Report No. PID5289

Project Name China-Tri-Provincial I-Highway Project (@)

Region East Asia and Pacific

Sector Transportation

Public Disclosure Authorized Poverty Category Program of Targeted Intervention

Project ID CNPE45788

Borrower People's Republic of China

Beneficiary Provincial Governments in Inner Mongolia, Gansu and Ningxia

Implementing Agency Communications Department of Inner Mongolia Autonomous Region Mr. Hao Ji-ye (in charge of Project) Tel. No. 86-471-696-8624 Mr. Wang Quan (contact person)

Public Disclosure Authorized Tel. No. 86-471-696-8638 ext. 60280 Fax No. 86-471-696-7588

Gansu Provincial Communications Department Mr. Xu Shuanlong, Director GPCD No. 45, Huayingmen Lanzhou City, Gansu Province 730030 People's Republic of China Tel. No. 86-931-846-1216 Fax No. 86-931-846-4035 (office) Fax No. 86-931-846-3861 (Planning Division)

Communications Department of Ningxia Hui Autonomous Region Public Disclosure Authorized Mr. Chen Min-qiu, Director NPCD No. 27, West North Ring, Road Yinchuan City, Ningxia Province 750001 People's Republic of China Tel. No. 86-951-503-2396 Fax No. 86-951-504-4965

Date of this PID Prepared June 3, 1998

Date of the Initial PID Prepared February 25, 1997

Appraisal Date April 14, 1998

Tentative Board Date June 23, 1998 Public Disclosure Authorized

Project Cost/Financing IBRD US$230.0 million Central Government US$176.8 million Provincial Government US$251.9 million Total costs US$658.7 million Country and Sector Background

1. China's economic development since the opening of its economy in the late 1970s has resulted in a 9.5 percent average annual rate of economic growth. Key facets of this growth are rapidly increasing domestic and foreign trade as well as increasing personal mobility and consumption of energy (derived mainly from coal burning). These, in turn, have caused the demand for transport and higher quality transport services to surge. Supply capacity, however, is constrained and recognized as one of the most serious bottlenecks to future economic growth and efficiency. In particular, motorization (including use of heavier trucks) is growing rapidly but road transport, due to historical reasons, has not been widely developed in much of China outside its cities. The road network ranks among the sparsest in the world relative to geographic area or population and is quite unsafe. Few expressways exist, and about 22 percent of rural communities have no all-weather vehicular access of any kind. Governments at all levels have therefore embarked on a major highway investment and improvement program.

2. At the central level, the basic strategy is to develop a National Trunk Highway System (NTHS) for the exclusive use of motorized vehicles. The Ministry of Communications (MOC) has been developing the NTHS, consisting of 12 interprovincial trunk expressways spanning China and totaling some 35,000 km. The Bank is already heavily involved in the construction of substantial sections of NTHS. At the provincial/regional level, the strategy is to concentrate on network maintenance and the expansion and improvement of provincial and rural road networks, currently totaling about 1.2 million km, to provide greater mobility and to stimulate socioeconomic development, particularly in less developed regions.

3. On the road transport policy agenda, growing attention is being paid to removing administrative and physical barriers to interprovincial trade and to a redefinition of government's role in transport in light of rapid administrative decentralization and growing non-state sector involvement. MOC needs to be strengthened to carry out its reformed mandate in matters such as finance, standards for planning, design and operation of the NTHS. Provincial and municipal governments are expected to continue to mobilize most investment resources required (including access to private investment and capital markets) and to seek greater expenditure and system efficiency through improved highway planning- and investment strategies, as well as to modernize maintenance capacity and improve cost recovery. Local governments are also expected to further the development of the road user services and road construction industry through deregulation and promotion of competition, access to modem technology and better management. The Bank has prepared a report (No. 11819-CHA dated February 1994), "CHINA-Highway Development and Management Issues, Options and Strategies", and a report on "China Forward with One Spirit: A Strategy for the Transport Sector" (No. 15959?CHA dated April 23, 1998), which provides recommendations for action in the foregoing areas which will form the basis for future Bank Group assistance in the sector.

4. Inner Mongolia, Gansu and Ningxia. The three provinces of Inner Mongolia Autonomous Region, Gansu and Ningxia Hui Autonomous Region are land locked interior provinces where the pace of development is below that in the coastal and southern areas of China. The total population in these provinces amounted to about 52.3 million (22.8 million in Inner Mongolia, 24.4 million in Gansu

-2 - and 5.1 million in Ningxia) in 1995 or about 4.3w of the population of China. The three provinces have a total area of about 1.69 million km2 (1.18 million in Inner Mongolia, 0.45 million in Gansu and 0.06 million in Ningxia) or 17.7w of the total for China. This means that these provinces had a much lower population density than the national average which increases the cost of investments in transport facilities. Agriculture/livestock/forestry and mineral extraction are the main resources in these provinces. The gross domestic product per capita in the three provinces is about 62t of the national average. The three provinces had 7.2 million poor people (2.5 million in Inner Mongolia, 4.0 million in Gansu and 0.7 million in Ningxia) or 10t of the total poor population of China. Lack of transport infrastructure is one of the factors behind the depressed economic conditions in these provinces.

5. Traffic growth in the three provinces has been moderate compared to the rest of China, but high compared to most other countries. Traffic volumes reached their highest values near Hohhot He (capital of Inner Mongolia), Lanzhou (capital of Gansu) and Yinchuan (capital Ningxia) and other main cities. The road network in the three provinces totaled 88,500 km or about 7.79 of China's total. Transport by highways accounts for about 809 of the tons of freight moved and more than 95t of passengers transported and the three provinces depend more on highways than the rest of the nation. The civilian fleet amounted to about 422,000 vehicles in 1995, or 4. 1 of the national fleet. Under the Ninth Five-Year Plan (9FYP: 1996-2000) the three provinces will continue to give priority to expanding, maintaining, and strengthening the highway network; strengthening the sector institutions and training their labor force; and improving the efficiency of road user services (trucking and passenger transport). However, limited financial resources sharpen the need for better planning and prioritization of investments and for ensuring that new and improved roads are not built at the expense of maintaining the existing network.

6. The Master Plan for Poor Areas (eighth 7-year Plan for Poverty Alleviation 1994-2000 in each of the three provinces) has set as its goal to provide year-round access to every poor township and 90-95 percent of the villages. Availability of basic access through all-weather rural roads is among the highest priorities in the poverty alleviation strategy of each of the three provinces.

Project Objectives

7. The objectives of the proposed project are to: (a) provide efficient and safe transport in one or two highway priority corridors in each of the three provinces; (b) provide improved access to the poor areas in each of the three provinces by supporting highway investments in county and village roads; (c) promote development of institutional capacity through training and other means, in planning, design, operations and maintenance of the highway network in each of the three provinces; and (d) increase safety of road transport.

Project Description

8. The proposed project would comprise:

(a) construction of a new right-of-way or improvement of the following major highways.

-3- (i) Inner Mongolia (1) National Highway 210: Baotou-Dongsheng Class 1 (4 lanes) Highway (103 km) (2) National Highway 208: Baiyinchagan-Fengzhen Class 2 Auto-Only (2 lanes) Highway (142 km) (ii) Gansu (1) Liugouhe-Zhonghe Expressway (4 lanes) (33.5 km) (2) Xujiamo-Jiepaicun Class 2 Auto-Only (2 lanes) Highway (64 km) (iii) Ningxia (1) Guyaozi-Wangquanliang Class 1 Highway (94 km) (2) Yanchi-Xingren Class 2 Highway (250.8 km)

(b) Program of construction/improvement of rural roads of about 1,892 km (836 km in Inner Mongolia, 803 km in Gansu, and 253 km in Ningxia) to help alleviate poverty.

(c) Institutional strengthening/training of agencies/institutions involved in highway planning, design, supervision, construction, operation and maintenance of highways. This involves the training of about 2,000 people for about 2,130 person-months within China and abroad and the provision of modern equipment.

(d) Highway safety component: to help reduce accidents. This component consists of establishment of a coordination mechanism between the traffic police and the provincial communications department; analyses of traffic accidents; identification, design and implementation of a pilot accident black spot program; development of highway safety manuals and safety audit procedures; and evaluation of the highway safety program by an independent local expert.

Project Cost and Financing

9. The total project costs are about $658.7 million. The Bank loan of about $230 million would be onlent to the three provinces. The remainder of the cost would be met through contributions from the Ministry of Communications (MOC) and the Provinces.

Implementation

10. Overall direction of the project at the central level rests with MOC. Since all three provinces are first-time borrowers in the highway sector from the Bank, MOC has assumed a major coordinating role among the three provinces and has and would provide more than usual technical support. The Communications Department in each of the three provinces would have overall responsibility for project preparation and implementation. Each province has established a special project execution office and supplied it with staff, offices, and related equipment to ensure coordination among the concerned agencies and to affect smooth preparation and implementation of the project. The project would be implemented during 1998-2004.

Rationale for Bank Involvement

11. The Bank's Country Assistance Strategy (CAS) for China presented to the Board in March 1997 as well as the CAS Progress Report presented to the Board on May 28, 1998 support China's strategy to reduce poverty and to relieve

-4 - infrastructure bottlenecks, by inter alia, rapidly modernizing and expanding its highway system and providing adequate all-weather access to poor areas. Also, the CAS supports China's efforts to direct more of its investments to the interior provinces to help arrest the rising inequalities between the prosperous coastal and southern provinces and the rest of the country. The proposed project involves three interior and relatively poor provinces. It helps reduce poverty through a program of rural highway improvements targeted at the poor counties in each of the three provinces. In addition, the project helps reduce infrastructure bottlenecks by increasing highway capacity through the construction/improvement of major highways (most of them are important sections of the NTHS) in key priority corridors in each province. Furthermore, Bank assistance to NTHS construction should Facilitate interprovincial trade and promote long-distance and transit road traffic, which in turn would help arrest a growing regionalism while furthering the liberalization, facilitation and cost reduction of transport, which are key requirements for market-oriented reforms to succeed. The Bank support is also justified by project assistance to institutional and manpower development of the agencies involved in highway planning, design, construction, supervision, operation and maintenance. Bank involvement is also expected to benefit the design and the quality of construction of the roads to be undertaken (this has been problematic in some other projects) as well as the traffic safety on roads. The project would also foster improved practices in the areas of environment and land acquisition and resettlement of affected people.

Lessons Learned from Past Operations in the Sector

12. The Bank has accumulated substantial experience through the preparation and implementation of 19 highway projects in China, only seven of which have been completed. While the overall performance of highway projects is by and large satisfactory, a number of problems have occurred, which have been taken into consideration in the proposed project's design. The problems include: quality of construction- late start of the design of traffic engineering facilities (traffic monitoring, telecommunications, tolling and lighting) which has delayed completion of some projects and necessitated extension of the closing date of Bank's loans, and the need for improved highway management and operation, especially in the context of tolling of expressways. The designs and bid documents for the main roads in the project are being reviewed by international design engineers. The construction of the main highways will be supervised by a joint foreign/local team which will be properly staffed and equipped.

13. There is also a growing concern that adequate funding for highway maintenance is not now being generated to cover an expanding and more expensive highway system. Previously, this was not an issue - adequate funds were being, set aside for this purpose. The Bank missions had extensive discussions with the three provinces on the highway maintenance issue and the sources and uses of funds in their 9FYP for highways. Agreement was reached on a program to monitor physical maintenance activities based on the existing condition of the highway network and realistic annual targets for their future conditions.

14. Experience with rural highways in Africa and South Asia and with the Bank's Shaanxi Highway and Henan Projects in China has shown that provision of basic access through all-weather roads and provision of non-motorized means of transport are contributing factors to reducing poverty in rural areas,

- 5 - especially when combined with programs for socioeconomic development. Ningxia, Gansu and Inner Mongolia, similar to the rest of China, have a good record in this regard. The proposed project contains a RIPA component which focuses on the lower level roads in the poorest counties in these provinces. The formulation of this component as well as arrangements for its implementation took into consideration experience with the RIPA component in the Second Shaanxi and Second Henan Provincial Highway Projects and with the "Road Improvement Program" in the Bank-financed highway projects in Zhejiang, Guangdong and Henan provinces in China.

15. Limited experience with highway safety programs in China has pointed to the difficulty of their implementation due to poor coordination between the Traffic Police and the Highway Departments. This issue reflects a general difficulty with inter-departmental coordination in China. A Leading Group for coordination together with a Technical Secretariat will be established in each province to ensure better coordination in this area.

16. Experience in the area of land acquisition and resettlement has generally been satisfactory. However, the Bank must make its requirements well known to the Chinese agencies at an early stage in the preparation of the project. Also, the Legal Department should be brought on board early in the project preparation. A Bank resettlement specialist and a social scientist were involved from the beginning in project preparation. The resettlement action plans for the proposed project will be reviewed by the Legal Department before appraisal of the project. Experience in the environmental area in China has generally been favorable. A Bank environmental specialist was involved from the beginning in project preparation. However, more attention should be paid to environmental supervision during construction and to training of personnel. The proposed project will provided an adequate institutional setup and training for such environmental supervision.

Environmental Aspects

17. The project is a category "A" from an environmental point of view. Environmental impact assessments (EIA) and Environmental Action Plans (EAP) were carried out for the main roads included under the project. A sectoral approach was followed in preparing the environmental documents for the first-year package of RIPA. Major environmental impacts include noise and air pollution during construction and operation; alteration of hydrological regimes, soil erosion and impacts on local ecology during construction; impacts on cultural relics; and transportation of construction materials during construction. The documents were made public locally by the provincial Communications Department in each province. Following receipt of letters of agreement from the three provinces, those documents were sent to the PIC.

Land Acquisition and Resettlement Aspects

18. The project will require land acquisition and resettlement. Draft Resettlement Action Plans (RAPS) for the main roads and for the roads in the first-year package of RIPA included in the project were submitted to the Bank and have generally been found satisfactory. Efforts were made during project preparation to minimize land acquisition and resettlement through modifications in highway alignments and designs. Three of the main roads pass through areas of significant minority populations. Socio-economic surveys in

- 6 - accordance with Bank approved terms-of-reference were carried out in November 1997 by a qualified Chinese consulting firm assisted by an international social scientist. These surveys showed that there are no major problems specifically related to ethnic minority issues.

Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500

Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project.

Processed by the InfoShop week ending June 5, 1998.

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