Document of The World Bank Public Disclosure Authorized

Report No. 15428-CHA

STAFF APPRAISAL REPORT

Public Disclosure Authorized

SECOND NATIONAL HIGHWAY PROJECT Public Disclosure Authorized

November 12, 1996 Public Disclosure Authorized Infrastructure Operations Division China and Mongolia Department East Asia and Pacific Regional Office

HPDI - Highway Planning and Design Institute HPDIPS - Provincial Design Institute of Planning and Survey HRI - Highway Research Institute HSDI - Highway Survey and Design Institute ICB - International Competitive Bidding IFC - International Finance Corporation IRP - Interconnecting Roads Program IS - Institutional Strengthening IST - Institutional Strengthening and Training ITC - International Tendering Company Jingzhu - - Expressway JST - Joint Supervision Team LA&R - Land Acquisition and Resettlement LAB - Levying Administration Bureau LGTPA - Leading Group for Transportation for Poverty Alleviation LLH - - Highway MAAP - Microcomputer Accident Analysis Package MIGA - Multilateral Investment Guarantee Agency MOC - Ministry of Communications MOF - Ministry of Finance mte - Medium truck equivalent mvpd - Motor vehicles per day NCB - National Competitive Bidding NH - National Highway NPV - Net Present Value NR - National Road NTHS - National Trunk Highway System PAPs - Project-Affected People pcu - Passenger car unit PHRD - Project and Human Resources Development PIC - Public Information Center PIP - Project Implementation Plan PMO - Project Management Office PMS - Pavement Management System PR - Provincial Road PSB - Public Security Bureau PTS - Provincial Traffic School PTTS - Provincial Traffic Technical School RAP - Resettlement Action Plan RDB - Road Data Bank REO - Resident Engineer's Office RIPA - Roads Improvement for Poverty Alleviation RMF - Road Maintenance Fee RO - Resettlement Offices SAA - State Auditing Administration SOE - Statement of Expenditures SPC - State Planning Commission SSSRI - Ship and Shipping Research Institute STC - Staff Training Center TCU - Technical Coordination Unit TES - Traffic Engineering Society ton-km - Ton-kilometer TOR - Terms of Reference TRL - Transport Research Laboratory VS - Vocational School XGE - Xiaotang-Gantang Expressway XLE - - Expressway XZH - Xiangtan- Highway

CHINA SECOND NATIONAL HIGHWAY PROJECT

LOAN AND PROJECTSUMMARY

Borrower: People's Republic of China

Beneficiary: Hunan and Guangdong Provinces

Poverty Category: Not applicable

Amount: $400 million

Terms: 20 years, including 5 years of grace, at the standard interest rate for LIBOR-based US dollar single-currency loans

Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver

Financing Plan: See para. 4.47

Economic Rate of Return: 22.4 percent for the project overall 22.1 percent for the two Bank-financed expressway sections 19.6 percent for the - corridor

Maps: IBRD 27557, 27558

Project ID Number: CN-PE-3654

CONTENTS

1. HIGHWAY DEVELOPMENT AND REFORM ...... 1 A. Highway Strategy and Policy ...... 1 B. Linkage to Country Assistance Strategy ...... 1 C. Bank Group Participation...... 2 D. Lessons From Previous Bank Operations ...... 3

2. THE EVOLVING FRAMEWORK FOR PRIVATE TOLL HIGHWAY FINANCE ...... 4 A. Current Status of Private Project Finance ...... 4 B. Issues in Project Finance in China ...... 6 C. Regulatory Framework and Investment Environment ...... 9 D. Role of the World Bank Group ...... 10

3. THE TRANSPORT SECTOR IN GUANGDONG AND HUNAN ... 12 A. Geography and Transport...... 12 B. Traffic Growth and Road Safety ...... 14 C. Highway Administration, Planning and Financing ...... 15 D. Engineering, Construction and Maintenance ...... 18 E. Highway Development Program 1996-2000...... 18

4. THE PROJECT ...... 22 A. Origin and Formulation...... 22 B. Objectives and Rationale for Bank Involvement ...... 22 C. Project Monitoring ...... 24 D. Project Components ...... 25 E. Civil Works Construction and Supervision...... 26

The project was prepared and appraised by Alfred Nickesen (Transport Specialist, Task Manager), Jean-Marie Braun (Highway Engineer, Consultant), Ms. Alla Weinstein (Transport Specialist), Rodrigo Archondo (Transport Economist), Dick Jonsson (Institutional/Traffic Safety/Training Specialist, Consultant), Katsunori Suzuki and Anil Somani (Environmental Specialists) and Tosun Aricanli (Resettlement Specialist). Ms. Tomoko Matsukawa (Project Finance Specialist) and Mitchel Stanfield (Private Infrastructure Consultant) prepared the chapter on private highway finance in China. Mr. Liu E of the Bank's Resident Mission in China also contributed to the preparation of the project. The peer reviewers of the project were Jose Irigoyen (Engineering), Anttie Talvitie (Transport Economics), Stein Lundebye (Institutional Strengthening, Traffic Safety and Training), and Jeff Ruster (Private Highway Finance). - 11 -

F. Institutional Capacity Building...... 31 G. Environmental Assessment ...... 35 H. Land Acquisition and Resettlement ...... 37 I. Cost Estimates ...... 38 J. Financing ...... 40 K. Implementation ...... 42 L. Procurement ...... 44 M. Disbursements...... 47 N. Auditing ...... 48 0. Project Supervision, Monitoring, and Reporting ...... 49

5. ECONOMIC EVALUATION...... 51 A. Evaluation of the Expressways ...... 51 B. Evaluation of Other Highways...... 56 C. Overall Project Economic Evaluation ...... 57

6. AGREEMENTS REACHED AND RECOMMENDATION...... 58

TABLES

Table 3.1: Hunan and Guangdong: Comparison of Freight and Passenger Volumes by Mode, 1985 and 1994...... 62 Table 3.2a: Hunan Highway Revenues and Expenditures, 1986-95.63 Table 3.2b: Guangdong Highway Revenues and Expenditures, 1986-95.64 Table 3.3a: Hunan: Highway Revenues and Expenditures, 1986-2000 .65 Table 3.3b: Guangdong: Highway Revenues and Expenditures, 1986-2000 .66 Table 3.4a: Highway Construction Plan During 9FYP in Hunan ...... 67 Table 3.4b: Highway Construction Plan During 9FYP in Guangdong...... 68 Table 4.1 a: Interconnecting Roads Program in Hunan ...... 69 Table 4. lb: Interconnecting Roads Program in Guangdong ...... 69 Table 4.2a: Project Cost Summary-Hunan Component...... 70 Table 4.2b: Project Cost Summary-Guangdong Component...... 71 Table 4.3a: Financing Plan-Hunan Province Portion...... 72 Table 4.3b: Financing Plan-Guangdong Province Portion...... 72 Table 4.4a: Hunan Project Procurement Arrangements...... 73 Table 4.4b: Guangdong Project Procurement Arrangements...... 74 Table 4.5: Estimated Disbursement Schedule.75 Table 5.1: Vehicle and Maintenance Data .76 Table 5.2: Road Sections Data .77 Table 5.3: Typical Road User Costs .78 Table 5.4: Excel Economic Evaluation Model Sample .79 Table 5.5: Economic Evaluation and Sensitivity Results .80 Table 5.6: Risk Analysis Methodology.81 - 111-

FIGURES

Figure 3.1: Hunan Highway Revenues and Expenditures, 9FYP...... 17 Figure 3.2: Guangdong Highway Revenues and Expenditures, 9FYP...... 17

GRAPHS

Graph 5.1: Diverted Traffic to the Expressway in 2000 ...... 82 Graph 5.2: Distance Savings (%) ...... 82 Graph 5.3: Construction Costs per Kilometer...... 83 Graph 5.4: Internal Rate of Return (%) ...... 83 Graph 5.5: Construction Quota Multiplier ...... 84 Graph 5.6: Traffic Assumptions Multiplier ...... 84 Graph 5.7: Hunan Province: Majahe-Leiyang Segment ...... 85 Graph 5.8: Guangdong Province: Xiaotang-Gantang Segment ...... 85 Graph 5.9: Both Provinces: Majahe-Leyang And Xiaotang-Gantang Segments...... 86 Graph 5.10: Both Provinces: Entire Corridor ...... 86

ANNEXES

Annex 1: Project Monitoring Indicators ...... 87 Annex 2: Procurement and Implementation of Northern and Southern Sections...... 93 Annex 3a: Environmental Assessment and Action Plan Summary (Hunan Section) ...... 95 Annex 3b: Environmental Assessment and Action Plan Summary (Guangdong Section) ...... 99 Annex 4a: Review of the Resettlement Action Plan Summary (Hunan Section) ...... 103 Annex 4b: Review of the Resettlement Action Plan Summary (Guangdong Section) ... 109 Annex 5: Implementation Schedule...... 115 Annex 6: Supervision Mission Plan ...... 125 Annex 7: Selected Documents in the Project File ...... 127

MAPS

1. China: Major Highway Development Program-National Trunk Highway System (NTHS), IBRD 27557

2. Second National Highway Project, IBRD 27558

1. HIGHWAY DEVELOPMENT AND REFORM

A. HIGHWAY STRATEGY AND POLICY 1.1 At the central level, the basic strategy is to develop a National Trunk Highway System (NTHS). The Ministry of Communications (MOC) is in charge of planning the NTHS, consisting of 12 interprovincial trunk expressways, with a total length of some 35,000 km and connecting 95 major Chinese cities. While immediate priority is being given to two north-south and two east-west corridors ("two verticals and two horizontals") and three other major transport corridors (Beijing-Shanghai, Beijing- , -Beihai), the Beijing-Zhuhai (Jingzhu) Expressway, which is one of the "two verticals," constitutes the highest priority corridor in this program. This expressway crosses the provinces of Hebei, Henan, Hubei, Hunan, and Guangdong over a distance of approximately 2,500 km and will connect, once completed, Beijing with Guangdong's fast-growing and Hong Kong. It is designed as a high- grade, high-performance facility, at a minimum four-lane standard, fully access- controlled, and will be operated throughout as a toll highway. Jingzhu is scheduled for substantial completion by the year 2000. At the provincial/regional level, the strategy is to concentrate on network maintenance and the expansion and improvement of provincial and rural road networks currently totaling more than 1 million km, to provide greater mobility and to stimulate socioeconomic development, particularly in less developed areas. 1.2 In terms of highway and road transport policy, growing attention is being paid to removing administrative barriers to interprovincial trade and to redefining the Central Government's role in transport, in light of rapid administrative decentralization and growing private sector involvement in highway development and road transport services. Provincial and municipal governments are expected to continue mobilizing most investment resources required, including access to private investment and capital markets, and to seek greater expenditure efficiency through improved highway planning and investment strategies, as well as to modernize maintenance management and improve cost recovery from road users. Local governments are also expected to further the development of road transport services and the road construction industry through deregulation and promotion of competition, access to modern technology and improved management. The Bank has prepared a report (No. 11819-CHA dated February 1994), CHINA: Highway Development and Management-Issues, Options and Strategies, which serves as the basis for the Bank Group sector assistance strategy.

B. LINKAGE TO COUNTRY ASSISTANCE STRATEGY 1.3 In highways, the key problem facing China is its comparative neglect of the sector over several decades. Accordingly, China's road network ranks among the sparsest in the - 2 - world relative to geographic area or population and is quite unsafe. The Bank's Country Assistance Strategy (CAS) for China, presented to the Board on June 1, 1995, and the Progress Report on March 26, 1996, support China's needs to rapidly modernize and expand its highway system. To achieve this, the Government of China (GOC), with Bank and other multi- and bilateral assistance, is giving high priority to developing the system of expressways leading to the NTHS. Among other priority corridors, the Bank is already heavily involved in the construction of substantial sections of Jingzhu expressway, between Beijing and Guangzhou. Under the ongoing National Highway (NHl) Project, two important sections are presently being built in Hebei and Henan. Under the proposed Second National Highway (NH2) Project, two priority sections in Guangdong and Hunan would be undertaken. Under a future Third National Highway (NH3) Project, which is under preparation, several important expressway sections as well as a major River bridge under an agreed Build-Operate-Transfer (B-O-T) arrangement would be undertaken in Hubei Province. A newly proposed Fourth National Highway IV (NH4) Project would cover two important expressway sections in Hunan and Hubei, which will be linked to the Yangtze bridge B-O-T scheme. These four National Highway Projects constitute a well thought-out and well-balanced series of investment operations that assist GOC and the concerned provinces in the timely completion of China's highest priority expressway corridor. In general, the Bank's program of support in the highway sector will continue to assist China in the foreseeable future in the financing, development and management of its priority expressway system.

C. BANK GROUP PARTICIPATION

1.4 The Bank Group has supported initiatives by the Government in the transport sector through loans and credits totaling $5.6 billion for 33 projects. The dialogue between the Government and the Bank Group on transport sector strategy and policies has been strengthened through long-term strategy studies for railways, highways and ports development, and through project preparation activities and project-financed studies as well as sector studies carried out in collaboration with Chinese authorities. The most recent Bank Group reports on the transport sector, besides Highway Development and Management: Issues, Options and Strategies also include China 's Railway Strategy (No. 10592-CHA) issued in February 1993, and Strategies for Road Freight Development (No. 12600-CHA) issued in January 1995. In addition, studies on the trucking industry and on highway finance have been completed. Studies on the road construction industry, interprovincial traffic facilitation, highway capacity, intercity passenger transport, and improved prioritization of highway investments and highway feasibility methodology are presently being undertaken. On the basis of its strong project and sector work, the Bank is deepening its involvement and assisting the Government in the design and implementation of institutional and sectoral reforms in areas such as strategy formulation and investment planning; policy, legal, and regulatory framework for private transport provision; sector financing; deregulation of transport services, and transfer of advanced technology through training and equipment. Chinese authorities and the Bank Group are currently preparing a transport sector strategy to help guide sector development in a consistent and cohesive framework. - 3 -

D. LESSONS FROM PREvIousBANK OPERATIONS

1.5 Previous highway projects in China emphasize the importance of rigorous, early preparation for major civil and traffic engineering works and for procurement processes, where tendering often takes longer than expected. Advance preparation of bidding documentation and independent design reviews have also fostered smooth implementation and have helped reduce variations during the implementation period. The design of traffic-engineering facilities (traffic monitoring, telecommunications, tolling and lighting) must be advanced so that these works would be finished shortly after completion of the civil works for high-grade highways.

1.6 Land acquisition and resettlement of affected people has also led to implementation difficulties, including delays, in Chinese highway projects. A large number of people are typically affected by resettlement in China, particularly along important economic corridors where highways are being upgraded and constructed. The institutional requirements for resettlement of these numbers of people are significant. Under the proposed NH2 project, resettlement has received considerable attention to ensure institutional capability to provide adequate compensation and to implement Resettlement Action Plans. 1.7 Experience in the environmental area in China has generally been favorable. However, more attention should be paid to environmental supervision during construction, training of environmental personnel, and environmental monitoring during both the construction and operation phases.

1.8 Bank experience emphasizes the importance of adequate construction quality of roads. Poorly constructed roads lower economic benefits and vehicle-operating cost savings. Higher costs also result from premature deterioration, where corrective actions in the form of increased maintenance and/or rehabilitation are required. Effective remedial actions include stringent contractor prequalification, careful formulation of supervision arrangements, including engagement of foreign experts, training of local supervision staff and equipping the supervision teams.

1.9 Project design must put more emphasis on highway management and operation, especially in the context of toll expressways. There is also a growing concern that adequate funding for highway maintenance is not now being generated to cover an expanding and more expensive highway system. Previously, this was not an issue since adequate funds were being set aside for this purpose. 1.10 Based on the Bank's experience with institutional and policy aspects of highway projects, the phasing of studies and technical assistance and the intensity of Bank supervision are important for positive, sustainable outcomes. Institutional components that are implemented early in the project period tend to have a greater impact, as compared with free-standing studies carried out in the advanced stages of a project. - 4 -

2. THE EVOLVING FRAMEWORK FOR PRIVATE TOLL HIGHWAY FINANCE

A. CURRENTSTATUS OF PRIVATEPROJECT FINANCE

2.1 In response to an estimated $600 billion capital requirement for infrastructure from 1995 to 2004, China is moving steadily to open certain sectors, mainly highway development and power generation, to foreign equity investors and debt financing. Some $300 billion, or half the country's near-term infrastructure needs, are in the transport sector.

2.2 To date, China has used $2 billion in foreign capital to construct 7,000 km of highways and expects to do more in the future. Through the year 2000, in fact, China expects to construct a total of 14,160 km of new limited access highways, of which nearly 2,500 km will be fully access-controlled urban or intercity expressways. The size of this program, in terms of distance and cost, well exceeds any similar toll road program now underway in the world, outstripping by far the country's public revenues and access to bi- and multilateral bank funds.

2.3 The alternative for China is to raise the needed capital in the external credit markets, with the commercial involvement of qualified private firms and international investors, and minimal government guarantees. The participation of private firms in B-O-T highway projects has been explored, and the issuance of project company securities has been tried in offshore capital markets to fund the construction of quasi- public projects.

2.4 By accessing new equity investment and debt capital in global markets, China is seeking to accomplish at least three near-term objectives:

(a) Reduce Sovereign Debt Exposure to Infrastructure. Private capital, including user charges and project debt from domestic and international sources, can supplement limited public resources available to the central government and provinces. This can minimize the need for using the government's credit capacity to fund infrastructure projects;

(b) Improvement in Efficiency and Productivity. Private financing assists the country in improving management efficiency and quality of infrastructure services because of the for-profit, commercial orientation of private investors and lenders; and

(c) Offloading Construction and Commercial Risks. If properly structured, privately financed projects, unlike publicly funded infrastructure, allow -5 -

government to pass on the completion and commercial risks to those best able to handle them, the private sponsors.

2.5 China, like most developing countries, continues efforts to build a workable structure for attracting private capital to infrastructure projects. The process of accommodating the needs of private investors while finding a cost-effective way to develop expressways is not an overnight task in China, but a process of trial and error. The country's experience with privately supported highway projects is evolving and the transition from traditional public funding to project financing will occur as the result of specific projects, with lessons learned, and a regulatory framework built largely on experience.

2.6 Nearly all of the projects involving foreign investors have been structured as Sino- foreign joint ventures rather than concessions that are owned outright by the sponsors. In this way, the Chinese agencies retain a degree of control as equity partners. Foreign sponsors look to their local counterparts to obtain governmental approvals and assurances at various levels.

2.7 Concession arrangements to construct and operate a highway under a B-O-T scheme have been constrained by the absence of a well-developed legal framework and limitations in the joint venture agreement. The public authorities whose decisions influence the financial aspects of the project (State Council, State Planning Commission, State Administration for Exchange Control) are generally not contractual parties to the joint venture agreement. Separate assurances and acknowledgments that have been sought from these entities are often difficult to secure.

2.8 The result is that foreign commercial banks and financial markets are reluctant to accept project risk in China, making limited-recourse financing extremely difficult for project sponsors to mobilize. This situation applies to all infrastructure sectors, and the highway sector is no exception. In cases where external-debt financing of project companies has occurred, lenders have relied on guarantees and assurances of creditworthy governmental agencies, banks, and financial institutions, such as provincial international trust and investment corporations (ITICs).

2.9 As in new toll highway projects worldwide, private investors in China are concerned over revenue loss from a shortfall in traffic volume and/or the inability to secure adjustments in the tariff structure on a timely basis. To mitigate such risks and to attract foreign investment, minimum revenue guarantees by local partners/governmental agencies and preferential profit distribution for foreign investors are common in Sino- foreign joint venture highway projects. To enhance toll revenues, foreign investors have received land development concessions along the right-of-way and at interchanges and/or revenues from operating highways.

2.10 There have been a few major highway projects accomplished in China with private capital in recent years. The following two are particularly notable: - 6 -

(a) -Guangzhou Superhighway (123 km). This facility opened in 1994 and is the first phase of the Shenzhen-Guangzhou-Zhuhai Superhighway. The $1.2 billion project is sponsored by Hopewell Holdings of Hong Kong, responsible also for design, construction and financing. The developer has also taken extensive risks including land acquisition in return for profit-sharing and rights for commercial development at interchanges. One third of the original project cost was funded by equity and shareholder loans provided by the foreign sponsor and subordinated domestic loans arranged by a Guangdong provincial joint-venture partner. The remaining $800 million was financed with syndicated foreign bank loans, chiefly supported by a cash-flow deficiency guarantee by the Guangdong ITIC.

(b) Chengdu-Mianyang Expressway (90 km). This toll road was financed as a joint venture between a provincial partner and the New China Hong Kong Group, which has a number of China-affiliated shareholders. The provincial partner was responsible for land acquisition and construction of the expressway for a fixed fee. The foreign sponsor handled private placement of approximately $100 million equity shares with offshore investors including private infrastructure funds to finance such construction. Minimum toll revenue guarantees and preferential profit distribution were offered to attract foreign equity investors to Sichuan Province, and obligations of the local partner were guaranteed by the provincial ITIC.

2.11 The foregoing examples illustrate innovative and pragmatic ways to raise capital, but the question to be asked is how should China proceed to develop a workable project fmance model for highway development. Whether through startup toll road projects or securitized financing of existing, high-volume roadways, the answer will depend largely on the appetite investors and lenders have for project risk and China's willingness to address financing constraints, both in an institutional sense and in the context of its regulatory system.

B. ISSUES IN PROJECT FINANCE IN CHINA

2.12 In response to China's substantial demand for infrastructure capital, the results of the country's efforts to attract private funds have lagged behind reasonable expectations. China's success in attracting foreign direct investment to manufacturing, real estate, and service industries, now at a level of $30 billion annually, has not translated to infrastructure. Despite a high level of interest among foreign developers and investors, unacceptable project risks have limited the number of deals that were closed. Likewise, the country's solid record as a sovereign borrower of long-term funds in the international bond markets is not yet reflected in the critical, but unaccomplished, goal of bringing long-term debt financing to its infrastructure sectors. - 7 -

2.13 In B-O-T projects, a project sponsor is generally responsible for design, construction, financing and operation for a specified concession period, at the end of which ownership of the project is transferred to the host country. When the projects are properly structured, long-term lenders, rather than equity investors, provide the bulk of the financing on a limited-recourse basis to the sponsors. Since export credits are relatively limited in civil-work-intensive highway projects, the mobilization of long-term commercial debt at favorable rates is essential to a successful financing package.

2.14 For commercial banks, limited recourse project finance is different from conventional sovereign or corporate lending, in that project revenues and rights under various project agreements are security for repayment, rather than the borrower's diversified assets and ability to repay. The return to these lenders is limited compared with equity investors since there is no possibility of an up-side gain from earnings. These institutions are more risk-averse in their credit decisions and to date have demonstrated considerable reluctance to support China's B-O-T projects with limited-recourse funds.

2.15 Project developers and lenders require a stable policy and regulatory environment to assess and properly manage project risks. A commitment is needed by the host government to manage country or political risks, namely related to policy and regulations and the performance of public agencies. Most B-O-T projects allocate commercial and political risks among the parties to the transaction. For the public sector, such risk sharing mechanisms in the concession agreement enable the government to transfer these substantial commercial risks during project construction and operation to the private developer and lenders.

2.16 The common difficulties in B-O-T projects in China, as perceived by foreign investors and lenders, are related to various policy, legal, regulatory and institutional issues that affect the investment climate. The principal concerns are as follows:

(a) Regulatory Uncertainty. Unclear lines of authority between the provinces and central government, a complex approval process, and ambiguous criteria and policies, lead to lengthy and costly project delays.

(b) Convertibility and Availability of Hard Currency. Investors and lenders share concern over the absence of legal convertibility of the , timely availability of hard currency through swap centers, and impact on payment of foreign denominated debt and repatriation of profit.

(c) Unclear Toll Policy. Automatic tariff adjustment provisions in concessions are not available, leaving project sponsors and lenders with no assurance that operating and financial costs can be recovered on a current basis, or over the life of the concession.

(d) Inadequate Legal Framework. China's legal system has not developed enough to accommodate complex B-O-T transactions, raising concerns -8 -

among lenders on security-related financial and legal issues, including the enforceability of contracts and agreements.

(e) Creditworthiness of Public Entities. Uncertain or insufficient creditworthiness of provincial/municipal contracting parties and concern for their ability of honoring financial obligations under contracts.

(f) Lack of Transaction Experience. Most provincial/municipal authorities have no direct experience with project finance or B-O-T transactions, causing foreign companies to commit expensive resources to time- consuming negotiation and on-the-job training of public sector counterparts.

2.17 In those project financings that have reached closure in China, public and private parties to the transaction have settled their concerns through negotiation and risk-sharing arrangements. This informal arrangement may be sufficient in many coastal provinces, where foreign banks and developers are more experienced and have reached a reasonable level of comfort with the credit of local agencies.

2.18 Even in the developed provinces, however, most foreign institutions do assess a risk premium over the uncertainty of China's policies and regulations, and this can inflate the cost and pricing of projects. In the country's interior, provincial credit concerns and lack of a track record with the private sector are major obstacles in closing project finance transactions with international firms and lenders.

2.19 The ordinary concerns of project finance lenders are generally multiplied by toll road projects, which have complex and generic demand-related risks. In this case, a transport service is sold to the discretionary user, whereas power purchase agreements, for example, tend to provide power projects with a clear, defined source of income. The primary risks in China's toll road projects are:

(a) Uncertain traffic volume, especially in the inner provinces where future traffic growth will depend heavily on economic development and associated government policies;

(b) Absence of arterial road systems and networks to support toll highways; and

(c) Competition from parallel free roads and other modes of transport that are developed in the future.

2.20 As in virtually all countries, a limited number of highway projects in China will have the traffic and revenue potential to attract private capital, and the process by which these are identified and packaged will be the most important factor in their success. Since toll revenues alone in China may not be adequate to support most privately financed highway projects, other mechanisms may also be necessary. These may include cross- - 9 - subsidies from existing toll roads and other sources, such as a fuel tax and/or land development incentives and tax concessions.

C. REGULATORY FRAMEWORK AND INVESTMENT ENVIRONMENT

2.21 China's State Planning Commission (SPC) is formulating a provisional regulatory framework for foreign-owned pilot B-O-T projects in various infrastructure sectors, including highways up to 80 km long, major bridges and tunnels, power stations, and urban sewage and water supply. SPC intends to promulgate the Provisional Decree for Concession Projects with Foreign Investment governing these projects and is now drafting model procurement documents for toll road and power projects. Private sponsors of pilot B-O-T projects are to be selected through competitive bidding. A power project (Guangxi Laibin B Power Plant Project) has already been selected as the first pilot B-O-T project, with procurement that was launched in December 1995.

2.22 The Bank supports GOC's efforts to establish a regulatory framework for privately financed infrastructure and has encouraged the development of a transparent procurement procedure where sponsors would be selected through competitive bidding. Through Japanese Policy and Human Resources Development (PHRD) grant funds available to SPC, the Bank is supporting the initial feasibility analysis of a pilot B-O-T project, known as the Junshan Yangtze River Bridge, and the preparation of model procurement documents and a concession agreement for this and future toll highway projects.

2.23 Under the proposed National Highway III (Hubei) Project, which would be a Bank-financed highway operation, the Borrower and the Bank have agreed to develop the Yangtze River Bridge under a B-O-T arrangement with the central government and Hubei Province. At a project cost of $200 million, the six-lane bridge would be located at the intersection of two National Trunk Highways, the Beijing-Zhuhai North-South Expressway and the Shanghai-Chengdu East-West Expressway. The latter projects will be partially be financed by the Bank and operated as publicly owned toll roads.

2.24 The implementing agency for the National Highway III Project is the Hubei Provincial Communications Department, which has applied for designation of the Yangtze River Bridge as a pilot B-O-T project. As the approving agency, SPC has expressed interest in this project as an opportunity, with the new policy framework, to test the international market for private investment in highway infrastructure.

2.25 Several pilot B-O-T projects will enable China to experiment with new policy initiatives to attract private capital and to gain valuable experience from the results. It is important at this stage for the public sector to remain flexible with the provisional decree and concession documents. Adjustments may be necessary to fulfill the requirements of investors and lenders in order to make the first few projects bankable. Successful closure of these projects will provide China with a track record and base of experience, thereby contributing to future B-O-T projects that can be financed in the external financial markets. - 10-

2.26 In the longer term, China's success in capturing offshore capital for highway infrastructure will require continued development of the regulatory framework and investment environment in several specific areas:

(a) Transparent Policy and Regulatory Framework. SPC's initial decree governing foreign-owned B-O-T projects should be expanded as a policy instrument, given the fact that most of China's experience with toll road/ bridge/tunnel projects is limited to joint ventures.

(b) Development of Legal System. The regulatory framework for privately financed infrastructure should be fully integrated with relevant national and provincial laws, so as to address various aspects (design, ownership, financing, construction, operation, maintenance, taxation) of B-O-T-type infrastructure projects.

(c) Institutional Development of Agencies. Functions and relationships of central and provincial authorities should be clearly defined, along with the legal status, authority, and financial condition of prospective sponsors of private projects. For example, national and provincial highway corporations could be developed as commercial toll road operators with the capacity to raise capital in the international markets.

(d) Growth of Domestic Capital Markets. For China to meet its near-term capital requirements for infrastructure, the country must have access to a supply of long-term debt capital. China's financial markets, which benefit from a high per capita savings rate, lack the structure and financial instruments to convert domestic savings to requirements for long-term funding of infrastructure.

D. ROLE OF THE WORLD BANK GROUP

2.27 The Bank will continue to assist China in developing the policy and regulatory framework needed to mobilize private financing for infrastructure. Movement in this direction will enable the borrower to leverage limited Bank funds with public and private resources to undertake a greater number of projects and to attract long-term debt capital from the financial markets.

2.28 World Bank support for China will include institutional development and sectoral reforms as well as the development of the NTHS and other priority investments through direct loans to public projects. Through a series of National Highway II, III, and IV Projects, the Bank will play an expanded role in encouraging the growth of private finance in this sector.

2.29 Technical Assistance. SPC, the Ministry of Finance (MOF) and MOC have given the Bank a mandate to support them in the establishment of the framework for private highway finance in China. The Bank's assistance through PHRD funds under the - 11 -

National Highway II, III, and IV Projects is the major first step in this effort. At China's request, the Bank has also indicated that it is willing to permit the use of IDA technical assistance to fund legal and financial advisory fees for pilot B-O-T infrastructure projects that reach the negotiation stage.

2.30 Partial Guarantee. The Bank's partial guarantees would enable private projects to obtain longer-term limited-recourse debt financing at lower cost than the sponsors or sovereign might obtain. These require a counterguarantee by the host government and so far China has rejected financial guarantees for privately financed infrastructure. Limited guarantees for selected policy-related risks, such as contractual compliance or performance risks of public agencies, may be required to make projects, especially those in the interior provinces, commercially financeable.

2.31 IFC and FIAS. IFC and the Foreign Investment Advisory Services (FIAS) are assisting China in the development of a policy framework for private projects. IFC is also discussing the possibility of supporting demonstration projects in key infrastructure sectors including transportation, which are based on sound principles of limited-recourse financing. This participation could be in the form of equity investment, A loans and B loans, and/or investment-related advisory services.

2.32 MIGA. MIGA offers long-term coverage for specific political risks, i.e., currency transfer, expropriation, war and civil disturbance, and breach of contract (in a narrowly defined manner), with a focus on risk coverage of equity investments and associated shareholder loans or loans by commercial banks so long as equity in the project is also insured by the agency. In China, the absence of a convertibility law precludes coverage by MIGA of hard currency exchange.

2.33 Coordination among the Bank Group. As to policy dialogue, the Bank will continue to collaborate with China to help develop a policy and regulatory framework and a transparent procurement process for privately financed highway projects. As regards credit support, because neither IFC nor MIGA requires counter guarantees, these organizations would likely be included in the initial discussion on private projects. The Bank, through its lending and guarantee programs, could play a significant, complementary financing role for large private highway projects that require resources beyond the limited capacity of IFC and MIGA. -12 -

3. THE TRANSPORT SECTOR IN GUANGDONG AND HUNAN

A. GEOGRAPHYAND TRANSPORT

3.1 Guangdong Province is located on the South China Sea at the southeastern corner of China. As of 1995, Guangdong had a population of 66.9 million covering an area of 178,000 km2. Excluding2~~~~~~~ the many small islands along the coastline, the population density was 376 people per km . Topographically, Guangdong is high in the north and low in the south, with wide areas of hills and low mountains. Almost 75 percent of the total area is mountainous and hilly. The coastline is long and winding, measuring more than 4,300 km along the mainland area. The province, with Guangzhou as its capital, includes 3 economic zones, 21 provincial administered cities, 30 cities at the county level, 45 counties and 3 autonomous counties. The economy of Guangdong has grown by about 20 percent annually since 1980. Gross Output Value of Agriculture and Industry (GOVAI) per capita in the project area was by 1994 at 1.73 times the national average and the growth has also averaged nearly 20 percent per year since 1980.

3.2 Hunan Province is situated in the middle reaches of the Changjiang River in south-central China. Stretching 900 km from east to west and 800 km from south to north, Hunan has a total area of 210,000 km2. With mountains in the east, south and west, the land generally slopes from south toward the north. The most common land form in this region are hills that occupy about 50 percent of the total area. At the end of 1995, Hunan had a population of 63.0 million and its population density averaged 298 people per km2. The province, with Changsha as its capital, is divided into 4 prefectures, 1 , 9 provincial administrated counties, 21 cities at the county level, 69 counties and 7 autonomous counties. The economy of Hunan has grown by about 9 percent annually since 1980. GOVAI per capita in the project area was by 1994 at half the national average and the growth has averaged about 11 percent per year since 1980.

3.3 Transport Networks. The strategic location of both Guangdong and Hunan provinces at the crossroads of major North-South and East-West expressway, waterway and railway corridors attracts large amounts of traffic. Transport demand has grown substantially over the last five years, in view of sustained economic growth in the provinces and the rest of the country.

3.4 In Guangdong, roads and inland waterways are the principal modes for short-haul transport; and railways and coastal shipping are the principal modes for interprovincial transport. Guangdong Province has intersecting waterways open to navigation in all four seasons. The province has 19 seaports, of which 5 are classified as major. Inland transportation is based on the Pearl River system, which has three main navigable - 13 - tributaries. The length of inland waterways in 1994 amounted to 10,808 km. The railway network is relatively limited, compared to that of neighboring provinces such as Hunan. The five main lines connect the ports of Huangpu, Guangzhou and with the rest of the country, and also serve as an export link to Hong Kong. At the end of 1994, the total mileage open to traffic amounted to 1,725 km.

3.5 Historically railways and inland waterways are the main transport modes in Hunan province. Hunan is served by five main railways: Beijing-Guangzhou, Zhejiang- Jiangxi, Hunan-Guinzhou, Hunan-Guangxi, and Zhicheng-Liuzhou, the operational length of which at the end of 1994 was 2,600 km. Four tributaries of the Yangtze River system flow into in the north of Hunan, from where they enter the Yangtze. Hunan has a total of 10,010 km of inland waterways. The principal commodities transported by railroads and inland waterways are coal, grain, mineral stone and construction material.

3.6 The highway network in Guangdong comprises some 83,000 km, of which only about 7,400 km (about 10 percent of the total) include expressways, and class I and II roads. Between 1981 and 1994, the road network in Guangdong grew in length by about 3 percent per year. The highway network in Hunan comprises some 58,800 km, of which only 1,747 km (about 3 percent of the total) are class I and II roads. The roads with bituminous and cement pavements amount to only 12,408 km (21 percent of total). The administrative classification of the road network in both provinces at the end of 1994 was as follows:

Guangdong Province Hunan Province Road Classification km Percent km Percent

National 4,180 5 4,041 7 Provincial 9,048 11 6,014 10 County 14,673 18 22,187 38 Villager 55,053 66 25,434 43 Special 102 0 1,127 2 Total 83,055 100 58,803 100

3.7 As in the rest of the country, most of the highways in Guangdong and Hunan were built in the 1960s and 1970s, and their design standards were suitable for the light vehicles and low traffic levels prevailing in China at the time. Due to the substantial growth in traffic levels and steady rise in the use of heavy vehicles, these roads have increasingly become inadequate to meet present and future needs.

3.8 Vehicle Fleet. The vehicle fleet in Guangdong grew more than five times in nine years between 1986 and 1994, on an average of 20 percent per year. The fleet of large trucks, buses and agricultural tractors grew between 9 and 17 percent per year. The fleet - 14- of passenger cars, light vans and pickups grew at 22 percent per year, reflecting the growth in prosperity as well as the light-vehicle needs of the growing number of smaller enterprises in the evolving socialist market economy. The most rapid growth occurred in the motorcycle fleet at 32 percent per year, reflecting the desire for personal mobility now made affordable through growing prosperity. The vehicle fleets in Hunan have expanded more than four times between 1980 and 1994, at an average growth rate of 11 percent per year. Similar to Guangdong, the fastest growth rate occurred in the motorcycle fleet at 30 percent per year.

B. TRAFFIC GROWTH AND ROAD SAFETY

3.9 Traffic. In Hunan freight and passenger traffic from 1985 to 1994 grow at about 4 and 3 percent per year, respectively (Table 3.1). In freight and passenger traffic, the fastest growing mode during this period was air transport, which grew at 29 and 49 percent per year, respectively. The highway mode followed at about an annual 4-5 percent. By the year 1994, about 90 percent of all passenger movements were undertaken by road transport. However, around 52 percent of all passenger-km occurred by rail while about 48 percent of passenger-km occurred by road.

3. 10 In Guangdong, traffic growth from 1985 to 1994 was strong. Freight traffic grew at over 9 percent per year, with the strongest growth in road and water transport (Table 3.1). Water and air transport dominate freight transport, with rail carrying a much smaller proportion of traffic than elsewhere in China. Passenger transport also grew at well over 6 percent per year, with the strongest growth in air transport at 18 percent per year, following by rail transport at 8 percent and highway transport at almost 7 percent per year. Similar to Hunan, by 1994, highways accounted for 90 percent of all passenger movements, and 75 percent of passenger-km.

3.11 Safety. Road safety is a serious problem in Guangdong and Hunan Provinces, as elsewhere in China. Generally, the number of traffic accidents has increased less rapidly than the growth in traffic volume or vehicle registration. In Hunan, while the absolute number of accidents and injuries has declined since 1990, as has the fatality rate per 10,000 vehicles, the proportion of fatalities has been increasing, suggesting more serious accidents with higher frequency of death. Further, despite recent declines, the fatality rates for both Hunan and Guangdong, like those for China as a whole, remain higher than rates in many developed and developing countries. International comparisons of the number of people killed in traffic accidents per 10,000 vehicles show a rate from 20 times higher in Hunan and 5 times higher in Guangdong than that in Western industrial countries (41.4 for Hunan, 10.0 for Guangdong, 46.0 for China, 2.0 and 2.4 for the United States and Germany, respectively).

3.12 Primary responsibility for road safety now lies with the Traffic Police of the Public Security Bureau (PSB), including that for vehicle testing and inspection, licensing, propaganda on safety, enforcement of traffic laws, including imposition of fines, operation of traffic signals, highway patrols, and all aspects of accident reporting, - 15 - investigation and research. However, the Guangdong and Hunan Provincial Communications Departments (GPCD and HPCD) retain responsibility for all matters concerning safe highway design and traffic signs and markings and driver training. In Guangdong, GPCD and the Traffic Police would work together under the project to develop an expressway safety program to reduce the growing numbers of expressway accidents. In Hunan, HPCD would launch a road safety program primarily dealing with the matters within the HPCD's jurisdiction.

C. HIGHWAY ADMINISTRATION, PLANNING AND FINANCING

3.13 Administration. The Provincial Communication Departments (PCD) of Guangdong and Hunan administer most of the highway and waterway transport activities in their provinces, and are responsible to their respective provincial governments for highway planning, budgeting, and financing. The PCDs adhere to the general transport policy and technical guidelines issued by MOC.

3.14 The administration of the road network in the two project provinces takes place at the levels of: (a) the PCDs, (b) the municipal and prefecture highway bureaus, and (c) the local highway units of the county highway bureaus. The PCDs administer the provincial highways through their Provincial Highway Administration Bureaus while the municipal and county transport bureaus administer local highways and village roads. The provincial bureaus are responsible for all highway matters (apart from the high-grade highway program, as described below), including construction and maintenance, and these bureaus receive professional and technical guidance from the Highway Administration Department of MOC. They have a staff of 382 and 252 at the Guangdong and the Hunan headquarters, respectively. The 21 municipal and prefectural highway bureaus and the 78 county bureaus in Guangdong Province have a total staff of about 63,000, of which technical personnel comprises about 15 percent. In Hunan Province, the municipal and prefectural highway bureaus number 14, and the county bureaus 105, with a total staff of about 49,000, of which technical personnel comprise about 18 percent.

3.15 The Guangdong Provincial Freeway Company (GPFC) is a department-level institution that reports directly to GPCD and is responsible for the organization, direction, coordination, planning, design, construction, supervision, traffic surveillance and control, telecommunication, operation and maintenance of all expressway projects in the province, as well as for counterpart business service for expressways, such as refueling, rescue, spare parts supply and real estate management. Also, it is partially responsible for mobilizing construction funds, including the collection of tolls on all expressways. It currently has a staff of 1,213 people, of which 377 are technicians. There are 14 companies and 2 preparation offices controlled by GPFC (8 expressway companies, I environmental protection division, 2 bridge companies, 2 traffic and highway engineering companies, 1 development company, and 1 highway equipment rental company). In Hunan Province, Hunan Provincial Expressway Construction and Development Corporation (HPECDC) is in charge of construction, operation and -16- management of high-grade toll roads in the province. HPECDC is a department-level institution that reports directly to HPCD. HPECDC's staff currently numbers 456.

3.16 Planning. The Hunan and Guangdong PCDs have overall responsibility for planning, construction, operation and maintenance of the provincial highway networks. The highway administration units at the prefecture, county and village levels have considerable autonomy in planning smaller investments, which are nonetheless subject to approval by the PCDs. Each administrative group prepares investment plans for the highway network under its jurisdiction and submits these to the planning divisions of the PCDs each year for the next year's plan. The PCDs approve the yearly plans for each county or local authority concerned. Similarly, using inputs forn the lower-level administrative groups, the PCDs prepare their five-year road development plans, reflecting national and provincial development policy guidelines and objectives for the planed period. The current Ninth Five-Year Plan (9FYP) (1996-2000) for highway investment and maintenance in Hunan and Guangdong require a total of Y 95.3 billion (Y 23.8 billion in Hunan, Y 72.5 billion in Guangdong).

3.17 Financing. Funding for highway construction and maintenance comes from several sources, but by far the two largest sources are the Road Maintenance Fee, used for maintenance needs and that provided about 39 percent and 47 percent of all highway funding in Hunan and Guangdong during the Eighth Five-Year Plan (8FYP) (1990-95), respectively, and the Highway Key Construction Fund for new construction and that provided about 20 percent and 37 percent, respectively. Highway funding sources and expenditures are summarized in Table 3.2a for Hunan Province and Table 3.2b for Guangdong Province. The Road Maintenance Fee is collected from all motor vehicles. The total amount collected from cars, vans and trucks is retained by the PCDs, while the amount collected from tractors and other agricultural vehicles is managed by prefectures, cities and counties. Such vehicles as military and police cars, fire trucks, city buses and city garbage trucks are exempted from highway maintenance fees, also the party and government vehicles are partly exempted. Since 1996, the balance of the revenues from road maintenance fees is generally distributed as follows: 2.63 percent to the Public Security Bureaus in both provinces and about 4 percent to the transport fees collection sector in Hunan. The road maintenance fee retained by Hunan Province increased from Y 3,070 million for the 8FYP to Y 5,410 million for the 9FYP and from Y 13,832 million in 8FYP to Y 25,524 million in 9FYP in Guangdong Province.

3.18 The Highway Key Construction Fund was established by the provincial governments for the construction of high-grade highways and bridges and its sources are: (a) fees being collected from vehicles owned by the provinces and operated in highway passenger and freight transportation (the standard fees are: Y 20 per month for trucks and Y 0.02 per person-km for buses), (b) the car purchasing fee (collected as 3 percent of the total transaction), and (c) the highway and bridge toll revenues. Revenues from the Highway Key Construction Fund increased from Y 1,580 million during the 8FYP to Y 3,022 million during the 9FYP in Hunan and from Y 10,907 million to Y 13,911 million in Guangdong. Other sources of revenue for highways include: (a) subsidies - 17 -

from MOC, calculated as Y 4 million per km of new construction; (b) local funds from governments at prefecture, city and county levels; (c) Aid-poverty Fund; and (d) loans from foreign and local banks (for details on highway financing see Tables 3.2a and 3.2b). Subsidies from MOC and local governments also substantially increased from Y 1,710 million for the 8FYP to Y 4,350 million for the 9FYP in Hunan and from Y 3,620 million for the 8FYP to Y 23,881 million for the 9FYP in Guangdong. Figures 3.1 and 3.2 show the distribution of highway revenues and expenditures for Hunan and Guangdong, respectively, for 9FYP.

FIGURE 3.1: HUNAN HIGHWAY REVENUES AND EXPENDITURES, 9FYP (Y million)

REVENUES EXPENDITURE

Road ForeignBank Otherloans maintenance Periodic Overthead loans 3% fee maintenance 5% 22% - 25% 17 Routine e* maintenance 8% Capital Highway Construction construction Construction and (subsidy) Fund Improvement 27% 23% 70%

FIGURE 3.2: GUANGDONG HIGHWAY REVENUES AND EXPENDITURES, 9FYP (Y million)

REVENUES EXPENDITURE

Loaninterest Domestic ForeignBank Road Periodic Overheadand and Loan loans maintenance nuntnacritenance others aniortization 7 5 fund 8% 3% 36% Routine Lramintenance g t Local ~~~~~~~~~~~~15% financing 29% Highway Construction Subsidies Construction and from MOC Fund Indproverrent 19 69%

3.19 The highway network in Guangdong expanded between 1985 and 1995 from 64,100 km to 83,100 km and in Hunan from about 56,000 km to about 59,000 km. During the 7FYP and 8FYP (1986-95), expenditures required for this expansion, including highway construction, rehabilitation, and maintenance totaled Y 44,600 - 18 - million, of which Y 9,600 million were spent in Hunan, and Y 35,000 million in Guangdong. Of this total, construction of new highways and highway improvement amounted to Y 33,352 million during the 8FYP, or about 85 percent of total highway expenditures in Hunan and Guangdong (Tables 3.2a and 3.2b)

D. ENGINEERING, CONSTRUCTION AND MAINTENANCE

3.20 Engineering. Road and bridge projects are engineered by the planning and design institutes at the provincial, prefecture, and county levels. The provincial planning and design institutes are responsible for designing all major road, bridge, and tunnel projects in the province. These design institutes are, in general, competent and have on staff experienced personnel for carrying out highway design tasks. Various national and provincial planning and design institutes designed sections of the Jingzhu Expressway under the project.

3.21 Construction. Small-scale roads and bridges in the provinces are constructed by the construction units of the highway department of each city or county. The Highway Administration Bureaus of the PCDs are responsible for the construction of large- and medium-size highways and bridges. GPFC in Guangdong and HPECDC in Hunan are responsible for the construction of high-grade highways. Since SPC directed that all major civil works are to be awarded after competitive bidding, many of the larger construction divisions are being reorganized into financially independent contracting companies and have been awarded contracts either individually or as partners in joint ventures on previous Bank-financed highway projects.

3.22 Maintenance. Highway maintenance is carried out by county highway bureaus under the control of municipal authorities. Maintenance is generally well organized and carried out, mainly through labor-intensive operations. Expenditures for periodic and routine maintenance in Guangdong and Hunan increased about 132 percent and 74 percent from the 7FYP to the 8FYP, respectively. However, as a percentage of total expenditures for the highway sector, they decreased from about 35 percent during the 7FYP to about 21 percent during 8FYP in Hunan (Table 3.2a). In Guangdong, routine and periodic maintenance expenditures as a percentage of total highway expenditures also declined during the same period but at a smaller rate, from about 16 percent to 13 percent (Table 3.2b).

E. HIGHWAY DEVELOPMENT PROGRAM 1996-2000

3.23 9FYP for Hunan Highway Sector. The 9FYP comprises a total expenditure volume of Y 23.7 billion (about $2.9 billion equivalent), of which Y 16.8 billion (70 percent) would be for new road construction and Y 5.8 billion (24 percent) for road maintenance and upgrading (Table 3.3a).

3.24 The 9FYP financing volume when compared with the 8FYP highway expenditures would increase by a factor of 3.0. While the construction investments in absolute terms would increase by a factor of 3.0, and the maintenance expenditures in - 19 - absolute terms would grow by a factor of 3.5. The relative share of maintenance would increase from 21 percent to 24 percent, and the relative proportion of new construction would remain unchanged at 70 percent.

3.25 Highway sector funding for the 9FYP will come from the following five principal sources:

(a) Y 6.0 billion from Road Maintenance Fund;

(b) Y 5.5 billion from the Highway Key Construction Fund;

(c) Y 2.9 billion financed by prefectures and counties;

(d) Y 3.4 billion in subsidies from MOC and MOF; and

(e) Y 5.8 billion from World Bank loans and other foreign loans.

3.26 The proposed 9FYP (Table 3.4a) contains as the principal investment completion of the 532 km Beijing-Zhuhai Expressway crossing Hunan from north (Hubei border) to south (Guangdong Border) and costing Y 12.3 billion (about $1.46 billion equivalent), of which Y 0.7 billion has been invested during the 8FYP and Y 11.6 billion will be invested during the 9FYP. The Tucheng-Yizhan Expressway will absorb 54 percent of highway sector funds for the 9FYP.

3.27 Other important investments of the 9FYP comprise: (a) Y 1.6 billion for construction of Changsha- class I auto only national highway; (b) Y 3.5 billion for eight main provincial highways and two major bridges that are located in the west and north of Hunan province; and (c) Y 0.75 billion for construction and upgrading of 2,015 km of rural access roads in poverty areas.

3.28 Counterpart Funding. In Hunan, the total project investment for NH2 amounts to Y 4.2 billion ($0.51 billion), out of which the Bank will finance Y 1.7 billion ($0.2 billion), Y 0.4 billion ($0.05 billion) will be a grant from MOC and the remaining Y 1.7 billion ($0.2 billion) will come from the 9FYP and constitute about 10 percent of the new construction expenditures for the 9FYP. The Province places the highest priority on this project providing the necessary financing.

3.29 Maintenance Funding. The total expenditures for the road maintenance in 9FYP are projected to total Y 5.8 billion, which amounts to 30 percent of total highway expenditures. The main road maintenance source is the road maintenance fee (RMF) that provides about 80 percent of the total expenditure for the road maintenance, the remaining 20 percent is provided in the form of subsidies from MOC and local governments. Routine and periodic maintenance and road upgrading expenditures would be two times that of the 8FYP. - 20 -

3.30 9FYP for Guangdong Highway Sector. The 9FYP comprises a total expenditure volume of Y72,464 million (about $8,731 million equivalent), of which Y 49,983 million (69 percent) would be for new road construction and upgrading or improvement and Y 16,621 million (23 percent) for road maintenance (Table 3.3b).

3.31 Highway sector funding for the 9FYP will come from the following principal sources:

(a) Y 25.5 billion from Road Maintenance Fund;

(b) Y 13.9 billion from the Highway Key Construction Fund;

(c) Y 21.1 billion financed by prefectures and counties;

(d) Y 2.8 billion in subsidies from MOC;

(e) Y 5.4 billion domestic loans; and

(f) Y 3.7 billion from World Bank loans and other foreign loans.

3.32 The 9FYP financing volume, when compared with the 8FYP highway expenditures, would increase by a factor of 2.4. While the construction investments in absolute terms would increase by a factor of 7.0, the maintenance expenditures in absolute terms would grow by a factor of 4.0. The relative share of maintenance would increase from 13 percent to 23 percent, and the relative proportion of new construction would increase from 24 percent to 69 percent.

3.33 The estimated amount of Y 49,983 million will include the implementation of major expressway projects: the construction of the Kaiping-Zhanjiang, Xiaotang- Gangtang and Gangtag-Taihe sections of expressways estimated at Y 20,699 million; the class I auto-only and class II highways estimated at Y 27,239 million; and the construction of local highways and aid-poverty roads at Y 2,045 million (Table 3.4b).

3.34 The investment program is divided into (a) expressway and (b) class I and II highway subprograms.

(a) The expressway subprogram comprises 671 km of new construction and 382 km of ongoing construction, at an estimated cost of Y 25.5 billion;

(b) The class I and II highway subprogram comprises construction and upgrading of 1,426 km of class I highways at a cost of Y 12.3 billion; and some 3,735 km of class II highways at a cost of some Y 14.94 billion.

3.35 Counterpart Funding. In Guangdong, the total project investment for NH2 amounts to Y 5.2 billion ($0.63 billion), out of which the Bank will finance Y 1.7 billion ($0.2 billion), Y 0.4 billion ($0.05 billion) will be a grant from MOC, and the remaining Y 3.1 billion ($0.4 billion) will come from the 9FYP and constitute about 6 percent of the -21 - new construction expenditures for the 9FYP. The Province places the highest priority on this project providing the necessary financing.

3.36 Maintenance Funding. Funding for maintenance comes from the RMF, which is projected to total Y 25,524 million in 9FYP and provides about 35 percent of all highway funding in Guangdong. About 65 percent of the RMF is allocated for routine and periodic maintenance, 12 percent for new construction and road improvement or upgrading of the national road classes I and II, 9 percent for repayment of loan interest and the rest (14 percent) for overhead and others. Routine and periodic maintenance expenditures would increase by about 26 percent over the 8FYP level. At the present time, GPCD is in the process of adopting the maintenance management systems, such as road data bank (RDB), pavement management system (PMS) and bridge maintenance system (BMS) to improve the long-term planning in highway maintenance and management, the estimation of future funding needs for highway upgrading and maintenance and the allocation of funds. - 22 -

4. THE PROJECT

A. ORIGIN AND FORMULATION

4.1 China's 9FYP (1996-2000) emphasizes a reduction in transport bottlenecks that are now being recognized as a growing constraint to rapid economic development. The diversification and structural transformation of the economy, toward more light and agroindustry and more interprovincial trade, coupled with severe capacity constraints of the railways, are causing an accelerating demand for road transport. This national pattern also applies to the two project provinces of Guangdong and Hunan, and in particular to the heavily traveled north-south transport corridor along National Highway 107, the spine of the densely populated and economically dynamic eastern part of China. This corridor, the location of the new Beijing-Zhuhai (Jingzhu) Expressway, linking the north and south of China, crosses the provinces of Hebei, Henan, Hubei, Hunan, and Guangdong over a distance of approximately 2,500 km and has the highest priority among the 12 national trunk routes in the NTHS. Once completed, it will connect Beijing with Guangdong's fast growing Pearl River Delta and Hong Kong. It is designed as a high-grade, high- performance facility, at a minimum four-lane standard, fully access-controlled, and will be operated throughout as a toll highway. Jingzhu is scheduled for substantial completion by the year 2000.

4.2 The Bank is already heavily involved in the construction of substantial sections of Jingzhu expressway, between Beijing and Guangzhou (see IBRD map 27558). Under the ongoing National Highway (NH1) Project, two important sections are presently being built in Hebei and Henan provinces and are progressing well. Under the Second National Highway (NH2) Project, two priority sections in northern Guangdong and southern Hunan will be undertaken. Under a future Third National Highway (NH3) Project that is at an advanced preparation stage, several important expressway sections as well as a major Wuhan Yangtze River Bridge under a B-O-T arrangement will be undertaken in Hubei province. Finally, the newly proposed Fourth National Highway (NH4) Project will cover two important expressway sections in Hunan and Hubei that will be linked to the Yangtze bridge B-O-T scheme. These four National Highway Projects constitute a well thought-out and well balanced series of investment operations, which assist GOC and the concerned provinces in the timely completion of China's highest-priority expressway corridor.

B. OBJECTIVES AND RATIONALE FOR BANK INVOLVEMENT

4.3 Project Objectives. The project is the second in the series of NHI-NH2-NH3- NH4 projects of Jingzhu expressway in Guangdong, Hunan, Hubei, Henan, and Hebei provinces. It builds on its predecessor NHI and precedes NH3 by about one year and - 23 -

NH4 by about two years. All four projects in the series would support an integrated approach to expressway corridor development, with each of the four operations contributing selected priority sections that will gradually develop into a full corridor system.

4.4 The specific objectives of the NH2 project are to:

(a) relieve road transport congestion and improve the integration of interregional trade and commerce between Hunan and Guangdong by assisting in the development of two key sections of the NTHS in the principal North-South transport corridor;

(b) strengthen institutional capacity at the Hunan and Guangdong Provincial Communications Departments and related institutions, through provision of training, technical assistance and equipment, in planning, design, construction, operation and maintenance of Hunan's and Guangdong's highway networks;

(c) develop a policy dialogue in the areas of the commercialization and corporatization of provincial expressway companies, highway maintenance management, and transport and economic integration; and

(d) improve the safety of road transport.

4.5 Rationale for Bank Involvement. The Bank's program of support in the highway sector will continue to assist China in the foreseeable future in the financing, development, and management of this priority expressway system. By helping GOC to plan and build the NTHS, of which the new Jingzhu Expressway is a key element, the Bank supports this essential long-term solution to the serious transport problems facing China, removing bottlenecks, facilitating interprovincial traffic, and promoting long- distance and transit traffic. This in turn would help arrest a growing regionalism while furthering the liberalization, facilitation, and cost reduction of transport, key requirements for market-oriented reforms to succeed. Early completion of the expressway corridor between Changsha and Guangzhou is vital to rapid future economic development of the affected regions and would help realize the full economic benefits from large-scale expressway development. The transport and economic integration study for the Hong Kong-Guangzhou-Changsha corridor, by focusing on northern Guangdong and southern Hunan, would help integrate these yet underdeveloped rural areas into the fast-growing economies of the Pearl River Delta and Hong Kong.

4.6 Bank support is also justified by project assistance to institutional development, which, besides the provision of training and equipment, would include studies on expressway commercialization and corporatization, and highway maintenance management. This would facilitate the introduction of market principles and mechanisms in highway operation, management and maintenance. Bank involvement is also expected to benefit the design and quality of construction of expressways as well as the - 24 - improvement of road traffic safety. NH2 would additionally foster improved practices in the areas of environment and resettlement of project-affected people, thus supporting the Bank's country and sector assistance strategies.

C. PROJECT MONITORING

4.7 Project impact would be monitored with respect to the project objectives (PO). The key indicators are as follows.

PO (a): (i) reduced congestion levels on roads parallel to the proposed new road (traffic volume);

(ii) increased average travel speeds on roads parallel to the proposed new road (km/hr);

PO (b): (i) enhanced institutional capacity of HPCD and GPCD for specifically defined areas [technical assistance (TA) person-months];

PO (c): (i) improved policy framework for highway commercialization, maintenance, and economic integration (in each policy area establishment of action plan and its implementation); and

PO (d): (i) reduced numbers of traffic accidents (number of fatalities and injuries on existing roads).

In Annex , the following are delineated:

(a) More specific description of performance indicators;

(b) Baseline values;

(c) Mid-term benchmarks;

(d) Interim benchmark; and

(e) Targets for each value.

Parameters, baselines and targeted values were developed by HPCD and GPCD for review by the Bank and confirmed at negotiations.

4.8 The achievement of project output would be tracked by monitoring indicators, listed below. Project output can be defined as immediate project targets and initial flows of services, such as physical quantity (percent of the length of road constructed); institutional strengthening (training achieved), and quality (safety initiatives, environmental requirements). The following monitoring indicators were set up for some of the key project components. There are time-bound monitorable targets that would be - 25 - described either as actual physical outputs or as a percentage of components implemented.

Monitoring Indicators:

(a) Percentage of the length of XLE (out of 169 km) and XGE constructed (out of 109 km);

(b) progress made in the implementation of the training component for HPCD and GPCD and its affiliated institutions (person-months);

(c) number of black spots of the highway safety program completed (out of identified black spots);

(d) progress made in purchasing equipment for HPCD and GPCD and its affiliated institutions (as a percentage of its dollar value); and

(e) progress made on the studies.

The proposed monitorable targets are shown in Annex 1.

D. PROJECT COMPONENTS

4.9 The project comprises the following components:

(a) Construction of: (i) Xiangtan to Leiyang Expressway (XLE), a 169-km divided, four-lane, access-controlled toll highway in southern Hunan; and (ii) Xiaotang to Gantang Expressway (XGE), a 109-km divided, four-lane, access-controlled toll highway in northern Guangdong. The works would include construction of administration, service and maintenance facilities as well as the supply and installation of electrical, electronic and mechanical (E&M) equipment for tolling, telecommunication, traffic monitoring, and lighting of interchanges, toll plazas and service areas;

(b) Interconnecting roads programs in (i) Hunan, consisting of new construction and upgrading of four roads, with a total length of 39 km, including a new 16-km divided, four-lane, class I, Xiangtan-Zhuzhou Highway (XZH), and in (ii) Guangdong, consisting of new construction and upgrading of 10 short roads, with a total length of 2 km;

(c) Construction of Loudi-Lianyuan Highway (LLH), an auto-only, access- controlled, class II, connecting road of 60 km length;

(d) Construction supervision services for XLE, XGE, the interconnecting roads programs in Hunan and Guangdong including XZH, and LLH; - 26 -

(e) Studies/technical assistance in (i) highway maintenance management in Hunan, (ii) expressway commercialization and corporatization in Hunan; (iii) transport and economic integration in Guangdong; and (iv) expressway safety in Guangdong and Hunan;

(f) Staff training programs in Hunan and Guangdong, covering all aspects of highway planning, design, construction, operation, finance and maintenance; and

(g) Equipment for: (i) control of construction quality and monitoring of the environment; (ii) operation and maintenance of XLE and XGE after their completion; (iii) maintenance of the provincial road network and RDB and PMS in Hunan.

E. CIVIL WORKS CONSTRUCTION AND SUPERVISION

4.10 Construction of Xiangtan-Leiyang Expressway (XLE). The existing National Road (NR) 107 between Xiangtan and Leiyang in Hunan is 196 km long and traverses densely populated and industrial areas, with particularly heavy concentrations in the cities of Xiangtan, Zhuzhou, and Leiyang. The existing road was recently upgraded to class II standard with a subgrade width of 12 m. The pavement is generally 9 m wide, with some bridges remaining only 7 m wide. These widths do not allow for separation of fast- and slow-moving vehicles and result in low travel speeds. Moreover, the pavement structure is generally weak. Recent large increases in traffic and expected future traffic growth cannot be accommodated by the existing road beyond 1997 at an acceptable level of service. Between 1993 and 1994, the average daily traffic (ADT) volume for the whole road, converted to medium-size trucks, increased from 5,036 to 6,276, a growth of 25 percent. The widening of the existing road is not feasible along most of its length, due to extensive frontage development and the high number of people that would need to be resettled.

4.11 To establish the feasibility of XLE along a new alignment, several alternatives were compared. The chosen alignment is located to the east of the existing NR 107, with a maximum distance between NR 107 and the expressway alignment of about 20 km in Hengyang. The alignment was chosen since it optimizes XLE's technical characteristics and minimizes cost and the number of people to be resettled. It also provides sufficient space for city development. XLE would be about 169 km long, consisting of four paved lanes, each 3.75 m wide, with two shoulders at 3.5 m width and a medium at 3.0 m width, in accordance with MOC's highway design standards. The width of the subgrade is 28.0 m. The width of the shoulders was increased from 2.5 m to 3.5 m to improve traffic safety, in view of the large number of heavy trucks that will use XLE. The main technical difficulties of the chosen alignment are (a) the crossing of the Xiangjiang and the Rivers, requiring three larle bridges of 938 m, 832 m, and 513 m; and (b) large earthworks of about 125,000 m /km, with about 50 percent in stonework. About 5 km of the expressway are to be built on soft soils and about 17 km in flood-prone areas - 27 - require special treatment. The three largest bridges would allow for extension to six lanes at a later stage, if the emergency lanes were to be used for this purpose. The expressway would be operated as a closed toll road and also includes 3 long bridges, 14 medium-size bridges, 7 small bridges, 843 culverts and 155,900 m3 of retaining walls. One railway bridge, 21 overpasses and 407 mixed underpasses would be constructed.

4.12 XLE would also include: (a) construction of nine interchanges, (b) three service areas providing facilities for refueling and vehicle repair, restaurants, parking and resting, (c) three additional rest areas providing facilities for refueling, parking and resting, (d) three facilities for expressway administration and maintenance, and (e) electrical and mechanical installations for toll collection, traffic monitoring, telecommunications and lighting of all interchanges and annex areas. The preliminary and detailed engineering designs for the expressway were undertaken and have been completed by the Hunan Provincial Design Institute of Planning and Survey (HPDIPS) for all civil works. MOC's Highway Engineering Consulting Corporation in Beijing is designing the electrical and mechanical works. Preliminary designs were reviewed and approved by MOC. A detailed description of the technical characteristics of XLE is presented in the project files. The detailed engineering designs and bidding documents were completed in June. They were reviewed by a team of Swedish consultants under trust-funding during June/ July 1996 and were found satisfactory.

4.13 Interconnecting Roads Program (IRP) for XLE. Given the high population density and rapid growth of road transport in the Xiangtan-Zhuzhou-Hengyan-Leiyang corridor, the opening of XLE would bring significant traffic increases to the existing road system. While some of these roads have recently been upgraded, HPCD plans to improve the remaining ones by 2000, the year of the planned opening of XLE. On the basis of a comprehensive review of all existing and planned roads that would interconnect with XLE at its nine interchanges, an IRP comprising four longer roads and several shorter ones, with a total length of 39 km was developed and would be financed under the project. This IRP is shown in Table 4.1a. Among these 4 roads, the Xiangtan-Zhuzhou Highway (XZH) is the most important and largest investment. It is a 16-km long, 2x2- lane, class I road that would link two important cities in Hunan with each other and to the expressway. This interconnecting road would substantially reduce the distance between these two cities and support two new development zones. XZH was designed by the Design Department of the Changsha Communications Institute (CCI) while all other interconnecting roads were designed by HPDIPS. The technical characteristics of XZH are presented in the project files. The appraisal mission reviewed the proposed IRP and confirmed its appropriateness.

4.14 Loudi to Lianyuan Highway (LLH) in Hunan. Construction of an auto-only, access-controlled class II highway between Loudi and Lianyuan, with a length of 57 km, has high priority under Hunan's 9FYP. This road would link two important industrial cities presently lacking appropriate connection and forms part of a new route from Changsha to Lianyuan, to be extended in future to western Hunan. It would cross the Changsha-Xiangtan expressway section that is presently under construction with Asian - 28 -

Development Bank (ADB) financing, pass through the Xiangtan-to-Dashiqiao subsection of XLE and the proposed XZH between Dashiqiao and Xiangtan, and would link to a new class I/class II highway between Xiangtan and Loudi where construction is already ongoing. This new road would improve accessibility to Loudi and Lianyuan from XLE and would therefore be an important complementary investment to Jingzhu. The road comprises three interchanges including a 3-km long interconnecting road and three junctions. The chosen alignment does not encounter any major technical difficulties. Engineering design was undertaken and has been completed by the design department of CCI. The technical characteristics of LLH are presented in the project files. All works-related cost estimates for LLH were reviewed and finalized by the appraisal mission.

4.15 Construction of Xiaotang-Gantang Expressway (XGE). The existing NR 107 between Xiaotang (Hunan border) and Guangzhou is 395 km long and traverses mostly rural areas. The road was recently upgraded to class II with a subgrade width of 12 m in the south and 8.5 m in the north. This narrow pavement is due to the complex topography in northern Guangdong. The main technical difficulty for NR 107 is the crossing of the cities of Lianxian, Yangshan and Qingyuan. Overtaking along the existing alignment is difficult and dangerous since strong longitudinal slopes slow down most vehicles. In 1993, ADT for the whole line, converted to medium-size trucks, was 7,500 vehicles. There are two other important north-south roads, NR 106 and NR 105, at class III or IV standards, and there exists Provincial Road (PR) 1947. These roads are presently being upgraded, largely under the Bank-supported Guangdong Provincial Highway Project (Loan 3530-CHA). There is also a new 10-km long class I highway in the north of Pingshi at the Hunan border and a new class II highway between Pingshi and Ruyuan. Widening of the existing roads is not feasible along most of their lengths, due to extensive frontage development and the high numbers of people that would need to be resettled.

4.16 To establish the feasibility of Xiaotang-Gantang-Taihe Expressway along a new alignment, several alternatives were compared. Any new alignment would have to cross mountainous areas in the northern part and other topographical barriers in the south. The chosen alignment differs substantially from the alignment of the existing NR 107, enabling a large reduction in distance between the Hunan border and Guangzhou, and giving much improved access to the industrial city of Shaoguan, the largest city in northern Guangdong with a population of around 3 million inhabitants. While the existing NR 107, from the Hunan border, takes a southwestern direction, the new expressway goes to the southeast, in parallel to the existing PR 1947 between Pingshi and Ruyuan and to the existing NR 323 between Ruyuan and Gantang. The distance between NR 107 and XGE reaches a maximum of about 70 km in Gantang. The feasibility study investigated two separate expressway sections, the northern section between the Hunan border and Shaoguan (Xiaotang-Gantang), and the southern section between Shaoguan and Guangzhou (Gantang-Taihe). - 29 -

4.17 The Chinese authorities have requested Bank funding of the northern section, under the NH2 Project, while the southern section that would be constructed simultaneously with the northern section, will be financed through Guangdong's own resources. The southern section between Gantang and Taihe, a distance of 199 km, would be built as a 2x2-lane expressway in a first stage, to be extended to 2x3 lanes at a later stage as traffic increases. The feasibility study compared several alternatives and recommended an alignment passing near Pingshi and Ruyuan. The chosen alignment optimizes the expressway's technical characteristics, minimizes cost and the number of people to be resettled. A detailed procurement and implementation schedule for the northern and southern sections is presented in Annex 2.

4.18 XGE would be about 110 km long and is being designed in accordance with MOC's highway design standards. Some 73 km, between Lingshi Ba and Ruyuan, are located in mountainous terrain, while some 37 km between Xiaotang to Lingshi Ba, Ruyuan and Gantang are located in heavy rolling terrain. In mountainous terrain, the design speed is 80 km/h, and the cross-section consists of four paved lanes, each 3.75 m wide, two emergency lanes 2 m wide, two berms at 0.75 m and a median at 2.5 m. The width of the subgrade is 23 m. In heavy rolling terrain, the design speed is 100 km/h and the cross-section consists of four paved lanes, each 3.75 m wide, two emergency lanes at 2.5 m wide, two berms at 1 m and a median at 2.5 m. The width of the subgrade is 24.5 m. The main technical difficulties are: (a) the very mountainous topography resulting in many tunnels (14 two-lane tubes totaling about 14 km, with 6 more than 1,000 m length, the longest being 2,100 m), many bridges and viaducts (3 very large bridges of, respectively, 1,593 m, 1,122 m and 648/2 m; 30 long bridges totaling 8,214 m); and (b) substantially more earthworks than usual, about 200,000 m3/km, with about two thirds in stonework, very deep cuts reaching 50 m and high fills reaching 30 m, and many retaining walls (about 640,000 m3). The expressway would be operated as a closed toll road and would also comprise 2 medium-size bridges, 7 small bridges, 270 culverts and 642,000 m3 of retaining walls. In addition, 25 grade separations, 6 interchanges, 29 pedestrian underpasses, and 22 mixed underpasses would be constructed.

4.19 XGE would also include construction of: (a) six interchanges, (b) two service areas providing facilities for refueling, restaurants, hotels, parking and resting, (c) two rest areas providing facilities for parking and resting, (d) two facilities for administration and maintenance of XGE, (e) electrical and mechanical installations for toll collection, traffic monitoring, telecommunications and lighting of toll plazas and all annex areas. The preliminary and detailed engineering designs for the expressway (northern and southern sections) were undertaken and have been completed by MOC's Second Highway Survey and Design Institute (SHSDI) in Wuhan. MOC's HRI is in charge of the electrical and mechanical works. Preliminary designs were reviewecl and approved by MOC. The detailed engineering designs and bidding documents will be reviewed by a team of Austrian consultants under trust funding during March/April 1997. All works related cost estimates for XGE were reviewed and finalized by the appraisal mission. - 30 -

4.20 Interconnecting Roads Program (IRP) for XGE. The Guangdong Provincial Highway Administration Bureau (GPHAB) under GPCD is presently implementing a substantial Interconnecting Road Program (IRP) in the influence area of XGE, comprising the upgrading and improvement of 10 national, provincial and county roads, with a total length of some 240 km. This IRP is in part financed by the Bank-supported Guangdong Provincial Highway Project (Loan 3530-CHA) and in part funded through Guangdong's own highway resources. The 10 IRP roads are already being linked to the six interchanges on XGE through a second IRP to be funded under the project, consisting of 10 short access roads, with a total length of about 2 km. This IRP is shown in Table 4. lb. The appraisal mission reviewed the second IRP and confirmed its appropriateness.

4.21 Construction Supervision. Training programs in construction supervision for local staff in Hunan and Guangdong would be completed prior to the mobilization of contractors. This training would be conducted by the two international supervision consultants that will be selected. The first phase of the training program, prior to the beginning of construction, would include lecture courses and site visits while the second phase would comprise on-the-job training to take place during construction of XLE and XGE.

4.22 In Hunan, the construction supervision organization for XLE would consist of a joint foreign/local core supervision team to be established around three foreign engineers (with a total of 108 person-months), with expertise in project/contract management, earth and pavement works, and bridge construction. The core team would also include four local engineers and would be located at HPECDC's General Supervisor's Office in Hengyang where it would be supported by a central laboratory to be staffed with 10 qualified local experts. For field supervision of 11 ICB civil works contracts, four resident engineer's offices (REO) would be established in Zhuzhou, Hengdong, Hengyang and Leiyang, staffed with 121 persons. There would also be a logistics staff comprising 34 persons. A total of 169 local supervisors would be engaged corresponding to one person per km of expressway construction. Domestic supervising engineers would provide some 6,500 person-months. Supervision of civil works for XZH and LLH would be carried out by qualified local supervision teams acceptable to the Bank. These supervision arrangements were reviewed and confirmed during negotiations. Assurances were obtained at negotiations that Hunan Province would maintain construction supervision teams with qualified staff in adequate numbers to ensure that works are carried out in accordance with technical specifications and that strict quality controls are exercised on site. Construction quality would also be monitored through routine project supervision and monthly and quarterly progress reports.

4.23 In Guangdong, the supervision organization for construction of XGE would consist of a joint foreign/local core supervision team to be established around three foreign engineers (with a total of 120 person-months) with expertise in project/contract management, earth and pavement works, and traffic engineering, as well as tunnel and bridge construction. This core team will be located at GPFC's Supervisor's Office in Shaoguan and will be supported by a central laboratory to be staffed with 12 qualified - 31 - local experts. For field supervision of 13 ICB civil works contracts, 10 REOs will be established. They will be staffed with 110 local engineers for field supervision corresponding to about one engineer per km of expressway construction. Domestic supervising engineers will provide some 5,000 person-months. These supervision arrangements were reviewed and confirmed during negotiations. Assurances were obtained at negotiations that Guangdong Province would maintain construction supervision teams with qualified staff in adequate numbers to ensure that works are carried out in accordance with technical specifications and that strict quality controls are exercised on site. Construction quality would also be monitored through routine project supervision and monthly and quarterly progress reports.

F. INSTITUTIONAL CAPACITY BUILDING

4.24 Highway Maintenance Management in Hunan. To improve and modernize maintenance management in Hunan, HPCD would proceed with a highway maintenance management study. The overall objective would be to create an efficient maintenance organization, adjusted to modem management philosophy and using modem technology. The study will be managed by a Leading Group established in 1996. The Leading Group will be in charge of the studies and the road safety activities in Hunan Province. The study will commence in January 1997 and finish before the end of 1998. The study would: (a) review the institutional arrangements, policies and procedures for highway maintenance, consistent with the economic reform process; (b) identify expenditures required to maintain the existing road network, taking budget constraints into consideration; and (c) formulate and prioritize a multiyear highway maintenance program for the later part of the 9FYP period. The outcome of the study would include recommendations on (a) organizational changes; (b) equipment needs; (c) training of personnel; (d) a model to estimate medium-term maintenance needs; (e) strengthening of Hunan's RDB and PMS; and (f) development of a BMS. Final terms of reference (TOR) are available in the project file. Final TOR were reviewed and agreed during negotiations. Assurances were obtained at negotiations that Hunan Province shall: (a) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to guide the said study and provide comments on the results and recommendations thereof; (b) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank and furnish a draft final report thereof to the said Leading Group and the Bank for review and comments; (c) furnish the final report of said study, taking into account comments made by the Leading Group and the Bank, to the Bank not later than six months following receipt of comments made by the Bank on said draft final report; and (d) thereafter, take all appropriate steps to implement the recommendations set out in saidfinal report.

4.25 In addition, assurances were obtained at negotiations that Hunan Province shall, by June 30 of each year commencing in 1997 and ending in 2001, furnish an annual highway condition report for the Bank's review and comments for the previous year, which would: (a) show the length of each class of highway by condition (excellent, good, fair and bad) as of December 31 of the previous year; (b) show the completed physical - 32 - works and actual expenditures of the previous year against the planned physical targets and budgeted funds of that year, for new construction, upgrading/improvement, rehabilitation, periodic maintenance, and routine maintenance; and (c) show the targets of the highway program for the current year, including new construction, upgrading/ improvement, rehabilitation, periodic maintenance, and routine maintenance, in terms of planned physical works and planned expenditures.

4.26 Expressway Commercialization and Corporatization in Hunan. This study would assist HPCD in developing modern thinking in how to finance and manage its new expressways and would analyze the longer-term options available in financing, managing and organizing its high-grade highway corporation(s). It would help design a modem organization in compliance with international standards of financial management, would ensure that toll revenues are properly collected and managed and that expenditures (both for investment and for adequate maintenance) are well planned. The study will be managed by a Leading Group established in 1996. The Leading Group will be in charge of the studies and the road safety activities in Hunan Province. Final TOR are available in the project file. Final TOR were reviewed and agreed during negotiations. Assurances were obtained at negotiations that Hunan Province shall: (a) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to guide the said study and provide comments on the results and recommendations thereof; (b) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank and furnish a draft final report thereof to the said Leading Group and the Bank for review and comments, (c) furnish the final report of said study, taking into account comments made by the Leading Group and the Bank, to the Bank not later than six months following receipt of comments made by the Bank on said draft final report; and (d) thereafter, take all appropriate steps to implement the recommendations set out in saidfinal report.

4.27 Road Safety in Hunan. Four road safety components would be undertaken, concentrating on institutional improvements, training, accident data collection and analysis, and the identification and implementation of physical measures. The safety components will be managed by a Leading Group established in 1996. The Leading Group will be in charge of the studies and the road safety activities in Hunan Province. The road safety activities should be initiated under the NH2 project and continued under the NH4 project. First, Hunan's Traffic Engineering Society (TES), during its annual meetings, would start incorporating road safety issues in its agenda. This would form a basis toward a developed road safety seminar arrangement that would become an annual event. The basic concept for the seminar would be to create a better understanding of road safety, and to learn lessons from other countries about road safety work. Domestic and international experts would be invited to attend the annual seminar. Second, HPCD would develop, through TA, a manual on safety at roadworks, enabling the organization of roadworks under conditions tolerable to road users and workers, and requiring solutions for, inter alia, comprehensive schemes for work zones and temporary traffic operations, technological innovations, and monitoring users behavior and traffic. The overall aim of this effort would be to develop a guideline suitable for roadworks in - 33 -

Hunan. Different types of roadworks would be examined, from mobile and short- duration to long-duration roadworks. Equipment and accessories used for temporary signing, traffic guidance and the protection of workers would be examined. Third, HPCD would develop, through TA, a safety audit manual, consisting of a series of checklists and guidelines enabling systematic checking of highway engineering designs to ensure that they do not contribute to but help reduce accidents. A start was already made through various design improvements on XLE, for example, on the shapes of its interchanges, the connections of annex areas to the expressway, or the locations of the maintenance centers. Fourth, HPCD would undertake through TA the in-house development of a black-spot analysis and improvement system, comprising the identification of black-spots; design, funding, implementation of remedial measures; and conducting before and after studies. The entire length of NR 107 in Hunan would be used to develop and test this system. Final TOR are available in the project file. Assurances were obtained at negotiations that Hunan Province shall. (a) establish a Leading Group comprising representatives of the concerned provincial agencies to associate with TES and to incorporate road safety issues into the agenda of its annual meetings, starting in 1997, and organize an annual road safety seminar in Hunan starting 1998; (b) develop, through TA, a manual on safety during roadworks, a safety audit schedule, and a program of selected black-spot analysis and improvement along NR 107, and by June 30, 1999, complete the said three TA components in accordance with terms of reference satisfactory to the Bank, (c) furnish the TA results to the Leading Group and the Bank for review and comments; and (d) thereafter, take all appropriate steps to implement the recommendations of the said TA components, taking into account the comments thereon of the said Leading Group and the Bank.

4.28 Transport and Economic Integration in Guangdong. This study would examine the long-term transport and economic integration effects of the transport corridor between Hong Kong-Macao-Guangzhou-Changsha connecting several inland provinces to the highly economically active Pearl River Delta. The movement of freight and people will no longer be dependent on the much overloaded railway link. The completion of the expressway would help to foster faster economic growth in northern Guangdong and southern Hunan and promote economic integration of areas along the expressway corridor. The study would also analyze the advantages of the various transport modes in an intermodal transport framework and their impact on regional economics. Guangdong Provincial Economic Research Institute, Xian Highway Transport University and Guangdong Provincial Transport Association would be responsible for execution of the study, while coordination would be undertaken by GPCD, with joint involvement of the World Bank Finance Office and Research Institute under GPCD. Final TOR are available in the project file. Final TOR were reviewed and agreed during negotiations. Assurances were obtained at negotiations that Guangdong Province shall: (a) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to guide the said study and provide comments on the results and recommendations thereof; (b) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank and furnish a draft final report thereof to the said Leading Group and the Bank for review and comments; (c) furnish the final report of said study, - 34 - taking into account comments made by the Leading Group and the Bank, to the Bank not later than six months following receipt of comments made by the Bank on said draftfinal report; and (d) thereafter, take all appropriate steps to implement the recommendations set out in saidfinal report.

4.29 Expressway Safety in Guangdong. With the rapid expansion of the expressway network in Guangdong, there is an increasing need to review the issue of road safety. Of particular importance are the treatment and application of road safety knowledge and techniques in the areas of traffic engineering design and in the operation and management of expressways. The proposed TA would address the practical aspects of expressway safety, with a view to develop implementable recommendations. In the course of this work, standards, manuals, handbooks and operational procedures for incident management, guarding and lighting of road works, expressway signing, marking and lighting, traffic control and surveillance provisions, traffic management procedures, and preferred organizational structure for expressway safety management would be developed. Standards and manuals that are to be produced under the study would be adjusted to the situation in Guangdong, in accordance with guidelines from MOC. Final TOR are available in the project file. Final TOR for this TA were reviewed and agreed during negotiations. Assurances were obtained at negotiations that Guangdong Province shall: (a) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to guide the said study and provide comments on the results and recommendations thereof; (b) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank andfurnish a draftfinal report thereof to the said Leading Group and the Bank for review and comments; (c) furnish the final report of said study, taking into account comments made by the Leading Group and the Bank to the Bank not later than six months following receipt of comments made by the Bank on said draft final report; and (d) thereafter, take all appropriate steps to implement the recommendations set out in saidfinal report.

4.30 Training in Hunan. The training program would mainly focus on highway planning and engineering design, construction and its supervision, maintenance and operations management, including, but not limited to quality control, budget planning, engineering economics, and road safety. The program would aim at training of personnel needed for the project to guarantee its smooth implementation and progress. It would also cover professional training on the part of personnel in the transport sector and professional training for trainers. A training program has been prepared, which will include the training of 80 people to be trained overseas for 110 person-months while 721 people will be trained in China. Three foreign experts will be engaged for about 3 person-months in the domestic training program. Detailed documentation and a summary of the proposed training program is available in the project file. The training program was reviewed and agreed during negotiations. Assurances were obtained at negotiations that Hunan Province shall, by June 30 of each year and commencing in 1997, furnish a rolling two-year training implementation program to the Bank for approval and shall carry out the training under the approved program. - 35 -

4.31 Training in Guangdong. The proposed program in construction supervision training would focus on contract management, FIDIC conditions of contract, cost management, construction management, quality and progress control. In addition to the training in construction supervision, a series of training programs would be conducted in project planning and design, highway engineering, construction, highway maintenance and operation management. Depending on the nature of the training, the courses would be provided either in China, by local institutions, or abroad, by foreign consultants. It has been proposed that 108 people (122 person-months) will attend overseas training while 752 people (672 person-months) will be given domestic training. The proposed training programs build on training that is being undertaken and nearing completion under the ongoing Guangdong Provincial Highway Project (Loan 3530-CHA). Detailed documentation and a summary of the proposed training is available in the project file. The training program was reviewed and agreed during negotiations. Assurances were obtained at negotiations that Guangdong Province shall, by June 30 of each year and commencing in 1997, furnish a rolling two-year training implementation program to the Bank for approval and would carry out the training under the approved program.

4.32 Equipment. Equipment to be provided under the project has been identified by GPFC and HPCD and reviewed by the Bank. Agreed equipment lists including cost estimates are available in the project file. These lists include, for both provinces, equipment items required for expressway operation and maintenance, strengthening of central laboratories, and environmental monitoring. In the case of Hunan, selected equipment items for RDB and PMS development as well as for the maintenance of the provincial highway network are also included. In Guangdong, the equipment list has taken into consideration those items that were already procured under the ongoing Guangdong Provincial Highway Project (Loan 3530-CHA). All equipment lists as proposed by Hunan Province and Guangdong Province including cost estimates were reviewed and confirmed during negotiations.

G. ENVIRONMENTAL ASSESSMENT

4.33 Hunan. An environmental impact assessment (EIA) for XLE and its interconnecting roads was carried out by the Highway Research Institute (HRI) of MOC and an EIA report, an Environmental Action Plan (EAP) and an Environmental Assessment (EA) Summary were submitted to the Bank in March 1995. These documents were reviewed by the Bank and discussed with HPCD during the preparation missions in April and July 1995. Based on the Bank's comments, the revised EIA reports, EAPs for XLE including its interconnecting roads, and the EA Summary were submitted to the Bank in September 1995 for review. These documents were further reviewed and discussed during the preappraisal mission in November 1995. The EIA and EAP for LLH, and an EIA report for XZH were also reviewed by the Bank at that time. The final EIA reports, EAPs and EA Summary covering XLE and its interconnecting roads, LLH and XZH, were submitted in January 1996 and found to be satisfactory to the Bank. - 36 -

4.34 Guangdong. An EIA for XGE including its interconnecting roads was carried out by the Shanghai Ship and Shipping Research Institute (SSSRI) of MOC, and an EIA report, an EAP, and an EA Summary were submitted to the Bank in May 1995. These documents were reviewed by the Bank and discussed with GPCD during the preparation mission in July 1995. Based on the Bank's comments, the revised EIA reports, EAPs, and the EA Summary for XGE and its interconnecting roads were submitted to the Bank in September 1995 for review. These documents were further reviewed and discussed during the preappraisal mission in November 1995. The final EIA reports, EAPs and EA Summary covering XGE and its interconnecting roads were submitted in January 1996 and found to be satisfactory to the Bank.

4.35 Ii both Hunan and Guangdong sections, major environmental impacts during the construction period will include noise and dust, alteration of hydrological regimes, soil erosion, interference with local people and traffic, and impacts on the local ecology and on irrigation systems. Among others, noise and dust, and soil erosion would be most serious. In addition, on XGE, in view of the large quantities of cut and fill works, particular attention was paid to the impacts of transportation of construction materials. Traffic noise and vehicle exhaust, soil erosion, and water pollution from service areas were identified as major adverse impacts during the operation period.

4.36 The EAPs specify the appropriate mitigation measures, environmental monitoring plans, institutional arrangements for their implementation, training and equipment requirements, and budget needed for environmental protection. On both XLE and XGE, major mitigation measures in the construction phase will include optimum planning of earthworks to reduce damage to be caused by borrow and spoil works, appropriate design of overpasses/underpasses to minimize interference with local people and traffic, reconstruction of irrigation and drainage systems where appropriate, and water sprinkling to reduce dust. On XGE, particular attention will be paid to optimum use of excavated soil for filling works, and reduction of impacts of borrow material hauling trucks.

4.37 On both XLE and XGE, major mitigation measures in the operation phase will include construction of noise barriers, construction/heightening of fences around the residences to reduce traffic noise, strengthening of vehicle emission inspections and better maintenance of vehicles to minimize air pollution problems, and afforestation to improve landscape and reduce air pollution. The engineering design and technical specifications for the expressways incorporate appropriate measures required for environmental protection. It was ascertained that the proposed expressways and their interconnecting roads, and other highways included in the NH2 Project in both Hunan and Guangdong will not affect ecologically sensitive areas and that their construction and operation should have no adverse impacts on the environment through the implementation of EAPs. The summary of the EIAs and EAPs are presented in Annexes 3a and 3b, and copies of the EIAs and EAPs are available in the Project File and are also available through the Public Information Center (PIC). Assurances were obtained at negotiations from Hunan Province and Guangdong Province that: (a) the environmental protection measures stipulated in the EAPs with respect to XLE and its interconnecting - 37 - roads, LLH, XZH, and XGE and its interconnecting roads shall be carried out in a manner satisfactory to the Bank, and (b) Hunan Province and Guangdong Province shall each furnish to the Bank annual environmental monitoring reports for XLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roads during their construction phases and for each of the first three years following their construction completion.

H. LAND ACQUISITION AND RESETTLEMENT

4.38 Resettlement Action Plans (RAPs) for the project were prepared by the Resettlement Offices (ROs) of GPFC and HPECDC for the two project provinces based on the following laws and regulations:

(a) The Land Administration Law of the People's Republic of China for Land Acquisition and Resettlement (1986);

(b) Implementation Regulations for Land Administration of the People's Republic of China (1991); and

(c) Provincial and municipal regulations as listed in Annexes 4a and 4b.

4.39 Objectives. The RAPs establish the basis for land acquisition and resettlement in the project and respond to the general Bank guidelines on involuntary resettlement. The basic objectives of the RAPs are to: (a) minimize resettlement; (b) improve the standards of living of the project-affected persons (PAPs) or at least to restore them; (c) consult the affected communities on the project impact, entitlements, and rehabilitation measures; (d) compensate the villages for land and the PAPs for their lost assets at replacement value without depreciation; (e) provide land to the PAPs whose land is affected by readjusting the village land; (f) provide alternative jobs to the PAPs losing agricultural land if the land endowment of affected villages do not permit readjustment; (g) ensure that PAPs whose jobs are affected through affected enterprises are provided with similar employment in new enterprises; (h) compensate the disrupted infrastructure; (i) establish the time schedule and the budget of the resettlement component of the project; (j) devise a mechanism for grievance and appeals; and (k) devise internal and independent monitoring.

4.40 The RAPs meet the general standards of transport sector RAPs for China and the Bank Guidelines for Involuntary Resettlement. The RAPs are reviewed in detail in Annexes 4a and 4b. Assurances were obtained at negotiations from Hunan and Guangdong Provinces that all land acquisition and resettlement activities with respect to XLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roads shall be completed in accordance with the RAPs in a manner satisfactory to the Bank.

4.41 Institutional Strengthening. The project addressed this issue by encouraging the unification and computerization of the data at the preparation stage, with the - 38 - collaboration of local administrations and then sharing the data with the same local offices. This approach also facilitated the consultation process at all levels, while connecting the resettlement component of the project with the civil works by superimposing the population and asset data on preliminary design maps. This approach can lead to further reductions in resettlement and its cost in future transport projects by improving resettlement minimization during preliminary design.

4.42 Adverse Impact of NH2 Project. The project will lead to permanent acquisition of 32,785 mu, temporary acquisition of 4,958 mu of land, and removal of 1,828 private houses in the two provinces. Most of the effect on houses will be in the more densely populated Hunan Province. In Guangdong, the expressway will be shorter and pass through a sparsely populated region of the province, affecting only 281 private houses. Total number of households affected by the project will be 8,816 with a total population of 39,167. Overall, 8,239 persons will need to relocate their houses, while another 30,926 will lose land only, of whom 1,433 would be transferred from agriculture to enterprise employment due to limited land availability. Total enterprises affected by the project will be 14 with an employment of 354 employees. Assurances were obtained at negotiations from Hunan Province and Guangdong Province that the monitoring of the effectiveness and socioeconomic impact of the resettlement activities with respect to XLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roads shall be carried out in accordance with the RAPs in a manner satisfactory to the Bank

4.43 Outstanding Issues Resolved During the Appraisal. The appraisal mission ensured that all the points raised during the Bank's review of the RAPs were addressed by the borrowers. Issues relating to consultation with the local units on land readjustment has been completed, and a clear understanding was reached between the Provincial Resettlement Offices and the Local Units on the extent and nature of resettlement impacts and policies of compensation and rehabilitation. Surplus labor is being resettled after consultation with them. PAPs will be able to exercise their choice among available employment opportunities. Enterprises are being consulted on the terms of compensation and timing of relocation to ensure the continuity of operations and the employment of their workers. The mission observed that the PAPs were satisfied with the resettlement altematives provided and the choices that they made. Selection and compensation of enterprises that will employ the surplus labor is also being carried out with the participation of all affected parties.

I. COST ESTIMATES

4.44 The total project is estimated to cost Y 9.40 billion or $1.13 billion equivalent, including land acquisition, and physical and price contingencies as summarized in the following table and as detailed in the Consolidated Project Cost Summary for Hunan and Guangdong provinces and in Tables 4.2a and 4.2b. This estimate does not include taxes which are estimated at Y 240 million. The foreign exchange cost is estimated at about $432 million, or about 38 percent of the total. Base costs were estimated in late 1995 prices and were updated to 1996 prices in Hunan and Guangdong during project appraisal - 39 - and reconfirmed during negotiations. Physical contingencies are calculated at 10 percent of the base cost of civil and E&M works and construction supervision services. Price contingencies have been calculated for foreign costs, using international annual escalation factors of 2.3 percent in 1997, and 2.5 percent in each of 1998, 1999, 2000, 2001 and 2002. Price contingencies for local costs are based on local annual escalation factors of 8.5 percent in 1997, 7.0 percent in 1998, 6.5 percent in 1999, and 6.2 percent in each of 2000, 2001, and 2002.

CONSOLIDATEDPROJECT COST, HUNAN AND GUANGDONG ($ million)

Hunan Component Guangdong Component Consolidated Project Foreign Local Foreign Total Local Foreign Total Local Foreign Total Costs Cost Cost Cost Cost Cost Cost Cost Cost Cost (%)

Expressway Civil Works 149.1 127.0 276.1 267.4 137.7 405.1 416.5 264.7 681.2 39 Expressway E & M Works 2.8 8.9 11.7 16.8 39.3 56.1 19.6 48.2 67.8 71 Interconnecting Roads la 12.1 10.3 22.4 - - - 12.1 10.3 22.4 46 OtherRoads 21.2 14.1 35.3 - - - 21.2 14.1 35.3 40

Total Works 185.2 160.3 345.5 284.2 177.0 461.2 469.4 337.3 806.7 42

Supervision 8.0 2.1 10.1 5.0 3.3 8.3 13.0 5.4 18.4 29 Equipment 4.5 6.8 11.3 0.0 7.7 7.7 4.5 14.5 19.0 76 Training 0.3 1.0 1.2 1.0 .1.0 2.0 1.3 2.0 3.2 61

Highway Maintenance Manage- 0.1 0.2 0.3 - - - 0.2 0.2 0.3 50 ment Study High-Grade Highway Commer- 0.1 0.2 0.3 - - - 0.2 0.2 0.3 50 cialization and Corporatization Study Transport and Economic Integra- - - - 0.2 0.2 0.3 0.2 0.2 0.3 50 tion Study Road Safety Program 0.1 0.0 0.2 0.2 0.2 0.3 0.2 0.2 0.3 50

Total Studies 0.4 0.4 0.8 0.3 0.3 0.5 0.7 0.7 1.3 50

Total TA/Studies/Training 0.6 1.4 2.0 1.3 1.3 2.5 1.9 2.7 4.5

Total Base Cost 198.3 170.6 368.9 290.5 189.3 479.7 488.8 359.9 848.6 42

Physical Contingencies 19.8 16.9 36.7 27.6 18.0 45.6 47.4 34.9 82.3 42 Price Contingencies 44.8 17.5 62.3 65.2 19.3 84.6 110.1 36.8 146.9 25

Total Contingencies 64.6 34.4 99.0 92.8 37.3 130.2 157.4 71.7 229.1 34

Base Cost with Contingencies 262.9 205.0 467.8 383.4 226.6 609.9 646.2 431.6 1,077.7 40

Land Acquisition and Resettlement 37.8 0.0 37.8 17.3 0.0 17.3 55.1 0.0 55.1 0

Total Project Cost 300.7 205.0 505.6 400.7 226.6 627.2 701.3 431.6 1,132.8 38

La Expressway civil works contracts in Guangdong include several short sections of interconnecting roads totaling about 2 km in the amount of Y 10 million. - 40 -

CONSOLIDATEDPROJECT COST SUMMARY ($1.00=Y 8.3, November 1996 prices)

Foreign Y million $ million costs as % Local Foreign Total Local Foreign Total of total

Expressway: Civil Works 3,457.0 2,197.0 5,654.0 416.5 264.7 681.2 39 E & M 162.7 400.1 562.7 19.6 48.2 67.8 71 Interconnecting Roads /a 100.4 85.5 185.9 12.1 10.3 22.4 46 OtherRoads 175.5 117.0 292.6 21.2 14.1 35.3 40

Total Works 3,895.6 2,799.6 6,695.2 469.4 337.3 806.7 42

Supervision 107.9 44.8 152.7 13.0 5.4 18.4 29 Equipment 37.4 120.4 157.7 4.5 14.5 19.0 76 Training 10.5 16.4 26.9 1.3 2.0 3.2 61 TA/Studies 5.5 6.0 10.5 0.7 0.7 1.3 57

Total Base Cost 4,056.8 2,987.2 7,043.0 488.8 359.9 848.6 42

Physical Contingencies 393.1 289.6 682.7 47.4 34.9 82.3 42 Price Contingencies 913.6 305.4 1,218.9 110.1 36.8 146.9 25

BaseCost with Contingencies 5,363.5 3,582.1 8,944.6 646.2 431.6 1,077.7 40

Land Acquisition and Resettlement 457.3 0.0 457.3 55.1 0.0 55.1 0

Total Project Cost 5,820.8 3,582.1 9,402.0 701.3 431.6 1,132.8 38

/a Expressway civil works contracts in Guangdong include several short sections of interconnecting roads totaling about 2 km in the amount of Y 10 million.

4.45 The costs of civil works are based on work quantities calculated from detailed engineering designs in Hunan and preliminary engineering designs in Guangdong. The costs were computed on the basis of MOC's standard manuals for labor and equipment productivity, the related, annually updated costs, and the current market costs of materials, labor, and equipment. The unit rates were checked against the unit prices provided in recent bids for similar highway works executed under Bank financing in Guangdong and ADB financing in Hunan.

4.46 The estimated cost of equipment is based on prevailing prices and those quoted by manufacturers and suppliers and includes the cost of equipment delivered in Guangzhou under the Bank's ongoing highway project and in Changsha under the ongoing ADB highway project, spare parts, and related training, if needed, to operate and maintain the equipment. The estimated cost of consulting services is based on recent contracts for similar services under the Bank's ongoing highway project in Guangdong and under the ongoing ADB highway project in Hunan.

J. FINANCING

4.47 The Bank loan of $400 million would finance about 35 percent of the total project cost or about 93 percent of the foreign exchange cost. The Central Government (MOC) - 41 - would provide the equivalent of about $153.8 million (14 percent of the total), while the Hunan and Guangdong provincial governments would provide the equivalent of about $579 million (51 percent of the total) to meet the remaining costs of the project, including contingencies. MOC's funding would be restricted to the construction of the expressways. The details of project financing for Hunan and Guangdong are shown below and in Tables 4.3a and 4.3b.

CONSOLIDATED FINANCING PLAN, HUNAN AND GUANGDONG COMBINED ($ million)

Government Provincial Central Bank Total

Expressway Civil Works 280.4 155.1 245.7 681.2 Expressway E & M Works 19.5 - 48.4 67.8 Interconnecting Roads 12.1 - 10.3 22.4 Other Roads 21.2 - 14.1 35.3

Subtotal Works 333.1 155.1 318.5 806.7

Construction Supervision 12.9 - 5.5 18.4 Equipment 4.5 - 14.5 19.0 Training 1.2 2.0 3.2 TA/Studies 0.9 - 0.4 1.3 Contingencies 170.0 - 59.1 229.1 Land Acquisition and Resettlement 55.1 - 0.0 55.1

Total Project Cost 577.7 155.1 400.0 1,132.8

Percent of Total 51 14 35 100

4.48 The Bank loan, of which $200 million would be for Hunan and $200 million for Guangdong, would be at the standard interest rate for LIBOR-based, US dollar, single currency loans. It would be lent to the Borrower for a maturity of 20 years, including 5 years of grace. The proceeds of the Bank loan would be made available to Hunan and Guangdong Provinces at the same rate payable to the Bank by the Borrower with 0.75 percent per year commitment fee on the outstanding balance, beginning 60 days after loan signing, less any waiver. Agreement was reached with the Borrower at negotiations that it shall onlend the proceeds of the loan to Hunan Province and Guangdong Province on these terms. The Hunan and Guangdong provincial governments would bear the foreign exchange risks on their portions of the loan. The - 42 -

Government of China and Hunan and Guangdong Provinces have selected LIBOR-based, US dollar, single currency loan terms for the project in order to facilitate management of the foreign exchange risk of their borrowings by more closely matching the currency of their liabilities with that of their net trade flows, about 75 percent of which are US dollar denominated. They selected the LIBOR-based product in order to preserve the full maturity of the loan, compared to the fixed-rate option that would have resulted in a 15- year loan. The Borrower judges that it can manage any interest rate risk.

K. IMPLEMENTATION

4.49 Implementing Agencies. In Hunan HPECDC would be the executing agency for XLE and its interconnecting roads, including XZH. HPECDC would also be the executing agency for LLH. HPCD would be the executing agency for the Highway Maintenance Management and the Expressway Commercialization and Corporatization studies and the Road Safety Program. In Guangdong, GPFC would be the executing agency for XGE and its interconnecting roads. GPFC would also be the executing agency for the technical assistance on expressway safety while GPCD would undertake the transport and economic integration study. The PCDs in both provinces have submitted project implementation plans (PIPs) for their respective project components that the Bank found to be generally satisfactory. These PIPs are available in the Project File. The Hunan and Guangdong PIPs were revised and agreed during negotiations.

4.50 Expressways and Interconnecting Roads. Detailed designs and technical bid documents are being completed in both provinces. Foreign experts from Sweden visited Hunan Province in July/August 1996, while in Guangdong, the experts from Austria will visit during late 1996/early 1997 to review designs and bid documents. Preparation of commercial bid documents is being carried out by China International Tendering Company (CITC) in Hunan and China Machine International Tendering Company (CMCITC) in Guangdong. Pre-qualification documents, for both provinces, were released to applicants at the end of March 1996, and the prequalification process was completed by August/September 1996. Acquisition of land and the resettlement process are expected to be completed by end-1997 in both Hunan and Guangdong. Supply and installation of electrical, electronic, and mechanical systems for operation of XLE and XGE is scheduled to commence around the end of 1998, and be completed by the end 2000. The construction of service facilities along XLE and XGE would be a continuous process during the project implementation period. XLE and XGE are expected to be completed by 2001.

4.51 Construction Supervision. Construction supervision services for XLE and XGE would be carried out by two joint local/foreign supervision teams headed by chief supervision engineers headquarters in Hengyang (Hunan) and in Shaoguan (Guangdong). There would be a resident engineer for each of the 11 contract sections in Hunan and for each of the 10 contract sections in Guangdong. About 169 and 110 local personnel would be permanently engaged in supervision during construction in Hunan and Guangdong, respectively. Invitations to foreign shortlisted firms were issued separately for the Hunan - 43 - and Guangdong sections in April/May 1996, and the selection of consulting firms is expected to be completed by December 1996. The consultants are expected to mobilize in early 1997 to help set up the supervision organization in each province prior to the commencement of civil works and to provide training within the two provinces and abroad to selected local supervision staff. Most of the supervision training is expected to be completed by March 1997 in both provinces. Actual construction supervision of XLE and XGE is expected to start by April 1997 in both provinces. Construction supervision of LLH would be undertaken by local supervision consultants acceptable to the Bank.

4.52 Training. Formal selection procedures for candidates to be trained would be developed by the PCDs in Hunan and Guangdong. Those to be trained abroad would be given two-to-three months of intensive English language training, and each trainee would be required to submit a report on training received to his/her parent department or agency. Moreover, the PCDs of Hunan and Guangdong have indicated that training under the project would be related to career development and the professional growth of the selected staff. The comprehensive training programs would be open to all highway staff in both provinces and would be administered by the two PCDs, in coordination with MOC.

4.53 Equipment. HPECDC and GPFC would be responsible for equipment procurement related to the central laboratories in Hunan and Guangdong, environmental protection, and operation and maintenance of XLE and XGE, respectively. Preparation of specifications and bid documents for equipment would be carried out by CITC in Hunan and CMCITC in Guangdong. Equipment for the central laboratory and environmental protection would be procured during the first year of project implementation while that for XLE and XGE operation and maintenance would be procured between 1997 and 1999. HPCD would be responsible for the procurement of equipment related to maintenance of Hunan's highway network, and to RDB/PMS.

4.54 Operation and Maintenance of XLE and XGE. Hunan and Guangdong Provinces intend to operate the XLE and XGE as toll facilities consistent with their designs. HPECDC and GPFC would be responsible for operating and maintaining the XLE and XGE, respectively, following their completion. To ensure that the toll rates would be appropriately structured and that toll levels would not lead to a substantial reduction in the benefits of highway investment, the rationale for setting the level of tolling would be determined based on the findings of two studies to be undertaken by the two project provinces which would take into consideration latest experience with operation of toll roads in Hunan, Guangdong and the rest of China as well as similar studies undertaken under Bank-financed highway projects in China. Assurances were obtained at negotiations that Hunan Province and Guangdong Province shall undertake, and by December 31, 2000, furnish to the Bank for its review and comments, analyses and recommendations for the structure of toll rates on the XLE and XGE, respectively, taking into consideration the results of the toll rate structures under Bank-financed - 44 - highway projects in China and the recent experience with tolls on high-grade highways in Hunan, Guangdong and other parts of China.

4.55 The project is scheduled to be completed by June 30, 2002, with the loan closing date stipulated as June 30, 2003. The implementation schedule for the project is presented in Annex 5.

L. PROCUREMENT

4.56 Procurement under the project would be carried out as shown in Tables 4.4a and 4.4b which details the procurement arrangements separately for the Guangdong and Hunan project parts. A consolidated summary of procurement is shown below. Goods and works would be procured in accordance with the Bank's Guidelines for Procurement under IBRD Loans and IDA Credits, dated January 1995 and revised in January and August 1996. The procurement arrangements for the project have taken into account the experience gained from previous Bank-financed highway projects in China. The procurement documentation, including that for prequalification of contractors, International Competitive Bidding (ICB) and National Competitive Bidding (NCB) for civil works, ICB for goods and consultant services has been standardized for Chinese conditions in cooperation between the Chinese Government and the Bank. Invitations for prequalifications or for bids concerning large, specialized, or important contracts (i.e., contracts estimated to cost the equivalent of $ 10 million or more) would be advertised as specific procurement notices in the UN Development Business and/or well-known technical magazines, newspapers, and trade publications of wide international circulation. Standard documents would be used for all relevant procurement processes under the project.

4.57 Works. In Hunan, the civil works for XLE would be divided into 11 contract sections, with an average contract size of $32 million equivalent. Electromechanical works would be handled as one contract amounting to about $12 million equivalent. Interconnecting roads including XZH, administration and maintenance buildings, service areas and toll plazas would be carried out in several small contracts. LLH would be divided into three contract sections averaging $14 million equivalent. In Guangdong, the civil works for XGE would be divided into 10 contract sections for road and structures and 3 contract sections for pavements, with an average contract size of $40 million equivalent. Electromechanical works would be handled in two contracts, one for traffic facilities and one for E&M in tunnels. Administration and maintenance buildings, service areas, and toll gates would be carried out in several small contracts. The interconnecting roads (several short road sections) would be included in the corresponding contract sections for XGE because of the small size of the works involved.

4.58 The 11 civil works contracts and 1 electromechanical works contract for XLE, the 13 civil works contracts and 2 electromechanical works contracts for XGE, and the three civil works contracts for LLH, with an estimated total cost of about $943 million would be procured following ICB procedures. Contracts would be bid on a slice-and-package - 45 - basis; qualified contractors would be allowed to bid for more than one contract so as to attract international and large Chinese contractors. The three contracts for electromechanical works would be bid later during the construction of XLE and XGE. All bidders for the 24 civil works contracts would be prequalified. Domestic contractors competing under ICB procedures would be eligible for a 7.5 percent price preference. Domestic bidders are expected to be competitive for all contracts under this project.

PROJECT PROCUREMENTARRANGEMENTS, GUANGDONG AND HUNAN COMBINED ($ million)

Procurement method ICB NCB Other /a NBF /b Total Cost Works Expressway Civil Works Ld 812.0 53.2 865.2 (269.8) (17.4) (287.2) Expressway E&M Works 86.2 86.2 (56.8) (56.8) Interconnecting roads 28.4 28.4 (11.8) (11.8) Other Roads 44.7 44.7 (18.8) (18.8) Construction Supervision 23.4 23.4 (5.1) (5.1) Equipment 16.1 8.0 24.1 (11.8) (5.3) (17.1) Consultants and Training /c Training 4.1 4.1 (2.4) (2.4) Technical Assistance/Studies 1.7 1.7 (0.7) (0.7) Land Acquisition and Resettlement 55.1 55.1 (0.0) (0.0) Total 959.0 81.6 37.1 55.1 1,132.8 (357.2) (29.2) (13.5) (0.0) (400.0)

/a Other includes national competitive bidding and international shopping and limited international bidding, and consultants and training. /b NBF: Not Bank-financed. /c Selection of consultants according to the Bank's guidelines. L Expressway civil works contracts in Guangdong include several short sections of interconnecting roads totaling about 2 km in the amount of Y 10 million.

Notes: (1) Figures in parentheses represent the amounts financed by the Bank Group. (2) All figures are rounded and include estimated physical and price contingencies but exclude the cost of land acquisition and resettlement which is shown separately.

4.59 Other works, including interconnecting roads in Hunan and small service facilities such as toll stations, maintenance depots, service and rest areas, and administrative buildings in Hunan and Guangdong would be awarded following NCB procedures acceptable to the Bank. These works would involve contracts estimated to cost less than - 46 -

$10 million per contract, up to an aggregate amount not to exceed $57.0 million for Hunan and $24.6 million for Guangdong. Since these contracts are small in value and scattered along XLE and XGE and would be implemented over a four-year period, ICB would be neither justified nor practical, but international firms would not be precluded from bidding.

4.60 Equipment. Generally, all contracts for goods and equipment costing more than $250,000 equivalent would be awarded under ICB. However, for equipment where the number of suppliers is small, limited international bidding would be followed, in an aggregate amount not exceeding $2 million for each province. All other items or groups of items covering minor maintenance equipment, equipment for RDB and PMS, laboratories, research and environmental protection purposes estimated to cost less than $250,000 per contract package, in an aggregate amount not exceeding $3 million for each province, would be procured following international shopping procedures on the basis of comparison of price quotations solicited from at least three suppliers from at least two countries eligible under the Bank Guidelines for Procurement. Domestic manufactures competing under ICB would be eligible for a margin of preference in the comparison of bids of 15 percent for goods, or the prevailing custom duties, whichever is lower.

4.61 Consultants. All consultants required for construction supervision (in the amount of $23.4 million), staff training ($4.1 million), technical assistance and studies ($1.7 million) would be selected and employed under terms and conditions acceptable to the Bank in accordance with Bank Guidelines on the Use of Consultants. Local expertise available in the various provincial universities and institutes in the highway sector would be used as much as possible.

4.62 Advance Contracting. HPCD and GPCD have requested advance contracting and retroactive financing in the following areas:

(a) Consultants for Construction Supervision of XLE and XGE. This would allow for training of local staff and startup of construction supervision by the time contracts are signed with contractors. The amounts subject to retroactive financing are estimated at $1 million each for Hunan and Guangdong.

(b) Laboratory Equipment for Joint Local/Foreign Supervision Teams. This would permit effective and timely construction supervision. The amounts subject to retroactive financing are estimated at $0.2 million each in Hunan and Guangdong.

(c) Construction of Xiangtan-Leiyang Expressway (XLE). Early start of construction of the 2x2-lane, 169-km XLE would help alleviate severe traffic bottlenecks and reduce traffic in the heavily trafficked Xiangtan- Zhuzhou-Hengyang-Leiyang corridor. The amount subject to retroactive financing is estimated at $15 million for Hunan. - 47 -

(d) Construction of Xiangtan-Zhuzhou Highway (XZH). Early completion of this 2x2-lane, 16-km long highway would also help alleviate severe traffic bottlenecks and reduce traffic accidents on this heavily trafficked road. The amount subject to retroactive financing is estimated at $3 million for Hunan.

4.63 Agreement to the above four requests for advance contracting and retroactive financing is recommended, subject to HPCD and GPCD completing all Bank requirements, including those for procurement, environment, and resettlement. The total amount subject to retroactive financing is estimated at about $20.4 million, well below the 10 percent limit of the proposed $400 million loan. All of this amount would apply to expenditures after June 30, 1996.

4.64 Bank Review. Prior review procedures would be used for: (a) civil works contracts with an estimated cost of $2 million (Y 17 million) or more; (b) equipment with an estimated value of more than $250,000 per contract, and (c) consulting services with an estimated contract cost of more than $100,000 for firms and $50,000 for individuals. This represents about 83 percent and 78 percent of the estimated value of works and equipment contracts, respectively. For contracts below the above-mentioned limits, post- review procedures would be followed.

M. DISBURSEMENTS

4.65 The proposed Bank loan of $400 million would be disbursed over a period of about five years, as shown in the table below. To facilitate disbursements, two Special Accounts would be opened, one in Hunan and one in Guangdong, with an authorized allocation of $14 million in Hunan and $14 million in Guangdong, the estimated average expenditures for a four-month period. The accounts would be opened in US dollars in local banks acceptable to the Bank and would be managed by the Hunan and Guangdong Provincial Finance Bureaus. Applications for replenishment of the Special Accounts would be submitted monthly or whenever the Special Account is drawn down to 50 percent of its initial deposit, whichever comes first. A schedule of estimated disbursements is given in Table 4.5, which takes into consideration the project disbursement profile for transport projects in China and the potential risks of delay in project implementation.

4.66 Disbursements would be made against authorized payment requests for work done under priced contracts for the civil works and for the delivery and installation of the equipment. Interim certification of civil works completed and estimated at unit rates in the contracts would be prepared by the contractors, reviewed by the supervision teams/units and payments authorized by the Hunan and Guangdong PCDs. Retroactive financing of up to $19.2 million in Hunan and $1.2 million in Guangdong (5 percent of total loan amount) would be applied to expenditures made after June 30, 1996, for consultants for construction supervision of XLE and XGE, laboratory equipment for joint local/foreign supervision teams in Hunan and Guangdong, and construction of Xiangtan- - 48 -

Leiyang expressway and Xiangtan-Zhuzhou highway. Disbursements for staff training in China or abroad would be made against the actual costs of travel, subsistence, and tuition or training fees. For expenditures relating to contracts for works of $2 million equivalent or less, training, and contracts for goods, each valued at $250,000 equivalent or less, and contracts for services each valued at $100,000 equivalent or less for firns and $50,000 equivalent or less for individuals, reimbursement would be made on the basis of Statements of Expenditures (SOEs). Documentation supporting SOEs would be retained by the implementation agencies and made available for review by the Bank supervision missions.

ESTIMATED DISBURSEMENTS

Category Amount of the Percent of Expenditures to be Financed Loan Allocated (S million)

Civil works Guangdong expressway section 129.7 34% of total expenditures Hunan expressway section 134.6 48% of total expenditures Hunan interconnecting roads 10.0 48% of total expenditures Hunan other roads 16.0 48% of total expenditures Electrical and mechanical works Guangdong E&M works 39.3 80% of total expenditures Hunan E&M works 9.0 80% of total expenditures Construction supervision Guangdong supervision 2.1 100% Hunan supervision 2.2 100% Equipment Guangdong equipment 7.7 100% of foreign expenditures for directly Hunan equipment 6.8 imported equipment or 100% of local expenditures (ex-factory) for locally manu- factured equipment and 75% of local expen- ditures for other items procured locally Guangdong training 1.0 100% Guangdong TA/Studies 0.2 100% Hunan training 1.0 100% Hunan TA/Studies 0.4 100% Guangdong unallocated 20.0 Hunan unallocated 20.0 Total 400.0

N. AUDITING

4.67 The Foreign Investment Audit Bureau of the State Auditing Administration (SAA) would be responsible for auditing the project expenditures. Actual audits would be carried out for SAA by the Hunan and Guangdong Branches of SAA or the Hunan and Guangdong Provincial Audit Administrations. Assurances were obtained from Hunan -49 -

Province and Guangdong Province during negotiations that the project accounts and the Special Accounts, including SOEs, shall be audited annually by independent auditors acceptable to the Bank and that audit reports would be sent to the Bank for review within six months of the close of each fiscal year. In the case of the SOEs, the audit reports would contain a separate opinion by the auditors as to whether the SOEs submitted during the fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. The Bank Group currently accepts SAA audits for this purpose.

0. PROJECTSUPERVISION, MONITORING, AND REPORTING

4.68 Supervision. The project would be supervised through Bank missions whose frequency would be guided by the progress of the works. However, on the average, a mission at about nine-month intervals would be mounted; a Supervision Mission Plan is presented in Annex 6. In addition to field missions, staff input would be provided at headquarters for project-related activities comprising, inter alia, supervision reports, procurement documentation and contracts, staff training and equipment, and follow-up and review of the agreed studies, as well as for efforts related to coordination between the two project provinces. Moreover, the Bank would monitor progress of implementation of all project components through quarterly progress reports to be submitted to the Bank independently by HPCD and GPCD on their respective project components. In addition, both PCDs would submit to the Bank monthly reports on works progress for XLE, LLH, XZH, and XGE. It is estimated that over the implementation period of the project, the total time expended on supervision would be in the order of 100 person-weeks.

4.69 Monitoring. During implementation, project performance, including the achievement of physical targets and attainment of other project objectives would be monitored by HPCD, HPECDC, GPCD, and GPFC through the use of performance indicators, reports on the environment and land acquisition and resettlement, progress reports and auditing of project accounts. In addition, upon completion, the project will be reviewed in an Implementation Completion Report. Annex I presents the outline monitoring plan for the project. Each of the project components indices will track annual progress in attaining targets during implementation and impact objectives after the project is completed. Assurances were obtained at negotiations that Hunan Province and Guangdong Province shall, on the basis of performance indicators acceptable to the Bank, prepare and furnish to the Bank a quarterly report, and by June 30 of each year commencing in 1997 and ending three years after completion of the project, an annual monitoring report, in a format acceptable to the Bank, covering all components of the project and assessing the extent to which different implementation and development impact objectives are being attained in the course ofproject execution and operation.

4.70 Reporting. Based on the monitoring activities described in Annex 1, HPCD and GPCD will submit to the Bank an annual monitoring report. This report will be based on the following reports, which will be submitted to the Bank during the course of a given year: - 50 -

(a) A series of internal and external (independent) monitoring reports assessing the impact of land acquisition and resettlement on various segments of the local population, describing the income restoration strategies followed and the number of people rehabilitated (Annexes 4a andA4);

(b) Annual environmental monitoring reports during the construction phase and the first three years of the operation phase of the XLE, LLH, XZH, and XGE (Annex 1);

(c) Annual audit reports for the project accounts and financial statements (para. 4.67);

(d) Quarterly progress reports for all project activities (including highway safety) and up-to-date performance indicators (para. 4.69);

(e) Reports, by an independent agency/expert, on the completion of the Guangdong and Hunan highway safety components within six months of the completion of these component; and

(f) A Project Implementation Completion Report would be prepared and submitted to the Bank not later than six months after the loan closing date. - 51 -

5. ECONOMIC EVALUATION

5.1 The economic evaluation focuses mainly on the following two segments of the Guangdong-Hunan expressway corridor that the Chinese authorities intend to complete by the year 2000: (a) Xiangtan-Leiyang segment (168.8 km) in southern Hunan, and (b) Xiaotang-Gantang segment (108.7 km) in northern Guangdong. Both segments would be financed by the Bank under the proposed NH2 Project and would account for over 91 percent of the project base cost. To assess the overall feasibility of the planned expressway corridor, the entire Guangzhou-Changsha corridor was also analyzed. The corridor comprises the two segments described above plus three other segments, under construction or to be financed by other sources, with a total length of 659.0 km. Additionally, the construction of Loudi-Lianyuan highway and of Zhuzhou-Xiangtan highway in Hunan was also evaluated which both account for 6 percent of the project base cost.

A. EVALUATIONOF THE EXPRESSWAYS

5.2 Benefits and Beneficiaries. The proposed expressway corridor passes through the provinces of Hunan and Guangdong. This region now enjoys large economic and regional advantages and strategic importance, being the central axis for distribution of productive forces, with abundant natural resources and well-developing economies, functioning as an important traffic corridor between Beijing and Hong Kong. However, as the rapid development of the economy in the region has stimulated a rapid growth of increasing numbers of vehicles passing through the region from neighboring cities as well as provinces, transportation in this region has become a bottleneck to the development of the national economy and society, with, in general, poor transport facilities, saturated railway lines, traffic congestion on highways, and the withering of water transport. Thus, it is urgent to build an expressway connecting Hunan and Guangdong, and particularly the segment between Xiangtan and Leiyang in Hunan, to link up with the south and north transportation in Hunan and the segment between Xiaotang and Gantang in Guangdong to link up Guangdong Province with the inland provinces.

5.3 The major quantifiable benefits of the project are the reduction on vehicle operating costs and time costs of road users. The expressways will have shorter lengths, improved surface conditions and riding comfort, improved geometry, reduced traffic interference, and better safety facilities than the existing roads. Therefore, most of the long-distance traffic and some of the local traffic is expected to divert from the existing roads to the new expressways, reducing the vehicle operating and time costs for the future expressways users. Because many users will take the expressways, there will be a reduction in the current congestion levels on the existing roads. Thus, traffic that continues to use the existing roads will also benefit in the form of time savings due to the - 52 - resulting higher travel speeds on the existing roads. Other quantified project benefits are due to the traffic that is generated as a result of the lowering of transport costs and which previously did not exist on the existing roads or is existing on other transport modes such as rail, inland water and air. The newly generated traffic includes traffic resulting from increased industrial and agricultural production. Other project benefits that have not been quantified are the reduction in accident costs, the generated traffic on the existing roads due to the reduction of the current congestion levels, and the positive effects on non- motorized traffic that uses the existing roads.

5.4 The HDM Model. The project benefits described above were estimated using the 1995 version of the Highways Design and Maintenance Standards Model (HDM) developed by the World Bank as a result of 17 years of research and analysis carried out collaboratively by the Bank and major research institutions around the world. The HDM model is widely used to analyze the economic consequences of road projects. It predicts, for a user-defined set of vehicles and traffic levels, the vehicle operating costs and travel time costs on a given roadway as a function of the vehicle characteristics, roadway geometry, roadway surface condition (roughness), and congestion level. The model first computes the free-flow vehicle speeds as a function of the road and vehicle characteristics and, using these speeds, it computes the actual speeds as a function of the congestion level. The computed actual speeds are then used to estimate the physical quantities of resource consumption (for example, liters/km of fuel consumption or hours of delay) that are multiplied by unit costs to finally obtain the road user costs.

5.5 Data Collection. Data were collected on vehicle fleet characteristics, utilization and unit costs, and typical road maintenance operations unit costs. The vehicle and maintenance data were collected from Guangdong and Hunan Provinces separately. The analysis has shown that the data from the two provinces were similar and could be combined to yield a unique and high quality set of vehicle and maintenance data that could be used for the economic evaluation for both provinces. Table 5.1 shows the resulting vehicle and maintenance input data used in the economic evaluation. The average number of passengers for buses is 40 and the average payload is 3 tons for medium trucks and 11 tons for heavy trucks. The number of kilometers driven per year is 65,000 for buses, 50,000 for medium trucks and 75,000 for heavy trucks. The economic costs were derived from financial costs by deducting taxes and duties, and the value of time was estimated to be Y 1.00/hour calculated on the basis of annual income for the region and conservatively assuming that 25 percent of passengers are traveling on work/ business purposes.

5.6 Data describing the existing road characteristics and their current traffic were also collected in the field. Table 5.2 shows the data collected for each expressway section. For the economic evaluation, the two expressway's segments to be financed by the Bank were subdivided into three sections, each to take into account different traffic levels, design standards and construction costs. The number of expressway sections identified and evaluated for the entire corridor between Changsha and Guangzhou is nine. Each expressway section captures the traffic currently on a network of existing roads, which is - 53 - represented in the analysis by a representative existing road based on the data collected in the field. The expressways would be constructed to four-lane standard with access restricted to normal motor traffic; thus, agricultural tractor and nonmotorized traffic would be excluded. Due to differences in topography, the average construction cost is Y 20 million per km in Hunan and Y 40 million per km in Guangdong. The existing roads have an average road width of 12 m in Hunan and 8.5 m in Guangdong; and the average gradients are around 3 percent in Hunan and 5 percent in Guangdong. The average distance savings will be I0 percent in Hunan and 17 percent in Guangdong.

5.7 Projected Traffic. Comprehensive origin-destination (O-D) surveys were conducted in the two provinces, covering 43 influence areas in Hunan and 18 in Guangdong, that provided a good basis for estimating the diverted and the generated traffic. The survey revealed the following: (a) the current average daily traffic (ADT) is on average around 10,000 vehicles per day in Hunan and 7,500 vehicles per day in Guangdong; (b) trucks constitute about 85 percent of ADT; (c) medium trucks represent about 40 percent of ADT and heavy trucks represent 17 percent of ADT; (d) current measured vehicle speeds during the most congested hours are about 35 km/hour in Hunan and about 15 km/hour in Guangdong; (e) current measured vehicle speeds at night are about 55 km/hour in Hunan and 40 km/hour in Guangdong; (f) the expected speeds on the expressways are 80 km/hour in Hunan and 70 km/hour in Guangdong; and (g) traffic in the peak hour is about 7 to 8 percent of the average daily traffic.

5.8 On the basis of the O-D surveys, the diversion of traffic from the existing roads was estimated to be about 74 percent for Hunan and 55 percent for Guangdong; and the generated traffic to be about 3 percent of the current traffic in both provinces. Based on the expected economic growth in the area of influence, traffic is projected to increase at the following annual rates for the period 1996-2005: 10 percent for cars in both provinces, 7 percent for commercial vehicles in Hunan, and 14 percent for commercial vehicles in Guangdong. For the period 2006 to 2019, the growth rate is set at 6 percent for all vehicles in both provinces.

5.9 Methodology. For each expressway section, the unit road-user costs, in Yuan per vehicle-km, were estimated using the HDM model for vehicles traveling on the expressway and the representative existing road based on the vehicle data shown in Table 5.1 and on the road data shown in Table 5.2. A sample of these unit costs is given in Table 5.3. The road-user costs are a function of the congestion level of a road. Therefore, they were computed for a series of traffic levels, and a relationship between road-user costs and traffic was established for each road. This relationship was then introduced into a customized economic evaluation model created on an Excel spreadsheet.

5.10 The Excel model estimates the benefits due to the diverted and generated traffic on the expressways and the remaining traffic on the existing roads. For the diverted traffic, the benefits were taken to be the reduction in total transport costs; and for the generated traffic, the benefits were taken to be one half of the unit benefits of the diverted - 54 - traffic, assuming the traffic would have developed in proportion to the reduction in transport costs. The Excel model takes as inputs the unit road user costs given by HDM for the "with" and "without" project cases, the length of the expressway and the existing road, the construction and maintenance costs, and the traffic assumptions; and gives as outputs the rate of return and the net present value, at a discount rate of 12 percent, of the proposed project. The expressways are assumed to be constructed in 4 years, opening to traffic in 2000; the economic life of the expressways was assumed to be 20 years (2000- 2019), and the residual value to be 50 percent of the initial construction cost. Table 5.4 shows, as an example, the resulting outputs for the Xiaotang-Daqiao section.

5.11 Results. The following table presents the resulting Economic Internal Rate of Return (EIRR) and Net Present Value (NPV) (at 12 percent discount rate in Y million) obtained for each expressway section, each segment to be financed by the Bank, and the entire corridor. None of the sections evaluated obtained an EIRR below 12 percent. The sections with lower EIRRs are the ones with higher construction costs within each province and the section with the highest EIRR, Honghshi-Leiyang in Hunan with 34.2 percent, is the section with the lowest construction costs and high distance savings of 24 percent. The EIRR of the segments to be financed by the Bank is 26.3 percent for the Hunan segment and 18.1 percent for the Guangdong segment yielding a combined EIRR of 22.1 percent. Compared with the segment in Hunan, the segment in Guangdong, has higher construction costs, lower traffic, and a lower traffic diversion rate. The EIRR for the entire corridor is 19.6 percent. Graphs 5.1 to 5.4 present the diverted traffic to the expressway sections in year 2000, the distance savings, the construction costs per kilometer, and the resulting EIRR for each section being evaluated.

Province Section EIRR(%) NPV (Y million) Hunan Changsha-Majiahe/a 15.6 366 MajiaheLa-Xintang 19.5 1,020 Xintang-Honghshi 28.8 1,476 Honghshi-Leiyang 34.2 2,380 Leiyang-Xiaotang 14.1 507 Guangdong Xiaotang-Daqiao 19.1 981 Daqiao-Ruyuan 18.2 731 Ruyuan-Gantang 16.5 399 Gantang-Taihe/b 29.7 5,664 Bank-Financed Segments Hunan Majiahe1a-Leiyang 26.3 4,976 Guangdong Xiaotang-Gantang 18.1 2,111 HunanlGuangdong Majiahela-Leijang& 22.1 7,087 Xiaotang-Gantang Entire Corridor Hunan/Guangdong Changsha-Taihel2 19.6 13,624

La Majiaheis Xiangtan-Majiahe. /b Taiheis GuangzhouNorthern Ringroad. - 55 -

5.12 Sensitivity Tests. Table 5.5 presents the results of the sensitivity tests. In the first sensitivity case, construction costs are increased by 15 percent; in the second case, user benefits are reduced by 15 percent; and in the third case, construction costs are increased by 15 percent and user benefits are reduced by 15 percent. The results of the third case indicate that both segments financed by the Bank would be economically justified even if this pessimistic scenario occurs. The EIRR of the Hunan segment would be 22.2 percent, the EIRR of the Guangdong segment would be 15.0 percent and the combined EIRR would be 18.6 percent. In this case, the lower EIRR obtained is 11.4 percent for the Leiyang-Xiaotang section in Hunan.

5.13 The fourth sensitivity test eliminates the value of time and yields a small reduction on the resulting EIRRs. In this case the combined EIRR for the two expressway sections is 20.7 percent and for the entire corridor EIRR is 18.4 percent, which confirms the low value of and the low percentage of cars in the traffic composition. The fifth sensitivity test eliminates the generated traffic and yields a negligible reduction in the resulting EIRRs. In this case the combined EIRR is 21.9 percent and the entire corridor EIRR is 19.3 percent, which indicates the low percentage of generated traffic adopted in the analysis. The final sensitivity test reduces drastically the diverted traffic to 50 percent of the estimated values. In this case, the combined EIRR for both expressway sections is 15.9 percent and the entire corridor EIRR is 13.6 percent, which indicates that the project expressways and the corridor are economically justified even under this pessimistic scenario.

5.14 Risk Analysis. A risk analysis for the Bank financed segments and for the entire corridor was undertaken using the @RISK software that adds risk analysis capabilities to an Excel spreadsheet following the methodology that is explained briefly in Table 5.6. For this analysis, all the input estimates defined in the previous paragraphs were adopted and the uncertainty for the following inputs was defined using a triangle distribution: (a) the construction costs, (b) the diverted traffic from the existing roads to the expressways, (c) the generated traffic, and (d) the traffic growth rate.

5.15 For the construction costs, the most likely value was set to the estimated construction costs, the most likely minimum value was set to be 90 percent of the estimated construction costs, and the most likely maximum value was set to be 140 percent of the estimated construction costs. These assumptions indicate that there is a higher probability that the construction costs will be higher rather than lower than the estimated value. For the other three traffic related inputs, the most likely value was set to the estimated values, the most likely minimum value was set to be 60 percent of the estimated values, and the most likely maximum value was set to be 1 10 percent of the estimated values. These assumptions indicate that there is a higher probability that the traffic related assumptions will be lower rather than higher than the estimated values.

5.16 With this information, the @RISK software evaluated 400 what-if scenarios, varying the construction costs and traffic assumptions accordingly to the defined input probability distributions, yielding an estimated EIRR for each what-if scenario. Graphs - 56 -

5.5 to 5.10 show the resulting probability distributions for the following cases: (a) the input multiplier for the construction costs, (b) the input multiplier for the traffic assumptions, (c) the output EIRR for the Bank-financed Majiahe-Leiyang segment in Hunan, (d) the output EIRR for the Bank-financed Xiaotang-Gantang segment in Guangdong, (e) the output EIRR for both segments financed by the Bank, and (f) the output EIRR for the entire corridor. Finally, the following table presents, for the segments analyzed with risk analysis, the following: (a) the resulting mean EIRR, (b) the EIRR standard deviation, and (c) the probability (in percent) that the EIRR will be lower than 12 percent.

Province Segment Mean EIRR EIRR STD P<12%

Hunan Majiahe-Leiyang 22.7 2.1 0.0 Guangdong Xiaotang-Gantang 15.1 1.7 4.2 Hunan/Guangdong Majiahe-Leiyang & 18.9 1.9 0.0 Xiaotang-Gantang Hunan/Guangdong Entire Corridor 16.5 1.8 1.6

5.17 Conclusion. Both the single point estimation of the Excel model and the risk analysis performnedby @RISK indicate that the rates of return obtained for the segments to be financed by the Bank and for the entire corridor are greater than 12 percent even under the most pessimistic scenarios. Therefore, both the project expressways and the entire corridor are economically justified.

B. EVALUATION OF OTHER HIGHWAYS

5.18 Loudi-Lianyuan. The proposed highway from Loudi to Lianyuan would link Loudi city and Lianyuan city in central Hunan, an area that is endowed with abundant mineral resources. The Loudi-Lianyuan highway and the Loudi- highway which is under construction will together connect with the provincial capital, Changsha, and will become an important east-west transport connection in central Hunan. The existing roads that are related to this project have substandard alignment and pavement conditions, and carry large traffic volumes leading to serious traffic congestion. The proposed highway will be a 58.8-km class II, auto-only road with a design speed of 80 km/hr and a road width of 2x6 m.

5.19 It is estimated that the project cost is Y 296 million, the distance saving is 10 km, and the traffic on the highway after completion will be 3,700 vehicles per day. The traffic on the existing roads at the completion of the highway is estimated to be 500 vehicles per day and without the highway 3,800 vehicles per day. The resulting economic evaluation yields a net present value of Y 200 million and a rate of return of 20.7 percent. The sensitivity tests indicate that the rate of return is 18.8, 18.6, and 16.8 - 57- percent, respectively, for the following cases: (a) costs are increased by 15 percent, (b) user benefits are reduced by 15 percent, and (c) costs are increased by 15 percent and user benefits are reduced by 15 percent. Therefore, the highway is economically justified.

5.20 Zhuzhou-Xiangtan. The proposed highway from Zhuzhou to Xiangtan would link the two cities and also directly connect with Xiangtan-Leiyang expressway, assuming an important role in strengthening highway development in the "Golden Triangle" between Changsha, Zhuzhou, and Xiangtan. The proposed highway will be a 16.1-km, 2x2 lanes, first-class highway with a design speed of 100 km/hr and a road width of 24.5 m.

5.21 It is estimated that the project cost is Y 101 million, the distance saving is 15 km, and the traffic on the highway after completion will be 5,400 vehicles per day. The traffic on the existing roads at the completion of the new highway is estimated to be 1,500 vehicles per day and without the highway 6,600 vehicles per day. The resulting economic evaluation yields a net present value of Y 453 million and a rate of return of 47.0 percent. The sensitivity tests indicate that the rate of return is 43.4, 42.8, and 39.5 percent, respectively for the following cases: (a) costs are increased by 15 percent, (b) user benefits are reduced by 15 percent, (c) costs are increased by 15 percent and user benefits are reduced by 15 percent. Therefore, the highway is economically justified.

C. OVERALLPROJECT ECONOMIC EVALUATION

5.22 The overall project, which includes the expressway sections in Hunan and Guangdong and the other highways in Hunan, yields a net present value of Y 7,733 million and a rate of return of 22.4 percent. - 58 -

6. AGREEMENTS REACHED AND RECOMMENDATION

6.1 Agreements were reached with the Borrower (the People's Republic of China) at negotiations that it would onlend the proceeds of the loan to Guangdong and Hunan Provinces on the same terms as those of the Bank loan to it: 20 years, including 5 years of grace, at the same rate payable to the Bank by the Borrower, with 0.75 percent per year commitment fee on the outstanding balance, beginning 60 days after signing, less any waiver (para. 4.48).

6.2 During negotiations, assurances were obtained that:

(a) Hunan Province and Guangdong Province shall employ and maintain construction supervision teams on XLE, LLH, XZH and XGE, as applicable, with qualified staff in adequate numbers to ensure that all works are carried out in accordance with technical specifications and that strict quality controls are exercised on all sites. Construction quality shall also be monitored through routine project supervision and monthly and quarterly progress reports (paras. 4.22 and 4.23);

(b) Hunan Province shall: (i) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to guide a study of highway maintenance management and provide comments on the results and recommendations thereof; (ii) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank and furnish a draft final report thereof to the said Leading Group and the Bank for review and comments; (iii) furnish the final report of said study, taking into account comments made by the Leading Group and the Bank, to the Bank not later than six months following receipt of comments made by the Bank on said draft final report; and (iv) thereafter, take all appropriate steps to implement the recommendations set out in said final report (para. 4.24);

(c) Hunan Province shall, by June 30 of each year commencing in 1997 and ending in 2001, furnish an annual highway condition report for the Bank's review and comments for the previous year, which shall: (i) show the length of each class of highway by condition (excellent, good, fair and bad) as of December 31 of the previous year; (ii) show the completed physical works and actual expenditures of the previous year against the planned physical targets and budgeted funds of that year, for new construction, upgrading/ improvement, rehabilitation, periodic maintenance, and routine maintenance; and (iii) show the targets of the highway program for the following year, including new construction, - 59 -

upgrading/improvement, rehabilitation, periodic maintenance, and routine maintenance, in terms of planned physical works and planned expenditures (para. 4.25);

(d) Hunan Province shall: (i) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to guide a study on commercialization of expressways and provide comments on the results and recommendations thereof; (ii) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank and furnish a draft final report thereof to the said Leading Group and the Bank for review and comments; (iii) furnish the final report of said study, taking into account comments made by the Leading Group and the Bank, to the Bank not later than six months following receipt of comments made by the Bank on said draft final report; and (iv) thereafter, take all appropriate steps to implement the recommendations set out in said final report (para. 4.26);

(e) Hunan Province shall: (i) establish a Leading Group comprising representatives of the concerned provincial agencies to associate with TES and to incorporate road safety issues into the agenda of its annual meetings, starting in 1997, and organize an annual road safety seminar in Hunan starting 1998; (ii) develop, through TA, a manual on safety during roadworks, a safety audit schedule, and a program of selected black-spot analysis and improvement along NR 107, and by June 30, 1999, complete the said three TA components in accordance with TOR satisfactory to the Bank, (iii) furnish the TA results to the Leading Group and the Bank for review and comments; and (iv) thereafter, take all appropriate steps to implement the recommendations of the said TA components, taking into account the comments thereon of the said Leading Group and the Bank (para. 4.27);

(f) Guangdong Province shall: (i) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to guide a study on transport and economic integration in Guangdong and provide comments on the results and recommendations thereof; (ii) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank and furnish a draft final report thereof to the said Leading Group and the Bank for review and comments; (iii) furnish the final report of said study, taking into account comments made by the Leading Group and the Bank, to the Bank not later than six months following receipt of comments made by the Bank on said draft final report; and (iv) thereafter, take all appropriate steps to implement the recommendations set out in said final report (para. 4.28);

(g) Guangdong Province shall: (i) by June 30, 1997, establish a Leading Group comprising representatives of the concerned provincial agencies to - 60 -

guide a study of expressway safety in Guangdong and provide comments on the results and recommendations thereof; (ii) by June 30, 1999, carry out said study in accordance with TOR satisfactory to the Bank and furnish a draft final report thereof to the said Leading Group and the Bank for review and comments; (iii) furnish the final report of said study, taking into account comments made by the Leading Group and the Bank, to the Bank not later than six months following receipt of comments made by the Bank on said draft final report; and (iv) thereafter, take all appropriate steps to implement the recommendations set out in said final report (para. 4.29);

(h) Hunan Province and Guangdong Province shall, by June 30 of each year and commencing in 1997, furnish a rolling two-year training implementation program to the Bank for approval and shall carry out the training under the approved program (paras. 4.30 and 4.31);

(i) the environmental protection measures stipulated in the EAPs with respect to XLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roads shall be carried out by Hunan Province and Guangdong Province in a manner satisfactory to the Bank; and Hunan Province and Guangdong Province shall each furnish to the Bank annual environmental monitoring reports for XLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roads during their construction phases and for each of the first three years following their construction completion (para. 4.37);

(j) all land acquisition and resettlement activities with respect to XLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roads shall be completed by Hunan Province and Guangdong Province in accordance with RAPs in a manner satisfactory to the Bank (para. 4.40);

(k) the monitoring of the effectiveness and socioeconomic impact of the resettlement activities with respect to XLE and its interconnecting roads, LLH, XZH, and XGE and its interconnecting roads shall be carried out by Hunan Province and Guangdong Province in accordance with RAPs in a manner satisfactory to the Bank (para. 4.42);

(I) Hunan Province and Guangdong Province shall undertake, and by December 31, 2000, furnish to the Bank for its review and comments, analyses and recommendations for the structure of toll rates on the XLE and XGE, respectively, taking into consideration the results of the toll rate structures under Bank-financed highway projects in China and the recent experience with tolls on high-grade highways in Hunan, Guangdong and other parts of China (para. 4.54); - 61 -

(m) The project accounts and the Special Accounts, including SOEs, shall be audited annually by independent auditors acceptable to the Bank and that audit reports shall be sent to the Bank for review within six months of the close of each fiscal year (para. 4.67); and

(n) Hunan Province and Guangdong Province shall, on the basis of performance indicators acceptable to the Bank, prepare and furnish to the Bank a quarterly report, and by June 30 of each year commencing in 1997 and ending three years after completion of the project, an annual monitoring report, in a format acceptable to the Bank, covering all components of the project and assessing the extent to which different implementation and development impact objectives are being attained in the course of project execution and operation (para. 4.69).

6.3 Subject to the foregoing, the proposed project would be suitable for a US Dollar Single Currency Bank Loan of $400 million to the People's Republic of China. The loan would be for a term of 20 years, including a grace period of 5 years, at the Bank's standard variable interest rate for LIBOR-based US dollar denominated single currency loans. TABLE 3.1: HUNAN AND GUANGDONG: COMPARISONOF FREIGHT AND PASSENGERVOLUMES BY MODE, 1985 AND 1994

HUNAN GUANGDONG A. FreightTnraffic

1985 1994 Compound 1985 1994 Compound Proportion Proportion annual growth Proportion Proportion annualgrowth Transport Tons of total Tons of total rate (/), Transport Tons of total Tons of total rate (%), mode ('000) traffic (/.) ('000) traffic(%/0) 1985-94 mode ('000) traffic (°/e) ('000) traffic(%/) 1985-94

Rail 42,180 12.8 49,290 10.2 1.7 Rail 34,400 8.7 69,710 8.0 8.2 Road 256,990 78.1 399,120 82.4 5.0 Road 226,100 57.2 463,440 53.1 8.3 Waterway 29,450 9.0 35,260 7.3 2.0 Waterway 134,400 34.0 338,780 38.8 10.8 Air 0 10 0.0 29.2 Air 40 0.0 200 0.0 19.6 Pipeline 400 0.1 350 0.1 -1.5

Total 329,020 100.0 4S4,030 100.0 4.4 Total 394,940 872,130 9.2

B. PassengerTrsffic

1985 1994 Compound 1985 1994 Compound Proportion Proportion annual growth Proportion Proportion annual growth Transport Passengers of total Passengers of total rate(%), Transport Passengers of total Passengers of total rate (%), mode ('000 traffic(I/.) ('000 traffic (%) 1985-94 mode ('000 traffic(°/) ('000 traffic (%/6) 1985-94

Rail 46,860 9.6 41,760 6.4 -1.3 Rail 35,300 6.6 69,200 7.5 7.8 Road 415,200 85.3 590,260 91.2 4.0 Road 468,400 87.5 827,060 89.3 6.5 Water 24,580 5.1 14,810 2.3 -5.5 Water 29,400 5.5 19,420 2.1 -4.5 Air 20 0.0 720 0.1 48.9 Air 2330 0.4 10,330 1.1 18.0

Total 486,660 100.0 647,550 100.0 3.2 Total 535,430 926,010 6.3

Source:Hunan Provincial Communications Departments. Source:Guangdong Provincial Communications Departments. TABLE 3.2A: HUNAN HIGHWAY REVENUES AND EXPENDITURES, 1986-95 (Y million)

7FYP 8FYP 1986 1987 1988 1989 1990 Total 1991 1992 1993 1994 1995 Total

REVENUES Road maintenance fee 395 421 441 460 465 2,182 487 523 632 678 750 3,070 Highway Key Construction Plan 0 0 8 15 105 128 115 220 364 391 490 1,580 Capital construction (subsidy) Central govermment(MOC) 35 54 70 120 75 354 32 35 166 275 232 740 Local govermment 0 0 8 16 20 44 23 35 165 365 382 970 National Aid-Poverty Highway Subsidy 8 9 11 11 13 52 14 15 18 41 42 130 Domestic Loan 0 0 0 0 0 0 0 0 100 324 256 680 Foreign Bank loans 0 0 0 0 0 0 0 0 0 120 250 370 Other foreign capital 0 0 0 0 0 0 0 0 0 0 330 330 Total 438 484 538 622 678 2,760 671 828 1,445 2,194 2,732 7,870

EXPENDITURES Construction and Improvement Expressway 0 0 50 85 181 316 188 245 312 618 884 2,247 Other national & provincial roads & bridges 230 258 217 229 160 1,094 153 177 591 928 1,066 2,915 Aid-Poverty Roads 14 14 15 23 24 90 25 34 45 105 150 359 Routine maintenance 96 110 122 137 143 608 156 165 209 215 245 990 Periodic maintenance 51 59 72 72 92 346 69 97 142 162 204 674 Overhead and others 47 43 62 76 78 306 80 109 145 166 172 672 Loan interest and amortization Total 438 484 538 622 678 2,760 671 827 1,444 2,194 2,721 7,857

Source: Hunan Provincial Communications Departnent. TABLE 3.2B: GUANGDONGHIGHWAY REVENUES AND EXPENDITURES, 1986-95 (Y million)

7FYP 8FYP 1986 1987 1988 1989 1990 Total 1991 1992 1993 1994 1995 Total

REVENUES Road maintenance fee 790 937 1,181 1,412 1,537 5,856 1,625 1,872 2,384 3,806 4,518 14,206 Transfer to Central govenmnent 0 0 0 0 0 0 0 0 0 0 0 0 Transfer to public security 21 25 31 37 40 154 43 49 49 63 100 374 Remaining road maintenance fee 769 912 1,150 1,375 1,497 5,702 1,582 1,823 2,335 3,743 4,418 13,832 Highway Key Construction Plan 123 173 232 299 400 1,226 779 1,250 1,867 2,963 4,049 10,907 Capital construction (subsidy) Central government (MOC) 59 60 55 88 76 338 100 150 200 250 300 1,000 Local govermment 353 407 401 431 451 2,042 472 502 522 552 572 2,620 Domestic Loan 250 255 150 140 150 945 260 300 280 250 200 1,290 Foreign Bank Loans Other foreign capital Total 2,364 2,768 3,200 3,780 4,151 10,253 4,861 5,947 7,636 11,628 14,157 29,649 EXPENDITURES Construction and Improvement Expressway 30 100 120 205 106 561 490 631 810 906 1,004 3,841 Other national & provincial roads & bridges 959 1,175 1,268 1,460 1,605 6,466 1,535 2,002 2,429 4,079 4,953 14,998 Aid-Poverty Roads 8 9 10 12 12 51 180 260 510 1,010 1,510 3,470 Routine maintenance 274 219 223 257 268 1,241 291 368 427 648 804 2,538 Periodic maintenance 71 99 76 91 119 456 132 153 230 360 502 1,377 Overhead and others 170 172 214 421 361 1,337 406 420 583 687 696 2,792 Loaninterestandamortization 100 120 125 100 120 565 181 228 241 241 181 1,072 Total 1,612 1,893 2,036 2,546 2,591 10,678 3,215 4,062 5,230 7,931 9,650 30,088

Source: Guangdong Provincial Communications Department. - 65 -

TABLE3.3A: HUNAN: HIGHWAYREVENUES AND EXPENDITURES, 1986-2000 (Y million)

Compound annual growth 7FYP 8FYP FYxP rate (%) 1986-90 1991-95 1996-2000 1986-2000

REVENUES Road maintenance fee 2,650 3,709 6,418 6.5 Transfer to public security 57 100 173 8.3 Transfer to fee collection sector 79 112 256 8.8 Remaining road maintenance fee 2,182 3,070 5,989 7.5 Highway key construction fund 128 1,580 5,545 30.9 Capital construction (subsidy) Central government (MOC) 354 740 3,425 17.6 Local government 44 970 2,934 35.0 Domestic loan 0 1,010 0 Foreign bank loans 0 370 5,174 30.2 Other loans 0 0 770 Total 2,708 7,740 23,837 16.8 EXPENDITURIES Construction & improvement: Expressway 316 2,247 11,610 29.4 Other national & provincial roads & bridges 1,094 2,915 3,648 9.0 Aid-Poverty Roads 90 359 1,500 22.3 Routine maintenance 608 990 1,802 8.1 Periodic maintenance/upgrade 346 674 4,037 19.2 Overhead & others 306 672 1,240 10.5 Loan interest & amortization Total 2,760 7,857 23,837 16.6

Source: Hunan Provincial Communications Department. - 66 -

TABLE 3.3B: GUANGDONG: HIGHWAYREVENUES AND EXPENDITURES, 1986-2000 (Y million)

Compound annual growth 7FYP 8FYP 9FYf rate (%) 1986-90 1991-95 1996-2000 1986-2000 REVENUES Road maintenancefee 5,856 14,206 26,213 10.5 Transfer to public security 154 374 689 10.5 Road maintenancefund 5,702 13,832 25,524 10.5 Highwaykey constructionfund 1,226 10,907 13,911 17.6 Subsidiesfrom central government(MOC) 338 1,000 2,781 15.1 Local governmentfinancing 2,042 2,620 21,100 16.8 Domesticloan 945 1,290 5,413 12.3 Foreignbank loans - - 3,735 Total 10,253 29,649 72,464 13.9 EXPENDITURES Construction& Improvement Expressway 561 3,843 20,699 27.2 Other national and Provincial Other national & provincialroads & bridges 6,467 14,997 27,239 10.1 Aid-povertyroads 51 3,470 2,045 27.9 Routinemaintenance 1,241 2,539 10,800 15.5 Periodic maintenance 456 1,378 5,821 18.5 Overheadand others 1,338 2,792 3,587 6.8 Loan interestand amortization 565 1,071 2,273 9.7 Total 10,679 30,090 72,464 13.6

Source: Guangdong Provincial Communications Department. TABLE 3.4A: HIGHWAY CONSTRUCTION PLAN DURING 9FYP IN HUNAN

ConstructionStandard & Mileage(km) Estimated Express- Class I Auto-only ClassII ClassIII Class IV Bridge Construc- Cost Finance(Y million) ConstructionProject way ClassII (m) tionPeriod (Y million) 8FYP 9FYP IOFYP A. HunanSection of JingzhuExpressway 531.7 12,263 712 9,721 1,830 1. Changsha-XiangtanHighway 44.8 6.8 1994-1996 1,212 712 500 2. Xiangtan-LeiyangHighway 172.4 16.1 23 1996-2000 4,374 4,374 3. Leiyang-YizhangHighway 131.8 1997-2000 2,847 2,847 4. Changsha-LingxiangHighway 182.7 1998-2002 3,830 2,000 1,830 B. Changsha-ChangdeHighway 154.6 1995-1998 1,935 120 1,815 C. 8 ImportantProvincial Trunk Roads 2,929 579 2,350 1. Yongan-DongfengjieHighway of NationalRoad 319 8.0 56 1993-1997 457 193 264 2. -ChangdeHighway of ProvincialRoad 1804 224 1992-1997 481 311 170 3. Hengyang-ShaodongHighway of ProvincialRoad 1814 97 1994-1998 445 13 432 4. Xiangxiang-LoudiHighway 8.7 48 1994-1997 141 62 79 5. ChangshaRing Road of NationalRoad 319 34.0 1997-2000 710 710 6. -HuanglongdongHighway 37 1996-1998 260 260 7. Loudi-LianyuanHighway 57 2 1997-1999 388 388 8. Cili Qingshuidong-HuanglongdongHighway 15 1997-1999 47 47 D. ImportantBridges 464 10 454 1. TaoyuanYuanshui River Bridge 5786 1995-1997 50 10 40 2. YucyangDongting Bridge 1648 1998-2000 414 414 E. Aid-povertyRoads Construction (70) 1,830 1996-2000 830 80 750 Total 565.7 194.2 57 502 1,830 7,434 18,421 1,501 15,090 1,830

Source:Hunan Provincial Communications Department. - 68 -

TABLE 3.4B: HIGHWAY CONSTRUCTION PLAN DURING 9FYP IN GUANGDONG

Express- Class and Mileage Estimated Project way (km) Cost (kin) Class I Class II (Y million)

Expressway I. Tongjiang- Expressway Kaiping-Zhanjiang Section 315.0 110.3 II. Beijing-Zhuhai Expressway Xiaotang-Gantang Section 108.7 54.6 Gantang-Taihe Section 196.2 77.3 Tangtang-Yinzhan Section 52.4 13.5 Tangken-Waisha Section 42.0 of Guangzhou-Zhuhai Expressway 56.5 Class I Roads Qingyuan-Lianzhou of No. 107 215.9 29.3 Linchen-Mazhou of No. 205 57.3 5.7 Maping-Youtou of No. 206 43.6 4.6 Luoding-Border with Guangxi of No. 324 32.0 2.6 Shuixi-Leizhou of No. 207 58.0 4.4 Yangjiang-Dianbai of No. 325 112.0 8.4 Other Class I roads 907.3 73.9 Class II Roads 3,735.0 149.4 Total 728.8 1,426.0 3,735.0 575.8

Source: Guangdong Provincial Communication Department. - 69 -

TABLE 4.1A: INTERCONNECTING ROADS PROGRAM IN HUNAN

Interchange Cross Road Interconnecting Road Name Name Class Name Class Length

Dashiqiao Zhutan I 16.0 Sanpu Leitan Road III Sanpu II 0.5 Zhuting Zhuting II 5.5 Xintang PR 1820 III Xintang II 0.6 Dapu PR 1843 III Dapu II 0.4 Hongshi NR 322 auto I Hongshi II 1.6 Guanshi Guanshi II 0.6 Xinshi Xinshi II 3.1 Leiyang Sannan Road III Leiyang II 10.4 TOTAL 39.0

TABLE 4.1B: INTERCONNECTING ROADS PROGRAM IN GUANGDONG (NORTHERN SECTION)

Name of Interchange Interconnecting Length & Cross Road Road no. Class (km)

Pingshi-Lao Pingshi National 107 II 0.2 Mei Hua-Yun Yan Provincial 1947 0.2 Mei Hua-Sa Ping County 0.3 Da Qiao Interchange-Da Qiao Provincial 1947 0.2 Dong Tian Interchange-DongTian Provincial 1947 0.3 Ru Yuan Interchange-Ru Yuan National 323 III 0.2 Provincial 1948 0.1 Provincial 1946 III 0.2 Se Zhu Interchange-Shao Guan National 323 IV 0.2 Se Zhu Interchange-Se Zhu County 0.2 TOTAL 2.0 - 70 -

TABLE 4.2A: PROJECT COST SUMMARY-HUNAN COMPONENT

Foreign Y million $ million costs % Local Foreign Total Local Foreign Total of total

Civil Works Expressway 1,237.5 1,054.1 2,291.6 149.1 127.0 276.1 46 E&M 23.2 73.9 97.1 2.8 8.9 11.7 76 Interconnecting Roads 100.4 85.5 185.9 12.1 10.3 22.4 46 Other Roads 175.5 117.0 292.6 21.2 14.1 35.3 40 Total Works 1,536.7 1,330.5 2,867.2 185.2 160.3 345.5 46 Supervision 66.4 17.4 83.8 8.0 2.1 10.1 21

Subtotal 1,603.1 1,347.9 2,951.1 193.2 162.4 355.6 Equipment 37.4 56.4 93.8 4.5 6.8 11.3 60 Training 2.2 8.1 10.3 0.3 1.0 1.2 79 TA/Studies 2.9 3.3 6.2 0.4 0.4 0.8 53 Total Training/TA/Studies 5.1 11.5 16.5 0.6 1.4 2.0 69 Total Base Cost 1,645.6 1,415.8 3,061.4 198.3 170.6 368.8 46 Physical Contingencies 164.0 140.4 304.5 19.8 16.9 36.7 Price Contingencies 372.0 144.8 516.9 44.8 17.5 62.3 Total Contingencies 536.1 285.3 821.4 64.6 34.4 99.0 35 Total Cost with Contingencies 2,181.7 1,701.1 3,882.7 262.9 205.0 467.8 44 Land Acquisition and Resettlement 313.7 0.0 313.7 37.8 0.0 37.8 0 Total Project Cost 2,495.4 1,701.1 4,196.5 300.7 205.0 505.6 41 - 71 -

TABLE4.2B: PROJECTCOST SUMMARY-GUANGDONGCOMPONENT

Foreign Y million $ million costs % Local Foreign Total Local Foreign Total of total

Civil Works Expressway Civil Works La 2,219.4 1,142.9 3,362.3 267.4 137.7 405.1 34 Expressway E&M works 139.4 326.2 465.6 16.8 39.3 56.1 70 Total Civil Works 2,358.9 1,469.1 3,828.0 284.2 177.0 461.2 38 Construction Supervision 41.5 27.4 68.9 5.0 3.3 8.3 40 Subtotal 2,400.4 1,496.5 3,896.9 289.2 180.3 469.5 38 Equipment 0.0 63.9 63.9 0.0 7.7 7.7 100 Training 8.3 8.3 16.6 1.0 1.0 2.0 TA/Studies 2.1 2.1 4.2 0.3 0.3 0.5 Total Training/TA/Studies 10.4 10.4 20.8 1.3 1.3 2.5 50 Total Base Cost 2,421.1 1,581.2 4,002.3 291.7 190.5 479.7 40 Physical Contingencies 229.1 149.2 378.2 27.6 18.0 45.6 Price Contingencies 541.5 160.5 702.0 65.2 19.3 84.6 Total Contingencies 770.6 309.7 1,080.3 92.8 37.3 130.2 29 Land Acquisition and Resettlement 143.6 0.0 143.6 17.3 0.0 17.3

Total Project Cost 3,335.3 1,890.8 5,226.1 401.8 227.8 627.2 36

La Expressway civil works contracts in Guangdong include several short sections of interconnecting roads totaling about 2 km in the amount of Y 10 million. - 72 -

TABLE 4.3A: FINANCING PLAN-HUNAN PROVINCE PORTION ($ million)

Government Provincial Central Bank Total

Expressway Civil Works 46.3 102.8 127.0 276.1 Expressway E&M Works 2.8 - 9.0 11.7 Interconnecting Roads 12.1 - 10.3 22.4 Other Roads 21.2 14.1 35.3 Subtotal Works 82.3 102.8 160.4 345.5 Construction Supervision 7.9 - 2.2 10.1 Equipment 4.5 - 6.8 11.3 Training 0.2 - 1.0 1.2 Studies 0.4 0.4 0.8 Contingencies 69.8 - 29.2 99.0 Land Acquisition and Resettlement 37.8 - 0.0 37.8

Hunan Project Cost 202.9 102.8 200.0 505.6 Percent of Total 40 20 40 100

TABLE 4.3B: FINANCING PLAN-GUANGDONG PROVINCE PORTION ($ million)

Government Provincial Central Bank Total

Expressway Civil Works 234.1 52.3 118.7 405.1 Expressway E&M Works 16.7 - 39.4 56.1 Interconnecting Roads 0.0 - 0.0 0.0 Other Roads - - - -

Subtotal Works 250.8 52.3 158.1 461.2 Construction Supervision 5.0 - 3.3 8.3 Equipment 0.0 - 7.7 7.7 Training 1.0 - 1.0 2.0 TA/Studies 0.5 0.0 0.5 Contingencies 100.3 - 29.9 130.2 Land Acquisition and Resettlement 17.3 - 0.0 17.3 Guangdong Project Cost 374.9 52.3 200.0 627.2 Percent of Total 60 8 32 100 - 73 -

TABLE 4.4A: HUNAN PROJECT PROCUREMENT ARRANGEMENTS ($ million)

Procurement method ICB NCB Other La NBF /k Total Cost

Works Expressway Civil Works 321.6 28.6 350.2 (135.2) (11.2) (146.5) Expressway E&M Works 14.8 14.8 (10.6) (10.6) Interconnecting roads 28.4 28.4 (11.8) (11.8) Other Roads 44.7 44.7 (18.9) (18.9) Construction Supervision 12.8 12.8 (2.6) (2.6) Equipment 10.3 4.0 14.3 (6.3) (1.7) (8.0) Consultants and Training L/ Training 1.5 1.5 (1.2) (1.2) Technical Assistance/Studies 1.0 1.0 (0.5) (0.5) Land Acquisition and Resettlement 37.8 37.8 (0.0) (0.0) Total 391.5 57.0 19.3 37.8 505.6 (171.0) (23.0) (6.0) (0.0) (200.0)

La Other includes national competitive bidding, international shopping and limited international bidding, and consultants and training. L2 NBF: Not Bank-financed. L Selection of consultants according to the Bank's guidelines.

Notes: (1) Figures in parentheses represent the amounts financed by the Bank Group. (2) All figures are rounded and include estimated physical and price contingencies but exclude the cost of land acquisition and resettlement which is shown separately. - 74 -

TABLE 4.4B: GUANGDONG PROJECT PROCUREMENT ARRANGEMENTS ($ million)

Procurement method ICB NCB Other L NBF lI Total Cost

Works Expressway Civil Works LZ 490.4 24.6 515.0 (134.6) (6.2) (140.8) Expressway E & M works 71.3 71.3 (46.2) (46.2) Construction Supervision 10.6 10.6 (2.5) (2.5) Equipment 5.8 4.0 9.8 (5.3) (3.8) (9. 1) Consultants and Training Ld Training 2.5 2.5 (1.2) (1.2) Technical Assistance/Studies 0.6 0.6 (0.2) (0.2) Land Acquisition and Resettlement 17.3 17.3 (0.0) (0.0) Total 567.5 24.6 17.7 17.3 627.2 (186.1) (6.2) (7.7) (0.0) (200.0)

/L Other includes national competitive bidding, international shopping and limited international bidding, and consultants and training. /b NBF: Not Bank-financed. L Expressway civil works contracts in Guangdong include several short sections of interconnecting roads totaling about 2 km in the amount of Y 10 million. Ld Selection of consultants according to the Bank's guidelines.

Notes: (1) Figures in parentheses represent the amounts financed by the Bank Group. (2) All figures are rounded and include estimated physical and price contingencies but exclude the cost of land acquisition and resettlement which is shown separately. - 75 -

TABLE 4.5: ESTIMATED DISBURSEMENTSCHEDULE ($ million)

Hunan Guangdong Hunanand Guangdong Disbursement Component Component Consolidated profile of BankFY Semes- Cumu- Semes- Cumu- Semes- Cumu- transportprojects & Semester ter lative ter lative ter lative % in China (0/6)

FY97 June 30, 1997 10 10 10 10 20 20 5 6 FY98 December31, 1997 10 20 10 20 20 40 10 11 June 30, 1998 20 40 20 40 40 80 20 16

FY99 December 31,1998 20 60 20 60 40 120 30 26 June 30, 1999 30 90 30 90 60 180 45 38 FY2000 December31,1999 20 110 20 110 40 220 55 48 June 30, 2000 30 140 30 140 60 280 70 60 FY2001 December31,2000 10 150 10 150 20 300 75 69 June30,2001 30 180 30 180 60 360 90 78 FY2002 December31,2001 10 190 10 190 20 380 95 90 June 30, 2002 10 200 10 200 20 400 100 100 - 76 -

TABLE 5.1: VEHICLE AND MAINTENANCE DATA

Can Buses Light Medium Heavy Articulated Trucks Trucks Trucks Trucks

Grossvehicl weight of fully loaded vehicle (tons): 2.40 13.00 7.00 11.50 40.00 55.00 Payload offully loaded vehicle (tons): 0.80 3.00 2.50 5.00 18.00 30.00 Load Gross vehicle weightofaverage vehicle (tons): 2.08 11.S0 6.00 9.50 32.80 43.00 Factor Payload ofaverage vehicle(tons): 0.48 1.80 1.50 3.00 10.S0 18.00 0.6

Number ofpaasengen (#): 6 40 0 0 0 0 Service life (yea): 15 10 12 12 9 9 Kilometers driven per year (km): 65,000 65,000 50,000 50,000 75,000 75,000 Hours driven per yer (hours): 2,000 2,000 1,500 1,500 2,000 2,000

Financial Costs New vehicle price (Yuan): 215,000 132,500 S6,000 162,500 279,500 550,000 One new tire price (Yuan): 440 1,150 1,150 1,150 1,250 1,250 Msintenance labor cost for vehicle repairs (Yuan/hour): 1.9 2.5 1.9 1.9 2.5 2.5 Driver wages (Yuan/hour): 2.8 3.1 2.8 2.8 2.9 3.1 Time costs (Yuan/hour): 1.0 1.0 1.0 1.0 1.0 1.0 Gas/Petrol price (YuanAiter): 2.2 Diesel price (Yuan/liter): 2.1 Lubricants price (YuanAiter): 13.5 Conv. Economic Coa Factor New vehicle price (Yuan): 161,250 99,375 64,500 121,875 209,625 412,500 0.75 One new tire price (Yuan): 330 863 863 863 938 938 0.75 Maintenance labor cost for veiicle repairs (Yuan/hour): 1.9 2.5 1.9 1.9 2.5 2.5 1.00 Driverwages(Yun/hsour): 2.8 3.1 2.8 2.S 2.9 3.1 1.00 Time costs (Yuan/hour): 1.0 1.0 1.0 1.0 1.0 1.0 1.00 Gas/Petrol price (Yuan/iter): 1.7 0.75 Diesel price (Yuan/liter): 1.6 0.75 Lubricants price (Yuan/iter): 10.1 0.75 6 work days % traveling work/business Salaries Guangdong Hunan Avrage Yuan/hr 25% Yuan/hr Higher education, Engineer (Yuan/year): 9,000 6,600 7,800 3.1 nonworking time 1.4 Skilled labor, Mechanic (Yuan/year): 7,000 5,400 6,200 2.5 value 1.1 Unskilled labor (Yuan/year): 6,400 4,200 5,300 2.1 25% 0.9

Real (without inflation) intaert charge on the purchase of a new vehicle (%): 10

Financial Factor Economic 12 mm reseal coat (Yuan/m2) 8.4 0.75 6.3 25 nun reeal cost (Yuan/m2) 16.3 12.2 5 cm overlay cost (Yuan/m2) 30.0 22.5 8 cm overlay cost (Yuan/m2) 44.0 33.0 10 cm overlay cost (Yuan/m2) 55.0 41.3 Reconstruction cost (Yuan/t2) 85.0 63.8 Routine maintenance cost (Yuan/kn/year) 8,500 6,375 - 77 -

TABLE 5.2: ROADSECTIONS DATA

Provimee: Hunsts HummHgdongHoe. R n Rum Huemm GH Gu sgdong Gtrmadosg Gaaegdosg

Financing ADB IRD IBR13 IBRD Other IBRD IBRD IBRD Other NH2 NH2 NH2 NH2 NH2 NH2

Expressway section.me: Chsagsho- Majishe- Xistg- Hmnghlhi- Leiyseg- Xiaotueg- Darqii- Rayu.n- Gatarsg. Myjishe Xitaeg Hmtghahi Leiysag Xiaotsmg Dsqio R.yunn Gmvtam Taihe

ExpresswpyyfE ncinl cotction- ost(illio Yean): 1,246 1,562 756 234 3,136 1,539 1,336 1,1152 7,773

Expresnwsylegsth (kQ) 44.8 76.5 4113 51.1 1353 52.5 3531 21.2 201.3 Expeessesywidth (i): 27.5 26.0 26.0 26.0 24.5 23 0 23.0 24.5 24.5 Expressway svnrogegradients (V.): 3 I 3 303.0 3.) 30 3 5 3.5 3 5 3.5 Expresway nveragetuaghtss (IRI) 3.0 3.0 3.0 3.1 3.0 3.0 3 (1 3.1 3 I)

Existiogroada leagth Qmk). 47)) S0() 470 6711 1390 61.0 41.0 25.0 267.5 Exinliogso awidth (i): 12.0 12)) 12.0 12.0 12.0 8.5 8.5 R5 12.11 E.sitiog mad. avenge gradiestr (V.) 3.1) 31 3.0 3.01 3)) 5.(1 3.1o 53) 35I Exintieg rads average.r gha U(1RI): 6.1) 61) 6.01 6.0 6.0 6.01 6.01 6.0 6 ()

Motoeizedtrsicoe existing sendsin 1996(ADT): 10,64N) 9,120 11,1)20 10,4501 7,130 7,510 7.5(X) 7,531) 7,2(10

Div-i.ed motorized toffic on expreatwnyin 2000 (ADTI: 7,1131 101,7441 13,110 11,1211 9,5()1 5,545 6,605 7,283 6,5(18 (diverted fre existing roads at opening of the etpre-sway)

Geertod motoriz trafficon expressy in 2000 (ADT): 32() 34N) 430 46() 41)1 275 330 365 51() (pgeaeted due to seductica00 trospotn cos(s)

Percentof rs. 29.2 15.0 15.0 15.) 121.1 15.5 15.3 15.5 17.9 Percnt of bses 1 I 10.0 1(.0 10.( 11.6 66 6.6 6.6 6.3 Percet oflight truacks(gross weight3 0to6.5 t). 16(0 90 9.1 90 121 164 16.4 16.4 185 Percentof medium trucks (groas weight 5.0 to 16.0t): 27 1 37.0 37.0 37.)) 36.6 401.1 411.1 401.8 41)( Preotofhrvytucks (gross weight60to22 0t). 138 160 16.)) 16)) 15.3 12.2 18.2 I.2 121 Pec-ot ofnrtj-ututcd trucks (grunt weight 13) to 45 0 t) 3 2 13 0 13.)) 13 0 6.3 2 5 2.5 2.5 4.2

Growth ate forc r for perid 1996-20)1))((%): H) 1(1 11) l 1( 10 1It 10 II Growthrto forcommerci)vehicesforpeied 1996-2010(%): 7 7 7 7 7 14 14 14 14 Gro-th rteforperiod 2011-2019 (Y.): 6 6 6 6 6 6 6 6 6

P.segerc rsspeednooexintisg dsoeostoegesedbohr(km/h,r) 33 35 35 35 35 10 1t 135 1 P-ssengercn-speeds o rexintoodsatnight(hnkfr) 42 55 55 55 56 39 39 39 55

Medium tr"cks peedsonexistig rodson mon congeted hour Qcmlhr) 33 33 33 33 30 10 1t( 15 12 Medium trocks speed on existigrodsat night(ksflr) 45 53) 51) 5(1 56 41 41 41 45

Predictedpassengerca speedsonsewexpreta-y (ksAso). 7)) 2) 2)) 8) 70 70 7)) 71) 75 Predicted medim trucks speeds o exexpyney (km/h) 65 75 75 75 65 7() 7)) 71) 7))

Constuctio co perkm (milliomYou.) 22 2)) 18 16 23 29 38 51) 39 Distmocestvigs (%.) 5% 4% 12% 24% 3% 14% 15% 15% 253% Di-eredtraffcuspercmntofonoes"trWf.,c in200(%o): 43% 20%. 21% 73% 91% 5(W. 6(rM. 66% 62% Generktd trffices. peent of -ormtrafc, inW200 (%) 2% 3% 3% 3% 4% 3% 3% 3%M 5%-

NRo: T.Mllc is givn o- vehiclesper day Speedson existiog roads ur messunedspeeds - 78 -

TABLE 5.3: TYPICAL ROAD USER COSTS

Cars Buses Light Medium Heavy Articulated Trucks Trucks Trucks Trucks

TypicalRoad UserCosts (Vehicle Operatingand Time Costs)

Yuanper vehicle-kilometer, 1995 prices

New Expressway 1.09 1.71 0.80 1.16 2.75 3.65

Existing Road (1996) 1.56 2.07 1.01 1.44 3.28 4.27 Existing Road' (2006) 1.78 2.64 1.13 1.63 3.38 4.53 Existing Road* (2016) 2.06 3.37 1.30 1.91 3.58 4.88

' if expresswayis not constructedand congestion increases

TypicalRoad UserCosts Composition

Vehide OperatingCosts Fueland Lubricants 0.23 0.57 0.23 0.51 1.34 1.22 Tires 0.03 0.21 0.34 0.17 0.46 0.47 MaintenanceLaborandParts 0,89 0.15 0.24 0.43 0.81 1.54 Crew 0.05 0.07 0.06 0.06 0.12 0.09 Depreciation and Interest 0.25 0.20 0.14 0.27 0.56 0.94

Time Costs Passenger Time 0.11 0.87

Total 1.56 207 1.01 1.44 3.28 4.27 TABLE 5.4: EXCEL ECONOMIC EVALUATION MODEL SAMPLE

Guangdong: Xiaotang-Daqiao Section

New Expressway Length (Iam) 52.5 Existing Road Length (kcn) 61.0 Existing Road Traffic in 1996 (ADT) 7500 Diverted Traffic from Existing Road to Expressway in 2000 (ADT) 5545 Generated Traffic on the Expressway in 2000 (ADT) 275

Financial Net Economic Benefits (Y million) Sensitivity Analysis Economic Evaluation Daily Traffic AD Constr. Con- Mainte- New Expresswa Existing Total 15 % Incr. 15% Decr. Combined New Expressway Existing Costs struction nance Diverted Generated Road Construct. User (a) & (b) and Year Diverted Generated Road (Y million) Costs Costs Traffic Traffic Traffic Costs (a) Benefits (b)

Sensitivity Analysis 1996 7,463 308 -231 0 0 0 0 -231 -265 -231 -265 1997 8,442 462 -346 0 0 0 0 -346 -398 -346 -398 1998 9,553 462 -346 0 0 0 0 -346 -398 -346 -398 1999 10,812 308 -231 0 0 0 0 -231 -265 -231 -265 2000 5,517 274 6,654 0 -5.3 105 3 5 108 108 92 92 2001 6,242 310 7,530 0 -5.3 121 3 8 127 127 108 108 2002 7,063 350 8,524 0 -5.3 141 3 12 150 150 128 128 2003 7,994 396 9,651 0 -5.3 164 4 18 181 181 154 154 2004 9,049 449 10,929 0 -5.3 194 5 27 221 221 188 188 2005 10,246 508 12,379 0 -5.3 232 6 43 276 276 234 234 2006 11,603 575 14,024 0 -5.3 284 7 69 355 355 302 302 2007 13,143 652 15,890 0 -5.3 356 9 112 472 472 401 401 2008 14,889 738 18,008 0 -5.3 416 10 130 551 551 468 468 2009 16,871 837 20,411 0 -5.3 470 12 128 605 605 514 514 2010 17,883 887 21,636 0 -5.3 499 12 124 630 630 535 535 2011 18,956 940 22,934 0 -5.3 529 13 116 653 653 555 555 2012 20,094 997 24,310 0 -5.3 560 14 104 673 673 572 572 2013 21,299 1,056 25,768 0 -5.3 594 15 87 690 690 587 587 2014 22,577 1,120 27,315 0 -5.3 630 16 62 702 702 596 596 2015 23,932 1,187 28,953 0 -54.6 667 17 27 656 656 558 558 2016 25,368 1,258 30,691 0 -5.3 707 18 0 720 720 612 612 2017 26,890 1,334 32,532 0 -5.3 750 19 0 763 763 649 649 2018 28,503 1,414 34,484 0 -5.3 795 20 0 809 809 688 688 2019 30,214 1,498 36,553 577 -5.3 843 21 0 1,435 1,522 1,307 1,393

Total (Y million) 1,539 Total per kmn(Y million) 29 Intemal Rate of Retum (%o) 19.1% 17.6% 17.3% 15.90/o Net Present Value at 12% Discount 981 840 693 553 - 80 -

TABLE 5.5: EcONoMIc EVALUATIONAND SENSITIVITY RESULTS

Economic Rates of Retum Sensitivity Results Case I Case 2 Case3 Case 4 Case 5 Case 6

1 5% Iner. 15% Deer. Combined Value of Generated Diverted Base Construct. User (1)& (2) Time Traffic Traffic Province Section/Segment Case Costs Benefits 0o = 0 = 50%

Hunan Changsha-Majiahe 15.6% 14.2% 14.0Y% 12.8% 13.5% 15.4% 10.0% Hunan Mayiahe-Xintsng 19.5% 18.0% 17.8% 16.4% 17.9%/ 19.4% 14.9 % Hunan Xintang-Honghshi 28.8% 26.7% 26.3% 24.4% 26.8% 28.5% 22.0%/6 Hunan Honghshi-Leiyang 34.2% 31.7% 31.3% 29.0% 32.2% 33.8% 25.5% Hunan Leiyang-Xiaotang 14.1% 12.8% 12.6% 11.4% 12.5% 13.9% 10.3% Guangdong Xiaotang-Daqiao 19.1% 17.6/ 17.3% 15.9% 18.1% 1899% 12.2% Guangdong Daqiao-Ruyuan 18.2% 16.7% 16.5% 15.1% 17.3% 18.0%/ 11.6% Guangdong Ruyuan-Gantang 16.5% 15.1% 14.9/6 13.6% 15.7% 16.3% 10.4% Guangdong Gantang-Taihe 19.7% 18.2% IS.0% 16.5% 18.8% 19.4% 1311%

Hunan Majijahe-Leiyang 26.3% 24.3% 24.0% 22.2% 24.5% 26.1% 19.8% Ouangdon Xiaotang-Gantang 18.1% 16.7% 16.4% 15.0% 17.2% 17.9/ 11.5% Hunan/Guangdong Majijahe-Leiyang& Xiaotang-Gantang 22.1% 20.4%/ 20.1% 18.6% 20.7%/ 21.9% 159/

Hunan/Guangdong Changsha-Gantang (Entire Cofridor) 19.6% 18.1% 17.8% 16.4% 18.4% 19.3% 13.6% - 81 -

TABLE 5.6: RISK ANALYSIS METHODOLOGY

Standard spreadsheet models analyses combine single "point" estimates of the model's input variables to predict a single result. Estimates of the input variables are used because the actual values are not known with certainty. For example:

Revenues = 100 Costs = 90 ==> Profits = 10

In reality, however, things don't always turn out as planned because too conservative or optimistic estimates may have been adopted. The combined errors in each input variable estimate could lead to real-life result that is different from the estimated result. With risk analysis, one can explicitly include the uncertainty present in the estimates to generate results that show all possible outcomes. For example, consider a simple case where there is uncertainty in both input variables:

Revenues = 100 or 120 Costs = 90 or 80

Possible Profits = > 100-90 = 10 100-80 = 20 120-90 = 30 120-80 = 40

In a risk analysis, one includes the estimate of an input variable and some measure of the likelihood of occurrence for that variable. The risk analysis will then use this information to analyze every possible outcome, executing hundreds of what-if scenarios adopting in each case random inputs accordingly to the input probability distributions. For example, consider this more complex case: Revenues Estimated most likely value= 100 (triangle distribution) Estimated minimum possible value =90 Estimated maximum possible value = 130 Costs Estimated mean value = 90 (normal distribution) Estimated standard deviation = 20

Results: Scenario I Revenues = 105.9 Costs= 116.8 Profits = -10.9 Scenario 2 Revenues = 119.5 Costs = 87.2 Profits = 32.3 Scenario 300 Revenues = 103.4 Costs = 86.6 Profits = 16.8 In this case, the results are presented as probability distributions and statistics that give the decision-maker a complete picture of all possible outcomes. For example, for the case above we have the following results: . . .~~~~~~~~~~~~...... Mean Profits = 16.7 Standard Deviation of Profits = 22.4 Probability that profits will be lower than zero = 24.1 percent

2

a- -.

v*°1nRdli oRSProfit. ilL1R - 82 -

GRAPH 5.1: DIVERTED TRAFFIC TO THE EXPRESSWAY IN 2000

o 2000 4000 6000 8000 10000 12000 14000 Changsha-Majiahe I Majiahe-Xintang Xintang-Honghshi| Honghshi-Leiyang Leiyang-Xiaotang Xiaotang-Daqiao Daqiao-Ruyuan Ruyuan-Gantang Gantang-Taihe

Majiahe-Leiyang Segment iaotang-Gantang Segment

Total Project

Entire Corrdor __.

GRAPH 5.2: DISTANCE SAVINGS (%)

0 5 10 15 20 25 Changsha-Majiahe Majiahe-Xintang Xintang-Honghshi Honghshi-Leiyang Leiyang-Xiaotang Xiaotang-Daqiao Daqiao-Ruyuan Ruyuan-Gantang Gantang-Taihe

Majiahe-Leiyang Segment iaotang-Gantang Segment

Total Project

Entire Corridor - 83 -

GRAPH 5.3: CONSTRUCTION COSTS PER KILOMETER

0 5 10 15 20 25 30 35 40 45 SO

Changsha-Majiahe Majiahe-Xintang Xintang-Honghshi

Honghshi-Leiyang Leiyang-Xiaotang Xiaotang-Daqiao Daqiao-Ruyuan Ruyuan-Gantang Gantang-Taihe

Majiahe-Leiyang Segment iaotang-Gantang Segment

Total Project

Entire Corridor I

GRAPH 5.4: INTERNAL RATE OF RETURN(%)

0 5 10 15 20 25 30 35 Changsha-Majiahe Majiahe-Xintang Xintang-Honghshi Honghshi-Leiyang Leiyang-Xiaotang Xiaotbng-Daqiao Daqiao-Ruyuan Ruyuan-Gantang Gantang-Taihe

Majiahe-Leiyang Segment iaotang-Gantang Segment

Total Project

Entire Coridor - 84 -

GRAPH 5.5: CONSTRUCTIONQUOTA MULTIPLIER

Probability

0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.25 1.30 1.35 1.40 1.45 1 50

Multiplier Factor

GRAPH 5.6: TRAFFIC ASSUMPTIONS MULTIPLIER

Probability

0.50 0.55 0.60 0.65 0700.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.25 1.30 1.35 1.40 1.45 1.50 Multiplier Factor - 85 -

GRAPH 5.7: HUNAN PROVINCE: MAJAHE-LEIYANG SEGMENT

Probability

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 IntemalRate of Retum1%)

GRAPH 5.8: GUANGDONG PROVINCE: XIAOTANG-GANTANG SEGMENT

Probability

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

IntemalRate of Retum(%) - 86 -

GRAPH 5.9: BOTH PROVINCES: MAJAHE-LEYANG AND XIAOTANG-GANTANG SEGMENTS

Probability

10 I1 12 13 14 15 16 17 1B 19 20 21 22 23 24 25 26 27 28 29 30 IntemalRate of Retum(%)

GRAPH 5.10: BOTH PROVINCES: ENTIRE CORRIDOR

Probability

10 11 1 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 IntemalRate of Retum(%) - 87 - ANNEX 1

ANNEX 1: PROJECT MONITORING INDICATORS

A. PERFORMANCE AND MONITORING INDICATORS FOR KEY PROJECT COMPONENTS

1. The effectiveness of project implementation in terms of alleviating infrastructure bottlenecks of Guangdong and Hunan at which the project is targeted, will be measured by reference to a number of monitoring indicators. The specific project objectives and the associated monitoring indicators are listed in Table 1. Each indicator will require a baseline level against which the effectiveness of the project in achieving the design objectives can be measured. The base data would be September 1996, and HPCD and GPCD should take the following action to obtain the necessary baseline data and develop the necessary methodologies for monitoring. The parameters, baseline and targeted values shown in the table are tentatively estimated by the project team; the baseline data! methodologies were reviewed and discussed with HPCD and GPCD during the appraisal and be finalized during negotiations.

2. The achievement of project output will be monitored by monitoring indicators. The current monitorable targets are set as shown in Table 2.

B. MONITORING INDICATORS FOR ENVIRONMENT

Construction Period

3. Environmental Supervision. One of the environmental supervisors in each contract section will be assigned or nominated to carry out the supervision of the environmental protection measures addressed in the Environmental Action Plans (EAP) and integrated in the bid documents. The results will be included in the engineering supervision reports and reported periodically to the environmental protection staff at the level. The results of environmental supervision will be annually reported to the World Bank through the annual report to the World Bank. The monitoring items will include:

(a) brief description on environmental protection measures supervised/ inspected during the reporting period; and

(b) brief description of problems regarding environmental protection measures and their reasons and possible solutions. -88- ANNEX 1

TABLE IA: DEVELOPMENT INDICATORS (HUNAN COMPONENT)

2002 Benchmark Project Monitoring 1999 (1st year of 2005 Objectives Indicators 1996 Baseline Benchmark operation) Benchmark

Development Reduced traffic Traffic volume of road congestion on Section A-B = 12,700 18,400 4,800 6,800 infrastructure roads parallel to Section B-C = 10,100 14,700 3,800 5,500 the proposed road Section C-D = 11,100 16,200 4,200 6,000 Section D-E = 8,900 12,900 3,300 4,800

Increased average Travel speed (km/hr) travel speed on Section A-B = 45 40 55 55 roads parallel to Section B-C = 50 45 60 60 the proposed road Section C-D = 45 40 55 55 Section D-E = 50 45 60 60 Increase Reduced number Number of accidents Number of Number of Number of highway of traffic accidents with fatalities per accidents accidents accidents safety involving number of vehicles: with with with fatalities: 20/10,000 vehicles fatalities per fatalities per fatalities per number of number of number of vehicles: vehicles: vehicles: 18/10,000 12/10,000 10/10,000 vehicles vehicles vehicles

Note: A-B: Changsha-Majiahe;B-C: Majiahe-Xiantang;C-D: Xiantang-Hongshi;D-E: Hongshi-Leiyang.

TABLE 1B: DEVELOPMENTINDICATORS (GUANGDONG COMPONENT)

2002 Benchmark Project Monitoring 1999 (1st year of 2005 Objectives Indicators 1996 Baseline Benchmark operation) Benchmark

Development Reduced traffic Traffic volume of road congestion on Section A-B = 7,500 8,000 3,000 3,000 infrastructure roads parallel to Section B-C = 7,500 8,000 2,000 2,000 the proposed road Section C-D = 7,500 8,000 1,000 1,000 Increased average Travel speed (km/hr) travel speed on Section A-B = 50 40 60 60 roads parallel to Section B-C = 40 35 50 50 the proposed road Section C-D = 40 35 50 50 Increase Reduced number Number of accidents Number of Number of Number of highway safety of traffic accidents with fatalities per accidents accidents accidents involving fatalities: number of vehicles: with with with 25/10,000 vehicles fatalities per fatalities per fatalities per number of number of number of vehicles: vehicles: vehicles: 20/10,000 10/10,000 10/10,000 vehicles vehicles vehicles

Note: A-B: Xiaotang-Daqiao;B-C: Daqiao-Ruyuan;C-D: Ruyuan-Gantang. - 89 - ANNEX I

TABLE 2A: IMPLEMENTATIONINDICATORS FOR KEY PROJECT COMPONENTS (HUNAN COMPONENT)

1996 1997 1998 1999 2000 2001 2002 2003 Key Monitoring Indicators ICR Year

% of civil works completed of XLE 30 65 100 -- -- 100 Number of person-months of completed training Domestic 301 457 518 ------518 Overseas 54 93 110 -- 110

Highway safety: La ------

% of Equipment purchased 3 59 75 100 ------100 Highway Maintenance Study 06/30/b 06/30/c 06/30/d Expressway Commercialization and 06/30/b 06/30/c 06/30/d Corporatization Study Road Safety Study 06/30/b 06/30/c 06/30/d

La Number of black spots to be improved would be agreed between the WB and HPCD during implemenation of the project. lb Establishment of Leading Group and Agreement on TOR. /c Draft Final Report. /d Final Report.

Note: XLE = Xiangtan-Leiyang Expressway.

TABLE 2B: IMPLEMENTATIONINDICATORS FOR KEY PROJECT COMPONENTS (GUANGDONG COMPONENT)

1997 1998 1999 2000 2001 2002 2003 Key Monitoring Indicators ICR Year

% of civil works completed of XGE 10 30 60 80 100 -- 100 Number of person-months of completed training Domestic 450 552 672 ------672 Overseas -- 59 122 ------122

% of Equipment purchased 20 70 100 ------100 Transport and Economic Intergration Study 06/30/a 06/30/b 06/30Lk Expressway Safety Study 06/30/a 06/30/b 06/30/c

La Establishment of Leading Group and Agreement on TOR. /b Draft Final Report. /c Final Report.

Note: XGE = Xiaotang-Gantang Expressway. - 90 - ANNEX 1

4. Environmental Monitoring. Environmental monitoring items, methods, frequencies, monitoring sites etc. are clearly specified in the EAP (see Annex 3a for the Hunan section and Annex 3b for the Guangdong section). On the Hunan section, all environmental monitoring, except motor vehicles noise monitoring, during both construction and operation will be carried out by the local environmental monitoring stations through contract with the Xianglei Highway Company and the Loudi-Lianyuan Highway Company. Noise (motor vehicles, construction equipment, etc.) will be monitored by the environmental supervision engineers at engineering supervision stations. On the Guangdong section, the Environmental Monitoring Station (EMS) under EPD/GPFC will carry out all environmental monitoring works regarding XGE except noise and dust monitoring during the construction phase, which will be monitored by the environmental supervisors at the construction contract section. The results will be reported to the environmental protection staff at the district level and annually to the World Bank through the annual report to the World Bank.

5. Environmental Monitoring During the Construction Phase

Hunan section: Air quality: TSP, dust Noise/vibration Water Quality: BOD, COD, suspended solids (SS), oil

Guangdong section: Air quality: NOR,CO, HC, TSP and dust Noise/vibration Water quality: BOD, SS, oil, temperature, pH, and DO

Operation Period

6. Environmental Monitoring: Environmental monitoring items, methods, frequencies, monitoring sites, etc., are clearly specified in the EAP (see para. 3 above). The institutions responsible for monitoring are also specified in para. 3. Based on the monitoring results, the environmental protection measures (to be carried out during the operation period), will be adjusted as appropriate.

7. Environmental Monitoring During the Operation Period

Hunan section: Air quality: CO, NO,, TSP Noise/vibration Water quality: BOD, COD, SS, oil

Guangdong section: Air quality: NO,, CO, HC, TSP Noise/vibration Water quality: BOD, COD, SS, oil, temperature, pH, DO Lead in soil and crops -91- ANNEX 1

C. MONITORING OF LAND ACQUISITIONAND RESETTLEMENT

8. The monitoring and evaluation of the Resettlement Action Plans (RAP) agreed between the Bank and the Borrower will be carried out both internally and externally (Annexes 4a and 4b). Internal monitoring will be carried out by the Planning Department and the Land Acquisition and Resettlement Department of ROs of HPECDC and GPFC. An internal monitoring report will be submitted to the Bank every six months, with the first one due on March 31, 1996, and the last one on the completion of the land acquisition and resettlement activities. The Academies of Social Sciences of Hunan and Guangzhou will conduct the external monitoring of resettlement and will submit a monitoring report every six months, with the first one to be submitted by June 30, 1997, and the last one at the completion of the project (December 31, 2002).

9. The main indicators of land acquisition and resettlement monitoring have been identified. They are:

(a) Timely payment of compensation to affected entities of various categories;

(b) Progress of construction of new houses and quality of construction, also distance from old houses

(c) Progress in land redistribution;

(d) The type of productive use to which compensation amounts have been put by the local ( and village) governments;

(e) Restoration of production/business activities of affected enterprises. Payment of all types of compensation to affected enterprises and workers;

(f) Propose linkage of resettlement activities with the project implementation schedule (resettlement to be completed at least one month before start of construction);

(g) Restoration of civic infrastructure at the new sites;

(h) Levels of satisfaction of the affected persons;

(i) Income levels and standards of living after resettlement. - 92 - ANNEX I

D. MONITORING PLAN FOR INSTITUTIONAL STRENGTHENING

Implementatan Indicators Impact I dicators Remarks and Elements Process Completion Short-term Long-term Comments

Strengthened INDICATOR: INDICATOR: INDICATOR: INDICATOR: Baseline Perfonnance in Institutionsal Capacity Number of Staff Completion of training Staff trained are sharing Improvement of sector functions are Developmentprogram planned under Staff new knowledge and performance in specific specified in Training Intensive institutional candidates selected and development program . exercising new skills functions and activities Needs Profiles that are strengthening programs sentfor training SOURCE: SOURCE: targetedby staff kept on file in Project at SOURCE: * Mid-term Training ' Reports of workshops developinent program Execution Office ' Annual Training Report held by retuming SOURCE: Sample of these Intensive institutional Plan * Project trainees Implementation Training Needs Profiles strengthening programs * TORs for Study Implementation * Supervision Completion Review are provided as part of at the Support and Abroad Completion Report interviews and their * Assessment of Annual Training Plan Research units ' TORs for reports on trainees institutional submission InvestigationStudy INDICATOR performance performance in Intensive institutional Tours Equipment procured in Activities identified at Additional baseline data strengthening programs operation INDICATOR start of project as are included in at the Schools and INDICATOR SOURCE: Equipment used requiring Training and TORs for Study Training institutions Equipmentprocured * Equipment Status successfully for other institutional Abroad and within time and budget reports purposes intended strengtheningmeasures TORs for allowed SOURCE: Investigation/Study SOURCE: * Reported use of Abroad. * Annual equipment Both of these are Procurement Plan included as part of annual submission of a 2-year rolling Training ______Plan Training INDICATOR: INDICATOR: Training INDICATOR: Trainees INDICATOR: Critical Performance on critical Training In Hunan and # of Trainees selected programs completed in assigned to jobs where Function and activities functions and activities Guangdong and sent for timely timely manner (as per new skills are (for which training was assessed through training in China and periodic Plans provided effectively utilized identified as key factor) interviews with Training in Other China abroad: by HPCD AND GPCD) demonstrate improved Supervisors of Units performance which requested training SOURCE: SOURCE: SOURCE: SOURCE: : e.g. type of analyses Short-Term Training *Annual Training ' Mid-term Report * Reports from Assessment of undertaken ; successful Abroad Report ' Implementation interviews of former institutional completion of certain * Annual Training Completion Report trainees performance (as above) tasks,; operation of Investigation Study Plan a Reports from certain kind of Tour fomer trainees' equipment, etc.. supervisors (infonnation included as partof Training Needs Profiles Interviews are conducted as part of assessment of institutional perfonnance for Function (activities) identified at start of project as requiring Training and other institutional strengthening measures. -93 - ANNEX2

ANNEX 2: PROCUREMENT AND IMPLEMENTATION OF NORTHERN AND SOUTHERN SECTIONS

1. The appraisal mission discussed with GPCD in detail and agreed on the implementation schedule for both the northern and southern sections, with a view to complete both sections at the same time. The different procurement and implementation stages are shown below:

Northern Southern Section Section

Approval of the prefeasibility study by the State September 96 October 96 Council after review by MOC and SPC Prequalification documents available September 96 October 96 Clearance of the feasibility study by SPC after review September 96 November 96 by MOC Revised preliminary engineering design available September 96 November 96 Clearance of the preliminary engineering design by October 96 November 96 MOC Revised final design according to MOC's December 96 January 97 recommendations and bidding documents Internal review of bidding documents by GPCD and January 97 March 97 MOC and translation into English (northern section) Review of the final design by international consultants February 97 and clearance of the bidding documents by the Bank (northern section) Selling of bidding documents March 97 April 97

2. With these dates for the selling of bidding documents, the prequalification, bidding, selection of contractors and construction process would develop as follows: - 94- ANNEX2

Northern Southern Section Section

Selling of prequalification documents October 96 November 96 Submit prequalification documents December 96 January 97 Evaluation of prequalification documents January 97 February 97 Bank review and no objection for prequalification March 97 documents' Evaluation report Review of the bidding documents by MOC January 97 March 97 Review of the bidding documents by the Bank February 97 Selling bidding documents March 97 April 97 Receive bids July 97 June 97 Bid evaluation report and government review August 97 August 97 Bank reviews bid evaluation report and no objection September 97 Notify successful bidder September 97 August 97 Sign contracts with successful contractors October 97 August 97 Start construction of the expressway section November 97 September 97 Completion of construction June 2000 October 2000 -95 - ANNEX3a

ANNEX 3a: ENVIRONMENTAL ASSESSMENT AND ACTION PLAN SUMMARY (HUNAN SECTION)

1. Background. An environmental impact assessment (EIA) for Xiangtan-Leiyang Expressway (XLE) was carried out by the Highway Research Institute of MOC. An EIA report, an Environmental Action Plan (EAP) and an Environmental Assessment (EA) Summary were prepared as per the policy and administrative requirements for environmental assessment of development projects in China and the Bank's OD 4.01 on Environmental Assessment. The development and review of these documents involved inputs from various units in the province, the environmental protection bureaus, research institutions, universities and the affected groups and NGOs along the highways. These documents were reviewed by the Bank and discussed with the Hunan Provincial Communications Department (HPCD) during the preparation mission in April 1995 and the preappraisal mission in November 1995. The EIA and EAP for the Loudi-Lianyuan Class II Auto-only Highway (LLH), and an EIA report for the Zhuzhou-Xiangtan Connecting Road (ZXH), were also reviewed by the Bank during the preappraisal mission. The final EIA reports, EAPs and EA Summary covering XLE and its eight connecting roads, LLH and ZXH were submitted to the Bank in January 1996 and found to be satisfactory to the Bank. A detailed summary of the environmental assessment and the action plan is available in the project files. 2. Brief Project Description. The main civil component of the Hunan section consists of the construction of a 172-km, four-lane expressway between Xiangtan and Leiyang (XLE); eight connecting roads to XLE; a 16-km, four-lane Class I highway between Zhuzhou Tiantaishan and Xiangtan Yisuhe (ZXH); and a 60-km, two-lane Loudi-Lianyuan Class II Auto-only Highway (LLH). Other components include institutional strengthening, training programs, highway safety and construction supervision. 3. Baseline Environmental Description. The proposed alignment of XLE lies in the mid-south of the Hunan Province, whose altitude decreases from the middle to both north and south. Twenty percent of the area along XLE is subject to heavy surface soil erosion and is becoming more problematic and significant every year. The rivers in the region belong to the Xiangjiang drainage system, and have water flows all year round. The well-developed surface water system has become the major water source for industrial and agricultural production. The area along the proposed road is the most developed zone in Hunan Province and an important economic belt which not only serves as the major production base for rice, cotton and oil, but also serves as the base for metallurgy, building materials, chemistry, textile and food processing industries. 4. Because of the past development and dense settlement, the original vegetation has been gradually replaced by the present state of scattered secondary forest and - 96 - ANNEX3a nonindigenous vegetation, mainly mason pine, China fir, oil-tea tree and citrus forest. Two nature reserves, the Nanyue Natural Protection Zone in Hengshan and the Niaozhou Protection Zone (bird sanctuary) in Jiangkou of Hengnan, are both located 23 km and 6 km, respectively, from the proposed alignment. No rare or endangered animal or plant species were found within the 500-m zone on either side of the proposed roads. Lead, concentrations in soil samples ranged between 31.6 and 90.3 mg/kg, significantly lower than 200 mg/kg value recommended by the Ministry of Agriculture as the criterion for acid soil. 5. The areas along XLE are rich in tourism resources including scenic spots and historical sites such as the Yuelu Mountain Park, the Leiyang Pagoda in Hengyang, the Jiangkou Bird Sand-bar Natural Conservancy, etc. During field investigations, three potential sites of ancient tombs of Han dynasty were discovered along the alignments. 6. Atmospheric monitoring data of the past five years and air quality monitoring at 14 sites along the alignment of XLE indicate that NO, and CO concentrations meet the Class II standards and that TSP (except for two stations) and SO2 (except for one station) also meet the Class II standards. The connecting roads and LLH was also monitored and found to be acceptable. Daytime and nighttime noise levels at 21 sites along the alignment were found to be below the noise standard. 7. Potential Environmental Impacts and Their Mitigation Measures. The major potential environmental impacts of XLE, its eight connecting roads, LLH and ZXH and their mitigation measures are incorporated in their respective Environmental Action Plans (EAPs). The EAPs stipulate how the environmental impacts identified in the EIA will be dealt with in the design, construction and operation phases, and what institutional arrangements have been made for the implementation of the EAPs during the three distinct phases. The key elements of the EAPs are summarized below. Design Phase 8. Three alternative alignments were considered in the project design phase of the XLE. The final alignments for XLE, LLH and ZXH were selected to minimize land acquisition and resettlement costs, potential environmental impacts of the project on farmlands, residences, schools, cultural relics, flood control and poor geographical and geological conditions. The design includes a number of passageways, overpasses and underpasses to facilitate the crossing of the expressway by local people, animals and vehicles. To reduce soil erosion, arbor, bush, grass and climbing ivy will be planted in the central strip, side slopes and along the road sides. Additional measures such as subgrade drainage systems are integrated in the project design, and temporary and permanent drainage systems will be constructed to minimize soil erosion and alteration of hydrological regimes. Particular attention will be paid to balance cuts and fills, to locate borrow areas in waste land, to minimize the use of arable land, and minimize dust and noise problems. 9. During the initial operating phase, noise levels at several sensitive locations will significantly exceed the noise standards used in the initial phase. In later years, as the - 97 - ANNEX 3a traffic increases, the noise levels will significantly exceed the standards at many more sensitive sites. To mitigate the short and medium term noise problems, a combination of measures such as resettlement and installation of noise barriers will be undertaken. In the long term (2020), noise monitoring will be continued and appropriate mitigation measures will be taken when the noise monitoring results significantly exceed the standards. Construction of schools and hospitals will not be allowed within 200 m on either sides of XLE, and construction of other buildings, within 50 m of XLE, will be prohibited. Up to the year 2020, CO concentration at all sites is expected to meet the Class II air quality standards. In the long term, NOx concentration at Xinting- Liugongquiao, Liugongquiao-Hongshi and Hongshi-Guanshi sections will slightly exceed the maximum standards while the daily average NO, concentrations will exceed the standards at four sections (the three sections mentioned above and the Dashiqiao-Shanpu Section), with maximum value 110 percent higher than the standards. Along the eight connecting roads, LLH and ZXH, CO and NOx concentrations at all sensitive sites as predicted to be within the standard. The long-term air pollution problems caused by vehicle exhaust gases will be dealt with by improving vehicle emission controls and strengthening vehicle emissions inspection to reduce the exhaust emissions. 10. During the cultural relics survey, three ancient tombs, over 2000 years old were found in the Yangliu village of Guanshi, . An archaeological salvage and protection plan was developed and integrated in the National Highways 2 Project. All the salvage activities will be carried out before the start of construction. 11. Additional design measures include provisions for adequate drainage, wastewater treatment facilities at three service areas, strengthening of crash barriers at pollution sensitive locations, and adequate bridge and culvert design to minimize flooding. Construction Phase 12. To minimize dust during construction, road surfaces, excavation areas, material stockpiles, storage areas, and construction sites will be sprayed with water specially near towns and villages, water supply sources and near sensitive locations. In particular, coal ash will be kept moist with at least 30 percent moisture content. Asphalt and lime stone mixing plants will be equipped with dust collectors and will be located at least 500 m from residential areas on the leeside of the wind directions. Additional precautions will include covering of haul trucks and material storage piles, control of exhaust gas, etc. Construction activities within 150 m from residences will be suspended between 10:00 p.m. and 6:00 a.m., except under exceptional circumstances when a prior written approval of the local government and the environmental protection bureau will be required. 13. Where possible, borrow areas will be restricted to non-forest and non-arable lands, and topsoil will be saved and returned to the land. Spoil disposal sites will be carefully selected to minimize disruption to the farmlands. Damage to irrigation systems will be minimized by construction of temporary channels and conduits and measures will be taken to prevent direct discharge of polluted waters and silt from construction activities - 98 - ANNEX 3a into rivers and irrigation channels. Construction camp wastes and sewage will be collected and treated and disposed of in an environmentally sound manner. Trees and grass will be planted on side slopes, and along the roadside, particularly on sections with high fills and deep cuts. 14. During construction, effective safety and warning measures will be adopted to reduce accidents. This will include, minimization of traffic jams, provision of efficient lighting equipment and safety signs, restriction on blasting time and implementation of stringent controls at quarries, development of a materials transport plan, etc. Operation Phase 15. During the operation phase, emphasis will be placed on better vehicle maintenance and management to promote safety and to minimize vehicle emissions. Low-speed, badly maintained old vehicles will be barred from using the expressway. Periodic campaigns will be undertaken to educate drivers about the unnecessary use of horns, reduction in night time speed, safe transport of hazardous materials, etc. To avoid future noise and air pollution problems, construction of residential buildings and schools/ hospitals will be prohibited within 50 m and 200 m, respectively, from the roadside of XLE, and 50 m and 100 m, respectively, from the roadside of LLH and ZXH. 16. Environmental Monitoring. During the construction and operation of XLE, its connecting roads, LLH and ZXH, environmental monitoring will be carried out to verify the actual impacts on the environment, identify unexpected environmental problems at an early stage, and to adjust environmental protection measures as appropriate. Local environmental monitoring stations will be responsible for environmental monitoring of XLE, its connecting roads and LLH during the construction and operation phases. Motor vehicle noise will be monitored by the environmental supervision engineers at engineering supervision stations. 17. The major items to be monitored during the construction and operation phases will include air quality, noise and water quality. Seven noise level meters, four computers to process environmental data, two fire engines, and five ambulances will be procured under the project. The detailed monitoring plan is presented in the EAP. 18. Institutional Arrangements. The Environmental Protection Office (EPO) in HPCD will be responsible for the overall environmental protection and management of the highways. The six staff in the EPO will be assisted by the five environmental staff in the Environmental Protection Section (EPS) who will be responsible for the environmental aspects of the project during the construction phase. Environmental monitoring during the construction and the operation phases will be carried out by the local environmental monitoring stations through contract with the Xianglei and the Loudi-Lianyuan Highway Companies. Environmental training will be undertaken to provide adequate training for environmental staff at all levels. The detailed staffing and training plan is presented in the EAP. - 99 - ANNEX3b

ANNEX 3b: ENVIRONMENTAL ASSESSMENT AND ACTION PLAN SUMMARY (GUANGDONG SECTION)

1. Background. An EIA for Xiaotang-Gantang Expressway (XGE) including its connecting roads was carried out by the Shanghai Ship and Shipping Research Institute of MOC. An EIA report, an Environmental Action Plan (EAP) and an Environmental Assessment (EA) Summary were prepared as per the policy and administrative requirements for environmental assessment of development projects in China and the Bank's OD 4.01 on Environmental Assessment. The development and review of these documents involved inputs from various units in the province, the environmental protection bureaus, research institutions, universities and the affected groups and NGOs along the highways. These documents were reviewed by the Bank and discussed with Guangdong Provincial Communications Department (GPCD) and Guangdong Provincial Freeway Company (GPFC) during the preparation mission in July 1995, and the preappraisal mission in November 1995. The final EIA report, EAP and EA Summary covering XGE and its interconnecting roads were submitted to the Bank in January 1996 and found to be satisfactory to the Bank. A detailed summary of the environmental assessment and the action plan is available in the project files.

2. Brief Project Description. The main civil component of the Guangdong section consists of the construction of 110-km, four-lane expressway between Xiaotang and Gantang (XGE) and the interconnecting roads of XGE. Other components include institutional strengthening, training programs, long-term studies on transport and economic integration, technical assistance on expressway safety, and construction supervision.

3. Baseline Environmental Description. The proposed alignment of XGE starts from Xiaotang, on the border with the Hunan province, passes through west Lechang mountains area and Ruyuan county, and ends in Guantang in the suburb of Shaoguan City. Generally, the terrain slopes from northwest to southeast. The 73-km section between Xiaotang and Ruyuan is located in the mountain terrain, while the 37-km section between Ruyuan and Gantang is located in the heavy rolling terrain. The area is criss- crossed by the Wujian and Nanshui rivers, neither of which is open to navigation.

4. Plant resources are abundant and forests cover more than 50 percent of the project area. However, over the past 100 years, due to the sharp increase in population, various economic activities, etc., forest vegetation has changed from broad-leaved evergreen forests to forests with simple tree varieties. As a result, some of the hilly areas have only sparse bush slopes or bare rocks, and most fine soil has been washed away. The present vegetation along the alignment are mostly cropland and woodland (shrub and manmade forests). Thus, only limited wild animals such as hares and pheasants are found along the -100- ANNEX3b alignment. Lead concentrations in soil sampled at seven sites ranged between 34 and 40 mg/kg, significantly lower than 300 mg/kg value recommended by the Ministry of Agriculture as the criterion for soil with a pH value of 6.5.

5. The area surrounding Shaoguan City is rich in tourist resources. The tomb of Yujing, a Minister of Soong Dynasty, is located approximately 300 m from the alignment and a field survey identified ancient tombs at two sites along the alignment.

6. Atmospheric baseline monitoring of TSP, CO, NOx and lead was carried out for five consecutive days, at five sites along the alignment. At all monitoring sites, CO, NO, and lead concentrations were much lower than the ambient air quality standards for both maximum and daily average values. The maximum TSP concentrations were also below the standard but at three sites, daily average TSP concentrations slightly exceeded the standards. Of the eight sites monitored for baseline noise, only the Laopinshi town site, where the alignment is next to the existing National Highway 107, exceeded the noise standard at night.

7. Potential Environmental Impacts and Their Mitigation Measures. The major potential impacts of the XGE and its linking roads and the associated mitigation measures are summarized below and incorporated in the Environmental Action Plan (EAP) of XGE and its linking roads. The EAP stipulates how the environmental impacts identified in the EIA will be dealt with in the design, construction and operation phases, and what institutional arrangements have been made for the implementation of the EAP during the three distinct phases. The key elements of the EAP are summarized below.

Design Phase

8. Three major alternative alignments were considered at the prefeasibility study and the selected route (the Ruyuan route) was further refined during the feasibility stage, using factors such as land minimization, impacts of air and noise pollution on environmentally sensitive areas, etc. The design includes a number of passageways, overpasses and underpasses to facilitate the crossing of the expressway by local people, animals and vehicles. To mitigate soil erosion, trees and grass will be planted on median divider, side slopes, and along the roadside. Further measures such as slope protection, temporary and permanent drainage systems are also incorporated in the design. Particular attention was paid to balance the cuts and fills along the XGE, and in selecting quarries and borrow sites so as to minimize impact on farmlands and dust and noise problems.

9. At 16 environmentally sensitive sites, traffic noise during the operation phase will significantly exceed the assessment criteria, particularly in later years. This will be mitigated by constructing noise barriers, constructing high fences beside the first row of residences and schools, by resettlement and by rezoning the first row of houses as warehouses. While CO concentrations at all sites will stay within the assessment criteria, in the later years, NO, concentrations at seven out of nine sites will significantly exceed the assessment criteria. This will be mitigated by improving vehicle emission controls, strengthening vehicle emissions inspection, planting trees, and by prohibiting the -101- ANNEX3b construction of new residences, schools, hospitals and other sensitive buildings within the 60-m zone on either sides of the highway.

10. Tombs at two sites (K91+700-800, and K105+600-650) will be excavated and the information on these sites will be included in the bid documents to ensure that the contractors take adequate actions.

11. Additional design measures include provisions for adequate drainage, wastewater treatment facilities at service areas, strengthening of crash barriers at pollution-sensitive locations, adequate bridge and culvert design to minimize flooding, and planting of a 20-m wide and 200-m long forest belt.

Construction Phase

12. To minimize dust during construction, road surfaces, excavation areas, material stockpiles, storage areas, and construction sites will be sprayed with water, especially near towns and villages, and near sensitive locations. Asphalt and lime stone mixing plants will be equipped with dust collectors and will be located at least 500 m from residential areas on the leeside of the wind directions. Additional precautions will include covering of haul trucks and material storage piles, control of exhaust gas etc. Noisy construction will be prohibited between 10:00 p.m. and 6:00 a.m., except under exceptional circumstances when a prior written approval of the local government and the environmental protection bureau will be required. Other measures include, construction of noise barriers at sensitive locations, equipping machinery with effective mufflers and strengthening equipment maintenance.

13. Where possible, borrow areas will be restricted to nonforest and nonarable lands and topsoil will be saved and returned to the land. Spoil disposal sites will be carefully selected to minimize disruption to the farmlands. Damage to irrigation systems will be minimized by construction of temporary channels and conduits and measures will be taken to prevent direct discharge of polluted waters and silt from construction activities into rivers and irrigation channels. Construction camp wastes and sewage will be collected and treated and disposed of in an environmentally sound manner.

14. During construction, effective safety and warning measures will be adopted to reduce accidents. This will include, minimization of traffic jams, provision of efficient lighting equipment and safety signs, restriction on blasting time and implementation of stringent controls at quarries, development of a materials transport plan, etc.

Operation Phase

15. During the operation phase, emphasis will be placed on better vehicle maintenance and management to promote safety and to minimize vehicle emissions. Low speed, badly maintained old vehicles will be barred from using the expressway. Periodic campaigns will be undertaken to educate drivers about the unnecessary use of horns, reduction in night time speed, safe transport of hazardous materials, etc. Construction of -102- ANNEX3b permanent buildings within 60 m on either side of the expressway will be actively discouraged.

16. Environmental Monitoring. During the construction and operation of XGE and its interconnecting roads, environmental monitoring will be carried out to verify the actual impacts on the environment, identify unexpected environmental problems at an early stage, and to adjust environmental protection measures as appropriate. The Environmental Monitoring Station (EMS) under the Environmental Protection Division of GPFC will be mainly responsible for environmental monitoring during the construction and operation phases. However, noise and dust will be monitored by the environmental supervisors at construction contract sections.

17. The major items to be monitored during the construction phase will include air quality, noise, and water quality. These items will be monitored during the operation phase as well. In addition, lead in soil and crops will be monitored during the operation phase. Fifteen sets of domestic sound-level meters will be procured under the project. The detailed monitoring plan is presented in the EAP.

18. Institutional Arrangements: Environmental aspects of the construction of the XGE will be managed and promoted by the Environmental Protection Division (EPD). It will be headed by a senior level manager in GPFC and will also include full-time environmental staff assigned to the XGE Preparation Office. Three Environmental Protection Offices will be established and part-time supervisors will be assigned to each contract section to carry out environmental supervision and dust and noise monitoring. Other monitoring will be carried out by the Environmental Monitoring Station under EPD/GPFC. During the operating phase, environmental work will be carried out by an Environmental Protection Section with environmental staff, set up in the XGE Company, which will operate and maintain the XGE. Environmental training will be undertaken to provide adequate training for environmental staff at all levels. The detailed staffing and training plan is presented in the EAP. -103 - ANNEX4a

ANNEX 4a: REVIEW OF THE RESETTLEMENT ACTION PLAN SUMMARY (HUNAN SECTION)

A. BACKGROUND

1. This Annex presents the Land Acquisition and Resettlement aspects associated with Hunan section of the National Highways II project. It is based on the Resettlement Action Plans (RAPs) prepared by the Provincial Resettlement Office (PRO) of the Hunan Province Expressway Construction and Development Corporation (HPECDC) in cooperation with the Resettlement Offices (ROs) of affected cities and counties, as well as Institutes associated with the project.

B. DIMENSIONS OF RESETTLEMENT

2. Project Impact. The Xiangtan-Leiyang Expressway (including the link up road between Xiangtan and Zhuzhou) will affect 124 villages in 31 towns and 5 counties. The RIP component between Loudi and Lianyuan will be passing through 50 villages in 11 towns. The impact of the project is summarized in Table 1.

TABLE 1: PROJECT IMPACT

Effect Unit Main Component RIP Component Total

Permanent land acquisition: Total mu 18,732 3,282 22,014 Land under agricultural/economic use mu 15,846 3,055 18,901 Residence base mu 623 163 786 Others mu 2,262 65 2,327

Temporary land occupation: Total mu 3,220 452 3,672 Arable mu 2,305 0 2,305

Affected structures: Total m2 275,887 109,774 385,661 Private residence-area m2 268,411 108,753 377,164 units no. 1,170 377 1,547 Public-area m2 7,476 1,021 8,497

Affected persons-Total no. 18,842 7,128 25,970 Households-Total no. 4,547 1,403 5,950

PAPs affected by: Land acquisition only no. 13,997 5,302 19,299 House relocation only no. 759 123 882 Both house and land no. 4,086 1,703 5,789

House relocation due to noise pollution no. 50 0 50

Economically Active PAPs no. 12,268 3,996 16,264

Persons to be resettled into enterprise jobs no. 483 0 483 -104 - ANNEX4a

3. Resettlement Action Plans. The PRO of HPECDC prepared two RAPs for the project based on the Laws and Regulations of PRC and Hunan Province as well as the Bank's Operational Directive OD 4.30 on Involuntary Resettlement. The main RAP covers the Xiangtan-Leiyang expressway including the linkup road between Xiangtan and Zhuzhou, the second RAP is presented as an appendix covering the RIP component (Loudi-Lianyuan Highway).

C. POLICY AND STRATEGIES FOR RESETTLEMENT

4. Legal Framework and Resettlement Policy. In addition to the National laws and regulations mentioned in the main text, the following local regulations govern land acquisition and resettlement in Hunan Province:

Provincial Policy:

* Hunan Provincial Land Administration Implementation Regulations (1992)

* Hunan Provincial People's Government's Xiangzhenban No. 22 Document (1992)

City Policy:

* Xiangtan City People's Government's Tan Zhen No. 3 document: Regulations on Land for State and Town Construction (1989)

o Zhuzhou city Land Administration Regulations (1989 and 1993)

* Hengyang City People's Government's No. 10 document (1991)

5. Resettlement Compensation. The average annual output value for land varies as much as 24 percent among the counties which are affected. For this project the highest average annual output value (Y 1,002/mu) had been selected as a basis for compensation. The multipliers selected are 6 for irrigated land, and 3 for resettlement grant, the highest multipliers in the Land Law.

6. Land Redistribution. Preference will be given to land-based resettlement by readjusting the village land among the laborers in the village, to the extent that the average land per person in the village does not fall below the township level. Whenever the average falls below the township level, then the surplus labor will be resettled in enterprise jobs. After the readjustment of land, the PRO, local governments, City ROs (CIROs) and County ROs (COROs) will take rehabilitation measures to increase the productivity of agricultural land.

7. House Relocation. Compensation for affected buildings will be paid at replacement cost (without depreciation). PAPs will be relocated in original villages, near their original house. Construction of new housing will be completed before the -105- ANNEX4a destruction of the affected structures. Vulnerable groups and those who need assistance, such as, the old, sick and the handicapped will be assisted by the local authorities while they reconstruct their houses. Detailed rates of house compensation is provided in the RAP.

8. Affected Public Buildings and Enterprises. Affected enterprises will be rebuilt and will reemploy all the original workers. Construction of new facilities will be completed before old structures are demolished so that production losses are minimized. Compensation of lost output, work stoppage allowance and production stoppage allowance will be incorporated into the compensation rates for the facilities.

9. Transfer of PAPs from Agriculture to Enterprise Jobs. A tota of 1,221 PAPs (including all family members) will be transferred from agricultural to enterprise jobs due to limitations in land availability. This figure translates into 483 economically active laborers. During the waiting period, if any, enterprises will pay the workers a fee of Y 200 per month. PAPs will sign employment agreements with the enterprises which will provide lifelong employment and pension after retirement.

10. Job Creation. To provide jobs for the eligible PAPs, 28 enterprises were chosen along the route which are willing to employ the 483 laborers. Currently, these enterprises employ between 80 and 210 workers. After resettlement they will be employing between 5 and 28 additional PAPs each. Over the last three years, the rate of growth of employment in these enterprises was between 10 percent and 22 percent, and the rate of growth of output has surpassed the employment growth. This record provides a favorable indication on their future performance. It is predicted that the PAPs' income will increase as a consequence of enterprise employment. Employment environment in these enterprises has been screened to ensure that it will not cause employment related health problems.

11. Infrastructure. Affected infrastructure will be rehabilitated either by the project, or compensation will be paid, at replacement cost, to the owners of infrastructure. Improvement of the standards of affected infrastructure will be ensured through consultation with the PAPs during the rehabilitation of the infrastructure.

D. INSTITUTIONS

12. Institutional Responsibility. Leading groups at the project, city and county levels have been established with the responsibility of coordinating and implementing resettlement. Actual implementation of resettlement will be under the responsibility of CIROs and COROs. These offices have been equipped with the necessary staff and equipment. The responsibility of the ROs at all levels are to distribute compensation, guarantee the implementation of the RAP, and assist the PAPs to improve their standards of living. COROs have assigned members from the local government, communications, land acquisition, water conservancy, post and telecommunications bureaus to staff their offices. TROs have followed the same procedure. -106 - ANNEX4a

13. Staffing of the ROs. PRO has seven staff members including the Director. Five COROs have a total of 34 staff members and 29 TROs have a total of 97 staff members. The monitoring data base that the village ROs and TROs will utilize is also available at the CIRO, CORO and PRO level in electronic form. Monitoring results will flow to COROs, where the information will be processed in electronic form and transmitted to PRO to complete the monitoring cycle.

E. SCHEDULING

14. Implementation Schedule. Preparation of the RAP has begun in January 1995 with the establishment of the PRO. The census survey, consultation with PAPs, establishment of local ROs, and consultation on compensation rates and rehabilitation packages have already taken place. The schedule for the remaining activities associated with the implementation of the RAP is presented in Table 2.

TABLE 2: IMPLEMENTATION SCHEDULE

Activity Date ExecutingUnit Baselinesurvey (Standardsof Living Survey-SLS) Apr 96 HASS Measurementand verificationof the extent of land Jun 96 TROs acquisitionand house relocation Signing of resettlementagreement Jun 96 PRO, CIROs and COROs Appraisalfor and acquisition Jun 96 TROs Allocationof funds to CIROs and COROs Jul 96 PRO CIROsallocate funds for TROsto be paid to units and Jul 96 CIROs& COROs persons House constructionand house relocation Jul-Oct96 TROs InfrastructureRelocation Jul-Oct96 Power and TelecomBureau PAPs to be relocated into enterprises Sep-Oct96 Enterprises Turnoverof land Nov 96 TROs Land Readjustment Nov 96 TROs and PRO Superviseresettlement and approval Nov 96 PRO SLS after resettlementmonitoring Jun 97 HASS Independentmonitoring Jun 98 HASS

F. BUDGET

15. Resettlement Budget. The budget for the project is presented in Table 3. Physical and price contingencies as well as the administrative cost have been included in the budget. -107 - ANNEX4a

TABLE 3: RESETTLEMENT BUDGET

RIP Cost item Expressway Component Total Land compensationincluding residential base 132,481,462 21,065,384 153,546,846 Land occupationtax 4,137,596 979,930 5,117,526 Temporaryland occupation 5,302,581 1,039,600 6,342,181 Resettlementfee 33,419,657 12,002,015 45,421,672 Private house and asset compensationincluding 55,396,546 15,112,619 70,509,165 moving and transitionallowance Public buildingscompensation 1,953,502 278,095 2,231,597 Infrastructurecompensation 13,786,696 2,754,196 16,540,892 Cost of relocationdue to noise 2,329,879 0 2,329,879 Administrativecosts (3%) 7,464,238 1,596,955 9,061,193 Monitoringand RAP preparation 4,976,158 1,064,636 6,040,794 Contingencies:Physical 24,880,792 5,323,184 30,203,976 Price 24,880,792 5,323,184 30,203,976 Total 311,009,899 66,539,798 377,549,697

G. GRIEVANCE, PARTICIPATION AND CONSULTATION

16. Grievance Process. PAPs with grievances on the process of resettlement and rehabilitation shall consult with the village resettlement offices and TROs. If the results are not satisfactory to the PAPs, they can submit their complaint in written form to the CORO. The county will respond to the complaint within 15 days. If the issue is not resolved, an appeal should be made to the PRO which will respond in 15 days. If the issue cannot be resolved within by the project authorities, then grievance will be brought to the people's court according to 38th article of PRC Administration Lawsuit Law.

17. Participation and Consultation. PAPs have been consulted on the impact of the project and resettlement measures since January 1995 through surveys, public meetings, consultation on compensation rates and the selection of resettlement sites. As a consequence of the participation process, the house compensation rate has been increased to the present level as it was suggested by the PAPs. The PAPs were informed about the project and already know the location of their new land and house-plots. Consultation with the PAPs will continue during implementation.

H. MONITORING AND REPORTING

18. Internal Monitoring. PRO is responsible for the organization and execution of internal monitoring of the resettlement associated with the project. All levels of ROs will coordinate their monitoring activities. During implementation, TROs and COROs will record their resettlement and rehabilitation activities at the individual and household level into their databases and transmit the information to the PRO. -108 - ANNEX4a

19. Independent Monitoring. The implementation of the RAP will be monitored by an independent agency to evaluate its progress and the compliance of the implementing organizations with the principles of the RAP. In addition, the agency will conduct surveys to monitor the Standards of Living of the PAPs to ascertain that remedial action will be taken if the living standards fall below preproject levels. HASS will also be responsible to monitor the: (a) coordination between the schedule of resettlement and civil works; (b) grievance issues; (c) job creation; (d) rehabilitation of infrastructure; (e) satisfaction of the PAPs. -109 - ANNEX4b

ANNEX 4b: REVIEW OF THE RESETTLEMENT ACTION PLAN SUMMARY (GUANGDONG SECTION)

A. BACKGROUND

1. This Annex presents the Land Acquisition and Resettlement aspects associated with Guangdong section of the National Highways II project. It is based on the Resettlement Action Plan (RAP) prepared by the Resettlement Office (RO) of the Guangdong Province Freeway Company (GPFC) in cooperation with the Second highway Survey and Design Institute of the Ministry of Communications (SHSDI), ROs of affected cities and counties, as well as the institutes associated with the project.

B. Dimensions of Resettlement

2. Project Impact. The Xiaotang-Gatang Expressway will affect 31 administrative villages of 12 in 4 counties. The impact of the project is summarized in Table 1.

TABLE 1: PROJECT IMPACT

Effect Unit Magnitude

Permanent Land Acquisition: Total mu 10,771 Land under agricultural/economic use mu 9,760 Residence Base mu 25 Others mu 986 Temporary Land Occupation (Arable) mu 1,286

Affected Structures: Total m2 35,583 Private Residence-area m2 20,506 Attachments to above m2 8,829 ...... units no. 288 Enterprises-area m2 6,248 ...... units no. 14 ...... laborers no. 354 Persons Affected by House relocation and no. 13,195 Agricultural Land Acquisition-Total Households-Total no. 2,866 PAPs affected by House Relocation no. 1,568 Households no. 281 -110- ANNEX4b

3. Resettlement Action Plan. RO of GPFC prepared the RAP for the project based on the laws and regulations of PRC and the Bank's Operational Directive OD 4.30 on Involuntary Resettlement. SHSDI, Expressway Construction Command Office (ECCO) of affected cities and counties and local Land Acquisition Offices (LAOs) collaborated with the RO during the preparation of the document. Guangzhou Academy of Social Sciences (GASS) provided consulting services for population surveys. The RAP forms the basis of implementation of land acquisition and resettlement of the project.

C. POLICY ANDSTRATEGIES FOR RESETTLEMENT

4. Legal Framework and Resettlement Policy. In addition to the National laws and regulations mentioned in the main text, the following local regulations govern land acquisition and resettlement in Guangdong Province:

Provincial Policy:

* Interim Methods of Land Acquisition for Communication Infrastructure of Guangdong Province (1992);

* Administrative Methods of Forest Land of Guangdong Province (1992)

• Interim Regulations Development and Administration for Mine Sources of Guangdong Province (1986);

* Administrative Methods of Taxation for Farmland Occupation of Guangdong Province (1987)

. Administrative Regulations of Land Acquisition of Guangdong Province (1993)

* Administrative Regulations of Construction Land Acquisition of Guangdong Province (1994)

* Administrative Regulations for the Protection of (Good) Farmland Areas of Guangdong Province (1993)

* Administrative Regulations of Urban house Removal of Guangdong Province (1993)

* Several Regulations of the Work of the Scattered Living Minority of Guangdong Province(1989)

City and ECC Policy:

* Enforcement Methods of Land Requisition, Demolition and Removal of Shaoguan City for Shaoguan Road Section of Beijing-Zhuhai Expressway (1995) -111- ANNEX4b

5. Resettlement Compensation. Compensation for agricultural land, and for structures fall within the range applied in Bank projects. The multipliers for paddy field is 4; dry land, vegetable field, orchard and fish pond is 3; and, woodland and bamboo is 6. Multipliers for young crop compensation is 1/2 for paddy and dry land; 1/3 for vegetable land; and, 1 for pond, orchard, woodland and bamboo. As some of the multipliers were low, the Calculated Average Annual Output Value of agricultural land was adjusted upwards to yield total compensation amounts (per mu) which would be comparable to the figures applied in the Hunan section of the project.

6. Land Redistribution. Preference will be given to land-based resettlement by readjusting the village land among the laborers in the village, to the extent that average land per person in the village does not fall below the minimum level. Whenever the average falls below the minimum, then the surplus labor will be resettled in enterprise jobs. After the readjustment of land, the RO, local governments, and city and county ROs will take rehabilitation measures to increase the productivity of agricultural land.

7. House Relocation. PAPs will be relocated in their original villages, near their original house. Construction of new housing will be completed before the destruction of the affected structures. Vulnerable groups and those who need assistance, such as, the old, sick and the handicapped will be assisted by the local authorities during the reconstruction of their house.

8. Affected Enterprises. The project will affect 14 enterprises employing 354 employees. These enterprises will be compensated and rehabilitated according to the following principles: (a) they will be rebuilt, and will reemploy original workers at their former salaries; (b) construction of new facilities will be completed within three months after the signing of the contract to ensure the normal resumption of business; and (c) compensation of lost output, work stoppage allowance and production stoppage allowance will be paid to the enterprises.

9. Transfer of Surplus Labor in Agriculture to Enterprise Jobs. A total of 3,106 agricultural laborers will lose some of their land allocation. After land readjustment, only 2,156 will be able to continue with their agricultural occupation due to the scarcity of agricultural land. The remaining 950 surplus laborers, will either be allocated nonagricultural jobs in 15 designated township or county level enterprises, or chose to receive the resettlement grant to find their own employment.

10. Job Creation. 331 surplus laborers will receive a minimum wage of Y 300/ month (at about the twice the rate of earning from cultivation) in the designated enterprises. During the training period the PAPs will receive a minimum salary of Y 150. Details of the enterprises are provided in the county level RAPs. A total of 619 laborers chose to find work on their own, in activities such as reclaiming deserted land, cultivating fruit trees on the slopes, and working independently in the service sector. The township and village authorities will assist these PAPs in finding new job opportunities by providing credit and technical advice. -112 - ANNEX4b

11. Affected National Minorities. The project passes through Ruyuan county where the Yao minority is concentrated. During the design of the highway, a special effort was made to minimize the impact on the Yao, but, due to the difficulty of the terrain, 1,351 Yao will still be affected, where 121 families will lose their houses. GPFC will provide rehabilitation benefits to the Yao community beyond the compensation of lost assets.

12. Infrastructure. Compensation for infrastructure has been agreed between GPFC and the owners of the infrastructures. Compensation will be paid by GPFC and the owners will be responsible for the rehabilitation of the affected infrastructure.

D. INSTITUTIONS

13. Institutional Responsibility. Leading groups at the project, city and county levels have been established with the responsibility of coordinating and implementing resettlement. Actual implementation of land acquisition will be under the responsibility of county and township ROs. Expressway Construction and Command of Shaoguan City (ECCSC) will be responsible for the signing of contracts and supervising the implementation of the RAP. GPFC has set up three Resettlement Offices On the Spot (ROOS) in Qujiang, Ruyuan, and Pingshi, to work as the field office of the RO of GPFC and to conduct internal monitoring.

14. Staffing of the ROs. RO of GPFC has 10 staff members. ECCSC has four sections (secretariat, land acquisition, engineering and finance), employing 16 staff members. ROOS will have three staff members each. County and Township ROs have at least two staff members each.

E. SCHEDULING

15. Implementation Schedule. RO of GPFC was established in May 1995. In June 1995, SHSDI was given the task of conducting the census of the PAPs and their assets, and GASS was appointed as the advisor for population surveys. The census was conducted between August-September, and November 1995. The RAP was prepared in collaboration with GASS, SHSDI and local ROs . The schedule for the remaining activities associated with the implementation of the RAP is presented in Table 2. -113 - ANNEX4b

TABLE 2: IMPLEMENTATION SCHEDULE

Activity Date

Baseline Survey (Standards of Living Survey-SLS) Apr 96 Measurement and verification of the extent of land acquisition and Mar 96 house relocation Consultation with the PAPs Mar-Apr 96 Submit land acquisition Map to the CIROs and COROS Apr 97 Payment of the first installment of compensation May-Dec 97 Resettlement implementation Aug 97-Apr 98 Removal of buildings May 95 SLS after resettlement monitoring Oct-Dec 96

F. BUDGET

16. Resettlement Budget. The budget for the project is presented in Table 3. Contingencies and the administrative cost have been included in the budget.

TABLE 3: RESETTLEMENT BUDGET

Cost item Y '000

Land compensation including residential base 103,643 Temporary land occupation 5,083 Private house and asset compensation including moving and 4,199 transition allowance Compensation for attached facilities 7,257 Enterprise compensation 5,550 Administrative costs (3%) 3,771 Contingencies 18,852 Total 148,355

G. GRIEVANCE, PARTICIPATION AND CONSULTATION

17. Grievance Process. PAPs with grievances will be able to submit their complaints to the implementing and supervising authorities of the project to receive a quick response. Local government offices will receive complains at any time and report them to the responsible authority to receive a response within one month.

18. Participation and Consultation. Consultation with the Yao Nationality Community has taken place. Preferential policies are being developed to benefit the PAPs of the minority community. Information campaign and subsequent consultation -114 - ANNEX4b with the PAPs is also undertaken on a regular basis. Whenever available, a choice is offered to the PAPs such as alternative house plots, rehabilitation packages and non- agricultural employment. The Independent Monitors will continue the consultation after the completion of implementation.

H. MONITORING AND EVALUATION

19. Internal Monitoring. The RO of GPFC, GPCD and the Shaoguan City are responsible for the organization and execution of internal monitoring of resettlement associated with the project. The purpose of monitoring is to ensure: (a) that the implementation will be competed according to schedule and meet the specified standards; (b) that the PAPs improve their living standards and productivity of their land; and (c) identify potential problems and improve the management of the project. ROOS will be the primary extension of the RO of GPFC to undertake the monitoring of resettlement activities under the responsibility of local ROs and LAO.

20. Independent Monitoring. Implementation of the RAP will be monitored by an independent agency (GASS) to evaluate its progress and the compliance of the implementing organizations with the principles of the RAP. In addition, the agency will conduct surveys to monitor the Standards of Living of the PAPs to ascertain that remedial action will be taken if the living standards fall below preproject levels. -115 - ANNEX5

ANNEX 5: IMPLEMENTATION SCHEDULE

1. This annex presents the implementation schedule for the various components of the project. Table I summarizes the overall implementation schedule for the project as a whole. Tables 2a and 2b show the detailed implementation schedule for the 24 civil works contract sections (11 contract sections in Hunan and 13 contract section in Guangdong) of the expressway to be constructed by ICB; administration and maintenance buildings; and service areas and electrical and mechanical works for the expressway. Tables 3a and 3b depict the detailed implementation schedule for the supervision of construction of the expressway. Table 4a shows the detailed implementation schedule for the interconnecting roads in Hunan. Tables 5a, 5b, 5c, 5d, and 5e show the detailed implementation schedule for the Foreign Capital Promotion Study; the Highway Maintenance Management Study in Hunan; the High-Grade Highway Commercialization and Corporatization Study in Hunan; the Transport and Economic Integration Study; and the Road Safety Program for both provinces. These schedules show the estimated time requirements for construction activities, as well as for preconstruction activities, such as preparation of bid documents, the prequalification process, the bidding process, evaluation of bids, negotiations, and signing of contracts. TABLE 1: IMPLEMENTATION SCHEDULE

1995 1996 1997 1998 1999 2000 2001 CIVIL WORKS Xiangtan-Leiyang Expressway Section ZhutanInterconnect. Road

Loudi-LianyuanHighway ......

Interconnecting Roads in Hunan

Xiaotang-Gantang Expressway ------Section Administr.& Maint. Buildings, Serv.Areas, & TollPlazas in Hunan Administr.& Maint.Buildings, Serv.Areas, & Toll Plazasin Guangdong E & M WORKS -_ XLESection (Hunan)

XGESection (Guangdong) SUPERVISIONOF CONSTRUCTION XLESection (Hunan)

XGE Section (Guangdong) ...... PROCUREMENTOF EQUIPMENT Central Lab and Environ. Protection - for XLESection (Hunan) Operationand Maintenancefor ...... - XLESection (Hunan) z CentralLab and Environ.Protection for XGESection (Guangdong) Operationand Maintenancefor _ XGESection (Guangdong) PMSand RDBfor LLH, 1995 1996 1997 1998 1999 2000 2001 XZHand InterconnectingRoads (Hunan) Mainten.for Interc.Roads (Guangdong) InstitutionalStrengthening PMSfor Guangdong INSTITUTIONALSTRENGTHENING InstitutionalStrengthening

Supervision Training STUDIES HighwayMainten. Manag. Study

High-GradeHighway Commerc. _ and Corport.Study

Transp. and Econom. Integration Study

Road Safety Program in Hunan _

Road Safety Program in Guangdong _

Legend: Prequalificatiordpreparationof bidding documents/TOR Biddingprocess/competition among consultants Construction/supervision/delivery/executionof studies Defectsliability period

i______Training/technical assistance/roadway safety -118 - ANNEX5

TABLE 2A: HUNAN-IMPLEMENTATION PROGRAM FOR CONSTRUCTION OF THE XIANGTAN-LEIYANG EXPRESSWAY

1. Civil Works Contract Sections for ICB Prequalification documents available for sale on Mar 20, 1996 Last date to submit PQ documents Apr 20, 1996 PQ documents evaluation report & MOC review Aug 05-Sep 25, 1996 Bank review and no objection to PQ documents Aug 05-Sep 25, 1996 Evaluation report Jun 01-Jul 01, 1996 Review bid documents by the Bank Oct 3-Nov 10, 1996 Sell bidding documents to prequalified contractors Jan 10, 1997 Last date to receive bid documents Sep 30, 1996 Bid evaluation report and government review Jan 10-Feb 10, 1997 Bank review bid evaluation report and no objection Feb 10-Mar 10, 1997 Notify successful bidder Mar 15, 1997 Negotiate and sign contracts with contractors Apr 20, 1997 Start construction on May 20, 1997 Complete construction by May 20, 2001 Administration and Maintenance Buildings, Service Areas, and Toll Plazas (NCB) Complete bid documents Mar 20, 1997 Review bid documents by Bank and no-objection Apr 20, 1997 Invite bids May 30, 1997 Receive bids Aug 01, 1997 Complete bids evaluation and MOC review Sep 15, 1997 Negotiate and sign contracts Nov 30, 1997 Start construction on Jan 01, 1998 Complete construction by Nov 30, 2000 2. Electrical and Mechanical Works (ICB) Complete bid documents and review by MOC Oct 20, 1997 Review bid documents by Bank and no-objection Dec 25, 1997 Invite bids Jan 01, 1998 Receive bids Apr 15, 1998 Prepare bids evaluation report and MOC review Jun 15, 1998 Review bid evaluation report by Bank and no-objection Jul 20, 1998 Notify successful bidder Jul 25, 1997 Negotiate and sign contracts Aug 30, 1998 Start construction on Oct 30, 1998 Complete construction by May 30, 2001 -119- ANNEX5

TABLE 2B: HUNAN-IMPLEMENTATION PROGRAM FOR CONSTRUCTION OF THE LOUDI- LIANYUAN HIGHWAY

1. Civil Works

Contract Sections for ICB Prequalification documents available for sale on May 10, 1996 Last date to submit PQ documents Jun 10, 1996 PQ documents evaluation report & MOC review Jun I -Nov 10, 1996 Bank review and no objection to PQ documents Evaluation report Nov 11-Dec 10, 1996 Review bid documents by MOC Oct 20-Nov 20, 1996 Review bid documents by the Bank Nov 21-Dec 20, 1996 Sell bidding documents to prequalified contractors Dec 25, 1996 Last date to receive bid documents Feb 28, 1997 Bid evaluation report and government review Mar 01-Apr 25, 1997 Bank review bid evaluation report and no objection Apr 26-May 25, 1997 Notify successful bidder Jun 05, 1997 Negotiate and sign contracts with contractors Jul 05, 1997 Start construction on Aug 01, 1997 Complete construction by Feb 28, 2000

TABLE 2c: GUANGDONG -IMPLEMENTATION PROGRAM FOR CONSTRUCTION OF THE XIAOTANG-GANTANG EXPRESSWAY

1. Civil Works

ContractSections for ICB (A-J Contracts) Prequalificationdocuments available for saleon Oct 04, 1996 Last date to submitPQ documents Dec 01, 1996 PQ documents evaluation report & MOC review Jan 20-Feb 10, 1997 Bank reviewand no objectionto PQ documents Evaluationreport Feb 10-Mar10, 1997 Reviewbid documentsby MOC Dec 15, 1996-Jan15, 1997 Reviewbid documentsby the Bank Jan 16-Feb28, 1997 Sell biddingdocuments to prequalifiedcontractors Mar 8, 1997 Last date to receivebid documents Jul 8, 1997 Bid evaluationreport and governmentreview Jul 9-Aug23, 1997 Bank reviewbid evaluationreport and no objection Aug 24-Sep8, 1997 Notify successfulbidder Sep 23, 1997 Negotiateand sign contractswith contractors Sep 24-Oct24, 1997 Start constructionon Nov 28, 1997 Completeconstruction by Jun 28, 2000 -120 - ANNEX5

2. Civil Works

Contract Sections for ICB (K-M Contracts) Prequalification documents available for sale on Jun 28, 1998 Last date to submit PQ documents Aug 30, 1998 PQ documents evaluation report & MOC review Sep 01 -Sep 30, 1998 Bank review and no objection to PQ documents Evaluation report Oct 01 -Oct 30, 1998 Review bid documents by MOC Aug 01-Aug 30, 1998 Review bid documents by the Bank Sep 01-Sep 30, 1998 Sell bidding documents to prequalified contractors Nov 01, 1998 Last date to receive bid documents Jan 15, 1999 Bid evaluation report and government review Jan 16-Feb 30, 1999 Bank review bid evaluation report and no objection Mar 01 -Mar 20, 1999 Notify successful bidder Apr 01, 1999 Negotiate and sign contracts with contractors Apr 15, 1999 Start construction on May 13, 1999 Complete construction by May 13, 2001

Administration and Maintenance Buildings, Service Areas, and Toll Plazas (NCB) Complete bid documents Nov 01, 1998 Invite bids Dec 01, 1998 Receive bids Feb 01, 1999 Complete bids evaluation Feb 01-Mar 30, 1999 Negotiate and sign contracts Apr 01-Apr 15, 1999 Start construction on May 13, 1999 Complete construction by May 13, 2001

3. Electrical and Mechanical Works (ICB)

Complete bid documents and review by MOC Jul 01, 1998 Review bid documents by Bank and no-objection Jul 10-Aug 10, 1998 Invite bids Aug 10, 1998 Receive bids Dec 10, 1998 Prepare bids evaluation report and MOC review Dec 10, 1998-Feb 10, 1999 Review bid evaluation report by Bank and no-objection Feb 11-Mar 10, 1999 Negotiate and sign contracts Mar 11-Apr1O,1999 Start construction on May 13, 1999 Complete construction by May 13, 2001 -121- ANNEX5

TABLE 3A: HUNAN-IMPLEMENTATION PROGRAM OF SUPERVISION OF CONSTRUCTION OF XIANGTAN-LEIYANG EXPRESSWAY

Review and no objection of Bank to terms of reference, letter of invitation, and short list of consultants Mar 26, 1996 Issue invitations to consultants Apr 01, 1996 Receive proposals May 25, 1996 Complete proposal evaluation report and MOC review Nov 30, 1996 Bank review proposal evaluation report and no objection Dec 30, 1996 Negotiate with consultant and sign contract Mar 30, 1997 Consultant to prepare training material Apr 01, 1997 Train local personnel in China Apr 10-May 10, 1997 Train local personnel abroad Apr 20-May 20, 1997 Start supervision of construction May 20, 1997 Complete supervision of construction May 20, 2001

TABLE 3B: GUANGDONG -IMPLEMENTATION PROGRAM OF SUPERVISION OF CONSTRUCTION OF XIAOTANG-GANTANG EXPRESSWAY

Review and no objection of Bank to terms of reference, letter of invitation, and short list of consultants Sep 15, 1996 Issue invitations to consultants Oct 02, 1996 Receive proposals Dec 04, 1996 Complete proposal evaluation report and MOC review Dec 05, 1996-Jan 02, 1997 Bank review proposal evaluation report and no objection Jan 03-Feb 23, 1997 Negotiate with consultant and sign contract Feb 24-Apr 17, 1997 Consultant to prepare training material Apr 18-May 29, 1997 Train local personnel in China May 30, 1997-May 30, 1998 Train local personnel abroad Jul 10, 1997-Dec 30, 1998 Start supervision of construction Nov 05, 1997 Complete supervision of construction May 13, 2002 -122 - ANNEX5

TABLE 4: HUNAN-IMPLEMENTATIONPROGRAM FOR CONSTRUCTIONOF ZHUTAN INTERCONNECTINGROAD AND OTHER INTERCONNECTINGROADS

1. Civil Works

Contract Sections for ICB Prequalification documents available for sale on Feb 05-Nov 15, 1997 Last date to submit PQ documents Mar 15-Dec 15, 1997 PQ documents evaluation report & MOC review Apr 15, 1997-Jan 15, 1998 Bank review and no objection to PQ documents Evaluation report May 20, 1997-Feb 15, 1998 Review bid documents by MOC Jan 30-Nov 15, 1997 Review bid documents by the Bank Feb 28-Dec 15, 1997 Sell bidding documents to prequalified contractors May 20, 1997-Feb 15, 1998 Last date to receive bid documents Jul 20, 1997-Apr 15, 1998 Bid evaluation report and government review Jul 20, 1997 Bank review bid evaluation report and no objection Sep 05, 1997-Jun 10, 1998 Notify successful bidder Sep 10, 1997-Jun 15, 1998 Negotiate and sign contracts with contractors Oct 10, 1997-Jul 15, 1998 Start construction on Nov 10, 1997-Aug 15, 1998 Complete construction of Zhutan interconnecting road Jun 10, 1999 Complete construction of other interconnecting road Sep 01, 1999

TABLE 5A: IMPLEMENTATIONPROGRAM OF THE HIGHWAYMAINTENANCE MANAGEMENTSTUDY IN HUNAN

Review and Bank's no objection to terms of reference, letter of invitation, and short list of consultants Oct 01-Nov 01, 1996 Issue invitations to consultants Jan 15, 1997 Last date to receive proposals Feb 16, 1997 Complete proposal evaluation report Mar 15, 1997 Bank review proposal evaluation report and no objection Apr 15, 1997 Negotiate with consultant and sign contract May 01, 1997 Mobilize consultant/Study Group Apr01, 1997 Execute the study Apr 01, 1997-Oct 01, 1998 -123 - ANNEX5

TABLE 5B: IMPLEMENTATION PROGRAM OF THE HIGH-GRADE HIGHWAY COMMERCIALIZATION AND CORPORATIZATION STUDY IN HuNAN

Review and Bank's no objection to terms of reference, letter of invitation, and short list of consultants Oct 01-Nov 01, 1996 Issue invitations to consultants Dec 15, 1996 Last date to receive proposals Jan 16, 1997 Complete proposal evaluation report Feb 15, 1997 Bank review proposal evaluation report and no objection Mar 15, 1997 Negotiate with consultant and sign contract Apr 15, 1997 Mobilize consultant/Study Group May 01, 1997 Execute the study May 01, 1997-Oct 01, 1999

TABLE 5c: IMPLEMENTATION PROGRAM OF THE TRANSPORT AND ECONOMIC INTEGRATION STUDY IN GUANGDONG

Review and Bank's no objection to terms of reference, letter of invitation, and short list of consultants Jan 01-Feb 01, 1997 Issue invitations to consultants Feb 15, 1997 Last date to receive proposals Mar 16, 1997 Complete proposal evaluation report Apr 15, 1997 Bank review proposal evaluation report and no objection May 15, 1997 Negotiate with consultant and sign contract May 22, 1997 Mobilize consultant/Study Group Jun 20, 1997 Execute the study Jul 01, 1997-Jan 01, 2001

TABLE 5D: IMPLEMENTATION OF THE ROAD SAFETY PROGRAM IN HUNAN

Establish the Core Leading Group Oct 01, 1996 Issue invitations to consultants Dec 16, 1996 Mobilize Study Group Apr 01, 1997 Work plans by the Study Group review and no objection by the Bank Jul 17, 1997 Execute the study Apr 01, 1997-Oct 01, 1998 -124 - ANNEX5

TABLE 5E: IMPLEMENTATIONOF THE RoAD SAFETYPROGRAM IN GUANGDONG

Establish the Core Leading Group May 01, 1997 Prepare list of Chinese experts, short list of foreign consultants, and letter of invitation for Bank review Jun 15, 1997 Issue invitations to consultants Jul 16, 1997 Last date to receive proposals Aug 17, 1997 Complete proposal evaluation report Sep 17, 1997 Bank review proposal evaluation report and no objection Oct 17, 1997 Negotiate with consultant and sign contract Nov 15, 1997 Mobilize Study Group Dec 16, 1997 Final proposal and work plans by the Study Group review and no objection by the Bank Jan 17, 1998 Execute the study Feb 01, 1998-Jul 31, 2000 -125 - ANNEX6

ANNEX 6: SUPERVISION MISSION PLAN

Timing Main Activities Skills requirement Staff-weeks

05/97 Project Launch Highway engineering 4.0 The review of all key procedures for Bank Executing Procurement Agency interactions, such as procurement, Disbursement disbursement, environment and resettlement, Environment implementation schedule, and progress reporting Resettlement requirements. Review progress on preparation of studies 10/97 General Supervision Highway engineering 3.0 (a) review of overall progress for each component, Procurement identification of pending issues, and agreement on Training follow-up actions; (b) agreement on resettlement monitoring arrangements; (c) review of proposals for equipment for maintenance of highway network and institutional strengthening; and (d) review of proposals for training programs. 02/98 Major Supervision Highway engineering 4.0 In-depth review of implementation status with particular Procurement emphasis on: Environment (a) contractors' performance; Transport economics (b) effectiveness of supervision; Highway capacity (c) adequacy of environmental protection measures; (d) review of proposal for equipment procurement for the operation and maintenance of the highway network and the expressway; (e) review of bidding documents for E&M supply and installation contract for the expressway; and (f) review of progress on studies of a foreign capital promotion study, a highway maintenance management study, a high-grade highway commercialization and corporatization study, a transport and economic integration study, and an expressway safety study 10/98 General Supervision Highway engineering 3.0 (a) review of overall progress for each component, Procurement identification of pending issues and agreement on Training follow-up actions; (b) review of progress for procurement of equipment for operation and maintenance of the expressway; (c) review of progress on studies; and (d) review of progress on training programs. -126 - ANNEX6

Timing Main Activities Skills requirement Staff-weeks

06/99 Major Supervision Highway engineering 4.0 In-depth review of implementation status with particular Environment emphasis on: Resettlement (a) contractors' performance; Transport economics (b) effectiveness of supervision; Traffic engineering (c) adequacy of environmental protection measures; (d) staff training programs; and (e) review of progress on implementation of studies and their recommendations. 02/00 General Supervision Highway engineering 3.0 Review of overall progress for each component, Training identification of pending issues and agreement on follow-up actions, with emphasis on training and studies. 10/00 Major Supervision Highway engineering 4.0 In-depth review of implementation status with particular Environment emphasis on: Capacity study (a) contractors' performance; Tolling (b) effectiveness of supervision; (c) adequacy of environmental protection measures; (d) staff training programs; (e) review of progress on implementation of recommendations of studies; and (f) review of results of toll studies and discuss operation and maintenance of tolling agencies. 06/01 General Supervision Highway engineering 3.0 Review of overall progress for each component, Training identification of pending issues and agreement on Tolling follow-up actions. 02/02 General Supervision Highway engineering 2.0 Review of overall progress for each component, identification of pending issues and agreement on follow-up actions. Agreement on actions for preparation of Project Implementation Completion Report. 10/02 PICR Mission Highway engineering 4.0 A consolidated review of project implementation. Transport economics Environment Resettlement Training TOTAL 34.0 -127 - ANNEX7

ANNEX 7: SELECTED DOCUMENTS IN THE PROJECT FILE

ECONOMIC AND ENGINEERING STUDIES

1. Traffic Forecasting in the Corridor and Basic Information for Feasibility Analysis of Xiangtan-Leiyang Expressway of Jingzhu National Trunk Highway within Hunan, prepared by Hunan Communication Design Institute of Planning & Survey, October 1995.

2. Beijing-Zhuhai (Jingzhu) Expressway in the Provinces of Hubei, Hunan and Guangdong, prepared by J.-M. Braun, September 1995.

3. Feasibility Study Report of Xiaotang-Gantang Expressway of Jingzhu National Trunk Highway within Guangdong prepared by the Second Highway Survey and Design Institute at MOC, Wuhan, December 1993.

4. Feasibility Study Report ofXiangtan-Leiyang Expressway of Jingzhu National Trunk Highway within Hunan prepared by the Hunan Design Institute of Communications, Planning and Survey, May 1994.

5. Feasibility Study Report for Zhuzhou-Xiangtan Connecting Road (Zhuzhou Tiantaishan-Xiangtan Yishue Highway) in Hunan, May 1995.

6. Feasibility Study Report for Loudi-Lianyuan Class II Auto-only Highway in Hunan), May1995.

7. The Location and Shapes of the Annex Areas for Xiaotang-Gantang Expressway of Jingzhu National Trunk Highway within Guangdong, prepared by GPFC, October 1995.

8. Prequalification Documents for Xiaotang-Gantang Expressway of Jingzhu National Trunk Highway within Guangdong, prepared by GPFC (revised draft), September 1995.

9. Traffic Engineering System for Xiaotang-Gantang Expressway of Jingzhu National Trunk Highway within Guangdong, Preliminary Design prepared by GPFC and HRI of MOC in Beijing, November 1995.

10. Traffic Engineering Design for Xiangtan-Leiyang Expressway of Jingzhu National Trunk Highway within Hunan prepared by China Highway Engineering Consulting & Supervising Corporation, March 1995. -128 - ANNEX7

11. Letter of Invitation and Terms of Reference for Consulting Services for Construction Supervision, GPFC, May 1995.

12. Technical Characteristics of the Main Components (Hunan Section).

13. Technical Characteristics of the Main Components (Guangdong Section.)

EQUIPMENT

1. Plan of Equipment Purchasing for National Highway Project 2 for Hunan, May 1996;

2. Contract List of Equipment Purchasing for National Highway Project 2 for Guangdong, May 1996.

ENVIRONMENTALDOCUMENTS

1. Environmental Impact Assessment for Xiaotang-Gantang Expressway in Guangdong Province, prepared by the Guangdong Provincial Freeway Company, December 1995.

2. Environmental Assessment Summary for Xiaotang-Gantang Expressway in Guangdong Province, December 1995.

3. Environmental Action Plan for Xiaotang-Gantang Expressway in Guangdong Province, December 1995.

4. Environmental Impact Assessment Report for Xiangtan-Leiyang Expressway in Hunan (2nd revised version), prepared by Highway Research Institute, the Ministry of Communications, Beijing, December 1995.

5. Environmental Assessment Summary for Xiangtan-Leiyang Expressway in Hunan, (2nd revised version), prepared by Highway Research Institute, the Ministry of Communications, Beijing, December 1995.

6. Environmental Action Plan for Xiangtan-Leiyang Expressway in Hunan (2nd revised version), prepared by Highway Research Institute, the Ministry of Communications, Beijing, December 1995.

7. Environmental Impact Assessment Report for Zhuzhou-Xiangtan Connecting Road (Zhuzhou Tiantaishan-Xiangtan Yishue Highway) in Hunan (revised version), December 1995.

8. Environmental Action Plan for Zhuzhou-Xiangtan Connecting Road (Zhuzhou Tiantaishan-Xiangtan Yishue Highway) in Hunan (revised version), December 1995. -129 - ANNEX7

9. Environmental Impact Assessment Report for Loudi-Lianyuan Class II Auto-only Highway in Hunan (revised version), December 1995.

10. Environmental Action Plan for Loudi-Lianyuan Class II Auto-only Highway in Hunan (revised version), December 1995.

RESETTLEMENT DOCUMENTS

1. Guangdong-Hunan Expressway Corridor Project (National Highways II), Hunan Section Resettlement Action Plan, Hunan Academy of Social Science and Resettlement Office of Hunan Provincial Xiangtan-Leiyang Expressway, January 1996.

2. Resettlement Action Plan (Loudi-Lianyuan Highway), Hunan Academy of Social Science and Resettlement Office of Hunan Provincial Xiangtan-Leiyang Expressway, January 1996.

3. Social Economic Survey Outline, Hunan Academy of Social Science and Resettlement Office of Hunan Provincial Expressway Construction and Development Corporation, January 1996.

4. Training Plan for Resettlement Staff, Hunan Academy of Social Science and Resettlement Office of Hunan Provincial Xiangtan-Leiyang Expressway, January 1996.

5. Guangdong Province, Xiaotang-Gatang Expressway, Resettlement Action Plan, Guangdong Provincial Freeway Company, January 1996.

6. National Highway II Project: TOR for the Independent Monitoring on Resettlement, Xiaotang-Gatang Expressway in Guangdong Province, Guangdong Province Freeway Company, December 1995.

TECHNICAL ASSISTANCE/TRAINING/STUDIES

1. Terms of Reference for Expressway Commercialization and Corporatization Study, in Hunan, October 1996.

2. Terms of Reference for Hunan Highway Maintenance Study, October 1996.

3. Terms of Reference for Traffic Safety Study of National Road 107, in Hunan, August 1996.

4. Terms of Reference for Training including Training Program, in Hunan, June 1996.

5. Terms of Reference for Environmental Monitoring during Construction and Operation, in Hunan, November 1996. -130 - ANNEX7

6. Terms of Reference for Monitoring Resettlement, in Hunan, November 1996.

7. Terms of Reference for Study on Transport and Economic Integration, in Guangdong, October 1996.

8. Terms of Reference for Study on Expressway Safety, in Guangdong, August 1996.

9. Overall Training Program, in Guangdong, October 1996.

10. Terms of Reference for Environmental Monitoring during Construction and Operation, in Guangdong, November 1996.

11. Terms of Reference for Monitoring Resettlement, in Guangdong, November 1996.

12. Institutional Strengthening and Training Report, GPCD, October 1995.

13. Institutional Strengthening and Training Program, HPCD, October 1995. MAP SECTION

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