Document of The World Bank

Public Disclosure Authorized

Report No:ICR000032

IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IBRD-43560 )

Public Disclosure Authorized ON A

LOAN IN THE AMOUNT OF US$ 225 MILLION

TO

THE PEOPLE’S REPUBLIC OF

FOR A

TRI-PROVINCIAL HIGHWAY PROJECT Public Disclosure Authorized November 19, 2007

China and Mongolia Sustainable Development Unit

Sustainable Development Department

East Asia and Pacific Region

Public Disclosure Authorized

CURRENCY EQUIVALENTS

(Exchange Rate Effective June 6, 2007)

Currency Unit = RMB1.00 = 0.13085US$ US$ 1.00 = 7.64260 RMB

FISCAL YEAR January 1-December 31.

ABBREVIATIONS AND ACRONYM

ADT - Average Daily Traffic BDH - -Dongsheng Highway BDR - Baotou-Dongsheng Road BFH - Baiyinchagan- Highway CAS - Country Assistance Strategy CPS Country Partnership Strategy EAP - Environmental Action Plan EIA - Environmental Impact Assessment ENPV - Economic Net Present Value EIRR - Economic Internal Rate of Return FIDIC - Fédération Internationale des Ingénieurs-Conseils FIRR - Financial Internal Rate of Return FNPV - Financial Net Present Value GDP - Gross Domestic Product GOVAI- Gross Output Value of Agriculture and Industry GPCD - Gansu Provincial Communications Department GWH - Guyaozi-Wangquanliang Highway HTH - Hekou-Tungouwan Highway ICB - International Competitive Bidding ICR - Implementation Completion and Results Report IMCD - Communications Department LZE - Liugouhe-Zhonghe Expressway MOC - Ministry of Communications MOF - Ministry of Finance MTE - Medium Truck Equivalent NCB - National Competitive Bidding NCD - Ningxia Communications Department NDRC - National Development and Reform Commission NTHS - National Trunk Highway System PAD - Project Appraisal Document PMO - Project Management Office

RAP - Resettlement Action Plan RIPA - Roads Improvement Program for Poverty Alleviation RMB - Renmimbi (China’s currency) XJH - Xujiamo-Jiepaicun Highway YXH - Yanchi-Xingren Highway

Vice President: James W. Adams Country Director: David R. Dollar Sector Manager (Acting): Magdolna Lovei Project Team Leader: Boping Gao ICR Team Leader: Wenlai Zhang

CHINA Cn-Tri-Provincial Highway Project

CONTENTS

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

1. Project Context, Development Objectives and Design...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 5 3. Assessment of Outcomes...... 11 4. Assessment of Risk to Development Outcome...... 15 5. Assessment of Bank and Borrower Performance ...... 15 6. Lessons Learned ...... 166 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ...... 17 Annex 1. Project Costs and Financing...... 18 Annex 2. Outputs by Component ...... 19 Annex 3. Economic and Financial Analysis...... 21 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 26 Annex 5. Beneficiary Survey Results...... 27 Annex 6. Stakeholder Workshop Report and Results...... 27 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR...... 28 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders...... 35 Annex 9. List of Supporting Documents ...... 36

MAP-IBRD29472: National Trunk Highway System MAP-IBRD29473: Inna Mongolia Highway Transport System MAP-IBRD29474: Inner Mongolia-Detail of Project Roads MAP-IBRD29475: Gansu Highway Transport System MAP-IBRD29476: Gansu-Detail of Project Roads MAP-IBRD29477: Ningxia Highway Transport System

A. Basic Information Country: China Project Name: CN-Tri-Provincial Hwy Project ID: P045788 L/C/TF Number(s): IBRD-43560 ICR Date: 12/27/2007 ICR Type: Core ICR PEOPLE'S REPUBLIC Lending Instrument: SIL Borrower: OF CHINA Original Total USD 230.0M Disbursed Amount: USD 225.0M Commitment: Environmental Category: A Implementing Agencies: Gansu Communications Department Ningxia Communications Department Inner Mongolia Communications Department Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/19/1997 Effectiveness: 03/18/1999 03/18/1999 Appraisal: 04/14/1998 Restructuring(s): Approval: 06/23/1998 Mid-term Review: Closing: 06/30/2005 06/30/2007

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

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

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

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Roads and highways 84 95 Sub-national government administration 16 5

Theme Code (Primary/Secondary) Access to urban services and housing Primary Primary Infrastructure services for private sector development Secondary Secondary Municipal governance and institution building Primary Primary Rural services and infrastructure Primary Primary

E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jean-Michel Severino Country Director: David R. Dollar Yukon Huang Sector Manager: Junhui Wu Jeffrey S. Gutman Project Team Leader: Wenlai Zhang Hatim M. Hajj ICR Team Leader: Wenlai Zhang ICR Primary Author: Kek Choo Chung

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the Project is to assist the Borrower and the Project Provinces: (a) to increase the efficiency and safety of traffic in highway priority corridors in order to facilitate faster socio-economic development; (b) to provide improved access to targeted poor counties; (c) to improve highway sector institutional capacity; and (d) to improve the safety of road transport.

ii The project development objective found in the Project Appraisal Document is expressed differently from that stated above which is obtained from Schedule 2 of the Loan Agreement. The difference, however, is only of verbal expression and not of substance.

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

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Average daily traffic on proposed and existing high priority roads increase over Indicator 1 : time (mte per day) BDH-7897mte/d 14280 19581 BFH - 1335mte/d 3008 2327 Value LZH - 5274mte/d 8027 10262 quantitative or XJH - 3778mte/d 6200 4188 Qualitative) GWH - 1834mte/d 4533 977 YXH - 745mte/d 1742 1677

Date achieved 12/31/1997 12/31/2005 12/31/2005 Actual traffic on the two most important highways, BDH and LZE exceeded Comments target values by 37% and 28% respectively. The remaining highways were (incl. % close to the target values or with high growth rates except for GWH. (See section achievement) 3.2 of main report.) Average speed on proposed and existing high priority roads improves over time Indicator 2 : (km per hour) Value Ranging from 33- Ranging from 50- quantitative or Ranging from 30-40 74 82 Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments (incl. % Average speed on highways improved 12% to 50%. achievement) Traffic accident rates on proposed and existing high priority road are reduced Indicator 3 : (fatalities per 10 million vehicle km) Value Ranging from 4.4 Ranging from 0.4- quantitative or Ranging from 7-11 to 5.7 5.0 Qualitative) Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments Fatalities on project highways were about 12% less than targeted on completion (incl. % of the Project. achievement) Indicator 4 : Gross output value of agriculture and industry increases (RMB billion)

iii BDH and BFH 68.9 110.6 27.6

Value Liugouhe-Jiepaicun 44.5 69.7 quantitative or corridor 22.9

Qualitative) Lingwi-Yanchi-Tongxing 3.3 4.5 corridor 1.4

Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments GOVAI on main corridors in the 3 project provinces exceeded targets by 60% in (incl. % Inner Mongolia, 57% in Gansu and 36% in Ningxia achievement) Indicator 5 : Sum daily traffic on RIPA roads increases over time Inner Mongolia 3696 8910 13922 Value Gansu 1635 2523 10590 quantitative or Ningxia 1518 2220 2050 Qualitative)

Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments Sum of daily traffic on RIPA roads was higher than expected by 56% in Inner (incl. % Mongolia, 320% in Gansu but fell short by about 8% in Ningxia.. achievement) Indicator 6 : Sum of days on RIPA roads are closed to traffic Inner Mongolia 779 200 0 Value Gansu 332 0 0 quantitative or Ningxia 833 50 4 Qualitative)

Date achieved 12/31/1997 12/31/2005 12/31/2005 Comments The closure of RIPA roads in Ningxia was only 8% of the target closure on (incl. % completion of the Project; there was no closure of RIPA roads at all in Inner achievement) Mongolia and Gansu Indicator 7 : Bank loan to each province is recovered through tolls on main highways Toll system implemented By 10/31/2000 in Value Toll system to be Ningxia; quantitative or implemented 10/31/2002 in Qualitative) Gansu and 10/31/2003 in Inner Mongolia Date achieved 12/31/2003 12/31/2003 Comments (incl. % Collection of tolls at each main highway was instituted as it became operational achievement)

iv (b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Construction of 6 main highways, 2 each in Gansu and Ningxia and 2 in Inner Indicator 1 : Mongolia ( BDH+BFH): % of completion Value (quantitative 0 100 100 or Qualitative) Date achieved 12/31/1997 06/30/2005 06/30/2005 Comments All 6 main highways in the original scope of the Project had been completed by (incl. % the original loan closing date of 6/30/2005. However, the newly added achievement) rehabilitation of HTH approved in June 2004 was not completed until end 2006. Complete construction of low volume road in poor counties (RIPA component)- Indicator 2 : % of completion Value (quantitative 0 100 100 or Qualitative) Date achieved 12/31/1997 12/31/2001 12/31/2000 Comments (incl. % The RIPA component was completed a year ahead of schedule. achievement) Indicator 3 : Institutional strengthening and training Value (quantitative 0 100 98 or Qualitative) Date achieved 12/31/1997 12/31/2002 12/31/2006 Comments Training fell short of target by about 2% due to incompletion of overseas training (incl. % program in Inner Mongolia. achievement) Highway safety-% treatment of 57 black spots, traffic safety manual, safety audit Indicator 4 : procedures. Value (quantitative 0 100 100 or Qualitative) Date achieved 12/31/1999 12/31/2003 12/31/2003 Comments (incl. % Completed satisfactorily as planned achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 07/21/1998 Satisfactory Satisfactory 0.00

v 2 04/21/1999 Satisfactory Satisfactory 0.00 3 12/22/1999 Satisfactory Satisfactory 24.89 4 06/29/2000 Satisfactory Satisfactory 41.28 5 12/14/2000 Satisfactory Satisfactory 75.79 6 06/26/2001 Satisfactory Satisfactory 93.07 7 12/19/2001 Satisfactory Satisfactory 116.57 8 06/19/2002 Satisfactory Satisfactory 144.27 9 12/29/2002 Satisfactory Satisfactory 167.51 10 06/26/2003 Satisfactory Satisfactory 184.16 11 12/29/2003 Satisfactory Satisfactory 210.19 12 06/28/2004 Satisfactory Satisfactory 213.49 13 12/28/2004 Satisfactory Satisfactory 214.86 14 06/13/2005 Satisfactory Satisfactory 214.86 15 11/09/2005 Satisfactory Satisfactory 220.37 16 08/24/2006 Satisfactory Satisfactory 224.96 17 06/26/2007 Satisfactory Satisfactory 224.96

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

The Project was initiated at a time when China’s GDP grew consistently at a rate of 8%- 10% a year, placing a burden on the country’s historically underinvested transport infrastructures, especially roads. Few expressways existed at the time and about 22% of rural communities had no all-weather vehicular access. Studies undertaken by the Bank concluded that the country's road network capacity was insufficient to meet demand; deficiency in capacity had led to transportation bottlenecks that restricted the development of the economy; and that the problem was due mainly to inadequate investment, insufficient reforms and management and operational weaknesses. These studies included "China Highway Development and Management: Issues, Options and Strategies" (February 1994) and "China, Forward with One Spirit: A Strategy for the Transport Sector" (April 1998).

Inadequate capacity and poor accessibility had undermined the development of China's interior provinces, resulting in an economic disparity between rich coastal areas with access to deep-water ports and poor landlocked provinces.

To overcome the shortcomings in the country’s road network, the Ministry of Communications (MOC) at the central level prioritized the rapid development of the National Trunk Highway System (NTHS) consisting of 12 inter-provincial trunk expressways and totaling some 35,000 km. At the provincial/regional level, the strategy was to concentrate on network maintenance and the expansion and improvement of provincial and rural road networks totaling some 1.2 million km to provide greater mobility and to stimulate socio-economic development particularly in less developed provinces. On road transport policy, growing attention was being paid to removing administrative and physical barriers to inter-provincial trade and to a redefinition of the government’s role in transport. Provinces and municipalities were to mobilize more investment resources, seek greater efficiency through improved highway planning, maintenance and investment strategies, and to improve cost recovery.

The Project which addressed the key issues of • expansion of highway capacity; • increase of accessibility to rural population in poor counties; • highway safety; • highway maintenance; and • cost recovery of investments through imposition of tolls on road users supported objectives of the Bank’s Country Assistance Strategy (CAS): (i) alleviating infrastructure bottlenecks and increasing road network capacity and (ii) helping to alleviate poverty in China, as expressed in the CAS Document R97-30 (IDA/R97-14) of March 18, 1997 and in Progress Report R98-107 of May 28, 1998.

1.2 Original Project Development Objectives (PDO) and Key Indicators

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The objective of the Project was to assist the Borrower and the Project Provinces: (a) to increase the efficiency and safety of traffic in highway priority corridors in order to facilitate faster socio-economic development; (b) to provide improved access to targeted poor counties; (c) to improve highway sector institutional capacity; and (d) to improve the safety of road transport (Schedule 2, Loan Agreement).

Key indicators for monitoring performance (Annex 1, PAD) included: a) Average daily traffic (ADT) on proposed and existing highways in selected high priority corridors b) Average speed on proposed and existing highways c) Traffic accident rates on proposed and existing highways d) Gross output value of agriculture and industry of main highway corridors e) ADT on roads included in the Road Improvement Program for Poverty Alleviation (RIPA) f) Number of days/year the roads in RIPA were closed to traffic g) Bank loan to each province is recovered through tolls on main highways

1.3 Revised PDO and Key Indicators (as approved by original approving authority), and Reasons/Justification

The development objective and key indicators remained unchanged throughout the implementation of the Project.

1.4 Main Beneficiaries

The measured benefits of the Project were savings in vehicle operating cost and travel time savings for vehicle occupants. Benefits generated by the RIPA component in the form of an increase in children’s accessibility to schools, the population’s access to medical services and an increase in the average annual income per capita of the local population were acknowledged but not quantified. However, local governments impacted by the component furnished data that illustrated the extent of the benefits that had accrued. (See also section 3.5). Other important benefits in support of the Project that were not quantified were a reduction in road accidents particularly fatalities, and a strengthened capability of the agencies responsible for the planning, design, supervision, construction, operation and maintenance of the highways in each of the Project Provinces. Benefits that were not quantified were not taken into account in the economic and financial analysis in justification of the Project.

The primary target group was the population of the Provinces of Inner Mongolia, Gansu and Ningxia, which were ranked respectively the third, eighth and fifteenth poorest among the thirty-one provinces and municipalities of China measured by income per capita (China Statistical Yearbook, 1997). The six main project highways would pass through towns and counties that comprised about half of the population of the three

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project provinces, some 6.2 million for Inner Mongolia, 6.1 million for Gansu and 2.1 million for Ningxia. The improvement of rural roads would benefit counties whose population constituted about 15% of the total poor population of the three provinces (1.3 million).

Institutional capacity building would directly benefit the Communications Departments of Inner Mongolia, Gansu and Ningxia and their related entities and agencies.

1.5 Original Components

The Project consisted of the following components (See Block 1: Project Description, PAD): (a) Construction of Main Highways with a total length of about 687 km comprising (i) Baotou-Dongsheng Highway (103 km) of which 92 km are a 4-lane Class 1 highway and 11 km are a 2-lane Class 2 highway in Inner Mongolia; (ii) Baiyinchagan-Fengzhen Highway (142 km) a 2-lane Class 2 highway in Inner Mongolia; (iii) Liugouhe-Zhonghe Expressway (33.5 km) a 4-lane expressway in Gansu; (iv) Xujiamo-Jiepaicun Highway (64 km) a 2-lane Class 2 highway in Gansu; (v) Guyaozi-Wangquanliang Highway (94 km) of which about 83 km provide 2 lanes for traffic on a 4-lane Class 1 highway subgrade and about 11 km are a 2-lane Class 2 highway in Ningxia; and (vi) Yanchi-Xingren Highway (250.5 km), a 2-lane Class 2 highway in Ningxia. (b) Road Improvement Program for Poverty Alleviation (RIPA) comprising the construction and improvement of about 1892 km of rural roads in poor counties, of which 803 km are in Gansu, 836 km in Inner Mongolia and 253 km in Ningxia. (c) A program to strengthen institutional capacity in highway planning, design, supervision, construction, operation and maintenance in each of the Project Provinces. (d) A highway safety program to reduce traffic accidents on highways.

The Project was described in Schedule 2 of the Loan Agreement as consisting of three parts, with a part each in Inner Mongolia Autonomous Region (Part A), Gansu Province (Part B) and Ningxia Hui Autonomous Region (Part C). There was no inconsistency between the Loan Agreement and the Project Appraisal Document (PAD). The difference was merely in the manner in which the Project was presented in the two documents. The PAD presented the Project thematically while the Loan Agreement described in detail the developments that would be undertaken in each of the Project Provinces. The project components were similar in all three Project Provinces.

1.6 Revised Components

There was no revision of the Project's components. There were, however, changes within the component for the construction of the main highways.

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1.7 Other Significant Changes

Significant changes in the design, scope and scale of the component for the construction of the main highways included the following.

The original design of the Baotou-Dongsheng Highway (BDH) in Inner Mongolia, had a 50 km section in which the two southbound lanes were separated from the two northbound lanes, the former to be constructed on a new alignment and the latter being upgraded from the existing Class 2 highway. During implementation a decision was made to construct new northbound lanes alongside the southbound lanes and integrate all four lanes into a single roadway, and the old Class 2 Baotou-Dongsheng Road (BDR) was rehabilitated to function as an auxiliary road to serve slow moving local traffic and non-motorized vehicles.

The Guyaozi-Wangquanliang Highway (GWH) in Ningxia, originally to be a 4-lane Class 1 highway sub-grade with 2-lane pavement from Guyaozi to Yanchi and a 2-lane Class 2 highway from Yanchi to Wangquanliang, was upgraded to a full 4-lane expressway standard for safety and maintenance reasons. The Bank agreed to the change in the scope of the development following the review of the supplemental feasibility study. The Loan Agreement was amended accordingly on February 1, 2001. However, work on the higher construction standard had commenced before prior approval of the Bank was obtained, and Ningxia decided to withdraw from Bank financing the contract (one of four) where work had advanced too far to justify Bank retroactive financing. The cost of upgrading would increase the original cost of the GWH by about 62% (RMB220 million). Part of the increase in cost was financed by the funds (US$4 million) released from the contract that was withdrawn from Bank financing. Nevertheless, competitive bidding in accordance with Bank procurement guidelines resulted in Ningxia’s loan savings of some $5 million. This amount was cancelled from the loan on December 7, 2005.

At the request of Gansu, the scope of the development in this province was revised to include the rehabilitation of an existing 85 km Class 2 road from Hekou to Tungouwan (the Hekou-Tungouwan Highway (HTH)). The Bank agreed with the proposal in light that the highway was the only road linking to Gulang, serving 7 townships, carrying about 3,000 vehicles (MTE) a day and was in a poor state of condition. The Loan Agreement was amended accordingly on June 8, 2004. The rehabilitation of this highway was not in the original scope of work of the developments for the province and was approved for inclusion in the Project only after a justification was made, and an environmental impact assessment and a social assessment had been done and a resettlement action plan had been prepared to the satisfaction of the Bank task team. The Loan Agreement was revised again on November 23, 2005 to increase the disbursement percentage for Category (2) (a) for Civil Works under Part B.1 from 49% to 65% to enable the use of loan savings to finance the rehabilitation. This additional scope of work led to the extension of the loan closing date to June 30, 2007.

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2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

The Project was predicated on the premise that improving road network capacity would help to generate economic development, alleviate poverty, and improve the quality of life in the project areas.

The preparation of the Project took into account lessons learned from 19 highway projects in China, of which 9 had been completed. Problems encountered in the past included (i) poor construction quality, (ii) late start of the design of traffic engineering facilities, (iii) difficulty in implementing highway safety programs due to limited experience of the implementing entities, and (iv) inadequate advance notification of Bank requirements relating to land acquisition and resettlement.

To mitigate the risk of an inadequate design, the designs and bid documents for the main highways in the Project were reviewed by international design engineers. To ensure that the quality of construction would meet acceptable standard, construction supervision was enhanced by engaging foreign consultants to jointly supervise construction with local consultants.

The difficulty in implementing safety programs in past projects was traced to the lack of coordination between traffic police and highway departments. To overcome the problem, a coordinating mechanism that included a system for accident data collection and analysis was developed with the assistance of an international safety expert for all three Project Provinces.

To make known early the Bank’s requirements relating to resettlement and land acquisition and to assist in meeting them, a resettlement specialist and a social scientist were involved from the very beginning in the preparation of the Project. As this was the first Bank-financed project in which social analyses with emphasis on minorities were carried out, a Minorities Development Plan was developed with the assistance of the social scientist whose assessment (undertaken in conjunction with local consultants) was widely reviewed and commented upon. Attention given to the preparation of the plan was considerable.

The negative impacts of highway construction (erosion particularly the effect on graves, silting of fields, competition for water between local communities and construction activities, and crossing of roads by school children) were addressed in the Resettlement Action Plan (RAP), the Environmental Action Plan (EAP), engineering designs, and during construction supervision.

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There was an inherent risk that traffic on toll roads would increase at a lower rate than estimated because of the imposition of the user charge. This risk was mitigated by ensuring that tolls that would be imposed for the use of the highways would be appropriate.

Commitment in the Project was strong from the provincial governments, which actively participated in all stages of project preparation from the conduct of feasibility studies to the detailed engineering design. Participatory processes in the preparation and design of the Project were extensive. Affected communities were involved in the selection of the alignment of the various roads as well as the number and the location of interchanges, underpasses and grade separations. During the preparation of the Environmental Impact Assessment, the local population was intensively consulted through workshops, meetings with local government representatives, and public polling supplemented by interviews. Documents relating to these consultations were made public. Special attention was given to consultation with affected persons and their representatives during the preparation of the Resettlement Action Plan. Extensive field socio-economic surveys of selected communities containing significant minorities along three of the highways were undertaken in the form of focus groups, household case studies, individual interviews, questionnaires and direct observations. Their findings were reflected in the designs of the various highways. For the developments in Ningxia, an additional survey was carried out with the participation of experts on cultural property to assess the impact of the developments on the Great Wall, and measures to mitigate any possible adverse impact were included in the EAP.

The Bank-financed Second Shaanxi Highway Project and the Second Henan Highway Project showed that basic access through all-weather roads and the provision of non- motorized means of transportation contributed significantly to the reduction of poverty in rural areas. In light of this finding, the Road Improvement Program for Poverty Alleviation for each of the three provinces was formulated to focus on the lower-category roads in the poorest counties.

Procurement arrangements were meticulously planned and clearly spelt out in the Project Agreement as were the actions and measures that were to be taken in implementing the road safety program. These explicit arrangements and requirements helped to simplify project implementation planning.

The formulation of the Project to include developments dispersed over 3 provinces with a part of the loan on-lent to each of the provinces to correspond with the cost of the works and services at the province, however, did not facilitate the supervision of the Project as a unitary whole. Separate project implementation units were established by each of the Project Provinces and the Project was implemented and supervised as if they were 3 separate projects independent of one another. Resources for Bank supervision of the Project, consequently, were greater than usual.

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2.2 Implementation

Project implementation was generally satisfactory. Construction of the 6 original main highways commenced in March 1999 in Gansu (7 contracts) and Ningxia (8 contracts) and in May 1999 in Inner Mongolia (12 contracts). All contracts were awarded under ICB procedure and on FIDIC conditions of contract. The highways were completed by September 2001 in Ningxia, October 2002 in Gansu, and October 2003 in Inner Mongolia.

There were numerous contract variations due to differences between actual geological conditions on site and those adopted in design drawings which were based on geological surveys conducted prior to detailed design, changes in the design and scope of works of BDH in Inner Mongolia, and in the upgrading of GWH in Ningxia. These variations in aggregate came to some RMB683.4 million for civil works of the main highways (RMB371 million in Inner Mongolia, RMB230.6 million in Gansu and RMB81.8 million in Ningxia). Unexpected severe climatic conditions affected construction in Ningxia and heavy storms in July 1999 ruined the sub-grade, destroyed bridges and culverts of the GWH. The outbreak of SARS curtailed construction activities in Inner Mongolia in 2003. Initial delays in contracts affected, however, were subsequently overcome.

The whole of the Project was completed as designed with the exception of the changes mentioned in Section 1.7. These changes are amplified below.

The change along the 50 km section of the BDH in Inner Mongolia, in which new northbound lanes were built on the same roadway as the southbound lanes instead of upgrading part of the old Class 2 road to Class 1 standard, was due to conditions on the old road having seriously deteriorated since the time of project appraisal. It was not financially viable to re-build part of the old Class 2 road as the half width of BDH which would also have the effect of cutting off from use the concerned section as a part of the existing Class 2 road. Moreover, traffic forecasted for the old road during project appraisal was based on traffic counts taken in 1995 and actual traffic since then had increased faster than expected. The decision was taken in August 2000 to build new northbound lanes over this section and rehabilitate the old road as an auxiliary road to serve slow moving local and non-motorized traffic.

The GWH in Ningxia originally was to be developed on a new right-of-way to a 4-lane Class 1 highway sub-grade from Guyaozi to Yanchi (83.4 km) but with only 2 lanes paved, and as a standard Class 2 highway from Yanchi to Wangquanliang (10.7 km). The unpaved portion of the sub-grade from Guyaozi to Yanchi would only be paved when the traffic warranted. After construction had started in March 1999, Ningxia Communications Department, upon approval from the then State Planning Commission, decided to upgrade the whole length of the highway to expressway standard and to have all 4 lanes paved at the same time. Approval of the Bank to revise the scope of the contract was sought in June 2000. The Bank agreed to the change in August 2000

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following a review of the supplemental feasibility study and the Loan Agreement was revised accordingly. However, works on the upgraded standard had begun before the prior approval of the Bank was obtained, and in the contract for the construction of the section from Yanchi to Wangquanliang, work had advanced too far to warrant Bank financing. Ningxia Communications Department decided to drop the far-proceeding contract from Bank financing.

The rehabilitation of 85 km of the existing Class 2 HTH in Gansu was included for Bank financing in 2004 when it was evident that Gansu would have considerable loan savings in its part of the loan. The Loan Agreement was revised on June 8, 2004 to include this work in Part B of the Project (Gansu). The closing date of the loan was extended from June 30, 2005 to June 30, 2007. In response to the request from MOF and GPCD for increase of disbursement ratio, the Loan Agreement was again revised on November 23, 2005 to increase the disbursement ratio for civil works-Category (2)(a) of Part B.1 of the Loan Agreement-from 49% to 65%. The rehabilitation, costing some RMB173.85 million, consisted mainly of the reconstruction of the pavement and drainage ditches on both sides of the road, and the construction of some culverts and bridges. The rehabilitation of the road, carried out in 3 NCB contracts, commenced in April 2005 and was completed towards the end of 2006. The rehabilitated road was excluded from tolling as both sides of the road were fringed with farms and densely populated, and the imposition of a toll for its use would be inequitable to the local communities.

There was no mid-term review of the Project. The Project was not at risk at any time.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

The Project was monitored through a monthly progress of work on the main highways, a quarterly report on the progress of implementation of all components of the Project, an annual monitoring report covering all components and assessing the extent to which various implementation and development objectives have been satisfied. Annual accounts for the Project for each fiscal year were audited by independent auditors and reviewed by the Bank task team.

Key indicators (See Section 1.2) were designed to measure the achievement of the Project's objectives. The choice of indicators used was appropriate. The rate of progress in implementing each component was also measured against planned targets. Implementation indicators, determined during project appraisal for each year of project implementation, served as bench-marks for monitoring progress of work and project activities. Data for monitoring performance were collected and reviewed in accordance with the agreed plan

Bank review missions were mounted regularly to monitor progress and quality of work on site and provided advice on overcoming difficulties and issues arising from project

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implementation. The utilization of the assets was also monitored in their initial years of operation during project implementation review missions. The monitoring and evaluation of the design, implementation and utilization of the Project was satisfactory and adequate. Arrangements for the collection of data have been instituted to assure the sustainability of their collection and usage for monitoring performances by the implementing entities beyond the project implementation period.

2.4 Safeguard and Fiduciary Compliance

The main environmental impacts were noise and air pollution during the construction and operation phases, soil erosion during the construction phase, impact on vegetation especially in Inner Mongolia, and impact on cultural heritage property particularly in Gansu. Environmental management was built into the overall project management system. Staff from PMOs, contractors and construction supervisors were specifically assigned to ensure compliance with the EAPs. Training on environmental management was provided in the course of project implementation by international and national experts to adequately equip them for the task. Independent environmental monitoring was conducted by local environmental agencies in accordance with the EAPs. Compliance with environmental safeguards was satisfactory.

Surveys undertaken for the RAP proved to be inadequate and land acquisition and the floor area of homes demolished were higher than estimated. Additionally, land use of the impacted area in Inner Mongolia was substantially revised to yield an increase in cultivable land of more that 70%, irrigation was provided to some dry land, and some low-yielding cultivated grassland were returned to forest. The total cost of resettlement more than doubled as a consequence.

RAP Estimate Actual Increase (%) Land acquisition 29,655 33,973 14.6 Homes demolished (m2) 55,229 81,309 47.2 Total resettlement cost 243.77 509.20 109.9 (RMB million)

A resettlement assessment undertaken by independent monitors after the completion of implementation of the RIPA component concluded that minor adverse impacts on affected persons had been ameliorated and the compensatory benefits provided were generally appreciated. The RAP was completed satisfactorily and in compliance with Bank and national requirements.

Procurement was undertaken in accordance with Bank procurement guidelines. There was an initial misunderstanding in Ningxia of the requirement for Bank prior approval for major changes in the scope of work of contracts financed by the Bank. After the Bank task team had made clear the requirement, contract management proceeded satisfactorily and without further problem or difficulty.

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Project financial management met acceptable standards. Compliance with the requirement for independent auditing of annual project accounts was good.

Compliance with loan covenants was generally satisfactory.

2.5 Post-completion Operation/Next Phase

All roads were operated and maintained by the respective highway administration entities of the Project Provinces in accordance with current practices upon their completion. YXH and GWH are now the responsibility of Ningxia Highway Administration Bureau and Ningxia High-grade Highway Administration Bureau. LZE and XJH are managed, operated and maintained by Liugu High-grade Highway Toll Administration Department of Gansu, while BDH and BDR have been transferred to Inner Mongolia High-grade Highway Construction Development Company for their management, operation and maintenance. These operating entities belong to the Communications Department of the respective Project Provinces.

Investments in the Project are likely to be sustained. Traffic on two of the main roads have exceeded targets while the rest, except for GWH in Ningxia, are either close to their target values or showing an increasing growth rate since their opening. Traffic was lower than expected in GWH because the section of the highway in Shaanxi Province to which it would connect had not been opened to traffic yet. This section of the highway is expected to be opened at the end of 2007. The target number of vehicles on RIPA roads, though short of expectation, shows an increasing trend. Bank review missions that monitored post-completion operation found a satisfactory level of maintenance.

Monitoring of the utilization of project highways after their completion found that they have been maintained well by the operating entities, but overloading was a common problem. Ningxia formed a leading group at provincial government level to address the issue of overloading. Sub-leading groups were also formed in city and county levels to attend to the problem. Ningxia also established 10 permanent loading monitoring stations equipped with electronic weighing platforms, staffed jointly by the traffic police and local communications bureaus while Inner Mongolia established 3 monitoring centers. The sustainability of these efforts to curb overloading will require continuing vigilance and a strict enforcement of the regulations on highway loading.

Institutional capacity to plan design, operate and manage highways in all Project Provinces has been strengthened through technical assistance and training. This is demonstrated in Inner Mongolia by the dispatch of several PMO staff to implement the program for the construction of 1300 km of expressways and 1400 km of Class 1 highways upon completion of BDH.

Improvement in highway safety is expected to be maintained as a result of the establishment of a high-level traffic safety coordination group to improve communication between the traffic police and the Communications Department in each of the Project Provinces and the traffic safety manuals developed under the Project.

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Plans are on hand to further improve the road infrastructure network in the Project Provinces including the new construction of 1,435 km expressway and 58 km Class 1 roads in the 11th Five-Year Plan in Gansu; the linkage of , the provincial capital of Ningxia, to central cities such as , , , Lanzhou and Baotou. Ningxia has also plans to develop a provincial road network that would be connected to the expressways of neighboring provinces. In Inner Mongolia, on completion of BDH, the province proceeded with the construction of some 1300 km of expressways and 1400 km of Class 1 highways as well as the development of rural roads to provide better access to poor counties.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

The objectives of the Project was to assist the Borrower and the Project Provinces to: (a) increase the efficiency and safety of traffic in highway priority corridors in order to facilitate faster socio-economic development; (b) provide improved access to targeted poor counties; (c) improve highway sector institutional capacity; and (d) improve the level of safety of road transport.

The Project was designed to meet these objectives through the construction of 2 high grade highways each in the provinces of Gansu, Inner Mongolia and Ningxia along their major traffic corridors and which would effectively link them to the sea. The Project was also designed to improve access to the provinces’ poor counties by improving the condition of rural roads. The objectives, design and implementation of the Project are consistent with the Country Partnership Strategy (CPS) for the People’s Republic of China for the Period 2006-2010 dated May 23, 2006, in terms of upgrading transport infrastructure to link inland provinces to the coast so that transportation benefits accrue to the poor while also improving network management and traffic safety expressed in Pillar 2 of the CPS. The Project would also meet China’s main transport concern of ensuring that its highway system help integrate the country’s economy and facilitate the movement of goods and services. The Project was, and continues to be, highly relevant to the development needs of the country in general and of Project Provinces in particular.

3.2 Achievement of Project Development Objectives

The Project was predicated on the premise that improving road network capacity would help to generate economic development, alleviate poverty and improve the quality of life in the project areas. The outcome of the Project would be determined by a series of indicators that included the volume, average speed of travel and accident rates on the highways, the gross output value of agriculture and industry (GOVAI) of the project main highway corridors as well as the volume of traffic on the improved rural roads in the RIPA component and the number of days these roads were closed.

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Based on the indicators for monitoring outcome, the Project has attained its development objective. GOVAI on the main corridors was higher than estimated by 60% in Inner Mongolia, 57% in Gansu and 36% in Ningxia. The average speed of travel on the project highways has improved and fatalities in road accidents have dropped (See also Results Framework Analysis in Data Sheet). Traffic on the main roads from 2005 to 2025 is expected to grow at a rate that matches the growth rate forecasted during project appraisal except for BDH which significantly exceeds forecast and YXH and GWH which fall short of expectation (See also Annex 3, para. 4).

Traffic Growth Forecast 2005-2025: ICR vs PAD (in %) BDH BFH YXH GWH XJH LZE ICR 5.2 5.5 2.6 3.3 5.3 5.7 PAD 2.6 5.4-6.1 5.8 8.1 5.2 5.8

Project outputs upon completion of the Project exceeded expectation. In addition to the original list of the six main highways, two other highways were rehabilitated. This was highly valued by the clients. All these outputs were obtained within the original project cost estimates.

Project outcome is rated satisfactory specifically for the following reasons:

a) Transport efficiency and safety along the selected high priority highways increased. All the six highways originally planned under the project have been completed and opened to traffic on schedule. According to the latest monitoring report, traffic volume on the two most important highways (LZE in Gansu and BDH in Inner Mongolia) had exceeded the predicted values by 28% and 37% respectively. Traffic on the remaining four highways were close to the predicted values or showed high growth rates although the current volumes are lower than expected, except for GWH in Ningxia. The low traffic on GWH in Ningxia was mainly due to the delayed construction of the adjacent section in Shaanxi province. Obvious improvements in transport efficiency and safety on the six corridors were achieved. Especially, relief of traffic congestion and improvement of road conditions on the most important coal transport corridor in Inner Mongolia (by completion of BDH and BDR) and on the Lanzhou bypass (by completion of LZE) was significant. b) Accessibility to the targeted poor counties improved and poverty reduced. The completion of about 1900 km rural roads under the RIPA component contributed greatly to improving accessibility to the targeted poor communities in each of the three provinces. Closure of RIPA roads was minimal in Ningxia; none in Gansu and Inner Mongolia. According to the statistical data provided by the local government, the social and economic benefits of the investment were significant. (See Section 3.5 for details of poverty impacts and social benefits)

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c) Safety of road transport improved. All activities listed under the Road Safety Program have been completed. Treatment of 57 black spots showed very good results. With the completion of a number of analyses and studies (see also Annex 2, Output by Components), the awareness of road safety of the clients had been reinforced. Traffic accidents were within the values predicted at appraisal. During the implementation of this component the coordination mechanism between the Provincial Communications Departments and the traffic police was established and overloading of vehicles was effectively controlled. d) Highway sector institutional capacity strengthened. The required domestic training for all the three provinces was completed beyond expectation while the overseas training program was substantially completed. The overseas training program totaling about 267 person- months on various subjects benefited 385 persons. Under this component, a sum of US$ 23.94 million worth of maintenance equipment and laboratory testing apparatus were procured by the three Project Provinces. Through the provision of the training and equipment procured under the Project, the capacity of the Provincial Communications Department in terms of highway planning, construction, operation and maintenance especially in expressways and Class I highways was enhanced.

3.3 Efficiency

The investment in the Project in economic terms was cost effective although the post- project economic internal rate of return (EIRR) of the Main Highways at 19.2% was less than the PAD’s estimate of 23.2%. However, the economic net present value (ENPV) of the Main Highways at a discount rate of 12% was higher than estimated at appraisal (RMB5, 691.1 million vs. RMB 4,469.7 million). The RIPA component for all three provinces in aggregate had an EIRR of 43.6% and an ENPV of RMB1, 181 million. The recalculated aggregate EIRR and ENPV for the entire project were 20.7% and RMB 6,262.3 million respectively. The lower than expected EIRR was due mainly to lower traffic demand in Ningxia and higher construction cost for the majority of the new roads. The detailed economic and financial analysis found in Annex 3 is summarized below.

EIRR (in %) AND NPV (12%, RMB million) OF THE PROJECT ICR PAD EIRR ENPV EIRR ENPV 1 Inner Mongolia: Highways 24.0% 4,158.6 20.5 ~ 32.6 2,477.6 RIPA 40.5% 559.6 -- -- Subtotal 25.5% 4,272.7 -- -- 2. Ningxia: Highways 10.2% (244.6) 15.2 ~ 42.5 480.6 RIPA 25.3% 63.4 -- -- Subtotal 10.8% (155.0) -- -- 3. Gansu: Highways 18.1% 1,777.0 17.0 ~ 21.1 1,511.5 RIPA 58.4% 624.9 -- -- Subtotal 20.1% 2,402.0 -- --

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Total Highways 19.2% 5,691.1 23.2 4,469.7 RIPA 43.6% 1,181.0 -- -- Total Project 20.7% 6,262.3 23.2 4,469.7

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory The overall outcome of the Project has been satisfactory based on the relevance of the development (See Section 3.1), the attainment of the project development objectives (See Section 3.2), and the efficiency with which the project outputs were achieved (See Section 3.3).

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development Social development in the project areas has been favorable since the Project was launched. In Gansu, as a result of the improvements made in the Project, every city or town in the project areas has regular bus and the children’s education enrolment rate raised by more than 3%. In Ningxia, the 253 km of rural roads improved/constructed under the Project conveyed economic and social benefits in poor counties by increasing access to their townships from 72% in 1997 to 95% in 2001. The average annual income per capita in these counties increased from RMB869 to RMB1230 during the same period. In Inner Mongolia, the RIPA component provided all the counties impacted by the program with access to major highways, up from 35% in 1998, and average annual income per capita increased from RMB450 to RMB1066.

(b) Institutional Change/Strengthening The capacities of the Communications Departments of the Project Provinces to design, manage, operate and maintain highways have been strengthened. PMO staff, many of whom were new to implementing and supervising contracts under FIDIC conditions, have benefited from their exposure to executing and supervising contracts under such arrangement. Coordination between the traffic police and the Communications Departments has been institutionalized and manuals have been developed to improve safety and maintenance standards. Overseas training provided numerous staff with an exposure to the management, operation and maintenance of highways in developed countries as well as to how environmental concerns were addressed in mature economies. Measures to strengthen institutional capacity are likely to have a continuing positive impact on matters pertaining to highway engineering, construction supervision, contract management, resettlement, environmental monitoring and highway management, maintenance and administration.

(c) Other Unintended Outcomes and Impacts (positive or negative) There were no unintended outcomes or impacts

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

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No beneficiary survey or stakeholder workshops were conducted in the Project.

4. Assessment of Risk to Development Outcome

Rating: Low or negligible The risk to development outcome is low or negligible. The main roads in the Project are important sections of NTHS and contribute effectively to the linkage of provinces adjacent to one another as well as facilitate their access to the sea. Traffic volumes on two of the main highways have exceeded the forecast and the others have robust growth rates. Economic growth and the expansion of trade in the Project Provinces will generate a greater demand for the use of the project roads. Improvement in the quality of life of the rural poor people will be sustained by better accesses to markets, schools and medical services provided by RIPA roads. RIPA roads will also stimulate economic development in the poor counties. Revenue on tolled roads are sufficient to cover their maintenance, and for non-tolled roads (rural roads in the RIPA component) their maintenance costs amount to only 3% of the provincial maintenance budget, well within the capacity of the provinces to meet. Institutional capacities for operating and maintaining highways have been enhanced with the technical assistance and training provided under the Project.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory Bank performance in ensuring quality at entry is rated satisfactory. Analysis of the justification for the Project was sound and project preparation was comprehensive. The design of the Project for implementation under three separate implementation units created some logistical problem and project implementation had to be managed with increased resources for supervision.

(b) Quality of Supervision Rating: Satisfactory The quality of Bank supervision was satisfactory. Reporting requirements were comprehensive. Regular field supervision missions, being focused on the quality and timely completion of work and the achievement of the Project's development objectives, were regularly mounted twice a year. Issues that emerged during implementation were attended to efficiently and promptly. The Bank task team was sensitive to the needs of the Project Provinces, responded positively to their requests for changes in the project scope and design to enhance the benefits that would be generated by the Project. Compliance with safeguard and fiduciary policies was monitored closely. Project outputs, as a result, were achieved as planned.

(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory

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Overall, Bank performance is rated satisfactory taking into account its performance in ensuring quality at entry and the consistency and quality of its supervision throughout the implementation of the Project.

5.2 Borrower Performance

(a) Government Performance Rating: Satisfactory Government performance was satisfactory. The MOC and MOF, at the central level, provided valuable assistance in the preparation of the Project. During the implementation stage, they followed the Project closely and helped to resolve issues promptly.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory Gansu Communications Project preparation by GCD was timely and effective. Gansu Department commenced construction promptly in May 1999, and had completed the original scope of the Project for the province by 2004. A subsequent add-on, the rehabilitation of HTH, extended the final completion of the Project work beyond the original closing date by about 2 years. Inner Mongolia Project preparation was effective. Experienced staff were Communications assigned to the PMO at the beginning of project implementation. Department The standard of supervision was satisfactory. Overseas training was overly planned but not fully undertaken due to the limited availability of staff for training and the stringent control imposed by the Finance Department. Ningxia Communications Project preparation was effective. Project implementation Department initially suffered from a lack of familiarity with Bank procurement guidelines and a major revision of contract was made without prior Bank approval resulting in the withdrawal of one contract from Bank financing. However, knowledge of Bank procurement policies and procedures improved considerably after that event and project implementation proceeded satisfactorily henceforth. Project output of a higher construction standard than originally planned was achieved.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory. Overall, Borrower performance was satisfactory based on the support it provided in the preparation and implementation of the Project. Borrower performed responsibly to ensure that the scope of the Project was executed in accordance with the agreed schedule and that project outputs would be achieved as planned.

6. Lessons Learned

The Project included investments in three provinces with each province setting up an implementing unit to implement the Project in its province. As it was not practical

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organically to have a common implementing agency for the Project, the Bank task team had to deal directly with three separate counterparts. Project preparation and supervision, as a result, were more complex than usual.

The program for overseas training for Inner Mongolia (140 person-months) turned out to be overly ambitious (only 69 person-months were achieved) as the province did not seem to have enough staff to be sent for training. In light that the Ministry of Finance has become stringent with the incurrence of expenses for overseas training, a more realistic program may be structured for future projects.

The mechanism in managing World Bank financed projects in Inner Mongolia needs to be improved for future projects. So far, the province had three Bank projects including the one under review. For each of the projects, IMCD set up a PMO with a different set of staff. This resulted in inexperienced staff managing Bank financed projects since the new staff would have to go through a learning process from the very beginning. Further, the PMO was disbanded as soon as the main roads were completed although other components of the Project were still being implemented, which caused difficulty in communication with regard to managing incomplete activities.

Variances in geological conditions between those actually found on site and those used in detailed designs reflected a need for more comprehensive site investigations at the design stage.

Ningxia PMO lacked sufficient knowledge of the Bank’s procurement guidelines in the initial stage of project implementation. Training of PMO staff in Bank’s procurement policies and guidelines before the launching of a project would be helpful.

Rural roads in the RIPA component have a positive impact on poverty alleviation and yielded considerable social benefits for poor communities.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies No comments had been received that require a response. (b) Cofinanciers None (c) Other partners and stakeholders None

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal (%) millions) Construction of 6 main highways plus 2 additional highway (BDR 472.40 576.48 122 and HTH) Construction of 1,892 kms of 33.00 43.50 132 roads in poor counties Institutional strengthening and 28.60 28.72 100 training Highway safety 1.50 0.57 38

Total Baseline Cost 535.50 649.27 121 Physical Contingencies 47.60 0.00 0 Price Contingencies 75.60 0.00 0 Total Project Costs 658.70 649.27 99 Project Preparation Fund 0.00 0.00 0 Front-end fee IBRD 0.00 0.00 0 Total Financing Required 658.70 649.27 99

(b) Financing Appraisal Actual/Latest Percentage of Type of Estimate Estimate Source of Funds Appraisal Cofinancing (USD (USD (%) millions) millions) International Bank for 230.0 225.0 98 Reconstruction and Development Central Government 176.8 156.0 89 Gansu 101.7 92.3 91 Inner Mongolia 112.9 107.3 95 Ningxia 37.3 68.7 184

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Annex 2. Outputs by Component

Project Outputs-Planned and Actual Component/Output Planned (PAD 1998) Actual on Completion Construction of main A.Gansu: highways with a total (i) Liuguohe-Zhonghe Completed LZE and XJH as length of 687 km. Expressway (LZE)-33.5 km planned, plus rehabilitation of 85 (ii) Xujiamo-Jiepaicung km of HTH which was not in the Highway (XJH)-64.0 km original scope of the development

B. Inner Mongolia: (i) Baotou-Dongsheng Completed BDH and BFH as Highway (BDH)-103 km required, plus rehabilitated 82 km (ii) Baiyinchagan-Fengzhen of old Baotou-Dongsheng Rd Highway (BFH)-142 km (BDR) following a design change in the new BDH. C. Ningxia: (i) Guyaozi- YXH completed as planned, GWH Wangquanliang-Highway was entirely upgraded to (GWH)-94.0 km expressway through Loan (ii) Yanchi-Xingren amendment. Highwayi (YXH)-250.5 km

Construction and Gansu-803 km Gansu-798 km Improvement of about Inner Mongolia-836 km Inner Mongolia-832 km 1892 km of rural roads. Ningxia-253 km Ningxia-356 km

Institutional Strengthening / Training

a) Training ( person- Gansu-537 (Overseas-93) Gansu-820 (Overseas-86) months) Inner Mongolia-622 Inner Monoglia-2174 (Overseas 69) (Overseas-140) Ningxia-2227 (Overseas-112) Ningxia-970 (Overseas-56) In addition, to strengthen institutional capacity in the design and maintenance of highways, three research studies were undertaken, namely, “Prevention against the reflective cracks of pavement by application of glass grid material”, “Protection and control of sandy calamity of highway in desert areas” and “Resource needed for the full establishment of NCD’s Road Data Bank”.

b) Equipment procured Gansu- US$ 10.3 million; Gansu-USD$ 9.8 million including laboratory Inner Mongolia- US$ 9.3 Inner Mongolia –USD$ 9.2 million testing apparatus, quality million; Ningxia-USD$4.9 million control inspection and Ningxia- US$ 5.2 million. All equipment procured have been

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highway maintenance installed and put into operation. equipment

Highway Safety Program (i) Establish traffic Completed as planned including in all 3 Project Provinces. coordination group corrective measures at 57 black (ii) Analyze and spots to reduce accidents. Outputs summarize highway in this component included traffic accidents (i) study on the operation and (iii) Identify, design and maintenance of high-grade carry out a pilot highways program of accident (ii) determination of the structure black spots of toll rates for the Project’s improvements main highways (iv) Develop highway (iii) annual highway maintenance safety manuals reports (v) Develop safety audit (iv) establishment of a traffic procedures coordinating group and road safety unit in each of the Project Provinces (v) traffic accident study leading to the development of a traffic safety manual that incorporated safety features in highway design and traffic safety audit procedures.

Cost recovery mechanism (i)Toll system (i)Toll system for all main implemented and highways implemented and operational by 2003 operational by 2003 (ii) Study of tolls to be (ii) Study of tolls completed as completed 6 months prior required prior to opening of each to opening of toll roads. main highway.

Project coordination unit Project coordination unit in PMO established in each province each province functioning to prepare and implement project. throughout preparation and PMOs were adequately staffed, and implementation of project funds and logistical support were and provided with provided throughout necessary funds, staff and implementation period. logistical support.

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Annex 3. Economic and Financial Analysis

Table 3.1: Economic and Financial Evaluation Summary ICR PAD ENPV ENPV Financial (12%, FNPV (12%, FNPV EIRR FIRR Discount EIRR FIRR RMB (RMB RMB (RMB (%) (%) Rate (%) (%) mil) mil.) mil.) mil.) Inner Mongolia Baotou - Dongsheng Highway 25.5% 3,804.1 -- (2,844.3) 4.38% 32.6 2,259.3 -- -- Baiyinchagan - Jining Highway 18.7% 177.1 5.3% 17.1 4.69% 20.5 218.3 -- -- Jining – Fengzhen Highway 18.6% 228.3 (0.6%) (154.1) 4.69% Subtotal 24.0% 4,158.6 -- (2,959.3) 4.43% ------RIPA 40.5% 559.6 ------Total 25.5% 4,272.7 -- (2,959.3) 4.43% ------Ningxia Yanchi - Xnigren Highway 15.3% 162.9 (6.2%) (423.2) 4.80% 42.5 244.9 -- -- Guyaozi - Wang'liang Highway 7.2% (394.2) (10.0%) (1,084.7) 4.59% 15.2 235.7 -- -- Subtotal 10.2% (244.6) (8.6%) (1,506.5) 4.66% ------RIPA 25.3% 63.4 ------Total 10.8% (155.0) (8.6%) (1,506.5) 4.66% ------Gansu Xujiamo - Jiepaicun Highway 17.9% 600.3 5.1% 43.7 4.77% 21.1 1,047.5 -- -- Liuguhe - Zhonghe Highway 15.4% 520.1 (2.6%) (1,288.8) 4.77% 17.0 464.0 -- -- Hekou - Tungouwan Highway 74.0% 1,316.8 ------Subtotal 18.1% 1,777.0 1.1% (1,245.1) 4.77% ------RIPA 58.4% 624.9 ------Total 20.1% 2,402.0 1.1% (1,245.1) 4.77% ------Total Project: Highways 19.2% 5,691.1 (4.7%) (5,650.7) 4.56% ------RIPA 43.6% 1,181.0 ------

Total Project 20.7% 6,262.3 (4.7%) (5,650.7) 4.56% 23.2 4,469.7 -- --

/_a: All the roads under the RIPA and HTH are toll free. Sources: IMCD, NCD, GPCD and the Bank staff.

Traffic

Except for the HTH in Gansu, all the seven sections of highways in Inner Mongolia, Ningxia and Gansu were opened to traffic in 2001- 2002. Based on 2005 traffic data, except for the two highways in Ningxia, which were 18%-55% of the PAD’s estimates, the average traffic for other five new highways were about 96% of the PAD’s estimates, ranging from 56% to 138%. The average annual traffic growth rate on the new highways in 2002 to 2005, except for the two highways in Ningxia, grew at an annual rate of 38.4%, which was much higher than the PAD’s estimate of 5.8%. The high traffic growth rate is an indication that more and more road users choose the new highways as their traveling route and are quickly accepting the toll highway concept. Considering the current growth rates on the new highways, the long –term traffic projection for 2005-2020, except for Ningxia, is estimated to be 5.2% (ranging from 3.6% to 5.7%). In the PAD, the corresponding growth rate is 4.6% (ranging from 2.6% to 6.0%). For Ningxia, the long –term traffic projection for 2005-2020, is estimated to be 2.9%. In the PAD, the growth rate forecast for Ningxia is 7.3%.

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The revised traffic forecasts compared with the PAD’s forecasts are presented in the following table.

Table 3.2: Number of Motorized Vehicles Per Day (2002- 2020) Inner Mongolia Ningxia Gansu Baotou - Baiyinchagan Jining - Yanchi- Guyaozi - Xujiamo - Liuguhe - Hekou - Dongsheng Jining Fengzhen Xingren Wang'liang Jiepaicun Zhonghe Tungouwan 1. ICR 2002 6,416 421 421 1,056 1,830 1,638 5,352 3,673 2003 8,469 1,253 1,389 1,299 2,201 1,800 6,207 4,602 2004 18,675 1,902 1,848 1,195 1,580 3,942 10,116 3,673 2005 20,747 2,891 2,642 1,863 1,086 4,533 12,088 4,654 2010 28,100 3,980 3,660 2,080 1,250 6,190 16,870 5,850 2020 44,110 6,420 5,930 2,760 1,750 9,820 27,690 7,930 Average growth pa 2002-2005 47.9% 90.1% 84.5% 20.8% -16.0% 40.4% 31.2% 8.2% 2005-2020 5.2% 5.5% 5.5% 2.7% 3.2% 5.3% 5.7% 3.6% 2. PAD 2002 15,100 1,800 3,800 2,900 4,300 5,300 8,900 -- 2003 15,700 1,900 4,100 3,000 4,800 5,800 9,500 -- 2004 16,300 2,000 4,400 3,200 5,300 6,300 10,100 -- 2005 16,900 2,100 4,700 3,400 6,000 6,900 10,700 -- 2010 20,500 3,000 6,700 4,400 10,300 10,800 14,600 -- 2020 25,000 4,700 11,300 7,800 19,300 14,700 25,000 -- Average growth pa 2002-2005 3.8% 5.3% 7.3% 5.4% 11.7% 9.2% 6.3% -- 2005-2020 2.6% 5.5% 6.0% 5.7% 8.1% 5.2% 5.8% -- 3. ICR/PAD 2002 42.5% 23.4% 11.1% 36.4% 42.6% 30.9% 60.1% -- 2003 53.9% 65.9% 33.9% 43.3% 45.9% 31.0% 65.3% -- 2004 114.6% 95.1% 42.0% 37.3% 29.8% 62.6% 100.2% -- 2005 122.8% 137.7% 56.2% 54.8% 18.1% 65.7% 113.0% -- 2010 137.1% 132.7% 54.6% 47.3% 12.1% 57.3% 115.5% -- 2020 176.4% 136.6% 52.5% 35.4% 9.1% 66.8% 110.8% --

Sources: IMCD, NCD, GPCD and the Bank staff.

Net Present Value/ Economic Rate of Return

The economic evaluation is comprised of two major components: (a) the 8 main highways in Inner Mongolia, Ningxia and Gansu on the northwestern region of China and (b) the 54 rural roads under the program of Roads Improvement for Poverty Alleviation (RIPA) in the same region. The economic evaluation covers all subcomponents as well as the entire project. Both costs and benefits reflect December 2005 prices.

The economic internal rate of return (EIRR) of the main highways is estimated at 19.2%; the economic net present value (ENPV), at a discount rate of 12 percent, is estimated at RMB 5,691.1 million, compared to the PAD estimate of 23.2% for the EIRR and RMB

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4,469.7 million for the ENPV. The EIRR and ENPV of the RIPA roads are estimated at 43.6% and RMB 1,181 million, respectively. The PAD had no EIRR and ENPV for the RIPA.

The recalculated aggregate EIRR and ENPV for the entire project are estimated to be 20.7% and RMB 6,262.3 million. The EIRR is lower than anticipated at appraisal (23.2%) mainly because of the lower traffic demand on Ningxia and higher construction cost for the majority of the new roads. The results of the EIRR and ENPV for the main highways and the rural roads under the RIPA, compared to the PAD, are summarized in the following table.

Table 3.3: EIRR (in %) AND NPV (12%, RMB million) OF THE PROJECT ICR PAD EIRR ENPV EIRR ENPV 1 Inner Mongolia: Highways 24.0 4,158.6 20.5 ~ 32.6 2,477.6 RIPA 40.5 559.6 -- -- Subtotal 25.5 4,272.7 -- -- 2. Ningxia: Highways 10.2 (244.6) 15.2 ~ 42.5 480.6 RIPA 25.3 63.4 -- -- Subtotal 10.8 (155.0) -- -- 3. Gansu: Highways 18.1 1,777.0 17.0 ~ 21.1 1,511.5 RIPA 58.4 624.9 -- -- Subtotal 20.1 2,402.0 -- -- Total Highways 19.2 5,691.1 23.2 4,469.7 RIPA 43.6 1,181.0 -- -- Total Project 20.7 6,262.3 23.2 4,469.7 Sources: IMCD, NCD, GPCD and the Bank staff.

Financial Rate of Return

Most of the tolled highways in the project were opened to traffic in 2001- 2002. The three Provinces have formed the operating entities, responsible for the day-to-day management, operations and maintenance of the roads. The main income of these entities comes from the tolls charged on the road users. The toll charges are set by the provincial governments. The entities plan to use the toll revenue to cover amortization charges of the Bank and domestic loans. Based on the current toll revenue and operating costs, the entities would not be able to generate enough revenue to finance operation, maintenance, and debt services because of the low profitability mainly as a result of the low toll charges and the lower than expected traffic in Ningxia. The low profit margin produces a negative impact on the FIRR for the capital investments. The result of the financial evaluation for the project shows that the FIRR of the project will be -4.7% with a negative FNPV (at 4.56% discount rate) of RMB5,651 million. There were no FIRR and FNPV in the PAD.

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Table 3.4: FIRR (in %) AND NPV (RMB million) OF THE PROJECT ICR PAD FIRR FNPV Discount FIRR FNPV rate Inner Mongolia -- (2,959) 4.43% -- -- Ningxia (8.6) (1,507) 4.66% -- -- Gansu 1.1 (1,245) 4.77% -- -- Total project (4.7) (5,651) 4.56% -- -- Sources: IMCD, NCD, GPCD and the Bank staff.

Fiscal Impact of the Investment

For the revenue-earning entities (the tolled highways), the low profitability and high portion of the borrowing for some of the roads diluted the equity and lowered the financial leverage of the entities. To maintain the long-term financial viability of these entities, constant cash transfers from the governments to their cash in-flows are crucial to their daily operation. The financial records showed that cash transfers to these entities constituted only a small fraction of the provincial governments’ total revenue (less than 5%). This low ratio would imply that the financial risk of project entities not being able to obtain the required cash injection from the governments is low. The fiscal impact in each of the Project Provinces is as follows:

Table 3.5: Consolidated Revenue and Cash Balance (RMB million) 2002 2003 2004 2005 1. Inner Mongolia: Total cash balance(a) 0.71 2.07 0.49 2.39 Total revenue (b) 5,714.0 7,580.0 10,070.0 10,694.0 Ratio (a) / (b) 0.012% 0.027% 0.005% 0.022% 2. Ningxia: Total cash balance (a) 3.59 103.37 (3.45) (11.48) Total revenue (b) 3,246.81 2,871.32 3,101.98 2,927.80 Ratio (a) / (b) 0.1% 3.6% (0.1%) (0.4%) 3. Gansu: Total cash balance (a) 0.56 (604.68) (640.04) (599.68) Total revenue (b) 10,625.9 12,060.4 13688.6 15,536.5 Ratio (a) / (b) 0.01% (5.01%) (4.68%) (3.86%) Sources: IMCD, NCD, GPCD and the Bank staff.

For the non-revenue-earning entities (the roads under the RIPA), the long-term sustainability depends on the resource allocated for the maintenance of these non-tolled roads. Financial records indicate that the total annual maintenance required for the RIPA roads would constitute only a small fraction of the governments’ total annual maintenance budget (less than 3.3%). These low ratios represent that the risk pertaining to the availability of funds for the maintenance of RIPA roads is very modest.

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Table 3.6: Maintenance Budget (RMB million) 2001 2002 2003 2004 2005 1. Inner Mongolia: Total maintenance required for RIPA roads (a) 6.11 6.36 6.46 6.78 7.33 Total maintenance budget (b) 616.00 665.00 739.00 786.00 877.00 Ratio (a)/(b) 0.99% 0.96% 0.87% 0.86% 0.84% 2. Ningxia: Total maintenance required for RIPA roads (a) 13.04 13.64 12.02 12.98 12.16 Total maintenance budget (b) 395.18 422.08 373.27 403.26 380.61 Ratio (a)/(b) 3.30% 3.23% 3.22% 3.22% 3.19% 3. Gansu: Total maintenance required for RIPA roads (a) 24.65 27.58 30.97 34.86 39.09 Total maintenance budget (b) 1,217.06 1,381.38 1,567.85 1,779.52 2,019.76 Ratio (a)/(b) 2.03% 2.00% 1.98% 1.96% 1.94%

Sources: IMCD, NCD, GPCD and the Bank staff.

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending Hatim Hajj Principal Transport Specialist EASTR Task Manager Chongwu Sun Environmental Specialist EASCS Environment

Supervision/ICR Supee Teravaninthorn Program Coordinator AFTTR Task Team Leader Hatim Hajj Principal Transport Specialist EASTR Task Team Leader Xin Chen Program Assistant EACCF Team support Yi Geng Financial Management Specialist EAPCO Financial Management Peishen Wang Environmental Specialist EASRE Environment Han-Kang Yen Research Analyst EASTE Economic Analysis Wenlai Zhang Transport. Specialist EASCS Task Team Leader Youlan Zou Social Specialist EASRE Resettlement Jun Zeng Social Specialist EASRE Resettlement Kek Choo Chung Consultant EASCS Engineering Xiaofeng Li Sr. Program Assistant EACCF Team Support Boping Gao Consultant EASCS Task Team Leader Dawei Yang Procurement Specialist EAPCO Procurement

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY97 - 85.55 FY98 - 261.90

Total: - 347.45 Supervision/ICR FY98 - 4.29 FY99 - 70.00 FY00 28.73 98.76 FY01 33.67 113.72 FY02 25.77 51.26 FY03 22.33 40.29 FY04 18.87 38.02 FY05 13.9 18.13 FY06 16.95 33.87

Total: 160.22 468.34

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Annex 5. Beneficiary Survey Results

None.

Annex 6. Stakeholder Workshop Report and Results

None.

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Project Components The Project, comprising developments in Gansu, Inner Mongolia and Ningxia, consisted of the following components: (a) Construction of Main Highways with a total length of about 687 km comprising (i) Baotou-Dongsheng Highway (103 km) of which 92 km are a 4-lane Class 1 highway and 11 km are a 2-lane Class 2 highway in Inner Mongolia; (ii) Baiyinchagan-Fengzhen Highway (142 km) a 2-lane Class 2 highway in Inner Mongolia; (iii) Liugouhe-Zhonghe Expressway (33.5 km) a 4-lane expressway in Gansu; (iv) Xujiamo-Jiepaicun Highway (64 km) a 2-lane Class 2 highway in Gansu; (v) Guyaozi-Wangquanliang Highway (94 km) of which about 83 km provide 2 lanes for traffic on a 4-lane Class 1 highway subgrade and about 11 km are a 2-lane Class 2 highway in Ningxia; and (vi) Yanchi-Xingren Highway (250.5 km), a 2-lane Class 2 highway in Ningxia. (b) Road Improvement Program for Poverty Alleviation (RIPA) consisting of the construction and improvement of about 1892 km of rural roads in poor counties of which 803 km are in Gansu, 836 km in Inner Mongolia and 253 km in Ningxia. (c) A program to strengthen institutional capacity in highway planning, design, supervision, construction, operation and maintenance in each of the project provinces. (d) A highway safety program to reduce traffic accidents on highways.

Objective of the Project The objective of the Project was to increase the efficiency and safety of traffic in highway priority corridors to facilitate faster socio-economic development, provide better access to targeted poor counties; to improve highway sector institutional capacity, and to improve safety of road transport in the three provinces (Gansu, Inner Mongolia and Ningxia).

The development of the Baotou-Dongsheng Highway (BDH) would improve the efficiency and safety of transportation between Baotou, the most important industrial city in Inner Mongolia with rich mineral resources, and Dongsheng, an important coal center, as well as access to the Dalate power plant. The proposed development would reduce traffic problems associated with heavy loaded vehicles, especially coal trucks and trailers. The Baiyinchagan-Fengzhen Highway (BFH) would serve the city of Wulanchabu in one of the most poverty-stricken areas of Inner Mongolia. BFH, a segment of national trunk highway (NH 208), would improve the linkage of Inner Mongolia with , Shaanxi Sichuan and Yunnan. The Liugouhe-Zhonghe Expressway (LZE) would serve as a by- pass to Lanzhou City to overcome traffic congestion. The Xujiamo-Jiepaicun Highway (XJH), a Class 2 auto-only highway was expected to stimulate tourism in Gansu. Both LZE and XJH form important sections of the east-west national trunk highway (NR 310 and NR 312) extending from the port city of on the China Sea to

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Huoerguosi on the border with Kazakstan. Both central and provincial governments accorded a high priority to their development. The Guyaozi-Wangquangliang Highway (GWH), a part of national trunk highway, would link Yinchuan the capital of Ningxia to Taiyuan (Shanxi Province), and the port of (Shandong) on the East China Sea. It would provide an important traffic corridor for the rich coal and petroleum resources of Ningxia. The Yanchi-Xingren Highway (YXH), an important east-west provincial highway would serve the poor counties along its alignment as well as the poor who had been relocated from the mountainous areas in southern Ningxia to the irrigated agricultural areas around Xiantoushi.

Project Entities The project entities were Gansu Provincial Communications Department (GPCD), Inner Mongolia Communications Department (IMCD), and Ningxia Communications Department (NCD), each responsible for the preparation, design and implementation of the developments in their respective provinces.

Bank Loan The Bank Loan of $230 million was on-lent to Gansu Province ($100 million), Inner Mongolia Autonomous Region ($80 million) and Ningxia Hui Autonomous Region ($50 million). . The loan was signed on December 18, 1998, became effective on March 18, 1999 and closed on June 30, 2007.

Project Outputs The Project was completed as planned. The six main roads were satisfactorily completed on schedule, within their estimated costs and on time. In addition, 85 km of the Hekou- Tungouwan Highway in Gansu and 82 km of the old Baotou-Dongsheng Road were rehabilitated. These additional outputs were not in the original scope of the Project. The RIPA and Highway Safety components of the project were also completed as planned. Some 800 km of rural roads in Gansu, 840 km in Inner Mongolia and 250 km in Ningxia were improved. Outputs achieved under the Highway Safety Program included the establishment of a traffic coordination group, a study on highway accidents, the development of highway safety manuals and safety audit procedures for each of the project provinces, and the implementation of corrective measures at 57 black spots to reduce traffic accidents

Achievement of Objectives. The Project has achieved its objectives. In Gansu, traffic on the expressway in 2003 (8713 ADT), its first full year of operation, exceeded expectation by 23% although the number of vehicles using the Class 2 auto- only highway was less than expected (4352 ADT vs. 5154 ADT). GDP in the expressway corridor expanded about 12% upon the completion of the Project compared with the provincial GDP growth of about 10%. Road fatalities on the two project highways declined 7.3-7.8 per million vehicle km before the Project (1997) to 0.5 per million vehicle km after the Project (2005). Out of 24 black spots in which remedial measures were taken, 21 did not have a single accident while the accident rate at the

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remaining3 spots was reduced by as much as 50%. The successful completion of RIPA helped to raise the living standard of the poor and the minorities. Every town in the project counties now has a regular bus service. The number of children going to school has increased by about 3%. Twelve study groups were sent overseas for training that totaled 42.5 person-months, helping to strengthen the capacity of the provincial highway authorities in the design, construction, supervision, management, operation and maintenance of the provinces’ road network. .

In Inner Mongolia, the new Baotou-Dongsheng Highway, completed in June 2002, had an ADT of 8,469 MTE, having increased from 7,411 the previous year. The old Class 2 Baoutou-Road, whose rehabilitation was completed in October 2003, had an ADT of 11,264 MTE, an increase of 44% from 7,897 MTE in the base year (1997). GOVAI in the corridor increased from RMB25.4 billion in 1997 to RMB85.4 billion. Traffic on the Class 2 Baiyingchagan-Fengzhen Highway showed an increasing trend, up from 1,271 MTE in 2003 to 1,875 MTE in 2004. GOVAI on this corridor increased from RMB2.2 billion before the Project o RMB8.7 billion after the Project. In counties impacted by the RIPA component, the percentage of access to the highways increased from 34% in 1998 to 100% in 2004. The average annual income per capita increased 137% from RMB450 to RMB1066.

In Ningxia, the number of vehicles using the Guyaozi-Wangquanliang Highway (GWH) has been increasing steadily since it was opened to traffic (630 MTE in 2002, 1,298 MTE in 2003 and 1197 MTE in 2004). There was a slight drop in traffic in 2004 due to the completion of the reconstruction of a section of National Highway 307 which diverted some traffic from GWH. Traffic on GWH was generally less than expected because the section of the highway from Jingbian in Shaanxi Province to which GWH would connect had not been opened to traffic. However, the construction of the Jingbian-Zizhou-Suide- Wupu section of the highway in Shaanxi would be completed towards the end of 2007 and the joining of this section of the highway to GWH would ensure an increased volume of traffic on GWH. The Yanchi-Xingren Highway (YXH) which was completed in November 2000 saw strong traffic growth, with the average daily traffic increasing from 1830 MTE in 2002 to 2201 MTE in 2003. The upgraded YXH serving the poor counties of Yanchi, Tongxin and Haiyuan helped to lift the working and living conditions. The RIPA component originally comprising the new construction and the reconstruction of 13 road sections totaling some 253 km of rural roads but later extended by another 4 new sections to take the total length to 356 km was completed in 2001 at a cost of RMB59.03 million, increasing the coverage rate of the township and village roads in Yanchi County from 72% in 1997 to 95% in 2001. Average income per capita increased from RMB869 to RMB1, 230 during the same period. Road accidents dropped significantly following the completion of the Highway Safety Program.

Project Preparation, Design and Implementation Project preparation in Ningxia started as early as September 1994 following the approval of the Ningxia Development and Reform Commission for the developments. The design of the developments was based on a feasibility study that was approved by NDRC and MOC in August 1998. Project preparation in Inner Mongolia commenced in 1996. MOC

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approved the designs of BDH and BFH in September/October 1998. MOC had also approved the developments for Ningxia in March 1998 and the designs for GWH and YXH by June 1998. The loan was approved by the Bank on June 23, 1998. The Project was the result of the effort of numerous national and provincial organizations and agencies.

Project Implementation-Gansu Construction of the highways totaling 100.3 km was undertaken through 7 contracts. Work on the Liuguohe-Zhonghe Expressway commenced in March 1999 and was completed in October 2002. Construction of the Class 2 Xujiamo-Jiepaicun Highway, which commenced in March 1999, was completed in October 2001. Design work was undertaken by No.1 Highway Institute of the Ministry of Communications and the Highway Planning Institute of Gansu Province. Construction supervision was undertaken by a joint team of foreign and local consultants. Overseas training in project management, construction supervision, traffic engineering, environmental protection and monitoring, highway financial management and highway safety totaling 42.5 person-months were undertaken while training was provided to some 740 persons domestically.

Two factors affected the implementation of the Project, namely, (1) insufficient site investigations resulted in a large number of variations; and (2) awarding contract to the lowest evaluated bidder who did not have adequate financial resources and who consequently had difficulties in executing their contracts.

Considerable emphasis was placed on environmental protection. To prepare for the task, 12 persons were sent overseas for training that totaled 9 person-months. Environmental monitoring was regularly undertaken every 3 months during the construction period as well as after the completion of construction. The national environmental bureau examined conditions at project sites in October 2002 and May 2003.

Land acquisition and resettlement were executed satisfactorily as planned. A total of 316,089 mu were acquired.

Cooperation between GPCD/PMO and the World Bank during project preparation and implementation was good. The Bank effectively reviewed the resettlement action plan, the environmental action plan, preliminary designs of the works, the pre-qualification of contractors and the overseas training program in the course of project preparation. During project implementation the Bank sent regular review missions to supervise the quality and the progress of work and helped GPCD/PMO in resolving design changes and claims.

Project Implementation-Inner Mongolia Construction of the new BDH commenced in May 1999. Undertaken in 6 contracts, the construction was completed on schedule in June 2002. The rehabilitation of the existing Baotou-Dongsheng Road (NH 210), undertaken through 3 contracts, commenced in July 2002, and was completed in October 2003. Construction under the RIPA component (13

31

rural roads) started in 1999 and was completed in 2001 at a total cost of RMB180 million. Work under this program included 836 km of sub-grade and pavement of which 128.3 km were asphalted, 82 bridges totaling 1142 m, and 550 culverts. Local and foreign consultants jointly supervised construction. The inputs of foreign consultants came to 78 person-months. The foreign consulting company also provided 3 person- months of domestic training and 10 person-months of overseas training. Overseas training arranged by IMCD totaled 69 person-months and cost $590,000. Training courses included project management, construction supervision, transport engineering, environmental protection and monitoring, highway planning, high-grade highway maintenance and management, highway financial management and transport safety.

Environmental protection was considered an important aspect of high-grade highway management. To this end, the PMO arranged training for 22 personnel to prepare them for the tasks ahead. Environmental monitoring was entrusted to the Inner Mongolia Environment & Science Institute, the Environment Monitoring Station of Wulanchabu League and the Eerduosi City Environment Station. Environmental monitoring was undertaken seven times a year during construction and twice a year during the operation phase.

Land acquisition and resettlement, mainly in the BDH and BFH corridors was executed in accordance with the requirements of the RAP. While land acquisition and resettlement costs in the BFH corridor matched the RAP’s estimates, those for the BDH corridor exceeded estimate by some 50% due to the revision in the construction scheme for the new BDH that required an additional land acquisition of some 50 km and the upgrading from Class 1 (open) to of Class 1 ( fully closed). Total compensation paid under the Project which exceeded estimates by some 36% is summarized below.

Compensation for Land Acquisition and Resettlement (RMB million) Nature of Compensation RAP Estimate Actual Land acquisition and resettlement 47.69 72.06 Households and enterprises 8.48 15.81 Basic infrastructure and other common facilities 6.27 18.22 Other costs 3.12 - Contingency 12.49 - Total 78.05 106.09

Project Implementation-Ningxia Construction of GWH (94 km) was undertaken through four contracts, three of which were financed with proceeds from the Bank loan. Construction commenced in March 1999 and was completed by October 2001. Construction of YXH (250 km), also commenced in March 1999 through five contracts four of which were financed by the Bank loan, was completed in October 2000. During construction, numerous contract variations had to be issued to improve the quality of construction materials such as using solidification additives, sand gravel replacement in salty soils, mechanical compaction, the use of glass-grid as to prevent reflective cracks on pavements and grass-grids to solidify sand on desert sections. Construction supervision was undertaken by a joint team of local and foreign consultants. The inputs of foreign consultants amounted to 99

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person-months. Foreign consultants also provided 22 person-months of overseas training. Overseas training amounting to112 person-months were also provided under the Project’s training program at a total cost of $980,000. Domestic training totaled 2115 person- months incurring a cost of RMB4.6 million.

The original RIPA component in the province consisted of 13 road sections with a total length of 253 km. In order to expedite poverty alleviation, 4 additional road sections were included. The 17 road sections were distributed over 5 poor counties (Tongxin, Penyang, Xiji, Haiyuan, Yanchi and the Hongsipu Migration Zone). Works on the roads started in 1998 and were completed in 2000. In all, 356 km of rural roads costing RMB59.03 million were constructed compared with the planned 253 km of total length.

Land acquisition and resettlement were executed in accordance with the requirements of the RAP. The living standard and income of affected people have improved. A total of 9226 mu of land was acquired, 13 households, 63 people and 6 enterprises were affected. Total compensation paid amounted to 28.05 million an increase of 69% over the RAP estimate.

Compensation for Land Acquisition and Resettlement (RMB million) Nature of Compensation RAP Estimate Actual Land acquisition and resettlement 11.09 22.29 Households and enterprises 0.87 0.72 Basic infrastructure and other common facilities 1.36 5.04 Other costs 0.66 - Contingency 2.66 - Total 16.64 28.05

This was the first World Bank financed highway project in Ningxia. To ensure the successful preparation of the project, the Ningxia Provincial Communications Department (NCD) set up a World Bank Loan Project Office (WBLPO) for the front-end preparation. NCD later set up the Gu-Wang & Yan-Xing Highway Engineering Construction Headquarters to take over responsibility. Design work was undertaken by China Highway Engineering Consultancy Supervision Company and Ningxia highway Survey & Design Institute. Representatives of the design institutes were available at construction sites during implementation to facilitate design changes and revisions of contract drawings. Construction supervision was performed by foreign and local consultants. Two levels of supervision were provided consisting of a general supervision office and resident supervision office for each contract. Supervision staff totaling 126 personnel managed and controlled the quality, progress, measurement and payment according to FIDIC conditions.

Factors Affecting Implementation Factors which impacted significantly on the implementation of the Project included • Changes in construction standards (Ningxia, GWH) • Inadequate geological surveys and site investigations (all 3 provinces) • Unexpected severe climatic conditions. Heavy storms in July 1999 in Ningxia ruined sub-grade and destroyed bridges and culverts

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• Outbreak of SARS in 2003 curtailed construction activities in Inner Mongolia.

Future Development Plans Gansu plans to continue the improvement of its highway network including new construction of 1,435 km expressway, 58 km Class 1 highways and 890 km Class 2 highways during the 11th Five Year Plan. By 2010, Gansu will have 2,441 km of expressways, 199 km of Class 1 highways and 2,325 km of Class 2 highways. The density of roads is planned to reach about 12 km per square km.

Inner Mongolia’s transport development strategy gives priority to the connectivity of nearby provinces with highways improved to Class 1 standard and the development of rural roads to provide better access to poor counties. By 2010, Inner Mongolia will have 2600 km of expressways, 4400 km of Class 1 highways and 1300 km of Class 2 highways. Roads in townships will be asphalted and administrative villages will be linked to the highways.

Ningxia’s plan for the future is to link Yinchuan, the capital of the province, to central cities such as Taiyuan, Beijing, Wuhan, Lanzhou and Baotou. With this objective in mind, Ningia plans to have by 2020 a road network with a total length of 20000 km made up of 1600 km of expressways, 600 km of Class 1 highways, 3600 km of Class 2 highways, 8200 km of Class 3 highways and 6000 km of Class 4 highways.

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Annex 8. Comments of Co financiers and Other Partners/Stakeholders

None

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Annex 9. List of Supporting Documents

• Project Appraisal Document for Tri-Provincial Highway Project, World Bank, May 29, 1998

• Loan Agreement between People’s Republic of China and International Bank for Reconstruction and Development, December 18, 1998

• Project Agreement between International Bank for Reconstruction and Development and Inner Mongolia, Gansu Province and Ningxia Autonomous Region, December 18, 1998.

• The World Bank Loan Liugouhe-Zhonghe & Xujiamo-Jiepaicun Highway Project of Gansu Province-Review of the Project, in Chinese and English, China Academy of Transportation Sciences, Ministry of Communications, July 7, 2005

• Tri-Provincial Highway Project-Ningxia Section-General Review of the Project, World Bank Loan Office of Ningxia Communications Department, February 2005

• World Bank Finance Tri-Provincial Highway Project-Inner Mongolia, General Review of the Project, Inner Mongolia World Bank Finance Highway Project Execution Office, June 2005

• The World Bank, Aide-memoires of the Tri-provincial Highway Project from 1999 to 2007.

• Ningxia Section Resettlement Progress Report for RIPA Component (English version), May 2002

• Inner Mongolia Highway External Monitoring Report on Resettlement for Baiyinchagan-Fengzhen Class II Highway (Chinese version), September 2002

• Gansu Highway Resettlement Component External Monitoring Report (Chinese version), September 2000

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PROJECT: SELECTED CITIES/TOWNS PROPOSED BAOTOU-DONGSHENG PROVINCIAL/COUNTY HIGHWAYS CLASS I HIGHWAY AND BAIYINCHAGAN-FENGZHEN HIGHWAY 110 NATIONAL HIGHWAYS LINKING ROAD IMPROVEMENTS RAILROADS INTERCHANGES AIRPORTS

P PARKING LOTS RIVERS T TOLL STATIONS COUNTY/CITY BOUNDARIES

S SERVICE AREAS PROVINCE BOUNDARIES

BAOTOU - DONGSHENG CLASS I HIGHWAY

BAOTOU 110 CITY 109 T Erzihao Guannianfang DONGSHENG 210 S LINKING ROAD Dongsheng P T

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FUTURE EXTENSION 110 208 HIGHWAY QAHAR Daliuhao QAHAR RIGHT WING RIGHT WING 208 REAR BANNER FRONT BANNER Tuguiwula Baiyinchagan T SHANXI FUTURE T Fengzhen EXTENSION

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JUNE 1998 This map was produced by the Map Design Unit of The World Bank. g

The boundaries, colors, denominations and any other information H KILOMETERS e 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. IBRD 29475R 42° 94° 96° 98° 100° 102° 104° 106° 108° 110° MONGOLIA

CHINA TRI-PROVINCIAL HIGHWAY PROJECT 42° To Ürümqi GANSU HIGHWAY TRANSPORT SYSTEM XINJIANG PROJECT ROADS 40° (XUJIAMO-JEIPAICUN & LIUGOUHE-ZHONGHE) PROVINCE ROADS NATIONAL ROADS EXPRESSWAY Anxi NEI MENGUL RAILROADS Jinta AIRPORTS Dunhuang Jiayuguan RIVERS 40° Yumen OTHER CITIES Jiuquan Gaotai COUNTY CAPITALS Subei Linze PREFECTURE CAPITALS Mongolza 38° Aksay Zizhixian Sunan Zhangye Minqin PROVINCE CAPITAL Kazakzu Yugurzu Shandan Zizhixian Zizhixian PROVINCE BOUNDARIES Jinchang INTERNATIONAL BOUNDARIES Minle

Yongchang (Huang He) Wuwei

° R. 110 w 38° llo Gulang Ye For Detail, NINGXIA QINGHAI See IBRD 29476 Jingtai Hua Xian Tianzhu Zangza Zizhixian Jeipaicun Huachi This map was produced by the Map Design Unit of The World Bank. 36° Yongden The boundaries, colors, denominations and any other information XUJIAMO– shown on this map do not imply, on the part of The World Bank Jingyuan For Detail, Group, any judgment on the legal status of any territory, or any JEIPAICUN Xujiamo See IBRD 29476 Qingyang HIGHWAY Baiyin endorsement or acceptance of such boundaries. 96° LIUGOUHE– Shubing Gaolan Zhenyuan Heshui Zhonghe ZHONGHE HIGHWAY Xifeng Liugouhe Zengning RUSSIAN Lanzhou Pingliang Ning Xian FEDERATION Yongjin Huining Dongxiangzu Yuzhong Jingchuan Jishishan Dingxi Jingning Chongxin HEILONGJIANG ° Guanghe To Xi´an 36 Linxia Zuanglang Lintao Huating Lingtai MONGOLIA Hezheng Tongwei Weiyuan JILIN Kangle Zhangjiachuan Longxi Qin´an Sea of XINJIANG Xiahe LIAONING Japan JAPAN Gangu Qingshui D.P.R. OF ei He Zhang Xian W NEI MONGOLBEIJING KOREA BEIJING Hezuozhen Wushan 34° TIANJIN Tianshui HEBEI REP. OF Lintan To Xi´an KOREA SHANXI Yellow Zhouni Li Xian SHANDONG Luqu Sea

QINGHAI NINGXIA Min Xian JIANGSU Liangdang GANSU Xihe SHAANXI SHAANXI HENAN East ANHUI Diebu China Tanchang Hui Xian SHANGHAI Sea Cheng Xian XIZANG HUBEI SICHUAN ZHEJIANG Maqu Zhou Qu JIANGXI HUNAN 34° GUIZHOU FUJIAN 0 50 100 150 National Capital Wudu Kang Xian PACIFIC KILOMETERS Province YUNNAN TAIWAN Boundaries GUANGXI GUANGDONG OCEAN International HONG KONG MYANMAR MACAO Boundaries Wen LAO VIETNAM SICHUAN Xian P.D.R. ° ° ° ° ° ° HAINAN PHILIPPINES 98 100 102 104 106 108 DECEMBER 2007 IBRD 29476 XUJIAMO - JEIPAICUN CLASS II AUTO-ONLY HIGHWAY CHINA TRI-PROVINCIAL HIGHWAY PROJECT Gulang Jingquan GANSU HIGHWAY TRANSPORT SYSTEM Gufeng DETAIL OF PROJECT ROADS Haxizhen

Zhangjiagoukou

PROJECT: SELECTED CITIES/TOWNS Heisongyi PROPOSED XUJIAMO–JEIPAICUN CLASS II PROVINCIAL HIGHWAYS AUTO-ONLY HIGHWAY AND 110 Xidatan LIUGOUHE–ZHONGHE EXPRESSWAY NATIONAL HIGHWAYS LINKING ROAD IMPROVEMENTS RAILROADS Xigoukou JEIPAICUN-GULANG CLASS II AUTO-ONLY HIGHWAY RIVERS TO BE CONSTRUCTED WITH GOVERNMENT FUNDS Anyuan COUNTY/CITY BOUNDARIES INTERCHANGES PROVINCE BOUNDARIES S SERVICE AREAS Wushaolin

Songshan

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G312 Anninbu Sailalong Tongyuan Anmen Damogou 109

ellow R Y iver (Huang Dalanggou H e) Qingbaishi S Qishan Yantan Longquansi Lanzhou Gongxingdun Dongxiping Heba Fangjiaquan 212 Hongchengzhen Laizibao Jinai This map was produced by the Map Design Unit of The World Bank. 0102030 40 50 Huangyu The boundaries, colors, denominations and any other information 0510 Luigouhe Heping Zhangjiawan 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 KILOMETERS Caijiahe Zhuzuilin endorsement or acceptance of such boundaries. KILOMETERS Gaolanshan 309

JUNE 1998 ° ° RUSSIAN 106 107 FEDERATION ToWuhai

HEILONGJIANG

MONGOLIA JILIN

Sea of XINJIANG G110 LIAONING Japan JAPAN D.P.R. OF Shizuishan 39° NEI MONGOLBEIJING KOREA ° BEIJING 39 TIANJIN HEBEI REP. OF KOREA SHANXI Yellow Pingluo SHANDONG Sea

NINGXIA QINGHAI ) GANSU JIANGSU e H

SHAANXI HENAN East ANHUI Taole China g n SHANGHAI Sea a HUBEI u XIZANG H SICHUAN ( ZHEJIANG G109 CHONGQING JIANGXI HUNAN

GUIZHOU FUJIAN National Capital PACIFIC Helan Province YUNNAN TAIWAN Boundaries GUANGXI GUANGDONG OCEAN HONG KONG Yinchuan NEI MONGOL InternationalMYANMAR Boundaries MACAO LAO VIETNAM P.D.R. HAINAN PHILIPPINES

Yellow R. 105° Yinchuan Yongning Hedong Airport GZ35

Guyaozi Huiminxiang CHINA Qingtongxia Lingwu Caijialiang TRI-PROVINCIAL HIGHWAY PROJECT 38° 38° Gaoshawo Wuzhong NINGXIA HIGHWAY TRANSPORT SYSTEM GUYAOZI– WANQUANLING G307 HIGHWAY Niumaojing S Wanglejing G211 Yanchi Wanquanliang

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PROPOSED GUYAOZI–WANGQUANLIANG To Qinyang HIGHWAY & YANCHI–XINGREN HIGHWAY) INTERCHANGES ° Guyuan 36° 36 S SERVICE AREAS G309 To Lanzhou Xiji

PROVINCIAL HIGHWAYS 110 NATIONAL HIGHWAYS Pengyang GANSU RAILROADS AIRPORTS To Jingning G312 GREAT WALL Longde RIVERS

OTHER CITIES 0 1020304050 COUNTY CAPITALS Jingyuan To Jingchuan KILOMETERS PREFECTURE CAPITALS PROVINCE CAPITAL PROVINCE BOUNDARIES This map was produced by the Map Design Unit of The World Bank. INTERNATIONAL BOUNDARIES The boundaries, colors, denominations and any other information IBRD 29477R DECEMBER 2007 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.

105° 106° 107°