Completion Report

Project Number: 39038 Loan Number: 2247 September 2012

People’s Republic of China: Heilongjiang Road Network Development Project

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion (5 July 2006) (1 March 2012) CNY1.00 = $0.1250 $0.1587 $1.00 = CNY8.0002 CNY6.3017

ABBREVIATIONS

ADB – Asian Development Bank EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan EMR – environmental monitoring report ENPV – economic net present value HDM-4 – Highway Development and Management-4 HEPD – Heilongjiang Environmental Protection Department HPDT – Heilongjiang Provincial Department of Transport, formerly Heilongjiang Provincial Communications Department HPG – Heilongjiang Provincial Government LAR – land acquisition and relocation LIBOR – London interbank offered rate MOT – Ministry of Transport, formerly Ministry of Communications M&E – monitoring and evaluation O&M – operation and maintenance PCR – project completion report PCU – passenger car unit PMO – project management office PPMS – project performance management system PPTA – project preparatory technical assistance PRC – People’s Republic of China RAMS – road asset management system RRP – report and recommendation of the President SDAP – social development action plan SEIA – summary environmental impact assessment VOC – vehicle operating cost

WEIGHTS AND MEASURES ha – hectare kg – kilogram km – kilometer m – meter m2 – square meter mu – 1/15 hectare

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2012 ends on 31 December 2012.

(ii) In this report, "$" refers to US dollars.

Vice-President S. Groff, Operations 2 Director General R. Wihtol, East Asia Department (EARD) Director T. Duncan, Transport and Communications Division, EARD

Team leader V. Tian, Transport Specialist, EARD Team members S. Lewis-Workman, Senior Economist, EARD G. O'Farrell, Environmental Specialist, EARD T. Bisht, Social Development Specialist, EARD A. D. Armamento, Operations Officer, EARD

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

CONTENTS Page

BASIC DATA I I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Related Technical Assistance 6 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants and Contractors 8 K. Performance of the Borrower and the Executing Agency 8 L. Performance of the Asian Development Bank 9 III. EVALUATION OF PERFORMANCE 9 A. Relevance 9 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Outputs 10 D. Preliminary Assessment of Sustainability 11 E. Impact 11 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 14 C. Recommendations 14

APPENDIXES 1. Design and Monitoring Framework 15 2. Chronology of Major Events 22 3. List of Roadside Stations 24 4. Training Programs Provided 25 5. Updated Project Cost and Financing Plan 26 6. Projected and Actual Contract Awards and Disbursements 27 7. Appraisal and Actual Implementation Schedules 28 8. Organization Chart 29 9. Status of Compliance with Major Loan Covenants 31 10. Contract Packages Financed by Asian Development Bank 42 11. Economic Reevaluation 46 12. Financial Reevaluation 56 13. Social Development Action Plan 60 14. Environmental Impact Analysis 70 15. Land Acquisition and Resettlement 81

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 2247-PRC 3. Project Title Heilongjiang Road Network Development Project 4. Borrower People’s Republic of China 5. Executing Agency Heilongjiang Provincial Department of Transport 6. Amount of Loan $200.0 million 7. Project Completion Report Number PRC 1339

B. Loan Data

1. Appraisal – Date Started 17 April 2006 – Date Completed 18 April 2006

2. Loan Negotiations – Date Started 5 June 2006 – Date Completed 7 June 2006

3. Date of Board Approval 26 July 2006

4. Date of Loan Agreement 19 January 2007

5. Date of Loan Effectiveness – In Loan Agreement 19 April 2007 – Actual 7 May 2007 – Number of Extensions 1

6. Closing Date – In Loan Agreement 30 September 2011 – Actual 1 March 2012 – Number of Extensions none

7. Terms of Loan – Interest Rate LIBOR-based lending rate in US dollars – Maturity (number of years) 25 – Grace Period (number of years) 5

8. Terms of Relending (if any) – Interest Rate LIBOR-based lending rate in US dollars – Maturity (number of years) 25 – Grace Period (number of years) 5 – Second-Step Borrower Heilongjiang Provincial Government

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9. Disbursements

a. Dates Initial Disbursement Final Disbursement Time Interval

13 July 2007 1 March 2012 56.0 months

Effective Date Original Closing Date Time Interval

7 May 2007 30 September 2011 52.4 months

b. Amount ($ million) Category Last Net or Original Revised Amount Amount Amount Undisbursed Subloan Allocation Allocation Canceled Available Disbursed Balance Civil Works – Main Road 184.270 183.110 0.000 183.110 183.168 (0.058) Civil Works – Rural Roads 15.000 16.304 0.000 16.304 16.304 0.000 Consulting Services 0.154 0.151 0.000 0.151 0.151 0.000 Training 0.576 0.4340.000 0.4340.376 0.058 Imprest Account 0.000 Total 200.000 200.000 0.000 200.000 200.000 0.000 () = negative Note: The balance of undisbursed funds were reallocated from training to civil works and disbursed against eligible payments at project closing.

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 200.00 200.00 Local Currency Cost 324.55 338.19 Total 524.55 538.19

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 147.68 170.95 ADB Financed 200.00 200.00 Other External Financing 148.80 139.38 Total 496.48 510.33 IDC Costs Borrower Financed 28.07 27.86 ADB Financed 0.00 0.00 Other External Financing 0.00 0.00 Total 28.07 27.86

ADB = Asian Development Bank, IDC = interest during construction.

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3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual A. Investment Cost 1. Civil Works Mainline Roads 361.80 395.48 Link Roads 15.83 18.56 2. Land Acquisition and Resettlement 32.64 47.76 3. Equipment 3.79 3.00 4. Supervision and Training 9.29 13.69 5. Project Preparation and Design 19.80 17.95 Administration 6. Taxes and Duties 11.98 13.89 Total Base Cost (A) 455.13 510.33

B. Contingencies 1. Physical 21.90 0.00 2. Price 19.44 0.00 Subtotal (B) 41.34 0.00

C. Financing Charges During Implementation 28.07 27.86

Total 524.55 538.19

4. Project Schedule

Item Appraisal Estimate Actual Date of Contract with Consultants 1 Oct 2006 28 Feb 2008 Completion of Engineering Designs 31 Mar 2006 1 Jun 2006 Civil Works Contract Date of Award 1 Aug 2006 6 Nov 2006 Completion of Work 30 Oct 2009 30 Sep 2009 Equipment and Supplies Dates First Procurement 1 Apr 2008 May 2009 Last Procurement 1 Jun 2009 Sep 2009 Completion of Equipment Installation 30 Nov 2009 Nov 2009–Apr 2010 Start of Operations Completion of Tests and Commissioning Not available Sep 2009–Sep 2011 Beginning of Start-Up Not available Sep 2009

5. Project Performance Report Ratings

Ratings

Development Implementation Implementation Period Objectives Progress From 26 July 2006 to 31 May 2008 Satisfactory Satisfactory From 1 June 2008 to 31 May 2010 Satisfactory Highly satisfactory From 1 June 2010 to 30 June 2010 Satisfactory Satisfactory From 1 July 2010 to 31 July 2010 Satisfactory Partly satisfactory From 1 August 2010 to 1 March 2012 Satisfactory Highly satisfactory

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D. Data on Asian Development Bank Missions

No. of No. of Specialization of Name of Mission Date Persons Person-Days Membersa

Fact-finding 8–15 Feb 06 4 32 a, b, c, d Appraisal 17–18 Apr 06 6 12 e, b, f, c, d, g Inception 7–11 Dec 06 1 5 h Review 1 25–27 Sep 07 3 9 h, b, i Midterm 28 May–1 Jun 08 4 20 h, b, j, I Review 2 13–15 Mar 09 3 6 h, j, k Review 3 11–15 Nov 10 3 11 h, l, m Project completion review 9–21 Jul 12 6 44 h, l, o, p, q, r a a = senior transport economist and mission leader, b = senior resettlement specialist, c = project engineer (roads), d = senior program officer (financial analyst), e = principal transport specialist and mission leader, f = project administration unit head, g = counsel, h = transport specialist and mission leader, i = associate project analyst, j = transport specialist, k = assistant project analyst, l = operations officer, m = staff consultant and resettlement specialist, n = senior transport economist, o = resettlement specialist, p = environment specialist, q = transport economist, r = staff consultant and transport economist

I. PROJECT DESCRIPTION

1. In 2005, despite huge investments, the road network in the People’s Republic of China (PRC) still did not provide access to some parts of the country, particularly in the poorer inland regions; and was inadequate to support sustainable economic growth. High-standard roads (above class II)1 accounted for only 15.5% of the total network, with the remaining 84.5% consisting of medium to low-grade paved roads and gravel roads. The growing demand for road transport was creating bottlenecks in the network and straining the road infrastructure, resulting in high transport costs that constrained economic development and poverty reduction.

2. The project was located in Heilongjiang Province in the northeast of the PRC. It focused on the 775-kilometer (km) Jixi–Nehe highway, a major economic corridor that runs east–west through the middle of the province. Despite its critical role for the regional economy, more than half of the corridor was made up of either class III or IV highways or gravel roads, all in poor condition. Some sections had no drainage system and were impassable during winter or wet seasons. The poor road conditions resulted in high transport costs, and constrained the expansion of economic activities. A large number of rural communities lacked access to mainstream economic and social opportunities.

3. The project area covered eight counties, including two poverty-designated counties, with a combined population of 3.4 million that was 67% rural. In 2004, in the project area the per capita rural income was CNY2,617, the per capita urban income was CNY4,380, and the per capita gross domestic product was CNY5,651, less than half the provincial average of CNY13,897. Over 18% of the rural population was considered poor, with annual per capita incomes below CNY900. Of the 1,023 villages in the project area, 393 were considered poor. The main causes of poverty included (i) limited road access to markets for transport of farm products, (ii) inadequate road transport services, (iii) a decline in the timber industry due to restrictions on tree cutting, (iv) a lack of skills and insufficient credit, and (v) natural disasters.

4. At appraisal, about 90% of the villages in the project area did not have access to all- weather roads, resulting in high transport costs and inadequate access to markets. Licensed bus and truck operators were unwilling to provide services to many townships and villages where road conditions were poor. Where transport services were available, fares were high. Without direct access to markets, many villagers had to sell their produce to traders at low prices.

5. This was the third transport project financed by ADB in Heilongjiang.2 The project aimed to improve the transport system and thereby support economic growth and socioeconomic development in Heilongjiang Province and the project area. At appraisal, it was expected to comprise (i) a main highway component to improve five sections of the Jixi–Nehe provincial highway—totaling 428 km of class III highways or unclassified roads—resulting in two-lane class I and class II highways; (ii) a rural link road component to improve 22 sections totaling 170

1 PRC road standards include expressways and 4 classes of roads. Expressways are multi-lane, high speed national highways. Class I roads are multi-lane national and provincial highways. Class II roads are two-lane main roads. Class III roads are two-lane roads, mostly used for local connections. Class IV roads are two-lane or single-lane feeder roads. 2 Previous projects were: (i) ADB. 1994. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People's Republic of China for the Heilongjiang Expressway. Manila. (ii) ADB. 1998. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People's Republic of China for the Changchun–Harbin Expressway: Hashuang Expressway. Manila.

2 km, to support an integrated road network in the project area; (iii) promotion of private sector participation in road maintenance; and (iv) capacity development in the monitoring and evaluation (M&E) of road maintenance and management systems. The project design and monitoring framework is in Appendix 1.

6. The project was expected to link Jixi City together with a center of coal production in the east, four forest counties in the middle, and three agricultural counties in the west. The project highway was to connect with one expressway, four national highways, and six provincial highways, forming part of the trunk network. This was expected to increase the network’s transport capacity and efficiency, catalyze economic growth, spur interregional trade, and reduce poverty. Overall, traffic on the project roads was expected to grow 8%–9% yearly from 2014.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

7. The project was formulated in accordance with the PRC’s national development priorities. The national targets for the road sector, as reflected in the 11th Five-Year Plan (2006–2010), called for (i) the construction of 38,000 km of new roads, including 25,000 km of expressways, to expand the total length of the road network to 2.3 million km and the total length of expressways to 65,000 km; (ii) the completion of the National Trunk Highway System; (iii) the completion of interprovincial western development corridors; and (iv) the completion of 65%– 70% of the National Expressway Network, with the total length reaching 55,000–60,000 km. In addition, the plan assigned a high priority to local road development to promote economic growth and reduce poverty in rural areas.

8. The project was also in line with the government’s priorities for the northeast region, in particular (i) the 2003 plan to revitalize the northeast region, including Heilongjiang, as an industrial hub; and (ii) the 2004 Northeast Regional Transport Network Development Plan of the Ministry of Transport (MOT), formerly known as Ministry of Communications, to construct an integrated road–waterway network in the region to catalyze its economic development. In line with the Northeast Regional Transport Network Development Plan, the executing agency, the Heilongjiang Provincial Department of Transport (HPDT), formerly known as the Heilongjiang Provincial Communications Department, launched the province’s plan for 2005–2012 to improve trunk network connections to major ports to facilitate international and regional trade. The Jixi– Nehe highway improvement was included as a priority project in this plan.

9. The project was formulated in line with ADB’s operational priorities outlined in the PRC Country Strategy and Program for 2004–2006 endorsed by the Board in 2003,3 and its update for 2005–2007 endorsed in 2004.4 In the road sector, ADB’s focus was on the (i) construction of roads connecting growth centers with hinterland economies; (ii) integration of the National Trunk Highway System with local road networks, particularly those providing access to poor areas; (iii) delivery of adequate and affordable transport services; (iv) promotion of road safety and the reduction of vehicle emissions; (v) strengthening of institutions to increase financial and managerial efficiency in expressway operation; (vi) adoption of pricing policies to optimize road transport capacity; and (vii) use of alternative methods of investment financing, including private sector participation. A chronology of the project’s major events is in Appendix 2.

3 ADB. 2003. People's Republic of China: Country Strategy and Program (2004–2006). Manila. 4 ADB. 2004. People's Republic of China: Country Strategy and Program Update (2005–2007). Manila.

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B. Project Outputs

10. Main road infrastructure. The output was fully achieved. This included (i) improvement or construction of 428 km of highways in five sections, resulting in 419.4 km of class II and 8.6 km of class I highways; (ii) design and implementation of safety features during construction; and (iii) provision of equipment for road safety, toll collection, communications, and weigh stations. The design capacity of upgraded or constructed sections met the target of 1,600 cars per hour, and the quality of civil works, for both pavement and structures, was satisfactory. The project completion review mission noticed that after 3 years of operation, in some places the project road’s markings needed refreshing, drains needed cleaning, and slopes required additional erosion protection measures.

11. The road safety features were implemented as envisaged at appraisal. The government conducted safety audits of detailed designs for the project roads in March 2009 and for the completed roads in September 2009. In September 2009, the HPDT established a pilot road safety zone in Tonghe that featured (i) installation of speed limit signs, (ii) installation of rumble strips before the crossings, (iii) monitoring of accident rate and traffic volumes, and (iv) a public awareness campaign that included distribution of brochures and flyers to road users. The HPDT reported that no accidents were recorded during operation of the zone. The road safety measures developed through the implementation of this pilot safety zone can be expanded to the rest of project corridor, particularly with regard to pedestrian safety in the villages adjacent to the project road, as well as speed control and enforcement.

12. The government and the private sector financed the construction of eight roadside stations providing services and facilities to travelers in Linkou, Fangzheng, Qing’an, Suiling, Tonghe and Baiquan counties, and in the cities of Tieli and Hailun. Details of the roadside stations are in Appendix 3. The government also procured equipment for winter road maintenance.

13. Rural link road infrastructure. The output covering the improvement of 22 rural link road sections totaling 170 km was fully achieved. The design capacity of the road sections that were upgraded to class IV is 500 passenger cars per hour in each direction, which is consistent with the appraisal target.

14. Private sector participation in road maintenance. This output was not achieved. The output envisaged that the HPDT would enter into an operation and maintenance (O&M) concession for the class I roads (totaling 8 km), and award a maintenance concession for the class II roads. The HPDT concluded that the class I road section length was too short to attract private sector interest, and was unsuccessful in identifying an alternative section for piloting an O&M concession.

15. As regards the class II road maintenance concession, on 5 December 2008, the National Development and Reform Commission, the Ministry of Finance, the MOT, and the State Administration of Taxation jointly issued the Fuel Tax Reform Plan. This plan increased the tax rate on fuels effective 1 January 2009 and called for provinces to abolish tolls on class II roads as well as local road fees.5 In Heilongjiang, tolls on class II roads were abolished on 1 January 2010. The construction of project toll gates on class II roads was therefore suspended,6 except for one near an interchange with the Harbin–Tongjiang expressway. Since there was no longer

5 These include road maintenance fees, passenger and freight surcharges, and transport management fees. 6 Average completion rate of the construction of the toll gates was about 10% (mostly earth works).

4 a revenue source for the planned maintenance concessions, the HPDT was unable to proceed with the concessions. Furthermore, the HPDT was concerned about the social impact of the maintenance concession on the employees and pensioners engaged in the existing road O&M system. Nevertheless, the project’s international and domestic consultants reviewed the existing road maintenance system and provided the HPDT with (i) recommendations for introducing private sector participation in the road O&M through a concession mechanism and (ii) related sample contract documents. A follow-up component for piloting road maintenance by contract was included in the Second Heilongjiang Road Network Development Project, approved by ADB in March 2010.7

16. Capacity strengthening in road maintenance, management, monitoring, and evaluation. This output was mostly achieved. The project provided the HPDT with consulting services and training. The HPDT introduced a computerized road asset management system (RAMS) for prioritizing and programming maintenance works.8 This was complemented by an annually updated road maintenance manual and associated training provided by the HPDT for its maintenance staff, which received seven overseas and eight domestic training programs on various aspects of road asset management, operation, maintenance, and financing. The list of training programs is in Appendix 4.

17. The HPDT’s project M&E capacity was strengthened through consulting services for monitoring the implementation of the (i) soil erosion plan, (ii) environmental management action plan, (iii) resettlement plan, (iv) social development plan, and (v) project benefits.

C. Project Costs

18. The project cost estimate at appraisal was $524.55 million, including taxes and duties and charges during implementation, while the actual project cost was $538.19 million, an increase of 2.6%.9 The project cost increased most significantly for civil works ($36.4 million), land acquisition and relocation (LAR) ($15.1 million), and supervision and training ($4.4 million). The cost increase was mainly due to (i) local currency appreciation against the dollar by about 33% since appraisal; (ii) an increased scope of work, (iii) higher than planned compensation rates to affected people, and (iv) more comprehensive training programs and supervision arrangements. All cost increases were funded by the government. The comparison of the appraisal estimate and the actual project costs by component is in Appendix 5.

19. At project completion, the actual funding from ADB matched the appraisal estimate of $200.00 million. ADB financed $183.17 million (46.3%) of the cost of the main road, $16.30 million (87.8%) of the link roads, and $0.53 million (3.9%) of the consulting services and training. The MOT and the Heilongjiang Provincial Government increased their contribution from $175.8 million to $198.8 million to meet the funding shortfall, and to reduce borrowing at commercial rates from the China Development Bank. The actual financing by the China Development Bank decreased from the appraisal estimate of $148.8 million to $139.0 million.

7 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People's Republic of China for the Second Heilongjiang Road Network Development Project. Manila. 8 The software was developed by the Highway Research Institute under the MOT and used nationwide. 9 Due to local currency appreciation against the dollar by about 33% since appraisal, the actual project costs in CNY terms were 10.1% lower than appraisal estimates.

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D. Disbursements

20. The $200.0 million loan was fully disbursed. The first disbursement amounting to $3.0 million was made to the imprest account on 13 July 2007, and the final disbursement was made on 1 March 2012. Although the loan closing date was 30 September 2011, the loan account remained open until 1 March 2012 due to delays in submitting supporting documents for payments made to domestic consultants for a roads O&M study. On 21 February 2011, ADB approved a reallocation of loan proceeds to accommodate updated commitments for rural roads construction and local currency appreciation. The payments for civil works and training were made through reimbursements while payments for consulting services were made directly.

21. Due to delays in submitting reimbursement requests for civil works expenditures, the rate of disbursement was initially below the appraisal projections, resulting in a cumulative disbursement shortfall of about $45 million in 2008. The shortfall was reduced in 2009 and mostly eliminated by 2010.

22. The efficiency in utilization of the imprest account varied over the life of the project. The imprest account turnover rate10, recorded annually, fluctuated substantially: it was 4.76 in 2007, 2.00 in 2008, 0 in 2009, 0 in 2010, 1.87 in 2011; and was calculated as an average of 2.37 in 2012 at loan closing date. Projected and actual contract awards and disbursements are in Appendix 6.

E. Project Schedule

23. Project implementation mostly followed the schedule envisaged at appraisal. This was facilitated by advance procurement action approved by ADB on 10 April 2006, including retroactive financing of eligible expenditures up to $20.0 million. The HPDT efficiently utilized both provisions. Preliminary designs were completed in November 2005 and detailed designs were completed in June 2006, except that of the Haibai section, which was completed in May 2007. Preparation of bid documents for the 26 main civil works contracts for roads started in April 2006 upon approval of advance procurement action. The first batch of major road civil works contract awards was approved by ADB in November 2006. Of a total of 26 contracts, 25 were negotiated and signed prior to the loan signing in December 2006 and one was negotiated and signed following the loan signing in April 2007. All were negotiated and signed before loan effectiveness on 7 May 2007.

24. The HPDT initiated the procurement of civil works for rural roads in early 2008 rather than in July 2006 as envisaged at appraisal. ADB approved draft bidding documents on 16 June 2008 and contract awards in November 2008. The HPDT postponed the rural roads construction in order to ensure an uninterrupted supply of construction materials for the main road sections via these rural roads. However, all rural roads were completed and opened to traffic in September 2009, simultaneously with the main road sections and one month ahead of the original schedule.

25. The road maintenance equipment, including winter road maintenance equipment, was procured using government financing and delivered between November 2009 and April 2010, rather than in July 2009 as originally scheduled.

10 Imprest account turnover ratio indicates operational efficiency of imprest accounts, using the turnover (how may times imprest account was replenished in one year) as the efficiency indicator.

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26. The international consultants were fielded in February 2008, rather than in July 2006 as originally scheduled, and completed their services in May 2010. Their services were not linked to the civil works, and the delay did not affect the works progress. The government-funded domestic consulting services, which commenced in October 2006, continued until September 2009. The appraisal and actual implementation schedules are in Appendix 7.

F. Implementation Arrangements

27. As agreed at appraisal, the HPDT was the executing agency for the project. It had sufficient technical capacity for implementing the project civil works, and its capacity limitations for road network O&M were met through consulting services and training programs provided under the project. Capacity gaps in FIDIC-based construction supervision and the monitoring of economic, social, environmental, and resettlement impacts were also met through consulting services. 11 The HPDT project management office (PMO) coordinated and monitored construction activities and initially operated the project highway. The PMO general manager was the project director responsible for overall project management, approval of contracts, and payments. The PMO facilitated the land acquisition, resettlement, and implementation of environmental protection measures; and monitored local concerns to ensure that they were addressed adequately. The organization chart is in Appendix 8.

G. Conditions and Covenants

28. Of the 30 specific loan covenants, 26 were complied with, one was partly complied with, two were not complied with, and one is not yet due. The covenant partly complied with related to the establishment of a project performance monitoring system and the submission of regular monitoring reports. Those not complied with related to (i) entering into an O&M concession with a private sector entity for the class I section and a maintenance concession for the class II sections, (para. 14) and (ii) proposing appropriate toll rates for the project highway (para. 15). The covenant that is not yet due relates to keeping the project’s debt service coverage ratio at less than 1.2 for the sixth year of full operation. The details of compliance with specific loan covenants are in Appendix 9.

H. Related Technical Assistance

29. ADB approved a project preparatory technical assistance (PPTA) to help the government prepare the project.12 The technical assistance became effective on 8 August 2005, commenced in October 2005, and was scheduled to close on 31 July 2006. The PPTA completion date was extended to accommodate processing of the final statement of eligible costs and a certificate of turnover of equipment. It was financially completed on 25 April 2007, and the performance of the PPTA consultant was satisfactory. Subsequently, the project loan processing was based on the PPTA findings and recommendations and resulted in the loan approval for the project. The project did not have any attached technical assistance.

11 FIDIC stands for Fédération Internationale Des Ingénieurs-Conseils. 12 ADB 2005. Technical Assistance to the People’s Republic of China for Preparing the Heilongjiang Road Network Development Project. Manila.

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I. Consultant Recruitment and Procurement

1. Consultant Recruitment

30. The scope and the selection modality of ADB-funded international consulting services evolved during implementation. Given the small size of their assignments, the selection of international consultants for (i) asset management and maintenance and (ii) project benefit monitoring and evaluation was revised to follow the consultants’ qualification selection method instead of quality- and cost-based selection as indicated at appraisal. In addition, the provision for services of a resettlement specialist was cancelled as it was found to be unnecessary.13 The HPDT also engaged domestic consultants to complement the inputs of the international consultant for road asset management and maintenance. The domestic consultants (i) reviewed the PRC’s legal framework for road O&M; (ii) reviewed experience of the private sector engagement for road O&M in Yunnan, Jilin, and Heilongjiang provinces; (iii) prepared a draft O&M framework; and (iv) prepared a sample bidding document for O&M outsourcing to the private sector.

31. The government funded the domestic consulting services for (i) supervision of main road construction (10,080 person-months); (ii) supervision of rural roads construction (532 person- months); (iii) monitoring project benefits, land acquisition, and social development action plan (SDAP) implementation (65 person-months); and (iv) monitoring the implementation of the environmental management plan (EMP). The national consultants were recruited in accordance with government procedures.

2. Procurement

32. All ADB-financed procurement followed ADB’s Procurement Guidelines. The contract packaging and procurement methods followed the procurement plan agreed on at appraisal. The main road sections were divided into 26 packages, all of which were procured under international competitive bidding using single-stage, two-envelope procedure. ADB approved bidding documents on 11 May 2006, and a specific notice was published in ADB Business Opportunities and in China Daily on 18 May 2006. In total, 145 contractors, all from the PRC, purchased the bidding documents, and 89 submitted 247 bids for the 26 contracts by the deadline on 29 June 2006. Of these, only 39 applicants for 131 bids were qualified. The number of bidders that failed to submit bid securities (30 of the 89 bidders) was very high, indicating their unfamiliarity with bidding procedures. However, the bidding remained competitive, as five bids were qualified per contract, on average. The bid evaluation for technical proposals took longer than expected and necessitated an extension to the bid security validity period by 60 days; the extension was agreed to by all qualified bidders except for three. The evaluation of technical proposals was submitted to ADB on 17 August 2006 and approved on 18 September 2006. The financial proposals were opened on 22 September 2006. Following the evaluation of the financial proposals, ADB approved all 26 contract awards on 23 November 2006.14

33. Civil works for the rural link roads were divided into 14 packages, all procured under national competitive bidding in 2008. The only issue was a non-critical delay in launching procurement. The government-funded equipment contracts were procured following domestic

13 A domestic firm recruited under government funding monitored the implementation of the resettlement plan. 14 Four contract awards (for contracts C10, C11, C16, and C17) were awarded on an exceptional basis without determining the combination of bids offering the lowest evaluated cost and being subject to submitting higher performance securities in view of the very low prices.

8 procedures. Details of the ADB-funded civil works and consulting services contracts are in Appendix 10.

J. Performance of Consultants and Contractors

34. The performance of all contractors was satisfactory. The civil works were completed ahead of schedule in accordance with specifications and applicable quality standards and in compliance with environmental and social safeguard requirements. 35. The performance of the consultants is overall satisfactory. The consulting services were effective in ensuring the quality of civil works, but less effective in (i) introducing commercial practices in road maintenance and (ii) strengthening the HPDT’s capacity for monitoring the project’s resettlement, socioeconomic, and environmental impacts.

36. The ADB-funded international consultants performed well, delivering high quality outputs on time. The input for establishing a RAMS helped the HPDT rationalize its maintenance practices. The support for developing a project performance management system benefited the project monitoring. However, this required extensive village surveys and the monitored indicators were not consistent with the indicators in the project design and monitoring framework.

37. The domestic consultants hired for the O&M study performed below expectations and failed to submit their outputs on time. The outputs, however, provided useful insights for introducing a concession mechanism for road maintenance. The domestic firm recruited under the government funding to monitor implementation of the resettlement plan and SDAP and to conduct M&E of the project benefits failed to provide timely outputs to the HPDT for its project completion report (PCR). The performance of the domestic consultants engaged for environmental monitoring was generally satisfactory. However, semi-annual reporting requirements were not fully met, as only one environmental monitoring report (EMR) was received per year.

K. Performance of the Borrower and the Executing Agency

38. Overall, the performance of the borrower, the Ministry of Finance, and the HPDT was satisfactory. The borrower experienced some delays at project start-up. The loan agreement was signed on 19 January 2007, 6 months after the loan approval date rather than the 3 months envisaged at appraisal. The loan became effective on 7 May 2007, one month behind the original schedule. These delays, however, had no negative consequences for project implementation. The borrower and the HPDT were able to successfully provide additional counterpart financing to meet the shortfall resulting from the increased project cost.

39. The HPDT had previously implemented ADB-funded projects and was familiar with ADB’s policies and procedures. Overall, HPDT managed most aspects of the project satisfactorily. The engagement of a specialized procurement agent contributed to an efficient procurement approval and the early commencement of civil works. However, the HPDT faced difficulties in implementing private sector participation in O&M. This was due to factors beyond its control, namely substantial changes following the Fuel Tax Reform Plan (paras. 14 and 15). The HPDT also experienced some noncritical delays in fielding international consultants and in disbursing the loan proceeds during the first 2 years of implementation. The PMO managed the project efficiently, but was dissolved shortly after the completion of civil works in September 2009. This constrained ADB’s ability to follow up with the HPDT on pending project matters, including the closure of the loan account and preparation of the PCR.

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L. Performance of the Asian Development Bank

40. ADB’s performance was rated satisfactory. The PPTA helped to formulate a project proposal that was generally sound. Five review missions were fielded during project implementation, including inception in 2006 and the midterm review mission in 2008. The HPDT considered ADB’s review and supervision of project implementation to be adequate and timely. Communication and coordination between ADB, the HPDT, and the PMO were generally smooth and effective. ADB’s responses to the HPDT’s requests and inquiries were prompt and constructive. Both the HPDT and PMO acknowledged ADB’s guidance and cooperation in resolving implementation issues.

III. EVALUATION OF PERFORMANCE

A. Relevance

41. The project was highly relevant to the government’s objectives and policies, as well as to ADB’s country strategy. At completion, the constructed roads significantly improved connectivity in the project area. Overall, the project had significant socioeconomic impacts. Consulting services supported the successful implementation and capacity building of road network development and maintenance. The project output for private sector participation in road maintenance was not implemented, reflecting unforeseen changes in the legal framework (paras. 14 and 15), and some aspects have since been taken up under other funding programs. Otherwise, the main assumptions made at appraisal remain valid, and identified risks have been mitigated. Overall, the project design and formulation were appropriate, and they contributed to the government’s development objectives and ADB’s country strategy.15

B. Effectiveness in Achieving Outcome

42. The project is rated effective. It contributed to establishing an improved road network in Heilongjiang. The main road improvement reduced the travel time between Linkou and Baiquan from 12 hours in 2005 to about 7.5 hours in 2011. The upgrading of rural roads provided poor villages with improved access, increasing the frequency of visits to township markets from 4 times per household per month in 2005 to 8 in 2011. The frequency of visits to villages by extension workers increased from 2.9 times every 6 months in 2005 to 4.5 times every 6 months in 2011. In addition, bus operators extended their service coverage, with the proportion of villages with bus service increasing from 62.6% on average in project counties in 2005 to 92.6% by 2011. This compares favorably with the Heilongjiang average of 67% in 2011.

43. The project also helped to improve road safety. In the reviewed 7 project counties,16 there were 1,168 road accidents, 114 fatalities, and 803 injuries in 2010, compared with 1,422 road accidents, 157 fatalities, and 793 injuries in 2007. This indicates an 18% reduction in accidents and a 27.4% reduction in fatalities, although injuries increased by 1.3%. Given the increased traffic volume, this reflects a positive trend, but additional measures are still required, particularly installing speed control signs, enforcing traffic regulations, and improving pedestrian safety.

15 ADB. 2003. People's Republic of China: Country Strategy and Program (2004-2006). Manila. ADB. 2004. People's Republic of China: Country Strategy and Program Update (2004-2006). Manila. 16 Tonhe County has no baseline established by the 2007 baseline survey, and thus is not included in this analysis.

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44. The project had environmental benefits. It reduced the travel distance between Linkou and Baiquan, which reduced fuel consumption and air pollution by vehicles. Estimated carbon dioxide emissions from traffic on this route were reduced by about 30.5% from 385.3 million kg in 2004 to 271.8 million kg in 2010.

C. Efficiency in Achieving Outcome and Outputs

45. The project is rated efficient. It was generally completed as scheduled, and its cost only deviated marginally from appraisal estimates, increasing in dollar terms while decreasing in CNY terms. While the increase in traffic volume is less than the appraisal projection, the economic and financial reevaluation has confirmed that the project remains economically and financially viable.

46. Traffic volume. Before the project, due to poor road conditions, travelers between adjacent cities and counties needed to use indirect and circuitous routes. When the project highway opened to traffic in September 2009, travel distances were substantially reduced, which led to significant savings in travel time and vehicle operating cost (VOC).

47. The annual average daily traffic on the five reviewed main road sections increased from 2,065 passenger car units (PCUs) at project appraisal in 2005 to 3,295 PCUs in 2010 and to 4,070 PCUs after project completion in 2012. This is below the appraisal forecast of 4,506 PCUs daily for 2010 and 5,239 PCUs daily for 2012. The average traffic volume on these road sections is now projected to be 8,307 PCUs per day by 2019, which is lower than the appraisal forecast of 8,934 PCUs per day. The main reason for the traffic shortfall is that the appraisal forecast for the Linkou–Dailumi and Tonghe–Tieli road sections, which are both located in sparsely populated areas, was too optimistic. A comparison of the original traffic forecast with the actual and revised traffic forecasts is in Appendix 11.

48. Economic reevaluation. The project is economically viable. The reevaluated economic internal rate of return (EIRR) of the highway is 23.21%, higher than the appraisal estimate of 21.21%. Economic benefits have accrued principally from VOC savings and time savings. While the traffic volumes were lower than originally forecast, the EIRR increased because higher fuel prices raised unit VOC, which led to higher VOC savings. In addition, the value of time savings increased as a result of higher incomes. The reevaluated EIRR is well above the 12% economic opportunity cost of capital. A sensitivity analysis was carried out to test the impacts of decreases in benefits. In the worst case scenario of a 20% decrease in benefits, the EIRR is 19.48%. An additional sensitivity test removing the benefits associated with increased VOCs and the value of time savings produced an EIRR of 17.04%. The complete sensitivity analysis indicates the project remains viable. The economic reevaluation is in Appendix 11.

49. Financial reevaluation. Due to the cancellation of tolls on project roads (para. 15), a reevaluation of the financial internal rate of return is not applicable. Toll revenues have been replaced by financing from the central government from fuel tax revenues and subsidies. Total revenues for the HPDT jumped significantly in 2009 due to the PRC’s economic stimulus program and remained constant in 2010 and 2011. Available funds and expenditures have reached about CNY40 billion per year while loan repayment costs are now approximately CNY6 billion per year. The annual loan repayment for the project is estimated at only $15 million (CNY94.5 million) or about 1.6% of total debt service and only 0.2% of total available funds to the HPDT. This indicates that the HPDT has ample resources to absorb the loan repayment costs. The financial reevaluation is in Appendix 12.

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50. Private sector participation in road maintenance. Activities under this component did not result in the planned output. Thus, the use of project resources for achieving its output was rated as inefficient.

D. Preliminary Assessment of Sustainability

51. The project is rated likely sustainable. The project highway and rural road sections were well designed and the quality of construction was satisfactory. Due to the distance and time savings that it provides, the project highway is emerging as a new major transport corridor between Linkou and Baiquan.

52. As the piloting of private sector participation in road O&M was not achieved, the project main road sections will continue to be maintained by the HPDT and the rural road sections by county governments.17 The HPDT has established a new maintenance division for O&M of the main road sections constructed under the project. The division includes five maintenance units, has 40 office staff and 220 workers, and was provided with equipment procured under the project. O&M of the project rural roads has been transferred to respective counties. The O&M staff has adequate capacity to perform all required tasks. The budgets allocated to these roads in 2012 are adequate18 and are likely to be sustained at appropriate levels in the future, given the increasing attention being paid to road maintenance by the government.

53. The HPDT has to date retained all 330 staff who received training on various aspects of road O&M. About 40 staff were trained to operate the introduced RAMS. A follow-up RAMS component is included under the Second Heilongjiang Road Network Development Project, with a view to further improving road O&M planning and execution.

E. Impact19

54. Socioeconomic impact.17 The project contributed to economic growth and socioeconomic development in the project area and Heilongjiang Province. The 12th Five-Year Plan envisages 12% growth for Heilongjiang Province and 15% growth in the project area by 2015. During 2005–2010, gross domestic product grew by 13.4% in Heilongjiang Province and by 14.3% in the project area. The economic growth rate compares favorably with the appraisal target of 7.5% for Heilongjiang and 7.5%–8.0% for project area during 2010–2020. Average per capita rural net income increased from CNY2,471 in 2004 to CNY4,400 in 2007 and CNY6,636 in 2010,21 indicating that the appraisal target of CNY4,500 set for 2015 has been achieved earlier than expected. The incidence of poverty in project villages, on average, fell from 13.0% in 2005 to 6.2% in 2011, against the appraisal target of 9.0% by 2015. In 2011, the number of poor villages in the project area was 244 as against the year 2015 target of 90 poor villages.22 These figures indicate a significant reduction of about 38% in the number of poor villages and confirm the positive project impacts on social and economic development in the project area and in Heilongjiang Province.

17 Linkou, Tonghe, Tieli, Qing’an, Suiling, Hailun, and Baiquan counties. 18 Refer to Appendix 12. 19 Based on external monitoring reports and baseline data. 21 Based on baseline survey by the external monitor. 22 At the time of project appraisal, the number of poor villages in the project area was 178, based on 2004 PPTA data. The target of 90 poor villages by 2015 implied a reduction in the number of poor villages of almost 50%. The baseline survey conducted by the external monitor was based on 2007 data that revised the number of poor villages from the initial assessment of 178 to 393. By 2011, 244 of the 393 villages were still poor. While the proportion of villages brought out of poverty was therefore less than the appraisal targets, the absolute number of villages brought out of poverty was 149 as against the appraisal target of 88 villages.

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55. The project provided direct economic benefits to the local communities by generating employment opportunities. The contractors employed 13,053 local laborers, including 1,949 skilled workers, 7,136 unskilled workers, 275 ethnic minority people, 1,310 affected people, 991 women, and 1,781 local poor. On average, each laborer worked for 3 months and earned about CNY2,000 per month. The total project-generated income for local communities is estimated at CNY78.4 million. During the construction period, contractors also used local materials and resources, which benefited local communities. The contractors for the 26 main road contract packages hired 930 pieces of minor equipments and machinery from local farmers. In addition, the renting of residential and other premises from local farmers contributed an income of CNY7.52 million.

56. Over 20 ethnic minority groups live in Heilongjiang Province. Of the 14 ethnic minority groups living along the project road, the majority are Korean, Manchu, Mongol, Ewenke, and Hui. Contractors trained and employed 275 ethnic minority people. The project affected 659 minority households, mainly Korean and some belonging to Manchu ethnic group, which were subsequently assisted through measures taken under the SDAP (Appendix 13) and Land Acquisition and Resettlement (Appendix 15).

57. Environmental impact. Two domestic environmental impact assessment (EIA) reports were approved for the project in 2006. The EIA for the road components was approved at the provincial level and the Heilongjiang Environmental Protection Bureau issued the final acceptance report in November 2011. The EIA for the 2.6 km Songhua River Bridge was approved at the national level. At the time of preparing the PCR, the final acceptance report for the bridge had been prepared by the Ministry of Environmental Protection but not yet issued.

58. ADB classified the project as environment category A. The summary environmental impact assessment (SEIA) and EMP prepared by the HPDT were disclosed on the ADB website in February 2006. The SEIA concluded that the predicted adverse environmental impacts of the project could be reduced to an acceptable level through the implementation of the EMP. The PMO engaged two domestic research institutes to support the implementation of the EMP and one local environmental monitoring station to conduct environmental quality monitoring. The EMRs of the HPDT and the review mission reports indicate that the mitigation measures and environmental quality monitoring were implemented satisfactorily and in accordance with the EMP. Environmental quality monitoring will continue during operation, in accordance with national standards.

59. The ADB’s project completion review mission in July 2012 held consultations with national counterparts and visited project sites to review key environmental protection measures. It confirmed that the majority of measures had been implemented according to agreed standards and budgets. Permanent land acquisition was slightly more than predicted, and forestry compensation was considerably higher than predicted. In the final acceptance report for the roads EIA, the Heilongjiang Environmental Protection Bureau recommended that (i) slope stabilization and rehabilitation of land temporarily acquired for construction are improved in specified areas; (ii) the environmental quality monitoring program is strengthened; and (iii) drainage ditches are maintained at more regular intervals. The mission recommended that the HPDT during future major maintenance and improvement works consider additional measures to prevent direct stormwater runoff to rivers, sensitive habitats (Xinglong National Forest Park, class II Nuomin River, and Songhua River) and areas that are important for agricultural production, and more widespread use of solar-powered street lighting. A detailed environmental impact analysis is in Appendix 14. 5 EMRs were received, reviewed and uploaded.

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60. Land acquisition and resettlement. The project required substantial land acquisition and relocation (LAR). To deal with the adverse impacts of LAR, a resettlement plan was prepared in accordance with relevant domestic policies and ADB’s policy on involuntary resettlement. Actual permanent land acquisition of 1,323 ha was less than the planned land acquisition of 1,391 ha. Land acquisition affected 22,858 people from 5,663 households, which was consistent with the resettlement plan. The planned and actual impact of temporary land acquisition remained unchanged: 428 ha of land were acquired, affecting 535 households with 2,244 people. House demolition affected 286 households with 802 people, as compared with the planned demolition of 201 households with 802 people. Demolition of structures affected 11 enterprises with 147 people, consistent with the resettlement plan. 23 The variation between planned and actual LAR impacts was minimal.

61. Resettlement was completed in May 2009 for the highway and in April 2009 for the rural link roads. Compensation was provided directly to the affected people, prior to dispossession or displacement. It was provided for house relocation and loss of land, fixed structures, other facilities and attachments, business, and crops. Additional compensation was provided for land affected by floods or siltation caused by construction activities. Compensation standards for land acquisition and house demolition complied with the laws of the PRC, Heilongjiang Province, and ADB policies. Compensation standards for land acquisition remained the same as the planned rates, while compensation rates for house demolition were higher. Harsh weather conditions during the winter season posed some problems for resettlement implementation. Affected people’s concerns, such as regarding compensation rate standards, urban housing, and land fragmentation, were resolved mainly by paying additional compensation and through consultations and negotiations. Relocated rural households built their new houses within the same villages. Township governments and village committees arranged new sites and allocated new house plots prior to demolition of old houses. For urban relocation, replacement costs were provided in cash to relocated households who purchased new houses at subsidized rates. The total actual basic cost of resettlement was CNY351.49 million against the original budget of CNY262.00 million.24 The project set up a resettlement office to take charge of LAR activities and it established mechanisms for the dissemination of information, consultation, and the redressing of affected people’s grievances. Measures outlined in the resettlement plan were undertaken to help the affected people restore their incomes. The external monitor’s survey reports and interviews with the affected peoples indicate that their living standards have been steadily increasing after resettlement. 25 More detailed information on LAR is provided in Appendix 15.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

62. Overall, the project is rated successful. It was implemented within the original schedule and it delivered the desired outputs except for the introduction of private sector participation in the O&M of the roads. The project outcome was achieved, and the long-term impact is likely to

23 Based on the external monitoring reports and information provided based on detailed measurement survey reports during the mission visit. 24 These figures for resettlement cost vary slightly from those documented in the Resettlement Completion Report due to the different exchange rates used. An updated budget table factoring in exchange rate variations is provided in Appendix 15. 25 Based on external monitoring reports which pointed out the improved indicators for per capita income, poverty rate and number of poverty villages, renovated and better quality houses, non-farm income, access to social services such as health centre, educational institution, transport facility, market etc.

14 be achieved. The project contributed to the development of an efficient, safe, and environmentally friendly road transport system in Heilongjiang Province by providing (i) a shorter link between Linkou and Baiquan, which has emerged as a major economic east–west corridor in the province, resulting in fuel and transport cost savings and air pollution reduction; (ii) improved access for poor communities along the project highway to markets and social services; and (iii) improvements in road safety. The achieved improvements in the transport system supported economic growth and socioeconomic development in Heilongjiang Province and the project area. The implementation arrangements were effective, adverse environmental impacts were effectively mitigated, and LAR was implemented in an orderly manner and to the satisfaction of affected communities. The established project facilities are likely to be adequately maintained and therefore sustainable.

B. Lessons

63. This project confirmed that the HPDT has sufficient capacity to implement large-scale road construction projects to a high standard and in compliance with domestic and ADB’s social and environmental safeguards. However, the HPDT is less prepared for piloting private sector participation in road O&M, and this capacity limitation was not fully addressed in the project design. The proposed concession mechanism for O&M of class I roads, where tolls provide the revenues to finance a concession for highway maintenance, remains a feasible option for improving road O&M arrangements in Heilongjiang and merits further policy dialogue with the provincial transport sector management.

C. Recommendations

64. Private sector participation in road operation and maintenance. ADB should continue its policy dialogue with the HPDT on the proposed concession mechanism for O&M focusing on tolled class I roads. The dialogue should carefully consider the potential social implications for the existing O&M system.

65. Follow-up action on road safety. It is recommended that by December 2012 the HPDT fully implement the road safety recommendations included in the post-construction road safety audit report, particularly the installation of additional road signs and the introduction of additional measures for speed control and pedestrian safety in villages adjacent to the project road.

66. Timing of the project performance evaluation report. It is proposed that the project performance evaluation be carried out in 2013. By that time, the project highway and rural roads, which were opened to traffic in September 2009, will have been in operation for more than 3 years, allowing for fair assessment of the project’s social, economic and financial impact as well as improvements in road maintenance practices.

DESIGN AND MONITORING FRAMEWORK Performance Targets/Indicators Data Sources and Design Summary Appraisal Actual Reporting Mechanisms Assumptions and Risks 1. Impact

Improved transport During 2010–2020, gross domestic product Gross domestic product increased by Heilongjiang Statistics Assumptions system that supports increases by 7.5% in Heilongjiang and 13.44% in Heilongjiang and 14.3% in Yearbook  Government economic growth and 7.5%–8.0% in the project area. the project area during 2005–2010. investment projects socioeconomic The 12th Five-Year Plan provides for are implemented as development in 12% growth in Heilongjiang and 15% planned. Heilongjiang province growth in the project area.  Complementary and the project area activities are Average per capita rural net income in the Average per capita rural net income Village survey by implemented. villages increases from CNY2,471 in 2004 increased to CNY4,400 in 2007 and consultants to CNY4,500 in 2015. CNY6,636 in 2010.

The incidence of poverty in the project area The incidence of poverty in the project Statistics offices at the falls from 13% in 2005 to 9% in 2015. area (the average in villages) fell from provincial and county 13% in 2005 to 6.19% in 2011. levels

The number of poor villages in the project The number of poor villages in the County and provincial area is reduced from 178 in 2005 to 90 in project area was reduced from 393 in data 2015. 2005 to 244 in 2011. 1 Appendix

New or renovated houses in the villages The number of new or renovated Village survey by increase from 5% of total houses in 2005 to houses in villages increased from 5% consultants 10% in 2015. of total houses in the project area to 20.5% in 2011.

In 5 years, the project area has 10% more No information is available. Provincial and county jobs than the control area. statistics offices

Nonfarm income increases from 30% of Nonfarm income increased to 52% in Household survey by total income in 2005 to 50% in 2015. 2011. consultants

The number of rural enterprises grows 5% The number of rural enterprises in the County statistics offices within 5 years. project area grew from 173 in 2005 to and a village survey 195 in 2011, an increase of 12.7%.

The number of tourists visiting the project The number of tourists visiting the Township and county area increases by 30% by 2015. project towns increased from 32,000 statistics and a village persons/year in 2009 to 51,500 in survey

2011, an increase of 60.9%. 15

16 Performance Targets/Indicators Data Sources and Design Summary Appraisal Actual Reporting Mechanisms Assumptions and Risks

Appendix 1 Appendix Interprovincial and intra-provincial trade in No relevant information is available. Provincial and county the northeast increases by 10% within 3 However, total retail sales of consumer statistics offices years. goods in the province increased from CNY2,029.0 million in 2007 to

CNY4,039.2 million in 2010. The total value of exports and imports increased from $17.3 billion in 2007 to $25.5 billion in 2010. 2. Outcome

An efficient, safe, and Traffic on the project road increases from an The average traffic volume on 5 Collection of actual Assumptions environmentally average of 2,450 vehicles [4,506 passenger project main road sections increased traffic data on the  Assumed economic friendly road transport car units (PCUs)] daily in 2010 to 4,875 from 2,065 PCUs daily at project project road through its growth rates system developed in [8,934 PCUs] in 2019. appraisal in 2005 to 3,295 PCUs daily auto-monitoring system materialize. Heilongjiang in 2010, and to 4,070 PCUs daily after by the Heilongjiang  Transport operators project completion in 2012. This is still Provincial and drivers realize the below the appraisal forecast of 4,506 Communications benefits of using the PCUs daily for 2010 and 5,239 PCUs Department (HPCD) project road. daily for 2012. The projected 2019 average traffic volume on these road sections is now 8,307 PCUs daily, which is lower than the appraisal forecast of 8,934 PCUs daily. The main reason is that the appraisal forecast for Linkou–Dailumi and Tonghe–Tieli road sections, located in sparsely populated areas, was overly optimistic.

Performance Targets/Indicators Data Sources and Design Summary Appraisal Actual Reporting Mechanisms Assumptions and Risks

Travel time between Linkou and Baiquan is Travel time between Linkou and Traffic counts and travel  HPCD demonstrates reduced to 7.5 hours. Baiquan was reduced from 12.0 hours time survey for the implementation in 2005 to about 7.5 hours in 2011, project highway and capacity. due to a shorter route through the local roads by HPCD project road, as envisaged at appraisal.

Bus fares and freight charges are reduced Fares have already been reduced by Monitoring of fares and  Operating cost by 10% by 2015. more than 10% in different counties. rates by HPCD savings realized by Across various counties, fares during commercial vehicle appraisal that ranged from CNY1 to operators are passed CNY3 per trip are now in the range of on to road users. CNY1 to CNY2 per trip.

The frequency of visits to township markets The frequency of visits to township Household survey by  Transport services increases from 4 times/household/month in markets increased from 4 consultants improve, as does road 2005 to 6 in 2015. times/household/month in 2005 to 8 in access shortly after. 26 2011.

The frequency of visits to villages by The frequency of visits to villages by Village survey by the 1 Appendix extension workers increases from once extension workers increased from 2.9 consultants every 6 months in 2005 to four times every visits every 6 months (updated 6 months in 2015. baseline figure in 2005) in 2005 to 4.5 visits every 6 months in 2011.

Transport expenses increase from 5% of Transport expenses increased from Household survey by total expenses in 2005 to 8% in 2012. 7.1% of total expenses on average in consultants project villages in 2005 to 9.2% in 27 2011.

Villages with paved road access increase The number of villages with paved Monitoring of Risk from 25% of the total to 55% by 2010. road access in Heilongjiang increased accessibility Local governments may from 43% of the total in 2005 to 57% by local communications not have sufficient by 2011. The number of villages with bureaus budgets to implement the paved road access in 8 project road development plan. counties increased from an average of 61.6% of the total in 2005 to 76.3%

26 These figures have a different basis from the appraisal target indicators due to changes in assessment methodology (para. 55). 27 The base figures were redefined by the project performance management system consultants and deviate from appraisal estimates due to differences in sample 17 coverage and survey methodologies used.

18 Performance Targets/Indicators Data Sources and Design Summary Appraisal Actual Reporting Mechanisms Assumptions and Risks Bus service increases from 80% of No specific data is available for Monitoring of bus-related Assumptions Appendix 1 Appendix townships in 2004 to 100% by 2015. townships. data by HPCD  Rural transport service The percentage of villages with bus facilities are improved service increased from 62.6% on according to the average in project counties in 2005 to government’s plan. 92.6% by 2011, as compared with the  The nationwide road total in Heilongjiang of 67% in 2011. safety program is effectively The number of serious road accidents and In 2007 in the reviewed 7 project County statistics implemented. fatalities in the project area is reduced by counties, the number of road accidents Accident statistics from 20% by 2015. was 1,422 and the number of fatalities the Heilongjiang Public was 157. In 2010, the number of Security Bureau and accidents decreased 18.0% to 1,168, Hospitals the number of fatalities decreased 27.4% to 114, and the number of injuries increased 1.3% to 803. 3. Outputs

3.1. Road Road capacity increased to 1,600 The design capacity of class II roads Project completion report Assumption infrastructure passenger cars per hour in 2010 by opening is 1,600 passenger cars per hour, (PCR)  Civil works start as and associated a 428 km project highway. which complies with the target, scheduled. equipment and although the actual traffic volume is facilities improved lower. along the project road Vehicle operating cost for a car reduced According to the project completion Direct measures of from CNY1.48 per vehicle per km in 2005 to report mission estimates, the per km vehicle operating costs CNY1.23 (constant price) in 2015. vehicle operating cost for a car will by HPCD decrease to CNY1.18 (constant 28 price) by 2015. Safety audits implemented during design and construction. Safety audits were implemented as Progress reports and Assumption planned. PCR  Domestic capacity is strong enough to Equipment procured and installed for road develop safety audits. safety, toll collection, communications, and The equipment was procured and Project administration Assumptions weight stations. installed, as planned, except for toll memorandum (PAM),  Equipment collection. project reports, and PCR procurement and installation are completed on time.

28 Appendix 11, paras. 10–11, provides details of vehicle operating cost recalculations.

Performance Targets/Indicators Data Sources and Design Summary Appraisal Actual Reporting Mechanisms Assumptions and Risks

Implementation of resettlement plans. Implemented in compliance with Regular monitoring by  Affected people are resettlement plans. an independent institute able to restore their engaged by HPCD living standards.

Carbon dioxide emissions reduced by 30% Carbon dioxide emissions were Environmental Assumption by 2010. reduced by about 30.5% from an monitoring reports,  HPCD and contractors estimated 385.3 million kg in 2004 to PAM, and PCR are committed to 271.8 million kg in 2010. implementing mitigation measures. Environment at the project site protected All mitigation measures were and adverse environmental impacts implemented as planned. minimized by mitigation measures.

The welfare of minorities protected and the The project trained and employed 275 Monitoring reports of the Project’s adverse impacts minimized by ethnic minority people in construction resettlement plan and specific actions and measures for ethnic work. Participation in the labor service social development minorities under the resettlement plan and export program included 1,600 people action plan, PAM, and social development action plan. from the Korean ethnic minority group, PCR with training expenses fully borne by Tieli County. 1 Appendix

Control of HIV/AIDS and health risks of Associated public awareness programs Monitoring by the Risk construction workers and service providers. were implemented. Clinics were set up Heilongjiang Provincial  The capacity of the in all 26 road sections by the Health Bureau Health Bureau may be contractors to educate workers on insufficient to HIV/AIDS prevention. implement mitigation measures. 3.2. Road Class IV road capacity increased to 500 The design capacity of class IV roads PCR Assumption infrastructure passenger cars/hour/direction by 2010. is 500 passenger cars/hour/direction,  Quality facilities are and associated which complies with the target. completed on time. facilities improved for rural link roads in the project area

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20 Performance Targets/Indicators Data Sources and Design Summary Appraisal Actual Reporting Mechanisms Assumptions and Risks 3.3. Private sector An operation and maintenance This output was not implemented due Midterm review missions Risk Appendix 1 Appendix participation concession awarded for class-I roads, to changes in the road maintenance and the PCR  Few private firms are encouraged in project and a maintenance concession funding mechanism and the interested in the road maintenance awarded for the rest (class-II roads). cancellation of tolls on project road project highway’s sections. operations.

3.4. Domestic capacity Heilongjiang Provincial Department of Training and consulting services were Midterm review missions Assumptions strengthened in road Transport (HPDT) staff will receive 7 implemented as planned. and the PCR  Consultants are maintenance and person-months of international consulting recruited on time and management system, services and 4,900 person-months of perform well in and monitoring and domestic consulting services. providing training to evaluation HPCD. Local staff will receive training under a Local staff were provided with training A report by the  Trainees apply what management action plan. as planned. consultants on the they have learned. capacity-building Survey techniques are adopted to assess No information is available. component changes in work practices and behavior to measure the effectiveness of the capacity- building component.

Activities with Milestones Inputs 1. Civil works of the highway: Contracts awarded by September 2006 and completed by October 2009  Asian Development 2. Equipment: Procured by July 2009 Bank: 3. Resettlement: Completed by November 2006 $200 million, of 4. Consulting services: Consultants recruited by July 2006; work completed by October 2010 which: 5. Training programs: Training program completed by June 2009 $183.2 million for 6. Rural link roads: Civil works contracts awarded by September 2006; completed by October 2009 civil works $16.3 million for the rural link roads $0.5 million for consulting services and training

 Ministry of Communications and HPG: $198.81 million

 China Development Bank: $139.4 million 1 Appendix 21

22 Appendix 2

CHRONOLOGY OF MAJOR EVENTS

Year Date Event

2005 23 June PPTA 4592-PRC: Preparing the Heilongjiang Road Network Development approved

2006 8–15 February Fact-finding mission fielded 16 February Summary environmental impact assessment circulated to the Board 10 April Management review meeting and advance procurement action approved 17–18 April Appraisal mission fielded 11 May Bidding documents for 26 main road civil works contract packages procured under international competitive bidding using single-stage, two-envelope bidding procedure approved 16 May Staff review committee meeting held 18 May ADB Business Opportunities specific notice published 5–8 June Loan negotiations held at ADB headquarters 29 June Deadline of submission of bids for main road sections 26 July Loan approved by the Board 17 August Bid evaluation report for technical proposals submitted to ADB 18 September ADB approved bid evaluation report for technical proposal 22 September The executing agency opened the financial proposal 23 November Awarding of 26 civil works contracts approved by ADB 7–11 December Inception mission fielded

2007 19 January Loan and project agreements signed 20 April Extension of deadline for loan effectiveness to 4 May 2007 approved 7 May Loan declared effective 18 June Approved 26 signed civil works contract packages 1 July First disbursement of $3,000,000 for initial payment of imprest account 21 August Approved list of proposed trainings by project management office 25–28 September First review mission fielded

2008 13–30 January First training on “Contract Management & Quality Control of Construction and Maintenance and Cost Control for Construction” held in the US and Canada for eight people 28 February Awarded first consulting services contract for asset management and maintenance 28 May–1 June Midterm review mission fielded 16 June ADB approved bid documents for rural link roads and buildings 25 November– Second training on “Maintenance for High-grade Highway and 2 December Super Pattern Bridge” held in Germany and France for six people 1–20 December Third training on “Highway Financing and Private Sector Participation” held in London, UK and Paris, France for six people

2009 13–15 March Review mission fielded 30 September Civil works contracts completed, project roads (both highway and rural road sections) open to traffic 31 October Original targeted civil work completion date

Appendix 2 23

Year Date Event 2010 22–31 January Fourth training on “Transportation Service and Logistics” held in Los Angeles, USA and Vancouver, Toronto in Canada for six people 1–10 March Fifth training on “Construction & Maintenance of Rural Road” held in Melbourne, Sydney in Australia and Auckland, New Zealand for six people 23 March– Sixth training on “Sustainable Economic & Sustainable Ecosystem 1 April of Road Area” held in Los Angeles, USA and Vancouver, Toronto in Canada for six people 13-22 October Seventh training on “Intelligent Transportation System” held in London, UK and Geneva, Zurich in Switzerland 11–15 November Review mission fielded

2011 17 January Ministry of Finance requested reallocation of loan proceeds 21 February Reallocation of loan proceeds approved 30 September Original closing date

2012 1 March Final disbursement of $150,756.08 and closing of loan account 9–21 July Project completion review mission fielded

24 Appendix 3

LIST OF ROADSIDE STATIONS

Opening Cost County Location Major Facilities Year (CNY million) Linkou Km116+000 Market, hotel, restaurants, parking, 2009 6.5 repair shops, resting place Fangzheng Km118+500 Farm products distribution center, tool 2009 2.0 shops, hotels, restaurants, parking, repair shops Tonghe Km306+000 Market for forest products (mushrooms, 2010 1.0 garlic, potherb, and timber products), small hostels, groceries, local timber processing factories Tieli Km390+000 Local tourist center, local specialty 2009 5.0 shops, local eateries, hostels Qing’an Km462+000 Parking, supermarkets, hostels, gas 2010 4.6 stations, repair shops Suiling Km495+000 Parking, hotels, gas stations 2009 4.5 Hailun Km543+500 Market, bus station 2009 1.5 Baiquan Km583+800 Farm products distribution center, repair 2009 0.4 shop

Appendix 4 25

TRAINING PROGRAMS PROVIDED

International Training Programs

No. of No. of Topic Place Attendees' Information Date Trainees Days

Contract Management & Quality Control New Y ork, 8 HPTD vice director general, 13–30 Jan 18 of Construction Maintenance and Cost Washington, directors, deputy director, principal; 08 Control for Construction Chicago, Los PMO executive director and project Angeles in United manager, chief engineer, and States; Vancouver, planning section chief Toronto in Canada Maintenance for High-grade Highway Frankfurt, 6 HPTD section chief, vice director; 25 Nov–2 8 and Super Pattern Bridge Germany; Paris, PMO director and vice director Dec 08 France Highway Financing and Private Sector London, United 6 HDRC vice directors; HPTD vice 1–10 Dec 10 Participation Kingdom; Paris, directors, director; PMO vice director 08 France Construction and Maintenance of Rural Melbourne, 6 HLG deputy director; HPDT general, 1–10 Mar 10 Road Sydney in director; PMO vice director and staff 10 Australia; Auckland, New Zealand Sustainable Economic and Sustainable Los Angeles, 6 HLG director general; HPDT director, 23 Mar–1 10 Ecosystem of Road Area United States; PMO staff Apr 10 Vancouver, Toronto in Canada Transportation Service and Logistics Los Angeles, 6 HPHCB deputy director; PMO 23–31 Jan 9 International Training United States; deputy director 10 Vancouver, Toronto in Canada Intelligent Transportation System (not London, United 6 HLG director general, division chief; 13–22 Oct 10 ADB funded) Kingdom; HPTD director general, PMO staff 10 Geneva, Zurich in Sw itzerland Total 44

National Training Programs

No. of No. of Topic Place Attendees' Information Date Trainees Days

Contract Management PMO Office 20 Contractors, PMO Archive Staff Dec 07; Nov 10 08; Jun 09

Intelligent Transportation System PMO Office 20 HPTD senior managers, PMO staff 1 Nov 10 2 Rural Road Maintenance HP Highway 20 HPTD/HPHB senior managers 12 Apr 10 0.5 Bureau Transport and Logistics HPTD Office 15 HPTD, HPHCB, HPHB relevant 18 Mar 10 1 division leaders and staff Road Safety and Black Spot PMO Office 15 HPTD senior managers, Design 29 Jun 09 1 Management Institute, PMO staff Project Finance and Disbursement PMO Office 26 Accountants Winter time 1 Construction Supervision Skill PMO Office 80 Supervisors Winter time 2 Archive Documents Management PMO Office 90 Contractors, indoor worker Winter time 3 Total 286 Note: HDRC = Heilongjiang Development and Reform Committee, HLG = Heilongjiang Local Government, HPTD = Heilongjiang Provincial Transport Department, HPHB = Heilongjiang Provincial Highway Bureau, HPHCB = Heilongjiang Province Highway Construction Bureau, PMO = project management office

26 Appendix 5

Updated Project Cost and Financing Plan By Financier ($ million)

Appraisal Estimate Actual ADB China Dev. Bank MOC & HPG ADB China Dev. Bank MOC & HPG Item Cost Amount % of Cost Amount % of Cost Amount % of Cost Cost Amount % of Cost Amount % of Cost Amount % of Cost Category Category Category Category Category Category A. Investment Cost 1. Civil Works Mainline Roads 361.80 184.27 51.00 148.80 41.00 28.73 8.00 395.48 183.17 46.30 131.92 33.40 80.39 20.30 Link Roads 15.83 15.00 95.00 0.00 0.00 0.83 5.00 18.56 16.30 87.80 0.74 4.00 1.52 8.20 2. Land Acquisition and 32.64 0.00 0.00 0.00 0.00 32.64 100.00 47.76 0.00 0.00 3.14 6.60 44.62 93.40 Resettlement 3. Equipment 3.79 0.00 0.00 0.00 0.00 3.79 100.00 3.00 0.00 0.00 0.04 1.40 2.96 98.60 4. Supervision and Training 9.30 0.73 8.00 0.00 0.00 8.57 92.00 13.69 0.53 3.90 0.30 2.20 12.86 93.90 5. Project Preparation and 19.80 0.00 0.00 0.00 0.00 19.80 100.00 17.95 0.00 0.00 0.37 2.10 17.58 97.90 Design Administration 6. Taxes and Duties 11.98 0.00 0.00 0.00 0.00 11.98 100.00 13.89 0.00 0.00 2.87 20.60 11.02 79.40 Total Base Cost (A) 455.14 200.00 44.00 148.80 33.00 106.34 23.00 510.33 200.00 42.40 139.38 29.60 170.95 36.30

B. Contingencies 1. Physical 21.90 0.00 0.00 0.00 0.00 21.90 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2. Price 19.44 0.00 0.00 0.00 0.00 19.44 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal (B) 41.34 0.00 0.00 0.00 0.00 41.34 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

C. Financing Charges During 28.07 0.00 0.00 0.00 0.00 28.07 100.00 27.86 0.00 0.00 0.00 0.00 27.86 100.00 Implementation

Total Project Costs 524.55 200.00 38.00 148.80 28.00 175.75 34.00 538.19 200.00 37.20 139.38 25.90 198.81 36.90 ADB = Asian Development Bank, MOC = Ministry of Communications, HPG = Heilongjiang Provincial Government. Source: Asian Development Bank and Heilongjiang Provincial Government.

Financing Plan ($ million)

Appraisal Actual Source Total % Total % Asian Development Bank 200.00 38.10 200.00 37.20 China Development Bank 148.80 28.40 139.38 25.90 Ministry of Communications and HPG 102.70 19.60 198.81 36.90 Heilongjiang Provincial Government 73.10 13.90 Total 524.60 538.19 Source: Asian Development Bank.

Appendix 6 27

PROJECTED AND ACTUAL CONTRACT AWARDS AND DISBURSEMENTS ($ million) Table 1: Contract Awards Schedule For the Year Cumulative % of Year Projected Actual Projected Actual Loan 2007 78.949 183.168 78.949 183.168 92% 2008 84.517 0.227 163.466 183.395 92% 2009 26.842 16.304 190.308 199.699 100% 2010 9.692 0.060 200.000 199.759 100% 2011 0.241 200.000 100% 2012 0 200.000 100% Source: Asian Development Bank, Loan Financial Information System. Table 2: Disbursement Schedule For the Year Cumulative % of Year Projected Actual Projected Actual Loan 2007 78.842 63.544 78.842 63.544 32% 2008 84.376 56.004 163.218 119.548 60% 2009 26.818 60.023 190.036 179.571 90% 2010 9.964 19.167 200.000 198.738 99% 2011 1.111 199.849 100% 2012 0.151 200.000 100% Source: Asian Development Bank, Loan Financial Information System.

Table A1: Contract Awards Schedule

250.0

($

200.0

150.0 Projected Disbursements

Actual million) 100.0

50.0 Cumulatiave 0.0 2007 2008 2009 2010 2011 2012 Year

Table A2: Disbursement Schedule

250.0

($

200.0

150.0 Projected Disbursements

million) 100.0 Actual

50.0 Cumulatiave 0.0 2007 2008 2009 2010 2011 2012 Year

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULES 28

2005 2006 2007 2008 2009 2010 2011 2012 Content 11 12 123 4 56789 10 11 12 1 2 3 45678 910 11 12 1 2 34567891011 12 1 234 5 6 7 8 9 10 11 12 1234 56789 10 11 12 123 45678 910 11 12123 Appendix 7 Appendix I. Pre-construction Period a. Detail Design b. Issuance of Bidding Documents Submission of Bidding Documents c.

(Tendering Period) Technical Proposal Opening, d. Evaluation, and ADB's Approval Financial Proposal Opening, Evaluation, e. and ADB's Review and Approval of Financial Evaluation f. Mobilization of Contractors

g. Land Acquisition and Resettlement II. Civil Works Section 1.1.1: Linkou to Gucheng (14 km)

Section 1.2: Jiantang to Daluomi (80 km)

Section 2: Fangzheng to Tonhe (23 km)

Section 3: Tonge to Tiele (154 km)

Section 4: Qingan to Suitingi (70 km)

Section 5: Hailun to Baiquani (78 km)

Linking Roads

III. Equipment and Facilities a. ITS and Communication Equipment

b. Tolling System

c. Maintenance Equipment

d. Road Safety Facility and Equipment

e Landscaping

IV. International Consulting Services a. Request for Proposal

b. Technical Evaluation and ADB Approval

c. Financial Evaluation and ADB Approval

d. Contract Negotiation and Signing

e. Mobilization of Contractors

f. Fielding

closing V. Domestic Consulting Services of loan account VI. Training

ADB = Asian Development Bank, FS = financial statement, km = kilometer Appraisal Actual

Appendix 8 29

ORGANIZATION CHART

HPG

HPDT

Planning Construction Financial Highway Department Management Department Construction Others Department Bureau

Project II Other PMO PROJECT MANAGEMENT OFFICE PMO Executive Director Vice Directors: 4 for Engineering, 1 for Administration and/or Coordination Chief Engineer Engineering Secretary Supervision Secretary Planning Secretary Coordinating Secretary Financial Department Office Director

Administration Office Office Administration Engineering Department 8 staff Department Coordinating 2 staff Planning Department 5 staff Financial Department 3 staff 9 staff 9 staff Supervision Department Supervision Department 7 staff Bidding Department 2 staff

30 Appendix 8

ROLES AND RESPONSIBILITIES

Roles Responsibilities Executive Director Overall project management in relation to the highway, approval of contracts, payments

Chief Supervision Engineer's Review drawings, review and certify the interim payment certificates and the Office contract variations, adjust and approve work program for civil works

Administration Department General support for daily operation, provision of secretarial and legal services

Engineering Department Construction planning, contractors’ performance monitoring, claims processing, contract variation, cooperation with relevant agency on environment control during construction period, preparation of the technical requirements for bidding documents

Coordinating Department Implementation of land acquisition and resettlement, resettlement plan update if necessary, coordination with local government, collection of information on affected people

Planning Department Review and approval of suppliers' and consultants' work programs, monitor project schedule, review and approval of interim payment certificates, organize international training, communicate daily with ADB

Supervision Department Construction quality control, ensure safe operations, check the equipment and facilities of central laboratory

Bidding Department Procurement, coordinate the preparation and approval of procurement documents and the recruiting of consultants

Financial Department Plan and monitor disbursements, internal auditing of cash flow, ensure project auditing and reporting

Appendix 9 31

STATUS OF COMPLIANCE WITH MAJOR LOAN COVENANTS

Reference in SL Covenants Loan Status of Compliance No. Documents

1 Construction Quality. Heilongjiang PA, Schedule, Complied with. Provincial Government (HPG) shall cause para. 5 Heilongjiang Provincial Communications The project was implemented Department (HPCD) to ensure that (i) the satisfactorily and in a timely manner. Project Road is constructed in accordance No quality concerns were identified. with the Borrower’s Ministry of Communication’s technical standards of highway engineering; (ii) the Rural roads are upgraded and constructed in accordance with the national standards, and maintained in accordance with standards satisfactory to ADB; and (iii) the Project highway construction supervision, quality control, and contract management are conducted in accordance with national standards and internationally accepted practices.

2 Road Safety. At least six months prior to PA, Schedule, Complied with. the opening of the Project highway, HPG para. 7 shall (i) develop and implement a plan, Safety zone design report submitted in acceptable to ADB, for ensuring safe Apr 2009. Pilot road safety zone operation of road infrastructure facilities; established in Tonghe in Sep 2009. No (ii) ensure that traffic police patrols the accidents were reported during the Project Road and enforces the national pilot zone operation. laws and regulations, and (iii) create a 2.5 However, the Heilongjiang Provincial km pilot Rural road safety zone to Department of Transport (HPDT) enhance safety along the Project Road. needs to consider expanding HPG shall ensure monitoring of the measures developed under the pilot accident rate and traffic volume after safety zone to the rest of project commencement of the operation of the corridor. More awareness building on Project highway to verify efficacy of the public safety and additional safety piloted safety zone. measures can be introduced near the populated areas to reduce vehicle speed and ensure pedestrian safety.

3 Road Maintenance. HPG shall ensure that PA, Schedule, Complied with. HPCD shall (i) develop a road para. 8 maintenance manual during Project (i) Executing agency is updating the implementation; (ii) establish a system existing road maintenance manual during the Project for an efficient annually. prioritization of road maintenance works; (ii) Road assets management system and (iii) provide a training program under established with consultants’ the Project to strengthen the capacity of support. local government maintenance units. (iii) Maintenance teams provided with training.

4 Operation and Maintenance Concession. PA, Schedule, Not complied with. Upon the completion of the Project para. 9

32 Appendix 9

Reference in SL Covenants Loan Status of Compliance No. Documents highway, HPG shall cause HPCD to use The HPCD was unable to use a its best efforts to enter into (a) an concession mechanism for operation operation and maintenance concession and maintenance (O&M) of the class I with a private sector entity for the class I road section and maintenance of class section of the Project highway (totaling 8 II road sections due to unforeseen km), and (b) maintenance concession for changes in the funding mechanism for the class II sections of the Project road maintenance. highway. HPG shall cause HPCD to submit the bidding documents and the The Fuel Tax Reform Plan introduced concession framework to ADB by midterm on 5 December 2008 increased the tax review in 2008. rate on fuels effective 1 January 2009. The existing six maintenance fees were abolished after implementation of the fuel tax. In Heilongjiang, tolls on class II roads were abolished on 1 January 2010. In view of this development, collection of tolls on the project road and the introduction of an O&M concession mechanism for private sector engagement became not feasible.

5 Tolling. At least six months prior to the PA, Schedule, Not complied with. opening of the Project highway, HPG shall para. 10 propose the appropriate toll rates for the With the implementation of the fuel tax Project highway in accordance with the reform in Heilongjiang Province Borrower’s highway laws. For the first starting in 2009, tolls on class II three years of full operation, HPG shall highways were phased out, including review the toll structure and levels and sections of the project road. report to ADB significant difficulties in meeting the principles established under the Borrower’s highway laws.

6 Monitoring and Evaluation. HPG shall PA, Schedule, Partly complied with. ensure that HPCD, within six months of para. 23 Project implementation, adopts a project PPMS framework was prepared with performance management system international consultant assistance. (PPMS), acceptable to ADB, based upon the PPMS indicators agreed between Five monitoring and evaluation reports HPCD and ADB. HPG shall monitor on resettlement were submitted Project impacts, as specified in the irregularly, and three reports on social PPMS, to ensure that the Project facilities development action plan (SDAP) (no are managed effectively and the benefits completion report) were received to the poor are maximized. By December 2007, HPG shall (i) hire a qualified HPDT’s draft project completion report domestic institute to carry out the (prepared by a domestic consultant) monitoring activities; (ii) ensure that the contained incomplete data on the local governments, including local performance indicators. statistics offices, collect the data to measure the indicators in the PPMS prior to implementation, at completion, and bi- annually for 6 years thereafter, with the frequency as specified in the PPMS; and

Appendix 9 33

Reference in SL Covenants Loan Status of Compliance No. Documents (iii) submit to ADB the reports summarizing the key findings of monitoring.

7 Counterpart Funding. HPG shall take all LA, Sch. 5, para. Complied with. necessary measures to ensure that all 4 and financing including budgetary allocations PA, Schedule, Counterpart funds were provided on a and local bank’s debt financing are para. 4 timely basis. provided on a timely basis to enable the full and timely completion of the Project. In the event of any shortfall or disruption in the financing of the Project due to, inter alia, the lack, delay or inadequacy of funding of the Project or Project cost overruns, HPG shall promptly inform the Borrower and ADB and request the Borrower to provide additional funds as may be necessary for successful implementation of the Project.

8 Financial Ratios. HPG shall ensure that PA, Schedule, Not yet due. the debt service coverage ratio of the para. 12 Project is not less than 1.2 from the sixth The tolls collection on the project has year of full operation of the Project been cancelled. The HPG needs to highway. ensure adequate subsidies to cover the resulting funding gap so that the debt service coverage ratio is complied with.

9 Financial Reporting. During the PA, Schedule, Complied with. construction period and for the first five para. 13 fiscal years of commercial operation, HPG shall cause HPCD to submit to ADB certified copies of its annual accounts and financial statements, audited by external and qualified auditors appointed by HPG, within six months after the end of each relevant fiscal year. HPG shall also establish and maintain during implementation and operation of the Project an internal audit unit, composed of full-time accountants, to undertake timely audits of project accounts in accordance with generally accepted accounting principles.

10 Capacity Development. Within six months PA, Schedule, Complied with. from the Effective Date, HPG shall cause para. 14 HPCD to prepare a human resource The overseas and domestic training development plan which will include a programs were approved and training plan, a program of workshops and completed. a list of training equipment, for ADB’s

34 Appendix 9

Reference in SL Covenants Loan Status of Compliance No. Documents approval.

11 Land Acquisition and Resettlement. HPG, PA, Schedule, Complied with. through HPCD and the relevant county- para. 16 level governments, shall ensure that: (a) LAR activities for the main highway the resettlement plan is updated based on were completed in May 2009. Land detailed measurement survey, disclosed acquisition for the linking roads had to affected persons and submitted to ADB been fully completed in Apr 2009. for approval prior to commencement of Displaced households were civil works; (b) all land and rights-of-way compensated according to the required by the Project are made resettlement plan, which followed the available in a timely manner in domestic and ADB policy accordance with domestic regulations, requirements. Mechanisms were including land use approvals and established for information agreements with affected persons; (c) the dissemination, participation and resettlement plan and the Social consultation, and grievance redress. Development Action Plan referenced in Budgetary obligations were met and the resettlement plan, including specific additional funding was provided for the actions and measures for ethnic budget increase for resettlement. A minorities, are implemented promptly and SDAP was implemented and, as per efficiently in accordance with their external monitoring reports, the living respective terms, all applicable laws and standards of the affected people have regulations of the Borrower, and ADB’s been restored. Policy on Involuntary Resettlement and Indigenous Peoples Policy; (d) all affected Further details are provided in persons are given adequate opportunity to Appendix 15: Land Acquisition and participate in resettlement planning and Resettlement. implementation; (e) sufficient and timely provision of counterpart funds will be paid for land acquisition and relocation (LAR) activities and disbursed to affected persons prior to dispossession of housing, land and assets; (f) any obligations in excess of the resettlement plan budget estimates are met; and (g) the affected persons shall be at least as well off as they would have been in the absence of the Project.

12 Land Acquisition and Resettlement. HPG, PA, Schedule, Complied with. through HPCD and the relevant county- para. 17 level governments, shall ensure that: (a) HPCD, project management office adequate staff and resources are (PMO) and affected counties have committed to supervising and internal established resettlement offices with monitoring the implementation of the adequate and experienced staff. The resettlement plan; (b) ADB is provided PMO and the appointed external semi-annual reports on resettlement monitor submitted monitoring reports. implementation, and a resettlement The latest report (No. 5) dated May completion report; (c) an independent 2010 was received in Sep 2010. A total agency, acceptable to ADB, is engaged to of 1,322 ha of permanent land was monitor progress semi annually and acquired, and 286 households evaluate results through annual survey displaced received adequate updates for two years after completion of compensation.

Appendix 9 35

Reference in SL Covenants Loan Status of Compliance No. Documents resettlement, including data disaggregated by gender where Further details are provided in applicable, and these monitoring reports Appendix 15: Land Acquisition and are submitted to ADB and the Borrower Resettlement. as stipulated in the resettlement plan; (d) ADB is promptly advised of any substantial changes in the resettlement impacts and, if necessary, a revised resettlement plan is prepared, disclosed to affected persons and submitted to ADB for its approval; (e) a summary of the government audit of resettlement disbursements and expenditures be provided to ADB; (f) civil works contractors’ specifications include requirements to comply with the resettlement plans and entitlements for permanent and temporary impacts to affected persons; (g) the contractors are supervised to ensure compliance with requirements of the resettlement plans, applicable law and ADB’s Policy on Involuntary Resettlement; and (h) affected persons are given preferential treatment for Project-related employment opportunities.

13 Poverty Reduction. HPG, through HPCD, PA, Schedule, Complied with. shall cause the contractors involved in para. 18 project implementation to maximize The HPCD hired a domestic consulting employment of local poor persons, firm for monitoring the SDAP including ethnic minorities, who meet the implementation. The monitoring job and efficiency requirements for reports were submitted irregularly. construction of the Project. Such workers The final SDAP monitoring report (No. will be provided with adequate on-the-job 3) dated May 2010 was received in training. HPCD and the relevant county- Sep 2010. level governments shall implement the As per external monitor reports, the Project in accordance with the Social project provided direct economic Development Action Plan referenced in benefits to local communities, including the resettlement plan. HPG shall monitor women and ethnic minority the Project's impact on poverty and communities, by generating submit annual monitoring reports to ADB employment opportunities. The during project implementation in contractors employed 13,053 local accordance with the guidelines set forth in laborers. This figure includes 1,949 the PPMS as defined in paragraph 23 of skilled workers, 7,136 unskilled this Schedule. workers, 275 ethnic minority people, 1,310 affected people, 991 women, and 1,781 local poor.

14 Women and Child Labor. HPG shall PA, Schedule, Complied with. cause HPCD to ensure that Project para. 19 contractors: (a) are encouraged to use The associated requirements were local labor and local materials in Project incorporated in SDAP, monitored

36 Appendix 9

Reference in SL Covenants Loan Status of Compliance No. Documents works; (b) provide equal pay to men and through regular reports, and found to women for work of equal type; (c) provide be compliant. timely payment of wages and safe working conditions for both male and female workers, (d) maximize employment for the affected persons with equal access to women, including disadvantaged women, (e) comply with applicable labor laws, and (f) abstain from child labor in construction, operation and maintenance activities on Project facilities.

15 Gender and Development. HPG shall PA, Schedule, Complied with. follow ADB’s Policy on Gender and para. 20 Development during Project The relevant indicators were implementation and shall take necessary incorporated in SDAP, monitored steps to encourage women living in the through regular reports, and found to Project area to participate in the Project be compliant. During construction, 991 implementation, including causing the women were trained for labor skills and contractors to maximize employment of 360 women were employed. During women in connection with the Project. the post-construction period, at least HPG, in coordination with the appropriate 20 women were employed in agencies, shall ensure the effective maintenance work along various implementation of measures aimed at sections of the highway. increasing Project benefits and impacts on women in and around the Project Road, which are included in the Social Development Action Plan referenced in the resettlement plan. HPG shall monitor the Project’s effects on women during Project implementation.

16 Health Risks. HPG, in coordination with PA, Schedule, Complied with the appropriate agencies identified by the para. 21 Borrower, shall cause the Project The dissemination of information contractors to disseminate information on pertaining health risks was done during the risks of socially and sexually construction. transmitted diseases, including HIV/AIDS, to their employees during Project implementation. HPG shall cause the appropriate agencies to disseminate similar information to transport operators and to local communities living in the Project area during Project implementation and operation of the Project facilities. Specific provisions to this effect shall be included in bidding documents and civil works contracts, and compliance shall be strictly monitored by HPG through HPCD.

17 Vehicle Emissions. At least six months PA, Schedule, Complied with prior to the opening of the Project para. 11

Appendix 9 37

Reference in SL Covenants Loan Status of Compliance No. Documents highway, HPG shall provide to ADB the While no project or provincial emission Heilongjiang Environmental Protection standards or penalties have been Bureau emission standards and the adopted, the national vehicle emission penalties for infringement of such standard GB18285-2005, issued by standards. HPG shall ensure that through the Ministry of Environment, the relevant agencies, the Heilongjiang establishes emission standards and Environmental Protection Bureau vehicle requires periodic inspection, emission standards, as well as the maintenance, and repair of on-road national vehicle emission standards, are vehicles. The Public Security Bureau is enforced. responsible for carrying out spot- checks and issuing penalties.

18 Environment. HPG shall ensure that (i) PA, Schedule, Complied with. the Project is constructed and operated in para. 15 accordance with national and local laws, The regular environmental monitoring ADB’s Environment Policy, and the reports confirmed that the mitigation environmental impact assessment (EIA); measures reflected in SEIA and EMP (ii) any adverse environmental impacts have been adequately implemented. are minimized by the mitigating measures and monitoring program in the EIA; (iii) the implementation of the environmental management plan (EMP) and any violation of environmental standards are regularly reported to ADB in accordance with the specifications set forth in the EIA; and (iv) EMP is incorporated in bidding documents and bills of quantities of the civil work contracts.

19 Established, Staffed, and Operating LA, Sch. 5, para. Complied with. PMU/PIU. HPG through HPCD shall be 1 and PA, the Project Executing Agency responsible Schedule, para. for overall execution and coordination of 1 the Project. HPCD shall also implement the Rural roads component. HPG shall ensure that HPCD’s institutional capacity is adequately supplemented with, among others, consultancy and training inputs under the Project.

20 The Project Implementation Unit within LA, Sch. 5, para. Complied with. HPCD shall be responsible for managing, 2 and PA, coordinating, and supervising Schedule, para. implementation of all Project activities. It 2 shall coordinate and monitor the Project highway’s construction activities and operate the Project highway. Its general manager, the project director, will be responsible for overall Project management in relation to the Project highway, the approval of contracts, and payments. The PIU shall also facilitate land acquisition, resettlement, and

38 Appendix 9

Reference in SL Covenants Loan Status of Compliance No. Documents environmental protection measures and shall ensure that local concerns are addressed adequately. The PIU will be headed by a project manager, who will oversee day-to-day physical implementation activities and prepare progress reports. In addition to its central office, the PIU will have nine toll stations and eight maintenance centers.

21 HPG shall take all necessary measures to LA, Sch. 5, para. Complied with. ensure that (i) HPCD can successfully 3 and PA, construct the Project Road, and (ii) the Schedule, para. Rural roads construction and 3 improvements are completed by the completion of the Project highway.

22 Fielding of Consultants LA, Sch. 4, para. Complied with. All consultants’ services required for the 2 Project and to be financed out of the Asset Management—A contract was proceeds of the Loan shall be procured in signed on 28 Feb 2008 with an accordance with the requirements set international consultant who was forth or referred to in the Guidelines on mobilized in May 2008 and completed the Use of Consultants by Asian work in Nov 2008. Development Bank and its Borrowers Benefit Monitoring and Evaluation—A (April 2006), as amended from time to contract was signed on 27 Feb 2008 time (hereinafter called the Consultant with an international consultant who Guidelines), the Procurement Plan, and was mobilized on 5 Mar 2008. A draft with the provisions of this Schedule. of the final report was submitted in Aug 2010. Operation and Maintenance Concession to the Private Sector— Contracts were signed with four domestic consultants on 25 Mar 2009 and services were completed in May 2011.

23 Change in Ownership and Operation. In LA, Sch. 5, para. Complied with. the event that (i) any change in ownership 5 and PA, of the Project Road, (ii) any sale, transfer, Schedule, para. There was no change in ownership. or assignment of interest or control in the 6 Project Road, or (iii) any lease or other contract or other modification of HPCD’s functions and authority over operation and maintenance of the Project Road, is anticipated, HPG shall obtain ADB’s consent at least six months prior to the implementation of such a plan. HPG shall ensure that any such changes shall be carried out in a legal and transparent manner.

24 Project Review. The Borrower and HPG LA, Sch. 5, para. Complied with.

Appendix 9 39

Reference in SL Covenants Loan Status of Compliance No. Documents in conjunction with ADB shall undertake a 6 and PA, midterm review of the Project in 2008. Schedule, para. The midterm review was conducted Such review shall cover all policy, 24 from 28 May through 1 June 2008. institutional, administrative, organizational, technical, environmental, social, poverty reduction, resettlement, economic, financial, and other relevant aspects that may have an impact on the performance of the Project and its continuing viability. The review shall also examine progress in resettlement, environment, poverty impact, and compliance with assurances in this Loan Agreement and in the Project Agreement.

25 Anticorruption measures. HPG shall: (i) PA, Schedule, Complied with. undertake necessary measures to create para. 22 and sustain a corruption-free The HPCD offered its full cooperation environment, (ii) ensure that Borrower’s in investigating the identified integrity anticorruption laws and regulations and cases in civil works procurement. ADB’s Anticorruption Policy, are strictly enforced and are being complied with during Project implementation, and that relevant provisions of ADB’s Anticorruption Policy are included in all bidding documents for the Project, (iii) facilitate ADB in the exercise of its right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive or coercive practices relating to the Project, (iv) conduct periodic inspections on the Project contractors’ activities related to fund withdrawals and settlements, and (v) ensure that all contracts financed by ADB in connection with the Project include provisions specifying the right of ADB to audit and examine the records and accounts of HPG, HPCD and PIU, and all contractors, suppliers, consultants and other service providers as they relate to the Project. In relation to the Project, HPG through HPCD shall (i) establish a supervisory body to prevent undue interference in business practices with adequate resources made available for its effective operation; (ii) involve a leading group of officials from HPCD’s Supervision Division in project bidding, construction, and other operational activities; (iii) hold regular briefings between HPCD and the Prosecutor's Office to share information on or warnings about any corrupt

40 Appendix 9

Reference in SL Covenants Loan Status of Compliance No. Documents practices detected; (iv) periodically inspect contractors’ activities in relation to fund withdrawals and settlements ; and (v) introduce a dual signing system whereby the civil works contract winner also signs an anticorruption contract with the employer.

26 (a) The Borrower shall cause HPG, and LA, Section 4.01. Complied with. shall ensure that HPG causes HPCD, to carry out the Project with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental, highway and road construction, operation and maintenance practices. (b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement and in the Schedule to the Project Agreement.

27 The Borrower shall make available to LA, Section 4.02. Complied with. HPG, and through HPG to HPCD, promptly as needed and on the terms and conditions acceptable to ADB, the funds, facilities, services, land and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project.

28 The Borrower shall ensure that the LA, Section 4.03. Complied with. activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

29 The Borrower shall take all action which LA, Section 4.04. Complied with. shall be necessary on its part to enable HPG and HPCD to perform their respective obligations under the Project Agreement, including those with respect to operation and maintenance concession and tolling as stipulated in paragraphs 9 and 10 of the Schedule to the Project Agreement, and shall not take or permit any action which would interfere with the performance of such obligations.

30 The Borrower shall cause HPG to LA, Section 4.05. Complied with.

Appendix 9 41

Reference in SL Covenants Loan Status of Compliance No. Documents exercise its rights under the Subsidiary Loan Agreement in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.

CONTRACT PACKAGES FINANCED BY ASIAN DEVELOPMENT BANK 42

Contract PCSS Date Contract Final Contract ADB Financing Contract 10 Appendix No. NO. Type of Contract Approved Date Contractor/Supplier/Consultant Currency Cost $ Equivalent Completion A. Civil Works - Main Road

C1 0001 K62+688~K77+115 6-Nov-06 8-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 54,936,661 3,980,189 Sep-09 C2 0002 K116+000~K134+370 6-Nov-06 30-Dec-06 Beijing Hailong Highway Engineering Corp. CNY 71,524,926 5,155,426 Sep-09 C3 0003 K134+370~K152+870 6-Nov-06 8-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 70,187,658 5,071,132 Sep-09 C4 0004 K153+370~K178+700 6-Nov-06 8-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 112,925,058 8,561,237 Sep-09 C5 0005 K178+700~K204+256 6-Nov-06 8-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 98,977,930 7,809,579 Sep-09 C6 0006 K245+498~K258+849 6-Nov-06 30-Dec-06 China Railway 19th Bureau Group Co. Ltd. CNY 160,962,227 12,036,576 Sep-09 K258+849~K263+743(Class I) C7 0007 Tonghe Songhuajiang Bridge (1) 6-Nov-06 8-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 195,860,034 13,791,051 Sep-09 C8 0008 Tonghe Songhuajiang Bridge (2) 6-Nov-06 30-Dec-06 China Railway 13th Bureau Group Co. Ltd. CNY 186,973,369 13,393,273 Sep-09 C9 0009 K266+321~K268+900 (Class I) 6-Nov-06 30-Dec-06 China Railway 19threau Bu Group Co. Ltd. CNY 98,510,689 7,072,442 Sep-09 K268+900~K285+500 C10 0010 K285+500~K309+500 6-Nov-06 30-Dec-06 Chinay 19th Railwa Bureau Group Co. Ltd. CNY 92,447,074 6,994,577 Sep-09 C11 0011 K309+500~K332+700 6-Nov-06 30-Dec-06 Tianjin Road and Bridge Engineering Co. CNY 85,016,936 6,137,369 Sep-09 C12 0012 K332+700~K351+000 6-Nov-06 30-Dec-06 Chinay 13th Railwa Bureau Group Co. Ltd. CNY 91,702,007 7,022,573 Sep-09 C13 0013 K351+000~K378+400 6-Nov-06 8-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 102,043,035 7,918,709 Sep-09 C14 0014 K378+400~K402+000 6-Nov-06 30-Dec-06 Harbinay Construction Highw Division CNY 90,000,000 6,566,485 Sep-09 C15 0015 K402+000~K424+346 6-Nov-06 30-Dec-06 Shanxi Taihang Road & Bridge EngineeringCNY Co. 79,638,259 6,062,578 Sep-09 Ltd. C16 0016 K433+600~K457+000 6-Nov-06 8-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 119,789,438 8,632,958 Sep-09 Qin gan lateral 2.49 Km C17 0017 K457+000~K480+000 6-Nov-06 30-Dec-06 Daqing Oilfield Highway & Bridge EngineeringCNY Co. 95,785,291 6,940,392 Sep-09 Ltd.

Contract PCSS Date Contract Final Contract ADB Financing Contract No. NO. Type of Contract Approved Date Contractor/Supplier/Consultant Currency Cost $ Equivalent Completion C18 0018 K480+000~K503+980 06-Nov-06 30-Dec-06 China Railway 13th Bureau Group 5thCNY 106,906,797 7,750,758 Sep-09 Suileng laterall 2.582 Km C19 0019 K543+267.9~K563+000 06-Nov-06 08-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 98,105,116 7,116,620 Sep-09 Hailun lateral 2.136 Km C20 0020 K563+000~K581+000 06-Nov-06 08-Dec-06 Long Road Jian & Bridge Co. Ltd. CNY 122,413,550 9,058,896 Sep-09 C21 0021 K581+000~K601+300 06-Nov-06 30-Dec-06 ChinaMetallurgical 15th Construction CNY 107,314,538 7,774,701 Sep-09 C22 0022 K601+300~K621+405.59 06-Nov-06 30-Dec-06 Innerlia Mongo Highway Engineering Bureau CNY 125,996,868 9,130,307 Sep-09

C23 0023 K66+643 Road-Railway Interchange 06-Nov-06 30-Dec-06 China Railway 19th Group Bureau Co. Ltd. CNY 17,352,899 1,226,292 Sep-09 K76+320 Road Railway Interchange C24 0024 K423+325 Road-Railway Interchange06-Nov-06 30-Dec-06 China Railway 13th Bureau Group 4thCNY 31,475,022 2,259,862 Sep-09 K437+246 Road Railway Interchange Engineering Co., Ltd. K500+719 Road-Railway Interchange C25 0025 K117+450 Wushihunhe Bridge 06-Nov-06 30-Dec-06 China Railway 19th Group Bureau Co. Ltd. CNY 29,736,744 2,166,025 Sep-09 K153+120 Mudanjiang Bridge C26 0026 K448+189 Main bridge of Hulanhe Main06-Nov-06 Bridge 08-Dec-06 Long Jian Road & Bridge Co. Ltd. CNY 45,564,052 3,528,713 Sep-09 K448+990 Beach bridge of Hulanhe Bridge K482+270 Nouminhe Bridge K502+246 Ke yunhe Bridge Subtotal A 684,865,586 50,012,174

B. Civil Works - Rural Link Road CONTRACTOR 10 Appendix L1 0030 Gucheng and Sandaotong Link Roads 08-Oct-08iang 08-Nov-08 Road & Bridge Mudanj Construction Co., Ltd. CNY 10,460,886Sep-09 1,474,191

L2 0031 Second Line of Sandaotong Link Road08-Nov-08 08-Oct-08 Heilongjiang Jian'an Road Construction CNY 9,578,184 1,349,797 Sep-09 Engineering Co., Ltd. L3 0032 Sandaotong Link Road, Mudanjiang Bridge 09-Oct-08anjiang 08-Nov-08 Road & Bridge Mud Construction co., Ltd. CNY 13,130,0950,347 Sep-09 1,85 43

44

Contract PCSS Date Contract Final Contract ADB Financing Contract

No. NO. Type of Contract Approved Date Contractor/Supplier/Consultant Currency Cost $ Equivalent Completion 10 Appendix L4 0033 First Line of Lianhua Link Road 10-Oct-08 8-Nov-08 Heilongjiang Jian'an Road Construction CNY 7,685,630 1,083,091 Sep-09 Engineering Co., Ltd. L5 0034 Second Line of Lianhua Link Road 11-Oct-08 8-Nov-08 Heilongjiang Yuandong Road & Bridge CNY 8,385,386 1,181,703 Sep-09

Engineering Co., Ltd. L6 0035 Third Line of Lianhua Link Road 12-Oct-08 8-Nov-08 Zhongchengjian 11th Engineering BureauCNY Co. 8,389,153 1,182,234 Sep-09 Ltd. L7 0036 Diaoling and Banvtoujiang Link Roads 13-Oct-088-Nov-08 Heilongjiang Huatong Road & Bridge EngineeringCNY 9,362,830 1,319,448 Sep-09 Co., Ltd. L8 0037 Malanghe and Taiping Forestry Link Roads 14-Oct-08 8-Nov-08 Harbin Songuajiang Forestry ConstructionCNY 6,476,500 912,695 Sep-09 Installation Co. L9 0038 Taoshan Link Road 15-Oct-08 8-Nov-08 Harbin Jinyang Road Engineering Co., Ltd. CNY 3,859,536 543,902 Sep-09 L10 0039 Qinlao Link Road 16-Oct-08 8-Nov-08 Suihua Beitongunicipal M Engineering Co., Ltd. CNY 7,345,966 1,035,224 Sep-09 L11 0040 Shangji , Nierhe and Changshanxiang Link17-Oct-08 8-Nov-08 Heilongjiang Guanhua Road & Bridge CNY 10,608,364 1,494,974 Sep-09 Roads Engineering Co., Ltd. L12 0041 Qianjin Village, Gonghe Town, and Yonghe 18-Oct-08 8-Nov-08 Heilongjiang Sanjiang Road & Bridge EngineeringCNY 8,669,598 1,221,755 Sep-09 Village Link Roads Co., Ltd. L13 0042 Sandaozhen and, Xinsheng Village Link Roads 19-Oct-08 8-Nov-08 Qiqihaer Xinhai Road & Bridge Group Co. Ltd. CNY 5,947,1358,095 Sep-09 83

L14 0043 2nd Line Xinsheng Village and Xingguo Village20-Oct-08 8-Nov-08 Qiqihaer Xinhai Road & Bridge Group Co. Ltd. CNY 5,796,400 816,852 Sep-09 Link Roads Subtotal B 82,526,498 11,629,973

C. Consulting Services 0028 Asset Management Specialist 11-Dec-07 28-Feb-08 Warren Gregory Wood $ 61,900 61,900 Feb-09 0029 Project Benefit Monitoring Specialist 11-Dec-07 27-Feb-07 Morgan Yang $ 89,300 89,300 May-09 Subtotal C 151,200 151,200

CONTRACT PACKAGES FINANCED BY ASIAN DEVELOPMENT BANK

Contract PCSS Date Contract Final Contract ADB Financing Contract

No. NO. Type of Contract Approved Date Contractor/Supplier/Consultant Currency Cost $ Equivalent Completion D. Training

0027 Contract Management & Quality Control21-Aug-07 of 25-Sep-07 Heilongjiang Province Jixi-Nehe Road$ 76,000 75,701 30 Jan. 08 Construction Maintenance and Cost Control for Construction 0054 Highway Financing and Private Sector30-Apr-08 1-Dec-08 Cetrico Industrial Consultants GMBH/AR $ 30,000 30,000 02 Dec. 08 Participation 0055 Maintenance for High-Grade Highway30-Apr-08 and 24-Nov-08 Cetrico Industrial Consultants GMBH/AR $ 30,000 30,000 10 Dec. 08 Super Pattern Bridge 0056 O&M Concession for Private Sector 30-Jan-09 25-Mar-09 Winlot Consulting Ltd. (Zhao Guangbin) $ 125,500 125,500 11 Nov. 11 0057 O&M Concession for Private Sector 10-Jan-09 25-Mar-09 Zhao Jinyu $ 19,150 0 11 Nov. 11 0058 O&M Concession for Private Sector 10-Jan-09 25-Mar-09 Winlot Consulting Ltd. (Lai Huaifu) $ 36,100 25,256 11 Nov. 11 0059 O&M Concession for Private Sector 10-Jan-09 25-Mar-09 Duan Jianli $ 19,150 0 11 Nov. 11 0060 Transportation Service and Logistics

International Trainin 10-Jan-10 18-Jan-10 Heilongjiang Province Carnival Travel$ 30,000 30,000 31 Jan. 10 g 0061 Sustainable Economic and Sustainable25-Feb-10 18-Mar-10 Heilongjiang Province Carnival Travel$ 30,000 30,000 1 April. 10 Ecosystem of Road Area 0062 Construction and Maintenance of Rural Road 1-Feb-10 25-Feb-10 Heilongjiang Province$ Carnival Travel30,000 30,000 1 Mar. 10

Subtotal D 425,900 376,457 10 Appendix

Grand Total 2,608,418,941 200,000,000 45

46 Appendix 11

ECONOMIC REEVALUATION

A. General

1. The economic reevaluation of the project is based on the economic analysis prepared under the project preparatory technical assistance (PPTA) in 2005.29 The reevaluation updates the project economic analysis based on actual implementation costs and recalibrates projected benefits based on updated parameters for vehicle operating costs, travel time savings, and accident reduction benefits based on recent prices and traffic counts taken after project opening.

2. Like most transport projects, the benefits of the project roads are derived from improvements in travel conditions resulting in lower vehicle operating costs, reduced travel times, and reduced accident costs. In addition to these benefits, the 2005 economic analysis for the project estimated benefits from tourism and forestry production by preparing projections of tourism revenues and forestry reserve production revenues. In both cases, it was assumed that the project roads would cause 30% of the growth in tourism and forestry production. For this project completion report (PCR), these benefits (tourism and forestry) are not evaluated in depth because relevant disaggregated data were not available upon request. In any case, these benefits only accounted for 1.2% of total project benefits in the original analysis. The economic analysis prepared for the project in 2005 appears in Table A11.1.

Table A11.1: Economic Analysis (PPTA, 2005)

Time Tourist Costs VOC Link Savings Accident and Total Net Year (CNY (CNY Road (CNY Reduction Forest Benefits benefits million) million) Benefits million) Benefits 2006 478 (478) 2007 1,008 (1,008) 2008 1,172 (1,172) 2009 1,205 (1,205) 2010 9 633 29 14 9 11 696 687 2011 9 695 31 16 10 12 764 755 2012 10 765 34 18 10 12 839 829 2013 10 845 37 20 11 13 926 916 2014 10 926 40 23 12 14 1,015 1,005 2015 10 1,011 44 26 13 14 1,108 1,098 2016 11 1,099 47 29 15 15 1,205 1,194 2017 11 1,192 50 33 16 15 1,306 1,295 2018 242 1,300 54 37 17 16 1,424 1,182 2019 9 1,406 58 41 18 17 1,540 1,531 2020 10 1,518 62 46 20 24 1,670 1,660 2021 10 1,639 66 52 21 25 1,803 1,793 2022 10 1,769 70 58 23 26 1,946 1,936 2023 10 1,893 75 64 25 27 2,084 2,074 2024 16 2,050 79 71 27 28 2,255 2,239

29 ADB 2005. Technical Assistance to the People’s Republic of China for Preparing the Heilongjiang Road Network Development Project. Manila.

Appendix 11 47

Time Tourist Costs VOC Link Savings Accident and Total Net Year (CNY (CNY Road (CNY Reduction Forest Benefits benefits million) million) Benefits million) Benefits 2025 11 2,199 84 78 29 29 2,419 2,408 2026 12 2,357 89 87 31 30 2,594 2,582 2027 242 2,520 95 96 33 31 2,775 2,533 2028 10 2,712 101 106 35 33 2,987 2,977 2029 10 2,906 107 117 38 34 3,202 3,192 Percent 91.0% 3.6% 3.0% 1.2% 1.2% NPV (CNY) 4,746.90 EIRR 21.21% () = negative; EIRR = economic internal rate of return; NPV = net present value, VOC = vehicle operating cost Source: PPTA final report.

B. Project Roads

3. The economic analysis of the study considered two types of roads: main roads and project-funded link roads. The total length of the main roads is 427.995 km and the combined length of the two categories of link roads is 170.383 km. The roads have been categorized under the eight counties that were envisaged to be traversed by the project roads. The roads are depicted in Table 11.2. The main roads are almost entirely class II highways while the link roads are primarily class IV roads.

Table A11.2: Project Roads by County and by Section

Main Roads Link Roads County (km) No. of Roads Length (km) Linkou 73.480 5 69.855 Fangzheng 47.420 Tonghe 81.550 2 12.953 Tieli 77.200 1 2.401 Qingan 34.500 2 17.597 Suiling 35.780 5 24.398 Hailun 33.750 4 18.296 Baiquan 44.500 3 24.919 Project total 428.000 22 170.383

Section

Section 1: Linkou–Jiantang 43.542 Section 2: Jiangtang–Daluomi 79.022 Section 3: Daluoimi–Fangzheng Exit road Section 4: Fangzheng–Tonghe 18.131 Section 5: Tonghe–Tieli 138.752 Section 6: Tieli–Qing'an Exit road Section 7: Qing'an–Suiling 70.289 Section 8: Suiling–Hailun Exit road Section 9: Hailun–Baiquan 78.259 Total 427.995

48 Appendix 11

C. Project Costs

4. The project cost estimate at appraisal was $524.55 million, including taxes and duties and charges during implementation. The actual total project cost amounted to $538.19 million,30 representing a 2.6 percent increase.31 The project cost increased most significantly for civil works ($36.4 million), land acquisition and resettlement ($15.1 million), and supervision and training ($4.4 million). The cost increase was mainly due to (i) local currency appreciation against the dollar by about 33% since appraisal; (ii) higher than planned actual compensation rates to affected people, and (iii) more comprehensive training programs and supervision arrangements. All cost increases were funded by the government.

5. The construction period was 33 months from December 2006 to September 2009. Table 11.3 shows the actual project costs and the actual expenditures deflated to end-2005 values in CNY terms.

Table A11.3: Predicted versus Actual Project Costs (CNY million)

Appraisal Actual Cost Estimate Cost (End-2005 (End-2005 (Actual) value) value) A. Investment Costs 1 Main Road 2,894 2,703 2,290 2 Link Road 126 199 110 3 Land Acquisition and Resettlement 261 335 282 4 Equipment 30 21 17 5 Supervision and Training 74 96 76 6 Project Preparation and Design Administration 158 126 103 7 Taxes and Duties 96 97 74 Subtotal: 3,641 3,577 2,953

B Contingencies 330 0 0 C Financing Charges during Implementation 225 195 160 Total Project Cost: 4,196 3,772 3,113

Adjustment for Inflation 659 Note: At year-end 2005, CNY8.0002 = $1.00. Source: Report and recommendation of the President (RRP) and audited project financial statements.

6. Economic prices and costs. The project’s capital costs used in the economic analysis included the civil works, land acquisition 32 and resettlement, design, and supervision and management. A residual value after twenty years was based on a straight-line depreciation of assets. Operations and maintenance costs and periodic rehabilitation were included. Financial costs were converted into economic costs by: (i) excluding taxes and financial charges; (ii) using a 0.8 shadow price for low-skilled labor costs; (iii) applying standard conversion factors across

30 Including taxes and duties and charges during implementation. 31 Due to local currency appreciation against the dollar by about 33% since appraisal, the actual project costs in CNY terms are 10.1% lower than appraisal estimates. 32 In the case of the PRC, acquisition rates for agricultural land are much higher than the opportunity cost of foregone agricultural production. Therefore, a separate adjustment for the opportunity cost of land is not needed.

Appendix 11 49 different cost categories (the weighted average standard conversion factor for civil works costs was 0.89, consistent with recent projects in the People’s Republic of China [PRC] and the same as was used in the PPTA); and (iv) converting nominal costs into constant 2011 CNY.

7. The above actual costs (Table 11.3) were converted to 2011 values, the tax and financial charges removed, and a 0.89 shadow price conversion factor was applied to support the analysis of costs and benefits. Table A11.4 compares the actual and economic values of the project expenditures.

Table A11.4: Actual and Economic Costs (CNY million)

Actual Economic Economic

Expenditures Expenditures Expenditures Costs Year (Actual) (2011 Prices) (2011 Prices) (2011 Prices) 2006 168 223 223 199 2007 1,122 1,354 1,347 1,199 2008 1,004 1,150 1,057 941 2009 1,075 1,081 943 839 2010 287 330 303 270 2011 48 48 22 19 2012 68 67 47 42 Source: ADB estimates.

8. Maintenance costs were also estimated, with distinct cost estimates for roads and bridges, and with respect to routine and periodic maintenance. Periodic maintenance is done every 9 years in the case of roads and every 15 years in the case of bridges. Maintenance costs are presumed to grow by 3% every year, as aging roads require increased work. Table 11.5 depicts the estimated financial costs of maintenance.

Table A11.5: Maintenance Costs Estimates (CNY, 2011 value)

Road Maintenance Costs Road Class (CNY/km)

Routine Periodic Class I 38,590 1,286,170 Class II 19,290 643,090 Class III 14,790 482,320 Class IV 10,290 321,540 Source: PPTA report.

D. Project Benefits

9. The benefits of the project include lower vehicle operating costs, reduced travel times, and reduced accident costs. Without the project, travel distances between the counties connected by the project roads would be substantially longer, leading to increases in vehicle operating costs, travel time, and accidents.

50 Appendix 11

Table A11.6: Comparison of Travel Routes, With and Without the Project

With the Project Without the Project Route Additional Section Main Roads Exit road Travel Length Distance (km) (km) Route (km) (km) Section 1: Linkou-Jiantang 30.542 Linkou-Mudanjiang- 582.5 480.016 Section 2: Jiangtang-Daluomi 71.942 Harbin-Daluomi Section 3: Daluoimi-Fangzheng Exit road 41 41 Section 4: Fangzheng-Tonghe 22.211 Section 5: Tonghe-Tieli 154.752 Tonghe-Harbin-Tieli 397.5 242.748 Section 6: Tieli-Qing'an Exit road 25 Section 7: Qing'an-Suiling 70.289 Qing’an-Suihua-Suiling 137 66.711 Section 8: Suiling-Hailun Exit road 52 Section 9: Hailun-Baiquan 78.259 Hailun-Bei’an-Baiquan 194 184.518 Total 427.995 118

Vehicle Operating Cost Savings

10. Vehicle operating cost (VOC) savings are the differences in the costs of fuel, lubricants, tire wear, maintenance labor and parts, depreciation, interest, crew time and overhead, between the with and without project cases. The project preparation economic analysis used Highway Development and Management-4 (HDM-4) to estimate VOCs in both cases. Cost data and other key parameters required by HDM-4 to calculate VOCs were collected from various published sources in the province. The following data were acquired: prices of vehicles, tires, fuel and lubricants; maintenance labor costs, crew wages and annual overhead costs; annual interest rates; and the time value of passengers and freight.

11. Since 2005, there have been substantial increases in the real costs of various commodities that affect VOCs. Fuel prices, for example, have increased over 11.4% per year in the PRC while consumer inflation has been just over 3% per year. Updated prices were input into HDM-4 to generate updated VOCs by vehicle type, road type, and road conditions. The economic reevaluation was conducted using these updated VOCs. The following table summarizes VOC inputs, weighted by vehicle mix, as they appeared in the PPTA (year 2005 values) and as estimated in the PCR (year 2011 values).

Table A11.7: Vehicle Operating Cost for Vehicle Fleet (CNY per vehicle-kilometer)

PPTA PCR Section 1 Linkou–Dailumi Without 2.74 4.21 With 1.83 2.66 Savings 0.91 1.55 Section 2 Fangzheng–Tonghe Without 2.74 4.37 With 1.83 2.69 Savings 0.91 1.68 Section 3 Tonghe–Tieli Without 2.74 3.71

Appendix 11 51

PPTA PCR With 1.83 2.29 Savings 0.91 1.43 Section 4 Qing’an–Suiling Without 2.74 4.87 With 1.83 3.00 Savings 0.91 1.87 Section 5 Hailun–Baiquan Without 2.74 3.42 With 1.83 2.11 Savings 0.91 1.31 Source: ADB calculations.

Travel Time Savings

12. Travel time savings are obtained when road improvements lead to an increase in vehicle speeds and/or a decrease in travel distances for given trips, thus reducing the journey times of passengers and the transit time of freight. The economic value of time is based on average income. Business travel and crew costs for freight vehicles are valued at hourly compensation rates and are included in vehicle operating costs in HDM-4. The shadow price of the economic value of time for personal travel is generally valued at 50% of hourly compensation. Hourly compensation rates are typically based on average income per capita.

13. The value of travel time savings in the economic reevaluation is different from that in the PPTA. The average income of road users was extremely low in the 2005 evaluation, with the analysis assuming that bus passengers only earned CNY1,500 per year and automobile passengers CNY3,000 per year. These values were converted to an hourly income of CNY0.80 for bus passengers and CNY1.55 for automobile passengers.33 The result of such low values of time was that the share of benefits attributed to travel time savings was only 3.6% of project benefits at the time of project appraisal.

14. By 2011, average income per capita in Heilongjiang was CNY27,076 due to exceptionally high growth rates exceeding 20% in some years. The economic reevaluation adjusted the value of time to reflect actual income levels in the province, resulting in a larger percentage of project benefits attributed to travel time savings. Assuming 2,000 hours of work per year, average hourly earnings were approximately CNY13.54 in 2011. It was assumed that bus passengers earned about 50% of the provincial average wage, or CNY6.77 per hour. The cost benefit analysis used the assumption that the willingness to pay to save travel time is 50% of hourly wages for personal travel and 100% of hourly wages for business travel. 34 The average shadow price of 1 hour was estimated to be CNY6.77 for automobile passengers and CNY3.39 for bus passengers in 2011. Truck drivers wages and time are included as part of VOCs in HDM-4. The economic value of time used to estimate benefits in the economic reevaluation of the project are shown in Table A11.8. Value of time for bus passengers in the PCR economic reevaluations is about 4.2 times the value appearing in the report and recommendation of the President (RRP) while automobile passenger time is about 4.4 times the value used in the RRP.

33 The analysis assumed 1,920 work hours per year. 34 U.S. Department of Transportation Memorandum, Departmental Guidance for the Valuation of Travel Time in Economic Analysis, April 9, 1997, pp. 4-5, and table 1. The value of time assumption is validated for the PRC case in: Zheng, S. and Yang, Z., “Housing Price Gradient with Respect to True Commuting Time in Beijing: Empirical Estimation and its Implications,” Institute for Real Estate Studies, Tsinghua University, Beijing, 2007.

52 Appendix 11

Table A11.8: Value of Travel Time Savings in 2011

Value of Work Value of Non- Loading % Work Time value Vehicle Time Work Time (Persons/vehi Trips (CNY/vehicle/ (CNY/hour) (CNY/hour) cle) (%) hour) Car 13.54 6.77 2.80 50.00 28.43 Bus 6.77 3.39 16.00 50.00 81.24 Source: ADB calculations.

Accident Savings

15. The PPTA report estimated benefits from accident reduction at CNY0.053 per vehicle- km. The unit accident cost was multiplied by the additional road length of the without case and by the annual average daily traffic to estimate the total added accident cost (i.e., accident saving benefits).

16. The reevaluation revises the 2011 accident cost parameter to CNY0.091 per vehicle-km to reflect rising incomes (105% increase, 2005–11), health care (20%), and declining average vehicle purchase costs (–40%).

Link Road, Forest and Tourism Benefits

17. The reevaluation of the benefits from link roads represented 4.2% of total benefits. The reevaluation does not investigate the results in depth as these are relatively small. Traffic counts from the link roads were not collected, and disaggregated data on tourism and forests was not available. The analysis simply factors these benefits as reported in the PPTA by the reduction in traffic.

Traffic Levels and Characteristics

18. The level of benefits and viability of any transport project depends primarily on the number of users who benefit from the project. In the case of road projects, traffic levels and travel patterns are the most important indicators that the benefits estimated in the economic analysis are being achieved. Conversely, a traffic shortfall reduces the project’s estimated benefits. Due to the sensitivity of the economic viability of road projects to traffic levels, this economic reevaluation spent considerable time and effort to recalibrate the traffic forecasts based on actual 2012 counts.

19. Traffic forecasts prepared for the RRP in 2005 could not be based on observed traffic since most of the road sections built under the project did not yet exist and many trips between counties necessitated long and circuitous routes. The forecasts prepared at that time would therefore have been subject to a substantial amount of uncertainty. Overall, the traffic counts taken in 2012 largely validate the original forecasts.

Table A11.9: Traffic on 5 Project Segments of the Jixi–Nehe Highway (Average annual daily traffic, expressed in passenger car units)

Section 1: Section 2: Section 4: Section 3: Section 5: Year Linkou– Fangzheng– Quig’an– Tonghe–Tieli Hailun–Baiquan Dailumi Tonghe Suiling RRP PCR RRP PCR RRP PCR RRP PCR RRP PCR 2005 2,581 2,581 2,109 2,109 1,574 1,574 2,095 2,095 1,968 1,968 2010 6,591 3,054 5,651 5,177 2,968 1,714 3,821 3,440 3,501 3,090

Appendix 11 53

Section 1: Section 2: Section 4: Section 3: Section 5: Year Linkou– Fangzheng– Quig’an– Tonghe–Tieli Hailun–Baiquan Dailumi Tonghe Suiling RRP PCR RRP PCR RRP PCR RRP PCR RRP PCR 2012 7,514 3,266 6,513 7,415 3,497 1,774 4,531 4,195 4,138 3,701 2019 11,938 5,190 10,756 18,848 6,243 3,166 8,263 7,649 7,471 6,682 2029 21,567 9,375 20,575 20,800 13,321 6,755 19,165 17,740 16,176 14,469 Source: ADB calculations.

20. Traffic counts conducted under the PCR mission in July 2012 validated the PPTA 2029 forecasts for sections 2, 4, and 5. The PPTA 2029 forecasts for sections 1 and 3 were overestimated; those two sections are in more sparsely populated areas than the other three segments.

21. The lower traffic volumes on sections 1 and 3 can also be explained by the observed greater share of personal automobile traffic and a much lower volume of bus traffic than expected. The highest traffic growth, especially in personal automobile travel, occurred on roads linking counties with lower per capita incomes, suggesting a greater elasticity of substitution between automobiles and buses than anticipated in the PPTA.

22. The different benefits reported in the PPTA were revised according to the year 2011 parameters described above and were factored by the reduced traffic volumes observed after project opening to derive the final benefits reported in the cash flow appearing in Table A11.10.

23. Key differences between the RRP and the PCR analysis

(i) The actual costs marginally deviate from the appraisal estimates and are slightly higher in dollar terms (1.4%), but much lower in CNY terms (-10.1%). (ii) Vehicle operating costs are higher than predicted in the RRP due to higher fuel and commodity prices in real terms. (iii) The value of time is much higher than predicted in the RRP due to rapid growth in real per capital income. (iv) Accident savings are higher than predicted in the RRP due to rising incomes. (v) Actual traffic levels are lower overall than predicted in the PPTA, but varied significantly across road sections – some matched the forecasts well while others were much lower.

E. Results

24. The economic reevaluation of the project was carried out based on the original analysis and adjusted based on (i) the key differences observed between the analysis at appraisal and the actual costs, (ii) updated traffic forecasts and parameters based on actual counts, and (iii) recent prices. The net present value and economic internal rate of return (EIRR) were recalculated; the economic net present value (ENPV) is CNY5,085 million and the EIRR is 23.21%, which is much higher than the opportunity cost of capital (12%) (Table A11.10). Therefore, the results of the analysis show that the project remains economically viable. Vehicle operating cost savings contributed 90.1% of the total discounted benefits at the opportunity cost of capital, time savings contributed 5.7%, accident reductions 1.3%, and other benefits 2.9%.

54 Appendix 11

Table A11.10: Summary of the Economic Analysis Results (CNY million)

Link & VOC Time Accident Total Net Year Costs Other Benefits Benefits Benefits Benefits Benefits Benefits 2006 199 0 (199) 2007 1199 0 (1199) 2008 941 0 (941) 2009 839 0 (839) 2010 270 619 45 10 18 692 422 2011 29 681 48 11 20 760 732 2012 51 751 53 11 22 836 786 2013 10 831 58 12 23 924 915 2014 10 912 63 13 26 1013 1004 2015 11 997 69 14 28 1108 1099 2016 11 1086 74 16 31 1207 1197 2017 11 1180 79 18 34 1310 1299 2018 11 1289 85 19 37 1429 1419 2019 302 1396 92 20 40 1547 1267 2020 12 1510 98 22 49 1679 1668 2021 13 1633 104 23 54 1815 1803 2022 13 1766 111 25 59 1961 1949 2023 13 1893 119 28 63 2103 2091 2024 14 2053 126 30 69 2278 2265 2025 14 2206 134 32 74 2447 2434 2026 15 2369 142 34 81 2627 2613 2027 15 2537 152 37 88 2814 2800 2028 302 2735 162 39 96 3032 2751 2029 16 2935 172 42 104 3254 3239 Percent 90.1% 5.7% 1.3% 2.9% NPV 5085 EIRR (%) 23.21% () = negative, EIRR = economic internal rate of return, NPV = net present value, VOC = vehicle operating cost. Source: ADB calculations.

Sensitivity Analysis

25. Sensitivity analysis was conducted to test the impacts of changing overall costs and benefits on the economic viability of the project. Since the costs to implement the project are sunk, it makes little sense to vary the costs in the sensitivity analysis. Therefore, benefits were varied by 20 percent while costs remained the same. The results, shown in Table A11.11, show that the project is viable when benefits are reduced by 20%.

Table A11.11: Results of Sensitivity Analysis

Cost changed by Value Benefits change by ENPV 3,713 -20% EIRR (%) 19.48% ENPV 4,467 -10% EIRR (%) 21.59% ENPV 5,085 0% EIRR (%) 23.21% 10% ENPV 5,702

Appendix 11 55

Cost changed by Value Benefits change by EIRR (%) 24.75% ENPV 6,319 20% EIRR (%) 26.21% EIRR = economic internal rate of return, ENPV = economic net present value. Source: ADB calculations.

26. The analysis supporting Table A11.10 not only revised project costs and traffic, but also modified the VOCs and value of time to reflect 2011 prices and wages. An additional sensitivity test was conducted based on actual investment costs and updated traffic forecasts using actual 2012 counts, but using the same VOC, value of time, and accident savings parameters in the PPTA from 2006. Those assumptions reduce benefits, but still produced an ENPV of CNY2,927 million and an EIRR of 17.04%. In other words, any challenge to the assumptions still demonstrates a viable project.

56 Appendix 12

FINANCIAL REEVALUATION

1. At the time of appraisal, the project had both revenue and non-revenue generating components. A financial evaluation has been undertaken in accordance with the Asian Development Bank (ADB) document, Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB (2002). At the time of appraisal, class II roads were typically financed through a combination of local government budget allocations and toll-based debt financing.

2. Heilongjiang Province was expected to apply toll rates to all class II highways according to the provincial government’s policy. Until 2009 in the People’s Republic of China (PRC), financing for road network expansion and maintenance was provided by the widespread use of toll-based debt financing, transfers from the national government from vehicle purchase tax revenues, and a variety of local taxes and fees. The financial viability of the ADB-financed project was assessed under the assumption that such tolls would continue. However, the Fuel Tax Reform Plan was implemented by the PRC central government in January 2009 and included three main provisions. First, the plan abolished local fees charged for roads (including the road maintenance fee, passenger and freight surcharges, and transport management fee). Second, the plan removed authorization for loan-financed class II toll roads and established a schedule for gradually annulling the existing tolls on class II roads. Third, the plan established a series of motor fuel tax increases applied nationally to replace the abolished funding sources.

3. As a result of this national policy, Heilongjiang Province lost the ability to charge tolls on all class II and below roads in the same year the project was completed. Therefore, tolls have never been collected on the ADB-financed project roads, and calculation of a financial internal rate of return is impossible. Direct transfers from the national government have compensated for the loss of toll revenue. The financial information for the Heilongjiang Provincial Department of Transport (HPDT) for the past 6 years is provided in Table A12.1.

4. Toll revenues on class II roads have been replaced by two key sources: (i) a subsidy to compensate for the annulment of class II road tolls, and (ii) direct transfers of fuel tax revenues to compensate for lost highway maintenance fees. Direct subsidies from the Ministry of Transport (MOT) have also risen substantially. Total funds available to the HPDT increased by a large amount in 2009 as part of the PRC’s economic stimulus program and remained near that level in 2010 and 2011.

5. The income statement confirms that the HPDT has ample resources to absorb the cost of the ADB-financed project. Funds available and expenditures have reached about CNY40 billion per year and loan repayment costs are now approximately CNY6 billion per year. The loan repayment for the ADB-financed project is expected to be only $15 million (CNY94.5 million) or about 1.6% of total debt service and only 0.2% of total funding available to the HPDT.

Appendix 12 57

Table A12.1: Income Statement of Heilongjiang Provincial Department of Transport (CNY million)35

Item Year 2006 2007 2008 2009 2010 2011 I. Total Revenue 15,138.00 20,154.00 25,005.00 41,509.00 35,874.00 40,327.00 1. Administration 2,952.00 3,234.00 3,551.00 3,548.00 3,919.00 4,851.00 Revenue (1) Highway maintenance 2,437.00 2,790.00 3,023.00 3,069.00 3,440.00 4,060.00 fee/Fuel tax (2) Passenger/Freight 320.00 204.00 239.00 224.00 224.00 364.00 transport added fee (3) Transport administration 195.00 240.00 289.00 255.00 255.00 427.00 fee 2. Subsidy from MOT 3,728.00 3,710.00 3,967.00 4,928.00 8,256.00 11,714.00 3. Toll Revenue 2,342.00 2,580.00 2,868.00 3,442.00 3,377.00 4,068.00 (1) Expressway toll revenue - - - 1,998.00 2,238.00 2,972.00 (2) Subsidy for revocation of - - - 1,444.00 1,139.00 1,096.00 class II toll road 4. Loan from Domestic 4,716.00 6,920.00 5,895.00 16,322.00 14,196.00 17,902.00 Bank 5. Subsidy from Provincial - - 2,044.00 2,236.00 2,048.00 863.00 DOF (1) Subsidy for key project - - 1,400.00 1,500.00 1,700.00 700.00 (2) Subsidy for rural road - - 644.00 736.00 348.00 163.00 6. Construction Cost for - - 400.00 563.00 808.00 929.00 Transport Project 7. Self-Financed by Local 1,400.00 3,710.00 6,280.00 10,470.00 3,270.00 - Government II. Total Expenditure 15,138.00 20,154.00 21,066.00 37,359.00 41,473.00 38,123.00 1. Cost for Administration 600.00 610.00 658.00 671.00 856.00 867.00 2. Cost for Maintenance 595.00 610.00 669.00 820.00 1,216.00 1,266.00 3. Cost for Passenger 320.00 204.00 239.00 224.00 224.00 364.00 Transport Facilities 4. Administration Cost for 195.00 240.00 289.00 255.00 255.00 427.00 Transport Sector 5. Construction Cost 10,825.00 15,390.00 15,731.00 31,130.00 34,320.00 29,210.00 (1) Key project construction 5,453.00 5,710.00 6,420.00 23,480.00 28,390.00 26,414.00 (2) Normal construction 5,372.00 9,680.00 9,311.00 7,650.00 5,930.00 2,796.00 6. Loan Capital and 2,603.00 3,100.00 3,480.00 4,259.00 4,602.00 5,989.00 Interest Payback (1) Capital payback 1,372.00 1,270.00 1,030.00 1,749.00 1,655.00 1,811.00 (2) Interest payback 1,231.00 1,830.00 2,450.00 2,510.00 2,947.00 4,178.00 7. Reserve Funds or ------Contingency III. Balance carryover - - 3,939.00 8,089.00 2,490.00 4,694.00 Source: HPDT financial statements.

35 Note that the above statement is unaudited and includes items such as borrowings (CNY 17,902 million in year 2011), the amortization of loans (CNY 1,811 million), and capital investments (CNY 29,210 million), that should not appear in an income statement.

58 Appendix 12

Road Maintenance Assessment

6. The expressways and the majority of the class I and II highways in Heilongjiang Province are relatively new, and their maintenance needs to date have not been great. As they age, maintenance requirements will increase as the average road condition deteriorates. Concurrent with the project, the government of the PRC embarked on a massive economic stimulus package to accelerate the development of infrastructure, particularly roads. As these roads begin to require routine and periodic maintenance, there will be a gradual increase in demand for maintenance equipment and staff .

7. The road investments have not increased the total kilometers of road by a large percentage (Table A12.2). But as roads have been upgraded, their functional classifications have changed. For example, class I and II roads have been upgraded to expressways, and a large number of unclassified roads have been paved to class IV standards over the past several years.

Table A12.2: Road Kilometers by Class, Heilongjiang Province

Year Expressway Class 1 Class 2 Class 3 Class 4 Unclassified Total 2008 1,044 1,453 7,443 33,027 50,883 47,059 140,909 2009 1,219 1,576 8,599 32,186 70,931 36,960 151,471 2010 1,358 1,451 9,063 32,128 74,918 33,028 151,945 2011 3,708 1,289 8,849 32,298 77,989 31,460 155,592 Source: HPDT.

8. There is some evidence that the HPDT understands the need for more maintenance since HPDT budget allocations for maintenance have increased substantially from very low levels in 2006. In general, the expressway operating companies fund maintenance from their toll revenues, and counties and townships, rather than the provincial government, maintain unclassified roads. The HPDT directly funds the maintenance costs of roads under its jurisdiction using revenues from its own funding sources and transfers from other levels of government.

9. To evaluate whether the HPDT is sufficiently funding maintenance, this assessment utilized the maintenance costs reported for Heilongjiang Province from the project preparatory technical assistance (PPTA) and inflated the figures to 2011 CNY values. The maintenance costs per kilometer were reported as follows:

Table A12.3: Annualized Maintenance Costs per Kilometer by Road Class (Y2011, CNY)

Periodic Road Routine Total per km (9 year Classification (annual) per year interval) Class 1 38,590 1,286,170 181,498 Class 2 19,290 643,090 90,744 Class 3 14,790 482,320 68,381 Class 4 10,290 321,540 46,017 Source: PPTA report.

Appendix 12 59

10. Applying the maintenance costs to each class of roads in the province provides an estimate of the total maintenance needs, which can be separated into routine and periodic maintenance. Generally, the HPDT only finances about 21% of its total maintenance funding requirements. However, from discussions with HPDT officials, it appears that most periodic maintenance is considered rehabilitative and is financed under the capital construction budget, often in conjunction with upgrading the classification of the roads being rehabilitated. Therefore, it may be more useful to consider total maintenance funding in terms of routine maintenance needs. The funding allocated by the HPDT for maintenance is largely sufficient to finance routine maintenance on the entire provincial road network (Table A12.4).

Table A12.4: Percent of Maintenance Needs Funded, 2008-2011 (CNY million)

Total Routine Total Percent of Percent of Total Year Maintenance Maintenance Maintenance Periodic Needs Needs Funded Needs Needs Funding Funded 2008 4,419 947 669 15% 71% 2009 5,399 1,164 820 15% 70% 2010 5,735 1,238 1,216 21% 98% 2011 6,000 1,296 1,266 21% 98% Source: ADB calculations.

11. The income statements provided by the HPDT demonstrate that administrative revenues (i.e., revenues available for operating and maintaining the road network) are being diverted to road construction. Overall, about 60% of the funds available for administration and maintenance are used to pay for administrative costs, and about 26% of the administrative revenue is used for maintenance (Table A12.5). It is clear that ample resources are available to finance higher maintenance costs if fewer resources were diverted to construction.

Table A12.5: Maintenance Funding as a Percent of Funds Available, 2006–2011 (CNY million)

Administration Costs 2006 2007 2008 2009 2010 2011 Maintenance expenses 595 610 669 820 1,216 1,266 Passenger transport 320 204 239 224 224 364 facilities costs Management and 795 850 947 926 1,111 1,294 administrative expenses Total Administration Costs 1,710 1,664 1,855 1,970 2,551 2,924 Administrative revenue 2952 3234 3551 3548 3919 4851 (available for maintenance) Share of administrative costs 58% 51% 52% 56% 65% 60% Share of maintenance costs 20% 19% 19% 23% 31% 26% Source: ADB calculations.

60 Appendix 13

SOCIAL DEVELOPMENT ACTION PLAN

1. The project impacts are positive for the economic growth and socioeconomic development in Heilongjiang Province and the project area. The 12th Five-Year Plan envisages 12% growth in Heilongjiang and 15% growth in the project area by 2015. The gross domestic product grew by 13.4% in Heilongjiang Province and by 14.3% in the project area from 2005– 2010. The economic growth rate compares favorably with the appraisal target of 7.5% for Heilongjiang and 7.5%–8.0% for the project area from 2010–2020. Average per capita rural net income increased from CNY2,471 in 2004 to CNY4,400 in 2007 and CNY6,636 in 2010.36 This indicates that the appraisal target of CNY4,500 set for 2015 has already been achieved. The incidence of poverty, on average, in project villages fell from 13.0% in 2005 to 6.2% in 2011, against the appraisal target of 9.0% by 2015. The number of poor villages in the project area was reduced from 393 in 2005 to 244 in 2011 indicating a significant (about 38%) reduction in the number of poor villages and confirms the positive social and economic developments in the project area and in Heilongjiang Province.

2. The project provided direct economic benefits to the local communities by generating employment opportunities and providing preferential treatment to the project-affected and local population. The contractors employed 13,053 local laborers, including 1,949 skilled workers, 7,136 workers, 275 ethnic minority people, 1,310 affected people, 991 women, and 1,781 local poor. On average, each laborer worked for 3 months, earning about CNY2,000 per month. The total project-generated income for local communities is estimated at CNY78.4 million.

3. The local communities also benefited from the use of local material and resources by the contractors. The contractors of 26 bid sections hired 930 pieces of equipment and machinery from local farmers. In addition, the renting of residential and other premises from local farmers contributed an income of CNY7.52 million.

4. Post construction, the project is proving beneficial to the affected people and local population within the project zone.

36 Baseline survey by the external monitor.

Table A13.1: Social Development Action Plan

Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

1. Resettlement Villages to be Executing agency, local Included in Project Compensation standards, involved in governments, 2006 the amount of compensation, Resettled within the land acquisition for village committee, and resettlement and the timing of original community the project local land bureaus plan compensation

Farmland readjusted Compensation paid in full. among the villagers, or Compensation standards for non-irrigated land house demolition were changed to irrigated raised, and the M&E report surveys indicate that the Conduct statistical affected persons are calculation of dry farmland satisfied with the converted into paddy field compensation

100 ha of farmland Conduct statistical converted into paddy fields calculation of wells constructed by affected 248 wells were dug households because water supply was cut off due to construction of the project

Appendix 13 Appendix 61

62 Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

2. Income recovery of Households will be 2006 Included in Project During the construction 13 Appendix affected villagers involved in the the period local farmers resettlement: 5,532 resettlement were contracted for Directly pay households along plan skilled and unskilled compensation to affected the main road work people alignment, 211 households along Number of local people Develop farm and the link road employed nonfarm - 1,949 skilled farmers sectors - 7,136 unskilled farmers Help affected people - 275 ethnic minority obtain more opportunities farmers to earn income - 1,310 farmers from affected households - 991 women workers - 1,781 local poor workers

Hiring of equipment and machinery - 930 pieces of mechanical equipment hired from local farmers

Renting of residential and other premises from local farmers contributed to an income of CNY7.52 million

Compensation was paid directly to the affected people

Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

3. Poverty reduction Poor within the Local governments, 2006– CNY104 Project Number of projects to be project areas poverty reduction office, 2010 million funds, implemented, funds to be Under the program of agriculture bureau, poverty invested, and national and provincial irrigation bureau, reduction increased income of poor poverty reduction, help women’s federation funds people poor villages one by one Three-pronged strategy for Provide assistance to poverty reduction poverty-stricken villages - Whole village poverty and population on a one- reduction to-one basis according to - Training and migration the national, provincial, of impoverished and municipal poverty laborers alleviation plans - Industrialization

Indicators - Whole-village poverty reduction project completed in 30 villages in 2007 and launched in another 30 villages in 2008

1,781 persons provided with assistance

Appendix 13 Appendix 63

64 Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

4. Control of infectious All the construction Executing agency, 2006– Local Incidence of a disease 13 Appendix

disease, including encampment contracted company, 2009 government among construction HIV/AIDS county diseases control workers center, county health - 5.8% drop in AIDS and Training and medical bureau other sexually examinations of workers transmitted diseases between 2008 and Enhance the awareness 2009 of the risks of the - No reports of class A diseases infectious diseases - 26 clinics setup for 26 contractors along the highway

5. Road safety Villagers and Executing agency, 2006– Project Traffic accident ratio

students contracted company, 2009 funds - No safety-related Set up speed slow-down communication incidents reported in facilities and warning management agency 2008 marks in the project - Speed limit signs and direction signs installed - Safety inspections carried out - 395 road safety signs installed, mostly near villages and populated areas - Road safety education through schools

Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

6. Sub-link road Villages near the County and township 2006– Local 22 link roads, with a total upgrading proposed road government, and 2009 government length of 173 km village’s committee and villages constructed Upgrade the link road

7. Promote local Townships along Executing agency, 2006–  Percentage of local economic the project roads contracted 2009 materials used development construction company,  Number of local county and township workers involved in Use local construction government construction materials  Number of vulnerable people Use local workers for road employed by the construction management agency Employ local vulnerable - 1,949 skilled people for maintenance farmers, 7,136 unskilled farmers, 275 ethnic minority farmers, 1,310 farmers from affected households, 991 women workers and 1,781 local poor workers employed - 930 pieces of mechanical equipment hired

from local farmers 13 Appendix - Renting of residential and other premises from local farmers contributed an

income of 65 CNY7.52 million

66 Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

8. Improve The residents of County communication 2006– Project Number of bus stations 13 Appendix transportation project bureau of project area, 2009 constructed funds, local service area road management - 28 bus stops Company government constructed Construct rural bus stations Number of roadside stations constructed Promote construction of - 8 roadside stations roadside stations constructed

Lower toll for local people Fares decreased from CNY2 to CNY1.5

9. Tourism Government and Tourism bureau, local 2006– Investors Number of tourists, development village committee government and village 2009 Linkou County

where the tourism committee, Women’s 70,000 (2007) Tourism advocacy sites are located, Federation 90,000 (2008) villagers 100,000 (2009) Tourism infrastructure improvement Tourism revenue CNY8,000,000 (2007) CNY7,700,000 (2008) CNY9,000,000 (2009)

10. Attract investors Small businesses Local government After Number of outside and new enterprises 2006 investors, number of Based on local natural investment projects for resources, attract outside Linkou County investors through preferential tax policies Number of contracts signed 131 (2007) 101 (2008) 187 (2009)

Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

11. Small town Townships along Local government After Urbanization Population of small urbanization project roads 2006 funds towns, proportion of promotion different industry sectors

By improving public Tonghe Town – 61,876, service facilities and including 44,387 people as by attracting outside non-agricultural population investors 5 townships prepared new plan for expansion

12. Promote private Population of the Local government and After Local Number and size of small business project area financial institutions 2006 financial private enterprises development institutions Hailun City – 20,169 Encourage small business enterprises (2009), an development through increase of 102 compared to preferential tax and loan the previous year release policies The number of small and medium-sized enterprises increased to 364 in 2011 from 283 in 2006 for the 8 counties and/or cities Appendix 13 Appendix 67

68 Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

13. Training poor Women of poor Social and working After CNY800,000 Project funds Number of trained women, 13 Appendix women area safeguard bureau, civil 2006 number of female workers affair bureau, Women’s employed outside of their Female health care Federation village knowledge and skill training for women 18 training sessions of various types provided

More than 200 women workers attended the training course

360 women out of poverty

14. Help vulnerable Vulnerable Poverty reduction 2006– Number of people people population of bureau, county civil 2009 assisted project area affairs bureau Relieve people who have Income level of vulnerable no working capacity people rises through social safeguard measures In Tonghe County in 2009, the number of people below Raise new crops and the minimum standard of livestock living went down by 232 people from the previous year

Project management office built resettlement houses for affected persons without the ability to work

991 women, 1,781 impoverished villagers were trained and joined the project construction work

Proposed Actions Target Group Institutions Timing Funds Sources Indicators of M&E

15. Minority 11 ethnic minority Minority affairs and After Local Labor, Number of persons development villages religion bureau of 2006 government ethnic trained by type and along project roads county budgets minority, gender Skills training for ethnic and tourism minority people who want bureaus Number of cultural to work outside their activities and amount village based on their skill invested needs

Advocate minority culture 275 ethnic minority people and traditions were trained and joined the project construction work

Tieli City (2009) – 1,600 people from the Korean ethnic minority participated in a labor service export program, with training expenses fully borne by the county

The development of minority culture and traditions in Heilongjiang is supported by the provincial government as part of a wider set of national programs. No separate program delivered under the project Appendix 13 Appendix

M&E = monitoring and evaluation. Source: HPDT SDAP monitoring reports. 69

70 Appendix 14

ENVIRONMENTAL IMPACT ANALYSIS

A. Introduction

1. The project involved the upgrade and construction of 428 kilometers (km) of the Jixi– Nehe provincial highway, improvement of 170 km of rural link roads, and capacity development in road maintenance and management systems. Civil works included a new 2.6 km bridge over the Songhua River, two other bridges of more than 500 meters (m) in length, and an 80.8 km road section through the Xiaoxing’anling Mountains between Tonghe and Tieli counties. Proposed toll stations were cancelled owing to fuel tax policy reform that abolished tolls for class II roads. All other works have been completed and roads were opened to traffic in September 2009.

2. Two environmental impact assessment (EIA) reports, in accordance with relevant laws, regulations, and standards of the People’s Republic of China (PRC), were approved for the project in 2006. The EIA for the road components was given provincial approval, with the Heilongjiang Environmental Protection Department (HEPD) issuing the final acceptance report in November 2011, and the EIA for the 2.6 km Songhua River Bridge was given national approval. A soil erosion prevention plan was prepared by the Heilongjiang Provincial Research Institute of Water and Soil Conservation in October 2005.

3. ADB classified the project as environment category A. A summary environmental impact assessment (SEIA) and environmental management plan (EMP) were prepared with the help of PPTA consultants by the Heilongjiang Provincial Communications Department and disclosed on the ADB website in February 2006. The SEIA describes the project, its environmental setting, its anticipated environmental impacts and mitigation measures, the alternatives considered, the public consultation and disclosure undertaken, and the EMP to be implemented by the borrower. The EMP includes mitigation measures to minimize adverse environmental impacts of the project during construction and operation. It also includes environmental specifications for civil works contracts, a budget, and requirements for compliance and environmental quality monitoring. The SEIA concluded that the predicted adverse environmental impacts of the project could be reduced to an acceptable level through the implementation of the EMP.

B. Environmental Protection and Management

4. The project management office (PMO) was responsible for coordinating and supervising EMP implementation. It engaged the Beijing Huazi Engineering Design Institute and the Harbin Beifang Environmental Science Institute to support implementation of the EMP, conduct environmental monitoring, and help with the preparation of environmental monitoring reports (EMRs). The Suihua Environmental Monitoring Station was also engaged in environmental monitoring. The PMO engaged the Heilongjiang Archaeological Research Institute from the City Museum to survey and relocate historic artifacts, as required, in consultation with the Heilongjiang Cultural Heritage Bureau.

5. At appraisal, the total cost of environmental protection measures was estimated to be CNY68.217 million, while at completion, the actual cost was CNY108.251 million. Table A14.1 compares the predicted environmental protection costs37, with the actual costs, as provided by the project team. Where there is a variation in costs, the notes column provides the sources of financing and other details.

37 As cited in Appendix 5 of the SEIA.

Appendix 14 71

Table A14.1: Environment Protection Costs – Predicted and Actual

Environmental Predicted Cost Unit Cost Actual Cost Note Protection Measure (EIA) Soil erosion prevention n/a CNY5,440,000 CNY5,440,000 Included in the engineering plan costs Installation of double- Window = CNY341,600 CNY341,600 Included in the resettlement glazed windows for 354 CNY200 compensation costs families located within 20 m of the road Planting of 300 m long, 20 Planting CNY648,000 CNY648,000 Included in the forestry m wide vegetation belt in vegetation 1 compensation costs 6 villages square meter =CNY18 Installation of speed limit n/a CNY400,000 CNY400,000 Included in the traffic and “no horn permitted” engineering costs signs Watering of unpaved CNY1,372,200 CNY1,372,200 Included in contractor costs roads during construction 20 sets of sewage water Set = CNY4,550,000 CNY100,000 Toll stations were cancelled disposal facilities for CNY200,000 due to fuel tax reform policy construction period; possible reuse for toll stations during operation period Construction of 6 Sedimentation CNY120,000 CNY 0 Design documents did not sedimentation ponds for pond include ponds; to be bridge construction =CNY20,000 considered during sedimentation ponds Construction of 30 Temporary wall CNY600,000 CNY600,000 Included in the engineering temporary earth retaining =CNY200,000 costs walls Rehabilitation of 9 borrow Rehabilitation CNY1,800,000 CNY1,800,000 Included in the engineering pits and spoil disposal cost costs sites =CNY200,000 Restoration of vegetation, n/a CNY8,000,000 CNY8,000,000 Included in the engineering agricultural fields, costs temporary roads Highway greening n/a CNY20,270,000 CNY20,270,000 Included in the engineering costs Compensation fees for n/a CNY9,950,000 CNY67,579,579 Included in the forestry trees and vegetation compensation costs Provision of waste n/a CNY100,000 CNY100,000 Included in the contractor containers at work camps costs Environmental quality n/a CNY12,625,500 CNY1,600,000 Costs of external monitor monitoring and local environment monitoring station self- financed Accident monitoring n/a CNY1,000,000 CNY 0 This budget will be arranged system from local county government Contingency n/a CNY1,000,000 CNY 0 Not required

TOTAL CNY68,217,300 CNY108,251,379 Source: HPDT.

C. Environmental Monitoring

6. The environmental monitoring reports (EMR) of the executing agency and the review mission reports indicate that the mitigation measures, compliance, and environmental quality

72 Appendix 14 monitoring were implemented satisfactorily. However, semi-annual reporting requirements were not met. Only one EMR was received per year. All 5 were uploaded. The agreed construction impact mitigation completion report, which was due in May 2011, was not prepared.

7. The environmental quality monitoring was conducted according to the EMP monitoring program. The monitoring of 18 air quality, 15 noise, and 4 surface water quality monitoring sites associated with sensitive environmental receptors along the main and rural road project construction sites was done once per season. The monitoring confirmed that all air and surface water quality and noise parameters were compliant with the respective national standards, except for chemical oxygen demand levels in rivers. As the chemical oxygen demand baseline levels exceeded national standards, this is not attributed to construction impacts.

8. Environmental quality monitoring during operation is being carried out (in 2010, 2016, and 2024) in accordance with EMP and national standards. The ADB EMP recommended a six month frequency over a 20-year period. The HEPD also recommended to continue the environmental quality monitoring program, but to decrease the monitoring frequency.

D. Environmental Impacts and Mitigation Measures

1. Land and Soil Resources and Solid Waste

9. During construction, the project permanently acquired 1,282 hectares (ha) of land, slightly more than the appraisal estimate of 973.03 ha. 38 Table A14.2 shows the land acquisition requirements predicted in the SEIA39 and the actual permanent and temporary land acquisition requirements per type of land use and per section of road reported by the project team. These figures slightly differ from those for resettlement, as they include land uses that do not require compensation, such as wasteland.

10. A total of 279.68 ha of land was occupied temporarily for borrow pits, disposal sites, mixing plants, precast yards, access roads, and other construction activities. In total, the project required 27 borrow pits and 41 disposal sites. All temporarily acquired lands have been restored and confirmed acceptable by the HEPD. However, the final acceptance report recommended that certain slope stabilization and rehabilitation measures could be improved.

11. The topsoil was stripped and retained for reuse in restoration, and stockpiles were maintained in line with the soil erosion prevention plan. They also confirm that road embankments and cuttings were managed during construction to control erosion and, on completion, were stabilized using a range of soft and hard engineered techniques. There have been no slope failures to date. The September 2011 EMR and the photos in Annex A14.1 illustrate some of the sections where slopes and rehabilitated sites could be improved to encourage better vegetation, reduce erosion risk, and improve visual impacts.

12. During construction, solid waste was regularly collected and disposed of at an approved facility. The Tonghe Maintenance Division reported that solid waste is collected every 2 days and disposed of in the county landfill.

38 The figures deviate from those in the land acquisition and resettlement plan due to a different categorization of the land acquired for the resettlement plan and EIA. The land acquisition figures under the resettlement plan and EIA were not reconciled during the PPTA stage. 39 As shown in Table 14 on page 20 of the SEIA.

Appendix 14 73

Table A14.2: EIA Land Acquisition Requirements – Planned and Actual40

Land Type and Quantity (hectares) Irrigated Dry Permanent Section Agricultural Agricultural Forests Wasteland Total Temporary Land (Paddy) Land Plan Actual Plan Actual Plan Actual Plan Actual Plan Actual Permanent 49.814 51.951 29.492 33.244 74.962 125.433 105.988 66.566 260.256 277.193 Liukou–Daluomi Temporary – – 49.813 49.813 7.889 7.889 5.956 5.956 63.658 63.658 Fangzheng– Permanent 35.504 43.020 30.025 33.844 – 74.357 20.384 6.882 85.913 158.104 Tonghe Temporary – – 19.724 19.724 – – 1.550 1.550 21.274 21.274 Permanent 41.415 41.383 93.149 104.998 63.954 165.307 151.282 19.970 349.800 331.658 Tonghe–Tieli Temporary – – 84.656 84.656 16.557 16.557 14.998 14.998 116.211 116.211 Permanent 45.797 47.123 73.284 82.606 11.544 150.330 4.927 – 135.552 280.059 Qing'an–Suiling Temporary – – 40.200 40.200 – – 11.150 11.150 51.350 51.350 Permanent 2.050 13.311 110.890 124.996 – 97.114 28.570 – 141.510 235.420 Hailun–Baiquan Temporary – – 20.920 20.920 – – 6.270 6.270 27.190 27.190 174.58 Permanent 196.787 336.840 379.687 150.460 612.541 311.151 93.418 973.031 1282.434 Total 0 Temporary – – 215.313 215.313 24.446 24.446 39.924 39.924 279.682 279.683 Source: HPDT.

2. Water Resources

13. The bridge drainage design did not incorporate features to manage stormwater runoff. The settlement ponds proposed in the EMP environmental protection measures to manage sediment and pollutant load were constructed. At present, runoff drains directly through holes in the bridge decks (Annex A14.1), it is recommended that improved drainage protection measures for all rivers are considered during future maintenance and improvement works. Provisions for bridges crossing the Xinglong National Forest Park and the Nuomin River (class II water quality) should be prioritized.

14. The EMRs indicate that irrigation and drainage channel diversion was carried out in consultation with local stakeholders. Affected communities’ requests for minor alterations to drainage design were accommodated. The construction, in some cases, caused temporary flooding of adjacent farmers’ lands and the loss of agricultural products. In response, additional protection measures were developed and implemented, and compensation was paid to the affected farmers. The reports state that cofferdams were used to contain sediment from bridge piling works in the river channel and spoil was disposed in designated areas. Camps were required to construct settlement tanks to manage construction wastewater, which met relevant PRC standards prior to discharge.

15. The environmental quality monitoring confirmed that the water quality of rivers associated with the six major bridge crossings was maintained in line with the required national standards for the parameters monitored and did not deteriorate significantly when compared to baseline levels prior to construction. Activities close to water bodies were restricted during periods of high rainfall.

40 Footnote 24.

74 Appendix 14

16. It was evident during the PCR review mission that road drainage requires more regular maintenance. In some cases, ditches were over-vegetated, full of water, or in a state of disrepair (Annex A14.1). At Tonghe Maintenance Division facilities funded by the project, the PCR mission observed that a number of water resource conservation measures have been incorporated into the design of the wastewater management system. Black and gray wastewater streams are separated into two different underground storage tanks prior to collection, and rainwater is collected and stored for reuse.

17. While the Heilongjiang Provincial Department of Transport (HPDT) standards for emergency response to road transport accidents refer to the PRC Road Traffic Safety Law for the transport of hazardous materials, they do not account for containing spills that may constitute a risk to the environment. The project team indicated that the HEPD would be consulted in the event of a spill.

3. Air Quality and Vehicle Emissions

18. Concrete batching plants were located away from sensitive air quality receptors. During construction unpaved routes were sprayed twice a day during the dry season to suppress dust emissions. Vehicles and machinery were required to adhere to PRC emission standards, and trucks transporting aggregates and spoil were required to cover their loads.

19. A specific loan covenant relating to vehicle emissions (Appendix 10) requires that at least 6 months prior to the opening of the highway, the Heilongjiang Provincial Government (HPG) shall provide to ADB the HEPD emission standards and the penalties for infringement of these standards. It also requires that the HPG shall ensure that through the relevant agencies, the HEPD vehicle emission standards, as well as the national vehicle emission standards, are enforced. While no project-specific emission standards or penalties have been adopted, the national vehicle emission standard GB18285-2005, issued by the Ministry of Environment, requires the periodic inspection, maintenance, and repair of on-road vehicles. The Public Security Bureau is responsible for carrying out spot-checks and issuing penalties in the province.

20. The project is expected to have beneficial effects on air quality as paving the road and reducing travel times and distances will contribute to the reduction of greenhouse gases, pollutants, and dust emissions. In addition, an improved capacity for road maintenance planning should help ensure that roads are kept in a better state of repair. Solar-powered street lighting was observed in one section in Fengshan Town; if effective, this should be considered for other lighted sections.

4. Noise

21. During construction, noisy activities—particularly blasting, rock crushing, and piling— were restricted to daytime hours, still the need for temporary sound barriers was considered. Activities within 150 m of residential areas were restricted from 10 p.m. to 6 a.m. In some locations, working activities were further restricted on the request of local residents. For contract package 11 (Chainage K337+800), residents requested restrictions on construction activities between 8 p.m. and 5 a.m. For contract package 14 (K385+000 and K394+600), residents requested restrictions on construction activities after 9 p.m. Speed limit signs were installed on haul routes close to villages and emphasized through environmental training of site personnel and regular monitoring.

Appendix 14 75

22. The budget included a provision for the installation of noise reduction measures, including double-glazed windows for 354 homes located within 20 m of the centerline of the road and speed limit and “no horn permitted” signs close to residential areas and schools. During the final review mission, the majority of properties observed within 20 m of the centerline had double-glazed windows. Noise levels are predicted to exceed daytime noise standards at Zhifu and Shengli schools by 2016. The project team confirmed that these schools have been fitted with double-glazed windows. Zhifu School was visited during the final review mission, and it was confirmed that windows were double-glazed and a “children crossing” warning sign had been installed. However, there was no marked pedestrian crossing or other road safety markings (Annex A14.1). Operational noise monitoring of sensitive noise receptors should be carried out annually during operations to check that noise levels are as predicted and to confirm whether mitigation measures are adequate.

5. Ecology

23. The project team confirmed that during construction, retained trees and vegetation were protected from construction activities, particularly in sensitive locations such as Xinglong National Forest Park—an area of secondary forest, plantations, and agricultural land—and the Xiaoxing’anling Mountains, both located between Tonghe and Tieli. The construction workforce was made aware of a site environmental code of conduct that included protection of flora and fauna. This section of the road was visited during the final review mission and, generally, the works appear to have been completed to a satisfactory standard although there were some areas that could have been better restored (Annex A14.1).

24. The number of trees lost was 688,831, of which 40% had a trunk diameter of greater than 13–15 centimeters. This loss of trees was compensated through an agreed payment of CNY CNY67,580,000 to the Forestry Bureau, which was responsible for all compensatory planting. Compensatory planting has been completed in line with the EMP, and there was no evidence of trees in poor health.

6. Physical Cultural Resources

25. The project included a linking road and bridge to improve access to a designated heritage protection site, called “Eight Women.” The presence of ancestral graves and historic artifacts was suspected in three sections associated with contract packages C06, C09, and C21. Works in these sections were supervised by representatives from the Heilongjiang Institute of Archaeology so excavations for artifacts could be carried out, as required. A letter has been issued by the Institute confirming that all necessary excavations were completed in the project area. Due to issues of confidentiality, information on specific finds and locations was not available. However, it was confirmed that no graves were found.

E. Public Consultation

26. Actions have been taken for each contract package in relation to requests from affected communities, including altering drainage and bridge design, maintaining access, restricting construction traffic speeds, timing noisy activities appropriately, and minimizing occupation of and damage to farmlands. The HEPD acceptance report for the roads EIA indicates that all communities consulted post-construction were completely satisfied with the project. Limited consultation carried out with affected communities during the final review mission also yielded positive feedback, mostly related to improved accessibility and living standards.

76 Appendix 14

F. Conclusions

27. For the most part, the PMO and their consultants and contractors demonstrated a satisfactory level of environmental due diligence in the implementation of the project, its EMP, and associated environmental compliance and quality monitoring. The majority of environmental protection measures have been fulfilled within allocated budgets. Although reporting frequency was noncompliant, contractors were responsive to local residents’ requests regarding the design and construction activities. The PMO was supportive during the final review mission, arranging the necessary field visits and providing requested information to complete this report.

28. All available information indicates that the adverse environmental impacts of the construction of the project have been reduced to an acceptable level, and it is anticipated that residual impacts will be offset by long-term benefits of the project, including (i) reduced travel distance and associated emissions; (ii) improved capacity for road maintenance; and (iii) accessibility of rural communities to markets, employment opportunities, and services.

29. In general, the construction of the project has been satisfactorily completed and there do not seem to be significant operational impacts that were not predicted in the SEIA and managed through provisions in the EMP. However, there are some key areas where environmental performance could be improved:

(i) more regular maintenance and repair of drainage ditches to retain their function; (ii) planned maintenance works to consider stormwater drainage improvements to prevent direct runoff into rivers, other sensitive habitats, and/or areas that are important for agricultural production; (iii) monitoring of steep slopes and adoption of preventive measures to avoid erosion and landslides; (iv) improvement of areas with excessive soil compaction and where vegetation has been unable to establish; (v) commitment to annual program of water, air, and noise monitoring of sensitive receptors in the project area; (vi) appropriate traffic management and safety controls for road operatives and maintenance works in the right of way; (vii) improved road safety measures, particularly in villages and towns; and (viii) extension of solar street lighting provision from Fengshan Town to other areas.

Appendix 14 77 Annex A14.1: Photos from Project Completion Review Mission, 11–12 July 2012 Illustrating Key Environmental Issues and Opportunities

Bridge through Xinglong National Forest Park Erosion below bridge through Xinglong National Forest Park

Steep slope – risk of erosion Steep slope – risk of erosion

Steep slope – risk of erosion Steep slope – risk of erosion

78 Appendix 14

Vegetation has not been established due to soil Restored borrow area – vegetation reestablishment compaction of slope on slopes slow due to soil compaction

Zhifu School – newly reconstructed with double- Houses within 20 m of road with newly double-glazed glazed windows for noise insulation windows for noise insulation

Warning Sign for Zhifu School – no demarcated (L) Solar street lighting – Fengshan Town pedestrian crossing or “no horn permitted” signs (R) Underground septic tank – Tonghe Maintenance Division

Appendix 14 79

Ditch maintenance required Ditch maintenance required

Songhua River Bridge – no drainage provision Songhua River Bridge – drainage holes in deck

Mudanjiang River Bridge Runoff from bridge deck drains directly into river via drainage holes

80 Appendix 14

No traffic management or warning signs for works New bus stop – Sanjiazi Village on carriageway

Appendix 15 81

LAND ACQUISITION AND RESETTLEMENT

A. Scope of Land Acquisition and Resettlement

1. The Heilongjiang Roads Network Development Project involved construction of a highway between Linkou County and Baiquan County. The length of this mostly class II highway is 428 kilometers (km). The other component of the project was the construction of 22 linking roads with a total length of 170 km. The project affected 8 counties, 36 townships, 130 villages, 6 forest bureaus, 20 forest farms, and 11 enterprises. Compared with the 1,391 hectares (ha) of planned land acquisition, a total of 1,322.6 ha of land was permanently acquired, of which 1,189.0 ha was acquired for the highway and 133.0 ha for the linking roads. Permanent land acquisition affected 5,663 households with 22,858 persons, which was as planned. 41 This includes 5,532 households with 22,331 people due to the highway construction and 131 households with 527 people due to the construction of linking roads. A total of 286 households were demolished, affecting 802 people, compared with the planned figures of 201 households with 802 people. Demolition of structures also affected 11 enterprises involving 147 people, which was as planned. Temporary land acquisition also remained unchanged: 428 ha of land were temporarily acquired, affecting 535 households with 2,244 people. There was minimal variation between planned and actual impacts of land acquisition and relocation (LAR). Table A15.1 presents a comparison between planned and actual LAR activities. These figures are based on the detailed measurement survey and individual contracts signed between the affected people and the project management office (PMO).

Table A15.1: Resettlement Impacts of the Project 42

NN Impact Planned Actual 1 Permanent land acquisition 1,391 ha 1,322.6 ha Total 1,200 ha 1,189.0 ha Agricultural 511 ha 576.5 ha Forest 541 ha 612.5 ha For highway Total 190 ha 133.0 ha Agricultural 173 ha 9.9 ha Forest 13 ha 40.2 ha Old Roads 83.6 ha For rural For rural roads 2 Temporary acquisition during 428 ha 428 ha construction 535 households 535 households 2,244 people 2,244 people 3 Number of households and 5,532 households 5,532 households people affected by land 22,331 people 22,331 people acquisition for highway sections 4 Number of households and 131 households 131 households people affected by land 527 people 527 people acquisition for rural road sections 5 Total impact under permanent 5,663 households 5,663 households land acquisition 22,858 people 22,858 people

41 This includes 659 minority households affected. The provisions were made to resettle them within their own communities. 42 The actual figures provided are based on the external monitor’s reports and the Resettlement Completion Report and were verified with the PMO officials responsible for resettlement during the project completion mission visit.

82 Appendix 15

NN Impact Planned Actual 6 Number of households and Total – 201 households Total – 286 households people resettled 802 people 802 people Rural – 135 households Rural – 209 households 576 people Urban – 66 households Urban – 77 households 226 people 7 Number of enterprises/ people 11 enterprises/ 11 enterprises/ resettled 147 people / 147 ople

2. The Heilongjiang Communication Department (HCD), which was also the executing agency for the project, prepared a resettlement plan that was approved by ADB in March 2006. The objectives of the plan were to ensure that the project improved (or did not make worse) the affected persons’ standards of living. The LAR cost of CNY306 million was included in the project cost. LAR was completed for the highway in May 2009 and for rural roads in April 2009.

B. Compensation Policies and Rates

3. The implementation of LAR was based on the resettlement plan prepared according to PRC and Heilongjiang laws and policies and ADB policies on involuntary resettlement. The compensation rates for permanent and temporary land acquisition remained unchanged from the standards outlined in the resettlement plan. The land compensation was calculated on the basis of average annual output value. All compensations were paid prior to displacement.

4. The house compensation rates were determined based on the cost provided by the certified evaluation agencies. These standards were discussed with the resettled house owners and were agreed with the PMO and local county and/or city construction bureaus. Compensation rates for brick houses increased from CNY600/square meter (m2) to CNY700/m2 for urban area house resettlement and from CNY450/m2 to CNY600/m2 for rural area house resettlement. Compensation rates for earth and tile houses increased from CNY340/m2 to CNY500/m2 in rural areas, and from CNY410/m2 to CNY600/m2 in urban areas (Table A15.2).

Table A15.2: Compensation Rates (CNY per square meter)

Rural houses Urban houses Structure Planned Actual Planned Actual Brick house (Grades 1, 2,or 3) 370–450 600 450–600 700 Earth and tile houses 340 500 410 600

C. Income Restoration

5. The resettlement plan outlines various measures for the restoration of the livelihoods of the affected population. Since the impact of land acquisition on every village is different, the economic rehabilitation plan is based on the degree of impact, the remaining land resources within the village, and the preferences of the affected persons. Land compensation was disbursed directly to affected individuals via affected county land or construction bureaus following the protocol adopted by the government. The appraisal estimates for land loss were 8% per capita for affected towns and 5% per capita for the affected village groups. The land loss impacts were considered as limited. The Resettlement Completion Report indicates that the number of affected people by land acquisition and the amount of land acquired remain

Appendix 15 83

unchanged; hence the land loss impact remains limited by the time of project completion. Most of the affected persons are left with enough farmland for carrying on farming. In addition, they can also develop non-agricultural income sources with the help of compensation funds. The executing agency encouraged contractors to give suitable jobs to affected persons and to use local construction materials during the project construction period. Other livelihood restoration measures included (i) loans through local credit unions, (ii) training sessions in agricultural and non-agricultural skills, and (iii) prioritization of affected persons in post-construction employment. As the monitoring and evaluation (M&E) reports indicate, the compensation disbursement has followed the guidelines provided in the resettlement plan, taking into account the preferences of the affected persons. These reports also indicate that during the construction period, local farmers were contracted for employment in both skilled and non-skilled work. The contractors also hired local farmers’ equipment and machinery and rented residential and other premises in the project area. Highway maintenance employs 220 regular maintenance staff, all of whom are local residents. Of these, 20 to 30 are from households affected by LAR. The Heilongjiang Provincial Highways Authority Bureau, which oversees the maintenance of the highway, endorsed that LAR-affected households are given preference in highway maintenance jobs.

D. House Relocation

6. Although the resettlement plan called for the relocation of 201 households (66 urban and 135 rural), a total of 286 households (77 urban and 209 rural) were eventually relocated. The increase was due to an adjustment in the alignment of the road and the extension of the road width to 10 meters per side in Tonghe County following the requirement of the Tonghe County Government. The M&E reports indicate that the household relocation resulted in three scenarios: i) Urban residents, especially the poor and vulnerable, were partly resettled in the low-cost residential buildings arranged by the government. ii) The rural relocated households built their own houses with the compensation funds. iii) The urban relocated households bought houses on the market with the compensation funds. Compensation was directly paid to the affected households prior to land acquisition and house relocation.

7. During the process of house relocation, there were difficulties in getting housing plots for urban affected people. Other areas of concern were compensation standards for households and enterprises alike, limited assistance in house construction, and the effects of a harsh winter. These issues were resolved mainly through the payment of additional compensation. The resettlement completion report submitted by the external monitor indicates that overall house compensation was higher by 18% and that the house relocation process has been satisfactory. External monitoring reports and the resettlement completion report also indicate that the affected enterprises were compensated adequately and are satisfied. During the project completion mission, the mission team visited some of the relocated households in both urban (Minle Homes) and rural (Sanjiazi Village) resettlement sites. Consultation with resettled households indicated that they are satisfied with their new houses. The Minle Homes apartments are located in better quality urban environment, are built of good quality material and are fitted with modern amenities, including a floor heating mechanism that the resettled households appreciate. The general opinion is that although resettlement will not make the affected people rich, their living conditions are no worse off than they were pre-relocation. During consultations, the affected households confirmed that they have been resettled as a group along with their old neighbors. The complex has open outdoor spaces where children can play and the elderly can chat and socialize, indicating that the community character has been maintained.

84 Appendix 15

8. The credit accountability of the affected households has improved as they can now seek credit from banks using their higher quality houses as collateral. For example, a household visited in Sanjiazi Village purchased an earth digger by getting credit using their new house as collateral, improving their economic condition considerably.

E. Resettlement Cost

9. The actual resettlement cost was CNY351.5 million against the planned CNY262.2 million, exceeding the appraisal estimate by 34%. The cost increase resulted from (i) an 18% increase in the under-budgeted housing compensation standards; (ii) an increased scope of resettlement than that of the simpler preliminary design; (iii) missing items (such as excavation of cultural relics) in the construction drawing design compared to the preliminary design. All compensations were provided in full and to the satisfaction of the affected communities. Table A15.3 provides the comparison between the budgets and actual payments for LAR activities.

Table A15.3: Resettlement Cost44

Resett lement Actual +/- No. Item Plan CNY CNY % million million

1 Base Compensation for permanent land 151.64 116.52 (23.16) cost acquisition Compensation for temporary land use 7.42 21.92 195.58 Compensation for forest land 56.39 67.58 19.85 House compensation and moving subsidy 6.00 Enterprises’ compensation and moving 45.35 225.39 7.94 subsidy Compensation for infrastructure and 32.82 100.12 205.05 attachments Total 262.21 351.49 34.05 2 Taxes and fees 31.39 28.71 (8.52) 3 Administrative cost (2% of the basic cost) 2.62 0.00 100.00 4 External M&E cost (0.5% of the basic cost) 1.39 1.40 1.04 () = negative, M&E = monitoring and evaluation. Note: The budget figures provided in the Resettlement Completion Report though differ from those provided in this table as a result of ‘exchange rate adjustment’. Source: Resettlement completion report.

F. Institutional Arrangement

10. The executing agency established a relocation and resettlement office to be responsible for LAR activities. All the counties and municipalities designated the Land and Resources Bureau to be responsible for local land acquisition. The Forestry Bureau was responsible for tree farm acquisition. The countryside and township government assisted the Land and Resources Bureau in coordinating land acquisition. Village committees were responsible for verifying and reporting land acquisition data, demolition data, and information related to land

44 These budget figures vary from those provided in the overall budget as the latter are based on exchange rate variations. The budget figures presented here are based on the Resettlement Completion Report.

Appendix 15 85

and property owners and users. The executing agency organized the team comprising officials at various levels and allocated compensation budget for LAR implementation. The PMO was dissolved in 2009 when resettlement activities were completed. Most of the staff left for their respective departments. Only five staff members remain for the project completion work although, if required, other staff can be recalled.

G. Monitoring and Evaluation

11. Monitoring was undertaken both internally and externally. The PMO prepared quarterly internal progress reports and submitted these as part of its quarterly report to ADB. These reports mainly detailed the progress of resettlement plan implementation.

12. The external monitoring company conducted a baseline survey with a sample of 200 households in 2007, repeating the survey every year with the same households. The consulting company prepared and submitted five resettlement M&E reports: two in 2007, one in 2008, one in 2009, and one in 2010. The consulting company also submitted a resettlement completion report in September 2011. The quality of this completion report was below expectations and leaves gaps in the assessment and monitoring of the resettlement plan implementation.

H. Participation and Information Disclosure

13. Affected households were informed about LAR through multiple channels, including radio broadcast, newspaper, and television. Each county land bureau, county construction bureau, and forest bureau kept a copy of the resettlement plan. County land bureaus published standards for land and housing compensations and publicized these through village offices and township governments. Village managers held meetings about the LAR impacts and standards of compensation, introduced the policy measures, and distributed information booklets to people affected by LAR. During the meetings, affected people could ask questions and raise their concerns. Other media such as local radio and cable television were also used for information disclosure.

I. Grievance Redress Mechanism

14. An LAR-related grievance redress mechanism that followed the steps outlined in the resettlement plan was set up, comprising a number of agencies: the PMO, county land resources and construction bureaus, township officials, village managers, and village representatives. The established mechanism helped to effectively resolve complaints about compensation rate standards, urban housing, and land fragmentation.

J. Conclusion and Lessons Learned

15. The M&E reports and consultation with project officials indicate that the affected persons have been compensated for their land and house losses, with compensation paid prior to land acquisition and house demolition. Affected people’s concerns over compensation standards were addressed by raising these standards. The M&E reports point to improvements in the living standards of the affected persons and indicate that the resettlement plan has been implemented successfully. Consultation with some of the affected families indicated that the families have been adequately resettled and have benefited from the project. The new houses for the relocated people are fitted with new technologies, such as modern heating systems, that are highly valued by the resettled people. The highway has also resulted in better connectivity for the project area, saving the local people considerable travel time and money. This connectivity has also ensured that local farmers get better prices for their produce; as a result,

86 Appendix 15 they are now farming cash crops. During consultation with the roadside villages, it became apparent that the road has been economically beneficial for them. For example, a shopkeeper selling chicken and pig feed finds it convenient and cheaper to get his feed stock now compared to prior to the construction of the road.

16. Implementing a resettlement plan requires consideration of the local context, including the local climate and weather conditions. In Heilongjiang, the harsh winter conditions impacted the resettlement implementation underlining that LAR implementation needs to be carefully planned to minimize difficulties for affected people, especially those affected by house demolition. Similarly, local topography also needs to be taken into consideration to plan LAR implementation and civil works. The undulating topography of the project area resulted in flooding and siltation of the agricultural land and resulted in losses, which were compensated by the PMO. However, this could have been avoided with better planning.

17. Well-established communication channels with ADB headquarters, the People’s Republic of China Resident Mission, and international consultants added value to the implementation of the resettlement plan. The PMO was able to seek guidance on how to use various policies and how to effectively implement the resettlement plan. Chinese-speaking experts are especially helpful.