station and ends about 200 m short ofNew Guangzhou station. It has a total of 30 stations. These include the two terminals at New Guiyang and New Guangzhou stations and 12 overtaking stations. All stations except the New Guangzhou stations are included in this project. The New Guangzhou station is already under construction as part of the Wuhan-New Guangzhou high speed railway project and would be operational well before the commissioning of the GuiGuang line. The tracks of GuiGuang line would be linked with the New Guangzhou station after the construction of the GuiGuang line is completed. The proposed alignment is relatively direct between the two end points and touches urban centers such as Sandu, Rongjiang, Congjiang, Sanjiang, Guilin, Hezhou, Huaiji, Guangning, Sihui, Sanshui and Foshan. Several alternatives for alignment were considered. The final choice of alignment was based on multiple criteria that included connections with existing rail network, minimizing cost and land acquisition/ resettlement and environmental degradation, connecting potential areas of economic development and avoiding forest reserves, and avoiding areas of poor geology. The design institutes consulted urban planning development officials of the various cities in selecting sites for proposed railway stations.

4. The proposed alignment traverses through mountainous terrain except for a small eastern section ofabout 100 km that lies on relatively flat terrain. The elevation above mean sea level is 1,256 m at Guiyang. The railway line’s highest elevation is 1,961 m and it terminates in Guangzhou at an elevation of 10 m above sea level. The line will have 342 bridges and viaducts (approximate length 191 km, 22%), and 233 tunnels (approximate length 472 km, 55%). The longest tunnel shall be about 14.7 km in length and 40 tunnels shall be longer than 3 km. Thus,

37 about 77% of track will be on bridges and in tunnels. The track will be laid to technical standards that permit speed up to 200 km/h.

5. Seismicity is generally low except between km 802 to 823. This section has seismic dynamic peak acceleration over 0.1g and is considered prone to earthquakes. Anti-earthquake engineering measures as per Code for the Seismic Design of Railway Engineering shall be adopted for construction in this area such as for sub-grade, bridges, culverts and buildings.

6. Express trains with a maximum speed of 200 km/h will be operated with Electrical Multiple Unit (EMU) having 8 or 16 cars, while slower passenger and freight trains will be hauled by electric locomotives. The weight of freight trains shall be 4,000 t; container trains 3,000 t; fast freight trains 1,000-1,500 t; and passenger trains 1,000- 1, 1 OOt. The end to end travel time of trains shall be Super Express EMU at 200 km/h: 5.0 hrs; Express passenger (locomotive hauled at 160km/h): 6.5 hrs; Fast Freight train hauled at 160 km/h: 6.5 hrs; and freight trains at 120 km/h: 10 hrs. The number of passenger train pairs (operated by EMU train sets at maximum speed of 200 km/h and by electric locomotives at lower speed) planned is 20, 60 and 85 in years 2016,2022 and 2032, respectively. The number of pairs of container trains planned is 3, 11 and 14 in 20 16,2022 and 2032 respectively.

7. Salient technical parameters of the railway line are:

a Distance in center line of two tracks: 4.6 m a Minimum curve radius: 3,500 m. On difficult locations sharper curves shall be tolerated. a Maximum grade: 18 in 1,000, between Guiyang and Hezhou and 9 in 1,000 between Hezhou and Guangzhou. a Effective length of departure track: 850 m for freight and 650 m for passenger trains. a Traction: Electric 25kV 50 Hz a Train type: Electric Multiple Units for 200 km/h trains and electric locomotives for slower passenger trains and freight trains a Train operation control: Automatic a Traffic management control: Centralized Traffic Control a Minimum headway between trains: 4 minutes for passenger trains and 5 minutes for freight trains. a Axle load: 25 tons a Rail: New 60 kg/m rails of lOOm length, continuous welded (CWR) a Structure gauge: shall meet the requirements oftransportation for double-deck container train

8. New 60 kg/m, U75V rails (hot rolled non porous) shall be laid on 350 mm thick track bed. Track bed thickness shall be 500 where soil is non-permeable. Ballasted track laid on Type 3 concrete sleeper (1,667 sleepers/km) will be used except in tunnels over 6 km in length where ballastless track (5 m long slabs) would be employed (1 ,144 track km shall be ballasted and 494 track km shall be ballastless).

38 9. The line will have electric traction (25 kV single phase AC). 19 traction transformer sub- stations would be installed and shall have capacity ranging from 20 to 63 MVA. Traction substations would supply traction power at 27.5kV and 100 standby traction transformers shall be provided. The energy consumption in years 2022 and 2032 is estimated at 2,308 and 2,992 million kwh respectively.

10. Overhead contact wire would be auto-tensioned and be of 150 sq mm cross section on the main line and 120 sq mm cross section on the station sections. Copper - tin alloy shall be used for the contact wire.

11. The technical details of SSJ3 and SS9 locomotives that would be deployed are given below:

12. Automatic signaling will be used. Headway between trains shall be 4 minutes for passenger and 5 minutes for freight trains. An intelligent centralized train control system to provide automatic operating command will be provided. Centralized Train Control (CTC) dispatching system would be adopted. Three dispatching centers at Guangzhou, Guiyang and Liuzhou are planned. A four-aspect automatic block system with cab signaling and a train over- speed protection system will be provided. Trackside signals shall also be provided.

13. Communication systems ofthis project include telephone exchange network, data communication network, and emergency communication system. A 20 core optical fiber cable shall be laid on each side oftrack and an optical fiber monitoring system would be set up. Main communication equipment would be based on multi-service transfer platform technology. The communication network shall meet the needs for voice, data and image communication as well as the demand for high speed broadband service. GSM-R digital mobile communication system would be adopted for wireless communication.

14. The entire line will be fenced to keep people off the track while bridges and underpasses to carry roads over or under the track shall be provided to avoid level crossings. A number of under passages shall be provided to facilitate the safe movement of people and animals across the railway right of way. Cab signaling and train radio system will be provided. Infrared hot box detectors shall be installed to maximize safety.

39 15. Several measures would be adopted for energy conservation. High efficiency electrical equipment such as transformers and motors shall be selected. The design oflighting, ventilation and air conditioning would be optimized for energy consumption. Similarly, the boilers for heating would have provision ofdevices to minimize energy consumption. The bulk of energy consumption would be for traction and special care would be taken to minimize it. The large radius ofcurves adopted for track design would help reduce resistance at wheel tread. The mass oflocomotives and EMUSwould be minimized and under loading of freight wagons discouraged to realize high energy efficiency. Long locomotive runs would be adopted to reduce idling of locomotives. The traction feed system would use current carrying carrier and return cable to decrease the impedance per unit and thereby reduce power consumption. Traction transformers having high efficiency would be adopted. The EMU train sets would use AC traction motors and adopt technology to maximize energy efficiency including regenerative braking.

16. Total estimated investment is RMB 85.8 billion (US$ 12.51 billion). This means, excluding the cost of Bank’s front end fee, an average of RMB 100.1 million (US$ 14.6 m) per km ofmain line. (Static investment: RMB 75.644 billion, Dynamic investment: RMB 4.542 billion, Locomotives and rolling stock: RMB 5.5 19 billion and Working capital: RMB 0.103 billion). The project is proposed to be funded by equity capital from the GuiGuang Railway Co. and borrowings in the ratio of 1: 1. The borrowed capital shall include the proposed loan ofUS$ 300 million from the Bank (about 3% ofthe project cost).

17. The Bank loan would finance procurement of goods such as equipment for telecommunications, signaling and electrification and inspection vehicles for track and bridges (for details refer Annex 8). In addition to the procurement of goods, the loan may also support related technical assistance. Based on recent requests from MOR, this is expected to tend towards management and policy issues rather than operational and technical topics. At any one time there are three to five on-going Bank-financed China Railway projects in varying stages of preparation and implementation. In agreement with the Bank, the Ministry ofRailways initiates a new technical assistance activity each year commensurate with the capacity of FCTIC to appropriately manage and finances it from the next Bank-financed project with available technical assistance funds. If it is decided to finance technical assistance from this project, the specific scope (consultant services’, training, and study tours) ofthe technical assistance will be identified during implementation. This approach has greatly improved timeliness, client ownership, and relevancy ofthe technical assistance program.

18. The planned construction period is 6 years, commencing in 2009 and the line is proposed to be commissioned in 20 15.

40 Annex 5: Project Costs CHINA: GuiGuang Railway Project

Non-Bank Bank Total Project Cost By Activity (US$ million) financed financed GuiGuang Railway - civil works' 8,677.42 0.00 8,677.42 - goods 628.38 298.95 927.33 - land acquisition and resettlement 708.77 0.00 708.77 - other 664.07 0.00 664.07 - consulting services (technical assistance) 0.00 0.30 0.30 Total Baseline Cost 10,678.64 299.25 10,977.89 Contingencies 675.94 0.00 675.94 Total Project Costs 11,354.58 299.25 11,653.83 Interest during construction' 805.68 0.00 805.68 Rolling stock 66.30 0.00 66.30 Front-end Fee 0.00 0.75 0.75 Total Financing Required 12,226.56 300.00 12,526.56

Non-Bank Bank Project Cost By Activity (RMB million) Total financed financed

GuiGuang Railway - civil works' 59,440.35 0.00 59,440.35 - goods 4,3 04.43 2,047.80 6,352.23 - land acquisition and resettlement 4,855.08 0.00 4,855.08 - other 4,548.91 0.00 4,548.91 - consulting services (technical assistance) 0.00 2.06 2.06 Total Baseline Cost 73,148.77 2,049.86 75,198.63 Contingencies 4,630.16 0.00 4,630.16 Total Project Costs 77,778.93 2,049.86 79,828.79 Interest during construction' 5,518.91 0.00 5,518.91 Rolling stock 454.16 0.00 454.16 Front-end Fee 0.00 5.14 5.14 Total Financing Required 83,752.00 2,055.00 85,807.00

Exchange rate: 1 US$= RMB 6.85 'Interest and commitment fee

8 Civil works cost include the cost of stations along the line excluding the terminus station at New Guangzhou which is being built under a separate project. Ibid.

41 Annex 6: Implementation Arrangements CHINA: GuiGuang Railway Project

1. This Project, and the previous Bank-financed project, the ShiZheng Railway project, differ from previous Bank-financed railway projects in China in that it is anticipated that a project company will be formed and MOR will transfer the assets created by the Project to the project company to own.

2. The proposed GuiGuang railway line crosses parts of three provinces, Guangdong, Guangxi and Guizhou respectively. The line is planned to be eventually owned by the GuiGuang Railway Company Limited. The controlling share ofthe company will be held, through an investment arm, by the Ministry ofRailways (63%). The other major shareholders, through their provincial investment bodies, will be the three provinces; Guizhou (1 8%), Guangdong (6%) and Guangxi (3%). (The % ofshares held, as shown here, are approximate and will vary depending upon actual equity contributions.)

3. Much ofthe nature ofthe eventual project company is yet to be decided, including when and how the assets will be transferred, who will own and how rolling stock will be operated, how the interfaces will be managed, etc. MOR, through the Guangzhou, Naming and Chengdu RA’s, will carry a sufficiently large part ofthe responsibility for implementation and, probably, the operation; similar to a conventionally railway line. In addition, this is a high-profile project with strong political support at both the national and provincial levels. Consequently, there is little risk to successful implementation if construction starts before these operational issues are settled. When the project company is formed and agreement is reached on the eventual transfer ofassets, the Bank will assess the capacity ofthe project company and amend the Loan agreement as needed.

4. In anticipation of the formation of the project company, MOR established a group, the Preparatory Group ofthe GuiGuang Railway Company, in late 2007. The group comprises approximately 50 staff appointed from within MOR and is tasked with general responsibility for the implementation ofthe line including coordinating with the local government entities responsible for resettlement and land acquisition. As with past Bank-financed railway projects in China, the central Ministry ofRailways, through their Foreign Capital and Import Center, will be responsible for the financial management of the loan and Bank-financed procurement. FCTIC will also continue as the Bank’s direct counterpart in the administration and management ofthe loan.

5. FCTIC will be responsible for procurement of all Bank-financed goods and services through an independent procurement agent (tendering company). The Preparatory Group ofthe GuiGuang Railway Company will manage procurement ofthose contracts (works and goods) wholly financed by MOR. The railway administrations, under the direction ofthe Preparatory Group of the GuiGuang Railway Company, will be responsible for supervising the construction and installation.

42 6. The organizational set-up for implementing the loan is explained further in Annex 7 (Financial Management) and procurement arrangements are set out in Annex 8 (Procurement Arrangements). Arrangements for implementing the environmental management plan and the resettlement action plan are set out in Annex 10 (Safeguard Policy Issues)

7. Reporting. MOR will monitor and evaluate the progress ofthe project on a six-monthly basis. MOR, through FCTIC, will prepare, by February 15 and August 15 in each year, commencing August 15,2009, and until completion ofthe Project, a comprehensive Project Progress Report integrating the results ofthe monitoring and evaluation activities including reporting on performance monitoring indicators, on the progress achieved in the carrying out of the Project. Shortly after receipt of each project progress report the Bank will review, together with MOR, the progress ofthe project.

8. Since this is a large project, the Bank will also supervise this project closely through half yearly supervision missions. Particular attention would be paid, during the Bank supervision missions, to the effective implementation ofthe Environmental Management Plan, as this is critical to mitigate the environmental risk posed by this project.

43 Annex 7: Financial Management and Disbursement Arrangements CHINA: GuiGuang Railway Project

Executive Summary

1. The Financial Management Specialist (FMS) has conducted an assessment ofthe adequacy ofthe project financial management system of GuiGuang Railway Project. The assessment, based on guidelines issued by the Financial Management Sector Board on November 3,2005, has concluded that the project meets minimum Bank financial management requirements, as stipulated in OPL3P10.02. In the FMS’ opinion, the Foreign Capital and Technology Import Center (FCTIC) ofthe Ministry of Railways (MOR) and related local railway administrations will maintain financial management arrangements that are acceptable to the Bank and that, as part ofthe overall arrangements that the borrower has in place for implementing the operation, provide reasonable assurance that the proceeds ofthe loan are used for the purposes for which the loan was granted. Financial management risk is defined as the risk that World Bank loan proceeds will not be used for the purposes intended and is a combination of country, sector and project specific risk factors. Taking into account the risk mitigation measures proposed under the project, a “low” FM risk rating was assigned to the project at the appraisal stage.

2. Funding sources for the project include Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into project designated account (DA) to be set up at and managed by Foreign Capital and Technology Import Center (FCTIC) ofthe Ministry of Railways (MOR), then to the contractors. The Bank loan agreement will be signed between the Bank and the People’s Republic of China through its Ministry of Finance (MOF). MOF will on lend the funds to MOR for carrying out the project. Counterpart funds consist ofcontributions from MOR, provincial (Guizhou, Guangdong and Guangxi) governments and domestic loans.

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

Country Issues

4. To date, no Country Accounting and Financial Assessment (CFAA) has been carried out by the Bank for China, though dialogue with the Government ofChina in respect ofthe CFAA exercise has been initiated. However, based on the studies and material produced by others, observations ofdevelopments in the areas ofpublic expenditures, accounting and auditing, and Bank experience with China projects for the past several years, it may be noted that there has been substantial achievement in the aforementioned areas and that further improvement is expected in the next few years. This is a work in progress and as economic reform programs further unfold, the Government ofChina has come to realize the importance ofestablishing and maintaining an efficient and effective market mechanism to ensure transparency and accountability, and minimize potential for fraud or corruption.

44 5. Due to a unique arrangement by the Government ofChina, finding (particularly Bank loadgrants) ofBank projects is controlled and monitored by the MOF and its extension at sub- national level, (i.e. finance bureaus at provincial, municipal/prefecture and county level). However, project activities are usually carried out by implementing entities of a specific industry or sector due to the level and complexity ofexpertise involved. This segregation of duties provides added fiduciary assurance. However, this arrangement does not apply to this project since all the Bank loan will be controlled and monitored by FCTIC. This specific situation has been considered by the Bank and FCTIC when designing the project’s internal control system.

Sector Issues

6. The Ministry ofRailway is responsible for managing the railway industry at national level while at the sub-national level, this is delegated (MOR still has oversight and supervision responsibility) to the various local administrations which are then responsible for construction and operation ofthe railway industry under their jurisdiction. In terms of World Bank financed projects, construction ofthe local railway are implemented by related local railways administrations or project companies which are incorporated by MOR and local governments. The Bank loan proceeds are normally centrally managed by FCTIC ofMOR. As FCTIC has managed several Bank projects and is familiar with the Bank’s FM and disbursement requirements and procedures, such arrangement will simplify disbursement work and mitigate the fiduciary risks. As for the counterpart funds, based on previous experiences, timely appropriations from the provincial governments may be at risk. The task team will closely monitor the budgeting and counterpart fund matters to avoid any delays in project implementation.

Summary Project Description

7. The estimated base cost ofthe proposed project is US$ 12.45 billion. The proposed Bank loan is US$ 300 million. See Annex 4 for detailed project description.

Audit Arrangement

8. The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards ofthe People’s Republic of China. Audit Service Center of China National Audit Office for Foreign Loan and Assistance Projects (ASC) and respective China National Audit Office’s resident offices have been identified as auditors for related project activities in Guizhou, Guangxi and Guangdong provinces. One consolidated annual audit report, encompassing all the project related activities, will be issued in the name of ASC.

9. The annual audit report ofproject consolidated financial statements will be due to the Bank within 6 months after the end ofeach calendar year. This requirement is stipulated in the loan agreements. The responsible agency and timing are summarized as follows:

45 Component Submitted by Due date Project consolidated financial statements FCTIC June 30

Risk Assessment and Mitigation

10. The following risks with corresponding mitigating measures have been identified during assessment:

Risk Risk Risk Mitigating Measures Incorporated into Risk Rating Project Design Rating Before After Mitigating Mitigating Measures Measures Inherent Risk . Country Moderate Continuous dialogue with related government entities Moderate level and technical assistance from the Bank will help the government to improve its public sector financial management. In the short-term, annual audit requirements will reduce the risk that project funds are not used for their intended purposes. For those areas where a government system can not be used, the Bank’s specific requirements will be embedded into project financial management system. Project supervision mission, using a risk-based approach, will review the implementationin regards to all aspects of project financial management to minimize project FM risk. rn Entity Level Substantial Detailed project implementationwill be conducted by Moderate local railway administrations in Guizhou, Guangxi and Guangdong. Monitoring of compliance with PFM and Bank procedures will be important. FCTIC’s overall management of Bank funds will mitigate some of these risks. Furthermore, the Bank will work with them to further strengthen- their FM knowledge and capacity. rn Project Moderate Most of the project financial staff in local railway Low Level administrations-has extensive experience and knowledge in this industry. Though they are not anticipated to have prior World Bank project experience, the Bank loan proceeds will be exclusively managed by FCTIC, which has managed five previous Bank financed railway projects and are very familiar with the Bank’s financial management and disbursement requirement. Additionally, FCTIC will closely monitor the project implementationand provide guidance to local project financial staff. Furthermore, FM manual and training workshop will equip the project financial staff with necessary financial management and disbursement knowledge.

46 Control Risk Budgeting Moderate Moderate

Accounting Moderate Low

Necessary training will be provided to the accounting staff to improve their knowledge and qualifications. Internal Moderate Internal control procedures and policies are already in Moderate Control

transaction examinations. FundsFlow Low Funds flow arrangement will be straightforward. Low FCTIC has demonstrated its experience in managing Bank loan proceeds through previous and ongoing projects. Financial Modera t e The project financial report covers all the project Low Reporting funds including both Bank loan proceeds and counterpart funds. The financial reporting responsibilities are established. The form, content and periodicity of financial reports are well defined by MOF and understood by FCTIC and related local railway administrations. Additionally, MOR’S FCTIC has demonstrated its experience and capability in this area through management of other Bank projects. Auditing Low The external auditors have extensive experience with Low

Overall I Moderate Low

11. Therefore, the overall FM risk-rating assigned to this project at the appraisal stage is low, provided the proposed mitigating measures are carried out. The FMS will monitor the effectiveness ofthe measures and project FM risk during project implementation.

Funds Flow and Disbursement Arrangements

12. Funds flow for Bank loan will follow Bank and MOF requirements. One USD designated account (DA), will be established and managed by FCTIC. The authorized allocation for the DA is proposed not to exceed US$ 10 million. The Bank loan proceeds will be directly

47 managed by FCTIC and will not flow to the local railway administrations. The detailed funds flow is as follows:

The DA Managed Suppliers and World Bank - By FCTIC - contractors

13. All the Bank loan proceeds will be disbursed against eligible expenditures as indicated in the following table.

Amount of the Loan Percentage of Allocated Expenditures Category (in USD million) to be financed (1) Goods 298.95 100% (2) Consulting service 0.3 100% (3) Front-end fee 0.75 Total 300.00

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

15. For expenditures against contract amounts indicated in the table below, Statements of Expenditure (SOE) will be furnished as supporting documentation to request for reimbursement and reporting eligible expenditures paid from the DA.

I Expenditure Category I Contracts Equivalent or Less than US$ Equivalent I Goods 500,000 Firm Consultant 300,000 Individual Consultant 300,000

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

Goods 500,000 Consulting firm 300,000 Individual consultant 300,000

17. FCTIC will be directly responsible for the management, monitoring, maintenance and reconciliation ofDA activities ofthe project. The flow of withdrawal application is proposed as follows:

48 Contractors/ FCTIC The Suppliers World Bank

18. Counterpart funds consist of shareholders’ investment and domestic loans. Shareholders’ investment includes MOR’s contribution in cash and provincial (Guizhou, Guangdong and Guangxi) government’s contribution in cash and land. The shareholders’ contributions will be injected into the project following commercial procedures. Domestic loans will be mobilized by local government following domestic procedures.

Management and Reporting Requirement

Strengths and Weaknesses

19. Strengths The Bank loan proceeds will only finance the goods procurement and consultant activities of this project. Therefore all the disbursement work will be centrally managed by FCTIC of MOR. As FCTIC has managed several Bank projects and is familiar with the Bank’s FM and disbursement requirements and procedures, such arrangement will simplify disbursement work and mitigate the fiduciary risks. From the perspective of project management, FCTIC will closely monitor the project implementation and provide guidance to the local project financial staff.

20. Weaknesses Besides the FMrisks identified in #9 above, no other significant weakness are identified.

Implementing Entities

21. Similar to the ongoing Bank financed ShiZheng Railway Project, MOR’s FCTIC will manage procurement and disbursement matters on national level. The GuiGuang company preparation group, jointly established in Guiyang by local railway administrations and the provinces of Guizhou, Guangxi and Guangdong, to be the local implementing agency managing all the day-to-day construction work. The MOR will contribute approximately 75% of the capital with the remainder provided by the three provinces. Most of project financial staff in these local railway administrations have extensive experience and knowledge in this industry. The Bank loan proceeds will not flow to local railway administrations and they will only manage the counterpart funds.

Budgeting

22. In accordance with project implementation plan and construction progress, the local railway administrations will prepare an annual investment budget. Such budget will be reviewed and approved by FCTIC and the Finance Division of MOR. Based on the approved budget, the local railway administrations will receive government appropriations and mobilize domestic loans.

49 23. For budget variances arising during execution, necessary authorization and close monitoring should be established. Timely and accurate information on variances should be used as the basis for mid-term adjustments.

Accounting

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

0 Chart of account Detailed accounting instructions for each project account

0 Standard set ofproject financial statements

0 Instructions on the preparation ofproject financial statements

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

Balance Sheet 0 Summary of Sources and Uses of Funds by Project Component Statement of Implementation ofLoan Agreement Designated Account (DA) Statement

0 Notes to Financial Statements

26. Both FCTIC and related local railway administrations will be managing, monitoring and maintaining respective project accounting records and retaining original supporting documents.

27. Adequate project accounting staff with educational background and work experience commensurate with the work they are expected to perform is one ofthe factors critical to successful implementation ofproject financial management. Based on discussions, observation and review ofeducational background and work experience ofthe staff identified for financial and accounting positions for this project, the task team noted that they are qualified and appropriate to the work they are expected to assume.

28. To strengthen financial management capacity and achieve consistent quality of accounting work, the MORFinance Department has prepared a project financial management manual (the Manual). The Manual provides detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures, etc. It will be distributed to all the relevant financial staff before implementation start.

29. The computerized financial management information system, “Railway Information Management System (version 4.0)”, developed by MORwill be utilized for this project. This system has been used in domestic reporting for several years and is also used for the current

50 Bank financed railway projects. Through further development and upgrade, the project transactions could also be integrated into this system. The task team will closely monitor the processing ofits accounting work especially in the initial stage to ensure complete and accurate financial information provided in a timely manner.

Internal Control and Internal Auditing

30. As with previous Bank financed railway projects, this project will establish internal control procedures and policies, including approval and authorization controls, segregation of duties, bank statement reconciliation, and safeguarding assets. The funds flow will be arranged and monitored through FCTIC and will include their substantive review.

3 1. MORhas its own internal inspection division, who will function as the internal auditors for this project, by conducting compliance and transaction oriented examinations on a regular basis. During project implementation, the FMS will review their project examination reports to see if any material issues are identified.

Financial Reporting

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

33. Related local railway administrations will prepare the project financial statements on their implemented project activities, which will then be used by FCTIC for preparing consolidated project financial statements (format in accordance with the aforementioned Circular #13 agreed with MOF) as part ofthe Progress Report and these will be submitted to the Bank for review and comment on a regular basis. The unaudited semi-annual consolidated project financial statements will be prepared and furnished to the Bank by the FCTIC no later than 45 days following each semester (the due dates will be August 15th and February 15th), in form and substance satisfactory to the Bank.

Conditionality

34. No additional financial covenants proposed by the FMS other than the standard financial covenants, (e.g. maintaining project accounts in accordance with sound accounting practices and audit requirement), as described in the legal document.

Supervision Plan

35. The supervision strategy for this project is based on its FM risk rating, which will be evaluated on regular basis by the FMS and in consultation with relevant task team leader.

51 Annex 8: Procurement Arrangements CHINA: GuiGuang Railway Project

A. General

1. Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers'' dated May 2004 and revised in October 2006, and the provisions stipulated in the legal agreements. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

2. Procurement of Works: Nil.

3. Procurement of Goods: Goods procured under this project would include: telecommunication equipment, signaling equipment, electrification equipment, and mechanical equipment for the proposed Guiyang-Guangzhou Railway Project. The procurement will be undertaken using the Bank's SBD for all ICB and the Chinese Model Bidding Documents, agreed with or satisfactory to the Bank, for all NCB.

4. Procurement of non-consulting services: Nil.

5. Selection of Consultants: Consultant services provided by firms and individuals for the project have not been determined at the appraisal stage. However, the Client proposes that the amount ofUS$ 1,000,000 will be allocated to consultant services and an overseas training study tour. Short lists of consultants for services estimated to cost less than US$ 300,000 or equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines. There may be some consultant services engaging universities and government research institutions.

6. Operating Costs: Nil.

7. Others: Nil.

8. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the project implementation manual in the PMO's office.

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

9. Procurement activities will be carried out by Foreign Capital and Technical Import Center (FCTIC), Ministry ofRailways.

10. An assessment ofthe capacity ofFCTIC to implement procurement actions for the project has been carried out by the Bank’s procurement specialist. The assessment reviewed the organizational structure for implementing the project and the interaction between the project staff responsible for procurement and the Ministry’s relevant central unit for administration and finance.

1 1. The key issue and risk concerning procurement for implementation ofthe project is the ministry-specific procurement procedures issued by the Ministry ofRailways which may be inconsistent with the Bank’s procurement guidelines. During the appraisal, the FCTIC was requested to provide all currently effective ministry-specific procurement procedures governing procurement of goods and consultant services which are inconsistent with the Bank’s procurement guidelines. FCTIC informed the Bank’s team that there were no such ministry- specific procurement procedures. In view ofthe special risk identified, the action proposed is to introduce one clause in the legal document which states that “Any ministry-specific procurement procedures issued by Ministry ofRailways which may be inconsistent with the Bank’s procurement guidelines shall not be used in procurement of Bank-financed components.”

12. The overall project risk for procurement is moderate.

C. Procurement Plan

13. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team at appraisal and is available at the FCTIC’s office in the Ministry ofRailways. It will also be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

14. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment ofthe Implementing Agency has recommended supervision missions to take place once a year to visit the field to carry out post review ofprocurement actions.

E. Details of the Procurement Arrangements Involving International Competition

1. Goods and Non Consulting Services

(a) List ofcontract packages to be procured following ICB and direct contracting: See attached Procurement Plan.

53 (b) ICB contracts estimated to cost above US$ 500,000 or equivalent for goods per contract or the aggregate value ofthe contracts in a package and all direct contracting will be subject to prior review by the Bank. The first NCB contract irrespective of contract sum will also be subject to the Bank’s review.

2. Consulting Services

(a) List ofconsulting assignments with short-list of international firms: Consultant services provided by firms and individuals for the project have not been determined at the appraisal stage. However, the Client proposes that the amount ofUS$ 1,000,000 will be allocated for consultant services and an overseas training tour.

(b) Consultancy services for firms estimated to cost above US$300,000 per contract will be subject to prior review by the Bank. All single source selection ofconsultants irrespective ofcost estimate will be subject to prior review by the Bank. All individual consultant selection estimated to cost above US$300,000 will be subject to prior review ofthe Bank.

(c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$ 300,000 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 ofthe Consultant Guidelines.

Thresholds for Procurement Methods

Description Thresholds Goods >=US$500,000 ICB

Consultant >=us$200,000 QCBS, QBS, FBS Services

Thresholds for Prior Review

Description Thresholds Goods >=US$500,000 Prior Review The first NCB contract irrespective of contract sum Prior Review Consultant Consultant firm selection>=US$300,000 Prior Review Services All SSS contracts Prior Review Individual consultant selection>=US$300.00O Prior Review

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Y 3 Annex 9: Economic and Financial Analysis CHINA: GuiGuang Railway Project

ANNEX 9A: ECONOMICANALYSIS OF THE GUIGUANGLINE

A. Introduction

1. This annex presents the results ofthe economic evaluation ofthe construction ofthe new medium-speed passenger line between Guangzhou and Guiyang (the GuiGuang line). This is expected to yield a net present value during 30 years ofoperation ofover RMB 102 billion (2006 prices discounted at 12% to 201 1) and to achieve an economic rate of return of 18%.

B. Traffic and Network Capacity

2. The GuiGuang line is a new route linking Guiyang directly to Guangzhou via Guilin and saving some 700 km compared to the current routes. The line provides for the first time a direct link between the Pearl River delta and some ofChina’s poorest provinces. It will be the catalyst to allow these provinces to begin closing the gap in economic development between themselves and the wealthier coastal delta region.

3. The Guangzhou - Guiyang route starts from Guangzhou and runs to Guiyang via Hezhou, Guilin, Sanjiang and Rongjiang, and provides a direct route for on-traffic to Chengdu, Sichuan and north-west China. Currently this traffic has a choice oftwo routes: a route of 1,577 km, on electrified double-track main trunk lines, eastwards from Guiyang to Zhuzhou and then south on the main Beijing- Guangzhou north-south line, or a shorter 1,490 km route on non-electrified (mostly single-track) secondary mainlines via Liuzhou and .

60 Table 9.1: Traffic flows within GuiGuang catchment 2006

Guangdong Guilin Guizhou Sichuan Northwest Total

"\I Guangdong 23 1 64 1 3014 254 4140 Guilin 246 41 1 3 29 1 Guizhou 770 27 797 Sichuan 3445 2 3447 Northwest 275 2 277 Total 4736 262 682 3015 257 8952

Freight (000 tonnes) Guangdong 48 332 1499 1531 3410 Guilin 242 253 255 97 847 Guizhou 1322 1059 2381 Sichuan 1700 326 2026 Northwest 3283 118 3401 Total 6547 1551 585 1754 1628 12065

4. In 2006, the traffic between Guiyang/Chengdu/NW China and Guangdong was 11.7 million tonnes of freight and 8.5 million passengers, with a further 0.3 million tonnes offreight and 0.5 million passengers between Guilin and Guangdong (Table 9.1 above). Whilst the route provides very substantial benefits to Guizhou, traffic to and from Sichudnorthwest represents nearly 80% ofthe passenger market and 70% of the freight market.

5. Economic growth in the western provinces is expected to be above average for at least the medium-term and passenger and freight traffic along the corridor is expected to increase at around 7.2% p.a. and 6.1% p.a. respectively between 2005 and 2022 and at 3.0% p.a. and 2.5% p.a. thereafter, assuming capacity is available, but without any improvements to infrastructure. This forecast growth over the GuiGuang line is consistent with recent national trends; the growth rates for passenger and freight traffic on the network as a whole between 2000 and 2008 have been 7.2% p.a. and 7.9% p.a. respectively.

6. In particular, after more than two decades of intermittent gain and decline, the volume of inter-city passenger traffic being handled by CR has grown substantially, with both railway passenger and freight traffic increasing at average annual compound rates of7-8% over the last 8 years. Although this is slightly slower than GDP, as well as growth in passenger travel by air and road over the period, it is faster than most other passenger railways in the world. Over the last year, since the initial introduction of high-speed services (which now carry between 5-10% of all passengers), rail passenger traffic has grown twice as fast as both road and air. This reversal ofpast trends is expected to continue with the on-going reductions in travel time on the planned high-speed network as well as the substantial increases in road costs.

7. The traffic forecasts for the GuiGuang line assume that most ofthe passenger traffic will transfer to it. Therefore, even if, because ofthe better level of service, unit fares are increased it will

61 still be cheaper in aggregate terms as the distance is much shorter. However, the bulk traffic between the northwest and Sichuan and the Pearl Delta will remain on its current route. However, all container traffic and the lighter general freight are assumed to use the new line because ofthe much shorter transit time.

8. Although, over time, the combined impact on demand of faster speeds within the corridor will be substantial, the demand forecasts are conservative and allow only an 18% increment in demand for passengers (compared to the typical generated traffic on high-speedrailways of 20%, for which the travel time saving is generally far less dramatic). No increase has been included for freight. However, there will be a significant long-term impact on regional competitiveness which is considered further in Section E.

9. The forecast traffic on the line in 2022 under these assumptions is 16 million passengers and 18 million tomes offreight and in 2032, 22 million passengers and 24 million tomes of freight. The principal lines that would otherwise carry this traffic (Guiyang - - Zhuzhou and Guiyang - Liuzhou) are already vary busy (Guiyang - Zhuzhou is operating at 74% of capacity) and this traffic would put both lines close to capacity, with consequent impacts on transit time. The overall objective is that before 2016 a new medium-speed (200 km/h) corridor will be constructed for this traffic, with freight trains operating at a maximum of 120 km/h. The travel time between Guiyang and Guangzhou for passengers should be reduced from 251° hours to 5 hours, providing a quantum improvement in the accessibility between the under-developed provinces ofGuilin and Guizhou and the industry and commerce ofthe Pearl River delta.

10. Figure 9.1 below shows the passenger flows for the GuiGuang line and adjacent corridors for the GuiGuang line and adjacent corridors.

C. Project Investment

11. The estimated cost ofthe project infrastructure is RMB 80.0 billion (US$ 11.7 billion) at 2006 prices. For the purposes of economic analysis, all input costs are assumed to be adjusted to market prices and no shadow price factors have been used.

12. The initial cost ofthe train-sets (taken as 30 8-car sets) and other rolling stock is an additional RMB 2.9 billion (US$ 0.4 billion). This has been excluded from the project capital costs and instead the net change in rolling stock capital has been converted into an equivalent annual cost and included in the operating costs for the “with project” case. Similarly, no specific cost has been included for any additional investment required by the power authority to provide additional traction power supplies, as this is included within the price paid by MOR for traction electricity.

loCurrently two of the trains take about 27 hours and one train takes 20 hours

62 D. Benefits

13. The benefits ofthe new construction ofthe GuiGuang line fall into three main categories:

0 a major reduction in travel time and distance for the traffic diverted to the new line, thereby generating significant operating cost savings to the railway and time savings for passengers and freight. Service frequency will also be greatly improved, with services every hour as opposed to the existing services which leave effectively twice each day.

0 freeing up capacity on the existing lines will allow them to handle the projected increase in freight traffic, which would otherwise travel by road or not at all.

0 wider economic, social and environmental benefits. Some ofthe benefits here are included as part ofthe cost-benefit analysis (CBA). However, a significant amount is not covered by the CBA. For example, the GuiGuang line would provide a quantum improvement in accessibility between the southwest provinces and the Pearl River delta and thus increase the competitiveness ofthe regional economy and stimulate its economic growth. These benefits fall outside the conventional benefits directly linked to transport operations and are discussed further in Section E.

14. Time and Distance Savings. The new line will save the average rail passenger more than twenty hours compared to the existing timetable. This has been valued using the weighted average income per head of the expected passengers using the train ofRMB 1600/month or RMB 1Ohour (2007 prices), based on the results ofon-board surveys ofother rail services. Business and non- business travelers are valued at 100% and 35% of this average income (based on estimates derived for countries at a similar stage of development) and the businesshon-business mix was taken at 35:65, again based on the on-board surveys." This gives an average value oftime savings in 2007 of RMB 5.78 per hour (US$0.84), increased at 7% annually to 2015 and thereafter at 5%, in line with the expected growth in average income per head. Frequency benefits have been taken as equivalent to 2.5 hours traveling time, based on the UK Passenger Demand Forecasting Handbook assumptions for intercity passengers.

15. Distance savings have been calculated based on the estimated resources (loco-km, wagon-km etc) saved, combined with 2007 unit costs. Savings for passengers transferring from air and road (taken as 11% and 7% respectively ofthe opening volume'2) are based on the estimated operating costs of buses and air.

16. The project is part ofa general improvement ofthe link between Sichuan and Guangzhou and therefore contributes to benefits for trips made over much longer distances (e.g. Pearl Delta to Chongqing and Chengdu). For such trips, the project has been credited with a share of the benefits in proportion to its distance relative to that of the total trip.

11 On-board surveys in 2002 gave a mix of 4456; this has been assumed to reduce by 2015 to 35:65. l2These proportions increase to 23% and 11% by 2032 to reflect the impact of increasing incomes on mode share.

63 17. FreeinE-uD capacity. Transferring passenger and freight operations to the new line from the existing network will provide additional capacity for freight which would otherwise have slower transit times or, if a route is saturated, be forced to travel by road or not travel at all. The most heavily-used alternative route is from Guiyang to Zhuzhou. In the long-term host-2020) a new passenger-dedicated line is planned for this corridor and so, in the absence ofthe GuiGuang project, any capacity problems will only arise for ten years at most. This has been allowed for in the economic analysis by adjusting freight travel times on the Guiyang- Zhuzhou section upwards by 20% in the no-project case. No adjustment has been made on the Zhuzhou to Guangzhou section for which a parallel HSR line is already under construction.

18. Wider economic and environmental benefits. The improved level of service will attract passengers from other modes as well as generating additional trips by providing greater opportunities for potential passengers to travel (e.g. it will be easily possible to make a day return trip between Guangzhou and Guilin (or even Guiyang and Guangzhou), both ofwhich are currently very difficult to achieve. This trip transfer will create user benefits as well as, in most cases, reducing both operating costs and externalities.

19. Diverted and generated traffic, calculated as part ofthe demand forecasting, has been allowed benefits calculated at 50% ofthe increase in user surplus to base traffic, as provided by the 'rule-of-a-half. The associated operating cost savings for traffic diverted from other modes has been calculated using average operating costs derived from user surveys and highway cost studies (for road) and from the assumed operating cost component of air fares of 85%.

20. The external benefits included in the benefit include the reduction in road accidents and congestion, vehicle emissions (net ofthe change in rail emissions) and changes in greenhouse gases (GHG). These have all been valued using standard unit costs adjusted to Chinese conditions.

E. Wider Economic Benefits

21. Recently there has been increasing focus on the impacts ofmajor transport projects which are outside conventional financial and cost benefit analysis (this is based on economic studies that has since become known as the New Economic Ge~graphy).'~These major transport projects arise through the stimulation, over time, ofregional economic development associated with:

the productivity and agglomeration offirms the working ofproduct and service markets, and

0 the working ofthe labor market

l3This has been pioneered by a number of economists who have worked on location and trade theories, such as Fujita (1 988), Krugman (1 99 1) and Venables (1996).

64 22. In the UK, where there have been recent analyses of such wider benefits, the impacts have been shown to be particularly significant for rail projects. Similar studies have also been undertaken in Germany, the Netherlands, and Sweden.

23. The theories ofNew Economic Geography have been applied within the Chinese context to assess the extent ofsuch benefits for the GuiGuang project.

24. Transport projects are a special type of investment as lower transport costs and transit times can potentially influence:

0 where companies invest and grow their business how they source their inputs from different locations

0 how they develop and expand the catchment oftheir goods and services how they imitate and learn from one another amid competition, and (in some cases) develop their own niche markets

All ofthe above can lead to increased productivity.

25. A transport project that makes a step change in travel costs and times between regional economic centers (such as the GuiGuang Railway) is expected to yield significant impacts through bringing companies closer together in travel time and distance. Broadly speaking, the impacts can be classified as:

Direct impacts on companies as they make their individual decisions based on considerations ofprofits and costs. These are already largely accounted for in the cost benefit analysis of passenger and freight traffic (e.g. via travel time savings) 0 Externalities - the reductions in distances and travel times enable the companies to share input and output markets and to enjoy knowledge spillovers; this produces positive externalities in the form of agglomeration. However, infrastructure building and traffic produces negative environmental effects. The cost benefit analysis usually includes the environmental effects, but excludes agglomeration effects.

26. Agglomeration effects are excluded from conventional cost benefit analysis as most companies decide where to locate/expand on the basis oftheir own profits and costs rather than the impact oftheir location upon profitdcosts of others. However, in areas with improved transport, an increasing number of companies become more closely connected and this is known to generate agglomeration economies. Such agglomeration brings benefits to all companies in the cluster.

27. Therefore, if a transport project makes a company locate or expand in a given area, the cost benefit analysis will capture the benefits to the company through direct cost and time savings but will not include potential efficiency gains which arise from that decision but which accrue to other companies in the cluster. Examples of such gains are: i)widening the range ofproducts for production inputs, ii)sharing a wider and more flexible pool of labor, capital, and raw materials, iii) transfer oftechnology and innovation amidst increased competition in the cluster.

65 28. Such agglomeration economies have long been understood to exist. Theories on agglomeration can be traced back to Marshall (1890) while recent UK research has developed a methodology based on New Economic Geography to quantify such impacts. This methodology has been applied to a number of transport studies in the UK; amongst them rail projects that connect the main urban centre and its hinterland (such as CrossRail in London) have shown very significant agglomeration benefits.

29. In China, agglomeration effects have been recognized at a theoretical level, although to date there are only a few quantitative studies on the topic. One conducted by the Bank in 2006, found that firms in more populated cities and city regions tend to be more productive, and this was tentatively attributed to greater competition and agglomeration benefits.

30. Several interviews with planners and businesses in Guiyang showed that local businesses are already well aware of the possibility of the construction of the GuiGuang Railway. Businesses in Guiyang and along the GuiGuang corridor have formulated their commercial plans to exploit the complementarity of local industrial activities to those in the Pearl River Delta. Guangdong businesses have already made significant investment in Guiyang businesses, bringing expertise as well as financial support for expanding and new business activities. Obviously, when a railway line links a developed area (such as Guangdong) with an under-developed area (such as Guizhou), there is a complex pattern of potential gains and losses between the regions, although the total effects are expected to be beneficial, particularly if the commercial activities in Guizhou are developed in a complementary manner to those in Guangdong. The gains and losses of each region to a significant extent depend on local circumstances, such as industry clustering, local resources, labor supply, entrepreneurship, and governance, but the field work indicates that there can be significant benefits arising from the agglomeration effects.

3 1. The UK analysis based on New Economic Geography also considers two other groups of long-term effects, besides agglomeration, that have not been accounted for by the cost benefit analy~is.'~They are:

0 gains by firms in product and service markets that are not fully competitive, and additional gains in the labor market through improved labor supply.

32. There could also be significant short term benefits along the railway corridor that are associated with the investment and construction activities, with the local input-output multiplier effects of the railway investment and also with the training of and technology transfer to the local work force in under-developed areas. A post-opening survey along the original Naming to Kunming single track line undertaken in the early 2000s suggested that the railway construction led

l4 Summarized in Transport, Wider Economic Benefits, and Impacts on GDP. London: UK Department for Transport (2006). See http://www.d~.gov,uk/pgr/economics/rd~webia/transporhvidereconomicbene~3137

66 to a step change in the economic and technical outlook of the local population and gave them momentum for exploiting the new rail services.

Possible quantification of agglomeration benefits

33. The various additional benefits discussed above are intrinsically difficult to quantify. However, UK Dff (2006) developed an approach based on a relatively simple partial equilibrium framework that has been used in practice to quantify the agglomeration benefits in a number of road and rail projects in the UK. This approach is based on a comparison ofthe economic mass with and without a transport project. The economic mass for a given location is defined as

where i Location of a firm j Other locations in the region where other firms are located The generalized cost oftravel from to where B denotes 'Base Case'. All g; j i, the zone pairs ij can be considered in the calculation if appropriate. A measure ofeconomic activity. In the UK approach, the number ofworkers E: is used as this measure but as the units cancel out, regional GDP has been used in this project.

34. The economic mass of this location i increases if

0 there is an increase in the level of economic activity in i,or the surrounding areas

0 there are decreases in the generalized costs of travel between iand j (especially where the economic activity level is high).

35. Increases in congestion, or increased dispersion ofjobs, will therefore reduce the economic mass.

36. The agglomeration benefits are calculated based on changes in economic mass for an Alternative Case (A) versus a Base Case (B), as

where wA'B Agglomeration benefits for the Alternative Case (A) vs. the Base Case (B) i The location for which agglomeration benefits are being calculated

67 k Industry sector dlA, dlB Economic masses oflocation i in for A and B respectively Economic mass for the Base Year (Le. 2006) d: Y Productivity parameter with respect to economic mass (empirically estimated) 4 GDP per worker in I Employment (in the Alternative Case A) E:'

37. The above equations have been applied to the GuiGuang project to demonstrate the potential magnitudes ofthe effects. The estimation of specific Chinese parameters would involve extensive analytical work and the analysis in this annex instead uses a wide range of parameter values imported from the UK studies.

38. These benefits have been estimated using the calculation outlined above, for the years 2015 - 2045. Table 9.2 summarizes the results for a range ofassumptions for y , the empirical parameter in the model. Recommended values of y in the UK are between 0.08 and 0.20 for the range of industriesl5. These values have been applied to a range ofrail projects in the UK. A value of 0.075 has been adopted for the current project. However, the sensitivity tests show that even a low y value such as 0.05, well outside the UK recommended range, still generates substantial agglomeration benefits, equivalent to over 40% ofthe project cost when discounted at 12%. This is consistent with similar results obtained in UK, where agglomeration benefits are ofthe same order ofmagnitude as the pure transport benefits for major projects.

Table 9.2: Agglomeration benefits (RMB billion 2006) Discounted benefits (@ Gamma ( y ) Annual benefits 2020 12% to 201 1) 0.050 8.0 33 0.075 12.3 68 0.010 16.9 107 0.125 21.8 148

39. This estimate of agglomeration effects only includes three geographic areas within Guizhou Province. In practice, similar benefits may also accrue in Guangxi Province (e.g. Hezhou which is becoming an important local transport hub on the proposed Railway line) and along the Chengdu- Guiyang corridor. Hezhou has not been included in the above calculation as the city's economy is relatively small. Also, the Chengdu-Guiyang corridor has not been included to avoid the task of apportioning benefits between GuiGuang and other related projects for this corridor. This means that the figures presented above underestimate the total agglomeration benefits.

l5The derivation of the y parameter is via an estimation of the trans-log production functions of the different industries. This has been done in the UK using fm-level accounts data.

68 F. Economic Rate of Return and Sensitivity Analyses

40. The benefits are calculated for the 30-year period following project completion, from 2015 to 2045 and the estimated EIRR derived and NPV calculated (using a discount rate of 12%). The estimated NPV, discounted to 20 1 1, is about RMB 102 billion in 2005 prices with an EIRR of 18.2%.

41. The distribution of direct transport-related benefits is as shown in Table 9.3.

Table 9.3: Analysis of Project Benefits (RMB billion 2006, discounted at 12% to 2011)

I Construction I I I I I I -89.1 I

42. The sensitivity of these results was tested against changes in six base case assumptions:

0 an increase in investment costs of 50%; 0 excluding agglomeration benefits 0 halving traffic growth rates from 20 15 onwards 0 excluding the benefits attributed to additional traffic 0 including only rail operating benefits and passenger time savings

43. The results of these tests are given in Table 9.4.

Table 9.4: Sensitivity of project evaluation

69 44. The project is robust against all sensitivity tests. Even if the analysis is restricted to benefits to the rail operating cost savings and passenger time savings and discounting all benefits associated with traffic which would otherwise be suppressed or have to travel by road or air, the EIRR is 8%.

ANNEXgB: FINANCIALANALYSIS OF THE GUIGUANC LINE

A. Background

1. The line will eventually be owned by a newly-formed project company, although MORwill be formally responsible for implementing the project and will mobilize all the financing and repay all borrowed funds. This financial analysis focuses on the financial soundness ofthe project from the viewpoint of the project company.

2. The project will be financed using internal funds, with equity obtained from the project company partners and loans obtained from domestic banks (China Development Bank) and from the World Bank, amounting to RMB 79 billion in total (2005 prices). Of this, about RMB 2.1 billion (2.7%) will be funded by the proposed Bank loan.

3. The project company will be responsible for operating the section ofthe line in its geographic jurisdiction, although train-sets belonging to other project companies using the corridor, as well as those ofMOR itself, will also use the line. Details of sales will be forwarded to MOR by each project company and a revenue settlement made between each interested party.

B. Cash Inflows

4. The largest share of cash inflows on the HSR will be earned from the allocated passenger revenue. Unit revenues are planned to be RMB 0.26 per passenger-km for stopping 200 kmihour trains, compared to the current average level ofRMB 0.1416 (1.7 US cents) per passenger-km. Revenue from other sources (parcels etc) is estimated at 10% of traffic revenues.

5. Whilst these yields are already achievable today from some market segments, the bulk ofthe traveling public still earns relatively low incomes. Surveys indicate a general desire for higher- quality services, and a willingness to pay more, and per capita incomes are likely to double by 20 15. In addition, because ofthe shorter distance, the point-to-point fare will increase by far less than the unit rate. Nevertheless, it is unlikely the planned yields will be reached for the market as a whole for several years and until then there will need to be fares policies which provide a range ofavailability and service levels to manage yields as effectively as possible. This has been built into the financial evaluation, which assumes a yield growing from 0.20 RMB/pkm in 2015 to RMB 0.30/pkm in 2020, remaining constant thereafter.

l6Although tariffs can be double this rate for the higher-standard accommodation.

70 C. Cash Outflows

6. The initial category ofcash outflows is the project investment outlays at RMB 77 billion, with a credit ofRMB 49 billion for the residual value of the investment at the end ofthe evaluation period. Operating costs have been largely based on unit costs developed by the project team, based on indust experience, with local costs (train crew, station costs etc) as developed by the Design Institute.17

D. Financial Rate of Return and Sensitivity Analyses

7. Net cash flows are calculated for 201 1-2045 to derive the financial IRR of 3%. This reflects the very substantial initial costs, with revenues not being earned until after six years of construction. However, the project is always cash-positive once operation begins, with expenditure typically being about 55% of revenue and the significant amount ofequity being injected by the local governments reflects the substantial economic benefits arising from the project.

l7These have been benchmarked against typical HSR operating costs as part of IBRD due diligence

71 Annex 10: Safeguard Policy Issues CHINA: GuiGuang Railway Project

Compliance with World Bank Safeguard Policies

1. Safeguard Policies Triggered. The project triggered the folloq..ig Wor Bank policies: Environmental Assessment; Natural Habitats; Indigenous Peoples; Involuntary Resettlement; and Physical Cultural Resources. Compliance with these policies is summarized below.

Table 10.1: Compliance with World Bank Safeguards Policies Safeguard Policies Actions Environmental Assessment - Category A project. Full EL4 and EMP have been prepared. (OP/BP 4.01) Natural Habitats - Alignment alternatives to avoid natural habitats (OP/BP 4.04) - Adequate assessment of impacted protected areas and mitigation measures incorporated in EMP Physical Cultural Resources - Archeological survey conducted along alignment (OP/BP 4.1 1) - Alignment alternatives to avoid cultural relics sites - Chance procedures developed in EMP Involuntary Resettlement - Resettlement Action Plan has been prepared fOP/BP 4.12) Indigenous Peoples - Social Assessment has been conducted (OP/BP 4.10) - Indigenous People Plan has been developed Consultation - A combination of opinion surveys and public meetings were held in local government, village committees, affected villagers’ homes, and ethnic minorities during preparation ofthe EL4 and Resettlement Action Plan

2. As designed, the project (i)will not adversely affect or convert critical natural habitats; (ii) will not adversely affect resources ofhigh cultural value; (iii)will not negatively affect ethnic minorities but rather provide opportunities for their development; (iv) will have minimized the need for resettlement and will provide adequate and just compensation and income restoration for affected peoples; and (v) includes a framework for addressing environmental and social issues during construction and operation ofthe project.

3. Safeguard Approach. The GuiGuang Railway will have the potential to cause direct, indirect, or cumulative impacts to the social and natural environment. The GuiGuang Railway is anticipated to have beneficial impacts related to increased mobility and the promotion ofeconomic development in impoverished regions of southern China. Manageable adverse impacts are primarily related to (i)crossing sensitive sites such as nature reserves and forest parks, areas of cultural value, and scenic areas; (ii)community impacts such as resettlement in urban and rural areas, community severance, impacts on ethnic minorities, and noise and vibration; (iii)induced and scenic impacts; and (iv) impacts during construction. The project has implemented a three-fold approach to minimize environmental and social impacts. These are:

72 Avoidance. Alternative analysis has been regarded as one ofthe most important mitigation measures to minimize potential adverse environmental and social impact.

0 Sound Engineering. The project has been designed with state-of-the art engineering. Using tunnel-bridge-tunnel schemes will avoid most sensitive issues.

Table 10.2: Engineering Designs I I 1 % I Infrastructure Length- oflengthr, I Embankment 218 km 24% Bridges and 342 bridges totaling 191 km 20%

Tunnels 233 tunnels totaline: 472 km 5 6%

0 Comprehensive Mitigation Plans. Comprehensive environmental design plans (green corridors and landscaping), environmental management plans, resettlement action plans, and ethnic minority plans have been prepared in order to minimize and/or compensate unavoidable impacts from the project.

Environmental Assessment (OPBP 4.01)

4. Environmental Category. The project is considered Category A for environmental purposes due to the scale ofpotential environmental and social impact and the sensitivity ofthe project areas. MORretained the China Railway Second Survey and Design Institute (SSDI) and China Railway Fourth Survey and Design Institute (FSDI) for EA preparation. Both institutes have Class A environmental impact assessment accreditation from the Ministry ofEnvironmental Protection (MEP). Two separate EIA reports were prepared in accordance with relevant provisions specified in Chinese EA lawshegulations and technical guidelines, as well as consideration of World Bank safeguard policies. The draft EA documents have been reviewed and commented on by the Task Team in several rounds, and the final EA documents were submitted on November 25,2008, including: (1) Consolidated EIA Report; (2) Environmental Management Plan; and (3) EA Executive summary.

5. The EIA report includes comprehensive impact assessment and developed necessary mitigation measures to avoid, minimize, and compensate any adverse impact identified. It concluded that the adverse environmental and social impact will be minimized to an acceptable level provided that the mitigation measures are adequately implemented. The main issues addressed in the EIA are summarized below. Natural Habitat issues, as well as Physical Cultural resources issues were addressed as part ofthe EIA.

6. Environmental Setting .The project area is particularly complex from socioeconomic and ecological perspectives. The GuiGuang Railway will traverse a wide variety ofecosystems and landscapes from the flood plains ofmajor rivers to steep and strikingly beautiful mountains. The line will travel heavily populated areas (mega-cities) mainly at both ends ofthe line, as well as rural areas with dispersed populations and ethnic minority communities. These wide variations of landscapes and social situations will require careful planning and supervision during construction. The main characteristics ofthe corridor include:

73 Sensitive Areas. There are more than 40 environmental sensitive areas (Le. nature reserves, scenic areas, forest parks, water source protected areas) along the project corridor. The project alignment has been carefully selected to avoid most of them. The final alignment will pass the outskirts of one nature reserve (mainly through tunnels), two scenic areas (while avoiding the main scenic spots) and two forest parks (mainly through tunnels). In addition it also avoids the core protection sections of all water source protection areas Karst Caves. A characteristic of the GuiGuang Railway is the crossing of unique ecological karst areas. China has five karst World Heritage properties. The South China karst was inscribed in 2007 and includes three sites (Wulong in Chongqing, Shillin in Yunnan, and Libo.18 However, the lower karst landscape near the Li River between Guiling and Yangshuo, arguably the most iconic of the sites, is not included in the serial n~mination.’~ The line will cross important karst formations mainly in the sections from Guiyang to Sandu and again from Wutong to Hezhou where tunnel construction may interact with groundwater. The line will not traverse South China karst sites or the Guiling-Yangshuo areas. Karst caves along the line are mostly distributed at Guiyang-Sandu and Wutong-Hezhou Sections, with 68 karst caves within 300 meters of both sides of the railway line. Contrasting Socioeconomic Setting. The project will be constructed in the economically underdeveloped regions of Guizhou and Guangxi, where traffic by waterways, highways and airlines is comparatively lagging. The project alignment will pass through the main cities/counties of Guiyang, Longli, , Rongjiang, Congjiang, Guilin, Gongcheng, , Hezhou, , Foshan and Guangzhou. The project areas are mainly rural and poor, and contrast markedly with the social and economic level of the more highly developed eastern parts of Guangdong which has a GDP per capita of RMB 69,286. This contrasts with a GDP per capita of RMB 3,277 in Qiannan Prefecture in the western sections of Guizhou and Guangxi. Although the alignment passes primarily through rural areas it will also cross cities such as Guangzhou, Foshan, Guilin and Guiyang. Rich Cultural Diversity. The project corridor also presents a rich cultural diversity. There are six ethnic minority groups (Buyi, Zhuang, Yao, Miao, Dong, and Shui) with a total population of more than 125,000 minority people in the project counties. There are three minority townships, four minority autonomous counties, two minority autonomous prefectures and one minority autonomous region affected by the project. Nearly 1,600 ethnic minority households will be affected by the project.

7. Analysis of Alternatives. Alignment selection at the regional level was followed by site- specific analysis of alternatives.

0 Regional Corridors. Project proposal and feasibility studies considered three corridors at the regional level: Northern, Central and Southern line schemes. Comparative analyses of these three corridors were carried out with consideration given to the current situation and development planning of the regional railways. At this initial stage, the main factors considered were regional economic and social development as well as financial and technical

l8IUCN: “World Heritage caves and Karst” a Thematic Study, IUCN World Heritage Studies, Number 2, 2008. l9 The Guiling-Yangshuo landcape is featured in traditional art and even in banknotes in China.

74 aspects, as specific environmental concerns could not be meaningfully examined at this macro-scale analysis. The Central line scheme was selected as the most efficient express passage connecting the southwest and northwest regions of China with the Pearl River delta areas. It was also assessed as being capable of effectively expanding the scale ofthe regional railway network, and bringing about the largest potential benefits ofpoverty alleviation, local economic development, and tourism development. Alternative Alignment bv Sections. The process of alignment selection has been perhaps the most important environmental tool for this project. Alternative alignments for various sections have been extensively studied to choose the optimal scheme in terms of environmental and social impact, technical feasibility and financial and economic benefits. Consultation with local governments and relevant authorities in charge of environmental sensitive areas were conducted and fully incorporated into the alternative selection process. Considerable effort has been made to avoid ecological sensitive areas, geological unstable zones, floodplains and wetlands, relocation ofhouses, cultivated lands, and cultural resources in order to ensure the environmental feasibility ofthe alignment. The final alignment thus minimizes environmental and social impacts, avoids natural hazards, and connects the economic hubs in the region. Section specific alignment alternatives included: o Longli Section (K13 - K41+400m). Two alternative alignments were considered (utilizing existing railway line versus construction of a new line). The option of utilizing the existing line was chosen due to its avoidance ofnatural forest area, less ecological disruption, and compatibility with local development plan. o Zenleng-Sanjiang Section (K194t800m - K381+700m). Three alternative alignments were considered (north, middle, south options). The north option was selected because it has less civil works, no impact on key scenic spots in three scenic areas, easy access to all nearby counties and is preferred by local governments. o Longsheng-Guilin Section (K327 - K399m). Three alternatives were considered: north, middle, south options. The south option was selected because it has less civil works, less impact on Shoucheng Nature Reserve (pass through tunnel in outer Experimental Zone), avoidance ofthe core zone of a nearby national nature reserve, and avoidance of drinking water resource protection site and ecological hazard areas. o Guilin-Hezhou section (K453 - K587m). Three alternatives were considered: north, middle, south options. The middle option was selected because ofits reduced civil works, avoidance ofGuilin Li River Scenic Area and Hanyangshan Nature Reserve, and acceptance by local governments o Guiyang City Section. Two access options into Guiyang were considered: using existing railway corridor versus a new detour line. The option ofusing the existing railway corridor was selected due to its convenient connection with the existing Guiyang station, less civil works, less resettlement, avoidance of Aha reservoir - a drinking water resource, and acceptance by local government.

8. Crossing Sensitive Areas. The most sensitive component ofthe proposed project will be the construction and operation ofthe railway line through environmentally and socially sensitive areas. There are 48 environmental sensitive sites identified along the project corridor. Various alternatives were studied and the final proposed alignment successfully avoided almost 40 of these environmental sensitive areas. However, due to the distribution ofeconomic hubs and special natural conditions along the line, there remain about 8 environmental sensitive areas upon which the

75 alignment will have an impact. The final alignment will pass the outskirts of one nature reserve (mainly through tunnels), two scenic areas (while avoiding the main scenic spots) and two forest parks (mainly through tunnels). In addition it also avoids the core protection sections of all water source protection areas. These include: (i)Longjiashan National Forest Park, (ii)Rongjiang Gurong Scenic Area at the provincial level, (iii)Congjiang Scenic Area at the provincial level, (iv) Liping Dongxiang National Scenic Area in Guizhou, (v) Shoucheng Natural Reserve at the level of autonomous region, (vi) Yangshuo National Forest Park, (vii) Gongcheng Class Isource water protection area, and (viii) Lianhua-Gulou Cultural Relics Protection Unit at the county level in Guangxi Zhuang Autonomous Region.

9. Natural Habitats (OP 4.04). By avoiding most ecologically sensitive areas, the project has minimized impacts on natural habitats. However, construction activity in a localized ecologically sensitive area could indirectly affect the living environment of some animals (e.g. monkeys, wild cats, deer and birds etc). Any impact will be temporary during construction stage. The tunnel-bridge- tunnel scheme of the project will minimize the loss of surface vegetation as well as fragmentation of habitats for wildlife. It also avoids the main habitats where rich wildlife biodiversity is present. Hence, the project will not lead to significant loss of natural habitats, nor adversely affect any critical natural habitat.

10. A special study to assess potential impacts on karst caves was commissioned.20Of a total of 68 caves identified within 300 meters of the alignment, the project will pass through only one cave (Longshan Cave, K560+520m). Two other caves were identified that may receive wastewater from construction, although the caves will not be physically affected. A biological survey has been carried out for ten caves, including the above mentioned caves. The other five caves will not be directly affected by the construction. The Longshan cave is full of water and will be divided into two sections by the tunnel. Once divided, the water will be contained in the upper side of the cave so that the lower side will remain dry. There are no protected or unknown species in this cave. In a regional context, partial loss of the water ecology in this cave will not have an impact on regional aquatic species biodiversity.

1 1. The proposed railway project will not result in significant impact on the karst cave ecosystem and biodiversity in the region. It is estimated that around 10,000 to 20,000 caves can be found in the Guizhou and Guangxi area with similar ecological environments. The project will only affect one cave which, according to the biodiversity survey, has no special value for biodiversity or cultural or aesthetic value.

12. Although a preliminary investigation could not identify a high biodiversity value in this cave, additional biodiversity investigations will be carried out before construction. Special measures for cave protection during construction have been designed and will be strictly enforced (See Box 10.1).

2o “Environmental Assessment Report About Effects Of The Overseas Loaned Railway-Building From Guiyang to Guangzhou: An Investigating Report About Caves”; School of Geography and Biological Science, Guizhou Normal University - China Railway Eryuan EngineeringGroup Co. Ltd. August, 2008

76 Box 10.1

13. Physical Cultural Resources. (OP 4.11). The project will not adversely affect physical cultural resources. A cultural resources survey was conducted for all project sites, lead by local archeological institutes, in combination with consultation with local cultural property management authorities and the general public. This survey was complemented by field surveys during EA preparation. A total of 10 cultural property sites were identified, and the alignment was shifted to avoid 9 ofthem. On the east side ofthe Siqin River, the railway alignment will cross 600 meters of the Gulou-Lianhua Ancient Tombs protection area on an embankment. The Cultural Relics Protection Unit is located at the western foot ofthe eastern mountain ridges stretching from Longyan Village ofHonghua Township to Sanlian Village of Liang’an Township in Zhongshan County. It was ranked as a Cultural Relics Protection Unit at the county level in July 1980.

14. Historical data suggests that there could potentially be around 200 tombs oflocal inhabitants from the Han Dynasty era scattered around the terraces on both sides of Siqin River. However, due to frequent human activity in the surrounding areas, field surveys did not find any ground evidence for these ancient tombs.

77 15. The Cultural Relic Bureau of Zhongshan County, the property’s management authority, requested the following mitigation measures to be implemented to minimize the adverse impact. These measures have been incorporated in the EMP.

A detailed investigation will be carried out prior to commencement of construction by Zhongshan County Cultural Relics Bureau, with funding from the project budget. Protection and preservation of any valuable relics found will be carried out if necessary following the conclusion ofthe professional investigation team. Chance-find procedures in EMP will be enforced during construction, as required by China Cultural Property Law. Construction workers will be provided with education on cultural property protection and chance-find procedures. Other identified cultural sites will not be directly affected by the alignment. However, precautions will be taken by contractors and workers shall be educated to avoid potential damage ofthese sites, especially those relatively near the alignment. Chance find procedures will be put in place as required by national regulations and the Bank’s policy.

16. Construction Impacts. Construction ofthe GuiGuang Railway will cause temporary impact to the surrounding environment. Typical short-term construction impacts could include noise, vibration, air quality, and water quality. Ifproperly planned, the impact of construction on neighborhoods, businesses, and the natural environment can be minimized. Several aspects of construction have received special attention such as access roads, disposal ofexcess materials from tunnel construction, and management of camps.

Spoil disposal and Borrow Pits. Given the larger portion oftunnels throughout the line, proper handling of spoil material is a major environmental issue. 6 soil borrow sites and 347 spoil disposal sites have been identified following a series of environmental and social criteria. Restoration and reclamation plans have been developed for these sites, including farmland reclamation of 575 ha, grass re-vegetation of 12 ha, and planting of 700,000 trees and bushes. Screening criteria and approval procedures were developed and included in EMP for additional such sites chosen by contractors during the construction period. Access Roads. Project construction will require a significant amount of access roads, which if not well managed will create substantial environmental impact. Access roads in key sensitive areas (nature reserve, forest park and scenic areas) were particularly assessed. Rural road networks will be utilized as access roads with appropriate strengthening. As most ofthe access roads will be identified by contractors during construction, a screening and approval procedure was developed and included in the EMP to ensure that Environmental Supervision Engineers review and approve the proposal from contractors. Upon project completion, these access roads will be handed over to local communities if appropriate; otherwise they will be ecologically restored. Tunnel Construction. There are a total of233 tunnels in the project alignment. In addition to a large amount of spoil and the need for management of disposal sites, tunnel construction could also have a potential impact on groundwater hydrology, especially affecting the safety of drinking water sources for mountain communities above the tunnels. This impact assessment was conducted for ten major tunnels, based on which mitigation measures were

78 developed including prior forecast, sealing with limited discharge, provision ofback-up water sources for relevant communities, and water level monitoring during construction. 0 Water Pollution. The construction ofbridge foundations and wastewater from construction sites will have a potential impact on surface water. Such impact can be well mitigated by good construction management practice, including cofferdam method for bridge foundation construction and sedimentation tanks for slurry and for wastewater. Wastewater is not allowed to be discharged directly into the surface water body. Construction wastewater will not be allowed to be discharged directly into irrigation system for farmland without proper treatment. For the two karst caves which are located at lower places to the construction sites, wastewater from the site will be treated and diverted away from the entrance ofthe caves. Soil Erosion. Temporary retaining walls will be constructed to prevent eartwstone falling into water body. Wastewater collectionhterception ditch will be dug in the material processing area. Spoil disposal sites will have proper drainage, retaining structure and timely leveling and reclamation. 0 Social Disturbance. Construction activities will have an impact on local road traffic and disturb people’s daily lives. Social impacts will be mitigated by proper selection ofaccess roads, avoidance of residential areas, well planned traffic management measures (dedicated staff, installation ofclear signage at sensitive sites, speed limit for material hauling vehicles), provision oftemporary access roads for local communities, integration ofcommunity development into access road planning, timely restoration of irrigation facilities, among others. Cultural education and sensitivity training ofworkers will be provided in ethnic minority areas, (special attention to earth excavation, tomb relocation, local holidays or festivals and local spiritual facilities). Health education will also be provided to workers (including locally hired workers) on local epidemics, and HIV/AIDS. Dust and Noise. Construction activities will cause temporary impact ofairborne dust. The mitigation measures to be adopted include frequent water spraying on construction sites and access roads to suppress dust; covering oftrucks transporting bulk materials and timely site clean up after construction; dust control facility for material processing and mixing tower; personal protection facility (e.g. masks) will be provided to workers as needed. Construction activities will also exert temporary noise impact on local communities. Such impact will be properly mitigated by measures including use of low noise equipment and proper maintenance; careful scheduling ofconstruction activities near sensitive sites; speed limits and signs prohibiting the use ofvehicle warning devices will be installed for access road sections near sensitive sites; night-time material hauling is to be restricted for roads near residential areas; provision ofpersonal protection facility to relevant workers etc.

17. Impacts During Operation. The main issues during operation ofthe GuiGuang Railway include noise and vibration, community safety and severance, and pollution aspects in terminals.

0 Noise and Vibration. Modeling results indicated that the noise level will exceed applicable standards at 296 sensitive receptors (residential houses, schools and hospitals). Accordingly, proper mitigation measures have been developed in the EMP to mitigate noise impact, including noise barriers (127 places with total length of 55.2 km), insulation windows (198 places with total area of80,335 m2), relocation, and use oftrack with damping system. The modeling also concluded that the vibration level will exceed applicable standards at 79 sensitive receptors. At these locations special elastic track will be adopted to mitigate

79 vibration impact to an acceptable level. Intensive green belt has been designed along both sides of alignment to help reduce noise impact. 0 Community Severance and Safety. The entire line will be fenced to keep people off the track. Bridges and underpasses to carry roads over or under the track will be provided to avoid level crossings. There are a total of 339 passages designed to facilitate safe movement ofpeople and animals across the railway right of way. Cab signaling and train radio system will be provided. Infrared hot box detectors will be installed to maximize safety. Waste Management. Wastewater treatment facilities will be installed in the train stations to ensure compliance ofdischarge. Solid waste will be properly collected and disposed of in local municipal landfills. Electro-magnetic Frequency Impacts. Modeling and analog analysis concluded that operation of electric trains may have a potential impact on nearby households who use antenna for television signal receiving. This potential impact will be monitored during the operation stage, and a total budget ofRMB 252,500 has been reserved for provision ofcable TV access at 67 villages. The EMF impact traction from power line is known to be negligible, and the impact ofpower transformer substations and GSM-R stations is within the applicable standards.

18. Environmental Management Plan. A stand-alone Environmental Management Plan has been developed based on the findings ofthe EIA report. The EMP detailed the environmental management and supervision organizations and responsibilities, mitigation measures, capacity training plan, monitoring plan, and budget estimates ofEMP implementation. The EMP will be incorporated into bidding documents and contracts to ensure effective implementation.

19. EMP implementation will be managed by MOR (FCTIC) through GuiGuang Company preparation group. An environmental management unit will be established in the Project Office with dedicated environmental staff. Qualified environmental staff will be required to be assigned in Contractor and Environmental Supervision Engineer teams to ensure effective implementation ofthe EMP.

20. A two tier monitoring program has been developed for this project: daily and regular monitoring is to be carried out by Contractors and Environmental Supervision Engineers from the supervision companies, and periodical compliance monitoring by professional monitoring institutes. The MOR, through the Project Office, will be responsible for submitting progress reports on the EMP implementation to the Bank.

Involuntary resettlement (OP 4.12)

21. Minimizing Resettlement. Minimizing land acquisition and resettlement to the extent possible has been the key criterion for alignment selection during the project preparation. Considerable efforts have been made to achieve this objective, including adoption oftunnel and bridge schemes over 77% ofthe line, alternative alignment analysis for several sections where the final alignments have further reduced potential land acquisition by about 53 ha as well as resettlement by 40,000 m2.Locations ofrailway stations, borrow pitshpoil disposal sites and other works were carefully studied to minimize land acquisition and household resettlement.

80 22. Resettlement Impacts. The final alignment will affect 226 villages in 87 townships of 26 counties in Guizhou, Guangxi and Guangdong. The total land acquisition will be 32,617 mu, including 18,776 mu of cultivated land. In addition, about 24,078 mu of land will be temporarily occupied during construction. About a total of 23,983 households with 100,190 persons will be affected, including 14,359 households with 63,164 people through land acquisition and 3,259 households with 11,041 people through house demolition in urban areas (see Table 10.3). In addition, 190 enterpriseshhops, seven schools and some infrastructure will need to be relocated.

23, The cities of Guilin and Foshan comprise nearly 60% of all resettlement needs. Since all resettlement plans will be managed individually at the city level, complex or unmanageable situations are not expected to arise during resettlement implementation. Also, the resettlement per unit length, approximately 13 households per kilometer, is small in comparison to other linear infrastructure projects in China. This reflects the extensive measures taken during design to minimize land acquisition and resettlement.

Table 10.3: Distribution of Resettlement Impacts along the Railway Line

24. Preparation of Resettlement Plan. A socioeconomic survey for resettlement planning was carried out along the alignment by the Southwestern Communication University (SCU). This survey analyzed government statistics and academic research and sample surveys covering interviews, group discussion, and questionnaires. It distributed further project information, facilitated consultation and feed back opinion, and preferences and recommendations from affected population during the resettlement planning. SCU, which has experience in resettlement planning and monitoring for many World Bank projects, conducted the socioeconomic survey and RAP preparation. The draft RAP was comRleted in February 2008, and the final draft was submitted to the Bank on October 17,2008. A subsequent update was provided in February 2009. The RAP, which was reviewed in three rounds, was found to be in compliance with the Bank requirements, and has been endorsed and will be implemented by MOR and the local governments. These documents will

81 be placed in county libraries and Bank Infoshop for public disclosure before project appraisal, with an announcement in local newspapers.

25. Resettlement Policies/Strategies. RAP policies and entitlements are defined based mainly on China Property Law, China Land Law, and up-to-date provincial regulations, as well as requirements in OP 4.12.

0 Domestic Policies: The People’s Republic of China has formulated a complete legal and policy framework regarding land acquisition, house demolition, and resettlement ofpersons and standards of compensation. “The People’s Republic of China Land Administration Law” was promulgated in 1986 and has been revised three times in accordance with changes in national conditions. The latest revision was made on August 28 2008. Within the national legal and policy framework, governments of every level respectively promulgated and implemented relevant laws and policies that conform to the local conditions to manage and guide the work of land acquisition, house demolition, resettlement ofpersons and compensation. In 2004, GWYGF [2004] No. 28 issued by the State Council has raised the compensation standards. Further, the central government has issued policies to establish social insurance for those who have lost farmland and have required local governments to establish mechanisms that address the issue of farmers who have lost land. 0 World Bank Policy: The World Bank policies on involuntary resettlement are described clearly in OP 4.12. The overall objectives of the Bank’s policy on involuntary resettlement are the following: o Involuntary resettlement will be avoided where feasible, or minimized, and all viable alternative project designs will be explored. o Where it is not feasible to avoid resettlement, resettlement activities will be conceived and executed as sustainable development programs, providing sufficient investment resources to enable the persons displaced by the project to share in the project benefits. Displaced persons will be meaningfully consulted and will have opportunities to participate in planning and implementing resettlement programs. o Displaced persons will be assisted in their efforts to improve their livelihoods and standards of living or at least to restore them, in real terms, to pre-displacement levels or to the levels that were prevailing prior to the beginning ofproject implementation, whichever is higher.

26. Compensation Rates. Land compensation has been calculated in accordance with China Land Law and new requirements from project provincial level governments according to the State Council Order No. 28,2004. The RAP includes specific rates for each type of land and house in each county. All the rates for land are minimum compensation standards. Compensation for structures is determined for various categories at replacement cost with reference to market prices for comparable structures. Compensation for other fixed assets and transitional support to meet relocation costs also are defined in detail in the RAP. Urban houses and enterpriseshhops will be paid according to the commercially evaluated price. Compensation for temporary land use during construction is according to annual output value ofthe targeted land as well as use period.

27. Livelihood Development. The RAP includes a general package ofmeasures for livelihood restoration for the affected farmers and workershusiness owners. The project will affect 63,164 farmers for which four types ofmeasures are designed: cash compensation, land redistribution, land

82 development and allocation, social insurance, and training/employment assistance. All these measures are developed on the basis ofthe general resettlement practices in China and the initial consultations with the affected villages. The detailed implementation measures at household level will be further discussed and decided among the village members in village councils. The village planning process and mechanisms are described in the RAP.

28. Land compensation set in the RAP will be disbursed to the affected villages prior to any land redistribution. The village meeting will decide how the land compensation will be shared. Specific compensation disbursement is based on an agreement with each affected household after a thorough asset investigation. The RAP defined that at least 70% of land compensation and all resettlement subsidies will be paid to the affected households, if they are without other livelihood development measures. The RAP also determined detailed procedures ofland redistribution within villages where villagers agree to share the remaining land, as well as a mechanism ofsocial insurance for villagers where city/county governments have issued the policies. Those resettled can also receive job training from the township/county government, work for the project construction by providing construction materials, undertake temporary work for contractors, or open small businesses to serve the workers. For villages seriously affected by land acquisition at railway station sites, the affected people will have priority to rent railway service facilities, and choose employment opportunities like cleaning, guarding, loading and unloading etc. Those who temporarily lose land will receive annual compensation as set forth in the RAP during the land occupation. Detailed livelihood development plans for severely affected villages will be submitted to the Bank for prior review and approval.

29. All the affected enterpriseshhops, and schools are eligible to obtain compensation for assets and relocation costs. In addition, the RAP includes a transitional subsidy covering any lost wages or profits during relocation. These enterprises are expected to relocate in nearby industrial parks and the shops can reopen nearby with full compensation. All workersibusiness owners are expected to maintain their present employment with enterprises or shops. If any workers were to lose employment because of the relocation, they would be informed three months in advance. Structures, equipment, movement allowance and transition subsidies will be paid according to commercial evaluation.

30. Social Insurance. In China social insurance policy is evolving gradually, at various government levels and with different standards of insurance according to specific income situations. Central, provincial, and city/prefecture level governments have also issued specific regulations although to date, in the project areas, only Guangzhou, Foshan, Zhaoqing, Liuzhou have such regulations.

3 1. Main measures and procedures. In areas where social insurance related policies have been issued, social insurance is an additional resettlement measure for the affected farmers, and can be carried out after common resettlement compensation. The main measures include the following, although each city has varying policies and standards of insurance.

Regulations in each city indicate a clear mechanism on how to carry out the policy; 0 A standard will be established to identify those eligible for social insurance; e.g., those with less than 0.3 mu farmland in Liuzhou of Guangxi have the right to be protected by social insurance;

83 a Individuals eligible for social insurance can be identified only through village meetings with approval from local government; a Individual can decide whether or not to accept social insurance; 0 There will be two social insurance accounts to collect money: county government account and personal account. County governments will input land related income into social insurance accounts while personal accounts will receive funds from land compensation; a Money in the personal accounts can be inherited; 0 Those who are identified as eligible for social insurance will receive different benefits according to their age. a The standard for social insurance is to be regularly increased in accordance with local economic development.

32. The procedures to conduct social insurance within villages are as follows:

0 Village meetings will identify people who are eligible to participate in social insurance; 0 A list ofnames ofthese people will be disclosed within the village; 0 The confirmed name list will be submitted to the county authority; a Processing will be in accordance with the regulations to provide social insurance for the people.

33. Household Relocation. The RAP indicated that rural 7,916 households in 226 villages/communities are to be relocated. Rural households will be paid at replacement price as defined in the RAP. This will ensure house rehabilitation on residential land with adequate public facilities provided by local governments. Urban households will purchase their new dwelling in a strong local real estate market, with their house compensation based on a commercial evaluation price. Both groups will also receive movement allowance and transition subsidies. Vulnerable households are entitled to obtain additional assistance from local governments.

34. Infrastructure Restoration. A significant number offacilities such as roads, canals, power lines, telecommunication lines, etc. will be damaged during project construction and will need restoration. Large facilities, like power and telecommunication facilities, will be paid and restored by local sector authorities while simpler facilities such as paths and small canals will be restored by contractors as included in construction contracts. Simple individual facilities (e.g. fences) will be contracted to their owners. Restoration costs have been integrated into project budgets and will be under the management ofthe resettlement supervision and monitoring.

35. Budget and Funding. The RAP contains detailed resettlement budget and funding plans based on resettlement impact investigation and the agreed compensation rates. The total resettlement budget is estimated at RMB 3.8 billion, which is integrated into the project’s total cost. The MOR confirmed that all resettlement activities under the project will be financed by provincial governments who will provide the Bank with commitment letters on resettlement investment share. The resettlement budget was itemized in the RAP.

36. Grievance redress. The RAP contains a practical mechanism for grievance redress, including: i)methods of taking grievances and complaints; ii)a four step process for complaints and

84 appeals; the principles to deal with grievances and complaints; iii)contents and measures ofreply; and iv) complaints recorded and the subsequent feedback.

37. Implementation Arrangements. It is expected that the GuiGuang Railway Company is to be incorporated after the completion ofconstruction. This is to be a joint venture owned by the MOR and the three provincial governments. The responsibility for implementation ofthe RAP will remain the responsibility ofthe three provinces though it is expected that proposed joint venture will enhance coordination with MOR and between the provinces and improve incentives to appropriately implement the RAP. In order to help ensure the RAP is appropriately implemented, explicit arrangements (RAP Arrangements) between the local governments and the GuiGuang Company preparation group have been agreed. In addition, a provincial resettlement office in each provincial level government will be constituted to carry out the specific resettlement activities.

38. Monitoring. The project office has designed internal and external monitoring mechanisms for the implementation ofthe RAP. Internal monitoring, to be conducted by the management office within the project companies, focuses primarily on physical progress. An external monitoring agency is to be engaged to report on resettlement implementation progress every six months. Apart from physical progress, external monitoring reports will assess household relocation and livelihood restoration and transitional measures for affected enterprises and shops on a semiannual basis. The RAP describes monitoring purposes, responsibilities, indicators, methodology, procedures and reporting requirements. Within two years after all resettlement work has been completed, the external monitoring agency will prepare and submit a post-resettlement evaluation report.

Indigenous Peoples (OP 4.10)

39. Ethnic Minorities in the Project Area. There are six ethnic minority groups (Buyi, Zhuang, Yao, Miao, Dong, Shui) with a total population ofmore than 125,000 in the project counties. There are three minority townships, four minority autonomous counties, two minority autonomous prefectures and one minority autonomous regions affected by the project. Approximately 1,600 minority households will need relocation.

40. Project Impacts on Ethnic Minorities. The proposed railway line will significantly promote the economic development of ethnic minority areas by providing convenient accessibility to and from outside the regions, promoting mobility ofboth passengers and commodities, stimulating tourism, improving infrastructure and creating employment opportunities. There is broad support from all ethnic minority areas for the railway project, as the project is seen as a unique opportunity for the development ofthe areas.

41. Despite these significant positive benefits, the project may also bring about potentially serious social and cultural impacts, including damage of culturally valuable buildings and landscapes, as well as cultural impact from increased numbers oftourists, etc. Introduction of large numbers of construction workers into the ethnic minority areas will have the potential to create social disturbance (health, loss ofcultural values, disrespect) due to conflicts with cultural and social customs. If not well-managed, such an impact may result in significant social issues in the local area and could potentially lead to a major delay in project construction.

85 42. Alignment selection has avoided the possibility of damage to local village buildings. In addition, the special design ofterminals and railway infrastructures will be consistent with ethnic minority culture and styles. Therefore, impact on buildings and landscape will be insignificant, and, to some extent, improved. Construction camps will adopt closed management approach, as common in China, and workers will receive sensitivity training to respect and value ethnic minority cultures. Therefore, cultural conflict impact from construction workers can be managed, and again the impact will not be significant. Box 10.2 summarizes the recommended actions to mitigate the adverse impacts and enhance the positive impacts on affected ethnic minority communities.

43. Social Assessment and Broad Community Support. In accordance with the terms of reference agreed with the Bank, a Social Assessment (SA) was prepared and submitted to the Bank for review. The SA investigated, by random samples, 105 minority households in 33 minority villages in 26 townships of 13 counties. The investigation also included group discussions, community consultations and meetings with officials in addition to desk review of secondary information. It covers a baseline ofminority groups in the project area, socioeconomic status ofthe minority, cultural and religious features, awareness of the project, and demands and support of the project.

44. Key findings from the SA include: (i)each local government in a minority area views the project as an opportunity for development, and has been keen to have a terminal built in their county, as they understand that such close proximity to a station will accelerate their economic development; (ii)many minority villages see this as a positive opportunity along with the possibility of local infrastructure restoration, temporary job creation during construction, and enhanced transportation links; (iii)more importantly, minority communities and individuals hope that their traditional culture and custom will be respected throughout the project implementation phase. As an example, ancestral tombs, house styles, etc., are expected to be protected; and (iv) most minority people understandably have expressed their concerns on resettlement impacts and policies and restoration schemes and wish to be adequately compensated and resettled. The SA concluded that the project has broad support from ethnic minorities.

45. Legal Framework. The National Constitution guarantees that all nationalities in the People's Republic of China are equal, and makes minority discrimination illegal. It protects the lawful rights and interests ofthe minorities, and upholds minority equality, solidarity, and development. In addition, the Law on Autonomy in Minorities Regions provides for the establishment of minority nationalities autonomous areas on the basis of concentrated population ofone or more minorities in a particular area. The Autonomy Law establishes the right ofminorities in autonomous areas to utilize special policies and flexible methods based on the actual situation in specific locations. In addition to the Autonomy Law, the government at each administrative level (central, provincial, and local) has established a significant number of laws and regulations specific to minorities. In summary, minority people enjoy the following rights:

Right to equity among nationalities

0 Right to make autonomous and specific regulations for managing local finance, economic development, training and employing minority officials, education, science and technology and culture Rights of freedom ofreligious beliefs Right to use and develop the languages and writing systems ofthe nationalities

86 0 Right to maintain ethnic culture and traditions, and guarantee ofrespect ofthese customs by other nationalities Right to develop economy, culture, education and science and technology

0 Right to maintain a high proportion ofnon-Han officials in autonomous institutions Right to enjoy national and regional preferential policies, such as, a preferential family planning policy.

46. Key Measures. Based on the findings, the following actions are recommended to mitigate any adverse impacts and to enhance the positive impacts on the affected ethnic minority communities.

Box 10.2

47. Implementation Management. The MORis responsible for the implementation ofthe EMDP. Each county will establish an office to conduct the EMDP implementation. The estimated budget, including the regular budget and one external evaluation budget, have been incorporated into the project design. Annual progress reports will include a section on implementation ofthe EMDP. The project implementation completion report would assess the effectiveness and usefulness of the EMDP.

48. Independent evaluation is needed in addition to routine supervision and monitoring. This evaluation will be carried out by a national consultant who will be selected jointly by the MOR and

87 the World Bank. The independent evaluation will be carried out early during project implementation and a report will be provided to the Bank every six months until project completion.

49. Grievance Procedure. A grievance procedure has been established. Grievances raised by the ethnic minority communities will be recorded by their village heads and submitted periodically to township governments. Whenever possible, grievances will be addressed by the village head. If a resolution cannot be reached on village level, the grievance will be raised to the county PMO and Ethnic and Religious Affairs Bureau and, failing resolution at the county level, to the provincial PMO and the Ethnic and Religious Affairs Bureau.

Public Consultation and Information Disclosure

50. EnvironmentalAssessment. A combination of opinion surveys and public meetings in the townships, village committee and affected villagers’ homes have been implemented during preparation of the EIA and Resettlement Action Plan. Two rounds of consultations were carried out: an initial survey and more direct consultations after the draft EIA had been prepared. Each mitigation measure was determined by suggestions from both experts and the public. Major concerns expressed by the public include land acquisition and resettlement compensation, respect of local culture in the case of earth excavation and tomb relocation, community severance, safety, drinking water resources, road traffic impact, noise impact, and impact on television signal. Most ofthe concerns have been incorporated either in the project design or in the environmental management plan or resettlement plan. Consultations were also conducted in 24 counties which have a high concentration ofethnic minority people. These mitigation measures have received broad support and acceptance from the public.

5 1. As required by Chinese EIA regulations, the first round of information disclosure was carried out on April 30,2007, in which brief project information and commencement ofthe EIA was published on the internet (www.crssdi.com). The draft EIA report was disclosed in March 2008 through the internet, with an announcement ofsuch disclosure in the “China Environment Daily.” The Environmental Impact Report for New Guiyang-Guangzhou Railway was reviewed by the Ministry ofEnvironmental Protection in July 2008, and it was published in “China Environment Newspaper” on August 1, 2008. The content ofthe report is accessible to the public on the above China Railway Eryuan Engineering Group Co., Ltd. website, and the Environment Protection Bureaus in all cities and provinces.

52. Involuntary Resettlement. Local governments, community and village leaders, the affected households, and affected enterprises and shops were consulted in census and asset inventorying processes, as well as project location and schemes, compensation rates, relocation arrangements and livelihood restoration measures. The RAP contains procedures for grievance redress. The draft RAP were disclosed to the public by placement in county public libraries and announced in local papers.

53. Ethnic Minorities. A consultation plan was developed during the SA and improved during the preparation of the EMDP, which consists ofconsultation activities during project preparation and implementation. These activities include individual interviews, focus discussions, meetings with community leaders and local officials, and questionnaires relating to expectations and concerns from minority households, communities and local governments. To date such consultation has involved 105 individual household interviews, focus discussions in 33 minority villages, and meetings with

88 officials in 26 townships. Through such consultation broad community support for the project has been obtained and expectations and concerns from minority governments and communities have been identified and integrated into the project design and the EMDP and the RAP.

54. In addition to routine disclosure of the EMDP in all ethnic minority communities in the project areas, the EMDP were disclosed in county PMO, libraries and project offices in the ethnic minority areas with an announcement in local newspapers. In addition, local governments will provide the minority communities with the EMDP and the RAP in minority languages or free translation services where needed.

Safeguard Implementation Capacity

55. The GuiGuang Railway is the 12'h Bank funded railway project for China Ministry of Railway. The implementation of the project will be supervised by Foreign Capital and Technology Import Center (FCTIC), which has developed strong in-house capacity for implementing the Bank's project in terms of safeguards policy over the last two decades. It is clear that recent Bank railway projects in China have made continuous progress in environmental protection. This is also attributable to the significant improvement of environmental impact assessment approval and enforcement system in China which has placed environmental protection as a priority and sought to achieve international standards and good practice.

56. The Bank will supervise the implementation of the EMP, the RAP, and EMDP through regularly scheduled missions, periodic meetings with the key stake holders, and holding workshops, when and if, appropriate.

89 Annex 11: Project Preparation and Supervision CHINA: GuiGuang Railway Project

~ ~~ ~ ~~~~~~ Planned Actual PCN review 03/28/2008 02/28/200 8 Initial PID to PIC 05/06/2008 07/11/2008 Initial ISDS to PIC 05/06/2008 08/15/2008 Appraisal 11/04/2008 01/30/2009 Negotiations 02/23 /2 009 02/23/2009 BoardRVP approval 03/3 1/2009 Planned date of effectiveness 07/01/2009 Planned date of mid-term review not applicable* Planned closing date 12/3 1/20 15 * Continuous monitoring is superior to mid-term review for projects which are linear in nature (where infrastructure is constructed progressively over distance) so that problems become evident either early or at specific interfaces and which have a single Bank-financedcomponent that limits the opportunity for mid-term project restructuring.

Key institutions responsible for preparation of the project: 1. Ministry of Railways, Foreign Capital and Technical Import Center 2. Second Survey and Design Institute

Bank staff and consultants who worked on the project included:

Name Title Unit Mr. John Scales Senior Transport Specialist (TTL) EASCS Ms. Lei Wu Program Assistant (Beijing) EACCF Ms. Malou Juico Program Assistant (Washington) EASTE Mr. Juan Quintero Senior Environmental Specialist EASRE Mr. Ning Yang Environmental Specialist EASCS Mr. Peishen Wang Environmental Specialist Consultant Mr. Chaohua Zhang Senior Social Sector Specialist SASDI Mr. Songling Yao Social Sector Specialist EASCS Mr. Jianjun Guo Procurement Specialist EAPCO Ms. Yi Geng Financial Management Specialist EAPCO Mr. Jit Sondhi Railways Engineering and Management Advisor Consultant Mr. Richard Bullock Railway Economic & Financial Evaluation Advisor Consultant Mr. Paul Amos Transport Policy Advisor/Railway Specialist Consultant Mr. Syed Ahmed Legal Counsel LEGES Mr. Jorge Rebelo Peer Reviewer - Railway economics LCSTR Ms. Martha Lawrence Peer Reviewer - Railways ECSSD

Bank funds expended to date on project preparation (as of Feb. 5,2008): 1. Bank resources: US$405,934 2. Trust funds: none 3. Total: US$405,934

90 Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$15,000 2. Estimated annual supervision cost: US$lOO,OOO

91 Annex 12: Documents in the Project File CHINA: GuiGuang Railway Project

1. NDRC’s Reply on Proposal of Guiyang-Guangzhou Railway Construction Project, Transport Department of NDRC, August 2007 (Electronic copies, English and Chinese)

2. Pre-Feasibility Study Report, Second Survey and Design Institute (SSDI) and Fourth Survey and Design Institute (FSDI), August 2007 (Electronic copies, English and Chinese)

3. NDRC’s Feasibility Study Report Presentation Document, SSDUFSDI, September 2007 (Electronic copies, Chinese)

4. Feasibility Study Report, SSDI/FSDI, September 2007 (Electronic copies, English)

5. Feasibility Study Report, SSDI/FSDI, February 2008 (Hard and electronic copies, English)

6. TOR for Social Assessment, Central University for Nationalities, February 2008 (Electronic copies, English)

7. Framework of RAP, Southwest Jiaotong University, September 2007 (Electronic copies, Chinese)

8. Draft Resettlement Plan, Southwest Jiaotong University, February 2008 (Electronic copies, English)

9. Draft EIA, SSDI, February 2008 (Hard and electronic copies, English)

10. Environmental Impact Assessment (EIA), SSDI/FSDI, June 2008 (Hard and electronic copies, English and Chinese)

11. Environmental Management Plan (EMP), SSDI, June 2008, (Electronic copies, English and Chinese)

12. Environmental Assessment Report About Effects Of The Overseas Loaned Railway-Building From Guiyang to Guangzhou - An Investigating Report about Caves, Guizhou Normal University/SSDI, August 2008 (Electronic copies, English and Chinese)

13. Project Information Document (PID) Concept Stage, Report No. AB3666, February 2008, (Electronic copies, English)

14. Integrated Safeguards Data Sheet Concept Stage, Report No. AC3385, August 2008 (Electronic copies, English)

92 Annex 13: Statement of Loans and Credits CHINA: GuiGuang Railway Project

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd P114107 2009 CN-Wenchuan Earthquake Recovery 710.00 0.00 0.00 0.00 0.00 710.00 0.00 0.00 Project PO96556 2009 CN-Eco-Farming 120.00 0.00 0.00 0.00 0.00 120.00 0.00 0.00 P101988 2009 CN- Shihutang Navi & 100.00 0.00 0.00 0.00 0.00 99.75 0.00 0.00 Hydropower PO93963 2008 CN-Guiyang Transport 100.00 0.00 0.00 0.00 0.00 94.20 12.78 0.00 PO93882 2008 CN- Flue Gas Desulfurization 50.00 0.00 0.00 0.00 0.00 49.88 8.17 0.00 PO9263 1 2008 CN-Xi'an Sustainable Urban Transport 150.00 0.00 0.00 0.00 0.00 150.00 0.00 0.00 PO91949 2008 CN- Cultural & Natural Heritage 38.40 0.00 0.00 0.00 0.00 38.40 2.24 0.00 PO87224 2008 CN-Han River Urban Environment 84.00 0.00 0.00 0.00 0.00 83.55 -0.24 0.00 PO85376 2008 CN-Migrant Skills Dev. and Employment 50.00 0.00 0.00 0.00 0.00 49.88 0.00 0.00 PO84874 2008 CN- Energy Efficiency Financing 200.00 0.00 0.00 0.00 0.00 166.48 -28.83 0.00 PO84437 2008 CN-Rural Health 50.00 0.00 0.00 0.00 0.00 49.88 0.00 0.00 PO96925 2008 CN- Integrated Environment 100.00 0.00 0.00 0.00 0.00 97.75 -2.00 0.00 Improv PO99062 2008 CN-ShiZheng Railway 300.00 0.00 0.00 0.00 0.00 299.25 0.00 0.00 PO991 12 2008 CN- Highway Rehab & 200.00 0.00 0.00 0.00 0.00 199.50 2.33 0.00 Improvement PO99224 2008 CN- Med. Cities (LMC) I11 191.00 0.00 0.00 0.00 0.00 190.52 17.50 0.00 PO81776 2007 CN-GUANGDONGPRD2 96.00 0.00 0.00 0.00 0.00 95.61 13.94 0.00 PO83322 2007 CN-SICHUAN URBAN DEV 180.00 0.00 0.00 0.00 0.00 150.35 66.35 0.00 PO865 15 2007 CN-3rd National Railway 200.00 0.00 0.00 0.00 0.00 74.16 -64.24 0.00 PO88964 2007 CN-Guangxi Integrated Forestry Dev 100.00 0.00 0.00 0.00 0.00 45.91 -42.25 0.00 PO91020 2007 CN-Fujian Highway Sector Investment 320.00 0.00 0.00 0.00 0.00 75.66 -136.13 0.00 PO92618 2007 CN-LIAONING MED CITIES INFRAS 2 173.00 0.00 0.00 0.00 0.00 162.57 5.00 0.00 PO953 15 2007 CN-W. Region Rural Water & Sanitation 25.00 0.00 0.00 0.00 0.00 21.94 -1.17 0.00 PO96285 2007 CN-MSE Finance 100.00 0.00 0.00 0.00 0.00 5.00 5.00 0.00 PO77752 2007 CN-SHANDONG ENVMT 2 147.00 0.00 0.00 0.00 0.00 81.72 -43.62 0.00 PO75613 2007 CN-Shaanxi Ankang Road Development 300.00 0.00 0.00 0.00 0.00 250.51 24.62 0.00 PO86629 2006 CN-Heilongjiang Dairy 100.00 0.00 0.00 0.00 0.00 86.14 45.97 33.64 PO705 19 2006 CN-Fuzhou Nantai Island Peri-Urban Dev 100.00 0.00 0.00 0.00 0.00 94.57 36.24 0.00 PO75732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 136.53 55.70 0.00 PO93906 2006 CN3rd Jiangxi Hwy 200.00 0.00 0.00 0.00 0.00 22.22 -71.95 0.00 PO96158 2006 CN-Renewable Energy I1 (CRESP 11) 86.33 0.00 0.00 0.00 0.00 69.44 45.77 0.00 PO99992 2006 CN-Liaoning Medium Cities Infrastructure 218.00 0.00 0.00 0.00 0.00 154.73 0.89 0.00 PO81348 2006 CN-HENAN TOWNS WATER 150.00 0.00 0.00 0.00 0.00 125.71 30.71 0.00 PO81255 2006 CN-ChangjiangPearlRiver Watershed 100.00 0.00 0.00 0.00 0.00 89.13 30.79 0.00 Reha PO84742 2006 CN-IAIL I11 200.00 0.00 0.00 0.00 0.00 42.93 -14.22 0.00 PO85124 2006 CN-Ecnomic Reform Implementation 20.00 0.00 0.00 0.00 0.00 17.11 10.61 0.00 PO85333 2006 CN-5th Inland Waterways 100.00 0.00 0.00 0.00 0.00 24.83 11.50 0.00 PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0.00 0.00 14.84 12.32 0.00 PO8 1346 2005 CN-LIUZHOU ENVIRONMENT MGMT 100.00 0.00 0.00 0.00 0.00 31.02 -2.04 0.00

93 PO81161 2005 CN-CHONGQING SMALL CITIES 180.00 0.00 0.00 0.00 0.00 88.18 33.50 0.00 PO68752 2005 CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0.00 0.00 7.73 -17.69 0.00 Corrid PO86505 2005 CN-NINGBO WATER & ENVMT 130.00 0.00 0.00 0.00 0.00 45.77 -10.65 0.00 PO69862 2005 CN - Agricultural Technology Transfer 100.00 0.00 0.00 0.00 0.00 60.16 40.86 0.00 PO75730 2005 CN- URBAN DEV 172.00 0.00 0.00 0.00 0.00 136.39 71.22 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0.00 0.00 47.78 40.71 0.00 Development PO66955 2004 CN- URBAN ENVMT 133.00 0.00 0.00 0.00 0.00 65.91 49.64 0.00 PO65463 2004 CN-Jianpi Integrated Agric. Modem. 100.00 0.00 0.00 0.00 0.00 25.47 17.39 0.00 PO81749 2004 CN- Shiman Highway 200.00 0.00 0.00 0.00 1.00 0.73 1.73 0.00 PO73002 2004 CN-Basic Education in Westem Areas 100.00 0.00 0.00 0.00 0.00 15.97 15.97 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0.00 0.00 4.23 1.24 0.00 Development PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0.00 0.46 18.61 14.98 14.48 PO69852 2004 CN-Wuhan Urban Transport 200.00 0.00 0.00 0.00 1.oo 17.32 18.32 1.26 PO75728 2004 CN-GUANGDONGPRD UR ENVMT 128.00 0.00 0.00 0.00 0.64 67.96 55.00 0.00 PO40599 2003 CN-TIANJIN URB DEV I1 150.00 0.00 0.00 0.00 0.00 108.03 91.70 11.77 PO58847 2003 CNJrd Xinjiang Hwy Project 150.00 0.00 0.00 0.00 0.00 4.58 4.58 0.00 PO68058 2003 CN- Pumped Storage Project 145.00 0.00 0.00 0.00 0.00 34.46 34.46 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0.00 0.00 48.28 40.86 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0.00 0.00 11.16 11.16 0.00 PO71147 2002 CN-Tuberculosis Control Project 104.00 0.00 0.00 0.00 0.00 30.17 27.39 0.00 PO64729 2002 CN-Sustainable Forestry Development 93.90 0.00 0.00 0.00 0.00 3.80 3.80 0.00 PO49436 2000 CN-CHONGQING URBAN ENVMT 200.00 0.00 0.00 0.00 29.50 3.68 33.18 -1.30 PO42 109 2000 CN-BEIJING ENVIRONMENT I1 349.00 0.00 0.00 0.00 28.02 28.76 56.78 -23.03 PO51856 1999 CN-AccountingReform & Development 27.40 5.61 0.00 0.00 0.00 3.84 3.69 3.74 P0 4 2 2 9 9 1999 CN-Tec Coop Credit IV 10.00 35.00 0.00 0.00 5.84 8.02 11.24 1.03 Total: 9,179.30 40.61 0.00 0.00 66.46 5,158.66 682.80 41.59

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

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2006 ASIMCO 0.00 0.00 4.12 0.00 0.00 0.00 3.61 0.00 2005 BCCB 0.00 59.21 0.00 0.00 0.00 59.03 0.00 0.00 2003 BCIB 0.00 0.00 12.04 0.00 0.00 0.00 0.00 0.00 2006 BUFH 8.14 0.00 0.00 0.00 8.14 0.00 0.00 0.00 2005 Babei 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 Babei Necktie 1 1.oo 0.00 0.00 6.00 8.94 0.00 0.00 4.88 1999 Bank of Shanghai 0.00 21.76 0.00 0.00 0.00 21.76 0.00 0.00 2000 Bank of Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00

94 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2005 BioChina 0.00 3.70 0.00 0.00 0.00 3.13 0.00 0.00 2002 CDH China Fund 0.00 2.02 0.00 0.00 0.00 0.00 0.00 0.00 2005 CDH China I1 0.00 17.99 0.00 0.00 0.00 11.38 0.00 0.00 2006 CDH Venture 0.00 20.00 0.00 0.00 0.00 0.51 0.00 0.00 2005 CT Holdings 0.00 0.00 40.00 0.00 0.00 0.00 0.00 0.00 2004 CUNA Mutual 0.00 10.53 0.00 0.00 0.00 0.00 0.00 0.00 2006 Capital Today 0.00 25.00 0.00 0.00 0.00 0.32 0.00 0.00 2005 Changyu Group 0.00 18.07 0.00 0.00 0.00 18.07 0.00 0.00 1998 Chengdu Huarong 3.36 3.20 0.00 3.13 3.36 3.20 0.00 3.13 2004 China Green Ener 20.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 2004 China Re Life 0.00 0.27 0.00 0.00 0.00 0.27 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2006 Chinasoft 0.00 0.00 15.00 0.00 0.00 0.00 10.00 0.00 2004 Colony China 0.00 15.31 0.00 0.00 0.00 9.29 0.00 0.00 2004 Colony China GP 0.00 0.84 0.00 0.00 0.00 0.49 0.00 0.00 2006 Conch 81.50 40.93 0.00 0.00 81.50 0.00 0.00 0.00 2006 Dagang NewSpring 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2002 Darong 10.00 0.24 0.00 8.00 6.67 0.24 0.00 5.33 2006 Deqingyuan 0.00 2.85 0.00 0.00 0.00 2.85 0.00 0.00 1994 Dynamic Fund 0.00 2.21 0.00 0.00 0.00 2.01 0.00 0.00 2007 Epure 0.00 10.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 17.64 0.00 6.00 13.47 13.64 0.00 6.00 12.53 2006 Fenglin HJ MDF 0.23 0.00 0.00 3.27 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 7.00 0.00 0.00 0.00 0.00 0.00 2006 GDIH 50.85 0.00 0.00 0.00 50.85 0.00 0.00 0.00 2003 Great Infotech 0.00 1.73 0.00 0.00 0.00 1.03 0.00 0.00 2006 Hangzhou RCB 0.00 10.85 0.00 0.00 0.00 0.00 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2006 HiSoi? Tech 0.00 4.34 0.00 0.00 0.00 1.74 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2004 Jiangxi Chenming 40.00 12.90 0.00 18.76 40.00 12.90 0.00 18.76 2006 Launch Tech 0.00 8.35 0.00 0.00 0.00 8.33 0.00 0.00 2001 Maanshan Carbon 5.25 2.00 0.00 0.00 5.25 2.00 0.00 0.00 2005 Maanshan Carbon 1 1.oo 1.oo 0.00 0.00 5.00 1.oo 0.00 0.00 2005 Minsheng 15.75 0.00 0.00 0.00 7.00 0.00 0.00 0.00 2006 Minsheng & IB 25.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Minsheng Bank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2005 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 2001 NCCB 0.00 8.94 0.00 0.00 0.00 8.82 0.00 0.00 1996 Nanjing Kumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2004 Nanjing Kumho 31.38 2.23 0.00 0.00 31.38 2.23 0.00 0.00 2006 Neophotonics 0.00 0.00 10.00 0.00 0.00 0.00 10.00 0.00 2001 New China Life 0.00 5.83 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.22 0.00 0.00 0.00 0.22 0.00 0.00 2005 North Andre 8.00 6.74 0.00 0.00 0.00 4.25 0.00 0.00 2003 PSAM 0.00 2.01 0.00 0.00 0.00 0.00 0.00 0.00 RAK China 13.00 0.00 0.00 0.00 13.00 0.00 0.00 0.00

95 2006 Renaissance Sec 0.00 0.00 20.04 0.00 0.00 0.00 0.00 0.00 2006 Rongde 0.00 35.00 0.00 0.00 0.00 31.38 0.00 0.00 SAC HK Holding 0.00 1.60 0.00 0.00 0.00 1.oo 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 12.00 0.00 0.00 0.00 2006 SBCVC 0.00 20.00 0.00 0.00 0.00 2.00 0.00 0.00 2000 SEAF SSIF 0.00 3.74 0.00 0.00 0.00 3.31 0.00 0.00 SH Keji IT 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SHCT 38.18 0.00 0.00 28.64 29.04 0.00 0.00 21.78 2004 SIBFI 0.14 0.07 0.00 0.00 0.00 0.07 0.00 0.00 1998 Shanghai Krupp 19.25 0.00 0.00 36.75 19.25 0.00 0.00 36.75 2006 Shanshui Group 50.00 5.50 2.20 0.00 50.00 5.50 0.00 0.00 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 SinoSpring 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 Stora Enso 20.83 0.00 0.00 4.17 11.00 0.00 0.00 0.00 2005 Stora Enso 29.17 0.00 0.00 20.83 0.00 0.00 0.00 0.00 2006 Stora Enso 50.00 0.00 0.00 175.00 0.00 0.00 0.00 0.00 2006 TBK 4.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2006 VeriSilicon 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 Wanjie High-Tech 9.89 0.00 0.00 0.00 9.89 0.00 0.00 0.00 2004 Wumart 0.00 1.62 0.00 0.00 0.00 1.62 0.00 0.00 2003 XACB 0.00 17.95 0.00 0.00 0.00 0.64 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 2006 Zhejiang Glass 50.00 24.96 0.00 18.00 0.00 0.00 0.00 0.00 2003 Zhengye-ADC 10.43 0.00 0.00 4.87 10.43 0.00 0.00 4.87 2002 Zhong Chen 0.00 4.78 0.00 0.00 0.00 4.78 0.00 0.00 2006 Zhongda-Yanjin 21.89 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 733.58 577.30 181.40 340.89 470.95 371.06 29.61 108.03

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic 2002 SML 0.00 0.00 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2007 Xinao CTC 0.04 0.01 0.00 0.14 2004 China Green 0.00 0.00 0.01 0.00 2006 Launch Tech 0.01 0.00 0.00 0.00 2005 MS Shipping 0.00 0.01 0.00 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 ~~~~~~~ ~~ ~ Total pending commitment 0 05 0.03 0 03 0 14

96 Annex 14: Country at a Glance CHINA: GuiGuang Railway Project Eiat Lower-- POVERTY and SOCIAL Asla mlddle- Development diamond' Chlna Paclflc Income 2007 Population, midyear (milllons) 13200 1914 3,437 Life expectancy GNIpercapita(Atlasmethod, US$) 2,360 2,80 1887 GNI (Atlas method, US$ billions) 3,1209 4,74 6,485 Average annual growth, 2001-07 T Population (%) 06 08 11 GNI Gross Laborforce (%) 12 09 15 per primary Mort recent estlmate (Iate8t year avallable, 2001-07) capita enrollment Poverty (%of population below nationalpoverlyline) Urban population (%of totalpopulation) 42 43 42 Lrfe expctancyat birth (pars) 72 71 69 I Infant mo rtaiity (per 1000 five birlhs) 20 24 41 Child malnutntion (%ofchildren under5) 7 13 25 Access to improvedwatersource Access to an improved watersource (%ofpopulation) 88 87 88 Literacy (%olpopulatlon age $59 91 89 Gross pnrnary enrollment (%of school-agepopulation) m to m -----China ale m m m -Lower-middle4ncome group Female m 09 u9 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1987 1997 2006 2007 Economic ratios' GDP (US$ billions) 2682 9527 2,657 9 3,280 1 Gross capital formation/GDP 373 379 444 Trade Ewrts of goods endsewiceslGDP 64 218 39 9 Gross domestic SavingslGDP 373 424 52 3 Gross national SavingslGDP 373 418 53 8 Current account balanceiGDP 00 39 94 115 interest payrnentsiGDP 04 06 01 Total debt/GDP 132 154 P1 Total debt service/exports 85 85 24 Present valueof debt/GDP na Present value of debtlexports 27 7 Indebtedness 1987-97 1997-07 2006 2007 2007-11 I (average annualgm wth) GDP 113 95 ne ns 114 -China GDP percapita 89 87 no 112 97 Exports of goods andservices 08 227 233 228 158

STRUCTURE of the ECONOMY

1987 1997 2006 2007 /Growth of capltal and GDP (%) (%of GDP) 1 Agriculture 26.8 8.1 n7 20 Industry 43.9 47.5 48.1 M anufactunng 34.7 33.2 1;; sewices 29.3 34.4 402 I Household final consumption expenditure 48.7 43.4 33.5 02 03 04 05 OB 07 General gov't final consumption expenditure 14.0 14.2 142 -GCF dGDP Imports of goods andsewices 6.4 u.3 32.1 lo- I

1987-97 1~97.07 2006 2007 Growth of exports and imports (%) (average annual gm wth) Agriculture 4.4 3.7 5.0 4.0 40 T industry 13.9 0.5 P.5 13.4 Manufacturing 13.1 11.3 Services 9.4 0.2 P.4 P.2 Household final consumption expenditure 9.8 3.8 -2.5 I General gov't final consumption expenditure 0.6 9.5 0.9 02 03 04 05 OB 07 Gross capital formation 12.2 n5 132 14.3 -Exports -1rrporis Imports of goods and services 13.0 8.1 14.3 8.2

Note 2007 data are preliminary estimates This tablewas producedfrom the Development Economics LDB database 'Thediamonds showfour keyindicators in thecountry(in bo1d)comparedwthits income-groupaverage If data aremissing thediamondwll be incomplete

97 China

PRICES and GOVERNMENT FINANCE 1987 1997 2006 2007 inflation (%) Domesiic prices (%change) 8 Consumer pnces 73 28 15 4.6 5 Implicit GDP deflator 5 1 15 33 5.2 4 Government finance 2 (%of GDP, includes current grants) 0

Current revenue 00 110 183 8.4 2 Current budget balance -67 -01 30 3.0 Overall surplus/deficit -22 1 -17 -07 -0 9

TRADE 1987 1997 2006 2007 Export and import levels (US$ mill.) (US$ millions) Totalexports [fob) 39,437 182,792 969,073 Food 4,781 11075 25,722 Mineral fuels, lubncants. and related matenali 4,544 6,987 7,776 11.500'000T ~anufactures 26,206 158,839 96,147 Total imports (cif) 43,26 142,370 791614 Food 2,443 4,304 9,997 Fuel and energy 539 'tl.306 89,002 Capital goods 14,607 52,774 357,'tl7 01 02 03 04 05 06 07 E~ortpnce index (200O=WO) 68 l?3 x)7 import pnce index(2000=WO) 84 'tl3 124 0Exportr cilmQ0rtS Terms of trade (20OO=r)O) 81 m 87 I

BALANCE of PAYMENTS 1987 1997 2006 2007 Current account balance to GDP (%) (US$ millions) E~ortsof goods and services 43.868 207,239 1061681 Imports of goods and services 43,950 64,46 852,769 Resource balance -82 42,823 208,9P 7 Net income -2E -11,004 11755 Net current transfers 224 5,143 29,200 Current account balance -73 38,962 249,867 377,8t? Financing items [net) 1733 -1135 -2.842 -20,000 Changes in net reserves -1660 -35,857 -247,025 -357,812 1 01 02 03 04 05 05 07 Memo: ReSeNeS including goid (US$ millions) 22,439 146,439 1046,465 1427,8t? Conversion rate (DEC. locai/US$) 45 8.3 8.0 7.6

EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 Composition of 2006 debt (US$ mill.) (US$ miilions) Total debt outstanding and disbursed 35,340 146,697 322.845 IBRD 1427 8,239 11415 11762 I A: 11.415 B: 9,997 IDA 1,330 7,830 9,997 'tl,151 D 6.326 Total debt service 3,852 28,445 27,877 IBRD 208 858 1443 1561 IDA t? 81 3% 349 Composition of net resource flows G Official grants 2'tl 266 363 n3 377 Official creditors 626 4,315 901 Pnvate creditors 5.462 8,134 7,500 Foreign direct investment (net inflows) 2,314 44,237 78.095 Portfolio equity(net inflows) 0 5,657 42,861 World Bank program Commitments 1,308 2,425 1,361 1154 A. IBRD E- Bilideral Disbursements 702 2,275 1,69 1208 B.IDA D-Othermultiiatercd F-Private Pnncipal repayments 97 377 1,144 184 C-IMF G- Short-terr Net flows 605 1898 25 24 Interest payments 124 562 615 727 Net transfers 482 1,335 -590 -703

Note This table was produced from the Development Economics LDB database 9/24/08

98 Annex 15: Map CHINA: GuiGuang Railway Project

IBRD 35995

99

CHINA GUIGUANG RAILWAY HARBIN MONGOLIA PROJECT CHINA

GUIGUANG RAILWAY LINE JilinJilin EXISTING RAIL NETWORK, 2007 CHANGCHUNCHANGCHUN MAJOR RIVERS JILI SELECTED CITIES PROVINCE CAPITALS NEI MONGOL NATIONAL CAPITAL PROVINCE BOUNDARIES LIAONING INTERNATIONAL BOUNDARIES SHENYANGSHENYANG FushunFushunFushun

AnshanAnshan P

HOHHOTHOHHOT BEIJING

Huang DatongDatong BEIJINGBEIJING TangshanTangshan DalianDalian TIANJINTIANJIN Bo Hai TIANJIN

SHIJIAZHUANGSHIJIAZHUANG YINCHUANYINCHUAN TAIYUANTAIYUAN

NINGXIA JINANJINAN XININGXINING SHANDONG SHANXI Yellow Huang ang LANZHOULANZHOU Hu Sea

QINGHAI LuoyangLuoyang ZHENGZHOUZHENGZHOU XuzhouXuzhou GANSU Baoji XI'ANXI'AN HENAN SHAANXI

NANJINGNANJING HEFEI WuxiWuxi SHANGHAISHANGHAI ANHUI SHANGHAI HUBEI

g HANGZHOUHANGZHOU SICHUAN Chang Jian WUHANWUHAN

Jinsha CHENGDU ZHEJIANG XIZANG

Nu CHONGQING CHONGQINGCHONGQING NANCHANGNANCHANG HUNAN CHANGSHACHANGSHA East

ZhouzhouZhouzhou China

Lancang GUIZHOU JIANGXI Sea FUJIAN FUZHOUFUZHOU GUIYANG Jinsha GUIGUANG Duyun RAILWAY PROJECT

KUNMINGKUNMING Guilin

Hezhou Nu GUANGDONG YUNNAN GUANGXI GUANGZHOUGUANGZHOU Xun Lancang NANNING ShenzhenShenzhen KowloonKowloon MACAO HONG KONG

VIETNAM

0 100 200 300 Kilometers MYANMAR MYANMAR LAO PEOPLE'S HAIKOUHAIKOU 0 100 200 300 Miles This map was produced by the Map Design Unit of The World Bank. DEM. REP. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank IBRD 35995

APRIL 2008 Group, any judgment on the legal status of any territory, or any THAILAND endorsement or acceptance of such boundaries. 108° 112° 116° 120°