Document of The World Bank

Public Disclosure Authorized Report No:ICR0000186

IMPLEMENTATION COMPLETION AND RESULTS REPORT (Loan No. 4328-CHA)

ON A

LOAN

Public Disclosure Authorized IN THE AMOUNT OF US$79.68 MILLION EQUIVALENT

TO

THE PEOPLE’S REPUBLIC OF CHINA

FOR A

SECOND INLAND WATERWAYS PROJECT

Public Disclosure Authorized

June 22, 2007

Transport and Energy Sector Unit

Public Disclosure Authorized Sustainable Development Department East Asia and the Pacific Region

CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2006) Currency Unit = Renminbi RMB1.00 = US$0.13 US$1.00 = RMB7.82

Fiscal Year: January 1-Decemeber 31

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance Strategy EAP Environmental Action Plan EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return FIDIC Fédération Internationale des Ingénieurs-Conseils FIRR Financial Internal Rate of Return GOC Government of China GPWB Guangdong Provincial Waterway Bureau ICB International Competitive Bidding ICR Implementation Completion and Results Report IWT Inland Water Transport IWW Inland Waterways IWW2 Second Inland Waterways Project (this Project) JPWB Jiangsu Provincial Waterway Bureau L-S-R Lianhuashan-Shawan-Ronggui M&E Mechanical and Electrical MIS Management Information System MOC Ministry of Communications MOF Ministry of Finance NCB National Competitive Bidding NEPA National Environmental Protection Agency NPV Net Present Value NWB Nansha Waterway Bureau OED Operations Evaluation Department PAD Project Appraisal Document PAO Project Administrative Office PMO Project Management Office QCBS Quality and Cost Based Selection RAP Resettlement Action Plan RMB Renminbi SOE State-owned Enterprise

SPC State Planning Commission TA Technical Assistance TEU Twenty-foot equivalent unit (for containers) USD United States Dollar Z-H Zhaoqing-Hutiaomen dwt Deadweight ton (for vessels)

Vice President: James W. Adams Country Director: David R. Dollar Sector Manager: Junhui Wu Project Team Leader: John C. Scales ICR Team Leader: John C. Scales

China CN-Second Inland Waterways

CONTENTS

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

1. Project Context, Development Objectives and Design...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 4 3. Assessment of Outcomes...... 10 4. Assessment of Risk to Development Outcome...... 14 5. Assessment of Bank and Borrower Performance ...... 14 6. Lessons Learned ...... 16 7. Comments on Issues Raised by Implementing Agencies ...... 17 Annex 1. Project Costs and Financing...... 18 Annex 2. Outputs by Component ...... 19 Annex 3. Economic and Financial Analysis...... 21 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 25 Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR...... 27 Annex 6. List of Supporting Documents ...... 36 MAPS: 1. IBRD 29238 2. IBRD 29239 3. IBRD 29240

A. Basic Information CN-2nd Inland Country: China Project Name: Waterways Project ID: P003619 L/C/TF Number(s): IBRD-43280 ICR Date: 06/22/2007 ICR Type: Core ICR MINISTRY OF Lending Instrument: SIL Borrower: FINANCE Original Total USD 123.0M Disbursed Amount: USD 78.9M Commitment: Environmental Category: A Implementing Agencies: Guangdong Provincial Waterways Bureau Jiangsu Provincial Waterways Bureau Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/25/1997 Effectiveness: 03/16/1999 03/16/1999 Appraisal: 02/09/1998 Restructuring(s): Approval: 05/29/1998 Mid-term Review: 07/31/2002 Closing: 06/30/2005 12/31/2006

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

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

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

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Ports, waterways and shipping 100 100

Theme Code (Primary/Secondary) Other financial and private sector development Secondary Secondary Water resource management Primary Primary

E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Junhui Wu Jitendra N. Bajpai Project Team Leader: John Carter Scales Toshiro Tsutsumi ICR Team Leader: John Carter Scales ICR Primary Author: Kek Choo Chung

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the project was to provide more efficient and productive inland waterway transport (IWT) services which would be more competitive than the current services. This would be achieved through reduction of unit cost and transit time by (a) upgrading inland waterways infrastructure to allow navigation of larger vessels, (b) increasing shiplock capacity to reduce waiting time, and (c) increasing financial and organizational capacity of IWT agencies.

The key indicators for monitoring and evaluating performance were (a) reduction in cost (per ton-km), (b) increase in average vessel size (dwt), (c) shiplock waiting time

ii (hours/vessel), and (d) financial ratios that included working ratio, self-financing ratio and debt-service coverage ratio.

Revised Project Development Objectives (as approved by original approving authority) The development objective remained unchanged throughout the implementation of the Project.

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Average vessel size (dwt) - Jiangsu Value quantitative or 84.2 96 162 Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments The average size of vessels operating on Jiangsu provincial waterways exceeded (incl. % target by 69%. achievement) Indicator 2 : Average vessel size (dwt) - Guangdong Value quantitative or 310 436.2 420.7 Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments The average size of vessels operating on Guangdong provincial waterways was (incl. % slightly less than targeted. achievement) Indicator 3 : Shiplock waiting time (hours/vessel) - Jiangsu Value quantitative or 0.0-1.1 0 0 Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments (incl. % Waiting time had been eliminated at project shiplocks achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Working Ratio (%) - Jiangsu Value (quantitative 51 47 0.8 or Qualitative)

iii Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments Financial ratios were determined on the basis that operating units have sufficient (incl. % financial autonomy to generate revenue to meet financial targets. This did not achievement) materialize. (See section 2.3) Indicator 2 : Working Ratio (%) - Guangdong Value (quantitative 88 70 95.3 or Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments (incl. % See comments on indicator 1. achievement) Indicator 3 : Self-financing Ratio(%)-Jiangsu Value (quantitative 131 63 6.4 or Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments (incl. % See comments on indicator 1. achievement) Indicator 4 : Self-financing Ratio (%) - Guangdong Value (quantitative -10 0.4 14.8 or Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments (incl. % See comments on indicator 1. achievement) Indicator 5 : Debt-service Coverage Ratio (%)-Jiangsu Value (quantitative 46.8 7.7 0.3 or Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments (incl. % See comments on indicator 1. achievement) Indicator 6 : Debt-service Coverage Ratio (%) - Guangdong Value (quantitative -0.3 0.7 0.5 or Qualitative) Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments (incl. % See comments on indicator 1. achievement) Indicator 7 : Debt-service Coverage Raito (%) - Guangdong Value (quantitative -0.3 0.7 0.5 or Qualitative)

iv Date achieved 12/31/1998 12/31/2005 12/31/2005 Comments (incl. % See comments on indicator 1. achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/24/1998 Satisfactory Satisfactory 0.00 2 12/23/1998 Satisfactory Satisfactory 0.00 3 06/25/1999 Satisfactory Satisfactory 0.00 4 12/29/1999 Satisfactory Satisfactory 7.37 5 06/15/2000 Satisfactory Satisfactory 9.08 6 09/21/2000 Satisfactory Satisfactory 11.53 7 01/25/2001 Satisfactory Satisfactory 14.70 8 11/12/2001 Satisfactory Satisfactory 27.55 9 06/28/2002 Satisfactory Satisfactory 41.13 10 12/26/2002 Satisfactory Satisfactory 50.18 11 06/12/2003 Satisfactory Satisfactory 53.94 12 12/02/2003 Satisfactory Satisfactory 64.34 13 05/17/2004 Satisfactory Highly Satisfactory 69.65 14 12/08/2004 Satisfactory Satisfactory 72.58 15 04/29/2005 Satisfactory Satisfactory 75.07 16 01/06/2006 Satisfactory Satisfactory 79.97 17 05/10/2006 Satisfactory Satisfactory 78.91 18 06/04/2007 Satisfactory Satisfactory 80.84

H. Restructuring (if any) Not Applicable

v I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal China has some 5,800 rivers that are navigable for 110,200 km, 15 rivers over 1,000 km long and 12 lakes with an area greater than 1,000 sq. m. The country has a long history of utilizing its extensive waterway network with the excavation of the Grand Canal for navigation first beginning around 480 BC. The country currently has five major Inland Water Transport (IWT) systems, Yangtze River, Pearl River, Grand Canal, Heilong Jiang, and Huaihe. The Yangtze is the largest system in length, depth and traffic.

Significant under-funding had caused the country's waterway infrastructures to deteriorate, reducing the net size of the navigable network from 172,000 km in 1960 to 110,200 km in 1993. Under the 9th Five-Year Plan (1996-2000), China decided to develop the Pearl River in Guangdong Province and the Grand Canal in Jiangsu Province, the second and third largest IWT systems. Around 1997, China sought the Bank support for this initiative which culminated in this Project, the Second Inland Waterways Project (Loan 4328-CHA). These developments represented a continuation of the Bank's first IWT project in China, the Inland Waterways Project (Loan 39106-CHA). Bank support for the IWT developments was in line with the Country Assistance Strategy (CAS) of reducing infrastructure bottlenecks through modernization of the provinces’ inland waterways systems, as presented to the Board on March 18, 1997 and further discussed in the Progress Report (CAS document number R98-107) of May 28, 1998. It also met the government's objective of providing better access to the interior to facilitate the economic development of the western regions.

IWT demand increased at an average of 7% annually for the period 1990-1994 with major cargoes carried being coal, ores and construction materials. Inland water transport is the least costly, least energy consuming and least hazardous mode of transportation.

Considerable progress on institutional reforms had been made in the IWW sector. IWW management was decentralized from the central government to the provincial governments. IWT services such as cargo handling, shipping, freight forwarding and shipbuilding were commercialized. Waterway tariffs were partly liberalized. These reforms started to create a more competitive environment for the sector. Although provincial waterway bureaus were still a part of the provincial government, they were generally financially autonomous and undergoing further reform such as the commercialization of dredging operations and the implementation of more market-based pricing and rationalization of user charges. Providing more efficient and productive inland waterway transport (IWT) services which would be more competitive than the current services was the rationale for the Bank’s intervention under this Project. This objective was to be achieved through the reduction of unit cost and transit time by (a) upgrading inland waterways infrastructure to allow navigation of larger vessels, (b) increasing shiplock capacity to reduce waiting time, and (c) increasing financial and organizational capacity of IWT agencies.

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1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the Project was to increase the efficiency, productivity and competitiveness of inland waterways transport in the provinces of Guangdong and Jiangsu (the Project Provinces) through the upgrading of inland waterways infrastructure and the institutional strengthening of the provincial inland waterway agencies. The key indicators for monitoring and evaluating performance were (a) reduction in cost (per ton- km), (b) increase in average vessel size (dwt), (c) shiplock waiting time (hours/vessel), and (d) financial ratios that included working ratio, self-financing ratio and debt-service coverage ratio.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The development objective remained unchanged throughout the implementation of the Project. There was also no revision of the key indicators, however, the quantum of reduction in transport cost and transit time mentioned as a measure of achievement of the Project’s development objective in the main text of the PAD was not quantified and included Annex1A: Performance Indicators. (See also section 3.2).

1.4 Main Beneficiaries, The main beneficiaries were the inland waterway operators, ship-owners and shippers using the waterways, and the project provinces of Guangdong and Jiangsu as well as the inland provinces of Shandong, Shaanxi, Guizhou, Henan, Yunnan, and Guangxi. It was estimated that about 57 million people in these provinces would directly benefit from the Project (about 20% of the population of Guangdong and Jiangsu and 5%-10% of the inland adjacent provinces). Benefits would derive mainly from (a) a reduction in transport cost by using larger vessels, (b) a reduction of shiplock waiting time and (c) a reduction in congestion in other modes.

Guangdong Provincial Waterway Bureau (GPWB) and Jiangsu Provincial Waterway Bureau (JPWB) would also benefit directly from having their waterway infrastructures upgraded and from the measures taken to strengthen institutional capacity at the two bureaus.

1.5 Original Components The Project had two parts.

Part A: Guangdong Province consisting of • the upgrading the Zhaoqing-Hutiaomen (Z-H) and Lianhuasahan-Shawan- Ronggui Waterways (L-S-R) (US$121.3 million), • enhancement of maintenance dredging capacity and operational management (US$17.7 million), and • technical assistance for institutional development, implementation support and training (US$2.4 million).

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Part B: Jiangsu Province consisting of the • construction of shiplocks at Xietai, Suqian, Huaiyin and Huaian on the North Grand Canal and Jianbi on the South Grand Canal (US$97.6 million), • provision of machinery/equipment for the five shiplocks (US$7.6 million), and • technical assistance and training to support and enhance project implementation and institutional development (US$1.7 million).

1.6 Revised Components There were no changes in project components.

1.7 Other significant changes Minor changes in the scale of technical assistance (TA) and training were made in the course of implementing the Project. TA and training in both provinces were increased as funds became available as cost savings arising from procurement were realized. Loan funds were re-allocated to meet the increased expenditure in TA and training.

Institutional reforms initiated by the State not long after the loan became effective affected the scope of the institutional development component of the Project in Guangdong. The commercialization of GPWB's dredging operations in 1998 rendered superfluous the study on the commercialization of its dredging department. A national policy change in 2000 restricted the ability of provincial governments to raise revenue in the IWW sector, rendering ineffectual the agreement reached with GPWB to prepare and implement a plan for the collection of additional revenue, which included a channel construction fee. As a result the study and the preparation of the plan were no longer relevant. Financial ratios developed on the basis that GPWB and JPWB had the flexibility to raise revenue also became meaningless and new financial ratios had to be determined to assess the financial performance and management capacity of the implementing agencies. (See section 2.3)

Loan savings were significant and the original loan amount of $123 million was reduced thrice at the request of the Borrower. First, on June 11, 2003 an amount of $17 million was cancelled from the loan to Jiangsu; second, on February 10, 2004 $20 million was cancelled from the loan to Guangdong; and third, on March 27, 2005 an approximate further $3.21 million of the loan to Jiangsu was cancelled upon the completion of the Jiangsu component of the Project. At Project close there remained approximately $3.11 million undisbursed against the formally revised loan amount of $82.79 million for a total disbursed amount of approximately $79.68 million.

While the Jiangsu part of the Project was completed and its part of the loan closed as scheduled, Guangdong requested an extension in order to complete its component. The loan closing date for the Guangdong part of the loan was extended from June 30, 2005 to December 31, 2006. (See section 2. 2)

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2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Initial preparation of the Project by Guangdong and Jiangsu commenced in 1995 based on feasibility studies undertaken by the waterway design institutes of the two provinces. The Bank's preparation of the Project began in 1997, with an identification mission to Jiangsu in April and to Guangdong in May. This was the Bank's second IWT project in China. The first project was still ongoing and proceeding satisfactorily although TA components such as institutional reforms were less well executed than the physical aspects. Taking this into account, TA components in this Project were designed to be more practical, modest, and realistic.

In light that Bank-wide experience in the sub-sector was limited, project preparation took into consideration findings from OED's analysis of 35 projects in the port sub-sector, in particular, (a) the under-estimation of the complexity of civil works and the period required for construction and (b) lower than expected benefits due to over-optimistic traffic forecasts. To mitigate the risk that similar problems would occur in the Project, comprehensive investigations and engineering designs were undertaken. Major technical concerns in the Guangdong component such as silting and changes of water level following channel deepening/widening were studied using both physical and mathematical models as well as pilot dredging at the channel entrance to verify the applicability of the mathematical model. Unnecessary complication of engineering works was avoided. Learning from past experience, the Bank task team took a conservative approach in traffic forecasting, ensuring that they were compatible with current expectations of national, regional and provincial economic development. As the social impact of the Project was mainly related to land acquisition, extensive consultations with stakeholders were undertaken in arriving at the design and resettlement planning along the channel alignments to minimize impact.

Environmental Impact Assessments (EIA) and Environmental Action Plans (EAP) were prepared in accordance with national procedures including Circular on Strengthening Environmental Impact Assessment Management for Construction Projects Financed by International Financial Organizations (June 1993, NEPA).

A contributor to the achievement of the project development objective depended on the use of larger vessels on the waterways. An increase in the size of vessels was essential to achieve greater productivity and the reduction of shipping cost. As the type and size of vessels used on the waterways was market driven and outside the control of the implementing entities, there was a risk that ship-owners might not respond positively (in time and in fleet replacement) to the improvements. To mitigate the risk, a study to promote the use of larger vessels was included in the technical assistance sub-component of the Jiangsu part of the Project.

While the primary purpose of the Project was to improve waterway infrastructures, sustainability of the Project necessitated improved waterway management, operation, and capital investments. The Project aimed to strengthen the institutional capacity of

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implementing entities and implement user charges that would cover costs and provide for investment funding while maintaining competitiveness with other transport modes.

Project preparation was efficient. The Project was identified in April/May 1997, pre- appraised in October 1997, appraised in February 1998, and the loan of US 123 million was approved in May 1998.

The Borrower displayed a strong commitment to the Project and had included it in the 9th Five Year Plan. The Ministry of Communications (MOC) which was responsible for coordination of the Project concretely supported it by organizing workshops to assist Guangdong and Jiangsu in the preparation of the Project. The Project Provinces’ sense of ownership was evident by their expediency in preparing the Project and their commitment of counterpart funds.

Quality at entry was rated satisfactory by QAG. (See also 5.1)

Project preparation, design, and quality at entry on the whole were satisfactory.

2.2 Implementation Both the implementing entities, the Guangdong Provincial Waterway Bureau (GPWB) and the Jiangsu Provincial Waterway Bureau (JPWB), displayed a strong sense of ownership. Early in the project cycle, each implementing agency established a project management office (PMO) adequately staffed with experienced engineers and various other specialists to manage the implementation of the Project. As this was the first World Bank financed IWW project for both provinces, prior to the commencement of project implementation, project management staff from each of the PMOs were sent to other provinces where the Bank's first financed inland waterway project was in progress to familiarize them with the Bank's procedures. Preparation for project implementation included English language training for PMO staff. As a result of the preparation, project implementation on the whole proceeded well and effectively.

A combination of conservative engineer’s cost estimates and a competitive construction market led to cost savings. Engineer’s estimates were based upon norms published by the Ministry of Communications. These norms were and are still updated annually based upon an index which reflects fluctuation in the market. (Over the last several years the Bank has been encouraging government entities to adopt market prices as a basis for cost estimates.) At the time that the estimates for this Project were developed, the late 1990’s, the construction costs of civil works were dropping rapidly due the evolution towards more autonomous and, therefore, competitive construction companies and the adoption of more competitive procurement practices. The published norms did not reflect these lower costs. The result is that actual Project construction costs were lower than estimated costs and Project loan savings were realized.

Decisions were made to use some of the resulting savings to extend the scale of technical assistance and training. The original training sub-component in Jiangsu comprised 8 overseas training programs. These were completed in 2001. Another seven programs were added and these were completed by May 2005. In Guangdong, the sub-component

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originally included 10 training programs and 2 technical studies. Unallocated loan funds funded an additional study and another 12 training programs.

Jiangsu Province: Civil works in Jiangsu commenced with the construction of the Jianbi Second Shiplock on June 3, 1999 shortly after the loan became effective on March 16, 1999 and ended with the completion of the Suqian Shiplock in May 2005. The quality of the construction in all 5 locks was highly satisfactory. Two of the shiplocks won awards from the State and the provincial government for quality construction. All civil works contracts were awarded under ICB procedure.

Equipment (gates, hoists and computerized control and operating systems) were procured, concurrent with the progress of civil works, to ensure that the shiplocks could commence operation as soon as their construction (civil work) was completed.

Guangdong Province: Project implementation in Guangdong was adversely affected by unusual weather conditions. Heavy flooding of the Xijiang in 1998 and 1999 resulted in severe scouring of the riverbed and the erosion of riverbanks on the lower reaches of the river and led to major design changes on 2 contracts for channel regulatory works (dredging and bank protection). The Zhaoqing contract suffered a delay when the site for the terminal and maintenance station for Gaoming had to be substituted due to the construction of a water intake adjacent to the original site.

An unforeseen external factor in the form of a large increase in the price of construction material throughout China from 2000-2005, especially steel, affected the contracts for the installation of channel markers and the construction of the terminals and maintenance stations at Jiangmen and Chencun. These contracts, awarded under NCB procedure on a fixed cost basis, had no provision for price escalation. Contractors confronted with financial difficulties took a longer time to complete the contracts.

GPWB's response to a recent MOC initiative to develop model waterway projects that exhibited technological innovation led to a revision of specifications for the supply of equipment for channel telemetry and monitoring to include a remote monitoring system and accompanying civil works in the monitoring centers. This revision delayed the completion of the contract and, together with the delayed completion of the Zhaoqing contract, accounted for the extension of the loan closing date.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The Project was designed with the expectation that transport cost would be reduced through the use of larger vessels, and improved vessel turn-round through minimizing or eliminating waiting time at shiplocks. Indicators for performance monitoring and evaluation were (1) reduction in transport cost, (2) the average size of vessels using the networks of waterways of the project provinces and (3) waiting time at project shiplocks. Given the purpose of the Project, the indicators were appropriate. However, the extent of reduction in transport cost was not specified in project appraisal documents. To ascertain the degree, a determination of transport cost before and after the project was undertaken for the ICR.

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Investment cost recovery was to be monitored and evaluated through several financial ratios including working ratio, self-financing ratio and debt service coverage ratio. GPWB and JPWB were expected to meet financial targets represented by these financial ratios. The ratios were determined on the underlying assumption that deepening national reform would consolidate the financial autonomy of the implementing entities to raise revenue to meet financial obligations. Instead, a major policy change by the government (GOC) in 2000 to promote the use of IWT reduced the channel maintenance fee by 25% to lighten the financial burden on IWT operators. The policy shift removed flexibility that GPWB and JPWB might have in revenue generation.

Although the financial ratios established for the Project were regularly furnished for review, they became meaningless. Monitoring and evaluation of the implementing entities’ financial capacities focused on their ability to meet their financial obligations rather than in the context of meeting the agreed financial ratios. Early in the implementation the task team missed an opportunity to initiate the process of amending the loan in order to replaced the original indictors with more realistic indicators. This oversight could possibly be explained by the twice change in task team leadership during implementation.1 For the ICR, the Bank task team and the implementing entities mutually agreed on new financial ratios to assess the performance of the latter. The revised ratios were cost-based, relating the waterway bureau's annual expenditures and budget allocation to the total volume of freight that passed through the bureau's waterways.

Mechanisms for monitoring the implementation of the Project included the review of quarterly reports and a mid-term report on the progress achieved in carrying out the Project furnished by the implementing agencies. The review of the reports concluded that project implementation was proceeding satisfactorily and no revision of the project implementation plan was necessary.

2.4 Safeguard and Fiduciary Compliance Safeguard and fiduciary compliance was satisfactory. Project financial management by the implementing entities met acceptable standards. Comments of independent auditors on annual financial statements, when they arose, were satisfactorily explained and clarified. Procurement was undertaken in strict compliance with Bank procurement guidelines.

Environmental monitoring during project implementation, in accordance with the Environmental Action Plan, was undertaken in Jiangsu by municipal environmental monitoring centers of cities in the project areas and, in Guangdong, by the Scientific Institute of Pearl River Resources Protection. PMOs reported the monitoring results to the Bank on a quarterly basis and these were reviewed, commented upon by the Bank, and corrective action taken where necessary. The favorable outcome of environmental

1 Mr. Toshiro Tsutsumi was the task team leader from inception until November 2006 replaced by Mr. Graham Smith who was the task team leader until July 2004, followed by Mr. John Scales until completion.

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safeguard measures taken in Jiangsu was visible and appreciated. Shiplock areas became parks and gardens for local public enjoyment as a result of landscaping prescribed in the EAP.

Environmental safeguards in the case of Guangdong were concerned mainly with environmental management around construction sites and water quality downstream of construction sites. Most of the safeguard measures were included in the civil works contracts and were satisfactorily implemented. Water quality standards were generally met, minor exceptions being the presence of coliform bacteria and ammonia nitrogen and traces of oil found in two sections of the project waterways in April/May 2005. Measures were quickly taken to reduce contaminants. The end-of-project environmental monitoring report prepared by the Scientific Institute of Water Resource Protection of Pearl River Monitoring Center of Pearl River concluded that environmental safeguard measures for the Project had been complied with satisfactorily. Environmental monitoring during the construction phase ceased in July 2005 but monitoring for the operational phase would continue for the next three years in accordance with the EAP.

Resettlement, externally monitored by The Second Harbor Engineering Investigation and Design Institute of MOC, was kept to a minimum at shiplock sites. Basic data on land acquisition, relocation and resettlement affected by the construction of the five shiplocks showed the following:

Project Site Relocation Land Acquisition Households Enterprises Farmland (ha.) Jianbi Second Shiplock 124 21 0 Xietai Second Shiplock 0 3 0 Huaiyin Third Shiplock 147 5 16.07 Huai'an Third Shiplock 90 15 0 Suqian Third Shiplock 6 2 0.07 Total 367 46 16.14

Land acquisition generally took longer than expected and contributed to some extent to the late commencement of work on the terminals and maintenance stations at Chencun, Ronggui, Jiangmen and Zhaoqiang.

2.5 Post-completion Operation/Next Phase The project waterway and shiplocks, upon their completion, have been satisfactorily operated and maintained by the two provincial waterway bureaus through their respective sub-bureaus. The satisfactory performances of the implementing agencies are evident in the revised financial ratios developed to measure performance (see following table and section 2.3).

An audit report received by the Bank mid-year 2006 for the year end December 31, 2005 raised a question regarding the utilization of the suction hopper dredger procured in the Guangdong component of the Project. A general requirement of the Loan Agreement states that equipment purchased with the proceeds of the loan was to be used only for the

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project waterways. Entrusted to the Nansha Waterway Bureau (NWB), a sub-bureau of GPWB, in September 2004, the dredger had been used outside the project waterways, as work on the project waterways was ongoing, but on waterways maintained by GPWB. The purchase of the dredger was intended to provide GPWB with a minimum in-house capability for emergency channel dredging (not necessarily only of the project waterways), notwithstanding the assumption at the time of appraisal that dredging operation in general would eventually be commercialized. It was agreed by the Bank task team that it was reasonable to use the dredger wherever there was a need and accordingly to enable GPWB to deploy the dredger outside the project waterways.

Inland Waterway 2 Project: Revised Financial Monitoring Ratios Unit Unit Transport Cost Operating/Maintenance (RMB/'000 tkm) Cost (RMB/ton) Before the project Jiangsu 1.96 142.3 Guangdong 1.63 82.4 - 148.8 After the project Jiangsu 1.68 94.95 Guangdong 1.45 71.6 - 118.4

During the implementation mission of October 2006, the Bank task team suggested that GPWB sought a waiver of the Loan Agreement to allow it to continue to use the dredger in a manner that would justify its investment. After consultation with the legal department it was decided not to process such a waiver, given that the suggestion came as the Project was nearing completion and since it did not affect the ultimate objective of the Project nor the appropriate use of the Project investments.

The study on the optimization of vessel size, conducted under the Project, established that:

• inland water transportation of low-value commodities such as coal, ore and construction materials had a distinct cost advantage over other modes for distances less than 400 km; and • the average cost per ton of cargo carried was comparable to other countries that use inland water transportation extensively.

Actual traffic on the project waterways and shiplocks exceeded expectations. Economic benefits were achieved as forecasted. Institutionally, implementing agencies were strengthened. Hence the Project is likely to be sustained.

A follow-up project financed by the Bank is currently under implementation in Guangdong and Guangxi provinces. Further improvements on Jiangsu's waterways, mainly in the southern trunk waterway network of the Yangtze River and in the Grand Canal, estimated at US$ 1.5 billion, have been planned for implementation between 2006

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and 2012. Guangdong has similar plans for further upgrading of its inland waterway infrastructures.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The development objective of the Project was to increase the efficiency, productivity and competitiveness of inland water transport in the Provinces of Guangdong and Jiangsu through the upgrading of inland waterways infrastructure and the institutional strengthening of the provincial inland waterways agencies.

Supplementing the primary objective of increasing the efficiency, productivity and competitiveness of inland water transport, the Project was designed to support policy and institutional reforms in the commercialization of dredging operations and cost recovery of investments in the IWW sector, specifically in Guangdong. This was in line with the government's strategy for improving the delivery of transport services. IWW functions had been decentralized from the central government to provincial governments and provincial waterway bureaus were being further reformed by having their commercial activities such as river port operation, waterway dredging, design and construction separated from their regulatory functions.

The Project's development objective remains relevant in the context of China's present transport needs. IWT is a viable mode of transportation, demonstrated by its increasing share of the freight market. Between 1998 and 2005, IWT traffic increased 13.8% annually compared to the annual increase in total freight traffic density of 11.2% surpassing the growth in traffic density of road (6.8%) and rail (7.4%).

China Freight Transport by Modes (1998- 2005) (in units of 100 million tons per kilometer) Waterways Civil Railways Highways Ocean IWT Subtotal aviation Pipelines Total

1998 125.60 54.83 149.20 44.85 194.05 0.33 6.06 380.88 2005 207.260 86.93 385.52 111.20 496.72 0.78 10.88 802.58 Average Annual Growth 7.4% 6.8% 14.5% 13.8% 14.4% 13.0% 8.7% 11.2%

Source: China Statistic Yearbook, 2006

In addition, IWT is the least energy intensive, most cost effective, and lowest contributor to green house gases of all transport modes. Inland water transport is also essential to promoting greater efficiency, productivity and competitiveness in the use of Guangdong’s and Jiangsu’s inland water resources. As such, the Project has met the strategic objective of Pillar 3 (Managing Resource Scarcity and Environmental Challenges) and Pillar 4 (Financing Sustained and Efficient Growth) of the Bank’s Partnership Strategy for China for 2006-2010.

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3.2 Achievement of Project Development Objectives The benefits of the Project would accrue mainly from the operation of larger vessels on the waterways, and in addition, in Jiangsu, from the reduction or elimination of delays at shiplocks. Based on the key performance indicators for monitoring and evaluation, the Project had fully achieved its original objective (see Data Sheet, F, Results Framework Analysis).

The average size of vessels using Jiangsu's waterways increased steadily during the period of project implementation from 84.2 dwt in 1998 to 162 dwt in 2005, exceeding significantly the target of 96 dwt established at the time of appraisal. Guangdong's average size of vessels at 420 dwt was 142% larger than the average size in 1998 and only marginally less than the target size of 436 dwt.

Vessel waiting time at shiplocks, averaging from 0.6 to 1.1 hours per vessel at the time of appraisal (1998), was eliminated. The average size of vessels passing through the shiplocks increased from 66 dwt in 1998 to 300 dwt in 2005.

The computation of transport cost representing situations before and after the Project showed that a reduction in transport cost, the planned primary outcome of the Project, was achieved.

Reduction in Transport Cost (RMB/'000 tkm) Guangdong Jiangsu L-S-R Z-H Without the project (a) 142.30 82.40 148.80 With the project (b) 94.95 71.60 118.40 Savings (c) =(a)-(b) 47.35 10.80 30.40 % Reduction (c)/(a) 33% 13% 20%

Traffic on the project waterways and shiplocks exceeded forecasts significantly, reflecting the reduction in cost and improvement in service.

Guangdong Inland Waterway Traffic, 2005 (million tons) Actual Forecast (PAD) Increase of actual (ICR) from forecast (%) Z-H Waterway 67.28 29.58 127 L-S-R Waterway 55.53 33.09 68 Total Project 122.81 62.67 96 Waterways Total Provincial 220.00 210.00 5 Waterways

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Jiangsu Shiplock and Inland Waterway Traffic, 2005 (million tons) Actual Forecast Increase of actual (ICR) (PAD) from forecast (%) Xietai 38.85 24.77 57 Huaian 81.91 49.55 65 Huaiyin 72.45 48.75 49 Suqian 74.57 45.51 64 Jianbi 42.68 15.07 183

Total Lock Traffic 310.46 183.65 69 Total Prov. Waterways 526.44 348.07 51

3.3 Efficiency The investment in the Project was efficient. The economic rate of return (EIRR) was close to the estimated rate (20.8% vs. 21.4%) with the financial rate of return (FIRR) matching the target (8.4% vs. 8.3%).

Economic Rate of Return: The EIRR of the entire project was estimated at 20.8%, and the net present value (NPV), at a discount rate of 12 percent, was estimated at RMB 1,374.4 million compared to the PAD estimate of 21.4% and RMB 1,713 million, respectively. The post completion EIRR of the Jiangsu component, estimated at 29.9%, compared favorably with the PAD estimate of 21.9%. Guangdong had an estimated EIRR of 14.2%, compared to the PAD estimate of 21.0%. Details of the economic analysis are found in Annex 3

Summary EIRR (in %) and NPV (12%, RMB million) The ICR The PAD EIRR NPV EIRR NPV Jiangsu province 29.9% 1,163.7 21.9% 882.4 Guangdong province 14.2% 210.7 21.0% 831.1 Total Project 20.8% 1,374.4 21.4% 1,713.5

Jiangsu: The recalculated EIRR and NPV of the Jiangsu component were higher than anticipated at appraisal mainly because of: (a) the lower economic cost (about 5.7 percent less than the PAD estimate), and (b) the higher shiplock traffic (about 70 percent higher than the PAD estimate).

Guangdong: The recalculated EIRR of 14.2% was lower than the PAD's estimate of 21.0% mainly due to (a) the higher economic cost (7.7%) and (b) the delay in completion.

Financial Rate of Return: The reevaluated FIRR of the entire project was 8.4% with a NPV (4.6% discount rate) of RMB 1,204 million. Jiangsu was estimated to have a FIRR of 7.0% and Guangdong 9.7% compared to the PAD's estimate of 7.8% and 9.3% respectively. The detailed financial analysis in Annex 3 is summarized below.

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FIRR (in %) and NPV (RMB million) The ICR The PAD FIRR NPV (4.6%) FIRR NPV (6.0%) Jiangsu province 7.0% 364.8 7.8% 386.8 Guangdong province 9.7% 839.2 9.3% 403.8 Total Project 8.4% 1,204 8.3% 790.7

Both the Jiangsu and Guangdong inland waterway bureaus are public service agencies with responsibility for the day-to-day management, operation and maintenance of the inland waterway transport systems in their provinces. Their main financial incomes are the regulated fees imposed on the inland waterway's operators and budgetary allocations from the provinces. The two inland waterway bureaus planned to use their financial incomes to cover their financial obligations, including the Bank and domestic loans. Based on the current operation which generates a healthy cash flow, in spite of regulatory changes that reduced opportunities for revenue generation, the two inland waterway bureaus are not expected to have any difficulty in financing the operation and maintenance of their waterway infrastructures as well as their debt obligations.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory Overall the outcome of the Project was rated satisfactory based on (a) the satisfactory achievement of its objective, (b) the consistency of the project development objective with the Bank's strategy for improving transport services to alleviate bottlenecks and China's policy and plan for increased economic development in interior regions, (c) the attention given to lessons learned from the previous inland waterway project and other transport projects, and (d) compliance with Bank's safeguard policies.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Sector Development The impact of the project on sector development was very positive. As had been experienced in the previous inland waterway project, with improvements in the navigational channels and increased capacity of the shiplocks, larger vessels were being used. Measures to speed up the transition to larger vessels and discourage the use of smaller vessels were implemented and the construction of standardized vessels, influenced by the Project technical assistance recommendations implemented by the Ministry of Communications, was evident. Single self-propelled vessels were beginning to be replaced by tows of two to three barges, a more efficient and cost effective form of operation. A shift from small family-based ownership to larger business enterprises was evident.

(b) Other Unintended Outcomes and Impacts (positive or negative) None.

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3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops No beneficiary survey or stakeholder workshops were conducted in the Project.

4. Assessment of Risk to Development Outcome Rating: Low or Negligible The risk to development outcome was negligible to low. Central and project provincial governments' commitment to the Project were strong, economic conditions in the country and the Project Provinces remained robust, PMO staff were adequately trained to implement Bank financed projects, and counterpart funds were available throughout the implementation of the Project. Traffic on the project waterways exceeded expectation, reflecting improvement in services and reduction in transport cost. Budgetary provisions for maintenance were adequate and had been increasing in recent years in the Project Provinces. The risk that the development outcome will not be sustained, externally in terms of the demand for the facilities provided and internally in terms of the ability and capacity of the project entities to properly manage, operate and maintain them, is low.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory Bank performance in ensuring quality at entry was satisfactory. The Project was technically sound. Lessons learned in past Bank financed projects were taken into account. Risks were identified and appropriate measures were taken to mitigate them. Care was exercised to prepare the PMOs for project implementation. The failure to specify the extent to which reduction in transport cost was expected seemed an oversight. Not quantifying this target did not hinder the ability to monitor and evaluate the achievement of its development objective but did contribute to what otherwise could be considered highly satisfactory quality at entry.

Resettlement Action Plans (RAP) contained elaborate processes for consultation and participation of the various stakeholders in the planning, adverse impact analysis, legal framework for resettlement, strategy and implementation program for compensation, relocation and livelihood development, monitoring and airing and resolution of grievances.

QAG’s assessment of quality at entry found that out of nine constituent elements, seven (the Project/operation’s concept objectives and approach, technical and economic aspects, environmental aspects, poverty and social aspects, financial management aspects, risk assessment and sustainability, Bank inputs and processes) were satisfactory; one (readiness for implementation) was highly satisfactory; and one (institutional analysis) was marginally satisfactory, on account that there was no clear indication how the Project would address the issue of freight tariff regulations that affect inter-modal competition, a comment which in hindsight, with the change in national policy, appears misguided.

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(b) Quality of Supervision Rating: Satisfactory The quality of Bank supervision was satisfactory.

Regular implementation review missions, focusing on the timely completion of works and their impact on the achievement of the development objective, were conducted throughout the period of project implementation. Changes in national policy beyond the control of the Project limited the ability of the waterway bureaus to collect revenue and rendered the intermediate financial outcome indicators and related covenants meaningless. The task team missed the opportunity to initiate an amendment to the loan agreement and possibly agree on replacement indicators. Nonetheless, these changes did not adversely affect the outcome of the development objective (also see Section 6, Lessons Learned) but did contribute to downgrading what otherwise could be considered highly satisfactory quality of supervision.

Otherwise, issues that emerged during implementation were attended to efficiently and promptly. For example, the Bank proactively and in a timely manner responded to the request to use unallocated loan funds to increase the scale of technical assistance and training. Other issues such as land acquisition difficulties, shiplock operating performance, questions raised by auditors, and extension of the loan closing date for the Guangdong part were all handled efficiently and effectively. Though there was no explicit arrangement for social impact monitoring, compliance with safeguard and fiduciary policies was closely monitored and recommendations for improving the implementation of the EAP and the RAP were readily given. Environmental assessments (EA) of the project components were satisfactorily carried out by the Scientific Institute of Pearl River Water Resources Protection for the Guangdong component and by the Second Harbor Engineering Investigation and Design Institute of MOC in association with Hehai University for the Jiangsu component.

(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Overall Bank performance was satisfactory based on its performance in preparing and supervising the Project. Project preparation was efficient in terms of time. The design of the Project was relevant to the developmental needs of the Project Provinces. Supervision during project implementation was regular and constructive.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory Government performance was satisfactory based on its level of commitment to the Project. MOC was strongly supportive of the development and had organized workshops to assist Jiangsu and Guangdong in the preparation of the Project. MOC followed the Project closely during implementation, and on several occasions participated with the Bank task team in review missions, particularly in the early stages of the implementation of the Project.

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(b) Implementing Agencies Performance Rating: Satisfactory

Implementing Performance Agencies On the balance the performance of both implementing agencies was Guangdong satisfactory. Co-operation between the implementing agencies and the Provincial Bank was very good, consultations were extensive and meaningful and Waterway Bureau issues were promptly raised and jointly resolved. Both implementing and Jiangsu Provincial agencies discharged their fiduciary responsibilities conscientiously and Waterway Bureau correctly. Compliance with Bank's requirements during project implementation was highly satisfactory.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory Overall Borrower performance was satisfactory. Government support was forthcoming. The Project was, though not perfect, well prepared. The design was appropriate in the context of the development objective. The implementation plan was well conceived. Implementation was generally satisfactory. The Project was completed with outputs in excess of planned targets and at a cost that was less than estimated. Traffic on the project waterways and shiplocks significantly exceeded expectation testifying to an improvement in the quality of the facilities and services provided by the implementing agencies. The project clearly achieved its objective.

6. Lessons Learned Supporting economic growth by improving the Inland Waterway Sector, replicating Project outcomes – Inland waterways often are the first link in transport chains especially for low-value commodities in large consignments from and to origins alongside or near a river or inland waterway. Users of China's inland waterways are aware of the benefit of using larger vessels for such cargo and, as this Project demonstrates, respond positively to improvements in inland waterway infrastructures that promote their use. Measures to increase efficiency and cost effectiveness in the sector are also well received by the market, though limited government intervention may be necessary to ensure a balance with other transport modes. Investments in and upkeep of navigation infrastructure (dredging, navigation aides, locks, etc), similar to the Project investments, can be replicated building on experience gained in inland waterway network planning, macro- economic considerations, technical design, safety provisions and environmental and social safeguards.

Avoiding conditionality that advocates policy beyond the control of the Project - Government, and for the matter the Bank’s, transport policies often change unexpectedly in the course of project implementation as they did for this project in relation to user pricing. The implementing entities’ progression towards an institutional capacity to set direct user charges to cover cost and provide for investment funding while maintaining competitiveness with other modes seemingly suffered a setback when a national policy change restricted the ability of government waterway entities to directly collect fees from waterway users. The national policy was aimed at balancing the use of inland waterway

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sector with other modes. The revenue loss was substituted by an increase in budgetary allocations.

Throughout the world, most waterways tend to be owned and administered as public goods. Cost recovery mechanisms are rarely sufficient to cover all costs, but these costs are usually very small compared to other modes in either absolute terms or in proportion to traffic handled. In general, permanent government subsidies for transport infrastructure should be avoided but road and inland waterway systems are somewhat exceptional: for the most part – other than busy commercial canals and high density tolled freeways – they are appropriately treated as public goods recovered through taxes and vehicle/registration fees. In this light, and given inland waterways greater energy efficiency and smaller environmental footprint, this national policy appears appropriate.2 Unfortunately, the original Project design included covenants and performance indicators based upon policy that was beyond the ability of the Project to control and appear, at least in hindsight, to support a narrow interpretation of the benefits of self-generated revenue. In designing project conditionality it is important to take a broad informed perspective, reflect the fluidity of national policy in a developing country, and remain within the limits of the Project to control.

7. Comments on Issues Raised by Implementing Agencies 1. It is suggested a flexible disbursement policy of the use of loan savings be adopted, e.g. increasing the amount for financing of civil works from 62% to 100%.

Unallocated loan funds by mutual consent of the Bank and the Borrower may be used to finance additional works and services. Major revision of project scope may require some form of appraisal of the additional work/services. Present Bank policy allows a revision of the disbursement rate. The possibility of increasing the disbursement rate for civil works in the Guangdong component to fully make use of the loan amount was discussed in one of the project review missions. This was eventually discounted in light that the amount of remaining works was negligible relative to the expected loan savings.

2. Prepare supplemental subprojects at project appraisal stage rather than in the middle of project implementation for use of unallocated loan funds.

In light that competitive bidding may lower project costs and loan savings may arise, the suggestion merits thoughtful consideration.

3. To improve the implementing agency's project management capability, it is suggested that the Bank, prior to project implementation, help to arrange for 2-3 of the agency's staff to work in an overseas Bank-financed project where English is a working language.

The idea is worth exploring. Much depends on whether the overseas implementation unit would be prepared to accommodate the visitors. The issue of funding also arises.

2 The World Bank Group, Transport Sector Strategy Update, June 2007.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Appraisal Estimate Actual/Latest Percentage of Components (USD M) Estimate (USD M) Appraisal GUANGDONG - RENOVATION OF ZHAOQING-HUATIAOMEN (Z-H) 98.70 73.17 74% AND LIANHUASHAN-SHAWAN- RONGGUI (L-S-R) WATERWAYS GUANGDONG - ENHANCEMENT OF MAINTENANCE DREDGING 15.30 17.40 114% CAPACITY AND OPERATIONAL MGMT GUANGDONG - TA FOR INSTITUTIONAL DEV. AND 2.10 8.19 390% IMPLEM. SUPPORT AND TRG GUANGDONG - RESETTLEMENT, MONITORING AND 20.60 31.23 152% MAINTENANCE DURING IMPLEM. JIANGSU - CONSTRUCTION OF 84.80 58.52 69% FIVE SHIPLOCKS JIANGSU - TA FOR INSTITUTIONAL DEV. AND 1.70 1.01 59% IMPLEM. SUPPORT AND TRG JIANGSU - RESETTLEMENT, 14.30 20.84 146% DESIGN AND MONITORING Total Baseline Cost 237.50 210.36* Physical Contingencies 21.50 Price Contingencies 27.80 Total Project Costs 286.80

* Inclusive of contingencies.

(b) Financing Type of Appraisal Estimate Actual/Latest Percentage of Source of Funds Cofinancing (USD M) Estimate (USD M) Appraisal Borrower 163.80 130.68 80% International Bank for Reconstruction and 123.00 79.68 65% Development

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Annex 2. Outputs by Component

Component Plan (PAD, April 1998) Actual Part A: Guangdong

1.Upgrading of Zhaoqing- Improve H-R to 100m x 6m Completed as planned Hutiaomen (H-R) waterway to accommodate 3,000dwt and Lianhuashan-Shawan- vessels and L-S-R to 80m x Ronggui L-S-R) waterway 4m to accommodate 1,000 dwt vessels

Construct 107 channel Completed as planned markers on H-R and 58 on L-S-R

Renovate waterway Completed as planned maintenance stations and construct new terminals at Zhaoqing, Jiangmen, Chencun and Ronggui

2. Enhancement of To procure suction hopper Completed as planned maintenance dredging dredger, 2 channel marker capacity and operational boats, 4 maintenance work management boats, 4 speedboats, GPS survey system, 4 sets of maintenance equipment and battery chargers, telecommunication network system, 6 cars.

3. Technical assistance for Construction supervision, Construction supervision, institutional development Management Information MIS (software and and implementation support System (MIS) including the hardware) with a new and training creation of a new database database, navigational aids of information on inland study, feasibility study on waterways vessels, electronic mapping, 22 navigational aids study, 10 training programs, domestic training programs, domestic training for 188 persons and training for 125 persons and overseas training for 197 overseas training for 128 persons. persons

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Part B: Jiangsu

1.Construction of 5 3 shiplocks ( Suqian, Completed as planned shiplocks Huaiyin, and Huaian) with chambers of 23m x 260m x 5m capable of accommodating 2,000 dwt barges; 1 shiplock (Xietai) with chamber of 23m x 230m x 5m capable of accommodating 2,000 dwt barges and 1 shiplock (Jianbi) with chamber 23m x 230m x 4m capable of accommodating 1,000 dwt

barges

2. Equipment for shiplocks Gates, hoists, computerized Completed as planned control system

3. Technical assistance for institutional development Construction supervision, Construction supervision, and implementation study on increasing vessel study on increasing vessel support, and training size, development of MIS size, development of MIS including the creation of a with a new database, 15 new database, 8 training training programs, and programs, and domestic domestic training for 76 training for 53 persons and persons and overseas overseas training for 68 training for 145 persons persons

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Annex 3. Economic and Financial Analysis

Economic and financial evaluations of the two major components: (a) the five ship locks for the inland waterway system in Jiangsu Province and (b) the two main waterway channels in Guangdong Province were separately undertaken. Each evaluation covers all sub-components. Evaluation for the entire project combining the two main components as well as all other components is also undertaken.

The Jiangsu part of the Project included a minor component that was intended to facilitate an increase in average vessel size, as well as a major component to increase the number of chambers on the most congested shiplocks on the Grand Canal. In the economic evaluation these two components were evaluated together, and it appeared that the projected increase in vessel size was attributed to the reduction in congestion at the shiplocks whereas the two outcomes were independent of each other. In the re-evaluation of the shiplock (Jiangsu) component, the benefits of the shiplock expansion were separated from that of the policy to increase vessel size, to take account of the actual increase in freight on the Grand Canal as well as the actual increase in vessel size and changes in ship operating cost.

Both costs and benefits in the evaluation reflect December 2005 prices. Assumptions of traffic and the results of evaluations are tabulated below.

Table 3.1: Summary of Economic and Financial Evaluations The ICR The PAD ENPV FNPV ENPV FNPV EIRR (12%, FIRR (4.6%, EIRR (12%, FIRR (6.0%, (%) mY) (%) mY) (%) mY) (%) mY)

Jiangsu Province : 1. Xietai 32.1% 180.1 -- -- 28.7% 455.7 -- -- 2. Huaian 34.4% 141.9 -- -- 17.8% 61.2 -- -- 3. Huaiyin 32.9% 230.7 -- -- 22.8% 143.9 -- -- 4. Suqian 30.7% 236.6 -- -- 20.6% 149.7 -- -- 5. Jianbi 23.4% 148.6 -- -- 15.9% 72.0 -- -- Total Jiangsu 29.9% 1,163.7 7.0% 364.8 21.9% 882.4 7.8% 386.8 Guangdong Province 1. Z-H Waterway 16.8% 117.3 -- -- 17.5% 376.3 -- -- 2. L-S-R Waterway 13.3% 93.4 -- -- 20.2% 349.0 -- -- Total Guangdong 14.2% 210.7 9.7% 839.2 21.0% 831.1 9.3% 403.8

Total Project 20.8% 1,374.4 8.4% 1,204.0 21.4% 1,713.5 8.3% 790.6 Source: GPWB, JPWB and Bank staff.

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Table 3.2: Inland Waterway Traffic (2000-2020, million tons)

The ICR The PAD 2000 2004 2005 2010 2020 2000 2004 2005 2010 2020 Jiangsu Xietai 23.35 37.36 38.85 47.27 69.98 19.41 23.59 24.77 31.62 46.77 Huaian 47.49 78.76 81.91 99.66 147.52 38.82 47.19 49.55 63.24 93.57 Huaiyin 41.42 69.66 72.45 88.14 130.48 38.19 46.43 48.75 62.22 92.05 Suqian 39.54 71.70 74.57 90.73 134.32 35.66 43.34 45.51 58.09 85.93 Jianbi 30.26 41.04 42.68 51.94 76.89 11.81 14.35 15.07 19.23 28.45 The project 182.06 298.52 310.46 377.74 559.19 143.89 174.90 183.65 234.40 346.77 Total Traffic 380.04 512.45 526.44 610.30 820.20 300.24 337.93 348.07 403.50 542.25 Average growth rate pa 2000-05 2005-10 2010-20 2000-04 2000-05 2005-10 2010-20 The project 11.3% 4.0% 4.0% 5.0% 5.0% 4.0% Total traffic 6.7% 3.0% 3.0% 3.0% 3.0% 3.0% ICR/PAD Project traffic 26.5% 70.7% 69.0% 61.2% 61.3% Total traffic 26.6% 51.6% 51.6% 51.6% 51.6% Guangdong Z-H Waterway 36.05 63.00 67.28 92.00 136.00 24.31 28.44 29.58 35.99 48.37 L-S-R Waterway 39.97 51.90 55.53 70.00 98.00 27.20 31.82 33.09 40.26 54.11 The project 76.02 114.90 122.81 162.00 234.00 51.51 60.26 62.67 76.25 102.48 Total Traffic 193.92 215.00 220.00 250.00 300.00 189.75 204.75 210.00 240.00 310.00 Average growth rate pa 2000-05 2005-10 2010-20 2000-05 2005-10 2010-20 The project 10.1% 5.7% 3.7% 4.0% 4.0% 3.0% Total traffic 2.6% 2.6% 1.8% 2.0% 2.7% 2.6% ICR/PAD Project traffic 47.6% 90.7% 96.0% 112.5% 128.3% Total traffic 2.2% 5.0% 4.8% 4.2% -3.2% Sources: JPWB, GPWB and the Bank staff.

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Table 3.3: Economic Rate of Return (RMB million)

Jiangsu Guangdong Total Net Total Total Net Cash Total Total Cash Total Total Net Cash Cost Benefit Flow Cost Benefit Flow Cost Benefit Flow

1999 91.30 (91.30) 134.0 (134.0) 225.34 (225.34) 2000 182.60 266.43 (182.60) 214.3 (214.3) 396.93 266.43 (396.93) 2001 162.76 275.56 (162.68) 249.9 (249.9) 412.67 275.56 (412.59) 2002 145.50 285.52 (102.09) 111.6 (111.6) 257.09 285.52 (213.68) 2003 56.19 294.65 41.50 127.4 (127.4) 183.60 294.65 (85.91) 2004 36.52 304.61 214.14 103.2 (103.2) 139.75 304.61 110.91 2005 4.15 313.74 309.59 120.6 135.2 14.6 124.72 448.90 324.18 2006 4.15 325.36 321.21 103.9 163.6 59.7 108.06 488.98 380.92 2007 4.15 337.81 333.66 53.0 195.0 142.1 57.11 532.85 475.74 2008 4.15 350.26 346.11 53.0 229.7 176.7 57.11 579.95 522.84 2009 4.15 362.71 358.56 53.0 267.8 214.8 57.11 630.47 573.36 2010 4.15 375.16 371.01 53.0 309.6 256.6 57.11 684.71 627.60 2011 4.15 371.01 366.86 53.0 321.5 268.5 57.11 692.49 635.38 2012 4.15 366.86 362.71 53.0 333.8 280.9 57.11 700.70 643.59 2013 4.15 362.71 358.56 53.0 346.7 293.7 57.11 709.39 652.28 2014 4.15 357.73 353.58 79.4 360.0 280.6 83.59 717.74 634.15 2015 4.15 356.07 351.92 79.4 373.9 294.4 83.59 729.94 646.35 2016 4.15 353.58 349.43 53.0 388.3 335.3 57.11 741.83 684.72 2017 4.15 351.09 346.94 53.0 403.2 350.2 57.11 754.28 697.17 2018 4.15 348.60 344.45 53.0 418.7 365.7 57.11 767.30 710.19 2019 4.15 346.11 341.96 53.0 434.8 381.8 57.11 780.91 723.80 2020 4.15 345.28 341.13 53.0 451.5 398.6 57.11 796.79 739.68 2021 4.15 344.45 340.30 53.0 468.9 415.9 57.11 813.31 756.20 2022 4.15 343.62 339.47 53.0 486.9 433.9 57.11 830.50 773.39 2023 4.15 342.79 338.64 53.0 505.6 452.6 57.11 848.38 791.27 2024 4.15 341.96 337.81 53.0 525.0 472.0 57.11 866.96 809.85 2025 4.15 340.30 336.15 53.0 545.2 492.2 57.11 885.48 828.37

EIRR 29.9% 14.2% 20.8% NPV (12%) 1,163.7 210.7 1,374.4

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Table 3.4: Financial Rate of Return (RMB million)

Jiangsu Guangdong Net Accrue Net Accrue Total Total Total Cash to Total Total Cash to IWW2 Inflows Outflows Flow IWW2 Inflows Outflows Flow IWW2 Project

1998 (3.19) (14.35) 11.16 13.84 13.84 1999 152.86 500.00 (347.14) (475.41) (50.41) 115.47 (165.88) (159.33) (634.74) 2000 218.75 125.79 92.96 (90.59) (55.57) 301.47 (357.04) (349.82) (440.41) 2001 403.15 81.12 322.03 (16.25) (13.48) 331.86 (345.34) (343.59) (359.84) 2002 505.64 217.80 287.84 (136.44) 134.83 176.68 (41.85) (59.38) (195.82) 2003 608.78 660.11 (51.33) (562.16) (58.65) 224.09 (282.74) (275.12) (837.28) 2004 635.02 (197.85) 832.87 67.65 137.24 57.52 79.72 61.88 129.53 2005 754.67 484.34 270.33 39.10 115.76 61.72 54.04 38.99 78.09 2006 885.63 208.03 677.60 109.02 114.32 93.51 20.81 5.95 114.97 2007 994.39 (259.02) 1253.41 201.67 129.40 (35.15) 164.55 147.73 349.40 2008 1,114.34 303.47 810.88 130.47 126.05 (59.20) 185.25 168.86 299.33 2009 1,246.41 346.83 899.58 144.74 148.56 (61.37) 209.93 190.62 335.36 2010 1,391.53 345.59 1,045.94 168.29 153.85 (69.46) 223.31 203.31 371.60 2011 1,575.32 1,494.60 80.72 12.99 159.59 (81.45) 241.04 220.29 233.28 2012 1,719.09 1,413.01 306.08 49.25 167.18 (91.32) 258.50 236.77 286.02 2013 1,912.56 1,406.25 506.31 81.46 189.72 (94.46) 284.18 259.52 340.98 2014 2,125.42 1,397.30 728.12 117.15 191.74 (104.24) 295.98 271.05 388.20 2015 2,308.94 1,527.12 781.82 125.79 200.24 (115.50) 315.74 289.71 415.50 2016 2,613.73 1,630.71 983.02 158.16 208.63 (127.51) 336.14 309.02 467.18 2017 2,894.83 828.36 2,066.47 332.49 233.90 (132.21) 366.11 335.70 668.19 2018 3,203.87 819.80 2,384.07 383.59 235.65 (134.91) 370.56 339.93 723.52 2019 3,542.95 837.33 2,705.62 435.32 244.96 (122.06) 367.02 335.18 770.50 2020 3,847.44 1,009.31 2,838.13 456.64 254.49 (136.57) 391.06 357.98 814.62

FIRR 7.0% 9.7% 8.4% NPV (4.6%) 364.8 839.2 1,204.0

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Names Title Unit Responsibility/Specialty Lending Xin Chen Program Assistant EACCF Team Assistance Sr. Environmental Soichiro Seki EASES Environment Engr. Sr. Environmental Chongwu Sun EASRE Environment Spec. Toshiro Tsutsumi Sr. Port Engineer EASTE Task Team Leader Han-Kang Yen Research Analyst EASTE Financial Analysis Chaohua Zhang Sr. Social Sector Spec. EASSO Social Development Youlan Zou Social Specialist EASUR Social Development Supervision/ICR Xin Chen Program Assistant EACCF Team Assistance Kek Choo Chung Consultant EASTE Waterway/ICR Jiang Dai Consultant EASTE Hydropower Carlos Ricardo Lead Counsel LEGEA Legal Escudero Yiren Feng E T Consultant EASRE Environment Financial Management Yi Geng EAPCO Financial Management Specialist Xiaoping Li Sr. Procurement Spec. EAPCO Procurement Junior Professional Emmanuel Py EASTE Project Assistance Associate Task Team Leader from John C. Scales Sr. Transport. Spec. EASTE 04 Richard Y. Scheiner Consultant EASTE Civil Works Task Team Leader(02- Graham Smith Consultant SASEI 04) Toshiro Tsutsumi Sr. Port Engineer EASTE Task Team Leader till 02 Social Development Songling Yao EASSO Social Development Spec. Han-Kang Yen Research Analyst EASTE Financial Management Wenlai Zhang Transport. Spec. EASTE Transport

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b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands No. of staff weeks (including travel and consultant costs) Lending FY98 not available 297.90 Total: not available 297.90 Supervision/ICR FY98 not available 9.85 FY99 not available 29.54 FY00 15 53.33 FY01 10 47.60 FY02 11 62.46 FY03 3 22.86 FY04 5 35.94 FY05 16 63.61 FY06 14 64.88 FY07 5 27.34 Total: not available 417.41

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Annex 5. Summary of Borrower's ICR and/or Comments on Draft ICR

A Jiangsu

1. Introduction The Jiangsu component of the project was undertaken in accordance with the national and provincial waterway transportation plan to alleviate bottlenecks at shiplocks on the Grand Canal and enhance regional economic development. This was Jiangsu 's first inland waterway project and the second in the transport sector financed by the Bank. Initial preparation for the project commenced in 1995. The loan was negotiated in December 1998 and closed on June 30, 2005. All components in the project were completed satisfactorily.

2. Project Objectives The objective of the development in Jiangsu were to provide more efficient and productive inland waterway transport services through increasing shiplock capacity to reduce waiting time and to increase the financial and institutional capacity of JPWB. Although inland waterway transportation was known to be the least costly, the least energy consuming, and least hazardous, this mode of transportation had been losing market share in the 1980s and early 1990s. To overcome the decline, the government decided to rehabilitate the major corridor for waterborne transportation from the north to the south by building a number of dual or third line shiplocks on the Grand Canal, including the five shiplocks in the Jiangsu component of the Project.

3. Project Description The Jiangsu component of the project included

• Construction of five shiplocks on the Grand Canal, consisting of

Jianbi Second Shiplock: 23m wide×230m long×4m

Huaian Third Shiplock: 23m wide×260m long×5m

Huaiyin Third Shiplock: 23m wide×260m long×5m

Suqian Third Shiplock: 23m wide×260m long×5m

Xietai Second Shiplock: 23m wide×230m long×5m

• Training of JPWB's staff in various aspects of waterway management, construction and, maintenance; and • Technical Assistance for undertaking a study on the optimization of vessel size and development of a Management Information System (MIS).

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4. Achievement of Objectives and Outputs: The objectives of the project were fully achieved. All components in the project were completed satisfactorily. The five shiplocks were constructed as planned. The study on the optimization of vessel size resulted in recommendations for the standardization of vessels using the waterways. A Management Information System was developed for the whole of Jiangsu's network of waterways. Oversea training for 145 persons and domestic training for 76 persons was completed.

5. Project Planning and Design A Project Administrative Office (PAO) was established with sufficient experienced and qualified managerial personnel and engineers to manage all aspects of the project, from engineering design, preparation of bidding documents to reporting to the Bank.

6. Project Implementation The implementation of the project was directly managed by PAO in close cooperation with relevant authorities in the project areas. A local office was also established for the management of each sub-component. The whole component was successfully completed by the end of May 2005.

1) Civil Works: Each shiplock works consisted of four contracts (one each for civil works, gates and valves, hoists and electrical equipment). All civil works contracts were procured through National Competitive Bidding (NCB) and machinery for the shiplocks (gates and valves, hoists, and electrical equipment) were purchased through International Competitive Bidding (ICB). The completion of each sub-component was as follows. a. The construction of Jianbi Second Shiplock commenced on June 3, 1999 and was completed in March 2003. It won the Quality Prize Award from MOC and the Yangtze Prize Award from Jiangsu Province in 2003 and the Silver Quality Prize from the State in 2004. b. The construction of Xietai Second Shiplock commenced in December 1999 and was completed in November 2003. It also won the Quality Prize Award from MOC and Yangtze Prize Award from Jiangsu Province in 2003. c. The construction of Huaian Third Shiplock commenced in September 2000 and was completed in January 2005. d. The construction of Huayin Third Shiplock also commenced in September 2000 and was completed in January, 2005. e. The construction of Suqian Third Shiplock, commenced in October 2001, and has been has been in trial operation for about a year without any problem.

2) Technical Assistance: The study on the optimization of vessel size and the development of a Management Information System (MIS) was completed and the final report was submitted to the World Bank in December 2002. Consultants for the study were selected on QCBS basis. The report's recommendations for standardization of vessels using the shiplocks and waterways were adopted. The MIS is being used in the daily management of Jiangsu 's waterways.

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3) Training Programs: Originally there were eight overseas training programs in the project covering various aspects of policy support, implementation support and institutional development. This was later enlarged to fifteen programs with the approval of the Bank. All the 15 training programs had been completed satisfactorily; the last being in May 2005.

7. Land Acquisition and Resettlement: Land acquisition and resettlement were executed in accordance with the Resettlement Action Plan and monitored by Second Harbor Engineering Investigation & Design Institute who prepared five monitoring reports during the period of implementation of the project. Basic data on land acquisition, relocation and resettlement affected by the construction of the five shiplocks are shown in the following table: Subproject Relocation Land Acquisition Households Enterprises Farmland (ha.) Jianbi Second Shiplock 124 21 0 Xietai Second Shiplock 0 3 0 Huaiyin Third Shiplock 147 5 16.07 Huai'an Third Shiplock 90 15 0 Suqian Third Shiplock 6 2 0.07 Total 367 46 16.14

8. Environmental Protection: Environmental protection was an important aspect of project implementation. PAO entrusted the municipal environmental monitoring centers of the respective cities in the project areas with the monitoring of environmental changes during the entire period of project implementation. Quarterly reports on the results were submitted by PAO to the Bank. Contractors were required to pay particular attention to the work-sites, living areas and surrounding vegetation. The Project did not have any adverse impact on the local environment; rather, the landscaping and the planting of trees had improved the environment of the project areas by turning them into beautiful parks and gardens. 9. Cost and Financing: The original loan amount for the Jiangsu component was US$53 million. Due to reduction in prices of major materials and competitive bidding, the cost of the project was greatly reduced and US$17 million of the Bank loan was cancelled in June 2003. The loan financed 100% of the procurement of all the machinery, technical assistance and training and 62 % of the cost of civil works. JPWB funded the remaining 38% of the cost of civil works and 100% of the costs of land acquisition, resettlement, environmental protection and domestic training.

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Project Cost and Financing by Component (in US$ million Equivalent) Component Domestic Bank's Loan Total Jianbi Second Shiplock, 9.21 10.32 19.53 Xietai Second Shiplock, 6.80 5.81 12.61 Huaian Third Shiplock, 11.19 7.70 18.89 Huaiyin Third Shiplock 9.67 6.21 15.88 Suqian Third Shiplock 10.20 4.20 14.40 Vessel Size Increase Study 0.15 0.15 Training Programs 0.02 0.86 0.88 Total 47.09 35.24 82.34

10. Performances of Contractors and Consulting Engineers a) Contractors: There were 20 contracts for civil works and equipment. All contracts progressed on schedule and were completed according to design and specifications without any delay. All contractors' performances were rated satisfactory. b)Consulting Engineers Supervision engineers were experienced and familiar with FIDIC conditions of contract. Their performances were rated satisfactory.

11. PAO's Performance PAO was committed to the project from the beginning to the end of project implementation, fully prepared the project, coordinated with different departments of the provincial and municipal governments and worked closely with World Bank at all times. PAO established four local construction units to manage the daily engineering tasks as well as to coordinate with relevant authorities in the project areas. The performance of PAO was highly satisfactory.

12. Bank Performance a) Project Preparation: The Bank's performance was satisfactory. From 1995 to 1998, the Bank dispatched a few missions to help JPWB identify, prepare and formulate the project. The Bank missions and JPWB had discussions on a wide range of issues relating to feasibility studies, economic analysis, engineering design, methods of procurement, construction supervision, environmental protection, disbursement, technical assistance and training, land acquisition and resettlement. b) Project implementation During the implementation of the project, the Bank dispatched two missions a year to review the progress of the project. They gave a lot of constructive advice. JPWB was greatly satisfied with the performances of the World Bank's missions.

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c) Cooperation between PAO and the World Bank The World Bank and PAO had a close and pleasant work relationship. Bank officials were always ready to help PAO resolve difficulties and problems that were encountered during the implementation of the project

13. Lessons Learned Early in the preparation of the Project, JPWB organized several study tours to other provinces such as Zhejiang who had implemented projects financed by the World Bank to learn from their experiences. Some key staff appointed to work in PAO also intensified their learning of the English language so as to be able to understand the World Bank guidelines and procedures better. These efforts proved to be very valuable in managing the implementation of the project. A strong, responsible and experienced project management team was found to be essential for the successful implementation of the project.

14. Suggestions: It is suggested that a flexible disbursement policy on the use of unallocated loan funds be adopted. As an illustration, the loan saving of US$17 million could have been put to use by increasing the financing percentage of civil works from 62% to 100%. It is also suggested that supplemental sub-components be appraised and included for financing under the loan in the event that funds are available from loan savings in the original components. To improve the implementing agency's project management capability, it is suggested that the Bank, prior to project implementation, help to arrange for 2 or 3 of the agency's key staff to work 3 to 6 months in an overseas Bank-financed project where English is a working language, such as in India and the Philippines. By this arrangement, the staff of the implementing agency will learn not only the management of the project but also improve their proficiency in the English language. In order to meet the increasing demand for inland waterway transportation, improve the South Jiangsu trunk waterway network in the Yangtze River Delta, and increase the capacity of the Grand Canal, the central and provincial governments plan to invest a total of RMB12.4 billion (equivalent to some USD1.5 billion) between 2006 and 2012 to rehabilitate Jiangsu's waterway infrastructures. JPWB would like the World Bank to continue to finance the development of province's waterways with another loan of USD200 million.

B. Guangdong 1. Introduction The Guangdong Component of China Second Inland Waterway Project comprised waterway regulation works on the lower reaches of Xijiang River ( Zhaoqing-Hutiaomen Waterway) and the Lian-sha-rong Waterway. The Zhaoqing-Hutiaomen Waterway (Z-H) is navigable for seagoing vessels up to 3,000 dwt and plays an important role in the economic development of the Pearl River delta. The Lian-sha-rong Waterway (L-S-R), a key channel connecting the eastern to the western part of the Pearl River delta, is also the

31

trunk channel that connects the Xijiang River and the Shiziyang Waterway, the two major inland water routes of the province.

The Project is Guangdong's first IWT project to be financed by the World Bank. Initial preparation of the Project commenced in 1995. In December 1998, a delegation consisting of representatives from the State Planning Commission, the Ministry of Communications, Guangdong Finance Department, Guangdong Communications Department, Guangdong Financial Department, and Guangdong Provincial Waterway Bureau (GPWB), visited the headquarters of the World Bank in Washington to negotiate the Loan Agreement and Project Agreement. The Ministry of Finance of the People’s Republic of China signed the Loan Agreement and Project Agreement with the World Bank. The loan of $ 70 million to Guangdong Province became effective on March 16, 1999.

2. Project Objective The objective of the Guangdong component of the Project was to upgrade the Zhaoqing- Hutiaomen Waterway and the Lian-sha-rong Waterway to allow navigation of larger size vessels, and (b) to improve the financial and organizational capacity of GPWB.

3. Project description The Guangdong component of the project included the following:

• Regulation works on the Zhaoqing-Hutiaomen Waterway ( 168 km) and the Lian- sha-rong Waterway (90 km), specifically to a standard of 100m×6m×650m (width×depth×bending radius) for the former and 80m×4m×500m for the latter • Personnel Training: including policy support, implementation support and institution development; transfer of waterway construction technology and maintenance techniques, and • Technical assistance: comprising the development of a Management Information System and a study on navigational aids development.

The main works of improving the waterways consisted of dredging, bank protection, short-cutting, shoal blasting, channel marking and telecommunication.

4. Achievement of Objectives and Outputs: All the components have been successfully completed and all the objectives have been fully achieved. Outputs achieved included:

• Completion of regulation works on Lower Reach of Xijiang River and Liansharong Waterway; • Completion of a comprehensive study that resulted in the "Study Report on Navigational Aids Development for Xijiang Lower Reach and Liansharong Waterway", the development of a Management Information System (MIS) and Vessel Data Base for Guangdong Waterway Bureau headquarters, and a feasibility study on electronic mapping of the provincial waterways;

32

• Completion of overseas training of 197 persons and domestic training of 188 persons.

5. Project Planning, Design and Implementation In order to successfully complete the project, GPWB established the Project Management Office (PMO) as the implementing agency and assigned and recruited to it sufficient experienced and qualified managerial personnel and engineers to manage all aspects of the project.

All works under the project were completed by May 2006 except for the construction of the terminal and maintenance station in Zhaoqing and the development of the channel marker telemetry system, estimated to be completed by end April 2007.

Civil Works: The project was implemented through 25 contracts: 17 for civil works, 7 for equipment procurement, and one for construction supervision. Among them, 4 civil works contracts and 3 equipment contracts were procured through international competitive bidding (ICB). Of the remaining13 civil works contracts, 10 were awarded following national competitive bidding. The rest were non-Bank financed.

Equipment: Major items of equipment were procured through ICB.

Technical assistance and Training: Overseas training was originally planned for138 persons, covering such areas as policy support, implementation support and institution development. With the concurrence of the Bank the training program was expanded to include Inland Waterway Development, Planning and Policy Study; Inland Waterway Management and Vessel Operation; Environmental Monitoring and Protection; Waterway Construction and Maintenance; Waterway Design Optimization; Construction Supervision; Procurement and Contract; Financial Management; Economic Analysis and Evaluation; Project Management; Human Resource Management and 59 more people were trained. In addition, with Bank approval, a feasibility study on electronic mapping was undertaken. Consultants were selected according to their quality. All training programs have been completed successfully and the last training program (human resource) was completed by end 2004.

7. Land Acquisition and Resettlement Land acquisition and resettlement were completed satisfactorily.

8. Environmental Protection Environmental protection was an important aspect of the Project. PMO entrusted Scientific Institute of Pearl River Resources Protection to conduct environmental monitoring. Environmental monitoring results were reported to the Bank in accordance with the Environmental Action Plan on a quarterly basis. Environmental monitoring ceased in the third quarter of 2005 upon the completion of waterway regulation works.

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9. Cost and Financing: The original loan amount for Guangdong was US$70 million. Due to price reduction of major materials and competitive bidding under the Bank's procurement guidelines, the cost of the project was greatly reduced and US$20 million of the loan was cancelled in Feb. 2004, reducing the loan amount to US$50 million. The Bank loan financed 100% of the procurement of all the gates, hoists, equipment and technical assistance and overseas training, and 62 % of the cost of civil works. GPWB funded 38% of civil works and 100% of the costs of land acquisition, resettlement, environmental protection and domestic training. All expenditures were audited annually by the Guangdong Provincial Auditing Department and the auditor's annual reports were furnished the Bank on a timely basis.

Project Cost and Financing (US$ million) Component Actual Cost* Bank Financing Civil Works 73.17 28.18 Equipment 17.40 17.03 Consultants 6.69 0.31 Training 1.50 1.36 Resettlement, Monitoring, etc 31.23 0.0 Total 129.99 46.88 * Actual cost was converted from RMB to US$ at the exchange rate of 7.82 prevailing at the date of loan losing.

10. Performances of Contractors and Consulting Engineers 1) Contractors: Most of the contracts progressed as scheduled and completed according to design and specifications except for a few that were delayed because of contract variations, protracted processing for construction approval and adjustments for escalation in steel price. Contractors' performances were generally satisfactory. 2) Consulting Engineers: Consulting services for construction supervision were not financed by the loan and were procured following national procedure. Supervision engineers were experienced and familiar with the international practices. They were highly responsible and discharged their responsibilities in construction management, quality control, and control of contract progress payments competently. They played a key role in assuring the quality and progress of the project.

11. PMO's Performance The PMO was fully committed to the Project. It prepared the Project; coordinated with different departments of provincial and municipal governments and managed the implementation of the project. PMO worked closely with the World Bank task team in the preparation and implementation of the project.

12. Bank Performance The World Bank provided a wide range of assistance and advice in project identification, preparation and formulation. The Bank's contribution made the success of the project possible. During the implementation of the project, two missions a year from the Bank review the progress of work. Cooperation between PMO and the World Bank was good.

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13. Lessons Learned This was the first Inland Waterway Transport Project in Guangdong and the second transport project in the province financed by the World Bank. In the course of preparing and implementing the project, a lot of experiences and lessons were learned:

• A comprehensive preparation for project implementation including sending project staff to other provinces such as Zhejiang to learn from their experiences and familiarize themselves with Bank procedures in the early stage of the project cycle helped to ensure an efficient management of implementation of the Project. • Knowledge of the English language was essential to the understanding of the Bank's guidelines and procedures particularly those relating to procurement. • A strong, responsible and experienced project management team guaranteed the successful implementation of the project. • Competition through the application of Bank procurement guidelines and complying with them strictly was one of the best ways of reducing project costs. • The implementation of the project exposed a large number of engineers of GPWB to international practices (FIDIC) in contracting and consulting. • The overseas training programs were very useful for the engineers to learn and understand the design, construction and, in particular, the management of projects in western countries.

14. Suggestions: As loan savings often occur, it would be good for both the Bank and the Borrower to have a flexible disbursement policy on the use of possible savings and unallocated loan proceeds. The Bank may provide two options in the legal documents to allow the unallocated loan funds to be disbursed rather than cancelled:

• Increase the financing percentage of civil works from 62% to 100% if savings are identified. • Prepare supplemental subprojects at the project appraisal period rather than in the middle of the project implementation that could be, partly or entirely financed from loan savings.

To facilitate the management of projects in the future, it is suggested that the Bank help to arrange for 2 or 3 key staff of the project implementing agency at early stage to work for 3 to 6 months on an overseas World Bank financed project where English is a working language such as India or the Philippines. In this way, these key staff will not only learn about project management, but will improve their proficiency in the English language as well.

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Annex 6. List of Supporting Documents

1. Project Appraisal Document, Report No. 17738-CHA. World Bank, April 29, 1998. 2. Loan Agreement between People’s Republic of China and International Bank for Reconstruction and Development, December 18, 1998 3. Project Agreement among International Bank for Reconstruction and Development and Guangdong Province and Jiangsu Province, December 18, 1998 4. Project Implementation Plan. Guangdong Provincial Waterways Bureau, March 1998 5. Project Implementation Plan. Jiangsu Provincial Waterways Bureau, March 1998 6. Guangdong Environmental Impact Assessment Reports, March 1998 7. Jiangsu Environmental Impact Assessment Reports, February 1998. 8. Quarterly Progress Reports, Jiangsu Provincial Waterways Bureau 9. Quarterly Progress Reports, Guangdong Provincial Waterways Bureau, 10. Comprehensive Study of Ship Development of Inland Waterway Navigation in Jiangsu Province (Stage 11). Jiangsu Maunsell Engineering Consultants and Construction Supervision Co. Ltd. December 2002 11. Environmental Monitoring Report of Inland waterways (II) Construction Period. Jiangsu Environmental Monitoring Center, March 2005. 12. Retrospective Environmental Impact Assessment. Water Environmental Scientific Institute of Pearl River Basin, April 10, 2006 13. Summary Report of Resettlement Implementation on IWW2. Guangzhou Social Science Academy, February 2006. 14. Jiangsu Inland Waterways Transport Project Loaned by the World Bank, Final Monitoring and Evaluation Report on Land Requisition, Relocation and Resettlement (the 5th Round and Final Report). Resettlement Consulting & Evaluation Center of the Second Harbor Engineering Investigation & Design Institute, the Ministry of Communications, Wuhan, May 2004 15. Implementation Status of Jiangsu Inland Waterway Project. Jiangsu Provincial Waterways Bureau, March 12, 2005. 16. Summary Report on Project Progress, Second Inland Waterway, Guangdong Component, Guangdong Provincial Waterways Bureau, October 2006.

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Yellow I I I | I Changshu Sea I Jiang I |I I I I Wuxi SHANXI I | I NINGXIA I Jiang GANSU TaicangI QINGHAI I I I I | I I I SHANDONG I | Nantang I Kunshan I JIANGSU Liyang I Port II Zhangjiagang SHAANXI Wuhu | I I I I HENANANHUI SHANGHAI | I CHINA Yixing I SICHUAN Suzhou I Port I Gaochun I I HUBEI Chang | I I I This map was produced by | I East I the Map Design Unit of The

I| I SHANGHAI Tai Hu I World Bank. The boundaries, Chin I XIZANG | colors, denominations and CHONGQING ZHEJIANG | a Sea Wujiang I any other information shown

HUNAN Fanchang | I JIANGXI I on this map do not imply, on

GUIZHOU | I I Changshu I the part of The World Bank I Port YUNNAN FUJIAN | Group, | any judgment on the Changxing II legal | status of any territory, SHANGHAI SHI or any endorsement or | I GUANGXI GUANGDONG HONG KONGTAIWAN acceptance of such ° | MACAO, PORT. 31 boundaries. ANHUI |

|

VIETNAM | LAO Jiaxing MYANMAR PEOPLE’S ZHEJIANG || DEM. ° ° ° ° ° ° THAILAND REP. HAINAN PHILIPPINES 118 119 120 121 122 123 APRIL 1998

To Hangzhou To Hangzhou IBRD 29240

113° CHINA RUSSIAN FEDERATION INLAND WATERWAY II PROJECT HEILONGJIANG PEARL RIVER DELTA MONGOLIA PROJECT CHANNELS L JILIN O G SELECTED CITIES N O M LIAONING DEM. PEOPLE’S PROVINCE CAPITALS REP. OF KOREA E I N BEIJING Beijing MAIN ROADS TAINJIN HEBEI REP. Yellow OF RAILROADS SHANXI KOREA SHANDONG Sea 24° ° RIVERS 24 NINGXIA QINGHAI GANSU PROVINCE BOUNDARIES SHAANXI HENAN JIANGSU ANHUI INTERNATIONAL BOUNDARIES Fogang CHINA SHANGHAI (inset) HUBEI SICHUAN East ZHEJIANG Chin

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B-H Kowloon Section Zhuhai Victoria Taishan The boundaries, colors, denominations and any Macao other information shown Hutiaomen on this map do not Doumen imply, on the part of MACAO The World Bank Group, any judgment on the legal (Port) status of any territory, or any endorsement or acceptance of such 22° boundaries. 22° 113° 114°

APRIL 1998