World Bank Document

Document of The World Bank

Public Disclosure Authorized Report No:ICR0000132

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45480)

ON A

Public Disclosure Authorized LOAN

IN THE AMOUNT OF US$123.1 MILLION

PEOPLE’S REPUBLIC OF CHINA

FOR

THIRD HENAN PROVINCIAL 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

(Exchange Rate December 31, 2006)

Currency Unit = Renminbi Yuan RMB Yuan 1.00 = US$0.28 US$1.00 = RMB Yuan 7.809

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance Strategy CPMS China Pavement Management System E&M Electrical and Mechanical EAP Environmental Action Plan EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return ENPV Economic Net Present Value FIRR Financial Internal Rate of Return FNPV Financial Net Present Value GOVIA Gross Output Value of Industry and Agriculture HAB Henan Highway Administration Bureau HPCD Henan Provincial Communications Department ICR Implementation Completion Report LRIPC Local Road Improvement in the Poor Counties M&E Monitoring and Evaluation NTHS National Trunk Highway System PAD Project Appraisal Document PAP Project Affected Person PCD Provincial Communication Department PDO Project Development Objectives QEA Quality at Entry QSA Quality of Supervision RAP Resettlement Action Plan SHRP Strategic Highway Research Program ZXE Zumadian-Xinyang Expressway

Vice President: James W. Adams, EAPVP Country Director: David R. Dollar, EACCH Sector Manager: Junhui Wu, EASTE Project Team Leader: Alain Dube, EASTE

CHINA Third Henan Provincial 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…………………………...6 3. Assessment of Outcomes………………………………………………………...10 4. Assessment of Risk to Development Outcome………………………………….17 5. Assessment of Bank and Borrower Performance………………………………..18 6. Lessons Learned…………………………………………………………………19 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners…...21 Annex 1. Project Costs and Financing……………………………………………….22 Annex 2. Outputs by Component……………………………………………………23 Annex 3. Economic and Financial Analysis…………………………………………27 Annex 4. Bank Lending and Implementation Support/Supervision Processes……...34 Annex 5. Beneficiary Survey Results………………………………………………..36 Annex 6. Stakeholder Workshop Report and Results……………………………….37 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR……………38 Annex 8. Comments of Cofinancers and Other Partners/Stakeholders……………...45 Annex 9. List of Supporting Documents…………………………………………….46 MAPS

A. Basic Information Third Henan Provincial Country: China Project Name: Highway Project Project ID: P058844 L/C/TF Number(s): IBRD-45480 ICR Date: 06/28/2007 ICR Type: Core ICR THE PEOPLE'S Lending Instrument: SIL Borrower: REPUBLIC OF CHINA Original Total USD 150.0M Disbursed Amount: USD 123.1M Commitment: Environmental Category: A Implementing Agencies: Henan Provincial Communications Department Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 06/02/1999 Effectiveness: 03/30/2001 03/30/2001 Appraisal: 01/08/2000 Restructuring(s): Approval: 05/16/2000 Mid-term Review: Closing: 12/31/2005 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 Highly Satisfactory 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 98 98 Sub-national government administration 2 2

Theme Code (Primary/Secondary) Infrastructure services for private sector development Primary Primary Rural services and infrastructure 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: Alain M. Dube Jacques M. Tollie ICR Team Leader: Alain M. Dube ICR Primary Author: Alain M. Dube

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The project aims at providing a more efficient and effective transport infrastructure in support of social and economic development in Henan Province. To meet the above development objectives, the project targeted the following outcomes:

• traffic congestion reduced and mobility enhanced in the Zumadian-Xinyang corridor, a key section of China’s National Trunk Highway System (NTHS);

• accessibility to the poor areas in the province improved; and

• efficiency and effectiveness in public sector management of the road network enhanced through institutional and management measures in support of improved asset maintenance, safely and construction quality, while preparing the sector for commercialization opportunities.

Revised Project Development Objectives (as approved by original approving authority) The PDO remained the same throughout project implementation.

(a) PDO Indicators The key indicators were slightly modified in the project. The PAD and Loan Agreement did not contain baseline or target values for the indicators. These were provided through Supplemental Letter No. 2 on February 5, 2001 except for the outcome indicators: ‘Balance of provincial expenditure programs’, ‘Transport Costs’ and ‘Financial performance of expressway company.’ These Supplemental Letter indicators, except for the three without any baseline or target values, have been used as the basis for indicators in this ICR.

(b) Intermediate Outcome Indicators As noted above, the approval documents did not contain values for the PDO indicators. These were defined in Supplemental Letter No. 2 (February 5, 2001) and are listed under the ‘Formally Revised Target Values’.

(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 Gross Output Value of Agriculture and Industry (GOVIA) in Zhumadian- Indicator 1 : Xinyang corridor (in RMBY billion). Value quantitative or 127.0 245.6 243.6 Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments This indicator was achieved with the actual value less than 1% below the target (incl. % value. achievement) Gross Output Value of Agriculture and Industry (GOVIA) in affected counties Indicator 2 : (in RMBY billion). Value quantitative or 18.5 35.3 36.0 Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments This indicator was achieved with the actual value exceeding the target value by (incl. % 2%. achievement)

iii Indicator 3 : Percentage of periodic maintenance put out to competitive bidding. Value quantitative or 25% 100% 100% Qualitative) Date achieved 12/31/2001 12/31/2005 12/31/2005 Comments (incl. % achievement) Indicator 4 : Responsiveness and Effectiveness maintenance programs. Value quantitative or 60% 90% 60% Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments While responsiveness and effectiveness of the maintenance program in 2005 was (incl. % below the target, the 2006 results showed a significant improvement to 89%. achievement) Indicator 5 : Traffic safety (Number of fatalities per year in Province). Value quantitative or 9,142 7,722 4,604 Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments The number of fatalities is over 40% lower than the target value. It should be (incl. % noted that the units in Supplemental Letter No. 1 are injuries, but the values achievement) supplied are fatalities. The latter have therefore been used.

(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 : Average daily traffic on existing road/new expressway Value (quantitative 6,611/0 6,879/14,040 7,327/10,668 or Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Total traffic volume on both the NH107 and the ZXE is 13% lower than expected Comments as of December 2005. The diversion rate from NH107 to ZXE is similar to what (incl. % was anticipated in the PAD (58% vs 60%), although lower than suggested by the achievement) revised target values. Indicator 2 : Average vehicle speed (km/h) on existing road/new expressway Value (quantitative 51.7/0 51.3/87.8 62/89.8 or Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments The vehicle speeds on both the existing road and the expressway are higher than (incl. % the target values. achievement)

iv Indicator 3 : Average daily traffic on rural roads (veh/day) Value (quantitative 1,375 2,953 2,922 or Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments (incl. % This indicator was achieved with the actual flows within 1% of the target value. achievement) Indicator 4 : Number of days per year LRIPC roads closed Value (quantitative 4.4 0 0 or Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments (incl. % This indicator was fully achieved. achievement) Indicator 5 : Successful completion of the institutional strengthening and training program Value (quantitative 0% 100% 100% or Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments (incl. % This indicator was fully achieved. achievement) Indicator 6 : Functional operation of road management system Value (quantitative 0% 100% 100% or Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments (incl. % This indicator was fully achieved. achievement) Indicator 7 : Implementation and application of construction quality assurance system Value (quantitative 0% 100% 100% or Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments (incl. % This indicator was fully achieved. achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/21/2000 Highly Satisfactory Satisfactory 0.00

v 2 12/20/2000 Highly Satisfactory Satisfactory 0.00 3 06/27/2001 Highly Satisfactory Satisfactory 7.50 4 12/19/2001 Satisfactory Satisfactory 13.55 5 06/25/2002 Satisfactory Satisfactory 25.99 6 12/19/2002 Satisfactory Satisfactory 31.67 7 06/09/2003 Satisfactory Satisfactory 44.71 8 11/26/2003 Satisfactory Satisfactory 78.38 9 06/03/2004 Satisfactory Highly Satisfactory 94.42 10 12/23/2004 Satisfactory Highly Satisfactory 114.96 11 06/20/2005 Satisfactory Satisfactory 115.64 12 12/06/2005 Satisfactory Satisfactory 124.36 13 06/15/2006 Satisfactory Moderately Satisfactory 124.59 14 04/06/2007 Satisfactory Satisfactory 124.59

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN

1.1 Context at Appraisal

Context. At the time of the preparation of the Third Henan Highway Project, the Bank's strategic objective, in line with the Country Assistance Strategy (CAS) – Report 20541 presented to the Board on March 18, 1997, was to support China's economy by providing assistance in four key areas: (i) Public sector management and accountability/Enhancing governance; (ii) Transition to a socialist market economy; (iii) Strategies for rural development; and (iv) Strategies for urban development.

At the transport sector level, several important pieces of sector work were undertaken including: China-Strategies for reducing poverty in the 1990 (June 1992 – WB Report 10409-CHA), Sharing Rising Incomes: China 2020 (1997 – WB Report), and two important report on the situation of socio-economic and rural roads in China’s major poverty-stricken areas (ICT, 1997 and July 1998). High level dissemination seminars were carried out by the Bank in the previous five years and had led to the identification of five main challenges facing China in its attempt to cope with the rapid expansion of its transport network: (i) Building sector institutions; (ii) Strengthening resources mobilization; (iii) Enhancing accessibility to remote/low income areas; (iv) Sustaining road maintenance; and (v) Improving construction quality.

The main concerns of the central and provincial highway authorities were to ensure that the highway system helped integrate China’s national economy and facilitate mobility of goods and services. Under their strategy, the investment priority for the highway sub- sector during its Ninth Five-Year Plan (1996-2000) were identified as: (i) high priority was given to developing rapidly the National Trunk Highway System (NTHS); (ii) development of provincial and rural roads that will feed into the NTHS in order to maximize the benefit of NTHS investment; and, (iii) intensified policies and regulations reforms with priority attention given to financing issues and to ensuring efficient utilization of funds.

The Bank was also heavily involved in the financing of several of the high priority sections of the NTHS. The continued involvement of the Bank was to result in much needed additional financial resources to help remove highway bottlenecks and increase traffic capacity in high priority transport corridors. Bank involvement would help to accelerate policy, institutional and manpower development in highway planning, design, supervision, construction, operation, maintenance and finance. Bank involvement was also expected to benefit the design and the quality of construction of the roads to be undertaken. 1.2 Original Project Development Objectives (PDO) and Key Indicators

The project aims at providing a more efficient and effective transport infrastructure in support of social and economic development in Henan Province.

To meet the above development objectives, the project targeted the following outcomes:

• traffic congestion reduced and mobility enhanced in the Zumadian-Xinyang corridor, a key section of China’s National Trunk Highway System (NTHS);

• accessibility to the poor areas in the province improved; and

The principal outcome/impact indicators selected for monitoring progress towards the above development objectives were:

• Gross output value of agriculture and industry the corridor

• Gross output value of agriculture and industry in affected poor counties;

• Percentage of road maintenance expenditure put out to completive tender, and responsiveness and effectiveness of maintenance programs;

• Responsiveness and effectiveness of road maintenance programs; and,

• Traffic accident rates in the province.

The overall project design and implementation were done accordance with good practices and lessons learned from previous projects. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

The key indicators were slightly modified in the project. The PAD and Loan Agreement did not contain baseline or target values for the indicators. These were provided through Supplemental Letter No. 2 on February 5, 2001 except for the outcome indicators: ‘Balance of provincial expenditure programs’, ‘Transport Costs’ and ‘Financial performance of expressway company.’ These Supplemental Letter indicators, except for the three without any baseline or target values, have been used as the basis for indicators in this ICR.

1.4 Main Beneficiaries

The main beneficiaries are:

• The major quantifiable benefits of the project are the reduction of vehicle operating costs and time costs for road users. The expressway has shorter distances, improved surface conditions and riding comfort, improved geometry,

reduced traffic interference, and better safety facilities than the existing roads. Therefore, most of the long-distance traffic and some of the local traffic has diverted from the existing roads to the new expressway. This has led to a reduction in the current congestion levels on the existing roads.

• The project also benefits residents of poor counties in the province where local roads were improved. This provides improved access to health, education and other social serves as well as to markets. The total affected population in the expressway corridor between Zumadian and Xinyang is estimated at about 1.85 million, and the affected population in poor counties is estimated at 4.6 million.

• Other benefits which are non-quantifiable include strengthening the capabilities of the provincial agencies and their related institutions which are responsible for the planning, design, financing, supervision, construction, operation and maintenance of highways in Henan. Also, the project has contributed to lower traffic accident rates on the highway network through the implementation of the traffic safety component. Furthermore, the project has helped to improve the quality of construction of highways through the continuing introduction of improve technology and stricter arrangements for supervision of construction. The project also fostered improved practices in the areas of environment, land acquisition and resettlement of affected people and participatory approaches to project preparation and implementation.

1.5 Original Components

The project included the following three major components:

Part A: Construction of Expressway (US$294.8 million including contingencies)

This component was aimed at increasing capacity in main north-south corridor. It was divided in the following four sub-components.

A.1 Construction of Zumadian-Xinyang Expressway (ZXE), which financed:

• Construction of about 95 km of expressway between the cities of Zumadian and Xinyang in Henan; • Construction of expressway interchanges; • Construction of a service area and administration and maintenance facilities; and • Supply and installation of electrical, electronic and mechanical (E&M) equipment for toll collection, telecommunication and traffic monitoring along said expressway.

A.2 Construction and improvement of interconnecting roads which financed the construction and improvement of about 51 km of interconnecting roads between the Zumadian-Xinyang Expressway and selected cities.

A.3 Equipment to be used for the operation and maintenance of the Zumadian-Xinyang Expressway;

A.4 Construction supervision using a joint domestic and international consulting team.

A.5 Land acquisition and resettlement for affected persons under part A.1 and A.2 mentioned above. This was financed with counterpart funds.

Part B: Local Road Improvement in Poor Counties (US$43.9 million including contingencies)

This financed this programmatic component focused on the rehabilitation or improvement of about 400 km of local roads in the prefectures of Zumadian and Xinyang in Henan to provide the rural population of approximately eight poor counties in said prefectures better access to transportation and communication, and to facilitate their economic activities. The local roads were selected on the basis of the Henan Provincial Communications Department (HPCD) high priority towards providing or improving accessibility to remote villages in poor counties and as a continuity of the second Henan highway project Road Improvement for Poverty Alleviation component. All selected roads were economically justified.

Part C: Institutional Development and Reform Plan (Total estimated US$3.42 million World Bank loan (US$3.6 million including contingencies)

This component included:

C.1 Training programs for HPCD and selected affiliated institutions, including the Henan Provincial Survey, Planning and Design Institute and the Quality Control Management Center, in the areas of highway network planning, financing, management and regulatory policy, construction and maintenance technology and management, and environmental protection.

C.2 Studies and technical assistance covering areas including:

• Asphalt Pavement Performance to improve pavement design and performance; • Road management improvements through new technology and planning practices; • Road safety improvements; • Commercialization of toll highways; • Trade facilitation between Henan and Hubei provinces; and • Provincial conceptual framework for traffic engineering systems.

C.3 Provision of equipment for institutional strengthening. This component consisted of the procurement of specialized equipment for the various studies as well as for the HPCD, the Construction Quality Control Center, and the Design Institute.

1.6 Revised Components

The components were not revised.

1.7 Other significant changes

Interconnecting roads: Due to rapid construction and development of the highway network in Henan, two of the five proposed ZXE interconnecting roads had already been constructed and funded by the provincial government. The other three interconnecting roads remained part of the project. This resulted in a loan savings of US$2.5 million.

E&M Implementation: Tendering activities for the ZXE were all completed by the end of 2001. Civil works for the ZXE were completed in November 2003. The E&M contract was signed on December 2003 and work was to be completed by August 2004. The ZXE opened to traffic in December 2003 before the E&M contract could be completed. The HPCD carried out its own temporary installation project including toll stations and control centers outside the scope of the Bank funding. Following problems related to land acquisition and delayed approval of building plans; one major network- monitoring sub-center was not completed before the Loan Closing Date. This resulted in loan savings of US$11.2 million.

Additional Activities and Equipment: The unallocated funds (US$10.8 million), loan savings from the interconnecting roads (US$2.5 million), and the E&M savings (US$11.2 million) were proposed to be used to finance: (i) a second road rehabilitation package under the Local Road Improvement in Poor County (LRIPC) at an estimated cost of US$12.8 million; and, (ii) the procurement of additional equipment under the Institutional Development and Reform Plan Component at an estimated cost of US$11.7 million. Although the loan agreement was amended on 12 October 2005, these activities were never implemented due to the DRC refusing to allow the use of loan savings for new sub-components based on Decree 28 (2005).

LRIPC Disbursement Ratio: The modification of the Bank’s disbursement ratio from 32% to 41% for the LRIPC (Part B) component to reduce pressure on needed local counterpart funds.

Loan Extension: A one year extension of the loan closing date from December 31, 2005 to December 31, 2006, was approved to allow for the completion of several institutional development sub-components as well as the completion of the second package of LRIPC and the procurement of additional equipment which never eventuated.

2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES

2.1 Project Preparation, Design and Quality at Entry

A. Project Preparation. The project objectives were fully consistent with the Government’s priorities and the CAS. Experience from completed and ongoing Bank- financed highway project in China had shown a high commitment for the implementation of the hard components of the project, which accounted for 99% of the project costs. In addition, the HPCD had shown strong commitment and ownership for the project soft components by maintaining significant continuity between technical assistance from the previous two highway project financed by the Bank. The initial risks were estimated as modest or substantial, with an overall rating of modest. This modest rating was fully justified given the previous experience in the province and the great commitment for implementation of similar projects in China. Identified potential risks during implementation included: stability of the core project management staff, availability of counterpart resources, outside interference, continued commitment to implement TA’s final recommendations, good performance of contractors and consultants. Mitigation measures were proposed for each of the identified risks.

B. Project Design. The project design was sound and reflected lessons learned on other projects in China, as well as the previous two projects in Henan. The three components addressed critical issues for Henan Province, and the HPCD.

The technical analysis undertaken during project identification and preparation were sound. The project was designed taking into account the relevant economic, financial, technical and institutional factors. Detailed expressway traffic forecasts were developed on the basis of origin-destination surveys and the expected tolls that would be charged on the expressway. Financial risks for the project roads were minimal based on sensitivity analysis. The cost of construction and maintenance for the project toll free roads of the project (LRIPC and interconnecting roads), being only a small fraction HPCD fund flow, had a minimal fiscal impact. A number of issues were identified from experience under the previous two highway projects in the province. They were set under one overall objective: the Institutional Development and Reform Plan (IDRP) component. This master plan provided an effective framework to integrate the numerous activities and to facilitate discussions during the annual joint reviews. Also the IDRP was viewed as a dashboard not only for activities under the project, but also for assessing progress and impact on the road sector in Henan.

Engineering designs prepared by Henan Provincial Communications, Planning, Survey and Design Institute were reviewed by a private consultant firm (Italian consultant) financed under Italian consultant trust fund (TF-518001). The Bank’s comments and recommendations were taken into account by HPCD and integrated in the final engineering design.

Project design paid particular attention to minimize the impact on agricultural land and on communities along the alignment. The resettlement action plan (RAP) was prepared

for the expressway and the interconnecting roads which benefited from experience gained under previous projects. For the LRIPC, where no major impact was expected because of minor changes in the alignment, a Resettlement Policy Framework was prepared.

C. Quality at Entry. The overall quality at entry was rated highly satisfactory by a QAG review in April 2001. This rating is based on: (i) a generally very competent and committed borrower with a good working knowledge of the Bank; (ii) the experience gained through two prior operations with the same borrower; and (iii) a strong Task Team with good support from its management and peer reviewers. However, the absence of baseline or target values in the results framework (see Section 2.3) was an important omission which should have been identified during preparation.

2.2 Implementation

The project was implemented smoothly, with the expressway, interconnecting roads and the LRIPC roads completed well within the project timeframe, mostly because of strong experienced gained through two prior projects.

The LRIPC component was deemed very successful with visible positive impacts (better housing, more businesses, reduced travel time, yearly opened roads, etc.) in communities along the roads. The HPCD therefore suggested extending this component with an additional package of 12 roads. This was supported by the MOF through a loan amendment in August 2005. The additional package of LRIPC and the procurement of equipment for institutional strengthening planned under the August 2005 Loan Amendment did not, however, materialize before the Loan Closing Date. The revised LRIPC was left uncompleted due to a refusal from NDRC to allow for the use of loan savings based on China’s Decree 28 (2005) that calls for the cancellation of all WB loan savings.

Approval for the procurement of equipment also suffered delays related to the eligibility of the Henan Transport Polytechnic School which was not deemed to be an agency of the HPCD.

The project was not rated by QAG under implementation status. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

The project design adopted a series of project development objective indicators and physical targets for measuring implementation progress. Unfortunately, the M&E design and application had a number of deficiencies which have impacted on the ICR:

• Missing values in PAD: Neither the PAD nor Legal Agreement contained baseline nor target values for any of the indicators. • Partial Values Available: Supplemental Letter No. 2, dated 5 February 2001, presented values for all indicators except three of the outcome indicators: ‘Balance of provincial expenditure programs’, ‘Transport Costs’ and ‘Financial performance of expressway company’. These Supplemental Letter indicators,

except for the three without any baseline or target values, have been used as the basis for indicators in this ICR (see Data Sheet). • Project Monitoring: The project monitoring, as contained in the ISRs, used a different set of indicators than in the Supplemental Letter No. 2—not including ‘Balance of provincial expenditure programs’, ‘Transport Costs’, ‘Financial performance of expressway company’, ‘the number of days the LRIPC roads were closed’ or any indicators for the institutional strengthening1.

In addition to the above issues, some of the outputs in the PAD log-frame are more representative of outcomes than outputs.

The ICR therefore discusses outcomes in the context of the three components of the project:

• Traffic congestion relieved and mobility increased in the main corridor • Accessibility to poor areas in province improved • Efficiency and effectiveness in public sector management of the road network enhanced

2.4 Safeguard and Fiduciary Compliance

As a Category A project, an Environmental Impact Assessment (EIA) report and Environmental Management Plan (EMP) were prepared for the expressway and the other roads included in the project. The major impacts of the project assessed for construction and operation periods were dust and noise pollution. Mitigation measures given in the EMP were implemented. The results and data from environmental monitoring activities were provided periodically in the EMP implementation progress reports, which indicated that the environmental quality at the project sites met the national environmental standards and requirements.

The resettlement and environment teams of the project carried out public consultation (local people, council representatives, local governments and enterprises) and questionnaire analysis of public opinion supplemented by interviews. The people consulted showed concern for irrigation disruption, community separation and environmental protection during construction. Final EIA, EMP and RAP were made public locally in Henan as well as disclosed through the Bank’s Infoshop. Local people were intensively informed through radio and television about the availability of documents related to their resettlement rights.

1 It should be noted that although the project monitoring did not include all of the indicators in the PAD or the Supplemental Letter No. 2, it did include the key indicators that would indicate the successful achievement of the PDO. This constituted all indicators in the Data Sheet Section F(a), as well indicators 1 to 3 in Section F(b).

Major resettlement impacts are summarized in the table below:

Table 1: Summary of Resettlement Activities Items Imple- RAP Change mentation Land acquisition (mu) 9,816 9,517 -0.3% House demolition (m2) 34,295 39,219 14.4% Total resettlement cost (Y million) 242.19 246.65 1%

The floor space of houses demolished was increased due to newly added assets between the preliminary design and the implementation. The total resettlement cost did not increase significantly because those assets were found to be large, simple structures of very poor quality which had comparatively low compensation rates.

The land and house demolition compensation funds were distributed to the affected households. The compensation rates were in line with the RAP. The assessment of livelihood restoration showed that the income of the affected people was increased 25% per capita and the floor space of the new houses was increased by 4% per household after land acquisition and relocation. The project affected people were satisfied with the resettlement implementation. The resettlement implementation was considered to be generally successful and it was concluded that the resettlement objective of improving the livelihood of the project affected people after resettlement implementation was met.

During project implementation, no significant changes to the project financial management system were noted. Project financial statements were prepared in the format agreed with the Bank. The audited project financial statements, as required by the legal agreements, were submitted to the Bank later than the due dates in the first three years, but then improved to comply with the legal agreements. All the audit reports were issued with unqualified (clean) opinions, but some internal control weaknesses and noncompliance (slow disbursement, detaining project funds, invalid supporting documents, idle assets, funds used in non-project activities, large volume of cash transactions, etc.) were identified by auditors.

The procurement carried out under the project was in compliance with Bank policies and procedures as required in the Loan Agreement and the procurement guidelines. Most contracts were awarded to the qualified lowest responsive bidders, and when the lowest bids were rejected, the justification and documentary evidences were provided.

2.5 Post-completion Operation/Next Phase

ZXE and Interconnecting Roads. Since its opening in December 2003, the ZXE and its interconnecting roads have been successfully carrying traffic.

Construction quality issues amplified by high temperatures, poor pavement mix-design and truck overloading have resulted in premature rutting on several road segments. Following several studies and discussions between the HPCD, the design institute and the

contractors, an acceptable compromise was reached between the project employer and the contractor assigning responsibility of the damages. The Zumadian-Xinyang Expressway Construction Company (ZXECC), currently managing and operating the highway successfully, conducted remedial works and will monitor the situation over the coming years.

Graduated tolls which see overloaded trucks being charged at higher rates have been introduced, although the marginal toll is much lower than the marginal damages done by such vehicles. The ZXECC has adopted good management practices addressing safety issues, infrastructure maintenance planning and implementing, continuous staff training. It is well funded with toll revenue already well above initial estimates.

The LRIPC rehabilitated or improved by the project are now under regular maintenance schemes. The roads have improved access for the local residents.

With regard to the Institutional Development and Reform Plan Component, all training programs were completed and contributed positively to the project success. Studies under the project were successfully completed, executive summaries were prepared and results were publicized through seminars, conferences and newsletters. The Road Management and Maintenance sub-component was successful in adapting the HDM4 model to the CPMS and resulted in the establishment of annual and multi year plans for road asset management. Although the coordination office for safety and overloading were dissolved because of an overlap in responsibilities, the mandate and functions of this office will be continued within existing agencies. The HPCD has also expressed interest in participating in a potential Bank financed Second Generation Traffic Safety Project.

3. ASSESSMENT OF OUTCOMES

3.1 Relevance of Objectives, Design and Implementation

The project objectives were clear and in accordance with the long term development goals of the Government of China. They remain in line with the current CPS (May 2006), which reflects the Bank’s strategic objective to foster growth, reduce poverty, encourage good governance and improve the environment, as well as support China’s development agenda by infrastructure improvement. The objectives of this project also conform with the Chinese government’s strategy, including policy and regulatory reforms with special attention to financing issues and ensuring efficient fund utilization; the development of all-weather access roads to remote/low income areas in poor counties; and the rapid development of the National Trunk Highway System (NTHS) including provincial and rural roads feeding into the system.

3.2 Achievement of Project Development Objectives

Summary

The project met the PDO of providing a more efficient and effective transport infrastructure in support of the social and economic development in Henan Province. The ZXE was successful in reducing traffic congestion and enhancing mobility. It also successfully reduced travel time and transport costs while improving traffic safety. The LRIPC component has enhanced access and mobility to the poor counties participating in the project. The more efficient and effective transport infrastructure have created opportunities in all sectors as shown in the resulting increased economic activity and growth in the project area. The institutional development contributed to better governance and social improvement through better maintenance management, improved safety, minimized environmental impact and adequate resettlement activities.

As described in Section 2.3, the M&E design and implementation on the project had a number of deficiencies. Neither the PAD nor Legal Agreement contained baseline or target values for any of the indicators. Partial values were provided for indicators through Supplemental Letter No. 2, but three key PDO indicators had no values. During the supervision, the project team did not monitor all the indicators. In light of these difficulties, the achievement of the PDO is addressed in the context of the three main components of the project:

It will be shown that in spite of the deficiencies in the M&E framework, one can be confident that the PDO was achieved.

A. Traffic congestion relieved and mobility increased in the main corridor

The 95 km, dual lane, ZXE and its interconnecting roads, initially planned to be open in early 2003 but was opened to traffic in December 2003.

The objective of reducing congestion on the parallel national road (NH107) and complete this missing high capacity link of the NTHS was met. In 2005, the ZXE was carrying 69% of total corridor traffic as anticipated in the PAD—some 13,000 veh/day. The average Daily Traffic (ADT) on the NH107 was reduced by 14% while the total corridor traffic has increased by 186% over the last 7 years providing infrastructure within an acceptable level of service.

The average vehicle speed on NH107 has increased to 62 km/h from 51.7 km/h, while the average speed for the ZXE users is 89.8 km/h.

An additional benefit anticipated in the PAD was a reduction in vehicle operating costs (VOC). A VOC survey concluded that due to toll charges, VOC for freight transport were 33-38% higher for freight transport, and the same for passenger transport. Excluding toll charges, the VOC were reduced by 22-25% for freight transport and 17% for passenger transport.

The reduction in traffic congestion along the ZXE transport corridor, along with the implementation of measures from the action plans to improve safety, as resulted in a reduction for the corridor of the rate of injuries (injured per 10000 vehicles) by 48% and the rate of fatalities (fatalities per 10000 vehicles) by 22%, reversing the previous observed trend of year over year significant increase. These data however hide a grim picture for NH107, where the rate of injuries and fatalities were found to be significantly higher (up to 254% for fatalities) in 2003 and 2004. Implementation of safety measures to improve safety along the NH107 in late 2004 and early 2005 have successfully contributed to decrease these ratios by almost 50%. Lower rates of injuries and fatalities on the ZXE (20% of NH107) also confirm that it is much safer to travel on.

Yearly reports on the financial performance of Expressway Company in term of loan repayment and operation and maintenance (O&M) expenditures were prepared and confirmed the adoption of good management practices addressing safety issues, infrastructure maintenance planning and implementing, continuous staff training.

Toll revenue already well above initial estimates will provide sufficient revenue for loan repayment and operational and maintenance costs. The economic benefits of the project are considered sustainable, without any appreciable risk, as traffic has been growing steadily by over 9% p.a. since opening.

B. Accessibility to poor areas in province improved

A total of 373 km of road improvements was completed under the LRIPC program. The roads were paved and road closure due to bad weather has been virtually eliminated, except in exceptional cases of flooding or landslides. Accessibility to market and services has been enhanced and income of the people increased. This is evidenced by the more than doubling of traffic on these roads over the project period (see Data Sheet). Some areas are also more accessible for tourism and alternative businesses to the traditional farming are being developed. A good example is the recent development of the tourist industry and the significant social benefits related to tea production around the Nanwan Reservoir area near Xinyang.

Improved accessibility leads to reduced poverty. The proxy measure used for poverty reduction in the key performance indicators is the Gross Output Value of Industry and Agriculture (GOVIA). As shown below, this proxy shows a 35% and 23% increase in GOVIA respectively for the ZXE corridor and the affected poor counties between 2001 and 2005. These results are well below the national and provincial growth indicator which confirms that further investments are needed to help develop these poor areas. The

data also confirms an acceleration of the growth with most of the growth (54 and 70%) occurring once the roads were opened to traffic.

Table 2: GOVIA Comparison from 2001 to 2005 GOVIA (RMB billion) 2001 2002 2003 2004 2005 China 9593 10239 11669 13652 18232 Variation from baseline in % 0 7% 22% 42% 90% Yearly variation in% 7% 14% 17% 34% Henan Province 584 617 705 882 1054 Variation from baseline in % 0 6% 21% 51% 80% Yearly variation in% 6% 14% 25% 20% ZXE corridor 181 195 209 227 244 Variation from baseline in % 0 8% 15% 25% 35% Yearly variation in% 8% 7% 9% 7% Affected poor counties 29 32 31 34 36 Variation from baseline in % 0 10% 7% 17% 24% Yearly variation in% 10% -3% 10% 6%

C. Efficiency and effectiveness in public sector management of the road network enhanced

The efficiency and effectiveness in public sector management of the road network was enhanced through institutional and management measures in the areas of better trained staff, operation of a road management system, improved quality of construction and maintenance.

3.3 Efficiency

Net Present Value

The economic evaluation is composed of two major components: (i) ZXE; and, (ii) the local roads under LRIPC. The economic evaluation covers all subcomponents as well as the entire project. Both costs and benefits reflect December 2006 prices.

The economic internal rate of return (EIRR) of the ZXE is estimated at 19.7%; the net present value (NPV), at a discount rate of 12 percent, is estimated at RMB 1,747.1 million, compared to the PAD’s estimate of 19.0% and RMB 1,246.5 million, respectively.

The recalculated EIRR and NPV of the entire LRIPC are estimated to be 29.5%, ranging from 12.5% to 56.7%, and RMB 570.7 million, respectively. The PAD’s estimates were 30.9% and RMB 415.0 million, respectively.

The recalculated EIRR and NPV of the entire project are estimated to be 21.0% and RMB 2,317.8 million. LRIPC, compared with the PAD’s estimates of 20.5% and RMB 1,660.0 million. The results are summarized in the following table.

Table 3: EIRR (in %) AND NPV (12%, RMB million) ICR PAD EIRR NPV EIRR NPV ZXE 19.7 1,747.1 19.0 1,246.5 LRIPC 29.5 30.9 415.0 Total 21.0 2,317.8 20.5 1,660.0

The cost savings (9% for the ZXE, 12% for the LRIPC, and 10% for the entire project) have offset the lower traffic demand on the ZXE. As a result, the recalculated EIRR for the ZXE and the LRIPC as well as the entire project are similar to the PAD’s estimates. The detailed economic analysis is in Annex 5.

Financial Rate of Return

The financial evaluation is focused on the ZXE because the ZXE alone constitutes about 86% of the total project cost and there is no toll for the roads under the LRIPC. Prior to opening to traffic in December 2003, a financially independent expressway company was formed with the responsibility for the day-to-day management, operations and maintenance of the expressway. The main income of the company is the tolls charged to the road users. The toll rates are set by the provincial government. The company is planning to use the toll revenue to cover amortization charges of the Bank and domestic loans. Based on the current toll revenue and operating costs, the company will be able to generate enough cash flow to over the operation, maintenance, and debt services of the expressway for the life of the project.

The financial profitability of the ZXE is better than the PAD’s estimates due to the higher than expected total operating revenue arising from higher than expected toll charges and the lower than expected total operating cost. The result of the financial evaluation for the ZXE shows that the FIRR will be 11.2% with a NPV of RMB 1,916.7 million (at the discount rate of 4.7%), which is better than the FIRR of 9.2% with a NPV of RMB 923.9 million (at the discount rate of 6.0%) forecasted in the PAD. The detailed financial analysis is in Annex 5 and summarized as follows.

Table 4: FIRR (in %) and NPV (RMB million) ICR PAD NPV EIRR EIRR NPV (4.7%) (6.0%)

ZXE 11.2 1,916.7 9.2 923.9

Cost Effectiveness

At appraisal the total project cost was estimated at US$359.55 million, of which US$150 million (42%) was to be financed by the Bank loan. The total actual project cost of US$311.43 million is 87% of the original estimate. Detailed costs are included in Annex 1.

As shown in the following table, the estimated cost per km was higher than for projects done at the same time in neighboring provinces. This higher estimate was due in part to the anticipated heavier traffic volume that led to the design of a stronger pavement structure with ticker pavement layers. The final cost was still higher than in other provinces.

Table 5: Estimated and Actual cost (US$ million) Estimated cost Length in Actual cost (US$ million) Province (US$ million) km Total per km Total per km Henan 95 295 3.1 268 2.8 Jiangxi 130 325 2.5 270 2.1 Hubei 110 255 2.3 220 2.0 Hunan 180 321 1.8 418 2.3

3.4 Justification of Overall Outcome Rating Rating: Satisfactory

The project aimed at providing a more efficient and effective transport infrastructure in support of social and economic development in Henan Province. There were three main components of the project:

Although, as discussed in Sections 2.3 and 3.2, there were problems with the M&E framework and the indicators used in the project, the key performance indicators benchmarks have generally been met or exceeded:

• The GOVAI in the affected counties has increased, although with rates lower than the national or provincial averages; • Transport costs are lower, once tolls are taken into account; • Competitive tendering of road maintenance has increased; • Traffic accident rates are reduced; • The financial viability of the toll company is not in doubt; and,

• Traffic diversion to the expressway is slightly lower than anticipated (58% vs. 60%) and it has relieved congestion on the parallel national highway (NH107) while reducing total number of accident injury and fatality rates and reducing travel time;

In addition, the component output indicators have been met or exceeded. The ex-post EIRR and NPV show the project has strong economic benefits.

It is therefore clear that the project was successful in providing a more efficient and effective transport infrastructure in support of social and economic development in Henan Province.

3.5 Overarching Themes, Other Outcomes and Impacts

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

As described in Section 3.2 B, the project had a major impact in reducing poverty in the poor counties served by the project roads. Although not classified as a “poverty project”, the project had a substantial poverty alleviation dimension through the LRIPC component as demonstrated by the ex-post evaluation of this component carried out by HPCD. This led to this component being selected for official presentation at the WB co-sponsored 2004 International Conference on Poverty in Shanghai.

(b) Institutional Change/Strengthening

The Institutional Development and Reform Plan impact, defined as the extent to which the project has improved the HPCD’s ability to make use of its human and financial resources, is rated as satisfactory. Project management skill, maintenance planning and implementation, design techniques, quality control procedures, traffic safety, business models and financing schemes for expressways have all been improved. The equipment procured is all being used.

Foreign consultants. With the completion of this project, it appears that the HPCD would not have needed foreign consultants to support the design and general supervision activities of projects. The relationship between the foreign supervision consultant and HPCD shifted in the last years from mentoring to partnership as the value added by the foreign consultants increasingly became more limited. The HPCD is now looking for high level technological and strategic support in specific areas such as ITS, integrated traffic safety, overloading control, sophisticated road maintenance software and management tools, environmental impact mitigation.

Newly paved rural roads used as farming facilities. On several local roads with low traffic, newly paved surfaces are used to dry cereals, while traffic is used to separate grain from the shaft. This could be considered a positive impact of the newly paved rural

road since it provide an economical way of processing grain for relatively poor farmers, but it also raises new safety issues related to the presence of workers on the road for several days a year. This interference with traffic creates new hazards for both vehicle passengers and the farmers (including children) making use of this unorthodox mechanism for drying cereals and separating the grain from the shaft. This also raises health issues related to the content in bitumen sub-product and other vehicle pollutant in the grain processed this way. New bituminous pavements are known to shed more bitumen in the first year. This practice should be stopped by the traffic police.

Environmentally friendly roads. Stemming from the experience of several expressway and highway projects, Henan is moving toward better engineering standards and practices to make future road projects more environmental friendly. This has required the Bank to stay involved in supporting the changes.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable

4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME

Rating: Negligible to Low

The project aimed to provide more efficient, safe and effective transport infrastructure in support of the social and economic development in Henan province. The risk that the development outcome will not be realized and sustainable is low for the following reasons:

• The physical investments have resulted in good transport infrastructure, both for the expressway and the local roads; • Traffic in these corridors continues to grow showing the demand for the investments; • Traffic safety has been improved; • Congestion on the existing road has been relieved and are likely to remain acceptable considering available capacity and diversion rates to the newly built expressway; and • The local roads have had a significant reduction in number of closures, and the increase in GOVAI is expected to be sustained.

There is evidence that routine maintenance activities have been initiated to protect and even improve the project’s assets.

5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory

The Bank’s performance at the project identification and preparation was rated highly satisfactory by a QAG review in April 2001. The task team ensured that the project objectives were consistent with GOC and Bank strategies.

The Bank performance during identification, preparation, and appraisal of the project was highly satisfactory. The Bank team was led by an experienced highway engineer and included specialists covering environment, social/resettlement, economics, rural roads, expressway engineering, institutional strengthening and highway safety. Potential risks were identified, and the Bank’s Safeguard Policies were adequately addressed. A financial management review was undertaken to ensure compliance with the Bank’s financial management procedures. To improve the overall quality, during preparation the engineering designs and technical bidding documents, including cost estimates for the proposed expressway and related roads as well as their E&M facilities, were reviewed by international engineering consultants under grant funding. The overall QAG rating was hence based on: (i) a generally very competent and committed borrower with a good working knowledge of the Bank; (ii) the experience gained through two prior operations with the same borrower; and (iii) a strong Task Team with good support from its management and peer reviewers.

(b) Quality of Supervision Rating: Satisfactory

The project had two task team leaders (TTL) in charge of the project supervision. One was responsible for the project preparation and for the first four years of implementation while the second TTL performed supervision for the last two years, closed the project and prepared the ICR. The task management transition went smoothly, with the first TTL providing support and advice to the new TTL. The Bank’s policies and procedures were applied consistently. World Bank missions were conducted in a professional and constructive manner, and comprised specialists with a sound knowledge of issues. The timing of missions was appropriate and comment received from HPCD staff indicated a respectful working relationship and flexible approach by staff. Aide Memoires and Management Letters were completed in a timely manner with clear references to needed actions covering all aspects of project component, safeguards and fiduciary issues. An area of improvement would have been to ensure the more appropriate M&E framework, supported by regular data.

5.2 Borrower Performance

(a) Government Performance Rating: Satisfactory

The satisfactory performance is based mostly on the government continuous effort throughout the entire project phases to: (i) establish a very effective and stable project team and project framework; (ii) deliver within the agreed deadlines good quality reports and project outputs; and (iii) show strong and continuous commitment to complete all project components, including the institutional development components.

Some minor issues and delays occurred at the end of the project. These had minimal impact on the completion of the original components but prevented the completion of the additional component introduced via the October 2005 loan amendment. About eight months before the loan closing date, the Bank had recommended either a new one year extension of the project to pursue an extended safety component or the cancellation of loan funds to minimize commitment fees. The government did not cancel the loan funds when led to unnecessary commitment fees. The client acknowledged that it should have been more pro-active on this issue and follow the Bank recommendation more diligently.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory

Implementing Agency Performance Henan Provincial Communications Department

The performance of the implementing agency was satisfactory. HPCD demonstrated commitment to achieving the project objectives, including not only construction, but also institutional development through support for the project financed studies, workshops and training programs. Construction of the ZXE and LRIPC components was done with some savings in costs and an acceptable quality of works.

The overall Borrower performance is rated as satisfactory. This is based on the ratings of the government and the implementing agency and also considering that all the original civil works and institutional components were completed successfully and most project outcomes are deemed to be sustainable,

6. LESSONS LEARNED

Institutional Strengthening. In spite of a broad range of topics, complex issues and many stakeholders, institutional strengthening can be successful. In this project two features contributed to the success: (i) having an integrated framework like the IDRP; and,

(ii) a robust monitoring plan showing expected milestones and facilitating the joint annual reviews throughout implementation.

Local Roads in Poor Counties. This form of targeted intervention has proven very effective in enhancing economic opportunities in poor areas. The 2004 Shanghai Conference on Poverty called for the scaling up of such operations. It has been encouraging to see expanded rural road components in several recent highway projects in China. This also became a significant input for the “New Socialist Countryside” policy which calls for more investment in poor rural areas.

Traffic Safety. The Bank should pay more attention to the impact of the construction works on safety and include mitigations measures during the construction phase. During road construction and maintenance there can be an increase in traffic accidents resulting in more injuries and fatalities. Once open to traffic, a sharp reduction in traffic accident injuries and fatalities was observed on the new expressway. Traffic safety should be addressed in an integrated approach involving all stakeholders (police, health, education, and transport departments).

Pavement Structure. The impact of high cement content (above 4.5% in weight) in base course remains a problem. While it allows for greater pavement strength it also produces more shrinkage cracks and a rigid pavement effect. These cracks reflect prematurely through the bituminous pavement and allow infiltrations in the pavement structure, weakening it at an early stage of its life. Pavement performance research conducted under this project showed that cement content below 4.5% in weight is a good compromise between structural capacity and rigid pavement effect.

Overloading Impact on Pavement Design. Overloading is a major issue in China since it creates significant damages to pavement structure also contributes to the number and severity of traffic accidents. The current transport environment resulting from the privatization of state owned transport companies has created excess transport capacity and hence excessive competition, which has lowered prices especially in the heavy transport sector. Hence, overloading became the natural response in an environment which lacks proper enforcement of load limits. Engineers are considering over designing pavement structure to minimize damages. However this may not be the best approach as it may lead to more tolerance on overloading resulting in additional safety issues.

Intelligent Transport Systems. Even though many provinces in China are using state of the art equipment, few provincial and municipal systems are well integrated. However, the integration of various components of the system in Henan is very impressive and could even be considered a success story in comparison with similar systems implemented in North America or Europe.

Henan is also already planning to widen several expressways to eight lanes. It is noted that: (i) these investments could potentially be delayed by optimizing the operation of existing infrastructures through better use of ITS technologies. This would also contribute to reduce transport related pollution (gas emissions, noise and particles); and,

(ii) national, inter-provincial and municipal integrations of ITS systems remains a major challenge as communications between stakeholders remain weak and a national ITS architecture has not yet been established. The Bank should consider getting more involved in strategic guidance on ITS at both National and provincial level.

7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS

(a) Borrower/implementing agencies

The borrower did not raise any substantive issues requiring comments.

(b) Cofinanciers

Not applicable.

ANNEX 1. PROJECT COSTS AND FINANCING

(a) Project Cost by Component (in US$ Million equivalent)

Appraisal Actual/Latest Percentage of Components Estimate Estimate Appraisal (US$ millions)1/ (US$ millions)2/ INCREASED CAPACITY IN 272.56 267.52 98.2% MAIN CORRIDOR IMPROVED ACCESSIBILITY IN POOR 40.55 38.86 95.8% COUNTIES ENHANCED SECTOR 3.42 3.55 103.8% MANAGEMENT

Total Baseline Cost 316.53 309.93 97.9%

Physical Contingencies 14.35 N/A

Price Contingencies N/A 27.15 Total Project Costs 358.03 309.93 90.6% Front-end fee IBRD 1.50 1.50 100.0 Total Financing Required 359.53 311.43 90.6%

Notes: 1/ The costs do not include interest during construction which was estimated at Appraisal to be US$15.8 million since the actual cost was not available at the time of the ICR preparation. 2/ Contingencies are included in the actual component costs.

(b) Financing

Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ millions) (US$ millions) Borrower 0.00 0.00 N/A International Bank for Reconstruction and 150.00 123.10 82.1% Development Local Govts. (Prov., District, 193.75 188.33 97.2% City) of Borrowing Country

ANNEX 2. OUTPUTS BY COMPONENT

Part A: Construction of Expressway and Interconnecting roads. (PAD estimate US$294.8 million including contingencies, ICR actual US$267.5 million)

The construction of the 95 km dual lane Zumadian-Xinyang Expressway, its interchanges and interconnecting roads was completed in November 2003; one year late based on the initial plan but two years before the initial loan closing date. The ZXE opened for traffic in December 2003. All important E&M equipment were installed in the following months. In addition to completing this important missing link of the NTHS, and reducing travel time by 25% between Zumadian and Xinyang, the ZXE has contributed to accelerate economic growth and improve traffic safety in the corridor.

At the end of 2004, a Bank supervision mission noticed that premature rutting was occurring on some sections. Several studies were conducted to identify the cause and it was later concluded that this was the result of the combined effects of poor mix-design, high-temperature; overloading and poor quality control. An agreement was reached between the HPCD, the contractors and the expressway operation company to implement remedial measures which were completed before the loan closing date.

Traffic diversion to the expressway from the adjacent congested NH107 was slightly lower than anticipated (58% vs. 60%). This has ensured traffic on both roads is at an acceptable level of service.

Equipment for operation and maintenance of the ZXE was procured under the project and put into use.

Part B: Local Road Improvement in Poor Counties (PAD estimate US$43.9 million including contingencies, ICR actual US$38.9 million)

The LRIPC program was completed in December 2002 with the rehabilitation or improvement of 373 km of local roads in the Zumadian and Xinyang prefectures. The objective was to provide the rural population of eight poor counties in the prefectures better access to transportation and communication, and to facilitate their economic activities.

This investment contributed to reduced travel time, improved road safety, reduced road closures, promoted the development of eco-tourism, as well as having a significant impact on the economic growth of the villages and community along the project. One good example is the recent development of the tourist industry and the significant social benefits related to tea production and transformation around the Nanwan Reservoir area near Xinyang.

Due to the success of this initial program, HPCD wanted to expand the work to 12 additional roads, however, this was not approved of by the DRC.

Part C: Institutional Development and Reform Plan (PAD estimate US$3.42 million excluding contingencies, ICR actual US$3.6 million)

C.1 Institutional Strengthening/Training

Domestic and international training programs were undertaken for the HPCD, Henan Provincial Survey, Planning and Design Institute, and the Quality Control Management Center. These addressed the areas of highway network planning, financing, management and regulatory policy, construction and maintenance technology, management, and environmental protection. The training was found by the HPCD to be very useful and trainees are applying what they have learned. As an example, the Survey and Design Institute of HPCD now regularly uses SHRP techniques and laboratory equipment for Super-pave Design method.

C2. Studies and Technical Assistance

Studies: A number of different studies and technical assistance activities were successfully completed and the results put into use:

Pavement Performance of High Grade Highways: The study was undertaken to improve semi-rigid base layer pavement design and performance. The study produced 11 separate technical reports of good quality. A detailed work plan for dissemination of the research outputs, including publications, workshops and seminars, targeted audience, application of the research results to guide pavement designs in Henan was also finalized and partially implemented before the loan closed.

Road Management Improvement: This sub-component included the development and implementation of computer based systems to carry out regular surveys of the network of national and provincial highways in Henan and the establishment of annual and multi year plans for effective management of road assets. The concepts and applied techniques of road management at network level have been successfully introduced to Henan for improvement of the current road maintenance practice through this technical assistance programs.

A practical pavement management system has been developed with the aid of combined international and local consultants. The system can be now used by the Highway Administration Bureau (HAB) decision makers as a tool in the areas of database management, pavement evaluation and determination of road network maintenance programs, and further enhancements are possible in the future. A large scale program of pavement condition surveys on the entire provincial network (about 18,000 km in total) was conducted in 2004. On the basis of the data and information collected in 2004 and 2005, HAB was able to: (i) establish a sound databases from 2001 to 2004); (ii) apply HDM-4 analysis functions in programming multi-year pavement maintenance treatments under annual investment or performance target constraints (2004-2005); and, (iii) use the

system as a support tool in decision process of road network maintenance and rehabilitation programs (2005-2006).

HAB has developed a multi-year highway rehabilitation programs and a five-year investment plans for preservation of the existing highway network with the use of the resulting comprehensive pavement management systems. This resulted in a more balanced provincial expenditure programs between new construction, rehabilitation and maintenance and between classes of roads. HPCD also confirmed it intends to move forward with the implementation of road asset management and maintenance of the provincial high-grade highways level (about 4000 km) starting in 2007.

HPCD also implemented a significant shift for its intermediate maintenance work from force account to contract based procurement. In 2005, all intermediate maintenance work was procured on a lowest bidder basis compared to 30% in 1999. Responsiveness ratios of maintenance programs remained below expectations as needed maintenance fund were less than half actual needs between 2001 and 2005. Effectiveness of major maintenance program remained above expectation for national highways (125%) and below expectation for provincial roads (80%) which indicate a need for further training on quality control and supervision of maintenance works at prefecture and county level.

Road Safety: Several good quality studies and reports were completed including the “The study on Traffic Volume Counting System of Henan Province” and the “2003 Economic Losses of road Traffic Accidents in Henan Province”. This last report included 11 proposed recommendations including black spot treatment, management of the ROW, etc. which were implemented and monitored subsequently on several national roads in Henan under the National Traffic Safety Law with the contribution of police departments.

Commercialization of Toll Highways: Yearly reports were submitted to the Bank showing progress made in privatizing expressways. The commercialization of expressway expanded continuously throughout the project life, with the construction of nine new expressways initiated in 2005 for a total length of 570km. By the end of 2005, 12 expressways were opened to traffic, with total length of 760km and various financing schemes (public, private, or a mix thereof). A new “Henan Expressway Regulation” was issued in March 2005, in an attempt to clarify responsibilities between assigner and assignee in the management of the expanding expressway network.

Henan-Hubei Trade Facilitation: The Henan-Hubei Trade Facilitation study as led to the proposal and implementation of two Trade Facilitation Action Plan: TFAP 1 to be implemented by HPCD and TFAP 2 to deal with all other issues which required inter- departmental actions. The focus of these action plans was on the Zumadian - Xinyang section of the NH107 highway which was the target of efficiency improvements. TFAP 2 on the other hand focused on enhancing the management of the transportation market by the Transportation Administration Bureau (TAB) including staff training, rationalizing passenger and freight terminals, training of team managers and administrators, devising appropriate laws and regulations regarding cargo transit, prevention of overloading and

transportation of hazardous and prohibited goods. Overlapping of responsibilities between the HPCD, TAB and the police department impeded the implementation of overloading prevention measures proposed under the TFAP 2.

Provincial Conceptual Framework for Traffic Engineering Systems: This study, completed in 2002, has led to the integration of all expressway tolling systems in Henan. The Wide Integrated Expressway Tolling System (WIETS) includes 2678 km of expressways, 147 toll booths and is operated by 18 different agencies who are managing 30 specific expressway sections. A single ‘Smart Card’ is used to access or exit the entire Henan expressway system. Henan is planning to move to a third generation smart card which would allow for added value, personal information and electronic toll collection (ETC). This would reinforce measure already taken to reduce truck overloading. The integration of various components of the system is very impressive and could even be considered a success story in comparison with similar systems implemented in North America or Europe.

C.3 Equipment for Institutional Strengthening

The project procured US$1.64 million of equipment (including IT, laboratory, survey and maintenance related equipment) to help improve the quality and effectiveness of construction and maintenance. Additional equipment (totaling US$11.73 million) to support institutional development objectives, following the August 2005 loan amendment, was not procured.

ANNEX 3. ECONOMIC AND FINANCIAL ANALYSIS (INCLUDING ASSUMPTIONS IN THE ANALYSIS)

Table A3.1 is a summary of the economic and financial analysis results.

Table A3.1: Economic and Financial Evaluation Summary ICR PAD ENPV FNPV ENPV FNPV EIRR (12%, FIRR (4.7%, EIRR (12%, FIRR (6.0%, m (%) m (%) m (%) m (%) RMB) RMB) RMB) RMB

Zumadian- Xinyang 9.2 923.9 Expressway 19.7 1,747.1 11.2 1,916.7 19.0 1,246.5 Local Road Improvement in the Poor Counties (LRIPC) 29.5 570.7 -- -- 30.9 415.0 -- --

Total project 21.0 2,317.8 -- -- 20.5 1,660.0 -- --

The ZXE opened in December 2003. As shown in Table A3.2, both the corridor traffic and the ZXE traffic for 2006 were about 80% of the PAD’s estimates. However, the traffic growth rates for the corridor (9.1%) and for the ZXE (12.3%) during 2003-2006 were much faster then the PAD’s estimate of 6.7% and 7.2%, respectively. The expressway diversion ratio (the portion of the road users using the expressway) during 2003-2006 also improved from 55% to 58%, is similar to the PAD’s projection (59-60%). This reveals that the road users are gradually accepting the toll expressway concept. Considering a lower total traffic demand on this corridor, the long –term traffic forecast of the corridor (2006- 2025) is estimated to be 3.7% (the PAD was 5.8%). For the new expressway, the growth is estimated to be 6.2% reflecting the fast growth (12.3%) in recent years (the PAD was 3.1%). For the old road, the traffic growth may be reduced to 3.0%, compared with the PAD’s estimates of 5.1%. The expressway corridor traffic and distribution between the old and the new highway are presented in the following table, indicating PAD forecast and actual traffic census data.

Table A3.2: Number Of Motorized Vehicle Per Day (2004-2025) ICR PAD Old New Diversion Old New Diversion Road Road Total ratio Road Road Total ratio (1) (2) (3=1+2) (4=2/3) (5) (6) (7=5+6) (8=6/7) Zumadian – Xinyang Expressway (ZXE): 2004 6,955 8,502 15,457 55% 8,090 11,720 19,810 59% 2005 7,327 10,668 17,995 59% 8,580 12,560 21,140 59% 2006 7,661 10,721 18,382 58% 9,100 13,460 22,560 60% 2010 9,150 13,370 22,520 59% 11,510 17,750 29,260 61% 2013 9,480 13,990 23,470 60% 13,730 21,830 35,560 61% 2015 10,900 16,810 27,710 61% 15,000 15,390 30,390 51% 2020 12,370 20,150 32,520 62% 18,730 19,230 37,960 51% 2023 12,960 21,830 34,790 63% 21,390 37,820 59,210 64% 2025 13,370 23,020 36,390 63% 23,380 42,210 65,590 64% Average growth pa 2004-2006 5.0% 12.3% 9.1% -- 6.1% 7.2% 6.7% -- 2006-2025 3.0% 4.1% 3.7% -- 5.1% 6.2% 5.8% --

Sources: HPCD and the Bank staff.

Table A3.3: EIRR (million RMB) ZXE LRIPC Total Cost Benefits Net flow Cost Benefits Net flow Cost Benefits Net flow

2001 152.25 (152.25) 152.25 (152.25) 2002 675.55 (675.55) 277.33 0.00 (277.33) 952.88 (952.88) 2003 837.45 (837.45) 80.10 49.89 (30.21) 917.55 49.89 (867.66) 2004 483.08 255.48 (227.60) 0.89 95.57 94.68 483.97 351.05 (132.92) 2005 91.95 300.27 208.32 0.89 96.83 95.94 92.84 397.10 304.26 2006 136.15 299.96 163.81 0.89 106.09 105.20 137.04 406.04 269.00 2007 5.93 341.36 335.43 0.89 112.89 112.00 6.82 454.25 447.43 2008 5.93 389.60 383.67 0.89 119.97 119.08 6.82 509.57 502.75 2009 5.93 446.04 440.11 0.89 127.33 126.44 6.82 573.37 566.55 2010 5.93 512.39 506.46 0.89 135.00 134.11 6.82 647.39 640.57 2011 5.93 572.01 566.08 0.89 142.30 141.41 6.82 714.31 707.49 2012 5.93 639.46 633.53 0.89 149.84 148.95 6.82 789.30 782.48 2013 /_1 5.93 715.85 709.92 9.96 166.71 156.75 15.89 882.56 866.67 2014 /_1 5.93 802.53 796.60 9.96 174.75 164.79 15.89 977.28 961.39 2015 /_1 65.58 901.04 835.46 0.89 174.00 173.11 66.47 1075.03 1,008.56 2016 /_1 65.58 976.17 910.59 0.89 181.72 180.83 66.47 1157.89 1,091.42 2017 5.93 1,057.82 1,051.89 0.89 189.64 188.75 6.82 1247.46 1,240.64 2018 5.93 1,146.58 1,140.65 0.89 197.75 196.86 6.82 1344.33 1,337.51 2019 5.93 1,243.10 1,237.17 0.89 206.08 205.19 6.82 1449.18 1,442.36 2020 5.93 1,348.05 1,342.12 0.89 214.62 213.73 6.82 1562.66 1,555.84 2021 5.93 1,441.85 1,435.92 0.89 222.30 221.41 6.82 1664.15 1,657.33 2022 5.93 1,543.02 1,537.09 0.89 230.12 229.23 6.82 1773.14 1,766.32 2023 5.93 1,652.19 1,646.26 0.89 238.09 237.20 6.82 1890.28 1,883.46 2024 5.93 1,770.09 1,764.16 0.89 246.19 245.30 6.82 2016.28 2,009.46 2025 5.93 1,897.51 1,891.58 0.89 254.44 253.55 6.82 2151.95 2,145.13

FIRR = 19.7% 29.5% 21.0% NPV (4.7%) = 1,747.1 570.7 2,317.8

1: Major maintenance.

Table A3.4: Income Statement (ZXE) (million RMB year ending 31, December) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Traffic (million veh-km) 295.30 369.69 367.92 388.78 410.83 434.13 458.75 480.23 502.71 526.24 550.88

Revenue Tolls 322.72 425.54 434.05 456.98 482.90 510.29 539.22 564.47 590.89 711.33 744.63 Others 7.37 8.90 9.08 9.56 10.10 10.67 11.28 11.81 12.36 14.88 15.58 Total 330.09 434.44 443.13 466.54 493.00 520.96 550.50 576.28 603.25 726.21 760.21

Operating Taxes Business tax 16.11 17.06 17.40 23.33 24.65 26.05 27.53 28.81 30.16 36.31 38.01 City tax 1.13 1.20 1.22 1.63 1.73 1.82 1.93 2.02 2.11 2.54 2.66 Education levy 0.48 0.51 0.52 0.70 0.74 0.78 0.83 0.86 0.90 1.09 1.14 Total 17.72 18.77 19.14 25.66 27.12 28.65 30.29 31.69 33.17 39.94 41.81

Net Revenue 312.37 415.67 423.99 440.88 465.88 492.31 520.21 544.59 570.08 686.27 718.40 Operating Costs Maintenance 18.35 43.34 44.20 53.07 58.88 65.33 72.49 79.68 87.58 96.26 105.81 Administration 7.30 5.23 5.34 8.16 9.06 10.05 11.15 12.26 13.47 14.81 16.28 Others 4.16 2.38 2.43 4.08 4.53 5.03 5.58 6.13 6.74 7.40 8.14 Total working costs 29.81 50.95 51.97 65.31 72.47 80.41 89.22 98.07 107.79 118.47 130.23 Depreciation - - 70.86 70.29 70.45 70.61 70.78 70.96 71.15 71.34 71.55 Total operating costs 29.81 50.95 122.83 135.60 142.92 151.02 160.00 169.03 178.94 189.81 201.78

Operating Profit 282.56 364.72 301.16 305.28 322.96 341.29 360.21 375.56 391.14 496.46 516.62 Financial charges: IBRD 19.78 33.82 48.35 31.70 29.93 28.09 26.17 24.18 22.11 19.96 17.71 Local Bank 40.55 37.40 16.53 16.53 16.53 16.53 16.53 16.07 11.02 11.02 10.10 Others ------

Profit Before Taxes/1 222.23 293.50 236.28 257.05 276.50 296.67 317.51 335.31 358.01 465.48 488.81 Income tax 75.92 100.10 77.97 84.83 91.25 97.90 104.78 110.65 118.14 153.61 161.31

Net Profit After Taxes 146.31 193.40 158.31 172.22 185.25 198.77 212.73 224.66 239.87 311.87 327.50

Actual: to 2006. Forecast: 2007 and thereafter. 1: Income tax rate = 33%. 2: Opened to traffic on December 2003.

Table A3.5: Sources and Applications of Funds (ZXE) (million RMB, year ending 31, December) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sources: Net profits - - - 146.31 193.40 158.31 172.22 185.25 198.77 212.73 224.66 239.87 311.87 327.50 Depreciation - - - - - 70.86 70.29 70.45 70.61 70.78 70.96 71.15 71.34 71.55 State contribution 34.23 152.54 191.78 116.35 21.03 32.97 ------Provincial 16.22 72.28 90.87 55.13 9.96 15.64 ------contribution Borrowing: IBRD 52.72 234.93 295.37 179.20 32.38 50.80 ------Local 18.71 83.40 104.85 63.61 11.50 18.03 ------Others 10.67 47.53 59.76 36.26 6.55 10.28 ------

Total 132.55 590.68 742.63 596.86 274.82 356.89 242.51 255.70 269.38 283.51 295.62 311.02 383.21 399.05

Applications: Capital expenditure 132.55 590.68 742.63 450.55 81.42 127.72 4.46 4.69 4.92 5.17 5.43 5.70 5.98 6.28 Other expenditure ------10.92 15.72 15.63 15.51 15.38 15.22 15.03 14.77 Loan repayment: IBRD - - - - - 50.71 43.80 45.57 47.41 49.33 51.32 53.39 55.54 57.79 Local ------100.00 - - 200.10 Change w/ capital - - - 141.29 167.02 183.63 15.13 13.23 13.98 14.77 12.89 13.48 61.49 17.00

Total 132.55 590.68 742.63 591.84 248.44 362.06 74.31 79.21 81.94 84.78 185.02 87.79 138.04 295.94

Net Funds Flow - - - 5.02 26.38 (5.17) 168.20 176.49 187.44 198.73 110.60 223.23 245.17 103.11 Open balance - - - - 5.02 31.40 26.23 194.43 370.92 558.36 757.09 867.69 1090.92 1336.09 Closing balance - - - 5.02 31.40 26.23 194.43 370.92 558.36 757.09 867.69 1090.92 1336.09 1439.20

D/S Cover - - - - - 4.5 5.5 5.6 5.7 5.7 2.0 5.8 6.9 1.5

Table A3.6: Balance Sheet- Consolidated (ZXE) (million RMB year ending 31, December) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Assets: Fixed Assets At cost 1916.41 1997.84 2125.55 2130.01 2134.70 2139.62 2144.79 2150.22 2155.92 2161.90 2168.18 Less: Depreciation - - 70.86 141.15 211.60 282.21 352.99 423.95 495.10 566.44 637.99

Net fixed assets 1916.41 1997.84 2054.69 1988.86 1923.10 1857.41 1791.80 1726.27 1660.82 1595.46 1530.19

Current Assets Inventory ------Receivable 344.38 553.05 345.23 373.23 394.40 416.77 440.40 461.02 482.60 580.97 608.17 Cash 5.02 31.40 26.23 194.43 370.92 558.36 757.09 867.69 1090.92 1336.09 1439.20

Subtotal 349.40 584.45 371.46 567.66 765.32 975.13 1197.49 1328.71 1573.52 1917.06 2047.37

Other Assets ------

Total Assets 2265.81 2582.29 2426.15 2556.52 2688.42 2832.54 2989.29 3054.98 3234.34 3512.52 3577.56

Liabilities & Equity State funds- Equity 924.22 1148.72 1236.17 1397.47 1567.00 1750.14 1947.36 2056.64 2381.29 2678.13 2790.76

L/T loans: IBRD 755.78 812.86 762.79 718.99 673.42 626.01 576.68 525.36 471.97 416.43 358.64 Local 300.00 300.10 300.10 300.10 300.10 300.10 300.10 300.10 200.10 200.10 200.10

Subtotal 1055.78 1112.96 1062.89 1019.09 973.52 926.11 876.78 825.46 672.07 616.53 558.74

Current Liabilities 285.81 320.61 127.09 139.96 147.90 156.29 165.15 172.88 180.98 217.86 228.06

Other Liabilities ------

Total Liabilities & Equity 2265.81 2582.29 2426.15 2556.52 2688.42 2832.54 2989.29 3054.98 3234.34 3512.52 3577.56

Debt: Capital ratio 53.3 49.2 46.2 42.2 38.3 34.6 31.0 28.6 22.0 18.7 16.7 Debt/ equity ratio 59/41 56/44 49/51 45/55 42/58 38/62 35/65 33/67 26/74 24/76 22/78 Current ratio 1.2 1.8 2.9 4.1 5.2 6.2 7.3 7.7 8.7 8.8 9.0

Table A3.7: Assumptions for Financial Forecasts (ZXE)

1. Traffic (AADT): Small Medium Large Small Medium Large Tractor car Bus bus truck truck truck -Trailer Total 1. Zumadian - Queshan 2004 1,727 186 279 282 2,043 2,265 1,894 8,676 2005 2,989 180 270 422 3,356 1,191 2,557 10,965 2006 3,425 217 325 522 2,658 1,692 2,591 11,430 2010 4,324 264 395 634 3,231 2,136 3,271 14,255 2015 5,519 321 481 771 3,931 2,726 4,175 17,924 2020 6,715 372 558 894 4,557 3,317 5,080 21,493 2025 7,785 411 616 987 5,031 3,845 5,889 24,564 2. Queshan - Minggang 2004 1,672 212 317 272 1,951 2,246 1,828 8,498 2005 2,899 176 265 396 3,267 1,169 2,463 10,635 2006 3,348 220 330 489 2,583 1,658 2,505 11,133 2010 4,227 267 401 594 3,140 2,093 3,163 13,885 2015 5,395 325 488 723 3,820 2,671 4,037 17,459 2020 6,564 377 566 838 4,428 3,250 4,912 20,935 2025 7,609 416 625 925 4,889 3,768 5,694 23,926 3.Minggang - Xinyang 2004 1,348 177 266 289 2,006 2,343 1,903 8,332 2005 2,461 171 257 394 3,282 1,228 2,611 10,404 2006 2,245 196 294 371 2,404 1,611 2,478 9,599 2010 2,834 238 357 451 2,922 2,034 3,128 11,964 2015 3,617 290 434 549 3,555 2,596 3,992 15,033 2020 4,401 336 503 636 4,121 3,158 4,857 18,012 2025 5,102 371 555 702 4,550 3,661 5,631 20,572

RMB/v- 2. Toll rate 1.20 km , increase 15% every 5 years.

3. 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.

4. Operating Cost: Increase 5 % pa. a. Maintenance 0.13 RMB/ v-km. b. Administration 0.02 RMB/ v-km. c. Others 0.01 RMB/ v-km. d. Depreciation 30 years straight-line method.

Income tax 5. rate 33% of profit before taxes.

6. Borrowing: The IBRD 4.00% , 20 year maturities, LIBOR US$ based single currency, 5 years grace period and the foreign exchange risks. Local , 11 years maturities with 2 lump sum principal Bank 5.51% repayments.

ANNEX 4. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES

(a) Task Team members

Responsibility/ Names Title Unit Specialty Lending Jacques Tollie Task Team Leader EASTR Robin Carruthers Transport Economist EASTR Han-Kang Yen Research Analyst EASTR Claude Salem Institutional/Training Specialist EASES Youlan Zou Resettlement Specialist EACCF Soichiro Seki Environment Specialist EASES Lutfallah Tueni Consultant EASTR William Paterson Lead Infrastructure Specialist EASTR Maria Luisa Juico Program Assistant EASTR Setty Pendakur Consultant EASTR Dawei Yang Procurement Specialist EACCF Youhua Yu Financial Management Specialist EACCF

Supervision/ICR Sreypov Tep Program Assistant EASTE Alain M. Dube Sr. Transport Specialist EASTE Christopher R. Bennett Sr. Transport Specialist EASTE Chongwu Sun Sr. Environmental Specialist EASRE Dawei Yang Procurement Specialist EAPCO Zhefu Liu Sr. Resettlement Sec. EASSO Ningyuan Li Consultant EASTE Pan Yuli Consultant EASTE Michel Savard Consultant EASTE Alberto F. Nogales Consultant EASTE Jacques M. Tollie Consultant EASTE Youlan Zou Consultant EASUR Setty Pendakur Consultant EASTE

(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle USD Thousands No. of staff weeks (including travel and consultant costs)

Lending

FY99 N/A 92.01 FY00 43.29 183.25 FY01 0.22 1.18 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00

Total: 43.51 276.44 Supervision/ICR FY99 0.00 FY00 0.38 0.64 FY01 9.88 56.95 FY02 11.65 60.52 FY03 10.95 62.24 FY04 9.54 68.43 FY05 3.63 60.54 FY06 9.19 93.06 FY07 13.02 66.11 Total: 68.24 468.49

ANNEX 5. BENEFICIARY SURVEY RESULTS

Not applicable

ANNEX 6. STAKEHOLDER WORKSHOP REPORT AND RESULTS

Not applicable.

ANNEX 7. SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR

A7.1 Background of the Project

Located in the south of Henan Province and with a total length of 95 km, the ZXE (From Zumadian to Xinyang City) is one section of Jinggang’ao trunk line of national highway network (Beijing—Zhuhai trunk line of national highway). It links Luohe-Zumadian Expressway in the north and runs along the east side of Jingguang (Beijing—Guangzhuo) Railway, passing through Yicheng district of Zumadian City, Queshan County and Pingqiao district of Xinyang City.

In the preparation period of the Project in 2000, the other sections of Jinggang’ao trunk line of national highway were under operation or construction. Thus it was very urgent and necessary to construct ZXE as soon as possible. The implementation and construction of the project was of great importance to the improvement of the investment environment of Zumadian and Xinyang cities, further opening to the outside world, facilitating the economic, cultural exchange between Henan Province and Central and South China, promotion to the prosperity of the corridor area and the development of the society. Therefore it was listed as a key project by the Ministry of Communications and Henan Provincial government, and named as the Henan Highway Project III by the World Bank.

The ZXE project began construction September 26, 2001. With the support of governments at all levels and the cooperation of masses, it was completed on November 28, 2003. On December 27, 2006, the project was checked and accepted by Henan Provincial Communications Department entrusted by the Ministry of Communications.

A7.2 The Objectives of the Project

The primary objectives of the project were as follows:

• to support the sustainable development of the Henan provincial highway infrastructure, reduce traffic congestion, and enhance interregional trade facilitation so as to promote socio-economic development; • to help Henan Province implement the poverty reduction and development policy, providing better access to impoverished areas; • to enhance institutional capabilities of the Henan provincial highway departments; and • to improve road traffic safety performance of Henan Province.

A7.3 Project Components

The project consisted of the following three components:

Expressway Construction

The Zumadian—Xinyang Expressway: A four-lane expressway, with a total length of 95.73 km and a design speed of 120km/h between Zumadian and Xinyang. This included mechanical and electrical equipment for the supply and installation for four toll stations, six telecommunication stations, a monitoring sub-center, a toll sub-center, a telecommunication sub-center as well as construction of service areas, management and maintenance houses.

Expressway Interconnecting Roads: To construct, reconstruct and upgrade three connecting roads, with a total length of 50.6 km, linking the ZXE to the local road network. Due to the rapid development of the Henan road network, the planned interconnecting roads in Minggang and Fengjiatang were removed fro the project and completed with the HPCD’s own funds. This reduced the length of the other three connecting roads to 29.5 km.

Construction Supervision: The construction supervision was carried out by two parties: one domestic and one American. In the opinion of the Commission of Completion Inspection, the supervision programs were properly carried out and the engineering quality, schedule and investment were effectively controlled and a good job was done in fulfilling the supervision contract.

Road Improvement and Poverty Reduction

This component improved and reconstructed 373 km of six rural roads and four poverty reduction roads in impoverished counties of Zumadian and Xinyang cities.

Institutional Strengthening

To strengthen the HPCD and the related organizations under its administration by personnel training and procurement of equipment, and conducting research into highway quality and management improvements, asphalt pavement, highway commercialization, traffic safety, trade facilitation, and post assessment for poverty reduction projects, so as to help HPCD strengthen its institutional construction and improve its management.

Domestic training of 281 persons and 281 man months, overseas training of 48 persons/34 man months were completed. The trainees learned the advanced technologies and management experiences in developed countries. Through this, the operational skills and techniques of engineering and management personnel have been greatly improved. Through the training program the overall management abilities of the HPCD have been strengthened.

The procurement of the equipment in the project played an important role in strengthening and improving the institutions under the administration of HPCD.

A7.4 Safeguards

The following table summarizes the land acquisition and resettlement results:

Connecting road/improvement ZXE plan Contents Planned Planned Actual number Actual number number number Land expropriation (mu, 15 mu equals one hectare) 9078.3 9103.4 742 414 house demolition（square meter） 31752 31977 2543 7242 Number of affected households 225 281 685 387

The report from inspection unit shows that the construction of infrastructure and service facilities in affected villages improved the life of villagers. Now the average floorage has increased by 4.4% and the average income increased by over 10%.

During the period of implementation and operation of the Project, professional environment protection institutions monitored each environmental indicator, especially that of schools, hospitals, etc. along the highway. Regular reports on environment monitoring were submitted to the HPCD and the World Bank. Any problems encountered were addressed in a timely manner. The implementation completion report of environment protection shows that the investment of the Project involving environment protection amounted to over US$43 million and the environment along the ZXE had been effectively protected and improved during the period of implementation of the project.

A7.5 Assessment of the Effectiveness of the Project

The completion of ZXE made the Jinggang’ao trunk line of national highway network fully operational and transport capabilities greatly improved along the whole line.

The LRIPC road conditions in the corridor areas before the implementation of the project inhibited the development of the local economy. With the project completed, the rural roads have been upgraded and can be used in almost all weathers. Currently, the traffic conditions in the corridor areas have been greatly improved for the connection between the provincial highway and rural roads, and a road network has been formed. Therefore, traffic conditions are much better than ever before, and the quantity of vehicles and traffic volumes have significantly increased.

The construction of the ZXE effectively promoted the economic development of the corridor areas. The development indicators show that the economy of the influence area has been increased rapidly, and so it is with the GDP. In 2004, the GDP in the corridor of Zumadian and Xinyang surpassed the predicted value by 15.5%, and 18.7% in 2005. With the development of highway network, it will be more and more evident to see its function of facilitating the formation of industrial belts along the highway and the promotion to the development of local economy.

Traffic safety was improved through the project’s investments with the rate of injuries and fatalities decreasing by 48% and 220% respectively.

The implementation of institutional strengthening, personnel training and the introduction of new technologies and equipment improved management operations and effectiveness. Furthermore, the studies conducted helped to improve the engineering quality, promote the inter-provincial trade and provide Henan with a scientific management approach towards road maintenance.

A7.6 The Influence of the Project on Henan Institutions

The main function of communication departments has been strengthened and service conditions improved by institutional strengthening, personnel training and scientific study.

The project improved the ICT infrastructure of the HPCD. This enabled the rapid exchange of documents and information through the comprehensive office network and e-mail. Network services are provided to communication departments of 18 prefectures and cities and affiliated units of the whole province. The service standard to public has been significantly improved.

The HAB were provided with a modern road management system. The activities improved highway management, and the efficiency of road maintenance management was also improved. The management of traffic safety was improved by the implementation of the traffic safety study. This has contributed to a reduction in traffic accidents throughout the province.

The construction quality inspection measures and capabilities have been enhanced through institutional strengthening and equipment procurement. By using advanced inspection equipment, the range of inspections have been increased, inspection efficiency improved, and monitoring strengthened. This has improved quality inspection and controls for all expressways in the province.

The Henan Provincial Communications Planning Survey and Design Institute have improved their survey and design activities, and thus the quality of road construction has been improved, through the application of the SHRP experimental inspection system, personnel training, and the adoption of super pave design methods.

A7.7 The Assessment of the Sustainability of the Project

With the completion of the ZXE, the full operational capability of the Jinggang’ao trunk line of national highway network was achieved and the national highway network improved. Therefore, traffic conditions in the corridor have been greatly improved and traffic congestion in the corridor relieved. The project has made an important contribution to the economic and social development. In addition, the implementation of rural road construction on 373 km of rural roads has provided greatly improved local

access. Thus the economic development of the areas along the corridor has been promoted.

Effective measures were taken to prevent the pollution of noise, air, water and soil erosion and water loss, and great importance attached to the harmony to ecology and surroundings. Thus, the environment along the line has been effectively protected while the traffic condition improved.

Through strict management during the construction period, the engineering quality of the project was effectively controlled. Since its operation, the highway is in good condition, and this has laid a solid foundation for a long term operation.

Since the highway opened, the Henan Expressway Development Co. Ltd has adopted standardized management. The automation and working skills of management personnel have been greatly improved through the procurement of equipment and personnel training.

The financial performance is very satisfying. Since opening, the traffic volume and income have been gradually increasing. The satisfying financial condition ensures a long-term operation and repayment to the loan on schedule.

The results of the studies have provided important guidance to new policies. The Central Government and local government of Henan Province have issued laws and regulations which ensure the development of roads, such as Law of Roads, Management Regulations on Toll Roads, Regulation on Henan Highways, etc. which guide the road planning, construction maintenance, toll management, etc.

A7.8 Asset Operation and Maintenance in the Future

The Henan Expressway Development Co. Ltd established its operation management institution—the Zumadian-Xinyang Expressway Construction Company (ZXECC) at the end of 2003, which recruited and trained various kinds of personnel and was well prepared for the management and maintenance of the highway. They have established management institutions, trained personnel, established new regulations, standardized toll management, established and implemented programs for maintenance management, maintaining the property right of the highway, ensuring safe operation, etc.

The management system for bridges and pavements was established and improved with the help of the HDM4 study, and regular inspections. This has helped establish the maintenance plan and schemes of pre-maintenance, rehabilitation and maintenance. While establishing the maintenance system, Zhu-Xin Branch conducted technological training to maintenance personnel, carried out the policy of putting prevention first and combining prevention and maintenance. Maintenance is done according to Standardized Maintenance methods of Henan Expressways.

A7.9 The Assessment to Contract Fulfillment of the World Bank

The World Bank conscientiously fulfilled the loan and project agreements signed with Chinese Government and Henan Provincial Government. The Bank worked out practical targets and components for the project. It provided capable experts on engineering, procurement, disbursement, etc. to guide and help the implementation of the Project. The World Bank inspected the project regularly or irregularly. Problems identified were solved in a timely manner.

With regard to the effective utilization of the project funds, and extension of closing date, the World Bank had a good collaboration with HPCD.

During the period of project implementation, the change of the project manager did not affect the normal operation of the Project.

A7.10 The Assessment to Contract Fulfillment of Debtors and Executive Institutions

The Chinese Government and Henan Provincial Government conscientiously fulfilled the loan and project agreements signed with the World Bank, supported the work of all stages, and achieved all anticipated targets of the Project.

All the components of the project have been completed according to the requirements of the project agreement.

In the early period of project implementation, the HPCD summarized the experiences of the former three projects of World Bank loans and made some adjustments in organizational management. Additional personnel with procurement experience were added to the organization. The procurement organization was adjusted to effectively carry out all the procurement. The ZXE Construction Company was established to be in charge of the construction of the expressway: A Manual of Financial Management and a Manual of Procurement of World Bank Project were compiled so as to guide the work of each procurement department; a personnel training related to the procurement, financial management and engineering of the project was carried out.

During the period of project implementation, the HPCD submitted and implemented working plans and guidelines on all items according to the requirements of the World Bank and the commitments to the World Bank. The implementation reports of each subproject were submitted according to the requirements of World Bank Inspection Team; the procurement of the project was carried out in terms of the procuring process and principles of the World Bank. No complaints were received.

A7.11 Experiences and Lessons

Experience

The project conformed to the situation of China and could meet the needs of economic development. The completion of ZXE made the Jinggang’ao trunk line of national highway network achieve full operational capability.

The loan from the World Bank was utilized to make up the inadequacy of funds in domestic highway construction.

The implementation of the project promoted the standardized management of engineering quality, engineering schedule sand disbursement of the highway construction.

The Post Assessment Report of rural roads improvement engineering submitted by the study team of Post assessment of Poverty Reduction Project was accepted and recommended as a reference mode for the similar assessments by the World Bank. In addition, the implementation of HDM4 moved road maintenance planning into having a scientific basis.

The function and the quality of personnel of highway management departments have been enhanced and improved by institutional strengthening and personnel training.

The construction supervision was successfully carried out through the cooperation of Sino-foreign parties.

Lessons

The amount of the World Bank loan could not be fully utilized due to too many funds reserved for future.

The procedures for withdrawing money need to be improved.

ANNEX 8. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS

Not applicable.

ANNEX 9. LIST OF SUPPORTING DOCUMENTS

1. The World Bank, Third Henan Highway Project: Project Appraisal Document (No. 20193-CHA), April 15, 2000

2. The World Bank, Third Henan Highway Project: Loan Agreement (No 4548- CHA) between the People’s Republic of China and the International Bank for Reconstruction and Development, February 5, 2001

3. The World Bank, Third Henan Highway Project: Project Agreement (No 4548- CHA) between Henan Province and the International Bank for Reconstruction and Development, February 5, 2001

4. The World Bank, Letter of Amendment and Extension of Loan Closing Date, October 12, 2005

5. The World Bank, Back to office reports and Aide-Memoires of the Third Henan Highway Project from 1999 to 2006

6. The World Bank, Project Status Report for the Third Henan Highway Project from 2000 to 2006

7. The Communication Scientific Technique Academy of Henan Province, Henan- Hubei Trade Facilitation Study Action Plan – Summary Report, November 2006

8. Henan Provincial Communication Department and Henan Weiteng Technology Development Co, Ltd, Road Management Improvement Study – The Final Summary Report, May 2006.

9. Henan Provincial Communication Department and Henan Weiteng Technology Development Co, Ltd, HDM4 Application in Henan Highway – Long/Medium Term Analysis – Regional and Project Level Study – Final Report, May 2006.

10. Henan Provincial Expressway Development Ltd and Henan Communication Science Research Institute, Study of commercialization of Toll Highways – Final Report, November 2006

11. Henan Communication, Science and Technology Research Institute, 2003 and 2004 Economic Losses of Road Traffic Accident in Henan Province, December 2004 and May 2006

12. Henan Communication, Science and Technology Research Institute, Henan Province Traffic Volume Counting System Research, December 2004

13. Henan Provincial Communication Department, Implementation Completion Report and Summary, February 2007.