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Project Completion Report

PCR: PRC 30382

Hebei Roads Development Project (Loan 1617-PRC) in the People’s Republic of

June 2005

CURRENCY EQUIVALENTS

Currency Unit – (CNY)

At Appraisal At Project Completion (14 July 1997) (5 Apr 2005) CNY1.00 = $0.12 $0.12 $1.00 = CNY8.28 CNY8.27

ABBREVIATIONS

AADT – annual average daily traffic ADB – Asian Development Bank CMD – Construction Management Division EIRR – economic internal rate of return E&M – electrical and mechanical FIRR – financial internal rate of return ha – hectare HAB – Highway Administration Bureau HASS – Academy of Social Science HECL – Hebei Expressway Company, Ltd HPCD – Hebei Provincial Communications Department HPG – Hebei provincial government ICB – international competitive bidding ITS – intelligent transport system IFILPO – International Financial Institutions Loan Project Office JHEMO – Jing-Hu Expressway Management Office km – kilometer km2 – square kilometer kph – kilometer per hour LCB – local competitive bidding MOC – Ministry of Communications MTE – medium truck equivalent mu – measurement unit NTHS – National Trunk Highway System PCU – passenger car unit PIU – project implementing unit PRA – participatory rural appraisal PRC – People’s Republic of China PRI – pavement roughness index RP – resettlement plan RRP – Report and Recommendation of the President SARS – severe acute respiratory syndrome TA – technical assistance VOC – vehicle operating cost WACC – weighted average cost of capital

NOTES (i) The fiscal year (FY) of the Government of the People’s Republic of China ends on 31 December. (ii) In this report, "$" refers to US dollars.

CONTENTS

Page

BASIC DATA i

MAP v

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Costs 5 C. Disbursements 6 D. Project Schedule 6 E. Implementation Arrangements 6 F. Conditions and Covenants 7 G. Consultant Recruitment and Procurement 7 H. Performance of Consultants, Contractors, and Suppliers 8 I. Perfornance of the Borrower and Executing Agency 8 J. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Efficacy in Achievement of Purpose 9 C. Efficiency in Achievement of Outputs and Purpose 12 D. Preliminary Assessment of Sustainability 13 E. Environmental, Sociocultural, and Other Impacts 13

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons Learned 15 C. Recommendations 15

APPENDIXES 1. Project Framework 16 2. Chronology of Major Events 21 3. Overseas Training Program 23 4. Detailed Cost Estimate and Financing Plan 24 5. Projected and Actual Disbursement Schedule 25 6. Implementation Schedule 26 7. Institutional Structure 27 8. Compliance with Loan Covenants 29 9. Procurement Details 33 10. Socioeconomic Profiles of the Project Area 36 11. Commercialization and Corporatization of the Hebei Provincial Communications Department 37 12. Traffic Forecast and Actual Traffic Volume 39 13. Economic Reevaluation 41 14. Financial Reevaluation 44 15. Financial Projection and Performance 46 16. Summary of Resettlement Plan 50

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 1617-PRC 3. Project Title Hebei Roads Development Project 4. Borrower People’s Republic of China 5. Executing Agency Hebei Provincial Communications Department 6. Amount of Loan $180.0 million 7. Project Completion Report Number PCR:PRC 900

B. Loan Data

1. Appraisal - Date Started 3 July 1997 - Date Completed 14 July 1997

2. Loan Negotiations - Date Started 11 May 1998 - Date Completed 13 May 1998

3. Date of Board Approval 18 June 1998

4. Date of Loan Agreement 6 October 1998

5. Date of Loan Effectiveness - In Loan Agreement 4 January 1999 - Actual 18 February1999 - Number of Extensions 1

6. Closing Date - In Loan Agreement 31 December 2002 - Actual 2 April 2004 - Number of Extensions 2

7. Terms of Loan - Interest Rate Pool-based variable lending for US dollars - Maturity (years) 24 - Grace Period (years) 4

8. Terms of Relending - Interest Rate Pool-based variable lending for US dollars - Maturity (years) 24 - Grace Period (years) 4

9. Disbursements

a. Dates Initial Disbursement Final Disbursement Time Interval 21 May 1999 2 April 2004 4 years, 8.6 months

Effective Date Original Closing Date Time Interval 18 February 1999 31 December 2002 4 years, 4.6 months

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b. Amount ($) Last Category Original Revised Amount Net Amount Undisbursed No. Description Allocation Allocation Canceled Amount Disbursed Balance Available I Civil Works 124,400,000 140,500,000 8,542,670 131,957,330 131,957,330 0

Expressway 116,400,000 132,000,000 8,201,568 123,798,432 123,798,432 0

Connector 8,000,000 8,500,000 341,102 8,158,898 8,158,898 0 Roads II Equipment 16,500,000 16,500,000 3,758,797 12,741,203 12,741,203 0

III Consulting 1,200,000 1,200,000 273,466 926,534 926,534 0 Services IV IDCa 21,800,000 21,800,000356,531 21,443,469 21,443,469 0

V Unallocated 16,100,000 0 0 0 0 0

Total 180,000,000 180,000,00012,931,464 a 167,068,536 167,068,536 0

IDC = interest during construction. a Canceled on 2 April 2004. Source: Asian Development Bank estimates.

10. Local Costs (ADB-Financed) - Amount ($) 0 - Percent of Local Costs 0 - Percent of Total Costs 0

C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 213.0 188.0 Local Currency Cost 260.0 291.3 Total 473.0 479.3

2. Financing Plan ($ million) Appraisal Estimate Actual Source Foreign Local Total Foreign Local Total Exchange Currency Exchange Currency Asian Development 180.0 0.0 180.0 167.0 0.0 167.0 Bank Ministry of 0.0 85.0 85.0 0.0 85.0 85.0 Communications Hebei Provincial 33.0 175.0 208.0 21.0 206.3 227.3 Government Total 213.0 260.0 473.0 188.0 291.3 479.3

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3. Cost Breakdown by Project Components ($ million) Appraisal Estimate Actual Component Foreign Local Total Foreign Local Total Exchange Currency Exchange Currency Civil Works 131.9 148.8 280.7 131.9 187.5 319.4 Equipment 16.5 2.9 19.4 12.7 0.0 12.7 Connector Roads 21.0 53.1 74.1 21.0 60.7 81.7

Land Acquisition and 0.0 21.4 21.4 0.0 29.3 29.3 Resettlement

Consulting Services & 1.2 6.9 8.1 1.0 13.8 14.8 Training Contingencies 20.6 26.9 47.5 0.0 0.0 0.0 IDC 21.8 0.0 21.8 21.4 0.0 21.4 Total 213.0 260.0 473.0 188.0 291.3 479.3 IDC = interest during construction.

4. Project Schedule Item Appraisal Estimate Actual

Date of Contract with Consultants October 1998 28 February 1999 Completion of Engineering Design October 1996 October 1998 Civil Works Contract Date of Award October 1998 February 1999 Completion of Work September 2001 December 2000 Equipment and Supplies Dates First Procurement October 1998 March 2000 Last Procurement July 2000 October 2002 Completion of Installation July 2001 December 2003 Start of Operations December 2002 December 2003

5. Project Performance Report Ratings Ratings1 Implementation Period Development Implementation Objectives Progress (i) From Dec 1998 to Dec 1999 S S (ii) From Jan 2000 to Nov 2000 S S (iii) From Dec 2000 to Aug 2001 HS HS (iv) From Sep 2001 to Aug 2002 HS S (v) From Sep 2002 to Aug 2003 HS HS (vi) From Sep 2003 to May 2004 HS S (vii) From Jun 2004 to Dec 2004 S S HS = highly satisfactory, S = satisfactory. 1 The Project Performance Report rating was based on the commencement date of appraisal, which was delayed. The Project Completion Report rating was based on the quality of works and the completion date, which was earlier than the appraisal date. For example, the civil works were completed 9 months earlier than appraisal date. Source: Asian Development Bank estimates.

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D. Data on Asian Development Bank Missions

No. of No. of Specialization Name of Mission Date Persons Person- of Membersa Days Fact-Finding 7–22 April 1997 5 80 a,b,c,d,e Appraisal 3–14 July 1997 4 48 a,b,c,f Inception 14–18 June 1999 2 10 a Review 1 25–29 October 1999 2 10 a Review 2 11–18 October 2000 3 21 a,b,g Review 3 25–30 June 2001 2 12 a,c Review 4 17–23 December 2003 1 7 a Project Completion Reviewb 27 March–1 April 2005 1 6 a,h a a = engineer; b = financial analyst; c = economist; d = programs officer; e = environment specialist; f = counsel; g = analyst; h = consultant. b The Mission was comprised of K. Jraiw, Senior Transport Specialist (mission leader), and a domestic consultant. To assess project impact, ADB also fielded in 2004 (i) a resettlement specialist (international consultant) to help evaluate the implementation of the resettlement plans of the expressway and connector roads; (ii) a domestic consultant to help collect and assess socioeconomic data; and (iii) a domestic consultant to review the poverty and social issues. Source: Asian Development Bank estimates.

I. PROJECT DESCRIPTION

1. In the People’s Republic of China (PRC), economic growth since the 1980s has increased the demand for transport services. The rising demand for road transport has outpaced that of other transport modes. Despite the Government’s efforts to increase transport capacity, serious constraints remain, especially in the road subsector. The Government’s principal strategy for addressing these constraints is contained in a 20-year development plan (1991–2010) for the National Trunk Highway System (NTHS), which envisages the construction of about 35,000 kilometers (km) of interprovincial expressways and highways. The plan also calls for improving access from less developed communities to the economic mainstream.

2. The Hebei Province Expressway Project (the Project) forms part of the priority section of the NTHS from to . The expressway, which is in southeast Hebei Province, connects Qingxian (bordering Municipality) to Wuqiao (bordering Province). The Asian Development Bank (ADB) agreed to consider financing the expressway after discussing with the Government an expansion of the project scope to include a poverty reduction component. This specially designed component involved (i) upgrading county connector roads linking principal market centers to the project expressway; and (ii) improving accessibility to some poor villages through the construction of all- access roads from these villages to the county connector roads, and to public services and facilities beyond. Participatory Rural Appraisal (PRA) techniques involving villagers living within the zone of influence of the Project were used to confirm the desirability of incorporating these road elements. This was the first ADB-financed expressway project in the PRC to use such techniques. The Project was a strategic continuation of ADB’s efforts to promote the development of the northeastern road corridors of the PRC.

3. The objectives of the Project were to (i) improve transport efficiency in southeastern Hebei Province, and (ii) reduce poverty in the officially designated poverty counties in the zone of influence of the Project by improving access to the main economic centers (Map). The Hebei Provincial Communications Department (HPCD), the Executing Agency, carried out a feasibility study for the Project. In October 1996, ADB approved a project preparatory technical assistance (TA) to update and refine the feasibility study, including a review of the environmental impact assessment report and resettlement plan (RP).1 Completed in March 1997, the TA’s results confirmed the Project’s technical, financial, and economic viability, as well as the adequacy of the environmental and social measures being implemented concurrently with the Project. The Fact-Finding and Appraisal missions found the proposed investment for the development of the expressway suitable for ADB financing. ADB’s Board of Directors approved a loan of $180 million to the PRC on 18 June 1998. The Loan Agreement was signed on 6 October 1998, and the loan was declared effective on 18 February 1999.

4. At appraisal, the project scope comprised (i) civil works for (a) constructing about 140 km of a four-lane, controlled-access toll expressway to asphalt concrete paved standards, including six large bridges, six interchanges with toll facilities, and four service areas; (b) upgrading about 230 km of county connector roads adjoining the expressway; and (c) constructing, to paved road standard, about 110 km of village access roads feeding into the county connector roads; (ii) equipment for toll collection, surveillance, and communications, highway maintenance and rehabilitation, vehicle axle load testing, and office administration; (iii) land acquisition and resettlement; and (iv) consulting services for engineering advisory

1 ADB. 1996. Technical Assistance to the People’s Republic of China for the Hebei Roads Development Project. Manila. 2 services and training. The outputs and inputs of the Project are in Appendix 1. Appendix 2 provides a chronology of major events.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. Recognizing the increased importance of road transport in the development of a market economy, ADB has focused its lending assistance to the road subsector on (i) the NTHS, a high-quality system of interprovincial expressways and high-grade highways; (ii) the principal highways that improve the access of less-developed communities to regional market centers; and (iii) urban transport projects. ADB’s strategic objectives for the PRC—including economic growth, poverty, safety, and environmental protection—are reflected in the design of the Project.

6. The existing road connecting Qingxian to Wuqiao (G104) was a Class II road that had exhausted its capacity. Congestion and accidents were major concerns. The inadequate road network, and the resulting high transport costs, were serious constraints to achieving key economic and social development objectives. The Project was formulated to (i) cover 14 counties and three urban districts, including direct links with nine officially designated poor counties, using PRA techniques to meet community needs; (ii) cover 14,946 square kilometers (km2), or 5.8% of the Province’s total land use, which is predominantly agricultural with isolated rural residents accounting for 93.0% of the population; (iii) build an expressway that forms a significant section of the Government’s NTHS, and whose utility is optimized by traversing local economic centers, cities, and towns; (iv) upgrade and construct county and village roads to optimize road network operations of the project area, and to extend the socioeconomic benefit of the Project to poor communities; (v) permit the safe and free flow of goods and travelers between urban and rural areas through better road design and traffic enforcement; and (vi) build institutional capacity in HPCD to enhance local skills. The Project was designed and implemented to meet ADB strategy requirements and community expectations. The population of the project area has increased from 4.68 million in 1995 to 6.8 million in 2004.

1. Expressway Design and Construction

7. The expressway was designed in accordance with national road engineering standards, taking into account forecasted traffic speed of 120 km per hour (kph). The completed project expressway is a controlled-access, toll expressway with dual four-lane asphalt concrete pavement. It is 141 km long with a subgrade width of 28 meters (m), a width of 3.75 m for each driving lane, 6 large bridges measuring a combined 4,000 m, 6 interchanges, 4 roadside stations, 225 crossings and culverts, and 8 toll stations. During implementation, some variations to the nine awarded civil works contacts were made to (i) increase haulage volumes and distances of subgrade materials; (ii) carry out lime treatment and impact compaction of subgrade materials with high moisture content; (iii) increase the number of underpasses and culverts to meet community needs; (iv) build micro-pile foundations for 10 minor bridges in soft soil areas; (v) change base course design from lime-soil to lime-fly-ash and cement to make it more environment friendly and stronger; (vi) add a waterproof layer in bridge decks; and (vii) relocate the toll station at South Interchange. The variations were discussed during the Midterm Review Mission in 2000, and subsequently approved by ADB.

8. HPCD uses, on an experimental basis, several modified techniques developed jointly with the Ministry of Communications (MOC) to overcome possible traffic rutting effects and reduce bleeding of bitumen. The pavement surface was treated by spreading a special coat to 3

resist operational and wet weather impacts. The overall riding quality of the expressway is good. Surface roughness, as measured by the pavement roughness index (PRI), is well within the allowable tolerance (1.9 m/km).2 The expressway interchanges and drainage systems also were built to a high standard. The landscaping and slope protection work was carried out satisfactorily. The Project was carried out according to plan.

2. Connector Roads

9. This component of the Project was designed, using PRA techniques, to connect directly the most isolated poor counties, enhance poverty reduction, and complement the overall road network operations. The component involved (i) upgrading 232 km of county connector roads (from Class IV to Class II and III) in nine officially designated poor counties; (ii) constructing 121 km of village access roads feeding into the county connector roads (Class IV); and (iii) constructing 11.5 km of interchange connector roads (Class II) to connect the expressway with the road networks adjoining the expressway. The length of the connector roads subcomponent was increased by about 25 km from the appraisal target. ADB partially financed the roads, which are of satisfactory quality, with an average PRI of 2.4 m/km (footnote 2). The roads were completed at the same time as the expressway.

3. Road Maintenance and Asset Management

10. The maintenance equipment purchased under the loan comprised snow plow, lawn mower, concrete cutter, crane, pothole repair plant, road marking vehicle, and salt spreader. The equipment was procured as envisaged at appraisal, and was operating at full capacity. The Hebei Province Jing-Hu Expressway Management Office (JHEMO) has adopted an efficient practice to maintain and manage the physical conditions of the road, taking into account the need of road users as well as the costs and benefits. Three groups handle road maintenance: (i) an internal road maintenance section under JHEMO with six staff in charge of expressway maintenance planning, asset management, and expressway clearance in case of bad weather conditions and emergencies; (ii) three sets of contractors (20 people each) selected through competitive bidding, each with a 3-year contract, to provide routine maintenance for the expressway; and (iii) a qualified road maintenance firm, selected through competitive bidding to carry out major maintenance as required. The International Financial Institutions Loan Project Office (IFILPO) is responsible for the bidding of major maintenance work. An appropriate budget was provided since the opening of the Project, and will be maintained in the future. The maintenance cost was CNY5.2 million in 2001, CNY9 million in 2002, CNY13.4 million in 2003, and CNY28 million in 2004. Over the next 20 years, the maintenance budget is estimated to be CNY20–40 million per year for routine maintenance and CNY2 billion for major repavement scheduled for every 7 years.

4. Intelligent Transport System

11. Equipment was procured under the loan to fulfill requirements of the following components of the Intelligent Transport System (ITS):3

2 Accumulated axle movements were recorded in February 2005 using standard bump integrator equipment measured over a 1 km section of road. The PRI of the expressway is less than 3, as envisaged at appraisal. 3 ITS is a term that is used to encompass a wide range of technological solutions applied to the transport sector to optimize safety and efficiency of the system. These solutions include road user, traffic monitoring, and enforcement information, as well as toll revenue collection system.

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a. Toll Collection System

12. A computer-based toll collection and monitoring system is operational at the eight toll stations at entry/exit points. The design of the toll collection system follows the closed tolling principle, whereby motorists are given magnetic cards that denote their entry point and pay for the toll at the exit point based on the distance traveled, type of vehicle, and applicable toll rates. In 2003, the toll stations of the Project were given provincial and MOC awards for their service excellence in the management of the toll stations and customer services.

b. Traffic Control System

13. A modern traffic control and surveillance system has been installed, and is functioning as designed. It consists of three subsystems: (i) closed circuit television monitoring; (ii) traffic control and surveillance computer; and (iii) emergency telephone. The system is controlled at the main center in Cangzhou City, and connected to the toll station monitoring systems. Several types of equipment were installed along the expressway to provide the required data, such as vehicle location, weather forecast, traffic density, and road accident location. The equipment also displays road user information, such as changeable electronic messages, and speed limits.

c. Overloaded Vehicle Control

14. Overloaded vehicles are a major national problem that damage road surfaces, cause road accidents, and increase transport costs. Weigh-in-motion systems have been installed at the toll stations, as envisaged at appraisal, to control the number of overloaded vehicles traveling on the expressway. The systems are fully operational, providing vehicle weights and axle details. HPCD and Expressway Traffic Police of the Provincial Public Security Bureau are implementing enforcement measures to strictly enforce traffic laws and prevent overloaded vehicles from traveling on the expressway, and to impose penalties for violations. Stations also were established along the expressway to measure the excess load of detected vehicles, define penalty levels, and provide temporary storage facilities.

5. Roadside Stations

15. The Project has two large roadside stations in Wuqiao and Cangzhou municipalities, and two small stations with limited services along the expressway. The services available include parking, food, accommodation, gas stations, mechanical repair, advertisement, tourism services, and promotion of local products. All stations are operating at full capacity due to the high demand for services. As the parking areas are heavily congested, HPCD is investigating options to enhance them. The gas stations and mechanical repair garages have been contracted to private companies under concessions of 3–5 years. The provincial government has introduced a star-based grading system to rank service standards of all expressway roadside stations in the province. The rankings consider business practices, facilities, service quality, safety, and environmental protection. The top service level is 5 stars. The two large stations of the Project received 4 and 5 stars. A reward and penalty system for operation of such stations is in place to encourage best practices among concessionaries.

6. Consulting Services

16. As envisaged at appraisal, an international consulting firm was engaged in accordance with ADB’s Guidelines on the Use of Consultants. For 14 person-months, the consulting firm was to provide advisory services, primarily in project management, construction supervision, 5

contract administration, quality control, structural engineering review, and training. The firm started work in February 1999 and completed its services in December 2003, providing 14 person-months of input. A domestic consulting firm also was engaged to help with construction supervision, including quality control, and environmental protection measures. The domestic also was to provide training. The actual input of domestic consultants was 5,300 person-months, as estimated at appraisal. In addition, HPCD engaged Hebei Academy of Social Science to monitor independently resettlement, environmental, PRA, and social issues.

7. Human Resources and Capacity Building

17. The consulting services included on-the-job and overseas training. The international consulting firm trained HPCD staff in (i) project management, planning, and maintenance; (ii) internationally accepted design and construction practices; (iii) environmental protection; (iv) road safety and traffic management; (v) monitoring; (vi) highway finance, commercial accounting, and information systems; and (vii) PRA techniques. Overseas study tours were completed for 83.7 person-months, exceeding the 70 person-months estimated at appraisal. The trainees visited Australia, Europe, Japan, and the United States. The main reason for the increase was that the training for the toll, communications, and traffic surveillance systems was included as part of the consulting services contract, in line with the old practice. However, the number of person-months was not specified at appraisal. ADB approved the resulting increase in overseas training costs. About 1,000 people received in-country training in various project- related matters. The overseas training helped HPCD significantly. The trainees prepared a comprehensive report on each training course, which was submitted to HPCD and ADB for monitoring (Appendix 3). Subjects of the training were very useful, and subsequently were incorporated into the curriculum of HPCD’s Transport College as part of an ongoing training program to enhance local capacity. The trainees now hold relevant positions in HPCD.

B. Project Costs

18. The project cost $479.3 million, $6.3 million more than the appraisal estimate of $473.0 million. The cost of civil works totaled $319.4 million, compared with an appraisal estimate of $280.7 million, due to design changes in the expressway. The cost of equipment was $6.7 million below appraisal estimates, because contracted prices were lower than anticipated for some pieces. Higher-than-anticipated inputs from the international consulting firm and additional ITS training increased the cost of consulting services, capacity building, and training by $6.7 million (or 82%) above the appraisal estimate. The cost of resettlement and land acquisition increased by $7.9 million above the appraisal estimate as more households than expected required relocation and compensation, and because the cost of the RP for the connector roads was not included at appraisal.

19. The financing plan envisaged at appraisal included a loan of $180.0 million from ADB (38% of the total project costs) to finance about 85% of the foreign exchange costs. The Hebei provincial government (HPG) was to finance the remaining 15% of the foreign exchange costs ($33.0 million equivalent), while grants from MOC and HPG’s own funds were to be used to finance the local currency requirements of $260.0 million equivalent. At project completion, ADB had disbursed $167.0 million of the loan, accounting for 34.8% of the total project costs and 88.8% of the foreign exchange costs. A grant from HPG financed the remaining foreign currency costs of $21.0 million. The local currency cost of $291.3 million equivalent was covered by a grant of $85.0 million from MOC, and an HPG grant of $206.3 million. The financing plan is in Appendix 4.

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C. Disbursements

20. Of the $180.0 million in ADB loan proceeds, $167.0 million was disbursed during 1999– 2003. The undisbursed amount of $13.0 million was canceled upon loan closure. A reimbursement payment procedure was applied to pay for civil works, a direct payment procedure was used to pay for construction supervision, and a commitment procedure was applied for equipment purchases. The disbursement control procedures were satisfactory. Civil works accounted for 74.1% of the loan amount, equipment 7.6%, county connector roads and village roads 4.9%, consulting services and capacity building 0.6%, and interest and commitment charge during construction 12.8%. The actual interest and commitment charge totaled $21.4 million, in line with the amount envisaged at appraisal. Appendix 5 shows the appraised and actual disbursement schedules. Due to the impact of severe acute respiratory syndrome (SARS) in 2003, the loan closing date was extended by 6 months from 30 June 2003 to 30 December 2003. The loan was closed on 2 April 2004.

D. Project Schedule

21. HPCD requested ADB’s approval for advance procurement action to expedite the award of civil works contracts and recruitment of consultants. ADB approved the advance action on 11 June 1997 for the (i) prequalification of contractors, bid evaluation, and contract award for all civil works packages; (ii) preparation of tender documents for the procurement of equipment; and (iii) recruitment of the international and domestic consultants for engineering and construction supervision. In February 1999, nine contracts for expressway construction, which resulted from international competitive bidding (ICB), were signed. This enabled civil works to start immediately, rather than in October 1998 as envisaged at appraisal. The expressway was then opened to traffic in December 2000, 9 months earlier than the date estimated at appraisal (30 September 2001). The building and service facilities started in January 2000 and were completed in July 2001, 3 months ahead of the appraisal date of October 2001. The traffic engineering facilities also started in July 2000 and were completed in July 2001, 3 months ahead of appraisal date of October 2001. Land acquisition and resettlement were completed in December 1999. The early opening of the project expressway was due to the efforts of HPCD’s project implementation unit (PIU).

22. While the civil works and traffic engineering works (e.g., traffic signs) of the project expressway were completed early, ITS works—such as the computerized tolling network, traffic surveillance, and communication systems—were not completed until December 2003, compared with the estimated date at appraisal of July 2001. Independent toll stations and manual procedures were used to collect toll revenue during the delay. ITS works were delayed for three main reasons. First, the target completion date at appraisal for this component was unrealistic, because construction of the toll plazas before completion of the expressway pavement was not possible. Second, the Project had to wait for issuance of new legislation governing toll systems for all expressways in Hebei Province to ensure full compliance, and to consider impact of the expressway’s modern equipment on adjacent expressways using manual or different toll collection systems. Accordingly, the Project switched from the original plan to use smart cards for the toll system to a paper-based magnetic card. Third, the SARS epidemic caused travel restrictions in 2003 (Appendix 6).

E. Implementation Arrangements

23. As the Executing Agency, HPCD, through IFILPO and its Highway Administration Bureau, was responsible for planning, implementing, managing, and supervising the Project. 7

IFILPO was responsible for the project expressway, while Highway Administration Bureau was responsible for the county connector roads. Cangzhou and township communications bureaus, through their respective county communications bureaus, were responsible for the village roads. In May 1997, a PIU was established under IFILPO and based in Cangzhou City. The PIU was staffed with a chief engineer and assisted by appropriately qualified technical and support staff, as well as international and domestic consultants, to undertake overall responsibility for construction and day-to-day implementation of the Project. The PIU also acted as liaison between HPCD, contractors, and suppliers. In addition, project implementation committees consisting of local officials from various agencies were established in six key counties along the expressway’s route and in Cangzhou. These committees were to ensure that local concerns on land degeneration and resettlement were addressed adequately.

24. After the opening of the project expressway, the PIU was disbanded and staff reassigned to JHEMO, under IFILPO, to handle the operation, management, and maintenance of the expressway, including other facilities of the expressway (Appendix 7).

F. Conditions and Covenants

25. Overall, the Project complied satisfactorily with the loan covenants (Appendix 8). HPCD carried out the Project diligently and provided sufficient budget for timely project implementation, operation, and maintenance. The resettlement and environmental mitigation plans, poverty reduction component, and overloaded vehicle control program were implemented as appraised. The project progress reports, and audited project accounts and financial statements, were submitted as required. HPCD established a benefit monitoring and evaluation system within IFILPO, and assigned an independent institute to collect and analyze relevant data since 1998. The first benefit monitoring and evaluation report was provided to the ADB in June 1999, while the last reports were received in March 2005. Benefit monitoring and evaluation will be undertaken for 5 years after the opening of the expressway. In 2003, JHEMO was awarded the ISO 9001:2000 for its excellent quality management system.

G. Consultant Recruitment and Procurement

26. International consultants financed under the loan were engaged following ADB’s Guidelines on the Use of Consultants. HPCD engaged the consultants promptly, and ADB processed their proposal expeditiously. The contract for international supervision service was signed in October 1998, and the consultants started work in February 1999. The consultants worked intermittently, finishing the work in December 2003 with inputs of 14 person-months. Utilization of input of international consultants recruited under an earlier ADB-financed project,4 which was still being implemented with HPCD as the Executing Agency, was the main reason for the low number of person-months of the international consultants under this Project. The international consultants cost was $838,814 equivalent, which was financed under the ADB loan. HPCD also engaged one domestic consulting firm for construction supervision using Government recruitment procedures acceptable to ADB. Under HPCD financing, 146 domestic supervision engineers, totaling 5,300 person-months, were engaged in the construction.

27. Civil works contracts were awarded for the expressway, as envisaged. Nine ICB contracts were awarded for expressway construction, including bridges and pavement works. In

4 ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loans and Technical Assistance Grant to the People’s Republic of China for Hebei and Expressways Projects. Manila. 8 addition, 16 local competitive bidding (LCB) contract packages were awarded for guard rails, fences, traffic signs, markings, buildings, and ancillary facilities. Prequalification and bid evaluation for the nine ICB contracts and the 16 LCB contracts were conducted in accordance with ADB’s Guidelines for Procurement. As envisaged at appraisal, the upgrading of the connector roads was implemented under two main LCB contracts (five subcontracts for county connector roads and one subcontract for village roads). Six supply contracts for expressway equipment (five contracts for road maintenance equipment and one contract for electricity equipment) were financed under the loan and awarded through ICB (Appendix 9).

H. Performance of Consultants, Contractors, and Suppliers

28. The domestic and international consulting firms engaged under the Project had satisfactory working relationships with HPCD, which was satisfied with the overseas and domestic training programs provided. Despite severe weather in the project area, the civil works contractors performed satisfactorily and completed their contracts within the construction seasons. The equipment performed well in accordance with the required technical specifications, and were utilized effectively.

I. Performance of the Borrower and the Executing Agency

29. HPCD implemented measures to improve substantially its internal control and operating procedures, taking into consideration ADB’s recommendations and an auditor’s findings from an earlier ADB-financed expressway. China National Audit Office established procedures to ensure that the Hebei Provincial Audit Office carried out adequate audits that included reviews of internal control systems in addition to financial audits of books and records. JHEMO also improved its internal procedures and quality control systems through the training program provided under the loan. As part of the ISO award requirements, JHEMO developed guidelines for quality control, maintenance, traffic management, business administration, tolling, and telecommunications. HPCD generally implemented the Project efficiently, completing civil works construction ahead of schedule. HPCD followed ADB’s Guidelines for Procurement. Land acquisition and resettlement actions were completed on time and to the satisfaction of those affected. Environmental protection measures were appropriate to ensure compliance with the requirements. HPCD improved its operating systems significantly, demonstrating an ability to implement the Project effectively, in a timely manner, and in compliance with loan covenants. Thus, HPCD’s performance is rated highly satisfactory.

J. Performance of the Asian Development Bank

30. ADB’s performance in implementing this Project showed some limitations due to frequent changes in the project officer assigned to the Project (six project officers in 5 years). HPCD would have preferred that the same project officer be assigned throughout the Project to ensure better coordination and follow-up. Further, from June 2001 to December 2003, ADB provided limited supervision.

31. To address these issues and assist HPCD in completing the Project, ADB initiated several actions that were carried out in 2004, including fielding (i) a resettlement specialist (international consultant) to help assess the implementation of the project RPs for the expressway and connector roads; (ii) a domestic consultant to help collect and assess socioeconomic data; and (iii) a domestic consultant to review the poverty and social issues. ADB also set up a communications mechanism with HPCD through telephone and e-mail to facilitate project completion. HPCD responded positively, assigning an independent individual 9

consultant to help prepare the resettlement data, and an independent institute to help provide the poverty and social data. HPCD also mobilized staff who had left the Project to help provide other missing information. Accordingly, HPCD submitted its Project Completion Report (PCR) to ADB in September 2004, which was supplemented with additional information before the visit of the PCR Mission in March 2005. HPCD appreciated ADB’s assistance. ADB’s performance, therefore, is rated as partially satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

32. The project design and formulation (paras. 5–6) were consistent with the Government’s strategy and current plans of developing NTHS transport corridors to link major areas of economic growth, foster interregional trade and integration, and strengthen access from less developed communities and disadvantaged areas to the economic mainstream. Furthermore, the Project was the first ADB-financed road project in the PRC to use the PRA techniques to gain feedback from potential poor beneficiaries on the formulation of a project expressway and connector roads, and how the Project could serve them best. Based on their feedback, the connector roads component was selected to complement the new expressway construction and to optimize alignments. Thus, the Project is rated highly relevant.

B. Efficacy in Achievement of Purpose

1. Sustainable Transport Planning and Transport Services

33. The development of the Project focused on widespread participation and sustainable transport planning to integrate roads construction with policy reforms, such as transport services, location of economic centers, and social and poverty issues. The Project was formulated to link the existing Tianjin–Qingxian expressway in Tianjin municipality with - expressway in Shandong Province, as a significant section of the NTHS. It also aimed to promote area-wide road network operations to extend the socioeconomic benefits of the Project, through upgrading and construction of the lowest chain of the network at county and village levels; and to connect the major expressway interchanges with the surrounding networks to increase access of isolated rural areas to markets, social and educational services, and basic health care.

34. The traffic on the existing road (G104) decreased by up to 30% compared with 1998, alleviating . The average travel speed on the project expressway is 80–120 kph, faster than the estimated appraisal average travel speed on major routes at peak times of 60 kph. The Project improved road infrastructure, increasing capacity for more efficient movement of freight and passengers at regional, county, and village levels. The project expressway has the capacity of 55,000 passenger car unit (PCU) average annual daily traffic (AADT) or about 40,000 PCU more than that of existing road (G104). Since the opening of the Project, buses have replaced other transport modes for passengers. The number of buses running from Cangzhou City to the three main cities of Beijing, Tianjin, and Dezhou has increased by 50%, 100%, and 75%, respectively. Travel times on the three routes have decreased 3.3 hours (52%), 2.0 hours (57%), and 2.1 hours (5.7%), respectively.5 In 11 rural counties of the project influence area, average vehicle ownership increased from 139 vehicles in

5 PRC Mission study and Hebei Academy of Social Science survey of benefit monitoring. March 2005. 10

1998 to 602 vehicles in 2003, while freight vehicles rose from 1,314 vehicles in 1998 to 2,223 vehicles in 2003.

35. The Project increased considerably the transport of building materials, mineral ore, steel, and timber from northeastern PRC to the central region. It also facilitated tourism development in Cangzhou municipality, home to some famous tourism attractions such as the historical Acrobat City and beaches. The number of tourists increased from less than 1 million in 1998 to more than 2 million in 2004, and local service industries have benefited significantly.

2. Poverty Alleviation and Social Benefits

36. HPCD assigned the Hebei Academy of Social Science (HASS) to carry out the PRA survey and monitoring, and to assess the Project’s poverty impact. HASS selected some sample of counties and villages for ongoing study since 1998, based on their proximity to the expressway interchanges, overall income levels, and disadvantaged groups. HASS reports have indicated that the project roads have benefited directly and indirectly more than 6.8 million people in more than 14 counties. This includes direct link of 9 designated poor counties, 3 urban districts, 170 towns, and 5,741 villages. Since the Project began operating, the per capita of all counties in the project influence area has grown steadily. The village access roads, which are connected to the county connector roads of the Project, have provided more than 156,000 rural people from 168 villages direct access to the main activity centers and the overall road network. During 1999–2003, the per capita income of the sample villages included in the HASS study increased on average more than 10%. The area of cash crops grew by 72% over the same period (Appendix 10). For the province as a whole, the total rural population fell from 81% in 1998 to 69% in 2004. The rural population of the project area declined from 93% in 1998 (before the Project) to 86.5% in 2004. Provincial per capita rural income increased from CNY2,405 in 1998 to CNY2,603 in 2004. By comparison, per capita farmer income of the project area grew considerably from CNY212 in 1998 to CNY958 in 2004.

37. The construction phase of the Project employed 21,000 people for more than 34 months, generating about 1.2 million person-months of employment. Approximately 80% of these workers were recruited locally. Farmers living near the expressway accounted for 80% of the unskilled labor employment. This work generated about CNY3,000 in income per household, or 30% of a normal household’s annual income at that time. Some 1,400 permanent staff are employed in traffic management, maintenance, toll collection, and office management of the expressway. In addition, more than 500 temporary staff work at the gas stations, hotels, restaurants, and shop facilities in the four roadside stations. Women have benefited substantially from the Project, accounting for about 60% of the staff employed in the toll and roadside stations.

3. Road Safety and Traffic Enforcement

38. Road accidents are a major concern in the PRC. One road accident death occurs every 5 minutes, which is the highest rate in the world. During 2001–2004, the project expressway had 898 traffic accidents, which killed 166 people and injured 422. The joint efforts of the HPCD and expressway traffic police have reduced the death rate from 0.00140 per 10,000 vehicle-km in 2001 to 0.00048 in 2004. HPCD has established a well-equipped team of 60 employees to carry out road safety audits, implement emergency measures, and coordinate with the traffic police. Measures to enhance road safety included (i) continuous guardrails in the median strip and along the road shoulders with high embankments; (ii) emergency roadside telephones; (iii) proper road signs; (iv) timely removal of snow, and spreading salt and sand in winter; and 11

(v) continuous training in road safety and traffic engineering. Since the opening of the expressway, the only major blackspot has been between km 61 and km 62, which has resulted in 30 accidents in a year. However, road surface treatment and installation of warning signs reduced the accidents along this section to nine in 2004. The traffic police have set up three patrol stations along the expressway.

4. Emergency Service Centers

39. The Project represents a successful case of interagency coordination. Main emergency centers have been established along the expressway, attached to the traffic police stations. Relevant agencies have provided the police with ambulances, first aid facilities, and other services to provide efficient and prompt rescue services for victims of traffic accidents. Interagency exchange of emergency information and facilities along the expressway also are in place. The centers demonstrate the benefits of coordination, and how the expressway administration, health, traffic police, and other agencies can work together to ensure safe travel for road users.

5. Project Expressway Operation and Corporatization

40. The headquarters of JHEMO is in Cangzhou Municipality. The project expressway has eight toll stations, including two on the expressway and six at expressway interchanges. Since the opening of the project expressway in late 2000, expressway traffic volume has risen rapidly, sharply increasing expressway toll revenue. During 2001–2004, a fixed set of toll rates was applied, which was similar to the scheme envisaged at appraisal. In early 2005, the toll rate was adjusted to reflect the national policy for tollway operations.

41. HPCD is continuing its unique provincial commercialization and corporatization program to improve accounting and management processes, and is introducing better commercial business processes (Appendix 11). IFILPO currently deals with only expressway projects that have strategic, social, economic growth, and political interests, at national and provincial levels, such as ADB-financed projects. IFILPO has an independent management team responsible for its financial management and policy. It has operated the project expressway successfully for the past 4 years, including the management of toll revenue and a market-oriented strategy.

42. In 2001, IFILPO started a restructuring process to enhance its efficiency, including (i) splitting the expressway management into 2 areas: general expressway management and the toll station management; (ii) recruiting staff based on merit. Staff are under contract and they have to compete for any position. At present 90% of the toll station and 50% of the general expressway management staff are under contracts; (iii) the expressway maintenance is subject to competitive bidding with contract deviation of 2–3 years, to enhance efficiency; (iv) leasing of the gas stations and mechanical repair garages and other services of the roadside stations; and (v) lowering operational cost, optimizing revenue, and adopting market-oriented services. In 2004, IFILPO has established the International Financing Center which will incorporate all the roadside stations into its management, investigate effectiveness of current practices, and propose further means to improve commercialization and corporatization.

12

C. Efficiency in Achievement of Outputs and Purpose

1. Traffic Forecast

43. At appraisal, the AADT for the Project was estimated in medium truck equivalent (MTE), which is no longer in use in the PRC.6 It has replaced with the PCU. The AADT was estimated at appraisal at 17,116 PCU for 2001, the first year of the expressway operation. It was projected to grow to 24,234 PCU in 2006, 32,802 in 2011, 39,686 in 2016, and 45,258 in 2020. That would represent annual average growth rates of 7.2% in 2001–2006, 6.2% in 2007–2011, 3.9% in 2012–2016, and 3.3% in 2017–2020. The actual traffic volume for the project expressway was 5,539 vehicles in 2001, 8,214 vehicles in 2002, 11,022 vehicles in 2003, and 15,279 vehicles in 2004. Traffic has grown at rates of about 48.3%, 34.2%, and 38.6% in 2002, 2003, and 2004, respectively. This is higher than estimated at appraisal, and reflects some limitation in the appraisal forecast.

44. Based on the data supplied by HPCD, the projected average traffic growth rates for the project expressway were adjusted and estimated at 20% to 6% for 2005–2010, 5% for 2011– 2015, and 3% for 2016–2020. The revised growth rates are higher than the appraisal forecast before 2010 due to the actual traffic development trend, the anticipated economic growth in the project area, and the diversion of traffic from alternative roads and means of transport. The revised traffic forecast shows that the traffic level will be 21,084 vehicles AADT (31,943 PCU) in 2006, 29,830 vehicles (46,386 PCU) in 2011, and 42,034 vehicles (63,681 PCU) in 2020 (Appendix 12).

2. Economic Performance

45. Following the same methodology at appraisal, but using actual and revised data, the economic internal rate of return (EIRR) was recalculated using conservative assumptions for the benefits from induced traffic and no benefits computed for avoided accident costs. The main sources of economic benefits are (i) vehicle operating cost (VOC) savings from using the project expressway; (ii) VOC savings from traveling less distance for the traffic on the expressway; (iii) VOC savings from reduced congestion on the existing parallel road; (iv) savings in passenger travel time costs for those using the expressway; and (v) savings in passenger travel time costs saving for those using the alternative routes. Only diverted traffic on the project expressway and normal traffic on the alternative road were considered in the benefit calculation. The recalculated EIRR of the project expressway was 19.2%, compared with 19.1% at appraisal. The EIRR reevaluation was conservative in comparison with the calculation at appraisal. In the revised calculation, the benefits to the communities in the disadvantaged areas were not included, because the required data were not available. In addition, the actual and future traffic on the alternative G104 road is high, which means the projected savings in the cost of using the existing road likely will be higher than estimated. Thus, the Project is economically viable (Appendix 13).

3. Financial Performance

46. Projections based on available information and investment plans indicate that the project expressway will be financially sound. The results of the financial evaluation for the project expressway show a financial internal rate of return (FIRR) in real terms of 13.2% after corporate tax, compared with 11.3% at appraisal, due mainly to higher traffic volume on the project

6 MTE is no longer in use as per the new MOC Highway Standards, issued in March 2004 (1 MTE = 2 PCU). 13

expressway. The recalculated FIRR is much higher than the real weighted average cost of capital (WACC) for the Project, which was estimated at 4.63%.7 Sensitivity analysis of the FIRR was carried out to test the effects of several scenarios on key parameters that determine costs and revenues. The analysis tested cases with a 20% increase in operation and maintenance cost, a 20% decrease in operation revenues, and a combination of both. While the Project is shown to be relatively sensitive to the revenue level, it remains financially viable. Hence, the Project is financially viable (Appendix 14)

47. The PCR Mission, in consultation with JHEMO, prepared the projected financial performance of the expressway based on actual performance, revised traffic forecasts, and JHEMO’s financing and expenditure plans. Three financial statements were prepared—income statement, cash flow, and balance sheet. Based on these financial statements, four financial indicators were calculated, namely working ratio, debt service coverage ratio, debt-equity ratio, and return on equity. The revised financial projections indicate that the forecast revenues, based on the existing and future toll levels, are sufficient to cover the operating costs and repayments of the ADB loan. All financial indicators are in the satisfactory range. The strong operating performance will contribute to satisfactory debt-service capacity, as reflected by the estimated increase in the debt-service ratio from 2.28 in 2003 to 11.26 in 2020 (Appendix 15).

D. Preliminary Assessment of Sustainability

48. The project expressway, which forms part of the main northern NTHS corridor, can expect steady and robust traffic growth given further economic development in the project influence area, especially around Beijing and Tianjin municipality. Toll revenues have increased steadily since the expressway opened, and have contributed to the strong financial performance of JHEMO, as well as efficient management and maintenance of the expressway. Personnel were trained in various areas, which enhanced their ability to carry out future operations in a systematic and effective manner. The Project, therefore, is likely to be sustainable.

E. Environmental, Sociocultural, and Other Impacts

1. Environmental Impact

49. During construction and operations, several environmental mitigation measures were undertaken, including (i) soil erosion protection covering 85 hectares (ha); (ii) landscaping and planting more than 10 million plants; (iii) the use of special equipment during construction to control noise levels, and installation of 950 m of noise barriers along the expressway in sections close to residential areas; (iv) investment of CHY14.1 million on environmental improvements for the resettled population; (v) installation of wastewater and solid waste treatment facilities at two service areas; and (vi) restoration of 800 ha, 67 ha, and 164 ha of arable, forest, and grass land, respectively. In December 2004, an environmental evaluation panel, led by a division chief from the State Environmental Protection Administration supported by nine specialists, inspected the Project. The Project was given environmental clearance for operation. Financed under the ADB loan, eight staff from JHEMO completed an overseas study program in France on environmental management of highway to strengthen the local environmental assessment capacity and mitigate potential negative environmental impact.

7 The WACC was calculated following the methodology in ADB’s Guidelines for the Financial Governance and Management of Investment Projects Financed by Asian Development Bank, with the assumed costs of capital of 6.29% for the ADB loan, 8% for equity capital from the Government, 3% domestic inflation rate, and 33% corporative tax. The recalculated WACC for this Project was 4.63%. 14

2. Resettlement

50. The expressway RP was updated in 1998 following completion of the detailed design. Land acquisition under the project expressway affected 6 counties, 20 townships, and 211 villages. About 1,180 ha of land was acquired for the construction of the expressway, compared with the RP estimates of 1,254 ha. Fifty households were relocated, compared with the RP’s estimate of 32 households. The PCR Mission also assessed the Government resettlement plan for the connector roads, since the RRP did not include such plans. About 354 ha of land were acquired for the upgrading and construction of the connector roads, compared with the Government RPs estimate of 477 ha. Relocated households totaled 683, compared with the Government RP’s estimate of 351 households. Land acquisition for the project expressway and connector roads affected around 35,000 people. Land acquisition and resettlement for the expressway and connector roads cost CNY242.3 million, compared with RRP’s estimate of CNY176 million for the expressway only. The higher-than-expected cost was due mainly to an increase in compensation rates and the inclusion of the cost of land acquisition and resettlement for the connector roads. Resettlement offices were set up at various administrative levels to deal with resettlement implementation issues. As stipulated in the RPs, consultation, disclosure, and monitoring and evaluation were conducted and completed by 2002. The villages readjusted the farmland, so that land losses were shared equally within the village, reducing the impact. Compensation funds were used collectively to invest in and non-farm improvements. In general, the new housing structures are much better quality than the demolished ones. For large settlement sites, the Project paid additional costs to provide complete road access, water supply, and electricity for the relocated households. In terms of economic rehabilitation, almost all affected villages redistributed land village-wide, and most villages still have relatively sufficient farmland per capita. Overall, the resettlement appeared to have been implemented and monitored satisfactorily, although ADB provided limited supervision due to staffing limitations (Appendix 16).

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

51. The Project achieved its main objectives. The expressway has been in operation since December 2000, 9 months earlier than the appraisal schedule, and has not experienced any major structural problems. People affected by the Project were relocated satisfactorily, and the overall socioeconomic impact of the Project has been positive. No major adverse environmental impacts have occurred. The connector roads have contributed directly to poverty reduction in disadvantaged areas. This was the first ADB-financed road project in the PRC to use PRA techniques. Effective road safety and overloaded vehicle prevention programs are in place, while accident emergency centers have been established for the expressway. Commercialization of the expressway activities proved successful. Expressway toll revenue also increased significantly. With travel demand increasing, constraints on the alternate road, and economic development in the region quickening, traffic flow on the expressway is forecast to rise steadily and generate sufficient revenue. The Project was (i) assessed as excellent, with a rating of 96%, by the Hebei Provincial Highway Engineering Quality Monitory Bureau in November 2000; (ii) assessed as excellent by the MOC during final acceptance inspection in 2003; and (iii) awarded the ISO 9001:2000 certificate for its quality management system. Several toll stations also have gained national and provincial recognition awards. The Project is financially and economically viable, and is assessed as highly successful.

15

B. Lessons Learned

52. The expressway design and traffic forecast should be thoroughly assessed during appraisal to reflect actual traffic demand, and to ensure the appropriate number of lanes.

53. The use of PRA techniques should be associated with a better monitoring process, and the Report and Recommendation of the President should provide clear guidance to HPCD to facilitate implementation of the Project. A resettlement plan for the connector roads should be included as part of the expressway resettlement plan, and the cost should be identified and included as part of the project cost.

54. A projection of demand for parking zones at the roadside stations was not done at appraisal, which resulted in insufficient space to meet rising demand. Parking zone projections should be conducted during the design stage to avoid potential traffic congestion. Overseas training for the toll, communications, and traffic surveillance systems should be included as part of the terms reference of the consultants at appraisal.

C. Recommendations

1. Project Related

55. The current weigh-in-motion system and overloaded vehicle equipment should be upgraded to accommodate higher traffic demand of the heavy vehicles operating on the expressway. The use of an electronic system would provide better overload control.

56. A road safety campaign should be promoted in the project areas to reduce traffic accidents, and advance community awareness. Traffic forecasts should be monitored continually to prepare for the management of more vehicles.

2. General

57. The selection of the connector roads of the Project using PRA techniques reflects the benefit of integrating the expressway and local road networks. Future ADB-financed expressway projects should include financing of clearly identified rural and county roads to maximize poverty reduction of road projects and enhance economic development.

58. Road safety is a major national problem in the PRC. Future ADB-financed projects should include a road traffic enforcement component, in addition to the traditional road safety audit component, to maximize road safety. Traffic police should be involved at various stages of project planning, design, and implementation. Future road projects in the PRC should be subject to a road safely impact assessment to address the escalating problem of road accidents. The overloaded vehicle control program and emergency centers of this Project should be promoted.

59. Implementation of the Project indicates that project administration is crucial to the successful implementation of the ADB operational strategy and successful execution of the Project. Future ADB-financed projects should have clear project administration and procurement plans, as well as a monitoring mechanism to strengthen the link with executing agency and provide timely and customer-oriented service.

16 Appendix 1

PROJECT FRAMEWORK

Design Summary Performance Monitoring Mechanisms Remark Indicators/Targets A. Goal

To promote economic Economic growth targets for Cangzhou municipality (project 2001 = 1st year of full growth and poverty impacted cities and counties area) and its counties (14) operation of the reduction in Hebei during 2000–2010 reached their economic growth Project. Province targets. The GDP annual growth rates of Cangzhou was 8.6%, Source: 11.30%, and 12.1% in 2001, Socioeconomic 2002, and 2003, respectively, Benefit Evaluation compared with 1998 (before the Report, December Project). 2004, and Project Completion Report (PCR) Mission estimates.

Per capita incomes in nine Per capita rural incomes designated poverty counties to increased from CNY212.0 in rise above the poverty threshold 1998 to CNY958.3 in 2004 in the (CNY1100) by 2005 nine designated poverty counties.

B. Purpose

1. To improve road infrastructure Remove serious congestion and A 141-km controlled access, Source: Traffic through the provision of deteriorating safety standards on four-lane expressway was analysis report and increased capacity for more the existing road (about 145 constructed, and is operational PCR Mission. efficient movement of freight kilometers [km]) between the as part of the NTHS. In 2003, the and passengers provincial boundaries with Tianjin traffic on the existing road municipality and Shandong ( G104) decreased by about 30% province (Highway 104) through compared with 1988, alleviating the construction of a controlled traffic congestion. More traffic on access, four-lane expressway as the existing road is forecast to be part of the national trunk highway diverted to the project system (NTHS) expressway. The accident rate in terms of the number of accidents per million vehicle-km (veh-km) of existing road fell from 1.23 in 1988 to 1.0 in 2004.

Average travel speed on major Congestion decreased by 30% routes at peak times increases on the existing major route from 40 kilometers per hour (kph) (G104), and the capacity of the to 60 kph overall network increased significantly, allowing for free and faster traffic flow. The average travel speed on the project expressway is 80–120 km per hour. The average travel speed on major routes was also increased from 40 km to 60 kph.

Safer roads, as indicated by a The death rate dropped from Source: Traffic Police decrease in deaths (per 10,000 0.00140 per 10,000 veh-km in Statistics. veh-km) by at least 10% by 2005 2001 to 0.00048 in 2004.

Appendix 1 17

Design Summary Performance Monitoring Mechanisms Remark Indicators/Targets 2. To provide improved access Reduce traffic congestion on Capacity increased by upgrading Source: to officially designated poverty existing roads (230 km) by 232 km county connector roads, Socioeconomic counties and villages increased capacity measures. from Class IV to Class II, Benefit Evaluation Annual average daily traffic construction of 121 km of village Report, December (AADT ) increases by about 30% roads (class IV), and 2004, and PCR by 2005 construction of 11.5 km of Mission estimates. interchange connection roads to link the expressway with the overall road network. This stimulated considerable socioeconomic development and generated huge traffic operations with less congestion. In Cangzhou municipality, the number of vehicles in 2003 increased by about 222.9% for passenger vehicles and 114.6% for freight vehicles compared with 1998.

Pavement roughness indexes The county connector roads and Source: EA study. (PRI) lowered to < 3 meters village roads were well paved (m)/km. with the PRI of about 2.4m/km.

Reduction in delivery times for The average vehicle speed on agricultural inputs/production the county connector roads within the project area by at least (class II) is 60 kph in 2003, 15% by 2003 compared with about 20 kph before project opening.

3. To build capacity in, and Improvement in efficiency of Road network increased 6,173 corporatize, expressway public expenditures on roads by km in 1998 to 8,193 km in 2003 agencies at least 5% by 2003 in Cangzhou municipality, including the first expressway (the Project expressway), which stimulated considerable socioeconomic development and poverty reduction.

Reorganization of Hebei Achieved. See text, paras. 39 to Provincial Communications 41. Department (HPCD) and computerization of expressway management and operational procedures by 2000

C. Outputs

1. Civil Works

140 km of expressway, about North/south corridor capacity The project expressway has the According to the 230 km of county connector increased by 30,000 medium capacity of 55,000 PCU AADT, MOC standards, 1 roads, and about 110 km of truck units (MTUs) by opening about 40,000 PCU more than MTE = 2 PCU. village access roads year 2002 that of the existing road (G 104). constructed

230 km of county connector 11.5 km interchange connection roads upgraded/condition roads constructed (Class II), improved, and approximately 110 232.8 km county connector roads km of villages access roads built upgraded from Class IV to Class 18 Appendix 1

Design Summary Performance Monitoring Mechanisms Remark Indicators/Targets II, and 121.5 km village roads constructed, representing about 25 km more than appraisal estimates.

Systems for traffic data All systems for traffic monitoring collection, toll collection toll collection, expressway accounting, expressway management, and maintenance management, and road/bridge were established and fully maintenance management operational with adequate staff, established budget, and equipment.

Construction completed and The project expressway opened open to traffic by mid-2002 to traffic in December of 2000.

2. Consulting Services

2.1 14 person-months of On-the-job training of HPCD staff About 1,000 person-months of international consultancy and domestic consultants, and on-the-job training were carried services in quality assurance adoption of international best out successfully, and and training rendered practice in project management , international best practice contract administration, and adopted through utilization of the quality control system short-term consultants and tem leader services (14 person- months).

2.2 Established and upgraded Annual reports Achieved. operation and maintenance systems

2.3 Monitoring and Evaluation Field surveys, traffic counts Hebei Provincial Academy of (M&E) methodologies Social Science was engaged to established carry out the M&E, field survey, and studies and reports submitted to the Asian Development Bank (ADB) 3. Resettlement and Compensation

3.1 About 1,254 ha of land Land acquisition and 1,180 ha of land were acquired. acquired resettlement plan Land acquisition and resettlement plans (RPs) implemented satisfactorily for the expressway and connector roads.

3.2 383 households relocated Compensation level agreed 733 households relocated for the and compensated expressway and connector roads. Compensation rates for expressway were as stipulated in RP, but rates for connector roads used local standards.

4. Capacity Building and Human Resource Development

4.1 More than 100 personnel Implementation of courses in About 1,000 person-months of trained in various disciplines contract management, on-the–job training were carried construction, and quality control out successfully on various road Appendix 1 19

Design Summary Performance Monitoring Mechanisms Remark Indicators/Targets 4.2 70 person-months of techniques, as well as systems matters. Overseas training overseas training to gain and procedures for accounting totaling 83.7 person-months experience and increase and financial management completed. New courses knowledge included in the program of Hebei transport Institute for ongoing 5. Environment development.

5.1 Environmental mitigation Improved efficiency in Achieved. Independent Institute measures designed implementing mitigation assigned for monitoring, and staff measures training completed. Eight people trained overseas to enhance local capacity.

5.2 Establish improved Environmental monitoring environmental monitoring procedures institutionalized in procedures Hebei Planning and Design Institute D. Activities

1. Provide adequate counterpart Funds allocated from Ministry of Fund allocated on time. funds Communications (MOC) and HPCD

2. Recruit adequate counterpart Consultants recruited in Consultants recruited in February consultants September 1998 1999 for construction supervision (5,300 person-months).

3. Carry out survey and design Survey and detailed design Detailed engineering design was completed by 31 October 1998 carried out by local institute, and completed on time.

4. Award contracts Civil works contracts awarded Civil work contracts awarded in between August 1998 and April February 1999. 1999

5. Construct and upgrade Construction and upgrading Connector roads completed on selected road sections completed by mid-2002 time.

6. Supervise construction, Construction supervision All construction supervision installation, and on-the-job completed by May 2002, and completed in 2000, and staff training HPCD staff trained in contract trained. administration

7. Design and conduct training Executing Agency and other Independent institute was courses relevant offices conduct recruited by the Executing monitoring and evaluation from Agency to monitory and evaluate 2000 to 2010 with an emphasis the project impacts on poverty on poverty alleviation impacts alleviation.

8. Introduce participatory PRA techniques applied in the rural approaches (PRA) to project impact assessment, and M&E selection of the connector roads.

9. Land acquired and new homes Resettlement plan and Land acquisition and constructed compensation measures resettlement started in June completed by June 1998 1998 and completed in December 1999, including the connector roads not included at appraisal.

20 Appendix 1

Design Summary Performance Monitoring Mechanisms Remark Indicators/Targets 10. Program implemented Minimized relocation in alignment Achieved. selection and interchange design

11. Compensation levels agreed Achieved. and compensation disbursed to affected persons

12. Curricula designed training On-the-job training and domestic Training targets achieved, and and training courses training completed by May 2001 exceeded. established

13. Candidates selected and More than 100 staff trained in More than 1,000 staff trained trained various disciplines locally, and 94 trained overseas.

14. Highway alignment reviewed Adverse environment impact Measurement for minimizing and revised to include mitigation/minimization and adverse environment impact environmental mitigation environmental enhancement implemented. measures measures

E. Inputs ($ million)

1. Civil Works 280.7 1. Civil Works 319.4 2. Equipment 19.4 2. Equipment 12.7 3. Land Acquisition and 3. Land Acquisition and Relocation 21.4 Relocation 29.3 4. Consulting Services 8.1 4. Consulting Services 14.8 5. Connector Roads 74.1 5. Connector Roads 81.7 6. Contingencies 47.5 6. Contingencies 0.0 7. Interest 21.8 7. Interest 21.4

Total 479.0 Total 479.3

AADT = average annual daily traffic, PCU = passenger car unit.

Appendix 2 21

CHRONOLOGY OF MAJOR EVENTS

7–22 Apr 1997 Fact-Finding Mission fielded.

11 Jun 1997 Management Review meeting.

3–14 Jul 1997 Appraisal Mission fielded.

18 Jul 1997 Summary Environmental Impact Assessment circulated to the Board of Directors.

21 Aug 1997 ADB approves the issuance of prequalification documents for civil works packages (earthworks, pavement, bridges and culverts, and ancillary works).

20 Feb 1998 Staff Review Committee meeting.

28 Apr 1998 ADB approves the list of prequalified bidders for civil works contractors.

11–13 May 1998 Loan negotiations.

18 Jun 1998 ADB approves a loan of $180 million for the Hebei Roads Development Project.

14 Jul 1998 ADB approves the award of contract for consulting services for construction supervision and training.

7 Sep 1998 ADB approves the award of contract for civil works packages for earthworks, pavement, bridges and culverts, and ancillary works.

6 Oct 1998 Loan and Project Agreements signed.

18 Jan 1999 ADB approves the extension of loan effectiveness from 4 January 1999 to 5 March 1999.

18 Feb 1999 Loan declared effective.

14–18 Jun 1999 Inception Mission fielded.

25–29 Oct 1999 Review Mission 1.

15 and 23 Dec 1999 Award of contract for building works.

10 Feb 2000 Award of contract for traffic safety facilities.

11–18 Oct 2000 Review Mission 2. 22 Appendix 2

31 Jan 2001 ADB approves change in procurement mode from international shopping to direct purchase (procurement of a pre-cracking machine).

4 Jun 2001 Award of contract for traffic monitoring, tolling, and telecommunication system.

25–30 Jun 2001 Review Mission 3.

11 Sep 2001 Award of contract for county connector roads.

10 Oct 2001 ADB approves the percentage increase in ADB financing for county connector roads from 13% to 32% and reallocation of $15.6 million loan proceeds from the unallocated category to the civil works-expressway category.

14 Oct 2002 Award of contract for the procurement of maintenance equipment.

11 Dec 2002 ADB approves the extension of loan closing date from 31 December 2002 to 30 June 2003.

17 Jun 2003 ADB approves the extension of loan closing date from 30 June 2003 to 31 December 2003.

2 Sep 2003 ADB approves the reallocation of $500,000 from the unallocated category to County Connector Roads Category.

17–23 Dec 2003 Review Mission 4.

2 Apr 2004 Cancellation of undisbursed loan balance of $12,931,464.19, and closure of loan account.

27 Mar–1 Apr 2005 Project Completion Review Mission fielded.

Appendix 3 23

OVERSEAS TRAINING

Appraisal Actual Number Total Number Total Subject of (person- of (person- Trainees months) Trainees months)

Pavement Technology 8 14 6 15

Traffic Engineering 3 9 2 4

Design and Management of the 5 5 7 5 Expressway Service Area

Environmental Protection, Regulation 5 15 8 5.5 and Design, and Implementation

Expressway Maintenance 5 15 8 8

Expressway Operation and Management 10 10 18 16

Participatory Rural Appraisal Techniques 2 2 6 4.5

Management of ITS System 0 0 8 4

Subtotal 38 70 63 62

Toll System (software design) 0 0 4 2.8

Toll System (monitoring and 0 0 4 2.8 Management)

Communications System 0 0 5 3.5

Traffic Surveillance System 0 0 9 6.3

Maintenance of Toll System 0 0 9 6.3

Subtotal1 0 0 31 21.7

Total 38 70 94 83.7 ITS = intelligent transport system. 1 Training on the toll, communications, and traffic surveillance systems was included as part of the consulting services contract, in line with the old practice (before the 1990s), but the number of person-months was not specified in the Report and Recommendation of the President. ADB approved the resulting increase in overseas training costs. Source: Hebei Provincial Communications Department. 24 Appendix 4

DETAILED COST ESTIMATE AND FINANCING PLAN

Table A4.1: Appraisal Versus Actual Financing Sources ($ million)

Appraisal Actual Source Foreign Local Foreign Local Total Total Exchange Currency Exchange Currency A. Base Costs 1. Civil Works 131.9 148.8 280.7 131.9 187.5 319.4 2. Equipment 16.5 2.9 19.4 12.7 0.0 12.7 3. Connector Roads 21.0 53.1 74.1 21.0 60.7 81.7 4. Land Acquisition and 0.0 21.4 21.4 0.0 29.3 29.3 Resettlement 5. Consulting Services and 1.2 6.9 8.1 1.0 13.8 14.8 Training Subtotal A 170.6 233.1 403.7 166.6 291.3 457.9 B. Contingencies 20.6 26.9 47.5 0.0 0.0 0.0 C. Interest During Construction 21.8 0.0 21.8 21.4 0.0 21.4 Total 213.0 260.0 473.0 188.0 291.3 479.3 Source: Asian Development Bank estimates.

Table A4.2: Financing Plan ($ million)

Appraisal Actual Source Foreign Local Foreign Local Total Total Exchange Currency Exchange Currency

Asian Development Bank 180.0 0.0 180.0 167.0 0.0 167.0

Ministry of Communications 0.0 85.0 85.0 0.0 85.0 85.0

Hebei Provincial Government 33.0 175.0 208.0 21.0 206.3 227.3

Total 213.0 260.0 473.0 188.0 291.3 479.3 Source: Asian Development Bank estimates. Appendix 5 25

PROJECTED AND ACTUAL DISBURSEMENT SCHEDULES ($ million) Table A5: Disbursement Schedule For the Year Cumulative Year Projected Actual Projected Actual % of Loan

1999 14.20 29.85 14.20 29.85 18 2000 45.00 35.08 59.20 64.93 39 2001 40.00 25.85 99.20 90.77 54 2002 11.00 13.14 110.20 103.91 62 2003 24.00 60.01 134.20 163.93 98 2004 8.00 3.14 142.20 167.07 100

Total 142.20 167.07 559.20 620.46 Source: ADB Loan Financial Information System.

Figure A5: Cumulative Disbursement

130 120 110 100 90 80

70 Projected 60 Actual

$ million $ 50 40 30 20 10 - 1999 2000 2001 2002 2003 2004 Year

Source: Asian Development Bank estimates. 26 Appendix 6 2003 × ``````` ``` `````````` `````````` ```` × `` `` ` `` ` ` ` Appraisal Actual `````````` ``````` ``````` `````````` ``````` `````````` `` `` `` `` `` ```````````` `````` `````` ````````````````` `````````` `````````` `````````` ` `` `` ` `` ` ``` IMPLEMENTATION SCHEDULE `````````` `````````` `````````` x `` ``` `````````` `` ```` ```` ``` ` ` ` x ` 1998 ` ` ` 1997 1999 2000 2001 2002 x 456789101112123456789101112123456789101112123456789101112123456789101112123456789101112123456789101112 AMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASOND x es iti v ti c A y on on t ti ruc ng t i emen ttl ese rocess recons 1.Construction Supervision 1.Construction 1.Construction and Maintenance and 1.Construction Toll and 2.Traffic Engineering 3.Training Roads Connector 1.County 2.Techincal Advisor 2.Techincal 1.Fact-Finding 2.Appraisal Consideration 3.Board 4.Loan Effectivit 1.Earthworks and Structures and 1.Earthworks 2.Pavement ``````````````````````````` 5.Traffic Engineering 1.Prequalification/Evaluation 2.Tendering Evaluation 3.Bid Award4.Contract ` P P R 2.Village AccessRoads 3.Guardrails,Fences,and Marking 3.Guardrails,Fences,and 4.Buildings and ServiceFacilities . . . Activity F. Consulting Service E. ITS Equipment G. Connector Roads A B C D. Civil Works ITS = intelligent transport system. system. transport = intelligent ITS Source: Asian Development Bank Bank estimates. Asian Development Source:

INSTITUTIONAL STRUCTURE

Figure A7.1: Organization Structure

People’s Government of Hebei Province

Hebei Provincial Communications Department

Highway Expressway Road International Administration Water Transport Highway Administration Development Financial Bureau Administration Expressway Transport Bureau Center Institutions Bureau Company Ltd. College Loan Project Office

Beijing Beijing Village County Highway Hebei Highway Zhangjishou Port Access Connector Transport Development Expressway Expressway Expressway Roads Roads Administration Company Bureau

Tianjin- Shijiazhuang Local Railway General Tianjin- Cangzhou and Administration Supervision Hengshui Expressway Expressway Bureau Company Expressway Communications Department

Shijiazhuang- Qingxian Highway Planning and Beijing- Engineering Design Shijiazhuang Expressway Expressway Communications Monitoring Institute Expressway Departments Station

Project Highway Implementing Engineering A ppendix 7 ppendix Unit Quota (PIU) Station

Engineering Cangzhou Office PIU Technology 27 Contracts Procurement

Source: Hebei Provincial Communications Department. 28 Appendix 7

Figure A7.2: Jing–Hu Expressway Management Office

Administration Office

HPCD Qingxian On-Road Toll Station

Personnel Section Qingxian Toll Station

Changbei Toll Station Discipline Section IFILPO Cangnan Toll Station

Communication Center Nanpi Toll Station

TongguangToll Station

Financial Planning Section WuqiaoToll Station

JHEMO Wuqiao On-Road Toll Station Toll Collection Section

Cangzhou Road Adm. Brigade Road Administration Section

Dongguang Road Adm. Brigade

Maintenance Section First Maintenance Station

Second Maintenance Station

Business Section Qingxian Parking Area

Cangzhou Service Area

Dongguang Parking Area

Wuqiao Service Area

HPCD = Hebei Provincial Communications Department, IFILPO = International Financial Institutions Loan Project Office, JHEMO = Jing-Hu Expressway Management Office. Source: Hebei Provincial Communications Department.

Appendix 8 29

COMPLIANCE WITH LOAN COVENANTS

Reference to Status of Covenants Loan Compliance Documents A. Implementation Arrangements

1. The Borrower shall relend the Loan Agreement Complied proceeds of the loan to Hebei (LA), Section with. Province under a Subsidiary Loan 3.01 (a) Agreement with the same terms and conditions as the original loan.

2. Hebei Provincial Communications LA, Section 6 Complied Department (HPCD) shall be the with. project Executing Agency responsible for carrying out of the Project through the project implementation unit (PIU) established in Shijiazhuang under the International Financial Institutions Loan Project Office. A chief engineer, who shall be assisted by suitably qualified technical and support staff, shall be designated to be responsible for the Project.

3. Procurement of goods and services shall LA, Schedule 4 Complied be subject to the provisions of the Asian with. Development Bank’s (ADB) Guidelines for Procurement.

4. In conjunction with the international LA, Schedule 6, Complied consultants, HPCD shall prepare a para. 3 with. training program, a list of nominated candidates for training, and a list of training equipment and training aids required to strengthen and implement the training program.

5. Carry out the Project with due LA, Schedule 6, Complied diligence and efficiency and in para. 1 with. conformity with sound administrative, financial, engineering, environmental, and highway construction, operation, and maintenance practices.

B. Axle Loads

6. HPCD shall take suitable measures to LA, Schedule 6, Complied prevent overloading on the Project para. 10 with. expressway by constructing vehicle weighing stations at selected entry point

30 Appendix 8

Reference to Status of Covenants Loan Compliance Documents and at each end of the project expressway. Before commercial operation of the project expressway, HPCD shall submit to ADB a statement indicating legal axle load limits and penalties for their infringement.

C. Land Acquisition and Resettlement Plan

7. Hebei shall ensure that all land and rights LA, Section 6, Complied of way required by HPCD for the Project para. 6 with. will be made available promptly. HPCD shall promptly and efficiently carry out the agreed resettlement action, compensation arrangements, and monitoring programs, in accordance with ADB's Policy on Involuntary Resettlement.

D. Reports and Accounts

8. Furnish to ADB quarterly reports on the Project Complied execution of the Project and on the Agreement (PA), with. operation and maintenance of the project Section 2.08 (b) facilities.

9. Prepare and submit to ADB a Project PA, Section 2.08 Complied Completion Report not later than 3 (c) with. months after the physical completion of the Project.

E. Operation and Maintenance

10. The Borrower shall ensure that, upon LA, Schedule 6, Complied completion of the Project, the project para. 4 with. facilities shall be satisfactorily maintained and operated. To this end, the Borrower shall provide, or cause Hebei to provide, to HPCD, on a timely basis, all funds needed in addition to its internally generated revenues.

F. Benefit Monitoring and Evaluation LA, Schedule 6, Complied 11. HPCD shall undertake benefit para. 11 with. monitoring and evaluation activities to ensure that the project facilities are managed efficiently and that the benefits are maximized, particularly in the poor areas.

Appendix 8 31

Reference to Status of Covenants Loan Compliance Documents G. Tolls

12. Hebei shall prepare and submit to ADB for LA, Schedule 6, Complied review and comments a report on the para. 7 with. proposed tolls, including structure and levels for the project expressway, before commercial operation of the project expressway and before submission for approval by Hebei. Hebei shall periodically review and adjust the highway tolls to ensure that the revenue will cover all the operation and maintenance costs, debt servicing, depreciation in excess of debt servicing, and reasonable return on investment.

H. Access Roads 13. To ensure that the social and economic LA, Schedule 6, Complied benefits from the Project are adequately para. 8 with. extended to the rural communities in the hinterland of the project expressway, the Borrower shall cause Hebei to ensure that the project expressway is connected adequately to the adjacent road network. Hebei shall upgrade or improve about 230 kilometers of county connector roads linking the counties of , Nanpi, Mengoun, Yanshan, Haixing, Dongguang, Fucheng, and Jingxian with the project expressway. I. Financial LA, Schedule 6, 14. Make available the funds, facilities, Complied para. 10 services, land, and other resources that are with. required, in addition to the proceeds of the loan, for carrying out the Project.

15. Furnish to ADB all such reports and PA, Section 2.08 Complied information as ADB shall reasonably (a) with. request concerning the loan, and the expenditure of the proceeds and maintenance of the service thereof; the goods and services and other items of expenditure financed out of the proceeds of the loan; the Project; the administration, operations, and financial condition of HPCD; and any other agencies of the

32 Appendix 8

Reference to Status of Covenants Loan Compliance Documents Borrower.

J. Commercialization and Corporatization

16. HPCD shall continue its LA, Schedule 6, Complied commercialization program by para. 9 with. improving accounting and management information systems, and introducing commercial business practices using training financed under the loan. HPCD shall prepare time-bound plans for the corporatization of the construction management division and submit such plans to ADB for review not later than 1 year before commercial operation of the project highway. HPCD shall implement such plans as agreed with ADB.

K. Environment

17. Ensure that environmental problems LA, Schedule 6, Complied related to the construction and para. 5 with. operation of the Project will be minimized by implementing the mitigation measures, environmental monitoring program, and recommendations presented in the Environmental Impact Assessment and the Summary Environmental Impact Assessment, as approved by the National Environmental Protection Agency of the Borrower.

PROCUREMENT DETAILS

Table A9.1: Contract Packages for Equipment Country of Origin Actual Mode of of the Original Amount Final Contract Name of Contractor Item Procure- Contract Contractor/ Contract in ADB Payment No. ment Date Supplier Currency Amount $ Equivalent ($ Equivalent) Equipment Traffic Monitoring, Tolling, Ascom Asia Pacific 1 and Telecommunication ICB 1 Jun 2001 PRC $ 7,563,151 8,812,380 8,812,380 Limited System RPM International Hot in Place Asphalt 2 ICB 28 Oct 2002 CAN $ 2,497,400 2,497,400 2,497,400 Limited Recycling System Rich Trend Holding 3 Milling Machine ICB 28 Oct 2002 PRC $ 640,000 640,000 640,000 Limited Multipurpose Maintenance 4 Systeq Instruments ICB 28 Oct 2002 CAN/ITA $ 449,329 449,329 449,329 Vehicle Grass Cutter, Vibratory, Flat-Board Hammer, 5 Systeq Instruments ICB 28 Oct 2002 CAN $ 245,994 245,994 245,994 Concrete Cutter, Joint Sealing Machine Optical Power Meter, Wall International 6 Optical Source, Testing, ICB 28 Oct 2002 PRC HK$ 748,878 96,099 96,099 Group Limited and Other Equipment

Total 12,741,202 12,741,202

ADB = Asian Development Bank, CAN = Canada, HK = , ICB = international competitive bidding, ITA = Italy, PRC = People’s Republic of China. Note: $ = US dollars, HK$ = Hong Kong dollars. Source: Asian Development Bank estimates.

A ppendix 9 33

Table A9.2: List of Contract Packages 34

Country of Original Contract

Mode of Origin of the Contract Amount Final

Contract Name of Contractor Procure- Contract Contractor/ Amount in Payment Appendix 9 No. ment Date Supplier (CNY) $ Equivalent ($ equivalent) Civil Works Earthworks, Pavement, Bridges and Culverts, and Ancillary Works 1 The Second Highway Engineering Bureau of MOC ICB 28/02/1999 PRC 118,200,810.00 14,279,483.00 14,279,483.00 2 Hebei Highway Engineering ICB 28/02/1999 PRC 123,843,939.00 14,960,483.00 14,960,483.00 Construction Group Limited Company 3 The Second Company of the First Highway Engineering ICB 28/02/1999 PRC 98,302,642.00 11,876,054.00 11,876,054.00 Corporation of MOC 4 The First Highway Engineering Corporation of MOC ICB 28/02/1999 PRC 96,498,949.00 11,657,969.00 11,657,969.00 5 12th Bureau Group Company Limited of China Railway ICB 28/02/1999 PRC 116,693,656.00 14,097,467.00 14,097,467.00 6 No.3 of Engineering Department of No.19 Engineering ICB 28/02/1999 PRC 76,643,422.00 9,258,996.00 9,258,996.00 Bureau of MOR 7 Tianjin No.2 Municipal and Highway Engineering ICB 28/02/1999 PRC 75,451,648.00 9,115,204.00 9,115,204.00 Company Limited 8 The Fourth Department of the Second Highway ICB 28/02/1999 PRC 78,641,080.00 9,500,668.00 9,500,668.00 Engineering Bureau of MOC 9 Beijing Municipal Engineering Corporation ICB 28/02/1999 PRC 103,360,993.00 12,486,931.00 12,486,931.00 Subtotal 887,637,139.00 107,233,255.00 107,233,255.00 Building Works 1 The 14th Engineering Bureau of MOR in Association with LCB 18/01/2000 PRC 18,204,011.00 2,199,273.00 2,199,273.00 with Gird Factory 2 Jinyuan Construction Engineering Corporation of LCB 18/01/2000 PRC 15,882,846.00 1,918,839.00 1,918,839.00 Hebei Province 3 Civil Works Corporation of 6th Bureau of China LCB 18/01/2000 PRC 12,008,335.00 1,450,736.00 1,450,736.00 Construction Corporation 4 The 3rd Corporation of Factory Building Bureau of MOR LCB 18/01/2000 PRC 11,305,997.00 1,365,920.00 1,365,920.00 5 Huaxin Construction Engineering Corporation of LCB 18/01/2000 PRC 12,587,721.00 1,520,710.00 1,520,710.00 Hebei Province Country of Original Contract Mode of Origin of the Contract Amount Final Contract Name of Contractor Procure- Contract Contractor/ Amount in Payment No. ment Date Supplier (CNY) $ Equivalent ($ equivalent) 6 Hebei Metallurgical Construction Corporation LCB 18/01/2000 PRC 9,141,040.00 1,104,327.00 1,104,327.00 7 The 6th Construction Corporation of Hebei Province LCB 18/01/2000 PRC 5,140,721.00 621,041.00 621,041.00 8 The 13th Construction Corporatin of China Chemical LCB 18/01/2000 PRC 9,619,224.00 1,162,061.00 1,162,061.00 Engineering Corporation Subtotal 93,889,895.00 11,342,907.00 11,342,907.00 Traffic Safety Facilities 1 Tangshan Lian Expressway Factory & Chaoyang LCB 20/03/2000 PRC 7,470,652.00 902,560.00 902,560.00 District Xinghua Welfare Steel Rolling Plant 2 Taiyuan City Construction Machinery LCB 20/03/2000 PRC 10,250,838.00 1,238,432.00 1,238,432.00 Plant & Engineering Section of Highway Engineering Bureau of HPCD 3 Optical Hoop & Steel Pipe Company Limited of LCB 20/03/2000 PRC 7,591,785.00 917,185.00 917,185.00 and Kaida Mechanic & Electrical Equipment Manufacturing Company Limited of Jingjiang City 4 Yangyuan Highway Engineering Company Limited LCB 20/03/2000 PRC 7,788,820.62 941,007.00 941,007.00 5 Hebei Traffic Industry Development Centre LCB 20/03/2000 PRC 2,305,436.00 278,535.00 278,535.00 6 Shanghai Baoguang Traffic Facility Plant LCB 20/03/2000 PRC 2,872,243.92 347,013.00 347,013.00 7 Hebei Yinda Traffic Industry Group Company Limited LCB 20/03/2000 PRC 2,821,880.88 340,932.00 340,932.00 8 Shijiazhuang Keli Traffic Facility Company Limited and LCB 20/03/2000 PRC 2,123,930.34 256,603.00 256,603.00 Shahe City Minzheng Safety Facility Equipment Plant Subtotal 43,225,586.76 29,239,966.00 5,222,267.00 Connector Roads 1 Road and Bridge Construction Corporation LCB 10/09/2001 PRC 25,838,894.40 3,236,452.00 3,236,452.00 Appendix 9 2 2nd Engineering Company of the 1st Highway Engineering LCB 10/09/2001 PRC 39,230,513.60 4,922,446.00 4,922,446.00 Bureau of the Road & Bridge Group Subtotal 65,069,408.00 8,158,898.00 8,158,898.00

Total 1,089,822,028.76 131,957,327.00 HPCD = Hebei Provincial Communications Department, ICB = international competitive bidding, LCB = Local Competitive Bidding, MOC = Ministry of Communications,

MOR = Ministry of Railways, PRC = People's Republic of China. 35 Source: Asian Development Bank estimates. 36 Appendix 10

SOCIOECONOMIC PROFILES OF THE PROJECT AREA

Table A10.1: Socioeconomic Development Indicators of Cangzhou Municipality

1998 2003 2004 Total Population (‘000) 6,536.2 6,774.0 6,794.0 Population Growth Rate (%) 4.2 5.4 5.6 GDP per Capita (CNY/person) 6,351.0 8,065.0 11,395.0 Farmer Income per Capita (CNY/person) 212.0 316.1 958.3 Export of Various Products (CNY million) 909.0 4,545.0 6,363.0 Length of Road Network (km)a 6,173.0 7,980.0 8,193.0 GDP = gross domestic product, km = kilometer. Note: 1998 = before project, 2001 = 1st year of operation. a The municipality did not have an expressway in 1998. Sources: Hebei Economic Annual (1999, 2004), and Survey of Cangzhou Statistics Bureau.

Table A10.2: Socioeconomic Development of the Monitored Counties of the Project

Population GDP Poverty (’000) (CNY/capita) County County Annual 1998 2003 1998 2003 Growth Cangxiana 646.0 653.9 7,511 9,823.0 6.9% Qingxiana 373.3 388.8 7,206 9,511.0 7.2% Dongguanga Yes 342.1 345.4 5,440 7,172.0 7.2% Haixing Yes 205.3 213.0 3,516 4,038.0 3.5% Yanshan Yes 395.7 405.1 3,7414,700.0 5.9% Nanpi Yes 342.9 346.9 4,3845,194.0 4.3% Wuqiaoa 273.7 278.2 5,520 7,300.0 7.2% Mengcunb Yes 174.2 186.3 4,768 5,045.0 1.4% Botou 543.8 553.4 4,7266,393.0 7.8% a Expressway alignment counties. b Minority (Hui) county. Source: Hebei/Cangzhou Economic Yearbooks (1998, 1999, 2002, 2003).

Table A10.3: Poverty Impact of the Monitored Poverty Villages of the Projecta

Population ('000) % Poor % Very Poor Village 1998 2003 1998 2003 1998 2003 Hezhuang 962.0 971.0 25.0 5.4 6.0 Xiaodijiu 547.0 555.0 12.6 1.0 Huangjiawa 1,007.0 1,013.0 10.0 1.0 1.0 Nanliushe 366.0 400.0 42.0 8.0 14.0 4.0 Xinglongdian 866.0 885.0 12.0 4.8 2.0 1.0 Xingma 1,221.0 1,232.0 13.0 8.2 4.0 1.0 Total/Average 4,969.0 5,056 19.1 4.7 4.3 1.2 a Net Income of the study = CNY640 for poor, and CNY500 for very poor. Source: Hebei Academy of Social Science. Appendix 11 37

COMMERCIALIZATION AND CORPORATIZATION OF THE HEBEI PROVINCIAL COMMUNICATIONS DEPARTMENT

A. Introduction

1. The Loan Agreement of the Project stated that the Hebei Provincial Communications Department (HPCD) “shall continue its commercialization program by improving accounting and management information systems, and introducing commercial business practices using the training financed under the loan.”

2. HPCD has three specialized groups responsible for funding, construction, operation and maintenance, and management of the expressways. The three groups have different policies, operational and financial management, roles, and responsibilities, as follows:

3. Expressway Administration Bureau (EAB). EAB funds expressway construction, mainly through loans from domestic commercial banks, and tends to sell the constructed expressways to repay the loans and to build new expressways.

4. Road Development Center (RDC). RDC funds expressway construction, mainly through cooperation with overseas investors.

5. International Financial Institutions Loan Project Office (IFILPO). The IFILPO funds expressway construction, mainly through loans from international financial institutions (e.g., the Asian Development Bank [ADB]), and to repay the loan from toll revenue.

6. IFILPO deals with expressway projects that have strategic, social, economic growth, and political interests, at national and provincial levels. For example, all three expressways that IFILPO developed are part of the National Trunk Highway System: (i) Beijing- Expressway (Hebei section), funded by World Bank; (ii) Beijing- Expressway (Hebei section), funded by ADB; and (iii) Beijing-Shanghai Expressway (Hebei section), funded by ADB.

7. Hebei provincial government has investigated various models at national and international levels, and believes that the current practice of HPCD is the most appropriate model at this stage. IFILPO (i) is a tax-free agency, which saves money and maximizes profit; (ii) manages all expressway in a competitive manner; and (iii) is a significant partner in the Government’s poverty reduction and community welfare programs.

8. However, IFILPO is studying the best practice cases, and working on a plan for approval by the Government.

B. The Project

9. Following the operation of the Project, IFILPO started a serious restructuring to manage the expressway operation in a manner similar to an independent enterprise to enhance efficiency. The restructuring has included (i) splitting the expressway management two areas, general expressway management and toll station management; (ii) recruiting staff based on merit; 90% of the toll station staff and 50% of the general expressway management staff are under contract, and have to compete for a position; (iii) using competitive bidding for expressway maintenance, and giving the contractor only 2–3 years to enhance efficiency; (iv) leasing the gas stations and mechanical repair garages and other services of the roadside stations; and (v) lowering operational cost, optimizing revenue, and adopting market-oriented services.

10. IFILPO’s expressway projects include poverty and social benefit components, and they 38 Appendix 11 are subject to interaction with the national policy regarding the highway network operation. Privatization of the projects or convent them to commercial-oriented faculties will create a conflict in meeting the loan covenant requirements of the foreign finance organizations, such as ADB, which considers poverty and social benefits a priority. Involvement of various levels of the government in decision-making for the projects is another concern. IFILPO is managing the project successfully.

11. However, the market economy in the People’s Republic of China is developing rapidly, and IFILPO has to meet the challenges. In 2004, IFILPO established the International Financing Center, which will incorporate all the roadside stations under its management. An investigation is underway to evaluate the effectiveness, and to propose further means, to improve its capacity and commercial operation and quicken the transition to corporatization.

Appendix 12 39

TRAFFIC FORECAST AND ACTUAL TRAFFIC VOLUME

1. The traffic forecasts have been revised to take into account the actual traffic on the project expressway and the alternative road, National Highway G104. The assumptions underlying the traffic forecasts made at appraisal have been reviewed and updated based on prevailing economic conditions at the Project Completion Review (PCR) Mission.

2. At appraisal, average annual daily traffic (AADT) for the Project was estimated at 8,558 medium truck equivalent (MTE)1 for 2001, the first year the expressway operations. AADT was projected to grow to 12,117 MTE in 2006, 16,401 MTE in 2011, 19,843 MTE in 2016, and 22,629 MTE in 2020. That would represent annual average growth rates of 7.2% in 2001–2006, 6.2% in 2007–2011, 3.9% in 2012–2016, and 3.3% in 2017–2020. Actual traffic was 5,539 vehicles in 2001, 8,214 vehicles in 2002, and 11,022 vehicles in 2003 (Table A11.2). However, the traffic grew at increasing rates of about 48.3%, 34.2%, and 38.6% in 2002, 2003, and 2004, respectively. In 2004, the actual traffic (15,279 vehicles) exceeded that anticipated at appraisal. Since the opening of the expressway, a considerable volume of traffic has been diverted from alternative routes, and more traffic will be diverted in the future.

3. Based on data supplied by the Hebei Provincial Communications Department and the PCR Mission’s assessment, average traffic growth rates for the project expressway were adjusted and estimated at 20%-6% for 2005–2010, 5% for 2011–2015, and 3% for 2016–2020. The growth rates are higher than the appraisal forecast for the period before 2010, because of the actual traffic development trend, the anticipated economic growth in the project area, and the diversion of traffic from alternative roads and other means of transportation. The revised traffic forecast shows that the traffic level will be 21,084 vehicles AADT (31,943 passenger car unit) in 2006, 29,830 vehicles (46,386 PCU) in 2011, 37,347 vehicles (57,514 PCU) in 2016, and 42,034 vehicles (63,681 PCU) in 2020. Table A12.1 shows the actual traffic on the project expressway, adjusted future traffic, and a comparison of such traffic with that at appraisal.

Table A12.1: Actual Traffic, Adjusted Forecast and Comparison with Appraisal (AADT)

Appraisal PCR Year Growth Growth MTE PCU Rate Vehicles PCU Rate 2001 8,558 17,116 5,539 8,114 2002 18,348 7.2% 8,214 12,045 48.3% 2003 19,669 7.2% 11,022 16,535 34.2% 2004 21,086 7.2% 15,279 23,768 38.6% 2006 12,117 24,234 7.2% 21,084 31,943 15.0% 2011 16,401 32,802 6.2% 29,830 46,386 5.0% 2016 19,843 39,686 3.9% 37,347 57,514 3.0% 2020 22,629 45,258 3.3% 42,034 63,681 3.0% AADT = annual average daily traffic, MTE = medium truck equivalent, PCR = Project Completion Report, PCU = passenger car unit. Note: 1 MTE = 2 PCU. 1 Vehicle = 1 PCU for small vehicle; 1.5 for medium vehicle; 2.0 for large vehicle; and 3.0 for trailer. Source: Asian Development Bank estimates.

1 MTE is no longer used in the new MOC Highway Standard, issued in March 2004 (1 MTE = 2 PCU). 40 Appendix 12

4. The PCR mission also studied the traffic on the existing parallel road (G104, a Class II highway), producing forecasts for that road. Table A12.2 shows the actual traffic on the road. A sharp decrease occurred in the first 2 years of expressway operations. The traffic on G104 declined by 28% in 2001 and 16% in 2002 in comparison to the in the previous year. About half of the traffic was diverted to the expressway. This has significantly alleviated traffic congestion. However, since 2003, the traffic has started to increase again due to the rapid economic development and traffic demand in the project area. The designed capacity for this existing road will be reached before 2010, and more traffic will be diverted to the project expressway.

Table A12.2: Actual Traffic on National Highway G104 (Vehicles, AADT)

Year S. Car L. Bus S. Truck M. Truck L. Truck Trailer Total Rate 2000 1,471 1,459 1,136 1,280 467 1,951 7,764 2001 1,223 1,008 772 838 446 1,291 5,578 -28% 2002 1,014 780 445 1,087 433 903 4,662 -16% 2003 1,296 819 694 1,592 577 959 5,935 27% 2004 1,578 857 943 2,097 720 1,014 7,209 21% AADT = annual average daily traffic, L. = large, M. = medium, S. = small. Source: Hebei Provincial Communications Department.

5. Table A12.3 shows the revised traffic forecast, in which the vehicle mix was adjusted according to the actual traffic mix on the project expressway and future vehicle type development trend.

Table A12.3: Revised Traffic Forecast for the Project Expressway (Vehicles, AADT) Type 1 Type 2 Type 3 Type 4 Type 5 Total Car S. Truck S. Bus M. Truck L. Bus L. Truck SL. Bus SL. Truck Trailer Vehicle Rate 2001 1,480 640 371 1,451 309 1,204 18 41 25 5,539 2002 2,181 943 552 2,161 460 1,793 27 64 33 8,214 48.3% 2003 2,695 1,165 743 2,922 663 2,600 48 142 42 11,022 34.2% 2004 3,440 1,486 991 3,905 969 3,815 88 292 292 15,279 38.6% 2005 5,500 1,650 917 4,034 1,100 4,217 183 367 367 18,334 20.0% 2006 6,325 1,898 1,054 4,639 1,265 4,849 211 422 422 21,084 15.0% 2007 7,654 1,855 1,160 4,870 1,392 5,102 232 464 464 23,193 10.0% 2008 8,516 1,753 1,252 5,010 1,503 5,260 250 751 751 25,048 8.0% 2009 9,381 1,608 1,340 5,360 1,608 5,360 268 804 1,072 26,802 7.0% 2010 10,227 1,705 1,420 5,114 1,420 5,398 568 1,136 1,420 28,410 6.0% 2011 10,739 1,790 1,492 5,369 1,492 5,668 597 1,193 1,492 29,830 5.0% 2012 11,902 1,879 1,253 5,011 1,566 5,951 940 1,253 1,566 31,322 5.0% 2013 13,155 1,644 1,316 5,262 1,644 5,920 987 1,316 1,644 32,888 5.0% 2014 13,813 1,727 1,381 5,180 1,727 5,870 1,036 1,727 2,072 34,532 5.0% 2015 16,316 1,450 1,088 4,714 1,813 5,439 1,450 1,813 2,176 36,259 5.0% 2016 16,806 1,494 1,120 4,855 1,867 5,602 1,494 1,867 2,241 37,347 3.0% 2017 18,079 1,154 1,154 4,616 1,923 5,770 1,539 1,923 2,308 38,467 3.0% 2018 19,414 1,189 1,189 4,358 1,981 5,547 1,585 1,981 2,377 39,621 3.0% 2019 20,405 1,224 1,224 4,081 2,040 5,713 1,632 2,040 2,449 40,810 3.0% 2020 21,017 1,261 1,261 4,203 2,102 5,885 1,681 2,102 2,522 42,034 3.0% L. = large, M. = medium, S. = small, SL. = super large. Source: Hebei Provincial Communications Department and Asian Development Bank estimates. Appendix 13 41

ECONOMIC REEVALUATION

A. General

1. The economic reevaluation of the Project was conducted for “with Project” and “without Project” scenarios using updated data. In the without Project case, the alternative route (G104) would be used until its designed capacities were exceeded, thereby resulting in more traffic congestion. In the with Project scenario, the new expressway would be used extensively for intercity traffic, because of lower vehicle operating costs (VOCs) and shorter travel times. The economic reevaluation was based on discussions with the Hebei Provincial Communications Department during the Project Completion Review Mission.

B. Costs

2. The project costs consist of capital, and operation and maintenance (O&M) expenses. The construction cost for county connector roads and village roads is excluded in the project capital cost. The actual capital costs were about 1.3% higher than anticipated at appraisal, mainly because of increases in expressway civil works cost and land acquisition and resettlement costs. O&M costs also were adjusted based on actual expenditures and the latest estimates for future years. Large-scale maintenance is scheduled for 2007 and 2014. Financial costs were converted into economic costs using a standard conversion factor of 0.99. All economic costs are estimated in constant 2005 prices.

C. Benefits

3. The main sources of economic benefits are (i) VOC savings from using the project expressway, (ii) VOC savings from less distance for the traffic on the expressway, (iii) VOC savings from reduced congestion on the parallel local road, (iv) passenger travel time cost savings for those using the expressway, and (v) passenger travel time cost savings for those using the existing roads. Only the diverted traffic on the project expressway (80% of total traffic) and normal traffic on the alternative road (90% of the total traffic) were considered in the benefit calculation.

4. The VOC savings were recalculated for different speeds of travel, which were based on the latest VOC data for Hebei Province. Average vehicle speeds were assumed to be 80–100 kilometers (km) per hour on the expressway for the with Project case, and 40–50 km per hour on the alternative roads for the without Project case. The VOC savings in CNY per vehicle-km were estimated to be 0.28 for small cars, 0.30 for medium bus, and 0.56 for large buses, 0.50 for super large buses, 0.45 for small trucks, 0.46 for medium trucks, 0.71 for large trucks, and 0.30 for super large trucks and trailer. Vehicle speeds on the alternative roads were assumed to be 50–60 km per hour for with Project scenario, and 40–50 km per hour for the without Project case. The project expressway is 4 km shorter than the alternative road (G104). The VOC savings for reduced travel distance also is considered in the benefit calculation.

5. The passengers’ travel time cost savings were recalculated by different types of passengers’ vehicles, and for the project expressway and the alternative routes. The passenger time costs were derived from the gross domestic product per capita of Hebei Province in 2001, and estimated to increase annually by 8% during 2001–2005, 6% during 2002–2010, 5% during 2011–2015, and 4% during 2016–2020. Other factors taken into account in the calculation included average vehicle load, percentage of work-related trips, and traveling speeds for with and without Project scenarios by different types of passenger vehicles. Incremental increases in rates of passengers’ time costs were applied.

6. The benefits of VOC savings on the project expressway accounted for 80% to 41% of the 42 Appendix 13 benefits for 2001–2020. The benefits of passenger time cost savings accounted for 20% to 59% of the total benefits over the same calculation period. The VOC savings on the alternative routes showed a declining trend over time—from 24% to 5%—due to the anticipated increases in congestion as the traffic reached the roads design capacity.

D. Economic Internal Rate of Return Reevaluation

7. The recalculated economic internal rate of return (EIRR) of the project expressway was 19.2%, compared with 19.1% at appraisal (Table A13.2). The EIRR reevaluation was conservative in comparison with the calculation at appraisal, as the benefits to the communities in the disadvantaged areas were not included, because the required data were unavailable. In addition, In addition, the actual and future traffic on the alternative G104 road is high, which means the projected savings in the cost of using the existing road likely will be higher than estimated due to the maintenance costs. Still, the recalculated EIRR is much higher than the social discount rate of 12%, and the Project is considered economically viable.

8. The EIRR was subjected to a sensitivity analysis to test the effects of (i) a 20% increase in O&M costs, (ii) 20% decrease in benefits, and (iii) a combination of these two scenarios. The full cost case (including the cost for county connector roads and village roads) also was tested (Table A13.1). While the Project will continue to be economically viable under all scenarios, it is much more sensitive to a change in benefits than in costs. The EIRR would be 16.1% in the case of a 20% decrease in benefits. However, the EIRR would decrease only slightly to 19.0% in case of a 20% increase in O&M. In the worst case, with a combination of a 20% cost increase and 20% benefit reduction, the EIRR would be 15.9%. If the costs for county connector roads and village roads were included, the EIRR would be 16.6%.

Table A13.1: Sensitivity Analysis

Change EIRR NPV Switching Value Scenario (%)a (%) (CNY million) (%)b Base Case (Case 1) — 19.2 1,733 — Operation and Maintenance Cost 20 19.0 1,686 750 (Case 2) Benefits (Case 3) (20) 16.1 922 -43 Full Cost (Case 4) — 16.6 1293 — Combination of 2 and 3 — 15.9 876 — Combination of 2, 3 and 4 — 13.7 437 — EIRR = economic internal rate of return, NPV = net present value. a Change (%) means percentage in NPV/percentage change in variable tested. b Switching value indicates the percentage increase in a cost item (or a decline in a benefit item) required for the NPV to become zero. Source: Asian Development Bank estimates.

Table A13.2: Economic Reevaluation Table (CNY million) Cost Benefit Net Present Accumulate VOC Saving Time Cost Saving Benefit Value of NPV Capital O&M Total Expressway G104 LessDistance Expressway G104 Total 1998 159 159 (159) (142) (142) 1999 611 611 (611) (487) (630) 2000 941 941 (941) (670) (1300) 2001 722 19 741 104 49 10 32 10 205 (536) (341) (1640) 2002 626 31 657 155 40 14 47 8 265 (393) (223) (1863) 2003 20 36 56 212 50 20 61 9 351 295 150 (1714) 2004 50 50 296 59 28 81 11 475 425 192 (1521) 2005 43 43 343 65 33 167 18 626 583 236 (1286) 2006 47 47 395 70 38 193 19 714 667 241 (1045) 2007 198 51 249 427 75 41 226 20 789 540 174 (871) 2008 43 43 453 79 45 249 22 848 805 231 (640) 2009 46 46 478 83 48 272 23 905 859 221 (419) 2010 49 49 498 86 52 398 32 1066 1017 233 (186) 2011 52 52 523 90 55 418 33 1118 1066 218 32 2012 55 55 547 92 58 465 34 1195 1141 208 240 2013 56 56 566 95 60 506 35 1262 1206 197 437 2014 198 57 255 586 98 64 531 36 1315 1060 154 592 2015 58 58 598 100 66 788 47 1598 1540 200 792 2016 60 60 616 102 68 811 48 1645 1585 184 976 2017 61 61 628 104 70 862 49 1714 1653 171 1147 2018 62 62 637 105 71 916 49 1779 1717 159 1306 2019 63 63 653 106 73 957 50 1840 1777 147 1453 2020 (1738) 65 (1673) 673 107 76 1200 61 2117 3790 280 1733

Net Present Value (NPV): 1733 Appendix 13 13 Appendix Internal Rate of Return (IRR): 19.2% Discount Rate: 12% NPV = net present value, O&M = operation and maintenance, VOC = vehicle operating cost. Source: Asian Development Bank estimates.

43

44 Appendix 14

FINANCIAL REEVALUATION

1. The financial internal rate of return (FIRR) of the project expressway has been recalculated based on actual capital and operation and maintenance (O&M) costs and revenues. The major assumptions used in calculating the FIRR are:

(i) The costs and revenues are in constant 2005 prices. The recalculation covers a 23-year period from 1998 to 2020 (3 years of construction and 20 years of operation). (ii) Capital costs include all incremental capital expenditures related to the construction, equipment, and resettlement activities associated with the project expressway. However, they exclude interest during construction and the cost for county connector roads and village roads. Large-scale expressway maintenance expenditures are treated as capital costs. (iii) O&M costs include all incremental costs incurred for the operation and maintenance of the expressway, but exclude depreciation provisions. The actual O&M costs were obtained from the Executing Agency. (iv) Residual values for the capital cost are based on the Ministry of Communications (MOC) standard for expressway asset, 40 years lifetime. (v) Business and corporate income tax are included, assuming this project expressway is corporatized and to be comparable with that at appraisal. The recalculation applies a 5.5% business tax and 33% corporate income tax. (vi) Revenues beyond 2004 are based on the revised traffic forecasts and the toll rates shown in Table A14.1, which are projected to remain constant in real terms. The current toll rate was adjusted and implemented on 1 February 2005 to reflect the national policy of controlling overloaded trucks. (vii) The actual traffic of 2001–2004 and revised future traffic is used in the revenue calculation. About 5% of the small passenger vehicles are exempt for paying expressway tolls. These vehicles include military vehicles, and on-duty firefighting, hospital, and ambulance vehicles. (viii) Non-toll revenues are assumed to be 2% of toll revenue in 2001–2004, and 5% afterward. Non-toll revenues are generated mainly from advertisements along the expressway alignment and service area revenue.

Table A14.1: Expressway Toll Levels (CNY/vehicle-km) Type 1 Type 2 Type 3 Type 4 Type 5 Car S. Truck S. Bus M. Truck L. Bus L. Truck SL. Bus SL. Truck Trailer At Appraisal 0.40 0.53 0.67 0.80 1.00 1.60 2001-2004 0.40 0.40 0.60 0.60 1.06 1.06 1.06 1.73 2.00 Current Rate 0.40 0.40 0.60 0.60 1.06 1.06 1.28 1.28 1.48 km = kilometer, L. = large, M. = medium, S. = small, SL. = super large. Source: Hebei Provincial Communications Department.

2. Projections based on currently available information and investment plans indicate that the project expressway will be financially sound. The results of the financial evaluation for the project expressway show an FIRR in real terms of 13.2% after corporate tax, compared with 11.3% at appraisal (Table A14.2), due mainly to higher traffic volume on the project Appendix 14 45 expressway. The recalculated FIRR is much higher than the real weighted average cost of capital (WACC) for the Project, which was estimated at 4.63%.1

3. Sensitivity analysis (Table A14.3) was carried out to test the effects of several scenarios on key parameters that determine costs and revenues. The scenarios tested were a 20% increase in operation and maintenance cost and a 20% decrease in operating revenues. A case that included the cost of county connector roads and village roads also was tested, as was a combination of these scenarios. Under the combined adverse scenarios, the FIRR would decrease to 8.5%. The Project is shown to be relatively sensitive to revenue level. In any case, the Project has shown strong financial viability.

Table A14.2: Revised Financial Internal Rate of Return (CNY million)

Cost Revenue Business Cash Flow Corporate Cash Flow Year Capital Maintain Operation Total Toll Non-toll Total Tax Before Tax Tax After Tax 1998 160.8 160.8 (160.8) (160.8) 1999 617.7 617.7 (617.7) (617.7) 2000 950.9 950.9 (950.9) (950.9) 2001 729.2 5.2 14.0 748.4 177.4 3.5 181.0 10.0 (577.4) 0.0 (577.4) 2002 632.4 9.0 22.5 663.9 263.4 5.3 268.7 14.8 (410.0) 0.0 (410.0) 2003 20.2 13.4 23.1 56.6 364.5 7.3 371.8 20.5 294.8 97.3 197.5 2004 28.0 23.0 51.0 529.5 10.6 540.1 29.7 459.4 151.6 307.8 2005 20.0 23.0 43.0 616.2 30.8 647.1 35.6 568.5 187.6 380.9 2006 24.0 23.2 47.2 708.7 35.4 744.1 40.9 656.0 216.5 439.5 2007 200.0 28.0 23.5 251.5 769.1 38.5 807.6 44.4 511.7 168.8 342.8 2008 20.0 23.7 43.7 843.9 42.2 886.1 48.7 793.6 261.9 531.7 2009 22.0 24.0 46.0 908.2 45.4 953.6 52.4 855.1 282.2 572.9 2010 25.0 24.2 49.2 977.9 48.9 1026.8 56.5 921.2 304.0 617.2 2011 28.0 24.5 52.5 1026.8 51.3 1078.2 59.3 966.4 318.9 647.5 2012 30.5 24.7 55.2 1081.8 54.1 1135.9 62.5 1018.3 336.0 682.2 2013 31.3 25.0 56.3 1124.7 56.2 1180.9 65.0 1059.7 349.7 710.0 2014 200.0 32.0 25.3 257.3 1199.5 60.0 1259.5 69.3 932.9 307.9 625.0 2015 33.5 25.5 59.0 1239.2 62.0 1301.2 71.6 1170.6 386.3 784.3 2016 34.5 25.8 60.3 1276.4 63.8 1340.2 73.7 1206.2 398.1 808.2 2017 35.5 26.0 61.5 1310.2 65.5 1375.7 75.7 1238.5 408.7 829.8 2018 36.5 26.3 62.8 1332.0 66.6 1398.7 76.9 1258.9 415.4 843.5 2019 37.5 26.5 64.0 1367.6 68.4 1436.0 79.0 1293.0 426.7 866.3 2020 (1755.6) 38.5 26.8 (1690.3) 1408.6 70.4 1479.1 81.3 3088.0 1019.0 2069.0 FIRR (before tax) 17.8% (after tax) 13.2% FIRR = financial internal rate of return. Source: Asian Development Bank estimates.

Table A14.3: Sensitivity Analysis Sensitivity Test FIRR (%) Base Case (Case 1) 13.2 Increase in Operation and Maintenance Costs by 20% (Case 2) 13.1 Decrease in Toll Revenues by 20% 10.5 Full cost, including the cost for county connector roads and village roads (Case 3) 11.8 Combination of 2 and 3 10.4 Combination of 2, 3, and 4 8.5 FIRR = financial internal rate of return. Source: Asian Development Bank estimates.

1 The weighted average cost of capital was calculated following the methodology in ADB’s Guidelines for the Financial Governance and Management of Investment Projects Financed by Asian Development Bank, with the assumed costs of capital of 6.29% for the ADB loan, 8% for equity capital from the Government, 3% domestic inflation rate, and 33% corporate tax. The recalculated WACC for this Project was 4.63%. 46 Appendix 15

FINANCIAL PROJECTION AND PERFORMANCE

1. The Jing-Hu Expressway Management Office (JHEMO) operates the project expressway. To revise projections and evaluate the financial performance, the Project Completion Review Mission, in consultation with Hebei Provincial Communications Department (Executing Agency) and JHEMO, prepared financial projections of the expressway’s performance and financial condition. These were based on actual performance, revised traffic forecasts, and JHEMO’s financing and expenditure plans. Three financial performance statements were prepared—income statement, cash flow, and balance sheet (Tables A15.2, A15.3, and A15.4). Based on these financial statements, four financial indicators were calculated, namely working ratio, debt service coverage ratio, debt-equity ratio, and return on equity.

2. Domestic inflation is projected to be 1% for 2001, 2% for 2002 and 2003, 3% for 2004, 2.7% for 2005, and 3% for 2006 and onward. The yuan (CNY) also has appreciated against the US dollar from CNY8.45 per dollar at appraisal to CNY8.27 per dollar in 2005, and is expected to remain at this level.

3. Actual and revised expressway traffic was used in the financial projection. Historic (2001–2004), current (2005–2009), and future toll rates were applied in the toll revenue calculation. The projection assumed that the toll rate would be adjusted every 5 years after 2010 with the annual rate rising 3% to reflect price inflation and national policy. Table A15.1 shows the toll schedule.

Table A15.1: Toll Schedule (CNY/vehicle-km) Type 1 Type 2 Type 3 Type 4 Type 5 Car S. Truck S. Bus M. Truck L. Bus L. Truck SL. Bus SL. Truck Trailer 2001–2004 0.40 0.40 0.60 0.60 1.06 1.06 1.06 1.73 2.00 Current Rate 0.40 0.40 0.60 0.60 1.06 1.06 1.28 1.28 1.48 2010–2014 0.46 0.46 0.69 0.69 1.22 1.22 1.47 1.47 1.70 2015–2019 0.53 0.53 0.79 0.79 1.40 1.40 1.69 1.69 1.96 2020–2022 0.61 0.61 0.91 0.91 1.61 1.61 1.95 1.95 2.25 L. = Large, M. = Medium, S. = Small, SL. = Super Large. Source: Asian Development Bank estimates.

4. Non-toll revenues were assumed to be 2% of toll revenue in 2001–2004, and 5% afterward. The non-toll revenues were generated mainly from advertisements along the expressway alignment and service area revenue.

5. Future operating and maintenance costs have been increased by 3% annually in nominal terms to reflect price escalation. JHEMO plans to conduct large-scale maintenance in 2007 and 2014. The large-scale maintenance is treated as capital costs. Depreciation expenses are calculated assuming 30 years of economic life for civil works, 10 years for equipment, and 7 years for expressway pavement.

6. Repayment of the Asian Development Bank (ADB) loan started in 2003 and will end by 2022, according to the loan agreement. For the financial projections, an interest rate of 6.29% was applied based on the 10-year swap cost for variable to fixed interest rates.

Appendix 15 47

7. Business and corporate income tax were included in the financial projections, assuming this project expressway is operated by a corporation and to be comparable with that at appraisal. The calculation applied a 5.5% business tax and 33% corporate income tax.

8. The revised financial projections indicate that the forecast revenues, based on existing and future toll levels, are sufficient to cover operating costs and debt repayments on the ADB loan. All financial indicators are satisfactory. The working ratio is expected to decline from 11% in 2001 to 6% in 2011 and to 5% in 2020, because of the expected steady increase in toll revenues and JHEMO’s ability to control costs. The strong operating performance will contribute to satisfactory debt-service capacity, as reflected by an estimated increase in the debt-service ratio from 2.28 in 2003 to 6.25 in 2010 and to 11.26 in 2020. The Project has a relatively low debt to equity level of 13:97 in 1999, 38:62 in 2003, and then will decline in line with continuing debt repayment and sound operating results. The return to equity ratio is also satisfactory with the average 8.1% over 20 years of operation.

48 Table A15.2: Projected Income Statements (CNY million) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Appendix 15 15 Appendix Project Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Operating Revenues Actual Forecast Toll Revenue 179 265 368 542 616 709 769 844 ,125 908 1,181 1 1,244 1,293 1,379 1,639 1,688 1,733 1,762 1,809 2,142 Other Revenue(2% , 5%) 4 5 7 11 31 35 38 42 45 56 59 62 65 69 82 84 87 88 90 107 Total Operating Revenues 182 271 376 553 647 744 808 886 954 1,181 1,240 1,306 1,358 1,448 1,721 1,772 1,819 1,850 1,899 2,249 Less: Business Tax (5.5%) 9 9 9 30 36 41 44 49 52 65 68 72 75 80 95 97 100 102 104 124 Net Operating Revenue 174 262 367 523 611 703 763 837 901 1,116 1,172 1,234 1,283 1,369 1,626 1,675 1,719 1,748 1,795 2,126 Operating Expenses Operation Cost 5 9 13 28 21 25 31 23 26 30 34 39 41 43 46 49 52 55 58 62 MaintenanceC ost 14 22 23 23 24 25 26 27 28 29 30 31 33 34 35 37 38 40 41 43 Depreciation 94 94 94 94 94 94 94 121 121 121 111 111 111 111 84 84 84 84 84 84 Total Operating Expenses 113 125 130 145 138 144 150 170 174 180 175 181 184 188 165 170 174 179 183 188 Net Operating Income 61 137 237 378 473 559 613 667 727 936,054 996 1,099 1 1,181 1,461 1,505 1,545 1,569 1,611 1,937 Total Interest Expenses - 87 85 82 80 77 74 71 67 64 60 56 52 48 43 38 32 27 21 Incomeb efore provision for corporate tax 61 137 150 293 391 480 536 593 656 869 932 994 1,043 1,129 1,413 1,463 1,508 1,537 1,585 1,917 Corporate Tax (33%) 20 45 49 97 129 158 177 196 216 287 308 328 344 373 466 483 497 507 523 633 Net income after corporative tax 41 92 100 197 262 321 359 397 440 582 625 666 699 756 947,010 9801,030 1 1,062 1,284 Workin g Ratio (a) 11%12%10%10%7%7%7%6%6%5%6%6%6%6%5%5%5%5%6%5% Source: Asian Development Bank estimates.

Table A15.3: Cash Flows (CNY million) Project Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Actual Forecast 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Net Cash Inflows from Operating Activities Net income after income tax 41 92 100 197 262 321 359 397 440 582 625 666 699 756 947 980 1 ,010 1,030 1,062 1,284 Depreciation 94 94 94 94 94 94 94 121 121 121 111 111 111 111 84 84 84 84 84 84 Net changes in working capital (3) (1) (2) (2) (2) (2) (1) (2) (1) ( 4) (1) (1) (1) (2) (5) (1) (1) (0) (1) (6) Cash Inflows from Financing ADB Loan 0.0 199.3 312.6 209.2 181.1 478.8 MOC 0.0 337.0 220.0 146.0 0.0 0.0 Hebei Government 0.0 1031.7 172.4 0.0 0.0 0.0 Cash Inflow Total 1,568 705 487 365 671 288 354 414 452 517 559 699 735 775 809 866 1,026 1,063 1,093 1,113 1,145 1,361

Cash Outflows Construction Cost 161 643 991 756 717 20 212.18 261 Debt Service (principle repayment) ADB Loan 36 39 41 44 46 49 52 56 59 63 67 71 76 80 85 91 97 103 Cash Outflow Total 161 643 991 756 717 57 39 41 44 259 49 52 56 59 63 67 332 76 80 85 91 97 103

Net Cash Flows ( 161) 925 ( 286) (269) (352) 615 249 313 370 194 467 507 643 675 712 742 533 950 982 1,008 1,022 1,048 1,259 Opening Balance 0 ( 161) 764 478 209 (142) 472 722 1,034 1,404 1,598 2,065 2,572 3,215 3,891 4,603 5,345 5,878 6,828 7,811 8,818 9,840 10,888 Closing Balance (161) 764 478 209 (142) 472 722 1,034 1,404 1,598 2,065 2,572 3,215 3,891 4,603 5,345 5,878 6,828 7,811 8,818 9,840 10,888 12,147 Debt Service Coverage Ratio (b) 2.28 3.04 3.55 4.01 4.30 4.81 5.12 6.25 6.49 6.79 7.02 7.46 8.75 8.98 9.18 9.30 9.51 11.26 ADB = Asian Development Bank, MOC = Ministry of Communications. Source: Asian Development Bank estimates.

Table A15.4: Balance Sheet (CNY million) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Project Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Actual Forecast Current Asset Cash ( 161) 764 478 209 (142) 472 722 ,034 1 1,404 1,598 2,065 2,572 3,215 3,891 4,603 5,345 5,878 6,828 7,811 8,818 9,840 10,888 12,147 Account Receivable 3 5 7 10 12 14 15 17 18 22 23 25 26 27 33 33 34 35 36 43 Fixed Asset Accumulated Fixed Asset 1,795 2,587 3,356 3,476 3,570 3,677 3,788 4,114 4,237 4,364 4,495 4,630 4,769 4,912 5,320 5,480 5,644 5,813 5,988 6,167 Less Accumulated De preciation 94 188 282 375 469 563 657 778 899 1,020 1,131 1,241 1,352 1,463 1,547 1,630 1,714 1,797 1,881 1,965 Net Fixed Asset,701 1 2,399 3,074 3,101 ,3101 3,114 3,131 3,336 3,338 3,344 3,364 3,389 3,417 3,449 3,774 3,850 3,930 4,016 4,107 4,203 Work in Pro gress 161 804 ,795 1 756 717 20 212 261 Total Asset 1,568 2,273 2,670 2,979 3,574 3,833 4,148 4,533 4,956 5,418 5,928 6,582 7,279 8,016 8,787 9,616 10,634 11,694 12,783 13,891 15,031 16,392

Current Liabilit y Account Payable 1 2 2 3 2 3 3 2 3 3 3 3 4 4 4 4 5 5 5 5 Lon g-term Loans ADB Loan 199 512 721 902,345 1 1,306 1,265 1,221 1,175 1,125 1,073 1,017 958 895 828 757 681 601 515 424 328 225 E quity Paid-in Capital ,369 1 1,761 1,907 1,943 1,995 2,095 2,189 2,296 2,407 2,520 2,644 2,771 2,902 3,037 3,175 3,319 3,466 3,626 3,790 3,959 4,134 4,313 Retained Earnin gs 41 132 233 429 691 1,013 1,372 1,769 2,209 2,791 3,416 4,081 4,780 5,536 6,483 7,463 8,473 9,503 10,565 11,849 Total Liabilites and Equity 1,568 2,273 2,670 2,979 3,574 3,833 4,148 4,533 4,956 5,418 5,928 6,582 7,279 8,016 8,787 9,616 10,634 11,694 12,783 13,891 15,031 16,392 Debt-Equity Ratio (c) 13 23 27 30 38 34 31 27 24 21 18 15 13 11 9 8 6 5 4 3 2 1 Returns on Equity (d) 2% 4% 5% 8% 9% 10% 10% 9% 9% 10% 10% 9% 9% 9% 10% 9% 8% 8% 7% 8% ADB = Asian Development Bank. Source: Asian Development Bank estimates.

Notes: (a) Total operation expenses, excluding depreciation, divided by total net operation revenue. (b) Operating income plus depreciation divided by interest and principal payments. (c) Total debt to equity ratio = debt/(debt+equity)*100. (d) Net income after tax divided by equity funds.

Appendix 15 15 Appendix 49

50 Appendix 16

SUMMARY OF RESETTLEMENT IMPLEMENTATION

A. Introduction

1. The expressway resettlement plan (RP) was updated in 1998 following completion of the detailed design of the Project. Land acquisition under the project expressway affected 6 counties, 20 townships, and 211 villages. About 1,180 hectares (ha) of land was acquired for the construction of the expressway, compared with the RP estimates of 1,254 ha. Fifty households were relocated, exceeding the RP’s estimate of 32 households. The Project Completion Review (PCR) Mission also assessed the Government resettlement plans for the connector roads, since the Report and Recommendation of the President did not include such plans. About 354 ha of land were acquired for the upgrading and construction of connector roads, compared with the Government RPs estimate of 477 ha. Relocated households totaled 683, almost double the Government RP’s estimate of 351 households. Land acquisition for the project expressway and connector roads affected around 35,000 people.

2. Following the detailed design of the expressway in 1998, the scope of resettlement impacts was changed, and the RP was updated before implementation. The general land acquisition and demolition contract signed between the Hebei Provincial Communications Department (HPCD) and Cangzhou municipal government in 1998 was based on this updated RP. The changes are shown in Table A16.1. A resettlement plan was not prepared at loan appraisal for the connecting roads. Subsequently, four RPs were prepared before implementation by the Government. The estimated resettlement impacts also are shown in Table A16.1 based on the four RPs were prepared before implementation and the findings of the PCR Mission.

Table A16.1: Appraisal and Updated Resettlement Plans

Resettlement Impacts and Cost Expressway Connector Project RP RP Roads Total (1997) (1998) (1998) Permanent Land Acquisition (mu) 18,818 18,740a 7,162 24,821 - of which Cultivated Land (mu) 18,801 18,239 6,868 24,207 Temporary Land Occupation (mu) 4,995 5,854 551 6,405 Persons Affected by Land Acquisition 7,520 7,520 3,762 11,282 Demolished Houses (m2) 3,808 27,124 34,338 61,462 Affected Households/Enterprises 32/0 32/39 351/0 383/39 Total Resettlement Cost (CNY million) 174.7 222.1 222.1 m2 = square meter, mu = measurement unit used in the PRC, RP = resettlement plan. a About 1,254 ha. Source: Asian Development Bank estimates.

3. The Project updated 121.5 kilometers (km) of roads, 11.5 km more than the appraisal estimate, which benefited 168 villages. In addition, 232 km of county connector roads were updated, compared with 230 km at appraisal, and 140 km expressway.

B. Compensation Standards

4. Table A16.2 shows the actual impacts based on data compiled during the PCR mission. For the expressway component, the main change was the increase in temporary land use for burrow areas. As many burrow areas were very deep, most of this land was compensated as permanent land acquisition. Much of the increase was due to the change in the scope of

Appendix 16 51 impacts, and inclusion of various taxes or fees for land acquisition. For the connector roads, demolition and resettlement increased sharply because the width of roads in sections passing through township centers were widened to 70 or 80 meters. The resettlement cost increased from CNY174.7 million during appraisal to CNY242.3 by completion.

Table A16.2: Actual Resettlement Impacts (Expressway and Connector Roads) Resettlement Impacts and Cost Expressway Connector Total Roads Planned Land Acquisition (mu) 17,694a 5,315 23,009 People Affected by Land Acquisition 26,635 8,365 35,000 Temporary Land Occupation (mu) 15,918 Demolished Houses (m2) 26,490 72,779 99,269 Households/Enterprises Relocated 50/39 683/0 733/39 Total Resettlement Cost (million CNY) 178.8 63.5 242.3 m2 = square meter, mu = measurement unit used in the PRC. a About 1,180 ha. Source: Asian Development Bank estimates.

5. Since the land acquisition and resettlement was implemented in 1998, the compensation was based on the 1986 Land Administration Law and Hebei provincial implementation regulations. Under the Land Administration Law, land compensation could be 4–6 times the average annual output value (AAOV) in the past 3 years, and resettlement subsidy could be 2–3 times of AAOV for each affected person. For the Hebei Road Development Project, the Hebei provincial government set the combined land compensation and resettlement subsidy at 6 times AAOV for all types of farmlands, which was the same as the approved RP. Based on different yields for individual counties, the actual compensation for cultivated land was set from CNY3,527 per mu in Cangxian to CNY5,793 per mu in Wuqiao. For fishpond and vegetable land, the adopted compensation rates were CNY1,000–2,000 higher than that of farmland. However, these were small tracts of land. For trees growing in the middle of farmland (e.g., date trees in the field), the compensation covered the land (same as cultivated land) and the individual fruit trees (at CNY1,500 per mu).

6. For temporary land occupation, the compensation was based on AAOV and the length of occupation. For the soil borrowing sites, compensation was based on amount of soil taken, which averaged 1 AAVO per 0.5 meter of soil. For the areas where more than 3 meters of soil were taken, up to 6 times AAOV was paid, which was the same as for permanent land acquisition.

7. For poverty roads, the same compensation standards and rehabilitation approach seems to have been applied at least for those counties that were affected by both the expressway project and the poverty road project. However, for other counties, lower local standards were applied.

C. Resettlement Implementation

8. The implementation of land acquisition and resettlement began in May 1998, and was completed basically in early 1999. However, some of the impacts, such as temporary land occupation and soil borrowing, continued until 2001. Cangzhou City Expressway Headquarters and relevant county expressway branch headquarters, which were set up in 1998 under the leadership of HPCD, managed the resettlement implementation. Each headquarters had about 5–6 full-time staff from both communication bureaus and land administration bureaus, assisted

52 Appendix 16 by resettlement working groups in the affected townships and villages. In addition, the expressway construction leading groups were also set up in Hebei Province and relevant municipalities and counties. These groups were headed by the vice governor and deputy mayors or governors in concerned cities and counties to provide leadership on the resettlement implementation.

9. Before implementation, the resettlement staff conducted detailed census surveys and walked through the entire alignment. Different levels of government organized extensive consultation and disclosure campaigns to introduce the purpose of the Project and compensation policies. These campaigns included distributing information booklets, putting posters in affected villages, and using television and other broadcast media. The consultations helped to confirm the scope of the impacts, and identified concerns of the affected people, which changed a number of resettlement implementation policies and practices. To increase transparency, all concerned parties in most counties participated in the measurement of resettlement impacts and were present during the signing of compensation agreements.

10. For those who lost their houses, the new housing structures generally are much better quality than the demolished ones. While the compensation rates appeared to be adequate for rebuilding new houses with the same structure and quality, most relocated households chose to upgrade the size and quality of their houses, requiring additional funds from their own savings or borrowing from their relatives. For large settlement sites, the Project paid additional costs to provide complete road access, water supply, and electricity for the relocated households. Most affected people seem to be pleased with their new housing and improved village infrastructure.

11. In terms of economic rehabilitation, almost all affected villages redistributed land village- wide. Because of the relatively large farmland holdings in most affected villages, most villages will still have relatively sufficient farmland per capita after land redistribution. Given that agricultural income in most affected counties accounts for less than 50% of the total income, a relatively small reduction of farmland will not change significantly their current income levels. Most villages used such funds to improve their farming conditions and complete a range of infrastructure facilities (e.g., 336 deep wells, 505 ordinary wells, 17,497 square meters of school buildings, 108 km of roads, 77 km of transmission lines, and 26 km irrigation canals). For villages that lost more than 10% of their land holdings, additional compensation was paid for resettlement subsidies to ensure adequate funds for economic rehabilitation.

12. For 39 relocated enterprises, the compensation was mainly based on lost structures and attachments with considerations for lost wages, profit, equipment relocation, and land replacement. As a result, 22 of them were rebuilt within the same villages and re-employed 974 persons, accounting for 79% of total affected employees. In addition, five enterprises changed their production and re-employed 40 workers. The remaining 12 enterprises decided to close their business, forcing 222 workers to find other jobs.

D. Monitoring and Evaluation

13. Following the provision in the RP, Hebei Academy of Social Science was selected to carry out independent resettlement monitoring and evaluation for the Project. Monitoring began in 1999 and was completed in 2002. The academy prepared various reports, which were submitted to the Asian Development Bank (ADB). ADB provided insufficient guidance during appraisal and implementation, which resulted in incomplete information and advice to the Executing Agency. An ADB resettlement specialist did not visit the Project during implementation due to the lack of availability of staff.