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Documentof The World Bank FOR OFFMCIALUSE ONLY Public Disclosure Authorized ReportNo. P-4771-CHA MEMORANDUMAND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONALBANK FOR RECONSTRUCTIONAND DEVELOPMENT TO THE EXECUTIVE DIRECTORS Public Disclosure Authorized ON A PROPOSEDLOAN IN AN AMOUNTEQUIVALENT TO US$50.0 MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHAANXI PROVINCIAL HIGHWAYPROJECT Public Disclosure Authorized May 16, 1988 Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS (as of January 1988) Currency name 2 Renminbi Currency unit - Yuan (Y) = 100 Fen US$1.00 = Y 3.70 US$0.27 = Y 1.0 US$1.0 million = Y 3.7 million US$270,270 = Y 1.0 million FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer(km) = 0.62 mile (mi) 1 square meter (m2) = 10.76 square feet (ft2) 1 square kilometer (km2) = 0.4 squaremiles (mi ) 1 hectare (ha) = 0.01 km2 = 2.47 ac es (ac) = 15 mu 1 mu = 666.7 m' = 0.0667 ha 1 kilogram (kg) = 2.2046 pounds (lbs) 1 metric ton (m ton) = 2,204 pounds (lbs) ABBREVIATIONSAND ACRONYMS CAAC - Civil AviationAdministration of China ERR - Economic Rate of Return GOVAI - Gross output value of agricultureand industry HPDI - Highway Planningand Design Institute HSRI - Highway ScientificResearch Institute ICB - InternationalCompetitive Bidding ITC - InternationalTendering Corporation MOC - Ministry of Communications O-D - Origin-Destination pcu - passengercar unit PTD - ProvincialTransport Department SAA - State AuditingAdministration SFYP - Seventh Five-YearPlan SHAB - ShaanxiHighway Administration Bureau SPTD - Shaanxi ProvincialTransport Department SSDI - Shaanxi Survey and Design Institute VOC - Vehicle OperatingCosts vpd - Vehicle per day FOR OFmFCIALUSE ONLY CHINA SHAANXIPROVINCIAL HIGHWAY PROJECT Loan and ProjectSummary Borrower: People'sRepublic of China Beneficiary: Shaanxi Province Amount: US$50.0million equivalent Terms: Twenty years, includinga five-yeargrace period,at the Bank's standardvariable interestrate. On-lendingRates: 4% for highway construction 7% for rural roads FinancingPlan: Central Government US$13.5million ProvincialGovernment US$54.3million IBRD US$50.0million Total US$117.8million EconomicRate of Return: 28% for the Sanyuan-TongchuanHighway and 16% to 25% for the rural roads. Staff Appraisal Report: Report No. 7167-CHA Maps: IBRD 20268 IBRD 20255 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE PEOPLE'S REPUBLIC OF CHINA FOR THE SHAANXI PROVINCIAL HIGHWAY PROJECT 1. The following memorandum and recommendation on a proposed loan to the People's Republic of China for US$50.0 million is submitted for approval. The proposed loan would be for 20 years maturity including a 5 years grace period at the Bank's standard variable interest rate and would help finance the expansion and improvement of the highway network. 2. Background. The transport system in China has been severely taxed by the pace of recent economic development, and capacity constraints are evident in all modes. The most serious transport need is for dramatically expanded road capacity, especially in rural areas where increased agricultural and small-scale industrial production have created an urgent demand for better farm-to-market transport services. Road transport will also face a growing share of the demand for passenger transportation from the increasingly mobile population. In the railway subsector, the network capacity has severely hampered delivery of energy supplies (i.e. coal), and even with recently initiated investments in rail line electrification and new line construction, it will take several years to alleviate bottlenecks between major mining areas and coastal cities. China also needs to substantially expand its port and waterways facilities to relieve the growing hindrance to external trade caused by inadequate berth capacity and container handling capacity. China's Seventh Five-Year Plan (1986-90) recognizes al. these sectoral needs. By the end of the plan period, freight traffic is projected to be 45% higher than in 1985, and passenger traffic 60% higher, with a disproportionately greater share of the increase falling on road transport. To meet these needs, substantial investments are envisioned, especially in highway network expansion, new rail lines, double-tracking and electrification of existing lines, and more berths at coastal ports. The Plan also proposes to secure efficiency gains in transportation from operational improvements; these include the development of integrated transportation networks, in particular for coal transportation and for import/export trade, and technological improvements such as container handling facilities and intermodal transport centers. To facilitate these developments, the Plan envisions significant institutional changes in the sector, including and extension of the policy of separating the functions of Government from those of operating enterprises and delegating authority to local managements. The Bank fully subscribes to the Government's objectives for development of the transport sector and is supporting its initiatives with financial and technical assistance. Three railway projects (Loans 2394-CHA, 2540-CEA and 2678-CHA, and Credit 1680-CHA) are assisting the expansion of capacity on key routes and the manufacture of electric locomotives, passenger coaches and signalling equipment. Four port projects (Loans 2207-CHA, 2689- CHA, 2907-CHA and 2977-CHA) will effect improvements at Tianjin, Shanghai, Huangpu and Dalian Ports. The two Bank Group financed highway projects in China (Loan 2539-CHA/Credit 1594-CHA and Loan 2811-CHA/Credit 1792-CHA) involves the construction and improvement of national, rural roads and the first expressway in China. - 2 - 3. While all transportmodes in China are in urgent need of expansion and modernization,road transportpresents the most difficultchallenge. Road freighttraffic has increasedat about 17% per annum between 1980 and 1986 mainly due to the burgeoningmarket economy, and passengertraffic has grown at about 16% per annum. Road congestionwas alreadya serious problem in the early 1980, and has now grown worse near major cities. Increasedroad capa- city is urgently needed. Furthermore,of the approximately942,400 km roads in 1985, only some 195,000km, or 21%, have asphalticor concretepavements. These pavementsare generallyof poor quality;most have exceeded their design life and are deterioratingrapidly with the increasingtraffic. Accordingly, the highway mode is receivingincreased attention under the Seventh Five-Year Plan (SFYP). The SFYP for the highway subsectoris to upgrade at least 80,000 km of existing road and to constructabout 60,000 km of new roads, of which 1,580 km would be 4-lane expresswayor Class I standard. 4. The main objectivesfor highway developmentin the 1980'sare to provideadequate capacity in the heavily congestedcorridors, to upgradeand improve the existingnetwork and to expand the network in remote rural areas. The proposednew Sanyuan-TongchuanHighway in Shaanxi Province is part of the plan for high standardroad investmentand would be a continuationof the Xi'an-SanyuanHighway being financedunder Loan 2539-CHA/Credit1594-CHA, Bank's first highwayproject in China. The rural road developmentin Shaannan (SouthernShaanxi Province),the poorest part of the province,serves the objectiveof rural road network expansionand rural development. There is also an urgent need in the provincefor more modern techniquesin the planning,design, constructionand maintenanceof roads. 5. Rationalefor Bank Involvement. Governmentis seekingBank Group assistancein removingthe transportbottlenecks impeding economic growth. The strategy for the Bank's involvementin the highway subsectoris to meet the most urgent needs of road network expansionand to suggesta programof studieson key policiesissues so as to provide a sound basis for future investmentplanning. The Bank's involvementin the highway subsector particularlyin terms of policy, institutionaland technicalmatters under the first and second highway projects,aims at helpingto modernizethe subsector by bringing the Bank's experienceto bear on the problemsand by expediting the introductionof advanced technologyto solve them; on going studies in these projects cover importantproblems related to roads financing,road safety,road congestionand the methodologyfor evaluatingexisting road pavements. The proposed project,besides providingadequate road capacity in this most congestedcorridor of ShaanxiProvince, would providecontinued support in these matters and encompassnew tasks relatedto road pavement strengthening,maintenance and planning. The project is one of the four highway projects currentlybeing prepared to focus Bank assistanceat the level of four provincessimultaneously. 6. ProjectObjectives. The proposedSanyuan-Tongchuan Highway would help expand transportcapacity in the heavily congestedcorridor between the provincialcapital of Xi'an and the importantcoal mining districtand city of Tongchuan. The rural roads improvementand flood repair programwould
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