Completion Report

Project Number: 28065 Loan Number: 1439 February 2006

PRC: DAXIAN–WANXIAN RAILWAY PROJECT

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion 4 September 1995 31 August 2005 CNY1.00 = $0.1202 $0.1233 $1.00 = CNY8.3174 CNY8.1080

ABBREVIATIONS

ADB – Asian Development Bank CRBA – Chongqing Railway Branch Administration CSRA – Chongqing Sub-Railway Administration Dawan – Dazhou-Wanzhou Dacheng – Dazhou-Chengdu EIA – environmental impact assessment EIRR – economic internal rate of return ESRI – Environmental Science Research Institute in Wanzhou FIRR – financial internal rate of return GDP – gross domestic product ICB – international competitive bidding M&E – monitoring and evaluation MOR – Ministry of Railways PCR – project completion review PMO – project management office PRC – People’s Republic of China RP – resettlement plan SDRC – Sichuan Dawan Railway Company Limited SLRB – Sichuan Local Railway Bureau SWJU – Southwest Jiaotong University TA – technical assistance VOC – vehicle operating cost WACC – weighted average cost of capital YWR – Yichang–Wanzhou Railway

WEIGHTS AND MEASURES oC – degree centigrade h – hour mu – 1/15 of a hectare t-km – ton-kilometer

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

Vice President Operations Group 2 Director General H. S. Rao, East and Central Asia Department (ECRD) Director N. C. Rayner, ECRD Team Leader X. Yang, Financial Specialist, ECRD Team Members S. Ferguson, Sr. Resettlement Specialist, ECRD M. Parkash, Transport Specialist (Railways), ECRD W. Zhu, Resettlement Specialist, ECRD

CONTENTS

Page

BASIC DATA i

MAPS v

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 5 F. Implementation Arrangements 5 G. Conditions and Covenants 6 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 8 K. Performance of the Borrower and the Executing Agency 8 L. 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 11 D. Preliminary Assessment of Sustainability 12 E. Environmental, Sociocultural, and Other Impacts 12

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

APPENDIXES 1. Project Framework 16 2. Chronology of Major Events 19 3. Technical Specifications of the Project Facilities 21 4. Link Roads Constructed in the Project Area 23 5. Project Costs and Financing 24 6. Projected and Actual Disbursements 25 7. Implementation Schedule 26 8. Organization Structure of Dawan Railway Company Limited 27 9. Merger of Dawan Limited and Dacheng Limited 28 10. Compliance with Major Loan Covenants 32 11. Contract Packages 40 12. Traffic Forecast 43 13. Economic Evaluation 49 14. Financial Evaluation 51 15. Environmental Impact Analysis 56 16. Evaluation of Land Acquisition and Resettlement Activities 60 17. Socioeconomic Impacts 67

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 1439 3. Project Title Daxian–Wanxian Railway Project 4. Borrower People’s Republic of China 5. Executing Agency Dawan Railway Company Limited (Dawan Limited) 6. Amount of Loan $100 million 7. PCR Number PCR: PRC 920

B. Loan Data

1. Appraisal

– Date Started 4 Sep 1995 – Date Completed 20 Sep 1995

2. Loan Negotiations

– Date Started 23 Apr 1996 – Date Completed 25 Apr 1996

3. Date of Board Approval 4 Jun 1996

4. Date of Loan Agreement 20 Aug 1997

5. Date of Loan Effectiveness

– In Loan Agreement 19 Nov 1997 – Actual 6 Dec 1997 – Number of Extensions 1

6. Closing Date

– In Loan Agreement 31 Dec 2000 – Actual 18 Dec 2002 – Number of Extensions 2

7. Terms of Loan

– Interest Rate Pool-based variable lending – Maturity (number of years) 24 years – Grace Period (number of years) 4 years

8. Terms of Relending Same as the terms to the Borrower

ii

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

27 April 1998 18 December 2002 4 years, 8 months

Effective Date Original Closing Date Time Interval

6 December 1997 31 December 2000 3 years

b. Amount ($) Last Net Category or Original Revised Amount Amount Amount Undisbursed Subloan Allocation Allocation Canceled Available Disbursed Balance Civil Works 30,000,000 45,000,000 0 45,000,000 44,682,844 317,156 Equipment 9,500,000 3,000,000 (6,500,000) 3,000,000 2,974,203 25,797 Materials 30,250,000 24,000,000 (6,250,000) 24,000,000 23,979,115 20,885 Consulting Services 500,000 500,000 0 500,000 488,683 11,317 IDC 14,000,000 14,000,000 0 14,000,000 13,677,223 322,777 Unallocated 15,750,000 0 (750,000) 0 0 0 Total 100,000,000 86,500,000 (13,500,000) 86,500,000 85,802,068 697,932 IDC = interest during construction. Note: A total of $13.5 million was cancelled on 13 June 2001. A further amount of $697,932 was cancelled on 18 December 2002 when the loan was closed.

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

C. Project Data 1. Project Cost ($ million)

Cost Appraisal Estimate Actual Foreign Exchange Cost 107.00 102.90 Local Currency Cost 253.00 241.60 Total 360.00 344.50

2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower-Financed 229.80 247.20 ADB-Financed 100.00 72.10 Subtotal 329.80 319.30 IDC Costs Borrower-Financed 16.20 11.50 ADB-Financed 14.00 13.70 Subtotal 30.20 25.20 Total 360.00 344.50 ADB = Asian Development Bank, IDC = interest during construction. iii

3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual Civil Works 263.10 258.7 Signaling, Telecoms, Power, Computerization, and Equipment 25.26 15.8 Rolling Stock 7.60 0.0 Consulting Services for Computerization 0.64 0.7 Land Acquisition, Compensation, Resettlement 13.10 26.9 Administrative, Domestic Consulting Services, and Miscellaneous 20.10 17.2 Interest During Construction 30.20 25.2 Total 360.00 344.5

4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants December 1996 December 2001 Completion of Engineering Designs March 1995 May 2002 Civil Works Contract Date of Award July 1996 January 1998 Completion of Work May 2000 June 2002 Dates First Procurement May 1998 May 1998 Last Procurement November 2000 March 2000 Completion of Equipment Installation June 2001 December 2002 Start of Operations Beginning of Start-Up for Freight Operation November 2000 10 Dec 2002

5. Project Performance Report Ratings Ratings

Development Implementation Implementation Period Objectives Progress

From 26 Jun 1998 to 30 Apr 1999 S S From 30 Apr 1999 to 31 Jul 2000 S S From 31 Jul 2000 to 30 Apr 2001 HS S From 30 Apr 2001 to 31 Jul 2002 HS S From 31 Jul 2002 to 18 Dec 2002 HS S From 31 Jan 2003 to 31 Mar 2003 HS S From 30 Apr 2003 to 31 Jul 2003 HS S HS = highly satisfactory; S = satisfactory. iv

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Members

Fact-Finding Mission 25 Apr–5 May 1995 5 40 a, b, d, h, g

Appraisal Mission 4–20 Sep 1995 4 64 a, b, c, e

Inception Mission 28–31 Oct 1997 2 12 a, g

Review Mission – 1 14–23 Jun 1998 2 18 a, g

Review Mission – 2 3–10 May 1999 2 14 a, i

Review Mission – 3 2–10 Jul 2000 1 8 a

Review Mission – 4 31 May–9 Jun 2001 1 9 a

Review Mission – 5 19–27 Aug 2002 2 16 b, i

Review Mission – 6 8–15 Mar 2005 2 14 b, h

Project Completion Review 23–31 Aug 2005 1 8 b a - engineer, b - financial analyst, c - counsel, d - economist, e - procurement consultant or specialist, f - control officer, g - programs officer; h - environment specialist; i - assistant project analyst. Note: The project completion report was prepared by Xiaohong Yang, financial specialist and mission leader, assisted by a social development specialist (staff consultant). Scott Ferguson, senior resettlement specialist; Wenlong Zhu, project officer (resettlement); and poverty reduction specialist Natsuko Toba provided desk reviews of the project completion report.

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Z PEOPLE'S REPUBLIC OF CHINA N o t Zhengzhou-- Xi'an Railway Project S H A N D O N G Hefei--Xi'an Railway Project 0 50 100 200 Zhengzhou Luoyang Lianyungang Yellow Sea Sanyuan Kilometers Xinyi o Baoji H E N A N Shangqiu Jiahe o 34 00'N Xianyang Xuzhou 34 00'N Lintong Xuchang G A N S U Suixi Huaiyin Huxian Xi'an Baofeng Zhoukouzhen J I A N G S U Suzhou S H A A N X I Luohe Liuzhuang Jin--Jiu Railway Technical Bengbu Enhancement Project Fuyang Hai'an Nanyang Yangpingguan Huainan Nantong Shiyan Qidong Guangyuan Ankang Huangzhou Maoba Nanjing Hefei Wangkang Xinyang Xiangfan Shanghai Wuhu Suizhou Shucheng A N H U I SHANGHAI H U B E I Huayuan S I C H U A N Fengxian Dazhou Anlu Tongling Xuancheng Changxing Daxian--Wanxian Railway Project Jinmen Macheng Gaohe Anqing Quxian Chengdu Wanzhou Yichang Changjiangfu Hangzhou Suining Wuhan Hefei--Jiujiang Railway Project Yaqueling Jingzhou Konglong Ningbo Huangshi Shexian Lichuan Yichang--Wanzhou Railway Project Qimen Z H E J I A N G Jiajiang Changshou Jiujiang Shouchang Neijiang Fuling Shimen Jingdezhen Jinhua Chongqing Dayong Shangrao Yibin Nanchang Hengfeng Luzhou Yiyang o Xiangtang o 28 00'N Jiang'an 28 00'N H U N A N Yongping Wenzhou Changsha Yingtan Ningxiang Jihou Fenyi Zhuzhou Loudi Zunyi Gongxi YUNNAN Pingxiang Fu'an South J I A N G X I China G U I Z H O U Huaihua F U J I A N Shaoyang Sea Shunchang Nanping Weiming Hengyang Wenzhou Chaling Guiyang Lupanshui Fuzhou Yongzhou Anshun Duyun Provincial Capital Railway Under Construction City/Town Asian Development Bank--Financed Project Guizhou-- Shuibai Railway Project Existing Railway--Double Track Japan Bank for International Cooperation Financed Project Existing Railway--Single Track World Bank-- Financed Project 0

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o Existing Railway Kilometers o 32 00'N 32 00'N Railway under Construction Daxian--Wanxian Railway River County Boundary Prefecture Boundary DAZHOU H U B E I Provincial Boundary PREFECTURE Boundaries are not necessarily authoritative. S I C H U A N

r e Wuxi v i R Xuanhan e uh ho Z DAZHOU Dazhou East Station Kaixian WANZHOU PREFECTURE Chengdu--Dazhou Dazhou Station (CHENGDA) Railway M Kaijiang Wushan in g to Chengdu Sanhui Station y Fengjie Maliuzhen Station u eR

. Dushi Station ng Yunyang ver (Chang Jiang) Quxian qi Kaijiang Station gtze Ri ng Yan ho C to Daxian-Wanxian Railway Project Tiancheng WANZHOU Lihe Station Fenshui to Yichang Station Wuqiao Liangping Station Wanzhou Station Longbao

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I. PROJECT DESCRIPTION

1. Since the adoption of economic reform measures in 1978, the national economy of the People’s Republic of China (PRC) has been expanding rapidly. This growth has been led by the coastal provinces, resulting in increased economic disparities between the coastal and interior regions. The existence of regional disparities in economic development is a key issue facing the PRC. In order to narrow the gap between the coastal and interior regions, the government formulated a Western development strategy and investment plan. Infrastructure—especially the transport sector—plays a critical role in facilitating the development of the interior regions and reducing poverty by providing linkages with the more prosperous coastal regions. While the transport sector has made much progress, capacity and structural constraints could seriously hamper national poverty efforts and exacerbate regional economic imbalances. As a result, the Government—specifically, the Ministry of Railways (MOR)—has begun implementing far- reaching institutional reforms and launched a massive investment program to expand and upgrade the rail network. The Dazhou–Wanzhou1 (Dawan) Railway Project is a direct outgrowth of the efforts to reduce transport bottlenecks and extend service to lesser developed and relatively poor areas that were not previously served by the national rail network.

2. The Project is located in Sichuan Province, a poor interior and landlocked province. Sichuan’s CNY2,516 per capita gross domestic product was about two-thirds of the national average of CNY3,680, ranking 25th among all PRC provinces in 1994.2 The Project provides an integrated rail–waterway route from its western terminus in Dazhou, which sits on the Xiangfan– Chongqing (“Xiangyu”) national rail line, to the eastern terminus in Wanzhou, a Yangtze River port located approximately 320 kilometers (km) downstream of Chongqing city. The primary objective of the Project was to support the economic development of northeast Sichuan by providing an economic means of transporting natural resources, industrial products, and people. The Project was also designed to extend transport sector reforms initiated under previous Asian Development Bank (ADB)-financed projects. Those reforms were concentrated in the following areas: (i) developing management capabilities and human resources, (ii) tariff reform based on full cost recovery principles, (iii) commercializing operations to promote financial self-sufficiency of enterprises, and (iv) integrated infrastructure development for poverty reduction. The Project was classified as an economic growth project. The project framework is presented in Appendix 1.3 A chronology of major events is in Appendix 2.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

3. ADB’s operational strategy for the railway subsector at the time of appraisal was focused on efficiency improvements, improving capacity, and interconnecting the railway system by building provincial rail lines. These rail lines were expected to stimulate the economic development of poor inland areas by improving access to regional markets. The strategy recognized that the railway subsector would also require (i) technological modernization for greater productivity, (ii) institutional development and strengthening, (iii) improved operational and managerial practices to strengthen commercial orientation of railway enterprises, and (iv) market-based tariff reforms that promote the financial viability of rail transport. The country strategy prioritized infrastructure projects to improve access to less developed, poor, interior rural areas by creating better interregional transport links and enabling intermodal transportation.

1 At appraisal, Dazhou was spelled Daxian and Wanzhou was spelled Wanxian. 2 Sichuan ranked 22nd in terms of per capita gross domestic product in 2004. 3 The project framework was constructed by Project Completion Review (PCR) Mission. 2

The country strategy and the Project complemented the Government strategy of reducing poverty.

4. ADB provided a project preparatory technical assistance (TA) to review the Executing Agency’s feasibility study for the Project and to strengthen project preparation work. 4 The preparatory TA was completed satisfactorily.

B. Project Outputs

1. Dawan Railway

5. At appraisal, 156 km of standard gauge single-track railway was expected to be constructed from Dazhou to Wanzhou. This was expected to include construction of 40 tunnels totaling 36.4 km in length and 12.6 km of major bridges, plus stations, service buildings, and associated facilities. The actual completed length of railway is 161.8 km, of which 157.1 km is the main line and 4.7 km is connecting line. This included construction of 56 tunnels totaling about 38.9 km in length and 115 bridges totaling about 17.1 km in length, plus stations, service buildings, and related facilities.5 The effective length of arrival and departure tracks is 550 meters (m), with provisions in place to extend the length to 850 m, as envisaged at appraisal. At appraisal, initial construction of 10 railway stations was planned, with provisions in place for an additional six stations. However, because of lower-than-expected traffic demand, only seven stations have been constructed, and there are provision in place to build 10 additional stations if future traffic growth warrants it. This reflects cost-conscious investment decision making. The project station locations and types are provided in Table A3.2, Appendix 3.

6. The design standard for the Project allows for an axle load of 23 tons, a minimum curve radius of 400 m, and a ruling gradient of 12‰. The bridges have been built to withstand 100- year floods. The design is sufficient to handle 2,300-ton trains. Initially, diesel locomotives will be used, but the design allows for future electrification of the track. Passenger and freight train operating speeds are to be increased to 85 km per hour and 70 km per hour by 31 May 2006— higher than the appraisal expectations of 66 km per hour for passenger and 46 km per hour for freight. The Project's technical specifications are provided in Table A3.1, Appendix 3.

7. The Project provided for the procurement of signaling equipment, telecommunications equipment, and operational items. The signaling system included a semi-automatic block system with electrical interlocking and traffic light signals for eight stations. The telecommunications line was based on laying 174.9 km of composite fiber optic cable, 17.57 km of local area cable, and 10.04 km of low frequency cable. In addition, wireless dispatching equipment, wireless telecommunications equipment, and ticket selling equipment were included. Other operational and maintenance equipment included ultrasonic axial temperature testing devices and emergency items, tunnel ventilation and lighting, and computerization equipment and supplies. All procured equipment is functioning normally and being used for the intended purposes.

4 ADB. 1994. Technical Assistance to the People's Republic of China for the Daxian–Wanxian Railway Project. Manila. 5 The actual tunnels and bridges constitute 36% of the total length of rail line, about 4.5% more than estimated at appraisal. 3

2. Improved Management Systems

8. An important component of the ADB loan package was computerizing the management information and financial accounting systems to enable efficient commercial operation of the project railway. Training was an integral part of this component. This key component has provided transfer of technology on freight traffic management, passenger ticketing and reservations, financial and accounting data, and office information systems. Each of the project stations has a local area network linked to the computer center.6 The stations are staffed by personnel trained in the operation of the computer system. After relocation, the Computer Center will serve both the project railway and Dazhou–Chengdu (Dacheng) railway. 7 The passenger ticketing system, which connects to the MOR nationwide network's Chengdu ticketing center, has been working satisfactorily since June 2004.

3. Facilities Linked to the Railway

9. Interconnected Railway. MOR began construction of the Yichang–Wanzhou Railway (YWR) (Map 1) in 2004.8 It is expected to open to traffic in 2010. Upon completion of the YWR, the project railway will become one of the critical parts of the Shanghai–Wuhan–Chengdu (Hu– Han–Rong) east–west corridor, which is the backbone of the PRC railway network 9 and is expected to carry high-value traffic such as containers.10

10. Port Link. Rail access to the Wanzhou port is key to attracting intermodal traffic under the Project. A 3.62 km rail spur (including a 1.77 km tunnel) linking the project railway to the new port at Hongxigou in Wanzhou city was constructed between April 2003 and March 2005 at a cost of CNY65 million. This cost was financed by Wanzhou Port Limited Company (not funded under the Project). The rail spur became fully operational in July 2005. A port–rail coordination team was set up to facilitate collaboration between the port and rail companies. Currently, the port has an annual throughput of 5 million tons. There are plans to further increase its container capacity by 2008, and ultimately to increase capacity to 15 million tons by 2010. Another important connection is the 0.5 km rail spur from Liaoping railway station to Liaoping Airport, which primarily carries fuel. The Liaoping Airport Authority financed and built this rail spur.

11. Industrial Sidings. The main stations on the project route have made the provision of industrial sidings for the benefit of the potential customers. Taipei Brewery Company is currently building a rail spur linking to Fenshui station (Map 2). Other companies are currently using a combination of trucks and rail to deliver goods, and are assessing the viability of building similar rail spurs. Coal mining companies in the area are also exploring the possibility of having dedicated industrial sidings. Some other sidings are likely to come up based on changing market conditions.

12. Approach and Link Roads. Dawan Railway Company Limited informed the Project Completion Review (PCR) Mission that the local approach and link roads specified at appraisal

6 Dawan Railway Company Limited was registered and is headquartered in Wanzhou. With the merger with Dacheng Limited (para. 19), the computer center is being relocated to Chengdu. 7 The newly established company is tentatively called Dacheng Railway Limited (Dacheng Limited). For details, see Appendix 9. 8 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Yichang–Wanzhou Railway Project. Manila. 9 MOR. 2004. Railway Development Plan 2020. PRC. There are eight horizontals (east–west) and eight verticals (south–north). 10 MOR plans to build 18 large-container freight stations, including those in Chengdu and Chongqing, 40 medium- container and 200 small-container terminals throughout the PRC by 2007. 4 were improved and constructed.11 In Kaijiang, Tongchuan, and Liangping, local approach roads totaling 288 km in length were improved by the three local governments (not funded under the Project). Table A4, Appendix 4 provides the details. These local governments are upgrading some lower-standard link roads in association with their cities' master development plans. In addition, temporary construction roads totaling 150 km in length have been converted to permanent village roads. These village roads are a by-product of the Project and help facilitate distribution of the project benefits to farmers, who were previously isolated because of a lack of villages roads.

C. Project Costs

13. The actual cost of the Project was $344.5 million equivalent, 4.3% lower than the appraisal estimate of $360 million.12 The actual cost of civil works amounted to $258.7 million, a 2% decrease from the appraisal estimate. The actual civil work unit price was less than appraisal estimates mainly because international competitive bidding (ICB) procedures were used for the procurement of civil works. The Executing Agency did not procure locomotives, did not construct the Wanzhou locomotive maintenance depot, and deferred the construction of three stations, which resulted in a reduction of expenditures on equipment from $25.26 million to $15.8 million—reflecting prudent financial discipline.13 Nanchong locomotive maintenance depot, originally serving only Dacheng railway project, is now serving both Dacheng and Dawan lines (para. 20). The actual cost of international consulting services and training was $0.7 million, compared with the appraisal estimate of $0.64 million. Finally, the actual cost for land acquisition and resettlement increased from $13.1 million to $26.9 million because more buildings were demolished than planned, and because payments for crops and housing were higher than expected. A detailed comparison of appraisal and actual costs is in Table A5.1, Appendix 5.

14. The financing plan envisaged at appraisal included a $100 million ADB loan, local borrowing of $139.5 million, and equity of $120.5 million. MOR was to contribute 48% and Sichuan Province 52% of equity. Following the separation of Chongqing Municipality from Sichuan Province in June 1997, MOR's share of equity increased to 70%, while Chongqing Municipality contributed 16.65% and Sichuan Province 13.35%. Actual financing included an $85.8 million ADB loan, local borrowing from China Development Bank for $41.8 million, and equity contributions of $216.9 million from MOR ($151.8 million), $36.1 million from Chongqing Municipality, and $29.0 million from Sichuan Province. As a result, the debt–equity ratio of the Project changed from 67:33 at appraisal, to 37:63 at project completion. A comparison of appraisal and actual financing is in Table A5.2, Appendix 5.

D. Disbursements

15. The loan agreement for $100 million was signed on 20 August 1997 and became effective on 6 December 1997, with the loan closing date set for 31 December 2000. ADB approved extension of the loan closing date to 18 December 2002 to reflect initial and subsequent delays. As discussed in section F of the implementation schedule, the Project’s

11 A total of 51 access roads with a combined length of 1,605 km were to be built in the project area at appraisal. Refer to Table A17.2, page 4 of the report and recommendation of the president to the Board. For the complementary roads, the PCR Mission did not get details on the link roads constructed in Wanzhou because no detailed baseline data was available. 12 The lower capital cost—about $2.2 million per km—reflects the cost efficiency achieved through ICB. The estimated total cost savings is at least 5% of the total contract amount. 13 There was no need to purchase locomotives after the merger of Dacheng Limited and Dawan Railway Company Limited. However, locomotives were subsequently acquired in 2004. 5 construction did not begin as scheduled because Chongqing Municipality was separated from Sichuan Province. This raised questions about how to administer the project railway, which traverses these two administrative areas. This delay resulted in disbursements occurring roughly 1 year later than estimated. ADB cancelled $13.5 million on 13 January 2001 and $697,932 was cancelled on 18 December 2002 when the loan was closed. A comparison of the appraisal and actual disbursement schedule of the ADB loan is in Appendix 6.

E. Project Schedule

16. The main civil works, which were originally scheduled to start in June 1996, did not begin until February 1998.14 Difficult engineering conditions—such as karst caves, flowing sands, and other geologic phenomena—delayed the construction of the Tianjiapo and Hulutan No. 2 tunnels and caused a 6-month delay. The deferral of construction of the proposed Pingqiao station, and the opening of the Dazhou East station to conform to a request by the city government, caused a 3-month delay. 15 Track laying and major works (excluding telecommunications, signaling, water supply buildings, and station buildings) were completed on 23 June 2001, with all project construction finished by June 2002, 2 years behind the schedule estimated at appraisal.

17. The Executing Agency organized a commission to inspect the completed Dawan Railway. The inspection commission comprised members of three independent construction supervision companies, the Executing Agency, provinces and municipalities along the route of the railway, line government agencies, 25 contractors, and the Second Survey and Design Institute. The Project passed initial examination and acceptance on 23 October 2002. The first trial freight operations (one train pair) began on 10 December 2002. Following site inspections and evaluations that took place between April and September 2003, the State Environmental Protection Administration approved the environmental completion report on 17 October 2003. On 11 January 2004, the State Acceptance Committee confirmed that the Project had passed the final examination for construction. Safety evaluations for passenger trains were completed successfully in May 2004, and the first passenger service began on 10 November 2004. The delay in launching passenger service was mainly due to outstanding issues related to the ownership structure of the operating entity (section F of the implementation schedule). A comparison of the appraisal and actual implementation schedule is in Appendix 7.

F. Implementation Arrangements

18. Sichuan Dawan Railway Company Limited (SDRC), established on 18 March 1995, was expected to serve as the Executing Agency for the Project at appraisal. It was set up as a financially autonomous company owned jointly by Sichuan Province (52% share) and MOR (48% share). After Chongqing Municipality’s separation from Sichuan Province in June 1997, SDRC was renamed Dawan Railway Company Limited (Dawan Limited) in September 1997. Dawan Limited's equity share was revised, with 70% going to MOR, 16.65% to Chongqing Municipality, and 13.35% to Sichuan Province. A project management office, headed by a deputy general manager and staffed with qualified railway professionals, was formed and liaised effectively with ADB. An organizational chart of Dawan Limited is in Appendix 8.

14 Construction was started on critical works (two bridges and two tunnels) under ICB contracts in February 1998, but construction along the whole line did not begin until August 1998. 15 Changing a station location requires MOR approval. Relocating the station to Dazhou East from Pingqiao was approved because the government‘s city development plan saw it as more convenient for passengers and freight forwarders. 6

19. The structure of the operating entity for the project railway has been under discussion for a number of years. Chongqing Sub Railway Administration (CSRA) was temporarily entrusted to operate the Dawan rail line in June 2002, 6 months before the launch of freight operations; however, no agreement on long-term management was formalized. CSRA had an existing and experienced administrative structure that qualified it for this role, but it had limited incentive to direct traffic to this route because it also administered the competing, adjoining, Xiangfan– Chongqing railway line, and there was a perennial shortage of wagons. Thus, in April 2003, the Dawan Board of Directors assumed responsibility for railway operations. Based on experience gained in other local railways, MOR proposed a merger between Dawan Limited and Dazhou– Chengdu Railway Company Limited (Dacheng Limited) in July 2003. As owners of Dawan Limited, representatives of Sichuan Province, Chongqing Municipal Governments, and MOR agreed to the proposed merger in December 2003. The first meeting of the Board of Directors for the proposed merged company was held on 25 August 2004, and a merger preparation group was established. In September 2004, CSRA formally ceded control of operations. Since then, Dacheng Limited has been managing operations based on the restructuring proposed by the three shareholders. On 10 November 2004, the Project’s commercial operations commenced after satisfactory trial operation and final acceptance of the facilities by the State Acceptance Committee. Dacheng Limited has proved to be an efficient operator, employing only 6.6 people per km (with 3,340 employees for 506 km),16 compared with the national average of about 25 people per km (1.53 million employees for 60,446 km) for all railways in 2003.

20. Dacheng Limited's management of the Dawan and Dacheng lines has led to reduced operating costs. The number of locomotives needed for regular and shunting operations on the Dawan line has been less than estimated at appraisal. Freight wagons for the Dawan line have been obtained from MOR based on agreed-upon user charges. Tracks have been well maintained and are in good condition. The locomotive maintenance depot located in Nanchong city carries out all minor repairs and routine maintenance of passenger coaches and locomotives. Major repairs of locomotives and coaches are being performed on a contractual basis. The revenue from freight and passenger traffic originating from or passing through the project railway is being shared between Dawan line and MOR lines in accordance with (i) the ton-kilometers (t-km) moved on the respective railways, and (ii) the applicable Dawan and MOR tariffs. MOR already has a point-to-point accounting system and procedures in place for calculating and distributing revenues among the respective lines. Dawan Limited has acquired this capability under the computerization component of the Project.

21. Dacheng Limited has assumed all existing obligations of Dawan Limited (e.g., debt service of the outstanding ADB and China Development Bank loans and related loan obligations). All project assets have yet to be formally handed over to Dacheng Limited. The PCR Mission discussed the asset transfer issue with Dawan Limited, and Dawan Limited assured the Mission that it will hand its assets over to Dacheng Limited after it has finished registering those assets, and upon receipt of audited accounts—expected by 30 June 2006. It is expected that the remaining legal and financial aspects of the merger will be completed by 31 December 2006. A more detailed discussion of the Dawan–Dacheng reorganization is in Appendix 9.

G. Conditions and Covenants

22. The status of compliance with the major loan covenants is in Appendix 10. The Borrower and the Executing Agency generally complied with all loan covenants. No covenants were

16 About 1,129 are long-term employees. 7 modified, suspended, or waived during implementation. The rail link from the Wanzhou railway station to the new port in Hongxigou envisaged at appraisal was constructed and became operational. Dawan submitted to ADB quarterly reports on project implementation. Monitoring and evaluation reports covering land acquisition, resettlement, and environmental protection were received on a regular basis by ADB. All audited accounts and audited financial statements were submitted. The quality of audits was very good. Audit opinions covered issues relating to internal controls and delays in providing counterpart funds from local governments. Audit findings facilitated resolution of those issues in a timely fashion. There were no qualified audit opinions.

H. Related Technical Assistance

23. SDRC was the first autonomous local railway company in Sichuan Province. Six other local railway lines were managed by Sichuan Local Railway Bureau (SLRB). Strengthening the institutional capacity of SDRC and SLRB was viewed as crucial for the local railway reform process. ADB provided an advisory TA on Institutional Strengthening of Local Railways in Sichuan.17 Despite outstanding issues related to completing SLRB's restructuring, the advisory TA is considered valuable because it provided a mechanism to facilitate a more market-oriented and customer-responsive structure within local railways. Such a structure improves railway performance and, more broadly, facilitates the adoption of railway reforms. Despite the satisfactory performance of the consultants and the changes made in the local railways, the TA was rated partly successful because of the delay in corporatization of SLRB.18

24. The Executing Agency advised the PCR Mission that the ADB TA is useful in its restructuring process. SLRB has shown a consistent willingness and made continuous efforts to consider and implement recommendations suggested under TA 2578-PRC (footnote 17). In March 2004, the proposed corporatization of SLRB was approved. Asset evaluation for SLRB and its subsidiaries is underway and is expected to be completed by 30 June 2006. The new group company suggested by the advisory TA is expected to be set up by 31 December 2006. The restructuring of SLRB caused social impacts related to laying off employees of a state- owned enterprise, a difficult and slow process that caused the restructuring of SLRB to take longer than expected.

I. Consultant Recruitment and Procurement

25. Dawan Limited engaged domestic consultants for survey and design, construction supervision, and quality control. International consultants (12 person-months) were engaged to implement the computerization component in accordance with ADB’s Guidelines on the Use of Consultants. The international consultants were tasked with designing the computer system, assisting in preparing procurement documents, implementing and testing the system, and training staff in the system’s uses and applications.

26. A list of the 39 ADB-financed contract packages is in Appendix 11. ADB approved advance procurement on 22 June 1995. ICB, LCB, or international shopping procedures were followed, as envisaged at appraisal. All procurement financed by the ADB was carried out in accordance with ADB’s Guidelines for Procurement. No major problems were encountered in

17 Attached to ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Daxian–Wanxian Railway Project. Manila. 18 ADB. 2002. Technical Assistance Completion Report for the Institutional Strengthening of Local Railways in Sichuan Project. Manila. 8 the packaging of contracts, preparation of bidding documents, or evaluation of bids. No disputes or contractual difficulties arose in any of the contracts.

27. The result of the international bidding was very satisfactory. Dawan was the first rail project in the PRC to use ICB to procure civil works. A total of 21 companies submitted 34 bids for the four major civil works packages.19 ICB turned out to be an effective method for procuring civil works in the railway subsector. MOR has since adopted ICB nationwide.

J. Performance of Consultants, Contractors, and Suppliers

28. As mentioned above, Dawan was the first rail project in the PRC to procure civil works through ICB, and while this led to considerable savings in overall construction costs, savings might have been more substantial if oversight of the tunnel design had been better. Specifically, professional advice from independent consultants and utilization of better technology to assess geological conditions and conduct geodetic survey would have improved detection of troublesome landslide and karst areas. The civil works contractors satisfactorily completed their works, taking additional measures for mitigation of unexpected geologic conditions.

29. The international consultants engaged under the Project performed quite well. The three domestic consulting firms responsible for construction supervision and quality control also performed well. All contractors reportedly performed their respective contracts smoothly and without experiencing significant problems. Their performance can be considered very satisfactory. The Executing Agency’s project completion report reported that equipment procurement proceeded smoothly and that all contract obligations and expectations were met.

K. Performance of the Borrower and the Executing Agency

30. The Borrower and Dawan Limited fulfilled their obligations during implementation and coordinated effectively with ADB, central and local governments, international and domestic consultants, and contractors and suppliers. Dawan Limited performed quite well in completing the construction satisfactorily, albeit behind the appraisal schedule because of delays caused by unforeseen circumstances and geological difficulties. Dawan Limited prioritized the available resources to complete all the critical works during construction of the railway, and displayed strong initiative to limit non-essential investment in the Project by deferring the construction of three stations that will be needed only when traffic levels increase. Dawan Limited also rationalized the location of stations that have facilitated potential traffic increase. The project management office staff performed diligently and were dedicated to the successful implementation of the Project. Overall, Dawan Limited's performance was satisfactory.

L. Performance of the Asian Development Bank

31. The performance of ADB was satisfactory. There were no delays in processing the Project. ADB has acknowledged that the project delays were not caused by the Borrower or MOR, and has been supportive of their efforts to find and implement effective solutions after the separation of Chongqing Municipality from Sichuan Province. There were a total of six review missions, all of which visited the resettlement sites, relocation housing, and resettlement enterprises, and met with affected persons to ensure satisfactory implementation of ADB's safeguard policy. ADB review missions resolved many of the problems and difficulties that occurred during project implementation, and Dawan Limited grew to respect the working spirit

19 It includes two major tunnels in Fenshui and Leiyinpu, and two large bridges. 9 embodied by ADB staff. ADB encouraged Dawan Limited and local governments to implement associated components that would maximize project benefits.

III. EVALUATION OF PERFORMANCE

A. Relevance

32. The rationale for the Project, based on three complementary justifications, was sound. First, the Project successfully extended national infrastructure to a relatively poor area that lacked access to markets and social services—and by so doing raised income levels in the project-referenced area. Second, the Project's use of ICB for the procurement of civil works was a major breakthrough in the PRC, and led directly to more transparent competition, higher efficiency, and reduced capital costs. Third, although not yet fully implemented, the Project and the TA for institutional strengthening have provided the rail company with a mechanism for becoming more market-oriented and responsive to customers. The Yichang–Wanzhou rail line will provide an additional east–west corridor and a bridge between the north–south lines passing along the Luoyang–Nanyang–Changsha route in the east, and the Chongqing–Xi’an route in the west. This will lead to increased traffic, improve the financial situation of the project railway, and reduce pressure on transport bottlenecks, as shown in Map 1. Given these justifications, the Project is considered highly relevant to the development of rail infrastructure in the PRC.

B. Efficacy in Achievement of Purpose

33. Traffic Trends. Commercial freight operation launched on 10 December 2002 and passenger operation began on 10 November 2004. Actual traffic and traffic forecasts are in Appendix 12. Since the merger of Dawan Limited and Dacheng Limited, the latter has made satisfactory arrangements for operation and management of the project facilities. Freight traffic has increased rapidly, from 62.2 million t-km in 2003, to 83.2 million t-km in 2004, to 70 million t- km in the first half of 2005 alone. Despite these significant year-on-year increases, actual freight traffic was substantially lower than the appraisal forecast of 384.3 million t-km in the projected first year of freight operation (2000). The shortfall in freight traffic volume was mainly a result of (i) the prominence of Chongqing Municipality as a preferred destination of products and people, as compared to Wanzhou; (ii) unsatisfactory interim arrangements for operation and management of the project facilities during the trial operation period (December 2002 to September 2004); (iii) delay in construction and operation of the Dawan line, in particular, the new port in Hongxigou and its rail link at Wanzhou port20 (at appraisal, it was envisaged that intermodal traffic would form a major portion of the traffic on the project railway); (iv) delay in implementation of projects for developing some mining and industries in the project area;21 and (v) strong competition from a rapidly expanding road network in the project-influenced area—the expressway connecting Wuhan to Chengdu has partially opened to traffic in both its west section (between Chengdu and Dazu) and its east section (between Wuhan and Yichang); in addition, the expressway linking Wanzhou to Chongqing has opened to traffic.

20 Hongxigou port rail link was constructed by Wanzhou Port Authority from 2003 to 2005, after the completion of the project line. The rail link was opened to traffic in July 2005. 21 Because of the changed marketing conditions and various other reasons (e.g., closure of small coal mines due to potential environmental damages), a number of projected industrial and natural resource projects have been postponed or changed. 10

34. The growth in passenger traffic volume was more rapid than the growth in freight. Passenger traffic volume reached 130 million passenger-km in the first half of 2005.22 The number of passengers traveling per day is about 6,000. Currently, three pairs of passenger trains are operating at about 60% of capacity. The assumed increase in transit traffic is in line with MOR’s traffic planning schedule, which provides for an additional two transit trains by 2010 and another five transit trains by 2020. The PCR Mission noted that the project railway is meeting the local population's increasing demand for mobility in a poor region, and for easier access to the more prosperous East and coastal region. Locals have dubbed the project railway “a life line” and “a golden passage.”

35. Commercializing Operations. Commercializing project operations has indeed helped improve financial sustainability as well as service. In addition to undertaking various cost-saving initiatives, Dacheng Limited has strengthened its marketing efforts in order to attain financial self-sufficiency and compete with other modes of transport. Specific measures taken for increasing freight traffic include (i) identifying and capturing local freight traffic opportunities, (ii) adjusting tariffs for river–rail transporting traffic in bulk to make them more competitive compared with those on alternative routes (para. 37), (iii) attracting major industry customers to the Dawan line, (iv) corporatizing the loading and unloading operations, (v) gradually improving stockyard and freight handling facilities at stations, and (vi) cooperating with Hongxigou port to facilitate rail–inland water intermodal transport. Dacheng Limited has also introduced a variety of new initiatives to increase passenger traffic volume, including (i) increasing train speed on the Dazhou–Chengdu (Dacheng) line from 80 km per hour (km/h) to 110 km/h, and on the project line from 65 km/h to 85 km/h;23 (ii) adjusting train schedules and rationalizing the number of coaches commensurate with passenger demands; and (iii) providing new short distance, air- conditioned, passenger train service. As a result of these continuous efforts, both freight and passenger traffic is increasing rapidly.

36. Tariff Reform. At appraisal, base tariff rates were estimated at CNY0.35 per t-km for freight and CNY0.10 per passenger-km for passenger. Following the ADB policy dialogue with the national Government, a “new line, new tariff” policy was applied to both the Dacheng and Dawan lines. On 31 December 2002, the National Development and Reform Committee approved new freight tariffs of CNY0.22 per t-km and passenger fares of CNY0.25 per passenger-km, effective 15 January 2003. This was 2.7 times more than the prevailing national freight tariff (CNY0.0806) and 2.5 times more than the prevailing passenger fare (CNY0.103). Although higher tariffs were approved by the National Development and Reform Committee, market realities led Dawan Limited to lower tariffs on the Dawan line. The average revenue per passenger-km was CNY0.18 in the first half of 2005, while freight revenue per t-km was CNY0.17. However, tariffs on both lines can be raised once demand picks up.

37. Intermodal Competition. To recover the high construction cost of the rail spur at Hongxigou port, the Wanzhou Port Authority has imposed a relatively high tariff for intermodal freight users, which may discourage potential intermodal users. Direct price competition between trucks, barges, and rail modes is fierce in the project area. The PCR Mission noted that the tariffs for transit traffic along one intermodal route—a combination of the Dawan line and a barge service—are slightly less attractive than alternative mode combinations. In order to become more competitive, Dacheng Limited, working closely with the Wanzhou Port Authority, is conducting a detailed market survey for the traffic trend and is utilizing flexible pricing policies,

22 At appraisal, it was estimated that passenger traffic would be 108 million passenger-km, and the number of projected passenger traveling per day is about 3,068 in the first year of passenger operation (2000). 23 The capital investment to increase the speed of trains on the Dawan line is estimated at CNY7.8 million. 11 such as preferential tariffs for bulk customers. Dacheng Limited is also trying to encourage more traffic of high-value goods and containers.

38. Safety. To ensure safety, Dacheng Limited and the counties along the route have signed a cooperative agreement that aims to promote safety initiatives, build safety awareness, and reduce damage to the rail line and embankments. The county villages have signed agreements with all households along the alignment. All households within 1.5 km of the rail line have received safety information material. Dacheng Limited posted safety posters in the railway stations and at various points along the rail line. Dacheng Limited and the counties are actively communicating with village leaders about safety and regularly inspect the areas along the alignment. Dacheng Limited spends CNY500,000 per year on public safety.

39. Institutional Development. Dacheng Limited has been functioning as a commercial enterprise since operations began in 1997. The new management and board appointments made following the merger with Dawan Limited have furthered this effort. Dacheng Limited is a diversified local railway transportation enterprise that effectively performs commercial operations (Appendix 9). Dacheng Limited has taken over all operations of the Dawan railway. The number of staff on the Dawan line is about 600, compared to 1,500 estimated at appraisal. 24 Considerable emphasis has been given to training and human resource development. The Project is rated efficacious.

C. Efficiency in Achievement of Outputs and Purpose

40. Economic Reevaluation. The PCR Mission reestimated the economic internal rate of return (EIRR) by using the “with-project” and “without-project” assumptions (Appendix 13). The recalculated EIRR was lower than assessed at appraisal (14.2% versus 20%) because of lower- than-forecast traffic volumes and the delay in implementation. Benefits were taken to include "diverted traffic" (traffic diverted to the railway from other modes) and newly generated traffic (including local traffic and future transit traffic once YWR opens to traffic). The Dawan line has benefited passengers and shippers, as well as producers and consumers of transported goods. As a result, commerce and industry serving the public have expanded rapidly in the project area. The benefits of the railway have been passed on to the public. The rapid growth of intermodal transportation development in the project area has accelerated the process.

41. Financial Reevaluation. The financial analysis is given in Appendix 14. Two cases were examined. Case 1 (the current case) examines the financial performance of Dacheng Limited operating the Dacheng line and the project railway. Case 2 (appraisal case) assumes that Dawan Limited is the operator of the project railway, as envisaged at appraisal. The recalculated financial internal rate of return (FIRR) in case 1 is 5.4%. 25 There is “offline distribution” to the Dacheng line resulting from the Dawan Limited–Dacheng Limited merger, as traffic moves beyond the Dawan line.26 This compares favorably with the recalculated case 2 appraisal scenario FIRR of 3.5%.27 The merger of the two railways has resulted in improved overall efficiency through economies of scale. The recalculated weighted average cost of capital, in 2005 constant prices, is 3.4%. Importantly, traffic trends are improving, and the opening of YWR will undoubtedly facilitate increased passenger and freight traffic. The PCR

24 This is the result of the merger of Dawan Limited and Dacheng Limited (see para. 19). 25 This is lower than the appraisal FIRR of 7.8% because of the delay in project implementation, lower tariffs, and lower initial freight traffic volume than anticipated at appraisal. 26 Refer to paragraph 9 of Appendix 14. 27 These are preliminary estimates based on data available up to August 2004 (PCR Mission), which is the first year of passenger operation. 12

Mission noted that Dacheng Limited could provide sufficient future rail maintenance services, locomotives and coaches, and funds to keep the rail line in good condition. This reevaluation shows that the Project is financially viable. The increase in operational revenue in the first half of 2005 partly confirms this position.

42. The Borrower and the Executing Agency were effective in ensuring efficient project implementation as well as adequate availability of counterpart funding for the Project. Based on the analysis, the Project is rated efficient.

D. Preliminary Assessment of Sustainability

43. The merger of the two railway companies improved the potential sustainability of the Project. By allowing passengers to travel beyond the existing line, the combined line attracts more passengers. When the east link is built and the project line integrates with the national network, it will capture through traffic, further enhancing sustainability. The Project will substantially shorten the rail travel distance between the southwestern and southeastern provinces (Map 1).

44. Based on the PCR Mission observations, routine preventive maintenance appears adequate on the rail line. Maintenance works are an essential part of protecting the investment in the railway’s construction and operation. Dacheng Limited is maintaining a safe environment for rail users and is taking measures to maximize the life of the rail track, bridges, and tunnels. Proper funds are being allocated to slope protection, and the 2005 summer flood in Dazhou did not cause any major problems in regular train operations.

45. Financial sustainability is ensured by setting tariff levels to achieve full cost recovery over the long term. The projected financial statements (Appendix 14) indicate that cash flow is likely to be vulnerable for the first few years of operation. However, Dacheng Limited has assumed all the debt service payments of Dawan Limited.28 It is forecast that Dacheng Limited is likely to comply with the covenant for the operating ratio and debt service ratio from 2010 onward. The sustainability of the Project is rated as likely.

E. Environmental, Sociocultural, and Other Impacts

46. The Wanzhou Municipal Environmental Protection Research Institute was selected as the external monitoring agency to supervise implementation of environmental protection measures during the Project. Based on PRC environmental protection laws and the Project’s environmental impact assessment, the environmental specialists monitored the impacts resulting from construction of the project railway, including impacts on the ecosystem, air, water, and noise pollution, and submitted the environmental monitoring reports to ADB, as required. As stipulated in the loan covenants, a series of mitigation measures were undertaken, such as construction of retaining walls, fresh air intakes in the tunnels, rock and water treatment, planting trees, and wastewater treatment. The wastewater treatment plant at Wanzhou railway station was constructed and is functioning. In October 2003, the State Environment Protection Administration, MOR, and provincial environmental protection bureaus from Chongqing and Sichuan conducted the final examination of environmental measures and monitoring systems, including soil and water conservation. The State Environment Protection Administration's final

28 Dacheng has assumed all the debt of Dawan Limited, and has prepaid the domestic China Development Bank loan due. Three shareholders of Dawan Limited have evaluated the new company’s performance and provided their guarantees to MOF for the ADB loan. 13 acceptance report (January 2004) indicated that the Project met the requirement for environmental protection. The environmental impact analysis is in Appendix 15.

47. Land acquisition and resettlement was implemented based on the project resettlement plan, 29 the 1986 Land Administration Law, 30 and rules and regulations of the municipal governments. According to the project completion report prepared by Dawan Limited in 2004, most resettlement activities commenced in 1997 and finished by the end of 1999. A total of 627 hectares31 of land was permanently acquired under the Project, 7% less than the 672 hectares envisaged in the resettlement plan. This land loss had partial impacts on 131 villages, and was equivalent to the loss of farming livelihood for 8,245 persons. Various houses with a combined floor space of 350,642 square meters were demolished by the Project. This was more than double than envisaged in the resettlement plan. A total of 2,045 households (9,325 persons) were relocated in rebuilt houses. The main reasons for the increased housing demolitions were: (i) the delayed implementation enabled the construction of new housing along the right-of-way, and (ii) landslide risks forced the removal of more houses than expected.

48. Dawan Limited and various levels of government consulted with affected persons and relocated enterprises. Through this consultation, various problems related to land acquisition, house demolition, and relocation were solved by the local government and villagers. Regular monitoring and evaluation reports on land acquisition and resettlement were prepared by Southwest Jiaotong University (SWJU), the external monitoring agency, which also submitted a resettlement completion report in September 2003. At that time, the resettlement compensation standards adopted for this Project were very low, which led to financial difficulties that needed to be resolved by the local government. Since then, the PRC has twice increased resettlement compensation standards. Results of the survey conducted by SWJU indicated that the income of affected households had been restored either (i) because the impacts were small; or (ii) where land losses were severe, the local government paid extra compensation for converting farmers to non-agricultural workers in nearby cities. In terms of new housing, although compensation standards were low, the local government and affected villages arranged collective housing, which was provided as exchange housing based on equal floor space, rather than cash compensation. Consequently, the cost of resettlement increased 150% to CNY222.8 million, 30% of which was funded by the local government. Resettlement was 7.8% of the total project cost. Appendix 16 provides a detailed analysis of land acquisition and resettlement implementation, along with results of the socioeconomic survey of affected households.

49. The project beneficiaries include 12.8 million people living in the project-influenced area,32 with additional benefits going to producers and passengers transiting the project area. The Project and associated developments have had substantial socioeconomic impacts on people living in the project area. The project railway helped accelerate local economic and social development (Appendix 17). By providing an essential infrastructure component, the Project allowed people living in the project area easier access to education and jobs outside the project area. The Project increased incomes and helped improved the quality of life for rural households. In addition, the Project facilitated the development of natural resources, industry, tourism, and related secondary and tertiary sectors—all of which strengthened the revenue

29 Resettlement and Compensation Plan for the Project was prepared in 1996. 30 The new Land Administration Law became effective on 1 January 1999. 31 One hectare is equal to 15 mu. 32 The project (Dawan) railway crosses five administrative districts benefiting 4.8 million people—Tongshuan district, Dazhou county, and Kaijiang county within Sichuan Province; and Liangping county and Wanzhou district within Chongqing Municipality. Dacheng railway covers five cities—Chengdu, Dazhou, Deyang, Nanchong, and Suining— benefiting 8 million people. 14 base of local governments, allowing for provision of improved social services. In summary, the Project contributed to the goals of increasing incomes and reducing poverty. Overall, the poverty reduction and local economic development impacts of the Project are rated significant.

50. Local governments and passengers along the rail line strongly suggested to the PCR Mission that MOR assign a new pair of passenger trains to connect the project railway directly to major cities (such as Xi’an or Xiamen) in other provinces. This would further enhance the social impact of the Project. Currently, most passengers who ride the project railway need to go through either Dazhou or Chengdu in order to connect to other major cities via the national rail network.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

51. The Project was satisfactorily implemented, and Dacheng Limited is operating the railway effectively. The purpose of the Project—to promote economic growth by relieving transport infrastructure constraints—was attained. The Project has provided economic transport links with Chengdu, Xi’an, and Shanghai that have opened wider markets for local labor and products. The project railway is connected to the national railway network through the Dazhou– Chengdu (Dacheng) line, the Baoji–Chengdu (Baocheng) line, and the Xiangfan–Chongqing (Xiangyu) line. The successfully completed project railway and the upcoming Yichang–Wanzhou Railway will play key roles in connecting the western and eastern parts of the country, thereby facilitating the creation of employment and income-generating activities for the poor. The construction of the project railway and its operation have resulted in rapid economic growth that has significantly benefited the people living in the project area. Although unforeseen delays have affected the short-term financial and economic performance of the Project, the revised traffic forecasts and recalculated EIRR and FIRR indicate a satisfactory performance over the long-term. The new company is a commercially oriented entity capable of attaining financial self- sufficiency operating the railway in a competitive market environment. The Project is overall rated as successful.

B. Lessons Learned

52. Traffic Forecast. One general lesson from the Project is that actual freight traffic in the initial years of operation tends to be lower than appraisal estimates. Projections of increased output levels resulting from potential new development activities (e.g., new industries and expansion of existing ones) catalyzed by transport investments should be carefully evaluated. The impact of intermodal transport development and competition on the Project need to be carefully reviewed and assessed. Traffic forecasting for ongoing ADB projects is improving and needs to be continuously studied and refined in order to ensure more realistic assessments.

53. Mergers of Small Local Railways Provides Economies of Scale. As part of the policy dialogue with MOR, ADB has actively pursued the merger of small contiguous local railways, which can provide economies of scale and help reduce cost. The decision to use Dacheng Limited for the management, administration, and operations of the Dawan line is a step in that direction and has reduced costs for both railway companies by providing economies of scale. The companies have shared staff, facilities, and equipment, thus avoiding unnecessary duplication and additional costs. The experience of Dacheng Limited is expected to encourage MOR to merge similar local railways by evaluating their opportunities to share common marketing functions, human resources and training, equipment, and facilities. 15

54. Geotechnical Studies and Technical Consultants. An important finding of the project review missions, reiterated by the Executing Agency in its project completion report, was that a detailed geotechnical assessment in the design stage would have identified landslides and other difficult geological conditions as significant risks. Although landslides and adverse geological conditions on the Dawan line did not substantially increase costs, they did cause construction delays by necessitating mitigation measures, such as bridging the karst caves and embankments to stabilize flowing sands. This lesson has evidently been learned—a subsequent ADB-financed YWR conducted a geotechnical assessment during the initial stages of its formulation. This practice should be extended to future projects with similar technical conditions.

55. Resettlement. Although the proposed compensation rates in the resettlement plan exceeded local standards, these rates were not endorsed by the local governments. It is essential to establish compensation rates that reflect replacement values, and to obtain the endorsement of the Executing Agency and local governments 33 . In terms of resettlement monitoring and evaluation, although investigations and reports were done regularly by the external monitor, SWJU, these need to be improved to offer a more conclusive evaluation of whether the income and living standards of all affected persons have been adequately restored.

C. Recommendations

56. Dacheng Limited should continue its efforts to ensure railway safety, sound capital investment planning, best practices in financial management, and efficient operations and maintenance. It should plan to increase the number and capacity of its railway stations and other facilities after YWR is fully operational in 2010. It is strongly recommended that MOR assign a new pair of passenger trains to the Dawan line in order to better serve the local population and increase the social impact of the Project. Dacheng Limited should promote income generation by utilizing a flexible pricing policy, establishing other value-added activities—such as a container business—and developing a fair, fast, clearance system among MOR, local railways, and port authorities.

57. The performance monitoring and evaluation report should be submitted to ADB 5 years after the opening of the railway to allow ADB to evaluate the improvement in social and economic conditions in the project area. For the resettlement report, monitoring and evaluation should be based on a more scientific survey to enable a clearer understanding of whether the resettlement objectives have been achieved.

58. The project performance audit report should be prepared in 2010 or later. By then the YWR will be opened to traffic and the Project will have been fully operational for more than 5 years. This will allow for more accurate assessments of the rail line's traffic, maintenance, institutional capacity, attainment of benefits, impact on resettlement, corporatization of SLRB, and poverty reduction effects.

33 The Executing Agency and/or local government endorsement of the RP and compensation standards is now a standard ADB requirement in the People’s Republic of China.

16 Appendix 1

PROJECT FRAMEWORK

Performance Targets Design Summary Data Source Assumptions Appraisal Actual Impact Promote economic • Increased per • Average rural income per capita in • Sichuan • Continued growth in a less capita income. the project area increased from Statistical economic developed and CNY1,900 in 2000 to CNY2,221 in Yearbooks growth in the poor area in the 2003, an annual increase of 5.3%. 1995– PRC and eastern part of 2003. Sichuan Sichuan Province • Average GDP per capita in the Province. by relieving project area increased from transport CNY3,514 in 2000 to CNY4,870 in infrastructure 2003, an annual increase of 12%. constraints.

Outcome A cost-effective • Increased freight • Freight volume in 2004 was 34% • Dawan • Continued mode of transport and passenger higher than in 2003. Limited. economic for mining and volumes. growth. other industrial • Passenger traffic volume reached outputs and for • Reduced delivery 130 million passenger-km in the • Project • Stable passengers in the times for first half of 2005. Completion passenger and project area. agricultural Review freight rates. industrial inputs • Travel time between Wanzhou to Mission and production, Dazhou has been reduced from estimates. • Adequate and reduced 4–5 hours to 2–3 hours. operation and passenger travel management time. • Dawan Limited was merged with capacity. Dacheng Limited in 2003. Since • Commercialization 1997, Dacheng Limited has • Resolution the of operations. adopted three new initiatives to of cash-flow increase operating income—new and • Attainment of concept, new structure and new reorganization operational system. difficulties performance experienced in targets. • Operational and financial first few years performance indicators will be of operation. achieved by 2010.

Outputs 1. 157 km • Construction from • 161.75 km railway line completed • Dawan • Sufficient standard-gauge December 1997 to in December 2002, of which 157.1 Limited. qualified and single-track December 2000. km is the main line and 4.7 km is skilled staff to railway line from connecting line. satisfactorily Dazhou to implement the Wanzhou. Project.

• Sufficient counterpart funds.

2. Procurement of • Equipment to be • All equipment procured is • Dawan • Sufficient operational procured. functioning well and is being used Limited. qualified and equipment and for intended purposes. skilled staff to signaling and satisfactorily telecommunication implement the facilities for Project. operation and maintenance. Appendix 1 17

Performance Targets Design Summary Data Source Assumptions Appraisal Actual • Sufficient counterpart funds.

3. Computer- • Systems design • Design completed; systems and • Dawan • Sufficient ization of and installation by installation completed and Limited. qualified and management December 2000. operational by December 2005 in skilled staff to information and the Dacheng Limited satisfactorily financial headquarters. implement the accounting Project with systems. the assistance of consulting services.

• Dawan Limited accords great importance to the component.

4. Construction of • Sichuan Province • Access to the Dawan railway • Dawan • Commitment approach roads to will construct facilities have been greatly Limited. of central and connect the about 1,600 km of improved through the provision of local railway stations local link roads to 288 km of local link road, and 150 • Local government. with nearby connect the km of temporary construction governmen counties and project facilities to roads. ts. • Close districts, and poor inland areas. monitoring by construction of ADB. local link roads to poor interior areas.

5. Construction of • A new port, at • A 3.35 km rail link (with a 1.77 km • Dawan • Commitment the Wanzhou port Hongxigou in tunnel) was constructed from April Limited. of central and and the rail link Wanzhou city, will 2003 to Feb 2005. local from Wanzhou be constructed. • Local government. Station to the port. • The total throughput of Wanzhou governmen • A 3.8 km rail link port is about 5 million tons. To ts. • Close will be constructed meet the traffic increase, monitoring by to link the port to Wanzhou port is being expanded. • Wanzhou ADB. the Wanzhou Port station. Authority.

6. Institutional • Dawan Limited • Dawan Limited was corporatized • Dawan • The new development. corporatized. and merged with Dacheng Limited. company, Limited; it operates under PRC Dacheng laws on companies. Limited, continuously focuses on institutional strengthening and successful management in a market environment.

18 Appendix 1

Activities with Milestones Inputs 1.0 Preconstruction activities • Incorporation of Dawan Limited • Arrangement of counterpart funds • Environmental impact assessment • Survey and design • Advance action for procurement • ADB appraisal 2.0 Land acquisition and resettlement • Implementation of compensation standards • Availability of sufficient funds • Acquisition of land, resettlement of affected persons, and disbursement of compensation to affected persons • Replacement of lost assets and restoration of income • Evaluation of bids • Award of contracts

3.1 Construction of civil works • Implementation according to contract schedule

3.2 Environmental protection and mitigation measures • Implementation of mitigation measures recommended in EIA and SEIA • Regular Monitoring

4.0 Computerization of MIS and FAS, and training of Dawan Limited staff • Hiring of consultants • Design of MIS and FAS • Installation of MIS and FAS • Training of Dawan Limited staff

5.0 Construction and upgrading of link roads to poor inland areas • Commitment of local governments • Construction of link roads by local governments

6.0 Development of basic physical and social infrastructure in the project area • Development of education, health, electricity, agricultural extension, and communications infrastructure • Commitment of provincial and local governments • Good internal and external monitoring ADB = Asian Development Bank, EIA = environmental impact assessment, GDP = gross domestic product, Dacheng Limited = Dazhou–Chengdu Railway Company Limited, Dawan Limited = Dazhou–Wanzhou Railway Company Limited, MIS = Management Information System, PRC = People’s Republic of China, SEIA = Summary environmental impact assessment.

Appendix 2 19

CHRONOLOGY OF MAJOR EVENTS

Year Date Event 1993 10 August – Feasibility report on the Daxian–Wanxian railway—now the Dazhou–Wanzhou (Dawan) railway—prepared 1994 15 October – Completion of environmental impact report 1994 8 December – State Planning Commission approved project proposal 1995 25 April – Fact-Finding Mission 1995 6 May – National Environment Protection Bureau approved the environmental assessment on the proposed project 1995 4 September – Appraisal started 1996 15January – State Planning Commission approved the feasibility report of the Project 1996 23 April – Loan negotiation started 1996 4 June – Date of Board approval 1996 17 August – MOR and Sichuan Province approved the preliminary design of the Project 1997 1 August – Bid opening for ICB civil works packages 1997 20 August – Loan Agreement signed between PRC Government and ADB 1997 15 September – State Planning Commission reviewed the construction arrangement 1997 28 October – Inception Mission 1997 31 October – Construction launching ceremony of the Project 1997 6 December – Loan declared effective 1997 18 December – Publication of notice of prequalification for LCB contracts 1998 8 April – Bid opening for LCB civil works packages 1998 27 April – Date of initial disbursement 1998 14 June – First review mission 1998 7 July – MOR, Chongqing Municipality, and Sichuan Province approved technical design of the Project 1998 27 July – Submission of first quarterly progress report 1999 15 March – Ministry of Water Resources approved the report on soil and water protection for the Project 1999 3 May – Second review mission 2000 30 June – Original schedule of project completion date 2000 2 July – Third review mission 2000 15 December – Installation of treatment measures protecting landslides 2000 31 December – Original loan closing date 2001 31 May – Fourth review mission 2001 13 June – First cancellation of loan savings 2001 23 June – Completion of equipment installation 2001 16 September – Second cancellation of loan savings 2001 11 October – Opening of TA consultants’ technical proposals 2001 5 December – Date of contract with consultants 2001 27 December – Notice of bidding for treatment works 2002 7 January – Commencement of TA consulting services 2002 19 January – System investigation by the TA consultants 2002 30 January – Bid opening for treatment works package 2002 1 February – TA consultant’s inception report 2002 19 August – Fifth review mission 20 Appendix 2

Year Date Event

2002 23 October – Dawan line passed initial examination and acceptance by Examination and Acceptance Committee 2002 10 December – Start of trial operation 2002 18 December – Actual loan closing date and final disbursement 2002 31 December – State Planning Commission approved trial transport prices 2003 15 January – Introduction of trial transport prices 2003 10 July – Completion of auxiliary works covering power supply and anti-thunder works 2003 10 September – Post-evaluation of land compensation and resettlement 2003 15 September – Completion of network facility installation and testing for each station 2003 16 October – Acceptance of environmental protection phase of the Project by Government agencies 2003 5 December – Proposal to restructure Dacheng Limited and Dawan Limited 2004 11 January – Project passed final examination for commercial operation 2004 10 June – Submission of Executing Agency’s (Dawan Limited) Project Completion Report 2004 1 November – Start of commercial operation 2004 10 November – Start of passenger traffic from Dazhou to Wanzhou 2005 8 March – Sixth review mission 2005 22 April – Request for approval for the restructuring of Dacheng Limited and Dawan Limited 2005 23–31 Aug – Project Completion Review Mission ADB = Asian Development Bank, Dacheng Limited = Dazhou–Chengdu Railway Company Limited, Dawan Limited = Dazhou–Wanzhou Railway Company Limited, ICB = international competitive bidding, LCD = local competitive bidding, MOR = Ministry of Railways, PRC = People's Republic of China, TA = technical assistance.

Appendix 3 21

TECHNICAL SPECIFICATIONS OF THE PROJECT FACILITIES

Table A3.1: Major Technical Specifications of Dawan Railway

Item Technical Standard Class of track Class I

Number of tracks Single track

Ruling gradient 12‰

Effective length of arrival/departure tracks 550 m (subgrade was constructed to allow at stations (except for Dazhou and extension of the usable length to 850 m) Wanzhou stations)

Minimum curve radius 400 m

Minimum tangent length 80 m (40 m exceptionally)

Vertical curve radius 10,000 m circular

Traction type Diesel and planning for electrified traction

Type of locomotive DF4b

Weight of traction 2,300 tons

Signaling System Semiautomatic block relay system

Maximum passenger train speed 120 km/hour

Operating passenger train speed 66 km/hour

Maximum freight train speed 100–120 km/hour

Operating freight train speed 46 km/hour

Designed traffic capacity Annual freight of 4.72 million tons and 3 pairs of passenger trains for short term; annual freight of 6.61 million tons and 8 pairs of passenger trains for long term DF4b = name of the diesel electric locomotive used on this section. Source: Dawan Limited.

22 Appendix 3

Table A3.2: Stations Locations and Types

Kilometer No. of Point of Arrival/ No. of Station Distance Departure Cargo No. Station Type Center (km) Lines Lines Status 1. Dazhoua MY K588+065 A 2. Dazhou East IS DK2+300 4.00 2 1 A 3. Pingqiao IS DK8+920 6.62 2 1 B 4. Tingzi IS DK18+960 10.04 2 1 B 5. Dafeng IS DK31+620 12.66 2 1 B 6. Maliuzhen IS DK38+030 6.41 2 1 A 7. Hulutan IS DK45+120 7.09 2 1 B 8. Kaijiang IS DK56+800 11.68 2 1 A 9. Wenhua IS DK68+800 12.00 2 1 B 10. Shenjiagou IS DK77+380 8.58 2 1 B 11. Liangping IS DK84+950 7.57 3 1 A 12. Shibanqiao IS DK93+270 8.32 2 1 B 13. Guanlongqiao IS DK104+300 11.03 2 1 B 14. Fenshui IS DK115+780 11.48 2 1 A 15. Sanzheng IS DK123+160 7.38 2 1 B 16. Lihe PS DK133+688 10.53 2 1 A 17. Wanzhouxi IS DK142+420 8.73 2 1 B 18. Wanzhou IS DK153+148 10.73 3 2 A Total 154.84 A = station has been built and is in operation, B = station will be built in the future, IS = intermediate station, km = kilometer, m = meter, MY = marshalling yard, PS = passing station, a Dazhou station is on Xiang-Yu line, which belongs to Chengdu Railway Administration. Source: Dawan Limited.

LINK ROADS CONSTRUCTED IN THE PROJECT AREA Table A4: Local Roads Program Linking to Railway Stations Distance Cost County Route Name Class Pavement(km) ( CNY '000) Implementation Status Remarks Kaijiang Kaijian to Reishi Class II Asphalt 35.0 4,500.0 2000–2001 Completed Rehabilitation Kaijiang Maliu to Class II Asphalt 30.0 50,000.0 2004–2005 20% of Construction Wangnianmiao completion Kaijiang Guangyuan to Village road Asphalt 40.0 60,000.0 2005–2006 Preparation Construction Kaijiang Kaijiang Renshi to Wushan Village road Asphalt 30.0 55,000.0 2005–2006 Preparation Construction Kaijiang Xiangshuitan Village road Sand and gravel 2.0 70.0 2000 Completed Rehabilitation Kaijiang Guanyinge to Village road Sand and gravel 3.0 100.0 2000 Completed Rehabilitation Sanqingmiao Kaijiang Xinjie Village road Sand and gravel 1.0 30.0 2000 Completed Rehabilitation Kaijiang Xinjie Village road Sand and gravel 6.0 200.0 2000 Completed Rehabilitation Kaijiang Xinjie Village road Sand and gravel 1.0 30.0 2000 Completed Rehabilitation Kaijiang Xinjie Village road Sand and gravel 2.0 65.0 2000 Completed Rehabilitation Kaijiang Wangnianmiao Village road Sand and gravel 1.0 30.0 2000 Completed Rehabilitation Kaijiang Jinan Village road Sand and gravel 2.0 400.0 2000–2001 Completed Rehabilitation Kaijiang Access road to Cement 0.4 5,000.0 2005 Construction Kaijiang Station Subtotal 153.4 175,425.0 Tongchuan Tashi Road Class II Sand and gravel 7.0 6,500.0 1999–2000 Completed Rehabilitation Tongchuan Weifu Roadd Class II Sand and gravel 22.2 55,860.0 1999–2000 Completed Rehabilitation Tongchuan Pujiazun Village road Sand and gravel 4.0 200.0 1999–2000 Completed Rehabilitation Tongchuan Baimiao Village road Sand and gravel 3.5 150.0 1999–2000 Completed Rehabilitation Tongchuan Luojiaba Village road Sand and gravel 4.0 120.0 1999–2000 Completed Rehabilitation Tongchuan Wulidian Village road Sand and gravel 1.5 50.5 1999–2000 Completed Rehabilitation Tongchuan Gaosheng Village road Sand and gravel 3.0 130.0 1999–2000 Completed Rehabilitation Tongchuan Longguan Village road Sand and gravel 5.5 250.0 1999–2000 Completed Rehabilitation Tongchuan Zhaojiaoya Village road Sand and gravel 6.0 300.0 1999–2000 Completed Rehabilitation Tongchuan Xinshufang Village road Sand and gravel 2.5 100.0 1999–2000 Completed Rehabilitation village 1 Tongchuan Xinshufang Village road Sand and gravel 6.0 170.0 1999–2000 Completed Rehabilitation village 2 Tongchuan Xiaogongmiao Village road Sand and gravel 3.5 130.5 1999–2000 Completed Rehabilitation village 1–7 Tongchuan Xiaogongmiao Village road Sand and gravel 2.0 70.0 1999–2000 Completed Rehabilitation village Subtotal 70.7 64,031.0

Liangping Chengjiao Road County Sand and gravel 25.6 4,500.0 1999–2000 Completed Rehabilitation Appendix4 Liangping Scenic Road County Sand and gravel 9.8 12,000.0 1999–2000 Completed Rehabilitation Liangping Sanzhaicun Road County Sand and gravel 6.0 40.0 1999–2000 Completed Rehabilitation Liangping Chengda Road County Sand and gravel 5.0 30.0 1999–2000 Completed Rehabilitation Liangping Tianbao Road County Sand and gravel 4.0 25.0 1999–2000 Completed Rehabilitation Liangping Chengshao Road County Sand and gravel 14.0 400.0 1999–2000 Completed Rehabilitation Subtotal 64.4 16,995.0

Total 288.5 256,451.0 23 km = kilometer. Source: Dawan Limited. 24 Appendix 5

PROJECT COSTS AND FINANCING

Table A5.1: Appraised and Actual Project Cost ($ million)

Appraisal Estimate Actual

Foreign Local Foreign Local Item ExchangeExchange Totala Exchange Exchange Total A. Civil Works 1.Subgrades, Bridges and Tunnels 38.61 159.22 197.83 74.60 130.80 205.40 2.Railway Trackwork 27.22 15.10 42.32 10.30 29.50 39.80 3.Buidlings and Other Facilities 5.27 17.68 22.95 0.80 12.70 13.50 Subtotal 71.10 192.00 263.10 85.70 173.00 258.70 B. Equipmentb 14.90 10.36 25.26 3.00 12.80 15.80 C. Rolling Stock 6.50 1.10 7.60 0.00 0.00 0.00 D. Consulting Services 0.50 0.14 0.64 0.50 0.20 0.70 E. Land Acquisition and Resettlement 0.00 13.10 13.10 26.90 26.90 F. Administrative, domestic consultant services 0.00 20.10 20.10 0.00 17.20 17.20 Base Cost Total 93.00 236.80 329.80 89.20 230.10 319.30 G IDCc 14.00 16.20 30.20 13.70 11.50 25.20 Total 107.00 253.00 360.00 102.90 241.60 344.50 a Contigencies estimated at appraisal are included in each component. b Equipment includes signaling, telecoms, power, and computerization equipment. c Interest and other charges during construction. Source: Dawan Limited.

Table A5.2: Appraised and Actual Financing ($ million)

Appraisal Estimate Actual Item Foreign Local Total Foreign Local Total Loans 1. Ministry of Railway i. State Development Bank 0.00 41.50 41.50 17.10 24.70 41.80 ii. Ministry of Railway 0.00 25.50 25.50 0.00 0.00 0.00 2. Sichuan Province i. Provinaial Construction Fund 0.00 54.50 54.50 0.00 0.00 0.00 ii. Wanxian Municipality 0.00 12.00 12.00 0.00 0.00 0.00 iii. Dachuan Prefecture 0.00 6.00 6.00 0.00 0.00 0.00 3. Asian Development Bank 100.00 0.00 100.00 85.80 0.00 85.80 Total Long-term Loan 100.00 139.50 239.50 102.90 24.70 127.60

Equity - 1.Ministry of Railway 0.00 57.80 57.80 0.00 151.80 151.80 2.Chongqing Municipality 0.00 0.00 0.00 0.00 36.10 36.10 3.Sichuan Province 7.00 55.70 62.70 0.00 29.00 29.00 Total Equity 7.00 113.50 120.50 0.00 216.90 216.90 Total 107.00 253.00 360.00 102.90 241.60 344.50 Source: Dawan Limited. Appendix 6 25

PROJECTED AND ACTUAL DISBURSEMENTS

Table A6: Disbursement Schedule ($ million)

Cumulative Year Appraisal Actual Appraisal Actual

1997 5.0 0.0 5.0 0.0 1998 25.0 5.1 30.0 5.1 1999 35.0 24.4 65.0 29.5 2000 30.0 30.2 95.0 59.7 2001 5.0 19.4 100.0 79.1 2002 0.0 6.7 100.0 85.8 Total 100.0 85.8 Source: Dawan Limited.

Figure A6: Cumulative Disbursement

120.0

100.0

80.0 Appraisal 60.0 Actual

$ million 40.0

20.0

- 1997 1998 1999 2000 2001 2002 Year IMPLEMENTATION SCHEDULE 26 Appendix7

1995 1996 1997 19981999 2000 2001 2002 2003 2004 Item 1234123412341234123412341234123412341234 1. Technical design, engineering, and documentation

2. Prequalification and tendering Civil works prequalification and tending Computerization system prequalification and tending

3. Acquisition of land, compensation, and resettlementa

4. Civil works and buildings Civil works Stations, buildings, and other facilities

5. Track laying Track laying

6. Telecommunications and signals Telecom and signals

7. Test operations Test and trial operation

- Actual - Appraisal a Includes time for initial preparation, land acquisition, compensation, removal, and resettlement. Source: Asian Development Bank estimates. Appendix 8 27

ORGANIZATION STRUCTURE OF DAWAN RAILWAY COMPANY LIMITED

Ministry of Railway Chongqing Municipality Sichuan Province (70%) (16.65%) (13.35%)

Board of Board of Directors Supervision

General Manager

Deputy Deputy Deputy General Manager General General Manager Manager

PMO Material Supply Administration Office Office Technical • Procurement Department • Liaison with the • Administration ADB • Personnel • Construction Management • Management of Contracts • Land Acquisition • Resettlement

Planning and Financial Department Supervision Office • Financial • Expenditure Management Control • Financing • Loan and Fund Allocation Quality Control • Auditing Office PMO = Project management office. Source: Dawan Limited.

28 Appendix 9

MERGER OF DAWAN LIMITED AND DACHENG LIMITED

A. Introduction to Dawan Limited

1. Sichuan Dawan Railway Company Limited was established on 22 March 1995 as a joint venture company formed by Sichuan Province (52% share) and Ministry of Railways (MOR) (48% share). After Chongqing Municipality's separation from Sichuan Province in June 1997, Sichuan Dawan Railway Company Limited was renamed Dawan Railway Company Limited (Dawan Limited), formed by three shareholders: MOR (70% share), Chongqing Municipality (16.65% share) and Sichuan Province (13.35% share). The paid-in capital was CNY1,936.26 million, of which CNY1,352.48 million was from MOR, CNY258.01 million from Sichuan Province, and CNY321.78 million from Chongqing Municipality. Dawan Limited was formed as an independent legal entity under the Company Law of the People’s Republic of China (PRC), with a mandate to (i) construct and finance the Project through a combination of equity and loans, and (ii) operate and manage the Project efficiently.

2. The Dazhou–Wangzhou (Dawan) railway line starts at Dazhou city, Sichuan Province, and ends in Wanzhou, Chongqing Municipality, with a total operational length of 157 kilometers. The Dawan railway traverses five counties and districts with a total population of about 4.8 million—Tongshuan district, Dazhou county, and Kaijiang county within Sichuan Province; and Liangping county and Wanzhou district within Chongqing Municipality.

3. The project railway began construction on February 1998; track laying was completed in June 2001 and passed the final examination on 11 January 2004. The railway was opened to freight traffic in December 2002, and the first passenger train began operating on 10 November 2004.

4. At appraisal, it was envisaged that Dawan Limited would be responsible for the management, operation, and maintenance of the project facilities. The initial trial operation of Dawan Limited was intended to be under the Chongqing Railway Branch Administration (CRBA). This arrangement was developed in order to ensure close coordination of marketing and train dispatching, and to utilize the operational and management experience of CRBA, and thus enable improved quality of freight and passenger transportation services for rail users. In addition, the arrangement provided a vehicle to reduce capital costs by utilizing CRBA locomotives and coaches. However, Dawan Limited and CRBA failed to come to a concession agreement because of differences of opinion on how to apportion costs and profits between the two parties.

B. Introduction to Dacheng Limited

5. Dazhou–Chengdu Railway Company Limited (Dacheng Limited), established on 21 November 1997, is a joint venture company formed by MOR and Sichuan Province. Dacheng Limited began operations on 25 December 1997. Its business scope covers: (i) operating freight and passenger traffic along the Dacheng railway and an adjoining section of the railway from Sanhui town to Chengdu, and related services; and (ii) production and sales of building materials, chemical products, and other products.

6. Dacheng Limited is the entity responsible for the management and operation of Dacheng railway, which is a natural extension of the project railway (Dawan line). The Dacheng railway originates in Dazhou city and ends in Chengdu, the capital of Sichuan Province, with a total length of 395 kilometers (operational length). The railway traverses five cities within Sichuan Province with a total population of about 8 million—Dazhou, Nanchong, Suining, Deyang and Chengdu—and includes 13 counties or districts.

Appendix 9 29

7. Freight and passenger traffic growth on the Dacheng line accelerated about 25% per annum from 1999 to 2004. Dacheng Limited's efficient operation, “corporatized discipline,” customer-oriented marketing strategy, high level of financial autonomy, adherence to budgets, and merit-based reward system led MOR to launch a countrywide campaign called “learn from Dacheng” in 2001. In 2004, Dacheng’s operating revenues reached CNY729 million (net profit was CNY91.8 million, excluding Dawan Limited).

C. Purpose of the Dawan–Dacheng Merger

8. The merger of Dawan Limited and Dacheng Limited was discussed extensively by Dawan Limited's Board of Directors and finally approved by all shareholders in August 2004. The purpose of the merger was to streamline the government’s administrative functions in the railway sector, seek cost recovery for the Dawan railway, and make profits.

D. Guidelines and Principles of Merger

1. Guidelines

9. The merger is being carried out in accordance with applicable laws and regulations. The merger clearly establishes ownership, ensures that the value of shareholders' investments are retained, maintains the interests of all parties, and optimizes resources for the development of a profitable enterprise.

2. Principles

10. The merger of Dawan Limited and Dacheng Limited was undertaken (i) to facilitate the development of the railway and the regional economy, (ii) to facilitate rational distribution of resources, (iii) to maximize benefits for both companies, (iv) to strengthen both companies, and (v) to reduce financial risks.

E. The Merger Process

11. A new limited liability company, tentatively called Dacheng Limited, was established under the Company Law of the PRC. The investments in Dawan Limited by MOR, Sichuan Province, and Chongqing Municipality were transferred to Dacheng Limited, and the value of its assets, equities, and liabilities were increased accordingly. The newly established company is carrying on the existing creditor's rights and debts of Dawan Limited and Dacheng Limited after the merger. No changes were made to loans, contracts, and guarantees that have been undertaken by Dawan Limited and Dacheng Limited.

F. Operation and Structure of Newly Established Company

1. Name and Organization Structure

12. To accelerate the merger process, the newly established company adopted the name of Dacheng Railway Company Limited (Dacheng Limited) firstly and will change its name within 6 months of its establishment, if so desired by the new board of directors. The registered location is: No.1 Wuding Road, Chengdu, Sichuan, PRC. The new organizational chart for Dacheng Limited is presented in Figure A9 below.

30

Figure A9: Organization Structure of Dacheng Railway Company Limited (Dacheng Limited)

9 Appendix

MOR (68.26%), Sichuan (26.6%), and Chongqing (5.14%)

Board of Supervision

Board of Directors

General Manager

Deputy

General Chief Accountant Deputy Deputy Chief Engineer Manager General General Manager Manager Engineering Traffic Finance/ Department Department Planning Office Security Office Maintenance Property Locomotive Human Department Management Department Resources for Facilities Diversified Office Department Business Center General Office

Revenue-Inspection Department Appendix 9 31

2. Equity Structure

13. The new Dacheng Limited is a joint venture between MOR (68.26%), Sichuan Province (26.6%) and Chongqing Municipality (5.14%). The total paid-in capital is CNY6,269.3 million.

3. Company’s Corporate Governance Structure

14. The newly established company will hold shareholder meetings, set up a board of directors and a board of supervisors, and adopt a managerial structure in accordance with the Company Law of the PRC. The corporate governance structure shall be established to ensure efficient operation, as stipulated under the rules and procedures of its charter.

4. Organization and Management of Transportation Services

15. From 1 October 2004 to 9 November 2004, Dacheng Limited operated the Dawan railway based on the restructuring proposal by the three shareholders. On 10 November 2004, the Project’s commercial operations commenced after satisfactory trial operation and final acceptance of the facilities by the State Acceptance Committee. The actual result Dacheng Limited's operation of the railway has been positive.

16. The newly established company has set up a local traffic control system with its own dispatching platform to handle train dispatching. Its operations, technical work, data collection, and financial reporting shall be carried out under the regulations and rules stipulated by MOR.

G. Conclusions

17. The bundling of two joint venture railways under one holding company, and using this mechanism to achieve economies of scale both in operations and administration, is viewed as a successful model that can be applied to other projects in the PRC. Asian Development Bank missions have advised MOR that restructuring and consolidating local railway companies into more viable entities that are able to compete more effectively in a market economy would be supported based on merits. The process of merging Dawan Limited and Dacheng Limited is in its final stage.

32 Appendix 10

COMPLIANCE WITH MAJOR LOAN COVENANTS

Reference to Loan/Project Status of Covenants Agreements Compliance 1. Dawan Railway Company Limited (Dawan Project Complied with. Limited) shall furnish to ADB quarterly reports Agreement on the execution of the Project, and on the 2.07b operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed, program of activities, and expected progress during the following quarter.

2. Dawan Limited shall (i) maintain separate Project Complied with. accounts for the Project and for its overall Agreement Audited financial operations (including use of counterpart funds 2.09 statements from and loan proceeds); (ii) have such accounts and 1998 to 2002 have related financial statements (balance sheets, been received by statement of income and expenses, statement ADB. of cash flows and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB promptly after their preparation but in any event not later that 9 months after the close of the fiscal year to which the related certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors opinion on the use of the loan proceeds, compliance with the covenants of this loan Agreement, and costs of land acquisition, compensation and resettlement), all in the English language. Dawan Limited shall furnish to ADB such accounts and financial statements and the audit thereof, as ADB shall from time to time reasonably request.

3. Dawan Limited shall maintain its financial Project To be complied performance at levels which are sufficient to Agreement with. Operating ratio achieve (i) an operating ratio of not more than 2.16 is expected to meet 70% for each of the fiscal years commencing the target by 2010. with the fourth fiscal year after the fiscal year in Debt service ratio is which commercial operations shall commence expected to meet and (ii) a debt service ratio of not less than 1.2

Appendix 10 33

Reference to Loan/Project Status of Covenants Agreements Compliance for each of the fiscal years commencing with the the target by 2008. fourth full fiscal year after the fiscal year in which commercial operations shall commence.

4. Dawan Limited shall appoint a General Loan Complied with. Manager who shall be responsible for daily Agreement PMO was set up operations. The General Manager shall be Schedule 6, and functioning well assisted by deputy general managers. Dawan para 1(i) and general Limited shall establish a PMO headed by a manager was deputy general manager who shall be appointed. designated as Project Manager.

5. The Province shall establish and maintain a Loan Complied with. Steering Committee to be chaired by the Vice Agreement Governor of the Province, and including Schedule 6, members from SPPC, MOR, SDRC, and other para 1(ii) relevant agencies. The Steering Committee shall maintain coordination and shall resolve issues between the various agencies and enterprises involved in the Project.

6. The Province shall make available in a Loan Complied with. timely manner all land and rights-of-way Agreement required for the implementation of the Project. Schedule 6, para 3

7. Land acquisition, compensation, and Loan Complied with. resettlement for the Project shall be carried out Agreement Land acquisition, in accordance with applicable laws and Schedule 6, compensation, and regulations in effect in the territory of the para 4(i) resettlement were Borrower. carried out in accordance with PRC Land Law and municipal regulations.

8. The Province shall conduct resettlement in Loan Complied with RP accordance with the resettlement plan prepared Agreement principles; some by the Province and agreed to by ADB. Schedule 6, compensation para. 4(ii) standards were lower but additional compensation and other measures were taken to ensure that people were better off.

34 Appendix 10

Reference to Loan/Project Status of Covenants Agreements Compliance 9. The Borrower and the Province shall ensure Loan Complied with (i) that (i) compensation is provided as stipulated in Agreement and (ii). Item (iii) the RP, (ii) affected persons shall be provided Schedule 6, could not be with equivalent or improved livelihood para. 5 confirmed because opportunities under the Project, and (iii) the there was living standards of affected poor persons shall inadequate be raised above the poverty line using funds for baseline. poverty alleviation provided by the Borrower and the Province.

10. The Province shall resettle affected persons Loan Complied with. to nearby, alternative cultivable land by Agreement redistribution of the cultivated area which shall Schedule 6, remain in the Project area after land acquisition, para. 6 (a) (i) subject to minimum cultivated land area requirements stipulated by the Borrower and the Province.

11. In areas where inadequate land is available, Loan Complied with. the Borrower shall cause the Province to provide Agreement Affected persons employment for resettled persons in existing and Schedule 6, were given new enterprises established using the para. 6(a) (ii) additional compensation funds identified in paragraph 5 compensation for (iii) of Schedule 6 of the Loan Agreement. converting farmers to non-agricultural workers.

12. Dawan Limited shall monitor and evaluate Loan Complied with. land acquisition as agreed in the resettlement Agreement plan. Schedule 6, para. 6 (b) (i)

13. Dawan Limited shall engage qualified Loan Complied with. consultants, under arrangements in Schedule 5 Agreement Southwest Jiaotong to the Loan Agreement, to monitor Schedule 6, University was implementation of the RP, and shall cause para. 6 (b) (ii) recruited and reports of such consultants to be provided to regularly submitted ADB on a semi-annual basis. reports to ADB.

14. Dawan Limited shall train its staff using the Loan Complied with. training facilities of MOR or other railway Agreement companies. Schedule 6, para. 7 (i)

15. Dawan Limited shall cooperate with GSRC Loan Complied with. and GMSRC to gain working knowledge of Agreement commercial operations, and financial and (ii) Schedule 6, management practices followed by GSRC and para. 7 (ii)

Appendix 10 35

Reference to Loan/Project Status of Covenants Agreements Compliance GMSRC

16. The Borrower shall cause MOR to complete Loan Complied with. capacity improvements to railways to be Agreement Yichang–Wanzhou interconnected to the Railway. Schedule 6, Railway is under para. 9 construction and will open to traffic in 2010.

17. The Borrower shall cause the Province to Loan Complied with (refer provide rail access for Wanxian station to Agreement to main text para. planned new port at Hongxigou at the Yangtze Schedule 6, 10). River. para. 10

18. Rail spurs shall be included in the design of Loan Complied with. Rail the Project, and constructed to extend into the Agreement spur between premises of industrial rail customers of Dawan Schedule 6, Liaoping airport and Limited, subject to financing and construction para. 11 Liaoping station arrangements between Dawan Limited and any financed by such customer, which shall be satisfactory to Liaoping Airport Dawan Limited. Authority has been built. Another rail spur connecting Taipei Brewery Company to Fenshui Station is expected to be completed by 31 March 2006.

19. The Province shall ensure that local Loan Complied with. approach and link roads shall be properly Agreement designed and constructed to connect the Schedule 6, Railway to interior areas before Dawan Limited para. 12 commences commercial operations.

20. The Borrower shall cause the Province to Loan Complied with. make financing available for approved industrial Agreement and natural resource projects in the project area Schedule 6, and to ensure that such industrial and natural para. 13 projects shall be implemented in a timely manner.

21. The Province shall ensure that technical Loan Complied with. training centers shall be established in poverty Agreement counties. The centers shall meet the basic staff Schedule 6, training needs of the new industries to be para. 14 established in the project area.

36 Appendix 10

Reference to Loan/Project Status of Covenants Agreements Compliance 22. Dawan Limited shall be responsible for the Loan Partly complied management, operation, and maintenance of Agreement with. Dawan Limited the project facilities. Dawan Limited shall, at the Schedule 6, has merged with commencement of commercial operations, para. 15 and is being operate freight and passenger trains to handle managed by the traffic. Dazhou–Chengdu Railway Company Limited (Dacheng Limited).

23. Dawan Limited shall purchase the Loan Not applicable. locomotives for the regular and shunting Agreement Because of the operations on the railway. Schedule 6, merger with para. 15 Dacheng Limited, there was no need to purchase locomotives under the Project. Locomotives were subsequently purchased in 2004.

24. Freight wagons and passenger coaches Loan Complied with. shall be leased from MOR, for which Dawan Agreement Freight wagons are Limited shall pay MOR agreed user-charges. A Schedule 6, leased from MOR. draft user charge agreement shall be provided para. 15 Because of the to ADB for comment before commencement of merger with commercial operations. Dacheng Limited, there was no need to purchase these items under the Project. Passenger coaches were subsequently purchased in 2004.

25. Dawan Limited shall carry out all minor Loan Complied with. repairs and maintenance of its locomotives and Agreement Nanchong depot is shall also provide facilities for routine Schedule 6, handling minor and maintenance of the freight wagons and para. 16 routine passenger coaches to be leased from MOR. maintenance of MOR shall perform major repairs of locomotives freight wagons and at its shops on a contract basis. passenger coaches. Major repairs of locomotives are being done on a contract basis.

Appendix 10 37

Reference to Loan/Project Status of Covenants Agreements Compliance 26. Dawan Limited shall coordinate with MOR in Loan Being complied order to ensure efficient interchange of traffic Agreement with. The and revenue settlement between the national Schedule 6, Management rail network and the railway. Dawan Limited para. 17 Information System shall acquire the capacity under the connected to MOR computerization component of the Project for nationwide network. calculating and distributing revenues collected between the respective railways entitled thereto.

27. Dawan Limited shall prepare and maintain Loan Complied with. the stipulated records for each fiscal year Agreement concerning railway operation. Schedule 6, para. 18

28. Dawan Limited shall provide the information Loan Being complied to ADB together with financial information for Agreement with. Executing five fiscal years after the year in which the Schedule 6, Agency was Project shall commence full commercial para. 18 reminded of its operation. obligation to submit its financial reports to ADB.

29. Dawan Limited shall comply with all Loan Complied with. The applicable national, provincial, and local Agreement Project Completion environmental laws, regulations, and standards. Schedule 6, Review Mission was For each hectare of forested land adversely para. 19 advised that affected by the Project, Dawan Limited shall measures were undertake afforestation and revegetation of taken. equivalent tracts of land along the railway.

30. Dawan Limited shall dispose of rock, Loan Complied with. aggregates, and other spoils from tunneling in Agreement lowlands without water flows and, to the extent Schedule 6, possible, affected areas shall be leveled and para. 20 replanted with trees and recultivated. Where feasible, rock and aggregates from tunneling shall be used for the construction of local roads.

31. Dawan Limited shall ensure that adequate Loan Complied with. ventilation procedures shall be maintained Agreement during construction of tunnels in coal- and gas- Schedule 6, bearing strata in order to prevent explosions and para. 21 ensure the safety of workers.

32. During operation of the railway, Dawan Loan Complied with. Limited shall mitigate noise levels by the Agreement erection of sound barriers, particularly at sites Schedule 6, such as schools and hospitals, and shall para. 22

38 Appendix 10

Reference to Loan/Project Status of Covenants Agreements Compliance ascertain and comply with applicable national noise standards.

33. Dawan Limited shall maintain adequate Loan Complied with. wastewater treatment facilities at all stations Agreement along the railway during operations. Dawan Schedule 6, Limited shall ensure that all wastewater para. 23 treatment facilities shall be completed prior to the commencement of commercial operations of the railway.

34 The Province shall ensure that a new Loan Complied with. wastewater treatment plant shall be constructed Agreement and at all times properly maintained at Longbao Schedule 6, District in Wanxian City, and that wastewater para. 23 from project facilities in Wanxian City shall be treated in such plant.

35. Dawan Limited shall engage environmental Loan Complied with. experts as necessary to monitor environmental Agreement Wanzhou (formerly aspects of the Project. Schedule 6, Wanxian) Municipal para. 23 Environment Protection Research Institute was engaged.

36. Dawan Limited shall undertake a tariff study Loan Complied with and develop a tariff formula that shall enable Agreement delay. The tariff Dawan Limited to recover all costs, including Schedule 6, study was done by operation and maintenance costs, depreciation, para. 24 the Chongqing Sub debt service charges in excess of depreciation, Railway taxes, and to realize a reasonable profit, and Administration in shall complete the said study by 30 June 1999. 2002, before the Thereafter, approval of appropriate agencies, railway opened to including the price bureau shall be sought by traffic. Dawan Limited.

37. Dawan Limited shall perform annual Loan Being complied assessments of tariffs, and shall apply for Agreement with. corresponding adjustment of tariff, if any. The Schedule 6, Borrower shall cause the Province and Dawan para. 24 Limited to take all necessary actions, including timely adjustments of tariffs.

38. The Borrower and the Province shall ensure Loan Not yet complied that the SLRB shall be incorporated as a limited Agreement with (refer to section liability entity pursuant to the Company Law of Schedule 6, H of the main text). the Borrower. The incorporation of SLRB shall para. 25 The corporatization

Appendix 10 39

Reference to Loan/Project Status of Covenants Agreements Compliance be carried out in accordance with a schedule to of SLRB is be mutually agreed between the Borrower and underway and it will ADB, and shall be completed not later that 30 be completed by 31 June 1999. December 2006.

39. The Borrower and the Province shall ensure Loan Not yet complied that public and private sector entities shall be Agreement with. permitted to develop railway infrastructure and Schedule 6, provide related services on railways operated by para. 25 SLRB and any successor in interest thereto, all upon terms and conditions satisfactory to SLRB.

40. The Borrower, the Province, and Dawan Loan Not yet complied Limited shall consider adoption and Agreement with, and implementation of any proposal relating to Schedule 6, diversification has diversification of the shareholding of Dawan para. 26 not yet taken place. Limited which may arise from the Technical Assistance.

41. Dawan Limited shall cooperate with the Loan Complied with. executing agencies of previous ADB-financed Agreement railway projects in order to facilitate transfer of Schedule 6, technology and knowledge relevant to railway para. 26 operation. ADB = Asian Development Bank, GMSRC = Guang–Mei–Shan Railway Company, GSRC = Guangdong– Sanmao Railway Company, MOR = Ministry of Railways, PMO = project management office, PRC = People’s Republic of China, RP = resettlement plan, SDRC = Sichuan Dawan Railway Corporation, SLRB = Sichuan Local Railway Bureau, SPPC = Sichuan Province Planning Commission. Sources: Asian Development Bank and Dawan Limited.

CONTRACT PACKAGES 40

Contract

Mode of Date Contract Amount ADB Financing Appendix 11 Item Proc. (d-mm-yy) Contractor (CNY) (CNY) US$ Disbursed A. Civil Works (50% Bank Fin.) 1. Major Tunnels ICB and Bridges (4 packages)

a. Contract A 4 Nov 97 1st Eng'g. Const. Department 8,474,035.00 4,236,517.00 512,259.00 512,259.00 of 13th Eng'g. Const. Bureau b. Contract B 20 Nov 97 5th Eng'g. Const. Department 65,445,016.00 32,722,508.00 3,955,202.00 3,955,202.00 5th Eng'g. Const. Bureau c. Contract C 20 Nov 97 3rd Eng'g. Const Department 97,236,654.00 48,618,327.00 5,875,828.00 5,875,828.00 18th Eng'g. Const. Bureau d. Contract D 4 Nov 97 4th Eng'g. Const. Department 9,925,350.00 4,962,675.00 600,077.00 600,077.00 12th Eng'g. Const Bureau Subtotal 181,081,055.00 90,540,027.00 10,943,366.00 10,943,366.00 2. Other Tunnels LCB and Bridges

a. Package G 21 Ju7l 98 2nd Eng'g. Const. Department 120,077,916.00 60,038,958.00 7,255,620.00 7,255,620.00 15th Eng'g. Const. Bureau b. Package I 21 Jul 98 2nd Eng'g. Const. Department 143,852,110.00 71,924,055.00 8,691,760.00 8,691,760.00 13th Eng'g. Const. Bureau c. Package K 21 Jul 98 3rd Eng'g. Const. Department 98,130,530.00 49,065,265.00 5,929,368.00 5,929,368.00 19th Eng'g. Const. Bureau d. Package N 21 Jul 98 3rd Eng'g. Const. Department 71,047,191.00 35,523,595.00 4,293,811.00 4,293,811.00 13th Eng'g. Const. Bureau e. Package F 9 Sep 98 4th Eng'g. Const. Department 125,260,308.00 62,630,154.00 7,568,918.00 7,568,918.00 15th Eng'g. Const. Bureau Subtotal 558,368,055.00 279,182,027.00 33,739,477.00 33,739,477.00

Total B. Materials, Goods 44,682,844.00 44,682,844.00 and Equpment (100% Bank Fin.) 1. Rails ICB a. Package 1 21 Jan 00 Pangang Group Intl. Econ. 38,341,550.16 38,341,550.16 4,630,622.00 4,630,622.00 and Trade Corp. b. Package 2 21 Jan 00 China Railway Materials 25,397,757.36 25,397,757.36 3,067,362.00 3,067,362.00 and Supplies Corp. Contract Mode of Date Contract Amount ADB Financing Item Proc. (d-mm-yy) Contractor (CNY) (CNY) US$ Disbursed c. Package 3 22 Dec 99 Sichuan Chengdu Railway 8,628,137.50 8,628,137.00 1,042,320.00 1,042,320.00 Intl. Econ. and Trade d. Package 4 22 Dec 99 Sichuan Chengdu Railway 4,719,478.60 4,719,479.00 570,137.00 570,137.00 Intl. Econ. and Trade e. Package 5 22 Dec 99 Jiangxi Machinery and 6,213,187.80 6,213,187.80 750,385.00 750,385.00 Eqpt. I/E Corp. f. Package 6 22 Dec 99 China Railway Materials 1,928,412.00 1,928,412.00 232,900.00 232,900.00 and Supplies Corp. Subtotal 85,228,523.42 85,228,523.32 10,293,726.00 10,293,726.00 2. Steel ICB a. Contract 7 27 Mar 98 Hainan Province Machinery 7,382,034.00 7,382,034.00 891,550.00 891,550.00 (Round Bars) Imp. and Exp. Corp. b. Contract 8 27 Mar 98 China Civil Eng'g. Const. 7,422,192.00 7,422,192.00 896,400.00 896,400.00 (Round Bars) c. Contract 9 27 Mar 98 Hainan Province Machinery 9,457,043.40 9,457,043.40 1,142,155.00 1,142,155.00 (Ribbed Bars) Imp. and Exp. Corp. Subtotal 24,261,269.40 24,261,269.40 2,930,105.00 2,930,105.00 3. Cement ICB First Proc. ICB a. Contract 1 27 Mar 98 China Lantian Industry 4,686,480.00 4,686,480.00 566,000.00 566,000.00 (20,000 tons) Bus. Hainan Corp. b. Contract 2 27 Mar 98 China Lantian Industry 8,229,492.00 8,229,492.00 993,900.00 993,900.00 (30,000 tons) Bus. Hainan Corp. c. Contract 3 27 Mar 98 China DC Technical 7,762,500.00 7,762,500.00 937,500.00 937,500.00 (30,000 tons) Imp. and Export Corp. d. Contract 4 27 Mar 98 Beijing Enterprises Devt. 4,950,000.00 4,950,000.00 598,000.00 598,000.00 (20,000 tons) Corporation e. Contract 5 27 Mar 98 Merit Technologies 13,517,100.00 13,517,100.00 1,632,500.00 1,632,500.00 (50,000 tons) f. Contract 6 27 Mar 98 China Railway Materials 15,352,776.00 15,352,776.00 1,854,200.00 1,854,200.00 (50,000 tons) and Supplies Corp. Subtotal 54,498,348.00 54,498,348.00 6,582,100.00 6,582,100.00 Second Proc. ICB Appendix 11 a. Contract 1 4 Oct 99 China Railway Materials 8,087,904.00 8,087,904.00 976,800.00 976,800.00 (30,000 tons) and Supplies Corp. b. Contract 2 14 Dec 99 Union Park Devt. 5,497,920.00 5,497,920.00 664,000.00 664,000.00 (20,000 tons) Corporation c. Contract 3 22 Nov 99 Vast Base Devt. Ltd. HK$5,060,000 HK$5,060,000 649,403.00 649,403.00 41 (20,000 tons) d. Contract 4 22 Nov 99 Union Park Devt. Corp. 5,034,240.00 5,034,240.00 608,000.00 608,000.00 (20,000 tons)

Contract 42 Mode of Date Contract Amount ADB Financing Item Proc. (d-mm-yy) Contractor (CNY) (CNY) US$ Disbursed e. Contract 5 22 Nov 99 Union Park Devt. Corp. 4,802,400.00 4,802,400.00 580,000.00 580,000.00 (20,000 tons) Appendix 11 f. Contract 6 14 Dec 99 Vast Base Devt. Ltd. HK$5,420,000 HK$5,420,000 694,981.00 694,981.00 (20,000 tons) Subtotal 23,422,464.00 23,422,464.00 4,173,184.00 4,173,184.00 HK$10,480,000 HK$10,480,000

4. Signalling, Tel. ICB/IS Power, and Other Eqpt and Comp. a. Comm Cable 14 Nov 00 China Railways Materials 4,666,351.32 4,666,351.32 563,569.00 563,569.00 and Supplies b. Comm Eqpt 14 Nov 00 Sichuan Top Software Co. Ltd. 2,284,194.90 2,284,194.90 275,969.00 275,969.00 c. Computer IS 14 Nov 00 Sichuan Chengda Intl. Econ. 1,296,830.72 1,296,830.72 156,679.00 156,679.00 and Trade Grp.Ltd d. Signal Eqpt 14 Nov 00 Sichuan Chengda Intl. Econ. 1,805,962.10 1,805,962.10 218,190.00 218,190.00 and Trade Grp. Ltd. e. Signal Cable 14 Nov 00 Sichuan Chengda Intl. Econ. 901,677.54 901,677.54 108,938.00 108,938.00 and Trade Grp. Ltd. f. Comm Eqpt 27 Feb 01 Sichuan Chengda Intl. Econ. 522,294.12 522,294.12 63,079.00 63,079.00 and Trade Grp. Ltd. g. Elect'l and 27 Feb 01 Chengdu Railway Mat. Ind. Co. 3,312,264.96 3,312,264.96 400,032.00 400,032.00 Mech'l Eqpt. of Tunnel Vent h. Infrared Axle 27 Feb 01 Chengdu Railway Mat. Ind. Co. 1,978,067.16 1,978,067.16 238,897.00 238,897.00 Temp. Detection System CCECC International Trading 7,856,478.00 7,856,478.00 948,850.00 948,850.00 Subtotal 16,767,642.82 16,767,642.82 2,974,203.00 2,974,203.00 Total B 26,953,318.00 26,953,318.00 C. Consulting Svcs 4,045,790.00 4,045,790.00 488,683.00 488,683.00 (100% Bank Fin) D. Interest and 13,677,223.00 13,677,223.00 13,677,223.00 Commitment Chgs 85,802,068.00 bus. = business, chgs. = charges; co. = company; comm. = communication; comp. = computers; const. = construction; corp. = corporation, devt. = development, econ. = economic, elect'l. = electrical; eng'g. = engineering, eqpt. = equipment; exp. = export, fin. = financing; Grp. = group; ICB = international competitive bidding; imp. = import, Ind. = Industries; int'l. = international, IS = interlocking system; LCB = local competitive bidding, Ltd. = limited; mat. = material, mech'l. = mechanical; proc. = procurement; svcs. = services; tel. = telecommunication; temp. = temperature; vent. = ventilation. Sources: Asian Development Bank and Dawan Railway Company Limited. Appendix 12 43

TRAFFIC FORECAST

A. General

1. It has been 10 years since the Daxian–Wanxian Railway Project was approved. At appraisal, the Daxian–Wanxian railway—now known as the Dazhou–Wanzhou (Dawan) railway—was envisaged as a rail–waterway transportation route from Sichuan Province to provinces and cities in the Yangtze River delta. Since then there have been significant changes to the transportation network in the project region:

(i) The Yichang–Wanzhou Railway (YWR) is under construction and is expected to open to traffic in 2010. With the construction of YWR, the Dawan line will constitute an integral part of the major east–west railway artery that links northeast areas in Sichuan with the eastern coastal region. The project railway will be a critical component of the Shanghai–Wuhan–Chengdu (Hu–Han–Rong) corridor that is the backbone of the People’s Republic of China (PRC) railway network.1 It will also be one of the important carriers of future modern railway networks like the container transportation network;2

(ii) The Three Gorges Water Resources Project increased the navigating capacity of the Yangtze River;

(iii) To expand the capacity of Xiangfan–Chongqing line, double-tracking of the line is underway and will be completed by 2007; and

(iv) National Highway 318 between Yichang and Wanzhou, and, when completed in 2009, the final missing link to the Shanghai–Chengdu expressway, will run parallel to the Dawan–YWR lines. Thus there will be intense intermodal competition in the project area.

2. The traffic forecasts of the Project Completion Review (PCR) Mission have been analyzed within the context of the overall national railway system. The forecasts are based on (i) actual traffic during trial operation in 2003–2004, and actual traffic in the first half of 2005; (ii) the PRC Railway Development Plan to 2020, as approved by the State Council in 2004; (iii) the Ministry of Railways (MOR) computerized the railway investment study model, which was developed with World Bank assistance;3 and (iv) MOR traffic forecasts for the China Railways Network.

B. Evaluation of Initial Performance

3. Commercial freight operation started on 10 December 2002 and passenger operation on 10 November 2004. Freight traffic volume increased rapidly from 62.2 million ton-kilometers (t- km) in 2003 to 83.2 million t-km in 2004, to 70 million t-km in the first half of 2005 alone. Despite the significant year-on-year increases, the actual freight traffic was substantially less than the appraisal forecast of 384.3 million t-km in 2000 and 646.9 million t-km in 20014 (Table A12.1).

1 MOR: PRC Railway Development Plan 2020. There are the so-called “eight horizontals” and “eight verticals.” 2 MOR plans to build 18 large-container freight stations (including stations in Chengdu and Chongqing), 50 medium- and 200 small-container terminals in the PRC by 2007. 3 The analysis system is based on standard international practices that methodically define points of origin and departure data. 4 At appraisal, it was envisaged that both freight and passenger operation would be launched in 2000. 44 Appendix 12

The reasons for the shortfall were given in para. 33 of the main text of the project completion report.

Table A12.1: Traffic Forecasts at Appraisal

Year 2000 2001 2002 2003 2004 2005 2010 2020 Commodities Total Freight (East and West) 4,090 4,590 5,109 5,688 6,332 7,050 7,510 8,440 Total Freight (million t-km) 384 647 720 802 892 993 1,059 1,189 Passenger Passengers ('000) 1,120 1,250 1,395 1,557 1,738 1,940 3,630 5,220 Passenger-km (million) 108 120 134 149 167 186 348 501 Source: ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the People’s Republic of China for the Daxian–Wanxian Railway Project. Manila.

4. Passenger traffic is performing better than forecast at appraisal. Passenger traffic volume reached 130 million passenger-km in the first half of 2005. 5 At present, the Dawan line primarily handles passenger traffic. Measured in terms of converted t-km, about 65% of the traffic consists of passengers.6 Currently three train pairs carry passengers. At Wanzhou station, the PCR Mission noted that the station had sold out its allocated tickets several days in advance. This indicates that the Dawan railway has been well received and that project area residents are making good use of the rail service.

C. Traffic forecasts

5. For local freight traffic forecasts, local shippers, major industrial enterprises, and the Wanzhou Port Authority were surveyed with the intent of determining current and potential uses of the Dawan railway. In the project area, the primary products that are to be transported by the railway include coal, metal ore, iron and steel, grain, fertilizers, and salt. Most coal traffic was forecasted to originate in Dazhou, Maliu, and Kaijiang and be shipped to other provinces of the PRC. The volume of coal shipped on the Dawan line was forecasted to rise from 1.38 million tons in 2010 to 1.77 million tons in 2020—an annual increase of 2.6%.7 Iron ore is another important commodity, mainly used by Dazhou Steel Company and Pancheng Steel Company. Dazhou Steel Company's steel production is expected to rise from about 1 million tons per year to about 2.5–3 million tons per year by 2007.8 The PCR Mission compared alternate routes and modes for its iron ore feedstock; the rail–water intermode (Dawan in conjunction with the Wanzhou port) reduces transportation costs for imported iron ore by one-fourth.9 Pancheng Steel Company uses the rail–waterway intermode to ship its production to eastern PRC. Table A12.2 presents a summary of local freight traffic forecasts, broken down by commodity.

5 At appraisal, passenger traffic was forecasted to be 108 million passenger-km in, the projected first whole year of operation (2000). 6 In terms of converted t-km, 1 passenger-km is considered equal to 1 t-km. 7 About 1.2 million tons of coal need to be shipped to the east provinces. 8 According to Dazhou Steel Company, production of 1 million tons of steel requires 1.7 million tons of iron ore. 9 It costs about CNY122 per ton by waterway–rail, compared to CNY1161 per ton by railway only. Appendix 12 45

Table A12.2: Local Freight Traffic Forecast 2010 2020

Tons t-km Tons t-km Commodity Direction ('000) (million) ('000) (million) Coal Eastbound 1,199 152 1,559 198 Westbound 179 7 210 9 Metal Ores Eastbound — — — — Westbound 900 138 1,500 230 Iron and Steel Eastbound 200 31 500 79 Westbound — — — — Grain Eastbound 209 27 264 34 Westbound 106 10 183 18 Fertilizer Eastbound 164 23 361 49 Westbound 75 9 130 16 Salt Eastbound 15 2 32 5 Westbound 158 25 274 43 Other Eastbound 487 44 671 60 Westbound 943 88 1233 111 Total Eastbound 2,274 279 3,464 425 Total Westbound 2,361 276 3,666 426 Total Combined 4,653 556 7,129 851 — = data not calculated; t-km = ton-kilometer Source: Asian Development Bank estimates.

6. Transit traffic comprises any traffic along the Dawan line that both originates and ends up in points off the Dawan line. Transit traffic will come from the Chengdu–Kunming (“Chengkun”) line, the Xiangfan–Chongqing (“Xiangyu”) line, the Jiaozuo–Liuzhou (“Jiaoliu”) line, and YWR in 2010 and thereafter. Transit traffic projections have been analyzed within the context of the overall national railway system by using the MOR railway investment system traffic analysis model. The diversion calculations reflect the total generalized cost savings of each mode, which includes fare, time value, capacity distance, punctuality, and safety measures. Total transit traffic was forecast to reach 2.98 million tons in 2010, rising to 5.12 million tons in 2020—an annual increase of 5.6% during that period (Table A12.3).

7. At present, the total throughput of Wanzhou port is about 5 million tons, with five specialized berths. To meet the projected traffic growth, the Wanzhou port is being expanded to handle throughput of 15 million tons. Containerization is developing rapidly in the project area. This will be an important future business for the Dawan railway. Freight traffic is growing and there is sustainable potential demand along the Dawan line. The transit levels forecast at appraisal will undoubtedly be reached—but later than anticipated.10

8. Passenger surveys during the PCR indicated that passengers wanted more trains put into service, including trains that facilitate travel to prosperous areas like Xi’an, Xiamen, and Shanghai, where there are more jobs. Additional passenger trains are being planned, including a train pair from Wanzhou to Xi’an in 2007, a train pair from Nanchong to Wanzhou in 2009, and an extension of the latter route to Wuhan in 2010. The passenger traffic target will be achieved by increasing volume from 60% of capacity—the current level—to 70% of capacity by 2010, and by increasing the number of trains to meet rising demand. Civil works for upgrading tracks for

10 Transit traffic levels are now forecasted to reach the appraisal estimate in 2010. 46 Appendix 12 faster trains (from 60 km/hour to 85 km/hour) will begin in mid-2005 and will be completed by mid-2006. The electrification of the Dawan line will be undertaken and additional train stations will be constructed, depending on traffic development.

9. Looking into the future, the opening of YWR in 2010 will have a dramatic impact on traffic. Both freight and passenger travel are expected to grow rapidly as a result of transit traffic from the associated railway lines11 and the expansion of the container transportation network into the project area. Freight traffic volume is expected to increase from about 1,024 million ton- km in 2010 to 1,758 million ton-km in 2020, with annual growth rates of about 5.6%, which is consistent with MOR estimates for the Dawan line (Table A12.3). The number of train pairs assigned to the Dawan line will be increased from three trains per day in 2005, to five train pairs per day in 2010, to 10 train pairs per day in 2020.12 During that time passenger volume is expected to increase from about 629 million passenger-km to 1.137 billion passenger-km, representing a 6% annual increase (Table A12.4).

11 Transit traffic will come from the Chengdu–Kunming (“Chengkun”) line, the Xiangfan-Chongqing (“Xiangyu”) line, the Jiaozuo–Liuzhou (“Jiaoliu”) line, and YWR in 2010 and thereafter. 12 Among all train pairs, five are assumed to be for transit traffic.

Table A12.3: Dawan Line Summary Freight Traffic Forecasts

Freight Traffic ('000 Tons) Freight Traffic (million t-km) Transit Traffic Local Traffic Transit Traffic Local Traffic Divert. Divert. Divert. Divert. from Divert. from Divert. from Divert. from Divert. Exist. from Exist. from Exist. from Exist. from Year Rail. High. Rail. High. Generated Total Rail. High. Rail. High. Generated Total 2002 2003 2004 2005 — — 167 812 375 1,353 — — 19 92 42 153 2006 — — 236 992 493 1,721 — — 27 113 56 197 2007 — — 334 1,212 650 2,195 — — 39 140 75 254 2008 — — 472 1,480 855 2,807 — — 55 173 100 329 2009 — — 667 1,809 1,127 3,602 — — 79 214 134 427 2010 2,086 894 942 2,210 1,483 7,615 328 140 113 265 178 1,024 2011 2,202 944 981 2,322 1,536 7,984 346 148 119 282 186 1,081 2012 2,324 996 1,021 2,439 1,590 8,371 365 156 125 299 195 1,141 2013 2,454 1,052 1,063 2,562 1,647 8,777 385 165 132 318 204 1,204 2014 2,590 1,110 1,106 2,692 1,705 9,203 407 174 139 337 214 1,271 2015 2,734 1,172 1,151 2,828 1,766 9,651 429 184 146 358 224 1,341 2016 2,886 1,237 1,199 2,971 1,828 10,121 453 194 154 381 234 1,416 2017 3,047 1,306 1,248 3,121 1,893 10,614 478 205 162 404 245 1,495 2018 3,216 1,378 1,299 3,279 1,960 11,132 505 216 170 429 257 1,578 2019 3,395 1,455 1,352 3,444 2,030 11,676 533 228 179 456 269 1,665 2020 3,584 1,536 1,407 3,618 2,089 12,248 563 241 188 484 281 1,758 2021 3,783 1,621 1,427 3,647 2,102 12,546 594 255 198 514 295 1,856

2022 3,994 1,712 1,479 3,873 2,187 13,244 627 269 209 546 308 1,959 12 Appendix 2023 4,216 1,807 1,557 4,114 2,289 13,982 662 284 220 580 323 2,068 2024 4,450 1,907 1,638 4,369 2,396 14,762 699 299 231 616 338 2,184 2025 4,698 2,013 1,724 4,641 2,509 15,585 738 316 243 655 354 2,305

— = data not calculated, Divert. = diverted, Exist. = existing, High. = highway, Rail. = railways, t-km = ton-kilometers. 47 Source: Asian Development Bank estimates.

48

Table A12.4: Dawan Line Summary Passenger Traffic Forecasts 12 Appendix

Passengers ('000 Passengers) Passenger Kilometer (million passenger-km) Generated Traffic Divert. Divert. Divert. Divert. Divert. Divert. from from from Of which from from from Generated Year Road Rail. Water Tourists Total Road Rail. Water Traffic Total 2002 — — — — — — — — — — — 2003 — — — — — — — — — — — 2004 106 — — 46 7 152 11 —— 5 16 2005 1,707 — — 731 110 2,438 183 —— 78 261 2006 1,991 — — 853 128 2,845 213 —— 91 304 2007 2,506 — — 1,074 161 3,580 268 —— 115 383 2008 2,892 — — 1,239 186 4,131 309 —— 133 442 2009 3,406 — — 1,460 219 4,866 364 —— 156 521 2010 3,039 419 210 1,572 236 5,240 365 50 25 189 629 2011 3,206 442 221 1,659 249 5,528 390 54 27 201 672 2012 3,383 467 233 1,750 262 5,832 416 57 29 215 717 2013 3,569 492 246 1,846 277 6,153 444 61 31 230 766 2014 3,765 519 260 1,947 292 6,492 475 65 33 245 818 2015 3,972 548 274 2,055 308 6,849 507 70 35 262 874 2016 4,191 578 289 2,168 325 7,225 541 75 37 280 933 2017 4,421 610 305 2,287 343 7,623 578 80 40 299 997 2018 4,664 643 322 2,413 362 8,042 617 85 43 319 1,064 2019 4,921 679 339 2,545 382 8,484 659 91 45 341 1,137 2020 5,212 719 359 2,696 404 8,985 704 97 49 364 1,213 2021 5,212 719 359 2,696 404 8,985 704 97 49 364 1,213 2022 5,212 719 359 2,696 404 8,985 704 97 49 364 1,213 2023 5,212 719 359 2,696 404 8,985 704 97 49 364 1,213 2024 5,212 719 359 2,696 404 8,985 704 97 49 364 1,213 2025 5,212 719 359 2,696 404 8,985 704 97 49 364 1,213 Divert. = diverted, Rail. = railway. Source: Asian Development Bank estimates.

Appendix 13 49

ECONOMIC EVALUATION

A. General

1. The economic internal rate of return (EIRR) for the Daxian–Wanxian Railway Project was recalculated based on a comparison of "with-project" and "without-project" scenarios. The economic analysis was conducted in constant 2005 prices in yuan using a domestic numeraire. The construction period was 5 years, from February 1998 to December 2002. The trial operation period lasted about 2 years following the physical completion of construction. The assessment period will cover 20 years from 2005 to 2025. The "without project" scenario assumes that a wide range of commodities will be transported to, from, and within the project area primarily by taking longer railway or road routes. Under the "with project" scenario, benefits were quantified in terms of savings in transport costs for traffic diverted to the project railway. The benefits to the generated traffic have been quantified in terms of net production value added.

B. Cost

2. The project costs were converted to economic prices by separating the cost items into tradable materials and equipment, nontradable materials and equipment, and labor. A shadow exchange rate factor of 1.013 was used to convert financial prices of traded goods to economic prices. A shadow wage rate factor of 0.67 was used to convert the financial wage rate to an economic opportunity cost of unskilled labor. Skilled labor was not shadow priced since there is no surplus of skilled workers. The economic costs excluded price escalation, interest during construction, and taxes and duties. The residual value of capital investment was based on the economic life of each project component.

3. Operation and maintenance costs were also adjusted to obtain economic costs. Incremental investments include additional and replacement costs for rolling stock, the construction of five additional stations in 2011, and electrification of line from 2015 to 2017.

C. Benefits

4. The economic benefits of the Project consist of (i) operating cost savings in diverted freight and passenger traffic from roads; (ii) operating cost savings for passengers, estimated as the difference between traveling on the project railway and traveling by bus; (iii) time savings in passenger traffic diverted from buses based on the value of time estimated from the net income of local residents; and (iv) the net economic value, calculated on the basis of the economic value per additional ton of each commodity of generated traffic as a result of the construction of the Project.

D. Conclusion

5. The EIRR for the Project is 14.2% (Table A13.1). Benefits from generated traffic are the major economic benefits (76.1%), followed by benefits from diverted traffic (21.9%), and other benefits (2%).

6. Sensitivity analysis tested four scenarios to assess the robustness of the results of the economic analysis (Table A13.2). The results showed that the Project would maintain its economic viability under these scenarios.

50 Appendix 13

Table A13.1: Economic Internal Rate of Return (constant 2005 economic prices, domestic price numeraire, CNY million)

Cost Benefit Benefit Benefit from from Capital O&M Total Diverted Generated Other Total Net Year Costs Costs Cost Traffic Traffic Benefits Benefits Benefits 1998 805.9 2.3 808.2 0.0 (808.2) 1999 386.1 6.6 392.8 0.0 (392.8) 2000 475.5 6.4 481.9 0.0 (481.9) 2001 297.7 6.5 304.1 0.0 (304.1) 2002 232.2 6.5 238.7 0.0 (238.7) 2003 133.7 35.8 169.5 8.5 59.3 67.9 (101.6) 2004 60.0 62.3 122.3 13.6 104.6 0.4 118.6 (3.8) 2005 0.0 87.2 87.2 59.8 163.9 7.1 230.8 143.6 2006 24.0 90.5 114.5 71.8 218.9 8.3 299.0 184.4 2007 0.0 99.7 99.7 89.6 293.4 10.4 393.4 293.7 2008 24.0 108.8 132.8 107.0 392.2 12.0 511.3 378.5 2009 12.0 121.2 133.2 129.5 525.0 14.2 668.7 535.6 2010 0.0 171.6 171.6 206.8 703.1 17.4 927.3 755.7 2011 74.0 171.0 245.0 218.6 742.8 18.6 980.0 735.1 2012 0.0 177.2 177.2 231.2 784.7 19.9 1,035.8 858.6 2013 12.0 183.8 195.8 244.4 829.0 21.2 1,094.7 898.9 2014 0.0 190.7 190.7 258.5 875.9 22.6 1,157.0 966.2 2015 102.6 198.1 300.7 273.4 925.3 24.1 1,222.8 922.1 2016 125.0 205.9 330.9 289.1 977.6 25.8 1,292.6 961.7 2017 102.6 214.1 316.7 305.8 1,032.8 27.5 1,366.2 1,049.5 2018 0.0 222.7 222.7 323.5 1,091.2 29.4 1,444.1 1,221.3 2019 24.0 231.9 255.9 342.2 1,152.9 31.4 1,526.4 1,270.5 2020 60.0 241.5 301.5 361.9 1,218.1 33.5 1,613.5 1,312.0 2021 0.0 243.4 243.4 367.9 1,234.0 33.8 1,635.8 1,392.3 2022 36.0 251.0 287.0 381.6 1,315.6 34.1 1,731.2 1,444.2 2023 0.0 258.4 258.4 396.0 1,402.6 34.4 1,833.0 1,574.6 2024 12.0 266.2 278.2 411.3 1,495.6 34.5 1,941.4 1,663.2 2025 (1,852.9) 274.4 (1,578.5) 427.5 1,594.8 34.9 2,057.3 3,635.7 Economic Net Present Value at 12% 619.3 Economic Internal Rate of Return (%) 14.2 O&M = operation and maintenance. Source: Asian Development Bank estimates.

Table A13.2: Sensitivity Analysis

Change EIRR Economic Sensitivity Switching Scenario (%) (%) NPV Indicatora Value (%)b 1. Base Case 14.2 618.3 2. Benefit (10.0) 13.2 318.7 4.9 20.6 3. O&M Costs 10.0 14.0 559.2 1.0 100.0 4. Generated Freight Traffic (10.0) 13.5 408.1 3.4 29.4 5. Combined 2+3 13.0 259.6 5.8 17.2 EIRR = economic internal rate of return; O&M = operation and maintenance; NPV = net present value. a Sensitivity indicator = percentage change in NPV divided by percentage change in variable tested. b Switching value indicates the percentage increase in a cost item (or decline in a benefit item) required for the NPV to become zero. Source: Asian Development Bank estimates. Appendix 14 51

FINANCIAL EVALUATION

A. General

1. Dazhou–Chengdu Railway Company Limited (Dacheng Limited), established in 1997 but merged with Dazhou–Wanzhou Railway Company Limited (Dawan Limited) in 2004, has been responsible for the operation and maintenance of the Project since October 2004.1 The Project's commercial operations launched in November 2004. The financial and operational performance of the project railway is presented in current terms in Table A14.1, including actual data available during 1998–2004 and projected financial performance thereafter. The local inflation rates are assumed at 3.2% for 2006 and 3% for 2007 and thereafter.

B. Financial Projections

2. Project revenues include (i) freight and passenger revenues of the Dawan line; (ii) incremental revenues of the Dacheng line resulting from additional traffic originating in or destined for the connecting Dawan line; and (iii) other revenues, including loading and unloading, warehouse storage, and parcel services. Freight and passenger revenues were projected based on forecast freight and passenger traffic and tariffs. Additional revenues were estimated to be 10% of total revenues. It was assumed that business and other taxes and levies would be imposed on aggregate revenues.

3. The actual average freight tariff of the Dawan line in 2003 and 2004 was CNY0.20 per ton-kilometer (t-km). The base tariff used in projection was CNY0.17 per t-km, lower than the actual tariff because of intermodal competition in the project area. The base passenger tariff was assumed to be CNY0.18 per passenger-km, the same as the actual tariff in 2004. Tariffs were adjusted for inflation.

4. Fixed assets are divided into 17 categories. A straight line depreciation method is used to calculate depreciation, in accordance with new Ministry of Railways (MOR) guidelines.2 The weighted average depreciation value for the Dawan line is 1.7% per year.

5. Operating costs included all incremental costs incurred by operations. Based on the operational experience of Dacheng, the operating costs were estimated as follows: fixed costs— CNY300,000 per line-km; freight variable costs—CNY0.066 per t-km; and passenger variable costs—CNY0.053 per t-km. Operating costs were forecast to increase annually in line with domestic inflation. Additional rolling stock, stations, and line electrification will be implemented in accordance with rising demand.3

6. Changes in working capital, as part of the cash flow of the Project, were calculated on the basis of requirements for annual working expenses and incremental investments. Accounts receivables are assumed to be 5% of operating revenues. Accounts payables are estimated at 15% of operating expenses.

1 For details, refer to Appendix 9. 2 Average life was estimated to be about 100 years for subgrade, 80 years for tunnels, 65 years for main bridges, 55 years for other small bridges and culverts, 25 years for buildings, 20 years for rolling stock, and 8 years for signal and communications. 3 The data for costs of purchasing rolling stock, construction of additional stations, and electrification of the Dawan line were provided by Dacheng Limited. 52 Appendix 14

7. The Project was funded 63% by equity and 37% by long-term loans. The China Development Bank loan will be repayable over the next 14 years, including a 6-year grace period. Repayments of the ADB loan (a US dollar, pool-based loan) are based on the amortization schedule up to 2020.

8. To evaluate the financial performance of the Dawan line, two cases were examined. Reflecting the current status, Case 1 examines the financial performance of Dacheng Limited operating both the Dazhou–Chengdu section and the project railway (Dazhou–Wanzhou). Case 2 considers the scenario of Dawan operating the project railway, as envisaged at appraisal.

9. Under the Case 1 scenario, one of the major revenue items is “offline distribution.” From a financial revaluation point of view, Case 1 should consider the fact that the Dawan line brings additional benefits to Dacheng Limited besides mere profits from operating the Dawan line. Traffic that originates or terminates on the Dawan line often continues well beyond the Dawan line, generating "offline" revenues that generally far exceed costs. These additional "offline" revenues have been attributed to the Dacheng line. The Dacheng railway is one of the leading local railways in the PRC, and it has shown strong financial performance (net profit increased more than four times between 2000 and 2003). MOR, as the largest equity holder in Dacheng Limited, has also demonstrated positive financial performance since 1998. The merger of Dawan Limited with Dacheng Limited—and the consequent increased equity holding by MOR in the Project—was the best possible outcome for the Project (see Appendix 9). Operated by Dacheng Limited, the Dawan line is considered financially sound and sustainable over the long term (see financial projections of Table A14.1).

C. Financial Analysis

10. The major assumptions used for calculating the financial internal rate of return (FIRR) were (i) all calculations are made in 2005 prices, covering the period from 2005 to 2025; (ii) capital costs consisted of actual project costs excluding financial charges during construction, price contingencies, and the costs of station access roads and link roads;4 (iii) operation and maintenance include all annual incremental costs incurred during operation, but exclude depreciation and debt repayment provisions; (iv) operating revenues from tariffs used in financial projections are also adjusted to 2005 prices; and (v) the residual value was estimated based on the undepreciated value of the capital investment.

11. The estimated weighted average cost of capital (WACC), after taxes, in real terms was calculated using the estimated capital mix and costs of funds. Costs were considered as follows: (i) the applicable 10-year fixed swap rate plus a provision for ADB’s spread of 0.6% is used for ADB debt; (ii) the estimated average interest cost of 5.58% per annum is used for the domestic loan funds; and (iii) the cost of equity was assumed to be 8%. The cost of debt is also adjusted to reflect the impact of the 33% income tax.

12. The FIRR for the Project, computed on an after-tax basis, is 5.4%. The FIRR calculated under the Case 1 scenario, without “offline" contribution to Dacheng Limited, is 3.5%. These compare favorably with the WACC, also computed on an after-tax basis, of 3.4% (Table A14.2). The Project is considered both financially viable and sustainable with Dacheng Limited as the operation entity. Sensitivity tests indicate it is unlikely that conditions will occur which cause the Project's viability to fall below WACC. The sensitivity of the Project's financial indicators to cost and revenue variations is shown in Table A14.3.

4 The costs of station access roads and local roads were borne by the local governments.

Table A14.1: Actual and Projected Financial Statements of Dawan Railway (CNY million)

Item/Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 A. Income Statement Freight Revenue — — — — — 12.0 16.3 26.0 34.5 45.9 61.2 81.8 202.3 Passenger Revenue — — — — — — 1.7 47.0 56.6 73.3 87.1 105.7 131.5 Other Revenue — — — — — 1.2 1.8 7.3 9.1 11.9 14.8 18.8 33.4 Other Offline Income — — — — — — — 47.0 56.6 73.2 87.2 105.8 131.4 Gross Revenue — — — — — 13.2 19.8 127.3 156.8 204.3 250.3 312.1 498.6 Less: Business Tax and Other Charges — — — — — 0.5 0.7 4.4 5.4 7.0 8.6 10.7 17.1 Net Revenue — — — — — 12.7 19.1 122.9 151.4 197.3 241.7 301.4 481.5 Less: Annual Operating Costs — — — — — 33.0 50.9 71.0 78.6 89.5 100.9 116.0 171.9 Less: Depreciation/Amortization — — — — — — 49.2 49.2 49.6 49.6 50.0 50.3 50.3 Less: Interest Charges — — — — — 0.2 19.3 53.2 49.6 45.9 41.8 37.6 33.3 Pre-Tax Profit — — — — — (20.5) (100.3) (50.5) (26.4) 12.3 49.0 97.5 226.0 Income Tax 28.1 Net Profit for the Year — — — — — (20.5) (100.3) (50.5) (26.4) 12.3 49.0 97.5 197.9

B. Cash Flow Statement

Source of Funds Revenue — — — — — 12.7 19.1 122.9 151.4 197.3 241.7 301.4 481.5 Less: Operating Costs and Taxes — — — — — 33.0 50.9 71.0 78.6 89.5 100.9 116.0 200.0 Increase/Decrease in Working Capital — — — — — 4.3 2.3 (1.1) (0.1) (0.4) (0.2) (0.4) (0.2) Subtotal Internal Cash Generation — — — — — (16.0) (29.5) 50.8 72.7 107.4 140.6 185.0 281.3 Injection of Equity from MOR/PG 570.0 357.0 301.0 155.6 440.5 34.8 164.4 150.0 — Borrowings 387.0 196.0 250.0 162.0 55.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Source of Funds 957.0 553.0 551.0 317.6 495.5 18.8 134.9 200.8 72.7 107.4 140.6 185.0 281.3 Application of Funds Capital Expenditures 948.8 480.1 578.5 314.7 334.5 175.2 60.0 0 24.8 0 26.3 13.5 0 Loan Repayment — — 13.5 13.7 15.1 16.6 72.6 115.9 115.9 115.9 116.0 115.9 116.0 Total Application of Funds 948.8 480.1 592.0 328.4 349.6 191.8 132.6 115.9 140.7 115.9 142.3 129.4 116 Net Cash Flow 8.2 72.9 (41.0) (10.8) 145.9 (173.0) 2.3 84.9 (68.0) (8.5) (1.7) 55.6 165.3 Cash Balance at the Beginning of Year 0.0 8.2 81.1 40.1 29.3 175.2 2.2 4.5 89.4 21.4 12.9 11.2 66.8 Cash Balance at the End of Year 8.2 81.1 40.1 29.3 175.2 2.2 4.5 89.4 21.4 12.9 11.2 66.8 232.1

14 Appendix

53

54 Item/Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 C. Proforma Balance Sheet Cash 8.2 81.1 40.1 29.3 175.2 2.2 4.5 89.4 21.4 12.9 11.2 66.8 232.1 —

Other Current Assets — — — — 0.7 1.0 5.2 6.4 8.4 10.3 13.0 21.6 14 Appendix Net Fixed Assets in Operation — — — — — — 2,849.9 2,803.6 2,779.7 2,731.4 2,709.2 2,674.4 2,632.1 Construction in Progress 948.8 1,428.9 2,007.4 2,322.1 2,656.6 2,836.6 — — — — — — — Total Assets 957.0 1,510.0 2,047.5 2,351.4 2,831.8 2,839.5 2,855.4 2,898.2 2,807.5 2,752.7 2,730.7 2,754.2 2,885.8 Current Liabilities — — — — — 5.0 7.6 10.7 11.8 13.4 15.1 17.4 25.8 Borrowing from ADB 43.0 239.0 475.5 623.8 663.7 647.1 628.9 603.2 576.0 547.2 516.6 484.2 449.9 Borrowing from CDB 344.0 344.0 344.0 344.0 344.0 344.0 308.8 271.6 232.3 190.8 147.0 100.8 52.0 Total Liabilities 387.0 583.0 819.5 967.8 1,007.7 996.1 945.3 885.5 820.1 751.4 678.7 602.4 527.7 Paid-in Capital 570.0 927.0 1,228.0 1,383.6 1,824.1 1,858.9 2,023.3 2,173.3 2,173.3 2,173.3 2,173.3 2,173.3 2,173.3 — — — Retained Earnings — — (20.5) (120.8) (171.3) (197.7) (185.4) (136.4) (38.9) 159.0 Total Liabilities and Equities 957.0 1,510.0 2,047.5 2,351.4 2,831.8 2,839.5 2,855.4 2,898.2 2,807.5 2,752.7 2,730.7 2,754.2 2,885.8

D. Operational Indicators Freight Tons (thousand) — — — — — — — 1,353.0 1,721.0 2,195.0 2,807.0 3,602.0 7,615.0 Freight t-km (million) — — — — — — — 153.0 197.0 254.0 329.0 427.0 1,024.0 Passenger (thousand) — — — — — — — 2,438.0 2,845.0 3,580.0 4,131.0 4,866.0 5,240.0 Passenger km (million) — — — — — — — 261.0 304.0 383.0 442.0 521.0 629.0 Converted t-km — — — — — — — 414.0 501.0 637.0 771.0 948.0 1,653.0 Average freight haul (km) — — — — — — — 113.0 114.0 116.0 1,170.0 119.0 134.0 Ave. Passenger trip length (km) — — — — — — — 107.0 107.0 107.0 107.0 107.0 120.0 No. of employees — — — — — — — 525.0 525.0 690.0 770.0 1,015.0 1,685.0 Converted t-km/employee — — — — — — — 0.8 1.0 0.9 1.0 0.9 1.0 Freight t-km/route length — — — — — — — 1.0 1.3 1.6 2.1 2.7 6.5 Passenger km/km length — — — — — — — 1.7 1.9 2.4 2.8 3.3 4.0 Converted t-km/route length — — — — — — — 2.6 3.2 4.1 4.9 6.0 10.5 Average turnover time of wagon — — — — — — — 1.5 1.9 2.2 2.4 2.5 2.6 Average load/freight wagon — — — — — — — 52.3 53.7 53.7 56.4 56.4 56.4

E. Ratios Operating Ratio — — — — — — — 116% 104% 91% 83% 77% 70% Working Ratio — — — — — — — 58% 52% 45% 42% 38% 36% Debt Service Ratio — — — — — — — 0.44 0.63 0.93 1.21 1.60 2.43 Debt/(Debt+Equity) Ratio 40.4 38.6 40.0 41.2 35.6 35.1 33.2 30.7 29.30 27.40 25.00 22.00 18.50 — data not calculated, ADB = Asian Development Bank, CDB = China Development Bank, km = kilometer, MOR = Ministry of Railways, PG = provincial governments, t-km = ton-kilometers. Sources: Dawan Limited and ADB estimates.

Appendix 14 55

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

Capital Total Non- Project Corporate Net Cash Flow after Year Investment Capital Cost Revenues Income Tax Income Tax 1998 (893.9) (893.9) 1999 (474.3) (474.3) 2000 (509.6) (509.6) 2001 (319.0) (319.0) 2002 (248.8) (248.8) 2003 (143.3) (33.5) 14.4 (162.4) 2004 (60.0) (51.6) 21.6 (90.0) 2005 (75.6) 134.6 59.0 2006 (24.0) (81.8) 161.1 55.2 2007 (91.3) 203.8 112.5 2008 (24.0) (100.7) 242.7 118.0 2009 (12.0) (113.1) 293.9 168.8 2010 (164.0) 458.9 (80.4) 214.5 2011 (74.0) (170.8) 485.8 (82.1) 158.9 2012 (178.3) 514.8 (91.1) 245.4 2013 (12.0) (186.1) 545.4 (99.8) 247.5 2014 (194.4) 577.7 (108.8) 274.5 2015 (110.0) (203.2) 612.0 (118.4) 180.4 2016 (134.0) (212.5) 648.3 (128.3) 173.5 2017 (110.0) (222.5) 686.8 (138.8) 215.5 2018 (232.9) 727.5 (148.2) 346.5 2019 (24.0) (244.1) 770.9 (159.8) 343.0 2020 (60.0) (227.9) 764.7 (155.3) 321.5 2021 (262.0) 809.9 (167.9) 379.9 2022 (36.0) (270.5) 857.9 (181.1) 370.3 2023 (248.4) 877.8 (195.4) 434.1 2024 (12.0) (289.0) 962.8 (210.3) 451.5 2025 2,082.4 (298.9) 1,019.8 (226.2) 2,577.1 FIRR after corporate tax (%) 5.4 FIRR = financial internal rate of return. Source: Asian Development Bank estimates.

Table A14.3: Sensitivity Analysis

Item FIRR Sensitivity Indicatora Base Case 5.4 1 Revenues decrease by 10% 4.7 1.3 2 O&M increase by 10% 5.2 0.4 3 Worst Case (both 1 and 2 above) 4.4 1.9 FIRR = financial internal rate of return; O&M = operation and maintenance. aSensitivity indicator = percentage change in FIRR/percentage change in variable tested. Source: Asian Development Bank estimates.

56 Appendix 15

ENVIRONMENTAL IMPACT ANALYSIS

A. Introduction

1. The Daxian–Wanxian Railway Project is on the northeast edge of the Sichuan basin. The Dazhou–Wanzhou (Dawan) railway (formerly the Daxian–Wanxian railway) traverses a series of low-lying hills in three banded chains stretching in a northeast direction between Dazhou and Wanzhou. Its ridges are 700 to 1,000 meters (m) above sea level, while its valleys are made up of broad flatlands 300 to 500 m above sea level. The railway line is located at the northern end of a parallel fold belt with northeast orientation. This is also the eastern section of the Sichuan subsidence zone of a neocathaysian system, and includes a chain of anticlines with steep limbs and a gentle synclical valley. There are three levels of groundwater in this area: pore, crevice, and karst; their impact on rock formations and lithology depends on the way the groundwater is stored. Storage conditions for the karst variety tend to be better than storage conditions for the other two varieties. The Dawan railway passes through the Yangtze River system, which is affected by monsoon rains. The major rivers are the Zhouhe, Mingyue, Renshihe, and Shahe. Eight staged hydropower stations have been built on the Mingyue River. The geological structures along the railway are complex and contain a combination of multi-structural systems. The main structural characteristics commonly seen are landslides, karst, collapses, rock accumulations, soft soil, and gases. The most widely distributed soil types are yellow soil, freshly accumulated soil, purple soil, and paddy rice soil.

2. The area covered by the Project has a subtropical climate, characterized by an early spring, hot summer, and drizzly autumn and winter. The average annual temperature ranges approximately from 16 to 17 degrees centigrade (oC), with a high of 42.30oC and a low of minus 6.60 oC. The mean average rainfall is 1,175 to 1,252 millimeters (mm), of which 70% occurs between May and September, and an average annual relative humidity of 80%. Prevailing winds in the area are in a northeasterly direction, with an average wind speed of 2 to 3 m per second and a maximum wind speed of 12 to 15 m per second.

3. There is little forest coverage in the area; most is located above the proposed Leiyinpu and Fenshui tunnels on the project route, with the remainder located between Dafeng and Liangping, and between the Sanzheng and Wanzhou stations on the project route. The trees along the line are mainly young to middle aged, with broad-leaved evergreens or combined broad-leaved and conifer forests predominating. Included in this group are pine, spruce, cypress, poplar, beech, eucalyptus, and alder. The land along the railway line is highly arable and supports cultivation on 25–41% of the area in the different regions, and forestry activity on 16–25%. Urban use accounts for 4–10% of the land area. Soil erosion is widespread, affecting 51–70% of the total area along the railway line. The reasons for this are varied: heavy rainfall, steep mountains, reduction of forest and vegetation areas because of human activity, and inadequate soil protection measures.

4. In August 1994, an environmental impact assessment (EIA) of the Project was prepared by the Second Survey and Design Institute of the Ministry of Railways. The EIA, which covered the environmental and social impacts associated with the construction and operation of the railway, was approved by the National Environmental Protection Administration in May 1995. The EIA concluded that the Project would not have a major impact on the environment. A summary EIA was circulated to Asian Development Bank's Board of Directors on 10 July 1995. The final alignment was selected to minimize construction costs, resettlement costs, and adverse environmental impacts.

Appendix 15 57

B. Environmental Management

5. The Dawan Railway Company Limited (Dawan Limited) was responsible for environmental management and supervision for the Project. During construction, designated personnel were in charge of the mitigation measures prepared during the EIA. The personnel reviewed the environmental monitoring measures and reports, responded to any adverse environmental impacts, supervised the contractors and construction supervision companies, and reported to and liaised with the relevant agencies. All important environmental matters and decisions were referred directly to the senior management of Dawan Limited. At the request of Dawan Limited, each contractor and construction supervision company designated staff from the site management team to deal with environmental issues.

6. Since beginning operations, Dawan Limited has paid constant attention to environmental management. The designated personnel continue to initiate additional mitigation measures, carry out routine maintenance of environmental facilities, and control pollution.

C. Environmental Monitoring

7. Environmental monitoring took place at two levels: daily environmental monitoring, carried out by the contractors and construction supervision companies on the site; and periodic environmental monitoring, carried out by specialist staff, who took samples and analyzed them according to the monitoring procedures and guidelines.

8. The Environmental Science Research Institute in Wanzhou (ESRI) was engaged by Dawan Limited to monitor environmental management and mitigation measures during implementation of the Project. Overall pollution control and mitigation measures were supervised by the Sichuan Provincial Environmental Bureau and the Chongqing Municipality Environmental Bureau. ESRI staff visited the site for periodic environmental monitoring and inspection, gave guidance and advice on environmental monitoring, trained project staff, planned the implementation of mitigation measures, and reported their findings. Between 1998 and 2000, ESRI submitted three annual environmental monitoring reports to Dawan Limited and Asian Development Bank.

D. Environmental Protection and Mitigation Costs

9. The details of the costs are in Table A15.

Table A15: Environmental Protection and Mitigation Costs

Items Appraisal (CNY million) Actual (CNY million) Water Pollution Abatement 1.10 1.10 Noise Prevention 0.50 3.78 Afforestation and Soil Erosion Protection 34.88 48.54 Air Pollution 0.00 0.02 Contingency 4.52 0.00 Total 41.00 53.44 Sources: (i) ADB. 1995. Summary Environmental Impact Assessment for the Daxian–Wanxian Railway Project. Manila; and (ii) Dawan Limited.

E. Implementation of Mitigation Measures

10. During implementation, environmental monitoring and mitigation measures were carried 58 Appendix 15 out according to the EIA and summary EIA, and the Environmental Protection Law of the People’s Republic of China. The following measures have been taken to minimize adverse environmental impacts:

(i) Using spoils from tunnels and other places in building embankments or railway stations, and moving the unused spoils into nearby valleys with retaining walls to prevent them from being dumped into rivers;

(ii) Planting trees on the embankment slopes along the railway;

(iii) Transferring land leveled for temporary use to local farmers for replanting;

(iv) Building a wastewater treatment plant at Wanzhou Station;

(v) Building ditches or conduits to drain water;

(vi) Relocating the schools that were affected by the construction away from the railway line;

(vii) Training supervisors to deal with gas in tunnels, purchasing gas detection equipment, and attaching importance to ventilation while tunneling; and

(viii) Further revising and perfecting the design of the bridges to avoid flooding.

F. Environmental Impact

1. Ecological Environment

11. The dumping grounds for spoils along the Dawan railway line were carefully chosen and retaining walls were installed. The tops of the spoils banks were smoothed out and replanted with trees or recultivated. The bridge spans were designed to be wider than those previously existed on site, so as to minimize the impact on navigation, floods, and irrigation. Soil erosion has been controlled, and the construction has not adversely affected the surrounding environment.

2. Environmental Air

12. The air pollution from the Project comes from mobile pollution sources such as locomotives and fixed sources such as boilers. Boilers with a chimney height of 25 m installed in the Wanzhou production building at Wanzhou station; moreover, dust-clearing equipment has been installed, so the effect on air quality has been minimal. The Project can meet the class II standard (GB13271-2001) for emission from the boilers. Because the districts along the project route are mountainous, have few industries, and see little traffic, the locomotive gases will not seriously affect the surrounding environment. Similarly, emissions from boilers and shunting locomotives are relatively small.

3. Surface Water

13. Two types of wastewater are associated with the Project. The first is oil and grease wastewater resulting from locomotive operations and maintenance depots. The second is living sewage generated by railway stations. Wanzhou station's sewage has by far the largest impact. A wastewater treatment plant has been built for Wanzhou station. Water-quality monitoring showed that discharge from drains or channels along the project railway had little impact on the water quality of receiving rivers.

Appendix 15 59

4. Noise

14. Noise monitoring points were selected in accordance with the EIA. Since most of the project railway cuts through mountainous, sparsely populated areas, noise pollution from the project construction had only a limited effect on residents along the railway line. For sensitive points such as schools located close to the railway, noise barriers were provided to reduce noise levels to acceptable limits. Nanwai Qianqiu Elementary School in Dazhou, which was affected by the Project, was relocated far away from the railway. The environmental authorities and Dawan Limited received no complaints from the public about noise from the project site.

G. Conclusions

15. During construction, the contractors for all contracts fulfilled their obligations to protect the environment and implement mitigation measures in their construction schemes. The adverse effects of the project construction on the surrounding environment were thus minimized.

16. According to the monitoring results, the railway operation has affected neither the habitat of protected species nor the water quality in nature reserves. The noise level and air quality meet the Government’s regulatory standards, and there has been no significant impact on the water quality of the receiving rivers. The Project has met its environmental protection objectives.

17. In recent years, local governments in the area have constructed natural ecological defenses along the Yangtze River and carried out a series of environmental protection projects, including water and soil protection projects, terracing of slopes, and reforesting of farmland. 60 Appendix 16

EVALUATION OF LAND ACQUISITION AND RESETTLEMENT ACTIVITIES

A. Scope of Land Acquisition and Resettlement

1. The Resettlement and Compensation Plan (RP) for the Dazhou–Wanzhou (Dawan) Railway Project (then known as the Daxian–Wanxian Railway Project) was prepared in 1996. According to the RP, the railway project construction would involve land acquisition, demolishment of buildings, and resettlement of affected persons. Total land acquisition was estimated to be 672 hectares (ha) (10,082 mu1), which included land required for construction of the railway line and for railway stations. The impact of land loss was estimated to be equivalent to loss of livelihood for 11,290 persons relocated across 131 villages. The amount of house demolitions was estimated to be 167,652 square meters (m2), which would require about 1,000 households to be relocated. In addition, the Project was to temporarily borrow land for construction purposes, but the RP contained no related information.

2. According to the project completion report prepared by Dawan Railway Company Limited (Dawan Limited) in 2004, most resettlement activities commenced in 1997 and finished by the end of 1999. A total of 627 ha of land was permanently acquired by the Project, a decrease of 7% compared to the RP forecast of 672 ha. The land loss was equivalent to lost farming livelihood for 8,245 persons. A total of 350,642 m2 of housing was demolished under the Project, an increase of 109% compared to the RP forecast. A total of 2,045 households (9,325 persons) were relocated to newly built houses. The main reasons that actual figures differed from those in the RP were (i) the delayed implementation of resettlement activities, and (ii) contract variations. The survey for preparation of the RP was conducted in 1995, and the detailed pre-implementation survey was conducted in 1997. Many new houses were built during the two interim years because project construction information had been disclosed to local people. The geological conditions in the Sichuan section are more favorable than the conditions in the Chongqing section, so contract variations resulting from landslides caused a significant increase in the number of houses demolished. The RP had never been updated according to the detailed survey data. Table A16.1 shows the variations of resettlement impacts in different project phases.

Table A16.1: Project Impacts: RP, Technical Design, and Actual Amount

Item Unit Sichuan Chongqing Total Permanent Land Resettlement Plan (RP) mu 4,775 5,307 10,082 Acquisition Technical Design (TD) mu 4,261 4,806 9,067 Actual amount mu 3,879 5,526 9,405 Actual amount compared with RP % (19) 4 (7) Actual amount compared with TD % (9) 15 4 Building Resettlement Plan (RP) m2 82,435 85,217 167,652 Demolition Technical Design (TD) m2 144,044 188,134 332,178 Actual amount m2 124,636 226,006 350,642 Actual amount compared with RP % 51 165 109 Actual amount compared with TD % (13) 20 6 Affected Persons By Land Acquisition Persons 2,970 5,279 8,245 By House Demolition Persons 3,298 6,026 9,325 Source: Dawan Limited.

1 1 mu = 1/15 of a hectare

Appendix 16 61

3. There is no data on temporarily acquired land, but compensation for such land has been settled with the contractors. Before the Dawan railway construction began, it was not certain how much land would have to be acquired temporarily. During the railway construction, whenever temporary acquisition needs arose, the construction contractor signed agreements directly with farmers, groups, or villages, negotiating and deciding the temporary land compensation according to the relevant policies. Temporary land was acquired for piling construction materials, transit roads, and temporary work sheds. Because Dawan Limited was not responsible for any of the agreements on temporary land acquisition, there is no corresponding data on the exact amount of temporary land acquired and temporary land compensation. However, the survey Southwest Jiaotong University shows that compensation for temporary land acquired has been paid to affected persons.

B. Resettlement Policy and Compensation Rates

4. Land acquisition and resettlement was implemented based on the RP, the 1986 Land Administration Law,2 and the following municipal government rules and regulations: (i) the No. 203 Circular for suburban resettlement and No. 195 Circular for rural resettlement issued by Dachuan Municipal Government; and (ii) the No. 24 Circular for suburban resettlement and No. 133 Circular for rural resettlement issued by Wanxian Municipal Government. Table A16.2 compares the actual land compensation rates under the Project with the rates outlined in the RP. In most cases, actual compensation provided was less than those approved in the RP.

Table A16.2: Land Compensation Rates (CNY/mu)

Implemented Rates Resettlement Plan Sichuan Chongqing Items Rates Rural Suburb Rural Suburb Paddy Field 6,900 3,000–4,200 4,000 4,800–8,000 4,000–7,500 Dry land 6,050 4,000 Vegetable Land 8,400 4,200–5,400 6,000 4,800–9,000 Forested Land 5,500 1,500–2,100 2,000 3,000–4,000 2,000–3,600 Orchards 20,000 4,200–5,400 6,000 4,800–8,000 4,000–6,000 Undeveloped Land 1,000 1,500–2,100 2,000 2,400–4,000 Residential Land 3,600 2,000 2,000–3,600 Notes: (i) Households that had less than 0.4 mu/capita remaining were provided with additional compensation for non-agricultural resettlement of CNY8,000 per person in Sichuan, and CNY8,000–CNY11,500 per person in Chongqing, depending upon age. (ii) The rate for orchards includes land only; additional compensation was given for affected fruit trees. Source: Dawan Limited.

5. Compensation rates for land occupied temporarily by the Project included both compensation funds and funds to cover restoring the land to its original use. The compensation funds were formulated taking into consideration duration of occupation and the average annual output value of the land. Contractors paid compensation directly to affected persons.

6. Under the RP, different types of houses received different house compensation rates. The actual implemented rates were higher in suburban areas than in rural areas, which were considered fair and easier to implement by the local governments. The actual house compensation rates in rural areas were less than the rates suggested in the RP. The RP did not suggest separate rates for urban and rural houses (See Table A16.3).

2 The new Land Administration Law became effective on 1 January 1999.

62 Appendix 16

Table A16.3: Building Compensation Rates (CNY/m2)

Adopted Rates Resettlement Plan Sichuan Chongqing Items Rates Rural Suburb Rural Suburb Storied buildings/ brick- concrete 157.5 90–110 225–265 80–100 120–160 Brick bamboo wall with tiled roof 140.0 60–90 200–255 65–80 100–140 Sun-dried mud brick wall with tiled roof 122.5 40–50 30–50 50–60 80–120 Brick bamboo wall thatched roofs 105.0 40–50 30–50 45 80–100 Sun-dried mud brick walls with thatched roofs 87.5 20–30 30–50 45 60–80 m2 = square meters. Note: New apartments were built by the Government, so many affected persons opted for house exchange rather than cash compensation. If the new house was larger, affected persons had to pay CNY450 per extra m2 of area. Source: Dawan Limited.

C. Resettlement Measures and Income Restoration

7. Each household affected by house demolition signed an agreement with the local government. Relocated households in rural areas received compensation for buildings and attached properties directly from district or township resettlement offices. In addition to cash compensation for lost properties, affected households were provided with new housing plots in the same village at 20–30 m2 per person, following local regulations. Affected households also received relocation allowances of CNY100–200 per household. Local governments also waived the taxes and/or fees for building the new houses, estimated at CNY4,000–5,000 per household. Relocated households in suburban or urban areas were provided with two options—cash or in-kind compensation (i.e., house exchange). Most affected households opted for in-kind compensation. The new apartments were built either by villages or local governments.

8. A successful, community-based, participatory house exchange was observed in the village of Xiaogongmiao in the Tongzhou district. According to Mr. Nie Liulin, director of the village committee, 33 households were affected by the Project and needed to be relocated. At village meetings, heads of five of these affected households were voted to represent all affected households. They were responsible for all house-building activities, including purchasing materials, recruiting the construction teams, supervising the construction, quality control, meeting with all affected households to allocate apartments, and balancing the construction costs and compensation funds. Asian Development Bank (ADB) visited a few of these new apartments and people indicated that they were very satisfied with the relocation.

9. For vulnerable groups affected by the Project, Dawan Limited and local governments provided various sorts of house-building assistance. For example, Mr. Xu Zhongfu, a disabled farmer in the village of Yonganzai Village in Kaijiang County, received an additional subsidy of CNY5,000 from Dawan Limited for purchasing construction materials, and built his new house with assistance from the local government.

Appendix 16 63

10. All affected villages were aware of the land compensation rates that had been adopted, and they received the correct amount of compensation. For those villages that still had sufficient land (more than .027 ha per capita after land acquisition), the remaining farmlands were readjusted and reallocated for all farmers within the village; thus the affected persons owned the same land areas as others. These villages used land compensation funds and resettlement subsidies for collective purposes or distributed the funds equally to all villagers. Meanwhile, based on participation and volunteering, local governments gave five livelihood rehabilitation options to affected persons in villages that were left with less than .027 ha of land per capita after land acquisition: (i) lump sum compensation, (ii) employment in enterprises, (iii) provision of new places of business, (iv) social insurance, and (v) provision of livelihood allowance.

11. Field surveys revealed that most affected persons preferred lump-sum compensation amounting to CNY8,000–11,500 per person. Since the Project is located in a high-poverty region, local employment opportunities are limited. Most young farmers had migrated east or south to find jobs. The construction of the project railway created temporary jobs for local people. Table A16.4 outlines which resettlement option people chose.

Table A16.4: Livelihood Rehabilitation Choices Selected by People (persons)

Number of Among which People Affected by Employment New Land Lump-sum Readjusted in Paces of Social Livelihood Province Acquisition Compensation Land Enterprises Business Insurance Allowance Sichuan 2,970 1,933 820 217 Chongqing 5,275 1,564 1,789 220 110 1,592 Total 8,245 3,497 2,609 220 110 217 1,592 Share (%) 100 42 32 3 1 3 19 Source: Dawan Limited.

12. Twenty-five enterprises or institutions were affected by the construction of the Dawan railway, including 15 in Sichuan section (with a total demolished area of 25,000 m2) and 10 in Chongqing section (with a total demolished area of 26,309 m2). Compensation and rehabilitation for affected enterprises or institutions was based on extensive consultations and negotiations. Dawan Limited and local governments engaged real estate assessment agencies to evaluate the losses of, negotiate, and sign agreements with the affected entities. Most enterprises were rebuilt near the original sites. Most were demolished after moving; when demolition was required prior to completion of the new, relocated factory, Dawan Limited paid for the transitional losses—operational losses as well as employees’ salaries.

D. Resettlement Cost

13. The total actual cost of compensation for land acquisition, building relocation, and affected facilities was CNY222.81 million ($26.9 million equivalent), which is 150% higher than the CNY89.3 million ($10.8 million) estimated in the RP. Total compensation was higher than planned because more buildings had to be demolished than expected, and because the resettlement subsidy for land acquisition increased. About 70% of the funds were paid by Dawan Limited and the remaining 30% were paid by local governments. Resettlement made up 7.82% of the total project cost.

64 Appendix 16

Table A16.5: Variation of the Resettlement Cost (CNY million)

Resettlement Item Plan Actual Variation (%) 1. Land Acquisition 60.5 90.82 50 2. Building Demolition 20.1 107.30 434 3. Affected Facilities 8.6 24.69 187 i. Power line 9.54 ii. Telecommunication line 4.00 iii. Pipeline 6.01 iv. Others 8.6 5.14 (40) Total 89.3 222.81 150 Note: Dawan Limited financed only part of the resettlement costs; their agreement with local governments was based on uniform rates of CNY6,000/m2 and CNY270/m2 (including infrastructure costs) for a total amount of CNY154.4 million. Local governments paid the balance (CNY68.4 million). This burden mainly fell on the Wanzhou city government, which had to pay for additional, non-agricultural resettlement. Source: Dawan Limited.

E. Institutional Arrangement

14. Railway offices and governments at various levels along the Dawan railway were responsible for land acquisition, house demolition, and relocation. The governments of Sichuan Province and Chongqing Municipality, as well as their planning commissions and land administration bureaus, were responsible for negotiating and making decisions on significant issues, including approval of land use, land acquisition, house demolition, compensation, and legal certificates such as land certificates. Along the Dawan railway, Dazhou City and Wanzhou district of Chongqing (the former Wanxian city) established the Leading Groups of Supporting Railway Construction. Railway Offices subordinate to the Leading Groups were also established.

F. Resettlement Schedule

15. The initial survey of land acquisition and resettlement for the Project was conducted by the 2nd Railway Design Institute in 1995, and the RP was formulated based on the initial survey and submitted to ADB for approval in 1996. Due to Chongqing Municipality’s separation from Sichuan Province, project implementation started later than expected and the detailed survey was conducted in 1997. Land acquisition and resettlement activities began in 1998 and were largely completed in 1999, before the construction of the railway line commenced.

G. Monitoring and Evaluation

16. The project management office of Dawan Limited initially acted as the monitoring agency. It supervised resettlement implementation from 1998 to 1999, then submitted the first two monitoring and evaluation (M&E) reports to ADB. Since 2000, at the request of ADB, Dawan has engaged Southwest Jiaotong University as the external agency conducting independent monitoring and evaluation of the Project. They submitted report Nos. 3–7 to ADB on a biannual basis. In addition, in response ADB's comments, Southwest Jiaotong University prepared the required post-evaluation report on land acquisition and resettlement in September 2003. All of the above reports provide useful information on selected villages, but there was no baseline survey enabling a systematic evaluation of a representative sample of affected households. This is now a standard requirement for ADB projects with a resettlement component. Nonetheless, the M&E reports on selected villages indicated that most people were satisfied with

Appendix 16 65 compensation and resettlement, largely as a result of local governments taking measures to support housing exchange and non-agricultural resettlement.

H. Participation and Information Disclosure

17. Public participation was a key principle throughout the entire process of land acquisition, house demolition, and relocation. The principle also was key to the socioeconomic surveys made early in the Project, and throughout project implementation. During the preparatory stages of the relocation plan, conducted from July to December in 1995, representatives from village groups and villages took part in surveys with local governments, the No. 2 Prospecting and Design Institute, and Dawan Limited. The local governments publicized the policies and rates on land acquisition, house demolition, and relocation, as required by the city, provincial, and national governments. To maintain their benefits, non-government institutes, such as villager commissions and villager groups, actively took part in the surveys to confirm that the quantities of land, house, and the land attachments that were affected by the Project and to report affected persons’ opinions on compensation and relocation. During project construction, affected persons were given priority for jobs offered by the railway construction companies. Once the railway was in operation, Dawan Limited, working closely with local groups, recruited affected persons to be porters, trash collectors, and safety guards. Also, the ADB mission observed that the options for exchange housing (in-kind compensation) in Xiaogongmiao Village of Tongzhou District is a very successful case.

I. Conclusions and Lessons Learned

18. Open, equal, and just principles prevailed in land acquisition, house demolition, and relocation. The local governments publicized the land acquisition policies and rates related to land acquisition, house demolition, and relocation, as required by the city, provincial, and national governments. However, these rates were often lower than stipulated in the RP, which indicates that the RP was never endorsed or approved by local governments. The Executing Agency and/or local government endorsement of the RP and compensation standards is now a standard ADB requirement in the People’s Republic of China.

19. Dawan Limited and governments at various levels consulted with affected persons subject to house demolition and relocation, groups and villages affected by land loss, and relocated enterprises. Throughout the process of land acquisition, house demolition, and relocation, affected groups and persons were able to report their difficulties, problems, appeals for aid, and complaints through various channels. Dawan Limited, all levels of government, and various railway offices worked proactively to solve all problems reported by affected persons.

20. The relocation process gave priority to solving the problems of affected persons. For example, affected persons in Liangping were relocated to the commercially active area around Liangping railway station. Due to an imperfect land law, governments traditionally develop the land around railway stations themselves because it has high commercial value. But the Liangping government relocated affected households to this area, which has provided them with improved living conditions as well as business opportunities. Although business opportunities around the Liangping station are currently limited by low passenger volume, opportunities will increase markedly after the opening of the Wanzhou–Yichang Railway in 2008.

21. The relocation efforts in Xiaogongmiao village also provide a valuable lesson in community-based resettlement.

66 Appendix 16

22. Regarding housing, there were two main problems observed. The first problem was the small average size of affected persons' new houses as a result of low compensation standards. Small house size makes it difficult for affected persons to lease their houses to earn extra income. The second problem was that some affected persons were relocated to remote areas with few business opportunities. However, when affected persons' concerns are given full attention by village leaders and local government, the resettlement problems can be resolved in a fair and timely manner.

23. Relocation of affected persons in Wanzhou was tougher than in other areas because a previous resettlement program related to the Three Gorges Water Resources Project was already making it difficult for the people of Wanzhou to find jobs. Therefore, affected persons relocated from areas around Wanzhou railway station had low satisfaction rates compared with others surveyed.

24. ADB found that the M&E reports, while frequent, did not provide systematic assessments because they did not include a baseline survey. Instead, these reports were largely anecdotal and based on small sample sizes. Reports based on larger sample sizes would have provided a better basis for evaluating resettlement results. Representative, comprehensive M&Es require more budget funds.

Appendix 17 67

SOCIOECONOMIC IMPACTS

A. Introduction

1. The project railway directly involved five counties and/or districts with a total population of 4.8 million: Tongchuan District, Dazhou and Kaijiang counties within Sichuan Province, Liangping County, and Wanzhou District within Chongqing Municipality. These areas had an average rural income of CNY1,900 in 2000 (a year before the trial operation started in 2001; data for earlier years was not available) and an average gross domestic product (GDP) per capita of CNY3,514 (Table A17.1). Rural inhabitants made up 81% of the population in the project area in 2000. While the project area is rich in mineral resources and agricultural products, it is mountainous and difficult to access. As a result, it is one of the least developed and poorest regions in the country. A lack of transportation facilities in particular has hindered economic growth in this area. At appraisal it was expected that the Project, with support from the Government, would facilitate economic growth in the project area through (i) providing railway services to rural counties; (ii) facilitating the development of local roads connected to the project railway; (iii) developing commercial areas around the railway stations; (iv) improving access to agricultural markets; (v) connecting villages along the railways to telephone lines; (vi) increasing labor mobility; (vii) developing enterprises and industries in order to create employment opportunities; (viii) increasing investment in the project area; and (ix) increasing tourism, especially in the neighboring Three Gorges area.

Table A17.1: Economic Data for 2000 and 2003 Ave. Rural Rural Agri. GDP Per Income Per Total Population Share of Capita Capita Population in % of Total Total Area Year (million) Population (CNY） GDP (%) (CNY） PRC 2000 1,267.4 64.0 7,086.0 16.3 2,253.0 2003 1,292.3 60.0 9,073.0 14.6 2,476.0 Change (2000–2003, in %) 2.0 (6.7) 28.0 (10.6) 9.9 Sichuan 2000 84.1 82.0 4,784.0 23.6 1,904.0 2003 86.7 78.9 6,291.0 21.1 2,108.0 Change (2000–2003, in %) 3.1 (3.8) 31.5 (10.6) 10.7 Chongqing 2000 30.9 66.8 5,257.0 13.6 189.7 2003 31.2 62.0 7,224.0 15.0 2,215.0 Change (2000–2003, in %) 0.9 (7.2) 37.4 (11.0) 16.7

5 Project 2000 4.7 81.0 3,514.0 38.2 1,900.0 Counties 2003 4.8 77.0 4,870.0 33.3 2,221.0 Change (2000–2003, in %) 1.4 (4.9) 38.6 (12.8) 16.9 Agri. = agricultural, Ave. = average, GDP = gross domestic product, PRC = People's Republic of China. Source: National and Sichuan Statistical Year Book.

2. The construction of the project railway encouraged the Government to complement the Project with a number of benefit-enhancing poverty reduction and development activities. The Project provided conditions for poverty reduction and socioeconomic development in the project area. Within the Project’s five counties (Table A17.1), available data shows that per capita gross

68 Appendix 17 domestic product growth in 2000–2003 ranged from 31.2% to 50.2% per year. Growth of average farmer income ranged from 14.4% to 18.3% per year. As a result, average rural income per capita increased from CNY1,900 in 2000 to CNY2,221 in 2003, and average GDP per capita increased from CNY3,514 in 2000 to CNY4,870 in 2003. Growth of both of these indicators was higher in the project area than in Sichuan Province and the country as a whole (Table A17.1) over the same period. The rural population share in the project area declined from 81% in 2003 to 77% in 2000. This decline was steeper than in Sichuan Province and the country as a whole.

B. Project Impacts

1. Providing Railway Services to Rural Counties

3. The project railway changed the dynamics of local transportation. Local people had previously relied mainly on water carriage on the Yangtze River to get around and to transport their goods. Water carriage is a relatively cheap form of transportation, but it is slow. This reduces passengers’ working efficiency and prevents them from carrying perishable goods, such as agriculture produce, over long distances. Furthermore, the Yangtze River waterway, while extensive, reaches a limited number of destinations within the People's Republic of China (PRC).

4. Trains facilitate the circulation of goods and improve communication for people who live near the railway. The people of Wanzhou and its neighboring counties benefited the most in this sense. The project railway connected the west of Sichuan Province to the east of Chongqing Municipality. By linking up with the Baoji–Chengdu and Xiang–Yu railways through the Chengdu–Wanzhou railway, the project railway has become an integral part of the critical railway network that covers all of Sichuan Province and Chongqing Municipality. The rural people in the project area have gained expanded access to markets in the region. Moreover, the project railway and the Yichang–Wanzhou (YWR) Railway (to be opened to traffic in 2010) will contribute to the completion of the PRC’s critical communication line linking the East and West.

5. An increase in exports, especially mineral resources exports, out of Dazhou is one indication of the Project's effectiveness. Since the Project started operation, Dazhou city has exported about 30 million tons of coal and construction materials annually to other cities via train. Dazhou City has also imported 10 million tons of various goods via train.

2. Developing Commercial Areas around the Railway Stations

6. Freight Services. All railway stations along the project railway have attracted freight companies, creating jobs for porters, including women. Porters' wages are either fixed or based on freight volume carried. At the Liangping railway station, the average monthly income of a porter is between CNY500 and CNY600. Porter salaries can reach as high as CNY1,000 per month. Their annual wages range from about CNY8,000 to CNY9,000. Porters have base salaries of about CNY200 per month, which is paid regardless of how much freight is shipped. About 45 farmers in Dazhong village (part of Hexin town) work as porters.

7. The development of the Maliu railway station benefited local farmers, local government, and private developers. In order to export a large volume of coal, the freight yard needed to be expanded. Using the local government as an intermediary, the developer built the freight yard on land leased from local villagers. Thus, the villagers receive rent, the local government obtains revenue, and the developer gains profits. Leasing land in the project area is more profitable for villagers than planting land with grain—and they may gain additional income by

Appendix 17 69 working as porters or picking up other odd jobs. The Maliu freight yard employs local laborers only, including 24 porters with fixed monthly salaries of CNY600.

8. Passenger and Railway Services. Houses around the railway station double as shops. Most owners lease their houses to other businessmen rather than conducting their own small businesses. While passenger volume is small because so few trains pass through, a diverse range of businesses have sprung up within and outside the Liangping station. Businesses include hotels, small restaurants, buffets, tea bars, luggage checkrooms and consignment rooms, and even shoe-polishing booths. Outside the station one will usually find seven or eight vending wagons selling things like fruit, beverages, newspapers, books and clothes.

9. Alas, not all stations have enjoyed such robust development. For instance, several vending stalls have been set up near the Kaijiang railway station; however, because of the small size of the station, light passenger traffic, and short rest times for trains, these businesses are not thriving.

3. Improved Access to Agricultural Markets

10. Export of Local Products. Agricultural products commonly shipped via the project railway include rice, fruits, and bamboo. Large quantities of bamboo are stacked in the yard at Liangping station (Table A17.2). This bamboo will be used to make furniture or to build greenhouses in the North.

Table A17.2: Major Agricultural Freight Loaded and Unloaded in Liangping Railway Station from November 2004 to April 2005

Loaded (sort） Unit (tons） Unloaded (sort） Unit (tons） Bamboo 7,472 wheat 31,440 Rice 3,895 maize 37,440 Source: Liangping Railway Station.

11. Import of Products. The main imported product is grain for industrial use. For instance, the fodder industry and beer industry of Liangping import most of their grain. Most grain is transported from the North via railway.

4. Increased Labor Mobility

12. In Dazhou and Wanzhou, farmers get most of their cash income from performing immigrant labor or conducting business activities in other regions. The young people in this area started traveling to the coastal cities to work and do business more than 20 years ago. Every spring festival brings a spike in rail travel (Tables A17.3 and A17.4). Thus, the opening of the project railway has benefited those who work and are based away from their home regions. For example, before the opening of the railway, it took a half-day bus ride to get to Liangping from Dazhou and a nearly full-day bus ride to get to Liangping from Chengdu. Now, it only takes two hours to get to Liangping from Dazhou by train. Furthermore, train travel is cheaper than bus travel. And those heading to Chengdu can save time and money by taking the night train.

70 Appendix 17

Table A17.3 Passengers of Liangping Railway Station from November 2004 to April 2005

Time Departures Arrivals November 2004 8,125 8,230 December 2004 10,553 18,653 January 2005 11,850 16,730 February 2005 27,746 14,650 March 2005 20,003 20,120 April 2005 15,657 15,725 Source: Dawan Limited.

Table A17.4：Passengers of Kaijiang Railway Station from November 2004 to March 2005

Time Departures November 2004 4,981 December 2004 6,594 January 2005 8,715 February 2005 21,715 March 2005 12,846 Source: Dawan Limited.

5. Development of Enterprises and Industries, Job Creation, and Increased Investments

13. Liangping County. The project railway has enhanced the development of local enterprises. Most of the feed stock for the brewery and fodder factories in Liangping is brought in by train. Before the opening of the railway, all imported corn and bean cake was first shipped to Chongqing or Dazhou by train, and then to Liangping by truck. Now most goods are transported directly to Liangping by train. Railways offer convenience and the chance to avoid double handling of goods, although trains are not much cheaper than trucks and often run late. Despite these drawbacks, local people and enterprises make frequent use of the railway.

14. The new railway and an improved investment environment led to the establishment of a kiln brick factory in Liangping. About 20 to 30 farmers from Dazhong village work in the factory at monthly salaries ranging from CNY500 to CNY600. They earn much more working in the factory than they do farming.

15. Dazhou City. The convenience of the project railway and the improved investment environment enabled Dazhou to attract more local and foreign investors. Moreover, during the 3 years the railway was being constructed, a large amount of construction materials and manpower was sourced within the city, which enhanced the development of the area's construction materials industry—mainly steel products and cement—and generated employment opportunities for local farmers and residents. The Project also increased government revenues by broadening the tax base.

16. Wanzhou City is rich in salt and natural gas. The local government has long been planning to build an industry park, mainly for developing salt and gas projects, in the area

Appendix 17 71 around Wanzhou railway station. One of Wanzhou's key construction projects, the park will cover about 2,000 or 3,000 mu1 of land. Wanzhou plans to attract CNY5 billion to CNY6 billion of investments to the park.

17. In Fenshui town of Wanzhou City, the railway construction and newly built expressway have led to the establishment of several enterprises, including bakeries, confectionaries, flour mills, and electricity-pole factories. Villagers work in these enterprises.

18. The increased mobility of people has resulted in a rapid increase in land values. The land used for constructing the Wenzhou Trade Town near Wanzhou Railway Station sold for about CNY300,000 per mu. The price of this land has already appreciated and is expected to appreciate more when the Yichang–Wanzhou Railway opens in 2010.

6. Development of Tourism

19. According to Wanzhou's tourism bureau, the project railway has made it more convenient to tour the Three Gorges. Before the railway opening, tourists traditionally traveled to the Three Gorges by boat from Chongqing. The Project has enabled tourists to get to the Three Gorges by boat from Wanzhou, halving travel time and allowing tourists to spend more time enjoying the scenery of the Three Gorges. Previously, a typical tour of the Three Gorges lasted 5 nights and 4 days, or 4 nights and 5 days. Now a typical tour lasts 2 days and 3 nights, and more tourists are visiting the Three Gorges.

20. The project railway has also enabled tourists to combine a trip to the Three Gorges with trips to other tourist spots. Instead of taking the traditional route to the Three Gorges, traveling by boat from Chongqing to Yichang then back to Chongqing, travelers returning from Yichang can now disembark at Wanzhou and proceed to Chengdu by train. This new route saves time and allows tourists to visit other scenic spots.

7. Employment During the Railway Construction

21. Except for the administrators, technicians, and skilled workers brought in by the construction companies, mostly local laborers were employed to build the railway. With the exception of a few specialty items, most construction materials were purchased locally. The local sourcing of materials indirectly generated additional employment. The total value of cement procured from the local suppliers amounted to $4.2 million (380,000 tons), while the value of steel products procured from local suppliers was $2.9 million. The construction companies also purchased local building materials during the railway construction.

22. During the railway construction, many local farmers worked as unskilled laborers, such as drivers and cooks, for about CNY30 per day. The more work they did, the more they earned. Because most males in the project area worked outside the region, females were often employed for the construction work. Most of them did minor jobs, although a few performed heavy manual labor. Some males worked as porters, mainly in building freight yards and carrying construction materials for the railway. Those who owned trucks could find work transporting construction materials. One truck driver earned CNY40,000 to CNY50,000 over the 4 years the railway was being constructed.

1 1 mu = 1/15 of a hectare.

72 Appendix 17

23. During that 4-year construction period, many farmers in Liangping took advantage of the off-season to work as casual local laborers in the railway construction. They generally earned about CNY20 per day. Farmers thus benefited considerably from the railway construction. Farmers from Dazhong village in Liangping County built their new houses a short distance from the railway station and made money off leasing their houses to the construction teams.

8. Railway Maintenance and Local Employment

24. The Liangping Railway Engineering Maintenance Company is in charge of maintaining the project railway and bridges. Cement, ballast, building sand, and building stone are the main materials used by the company and are locally purchased. The value of materials purchased from October 2004 to April 2005 was about CNY3.6 million. This brought benefits not only to the suppliers of materials, but also to the local farmers employed as laborers for the suppliers. The Liangping Railway Engineering Maintenance Company currently employs 320 trackmen, all of whom are villagers living along the railway. The workers’ monthly salaries average about CNY600.

9. Other Social Issues

25. Gender Impacts. Many of the project area's young, male laborers work outside the region. This led to opportunities for female farmers to work as unskilled labors such as porters and cooks during the railway construction (see para. 23).

C. Conclusions

26. The Project has had significant impacts on poverty reduction including (i) increased employment and income for the poor through sales of local materials during project construction; (ii) increased labor mobility, which has benefited the many households with family members who work in the coastal provinces and send home remittances; (iii) increased tourism, leading to increased employment opportunities in tourism; and (iv) extensive commercial development of the areas around project railway stations. Overall, the poverty reduction or economic development impacts of the Project are significant.