World Bank Document

Document of The World Bank

Public Disclosure Authorized Report No:ICR000046

IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IBRD-44930 )

ON A

LOAN

Public Disclosure Authorized IN THE AMOUNT OF US$312.4 MILLION

PEOPLE’S REPUBLIC OF CHINA

FOR

FOURTH NATIONAL HIGHWAY PROJECT

Public Disclosure Authorized June 26, 2007

Transport, Energy and Mining Sector Unit Sustainable Development Department East Asia and Pacific Region

Public Disclosure Authorized

CURRENCY EQUIVALENTS (December 31, 2006 ) Currency Unit = RMB RMB 1.00 = US$0.128 US$1.00 = RMB 7.809 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS BMS Bridge Management System CAS Country Assistance Strategy CPS Country Partnership Strategies E&M Electrical and Mechanical EIA Environmental Impact Assessment EMP Environmental Management Plan HAB Highway Administration Bureau HPCD Hunan and Hubei Provincial Communications Departments ICB International Competitive Bidding ICR Implementation Completion Results Report ISR Implementation Status Results M&E Monitoring and Evaluation MOC Ministry of Communications MOF Ministry of Finance mtu Medium Truck Units NCB National Competitive Bidding NEN National Expressway Network NTHS National Trunk Highway System OED Operations Evaluation Department PAD Project Appraisal Document PAP Project Affected Persons PCD Provincial Communications Department PDO Project Development Objectives PMS Pavement Management System QEA Quality at Entry QSA Quality at Supervision RAP Resettlement Action Plan SPCD State Planning Commission Development TCE Tucheng-Changsha Expressway ZTE Zhengdian-Tucheng Expressway

Vice President: James W. Adams, EAPVP Country Director: David R. Dollar, EACCF Sector Manager: Junhui Wu, EASTE Project Team Leader: Christopher R. Bennett, EASTE ICR Team Leader: Christopher R. Bennett, EASTE

CHINA Fourth National Highway Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 7 3. Assessment of Outcomes...... 13 4. Assessment of Risk to Development Outcome...... 21 5. Assessment of Bank and Borrower Performance ...... 21 6. Lessons Learned ...... 24 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 25 Annex 1. Project Costs and Financing...... 27 Annex 2. Outputs by Component ...... 29 Annex 3. Economic and Financial Analysis...... 33 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 46 Annex 5. Beneficiary Survey Results...... 48 Annex 6. Stakeholder Workshop Report and Results...... 49 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR...... 50 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders...... 61 Annex 9. List of Supporting Documents ...... 62 MAP

A. Basic Information CN-Nat Hwy4/Hubei- Country: China Project Name: Hunan Project ID: P041268 L/C/TF Number(s): IBRD-44930 ICR Date: 06/26/2007 ICR Type: Core ICR MINISTRY OF Lending Instrument: SIL Borrower: FINANCE Original Total USD 350.0M Disbursed Amount: USD 312.4M Commitment: Environmental Category: A Implementing Agencies: Hubei Provincial Communications Department Hunan Provincial Communications Department Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/05/1996 Effectiveness: 12/13/1999 12/13/1999 Appraisal: 03/15/1999 Restructuring(s): Approval: 06/17/1999 Mid-term Review: Closing: 06/30/2005 12/31/2006

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance:

i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status:

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Roads and highways 99 99 Sub-national government administration 1 1

Theme Code (Primary/Secondary) Municipal governance and institution building Primary Primary

E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Junhui Wu Jitendra N. Bajpai Project Team Leader: Christopher R. Bennett Alfred H. Nickesen ICR Team Leader: Christopher R. Bennett ICR Primary Author: Jean-Marie Braun

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The aim of the project was to increase economic activity along the Wuhan-Changsha high-priority transport corridor through relieving congestion, facilitating trade and mobility, and helping increase efficiency and traffic safety in northern Hunan and southern Hubei provinces. The project development objectives were as follows: (1) relieve traffic congestion and improve the mobility and integration of inter-provincial trade and commerce between Hunan and Hubei Provinces by assisting in the development of a key section of Chinas National Trunk Highway System (NTHS) in the principal Beijing-Zhuhai corridor; (2) strengthen highway institutional capacity at the Hunan and Hubei Provincial Communications Departments (HPCD) and related sector institutions, through policy and institutional reform, provision of training, technical

ii assistance and equipment, in planning, finance, design, construction, operation and maintenance of highway networks; (3) develop and sustain a policy dialogue in the two key policy areas of the commercialization and corporatization of provincial toll road authorities and of province-wide highway maintenance management; and (4) improve the safety of road transport.

Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised. The indicators were changed in September 1999 for Hubei province.

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Hubei - Average daily traffic on existing NR107 (veh/day) (1) Zhengdian-Anshan; (2) Anshan-Henggou; (3) Henggou-Xianning; (4) Indicator 1 : Xianning-Quankou; (5) Quankou-Puqi; (6) Puqi-Zhaoligiao; (7) Zhaoliqiao- Tucheng (1) 5,935 (1) 4,048 (1) 4,081 (1) 6,210 (2) 6,759 (2) 3,962 (2) 6,312 (2) 6,087 Value (3) 5,499 (3) 3,829 (3) 5,199 (3) 5,081 quantitative or (4) 6,196 (4) 3,679 (4) 7,110 (4) 5,758 Qualitative) (5) 5,675 (5) 3,788 (5) 3,778 (5) 5,240 (6) 5,384 (6) 3,224 (6) 3,224 (6) 5,189 (7) 5,405 (7) 3,278 (7) 3,278 (7) 5,275 Date achieved 12/31/1998 12/31/2006 12/31/2006 12/31/2006 Except for Zhengdian-Anshan, all sections show a decrease in traffic from the Comments 1999 baseline survey. Given the significant economic development in China (incl. % over this period, this confirms that much of the generated traffic has diverted to achievement) the expressway. Hubei - Average travel speed on roads parallel to the proposed road (km/hr) (1) Zhengdian-Anshan; (2) Anshan-Henggou; (3) Henggou-Xianning; (4) Indicator 2 : Xianning-Quankou; (5) Quankou-Puqi; (6) Puqi-Zhaoligiao; (7) Zhaoliqiao- Tucheng (1) 50 (1) 55 (1) 55 (1) 70 (2) 50 (2) 55 (2) 60 (2) 70 Value (3) 45 (3) 50 (3) 55 (3) 65 quantitative or (4) 35 (4) 40 (4) 55 (4) 65 Qualitative) (5) 35 (5) 40 (5) 40 (5) 70 (6) 45 (6) 50 (6) 50 (6) 70 (7) 60 (7) 50 (7) 65 (7) 75 Date achieved 12/31/1998 12/31/2006 12/31/2006 12/31/2006 The improvement in speeds is somewhat counterintuitive since there were no Comments major reductions in volume. They are partially explained by trucks carrying less (incl. % tonnage, and therefore driving faster, as well as improvements made to the achievement) pavement of NR107. Indicator 3 : Hubei - Accident rates on existing NR107 (Number of accidents involving

iii fatalities per 10,000 veh.) Value quantitative or 15 12 11 Qualitative) Date achieved 12/31/1998 12/31/2006 12/31/2006 Comments The accident rate exceeds the target, reflecting an overall trend within Hubei (incl. % province towards improved traffic safety. achievement) Hunan - Average daily traffic on existing NR107 (veh/day) Indicator 4 : (1) Tandu-LinXiang; (2) Linxiang-Wujiang; (3) Wujiang-Wushi; (4) Wushi- Changsha (1) 6,412 (1) 4,081 (1) 3,260 Value (2) 8,979 (2) 6,312 (2) 9,523 quantitative or (3) 7,940 (3) 5,199 (3) 6,039 Qualitative) (4) 7,660 (4) 7,110 (4) 5,826 Date achieved 12/31/1998 12/31/2006 12/31/2006 Comments (incl. % achievement) Hunan-Average speed on existing NR107 (km/hr) Indicator 5 : (1) Tandu-LinXiang; (2) Linxiang-Wujiang; (3) Wujiang-Wushi; (4) Wushi- Changsha (1) 45 (1) 55 (1) 62 Value (2) 50 (2) 60 (2) 64 quantitative or (3) 45 (3) 55 (3) 69 Qualitative) (4) 50 (4) 55 (4) 55 Date achieved 12/31/1998 12/31/2006 12/31/2006 Comments (incl. % The traffic speeds exceed the targets. achievement) Indicator 6 : Hunan-Accident rates involving fatalities on existing NR107 Value quantitative or 12 8 7 Qualitative) Date achieved 12/31/1998 12/31/2006 12/31/2006 Comments (incl. % The accident rate exceeds the target. achievement) Traffic on expressway (veh/day) Hubei: (1) Zheng Dian-Zhang Gong; (2) Zhang Gong-Gang Tang; (3) Gang Indicator 7 : Tang-Tu-Cheng Hunan: (4) Yanglousi-Wujiang; (5) Wujiang-Wushi; (6) Wushi-Changsha Hubei: Hubei: Hubei: (1) 0 (1) 8,403 (1) 12,392 Value (2) 0 (2) 8,026 (2) 12,277 quantitative or (3) 0 (3) 8,089 (3) 12,192 Qualitative) Hunan: Hunan: Hunan: (4) 0 (4) 10,409 (4) 10,350 (5) 0 (5) 12,860 (5) 13,987

iv (6) 0 (6) 14,013 (6) 15,212 Date achieved 12/01/1998 12/31/2003 12/31/2006 Comments This indicator was not included in the PAD but has been included as it is (incl. % considered to be a good indicator of the project meeting the PDO. The 2003 achievement) target values are from Table 12.1 of the PAD.

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : % of civil works completed on expressway Value Hubei - 10% Hubei - 100% 100% (quantitative Hunan - 5% Hunan - 100% 100% or Qualitative) Date achieved 12/31/1999 12/31/2005 12/31/2005 Comments (incl. % achievement) Indicator 2 : % of interconnecting roads improved/rehabilitated Value Hubei - 0% Hubei - 100% Hubei - 100% (quantitative Hunan - 0% Hunan - 100% Hunan - 100% or Qualitative) Date achieved 12/31/1999 12/31/2005 12/31/2005 Comments (incl. % achievement) Indicator 3 : % of other roads improved or rehabilitated Value Hubei - 0% Hubei - 100% Hubei - 100% (quantitative Hunan - 0% Hunan - 100% Hunan - 100% or Qualitative) Date achieved 12/31/1999 12/31/2005 12/31/2005 Comments (incl. % achievement) Indicator 4 : % E&M works completed on expressway Value Hubei - 0% Hubei - 100% Hubei - 100% (quantitative Hunan - 0% Hunan - 100% Hunan - 100% or Qualitative) Date achieved 12/31/1999 12/31/2005 12/31/2005 Comments (incl. % achievement) Indicator 5 : Number of person-months of completed domestic training Value Hubei - 0 Hubei - 213 Hubei - 213 (quantitative Hunan - 0 Hunan - 496 Hunan - 496 or Qualitative)

v Date achieved 12/31/2000 12/31/2005 12/31/2005 Comments (incl. % achievement) Indicator 6 : Number of person-months of completed overseas training Value Hubei - 0 Hubei - 29 Hubei - 29 (quantitative Hunan - 0 Hunan - 113 Hunan - 113 or Qualitative) Date achieved 12/31/2000 12/31/2005 12/31/2005 Comments (incl. % achievement) Indicator 7 : % of equipment purchased Value Hubei - 0% Hubei - 100% Hubei - 100% (quantitative Hunan - 0% Hunan - 100% Hunan - 100% or Qualitative) Date achieved 12/31/1999 12/31/2005 12/31/2005 Comments The procurement of equipment in Hunan was slow and led to the loan being (incl. % extended by 18 months. achievement) Indicator 8 : % of Institutional Strengthening activities complete Value Hubei - 0% Hubei - 100% Hubei - 100% (quantitative Hunan - 0% Hunan - 100% Hunan - 100% or Qualitative) Date achieved 12/31/1999 12/31/2006 12/31/2005 Comments (incl. % achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/30/1999 Satisfactory Satisfactory 0.00 2 12/17/1999 Satisfactory Satisfactory 0.00 3 05/25/2000 Satisfactory Satisfactory 11.50 4 09/13/2000 Satisfactory Satisfactory 30.83 5 06/11/2001 Satisfactory Satisfactory 78.90 6 12/18/2001 Satisfactory Satisfactory 108.65 7 06/25/2002 Satisfactory Satisfactory 162.09 8 12/27/2002 Satisfactory Satisfactory 212.80 9 04/11/2003 Satisfactory Satisfactory 242.60 10 11/12/2003 Satisfactory Satisfactory 280.71 11 06/22/2004 Satisfactory Satisfactory 299.67 12 12/23/2004 Satisfactory Satisfactory 317.19 13 05/06/2005 Satisfactory Satisfactory 317.19

vi 14 12/29/2005 Satisfactory Satisfactory 317.65 15 11/22/2006 Satisfactory Satisfactory 313.39

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

vii

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

At appraisal, China was growing at 8 to 10% p.a. and continues to do so now. This strong economic growth is generating high growth in transport demand and a rapid shift toward highway transport. However, China historically had underinvested in transport and its road network ranked among the sparsest in the world relative to land area or population. Governments at all levels embarked on a major highway investment and improvement program. At the central level, the basic strategy was and still to develop a 35,000 km National Trunk Highway System (NTHS) – now called the National Expressway Network (NEN) – with expressway standards1. Sector work and OED's evaluation of World Bank assistance in the highway sector conducted between 1997 and early 1999, identified key sector issues which provided the contextual framework for the project. These were: (a) expansion of highway capacity to remove bottlenecks and expedite socioeconomic development; (b) improvements in highway safety; (c) more effective highway maintenance planning and implementation; and (d) commercialization of highway administration.

Among the 35,000 km of the NEN, the Beijing to Zhuhai expressway (Jingzhu) had the highest priority. This North-South expressway links the capital Beijing to Guangzhou, the biggest city of Southern China on the Pearl River Delta and Zhuhai (near Macao). Jingzhu is 2,500 km long and serves the capitals of Hebei, Henan, Hubei, Hunan and Guangdong provinces. In Wuhan, capital of Hubei province and biggest city of central China, it connects with the East-West Chengdu-Shanghai expressway which also has a high priority in NEN. The only highway link between Beijing, Wuhan, Guangzhou and Zhuhai was the National Road 107, a two-lane highway with low characteristics, bearing heavy traffic, mostly trucks at low speed, crossing many cities and villages. Accidents and failures of vehicles were frequent and resulted in huge bottlenecks. Safety conditions were poor and travel time was unforeseeable. This was a great obstacle for the development of the economy of inner land provinces like Hubei and Hunan.

The Bank had been actively involved with this highway, helping China to build sections in Hebei, Henan, Hubei, Hunan and Guangdong provinces, with commitments totaling more than US$1 billion: three National Highway projects were already approved and ongoing with the construction of sections in southern Hebei and northern Henan (NH1), southern Hunan and northern Guangdong (NH2), northern and central Hubei (NH3). NH4 covered two of the last sections of Jingzhu still to be launched in southern Hubei and northern Hunan, linking Wuhan, capital of Hubei province, with Changsha, capital of

1 As described in “China’s Expressways: Connecting People and Markets for Equitable Development”. EASTR Working Paper No. 7, August 2006, the current goal for the NEN is a network of some 80,000 km by 2020.

Hunan province, serving also Xianning and Puqi, big cities in southern Hubei and Yueyang, an important city of northern Hunan.

NH4 was the second highway project for Hubei and Hunan provinces. Beside the removal of bottlenecks along NR107, NH4 was expected to extend activities already initiated under NH2 and NH3 projects in Hunan and Hubei in highway safety, highway maintenance, and commercialization and corporatization of high-grade highways.

Private sector development for the Wuhan-Changsha expressway was considered and discussed at great length with the central (SPCD, MOF, MOC) as well as provincial authorities, but was discarded for a number of reasons. The major one being that there was a growing evidence from around the world that greenfield toll road projects were difficult to develop and finance from private sector sources, due to the risk profiles of such projects. Toll road projects had failed for instance in Hungary and Mexico among others. Built in the 1990s, they did not generate sufficient revenues to service the debt and required substantial government bailouts.

1.2 Original Project Development Objectives (PDO) and Key Indicators

The aim of the project was to increase economic activity along the Wuhan-Changsha high-priority transport corridor through relieving congestion, facilitating trade and mobility, and helping increase efficiency and traffic safety in northern Hunan and southern Hubei provinces. This led to the following project developing objectives:

(1) relieve traffic congestion and improve the mobility and integration of inter- provincial trade and commerce between Hunan and Hubei Provinces by assisting in the development of a key section of China’s NTHS2 in the principal Beijing- Zhuhai corridor; (2) strengthen highway institutional capacity at the Hunan and Hubei Provincial Communications Departments and related sector institutions, through policy and institutional reform, provision of training, technical assistance and equipment, in planning, finance, design, construction, operation and maintenance of highway networks; (3) develop and sustain a policy dialogue in the two key policy areas of the commercialization and corporatization of provincial toll road authorities and of province-wide highway maintenance management; and (4) improve the safety of road transport. Key indicators focused on improvements to traffic levels and speeds, as well as reducing traffic accidents.

The Key Performance Indicators adopted were traffic flows, speeds and accident rate on the existing parallel roads.

2 This ICR will use the term NEN instead of NTHS to be consistent with the current Chinese terminology.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

The PDO was not revised. In 1999 some values for the performance indicators for Hubei were formally revised to correct inaccuracies in the original documents. These are given in Section F of the Data Sheet.

1.4 Main Beneficiaries

The major beneficiaries of the project are the long distance traffic and the local traffic through strong reduction of the vehicle operating costs and time costs on the new expressway and also on the existing highways. As a result of this lowering of transport costs, existing activities become more competitive and new activities can be developed. The total affected population in the expressway corridor between Wuhan and Changsha in an indirect sense is estimated at about 40 million (based on 1997 data), about 22 million people living in northern Hunan and 18 million people living in southern Hubei. Both PCDs were to benefit from institutional strengthening and training activities covered by the project. As a result of institutional strengthening activities, better traffic safety conditions, enhanced highway maintenance and operation management, benefits would accrue to the whole provinces of Hubei and Hunan.

1.5 Original Components (as approved)

Component 1: Construction of expressway and interconnecting roads (US$883.0 million including contingencies)

Sub-Component 1.1: Construction of Hunan Tucheng – Changsha expressway section (US$438.2 million including contingencies)

The Tucheng-Changsha Expressway (TCE) is a 183 km divided four lane, access controlled toll highway, with a design speed of 120 km/h according to the plain rolling terrain the expressway crosses. It connects in Changsha with the existing Changsha- Xiangtan Expressway and at the Hubei border to the Zhengdian-Tucheng Expressway (ZTE), also part of the project. The connecting point between TCE and ZTE had been fixed by the agreement reached between Hunan and Hubei in 1994. TCE includes construction of 11 interchanges, service areas, facilities for expressway administration and maintenance and electrical and mechanical (E&M) installations for toll collection, traffic monitoring, telecommunications and lighting.

Sub-Component 1.2: Construction of Hubei Zhengdian - Tucheng expressway section (US$348.9 million including contingencies)

The ZTE is a 110 km divided four lane, access controlled toll highway, with a design speed of 120 km/h according to the plain rolling terrain the expressway crosses. In the north it connects with sections financed under NH3 and in the south with the TCE, also part of the project. ZTE includes construction of six interchanges, service areas, facilities

for expressway administration and maintenance and electrical and mechanical (E&M) installations for toll collection, traffic monitoring, telecommunications and lighting.

Sub-Component 1.3: Construction of Hunan interconnecting roads (US$19.5 million including contingencies)

The project includes the completion of four Class II, two lane, interconnecting roads totaling some 30 km and linking the expressway to the main cities and towns of the corridor. For serving Yueyang city, the biggest city of northern Hunan, an agreement had been reached with the Yueyang government that a 15 km Class I new road would be built under a separate project, locally financed, and would open to traffic before TCE. Another similar agreement with Changsha municipality for a 1 km Class II highway aimed at serving the Xinsha development zone of Changsha. With other existing roads, the expressway would be linked properly to the highway network and the cities and towns to be served.

Sub-Component 1.4: Construction of Hubei interconnecting and other roads (US$43.5 million including contingencies)

The project includes the completion of four Class II, two lane, interconnecting roads totaling 28 km and linking the expressway to the main cities and towns of the corridor. With other existing roads, the expressway would be linked properly to the highway network and the cities and towns to be served. The project also includes two roads in Hubei which needed upgrading to class 2: (i) an East-West road linking Hongan city with Jingzhu expressway in Dawu (northern Hubei) with a length of 69 km (including 5 km of reuse of the existing road, 48 km of existing road rehabilitation and 16 km of new alignment), and (ii) an East-West road linking Tongshan and Chongyang cities with ZTE in Puqi with a length of 95 km (including 16 km of reuse of the existing road, 57 km of road rehabilitation and 22 km of new alignment).

Sub-Component 1.5: Equipment (US$10.0 million including contingencies)

This sub-component includes equipment for i) control of construction quality and monitoring of the environment; ii) operation and maintenance of ZTE and TCE after their completion; iii) maintenance of the provincial road network including Road Data Base (RDB) and Pavement Management System (PMS).

Sub-Component 1.6: Construction supervision services for expressway sections, interconnecting roads and other roads (US$22.9 million including contingencies)

This covers the supervision of civil works and E&M works for ZTE and TCE, and supervision of the civil works of the interconnecting and other roads in Hunan and Hubei. International consultants assisted in the supervision of the construction of the expressways; domestic engineers, technicians and other personnel, were also involved with the expressway supervision, as well as being responsible for supervising the interconnecting and other roads.

Component 2: Institutional Strengthening/Capacity Building (US$4.9 million including contingencies)

The component is an extension of activities started under NH2 project in Hunan and NH3 in Hubei.

Sub-Component 2.1: Studies and technical assistance (US$2.4 million including contingencies)

There were 11 activities in Hunan and 10 in Hubei related to studies and technical assistance. They were similar in each province:

• Institutional Development Plan: document covering a 6 year period and putting in global perspective all activities related to institutional development under NH2, NH3 and NH4, to be updated each year; • Implementation of a Road Safety Unit in each Project Office, to be in charge of all road safety issues from design to maintenance and operation stages; • Implementation of a Quality Control Unit and Quality Management System in each Project Office, to be in charge of construction and maintenance quality; • Implementation of a Road Information System to be used in each entity in charge of roads throughout the provinces; • Development of competition in the highway sector for periodic and routine maintenance works in each province; • Implementation of suggestions made by the studies on highway maintenance management, maintenance costs and allocations of funds for maintenance in each province (studies made under NH2 and NH3 projects); • Implementation of suggestions made by the studies on options to establish a Provincial Toll Road authority (expressway commercialization and corporatization studies undertaken under NH2 and NH3 projects) in each province; • Study on integration of transport and trade in Hunan and Hubei (combined study covering both provinces); • Organization of Road Traffic Safety seminars in each province; • Other road traffic safety activities in each province (apply manuals developed under NH2 for safety at road work sites, safety audit procedures, pilot safety program on black spots); and • Development of an accident information system in Hunan province.

Sub-Component 2.2: Staff training programs (US$2.5 million including contingencies)

The training program covered activities on highway planning, design, construction, operation, finance and maintenance. It includes domestic and overseas training and overseas study tours.

Component 3: Front-end Fee (US$3.5 million)

Component 4: Land acquisition and resettlement (US$60.6 million)

The construction of the expressway, interconnecting and other roads necessitated land acquisition and resettlement. The following table shows the expected extent of the land acquisition and resettlement for the project at the time of appraisal:

Land Acquisition and Resettlement Data

Land Area (ha) House Area (m2) Component Hubei Hunan Hubei Hunan Expressway 693.9 1,026 70,907 284,236 Interconnecting Roads 53.0 105 7,456 33,101 Other Roads 140.5 0 28,779 0 Total 887.4 1,131 107,142 317,337

Number of Households Number of PAPs Component Hubei Hunan Hubei Hunan Expressway 1,681 1,488 8,069 7,094 Interconnecting Roads 184 180 892 940 Other Roads 484 0 2,303 0 Total 2,349 1,668 11,264 8,844

1.6 Revised Components

The components were not revised.

1.7 Other significant changes

In 1999 some values for the performance indicators for Hubei were formally revised to correct inaccuracies in the original documents. These are given in Section F of the Data Sheet.

The project proposed to construct a 1.7 km Class II road linking to the Linxiang interchange. However, the local government decided that a very wide street was more appropriate. The Class II road was therefore cancelled from the project and the street implemented by the local government.

Since the funds were no longer required, in 2006 US$36.5 million were cancelled, with a further US$1.1 million cancelled in 2007 after the loan closed.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

A. Project Preparation

Consistency with government priorities and CAS. The project objectives were fully consistent with the Government priorities and the Country Assistance Strategy (CAS). A major objective of the CAS was to alleviate infrastructure bottlenecks. The project also had strong support from central as well as provincial agencies. The local governments and people met by Bank preparation missions also expressed their full support and emphasized the need for the project to accelerate development of the area served by the proposed roads.

The technical analyses undertaken during project identification and preparation were sound. The project was designed taking into account the relevant economic, financial, technical and institutional factors. This is elaborated on below under ‘Project Design’. Detailed expressway traffic forecasts were developed on the basis of origin-destination surveys and the expected tolls that would be charged on the expressway.

Safeguard Policies. An Environmental Impact Assessment (EIA) and an Environmental Management Plan (EMP) were prepared by both provinces for the expressway and the other roads included in the project and were found satisfactory to the Bank. The major impacts of the project were expected during the construction period, including noise, soil erosion and dust. Lesser impacts included interference with local people, traffic, and irrigation systems. Proper mitigation measures were included in the EMP. Regarding resettlement, the project design paid particular attention to minimize the impact on agricultural land and on communities along the alignment.

To achieve these goals, the resettlement and environment teams of the project, supported by Bank specialists were networked with the engineering design institutes. Significant improvements in the alignment were achieved, thus reducing the impact of relocation and adverse environmental effect on the communities along the route. Socioeconomic surveys of the people and communities were conducted together with census of Project Affected Persons (PAP) and their assets. Satisfactory Resettlement Action Plans (RAP) were prepared. The affected communities were involved in the formulation and comparison of alternative alignments as well as the location of interchanges, under passes and grade separation. Local people were intensively informed and consulted through meetings with local government representatives and public opinion questionnaires were supplemented by interviews. Resettlement information booklets were distributed to inform PAPs of their entitlement for compensation.

Policy Dialogue. Substantial efforts were made during project preparation to engage Hunan and Hubei PCDs in a continuing policy dialogue, which started under NH2 and NH3. During preparation, the Bank conducted a two-day highway policy workshop in Wuhan which brought the senior management of both PCDs together to discuss necessary

sector reforms in the two provinces. Very comprehensive monitoring plans were prepared for institutional development and road safety.

B. Project Design

After an early reconnaissance in July 1995, NH4 project was identified in December 1995. The appraisal took place in March 1999, meaning a preparation period of more than three years. It was the second highway project for both provinces. Only three years passed between NH2 and NH4 in Hunan and less than one year between NH3 and NH4 in Hubei. When NH4 was prepared, works on NH2 in Hunan were ongoing and works on NH3 in Hubei were only starting. So the design could not fully take into account lessons learned during implementation of previous projects.

Road Components

Attention was focused on the design of the expressway sections from the onset of the preparation works. The improvement of design quality control started in both provinces under the NH2 and NH3 projects. Lessons from these two projects were applied to the preparation of this project.

For the expressway sections, the Bank carefully visited the site, reviewed the design and insisted that more alternatives be compared and optimized. Although this process significantly increased the time allocated to preparation, it achieved the following:

• The final Hubei alignment minimized the impacts on the flood diversion area (area used for diverting water of the Yangtze river during flood periods) and the total cost of ZTE was reduced by 25 %. • In Hunan, a shift of the originally proposed alignment in the north of Changsha allowed for the impacts on buildings and inhabitants of the Xinsha development zone to be greatly reduced. • In both Hubei and Hunan, a systematic optimization of the proposed alignment was undertaken at the final design stage substantially reduced the resettlement quantities.

Preparation of interconnecting roads and other roads received less the attention. It took time to decide which roads would be part of the project. For interconnecting roads and other roads, mostly principles were discussed. It was agreed that every interchange had to be properly linked with the cities and towns it would serve through existing roads or new interconnecting roads to be implemented. For other roads, after consideration of several possible roads in Hunan, it was decided to cancel the other road component in this province. In Hubei the two proposed roads were selected rather late in the process.

Training and Equipment Components

These components were designed as extensions of similar components under NH2 and NH3.

Institutional Strengthening Component

Having two successive highway projects in the same provinces was a great opportunity to develop long lasting activities. Instead of thinking activities along a three year period, it became possible to develop a much longer plan, about six years, for strengthening the PCDs of both provinces, develop their knowledge on new concepts and new ways of proceeding highway projects, and improve their efficiency and organization. A formal document showing this plan had to be prepared and updated each year in each province. Agreed activities covered five key issues:

Road traffic safety conditions. It was identified early that any activity in this area had to involve the traffic police department beside the PCDs. The challenge was to find ways of cooperation between these separate entities. NH2 and NH3 projects had initiated the process through similar actions in both provinces. The activities included: (i) yearly road safety seminars; (ii) manual on safety at work sites; (iii) safety audit procedures; (iv) pilot safety program on black spots; (v) accident information system; and (vi) implementation of a road safety unit in the PCDs,

Road maintenance. Various activities were undertaken in this area including: (i) implementation of a road data base; (ii) study on road maintenance; and (iii) development of competition in road maintenance.

Organization of toll expressway companies. NH2 and NH3 had launched studies on various possible organizations; recommendations from these studies would be implemented under NH4.

Transport system in the Wuhan – Changsha corridor. NH4 covering the two provinces of Hubei and Hunan was a good opportunity to consider the Wuhan – Changsha corridor as a whole. This was done through a study on transport and trade in the corridor.

Quality in all actions of PCDs. NH4 included implementation of a quality management system in both PCDs with a special unit, quality control unit, in charge of implementing this system.

C. Project Risks

The project was given a modest risk rating, with all risks estimated as modest or negligible. This was fully justified given previous experience in the two provinces involved and the great commitment for implementation of similar projects in China. The key risks, and how they were addressed in the design, were as follows:

• Ineffective training program (M): Bank ensuring training well designed and prepared with regular reporting to the Bank on training effectiveness. • Inadequate quality of construction (M): Selection of competent contractors through effective pre-qualification and adequate construction supervision.

• Delays in preparation and implementation (M): Support and follow up by MOC and Bank with effective launch workshop. • Unsuccessful policy, reform and/or traffic safety programs (M): Proper component design with ownership from PCDs as well as close supervision by the Bank.

2.2 Implementation

The project was successful in that it met the four project development objectives of congestion alleviation, institutional strengthening, policy dialog and improved road safety. The two NH4 expressways carry significant volumes of long-distance traffic and has facilitated trade links between the two provinces. Travel times have been markedly reduced and traffic has diverted from the existing roads to the expressway, thereby improving the overall safety of the corridor.

However, the achievements were made in spite of a number of issues which arose during implementation of the civil works and equipment procurement, as well as the institutional strengthening program:

Civil Works and Equipment

• Design Changes During Construction. In both provinces the original designs did not pay sufficient attention to the pavement structure, hydraulic and geological investigations, and there was insufficient dialogue with the local inhabitants to better understand local conditions. This resulted in various design changes, some of which were significant: (i) on the TCE the four concrete pavement contracts were replaced by asphalt which was used on the other eight contracts; (ii) for both expressways the asphalt pavement was made thicker because of recent collapses of pavement on some newly constructed highways and truck overloading; (iii) soil treatments were required along 54 km of the TCE for crossing of weathered granite area, and at the locations of many ancient mines which were not previously detected; and (iv) additional culverts and crossings were provided for local residents. • Delay in E&M Procurement for TCE. Delays in the domestic approval process meant that the expressway opened before the E&M equipment was completely installed and operational. E&M equipment was fully installed and tested only in December 2004, that is more than two years after the opening to traffic. • Pavement Contracts for ZTE. Implementation of the pavement was split between the nine ICB contracts, some of them being only long bridges totaling lengths of 4.9 or 6.5 km. Mobilizing large machines for implementing short sections of pavement was not considered as advisable, so following highway projects in Hubei included separate procurement for pavement with longer contracts. • Construction of Interconnecting and Other Roads in Hubei. During the implementation of the 69 km long Dawu-Hongan road it was found that the original design was too general and unsafe and was heavily revised. This delayed

the implementation. Stability problems, not identified during the design stage, were encountered during the implementation of the 95 km long Tongshan-Chibi road. Management of the 25 NCB contracts for subgrade proved to be difficult. • Hunan Equipment Procurement. Delays in agreeing upon specifications and other procurement aspects significantly delayed the equipment procurement, requiring the loan closing date to be extended by 18 months.

Institutional Strengthening/Capacity Building

• Number of Studies. There were 11 activities in Hunan and 10 in Hubei related to studies and technical assistance. It was found that this ambitious number was difficult to implement and to supervise. • Co-ordination with other Projects. Many activities were based on achievements expected from the NH2 and NH3 projects, where some of which faced severe delays. Therefore the implementation of activities under NH4 was very slow and also faced many delays. However, in the end satisfactory outcomes were achieved. • Road Database Integration. A road data base was satisfactorily developed in addition of the pavement and bridge data bases developed under NH2 and NH3. Better integration with these pavement and bridge data bases would have been a plus. • Organization of Toll Expressway Companies. This activity faced various difficulties and was greatly delayed. It was replaced by a study on toll rates in Hubei. Both provinces were considering reforms in the administration of tolled highways and the process had a major impact on this activity. • Transport System in the Wuhan – Changsha Corridor. Institutionally it was difficult for two provinces to carry out one study so it was executed by Hubei province on behalf of both provinces. • Delays in Training. Overseas training and study tours were satisfactorily implemented in Hubei but delayed in Hunan due to domestic process of approvals. Part of the overseas training and study tours were finally combined and achieved during the project extension period.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

The project design adopted a series of physical targets for measuring progress. The M&E indicators were selected so that they were meaningful, and the data was available or could be reasonably collected. Baseline, intermediate and end of project indicators were collected during the project by the PCDs and provided to the Bank. The selection of appropriate M&E indicators, supported by good baseline data, has allowed for the project’s success to be confirmed.

2.4 Safeguard and Fiduciary Compliance

Environmental Protection

The finished products on the two expressways show a pleasant environment. Many trees have been planted along the alignment in both provinces in part to provide protection against erosion. Hunan province received a prize from the National Environmental Protection Agency and is so far the only highway project in China to have been so honored.

Some environmental problems were noted during construction. In particular, contractor camps had poor sanitary conditions for the workers, some dumped unsightly materials and others did not spray trucks sufficiently to minimize dust. These deficiencies were pointed out repeatedly by the Banks missions and there were gradual improvements, particularly in workers camps. Areas of disposed material where eventually landscaped. Monitoring of air, water and noise pollution found levels within the contractual limits.

Land Acquisition and Resettlement

Given their previous experience with Bank requirements, the two provinces were well prepared so that resettlement activities proceeded fairly smoothly. There were some delays in paying compensation in Hubei, but these were promptly remedied. The local resettlement offices were fully staffed with experienced personnel. The project affected persons (PAPs) were generally satisfied with the process and compensation they received. For those re-housed, the new dwellings are typically of higher quality than their previous homes and have better access to water and electricity. Living standards increased also as households were able to diversify their production from rice to orchard cultivation. Others, who could not get land found good work opportunities elsewhere.

Financial Management

The Financial Management for the project was conducted in accordance with the arrangements agreed upon in the legal agreements. No major financial management issues were encountered in the project. Even though the Bank reminded the client about the implications of commitment fees, the client did not cancel the unused portion of the loan earlier.

Procurement

The full range of procurement methods were used on the project (see Annex 11 of the PAD). The expressway civil and E&M works as well as most equipment were procured using ICB, were procured using ICB, and this constituted the bulk of the procurements. NCB was used for annex areas, administration buildings, interconnecting and other roads. The Bank did not finance land acquisition and resettlement. No major procurement issues were identified in the project outside of the procurement of equipment for Hunan where

delays in agreeing up on the specifications and undertaking bidding necessitated in the loan having to be extended.

2.5 Post-completion Operation/Next Phase

Traffic volumes are in accordance with the forecasts and growing very quickly. Although traffic volumes are still well below where congestion arises, near major cities their rapid growth may warrant widening in the long term. No measure has been taken into account for this future widening, in particular none of the bridges were designed to allow for widening.

There were a few problems in operating and maintaining the expressways since their opening in 2002:

• The expressway in Hunan operated for two years before installation of permanent E&M equipment and tolls were collected at temporary facilities. • It appears that the service and rest areas are too small and too few. They were very crowded since opening, and measures are needed to increase their sizes and numbers. Unfortunately, this was identified by the Bank team during preparation but the Bank’s recommendations were not fully implemented by the designers.

The manuals and the training provided in the areas of quality control and road safety and their application to date are good indications that the improvements are durable. The switch of maintenance from force account to contract is unlikely to be reversed given the advantages that have been noted in terms of cost and quality (see section 3.2).

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

The Government of China has continued to place importance on the development of the NEN. During the current 11th Five-Year Program (FYP) and upcoming 12th and 13th FYPs, a further 45,000 km of the NEN are planned to be constructed.

The PDO were clear and in line with the Bank’s CAS presented to the Board in March 1997 and the Progress Report of March 28, 1998. The PDO are in line with the Bank’s FY06-10 Country Partnership Strategies (CPS), in particular in its recommendations to: (i) reduce internal and external barriers to trade and investment; (ii) reduce poverty, inequality and social exclusion through expanding access to basic social and infrastructure services; and (iii) manage resource scarcity and environmental challenges. These were addressed by the following goals of the project:

• The Wuhan-Changsha expressway is the central element of the Beijing-Zhuhai Expressway (2,500 km) which is Chinas highest priority north-south highway. The Bank had already heavily involved in the financing of other sections in the

corridor through the First, Second and Third National Highway Projects (NH1, NH2, and NH3), which were all progressing well at the time of appraisal of this project (NH4). • Besides priority infrastructure investments, the project also pursued and deepened the policy dialogue, commenced under previous projects in the two provinces, on various sector issues such as institutional strengthening and modern management of the highway system. This project had one of the most ambitious institutional programs of any highway project in China, addressing issues in quality control, road safety and maintenance management. It contributed towards policy and regulatory reforms in the highway sector in both provinces. • The development of all-weather access roads to remote/low income areas in poor counties.

The project objectives were, and remain, relevant given the continuous rapid economic growth of the country and the commensurate growing transport demand.

3.2 Achievement of Project Development Objectives

The project achieved its development objective of relieving congestion, facilitating trade and mobility, and helping to increase efficiency and traffic safety in northern Hunan and southern Hubei provinces.

A. Relieve congestion, facilitate mobility and help increase the efficiency and traffic safety in Northern Hunan and Southern Hubei.

The ZTE in Hubei was opened in September 2002 and the LCE in Hunan in November 2002, together with all interconnecting roads. The quality of the works is very good and particular attention was paid to traffic safety, building on the experience of NH2 and NH3. The objective of reducing congestion on the parallel national road was met. Of the total 2003 corridor traffic, the expressway took 71% in Hubei and 78% in Hunan. The diversion rate was similar to that predicted. Travel time between the two provincial capitals Wuhan and Changsha has been considerably reduced.

The project has also made a significant contribution to inter-provincial trade and generated much traffic. In Hubei, traffic in the corridor more than doubled since 1998 and in Hunan, it increased by more than 50%. Such increases could not have happened on the national road which was reaching capacity before the project. While over 70% of the traffic is trucks, licenses were also granted by both provinces for increased bus service and there are now 15 daily buses running between Wuhan and Changsha, increasing mobility in the corridor.

The economic benefits of the project are considered sustainable, without any predictable risk, as traffic has been growing steadily since opening. The accident rate has fallen on the parallel national road, below the target set in the performance indicators of the PAD (see Section F of the Data Sheet). With completion of this link and a few others in provinces north of Hubei, the Beijing-Zhuhai Expressway, linking the north and south of

China over 2,500 km, is now open to traffic. For the two land-locked provinces in the project, this provides them rapid access to the south China ports.

B. Strengthen highway institutional capacity at the Hunan and Hubei Provincial Communications Departments.

The project focused on improving institutional capacity in three main areas, quality control, road safety and road maintenance, with basically the same emphasis, same studies and supporting training programs in the two provinces. Substantial progress was achieved in all three areas in both provinces.

Quality Control. Both provinces have established quality control units within their PCDs. Quality Control Manuals have been prepared and are widely distributed. The manuals include checklists and tables to ensure that all important elements are considered. They cover the entire project cycle from planning, engineering design, construction, and maintenance. In all these aspects, there are also indicators to be met regarding environmental protection and road safety.

In Hubei, for example, at the design stage of high grade highways, engineering designs are reviewed three ways; by other HPCD design teams, by third party design engineers and by the safety audit group. This organization was applied for the design and implementation of various highway projects including the Bank financed Xiaoxiang and Shiman expressways in Hubei. For these projects, the quality of design has improved and cost overruns are very limited. However, for NH4, the organization was not yet in place and the design included various weaknesses which had to be corrected during implementation, inducing significant cost overruns (see section 3.2). Progress made with design quality of expressways should now be extended to other kind of roads where the design and implementation process, although improved, still include major weaknesses as could be noted in the implementation of Xiaoxiang project interconnecting roads in Hubei.

Road Safety. Both provinces have made significant progress in this area also. Road safety units have been established under the Highway Administration Bureaus (HAB). All the manuals listed in the PAD have been prepared and widely distributed, together with training of staff and workers at construction and maintenance sites. A safety audit manual has also been prepared and distributed. Both provinces continued to organize annual road safety seminars, following a practice started under NH2 and NH3. A number of seminars were attended by Bank supervision mission which found good attendance and quality presentation of papers prepared for the occasion.

Black spot models were developed and tested in different areas and roads in both provinces. Priority black spots were identified and selected for treatment. For instance in Hunan province on National Highway 107, parallel to the new expressway, 50 black spots were treated in 2003 and another 70 in 2004. This contributed to reducing accidents by more than the benchmark set in the project indicators.

Safety audits of expressway design are regularly conducted and changes have been made in typical vertical and horizontal radius to increase sight distance. Accident analysis systems are being developed further with the cooperation of the police. For instance in Hubei, the HPCD has contracted the development and maintenance of its accident analysis system to the Hubei Province Police College. It is clear that safety awareness has greatly increased over the project period among highway personnel as well as in the public at large. In Hunan, a Highway Safety Council has been established at the Provincial level, under the leadership of a Vice-Governor of the province.

Highway Maintenance. Both provinces completed their study of maintenance cost and fund allocation. The study was found useful to establish minimum acceptable maintenance cost per kilometer of road of different classes. The provinces also further developed their Pavement and Bridge Management Systems (PMS and BMS) and their road data base. With the study results and the analysis provided by the PMS, the HABs can now estimate their maintenance needs better than under the central planning system, which specified expenditures per km regardless of the particular local road conditions.

However, the funds available for maintenance remain limited and the planning exercise above remains theoretical for the time being. Routine maintenance is satisfactory, but periodic maintenance is typically differed. It is estimated that the funds available cover between 50 and 70% of the needs only. MOC has recently issued an instruction that provinces should allocate at least 80% of their road maintenance fee revenues to maintenance. In Hunan and Hubei, the present level is 65-70%. Clearly the first priority in China has been road construction and it is only more recently, in provinces where noticeable deterioration of roads is taking place, that maintenance is being given more prominence.

Another major institutional change during the project period was the contracting out of maintenance previously done by force account. The process is somewhat more advanced in Hubei, where only routine maintenance in isolated mountainous areas is still done by force account. In Hunan, all medium and major repairs are done by contract. For routine maintenance, there is presently an internal competition among HAB maintenance units for the works. This is to prepare the units for eventual separation from the Government and their transformation in independent contractors. The change has been found successful with costs down between 10 and 20% and quality improved, as a result of incentives given to the workers for good work.

Training program. The training program was carried out in line with the PAD from 1998 to 2005. Staff was trained in the fields of highway planning, design, construction, operation, finance and maintenance. The overseas training program ran from 1998 to 2005. Training was found by the PCDs to be very useful and trainees are applying what they learned. Examples of this are the improved quality of preparation work in Hubei for the subsequent Xiaoxian and Shiman Highway Projects, as well the application of the traffic safety audit manual in Hunan Province.

Procurement of equipment. The project procured US$7.75 m of equipment to help improve the quality and effectiveness of construction and maintenance, to help monitoring of the environment, to help operating ZTE and TCE after their completion.

C. Develop and sustain a policy dialogue in the two key policy areas of the commercialization and corporatization of provincial toll road authorities and of province- wide highway maintenance management.

Commercialization and corporatization of provincial toll road authorities. Studies on these topics were completed in both provinces according to Bank's requirements. They were found useful; however some of their recommendations could not be directly implemented. For instance in Hunan, the responsibilities of HAB and the expressway company have not been clearly separated yet. Both provinces are presently experiencing with various form of management of their expressways. There are three basic formats: (a) a provincial expressway company; (b) an investor's company which bought the management rights; and (c) a joint-venture between the Government and the private sector. In Hunan, there is even a fourth model being tested, the BOT construction and management of a new expressway section.

The expressway sections built in each province under the project are for the time being managed by a provincial company. In Hubei, this is the same company which already manages the section built under NH3, the Yangtze Bridge and a section built by the province. This gives them the management of the entire length of the Beijing-Zhuhai expressway in the province, 340 km from the Henan to the Hunan border. In Hunan, the section built under NH2, previously managed by the provincial company, was sold to a local investor's company. While the various expressways in a province are managed by different companies, a uniform toll collection system has been introduced by each province and a clearing house distributes the proceeds of toll collection to each company according to the distance traveled on its section.

Highway Maintenance Management. Developments in this area have been presented in B above.

D. Improve the safety of road transport.

All the measures taken to improve safety under the project have been presented in B above.

3.3 Efficiency

Net Present Value/Economic rate of return

The economic evaluation covers the two expressway sections, including the interchanges and connecting roads, and the other roads in Hubei. Both costs and benefits reflect December 2006 prices. The results are summarized in the following table and the details are in Annex 3.

EIRR (in %) and ENPV (12%, in Y million) Component PAD ICR EIRR % ENPV million Y EIRR % ENPV million Y Hubei: ZTE 21 2,184 24 5,291 Other Roads 33-44 1,095 53 2,601 Hunan: TCE 28 6,622 19 4,810 Total Project 26 10,879 22 12,703

In Hubei, the EIRR and ENPV are higher than estimates due to costs being lower and traffic higher than estimated in the PAD. The situation is reversed in Hunan were costs were higher (see Annex 3) and traffic lower. In 1998, traffic on the national road paralleled by the expressway was lower in Hubei (5,800 vehicles/day (veh/day) than in Hunan (7,000 veh/day) but total corridor traffic (National road plus expressway) grew faster in Hubei to reach over 14,000 veh/day in 2005 versus over 11,000 veh/day in Hunan. The traffic diversion is as forecast, over 70% in both provinces. It is somewhat higher in Hunan province, possibly because no penalties are levied yet on the expressway for overloaded trucks (see section 5.2).

Financial rate of return

Both sections of the expressway opened in the fall of 2002. Hunan and Hubei provincial expressway companies assumed the day-to-day management, operations and maintenance of the expressway. As shown in Annex 3, the main income of these companies is from tolls charged to the road users. The toll rates are set by each province and are uniform for all the expressways in the province, regardless to the form of management (public, joint- venture or private). Based on current toll rates, the companies are generating enough revenues to finance operation and maintenance and to service the Bank and domestic loans, which amount to three quarters of the fixed assets.

The detailed financial analysis is presented in Annex 3 and summarized as follows:

Component PAD ICR FIRR % FNPV FIRR % FNPV million Y million Y Hubei ZTE (5.05% FCI) 12 1,437 10.2 3.110 Hunan TCE(4.86% FCI) 16 5,986 9.9 5,142 Total Project (4.89% FCI) 14 7,405 10.0 8.367 Note: FCI is the Financial Cost of Capital which was used to calculate the FNPV.

Cost comparison

At appraisal, the total project cost, including contingencies and land acquisition, was estimated at US$952 million, of which US$350 million (37%) was to be financed by the Bank loan. The total actual project cost US$891 million is 94% of the estimate. The actual costs were higher than estimated in Hunan, US$567 million versus US$519

million and substantially lower in Hubei US$324 million versus US$433 million. Detailed cost tables are in Annex 3.

The civil works for the construction of the expressway, accounting for almost three quarter of the total project costs, were 7% higher than estimated in Hunan and 28% lower in Hubei. However, on a per kilometer basis there was only a 10% different in the costs— US$2.1 million/km in Hubei vs. US$2.3 million/km in Hunan. Besides the fact that Hunan adopted a more realistic cost estimate than Hubei, there were technical reasons for higher costs in Hunan:

• The change of the pavement design in Hunan from concrete pavement to more expensive asphalt pavement. • In Hubei farm populations live in concentrated villages, while in Hunan, farm houses are spread out in the fields. Therefore, to serve the more dispersed population, the number of overpasses and under passes was much higher in Hunan than in Hubei, adding to the cost. • The topography of Hunan is more hilly and construction is typically more expensive that in flatter areas.

Expressway Civil Works Costs1/ Province Length in PAD Estimate (US$ m) Actual (US$ m) km Total Cost Cost/km Total Cost Cost/km Hubei 110 322 2.9 233 2.1 Hunan 183 410 2.2 427 2.3 Note: 1/ The cost of the expressway only, excluding annex areas and E&M works.

In both provinces, the cost of interchange roads was substantially higher than estimated as these roads were usually completed at higher standards than originally planned, to accommodate development generated by the expressway.

Given the lower cost in Hubei, the province could have cancelled part of the loan to save commitment charges but they did not. Since the project was extended at the request of Hunan province, the Hubei activities were completed by the original loan closing date, eighteen months earlier than the final project closing date, and the remaining funds for Hubei cancelled at that time.

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory

This assessment is based on a review of achievements of the four main objectives given in section 3.2, and the economic and financial returns in section 3.3. Key performance indicators benchmarks have generally been met or exceeded. Traffic diversion to the expressway has relieved congestion on the parallel national road and accidents on this road have been reduced more than expected. Details are in Section F of the Data Sheet. In

addition, the institutional strengthening activities generated the expected strengthening of key capacities in the Hubei and Hunan PCDs.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

Poverty reduction was not listed among the major objectives of the project. However, as indicated in section 1.4, as a result of the lowering of transport costs, existing activities become more competitive and new activities can be developed. The total affected population in the expressway corridor between Wuhan and Changsha in an indirect sense is estimated at about 40 million (based on 1997 data), about 22 million people living in northern Hunan and 18 million people living in southern Hubei. Creation of new activities and increase of competitiveness of existing activities is a powerful tool for increasing the GDP per capita and therefore helping reducing poverty.

(b) Institutional Change/Strengthening

The institutional strengthening impact, defined as the extent to which it has improved the PCD’s ability to make use of their human and financial resources, is rated as satisfactory. As described in Section 3.2, there were five main areas of focus: implementation of quality control system, improving road traffic safety conditions, establishing competitive maintenance, supporting training programs, and procurement of equipment. Lasting progress was achieved in all five areas.

Quality control system and organization has been used by both provinces for their next highway projects. Preparation and implementation of Bank financed Xiaoxiang and Shiman highway projects in Hubei were greatly facilitated by the experiences gained under NH4 project.

Cooperation with traffic police for improving road safety conditions is routinely maintained, especially in Hubei where continuous efforts were developed under Xiaoxiang and Shiman highway projects. Hubei is now establishing with the help of the Bank a Road Traffic Safety Training Center and has become one the most advanced and experienced province for road traffic safety in China. Hunan has continued to run the road traffic safety seminars even after they had completed the project’s requirements.

Both PCDs have shown great commitment for developing competition in highway maintenance. Skills developed in the training programs are being used by staff. The procured equipment is in use.

Lessons learned under NH4 project have been taken into account in other highway projects. For example, implementation of pavement is now routinely contracted under separate contracts with sufficient lengths in Hubei, after it was discovered that pavement implementation requires rather different skills and equipment from the ones needed for

subgrade implementation activities. More attention has been paid in the design of annex areas in expressway projects designed after NH4.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

Not applicable.

4. Assessment of Risk to Development Outcome

Rating: Negligible

The quality of construction is good; the rapid and continuing traffic growth in the corridor served by the project, combined with large time-savings and reduced congestion, indicates that the economic benefits are sustainable. Given the overloading problem (see section 3.2), maintenance costs will be higher than it would otherwise be. However, the revenues should be sufficient to cover the costs. The manuals and the training provided in the areas of quality control and road safety and their application to date are good indications that the improvements are durable. The switch of maintenance from force account to contract is unlikely to be reversed given the advantages that have been noted above in terms of cost and quality.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory

Project preparation was thorough and methodical. All Bank missions included an expressway design specialist and a policy and institutional expert from the Swedish Road Administration. All engineering designs and technical bidding documents, including cost estimates for the proposed expressway and related roads, including their E&M facilities were reviewed by international engineering consultants under grant funding from Italy and Spain. Quality control manuals, prepared under previous projects, were also used during construction. Substantial efforts were made during project preparation to engage Hunan and Hubei PCDs in a continuing policy dialogue, which started under NH2 and NH3. During preparation, the policy and institutional expert conducted a two day highway policy workshop in Wuhan which brought the senior management of both PCDs together to discuss necessary sector reforms in the two provinces. Very comprehensive monitoring plans were prepared for institutional development and road safety.

(b) Quality of Supervision

Rating: Satisfactory

Supervision followed through not only on the physical construction aspects of the project but also on the institutional aspects. Although there were three different task managers

from preparation to completion, their approach was very consistent. The expressway engineer and institutional/road safety specialist consultants, which had participated in the preparation, remained involved in every supervision mission. These missions were coordinated with the borrower's annual workshops on institutional development and road safety so that the Bank's expert could take part. Guidance was provided on project financed studies and on the management changes being introduced by the provinces, as discussed above (3.2). The Bank also carried out close supervision of the environment and the resettlement action plans and made many suggestions for improvements over the course of the project.

Rating: Satisfactory

The preparation and supervision teams paid adequate attention to compliance with the Bank policies on environment and resettlement. In terms of institution building, the advice of the preparation and supervision teams, was appreciated and generally followed in both provinces.

5.2 Borrower Performance (a) Government Performance

Rating: Satisfactory

The performance of the Government during project preparation and implementation was satisfactory. This was a repeater project in both provinces so the familiarity with Bank requirements and procedures helped project preparation and execution. The Government was fully committed to the project which was contributing to the completion of the major north-south corridor expressway in China. All land for the project was acquired in good time so that construction was not delayed as indicated by the early completion of both sections of the expressway.

Internal clearance of bidding documents remains cumbersome, particularly for equipment. Documents prepared by the provinces have to go through a number of different national agencies, each with its own requirement and peculiarities and the process is too long. This resulted in some slippage in Hunan on the E&M bidding documents and the expressway had to be operated without this equipment for two years.

Overloading of trucks remains a serious problem in China. This is a national problem which cannot be addressed separately by each province. The expressway companies have no right to force overloaded trucks to stop and unload. The police do that for grossly overloaded trucks, which they spot while on patrol and divert to a weighing station. However, these stations are too few and far between to have a serious impact. They are also too small to impound more than a sample of the violators. Some provinces have started levying higher tolls on overloaded trucks, but even a doubling or tripling of the toll rate does not come near matching the amount of damage done to the road by the extra heavy vehicle, since damage increases with the fourth power of the axle load. The toll

surcharge is already applied in Hubei and Guangdong, which border Hunan in the north and the south. After much debate, Hunan decided to implement this policy from October 2006.

(b) Implementing Agency or Agencies Performance

Rating: Satisfactory

Implementing Performance Agency Overall, the performance of the implementing agencies in the two provinces was good. Both PCDs demonstrated commitment to achieve project objectives, including not only construction, but also institutional development through project financed studies, workshops and training programs. For instance, road safety workshops were conducted annually in both provinces from 2000 to 2004. Construction of the expressway was completed ahead of schedule and revenues generated promptly, thus making a very efficient use of borrowed funds. Hubei and Hunan Provincial In Hubei the project was completed by the end of 2004, six Communications months ahead of the original closing date. In Hunan, there Departments were procurement delays in E&M and in carrying out training abroad. Little equipment was procured by the closing date and a one year extension was requested, followed by another request for six months, bringing the closing date from June 30, 2005 to December 31, 2006. In every province, the political pressure remains very high to complete the expressways in the shortest time possible and PCDs management tend to concentrate primarily on this part of the projects. This seems to have affected Hunan more than Hubei.

Rating: Satisfactory

6. Lessons Learned

There is no particular advantage in combining two provinces into one project.

It would have been better to have two separate projects rather than a single two-province project, from both a preparation/supervision point of view and in terms of implementation. With regard to preparation/supervision:

• There were no significant savings in effort or cost when preparing a two-province project compared with two separate single province projects. • Since supervision budgets are based on the project, and not the number of provinces involved, this made it more difficult to supervise the project within the available budget. • Although Hubei finished all their activities in accordance with the original schedule, Hunan required two loan extensions to complete the training and equipment procurement.

During implementation, each province was focused on their own activities. There were few interactions or exchanges of knowledge and experience between the two provinces, as illustrated by two examples below. The only study covering both provinces was the Hunan-Hubei transport and trade integration study. Instead of a joint study, which would have been bureaucratically cumbersome, the study was carried out by Hubei province, with no input by Hunan. A traffic accident model developed by Hunan could not be shared with Hubei, so Hubei developed their own.

Studies dealing with matters beyond the control of the PCDs have little relevance.

Studies that would require the participation and involvement of government agencies which are not part of the project are difficult for the PCDs to carry out. Furthermore, their recommendations have little chance to be acted upon and implemented. In this project, this is illustrated by the transport and trade integration study, which was carried out perfunctorily by Hubei to meet the Bank's requirement.

When reforms are incorporated as part of project preparation, it takes longer to prepare the project

The borrowers complained that project preparation took two years despite previous experience with the Bank. Preparation focused on developing and agreeing upon a broad policy and institutional reform program for each province. This program, building on previous projects developments, was extremely detailed (12 pages of Annex 4 of the PAD) and obviously took time to prepare and agree. Clearly, the Bank still faces difficulties in convincing its Chinese clients of the value of reforms, when compared with the more tangible economic benefits of civil works and equipment. The Chinese prefer to begin their reforms with pilot experiments and check their results, rather than relying on studies recommendations to make wholesale changes upfront. This is best illustrated by their approach to expressway management where they are testing different models as described in section 3.2. They consider this has more value than the repeated

commercialization and corporatization studies that are standards of Bank expressway projects.

Procurement award to the lowest bidder can create problems, in spite of the prequalification process.

Given the highly competitive construction industry, bids are sometimes well below the estimates and clearly unrealistic. The award to the lowest bidder even in such cases inevitably leads to problems during execution, with the contractor unable to perform as per its contract. Prequalification is not sufficient to control this problem. The Bank should find ways to allow declaring bids unresponsive when prices are unrealistically low, as is done in several developed countries. China should also find ways to black list contractors who are not performing well and in accordance with their contract. Poor performance in one province by a contractor is ignored in other provinces that can select the same contractor team for another project.

Putting subgrade and pavement implementation in the same contract is questionable

The lengths of ICB civil work contracts were in a range from 12 to 20 km in Hunan and 5 to 19 km in Hubei. These lengths appeared too short for justifying the use of sophisticated machinery for implementing pavement. Risks of low quality for pavement were increased. It would have been more appropriate to have separate ICB pavement contracts with a length between 30 to 40 km.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

The award of contracts to the lowest bidder can often be problematic. As discussed in Section 6, sometimes lowest bids are very far from the estimates and there is little chance that the contractor will fulfill its contractual responsibilities. Prequalification is not sufficient to cover this problem. There are anecdotal suggestions that because of this, better contractors not bidding for World Bank financed projects in China. Many agencies have adopted procedures to address this issue, for example, in Virginia USA when the low bid is greater than 25% below the Engineer’s Estimate and 25% below the second place bidder, the contractor presenting the lowest bid is to be contacted to discuss his bid. This is an important issue which is arising on numerous Bank projects and needs to be addressed.

The number of institutional strengthening activities, and their duplication in two provinces, was questioned by the PCDs. It important to recognize that in China, a province is equivalent in size to many countries and so the local conditions and issues, even between adjacent provinces, can be quite different. However, it is important to recognize that the number of activities should be based not only on local needs, but on the capacity of the PCDs to absorb and implement the outcomes. With the NH4 project being done at the same time as the NH2/NH3 projects, the agencies were challenged at times by the demands of the institutional strengthening programs.

(b) Cofinanciers None (c) Other partners and stakeholders None

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Project Costs in US$ million Actual Including Actual vs. PAD1/ PAD Component Contingencies Hubei Hunan Total Hubei Hunan Total Hubei Hunan Total Component 1 - Civil Works Construction of Expressway including annex areas, buildings and E&M works 276.1 343.4 619.5 241.4 456.6 698.0 69% 104% 89% Interconnecting Roads 10.9 15.3 26.2 18.7 32.0 50.7 136% 164% 152% Other Roads 23.5 23.5 21.2 21.2 71% N/A 71% Supervision 7.6 10.4 18.0 7.6 11.4 19.0 79% 86% 83% Equipment 4.1 3.8 7.9 3.8 4.0 7.8 73% 82% 77%

Component 2 - Institutional Strengthening Training 0.7 1.3 2.0 0.7 2.0 2.7 78% 123% 107% Studies 1.0 0.9 1.9 2.4 2.8 5.3 192% 247% 218%

Component 3 - Front-End Fee 1.5 2 3.5 1.5 2.0 3.5 100% 100% 100%

Component 4 - Land Acquisition and Resettlement 22.2 38.4 60.6 26.5 56.2 82.7 119% 146% 136%

Contingencies Physical 33.1 38.5 71.6 Price 52.3 65.1 117.4

Total Project Cost 433.0 519.1 952.1 323.8 567.0 890.8 75% 109% 94% Note: 1/ The PAD estimates were adjusted for contingencies prior to calculating the percentage.

(b) Financing Appraisal Estimate Actual/Latest Estimate Source of Type of Percentage of (USD M) (USD M) Funds Cofinancing Appraisal (US$ million) (US$ million) IBRD 350.0 312.4 89.3% Domestic 602.1 578.4 96.1% financing

Annex 2. Outputs by Component

Construction of Expressway and Interconnecting Roads (PAD estimate US$883.0 million, including contingencies; ICR actual US$769.9 million)

A. Construction of Hunan Tucheng – Changsha Expressway and Interconnecting Roads (PAD estimate US$457.8 million, including contingencies; ICR actual US$488.6 million)

Works were completed some 5 to 6 months ahead of the contractual deadline. The quality of construction was found to be very good, with a smooth pavement, and much attention having been paid to safe design. Procurement of E&M however took a very long time. Documents initially prepared for one step bidding had to be redone for two steps at the request of MOC, and the software specifications had to be changed to accommodate the unified toll collection system being introduced by the province The equipment finally became operational in October 2004, two years after the opening of the expressway. In the meantime, toll collection was operated manually. Because of rapid traffic increase and the high proportion of trucks, the rest area parking spaces are becoming congested. This has been drawn to the attention of the HNPCD. While they are conscious of the problem, the rest stops are already at the maximum area allowed by the MOC standards, which try to minimize the further loss of agricultural land. Negotiations are continuing between various agencies to find a solution.

B. Construction of Zhengdian-Tucheng Expressway, Interconnecting and Other Roads in Hubei (PAD estimate US$392.4 million including contingencies; ICR actual US$281.3 million)

Expressway and connecting roads works were completed 9 months ahead of the contractual deadline. Additional works carried out by the contractors during the one year liability period were limited to some environmental protection. The quality was found to be very good by supervision missions visiting the road in 2003. This was confirmed by the Ministry of Communications (MOC) who awarded a prize to Hubei Province for that road. Procurement and installation of the E&M system also proceeded smoothly and in timely fashion, so that all equipment was operational by the opening of the expressway. Preparation of documents started early for the two stage bidding method which was used satisfactorily. The shortage of parking spaces in rest areas is less acute in Hubei as truckers seem to prefer to stop in Hunan.

Although works on the two other roads in Hubei started later, they were completed in 2004, well within the implementation of the project. The Tongshan-Chibi road, passing through mountainous areas, faced some initial quality problems in the road works as well as in the environmental treatment. This was pointed out by Bank supervision missions and deficiencies were satisfactorily corrected.

C. Equipment (PAD estimate US$10.0 million including contingencies; ICR actual US$7.8 million)

Procurement of equipment for Hubei province was satisfactorily completed in 2002. In Hunan, equipment procurement ran into much procrastination and indecision. "Final" lists of equipment were successively submitted to the Bank for approval and subsequently revised. A first request for a one year extension of the entire project (to June 30, 2006) was granted by the Bank, but no equipment was purchased by the revised closing date and a further 6 month extension to December 31, 2006 was granted. Equipment was finally bought before the end of 2006.

D. Construction Supervision Services (PAD estimate US$22.9 million including contingencies; ICR actual US$19.0 million)

In both provinces, the construction supervision services were provided by domestic consultants supported by small teams of foreign consultants. The international consultants shared international experience and assisted the domestic consultants with the application of the FIDIC standards of contract management. The performance of both domestic and foreign consultants was found satisfactory.

2. Studies/Technical Assistance and Training (PAD estimate US$4.9 million including contingencies; ICR actual US$8.0 million)

The studies under the project were extension of studies started under NH2 in Hunan and NH3 in Hubei. They covered in each province: highway maintenance management, costing and funding and expressway commercialization. A third study covered the Hunan-Hubei transport and trade integration. It was decided that the latter would be managed by Hubei Province and that the results would be shared with Hunan. All studies were eventually completed satisfactorily, albeit beyond schedule, and in some cases after much prodding by the Bank. This illustrates one more time the difficulty for the Bank to convince its Chinese clients of the value of technical assistance and studies when compared with the more tangible outputs of civil works and equipment. Studies are often theoretical and offer little practical advice related to the immediate preoccupations of the clients. Some of the recommendations are not within the competence of the PCDs to implement. Similar studies are repeated time and again in different provinces, with no impact on national policies set by MOC. This contrasts with the practical approach taken with assistance in the areas of quality control and road safety (details are in section 5.1). In these two areas, manuals of good practices have been prepared and tested over previous projects. They were adopted in this project and widely disseminated accompanied by training sessions, seminars and workshops.

Training activities were eagerly pursued in both provinces and the number of man- months of training attended domestically and abroad met the targets set in the PAD. It was completed earlier in Hubei than in Hunan, due to problems found in the latter province with allowances for overseas travel set by the province and MOF. The financial problem was eventually solved and training started in 2004 and was completed in 2006.

In addition to the formal training program, the staff of both provinces acquired valuable experiences in the construction of expressways, supervision of the works, and in the application of the safeguard policies.

3. Front-end Fee (PAD Estimate US$3.5 million; ICR actual US$3.5 million)

4. Land acquisition and resettlement (PAD estimate US$60.6 million; ICR actual US$82.7 million)

Tables A2.1 and A2.2 present the summary land acquisition and resettlement (LAR) data for Hubei and Hunan. The Hubei data shows an inconsistency wherein there was a 30% increase in the house area, for only a 2% increase in the number of households. Upon investigation it was learned that there as data collection error in Hubei insofar as the number of households only included those within the ‘red line’ of the highway alignment. However, the house area included all the houses demolished as part of the project. One would expect the number of households to increase in a similar manner to the house area—as was observed in Hunan where a 26.7% increase in house area corresponded to a 23.2% increase in the number of households.

Table A2.1: Hubei Land Acquisition and Resettlement Data

Land Area (ha) House Area (m2) Component RAP Actual RAP Actual ZTE – Main alignment 693.9 596.1 70,907 100,445 ZTE – Interconnecting Roads 53.0 44.8 7,456 12,414 Other Roads 140.5 124.9 28,779 26,520 Total 887.4 765.8 107,142 139,379

Number of Number of PAPs Compensation (US$ m)1/ Component Households RAP Actual RAP Actual RAP Actual ZTE – Main alignment 1,681 1,721 8,069 8,230 19.1 19.2 ZTE – Interconnecting Roads 184 193 892 936 2.1 2.0 Other Roads 484 493 2,303 2,377 5.0 5.3 Total 2,349 2,407 11,264 11,543 26.2 26.5 Notes: 1/ The RAP compensation cost is higher than the PAD cost in Annex 3. This is because the RAP cost fully reflects the final optimized alignment.

Table A2.2: Hunan Land Acquisition and Resettlement Data

Land Area (ha) House Area (m2) Component RAP Actual RAP Actual TCE – Main alignment 1,026 1,377 284,236 360,262 TCE – Interconnecting Roads 105 156 33,101 41,945 Other Roads 0 0 0 0 Total 1,131 1,533 317,337 402,207

Number of Number of PAPs Compensation (US$ m)1/ Component Households RAP Actual RAP Actual RAP Actual TCE – Main alignment 1,236 1,488 6,820 7,094 40.2 50.0 TCE – Interconnecting Roads 118 180 717 940 4.0 6.2 Other Roads 0 0 0 0 0 0 Total 1,354 1,668 7,537 8,844 44.2 56.2 Notes: 1/ The RAP compensation cost is higher than the PAD cost in Annex 3. This is because the RAP cost fully reflects the final optimized alignment.

Annex 3. Economic and Financial Analysis

Table A3.1: Economic and Financial Evaluation Summary PAD ICR EIRR ENPV FIRR FNPV EIRR ENPV FIRR FNPV Discount Rate (%) (12%, mY) (%) (4.8%, mY) (%) (12%, mY) (%) (mY) (%) 1. Hubei: a. ZTE 20.9 2,184 12.0 1,437 23.7% 5,291.9 10.2 3,109.8 5.05 b. Other roads 33.4-44.4 1,095 -- -- 54.3% 2,601.2 ------Hubei total ------26.7% 7,893.1 ------2. Hunan: TCE 27.9 6,622 16.2 5,968 19.0 4,809. 7 9.9 5,142.3 4.86 Total expressways 25.2 8,806 14.1 7,405 20.8 10,101.0 10.0 8,366.9 4.89 (ZTE & TCE) Total Project 26.2 10,879 -- -- 22.3 12,702.9 ------

The ZTE (Hubei) opened the new toll highway in September 2002. While the total corridor traffic was similar to the PAD's estimates in 2003 (see Table A3.2), the traffic on the new highway was only about 90% of the PAD's estimates. After four years of operation, in 2006, both the total corridor traffic and the traffic on the new highway have improved to about 22-27% higher than that of the PAD's estimate. The expressway diversion ratio (the portion of the road users using the expressway) during 2002-2006 also is improved. This reveals that the road users are gradually accepting the toll expressway concept. For the long term traffic forecast, it is estimated that the average annual traffic growth rate will be 4.3- 4.8% from 2006 - 2030. In the PAD, the annual growth rate forecast is 5.8%.

The TCE (Hunan) opened to traffic in November 2002. The total corridor traffic and the traffic on the new expressway for 2003 were about 59% and 62%, respectively, of the PAD's estimates (see Table A3.2). However, the expressway diversion ratio for 2003 was estimated to be 78% which is higher than the PAD's forecast of 75%. This reveals that the road users of the TCE have accepted the toll road concept faster then the PAD's estimate. Despite the lower traffic demand from the starting, the traffic growth rate on the new expressway (19.7%) is higher than the PAD estimate (5.5%) during 2003 - 2006. The total corridor traffic growth rate (22.9%), during the same period, is also higher than the PAD's estimate (5.5%). The long term expressway traffic forecast (2006 - 2030) is estimated to be about 1.5-3.9% which is lower than the PAD's estimate of 5.5%.

Table A3.2: Number of Motorized Vehicle Per Day (2003-2030)

PAD ICR Old New Total Traffic Old New Total Traffic Road Expressway Corridor Diversion Road Expressway Corridor Diversion (1) (2) (3=1+2) (4=2/3) (5) (6) (7=5+6) (8=6/7) 1. Hubei (ZTE): 1999 6,884 - 6,884 - - - - - 2003 3,340 8,170 11,510 71. 0% 4,161 7,300 11,461 63.7% 2004 3,540 8,650 12,190 71. 0% 4,477 9,138 13,615 67.1% 2005 3,740 9,150 12,890 71. 0% 4,172 10,173 14,345 70.9% 2010 4,970 12,160 17,130 71. 0% 5,650 14,430 20,080 71.9% 2020 8,760 21,430 30,190 71. 0% 8,880 25,100 33,980 73.9% 2030 15,450 37,780 53,230 71. 0% 11,940 37,670 49,610 75.9% Average growth pa 2003-2005 5. 8% 5. 8% 5. 8% -- 0. 1% 18. 0% 11. 9% -- 2005-2030 5. 8% 5. 8% 5. 8% -- 4. 3% 5. 4% 5. 1% -- 2. Hunan (TCE) 1999 9,291 - 9,291 - - - - - 2003 5,010 12,430 17,440 71.3% 2,139 7,682 9,821 78.2% 2004 5,280 13,110 18,390 71.3% 2,299 8,223 10,522 78.2% 2005 5,570 13,820 19,390 71.3% 2,499 8,846 11,345 78.0% 2010 7,270 18,030 25,300 71.3% 3,390 12,580 15,970 78.8% 2020 12,390 30,690 43,080 71.2% 5,330 21,980 27,310 80.5% 2030 21,120 52,230 73,350 71.2% 7,160 33,090 40,250 82.2% Average growth pa 2003-2005 5.4% 5.4% 5.4% -- 8.1% 7.3% 7.5% -- 2005-2030 5.5% 5.5% 5.5% -- 4.3% 5.4% 5.2% -- Sources: HPCD and the Bank staff.

Table A3.3 a: Fourth National Highway Project EIRR- Hubei (million Yuan) Page 1 of 2 Hubei Zhengdian-Tucheng Expressway Other Roads Total Hubei Total Total Net cash Total Total Net cash Total Total Net cash costs benefits flow costs benefits flow costs benefits flow

2000 1,396.32 -1,396.32 42.08 -42.08 1,438.40 -1,438.40 2001 465.89 -465.89 104.65 -104.65 570.54 -570.54 2002 212.97 -212.97 25.06 -25.06 238.03 -238.03 2003 173.30 310.50 137.20 25.76 70.34 44.58 199.06 380.84 181.78 2004 116.28 444.93 328.65 19.49 149.84 130.35 135.77 594.77 459.00 2005 66.14 532.06 465.92 13.21 217.89 204.68 79.35 749.95 670.60 2006 17.23 597.86 580.63 6.96 243.15 236.19 24.19 841.01 816.82 2007 17.23 671.83 654.60 6.96 271.35 264.39 24.19 943.18 918.99 2008 17.23 755.04 737.81 6.96 302.82 295.86 24.19 1,057.86 1,033.67 2009 17.23 848.61 831.38 6.96 337.95 330.99 24.19 1,186.56 1,162.37 2010 17.23 953.78 936.55 6.96 377.16 370.20 24.19 1,330.94 1,306.75 2011 17.23 1,065.61 1,048.38 6.96 419.86 412.90 24.19 1,485.47 1,461.28 2012 111.10 1,190.70 1,079.60 165.64 467.39 301.75 276.74 1,658.09 1,381.35 2013 111.10 1,330.64 1,219.54 165.64 520.31 354.67 276.74 1,850.95 1,574.21 2014 17.23 1,487.20 1,469.97 6.96 579.24 572.28 24.19 2,066.44 2,042.25 2015 17.23 1,662.36 1,645.13 6.96 644.85 637.89 24.19 2,307.21 2,283.02 2016 17.23 1,858.33 1,841.10 6.96 717.91 710.95 24.19 2,576.24 2,552.05 2017 17.23 2,077.61 2,060.38 6.96 799.26 792.30 24.19 2,876.87 2,852.68 2018 17.23 2,322.97 2,305.74 6.96 889.85 882.89 24.19 3,212.82 3,188.63 2019 17.23 2,597.52 2,580.29 6.96 990.73 983.77 24.19 3,588.25 3,564.06 2020 17.23 2,904.82 2,887.59 6.96 1,103.06 1,096.10 24.19 4,007.88 3,983.69 2021 17.23 3,084.66 3,067.43 6.96 1,172.50 1,165.54 24.19 4,257.16 4,232.97 2022 17.23 3,276.06 3,258.83 6.96 1,246.31 1,239.35 24.19 4,522.37 4,498.18 2023 17.23 3,479.71 3,462.48 6.96 1,324.77 1,317.81 24.19 4,804.48 4,780.29 2024 111.10 3,696.39 3,585.29 165.64 1,408.17 1,242.53 276.74 5,104.56 4,827.82 2025 111.10 3,926.96 3,815.86 165.64 1,496.83 1,331.19 276.74 5,423.79 5,147.05 2026 17.23 4,172.25 4,155.02 6.96 1,591.06 1,584.10 24.19 5,763.31 5,739.12 2027 17.23 4,433.23 4,416.00 6.96 1,691.23 1,684.27 24.19 6,124.46 6,100.27 2028 17.23 4,710.86 4,693.63 6.96 1,797.71 1,790.75 24.19 6,508.57 6,484.38 2029 17.23 5,006.21 4,988.98 6.96 1,910.90 1,903.94 24.19 6,917.11 6,892.92 2030 17.23 5,326.26 5,309.03 6.96 2,031.25 2,024.29 24.19 7,357.51 7,333.32

EIRR = 23.7% 54.3% 26.7% NPV (12%) = 5,291.9 2,601.2 7,893.1

Table A3.3 b: Fourth National Highway Project EIRR (million Yuan) Page 2 of 2 Hunan:Tucheng-Changsha Expressway Total Expressways Total Project Total Total Net cash Total Total Net cash Total Total Net cash costs benefits flow costs benefits flow costs benefits flow

2000 1,252.83 -1,252.83 2,649.15 -2,649.15 2,691.23 -2,691.23 2001 1,689.97 -1,689.97 2,155.86 -2,155.86 2,260.51 -2,260.51 2002 1,419.69 -1,419.69 1,632.66 -1,632.66 1,657.72 -1,657.72 2003 161.63 488.36 326.73 334.93 798.86 463.93 360.69 869.20 508.51 2004 238.27 569.83 331.56 354.55 1,014.76 660.21 374.04 1,164.60 790.56 2005 71.87 667.37 595.50 138.01 1,199.43 1,061.42 151.22 1,417.32 1,266.10 2006 54.11 745.95 691.84 71.34 1,343.81 1,272.47 78.30 1,586.96 1,508.66 2007 54.11 833.88 779.77 71.34 1,505.71 1,434.37 78.30 1,777.06 1,698.76 2008 54.11 932.28 878.17 71.34 1,687.32 1,615.98 78.30 1,990.14 1,911.84 2009 54.11 1,042.43 988.32 71.34 1,891.04 1,819.70 78.30 2,228.99 2,150.69 2010 54.11 1,165.78 1,111.67 71.34 2,119.56 2,048.22 78.30 2,496.72 2,418.42 2011 54.11 1,299.06 1,244.95 71.34 2,364.67 2,293.33 78.30 2,784.53 2,706.23 2012 184.63 1,447.70 1,263.07 295.73 2,638.40 2,342.67 461.37 3,105.79 2,644.42 2013 184.63 1,613.46 1,428.83 295.73 2,944.10 2,648.37 461.37 3,464.41 3,003.04 2014 54.11 1,798.35 1,744.24 71.34 3,285.55 3,214.21 78.30 3,864.79 3,786.49 2015 54.11 2,004.58 1,950.47 71.34 3,666.94 3,595.60 78.30 4,311.79 4,233.49 2016 54.11 2,234.65 2,180.54 71.34 4,092.98 4,021.64 78.30 4,810.89 4,732.59 2017 54.11 2,491.31 2,437.20 71.34 4,568.92 4,497.58 78.30 5,368.18 5,289.88 2018 54.11 2,777.68 2,723.57 71.34 5,100.65 5,029.31 78.30 5,990.50 5,912.20 2019 54.11 3,097.20 3,043.09 71.34 5,694.72 5,623.38 78.30 6,685.45 6,607.15 2020 54.11 3,453.72 3,399.61 71.34 6,358.54 6,287.20 78.30 7,461.60 7,383.30 2021 54.11 3,667.16 3,613.05 71.34 6,751.82 6,680.48 78.30 7,924.32 7,846.02 2022 54.11 3,894.20 3,840.09 71.34 7,170.26 7,098.92 78.30 8,416.57 8,338.27 2023 54.11 4,135.65 4,081.54 71.34 7,615.36 7,544.02 78.30 8,940.13 8,861.83 2024 184.63 4,392.44 4,207.81 295.73 8,088.83 7,793.10 461.37 9,497.00 9,035.63 2025 184.63 4,665.55 4,480.92 295.73 8,592.51 8,296.78 461.37 10,089.34 9,627.97 2026 54.11 4,955.98 4,901.87 71.34 9,128.23 9,056.89 78.30 10,719.29 10,640.99 2027 54.11 5,264.82 5,210.71 71.34 9,698.05 9,626.71 78.30 11,389.28 11,310.98 2028 54.11 5,593.26 5,539.15 71.34 10,304.12 10,232.78 78.30 12,101.83 12,023.53 2029 54.11 5,942.55 5,888.44 71.34 10,948.76 10,877.42 78.30 12,859.66 12,781.36 2030 54.11 6,312.23 6,258.12 71.34 11,638.49 11,567.15 78.30 13,669.74 13,591.44

EIRR = 19.0% 20.8% 22.3% NPV (12%) = 4,809.8 10,101.6 12,702.9

Table A3.4: Fourth National Highway Project FIRR (million Yuan)

Hubei Hunan Zhengdian- Tucheng Expressway Tucheng- Changsha Expressway Total Expressways Total Total Net cash Total Total Net cash Total Total Net cash costs benefits Flow costs benefits flow costs benefits flow

2000 1,351.99 -1,351.99 1,213.01 -1,213.01 2,565.00 -2,565.00 2001 450.66 -450.66 1,644.91 -1,644.91 2,095.57 -2,095.57 2002 205.90 -205.90 1,381.35 -1,381.35 1,587.25 -1,587.25 2003 154.44 17.60 -136.84 109.25 251.13 141.88 263.69 268.73 5.04 2004 102.95 57.89 -45.06 197.98 293.80 95.82 300.93 351.69 50.76 2005 51.50 56.05 4.55 18.85 203.03 184.18 70.35 259.08 188.73 2006 70.08 70.08 165.72 165.72 235.80 235.80 2007 110.36 110.36 198.54 198.54 308.90 308.90 2008 130.01 130.01 228.27 228.27 358.28 358.28 2009 159.51 159.51 262.20 262.20 421.71 421.71 2010 232.26 232.26 368.65 368.65 600.91 600.91 2011 251.94 251.94 411.90 411.90 663.84 663.84 2012 274.57 274.57 458.85 458.85 733.42 733.42 2013 296.54 296.54 506.28 506.28 802.82 802.82 2014 319.73 319.73 545.71 545.71 865.44 865.44 2015 408.62 408.62 693.09 693.09 1,101.71 1,101.71 2016 438.19 438.19 742.50 742.50 1,180.69 1,180.69 2017 469.45 469.45 794.70 794.70 1,264.15 1,264.15 2018 506.20 506.20 849.92 849.92 1,356.12 1,356.12 2019 541.09 541.09 908.22 908.22 1,449.31 1,449.31 2020 673.63 673.63 1,126.06 1,126.06 1,799.69 1,799.69 2021 704.12 704.12 1,176.45 1,176.45 1,880.57 1,880.57 2022 797.71 797.71 1,228.97 1,228.97 2,026.68 2,026.68 2023 831.56 831.56 1,283.66 1,283.66 2,115.22 2,115.22 2024 866.05 866.05 1,340.68 1,340.68 2,206.73 2,206.73 2025 1,040.71 1,040.71 1,623.54 1,623.54 2,664.25 2,664.25 2026 1,083.90 1,083.90 1,694.79 1,694.79 2,778.69 2,778.69 2027 1,128.90 1,128.90 1,769.09 1,769.09 2,897.99 2,897.99 2028 1,175.70 1,175.70 1,846.46 1,846.46 3,022.16 3,022.16 2029 1,224.55 1,224.55 1,927.11 1,927.11 3,151.66 3,151.66 2030 1,470.95 1,470.95 2,322.82 2,322.82 3,793.77 3,793.77

FIRR = 10.2% 9.9% 10.0% NPV = (4.99%) 3,109.8 (4.86%) 5,142.3 (4.91%) 8,366.9

Table A3.5 a: Hubei: Income Statement- Consolidated (million Yuan, year ending 31, December) Page 1 of 4 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Traffic (million veh-km) 311.25 365.29 399.52 428.37 459.37 492.60 528.27 566.62 598.84 632.91 668.95

Revenue Tolls 248.12 309.70 339.50 363.57 390.46 418.71 449.03 555.29 586.86 620.25 655.57 Others ------Total 248.12 309.70 339.50 363.57 390.46 418.71 449.03 555.29 586.86 620.25 655.57

Operating Taxes Business tax 26.68 28.01 29.41 30.88 19.52 20.94 22.45 27.76 29.34 31.01 32.78 City tax 1.87 1.96 2.06 2.16 1.37 1.47 1.57 1.94 2.05 2.17 2.29 Education levy 0.80 0.84 0.88 0.93 0.59 0.63 0.67 0.83 0.88 0.93 0.98 Total 29.35 30.81 32.35 33.97 21.48 23.04 24.69 30.53 32.27 34.11 36.05

Net Revenue 218.77 278.89 307.15 329.60 368.98 395.67 424.34 524.76 554.59 586.14 619.52 Operating Costs Wages and benefits 4.21 4.32 4.43 4.55 3.12 3.35 3.59 4.44 4.69 4.96 5.24 Maintenance 23.33 25.19 27.21 29.38 19.52 20.94 22.45 27.76 29.34 31.01 32.78 Administration 15.76 15.92 16.08 16.24 11.71 12.56 13.47 16.66 17.61 18.61 19.67 Total working costs 43.30 45.43 47.72 50.17 34.35 36.85 39.51 48.86 51.64 54.58 57.69 Depreciation 86.52 90.64 92.70 93.16 93.18 93.19 93.21 93.22 93.24 93.25 93.27 Total operating costs 129.82 136.07 140.42 143.33 127.53 130.04 132.72 142.08 144.88 147.83 150.96

Operating Profit 88.95 142.82 166.73 186.27 241.45 265.63 291.62 382.68 409.71 438.31 468.56 Financial charges: IBRD - - 37.95 36.08 34.14 32.11 29.98 27.76 25.42 23.00 20.45 Local Bank 62.68 56.41 45.13 45.59 42.59 39.47 23.56 8.26 8.26 5.51 5.51 Other income (expenses) ------Profit Before Taxes/1 26.27 86.41 83.65 104.60 164.72 194.05 238.08 346.66 376.03 409.80 442.60 Income tax 8.67 28.52 27.60 34.52 54.36 64.04 78.57 114.40 124.09 135.23 146.06

Net Profit After Taxes 17.60 57.89 56.05 70.08 110.36 130.01 159.51 232.26 251.94 274.57 296.54

/_1: Starting 2005, income rate = 33.3% /_2: Opened to traffic on Sep 2002.

Table A3.5 b: Hubei: Sources and Applications of Funds- Consolidated (million Yuan, year ending 31, December) Page 2 of 4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: Net profits - - - 17.60 57.89 56.05 70.08 110.36 130.01 159.51 232.26 251.94 274.57 296.54 Depreciation - - - 86.52 90.64 92.70 93.16 93.18 93.19 93.21 93.22 93.24 93.25 93.27 State contribution 312.04 104.01 47.52 35.64 23.76 11.89 ------Provincial 139.43 46.48 21.23 15.93 10.62 5.31 ------contribution Borrowing: IBRD 497.87 165.95 75.83 56.87 37.91 18.96 ------Local 365.23 121.75 55.62 41.72 27.81 13.91 ------Others 37.42 12.47 5.70 4.28 2.85 1.43 ------

Total 1,351.99 450.66 205.90 258.56 251.48 200.25 163.24 203.54 223.20 252.72 325.48 345.18 367.82 389.81

Applications: Capital 1,351.99 450.66 205.90 154.44 102.95 51.50 4.63 4.77 4.91 5.06 5.21 5.37 5.53 5.70 expenditure Other expenditure ------Loan repayment: IBRD -----40.9042.7744.7146.7448.8751.0953.4355.8558.40 Local - - - 40.00 30.00 20.00 - 100.00 260.00 250.00 - 50.00 - - Change w/ capital - - (88.80) (81.10) (74.44) (621.83) 24.22 ------

Total 1,351.99 450.66 117.10 113.34 58.51 (509.43) 71.62 149.48 311.65 303.93 56.30 108.80 61.38 64.10

Net Funds Flow - - 88.80 145.22 192.97 709.68 91.62 54.06 (88.45) (51.21) 269.18 236.38 306.44 325.71

Open balance --- 88.80 234.02 426.99 1,136.67 1,228.29 1,282.35 1,193.90 1,142.69 1,411.87 1,648.25 1,954.69 Closing balance --88.80 234.02 426.99 1,136.67 1,228.29 1,282.35 1,193.90 1,142.69 1,411.87 1,648.25 1,954.69 2,280.40

D/S Cover ------2.60 4.95 2.44 3.82 1.41 0.73 0.85 6.37 3.34 6.59 6.67

Table A3.5 c: Hubei: Balance Sheet- Consolidated (million Yuan, year ending 31, December) Page 3 of 4 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Assets: Fixed Assets At cost 1,730.39 1,812.75 1,853.95 1,854.41 1,854.43 1,854.44 1,854.46 1,854.47 1,854.49 1,854.50 1,854.52 Less: Depreciation 86.52 177.16 269.86 363.02 456.20 549.39 642.60 735.82 829.06 922.31 1,015.58 Net fixed assets 1,643.87 1,635.59 1,584.09 1,491.39 1,398.23 1,305.05 1,211.86 1,118.65 1,025.43 932.19 838.94

Current Assets Inventory ------Receivable ------Cash 234.02 426.99 1136.67 1228.29 1,282.35 1,193.90 1,142.69 1,411.87 1,648.25 1,954.69 2,280.40 Subtotal 234.02 426.99 1136.67 1228.29 1,282.35 1,193.90 1,142.69 1,411.87 1,648.25 1,954.69 2,280.40

Other Assets ------

Total Assets 1,877.89 2,062.58 2,720.76 2,719.68 2,680.58 2,498.95 2,354.55 2,530.52 2,673.68 2,886.88 3,119.34

Liabilities & Equity State funds- Equity 231.37 418.15 1,128.27 1,189.96 1,195.57 1,160.68 1,325.15 1,802.21 1,998.80 2,317.85 2,608.71

L/T loans: IBRD 796.52 834.43 812.49 769.72 725.01 678.27 629.40 578.31 524.88 469.03 410.63 Local 850.00 810.00 780.00 760.00 760.00 660.00 400.00 150.00 150.00 100.00 100.00 Subtotal 1,646.52 1,644.43 1,592.49 1,529.72 1,485.01 1,338.27 1,029.40 728.31 674.88 569.03 510.63

Current Liabilities ------

Other Liabilities ------

Total Liabilities & Equity 1,877.89 2,062.58 2,720.76 2,719.68 2,680.58 2,498.95 2,354.55 2,530.52 2,673.68 2,886.88 3,119.34

Debt- to- equity ratio 88/12 80/20 59/41 56/44 55/45 54/46 44/56 29/71 25/75 20/80 16/84

Table A3.5 d: Hubei: Assumptions for Financial Forecasts Page 4 of 4 1. Toll and Traffic (AADT): Small Medium Large Small Medium Large Tractor Car Bus bus truck truck truck -Trailer Total

Toll (Y/v-km) /_a 0.400 0.750 1.000 0.400 0.750 1.000 1.350

1. Zhengdian – Zhanggong 2003 1,119 844 290 280 3,378 2,908 8 8,827 2004 1,298 868 374 325 3,473 4,021 55 10,414 2005 1,402 938 404 350 3,751 4,343 60 11,248 2010 2,157 1,316 567 491 5,261 6,091 84 15,967 2020 4,243 2,248 969 839 8,987 10,404 143 27,833 2030 6,911 3,328 1,434 1,242 13,303 15,400 212 41,830 2. Zhanggong- Gangtang 2003 650 710 286 162 2,842 716 8 5,374 2004 938 821 372 235 3,283 2,866 55 8,570 2005 1,013 886 402 253 3,546 4,005 65 10,170 2010 1,559 1,243 564 355 4,973 5,617 91 14,402 2020 3,067 2,123 963 606 8,495 9,595 155 25,004 2030 4,996 3,143 1,425 897 12,575 14,203 229 37,468 3. Gangtang – Tucheng 2003 694 728 289 174 2,911 2,896 8 7,700 2004 963 482 120 241 1,927 3,492 1,204 8,429 2005 1,040 520 130 260 2,081 3,771 1,300 9,102 2010 1,600 729 182 365 2,919 5,289 1,823 12,907 2020 3,147 1,245 311 623 4,986 9,034 3,114 22,460 2030 5,126 1,843 460 922 7,380 13,373 4,609 33,713

/_a: 15 % increase every 5 years.

2. Operating Taxes Business tax 5.0% of the total revenue. City tax 7.0% of the business taxes. Education levy 3.0% of the business taxes.

3. Operating Cost: Increase 5 % pa. a. Wages and benefits 0.80%of total revenue b. Maintenance 5.0%of total revenue c. Administration 3.0%of total revenue d. Depreciation 20years straight-line method.

4. Income tax rate 33.3%, after 2005.

6. Borrowing: The IBRD 4.5%, 20 year maturities, LIBOR US$ based single currency, 5 years grace period and the foreign exchange risks. Local Bank 5.8%, flexible principal payment.

Table A3.6 a: Hunan: Income Statement- Consolidated (million Yuan, year ending 31, December) Page 1 of 4 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Traffic (million veh-km) 511.93 547.95 589.38 632.28 678.41 727.89 780.96 837.91 885.91 936.68 990.41

Revenue Tolls 490.15 524.84 562.66 603.83 647.88 695.13 745.82 921.70 974.50 1,030.35 1,089.45 Others ------Total 490.15 524.84 562.66 603.83 647.88 695.13 745.82 921.70 974.50 1,030.35 1,089.45

Operating Taxes Business tax 24.51 26.24 28.13 30.19 32.39 34.76 37.29 46.09 48.73 51.52 54.47 City tax 1.72 1.84 1.97 2.11 2.27 2.43 2.61 3.23 3.41 3.61 3.81 Education levy 0.74 0.79 0.84 0.91 0.97 1.04 1.12 1.38 1.46 1.55 1.63 Total 26.97 28.87 30.94 33.21 35.63 38.23 41.02 50.70 53.60 56.68 59.91

Net Revenue 463.18 495.97 531.72 570.62 612.25 656.90 704.80 871.00 920.90 973.67 1,029.54 Operating Costs Wages and benefits 14.85 15.59 16.37 18.11 19.44 20.85 22.37 27.65 29.24 30.91 32.68 Maintenance 9.14 9.60 10.08 10.93 11.73 12.58 13.50 16.68 17.64 18.65 19.72 Fuel & materials 8.91 9.36 9.82 10.69 11.47 12.30 13.20 16.31 17.25 18.24 19.28 Administration 9.42 10.11 10.87 11.77 12.63 13.56 14.54 17.97 19.00 20.09 21.24 Others 8.77 8.77 8.77 9.66 10.37 11.12 11.93 14.75 15.59 16.49 17.43 Total working costs 51.09 53.43 55.91 61.16 65.64 70.41 75.54 93.36 98.72 104.38 110.35 Depreciation 115.96 121.24 121.74 122.65 122.68 122.71 122.74 122.77 122.80 122.83 122.86 Total operating costs 167.05 174.67 177.65 183.81 188.32 193.12 198.28 216.13 221.52 227.21 233.21 Operating Profit 296.13 321.30 354.07 386.81 423.93 463.78 506.52 654.87 699.38 746.46 796.33 Financial charges: IBRD 0.00 0.00 73.54 69.94 66.17 62.23 58.10 53.79 49.28 44.58 39.65 Local Bank 45.00 27.50 77.50 69.53 61.43 60.85 57.07 50.85 35.33 17.03 1.04 Other income (expenses) ------

Profit Before Taxes 251.13 293.80 203.03 247.34 296.33 340.70 391.35 550.23 614.77 684.85 755.64 Income tax /1 - - - 81.62 97.79 112.43 129.15 181.58 202.87 226.00 249.36

Net Profit After Taxes 251.13 293.80 203.03 165.72 198.54 228.27 262.20 368.65 411.90 458.85 506.28

Actual: 2003, forecast: 2004 thereafter. /_1: Income rate = 33.3% after the trial period (2003-05). /_2: Opened to traffic on November 2002.

Table A3.6 b: Hunan: Sources and Applications of Funds- Consolidated (million Yuan, year ending 31, December) Page 2 of 4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: Net profits - - - 251.13 293.80 203.03 165.72 198.54 228.27 262.20 368.65 411.90 458.85 506.28 Depreciation - - - 115.96 121.24 121.74 122.65 122.68 122.71 122.74 122.77 122.80 122.83 122.86 State contribution 267.56 362.83 304.69 24.10 43.67 4.15 ------Provincial ------contribution Borrowing: IBRD 439.40 595.85 500.38 39.57 71.72 6.83 ------Local 506.05 686.23 576.28 45.58 82.59 7.87 ------Others ------

Total 1,213.01 1,644.91 1,381.35 476.34 613.02 343.62 288.37 321.22 350.98 384.94 491.42 534.70 581.68 629.14

Applications: Capital 1,213.01 1,644.91 1,381.35 109.25 197.98 18.85 9.13 9.40 9.68 9.97 10.27 10.58 10.90 11.23 expenditure Other expenditure ------Loan repayment: - - - - - 79.27 82.87 86.64 90.58 94.71 99.02 103.53 108.23 113.16 IBRD - - - 180.00 110.00 251.18 158.82 11.45 74.16 121.97 304.23 358.89 313.58 20.32 Local ------(1.45) (1.55) (1.67) (1.78) (6.21) (1.86) (1.97) (2.08) Change w/ capital 1,213.01 1,644.91 1,381.35 109.25 197.98 18.85 9.13 9.40 9.68 9.97 10.27 10.58 10.90 11.23

Total 1,213.01 1,644.91 1,381.35 289.25 307.98 349.30 249.37 105.94 172.75 224.87 407.31 471.14 430.74 142.63

Net Funds Flow - - - 187.09 305.04 (5.68) 39.00 215.28 178.23 160.07 84.11 63.56 150.94 486.51 Open balance - - - - 187.09 492.13 486.45 525.45 740.73 918.961079.031163.141226.701377.64 Closing balance - - - 187.09 492.13 486.45 525.45 740.73 918.961079.031163.141226.701377.641864.15

D/S Cover ------3.77 0.98 1.19 3.27 2.13 1.78 1.22 1.16 1.38 4.71

Table A3.6 c: Hunan: Balance Sheet- Consolidated (million Yuan, year ending 31, December) Page 3 of 4 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Assets: Fixed Assets At cost 3,478.82 3,637.20 3,652.28 3,653.19 3,653.22 3,653.25 3,653.28 3,653.31 3,653.34 3,653.37 3,653.40 Less: Depreciation 115.96 237.20 358.94 481.59 604.27 726.98 849.72 972.49 1,095.29 1,218.12 1,340.98 Net fixed assets 3,362.86 3,400.00 3,293.34 3,171.60 3,048.95 2,926.27 2,803.56 2,680.82 2,558.05 2,435.25 2,312.42

Current Assets Inventory 20.42 21.87 23.44 25.16 27.00 28.96 31.08 38.40 40.60 42.93 45.39 Receivable 9.43 10.09 10.82 11.61 12.46 13.37 14.34 17.73 18.74 19.81 20.95 Cash 187.09 492.13 486.45 525.45 740.73 918.96 1,079.03 1,163.14 1,226.70 1,377.64 1,864.15 Subtotal 216.94 524.09 520.71 562.22 780.19 961.29 1,124.45 1,219.27 1,286.04 1,440.38 1,930.49

Other Assets ------

Total Assets 3,579.80 3,924.09 3,814.05 3,733.82 3,829.14 3,887.56 3,928.01 3,900.09 3,844.09 3,875.63 4,242.91

Liabilities & Equity State funds- Equity 143.33 509.97 570.87 820.73 1,157.27 1,313.18 1,517.63 1,693.78 2,040.47 2,533.76 3,322.10

L/T loans: IBRD 1,575.20 1,646.92 1,574.48 1,491.61 1,404.97 1,314.39 1,219.68 1,120.66 1,017.13 908.90 795.74 Local 1,814.14 1,716.73 1,614.60 1,363.42 1,204.60 1,193.15 1,118.99 997.02 692.79 333.90 20.32 Subtotal 3,389.34 3,363.65 3,189.08 2,855.03 2,609.57 2,507.54 2,338.67 2,117.68 1,709.92 1,242.80 816.06

Current Liabilities 47.13 50.47 54.10 58.06 62.30 66.84 71.71 88.63 93.70 99.07 104.75

Other Liabilities ------

Total Liabilities & Equity 3,579.80 3,924.09 3,814.05 3,733.82 3,829.14 3,887.56 3,928.01 3,900.09 3,844.09 3,875.63 4,242.91

Debt- to- equity ratio 96/4 87/13 85/15 78/22 70/30 66/34 61/39 57/43 47/53 35/65 22/78 Current ratio 4.0 9.8 9.0 9.1 11.9 13.7 15.0 13.1 13.1 13.9 17.8

Table A3.6 d: Hunan: Assumptions for Financial Forecasts Page 4 of 4 1. Toll and Traffic (AADT): Small Medium Large Small Medium Large Tractor Car bus bus truck truck truck -Trailer Total

Toll (Y/v-km) /a 0.400 0.700 1.300 0.400 1.000 1.600 1.900 1. Tucheng – Wujiang 2003 931 141 925 2,347 355 2,375 9 7,083 2004 994 151 988 2,506 379 2,537 9 7,564 2005 1,145 172 1,136 2,614 396 2,648 10 8,121 2010 1,762 241 1,593 3,666 555 3,714 14 11,545 2020 3,466 412 2,721 6,262 948 6,344 24 20,177 2030 5,646 610 4,028 9,269 1,403 9,391 36 30,383 2. Wujiang – Wushi 2003 1,045 158 1,038 2,634 398 2,667 10 7,950 2004 1,120 170 1,113 2,825 426 2,857 10 8,521 2005 1,292 195 1,284 2,955 447 2,992 11 9,176 2010 1,988 273 1,801 4,145 627 4,196 15 13,045 2020 3,911 466 3,076 7,080 1,071 7,167 26 22,797 2030 6,371 690 4,553 10,480 1,585 10,609 38 34,326 3. Jining - Fengzhen highway 2003 1,054 159 1,047 2,656 401 2,688 9 8,014 2004 1,128 171 1,122 2,844 430 2,878 11 8,584 2005 1,301 196 1,293 2,975 451 3,013 11 9,240 2010 2,002 275 1,813 4,173 633 4,226 15 13,137 2020 3,938 470 3,097 7,128 1,081 7,219 26 22,959 2030 6,415 696 4,584 10,551 1,600 10,686 38 34,570

/_a: 15 % increase every 5 years.

2. Operating Taxes Business tax 5.0% of the total revenue. City tax 7.0% of the business taxes. Education levy 3.0% of the business taxes.

3. Operating Cost: Increase 5 % pa. a. Wages and benefits 3.00%of total revenue b. Maintenance 1.81%of total revenue c. Fuel and materials 1.77%of total revenue d. Administration 1.95%of total revenue e. Others 1.60%of total revenue f. Depreciation 30years straight-line method.

4. Income tax rate 33.3%, after 2005.

5. Borrowing: The IBRD 4.5%, 20 year maturities, LIBOR US$ based single currency, 5 years grace period and the foreign exchange risks. Local Bank 5.1%, flexible principal payment.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/Specialty Lending Anil H. Somani Sr. Environment Specialist EASES Environment Chaohua Zhang Sr. Social Sector Specialist EASES Social and Resettlement Financial Management Chau-Ching Shen EACCF Financial Specialist Dawei Yang Procurement Specialist EACCF Procurement Institutional and Dick Jonson Consultant EASTR Highway Safety Hoi-chan Nguyen Sr. Counsel LEGOP Legal Ian Ferguson Team Assistant EASTR Support Jean-Marie Braun Consultant EASTR Highway Engineer Junxue Chu Finance Officer LOAAS Disbursement R. Gopalkrishnan Consultant EAPCO Procurement Rodrigo Archondo- Highway Engineer INFTD Economic/Financial Callao Setty Pendakur Consultant EASTR Rural Road/Social Simon Bradbury Sr. Finance Officer LOAAS Disbursement Xin Chen Program Assistant EACCF Support Yasuhiro Kawabata Sr. Highway Engineer EASTR Task Team Leader Supervision/ICR Anil H. Somani Consultant EASTE Environment Boping Gao Transport Specialist EASTE Highway Engineer Christopher R. Bennett Sr Transport. Specialist EASTE Task Team Leader Graham Smith Sector Leader EASTE Transport Specialist Han-Kang Yen Research Analyst EASTE Economic Analysis Hongkun Yang Procurement Specialist EAPCO Procurement Jacques G. Yenny Consultant EASTE ICR Jean-Marie Braun Consultant EASTE Highway Engineer Jing Xu Team Assistant EACCF Support Li Xiaofeng Program Assistant EACCF Support Michel Bellier Sr. Transport Specialist EASTE Task Team Leader Rose Abena Ampadu Program Assistant EASTE Support Teresita Ortega Program Assistant EASTE Support Wenlai Zhang Transport. Specialist EASTE Transport Specialist Youlan Zou Consultant EASUR Social and Resettlement

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks/1 travel and consultant costs)/2 Lending FY95 1.33 FY96 46.71 FY97 32.57 FY98 180.17 FY99 191.02 FY00 4 12.61

Total: 4 405.62 Supervision/ICR FY99 2.24 FY00 10 81.89 FY01 5 64.93 FY02 6 63.57 FY03 6 41.19 FY04 2 26.03 FY05 5 28.09 FY06 7 72.04 FY07 10 45.21

Total: 51 425.19

Notes: /1 FY95-99 data on staff weeks are not available. /2 FY00 and FY01 include indirect costs.

Annex 5. Beneficiary Survey Results

None.

Annex 6. Stakeholder Workshop Report and Results

None.

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Hubei

Project Implementation

Project Implementation Agency

The HPCD established the World Bank Financed Project Management Office (PMO) in June 1995 to prepare the project. In July 1998 the People's Government of Hubei Province founded the Hubei Jingzhu expressway construction headquarters and Hubei Jingzhu expressway Chief Engineer’s Office, in charge of the implementation of each component in this project. The Hubei Jingzhu expressway Chief Engineer’s Office had technical, engineering, financing, machine & material, and land acquisition and resettlement divisions, as well as laboratories and an administrative office. This monitored and managed construction, handled procurement, checked significant design variations, and were responsible for land acquisition and resettlement.

Project Preparation

From 1994, some national ministries and commissions, The People's Government Of Hubei Province, HPCD and other related organizations participated in formulating a plan for highway projects in Hubei province. In July 1997 the State Planning Commission approved in document No.1037 the project recommendation report. In 1999, the evaluation of “feasibility study report on JingZhu NH mainline in Hubei province of south segment” was approved along with the preliminary design. Simultaneously, in 1993, the State Planning Commission presented options for the project as the World Bank loan project and in April 1999, the loan negotiations were completed. The loan amount for Hubei was US$150 million.

NH4 was designed by the Hubei Provincial Communications Planning & Design Institute. During construction, they had a team at the site in charge of variations and adjusting the drawings.

Project Construction

The total length of NH4 is 110 km, which was divided into nine subgrade contract sections. Contractors were selected using ICB. Nine contract sections started to construct in March 2000, and passed the takeover acceptance at September 21, 2002, opened to traffics for trial circulating on the 28th, through the completion acceptance in August 2004.The quality and comprehensive mark of project have marked well by completion acceptance committee.

Construction Supervision

NH4 was the second World Bank financed highway project in Hubei province. As per the World Bank’s requirements, and international practice, the FIDIC Contract Conditions were adopted for construction management. The project supervision has adopted the three-tier structure management, i.e. the chief engineer led chief engineer’s office, senior site engineer’s office and site engineer’s office. A supervision team comprised of Chinese and foreign engineers was established to supervise the construction progress. The overall performance of the supervision team was satisfactory in the project, taking into account the management of quality, cost, progress control, contracts and information.

Equipment Procurement

Equipment purchased for the NH4 project were divided into two batches and purchased by the ICB. This equipment was successfully implemented.

E & M Works

The E&M component of the project was designed by Highway Research Institute of MOC and HBCPDI. It was procured using ICB. During the pre-qualification period, 13 tenders submitted but only six passed. After bidding the system was successfully installed and is currently operating effectively.

Project Closure

The project was closed smoothly at the planned date.

Environmental Monitoring and Acceptance

Close attention was paid to the environment monitoring during the construction period. Monitoring of air, noise and water quality was undertaken. Periodically, based on the monitoring results, remedial measures were adopted to ensure compliance with the specifications. This served to minimize the negative environmental impact of the project. After the opening of the expressway, monitoring the atmosphere environment along road, (TSP, CO, NOx), noise, surface water environment (SS, BOD5, CODcr, petroleum series) was undertaken which showed continued compliance. A benefit of these monitoring activities was the increased awareness of the HPCD team on environmental issues and better understanding the needs for environmental protection on expressways.

The NH4 acceptance check on the environment was undertaken in December 2003 by the State Environmental Protection Agency and the Hubei Environmental Protection Agency. The results were satisfactory. The expressway satisfied all the conditions and standards which the state environmental protection required.

Environmental Impact Assessment (EIA).

The "Beijing-Zhuhai National Highway Main-line of South Section in Hubei Environmental Impact Report" was completed in July 1998. The State Development Planning Commission approved the environmental impact report with " No.313 document (1998) issued by environmental protection bureau " in Aug, 12, 1999. In Dec, 2003, the Hubei Beijing-Zhuhai National Highway construction headquarters compiled the "Completion of Beijing-Zhuhai National Highway Main-line of South Section in Hubei Project Environmental Protection Executing Report". This was accepted by the Bank as confirming compliance with the EIA agreements.

Training

The NH4 training program was implemented and organized by the PMO. The training activities gave priorities to the following fields: project management, procurement procedures, contract management, environmental protection, resettlement, traffic engineering, construction supervision, financial reimbursement, road network planning, highway maintenance and operation, road safety, quality control, training management, etc. These were selected after carefully considering the needs for the HPCD headquarters and its sub-organizations. The training had played very important roles in improving the quality of the staff in communications organizations in Hubei.

The summary of training implementation was detailed in the following table:

No. of No. of Planned man- Training Planned persons implemented implemented months persons man-months Overseas study tour 20 10 17 11 Overseas training 24 24 24 24 Domestic training 128 233 404 239

Scientific Studies

Six different studies were successfully completed: • Research on concrete pavement structure and construction craft Hubei Provincial Beijing-Zhuhai Highway asphalt; • Commercialization research on Hubei Provincial Beijing-Zhuhai Highway; • Research on the southern karst area of Hubei Provincial Beijing-Zhuhai Highway cast-in-place pile construction craft and load-bearing capacity; • Overall landscape design research on the highway; • Research on the highway roadbed and pavement drainage system; • The means and standard of the traffic engineering mechanical and electrical system quality check and evaluation;

Land Acquisition and Resettlement

Under the guidance of the World Bank experts, before the implementation of project, the HPCD established a Resettlement Action Plan (RAP). During implementation, this was strictly adhered to. The external monitor and the World Bank’s resettlement specialist closely monitored compliance with the RAP. The results were satisfactory. The NH4 project permanently acquired 766 ha of land, relocated 139,379 m2 of buildings, and provided US$26.5 million in compensation. The monitors found that the project has led to the economic development along the route, improved the PAPs housing levels and the housing quality have been greatly enhanced. The socio-economic structure has been optimized and upgraded; the income of peasants has kept the same level of growth with the overall areas.

Project Achievements

Achievement of related objectives

The project was very successful through completing the expressway, interconnecting and other roads ahead of schedule.

Quality Achievement

According to the FIDIC Contract Conditions, the construction supervision organization was established to control the progress, quality and expenses. In the progress control the HPCD established the detailed construction organization plan, taking the control point as the breakthrough, standardizing management, responding scientifically, enabling the project to be completed ahead of schedule. With regard to the quality control, strictly carrying out three-level quality guarantee system, relying on scientific and technological innovation, promoting the concept of project quality through project checking and acceptance, the project quality is excellent. For expense control, according to the technical requirement optimizing and altering the design to reduce the project investment, as well as strictly measuring and making payments to guarantee the project continued, resulted in much lower than forecast costs.

Financial Achievement

After NH4 was open to traffic in 2002, the HPCD established the administrative office of Beijing-Zhuhai Highway in Hubei to be responsible for highway operation, management and maintenance. After over four years of operation, the highway condition is still good. Since opening, the traffic volume has been rapidly increasing with an average growth rate was over 14％; The income increased from 50 million RMB in 2002 to 664 million RMB in 2006, an annual average growth rate of over 36％. The main reason for above rapid growth is the rapid development of the national economy and the obvious advantage of the highway in saving travel time and operating costs when compared with alternatives, especially NR107. An additional benefit has been the resolution of the traffic congestion problems on NR107.

Safety Achievement

After NH4 opened, there was a significant improvement in traffic safety on NR107.

Operation Capacity

Through the careful attention to maintenance, the pavement distress has been minimized, and safety hazards eliminated in a timely manner. With the constant improvement in relevant facility, the highway service has improved gradually.

Works of the World Bank

Cooperation with the Bank

It has been over 10 years since NH4 was placed to the list of World Bank financed highway projects in Hubei. There have now been a total of four highway projects financed by the World Bank. During this period, the cooperation between HPCD and the World Bank was close and effective.

Due to the differences in economic development and cultural background, in the implementation process of this project there was some different views with regard to engineering design, construction management, land acquisition, resettlement, environment protection, etc. The World Bank missions and the HPCD had good dialog on these issues. This helped the World Bank to have a better understanding of actual situation in China and Hubei and enabled a suitable operating procedure to be identified. The HPCD also relied on the World Bank missions during the preparation and implementation of this project, to bring in advanced concepts and scientific development view in engineering design, construction, resettlement, environment protection, institution reinforcement and trade policy reform.

Deeper understanding for FIDIC Contract Conditions and benefits obtained from it

Since the World Bank financed NH3, ICB was used for procurement and supervision engineers were used to manage the project in accordance with the FIDIC Contract Conditions. The project adopted strict technical and organizational measure for the project management and control, as well as considering the situation of China and Hubei province.

The procurement practice of the Bank requires that the contract be awarded to the lowest bidder. At the beginning, HPCD held cautious attitude to the request whether it was effective and appropriate. However, with the steady development and improvement of China market economy, procurement regulation of the Bank and FIDIC Contract Conditions had been widely accepted in Hubei province at present. Currently, The Hubei provincial highway construction management was in the light of FIDIC Contract Conditions. The award to the lowest bidder can often be problematic.

Benefits obtained from training program

In most of the training projects, the participants were engineers and technical personnel. The design of a reasonable training course should keep pace with foreign management experience and practices that would be useful, especially considering the special circumstance of Hubei Province. Through training, the new technology, new knowledge, new approaches from abroad will be used and promulgated by person being trained. In addition, the training plan gave the opportunity to engineer and administrative personnel to improve upon and renew their knowledge, and expand their field of vision. This is considered to be the key factor in the growth of intelligence.

Improvement of environmental consciousness

The environmental protection in highway construction is very important. In each step of the project identification, preparation and implementation, HPCD strictly followed China’s and the World Bank’s environmental protection law, regulation and requirements. NH4’s achievement in environmental protection at present was not only due to the continuous development and improvement of China’s environmental protection policy, as well as the strengthening of environmental design, but also due to the World Bank environmental protection expert guidance and strict monitoring of the implementation phase in the project implementation stage. In the project implementation process, staff in HPCD and relevant contractor’s paid great attention to environmental protection. The enhancement of environmental awareness is very advantageous to the implementation of China’s continual development policy and the construction of other highway project in Hubei.

Promoting the growth of local communications and economy

The implementation of the project, regardless of politics and economy, had a great influence on the province. The project comprehensively upgraded the network of Hubei, and made Hubei a lever and initiative point that links from north to south, from east to west. Speeding up the flowing freight transport, passenger transport, information exchange, it had a very important impact on trade and communications with other provinces in China.

Hunan

The primary objective was achieved through successfully completing the various components of the project. The completion and operation of the 183 km TCE relieved the traffic congestion and traffic accident rate on NR107 and promoted social economy development on the traffic corridor between Hunan and Hubei province.

The NH4 section in Hunan comprises 16 civil works contracts (in which five contracts were for the interconnecting road), five building works contracts, one E& M works contract. The construction of civil works commenced on May 28th 2000 and completed

on Nov. 30th, 2002, building works commenced on Dec. 2001 and completed on Nov. 30th 2002, E& M works commenced on Mar. 2004 and completed on Dec. 2004.

Hunan Provincial Communications Survey and Design Institute (HPCSDI) designed the project. During the course of construction, design representatives were assigned to the sites to answer for design variation and drawing updating. Advanced design concept, newly technology and material have been used for this project with comprehensive quality management system making assurance of design quality. Besides, design updating has been done during construction.

Implementation Experience

Application of World Bank’s Policies

The managerial staff of the Hunan Provincial Expressway Construction and Development Corporation were trained through implementation of the project in the application of the World Bank’s policies. The civil works were procured through ICB, and the contracts were awarded to the bidders of the lowest price, thus the construction cost was reduced. FIDIC was adopted which greatly helped with the general management of the project. The Bank’s policies were used in the implementation and monitoring of environmental protection and resettlement. Consequently, the environment along the expressway was preserved well, and the displaced persons were not disadvantaged by the project.

Implementation of the Contract, Timely Communication

The project was the first expressway along the Lakeland in Hunan Province. It was very difficult to construct the project with very complicated geological and topographical conditions. During the course of project management, the Hunan Provincial Expressway Construction and Development Corporation paid great attention to performance of contract in terms of entry of the equipments and personnel to the sites, and key steps of technology in construction. By communicating regularly and in a timely manner with the leaders of the contractors and local government, the project company created a positive construction environment for the contractors.

Strengthening Quality Control

The Hunan Provincial Expressway Construction and Development Corporation adopted several measures to strengthen quality control.

• Quality Responsibility Agreements were signed between Hunan Provincial Expressway Construction and Development Corporation, Contractors, Designer and supervisors. • Strict management on procurement of the raw materials by careful testing in order to ensure the quality of the works. • Establishment of a Quality Assurance system by each contractor to ensure the quality of the works.

• The supervision consultants were assigned to the construction sites to fully control the construction through site supervision and site testing.

Any quality problem identified in the construction sites was solved through issuing instructions to the constructor. It was subsequently confirmed that the problems had been resolved.

Operational Experience

The TCE was opened to traffic on Dec. 30th, 2002. After that, Hunan Provincial Expressway Construction and Development Corporation established the TCE Management Division to be in charge of operation, management and maintenance of the expressway. The TCE is in good condition.

The TCE is not only creating major economic and social benefits for the areas along the project, but also for promoting of inter-provincial economy and trade between Hubei and Hunan provinces.

The traffic volume and toll revenue of TCE are rapidly increasing. There was a 30% increase in traffic from 2003 to 2006. The annual toll revenue collected increased from RMB 490 million in 2003 to RMB 670 million in 2006.

Due to the diversion of traffic from NR107, the issue of traffic congestion on NR107 has been resolved. The safety conditions on NR107 has also been improved.

The TCE Management Division does the maintenance work on the TCE. It is able to treat the defects and damages in a timely manner. The Nationwide Road Database System and Pavement Management System support maintenance planning.

Resettlement and Environmental Experience

Land acquisition and resettlement for the TCE and interconnecting road was completed in July 1999. The land area occupied by the project amounted to 1,533 ha, and area of the dismantled houses reached to 402,206 m2. According to the requirement of the World Bank, a RAP was prepared and strictly adhered to. People affected along the project have been resettled with satisfactory.

The State Environmental Protection Administration and Environmental Division of MOC organized the Hunan Provincial Environmental Protection Bureau and Hunan Provincial Communications Department and others to carry out an environmental acceptance inspection on the completion of the project. After inspection, it was found qualified and was honored with prize of “Project Friendly to Environment”. This is the first time for highway project to win the above-mentioned prize.

Procurement of Equipment

The project procured 15 items of equipment for road maintenance using ICB. Currently, all the equipment are in operation and have been proved to be of use of the client.

Road Safety

This component is the continuation of NH2, consisting of four parts:

• The issue of road safety was discussed during the Annual Seminar, which was organized by Hunan Provincial Traffic Engineering Association, with the aim to exchange knowledge and experience on road safety. • A Handbook on Road Construction Safety was compiled. It addressed safety requirements for all the stages during construction. • A Handbook of “Examples of maintenance safety measures” was prepared. It put forward safety requirements in different stages of road maintenance. • Establish the traffic accidents information system for NR107 to the south of Changsha city. Based upon this system, an analysis model on the accident sections was established so as to find and determine the accident sections on NR107 to the south of Changsha city and finally formulate the implementation plan to delete the accident black spot.

Through the study on road safety of NH2 and NH4, a solid foundation was established for further developing traffic safety projects, special experts on road traffic safety have been trained, many concerned working persons are more aware of traffic safety, such as: government officers, road design, construction, management and maintenance people. In recent years, because people are more aware of traffic safety, the traffic accidents in our province keep decreasing, which is a good beginning.

Institutional Strengthening

This component is the continuation of NH2, consisting of four parts:

• Formulate a plan of institutional and policy development for the future 6—8 years, including institutional development plan, training plan, management system to be used and the equipment to be matched and to be purchased. This plan will be elemental document on institutional development for the two projects financed by the World Bank. This plan was submitted to the World Bank and will be carried out as schedule. • “Project Office” is equipped with a road safety expert. The expert will provide suggestions on road safety issues to the director of the Project Office from the design stage to the completion of the project. To further do well the work, the expert will be trained domestically and then will be overseas trained. • A total of 113 persons received overseas training under the NH4 project, 499 persons trained domestically.

• Improve the quality management system. Hunan Provincial Traffic Quality Supervision Station will put forward an audited list of quality guarantee key factors on quality management system suitable for Hunan province.

A batch of specialized persons is trained on highway management, highway design and planning, financial management, highway maintenance and traffic engineering through this training program. The training has produced a good result. These specialists fully meet the demands of their different posts, and have broadly used the knowledge on the implementation of the project.

Study on Highway Maintenance

This component is the continuation of NH2, consisting of 2 parts: • Road data system (road databank). A road databank system was established in accordance with the suggestion of MOC and adapting to the requirements of Hunan province. By training the personnel for road databank development, the road databank was established and applied by the end of 2003 in different cities of the province. • Development of highway sector competition. In 2000, the maintenance companies are established at 60% of highway bureau at county level in all regions. • Implement the hiring system to leaders of highway bureau at county level. • Formulate the target management system of leaders.

By this study of highway maintenance through NH2 and NH4, the solid foundation is laid for promotion of scientific management of road maintenance in Hunan province, a series of specialists are available specializing on road maintenance, and a good beginning is developed for the highway maintenance reform in our province.

Study on Expressway Commercialization and Corporatization

This component is the continuation of NH2. The study was done on the possible plans of establishing tolling companies or organizations. The study report was satisfactorily completed and the results are being considered by the HPCD.

Performance of the World Bank

The World Bank embanked on the preparation of the NH4 in 2000. The Bank Mission reviewed the Feasibility Study report prepared by HPCD. The World Bank sent several missions to review the technical, organizational and economic aspects of the Project and prepared Appraisal Document. The Appraisal Document described the scope of the project, economic benefit and organization arrangement.

During the implementation of the project, the World Bank Supervision Missions provided practical and helpful recommendations on quality, financial management, project organization and other areas. During the project preparation and implementation, the World Bank provided a lot of help to the project implementation unit. There was good

co-operation between the World Bank and the Project Office. The officials of the World Bank understood the high demands for traffic infrastructure in Hunan and provided help and assistance. The People’s Government of Hunan province and HPCD appreciated the cooperation and assistance of the World Bank.

Lessons Learned

As a World Bank financed project, the project cycle included project identification, preparation, project appraisal, negotiation and approval of the Board, project implementation and supervision, completion and evaluation. The project preparation work include project identification, preparation, project appraisal, negotiation and approval of the Board, which took nearly two years.

The officials involved in the project were many economists, financial analysis expert, resettlement and environmental experts and various types of engineers. The team learned from the World Bank how to identify the project, compare and select the alternatives, establish the project organization, prepare Project Implementation Plan and Project Procurement Plans, identify and manage the risks, etc. Although the preparation of a project was long relatively to the construction time, it was a vital major long-term investment, the time spent was well invested. The problem is how the World Bank can coordinate closely with the borrower, project management and project implementation unit so as to speed up the progress.

The institutional strengthening activities will produce a good result over time. The project units profited greatly from the continuous and deep study on research of institutional strengthening, road safety, highway maintenance, expressway corporation commercialization under NH 2 and NH 4.

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

None.

Annex 9. List of Supporting Documents

1. The World Bank, Fourth National Highway Project: Project Appraisal Document (No. 19287-CHA), May 19, 1999.

2. The World Bank, Fourth National Highway Project: Loan Agreement (No. 4493- CHA), between the People’s Republic of China and the International Bank for Reconstruction and Development, September 17, 1999.

3. The World Bank, Fourth National Highway Project: Project Agreement (No. 4493-CHA), between the Provinces of Hubei and Hunan and the International Bank for Reconstruction and Development, September 17, 1999.

4. The World Bank, Aide-Memoires of the Fourth National Highway Project from 1997 to 2006.

5. Hubei Provincial Communications Department, Resettlement Action Plan, March 1999.

6. Hunan Provincial Communications Department, Resettlement Action Plan, December 1998.

7. Hubei Provincial Communications Department, Post-Evaluation Report of Resettlement. April 2003.

8. Hubei and Hunan Provincial Communications Department, Environmental Monitoring Reports, 2001-2005.

9. Hubei and Hunan Provincial Communications Department, Documents for ICR, 2006 to 2007.