Nanning- Kunming Railway Capacity Enhancement Project

Home , Classification yard, Mile City, Nanning, Pingguo, Qiubei County, Youjiang District

Technical Assistance Consultant’s Report

Project Number: TA 7005-PRC: PPTA 7005 PRC October 15, 2009

MAIN REPORT

Prepared by TERA International Group, Inc. Sterling, Virginia, United States of America In association with TERA Beijing Consulting Co. Ltd., Beijing, China and Second Survey and Design Institute, Chengdu, China

For: Ministry of Railways

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. All the views expressed herein may not be incorporated into the proposed project’s design.

Asian Development Bank i

CURRENCY EQUIVALENTS (as of 16 March 2009)

Currency Unit – yuan (CY) CY1.00 = $0.1464 $1.00 = CY 6.83

ABBREVIATIONS

AAOV average annual output value ACWF All China Women’s Federation AOLS assets operation liability system ATC automatic train control ADB Asian Development Bank CCB China Construction Bank CCEC China Civil Engineering Corporation CDB China Development Bank CO2 carbon dioxide Contract contract for PPTA consulting services CPI consumer price index CR China Railway CR-TEM CR Transport Evaluation Model of TERA CRCC China Rail Communications Co. Ltd. CRCI China Railway Construction Investment Company CRCTC China Railway Container Transport Company CREC China Railway Engineering Corporation CRMS customer relations management system CRMSC China Rail Materials and Supplies Co. Ltd. CRTSC China Railway Telecom and Signaling Corporation CSY China Statistical Yearbook CWR continuous welded rails DECO diversified economy companies EA executing agency ECS economic contract system EIA environmental impact assessment EIP information program-website of enterprise EIRR economic internal rate of return EMM economic marketing management system EMP environmental management plan EMU electric multiple unit ERP economic resources programming system RCF Railway Construction Fund FCTIC Foreign Capital and Technical Import Center FIRR financial internal rate of return FR final report FRA Federal Railroad Administration FYP five year plan GDP gross domestic product Ha hectare HIV/AIDS human immunodeficiency virus/acquired immune deficiency IA implementing agency ICB international competitive bidding ii

IDMIS integrated dispatching management information system IRR internal rate of return IS international shopping JBIC Japan Bank for International Cooperation JVC joint venture company Km kilometer LIBOR London interbank offered rate LOC lines of communication LORIC China Railway Locomotive and Rolling Stock Industry Corporation LPG leading preparatory group M2 square meter MOR Ministry of Railways (PRC) Mu unit of land measurement; 15 mu=1 ha NAO National Audit Office (PRC) NDRC National Development and Reform Commission (PRC) NKR Nanning-Kunming Railway NPV net present value NTSB National Transportation Safety Board (United States) OAS office automation system O-D origin-destination OHL overhead lines PFS preliminary feasibility PIA project impact area PKM passenger kilometer PMIS passenger-ticket management information system PPTA project preparation technical assistance PRS project resource statement PSA poverty and social analysis PSIS passenger service information system PSO public service obligations PRC People’s Republic of China RA railway administration RIS railway investment strategy model (MOR) RIS-TAM railway investment study—traffic assignment model RP resettlement plan RSO Railway Support Office SARS severe acute respiratory syndrome SASAC State Owned Assets Supervision and Administration Commission SCE standard coal equivalent SDAP social development action plan SEIA summary environmental impact assessment SEPA State Environmental Protection Administration (PRC) SERF shadow exchange rate factor SIA social impact assessment SOE state-owned enterprise SP Southern Pacific Railroad (United States) SPRSS summary poverty reduction and social strategy STI socially transmitted infection Sub-RA railway sub-administration TA technical assistance TERA TERA International Group, Inc. TEU twenty-foot equivalent unit (for containers) TKM freight ton kilometer iii

TMIS transportation management information system TOR terms of reference TSDI Third Survey and Design Institute (Tianjin) TU traffic unit TVE town and village enterprise

UIC Union Internationale Des Chemins De Fer (France) UP Union Pacific Railroad (United States) US United States of America VR Variation Request WACC weighted average cost of capital WTO World Trade Organization

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 31 December 2009. (ii) In this report, “$” refers to US dollars. iv

TABLE OF CONTENTS

I. BACKGROUND ...... 1 A. STUDY OBJECTIVES AND SCOPE ...... 1 B. DESCRIPTION OF THE PROJECT ...... 1 C. OVERVIEW OF THE TRANSPORT SECTOR ...... 8 D. RAILWAY SECTOR ...... 14 E. EXTERNAL ASSISTANCE TO THE RAILWAY SECTOR ...... 17

II. PROJECT FRAMEWORK AND RATIONALE ...... 18 A. DESCRIPTION OF THE PROJECT ...... 18 B. PROJECT RATIONALE ...... 19 C. DESIGN AND MONITORING FRAMEWORK ...... 22

III. TRAFFIC FORECASTS ...... 23 A. INTRODUCTION ...... 23 B. APPROACH TO TRAFFIC FORECASTING ...... 28 C. FREIGHT TRAFFIC PROJECTIONS ...... 29 D. PASSENGER TRAFFIC PROJECTIONS ...... 34

IV. TECHNICAL CHARACTERISTICS ...... 37 A. INTRODUCTION ...... 37 B. TECHNICAL CHARACTERISTICS ...... 39 C. TRAIN OPERATIONS AND CAPACITY CONSIDERATIONS ...... 58 D. ASSOCIATED FACILITIES ...... 59 E. CONSTRUCTION PERIOD AND TIME SCHEDULE ...... 60 F. COST ESTIMATING APPROACH ...... 60 G. PROJECT MANAGEMENT ...... 61 H. ADB-FUNDED COMPONENTS ...... 62 I. CONSULTING SERVICES ...... 65 J. DISBURSEMENT ARRANGEMENTS ...... 65 K. ACCOUNTING, AUDITING, AND REPORTING ...... 65 L. PROJECT PERFORMANCE MONITORING AND EVALUATION, AND PROJECT REVIEW65

V. ENVIRONMENTAL ASSESSMENT ...... 66 A. INTRODUCTION ...... 66 B. ALTERNATIVES ...... 66 C. ANTICIPATED ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES ...... 69 D. IMPACTS DURING CONSTRUCTION ...... 69 E. IMPACTS DURING OPERATION ...... 74 F. PUBLIC CONSULTATION AND INFORMATION DISCLOSURE ...... 75

VI. POVERTY AND SOCIAL ANALYSIS ...... 76 A. INTRODUCTION ...... 76 B. MAIN CHARACTERISTICS OF THE PROJECT IMPACT AREA ...... 80 C. GENDER ISSUES ...... 88 D. RISK OF TRAFFICKING ASSOCIATED WITH THE PROJECT ...... 89 E. STATUS OF HIV/AIDS IN PROJECT AREA ...... 90 F. ETHNIC MINORITY ISSUES ...... 91 G. JOB CREATION OF CONSTRUCTION AND OPERATION OF NKR ...... 92 H. OTHER SOCIAL IMPACTS ...... 94 I. STATUS OF PUBLIC PARTICIPATION ...... 96 v

J. CONSULTATION PLAN ...... 96

VII. RESETTLEMENT ...... 97 VIII. INSTITUTIONAL CONSIDERATIONS ...... 100

IX. FINANCIAL ANALYSIS ...... 115 A. INTRODUCTION ...... 115 B. FINANCIAL INTERNAL RATE OF RETURN ...... 115 C. WILLINGNESS TO PAY ...... 125

X. ECONOMIC ASSESSMENT ...... 126 A. INTRODUCTION ...... 126 B. GENERAL ASSUMPTIONS ...... 126 C. PROJECT RESOURCE STATEMENT ...... 126 D. WITH AND WITHOUT PROJECT CONDITIONS ...... 137 E. SENSITIVITY AND RISK ANALYSIS ...... 138

APPENDIX 1: ETHNIC MINORITY DEVELOPMENT ACTION PLAN ...... 130 APPENDIX 2: SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY ...... 134

I. BACKGROUND

A. STUDY OBJECTIVES AND SCOPE

1. This report is prepared by TERA International Group, Inc. (TERA) pursuant to the terms and conditions of the Contract for Consulting Services dated 28 August, 2008 (Contract No.COSO/80- 101), between the Asian Development Bank (ADB) and TERA in association with TERA Beijing Consulting Co. Ltd. (TERA-B). TERA is supported by TERA Beijing Consulting Co. Ltd. PRC (TERA- B) as an associated firm. ADB has agreed to assist the Government of PRC by providing technical assistance for the Nanning Kunming Railway Capacity Enhancement Project.

2. In October 2008, the CREC prepared a Feasibility Study Report for the NKR project.1 An Environmental Impact Report and Resettlement Plan (RP), dated October 2008, have also been prepared. This Report is based on the Feasibilty Report dated December 2008, the Environmental Impact Report delivered to the consultant on October 29, 2008 and the RP of October 2008. Some information has been supplemented by the Feasibility Report, in Chinese, given the Consultant on February 20, 2009.

3. This Report includes a discussion of the Project’s background in Section 1, followed by Project framework and rationale in Section 2, and traffic forecast in Section 3. Sections 4 through 10 cover each functional area of the Consultant’s evaluation: Section 4, technical assessment; Section 5, environmental impact assessment; Section 6, poverty and social assessment; Section 7, land acquisition and involuntary resettlement; Section 8, institutional assessment; Section 9, financial evaluation; and Section 10, economic evaluation. Supplementary information is provided in the Consultant’s Supplementary Final Report Volumes 1, 2, and 3.

B. DESCRIPTION OF THE PROJECT

1. Government’s Policy on Railway Development

4. The Government’s policy on railway development is focused on (i) removing constraints and expanding the system; (ii) encouraging formation of joint venture railways in partnership with local governments and other establishments (both public and private) to support development of local economies; (iii) improving efficiency by using new technology and modern management tools in planning and operation; (iv) reducing operating subsidies through appropriate pricing and commercialization of services; (v) implementing institutional and structural reforms to increase the autonomy and accountability of MOR’s Railway Administrations (RA); and (vi) encouraging non- government investment in infrastructure and related services.

5. The Government’s 11th Five-Year Plan (FYP) from 2006 to 2010 identifies transportation, including railway development, as a priority. The Plan envisages (i) constructing 17,000 km of new lines (including 7,000 km of dedicated passenger lines), with the total network length reaching 92,438 route-km by 2010 (from 77,966 route-km as of the end of 2007); (ii) electrifying 15,000 km of existing lines, adding to the existing 24,000 km of electrified lines in operation at the end of 2007, to increase capacity; (iii) double-tracking 8,000 km of single-track lines, thus adding to the 25,794 km of double track in operation in 2007; and (iv) increasing operating speeds on 5,000 km of main line routes, with the total length of higher speed network reaching 20,000 km. In 2004, the Government approved the Railway Mid-Term and Long Term Development Program for 2020 (2020 Plan), and amended in 2008, that will expand the railway network from the 2004 network of 74,400 km to

1 The Second Survey and Design Institute prepared the Feasibility Study Report, dated December 2008. 2 operation mileage of China Railway (CR) that will exceed 120,000 km, with the percentage of double-track and electrification over 50% and 60% respectively. Priority will be given to railway development in congested lines with high traffic density, areas not yet served by rail, and in regions with low economic development.

6. According to the 11th FYP covering the period from 2006 to 2010, some CNY 250 billion is needed for railway investment every year compared to CNY 60 billion annually invested during the 10th FYP (2001-2005). The plan calls for more than quadrupling annual investment. Current funding sources include the Railway Construction Fund,2 National Bonds for western development, local and provincial governments and their enterprises, national retirement funds, private sector, loans from domestic and multilateral banks (World Bank, ADB) and bilateral assistance. Details of the 11th FYP predict the passengers forwarded will be 1.5 billion, and the freight forwarded will be 3.5 billion tons, the passenger-kilometers will be 800 billion and ton-kilometers will be 2,700 billion in 2010. The total railway operating length will be over 90,000 km with both double-track and electrified track accounting for over 45%. The rapid passenger traffic network will be over 20,000 km, the coal corridor capacity will reach 1.8 billion tons, the total length of railways in the western region will be 35,000 km, and a container transportation system covering whole China will be built. The plan calls for building 18 container logistics centers and actively promoting the construction of the double-stack container transportation corridors.

7. The 2020 Plan, as amended in 2008, identifies the need to have separate passenger and freight-dedicated lines on the busy trunk routes in order to mitigate the endemic capacity constraints. The plan calls for; 1) Dedicated Passenger Lines to meet fast increasing demand of passenger transportation and building corridors of fast passenger transportation among capital cities, medium and large cities. It is planned to build “Four Lengthways and Four Transverse” dedicated passenger lines, and develop an intercity passenger transport system in economically developed areas with dense population. Dedicated passenger lines will exceed 16,000 km. 2) Consolidating the Network Layout and New Lines Built for China West Development. The main focus is put into expanding the railway network to form a framework in the West, meanwhile consolidating the structure of the railway network in the East, and improving the capability to adapt into regional economic development. It is planned to build new lines of about 41,000 km. 3) Existing Lines of Railway Network. Technical innovation on the existing network and terminal construction will be strengthened to improve capacity of existing corridors. It is planned to construct new second lines of 19,000 km and to electrify 25,000 km on existing railways. This will include building centralized container stations, upgrading centralized container transportation railways, and operating double-deck container trains.

8. In the past two months, the global financial crisis has had severe economic impacts. In responding, Premier Wen Jiabao chaired the executive meeting of State Council on November 5, 2008, and ten measures will be taken to spur domestic demand and boost the economy with total expected investment of 4 trillion yuan by the end of 2010. One of the ten measures is to speed up construction of infrastructure such as railways, roads and airports. The focus will be put on construction of dedicated passenger railways, corridors of coal transportation, and trunk lines in the West. The planned investment on railways was 300 billion yuan this year, and “an additional 50 billion yuan will be spent on railway projects in the fourth quarter of this year. The government is expected to approve projects to build 10,000 km of railways in 2009 and 2010, with an expenditure of about 1 trillion yuan” (November 12, 2008, China Daily).

9. Mr. Yang Zhongmin, General Director of the Department of Development and Planning, MOR, indicated on November 11, 2008 that the investment on railway infrastructure is planned to reach

2 Generated by a surcharge on railway freight tariffs. 3

600 billion yuan next year. Total investment on railways for the next three years will exceed 3.5 trillion yuan (Xinhua News Press). By 2010, MOR will invest about 1,000 billion in front end studies and related study projects. The investment in capital construction will be 600 billion yuan each year from 2009 to 2012. MOR will purchase locomotives and cars with a planned cost of 500 billion over the next four years. As a result of this stimulus program, it is expected that by 2012, the route length of the national Chinese railways will reach 110,000 km, and the rate of double-tracks and the rate of electrification will both account for over 50%. Passenger dedicated railway lines and intercity railways, on which passenger trains run at over 200 km/h will reach 13,000 km, and the passenger traffic will be totally separated from the freight on the trunk lines. By 2012, there will be more than 800 sets of multiple-unit trains put into operation, covering the whole rapid passenger traffic network. Thus, by 2012, passenger traffic needs in areas served by passenger dedicated lines will basically have no constraints and there will no longer be un-met demand. When the passenger traffic is separated from freight, overloading on trunk lines will be basically eliminated and freight traffic demand will be satisfied. Lack of railway transport capacity has caused only 54% of the transport demand to be met, according to an analyst quoted in China Daily News, and this will be resolved by building more railways and separating high speed passenger from freight lines to increase freight capacity.3 In addition, railway investment next year will create 6 million jobs directly, not including the 2.08 million formal employees of the railway system.

2. The Project

10. The Project Impact Area (PIA) is defined as the counties and districts that the rail alignment traverses. The PIA includes 9 counties and 5 districts, 111 townships /towns and 1308 village committees/neighborhood committees. The PIA had a total population of 6.297 million in 2007. The GDP per capita in the PIA was 10,774 CY which is 52.6% of the national average. The urban disposable income per capita in the PIA was 10,892 CY, 79% of the national average. The rural net income per capita was 2,835 CY, 68.48% of the national average. This figure, however, obscures the fact that the districts in and around Nanning and Kunming have much higher GDP per capita. The rural net income per capita for those farmers who are living in the suburbs of Nanning and Kunming is also much higher than those living in counties (particularly in Funing, Guangnan and Qiubei of Wenshan Prefecture in Yunnan).

11. The rural population in the PIA accounts for 75.73% of the total population and about 30% of these live below the poverty line4. Most of the population is employed in the agriculture sector characterized by a low level of productivity. Despite the area’s rich natural resources and good tourism potential, the population has remained largely poor and cut off from mainstream development. Lack of transportation is one of the main reasons.

12. Despite the area’s rich natural resources and good tourism potential, the population has remained largely poor and cut off from mainstream development due to a lack of transportation. No expressway connects this region and the capacity of the existing single-line railway is fully saturated. The existing road passes through difficult terrain, has limited passing capacity, and is in a poor condition. As a result, most people living in the project area have not traveled beyond the nearest town due to high transport fares.

13. The proposed NKR project length is 745.747 km westward Class I double-track electrified railway line. The total construction length of the main lines is 705.647 between terminals. In addition there is 18.5 km passenger bypass in Nanning, 21.6 km double track passenger line in Kunming, and a second 33 km freight line in Kunming between Kunming South and Kunming East. Thus, it can be

3 China Daily News, Monday 17 Novenber 2008. 4 The rural poverty line is per capita net income 1,067 CNY for 2007. 4 seen that while the new double track railway is the principal component of the project, other components add significant capacity to the existing Nan-Kun Railway and add capacity for throughput in Nanning and Kunming terminals

14. Due to the hilly and mountainous area of Yunnan Province and the Guangxi Zhuang Autonomous Region, approximately 66% of the route’s length will be comprised of tunnels and bridges due to the region’s hilly topography. The railway will link Kunming, the capital of Yunnan Province to Nanning, the capital of Guangxi Zhuang Autonomous Region in Southwest China. The proposed railway will provide the shortest route from Kunming to Nanning (727 km versus 850 km via road or 830 km via the existing rail line). It will connect with numerous existing routes throughout the PRC, as well as the proposed Pan-Asian railway line that will link the PRC to the Greater Mekong Subregion (GMS), thereby promoting greater cooperation with that region. The project railway will facilitate economic development and integration of the poor western region and is expected to stimulate industrial and natural resources development as well as the development of the tourism industry. In addition to providing access to markets and social services, the project implementation will create construction and additional service jobs. The proposed line also supports the Western regional development strategy of the PRC government.

15. Within the context of the Government’s Eleventh Five Year Plan and the Railway Development Plan for 2020, the project involves the construction of 745.747 km of class I double track electrified railway line. The railway will link Kunming, the capital of Yunnan Province to Nanning, the capital of Guangxi Zhuang Autonomous Region in southwest PRC. The project impact area includes 18 counties and cities with a total population of about 7.5 million. The total rural population is about 71.2% (5.34 million) and about 8% live below the poverty line.

16. The existing Nan-Kun railway will continue handling mainly local passengers and freight within the region and between the regions. It is an important link, handling coal in Xingyi and Liupanshui to the southern coastal region of China, but it is constructed to a lower standard, operates at slower speed, and has a serious shortage of line capacity. The line currently operates four pairs of express passenger trains per day and two pair of ordinary passenger trains. Transit time between Nanning and Kunming is approximately 13 hours.

17. The new Yun-Gui Railway (NKR) will be a high speed passenger, high capacity line that will also handle freight, thereby reducing congestion on the Nan-Kun line. The line will be constructed to standards allowing operation at 200km/h, although the plane and section design will conform to the 250 km/h standards to allow future improvements for higher speeds. The targeted transit time between Nanning and Kunming is 5 hours.

18. The Nanning-Kunming Railway (NKR) project will contribute to equitable economic growth by: (i) improving access to marketing, employment, business opportunities and information exchange in the marginalized and ethinic minority areas; (ii) facilitating access to key social services; (iii) supporting and stimulating agricultural production and encouraging livelihood diversification, (iv) improving a key component of regional and rural infrastructure and reducing widening gaps in living standards and economic opportunities between the western and coastal areas; (vi) promoting the social and economic development of ethnic minorities which are among the poorest groups of the poverty populations; (v) providing access to international trade routes through the railway connections with some ASEAN countries through Pan-Asia Railway; and (vi) removing one of the constraints on development of poor, rural, and minority communities.

19. The proposed NKR will provide low-cost rail transport for commodities and manufactured goods as well as passengers linking western regions with east coast markets and ports The rationale for the project is seen as; 5

 To satisfy the requirements to promote development of the western area and to promote economic development in the Pan-Zhujiang Delta and the Beibu Gulf Rim.  To satisfy the requirement to enhance capacity and quality of the existing Nan- Kun line, providing an express line between Guangzhou and Kunming.  To enhance the capacity of the distribution and collection of cargo in the Beibu Gulf Harbors.  To promote tourism.  To allow for mineral and other resource exploitation along the line.  To meet the needs of developing a circular economy and bring more economic prosperity to this area of China. 20. The project will help develop the railroad network in an unserved area and enhance pro-poor economic growth. It is included as a priority project in MOR’s 11th Five-Year Plan, as well as the railway development plan, and will support the Government’s western region development strategy. The proposed railway will facilitate economic development and integration of the poor western region, and is expected to stimulate industrial and natural resources development as well as tourism and related industries. The railway will, in the construction and operation phase, increase local people’s access to market and social services, and give them an opportunity to improve their standard of living. Completed and ongoing ADB financed railway projects show that such projects create jobs in construction and loading and unloading operations as well as other income-generating activities (such as material and food supply, and small services around construction sites). The lower transportation costs after project completion will make goods and services available at more economic prices to people living in the area, including the poor, and provide them with opportunities to sell their produce to broader markets. Most people living in the project area have not traveled beyond the nearest town because of high transport fares. The railway will offer them more affordable, reliable, and punctual transport than is currently available. The project will improve local people’s standard of living; and influence all aspects of their daily life, directly or indirectly, in a positive manner. It is consistent with ADB’s country strategy program and will support the Government’s strategic policy objective of greater developmental emphasis on poor, interior, and underserved areas of the PRC by improving transportation linkage with growth centers.

21. The rationale for the project reflects (i) railway network development; (ii) capacity enhancement; (iii) meeting the needs of the new railway development plan consistent with the western region development strategy; and (iv) promoting pro-poor economic growth along the line and in the region, thereby reducing poverty. The project impact area (PIA) is an area with dense poverty and high proportion of ethnic minority populations. Out of the 10 counties/districts in the PIA, 6 are the nationally-designated and 2 are the provincially-designated poverty counties. In the PIA, there are also 882 designated poverty villages, or 65 percent of all villages in the PIA. Around 50% of the populations in PIA are ethnic minority people. In this regard, it is important to view the impacted areas, not in the macro sense, where averages might tend to blur extremes, but at a level closer to the local populations.

22. Yunnan and Guangxi are the two provinces in which there are considerable poverty populations and ethnic minority groups. Yunnan province has the highest number of national designated poverty counties and the most different types of ethnic groups in China. Of 108 counties in Yunnan, 73 (68%) are nationally designated poverty counties. Of 88 counties in Guangxi, 29 (33%) are nationally designated poverty counties. Absolute poverty (also referred to as food poverty) refers to an average annual per capita net income for rural people that are less than 668 CY per year. This group of poverty-stricken people is too poor to provide sufficient food and clothing for their households. Income or relative poverty refers to those rural people that have an average annual per 6 capita net income of between 668~924 CY per year. These people are able to afford sufficient food and clothing but have no additional income for other consumption.

23. By the end of 2005, Yunnan had 2.5 million living in absolute poverty, and 4.9 million in relative poverty, which together accounted for about 24% of the total rural population in Yunnan. Guangxi had an absolute poverty population of 860,000 and a relative poverty population of 3.26 million, which together accounted for about 10.4% of the total rural population in Guangxi. Most of the counties or cities along the alignment have lower GDP per capita, urban income and rural income than the national average. Among them, Wenshan, Qiubei, Funing and Guangnan have the per capita rural income of less than 50% of the national average. The number of rural people in poverty is 188,000 (Funing), 168,000 (Guangnan), 89,000 (Qiubei). Qiubei, Guangnan, Funing in Wenshan Prefecture and some parts in Baise Prefecture are the most impoverished areas in the PIA.

24. This poverty hits the ethnic minorities especially hard. Ethnic minorities make up a large percentage of the population along the alignment. In Baise, the city covers a total area of 3.62 million ha. The city has a total population of 3.788 million, of which 87.43% is agricultural population. It has seven ethnic minorities such as Zhuang, Yao, Miao, Hui, Yi, Gelao, etc. Among them Zhuang accounts for about 80% of the total population, while Yao, Miao, Hui, Yi and Gelao account for about 6% of the total population. Baise governs 1 district and 11 counties, among which, 10 are listed as national poverty counties. Honghe Hani and Yi Autonomous Prefecture is located in southeast Yunnan. It is adjacent to the Socialist Republic of Vietnam with a border of 848km. The prefecture governs 13 cities and counties such as Gejiu, Kaiyuan, Mengzi, Jianshui, Shiping, Luxi, Mile, Pingbian, Hekou, Jinping, Yuanyang, Honghe and Lvchun, as well as 154 townships and towns. It has a total population of 4.373 million, of which 82.27% is agricultural population. There are 10 native nationalities such as Hani, Yi, Miao, Yao, Dai, Zhuang, Lagu, Buyi, Hui, Han, etc. The population of ethnic minorities accounts for 54.7% of the total population.

25. Construction of the Project railway will enable travel and work outside of the village, job opportunities during construction and railway jobs after construction is completed, material and food supply, and small services around construction sites. The lower transportation costs after project completion will make goods and services available at more economic prices to people living in the area, including the poor, and provide them with opportunities to sell their produce to broader markets.

26. The project envisages the construction of an electrified double-track railway line with subgrades, bridges, and tunnels. Because of the hilly topography along the Nanning–Kunming railway route, tunnels and bridges will comprise 66% of the route length. It will be undertaken as a joint venture between MOR and Yunnan and Guangxi Zhuang Autonomous Region provincial governments, and will be implemented by MOR.

27. The mainline will include 28 stations and will have 224 bridges with a total length of 75.084 km. Bridges in the mainline account for 10.1% of the construction length of the main line. There are 225 tunnels with a total length of 422.325 km newly constructed and 2 existing tunnels with a total length of 1079m will be renovated. There are 211 double track tunnels with a length of 394.180km and 14 single track tunnels with a length of 28.145km. The equivalent double track length of tunnels is 408.252 km. There are twenty tunnels over 6 km and the longest is 19.595 km.

28. The new line runs from Kunming east to Nanning. It connects to the Nan-Guang Railway, Xiang-Gui Railway, and Nan-fang Railway in the east. In the west it connects to the Chengdu Kunming line, Gui-Kun Railway, Gui-Guang railway, and Kun-Yu Railway. It thus provides connections leading to Vietnam, Thailand, and Burma through the Pan-Asia railway. It is an important passenger and freight route between Southwest and South China and a main passage to the sea in the southwest area. 7

29. In addition to the mainline, there will be two important complementary activities to upgrade facilities in Nanning and Kunming including:

 In Nanning the existing passenger station will remain but will be supplemented by a newly constructed passenger station at Nahuang. In the near future added capacity will be constructed at Nanning South. It will be a receiving and hump yard to sort inbound traffic. In the more distant future a new container handling yard will be constructed at Nanning South. Newly constructed connections to the other railways will enhance terminal throughput capacity including the following;  New double track between Nanning and Nanhua with a length of 4.417 km.  New outer detouring line for passenger trains between Nanhua and Jiangxi Village, 18.5 km.  Capacity enhancements at Naning South classification yard.  In Kunming the existing Kunming South station will be re-named Wangjiaying West Station. A new Kunming South Station will be constructed on the new Yun- Gui Railway where it first enters the Kunming hub area. The existing Kunming Station along with the new Kunming South Station will allow the spreading of the passenger burden between the two stations. Other capacity enhancing construction includes the following;  An additional second main line will be constructed between Wangjiaying West and Kunming East adjacent to the existing Nan Kun mainline, thus providing a double track freight route between Kunming South and Kunming East.  A new passenger train servicing yard and an EMU servicing yard will be built.  Kunming South will have capacity added and there will be a Yangjin connection provided.  A new 21.6 km double track between Kunming South.and Kunming East will be constructed. 3. Strategic Concept of the Project

30. ADB’s strategy for the PRC railway sector focuses on (i) expanding the railway system by constructing new lines in un-served areas that are less developed and poor; (ii) promoting energy conservation and environmental sustainability; (iii) modernizing equipment, enhancing safety, and increasing the capacity to improve transport efficiency on key routes of the national railway system; (iv) commercializing railway operations to sustain efficient operations; and (v) increasing railway competitiveness in the transport sector through restructuring and reform. The strategy will continue to focus on railway development in underserved areas in poor interior provinces/region to link lower income regions with growth centers so as to facilitate pro-poor growth—a prerequisite to reducing poverty. Policy issues addressed in the railway sector include institutional development, financial reforms, safety enhancement, development of dedicated passenger lines, corporatization, marketing and business development, and tariff setting with improved cost recovery. ADB has enhanced policy dialogue with MOR and is providing TA support for policy reforms to MOR. This consultation will continue to further the reforms in the sector.

31. The NKR will be an important and strategic transportation artery providing connectivity between the western region of the country and the more prosperous eastern and coastal regions. 8

The capacity and transportation efficiency of this corridor would determine, to a large extent, the competitiveness of goods produced in western regions in major domestic markets in the east as well as for export. The consequent logistics advantages will foster economic growth in western regions for improving the incomes and the lives of people in those regions.

C. OVERVIEW OF THE TRANSPORT SECTOR

32. The Government recognizes transport infrastructure to be an important driver of economic development. There is an increasing awareness that the cost of transport inefficiency can threaten the economy of the country, either through the high cost of uncompetitive transport or the macroeconomic burden of inefficient railway operations. For supporting economic growth and effectively participating in the world economy, it is imperative that goods and passengers move rapidly and economically. Inadequate transport infrastructure will increase the cost of moving goods and people, and the citizens will pay more for locally produced goods as well as for imports and for travel. Exports will be less competitive and inefficient passenger travel will constrain people’s effective participation in the activities needed to promote the economy and social welfare. The overall impact will be to reduce the country’s well being.

33. The primary objectives of the transport sector in PRC are to help enhance economic growth, increase PRC’s ability to compete successfully in world markets, and reduce inequalities in living standards throughout the nation. An efficient transportation infrastructure is necessary, but not sufficient in itself, to achieve these goals. For example, further industrial and economic development in the poverty areas is a prerequisite to reducing inequalities in living standards. Development in poverty areas requires an efficient transport infrastructure effectively serving the needs of businesses for low-cost access to raw materials and product markets. It also requires sufficient human and natural resources to achieve sustainable growth.

34. As of the end of 2007, the PRC’s transport infrastructure comprised 77,966 route kilometers (km) of the railway network (63,637 km CR, 14,329 km of joint venture railways and local railways); 3.58 million km of paved and unpaved state, provincial, and local roads; 123,500 km of navigable inland waterways; 2.34 million km of civil aviation routes; and 54,500 km of petroleum and gas pipelines.5

35. Transportation infrastructure improvements will be best achieved by establishing a framework whereby customers can satisfy their transportation service requirements at a cost that will allow them to maintain their competitive advantage in the marketplace. Bringing this about will require: (i) removing constraints on competition; (ii) alleviating capacity bottlenecks; and (iii) implementing institutional reforms that improve the efficiency and responsiveness of individual modes and of the transport sector as a whole.

1. Freight Transportation

36. Between 1978 and 2007, the load on China’s freight transportation infrastructure has grown from 2.45 billion to 22.17 billion tons6 and from 734.2 billion ton-kilometers (TKM) to 5,273.3 billion TKM, excluding ocean transport. This represents an annual 7.4% and 6.6% increase, respectively, for the 31-year period. The annual growth trend from 1992 to 2007 in GDP and freight TKM for different modes is shown in Table 1.1. The 15-year trend shows only modest growth in TKM when compared to the growth in GDP; however the average is heavily influenced by the economic slowdown in 1997, 1998 and 1999. Recent years have seen more robust growth rates, even though

5 National Bureau of Statistics of China, China Statistical Yearbook 2008; China Statistics Press, Beijing; September 2008, p. 608. 6 Throughout this report ”ton” is used to designate a metric tonne of 2240 lbs. 9 the rail freight share of the total transportation market has gradually decreased from a recent high in 2003 of 54.7% to 47.1% in 2007%. Also, as the increase in the service sector impacts the GDP, the total freight TKM per $ of GDP, (freight intensity) is decreasing (Table 1-2). In the past 15 years total freight TKM per $ of GDP has decreased at an annual rate of -8.1% and rail TKM per $ of GDP has decreased at an annual rate of -9.6%.

37. Table 1.1 compares the growth rates of freight transport by mode with growth in GDP. It illustrates that the growth rate in railway has not been keeping pace with inland waterway and coastal freight transport during most of the period since 1992. One main reason is that for most of the period between 1992 to the present, the growth in rail traffic has been constrained by PRC railways’ capacity to transport freight, not by demand for rail transport. Growth in waterway transport was dramatic since 2003, increasing from 2,871.6 billion TKM to 6,428.5 billion TKM in 2007. This sizeable increase may reflect the railways’ capacity constraints.

Table 1.1: Freight Transport versus GDP Annual Average Growth Rate Total Waterway Highway Rail Freight Period Growth in Freight Freight Freight Growth in Current GDP Growth in Growth in Growth in TKM TKM TKM TKM 1992 23.6% -53.8% 5.5% 234.3% 9.6% 1993 31.2% 4.9% 4.5% 4.6% 8.4% 1994 36.4% 9.1% 4.5% 13.2% 10.2% 1995 26.1% 7.4% 3.3% 11.9% 4.6% 1996 17.1% 1.9% 0.4% 1.8% 6.7% 1997 11.0% 4.9% 1.2% 7.7% 5.2% 1998 6.9% -0.8% -5.3% 0.9% 4.0% 1999 6.2% 6.5% 2.8% 9.6% 4.4% 2000 10.6% 9.3% 6.7% 11.6% 7.1% 2001 10.5% 7.6% 6.7% 9.5% 3.3% 2002 9.7% 6.2% 6.6% 5.9% 7.1% 2003 12.9% 6.3% 10.1% 4.4% 4.7% 2004 17.7% 28.9% 11.8% 44.3% 10.4% 2005 14.6% 15.6% 7.5% 19.9% 10.9% 2006 15.7% 10.7% 5.9% 11.7% 12.2% 2007 21.4% 14.2% 8.4% 15.9% 16.4% 2008 16.9% 8.8% 5.5% -21.8% 189.5% Average Growth 15.2% 8.7% 4.9% 11.1% 7.7% Rate 1992-2007 Source: Growth rates for GDP computed by Consultant from China Statistical Yearbook 2009; published by the China Statistics Press; Beijing: September 2009, p. 37.

38. From 1992 to 2007, the annual growth rate in total freight transportation (which increased from 2,018.35 billion TKM in 1992 to 5,273.0 billion TKM in 2007) averaged 6.6% whereas current GDP growth (from CY 2,692 billion in 1992 to CY 24,952 billion in 2007) averaged 16.0% per year. During the same period, freight intensity7 declined from 0.75 to 0.21 TKM per CY of current GDP, or

7 Freight intensity is expressed in ton-kilometers per CNY of constant GDP. 10 by an annual average of –8.1% as shown in Table 1.2. This overall decrease in freight intensity is expected, as the share of the service sector in the overall economy increases.

39. There have been freight transportation mode shifts during the last 15 years, with road and waterway modes showing a generally upward trend, while pipelines and civil aviation account for a negligible share of total freight traffic8 Rail freight traffic from 1992 to 2007, expressed in tons and TKM, increased on average every year by 4.7% and 5.0%, respectively as shown in Table 1.3. During this period the average length of haul increased from 734 km to 757 km. It appears that railways market share is decreasing slightly, down to 13.8% in tons and 23.5% in TKM in 2007.

Table 1.2: Volume of Freight by Mode (TKM) and Total GDP Waterway Highway Current GDP Total Freight Rail Freight Freight TKM Freight TKM Year (CNY 100 TKM per TKM per per GDP per GDP million) GDP CNY GDP CNY CNY CNY 1992 26,923.50 1.09 0.43 0.49 0.14 1993 35,333.90 0.87 0.34 0.39 0.12 1994 48,197.90 0.69 0.26 0.33 0.09 1995 60,793.70 0.59 0.21 0.29 0.08 1996 71,176.60 0.51 0.18 0.25 0.07 1997 78,973.00 0.49 0.17 0.24 0.07 1998 84,402.30 0.45 0.15 0.23 0.06 1999 89,677.10 0.45 0.14 0.24 0.06 2000 99,219.60 0.45 0.14 0.24 0.06 2001 109,655.20 0.44 0.13 0.24 0.06 2002 120,332.70 0.42 0.13 0.23 0.06 2003 135,822.80 0.40 0.13 0.21 0.05 2004 159,878.30 0.43 0.12 0.26 0.05 2005 183,217.40 0.44 0.11 0.27 0.05 2006 211,923.50 0.42 0.10 0.26 0.05 2007 257,305.60 0.39 0.09 0.25 0.04 2008 300,670.00 0.37 0.08 0.17 0.11 Average Growth 16.3% -6.6% -9.7% -6.5% -1.5% Rate 1992-2007 Source: GDP data from China Statistical Yearbook 2009; published by the China Statistics Press; Beijing: September 2009, p. 37.

8 Although civil aviation traffic has increased substantially, it still accounts for a negligible share of total freight traffic. 11

Table 1.3: Freight Market Share of Transport Modes

Total Rail Rail Road Road Waterway Waterway Total Rail Rail Road Road Waterway Waterway Freight Freight Market Freight Market Freight Market Freight Freight Market Freight Market Freight Market Period TKM TKM Share TKM Share TKM Share Tons Tons Share Tons Share Tons Share (billion) (billion) TKM (billion) TKM (billion) TKM (million) (million) Tons (million) Tons (million) Tons 1992 2,921.8 1,157.6 39.6% 375.5 12.9% 1,325.6 45.4% 10,458.99 1,576.27 15.1% 7,809.41 74.7% 924.90 8.8% 1993 3,064.7 1,209.1 39.5% 407.1 13.3% 1,386.1 45.2% 11,159.02 1,627.94 14.6% 8,402.56 75.3% 979.38 8.8% 1994 3,343.5 1,263.2 37.8% 448.6 13.4% 1,568.7 46.9% 11,803.96 1,632.16 13.8% 8,949.14 75.8% 1,070.91 9.1% 1995 3,590.9 1,305.0 36.3% 469.5 13.1% 1,755.2 48.9% 12,349.38 1,659.82 13.4% 9,403.87 76.1% 1,131.94 9.2% 1996 3,659.0 1,310.6 35.8% 501.1 13.7% 1,786.3 48.8% 12,984.21 1,710.24 13.2% 9,838.60 75.8% 1,274.30 9.8% 1997 3,838.5 1,327.0 34.6% 527.2 13.7% 1,923.5 50.1% 12,782.18 1,721.49 13.5% 9,765.36 76.4% 1,134.06 8.9% 1998 3,808.9 1,256.0 33.0% 548.3 14.4% 1,940.6 50.9% 12,674.27 1,643.09 13.0% 9,760.04 77.0% 1,095.55 8.6% 1999 4,056.8 1,291.0 31.8% 572.4 14.1% 2,126.3 52.4% 12,930.08 1,675.54 13.0% 9,904.44 76.6% 1,146.08 8.9% 2000 4,432.1 1,377.1 31.1% 612.9 13.8% 2,373.4 53.6% 13,586.82 1,785.81 13.1% 10,388.13 76.5% 1,223.91 9.0% 2001 4,771.0 1,469.4 30.8% 633.0 13.3% 2,598.9 54.5% 14,017.86 1,931.89 13.8% 10,563.12 75.4% 1,326.75 9.5% 2002 5,068.6 1,565.8 30.9% 678.3 13.4% 2,751.1 54.3% 14,834.47 2,049.56 13.8% 11,163.24 75.3% 1,418.32 9.6% 2003 5,385.9 1,724.7 32.0% 710.0 13.2% 2,871.6 53.3% 15,644.92 2,242.48 14.3% 11,599.57 74.1% 1,580.70 10.1% 2004 6,944.5 1,928.9 27.8% 784.1 11.3% 4,142.9 59.7% 17,064.12 2,490.17 14.6% 12,449.90 73.0% 1,873.94 11.0% 2005 8,025.8 2,072.6 25.8% 869.3 10.8% 4,967.2 61.9% 18,620.66 2,692.96 14.5% 13,417.78 72.1% 2,196.48 11.8% 2006 8,884.0 2,195.4 24.7% 975.4 11.0% 5,548.6 62.5% 20,370.60 2,882.24 14.1% 14,663.47 72.0% 2,487.03 12.2% 2007 10,141.9 2,379.9 23.5% 1,135.5 11.2% 6,428.5 63.4% 22,758.22 3,142.37 13.8% 16,394.32 72.0% 2,811.99 12.4% 2008 11,030.1 2,510.6 22.8% 3,286.8 29.8% 5,026.3 45.6% 25,874.13 3,303.54 12.8% 19,167.59 74.1% 2,945.10 11.4% Annual Growt 8.7% 5.0% -3.4% 14.5% 5.4% 8.7% 0.0% 5.8% 4.7% -1.0% 5.8% 0.0% 7.5% 1.6% h Rate Source: China Statistical Yearbook 2009; published by the China Statistics Press; Beijing: September 2009, p. 614.

2. Passenger Transportation

40. The annual growth rate in passenger traffic (all modes) between 1992 and 2007 was 6.5% compared to current GDP growth for the same period of 16.0% per year. This is in contrast to data from other nations that shows that typically overall passenger traffic grows faster than the economy as a whole.

41. Due to increased competition from the airlines and bus companies, PRC railways’ passenger traffic has not been increasing with the total passenger market. The railways’ market share in passengers and passenger-kilometers (PKM) decreased by an annual average of -4.1% and -2.0%, respectively during the 15 year period from 1992 to 2007. On the other hand the volume of passenger transport increased at an average annual rate of 6.5% in terms of passengers and 7.9% in terms of PKM. The number of passengers declined by 7.9% in 2003 along with the decline in other modes due to SARS but rebounded in 2004 and continues to increase. Since 1992, the number of rail passengers increased to the highest level of the decade in 1994, and afterwards declined until 1997. With 1,356.7 million passengers and 721.6 billion PKM, the 2007 traffic represents a historical record. Table 1.4 shows these trends. Despite the increased competition from the airlines and bus companies, it appears that railway passenger traffic will continue growing in the foreseeable future in absolute terms, particularly for rail lines that serve the less developed provinces and as the dedicated high speed passenger network is completed. 12

Table 1.4: Passenger Rail Market Share Rail Total Rail Rail PKM Total PKM Rail PKM Passengers Years Passengers Passengers Market (billion) (billion) Market (million) (million) Share Share 1992 8,608.6 694.9 996.9 315.2 11.58% 45.36% 1993 9,966.3 785.8 1,054.6 348.3 10.58% 44.33% 1994 10,928.8 859.1 1,087.4 363.6 9.95% 42.32% 1995 11,726.0 900.2 1,027.5 354.6 8.76% 39.39% 1996 12,453.6 916.5 948.0 334.8 7.61% 36.53% 1997 13,260.9 1,005.5 933.1 358.5 7.04% 35.65% 1998 13,787.2 1,063.7 950.9 377.3 6.90% 35.48% 1999 13,944.1 1,130.0 1,001.6 413.6 7.18% 36.60% 2000 14,785.7 1,226.1 1,050.7 453.3 7.11% 36.97% 2001 15,341.3 1,315.5 1,051.6 476.7 6.85% 36.24% 2002 16,081.5 1,412.6 1,056.1 497.0 6.57% 35.18% 2003 15,873.5 1,380.8 972.6 478.5 6.13% 34.65% 2004 17,674.5 1,630.9 1,117.6 571.2 6.32% 35.02% 2005 18,470.2 1,746.7 1,155.8 606.2 6.58% 34.71% 2006 20,241.6 1,919.7 1,256.6 662.2 6.26% 34.49% 2007 22,277.6 2,159.3 1,356.7 721.6 6.21% 33.42% Growth Rate 1992- 6.5% 7.9% 2.1% 5.7% -4.1% -2.0% 2007 Source: China Statistical Yearbook 2008; published by the China Statistics Press; Beijing: September 2008.

42. As shown in Table 1.5, PRC’s 2007 rail passenger trips per capita were 1.03. This represents a 12.5% increase over 2003 (0.76) and 10.93% increase over 2004 (0.86). At an average 16.86 trips per capita for all modes of transport, mobility in PRC, although growing at a modest rate, still remains lower than other countries.

Table 1.5: Population and Passenger Trips, 2007 Passenger Annual Modal Population Trips Trips per Distribution Description (000) (000)Capita (%) Total PRC 1,321,290 22,277,610 16.86 100.0% By Rail - 1,356,700 1.03 6.1% By Road - 20,506,900 15.52 92.1% By Waterway - 228,350 0.17 1.0% By Air - 185,760 0.14 0.8%

Source: China Statistical Yearbook 2008; published by the China Statistics Press; Beijing: September 2008.

43. From 1992 to 2007, railway originated passengers increased by 2.1% annually and traffic volume in passenger-kilometers (PKM) increased by 5.7% annually, which is due to an increase in the average length of haul from 316 km to 532 km. During the same 15-year period, road passenger traffic increased by 180% (passengers) and 260% (PKM), with roads accounting for over 92% of the overall passengers transported in 2007. This is mainly due to the significant road construction efforts going on in the PRC, which enhances the competitiveness of road transport due to flexible service, faster travel times, and lower operating expenses. The national statistics for road transport by both Ministry of Transport (MOT) and non-MOT operators indicate, however, that average length of haul for passenger road transport is 56 km, which only increased from 44 km since 1992, compared to the 13 average trip length on railways of 532 km. This relatively low figure reflects the local nature of the road passenger transport. In the intermediate to long distance passenger transport market (200 km and above), the railway is the predominant mode of transport with an estimated market share of approximately 70%. In fact, the road share of passengers has remained at approximately 92% over the past five years and the railway’s share decreased only slightly to 6.2% in terms of passengers and to 33.42% in terms of PKM, reflecting the increasing competitiveness of railway transport with increasing use of higher speed and more comfortable trains.

44. Passenger transport on inland waterways and coastal ships reached its peak level in 1987 and has decreased by over 26% since then. A similar trend is also observed in PKM, which reached its peak in 1992 and decreased by 61% since then, mainly due to a decrease in the average trip length from 75 km in 1992 to 34 km in 2007. Contrary to freight transport, this trend confirms the lack of preference to this mode of transport by passengers, where the flexibility and frequency of service provided by other modes are more important criteria than price.

45. A closer analysis of recent trends shows that, excepting the unusual decline in 2003 due to SARS, PRC railways have successfully abated the declining general trend in passenger transport, particularly since 1998. This was accomplished largely due to significant reform and restructuring measures implemented by MOR in order to create an efficient market-oriented railway, which is more responsive to passenger needs and requirements. Such improvements as speed increases on high density passenger lines; computerized passenger ticketing and reservation system; improved value added on-board services and comfort, and providing 8-hour, 12-hour and 24-hour service between large city pairs have resulted in increased ridership and passenger preference for the railways.

46. During the 22-year period from 1985 to 2007, passenger revenues recorded an average annual growth of 14.1 percent compared with 10.4 percent for freight revenues.

47. The PRC railways are essentially a freight-predominant operation although passenger transport remains an important line of business. However, the gap between freight and passenger revenues is fast closing. In 2007, passenger revenues were 37.2% of total freight and passenger revenues, compared with 22.4% in 1985. With rapid growth of passenger traffic and higher average unit revenue per PKM, the gap between passenger revenues and freight revenues is expected to narrow further. This will have important implications for planning future expansion of rail transportation services and investments.

48. During the period from 1985 to 2007, the growth rate of average unit passenger revenue was 8.74% compared to 5.49% for unit freight revenue. This buoyancy in passenger revenues reflects the impact of increased demand for improved value-added rail passenger services provided by MOR.

49. A reverse trend is seen for freight traffic. From 1985 to 2007, the growth rate of average unit freight revenue was only 5.49%. This trend shows that in rail freight business, the propensity of goods that attract low tariffs is increasing on the national railway. The railway has been unable to accommodate some higher tariff traffic, thus eroding overall rail profitability. MOR needs to adapt rapidly to competitive conditions, improve the quality of rail freight services and adopt demand sensitive pricing in rail freight transport services. As the double stack container high speed lines are expanded, perhaps some of the higher rated commodities will be attracted to rail.

3. Long Term Trends in the PRC’s Transport Sector

50. The following long-term trends are expected in PRC’s transport sector: 14

 Shippers will increasingly require higher quality services, and CR must provide these services in order for the railway to compete effectively in a market economy;  The road share of freight transport will increase because of the ability of this mode to provide more flexible and complete door-to-door service;  Waterway share of freight transport will also increase because of its ability to ship bulk commodities at lower cost;  Rail modal share of passenger transport will remain stable provided that MOR successfully implements further improvements in service and price competitiveness;  Demand for multimodal transport services will need to grow faster than for single mode services in order for the economy to remain internationally competitive;  Freight transport will grow more slowly than economic growth because of the anticipated faster relative growth in the tertiary sector of the economy; and  Passenger traffic will grow faster than the economy as a whole, due to relaxed restrictions on personal travel and as the PRC propensity to travel approaches the levels found in other parts of the world. D. RAILWAY SECTOR

51. In the PRC, the railways remain the preferred mode of medium- to long-distance intercity transport. This, combined with economic growth and technological improvements for the railways, ensures a continuing role for railway transport in the future. The railway's competitive advantage is in the transport of bulk and semi-bulk commodities over medium to long distances, long-distance passenger transport, and containerized freight.

52. The railway system in the PRC encompasses a nationwide standard gauge (1.435 meter wide) rail network totaling 77,966 route-km at the end of 2007.9 This includes 63,637 route-km of the state-owned national railway and 14,329 route-km of joint-venture railways and local railways.10 As a result of MOR’s modernization efforts, as at the end of 2007, some 24,047 route-km (or 37.8% of the national network) were electrified routes; double tracking covered 25,794 route-km (or 40.5% of the national network); 57,409 route km, 62.8% of the trunk lines, were laid with continuous welded rail; and electrified and dieselized routes comprised more than 98% of the total route length. These routes accounted for over 99.6% of the total gross TKM hauled.11

53. The Government through MOR administers the state-owned national railway. On March 18, 2005, MOR implemented a reform assigning direct management of stations and depots to the Regional Railway Administrations (RA). The 41 railway sub-administrations were therefore disbanded. There are now a total of 18 RAs (formerly, there were 14), including three new administrations for Taiyuan, Xi’an and Wuhan plus the Qinghai–Tibet Railway Company.

9 The PRC’s railway network (in terms of route length) ranks third worldwide after the US and Russian Federation. 10 National Railways are principally funded and constructed by the Central Government and managed by MOR, the Local Railways are financed and constructed by the provincial governments, municipalities, or the autonomous regions, and the Joint Venture Railways are financed and built in partnership between MOR and provincial governments, municipalities, autonomous regions or enterprises. Local Railways are operated by enterprises independent of MOR, but their success largely depends on MOR routing decisions and train paths. 11 China Statistical Yearbook 2008; published by the China Statistics Press; Beijing, September 2008, p.632 and MOR- furnished data. 15

54. With a railway network approximately 1/3 the size of the USA network, PRC railways handled 3.14 billion tons of freight and 1.35 billion passengers in 2007. Total transport volume was 2,379 billion TKM and 721.6 billion PKM in 2007 or an increase of 8.3% and 8.9% over 2006. The freight volume handled was 83% of that on US Class 1 railroads (2,833.6 billion TKM). The average length of haul for freight was 757 km compared with 1460 km in the US in 2006.12 This volume of freight throughput together with an additional 721 billion passenger-km, or 3,100 billion traffic units (TU)13, was a significant achievement.14 With an average traffic density of 39.8 million TUs per route-km in 2007, China’s railway sector is the densest network in the world.

55. An important characteristic of the PRC railways is its high modal share (45.1% in freight TKM and 33.4% in PKM). Thus both the Chinese economy and life style is highly dependent on the railway’s availability and its efficient operation. In this background MOR is facing new challenges as the country rapidly progresses to a market economy (in 2005 the private sector of the national economy contributed to more than 50% of GDP, a new record). Rapid economic growth has induced strong growth of freight and passenger traffic, which is going beyond the capacity of the network.

1. Capacity Constraints

56. As traffic increases with economic growth, it is becoming more difficult to accommodate both freight and passenger traffic on saturated rail infrastructure. The traffic density on PRC’s railway network, which is the number of traffic units (consisting of the sum of ton-kilometers and passenger kilometers) per km of the railway, is about three times the density of traffic on the US Class 1 railroads and seven times the traffic density on important European railways such as the French and the German railways.

57. Some railway administrations (RAs) carry more traffic than the largest European railways. While the high density underscores a good record of performance and asset utilization, it is indicative of the relative scarcity of railway infrastructure. Considering that the main traffic flows are directed north-south and east-west, it seems that the railway network is insufficiently developed.

58. The railway network currently is operating close to or at capacity, and there are already indications that transport capacity is becoming a binding constraint on further growth. Further liberalization under the WTO regime is expected to increase China’s international trade, resulting in increasing strains on the domestic transport infrastructure. According to MOR officials, the average number of daily requests for freight cars increased to nearly 300,000 cars, yet the railway system can only provide around 110,000 cars per day, or only 37 percent of the demand.15 Railway’s capacity constraints result in loss of production and increased logistics costs. Shippers are forced to use the high cost highway transportation, which is also environmentally less sound and considerably less energy efficient. .

2. Railway Development Plans

59. Since the 1990s, China has been undertaking the largest railway construction program since Europe's great expansion in the years before World War I, a track-laying performance on par with America's in the 19th century.16 During the 10th FYP (2001-2005) about 1,500 kilometers of new lines

12 AAR Statistical website. 13 Sometimes referred to as converted ton-kilometers, the traffic unit is the sum of TKM and PKM. 14 The comparison with U.S. Class I railways is not intended to imply that the railways between the two countries are similar. It is intended to show only the relatively high railway traffic density in PRC. 15 Chinese railways bursting at the seams. http://singleplanet.blogs.com/single_planet/2004/05/chinese_railway.html 16 http://www.time.com/time/asia/features/journey2002/chinaboom.html 16 have been added each year at an annual cost of about $7 billion. The 11th FYP (2006-2010) envisages an annual investment of $37 billion in the national railway, which represents a more than 4-fold increase over the previous 5-year period. MOR is in the process of expanding capacity by constructing new lines, improving existing lines with double tracking and electrification, increasing passenger, container and coal movement capacity, and upgrading locomotives and rolling stock. Between 2000 and 2007 the number of (i) freight cars has increased from 439,943 to 571,078; (ii) passenger coaches have increased from 35,989 to 42,471; and (iii) national railways locomotive fleet has increased from 14,472 to 17,311 with much of the increase being in higher capacity electric locomotives.17

60. Expansion of the railway network is a priority goal of the Government. This is reflected in the Government’s Five Year Plans and the 2020 Plan. The Government’s Five-Year Plans explicitly identify transportation as a priority largely because of the stifling effects of bottlenecks and congestion on commercial, industrial, and agricultural development. The Government’s program for developing the country’s western provinces lists ‘developing infrastructure’ as the number one priority.

61. Mr. Yang Zhongmin, General Director of the Department of Development and Planning, MOR said,”In the coming three years, CR plans to invest over 350 billion RMB. 2008 planned a capital investment of 300 billion CY. But as required by the present situation, MOR will invest 50 billion more. By 2010, MOR will invest about 1,000 billion in front end studies and related study projects. MOR will purchase locomotives and cars with a planned cost of 500 billion within four years from now.”18

62. These efforts appear to be adequate for alleviating congestion particularly on the high- density east-west and north-south routes. It may be mentioned that expansion of the rail network in the west will invariably need capacity enhancement on the busy trunk routes, so that there is enough capacity on the existing network to carry the traffic generated on the new lines. If this is not done, then the efficiency of the whole network including the new investments will be adversely affected. In view of the large-scale capacity constraints that have become endemic on the national railway trunk lines network, the investment program for railway’s development needs to be greatly expanded, which is explicitly recognized on the 11th FYP as a priority.

63. It must be ensured that railway capacity and capability are contributors to, rather than constraints on, both overall economic growth and the wider sharing of the benefits of that growth. To insure this, the system capabilities and capacity must stay ahead of the demand for transportation. The Government and MOR should undertake a program for accelerated expansion of railway capacity on the high density routes without further delay. The goals should be: firstly, to remove capacity constraints, and secondly, to ensure that the line capacity stays ahead of the transportation demand on the main corridors. From this perspective, the proposed Project will provide a shorter distance between Kunming (and points west) and Nanning (and points east and south). It provides the shortest link from Nanning to Kunming (727 km compared to 850 km of road and 830 km of existing railway line) and will connect to the proposed Pan-Asian Railway going to Viet Nam, Cambodia, Thailand, Malaysia, and Singapore. This will provide accessibility to the Greater Mekong Subregion through Hekou, Pingxian, and the ports of Fangcheng and Beihai in the PRC; port of Haiphong in Viet Nam; and to South and Southeast Asia. It will help in promoting regional cooperation in the Greater Mekong Subregion.

17 China Statistical Yearbook 2008; published by the China Statistical Press; Beijing, PRC; September 2008, pp. 614. 18 Xinhua News, November 11, 2008. 17

E. EXTERNAL ASSISTANCE TO THE RAILWAY SECTOR

64. The Japan Bank for International Cooperation (JBIC), the World Bank Group, and the ADB have been active supporters of the railway sector in PRC since 1980. External assistance mainly focused on expanding the capacity of the railways. JBIC’s assistance ended in 1997 and totaled 578 billion Yen for 15 railway projects mainly to expand capacity in principal coal transport corridors. Since 1984 the World Bank provided 13 loans totaling $ 3.335 billion. During the last 15 years ADB loans totaled $ 3.49 billion. Since 1989 ADB provided grants totaling $6.6 million for 14 TA projects.

Table 1.6: External Assistance to the Railway Sector Amount A. Japan Bank for International Cooperation Loans Period (¥ million) 1. Yangzhou-Shijiusuo Railway Construction 1980–1983 39,710.0 2. Beijing-Qinhuangdao Railway Construction 1980–1983 87,000.0 3. Hengyang-Guangzhou Railway Transportation Reinforcement 1980 3,320.0 3A. Hengyang-Guangzhou Railway Transportation Reinforcement 1984–1987 70,294.0 4. Zhengzhou-Baoji Railway Electrification 1984–1988 69,191.0 5. Datong-Qinhuangdao (east section) Railway Construction 1988–1989 18,410.0 6. Beijing Subway Construction 1988–1989 4,000.0 7. Shenmu-Shouxian Railway Construction 1991–1993 26,985.0 8. Baoji-Zhongwei Railway Construction 1991–1993 29,800.0 9. Hengshui-Shangqiu Railway Construction 1991–1993 23,603.0 10. Nanning-Kunming Railway Construction 1991–1994 57,696.0 11. Fujian Province Zhang Quan Railway Construction 1993 6,720.0 12. Beijing Subway Second Phase Construction 1991–1994 15,678.0 13. Shouxian-Huanghuagang Railway Construction 1996–1997 60,420.0 14. Xian-Ankang Railway Construction 1996–1997 35,039.0 15. Guiyang-Loudi Railway Double Tracking 1996–1997 29,960.0 Total 577,826.0

Approval Amount ($ B. World Bank Loans Date million) 1. Railway I: Construction of a Single Track Between Xinxiang and Heze 27 Jun 1984 $ 220 2. Railway II: Upgrading and Electrification of Zhengzhou-Wuhan Line 14 May 1985 $ 235 3. Railway III: Upgrading and Electrification of Chongqing-Guiyang Lines 15 Apr 1986 $ 230 4. Railway IV: Double-Tracking of the Yueshan-Xiangfan Section 23 Jun 1988 $ 200 5. Inner Mongolia Local Railway: Construction of Jining to Tongliao Line 12 May 1989 $ 150 6. Railway V: Double-Tracking of the Zhuzhou-Hangzhou Line 24 Sep 1991 $ 330 7. Railway VI: Electrification of Double-Track Beijing-Zhengzhou Line, et al 25 Mar 1993 $ 420 8. Railway VII: Electrification of Wuhan-Guangzhou Line, and Others 1 Jun 1995 $ 290 9. National Railway I: Langzhou-Baoji Double Tracking and Upgrading 29 Jan 2002 $ 160 Second Line and Electrification 10. National Railway II: Upgrading Electrification of Zhe-Gan Railway Line 24 Jun 2004 $ 200 11. Third National Railway Project 23 Jan 2007 $ 300 12. ShiZheng Railway Project 24-Jun-08$ 300 13. Nanning-Guangzhou Railway Project 24-Jun-09$ 300 Total $ 3,335

Approval Amount ($ C. Asian Development Bank Loans Date million) 1. 948 Shanxi-Xiaoliu Railway 31 Jan 1989 39.7 2. 1087 Yaogu-Maoming Railway 20 Jun 1991 67.5 3. 1167 Guang-Mei-Shan Railway 25 Jun 1992 200.0 4. 1221 Hefei-Jiujiang Railway 30 Mar 1993 110.0 5. 1305 Jing-Jiu Railway Technical Enhancement 14 Jul 1994 200.0 6. 1439 Dazhou-Wanzhou Railway 4 Jun 1996 100.0 7. 1553 Shenmu-Yanan Railway 29 Sep 1997 200.0 8. 1626 Guizhou-Shuibai Railway 18 Aug 1998 140.0 9. 1748 Hefei-Xi'an Railway 17 Aug 2000 300.0 10. 1850 Ganzhou-Longyan Railway 30 Oct 2001 200.0 11. 2051 Yichang-Wanzhou Railway 15 Dec 2003 500.0 12. 2116 Dali-Lijiang Railway 2 Dec 2004 180.0 13. 2182 Zhengzhou-Xi'an Dedicated Passenger Railway 22 Sep 2005 400.0 14. 2274 Taiyuan-Zhongwei Railway Project 23 Nov 2006 300.0 15. 2390 Railway Safety Enhancement Project 12 Dec 2007 100.0 16. 4839 Lanzhou- Chongqing Railway Project 18 Nov 2008 300.0 17. 2481 Chongqing-Lichuan Railway Development Project 8 Dec 2008 150.0 Total 3,487.2 Approval Amount D. Asian Development Bank Technical Assistance Date ($ 000) 1. 1117 Institutional Assistance to Provincial Railway Operations 31 Jan 1989 450 2. 1523 Institutional Strengthening of Guangdong Sanmao Railway Co. 20 Jun 1991 965 3. 1524 Regional Railway Sector Study 20 Jun 1991 275 4. 1720 Institutional Strengthening of Guang-Mei-Shan Railway Company 25 Jun 1992 250 5. 1721 Institutional Strengthening of Guangdong Planning Commission 25 Jun 1992 250 6. 1861 Strengthening Business and Commercial Practices of the Hefei- 30 Mar 1993 600 Jiujiang Railway Company and Anhui Province 7. 2122 Policy Support to the Ministry of Railways 14 Jul 1994 600 8. 2578 Institutional Strengthening of Local Railways in Sichuan 4 Jun 1996 400 9. 2878 Institutional Strengthening of Local Railways in Shaanxi 29 Sep 1997 400 10. 4325 WTO-Policy Reform Support to MOR 2 April 2004 400 11. 4701 Railway Passenger and Freight Policy Reform Study 28 Nov 2005 400 12. 4864 Managing Railway Passenger Operations More Efficiently 9 Nov 2006 600 13. 4955 Ralway Emergency Management System Study 20 July 2007 500 14. 7147 Enhancing Competiveness and Efficeincy of Passenger Ops 8 Oct 2008 500 Total 6,590 MOR = Ministry of Railways; WTO = World Trade Organization Sources: Asian Development Bank; MOR

II. PROJECT FRAMEWORK AND RATIONALE

A. DESCRIPTION OF THE PROJECT

65. As noted above, the new line consists of 745.747 km of mainline electrified double-track. The line will be constructed to MOR’s Class 1 standards. Its carrying capacity is designed to provide high speed, 200km/hr passenger trains, as well as lower speed express passenger train service (160 km/hr), double stack container freight trains at 120 km/hr, and freight trains at 100 km/hr. Arrival and departure lines will be 850 meters.

66. Fifteen stations (including 10 passing stations) will be constructed and 13 existing stations will be expanded. Nanning South and Kunming East are classification yards. Nanning and Kunming Stations are passenger stations. The maximum distance between stations is 47.5 km between Boyi and Funing. The shortest distance between stations is 4.5 km between Nanning South and Nanhua, within the Nanning terminal hub. The average station spacing is 27 km. 19

67. General track construction material will utilize 60 kg/m continuously welded rail (CWR), Type III concrete sleepers (1,667 per km), and Grade I crushed stone ballast with a minimum depth of 30 cm below the bottom of sleepers. These and other track materials and components selected by CREC appear to be consistent with the China Railway Grade I design standards applied to similar projects

68. In the long tunnels of over 6 km in length, bi-block ballastless track will be laid. Insulation measures will be used between the vertical and horizontal rebar to prevent electronic induction from occurring and interfering with track signal circuitry. Elastic fastening with insulating properties will be used on the bi-block construction. Appropriate transitional sections will be used between the different track sections as well as between diverging lines and connections.

69. The NKR alignment presents many challenges. Given the length of the alignment, a range of geographical, geological and climatic conditions are present. From Nanning, the whole line topography is inclined from northwest to southeast. Elevation of the line keeps rising from Nanning (78m) to Kunming (1892m). The line spans over 2 topographic steps, including Guangxi Basin and Yunan-Guizhou Plateau. The mainline will include 28 stations and will have 224 bridges with a total length of 75,084 km. Bridges in the mainline account for 10.1% of the construction length of the main line. There are 225 tunnels with a total length of 422.325 km newly constructed and 2 existing tunnels with a total length of 1079m will be renovated. There are 197 double track tunnels with a length of 368.440 km and 14 single track tunnels with a length of 28.145 km. The equivalent double track length of tunnels is 408.252 km. There are eight tunnels over 10 km and the longest is 19.595 km.

70. Estimated cost of construction of NKR and the associated terminal works is included in Table 2-1. Costs include track, subgrade, bridges and tunnels, signals, electric power, land acquisition, and buildings, and also includes all parts, materials, installation, engineering and construction. The total estimated cost of the Project is 65.1 CY billion ($ 9.6 billion) inclusive of physical and price contingencies, and interest during construction. ADB is preparing the Project with a contemplated loan of $300 million. Equity capital will account for 50% of the project. Yunnan Province will be responsible for 45% of the equity capital for the portion within its province. Guangxi will be responsible for land acquisition and resettlement cost within its borders. MOR will pay for the rest of the equity capital with its railway construction fund. Funds other than equity capital will be covered by loans from ADB, National Development Bank, Industrial and Commercial Bank of China and Bank of China.

B. PROJECT RATIONALE

71. The rationale for the Project reflects (i) railway network development; (ii) capacity enhancement; (iii) meeting the objectives of the 11th FYP and the 2020 Plan consistent with the western regional development strategy; and (iv) promoting pro-poor economic growth along the line and in the region, thereby reducing poverty. The project will help develop the railroad network in an unserved area and enhance pro-poor economic growth. It is included as a priority project in MOR’s 11th Five-Year Plan, as well as the railway development plan, and will support the Government’s western region development strategy. The proposed railway will facilitate economic development and integration of the poor western region, and is expected to stimulate industrial and natural resources development as well as tourism and related industries. The railway will, in the construction and operation phase, increase local people’s access to market and social services, and give them an opportunity to improve their standard of living. Completed and ongoing ADB financed railway projects show that such projects create jobs in construction and loading and unloading operations as well as other income-generating activities (such as material and food supply, and small services around construction sites). The lower transportation costs after project completion will make goods and services available at more economic prices to people living in the area, including the poor, and 20 provide them with opportunities to sell their produce to broader markets. Most people living in the project area have not traveled beyond the nearest town because of high transport fares. The railway will offer them more affordable, reliable, and punctual transport than is currently available. The project will improve local people’s standard of living; and influence all aspects of their daily life, directly or indirectly, in a positive manner. It is consistent with ADB’s country strategy program and will support the Government’s strategic policy objective of greater developmental emphasis on poor, interior, and underserved areas of the PRC by improving transportation linkage with growth centers.

Table 2.1: Estimated Project Cost $ Million CY Million Item Cost Components Estimated Cost(a) Route Length (km) 745.747 A Base Cost(b) 1 Land acquisition and resettlement 269.14 1,838.25 2 Subgrade 639.31 4,366.51 3 Bridges and culverts 1178.73 8,050.71 4 Tunnels and cut & cover tunnels 3186.36 21,762.86 5 Railway trackwork(c) 587.25 4,010.90 6 Communications and signaling 292.11 1,995.09 7 Electric power and traction 382.97 2,615.71 8 Vehicles(d) 0.00 0.00 9 Safety components 38.24 261.16 10 Buildings 76.24 520.70 11 Other equipment and facilities 116.56 796.13 Environmental protection, mitigation, and 12 73.23 monitoring 500.17 13 Temporary facilities and transitional works 132.23 903.16 14 Other expenses 321.64 2,196.82 15 Consultants-Construction Supervision 99.26 677.94 Subtotal (A) 7,393.28 50,496.10 B Contingencies(e) 1 Physical Contingency 444.63 3,036.79 2 Price Contingency 419.52 2,865.33 Subtotal (B) 864.15 5,902.12 C Financing Charges During Implementation(f) 1,342.74 9,170.93 Total (A+B+C) 9,600.17 65,569.151 Source: Compiled and adjusted by Consultant from data provided by MOR and ADB. (a) Includes import taxes and duties of CNY 852.57 million ($ 124.83 million). (b) In mid 2008 prices. (c) Including rails, sleepers, ballast, bridge beams, track laying, and bridge erection. (d) Vehicles will be purchased by MOR under separate funding and will be leased to NKR on a fixed charge per train-km basis based on full cost recovery. Initial cost of vehicles is not included in the Project costs since these are associated facilities, b

(e) Physical contingences computed at 6.14% of base cost on average for civil works and 6.14% for field research and development, training, surveys, and studies (this estimate is based on assumed contingency rates for specific components ranging from 3% t

(f) Interest during construction for ADB loan has been computed on the five-year forward London interbank offered rate plus a spread of 60 basis points and a rebate on spread of 20 points. Commitment fee is based on 0.35% of loan drawdown. Front end fee o

72. Toward the above stated rationale, there will be two primary sources of benefits resulting from the Project. The first source will be the transport cost savings for transit traffic, between Kumning and points east and south to the Pearl River Delta, to closely connect the economically developed Pearl River Delta, Hong Kong, Macao, Fujian and Taiwan areas with the economically underdeveloped Guangxi and Yunnan in the west of China. This will create a regional economic 21 cooperation bridge of important significance for improving influence and for radiating the economic force of “Pan-Pearl River Delta”, building the Beibu-Gulf Economic Zone to be a new economic growth pole of China, and speeding up the economic integration process of the “Pan-Pearl River Delta”.

73. A second source will be the generated traffic in the Project Impact Area. While the western terminus at Kunming and the eastern section from Nanning to Baise already has a developed infrastructure network, the areas between Baise, Quibei, Mile to Kunming have been relatively undeveloped, in some areas lacking even paved two-lane roads. As a result, a large number of mineral and energy resources have not been developed.

74. PIA residents will also benefit through reduced transport costs not only as passengers but also in lower cost goods and services. The current travel time by rail from Nanning to Kunming is 13.1 hours over a distance of 830 km. The NKR with a direct line connection will be 727 km and will take slightly over 5 hours. The development of a transport corridor through the PIA will be a positive addition to developing western China.

75. By providing a more direct and higher speed line, many trains will be diverted from the route now being used. This will free up line capacity on the congested single-track portions of the Nan- Kun from which the trains will be diverted. By so doing, the current line will have greater ability to handle the freight volumes in their primary origin-destination markets. NKR will contribute significantly to the overall efficiency of the CR network; serve as a critical link between western, southwest, and southern coastal areas of China; and will be an important contributor to the development of the western region.

76. Currently, without the NKR, trains from Nanninig to Kunming are on the congested Nan-Kun operating at low speeds. The Nan-Kun currently operates at near 100% capacity. Between Nanning and Baise 45 pairs of trains per day operate and present state capacity is 45 (100%); between Baise and Weishe 40 pairs of trains per day operate and present state capacity is 41.8 (100%); and between Weishe and Kunming 28 pairs of trains operate with present state capacity of 32 (92.4%).19 Studies were made to determine the effectiveness of simply adding capacity to Nan-Kun, as opposed to constructing NKR. Those studies heavily favored constructing the new NKR. Those estudies are discussed elsewhere in this report.

77. Not all rail lines in China will be cleared to handle double stack container trains. With the completion of NKR, and of the new line between Nanning and Guangzhou, the inter-modal hubs at Kunming, Guangdzhou and the Pearl River Delta will be served by more efficient and cost competitive double stack trains. Forecast of future container traffic indicate there will be six pairs of container trains of single stack equipment and three pairs of trains of double stack container trains by 2020. That increases to eleven pairs of single stack and 4 pairs of double stack container trains by 2030. New industries and manufacturing establishments will follow efficient, dependable transportation. In addition, NKR will greatly facilitate traffic between southwest China and the Greater Mekong Region.

78. By facilitating the integration of the poor and underdeveloped western provinces and regions with the developed parts of the PRC, the Project will play an important role in supporting the Government’s strategic objective of accelerating economic development in western China. The economic development of western China under the Government’s “Go West Policy” is an important national policy objective, and is key to alleviating poverty in one of China’s poorest regions.

19 Table 2-1-4, Feasibility Study, December 2008. 22

79. The new electrified double line to be built under the Project will be designed for operation of passenger trains at speeds of up to 200 km/hour. This will reflect upgrading of railway technology in line with achievements in more advanced countries, such as Japan, France, and Germany. This will help provide improved railway passenger services that will effectively compete with other modes. As experience in other countries has shown, technological advancement in the railway sector will benefit the domestic manufacturing base and create opportunities for new businesses to implement cutting edge technologies and pursue technically advanced production methods.

80. The Project places special emphasis on safety during railway construction and operation. Safety will be enhanced through the introduction of safe and reliable technology and installation of technically advanced safety monitoring equipment and appropriate training of staff. State-of-the-art wayside defect detecting devices are planned to guard against accidents. Train control and signaling will be newest technology, designed to be suitable for high-speed freight and passenger service. On board crew monitoring, wayside speed monitoring and recurrent rules training are planned during Project implementation and operation.

81. Automatic Train Protection (ATP) will be in use on all locomotives on NKR. This state-of-the- art system includes a screen in the cab to depict train and grade profile, display upcoming speed restrictions, and monitors speeds and signal aspects. In the event a train exceeds the limits of its authority, fails to slow for a speed restriction, fails to heed a restrictive signal indication or exceeds the allowable speed the system will set the train brakes and stop the train. This system has been in use in China since 1998 and was upgraded in 2000 and again in 2003. As of May 2006, over 8,000 of the 16,606 locomotives have been equipped with the upgraded versions.

82. The NKR line passes through rural areas that are not well served by railways and most local transport is by road. As indicated above, some road sections in the PIA are unpaved. Thus, the NKR will open these very poor areas to development opportunities including tourism, increased agricultural production, exploitation of mineral resources, and reduced travel costs and time for those journeying for employment in other parts of China.

83. NKR is a component of the new phase of institutional development of CR. The Project railway will be built and operated by an autonomous joint venture company (JVC) established under the Chinese Law. The joint-venture company will have national and provincial ownership and will have substantial managerial and financial autonomy, including the freedom to set tariffs for full cost recovery. It will be undertaken as a joint venture between MOR and Yunnan and Guangxi Zhuang Autonomous Region provincial governments, and will be implemented by MOR.

84. NKR Railway Co., Ltd. (NKRC) will be responsible for construction of the project and Kunming Railways Bureau and Nanning Railways Bureau will manage operations after the Project is completed. In due course, the joint venture shareholding company may be listed on the stock exchange. This will provide an opportunity for the operating company to interact with investors and raise future investment capital through market mechanisms. A new era of market based investment financing is expected to be ushered, thereby helping to diversify sources for financing railway development, and reducing dependence on self-generated financing and financing from government sources and lenders.

C. DESIGN AND MONITORING FRAMEWORK

85. The primary goal of the Project is to create the conditions that would foster economic growth particularly in the less developed and poorer regions in west China. This goal will be achieved mainly by developing network capacity in a region where existing rail routes in nearby regions are being operated at or beyond design capacity; which represents a serious constraint to increased transportation of goods and passengers vital for further economic development of western China. 23

Removal of the transportation constraints and bottlenecks will help in the rapid development of the natural resources and industries, and will stimulate a service sector, generate employment, increase peoples’ incomes, and help reduce poverty. Enabling movement of cost-effective double stack trains will increase the region’s ability to move goods to/from eastern cities and ports. Providing high-speed passenger train service will increase tourism and will open job markets to rural residents.

86. The Design and Monitoring Framework for the Project is presented in Table 2.2. It provides the basic design of the Project in terms of its intended macro and micro impacts, outcomes, outputs and activities (or inputs). The framework clearly identifies the goals and purposes of the Project. It also allocates measurable and/or tangible performance indicators. The framework also identifies the outputs of the Project and the necessary activities that will enable achievement of the proposed immediate purpose, which in turn leads to longer-term objectives or goals.

III. TRAFFIC FORECASTS

A. INTRODUCTION

87. Implementation of the proposed NKR Project will allow an improved transit time for passenger and freight traffic between the major cities of southwest and southern coastal China and the existing main rail lines linking the region to the rest of China. The historical lack of accessibility has constrained the development of this region in spite of its rich natural resources, as evidenced by the difference between the coastal areas and the interior of Yunnan and Gaungxi provinces in terms of economic development. The Project will importantly provide, for the first time, rail service to several counties and districts that have substantial rural population and untapped industrial and tourism potential. Significantly, Yunnan officials have indicated that the province has an annual demand for railway freight capacity approximating 300 million tons but the current network can provide only 60 million tons worth of capacity. This lack of capacity has obviously constrained development of resources and capturing opportunities to increase development in the region.

88. As shown in Table 3.1, Yunnan represents 3.4 percent of PRC’s population and contributes to 1.9 percent of the national GDP. Passenger and freight transport intensity in Yunnan is 5.0 percent and 20.2 percent, respectively of the national average. Guangxi is similar to Yunnan in these terms, with 3.8% of the population and 2.4% of the GDP. Passenger intensity is 7.6% of the national average and freight intensity is 13.1% of the national average. 24

Table 3-1: Selected Transport Indicators, 2007 Indicator Unit Yunan Guangxi PRC Million 44.67 50.02 1,321.29 Population % of PRC 3.4% 3.8% 100.0% CNY Billion 474.131 595.565 24,952.990 Gross Regional Product (current) % of PRC 1.9% 2.4% 100.0% Billion 0.3624 0.61716 215.926 PKM % of PRC 0.2% 0.3% 100.0% PKM/Person 8.1 12.3 163.4 Passenger travel % of PRC 5.0% 7.6% 100.0% Billion 0.69221 0.50152 101.419 TKM % of PRC 0.7% 0.5% 100.0% TKM/Person 15.5 10.0 76.8 Freight transport % of PRC 20.2% 13.1% 100.0% Million 47.22 25.78 7,216 Rail PKM PKM/Person 1.06 0.52 5.46 % of PRC 19.4% 9.4% 100.0% Billion 0.27721 0.10503 23.797 Rail TKM TKM/Person 6.2 2.1 18.0 % of PRC 34.5% 11.7% 100.0% Source: China Statistics Press, China Statisatical Yearbook 2008; Guangxi Statisatical Yearbook 2008; Yunnan Statisatical Yearbook 2007;

Table 2.2: Design and Monitoring Framework Design Summary Performance Targets/Indicators Data Sources/Reporting Mechanism Assumptions and Risks Impact (Macro) 1. Increase in GDP per capita in principal beneficiary areas: 1. Provincial and county/city statistics Assumption Improved transport Counties and Districts from Nanning to Baise by 8% per year from 2010 to offices. 1. Government investment projects system in the region 2020;those in Wenshan and Honghe of Yunnan by 7% per year from 2010 to implemented as planned. supporting 2020, and those in Kunming by 10% per year from 2010 to 2020 2. PPMS at inception, completion and 3 socioeconomic years thereafter, with emphasis on 2. Complementary activities are development and the 2. Improve rural road so that all the administrative villages have access to socioeconomic improvement impacts. implemented. development strategy highway by 2015 (85% of administrative villages in Funing, Guangnan and of southwestern Qiubei have access to highway) 3. Annual reporting by the Project 3. The Government is committed to reducing China. Company. poverty in the western region, based on 3. Reducing population of absolute poverty in Yunnan from 2.5 million to 1.5 development strategy of western China. million by 2020. Reduce the number of relative poverty from 4.9 million to 2.5 million by 2020. In Guangxi reduce absolute poverty from 800,000 to 400,000 4. Investments by MOR and Yunnan by 2020, and relative poverty from 3.2 million to 1 million by 2020. Province and Guangxi Zhuang Autonomous Region are implemented according to plans.

Risk Inequitable development impact and widening of income disparities. Impact (Micro) 1. Local workers will comprise 60% of workforce for all civil works. 1. MOR and contractors to maintain Risk 1. Improve economic records of make up of labor force. 1. In some places labor market may be near conditions of residents 2. Vocational training will be provided prior to beginning of construction for fully utilized during planning and semi-skilled positions such as brick masons. 2. Contractor to maintain records of construction phase hours of training. 2. In some locations there may not be a 3. Women to make up 15% of workforce on all civil works. sufficiently skilled pool to be trained. 2. Enhance capacity 3. Contractor to maintain records of building of locals 4. Construction materials to be locally sourced where possible. Sand mines, source of all materials. 3. Some aggregate and other material might through vocational Rock crusher facilities, Lime mines to be developed by local enterprise. not be locally available. training for railway 4. Enterprises furnishing consumables construction jobs. 5. Living consumables of work force to be locally sourced (Vegetable markets, during four year construction period to Foodstuffs, Rentals for workforce, Services (barbers etc.). be tracked 3. Micro-credit programs made available for small enterprises Impact (Micro) 1. Utilities improved by leaving construction facilities in place at completion 1. Records maintained of all utilities Risks Improve economic of project (Electric power lines, Water wells and water storage facilities, suitable for donation Construction may be delayed due to conditions of residents Water ponds). complexity of tunnel and bridgework. during planning and 2. Records maintained of all temporary construction phase. 2. Temporary construction facilities to be given to local governments at facilities suitable for donation Construction of completion of project. (worker housing, construction manager housing, approach roads to construction offices, construction access roads). connect the 3. The road constructed (or reconstructed) to facilitate railway construction is railway stations transferred to local government after the completion of railway construction. with nearby counties and districts, and construction of local link roads to poor interior 26

Design Summary Performance Targets/Indicators Data Sources/Reporting Mechanism Assumptions and Risks

Outcomes 1. Maintain the Project’s economic rate of return of approximately ---%. 1. Reevaluate the EIRR at mid-term Assumptions 1. An efficient, safe review and at project completion. 1. Demand forecasts materialize; no major and affordable railway 2. Develop the freight and passenger train operating pattern as per the train cost overruns. transport system is paths projected by CREC on NKR. Operate 40 passenger train pairs 2. MOR statistics and operating data developed in the between Nanning and Baise by 2020 and 30 passenger trains between Baise before and after the project 2. Assumed economic growth rates and region. and Kunming by 2020. implementation (i) Passenger PKM traffic growth rate for NKR materialize. meets plan. (ii) tourists visiting the 2. Rural residents have 3. Container traffic between southwestern China terminals (e.g., Kunming) project area. 3. Rural residents make use of trains to low-cost transportation and other areas to increase to 6 pair of single stack container trains and 3 obtain employment in the urban areas. to seek employment double stack container trains by 2020. Other freight trains on the new line to 3. Statistics of: (i) trade between and income. reach 25 pair per day by 2020. southwestern China provinces and 4. Passenger and freight operators realize southern coastal cities and ports (ii) the benefits of using the new railway. MOR 3. Technological 4. Travel time reduced from Nanning to Kunming, from present 13 hours to 5 railway container traffic and RAs re-route trains as planned. advancement in the hours. railway sector, 4. MOR statistics and operating data Risk affordable 5. Number of accidents reduced by 10% in 2015 and another 10% by 2020. before and after the Project Auto usage on the upswing as a result of the transportation opening of the expressway available for rural 6. Number of tourists visiting the project area increased by 100% in 2020 5. Progress reports residents seeking compared to 2010. Assumption employment in urban 6. Project administration missions and Local governments undertake the planned areas. 7. By 2020, the number of shops, tourist centers, hotels, and businesses project completion report tourism and local area development. established in the vicinity of station areas increased by 80% compared to 4. Double stack 2010. 7. Post evaluation surveys and reports Risks container trains from MOR Local governments may not have sufficient enabling increased 8. Planned equipment and facilities are procured and placed into operation financial resources to implement the tourism trade between the as scheduled. 8. Accident statistics from Public and local area developments. interior and the Security Bureau and hospitals eastern ports and cities. 9. Local government statistics

5. Local economic development with emphasis on tourism is implemented.

6. Procurement of operational equipment and signaling and telecommunication facilities for operation and maintenance. 27

Design Summary Performance Targets/Indicators Data Sources/Reporting Mechanism Assumptions and Risks Outputs 1. Transport capacity to increase to 51 billion TKM and 171 pair of 1. Project administration missions (PAM) Risks 1. Railway passenger trains per day in 2020. and Project Completion Report (PCR). Construction may be delayed due to infrastructure and 2. Physical completion of the Project railway complete (745 track kilometers) complexity of tunnel and bridge works. Area associated facilities with terminal and station facilities as per the implementation schedule. 2. MOR statistics and operating data geology and lithology could result in along the NKR 3. 15 Passenger Stations to be constructed and 13 to be expanded.. before and after the project unexpected construction difficulty. alignment are 4. Equipment procured and assigned to service on NKR by March 2015. implementation. implemented. 5. Procure necessary equipment and facilities to enable efficient operation Assumptions and management of the line. 3. Regular resettlement monitoring by an Completion of equipment procurement and 2. Employment 6. Land acquisition and resettlement to be completed as per agreed independent institute engaged by the installation by project opening. opportunities are resettlement plan Project Company generated for poor 7 .Freight tons moved to be 80 million tons per year by 2020 The poor are qualified for job opportunities and vulnerable groups between Nanning and Baise, and 40 million tons between Baise and 4. Environmental monitoring reports, to increase incomes Kunming by 2020. PAMs, and PCR. Assumption and living standards, 8. Achieve ridership projections of 10 million passenger trips between Adequate land for new house sites is thus reducing poverty. Nanning and Baise by 2020, and 8 million between Baise and Kunming 5. Monitoring reports of the social available within villages for resettlement. 9. 279,314 person-years of construction-related employment are generated, development action plan, PAMs and 3. Land acquisition of which the poor, including women, capture 50% of unskilled labor jobs PCR Risks and resettlement 10. Implementation of the land acquisition and resettlement plan. A total of Relocation may not be done satisfactorily. 4. Cultural protection 59,256.2 mu of land will be required for the construction of the NKR, of which Viable alternative employment may not be is not weakened by 33,616.1 mu permanently acquired, 24,500.k mu temporarily acquired, and found for affected people. economic and tourism 1,139.4 mu existing land.. development after the 11. Environment at the project site is protected and adverse environmental Assumption construction of the impacts minimized through mitigation measures as included in the Mitigation measures are adequate to address railway. environmental impact assessment (EIA) and summary EIA. Mitigation environmental impacts. measures included in the civil works’ contracts. 12. Any adverse impacts on the poor, physically impaired, women, children, Commitment of MOR/Project Company and and ethnic minorities are minimized by implementation of the ethnic minority contractors to implementation of mitigation development plan. measures. 13. Control of HIV/AIDS and health risks for construction workers and service providers (indicators include number of clinics, number of patients, number of Mitigation measures are adequate to address posters, and number of testing facilities). social impacts 14. Ethnic cultures and historical relics are well protected while the local economy is developed Activities with Milestones: Inputs 1. Civil Works: Award of contracts to commence by May 2010 and completed by June2015.  ADB $300 million for Railway 2. Materials and Equipment: Procurement completed by July 2015. Development. 3. Resettlement: Completed by May 2012.  MOR, Yunnan Province and Guangxi 5. Track Laying: Started by November 2010 and completed by July 2015 Zhuang Autonomous Region each their 6. Telecommunications and signaling completed by September 2015. respective and agreed to portion of equity.  Domestic Banks 50% of the project cost, less the ADB portion. Source: Consultant. 28

B. APPROACH TO TRAFFIC FORECASTING

89. The following general approach has been used to forecast freight and passenger traffic associated with the operation of NKR:

a. Project future passenger and freight traffic separately. b. For freight traffic, project national transport demand based on broad economic parameters. The railway is one of the lines that will carry double-stacked container trains with nation-wide origins-destinations (O-Ds). Therefore, most traffic will be using the Project rail as part of a much longer trip itinerary, diverting to and transiting this line. For passenger traffic, use will also be primarily for trips with O-Ds of the cities served by NKR, supplemented by traffic between cities beyond the limits of NKR, i.e. transit and interline traffic. A large number of passenger trips on NKR will be for tourism. Service to passenger stations at cities along the alignment will generate new trips, as well as cause substantial diversion from existing road transport to rail use. In the case of NKR, the less than five hour tip time from Nanniig to Kunming will be very competitive with air travel. Surveys at airports have confirmed the susceptibility of air traffic diversion to rail. c. Using TERA’s China Railway Traffic Evaluation Model (based on an updated version undertaken by TERA of MOR’s Railway Investment Strategy (RIS-III) Model) as a tool for projecting future transit traffic on the NKR,20 Project local and interline freight and passenger traffic using results of field surveys. d. Project future traffic in three categories, accounting for distinct economic impacts depending on the type of traffic: (i) Diverted rail traffic from other rail lines to NKR (ii) Traffic that would move by road and air (for passenger only) in the absence of the Project (diverted traffic) based on an assessment of the relative service and cost competitiveness of and passenger/shipper preferences for the NKR. Air transport diversion for passenger transport is considered viable between Nanning and Kunming as NKR provides an attractive service between the two cities, with equal or less time of door-to-door travel at significantly lower cost. The transit time over the NKR will be less than 5 hours versus the presnt trainsit via Nan-Kun of 13 hours. (iii) Traffic that would not move at all in the absence of NKR (generated traffic) based on field market research regarding the nature and extent of economic, commercial, and industrial development in the Project Impact Area (PIA) and in outlying areas that is clearly attributable to the NKR. In addition to generated traffic in the PIA, transit traffic along the NKR corridor is significant. The unmet demand for rail freight transport is endemic in the capacity constrained CR network. The additional capacity created by NKR combined with the lower distance it provides to transit shippers in the national and international markets

20 The earlier RIS version of the model has been updated in 2004 by the Consultant under a contract with MOR. The CR- TEM incorporates passenger traffic (including high speed trains on the dedicated passenger railway network) into the network optimization module, treats trains rather than tons and passengers as traffic inputs, and substantially improves the objective function and constraint equations in the overall optimization algorithms. Detailed information on CR-TEM is provided in TERA Beijing Consulting Co. Ltd., Final Report Volume 1: Railway Investment Study (RIS) Model Version III, prepared for MOR under Contract No. 2003KFEQA-13005US; May 14, 2004. A summary of CR-TEM’s key features is presented in Appendix 3-A. 29

will result in increased generated traffic from outside of PIA. In addition the new line opens up the previously unserved area with its vast mineral resources.

(iv) NKR will pass through Guangxi, where resources are extremely rich, and bauxite reserves in Baise City are 780 million tons. Alumina production at the end of the “11th five-year plan” will reach 5 million tons. Aluminum production in Pingguo will be 1.8 million tons and that of West Guangxi Huayin Aluminum Co., Ltd. will reach 1.6 million tons in the first stage, and 3.2 million tons in the second stage. Counties and cities along the Railway in Yunnan Province are at the low degree of industrialization, so there will be less bulk commodity traffic volume. Among industrial and mining establishments along the Railway, most are middle and small-scale metallurgical, agricultural product processing, stone processing enterprises, and township enterprises are mostly engaged in mining of coal, metallic mineral and non-metallic ore. Grain, steel, industrial consumer goods, chemical fertilizer, pesticide and cement, and coal for manufacturing production and daily life will dominate local inbound traffic volume of the Railway. Smelt metal, minerals and farm and sideline products will dominate outbound traffic volume

C. FREIGHT TRAFFIC PROJECTIONS

1. Overall PRC Freight Transport Projections

90. Table 3.2 shows actual freight traffic for the period 1985 to 2008 for PRC expressed in tons and TKM. Table 3.3 shows actual figures for 2006-2008 followed by projections to 2034.

Table 3.2: Freight Tons and TKM for PRC

Constant GDP PRC Transport Rail Tons Rail Share of PRC Transport Rail TKM Rail Share of Year (CNY Billion) (Million Tons) (Million) Tons (%) (Billion TKM) (Billion) TKM (%)

1985 901.60 7,391.36 1,307.09 17.68 1,303.64 812.57 62.33 1986 981.52 8,535.57 1,356.35 15.89 2,014.75 876.48 43.50 1987 1,095.10 9,482.29 1,406.53 14.83 2,222.85 947.15 42.61 1988 1,218.49 9,821.95 1,449.48 14.76 2,382.57 987.76 41.46 1989 1,268.04 9,794.08 1,514.89 15.47 1,790.27 1,039.42 58.06 1990 1,316.64 9,611.94 1,506.81 15.68 1,806.66 1,062.24 58.80 1991 1,437.70 9,752.26 1,528.93 15.68 1,899.65 1,097.20 57.76 1992 1,642.42 10,458.99 1,576.27 15.07 2,921.8 1,157.6 39.62 1993 1,871.44 11,159.02 1,627.94 14.59 3,064.7 1,209.1 39.45 1994 2,116.35 11,803.96 1,632.16 13.83 3,343.5 1,263.2 37.78 1995 2,347.71 12,349.38 1,659.82 13.44 3,590.9 1,305.0 36.34 1996 2,582.81 12,984.21 1,710.24 13.17 3,659.0 1,310.6 35.82 1997 2,822.58 12,782.18 1,721.49 13.47 3,838.5 1,327.0 34.57 1998 3,043.66 12,674.27 1,643.09 12.96 3,808.9 1,256.0 32.98 1999 3,275.95 12,930.08 1,675.54 12.96 4,056.8 1,291.0 31.82 2000 3,551.72 13,586.82 1,785.81 13.14 4,432.1 1,377.1 31.07 2001 3,846.64 14,017.86 1,931.89 13.78 4,771.0 1,469.4 30.80 2002 4,196.25 14,834.47 2,049.56 13.82 5,068.6 1,565.8 30.89 2003 4,616.90 15,644.92 2,242.48 14.33 5,385.9 1,724.7 32.02 2004 5,082.43 17,064.12 2,490.17 14.59 6,944.5 1,928.9 27.78 2005 5,602.63 18,620.66 2,692.96 14.46 8,025.8 2,072.6 25.82 2006 6,174.10 20,370.60 2,882.24 14.15 8,884.0 2,195.4 24.71 2007 6,729.77 22,758.22 3,142.37 13.81 10,141.9 2,379.9 23.47 2008 7,268.15 25,874.13 3,303.54 12.77 11,030.1 2,510.6 22.76 Source: China Statistical Yearbook 2009; published by the China Statistics Press; Beijing: September 2009.

2. Existing Transport Infrastructure and Traffic Conditions in the Project Area 30

91. Standing within Yunnan and Guangxi, Yun-Gui Railway, originates in Kunming, runs eastward to Nanning, via Shilin, Mile, Qiubei, Guangnan, Funing of Yunan Province, and Baise, Tianyang, Tiandong, Pingguo and Long’an of Guangxi Zhuang Autonomous Region. The total length is 745.747 km. It connects Nan-Guang Railway, Xiang-Gui Railway and Nan-Fang Railway in the east, and Chengdu-Kunming Line, Gui-Kun Railway, Gui-Guang Railway, Kun-Yu Railway in the west, and reaches some ASEAN countries, like Vietnam, Thailand, Burma, through the Pan-Asia Railway. It is an important passenger and freight passage between the Southwest and South China and one of the main passages to sea of the southern area.

Table 3.3: Freight Tons and TKM Projections for PRC, 2006-2034 2006 6,174.10 19,115.31 2,779.09 14.54 7,818.61 2,189.09 28.00 2007 6,729.77 20,200.26 2,865.22 14.18 8,470.96 2,305.59 27.22 2008 7,268.15 21,251.46 2,951.35 13.89 9,103.01 2,422.08 26.61 2009 7,813.26 22,315.79 3,037.48 13.61 9,742.97 2,538.58 26.06 2010 8,360.19 23,383.67 3,123.61 13.36 10,385.06 2,655.07 25.57 2011 8,945.41 24,526.31 3,240.87 13.21 11,072.09 2,791.84 25.22 2012 9,571.58 25,748.93 3,358.12 13.04 11,807.22 2,928.60 24.80 2013 10,241.60 27,057.13 3,475.37 12.84 12,593.80 3,065.36 24.34 2014 10,958.51 28,456.91 3,592.62 12.62 13,435.45 3,202.12 23.83 2015 11,725.60 29,954.67 3,709.87 12.38 14,336.01 3,338.89 23.29 2016 12,429.14 31,328.34 3,828.05 12.22 15,161.95 3,574.27 23.57 2017 13,174.89 32,784.42 3,946.23 12.04 16,037.45 3,809.65 23.75 2018 13,965.38 34,327.86 4,064.41 11.84 16,965.48 4,045.03 23.84 2019 14,803.30 35,963.92 4,182.58 11.63 17,949.19 4,280.42 23.85 2020 15,691.50 37,698.13 4,300.76 11.41 18,991.93 4,515.80 23.78 2021 16,476.08 39,230.02 4,437.76 11.31 19,913.01 4,709.51 23.65 2022 17,299.88 40,838.51 4,574.76 11.20 20,880.15 4,903.21 23.48 2023 18,164.87 42,527.42 4,711.76 11.08 21,895.64 5,096.92 23.28 2024 19,073.12 44,300.78 4,848.76 10.95 22,961.91 5,290.63 23.04 2025 20,026.77 46,162.80 4,985.76 10.80 24,081.49 5,484.34 22.77 2026 20,827.84 47,726.90 5,144.58 10.78 25,021.94 5,774.64 23.08 2027 21,660.96 49,353.56 5,303.40 10.75 26,000.00 6,064.94 23.33 2028 22,527.40 51,045.29 5,462.22 10.70 27,017.19 6,355.24 23.52 2029 23,428.49 52,804.69 5,621.04 10.64 28,075.07 6,645.54 23.67 2030 24,365.63 54,634.47 5,779.86 10.58 29,175.26 6,935.84 23.77 2031 25,340.26 56,537.43 5,938.68 10.50 30,319.46 7,226.14 23.83 2032 26,353.87 58,516.52 6,097.50 10.42 31,509.43 7,516.44 23.85 2033 27,408.02 60,574.77 6,256.33 10.33 32,746.99 7,806.74 23.84 2034 28,504.34 62,715.34 6,415.15 10.23 34,034.06 8,097.04 23.79 Source: Consultant estimates 31

Table 3.4: 2007 Basic Transport Statistics in PRC, Yunnan and Guanxi National Percent Percent Description Yunnan Guanxi Total of PRC of PRC Population (million) 1321.29 45.14 3.42% 47.68 3.61% Area (million sq.km) 9.6 0.394 4.10% 0.2367 2.47%

Length of Transportation Routes (km) Railways in Operation 77,966 2,308 2.96% 2,734 3.51% Electrified Railways 24,047 n/a n/a Highways 3,583,715 200,333 5.59% 94,202 2.63% Navigable Inland Waterways 123,495 2,539 2.06% 6,157 4.99% Total Civil Aviation Routes 2,342,961 136,7851 n/a Petroleum and Gas Pipelines 54,460 n/a n/a Total Passenger Traffic (1000 22,277,612 456,678 2.05% 617,160 2.77% persons) Railways 1,356,700 21,558 1.59% 25,780 1.90% Highways 20,506,800 429,130 2.09% 572,130 2.79% Waterways 228,350 5,990 2.62% 11,190 4.90% Total Passenger-Kilometers (million 2,159,258 33,749 1.56% 71,427 3.31% passenger km) Railways 721,631 7,047 0.98% 15,356 2.13% Highways 1,150,677 26,580 2.31% 52,003 4.52% Waterways 7,778 121 328 4.21% Total Freight Traffic (1000 tons) 22,758,216 715,124 3.14% 501,520 2.20% Railways 3,142,370 57,134 1.82% 105,030 3.34% Highways 16,394,320 655,370 4.00% 329,200 2.01% Waterways 2,811,990 2,620 0.09% 67,220 2.39% Total Freight Ton-kilometers (million 10,141,881 80,147 0.79% 151,655 1.50% tons km) Railways 237,970 34,605 14.54% 92,894 39.04% Highways 113,547 45,083 39.70% 32,023 28.20% Waterways 642,848 459 28,534 4.44% Number of Road Transport Vehicles 43,584 1,332 3.06% 831 1.91% (1000) Passenger Vehicles 31,960 892 2.79% 557 1.74% Trucks 10,541 430 4.08% 217 2.06% Source: China Statistical Yearbook 2008, Guanxi Statistical Yearbook 2008, Yunnan Statistical Yearbook 2007. 1 2006, Yunnan Statistical Yearbook 2007 32

3. Freight Traffic on the Proposed NKR

92. The freight traffic forecast for the proposed NKR line is composed of: (i) transit traffic diverted from other railway lines; (ii); local/interline traffic diverted from road and (iii) generated local/interline traffic. Transit diverted traffic from rail was estimated using the TERA CR-TEM and interline/local diverted and generated traffic was estimated using results of our industry surveys conducted under this project. Details regarding these industry surveys are described more fully further in this section.

93. Many of the routing decisions that will divert traffic to the NKR are based upon distance traveled and transit time. In many cases, the NKR will provide the shortest distance and in many cases will save transit time. A comparison of various routing possibilities between major nodal points of the relevant railway network is helpful in projecting likely traffic diversion.

94. After completion of NKR, passenger traffic through the region will flow mainly to NKR and to the Gui-Gaung Railway. NKR will be the preferred route on traffic from Yunnan to Guangxi, Hainan and West Guangdong and also to the Pearl River Delta and South Fujian. Traffic from Sichuan Province and Chongqing Municipality will not move in large volumes via NKR but will move via the shorter route of Gui-Guang Railway.

95. The TERA CR-TEM searched all of MOR rail traffic for 2007 moving over all CR O-D pairs in 483 zones throughout China for traffic that would possibly be diverted to NKR. Of the 483 zones, 259 zones were identified which would originate or terminate freight traffic that would use NKR. In a second run of the CR-TEM the NKR project was included to analyze changes in CR traffic patterns under “with NKR” assumptions. The diverted freight flows consisted of 1,007 O-D pairs handling about 49.5 million tons in 2007.

96. Two separate surveys were conducted by the Consultant in January 2009. The first survey was focused on shippers in the PIA along the alignment of NKR. 100 companies responded and provided information. The purpose of the shipper survey was to identify current production and for expansion of production capacity if NKR is constructed, current (without NKR) and future (with NKR) transport modes used for shipping output to clients and raw materials to the plant, and current and future employment levels. The respondents were asked the effects on production and modal preference if the NKR were constructed. The respondents indicated average annual growth rates of 7.24% between 2007 and 2015, and 2015 projections are based on the assumption that NKR would be operating and accessible. Significantly, there would be a major modal shift accompanying this growth with road transport accounting for about 72.7% in 2007 and rail expected to handle about 75.3% in 2015. Most of the increase in outbound and inbound traffic is concentrated in less than 15 commodities including metallic ores, chemical products, fertilizers, agricultural products including processed items, construction materials, bauxite and aluminum products, coal and coke, grains, and crude oil and petroleum products.

97. The increased traffic for 2015 indicates that there is considerable unmet demand in terms of railway freight capacity. Respondents indicated considerable expansion of existing operations, reflecting the lower transport costs that the railway would provide.

98. While we used much of the information provided by these industry surveys to estimate future diverted traffic from road (as well as generated traffic), growth rates used were those of the total nation-wide CR freight traffic, by commodity. The implied growth rates from 2007 – 2015 as provided in the industry surveys were higher than the national growth rates of CR traffic. For example, national CR growth rates in the above discussions on main commodities are 3.5 percent and 1 percent during the periods of 2005-2020 and beyond 2020, respectively. Growth rates for iron and steel are 5 percent during the period 2005-2020 and 4 percent per year after after 2020. We consider our use of 33 the national CR traffic growth rates to be a more appropriate method reflecting a conservative approach to traffic forecasts.

99. The second survey of truck drivers (and bus drivers), was undertaken during January 2009 at various locations in and between Nanning and Kunming. Information was collected from 433 truck drivers. This information included the load carried, fuel consumption, tolls, and particulars about the vehicle such as ownership, type of vehicle and engine, odometer reading, age, etc.

100. The data provided by truck drivers gave the following general characteristics of truck transport in the region:

 25 percent of the trucks are small, 2-axle vehicles; 30 percent are medium size of 3 axles; and about 45 percent are large (more than 3 axles). On average trucks in the sample have 2.3 axles. Due to the lack of rail in some areas, larger trucks are more common than in other areas.  About 51 percent of the trucks are owned by the driver; 16 percent by another person; and 32 percent by a company.  Average capacity of trucks is just over 9 tons and average load is 9.1 tons. Some trucks in the sample are overloaded by as much as 3 times their capacity. Due to lack of strong enforcement of axle weight controls trucks in general tend to overload in PRC.  The average distance for the trip is 306 km and the travel time 5.9 hours (approximately 50 km/hour). The smaller trucks typically travel shorter distances, while the larger trucks are used for longer heavy haul trips including distances 101. Based on the information provided in the survey of truck drivers and other publicly available information, operating costs of truck transport in the region have been estimated. The ton-km truck cost ranges from CNY 0.61 for a 25-ton truck to CNY 0.89 for a 10-ton truck. Compared to the base railway tariff, these costs are 5 to 12 times higher.

102. Results show significant modal shifts from road to rail transport and generated traffic with the completion of the NKR. Many towns along the NKR line in the section between Baise and Kunming are far from railway lines and typically rely on high cost road transport to move their products. Table 3.5 presents the summary freight traffic projections for NKR from 2015 to 2034.

103. The local and interline NKR tons for 2015 at 81.68 million tons represent a relatively small fraction of the total freight traffic in the provinces of the PIA. In 2007 these areas had a total freight traffic volume of 1.21 billion tons. Assuming an annual growth of 5 percent, the region’s freight traffic would be expected to reach 1.8 billion tons by 2015. The NKR tons constitute 4.5 percent of the region’s projected freight traffic in 2015. With respect to TKM, NKR local and interline traffic would be 13.0 percent of the regional TKM.

104. Diverted traffic represents 78.6 percent of total NKR TKM, with nearly 60% of this from transit traffic. Generated traffic constitutes 21.4 percent. This underlies the importance of NKR to the PIA which is relatively undeveloped in the Baise-Kunming section. NKR will serve as an impetus for expansion of existing production or the development of new industries. Transit TKM indicate the importance of NKR as a key link between southeast and southwest China as well as to the GMS. 34

Table 3.5: Diverted and Generated Freight Traffic Million Tons Billion TKM Diverted Diverted Year Generated Total Generated Total Rail Truck Total Rail Truck Total 2015 38.85 18.44 57.29 24.39 81.68 27.34 7.70 35.04 9.53 44.57 2016 40.79 19.38 60.18 25.56 85.74 28.72 8.09 36.81 9.99 46.80 2017 42.83 20.37 63.21 26.79 90.00 30.16 8.51 38.67 10.47 49.14 2018 44.98 21.42 66.40 28.09 94.49 31.68 8.95 40.63 10.98 51.61 2019 47.23 22.52 69.75 29.46 99.21 33.28 9.41 42.69 11.52 54.21 2020 49.60 23.68 73.29 30.89 104.18 34.96 9.90 44.86 12.09 56.94 2021 51.68 24.76 76.45 32.01 108.46 36.30 10.29 46.60 12.53 59.12 2022 53.85 25.90 79.75 33.17 112.92 37.70 10.71 48.41 12.98 61.39 2023 56.12 27.08 83.21 34.38 117.59 39.15 11.14 50.29 13.46 63.75 2024 58.25 28.17 86.42 35.64 122.06 40.64 11.59 52.23 13.96 66.19 2025 60.46 29.30 89.76 36.95 126.71 42.20 12.06 54.26 14.47 68.73 2026 62.76 30.47 93.23 38.31 131.54 43.81 12.54 56.36 15.01 71.37 2027 65.15 31.70 96.85 39.73 136.58 45.50 13.05 58.55 15.57 74.12 2028 67.64 32.98 100.61 41.21 141.82 47.24 13.58 60.82 16.16 76.98 2029 70.22 34.31 104.53 42.74 147.27 49.06 14.13 63.19 16.76 79.95 2030 72.91 35.70 108.61 44.34 152.95 50.95 14.71 65.66 17.40 83.05 2031 75.70 37.15 112.85 46.01 158.86 52.92 15.31 68.22 18.06 86.28 2032 78.61 38.66 117.27 47.75 165.02 54.96 15.93 70.89 18.74 89.64 2033 81.63 40.24 121.87 49.55 171.43 57.09 16.59 73.67 19.46 93.13 2034 84.78 41.89 126.66 51.44 178.10 59.30 17.27 76.57 20.20 96.77 Source: Consultant estimates.

D. PASSENGER TRAFFIC PROJECTIONS

1. Overall PRC Passenger Transport Projections

105. Table 3.6 shows actual passenger traffic for the period 1985 to 2008 for PRC expressed in million passengers and billion PKM. MOR has been implementing major improvements in passenger transport, principally through speed increases and segmented (value-added) passenger services in response to customer requirements. After the introduction of the increase in line speed in April 2004, a significant increase in demand has been experienced resulting in a total volume of 1.073 billion passengers for 2004 and 1.107 billion in 2005, representing a 14.6 percent increase over 2003 (SARS affected demand) and 3.2 percent over 2004, respectively. The number of CR passengers in 2006 increased by 8.2 percent over 2005; and in 2007, increased by 7.5 percent over 2006.

Table 3.6: Historical Passenger Traffic for PRC and CR, 1985-2008 Population PRC Passengers CR Passengers CR Share PRC PKM CR Share PRC Year CR PKM (Billion) (Million) (Million) (Million) (%) (Billion) of TKM (%) Trips/Person 1985 1,058.51 6,202.06 1,109.13 17.88 443.64 241.25 54.38 5.86 1986 1,075.07 6,882.12 1,073.58 15.60 489.68 258.31 52.75 6.40 1987 1,093.00 7,464.22 1,114.14 14.93 541.15 284.00 52.48 6.83 1988 1,110.26 8,095.92 1,215.95 15.02 620.94 325.73 52.46 7.29 1989 1,127.04 7,913.76 1,127.98 14.25 607.46 303.44 49.95 7.02 1990 1,143.33 7,726.82 948.88 12.28 562.83 261.01 46.37 6.76 1991 1,158.23 8,060.48 942.08 11.69 617.82 282.48 45.72 6.96 1992 1,171.71 8,608.55 987.88 11.48 694.94 314.83 45.30 7.35 1993 1,185.17 9,966.34 1,045.80 10.49 785.81 347.94 44.28 8.41 1994 1,198.50 10,928.81 1,080.09 9.88 859.14 363.28 42.28 9.12 1995 1,211.21 11,725.96 1,020.81 8.71 900.19 354.26 39.35 9.68 1996 1,223.89 12,453.56 935.50 7.51 916.48 332.20 36.25 10.18 1997 1,236.26 13,260.94 919.19 6.93 1,005.54 354.35 35.24 10.73 1998 1,247.61 13,787.17 929.91 6.74 1,063.67 369.10 34.70 11.05 1999 1,257.86 13,944.13 977.25 7.01 1,129.98 404.63 35.81 11.09 2000 1,267.43 14,785.73 1,018.47 6.89 1,226.10 441.47 36.01 11.67 2001 1,276.27 15,341.22 1,016.80 6.63 1,315.51 463.66 35.25 12.02 2002 1,284.53 16,081.50 1,017.41 6.33 1,412.57 480.31 34.00 12.52 2003 1,292.27 15,874.97 936.34 5.90 1,381.05 462.28 33.47 12.28 2004 1,299.88 17,674.53 1,073.00 6.07 1,630.91 551.20 33.80 13.60 2005 1,307.56 18,470.18 1,106.51 5.99 1,746.67 583.32 33.40 14.13 2006 1,314.48 20,241.58 1,197.28 5.91 1,919.72 635.33 33.09 15.40 2007 1,321.29 22,277.61 1,287.12 5.78 2,159.26 689.62 31.94 16.86 2008 1,328.02 28,678.92 1,444.52 5.04 2,319.67 773.91 33.36 21.60 Source: China Statistical Press, China Statistical Yearbook 2009 and earlier years. 35

106. With the implementation of the NKR and other passenger transport infrastructure in particular the dedicated high speed passenger transport network of 12,000 km by 2020, it is expected that the number of CR passengers will increase in the future. In the Study on the Planning of Medium and Long Term Development of Railway Network, a report published by MOR in November 2004, projections were made for CR number of passengers as 2 billion in 2010 and 4 billion in 2020. These projections are realistic, representing an annual growth rate of 7.2 percent from 2010 to 2020. The MOR Report projects that PKM is expected to reach 884 billion in 2010 and 1.6 trillion in 2020. The average annual growth rate for PKM from 2010 to 2020 is 6.1 percent. Although both linear and logarithmic line fits for PKM summarized in Table 3.52 are statistically significant, in order to maintain consistency in projections for passengers and PKM, MOR’s estimates of traffic for 2010 and 2020 are used as benchmarks in the Consultant’s projections for CR passenger traffic.

107. The projections summarized in Table 3.7 imply an annual growth rate of 7.2 percent and 7.1 percent for passengers and PKM, respectively, for the 2010-2020 period. The passenger and PKM growth rates after 2020 are assumed at 5 percent and 5.5 percent, respectively. The higher growth rate for PKM after 2020 assumes the improved competitiveness of the dedicated high-speed railway network after the national passenger network is completed. These growth rates in passengers and PKM are somewhat similar to the government’s estimate of GDP growth of 7 percent per annum during the period 2005 to 2020 and 5 percent, thereafter. (Note: 2005, 2006 and 2007 are actual numbers and not projections).

Table 3.7: Passenger Traffic Projections for PRC and CR, 2008-2034 Projected PRC Passengers CR Passengers CR Share PRC PKM CR Share PRC Year Population CR PKM (Billion) (Million) (Million) (%) (Billion) of TKM (%) Trips/Person (Million) 2008 1,328.02 28,678.92 1,444.52 5.04 2,319.67 773.91 33.36 21.60 2009 1,329.31 7,002.25 1,626.07 23.22 478.23 837.30 175.08 5.27 2010 1,333.26 7,702.18 2,000.00 25.97 512.07 884.00 172.63 5.78 2011 1,336.61 8,402.39 2,143.55 25.51 548.30 938.03 171.08 6.29 2012 1,339.37 9,101.98 2,297.40 25.24 587.10 995.37 169.54 6.80 2013 1,341.54 9,800.03 2,462.29 25.13 628.64 1,056.22 168.02 7.31 2014 1,343.11 10,495.64 2,639.02 25.14 673.12 1,120.78 166.50 7.81 2015 1,344.08 11,187.90 2,828.43 25.28 720.75 1,189.29 165.01 8.32 2016 1,344.47 11,875.90 3,031.43 25.53 771.75 1,261.98 163.52 8.83 2017 1,344.25 12,558.73 3,249.01 25.87 826.36 1,339.12 162.05 9.34 2018 1,343.44 13,235.48 3,482.20 26.31 884.83 1,420.98 160.59 9.85 2019 1,342.04 13,905.24 3,732.13 26.84 947.44 1,507.83 159.15 10.36 2020 1,340.04 14,567.11 4,000.00 27.46 1,014.48 1,600.00 157.72 10.87 2021 1,337.45 15,220.18 4,220.00 27.73 1,086.27 1,688.00 155.39 11.38 2022 1,334.26 15,863.53 4,431.00 27.93 1,163.13 1,780.84 153.11 11.89 2023 1,330.48 16,496.25 4,652.55 28.20 1,245.43 1,878.79 150.85 12.40 2024 1,326.10 17,117.45 4,885.18 28.54 1,333.56 1,982.12 148.63 12.91 2025 1,321.13 17,726.20 5,129.44 28.94 1,427.92 2,091.14 146.45 13.42 2026 1,315.56 18,321.61 5,385.91 29.40 1,528.96 2,206.15 144.29 13.93 2027 1,309.40 18,902.76 5,655.20 29.92 1,637.15 2,327.49 142.17 14.44 2028 1,302.64 19,468.74 5,937.96 30.50 1,752.99 2,455.50 140.07 14.95 2029 1,295.29 20,018.64 6,234.86 31.15 1,877.03 2,590.55 138.01 15.45 2030 1,287.34 20,551.56 6,546.61 31.85 2,009.85 2,733.03 135.98 15.96 2031 1,278.80 21,066.58 6,873.94 32.63 2,152.06 2,883.35 133.98 16.47 2032 1,269.66 21,562.80 7,217.63 33.47 2,304.34 3,041.93 132.01 16.98 2033 1,259.93 22,039.31 7,578.51 34.39 2,467.40 3,209.24 130.07 17.49 2034 1,249.61 22,495.20 7,957.44 35.37 2,641.99 3,385.75 128.15 18.00 2035 1,238.69 21,036.71 8,355.31 39.72 2,304.34 3,571.96 155.01 16.98 2036 1,227.17 21,466.23 8,773.08 40.87 2,467.40 3,768.42 152.73 17.49 2037 1,215.06 21,873.31 9,211.73 42.11 2,641.99 3,975.68 150.48 18.00 2038 1,202.35 22,257.04 9,672.32 43.46 2,828.93 4,194.35 148.27 18.51 2039 1,189.05 22,616.51 10,155.93 44.90 3,029.10 4,425.04 146.08 19.02 2040 1,175.16 22,950.82 10,663.73 46.46 3,243.44 4,668.41 143.93 19.53 Source: Consultant estimates.

108. NKR passenger traffic projections are made for interline, transit and local traffic. Transit traffic represents passenger movements which do not have either an origin or destination on NKR. This traffic is diverted from other CR lines. Interline traffic has either an origin or destination on NKR. This traffic is either diverted from rail (from existing traffic to/from Nanning or Kunming) or road and air. 36

Currently passenger movement by inland waterway is virtually non-existent in the Project area and is mainly localized to short shore-to-shore trips rather than lateral longer distance travel. This type of traffic is not conducive to railway passenger movements. Therefore, no diverted passenger traffic from inland waterway is expected. Generated traffic is traffic that would not otherwise move in the absence of NKR. This traffic is either local or interline. Following is a description of the approach and assumptions used to project each type of traffic.

109. Diverted passenger traffic from other CR lines is forecast using the TERA-CR-TEM traffic assignment model. The selection of the zones was made from the 2007 output file which shows traffic to/from points within the PIA served by rail. Some 121 traffic zones out of the national total of 483 zones have been identified by the model that has further identified 452 O:D pairs related to the Project. The traffic assignment between the origins and destinations was made on the basis of least distance. Runs were made for traffic patterns “with” and “without” the Project.

110. The figures indicate that passenger traffic between Kunming and Baise would follow more direct routing and this would alleviate pressure on the existing line. The “with NKR” scenario also indicates a more direct routing to Guangzhou and the Pearl River Delta area.

111. For the 11th FYP period from 2006 to 2010, the forecast GDP growth rate for China is 8.5 percent per year. Passenger trips by rail are forecast to rise to 1.5 billion or by about 30 percent (5.7 percent annual growth rate) and PKM to 800 billion or by 33.3 percent (6 percent growth per annum). The relationship of trip and PKM growth to GDP growth would be, therefore, 0.67:1 and 0.71:1, respectively. Applying the national GDP/trip and GDP/PKM ratios shown above to average regional GDP growth of 10 percent would produce an estimated passenger growth rate of about 6.71 percent per year and growth of PKM of 7.06 percent per year. These growth rates are applied to diverted traffic from CR from 2006 to 2010 and 6 percent and 6.5 percent for 2011-2034.

112. The Consultant conducted passenger surveys at bus stations in and between Nanning and Kunming and at three railway stations in Nanning, Baise, and Kunming in January 2009. The most important factor among both bus passengers in selecting a mode of transport is direct service, whereas it is safety for rail passengers. Speed was the second ranked factor for bus passengers, and this reflects the “direct service” factor as well. Cost and comfort were important for the rail passengers

113. In terms of travel distance as a factor of modal choice, road transport (bus and car) has a distinct advantage among bus passengers over high speed rail service for distances of up to 200 km. Bus passengers prefer high speed train service for distances of more than 500 km. Few bus passengers would opt for bus for trip distances of 501 to 800 km and longer. This suggests that a modal shift from bus to NKR would be likely. The modal choice by distance for rail passengers showed similar results. The choice for high speed or conventional rail service becomes apparent as distances approximate 500 km.

114. Table 3.8 presents a summary of all passenger traffic projections by type (transit, interline, and local). All transit traffic will be on EMU trains of 200 km/hr. Interline traffic will be roughly equally divided between EMUs and express passenger trains of 160 km/hr and all local traffic will use roughly equally express passenger trains and local service trains of 120 km/hr. Based upon the forecasting method discussed in this section, the number of passengers for NKR in 2030 will be 42.36 million passengers, travelling 20 billion PKM. The results of the freight and passenger projections are used in the economic evaluation of this project.

Table 3.8: Summary Passenger Traffic Projections Passengers (million) PKM (million) Year Transit Interline Local Total Transit Interline Local Total 2015 4.51 5.69 7.51 17.70 3,279.49 2,105.28 2,624.28 8,009.05 2016 4.78 6.03 7.93 18.74 3,476.26 2,242.12 2,794.86 8,513.24 2017 5.07 6.39 8.40 19.86 3,684.83 2,387.86 2,976.52 9,049.22 2018 5.37 6.77 8.91 21.05 3,905.92 2,543.07 3,170.00 9,618.99 2019 5.70 7.18 9.44 22.32 4,140.28 2,708.37 3,376.05 10,224.70 2020 6.04 7.61 10.01 23.66 4,388.70 2,884.42 3,595.49 10,868.60 2021 6.40 8.07 10.61 25.08 4,652.02 3,071.90 3,829.19 11,553.12 2022 6.78 8.55 11.25 26.58 4,931.14 3,271.58 4,078.09 12,280.81 2023 7.19 9.06 11.92 28.18 5,227.01 3,484.23 4,343.17 13,054.41 2024 7.62 9.61 12.64 29.87 5,540.63 3,710.71 4,625.47 13,876.81 2025 8.08 10.18 13.39 31.66 5,873.07 3,951.90 4,926.13 14,751.10 2026 8.56 10.80 14.20 33.56 6,225.45 4,208.78 5,246.33 15,680.55 2027 9.08 11.44 15.05 35.57 6,598.98 4,482.35 5,587.34 16,668.66 2028 9.62 12.13 15.95 37.70 6,994.92 4,773.70 5,950.52 17,719.13 2029 10.20 12.86 16.91 39.97 7,414.61 5,083.99 6,337.30 18,835.90 2030 10.81 13.63 17.93 42.36 7,859.49 5,414.45 6,749.23 20,023.16 2031 11.46 14.45 19.00 44.91 8,331.06 5,766.39 7,187.93 21,285.37 2032 12.15 15.31 20.14 47.60 8,830.92 6,141.20 7,655.14 22,627.26 2033 12.88 16.23 21.35 50.46 9,360.78 6,540.38 8,152.72 24,053.88 2034 13.65 17.21 22.63 53.48 9,922.42 6,965.50 8,682.65 25,570.58 2035 14.47 18.24 23.99 56.69 10,517.77 7,418.26 9,247.02 27,183.05 Source: Consultant.

IV. TECHNICAL CHARACTERISTICS

A. INTRODUCTION

1. General Evaluations of NKR

115. The Second Survey and Design Institute (SSDI), now named China Railway Eryuan Engineering Group Co. Ltd. (CREC) in Chengdu, have engineered the route of the proposed NKR Railway. In addition to the NKR, CREC has also been responsible for the capacity enhancement design within the terminals of Nanning and Kunming and the added capacity of the existing Nan-Kun railway. The Feasibility Study (FS) report was prepared in October 2008 and was dated December 2008. Another FS was provided to the Consultant, in Chinese, on February 20, 2009.

116. The design institute examined numerous route alignments and selected the proposed alignment based on construction cost, environmental and socio-economic considerations, including such factors as cultural relics, historical sites, ancient trees, wetlands, land use, preservation of agricultural land, access to mineral resources, and resettlement impact. These alignment alternatives are discussed in detail in Section 4.4.

117. The line is being designed to MOR Class I Railway Standards for a maximum design speed of 200 km/hr with line clearance to accommodate double stack container train operation. This design speed will apply to all route segments. The 200 km/hr design speed also applies uniformly to the various categories of track support structures, i.e., subgrade, bridges, and tunnels. While initial construction is suited to 200 km/h, the plane and section design conform to 250 km/h standard in the event future circumstances require higher operating speed.

118. The technical design takes into consideration that the NKR traffic will be a mix of passenger, conventional and express freight and double stack trains. The basic route location, track alignment and design standards take into account the importance of integrating NKR train operations with other railway lines in the region. As part of the dedicated passenger rail network and the container rail transport network in the south and west of China, the NKR will form a critical link of the corridor 38 between the southwest and the southeast of China. This corridor will provide improved rail service, reduced distances, reduced transit times, and high speed passenger service. The corridor will serve to provide improved service on other rail lines in the area that are currently capacity constrained.

2. Basic Approach to NKR Design

119. MOR has a comprehensive series of railway design standards that cover a full range of infrastructure and operating criteria. These standards are updated on an “as needed” basis and are based on current PRC railway technology. These standards are used by all MOR design institutes and by any organization that is designing track over which CR trains will operate. Should the design organization determine a need to deviate from these standards, there is an exemption process for obtaining a waiver. In its design approach CREC has complied with MOR design standards as well as national government regulations for environmental and cultural protection, land acquisition and resettlement. The principal requirements of the NKR include the following general characteristics:

120. The maximum design speed for NKR will be 200 km/hr. While this does not approach the 350 km/hr design speeds of the dedicated high-speed passenger lines in China, it nevertheless will be sufficiently high that, when combined with frequency of service and relatively low cost, will appeal to the general passenger transport needs of the region. The design of bridges, tunnels, and stations will allow for passenger trains to operate at the maximum speed of 200 km/hr on most of the route but grade conditions in the mountainous region will result in some up-grade operations with below design speed. In addition, the speed descending the grade will be lower due to braking and stopping distance requirements. The design speed is also more than adequate for the needs of the freight service and freight trains will be more impacted by slower speeds on the upgrade portions of the route.

121. A thorough analysis was made of the optimum operating speed to provide the service level required. This analysis considered competing mode transit times within the same corridor. The major portion of passenger flow is currently moving by highway with the highest volume being 4,380,000 moving by highway between Nanning and Baise. Based upon passenger surveys, passengers likely to convert to rail have indicated that they require a 6 hour transit time between Nanning and Kunming. Based upon that transit time requirement, studies were made to determine the necessary operating speed within the corridor.Travel time by expressway, the principal competitor, is presently 12.8 hours. That time is expected to drop to 8 hours after completion of the expressway.

122. The targeted speed value thus becomes between 160 km/h and 250 km/h to achieve a 5 hour transit. Based upon the functions of the line, i.e. high capacity, express passenger and freight, 3 proposals were evaluated; 160 km/h; 200 km/h; 250 km/h. The comparison analysis evaluatedeach of the speed proposal from the standpoint of the construction cost to allow each of those speeds. The analysis viewed major work quanties and the required investment.

123. The analysis found the 160 km/h is the most economical but saves only 4.3% of investment versus the 200 km/h scenario. As an express inter-regional channel, 160 km/h is not adequate. The 250 km/h proposal reduces transit from 4.3 hours to 3.5 hours, but at excessive investment. Also the great dispatiry between operating speeds of freight and passenger trains co-mingled, present difficulties in managing the operation. Therefore the 200 km/h option has been selected.

124. Safety and Reliability. The track geometry will have long, sweeping curves both horizontally and vertically with moderate super-elevation favorable to operating both freight and passenger trains on the same track. These mild transitions will provide a comfortable as well as safe ride for passengers without compromising transit time. Train operations will utilize automatic block systems incorporated within a CTCS command and control system. 39

125. High Capacity for Mixed Operations. Train traffic on NKR will be high-speed passenger, express and double stack container trains. With this in mind, it is important that NKR be designed not only for optimum line capacity but also for train meeting and passing capability to keep the overall traffic flow fluid while maintaining the schedules for high-priority trains. With this purpose in mind, the CTC and automatic block signal system will be signaled for movement in both directions. This will enable passing via the other main line in situations where one line is blocked by a disabled or slowly moving train. Double crossovers at each station will facilitate this movement.

126. Adjacent Railway Lines. The NKR design integrates smoothly with the operations of adjacent rail lines in the region, including Nan-Guang Railway, Xiang-Gui Railway and Nan-Fang Railway in the east at Nanning, and Chengdu-Kunming Line, Gui-Kun Railway, Gui-Guang Railway, Kun-Yu Railway in the west at Kunming. NKR reaches some ASEAN countries, like Vietnam, Thailand and Burma, through the Pan-Asia Railway.

B. TECHNICAL CHARACTERISTICS

1. Topography and Land Forms

127. The NKR alignment presents many challenges. Given the length of the alignment, a range of geographical, geological and climatic conditions are present. From Nanning, the whole line topography is inclined from northwest to southeast. Elevation of the line keeps rising from Nanning (78m) to Kunming (1892m). The line spans over 2 topographic steps, including Guangxi Basin and Yunan-Guizhou Plateau.

128. Topography. The Nanning-Baise section belongs to the Guangxi Basin. The Guangxi Basin consists of a series of northwest-orientated structural basins, including 5 basins, the Nanning Basin, Yangmeizhen Basin, Long’an Basin, Yanjiang Basin and Baise Basin. The railway line covers the strath21 of Yijiang River and Youjiang River within the basin. These basins mainly consist of alluvial plains, with hills and cluster at the edges of basins.

129. Coming out from Baise, the railway line enters a slope zone between the plateau and basin. This zone is the transition zone of two topographic steps in the Yunnan mountainous zone. There is obvious topographic relief along the line, with a number of high mountains. After entry to Guangnan, the railway line enters the Yunnan-Guizhou Plateau. The plateau consists of low and medium high mountains, hills, plateau basin, and lava plain.

2. Engineering Geologic Features

130. The proposed route has widespread unfavorable geology that includes landslides, mud-rock flow and rock piles. A discussion of these conditions follows:

131. Landslides and Rockfalls. The landform in the Baise - Yunnan section is composed of mountains, plateaus, and mountains with alpine canyon areas with steep slopes, deep valleys and complicated tectonics. Landslides mainly occur in layers of soft rock, expansion rock, and loose rock, especially in areas greatly affected by structure. Landslides occur readily due to fractured rock.

132. Karst. The line covers a 320 km long carbonate rock zone, which accounts for 46.4% of the total length of the railway line. Karst mainly develops in limestone and dolomite of Permian, Trias, and Carboniferous systems. Karst has three kinds of influence and harm to railway engineering: 1. the influence on stability of foundations by concealed karst caves; 2. harm to underground works by

21 A strath is a large valley, typically a river valley that is wide and shallow, as opposed to a glen which is typically narrower and deep. 40 karst water bursting, or harm to subgrade and other ground works by water accumulation and bursting due to non-smooth discharge; and 3. collapse of karst surface, which is a common but harmful activity in subgrade in karst areas.

133. Intense Seismic Area. Intense seismic areas along the line are located between Mile and Kunming in Yunnan Province (8 degree seismic zone). Shilin (south of line)-Kunming section is controlled by a north-south tectonic zone, which has the center of Xiaojiang fault zone, an area of frequent intense earthquakes.

134. Weathering & Exfoliation (soft rock). Weathering & exfoliation of side slopes is common and ordinary in sections of soft rocks such as sandstone and shale (mudstone), with a wide distribution in sections of clastic rock in the Triassic System. During the design, in addition to support & reinforcement measures for high side slopes, protective measures willl also be taken for the slope surface.

135. Bedding Slope. In sections where the railway line goes parallel to or with a small angle to the stratum orientation, the cutting and side slope on the railway side can easily collapse on the bedding slope if a soft interlayer is encountered or if interlayer bonding is poor. Cutting and side slopes will be protected with proper measures.

136. Coal & Gas Goaf. Coal series strata are mainly found in the Longtan Formation of Permian and Xiaolongtan Formation in Tertiary systems. Coal is also found in the Liangshan Formation in Permian and Huobachong Formations in Triassic systems, but these coal layers are thin and of low quality. The most abundant coal in the Longtan Formation is in a thick coal layer and is of high quality. According to the collected data of mining rights, coal goafs (with large influence) are mainly distributed in the stratum of the Longtan Formation of the Permian system north of Mile City. Coal mines and goafs are centrally located, and the railway line has avoided there areas.

3. Special Rock and Soil

137. Soft Soil and Loose Soil. Soft soil and loose soil along the line are mainly deposited in valleys and lowlands, including silt soil and soft clay. Soft soil and loose soil have characteristics of low mechanical strength and high compressibility. Plans and routes of bridge roads shall be carefully compared to avoid such soil where possible. For subgrade works, foundations will be reinforced by applying proper mitigation measures.

138. Expansive Rock and Soil. Expansive rock is found mainly along the banks of Youjiang River and in the Baise Basin. It has three major characteristics of engineering geology. Expansibility, fragmentation, and low strength, can cause harm such as collapse of retaining walls, angle of non- skid piles, expansion of subgrade bed, damage of side ditches, and collapse of embankment. The newly-built railway line has avoided these areas.

4. Hydro Geologic Features

139. All rivers covered by the line belong to Pearl River System, including the Yongjiang River and the Youjiang River. Most sections of the river are meandering and the river valley is wide. The Nanpan River is faster moving and narrower, with steep banks alongside. The Qingshuihe River is one branch of the Nanpan River. It flows from south to north, coming down from the mountainous areas with an average gradient of.669% and it has a rapid flow.

5. Resorts, Protected Areas, and National Key Protected Wild Animals and Plants

140. There are major sensitive areas on both sides of proposed railway line. They consist of 13 resorts, parks and natural heritage sites under municipal, provincial, autonomous region and national auspices.

141. Cultural Relics: Counties and cities covered by the line have thousands of years of history, so there are many cultural relics left, such as Soviet Government Site in Youjiang of Guangxi, a national key protected cultural unit, which will not be affected by this proposal.

6. Factors Influencing the Route of Railway Line

142. Within the context of the Government’s Eleventh Five Year Plan and the Railway Development Plan for 2020, the project involves the construction of 745.747 km of class I double track electrified railway line. Of the construction length of 745.747 km, 705.647 is newly constructed double track between Nanning and Kunming, 18.5 km is a new outer connection line for passenger trains in Nanning and 21.6 is a new passenger main line in Kunming.

143. The railway will link Kunming, the capital of Yunnan Province to Nanning, the capital of Guangxi Zhuang Autonomous Region in southwest PRC. Over 274.646 km of the railway line will traverse Guangxi Zhuang Autonomous Region, and 471.101 km will go through Yunnan Province. The project impact area includes 18 counties and cities with a total population of about 7.5 million. The total rural population is about 71.2% (5.34 million).

144. There is considerable poverty in the cities and prefectures along the alignment, and poverty levels are higher towards the central areas of the alignment without railway links (from Baise City to Wenshan Prefecture). The rural poverty incidence in the cities and prefectures along the alignment in 2007 was Nanning (5.29%), Baise (23.52%), Wenshan (41.89%), Honghe (30.10%), and Kunming (12.06%). Overall, the total rural population in PIA is 75.73%, of which 30% live below the poverty line22.

145. The existing Nan-Kun railway will continue handling mainly local passengers and freight within the region and between the regions. It is an important link, handling coal in Xingyi and Liupanshui to the Southern Coastal region of China, but it is constructed to a lower standard, operates at slower speed, and has a serious shortage of line capacity. The line currently operates 4 pairs of express passenger trains per day and 2 pair of ordinary passenger trains. Transit time between Nanning and Kunming is approximately 13 hours.

146. The route of the railway line is influenced by imany mportant political and economic strongholds. The line goes through Long’an, Pingguo, Tiandong, Tiandong, Tianyang, and Baise in Guangxi Province and Funing, Guangnan, Qiubei, Mile, Luxi and Shilin in Yunnan Province. Baise is a prefecture city and is a major station of the line. Long’an, Pingguo, Tiandong, Tiandong, and Tianyang are around the aero line of the line, with almost no influence on the line. Other counties are underdeveloped, so during the selection of the route, the railway line shall be as close to towns and cities as possible. Considerations include opportunities for land exploitation and economic development, as well as the consideration of engineering geologic conditions, engineering difficulty, engineering risk, and investment.

22 The rural poverty line is per capita net income 1,067 CNY for 2007

147. The complex mountains with the tunnels and bridges over major rivers impact route selection. The line has to go through Youjiang River, Nanpan River and their branches. The water level of the Cascade Hydropower Station in Youjiang River must be considered. The height of piers in Tuoniangjiang River and Xiyang River will be controlled during construction. The Nanpan River flows in mountainous areas within a deep-cut valley with steep banks. Therefore, location of bridges must be properly selected, and height of piers and the span of the bridges must be controlled. The bridge plan with the best geologic conditions and construction conditions shall be preferred.

148. Protected areas, noise sensitive areas, and military facilities. These are Yongjiang Protected Area of Portable Water Source and Chengbihe Reservoir Water Source Protection Area, Puzhehei Resort, Shilin National Resort (Rank AAAAA), Shilin Worldwide Geological Park, Shilin Worldwide Natural Reserve, and airports in Nanning, Kunmimg, Tianyang, Xingyi, Luliang, and Wenshan Puzhehei along the line.

149. In Nanning-Nanhua section, the existing line spans over the Yongjiang River. The river in this section belongs to Rank 2 protected area of living & potable water sources (Category III water body). Water intake of Nanning Henan Water Plant is located 600m downstream from Yongjiang Railway Major Bridge. Because the starting point of this line is Nanning Station, the newly built railway line cannot avoid this area, which will have a certain influence on the water quality at the water intake during the construction period. Therefore, the water intake shall be moved, with strengthened measures for environmental protection during the construction period.

150. Chengbihe Reservoir was built in 1961. The dam is an earthen dam with a concrete core wall. Its normal designed water level is 185m (1.13 billion m3). This reservoir shall be free from influence by newly built railway line.

151. Puzhehei Resort is located within Qiubei County,in the karst area in Southeast Yunnan, which has typical karst features. The resort is 13 km northward from the country town. It has 165ha areas, including 54 natural lakes, 15 rivers, and 120km of underground rivers. In the center of Puzhehei Resort, there is over 20,000-mu tourism water surface (10.8km2). Puzhehei Lake is the center of this resort, and it consists of a karst lake group, cave group, peak group and valleys. The railway line shall not be constructed as a tunnel under the discharge route of underground water as it might form a new discharge route and make the lake dry up. The water supply channel for the lake shall be free from any influence by the railway line.

152. Ganzhuangshan Resort is located in Naguan Tun, Liulian Vilage, Baiyu Town, Tianyang Country. It is 8km away from the country town. Buluotuo, a national intangible cultural heritage, is located within the resort. The existing Nan-Kun line goes through this resort.

153. Shilin National Resort, Shilin World Geological Park, and Shilin World Natural Heritage are located within Shilin Country in Yunnan Province, and are not impacted or affected by the proposed routes of this line.

154. Tiayang airport is located south from the existing line and the new line will go north from the existing line in order to avoid strong expansive rock. Therefore the railway line has no influence on this airport and other airports are far from the line and will not be impacted or affected by the proposed routes.

7 Stations and Segment Lengths

155. The mainline will include 28 stations and will have 224 bridges with a total length of 75.084 km. Bridges in the mainline account for 10.1% of the construction length of the main line. There are 225 tunnels with a total length of 422.325 km newly constructed and 2 existing tunnels with a total 43 length of 1079m will be renovated. There are 211 double track tunnels with a length of 394.180km and 14 single track tunnels with a length of 28.145 km. The equivalent double track length of tunnels is 408.252 km. There are twenty tunnels over 6 km and the longest is 19.595 km. 44

Table 4.1: Distribution of Stations for Yun-Gui Line Distance Type of Alignment Between ScopeNumber Name of Station Mode Station Location Stations (km） Passenger 1 Nanning Expansion K788+987.25 Station 5.5 Intermediate 2 Nanhua Expansion K794+506.33 Station 4.5 Nanning Classification 3Nanning South Expansion K799+006 Hub Yard 6.5 Intermediate 4 Jinji village Expansion K805+506 Station 7 Intermediate 5 Jiangxi village Expansion K812+054 Station 37.7 Overtaking 1Natong Expansion CK36+894.5 Station 27.1 Intermediate 2 Long'an Expansion CK64+000 Station 20.3 Intermediate 3 Pingguo Expansion CK86+760 Station 39.2 Overtaking CK125+966.3 4 Nahe Expansion Station 52 18.1 Intermediate 5 Tiandong north Newly-built CK144+050 Station 26.4 Intermediate 6 Tianyang Expansion CK170+500 Station 31.1 Intermediate 7Baise Expansion CK207+222 Station 32.5 Overtaking 8 Yangyu Newly-built CK239+150 Station 36.1 Overtaking 9Boyi Newly-built C1K275+250 Station 47.5 Intermediate 10 Funing Newly-built C1K323+050 Yun-Gui Station 43.8 Line Overtaking 11 Bailazhai Newly-built C2K350+970 Station 34.1 Intermediate 12 Guangnan Newly-built C2K384+800 Station 44.9 Overtaking 13 Zhulin Newly-built CK431+300 Station 45.1 Puzhehei Intermediate 14 Newly-built CK476+400 (Qiubei) Station 43.1 Overtaking 15 Hongshiyan Newly-built CK519+500 Station 22.6 Overtaking 16 Xiaoxinzhai Newly-built CK542+100 station 40.9 Intermediate 17 Mile Newly-built CK583+000 Station 22.4 Overtaking 18 Ama Newly-built CK605+500 Station 44.2 Intermediate 19 Shilinban bridge Newly-built CK649+650 Station 32.85 Overtaking 20 Yangzongj Newly-built CK682+500 Station 14.3 Passenger 1 Kunming South Newly-built CK696+823.83 Station 21.1 Kunming Classification 2 Kunming East Expansion K694+126 Hub Yard 7.6 Passenger 3 Kunming Expansion K701+930 Station Source: CREC FS Feb 2009 45

8. Mainline Alignment Alternatives NKR Route

156. The route alignment selected was based upon thorough studies of many possible routes. All pertinent factors were weighed in selecting each of the studied alternatives. The following are the alternatives that were reviewed.

 Alignment Alternative No.1: Nanning to Baise  Alignment Alternative No.1a: Reconstruct Nan-Kun to higher speed, add second main  Alignment Alternative No.1b: Construct new double track line.  Alignment Alternative No.2: Baise to Kunming  Alignment Alternative No.2a: Construct a new second line along Nan-Kun  Alignment Alternative No.2b: Construct new double track line  Alignment Alternative No. 3: Baise to Kunming  Alignment Alternative No.3a: Via Hongguo  Alignment Alternative No.3b: Via Weishe  Alignment Alternative No.3c: Via Qiubei  Alignment Alternative No. 3d: Via Wenshan  Alignment Alternative No. 4: Baise to Mile  Alignment Alternative No.4a: North Line Via Shilong  Alignment Alternative No.4b: South Line Via Zhulin  Alignment Alternative No.5: Zhulin to Shilin  Alignment Alternative No.5a: Via Luxi  Alignment Alternative No.5b: Via Mile  Alignment Alternative No. 6: Mile to Kunming  Alignment Alternative No.6a: Via Shilin  Alignment Alternative No.6b: Via Chengjiang

9. Main Technical Standards

157. The main technical standards governing the design of NKR are as follows:

 Railway Classification: Grade I.  The minimum radius of curvature will be 3500m in the favorable geological sections and 2800m in the unfavorable geological sections.  Number of the main line: Double track.  Design running speed of passenger trains: 200 km/h  Distance between centers of tracks. The distance between centers of tracks in tangent track will be 4.4m, except in stations and tunnels where other specifications may apply, based on station and tunnel clearance requirements.  The design of track plan will conform to the principles of accommodating the natural topography, and detouring to avoid unfavorable geology, natural conservation areas and important buildings. The route will be as short and straight as possible. 46

 Ruling grade. The pusher, two locomotive grade of 1.3% will be made between Baise and Wangjiaying. The single locomotive grade of .6% accounts for most of the route between Nanning and Kunming.  Length of grade section. The length of a specific grade section will be greater than or equal to 600m, except in difficult geological terrain where 400m will be permitted. Two consecutive grade sections with of 400m will not be allowed.  The whole railway will be fenced and grade separated.  The rails will be head hardened U75V manganese steel, 60kg/m, and 100m lengths, and continuously welded, type III with elastic pandrol type fastening and glued-insulated joint.  All tracks, with the exception of certain tunnels, will be conventional ballasted track. Concrete sleepers will be spaced at 1667 per km. In tunnels of more than 6.0 km there will be slab or ballast-less track.  There will be transition zones to account for the difference in track stiffness between the ballasted track and slab track. These transition zones will also be used at bridge abutments, culverts, fills and cuts, as well as at tunnel entries and exits.  Axle loading will be 25 tons.  Maximum design speed: 200 km/h.  Effective length of station arrival/departure tracks: 850 m and 880 m in the grade territory where two locomotives will be required.  Maximum train length will be 850 m.  Design Traction Power: Electric AC 27.5 KV (peak load).  Type of locomotive: SS7 with 4800kW will be used on the existing Nan-Kun Railway. On the new NKR Railway HXD3 with 7200kW will be used on freight trains. In the pusher grade territory two locomotives equaling 14,400kW will be used. Design traction tonnage is 4,000 tons.  Train operation method: Centralized Traffic Control (CTC) with four aspect Automatic Block Signals (ABS) will be installed on the new NKR Railway. The Nan-Kun railway will retain its present TDCS signal and control system.  Architectural clearance: to meet the clearance requirements of operation of double stacked container trains at 250 kmh. a. Line

158. There will be no at-grade crossings and the entire alignment will either be closed off (e.g., in tunnels and bridges) or fenced as a protection for the general population. Communities along the alignment will also receive public education campaigns regarding safety in proximity to rail lines.

159. To satisfy the maximum train running speed of 200 km/h and improve passenger comfort, the plan and profile of NKR are designed by using large radius curves, longer grade lengths, large radius spirals, and minimum track super-elevation. Track super-elevation will accommodate both the passenger trains and the slower moving freight trains.

b. Track 47

160. The mainline route will consist of (i) Class I ballasted track on subgrade; (ii) ballasted track on bridges; (iii) ballasted track in tunnels; and (iv) non-ballasted slab track in tunnels over 6 km in length.

161. Total track laying for the main line is 1621.86 km along with 237.86 other track laying. The track bed is 41,648,000 m3. Main quantities of works are shown below.

162. Rail. NKR mainline track will be constructed with 60 kg/m U75V porous-free continuously welded rail (CWR).

163. Sleepers. Sleepers will be type III reinforced concrete with backing shoulder. The length is 2.6 m. Sleepers will be spaced at the rate of 1,667 sleepers per kilometer (600 mm center to center sleeper spacing). 48

Table 4.2: Summary Table for Quantities of Main Works

Name of works Unit Total Construction length km 745.747 Levy land quantity Mu 58176.07 1.Permanent Land Mu 32907.77 2.Temporary land Mu 24277.8 Among 3.Recycled land Mu 990.5 House removal m2 902599 Earth and stone of section (000) m3 46065.438 earthwork (000) m3 15886.391 Among Stonework (000) m3 30074.094

Earth and stone at stations and yards (000) m3 44178.151 earthwork (000) m3 31880.63 3 Subgrade stonework (000) m 10007.155 Packing material of AB group (000) m3 2888.18 Among Graded broken stone (000) m3 492.502 Subgrade associated projects (000) m3 90243.589 Strengthening and Among protection (000) m3 1331.667 Retaining wall (000) m3 2027.745 Super major bridge Quantity-linear meter 79-104157.12 Major bridge Quantity-linear meter 156-43628.24 Medium bridge Quantity-linear meter 79-6106.47 Small bridge Quantity-linear meter 37-632.86 Culvert Quantity-linear meter 1276-38574.28 Bridge and culvert Circular culvert Quantity-linear meter 8-222.78 Culvert with top cover Quantity-linear meter 1226-37010.4 Among Framed culvert Quantity-linear meter 24-659.8 Inverted siphon Quantity-linear meter 18-509 Crossover slot Quantity-linear meter 1-172.3 Tunnel Quantity-linear meter 223-414366.59 L＞4km Quantity-linear meter 32-249812.59 3km＜L≤4km Quantity-linear meter 9-30984 Tunnel Among 2km＜L≤3km Quantity-linear meter 15-37514 1km＜L≤2km Quantity-linear meter 25-36244 L≤1km Quantity-linear meter 140-58733 Laying track for main line Track laying (km) 1621.86 Laying track for railway line Track laying (km) 237.86 Track Laying new branches Unit 765 Single turnout Unit 737 Among Special turnout Unit 28 Laying ballast m3 4109255 Laying ballast for main line m3 3462907 Among Station tracks ballasting m3 646348 Telecom optical fiber cable km 3048 Communication Telecom cable km 123 Signal Linkage turnout Unit 941 Power line km 3105.64 Electric power High tension line km 2054.94 Among Low tension line km 1050.7 Electrification Catenary length km 2330.47 Office structures m2 224011.36 House Living houses m2 15272

Water supply and Water supply and drainage system km 125.07 Water supply pipe km 94.29 drainage Among Drainage pipe km 30.78 Source: CREC FS Feb 2009 164. Fasteners. Elastic strip pandrol type fasteners matching the type III sleepers will be used in ballasted track. The metal of the fasteners will be anti-corrosion treated. In tunnels where bi-block 49 ballastless track is laid elastic independent fasteners with insulating properties that meet the track circuit design requirements will be used.

165. Track Bed. Construction standards call for a single layer track bed laid with Class I broken stone ballast with 350mm for top width of single-track bed, doubled for double track, 300mm for track bed thickness of common sections, 350mm for track bed thickness of sections of bridges, tunnels as well as in hard rock cuts. Side slope of the track bed is 1:1.75.

166. Ballast. The bed of the railway shall meet the following requirements: Material will be Grade I broken stone. Materials shall meet the national standard “Crushed Stone Ballast on Railways” (TB/T2140) and “Crushed Stone for Bedding of Railways” (TB/T2897). The ballast bed under sleepers will be 30 cm thick. For single line railway, the top width will be 350 cm with a shoulder 15 cm high and a slope of 1:1.75. The top width of double line railway will be designed as two singles. For track sections with type III sleepers, the top surface of bed will be at the same level as the middle sleeper. For sections with crotch sleepers or bridge sleepers the top surface of bed will be 3 cm lower than the top of the sleeper.

167. Ballastless track. Bi-block ballastless track will be laid in the tunnels with a length over 6 km. Insulation measures will be adopted between vertical and horizontal rebar within the track bed plate to prevent the electromagnetic induction occurring from wire mesh in track bed plate and track circuit, thus influencing the transmission distance of track circuit. Superelevation of curve sections of ballastless track will be set compromising the operational requirements of short-term and long-term and to accommodate both passenger and freight operations. The reasoning for the use of slab track in very long tunnels is that obtaining sufficient track time to perform maintenance of ballasted track under high-frequency train operating conditions is very difficult and results in greater costs. On the other hand, slab track is relatively maintenance free even though the initial construction cost is greater.

168. Transitional Section. Transitional sections of track rigidity will be used between different track structures. At the ends of long and super-long tunnels using the slab-track construction method, a special transition section will be installed between the slab track and ballasted track. Within this section two 25 m long rails will be placed between the running rails to serve as guard rails for derailment protection. Within the transition section, a support slab of reinforced concrete, 15 m in length, will be constructed under the ballast section. The thickness of this concrete structure will gradually vary from 350 mm, at the boundary between the ballasted and slab track, to 200 mm at the ballasted end of the section. Within this section the ballast will gradually vary from 0 mm at the ballast-slab track interface to 150 mm at the end of the concrete transition slab. Just beyond the end of the transition slab will be a full-depth ballast section of 350 mm.

c. Turnouts and Crossovers

169. All mainline turnouts will be 60 kg/m, No.12. Marshalling yards and non-mainline station tracks will utilize 60 kg/m, No.9 turnouts. Crossover tracks between double-track main lines will be located at both ends of all stations. There are no intermediate crossover tracks between stations, and there are no high-speed turnouts. Passing tracks at stations will emanate from both main lines.

d. Subgrade

170. A large proportion of the NKR line is located in mountainous areas with much of the line being in tunnels and on bridges. The main line subgrade of the line is 46,065,438 m3, and another 44,178,151 m3 is used in stations and yards.

e. Bridges and Culverts

171. As noted above, there will be 224 bridges with a total length of 75.084 km. Bridges in the main line account for 10.1% of the construction length of the main line. There will be 1276 culverts with a transverse length of 38,574 meters. In addition there will be 84 overbridges with a total area of 44,968 m2 and 13 frame bridges with a total area of 4,977 m2. For railway bridges the standard design specifications listed under Technical Standards will apply. For overpass highway bridges, road live load based on the class of road will be used. Bridge clearance will permit the use of double-deck container trains that are powered by electric traction. .

172. There are a number of large bridges along the line, with most of them crossing large water systems such as Yongjiang River, Chengbi River, Youjiang River and Nanpan River. The Yongjiang super major bridge is 1035.3m long in all and the main span is (96+160+96) continuous beam; the Pingguoyou River super major bridge is 1474m long in all and the main span is (64+112+64)continuous beam; the Chengbi River super major bridge is 776m long in all and the main span is (40+64+40)continuous beam; the Nanpan River super major bridge is 577m long in all and the main span is 370m deck-type concrete arch. The bridge height is 270m.

f. Tunnels

173. Due to the difficult terrain and the high train operating speed required, there will be 225 tunnels on NKR, with a combined length of 422.325 km. 211 double track tunnels and 14 single track tunnels give a combined double track equivalent length of 408.252 km. Tunnels account for 56.63% of the mainline route.There are 20 tunnels longer than 6 km and the longest is 19,595 m. Other tunnels of note are Poluyuan (11,319m), Naxian (10,160m), Gelang (10,400m), Hangshiyan (14,861m), Duiminshan (10,800m), Xinshao (11,068m), Shiguamshan (12,571m).-

174. The distribution of tunnels along the route is shown in Table 4.3.

Table 4.3: Layout of Tunnels to be Built 1km

175. Structural Gauge of Tunnel. The structural gauge of tunnels required will be for a double track electrified railway that is capable of handling 200 km/ph passenger, 120 km/h freight and the clearance required for double stack container trains. The cross section’s effective clearance area above the top of rail of single and double track tunnels will be 53.2m2 and 88.4m2 respectively.

176. Portal Location. The location of tunnel portals will be determined by the conditions of topography and geology. Generally to mitigate air pressure and train noise, sound absorbing or deflecting walls will be constructed near the portals when there are nearby buildings or if there are any special environmental considerations. To ensure a smooth transition between the track adjacent 51 to the tunnel entrance and the track in the tunnel, the subgrade will be progressively strengthened toward the entrance.

177. Types of Tunnel Lining. Curved wall lining will be used for all bored or drilled and blasted tunnels. Geological conditions at specific sections will dictate the lining structure’s durability and building materials to be used to meet the requirements of the appropriate standard or code. The grade of concrete for the secondary lining will be not less than C25, and for reinforced concrete not less than C30. In the sections of tunnels that have a corrosive environment, the initial tunnel support will be ‘shotcrete’ and mortar rock bolts. The secondary lining will use an anti-corrosion material. In sections where there will be gas emissions from the rock, an air-entrained concrete with high anti- permeability will be used. Cut and cover, and shed tunnels will be constructed in sections where soil conditions and depth permit.

178. Waterproofing and Drainage. The tunnels will be lined with three layers of concrete lining, which in all but the most difficult locations will provide the necessary waterproofing. The waterproofing layer will be used in the outer perimeter of lining. In the single track tunnels, side ditches will be constructed and in the double-track tunnels there will be an additional central ditch that will be integrated with the drainage system inside and outside of the tunnel. In the sections with groundwater, grouting will be used to fully seal the lining. In the sections with high water pressure, an anti-water pressure lining will be used.

179. Withstanding Earthquakes. Data indicate that NKR Railway passes through moderate to active seismic zones. Tunnels lower than 30m from the surface are considered safe, at this level of seismic activity whereas those above this level are subject to disturbance in an earthquake. Tunnel sections along these areas will be specifically strengthened by the use of additional steel reinforcing and extra thickness of concrete.

180. Auxiliary Tunnels. According to the tunnel length, topography, geology, and hydrology, the requirements of constructing drainage, ventilation, the construction schedule, and operational ventilation will determine the need for auxiliary tunnels. The operational requirements such as relieving the aerodynamic effects, maintenance and accident rescue will also be considered in the need for and design of auxiliary tunnels.

181. Construction Methods. The majority of the tunnels will be constructed using drilling and blasting methods and the tunnels walls will be stabilized with rockbolts and then lined with shotcrete. Some tunnels will need additional lining as described above. Full-face excavation method will be used where the geology permits, but because of the size of the tunnels many sections will be ‘bench cut,’ whereby the tunnel will be cut in multiple passes. Tunnel boring machines will be used primarily where the tunnel is on critical paths for project completion.

182. Track Structure, Lighting and Attached Structures. Ballast-less track will be used for the tunnels with a length of more than 6 km, and ballasted track will be used for other tunnels. The new continuously welded 60kg/m rail will be used. It will be laid either on ballasted or slab (ballast-less) track. The ballasted track will use type-III pre-stressed concrete sleepers; the slab track with double- block sleepers encased in an elastic boot that has been reinforced for 200 km/ph trains. Tunnel illumination will be provided as per standards and codes listed above specifically,for tunnels of 500m- 2 km: plug sockets for tools and lightning will be provided, and fixed illumination will be provided for tunnels over 2 km. There will be additional lighting that can be turned on, if necessary, for maintenance crews and emergencies. Attached structures will be constructed according to the above codes and standards.

183. Operational Ventilation and Disaster Prevention and Rescue. Tunnels more than 8 km will be equipped with fan ventilation in accordance with the air change operational requirements and 52 accident rescue. Emphasis on improving disaster prevention will entail a system of inspection, alarms, and monitoring. In the event of an accident, the whole tunnel will be marked with emergency evacuation direction signs and emergency phones will be available at regular intervals. There will be fire sensing alarms and extinguishing systems inside and outside of tunnel and on the trains. There will be also an inter-tunnel communication system.

184. Rescue and relief systems will be provided for tunnels over 10 km. A monitoring system for lights, ventilation and sensors for gas will be provided for long major tunnels. Tunnels longer then 15 km will be manned 24 hours a day by guards and emergency staff. For this purpose, buildings will be constructed at each end of the tunnels and these building will be equipped with emergency equipment such as fire extinguishers.

185. Environmental Protection and Spoils Handling. Tunnel spoils will be placed in landfills except for those spoils that are suitable and available to be used as fill material or concrete aggregate. The spoil landfills will be placed on wasteland wherever practical to minimize the need to use farmland. Each location will be engineered to ensure stability and adequate drainage. Where possible the spoil surface will be restored for farmland or re-planted. The other waste will be treated as per environmental protection and sanitary regulations.

186. Water and Gas Leakage. The tunnel is a low-gas tunnel. Combined type lining will be adopted for the whole tunnel and fully closed combined type lining will be set for the coal strata section. Curtain grouting will be adopted for the section of ground water development to confine ground water to prevent water and soil bursting. Fully closed anti-hydraulic pressure lining will be set for the section with hydraulic pressure. For the section with aggressive water, corresponding anti- corrosion concrete will be used for support and lining. Design and construction will be performed following Technical Specification for Railway Gas Tunnels, and Regulations for Coal Mine Safety. Mechanical operating ventilation with longitudinal effusion mode will be set according to ventilating and rescue requirements and 22 type SLFJ-100 fans will be set at points near the entrance and exit.

187. Construction Methods. Tunnels will be excavated using one of two types of equipment: the TBM (tunnel boring machine) and standard tunnel drilling machines (similar to underground mining machines). Super-long and long tunnels will have secondary access tunnels (inclined to the surface) to remove spoil materials and expedite the overall tunnel construction schedule. These access tunnels will also serve as emergency exit routes both during construction and for commercial operation. The exits and entrances of the access tunnels will be equipped with fire prevention equipment, emergency lighting, and emergency communications equipment.

188. Use of Slab Track. CR has several successful slab track designs. CR non-ballasted slab track design will be used in long tunnels over 6 km in length.

g. Sound Barriers

189. In locations where the NKR line passes near residential areas, commercial areas, and institutional areas such as schools and hospitals, sound reducing walls will be constructed on one or both sides of the railway line as dictated by environmental conditions. The walls, constructed of synthetic sound-absorbing materials, will be 3.0 meters high and 0.2 meters thick.

h. Stations and Marshalling Yards

190. There are a total of 28 stations including 15 new and 13 renovated stations. There are 13 intermediate and 10 overtaking stations.Nanning South and Kunming East are classification yards. Nanning and Kunming Stations are passenger stations. 53

191. The maximum distance between stations is 47 km between Boyi and Funing. The shortest distance between stations is 4.5 km between Nanning South and Nanhua, within the Nanning terminal hub. The average station spacing is 27 km.

192. The location and sizes of the stations has been determined by a market study, the need for fast trains to pass slower trains, and the locations available for construction. To assist in determining the location of stations, particularly the overtaking stations, a computer operations simulation model has been used.

193. The following is a description of the major station works.

 Long’an Sation. A high-speed yard will be built on the opposite side of the existing station building with four receiving-departure tracks (including main line). A comprehensive work area will be newly built on the left side of Kunming end railway line. The existing middle platform will be dismantled and the existing No. 3 track will be renovated. One middle platform will be newly built on each side of the new high-speed yard, which will be connected to the existing main platform by a passenger tunnel.  Pingguo Station. The existing yard will be renovated to a high-speed yard with 4 receiving-departure tracks (including main line). A traction substation will be built on the right side of Nanning end railway line. An ordinary speed yard, traction substation and overhead contact system work area will be built on the opposite side of the existing station building. The existing middle platform will be dismantled and the existing No.3 track will be renovated accordingly. One middle platform will be built between the high-speed yard and the ordinary speed yard, which will be connected to the existing main platform by passenger tunnel.  Tiandong North Station. This is a newly built county level station with 4 receiving- departure tracks (including main line). One middle platform will be built outside of the yard on the opposite side of the station building, which is connected to the existing main platform by a passenger tunnel.  Tianyang Station. A high-speed yard will be built on the opposite side of the existing station building with 4 receiving-departure tracks (including main line). The existing middle platform will be dismantled and the No. 3 and No.4 track will be renovated. A traction substation will be built on the left side of Nanning end of the existing Nan-Kun Railway Line. One middle platform will be built on each side of the newly built high speed yard which will be connected to the existing main platform by a passenger tunnel. A comprehensive work area will be set outside of the middle platform on the right side of the high-speed yard.  Funing Station. This is a newly built county level station with 6 receiving- departure tracks (including main line). The station is located to the north side of the expressway passing through Funing. An expressway overpass provides convenmient access to the station. This station was included to satisfy local demands for a station to be located very near to Funing.  Guangnan Station. This is a newly built county level station with 6 receiving- departure tracks (including main line). On the left side of the Kunming end of the railway line, a comprehensive work area and a traction substation will be built and on its right side a freight yard will be built. One middle platform will be built which is connected to the existing main platform by a passenger tunnel.  Qiubei Station. This is a newly built county-level station with 6 receiving- departure tracks (including main line). On the right side of the Kunming end of 54

the railway line, a comprehensive work area and a traction substation will be built and on its left side a freight yard will be built. One middle platform will be built which is connected to the existing main platform by a passenger tunnel.  Mile Station. This is a newly built county level station with 6 receiving-departure tracks (including main line). On the left side of the Kunming end of the railway line, a comprehensive work area will be built and on its right side a freight yard will be built. One middle platform will be built which is connected to the existing main platform by a passenger tunnel.  Shilin Banqiao Station. This is a newly built intermediate station with 6 receiving- departure tracks (including main line). On the right side of the Nanning end of the railway line, a comprehensive work area and a traction substation will be built. Since it is located in the Shilin scenic area, and will be used mainly for passenger transportation, 2 middle platforms will be built which are connected to the main platform by a passenger tunnel. i. Electrification

194. Given the length of the tunnels, the railway must use electric traction. In the segment between Nanning and Baise, the new line will closely parallel the existing Nan-Kun Railway. Therefore, after analysis it was determined that the Nan-Kun will remain as is and that the NKR will utilize the same TRNF direct feeding system with return wire. The grade in this segment is not severe and power dsemands will be much lower than on the other segment.

195. Between Baise and Wangjiaying West, since the new line is far from the existing line and the geological conditions are complex and bridges and tunnels account for a large proportion, it’s difficult to select the substation sites. Therefore, based on the comparison of TRNF power supply mode and AT power supply mode, in the present study, direct feeding system with return cable with (TRNF) is proposed.

196. An analysis of the power grid, electric loads, and power supply requirements is presented in Section 4 of the Supplementary Report. Adequate planning assures the required power supply for the railway.

197. The current condition is that there are large regional differences among the power grids along the Line. The power grids near the central city and in the Guizhou province are relatively strong. The power grids in the areas of Guangnan and Qiubei etc. are relatively weak. In the 11th 5-years planning period, each power grid company will perform large scale construction. Guangxi power grid company has studied the power grid plan along Nan-Kun Railway and decided to reconstruct the power grid along Nan-Kun Railway for reinforcement. Yunnan power grid company will also strengthen the external power supply along the line. It will construct 220kV and 110kV substations along the new Baise-Kunming Railway Line to meet the requirements of the power supply of the new NKR. Electric Traction Locomotives: Operation and Maintenance

198. Locomotive maintemance facilities already exist at Nanning, Baise and Kunming. Utilizing either Nanning or Kunming would comply with standards regarding locomotive routing being between 350km and 800km for freight and between 500 km and 800km for passenger locomotives. Therefore the two locomotive facilities can be work load balanced by using Nanning to maintan and service the passenger locomotives operating between Nanning and Kunming and utilizing the Kunming facaility to maintain and service the freight locomotive of the existing Nan-Kun and the pusher locomotives operating between Kunming and Baise on the new line.

199. Routing of electric motor car unit (EMU). According to the electric motor car unit (EMU) operation scheme of the present railway line, the Guangzhou motor car depot and the Nanning motor 55 car operation depot which are in planning stages or under construction will partially take charge of the EMU routing. Besides, the newly built Kunming motor car operation depot in the present study will also conduct some of the EMU routing.EMU routing of the present railway line Nanning motor car operation depot and Kunming motor car operation depot will jointly take charge of the EMU routing of the present railway line.

200. Routing of over-line EMU. The EMU routing of Kunming-Beihai-Guilin-Wenshan-Xiamen will be conducted by Kunming motor car operation depot and that of Baise- Beihai- Guilin will be conducted by Nanning motor car operation depot by means of operation-on-extra-route. The EMU routing of Baise-Guangzhou will be done by Guangzhou EMU depot and that of Kunming- Guangzhou-Shenzhen will be jointly done by Guangzhou EMU depot, Shenzhen motor car operation depot and Kunming motor car operation depot.

201. The distribution and features of the existing locomotive facilities of the present line will remain unchanged without any new arrangement.

j. Rolling Stock Inspection and Maintenance

202. Wangjiaying West passenger car technical servicing depot. In order to reduce cost and land occupation, the Wangjiaying West passenger car technical servicing depot and Wangjiaying West motor car operation depot will be combined. The service facilities of the ordinary passenger train are as follows: Eight service tracks and the ordinary passenger train storage track with an effective length of 1214m and reserved length of 2093m will be built. Two ordinary passenger train casual repair positions and two passenger train air-conditioning repair positions will be established.

203. Service tracks. The EMU storage track of the motor car operation depot will be considered in their layout, so the service tracks will be designed in end transverse arrangement and their effective length will meet the requirement of the servicing work of marshalling 18 passenger train sets. The service tracks will be fully equipped and capable of servicing the EMUs. Four of the tracks will have inspection pits. Casual repair, waste discharge, train outside cleaning of ordinary passenger trains will be done by maintenance facilities of the motor car operation depot.

204. One passenger car inspection depot will be newly established for No.2 Passenger Station of Wangjiaying West with 10 workers per shift and a designed staff number of 28, which will adopt the same shift scheduling to the Station. Houses with a building area of about 500m2 will be built as an inspection shop. The passenger car inspection depot will be equipped with necessary inspection facilities.

k. Rolling Stock Safety Systems

205. A comprehensive plan for safety and passenger convenience will be installed as part of the NKR line project. This plan includes the following systems:

206. Passenger Inquiry Service. Allows a passenger to inquire about purchase of tickets, train schedules, status of arrivals and departures, various on-train services, etc.

207. State-of-the-art technology will assure safety of operations. Throughout the route Train Hotbox Detector Systems (THDS) and hot bearing detectors will be located at 29 locations with 58 sets of uni-directional bottom detecting equipment. Additional sets of detectorsa will be placed at Nanning South and at Jinmacun and Kunming East stations. The newly built car inspection depots at Nannning South and Kunming East will also have infra-red detectors. These sites will be monitored by the Nanning and Kunming Railway Bureaus and the wayside devices will be maintained and repaired by the infra-red workshops in Nanning and Kunming. These detectors protect against failed 56 and broken axles that result in derailment. In addition to THDS, one set of TFDS, TFDS and TADS will be located leading into Nanning Terminal. Three sets of TPDS and TADS and three existing sets of TFDS will be used leading into the Kunming Terminal.

208. Train Fault Detection System (TFDS). This system uses images and pictures of wagons to diagnose potential problems in freight cars in real time. Visual devices help to detect any hanging, dragging, broken, and missing parts of the wagon so that the movement of the damaged wagon may be controlled as necessary to ensure operation safety and plan mitigation action. It has helped to reduce potential derailments arising from failure of freight wagon components.

209. Train Hotbox Detector System. (THDS) An infrared “hot box” detection system protects against the overheating of rolling stock wheel bearings and journal boxes.. The axial temperature information will be transmitted to the infrared axial temperature monitoring center of Nanning and Kunming railway Bureaus. If a defect is detected it is also immediately transmitted to the train crew. The consultant recommends also installing a derailed equipment detector at all THDS locations.

210. Train Acoustic Detector System (TADS). This system is based upon the unique acoustics of bearings with internal spalls, flattened bearings and the like. The TADS detects these bearings before they begin to fail. Thus this system is predictive and preventative and is state of the art. The acoustic detection system helps to identify defects in roller bearings at an early stage. This helps to plan repair action before the failure of the defective bearing, which improves the safety of operation and also reduces the interference to traffic caused by in-service bearing failure.

211. Train Performance Detection System (TPDS). This equipment helps to detect unbalance and overloading in freight cars. It also monitors the dynamic situation of the freight wagon, including wheel faults, such as wheel flats. The monitoring helps to take pre-emptive action before the defect or the situation develops in to a failure that may cause an accident. The system has helped to reduce derailments attributed to wheel defects and loading irregularities.

212. Automatic train identification system will be installed at the railway administration divisional station on the line, along with one set of CPS, four sets of Automatic Equipment Identification (AEI) and one set of car number repeating system. The new car depots at Nanning South and Kunming East will also have the car number repeating system and two sets of AEI. Wangjaying West will also have three sets of AEI equipment.

213. Grade Conditions and Train Speed. Given the long downgrade and projected double stack train operation with heavier axle loads, the train stopping distance must be carefully evaluated. The Consultant recommends that MOR exercise an abundance of caution when setting downgrade speeds. During initial testing speeds should not exceed 40 km/h until testing, empirical data and experience demonstrate that higher speeds will allow safe stopping distance within the signal system design parameters.

l. Water Supply and Treatment

214. All stations with depot or passing loop buildings will be supplied with potable water meeting the National Standards for Drinking Water Quality, GB5749-85 and Standards for Drinking Water Resource Water Quality (CJ/T3025-93). The Baise water supply will be renovated but will continue to use the existing supply source. The relocated locomotive workshop, maintenance shop and freight yard supply will be enhanced. NKR will have 22 newly constructed living water supply and drainage systems. Most will use existing supplies, buit where needed supplemental supplies will be provided. Nanning terminal will use existing supplies, enhanced for the new roles for the terminal. Kunminh terminal woill add 2 water supply stations and 2 living water stationsin Jinmacun and Yangbao will be added. 57

m. Domestic Sewage and Industrial Wastewater Disposal

215. Stations that have inspection, repair, maintenance or other facilities that generate industrial- type wastewater containing oils and petrochemicals will be equipped with oil-water separators. Septic tanks will be used for domestic sewage. All types of sewage will be collected into treatment stations, and treated according to where the treated water is discharged, i.e., river, lake, ditch, or farm, and the sanitary zone requirements where the treatment plant is located. All discharges will conform with Integrated Wastewater Discharge Standard (GB8978-1996).

n. Fire Fighting Systems

216. Low pressure fire fighting systems and common water supply systems are used at most stations. At stations with no water tower, portable high pressure fire fighting equipment and water tanks are used for fire fighting at station platforms or freight yards with warehouses. Portable high pressure fire fighting equipment and 300 m³ water tanks are also used at tunnels longer than 5 km. In addition, 70 protective fire-fighting water supply points will be constructed in the vicinity of bridges and tunnels and will be constructed according to the “Code for railway engineering fire design”.

o. Signaling and Train Control

217. The NKR signal system will conform to MOR Class I design standards. The stations will use the CTC command (via radio) and control (train protection) system with Automatic Block Signalling (ABS). The double track ABS system will be fully automatic with 4-aspect signals that allow more than one following train within a block between two stations. Wrong main movements (the opposite direction to that signalled) will only permit one train at a time in the block between two stations. This system requires intermediate wayside signals (every 1.5 km to 3 km) between passing loops. All signal equipment will be lightning-proof according to the latest standards for electromagnetic and lightening protection.

218. The signalling systems will consist of the following primary components:

 The decentralized and autonomous intelligent centralized traffic control (CTC) system will be used as the command system for the operation of the new line. CTC extension equipment will be set at the stations along the line (including the block houses along the shunting line of the main line) to realize the modern management of the car operation. In order to fully utilize the existing dispatching and commanding system, in its present design, the car dispatching command system of the Line will be connected to the dispatching centers of Nanning Railways Bureau and Kunming Railways Bureau, respectively, to complete the dispatching and command of the Line. 219. The existing operation command equipment of Nanning-Baise, Nan-Kun, section will continue to use the TDCS system and the operation command equipment of the new NKR line will adopt CTC system. Since 8 existing stations will be shared by the new railway line and their yards will be mixed yards, the operation linkage between the new line and the existing line will be quite close. The TDCS system of the existing line will just partially rebuilt at those eight stations. The dispatcher controlled areas of the new line use CTC system, those of the existing line keep their existing TDCS system and the junction stations are covered by the CTC section dispatching and command system of the new line. This will facilitate the dispatching and command of the new line.

220. Block System. Sections of the main line will use four-aspect automatic block signals based on ZPW-2000 non-insulation track circuit. The positive spacing interval will meet the requirement of transportation and the opposite will be designed as automatic block between stations. Ground block signals will be set for automatic block sections and the outdoor cables of the main line sections will 58 be laid in separate upline and downline channels. The optical fiber of communication optical fiber cables and safety information transmission equipment will be used to transmit the information of interstation connection required by the automatic block system. .

221. Since the interval between stations along the main line of the present railway line is long, if the track circuit information transmission exceeds the specified effective transmission distance of the cable (temporarily based on 10km), unattended relay stations will be built in proper positions in the main line section.

222. Train control centers will be set at the stations (including relay stations and block houses) to implement the coding control of the track circuit low-frequency code, the selection and transmission of the message from the active responder as well as the safety information transmission between the neighboring stations or relay stations. Through the safety transmission channel, information like the track clear condition, temporary permitted speed condition, section direction condition and departure of trains from the station can be transmitted to the neighboring station and thus control the train operation direction and block system mode of the section.

223. The ZPW-2000 non-insulation track circuit can realize the function of inspecting the tracks occupied by trains and can act as a continuous information transmitter which continuously transmits the “permitted” information to the train.

224. The passenger trains (EMU) operating in the present line will adopt the train control system based on track circuit and point-type equipment, on-board over-speed protection device and target distance one-time braking control mode. When the passenger trains of the present line get off the line, their on-board equipment will be compatible with the railway lines that are not equipped with CTCS2 ground equipment and will have the cab signal function.

225. Other passenger trains and freight trains operating in the present line will adopt the control system combining cab signal equipment and operation monitoring recording equipment.

C. TRAIN OPERATIONS AND CAPACITY CONSIDERATIONS

1. NKR Train Operations

226. The Nanning and Kunming Railway Bureaus will manage the train operations through their respective dispatching centers.

227. Passenger train crews will work continuously for about 8 hours and the crew of freight trains will work continuously for 10 hours. In accordance with the traction calculation for train working diagrams, the freight crew will operate between Nanning and Kunming. The passenger trains powered by locomotives will change crews at Nanning. The driver of the EMU passenger trains will change at Nanning, but the conductor will operate through to Kunming. As currently proposed, Lanzhou and Chengdu Administrations will manage the train operations through their respective dispatching centers.

2. Design Carrying Capacity and Traffic Capacity

228. Design carrying capacity. The wayside signals are to be arranged for NKR Railway using a train spacing of 5 minutes in the study. Capacity calculation of the double track section is based on a train spacing of 7 minutes in the near future and on a train spacing of 6 minutes at a specified future date. The design carrying capacities of parallel train working graph for the near future and long term are 171 pairs per day and 200 pairs per day, respectively. 59

229. The design traffic capacity of the railway line shall be calculated according to the design carrying capacity, as shown in the following table.

Table 4.4: Design Traffic Capacity

Carrying capacity Pairs of Design traffic of parallel train passenger capacity Section Year Type working graph trains

(000) tons (pairs/day) (pairs/day) /year) The existing line 45 2 30,480 2020 New double track 171 38 59,350 Nanning~Baise The existing line 45 2 30,480 2030 New double track 200 66 49,220 2020 New double track 171 30 71,970 Baise~Qiubei 2030 New double track 200 48 56,670 2020 New double track 171 30 71,970 Qiubei~Kunming 2030 New double track 200 48 56,670 . Source: CREC FS Dec 2008.

230. According to the forecasted passenger and freight traffic volume, adaptability of the required capacity, traffic capacity and design capacity in the design year is as shown in the following table. It can be seen from the above table that both the short-term and long-term design traffic capacities can meet the transport requirements.

Table 4.5: Adaptability of Design Traffic Capacity, Carrying Capacity and Passenger & Freight Traffic Volumes Freight Required Carrying Volume of goods Capacity traffic Year under capacity capacity transportation margin Section capacity study (000) tons (000) tons (pairs/day) (pairs/day) (000) tons /year /year) /year The existing Nanning 34 45 30,480 line 2020 50,200 39,630 New double ~Baise 138 171 59,350 track The existing 43 45 30,480 line 2030 64,300 15,400 New double 182 200 49,220 track Baise~Qiubei 2020 117 171 71,970 24,700 47,270 (New double track) 2030 173 200 56,670 30,200 26,470 Qiubei~Kunming 2020 117 171 71,970 24,700 47,270 (New double track) 2030 173 200 56,670 30,200 26,470 Source: CREC FS Dec 2008

D. ASSOCIATED FACILITIES

231. Construction access roads will be built for the purpose of ingress and egress to the construction work areas of the Project. These roads are the means by which labor, material and equipment can be brought to and from the work site. Once the project is completed these roads will be turned over to the local and provincial governments to use as they see fit. Not all of these access 60 roads are expected to be used by the local communities, but those that are selected for use will require long-term maintenance by the local governments.

232. Station access roads to the nearest existing local road and/or municipal area will be built by local governments up to the railway station boundary. The length of these roads will total 18.6 km.

E. CONSTRUCTION PERIOD AND TIME SCHEDULE

233. Bridge: The key projects are the bridge crossing large water systems such as Yongjiang River, Chengbi River, Youjiang River and Nanpan River etc.. Yongjiang super major bridge is 1035.3m long in all and the main span is (96+160+96) continuous beam; Pingguoyou River super major bridge is 1474m long in all and the main span is (64+112+64)continuous beam; Chengbi River super major bridge is 776m long in all and the main span is (40+64+40)continuous beam; Nanpan River super major bridge is 577m long in all and the main span is 370m deck-type concrete arch. The bridge height is 270m. The control time of the completion of the bridge substructure, thus enabling bridge construction, is 18 months. Thereafter the longest bridge construction period is 2 years for the Pinggou Youjiang River Bridge. Six other bridges have construction periods of 18 months after substructure completion.

234. Tunnel: There are many long tunnels on the Line. There are 8 tunnels more than 10km long, including Poluyuan (11,319m), Naxian (10,160m), Gelang (10,400m), Hangshiyan (14,861m), Duiminshan (10,800m), Xinshao (11,068m), Shiguamshan (12,571m), and Mile (19,595m). Four of the tunnels will require five years to construct.The control for the project is the construction of the Mile tunnel. Due to its length and the strata through which it passes, construction is estimated at 5 years, six months. In addition there are 11 tunnels that will require four years to complete.

235. The terminals at both ends of the Line and Nan-Bai section have many joints with the existing Nan-Kun Railway Line, so the establishment conditions of track laying and bridge erection base is good; Baise-South Kunming Section has no joints with existing railways, so there is rare possibilities to set track laying and bridge erection base in the section.

236. Considering laying length and numbers of beams and holes of each construction section of the whole line, the track laying and bridge erection base is roughly selected at Nanning, Baise and South Kunming.

237. Nanning track laying and bridge erection base will complete the laying and erection work of Nanning Terminal to Nan-Bai Section; Baise track laying and bridge erection base will complete the laying and erection work of the whole section of Baise to Qiubei; South Kunming track laying and bridge erection base will complete the laying and erection work of Kunming Terminal to Kunming- Qiubei section.

F. COST ESTIMATING APPROACH

238. Bill of major quantities of the main works is shown in the Table 4-2. CREC has provided both an investment cost summary and a detailed line item project cost estimate. Unit costs, quantities of materials, and total investment costs provided by CREC compare reasonably with other evaluations of MOR railway projects recently evaluated and approved for ADB funding.

239. Table 4.43 of Section 4 of the Supplementary Report provides a summary of investment costs for the NKR line expressed in CNY. Table 4.44 provides the $ equivalent values for Project costs. Appendix 4-D includes detailed Project cost estimates. 61

240. The investment levels accurately reflect the MOR standards selected for the NKR. For example, the ZXR dedicated passenger line has an average cost of $ 9 million/km, while the CLR has an average cost of $ 7.710 million/km and LCR had a cost of $9.202 per km. NKR, with its high standards, lengthy tunnels and bridges, is projected to cost $14,742 per km, This seems reasonable in light of NKR’s high design standards of 200 km/hr speeds and very challenging terrain over which the railway must be constructed.

241. The consultant has requested information on the unit cost of selected components and construction stages to enable validation with known international standards. CREC is fortunate in having participated in similar projects in the recent past. Based upon recent construction and costs associated therewith, CREC can adjust its costing estimates to reflect real time experience as commodity prices can rapidly change. The following comparison between unit cost of tunnel construction was provided by CREC, wherein NKR, CLR and LCR estimates are compared.

Table 4.6: Comparison of Cost of Tunnel Construction Unit NKR CLR CLR

RMB Cost of Route Km(Static (000)/Rout 85,088 84,336 68,314 Investment e Km

RMB Cost of Tunnels 58.7 52.1 54.1 (000)/m Length of Tunnels,m 382,018 184,657 506,300 Predicted Cost Based on 224,244,566,000 96,206,297,000 273,908,300,000 Unit Cost (000) RMB Source: CREC.

242. Additional unit costs were provided of major construction components. They are shown below. Note that the unit cost for concrete sleepers is $86 USD, with the fastener included. This compares favorably with international costs for concrete sleepers, and is less than in many countries. However, in completed China projects, concrete sleeper bid prices were $9.33 per sleeper for 533,000 sleepers in November 2002 and $8.88 for 800,000 sleepers at the same time. Cement prices have increased significantly in the past five years and the unit cost of a concrete sleeper manufactured at the prefabricated sleeper plant is now estimated at 155 CNY, or $22.70.

243. The unit cost for a new turnout at $76,302 or a special turnout at $92,278 is very much in line with international standards. The same analysis on the cost of components per km of new track is reasonable. Here fluctuating steel prices can make estimating difficult, but by using an iterative process of constantly updating the unit costs based on recent experience in other projects, an accurate projection can be made. As an example of changing steel prices, the consultant has seen rail prices range from $604 per ton in 2003, $770 per ton in 2005 and a recent quote is approximately $1400 per ton (875 Euros per ton). CREC estimates used in this project are approximately $800 per ton, based upon 60 kg rail in 25 meter lengths, priced at 8106 CY per piece.

G. PROJECT MANAGEMENT

244. NKR is a component of the new phase of institutional development of CR. The Project railway will be built and operated by an autonomous joint venture company (JVC) established under the Chinese Law. The joint venture between MOR, Yunnan, and Guangxi Zhuang Autonomous Region provincial governments, and will be implemented by MOR. The joint-venture company will have national and provincial ownership and will have substantial managerial and financial autonomy, including the freedom to set tariffs for full cost recovery. Nanning Kunming Railway Co., Ltd. (NKRC) 62 will be responsible for construction of the project and Nanning and Kunming Railway Bureaus will manage operations after the Project is completed. In due course, the joint venture shareholding company may be listed on the stock exchange. This will provide an opportunity for the operating company to interact with investors and raise future investment capital through market mechanisms. A new era of market based investment financing is expected to be ushered, thereby helping to diversify sources for financing railway development, and reducing dependence on self-generated financing and financing from government sources and lenders.

245. The NKRC will be the Implementing Agency (IA). The Foreign Capital and Technical Import Center (FCTIC) 23 under MOR shall coordinate the project management activities, supervise the procurement of the goods and services to be financed by the ADB under the Project, monitor utilization of the proposed ADB loan, and review the reports to be submitted to ADB. FCTIC has well- qualified and experienced staff who have undertaken similar tasks satisfactorily in the past.

H. ADB-FUNDED COMPONENTS

246. In consultation with MOR, a list of project components is proposed for financing out of the $300 million loan from ADB. The list of ADB components is provided in Appendix 4-E and include modern materials and technical equipment that will help meet the technical performance requirements for operation of trains at speeds of 200 km/hour, ensuring comfort, safety and environmental protection. The list of the contract packages is given in Table 4-27. This list may need refinements based on the review of engineering design to be done by the general supervision consultants. The ADB–financed contract packages consist of various packages of materials, and safety and operational equipment. The hardware list detailed in Appendix 4-E has been grouped by general technology categories into bidding packages.

23 FCTIC is an entity that is wholly owned and administered by MOR. However, it does not form a part of the Ministry of Railways which is an arm of the Government. 63

Table 4.7: Index Unit Costs Estimates NKR Index Cost / Estimated Cost Name of Works Unit Quantities Unit (RMB) (RMB) USD @6.83 Track Laying Main Line (km) 1574.478 2447505 3853543171 358,346 Track Laying A. New Construction (km) 1574.478 2436491 3836202147 356,734 Track Laying Ⅰ. Cost of Construction (km) 1574.478 2436491 3836202147 356,734 Track Laying 1. Laying New Track (km) 1574.478 1960653 3087004602 287,065 (2) Ballasted Track Track Laying (CWR) (km) 1192.562 1289661 1538000361 188,823 (3) Ballasted Track (not Track Laying CWR) (km) 41.41 1029010 42611310 150,660 Track Laying (5) Unballasted Track (km) 340.506 4423984 1506392931 647,728

3. Laying Track Bed m3 3256715 230 749197545 34

(1) Granular Track Bed m3 3256715 230 749197545 34

B. Upgrading km 14.012 1237584 17341023 181,198

Ⅰ.Cost of Construction km 14.012 1237584 17341023 181,198

2. Track Demolition km 12.052 3869 46633 566 Track Laying Station Tracks (km) 175.88 3756422 660678556 549,989 Track Laying A. New Construction (km) 175.88 3724539 655070920 545,320 Track Laying Ⅰ. Cost of Construction (km) 175.88 3724539 655070920 545,320 Track Laying 1. Laying New Track (km) 175.88 982603 172819893 143,866 Track Laying (2) Concrete Sleeper (km) 175.88 982603 172819893 86

3.Laying New Turnouts Unit 679 528537 358876297 77,385

(1) Single Turnout Unit 633 521144 329884282 76,302

(2) Special Turnouts Unit 46 630261 28992016 92,278

5. Laying Track Bed m3 532713 232 123374730 34

B. Upgrading km 35.23 159172 5607636 23,305

Ⅰ. Cost of Construction km 35.23 159172 5607636 23,305 1. Demolishing and Laying Tracks km 9.8 361676 3544429 52,954

2. Demolishing Tracks km 25.43 3869 98398 566 3. Demolishing and Laying Turnouts Unit 43 44503 1913621 6,516

4. Demolishing Turnouts Unit 111 461 51189 67

Other Associated Tracks Route km 785.045 53445 41956588 7,825

Ⅰ. Cost of Construction Route km 785.045 53445 41956588 7,825 Source: CREC.

Table 4.8: Estimated Investment of Works Total work 745.747/km (main Project name Feasibility Study of New Yun-Gui Railway 745.747/km(mainamount line) line) Technical and 17,653 $ (000) Estimated sum 88,843,914. RMB (000) Yuan economic 119,134.RMB indicator (000)Yuan/km(main line) USD /km main line

Technical and Control Tower of Guangxi Yunnan Kunming Compilation scope Nanning Hub Nanning Railway Total economic Expense Total Investment Station Mainline Mainline Hub indicator Proportion RMB (000) (%) $ (000)USD Yuan Unit Name of works and cost Estimated Value RMB (000) Yuan Part I: Static investment 4,649,913 225,104 20,882,350 46,067,872 6,259,580 78,084,819 10,470,685 86.84% 11,432,624 I Removal and land expropriation cost 423,374 733,680 633,173 595,083 2,385,310 319,855 2.65% 349,240 II Subgrade 763,372 2,389,101 2,209,853 759,494 6,121,821 820,898 6.81% 896,314 III Bridge and culvert 1,583,091 4,088,349 6,216,757 1,514,306 13,402,503 1,797,192 14.91% 1,962,299 IV Tunnel and open cut tunnel 36,592 6,564,495 22,834,291 933,871 30,369,249 4,072,326 33.78% 4,446,44 9 V Track 317,923 1,442,691 2,842,216 336,900 4,939,730 662,387 5.49% 723,240 VI Communication and signal 334,201 825,914 1,238,302 273,760 2,672,177 358,322 2.97% 391,241 VII Electricity and power supply to electric traction 267,488 946,884 1,818,499 234,391 3,267,261 438,119 3.63% 478,369 VIII Building 84,369 192,000 110,626 358,836 278,248 1,024,078 137, 322 1.14% 149,938 98,272 298,401 491,204 336,241 1,224,119 164,147 1.36% 179,227 IX Other operation and productiong s equipment and buildin X Large-scale temporary facilities and transition works 36,940 399,650 602,703 22,475 1,061,769 142,377 1.18% 155,457 XI Other expenses 281,571 12,640 1,184,163 2,634,048 344,295 4,456,717 59 7,618 4.96% 652,521 Total of the above chapters 4,227,194 204,640 18,983,954 41,879,884 5,690,527 70,986,199 9,518,805 78.95% 10,393,294 XII Basic budgetary reserves 422,719 20,464 1,898,395 4,187,988 569,053 7,098,62 0 951,880 7.89% 1,039,329 Total of the above chapters 4,649,913 225,104 20,882,350 46,067,872 6,259,580 78,084,819 10 ,470,685 86.84% 11,432,624 Part II: Dynamic investment 469,548 22,731 2,108,700 4,651,934 632,092 7,885,005 1,057,330 8.77% 1,154,4 66

XIII Reserved fund for increase of construction cost - - XIV Loan interest for investment during construction period 469,548 22,731 2,108,700 4,651,934 632,092 7,885,005 1,057,330 8.77% 1,154,4 66 3,856,922 3,856,922 517,189 4.29% 564,703 Part III:g Purchase stock expense of XV Purchaserollin expense of rolling stock 3,856,922 3,856,922 517,189 4.29% 564,703 Part IV: Initial working capital 2,220 30,738 53,940 2,592 89,490 12,000 0.10% 13,102 XVI Initial working capital 2,220 30,738 53,940 2,592 89,490 12,000 0.1 0% 13,102 Total budget and estimation 5,121,682 247,835 23,021,787 54,630,668 6,894,264 89,916,236 12 ,057,204 100.00% 13,164,895

Source: CREC FS Feb 2009 65

247. All ADB-financed procurement will follow ADB’s Guidelines for Procurement. The materials and equipment will be procured under international competitive bidding (ICB) or international shopping (IS) procedures. Contracts valued in excess of $1,000,000 will be procured through ICB. Any supply contracts not exceeding $1,000,000 will be procured through IS and contracts not exceeding $100,000 will be procured through direct purchase. Tendering companies, selected by the EA on a competitive basis, will handle the international bidding.

248. In view of the composition of the contract packages to be financed under the ADB loan, which will need to be procured after the MOR-financed civil works make progress, no need for advance procurement action is envisaged.

I. CONSULTING SERVICES

249. Qualified domestic consultants will be engaged and financed by MOR for (i) preliminary and detailed project design; (ii) international procurement; (iii) environmental supervision and management; (iv) monitoring and evaluation of the resettlement plan; and (v) socioeconomic impact assessment, evaluation of poverty reduction, and project performance monitoring.

250. In addition, qualified domestic consultants will be engaged and financed by MOR for (i) review of detailed design engineering, (ii) construction supervision and construction quality assurance, and (iii) supervision of trial operation on the Project railway.

J. DISBURSEMENT ARRANGEMENTS

251. All disbursements under the ADB loan will be carried out in accordance with ADB’s Loan Disbursement Handbook. Since most of the payments will be made for large contracts well above US$ 100,000, direct payment and commitment procedures will be used to withdraw the loan funds. The statement of expenditure procedure will be used for reimbursement of eligible expenditures for any individual payment not exceeding US$ 100,000.

K. ACCOUNTING, AUDITING, AND REPORTING

252. The Project EA will maintain separate accounts for the Project and have such accounts and related financial statements audited annually by an independent auditor and in accordance with auditing standards that are acceptable to ADB. The EA is also required to submit to ADB within 6 months after the end of each fiscal year certified copies of such audited Project accounts and financial statements and auditor's reports, all in English. The audit of such financial statements will include: (i) an assessment of the adequacy of accounting and internal control systems with respect to Project expenditures and other financial transactions; and (ii) an assessment of compliance with loan covenants that may be agreed under the Project and ADB's requirements on Project Management. Within the Project company (NKRC) an internal audit unit will be established to ensure that an effective internal control system and a checks and balances mechanism are put in place. The unit will independently test financial transactions to ensure the safe custody of the Project-financed assets and will report directly to NKRC’s management/board of directors and external auditors. FCTIC will make satisfactory arrangements for reporting the progress of Project implementation to ADB by submitting quarterly progress reports.

L. PROJECT PERFORMANCE MONITORING AND EVALUATION, AND PROJECT REVIEW

253. For evaluating Project performance in relation to the Project’s goals, purposes, outputs the following set of indicators and conditions will be used. The indicators should be reviewed at the start of Project implementation and include (i) economic development and socioeconomic indicators, (ii) transport costs and times for passenger and freight services, (iii) transport services offered and 66 transport charges, (iv) accident rates, (v) financial sustainability, (vi) county/village incomes, (vii) access to social services, and (viii) jobs created in construction and operation. At the beginning of Project implementation, a baseline and target values for the indicators will be established. The indicators will be measured at Project inception, completion, and 3 years later, and compared with the baseline. Where relevant, indicators will be disaggregated by gender. MOR shall require qualified consultants for monitoring and evaluation to help establish the monitoring and evaluation system, and train staff of the NKR in its use. The main sources of data include (i) secondary data from government sources, (ii) household socioeconomic sample survey, and (iii) participatory rapid appraisal.

V. ENVIRONMENTAL ASSESSMENT

A. INTRODUCTION

254. In November 2008, the Institute of Environmental Engineering of China Railway Eryuan Engineering Group Go, Ltd. prepared the Preliminary EIA Report based on the NKR Prefeasibility Study Report, and in February 2009, the EIA Working Paper which upgrades this report. This Section is based on the above preliminary documents, field trips of the PPTA Consultants to the Project Area, consultations with experts in districts through which the NKR will pass, and public consultations presents the environmentally sensitive areas along the NKR and summary of the key potential environmental impacts and mitigation measures resulting from NKR construction and operations.

B. ALTERNATIVES

1. No Action Alternative

255. The “No Action Alternative” addresses the likely consequences of not undertaking the proposed action. In this instance, failure to develop the NKR would result in a congested transport corridor Guangdzhou – Kunming that would constrain economic development of the southwest China region, including linkages to the Beibu Gulf Rim (access to ASEAN countries), and adversely affecting the emerging tourist industry. On the other hand, the Project will have a number of adverse impacts including erosion, noise and vibration, water pollution, and land acquisition and resettlement. Also, improving the accessibility of sensitive protected areas located close to the road corridor may result in increased anthropogenic pressure to ecological resources. However, adverse impacts can largely be avoided or mitigated by careful planning and implementation of an environmental management plan. Accordingly, it has been determined that the “No Action Alternative” is not a reasonable course of action.

2. Alternative Mode of Transportation

256. Expressway: The proposed NKR runs in parallel to the G324 Expressway. Due to its high cost, high energy consumption, heavy pollution, lower safety, and less comfortable travel, the expressway is not suitable for mass passenger and freight transportation. A 16-lane expressway should be built to divert traffic volumes, which would be a large-scale project. Therefore, it is neither economical nor rational to utilize expressway for capacity diversion.

257. Aviation. Air transport has low capacity and high costs; therefore it can not compete with the railway except for passengers taking longer trips and willing to pay extra for the reduced time in transit.

258. Ship Transport. Presently, the navigation in the Project Area is available on the Youjiang River from Nanning to Baise. However, navigable capacity of the river is low, especially during the dry season. Although a project is being implemented on Youjiang River to increase its capacities for 67 ship transport, this mode of transportation will not be able to compete with the railway by scope, capacity, and speed. 68

Figure 4-22: Construction Schedule of NKR

Time 2009 2010 2011 2012 2013 2014 2015 Project (month)

1234123412341234123412341234

Construction preparation 3 Subgrade and culvert works 32 Bridge Substructure Works 22 Bridge works 25 Tunnel works 66 Track laying and beam erecting works 14 Terminal Works Nanning Kunming 24 Tractive power supply, communication, si

24 gnalling, and electrical installations Notes:1. The total construction period of the whole line is 69 months. Testing 4 Commencement of Trial Operations 12

2.The construction period for tunnels and bridegs among the control works of this project are the longest. 3. The construction period for Mile tunnel is 63 months. 4. The control period of bridge across the Youjiang River at Pinggou is 38 months.

3. Location Alternatives

259. No change in alignment location. Three alternatives have been examined for the Baise – Kunming section, specifically: (i) construction of a new line in parallel to the existing one with the same specifications; (ii) construction of a new line in parallel to the existing one with new specifications; and (iii) reconstruction of two new lines with new specifications. None of these alternatives were found feasible.

260. Location alternatives for Baise – Kunming section. A number of location alternatives were proposed for Baise – Kunming section, specifically (i) via Hongguo, (ii) via Weishe, (iii) via Quibei, and (iv) via Wenshan. They were analyzed from the point of engineering-geological conditions, transportation demand, stimulating local economic development, required investments, and construction period. Based on these considerations it was concluded that the alternative via Quibei is the most preferable.

4. Technological Alternatives

261. Design speed for NKR. Three alternatives in terms of designed speed for railway have been considered: 160 km/h, 200 km/h, and 250 km/h. The major characteristics of these railways are shown in 6. The alternative of 160 km/h is the cheapest, however it does not meet high standards for inter-regional travel, and thus it is not suitable. The alternative of 250 km/h will require a high level of investments, while travel time will be reduced from 4.3 to 3.5 hours. Besides, it may cause difficulties in organization of transportation due to the requirement to schedule passenger and freight transportation for different periods of time. Therefore, this proposal is not feasible as well. Finally, the alternative of 200 km/h has reasonable engineering investment and flexible transportation organization. This proposal will satisfy the requirements of an express line between capitals of the two provinces, and it will meet the demands of long-term social and economic development. Therefore, it is recommended to apply the design standard of 200 km/h.

C. ANTICIPATED ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES

262. The screening exercise shows that during construction the major negative environmental impacts are associated with geology and seismicity, soil erosion, surface and groundwater, noise and vibration, air pollution (fugitive dust generation), land use, and resettlement. During the operational phase, it is expected that the major problems will be related to noise and vibration, wastewater and solid waste, and electromagnetic pollution.

D. IMPACTS DURING CONSTRUCTION

1. Soil

263. Impacts. Potential impacts to area topography and soil are most likely to occur due to the (i) cut and fill operations, (ii) soil erosion and siltation, (ii) loss of topsoil, (iii) damage to temporarily acquired land, (iv) failure to rehabilitate borrow areas, and (v) contamination of soil by fuel and lubricants. The total subgrade earthwork for the Project is as follows: earth and stone of the section fill, 46.065438 million m3; and earth and stone of stations and yards 44.178151 million m3. Physical loss of topsoil is due to construction machinery and equipment.

264. Mitigation. To prevent impact from large-scale random deposition of spoil, excess dirt, rock, and muck will be used in embankments where possible, and residual spoil will be disposed at storage areas appropriately located and designed to prevent erosion. Loss of topsoil will be avoided by stripping and storing topsoil prior to construction and then reapplying it for site rehabilitation. Limiting construction traffic to designated access roads will minimize the impact on temporarily

70 acquired land, as will re-grading and rehabilitating borrow pits. Existing access roads will be used, where possible. Soil contamination will be prevented by installing oil separators at wash-down and refueling areas and installing secondary containment at fuel storage sites. Erosion and siltation will be minimized by implementing preventive measures on a case-by-case basis, such as (i) appropriate compaction, (ii) placing of geosynthetics, and (iii) constructing berms, dikes, sediment basins, fiber mats, and drainage channels.

265. Table 5.1: Erosion Control Procedures

Table 5.1: Erosion Control Procedures Potential Erosion Problem Mitigation Measures All available spoil will be used as structural fill for access roads, Use of spoil and borrow pits stations, and embankments before borrow pits are excavated. Locating borrow pits Borrow pits will be centrally located to serve more than one site. Location of spoil and borrow Spoil and borrow pits will be sited far from industrial, agricultural, pits residential, historic, and ecological sites. Topsoil from borrow pits will be removed and set aside. When the Project is completed, the areas will be regraded, the topsoil Topsoil from borrow pits replaced, and the area reseeded. Intercepting ditches will be constructed on the high side of the restored pit to minimize erosion Spoil will be spread and dried before it is used for embankments. Tunnel spoil Spoil will be spread on the lowest yielding, least productive land available. When soil is spread on slopes for permanent disposal, it will be Soil disposal buttressed at the toe by a retaining wall. The surface of the slope will be stabilized, as necessary, prior to seeding. Steep cuts All steep cuts will be flattened and benched. Watercourses will not be blocked, and temporary soil and rock Natural watercourses stockpiles will be designed so that runoff will not induce sedimentation of waterways. Source: SSDI, December 2008.

2. Water

266. Impacts. Such Project activities as tunnel, bridge and embankment construction can cause two major types of environmental impacts to surface water characteristics: disrupting surface and groundwater flow patterns and degrading water quality. The most significant impacts to water flow patterns and water quality are expected from tunnel construction. For example, Xinshao Tunnel going through soluble rock area with developed karst ground water can impact surface and groundwater flows. One of the proposed and rejected Project’s alternatives “via Luxi” passes in the vicinity of the Puzhehei Scenic Spot at 100m lower than the lake surface, therefore, there is a possibility that tunnel construction will form a new groundwater drainage passage, causing damage to the scenic spot. Wastewater being formed during boring tunnels is quite turbid and can not be discharged without treatment. Construction of bridges over rivers can have an impact to surface water quality due to removal of debris, roiling of bottom sediments, and accidental lubricant spills. Construction of embankments can cause water quality deterioration and water flow modification.

267. The Project can potentially affect drinking water source protection areas. In Nanning, the proposed alignment will pass through the Class 1 Water Protection Area (the proposed bridge is 640 m upstream of the water intake), and in Baise the proposed bridge is within Class 1 water protection area, at 300 m upstream of the water intakes of the professional technical training school and railway station. As construction of the alignment or railway stations in Class 1 Water Protection Areas is not

71 allowed. The CREC, together with Nanning and Baise City Governments is currently examining alternative solutions such as relocation of water intake points, temporary closure of the water intake points over construction period, etc.

268. Comparatively small amounts of waste water will be formed during washing of construction equipment and machinery. Construction camps are sources of domestic sewage.

269. Mitigation. The mitigation measures to minimize impacts to surface and ground water are as follows: (i) prevent as much as possible ingression of water into the tunnel (by sealing), especially in karst areas, (ii) sedimentation tanks will be installed near the tunnels, (iii) hydrogeological monitoring of changes in water bodies located in proximity to the tunnel and monitoring of flora condition, (iv) sewage treatment facilities, sewage disposal units, and connections to sewage systems (where possible) should be provided for construction camps, (v) oil separators should be used for treatment of washwater, and (vi) surface water quality monitoring during construction.

3. Air

270. Impacts. Likely moderate temporary air quality impacts of the Project can be anticipated due to fugitive dust generation in and around construction activities. Air quality impacts during construction are likely to result from the following sources: (i) emissions from construction machinery and movement of delivery trucks; (ii) fugitive dust from earthmoving operations; (iii) dust generation during quarrying, drilling and blasting; and (iv) during the haulage of construction materials from quarries. These impacts would be localized and temporary.

271. Mitigation. Typical air pollution control measures will be used, specifically: construction machinery and equipment will be fitted with pollution control devices, trucks carrying earth, sand or stone will be covered with tarps to avoid spilling, and pre-construction monitoring of existing ambient air quality will be undertaken to provide a baseline for the measurement of air quality impacts during the construction period.

4. Noise and Vibration

272. Impacts. The major sources of noise pollution during construction will be: (i) construction noise due to earthmoving, tunnel boring, movement of construction vehicles, haulage of construction materials to construction sites, and other noise generating activities; and (ii) blasting in tunnels or quarries. The potential impact from vibrations during construction is damage to buildings from heavy earthmoving equipment and blasting.

273. Mitigation. Noise impacts during the construction phase will be mitigated through the use of (i) source controls (all exhaust systems will be maintained in good working order; proper shields, shrouds, and intake and exhaust mufflers will be employed, operation will be at minimum power, and regular equipment maintenance will be undertaken); (ii) site controls (stationary machinery will be placed as far from sensitive receptors as practical); (iii) time and activity constraints (operations will be scheduled to correspond with periods when people would least likely be affected, blasting shall be carried out according to relevant PRC safety standards); (iv) community awareness (public notification of construction operations will incorporate noise considerations, blasting schedules should be publicly posted in areas where residents will be affected by the noise, methods to handle complaints will be specified, etc.); and (v) baseline and routine noise monitoring as part of construction supervision (pre-construction monitoring of existing noise will be undertaken, and routine monitoring will also be required in areas of high potential impact).

5. Flora and Fauna

274. Impacts. Anthropogenic activity in the Project Area over a long period of time has had significant impacts to flora and fauna resources. Consultations with environmental experts during stakeholder consultations indicated that no threatened or endangered flora and fauna species are located within the potentially affected railway corridor and no adverse impacts to such species are likely to occur due to construction activities. Additional study of scattered rare flora will be conducted at the detailed design stage. The Project may have an impact on secondary forests, specifically in Yunnan. No protected areas are located within the potential direct impact area and no direct impacts to such protected natural areas are anticipated.

275. Mitigation. No areas of sensitive flora and fauna habitat are within the impact area. Although, no substantial removal of trees or other vegetation is anticipated, the Project will include afforestation along the alignment: 144,000 trees and 288,000 shrubs (with a total area of approximately 28.8 ha) will be planted. No additional mitigation related to flora or fauna are considered warranted.

6. Population and Communities

276. Impacts. The Project’s Social Analysis has identified four groups that are potentially vulnerable to the NKR development: 1) households and/or people losing housing, land, or both, during resettlement; 2) those who have less/no education or no skills to participate in non-farming activities; and, 3) the disabled; and 4) the aged without any child to look after them, or the aged whose children have left them either because of marriage or rural-urban migration.

277. Mitigation. Mitigation measures for people that will incur losses as a direct result of the construction will include providing opportunities of employment during construction and in commercial centers in the vicinity of the railway stations. Monitoring their adjustment will be carried out under the resettlement plan, and will also be integrated into the monitoring program for the socioeconomic and poverty impact. The disabled and chronically infirmed persons can become project beneficiaries through increased employment opportunities (themselves or their family members), and improved access to social infrastructure, including medical services.

7. Safety and Public Health

278. Impacts. Since GZAR and Yunnan are two provinces in China with a high incidence of HIV/AIDS, the HIV/AIDS and other communicable diseases may lead to more cases as a result of improved access to other areas as well as by the construction workforce that temporarily moves into the Project Area.

279. As far as safety is concerned, tunneling is one of the potential issues. Hazards related to the construction of tunnels include: gas intrusions (methane, carbon dioxide, hydrogen sulfide, etc.) and related risk of explosions and fires, high noise levels, dust potentially causing silicosis, explosion fumes, and emissions from diesel engines.

280. Mitigation. Local health officials in conjunction with the Project railway will have to develop appropriate strategies to minimize the risks posed by HIV/AIDS and other communicable diseases as well as by the possible introduction of human traffickers into the Project Area.

281. Safety measures during tunnel construction include (i) good ventilation and gas detectors, (ii) equipment with dust suction, water spraying, blasting operation using small charges, particle filters for diesel engines, and (iii) availability of safety containers.

8. Cultural, Historical, and Archaeological Sites

282. Impacts. There are a number of archeological sites identified along the alignment (Nanning – Baise section) that can potentially be affected by the Project.

283. Mitigation. At the Feasibility Study stage and during alignment staking, archeologists should be involved in the decision-making process. The relevant maps showing location of archeological sites and the alignment should be prepared. To mitigate against damaging sites unexpectedly encountered during construction, an action plan will be developed and construction workers will be trained to implement it. If sites are identified during construction, construction will be halted to allow implementation of the action plan.

E. IMPACTS DURING OPERATION

1. Noise, Vibration and Electromagnetic Radiation

284. Impacts. Noise. The major sources of noise will be trains, stations, and marshalling yards. By using a calibrated analog model to simulate train noise based on superimposing measured noise levels from similar railway lines, the total predicted noise level has been calculated for each of the selected sites. Forty-four residential areas and one school where predicted noise levels can exceed the relevant standards were identified along the alignment. Railway line location and station site shall be selected in accordance with the general urban planning and functional zoning of environment.

285. Vibration. The potential impact during operation is damage to structures from vibrations caused by trains moving along the alignment.

286. Electormagnetic Radiation. The potential impact from electromagnetic radiation includes impairment of television reception for residents along the alignment having individually fixed antennas. This results from electromagnetic radiation generated by electricity discharges when the pantograph above the electric locomotive loses contact with the wire. Generally, this causes picture floating, doubling, and intermittent blurring. This can influence an area extending up to 50 m on both sides of the track. According to the foregoing analysis, the electromagnetic radiation generated by the train during the Project operation period will greatly reduce the receiving quality of television signals 50m within the two sides of the railway.

287. Mitigation. Noise. Noise impacts will be controlled in the following areas: at the source, along the transmission path, and near the receptor. In order to reduce noise emitted at the source (mostly wheel/rail rolling noise, propulsion noise of locomotives, etc.), techniques such as continuously welded rail, wheel and rail damping, wheels with optimized shape, etc. can be used. Mitigation along the transmission path includes protection of sensitive receptors with noise barriers (total area of 154,670m2). In addition, noise impacts near the sensitive receptors will be mitigated by installation of sound proof windows (total area 2,900m2). Monitoring of railway noise levels will be conducted near sensitive receptors. Recommendations on planning of future developments along the NKR will be submitted to local planning and construction departments to minimize noise impacts.

288. Vibration. Vibration impacts will be mitigated by means of the following measures: (i) to avoid potential damage to buildings located in the immediate proximity to the alignment due to vibration, they should be investigated before railway operation; (ii) regular maintenance of the railway to prevent additional vibration; (iii) recommendations on planning of future developments along the NKR will be submitted to local planning and construction departments to minimize vibration impacts; sensitive receptors should not be constructed within the area where vibration exceed the levels stipulated in Vibration in Urban Area Environment Standard (GB10070-88); and (iv) monitoring of railway vibration levels will be conducted near sensitive receptors.

289. EM Radiation. Electromagnetic radiation impacts will be mitigated by means of the following measures: (i) reasonable improvements of overhead contact system, (ii) TV users still using antenna can use antenna with accurate directivity or high-gain antenna to improve the signal/noise ratio and the quality, (iii) residents having closed circuit televisions in the key sensitive spot can be connected with the internet, which will solve electromagnetic disturbance and car body reflection and shielding generated when a train passes, and (iv) after the opening of the railway line, connecting with the closed circuit television network or other reasonable compensation measures should be taken according to the actual measurement of the affected sensitive spot.

2. Specially Protected Areas

290. Impacts. No protected areas are located within the potential direct impact area and no direct impacts to such protected natural territories are anticipated. Potential indirect impacts are assessed as follows:

 Liang Feng Jiang National Forest Park. The alignment will pass at a distance of 80 m of the park boundary. No direct impact to the park is expected;  Dawangling Nature Reserve. The alignment will pass through the buffer zone of the reserve by means of tunnels. Entries and exits of the tunnels are located outside the impact area. No direct impacts to the reserve is expected;  Chengbi Lake Nature Reserve. The alignment will pass through experimental zone of the reserve in parallel to the existing NKR line. Temporary impacts are expected during construction stage of the Project only. Potential indirect impacts are due to development of tourism. According to the nature reserve administration the current amount of tourists to the reserve is estimated at 100,000 per year (the majority are local ones) and the assessment of potential capacity is 200,000 tourists/year. The tourist season is from May – October. Potential increases in the numbers of tourists are expected to be modest, however, even under the most optimistic scenario, and considered to be within the environmental management capacity of the administration.  Babao Nature Reserve. The current number of tourists in the reserve amounts to 50,000. Potential increases in the numbers are expected to be within the environmental management capacity of the administration.  Mile county natural protection zone. The alignment will run through the the protection zone by means of tunnel. Some impacts to the protection area are expected in the construction stage;  Shi Ling Geopark (Stone Forest). The alignment will pass at the distance of more than 1.5 km from the geopark. No direct impacts to the Stone Forest are expected. The current amount of tourists to the reserve is about 2,600,000 (of which, 8-10% are foreign tourists). Shi Ling is located in close vicinity to Kunming and there are motorways linking them. Therefore, the NKR will not cause a substantial increase in number of tourists. 291. Mitigation. While for specially protected areas located close to big cities such as the Chengbi Lake Nature Reserve (Baise) and the Shi Ling Geopark (Kunming), no problems are expected with managing increased number of tourists. Consideration of complementary programs for protection and rational, sustainable exploitation is recommended for smaller protected areas located along the alignment such as Babao Nature Reserve, Puzhehei Nature Reserve, Tuoniang River Nature Reserve and others.

F. PUBLIC CONSULTATION AND INFORMATION DISCLOSURE

292. Pre-EIA Public Meetings. A series of environmentally focused public consultation meetings were held with stakeholders, including officials and affected people, between 7 January and 12 January 2009, and between 22 February and 27 February 2009 and prior to completing the draft EIA. These meetings targeted rural areas and towns affected by the Project. During the meetings, discussions took place on a range of issues connected with the project activities. Meetings were held in 11 locations, including Nanning City, Baise City, Tiandong County, Guannang County, Alubai Village of Quibei County, Quibei County, Mile County, Shilin County, and Kunming City. Some meetings were followed by field trips to environmentally sensitive areas, specifically Class 1 Water

Protection Areas in Nanning and Baise, Chengbi Lake Nature Reserve, Babao Nature Reserve, Puzhehei Scenic Spot, and Stone Forest Geopark. The summary of comments received during the consultations is as follows:

 The NKR is critical for the economic development of the area, especially in the Baise – Kunming section (Guangnan, Quibei, and Mile) where it will lead to increased investment and economic activity.  Development of tourism has been limited by the lack of transport capacity; this industry is expected to grow if the Project is implemented (especially in the Baise – Mile section as reported by all counties along the alignment).  The alignment will not have any direct impact on specially protected areas, and wildlife (all the counties along the road corridor).  The construction may affect trees and vegetation, however the trees are nearly all secondary growth and of lower value (reported by counties in the Baise – Kunming section).  Some comments were made on location of stations, specifically in Guangnan where the local population and administration proposed that the location of the station is moved closer to Guangnan. (Guangnan).  Noise, vibration and EM fields related to the NKR are expected to have impacts on local population, however, benefits generated by the railroad are much more important (as reported in Quibei).  In Nanning, the alignment may pass in the vicinity to a Class 1 Drinking Water Source Protection Area; in other locations the NKR does not traverse any Class 1 drinking water source protected areas (as reported by other counties along the alignment. 293. Post-EIA Consultations with Officials and Stakeholders. Post-EIA Consultations will be conducted after the draft EIA/SEIA will be completed, translated and handed over to local authorities for comments.

294. A summary EMP is presented in Table 5.2 below. The EA will translate the SEIA, including the summary EMP, into Chinese and provide copies to relevant parties.

VI. POVERTY AND SOCIAL ANALYSIS

A. INTRODUCTION

295. The proposed Nanning-Kunming Railway (NKR) Capacity Enhancement Project (hereafter, the Project) will be an important passenger and freight passage between the Southwest and South China, and enable access to various resources in the Southwest and services, markets and technologies in the South and Southeast of China. It will also provide access to international trade routes through the railway connections with some ASEAN countries, like Vietnam and Thailand through Pan-Asia Railway. Experience from other recent railway projects indicates that there will be significant opportunities for local communities to directly benefit from the Project through job creation, skills development, market access, poverty alleviation, and improved access to social services. Experience from other recent railway projects also indicates that these projects serve as key catalysts for the induced benefits that often exceed the direct benefits. However, for these opportunities to be optimized, substantial effort will need to be given to targeting opportunities and matching them to local populations.

Table 5.2: Outline of Environmental Management Plan Environmental Responsibilit y Mitigation Measures Location Impact/Issue Implementation Supervision A. Preconstruction phase Archeological sites  Archeologist should be involved in the process of final alignment staking; Nanning – Baise section China Railway maps of archeological sites and the alignment should be prepared Eryuan Engineering Group Flora  Survey of rare flora Mainly Baise – Kunming China Railway section Eryuan Engineering Group B. Construction phase 1. Topography and soil Disposal from excavated  Earthwork cuts will be used in embankments where possible. Throughout the project Contractor (budget EMU, WRB earthworks  Residual spoil will be placed in storage areas with containment walls. corridor at construction sites Item 1)  Residual spoil will be disposed of according to the erosion prevention plan. Loss of topsoil  Topsoil from all areas to be permanently covered shall be stripped, Throughout the project Contractor (budget EMU WRB stored, and used for revegetation works. corridor, and all borrow and Item 1)  Construction vehicles, machinery, and equipment shall move or be spoil areas stationed in designated areas. Access to adjacent agricultural land will be minimized. Damage to temporarily  All temporarily acquired land will be rehabilitated after completion of Throughout the project Contractor (budget EMU, WRB acquired agricultural construction. • corridor Item 1) land Failure to rehabilitate  All borrow pits shall be rehabilitated after use. All borrow areas Contractor (budget EMU, WRB borrow pits Item 1) Soil erosion and siltation  On embankment slopes, slopes of cuts, etc., measures to mitigate soil Along the construction Contractor (budget EMU, WRB erosion and prevent siltation will include, on a case-by-case basis, planting corridor and all construction Item 1) shrubs and grass; appropriate compaction; placement of geo-synthetics; and work sites and construction of berms, dikes, sediment basins, fiber mats, and slope drains 2. Water resources Siltation of water bodies  Measures to prevent erosion will be conducted in accordance with the Throughout the project Contractor (budget EMU, EPB erosion prevention plan and the environmental impact assessment, corridor Item 1) including construction of settling ponds. Disposal of septic waste  Maintenance workshop wastewater will be treated to PRC discharge Maintenance workshops and Contractor (budget EMU, EPB and wastewater from standards. construction camps Item 3) maintenance workshops  Where possible, wastewater will be discharged into municipal treatment into waterways systems.  Sewage systems for the construction camps shall be properly designed, built, and operated to prevent pollution of groundwater or adjacent watercourses.

Contaminated runoff  Solid hazardous and other waste shall be appropriately stored to prevent Storage areas for hazardous Contractor (budget EMU, EPB from poorly stored contaminated runoff entering adjacent waterways. materials and solid wastes Item 3) hazardous materials and (hazardous and not) solid waste 3. Air Quality Generation of dust  Water will be sprayed on construction sites and roads to minimize dust. Throughout project Budget for civil EMU, EPB  Concrete batching plants and crushing plants will be sited at least 500 corridors, all access roads, works meters from the nearest settlement and fitted with dust extraction units in sites temporarily acquired, compliance with PRC and local standards. and all borrow areas. Emissions from  Emissions will meet national emissions standards. All vehicles, Throughout the project Contractor EMU, EPB construction vehicles, equipment, and machinery used for construction shall be regularly corridor equipment, and maintained and correctly operated with dust filters or hoods. machinery 4. Noise and vibration Noise and vibrations  Blasting shall be carried out according to relevant PRC safety standards. All blasting sites (cuts, rock Contractor EMU, EPB from  Blasting schedules shall be publicly disseminated in areas where quarries, tunnels, etc.) Budget for civil blasting operations residents will be impacted by the blasting noise. works  Structures that may potentially be affected by blasting vibrations will be identified prior to blasting and monitored during blasting. Appropriate safety measures will be implemented. Noise from vehicles,  Within 200 meters of the nearest habitation, construction work such as Throughout the project Contractor EMU, EPB plant, and earthmoving crushing, concrete mixing and batching, and mechanical compaction will corridor, all access roads, Budget for civil equipment be stopped between 22:00 and 06:00 hours. sites temporarily acquired, works and all borrow areas 5. Solid waste Storage and disposal of  Domestic waste (hazardous and not) and construction waste will be Construction sites, Contractor EMU, EPB hazardous and other disposed of regularly in approved municipal disposal sites. construction camps, stations, (construction (construction), waste and hazardous  Hazardous waste and materials will be stored on-site in approved and maintenance workshops period) and IA local municipal materials facilities according to relevant standards, including secondary containment. government  Hazardous waste will be removed from sites to approved hazardous (operation) waste disposal facilities by licensed contractors. 6. Impacts on flora Loss of or damage to  All works shall be carried out in such a manner that damage or disruption Entire project site Contractor EMU, Forestry vegetation to vegetation is minimized. Trees or shrubs will be felled only if they greenbelt (budget Bureau impinge directly on the permanent works or necessary temporary works. Item 1)  A greenbelt will be developed on both sides of the railway.  Along the alignment, additional land will be seeded to grass, and intercepting drainage systems will be constructed to prevent excessive erosion.  Environmental training of construction staff will include training on (i) limitations on and penalties for cutting firewood and poaching, (ii) locations of old and protected trees, and (iii) access restrictions to the nature reserves.

7. Archeological sites Previously unidentified  Should a historical, cultural, or archaeological site be encountered during Throughout the project Contractor EMU and sites found during construction, an established action plan will be implemented. corridor Cultural Bureau construction 8. Safety Tunnel safety  Tunnels should be ventilated and equipped with gas sensors, drilling Project tunnels Contractor EMU equipment should be with dust suction, diesel engines should have particle filters, safety containers should be available 9. Social Impacts Accidents due to  No railways exist along most of the alignment, so residents are unfamiliar Throughout the project Contractor PMO unfamiliarity with with safety issues associated with railway crossings. A public education corridor railways campaign will be undertaken to minimize accidents at grade crossings and other locations. All road crossings will be grade-separated to increase public safety. C. Operational phase Wastewater disposal  Wastewater will be treated to appropriate PRC discharge standards. Maintenance workshops and IA EPB from maintenance  All wastewater will be directed to municipal treatment, where possible. stations (budget Item 3) facilities and stations Noise from operation of  Noise control measures will be installed at noise-sensitive points on At identified noise-sensitive IA (budget Item 2) EPB the railway either side of the tracks. sites  Sound-absorbing barriers and sound-insulating windows will be installed in noise-sensitive communities, where appropriate.  Monitoring will be conducted during the operational phase to confirm modeling results. Electromagnetic  Affected residents will be provided compensation to obtaining cable or Residential areas IA EPB radiation impact on satellite television. television reception  Overhead catenary system will be well maintained to minimize impact. EMU = environmental management unit, EPB = environmental protection bureau, IA = implementing agency, PRC = People’s Republic of China, WRB = Water Resources Bureau. Source: Compiled by the PPTA Consultant and based on Second Survey and Design Institute, Pre-Feasibility Study Environmental Impact Assessment Report, October 2008.

EPB Environmental Protection Bureaus at county level EPMO Environment Protection and Management Office (part of Joint Venture Company) PMO Project Management Office WRB Water Resources Bureau (at county level)

B. MAIN CHARACTERISTICS OF THE PROJECT IMPACT AREA

296. For the purpose of the PSA, the project area (PA) is defined as the prefectures, counties or districts and townships or villages through which the 745.747 km-long rail alignment that traverses two provinces. The PA includes two provincial capital cities (Nanning and Kunming) and three prefectures (Baise in Guangxi Province, and Wenshan Zhuang & Miao Autonomous Prefecture, and Honghe Hani & Yi Autonomous Prefecture in Yunnan Province). The Project Impact Area (PIA) is defined as the counties and districts that the rail alignment traverses. The PIA includes 9 counties and 5 districts, 111 townships /towns and 1308 village committees/neighborhood committees. The PIA had a total population of 6.297 million in 2007. The total GDP of the PIA was 114.3 billion CY (2007), 4.64% of the national GDP. The GDP per capita in the PIA was 10,774 CY which is 52.6% of the national average. The urban disposable income per capita in the PIA was 10,892 CY, 79% of the national average. The rural net income per capita was 2,835 CY, 68.48% of the national average. Such figure, however, obscures the fact that the districts in Nanning and Kunming have much higher GDP per capita.

297. The total rural population in PIA is about 75.73% and about 30% live below the poverty line24. Most of the population is employed in the agriculture sector characterized by a low level of productivity. Despite the area’s rich natural resources and good tourism potential, the population has remained largely poor and cut off from mainstream development. Lack of transportation is one of the main reasons.

298. NKR will have an impact on land and production of the following cities/prefectures: Nanning, Baise, Honghe Hani and Yi Autonomous Prefecture, Wenshan Zhuang and Miao Autonomous Prefecture and Kunming. Basic situation in these regions, counties and cities will be elaborated as follows.

299. Nanning: The total land area of Nanning is 2.21 million ha. It governs 12 districts and counties, 123 townships/towns/sub-district offices. Among them 3 are nationality towns (ethnic minority autonomous towns). The city had a total population of 6.83 million (2007), of which 73.61% was agricultural population. Its GDP per capita was 15,759 CY, which is 126.34% of the national GDP per capita (13,786 CY) and 127% of that in Guangxi Zhuang Autonomous Region (GZAR) (12,408 CY). The rural net income per capita was 3461.8 CY in 2007, which is 89.67% of that in Guangxi (3,224 CY) and 69.83% of that the national figure (4,140 CY)

300. Baise: The city covers a total area of 3.62 million ha. The city has a total population of 3.788 million, of which 87.43% is agricultural population. It has seven ethnic minorities such as Zhuang, Yao, Miao, Hui, Yi, Gelao, Mulao etc. Among them, Zhuang accounts for about 80% of the total population, while Yao, Miao, Hui, Yi and Gelao account for about 6% of the total population. Baise governs 12 counties/districts among which 10 are listed as national poverty counties and one ethnic minority autonomous county. The total number of townships/towns/ sub-district offices reaches 135 among which 13 are nationality towns. Its GDP per capita is 7,900 CY, which is 70.95% of the national figure and78.83% of that in Guangxi. The rural net income per capita was 2,926.6 CY in 2007, which is 90.78% of that in Guangxi and 83.62% of the national figure

301. Honghe Hani and Yi Autonomous Prefecture: Honghe Hani and Yi Autonomous Prefecture is located in southeast Yunnan. It is adjacent to the Socialist Republic of Vietnam with a border of 848km. On the 3.2181 million ha red-soil land, there are continuous mountains and deep

24 The rural poverty line is per capita net income 1,067 CNY for 2007

81 valleys with complex landforms and great altitude differences. The mountainous area accounts for 85% of the total land area of the prefecture. The prefecture governs 13 cities and counties such as Gejiu, Kaiyuan, Mengzi, Jianshui, Shiping, Luxi, Mile, Pingbian, Hekou, Jinping, Yuanyang, Honghe and Lvchun, as well as 130 townships/towns/ sub-district offices among which 6 are nationality towns. It has a total population of 4.373 million, of which 82.27% is agricultural population. There are 10 native nationalities such as Hani, Yi, Miao, Yao, Dai, Zhuang, Lagu, Buyi, Hui, Han, etc. The population of ethnic minorities accounts for 54.7% of the total population. Its GDP per capita is 8,744 CY, which is 63.43% of that the national and 83.68% of that in Yunnan (10,450 CY). The rural net income per capita was 2,528 CY in 2007, which is 95.98% of that in Yunnan (2634 CY) and 61.06% of that the national

302. Wenshan Zhuang and Miao Autonomous Prefecture：It governs 8 counties which are Wenshan, Yanshan, Xichou, Malipo, Maguan, Qiubei, Guangnan and Funing, as well as 82 townships (towns), 16 of which are nationality towns. The prefecture covers a total land area of 3.1405 million ha. Three counties Malipo, Maguan and Funing border the Socialist Republic of Vietnam with a border of 438km.The prefecture had a total population of 3.41 million at the end of 2007, an increase of 22,613 over 2006. The agricultural population is 3.054 million (90.1%) and the population of ethnic minorities is 1.91 million which account for 56.7% of the total population. Specific population of ethnic minorities: Zhuang 1.009 million; Miao 0.43 million; Yi 0.33 million; Yao 0.0834 million; Hui 23,749; Dai 15,376; Bai 7,510; Buyi 6,637; Mongolia 4,235; Gelao 1,726. Natural growth rate of population in the prefecture is controlled at the level of 8.47‰. Its GDP per capita is 5,108 CY, which is 49% of that in Yunnan and 37.05% of the national. The rural net income per capita was 1,704 CY in 2007, which is 64.69% of that in Yunnan and 41.16% of that the national average.

303. Kunming: As one of the central cities in the southwest, Kunming is the nationally famous historical and cultural city located at the border of southwest China and the center of Yunnan- Guizhou Plateau. The city covers a total area of 2.1012 million ha. It governs 5 districts, which are Wuhua, Panlong, Guandu, Xishan and Dongchuan, as well as 8 counties which are Anning, Chenggong, Jinning, Fumin, Yiliang, Shilin, Songming, Luquan and Xundian. It has a total population of 6.19 million, of which 65.29% is agricultural population. It has 26 native nationalities such as Han, Hui, Yi, Bai, Miao, etc. The population of ethnic minorities is 0.8349 million, which account for 13.7% of the total population. Its GDP per capita is 19,663 CY which is 188.16% of Yunnan and 142.63% of that the national. The rural net income per capita was 4,003 CY in 2007, which is 151.97% of that in Yunnan and 96.69% of that the national average.

304. Poverty Analysis and Vulnerable Groups

305. Overall, the PIA along the alignment has the following features: revolution base in history, international border area, rocky and hilly mountains, dense poverty, ethnic minorities, and environmentally vulnerable places. The primary causes of poverty in the PIA include:

 Severe natural conditions since many of the project areas are located in the rocky mountain and hilly areas classified into the Karst areas and in the marginalized, remote, and frontier areas;  Low intensity agriculture and low levels of production as a result of inadequate irrigation water, small areas of productive land, and poor soil quality;  Natural disasters that include periodic droughts, floods, soil erosion, loss of arable land, all of which produce extreme weather conditions that are destructive to agricultural production and rural incomes;  Undeveloped infrastructure in many isolated villages in the PIA means lack of access to highways, electricity, safe drinking water, and communication and

information exchange. In addition, many of these areas are considerable distance from key social services;  Low levels of economic development that do not provide an environment for job creation or diverse industry, limited industrial production and trade in goods and services is further constrained by lack of transport to larger markets. Livelihoods are restricted to farming or migratory labor in isolated rural areas;  As a direct consequence of above, households are largely dependent on an income source (such as agriculture) which is vulnerable to both natural calamities (and weather) and market fluctuations;  Low levels of education and skills further forcing dependence on unskilled work and agriculture;  Limited technology and access to information caused by isolation means that farming households may not be aware of or able to implement practices that could increase yield and improve productivity;  Many households are still highly geared toward subsistence and lack the ability to accumulate produce or savings which can act as a buffer in times of economic hardship or calamity;  Households with members that experience health problems or are disabled or chronically infirm which means that in addition to incurring higher health-care and medical expenses these households have fewer productive or income earning members. 306. Of the 9,584 villages in the PIA, 3,931 are designated as poverty villages. There is considerable poverty in the cities and prefectures along the alignment, and poverty levels are higher towards the central areas of the alignment without railway links. Toward the central areas of the alignment, the poverty incidence increases significantly from 23.52% in Baise, to 41.89% in Wenshan, 30.10% in Honghe. Baise prefecture in Guangxi has 12 counties and district, 10 are nationally designated poverty counties, and 2 are provincially designated poverty counties/Districts. Baise has 1,015 national designated poverty villages, accounting for 56.3% of the total administrative villages in Baise. The alignment will pass through Long’an County from Nanning City, Tiandong, Tianyang, and Pingguo Counties and Youjiang District from Baise, of which, three counties (Long’an, Tiandong, and Pingguo) are nationally designated poverty counties, two (Tianyang and Youjiang) are the provincially designated poverty counties. Of the 8 counties in Wenshan, all are nationally designated poverty counties. Three counties, Funing, Guangnan, and Qiubei are along the alignment. At the end of 2007, Wenshan had 1.32 million poverty populations, accounting for 41.89% of the total rural population in the prefecture. Honghe Hani and Yi Autonomous Prefecture governs 13 cities and counties and six counties are nationally designated poverty counties.

Table 6.1: Poverty Incidence in Cities and Prefectures along the Alignment GXZAR Yunnan Total the Socioeconomic Indicators Nanning Baise Wenshan Honghe Kunming PA

Year-end Population 10,000 683.51 385.89 340.85 437.30 619.33 2,466.88 Including Rural Population 10,000 497.56 337.39 314.98 344.69 366.02 1,860.64 People in Rural Poverty 10,000 26.30 79.36 131.96 103.74 44.14 385.50 Rural Poverty Incidence % 5.29 23.52 41.89 30.10 12.06 20.72 Number of Villages (AV) No. 1,394 1,807 903 1,176 1,304 6,584 Number of Poverty Villages (AV) No. 317 1015 921 967 711 3,931 Villages without Highway No. 235 322 0 2 47 606 Access (AV)* Villages without Electricity (AV) No. 0 0 0 4 0 4 Villages without Phone (AV) No. 8 25 11 49 18 111 No. of people who have 10,000 69.48 30.36 70.07 70.99 58.45 299.35 unsecured H2O GDP per capita CNY 15,759 9,781 5,121 8,744 19,663 Rural Net Income per capita CNY 2,891 2,460 1,704 2,528 4,003 AV: administrative villages Sources: Local Poverty Alleviation Offices The poverty line (2007) for absolute poverty is 785 CNY (per capita annual net income) for relative poverty is 1,067 CNY, the poverty data in the table includes both types of poverty

307. Of the 14 counties/districts in PIA, 6 are nationally designated poverty counties and 2 are the provincially designated poverty counties Table 5.4.1 shows the poverty situation in PIA area, which follows the same trend as the project area. The overall rural poverty incidence in PIA is 30.45%. Of the total 1,363 administrative villages in PIA, 882 (65%) are the designated poverty villages. In GXZAR section, the poverty incidence ranged from 11.06% in Long’an County (Nanning City) to 21.88% in Tiandong County (Baise City). In Yunnan section, of note that the three counties in Wenshan Prefecture have the high poverty incidence: Funing (48.7%), Guangnan (48.56%), and Qiubei (66.64%).

308. The PPTA household socio-economic surveys and village surveys were applied to 751 rural households and 25 administrative villages along NKR. The designation of poverty households is determined by local officials and the village leaders. Of the surveyed households, 37.4% respondents responded that they are the designated poverty households.

309. This section provides some information on the characteristics of households living in poverty in the PIA based on the survey data and information gained during consultation visits with households.

Table 6.2: Poverty in the Project Impact Area (PIA) (2007) Yunnan

Nanning Baise Wenshan Honghe Kunming Socioeconomic Indicators Unit Total PIA

Long'an Pingguo Tiandong Tianyang Youjiang Funing Guangnan Qiubei Mile Shilin

Year-end Population 10,000 38.43 47.70 40.63 33.59 33.70 39.52 76.58 46.13 51.15 23.69 431.12 Including Rural Population 10,000 34.36 41.35 34.69 29.40 21.80 37.35 74.09 43.59 44.93 21.06 382.62 People in Rural Poverty 10,000 3.80 6.42 7.59 4.51 3.77 18.19 35.98 29.05 5.04 2.15 116.50 Rural Poverty Incidence % 11.06 15.53 21.88 15.34 17.29 48.70 48.56 66.64 11.22 10.21 30.45 Number of Villages (AV) No. 142 181 167 106 120 145 174 99 137 92 1,363

Number of Poverty Villages (AV) No. 77 96 95 50 38 141 174 99 87 25 882

Number of Natural Villages (NV) No. 1234 1795 1450 1415 857 2730 2714 1260 1025 387 14,867 Number of Poverty Villages (NV) No. 515 961 867 578 313 2549 2306 1107 560 195 9,951 Villages without Highway Access (AV) No. 1 56 6 93 38 0 0 0 0 18 212 Villages without Road Access (NV) No. 32 574 371 162 139 429 527 156 0 0 2,390

Villages without Electricity (AV) No. 0 0 0 0 0 0 0 0 0 0 0 Villages without Electricity (NV) No. 39 92 41 25 38 294 375 0 0 30 934 Villages without Phone (AV) No. 0 4 0 0 2 0 11 0 0 10 27 No. of people who have unsecured 10,000 1.91 8.61 10.82 5.19 3.78 9.49 18.8 11.3 2.49 2.8 75 H2O GDP per capita CNY 6,940 15,043 8,644 11,406 25,797 5,918 3,513 3,657 17,329 8,022 Rural Net Income per capita CNY 3,462 2,931 2,884 2,464 3,372 1,694 1,515 1,647 2,690 3,708 AV: administrative villages, NV: natural villages Sources: local poverty alleviation and development offices The poverty line (2007) for absolute poverty is 785 CNY (per capita annual net income), for relative poverty is 1,067 CNY , the poverty data in the table includes both types of poverty Note: In GXZAR, the road access means the grade IV road; In Yunnan, many of the road standard is under classification

310. Table 6.2 indicates the income sources by different groups of farmer households. It shows that the income from agriculture, animal husbandry, and household business are the main income sources for local farmers. For the poverty households with per capita net income lower than 1,067 CY, 58.5% of the income is from agriculture, and 16.2% from animal husbandry, 4.3 % is from local wages and 3% was sent by family members who are working outside. For the wealthy groups with per capita net income over 5,000 CY, the income from agriculture was reduced to 42.4%, and the income from local wages increased to 14.6%, and the money sent by family members who are working outside is 6%. Therefore, the better off households have less dependence on agriculture and more income from wages.

Table 6.2: Number of Household Income Sources by Income Group

Households in per capita income group (percent) No. of income sources 1068- <1067 2001-3000 3001-5000 >5000 2000 1 Income from 58.5 53 55.3 52.6 42.4 agricultural products 2 Income from forest 3.2 4 5.4 6.2 5.7 products 3 Income from animal 16.2 13.4 11.9 12.9 9.8 husbandry 4 Income from fishery 0.2 1 0.5 0.5 0.5 5 Income from other household business 14.6 18 16.1 15.9 21 operations 6 Income from local 4.3 5 4.5 7.4 14.6 wages 7 Money sent by HH members living 3 5.6 6.3 4.5 6 outside the village Source: PPTA Household Socio-Economic Survey (January 2009)

311. Since the mid 1980s the Government has introduced several specific programs aimed at reduction of poverty, these efforts were coordinated by the State Council’s Leading Group Office of Poverty Alleviation and Development (LGOPAD). During the 1980s such programs included the National Development and Reform Commission’s (NDRC) Food-for-Work (FFW) program that supported community-led efforts for irrigation, terracing, and other capital construction works, and the Poverty Reduction Fund which financed agricultural production and other income-generating activities through two primary means (1) Central Financial Poverty Reduction Fund which goes to each designated poverty county through the Ministry of Finance’s fiscal disbursement system, and local governments decide its use. (2) Central Credit Poverty Reduction Fund which provides low interest loans in national poverty counties, and is disbursed through the Agricultural Bank of China. This fund primarily supports investment in township and village enterprises (TVEs) and micro- financing for rural households.

1. Poverty Reduction for Women

The Government also pays attention to issues associated with poverty of rural women. Many national poverty reduction programs require the All China Women’s Federation (ACWF) to organize and mobilize women in poverty-stricken areas to fight against poverty. For example, many of the micro-credit programs are operated by local Women’s Federation to distribute the loans to the poor women to develop income-generating activities.

2. Poverty Reduction for Ethnic Minorities

312. Among the 592 impoverished counties designated as key recipients of state aid 267 (45 percent) are located in ethnic autonomous areas. The Outline Program for Poverty Alleviation and Development in Rural Areas of China, which commenced in 2001, also recognized ethnic minority areas as key targets for assistance. Tibet, as a whole, has been included as a target for key poverty alleviation and development. In 1990 the Government established the Food and Clothing Fund for Impoverished Ethnic Minority Areas, and this was followed in 1992 by Fund for Ethnic Minorities Development, which is mainly used to deal with the special difficulties encountered in development of ethnic autonomous areas which are often in mountainous and remote areas.

3. Poverty Reduction for the Disabled

313. The disabled represent a small, but significant proportion of the total poor population. Poverty reduction for the disabled is seen as a key part of the overall poverty reduction effort. In 1998, the Government developed the Poverty Reduction Program for the Disabled (1998-2000) which included a series of policies and measures such as a Poverty Reduction Loan for Recovery of the Disabled (to the value of CY 800 million in 2000) to help the disabled with food and clothing.

4. Prefecture Poverty Alleviation Programs

314. Each of the prefectures, under the overall coordination of LGOPAD, has a range of poverty alleviation measures most of which are articulated in the prefecture socio-economic development plans and FYPs. The programs include longer term measures such as relocation of households and villages from remote and mountainous areas to more urban locations as well as more immediate measures such as training and job placement programs and the provision of social subsidies and allowances to, and exemption for school fees for, poverty households, as well as improving the local infrastructure.

i Nanning City

315. From 2006-2010, the main tasks of poverty reduction in Nanning include: 95% of the povety populations can meet their basic needs, 93% of the natural villages have access to roads, over 60% of households in poverty villages have at least one migrated labor per household, the dropout rate for primary school is under 2%, over 80% of rural labors in poverty houselds received the technical and management training, 30% of poverty households installed the biogas system. Other infrastructures such as telephones, TV and broadcast, and drinking water facilities for human beings and animals will be also improved. Each year, Nanning Poverty Office plans to get 15 million CY of micro-credit from the central government and supports 2,500 poverty households to develop income-generation activities.

ii Baise City

316. During 2006-2010, Baise will reallocate 125,453 persons (26,722 households) from the remote and isolated areas to areas with better living conditions. Baise will also provide technical training of 125,000 person times, and transfer 25,000 labors in poverty households to off-farm employment. Baise will build up 2,800 km township and village class IV road, 10,425 km road to sub-villages, construct 6,100 drinking water tanks for human beings and animals, construct 50,000 biogas facilities. In terms of income generation activities, Baise will support the poor households to develop the following six economic crops: tobacco, tea, silkworm, prickly ash, sisal, and herbs. In addition, Baise will help the poverty households to raise goats, cattle, pigs, rabbits, and poultry.

317. Affected by the global financial crisis, many of the migration labors lost their jobs in Guangdong Province which relies on the export industries. When the consultant interviewed the farmers in villages, the consultant met many migration labrs returned home early due to the loss of jobs or the lowered payment. They are wondering where to find jobs after the spring festival. These migration farmers expressed their wishes to find employment from local areas so that they won’t need to leave their home. To cope with this situation, Baise poverty reduction office launched the programs to help the migration labors find the employment through providing training, job information, and job opportunities. For example, Pingguo county has helped 1,386 returned migrants find jobs in local enterprise specializing in aluminium materials, electronic mechanism, clothes, dining, and other services. Pingguo county government also allocated 7 million CNY of fiscal fund to support the returned migrants to develop featured agricultural products and animal husbandry. By the end of 2008, Youjiang District has had over 6,000 returned migrants. Youjiang also launched various programs to help the migrants find jobs. Under the coordination of Youjiang government, the Longlin-Baise expressway (funded by ADB) which is currently under construction has agreed to hire 200 returned migrants.

iii Wenshan Prefecture

318. As one of the approaches to poverty reduction, Wenshan Prefecture helps the poor households develop economic forest and crops, and animal husbandry. The main crops and forests include aniseed, walnut, tea, and yew. The animals mainly include pigs, cattle, and poultry. Wenshan Prefecture also invests in infrastructure improvement in road, irrigation, arable land, communication, broadcast, and TV. Training of rural labors is also one of the key approaches to poverty reduction. Wenshan Poverty Alleviation Office, worked together with Labor and Social Security Bureau, Agricultural Bureau, Education Bureau, Industry and Commercial Bureau to train the rural labors and the target is to transfer at least one labor from one poverty household. Wenshan also targets its poverty reduction and efforts in the minority and frontier villages.

iv Honghe Prefecture

319. In 2009, Honghe Prefecture Poverty Alleviation Office plans to solve the basic needs and increase the income of 70,000 poverty populations, complete the “whole village advancement program” in 1,000 poverty villages, resettle 3,300 poverty populations to better off areas, and distributed 250 million CNY of poverty reduction loans. Honghe Prefecture will select 100 farmers models for becoming better off and 100 farmer dealers and provide various training and study tour programs to them, so that these farmers can take the leading roles in poverty reduction and have the demonstration effects on other farmers.

320. Mile County Poverty Reduction Office of Honghe planned to distribute 200 million CNY loans with subsidized interest (10 million CY) during 2009-2013 to develop labor-intensive enterprises, agro-processing enterprises, marketing and sales enterprises, basic infrastructures, and help the poverty households to develop animal husbandry and plant economic crops and trees. Training and promoting the transfer of rural labors to off-farm employment is also one of the key approaches to poverty reduction. In 2009, Mile County plans to train16,000 person times of rural labors in poverty villages, and help these labors find migration jobs. Mile County also put efforts on agricultural extension work and help the poverty households master the agricultural technologies. There is also a program to relocate people from remote areas and high mountainous regions. However, this program is limited to those people who, if relocated, do not have the means to support themselves in urban areas or have different traditions or customs. Other approach includes trying every effort to get the support from other institutions which built up the partnership with Mile in poverty reduction.

v Kunming City

321. The main targets for poverty reduction in Kunming City during 2006-2010 includes: 100% natural villages (over 25 households) have access to electricity, 100% administrative villages have access to highways, 100% rural households installed energy-saving kitchen, 60% rural households in suitable area installed biogas facilities, 96% of villages are covered by broadcast and TV network. In average, per person has 1 mu of reliable arable land, each household has 1-2 reliable income- generating activities, at least 1 mu economic trees, 1 migrated labor, 1 head of animal for sales, and everyone has access to the cooperative medical care. During 2006-2010, Kunming plans to train 150,000 rural labors from poverty areas and transfer 120,000 labors to non-farm employment, and resettle 5,000 poverty populations from the remote and isolated areas which are not viable for human living.

322. In 2009, Shilin County in Kunming City gets 14 million CY micro-credit, of which, 7.25 million CY will be allocated to township Women’s Federation for them to distribute the fund to rural women to plant crops and raise animals. In 2008, Shilin Poverty Office cooperated with County Women’s Federation to provide training to 60 rural women in Yusheng Village on embroidering, helped these women signed the work contract with the County Embroidering Association.

C. GENDER ISSUES

323. The following recommendations are made to ensure that women fully benefit from the construction of NKR and that risks or adverse impacts on women be mitigated:

324. Female heads of household (particularly those whose husband died, disabled or sick) will receive priority treatment in obtaining suitable unskilled jobs, and skilled jobs if they are qualified, during the construction. The target of 25 percent should be included in the construction contracts;

325. Female heads of poor households should receive assistance with school fees to enable their children to remain in school while at the same time freeing women to seek employment. The ACWF’s Spring Bud program provides tuition for girls, who would otherwise drop out of school due to lack of tuition fees and related expenses. ACWF should ensure that this goal is achieved through their resources or drawing in local government or other NGOs;

326. Women should be encouraged to seek jobs in restaurants, cafes, and hotels that accommodate the demands of the work camps as well as jobs such as selling food and providing services (such as laundry) and basic supplies to the work crews. As most of these jobs are flexible in their timing they will allow women to earn money while caring for children and elder relatives;

327. Women should be provided information on how to apply for small loans and receive counseling and training to set up businesses that serve the construction sites during the construction phase and in the railway stations for the operation phase. ACWF has some micro-finance loans and provides a business mentor program for women entering business. The Poverty Alleviation Offices also have a credit program that may be used or county governments can set up specific loans that support the poverty alleviation sustainability program as well as women;

328. The NKR Company should be encouraged by MOR to hire at least 25 percent women for operations and provide training as required;

329. Women will be provided the full opportunity to generate sustainable incomes so that businesses formed by women are transitioned for the long-term and income generated is turned into sustainable assets for poor or vulnerable households;

330. Women, along with other community representatives, will be involved in the design of the stations and set aside special areas for sale of handicrafts, food and other items. ACWF or Poverty

Alleviation Office loans or credit can assist female entrepreneurs to set up small businesses in the station or area adjoining it. Local governments will be encouraged to fully involve women and other vulnerable groups in the planning process for development around the station, so that opportunities are generated for both men and women, poor and non-poor;

331. Women will be encouraged to be actively involved in tourism, as this is a sector that opens up many opportunities for women (such as singing, dancing, embroidery, weaving, handicrafts-making, family-hotels, home-stay, tea-serving etc. ; and

332. Women farmers will be encouraged to participate in the TA assessing the needs of farmer associations, establishing new farmer associations or expanding existing ones, and female farmers will be encouraged to seek agricultural extension and training opportunities.

333. Women will also be targeted by the human trafficking component of the awareness and prevention program. The efforts of the project to provide sustainable income sources that are an alternative to migration will assist in protecting local communities and women in particular from trafficking; and

D. RISK OF TRAFFICKING ASSOCIATED WITH THE PROJECT

334. There are two factors contributing to a risk of human trafficking. The first factor is the population shift from rural to urban areas, where societal norms are in transition, and uncertainty about economic opportunity can destabilize individuals in the community. In the PIA, according to the survey, approximately a fifth of the workforce migrates on a temporary or seasonal basis, particularly in Baise and Wenshan. Young men and women (mostly before marriages) from these areas go to work in Guangdong, Shenzhen, Zhejiang, JIangshu, Shanghai etc.

335. The risks of HIV or STI are greater for migrants, this is exacerbated for migrant women who either voluntarily engage, or are forced into, in sex work.

336. The second factor is the “push” of poverty which is a major determinant in trafficking whereby the children of poor households are indentured, and often forced to work and live in the most terrible conditions.

337. The ADB’s anti-trafficking Sector Guidelines 25 note that any measures that bring greater economic opportunities to rural communities can reduce vulnerabilities to trafficking, and particularly projects that broadly support the agricultural sector have the potential to target the poor and vulnerable and seek to increase access to productive resources by those most marginalized.

338. Mitigating the risk of trafficking, especially during the construction phase of the project when there will be thousands of people brought into and migrating around the PIA, include:

 Assessment of how project activities could affect migration patterns and provide opportunities for traffickers to become active in the PIA.  The incorporation of awareness messages into project components already addressing community impact issues, and codes of conduct for construction workers. For example, raising concerns about CSWs and child prostitution can also be a means to address some trafficking issues and awareness messages for CSWs and construction workers can be combined with anti-trafficking and

25 ADB; Combating Trafficking of Women and Children in South Asia; Guide for Integrating Trafficking Concerns into ADB Operations (2003) includes guidelines for the various sectors in the Appendices.

safe migration messages because migrant construction workers are a high-risk group for STIs and HIV/AIDS and CSWs can be at risk from being trafficked.

E. STATUS OF HIV/AIDS IN PROJECT AREA

339. Since 1985 when the first case of HIV was identified, the number of HIV/AIDS patients has increased in China. By September 30, 2008, 264,302 HIV/AIDS patients were reported. It was estimated that the actual number of infection probably reached about 0.7 million, among which 0.44 million people do not know that they are infected. 26 According to recent United Nations Joint Program on AIDS (UNAIDS) estimates, between 800,000 and 1.5 million Chinese are infected with HIV.27 Among these cases, 63,322 HIV-infected cases and 7,015 AIDS deaths are from Yunnan Province (about 1/4 of the national total). Wenshan and Kunming in the NKR project area are among the 5 prefectures/cities which are most serious in HIV/AIDS infections.

340. Yunnan Bureau of HIV/AIDS Prevention announced on November 26, 2008 that by September 30, 2008, 63,322 cases of HIV/AIDS had been reported (1/4 of the national total). Among them 9,752 were AIDS patients and 7,015 died. In the past 19 years, HIV/AIDS cases had been reported in 129 counties. Yunnan has the highest number of HIV/AIDS infections and Xinjiang, Guangxi, Guangdong and Sichuan come the second.

341. The HIV/AIDS infection among ethnic minority people is becoming more serious. Ethnic minorities account for 8% of the total population of China. But among the registered HIV infected persons, 36% are from ethnic minorities. Dehong, Xishuangbanna in Yunnan, Liangshan in Sichuan are the main focus of AIDS prevention effort.28 44.3% of these infected persons are drug users, and more than 50% are from Xinjiang, Yunnan and Sichuan. Sexual transmission of HIV/AIDS is increasing dramatically. In 1997, the ratio is 5.5%. In early 2003, it reached 10.9% and by 2005, it reached 49.8%. In 2008, man-man sex transmission is becoming a new source of transmission. Evidence shows that HIV/AIDS infections among ethnic minority people are becoming a serious problem

342. To date, the epidemic is concentrated in several provinces and predominantly affects marginalized population groups. At least three different HIV epidemics are now known to occur in China: (i) an epidemic among injection drug users (IDUs), concentrated until recently in western and southern China and related to the sharing of needles and syringes by IDUs. On the alignment, Tiandong, Tianyang, Baise are particularly high-risk areas; (ii) a heterosexual epidemic apparently at least partly related to HIV transmission to and from commercial sex workers and their clients; and (iii) man-man sexual epidemic has also increased dramatically in 2008.

343. In addition, HIV transmission from two other sources is of current concern: (i) transmission related to re-use of syringes and needles in the clinical practice of traditional medicine and (ii) transmission related to transfusion of inadequately screened blood or blood products, related in part to insufficient numbers of unpaid blood donors.

344. The largest epidemic is occurring among IDUs. Injecting drug use is becoming more common with many IDUs sharing needles; consequently, the introduction of HIV in these groups has resulted in a rapid spread of HIV. Based on sentinel surveillance conducted in 2000, more than 70 percent of IDUs in Yunnan and Xinjiang Provinces are HIV-infected. This population, with its concentrated reservoir of infection can bridge HIV to the general population.

26 Report of Ministry of Health on November 30, 2008 27 MOH/UNAIDS/WHO; 2005 Update on the HIV/AIDS Epidemic and Response in China (Beijing, 2006) 28 The data comes from China HIV/AIDS net and Report of Sino-British cooperation on HIV/AIDS Prevention

345. A second epidemic of HIV is occurring among heterosexuals. Heterosexual transmission is fueled by an increasing commercial sex trade and by the large number of migrants. Research in Kunming (2008) found that man-man sexual transmission is increasing dramatically.

F. ETHNIC MINORITY ISSUES

346. There are 56 ethnic groups in PRC of which the Han are the majority (92 percent). The Government began creating ethnic autonomous areas in 1953, and by 2008 there were 156 ethnic autonomous places including 5 autonomous regions, 30 autonomous prefectures and 121 autonomous counties. According to the 2000 Census, of the 55 ethnic minority groups 44 have their own autonomous areas and the population of the 156 areas accounts for 71 percent of all ethnic minority people in PRC.

347. In the PIA, Guangxi is identified as Zhuang Autonomous Region (provincial level). Wenshan Prefecture and Honghe Prefecture in Yunnan are identified as Wenshan Zhuang & Miao Autonomous Prefecture and Honghe Hani & Yi Autonomous Prefecture respectively. In addition, there are several ethnic authonmous towns along the alignment. As shown in Table 7.5.1 ethnic minority population accounts for 61.86% of the total population in the Prefectrues/cities of the PIA, among them, Zhuang is the largest group. From Long’an County in Nanning (GZAR) to Qiubei County in Wenshan Prefecture (Yunnan) via Pingguo, Tiangdong, Tianyang, Youjiang District of Baise and Funing, Guangnan of Wenshan, Zhuang has the dominant population among ethnic minorities. The second largest ethnic minority group is Yi who mainly lives in the areas between Guangnan and Kunming with a concentration between Mile County and Shilin County.

348. According to the Feasibility Study Report, the NKR alignment in Yi areas in Qiubei County will be in tunnels, bridges or sparsely-populated areas. There are totally nine Yi Towns in the PIA (one in Guangnan, 5 in Qiubei and 3 in Mile), and there are many Yi villages. But most of the Yi villages will not be negatively impacted. In Xisan Township (Mile County) where a majority of the population is Yi, the alignment will be completely in tunnel. Shilin is a Yi Autonomous County. But most of Yi people are living in the east of the county while the NkR alignment will go through the western part of the county. The distance between Yi villages and the alignment is 20—30 kilometers with Shilin County city, Kunming-Hekou Expressway between them.

349. Miao and Yao are the bigger ethnic minority groups after Zhuang and Yi. Yao people are mainly living in the areas between Baise and Qiubei County of Wenshan Prefecture. According to the local statistics, the total population of Yao in Nanning (2007) was about 100,000 (1.46% of the total population of Nanning). Yao accounts for 10.2% of the total population in Funning while in Qiubei it is only 0.7%. Precise data in some counties (such as Long’an, Baise and Youjiang District) are not available. But it is sufficient to show that Yao people are concentrating in Funing and the adjacent areas with some scattered in counties in Guangxi and Guangnan, Qiubei in Yunnan. Miao people are mainly living in Funing (6.8%), Guangnan (11.95%) and Qiubei (15.09%) though they can also be found in Mile and Baise.

350. The populations of other ethnic groups (such as Gelao, Buyi etc) are very small, and most of them are living with other ethnic groups such as Han, Zhuang, Yi, Dai, Bai, Hui etc. Mile County has a large number of Dai people. But these Dai people in Mile are completely like Han. None of them can speak any Dai language and they do not have any special rituals, holidays, clothes etc. that can distinct them from other ethnic groups. Hani is a larger ethnic minority group in Yunnan, and Honghe (on NKR alignment) is ‘Hani & Yi Autonomous Prefecture’ to which Mile County belong, but Hani people mostly live in the southwest while Mile County is in the northeast of Honghe Prefecture. There are only 300 Hani people in Mile, 300 in Chenggong and 100 in Shilin.

351. The characteristics of the ethnic minority people included in the survey sample are as follows:

 Zhuang people are mostly living along Youjiang River between Nanning and Baise, and scattering in valleys in Funing, Guangnan and Qiubei of Yunnan with level-land, and on mountains. The irrigation in places where Zhuang people live is comparatively more available. So rice, sugarcane, fruits etc. are the main agricultural plantation.  Yi people are mostly living in mountains where irrigation is comparatively difficult except some Yi people who live by lakes in Qiube. Maize (in some places tobacco) and wheat are the main crops.  Miao and Yao are mainly living in higher mountains (there is also some exception that Miao or Yao people live in level-land areas). Maize plantation and animal husbandry are the main agricultural activities.  Each ethnic minority group has its own unique cultural features except a few groups such as Dai;  The size of land for each ethnic minority household varies from 1.3 mu to 3.7 mu of cultivated land and between 4.8 mu and 8 mu of total land (per household);  The per capita incomes for their households are between 693 CNY and 2,450 CNY;  Most of the ethnic minority households have one or more family members working (temporarily or for business) outside their village; and  The households are made up of between one and five people.  Those ethnic minority people and ethnic households located in villages along the alignment, are poised to benefit from the project as they: (i) are not disadvantaged relative to the general population and Han majority (based on landholdings, income and other data); (ii) are part of the social and economic mainstream and have a long tradition of integration with the Han.; (iii) are not more vulnerable than the general population to negative social impacts created by the project; (iv) will not be negatively affected by the project; (v) will not be affected by the project any differently than the Han or general population; and, (vi) will receive the benefits of the project to the same degree as the general population. The attention, however, should be given to those ethnic minorities who are living in mountains and who have less access to market, goods, services, transportations and other social, economical resources owing to their poor living conditions, lack of education and poor infrastructures. G. JOB CREATION OF CONSTRUCTION AND OPERATION OF NKR

352. For many of the poverty households in PIA, the access to non-farm job opportunities is essential for poor households as a means out of poverty. NKR will create construction jobs that are in the PIA, and would allow people engaged in construction to maintain household ties while s/he is able to contribute income. Construction jobs also bring revenue to the community for reinvestment either to generate further economic development and jobs or to invest in education, health care and the social/cultural life of local people. The revenue flowing to local governments can be used for the kinds of direct benefits needed to provide a safety net and reduce the likelihood of the elderly and vulnerable falling into poverty.

353. The most direct economic benefit of the project is specific jobs created during the construction and operation of the railway. They are the easiest benefits to quantify and monitor. There are three types of jobs created by the project; direct, indirect, and those created through multiplier effects. Direct jobs are those that require people to be hired for construction and operation

93 of the NKR. For example, a construction worker hired by a civil works contractor for NKR is a direct job during construction, while a station-worker hired to serve NKR passengers’ needs is a direct job associated with the operation of NKR. For example, in January 2009, Youjiang District Government in Baise City asked Longlin-Baise Expressway Project (funded by ADB) to recruit 200 local rural labors in the construction work, these labors lost their jobs in migration places due to the global financial crisis, which is a good evidence on how construction work can provide job opportunities to local labors.

354. Indirect jobs are those created by suppliers of goods and services required during the construction or operation of NKR.

355. It is customary to use the term “multiplier effects” to refer to the broader benefits (including jobs and income generation opportunities) created throughout the economy as a result of NKR, these will largely result from increased demand and production triggered by the direct and indirect benefits.

356. Some of the railway construction will require highly skilled and moderately skilled workers with railway experience. These positions will be provided by the contractor. There is, however, a considerable amount of work that is unskilled and can readily be done by members of the local community. MOR will contract a railway construction company for each civil works package. These companies will provide the skilled labor and hire unskilled workers from among those recommended by the local government. The practice of construction companies contracted by MOR is to request that county governments provide the unskilled workers for the railway construction work units.

357. To ensure that the benefits of the project can reach those most in need and assist in reducing poverty within the PIA, it is important that some of the direct jobs go to poor and ethnic minority households from more remote villages. Local Poverty Reduction Offices and Minority Affair Bureau can help identify the designated poverty and ethnic villages and households to be hired by the construction work, especially the villages of Miao and Yao, which are among the poorest. Whenever it is possible, women from the poverty villages should be also considered for suitable jobs.

358. An additional benefit of construction employment is the training and job skills that come with it. Each worker will be able to seek other construction work based on the experience and skills acquired on the NKR job. Poverty Reduction Offices have indicated that they can tailor some of their programs to follow-up with those households that get employment during NKR construction to help ensure the long-term gains from employment to each household.

359. The alignment has been divided into two sections and the unskilled jobs and potential wages to the poor for each is summarized below:

 Guangxi section; 53,388 person years of unskilled work generated with wages of CY 533 million for the poor;  Yunnan section; 86,268 person years of unskilled work generated with wages of CY 86 million for the poor. The counties and districts along this section of the alignment are amongst the poorest （Wenshan Prefecture）in the PIA, and therefore the potential contribution of CY 862 million in wages will produce a huge boost to the local economies. 360. In addition to the direct unskilled construction jobs, a substantial number of unskilled jobs will be created in the industries that will supply the construction materials for NKR. Major quantities of sand, rock, brick, gravel, ballast, cement and steel will be used to construct NKR, and these materials are produced by industries in the PIA, as well as additional inputs that will be required from other parts of PRC.

361. NKR construction will also need wells to be drilled, construction access roads to be built, and quarries for stone and sand to be established. When construction is finished, these assets will provide a residual benefit to the local communities in the form of additional safe water sources, and access roads to more remote areas. In addition, the evaluation of previous projects demonstrates that many communities have been proactive while the construction company was in the county to request assistance for small projects that require construction equipment, and the companies have supplied the assistance.

362. Provision of food and other necessities to the construction work-force is another job-creating and income-generating benefit to the people of the PIA. Construction benefits include both income during construction and assets that remain after the construction work is completed. The local or prefecture governments can authorize poor households to organize the food service to the work camps. This ensures that a level of this impact will be pro-poor and the county ACWF can help to organize women to carry out this function. In addition, the demand creates an opportunity for the ACWF which has become increasing involved in assisting women in starting small businesses, through providing advice, support and small loan funds, to capture both job and business opportunities for women. In the vicinity of the work camps, restaurants and hotels are built to accommodate contractor staff, these will also generate employment.

363. Therefore, NKR will have a major positive impact on local economies as well as household incomes in the PIA during construction. As the analysis of poverty in the PIA indicates, the direct and indirect unskilled and ancillary jobs created by NKR over the construction period will provide poor households with an opportunity to escape poverty.

H. OTHER SOCIAL IMPACTS

364. The PSA has identified five groups that are potentially vulnerable to the NKR development: 1) households and/or people losing housing, land, or both, during resettlement; 2) those who have less/no education or no skills to participate in non-farming activities; and, 3) the disabled; 4) the aged people without any child, or the aged whose children have left them either because of marriage or rural-urban migration; 5) the female headed households in which the husbands divorced, died, disabled or being long-time sick.

365. The households or people that will incur losses as a direct result of the construction should also be given an opportunity to work during construction. Further, when planning is undertaken for developing commercial centers in the vicinity of the railway stations, Monitoring their adjustment will be carried out in the monitoring process for the resettlement plan, but should also be integrated into the monitoring program for the socio-economic and poverty impact recommended in this assessment.

366. The second vulnerable group is those who have not got much education (or no education) and have no skill of whatever to participate in non-farming activities. Though Statistics show that in general the primary schooling rate of children is over 99% along the alignment and most of the people under the age of 35 have got at least primary school education, people who live in remote mountains (mostly ethnic minorities) are much less prepared (or skillful enough) to participate in the rapid socio-economical development which may be brought about by NKR. The rise of market price and less job opportunities plus limited size and low-production land at home may disrupt their subsistence instead of improving their life.

367. The third vulnerable group is the disabled or chronically ill. As a head of household, the ability to support the family is threatened, especially when there are few other wage earners in the household. Illness or disability in a non-working family member is a drain on the household income. Increasingly, medical treatment is on a fee for service basis and medicines also can be expensive.

368. The disabled and chronically infirmed persons can become project beneficiaries through increased employment opportunities if not for themselves then for family members, and improved access to social infrastructure, including medical services. However if affected by resettlement, they or their households could also become particularly vulnerable if not provided with special resettlement assistance, and such measures have been identified in the resettlement plan. These vulnerable households will be identified and during the implementation if the project and mitigation strategies developed.

369. The issue of aged people without being properly cared is becoming a more serious social problem. Since there is no social pension for the aged in rural areas (except those who have never had any child29), most of the aged people have to rely on their sons. With large number of labor migration, more and more aged people are left with no income and proper care in villages. They may become more vulnerable when NKR draws (or helps to draw) more labor forces from the areas. But they may also be better cared when NKR makes it possible that their children can find job in the nearby places. It all depends how the issue is properly understood and delt with.

370. When a household is headed by woman who gets divorced or whose husband died, disabled, or being long-time sick, the household is extremely vulnerable, particularly when the quick development pushes the local consumer price higher. The things often get even worse if the woman does not have much education or no other skills to participate in non-farming employment. Subsidies, assistance and technical training for proper job opportunities from PADO and ACWF is very significant to mitigate the situation in such households.Labor Impacts

371. The project will generate considerable local employment opportunities through direct, indirect and induced effects both during construction and operation. The labor impact is, therefore, considered to be positive and will be strengthened through the involvement of the Poverty Alleviation Offices, other government agencies, and nongovernmental organizations to recruit workers from poverty villages for the NKR and to provide training if necessary for members from poor households.

372. There is also an expectation among the communities in the project areas that local people will get opportunities to be employed directly by the project during the construction stage. To ensure that this occurs, an explicit project intervention is required by way of a contract clause that specifies at least 60 percent of non-skilled construction labor force is to be hired locally and further that at least 25 percent of that local labor provided is female. Often, construction contractors hire through labor contractors, who may or may not hire from surrounding villages. This can result in only a few local people being hired and then only for short periods. It is important that people from the PIA benefit to the maximum possible from increased earnings resulting from construction employment and that civil work contractors comply with all applicable labor laws. Specifically MOR will ensure that:

 Clauses are included in the contracts that specifically require maximizing the use of local labor with at least 50 percent of non-skilled construction activities being provided by local labor;  Jobs for the poor will be ensured through an explicit clause in contracts requiring that 50 percent of the local unskilled and semi-skilled labor for the project will be obtained by hiring poor people from the project impact area. Contract documents should be explicit in requiring this step of contractors and should explicitly prohibit the use of foreign unskilled and semi-skilled workers or unskilled and semi-skilled workers from elsewhere in PRC (or even outside PRC) unless there are no local unskilled and semi-skilled workers available;

29 Chinese government has the policy of giving subsidies to those aged people who have never had any child to take care of them

 Legal wages are paid to workers;  There is no use of trafficked or child labor for construction activities;  No differential wages will be paid for work of equal value;  A specific clause is placed in contract documents that compliance will be strictly monitored during project implementation.  Contract documents should also specify that to the maximum extent possible, locally sourced materials should be used during construction. I. STATUS OF PUBLIC PARTICIPATION

373. There has been comprehensive consultation undertaken for the project. Work on the project commenced in 2007 with preliminary design being undertaken by SSDI, a large number of consultations were held during this process and include a large number of meetings and interviews with stakeholders, officials, and people affected by land acquisition and resettlement.

374. Since the commencement of the PPTA in November 2008, the PPTA Consultant and MOR has conducted a number of meetings with officials and beneficiaries and APs along the alignment including: (i) county and township executives; (ii) department heads of railway support; (iii) local Women’s Federation and local government officials such departments and offices for poverty reduction, ethnic minority affairs, transportation, environment, land resources and administration, economic planning, health and statistics; (iv) farmers, minorities, and other beneficiaries; and (v) persons likely to be affected by land acquisition and resettlement.

375. A total of 751 households have been surveyed by the PPTA Consultant in Januray 2009 in villages which will be affected by the Project. Village surveys were also completed in 25 affected villages. Finally, 37 affected institutions have been surveyed also in January 2009. In total, more than 3,824 people have been consulted to date in regard to the proposed NKR project.

J. CONSULTATION PLAN

376. Publicity and information dissemination on the project (general, resettlement, and environment) began during the feasibility study stage and has been continued through the PPTA stage, this process of information provision and feedback will need to be continued by MOR and NKRC throughout the subsequent phases of the project. The purposes and significance of the project, the time and location of the project construction components, as well as the relevant State policies concerning various aspects of environmental impact mitigation and land acquisition and resettlement will be publicized in official notifications and through various media, such as newspapers, broadcasting, TV, and magazines. These activities aim to provide timely information to affected communities and promote their participation in the project implementation.

377. A ‘resettlement information booklet’ has been prepared and is included in the resettlement plan. The booklet will be distributed to all affected persons and villages and will include a detailed description of the project and the scope, procedures, principles, unit values of compensation, and grievance mechanisms associated with the project’s land acquisition, building demolition, and resettlement.

378. The PPTA Consultant assisted MOR in preparing a consultation plan for activities to be undertaken through feasibility, detailed design, construction, and operation phases. The plan integrates the needs of the various components of the project (social, resettlement and environment) and also addresses the disclosure requirements of ADB.

VII. RESETTLEMENT

379. The Project railway line is an electrified double-track which will span 745.747 km from Nanning in the east, to Kunming in the west, using 12 existing stations, and requiring 6 new passenger/intermediate and 10 new passing or overtaking stations. The Nanning-Kunming Railway (NKR) Project will cross 2 province, and 22 counties and districts. The NKR will pass through mountainous terrain, and in these areas tunneling is extensive. In total, 225 tunnels totaling 422.325 km or 56.6 percent of the entire length have resulted in greatly reduced resettlement. In addition, 10.1 percent of the alignment will be on bridges, amounting to 66.7 percent of the alignment in tunnels or on bridges.

380. An estimated 23,777.2 mu of land will be permanently acquired, of which 11.8 percent is irrigated land, 41.8 percent is cultivated dry land, 0.9 percent paddy land, 3.67 percent orchard (in total 58.2 percent farmland), 15.7 percent woodland, 5.3 percent wasteland, 1.9 percent residential land. About 36.8 percent of the land is in Guangxi, and 63.2 percent is in Yunnan. The Project will also temporarily acquire 16,762 mu for NKR construction activities and construction access roads. An estimated total of 902,599 m2 of structures will be affected, of which 93.7 percent are residential units and other farm structures; 5.3 percent are factory buildings, workshops, and other industrial structures; and 1 percent government buildings.

381. Due to the corridor type impact of the alignment, most land impacts will be partial, resulting in more affected households with lesser impact. Land acquisition and resettlement impacts have been lessened by aligning the railway away from the most densely populated areas, and avoiding villages, cultivated land, and facilities where possible, based on consultations with communities. Numerous alternatives have been considered for NKR alignment, and in each case land acquisition and housing demolition have been paramount variables considered. For example, sites for new stations have been located away from built up areas thus reducing resettlement impacts. While the new station sites will necessitate acquiring some farmland, the alignment typically relies on elevated track to pass through the surrounding farmland and this reduces the amount of land acquisition. The result is that about 9,065 households would lose part of their land and agricultural livelihoods, and 7,562 households would have their houses demolished.

382. The resettlement objective is to ensure that compensation and entitlements provided to affected persons (APs) are adequate to at least maintain their "without-project" standard of living, with prospects of improvement, in line with the Land Administration Law (amended 2004) of the People's Republic of China (PRC) and with ADB's Policy on Involuntary Resettlement (1995) and Policy on Indigenous Peoples (1998). In addition, affected people that are poor or vulnerable should be made better off, either as direct beneficiaries or through special measures to safeguard and enhance their living conditions. People losing land, housing, other assets, or other means of production will be compensated at replacement cost and assisted in restoring their incomes and living standards. In 2004, the PRC Constitution was amended to ensure that people are compensated according to law for land expropriated for public projects. The State Council (SC), China’s highest policy making body, issued its Decision on Further Reform to Strictly Implement Land Administration, State Document No.28 (2004), which requires public consultation with all AP prior to approval of projects, maintenance of the living standard of AP, strengthened monitoring procedures, and public accounting of the receipt and distribution of resettlement funds. Payments for land will be made to the village collectives, and they will determine the allocation of funds in conjunction with AP and local government officials. Following the DMS, income restoration plans will be prepared for seriously affected villages with particular emphasis on long-term sustainable income enhancement strategies.

383. The RP stipulates eligibility/entitlement provisions for AP. SC Document No. 28 establishes that the level of maximum compensation rates for land acquisition and resettlement subsidy of up to

30 times the Average Annual Output Value (AAOV) may be increased if it is not adequate for income restoration of AP. The Project will ensure that land compensation will not be less than 16 times. The provinces are utilizing the revised implementation methods in accordance with the Land Administration Law and SC Document No. 28. Compensation for temporary land loss will be paid directly to the AP and the land will be restored to its original state after use. Compensation for rural housing losses will be paid directly to the AP at replacement cost, free of depreciation, demolition expenses and salvaged materials. In general, rural households will either rebuild their own houses within the same village or be resettled into clustered or centrally planned village housing, with standards being as good as, if not better than their existing houses. Urban households may have the options of (i) allocated replacement housing based on a swap of property rights for properties of equivalent size and quality, or (ii) cash compensation at market price to purchase replacement housing in the real estate market. Crop and tree losses will be directly paid to the AP. Factories, schools and other institutions and enterprises will be compensated at replacement value for relocation and reconstruction, using the latest market prices of materials and labor, and a process of negotiation. There are not expected to be any schools affected due to the Project, but in the case that the Detailed Measurement Survey reveals that schools will be affected, the Project will support the improvement of affected schools.

384. The Ministry of Railways (MOR), in consultation with provincial and local governments, prepared the initial Resettlement Plan (RP) with the assistance of the Second Survey and Design Institute (SSDI) in October 2008, including a survey of 350 potentially affected households. This RP is based on the Project Feasibility Study, village surveys of 25 villages, 751 additional household surveys, provincial, prefecture and local government statistics, and consultations with prefecture, county/district and local officials, village leaders, and affected households. First disclosure of the RP to affected persons will occur in September 2009. First disclosure of the Resettlement Information Booklet will be in August 2009. The RP will be updated based on the inventory of losses and the final alignment. The updated RP will be disclosed to AP and submitted to the Asian Development Bank (ADB) for concurrence prior to the commencement of land acquisition.

385. The 751 households interviewed by the Consultant were selected by local officials as being the most affected by NKR. The average net income per capita for the surveyed population is CNY 3,115. Only 3 percent of the total surveyed households had net incomes per capita below CNY 1,000, a rate lower than various local poverty definitions. However the geographic variation in poverty incidence is considerable, with poverty higher in Yunnan at 17 percent poverty, and Guangxi at 11 percent. Special assistance such as free labor for building houses, materials, and additional funds will be provided to the vulnerable households that include orphans, widows, and the disabled, and are largely dependent on agricultural production for their income.

386. Households headed by women represent only 8 percent of the total surveyed households. Although there were very poor households in the small sample of women-headed households, there were also ones with net incomes well above the poverty line, especially in or near urban areas, where there are more opportunities to earn income from wages or business. Households with a disabled or infirmed member constitute 1.2 percent and elderly households 1.7 percent of the surveyed households. As with women-headed households, there are very poor as well as wealthier households in this group. Special assistance will be provided to the vulnerable households by local governments on a case-by-case basis consistent with the needs of the household.

387. Ethnic minority households constitute 61.4 percent of households in the Project Impact Area, and 63 percent of the surveyed households. Guangxi is a Zhuang Autonomous region and the majority of people living in the region are from the Zhuang ethnic minority group. Wenshan Prefecture in Yunnan is a Zhuang and Miao Autonomous Prefecture and Honghe is a Hani and Yi Autonomous Prefecture. The NKR will also cross many minority townships and villages. The

99 household survey reported only 456 households with ethnic minority members, more than half of the total sample.

388. Each village and/or AP will utilize the land compensation and resettlement subsidy for income restoration. In accordance with the requirements of SC Document No. 28, compensation for loss of land will be principally distributed to AP although the method of distribution will be determined by the village committee and villagers. In this process the AP will be consulted through consultative meetings to obtain their preferences. Local officials have indicated that factories and enterprises will rebuild locally and that these organizations and their employees will be fully compensated for any and all losses and costs associated with relocation. The Project will displace a large number of people. However resettlement compensation may be an opportunity for APs to restructure their agricultural and income production into more valuable crops or into more non-farm based income generation, a trend that is current and necessary to reduce the vulnerability of rural households. Affected households will receive training and skills development assistance that will facilitate income- generating activities. An income restoration budget has been included to meet the costs of extension of services to AP and others in affected villages in areas such as agricultural extension, cooperative marketing and organization for agricultural produce, agricultural and enterprise credit, and other needs that arise during detailed resettlement planning and implementation. Other assistance such as preferential hiring of AP by construction companies and access to capital will also be provided. Local poverty alleviation programs provide a valuable source of additional assistance to vulnerable groups and they will be targeted during the implementation of the Resettlement Plan.

389. AP have been and will continue to be informed and consulted about the likely impacts of the Project at various stages. Stakeholders consulted include heads of affected households, village heads and representatives, local government agencies and departments, and vulnerable groups, including women and ethnic minorities. Resettlement information booklets will be distributed and local resettlement plans made available to the public, including all AP. Affected households will also be consulted and will participate in resettlement activities, including compensation standards, allocation and utilization of compensation, detailed measurement surveys, location of underpasses, new housing sites, and grievance redress. During the actual implementation of land acquisition and resettlement, the AP and affected enterprises can appeal any problems or grievances regarding land acquisition, housing demolition and relocation, compensation and resettlement to five levels: the village committee, the local land administration, local government, the owners of the project, the external monitoring agency (informally), and/or the courts. In addition, there will be frequent opportunities for AP to interact with representatives of the various organizations involved in the implementation and management of the Project through public meetings and hearings, consultations, and site visits to discuss issues related to compensation and resettlement.

390. MOR, local governments, prefecture and county-level railway construction support offices (RCSOs), and land administration bureaus, will be responsible for implementing and delegating resettlement activities to township officials and village committees. Local government RCSOs, set up under the local Development & Reform Commissions, will coordinate the administrative activities, with assistance from township officials and village committees. MOR and the local governments have extensive experience with resettlement. Local government will provide training to local officials who will be involved in implementation. The training will focus on ADB requirements, as specified in the RP, and new domestic procedures.

391. The total resettlement cost for the Project is CY 1,838.25 billion, (US$ 269.14 million) including taxes and contingencies. The resettlement budget will be adjusted based on the actual measurement of physical losses. Both provincial level local governments will be responsible for resettlement costs which will be considered as part of their equity in the Nanning-Kunming Railway Company. The local governments have assured ADB that they will supplement the resettlement budget, as may prove necessary, to meet any shortfall. The implementation schedule has been

100 prepared based on the proposed project construction timetable. Land acquisition would commence in March 2010 and some demolition would commence thereafter. The Project will be completed in 2015.

392. MOR and the NKR Company (NKRC) will closely supervise the implementation of land acquisition and resettlement by local government, including expenditures, as well as temporary impacts caused by contractors, in accordance with this RP. The local government RSCOs, will be responsible for internal supervision and monitoring of compensation payments, house rebuilding/relocation for AP, land redistribution, and grievance redress. Progress reports will be prepared by NKRC and submitted to ADB on a quarterly basis, until resettlement is completed. NKRC will then prepare a resettlement completion report for submission to ADB. In addition, an independent monitor will be contracted by NKRC to carry out the external monitoring and evaluation work. The tasks include: baseline survey, review and verification of the compensation payments, status of land acquisition and compensation payments, appraisal of grievance redress procedures, AP's reaction/satisfaction with entitlements and compensation, assessment of the restoration of livelihoods of AP, and drawing lessons learned for future resettlement planning. The external monitor will prepare monitoring and evaluation reports for submission to NKRC, MOR and ADB every 6 months until the completion of resettlement activities (expected in 3 years); thereafter, annual evaluation investigations will be conducted for 2 years and reported to NKRC, MOR and ADB.

VIII. INSTITUTIONAL CONSIDERATIONS

393. This Section summarizes the key findings and recommendations from the Consultant’s Supplementary Final Report Section 8. Reform is a continuing process, and every reform or change highlights additional aspects that need to be further addressed in a rapidly growing and liberalizing economy.

394. Railway Reform. The process of reforms in the railway sector is part of China's national policy of economic reform. The objective of the reforms is to promote commercialization of state- owned and managed national railway including associated enterprises, and to improve efficiency, productivity and effectiveness so that they may be able to efficiently perform and compete in a market economy.

395. The railway reform has been progressing at a slow and gradual pace. MOR is taking care in developing the reforms, and is inclined to experiment with alternatives before expanding the coverage of reforms. This follows the general approach to economic reform in the country.

396. The rapid progress of economic reforms in other sectors of the economy is impacting the railways. The rapid development of air, road, and water transport has led to competition with rail, and highlighted the need for more rapid railway reform.

397. The importance of CR to the Chinese economy is high. CR has high modal share for both passenger and freight traffic, and is faced with serious shortages of rail transport capacity. Therefore any mismanagement of the reform could put at risk the rapid economic development of the country. Also the national railway has been traditionally overstaffed, and reform accompanied with staff redundancies must be done with a human face, mitigating the adverse impacts. Therefore, in the circumstances the gradual and experimented approach to railway reform would appear to be the best course.

398. Achievements and Lessons Learned. The initial reforms in the railway sector during 1978- 1985, helped with establishing the enterprise concept.

399. The introduction of ECS (1986-1990) was a significant step in improving the enterprise functions of the national railway. It changed the financial relationship between CR and the State.

101

400. One of the most successful reform programs undertaken by MOR was the Diversified Economy Program. It has been an effective and socially acceptable approach for reducing staffing levels. It has also been a highly profitable program. Small and medium enterprises set up by separation of related activities from the railway, provided a mechanism for employing redundant staff from operations. DECOs generated CNY139.5 billion in revenues and profit of CNY2.88 billion in 2007. The profits are included in MOR’s consolidated financial statements. The revenue per employee generated in the DECOs was CNY378,781 compared with CNY178,900 for the core transportation business of the national railway.

401. In 1994, MOR set out the general policies for railway reform in a document entitled ’30-Point Railway Reform Program. The primary objectives of CR reforms since the early nineties were to: transform CR’s transportation operations from a traditional production-based system to a market- oriented system; and restructure CR to achieve full cost recovery and financial self-sufficiency.

402. In the first half of the 1990s, a number of reforms were implemented. Non-core activities have been separated from the core transportation business. Most of the non-core activities including staff housing and medical care, engineering construction, material supply, design, equipment manufacture and overhaul were separated from CR. Many of these enterprises now provide services to CR on competitively tendered basis. The number of CR employees in transportation was reduced

403. Reforms improved transportation efficiency which resulted in benefits to passengers and freight shippers. The employee productivity in terms of traffic units per employee which increased by 62.6% from 1975 to 1990 (15 years), increased further by 71.6% during 1991-2000. Productivity increases on the national railway have consistently improved from 414,000 TUs/employee in 1975 to 2, 001,000 TUs/employee in 2007, representing an average increase in productivity of 5.2% per year. CR was able to achieve profitability in operations in 1999, after four years (1995-1998) of losses. CR is a major net contributor of taxes to the national budget. In 2006, CR contributed CNY22.5 billion on account of various taxes.

404. In the ongoing phase of reforms a number of initiatives have been taken to expand the railway network, restructure and modernize the railway system, covering infrastructure, rolling stock, and operating systems. The improvements made have already impacted in improving service quality and bringing the customers back to the railway.

405. In 2005, MOR took out a whole layer of management by eliminating the 44 sub-regional administrations. Management was consolidated at the level of the 18 regional administrations and some 60,000 staff positions were removed. This change brought together management responsibility and accountability at the regional level, and enabled higher utilization of locomotives and crews. There has been some separation of management of low-density lines with emphasis on reducing losses.

406. Performance Assessment of Enterprises. The assets operation liability system was used for performance assessment of railway enterprises including RAs during 1999-2005. This system made managements of railway administrations accountable for agreed levels of return on capital, output, profitability and safety. This system was replaced with the Operational Performance Assessment System (OPAS). The OPAS was expanded to include criteria for operating in a market economy. Aspects related to quality of services have also been included in the assessment.

407. Improving Service Quality of Passenger and Freight Services. One of the most significant programs on CR has been service improvements by speeding up train services on existing lines and preparation of a new train working diagram. During 1997-2007, six successive speedups have been implemented.

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408. At the end of the sixth speedup the maximum speed of 140 pairs30 of trains operating on a total of 6,003 km of railway lines was increased to 200 km/hour, while on some sections, the high speed trains will be able to achieve maximum speed of 250 km/hour. In aggregate, after the sixth speed increase, trains were operating at speeds of up to 160 km/hour on 14,000 km of track and up to 120 km/hour on 22,000 km of track. The speed of freight trains on the above mentioned tracks has been raised to 120 km/hour.

409. The large scale acceleration of speeds on the existing lines involving different disciplines including track, bridges, locomotives and rolling stock, signal and communications, traffic organization, operation and management and operation safety was a magnificent feat of system engineering. For the successive speed acceleration drives, a large number of new technologies, new equipments and systems were adopted in all fields of railway operation. The degree of traffic control automation has been continuously improved with the widespread application of computers.

410. The six speedups implemented during 1997-2007 have reduced travel times, and increased the competitiveness of rail passenger transport. Between 1996 and 2007, passenger traffic volume growth was an average of 6.9% per year, while the growth in revenue averaged 9,2% per year, mainly because of value-added high speed services that were more customer friendly, and helped to meet market demand. The railway is now effectively competing with other modes of passenger transport.

411. The speedup of train services and the rescheduling of trains to meet market demand has deeply impacted rail passenger and freight transportation. The benefits range from socio-economic to technical and financial. Transport capacity in terms of number of passenger and freight trains have increased, the volume of passengers and passenger revenues have increased, productivity of equipment and staff have increased and there has been significant in-house technological advancement, and more widely the Chinese industry has benefited.

412. Speed increases on the existing lines are being followed by the construction of high speed passenger dedicated lines (PDL). In August 2008, following completion of the 120-km Beijing-Tianjin High Speed passenger dedicated line, commercial operation began on China’s first high speed train that has maximum speed of 350 Km/hour. The new train service cut the 120-km journey from 70 minutes to 30 minutes.

413. Management of Construction. The building of a high speed lines has changed the former concepts associated with the building of conventional railway lines. This old concept of graduated completion of new railway lines is not compatible for high speed railway lines, which must be built and completed strictly conforming to the design standards and opened for operation at the design speed. We are assured that under the overall directions of MOR the construction management of the Project will ensure all necessary actions to build the lines as per design specifications and carry out testing of the completed lines at a speed than ensures the veracity of the maximum design speed.

414. Rules and Regulations. The use of new technologies, equipments and operation systems associated with high speeds has changed the operation requirements and has also changed the work and job requirements of staff associated with the operation and maintenance of such lines. Staff who is required to use and interact with new technologies and systems must have the appropriate qualifications, aptitude, training and certification on a continuing basis. Thus high speed and high intensity operations require completely new set of rules and regulations compared with operations on slow conventional lines.

30 By the end of 2007, the number of high speed trains is expected to increase to 257 pairs.

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415. Since the national railway network is operated as one system, we envisage that new rules and regulations will be needed at three levels. Firstly, MOR should lay down the guiding principles for the railway sector as a whole, which will be applicable to all railway administrations, joint venture railways, local railways and private sector operators. On the basis of the guiding principles, the railway administrations should have rules and regulations for their jurisdictions that take care of specific regional requirements. The third set of rules, which will be subordinate to and based on the MOR and RA rules and regulations, will be for the station, depot and work unit level that provide for any local specificities.

416. For a network as big and spread out as the Chinese Railways, the preparation of rules and regulations and follow up revision(s), as and when necessary, is a gigantic task of continuing nature. We recommend that MOR take all necessary actions so that the rules and regulations are made available in timely manner. In the implementation of this task the following suggestions are made:

 Leading groups may need to be set up for the preparation of rules and regulations at the level of MOR, Railway Administration, and station, depot and work unit level.  The work groups should prepare rules and regulations as necessary, and carry out updating, revising and supplementing of rules on a continuous basis, and consistent with the development of technologies for building and operation of railways. They will also be responsible for carrying out research in rules and regulations in various technical fields and operational aspects.  The will be responsible for management of the rules and regulations including their dissemination to the field units and staff; this activity would need to be properly organized and monitored.  The work groups will carry out inspections and check with regard to the proper implementation of the rules and regulations for ensuring operational safety and efficient operations. 417. Given the enormity of the task in the areas of preparation, updating and dissemination of rules and regulations, and the need to provide for new technologies, which should be done consistent with the conditions prevailing in China, it would be useful to associate suitable international and domestic experts in the new technical areas in order to provide support to the working groups.

418. Tariff Reforms and Analysis. During the 7-year period from 2000 to 2007, freight and passenger volumes on the national railway had average growth rates of 7.57% and 6.58% per year, respectively. However, the rate of growth of freight traffic decreased the 3-year period (2004-2007).

419. During the 7-year period ending 2007, freight revenue and passenger revenue had annual growth rate of 13.7% and 12.1%, respectively. However, the growth rates of freight revenue and passenger revenue in the 3-year period (2004-2007) decreased to 9.9% per year and 11.6% per year, respectively. Considering that passenger volumes have been increasing, the decrease in growth rate of passenger revenue is attributed to lesser impact of pricing of value added services.

420. In 2007, the unit freight revenue was 6.29 fen/TKM, which was only marginally more than 6.23 Fen/TKM in 2006. The average growth rate of the unit freight revenue during the 7-year period from 2000 to 2007 was 5.87% per year, but it decreased to 3.1% per year in the 3-year period from 2004 to 2007.

421. In 2007, the unit freight revenue was 6.29 fen/TKM, which was only marginally more than 6.23 Fen/TKM in 2006. The average growth rate of the unit freight revenue during the 7-year period

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(2000-2007) was 5.87% per year, but it decreased to 3.1% per year in the last 3-year period (2004- 2007). Our review shows that one of the main reasons for the decrease in growth rate is the increasing predominance of low-rated commodities in the rail freight traffic mix. During 2000-2007, the volume of low-rated commodities such as grain, salt, cotton, coal, building materials, fertilizers, and metal and non-metal ores increased from about 717 billion TKM (or 53.8% of the total freight traffic volume) in 2000 to 1318 billion TKM (or 60.3% of the total freight traffic) in 2007. Whereas average growth rate of freight volume was 7.57% per year, the growth rate of low-rated commodities was 9.1%. It shows that market distortions are taking place because of inefficient pricing structure. A review of the commodity classification is called for.

422. In 2007, the unit passenger revenue was 11.94 Fen/PKM. Based on past cost data it can be said that the unit revenue is less than the transportation cost. The average growth rate of unit passenger revenue during the 7-year period (2000-2007) was 5.21% per year. However, the growth rate for unit passenger revenue decreased to 2.74% during 2002-2007 and 3.53% during 2004-2007.

423. The analysis shows that in the past both freight and passenger tariffs have lagged behind the increase in transport costs. In both cases the basic tariff needs to be increased commensurate with the increases in transport costs. Delay in taking such action is adversely affecting the profitability of the national railway, which will impact future internal generation of resources for the developmental projects. The working ratio and operating ratio of the national railway slipped to 80% and 93% in 2006, compared with 61% and 72% in 2005, respectively. Profitability of the national railway and its constituent enterprises is important for the medium to long term financial standing of the national railway. This will determine its standing in domestic and international markets. This will also affect investments from private sector sources that would be needed to support the railway’s expansion plan.

424. The railways have substantial economies of scale – there are very high fixed costs invested in the track infrastructure, while the marginal costs of train operation are relatively low. For the sake of financial sustainability without any government support it is not just the marginal cost of the track infrastructure but the full costs that should be recovered.

425. As China liberalizes to a more market oriented economy, the Government is requiring that CR should be operated as a commercial business that is financially sustainable. If CR is to participate in the nation’s transport market as an effective player, it should have flexibility to determine the prices of services it offers, essentially in accordance with the demand–supply relationship in the market. This will also help reign in operational inefficiencies because of which transportation costs are growing rapidly.

426. With large scale investment and expansion of the network, which will help to separate freight and passenger traffic on the main trunk routes, the capacity on the rail network will be increased manifold (estimates range from double to quadruple on various routes). The railway will be able to carry the planned traffic and offer the additional generated capacity to the market. The railway sector will truly transition from a planned phase to market phase. It is imperative that the railway prepares for the emerging challenges.

427. Logistics and Intermodal Container Transportation. Logistic costs in China are estimated to be one of the highest of any of the world class economies. In 2006, logistics costs were estimated as about 21% of China’s Gross Domestic Product (GDP) compared to about 10% in the United States. The high logistics costs in China are attributed to a lack of infrastructure and administration which create a lot of inefficiencies. Even though labor costs are low, processes are not streamlined, and information systems and automated processes are lacking. Generally, transportation costs comprise about 25-40% of the logistics costs in the supply chain. To maintain sustainable economic development and competitiveness in world markets logistics costs must be reduced.

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428. The Government has given high priority to the development of the logistics industry and continues to push for infrastructure development in a concerted effort to facilitate the formation of a nationwide transportation and distribution network. Chinese support for the logistics industry was articulated by the State Council in its Opinions on Promoting the Development of a Modern Logistics Sector in China (5 August 2004).

429. Rail intermodal container transport is the responsibility of China Railway Container Transport Company Limited (CRCT) which was set up by MOR In 2004 as a corporate entity under the Chinese Law.

430. The modal share of railway container transportation has been on the decline. In 2007, the volume of railway container transport was 71.18 million tons, which was 7.6% of the total for all modes compared with 13.1% in 2004. During the period 2004-2007 the annual growth rate of railway container transport decreased to 6.1% compared with 13.2% during 1999-2004. By comparison, the volume of container transportation by road in 2007 was 531.8 million tons, which was a significant increase over 236.6 million tons in 2004. Also road increased modal share to 56.8% in 2007 compared with 51.9% in 2004. The growth rate of container transport by road during 2004-2007 averaged 31% per year compared with 26.5% in 1999-2004. On the waterway, the volume of container transport in 2007 was 333.6 million tons (35.6% modal share) compared with 159.38 million tons in 2004 and 35% market share. It will be seen that both road and waterway have increased modal share at the cost of the railway.

431. The volume of container transportation by rail has been the lowest of all modes. The total railway container traffic was less than 3% of the total freight handled by CR, compared with 6.4% in the US. There is much scope for expanding railway transportation of containers, which generally contain high value cargoes that attract above average tariffs. Railway inter-modal container transportation can play a key role in the efficient and economic transportation of containers for further improving the competitiveness of Chinese goods in world markets.

432. Experience in other countries shows that railway container transportation has progressed on the basis of networked railway container freight stations, which handle the reception-departure of container trains, junction terminal transfer of trains and loading-unloading of the whole container trains in specialty. This new type of specialized rail intermodal container service undertakes large number of tasks, which are information-based, use advanced machines for loading-unloading, advanced management mechanism and the stronger radiating function of container transportation to surrounding areas.

433. One of the main reasons for the slow progress railway container transportation is inadequate infrastructure for handling containers. In addition there are capacity constraints on the busy routes that also carry the most container traffic. The future of railway intermodal container transportation in China depends on how fast the necessary infrastructure i.e., central container terminals, line capacity for additional container trains, and capability to run double-stack container trains can be completed.

434. During 2009-2012, an amount of CNY2,400 billion is expected to be invested in the expansion and development of infrastructure, including expansion of line capacity on main trunk routes which will facilitate time slots for container trains. The 2020 Plan includes the development of 18 central container terminals. These are being developed by CRCT in partnership with the private sector. Rail container terminals are in operation at Shanghai and Kunming. Construction work on Chengdu rail container terminal, which will be Asia’s largest, is expected to start soon. To be fully effective, however, infrastructure investments need to occur in tandem with greater efficiency and innovation in logistics—that is, in the acquisition, transport, storage and delivery of goods.

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435. CRCT has also taken initiative to establish the Eurasian land bridge for rail container transportation to Europe and Moscow. Overall, the developments in the field of railway container transportation will help establish railway as an important player in the field of intermodal container transportation.

436. WTO Reform. As from December 11, 2007, China is obliged to provide market access without any limitation in rail freight transport and storage under the WTO Agreement. Foreign operators/companies can compete in a fair and open rail freight transport market, without any limitations or restrictions.

437. With capacity constraints on all major trunk routes, the conditions for market access will not be obtaining until the infrastructure has been expanded and additional capacity has been created. Actions in these regards are being taken through the implementation of the 2020 Plan.

438. Market access in rail freight transport without any limitation would mean that CR along with other operators will participate in the rail freight transport market. As experience on other railway systems has shown, the commitments and obligations for guaranteeing free access would mean a fragmentation of the present unified rail transportation, which is dominated by one national carrier – CR. The relevant issues will need to be resolved and deeper reforms will be necessary in the best national interest.

439. The effects of fragmentation on various aspects of railway safety would need to be closely looked in to. It is the general impression that it is easier to implement the different factors which play a part in safety in an integrated railway system than in a fragmented one where the interdependence between various players is managed on a contractual basis.

440. In preparation for market access, operations on the national railway would need to be separated from infrastructure. As a prelude to this final action, it is proposed that accounting for infrastructure and operations should be separated as soon as possible. This will be helpful to determine the cost of operations realistically and to determine access charges. This will also be helpful to place the transactions with joint venture railways on a transparent footing.

441. The existing system under which all interline revenue is credited to a government account controlled by MOR, and is thereafter is distributed to the railway administrations and other operating entities should be reformed such that at least part of the cash flow goes direct to the enterprises, and MOR can carry out the settlement of accounts on the basis of agreed parameters so that all enterprises can estimate the revenues. Actions in this regard will also be necessary as and when the joint venture companies start operations.

442. Liberalization of rail transport will need legal and rule-based measures that can stand the test of judicial review. Laws and regulations would be the legal basis for establishing and sustaining market access. Therefore, an important first step is to establish the legal framework to support market access.

443. Market access regimes may unfold numerous difficulties as well as risks of conflict. These include allocation of train paths to operators, irrational access charges, nondiscriminatory dispatch control, and non-transparent revenue distribution. With different operators participating in the system, there will be need to have in place a conflict resolution mechanism for resolving disputes..

444. In order to build confidence among potential rail investors, and for the sake of fairness and impartiality, the government’s regulatory functions would need to be separated from the management of the national railway. Organizational reform has been under consideration of the government although no time table was set for the same.

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445. Under the WTO agreement, rail freight transport is subject to government guidance pricing. The government guidance pricing should allow sufficient flexibility to undertake commercial operations competitively and also meet the revenue requirements of the operator. This is important for sustaining operations and ensuring financial viability.

446. Overall, the Chinese economy has more to gain from the membership of WTO than the perceived adverse impacts on the national carrier in the short term. Opening up of the national railway is imperative to bring the benefits of liberalization to freight shippers, passengers and the economy, and for market forces to participate in the development of the railway sector. The WTO commitments provide the opportunity to undertake major rail sector reforms that have been on the backburner for almost a decade. Market access should be structured such that negative impacts on the national railway may be minimized.

447. Mid and Long-term Railway Network Development Plan to 2020 (2020 Plan). After suffering from transport constraints impinging on its economic growth, the Government decided to address the problem head on. A choice was made to build capacity not merely to alleviate the most serious immediate bottlenecks on its existing rail transport infrastructure, but to go beyond and build a high-capacity system of modern railways that would provide for future needs as well. This would smooth the path for sustained future growth for the rapidly growing coastal provinces, and extend improved economic opportunity to the vast population residing in its distant, impoverished hinterlands. The Mid and Long-Term Railway Network Development Plan to 2020, provides a framework for building a high capacity railway system through the five year plans.

448. The 2020 Plan has been under implementation for five years. In 2006, investment on capital construction was CNY130.1 billion, which was 75% more than the investment of CNY74.3 billion in 2005. In 2007 and 2008, the investment was CNY149.2 billion and CNY330 billion, respectively. In 2009, investment on capital construction is expected to be CNY600 billion. The pace of railways expansion has been accelerated to a high level of implementation.

449. Official sources had estimated total investment of CNY2,000 billion to implement the 2020 Plan. However, because of adoption of much higher standard of operation on the proposed intercity railway lines and passenger dedicated lines (which are designed for commercial speeds of 200 km/hour and 300 km/hour) the investment needs have greatly increased. Presently, the total cost of implementation of the 2020 Plan is estimated at CNY4,500 billion.

450. During the 52-year period from 1953 to 2004, the total investment in fixed assets on the national railway was approximately CNY1,000 billion. Whereas during the period from 2009 to 2020, total investment of CNY4,500 billion is envisaged. A substantial part of the total investment would be made up of loans that would possibly add to the recurring financial liabilities of the proponents, which will need to be serviced mainly through increased revenues. Will that be possible?

451. The activities of railway construction have expanded exponentially. It is understood that the existing in-house services for project preparation, management and supervision fall substantially short of the requirements. Any dilution of inputs in this regard will affect project quality and efficiency. It should be possible to draw suitable assistance from the private sector to make up the shortfall. It is important that appropriate management structures are set up to meet the requirements for efficient and cost effective management of projects.

452. Investment decisions with regards to choice and timing of particular projects must be made on the basis of financial and economic analyses which establish the viability of the investment. It needs to be ensured that the envisaged investments are unavoidable and are the most efficient way in which the objective of expanding transportation capacity can be achieved.

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453. Quinquennial Review of the 2020 Plan. The 2020 Plan gives the conceptual framework for development in the railway sector under future railway five-year plans. The 15-year implementation period is a long period of time during which the rapidly developing economy may see changes in demand patterns and priorities. As for example, in the context of the global economic downturn, China’s future economic growth may be more oriented to domestic consumption than exports as in the past. This could clearly mean a shift in the nation’s transportation demand pattern from coast based to inland centers of consumption. This could have significant impacts on the framework plan for developing the network, both in content as well as priorities. It is, therefore, necessary that the 2020 Plan is reviewed by MOR in association with the concerned government departments, every five years, to appraise the implementation progress; to see if any course corrections are needed consistent with demand, priorities and developments in other sectors of the economy; and any other issues or related matters. It is suggested that the first review be undertaken in 2009. MOR should consider the assistance of suitable international and domestic consulting services to help prepare the groundwork for a detailed review of the 2020 Plan.

454. Stimulus Package. On 09 November 2008, the Government announced a CNY4 trillion ($585 billion) two-year economic stimulus package to boost growth and domestic demand. The Government itself will directly fund about 25% of the total (or CNY1.18 trillion) through 2010, with other funds expected to come from local governments and the private sector.

455. Under the railway Stimulus Package, some of the targets of the 2020 Plan have been advanced or brought forward. By 2012, some of the main goals shall be as follows: the length of the national network will be 110,000 route-km, with double track and electrification, each accounting for 50%; the route length of new passenger dedicated lines and intercity lines (200 km/hour) will be 13,000 km; passenger traffic will be separated from freight on the trunk lines, which will remove overloading on trunk lines; and passenger traffic will have no constraints in areas served by passenger dedicated lines.

456. Marketing. The objective of marketing is to understand the continuous changes that are taking place in the transportation market in China’s rapidly developing economy. Such understanding will help to restructure and provide services that meet demand. Even in a situation when the overall traffic is increasing, it is important to analyze the progressive developments and take measures to mitigate the causes of any negative impacts.

457. In order to meet the changing needs of rail transportation, CR has taken several initiatives focused at increasing market presence. The latest effort in this direction has been the speed-up of train services on existing lines of the national railway that was completed in six phases over a 10- year period 1997-2007. With the sixth speedup, that was implemented on 18 April 2007, the maximum speed of 140 pairs 31 of trains operating on a total of 6,003 km of railway lines was increased to 200 km/hour, and on some sections the high speed trains would be able to operate at 250 km/hour.

458. CR has been successful in stalling the decline in modal share of rail passenger transportation by improving the quality of services and to meet demand. The revival of the rail passenger market has been the result of several measures, including reducing journey times, changing train schedules to suit the convenience of customers, and improved customer services. Through these innovative measures and marketing of services customers have been won back on the railway.

459. Value added services (for which higher fares are charged) increased the average unit revenue from passenger services from 7.37 Fen/PKM in 1997 to 11.94 Fen/PKM in 2007,

31 By the end of 2007, the number of high speed trains is expected to increase to 257 pairs.

109 representing an average growth rate of 4.9% per year. From 1990 to 1996 the average unit passenger revenue was 10 to 21 percent higher than the base passenger tariff (which was 3.861 Fen/PKM in 1990 and 5.861 Fen/PKM in 1995/1996). Since then the average unit passenger revenue has been steadily increasing from 24.2% above the base tariff in 1997 to 104% above base tariff in 2007. This was a significant marketing success.

460. As experience in the West has shown, the railways paid dearly when changes in railway business were not made in a timely manner to adapt to the changes in the market conditions.

461. The marketing department should undertake market research and analysis, field surveys as well as interviews with important customers with the objective of service improvement and business enhancement. The quality of railway passenger services should be assessed with regard to safety, reliability and punctuality of operation. The quality of freight services should be assessed on the basis of reliability for timely delivery of goods. Based on the results of market analysis operational improvements will help CR to broaden the base of services and meet customer demand and increase market penetration. Market analysis has helped CR take appropriate steps in the railway refrigerated transportation of perishable goods. Also dedicated express trains for the luggage and mails segment of transportation are now in operation.

462. The staffing of the marketing department at various levels should be done by lateral induction of qualified persons having with competency in conduct of business and market research. Business majors who may have some knowledge of railway interfacing should be good choices. To begin with a well experienced executive would be needed from the business world to help set up an effective marketing department and develop the interfaces.

463. A marketing information system should facilitate close coordination with operations so that the information may be integrated with the relevant management systems, including freight transport planning, technical planning, daily wagons requisitioning and actual loading.

464. Public Service Obligations. The Government has been requiring the national railway to perform a large number of public service obligations in pursuance of its policies for social welfare. If CR is to operate commercially with financial sustainability, it should not be required to bear the financial burden of service obligations.

465. The total loss of revenue to CR because of service obligations is estimated to be about CNY 45.4 billion, including CNY 23.2 billion of less collection from construction surcharge due to discounts and other revenue losses of CNY22.2 billion.

466. On the basis of procedures that may be prepared by the State-owned Assets Supervision and Administration Commission (SASAC) for SOEs, an appropriate policy of PSO reform should be implemented for CR. PSO reform would support the Government’s economic reform program with the goal to ensure the financial self-sufficiency of CR, which is by far the largest and the most important state owned enterprise.

467. Reform in Railway Investment Financing. It is imperative that the financial and economic viability of every investment is ensured through proper evaluation and consideration of possible alternatives. The quality of projects in terms of their financial and economic viability must not be compromised. It must be ensured that scarce resources are used efficiently and economically. The envisaged expansion plans may quadruple the capacity on some routes. There is a risk that excess capacity may be created on parts of the network, and that existing lines may not be fully used. Premature investments in part or whole may not generate as much incremental revenue and may affect the financial viability of the investment.

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468. In projects where capacity is proposed to be expanded by the construction of new high capacity lines along existing main trunk routes, evaluation of the investment should be undertaken on a corridor or regional basis so that the impact of the new line on the existing line(s) is considered for determining project viability.

469. MOR has been making endeavors for multi-channel financing including market sources. There have been some successes but the financing involved is rather small, compared with the requirements of investment for the national network. The scenario for financing railway infrastructure projects from market sources has deteriorated after the global economic downturn which is also impacting the Chinese economy. In the present circumstances not much support for financing the development of the railway sector can be expected from market sources. Nevertheless, there should be no let up in the efforts to tap market sources for railway investment.

470. The strategy financing of railways development under the 2020 Plan is based on estimated total investment needs of CNY4,500 billion during the period 2009-2020. The strategy has been laid out on the basis of the known and envisaged sources of financing. The main proposals are summarized below (these have been given in Table 8.4).

471. RCF has been the main source of funding railway capital construction from internal generation. During 2006, RCF accruals were CNY 49.88 billion and CNY 46.71 billion after tax. Of this 40% was used for meeting debt-service charges on loans for capital construction. Thus net fund available for capital construction was about CNY28 billion. This source needs to be expanded. To support the large scale railway expansion program, the construction surcharge on all freight on the national railway should be increased by 1.5 Fen/TKM, and flat rate of 4.5 Fen/TKm be applied for a limited period up to 2020. The total accrual in RCF at the traffic level of 2007 (2,433 billion TKM) is estimated at about CNY 90 billion.

472. Tariff Increases. Both freight and passenger tariffs have lagged behind the increase in transport costs in the past. In order to ensure that tariffs cover debt service requirements, operating losses expected on lines built in the west, and to provide for enhanced level of safety for higher speed operation tariffs on the national railway should be increased by an average of 2 Fen/Traffic Unit. At the traffic level of 2007 (2900.87 billion Traffic Units), the proposed increase in tariff would net an additional CNY58 billion in railway revenues. The profits could be used for capital construction.

473. Under the network development plan, railway lines in Western China will be 40,000 route-km. As past experience has shown, some of the routes may need heavy subsidies until traffic develops. To cover the railway’s costs, either the PSO compensation should be implemented or the railway should be able to charge additional tariffs on the rest of the network to cover its cost of operations on the whole. This aspect is important so that the impact of tariff increases is not decreased by additional losses on some new lines.

474. Tax Rebates. The government should provide tax rebates to the railways in support of the development efforts, during the limited period up to 2020. In this manner some CNY 22.5 billion (at 2007 level) could be used for railway capital construction.

475. Bonds. In 2008, the National Development and Reform Commission gave the green light to MOR to issue CNY80 billion of bonds during the year. MOR actually raised CNY30 billion of bonds in two batches. Railway bonds got an excellent response in the market, and the first batch of CNY20 billion was oversubscribed by 40.7 times – a record high in the inter bank market. There seems substantial scope for increasing financing through offering of construction bonds to market sources. During the remaining two years of the Eleventh FYP (i.e., 2009 and 2010), funding from bond issues is assumed to total CNY 60 billion per year.

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476. CDB. Under CDB’s current commitments, loans during 2009 and 2010 would be of the order of CNY 50 billion per year. In view of the stability of this source of financing, we would urge MOR to make efforts for increasing CDB’s commitment by 50% during the ensuing period up to 2012. Therefore, CDB funding of about CNY75 billion per year is envisaged.

477. Insurance Funds. In 2005, the premiums of China Insurance reached CNY230 billion, and these are growing rapidly. According to new regulation announced in March 2006, insurers can invest up to 15% of their total assets in major State-level infrastructure projects in areas such as communications, transport, energy, urban infrastructure and environmental protection. As per the China Insurance Regulatory Commission (CIRC), Chinese insurers are committed to invest about CNY70 billion in the ongoing 1,318-km high speed Beijing-Shanghai railway project that is expected to cost CNY180 billion. Considering the liquidity available in the insurance industry32, MOR should negotiate increase in funding from the insurance industry to the extent of CNB 75 billion per year in 2009 and 2010

478. Pension Funds. In 2005, the pension fund, which is managed by the National Council for Social Security Fund – a ministerial level government agency directly under the State Council, had funds in excess of CNY1,800 billion. Efforts should be made to seek funds in the amount of CNY75 billion per year for investment in railway projects.

479. Local Governments. MOR has signed strategic cooperation agreements with 30 provinces and municipalities and autonomous regions for speeding up railway construction. All new intercity and passenger dedicated railway lines are being built as joint ventures between MOR and the local governments of the participating provinces, cities and autonomous regions. Local government financing for railway projects has increased from under 5% (on some earlier projects) to over 15%. Local governments have agreed to provide 45% of the equity capital within its province, with project equity capital being 50% of total project investment.

480. Tentatively, it is estimated that in building 15,000 route-km of intercity and passenger dedicated lines under the 2020 Plan, the share of financing by local governments would amount to about CNY300 billion, or an average of about CNY25 -30 billion per year. This is a significant amount of resource which the local governments will need to provide in their annual budgets to be made available for the projects in a timely manner. MOR should set up an arrangement under which the concerned local governments are advised of their financial commitments in future years.

481. MFIs. Given the limitations, financing from MFIs may not increase significantly, and may not exceed CNY10 billion per year. In view of the wider benefits that have resulted from MFI participation and financing of projects, it will be prudent for the government to explore the possibility of expanding cooperation with both MFIs.

482. Market Sources. The Government and MOR are committed to the participation of market sources in railway financing that will make railway construction and operations more commercial and market-oriented, and ensure efficient allocation of resources. There have been some success stories, such as the successful listing of Guang-Shen and Daqin railway companies, direct sale of state- owned Chunluo Railway Company, and construction of railway lines on public-private partnership basis (i.e., Pengzhou-Bailu Railway in Sichuan province and Quzhou-Changshan railway in Zhejiang province). Though significant as a start, the railway sector is yet to make a break through for attracting market participation.

32The key players in the insurance industry like China Life Insurance, CITIC Group, Generali China Life, ManulifeSinochem Life, China Pacific Life, PICC Property, Mitsui Sumitomo and Pingan Life

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483. Securitization. MOR has a robust financial base. It has been maintaining a good operating ratio and has been generating significant resources to self-finance capital construction. Also the ongoing reforms and business reengineering are expected to have significant positive effects on MOR’s financial performance. These strengths can help MOR in raising additional financing cost effectively through securitization and the special purpose vehicle financing modality. It is important that MOR leverage its assets and revenue stream to raise investment financing at competitive rates. Securitization can effectively bridge the funding resource gap and help to get more efficient financing that will reduce overall project costs and improve project viability.

484. MOR should consider leveraging its assets and revenue stream to raise investment financing at competitive rates. Securitization can effectively bridge the funding resource gap and help to get more efficient financing that will reduce overall project costs and improve project viability.

485. As a part of the ongoing initiative to diversify financial resources, MOR should undertake a pilot project involving securitization of assets and future revenue streams on a joint venture railway in collaboration with local government which already has the experience from expressways. We also recommend that MOR should consider providing suitable international and domestic consulting assistance for developing specific proposal(s) for generating resources to finance the railways expansion program through securitization.

486. Safety in Railway Construction and Operation. The exponential expansion of railway construction activities has stretched the construction industry and the organization for planning, management, and supervision of projects. In recent years the frequency of occurrence of accidents at construction sites has increased. This underscores the need for enhancing safety on railway construction projects.

487. It is important that all possible measures are taken to ensure safety at construction work sites as well as the safety of individual workers. Safety is the direct responsibility of the agencies carrying out the work. The implementing and executing agencies must ensure that proper supervision and monitoring are in place to ensure that safety is not compromised.

488. CR has done very well in the area of railway operational safety. Operational accidents on CR have been continuously declining in number and rate of occurrence per billion traffic units.

489. The main causes of railway operational accidents on CR, in the order of priority, were: railway staff in violation of operation regulations and staff discipline; level crossings accidents due to non- observance of regulations by road users; failure of operational equipment and facilities, such as locomotives, rolling stock, permanent way, signals, and electric traction overhead wires; security problems, such as theft of components and equipment vital for railway operation, and damage to rail facilities; and natural disasters, such as landslides in hilly sections, flooding of railway tracks and facilities.

490. MOR is committed to further improving the safety record of the Chinese Railways through the introduction of new technologies and best practices. Existing railway lines where trains have been speeded up and on all passenger dedicated lines and intercity lines modern equipment and technology are being used to ensure safety at the high level of performance envisaged on these lines. These railway lines have been equipped with various equipments and systems that have helped to detect equipment defects and preempt failures and possible accidents through timely detection of defects in equipment.

491. The detection equipments have been interlinked in to a safety monitoring and control network system that enables train to trackside, trackside to train, train to train, and trackside to trackside monitoring and control on a continuous basis. The results of detection by the safety equipments are

113 transmitted to the safety cells in the railway administrations and MOR, through servers and TMIS, local area networks at all levels and work area networks. If the detected results exceed the set limits, an alarm in real time is set out for immediate measures as necessary. This system has ensured a high level of safety assurance.

492. The human factor should receive due attention in any activity associated with enhancing safety. Human factors (ergonomics) include environmental, organizational and job-related factors, and human and individual characteristics which influence behavior at work. Absence of appropriate measures on the right scale for human resource development may adversely impact the safety situation.

493. The introduction of better quality equipment has drastically improved safety. Modernisation in the past five years has resulted in a reduction of the number of accidents caused by component failures. The overall safety of China’s rail network has been strengthened, resulting in a drop in the incidence of accidents. Improvements in safety have enhanced reliability as well, which has helped transform the industry.

494. MOR has carrying out follow up studies and investigations for further enhancing the safety of operations. Achieving higher level of railway safety is an exercise in system engineering. It has to be achieved through the integration of hardware and software. The hardware relates to improving the reliability of the transport facilities. The software relates to staff education, strengthening of training, practical and concise regulations without any ambiguity, management that instills motivation, and a culture of safe operations.

495. Institutional. The Government is conscious of the need for reform of all of its state owned enterprises (SOE’s) and production ministries, of which the national railway is one of the most important. A series of reforms have been implemented by MOR, and some changes have been made in the organizational and management structures. However, actionable progress on reforms related to the separation of policy and regulatory functions of MOR from the commercial functions of CR is yet to take place.

496. The State Council’s has issued guidelines for promoting the development of the services sector on the basis of encouraging competition and investment in telecommunications, railways and airlines. In 2004, NDRC set out the following three policy principles for the reform process in China:

 separation of Government administration of the railways from enterprise management;  introduction of competition where suitable; and  effective industry regulation. 497. However reform in these areas has not progressed so far. There appears to be reluctance to take concrete steps due to perceived negative impacts of the resulting changes.

498. Issues concerning institutional reform on CR are full of contradictions, which are not amenable to simple solutions. While many possible approaches to institutional restructuring may have been successfully tried on some railway systems, but no two railway systems are the same nor do they have the same type of problems. Reform measures that have been successful on one railway may not necessarily be good for another. In the end, CR has to find the solutions that are best satisfy the Chinese characteristics.

499. It is our view that for the present the railway should continue to remain as an integrated entity until the network has been substantially expanded and there is capacity for other interested operators to participate on the basis of market access. As and when private sector operators seek

114 access in the rail freight transport market under the WTO agreement, separation of the regulatory functions will need to be considered. Appropriate changes will also be required in the management of operations and infrastructure. As a prelude to the institutional developments that would be maturing in the future, MOR must consider separation of accounting of infrastructure from operations. This will greatly help in implementing the institutional changes

500. Nanning-Kunming Railway Project –Institutional Aspects. The proposed Nanning- Kunming Railway (NKR) consists of 745.747 km of mainline electrified double-track. The line will be constructed to MOR’s Class 1 standards. Its carrying capacity is designed to cater for mixed passenger and freight traffic, including high speed passenger trains operating at 200 km/hour as well as express passenger train service at 160 km/hour, double stack container freight trains at 120 km/hour, and freight trains at 100 km/hour. Arrival and departure lines will be 850 meters.

501. MOR and Yunnan Province and Guangxi Zhuang Autonomous Region have agreed to build the Nanning-Kunming Railway as a joint-venture among the three partners. For construction and operational management of the railway, a joint-venture shareholding company (JVC) will be established with the three partners as shareholders. The cost of the Project is estimated CNY89.92 billion. In accordance with the financing plan MOR’s share shall be 81%, Yunnan – 15.4% and Guangxi – 1.3%. The Asian Development Bank is expected to provide a loan of $300 million or about 2.3% of the project cost.

502. The JVC will be responsible for project construction, assets management, finance and accounting, and maintenance of infrastructure assets. Operations on the new line would be the responsibility of the railway administration having jurisdiction, i.e., Kunming and Nanning. The maintenance of assets and equipment may be authorized to the railway administrations, similar to the practice followed on some previous JVR projects. It is emphasized that these arrangements must be agreed to on a contractual basis as would be required between two commercial entities. While doing so, the JVC must also consider involving the private sector in any of the necessary maintenance activities, if that can be more economic and efficient.

503. It is imperative that the JVC is set up soonest. At the time of setting up, the responsibilities for operation and management should be set out clearly in favor of the JVC. MOR should also determine how the assets will be transferred, who will own and how rolling stock will be operated, how the interfaces will be managed, among other questions. At the time the project companies are formed and agreement is reached on the eventual transfer of assets, it will be necessary to assess the capacity of the JVC, and whether any changes are needed.

504. As the entity responsible for the management of the project, the JVC must participate in all discussions with the proponents of the project (shareholders), consultants who are helping to prepare the project, and the financing agencies. It must be associated with and be privy to all decisions concerning the project’s planning and construction.

505. The JVC should be manned by well qualified and experienced persons to manage the diverse financial, technical, environmental and social, and financial management and accounting needs of the Project. Based on the requirements of the project and various players, the JVC will in due course need to develop and implement adequate and transparent accounting and reporting systems as well as business development mechanisms.

506. Reform of JVR Sub-Sector. Since 2004, the government and MOR have taken the joint venture route for financing massive railway development and expansion. As at the end of 2007, 65 joint venture railway companies have been set up. Thirty of these are operating some 9,600 route-km of railway lines, or about 15% of the national railway network. Every year, 15-20 new JVCs are being set up. It is expected that by 2020, some 100 JVCs will be operating more than 25,000 route-km of

115 joint venture railways. These JVRs will comprise an interconnected network of high speed lines operated in parallel with the national network. By its sheer size the JVR network will comprise a new major railway system with multiple ownership and operating entities.

507. Joint venture railways have a separate identity from the national railway. They are operated and managed by joint venture companies, established as autonomous entities under the Company Law. The JVC is under obligation to operate and manage the JVR such that it can, meet the costs of operations, service the loans for construction as well as to provide return on the shareholder’s equity. In some previous projects the responsibility for operation was assigned to the RA having jurisdiction. We think that such arrangement made by MOR will undercut JVC’s performance. This decision should be left to the JVC, who may under a bilateral arrangement with the RA farm out operations on the basis of agreed understanding or contract. It is imperative that the JVC control all aspects of operation and management to meet business objectives.

508. The Government and MOR should consider setting up a high level group that will look into all aspects of joint venture railways management, operation, and relationship with the national railway for ensuring that the JVCs, which will be responsible for huge financial investments are provided clear cut institutional support for managing the assets. The group will consider the issues listed above and many more which may arise. By 2020, the JVR network of about 25,000 route-km will comprise a formidable part of the total railway network in the country, management of which cannot be left to casual or sporadic attempts.

509. Railways development is passing through a delicate phase and decisions made (also if decisions are delayed) would have repercussions. It is imperative that the whole question of institutional reform of JVCs and their relationship with the national network and the market is looked at in totality, so that future developments may be guided accordingly. The upcoming JVR-network will be too big to ignore without consequences. It is also suggested that MOR should consider external assistance in the form of consulting services from suitable international and domestic consultants to prepare background proposals for consideration of MOR and the government.

IX. FINANCIAL ANALYSIS

A. INTRODUCTION

510. The financial assessment of NKR has been undertaken using ADB Guidelines for Preparation and Presentation of Financial Analysis. The Financial Internal Rate of Return (FIRR) of NKR and sensitivity analysis are described in this Section. More detailed analysis is provided in the Consultant’s Supplementary Final Report, Volume 1, Section 9.

B. FINANCIAL INTERNAL RATE OF RETURN

511. FIRR of NKR is calculated based on financial costs, which include all capital costs, operating expenses and business and income taxes. Revenues are estimated based on forecast traffic for freight and passenger traffic detailed in Section 3. FIRR has been estimated for net cash flows before and after income tax collected by the state on net income.

 It is expected that NKR will be owned and operated by a joint venture company (NKRC) to be established with shareholding by MOR and Guangxi and Yunnan Provinces. NKRC is, therefore, the Implementing Agency (IA) and MOR the Executing Agency (EA). 512. Negotiations between the shareholders of NKRC are currently underway and the company is expected to be established by end-2009 as a shareholding enterprise under the PRC Company Law.

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The estimation of FIRR and financial feasibility analysis described in this Section are made for NKRC as the owner and operator of the Project. A separate FIRR for MOR is not estimated.

1 Revenue Projections

a Freight Revenue

513. Given the recommended nationwide average freight tariff of 7.08 fen/TKM in 2015 (based on operating cost experience indexed with the CPI) and the application of the ‘New Line New Tariff’ concept, it is assumed that the average base freight tariff on LCR will be 12 fen/TKM by 2015 and the RCF surcharge of 3.3 fen/TKM will remain unchanged. This results in an average tariff of 15.3 fen/TKM for NKR in 2015. Compared to the unit freight revenue (including RCF) of 8.04 fen/TKM in 2005 for CR, the NKR rate represents a 6.6 percent increase per year, compared to the 3.1 percent annual average inflation forecast by ADB for the 6-year period from 2006 to 2011.

b Passenger Revenue

514. Since September 1989, the basic passenger tariff of 3.861 fen/PKM (for hard seat, standard train, and within 200 km) has been increased only once in October 1995 to 5.861 fen/PKM. This amount of adjustment of basic passenger fare during the period 1990 to 2005 reflects an average increase of 2.82 percent per year. This may be compared with the actual growth in passenger revenue of 6.86 percent per year and CPI increase of 5.46 percent per year during the 1990-2004 period. Passenger transport cost has been increasing almost four times the rate of increase of the basic passenger fare. The basic passenger fare has not kept pace with inflation. It has declined in real terms. Also the base passenger fare has substantially lagged behind the unit transport cost, which is a matter for concern.

515. The passenger tariff is based on multiples of the hard seat rate. The actual revenue is always higher than this because of the mix of passengers paying a premium for soft seats, sleeping beds, as well as for express train service and travel during the holiday season. The actual revenue to base tariff conversion factor has been increasing, reflecting the changing life styles and standards of living in China.

516. The current 39.5 fen/PKM tariff for soft sleeper express trains is considerably lower than the existing average air fare of CNY 1.166/PKM. The fare for intercity long-distance very fast train service on NKR is assumed at 20 fen/PKM for transit traffic where the competition is primarily with air transport. For the relatively lower distance interline traffic the fare is assumed at 15 fen/PKM, which is significantly lower than the existing bus fares ranging from 19 to 43 fen/PKM. Considering the difference in speed between a very fast train and bus (200 km/hr versus 35 km/hr), a tariff at the lower end of the bus fare for very fast (and considerably safer and comfortable train service is highly competitive. In the short distance local transport, NKR should establish an aggressive pricing strategy in direct competition with bus transport. It is assumed that the local very fast train service (if introduced in the future) is priced at 12 fen/PKM or 37% lower than the lowest current bus fare. This will allow NKR to quickly gain market share and maintain a predominant position as a comfortable, safe, and modern mode of transport. The low-fare structure for local service will also substantially benefit the people living in the PIA.

517. Fast trains on NKR will be somewhat slower than very fast trains. At speeds of up to160 km/hr these trains are similar to the current fast train service across CR, where the tariff ranges from 23 fen/PKM to 37 fen/PKM. An aggressive pricing will be used to capture a high share of the market. A tariff of 15 fen/PKM is assumed for fast trains in transit service, 12 fen/PKM in interline service, and

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10 fen/PKM for local service. This aggressive pricing strategy will help NKR gain and maintain market share as well as maximize benefits to the people in the PIA.

518. Conventional trains at speeds of 120 km/hr will be used in interline and local service. These trains will be priced at 10 fen/PKM, 47 percent lower than the lowest bus fare with almost four times faster service than bus transport with considerably higher comfort and safety.

2 Expense Projections

a Project financial costs

519. Financial costs of the Project expressed in nominal 2009 prices are summarized in Table 9.1 by major project components, expenditure category, and by year. These costs are estimated by the TA Consultant, principally based on data provided by SSDI. Particularly the estimated civil works costs are close to SSDI’s estimates. The differences between FSDI and Consultant estimates are mainly in interest during construction (IDC) and contingencies. Price contingencies include provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

520. Rolling stock costs are not separately estimated. This equipment consists of a fleet of locomotives, coaches, and wagons which will not be specifically assigned to NKR. MOR will separately finance the procurement of rolling stock and charge a fee based on train-km to NKR and other railways. The per-km rate will be based on dry-lease terms and will include depreciation charges and 8% return on investment. The estimated cost of dry lease per train-km is CY 7.90 for freight trains and CY 10.60 for passenger trains. Train maintenance and operating costs are separately included in the financial evaluation.

521. The total nominal project cost is CY 65,102.46 million, inclusive of all costs. The estimated capital costs for evaluation of financial feasibility (excluding price contingency, IDC, and working capital) is CY 50,496.1 million. Capital costs during the construction period for FIRR calculation include all incremental outlays related to the Project, but exclude interest during construction, price contingency, and working capital. Annual capital cost outlay for civil works during the construction period is assumed at varying rates depending on the cost component. Land acquisition and resettlement and subgrade are components which will be implemented first. Signaling, telecommunications, and track works will be implemented during the later years of the construction period.

522. During the operation period of NKR major line overhaul expenditures are expected on civil works, particularly for bridges and tunnels. In addition, replacement and upgrading of electrical systems and signaling would be needed. These costs are expected to recur every seven years (in year 2023, and 2030) and would amount to 5% of the initial capital investment for civil works (subgrade, tunnels, and bridges), track, buildings and facilities, signaling and communications facilities, and electric power (substations, transmission, and catenary).

523. The catenary is assumed to have an economic life of 15 years. Therefore, a replacement cost for catenary is included at the end of its economic life in 2030 in the amount of CNY 1,022.31 million.

b Operating expenses

524. Operating expenses include fixed costs, freight variable costs, passenger variable costs, and other non-operating costs. The assumptions underlying each cost category are described below.

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Table 9.1: NKR Project Cost (CY Million)(a) Item 2009 2010 2011 2012 Cost Category % Domestic No. Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total A Base Cost(b) 1 Land acquisition and resettlement 100% 735.30 0.00 735.30 551.47 0.00 551.47 551.47 0.00 551.47 0.00 0.00 0.00 2 Subgrade 100% 1,164.40 0.00 1,164.40 1,746.60 0.00 1,746.60 1,455.50 0.00 1,455.50 0.00 0.00 0.00 3Bridges and culverts 60% 0.00 0.00 0.00 1,223.39 789.29 2,012.68.78 2,446 1,578.57 4,025.36 1,223.39 789.29 2,012.68 4 Tunnels and cut & cover tunnels 60% 1,511.82 975.37 2,487.18 2,267.73 1,463.05 3,730.78,267.73 2 1,463.05 3,730.78 2,267.73 1,463.05 3,730.78 5 Railway trackwork(c) 60% 0.00 0.00 0.00 0.00 0.00 0.00 135.44 87.38 222.83 812.67 524.30 1,336.97 6 Communications and gsinaling 50% 0.00 0.00 0.00 0.00 0.00 0.0000 0. 0.00 0.00 321.16 305.87 627.03 7 Electric power and traction 50% 0.00 0.00 0.00 0.00 0.00 0.0000 0. 0.00 0.00 421.07 401.01 822.08 8 Vehicles(d) 70% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 9 Safety components 50% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10 Buildings 85% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 11 Other equipment and facilities 60% 0.00 0.00 0.00 96.78 62.44 159.23 96.78 62.44 159.23 96.78 62.44 159.23 Environmental protection, mitigation, and 12 95% 71.28 3.74 75.03 71.28 3.74 75.0371.28 3.74 75.03 71.28 3.74 75.03 monitoring 13 Temporary facilities and transitional works 100% 270.95 0.00 270.95 225.79 0.00 225.79 225.79 0.00 225.79 90.32 0.00 90.32 14 Other expenses 60% 200.30 129.22 329.52 200.30 129.22 329.52 200.30 129.22 329.52 200.30 129.22 329.52 15 Consultants-Construction Supervision 80% 81.55 20.14 101.69 81.55 20.14 101.69 81.55 20.14 101.69 81.55 20.14 101.69

4,035.60 1,128.47 5,164.07 6,464.91 2,467.88 8,932.79 7,532.64 3,344.55 10,877.19 5,586.25 3,699.06 9,285.31 Subtotal (A) B (e) Contingencies 1 Physical Contingency 242.70 67.87 310.56 388.79 148.42 537.21 453.01 201.14 654.14 335.95 222.46 558.41 2 Price Contingency 0.00 0.00 0.00 190.06 19.74 209.80 442.23 53.51 495.75 518.88 88.78 607.66 Subtotal (B) 242.70 67.87 310.56 578.85 168.16 747.0195.24 8 254.65 1,149.89 854.83 311.24 1,166.07 C Financing Charges During Implementation(f) 97.89 3.42 101.31 378.01 19.12 397.1307 782. 36.01 818.08 1,199.81 56.38 1,256.20 Total (A+B+C) 4,376.19 1,199.76 5,575.95 7,421.77 2,655.16 10,076.93 9,209.95 3,635.21 12,845.17 7,640.89 4,066.68 11,707.57 Capital Investment(g) 4,278.30 1,196.34 5,474.64 6,853.70 2,616.30 9,470.00 7,985.65 3,545.69 11,531.34 5,922.20 3,921.52 9,843.72 Fixed Assets Formulation(h) Civil Works 4,278.30 1,196.34 5,474.64 6,853.70 2,616.30 9,470.00 7,985.65 3,545.69531.34 11, 5,922.20 3,921.52 9,843.72 Subtotal 4,278.30 1,196.34 5,474.64 6,853.70 2,616.309,470.00 7,985.65 3,545.69 11,531.34 5,922.20 3,921.52 9,843.72

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Table 9.1: NKR Project Cost (CY Million) 2013 2014 2015 Summary Cost Category Local Foreign Total Local Foreign Total Local Foreign Total Local Foreign Total Base Cost(b) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,838.25 0.00 1,838.25 Land acquisition and resettlement 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4,366.51 0.00 4,366.51 Subgrade 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4,893.57 3,157.14 8,050.71 Bridges and culverts 2,267.73 1,463.05 3,730.78 2,267.73 1,463.05 3,730.78 377.95 243.84 621.80 13,228.40 8,534.45 21,762.86 Tunnels and cut & cover tunnels 812.67 524.30 1,336.97 677.22 436.92 1,114.14 0.00 0.00 0.00 2,438.00 1,572.90 4,010.90 Railway trackwork(c) 350.36 333.67 684.03 350.36 333.67 684.03 0.00 0.00 0.00 1,021.87 973.21 1,995.09 Communications and signaling 459.34 437.47 896.81 459.34 437.47 896.81 0.00 0.00 0.00 1,339.75 1,275.95 2,615.71 Electric power and traction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Vehicles(d) 0.00 0.00 0.00 0.00 0.00 0.00 133.77 127.40 261.16 133.77 127.40 261.16 Safety components 212.72 37.21 249.94 212.72 37.21 249.94 17.73 3.10 20.83 443.18 77.52 520.70 Buildings 96.78 62.44 159.23 72.59 46.83 119.42 24.20 15.61 39.81 483.92 312.21 796.13 Other equipment and facilities Environmental protection, mitigation, and 71.28 3.74 75.03 71.28 3.74 75.03 47.52 2.49 50.02 475.22 24.95 500.17 monitoring 90.32 0.00 90.32 0.00 0.00 0.00 0.00 0.00 0.00 903.16 0.00 903.16 Temporary facilities and transitional works 200.30 129.22 329.52 200.30 129.22 329.52 133.53 86.15 219.68 1,335.32 861.50 2,196.82 Other expenses 81.55 20.14 101.69 81.55 20.14 101.69 54.37 13.42 67.79 543.70 134.25 677.94 Consultants-Construction Supervision 4,643.05 3,011.25 7,654.30 4,393.10 2,908.26 7,301.35 789.07 492.02 1,281.08 33,444.62 17,051.48 50,496.10 Subtotal (A) Contingencies(e) 279.23 181.09 460.32 264.20 174.90 439.10 47.45 29.59 77.04 2,011.33 1,025.46 3,036.79 Physical Contingency 540.98 96.36 637.34 637.23 116.33 753.56 137.60 23.62 161.22 2,466.98 398.34 2,865.33 Price Contingency 820.21 277.45 1,097.66 901.43 291.23 1,192.66 185.06 53.21 238.26 4,478.31 1,423.80 5,902.12 Subtotal (B) 1,551.40 75.63 1,627.03 2,247.07 115.13 2,362.20 2,421.23 187.74 2,608.97 8,677.49 493.45 9,170.93 Financing Charges During Implementation(f) 7,014.67 3,364.33 10,379.00 7,541.59 3,314.62 10,856.21 3,395.35 732.97 4,128.32 46,600.42 18,968.73 65,569.15 Total (A+B+C) 4,922.28 3,192.34 8,114.63 4,657.29 3,083.16 7,740.45 836.52 521.61 1,358.13 35,455.95 18,076.94 53,532.89 Capital Investment (g) Fixed Assets Formulation (h) 4,922.28 3,192.34 8,114.63 4,657.29 3,083.16 7,740.45 836.52 521.61 1,358.13 35,455.95 18,076.94 53,532.89 Civil Works 4,922.28 3,192.34 8,114.63 4,657.29 3,083.16 7,740.45 836.52 521.61 1,358.13 35,455.95 18,076.94 53,532.89 Subtotal Source: Compiled and adjusted by Consultant from data provided by MOR and ADB. (a) Includes import taxes and duties of CY 852.57 million ($ 124.83 million). (b) In 2007 prices. (c) Including rails, sleepers, ballast, bridge beams, track laying, and bridge erection. (d) Vehicles will be purchased by MOR under separate funding and will be leased to NKR on a fixed charge per train-km basis based on full cost recovery. Initial cost of vehicles is not included in the Project costs sin facilities, b (e) Physical contingences computed at 6.14% of base cost on average for civil works and 6.14% for field research and development, training, surveys, and studies (this estimate is based on assumed contingency rat components ranging from 3% t (f) Interest during construction for ADB loan has been computed on the five-year forward London interbank offered rate plus a spread of 60 basis points and a rebate on spread of 20 points. Commitment fee is based drawdown. Front end fee o (g) For FIRR calculation, excluding IDC, price contingency, and working capital. (h) Fixed assets formulated after the project construction.

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i. Fixed Costs 525. By definition fixed costs are incurred regardless of the traffic volume on NK. As such they are a function of time rather than the level of traffic. Fixed costs include fixed labor, fixed power, fixed maintenance materials, and other fixed costs. Fixed labor costs represent the staffing at the headquarters and regional offices of NKR for administrative overhead and other basic support services including the fixed complement of security staff. Fixed labor costs are estimated for administrative staff at NKR offices, a minimum complement of support staff at stations, and a similar minimum complement of maintenance crews for civil works (right-of-way, tunnels and bridges), power lines and facilities, and signaling and communications network. Total fixed employment at NKR is estimated at 7,674 employees.

526. Fixed station employees are assumed at 50 per station. Fixed station employees include guards, cleaning staff for basic maintenance of station buildings and other facilities, office workers, and station management staff. The minimum maintenance crew size for civil works is assumed at 2,983 employees (4 employees per route km). For fixed maintenance of signaling, communications, power lines, and other equipment the minimum work force size required is 1,491 (two employees per route km).

527. During the first year of NKR operations the total fixed labor is 7,674 employees or 59 percent of the total work force (12,992) for NKR. The average annual labor cost inclusive of all taxes, pension fund payments, and fringe benefits is assumed at 30,000 CY per employee. The average annual labor cost is assumed to escalate at a rate of 3 percent per year.

528. The fixed power requirements of NKR are 120 million KWh. Even without traffic this power is needed for the catenary and other fixed facilities. The power cost is assumed at 55 fen/KWh. The fixed maintenance materials cost is assumed at 100,000 CY per route km per year for the first four years, escalating at an annual rate of 6 percent for three years thereafter. At the end of the 7th year, line and facilities overhaul and upgrade will be undertaken at a cost of 5 percent of the initial capital investment in civil works (subgrade, tunnels, and bridges), track, buildings and facilities, signaling and communications facilities, and electric power (substations, transmission, and catenary). This large investment will reduce the need for maintenance materials costs for 4 years to 100,000 CY per route km. Beginning with the 5th year following completion of the overhaul and upgrade of fixed facilities, the annual maintenance materials cost will increase by 6 percent annually until the next overhaul/upgrade.

529. Based on the assumptions described above, the fixed costs of NKR are estimated at 1.04 CY million per route-km in 2015, increasing to 1.13 CY million per route-km in 2021. From 2022 to 2034 the average cost per route km increases to 1.33 CY million per route-km.

ii. Passenger Variable Costs

530. By definition variable costs are incurred as a result of the traffic carried. As such they are a function of the level of traffic. The principal assumptions underlying variable cost estimates for passenger traffic are described below. Variable maintenance costs are separately estimated for civil works, electric power and facilities, rolling stock (passenger trains), and other facilities. These costs are estimated on the basis of passenger train km on NKR. The passenger train km estimates are based on the passenger train diagram included in Section 4. Based on this data passenger train km on NKR for 2015, 2020, and 2030 have been estimated as 17.70 million, 23.66 million, and 42.36 million, respectively. Unit maintenance costs per passenger train km for variable maintenance costs are 3.5 CY for civil works and rolling stock, 4 CY for electric power system including catenary and substations, and 3 CY for other facilities including signaling and communications.

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531. Variable labor costs for passenger transport also include train crews (locomotive engineers, safety personnel, conductors, and other on-board staff serving passenger needs), routine daily inspection/maintenance personnel for trains, train overhaul and service employees at workshops and depots, and station employees supporting passenger transport services.

532. During the first year of NKR operations the total variable labor for passenger transport operations is 2,032 employees or 11 percent of the total work force for NKR of 12,992. The average annual labor cost inclusive of all taxes, pension fund payments, and fringe benefits is assumed at 30,000 CY per employee for 2015. The average annual labor cost is assumed to escalate at a rate of 3 percent per year.

533. Variable electric power cost is assumed as a linear function with a fixed intercept of 691 million KV hours to maintain power at the catenary (included in the fixed cost estimate detailed in Table 9.7 above) and a slope of 67.95 KV hours per 1000 PKM. When the passenger traffic for 2015 is compared with the train diagram, the average occupancy per train is 55%. Therefore, variable electric power per passenger train km is 44.85 KV hours for a passenger train of 1200 seats (16 coaches of 75 seats each). In 2020 the occupancy is 65% and variable electric power use is 53 KV hours per passenger train km. The corresponding figures for 2030 are 70% and 57.8 KV hours.

534. Other variable costs for passenger transport are assumed at 5 percent. Based on these assumptions, the average variable cost for passenger transport is estimated at 6.88 fen/PKM in 2015 (compared to SSDI’s estimate of 3.75 fen/PKM) gradually decreasing to 6.72 fen/PKM by 2034. These average costs, do not include rolling stock lease costs since they are separately estimated and included in the financial evaluation..

iii. Freight Variable Costs

535. The approach used in estimating these costs is similar to the one described above for passenger transport variable costs. Variable maintenance costs are separately estimated for civil works, electric power and facilities, rolling stock (passenger trains), and other facilities. These costs are estimated on the basis of freight train km on NKR. Variable maintenance costs are separately estimated for civil works, electric power and facilities, rolling stock (passenger trains), and other facilities. These costs are estimated on the basis of freight train km on NKR. The freight train km estimates are based on freight traffic projections included in Section 3. Based on assumed 200 TEUs per train (double-stack operations) and 4,000 tons of non-containerized tons per train, the train kms on NKR for 2015, 2020, and 2030 have been estimated as 41.59 million, 47.49 million, and 58.67 million, respectively. Unit maintenance costs per freight train km for variable maintenance costs in 2015 are 14 CY for civil works and other facilities, 16 CY for electric power system including catenary and substations, and 12 CY for rolling stock. These estimates are higher than for passenger trains because of the heavier weight for freight trains. These costs are increased annually by 3 percent.

536. Variable labor costs for freight transport include train crews (locomotive engineers and other on-board personnel), routine daily inspection/maintenance personnel for trains, train overhaul and service employees, and station and yard employees supporting freight transport services.

537. During the first year of NKR operations the total variable labor for freight transport operations is 3,858 employees or 29.7 percent of the total work force for NKR of 12,992. The average annual labor cost inclusive of all taxes, pension fund payments, and fringe benefits is assumed at 30,000 CY per employee for 2015. The average annual labor cost is assumed to escalate at a rate of 3 percent per year.

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538. Variable electric power cost is assumed as a linear function with a fixed intercept of 605 million KV hours to maintain power at the catenary (included in the fixed cost estimate detailed in Table 9.7 above) and a slope of 13.59 KV hours per 1000 TKM.

539. Other variable costs for freight transport are assumed at 5 percent. Based on these assumptions, the average variable cost for freight transport is estimated at 4.02 fen/PKM in 2015 (as opposed to SSDI’s estimate of 2.07 fen/TKM) gradually increasing to 4.77 fen/TKM by 2034 as operating costs increase with the traffic growth. These average costs do not include rolling stock lease costs since they are separately estimated and included in the financial evaluation.

iv. Non-Operating Costs

540. Other non-operating costs are assumed at 0.25 fen/TU based on overall MOR costs for these items.

c Projected traffic volume

541. The passenger freight traffic that will go through NKR including generated and diverted traffic is provided in Section 3.

d Other cash outflows

542. In addition to the operating expenditures above, NKR also needs to pay business tax, city construction tax, and education surcharge. The effective business tax in PRC is 3% of the total revenue. City construction tax and education surcharge are 7% and 1%, respectively, of the amount paid for business tax. Income Tax is imposed on the net taxable profit at 33% with net loss cumulatively carried forward for up to five years from the first year of profit realization.

e Cash inflows

543. Tariff setting for the new line will be based on the new-line-new-tariff cost recovery principle. The proposed tariff for very fast and fast trains described above is not yet approved by the Government. Other revenues, including revenues from parcel service, mail, baggage, freight origin- destination charges, and accessorial transportation services represent 4.5% of the total NKR freight and passenger revenues. Residual value is calculated according to the net book value or economic value whichever is lower.

f Weighted Average Cost of Capital

544. The estimated weighted average cost of capital (WACC), after tax, in real terms was calculated based on the capital mix and costs of funds (Table 9.10). The numbers reflect 2007 data and have not been updated because financing details have yet to be determined. Costs have been considered as follows: (i) ADB debt at 5.05% during repayment period with 1% front end fee; (ii) Domestic bank loan at 6.738%; (iii) Cost of equity at 8% (based on the opportunity cost of capital for MOR). The WACC computation reflects the impact of income tax at 33% on borrowed funds. Domestic and international inflation rates of 3% and 0.8%, respectively have been assumed for domestic and foreign currency denominated debt for the share of each source of financing for the Project. The WACC at 3.209% is higher than the 2.2% estimated for the Taiyuan-Zhongwei Railway (TZR) Project approved by ADB on 23 November 2006 and the WACC of 3% for the Zhengzhou- Xian Railway (ZXR) Project approved by ADB on 22 September 2005. However, it is also quite likely that interest rates will decrease given the current global financial crisis, which will reduce overall Project costs.

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Table 9.2: Weighted Average Cost of Capital

Domestic Equity of 2 Item ADB Loan MOR Equity Total Loans Local Gov'ts

Amount (CNY Million) 2,049.00 30,502.23 18,159.86 14,858.06 65,569.15 Weight 3.1249% 46.5192% 27.6957% 22.6601% 100.0000% Nominal cost 5.0500% 6.7385% 8.0000% 8.0000% Tax rate 33.0000% 33.0000% 0.0000% 0.0000% Tax adj nom cost 3.3835% 4.5148% 8.0000% 8.0000% Inflation rate 0.8000% 3.0000% 3.0000% 3.0000% Real cost 2.5630% 1.4707% 4.8544% 4.8544% Weighted component 0.0801% 0.6841% 1.3445% 1.1000% WACC 3.209% Source: Consultant.

3. Financial Internal Rate of Return

545. Table 9.3 presents two calculations of the FIRR, distinguishing between before and after tax. It is common practice to perform both calculations. In both cases the net cash flow includes RCF. RCF is collected for the explicit purpose of financing railway construction projects, a purpose similar to retained earnings or government capital distribution for facility investments. The FIRR results are as follows:

 After Income Tax:  Before Income Tax: 546. The FIRR of the Project is higher than the WACC of 3.21%. The financial viability of the Project is considered satisfactory.

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Table 9.3: FIRR Calculations for NKR Tax Net Cash Flow Residual Working Working Operating Year Capital Cost Net Business Income Value of Capital Expenses Revenue Before Income Tax After Income Tax & Other Tax Fixed Assets

2009 (5,153.22) 0.00 0.00 0.00 0.00 0.00 0.00 (5,153.22) (5,153.22) 2010 (8,523.22) 0.00 0.00 0.00 0.00 0.00 0.00 (8,523.22) (8,523.22) 2011 (10,149.82) 0.00 0.00 0.00 0.00 0.00 0.00 (10,149.82) (10,149.82) 2012 (9,353.41) 0.00 0.00 0.00 0.00 0.00 0.00 (9,353.41) (9,353.41) 2013 (8,068.24) 0.00 0.00 0.00 0.00 0.00 0.00 (8,068.24) (8,068.24) 2014 (7,765.02) 0.00 0.00 0.00 0.00 0.00 0.00 (7,765.02) (7,765.02) 2015 (1,311.77) 0.00 0.00 0.00 0.00 0.00 0.00 (1,311.77) (1,311.77) 2016 0.00 407.60 4,891.24 8,268.25 267.89 0.00 0.00 3,516.72 3,516.72 2017 0.00 21.13 5,144.78 8,696.60 281.77 0.00 0.00 3,291.18 3,291.18 2018 0.00 14.44 5,318.08 9,148.02 296.40 80.26 0.00 3,547.99 3,467.73 2019 0.00 14.75 5,495.06 9,623.82 311.81 193.23 0.00 3,831.70 3,638.47 2020 0.00 15.48 5,680.83 10,125.36 328.06 312.80 0.00 4,131.95 3,819.15 2021 0.00 15.86 5,871.20 11,101.70 359.70 583.83 0.00 4,886.66 4,302.83 2022 0.00 14.66 6,047.10 11,568.01 374.80 698.24 0.00 5,160.77 4,462.52 2023 (2,164.03) 193.34 6,203.12 12,055.51 390.60 827.53 0.00 3,491.09 2,663.56 2024 0.00 (165.62) 6,379.72 12,565.22 407.11 861.86 0.00 5,612.77 4,750.91 2025 0.00 16.12 6,573.15 13,095.20 424.28 995.80 0.00 6,113.89 5,118.09 2026 0.00 16.69 6,773.41 14,230.02 461.05 1,393.34 0.00 7,012.25 5,618.90 2027 0.00 17.90 6,988.27 14,834.86 480.65 1,548.01 0.00 7,383.84 5,835.84 2028 0.00 18.35 7,208.48 15,467.58 501.15 1,711.95 0.00 7,776.30 6,064.34 2029 0.00 18.82 7,434.35 16,129.57 522.60 1,885.66 0.00 8,191.44 6,305.77 2030 (2,164.03) 197.70 7,642.71 16,822.26 545.04 2,077.40 0.00 6,668.18 4,590.78 2031 (1,298.86) (52.82) 7,874.08 18,360.87 594.89 2,534.24 0.00 8,540.21 6,005.97 2032 0.00 (77.67) 8,240.86 19,156.71 620.68 2,712.00 0.00 10,217.49 7,505.49 2033 0.00 32.05 8,625.41 19,989.91 647.67 2,898.79 0.00 10,748.88 7,850.09 2034 0.00 34.06 1,521.18 20,862.35 675.94 3,026.13 0.00 18,699.28 15,673.16 2035 0.00 35.73 10,984.03 21,776.00 705.54 3,230.52 20,378.60 30,500.75 27,270.24 Source: Consultant estimates FIRR 7.45% 6.22% NPV @ WACC 38,919.70 24,978.93 WACC 3.21%

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4. Sensitivity Analysis

547. Sensitivity analyses were performed to test the effects of possible unfavorable scenarios with respect to changes in the key parameters that determine costs and revenues. The results of this analysis are summarized in Table 9.4.

Table 9.4: Sensitivity Analysis

Sensitivity of FIRR Switching Values for FIRR Scenario Before Income Tax After Income Tax Before Income After Income Base Case WACC 3.21% 7.45% 6.22% Tax Tax Passenger Traffic Decrease by 20.00%6.47% 5.08% 86.36% 52.55% Freight Traffic Decrease by 15.00%5.01% 3.35% 26.13% 15.75% Passenger Transport Cost Increase by 40.00%6.90% 5.58% 306.51% 187.83% Working Expenses Increase by 10.00%6.70% 5.36% 56.45% 34.87% Resettlement Cost Increase by 100.00%7.15% 5.93% 1412.50% 1036.94% Project Cost Increase by 10.00%6.74% 5.52% 59.75% 42.76% NPV reduced by NPV reduced by Delay Implementation by 1 year 4.83% 3.44% 32% 43% Source: Consultant estimates.

548. The sensitivity analysis indicates that the Project’s financial viability would be dependant on the tariff applied and the traffic realized. Decrease in the freight traffic by 15% would reduce FIRR to 5.01% and 3.35% for income before tax and after tax, respectively. A 20% decrease in passenger traffic will result in a FIRR of 6.47% and 5.08%, respectively. In the case of a decrease in freight traffic of more than 15.75% (after tax) would make the project infeasible since the FIRR will be lower than the WACC of 3.215%.

549. Due to the recent changes in the compensation rates for land acquisition and resettlement under State Regulation No. 28, the Provinces finalized their implementation guidelines. The new guidelines potentially increase the compensation multiplier. The final resettlement costs will be fixed when the resettlement census is completed in late 2009. To account for this uncertainty, a sensitivity test was made assuming a 100% increase in resettlement costs. Under this assumption NKR’s FIRR is reduced to 7.15% and 5.93% for before and after tax, respectively, indicating that the Project’s financial viability is not sensitive to a substantial increase in resettlement costs.

550. In the case of NKR passenger operations, a 20% decrease in traffic (akin to a decrease of passenger revenue of the same extent, assuming no change in tariff) will reduce the after tax FIRR to 5.08%. On the other hand, a 40% increase in passenger transport costs would reduce the after-tax FIRR to 5.58%, indicating that the Project’s financial viability is more sensitive to traffic variation than to cost variation. Therefore, tariff setting principles and marketing the new railway are key for the sustained viability of the Project.

551. On the cost side, a 10% increase in the Project costs will not pose a potential risk for the Project’s financial viability (after tax FIRR of 5.52%). Implementation delay of one year, however, would reduce the after tax FIRR to 3.44% and NPV by 43%.

C. WILLINGNESS TO PAY

552. The passenger surveys conducted by the Consultant included questions on the respondent’s willingness to pay for the very fast, fast, and conventional railway service offered by NKR. On the average the respondent’s willingness to pay ranges from 18 to 28 fen/PKM for trips between 501 and 800 km. The average revenue per PKM estimated by the Consultant based on the proposed tariff structure described in Section 9.2.2 is 14.4 fen/PKM in 2015. Compared to the passenger preference in 2009, this represents a highly acceptable price structure.

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553. The current bus fare in the PIA ranges from 19 to 46 fen/PKM. Assuming an inflation of 3%, the bus fare in 2015 would be 29 to 58 fen/PKM which is at least 100% higher than the average fare for NKR. The existing air fare is 1.16 CY/PKM, which corresponds to 1.47 CY/PKM in 2015 assuming 3% inflation. The air fare would thus be more than 10 times more expensive. The existing express train service fare between Shanghai and Beijing is 39.5 fen/PKM, which is considerably more than the average fare for NKR. Considering the same speed on NKR, the proposed rate structure is considerably more attractive than bus or comparable express train service. The pricing structure for NKR represents a realistic market price which assures a high market share and customer preference in terms of safety, speed, comfort, and cost.

X. ECONOMIC ASSESSMENT

A. INTRODUCTION

554. This Section describes the economic assessment conducted by the Consultant for the Project railway. The approach used follows ADB’s Guidelines for the Economic Analysis of Projects dated February 1997 and is based on the forecast freight and passenger traffic summarized in Section 3, and presented in detail in the Consultant’s Supplementary Final Report, Volume 1, Section 3.

B. GENERAL ASSUMPTIONS

555. For all quantifiable project costs and benefits, the unit of account used is the domestic price level expressed in national currency (CY). The price level used for all project costs and benefits is constant 2009 prices. The shadow exchange rate factor (SERF) of 1.01 has been used from the RRP for the recently approved ZXR Railway Project (Zhengzhou-Xi’an Railway Project; RRP PRC- 37487 approved 10 December 2004) for converting foreign costs to domestic cost equivalents.

C. PROJECT RESOURCE STATEMENT

556. The NKR Project Resource Statement (PRS) expressed in domestic prices in CY million is presented in Table 10-1. The PRS consists of the following six parts and are discussed below:

 A. Initial Investment Schedule;  B. Additional Investment Schedule;  C. Working Capital;  D. Annual Costs;  E. Benefits; and  F. Net Benefits. 557. Part A, Initial Investment Schedule, of the PRS includes the initial project costs to be incurred during the 5.5-year construction period from 2009 to 2014 and 6-month year trial operations and testing into 2015. It should be noted that even though MOR may start to implement the project earlier, these activities will mainly consist of obtaining the required government approvals, completing the detailed design, and preparatory works for construction. The construction activities for ADB-funded components will start when the ADB loan is approved. This Part lists costs under four categories: Resettlement Costs, Environmental Control Costs, Initial Civil Works, and Physical Contingency.

558. Part B, Additional Investment Schedule, of the PRS presents the project costs associated with additional investments. It consists of rehabilitation and overhaul of fixed facilities every 7 years (2023 and 2030 for subgrade, bridges and culverts, tunnels, track, and communications and

127 signaling facilities), station access roads, residual value of fixed assets at the end of the valuation period (2034), and replacement of fixed assets which reach their economic life (15 years or 2030 for electric power and traction). These facilities are necessary for the attainment of Project objectives. The cost of rehabilitation and overhaul of the fixed facilities will be borne by the Project. Therefore, their costs are included in both economic and financial evaluation.

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Table 10.1: NKR Project Resource Statement (Economic Prices), CY Million

Years 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Initial Amount Item (CNY Million) Replacement Economic Period (Years) Prices A. INITIAL INVESTMENT SCHEDULE 1. Resettlement Costs: Temporary Use of Land 137.05 26.55 40.65 41.50 27.14 1.17 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Building Replacement 405.85 78.64 120.38 122.90 80.37 3.46 0.11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Facilities 60.63 11.75 17.98 18.36 12.01 0.52 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Compensation for Standing Crops 9.47 1.84 2.81 2.87 1.88 0.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Administration Costs and Other Resettlement Expenses 485.49 94.07 144.00 147.01 96.14 4.14 0.13 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal 1,098.49 - 212.84 325.81 332.63 217.54 9.36 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2. Environmental Control Costs: Project environmental control costs 2,026.98 101.35 506.75 506.75 506.75 405.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Environmental Monitoring - Construction phase only 8.00 1,328.00 1,111.00 1,111.00 1,111.00 1,113.00 1,113.00 1,113.00 0.00 0.00 0.00 0.00 0 .00 0.00 Subtotal 2,034.98 30 1,429.35 1,617.75 1,617.75 1,617.75 1,518.40 1,113.00 1,113.00 0.00 0.00 0.00 0.00 0.00 0.00 3. Civil Works (Initial): 43,731.24 4,399.73 7,021.67 7,173.41 6,565.31 9,790.66 7,944.22 836.24 0.00 0.00 0.00 0.00 0.00 0.00 Subgrade 3,945.13 65 0.00 758.68 910.41 910.41 910.41 455.21 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bridges and culverts 7,273.80 10 0.00 1,818.45 1,818.45 1,818.45 1,818.45 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tunnels and cut & cover tunnels 19,662.69 45 3,370.75 3,370.75 3,370.75 3,370.75 3,370.75 2,808.96 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Railway trackwork(c) 3,676.37 20 0.00 0.00 0.00 0.00 1,758.26 1,918.11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Communications and signaling 1,819.37 15 0.00 0.00 0.00 0.00 632.82 949.23 237.31 0.00 0.00 0.00 0.00 0.00 0.00 Electric power and traction 2,398.50 20 0.00 0.00 0.00 0.00 834.26 1,251.39 312.85 0.00 0.00 0.00 0.00 0.00 0.00 Safety components 236.25 20 0.00 0.00 0.00 0.00 0.00 157.50 78.75 0.00 0.00 0.00 0.00 0.00 0.00 Buildings 502.99 10 0.00 100.60 100.60 100.60 100.60 75.45 25.15 0.00 0.00 0.00 0.00 0.00 0.00 Other equipment and facilities 734.58 30 0.00 146.92 146.92 146.92 146.92 110.19 36.73 0.00 0.00 0.00 0.00 0.00 0.00 Temporary facilities and transitional works 805.12 15 120.77 120.77 120.77 120.77 120.77 120.77 80.51 0.00 0.00 0.00 0.00 0.00 0.00 Other expenses 2,026.98 4 810.79 608.09 608.09 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Consultants-Construction Supervision/Monitoring 649.47 4 97.42 97.42 97.42 97.42 97.42 97.42 64.95 0.00 0.00 0.00 0.00 0.00 0.00 4. Physical Contingencies: 2,801.24 289.59 467.47 477.47 428.63 604.38 484.49 49.21 0.00 0.00 0.00 0.00 0.00 0.00 1) On Land Acquisition & Resettlement 109.85 21.28 32.58 33.26 21.75 0.94 0.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2) On Environmental Control Costs 28.26 1.41 7.06 7.06 7.06 5.65 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subgrade 242.16 0.00 46.57 55.88 55.88 55.88 27.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bridges and culverts 446.48 0.00 111.62 111.62 111.62 111.62 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tunnels and cut & cover tunnels 1,206.93 206.90 206.90 206.90 206.90 206.90 172.42 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Railway trackwork(c) 225.66 0.00 0.00 0.00 0.00 107.93 117.74 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Communications and signaling 111.68 0.00 0.00 0.00 0.00 38.84 58.27 14.57 0.00 0.00 0.00 0.00 0.00 0.00 Electric power and traction 147.22 0.00 0.00 0.00 0.00 51.21 76.81 19.20 0.00 0.00 0.00 0.00 0.00 0.00 Safety components 14.50 0.00 0.00 0.00 0.00 0.00 9.67 4.83 0.00 0.00 0.00 0.00 0.00 0.00 Buildings 30.87 0.00 6.17 6.17 6.17 6.17 4.63 1.54 0.00 0.00 0.00 0.00 0.00 0.00 Other equipment and facilities 45.09 0.00 9.02 9.02 9.02 9.02 6.76 2.25 0.00 0.00 0.00 0.00 0.00 0.00 Temporary facilities and transitional works 28.26 4.24 4.24 4.24 4.24 4.24 4.24 2.83 0.00 0.00 0.00 0.00 0.00 0.00 Other expenses 124.42 49.77 37.33 37.33 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Consultants-Construction Supervision/Monitoring 39.87 NPV @ 12% 5.98 5.98 5.98 5.98 5.98 5.98 3.99 0.00 0.00 0.00 0.00 0.00 0.00 Section A Total Initial Investment 49,665.95 38,121.53 6,331.50 9,432.70 9,601.26 8,829.23 11,922.80 9,542.01 1,998.46 0.00 0.00 0.00 0.00 0.00 0.00 B. ADDITIONAL INVESTMENT SCHEDULE 1. Fixed Assets Overhaul and Renewal 0.00 30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2. Residual Value of Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2. Associated Facilities: A. Roads: 1) Station Access Roads 5.93 50 0.00 0.00 0.00 2.97 2.97 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal 5.93 NPV @ 12% 0.00 0.00 0.00 2.97 2.97 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Section B Total Additional Investment 5.93 -890.60 0.00 0.00 0.00 2.97 2.97 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

129

Table 10.1: NKR Project Resource Statement (Economic Prices), CY Million

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Item

A. INITIAL INVESTMENT SCHEDULE 1. Resettlement Costs: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Temporary Use of Land 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Building Replacement 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other Facilities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Compensation for Standing Crops 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Administration Costs and Other Resettlement Expenses 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal 2. Environmental Control Costs: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Project environmental control costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Environmental Monitoring - Construction phase only 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3. Civil Works (Initial): 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subgrade 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bridges and culverts 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tunnels and cut & cover tunnels 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Railway trackwork(c) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Communications and signaling 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Electric power and traction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Safety components 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Buildings 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other equipment and facilities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Temporary facilities and transitional works 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other expenses 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Consultants-Construction Supervision/Monitoring 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4. Physical Contingencies: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1) On Land Acquisition & Resettlement 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2) On Environmental Control Costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subgrade 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Bridges and culverts 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tunnels and cut & cover tunnels 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Railway trackwork(c) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Communications and signaling 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Electric power and traction 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Safety components 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Buildings 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other equipment and facilities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Temporary facilities and transitional works 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Other expenses 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Consultants-Construction Supervision/Monitoring 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Section A Total Initial Investment B. ADDITIONAL INVESTMENT SCHEDULE 0.00 1,776.10 0.00 0.00 0.00 0.00 0.00 0.00 1,776.10 848.25 0.00 0.00 0.00 0.00 1. Fixed Assets Overhaul and Renewal 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -30,452.44 2. Residual Value of Fixed Assets 0.00 1,776.10 0.00 0.00 0.00 0.00 0.00 0.00 1,776.10 848.25 0.00 0.00 0.00 -30,452.44 Subtotal 2. Associated Facilities: A. Roads: 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1) Station Access Roads 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Subtotal 0.00 1,776.10 0.00 0.00 0.00 0.00 0.00 0.00 1,776.10 848.25 0.00 0.00 0.00 -30,452.44 Section B Total Additional Investment Table 10-1: NKR Project Resource Statement (Economic Prices), Million CY (Continued)

130

Years 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Capacity Utilization (%) 0.00 0.00 0.00 0.00 0.00 Item Initial Amount (CNY Million) Replacement Economic Period (Years) Prices C. WORKING CAPITAL NPV @ 12% 1. Change in Working Capital 0.00 162.27 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 407.60 21.13 14.44 14.75 15.48 D. ANNUAL COSTS 1. Fixed and Semi-Fixed Costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 881.95 891.72 901.79 912.15 928.83 946.18 2. Variable Costs Passenger Transport 0.00 0.00 0.00 0.00 0.00 0.00 0.00 695.43 743.53 782.57 823.77 867.28 963.97 3. Variable Costs Freight Transport 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,499.79 1,610.79 1,692.14 1,777.76 1,867.91 1,892.99 4. Other Non-Operating Costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 127.10 132.18 137.55 143.21 149.19 155.50 5. Train Dry Lease Costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 445.93 464.10 482.27 500.45 518.46 536.53 6. Land Opportunity Cost 8.58 14.44 14.58 14.73 14.88 15.03 15.19 14.62 14.77 14.92 15.08 15.23 15.39 7. Environmental Monitoring Costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 556.50 556.50 556.50 556.50 556.50 Section D Total Annual Costs NPV at 12% 18,159.16 8.58 14.44 14.58 14.73 14.88 15.03 15.19 3,664.82 4,413.59 4,567.74 4,728.93 4,903.40 5,067.07 TOTAL COSTS NPV at 12% 55,552.37 6,340.07 9,447.14 9,615.84 8,846.93 11,940.65 9,557.05 2,013.65 3,664.82 4,821.20 4,588.87 4,743.37 4,918.15 5,082.55 E. BENEFITS 1. Transport Cost Savings to Passengers: A. Passenger Cost Savings: 1) Diverted Traffic (CNY Million): a) From Road 0.00 0.00 0.00 0.00 0.00 0.00 0.00 338.68 360.69 384.14 409.10 435.70 464.02 b) From Rail 0.00 0.00 0.00 0.00 0.00 0.00 0.00 50.51 53.60 56.87 60.33 64.02 67.92 c) From Air 0.00 0.00 0.00 0.00 0.00 0.00 0.00 30.37 32.35 34.45 36.69 39.07 41.61 2) Generated Traffic (CNY Million): 0.00 0.00 0.00 0.00 0.00 0.00 0.00 98.70 105.20 112.11 119.47 127.31 135.65 B. Travel Time Savings: 1) Diverted Traffic (CNY Million): a) From Road 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.28 1.37 1.46 1.55 1.65 1.76 b) From Rail 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.13 2.26 2.39 2.54 2.70 2.86 Total Passenger Transport Benefits NPV at 12% 2,717.06 0.00 0.00 0.00 0.00 0.00 0.00 0.00 521.67 555.45 591.41 629.69 670.44 713.81 2. Freight Transport Cost Savings to Shippers: A. Diverted Traffic (CNY Million): 1) From Rail 0.00 0.00 0.00 0.00 0.00 0.00 0.00 453.51 476.29 500.24 525.44 551.93 579.81 2) From Road 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,435.30 1,508.97 1,586.60 1,668.43 1,754.71 1,845.67 B. Diverted Traffic Travel Time Savings 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.72 6.15 6.63 7.13 7.68 8.27 Total Diverted Freight Transport Benefits NPV at 12% 8,623.72 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,894.54 1,991.41 2,093.47 2,201.00 2,314.32 2,433.75 3. Generated Freight Transport Benefits NPV at 12% 40,123.38 0.00 0.00 0.00 0.00 0.00 0.00 0.00 7,527.53 8,121.19 8,720.23 9,363.93 10,055.65 10,799.01 4. Avoided Costs and Other Benefits A. Avoided Road Infrastructure Investment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 994.65 53.62 56.62 59.79 63.14 66.69 B. Avoided Road Maintenance Costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 90.38 95.34 100.58 106.12 111.98 118.18 C. Avoided Road User Costs due to Railway Competition 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2,049.47 2,151.95 2,259.54 2,372.52 2,491.15 2,615.70 D. Avoided Road Accident Costs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 112.16 119.43 127.19 135.48 144.33 153.78 E. Tourism Benefits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 31.47 33.35 35.34 37.46 39.69 42.07 F. Pollution Savings Benefits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 172.11 181.40 191.21 201.57 212.52 224.08 G. Energy Savings Benefits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 818.20 1,096.93 1,160.85 1,228.59 1,300.40 1,376.52 H. National Railway Productivity Benefits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,086.63 1,160.92 1,236.13 1,312.33 1,389.56 1,467.89 Total Avoided Costs and Other Benefits NPV at 12% 22,396.95 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5,355.08 4,892.94 5,167.47 5,453.85 5,752.77 6,064.92 TOTAL BENEFITS NPV at 12% 73,861.11 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15,298.81 15,561.00 16,572.58 17,648.48 18,793.18 20,011.49 NET BENEFITS NPV at 12% 18,308.74 -6,340.07 -9,447.14 -9,615.84 -8,846.93 -11,940.65 -9,557.05 -2,013.65 11,634.00 10,739.80 11,983.72 12,905.11 13,875.03 14,928.94 15.700% EIRR 18,308.74 NPV @ 12% (CNY Million)

131

Table 10-1: NKR Project Resource Statement (Economic Prices), Million CY (Continued) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Item

C. WORKING CAPITAL 15.86 14.66 193.34 -165.62 16.12 16.69 17.90 18.35 18.82 197.70 -52.82 -77.67 32.05 -718.78 1. Change in Working Capital D. ANNUAL COSTS 964.25 956.83 968.84 981.22 1,018.16 1,038.02 1,058.65 1,080.09 1,076.14 1,091.73 1,107.80 1,124.35 1,147.39 1,171.30 1. Fixed and Semi-Fixed Costs 1,021.40 1,082.37 1,147.11 1,215.78 1,287.85 1,364.33 1,445.47 1,531.58 1,622.96 1,719.94 1,822.89 1,932.17 2,048.18 2,171.36 2. Variable Cos ts Passenger Transport 1,996.32 2,105.65 2,221.33 2,343.01 2,471.81 2,608.17 2,752.56 2,905.48 3,067.46 3,239.06 3,398.67 3,566.58 3,743.24 3,929.13 3. Variable Cos ts Freight Transport 160.64 166.00 171.60 177.18 183.00 189.07 195.40 202.01 208.90 216.10 223.61 231.45 239.64 248.20 4. Other Non-Operating Costs 553.32 570.03 586.67 604.66 623.83 644.67 665.51 686.36 707.22 728.07 761.95 796.92 833.03 870.33 5. Train Dry Lease Costs 15.56 15.72 15.89 16.06 16.23 16.41 16.59 16.77 16.95 17.14 17.33 17.52 17.72 17.91 6. Land Opportunity Cost 556.50 556.50 556.50 556.50 556.50 556.50 556.50 556.50 556.50 556.50 556.50 556.50 556.50 556.50 7. Environmental Monitoring Costs 5,267.98 5,453.10 5,667.95 5,894.41 6,157.38 6,417.16 6,690.68 6,978.78 7,256.12 7,568.54 7,888.75 8,225.49 8,585.69 8,964.73 Section D Total Annual Costs 5,283.85 7,243.85 5,861.28 5,728.79 6,173.50 6,433.85 6,708.58 6,997.13 9,051.04 8,614.50 7,835.93 8,147.81 8,617.74 -22,206.50 TOTAL COSTS E. BENEFITS 1. Transport Cost Savings to Passengers: A. Passenger Cost Savings: 1) Diverted Traffic (CNY Million): 494.18 526.30 560.51 596.94 635.74 677.07 721.07 767.94 817.86 871.02 927.64 987.93 1,052.15 1,120.54 a) From Road 72.07 76.46 81.13 86.08 91.34 96.91 102.83 109.10 115.76 122.83 130.33 138.29 146.73 155.69 b) From Rail 44.32 47.20 50.26 53.53 57.01 60.72 64.66 68.87 73.34 78.11 83.19 88.60 94.35 100.49 c) From Air 144.52 153.97 164.02 174.72 186.11 198.24 211.15 224.89 239.53 255.10 271.69 289.34 308.14 328.16 2) Generated Traffic (CNY Million): B. Travel Time Savings: 1) Diverted Traffic (CNY Million): 1.87 1.99 2.12 2.26 2.41 2.57 2.73 2.91 3.10 3.30 3.52 3.74 3.99 4.25 a) From Road 3.03 3.22 3.42 3.62 3.85 4.08 4.33 4.59 4.87 5.17 5.49 5.82 6.18 6.56 b) From Rail 759.99 809.14 861.46 917.16 976.46 1,039.58 1,106.78 1,178.31 1,254.47 1,335.54 1,421.85 1,513.73 1,611.55 1,715.68 Total Passenger Transport Benefits 2. Freight Transport Cost Savings to Shippers: A. Diverted Traffic (CNY Million): 602.08 625.23 649.31 674.10 699.88 726.68 754.55 783.53 813.67 845.02 877.62 911.53 946.81 983.50 1) From Rail 1,919.89 1,997.25 2,077.91 2,161.37 2,248.40 2,339.13 2,433.75 2,532.43 2,635.35 2,742.69 2,854.68 2,971.50 3,093.39 3,220.57 2) From Road 8.83 9.43 10.07 10.71 11.40 12.14 12.92 13.76 14.65 15.59 16.60 17.68 18.83 20.05 B. Diverted Traffic Travel Time Savings 2,530.79 2,631.91 2,737.29 2,846.19 2,959.68 3,077.95 3,201.22 3,329.72 3,463.66 3,603.31 3,748.90 3,900.72 4,059.03 4,224.12 Total Diverted Freight Transport Benefits 11,452.90 12,146.86 12,883.36 13,656.56 14,494.70 15,375.33 16,310.08 17,302.33 18,355.64 19,473.82 20,660.90 21,921.18 23,259.23 24,679.89 3. Generated Freight Transport Benefits 4. Avoided Costs and Other Benefits 65.16 68.60 72.24 70.07 73.58 77.26 81.14 85.22 89.52 94.05 98.82 103.84 109.13 114.70 A. Avoided Road Infrastructure Investment 123.72 129.54 135.66 142.07 148.80 155.88 163.32 171.16 179.40 188.06 197.19 206.79 216.90 227.54 B. Avoided Road Maintenance Costs 2,746.49 2,883.81 3,028.00 3,179.40 3,338.37 3,505.29 3,680.56 3,864.59 4,057.81 4,260.71 4,473.74 4,697.43 4,932.30 5,178.91 C. Avoided Ro ad User Costs due to Railway Competition 162.32 171.36 180.93 191.05 201.77 213.13 225.16 237.91 251.41 265.73 280.90 296.97 314.01 332.07 D. Avoided Road Accident Costs 44.58 47.25 50.07 53.06 56.23 59.59 63.15 66.93 70.93 75.17 79.66 84.42 89.47 94.81 E. Tourism Benefits 233.98 244.34 255.20 266.51 278.36 290.77 303.79 317.44 331.76 346.76 362.51 379.02 396.35 414.53 F. Pollution Savings Benefits 1,449.64 1,526.91 1,608.58 1,694.67 1,785.69 1,881.94 1,983.72 2,091.38 2,205.26 2,325.74 2,453.22 2,588.13 2,730.90 2,882.02 G. Energy Savings Benefits 1,534.88 1,602.88 1,671.94 1,742.12 1,813.48 1,910.37 2,008.58 2,108.17 2,209.23 2,311.83 2,416.06 2,522.00 2,629.76 2,739.44 H. National Railway Productivity Benefits 6,360.76 6,674.69 7,002.62 7,338.95 7,696.28 8,094.24 8,509.43 8,942.79 9,395.32 9,868.05 10,362.09 10,878.60 11,418.81 11,984.02 Total Avoided Costs and Other Benefits 21,104.44 22,262.60 23,484.72 24,758.86 26,127.11 27,587.10 29,127.51 30,753.15 32,469.09 34,280.71 36,193.74 38,214.23 40,348.61 42,603.72 TOTAL BENEFITS 15,820.59 15,018.74 17,623.44 19,030.07 19,953.61 21,153.25 22,418.93 23,756.02 23,418.05 25,666.22 28,357.81 30,066.41 31,730.87 64,810.22 NET BENEFITS

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559. The cost of station access roads will not be borne by the Project, but by local governments. Therefore, their cost is not included in the Project’s financial evaluation. Their cost is included in the economic evaluation, however, since these are considered associated facilities. The station access roads in nominal CY are included in the PRS Part B. The local governments are undertaking these investments in road transport facilities in the Project Impact Area of NKR as improvements on local transport accessibility and mobility to support the economic and social needs of the people. They are important for generating broad socioeconomic and poverty reduction benefits for all inhabitants in the PIA.

560. Part C of the PRS presents the working capital requirements of the Project. The Consultant’s Supplementary Final Report, Volume 2, Appendix 10-E presents the detailed computation of working capital needs. In computing the change in annual working capital requirements both operating costs and initial and incremental investments are included. All costs are expressed in economic terms and the balance remaining at the end of the Project’s economic evaluation is treated as a residual value

561. Part D of the PRS includes recurring annual costs of the Project. The Consultant’s Supplementary Final Report, Volume 2, Appendix 10-F presents the detailed computation of annual fixed and variable costs. For converting financial variable costs to economic costs, electric power and other material inputs are assumed to constitute 42% of the variable cost per PKM and 46% of the variable cost per TKM. Untraded materials for both passenger and freight traffic are assumed to be 20%. Skilled and unskilled labor for passenger transport are 30% and 3% (cost basis), respectively. The corresponding figures for freight are 24% and 5%. Equipment cost for both types of traffic is assumed to be 5%. This cost does not include rolling stock since costs associated with rolling stock are separately accounted for in the PRS (see Part D.5 of PRS). As detailed in Table 9-5 of Section 9 of the Supplementary Final Report, Volume 1, the dry lease cost for freight trains is estimated at CY 7.89 per train-km and for passenger trains at CY 10.60 per train-km.

562. The annual costs included in the PRS also account separately for land opportunity cost and environmental monitoring cost. The latter is a small cost item explicitly treated in the PRS because it is a needed cost of monitoring, which is explicitly treated in the Project’s Summary EIA.

563. The calculation of the economic value (opportunity cost) of land is detailed in the Consultant’s Supplementary Final Report, Volume 2, Appendix 10-B and takes into account productivity increases of cultivated land by different types of land use. These assumptions are also included in Appendix 10-B.

564. Part E of PRS details the benefits of NKR and is separated into the following 5 categories.

565. Part E.1, Passenger Transport Benefits are based on traffic forecasts summarized in Section 3, and are used to estimate the benefits of the Project for passenger transport for local, transit, and interline traffic, respectively. The Consultant’s Supplementary Final Report, Volume 2, Appendix 10-G includes the detailed assumptions and methodology used for this purpose. Basically, passenger transport benefits are grouped under the following two categories:

566. (A) Part E.1.A: Transport Cost Savings to Passengers. These savings are estimated for diverted and generated traffic separately. Cost savings to passengers are estimated for diverted traffic from road, air, and other CR routes. In the case of diverted passenger traffic from road, average bus fare for 2009 is assumed at CY 0.38/PKM (based on bus passenger surveys conducted in the PIA). For air the average fare in 2009 is CY 1.16/PKM and for CR (based on actual passenger revenue and PKM data for 2007) CY 0.12/PKM. NKR composite passenger rate for 2015 is CY 0.144/PKM derived from total NKR passenger revenue estimated in Section 9. This is an average rate applying different tariffs to different train classes (very fast, fast, and conventional trains) and services (local, interline, and transit). The nominal cost for road, CR, air, and NKR has been reduced

133 by the cost of fuels in order to avoid double counting of benefits associated with improved overall energy efficiency of NKR compared to other modes described below in Section 10.3.6.4. Fuel nominal cost for road, air, and rail were CY 0.038/PKM, CY 0.331/PKM and CY 0.032/PKM, respectively.

567. To express the nominal costs in economic terms, value added for road and air transport services is assumed at 48.1% of total revenue less 4.2% for net taxes and 10.1% for operating surplus. These coefficients are taken from the Input-Output table of the Chinese economy for 2002 (China Statistical Yearbook 2006, Table 3-23). From audited financial statements of MOR for 2006, the corresponding values for rail are 50.4%, 3.45%, and 0.79%, respectively.

568. The economic cost of road transport per PKM is estimated at CY 0.1708 and for NKR at CY 0.0437. For air it is CY 0.413/PKM and for CR CY 0.056/PKM. These costs are net of fuel/power costs in order to avoid double counting of energy benefits. From Tables 9-7, 9-8, and 9-10 the power cost is estimated at 22.2% of the operating cost for NKR. The computation of benefits followed the procedure summarized below:

 For traffic diverted from road, the unit benefit is the difference in passenger economic cost between road and NKR (CY 0.1271/PKM). For traffic diverted from air, the unit benefit is the difference in passenger economic cost between air and NKR transport (CY 0.3693/PKM). For traffic diverted from other CR routes to NKR, the benefit is the average difference of route distance savings (see Section 3) applied to the economic cost of rail passenger travel (CY 0.056/PKM). These values are multiplied by their respective diverted PKM to calculate the benefit of rail diversion to NKR as shown in Appendix 10-G.  For generated traffic (both local and interline) the estimated PKM savings are multiplied by one-half of the average economic cost savings to passengers of road versus NKR, air versus NKR, and other rail versus NKR. 569. As described in Section 3, a portion of the generated passenger traffic is tourists. An alternative approach to estimating the generated passenger benefits for tourists attributable to NKR is through use of net economic value. During the first year of operation, the number of generated tourism passengers is 115,000. Tourist trips would be both interline and local. Tourism earnings in the two Provinces amount to CY 96.0 billion in 2007 with an average expenditure of CNY 616 per tourist. From the direct input coefficient of the input-output table of the Chinese economy, the operating surplus and net taxes portion of the value added is 16.5% in the commerce and catering trade sector. A downward adjustment is made to eliminate double counting in generated passenger transport benefits due to separate estimation of tourism benefits for NKR. The computational details of the approach used for the period 2015 to 2034 appear in Supplementary Final Report Volume 2, Appendix 10-K.

570. (B) Part E.1.B: Travel Time Savings. These savings are computed only for diverted traffic. Due to frequent stops and congestion, an average trip speed of 70 km/hr was used for road transport (a composite of speeds on existing provincial roads and future expressway), and 65 km/hr running speed for normal CR services (CSY, 2006 Table 16-25) as compared to 140 km/ph for travel on NKR. No travel time savings is assumed for diverted traffic from air since the door-to-door trip time by air and NKR is roughly equal between Nanning and Kunming for which the diverted traffic estimates are made from air to NKR. The average speed of road transport on local roads and on trains on CR has been confirmed by schedule data collected in the Consultant’s rail and bus passenger survey (see Section 3 of the Report). The distance saving for NKR over road and CR is 0.0071 hour/km and 0.0082 hour/km, respectively. The median income of train passengers is estimated at CY 1,700/month (2007 value) based on the passenger survey data. This is conservative as it does not provide for the likelihood that real incomes will rise in the future. Based on assumed annual leisure

134 and work time of 12 hours/day, 360 hours/month, CY 4.72/hour is used to represent the economic value of time for each person. Based on these assumptions, time savings between road and NKR and other CR routes and NKR were derived. These values are applied to the diverted traffic from road and other CR routes to NKR. The computational details are provided in Supplementary Final Report Volume 2, Appendix 10-G.

571. Part E.2: Freight Transport Cost Savings to Shippers for Diverted Traffic. Freight traffic forecasts from Tables 3-24 and 3-32 of the Supplementary Final Report Volume 1, Section 3 are used to estimate the benefits of the project for incremental freight transport along the NKR. Supplementary Final Report Volume 2, Appendix 10-H includes the detailed assumptions and methodology used for this purpose. Freight transport benefits are grouped under two categories:

572. (A) Part E.2.A: Shipper Cost Savings. In the Supplementary Final Report, Volume 2, Appendix 10-H details the estimated shipper cost savings for freight traffic. Shipper cost savings are estimated for diverted traffic from road at CY 0.1954/TKM. For diverted traffic an average tariff of CY 0.68/TKM and CY 0.086/TKM, respectively was used as nominal financial value for road and CR. To avoid double counting for national fuel and power savings separately estimated, these nominal rates were adjusted downward by CY 0.10 for trucks and CY 0.02 for CR. Road transport service value added is assumed as 48.1% of total revenue with 4.2% for net taxes and 10.1% for operating surplus from China Statistical Yearbook 2006, Table 3-22, Input-Output coefficients for 2002 for transportation, post and telecommunications. Based on these values, the economic cost of truck transport per TKM is estimated at CY 0.1954.

573. A similar approach was used for diverted traffic from other CR routes. The economic cost of CR freight traffic inclusive of RCF surcharges is estimated at CY 0.026/TKM based on nominal financial cost to shippers of CY 0.086/TKM (including RCF); value added of 50.4%, net taxes of 3.45%, and operating surplus of 0.79%. These figures are derived from MOR’s audited financial statements for 2003 which represents data similar to the 2002 IO tables used for road transport. For traffic diverted from trucks, the economic benefit is the difference in economic costs between truck and NKR transport (CY 0.1954/TKM versus CY 0.0356/TKM or CY 0.1598/TKM) with the same distance between truck and NKR. For traffic diverted from other CR routes to NKR, the benefit is the rail diverted TKM applied to the economic rate of CY 0.0356/TKM.

574. (B) Part E.2.B: Travel Time Savings. These savings are computed only for diverted traffic. Appendix 10-I presents the details for this estimate. There is no container traffic diverted from road because very few containers currently move by truck in intercity transport where rail-truck competition would be expected. Truck container transport is largely confined to local areas (within 50 km) where rail transport would not be competitive. For diversion of containers from CR, average trip speed of 32 km/hr for normal CR rail is assumed (CSY 2006, Table 16-25) as compared to 80 km/hr for transport by container trains operating on CR core electrified lines designed for express double stack service. The adjusted economic value per ton for containerized and bulk freight, computed in Appendix 10-J, was used to estimate the time savings value of diverted traffic from road and other CR routes to NKR. An opportunity cost of capital of 8% per annum was assumed. For the traffic diverted from other CR routes the freight time difference was based on the difference in the length of haul between the NKR route and the alternative CR routes.

575. Part E.3: Generated Freight Transport Benefits. As shown in Supplementary Final Report Volume 2, Appendix 10-J, an adjusted economic value added for the six commodity groups was computed based on current financial value, non-tax elements, SERF, percent value added, percent net taxes, depreciation and operating surplus for each group. The adjusted economic values per ton represent the net economic value, i.e. the value of output at economic prices less the costs of production (sum of all intermediate input costs, wages, and annualized investment costs). The Direct Input Coefficients of the Input-Output Table of China for 2002 were used in this computation as this

135 is the most recent data. The value added section of the table separately itemizes fixed asset depreciation (in the absence of better data, this is used as a basis for annualized investment costs), wages, taxes on production, and operating surplus. Since generated traffic benefits represent producer’s surplus, one-half of the product of per ton value of operating surplus and taxes multiplied by estimated generated freight tons is taken in the computation of the estimated value of the triangle created by the shift in the demand curve.

576. Part E.4: Avoided Costs and Other Benefits. The construction of NKR will help avoid some costs that would not otherwise be possible. As presented in Supplementary Final Report, Volume 2, Appendix 10-K, six categories of avoided costs are included in this part of the PRS.

577. The first one is the avoided highway investment costs. The without project condition assumes that normal investments will be made by both national and local government agencies to accommodate increasing traffic volumes due to the general economic growth. Some road segments would be congested and additional investments would be needed to relieve congestion and improve safety. As detailed in Section 3, significant investments are taking place in the Project area. Without NKR, this traffic will be handled by roads. The cost of road improvements necessary to accommodate the growth of traffic was estimated as an initial investment in the first year and as incremental investments thereafter to handle the capacity increase needed due to the marginal increase in traffic in ensuing years.

578. The second category is the avoided highway routine and periodic maintenance costs. In 2005, the government spent CY 12.4 billion for maintaining PRC’s road network. Given that the converted highway TUs in China for 2005 was 1.8 trillion, an annual maintenance cost of CY 0.007 per converted km is calculated. This unit cost is restated as CY 0.008/TU in 2009 constant terms using an annual escalation of 4%. Multiplying this figure by the value of 10.4 billion TUs diverted from road to NKR in 2016 yields an economic benefit of CY 90.38 million in terms of avoided road maintenance costs.

579. The third category is the avoided truck shipping charges by freight shippers. It is estimated that truck charges in the Project area are going to decrease after NKR commences its operations to stay competitive with the railway. For the purposes of the economic analysis, the truck TKM tariff is estimated to decrease by a conservative 10%, from CY 0.68/TKM to CY 0.61/TKM in the Project area once NKR starts operating. Using the average length of haul by trucks in PRC of 65 km (average for 2005 reported in CSY 2006), this price decrease represents a savings of CY 4.42 per ton to the shipper. This saving is applied to 10% of all the local road traffic estimated as beneficiary truck shippers in the PIA.

580. A static general-equilibrium approach is implied in the estimation of avoided truck shipping charges. It should be recognized, however, that the gross economic benefit estimated for diverted and generated traffic described in Sections 10.3.6.2 and 10.3.6.3 above relate only to the incremental and nonincremental output of NKR. On the other hand, avoided truck shipping charges estimated in this Section relate to non-NKR traffic in the PIA. In a dynamic sense, it can be argued that reduced truck charges would reduce demand for NKR. Given, the inherent weakness of truck competition in heavy bulk commodities such as coal and iron ore, cross-elasticity of demand for truck transport is low. On the other hand, given the rail’s capability to carry a wide variety of goods, the cross-elasticity of demand for rail transport is relatively high, resulting in reduced truck tariffs without a significant shift of rail traffic to trucks.

581. The fourth category is the avoided highway accident costs (see Appendix 10-N). According to data provided by MOR, the railway losses in 2005 due to damage to rolling stock and railway installations in large and very large accidents were CY 34.1 million. This figure does not include 360,000 injured work days lost, which if valued at CY 150/day, would add CY 54 million. Medical

136 costs may be assumed at CY 200/day or an additional CY 72 million. There were 43 fatalities to staff or passengers which at CN 300,000 would add 13 million, for a total CY 173 million. The CR volume for 2005 was 2,700 billion TU. Using the estimates, a financial loss of CY.0.00007 per TU was calculated for railway accidents.

582. Estimates by the ADB indicate the total cost of road accidents in China is on the order of $12.5 billion, or CY 98.7 billion during 2004. This estimate includes costs of vehicle and property damage, medical costs as well as estimates of loss of earning potential of the victim(s). Accident costs have been expressed in terms of highway TUs or CY 0.068 per TU. TUs diverted from road to NKR, therefore, yield a savings of 0.06816/TU in 2004, which is restated as CY 0.07667/TU in constant 2009 values. The rate of road accidents with fatalities per 10,000 vehicles has been rising at a rate of 10% annually. This is expected to continue as more inexperienced drivers get licensed. Conversely, the accident rate on CR has been declining. The real value of incomes will also rise. In PRC road accidents disproportionately harm low income groups, such as pedestrians, bicycle- and motorcycle riders, and bus passengers. Therefore, road accidents have a significant adverse impact on the poor and on PRC’s use of scarce medical resources.

583. The fifth is benefits associated with pollution reduction. With the diversion of significant amounts of freight and passengers from road to rail, there will be benefits to the country due to reduced pollution from trucks, buses, and cars as well as less energy used by the transport sector. Based on recent research conducted by the International Energy Agency33, the number of tons of carbon dioxide (CO2) per traffic unit for road and rail were estimated for China. These savings for electrified NKR, compared with road, were found to be 25.4 tons of CO2 per million PKM and 24 tons of CO2 per million TKM. For diversions from CR to NKR the corresponding savings are 11.8 tons and 23 tons, respectively. Derivation of these pollution estimates and benefit calculations are described more fully in Appendix 10-L. Under provisions of the Kyoto Protocol, certified emission reductions 34 are presently valued in China at approximately $25 per ton of CO2 reduced. This value has been included in the benefit stream for the NKR project. It should be noted that in addition to savings in the emissions of CO2, there will be significant savings in other emissions, such as carbon monoxide, nitrogen oxides, hydrocarbons, as well as suspended particles. The reduction in volume of CO and NOx have been estimated in Appendix 10-L. However, only the CO2 reductions have a readily – identifiable market value and are the only harmful emission included in the Project benefit stream. Clearly, there are more pollution reduction benefits attributable to the NKR, though not quantified in the benefits stream.

584. The sixth is the savings to the national economy of reduced total energy consumption as a result of diverting traffic from both road and other CR routes to NKR. This benefit has been computed and included in the benefit stream. The computational details are presented in Appendix 10-K. Unit operating costs for both road and rail transport have been adjusted to exclude fuel cost savings in order to avoid any double counting of this benefit.

585. National GDP Benefits. Transport is a critical element for many sectors of the Chinese economy; continued strong economic growth is dependent, in part, on a strong and efficient transport sector. Based on the 2000 Input-Output Tables for China35 (most recent data available) the transport component of the economy amounted to 8.6 % of the construction industry, 9.3 % of manufacturing and 8.7% of mining.

33 IEA/SMP Model Documentation and Reference Case Project July, 2004. The IEA has worked with the Sustainable Mobility Project to develop a global transport spreadsheet model that is useful for conducing projections and policy analyses. The spreadsheet provides data for all modes and vehicle types, projects vehicle stocks, travel, energy use and other indicators through 2050 for a number of countries (including China) and regions of the world. 34 Discussion with Qian Yiwen Senior Project Manager, Beijing IT Power Ltd. (UK), December 2005. China Statistical Yearbook 2006, ,Table 2-14

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586. Adding the NKR to the national railway network in 2007 would have reduced total CR system- wide TKM by 12.993 billion TKM in moving the same number of tons. This productivity savings which represents 0.56% of the CR traffic in 2007 is translated into transport cost savings to each of the economic sectors, reducing the transport cost component of their productive inputs and effectively increasing the country’s overall productivity and competitiveness. The corresponding productivity improvement in passenger transport is 0.92 billion PKM or 0.13% of overall CR system-wide PKM in 2007.

587. One method to quantify these productivity benefits to the national economy is to calculate the amount of freight and passenger revenue saved by rail transport customers if the NKR is constructed and these productivity savings are realized. The average CR revenue in 2005 was CY 0.056 per TKM and CY 0.109 per PKM. Applying these figures and the projected reduction in overall CR traffic results in a savings to the country of more than CY 1.09 billion in 2016.

588. PRS Part F: Net Benefits. The last part in the PRS is the net benefits. This, simply, is the difference between the total Project costs and total Project benefits. As shown at the bottom of Table 10-1, the EIRR is.15.599% and the NPV at the discount rate of 12% is CY 17.7 billion. The Project, as described by the conditions outlined above and detailed in Supplementary Final Report, Volume 2, Appendices 10-A through 10-N, is economically feasible.

D. WITH AND WITHOUT PROJECT CONDITIONS

589. If the NKR is not built, the traffic diverted from highway and other CR routes would not be diverted, but carried over roads and other CR routes. A summary of this traffic is presented in Section 3 for freight and passenger traffic. As shown in Table 10.1, the absence of NKR in 2016 will mean an additional net burden to the economy in the amount of CY 11.52 billion. By the year 2034, this amount increases to more than CY 31.42 billion.

590. More importantly, if the Project is not built, the generated benefits will not materialize. The economic effects of these from Table10.1 are significant. Since multiplier effects are not included in the computation of Project benefits, these estimates should be viewed as conservative.

591. A more important significance of the Project, which directly relates to the Project’s objectives, is the jobs that are expected to be created. During the construction period as well as during operation of NKR, significant contribution is expected in terms of job creation and poverty reduction.

592. Table 10-2 presents the distribution of net project benefits to passengers, freight shippers, labor, state and local government, and national and local economy. The net economic benefits included in Table 10.2 (CNY 19,826.31 million) are reconciled with the net benefits included in the economic analysis detailed in Table 10.1.

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Table 10.2: Distribution of Net Project Benefits (CY Million) Financial Economic Government Economy Freight Total Net Description Present Present Difference Passengers Labor (National/ (National/ Shippers Benefits Value Value Local) Local) Benefits: Passenger Transport Cost 2,182.63 2,182.63 2,182.63 2,182.63 Savings Freight Transport Cost 8,592.48 8,592.48 8,592.48 8,592.48 Savings Time Savings Passengers 17.49 17.49 17.49 17.49 Time Savings Freight 31.24 31.24 31.24 31.24 Shippers Generated Freight Traffic 40,123.38 40,123.38 40,123.38 40,123.38 Benefits Other Benefits 22,396.95 22,396.95 743.25 15,211.86 63.24 1,044.17 5,334.43 22,396.95 Total Benefits 0.0 73,861.11 73,861.11 3,460.31 63,958.96 63.24 1,044.17 5,334.43 73,861.11 Costs: Initial and Recurring Capital 40,796.6 37,230.94 -3,565.69 -3,565.69 -3,565.69 Operating and Maintenance Co 19,026.5 16,077.81 -2,948.69 -737.17 -442.30 -1,769.21 -2,948.69 Taxes 7,230.1 -7,230.07 -7,230.07 -7,230.07 Total Costs 67,053.2 53,471.02 -13,744.45 0.00 0.00 -737.17 -11,238.07 -1,769.21 -13,744.45 Net Benefits -67,053.2 20,390.09 87,605.56 3,460.31 63,958.96 800.41 12,282.24 7,103.64 87,605.56 Source: Consultant.

E. SENSITIVITY AND RISK ANALYSIS

593. Table 10.3 summarizes the results of selected sensitivity tests made on the data included in Table 10.1. A 10% increase in total costs reduces the EIRR to 13.61% and a 10% decrease in freight transport benefits reduces the EIRR to 13.99%. The switching value for total costs is reached at +17.25% and for freight transport benefits at -19.14%.

Table 10.3: Sensitivity Indicators and Switching Values Reference Revised Sensitivity Switching NPV @ 12% (CY Change By Parameter Value EIRR Indicator Value (%) million) EIRR 15.70% 18,308.74 Resettlement Costs 100% 14.84% 0.30 330.72% 12,772.78 Civil Works Costs 10% 14.32% 4.14 24.15% 10,726.75 Fixed and Variable Costs 20% 14.34% 2.23 44.86% 10,145.46 Total Costs 10% 13.72% 5.64 17.74% 7,988.91 Generated Freight Benefits -80% 14.49% 0.49 -205.20% 11,170.83 Total Freight Benefits -10% 14.11% 5.08 -19.68% 9,007.33 Passenger Transport Benefits -50% 14.81% 0.65 -153.04% 12,327.04 NPV Delay Implementation by 1 Year N/A 13.49% 64.10% 6,572.58 declines by Reduce Benefits by 10%; Increase Costs by 10% -10%; +10% 12.23% 4.72 -21.17% 1,014.50 Reduce SERF by 20% -20% 13.10% 4.03 -24.80% 3,543.99 Source: TA Consultant. CY = yuan, EIRR = economic internal rate of return, NPV = net present value at 12%, SERF = shadow exchange rate factor.

594. Costs for resettlement, civil works, and annual fixed and variable costs carry relatively less risk during Project implementation. The sensitivity tests shown in Table 10-3 indicate that the NPV for these cost categories is positive within the plausible range of variability for these costs. As for resettlement costs, the sensitivity indicator shows insensitivity of the EIRR. Past experience of the EA in controlling costs and completing railway infrastructure projects at less-than-budgeted cost provides sufficient assurance that costs will remain within budget in this Project.

595. The Project’s EIRR is less sensitive to passenger and generated freight projections (switching values of -149.12% and -199.77 respectively) than total freight benefits (switching value of -19.14%).

596. A one-year delay in Project implementation reduces EIRR to 13.39% and NPV by 65.55%. Given the experience of MOR in constructing large scale rail infrastructure and estimating project costs in a realistic manner, it is unlikely that any risk associated with cost overruns will cause an EIRR of less than 12%. Given the detailed analysis made by the Consultant benefiting from the

139 experience of the SSDI and other MOR units, it is equally unlikely that any risk associated with reduced project benefits would make NKR infeasible.

Appendix 1 140

Appendix 1 – Ethnic Minority Development Action Plan

Funding Requirements Monitoring Proposed Action Targets Institutional Arrangement Timing CNY/sources Indicators

I. Project Benefits and Enhancement Measures

Overall coodination: YCTD No. of roads and GCD improved/constructed From 2009 to 2015, each county All the administrative villages 1.Construction of Village Implementing Agency: invest 3 million CNY in village road (85% of those in Funing, Local road Roads in Connection with County Communication 2009--2015 construction or re-construction (total: Guangnan and Qiubei) have investment the Railway Construction Bureau 300 million x 14 (counties/districts) x access to highway by 2015 Poverty villages supporting agency： 6 (years) =252 million connected (including County Government EM villages) the number of local people (ethnic Overall coodination: NRB minorities) employed At least 50% of the unskill and KRB the number of local workers employed from the women employed local people (including the minimum payment for unskilled women and ethnic minorities worker is 50 CNY/day and over, and 2009--2015 and other vulnerable people), that for skilled worker is 2,500 and if possible some skill CNY/month and over the payment rate and workers also employed from records of the local people Implementing Agency: employment for local County Communication people Bureau, Labor Bureau and 2. Local Employment During the Project Contractors

In village road construction, at least 70% of non-technical workers should be from the the minimum payment for unskilled the payment rate and local people (including worker is 50 CNY/day and over, and records of women and EM and other 2009--2015 that for skilled worker is 2,500 employment for local vulnerable groups) and if CNY/month and over people possible technical workers supporting agency： should also be from the local County Government people.

1. the amount of Local construction materials construction 3. the Use of Local supporting agency： the price is not lower than the local is preferred whenever it is 2009--2015 materials used; 2) the Construction Materials County Government market price possible local employment in material production at least 20 skilled workers Overall coordination: YCTD (from each county/district) Number of trainings; and GCD; Implementing related to the construction Number of trained agencies: Contractors, 4. Technical Training to and maintaining of railway or persons (including labor bureau and WF in 2009--2015 Contractors and local government local people village road as well as the ethnic minorities, counties/districts; use of equipment (including women and other Supporting agency: County ethnic minorities and women) vulneralbe groups) government are trained Overall coordination: YCTD the roads constructed for the and GCD; Implementing Number of roads and 5. Transfer the roads shipment of big machines or agencies: Contractors, total kilometers constructed during materials during railway labor bureau and WF in 2013--2015 Contractors and local government transferred as well as railway construction to construction should transfer counties/districts; the road condition local government to local government after the Supporting agency: County when transferred project government

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II. Mitigating Measures to Address Social Risks

1. Control of To prevent the spreading of Overall coordination: Number of clinics at Transmissible HIV/AIDS and other Department of Health (DH) About 4.2 million CNY (about the construction sites in GZAR and Yunnan Di1.1 Control of HIV/AIDS infectious diseases in 300,000 yuan averagely in each Number of Transmission construction sites, nearby county) community/worksite villages, stations and other meetings densely-populated areas. public Number of posts, education,awareness 2009--2015 brochures, raising and knowledge pamphlets, radio and diseminating at work TV broadcasting etc. sites, local communities contractors and local government and entertainment centers and railway stations etc.

Give free check up or To prevent the spreading of Implementing Agencies: test for the employed HIV/AIDS and other Contractors, CDPCs in workers and give free infectious diseases in counties on the alignment. Number of testing condomns to the construction sites, nearby construction workers. villages, stations and other densely-populated areas. CDPCs in Number of people counties/districts in close infected HIV/AIDS or cooperation with other infectious contractors's medical 2009--2015 contractors and local government diseases during the persons monitor the railway construction spreading of HIV/AIDS

1.2 Control of Independent testing tuberculosis, hepatitis C, reports syphilis,gonorrhea,typhoi d and malaria monitor the spreading of Number of testing infectious diseases stations Monitor the biological the medical persons from Supporting agencies: local media of infectious contractors work closely with government, WF, Health diseases (such as the local CDPCs to prevent the Bureau frequency of testing type and number of rats, spreading of any infectious mosquito etc.) disease mentioned in this education campaign on table Number of infectious diseases and 2009--2015 community/worksite free test to migrant meetings people contractors and local government Monitor the quality of water, food and control the sanitation at or nearby working sites 1.3 Control animal Number of cases diseases (particularly related to animal canine madness) infectious disease 2. Human Trafficking The focus in on those ethnic Overall coordinator: local Action Plan Control minorities living in isolated government; Implementing should be Agreement with PSB, mountains, particularly Yi, agencies: PSB, WF; ready before monitoring reports Miao, Yao Supporting agencies: the from PSB,Number of Diseminate knowledge PADO and Ethnic Affairs construction, human trafficking PSB related to human Office timing: 2009-- cases, Number of trafficking to raise public 2015 public awareness, particularly in meetings/diseminatio the impoverished villages ns

To ensure that local Overall coordinator: NRB The 3. To avoid intervention livelihood or production is not and KRB; Implementing monitoring to the livelihood of greatly affected. agencies: contractors; should begin Number of cases local people Supporting: local within three related to Local government months after People's Complaints 3.1 Night work in the beginning about disturbance in prohibited in the places of the construction which are close to construction residents' areas 3.2 Restoration of local Contractors infrastructure damaged during construction 3.3 Overpasses or Reports on the tunnels should be built damages and wherever the restorations 3.4 The contractors who do not clean the polluted water, or do not restore th d d

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4. Resettlement

4.1 Fully Compensated

4.2 about 10% extra compensation to the vulnerable groups (such as diabled, or some female-headed households) 4.3 Restoring green coverage after construction How many ethnic minorities are 4.4 Restoring arable land Overall coordinator: Local affected? How many 4.5 To ensure that all the government; Implementing vulnerable groups compensation agencies: Resettlement Agreement are affected? The procedures, Offices in each reached amount of money compensation rate etc. According to the agreement, each county/district; Supporting before the compensated, How are planned and of the two provinces (GZAR and agencies: Agriculture beginning of many vulnerable implemented strictly in Yunnan) will be responsible for the Bureau, Animal Husbandry the people have received accordance with Chinese resettlement. Bureau, Forest Bureau, construction additional laws and ordinances To ensure that all the AP do Labor Bureau, Land in 2009； compensation? How from provincial not decrease (or even Resource Bureau, PADO many ethnic t increase) in their quality of 4.6 Include the livelihood and enjoy benefit and Ethnic Affairs Office minorities have vulnerable groups who of railway construction and received help? What are affected by the operation through proper kind of trainings have resettlement into the mitigating measures social security programs (such as the minimal living ensurance program and the pension program) 4.7 Provide non- agricultural training to the labors who are affected by the resettlement so that they can find off-farm jobs

4.8 Any decisions, plans and information related The nubmer of to resettlement and village meetins; the compensation should be percentage of people publicized openly so that who have the all the related people are Ibd Ibd Ibd knowledge of informed on time compensation (including women and (including married- especially the married- out women; the out women). number of posts

Appendix 1 143

III. LOCAL GOVERNMENT COMPLEMENTARY POVERTY REDUCTION MEASURES 1. Agricultural and the planning, reports Industry Development Impoverished villages and assessment (particularly ethnic minority reports of PADO, WF villages along the alignment and Ethnic Affairs Office PADO, WF, Ethnic Affairs Lcoal government ensure Office and Rural Credit 2009--2015 Local government the Number of that households that need impoverished people 2. . Micro-Credit Cooperative loan can get it from Rural (particularly women, Micro-Credit loans to Credit Cooperative Em people such as poor ethnic minorities (particularly the ethnic Yao, Miao, Yi, Gelao minority impoverished and etc.) who get micro- disabled households credit loan 3. Capacity Building the planning of the training of agricultural PADO and other technology or other skills agencies; the (including at least 60% of PADO, WF, Ethnic Affairs 2009--2015 Local government persons from EM people and woman Office and labor bureau impoverished participants should be over villages, EM villages 40%) and women who 4. Promotion of Labor hidthThe number of Migration people who newly Impoverished villages PADO, WF, Ethnic Affairs migrate to work in (particularly ethnic minority 2009--2015 Local government Office and labor bureau urban or more villages along the alignment developed areas (particularly EM 5. Tourism ld ) Development Planning of tourist 5.1 Provide trainings to bureau; the nubmer ethnic minorities on of tourist spots and To ensure that local people hosting tourists Local tourist bureau, labor programs; family (particularly EM people, 5.2 Planning the bureau, Ethnic Affairs on-going Local government tourism; the number women can enjoy the benefit tourism routes Office, PADP and WF of local people who of the railway construction 5.3 Disseminate involved in tourism tourism information at (particularly EM bus stations people and women)

Appendix 1 144

IV. Ethnic Culture Protection and Development Listing and registering historical relics (including excavated and not Institute of Managing the list of historical 1. Protection of excavated ones) in each Historical Relics (IMHR), relics in category and 2009--2012 Historical Relics county so as to protect them Culture Bureau (CB) and the relevant in different categories, other related offices protection measures. particularly to avoid damage in the railway construction. Number of activities related to tangible culture protection and the list of 2.Protection of Ethnic To protect and develop on-going Government Planning protected cultural Cultures Ethnic Cultures items, meetings, workshops, seminars and publicizing campaigns etc. Based on the already- protected historical relics, temples, pagodas and historical sites, promote the List of tangible cultures, status quo 2.1 Protection of protection through large- IMHR, CB, Tourist on-going of protection and the Tangible Culture scale publicizing to increase public awareness and Bureau, PSB and other amount of money participation in the protection related offices invested of historical relics, particularly the relics

the name list of fold 1） To identify folk artists, artists, subsidies; the cultural transmitters and to collection of local give them 200--500 handicrafts' the CNY/person/month subsidies number of trainings, 2.2 Protection of so that they can teach the on-going activies, Intangible Culture younger generation the performances and traditional skills; ； 2） to other public events collect and develop some related to ethnic traditiona cultural forms culture protection; (such as ethnic sing and the reports of CB etc. Annual reports of CB, Tourist Bureau; the To integrate some ethnic number of touris cultures and traditions spots, performances, (including singing, dancing, CB, Culture Centers and busineses related to 3. Development of clothes, food, handicrafts Tourist Bureau implement tourism, local Tourism in Connection etc.) into tourims on the on-going it; Ethnic Affairs Office and employment in with Ethnic Cultures condition that EM people WF giving support tourism (particularly and their customs are EM people and respected so as to create job women), tourim opportunities for EM people. income for local people etc. Proposed Ethnic villages for monitoring and evaluation of EMDP： 1) Liancheng Zhuang village (in Guangnan); 2) Xingfucun Miao village (in Qiubei); 3) Dalongshu Yi village (in Qiubei); 4) Liuqicun Yi village (in Mile) and Xiaolongtan Miao village (in Mile);

The main intangible cultural forms in Zhuang culture include: 1) cross singing (called "Huan" along Youjiang River valley; 2) Gexu (a kind of local fair with singing competition); 3) Zhuang drama; 4) Shigong performance; 5) puppet; 6) Zhuang musical dance

The main intangible cultural forms in Yi culture include: 1) a variety of music tunes for cross singing, three-string musical instrument, suona et.; 2) various dancing、 lyrics, ballads, epithalamium, wind songs etc.; 3) different style of clothes, food, cu

The main intangible cultural forms in Miao culture include: 1) Aimism which is represented by totem and ancestor-worship; 2)Some of them have been converted to Catholic and Christianity; 3) Miao ancient calendar; 4) Different food and clothes; 5) Miao peo

The main intangible cultural forms in Yao culture include: 1)colorful legends; 2) rich ballads,funeral songs, worshiping songs and cross-singing songs; 3) various forms of dancing; 4) various weaving technology represented by bamboo weaving,and wax-dye et Source: Consultant. The agency(ies) marked in BOLD designate lead agency(ies).

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APPENDIX 2

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country/Project Title: PRC: Nanning-Kunming Railway Capacity Enhancement Project Lending/Financing Project/Sector/Multitrache Financing Facility/ Policy- Department/ EATC Modality: Based, Others (please specify) - Project Division: I. POVERTY ANALYSIS AND STRATEGY A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy Contribution of the sector or sub-sector to reduce poverty in People’s Republic of China (PRC): This Project is consistent with the CPS which aims to enhance pro-poor economic growth through transport infrastructure development. The railway will serve a as key transport link for the following national programs of PRC: National Poverty Reduction Program (2006-2010), Constructing the New Socialism Countryside, Development of Western Region, Building up a Harmonious Society (focusing on inclusive development) as well as the recent Economic Stimulus Program to address the global financial crisis (with railway development as one of the key driving forces). Overall it is expected that the Nanning-Kunming Railway (NKR) project will contribute to equitable economic growth by: (i) improving access to marketing, employment, business opportunities and information exchange in the Project area, which include poor ethnic minority areas; (ii) facilitating access to key social services; (iii) supporting and stimulating agricultural production and encouraging livelihood diversification, (iv) improving a key component of regional and rural infrastructure and reducing widening gaps in living standards and economic opportunities between the western and coastal areas; (vi) promoting the social and economic development of ethnic minorities which are among the poorest groups of the poverty populations; (v) providing access to international trade routes through the railway connections with some ASEAN countries through Pan-Asia Railway; and (vi) removing one of the constraints to the development of poor, rural, and minority communities. B. Poverty Analysis Targeting Classification: General Intervention 1. Key Issues The project impact area (PIA) is an area with dense poverty and high proportion of ethnic minority populations. Out of the 14 counties/districts in the PIA, 6 are the nationally-designated and 2 are the provincially-designated poverty counties/district. In PIA, there are also 882 designated poverty villages, or 65 percent of all villages in the PIA. Around 60% of the populations in PIA are ethnic minority people. Development in the project impact area (PIA) has been constrained by limited transportation infrastructure, which is one factor contributing to the high incidence of poverty in PIA, which is as high as 30%. In counties in Wenshan Prefecture of the PIA, the poverty incidence is as high as 48%- 66%. Better railway transport will provide an enabling condition for poverty reduction and ethnic minority development through improved access to markets, employment, migration, education, and medical facilities, new knowledge and information, families working or studying in other regions, tourism, and other social and economic services that facilitate economic development. Improved access to markets domestically and internationally opens up opportunities for new enterprises and expansion of existing ones, and attracts external investment. Incoming passengers and tourists spawn additional demand for locally produced goods and services.

2. Design Features. Construction and operation of the railway generates significant employment in local communities; measures have been formulated to enhance benefits to local communities, especially poverty villages and ethnic minority villages. Construction access and connector roads for the railway will directly benefit the poor and ethnic minority villages. Furthermore, the local government has parallel programs to speed up the improvement of local roads so that around 90 administrative villages will have good road access by 2015. Station area development will encourage small business and tourism development for local people, including ethnic minorities, women and the poor. The project railway will connect with numerous existing routes throughout the PRC. For example, NKR will link with the planned Nan (Nanning)-Guang (Guangzhou) Railway, which will greatly reduce railway space-time distance between Nanning and Pearl River Delta (4 hours from Nanning to Guangzhou). Therefore, the NKR will closely connect the economically developed Pearl River Delta, Hong Kong, Macao, Fujian and Taiwan areas with the economically underdeveloped Guangxi and Yunnan in the south and southwest of China, which will be a regional economic cooperation bridge and of important significance for improving influence and radiation force of “Pan-Pearl River Delta”, building Beibu-Gulf Economic Zone to be a new economic growth pole of China, and speeding up economic integration process in the above areas. The project railway will also connect to the proposed Pan-Asian Railway going to Viet Nam (ADB financed), Cambodia, Thailand, Malaysia, and Singapore. This will provide accessibility to the Greater Mekong Subregion through Hekou, Pingxian, and the ports of Fangcheng (ADB financed) and Beihai in the PRC; port of Haiphong in Viet Nam; and to

Appendix 2 146

South and Southeast Asia. It will help in promoting regional cooperation in the Greater Mekong Subregion.

C. Poverty Impact Analysis for Policy-Based Lending - not applicable

II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis A Social & Poverty Assessment (SPA) has been prepared for the project. This includes a poverty profile of beneficiaries and clientele groups and a social assessment of project impacts. The beneficiaries of the project have been identified through survey, consultative field work, and secondary sources. Beneficiaries include: (i) direct beneficiaries such as existing rail users, and other transport users who might shift to rail, such as freight carriers, and passengers; and (ii) indirect beneficiaries who do not necessarily rely on the railway but may derive some benefits including those in public sector employment, operators of small businesses such as shop owners and traders, farmers and farmers associations or cooperatives, minority groups, people engaged in daily labor, construction workers, tourists visiting or transiting the PIA.

Economic conditions along the alignment range from relatively well-off areas near the two terminals to the poor and ethnic minority groups in the middle of the alignment. Many of the villages along the alignment are located in the remote, isolated, and mountainous areas, and have not been recipients of economic development. For example, due to the war between China and Vietnam during 1980s, Wenshan Prefecture was not open for development for 14 years, and there is no one single railway across this prefecture. The transportation is highly dependent on highways, which caused the high cost for transportation and significantly limited the economic development in this area.

The links between poverty, topography, and transport systems are apparent in the PIA. Currently, Nan-Kun Railway and G324 and G323 National Highways are the main traffic arteries along the proposed NKR Railway. Open to traffic in 1997, the existing Nan-Kun Railway experienced rapid growth of passenger and freight traffic volume. It was constructed to a lower standard, operates at slower speed, and has a serious shortage of line capacity. Transit time between Nanning and Kunming is approximately 13 hours. The proposed NKR will cut the transit time to around 5 hours. Since G324 and G323 National Highways are the main traffic passages connecting the Southwest to South China, interregional passenger and freight traffic volumes are huge. Currently most sections are of two-way two-track type, with low standards, so traffic jam occurs frequently, which became a bottleneck, restricting economic development at the southwest area and cities along the Railway.

People living in the mountains or in isolated areas lack fertile land and sufficient means of livelihood. They also live in areas prone to floods, drought, erosion and other natural disasters. The main causes of poverty in the project areas are: (i) marginalized and remote locations; (ii) karst areas that are unsuitable for farming (iii) natural calamity; (iii) lack of infrastructure; (iii) very limited and unsustainable sources of livelihood; (vi) uneven economic development among different ethnic minorities; and (v) poor education. The project will benefit about 6.3 million people in the PIA, of whom 75% percent live in rural areas and 30 percent of the rural population are designated poor (using the official relative poverty line in China of CNY 1,067 person/year in 2007). This does not include the vulnerable households which are above the poverty line but are susceptible to economic shocks that could force them below the poverty line. The most predominant livelihood sector is agriculture, but a significant amount of employment and income is derived from migration work. However, due to the global financial crisis, around one quarter of migration workers in PIA lost their jobs, which has made the livelihood sources for many households uncertain. The big infrastructure project like NKR can generate many of the opportunities of local employment, which is in high demand by local poor rural labours.

A significant amount of unskilled person-years of work will be created during the construction of NKR. 50% of the unskilled work will target the poor (139,657 person years, and 1,396 million CNY by wage, by estimate). Hiring priority will be given to women, resettlement-affected people, ethnic minority groups, and vulnerable people. In addition, during the construction, significant person-years of local unskilled jobs will be created in the provision of construction materials. When the operation of the new railway starts in 2016, additional low and unskilled jobs will be created to the poor annually. Expecting more efficient and cheaper freight transport and business travels on the NKR, many enterprises in the PIA have been planning to expand outputs and increase labor; many new enterprises plan to move into the PIA, both will generate significant amount of new jobs as a result of NKR.

The local government in PIA has various road development programs. According to the provincial road development plan, by 2015, 90% and 75% of administrative villages in GXZAR and Yunnan, respectively, will have access to class IV road. By the end of 2020, 100% and 99% of administrative villages in GXZAR and Yunnan, respectively, will have access to class IV road. Therefore, the railway stations of NKR, which will be connected to all levels of road network accessible by almost all administrative villages by 2020, will create various jobs, and help distribute benefits across a broader spectrum of the population throughout the PIA. Station design will ensure sufficient space in and around the stations for local area development to foster income generation opportunities for the poor, women, ethnic minority, and vulnerable people who will be supported by local government agencies to sell local specialties as well as other goods

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and services. More tourists will come to visit the attractions in the PIA so that the local minorities can run tourism- related business with cultural features. All of these direct, indirect and generated impacts will provide conditions to meet the PRC goal of micro-urbanization for poor families by: (i) moving poor households away from unsustainable, mountainous and isolated farmlands, (ii) providing better access to markets, advanced education and health facilities especially for women and the elderly; (iii) building a sustainable future through new centres of economic activity, and (v) complementing poverty reduction activities by assisting the poor with urban employment, local economic development, farmer-based rural tourism, agricultural product development, health services and physical infrastructure improvement. In addition to providing cheaper transport, NKR will offer a safer, faster and affordable means of travel than roads. B. Consultation and Participation 1. Provide a summary of the consultation and participation process during the project preparation.

The PIA of NKR includes 3 prefectures, 2 cities, and 14 counties/districts in Yunnan and Guangxi. Participation has included surveys, community consultation (focus group meetings and interviews with stakeholders), and meetings with local officials. Some 750 household surveys, 30 village surveys, 100 industry surveys, 37 resettlement-affected institute surveys, as well as 560 passenger surveys were completed. During the household survey, beneficiaries provided information on their perceptions of the project. Overall, 90% of them believed that the project will bring tangible benefits to their households.

Various Project public consultations and participation activities have been carried out during 2008/2009 and the role of each stakeholder has been identified. Ministry of Railway (MOR), the Project Railway Company (Company), Second Survey Design Institutes of China Rail, the Project Preparation Technical Assistance (PPTA) Consultant and ADB missions have had formal and informal consultations with local communities and government agencies through meetings, surveys, household interviews, written communications, and workshops. Since the commencement of feasibility studies around 4,000 individuals have been consulted about the project. The Company is responsible for overall supervision and implementation of construction activities. The local county and township governments and communities are fully responsible for land acquisition, implementation of the resettlement plan (RP) and the organization of local labor for the construction and local development including the station areas to ensure the participation benefits the poor, women, ethnic minorities and other vulnerable people. Initial issues discussed included the selection of the railway alignment and the station sites. Further public consultation occurred during various field trips and surveys among local residents and government officials, tourists, passengers using all modes of transport, industries in the PIA and otherstakeholders. Through the above means, the local government and communities are involved in the preparation and development of RP, EMDP, and EIA/EMP.

2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment

3. Was a C&P plan prepared? Yes No

The resettlement, environment and ethnic minority safeguard planning, implementation and monitoring processes will also include consultation and participation of the community as a key step in identification of impacts and mitigation measures. Ongoing participation of beneficiaries in the project development will be afforded through use of local people, especially the poor, ethnic minorities, and women, during civil works. The contract documents include clauses specifying measures and targets to: enhance local employment, avoid disruptions to local communities, prevent diseases, protection of minority culture, etc. A participation and consultation plan has been prepared to assist the Company to continue consultation with stakeholders to maintain good community relations with affected communities along the alignment. C. Gender and Development 1. Key Issues. The SPA concluded that women will be beneficiaries of the project as the project has the potential to create gender specific outcomes. General social benefits that could be derived from improved and maintained road access, could also enhance the participation of women in the commercial sector. Local women play an important role in crop production and animal husbandry. The construction of the NKR will promote the market development in local areas so that women can participate in the commercial production and generate more income. The construction, operation, and maintenance of NKR will generate some jobs which are suitable for local women. Many enterprises moving into the PIA, many of the service sector and tourism sector will seek female employees. The improved infrastructure will facilitate women’s access to information, training, and social services, such as the healthcare. While women stand to be beneficiaries of the project, they are also likely to be more exposed to risk of communicable diseases and human trafficking with the increased flow of people and cargos with the construction and operation of NKR. Guangxi and Yunnan are the two provinces with the high HIV/AID incidence in China and the 3 prefectures in the middle of the alignment are located in the frontier area with Vietnam where is a key area for prevention of human trafficking. However, the local government has had intensive programs to prevent HIV/AIDs and human trafficking. So such risks will be mitigated and avoided through the HIV/AIDS/STIs and human trafficking awareness and

Appendix 2 148 prevention programs that are a component of the Ethnic Minority Development Plan (EMDP) to be implemented by the project. Since in some areas of PIA, the ethnic minority women are poor and have high dependence on agriculture. The resettlement will have more negative impacts on these women. So the specific actions will be taken to mitigate the negative impacts of resettlement on women, which have been included in EMDP and RP.

2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures (refer to EMDP and RP) No action/measure

Poverty and social enhancement measures have been built into the project design, and special mitigation (or protection) actions have also been included in the EMDP and the resettlement plan (RP). For example, The EMDP includes a range of measures to give priority for women in project-generated employment during construction and operation of the railway. The increase in female participation in the labor force will increase women’s net income, thus improving overall family welfare, and increasing the status of women. Women will be also included in the various training programs and micro-credit programs so that women can enhance their skills and run income-generation activities. For any issues related to resettlement and compensation, women will be informed and involved in the decision-making. The vulnerable groups such as the female headed households and the disable will be eligible for special assistance during land acquisition and resettlement if necessary.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Issue Significant/Limited/ Strategy to Address Issue Plan or Other No Impact Measures Included in Design Overall, the project will create significant A RP has been prepared to Involuntary resettlement impacts - (36,616.1 mu) of land ensure affected persons are Full Plan Resettlement will be permanently acquired, (24,500.7 mu) relocated and their Short Plan of land will be temporarily acquired, causing livelihoods are fully restored esettlement partial land loss for about 5,655 people in a timely manner. Framework No Action The Project impact on ethnic minorities is The RP and EMDP include Indigenous significant. In the PIA, ethnic minorities measures to ensure that Plan Peoples represent 60 percent of the population, ethnic minorities will receive Other Action including 11 different ethnic minority groups the adequate compensation, Indigenous such as Zhuang, Miao, Yi, Yao, Gelao, Buyi, rehabilitation measures, and Peoples Bani, Hui, etc. Most of the ethnic minority Project benefits. This Framework groups are economically disadvantaged. includes hiring preferences No Action as appropriate. There are no significant labor issues Contractors maximize local Labor associated with the project. The project will labor because it reduces Employment maximize benefits for the poor, minorities, costs. Contracts include Plan opportunities and women by promoting local employment clauses to promote local Other Action Labor and ensuring that all labor laws and hiring and ensure good (refer to EMDP) retrenchment regulations are adhered to by contractors. labor practices. Compliance No Action Core labor Employment provisions are included in will be monitored during standards contract bidding documents and in the project implementation. EMDP, which will be monitored during project implementation. The proposed railway will provide an No action is required. alternative cheap, safe and fast form of Action transportation and will reduce transport No Action Affordability costs for the poor and non-poor alike through lower freight rates and passenger fares as well as time savings. Other Risks The major risk will be the influx of workers The project will require and/or during construction and controlling the contractors to implement Plan Vulnerabilities diseases and behaviors of workers. The comprehensive programs on Other Action HIV/AIDS railway will increase mobility of people along STI/HIV/AIDS and trafficking (EMDP and Human the route could increase the risk for awareness and prevention contract bidding trafficking STI/HIV/AIDS and human trafficking during in conjunction with provincial documents)

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Others(conflict, the operation stage of the project. Lack of and local health bureaus No Action political instability, awareness contributes to the vulnerability of and CDCs, and Women’s etc), please specify the poor and women. Federation. Workers will be provided with relevant information and access to services. The awareness programs also need to be implemented in communities, which has been included in EMDP IV. MONITORING AND EVALUATION

Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No

Source: Consultant.