Technical Assistance Report

Project Number: 39655 March 2006

Technical Assistance People’s Republic of : Preparing the Regional Road Improvement Project

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature.

CURRENCY EQUIVALENTS (as of 1 March 2006)

Currency Unit – yuan (CNY) CNY1.00 = $0.1244 $1.00 = CNY8.0402

ABBREVIATIONS

ADB – Asian Development Bank CAREC – Central Asia Regional Economic Cooperation EIA – environmental impact assessment GDP – gross domestic product O&M – operation and maintenance PRC – People’s Republic of China RP – resettlement plan TA – technical assistance XCD – Xinjiang Communications Department Xinjiang – Xinjiang Uygur Autonomous Region

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – General intervention Sector – Transport and communications Subsector – Roads and highways Themes – Sustainable economic growth, regional cooperation Subthemes – Promoting economic efficiency and enabling markets, and fostering physical infrastructure development

NOTE

In this report, "$" refers to US dollars.

Vice President C. Greenwood, Jr., Operations Group 2 Director General H. Rao, East and Central Asia Department (ECRD) Director N. Rayner, Transport and Communications Division, ECRD

Team leader H. Wang, Principal Project Economist, ECRD Team members N. Davis, Transport Specialist, ECRD S. Ferguson, Senior Resettlement Specialist, ECRD A. Maxwell, Environment Specialist, ECRD

o o 78 00'E RUSSIAN 93 00'E FEDERATION XINJIANG REGIONAL ROAD

IMPROVEMENT PROJECT Olgiy IN THE PEOPLE'S REPUBLIC OF CHINA Hovd Altay

Provincial Capital City/Town M O N G O L I A Expressway K A Z A K H S T A N o Project Road o 46 00'N Takeshiken 46 00'N National Road Yarantai Other Road Bole Alataw Shankou Railway River Sayram Lake to Atmaty Provincial Boundary Dahuangshan Korgas International Boundary Urumqi Boundaries are not necessarily authoritative.

to B Toksun is he KYRGYZ REPUBLIC k 314 k Hosud to Li Naryn Kuqa 314 any Osh ung ang Aksu

Sary Tash Torugart GANSU nbe to Dusha 314 Artux Irkeshtam XINJIANG UYGUR AUTONOMOUS REGION

TAJIKISTAN Kalasu

314 o o 38 00'N 38 00'N QINGHAI Kunjirap AFGHANISTAN

N

0 50 100 150 200 250

Kilometers

0 XIZANG 6 - 0 2 3 2

o o H 78 00'E 93 00'E R

I. INTRODUCTION

1. During the country program consultation held from 28 November to 2 December 2005, the Government of the People’s Republic of China (PRC) requested technical assistance (TA) from the Asian Development Bank (ADB) for preparing the regional road improvement project in the Xinjiang Uygur Autonomous Region (Xinjiang). In response, the TA1 has been included in ADB’s 2006 assistance program for the PRC. The Fact-Finding Mission visited the PRC on 6–12 January 2006 to prepare the TA proposal. The Mission (i) held discussions with central and local government officials, (ii) visited the project areas, and (iii) carried out an initial poverty and social assessment and a rapid environmental assessment. This report is based on (i) the agreement reached with the Government on the impact, outcome, outputs, cost, financing and implementation arrangements, and consultant’s terms of reference for the TA; and (ii) the Mission’s findings. The TA’s design and monitoring framework is in Appendix 1.

II. ISSUES

2. The PRC, with the largest territory in Asia and rapid economic growth over the past two decades, plays an important role in regional cooperation and integration. Strong growth has increased intraregional trade and capital flows. The PRC supports regional cooperation and is actively participating in the ADB-initiated Central Asia Regional Economic Cooperation (CAREC) Program, which aims to strengthen economic links among Afghanistan, Azerbaijan, PRC (especially Xinjiang), Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan, and Uzbekistan. Xinjiang, in northwest PRC and bordering eight countries,2 is the PRC’s gateway to Central Asia and a bridge between Central Asia and eastern PRC. Xinjiang and neighboring countries have many cultural similarities and economic complementarities, providing a strong rationale for economic cooperation. Transport is a priority area under CAREC. A Regional Transport Sector Road Map for 2005–2010, which was developed in March 2005, identifies development and improvement of regional transport corridors as a strategic priority for transport cooperation among CAREC countries. While the Government is investing in road infrastructure, due to large funding requirements it needs external assistance to improve regional road infrastructure in Xinjiang, which will facilitate traffic and trade between the PRC and Central and South Asia, and strengthen regional cooperation.

3. Economic links between Xinjiang and neighboring countries have recently strengthened. In 2004, trade between Xinjiang and eight neighboring countries grew by 25% over 2003 to $419.5 million. The number of tourists from these countries to Xinjiang also increased rapidly. Sixty-three regional routes carried freight in 44.3 million ton-kilometers (km) and passengers in 31.4 million passenger-km in 2005, increasing by 28% and 42% over 2004, respectively. Thirty-one enterprises with about 1,300 vehicles in Xinjiang are engaged in cross-border transport services. Yet, barriers to cross-border transport continue to hinder expansion of trade and tourism. Regional roads not only need to be improved, but also border roads are poor, border facilities inadequate, and cross-border road transport procedures complicated and not harmonized. While PRC vehicles can reach Bishkek and Oshi, Kyrgyz Republic vehicles are allowed to drive only up to Kashgar (not to Urumqi, the capital of Xinjiang). Transit transport is also prohibited in Xinjiang. These barriers must be addressed to complement road infrastructure investments and facilitate the cross-border movement of freight and passengers.

1 The TA first appeared in ADB Business Opportunities on 8 December 2005. 2 Afghanistan, India, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Russian Federation, and Tajikistan.

2

4. Roads are important to Xinjiang’s economy, accounting for 95% of passengers and 83% of freight. Despite considerable investments, the road network remains inadequate for the growing economy. In 2005, Xinjiang’s road network was about 90,000 km, or 4.8% of the PRC’s total. It comprises (i) 541 km of expressways, (ii) 883 km of roads in class I, (iii) 6,450 km in class II, and (iv) 82,126 km in class III and below. Road density (5.4 km per 100 km2) and the proportion of high-standard roads3 to the total road network (8.7%) are significantly lower than the national average (19 km per 100 km2 and 14%). The central and Xinjiang governments attach great importance to road development in Xinjiang and plan to expand the road network to 150,000 km, including 22,000 km of high-standard roads (14.7% of the total road network) by 2020.

5. With its consistently strong economic growth, the PRC has significantly reduced poverty. Yet, millions of people remain poor. Remote, landlocked, isolated, and with harsh natural conditions, Xinjiang is one of the less-developed provinces, with per capita gross domestic product (GDP) at CNY11,199 in 2004. Although GDP in Xinjiang has grown rapidly since 2000 mainly because of energy (oil, gas, and coal) developments, economic growth has not proportionally improved rural life. The per capita rural income in 2004 amounted to CNY2,245, or 76% of the national average. In 2004, about 2.2 million rural people lived below the official poverty line, and the poverty incidence was 18%, higher than the national average of about 10%. About 80% of the poor in Xinjiang live in the southern part of the region. The project area has 2 poor townships and 76 poor villages, with poverty incidence close to 10%. There are many reasons for poverty, but inadequate road infrastructure is an important one: many remote and isolated villages have limited access to markets, jobs, and basic social services (e.g., health and education). The Government is implementing the Western Region Development Strategy to reduce development disparities between the western and costal regions and is committed to develop Xinjiang’s transport infrastructure. The evaluation of several completed road projects financed by ADB4 shows that investments in road infrastructure significantly reduce poverty.

6. Road safety is a concern in Xinjiang: 9,527 road accidents resulted in 3,111 fatalities and 10,437 injuries in 2005, an increase by 13.8%, 7.6%, and 17.0% over 2004. In 2005, the fatality rate was 22 per 10,000 vehicles, higher than the national average. Economic losses from road accidents amounted to more than CNY28.4 million. The major causes of road accidents are (i) lack of safety features and facilities along roads, (ii) weak enforcement of traffic regulations, (iii) poor behavior of drivers and pedestrians, and (iv) poor road conditions. Expressways have a lower accident rate than other roads because of their improved road design and divided carriageways. As vehicle ownership grows, more road accidents are likely unless urgent action is taken to prevent them. The Government plans to strengthen the public awareness program, improve data collection, and reduce risk behaviors of drivers under the 11th Five-Year Plan (2006–2010).

7. Since 1991, ADB has provided 30 loans, totaling nearly $5.6 billion, to finance road projects in the PRC. All ADB loans in the PRC are generally being implemented satisfactorily. While ADB has yet to lend to Xinjiang’s transport sector, Xinjiang has received three World Bank loans totaling $600 million for road projects in the northern region.5 The first two projects

3 High-standard roads comprise expressways and roads in classes I and II. 4 ADB. 2000. Project Completion Report on the Liaoning Expressway Project in the People’s Republic of China. Manila; and ADB. 2001. Project Completion Report on the Yunnan Expressway Project in the People’s Republic of China. Manila. 5 The World Bank approved (i) a $150 million loan for constructing a 283 km highway between Turpan, Urumqi, and Dahuangshan in 1994; (ii) a $300 million loan for constructing a 267 km highway between Urumqi and Kuytun in 1996; and (iii) a $150 million loan for developing a 302 km highway between Kuytun and the Sayram Lake in 2002.

3 were completed successfully and the third is being implemented satisfactorily. The Xinjiang Communications Department (XCD) was and is the Executing Agency, and thus has experience in implementing aid-financed road projects. Lessons learned from ADB and World Bank projects will be incorporated into the TA and project designs.

8. Promoting regional cooperation is a strategic theme under ADB’s Long-Term Strategic Framework (2001–2015)6 and its country strategy and program for the PRC.7 Since 1997, ADB has been promoting the CAREC Program, together with five other multilateral institutions.8 As Central Asia is landlocked, the latest regional cooperation strategy and program update for CAREC countries9 reconfirms transport as a priority for ADB assistance. ADB has provided loans to improve regional transport corridors,10 and TA to prepare investment projects and undertake studies to harmonize transport regulations and cross-border road and rail transport procedures in CAREC countries. The TA, ADB’s first in Xinjiang’s transport sector, supports ADB’s regional cooperation strategy for CAREC countries and the country strategy for the PRC.

9. Highway 314 is part of the Asian highway network and one of two key regional roads11 included in the PRC’s National Expressway Network Plan, connecting Urumqi (i) to the Kyrgyz Republic through the border crossings at Irkeshtam and Torugart, (ii) to Pakistan through the border crossing at Kunjirap, and (iii) to Tajikistan through the border crossing at Kalasu. It will also link these counties to Mongolia and the Russian Federation via the highway in northern Xinjiang and the proposed road in western Mongolia,12 and thus has a potential to serve as a route for regional transit traffic. The Government and ADB are helping the Kyrgyz Republic rehabilitate the road between Irkeshtam and Osh.13 ADB helped Mongolia undertake a pre- feasibility study on developing the western regional road in 2005, and plans to provide loans to help develop the road in 2007–2008. Highway 314 is the only highway from Urumqi to southern Xinjiang, so its improvement will significantly help reduce poverty. Because of the huge investment requirements, the Government plans to improve Highway 314 in a phased manner. The Urumqi–Toksun and Hosud–Korla sections have been completed, and the Toksun–Hosud section is expected to be improved by 2007. XCD is considering requesting ADB assistance to improve the Kuqa–Artux section, and will finance improvement of the Artux–Kashgar section before 2010. The project will upgrade a 296.5 km section between Korla and Kuqa of Highway 314 from a class-II road to a four-lane expressway (Map), together with possible improvement of local roads and the roads from Kashgar to the Kyrgyz Republic border. The project expressway will be on a desert plain along the southern foot of the Tianshan Mountains and pass through

6 ADB. 2001. Long-Term Strategic Framework of the Asian Development Bank (2001–2015). Manila. 7 ADB. 2005. People’s Republic of China: Country Strategy and Program Update (2006–2008). Manila. 8 European Bank for Reconstruction and Development, International Monetary Fund, Islamic Development Bank, United Nations Development Programme, and World Bank. 9 ADB. 2005. Central Asia Regional Cooperation Strategy and Program Update (2006–2008). Manila. 10 The regional transport corridors improved or to be improved with ADB assistance in CAREC countries include the (i) Almaty–Astana road, (ii) Almaty–Bishkek road, (iii) Bishkek–Osh road, (iv) Osh–Irkeshtam road, (v) Dushanbe– Kyrgyz border road, (vi) central north–south road in Mongolia, (vii) east–west and southern highways in Azerbaijan, and (viii) Chengeldy–Khodjadavlet railway line in Uzbekistan. 11 The other key regional road is Highway 312, from to Korgas at the border with Kazakhstan. 12 The proposed western regional road in Mongolia will run for about 750 km from the border crossing between the PRC (Takeshiken) and Mongolia (Yarant), through Hovd and Olgiy, to the border crossing between Mongolia (Tsagaannuur) and the Russian Federation (Tashanta). 13 ADB approved a $32.8 million loan in 2004 to improve the 124 km Osh–Sopu Korgon section of the road between Osh and Irkeshtam (ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the Kyrgyz Republic for the Southern Transport Corridor Road Rehabilitation Project. Manila). The Government of the PRC has provided two grants totaling CNY60 million (about $7.2 million) to rehabilitate a 19 km section of the road from Irkeshtam westward to Sary Tash. The PRC-assisted section is near completion.

4

Korla city and (in Bayangol Mongol ), as well as Kuqa county (in ). Recent traffic counts show that daily traffic on the road is about 4,500 vehicles and is projected to increase to about 30,000 by 2030.

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

10. The TA will facilitate sustainable socioeconomic development and regional cooperation between the PRC and other CAREC countries by improving regional transport corridors in Xinjiang. The TA will (i) help the Government prepare the project suitable for ADB financing, (ii) review and refine the design of the project to strengthen its impact on poverty reduction, and (iii) review road issues and enhance the ongoing policy dialogue with the Government. The TA will have three outputs:

(i) a study on the impact of improving Highway 314 on regional economic cooperation under CAREC; (ii) an improved feasibility study and preliminary design, including an environmental impact assessment (EIA) and summary EIA, resettlement plan, ethnic minority development plan, and social and poverty analysis for the project in conformity with ADB requirements; and (iii) strengthened capacity of XCD and other Xinjiang government agencies to prepare projects, and increased knowledge of ADB’s policies and procedures on procurement, consulting services, safeguard issues, economic and financial analyses, and project monitoring and evaluation.

B. Methodology and Key Activities

11. The TA is designed, and will be implemented, in line with ADB’s country strategy and program for the PRC (footnote 7) and regional cooperation strategy and program for CAREC countries (footnote 9), as well as the Government’s Western Region Development Strategy. Experienced international consultants, with support from domestic consultants, will be engaged to implement the TA. The initial poverty and social assessment (Appendix 2) and rapid environmental assessment for the project, carried out during TA fact-finding, (i) examined poverty status, ethnic minority and gender issues, resettlement effects, and environmental conditions in the project area; and (ii) identified the social and environmental issues that need to be further examined and addressed during TA implementation. The consultants will examine project documents and prepare an investment project that will be technically, economically, and financially feasible and in compliance with ADB’s policies on the environment, involuntary resettlement, and indigenous peoples.14 The TA will develop a results-based project framework, including monitoring indicators for development impacts and baseline data.

12. Key TA activities will include (i) field surveys; (ii) document reviews; (iii) data analysis; (iv) desk studies; (v) consultation with various stakeholders, including government officials, local communities, project beneficiaries, and affected people; and (vi) training.

14 ADB. 2002. Environment Policy of the Asian Development Bank. Manila; ADB. 1995. Involuntary Resettlement. Manila; and ADB. 1998. The Bank’s Policy on Indigenous Peoples. Manila.

5

C. Cost and Financing

13. The total cost of the TA is estimated at $750,000 equivalent, comprising $362,000 in foreign exchange and $388,000 equivalent in local currency. The Government has requested ADB to provide $600,000 to cover the entire foreign exchange cost and $238,000 equivalent of local currency costs. The TA will be financed on a grant basis by ADB’s TA funding program. The Government will finance the remaining $150,000 in kind by providing counterpart staff, office space and facilities, and support services. Detailed cost estimates and a financing plan are in Appendix 3. The Government has been informed that approval of the TA does not commit ADB to finance any ensuing project.

D. Implementation Arrangements

14. XCD will be the Executing Agency and will appoint a TA coordinator to (i) supervise TA activities; (ii) resolve any issues that may arise during implementation; and (iii) facilitate coordination among the consultants, government agencies, and other stakeholders. XCD will provide the consultants with documents, data, maps, and other information required for implementing the TA. The Ministry of Finance will ensure coordination among the National Development and Reform Commission, Ministry of Communications, State Environmental Protection Agency, XCD, and other relevant government agencies.

15. The TA will require about 39 person-months of consultant inputs (13 international and 26 domestic). The international consultants’ team will have expertise in (i) highway engineering, (ii) transport economics, (iii) road safety, (iv) road transport and logistic services, (v) financial analysis and expressway operation, (vi) regional cooperation, (vii) social and poverty analysis, (viii) environmental assessment, and (ix) capacity building. The international consultants will be supported by domestic consultants with the same expertise, and by an experienced resettlement specialist. The outline terms of reference for consultants are in Appendix 4. An international consulting firm in association with domestic consultants will be engaged by ADB in accordance with the Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers and other arrangements satisfactory to ADB for the engagement of domestic consultants. The consulting firm will be recruited using the quality- and cost-based selection method and simplified technical proposal procedures. The consultants will purchase office equipment in accordance with ADB’s Guidelines for Procurement. The consultants are expected to commence services in May 2006 and complete work by December 2006. Stakeholder workshops will be held to review the consultants’ reports. The final report will be posted on ADB’s website upon TA completion.

IV. THE PRESIDENT'S DECISION

16. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $600,000 on a grant basis to the Government of the People’s Republic of China for preparing the Xinjiang Regional Road Improvement Project, and hereby reports this action to the Board.

6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Data Sources/ Assumptions Targets/Indicators Reporting and Risks Mechanisms Impact Assumptions Strengthened regional Trade between the Xinjiang Xinjiang statistical Continued commitment of transport network in Central Uygur Autonomous Region yearbook CAREC governments to Asia Regional Economic (Xinjiang) and other CAREC regional cooperation Cooperation (CAREC) countries increased by 15% countries in support of within 3 years after project regional cooperation and completion in 2010 sustainable socioeconomic development Gross domestic product (GDP) Xinjiang statistical Continued rapid economic in Xinjiang increased by 15% yearbook growth and political stability in within 3 years after project the People’s Republic of China completion in 2010 (PRC) and Xinjiang

Poverty incidence in Xinjiang Socioeconomic surveys Effective implementation of the reduced by 7% within 3 years by the Xinjiang PRC’s Western Region after project completion in 2010 Communications Development Strategy Department (XCD) Outcome Assumptions Improved transport Vehicle operating costs (VOC) Asian Development Bank Adequate maintenance of the efficiency and quality on the reduced by 10% after project (ADB) project completion project roads after project regional road corridor linking completion in 2010 report completion Xinjiang to other CAREC countries Travel time reduced by 40% Direct measurements of Reduced VOC leading to lower between Korla and Kuqa after VOC and travel time by bus fares and freight charges project completion in 2010 XCD

Accidents on the project Road accident statistics Improved enforcement of traffic expressway reduced by 20% provided by the Xinjiang regulations and public compared with 2005, after Public Security awareness of road safety project completion in 2010 Department Risks Traffic from villages to Korla, Traffic counts and Local governments may be Kuqa, and Luntai increased by socioeconomic surveys by unable to mobilize adequate 10% after project completion in XCD resources to improve and 2010 maintain local roads linking to the project expressway. Outputs (for the technical Assumptions assistance (TA)) Close cooperation among 1. A study on the impact of The study report, acceptable to ADB document central and Xinjiang improving Highway 314 on the Government and ADB, registration government agencies during regional cooperation under submitted by October 2006 TA implementation CAREC ADB TA review missions Active stakeholder participation 2. Improved feasibility study The feasibility study and Consultants’ final report during TA implementation and preliminary design for preliminary design for the the project for upgrading the project completed by October Timely approval of the project section of Highway 312 2006 feasibility study, EIA, and between Korla and Kuqa to EMDP by the Government an expressway, in An environmental impact EIA and summary EIA conformity with ADB assessment (EIA) and Strong support from local requirements summary EIA circulated to the communities for the TA Board by October 2006

Appendix 1 7

Design Summary Performance Data Sources/ Assumptions Targets/Indicators Reporting and Risks Mechanisms A resettlement plan and an Resettlement plan and ethnic minority development EMDP plan (EMDP) prepared in accordance with ADB guidelines by October 2006

A poverty and social analysis Consultants’ final report and results-based monitoring system prepared by October 2006

3. Strengthened capacity of Training for staff of XCD and Consultants’ progress XCD and other Xinjiang other relevant Xinjiang reports government agencies to government agencies by prepare projects, and September 2006 increased familiarity with ADB’s policies and procedures Activities with Milestones Inputs 1.1 Study the impact of improving Highway 314 on regional economic cooperation under ADB: $600,000 (grant) CAREC (by October 2006). • Consultants: $467,000 (13 person-months 2.1 Carry out field surveys and traffic counts (by August 2006). international and 26 person- 2.2 Review the project’s technical aspects (by September 2006). months domestic) 2.3 Assess the local roads linking the project expressway (by September 2006). • Surveys: $30,000 2.4 Review transport services in the project area (by September 2006). • Office equipment: $16,000 2.5 Consult stakeholders (by September 2006). • Training: $5,000 2.6 Carry out economic and financial analyses (by September 2006). • Miscellaneous support: 2.7 Undertake a social and poverty analysis (by September 2006). $15,000 2.8 Prepare an EIA, EMDP, and resettlement plan (by September 2006). • Government representatives 2.9 Undertake a policy and institutional analysis of the road subsector in Xinjiang (by for contract negotiations: September 2006). $7,000 2.10 Finalize the project’s design and monitoring framework (by October 2006). • Contingencies: $60,000

3.1 Train staff of XCD and other relevant Xinjiang government agencies in project Government: $150,000 (in preparation and ADB operational policies and procedures (by September 2006). kind)

• Office space: $40,000 4.1 Submit the inception report by the consultants (by June 2006). • Counterpart staff: $80,000 4.2 Submit the interim report by the consultants (by July 2006). 4.3 Submit the draft final report by the consultants (by September 2006). • Miscellaneous support: 4.4 Submit the final report by the consultants (by October 2006). $30,000

8 Appendix 2

INITIAL POVERTY AND SOCIAL ANALYSIS

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? No Contribution of the sector or subsector to reduce poverty in the People’s Republic of China:

The transport sector helps reduce poverty (i) directly by (a) improving access to markets, (b) creating jobs, and (c) easing delivery of social services; and (ii) indirectly by facilitating economic development. The project area has abundant energy resources (oil, gas, and coal) and has experienced rapid economic development during the last 10 years. However, the class-II national highway cannot handle future traffic. The project will upgrade the highway to an expressway between Korla city and Kuqa county, joining the existing expressway to Urumqi. The project highway will reduce travel time and cost, thereby helping (i) speed up economic development, (ii) create jobs, and (iii) improve access to social services.

B. Poverty Analysis Targeting Classification: General intervention What type of poverty analysis is needed?

The project will directly help reduce poverty by (i) generating construction jobs in the short term, and (ii) improving access to markets for specialty cash crops such as cotton and fruits. The project will substantially improve transport infrastructure to facilitate rapid economic development that will create local jobs and income.

The project will improve access to social services in the county centers and towns. In the project area (two counties and one city), less than 10% of rural population lives below the official poverty line. There are 2 poor townships and 76 poor villages. Nearly all the poor are Uygur.

A detailed poverty analysis will assess poverty incidence in the project area and demonstrate how the project will help reduce poverty by incorporating specific measures in the project scope. The analysis will be based on Asian Development Bank (ADB)’s Handbook on Poverty and Social Analysis (2001) and Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects (2001).

C. Participation Process Is there a stakeholder analysis? Yes No

Stakeholder analysis. Major stakeholders include the Xinjiang Communications Department (XCD), local governments, transport companies, local businesses, and residents. Consultation began during preparation of the feasibility study, which focused on the alternatives for the expressway alignment. Further consultation will be carried out for (i) environmental impact assessment, (ii) resettlement, and (iii) poverty and social analysis.

Is there a participation strategy? Yes No

Local people will (i) be consulted during the feasibility study, technical assistance (TA) implementation, and preliminary design to fix the expressway alignment, (ii) participate in the preparation and implementation of village resettlement plans and enhancement measures for poor ethnic minorities, and (iii) be hired for construction of the project expressway and link roads.

D. Gender Development Strategy to maximize impacts on women:

The TA will investigate opportunities to enhance the benefits to women (e.g., improved public transport services and local road improvements that lead to better access to education, health care, and markets). The resettlement plan and the ethnic minority development plan will include special measures to mitigate adverse impacts and improve conditions for women.

Has an output been prepared? Yes No This will be prepared during the project preparatory TA.

Appendix 2 9

E. Social Safeguards and Other Social Risks Significant/ Item Not Significant/ Strategy to Address Issues Plan Required None

Significant A resettlement plan will be prepared in accordance with Full Resettlement Not significant the Government’s laws and regulations and ADB’s policy Short None on involuntary resettlement1 and Operations Manual F2 None on Involuntary Resettlement.

Significant The project will reduce the costs of transport and goods Yes Affordability Not significant purchased from outside. The existing road already has No None tolls.

Significant The project will create jobs during construction and not Yes Labor Not significant have any adverse impact on labor. No None

Indigenous Significant The project area has many ethnic minority townships and Yes Peoples Not significant villages (mainly Uygur and some Hui and Mongols). An No None ethnic minority development plan will be prepared in accordance with the Government’s laws and regulations and ADB’s policy on indigenous peoples.2

Other Risks Significant The risk of human immunodeficiency virus/acquired Yes and/or Not significant immunodeficiency syndrome (HIV/AIDS) and sexually No Vulnerabilities None transmitted infections is considered low but will be assessed during the TA.

1 ADB. 1995. Involuntary Resettlement. Manila. 2 ADB. 1998. The Bank’s Policy on Indigenous Peoples. Manila.

10 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($'000)

Item Foreign Local Total Exchange Currency Cost A. Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 273.0 0.0 273.0 ii. Domestic Consultants 0.0 144.0 144.0 b. International and Local Travel 30.0 10.0 40.0 c. Reports and Communications 2.0 8.0 10.0 2. Office Equipmentb 0.0 16.0 16.0 3. Training 0.0 5.0 5.0 4. Surveys 5.0 25.0 30.0 5. Miscellaneous Administration and Translation Costs 5.0 10.0 15.0 6. Government Representatives for Contract Negotiations 7.0 0.0 7.0 7. Contingencies 40.0 20.0 60.0 Subtotal (A) 362.0 238.0 600.0

B. Government Financing 1. Office Accommodation 0.0 40.0 40.0 2. Remuneration and Per Diem of Counterpart Staff 0.0 80.0 80.0 3. Miscellaneous Support Services 0.0 30.0 30.0 Subtotal (B) 0.0 150.0 150.0 Total 362.0 388.0 750.0 a Financed by the Asian Development Bank (ADB) technical assistance (TA) funding program. b Including computer hardware and software, high-quality photocopier, fax machine, and other office equipment to be procured under the consultants’ contract under ADB’s Guidelines for Procurement. Ownership of office equipment will be transferred to the Government upon TA completion. Source: ADB estimates.

Appendix 4 11

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

1. Consulting services will cover all project components, and the consultants’ specific tasks are described below.

A. Highway Engineering

2. Review all technical aspects of the feasibility study and engineering designs, including (i) horizontal and vertical alignment; (ii) subsurface investigation; (iii) availability and quality of local construction materials; (iv) pavement and bridge design; (v) drainage facilities; (vi) siting and configuration of interchanges, toll stations, and service areas; (vii) provision for cross- expressway access; (viii) railway crossing grade separation design; and (ix) road safety features. Review the pre-final design documents for major structures before finalizing the documents and recommend design changes.

3. Based on traffic forecasts, review the proposed road capacity and pavement design, and recommend measures to prevent overloading on the project expressway (e.g., installing vehicle- weighing stations at selected entry points, and other measures).

4. Inventory local roads in the project area. Identify a local road (including county, township, and village roads) improvement component for inclusion in the project to enhance the distribution of project benefits to rural residents. Give particular attention to roads in the counties and townships that are poor and have many ethnic minority peoples. Identify the border roads for improvement under the project from Kashgar to the Kyrgyz Republic. Prepare the preliminary designs of the selected border roads.

5. Review bills of quantities, unit prices, and costs of (i) civil works for road improvement, and (ii) equipment and other facilities to be procured under the project. Review and update the project cost estimates. Review the proposed contract packages to be procured under the project. Review construction supervision requirements, recommend supervision consultants’ inputs, and estimate related costs. Prepare a project implementation schedule. Estimate the costs of routine and periodic maintenance for the project expressway and selected local roads. Review the current road maintenance operation and management systems and recommend measures for improving road maintenance.

B. Road Safety

6. Review (i) the current design relating to road safety, (ii) latest road accident statistics in Xinjiang and the project area, and (iii) road safety management and monitoring systems in Xinjiang. Design a road safety component for inclusion in the project in coordination with the Xinjiang Communications Department (XCD), Traffic Police Department, and design institute, including (i) intelligent transport systems technology; (ii) road design measures to reduce driver fatigue, handle emergencies in high-grade areas, and reduce reflective glare; (iii) public awareness of road safety; and (iv) institutional strengthening and capacity building.

C. Regional Cooperation

7. Study the impact of improving Highway 314 on regional economic cooperation under the Central Asia Regional Economic Cooperation (CAREC). The study will (i) assess the role of Highway 314 in the CAREC regional transport network; (ii) identify major constraints; and

12 Appendix 4

(iii) recommend ways to enable Highway 314 to be an economic corridor, strengthening economic links between the PRC and other CAREC countries.

8. Assess the infrastructure and services at the four border crossings (e.g., Irkeshtam, Kalashu, Kunjirap, and Torugart) in terms of (i) frequency of transport services, (ii) freight and passenger volumes, (iii) vehicle distance access into neighboring countries, (iv) the time and cost spent for border crossing, and (iv) the potential of trade increases via these border crossings. Identify physical and nonphysical barriers, and prepare a cross-border facilitation component, focusing on the border crossings at Irkeshtam and Torugart.

D. Transport Economics

9. Review the status and plan for road development in Xinjiang and the project area. Identify the role of the project in supporting economic growth and reducing poverty in Xinjiang. Review road revenues and expenditures in Xinjiang in the past decade and make projections for 2006–2010. Analyze the maintenance expenses for local roads (against expressways and national highways) in the past decade and financing plans for maintenance. Identify constraints and recommend ways to improve funding for road development and maintenance.

10. Review traffic counts and origin–destination surveys, and the traffic pattern by vehicle type and mode in the project area. Assess the capacity of the existing road and the effects of capacity constraints on vehicle operating costs, travel time, accidents, and patterns of transport movement. Forecast normal, generated, and diverted traffic for the project at a range of toll rate, using the GDP and population growth forecast for the PRC made by the Asian Development Bank (ADB). Traffic diversion from the railways and other roads should be assessed.

11. Undertake economic evaluation of the project in accordance with ADB’s Guidelines for Economic Analysis of Projects. Quantify construction, operation and maintenance (O&M) costs, vehicle operating costs, travel time savings, producer surplus, accidents savings, and other quantifiable benefits attributable to the project. Use a standard conversion factor or a shadow exchange rate factor. Calculate the economic internal rate of return (EIRR) and net present value for the expressway, local roads, and the project. Undertake sensitivity analysis by varying project benefits, costs, traffic, implementation period, toll rates, and a combination of these factors, and calculate switching values. Indicate the toll rates for which the EIRR falls to the cutoff rate of 12%. Analyze risks in accordance with ADB’s Handbook for Integrating Risk Analysis in the Economic Analysis of Projects (2002). Recommend ways to reduce project risks. In coordination with the social and poverty specialist, analyze distribution of project benefits and calculate the poverty impact ratio for the expressway and the project in accordance with ADB’s Guidelines for the Economic Analysis of Projects and Handbook for Integrating Poverty Impact in Economic Analysis of Projects (2001).

12. Develop a results-based project design and monitoring framework in an ADB format, including (i) monitoring indicators for project performance assessment, baseline data, and target values for key economic, transport, social, poverty reduction, and environmental indicators; (ii) implementation arrangements; and (iii) data sources and reporting mechanisms.

E. Financial Analysis and Expressway Operations

13. Review, and update if necessary, the cost estimates and financing plan for the project. Compute price contingencies, interest, and other charges during construction in accordance with Guidelines for the Financial Governance and Management of Investment Projects Finance

Appendix 4 13 by the Asian Development Bank (2001). Calculate a discounted return to equity over the project life and assess its attractiveness to private investment.

14. Carry out financial evaluation of the project by calculating the financial internal rate of return (FIRR) using proposed toll rates, and compare it with the weighted average cost of capital (WACC). The FIRR and WACC should be computed after taxes in real terms using 2006 prices. In collaboration with the transport economists, (i) determine toll rates by vehicle type, taking into account the relationship between toll rates and cost of providing road services; and (ii) ensure consistency of approach and assumptions between financial and economic analyses. Undertake sensitivity analysis by varying the toll rates. Review the proposed toll systems for the expressway and recommend ways to improve them.

15. Assess the financial management of the expressway operating entity, including (i) corporate planning and budgetary control, (ii) cost accounting, (iii) financial management, and (iv) internal control and audit systems. Prepare and assess the entity’s financial projections over 20 years of expressway operation, including balance sheets, income statements and cash flow statements in nominal terms. Suggest appropriate financial covenants to monitor the project’s financial conditionalities. Guided by ADB’s governance policy,1 recommend ways to improve corporate governance of the expressway operating entity.

16. Review the status of private sector participation in expressway construction and O&M in Xinjiang and assess the potential to privately operate the project expressway as a corporation or as a concession. Recommend the steps and a schedule to achieve this, including options such as leasing, securitization, joint venture, build-operate-transfer, and other arrangements for O&M.

F. Road Transport and Logistic Services

17. Review the status of transport and logistic services in the project area considering pricing, quality, and frequency of services. Assess (i) the degree of competition and private sector participation in providing such services, (ii) the proportion of the reduced transport costs that are likely to be passed on to end users, and (iii) whether the poor can afford the costs. Recommend ways to improve road transport and logistic services.

G. Social and Poverty Analysis

18. Prepare socioeconomic and poverty profiles for the project area to serve as the baseline for socioeconomic performance indicators. The profiles should include data and information on population, ethnic groups, income levels, occupations, unemployment, education levels, health conditions, transport expenses, and other relevant data. Separate data by gender, where applicable. Assess poverty incidence based on the official poverty line and $1 a day (equivalent to CNY900 per year). Conduct surveys to develop a profile of transport services and costs in the project area, and assess affordability for low-income groups.

19. Review the Government’s policy, strategy, and programs for poverty reduction and economic development in Xinjiang and the project area. Analyze how the project will complement the Government’s development programs. Consult local governments to identify development initiatives that could complement the project, particularly those targeted at the poor and ethnic minorities, and identify possible sources of funding for these initiatives.

1 ADB. 1995. Policy on Governance—Sound Development Management. Manila.

14 Appendix 4

20. Conduct a full poverty and social analysis according to ADB’s Handbook on Poverty and Social Analysis (2001). Assess how the project may help improve people’s livelihoods. Prepare maps showing the locations of schools and health facilities in the project area and indicate how the project will improve access to these services. Conduct a gender analysis to identify how the project will affect women. Recommend measures to address poverty during project construction and O&M. Estimate (i) the number of project beneficiaries by ethnicity and income level, and (ii) the number of affected people by type of impact. Propose measures to safeguard the livelihood and customs of affected ethnic minorities. Quantify how the project will improve benefits for local people by income groups. Recommend measures to enhance benefits and minimize negative impacts, particularly for the poor, women, ethnic minorities, and other vulnerable groups. Help XCD prepare an ethnic minority development plan (EMDP) and a three- page summary of the EMDP in accordance with ADB’s indigenous peoples policy2 and gender policy.3 Review the status of small business activities in the project area and recommend ways to promote small business development under the project.

21. Help XCD establish consultation and participatory processes. Identify stakeholders and consult their representatives to incorporate their needs into the project. Prepare a report on stakeholder consultation and a participation plan for project implementation. Help XCD disclose the EMDP to local people. Provide training to XCD staff in social assessment, consultation, participatory community appraisal, and monitoring techniques.

H. Environmental Assessment

22. Review the draft environmental impact assessment (EIA) for the project and, if required, help XCD carry out further investigations and analysis to ensure that it conforms to ADB’s environment policy4 and ADB’s Environmental Assessment Guidelines (2003). Finalize the EIA by incorporating comments from ADB. Prepare a summary EIA. Ensure that the EIA includes (i) description of the project; (ii) description of the environment, including physical resources, ecological resources, economical development, and social and cultural resources; (iii) assessment of project alternatives; (iv) anticipated environmental impacts and mitigation measures; (v) economic assessment; (vi) environmental management plan, including mitigation measures for identified environmental impacts; (vii) environmental monitoring plan; and (viii) public consultation and information disclosure.

23. Based on a preliminary environment scoping, the EIA’s major concerns include (i) noise impacts, (ii) soil erosion, (iii) socioeconomic impacts, (iv) ecological impacts of land acquisition and proposed quarry sites, and (v) river crossings and related water quality. Assess the environmental conditions in the project area through site investigations. Estimate the costs of the proposed environmental mitigation measures and of implementing the environmental monitoring plan. Appraise the level of cost against expected environmental benefits, where possible, in a quantifiable manner. Help the highway engineers incorporate appropriate mitigating measures into the project design. Recommend environmental training requirements. Prepare terms of reference and a budget for independent environment monitoring and evaluation. Help XCD consult the public in accordance with ADB’s environment policy and guidelines. Public consultation and disclosure for this project (category A) requires public consultation on environmental issues (i) during the early stages of EIA fieldwork; and (ii) when the draft EIA report is available, and before loan appraisal by ADB.

2 ADB. 1998. The Bank’s Policy on Indigenous Peoples. Manila. 3 ADB. 1998. Policy on Gender and Development. Manila. 4 ADB. 2002. Environment Policy of the Asian Development Bank. Manila.

Appendix 4 15

I. Resettlement

24. Review, and revised, if needed, the draft resettlement plan (RP) to comply with ADB’s involuntary resettlement policy5 and Operations Manual F2. Prepare a three-page summary of the RP. Review the results of socioeconomic profiles and household surveys conducted by XCD. Quantify the types and degree of impacts on affected people, including income levels and sources, housing conditions, occupations, expenditure patterns, landholdings, skills base, and assets. The RP should be based on detailed design, including full census and inventory of lost assets.

25. Document in the RP the extent to which the project design and alignment have avoided or minimized land acquisition and displacement of people and businesses. Include a village impact assessment of affected people, land, assets, and occupations. Analyze impacts on households based on surveys, and identify potential impoverishment risks and vulnerable groups, including those affected by loss of land and with low incomes. Develop mitigation measures to help vulnerable groups improve their living standards.

26. Assess the PRC’s policy and legal framework for resettlement, identify gaps between ADB and PRC policies, and propose measures to bridge the gaps. In collaboration with XCD, local officials, and affected household and village committees, define impact categories and compensation eligibility, and prepare an entitlements matrix covering compensation and other assistance for all types of impacts to fully replace lost assets, income, and livelihoods. The entitlements should be based on PRC laws and regulations. XCD should document procedural compliance with PRC laws. Ensure that (i) the compensation standards are based on replacement value, (ii) the overall resettlement budget is sufficient to implement the RP, (iii) adequate land is available for reallocation and land redistribution6 will not harm the host population, and (iv) affected people are consulted on the selection of sites and provision of services. For seriously affected villages, prepare village economic rehabilitation plans to restore incomes of affected people in consultation with them and based on the needs identified in the impact assessment.

27. Help XCD (i) prepare a public consultation and disclosure plan, (ii) develop a format for documenting consultation with affected people, and (iii) initiate a participatory process for RP preparation and implementation. Help XCD prepare a resettlement information booklet in Chinese and Uygur, and distribute it to all affected people. Review the organizational structure and capacity for resettlement implementation and recommend improvement measures required before land acquisition. Help XCD prepare a resettlement implementation schedule linked to the project schedule. Prepare milestones for resettlement supervision and develop a monitoring and evaluation plan, specifying key indicators of progress, mechanisms for reporting, resource requirements and database maintenance, and the tasks for external monitoring and evaluation by an independent agency.

J. Capacity Building

28. Training staff in XCD and other relevant agencies in Xinjiang to strengthen their capacity for project preparation and increase their knowledge of ADB’s policies and procedures on procurement, consulting services, safeguard issues, economic and financial analyses, and project monitoring and evaluation.

5 ADB. 1995. Involuntary Resettlement. Manila. 6 Land distribution mechanisms must be detailed, including consultation with hosts and voluntary agreement to readjust contracted land.