Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No: 3520 1-CN

PROJECT APPRAISAL DOCUMENT

Public Disclosure Authorized ON A

PROPOSED LOAN

IN THE AMOUNT OF US$320 MILLION

TO THE

PEOPLE’S REPUBLIC OF

FOR A

FUJIAN HIGHWAY SECTOR INVESTMENT PROJECT Public Disclosure Authorized

SEPTEMBER 15,2006

Transport Sector Unit East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the Public Disclosure Authorized performance of their official duties. Its contents may not otherwise be disclosed without World CURRENCY EQUIVALENTS

(Exchange Rate Effective May 4,2006)

Currency Unit = RMB Yuan RMB Yuan 1-00 = US$0.124 US$ = RMBYuan8.05 FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS AADT Average Annual Daily Traffic GOC Government of China ADB Asian Development Bank HDM Highway Design and Maintenance Model BMS Bridge Management System HMPP Highways Maintenance Pilot Program BOT Build Operate Transfer ICB International Competitive Bidding CAS Country Assistance Strategy ICR Implementation Completion Report CNEN China National Expressway Network ISP Institutional Strengthening Program CPS Country Partnership Strategy LA&R Land Acquisition and Resettlement DA Designated Account M&E Monitoring and Evaluation DOFWBP = Director’s Office for World Bank Project MNDF Minority Nationalities Development EA - Environmental Assessment Framework EAP - Environmental Action Plan MOC Ministry of Communications EASTR = World Bank East Asia and Pacific Region MOF Ministry of Finance Transport Sector Unit MTE Medium Truck Equivalent EIA - Environmental Impact Assessment mu Chinese measure of land area EIRR - Economic Internal Rate of Return (1 5 muhectare) EMF - Environmental Management Framework NDRC National Development and Reform EMP - Environmental Management Plan Commission E&M - Electrical and Mechanical NPV Net Present Value EPB - Environmental Protection Bureau PAD Project Appraisal Document EPO - Environmental Protection Office PAP Project Affected Persons FDRC = Development and Reform PCU Passenger Car Unit Commission PMS Pavement Management System FHAB = Fujian Highway Administration Bureau PRC People’s Republic of China FHP 1 - First Fujian Highway Project PRO Project Resettlement Office FHP2 - Second Fujian Highway Project RAP Resettlement Action Plan FHSIP = Fujian Highway Sector Investment Project RPF Resettlement Policy Framework FMM - Financial Management Manual RRIF Rural Roads Implementation Framework FMR - Financial Management Report RRIP Rural Roads Improvement Program FPAO = Fujian Provincial Audit Office SBD Standard Bidding Documents FPCD = Fuj ian Provincial Communications SEPA State Environmental Protection Department Administration FPECD = Fujian Provincial Expressway Construction S WAp Sector Wide Approach Directorate TPRI Transport Planning and Research Institute FPFB - Fujian Provincial Finance Bureau voc Vehicle Operating Cost FPTQIS = Fujian Provincial Transport Quality YWE Yong’an - Wuping Expressway Inspection Stations

Vice President: James W. Adams Country Managermirector: David R. Dollar Sector Manager: Jitendra N. Bajpai Task Team Leader: Aurelio Menendez CHINA Fujian Highway Sector Investment Project

CONTENTS

Page A . STRATEGIC CONTEXT AND RATIONALE ...... 5 1. Country and sector issues ...... 5 2 . Rationale for Bank involvement ...... 7 3 . Higher level objectives to which the project contributes ...... 7 B. PROJECT DESCRIPTION...... 8 1. Lending instrument ...... 8 2 . Project development objective and key indicators ...... 8 3 . Project components ...... 9 4 . Lessons learned and reflected in the project design ...... 10 5 . Alternatives considered and reasons for rejection...... 11 C . IMPLEMENTATION...... 12 1. Partnership arrangements ...... 12 2 . Institutional and implementation arrangements ...... 12 3 . Monitoring and evaluation of outcomes/results ...... 14 4. Sustainability ...... 16 5 . Critical risks and possible controversial aspects ...... 17 6 . Loadcredit conditions and covenants ...... 18 D. APPRAISAL SUMMARY ...... 19 1. Economic and financial analyses ...... -19 2 . Technical ...... 20 3 . Fiduciary ...... 21 4 . Social ...... 22 5 . Environment ...... -23 .. 6 . Safeguard policies...... 24 7 . Policy Exceptions and Readiness ...... 24 Annex 1: Country and Sector or Program Background...... 25 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 32 Annex 3: Results Framework and Monitoring...... 34 Annex 4: Detailed Project Description ...... 37 Annex 5: Project Costs ...... 42 Annex 6: Implementation Arrangements ...... 43 Annex 7: Financial Management and Disbursement Arrangements ...... 50 Annex 8: Procurement Arrangements ...... 57 Annex 9: Economic and Financial Analysis ...... 63 Annex 10: Safeguard Policy Issues ...... 79 Annex 11: Project Preparation and Supervision...... 93 Annex 12: Documents in the Project File ...... 95 Annex 13: Statement of Loans and Credits...... 96 Annex 14: Country at a Glance ...... 101 Annex 15: Maps ...... 103 CHINA

FUJIAN HIGHWAY SECTOR INVESTMENT

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASTR

Date: September 15,2006 Team Leader: Aurelio Menendez Country Director: David R. Dollar Sectors: Roads and highways (1 00%) Sector ManagerDirector: Jitendra N. Bajpai Themes: Regional integration (P);Rural services and infrastructure (P);Trade facilitation and market access (S);Infrastructure services for private sector development (S) Project ID: PO91020 Environmental screening category: Full Assessment Lending Instrument: Specific Investment Loan

[XI Loan [ ] Credit [ 3 Grant [ ] Guarantee [ 3 Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 320.00 Pronosed terms: VSL__ Financing Plan (US$m) Source Local Foreign Total BORROWER 1,170.00 0.00 1,170.00 INTERNATIONAL BANK FOR 79.00 241.OO 320.00 RECONSTRUCTION AND DEVELOPMENT Total: 1.249.00 241 -00 1,490.00 Borrower: PEOPLE’S REPUBLIC OF CHINA

Responsible Agency: Fujian Provincial Communications Department (FPCD) 19th Floor, Fujian Comms. Admn. Building 18 Dongshui Road , Fujian Province 350001 People’s Republic of China Tel: 86-591-8707-7448 Fax: 86-591-8707-7377 shbafjjt,gov.cn :Y 2007 2008 2009 2010 2011 2012 innual 23.98 56.56 76.48 79.22 59.53 24.23 hmulative 23.98 80.54 157.02 236.24 295.77 320.00

Project description [one-sentence summary of each component] Re$ PAD B.3,a, Technical Annex 4 Component A. Rural Roads Improvement Program (RRIP). The RRIP aims at improving conditions of the lower class ofroads that connect administrative villages to the main provincial road network. The Bank loan will support the overall program and finance rural road investments following the rural roads implementation fiamework (RRIF) agreed upon with FPCD. The RRIF is the integrated framework ofthe Procurement Framework, Environmental Framework, Resettlement and Minority Nationalities Framework, and Financial Management Framework, and includes the technical and quality control specifications for the rehabilitation and improvement of the rural roads and the implementation arrangements for this component. Disbursements will be processed based on completed outputs. The Bank loan will support a subset of about 3,500 km out ofthe 10,000 km of local road sections already identified based on the demand of counties, townships and villages that are part ofthe 35,000 km provincial rural roads 2004-20 10 program. Component B. Yong'an - Wuping Expressway (YWE). The YWE will be a 195.2 km long section ofthe - expressway, which is one of the North-South corridors ofthe CNEN. The YWE will connect Yong'an ( Prefecture) with the border ofthe Fujian and Provinces, at Yanqian in Wuping city ( Prefecture). This component includes the acquisition and installation of electrical and mechanical (E&M) works and the construction of buildings and annex areas for service and safety operations. The expressway will consist of four lanes that have been designed for a speed of 80 km/hr in the mountainous terrain from Yong'an to Liancheng, and of 100 km/hr in the remaining section. The final alignment of the expressway has minimized the social and environmental impacts. A joint local-foreign consultant firm will supervise the construction of the YWE.

Component C. Highways Maintenance Pilot Program (HMPP). The HMPP component consists of maintenance by contract in two highway sections ofthe (non- expressway) provincial highway network. This component seeks to increase the efficiency of force-account maintenance practices, which are currently being applied by FPCD through the city and county Highway Bureaus. This component also includes the supervision of two contract pilots and it is complemented with technical assistance for FPCD maintenance staff as part ofthe ISP described below.

Component D. Institutional Strengthening Program (ISP). The ISP includes a study on toll rates, the impact evaluation and monitoring for the RRIP, the technical assistance for the HMPP, and training for staff ofthe agencies and institutions involved in the project. The analysis oftoll rates will evaluate alternative adjustments to maximize the use ofthe expressway network and optimize its economic value, building upon, expanding and updating a similar study undertaken under the Second Fujian Highway Project. The impact evaluation and monitoring study seeks to establish a knowledge base ofthe impacts ofthe RRIP on rural livelihoods as an analytical base for the design of future interventions on those types of roads across Fujian Province. The technical assistance for FPCD maintenance staff will provide the knowledge and analytical elements for exploring alternative mechanisms for contracting of maintenance activities as well as for the preparation, implementation, supervision, and assessment of the preferred contractual scheme under the HMPP. The training activities were built upon those previously carried out under the Second Fujian Highway Project, and will focus chiefly on: road asset management, operational management of roads and expressways, construction quality control, road safety, and design and operational safety considerations for tunnels, innovative mechanisms for tolling and traffic surveillance systems, and intelligent transportation systems (ITS). They will include both domestic training and courses and study tours outside of China as defined in the project training program.

Which safeguard policies are triggered, if any? Ref: PAD 0.6, Technical Annex 10 Environmental Assessment Involuntary Resettlement Indigenous Peoples Significant, non-standard conditions, if any, for: Re$ PAD C. 7 Board presentation: None

Loadcredit effectiveness: The issuance of the relevant legal opinions.

Covenants applicable to project implementation:

Implementation - Upon receiving reports from city, county and townships communications bureaus, as applicable, on the monitoring of compliance with the RRIF, including the social and environmental safeguards, the FPCD will certify compliance with the RRIF before proceeding to disburse from the Bank loan, and the Bank will be allowed to supervise such compliance on a sample basis. - The FPCD will disseminate in a proactive manner the RRIF and provide training on the use of the RRIF as necessary to ensure wide and fair participation of local entities.

Safeguards - For the RRIP, a Resettlement Action Plan and a Minority Nationalities Development Plan would need to be prepared, when applicable, in accordance with the provisions contained in the Resettlement and Land Acquisition Framework and the Minority Nationalities Development Framework and World Bank policies to that effect, and be duly implemented thereafter. - The EMP and RAP for the YWE, satisfactory to the Bank, will be applied while constructing the YWE and the Bank will be allowed to supervise such works.

Financial - The proceeds ofthe loan will be on-lent to Fujian Province on the same terms and conditions as the Bank loan, with the province bearing the foreign exchange risk. - The Financial Manual Plan for the YWE, satisfactory to the Bank, will be applied in implementing the YWE. - Fujian Province must maintain a financial management system and provide quarterly project consolidated financial statements in accordance with accounting standards acceptable to the Bank and must meet standard annual auditing requirements.

Reporting - Semi-annual progress reports for all components, including results indicators, as applicable, using agreed format. These progress reports will include a summary of the actions and activities undertaken to disseminate the RRIF and in training the counties/townships/villages. - Semi-annual reports on the record of environmental inspection and FPCD certifications under the RRIP component - Annual reports on the unit cost of the works under the RRIP. - Annual training report and evaluation forms. A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

Fujian province, with 35 million people (2004), lies along the East coast of China between the prosperous Chinese coastal provinces and cities of Guangdong and Hong Kong to the South and and to the North. Being in mainland China facing Taiwan across the , public investment in the province was limited from the 1960s into the 1980s and only increased to levels commensurate with the socio-economic characteristics of the province in the 1990s. By 2004, the province had lagged behind other coastal provinces in terms of quantity of transport infrastructure, which affected its social and economic progress (e.g., GDP per capita falls between 75% and 85% of neighboring provinces, while life expectancy is more than two years lower). Though road density per 1000 square kilometers or per inhabitant is comparable to the country averages and those of neighboring provinces, the density of higher class roads is less than half of the values in the provinces of Guangdong or Zhejiang, and the percentage (81%) of unclassified and lower class (IV) roads is substantially higher.’

Fujian’s transport network facilitates North-South transport across coastal provinces and provides access to deep-water ports to inland provinces such as , Hunan, and Hubei, and also to the more distant provinces of Sichuan and . These five provinces together have a population of about 300 million. Fujian has two major ports- and Fuzhou-that rank among the nation’s top 10 container ports. Enhancing transport conditions across the province will improve connections to other inland regions that are lagging behind economically. Improved access to its ports will lead to a more balanced distribution of cargo and reduce congestion across the Eastern ports-such as Shanghai and Hong Kong.

The developed area of the Province is concentrated on the narrow strip of land along the coast. Seventy percent of its land westward from the coast is mountainous terrain with large pockets of poor populations. Of the 207 poorest villages identified by the Fujian Provincial Government for special support efforts before 2010, 166 are located within the immediate project areas (73 in Longyan, 47 in Sanming and 46 in ). In these isolated areas the unclassified and lower class roads provide limited transport services, leading to higher transport costs and disincentives for investment. In general, rural people in villages outside the main provincial corridors-including the 7,500 administrative villages in the province’s 84 counties-have limited accessibility, since the existing road network largely consists of earth or gravel roads that are impassable during the rainy season. Improving the conditions ofthe rural road network constitutes a key element in achieving a more balanced socioeconomic development of the Province.

The Provincial Government, through its Provincial Communications Department (FPCD) has established a well thought-out investment strategy that would bring the transport infrastructure up to the standard necessary to support the social and economic development of the province, including the rural areas, with particular emphasis on the road sector, which is shouldering rapidly-increasingpercentages of passenger and freight traffic (about 95% of passenger traffic and about 70% of the freight-though only 16% of the ton-km freight traffic). The proposed investment strategy for the road sector has a well-balanced distribution across all classes of roads, and includes the following elements:

0 rapid expansion of the expressway network by doubling its current length of about 1,100 km by 20 10, and tripling it by 20 17;

’ Figures refer to end-of-2003 numbers, based on the National Statistical Data, unless otherwise reported. The data for life expectancy corresponds to the latest (2000) population census.

5 0 gradual upgrade ofthe national and provincial highways to at least class 11, to complete a road network of 8,600 km, enhancing the transport connections among cities and counties and integrating them with the expressway network; and 0 aggressive improvement ofthe condition of about 35,000 km ofnon-paved class I11 and IV rural roads network through the implementation ofa Rural Roads Improvement Program (RRIP)-of which about 8.000 km have been completed since the inception ofthe program in 2004-facilitating the connections of approximately 7,500 administrative villages with the paved arterial provincial and county roads by 20 10.

This strategy is consistent with the central government strategies and those set under the Eleventh Five- Year Plan for the period 2006-2010, approved by the State Council at the end of 2005. The expansion of the expressway network fits within the so-called “791 8” China National Expressway Network (CNEN) Plan. This plan is to build 7 radial links to , 9 North-South corridors, and 18 East-West corridors totaling 85,000 km ofhigh-grade highways. The 79 18 CNEN has been designed to reach more than 1 billion people by connecting all provincial capitals and large urban centers of more than half-a-million inhabitants with cities of more than 200,000 people (See Map 1 in Annex 15).

Interventions in rural roads have received a strong boost recently from the central government with the approval of a program of up to RMB 100 billion for the period 2006-20 10. This strategic shift is consistent with the results ofrecent papers and articles that indicate higher economic returns of investment in lower-class roads in comparison to higher-class roads and the additional impact in reducing rural poverty in China.2 The Ministry of Communications has embarked on a major effort to define the strategy and allocation criteria for this program. In this context, Fujian RRIP has been highlighted as a good practice and a blueprint for replication in the rest ofthe Chinese provinces-with necessary adjustments based on each province’s unique requirements. Further supporting this initiative, the State 3 Council has published several policy notes that endorse increased investments in rural infrastructure- including roads-while emphasizing the need to strengthen road management capacity at the county and local levels.

The ambitious road investment plans require parallel strengthening ofthe capacity of sector entities in Fujian to manage the increasing amount of road assets. In this respect, FPCD is gradually upgrading its management information systems and mechanisms for the upkeep of the expressway, national, and provincial roads, partly with financing from international development agencies. Furthermore, through the implementation ofthe RRIP, local agencies receive technical support from FPCD through its highway bureaus in nine cities and through the communications bureaus at the county level. At the provincial level, the amounts allocated to (periodic and routine) maintenance show a rising trend with average resources per kilometer growing at an average of 8% during the last four years. Though the resources represent less than 4% ofthe total amount allocated to the sector, they, nevertheless show an increasing trend. Hence, additional efforts are required in shifting the overall sector approach from one that largely focuses on road development towards one with stronger emphasis on asset preservation based on the technical analyses built upon the set of currently available road management tools.

The road sector strategies seek to achieve a more harmonious development across Fujian’s territories and address the following key issues (Annex 1 contains a more detailed description): (i)enhanced

____~~~ Key among recent publications is Fan Shenggen and Chan-Kang, Connie, “Road Development Economic Growth, and Poverty Reduction in China”, Research Report 138, International Food Policy Research Institute (IFPRI), 2005. Other articles are: “Villagers board the transport express,” China Daily, June 21,2005. General Office of the State Council of the People’s Republic of China, Notice on Institutional Reform Plan for Maintenance and Management of Rural Roads, Guobanfa No. 49, September 19,2005; and “Notes of the Central Committee of the and the State Council on Advancing the Construction of a Socialist New Rural Area,” December 31,2005.

6 connectivity and integration with neighboring provinces; (ii)adequate transport accessibility and a road network of sufficient quality; and (iii) improved road sector administration within an approach that gradually increases the emphasis on the management and upkeep of road assets at all levels. The proposed project seeks to contribute to addressing these issues.

2. Rationale for Bank involvement

The Government of China (GOC) has requested the continued support of the World Bank for the development of key expressway links along the North-South highway corridor within the Fujian Province. The main objective is to attain the full benefits of the CNEN connectivity by fostering its integration within the province and with the networks of its neighboring provinces. Two previous World Bank loans-Loans 368 1-CHA and 4502-CHA-helped improve transport conditions on the coastal corridor from Fuzhou to Xiamen and from Xiamen to the border with the Guangdong Province. The current request includes a parallel corridor, further inland, from the city of Yong’an to the Fujian- Guangdong border near the city of Wuping. (Annex 15.)

In addition, the Fujian Provincial Government has expressed its desire to secure a World Bank loan to complement the resources currently received by provincial and local entities from tolls, fees, budget allocations (e.g., transfers from the central and local governments), and borrowing from domestic Banks and bonds4 to implement the ambitious RRIP. Based on the experience of the previous two highway projects in Fujian, the FPCD wishes to continue working with the Bank in the road sector and expects to benefit from the Bank’s international experience, particularly in addressing the needs of the rural roads network.

On rural transport, Fujian is the first province with a sector wide program in place for the improvement of the network of rural roads. This program provides a good basis and opportunity for the Bank to contribute under approaches that follow its new innovative lending instruments. In this respect, the Bank can add value to the existing program by: (a) improving the effectiveness of the existing program and its approach through the incorporation of enhanced safeguards and fiduciary arrangements; (b) helping fine- tune the financial support mechanism for better poverty alleviation effects, and (c) scaling up the application of the enhanced framework to the overall rural road program at the provincial level, if the proposed approach proves successful.

The Bank has the technical and financial resources to contribute to Fujian’s challenging investments and will focus primarily on the expressway and rural roads components. It will also include technical assistance activities to continue adding value to those undertaken in previous operations and to the longer- term strategy of strengthening the capacity of the road sector institutions in Fujian.

3. Higher level objectives to which the project contributes

The Fujian Highway Sector Investment Project is aligned with the Bank’s assistance strategy agreed with the GOC. The project closely follows the specific strategies considered under the second pillar of both the recently concluded Country Assistance Strategy (CAS) for 2003-2005, and of the Country Partnership Strategy (CPS) for 2006-2010 (approved by the Board on May 23,2006). The second pillar-“reduce poverty, inequality and social exclusion”-seeks, among other objectives, to improve the competitiveness of the various regions of China and the overall investment climate, and address the needs of disadvantaged groups and underdeveloped regions through the financing of infrastructure in key corridors, particularly those serving poorer regions and communities. These objectives are expected to

In 2004 these resources amounted to about US2 billion. About 63% of those resources were allocated to new construction, 2 1% to rehabilitation, 6% to periodic and routine maintenance, and the remainder to loan repayment.

7 promote a more balanced urban-rural development, improve sustainable rural livelihoods, and expand access to basic social and infrastructure services.

The expressway to be constructed under the project, connecting Yong’an with the border ofthe Fujian and Guangdong Provinces, constitutes an effective inter- and intra-provincial transport system that will increase the regional competitiveness and enhance North-South transport across coastal provinces. The Fujian RRTP will help reduce poverty in the poorer areas of Fujian by reducing the cost and time to access economic opportunities and social services. Other initiatives to be piloted under the project and its technical assistance activities will help in strengthening the transport management framework. The institutional strengthening will contribute to modernization ofpublic institutions. Ultimately, these strategic interventions will lead to improved productivity in rural areas and inter- and intra-provincial trade, fostering social and economic development of Fujian province.

The project also seeks to explore new approaches to deliver external assistance. In particular, the project incorporates elements of the so-called Sector Wide Approach (SWAP) in the design of its RRIP component. Although there is a constrained leverage ofthe Bank in support ofthe RRIP, given that its contribution represents about 20% ofthe total amount of resources required, its design seeks to build- upon and improve the existing framework. It is expected that the Bank’s contribution to the RRIP will instill better practices in the application of social and environmental safeguards, procurement and fiduciary arrangements, and technical engineering quality among the counties, townships, and villages participating in the RRIP. The disbursement approach and the monitoring and financial reporting procedures of the RRIP component will apply innovative mechanisms which, if proved successful, should be replicated in similar investment initiatives in China.

B. PROJECT DESCRIPTION

1. Lending instrument

The Bank will finance the project through a specific investment loan. The Borrower has selected the variable-spread loan (VSL) option in which the spread over LIBOR is reset every semester. The Borrower’s main reason for selecting a VSL rather than a fixed-spread loan (FSL) is because FSL charges are slightly higher than VSL charges and the Borrower does not foresee using the conversion options of the FSL. VSL repayment terms are governed by standard country terms.

2. Project development objective and key indicators

The project aims to increase the effective use ofthe road infrastructure in Fujian Province to support its social and economic development. This objective seeks to contribute to: (i)improving living conditions in rural areas -particularly those in the areas of the Province where poverty rates are higher- by enhancing the transport accessibility ofthe rural communities to economic opportunities and social services; (ii)stimulating higher economic growth in Fujian Province by reducing transport costs; and (iii)facilitating the interconnection across the coastal provinces. In this respect, the project will meet both the provincial government objective to improve the transport network to support the social and economic development ofthe province (especially in the economically lagging counties), and the central government objective to facilitate transport interconnections across Coastal Provinces.

The assessment ofthe achievement of the project development objective will be carried out through the measurement ofoutcome indicators, including: reduction in average freight rates and travel times and increased traffic volumes on the corridors to be constructed or rehabilitated, increased supply of passenger services along the rehabilitated rural roads, application of alternative mechanisms for road maintenance, and enhanced knowledge and application of updated road management approaches.

8 3. Project components5

Component A. Rural Roads Improvement Program (RRIP) (estimated cost US$502.05 million - 33.7% of the total project cost - of which US$98.26 million would be financed by the Bank Loan)

The RRIP aims at improving conditions of the lower class of roads that connect administrative villages to the main provincial road network. The Bank loan will support the overall program and finance rural road investments following the rural roads implementation framework (RRIF) agreed upon with FPCD. The RRIF is the integrated framework of the Procurement Framework, Environmental Framework, Resettlement and Minority Nationalities Development Framework, and Financial Management Framework, and includes the technical and quality control specifications for the rehabilitation and improvement of the rural roads and the implementation arrangements for this component. Disbursements will be processed based on completed outputs. The Bank loan will support a subset of at least 3,500 km out of the 10,000 km of local road sections already identified based on the demand of counties, townships and villages that are part of the 35,000 km provincial rural roads 2004-2010 program.

The civil works for the RRIP include the improvement and rehabilitation of lower class rural roads (Class I11 and IV) and consist mostly of resurfacing the unpaved roads with concrete pavement. A local consulting firm will provide consulting support services in the implementation of the RRIP component. FPCD will cover the necessary costs for the dissemination of the RRIF and the training of county and local units that wish to implement the framework.

Component B. Yong’an - Wuping Expressway (YWE) (estimated cost US$984.17 million - 66.1% of the total project cost - of which US$218.55 million would be financed by the Bank Loan)

The YWE will be a 195.2 km long section of the Changchun-Shenzhen expressway, which is one of the North-South corridors of the CNEN. The YWE will connect Yong’an (Sanming City) with the border of the Fujian and Guangdong Provinces, at Yanqian in Wuping (Longyan City). This component includes the acquisition and installation of electrical and mechanical (E&M) works and the construction of buildings and annex areas for service and safety operations. The expressway will consist of four lanes that have been designed for a speed of 80 Whr in the mountainous terrain from Yong’an to Liancheng, and of 100 km/hr in the remaining section. The final alignment of the expressway has minimized the social and environmental impacts. A joint local-foreign consultant firm will supervise the construction of the YWE.

The project’s expressway will connect to the North with another expressway currently being completed by the Fujian Province and to the South with another expressway currently under construction in Guangdong province (expected to be completed in 2008), leading to one of China’s most industrial and populated cities, . The construction of the expressway segment under the project however will help achieve project’s development objective and therefore no linkage issues are present in this case.

Component C. Highways Maintenance Pilot Program (HMPP) (estimated cost US$0.66 million - 0.04% of the total project cost - of which US$0.18 million would be financed by the Bank Loan)

The HMPP component consists of maintenance by contract in two highway sections of the (non- expressway) provincial highway network. This component seeks to increase the efficiency of force-

s The project costs for each component include physical and price contingencies and the percentages are calculated from a total project cost of US$1,490 million. No Front-end Fee needed to be included as the World Bank Board of Directors waived the Front-end Fee during the fiscal year (FY07) within which the legal agreements related to the Project have been negotiated.

9 account maintenance practices, which are currently being applied by FPCD through the city and county Highway Bureaus. This component also includes the supervision of two contract pilots and it is complemented with technical assistance for FPCD maintenance staff as part of the ISP described below.

Component D. Institutional Strengthening Program (ISP) (estimated cost US$3.12 million - 0.2% of the total project cost - of which US$3.01 million would be financed by the Bank Loan)

The ISP includes a study on toll rates, the impact evaluation and monitoring for the RRIP, the technical assistance for the HMPP, and training for staff of the agencies and institutions involved in the project. The analysis of toll rates will evaluate alternative adjustments to maximize the use of the expressway network and optimize its economic value, building upon, expanding and updating a similar study undertaken under the Second Fujian Highway Project. The impact evaluation and monitoring study seeks to establish a knowledge base ofthe impacts of the RRIP on rural livelihoods as an analytical base for the design of future interventions on those types of roads across Fujian Province. The technical assistance for FPCD maintenance staff will provide the knowledge and analytical elements for exploring alternative mechanisms for contracting of maintenance activities as well as for the preparation, implementation, supervision, and assessment of the preferred contractual scheme under the HMPP. The training activities were built upon those previously carried out under the Second Fujian Highway Project, and will focus chiefly on: road asset management, operational management of roads and expressways, construction quality control, road safety, and design and operational safety considerations for tunnels, innovative mechanisms for tolling and traffic surveillance systems, and intelligent transportation systems (ITS). They will include both domestic training and courses and study tours outside of China as defined in the project training program.

4. Lessons learned and reflected in the project design

Most highway projects in China have had a combination of an expressway component with a relatively smaller local roads component. In most cases, the attention and effort has been focused on the expressway component which is typically the largest component, and the one that requires most of the financial resources. Under the proposed project, FPCD has agreed to provide a more balanced approach to attention and resources among the main project components, thereby contributing in a more proactive manner, to the growth and poverty agendas of the Fujian Province. Hence, the project’s structure includes a comparatively large component on rural roads.

In addition, given the extensive Bank experience in the construction of expressways in China, several lessons learned with regard to project design have been incorporated under the proposed project. Among the most relevant are:

(i) To ensure the best quality at the design stage, the Fujian Provincial Expressway Construction Directorate (FPECD) has entrusted the review of the preliminary design to the Transport Planning and Research Institute (TPRI) in Beijing. In addition, a foreign expert team (Spanish Consultants) has been commissioned by the Bank to conduct a thorough design review, including a road safety audit. (ii) Given the fact that major variations occurred due to insufficient soil testing in a number of Bank financed projects, supplemental geological investigationwill be carried out during the detailed design stage, especially on road sections where large bridges, tunnels, deep cuts, and high fills are located. (iii) The asphalt pavement design used for expressways in China has been replaced because the typical structure with semi-rigid base failed much earlier than expected. The new pavement design consists of 10 cm of asphalt concrete layers, 15 cm of bitumen macadam base course, 16 cm of graded crushed stone, and 30 cm of low strength cement stabilized crushed stone sub-base. The gradation

10 for each layer, including asphalt concrete mixture, follows the new asphalt pavement specifications issued by the Ministry of Communications (MOC).

The definition and design of the institutional strengthening subcomponents build upon the studies and subsequent actions carried out under previous World Bank projects, some of which are still under implementation as part of the Second Fujian Highway Project (see box below). By focusing on those critical activities that complement previous actions and in addition have a potential to create a demonstration effect and further enhance key capacities of the FPCD in managing highway assets (and in providing technical leadership to county and local highway entities), the scope of these subcomponents seeks to ensure the ownership and commitment of FPCD in carrying out the studies, and reducing the possibilities of the type of delays that have arisen in previous studies in the Province.

Institutional strengthening initiatives advanced under previous two World Bank-financed projects in Fujian 0 The organizational restructuring ofFPCD. 0 The strengthening of data collection on traffic and road condition, with the design and implementation of a pavement management system and a bridge management sys r emphasis is required to integrate the outputs ofthose two systems into planning, programming and budgeting process. The assessment ofthe resources, equipment, and staff needs for further strengthening maintenance management (ongoing). A traffic safety program: that included: (i) the design of highway engineering safety manual for construction sites, (ii) a highway safety audit program to identify safety shortfalls in the design, construction and operation of Fujian highways and propose remedies, (iii) black spot identification and improvement program, and (iv) annual traffic safety seminars to provide a forum for discussion, integration and improvement of highway safety programs in Fujian.

5. Alternatives considered and reasons for rejection

At the project pre-identificationstage, it was suggested that the project consider applying a Sector Wide Approach (SWAp) to the RRIP component. While acknowledging that some of the elements of this component are conducive for the application of a SWAp; the sheer size of the RRIP and the low percentage of financing provided by the Bank-about 20% of the total investment required-implied Bank’s reduced leverage in enforcing (and monitoring) the application of specific policies to the broader provincial investment program. Therefore, an incremental approach that adopts elements of SWAP and preserves the necessary compliance with proven fiduciary, safeguards, and technical requirements -while monitoring on a sample basis the application of the approach over the entire program- was the preferred option to implement the RRIP. These arrangements (described in greater detail in Annexes 4 and 9) are expected to achieve, over the project implementation period, the aims of SWAp; namely, the strengthening ofthe current framework of the RRIP-including its fiduciary and safeguards elements- through its convergence with projects eligible for World Bank financing.

Several mechanisms were considered for the implementation framework for the RRIP. Initially, consideration was given to a mechanism that relied on the ex-ante definition of the counties and of the road segments that could become eligible for World Bank financing, based on a series of indicators and criteria. This mechanism; however, was discarded in favor of an easier-to-monitor alternative that rests on a demand-base, first-come-first-serveapproach and establishes the incentives for compliance a-priori with the framework for World Bank financing (the RRIF). In addition, the selected mechanism is better aligned with the approach currently being applied by FPCD for the implementation of the ongoing RRIP, building upon its key operational concepts. For instance, disbursements will take place on the basis of completed eligible road segments-those completed to satisfactory engineering quality and in compliance with the RRIF-constituting an output-based approach. The initial alternative of the more traditional disbursement arrangement-based on the financing of a percentage of the cost of the eligible road segments defined ex-ante-was replaced with a mechanism that gives stronger support to investments in

11 rural areas with high incidence of poverty, and to investments with engineering standards that more closely fit the average travel demand and pattern on those roads.

The original feasibility study ofthe YWE considered the analysis of 16 segments for careful consideration ofalternative alignments, for a cumulative length of 67% of the distance between the beginning and end points on the route. The alignment finally selected minimizes the social and environmental impacts, and resettlement requirements; and maximizes the overall benefits to the project beneficiaries by taking into account local development plans. Furthermore, the selected alternative avoided most ofthe unfavorable geological locations while achieving appropriate horizontal curves and vertical slopes.

Several alternatives were considered for the financing percentages ofthe Bank loan ofdifferent project activities or disbursement categories. These alternatives were assessed against the value-added by the Bank’s partial financing, the capacity ofthe local consultants or suppliers in providing the specific item, and the concerns of the FPCD on the need to minimize the possibility of cost savings by the end of the project. Upon the consideration ofthese factors, several activities and expenditures that had been typically financed partially by the Bank were now to be financed solely with local funds. These included: the E&M works, buildings and annex areas, the local supervision of the YWE and the RRIP, and the physical and price contingencies for the YWE. For all these items local procurement methods and procedures will be applied and it is expected that this option will contribute to simplify the project’s procurement and financial management processes. However, as an integral part of the project, the implementation progress ofthese components, the technical standards, and timing of the procurement process, will be subject to Bank supervision and to FPCD reporting to the Bank.

C. IMPLEMENTATION

1. Partnership arrangements

Project preparation has taken place in coordination and partnership with a broad spectrum ofagencies involved in the road sector in Fujian, including the Fujian Provincial Communications Department, the Provincial Finance Bureau, the Provincial Development and Reform Commission, and the communications and highway bureaus in various counties ofthe province.6 This partnership will be maintained during project implementation through continued involvement ofthese agencies in the supervision ofproject implementation.

Within the FPCD, the project will require the coordination of activities by its three deputy directorates: Planning Deputy Directorate, Construction Directorate, and Expressway Construction Directorate.

2. Institutional and implementation arrangements

The Office of the Director ofthe FPCD will include the Director’s Office for World Bank Project (DOFWBP) that will be responsible for the overall coordination of the project, and for monitoring the activities of the implementation agencies. In addition, the DOFWBP will serve as the main counterpart for the submission of progress and audit reports to the Bank. It will organize supervision missions, and oversee project implementation in accordance with the Loan and Project Agreements.

The “highway bureaus” of the counties are de-concentrated branches of the Highway Bureau under the Construction Deputy Directorate of the Provincial Communications Department. An intermediate level-f the highway bureaus in the so-called cities-further coordinate the monitoring and flow of funds from the provincial level to the counties. The “communications bureaus” of the counties represent their own local road agencies in charge of the management ofthe local road networks (those roads that are not provincial or national).

12 Under the overall direction of the Director’s DOFWBP, specific units (Sub-PMOS) within FPCD have been identified that will be responsible for the implementation of each investment component of the project as follows:

The Planning and Construction Divisions of the FPCD will be responsible for the implementation and monitoring ofthe RRIP. These Divisions shall provide information and comply with requirements related to environmental issues, land acquisition and resettlement, technical standard and construction quality, and financial management and procurement procedures; and assist with the reporting ofthe physical completion of works and contract payments. It will also coordinate the activities of the Communications and Highway Bureaus of the municipalities, counties, townships, and villages. The FPECD, and the newly established Longyan YWE and Sanming YWE Companies, will be responsible for the procurement and contract implementation and supervision, financial management, and compliance with safeguards policies of the Y WE component. A procurement agent has been selected for the (ICB) YWE component. The FPECD will conduct the procurement process until the signing ofthe contract, while Longyuan YWE Company and Sanming YWE Company will be responsible for all the activities and documentation related to the execution ofthe works for the YWE at the site including the local construction supervision. The Construction Deputy Directorate of the FPCD, in coordination with the Provincial Highway Bureau, will be responsible for the implementation of HHMP component. These responsibilities include hiring of the foreign consultant who will provide technical support and the monitoring ofthe activities of the Provincial Highway Bureau in the procurement, contracting, and supervision of the maintenance contracts. The technical assistance activities and studies, which are part of the ISP and other components, will be split between the FPECD and FPCD, depending on the subject of application. The resources to finance training activities will be shared by the participating agencies, according to the plan agreed with the Bank at appraisal.

Implementation arrangementsfor the RRIP. A summary of the implementationarrangements of the RRIP is provided here (Annex 6 provides further details.) The World Bank loan will support the existing Fujian RRIP. Under the current program, local villages, townships or counties take the initiative to rehabilitate the roads under their jurisdiction. Those road segments contained in the officially-sanctioned RRIP databank are eligible for a transfer offunds from FPCD if the completed works meet the quality and eligibility standards required by FPCD. The amount of the transfer varies depending on the characteristics ofthe road and the socio-economic characteristics of the area of influence.

The Bank loan will finance a portion ofthe RRIP roads in compliance with the agreed RRIP Framework (W).The Bank loan will support a subset of about 3,500 km out of the 10,000 km ofroad sections already identified based on the demand ofthe counties, townships and villages, that are part ofthe 35,000 km overall rural roads program. FPCD, through its Fujian Highway Bureau, will be responsible for the dissemination of the conditions as well as providing training to the local communities to help them learn and implement the procedures and conditions required to obtain the financing support from the Bank loan. The FPCD will include in the bi-annual progress reports to be submitted to the Bank during project implementation a summary ofthe actions and activities undertaken to disseminate the framework and in training the counties/townships/villages.

The RRIF has been established for identifying the completed the roads that would be eligible for Bank financing, and consists ofthe following elements:

0 The eligible road segments shall be part of the 10,000 km subset ofthe 35,000 km ofthe rural roads improvement program.

13 Application of environmental framework and its procedures for appropriate consideration of environmental mitigation measures during the execution of the improvement works, as well as the provisions regarding the chance of finding cultural relics. Resettlement framework and its procedures to guide the planning and implementation of mitigation measures when land acquisition and resettlement is required, and the related consultation processes. Minority nationalities development framework that describes the principles and measures to guide road planning and implementation in minority nationalities areas, and the provisions regarding consultation and participation and broad support to the project by the corresponding communities. Application of engineering technical standards during the implementation of works; as well as those for the supervision and monitoring of their quality. Requirements for procurement of works. Conditions for proper financial management of the contracts and the contract payments. These include: book keeping, auditing, and reporting of the completion of works, and evidence of the on-time payment to contractors in line with contract clauses. Collection of indicators to measure the most immediate transport impacts of the RRIP investments.

After FPCD has certified, on the basis of a report issued by the DOFWBP (with the support of the necessary specialists on engineering, environmental and social safeguards, and procurement and financial management), on the adequate compliance with the elementshequirements of the framework, the resources of the loan would be used for reimbursing the applicable portion of the cost of the rehabilitation works to the local entities. This has been established on the basis of predefined Unit Costs per kilometer7, and varies depending on the physical characteristics of the road and its location in either poor or non-poor areas or mountainous or coastal regions. The corresponding Unit Costs represent between 40% and 80% of the current costs for undertaking the works, with the most frequent percentage expected in the range of 60% to 70%. Higher values correspond to the poorer and mountainous rural areas (43 counties). The values are higher than current transfers provided by the FPCD, except for those regions that are less-poor (1 0 counties) where the amount to be covered by the World Bank loan will be equal or slightly higher than the one currently provided by the FPCD. The higher World Bank financing for the poorer area provides a stronger incentive to seek the resources from the loan, in exchange for the compliance with the procedures of the RRIF. The incentive for less poor areas is limited to the institutional strengthening that is associated with the application of the elements/procedures of the RRIF and FPCD’s own willingness to implement the RRIF on the rest of the RRIP.

The following section describes the mechanisms for the monitoring of the compliance with the application of the RRIF.

3. Monitoring and evaluation of outcomes/results

This section describes two different monitoring issues: (a) the monitoring of the compliance with the RRIF for the rural roads component, and (b) the evaluation of the achievement of the results indicators (as listed in Annex 3) and of the impacts of the rural roads (through a formal impact analysis to be supported with resources from the loan).

Unit Costs refer to the associated costs per kilometer of improvement and rehabilitation works of the various classes of roads under the RRIP component ofthe project to be applied as the multiplier for determining the eligible amount of financing out ofthe proceeds of the loan. Their values have been established on the basis of current values used by FPCD under the Rural Roads Improvement Program and in comparison with a detailed assessment of the actual costs of undertaken the rehabilitation and improvement works.

14 Monitoring of compliance with RRIF. When requesting disbursement from the loan for the REW component (based on quarterly disbursement) the FPCD will certify that the disbursements correspond to transfers of funds for completed works that have complied with the RRF, including the related social and environmental safeguards documents, and will retain the documentation that provides evidence of that compliance for World Bank post-review. The World Bank will review samples of the completed works subject to financing from the Bank loan, with the aim of checking compliance with the above undertakings. The Bank will also review, for reference, another sample of completed works not subject to Bank financing. The transfer to be withdrawn from the Bank loan shall not be in any case higher than the actual cost of the completed works. FPCD will provide an annual summary of the actual costs of the completed works and an assessment of the transfer levels will be undertaken in order to ensure that the previous condition is complied with at all times. Unit Costs are subject to review and revision annually.

Building upon the existing FPCD procedures for the delivery of funds transfers under the RFUP, the FPCD will monitor the implementation of the REUP Framework (RRIF). It will also keep records of all the dissemination and training activities carried out by FPCD to take stock of the diffusion of the framework at the local level and of the weaknesses that might have been identified during the application of the RRIF. The FPCD will provide information on the possible substantial application of the RRIF in roads not subject to Bank financing under the 10,000 km subset of the rural roads program. All this information will be used to readjust the dissemination and training efforts and the incentives built into the RRIF approach, and assess its level of replicability across the RRIP.

The Fujian Highway Administration Bureau (FHAB) and the Fujian Provincial Transport Quality Inspection Stations (FPTQIS) have been delegated by FPCD to verify the compliance of the elements of the RRF. They will review the information after it has been elaborated and reviewed by the townships/villages/counties and further reviewed by the communication bureaus in the corresponding counties and cities. The FHAB and the FPTQIS are staffed with specialists in all the areas of the RRF- including those versed in environmental and social safeguards, and in procurement and financial management-who will undertake the necessary verifications of compliance with the RRIF. Upon receiving these verifications, FPCD, through the Director’s Unit of the World Bank Project, will undertake the necessary complementary checks and issue the certification of compliance with the RRIF. In addition, the Provincial Audit Office will be the auditor of Fujian Highway Sector Investment project. This office, besides the normal annual financial audit for all the components of the project, will also audit the verification procedures listed above for the rural roads component.

The Bank loan will support a subset of about 3,500 km out of the 10,000 km of road sections already identified based on the demand of counties, townships and villages, that are part of the 35,000 km FPCD’s overall program. The assessment of the substantial application of the RRIF to the rest of the RRIP will provide information on the overall level of dissemination of the framework under the RRIP. It is estimated that 6,500 km of roads will be rehabilitated or improved with transfer of resources from the provincial government to complete the already identified 10,000 km with substantial application of the RRIF.

Assessment of achievement of results indicators and of the impacts of rural roads program. The achievement of the project objectives will be measured based on a combination of output and outcome indicators, as shown in the Results Framework (Annex 3). These indicators will track final and intermediate project outcomes.

For the RRIP component, specific subprojects are not specified from the outset but are identified through the dissemination of the RFUP framework (RRIF) and ultimately through the completion of the works in compliance with that framework. During project preparation, FPCD collected the baseline values reported in Annex 3 for the rural roads component, and provided estimates based on a sample of 20 rural roads. These 20 roads were selected from those programmed to be improved, and representative of the

15 following three types of typical rural links: (a) all-weather roads that are in bad condition; (b) roads open only during good weather conditions; and (c) roads that may require major improvements. FPCD will collect, annually during the project implementation, the three selected results indicators for the rural roads component (travel time reduction, traffic volume, and passenger services) from a sample of at least 20 roads, ahead ofthe initiation ofthe works on thoseroads and about four months after the completion ofthe works. The 20 roads shall be selected out of the sub-set of the 10,000 km roads programmed to be improved, and should represent three types of typical rural links as stated above. The possibility of increasing the sample size in the collection of this inforpation, with the support ofthe townshipshillages benefited by the RRIP investments, will be assessed during project supervision. The FPCD will use the resources ofthe Bank loan to conduct studies to assess the impacts ofthe implementation ofthe RRIP on the socioeconomic conditions ofthe communities in the territories in the area of influence ofthe rehabilitated roads and on their productive activities. The system would incorporate the collection of data in areas not subject to FUUP interventions for purposes of comparison. The Planning Deputy Directorate will be responsible for carrying out these analyses with support of the relevant consultants.

The FPECD has collected the baseline values for the indicators on freight tariffs, travel times, and accidents on the existing G205 road, for the YWE component, according to the entries required and presented in Annex 3. This information would be collected by FPECD on an annual basis over the course ofthe project implementation period and until the preparation of the Project’s Implementation Completion Report.

Separate assessments will be undertaken for: (a) the implementation ofthe maintenance pilot, with support from the technical assistance related to this pilot; and (b) the quality and effectiveness of the training program. For the latter, specific evaluation forms based on a format agreed upon with the Bank will be provided to participants upon completion ofthe training or study tour and will be used for assessment ofthe impact of these training activities on the knowledge and professional development of the participants.

4. Sustainability

Two strategic approaches, that complement each other, provide a solid base for the overall sustainability ofthe project. The first approach, pertaining to RRIP, is based on: (i)the strong boost that the central government has given to interventions in rural roads; which is consistent with the objective ofreducing rural poverty; and (ii)the State Council further supporting this initiative, and endorsing this strategy, while emphasizing the need to strengthen road management capacity at the county and local levels to adequately preserve the extensive rural road network.

The second approach, pertaining to the YWE, involves: (i)the current central government’s policy to complete and maintain the national expressway system; (ii)the Fujian provincial government’s commitment to complete its ambitious plan to enhance transport conditions across its territory, targeting in this project the expressway and rural roads network; (iii)the constantly growing traffic along the Changchun-Shenzhen Expressway corridor that links several coastal provinces and that should lead to sustain the resources required for the proper upkeep ofthe expressway network; and (iv) a successful mechanism to carry out the overall management ofthe expressway after it is constructed, which includes the operation, toll collection, and rehabilitation and routine maintenance ofthe expressway and its annex areas. This arrangement, with adequate revenues, should lead to the sustainability ofthe expressway component.

In addition, the project’s sustainability is enhanced by: (i)the continued institutional strengthening activities to support FPCD in managing the high-level highway assets, and in providing technical leadership to cities, counties, townships and villages in managing and upgrading the road networks under

16 their responsibilities; and (ii)the matured and well established relationship between the Bank and Fujian province in the highways sector, after two successful lending operations.

5. Critical risks and possible controversial aspects

The FPCD has maintained good implementation track record in the transport sector and has demonstrated satisfactory project management capabilities through the successful implementation oftwo Bank-financed projects. Under both projects, the FPCD has proven to have a robust capacity to develop the high-grade highway network and simultaneously implement a rural road development program. This experience has helped reduce the preparation and implementation risks ofthe project. The following table summarizes the various risks associated with the project. Overall the project risk has been rated as modest.

Mitigation Ratinghv Mitigation Inadequate balance 0 Careful consideration has been given to the distribution of responsibilities Low between expressway among the selected implementation agencies and to the institutional and non-expressway arrangements, with the location of the DOFWBP directly under the Office components reduces of the Director of FPCD, as well as careful definition of Bank financial effectiveness of either resources in order to achieve the proper balance between all project of those two components. components The requirements of the 0 Special attention has been given to the design of the incentive framework Medium RRIP component are for the RRIP. The Bank resources were allocated to finance a higher not followed and transfer than the amount currently provided by FPCD towards the cost of incentives do not elicit road rehabilitation or improvement works eligible under FWF. This the expected demand framework is expected to add value to the existing FPCD’s RRIP, and hence and institutional lead to upgrades of the current mechanisms of the RRIP. changes given the low 0 FPCD has agreed to take a proactive stance in the dissemination of the leverage of the RRIF and the provision of training. FPCD will submit to the Bank reports financing from the on these activities. The M&E mechanism will also require the collection World Bank and reporting of the necessary information. The certification of 0 The current mechanisms being used by FPCD for the implementation of the Medium compliance with RFUF RFUP have shown satisfactory results after more than 8,000 km of rural does not meet the roads improved. required standards in 0 The procedures agreed upon for checking compliance with the RRIF include terms of documentation several levels (including the FPTQIS) and the certification procedures will and effective fulfillment be subject to annual audits by the Provincial Audit Office. of all the elements of Training of local entities has been initiated at an early stage (during project the RRIF preparation) and the response from these entities has been highly positive to the proposed framework. These efforts will be continued throughout project implementation. The pilot on contract 0 The inclusion of an external technical assistance that would cover the Medium maintenance does not specific design of the pilot and overseeing of the related supervision is elicit the interest of expected to mitigate this risk. The Bank team acknowledges the inherent local contractors or of risks of undertaking these initiatives in China as it implies the possibility of the FPCD, failing to be major changes in the way current maintenance activities are being completed adequately undertaken; however, these high risks are compensated by the high payoffs or to be if the pilot is successful and provides the necessary demonstration effects. institutionalized within FPCD Changes in work 0 The technical designs were based on geological and sub-surface Low quantities, delays in investigations, and were subject to detailed reviews by a design institute in construction, and/or Beijing and a team of foreign consultants. Supplemental geological increased costs in the investigations were undertaken during the detailed design stage especially expressway component on the road sections where large bridges, tunnels, deep cuts and high fill were located.

17 The supervision will be carried out by an independent joint local/foreign supervision team, which will provide specialized expertise on the more complex engineering elements, namely: geotechnical issues, tunnels, structureshridges, and pavement. The YWE does not The combined action of the various project components should lead to Low attract or generate the enhance transport conditions across the road network, and facilitate the expected traffic levels interconnections with the expressways and, in particular, with the YWE. In addition, the study on toll rates will seek to optimize the use of the expressway and the complementary existing road network, of both tolled and non-tolled sections. Deficient application of The FPCD has agreed to implement the environmental management and Low social and resettlement action plan for the YWE. The RRIP framework is demand environmental driven and the corresponding disbursements for completed works will only safeguards take place when the safeguards components are applied. Nonetheless, the RRIP consists of works largely limited to the existing right-of-way and hence social or environmental risks are expected to be small. The final alignment of the YWE was selected to avoid major adverse impacts on the environment. The EIA of the YWE singles out environmentally sensitive spots, and emphasizes the need for noise control measures. No protected areas or primary forests are within a generous area of influence of the YWE. Environmental and social development specialists have participated since the early stages of project identification to evaluate the safeguard requirements. These specialists will be part of the supervision team to closely monitor the application of the agreed safeguards.

I. Loanlcredit conditions and covenants

Effectiveness conditions: 0 The issuance of the relevant legal opinions.

Covenants: Implementation Upon receiving reports from city, county and townships communications bureaus, as applicable, on the monitoring of compliance with the RRIF, including the social and environmental safeguards, the FPCD will certify compliance with the RRF before proceeding to disburse from the Bank loan, and the Bank will be allowed to supervise such compliance on a sample basis. 0 The FPCD will disseminate in a proactive manner the RRlF and provide training on the use ofthe RRIF as necessary to ensure wide and fair participation of local entities. Safeguards For the RRIP, a Resettlement Action Plan and a Minority Nationalities Development Plan would need to be prepared, when applicable, in accordance with the provisions contained in the Resettlement and Land Acquisition Framework and the Minority Nationalities Development Framework and World Bank policies to that effect, and be duly implemented thereafter. 0 The EMP and RAP for the YWE, satisfactory to the Bank, will be applied while constructing the YWE and the Bank will be allowed to supervise such works. Financial 0 The proceeds of the loan will be on-lent to Fujian Province on the same terms and conditions as the Bank loan, with the province bearing the foreign exchange risk. 0 The Financial Manual Plan for the YWE, satisfactory to the Bank, will be applied in implementing the YWE.

18 Fujian Province must maintain a financial management system and provide quarterly project consolidated financial statements in accordance with accounting standards acceptable to the Bank and must meet standard annual auditing requirements. Reporting 0 Semi-annual progress reports for all components, including results indicators, as applicable, using agreed format. These progress reports will include a summary ofthe actions and activities undertaken to disseminate the RRIF and in training the counties/townships/villages. 0 Semi-annual reports on the record of environmental inspection and FPCD certifications under the RRIP component 0 Semi-annual reports on the unit cost of the works under the RRIP. Annual training report and evaluation forms.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

Economic (Cost benefit) EIRR = 24.8, NPV(12%) = US$1,891million

This economic evaluation covers two project components that account for all the investment costs ofthe project: (a) construction of the 195.2-km YWE, and (b) upgrading about 27,000 km for 5,500 rural roads in the overall RRIF'. The principal measured benefits ofthe project are savings in vehicle operating costs, time savings to vehicle occupants and enhanced road safety. The estimated overall economic internal rate ofreturn (EIRR) for the project is 24.8%, with those for YWE and RRIP being 16.6% and 34.7%, respectively. The overall economic net present value (NPV), based on a 12% discount rate, is estimated at RMB 15,13 1.4 million, ofwhich the YWE is estimated to contribute RMB 3,210.2 million and the RRIP is estimated to contribute RMB 1 1,92 1.2 million. An analysis of the evaluation results and a description ofthe method used to derive them are provided in Annex 9 and are summarized as follows:

Summary of Economic Evaluation Results ERR (in %) NPV (RMB million, 12%) Rural Roads Improvement Program (RRIF') 34.7 11,921.2 Yong'an - Wuping Expressway (YWE) 16.6 3,210.2 TOTALPROJECT -24.8 15,131.4

The maintenance pilot component consists ofactivities that attempt to restore good riding conditions to two segments on the provincial network. These activities are expected to have rates of return well above 50%, as is usual with this type ofmaintenance works.

Financial FIRR = 1.0, NPV (5.02%) = US$ - 518 million

The financial evaluation ofthe project is comprised of the financial analyses ofthe YWE (the revenue earning entity), the RRIP (the non-revenue earning entity), and the FPCD.

The construction ofYWE is one ofthe main components ofthe project (the total cost ofYWE constitutes about 65 percent ofthe project costs). The FPCD is planning to use the toll revenue from YWE to cover the amortization charges ofthe Bank and domestic loans on the expressway. Although the highway will generate enough total revenue over the loan period to finance operations, maintenance and debt service, with a standard amortization schedule, there will be low profit margins in the early years of operation. The high construction costs, resulting from the mountainous/ hilly terrain, combined with a low toll growth assumption, affect the financial rate of return of the investment, expected to be about 1.O percent. Despite the low FIRR, the YWE will not need any external cash assistance because ofthe strong cash flow. The YWE

19 will be able to meet all financial obligations and maintain a balance of at least RMB 140 million available in their cash account for the life of the project, without any assistance.

The financial evaluation, including the RRIP, focuses on provincial capacity to minimize financial risks in the road sector, and having available adequate counterpart funds for construction, including the future maintenance expenditure, of the project roads. For this financial evaluation, the assessment included a review of the sector fund allocation, financial dependency and the long-term sustainability of road development. The indicators show that the financial risks are modest. A detailed assessment is provided in Annex 9.

2. Technical

RRIP Component. Under the RRIP, a programmatic approach will be followed to improve, with the Bank loan, a subset of 3,500 km of the 10,000 km of road sections already identified as part ofthe provincial rural roads improvement program. These rural roads link administrative villages to township and counties. This provincial program which started in 2004 covers a total of 35,000 km-of which about 8,000 had been improved by February 2006-and is expected to be completed in 2010. Most roads are Class IV (3.5m pavement on 4.5m base for single lane, or 6m pavement on 6.5m base for dual lane); and only a few Class I11 (6.5m pavement on 7.5m base).

The RRIP technical standards are based on MOC regulations which the province reissued as "Technical Standards for Fujian Rural Road Engineering" (August 2004), focusing on the types of roads under the program in the Fujian context. These standards have been used by FPCD since the inception of the RRIP and have been reviewed and found generally satisfactory by the Bank. Specific adjustments have been incorporated into these standards. The final document has become part of RFUF.

The technical choice for pavement is cement concrete, selected on the basis of several factors validated by the long experience in Fujian: (i)high intensity of rainfalls; (ii)mostly hilly terrain with high gradients; and (iii)good quality asphalt not readily available, while cement is produced locally and its unit cost is relatively low. If the construction meets the necessary standards and traffic remains within the projected volume, this technology has low maintenance requirements. Annex 4 presents the estimated average unit costs for reconstruction and new construction works, a table summarizing the broad general characteristics of the roads included in the RRIP data bank, and the agreed support amounts for Bank financed subprojects.

YWE Component. The design features of the YWE have been evaluated-with the support of a foreign engineering expert-team-and found adequate for the expected traffic volumes and composition. Key design features include:

(a) Adoption of two different technical standards, reflecting the topographical and geological conditions: (i)design speed of 80Mh and sub-grade width of 24.5 m; and (ii)design speed of 100kmh and sub- grade width of 26 m. (b) Special structures with 126 bridges and 27 tunnels required over one-third ofthe total length due to the difficult topography. Detailed geological investigations were undertaken to address the geological complexities in the sections where large bridges, tunnels, deep cuts or high fills were located. (c) 11 interchanges, 4 service areas, 3 rest areas, 9 toll stations at interchange ramps, and one mainline toll station. (d) Special attention to pavement design to avoid the problems typically encountered with semi-rigid pavements. Asphalt concrete will be applied to most of the alignment. Tunnels and toll plazas will have cement concrete.

20 The estimated construction period of the civil works for YWE is 36 months. In addition to the civil works, the YWE requires the installation E&M facilities and the construction of buildings and annex areas for service and safety operations.

Maintenance pilot. This component will involve the contracting out of routine maintenance activities- all within the right of way-in two segments of the (non-expressway) provincial network. The technical characteristics of the maintenance activities are well known to FPCD. This component, however, seeks to explore alternatives to the force-account maintenance practices currently being applied in Fujian. Technical assistance support has been included under the project to provide FPCD with the expert knowledge and the analytical support for exploring those alternative mechanisms as well as for the preparation, implementation, and supervision of the preferred contractual scheme.

3, Fiduciary

Financial Management. The Bank assessed the adequacy of the financial management system ofthe project. The assessment8 concluded that the project meets minimum Bank financial management requirements, as stipulated in BP/OP 10.02. It was confirmed that the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project in the reporting format agreed upon between the Bank and FPCD, as required by the Bank.

Funding sources for the project include the Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into the project designated account (DA) to be set up at and managed by Fujian Provincial Finance Bureau (FPFB). For the RRIP component, upon FPCD’s certification of compliance with the RRF and in agreement with the procedures and amounts described in the disbursement letter, the Bank loan will flow from the DA to Fujian Provincial Communications Department (FPCD). The FPCD will be responsible for transferring the corresponding support funds as applicable to county or local (townshiphillage) communications bureaus or highway stations, respectively, that would have paid the contractors. For the YWE component, the Bank loan will flow from the DA to Fujian Provincial Expressway Construction Directorate (FPECD), and finally to contractors. The Bank loan will be signed between the Bank and the People’s Republic of China through the Ministry of Finance (MOF) and an on- lending agreement for the Bank loan will be signed between the MOF and the Fujian provincial government through the FPFB. Finally, the FPFB will sign the agreement with both the FPCD and the FPECD. The FPECD will be responsible for repayment ofthe YWE and RFUP components. The counterpart funds comprise contributions from governments at different levels and domestic commercial loans.

Retroactive financing will be available for this project in the amount of US$l5 million for payments made under the RRlp prior to the signing ofthe loan agreement and after April 30,2006’, upon certification of compliance with the RRIF. No outstanding audits or audit issues exist with any ofthe implementing agencies involved in the proposed project. However, the task team will monitor closely financial management matters during project supervisions.

Procurement. The procurement for the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004; “Guidelines: Selection

a The assessment was carried out following the guidelines issued by the Bank’s Financial Management Sector Board on November 3,2005. 9 This date reflects the date by when all the elements of the RRIF had been adopted by FPCD and disseminated appropriately to the cities, counties, townships and villages, and by when the overall 35,000 km road data base was approved by FDRC.

21 and Employment of Consultants by World Bank Borrowers” dated May 2004; and the provisions stipulated in the legal agreements (and Annex 8).

The documents for ICB and NCB will follow the Bank’s Standard Bidding Documents including the provisions for ALDS/HIV awareness campaigns and training of workers. In this effort, when necessary, the Bank will seek trust fund resources to complement those from contractors to provide additional guidance and support on construction-related AIDS/HIV issues.

The Bank carried out an assessment ofthe capacity of the implementing agencies to perform procurement actions in August 2005 and January 2006. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement in the FPCD and the relevant unit for administration and implementation at each level.

The Borrower developed a Procurement Plan for project implementation that provides the basis for the application of the approved procurement methods. This plan has been agreed between the Borrower and the Bank on January and April, 2006; and is available at the DOFWBP in Fuzhou, China and in the project files.

4. Social

RRIP Component. Given its focus on rehabilitation, the RRIP is not expected to require land acquisition or structure relocation. Nevertheless, a Land Acquisition and Resettlement Policy Framework was developed, should exceptional cases arise where land acquisition or relocation is required. It describes the overall legal framework, planning principles, procedures, compensatory and rehabilitation approach, consultation and participatory requirements, grievance redress mechanisms, and organizational and monitoring arrangements. In addition, considering the possibility of financing roads in ethnic minority areas a stand-alone Minority Nationalities Development Framework has also been prepared with provisions regarding the basic principles to be followed in the rehabilitation of the roads, including the need for consultation and participation of ethnic minority groups as well as development of culturally appropriate measures. These policy frameworks have been developed according to local laws and regulations on land and ethnic minorities as well as World Bank OP 4.12 on Involuntary Resettlement and OP 4.10 on Indigenous People.

All roads to be financed under the project will follow these frameworks in identifying negative impacts, and developing and implementing the necessary mitigation measures. As part of the post-review arrangements, only roads that comply with these frameworks (as elements ofthe RRIF) will be considered eligible for financing under the World Bank loan.

YWE Component. The expressway component will require land acquisition and relocation of houses. Detailed census and inventory surveys show that this component will require the acquisition of 22,738 mulo of land, including 8,996 mu of cultivated land and 11,612 mu of forest and unutilized land. The project will also require the demolition of 281,251 square-meters of housing. The component would affect a total of 47,990 people in 10,784 households from 69 villages. This includes 39,141 people from 9,522 households who will lose land and 1,638 households who will lose houses.

Following Chinese laws and regulations and World Bank OP 4.1 0 on Involuntary Resettlement, the FPECD developed a Resettlement Action Plan (RAP) for this component. In consultation with local villages and various government agencies, the FPECD has formulated an economic rehabilitation strategy combining land-for-land measures and cash payment option. Initial village plans have also been developed for the 10 seriously-affected villages in the RAP.

lomu: Chinese measure of land area (1 5 mu = 1 hectare).

22 All relocating households will be resettled within existing villages. They will be compensated at replacement cost for their houses and will be allocated free new housing plots. Infrastructure access will be provided; either through sharing existing infrastructure or new infrastructurewill be provided by the project. The project will also impact some enterprises and infrastructure such as power, telecommunication, water conservancy, and transportation facilities, as well as roads. Their compensatory and rehabilitation arrangements are detailed in the RAP.

The RAP also describes in detail the organization and implementation arrangements. Fujian Province has set up a multi-level organization for the RAP implementation at provincial, city, county and township level. Their arrangements, responsibilities, staffing and training plans are detailed in the RAP. The RAP also details the consultation and participation process, as well as the mechanism for grievance redress. An independent agency will also be contracted to monitor the RAP implementation. The total resettlement cost is RMB 577.97 million, equivalent to about US$71.79 million (at 1 USD = 8.05 Yuan). All resettlement costs will be financed with domestic funds.

5. Environment

An EnvironmentalImpact Assessment (EM) and an EnvironmentalManagement Plan (EMP) for YWE were developed by the Highway Research Institute of MOC. For the RRIP, given its programmatic nature, an EnvironmentalManagement Framework (EMF) was developed by the FPCD in collaboration with the Fujian Provincial EnvironmentalResearch Institute. Based on the EMF, an Environmental Assessment (EA) is to be executed on a county basis. The drafts of EIA, EMP, EMF and their Summary were prepared in compliance with the Bank Policy OP 4.01 (Category A), and found satisfactory to the Bank after its extensive reviews. Details of EIA, EMP and EMF are provided in Annex 10.

RRIP Component. The EMF was developed including baseline environmental data, environmental management and the supervision scheme, EA procedures, training plan, and supervision and reporting system. The FPCD will be responsible for the overall guidance and monitoring, while the city highway bureaus will be in charge of compliance monitoring, and county communications bureaus for the implementation of the EMF. The county communications bureaus will report from the environmental safeguards perspective on the completion of the construction activities and final quality of each road using checklists developed in the EMF. For those roads applying for Bank funding, a record of inspection will be submitted to the Bank together with the certification by the FPCD on the compliance with the EMF. During supervision, the Bank will randomly check county EAs and the checklists for a sample of Bank-funded roads. For reference, a similar procedure will be applied to a sample of non-Bank funded roads.

WEComponent. The alignment generally runs parallel to the existing corridor of a national highway where intensive human activities exist. A national level tourism resort is located 1.5 km away from the alignment. It attracted more than 1 million tourists in 2005 and its potential capacity is far above this number. Even though the resort is expected to have the management capability to handle a likely increase of tourists induced by the project, further strengthening that capability will be considered, if necessary. Also, three national level nature reserves are located more than 10 km away from the alignment, but it is highly unlikely that the project will have any adverse impacts on them due to the distance.

To prevent and mitigate soil erosion and subsequent water pollution, various measures have been developed in the EMP. A Contingency Plan for Traffic Accident involving Hazardous Materials has been established in 2004 to address spills of hazardous materials caused by traffic accidents.

During the preparation of the project, 16 segments were subject to careful consideration ofalternatives, including the potential environmental and social impacts in addition to engineering, economic, and

23 financial factors. This analysis covered about 1 10 km or about two-thirds ofthe total length ofthe route. The final alignment takes into account local development plans and attempts to minimize the environmental impacts and resettlement requirements; and maximize the overall benefits to the project beneficiaries. Furthermore, the selected alternative avoided most of the unfavorable geological locations, further reducing the amount of earth movements or high vertical cuts.

A stand-alone EMP has been prepared involving an environmental management system, training, monitoring and supervision plans, and mitigation measures. The FPCD will be responsible for the EMP's coordination and guidance, and the Longyuan YWE Company and the Sanming YWE Company for its implementation. Environmental monitoring will be executed by the monitoring centers at Longyuan and Sanming City.

Three rounds of public consultation were carried out in November 2004, July 2005 and November 2005. A total of more than 900 project-affected individuals, as well as NGOs, local government officials and village committees were consulted, and their concerns and requests were well addressed in the EMP. The EA documentation was disclosed locally in March 2006 and at the InfoShop in April 2006.

Culturalproperty. For the YWE, a cultural relics survey was conducted by cultural property authorities of Sanming and Longyan cities. Two surveys concluded that no valuable cultural relics sites are located along the expressway alignment. For the RRIP, the EMF establishes that if any cultural relics were found during construction, the work will be suspended immediately, and the local cultural authority will be notified. The work will not resume until the cultural relics are examined by the authorized institution and necessary preservation measures are taken.

6. Safeguard policies

Environmental Assessment (OPBP/GP 4.01) [JI [I Natural Habitats (OPBP 4.04) [I [ JI Pest Management (OP 4.09) [ JI Cultural Property (OPN 11.03, being revised as OP 4.1 1) [JI Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OD 4.20, being revised as OP 4.10) Forests (OPBP 4.36) Safety of Dams (OPBP 4.37) Projects in Disputed Areas (OPBP/GP 7.60)' [I Projects on International Waterways (OPBP/GP 7.50) [I [JI Note: The demand-drivennature of the RRIP does not allow ex-ante knowledge of whether investments will actually take place in areas with ethnic minorities, though the possibility is low given the general conditions in Fujian." Considering the possibility that potential roads could be located in ethnic minority areas a stand-alone Minority Nationalities Development Framework has been prepared.

7. Policy Exceptions and Readiness

The project meets the readiness criteria for project implementation, closely follows all the applicable Bank policies, and does not require any exceptions.

* By supporting the proposedproject, the Bank does not intend to prejudice the final determination ofthe parties' claims on the disputed areas ]I Han Chinese is the dominant ethnic group among the 35 million in Fujian and ethnic minorities account for about 1.7%. The main ethnic groups are She and Hui, mostly spread along the relatively developed coastal areas, particularly the Hui Muslims (some of whose ancestors are Arabian traders centuries back who stayed on). The rural program focuses on the central and western Fujian areas which are the poorer parts of the province.

24 Annex 1: Country and Sector or Program Background CHINA: Fujian Highway Sector Investment Project

Road Sector Development in the People’s Republic of China (PRC)

Since the early 1990s, the economy of China has moved from a centrally planned environment to one which is more commercialized and competitive and with a high degree of openness. These changes have led to the rapid growth in passenger and freight traffic, putting heavy demands on the infrastructure. In response to these demands, and given the previous underinvestment in the sector, since the mid 1990s, the country has seen a rapid increase in the rate of road construction. By 2005 the total road network was roughly 1.8 million km, with about 34,000 km of expressways and about 30,000 km of high-grade (Class I) highways in operation. As a result, and complemented by the railway and waterways networks, over the last 15 years, China has developed one of the most extensive transportation systems in the world.

In the late 1990s, governments at all levels embarked on major highway investment programs. At the core of this program is the original National Trunk Highway System (NTHS) which is the backbone and most important element of the national surface transportation network. The NTHS is a 35,000 km network composed of twelve major highways. Five North-Southcorridors: Beijing-Fuzhou, Beijing- , Chongqing-, Erlianhaote-Hekou, and Tongjiang-; and seven East-West corridors: Dandong-Lhasa, Hengyang-, -Huoerguosi, -, Shanghai-, Shanghai-Ruili, and Suifenhe-Manzhouli. With an estimated cost of $150 billion, the NTHS will connect all provincial capitals and cities with populations exceeding 500,000 inhabitants (100 major cities). By the end of 2005, roughly 34,000 km or 97 percent of the total length has been completed.

In December 2004, the Chinese government approved a renewed national expressway plan, the so-called 791 8 China National Expressway Network (CNEN). This plan consists of building seven links to Beijing, nine North-South corridors, and 18 East-West corridors totaling 85,000 km of high-grade highways by 2020. The CNEN has been designed to reach more than 1 billion people in China by connecting all provincial capitals and large urban centers of more than half-a-million inhabitants with cities of more than 200,000 people. The standards chosen match those of the US Interstate or European motorways and the network location intends to allow people in eastern areas to access an expressway within half an hour, the central provinces within an hour, and the western areas within two hours. In addition, the CNEN will improve the communications between economically developed areas, such as the Yangtze and Pearl River Deltas in the East; and the Midwest and North-East areas; it will enhance the connection with the West and facilitate the economic growth of Central and Western provinces. (See Map 1 in Annex 15.)

Fujian Province

Fujian province has an area of 123,700 km2or 1.29 percent of the whole nation. Located along the southeast coast of China, Fujian faces Taiwan across the Taiwan Strait, and is neighbored by Zhejiang to the north, Jiangxi to the west, and Guangdong to the south. The province has a population of 35.1 1 million (2004), it has 8 cities (municipalities) and 85 administrative units as follows: 45 counties (including one specially designated city); 14 cities, and 26 districts. Rural population accounts for 69% of the total population (24.25 million in 2004).

The province is highly mountainous; mountains cover 75% of its land, hills 15% hills, and plains 10%. The terrains and natural barriers divide Fujian into four regions: the Northwest mountainous region; the Southwest mountainous region, where the expressway component of the project is located; the East mountainous region; and the Southeast hills and coastal plains. Fujian’s coastline is about 3,324 km long, which is 18.3 percent of the nation’s total and second longest only after Guangdong province. The

25 province has 125 ports of various sizes, six of which are deep water ports including Sha Cheng Port, San Du Ao, Luo Yuan Wan, Mei Zhou Wan, Xiamen Port and Dong Shan Wan. Xiamen and Fuzhou (connected through inland waterway to the ocean) are among the nation’s top 10 container ports.

Fujian is China located between the prosperous Chinese coastal provinces and cities of Guangdong and Hong Kong to the South and Zheijang and Shanghai to the North. Being the mainland area directly facing Taiwan across the Taiwan Strait, public investment was limited from the 1960s into the 1980s and only increased to levels commensurate with the socio-economic characteristics of the province in the 1990s. In spite of having an average rate of growth over the last 20 years higher than the nation’s average, by 2004, the province had lagged behind other coastal provinces in terms of quantity of transport infrastructure, affecting social and economic progress (e.g., GDP per capita falls between 75% and 85% of neighboring provinces, while life expectancy is more than two years lower). Though road density per 1000 square kilometers or per inhabitant is comparable to the country averages and those of neighboring provinces, the density of higher class roads is less than half of the values in the provinces of Guangdon 52 or Zhejiang, and the percentage (81%) of unclassified and lower class (IV) roads is substantially larger.

Fujian’s transport network facilitates North-South transport across coastal provinces and the access to deep-water ports from inland provinces such as Jiangxi, Hunan, and Hubei, and beyond these, Sichuan and Chongqing. These five provinces combined have about 300 million people. Enhancing transport conditions across the province will improve connections to other lagging inland regions and, by enhancing access to its ports, lead to a more balanced distribution of cargo and reduced congestion across the Eastern ports-such as those in Shanghai and Hong Kong.

In addition, the developed area of the Province is concentrated on the narrow strip of land along the coast. Seventy percent of its land westward from the coast is mountainous terrain where large pockets of poor populations are located. In these isolated areas the unclassified and lower class roads provide limited transport services, leading to higher transport costs and disincentives for investment. In general, rural people in villages outside the main provincial corridors-including the 7,500 administrative villages in the province’s 84 counties-face limited accessibility, since the existing network largely consists of earth or gravel roads that are impassable during the rainy season. Improving the conditions of the rural road network constitutes a key element to achieve a more harmonious socioeconomic development of the Province.

Fujian’s Transportation System

Fujian’s transport network is composed of highways, railways, inland waterways, ports and aviation systems. By the end of 2004, the province had 56,208 km of highways; 1,452.8 km of railways, and 3,701 km of waterways.

Highways. Highways are the main mode of transportation in the Fujian. They play an important role in serving freight and passenger transport needs within the province as well as with neighboring provinces. In 2004, 69.7% of freight tons-though only 16% of the ton-km-and 94.3% of passenger traffic used highways. The highway network reached 56,208 km in 2004, with 1,043 km expressways; 336 km Class Iroads; and 6,150 km Class I1 roads. The province has 5 national highways, most of which are Class I1 standard. The total length of national highways is 2,269 km, which provides connections among the province’s 8 cities and 84 counties. The provincial road network has 17 provincial corridors: eight horizontal and nine vertical.

’* Figures refer to end-of-2003 numbers, based on the National Statistical Data, unless otherwise reported. The data for life expectancy corresponds to the latest (2000) population census.

26 Class Length (km) Percentage Expressway 1,043 1.9% Class Iroads 336 0.6% Class I1 roads 6,150 10.9% Class 111 roads 4,097 7.3% Class IV roads 32.969 58.7%.. Unclassified roads 11,613 20.7% Total 56,208 100.0%

Railways. The railway network in Fujian belongs to the southeast part of the national rail network. By the end of 2004, Fujian had 1,565 km railway in operation, 892.3 km of which are electrified rail lines. Currently, there are 11 major rail lines in Fujian, with three lines providing inter-provincial access: Yingtan - Xiamen line (615.6 km), - Kanshi line (47 km), and Zixi - Nanping South, so-called HenNan line (186km). Fujian’s rail capacity is expected to improve with the implementation of three additional lines which have been planned: Fuzhou- line, Fuzhou- Xiamen line, and Longyan- line. It is expected that Fujian’s rail network will carry more inter-provincial long distance freight and passenger traffic.

Ports. In 2003, Fujian operated over 125.16 million-ton of cargos through its coastal ports (a 22.8% increase from 2002). Xiamen, Fuzhou, and individually operated over 10 million tons of freight. With Xiamen and Fuzhou, Fujian houses two of the nation’s top 10 container ports, and among the 20 most important nodal ports in China. Through coastal ports, Fujian is connected to Hong Kong, Macao, Taiwan (line opened in 1997) and over 60 other ports in over 40 countries. Moreover, with support from Fuj ian’s maritime transport system, the province established commercial relationship with over 140 countries and regions. Fujian’s maritime transportation has been growing steadily and it is expected that this trend will be maintained in the future.

Waterways. Fujian’s inland waterways have a total length of 3,701 km; of which 1,980 km are middle class waterway, and 1,72 1 km are non-classifiedwaterways. Passenger transport through waterways has long been decreasing. The decline of inland waterway transport can be attributed to three factors: the installation of a major hydrology power plant (Watergate power plant); the upper stream forest damage with the subsequent loss of water and earth; and the problems with the capacity structure of water transport enterprises.

Air Transport. Fujian currently has five civil airports: Fuzhou Changle International Airport, Xiamen Gaoqi InternationalAirport, Wuyi Mountain Airport, Quanzhou Jinjiang Airport, and Longyan Guangmao Airport. Fujian has sufficient aviation capacity, particularly in the context of limited demand with a rather low share in pass-km (12.9% in 2003), which is expected to remain low.

Fujian Road Management Issues

Organizational Framework. The operation and maintenance of the expressway network is entrusted to expressway companies that are subsidiaries of the Fujian Expressway Company, the sister organization of the Fujian Expressway Construction Directorate (FPECD) under the Fujian Provincial Communications Department (FPCD). Responsibility for the non-expressway network falls upon two deputy directorates under FPCD: the Planning Deputy Directorate and the Public Works Deputy Directorate. They have a role of funding, oversight, and technical support on maintenance activities.

27 The actual maintenance operations on the non-expressway network are carried out at a decentralized level: 0 Cities (municipalities) are in charge of maintenance of the national and provincial network in their jurisdictions. There are nine Highway Bureaus at municipal level in charge of about 7900 km of national and provincial roads. These Highway Bureaus provide technical guidance to the counties. 0 Counties are in charge of maintenance of the county network in their jurisdictions. There are 84 Communications Bureaus at county level in charge of about 6600 km of county roads. These Communications Bureaus assist the township governments in the management of the township and village roads.

Maintenance of National/Provincial/County Roads. FPCD has developed three main tools to assist in managing their network: 0 A Road Condition databank, which includes information on the attributes and technical specifications ofthe roads. Information in the databank is renewed every year. 0 A Bridge Management System, containing information on bridge attributes and conditions. Based on information collected, the bridge conditions will be categorized into five categories with category 1 representing best condition, category 4 being bad condition, and 5 being dangerous condition that requires immediate reparation. The information is updated every year. 0 A Pavement Management System, containing information on the road geometry and pavement structure and condition.

The data and information inputted into the three systems are collected through field surveys using the relevant data collection checklists developed by MOC. The field data are initially collected at the county level and submitted to the municipal highway bureau and then to the provincial highway bureau. Priority of maintenance work is determined based on the information gained from the three systems. However, emphases are generally given to national highway, and secondly provincial roads.

In terms of maintenance funding allocation mechanism, the Highway Administration Bureau (FPHAB) under FPCD is responsible. In 2005, FPHAB had a record of 14,400 km roads under its management for maintenance, among which, about 7,900 km are national and provincial highways, and 6,000km are county roads. To allocate the maintenance resources, each year the nine municipal highway bureaus would send maintenance funding requests to the FPHAB, who will review and evaluate the validity of the funding requests based on its field exams, carried out at least once a year, on each municipality’s road condition.

At the municipal level, the 9 municipal highway bureaus (with their engineering and financial divisions) manage the maintenance fund from the FPHAB and allocate the funds to the 84 county road sub-bureaus- one for each county. Each of the county road sub-bureaus manages several highway maintenance stations (gangs). As of the end of 2005, there are nearly 600 maintenance stations in Fujian, whose size varies depending on the length of network they maintain.

Maintenance operations are categorized into two types: (1) major maintenance or the repair of major damages, and (2) minor maintenance, including routine maintenance and the repair of minor damages. The major maintenance works are normally carried out by private maintenance companies through an open bidding process within the province. In case of particularly large maintenance works, the bidding could be open to companies nationwide. Currently Fujian has about 90 maintenance companies with each being certified by FPCD according to the MOC standards. FPCD also performs annual review on the qualifications of maintenance companies and recertifies them every three years. The minor maintenance works are normally carried out by highway maintenance stations. The works are allocated to the stations through a highway bureau internal bidding process that is carried out once every two to three years.

28 In terms of budget allocation, in 2005 FPHB allocated about 1 billion RMBs on the maintenance ofthe 14,000 km roads under its responsibility, among which, 300 million RMBs are for routine maintenance. Of the 300 million RMBs, about 60% are for the salaries ofFujian’s 8,000 maintenance staff, the remaining funds were spent on materials and machines.

Maintenance of Township/Village Roads. Fujian has a total of 69,000 km rural roads, which are maintained by counties, townships, and villages. Specifically, maintenance is managed by county communication bureaus and their subdivisions-the township road stations. Township road stations are management units, who are in charge of hiring local people to carry out the maintenance work in exchange for salaries. For routine maintenance ofvillage roads, the salary is at about 300-500 RMBs/ km. Families or individuals interested in taking the maintenance work ofa specific road segment can also compete for it. Individuals maintaining a road segment will sign a contract with the township road bureau that sets out the specific conditions ofthe work and payment.

Maintenance works are funded through various funding sources including: municipality, county, township governments, and from other sources like local enterprises, donations from people overseas etc. Hence, information on maintenance expenditures for village roads is subject to caution.

Sector Issues in Fujian

The following issues are highlighted as key in the strengthening of Fujian’s road sector:

Enhanced connectivity and integration with neighboringprovinces. Fujian’s transport network facilitates North-South transport across coastal provinces and improves access to deep water ports from inland provinces such as Jiangxi, Hunan, and Hubei, and beyond them, Sichuan and Chongqing. As explained before, Fujian houses two major ports-Xiamen and Fuzhou-that rank among the nation’s top 10 container ports. Enhancing transport conditions across the province will improve connections to lagging inland regions and, by enhancing access to its ports, lead to a more balance distribution of cargo and reduced congestion across the Eastern ports-such as those in Shanghai and Hong Kong.

Adequate transport accessibility and a road network of suficient quality. The developed area ofthe Province is concentrated on the narrow strip ofland along the coast. Seventy percent of its land westward from the coast is mountainous terrain where large pockets of poor population are located. In these isolated areas the unclassified and lower class roads provide limited transport services, leading to higher transport costs. In general, villages outside the main provincial corridors lack appropriate access, since the existing network largely consists of earth or gravel roads that are impassable during the rainy season. Improving the conditions ofthe rural road network constitutes a key element to achieve a more harmonious socioeconomic development of the Province.

Building up a scientiJic approach to maintenance management. The tools developed available in FPCD are used mostly for information on the road network, not for the preparation of multi-year programs ofmaintenance and rehabilitation and prioritization ofannual budgets. In particular, there is no linkage between budget allocation and road network condition. This issue was considered under the ongoing Second Fujian Highway Project, through a Study on Highway Maintenance Management, aiming at developing a suitable framework for assessment of maintenance needs and allocation of funds.

Gradual promotion of a more balanced allocation of resources for the development and preservation ofthe road assets. At the provincial level, the amounts allocated to (periodic and routine) maintenance have been rising with average resources per kilometer growing at a average of 8% during the last four years. However, these resources still represent less than 4% ofthe total amounts

29 allocated to the sector. Hence, additional efforts are required in shifting the overall sector approach from one that largely focuses on road development towards one that bestows a stronger emphasis on asset preservation on the basis of the technical analyses built upon the set of currently available road management tools. This issue was also part of the dialogue between the Bank and FPCD under previous Bank-financed highway projects, but additional efforts must be put in place.

0 Gradual incorporation of alternative strategies for carrying out maintenance activities. Current force account practices can be improved through the exploration of alternative contractual mechanisms for road maintenance. These mechanisms-as has been demonstrated in other countries-can bring in added efficiency in the use of resources allowing FPCD to improve the condition of a larger number of road assets within the currently constrained budget allocations.

Government Strategies and Interventions

To achieve a more harmonious development across Fujian’s territories and enhance transport accessibility across the Province -including the rural areas- the Provincial Government, through its Provincial Communications Department (FPCD) has established a well thought-out investment strategy that would bring the transport infrastructure up to the standard necessary to support the social and economic development of the province, with particular emphasis on the road sector. The proposed investment strategy for the road sector has a well-balanced distribution across all road classes, and it includes the following elements:

0 continuing the expansion of the expressway network by doubling its current length of about 1,100 km by 20 10, and tripling it by 20 17; 0 gradually upgrading the national and provincial highways to at least class 11, to complete a network of 8,600 km, enhancing the transport connections among cities and counties and of them with the expressway network; and 0 aggressively improving the condition of about 35,000 km of non-paved class I11 and N rural roads network through the implementation ofa Rural Roads Improvement Program (RRIP)-of which about 8,000 km have been completed since the inception of the program in 2004-facilitating the connections of approximately 7,500 administrative villages with the paved arterial provincial and county roads by 20 10.

This strategy is consistent with the central government strategies and those set under the Eleventh Five- Year Plan for the period 2006-2010, approved by the State Council at the end of 2005. The expansion of the expressway network fits squarely within the CNEN Plan.

The Fujian RRIP has been highlighted as a good practice and a blueprint for replication to the rest of the Chinese provinces-with the necessary adjustments to reflect the varied characteristics of provinces across China. This type of interventions in rural roads has received a strong boost recently from the central government with the. approval of a program of up to RMB 100 billion for the period 2006-2010. Further supporting this initiative, the State Council has published several policy notes that endorse increased investments in rural infrastructure-including roads-while emphasizing the need to strengthen road management capacity at the county and local levels.

The ambitious road investment plans require parallel strengthening of the capacity of sector entities in Fujian to manage the increasing amount of road assets. In this respect, FPCD is gradually upgrading its management information systems and mechanisms for the upkeep of the expressway, national, and provincial roads, partly with financing from international development agencies. Furthermore, through the implementation ofthe RRIP, local entities currently receive technical support from FPCD through its de-concentrated highway bureaus in nine cities and through the communications bureaus at the county level.

30 Issues to be addressed by the Project

The project seeks to contribute to address the issues discussed in this Annex, in line with the Fujian Government’s own strategies and interventions. Specifically, the project seeks to contribute to (a) the construction of a key link ofthe CNEN in the Fujian Province; (b) the implementation of the province- wide rural roads program; and (c) key technical assistance activities related to building up the capacity of FPCD in managing road assets, through a study on toll rates, a pilot on the contracting of road maintenance, carrying out an impact analysis of rural roads, and an intensive training program with a focus on road safety and quality control and management skills.

31 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies CHINA: Fujian Highway Sector Investment Project

Latest Supervision (PSR) Ratings* (Bank-financed projects only) Sector Issue Project' Development Implementation Objective Progress (IP) (DO) Bank-financed

Remove Highway Capacity Bottlenecks (1)

Institutional StrengthenindTraining (2)

Rural Roads and Poverty Alleviation (3)

Highway Safety (4)

Operation & Maintenance of High-Grade Highways (5)

Cost Recovery (6)

I I Planned Projects Shaanxi Ankang Road Development (1-6) Anhui Road Rehabilitation & Improvement (1-6) Transport Project (1 -6) Ningxia Transport Project (1-6)

32 ITHER DEVELOPMENT .GENCIES

~~ isian Development Bank ONGOINGPROJECTS

Hebei and Liaoning Expressways Liaoning and Jilin Expressways Hebei Roads Development Chengdu- Expressway Changchun- Expressway Shanxi Roads Development Southern Yunnan Road Development Chongqing-GuizhouRoads Development Ganlong Railway Project (GanzhodJiangxi - LongyadFujian) PLANNED PROJECTS Shanxi Expressway Chongqing-Guizhou Expressway Guangxi Highway Development Shanxi and Shaanxi Roads Western Yunnan Road Development Southern Sichuan Roads Development Bank for International ONGOING PROJECTS Cooperation Hainan Development (formally Overseas Economic Qingdao Development Cooperation Fund of Japan) Guiyan-Xinzhai Highway -QuzhouExpressway Wanxian-Liangping Highway Liangping-Changshou Highway Hainan East Expressway Xinxiang- Highway

33 Annex 3: Results Framework and Monitoring CHINA: Fujian Highway Sector Investment Project

Results Framework

PDO

To increase the effective use of the Reduction of freight rates on Assess impact of improved road infrastructure in the Fujian Yong’an-Wuping Corridor expressway and rural infrastructure on Province in support of its social and users’ behaviors and the effective economic development. Reduction of travel times on rural transfer of benefits to road users roads

Intermediate Outcomes Intermediate Outcome Use of Intermediate Outcome Indicators Monitoring (a) Transport flows on rural roads Traffic volumes on rural roads Assess level of use of upgraded improved: rehabilitation of about increased infrastructure, including increased 3,500 km of rural roads under provision of passenger services, and Fujian’s Rural Roads Improvement Supply of bus passenger services reduction in travel access to social Program (RRIP) enhanced services and economic activities

Pace of loan disbursements under Verify and evaluate applicability and RRIP component accelerated replicability of RRIF. This evaluation also provides indirect assessment of Number of km of completed works enhanced capacities at the local level not subject to Bank financing with substantial compliance with the RRIF

(b) Transport conditions enhanced Traffic volumes on YWE and G205 Assess level of use of upgraded road on the corridor between Yong’an increased conditions on the Yong’an-Wuping and Wuping (border with corridor, in a faster and safe manner. Guangdong Province): construction Average travel times on YWE and Traffic accidents on existing G205 of the 195.2-km Yong’an-Wuping G205 decreased at the opening of the would be collected for the purposes of Expressway (YWE) YWE comparison with those after the opening of the YWE. Accident rates on corridor (YWE and G205) reduced at the opening of the YWE

(c) Alternative maintenance Contract maintenance approaches in Verify applicability of alternative mechanisms tested and applied to Fujian applied maintenance mechanisms for road provincial road network: two pilot maintenance, through the contracting initiatives of maintenance by out maintenance activities contract in two segments of the provincial road network.

(d) Road management capacities at Enhanced knowledge and application Continued knowledge acquisition of FPCD strengthened: institutional of updated road management updated approaches on road strengthening component approaches including: (a) toll rate management topics, building on setting; and (b) measurement of previous institutional development impacts. actions, towards ensuring enhanced technical and management capacity at Effective completion oftraining FPCD. programs.

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9 3 v) Annex 4: Detailed Project Description CHINA: Fujian Highway Sector Investment Project

Component A. Rural Roads Improvement Program (RRIP) (estimated cost US$502.05 million - 33.7% of the total project cost - of which US98.26 million would be financed by the Bank Loan) l3

The RRIP aims at improving conditions of the lower class roads that connect administrative villages to the main provincial road network. The Bank loan will support the overall program and finance rural road investments that are carried out following the rural roads implementation framework (RRIF) agreed upon with FPCD. The FUUF is the integrated framework of the Procurement Framework, Environmental Framework, Land Acquisition and Resettlement Framework, the Minority Nationalities Development Framework, and Financial Management Framework, as well as with the technical specifications and construction quality standards agreed upon with FPCD (building on existing specifications and standards that had been used by FPCD since the program inception in 2004). The works eligible for World Bank financing will be in compliance with all the elements of the RRIF. Disbursements will be processed based on completed outputs. The Bank loan will support a subset of about 3,500 km out of the 10,000 km of road sections already identified based on the demand raised from the requests received by the counties, townships and villages, that are part of the 35,000 km FPCD's overall program.

The civil works for the RRIP include the improvement and rehabilitation of lower class rural roads (Class I11 and IV) and consist mostly of resurfacing the unpaved roads with concrete pavement, in line with technical standards based on MOC regulations reissued by the Fujian Province as "Technical Standards for Fujian Rural Road Engineering" (August 2004). These standards have been used by FPCD since the inception of the RRIP and have been reviewed and found generally satisfactory by the Bank. Specific adjustments have been incorporated into these standards. The final document has become part of the rural roads implementation framework (RRIF).

FPCD will cover the necessary costs for the dissemination of the RRIF and the training of county and local units that wishing to implement the framework require strengthening their capabilities. This component is complemented by an impact evaluation and monitoring study that will help measure the impacts of a rural roads sample to establish a complementary knowledge base that can help incorporate adjustments to the RRIP to better tailor the interventions to the needs of rural areas. This study is included under the Institutional Strengthening Component.

Component B. Yong'an - Wuping Expressway (YWE) (estimated cost US984.17 million - 66.1% of the total project cost - of which US218.55 million would be financed by the Bank Loan)

The YWE will be a 195.2 km long section of the Changchun-Shenzhen expressway, which is one ofthe North-South corridors of the CNEN. The YWE will connect Yong'an (Sanming City) with the border of the Fujian and Guangdong Provinces, at Yanqian in Wuping (Longyan City). This component includes the acquisition and installation of electrical and mechanical (E&M) works and the construction of buildings and annex areas for service and safety operations. The project's expressway investment will connect to the North with another expressway currently being completed by the Fujian Province and to

l3The project costs for each component include physical and price contingencies and the percentages are calculated from a total project cost of US$1,490 million. No Front-end Fee needed to be included as the World Bank Board of Directors waived the Front-end Fee during the fiscal year (FY07) within which the legal agreements related to the Project have been negotiated.

37 the South with another expressway currently under construction in Guangdong province (expected to be completed in 2008), leading to one of China’s most industrial and populated cities, Guangzhou. The construction of the expressway segment under the project however will help achieve by itself the project’s development objective and therefore no linkage issues are present in this case.

The proposed YWE passes through Yong’an (Sanming City), and Liancheng County, , (Longyan City). The table below summarizes the key socioeconomic conditions of the cities traversed by the proposed YWE.

Area Pop. GDP Urban Ave Rural AveInc (km’) (mill) (bY) Inc(Y) (Y)

The expressway will consist of four lanes that have been designed for a speed of 80 kdhr in the heavy mountainous terrain from Yong’an to Liancheng, and of 100 km/hr for the remaining section. The final alignment of the expressway has been selected upon in-depth analysis of alternatives in 16 segments of the road covering two thirds of the total route length. The selected alternative scheme avoids most of the unfavorable geological locations and follows optimal horizontal curves and vertical slopes, while minimizing social and environmental impacts.

In addition to the civil works, this component includes the installation of electrical and mechanical (E&M) facilities and the construction of buildings and annex areas for service and safety operations.

Design features. The main design features of the YWE are the following: . Technical standards: The proposed project alignment on the feasibility study was optimized based on preliminary survey results. Two different technical standards were adopted due to complex topographic and geologic conditions along the route: (i) from Km 0 to Km 75, the design speed is 80kdh and sub-grade width of 24.5 m; and (ii) from Km 75 to K195, the design speed is 100kmh and sub-grade width of 26 m. Interchanges: 1 1 interchanges were designed to serve the needs of the local and through traffic. For each interchange, alternative designs were considered before adopting the best suited. . Structures: the difficult topography led to almost one-third of the total length requiring special structures, as follows: (i) 126 bridges for a total length of about 39 km (20% of total length); and (ii)27 tunnels for a total length of about 25 km (12% of total length). . Facilities: include 4 service areas, 3 rest areas, 9 toll stations at interchange ramps, and one mainline toll station (at the border with Guangdong). . Soil testing: The project was subject to supplemental geological investigation during the detailed design stage. The investigation included sufficient bore tests especially on the road sections where large bridges, tunnels, deep cuts and high fill were located.

Pavement Design. Special attention was paid to pavement design to avoid the problems typically encountered with semi-rigid pavements. Asphalt concrete will be used except for tunnels and toll plazas where cement concrete will be utilized. The typical asphalt pavement design currently being used for expressways in China has been replaced with an improved design because a number of sections using such typical structure with semi-rigid base have failed much earlier than expected. The new pavement

38 design consists of 10 cm of asphalt concrete layers, 15 cm of bitumen macadam base course, 16 cm of graded crushed stone, and 30 cm of low strength cement stabilized crushed stone sub-base. The gradation for each layer including asphalt concrete mixture follows the new asphalt pavement and construction specifications issued by MOC.

Implementation Schedule. The prequalificationdocuments were sold to the public in May, 2006. The bidding documents for the earthwork contracts would be issued in July, 2006 and the initiation of construction is expected for December 2006. It is estimated that construction of the civil works for YWE will require a total of 36 months,

Construction Supervision. A joint foreign/local supervision team will be set-up for the supervision of YWE. The foreign supervision team will mainly consist of three experts. A team leader that will be assigned as Chief Supervision Engineer’s Representative focusing on project and contract management; a sub-grade engineer; and a structural engineer. During the peak construction period, one additional sub- grade engineer from the foreign consulting firm will be hired. After completion of the earthworks, one pavement engineer will replace the sub-grade engineers and the structure engineer. A total of 120 person- months for the foreign supervision team has been estimated; these include four person-months allocated for training and eight person-months for contingency. The estimated domestic supervision input for YWE is about 7,200 person-months with 200 engineers. The domestic supervision team will comprise five resident engineer’s offices with each responsible for one pavement contract and corresponding earthwork contract.

Component C. Highways Maintenance Pilot Program (HMPP) (estimated cost US$0.66 million - 0.04% of the total project cost - of which US$O. 18 million would be financed by the Bank Loan)

The Highways Maintenance Pilot Program component will apply maintenance by contract approaches in two highway sections of the (non-expressway) provincial highway network. Preliminarily, one of the sections will consist of routine maintenance while the other will include both periodic and routine maintenance. This component seeks to increase the efficiency of force-account maintenance practices, which are currently being applied by FPCD through the city and county Highway Bureaus. This component also includes the supervision of the two contract pilots and it is complemented with a technical assistance for FPCD maintenance staff as part of the ISP further described below.

Alternatives approaches for contracting maintenance can vary from one based on labor-intensive activities performed by a micro-enterprisecomposed of people living in the vicinities of the road to be maintained to more encompassing activities-that can include some periodic activities that require equipment- performance by private contractors. These two schemes-or variations thereof-in addition can be subject to contractual terms where payments are given on the basis of quantities actually carried out, or the basis of compliance with contractually-specifiedperformance standards. The definition of the final approach will be part of the technical assistance for FPCD maintenance staff (included in the component on institutional strengthening) that will provide the knowledge and analytical elements for exploring those alternative mechanisms as well as for the preparation, implementation, and supervision of the preferred contractual scheme.

39 Component D. Institutional Strengthening Program (ISP) (estimated cost US$3.12 million - 0.2% of the total project cost - of which US$3.01million would be financed by the Bank Loan)

The institutional strengthening program includes a study on toll rates, the impact evaluation and monitoring for the RRIP, the technical assistance for the HMPP, and training for staff of the agencies and institutions involved in the project. More specifically, in brief

0 The analysis of toll rates will evaluate alternative adjustments to maximize the use of the expressway network and optimize its economic value, building upon, updating, and expanding a study undertaken under the Second Fujian Highway Project for the Zuzhou-Qanzu Expressway. The analysis will be approached with a comprehensive perspective of toll rates across the province and their influence on traffic demand.

0 The impact evaluation and monitoring study seeks to establish a knowledge base of the impacts of the ambitious RRIP on rural livelihoods as an analytical base for the design of future interventions on those types of roads across Fujian Province. It will include two separate consultant services: (a) the definition of the impact evaluation methodology and the analysis of results and impacts, and (b) up to three data surveys to be completed in representative samples of rural areas within the territories in the area of influence of the rehabilitated roads to collect among others: demographic and ethnic data, gender information, quality of infrastructure provided, transport services, access to social and other infrastructure services, willingness-to-pay for improved services, enhancements to agriculture production, or changes in economic activities-e.g., towards non-agricultural productive activities.

0 Technical support in the design of the pilot of maintenance by contract and to its implementation and supervision. This technical assistance will consist of several stages, all to be undertaken in collaboration with FPCD, as follows: (i)discussion of options and assessment of current practices to define the road segments and maintenance approaches to be included in the pilot component; (ii) definition of the tender documentation and contract model; (iii)supervision of tender process and implementation of two pilot experiences; and (iv) assessment of experience for the consideration of FPCD in future maintenance mechanisms.

40 Program 2007 2008 2009 2010 201 i Total Design and Operational Safety 72,ooc 72,OOC 72000 216000 Innovative Tolling Mechanisms 42,000 72,000 114 000 Qua tty Cont~l 42,000 72,000 114,000 Expressway Management 114 000 114 000 228 ooo Road Sa'ety 42,000 42 000 Road Asset Manasement 114 000 186 000 156 003 456,000 Road Operational Management 42000 84000 42,000 42,000 210000 Mairtenance and Traffic Surfeillance 72,000 42,00t? 72,030 186 000 Others 8,000 $2 000 42 000 42003 'I34 000 Total 270,000 350,000 312 000 384 300 384,003 1,700 000

Program 2007 2008 2009 2010 201 1 Total YWE 270,030 350,000 312,000 384,000 384,000 I 700 000 RRiP 436 OOC 302 000 218 000 44,003 1,000 000 Total 706.000 652 000 530 000 384 000 423 003 2 700,000

41 Annex 5: Project Costs CHINA: Fujian Highway Sector Investment Project

.. Therefore, the share of project cost net of taxes is 88%. Cost by Financing Source US$million') Cost by Component Non-Bank Bank Total Financed Financed [A] Rural Roads Improvement Program (RRIP) Civil Works 401.740 98.260 500.000 Construction Supervision 2.050 0.000 2.050 Subtotal 403.790 98.260 502.050 [B] Yong'an - Wuping Expressway (YWE) Civil Works 439.678 216.558 656.236 Electrical and Mechanical Facilities 24.800 0.000 24.800 Buildings and Annex Areas 25.700 0.000 25.700 Construction Supervision (local) 25.130 0.000 25.130 Construction Supervision (foreign) 0.000 1.992 1.992 Land Acquisition and Resettlement 106.300 Subtotal 621.608 [C] Highway Maintenance Pilot Program (HMPP) Maintenance by Contract Pilot Program 0.420 Construction Supervision 0.060 Subtotal 0.480 0.180 0.660 [D] Institutional Strengthening Program (ISP) Studies (Toll Roads) 0,110 0.000 1 0.110 I Impact Evaluation and Monitoring RRIP 0.000 0.250 I 0.250 Maintenance by Contract Technical Assistance 0.000 0.060 I 0.060 Training 0.000 2.700 I 2.700 I Subtotal 0.110 3.010 3.120 Total Baseline Costs 1,025.988 Physical Contingencies 94.540 0.000 94.540 Price Contingencies 49.472 0.000 49.472 Total Project Costs 1,170.000 Front-end fee 0.000 Total Financine Reauired 1.170.000

42 Annex 6: Implementation Arrangements CHINA: Fujian Highway Sector Investment Project

Institutional Framework

The graph below shows a schematic representation of the institutional framework of the highway sector in Fujian Province. The construction and management of the expressway network is entrusted to the Fujian Expressway Construction Directorate and its sister organization the Fujian Expressway Company, respectively. The planning and management of the non-expressway national/provincial network falls within the realm of two deputy directorates of the Fujian Provincial Communications Department: the Planning Deputy Directorate in the planning of road interventions and design and transfer provision under the RFUP and the Construction Deputy Directorate in the construction and oversight of the management of provincial and national roads. Rural roads are managed by the Traffic/Highway Bureaus of the counties with support from the Cities’ Highway Bureaus and the FPCD.

Organizational arrangements and responsibilities

The Office of the Director of the FPCD will include a Project Management Office (DOFWBP) responsible for the overall coordination of the project, and for monitoring the activities of the implementation agencies. In addition, the DOFWBP will serve as the main counterpart for the submission of progress and audit reports to the Bank, organization of the supervision missions, and oversight of project implementation in accordance with the Loan and Project Agreements.

An implementing agency has been identified to carry out each investment component of the project as follows:

(i) The FPECD, and the newly established Longyan YWE Company and Sanming YWE Company will be responsible for the procurement and implementation of the YWE component.

43 (ii) The Construction Deputy Directorate of the FPCD in coordination with the Provincial Highway Bureau will be responsible for the implementation of the maintenance by contract pilot program. (iii) The Planning Division and Construction Division of the FPCD will be responsible for the implementation of the RRIP, and will monitor and coordinate the activities of the Communications and Highway Stations of the local entities. (iv) The technical assistance activities and studies which are part of the Institutional Strengthening Program (ISP), or under each component, will be split between the FPECD and FPCD, depending on the subject of application. The resources to finance training activities will be shared by the participating entities, according to a training plan agreed with the Bank.

Implementation arrangementsfor the RRIP Component. The Planning Division and Construction Division of the FPCD will be responsible for the implementation of the RRP, through the monitoring of the activities of the Communications and Highway Stations of the local entities. However, the RRP will be actually implemented by the counties, townships and administrative villages with jurisdiction over the roads to be rehabilitated. Nonetheless, the FPCD will ultimately remain responsible for monitoring the implementation of that program in accordance with the precepts of the Loan and Project agreements and the rural roads framework designed for the RRP roads to be supported with the World Bank loan.

The Bank will support the existing Fujian Rural Road Improvement Program that aims at improving conditions of the lower class roads (mainly Class I11 and Class N roads) and connect all administrative villages in the province to the main road network. Under the existing RRP, local villages and townships take the initiative to rehabilitate the roads under the jurisdiction. Those contained in the RRP databank are eligible for a budgetary transfer from FPCD -which varies depending on the characteristics of the road and the socio-economic characteristics of the area of influence, up to a maximum of 60 percent- if the completed works meet the quality and eligibility standards required by FPCD. The Bank loan will finance the RRIP roads in line with the criteria already being applied by FPCD, as well as other World Bank requirements, such as those related to procurement, financial management, resettlement, and environmental issues, as described below. This component will provide the opportunity to instill better practices in the implementation of the investment program and in the management and maintenance of the network (largely under the responsibility ofthe highway bureaus of the 84 counties in the province).

A framework has been agreed upon with FPCD that includes the elements for compliance with World Bank requirements related to environmental issues, land acquisition and resettlement, technical standard and construction quality, and financial management (FM) and procurement procedures, as well as the reporting of the necessary evidence about the physical completion of works and contract payments. FPCD and its sub-unit -the Fujian Highway Bureau- will be responsible for the dissemination of the conditions as well as providing training to the local communities to help them learn and implement the procedures and conditions required under the framework. The FPCD will include in the quarterly progress reports to be submitted to the Bank during project implementation a summary ofthe actions and activities undertaken to disseminate the framework and in training the counties/townships/villages.

Rural Roads Implementation Framework (RRIF). A rural roads framework has been established for identifying the completed roads that will be eligible for Bank financing under this component. This framework includes the following elements:

0 The condition that road segments shall be part of the 10,000 km subset of the 35,000 km of the rural roads improvement program. 0 The environmental framework and its procedures to be applied for appropriate consideration of environmental mitigation measures during the execution of the improvement works, as well as the provisions regarding the chance of finding cultural relics.

44 The resettlement framework and its procedures that would guide the planning and implementation of mitigation measures when land acquisition and resettlement is required, and the related consultation processes. The minority nationalities development framework that describes the principles and measures to guide road planning and implementation in minority nationalities areas, and the provisions regarding consultation and participation and broad support to the project by the corresponding communities, so they can benefit from the project in a social and cultural manner acceptable to them. Engineering technical standards should be applied during the completion of works; as well as those for the supervision and monitoring of their quality. The requirements for procurement of works. The conditions for proper financial management of the contracts and the contract payments. These include: book keeping, auditing, and reporting of the completion of works, and evidence of the on-time payment to contractors in line with contract clauses. The collection of indicators to measure the most immediate transport impacts of the RRIP investments.

The Rural Roads Improvement Program (RRP) in Fujian Province objective is to connect all administrationvillages through a paved network of about 35,000 km by the year 2010. Currently the program is based on the construction of concrete pavements for the segments that link 7,500 administrative villages to the provincial network.

Rural Roads Data Bank. The universe of roads is stored in a databank that includes the location and main characteristics of the area of influence of the road. (Sample road networks can be seen in Annex 15.) The following table summarizes the broad general characteristics of the roads included in the databank and shows that the size of the projects is small, with most of them involving Class Iv roads; and most of the works involving improving (paving) of existing roads.

Fujian Rural Road Improvement Program Data Bank Number of projects * Number of km Average Number Percent Number Percent distance According to size 7,475 34,868 Less than 5 km 5,184 69% 14,346 41% 2.77 of which less than 3 km 3,400 45% 6,778 19% 1.99 Between 5 and 10 km 1,739 23% 12,485 36% 7.18 Between 10 and 15 km 40 1 5% 5,020 14% 12.52 More than 15 km 151 2% 3,017 9% 19.98 According to road class 7,475 34,868 Class IV 7,003 94% 31,567 91% 4.51 Classs 111 472 6% 3,301 9% 6.99 According to type of construction 7,475 34,868 Upgrading 7,245 97% 34,043 98% 4.70 New construction 230 3% 825 2% 3.59 The number of projects is equivalent to the number of administrative villages to be connected

The program is managed by the owner of the jurisdiction where the road is located; that is, the Communications Bureau or Highway Station at the corresponding local entity (county, township, or village). At the provincial level, FPCD is responsible for policy and oversight through: (i)training of local staff, (ii)issuance of guidelines for construction and management, and (iii)spot checks on compliance and construction quality.

45 Largely all the rural roads under the RRIP are located within 53 of the 84 counties in Fujian, as those counties within the two urban municipalitieswith higher incomes do not have any rural roads in need of rehabilitation. Upon agreement of the draft contents of the elements of the RRIF at the completion of the pre-appraisal mission (in January 2006), FPCD initiated the dissemination of those elements and requested counties/townships/villages to submit proposals of roads for consideration under the project. Out of the almost 13,584 km of proposals, the FPCD considered the following three factors for the selection of the 10,000 km subset from which roads eligible for Bank financing will be drawn from:

0 Maintain the initial priority order of the projects given by each municipality. The proportion percentages for the poorer mountainous region and for the less poor coastal region were taken as 70% and 30 %, respectively. 0 The comprehensive performance ability of the county or township, including design, construction, and institutional capability as well as experienced achievement in the recent past years.

The table below shows the distribution of the 10,000-km subset of roads in each of the seven municipalities (cities) that contain the 53 counties mentioned above. The implementation of the project will focus on this subset within the context of the 35,000 km of the five-year province-wide Rural Roads Improvement Program (RRIP).

The technical standards and unit costs. The technical standards are based on MOC regulations issued in 2003 for class 111 and class IV roads. The design requirements depend on whether the project is large or small. “Large” projects include: (i)class I11 roads, (ii) class IV roads if longer than 20km, and (iii) projects costing more than 6 million RMB. For these projects the design has to be contracted out to a qualified firm.

The estimated average unit costs for each type of works, based on an in-depth analysis of previous projects and of the quantities and current market practices for inputs, are as follows:

0 For reconstructionof existing roads where only the pavement is concerned. For class I11 (7.5m .roadbed, 6.5m pavement), the cost is around 1,000,000 RMB/km (or about US$125,000), becoming up to 80% higher in mountainous areas. For the lower level class IV under the RRIP (4.5m roadbed, 3.5m pavement), the cost is around 300,000 RMB/km (or about US$37,500). For higher-level class IV roads, the cost can be as high as 550,000 RMB/km (or about US$68,750). 0 For major improvements (where adjustments to the alignment might be required and subgrade must be reconstructed), the cost is 2 to 3 million RMB/km for class 111 and 600,000 to 1,000,000 RMBh for class IV roads. 0 The program has been planned to involve 97.6% reconstruction, and 2.4% of major improvements. 0 All county roads should be class I11 standard. This type of roads represents 9% of the program.

46 Annually FPCD and the Bank will review and, if needed, update the estimated average unit costs for each type of works and road based on the experience of the roads completed during the previous twelve months.

Based on the following factors, validated by the long experience in Fujian, the FPCD has decided to use cement concrete pavement: (i)high intensity of rainfalls; (ii) a majority of hilly terrain with high gradients; and (iii)good quality asphalt is not easily available, while cement is produced locally and cost is relatively low.

Reconstructed County Reconstructed Township, Village Roads as Class IV Location Roads as Class 111 No. Units in 1,000 RMBskm Mileage 6.5 m pavement 4.5m Pavement 25m Pavement Domestic Domestic Domestic Units in 1,000 US%h (h) Bank Standards I Standards Bank Standards I Standards Bank Standards I Standards Poverty-stricken Regions 3,410 YSOO Y-00 Y230 Y 160 Y230 Y I60 1 Llnder- (17 counties) s1w w.5 s28.8 $20.0 szaa $20.0 - developed

The list of counties by each type is the following:

Under-developed Regions (46 counties) Poverty-stricken Regions (I 7 counties): Ping Tan,Yong Tai, Xian You, Ping He, Hua An, Chang Ding, Lian Cheng, Shang Hang, Wu Ping, Da Tian, Jian Ning, Ning Hua, Guang Ze, Zheng He, Ping Nan, Shou Ning, Zhou Ning Other Under-Developed Regions with Transfer Payment porn the Exchequer (29 counties): Min Qing, Chang Tai, Dong Shan, Long Hai, Nan Jing, Yun Xiao, Zhang Pu, Zhao An, Yong Ding, Zhang Ping, Jiang Le, Ming Xi, Qing Liu, Tai Ning, You Xi, Jian Ou, Jian Yang, Pu Cheng, Shao Wu, Shun Chang, Wu Yi Shan, Fu An, Fu Ding, Gu Tian, Jiao Cheng, Xia Pu, Cheng Xiang, Han Jiang, Xiu Yu Other Regions (7 counties) Mountainous (3 counties): Xin Luo, Yong An, Yan Ping 0 Coastal (4 counties): Jin An, Lian Jiang, Min Hou, Mei Zhou

The amount of additional transfers above the domestic level to be provided for the roads eligible for disbursements under the Bank loan would vary depending on the location of the road, and the overall development characteristics of the regions where the road is located.

47 The level ofthe Bank disbursement will be reevaluated every six months on the basis of the updated average costs of the works and the response to the Bank portion of the RRP by the local entities. The level of the Bank disbursement shall not surpassed in any case 100% of the actual contractual costs of the reconstruction works.

After certification of FPCD, on the basis of a report issued by the DOFWBP (with the support of the necessary specialists on engineering, environmental and social safeguards, and procurement and financial management), of the adequate compliance with the elementdrequirements of the framework, the resources of the loan would be used for reimbursing the applicable portion of the cost ofthe rehabilitation works to the local entities. This portion has been established on the basis of predefined values per kilometer, and varies depending on the physical characteristics of the road and its location in either poor or non-poor areas or mountainous or coastal regions. The corresponding values represent between 40% and 100% of the current costs for undertaking the works, with the most frequent percentage expected in the range of 60% to 70%.

Higher values correspond to the poorer and mountainous rural areas (46 counties). The values are higher than current transfers provided by the FPCD, except for those regions that are less-poor (7 counties) where the amount to be covered 'by the World Bank loan will be equal or slightly higher than the one currently provided by the FPCD. In sum, for the poorer areas, the higher World Bank financing provides a stronger incentive to seek the resources from the loan, in exchange for the compliance with the procedures of the RRIF. For the less-poor areas the incentive is limited to the institutional strengthening that is associated with the application of the elements/procedures ofthe RRIF and FPCD's own willingness to implement the RRF on the rest of the RRIP.

When requesting disbursement from the loan for the RRIP component (on the quarterly basis of disbursement periodic request agreed), the FPCD will certify that they correspond to completed works that have complied with the RRIF, including the safeguards documents, and will retain the documentation that provides evidence of that compliance for World Bank post-review. The World Bank will review samples of the completed works subject to financing from the Bank loan, with an aim at checking compliance with the framework, and another sample of completed works not subject to Bank financing, to assess the level of compliance with the agreed framework within the broader rural roads program. FPCD will try to make substantial compliance with the framework in the non-Bank financed portion of the 10,000 km data set. The transfer to be withdrawn from the Bank loan shall not be in any case higher than the costs of the completed works. Annually, the FPCD will provide a summary of the actual costs ofthe completed works and an assessment of the transfer levels will be undertaken in order to ensure that the previous condition is complied with at all times.

Building upon the existing FPCD procedures for the delivery of transfers under the RRP, the FPCD will mmitor the implementation of the RRlp Framework. The RRF is the integrated framework of the Procurement Framework, Environmental Framework, Land Acquisition and Resettlement Framework, Minority Nationalities Development Framework, and Financial Management Framework, as well as the technical standards for the completion of the works. It will also keep records of all the dissemination and training activities carried out by FPCD to take stock of the diffusion of the framework at the local level and of the weaknesses that might have been identified for the adequate application of the RRIF. The FPCD will provide information on the possible substantial application of the RRF in roads not subject to Bank financing. All this information will be used to readjust the dissemination and training efforts and the incentives built into the RRIF approach, and assess its level of replicability across the RRIP.

Every six months, the World Bank will review samples of the completed works subject to financing from the Bank loan with an aim at checking compliance with the RTUF, including the safeguards documents.

48 In addition, the World Bank will review samples of other completed works under the overall RRP but not subject to Bank financing, to take stock of the approaches being taken in overall terms for the rest of the program and assess the divergences from the provisions in the RRIF. The pace of use of the Bank resources for the RRIP component will be compared to that agreed at appraisal as a way of gauging the interest for the approach advanced with the RFUF and the adequacy of the incentive approach implied by the RRIF. The Bank loan will support a subset of not less than 3,500 km out of the 10,000 km of road sections already identified based on the demand raised from the requests received by the counties, townships and villages, that are part of the 35,000 km FPCD’s overall program. The assessment of the substantial application of the RRIF to the rest of the 10,000 km subset of the RRIP will provide information on the overall level of dissemination of the framework province-wide. The results framework (Annex 2) includes an indicator for this assessment.

Implementation arrangements for the YWE Component. The responsibility for the procurement and implementation of the YWE component of the project rests under the FPECD, and the newly established Longyuan YWE Company and Sanming YWE Company. The project will build on the existing implementation capacity of the FPECD, Longyuan YWE Company, and Sanming YWE Company for the procurement, contract implementation and supervision, contract payments, financial management, compliance with safeguards policies, and submission of reports to the Bank (through the DOFWBP at the Office of the Director of the FPCD). FPECD has had extensive experience with the implementation of World Bank projects of the same type and scope: the Quanzhou-Xiamen Expressway under the Fujian Provincial Highway Project (Loan 368 10-CNA), and the -Zhao Expressway under the Second Fujian Highway Project (Loan 45020-CNA). Another project office (DOFWBP) has been established in FPCD with staff from the Planning Division and Construction Division of FPCD for the management of the non-expressway investment components of the Second Fujian Highway Project. In both projects, the performance of FPECD and DOFWBP has been satisfactory.

Two Yong’an-Wuping Expressway Limited Companies (for construction management of the YWE) and two Y WE directorates (for resettlement and environment management) in Longyan Municipality and Sanming Municipality have been established and a procurement agent-the China National Technical Import and Export General Company-has been selected for the (ICB) procurement of YWE. The FPECD will organize and supervise the companies in Longyan and Sanming in the conducting ofthe procurement process until contract signing, while Longyan YWE Company and Sanming Y WE Company will be responsible for all the activities and documentation related to the execution of the works for the YWE at the site including construction supervision.

Implementation arrangements for the HMPP Component. The Construction Deputy Directorate of the FPCD in coordination with the Provincial Highway Bureau will be responsible for the implementation of the pilot program of contract maintenance. These responsibilities will imply the hiring of the foreign consultant who will provide support on the topic and on supervising the procurement and supervision activities of the Provincial Highway Bureau in the contracting and execution of the maintenance contracts. The Bank will share with FPCD other experiences in other countries and the definition of the scope and approach for this component was finalized at appraisal.

49 Annex 7: Financial Management and Disbursement Arrangements CHINA: Fujian Highway Sector Investment Project

Introduction

1. The Bank assessed the adequacy of the project financial management system of the project. The assessment, based on guidelines issued by the Financial Management Sector Board on November 3,2005, concluded that the project meets minimum Bank financial management requirements, as stipulated in BP/OP 10.02. It was confirmed that the project will have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project in the reporting format agreed upon between the Bank and FPCD, as required by the Bank.

2. Funding sources for the project include the Bank loan and counterpart funds. The Bank loan proceeds will flow from the Bank into the project designated account (DA) to be set up at and managed by Fujian Provincial Government though its Finance Bureau (FPFB). For the RRIP component, upon FPCD’s certification of compliance with the RRIF and in agreement with the procedures and amounts described in the disbursement letter, the Bank loan will flow from the DA to Fujian Provincial Communications Department (FPCD). The FPCD will be responsible for transferring the corresponding funds as applicable to county or local (township/village) communications bureaus or highway stations, respectively, that would have paid the contractors. For the YWE component, the Bank loan will flow from the DA to Fujian Provincial Expressway Construction Directorate (FPECD), and finally to contractors. The Bank loan will be signed between the Bank and the People’s Republic of China through the Ministry of Finance (MOF) and an on-lending agreement for the Bank loan will be signed between the MOF and the Fujian Provincial Government through the FPFB. Finally, the FPFB will sign the agreement with both the FPCD and the FPECD. The counterpart funds comprise contributions from governments at different levels and domestic commercial loans.

3. No outstanding audits or audit issues exist with any of the implementing agencies involved in the proposed project. However, the task team will continue to be attentive to financial management matters during project supervisions.

Audit Arrangement

4. The Bank requires that project financial statements be audited in accordance with standards acceptable to the Bank. In line with other Bank financed projects in China, the project will be audited in accordance with International Auditing Standards and the Government Auditing Standards of the People’s Republic of China. The Fujian Provincial Audit Office (FPAO) has been identified as auditors for the project. Annual audit reports will be issued by FPAO.

5. The annual audit report of project financial statements will be due to the Bank within 6 months after the end of each calendar year. This requirement is stipulated in the loan agreements. The responsible agency and timing are summarized as follows:

Audit Report Submittedby I Due date Consolidated Project financial statements 1 DOFWBP June 30

50 Funds Flow and Disbursement Arrangements

6. Funds flow for Bank loan will follow Bank and MOF requirements. One designated account (DA) will be established and managed by FPFB. The funds flow is as follows:

Exuresswav comuonent:

The DA managed FPECDI Suppliers and YWE Companies 4 contractors World Bank -----* by FPFB in and - Sanming

Rural Road Component:

The DA managed FPCD Municipal County World Bank - by FPFB -

7. A single disbursement category for RRIP component and multiple categories for YWE component may be set up based on the needs of project monitoring. The disbursement arrangements agreed are as follows.

8. For the RRP component, the expenditures eligible for bank financing are recognized when the payments are made, provided that i) it is confirmed that the Unit Cost for the Bank funds is lower than the average actual cost ofthe rural road construction, so the chance that the Bank funds finance ineligible expenditures is very small; ii)the outputs on the completed roads are reported by the local authorities and certified by the FPCD. No advances from the Bank funds are paid against the RRIP component, while the Bank funds will be reimbursed only after the outputs are certified.

9. The quarterly financial reporting package including for both components are used for monitoring project implementationand supporting disbursement. The reporting format used for disbursement has been discussed and agreed with the Borrower. Disbursements will be arranged on quarterly basis and the applications together with quarterly financial reporting package should be submitted to the Bank within 45 days after the end of each quarter. Bank loan proceeds would be disbursed against eligible expenditures as noted in the following table.

51 10. The Unit Costs to be provided for the rural roads eligible for financing under the Bank loan differ by type of road and type of county. The names of the counties by type are listed in Annex 6. The Unit Costs refer to the associated costs per kilometer of improvement and rehabilitation works ofthe various classes of roads under the RRIP component of the project to be applied as the multiplier for determining the eligible amount of financing out of the proceeds of the loan. Their values have been established on the basis of current values used by FPCD under the Rural Roads Improvement Program and in comparison with a detailed assessment of the actual costs of undertaken the rehabilitation and improvement works. The Unit Costs (US$/km) are the following:

County roads in poverty-strickenregions: US$lOO,OOO County roads in other under-developed regions: US$75,000 e County roads in other regions (mountainous or coastal): US$37,500 0 Townshiphillage roads in poverty-stricken regions: US$28,800 e Township/village roads in other under-developed regions: US$25,000 Townshiphillage roads in other regions (mountainous counties): US$18,800 0 Townshiphillage roads in other regions (coastal counties): US$12,500

1 1. Four disbursement methods: reimbursement, advance, direct payment and special commitment are all available for the project.

12. One Designated Account (DA) will be established in FPFB. There will be no limitation on authorized allocation of DA, the reimbursement of DA will be based on the project’s quarterly financial reporting package, which will include forecasts (expressway) and outputs completed (rural road). Disbursement will occur once the Bank determines the financial reporting package is acceptable.

13, FPFB will be directly responsible for the management, monitoring, maintenance and reconciliation of the DA activities of the project. The quarterly financial reporting package will serve as the supporting documentation for reimbursement and reporting eligible expenditures paid from both Bank’s loans and counterpart funds. Included in the quarterly financial reporting package are the interim un-audited financial statements in the format agreed between the Bank and the Borrower. The flow of the withdrawal application is as follows:

l4The estimated percentage of financing provided by the Bank of the total investment required by the RRIP is 20%; however, the actual disbursements for the RRIP will be 100% of the eligible (under the Bank loan) Unit Cost standards, as presented below.

52 Local Counties Municipal PMO of FPCD DOFWBP

Contracting I I Entities -1 r-+-World Bank WEComuonent:

Sub- FPECD DOFWBP FPFB World Companies __* + - Bank

Financial Management and Reporting Arrangements

Implementing Entities. The Director’s Office for World Bank Project (DOFWBP) has been established on January 11,2006, under the leadership of the director of the FPCD. The DOFWBP is already staffed with 5 specialists in charge of different aspects. The DOFWBP will serve as the main counterpart for the submission of progress and audit reports to the Bank, organization of supervision missions, and overall oversight of project implementation in accordance with loan and project agreement.

A PMO have been established within FPCD. The PFECD and FPCDPMO will be responsible for the implementation of expressway and rural road component, respectively. For the expressway component, two new companies (Longyan YWE Company and Sanming YWE Company) have been established to be in-charge of project construction for two municipalities. For the rural road component, the project will be managed and supervised by the communications departmenthureaus at provincial, municipal and county level, and implemented by the counties, townships and administrative villages. The project’s institutional structure is as follows.

1 PMO within FPCD 4 Municipal Communications Bureaus Longyan YWE Sanming YWE 1 County communications bureaus

Entities

53 Budgeting

14. The FPECD prepared consolidated annual budget and quarterly reports were provided to the Bank. The consolidated annual budget would benefit from improvements to the reporting of its details. For the budgeting system within the FPCD, the consolidated annual budget was not prepared although all county communications bureaus are required to submit their annual plan, including variance analysis of budget execution. The FMS will work with the related agencies to improve their budgeting system during project implemenation.

Accounting

15. The administration, accounting and reporting of the project will be set up in accordance with the Circular #13: “Accounting Regulations for World Bank Financed Projects” issued in January 2000 by MOF. The circular provides in-depth instructions of accounting treatment of project activities and covers the following:

0 Chart of account Detailed accounting instructions for each project account 0 Standard set of project financial statements Instructions on the preparation of project financial statements

16. The project financial reporting package, including detail format and content of project financial statements was agreed to between the Bank and MOF. Such project financial reporting package will serve both for periodic financial reporting and as supporting documentation for disbursement of Bank funds. In order to meet the disbursement requirements, some minor changes have been made to the standardized format of project financial reporting package. Given the project will utilize report-based disbursement method; the un-audited quarterly financial reporting package should be submitted to the Bank within 45 days after the end of each quarter which is in accordance with the disbursement requirement: This set of project financial reporting package includes the following:

0 Balance Sheet 0 Summary of Sources and Uses of Funds by Project Component 0 Uses of Loans by Project Category 0 Designated Account (DA) Activity Statement Expenditures for Contracts subject to Prior Review 0 Expenditures for Contracts not subject to Prior Review 0 Summary Statements of RRIP Unit Costs

17. The Bank has discussed and agreed with the FPCD and FPECD the format and contents of financial reporting package.

18. The DOFWBP will be managing, monitoring and maintaining respective project accounting records. The DOFWBP will also prepare project financial reporting package and submit it to the Bank for review and comments on a quarterly basis. Original supporting documents for project activities will be retained by implementing agencies at different levels.

19. Accounting staff with sufficient educational background and work experience are expected to perform the project financial management which is one of the critical factors for the successful implementation ofthe project. Based on discussions, observations, and review of educational background and work experience ofthe staff identified for financial and accounting positions in implementing

54 agencies, the task team concluded that the staff is qualified to perform the identified task. However, given that most financial staff in the two sub-companies and at municipal and county levels is new to Bank projects, and some innovations will be introduced to the project, adequate FM training should be provided to the financial staffs before project effectiveness.

20. The counties, which are subsequently determined to be eligible for Bank financing under rural road component, should follow the framework agreed by the Bank and government. The FM framework should focus on the following two aspects which are further elaborated and reflected in the FM manual.

0 Good bookkeeping system should be maintained by the participating entities at provincial, municipal, county, township, and village levels to make sure all the project-relatedactivities and payments are recorded appropriated and timely. The relevant documentation that pertains to good bookkeeping system comprises, among others: (a) signed contracts; (b) any amendment to the contracts; (c) the certification of completed works; (d) the payments to the contractors; (e) the receiptshnvoices from the contractors; (f) the ledgers reflecting all project expenditures. 0 Except for the retention fund, which is 10% of the contract amount and is paid one year after the completion of construction and the verification of satisfactory quality of road construction, the portion financed by municipal, county, township, and villages should be paid according to contract conditions.

2 1. To strengthen the financial management capacity and achieve consistent quality of accounting work, it was agreed that a project Financial Management Manual (FMM - the FM Manual) will be prepared for the project. The FMM will provide detailed guidelines on financial management, internal controls, accounting procedures, fund and asset management and withdrawal application procedures. Given that the RRIP and YWE components will be implemented by the FPECD and FPCD separately, two draft manuals have been by the FPECD and FPCD, respectively. The Bank has reviewed the final draft of the manuals and found they are acceptable. The Manuals are expected to be finalized and distributed to all the relevant financial staff before end of June 2006.

22. The FPECD is using the accounting software named “Yongyou” to process their transactions and it is possible that they will continue to use this software for this project. Although a database was established for the rural road component, it is not used for accounting and financial reporting. It is anticipated that the accounting for rural road activities will be done manually with financial reporting generated using Microsoft Excel. The Bank will monitor the processing of accounting work closely, especially in the initial stage to ensure that complete and accurate financial information is provided in a timely manner.

Internal Control and Internal Auditing

23. Both the FPECD and FPCD have established several regulations to standardize the implementation of the Bank’s project. For the RRIP component, the Bank’s loan will complement government budget, it will be disbursed to the beneficiaries in the form of a transfer and will follow the government’s existing funds flow procedures. The funds flow will be arranged and monitored through the FPFB that has extensive experience on Bank’s projects.

24. Although both the FPECD and FPCD have an internal audit department, they are unsatisfied with their internal audit department’s staffing, independence, and quality. However, this will not have a substantial impact on the project’s financial management as the FPFB’s monitoring and annual external audits will serve as the mechanism to ensure that financial management controls are functioning properly.

55 Retroactive Financing

25. Retroactive financing will be available for this project in the amount of US$15 million for payments made under the RRP prior to the signing of the loan agreement and after April 30,2006, upon certification of compliance with the RRIF.

Financial Covenants

26. No additional financial covenants are proposed for the project, other than the standard financial covenants, (e.g. maintaining project accounts in accordance with sound accounting practices and audit requirement), as described in the legal documents.

Financial Management Action Plan

Action Responsible Entity Completion Date 1. Financial management training to all FPFB and DOFWBP July-AuguSt, 2006, relevant project staff. April 2007 2, Financial management manuals finalized FPFB and DOFWBP June 30,2006 and issued to related financial staff.

56 Annex 8: Procurement Arrangements CHINA: Fujian Highway Sector Investment Project

A. General procurement for the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Legal Agreement. The general description of various items under different expenditure categories are described below. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Procurement of Works: Works procured under this project, will include (i) Implementation of FPCD’s Rural Roads Improvement Program (RRIP) to improve conditions of the lower class roads (largely Class I11 and IV) that connect administrative villages to the main provincial road network; (ii)Construction of an expressway of about 195 km, connecting Yong’an with the border of the Fujian and Guangdong Provinces, at Yanqian in Wuping city (YWE). There will be 16 ICB contracts for the civil works of YWE: 11 contracts for the earthworks and sub-grade with estimated average contract value of US$84 million in the preliminary design and 5 pavement contracts with an average contract estimate of US$37 million in the preliminary design. The pavement contracts include pavement works and traffic engineering works. Buildings and E&M works will be financed with domestic funds and following domestic procurement procedures; and (iii) A Highway Maintenance Pilot Program (HMPP) applying maintenance by contract approaches on two segments of the non-expressway network in Longyan Municipality , The procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB and MOF’s MBD dated May 1997 agreed with the Bank for all NCB, and sample documents for Shopping (only for RRIP) prepared by FPCD in the Procurement Management Framework for RRIP.

The documents for ICB and NCB will include the provisions for AIDS/HIV awareness campaigns and training of construction and supervision workers. In this effort, when necessary, the Bank will seek trust fund resources to complement those from contractors to provide additional guidance and support on construction-related AIDSHIV issues.

Procurement of Goods: Goods procured under this project will not be financed by the Bank.

Procurement of non-consulting services: Not applicable.

Selection of Consultants: Consultant services procured under this project, will include: (i) a joint local- foreign consultant team for the construction supervision of the YWE; (ii)local consultants for the RRlp impact evaluation component; (iii)a local consultant firm supported by an individual foreign consultant for the HMPP component; (iv) an analysis of toll rates for the YWE in the context of the road network in the Fujian province. Short lists of consultants for services estimated to cost less than $300,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Consultants engaging Universities and Government Research institutions will be selected in accordance with the provisions of paragraphs 1.1 l(c) and 2.8 of the Consultant Guidelines.

Operational Costs: Not applicable

57 Others: Institutional strengthening through the training of staff of the agencies/institutions involved in highway research, planning, construction, operation and maintenance of highways and related social aspects.

B. Assessment of the apency’s capacity to implement procurement

Procurement activities will be carried out by FPCD, FPECD, and each level in municipalities, counties and townships under FPCD and FPECD. The Director of the FPCD has appointed the Deputy Director of the FPECD, as the head of the DOFWBP under the Office of the Director of the FPCD. Though both the FPECD and the FPCD and their own subordinators, FPCD will be responsible for the implementation of the respective investment components of the project (YWE, RRP and HMPP), the DOFWBP at the Office of the Director of the FPCD will serve as the main counterpart for the submission of progress and audit reports to the Bank, organization of the supervision missions, and overall oversight of project implementation in accordance with the precepts of the Loan and Project Agreements.

The Planning Division and Construction Division of the FPCD will be responsible for the implementation of the RRIP, through the monitoring of the activities of the Communications and Highway Bureaus of the municipalities, counties, townships and villages. However, the RRIP will be actually implemented by the counties, townships and administrative villages with jurisdiction over the roads to be rehabilitated. Nonetheless, the FPCD will ultimately remain responsible for monitoring the implementation of that program in accordance with the precepts of the Loan and Project agreements and the Rural Roads Implementation Framework (RRIF) designed for the RRIP roads to be supported with the World Bank loan.

A procurement agent -the China National Technical Import and Export General Company- has been selected for the (ICB) procurement of YWE. The FPECD will conduct the procurement process until contract signing, while Longyuan YWE Company and Sanming YWE Company will be responsible for all the activities and documentation related to the execution of the works for the YWE at the site, including construction supervision. The Construction Deputy Directorate of the FPCD in coordination with the Provincial Highway Bureau will be responsible for the implementation of the HMPP component.

An assessment of the capacity of the ImplementingAgency to perform the procurement actions for the project has been carried out by Bank project team in August 2005 and January 2006. The assessment reviewed the organizational structure for implementing the project and the interaction between the project staff responsible for procurement in FPCD and the relevant unit for administrationand implementation at each level.

FPCD has successfully prepared and completed the First and Second Fujian Highway Projects and obtained valuable experience of projects financed by the Bank. The FHSIP is the Third Bank financed highway project to be implemented by FPCD and its’ affiliated implementation units and the local governments and community levels.

There are some deviations from the Bank’s guidelines in government procurement practices. Bracketing and merit point system are the major deviations which are only used in government financed procurement. The provisions in the legal documents for NCB procurement, Bank prior review and post review on the procurement activities, as well as training on the Bank’s policies and procedures will address these issues. Bank’s procurement policies and procedures for Bank financed contracts are expected to be followed. The overall prospects for the management of procurement in the project are mixed. On one hand, FPCD has a good procurement track record in Bank financed projects; while on the other, deviations of local laws and regulations and lack of experience on Bank procurement procedures by

58 lower levels in municipalities, counties, townships, and villages constitute the weak side of the picture. Therefore, the overall risk of the project has been assessed as average.

Most of the issues and risks concerning the procurement component for implementation of the project have been identified and included in the procurement capacity assessment report which is available in the project files.

C. Procurement Plan

The Borrower has developed a Procurement Plan for project implementationwhich provides the basis for the procurement methods. This plan has been discussed and agreed between the Borrower and the Bank on January and April, 2006 and is available in FPCD and in the project files. It will also be available in the Project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Bank annually, or as required to reflect the actual project implementation needs and improvements in institutional capacity.

The prior review thresholds for the project are:

In addition, the Bank reviewed the model documents to be used under the RRIP component for Invitation for Shopping.

The procurement method thresholds for the project are:

1st not more t <300,000 (shortlist can be only from national consultants) newspaper NCB I <2 million >200,000: QCBS advertisement <200,000: CQS or Individual Consultant (IC) on a provincial

I I I *Note: Shopping is only for RRIP.

Advertisement: in addition to a national newspaper, all Procurement Notices for ICB and consultant contracts above $200,000 for firms shall be advertised on the United Nations Development Business (UNDB) on line and dgmarket. Contract awards for ICB shall also be published in accordance with the paragraph 2.60 of Bank‘s Guidelines. The advertisement for Expression of Interest (EOI) shall be on a national newspaper for selection of consulting firm, regardless of the contract value.

59 Bid/proposal evaluation and contract award shall be published in accordance with paragraphs of the Guidelines 2.60 for works and goods and 2.28 for consultant services.

The procurement documents for contracts eligible for the retroactive financing under RRIP shall be kept in the location of the procurement activities, and these will be subject to Bank post review.

Procurement framework for Bank financing on eligible contracts under the RRIP

The procurement of RRIF' shall follow the principles and regulations included in the agreed procurement sections of the RRIF in accordance with the Bank's "Guidelines, Procurement under IBRD Loans and IRA Credits May 2004". The special procurement criteria for eligibility of Bank financing for RRIF' has started to be disseminated to all villages and townships in the RRIP databank. (The dissemination will continue during project implementation.) FPCD and municipal communication departments and highway bureaus shall conduct training for staff in villages, townships and counties, develop and introduce the model bidding documents and contract forms for procurement methods of shopping.

The Procurement Criteria for the RFUP Component

D. Freauencv of Procurement Supervision

The Bank will monitor procurement closely through its prior review procedures, regular supervision missions, and procurement post-review missions. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the ImplementingAgency has recommended supervision missions to visit the field to carry out post review of procurement actions every 6 months.

Procurement Arrangements for International Competitive Bidding

1. Works

(a) List of contract Packages which will be procured following ICB and Direct Contracting: (The estimated costs in the following table represent an upper bound ofthe costs for each contract, as estimated at appraisal.)

60 (b) YWE Contracts estimated to cost above $4 million for Works per contract will be subject to prior review by the Bank.

(d) Contracts for the periodic or routine maintenance of two road sections on the provincial non- expressway network under Highway Maintenance Pilot Program will be subject to prior review by the Bank. The table below presents a preliminary allocation on the assumption that one contract will be a shorter routine maintenance contract and the other a longer periodic maintenance contract.

1 2 3 4 5 6 Ref. Description of Estimated Selection Review by Expected bids No. Assignment Cost, USD Method Bank Submission Date (Prior / Post) Routine maintenance NT2 $60,000 Shopping Prior July. 2007 under HMPP Highway periodic NTI maintenance under $540,000 NCB Prior July. 2007 WMPP

61 2. Consulting Services

(a) List of consulting assignments with short-list of international consultants

Note: The consulting assignments for RRIP evaluation (Bank financing) and study ofthe rates for road tolls (Non Bank Financing) are in the Procurement Plan retained in FPCD in Fuzhou and Bank’s web site.

(b) Consultancy services estimated to cost above $200,000 per contract and Single Source selection of consultants (firms) for assignments estimated to cost above $50,000 for individual consultant will be subject to prior review by the Bank.

(c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than $300,000 equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions ofparagraph 2.7 of the Consultant Guidelines.

1 2 3 4 5 6 7 Ref. Description of Estimated Selection Review by Expected Proposals Comments No. Assignment Cost, USD Method Bank Submission Date (Prior I Post) NZ1.l RRIP impact analysis $100,000 CQS Prior Sep. 2006 Lump Sum study 1 contract NZ1.2 RRIP impact analysis $1 50,000 CQS Prior Oct. 2007 Lump Sum study 2 contract

62 Annex 9: Economic and Financial Analysis CHINA: Fujian Highway Sector Investment Project

Economic Analysis

Preface

The economic evaluation of the project covers the following two project components: (a) Construction of a 195.2 km expressway between Yong’an and Yanqian (Wuping) (YWE). (b) Upgrading and improvement of the existing road network (about 27,000 km for 5,550 rural roads) from 2006-2010, which have been identified as a key linkage for either the village or the township to the local main road under the Rural Road Improvement Program (RRIP).

The analysis is based on the actual and forecast data on traffic volume, vehicle operating cost, user’s time cost savings, reduction accident cost and economic project cost. The main inputs for the evaluation are: (a) capital investment and maintenance costs, reflecting December 2005 prices; (b) the benefit stream, also reflecting December 2005 prices, that comprises of savings in VOC, travel time savings, and reduction in accident costs; (c) a capital investment period from 2006-2010 and an evaluation of benefits period of 20 years; and (d) benefits starting to accrue in June 2010 for the YWE and 2007 or after, depending on the road, for the RRIP.

The economic evaluation is comprised of three sections: the economic evaluation of YWE; the economic evaluation of the RRIP and the overall economic evaluation of the project, including probabilistic risk analysis.

Yong’an-Wuping (Yanqian) Expressway (YWE)

Overview. The Fujian province is located in the southeastern coastal region of China. The total land area of Fujian province is about 12 1,400 km2or about half of the size of the UK. The majority terrains of this province are either mountainous (75%) or hilly lands (15%). The plains (10%) are mainly concentrated on the 30-50 km strip along the eastern seashore which generates the most ofthe economic activities for the province. The deep mountainous region lies on central and western regions from north to south. Since the open door policy adopted by the State in 1980’s, much of the economic development took place in the coastal areas. The economic development in inland region of the Fujian lags behind its coastal region. The latest available data (2003) revealed, for example, that the total six coastal metropolitan cities shared only about one third of the provincial land, but were inhabited 71 percent ofthe provincial population and generated 88 percent of the provincial GDP. The sealed landscape crippled communications between coastal and inland regions, causing the severe economic development disparity within the province.

Highway Development Plan - Justification for Investment. To reduce the imbalanced development between coastal and inland regions, the State is launching a large scale highway development plan. One of the highways is to vertically connect Changchun (the capital of Jilin province in northeast China) to Shenzhen (Guangdong province in southern China). The total length ofthe highway will be about 3,600 km. The total length of the highway in Fujian will be about 490 km, and will pass through from north to south at the middle of the province. The YWE is the last section ofthe highway in south- eastern Fujian while the other parts of the highway are either completed or under construction. The completion of the

63 YWE will improve the accessibility for this remote hilly and mountainous region and balance the income and economic development within the province. With the completion of the YWE, the nearest international seaport- Xiamen will be only 210 km away from the expressway. Given the important role of the YWE for the State as well as for the province, the proposed project has the highest priority in Fujian’s highway development plan.

Current Condition of the YWE Corridor (without the project): There are several local roads in this highway corridor, but only one road (G205) would be significantly affected by the proposed YWE. The pavement condition of most of G205 is poor. The low grade pavements combined with narrow alignments cause low speeds and high safety risks. The estimated motorized traffic in 2005 is about 3,300 - 5,250 motorized vehicles per day throughout its length. The non motorized and other traffic (bicycles, animal carts, small farm tractors and motorcycles etc) will add about 400 vehicles per day. The current traffic may reach the road’s designed capacity before 201 1- the proposed full opening year, throughout its most length. The optimum timing for construction ofthe new road is now.

G205 HIGHWAYAND THE WECOMPARISONS

Section 1 Section 2 Section3 Yong’an - Liancheng - Shanghang - Liancheng Shanghang Yanqian Road length -km (G205 Ithe YWE) 84.7 173.92 102.5 180.98 51.46 140.30 Road Class (G205 I the YWE) I11 Expressway I1I Expressway I1 IExpressway Road Condition (G205 Ithe YWE) Poor IGood Poor IGood Fair IGood Terrain Mountainous Hilly Hilly Capacity (ADTlday) (G205 Ithe YWE) 7,0001 40,000 7,000 / 45,000 7,000 145,000 Motorized Traffic - 2005 (AADTlday) 3,300 4,220 5,250 Proposed Opening Year 2010 2010 2010 Sources: FPCD and the Bank staff.

The Estimated Traffic Growth on the YWE Corridor: FPCD’s estimates oftraffic on the YWE corridor were made on the basis ofroutine traffic counts and a comprehensive origin and destination (OD)survey that took place on February 2004 (updated on May 2005). The projections of normal, generated and diverted traffic were made for 3 1 zones on the basis of a conventional growth model. The traffic on the proposed YWE would include diversion from G205 and other existing roads in this highway corridor. Given the historical GDP growth rate of Fujian was 12 percent and the traffic growth for this highway corridor was 16 percent during 1995-2004, the current GDP growth forecast is 8-9 percent in coming years and the projected traffic growth rates in the project corridor are estimated to be 8 percent per year in 2005 - 201 1,6 percent per year in 201 1-2020, and 4.3 percent per year in 2020-2030. The traffic growth rates are summarized as follows: Annual Traffic Growth Rate Car Bus & Truck Average Actual: 1995-2005 16.2% 14.6% 15.6% Projection: 2005-201 1 8.3% 7.5% 8.0% 20 1 1-2020 6.3% 5.3% 6.0% 2020-2030 4.3% 4.3% 4.3% Sources: FPCD and the Bank staff.

Alignment Alternatives. The YWE feasibility study considered and compared three main alternative route alignments between Yong’an and the Yanqian (Wuping), on the basis of the local economic development, the shortest traveling route, the lowest engineering cost and coordination with the entire highway networks. The other major criteria for selection ofan alternative were to seek an alignment that would: (a) avoid areas which have complex conditions geologically, (b) avoid the possible engineering difficulties, and

64 (c) coordinate the comments from the local governments and peoples. The preferred alignment was selected because of better coordination with the local economic development plan and local / national transport networks. Details are available in the feasibility study reports.

Traffic on the Highway (with the project). The YWE is planned to become operational in June 2010. Diversion ratios of the corridor traffic on the YWE are based on the information provided by the O/D survey and the traffic studies. They were calculated by using financial VOC for the road users, with the impacts of the level of proposed tolls on the new highway, travel distance, and experience from other recently Bank financed highways in China. The results of the analysis indicate that between 61- 62 percent of motorized vehicles, depending on the road section, may be diverted to the new highway. The traffic diversion is expected to increase linearly in the first ten years to reach 65 percent by the year 2020 and stabilize thereafter.

Traffic generated by the new highway is assumed to be 10 percent ofthe normal traffic. This assumption is consistent with the experience on other recent highway projects in China. No diversion of traffic from the railway to the new highway has been taken into account, although there is an railway in the project area. This is because of the railway carries mainly the long distance bulk freight transport while the highway carries a much shorter distance (the average railway transport distance in 2004 was 461 km compared with 83 km for highway transport). In addition, a much higher highway tariff also does not encourage traffic diversion from the railway (highway tariff is about RMB 0.20- 0.22 per ton-km compared with RMB 0.10- 0.12 per ton-km for railway). The highway corridor traffic forecast, by sections, is summarized as follows:

Normal Highway Corridor TI ffic, by Sec ins (ADT) Section 1 Section 2 Section3 Yong’an - Liancheng - Shanghang - Liancheng Shanghang Yanqian Traffic on the existing corridor: 1995 1,024 1,757 3,100 2000 1,917 3,344 5,401 2001 2,794 4,088 7,516 2002 2,67 1 4,875 7,635 2003 3,648 5,898 11,241 2004 3,745 7,063 12,583 2005 4,077 7,361 13,635 Traffic without the proiect: 201 1 6,400 12,100 2 1,400 2020 10,500 2 1,200 35,500 2030 15,700 33,700 53,100 Traffic with the proiect: a. Traffic on the existing corridor 201 1 2,500 4,600 8,450 2020 3,500 7,050 12,400 2030 5,300 1 1,200 18,650 b. Traffic on the new WE 201 1 3,900 7,500 12,950 2020 7,000 14,150 23,100 2030 10,400 22,500 34,500 c. Traffic diversion (in %) 201 1 60.9% 62.0% 60.5% 2020 66.7% 66.7% 65.1% 2030 66.2% 66.8% 65.0% Sources: FPCD and the Bank staff.

Economic Costs. Investment costs have been converted to economic costs by the elimination of price contingency, taxes, and custom duty on imported materials. The resulting overall economic cost is about 84 percent of the financial cost.

65 Economic Benefits. The economic analysis includes the benefits derived from: (a) VOC savings on the new highway for normal and generated traffic, (b) time savings through relieved congestion on the existing road, and (c) lower accident costs. The benefits resulting from the lower level of congestion were quantified. The value of passenger time savings was estimated at RMB 1.50 per passenger-hour, on the basis of updated values from a report on feasibility study methodology for highways in China (Rust PPK. Australia Feasibility Study Methodology Report, May 1996). The same sources were used for vehicle accident rates on different classes of roads. The major assumptions and formulas used in this analysis are summarized as follows:

ECONOMICVEHICLE OPERATING COSTS (Yuan per km, December 2005 prices) The Expressway The Existing road Section 1 Section 2 Section 3 Section 1 Section Z Section 3 Car 1.021 0.990 0.990 1.223 1.197 0.933 Medium bus 1.729 1.543 1.543 2.430 2.246 1.780 Large bus 3.828 3.300 3.300 5.242 4.684 4.004 Small truck 1.876 1.63 1 1.63 1 2.235 1.965 1.696 Medium truck 2.433 2.047 2.047 2.828 2.439 2.086 Large truck 3.462 2.924 2.924 3.959 3.460 2.993 Tractor/trailer 5.109 4.225 4.225 5.970 5.070 4.471 Sources: FPCD and the Bank staff.

Accident Rates and Costs in China Road class Accidents per 100 million vehicle km Damage (RMBI accident) Expressway -40 + 0.005 AADT 12,000 Motorway Class I 37 + 0.003 AADT 9,000 Motorway Class I1 83 + 0.0065 AADT 7,000 Highway Class I1 133 + 0.007 AADT 6,000 Highway Class I11 140 + 0.03 AADT 4,000 Source: Table E4.1, page E21, Rust PPK. Australia Feasibility Study Methodology Report, May 1996.

Economic Evaluation. Total costs and benefits streams, Economic Internal Rate of Return (EIRR) and Net Present Value (NPV) for each section of the expressway were calculated by using the VOC model. The overall ERR for the YWE is estimated at 16.5 percent, with the following results for each road section:

Economic Evaluation of YWE EIRR (in %) NPV (12%, RMB million) Yong’an - Liancheng 17.0 808.5 Liancheng - Shanghang 25.7 2,690.2 Shanghang - Yanqian 10.9 (3 3 5 -0)

WHOLE ROUTE 16.6 3,210.2

The distribution of the estimated benefits show that: (a) the road users on this highway corridor are the main beneficiaries; (b) cars will receive 67.3 percent of the project benefits, while trucks will receive 28.2 percent, and buses passengers will receive 4.1 percent (these proportions are proximately the same as the proportion of traffic). Those latter benefits are more likely to accrue to lower income people; and (c) about 10 percent of total benefits will accrue to the long distance traffic.

66 The breakdown ofbenefits is as follows:

Distribution of the Net Benefits (RMB million) Road user Road agency Society Total benefits 10,090.7 (6,880.5)/-1 3,210.2 By vehicles: Truck- -Cars Buses Trucks Trailers Total 6,793.4 418.0 2,840.4 38.9 10,090.7 67.3% 4.1% 28.2% 0.4% 100.0% /-1: Road agency is negative because it bear the investment cost.

Sensitivity Analysis. The basic evaluation of the project, by section and on the whole, shows that the investment is economically viable. Sensitivity tests with respect to one year delay in project completion, zero value of time, no generated traffic and the lower traffic projection on the new highway confirm this result.

Sensitivity Tests on the Economic Evaluation of YWE EIRR (YO) NPV (12Y0, RMB million) Delay the completion by one year 15.0 2,208.3 Higher capital cost (+lo%) (a) 15.4 2,5 0 9.2 Lower benefits (-10%) (b) 15.3 2,179.4 Combine (a) and (b) 14.2 1,524.9 Zero value of passenger time 14.5 1,638.2 Zero generated traffic 16.3 2,927.2 Lower traffic projection (-20%) 13.6 963 .O Switching values YOchange Cost increase to reduce EIRR to 12% (c) 149% Benefit reduction to reduce EIRR to 12% (d) 67% Combine (c) and (d) to reduce EIRR to 12% Cost: + 120%, benefit: -80%

The results of sensitivity tests (ERR in %) to cost and benefit variation are summarized below:

SENSITIVITY OF EVALUATIONRESULTS (EmIN yo) TO COST AND BENEFITVARIATION

-40% 9.0% 11.9% 14.4% 16.6% 18.5% 20.4% 22.0% 23.6% -30% 7.5% 10.3% 12.7% 14.7% 16.6% 18.3% 19.9% 21.3%

-10% 5.3% 7.9% 10.0% 11.9% 13.6% 15.2% 16.6% 17.9% 0% 4.3% 6.9% 9.0% 10.8% 12.5% 13.9% 15.3% 16.6%

20% 2.8% 5.3% 7.3% 9.0% 10.5% 11.9% 13.2% 14.4% 30% 2.1% 4.6% 6.5% 8.2% 9.7% 11.1% 12.3% 13.5%

Rural Roads Improvement Program (I")

Selection of Rural Roads and Its Traffic. The total road network in Fujian, at the end of 2004, was about 56,000 km and 86 percent of the network were low grade roads (Class I11 and under). The large portion of low grade roads cause many rural villages to not have an adequate road to the local market centers. In 2004, the provincial road network was recorded into the FPCD's road databank system for daily operation and management. These data include the county, township, and village roads for the entire province. Based on these data, the FPCD is planning to accomplish, by 20 10: (a) have the

67 majority of low grade roads paved, and (b) ensure at least that at least one paved road which leads to the local main road will be available for each administrative village. The scope ofthe plan is to rehabilitate 5,500 low grade roads, total 27,000 km, during 2006-2010. These low grade roads represent about 42 percent of current road network and the most of these roads are less than 4.5 meters in width with an average length of only 4.9 km per road. The construction standard ofthe RRIP can be categorized by eight different types ofroad as the follows:

RRIP: Construction Standard (RMB '000/km)

County Roads TownshipNillage Roads

6.5 METERS 3.5 meters 4.5 meters 5 meters and over Mountainous roads (1) 1,800 (2) 300 (3) 400 (4) 550 Coastal roads (5) 1,000 (6) 250 (7) 350 (8) 400 Source: FPCD.

The economic evaluation covers all eight types of road. The current traffic level for those roads are in the range of 110 - 1,050 ADT. The majority of the roads in the RRIP are the upgrading ofthe existing unclassified road to Class IV road which is designed for the traffic of 400- 2,000 pcu. Since all the roads are located in the same province, the traffic patterns are quite similar. The traffic growth rates have been conservatively estimated to be 5.0 percent from 2005-2010, reduced by 0.5 percent for each ofthe 5 years from 2010-2030. There is no generated traffic is assumed.

Economic Costs and Benefits. Financial costs have been converted to economic costs by using the same method and factors as for the YWE.

Similar to the YWE, the VOC equations were used to quantify the economic costs and analyze benefits of the eight different types of roads. The main evaluated benefits would be reduced VOCs through the providing of a better road surface, and the associated upgrading of road class would also result in higher traffic speeds, improvement ofroad roughness index and a shorter average transport distance ensured by all-weather conditions. The main design characteristics are listed below:

RURAL ROAD IMPROVEMENT PROGRAM (RRIP) Traffic No. of Length Class Speed (kdhr.) Maxi. Slop Road width 2005-pcu roads (km) (Oldhew) (Old/ new) (Oldhew)

Mountainous: 1. County roads 6.5 meters 605 160 1,550 u I 111 8/30 9/7 3.5 meters 110 450 2,700 U/IV 8120 11 19 2' Township/ 4.5 meters 275 3,400 16,500 I IV 10120 11 /9 3' village roads u 4. = >5.0 meters 320 150 800 UIIV 10 I 20 918 Coastal: 5. Country roads 6.5 meters 1,050 90 830 IV 1111 15140 515 3.5 meters 250 150 700 UIIV 10 120 6/6 " Township/ 4.5 meters 25 1 980 3,500 IV I IV 15120 6/6 7' village roads 8. = >5.0 meters 599 120 420 UIIV 15120 616 Total 5,500 27,000 U: Unclassified road. Sources: The FPCD and the Bank staff.

Economic Evaluation and Sensitivity Analysis. The estimates of EIRRs for the eight types of rural roads range from 20.3 percent to 5 1.4 percent. The overall EIRR and NPV (at 12 percent discount rate)

68 for the RRIP are estimated to be 34.7 percent and RMB 11,921.2 million, respectively. Summarize the EIRR for each type of road as well as the total RRIP in the following:

FUUP: EIRR SUMMARY EIRR Cost multiplier Traffic threshold (pcu)* Road width (in %) to EIRR=IZY~ to EIRR=12% In YO Mountainous: 1. Country roads 6.5 meters 37.6 3.85 170 24.8 3.5 meters 37.2 3.78 40 24.5 2' Township/village 4.5 meters 51.4 8.30 27 10.2 3* roads 4. = >5.0 meters 45.5 6.00 48 15.0 Coastal: 5. Countrv roads 6.5 meters 21.8 1.28 150 78.1 3.5 meters 49.1 7.30 27 10.8 " Township/village 4.5 meters 20.3 1.12 25 89.6 7* roads 8. = >5.0 meters 26.2 1.79 60 55.9 Total 34.7 2.45 40.9 * Note: The traffic thresholds correspond to the particular characteristics of the universe of roads under the RRP. The reconstruction conditions vary from one type of road to another (e.g., in some cases it would imply improving an existing paved road while in another the works will imply paving a non-paved road, or it could require readjustments to the alignment), hence the values do not necessary follow a linear pattern in line with the widths of the roads. The thresholds for traffic to lower the ERR to 12% correspond to the case where the works imply the paving of an unpaved road.

The risks considered for economic evaluation are: 0 slower than projected growth oftraffic; 0 higher than projected cost of civil works; and 0 lower than expected VOC savings.

All these risks were analyzed through sensitivity tests and the evaluation results were found to be robust for all ofthem. For the project component to be non-acceptable (i.e. an EIRR lower than 12 percent or a nil NPV at 12 discount rate), the benefits would have to fall to less than 40.9 percent ofthose in the base case with no change in costs, or the costs would have to increase to more than 2.45 times those ofthe base costs, or the costs would have to increase by 1.71 times and the benefits fall to 70 percent at the same time.

Additional benefits, not included in the EIRR calculation, expected from the project are: increase in the income ofrural farmers, who live in the poor areas, because of better access to town markets and jobs, and increased accessibility to schools and hospitals. The quantifiable beneficiaries are estimated at (a) about 5,640 extra children attending school (average about 0.21 student per km in the directly served areas) and (b) about 210,000 extra people attending health services (average about 7.76 people per km would benefit the new road).

69 THEEXTRA BENEFITS FOR WP Extra children attending Extra people attending school/ year health serviced year

Mountainous: 1. City roads 6.5 meters 185 10,400 2. County roads 3.5 meters 465 13,500 3. 4.5 meters 3,417 136,000 4. = >5.0 meters 170 7,500 Coastal: 5. City roads 6.5 meters 1 IO 4,950 6. County roads 3.5 meters 162 3,000 7. 4.5 meters 995 29,400 8. = >5.0 meters 138 4,800 Total 5,642 209,550 Sources: The FPCD and the Bank staff.

THE OVERALL ECONOMICEVALUATION OF THE PROJECT

Overall Economic Internal Rate of Return (Em). The overall EIRR ofthe project (including YWE and IUUP) is 24.8 percent and the NPV (12 percent) is RMB 15,13 1.4 million. The overall EIRR and NPV of the project are summarized as follows: Total Project: Economic Evaluation Summary

EIRR (in YO) NPV (RMB million, 12%) Rural Road Improvement Program (RRIP) 34.7 11,921.2 Yong’an - Wuping Expressway (YWE): 16.6 3,210.2 TOTALPROJECT -24.8 15.131.4

Project Risks. Most sections ofthe YWE and RRIP show acceptable economic returns. FPCD has extensive experiences in construction and operation of high grade highways and rural road projects, thereby minimizing the technical risks associated with the implementation ofthe project. The main tangible risk is that of prolonged delays affecting the construction schedule. The impact of uncertainty was tested through the probabilistic risk analysis

The uncertainty factors associated with the economic evaluation ofthe project have been identified as: (a) traffic growth rate, (b) traffic diversion ratio to the new expressway, (c) the value ofvehicle operating costs, (d) the changes of capital investment, and (e) delay the opening by one year. The results of probabilistic risk analysis show that the ERR for the most likely scenario is 24.6 percent, the low scenario is 22.0 percent and the high scenario is 28.0 percent. The standard error ofthe mean is 0.2 percent. The detailed results ofthe Monte Carlo test and probabilistic risk analyses are shown as follows:

SUMMARY OF PROBABILISTIC RISK ANALYSES Most likely Standard error Range of EIRR EIRR of the mean Yong’an - Wuping Expressway (YWE): 11.5% - 24.5% 18.0% 0.4% Rural Road Improvement Program (RRIP) 32.8% - 36.9% 34.8% 0.1% Total Project 22.0% - 28.0% 24.6% 0.2%

70 Financial Analysis

Preface

The financial evaluation of the project is comprised ofthree sections: (a) an assessment of the revenue earning entity (YWE), focusing on consolidated financial statement; and (b) an assessment ofthe financial capacity and risks in the province to sustain highway activities, focusing on the adequacy of funding allocations with the provincial road development plan. The Financial Evaluation of the WE

The financial cost of capital for YWE is assumed to be 5.02 percent for the project (1 8.4 percent from the Bank at 4 percent, 42.0 percent from the local bank at 5.5 percent and 39.6 percent from the grants at a normative 5 percent). YWE will be opened on June 2010 and will be operated by a financially independent entity, responsible for the day-to-day management, operation, maintenance of the expressway. The main income ofthe YWE would be derived from toll charged to road users; Fujian government will set toll rates.

Financial Forecast

Tolls. The toll will be charged on the basis of vehicle size (small passenger cars, buses, small trucks, medium trucks, large trucks and trailers) and distance traveled. Some traffic may not pay toll, including the toll exempted vehicles (police, ambulance and military) which are estimated to account for 10 percent oftotal traffic. The toll charges are assumed to increase once every five years (15 percent or an average of 3.6 percent per year). The proposed toll rate for the YWE is as follows:

Toll Charges (RMB / vehicle-km) Small Medium Large Heavy vehicle vehicle vehicle vehicle 0.65 1.30 1.95 2.60 Sources: FPCD.

Operations. The operating costs ofYWE can be broken down between working cost (a. wage and benefits, b. maintenance, c. operating materials and supplies, d. administration, e. others) and depreciation.

Profitability. All other expenses, including interest payments on the loans, are also taken into account in the calculation ofthe YWE profitability. It is estimated that the highway will generate enough revenue over the loan period to achieve the above mentioned financial objective. However, low profitability will take place in the early years with repayment ofthe loans (20 10- 20 15). The total interest payment alone in 2012 (Rh4B 277.3 million), for example, is about 93.1 percent ofthe total operating costs (RMB 297.8 million), or consuming about 59 percent of the total revenue (RMB 467.6 million) in that year. Because of the low toll growth assumptions, the profitability of YWE for the first six years will be low (Income Statement, page 1 of4, Appendix A).

Cash flow. Despite the low profitability and the financial pressure ofthe loan repayments, the YWE’s cash flow should be sufficient to meet all project needs, including the repayment of the Bank loan as from 2012, because of the large sum of depreciation reserve and the flexible principal payment terms agreed by domestic banks on their loans which allow the YWE to reduce cash outflows in the early years operations. In 2012, for example, the total annual depreciation reserve (RMB 255.7 million) will represent about 6 times the total annual working cost or about 92 percent oftotal interest payments, thereby generating

71 strong internal cash flow and providing sufficient funds for the YWE’s operations, maintenance expenses and loan repayments. It is estimated that the YWE will not require any external cash injection and be able to maintain cash available above RMB 140 million every year for the life of the project (Sources and Applications of Funds, page 2 of 4, Appendix A).

Leverage and Liquidity. The low profitability and high proportion of borrowings (about 60%) will dilute the equity of the YWE and cause a debt/ equity ratio and debt/ capital ratio (the financial leverage of the company) above 50 percent until 2021. But this will not affect the liquidity of YWE, as it is ensured by the strong cash flow. The current ratio will be in the sound range of 1.5 and higher, whereas it should be at least 1.O to avoid short-term solvency problems (Balance Sheet, page 3 of 4, Appendix A). In addition, the expressway authority has reiterated its full commitment to the YWE, in an official document to the Bank that confirms its full financial support, which guarantees the project financial viability. The major assumptions and results of the financial evaluation are shown in page 4 of 4, Appendix A.

Financial Internal Rate of Return (FIRR). The low profit margin in early years’ operations will impact the FIRR on the capital investment. The financial evaluation concludes that the FIRR is expected to be 1.0 percent with NPV of RMB -4,141.8 million, at the discount rate of 5.02 percent. Because of the low profitability in early years, the FIRR and NPV will not change much if completion is delayed by one year.

Financial Probabilistic Risk Analysis. To determine the degree of financial uncertainty for the project, a probabilistic risk analysis using Monte Carlo techniques was carried out. The six most uncertain factors which may affect the financial evaluation have been identified: (a) traffic growth rate, (b) the basic toll level, (c) toll charges growth rate (d) total working costs, (e) capital investment, and (f) delay in opening the highway to December 201 1, The risk analysis reveals that the most likely FIRR would be 0.9 percent, while the worst and the best FIRR would, respectively, be 0.1 percent and 1.9 percent. Details are summarized as follows.

SUMMARY OF FINANCIALSENSITIVITY AND PROBABILISTIC RISK ANALYSIS

Financial Sensitivity Tests Financial Simulation and Risk Analysis Open in Open in Range of Most Likely Std. Error of 2010 2011 FIRR / NPV FIRR/NPV TheMean FIRR (in YO) 1.0 1.1 0.1 - 1.9 0.9 0.1 NPV (5.28%, RMB million) -4,142 -4,095 - 4,907 - - 3,431 - 4,215 42

The Financial Evaluation of the Sector (including the RRTP)

The financial evaluation of the RRIP components focuses on the provincial capacity to minimize financial risks, in the sector, that is, the availability of counterpart funds for the construction, including the future maintenance expenditure of the project roads.

Road sector budget forecasts show that the investment and maintenance/ operation of the RRIP constitute only a small fraction of provincial fund flows. Based on the expenditures plan, the capital investment of RRIP will require less than 13 percent of the projected annual total sector revenues. In addition, the required maintenance and operation expenditure of RRIP is less than 35 percent of the total maintenance expenditure in the province. These low ratios indicate that the project presents a modest financial risk as regards the availability of a counterpart fund for the construction and maintenance of the project roads. The details are shown in Appendix D and summarized as follows:

72 Investments, Revenue and Maintenance Expenditures (RMB million) 2006 2007 2008 2009 2010 Investments and Revenue: RRIP Investments (a) 2,649.5 2,461.5 2,405.5 2,289.5 2,194.0 Total Sector Revenue (b) 20,996.0 22,051.0 23,218.0 24,512.0 25,950.0 Ratios (a)/(b) 12.6% 11.2% 10.4% 9.3% 8.5% Maintenance Expenditures: RRIp (c) 78.2 165.1 267.0 382.0 Total Sector Maintenance Expenditure (d) 709.0 789.0 879.0 980.0 1,091.0 Ratios (c)/(d) 9.9% 18.8% 27.2% 35.0% Sources: FPCD and the Bank staff.

FPCD has provided the financing plan forecasts on total revenue and expenditure during the Tenth Five Year Plan (loth FYP, 2001 -2005) and Eleventh Five Year PZan (1 lthFYP, 2006 -2010). Based on the available information, the financing plan has two features: (a) an emphasis on new construction but in decreasing share of total expenditure, and (b) increasing the share of total maintenance expenditures.

Based on that plan, the total budget on the new construction for the 1 I*FYP (2006-20 10) will be about 58.3 percent of total revenue, compared with 60.5 percent of the total revenue for the 10* FYP (2001- 2005). The lower percentage on the new constructionwill allow the provincial road sector entities to allocate more financial resources to the maintenances during 2006- 2010. The average unit maintenance budget has increased from RMB 9,430/ km for the lothFYP to about RMB 14,450 /km for the 1 lthFYP. The emphasis on maintenance will reduce the deterioration of the existing road network and result in lower rehabilitation expenditures in the long run, though further efforts are required in this respect. (Annex 1).

Though the budgetary plan includes a grant from the MOC every year, a moderate self- financing ratio (total internal cash generation against the total revenue) for the 1lth FYP (35.1%) should ensure the im lementation of the development plan even without the MOC grant. This ratio has improved since the 10tR FYP (29.3 percent). The detailed sources of highway revenue and expenditures for 200 1 - 20 10 are shown in Appendix B.

With regards to the long term sustainability of road maintenance with allocated resources, the average yearly increase in maintenance expenditures during the 1Oth FYP (4.4 percent) exceeded the growth of the road network (2.2 percent), which means a net increase in the average maintenance expenditure per kilometer. The trend should continue during the 1 lthFYP with percentages at 4.9 percent and 1.8 percent, respectively.

FPCD: Average Increase in the Road Network and Road Maintenance Expenditures (in YO) 10" FYP 1l"FYP (200 1-2005) (2006-20 10) Average annual increase in the road network 2.2% 1.8% Average annual increase in maintenance expenditures 4.4% 4.9% Sources: FPCD and the Bank staff.

73 ANNEX 9 APPENDIX A Page 1 of 4

Fujian Highway Sector Investment Project Income Statement- the YWE

(RMB million, year ending December 31)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Traffic (million veh-km) /L 170.18 567.27 602.44 639.88 679.66 721.90 766.83 814.65 865.49 919.50

Revenue Tolls 132.74 440.56 467.57 496.32 526.84 559.13 684.12 726.29 771.10 818.77 Others Total ------132.74 440.56 467.57 496.32 526.84 559.13 684.12 ---726.29 771.10 818.77

Ooerating Costs Wages and benefits 0.45 1.50 14.45 14.88 15.33 15.79 16.26 16.75 17.25 17.77 Maintenance 2.04 6.81 7.01 7.22 7.44 7.66 7.90 95.70 8.38 8.62 Materials and supplies 3.97 13.23 13.62 14.03 14.45 14.89 15.33 - 15.79 16.27 16.76 Administration 0.18 0.60 5.78 5.95 6.13 6.32 6.50 6.70 6.90 7.11 Others 0.36 1.20 1.24 1.28 1.31 1.35 1.39 1.44 1.48 1.52 Total working costs 7.00 23.34 42.10 43.36 44.66 46.01 47.38 136.38 50.28 51.78 Depreciation 76.71 255.70 255.70 255.71 255.71 255.76 255.81 256.45 256.51 256.56 Total operating costs ------83.71 279.04 297.80 299.07 300.37 301.77 303.19 392.83 306.79 308.34

Operatine Profit 49.03 161.52 169.77 197.25 226.47 257.36 380.93 333.46 464.31 510.43 Financial charges: IBRD - 69.54 65.99 62.31 58.48 54.49 50.34 46.03 41.53 Local Bank - 221.55 207.80 205.05 199.55 194.05 185.80 169.30 161.05 136.30 Other income (expenses) Profit Before Taxes 49.03 (60.03)(107.57) (73.79) (35.39) 4.83 140.64 113.82 257.23 332.60

Income tax 12 Net Profit After Taxes 49.03 (60.03)(107.57) (73.79) (35.39) 4.83 140.64 113.82 257.23 332.60

Working ratio 5 5 9 9 8 8 7 19 7 6 Operating ratio 63 63 64 60 57 54 44 54 40 38

/L: The highway will be opened to traffic in June 2010. /2: Income tax is exempted.

74 ANNEX 9 APPENDIX A Page 2 of 4

Fujian Highway Sector Investment Project Sources and Applications of Funds- the YWE

(RMB million, year ending December 31)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sources: Net profits - 49.03 (60.03)(107.57) (73.79) (35.39) 4.83 140.64 113.82 257.23 Depreciation - 76.71 255.70 255.70 255.71 255.71 255.76 255.81 256.45 256.51 State contribution 62.15 248.60 372.90 310.75 248.60 Province contribution 127.80 511.20 766.80 639.00 511.20 Borrowing: IBRD 88.00 352.00 528.00 440.00 352.00 Local 201.40 805.63 1,208.45 1,007.05 805.63 Others Total 479.35 1.917.43 2.876.15 2396.80 2.043.17 195.67 148.13 181.92 220.32 260.59 396.45 370.27 513.74

ADplications: Capital expenditure 479.35 1,917.43 2,876.15 2,396.80 1,917.43 10.02 10.32 10.63 10.95 11.27 11.61 11.96 12.32 Other expenditure Loan repayment: IBRD - 87.63 91.18 94.86 98.69 102.68 106.83 111.14 Local - 250.00 50.00 100.00 100.00 150.00 300.00 150.00 450.00 Change w/ capital - (22.12) (70.13) (4.29) (4.58) (4.86) (5.13) (19.90) (6.71) (7.13)

Total 479.35 1.917.43 2,876.15 2.396.80 1.895.31 189.89 143.66 197.23 200.95 254.83 394.39 262.08 566.33

Net Funds Flow ___- 147.86 -5.78 -4.47 (15.31) -19.37 - 5.76 --2.06 108.19 Open balance - 147.86 153.64 158.11 142.80 162.17 167.93 169.99 278.18 Closing balance - 147.86 153.64 158.11 142.80 162.17 167.93 169.99 278.18 225.59 DIS Cover __ __ _- __ -- 0.88 1.03 0.98 1.06 1.02 0.99 1.24 0.94

75 Page 3 of 4

Fujian Highway Sector Investment Project BALANCESHEET- THE YWE

(RMB million, year ending December 31)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Assets: Fixed Assets At cost 7,671.09 7,671.09 7,671.13 7,671.17 7,671.22 7,672.75 7,674.33 7,693.47 7,695.15 7,696.87 Less: Depreciation 255.70 511.40 767.10 1,022.81 1,278.52 1,534.28 1,790.09 2,046.54 2,303.05 2,559.61 Net fixed assets 7.415.39 7.159.69 6.904.03 6,648.36 6.392.70 6.138.47 5.884.24 5,646.93 5.392.10 5.137.26

Current Assets Inventory - 2.20 2.34 2.48 2.63 2.80 3.42 3.63 3.86 4.09 Receivable - 1.10 1.17 1.24 1.32 1.40 1.71 1.82 1.93 2.05 Cash 147.86 153.64 158.11 142.80 162.17 167.93 169.99 278.18 225.59 194.01 Subtotal 147.86 156.94 161.62 146.52 166.12 172.13 175.12 283.63 231.38 200.15

Other Assets

Total Assets

Liabilities & Eauity State funds- Equity 1,752.97 1,705.04 1,587.19 1,502.81 1,456.52 1,451.61 1,582.22 1,703.22 1,949.81 2,271.44 LIT loans: IBRD 1,760.00 1,760.00 1,672.37 1,581.19 1,486.33 1,387.64 1,284.96 1,178.13 1,066.99 951.35 Local 4,028.16 3,778.16 3,728.16 3,628.16 3,528.16 3,378.16 3,078.16 2,928.16 2,478.16 1,978.16 Subtotal 5,788.16 5.538.16 5.400.53 5.209.35 5,014.49 4.765.80 4.363.12 4.106.29 3.545.15 2,929.51

Current Liabilities 22.12 73.43 77.93 82.72 87.81 93.19 114.02 121.05 128.52 136.46

Other Liabilities

Total Liabilities & Equity zshw7.316.637.065.656.794.886.558.826.310.606.059.365.930.565.623.485.337.41

Debt/ equity ratio 77/23 77/23 78/22 78/22 78/22 77/23 74/26 71/29 65/35 57/43 Current ratio 6.7 2.1 2.1 1.8 1.9 1.8 1.5 2.3 1.8 1.5

76 ANNEX 9 APPENDIX A Page 4 of 4 Fujian Highway Sector Investment Project

ASSUMPTIONS FOR FINANCIAL FORECASTS - THE WE

I.Normal Traffic (ADT): Small Medium Large Small Medium Large Tractor car bus bus truck truck Truck -Trailer Total Section I: Yong’an - Liancheng 201 1 2,287 104 207 440 380 474 15 3,907 2020 4,181 161 378 675 585 943 30 6,953 2030 6,189 217 559 908 787 1,688 54 10,402 Section 11: Liancheng - Shanghang 201 1 4,793 82 197 1,313 768 313 15 7,48 1 2020 9,528 138 391 2,197 1,288 571 28 14,141 2030 15,521 205 637 3,253 1,906 93 0 46 22,498 Section 111: Shanghang - Yanqian 201 1 8,752 134 269 1,269 1,504 898 66 12,892 2020 16,018 226 535 2,131 2,522 1,517 112 23,061 2030 23,711 334 872 3,154 3,733 2,471 182 34,457

2. Toll Rates (Yuan/ veh-km): Increase 15% every five year.

Small Medium Large Small Medium Large Tractor car bus bus truck truck truck -Trailer 201 1 0.65 1.30 1.95 0.65 1.30 1.95 2.60

3. Operating Cost: Increase 3 % pa. a. Wages and benefits: RMB 25,000/ staff / year, 35 staffs/ toll station and 11 toll stations. b. Maintenance:

Routine Medium Major (annual) (17 years) (/I4 years) RMB million/ km 0.035 0.400 0.80

c. Operating materials and supplies 0.068 million RMB per km. d. Administration 40% of wage and benefits. e. Others 0.006 million RMB per km. f. Depreciation 30 years straight-line method.

4. Borrowing: TheIBRD 4.0% on 20 year maturities, LIBOR US$ based single currency including 5 years grace period. The local Bank 5.5% flexible principal payment.

77 ANNEX 9 APPENDIX B

Fujian Highway Revenue and Expenditure During its loth and llfhFyp (RMB million )

The lothFive Year Plan - The 1 IthFive Year Plan 2001 2002 2003 2004 2005 'otal 2006 2007 2008 2009 2010 Total

Revenue 1 Road maintenance fee 931 1,016 1,116 1,232 1,369 5,664 1,470 1,551 1,631 1,711 1,785 8,152 2 Capital construction fee 1,217 1,295 1,385 1,489 1,606 6,992 1,668 1,593 1,520 1,449 1,38( 7,6 10 3 MOC subsidy 1,126 1,236 1,365 1,515 1,691 6,933 1,788 1,779 1,765 1,748 1,72; 8,807 4 Local government 3,735 3,991 4,290 4,635 5,027 21,678 5,492 5,355 5,211 5,061 4,905 26,028 5 Bankloan 4,427 4,898 5,450 6,094 6,843 27,112 7,057 7,607 8,174 8,758 9,35! 40,95 1 6 Toll revenue 1,329 1,640 2,034 2,536 3,175 10,714 3,521 4,166 4,917 5,785 6,79( 25,179

Total 12.765 14.076 15.640 17.501 19.711 79.693 20.996 22.051 23,218 24.512 25,95( 16.727

Exoenditure: 1 New construction 6,675 7,908 9,369 11,100 13,148 18,200 13,210 13,408 13,610 13,816 14,02( 68,070 2 Rehabilitation 3,322 3,449 3,581 3,718 3,860 17,930 4,267 4,527 4,803 5,096 5,40; 24,100 3 Periodical maintenance 196 213 231 251 275 1,166 290 312 336 362 39( 1,690 4 Routine maintenance 229 256 286 320 357 1,448 419 477 543 618 701 2,758 5 Management expense 326 371 422 480 548 2,147 591 660 737 823 921 3,732 6 Loan repayment 2,017 1,879 1,751 1,632 1,523 8,802 2,219 2,667 3,189 3,797 450: 16,377

Total 12.765 14.076 15.640 17.501 19.711 79.693 20.996 22.051 23,218 24,512 25.950 116.727

Total Road Network (km) -(a) 53,547 54,155 54,876 56,208 58,394 59,400 60,500 61,500 62,600 63,70( Average annual increase 0.1% 1.1% 1.3% 2.4% 3.9% 2.2% 1.7% 1.9% 1.7% 1.8% 1.8% 1.8% Total road maintenance expenditure (million Y)-(b) 1-1 425 469 517 571 632 709 789 879 980 1,091 Average unit maintenance expenditure ('000 Y/km)- (b)/(a) 7.94 8.66 9.42 10.16 10.82 11.94 13.04 14.29 15.65 17.13 Average annual increase 9.1% 8.8% 7.8% 6.5% 4.4% 6.5% 9.3% 9.6% 9.5% 9.4% 4.9% -

/-I: Sum of periodical and routine maintenance

78 Annex 10: Safeguard Policy Issues CHINA: Fujian Highway Sector Investment Project

Annex 10 is presented in two parts. Part A on Environmental Safeguard Issues, and Part B on Social Safeguard Issues.

PART A. ENVIRONMENTAL SAFEGUARD ISSUES

Al. PREPARATION OF ENVIRONMENTAL ASSESSMENT

Environmentalassessment (EA) for the YWE component has been carried out by the Highway Research Institute of MOC, an independent organization from FPCD. The drafts of EL4 and EAP were reviewed by the Bank and their final versions were submitted to the Bank in March 2006. The final EIA was submitted to SEPA in June 2006 and expected to be approved by end of September 2006.

Given the programmatic nature of RRIP component, an EnvironmentalManagement Framework (EMF), which provides procedures to be followed for the assessment of environmental impacts and consideration of mitigation measures, has been developed by FPCD in collaboration with the Fujian Provincial Environmental Research Institute. The EMF includes a policy and legal framework, baseline data and an overall environmental management scheme. Based on the EMF, the EA is to be executed on a county basis prior to the commencement of construction works. The final EMF was reviewed and published by the Bank in April 2006.

A2.. YONG’AN-WUPING EXPRESSWAY WE)

A2.1. Baseline Environmental Conditions

Ecological environment. A national level tourism resort, Guanzhaishan Tourism Area established in 1993, is located 1.5 km away from the alignment. Its rich vegetation and unique landscape has attracted more than 1 million tourists in 2005. The area is managed by Liancheng County Tourism Bureau and awarded an IS014000 certificate for its excellent management practice. According to its Master Plan 2004-2020, its capacity is about 20,000 tourists a day, which is far above the actual tourist number. Three national level nature reserves, Liangyeshan, Meihuashan and Tianbaoyan Nature Reserves, are located 10 km, 30 km, and 50 km away from the alignment, respectively. They distinct themselves by their rich and unique mountainous ecology and access to those areas is strictly controlled under their management practice. Because of their distance from the alignment and strict access control, it is highly unlikely that the project will have any adverse impacts on them. A detailed ecological survey showed that there was no indication about the presence of critical or valuable natural habitats within the project area. As the proposed expressway runs generally parallel to the existing corridor of a national highway G205 where intensive human activities exist, the main ecology features agriculture farmland and production forest.

Water, Noise and Air Quality. The qualities of river water were measured at three locations where the alignment will cross over, and the applicable water quality standard was met at all locations. Among the identified 85 sensitive sites (residential areas, schools, etc.), noise levels were monitored at 5 schools and 13 residential areas. The noise levels generally met the applicable noise standards with slight excesses against day-time standard at 3 locations due to traffic noise from existing G205 highway. The qualities of ambient air were measured at three representative sensitive sites, and the applicable air quality standard was met at all locations by a wide margin.

79 Cultural Relics. Cultural relics survey have been conducted by cultural property authorities of Sanming and Longyan city. Two survey reports concluded that no valuable cultural relics sites are found along the expressway alignment.

Due Diligence. The task team reviewed the EMSof linked expressways for due diligence, one for the northern section in Fujian Province and the other for the southern section in Guangdong Province. Regarding the northern section, Quanzhou-Sanming Expressway (QSE), it is noted that QSE will traverse through the Experimental Zone of Daxianfeng Provincial Nature Reserve with a bridgehiaduct (ca. 5 km, along an existing provincial road) and its Buffer/Core Zone with a tunnel (ca. 3km). A detailed ecological survey and impact assessment had been conducted and necessary mitigation measures were well developed in the EM. The EMwas approved by SEPA in February, 2006. The southern section in Guangdong Province is under construction and will be in operation within 2006 prior to the construction of YWE. The EMfor this southern section was approved by Guangdong Provincial EPB in November 2004. The task team did not find any outstanding environmental issues which might bring reputational risk to the Bank.

A2.2. Potential Environmental Impacts and Mitigation Measures

(a) Design Phase Ecological Environment. The final alignment was selected to minimize impacts on ecological environment such as natural forestlands through an alternative analysis (see A2.3). Since the project would occupy 605 ha of forestlands including 405 ha of production forests mainly consist of cedar and pine plantations, the design incorporates as much planting as possible at road sides, median strips, interchanges, as well as borrow pits and spoil disposal sites. The design also fully considers harmonization with the landscape of surrounding areas.

Water Pollution. Since the project would clear 1,3 17 ha of land and involve 54 million m3of soillstone works, soil erosion and subsequent water pollution during construction phase will be one of the major environmental problems. To prevent and mitigate such potential impacts, the design gives careful attention to balanced cuttings and fillings, bridge foundation structures and road drain systems. A Contingency Plan for Traffic Accident involving Hazardous Materials has already been established in 2004, which stipulates institutional arrangements and contingency procedures to address traffic accidents.

Noise. Among the 85 sensitive sites, noise levels were predicted to exceed the standards at 3 locations during day time and at 27 locations during night time in 2010. Appropriate insulation measures have been designed to be implemented at those locations with predicted clear noise excess together with the expressway construction. For those locations with predicted marginal noise excess, insulation measures may be put in place as appropriate based on the result of monitoring.

(b) Construction Phase Ecological Environment. Although there are no protected areas or other valuable natural,habitats within the project area, significant amount of vegetation will be cleared during the execution of the project. To mitigate this impact, extensive soil erosion prevention measures will be put in place including slope protection and re-vegetation, timely re-vegetation or reclamation of soil borrows and spoil disposal sites, and contingency measures in case of heavy rain. Education for construction workers about vegetation and wild life protection as well as fire prevention will be provided.

Water Pollution. The discharge of untreated wastewater from construction sites, camps, material handling sites may cause water pollution. The wastewaters will be treated on-site before releasing into water bodies. Stricter management will apply for the construction works of bridges and around water

80 source protection zone. Solid wastes from construction sites and camps will be collected and recycled or disposed of in an appropriate manner.

Noise and Air Pollution. Construction works including heavy machinery operation and earth works may cause noise and air (dust) problems. The employment of lower-noise machinery and strict regulation on the schedule of construction works will be implemented, for example, heavy machinery operation will be suspended between 1O:OO p.m. and 6:OO a.m. near residential area. Temporary noise-barriers will be installed for sensitive sites protection. Material storage sites and asphaltkoncrete mixing plants will not be located near residential areas, and construction sites and major access roads will be regularly water- sprayed.

Cultural Relics. The survey didn’t foresee but if any cultural relics are found during construction, the work will be suspended immediately, and the local cultural authority will be informed of it. The work will not resume until the cultural relics are examined by the authorized institution and necessary preservation measures are taken.

(c) Operation Phase Water pollution may be caused by the discharge of untreated wastewater from service areas and toll stations as well as spilled oil and hazardous materials. The wastewaters will be treated on-site with a rapid-filtration treatment method, and the treated effluent will be reused for irrigation. The re-vegetation practices using local plant species will be regularly monitored and necessary maintenance will be provided. Vehicles with excessive noise/gaseous emission will not be allowed to use the expressway to minimize traffic noise and gaseous emissions.

knvironmental Responsible Actions taken or to be taken Implementing organization problem organization

Fujian Provincial Expressway General :ommanding Office, Sanming Y ong- Wu Highway Company, Longyan Yong - W u Highway Company

’Except for the actions in item “l”,sufficient measures such as Design unit 6.Noise removal and sound barrier have been confirmed and incorporated into the design and tender documents.

81 Sanming Yong-Wu Sanming Municipal Cultural Highway Relic Management 7.Cultural Cultural relic investigation has been carried out and no cultural relics Company, commission, Longyan .elks sites were found along the route. Longyan Municipal Culture and Yong-Wu Publishing Bureau Highway Company Bridge and culvert have been sufficiently designed so as to satisfy Sanming Design unit $.Flood flood discharge requirement (1/300 years for great bridge, lil00 Yong-Wu years for others). Highway Drainage system will be designed, contingency plan will be Design unit Company, ).Hazardouas formulated so as to prevent impact on water body because of Longyan :argo hazardous cargo transportation accident. Yong-Wu ransport Highway

Sanming Yong-Wu Highway Company, Contractors ad building materials must also be covered tc Longy an Yong-Wu Highway Company

Fujian Provincial Expressway pond are damaged, they wil General Zommanding Office, Sanming Contractors Yong-Wu Highway Company, Longyan Yong-Wu Highway Company

Contractors

Contractors

hinery and vehicle maintenance will be strengthened to keep

82 mobile sound barrier should be established. When there are large-sized residences 50m within detour roads, transportation of construction materials should be forbidden at night on these detour roads. .In order to protect forestland from damage, earth shall not be borrowed from forestland, and materials shall not be piled and temporary campsite shall not be built in forestland. ,Farmland shall not be used as earth borrowing pits, if inevitable, the a’Protection Of topsoil (30cm) will be retained, and promptly backfilled. cological Contractors .Education on construction workers will be strengthened to protect natural resources and wildlife animals and plants, hunting is strictly forbidden. Construction vehicles will run on temporary detour roads so as not to damage farmland and vegetation. .In order to guarantee construction security, effective lighting devices] and safety signals will be installed on temporary roads, and at the same time full traffic regulations will be adopted and enforced. .During construction stage, the blasting time, signal and security guard will be regulated; vehicles in dangerous areas will be immediately evacuated. b!yident1,Before blasting, careful and thorough inspection must be taken. Contractors 11SK Safety watch out post will be set up so as to prevent people and I vehicles from passing before blasting; during rush peak hours, blasting will not be conducted so as to avoid traffic jam and personnel casualty. ,Blasting material management and use will strictly follow public security department’s safety requirements. Fujian Provincial ultural Relic .dministratio Ifthere discovered any fossils, ancient coins, architecture or other Sanming Municipal Cultura Sanming emains of archaeological and geological value, construction should Relic Management Yong-Wu :top immediately, and such discovery shall be reported to local commission, Longyan relics Highway cultural relic department immediately until authorized protection Municipal Culture and Company, Publishing Bureau department completes the cultural relic confirmation. Longyan Yong-Wu Highway Company Fujian Provincial Expressway General :ommandink Office, Sanming Contractors Yong-Wu Highway Company, construction material transportation plan will be formulated to Longyan Yong-Wu Highway Company C. Operation stage ’Prefectural or municipal transportation departments will set up Local respective coordinating organizations for chemical hazardous cargo transportatioi 1.Hazardous transportation. Sanming Yong-Wu bureaus, loca cargo leakage Chemical hazardous cargo transportation implements the system of Highway Company, public securit Longyan Yong-Wu risk “cargo license” “driver license” and “guardian license” issued by and fire , Highway Company transportation department. All vehicles engaged in hazardous bureaus, loca chemical freight transportation should use unified special-purpose environmenta

83 protection lic security, transportation management and fire fighting bureaus, ments shall designate driving route to vehicles transporting Sanming dous cargo. The vehicles transporting chemical hazardous cargc Yong-Wu Highway ect’s hazardous cargo transportation management Company, istration department will manage through Longyan Yong-Wu Highway Company

vehicle’s noise exceeds the allowed standard or does not with discharge standard, they are not allowed to run on the Sanming Yong-Wu ement and education will be strengthened to people on Highway aws and regulation concerning vehicle air pollution and Company, Longyan ive cargo transportation of coal, cement, sand and simply- Yong-Wu ged chemical fertilizer and others may possibly spill along the Highway and pollute the road. Entrance inspection will be strengthened Company ehicles that do not have enough measures to prevent such

Sanming Yong-Wu Sanming Yong-Wu Highway ccording to the monitored results, sound barriers and other noise- Highway Company, Company, ducing measures will be taken in places with serious noise Longyan Yong-Wu Longyan Highway Company Yong-Wu Highway Company Sanming Yong-Wu Highway .Maintenance rainage system will be desalted periodically so as to ensure a Company, f drainage Longyan ystem Yong-Wu Highway Company New buildings are forbidden to build within lOOm from the roadside Land Land management .Other and schools and hospitals are forbidden to build within 200m from management department department D. Environmental monitoring IJ Construction stage a. Monitoring item : TSP, bituminous smoke Supervising b. Monitoring frequency : twice/month company, c. Monitoring time : 1 day Sanming Yong-Wu d. Monitoring point : one unpaved construction road near residence Highway .Ambient air and one concrete mixing stations near residence Local monitoring station Company, 0 Operation stage Longyan a. Monitoring item : NOx Yong-Wu b. Monitoring frequency : twice/year (winter) Highway c. Monitoring time : 2 days, continuous monitoring in 24 hours Company d. Monitoring point : Tangwei, Xizhaishang, and Shifang G Monitoring frequency Supervising a. Construction stage : once/month, one day for each time company EP supervising engineer or Sanming .Noise b. Operation stage : twice/year, 2 days for each time 0 Monitoring point Local monitoring station Yong-Wu a. Construction stage Highway Monitoring points need to be set up in villages and schools within Company,

84 150m from the road. Monitoring points can be properly set up in Longyan residences nearby earth borrow pits, stone quarries and hauling roads. Yong-Wu b. Operation stage Highway Wangcuo, Maopu, Jiqingtang, Lijiafang, Xibei, Gushibei, Company Shizhencun, Laojunkeng, Liantangxia, Laoxiongwu Xizhaishang, Woli, Longjing village, Xincun, Yanqian Supervising 0 Construction stage company a. Monitoring item : pH, petroleum, SS, permanganate index, BOD5 Sanming b. Monitoring frequency : onceimonth, 2 days for each time Yong-Wu Water Highway c. Monitoring time : once in the morning and afternoon of each day Local monitoring station Jality d. Monitoring point : about 200m downstream the bridge sites of Company, Maping Bridge, Chetou Bridge, Shanghang Bridge, and Shangduan Longyan Bridge, 3 drop lines in 20 m from each river bank and in the river Yong-Wu center Highway Company Operation stage a. Monitoring item : pH, petroleum, SS, permanganate index, BOD5 b. Monitoring frequency : 2 times/year from 2010 to 2025,2 days for each time c. Monitoring time : once in the morning and afternoon of each day d. Monitoring point : sewage outlets of 4 service areas and 4 parking lots

A2.3. Alternative Analysis

During the preparation of the project, alternative analysis was carefully conducted for both “without project” and “with project” scenarios. (For details, please see the YWE EMReport, Chapter 7 Comparison and Selection of Alternative Alignments)

For “with project” scenario, the analysis was conducted in three steps, i.e. pre-feasibility, feasibility and preliminary design stages.

Stage 1: Pre-feasibility study

Three corridors were identified, which are all situated in mountainous and heavy hilly terrain, and all will exert some impacts on the natural ecology along the alignment. Considerations were given to environmental impact (rivers, soil erosion, noise on local communities etc.), social impact, engineering and operation aspects. As a result, Corridor 1 was recommended, and Yong’an-Liancheng Nankeng section of Corridor 2 and Sanjiaoyang-Shanghangsection of Corridor 3 were used as alternative alignments for further comparison. Therefore, a total of 8 possible route alignments combinations for 4 sections were concluded at this stage for further analysis.

Stage 2: Feasibility study

A total 9 possible combinations were further developed based on Stage 1 findings. Each combination was analyzed in terms of times of crossing rivers, resettlement amount, soil erosion, amount of earthhtone works, land occupation, construction difficulties, etc. As a result, Alignment 1 was recommended at this stage.

Stage 3: Preliminarv Design

Based on recommended alignment from feasibility study, further fine-tuning was considered for 16 sections of the recommended alignment. In-depth comparison was conducted, including the potential

85 environmental and social impacts in addition to engineering, economic, and financial factors. The alignment finally selected minimizes the social and environmental impacts, and resettlement requirements; and maximizes the overall benefits to the project beneficiaries by taking into account local development plans. Furthermore, the selected alternative avoided most of the unfavorable geological locations while achieving appropriate horizontal curves and vertical slopes.

A2.4. Environmental Management and Monitoring Plan

An Environmental Management Plan (EMP) includes environmental management system, environmental management plan, training plan, environmental monitoring plan, and supervision plan. The WBPMO established under the Office of the Director of FPCD has the responsibility of overall coordination and guidance for implementing EMP. Under the guidance of the WBPMORPCD, Longyuan YWE Company and Sanming YWE Company are responsible for the implementation of EMP. Environmentalmonitoring will be carried out primarily by the monitoring centers of Longyuan City and Sanming City.

Training for environmental management staffs, construction supervisors, contractors and hazardous cargo transportation inspectors will be held in Fuzhou and a foreign country. The training program will include environmental regulations and standards, major environmental issues associated with the project, mitigation measures, supervision and responsibilities. Environmentalmonitoring on noise, surface water, ambient air and waste will take place at selected sensitive sites as well as construction sites, soil borrows and spoil disposal sites. The major variables to be monitored include construction and traffic noise, pH, Oil, SS, BOD and permanganate index for surface water, TSP and NO2 for ambient air.

The implementation cost of environmental supervision, monitoring and mitigation measures is estimated as about RMB217.83 million.

A2.5. Public Consultation and Information Disclosure

Three rounds of public consultation were carried out in November 2004, July 2005 and November 2005 according to the Bank policy. The first round of consultation was conducted by means of visit interview to 100 households in which 83 valid answers were collected. The second and third round of consultation included household visit interviews to 520 households (452 valid answers) and public meetings (1 7 places, 4 18 people). During this process, project-affectedindividuals, NGOs, local governments and village committees were intensively consulted. The consulted people generally supported the construction of the expressway while showed concerns about noise, dust and air pollution problems. They requested measures such as minimizing agricultural land occupation, tree planting, construction/traffic noise control, road safety for students and other measures. Mitigation measures responding to these requests were incorporated in the engineering designs and the EMP.

The draft EIA and EAP were disclosed locally at Yong'an City, Liancheng County, Shanghang County and Wuping County in March 2006, as well as in Washington D.C. in April 2006.

A3. RURAL ROADS IMPROVEMENT PROGRAM (RRIP)

A3.1. Baseline Environmental Conditions in Fujian Province

Ecological environment. The total forest area in Fujian Province is 12.15km2,which corresponds to 62.96% of its total land area. Despite soil erosion mitigation efforts, 1.08km2 or 8.8% of total land area has not been restored yet at the end of 2004. 95 nature reserves have been established at the end of 2005, including 10 national level, 29 provincial level, 6 city level and 50 county level nature reserves.

86 Water, Noise and Air Quality (in 2004). Water quality measurements were carried out at 121 locations in 12 rivers, and the water quality standards were satisfied at 83.6% of all monitoring locations. The ambient air quality levels in 23 cities mostly met the standards, however, the frequency of acid rain occurrence was high (42.2%). The annual average traffic noise level in all cities was 69.2dB, and those in 7 cities exceeded the day time standard of 70dB. The annual average ambient noise level in all cities was 55.5dB, and those in 9 cities met the day time standard of 55dB.

A3.2. Environmental Management Framework

As the core of EMF, developed are: (a) environmental management and supervision scheme; (b) EA preparation and approval procedures including a checklist to identify potential environmental issues and translation of proposed mitigation measures into contractual obligations; (c) training plan; (d) supervision and reporting system. The FPCD will be responsible for the overall guidance and monitoring, while the city highway bureaus will be in charge of the monitoring of compliance, and county communications bureaus for the implementation of the EMF.

Based on the EMF, each county that could be potentially subject to Bank financing will prepare one EA for all the rural roads within the databank in the county. The county EA will be approved by a County Environmental Protection Bureau, and submitted to FPCD for filing. The county communications bureaus will report from the environmental safeguards perspective on the completion of the construction activities and final quality of each road using checklists developed in the EMF. For those roads applying for the Bank fund, a record of inspection will be submitted to the Bank together with the approval verification of FPCD on the compliance with the EMF. During supervision, the Bank will randomly check county EAs and the checklists for a sample of Bank-funded roads. For reference, a similar procedure will be applied to a sample of non-Bank funded roads.

FPCD will establish a Project Supervision Group that is responsible for final verification and approval for release of support transfers. For those roads applying for the Bank fund, the Project Implementation Inspection Table of each road will be submitted to the Bank, together with the approval verification of the Project Supervision Group.

A3.3. Public Consultation and Information Disclosure

The basics and procedures for public consultation and information disclosure are developed, which are to be followed in the preparation of county EAs to meet the Bank’s requirement. Included are objectives, executive organizations, target groups, methodology, contents including a sample of questionnaire, and so forth.

A3.4. Environmental Mitigation Measures

(a) Design Phase The design of roads will follow the original topography as far as possible to minimize vegetation disturbanas and keep balances between cuttings and fillings. Drain systems are designed so as to prevent soil erosion while avoiding adverse impacts on surrounding irrigation systems, and, in particular, to protect drinking water resources from polluted water discharge. Borrow pits and spoil disposal sites will employ erosion prevention designs.

87 (b) Construction Phase Ecological environment. Construction workers will be trained and supervised to minimize impacts on ecological environment. Borrow pits and spoil disposal sites will be carefully managed to prevent soil erosion and re-vegetated after their use. Inhear protected areas or tourism resorts, borrow pits, spoil disposal sites, concrete mixing sites and construction camps will not be allowed to place.

Noise and Air Pollution. Lower-noise construction machinery will be employed as far as possible. Heavy machinery operation will be suspended between 1O:OO p.m. and 6:OO a.m. as well as noon and 2:30 p.m. within 50 m from schools and residential areas. Concrete mixing sites will be located on the downwind directions at least 200 m away from schools and residential areas. Material storage sites will be located at least 200 m away from schools and residential areas. Construction sites within 50 m from schools and residential areas will be regularly water-sprayed.

Soil erosion and Water pollution. Mitigation measures to prevent soil erosion and subsequent water pollution will be undertaken including (a) avoiding earth works during rainy season; (b) minimizing vegetation clearance and immediate re-vegetation; (c) employing slope protection techniques; and (d) temporal storage and reuse ofexcavated fertile topsoil. Wastewater used for machinery and vehicle washing will be allowed for discharge only after oil separation and sedimentation. Discharging hazardous substances into drinking water resources will be strictly prohibited.

Cultural Relics. If any cultural relics are found during construction, the work will be suspended immediately, and the local cultural authority will be informed of it. The work will not resume until the cultural relics are examined by the authorized institution and necessary preservation measures are taken.

(c) Operation Phase Regulation on transport ofhazardous materials will be strictly implemented. Traffic signs will be installed to prevent loud horn noise near schools and residential areas, and to raise safety awareness at school gates. Village people will be encouraged to collect animal wastes left on roads and reuse them as a fertilizer to prevent them from running into water bodies. In case of road works inhear protected areas or tourism resorts, the capacities of managing organizations will be strengthened to prevent potential indirect impacts due to increased accessibility.

ANNEX 10. PART B. SOCIAL SAFEGUARD ISSUES

The project has two major civil works components, i.e. the expressway and the rural road development program. The former would require land acquisition and population relocation. The social economic survey has also confirmed that there are no minority nationalities communities in the project areas ofthe expressway component. The latter is to give existing rural roads a concrete surface and land acquisition and relocation is not expected. Following the Chinese laws, regulations and World Bank OP 4.10 on Involuntary Resettlement, FPCD and FPECD have prepared a Resettlement Action Plan (RAP) for the expressway component and a Resettlement Policy Framework (RPF) and a Minority Nationalities Development Framework for the rural road program for exceptional eventualities.

B.1. EXPRESSWAY COMPONENT

The proposed expressway is 195 km, running through Yong An City and three counties of Lian Chen, Shanghang and Wuping. Social economic surveys were conducted in the project areas along the expressway. The project areas are located in the western and mountainous part of Fujian Province. This area is less developed in its social economic development and is particularly lagging behind in infrastructure. Apart from Yong An County which is the most developed in the project areas, the per

88 capita income in the other three counties are all below the average in the province. Agriculture remains the main income source for most ofthe rural farming households.

There are altogether 280 villages in 15 townships in the four city and counties. Only 69 villages will be affected by the project. The average farmland holding per household ranges between 0.25 to 2.15 mu, mostly around one mu. According to the representative household sample survey conducted with about 10% the total affected population, the average household size is about five people, with a total land holding of 6.25 mu per family, including 2.6 mu ofcultivated land. Main agriculture products include paddy, vegetables, sweet potato, tobacco and . Average household income ranges between 23,000-15,000 Yuan. Agriculture income remains the main income source, about 67%, of which planting industry accounts for 63%.

Much consideration has been given to minimizing the adverse impacts in the planning process. Different alternatives have been compared in terms alignment selection, design of highway passes, scheduling project construction, selection of borrow and spoil areas. These are detailed in the RAPS.

Major impacts relate to land acquisition and structure demolition. This component will require the acquisition of land, relocation of houses and tombs, and cutting down of trees. The component will also have an impact on some infrastructure, such as roads and power and communication lines. This component will require the acquisition of 22,738 mu of land, of which cultivated land is 8,996 mu, 40% ofthe total, forest and non-used land 11,6 12 mu, about 5 1%. The component would affect a total of 47,990 people in 10,784 households from 69 villages. This includes 39,141 people from 9,522 households who will lose land and 1,638 households who will lose houses. Project impacts are detailed in the RAP by category and by village,

Temporary land needs would be required during the construction period for quarries, borrowing areas, construction camps and access roads etc. These will be confirmed as the engineering construction drawings and construction arrangements are finalized. The project would affect 10 enterprises. Most of them are small private enterprises and business. Project impacts on them are relatively minor, related only to the attached structures. Only one enterprise would need relocation.

SUMMARY OF MAJOR IMPACTS

The project has also identified vulnerable population among the affected, such as women headed families, the extremely poor, the disabled and widowed, There are 204 people belonging to 57 families belonging to the vulnerable groups. They are listed by category by villages in the RAP.

89 Principles. The following were the guiding principles for developing the RAPs:

The affected people should improve or at least restore their living standards to pre-resettlement level. Resettlement plans, sites of new houses, standards and building areas should be determined after consultation with the affected people. For all affected buildings, the compensation should be calculated on the basis ofthe current replacement cost without consideration of depreciation. The salvageable materials from the houses to be demolished belong to the owners of the houses. The affected farmers will determine their own livelihood rehabilitation measures. The project office and local governments will assist them in developing these measures. Redistribution of remaining farmland among the farmers is the hndamental measure for livelihood development and must be carried out for all seriously affected villages. Cash payment to individual household is only allowed in case of minor impact and only at the endorsement at the villager councils. Lack of title would not bar affected people from resettlement entitlements. All compensation should be paid before acquisition and prior to the start of the works causing the displacement . Differences in output will be paid to the farmers on temporarily borrowed land until its productivity is restored prior to use of the borrowed land.

Economic rehabilitation. Village rehabilitation approach was developed in consultation with affected farmer groups. The project will follow a rehabilitation strategy combining land-for-landmeasures and cash payment option. Redistribution of the remaining village land is the primary measure. Land to be redistributed will be from village reserved land, returned contract land and land to be developed. This measure is planned for all seriously affected villages. If land loss is marginal and farmers prefer cash compensation to going through the process of land redistribution, cash compensation will be provided as an option. Additional assistance will also be provided to the farmers in the affected villages in their economic rehabilitation.

In the 10 seriously affected villages, the project office, local governments and the farmers worked together and formulated an initial livelihood development plan for each village. They have identified areas of need and developed measures for each ofthese villages. These measures include development of cash crops, improvement of on-farm works, reinforcing extension services, introduction of new varieties, farmer training, agro-processing and reclamation of barren mountainous areas, and livestock development. These are detailed in the RAPS. These initial plans will be further developed in close consultations with the villagers. They will be reviewed by relevant agencies and implemented with support from relevant government extension agencies.

Relocation of households. The project would require the relocation of 1,5 14 households spread out in 69 villages. Most villages would have a small number of relocating households except a few villages near interchanges that would have a larger number of households to relocate. All relocating households will be resettled within existing villages. Most of them will be allocated new plots for their new house construction. These sites will be selected in consultation with the relocating households. Group resettlement sites will be developed in villages with larger number of relocating households. County and township government will be responsible for their design and construction. All relocating households will be provided access to basic infrastructure services either through sharing existing infrastructureor new infrastructure to be provided by the project. Those households living in semi-urban areas who request relocating to urban areas will be paid in cash and assisted in relocating to urban areas. All houses will be paid at replacement cost without depreciation, and without deduction of salvageable materials. The resettler households will be responsible for their new house construction themselves.

90 Rehabilitation of infrastructure and business. Infrastructure affected is mainly power and telecommunication lines, water conservancy and transportation facilities as well as roads. For these facilities, compensation based on the reconstruction cost will be paid to the government departments who are responsible for these facilities. The government departments will be in charge of the reconstruction. Most business will be affected through loss of some attached structures such as walls, some lands or temporary stop of operations during the construction period. They will be compensated in cash. One enterprise will require relocation and it will be assisted in its relocation and re-establishment of their operation.

Consultation and participation. The resettlement planning followed a participatory process. Affected villagers and various government agencies participated in the social economic survey, impact census, inventory and formulation of the compensatory and livelihood rehabilitationplan. They will continue to participate in the formulation and implementation of detailed village livelihood development plans. Project information, relevant government policies and regulations were broadly disseminated through village meetings in the project areas. A project information handbook will be developed and distributed to every affected farmer household. The project RAP has also been disclosed.

Implementation Schedule. The RAP implementation will be aligned with civil works construction. New house construction will occur in accordance with the civil works schedule. Resettlers must be given at least four months to build their new houses before the demolition of the old houses. Before new house construction, a notice will be provided three months in advance to allow for resettlement site selection, planning, and development. Civil works will start after land acquisition is completed. All affected infrastructure will be reconstructed before demolition of the old ones.

Resettlement organization. FPECD is in charge of the implementation of the resettlement program. A multi-level resettlement organization has been established for the implementation of the project, including two FPECD branch companies in each of the municipalities, and resettlement offices at provincial, municipal, county and township levels. These offices will employ competent and experienced staff. Their respective responsibilities and functions are detailed in the RAPS. Training will be provided to the project staff,

Grievance redress. A mechanism has been established for grievance redress. Grievances can be filed both orally and in writing. Starting at village level, the grievances can be elevated to township, county, city and FPECD level if they are not happy with the resolution at the lower level. The affected could also file a case in court if they are not happy with the resolution by the project authority. All grievances and their resolutions will be recorded. A timeline is established for their resolution at each level. This mechanism has been disclosed to the local population and will be further disseminated through the Resettlement Information Booklet.

Monitoring and Evaluation. Both internal and external monitoring is planned for resettlement implementation. The resettlement offices will be responsible for the internal monitoring. An external institute will be appointed to undertake the independent monitoring of the resettlement program. The monitoring scope, targets, indicators, procedures, methodology and reporting requirements are described in the RAP.

Resettlement Cost. The total resettlement cost is about RMB 855 million, equivalent to US$106.3 million. This budget includes the compensation fund for land, houses and attached structures, infrastructure and trees, various relocation allowances, business loss during transition, special allowance for vulnerable groups, management and monitoring costs, contingencies. All resettlement costs will be financed by domestic funding.

91 B.2. RURAL ROAD IMPROVEMENT PROGRAM (RRIP)

The project will finance part of the provincial rural road program from a database of rural roads that have been identified for rehabilitation before 20 10. For the project purpose, sampling post-review will be adopted in place of upfront review and approval in screening, review and approval of project roads. Only roads that meet the agreed implementation criteria will be considered as eligible for project financing. A policy framework has been developed for this purpose and it lays out the planning and implementation criteria for project financed roads.

This framework includes policies that governs issues related to land and minority nationalities. Given the concreting nature of the project, negative impact of land acquisition or relocation is not expected. These land acquisition, resettlement policy and minority nationalities development frameworks are developed for the eventuality of exceptional cases where land acquisition or relocation cannot be avoided or activities are carrying out in areas where minority nationalities reside or use for their livelihood. In such cases, the project roads would follow these frameworks in identifying such impacts, developing and implementing necessary mitigation measures. Han Chinese is the dominant ethnic group in Fujian, with only 1.7% of its 35 million people belonging to minority nationalities. Most of its minority nationalities are spread along the coastal areas. However, considering the possibility of financing roads in minority nationalities areas, the policy has also built in provisions in compliance to address issues relating to Minority nationalities.

These resettlement and minority nationalities policy frameworks are developed according local laws and regulations on land and minority nationalities as well as World Bank OP 4.12 on Involuntary Resettlement and OP 4.10 on Indigenous People. They describe the overall legal framework, planning principles, procedures, compensatory and rehabilitation approach, consultation, broad support to the project, and participatory requirements, grievance redress mechanisms, organization and monitoring arrangements. Where minority nationalities communities are involved, they will be fully informed and consulted over the design of the project, including assessment and identification of possible adverse impacts, and development of appropriate mitigation measures. The township government will inform the local population of the project characteristics, the possible impacts and the action plan of mitigation measures, which must be socially and cultural acceptable to the minority nationalities, and should obtain the broad support of the minority nationalities being affected by the project. When a project is located in a minority nationalities area and requires land acquisition or relocation, township governments and land offices must also inform the local population of the land needs, and discuss and agree on the compensatory and rehabilitation arrangements. The township governments will document the action plan in the form of a Minority Nationalities Development Plan and, if the project requires land acquisition or relocation, a Resettlement Action Plan. These frameworks will be broadly distributed to project areas for compliance. At completion and request for financing under the project, each candidate road will be reviewed for its planning and implementation compliance with these frameworks. Only at its full compliance, FPCD will consider the eligibility of the completed works for financing under the proposed project.

92 Annex 11: Project Preparation and Supervision CHINA: Fujian Highway Sector Investment Project

Timetable

Planned Actual PCN review 0 613 010 5 0813 1/05 Initial PID to PIC 07/01/05 0712 3 /O 5 Initial ISDS to PIC 09/09/05 10/24/05 Appraisal 0511 5/06 041 18/06 Negotiations 07/05/06 0813 0106 BoardRVP approval 10112/06 Planned date of effectiveness 0211 5/07 Planned date of mid-term review 0511 5/09 Planned closing date 1213 111 1

Key institutions responsible for preparation of the project:

0 Fujian Provincial Communications Department: (a) Office of the World Bank Financed Projects; (b) Planning Division; (c) Construction Division; and (d) Financial Division

0 Fujian Provincial Expressway Construction Directorate: (a) Planning and Investment Division; and (b) Engineering Division

0 Fujian Provincial Expressway Company, Ltd: o Sanming Yong’an - Wuping Expressway Company Ltd. o Longyan Yong’an - Wuping Expressway Company Ltd.

Fujian Provincial Financial Department (Foreign Debt Division)

0 Fujian Provincial Development and Reform Commission

0 Fujian Provincial Communications and Planning Design Institute

0 Fujian Provincial Environmental Research Institute

0 Beijing Transport Planning and Research Institute (YWE Design Review)

0 Beijing Highway Research Institute of MOC (Environmental Review)

0 SENER Ingenieros y Sistemas, SA. (Spanish Consulting Firm - YWE Design Review)

93 Bank staff and consultants who worked on the project included:

Name Title Location Aurelio Menendez Task Team Leader Washington DC Lead Transport Specialist Carlos Ricardo Escudero Lead Counsel Beijing Andres Liebenthal Country Sector Coordinator Beijing Environmental and Social Safeguards Han-Kang Yen Research Analyst Washington DC Economic and Financial Analysis Chaohua Zhang Senior Social Sector Specialist Washington DC Youlan Zou Senior Social Sector Specialist Beijing Naoya Tsukamoto (Ident.) Environmental Specialist Beijing Hiroshi Ono (Prep./Appr.) Senior Environmental Specialist Beijing Peis hen Wang Environmental Specialist Beijing Gao Boping Transport Specialist Beijing Jacques Tollie Lead Highway Engineer Washington DC Pan Wen Rural Roads Specialist Beijing Shi Senior Procurement Specialist Beijing Dawei Yang Procurement Specialist Beij ing Yi Dong Financial Management Specialist Beijing Junxue Chu Finance Officer Washington DC Alejandro Gamboa Finance Specialist Washington DC Wenling Chen Transport Analyst Washington DC Albert0 Nogales Transport Consultant Washington DC Maria Luisa Juico Program Assistant Washington DC Imogene Jensen Senior Economist Washington DC Quality Review Supee Teravaninthorn Peer Reviewer Washington DC Aymeric-Albin Meyer Peer Reviewer Washington DC Michel Bellier Peer Reviewer Washington DC

Funds expended to date on project preparation: 0 Bank resources: Estimated Bank funds for preparation: US$287,230 (FY05: US$78,307; FY06: US$208,923) 0 Trust funds: Spanish Trust Funds administered by the Bank US$150,000, for undertaking a specialized review of the preliminary and detailed engineering designs of the YWE. 0 Total:US$437,230

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$35,000 2. Estimated annual supervision cost:US$80,000

94 Annex 12: Documents in the Project File CHINA: Fujian Highway Sector Investment Project e Engineering Feasibility Study Report. Changchun - Shenzhen Expressway. Yong’an - Wuping Expressway Section in Fujian Province in the Border of Fujian and Guangdong Provinces. Fujian Provincial Communications Planning and Design Institute. March 2005. e Technical Standards for Fujian Rural Road Engineering. Fujian Province. August 2004. e World Bank, 2004, ImplementationCompletion Report for the Fujian Provincial Highway Project, Report No. 29288 (June 9). e World Bank, 1999, Project Appraisal Document for the Second Fujian Highway Project, Report No. 19286-CHA (June 3). e Resettlement Action Plan, Ministry of Communications Highway Research Institute, March, 2006 (English & Chinese versiordelectronic files). Procurement Capacity Assessment Report. FHSIP. World Bank. March 6,2006. Financial Management Assessment Report. World Bank. February 15,2006. Environmental Impact Assessment for the YWE, March 2006. e Environmental Management Plan for the YWE, March 2006. e Resettlement Action Plan for YWE, March 2006. e Environmental Management Framework for the RRIP, March 2006.

0 Preliminary Design Review Report (carried out for the Bank by SENER), February 2006. e Resettlement and Land Acquisition Policy Framework, March 2006. e Ethnic Minorities Policy Framework, April 2006. e Draft Terms of Reference for Toll Rates Study, June 2005

95 Annex 13: Statement of Loans and Credits CHINA: Fujian Highway Sector Investment

Difference between expected and actual Original Amount in US$ million disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Fnn Rev’d PO75732 2006 CN-SHANGHAI URBAN APL2 180.00 0.00 0.00 0.00 0.00 180 00 0.00 0.00 PO67828 2005 CN-Renewable Energy Scale-up Program 87.00 0.00 0.00 0 00 0.00 87 00 0.00 0.00 PO68752 2005 CN-Inner Mongolia Highway & Trade 100.00 0.00 0.00 0 00 0.00 100 00 0.00 0.00 Corrid PO69862 2005 CN - Agricultural Technology Transfer 100.00 0.00 0.00 0 00 0.00 100 00 2.20 0.00 PO57933 2005 CN-TAI BASIN URBAN ENVMT 61.00 0.00 0.00 0 00 0.00 55 77 3.32 0.00 PO71094 2005 CN - Poor Rural Communities 100.00 0.00 0.00 0 00 0.00 100 00 0.00 0.00 Development PO75730 2005 CN-HUNAN URBAN DEV 172.00 0.00 0.00 0 00 0.00 172 00 7.00 0.00 PO86505 2005 CN- WATER & ENVMT 130.00 0.00 0.00 0 00 0.00 130 00 0.00 0.00 PO81161 2005 CN-CHONGQMG SMALL CITIES IIP 180.00 0 00 0.00 0 00 0.00 180 00 0.00 0.00 PO81346 2005 CN-LIUZHOU ENVIRONMENT 100.00 0.00 0.00 0 00 0.00 100 00 0.00 0.00 MGMT PO69852 2004 CN- Urban Transport 200.00 0.00 0.00 0 00 1.00 188 00 154.20 0.00 PO65035 2004 CN-Gansu & Xinjiang Pastoral 66.27 0.00 0.00 0 00 0.00 55 26 10.62 0.00 Development PO84003 2004 CN-GEF GUANGDONG PRD URB 0.00 0.00 0.00 IO00 0.00 10 00 0.40 0.00 ENV PO81749 2004 CN-Hubei Shiman Highway 200.00 0.00 0.00 0 00 1.oo 167 41 28.41 0.00 PO66955 2004 CN-ZHEJIANG URBAN ENVMT 133.00 0.00 0.00 0 00 0.00 121 82 -4.43 0.00 PO73002 2004 CN-Basic Education in Western Areas 100.00 0.00 0.00 0 00 0.00 86 30 36.87 0.00 PO75035 2004 CN - GEF-Hai Basin Integr. Wat. 0.00 0.00 0.00 17 00 0.00 15 06 2.88 0.00 Env.Man. PO75602 2004 CN-2nd National Railways (Zhe-Gan 200.00 0.00 0.00 0 00 1 .oo 186 00 17.00 17.00 Line) PO75728 2004 CN-GUANGDONGPRD UR ENVMT 128.00 0.00 0.00 0 00 0.64 120 72 1.26 0.00 PO77615 2004 CN-GEF-Gansu & Xinjiang Pastoral 0.00 0.00 0.00 IO50 0.00 9 50 3.30 0.00 Develop PO65463 2004 CN - Jiangxi Integrated Agric. Modern. 100.00 0.00 0.00 0 00 0 00 93 44 12.84 0.00 PO77137 2004 CN-4th Inland Waterways 91.00 0.00 0.00 0 00 0.46 90 09 6.55 6.04 PO67337 2003 CN-2nd GEF Energy Conservation 0.00 0.00 0.00 26 00 0.00 I440 25.10 0.00 PO58847 2003 CN-3rd Xinjiang Hwy Project 150.00 0.00 0.00 0 00 0.00 80 I6 30.16 0.00 PO68058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0 00 0.00 129 16 1.86 0.00 PO70191 2003 CN-SHANGHAI URB ENVMT APLl 200.00 0.00 0.00 0 00 0.00 I77 29 28.29 0.00 PO70441 2003 CN-Hubei Xiaogan Xiangfan Hwy 250.00 0.00 0.00 0 00 0.00 89 49 -10.51 0.00 PO40599 2003 CN-TIANJM URB DEV I1 150.00 0.00 0.00 0 00 0.00 I39 51 13.28 0.00 PO76714 2003 CN-2nd Anhui Hwy 250.00 0.00 0.00 0 00 0.00 207 79 35.79 0.00 PO60029 2002 CN-GEF-Sustain. Dev 0.00 0.00 0.00 I600 0.00 11 45 9.40 0.00 PO64729 2002 CN-SUSTAINABLE FORESTRY DEV. 93.90 0.00 0.00 0 00 0.00 52 06 14.90 0.00 PROJECT PO68049 2002 CN-Hubei Hydropower Dev in Poor 105.00 0.00 0.00 0 00 0.00 60 47 21.41 0.00 Areas PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0 00 0.00 0 00 0.00 56 17 9 17 0.00 PO58846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0 00 0.00 24 55 19.55 0.00 PO71147 2002 CN-Tuberculosis Control Project IO4 00 0.00 0.00 0.00 0.00 65 37 23.57 0.00 PO58845 2001 CN-Jiangxt I1 Hwy 200 00 0.00 0.00 0.00 54.77 30 OS 27.82 0.00 PO56596 2001 CN-Shijlazhuang Urban Transport 100 00 0.00 0.00 0.00 0.00 13 15 64.75 0.00 PO56516 2001 CN - WATER CONSERVATION 74 00 0.00 0.00 0.00 0.00 21 97 13.47 0.00 PO56199 2001 CN-3rd Inland Waterways 100 00 0.00 0.00 0.00 0.00 50 80 12.30 0.00 PO51859 2001 CN-LlAO RIVER BASIN 100 00 0.00 0.00 0.00 0.00 40 70 28. IO 0.00 PO47345 2001 CN-HUAI RIVER POLLUTION 105 50 0.00 0.00 0.00 0.00 67 54 -37.96 0.00 CONTROL PO45915 2001 CN-Urumqi Urban Transport 100 00 0.00 0.00 0.00 0.00 34 47 34.47 0.00 PO64730 2000 1CN - Yangtze Dike Strengthening 210 00 0.00 0.00 0.00 0.00 92 85 92.85 -0.45 Project PO64924 2000 CN-GEF-BEIJMG ENVMT I1 0 00 0.00 0.00 25.00 0.00 22 67 23.01 13.44 PO42109 2000 CN-BEIJING ENVIRONMENT I1 349 00 0.00 0.00 25.00 0.00 255 73 213.85 0.00 PO45264 2000 CN-SMALLHLDR CATTLE DEV 93 50 0.00 0.00 0.00 0.00 0 74 -0.16 0.00 PO45910 2000 CN-HEBEI URBAN ENVIRONMENT 15000 0.00 0.00 0.00 0.00 81 61 48.61 0.00 PO49436 2000 CN-CHONGQMG URBAN ENVMT 200 00 0.00 0.00 0.00 3.70 I25 33 100 03 0.00 PO56424 2000 CN-TONGBAI PUMPED STORA 320 00 0.00 0.00 0.00 100.00 60 85 114.25 0.00 PO58844 2000 3rd Henan Prov Hwy 150 00 0.00 0.00 0.00 0.00 34 36 29.36 0.00 PO58843 2000 CN-Guangxi Highway 200 00 0.00 0.00 0.00 19.70 30 88 36.58 0.00 PO36953 1999 CN-HEALTH IX (Shiyong Wang, Back- IO00 50.00 0.00 0.00 0.40 24 26 23.55 5.10 UP) PO41890 1999 CN-Liaoning Urban Transport 150 00 0.00 0.00 0.00 0.00 5 57 5.57 -2.1 1 PO42299 1999 TEC COOP CREDIT IV IO00 35.00 0.00 0.00 0.00 28 63 -18.23 0.00 PO43933 1999 CN-SICHUAN URBAN ENVMT 15000 2.00 0.00 0.00 0.00 65 20 97.22 38.72 PO38121 1999 CN-GEF-RENEWABLE ENERGY 0 00 0.00 0.00 35.00 0.00 18 93 34.38 17.50 DEVELOPMENT PO46051 1999 CN-HIGHER EDUC REFORM 20 00 50.00 0.00 0.00 0.00 3 81 5.41 0.00 PO46564 1999 CN - Gansu & Inner Mongolia Poverty 60 00 100.00 0.00 0.00 13.30 11 21 20.80 -12.42 Red PO46829 1999 CN-RENEWABLE ENERGY 100 00 0.00 0.00 0.00 0.00 2 62 89.62 2.62 DEVELOPMENT PO41268 1999 CN-Nat Hwy4/Hubei-Hunan 350 00 0.00 0.00 0.00 0.00 32 81 32.81 0.00 PO49665 1999 CN-ANNING VALLEY AG.DEV 90 00 30.00 0.00 0.00 0.00 7 36 8.49 -11.51 PO50036 1999 Anhui Provincial Hwy 200 00 0.00 0.00 0.00 9.60 5 53 15.13 0.00 PO51705 1999 CN-Fujian I1 Highway 200 00 0.00 0.00 0.00 0.00 39 24 39.24 0.00 PO57352 1999 CN-RURAL WATER N 16 00 30.00 0.00 0.00 0.00 1043 10.20 10.20 PO58308 1999 CN-PENSION REFORM PJT 0 00 5.00 0.00 0.00 0.00 0 52 0.50 0.00 PO51888 1999 CN - GUANZHONG IRRIGATION 80 00 20.00 0.00 0.00 0.00 14 56 14.93 0.00 PO51856 1999 ACCOUNTING REFORM & 27 40 5,60 0.00 0.00 0.00 14 38 14.29 0.00 DEVELOPMENT PO35698 1998 HUNAN POWER DEVELOP 300 00 0.00 0.00 0.00 161.90 4 62 166.52 3.51 PO03619 1998 CN-2nd Inland Waterways 123 00 0.00 0.00 0.00 37.00 7 80 44.80 7.80 PO03566 1998 CN-BASIC HEALTH (HLTHS) 0 00 85.00 0.00 0.00 0.00 23 09 20.29 0.00 PO03614 1998 CN-Guangzhou City Transport 200 00 0.00 0.00 0.00 20.00 82 81 102.81 82.81 PO03539 1998 CN - SUSTAINABLE COASTAL 100 00 0.00 0.00 0.00 2.06 38 52 40.58 3.38 RESOURCES DEV. PO03606 1998 ENERGY CONSERVATION 63 00 0.00 0.00 22.00 0.00 19 20 15.40 0.00 PO51736 1998 E. CHINNJIANGSU PWR 250 00 0.00 0.00 0.00 86.00 21 06 107.06 17.97 PO36414 1998 CN-GUANGXI URBAN ENVMT 72 00 20.00 0.00 0.00 13.48 50 29 63.17 4.75 PO46952 1998 CN - FOREST. DEV. POOR AR 100 00 100.00 0.00 0.00 0.00 6 42 -92.01 7.99 PO45788 1998 CN-Tri-Provincial Hwy 230 00 0.00 0.00 0.00 0.00 15 14 15.14 0.00

97 PO401 85 1998 CN-SHANDONG ENVIRONMENT 95.00 0.00 0.00 0.00 1.40 10.18 11.58 0.51 PO44485 1997 SHANGHAI WAICAOQIAO 400.00 0.00 0.00 0.00 0.00 50.10 50.10 49.65 PO03637 1997 CN-NAT'L RURAL WATER 3 0.00 70.00 0.00 0.00 0.00 0.41 3.62 3.20 PO03650 1997 TUOKETUO POWEWINNER 400.00 0.00 0.00 0.00 102.50 16.08 118.58 16.08 PO36405 1997 CN - WANJIAZHAI WATER TRA 400.00 0.00 0.00 0.00 75.00 10.57 85.57 10.57 PO34618 1996 CN-LABOR MARKET DEV. 10.00 20.00 0.00 0.00 0.00 2.38 4.48 0.00 PO03 594 1996 CN - GANSU HEX1 CORRIDOR 60.00 90.00 0.00 0.00 0.00 62.21 61.58 -3.80 PO03639 1995 CN-SOUTHWEST POVERTY 47.50 200.00 0.00 0.00 0.01 0.15 24.21 24.21 REDUCTION PROJECT PO03632 1993 CN-ENVIRONMENT TECH ASS 0.00 50.00 0.00 0.00 0.00 0.04 0.61 0.29 Total: 10,902.07 962.60 0.00 186.50 704.92 5,186.07 2,549.78 313.05

98 CHINA STATEMENT OF IFC’s Held and Disbursed Portfolio (US$ million)

Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 2004 Antai 40.00 0.00 0.00 30.00 30.86 0.00 0.00 23.14 2003 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 2005 Babei 1 1 .oo 5.00 0.00 0.00 0.00 5.00 0.00 0.00 I999/00/02 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.61 0.00 0.00 2002 CDH China Fund 0.00 7.15 0.00 0.00 0.00 2.03 0.00 0.00 2003 CSMC 0.00 8.92 0.00 0.00 0.00 8.92 0.00 0.00 2004 CUNA Mutual 0.00 12.00 0.00 0.00 0.00 1.47 0.00 0.00 I998 Chengdu Huarong 5.16 3.20 0.00 5.47 5.16 3.20 0.00 5.47 1992 China Bicycles 4.50 0.00 0.00 0.00 4.50 0.00 0.00 0.00 2004 China Green Ener 20.00 0.00 0.00 0.00 11.50 0.00 0.00 0.00 2004 China I1 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 China Re Life 0.00 1.54 0.00 0.00 0.00 1.54 0.00 0.00 1994 China Walden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 2004 Colony China 0.00 16.07 0.00 0.00 0.00 3.41 0.00 0.00 2002 Darong 10.00 ISO 0.00 8.00 6.67 1 SO 0.00 5.33 1994 Dynamic Fund 0.00 5.64 0.00 0.00 0.00 3.99 0.00 0.00 2005 FangXin SHMT 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Fang Xin Limited 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 2005 Fang Xin SHDX 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Fang Xin SHPM 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Fang Xin SZFX 3.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 Fenglin 19.00 0.00 6.00 18.00 12.45 0.00 6.00 11.62 2003 Great Infotech 0.00 3.22 0.00 0.00 0.00 2.52 0.00 0.00 2005 HiSoft Tech 0.00 4.00 0.00 0.00 0.00 3.00 0.00 0.00 2002 Huarong AMC 9.00 2.51 0.00 0.00 9.00 0.49 0.00 0.00 2004 IB 0.00 52.18 0.00 0.00 0.00 52.18 0.00 0.00 2002 IEC 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00 2004 Jiangxi Chenming 60.00 12.90 0.00 0.00 30.00 12.90 0.00 0.00 1998 Leshan Scana 2.92 0.00 0.00 0.00 2.92 0.00 0.00 0.00 200 1 /05 Maanshan Carbon 11.00 1 .oo 0.00 0.00 0.00 0.00 0.00 0.00 2001/05 Minsheng Bank 0.00 2.80 0.00 0.00 0.00 2.79 0.00 0.00 200 1 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996104 Kumho 34.00 2.23 0.00 0.00 34.00 2.23 0.00 0.00 2001 New China Life 0.00 13.21 0.00 0.00 0.00 5.83 0.00 0.00 2005 New Hope 0.00 0.00 45.00 0.00 0.00 0.00 0.00 0.00 1995 Newbridge Inv. 0.00 0.39 0.00 0.00 0.00 0.39 0.00 0.00 2005 North Andre 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 Orient Finance 0.00 0.00 4.76 5.95 0.00 0.00 4.76 5.95 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 2000 SEAF SSIF 0.00 3.95 0.00 0.00 0.00 1.29 0.00 0.00 2004 SIBFI 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 1998 Shanghai Krupp 24.50 0.00 0.00 52.49 24.50 0.00 0.00 52.49 1999 Shanxi 12.61 0.00 0.00 0.00 12.61 0.00 0.00 0.00 2002 Sino Gold 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 1995 PVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 Wanjie High-Tech 12.19 0.00 0.00 0.00 12.19 0.00 0.00 0.00 2004 Wumart 0.00 3.90 0.00 0.00 0.00 3.90 0.00 0.00 2004 X Colony China 0.00 0.84 0.00 0.00 0.00 0.17 0.00 0.00 2003 XACB 0.00 19.94 0.00 0.00 0.00 3.25 0.00 0.00 2004 Xinao Gas 25.00 10.00 0.00 0.00 25.00 10.00 0.00 0.00 I993 Cement 1.53 0.00 0.00 0.00 1.53 0.00 0.00 0.00 2003 Zhengye-ADC 15.00 0.00 0.00 7.00 11.59 0.00 0.00 5.41

2002 Zhone" Chen 0.00 5.00 0.00 0.00 0.00 5 00 0 00 0.00 Total portfolio. 387 41 275 84 87 36 126.91 239.48 21 1 76 10 76 109.41

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 BCCB 0.00 0.06 0.00 0.00 2005 Babei Silk Tie 0.00 0.00 0.00 0.01 2005 BioChina 0.00 0.01 0.00 0.00 2004 CCB-MS NPL 0.00 0.00 0.00 0.00 2005 Changyu Group 0.00 0.02 0.00 0.00 2004 Chenming LWC 0.00 0.00 0.00 0.16 2004 China Green 0.00 0.00 0.01 0.00 2005 Fang Xin SHDX 0.00 0.00 0.00 0.00 2005 Fang Xin SHMT 0.01 0.00 0.00 0.00 2005 Fang Xin SZFX 0.00 0.00 0.00 0.00 2005 Five Star 0.00 0.00 0.01 0.00 2002 Huarong AMC 0.02 0.00 0.00 0.00 2002 IEC 0.00 0.00 0.01 0.00 2005 MS Shipping 0.02 0.01 0.00 0.00 2004 NCFL 0.00 0.00 0.02 0.00 2003 Peak Pacific 2 0.00 0.01 0.00 0.00 2004 SIBFI 0.00 0.00 0.00 0.00 2002 SML 0.00 0.00 0.00 0.00 2002 Sino Mining 0.01 0.00 0.00 0.01 2005 Vetroarredo 0.01 0.00 0.00 0.00 2002 Zhonn Chen 0.00 0.00 0.00 0.03 Total pending commitment: 0.07 0.11 0.05 0.2 1

100 Annex 14: Country at a Glance CHINA: Fujian Highway Sector Investment

China at a dance 9/8/05

East Lower- POVERTY and SOCIAL Asia 8 middle- Development dlanwnd. China Pacific Income 2004 Population mid-year (mi/lions) 1,296.5 1,870 2 430 GNI per capita (Atlas method US$) 1,290 1.280 1,580 Lfe expectancy GNI (Atlas method US$ billions) 1,672.5 2,389 3,847 Average annual growth, 1998-04 T Population I%) 0.7 09 10 Labor force (%) 0.8 11 07 GNI Gross per primary Most recent estlmate [latest year avallable, 1998-04) capita enrollment Poverty (% of population below national poverty IineJ 5 Urban population (% of total population) 40 41 49 Life expectancy at birth Wears) 71 70 70 Infant mortality (per 1,000 live births) 30 32 33 Child malnutrition (% ofchildren under 5) 10 15 11 Access to improved water source Access to an improved water source (% of population) 77 78 81 Literacy (% of pmulabon aqe 15+) 91 90 90 Gross primary enrollment I% of school-age population) 115 113 114 -China Male 115 113 115 Lower-middle-incomegroup Female 115 112 113

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1984 1994 2003 2004 Economic ratios. GDP (US$ billions) 256 1 542.5 14163 16538 Gross capital formationlGDP 34 4 41.2 43 8 45 2 Exports of aoods and services/GDP 11 3 25.3 342 39 7 Trade Gross domestic savings/GDP 34 5 42.7 42 5 44 9 Gross national savingslGDP 35 3 42.7 43 2 46 1 T Current account balancelGDP 07 1.9 32 42 Interest payments/GDP 04 0.9 05 04 Total debVGDP 47 18.5 136 10 7 Total debt servicelexports 73 7.7 72 36 Present value of debUGDP 13 3 1 Present value of debVexports 364 Indebtedness 1984-94 199444 2003 2004 2004-08 (average annual growth) GDP 94 83 9.3 95 60 __I_China GDP per capita 79 74 8.6 69 73 .. Lower-middle-income group Exports of goods and services 81 173 26.8 28 4 144

STRUCTURE of the ECONOMY

/% of._ GDPl Agriculture Industry Manufacturing 355 344 367 373 Services 247 31 9 332 31 9

Household final consumption expenditure 512 445 449 431 02 03 04 General gov t final consumption expenditure 142 128 126 120 Imports of goods and services 114 234 317 367

(average annual growth) Agriculture 40 33 Industry Manufactunng Services 96 82 Household final consumption expenditure 81 79 General gov t final consumption expenditure 94 86 Gross capital formation 91 95 169 130 Imports of goods and services 99 155 248 225

Note 2004 data am preliminary estimates *The diamonds show four key indicators in the country (in bold) compared with its income-group average If data are missing the diamond will be incomdete

101 ...... 1984 1994 2003 2004 inflatim (U) * t, i 83 242 12 39 49 199 21 65

183 184 13 19 "2 8 -1 7

1884 1994 2003 2004

26,139 12*i,C06 438 223 593 389 3,232 IO015 17533 18876 6,027 4Gb9 11 110 14478 tam5 tat 298 433 560 552 8 18 27.410 115814 4i2 760 563 423 2,331 3 137 5959 9755 139 d$35 29274 48003 7,245 51 487 $92 869 252 624 50 103 98 to2 74 96 102 112 56 107 95 9i

1984 la94 2003 2004

29.039 131 375 485003 655827 29 183 127210 448 $24 836 843 144 70168 35079 49284 1534 1036 7838 -3523 442 1337 '7834 226W 1832 I0469 45975 68858 2,383 20056 71,*48 137v5 531 30527 % 17.023 +2D8364

97 710 416 2.06 622.945 28 86 83 83

1984 1994 21103 2604

12082 I00457 193 56' 177 709 73 5933 10657 %la35 i ? c35 18" 6097 10314 I0670 2285 11 I35 37073 24498 5 2690 1124 879 G 729BP 4 50 219 262

112 337 831 3.177 -3 OD2 -2 405 240 6.8B -1 1'78 -13,373 1419 33787 55507 e?OQOci 0 3975 7129 10923

959 4035 1.250 1250 197 2060 1.816 1246 0 323 2.459 99B 197 1737 "843 247 9 4f.13 450 387 187 1,331 -1.293 -140 IBRD 34578 CHINA HanjiayuanHanjiayuan FUJIAN HIGHWAY SECTOR INVESTMENT PROJECT GulianGulian Heilong Jiang RUSSIAN FEDERATION NATIONAL EXPRESSWAY NETWORK HeibaoshanHeibaoshan JagdagiJagdagi AihunAihun YituliheYitulihe WuyilingWuyiling KAZAKHSTAN NenjiangNenjiang ManzhouliManzhouli TonjiangTonjiang YakeshiYakeshi BeianBeian HegangHegang QianjinQianjin HailaerHailaer BoketuBoketu HEILONGJIANGH E I L O N G J I A N G DongfanghongDongfanghong QiqiharQiqihar SuihuaSuihua NanchaNancha JiamusiJiamusi AltayAltay ° FuyunFuyun RanghuluRanghulu HARBIN JixiJixi 44 UlanhotUlanhot YuminYumin DaanDaan SuifenheSuifenhe UZBEKISTAN KaramayKaramay MONGOLIA MudanjiangMudanjiang SailimuSailimu HuolinheHuolinhe BaichengBaicheng BaiyinhushuoBaiyinhushuo HuoerguosiHuoerguosi WusuWusu CHANGCHUNCHANGCHUN JilinJilin HunchunHunchun KuitunKuitun JILINJ I L I N KYRGYZ TongliaoTongliao HefongHefong DahuangshanDahuangshan NEIN E I MMONGOLO N G O L BaishanBaishan REPUBLIC URUMQI SipingSiping BaiheBaihe ErlianhaoteErlianhaote XilinhotXilinhot BaluntaiBaluntai LIAONINGLIAONING 40° AksuAksu KuqaKuqa TurpanTurpan FushunFushun TurugartTurugart HamiHami YuanbaoshanYuanbaoshan SHENYANGSHENYANG TA J IK KorlaKorla BenxiBenxi Sea of I KashiKashi AnshanAnshan DEM. ST TurkeshitanTurkeshitan BachuBachu JinzhouJinzhou A BayunBayun OboObo BaiyinchaganBaiyinchagan PEOPLE'S Japan N XINJIANGX I N J I A N G EjinEjin QQii YinkouYinkou HOHHOTHOHHOT JiningJining DandongDandong REP. OF BaotouBaotou FuxinFuxin KOREA DatongDatong QinhuangdaoQinhuangdao BEIJING TangshanTangshan RuoqiangRuoqiang DongshengDongsheng BEIJINGBEIJING DalianDalian Bo Hai WuhaiWuhai TIANJINTIANJIN 36° JiayaguanJiayaguan BaodingBaoding TIANJINTIANJIN ShenmubeiShenmubei ZhangyeZhangye HEBEIH E B E I CangzhouCangzhou REP. OF YINCHUANYINCHUAN YulinYulin SHIJIAZHUANGSHIJIAZHUANG WeihaiWeihai TAIYUANTAIYUAN YantaiYantai KOREA DezhouDezhou ZiboZibo Area of WuweiWuwei ZhongweiZhongwei LiulinLiulin Map HandanHandan JINANJINAN QingdaoQingdao JAPAN CHINA XININGXINING SHANXIS H A N X I Yan'anbeiYan'anbei AnyangAnyang RizhaoRizhao Yellow GolmudGolmud NINGXIANINGXIA SHANDONGS H A N D O N G LANZHOULANZHOU QINGHAIQ I N G H A I Huang XinxiangXinxiang LinyiLinyi Sea HuanglingHuangling KaifengKaifeng LianyuangLianyuang 32° GANSUG A N S U LuoyangLuoyang XuzhouXuzhou SanmexiaSanmexia ZHENGZHOUZHENGZHOU JIANGSUJIANGSU Ton HENANH E N A N gtian TangyuTangyu XI'ANXI'AN HaianHaian XIZANGX I Z A N G SHAANXIS H A A N X I BengbuBengbu FuyangFuyang GyeguGyegu NanyangNanyang NANJINGNANJING NantongNantong AnkangAnkang ShiyanShiyan XinyangXinyang HEFEIHEFEI XiangfanXiangfan SHANGHAI ANHUIA N H U I ChangxingChangxing SHANGHAISHANGHAI HUBEIH UJingmenJiBngEmIen AnqingAnqing HANGZHOUHANGZHOU NingboNingbo 28° G WUHANWUHAN East SICHUANS I C H U A N DaxianDaxian IN iang YichangYichang ShaoxingShaoxing L Chang J HuangshiHuangshi an Jinsha Q Nu cang CHENGDUCHENGDU G LHASA N JiujiangJiujiang ZHEJIANGZ H E J I A N G NEPAL O JingshaJingsha China H EnshiEnshi JinhuaJinhua CHONGQINGC CHONGQINGCHONGQING Sea YiyangYiyang NANCHANGNANCHANG WenzhouWenzhou CHANGSHACHANGSHA For detail, see NATIONAL HIGHWAY SYSTEM: AVIATION SYSTEM: YibinYibin XiangtanXiangtan JIANGXIJ I A N G X I IBRD 34581 XichangXichang HuaihuaHuaihua ZhouzhouZhouzhou NATIONAL EXPRESSWAY SYSTEM: INTERNATIONAL AIRPORTS GUIZHOUG U I Z H O U HUNANH U N A N LaizhouLaizhou HengyangHengyang TaiheTaihe FUZHOUFUZHOU EXISTING OTHER AIRPORTS LanpingLanping ChalingChaling 24° GUIYANGGUIYANG YongzhouYongzhou LeiyangLeiyang UNDER CONSTRUCTION PanshihuaPanshihua GanzhouGanzhou FUJIANF U J I A N ADMINISTRATION: For detail, see PLANNED “7918”: DaliDali LongyanLongyan QuanzhouQuanzhou SELECTED CITIES GuilinGuilin PingshiPingshi IBRD 34580 ZhangzhouZhangzhou XiamenXiamen LINKS TO BEIJING BaoshanBaoshan GUANGXIG U A N G X I GantangGantang PROVINCE CAPITALS KUNMING ShuirenShuiren TAIWATTAIWANAIWAN RuiliRuili Nu NORTH–SOUTH CORRIDORS YUNNANY U N N A N HechiHechi GUANGDONGG U A N G D O N G Zhao'anZhao'an NATIONAL CAPITAL YuxiYuxi XinxuXinxu LiuzhouLiuzhou EAST–WEST CORRIDORS GupingGuping WuzhouWuzhou GUANGZHOUGUANGZHOU ShangtouShangtou PROVINCE BOUNDARIES Lan NANNINGNANNING For detail, see LHASA TERMINAL CITIES can ShenzhenShenzhen 20° INTERNATIONAL BOUNDARIES g ZhuhaiZhuhai IBRD 34579 SimaoSimao YulinYulin FoshanFoshan KowloonKowloon QinzhouQinzhou NATIONAL WATERWAYS SYSTEM: PingxiangPingxiang MACAO FangchengFangcheng MaomiMaomi MACAOMACAO HONG KONG MAJOR NAVIGABLE WATERWAYS ShangyongShangyong HONGHONG KKONGONG VIETNAM BeihaiBeihai 0 100 200 300 Kilometers MAJOR RIVERS ZhanjiangZhanjiang

OTHER RIVERS MYANMAR This map was produced by the Map Design Unit of The World Bank. LAO PEOPLE'S HAIKOUHAIKOU 0 100 200 300 Miles RIVER PORTS The boundaries, colors, denominations and any other information DEM. REP. shown on this map do not imply, on the part of The World Bank BasuoBasuo SEA PORTS Group, any judgment on the legal status of any territory, or any THAILAND HHAINANAINAN PHILIPPINES endorsement or acceptance of such boundaries. 108° SanyaSanya 112° 116° 120° 124° MARCH 2006 RUSSIAN ELEVATIONS116° IN METERS: 117° 118 119° FEDERATION

HEILONGJIANG 1500 CHINA 1000 MONGOLIA 500 FUJIAN HIGHWAY SECTOR JILIN 200 Sea of INVESTMENT PROJECT OL G LIAONING Japan ON M D.P.R. OF EI N BEIJING KOREA BEIJING 29° FUJIAN PROVINCE TRANSPORT 29° HEBEI REP. OF

INFRASTRUCTURE A

I KOREA

X SHANXI Yellow

G SHANDONG N

I Sea FUJIAN N J GANSU IA N SHAANXI HENAN G S East To Huangzhou ANHUI U To Wuhan China SHANGHAI Sea G HUBEI IN SICHUAN Q G ZHEJIANG N ZHEIJIANG O H C JIANGXI HUNAN PROVINCE GUIZHOU FUJIAN

YUNNAN TAIWAN GUANGXI GUANGDONG PACIFIC

HONG KONG OCEAN MACAO LAO VIETNAM P.D.R. HAINAN PHILIPPINES 28° 28° To Longquan To Wuhan Pucheng 205

JIANGXI Chong'an Huashanjie PROVINCE 120° To Ningbo Gaotien NANPING Guangze Songxi 316 Shouning To Nanchang Jianyang 205 Zhenghe 104 Zhenqian Hutangban 205 Zherong Shacheng Nakou

F Fu'an u Zhouning t u 27° n Jian'ou 27° X i NINGDE104 Taining 316 Pingnan Xiapu Shunchang Jianning Jiangle 206 Nanping Lüxia Gutian Min 316 Luoyuan Ji an g Sha Xian FUZHOU Dutouping 104 Beijiao Ninghua Mingxi Minqing SHI Youxi Sanming Lianjiang Minhou FUZHOU Qingliu Xinkou Tingjiang Mawei 26° SANMING Nanyu 26° Changle To Ganzhou Yong'an 316 Changting Yongtai Hetian Liancheng 205 Datian 319 SOUTH 206 Dongshanqiao 324324 Dehua Putian Daqiu CHINA LONGYAN Yongchun Xianyou SEA Shicheng Wuping QUANZHOU

319 Longyan SHI Shanghang Anxi Hui'an 25°° 25° 205 Hua'an Nan'an Kanshi Yanqian Quanzhou

Yangding Jinjiang 319 324 Nanjing To Guangzhou 319 XIAMEN SHI Zhangzhou Xiamen ZHANGZHOU Pinhe Longhai SHI GUANGDONG Zhangpu NATIONAL WATERWAYS SYSTEM: YONG-AN – WUPING EXPRESSWAY MAJOR NAVIGABLE WATERWAYS 24 PROVINCE Yunxiao SAMPLE RURAL ROADS COMPONENT MAJOR RIVERS 24° OTHER RIVERS NATIONAL HIGHWAY SYSTEM: To Shenzhen SEA PORT NATIONAL EXPRESSWAY SYSTEM:

Zhao'an Dongshan EXISTING AVIATION SYSTEM: UNDER CONSTRUCTION INTERNATIONAL AIRPORTS

319 NATIONAL HIGHWAY SYSTEM OTHER AIRPORTS

ADMINISTRATION: EXPRESSWAY SECTIONS FINANCED BY THE BANK IN FHP1 SELECTED CITIES This map was produced by the Map Design Unit of The EXPRESSWAY SECTIONS FINANCED PREFECTURE CAPITALS World Bank. The boundaries, BY THE BANK IN FHP2 colors, denominations and PROVINCE CAPITAL any other information shown on this map do not imply, on 0 25 50 75 1000 the part of The World Bank RAILROADS PREFECTURE BOUNDARIES

Group, any judgment on the I B

legal status of any territory, R M KILOMETERS PROVINCE BOUNDARIES D

A or any endorsement or

R acceptance of such 3 C 4

H boundaries. 5

2 7 0 9 0 116° 117° 118° 119° 6 IBRD 34580

RUSSIAN FEDERATION CHINA KAZAKHSTAN ZHEIJIANG JIANGXI HEILONGJIANG PROVINCE PROVINCE MONGOLIA FUJIAN HIGHWAY SECTOR INVESTMENT PROJECT Sea JILIN of KYRGYZ NANPING REP. LIAONING D.P.R. OF Japan YONG’AN – WUPING EXPRESSWAY COMPONENT XINJIANG KOREA NEI MONGOLBEIJING BEIJING NINGDE TIANJIN JAPAN HEBEI REP. OF FUJIAN KOREA SHANDONG Yellow Nanping Ningde QINGHAI Area of SHANXI Sea

NINGXIA Map JIANGSU PROVINCE FUZHOU GANSU SHAANXI HENAN PROPOSED YONG’AN – WUPING EXPRESSWAY SELECTED TOWNS ANHUI EXISTING ROADS: Sanming SHI SHANGHAI East FUZHOU BRIDGES SANMING XIZANG HUBEI EXPRESSWAYS Yong'an SICHUAN ZHEJIANG China SEAT OF COUNTY GOVERNMENT TUNNELS Liancheng CHONGQING Area Sea NATIONAL HIGHWAYS HUNAN FUJIAN RIVERS PUTIAN SOUTH GUIZHOU of Map LONGYAN Putian CHINA National Capital JIANGXI TAIWAN VIADUCTS PROVINCIAL HIGHWAYS Wuping SEA YUNNAN Longyan QUANZHOU GUANGXI GUANGDONG Philippine COUNTY BOUNDARIES Province Boundaries SHI HONG KONG INTERCHANGES OTHER HIGHWAYS Shanghang Sea Quanzhou MACAO Yanqian International Boundaries VIETNAM PROVINCE BOUNDARY Bay of LAO RAILROADS XIAMEN P.D.R. HAINAN Bengal PHILIPPINES Zhangzhou SHI Xiamen ZHANGZHOU SHI PREFECTURE CAPITALS This map was produced by the Map Design Unit of The World Bank. To Changting GUANGDONG The boundaries, colors, denominations and any other information PROVINCE PROVINCE CAPITAL shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any PREFECTURE BOUNDARIES endorsement or acceptance of such boundaries. PROVINCE BOUNDARIES CHANGTING QINGLIU II K120+443= I K79+970, WUPING 40.509 km longer WUPING LIANCHANG Starting Point of Alternative Solution II for Starting Point of Alternative Solution II of Xieshan–Shuidong Road Section, Wenheng Shifang–Yanquian Road Section II K126+100=I K126+100 K70 II K173+000=I K173+000 K80 II K106+456= Starting Point of Alternative Solution II for I,III K114+134

Huanhzhukeng–Yanquian Road Section 7.673 km shorter K90 K60 Xiaba II K156+500=I K156+500 Pengkou K170 K180 Xinquan K100 Endpoint of Alternative Solution II of YONG’ AN Huanhzhukeng–Yanquian Road Section Alignment, To Sanming Shifang II K187+991.817=I K192+300 K110 K160 Jiuxian Gutian K40

K50 K20 Huyang K120 LIANGCHENG K30 K190 K130

K150 K10 YONG’AN ENDPOINT OF THE RECOMMENDED K140 ALIGNMENT K194+552 Hongtian Yanqian SHANGHANG SHANGHANG

STARTING POINT OF THE Endpoint of Alternative Solution II of RECOMMENDED ALIGNMENT K000 Xieshan–Shuidong Road Section, To Weizhao Endpoint of Alternative Solution II of II K145+070.394=I K145+591.268 FUJIAN PROVINCE Shifang–Yanquian Road Section, II K194+76L582=I K192+300 0 10 20 Xiyang To Yongyan KILOMETERS GUANGDONG (Scale approximate) To Quanzhou PROVINCE Makengshan Tunnel 4290m 17-30 mWangcheng LargeBridgeNo.2 Shangfeng Tunnel No.111030m 13-25 mHuangatangjinLargeBridgeNo.2 29-30 mXiaomianViaductNo.4 14-25 mZhangquankengLargeBridge 17-30 mMashanqianLargeBridge Beicun GradeSeparatgedInterchange Xiken Tunnel 1680m 35-30 mLianxiExtraLargeBridge 14-30 mShangkongLargeBridge 15-35 mBaishitangLargeBridge 20-30 mGuokengyangViaduct Tiantouyang LargeBridge L19+118.8 (39mShortcut) 8-30 mBaiyekengLargeBridge 15-25 mShibeijiaoLargeBridge 14-30 mChetouLargeBridge 28-30 mGuihuyangLargeBridge I K79+965=IK79+970 Xiaping Tunnel No.11560m 15-30 mQianlinLargeBridge 13-30 mZhulinweiLargeBridge Xiaping Tunnel No.2860m Xiahu Tunnel 1500m Shangfeng LargeBridge 8-25 mYanqian LargeBridge 6025 mXiongweLargeBridge Liancheng Interchange Baigongao Tunnel 335m 32-25 mLiangenLargeBridge Longjing Tunnel 2589m Gutian Interchange Shangping Tunnel 525m 5 mShortcut Xiahu LargeBridge Sanweishan Tunnel 460m 1200 I K19+079.8= Gushibei Tunnel 1200m Pengkou Interchange Jinjiling Tunnel 405m Xiaotao Interchange Yanqian Interchange Hontian Interchange Yongjiang Tunnel Shanghang Interchange Wuping Interchange Jiuxian Interchange 1000 Lanwu Tunnel 325m 800 600 (meters) 400

Scale of Vertical Profile Scale of Vertical 200

Mileage K190 K180 K170 K160 K150 K140 K130 K120 K110 K100 K90 K80 K70 K60 K50 K40 K30 K20 K10 K0

MARCH 2006 CHINA FUJIAN HIGHWAY SECTOR MARCH 2006 IBRD 34581 INVESTMENT PROJECT RURAL ROADS IMPROVEMENT PROGRAM SAMPLE COUNTY, TOWNSHIP AND VILLAGE RURAL ROADS (FROM RRIP DATABANK)

NATIONAL ROADS PROVINCIAL ROADS COUNTY ROADS TOWNSHIP OR VILLAGE ROADS RAILROAD COUNTY CAPITALS Shouning PREFECTURE CAPITALS COUNTY BOUNDARIES PREFECTURE BOUNDARIES PROVINCE BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries.

ZHEIJIANG JIANGXI PROVINCE PROVINCE Shouning County NANPING

Gutian County NINGDE

Nanping Ningde

SANMING Sanming FUZHOU SHI FUZHOU FUJIAN PROVINCE PUTIAN SOUTH LONGYAN Putian CHINA SEA Longyan QUANZHOU SHI Quanzhou

XIAMEN Zhangzhou SHI Xiamen ZHANGZHOU GUANGDONG SHI PREFECTURE CAPITALS PROVINCE PROVINCE CAPITAL PREFECTURE BOUNDARIES

PROVINCE BOUNDARIES

GUTIAN COUNTY

Gutian

RUSSIAN FEDERATION KAZAKHSTAN HEILONGJIANG MONGOLIA Sea JILIN of KYRGYZ REP. LIAONING D.P.R. OF Japan XINJIANG KOREA NEI MONGOLBEIJING BEIJING TIANJIN JAPAN HEBEI REP. OF KOREA SHANDONG Yellow QINGHAI SHANXI Sea NINGXIA JIANGSU GANSU SHAANXI HENAN ANHUI SHANGHAI East XIZANG HUBEI SICHUAN ZHEJIANG China

CHONGQING Sea HUNAN FUJIAN GUIZHOU JIANGXI National Capital TAIWAN YUNNAN GUANGXI GUANGDONG Province Boundaries Philippine HONG KONG Sea MACAO International Boundaries VIETNAM Bay of LAO P.D.R. HAINAN Bengal PHILIPPINES