Com pletion Report

Project Number: 29426 Loan Number: 1701 September 2006

People’s Republic of : Road Development Project

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion 30 June 1999 31 March 2006 CNY1.00 = $0.1208 $0.1246 $1.00 = CNY8.2800 CNY8.0268

ABBREVIATIONS

ADB – Asian Development Bank BOC – Bank of Communications EIA – environmental impact assessment FIDIC – Federation International des Ingenieurs–Conseils (International Federation of Consulting Engineers) FIRR – financial internal rate of return GDP – gross domestic product IDC – interest during construction LIBOR – London interbank offered rate NPV – net present value O&M – operation and maintenance PCR – project completion report pcu – passenger car unit PPMS – project performance management system PRC – People’s Republic of China RP – resettlement plan SPCD – Shanxi Provincial Communications Department SPG – Shanxi provincial government SQEC – Shanxi Qilin Expressway Company Limited WACC – weighted average cost of capital

WEIGHTS AND MEASURES

mu – 1/15 hectare km/h – Kilometer per hour

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, "$" refers to US dollars.

Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General H. S. Rao, East Asia Department (EARD) Director N. Rayner, Transport Division, EARD

Team leader S. Noda, Project Specialist, EARD Team member Y. Li, Young Professional, EARD

CONTENTS

Page

BASIC DATA ii MAPS vii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs and Financing Plan 5 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 7 G. Conditions and Covenants 7 H. Consultant Recruitment and Procurement 8 I. Performance of Consultants, Contractors, and Suppliers 8 J. Performance of the Borrower and the Executing Agency 9 K. Performance of the Asian Development Bank 10 III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Outputs 13 D. Preliminary Assessment of Sustainability 14 E. Impact 14 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 16 A. Overall Assessment 16 B. Lessons Learned 17 C. Recommendations 18 APPENDIXES 1. Project Framework 19 2. Chronology of Major Events 25 3. Design and Implementation of Expressway 27 4. Rural Road Maintenance 30 5. List of International Training Provided 33 6. Project Cost and Financing Plan 35 7. Projected and Actual Disbursement 36 8. Implementation Schedule 37 9. Organization Charts of the Project 38 10. Compliance with Loan Covenants 41 11. Contract Details for Civil Works, Equipment, and Consultant 47 12. Traffic Volume Projection 51 13. Financial Reevaluation 53 14. Economic Reevaluation 58 15. Land Acquisition and Resettlement 60 16. Socioeconomic Impacts of the Project 66

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 1701 3. Project Title Shanxi Road Development Project 4. Borrower Ministry of Finance 5. Executing Agency Shanxi Provincial Communications Department 6. Amount of Loan $250.0 million 7. Project Completion Report Number PCR: PRC 968

B. Loan Data

1. Appraisal – Date Started 08 June 1999 – Date Completed 18 June 1999

2. Loan Negotiations – Date Started 11 August 1999 – Date Completed 13 August 1999

3. Date of Board Approval 30 September 1999

4. Date of Loan Agreement 01 August 2000

5. Date of Loan Effectiveness – In Loan Agreement 01 November 2000 – Actual 01 November 2000 – Number of Extensions 0

6. Closing Date – In Loan Agreement 30 June 2004 – Actual 23 March 2006 – Number of Extensions 3

7. Terms of Loan – Interest Rate Pool-based variable lending rate for US dollarsa – Maturity (number of years) 24 – Grace Period (number of years) 4

8. Terms of Relending (if any) – Interest Rate Pool-based variable lending rate for US dollarsa – Maturity (number of years) 24 – Grace Period (number of years) 4 – Second-Step Borrower Shanxi Qilin Expressway Co. Ltd a Interest rate was changed to LIBOR-based loan on 31 July 2002 on the request of Shanxi Provincial Communications Department.

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9. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval

15 April 2001 23 March 2006 59 months

Effective Date Original Closing Date Time Interval

1 November 2000 30 June 2004 44 months

b. Amount ($) Category or Original Last Revised Amount Amount

Subloan Allocation Allocation Canceled Disbursed A. C/W Expressway 162,300,000 185,100,000 98,791 185,001,209

B. C/W Provincial and 4,000,000 4,000,000 4,000,000 Country Roads to Intercity

C. C/W County Roads to Township 1,000,000 1,000,000 0 1,000,000 Centers

D. Equipment and Supply 39,600,000 28,600,000 2,144,501 26,455,499

E. Consulting Services and 1,500,000 1,500,000 1,051 1,498,949 Training

F. IDC 29,800,000 29,800,000 6,691,093 23,108,907

G. Unallocated 11,800,000 0 0 0 Total 250,000,000 250,000,000 8,935,436 241,064,564 C/W = civil works, IDC = interest during construction.

C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual

Foreign Exchange Cost 330.5 271.8 Local Currency Cost 395.6 345.7 Total 726.1 617.5

2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed 418.9 330.5 ADB Financed 220.1 218.0 Other External Financing 48.2 37.2 Total 687.2 585.7 IDC Costs Borrower Financed 9.0 8.7 ADB Financed 29.9 23.1 Other External Financing 0.0 0.0 Total 38.9 31.8 ADB = Asian Development Bank, IDC = interest during construction.

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3. Cost Breakdown by Project Component ($ million) Appraisal Estimate Actual Component Foreign Local Total Foreign Local Total Exchange Currency Exchange Currency . A. Base Cost Civil Works 206.0 241.8 447.8 185.0 228.5 413.5 Equipment 39.6 5.2 44.8 34.7 4.6 39.3 Land Acquisition and 0.0 43.0 43.0 0.0 37.3 37.3 Resettlement Consulting and Training Services 1.5 5.5 7.0 1.5 29.5 31.0 Provincial Roads/Country Roads 17.3 40.6 57.9 27.5 37.1 64.6 Subtotal (A) 264.4 336.1 600.5 248.7 337.0 585.7 B. Contingencies 36.2 50.6 86.7 C. Interest During Construction 29.9 9.0 38.9 23.1 8.7 31.8 Total 330.5 395.6 726.1 271.8 345.7 617.5

4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants February 2000 24 Nov 2000 Completion of Engineering Designs February 1999 February 1999 Civil Works Contract Date of Award April 2000 13 Dec 2000 Completion of Work December 2003 28 Sep 2003 Equipment and Supplies Dates First Procurement March 2002 17 May 2002 Last Procurement October 2002 28 Apr 2005 Completion of Equipment Installation December 2003 December 2005

5. Project Performance Report Ratings Ratings

Implementation Period Development Implementation Objectives Progress

From 31 December 1998 to 31 December 2000 S S From 31 January 2001 to 30 August 2001 HS HS From 30 September 2001 to 31 August 2002 HS S From 30 September 2002 to 31 August 2003 HS HS From 30 September 2003 to 31 May 2004 HS S From 30 June 2004 to 31 December 2004 S S HS = highly satisfactory, S = satisfactory.

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date a Persons Person-Days of Members Fact-Finding Mission 9–22 March 1999 6 84 a, b, c, d, e, f

Appraisal Mission 8–18 June 1999 7 70 a, b, c, e, h, i

Inception Mission 14–19 November 3 18 b, c, j 2000

Review Mission 1 19–23 June 2001 1 5 c

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No. of No. of Specialization Name of Mission Date Persons Person-Days of Membersa

Review Mission 2 7–11 May 2002 1 5 c

Review Mission 3 13–19 August 2003 3 21 b, c, j

Review Mission 4 17–22 March 2005 2 12 c, j

Project Completion Reviewb 10–17 April 2006 3 19 c, j, k

Notes: a a – economist, b - financial analyst, c - engineer, d – social development specialist, , e – programs officer, f – environment specialist , g – counsel, h – audit specialist, i – manager, j – assistant project analyst, k – young professional. b The project completion report was prepared by , S. Noda, Project Specialist, (Roads) who was in field from 10 to 17 April while the other Mission members were in field from 12 to 17 April 2006.

Map 1

o o 110 00’E 120 00’E 114o 00'E MONGOLIA INNER MONGOLIA Erenhot LIAONING SHANXI ROAD DEVELOPMENT PROJECT

o IN THE 40 00’N PEOPLE'S REPUBLIC OF CHINA Bohai Sea o (as completed) 40 00’N TIANJIN SHANXI

Shijiazhuang t o

Taiyuan NINGXIA E Qixian r e Yellow Sea n I N N E R M O N G O L I A h SHANDONG o o t Yumenkou 30 00’N Houma GANSU JIANGSU o HENAN 35 00’N Xi'an ANHUI SHAANXI Dadong o o HUBEI o SHANGHAI 40 00'N o 110 00’E 120 00’E 40 00'N

o 111 00'E er DADONG iv R n a g Project Area g n SHOUZHOU a National Capital S Provincial Capital Prefecture Seat Other City/Town National Highway Other Road National Trunk Highway System Plan Project Expressway Project Provincial Road Project County and Township Road Xinhou ADB--Financed Shanxi Road II H E B E I Project Expressway S H A N X I Other Expressway Opened LULIANG Yangquan Other Expressway Planned Railway S H A A N X I TAIYUAN River Prefecture Boundary JINZHONG Wenshui Taigu Provincial Boundary C7 Luliang International Boundary P1 Taigu Qixian C2 Boundaries are not necessarily authoritative. P2 C4 C3 Zuoquan C5 County and Township Roads P3 C6 P4 Yushe C1 Zecheng C1 C2 Beizhai Lingshi

C3 Linghekou ) r P5

e

C4 Baibixiang v r i e P6 v C5 Qianzhuangxiang R i C13 R C6 Baiganxiang w n o C14

l e l Hongtong C7 Mafengxiang F e C15

Y C8 Zhaigeda ( LINFEN

C9 Qiaojiayuan e P7 H

Linfen

o C10 Shiyanhe g C11 Changzhi o

36 00'N n C9 36 00'N

C11 Yingzhai a C18 C10

u C16 C12 Shicao H C8 C17 C13 Hongdao C12 C14 Xipingyuan n i'a C15 Daokou X Jincheng C16 Jijiayuan to Houma C17 Weizhuang C18 Anfen YUANCHENG C19 C19 Dahe N Provincial Roads Yuancheng P1 Qixian-Wenshui P2 Pingyao-Fenyang 0 50 100 P3 Jiexiu-Lingshi H E N A N P4 Mahe-Lingshi Kilometers P5 Renyi-Nanguan P6 Yangzao-Huozhou P7 Bozhuang o 111 00'E 114o 00'E

06-2570a HR SHAANXI Linfen MaintenanceBaseand Branch InformationCenter Linfen ServiceArea 0 10

6 Lanes 4 Lanes 6 Lanes Kilometers N 20 YUANGCHENG LINFEN 30 40

NH108 YAODU JINZHONG Nanguan LINGSHI HONGTONG

Lingshi

Houzhou

F e

n

R i v e r Fenyang

Renyi NH Jiexiu

Linfen

10 Mahe 8 TAIYUAN HOUZHOU Hongtong Wenshui JIEXIU SHANXI ROADDEVELOPMENTPROJECT Pingyao PINGYAO Fen Rive Qixian r Maintenance Base Houzhou ParkingAreaand Bridge andTunnelCenter Lingshi ServiceArea TAIYUAN

QIXIAN NH

PEOPLE'S REPUBLICOFCHINA 10 8 PROJECT EXPRESSWA Boundaries arenotnecessarilyauthoritative. (as completed) Provincial Boundary Prefecture Boundary County Boundary River Railway National Highway Other Expressway-Planned Other Expressway-Opened ADB--Financed ShanxiRoadIIProject Project ProvincialRoad Project Expressway Interchange Tourist S Town/Village Prefecture Seat Provincial Capital Project County Jiexiu MaintenanceBase Pingyao ServiceArea Machinery ManagementCenter (Headquarters) and Qixian AdministrationCenter IN THE pot Y 06-2570b HR Map 2

I. PROJECT DESCRIPTION

1. A booming economy has helped the People’s Republic of China (PRC) make remarkable progress in reducing poverty over the past two decades. This swift economic growth has created a strong demand for road transport infrastructure. To cope with this demand, the Government developed a long-term strategy in 1988 to implement a national trunk highway system to eliminate transport bottlenecks. It was envisaged that about 85,000 kilometers (km) of interprovincial expressways and highways would be constructed as part of the national trunk highway system.1 By the end of 2005, the total length of the PRC's road network was 1.93 million km, consisting of 90,000 km access-controlled highway (including 24,700 km of expressway), 130,000 km of national highways, 230,000 km of provincial roads, and 1.48 million km of rural roads. Asian Development Bank (ADB) assistance in the road subsector supports the Government effort to expand and improve the national trunk highway system and rural- roads network. ADB also provides institutional development assistance to help resolve key policy and technical issues in the road subsector.

2. The Shanxi Road Development Project is located in the southern part of Shanxi province, a landlocked province of 32 million people where per capita gross domestic product (GDP) was about 80% of the national average in 1999 (when the Project was proposed). The project expressway is part of the 2,685 km expressway that connects Erenhot, an international trading city on the Mongolian border, and , one of the growth centers of PRC's coastal region. The expressway is a key link of the main highway route connecting Mongolia and Viet Nam. The project expressway also spans the 176 km between Taiyuan, the capital city of Shanxi province, and the industrial city of Linfen, the province’s second largest city (Map 1). The Project also includes components to upgrade provincial roads connecting to the expressway, and to upgrade county and township roads serving poor villages and connect them to county centers. The Project was classified as an economic growth project. Poverty reduction was listed as a secondary objective. The project framework is in Appendix 1.2

3. The Project's primary objective was to (i) improve road infrastructure by providing increased capacity for more efficient movement of freight and passengers at lower cost, (ii) improve road safety, (iii) reduce vehicle emissions in the highway corridor, and (iv) improve institutional capacity and financial sustainability. The first objective can be paraphrased as “to alleviate traffic congestion in the highway corridor and meet the forecasted traffic demand for more efficient movement of freight and passengers at lower cost.”

4. The Project was also part of Shanxi province's expressway network strategy.3 During the March 1999 Country Program Midterm Review Mission, the Government reconfirmed its request for ADB assistance for the Project. The Shanxi Provincial Communications Department (SPCD) prepared a feasibility study in 1999. ADB provided a technical assistance4 grant to review and assess the Government feasibility study. The technical assistance confirmed the technical, financial, and economic viability of the Project. ADB’s Board of Directors approved a loan for $250 million for the Project on 30 September 1999. The construction of the expressway started on 25 December 2000.

1 Ministry of Communications. 2004. National Trunk Highway Plan. Beijing 2 The project framework in Appendix 1 is based on the template at appraisal. 3 Shanxi province's trunk highway network plan consists of three north–south highways and eight east–west highways. 4 ADB. 1998. Technical Assistance to the People’s Republic of China for the Shanxi Expressway Project. Manila (TA 3033-PRC, for $570,000, approved on 24 June).

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5. The completion date for the Project was expected to be 30 June 2004. Two sections of the project expressway—the Qixian–Jiexiu section and the Hongdong–Linfen section—opened on 16 October 2002, while the entire expressway was in operation by 29 September 2003, about 3 months ahead of the appraisal schedule. However, delays in equipment procurement and international training caused the Project's final completion date to be postponed to 31 December 2005. Appendix 2 provides a chronology of major events.

6. At appraisal, the Project comprised the following six components:

(i) Expressway component: Construction of a 176 km, access-controlled toll expressway from Qixian in Jinzhong prefecture to Yaodu in Linfen prefecture, including 11 interchanges, 9.6 km of link roads, 4 service areas, 8 tunnels (4 tunnels each for northbound and southbound), and 30 major bridges. (ii) Rural-roads component: Construction and/or upgrading of 101 km of provincial and county roads between key traffic-generating areas and the expressway interchanges. (iii) Upgrading 19 sections totaling 317 km of county roads to poor townships and villages. (iv) Procurement of equipment for toll collection, communications, traffic monitoring, safety, environmental monitoring, vehicle weigh stations, vehicle emissions testing, and office administration. (v) Land acquisition and resettlement. (vi) Consulting services for construction supervision, safety audits, monitoring and evaluation, and capacity building.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

7. ADB’s country strategy at the time of appraisal called for (i) the construction of expressways and highways that connected major growth centers and promoted linkages with hinterland economies; (ii) institutional strengthening to increase the commercial orientation and managerial efficiency of expressway organizations; (iii) the improvement of highway planning, evaluation techniques, and safety standards; (iv) the adoption of pricing policies that would ensure optimum utilization of road transport capacity; (v) the use of alternative methods of investment financing, including private sector investment, to meet the huge financing requirements of the highway development program; (vi) the promotion of road safety; and (vii) the integration of the road network to provide access for poor local areas to the main economic centers. The Project was to be designed to provide a better connection for the southern part of Shanxi to one of the growth center cities, Guangzhou; a road sector policy reform plan including corporatization and commercialization; and integrated rural road components for poor villages in the region. The Project also included a component to build institutional capacity for expressway maintenance, operation, and management.

B. Project Outputs

8. Expressway. At appraisal, the project expressway was planned as a four-lane, access- controlled toll expressway with a total length of 176 km. However, during detailed design, the

3 expressway was redesigned as a six-lane expressway for the two sections5 that were located on flat to moderately hilly terrain (Map 2). The completed expressway consists of (i) 141.2 km of six-lane and 34.2 km of four-lane expressway totaling 175.4 km; (ii) 11 interchanges, three service areas with restaurant, and one service area without restaurant;6 (iii) 29 sets of super- large and large two-way bridges totaling 8.3 km; (iv) 44 sets of medium and small two-way bridges totaling 6.5 km; (v) nine tunnels (five northbound and four southbound)7 totaling 6.5 km for one way; (vi) 633 culverts; and (vii) 369 viaducts and underground passages for pedestrian and vehicle crossing.

9. The feasibility study was based on the four-lane typical cross section8 throughout the alignment of the expressway. However, taking into consideration the unique traffic characteristics in this region9 and to maintain uniformity with the adjacent six-lane expressways, SPCD and Shanxi Qilin Expressway Company Limited (SQEC) adopted special basic design standards for six-lane typical cross sections without first seeking ADB concurrence. SQEC constructed six lanes wherever possible without exceeding cost targets. This necessitated adoption of two special six-lane typical cross sections. In these tailored special six-lane typical cross sections, lane width stayed the same, but shoulders and medians had to be reduced to accommodate six lanes without altering the right-of-way.10 It required road safety measures to maintain as planned under the four-lane expressway scenario. Although economic and financial analyses were not conducted for the special six-lane expressway sections, the revised project design remained economically and financially viable because the total did not increase. Nor did the change have any adverse impacts on traffic flow, road safety, the environment, or resettlement. ADB only noted the design change in 2003 during the Project Review Mission. Since the change was subsequently determined to be appropriate, ADB approved the change post-facto. Detailed analysis of the expressway design is given in Appendix 3.

10. The expressway is of good quality and retains comfortable riding conditions even after 3–4 years of operation. Although there were some uneven settlements of road adjacent to bridges and culverts, these were not significant and had already been fixed adequately when the Project Completion Review (PCR) Mission fielded. The PCR Mission found that the quality of the roadbed and pavement and the construction design were good, as attested by the smooth flow of water over the pavement during heavy rains. There were no reports of pavement caving in—a major technical challenge for earthwork expressways constructed on loess plateaus in the

5 One section is from Qixian to Linshi and the other section is from Houzhou to Linfen. Both sections consist of two different design standards. The Qixian to Jiexiu section, a length of 54 km, was designed using a design speed of 120 km per hour (km/h), while the Jiexiu to Linshi section, a length of 19 km, was designed using a design speed of 100 km/h. The Houzhou to Hongdong section, a length of 32 km was designed using a design speed of 100 km/h, while the Hongdong to Linfen section, a length of 40 km, was designed using a design speed of 120 km/h. 6 Only demand for parking space (for rest) was considered in the feasibility design stage, when four locations were selected as candidates for service areas. In the detailed design stage, demand for shops and restaurants at the service areas was assessed, and one service area was planned without shops or restaurants. A service area without restaurants or shops is called a "parking area." 7 The total number of major bridges was 60 (30 bridges each for northbound and southbound), while the total number of tunnels was 8 (four tunnels each for northbound and southbound) at appraisal. To reduce costs, during detailed design the number of bridge was reduced to 56 (28 bridges each for northbound and southbound) and the number of tunnels was increased to nine tunnels (four northbound five southbound). 8 The PRC’s Highway Design Manual provides several typical cross sections as basic designs for expressways. When a typical cross section in the Manual is formulated, because typical cross section is a key factor of highway design, all other design components should be adjusted to accord with the typical cross section. The original design in feasibility study stage adopted 4 typical cross-sections in the Manual. However, SQEC adopted two new typical cross sections for special six-lane with careful study of all other design components. 9 This region is one of the oldest industrial areas in the PRC. One characteristic is the very slow speed of heavy trucks—many of which are obsolete due to long history of this region and carry coal and steel—in the region. 10 Right-of-way is strip of land on which public roads are built.

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Project area.11 Slopes appeared to be well protected by retaining walls and slope protection grids. Selection of slope protection measure was adequate as protection grids were superior to plates or shotcrete,12 for loess type of soil. Trees or bushes had been planted to protect the exposed surfaces of roadside slopes in cutting sections.

11. Rural Roads. The rural-roads component of the Project included two types of road: (i) provincial roads linking interchanges to the prefecture centers, and (ii) county and township roads linking villages to county centers. During project preparation, upgrades of 101 km of provincial and 317 km of county and township roads were planned. At project completion, both of these targets had been met. Upgrades were based on rural-road standards. The county communications bureaus were responsible for planning and implementation of maintenance works. The PCR Mission observed that, after more than 3 years of usage, these roads were in good condition with adequate maintenance. In some sections, minor cracks, (a normal phenomenon even for well-designed and constructed pavement) had been treated using asphalt sealing. The rural-roads maintenance system is evaluated in Appendix 4.

12. Equipment. The major equipment procured under the Project included (i) a communication system for expressway operation, including equipment for toll collection; (ii) tunnel equipment such as lights and ventilators; (iii) equipment for traffic engineering and management, such as environmental monitoring equipment and patrol vehicles; and (iv) road administration equipment. ADB financing covered, among other things, seven traffic engineering system packages, five communication system packages, and six packages of road maintenance, safety, and inspection equipment. All equipment was properly installed and is functioning in accordance with the specified requirements. The procurement of a universal road maintenance vehicle was delayed until December 2005, as it was not required during the early stages of expressway operation.

13. Consulting Services and Training. An international consulting firm was engaged in accordance with ADB’s Guidelines on the Use of Consultants. The actual input was 59.6 person-months against the appraisal estimate of 53 person-months. The actual breakdown of inputs for consulting services was 45.6 person-months for construction supervision, 14.0 person-months for expertise on tunnels, bridges, road safety and project performance management system (PPMS). The international consulting firm commenced field service in December 2000 and completed its assignments on 30 September 2004. As for domestic consulting services, a total for 34 contracts for construction supervision, 38 design contracts, and 21 research and testing contracts were awarded under the Project using government procurement procedures acceptable to ADB. The amount of domestic consulting services estimated at appraisal was about 3,600 person-months for construction supervision and 6 person-months for resettlement monitoring. In actuality, more than 6,000 person-months of technical staff were engaged for construction supervision. The Project also required other consultancy inputs in areas such as detailed design, research and development to cope with engineering issues during construction, and construction quality control testing.

11 Loess plateaus are common in the west of the PRC. Loess strata consist of unconsolidated yellow silt in which natural air pockets are included. Also, in loess plateaus, there are many illegal coal mining pits, which also cause cave-ins of expressway. 12 Plate slope protection method which pre-cast concrete plates are laid on the slope and shotcrete slope protection method which concrete mixture is shot on the slope, are not adequate for loess, as of cave-ins due to air pockets in loess strata; cave-ins lead destruction of these protections. Grid slope protection method is superior because grid can resist the cave-ins and the cave-ins can be filled through spaces in the grid.

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14. International training planned at appraisal was 83 person-months and included training on bridge and tunnel construction and maintenance, pavement management systems, traffic engineering, quality control and contract management, expressway operations and management, road safety, corporate planning and management, management information systems, and financial management. However, international training had to be curtailed because of the outbreak of severe acute respiratory syndrome (SARS) in the PRC in 2003 and inability of SQEC to spare staff for training. Only 36 person-months of international training was administered to a total of 67 staff members of SQEC and SPCD. This training was limited to tunnel planning and maintenance, corporate planning and management, traffic engineering, management information systems, expressway pavement management, expressway traffic management and road safety, and contract management and quality control. The trainees evaluated the international training as useful, and have disseminated their acquired knowledge to fellow staff with the aid of reports and lectures organized by the trainees. The international training outputs are outlined in Appendix 5.

C. Project Costs and Financing Plan

15. Project Cost. The actual project cost was $617.5 million, or 15.0% ($108.6 million) less than the $726.1 million estimate at appraisal.13 The difference was mainly attributed to a lower- than-anticipated cost for civil works (resulting in a saving $34.3 million) and the non-utilization of the appraised $86.7 million contingency. 14 The actual cost of consulting services was $31.0 million, as compared with the appraisal estimate of $7 million. This cost was higher than expected because the cost of domestic consulting services estimated at appraisal included only construction supervision costs, and also because a need arose to contract domestic consultants to conduct design research and quality control testing during construction. The amount of domestic staff required for construction supervision was also underestimated. The cost of upgrading rural roads was 11.7% (or $6.7 million) higher than expected. This was because the appraisal estimate was based on a planning estimate that did not include detailed design.15 The interest during construction cost was 17.3% (or $7.1 million) lower than the estimate at appraisal because of reduced civil works costs and a shorter-than-expected period of civil works implementation.

16. Financing Plan. Under the financing plan envisaged at appraisal, ADB was to provide $250.0 million (34.4% of total cost) to cover 75.6% of the foreign exchange cost. The PRC Government was to finance $105.3 million and Shanxi provincial government (SPG) was to finance $322.6 million, while the Bank of Communications was to finance the remaining $48.2 million.

17. Upon project completion, actual ADB loan utilization was $241.1 million, covering 39.0% of the actual project cost and 88.7% of the foreign exchange cost. The central Government financing was $104.3 million, SPG financing was $205.1 million, and local governments

13 The original cost was estimated using standard costs of the Government’s guidelines—Ministry of Communications. 1997. Ordinance of Road Project Cost Estimate Standards. Beijing. The standard costs indicated in this ordinance consists of direct costs and indirect costs (including contractors' profits), whereby indirect costs are calculated to be 30–40% of direct costs. Competition was fierce among the applicants, resulting in bidders substantially reducing the indirect cost component, thus bringing down the overall cost of the Project. 14 The physical contingency was estimated at appraisal to be 10% of the civil works costs in mountainous sections, and 8% of civil works costs in other section; the price contingency was estimated using international inflation of 2.4% throughout the construction period and domestic inflation of 3% in 2000 and 4% in and after 2001. 15 For rural roads, the cost for planning is usually calculated without design using unit costs of other similar roads.

6 financing was 29.8 million. A commercial loan from the Bank of Communications financed the remaining $37.2 million. Appendix 6 shows the actual project cost and financing plan.

D. Disbursements

18. The amount of disbursed ADB loan for the Project was $241.1 million. This was $8.9 million (or 3.56% of loan amount) lower than expected because of project cost savings. The ADB’s financial percentage of expressway civil works was increased from 38% to 51.7%. Loan disbursement started on 15 April 2001 and the final disbursement was made on 23 March 2006. Annual disbursement peaked in 2002, when $68.5 million was disbursed. Payment for civil works, including the expressway and provincial roads, was made through reimbursement procedures, 16 while equipment procurement and consulting services were settled by direct payment. For county and township road upgrading works, disbursement was paid through force account works procedure.17 The actual interest and commitment charges totaled $23.1 million. At the request of SPCD, $196.3 million of the loan was converted from a pool-based loan to London interbank offered rate (LIBOR)-based loan on 31 July 2002. The loan amount under the pool-based loan amounted to $53.7 million, while disbursement under the LIBOR-based loan amounted to $196.3 million. 18 The projected and actual disbursements are presented in Appendix 7.

E. Project Schedule

19. On 7 May 1999, ADB approved advance action for procurement of civil works contracts and recruitment of consultants, enabling SQEC to begin early site preparation. The loan was approved on 30 September 1999 and the Loan Agreement was signed on 1 August 2000, 10 months after the board approval of the loan. The loan became effective on 1 November 2000. The prequalification documents for 18 civil works contracts were issued on 18 October 1999. In December 2000, 16 contracts out of 18 were awarded to the respective lowest evaluated bidders. One contract was awarded on 29 June 2001, and the final civil works contract was awarded on 21 August 2001. Land acquisition and resettlement activities started in September 2000 and major resettlement activities on-site were completed by the end of 2001; 19 all payments were completed by the end of 2003. The construction of the expressway started on 25 December 2000. International and national consulting field services commenced in December 2000. ADB-financed construction of rural roads began in December 2000 and was completed by July 2003. Two sections of the expressway—the Qixian–Jiexiu section and the Hongdong–Linfen section—were opened on 16 October 2002, while the entire length of the expressway started to operate on 29 September 2003. Procurement of equipment started in December 2002 and concluded in December 2005.20 Thus the Project was completed by the end of December 2005. The appraised project implementation schedule and the actual implementation period are compared in Appendix 8.

16 Disbursement procedures consist of four major types—direct payment procedure, commitment procedure, imprest fund procedure, and reimbursement procedure. 17 The force account works procedure involves the borrower submitting periodic certification of the progress or completion of civil works in support of its application for reimbursement. 18 The loan amount under the pool-based loan and the LIBOR-based loan were $53,736,820.50 and $196,263,179.50 respectively. 19 Relocation to new houses lasted until 2002. New housing was provided to affected people free of charge. 20 Procurement of communication equipment required for expressway operation was completed by October 2003; maintenance equipment procurement was completed by the end of 2005.

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F. Implementation Arrangements

20. As envisaged at appraisal, SPCD was the Executing Agency of the Project, responsible for overall project implementation. A deputy director general of SPCD was appointed as the project director. For the expressway component, the implementation agency—Shanxi Qilin Expressway Construction and Administration Division of SPCD—was reorganized and corporatized as SQEC on 29 July 2000. SQEC started with an initial staff of 30 employees. Since completing construction of the expressway, SQEC has been administrating and operating the expressway. SPCD's highway bureau provided guidance on planning and upgrading rural roads, with prefecture and county governments responsible for implementation of rural roads in their respective districts. The implementation arrangement of the Project was adequate as the administration of the expressway was transferred to SQEC in accordance with the project agreement and the implementation of rural roads was conducted under SPCD’s guidance.

21. During expressway construction, three regional expressway construction offices were established. Under these offices, several on-site construction offices were arranged. The resettlement division under SQEC was responsible for land acquisition and resettlement. SQEC established two resettlement offices; one in Linfen prefecture and the other in Jinzhong prefecture. Under these two resettlement offices, a total of seven on-site resettlement offices were established. After completion of the expressway, the organization of SQEC has been realigned to deal with expressway management and operation. The three regional construction offices under SQEC were reorganized into three types of offices—toll collection offices, offices in charge of maintenance works, and offices in charge of service areas. SPCD adopted a single access toll road system covering all expressways within the province. Toll proceeds collected by SQEC are remitted to the toll revenue settlement center under SPCD, and the collected revenue is redistributed to each expressway operator based on actual expressway usage. Because of this unified system, SQEC does not collect data on the project expressway’s traffic volume. Organizational charts of SPCD and SQEC are in Appendix 9.

G. Conditions and Covenants

22. No covenants were modified or waived during implementation. All loan covenants falling due were complied with or being complied with as of the end of March 2006 except for one covenant on private sector financing. At appraisal, it was expected that private investment funds would be attracted during or after the construction of the expressway. The project agreement stipulated that SPG, through SPCD and SQEC, analyze the feasibility of attracting private sector investment 6 months prior to the opening of the project facilities.21 To date no action had been taken to comply with this covenant. In reality, SQEC, which was established under the Company Law of the PRC, does not have the legal authority to solicit private sector funding. The covenant should have assigned this role to SPCD's planning division.22 Meanwhile, Shanxi province is actively searching for private financing for other expressway sections.23 There is, therefore, a possibility of private sector participation in the project expressway in the future. However, SPCD has not yet decided on how to attract private investors. As for PPMS data collection, in the first and second reports on PPMS by the international consulting team, inadequate budget and

21 Paragraph 8 of the schedule of the project agreement reads “Six months prior to the opening of the Project facilities, Shanxi shall cause Shanxi Provincial Communications Department (SPCD) and the Corporation to analyze the feasibility of attracting nongovernment investment funds on the basis of the Project expressway for future road sector investment, including private sector participation in operation and maintenance and management of the Project expressway and report the conclusions to the Bank.” 22 Currently, the planning division of SPCD is dealing with private financing for the expressways in the province. 23 SPCD is inviting the private sector to invest in seven sections of expressway, according to the SPCD website.

8 domestic staff resources were cited, but no action was taken to address the situation by SPCD and ADB. Consequently, the quality of PPMS data was compromised. The financial loan covenants—pertaining to debt equity, debt service, working ratio—were complied with. Compliance with major loan covenants is presented in Appendix 10.

H. Consultant Recruitment and Procurement

23. Consulting Services. International consultants financed by the loan were recruited in accordance with ADB’s Guidelines on Use of Consultants. A request for proposals for consulting services was issued on 28 July 2000, and the contract was signed on 24 November 2000. The consultants were in the field from 3 December 2000. The recruitment process was conducted without significant delays.

24. Procurement for Expressway Civil Works. Civil works for expressway construction were divided into 18 contract packages. Each package included subgrade and pavement components, with the pavement works subcontracted to contractors specializing in pavement. The contracts were procured using international competitive bidding in accordance with ADB’s Procurement Guidelines. A total of 16 contracts out of 18 were awarded in December 2000. The remaining two contracts were awarded between June and August 2001. The delay in awarding of the civil works contracts of the last two packages resulted from differences in evaluation methods of the technical proposals, and differences of opinion on the legality of submitted documents.24 The total value of civil works contracts was CNY2,500 million ($306.7 million),25 which was 31.7% lower than the estimate at appraisal.

25. For rural roads under ADB financing, civil works were procured using local competitive bidding procedures. There were three contract packages for provincial roads and six packages for county and township roads. Procurement began in 2001. Despite the small amount of each of these contracts, procurement procedures require similar documentation for the Executing Agency and approval process to the big amount of contracts. For ADB-financed provincial roads, the average period elapsed between invitation for bids and award of contract was 11 months.26 Appendix 11 lists the contract packages.

I. Performance of Consultants, Contractors, and Suppliers

26. Both the national and the international construction supervision consultants performed well, as shown by the high quality of the completed expressway. SQEC staff learned practical application of the International Federation of Consulting Engineers (FIDIC) contract system through the international consultants. The international consultant team leader was appointed assistant engineer of the project expressway construction and checked contract variations and contractors’ monthly payments to ensure good governance of SQEC during project implementation. The international training program, coordinated by the international consultant,

24 The main issues concerned: validity of power of attorney (because the English translation do not have a signature), differing methods of technically evaluating the construction plans, and validity of bid security. For contract number 16, the Executing Agency finally agreed to ADB’s recommendation to award the contract to the applicant-submitted power of attorney without a signature on the English translation of the contract (because the original Chinese version was signed). For contract number 6, ADB finally agreed to the Executing Agency’s rejection of an applicant, as the Executing Agency rejected the lowest evaluated bidder because the applicant had failed to disclose that they had been involved in litigation surrounding its prequalification application. 25 The exchange rate at appraisal on 30 June 1999, $1=CNY8.2800, was used for the conversion. 26 Procurement of the first three local competitive bidding contract packages started on 20 April 2001 and contracts were awarded in June 2002. The fourth local competitive bidding contract package procedure started on 10 April 2003 and the contract was awarded on 4 August 2003.

9 was effective and useful for SQEC in managing the expressway operation. The domestic design institute was able to design the expressway in accordance with international standards. The civil works of the expressway, including pavement, were well designed and properly implemented. The tunnel equipment, communication system, traffic monitoring and control system, and toll collection system provide for an efficient expressway operation system that almost meets international standards. For example, the expressway operation center has the capability to video monitor key locations along the expressway. Drawbacks are that a traffic volume monitoring system was not connected to SQEC’s expressway operation center 27 and that lighting near the tunnel portals should be improved to provide sufficient time for drivers' eyes to adjust to lighting inside the tunnel. Environmental monitoring during the construction conducted by national consultants was satisfactory. Maintenance of the expressway, such as sweeping and minor pavement repair works, has been outsourced to seven domestic road maintenance companies. Major maintenance works, such as pavement overlay, have also been contracted out to maintenance contractors through competitive bidding procedures. The expressway maintenance is in good condition. The overall performance of the consultants, contractors, and suppliers was evaluated as satisfactory.

J. Performance of the Borrower and the Executing Agency

27. SPCD and SQEC implemented the Project in a timely and efficient manner. Internal project controls were put in place to ensure effective use of funds. An internal auditing unit was established in SQEC. Project management during the construction phase is evaluated as highly efficient. Domestic funds were mobilized on time, with no fund shortages occurring during project implementation. Land acquisition and resettlement were completed on time and to the satisfaction of those affected, according to interviews conducted during the PCR Mission.28 The PRC has its own environmental monitoring system. In compliance with PRC regulations and ADB’s environmental policy, environmental monitoring during construction and operation was and continues to be conducted regularly. The State Environmental Protection Agency conducted an independent project completion environmental protection audit on 25 May 2005 and concluded that the completed Project meets all their basic requirements, with minor comments.29

28. The expressway construction and maintenance standards are evaluated as meeting international levels. SQEC has sufficient capacity to manage FIDIC-based contract systems. When civil works contracts were awarded, construction plans proposed by the contractors were reviewed and checked to ensure that all engineering requirements were met. On the basis of good understanding of the conditions of the contract by both parties, contract variations for civil works were controlled.30 Construction quality was effectively managed using ISO9000 system.31 Domestic construction supervision was outsourced and supervision contracts were awarded

27 SQEC may have considered this redundant because the SPCD toll settlement center collects all the data. 28 Land acquisition was ultimately completed during construction in 2003. However, the bulk of land acquisition and resettlement was completed in the spring of 2001, and construction works were not affected by the land acquisition and resettlement work. 29 Recommendations in the report were that (i) noise reduction measures should be instituted in sensitive sites where noise level survey results exceeded the national standards; (ii) further measures for soil erosion protection should be taken, even though current measures appear adequate (because of soil characteristics in this region); and (iii) further funds should be committed to implement these measures. 30 The actual civil works cost was 35% higher than the original contract amount due to the contract variations. Considering the major design changes resulting from the adoption of six-lane typical cross sections, the level of contract variation was well-controlled. 31 ISO9000 is a family of International Organization for Standardization (ISO) standard for quality management system.

10 through competitive bidding. The qualification of supervision specialists was evaluated based on letters of performance issued by their former employers. The engineering capacity for expressway maintenance is also very good.32 Expressway traffic management, operation, and administration capacity is evaluated as satisfactory. SQEC might not be able to act promptly during emergency situations 33 like major vehicular accidents because, although the PCR Mission found that that the required expressway traffic information is collected, this information is neither centralized nor well-maintained. The advantage of toll road system is that the system provides clear relationship between traffic revenue and its operation and maintenance costs. However, the current toll revenue distribution system in Shanxi province is not conducive to the advantage of toll road system because SQEC does not have to process the toll revenue.34 Because SQEC has no responsibility to keep record of the basis of revenue, they are not collecting the traffic volume data. It is recommended that SQEC collect the traffic data—the key information for expressway operation—and utilize it for planning operation of expressway. The rehabilitation and management of rural roads were well managed (para. 10), even though local governments, which have limited resources, were responsible for this component. Overall performance of SPCD and SQEC was evaluated as satisfactory.

K. Performance of the Asian Development Bank

29. ADB conducted regular loan review missions during project implementation and provided effective advice to SQEC on project implementation and procurement matters. SQEC appreciated the assistance provided by every mission but would have preferred dealing with the same project officer throughout project implementation for easier coordination and consultation. As it was, six different project officers were assigned to the Project during its 7-year life. While the high turnover of project officers did not affect overall project implementation, it may have contributed to the failure of SQEC to seek ADB’s prior approval of the expressway design change to six lanes. The performance of ADB is evaluated as satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

30. The Project was rated as highly relevant. The Project was the Government’s top priority expressway network under the national trunk highway system connecting the Mongolian border to Viet Nam. The project expressway is located in the north-south corridor in the southern part of Shanxi province. The goal of the Project is to enhance incomes and reduce poverty in the southern part of Shanxi province through promoting economic diversification and providing better access to markets, social services, education, and employment opportunities, and reducing congestion and accidents on existing roads. The Project is also in line with ADB’s past and present operational strategy for PRC’s road sector, namely the construction of highways that connect major growth centers and establish links with hinterland communities; capacity building to improve management efficiency and enhance commercial operation; improvement of

32 Engineering capacity was gauged through the following three parameters: (i) capacity of engineers to develop their own design standards (in this case engineers developed six-lane design standards—see para. 8); (ii) engineers' ability to implement the expressway within the budget (see para. 14); and (iii) quality of the constructed expressway (which in this case was high—see para. 9). 33 Responding to emergency situations may be considered the role of traffic police in the PRC. However, a high- standard expressway operation system should have a center where accident information is stored, and this center should have trained operators to deal with monitoring expressway safety. 34 In Shanxi, the toll revenue is calculated by the toll settlement center under SPCD and revenue for each expressway company is distributed automatically based on expressway usage and it was noted that SQEC staff does not monitor the actual traffic volume as traffic volume data is not stored in SQEC but in the settlement center.

11 highway design; promotion of road safety, private sector participation, and network integration. The Project has contributed partly to the expansion of expressway in Shanxi province from 400 km in 2002 to 1,400 km in 2004 and the interconnection of villages and counties with all-weather roads in Shanxi province. By 2005, about 91% of the administrative villages had been provided with at least class IV roads.35 Shanxi province has experienced robust economic development with average gross domestic product (GDP) growth rate of 13.1% from 2001 to 2005. The project-influenced area’s GDP growth rate in the same period was 14.2%,36 which was higher than the average provincial growth rate. The higher growth rate in the project-influenced area confirmed the economic impacts of the Project. Significant impacts to the area were also observed in tourism;37 in 2000 the project-influenced area had a share of 19.0% of foreign tourists and 12.0% of domestic tourists in the province. By 2005, its share has increased to 24.5% of foreign tourists and 19.4% of domestic tourists. Accelerated economic development and rapid transformation of the industrial structure in the project-influenced area led to improved living standards for residents and contributed to poverty reduction.38

B. Effectiveness in Achieving Outcome

31. The Project was evaluated as effective because (i) it has contributed to an improved highway network for the nation and the region, (ii) it effectively saves time for the people living in the project area, (iii) it is effective in both improving road safety and reducing vehicle emissions, and (iv) it has contributed to strengthen the institutional capacity of SQEC for construction of expressways.

32. Highway Network. The expressway was completed and opened to traffic 3 months ahead of the appraisal schedule and at a lower cost than the appraisal estimate. The expressway forms part of the highway linking Mongolia with Viet Nam. Also, the project expressway will form part of the expressway network between Taiyuan and Xian when other ongoing ADB-financed expressway projects39 in the corridor are completed. Without the project expressway, many sections on the national highway 108 would experience traffic congestion.40 Thus, the project expressway is alleviating traffic congestion in the highway corridor. The project expressway has sufficient capacity41 to meet future traffic demand. Consequently, the project expressway provides more efficient movement of freight and passengers in the region at lower cost. The upgrading of provincial roads connecting to expressway interchanges has provided

35 Shanxi Provincial Statistical Bureau. 2006. The First Agriculture and Village General Investigation. Taiyuan. 36 The project-influenced area is defined as Linfen prefecture and Jinzhong prefecture. According to Shanxi Provincial Development and Reform Commission, 2006, the Statistical Analysis on Socioeconomic Development of 10th Five- Year Plan, Taiyuan the average GDP growth rate of Linfen and Jinzhong prefecture in the period were12.8% and. 15.1% respectively and the average GDP growth rate of Shanxi Province was 13.1%. The weighted average growth rate of the Project influenced area was 14.2%. 37 For example, in Pinyuao County, the walled old city area became a tourist attraction. Residents in the city were provided with better housing by the government, while the increase in tourism provided many employment opportunities, particularly for poor people. 38 The high GDP growth rate can also be attributed to other factors. However, since tourism is one of major industries in the region, and since the expressway has direct positive impacts on the tourism industry, the project area's higher GDP growth rate compared with other regions in Shanxi province can be attributed to the project expressway. 39 ADB is financing the Shanxi Road Development II Project, the Shaanxi Road Development Project, and the Xian Urban Transport Project. All projects include an expressway component in the same Taiyuan–Xian corridor. 40 For example, between Jingshi and Houzhou, where only the expressway and the national highway connect north– south traffic in the mountain pass, estimated current average annual daily traffic in passenger car units (pcu) is 14,500. As the traffic capacity between Jingshi and Houzhou is estimated at 20,000 pcu (two-lane class I highway), with the expressway accounting for 9,100 pcu of that capacity, it is obvious that the national highway would suffer traffic congestion without the project expressway. 41 Please refer to Table A3.2.

12 easier road access for people and goods, particularly in poor areas influenced by the Project. The improved county and village roads enable farmers to sell agricultural products in towns and cities at higher prices and give them better access to health care, public services, and alternative employment opportunities.42

33. Time savings. Travel time from Taiyuan to Linfen has been reduced by more than half, to less than 2 hours. It is possible for people in Linfen to conduct business in Taiyuan and be back on the same day. The link roads to the expressway interchanges shorten travel time to the expressway; the average travel time to the interchanges was reduced by more than 30% along the roads. County and township road improvements provided better access to the county centers from the poor villages along the roads. The average travel time to the county centers was reduced by more than 40% as a result of the improvements.43

34. Road Safety and Vehicle Emission. The project expressway component included road safety measures, such as reflective road signs; continuous metal guardrails in the median with trees to prevent glaring; underpasses and viaducts for pedestrian crossing and local traffic; and emergency stops for vehicles. The traffic monitoring system installed in the traffic control center is providing traffic information at key locations of the expressway and the toll areas. The accident rate of the expressway observed from 2004 to 2005 was 27.7 accidents per 100 million vehicle km, which is less than 30% of the accident rate on ordinary, non-access-controlled highways.44 Vehicle emissions in the corridor were effectively reduced as a result of the transfer of traffic from national highway 108 to the project expressway, which shortened the traveling distance between Qixian and Yaodu by about 12%.45 Without the expressway, national highway 108 would become more congested, causing a reduction in travel speeds and a corresponding increase in vehicle emissions. Comparing emissions from vehicles on the project expressway with emissions from the same vehicles on the national highway in the without-expressway scenario (assuming traffic demand in this corridor remains flat), total vehicle carbon dioxide 46 (CO2) emissions are about 10% less in the with-expressway scenario. To ensure that individual emission levels remain within allowable limits, vehicles in Shanxi province are periodically inspected. Also, the PRC is planning to introduce more stringent vehicle emission standards in the future.

35. Institutional Capacity. SQEC was established as a separate company under the Company Law of the PRC and is thus independent from SPCD. This independence provided incentives for the management of SQEC to implement the project expressway efficiently and manage and operate the expressway better. SQEC acquired international-standard project management capacity through implementing the Project. The training provided by international consultants helped SPCD and SQEC implement the Project in accordance with advanced

42 Partly because of project rural roads, more and more remote villagers are employed and earning better incomes outside their villages, which helps stem poverty in the region. 43 The average travel speed before upgrading was estimated as 40 km/h for link roads and 30 km/h for county and township roads. The average travel speed after upgrading was 60 km/h for link roads and 50 km/h for country and township roads. Interviews during the PCR Mission confirmed the time savings. 44 The accident rate in class I and II highway without access control is 105–120 accidents per 100 million vehicle km in the PRC. 45 According to road maps, the traveling distance of the parallel highway from Qixian to Yaodu is 199 km. 46 According to the Road Environmental Manual of the PRC, a passenger car’s average CO2 emission rate is 231 grams (g)/km at a speed of 100 km/h, and 225 g/km at speed 60 km/h. Average travel speed on the project expressway is conservatively estimated to be 100km/h, while speed on the national highway is assumed to be 60 km/h. If speed on the national highway is reduced to 50 km/h, the emission rate increases to 238 g/km; hence the total CO2 reduction is likely more than 10%.

13 expressway technical standards. As a result of good project management and financial management, the Project cost less than expected.

C. Efficiency in Achieving Outcome and Outputs

36. Based on financial and economic reevaluation below, the Project was rated as highly efficient.

37. Current Traffic Volume and Toll Revenue. The annual average daily traffic on the existing national highway 108 has decreased from about 10,000 to about 7,900 medium truck equivalent (MTE) since the opening of the expressway.47 This has alleviated congestion along national highway 108. The traffic volume of the expressway was 12,423 passenger car units (pcu) in 2005, which is about 94% of the appraisal forecast (13,200 pcu). Thus, the traffic forecast at appraisal was reasonable. The difference is probably a result of a higher toll rate for heavy vehicles.48 Traffic volumes in 2021 were projected to be 63,200–16,900 pcu at appraisal, while the design traffic capacity estimations are 86,200–57,400 pcu.49 Thus the expressway has sufficient capacity for future traffic (see Appendixes 3 and 12) throughout its alignment. The future traffic volume may exceed the appraisal estimate as a result of the construction of a new section of expressway adjacent to the project expressway.50 Toll revenue was CNY83 million in 2003, CNY281 million in 2004, and CNY288 million in 2005. Toll revenue is lower than the appraisal estimate because of lower traffic volume and actual average toll rate.

38. Financial Reevaluation. Based on current average toll rate and the actual and projected traffic flow, the financial internal rate of return (FIRR) for the Project was recalculated. Given the expected incremental cost and revenue streams, the expected FIRR is 8.2%, which is lower than the appraisal forecast of 9.3%, and the net present value (NPV) is CNY2,766 million, higher than the appraisal estimate of CNY1,767 million (Appendix 13). The lower financial return is primarily a result of lower-than-expected toll revenues and higher operation and maintenance (O&M) costs during the early years of operation, while the higher NPV is linked to the revised lower capital costs. Sensitivity analysis of FIRR shows that the results of the financial analysis are robust. The traffic volume would have had to decrease by 54.8%, or the O&M cost to increase by 385.6%, for the FIRR to fall below the Project’s weighted average cost of capital. Given the PRC’s experience in implementing ADB roads projects, neither situation is likely to happen.

39. Economic Reevaluation. The PCR Mission reevaluated the economic internal rate of return. The recalculated economic internal rate of return is 21.5% and NPV is CNY3,069 million—higher than the appraisal forecasts of 19.0% and CNY2,926 million (Appendix 14). The higher economic return primarily reflects lower construction costs. Economic benefits from vehicle operating cost savings, time savings, and accident cost savings are all

47 According to the final report of project preparatory technical assistance, the estimated traffic volume on national highway 108 just before the project expressway was put into operation in 2002 was 10,600 MTE; in 2005 it was estimated at 7,900 MTE. According to traffic count data, in 2005 the national highway’s traffic volume was 6,100– 9,000 MTE (the weighted average was estimated at 7,300). The estimated traffic volume of the national highway in the project preparatory technical assistance final report was also reasonable. 48 While toll rate for heavy trucks and trailers was CNY1.00 per kilometer at appraisal, the actual toll rate approved by Provincial Price Bureau was 1.96-3.77 for heavy trucks and trailers. On the other hand, the toll rate approved by the Price Bureau for passenger cars and busses was almost the same level as the appraisal. However, there are many vehicles whose tolls are exempted such as vehicles operated by local farmers. As a result, the actual average toll rate was reduced to CNY0.40 from expected toll rate of CNY0.60. 49 Please refer to Table A3.2. 50 For example, the Hou–Yu expressway, from Houma to the Shaanxi Expressway, will open in 2007.

14 based on traffic volumes and traffic compositions on the project expressway. As actual and forecasted traffic volumes and compositions do not differ significantly from the appraisal forecast, the total economic benefits are expected to remain similar to the appraisal forecasts. With lower costs and similar benefits, the economic return is expected to exceed the appraisal estimate. Sensitivity analysis of the economic internal rate of return shows that traffic volume would have to be 60.5% lower, or O&M costs 1,100.3% higher, for the economic internal rate of return to fall below the cutoff rate of 12%. Both cases are unlikely considering that the PRC’s economy continues to grow and that the Government has successfully implemented many ADB- financed road projects.

D. Preliminary Assessment of Sustainability

40. The Project is likely to be sustainable. The completion of the project expressway and rural roads has relieved congestion in the project area and improved the efficiency of road transport in the corridor. It has also provided easier road access to poor remote villages in the project area. Since the opening of the project expressway, a significant amount of traffic has been diverted from national highway 108. The expressway has contributed to a higher GDP growth rate in the province, and to poverty reduction through robust economic growth. Continued economic growth in the region will ensure a steady stream of toll revenue for SQEC, whose established ability to operate the expressway will ensure that the expressway continues to bring positive economic and social development impacts to the project area.

41. The physical sustainability of the expressway is probable given the sound engineering technology used in its construction and the well-developed technical capacity of SQEC. SQEC is expected to continue practicing good maintenance and sound financial management practices in the future.

42. SPCD and local governments are committed to developing and maintaining rural road networks. All sections of rural road visited by the PCR Mission were well-maintained. In addition, in October 2005, the State Council launched a new rural-roads administration policy that aims to improve institutional arrangements, budgeting, and local governments’ capacity for road management through privatization. SPCD is following this new policy, which will ensure the sustainability of the project rural roads and rural road networks in the province. With solid budget support and careful management of SPCD, county governments will be able to provide well-maintained rural road networks.

E. Impact

43. Environmental Impacts. During project appraisal, SPCD prepared an environmental impact assessment (EIA) with the assistance of a domestic consulting firm. Based on the EIA, a summary EIA was prepared with the assistance of project preparatory technical assistance consultants and circulated to ADB’s Board of Directors and made public. The alignment selected was designed to minimize construction costs, resettlement impacts, and environmental impacts. Measures taken to minimize adverse environmental impacts included (i) channeling surface runoff to sedimentation ponds to minimize the entry of soil into natural waterways, (ii) replanting borrow pits51 and disposal sites, (iii) erecting hazard warning signs to minimize the risk of accidents, and (iv) installing noise barriers to protect sensitive sites along the expressway. The environmental monitoring, which included noise, air quality, and water quality monitoring, was conducted by a national consultant. Monitoring reports were submitted to SQEC quarterly

51 A borrow pit is an area where soil, gravel, or has been dug.

15 from 2001 to 2004. Monitoring results during the construction period were satisfactory. Noise levels were exceeded sporadically. During the operation period, all monitoring results met national standards except noise monitoring results. All borrow pits were either replanted with trees or restored to farmland. Public consultations confirmed that (i) more than 50% of people, who answered the questionnaire conducted by SQEC 52 , were satisfied with the economic impacts of the expressway, (ii) about 64% of people were basically satisfied with the results of replanting along the expressway, and (iii) more than 80% people were satisfied with the improved environmental conditions resulting from the expressway (such as reduced traffic congestion). Overall environmental impacts were effectively mitigated.

44. Land Acquisition and Resettlement Impacts of Expressway. The total land acquisition for the Project was 1,312 hectares (ha), 9% more than the 1,208 ha expected in the resettlement plan. The main reason for this increase was that resettlement plan estimates were based on the feasibility study, whereas the actual land acquisition was in accordance with the detailed design. The actual temporary land occupation was 518 ha, which was 54% less than the 1,132 ha estimated in the resettlement plan. The main reason for the difference was that contractors completed civil works by acquiring less temporary land than what was estimated in the feasibility study. The resettlement plan specified different compensation standards for irrigated land, dry land, and orchards. During implementation, the average annual output values per mu (1/15 hectare) for land were changed to reflect the actual annual output; as a result, compensation rates for these categories of land were changed—although the land compensation multiplier and resettlement subsidy multiplier remained unchanged. As a result, the actual compensation rates for irrigated land decreased 50–60% and the compensation rates for dry land increased 7–17%. As the compensation multiplier was not changed, the actual compensation rates were sufficient for the affected people to restore their living standards and income. The actual total cost of land acquisition, house relocation, and resettlement was CNY309.8 million, 10% lower than the CNY344.5 million estimated in the resettlement plan. The main reason for the lower cost was the decrease in land compensation rates. An interview with government officials conducted during the PCR Mission confirmed that there are no outstanding grievances resulting from land acquisition and resettlement.

45. The resettlement division of SQEC was responsible for land acquisition and resettlement. SQEC established offices in both Linfen and Jinzhong prefectures. Coordination and administration of land acquisition and resettlement was mainly the responsibility of prefecture resettlement officers. County () resettlement offices were established under the prefecture offices to carry out resettlement under their jurisdiction. County (district) resettlement offices administrated affected townships and township resettlement offices administrated affected villages and individuals (Appendix 9). In September 2000, measurement of land to be acquired and measurement of buildings and facilities on the land commenced. In February 2001, land acquisition and relocation of housing and buildings commenced, and compensation contracts were signed. Most of the land acquisition and housing relocation work was completed by the end of 2001 and most of the affected infrastructure was also rehabilitated or reconstructed by that time. A small amount of sporadic land acquisition and house demolition lasted until 2003. The new houses are bigger and of better quality than the old houses, and provide improved living conditions for those relocated. Villagers generally preferred to further enlarge or improve their new houses using their savings or money borrowed from friends or

52 The public consultation was conducted by SQEC. Through county governments, a questionnaire was distributed to residents of counties bisected by the expressway, namely Qixian, Pingyao, Jiexiu, Houzhou, Hongtong, and Yaodu.

16 relatives. A survey conducted during the PCR Mission found no unsettled complaints or grievances; on the contrary, those surveyed expressed satisfaction with the compensation result.

46. Land Acquisition and Resettlement Impacts of Rural Roads. Chapter 11 of the resettlement plan mentioned that compensation for the rural-roads component would follow the regulations of local governments. The PCR Mission found that most rural roads were constructed by county-level communications bureaus. House compensation rates paid to households affected by the rural-roads component were lower than those applied to the expressway component. Meanwhile, no compensation was paid for land loss. After land acquisition was completed, land redistribution within the affected village groups was organized by local governments—a common practice to resettle people affected by construction of local roads in the PRC.

47. In accordance with the resettlement monitoring requirements, three resettlement monitoring reports were submitted to ADB by the consultants from 2001 to 2003. However, most of these were survey reports describing survey methodology, survey results, and some conclusions. Other resettlement information, such as information on resettlement organizations, compensation standards, factory and institution resettlement, and infrastructure restoration, was ignored in all three resettlement monitoring reports.

48. Appendix 15 provides a detailed analysis of land acquisition and resettlement implementation and the results of surveys of affected persons. Overall impacts of land acquisition and resettlement for the Project were effectively mitigated.

49. Socioeconomic Impacts. The construction of the project expressway and the upgrading of rural roads have improved road transport in the project area. Transport is more efficient and more economical, as evidenced by the reduced transport related price index in the project area.53 Improved transport has helped push the project area's GDP above the provincial average. This economic growth has positive socioeconomic impacts. In Shanxi province, annual per capita GDP increased from CNY5,230 in 1999 (20% lower than the national average in 1999) to CNY10,741 in 2004 (1% higher than the national average in 2004). At least some of the economic growth in Shanxi province can be attributed to the project-influenced area. The Project also has had positive impacts on the industrial structure of the project area. The GDP contribution54 of primary industry decreased to 9.2% in 2004, from 15.6% in 1999. The GDP contribution of secondary industry increased to 57.9% in 2004, from 49.3% in 1999. Overall, the Project was assessed to have positive socioeconomic impacts. Appendix 16 provides an analysis of the Project's socioeconomic impacts.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

50. The Project was rated successful.55 The Project was evaluated (i) highly relevant with the current government’s and ADB’s development strategy; (ii) effective in achieving outcomes; (iii) highly efficient in achieving outcomes and outputs; and (iv) likely to be sustainable. The Project was implemented as planned except for the major change in the number of lanes on flat

53 In Jinzhong and Linfen, the transport index declined by 1.3% and the communications price index declined by 0.8% in 2004. 54 The GDP contribution figures of the Project area were weighted average of Jinzhong and Linfen in Table A16.2. 55 This PCR is part of a sample of PCRs independently reviewed by the Operations Evaluations Department. The review has validated the methodology used and the rating given.

17 portions of the project expressway. The main objectives of the Project have been achieved. The Project enhanced the road transport network in the region and contributed to economic growth in the region. The expressway traffic volume is close to the appraisal estimate, and the traffic flow is generating economic benefits as expected. Both the construction of the expressway and the upgrading of rural roads were completed ahead of schedule, and training provided under the Project was effective. Though nongovernment financing has not materialized, this has not compromised the achievement of Project's main objective, namely economic growth.

51. The change in the number of lanes on flat portions of the project expressway has not affected overall efficiency of the expressway. In spite of the design change, the estimated construction cost of the expressway at appraisal did not increase, nor did the change compromise the safety standards or environmental soundness of the expressway, as the right- of-way remained unchanged from the original design. In fact, the design change ended up bolstering traffic capacity in flat-terrain areas, where future traffic could potentially increase beyond the appraisal estimate. Taking the above points into consideration, the design change was considered justified, even though ADB was not informed of the change until the construction of the expressway was almost complete.

B. Lessons Learned

52. For efficient PPMS data collection and analysis, it was crucial to involve national consultants in addition to international expertise. During both the project processing stage and the inception stage, in-depth discussions of the PPMS should have been conducted to ensure that the PPMS serves its intended purpose.

53. The resettlement plan provided for the Project was based on preliminary design and was not accurate. Because resettlement plans should be used as the main guiding documents for actual land acquisition and resettlement activities, they should have been revised upon completion of the detailed design of the civil works.

54. The resettlement monitoring reports should have included more data, including data on resettlement organizations, compensation standards, factory and institution resettlement, and infrastructure restoration.

55. In order to comply with ADB’s resettlement policies, the SPCD and SQEC should have demonstrated that implemented compensation standards for cultivated land were based on the actual annual average output value of the land in the 3 years before land acquisition.

56. During project administration, ADB detected a major scope change—the design change from four-lane highway to six-lane highway—only in the latter stages of expressway construction. SQEC should have reported the design change in accordance with the Project Agreement. The current ADB’s project administration arrangements—the team leader in place during project processing continues to administer the project for at least 1 year; and if a successor is needed, he or she is selected from the project team—should have been applied to the Project, as frequent turnover of the ADB project officer may have contributed to the delay in the Executing Agency informing ADB about this change.

18

C. Recommendations

57. New Typical Cross-sections. The special six-lane typical cross-sections adopted during the project implementation were cost effective typical cross-sections under limited right- of-way situation. To provide various options for expressway planning, it is recommended to Ministry of Communications to consider that these six-lane typical cross-sections be included as part of standard typical cross-section inventory in the Highway Design Manual. These typical cross-sections can be very useful for expressways planned in rugged terrain with relatively high traffic volume and limited right-of-way.

58. Future Monitoring. The final PPMS report, expected to collect data after 5 years of operation of the project expressway, should be submitted to ADB in 2008. SQEC is advised to provide adequate arrangement for data collection in order to ensure production of a quality, useful report.

59. Covenants. SPCD should continue to explore private sector participation in the project expressway to comply with the loan covenant. A report on attracting nongovernment investment, including private sector participation in operation maintenance and management, should be provided to ADB when PPMS report is submitted in 2008.

60. Traffic Analysis. For better expressway management, SQEC should monitor and record traffic volume data. Traffic engineers should analyze the collected data and the findings should be reported to SQEC’s management at least quarterly. The analysis should focus on (i) determining if revenue is consistent with actual traffic volume; (ii) monthly, daily, and hourly variations in traffic volume with analysis of the variations; (iii) factors contributing to variations in traffic volume, such as weather and holidays; (iv) impacts of any new highway operation in the region; (v) effects of maintenance activities on traffic volume; and (vi) the relationship between traffic volume and traffic accidents.

61. Noise Reduction Measures. Monitoring for noise at sensitive sites should be continued by SQEC. The relation between hourly traffic volume and the noise level at the same time should be analyzed. If noise frequently exceeds allowable levels, affecting residents' living conditions, mitigation measures such as noise barriers or reduced speed limits should be taken.

62. Land Acquisition and Resettlement Plan. A land acquisition and resettlement plan should be prepared for the rural roads component. At a minimum, compensation standards for the rural roads component should be incorporated into the main resettlement plan of the Project. Resettlement related to the rural-roads component should also be monitored and managed.

PROJECT FRAMEWORK

Performance Indicators/Targets Project Monitoring Design Summary Assumptions and Risks Appraisal Actual Mechanisms A. Goals 1. Economic diversification and 1.1. Economic structure of 1.1. Gross domestic product (GDP) 1.1. Provincial Statistics Bureau • Declining economic growth enhanced incomes in the south of province contribution of primary industry rate Shanxi province reduced to 9.2% in 2004 from • Restructuring of coal mining 15.6% in 1999. GDP contribution of sector secondary industry increased to 57.9% in 2004 from 49.3% in 1999

1.2. Provincial per capita 1.2. Per capita GDP increased to 1.2. Provincial Statistics Bureau income increase CNY10,741 in 2004 from CNY5,230 in 1999.

2. Improved living standards in 2.1. County and township 2.1. Per capita rural income 2.1. Provincial Statistics Bureau • Adequate funding for road poor south of Shanxi province rural income level increased to CNY2,590 in 2004, improvements from CNY1,906 in 2000. • Complementary investments in water 2.2. Number of poor persons 2.2. The percentage of rural 2.2. Provincial Statistics Bureau conservation and supply population with annual income less • Adequate resettlement and than CNY1,000 reduced to 25.6% in environmental measures 2004, from 37.3% in 2000.

2.3. Use of social services 2.3.1. The percentage of townships 2.3. Provincial Statistics Bureau and villages with medical facilities increased to 66% in 2004, from 34.6% in 2000.

2.3.2. Postal express delivery route in rural areas increased to 23,753 kilometers (km) in 2004, from 3,538 km in 2000.

2.3.3. Number of high schools in rural areas increased to 928 in 2004

from 771 in 2000. 1 Appendix

B. Purpose 1. Improved road infrastructure by 1.1. Increased road capacity 1.1. Traffic capacity in north–south 1.1. Provincial Road Network • Availability of funds for providing increased capacity for of north–south road corridor corridor has increased by 57,400

expressway and provincial 19 more efficient movement of freight passenger car units because of the and county roads and passengers at lower cost expressway. • Adequate design for

20 Performance Indicators/Targets Project Monitoring Design Summary Assumptions and Risks Appraisal Actual Mechanisms

1.2. Improved provincial and 1.2. Road density increased to 1.2. Provincial Statistics Bureau construction risks in 1 Appendix county roads 42.2 km per square kilometer (km2) mountainous section in 2004, from 35.4 km/km2 in 2000 • Traffic builds up as forecast

1.3. Improved township 1.3. The average time to the 1.3. Direct observation center access township center from the villages from the project area reduced about 40%

1.4. Average speed 1.4. The average speed (distance 1.4. Direct observation increased from 50 km per divided by actual travel time) is hour (h) without Project to 80 about 90 km/h in 2006 km/h by 2011.

1.5. Reduction of vehicle 1.5. In Jinzhong and Linfen, 1.5. Provincial Statistics Bureau costs transport price index reduced 1.3% and communications price index reduced 0.8% in 2004

1.6. Reduction in travel time 1.6. Travel time of the project 1.6. Direct observation from 230 minutes to 132 expressway was less than 2 hours minutes for whole alignment in 2006

1.7. Increase of transport 1.7. Total freight transport service 1.7. Provincial Statistics Bureau services amount increased by 36.0% from 2000 to 2004

1.8. Reduction of charges 1.8. In Jinzhong and Linfen, 1.8. Provincial Statistics Bureau transport price index reduced 1.3% and communications price index reduced 0.8% in 2004

2. Improve road safety in the 2.1. Reduction in accident 2.1. Accident rate of the 2.1. Project performance • Adequate training and highway corridor rate on expressways— expressway observed from 2004 to management system report patrolling of road and number of accidents per 2005 was 27.7 accidents per enforcement 100 million vehicle km to less 100 million vehicle km • Improvement in data than 100 by 2011 collection and analysis for national system 2.2. Minimum speed for 2.2. Minimum speed observed on 2.2. Direct observation expressway vehicles the expressway is about 60 km/h in 2006

Performance Indicators/Targets Project Monitoring Design Summary Assumptions and Risks Appraisal Actual Mechanisms 3. Reduce vehicle emissions in 3.1. Vehicle emission levels 3.1. Vehicle emission levels in 3.1. Report on vehicle emission • Coordination with the (north-south) road corridor of expressway vehicles Shanxi meet the national standards standards in Shanxi environmental protection (GB14761.5-93). bureau and public security 3.2. Vehicle emission levels Observation results in bureau in the (north-south) road Zhangliang village in 2004. • Use of improved trucks corridor Total suspended particles • Adequate funding of vehicle (daily average): 0.39–0.41 testing and certification milligrams per cubic meter system (mg/m3) Nitrogen dioxide (daily average): 0.09–0.11 mg/m3

4. Improve institutional capacity 4.1. Appropriate structures 4.1. Shanxi Qilin Expressway 4.1. Reports and audited • Provincial decisions on and financial sustainability for executing and Company Limited (SQEC) had account expressway organization implementing agencies; appropriate structures for project and staffing systems in place for toll implementation. SQEC also has • Decisions of provincial collection, accounting, and adequate organization for operation price bureau auditing (Appendix 8).

4.2. Toll levels and 4.2. Toll levels were set so that the 4.2. Prior review by ABB of adjustments financial viability of SQEC is proposed toll secured.

4.3. Contracting out of 4.3. Major maintenance civil works 4.3. Direct observation secondary activities are contracted out.

4.4. Financial management: 4.4. Estimated Equity-to-debt ratio 4.4. Audited financial statement equity-to-debt ratio greater is 1.2, working ratio is 10.6%, and than 1.2 debt service ratio is 2.3 in 2009. Working ratio less than 12% Debt service ratio greater than 1.2

C. Outputs 1. Civil works

1.1. 176 km of expressway with 1.1. Construction of 1.1. Project administration Demonstrated preparation and 1 Appendix link roads, service areas, expressway and access missions and Government implementation capacity of the underpasses, and overpasses roads project completion report (PCR) Shanxi Provincial Communications Department

21

22 Performance Indicators/Targets Project Monitoring Assumptions and Risks Design Summary Appraisal Actual Mechanisms 1.1.1. Whole project 1.1.1. Whole project was completed (SPCD) Appendix 1 Appendix completed by end of 2003 by the end of 2005 because of • Good performance of delays in equipment procurement. contractors Entire expressway and link roads completed in September 2003.

1.1.2. Average daily traffic to 1.1.2. The annual average daily increase to 20,800 medium traffic of was 12,423 pcu in 2005. If truck equivalent (MTE) by the same growth rates are applied, 2011 in the northern section, it is expected to increase to 22,000 and 28,700 MTE by 2021. pcu by 2011.

1.2. Improvement of 101 km of 1.2. Construction completed 1.2. Improvement of 101 km of • Funding availability and provincial and county roads to before expressway opens provincial and county roads was commitment of local interchanges completed in December 2003, 3 government agencies months after the expressway was put into full operation.

1.3. Improvement of 317 km of 1.3. Construction completed 1.3. Improvement of 317 km of • Funding availability and county and township roads to before expressway opens provincial and county roads was commitment of local township centers completed in October 2002. government agencies

1.4. Procurement and installation 1.4. Equipment operational 1.4. Equipment was procured by the 1.4. PCR Mission of communications, vehicles load end of 2005 and has been testing, safety, emergency, and operational since 2006 maintenance equipment

1.5. Relocation, reallocation of 1.5. Maintenance or 1.5. Maintenance or improvement of 1.5. Resettlement reports and • Timely negotiations and land, and resettlement of improvement of income income levels. Employment and monitoring process compensations households levels incomes of relocated households

Employment and incomes of relocated households

2. Consulting services 2.1. 53 person-months 2.1. On-the-job training of 2.1. On-the-job training of SPCD 2.1. Midterm review, Project • Selection of competent international consulting for SPCD staff and national staff and national consultants, and Administration Mission, and consultants construction supervision and consultants, and adoption of adoption of international practices in PCR Mission training international practices in project management, contract project management, administration, and maintenance contract administration, and management were conducted. maintenance management

Performance Indicators/Targets Project Monitoring Design Summary Assumptions and Risks Appraisal Actual Mechanisms 2.2. Monitoring and evaluation 2.2. Monitoring and 2.2. Adequate staff and budgets 2.2. Midterm review and PCR • Adequate counterpart system evaluation system were not allocated to the monitoring Mission resources and national operational and evaluation system consultant for resettlement monitoring

3. Environment 3.1. Implementation of mitigation 3.1. Mitigation measures 3.1. Mitigation measures were 3.1. Inception Mission • Adequate consultants for and monitoring activities included in construction included in the contracts monitoring program plans and contractors’ contract

3.2. Monitoring program 3.2. Environmental monitoring was 3.2. Project Administration under implementation conducted four times a year, in Mission accordance with the recommendation of the environmental impact assessment report for the Project

3.3. Air and noise pollution 3.3. Noise and air pollution were 3.3. Monitoring program and measures, 50 meters (m) measured during operation. PCR Mission from center line Daytime noise—Within 20 m of the center of alignment, all sensitive points satisfy type IV and type II standards. Nighttime noise—Out of 60 sensitive sites, 20 sensitive sites within 60 m of the center of alignment exceed type IV standards. Air Quality—Total suspended particles (daily average): 0.39–0.41 mg/m3 (exceed standard 0.09–0.11 mg/m3) Nitrogen dioxide (daily average): 0.09–0.11 mg/m3 (meets

standard) 1 Appendix

D. Activities with Milestones 1. Provide adequate counterpart 1. Funds allocated from 1. Funds were adequately allocated 1. Company’s financial • Funds provided according funds Ministry of Communications from Ministry of Communications statement and PCR Mission. to implementation schedule 23 and SPCD ($104.3 million), SPG ($205.1 million), and local governments ($29.8 million).

Performance Indicators/Targets Project Monitoring Assumptions and Risks 24 Design Summary Appraisal Actual Mechanisms 2. Recruit supervision consultant 2. Provincial design institute 2. Total of 38 contracts for 2. Contract document is appointed for detailed construction supervision was Appendix 1 Appendix design awarded.

3. Carry out survey and design 3. Survey and detailed 3. Total of 21 design, survey, and 3. Survey and design reports design completed special study contracts was awarded

4. Award of contract 4. Civil works contracts 4. 16 civil works contracts were 4. Progress report awarded February 2000. awarded in December 2000, one contract was awarded in June 2001, and the remaining contract was awarded in August 2001.

5. Construct expressway and 5. Construction and 5. Expressway completed in 5. PCR Mission upgrade selected provincial and upgrading completed by end September 2004; upgrading of rural county roads of 2003. roads completed in December 2003

6. Supervise construction and 6. Quality of completed work 6. Civil works quality was evaluated 6. Progress reports and project • Effective performance of installation as meeting international standards administration missions, contractors Midterm Review Mission, and PCR Mission

7. Relocate and compensate 7. Resettlement plan and 7. Resettlement activities were 7. Resettlement monitoring • Effective coordination and households having to move compensation measures conducted in accordance with the plans and Loan Inception phasing of project activities completed resettlement plan, with the Mission exception of the compensation rate

8. Acquire and reallocate land 8. Minimized relocation in 8. Alignment was selected so that 8. Detailed action plan, midterm • Timely compensation and alignment and intersection the reallocation was minimized review and project land reallocation design within technical restrictions administration missions, and SPCD’s and consultant's final report

9. Provide capacity building and 9. 83 months of international 9. Total of 67 staff received 9. Project administration human resource development training completed; on-the- international training covering 36 missions and PCR Mission job training and domestic person-months. training completed

10. Incorporate environmental 10. Adverse environmental 10. Total of CNY86.9 million of 10. Environmental monitoring • Adequate institution for mitigation measures in project impact mitigation and environmental mitigation and and management by SPCD environmental monitoring design environmental enhancement improvement measures were measures implemented

Appendix 2 25

CHRONOLOGY OF MAJOR EVENTS

Year Date Event 1999 9–22 March Fact-Finding Mission fielded 7 May Management review meeting Approved advance procurement action 18 May Summary environmental impact assessment circulated to the Board 8–18 June Appraisal Mission fielded 16 July Staff review committee meeting held 11–13 August Loan negotiations held 30 September Loan approved by the board 14–19 Inception Mission fielded November 2000 28 July Request for proposal of the international consulting service issued 29 July SQEC established under commercial law of the PRC 1 August Loan documents signed 18 October Prequalification documents of 18 civil works contractors (C1– C18) issued 1 November Loan declared effective 24 November Contract awarded for consulting services for construction supervision and training 3 December International consultant fielded 13–24 Awarded 16 civil works contract packages (C1-C18), except for December C6 and C16 25 December Construction works started 2001 13 February SPCD decided to increase the number of lanes (from four to six) in flat-terrain areas 27 March Onlending agreement signed 15 April Initial disbursement 19–23 June Review Mission fielded 29 June Awarded 1 civil works contract package (C16) 21 August Awarded 1 civil works contract package (C6) 2002 7–11 May Review Mission fielded 17–20 May Seven contracts awarded for the procurement of traffic engineering facilities 6–16 Jun Awarded three LCB civil works contract packages for provincial roads 31 July The loan was converted into LIBOR-based loan 5 August ADB approved increase in financing for civil works category from 38% to 48.2% and reallocation of loan proceeds 16 October Two sections of expressway opened: the Qixian–Jiexiu section and the Hongdong–Linfen section 2003 14 May Contract awarded for the procurement of traffic monitoring system, communication and toll system 4 August Awarded one LCB civil works contract package for link roads 13–19 August Review Mission fielded 28 September Opening of whole length of the expressway 7 November Awarded 1 maintenance system ICB package for the procurement of maintenance equipment

26 Appendix 2

Year Date Event 2004 19 March Loan closing date extended to 31 December 2004 (first extension) 5 April Approved second reallocation of loan proceeds 27 July Loan closing date extended to 30 June 2005 (second extension) 2005 25 February Awarded 2 vehicle ICB packages for the procurement of maintenance equipment and awarded 2 maintenance system ICB packages for the procurement of maintenance equipment 17–22 March Review Mission fielded 25 April Awarded 1 vehicle ICB package for the procurement of maintenance equipment 28 April Awarded 3 vehicle ICB packages for the procurement of maintenance equipment and awarded 2 maintenance system ICB packages for the procurement of maintenance equipment 24 June Loan closing date extended to 31 December 2005 (third extension) 9 December ADB approved increase in ADB’s financing percentage of civil works category from 48.2% to 51.7% and reallocation of loan proceeds 2006 23 March Final disbursement and loan closing 10–17 April Project Completion Review Mission fielded ADB = Asian Development Bank, ICB = international competitive bidding, LCB = local competitive bidding, LIBOR = London interbank offered rate, PRC = People’s Republic of China, SQEC = Shanxi Qilin Expressway Company Limited. Sources: Asian Development Bank, Shanxi Provincial Communications Department, and Shanxi Qilin Expressway Company Limited.

Appendix 3 27

DESIGN AND IMPLEMENTATION OF EXPRESSWAY

1. General. The project expressway connects Qixian and Yaodu in the southern part of Shanxi province. The region belongs to continental temperate climate zone, with four distinguishable seasons. Annual rainfall is 435–563 millimeters, of which 60% is concentrated in the summer. The starting point of the expressway is Qixian in Jinzhong prefecture and the alignment goes south to in Linfen prefecture. The terrain is mostly hilly and flat except for a mountainous middle section from Lingshi in Jinzhong prefecture to Houzhou in Linfen prefecture. Geologically, this region's soil is categorized as loess.

2. Technical Standards. The technical standards adopted for the expressway are presented in Table A3.1. The expressway was designed in accordance with the technical standards for highway engineering issued by the Ministry of Communications in January 1998. The exception was the special six-lane portion of the expressway, which was adopted subsequently during project implementation. Two types of six-lane typical cross sections were utilized for in the Qixian–Linfen section.

Table A3.1: Technical Standards for Qixian–Linfen Expressway

Minimum Horizontal Design Section Design Width of Radius of Maximum Traffic Road Length Speed Subgrade Number Curvature Grade Capacity Section Terrain (km) (km/h) (m) of Lanes (m) (%) (v/d: pcu) K1+121- Plane and K52+580 hills 51.4 120 28.5 6 4,400 3 86,200 K52+580- K72+021 Rolling 19.4 100 26.5 6 2,000 4.7 86,200 K72+021- K106+100 Mountain 34.1 80 24.5 4 1,000 4.8 57,400 K106+100- K137+700 Rolling 31.6 100 26.5 6 2,000 4.7 86,200 K137+700- Plane and K177+720 hills 40.0 120 28.5 6 4,400 3 86,200 km = kilometer, km/h = kilometer per hour, v/d = vehicle per day, pcu = passenger car unit. Sources: Final report of project preparatory technical assistance and Asian Development Bank estimates.

3. Background and Engineering of Six-Lane Sections. The Project was originally planned as four-lane expressway. The Shanxi Provincial Communications Department (SPCD) and Shanxi Qilin Expressway Company Limited reevaluated the existing traffic composition after the feasibility study. Traffic composition is an odd mix of fast passenger vehicles (the number of these vehicles is growing as the PRC economy expands) and mostly slow, obsolete trucks carrying coal and other heavy and bulky materials. Moreover, according to a project preparatory technical assistance study, the traffic volume projected for 2021 will exceed the design traffic capacity1 of original four-lane design. Therefore, SPCD decided to increase the number of lanes from four to six in flat sections of the expressway where such expansion could be undertaken with minimal cost increases. Also, as shown in Table A3.2, the expressway’s design capacity was evaluated as sufficient throughout the alignment to meet projected traffic in 2021.

1 Design traffic capacity is about 75% of the maximum traffic capacity. It is equivalent to level of service C in terms of Highway Design Manual of AASHTO.

28 Appendix 3

Table A3.2: Traffic Volume in 2021 and the Design Traffic Capacity

Original Design Actual Design Estimated Section a Terrain Traffic b Design Type Design Capacity Design Type Design Capacity Chengzhao–Chengnan Plain 54,800 Normal 4-lane 63,800 Special 6-lane 86,200 Mahe–Renyi Hill 63,200 Normal 4-lane 60,500 Special 6-lane 86,200 Renyi–Yangzao Mountain 37,600 Normal 4-lane 57,400 Normal 4-lane 57,400 Mingjiang–Gaogong Mountain 16,900 Normal 4-lane 57,400 Normal 4-lane 57,400 Hill 19,600 Normal 4-lane 60,500 Special 6-lane 86,200 Tumen–Bozhuang Plain 19,600 Normal 4-lane 63,800 Special 6-lane 86,200 a Sections are in accordance with the report and recommendation of the President (RRP), Appendix 6. b The unit of traffic volume is in terms of passenger car units. The RRP traffic data was in terms of medium truck equivalent and was converted into passenger car units. Sources: Report and recommendation of the President and Asian Development Bank estimates.

4. The special six-lane typical cross sections were formulated to maximize the utilization of the existing right-of-way and cope with the special traffic-flow characteristics of the region. While normal six-lane typical cross sections require 33.5 and 34.5 meters (m) width for design speed of 100 km/h and 120 km/h respectively, special six-lane typical cross sections require a width of 26.5 and 28.5 m (Table A3.3). To minimize traffic capacity reduction, the lane width is kept at 3.75 m, while the median and shoulders are reduced to create enough space for six lanes. The right-of-way width remained as planned under the original four-lane by design.2

Table A3.3: Expressway Cross-Section Components

Design Speed Type Width Median Lanes Right Shoulder 120 Normal 6-lane 34.5 m 4.5 m [email protected] m [email protected] m km per hour Special 6-lane 28.5 m 2.5 m [email protected] m [email protected] m Normal 4-lane 27.0 m 4.5 m [email protected] m [email protected] m 100 Normal 6-lane 33.5 m 3.5 m [email protected] m [email protected] m km per hour Special 6-lane 26.5 m 2.0 m [email protected] m [email protected] m Normal 4-lane 26.0 m 3.5 m [email protected] m [email protected] m km = kilometer, m = meter. Sources: Project completion report and Shanxi Qilin Expressway Company Limited.

5. For sections with no tunnels or bridges, it was estimated that constructing special six- lane highway would cost only 5% more than constructing normal four-lane highway3 (normal six- lane highway, on the other hand, would have cost about 25% more than normal four-lane highway). However, the reduced right shoulder of the special six-lane sections could compromise road safety. Right shoulders of full width provide plenty of safe emergency parking space; reduced right shoulders do not. To accommodate broken-down vehicles, the special six- lane sections of expressway are equipped with emergency parking bays at 500 m intervals. Another problem with the reduced right shoulder is a potential reduction in sight distance.4 Sight distance declines in right-bending curves when the right shoulder width is reduced. All

2 The subgrade width of special six-lane typical cross sections is still slightly wider than the subgrade widths of respective four-lane typical cross sections. Roadside slopes were designed steeper to fit the wider subgrades in the original right-of-ways using retaining walls where required. 3 Based on this assumption, the project cost was increased about 1.8% or $11 million．Without this design change, FIRR would have been 0.1% higher (from 8.2% to 8.3%). 4 Sight distance is the length of roadway ahead visible to the driver.

Appendix 3 29 depressed sections where the radius of curvature is less than 3,200 m were checked to ensure the sections satisfy required sight distance.5

6. Justification of Special Six-Lane Design. The design change was justified from an engineering perspective, as the adoption of the special six-lane design provided more capacity to cope with future traffic demands. Although economic and financial analyses were not conducted for the design change, it is obvious that the design change had few adverse impacts, as the total expressway construction cost did not increase from the original cost estimate. Also, because the right-of-way width was not been widened, the design change had little impact on resettlement and the environment. In addition, the special six-lane sections were designed so that the traffic safety was not compromised.

7. At appraisal, the project expressway was evaluated as a four-lane expressway with a total construction cost of $447.8 million. Civil works contracts were prepared using four-lane design for entire length of the alignment. From December 2000 to August 2001, the initial contracts for all civil works were signed. The total value of these contracts was $306.0 million, about 30% lower than the appraisal estimate. The change to a six-lane design for some portions of the expressway was approved by SPCD in February 2001. Contract variations resulting from design changes pushed the amount of civil works contracts up to $413.5 million, which was still about 8% less than the appraisal estimate. Asian Development Bank (ADB) became aware of the design change only in 2003, when the request for variation orders related to the design change was submitted. The Midterm Review Mission of 13–18 August 2003 visited the expressway and considered the change to be justifiable and acceptable. Accordingly, the variation orders related to the design change were approved in November 2003. However, no formal approval required for the design change was submitted to ADB and ADB failed to follow up this matter.

8. Other Technical Features. The terrain in this area is favorable for expressway construction and the design fully utilized this environment to reduce the construction cost. When vertical alignment was selected, to minimize earth-moving works by utilizing the rolling terrain, embankment sections and depressed sections were arranged in such a way that the embankment volume and cutting volume would be balanced. In mountainous area, the alignments for northbound and southbound were designed independently to minimize construction cost. Viaducts and box-culverts were designed to cope with traffic demand in the community with minimum cost.

9. Scattered underground air pockets resulting from illegal coal mining were the main technical challenge to constructing the expressway in this region. Sections where treatment was required were selected using soil mechanics6 analysis and air pockets were filled so as not to affect expressway traffic.

10. Conclusion. The expressway planning design and implementation of civil works and pavement are evaluated as meeting international standard. SQEC and SPCD had enough capacity to formulate new design standard for special traffic characteristics in the region. Also, the cost savings of civil works attested SQEC’s capacity of detailed design. The site management and maintenance engineering capacity was demonstrated by the well-maintained condition of the expressway.

5 The sight distance required for a design speed of 100 km/h is 160 m; for a design speed of 120 km/h it is 210 m. 6 Soil mechanics is a discipline that applies the principles of Engineering mechanics to predict the mechanical behavior of soil.

30 Appendix 4

RURAL ROAD MAINTENANCE

1. Background. The rural road component of the Project included two types of roads: (i) provincial roads linking interchanges to prefecture centers, and (ii) county roads linking villages to county centers. These roads were planned to provide the benefit of the people in rural areas, particularly in poor villages. The planning and implementation arrangement of these roads were as follows: (i) at the central government level, the Ministry of Communications provides guidance and technical support to local governments by setting national policies, regulations, and design and construction standards, and provides guidance on their application; (ii) provincial highway bureaus provide support for the provincial highway network and supervise rural roads through prefecture communications bureaus and their county communications bureaus.

2. Current Situation. The existing road network had a total length of 63,121 kilometers (km) in Shanxi province in the end of 2003. Of this, 49,332 km (78%) was classified as rural road—36,054 km (73%) of which was unclassified or below class IV. As of the end of 2003, 4,849 villages (or 14% of villages) did not have any classified roads. Many of rural roads have unpaved or deteriorated sections where vehicle movement is difficult. The main weaknesses in rural road maintenance are: (i) lack of clear administrative responsibility, (ii) inadequate planning to cope with traffic characteristics, (iii) inadequate funding, and (iv) insufficient capacity (a result of a lack of market-oriented approaches in rural road maintenance).

Table A4.1: Road Length of Shanxi Province (the end of 2003)

Prefecture Access National Provincial County Village Express- Class I Class II Class III Class IV Out of ControlledHighway Highway Road Road way Class Taiyuan 42 278 360 849 1,305 103.8 156 454 563 1,161 396 Taidong 135 268 814 1,491 2,262 64.348 19 828 1,287 2,614 159 Yangquan 4 214 235 451 542 66.72 31 233 563 513 38 Changzhi 55 388 951 1,485 2,088 54.46 14 782 1,095 2,689 332 Jincheng * 51 101 605 1,045 1,309 68.069 22 578 1,134 1,257 52 Shouzhou 62 278 647 986 2,844 129.13 50 716 1,487 2,348 87 Jinzhong * 82 590 904 1,660 4,053 173.95 165 1,179 1,426 4,171 174 181 229 1,118 1,974 5,110 217.25 64 847 1,795 5,583 104 Xinzhou 140 519 1,298 1,908 5,899 107.81 1,108 1,633 6,434 479 Linfen * 81 715 962 2,118 5,246 146.13 148 1,388 3,182 3,972 283 Luliang * 27 519 950 1,342 3,356 78.952 112 1,291 1,505 3,028 179 Total 63,121 858 4,098 8,842 15,309 34,013 1,210.6 782 9,405 15,669 33,770 2,284 Source: Shanxi Provincial Communications Department.

3. The New Policy. The problems encountered in Shanxi province are common nationwide, thus the State Council (the Cabinet of the People’s Republic of China) launched the Institutional Policy Reform for Rural Roads Maintenance,1 which consists of four main pillars:

(i) Defining the roles and major responsibilities. The new policy demarcates responsibilities, with county-level governments as the main administrators of rural

1 State Council. 2005. Rural Road Policy Framework. Beijing (22 October).

Appendix 4 31

roads maintenance. Provincial governments will be mainly responsible for funding and supervision. (ii) Providing adequate funding for road maintenance. Road maintenance will receive not less than 80% of road maintenance fees. (iii) Imposing a minimum level of funding for rural road maintenance. The annual allocation level shall not be lower than CNY7,000 per km for county roads, CNY3,500 per km for township roads, and CNY1,000 per km for village roads. (iv) Introducing market-oriented mechanisms. Maintenance work contracts shall be outsourced through competitive bidding; maintenance work contracts will be open to all potential participants.

4. Rural Roads under the Project. During project preparation, upgrading of seven sections of provincial roads totaling 101 km and upgrading 19 sections of county and township roads totaling 317 km were planned under the Project's rural-roads component. At project completion, both of those targets had been met. The respective county communications bureaus were responsible for the planning and implementation of maintenance works. Details are given in Tables A4.2 and A4.3.

Table A4.2: Rural Roads under the Project (provincial roads)

Length Class Cost Implementation Location (km) Original Improved (CNY million) Period Interchange Linking Roads (provincial roads) III: 11 km, I: 6 km, Qixian–Chengzhao–Wenshuia 31 II: 20 km II: 25 km 85.7 Jun 02–Dec 02 Pingyao–Fenyanga 38 III II 83.6 Jun 02–Dec 02 Jiexiu–Mianshan 10 III II 20.2 Jul 00–Feb 01 Mahe–Lingshia 4 III II 45.7 Jun 02–Dec 02 Renyi–Nanguan 12 IV III 22.9 Aug 03–Dec 03 Yangzao–Huozhou 4 III II 21.5 Jul 01–Jun 02 Bozhuang 2 III II 12.5 Jul 01–Jun 02 Total 101 292.0 a ADB-financed sections. Source: Project completion report by Shanxi Provincial Communications Department.

32 Appendix 4

Table A4.3: Rural Roads under the Project (county and township roads) Length Class Cost Implementation Location km Original Improved (CNY million) Period Zuoquan Zecheng a 13 UC III 8.5 Mar 01–Nov 01 Yushe Beizhai 16 UC III 11.2 Mar 01–Oct 02 Yushe Lianghekou 12 UC III 6.8 Jun 02–Feb 03 Yushe Baibixiang 36 UC III 29.2 Jun 02–Feb 03 Pingyao Qianzhuangxiang 15 UC III 15.8 Apr 01–Sep 01 Pingyao Baiganxiang 14 UC III 15.2 Apr 01–Oct 02 Heshun Mafangxiang a 36 UC III 23.4 Mar 01–Jun 02 Fushan Zhaigeda a 19 UC III 14.4 Jul 01–Jun 02 Fushan Qiaojiayuan 15 UC III 11.4 Apr 01–Sep 01 Fushan Shiyanhe 11 UC III 8.4 Apr 01–Sep 02 Anze Yingzhai 17 UC III 12.9 Mar 01–Aug 02 Anze Shicao a 12 UC III 9.2 Mar 01–Aug 02 Puxian Hongdao a 7 UC III 4.9 Mar 01–Aug 02 Puxian Xipingyuan 12 UC III 9.1 Apr 01–Sep 01 Puxian Daokou 20 UC III 15.2 Apr 01–Oct 01 Xiangning Jijiayuan a 5 UC III 6.1 Mar 02–Oct 02 Xiangning Weizhuang 14 UC III 10.6 Mar 01–Aug 02 Xiangning Anfen 13 UC III 9.9 Apr 01–Oct 01 Yicheng Dahe 30 UC III 22.8 Apr 01–Nov 01 Total 317 244.9 UC = unclassified. a ADB-financed sections. Source: Project completion report by Shanxi Provincial Communications Department

5. Conclusion. Despite being subject to a high volume of heavy coal- and steel-carrying trucks, provincial roads linking interchanges to the prefecture centers are well maintained. Road maintenance is also adequate on the county and township roads. Still, the level of rural road development and maintenance in the province has room for improvement, particularly in the areas of unconnected villages and unclassified rural road sections.2 However, the People’s Republic of China new policy framework for rural road maintenance calls for further improvements in this area. Therefore, the rural-roads component of Project can be evaluated as sustainable.

2 Out of 34,200 villages in Shanxi province, 4,849 had no connection of classified roads as of the end of 2005. As of the end of 2003, Shanxi province had 2,284 km of unclassified roads (equivalent to 4.4% of all rural roads in the province), Jinzhong prefecture had 174 km or unclassified roads (3.0% of all rural roads in the prefecture), and Linfen prefecture had 283 km of unclassified roads (3.8% of all rural roads in the prefecture).

LIST OF INTERNATIONAL TRAINING PROVIDED

Table A5.1: Training Program

Number of Topic Place Trainees Attendees' Information Period Days United Kingdom, Tunnel Construction and Maintenance Germany 10 SQEC directors Apr-02 - May-02 23 England, Corporate Governance and Management Germany 5 SQEC deputy CEO and deputy auditor Apr-02 - May-02 23 Finland, Quality Control and Contract Management Sweden 8 SPCD and SQEC staff Apr-02 - Apr-02 13 England, Traffic Control and Management Germany 8 SPCD directors Nov-03 -Nov-03 15 Australia, New Traffic Control Information System Zealand 8 SPCD and SQEC directors Feb-04 - Feb-04 15 England, SPCD maintenance division directors and Expressway Pavement Management Germany 12 staff Nov-05 - Dec-05 14 United States, Expressway Operation and Road Safety Canada 10 SQEC and SPCD staff Dec-05 - Dec-05 14 United 13 States,

Expressway Operation and Road Safety Canada 6 SQEC directors and SPCD staff Dec-05 - Dec-05 5 Appendix CEO = chief executive officer, SPCD = Shanxi Provincial Communications Department, SQEC = Shanxi Qilin Expressway Company Limited. Source: Shanxi Qilin Expressway Company Limited.

33

34 Table A5.2: Dissemination

Appendix 5 Appendix Time Topic Lecturer Hours Organization Tunnel Construction and All directors and chiefs Dec-05 Maintenance in Germany deputy director of SQEC 2 SQEC and all maintenance staff Expressway Planning and Economic Impacts of Expressway Dec-05 in Germany director of SQEC 1 SQEC All directors and chiefs Operation and maintenance staff in Expressway Maintenance headquarters and on-site Dec-05 Equipments in Europe deputy director of SQEC 1 SQEC staff Operation maintenance Expressway Greening and staff in headquarters and Dec-05 Maintenance in Europe director of SQEC 1 SQEC on-site staff Expressways’ Planning, Operation maintenance Operation, and Maintenance in the staff in headquarters and Feb-06 United States and Canada deputy director of SQEC 2 SQEC on-site staff Expressway Operation and Operation maintenance Maintenance in the United States staff in headquarters and Feb-06 and Canada deputy director of SQEC 1 SQEC on-site staff Expressway Traffic Safety Measures in the United States and All staff in SQEC Feb-06 Canada deputy director of SQEC 1 SQEC headquarters Expressway Intelligent Traffic Operation maintenance Management System in the United staff in headquarters and Feb-06 States and Canada deputy director of SQEC 2 SQEC on-site staff SQEC = Shanxi Qilin Expressway Company Limited. Source: Shanxi Qilin Expressway Company Limited.

Appendix 6 35

PROJECT COST AND FINANCING PLAN ($ million)

Appraisal Actual Foreign Local Total Foreign Local Total Item Exchange Currency Cost Exchange Currency Cost A. Base Cost 1. Expressway Civil Works 206.0 241.8 447.8 185.0 228.5 413.5 2. Equipment 39.6 5.2 44.8 34.7 4.6 39.3 3. Land Acquisition and Resettlement 43.0 43.0 37.3 37.3 4. Consulting Services and Training 1.5 5.5 7.0 1.5 29.5 31.0 5. Local Roads 17.3 40.6 57.9 27.5 37.1 64.6 Subtotal (A) 264.4 336.1 600.5 248.7 337.0 585.7

B. Contingencies 36.2 50.5 86.7

C. Interest and Commitment Charges 29.9 9.0 38.9 23.1 8.7 31.8 During Construction Total 330.5 395.6 726.1 271.9 345.7 617.5

Financing Plan ($ million) Appraisal Actual Foreign Local Total Foreign Local Total Source Exchange Currency Cost Exchange Currency Cost ADB 250.0 250.0 241.1 241.1 National Government 105.3 105.3 104.3 104.3 Shanxi Provincial Government 80.5 242.1 322.6 30.8 174.3 205.1 Local Governments 29.8 29.8 Bank of Communications 48.2 48.2 37.2 37.2 Total 330.5 395.6 726.1 271.9 345.6 617.5 Sources: Shanxi Qilin Expressway Company Limited and Shanxi Provincial Communications Department.

36 Appendix 7

PROJECTED AND ACTUAL DISBURSEMENT ($ million)

Table A7: Disbursement Schedule For the Year Cumulative Year Projected Actual Projected Actual % of Loan

2000 5.00 0.00 5.00 0.00 0 2001 20.00 45.32 25.00 45.32 18 2002 30.50 68.50 55.50 113.82 46 2003 46.05 47.09 101.55 160.91 64 2004 30.00 45.56 131.55 206.46 83 2005 6.00 20.12 137.55 226.58 91 2006 13.00 14.48 150.55 241.06 96

Total 150.55 241.06 Source: Asian Development Bank loan financial information system.

Figure A7: Projection and Actual Disbursement

($ million) (% of Loan) 70 100

60 80 50

60 40 Projected Actual 30 40 % of Loan

20 20 10

0 - 2000 2001 2002 2003 2004 2005 2006

IMPLEMENTATION SCHEDULE

Item1999 2000 2001 2002 2003 2004 2005 III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV A. Land Acquisition and Resettlement Major Land Acquisition Minor Land Acquisition and Payment B. Expressway Earth Works, Structures, and Pavement 1. Prequalification 2. Bidding Completion of 3. Mobilization Jiexiu to Hongdong 4. Construction a. Earth Works b. Pavement c. Traffic gineerin g En C. Expressway Tunnels, Bridges, and Pavement 1. Prequalification Completion of Qixian to Jiexiu section and Hongdong to Linfen section 2. Bidding 3. Mobilization 4. Construction a. Earth Works b. Pavement D. Building and Ancillary Works 1. Prequalification 2. Bidding 3. Mobilization 4. Construction E. Equipment and Supply Maintenance Equipment Contract 1. Bidding 2. Supply Traffic Engineering 3. Installation Maintenance System F. Provincial Roads

1. Bidding ADB Financed Government Financed ADB Financed 2. Construction Government Financed

G. Township Roads

1. Construction Appendix 8 Appendix H. Consulting Services and Training 1. Selection 2. Mobilization

3. Construction 37 Supervision

4. International Training Appraisal Actual Sources: Asian Development Bank and Shanxi Qilin Expressway Company Limited. Legend:

ORGANIZATION CHARTS OF THE PROJECT

Figure A9.1: Shanxi Provincial Government and Its Communications Department 38

Shanxi Provincial Government County Governments 9 Appendix 4 Committees and 20 Departments for Internal Taiyuan Prefecture Government Organization Transport Bureau Reform and Development Communications Bureau Committee County Governments

Public Security Department Jincheng Prefecture Government County Governments Communications Department Communications Bureau Transport Bureau Financial Department County Governments Linfeng Prefecture Government County Governments Communications Bureau Transport Bureau

County Governments

Total 11 prefectures

Major External Institute and Bureau of the Communications Department

Shanxi Communications Department Provincial Highway Administration Bureau 12 Divisions Design Institute Administration Office Transport Research Institute Finance and Audit Division Overseas Funding Bureau Director Planning Division General Transportation Management Bureau Construction Division

Science and Technology Provincial Highway Traffic Monitoring and Control Centre Division Transportation Training Center

Shanxi Qilin Expressway Company Limited Total 16 state-owned corporations under Communications Department

Figure A9.2: Shanxi Qilin Expressway Company Limited During Construction

External Offices for Construction On Site Construction Office 1

On Site Construction Office 2 North Expressway Construction Headquarters Internal Organizations and Offices On Site Construction Office 1 Middle Expressway Construction General Affairs Office Headquarters On Site Construction Office 2 Board of Directors Accounting Office Dingxi Expressway Construction On Site Construction Office 1 Resettlement Department Headquarters Board of Auditors On Site Construction Office 2 Contract Department

General Supervision Office Qixian County Office Engineering Department Jinzhong Prefecture Resettlement Office Office

Jiexiu County Office

Lingshi County Office

Houzhou County Office Linfen Prefecture Resettlement Office Hongdong County Office

Yoado District Office 9 Appendix

39

40 Figure A9.3: Shanxi Qilin Expressway Company Limited During Operation

On Site Maintenance Bases and Centers 9 Appendix

Linfen Maintenance Base

Huozhou Maintenance Base Internal Organizations and Offices Jiexiu Maintenance Base General Affairs Office Branch Information Center Party Affairs Office Machinery Management Center Toll Stations Board of Directors Financial Office Linfen Bridge and Tunnel Center Personnel Department Tumen Board of Auditors Chief Engineer's Office Service Area and Parking Area Hongdong Maintenance Department Linfen Service Area Mingjiang

Operation Department Huozhou Parking Area Houzhou

Toll Department Lingshi Service Area Renyi

Information Center Pingyao Service Area Lingshi

Road Maintenance Team Jiexiu

Logistics Center Zhanglan Pingyao

Appendix 10 41

COMPLIANCE WITH LOAN COVENANTS

Reference to Status of Covenants Loan Compliance Documents Counterpart Financing Shanxi Qilin Expressway Company Limited (SQEC) will Loan Complied with obtain, on a timely basis, all funds and resources necessary Agreement for construction, operation and maintenance, and Schedule 6, management of the expressway. The Government will take, para. 1 and will cause Shanxi provincial government (SPG), through Shanxi Provincial Communications Department (SPCD), to take, all necessary measures, including the provision of additional funds, to ensure that SQEC can successfully construct the expressway, and operate and manage it after completion. The Government will take, and will cause SPG, through SPCD, to take, all necessary measures, including the provision of funds to the relevant prefecture and county communications bureaus, to ensure that the provincial and county roads improvements are completed before opening of the expressway.

Change in Ownership In the event that (i) any change in ownership of the project Loan Not yet due facilities, or (ii) any sale, transfer, or assignment of SPCD’s Agreement interest in the expressway, is anticipated, the Borrower, Schedule Shanxi, and SQEC, will consult the Bank at least six months para. 2 prior to the implementation of such change. The Borrower, Shanxi, and SQEC, will ensure that any proposed change in the ownership of the project facilities is carried out in a transparent manner.

Construction Quality SQEC will ensure that the expressway and link roads are Project Complied with constructed in accordance with Ministry of Communication’s Agreement Technical Standards of Highway Engineering, and that (PA) construction supervision, quality control, and contract Schedule management are performed in accordance with para. 4 internationally accepted practices.

SPG, through SPCD, will ensure that any mine treatment Complied with works required along or close to the expressway alignment are carried out and tested before commencement of civil works contracts for the expressway.

SPG, through SPCD, will ensure that the provincial and Complied with county roads under the project scope are constructed in accordance with appropriate Government standards.

42 Appendix 10

Reference to Status of Covenants Loan Compliance Documents Road Safety To ensure safe road facilities, SPCD, including SQEC, will PA Complied with implement the road safety signage, communication, hazard Schedule barriers, traffic monitoring, vehicle weighing, and other para. 5 design features of the project facilities. page 12

SPG will ensure that SPCD, including SQEC, and the public Complied with security bureaus cooperate closely to implement all road safety measures and that the expressway is adequately patrolled.

Prior to opening the expressway, SQEC will submit a report Complied with on its emergency response system to the Bank for review.

Tolls The tolls for the expressway will be set at levels sufficient to PA Complied with fully satisfy debt service obligations, operation and Schedule maintenance costs, and depreciation in excess of debt para. 6 service, and to generate a reasonable return on assets as adjusted from time to time for inflation.

Six months prior to opening of the expressway, SPCD Complied with through SQEC will prepare and submit to the Bank for the Bank’s concurrence a report on the proposed toll structure and levels, prior to submission of the application, for SPG’s approval.

For the first five years of operation, SPCD through SQEC, Being complied will review the toll structure and levels annually and submit a report to the Bank. If an adjustment of the toll levels is required in accordance with the above-mentioned principle, SPCD through SQEC will submit to the Bank for the Bank’s concurrence the toll adjustment plan, prior to finalizing and submitting the plan to SPG for its decision.

Governance. To promote good governance, SPCD will establish an PA Complied with internal audit unit within SQEC during the construction and Schedule operation of the Project. para. 7

SPCD will provide the international consultant recruited as Complied with the assistant engineer with all the necessary powers to certify variation orders and contractors’ monthly payments, prior to submission for approval for payment by the engineer.

Appendix 10 43

Reference to Status of Covenants Loan Compliance Documents SQEC will be corporatized by the time of loan signing. Complied with SQEC will, on corporatization, submit to the Bank a report on measures taken and, taking account of the recommendations of the international consultant provided by the Bank, a plan of action, and proposals to strengthen good governance in areas including board composition, board committees and their composition, and the preparation and disclosure of financial and corporate information.

Nongovernment Financing Six months prior to the opening of the project facilities, PA Not yet complied SPCD, through SQEC, will analyze the feasibility of Schedule with attracting nongovernment investment funds on the basis of para. 8 the expressway for future road sector investment, including private sector participation in the operation, maintenance, and management of the expressway, and report its conclusions to the Bank.

Environment SPG, through SPCD and SQEC, will ensure that the PA Complied with expressway is constructed and operated in accordance with Schedule national and local government environmental procedures para. 9 and guidelines.

SQEC will also ensure that any adverse environmental During construction impacts arising from construction and operation of the it was complied expressway will be minimized by implementing the mitigation with. For the measures, environmental monitoring program, and other operation period, it recommendations presented in the environmental impact is being complied assessment. with

SPCD, together with the provincial and county Complied with environmental protection bureaus, will ensure that the provincial and county roads are constructed and operated in accordance with the appropriate national and local government environmental procedures and guidelines.

SPG will ensure that any project-induced economic Being complied activities, particularly mining and industrial developments, will undergo appropriate environmental assessment and review under the national and provincial regulations, to ensure minimal adverse environmental impact.

Land Acquisition and Resettlement SPG will ensure that all land and rights-of-way required for PA Complied with the Project are made available in a timely manner. Schedule para. 10

44 Appendix 10

Reference to Status of Covenants Loan Compliance Documents SPG and SPCD, through SQEC, will ensure that the Complied with Resettlement Plan agreed with the Bank is carried out promptly and efficiently in line with the PRC Land Administration Law, other relevant Government regulations, and the Bank’s Policy on Involuntary Resettlement.

SPG will ensure that all persons are compensated in a Complied with timely manner and resettled in accordance with the resettlement plan such that they will be at least as well off as they would have been in the absence of the Project.

SPG will ensure that all affected people are consulted and Complied with their concerns addressed at least two months before demolition commences.

SPG through SPCD will ensure that resettlement carried out Complied with for the provincial and county roads also ensures that those affected are at least as well off as they would have been in the absence of the Project.

SPCD, through SQEC, will ensure that Shanxi Academy of Complied with Social Science carries out independent monitoring and evaluation of implementation of the Resettlement Plan, reports annually during resettlement implementation, and evaluates resettlement achievement. Independent monitoring and evaluation will include a 10 percent baseline sample household socioeconomic survey before the land is acquired, and survey updates as required in the Resettlement Plan.

SPCD, through SQEC, will keep the Bank informed of the Complied with progress of resettlement activities through quarterly progress reports and through a report to be submitted on completion of the resettlement plan and one year thereafter.

Gender and Development SPCD, through SQEC, will follow the Bank’s Policy on PA Complied with Gender and Development during implementation of the Schedule Project, and will take all necessary actions to encourage para. 11 women living in the project area to participate in planning and implementing the Project, including construction work. SPCD will monitor effects on women during project implementation, through gender-disaggregated data in the Resettlement Plan and the project performance monitoring system, in consultation with the All-China Women’s Federation at the provincial and local levels.

Appendix 10 45

Reference to Status of Covenants Loan Compliance Documents Vehicle Emissions SQEC will take appropriate measures, together with the PA Complied with environmental protection bureaus, to control vehicle Schedule emissions on the expressway. para. 12

SQEC will submit to the Bank, before opening the Complied with expressway, a statement of the legal emission regulation limits, penalties for their infringement, and the plan for operation of the vehicle emissions testing stations.

Human Resource Development and Training SQEC will prepare a human resource development plan PA Complied with based on its future requirements and corporate strategy. Schedule International training will be provided for selected staff para. 13 related to project activities. Prior to undertaking international training financed under the loan, SQEC will prepare for the concurrence of the Bank (i) a training plan and a list of candidates nominated for international training; (ii) a program of workshops to be delivered at SQEC by those trained internationally; and (iii) a list of training equipment and aids required to strengthen SQEC’s domestic training programs. Upon completion of each workshop, SQEC will provide the Bank with an evaluation of the international training and the workshop, and identify subjects that are appropriate for formal incorporation into SQEC’s regular staff training curricula.

Health Risks SPCD, including SQEC, together with the appropriate PA Complied with authorities, will ensure that contractors disseminate Schedule information on the risks of socially transmitted diseases to para. 14 those employed during project implementation. SPCD, including SQEC, will also ensure that similar information is disseminated to transport operators during operation of the project facilities.

Axle Loads. SPCD, through SQEC, will take appropriate measures to PA Complied with prevent overloading on the expressway by installing vehicle Schedule axle weighing equipment at selected entry points, and by para. 15 making suitable arrangements for their operation with the public security bureaus.

SQEC will submit to the Bank, before opening the Complied with expressway, a statement of the legal axle load limits, penalties for their infringement, and the plan for operation of the vehicle weigh stations.

46 Appendix 10

Reference to Status of Covenants Loan Compliance Documents Monitoring and Evaluation SPCD, including SQEC, will monitor and evaluate project PA Being complied impacts through a project performance management system Schedule with to ensure that the project facilities are managed effectively para. 16 and the benefits are maximized. SPCD, including SQEC, will Page 15 collect data agreed with the Bank prior to implementation, at completion, and five years later.

Financial Ratios To ensure its financial sustainability, SQEC will maintain (i) a PA Complied with ratio of equity to debt of not less than 1.2; (ii) a working ratio Section 2.16 (operation and annual, but excluding periodic, maintenance cost, to revenue) of not more than 12 percent during the period of the expressway operation; and (iii) a debt-service PA Complied with ratio of not less than 1.2 during the period of the expressway Section 2.17 operation.

Financial Reporting. SQEC will provide the Bank annually with audited accounts PA Complied with and statements for the expressway component of the Section 2.09 Project, during construction and for the first five years of (b) operation. Such statements, including the project account, income statement, funds statement, and balance sheet, will be audited by independent auditors. The audited accounts and financial statements will be submitted within nine months of the end of each related fiscal year.

In addition, SPCD will provide audited annual accounts for Complied with expenditures made out of Bank loan proceeds on the provincial and county roads.

CONTRACT DETAILS FOR CIVIL WORKS, EQUIPMENT, AND CONSULTANT

Appraisal Packaging and Cost Contract Final Amounts Cost Proc. Contract AmountFinal Amount Final ADB Portion Packaging ($million) Contractor Mode Date (CNY) (CNY) Amount ($) Completion A. Expressway Civil Works 1.0 1. K000+00-K012+40 22.3 Jinzhong Road & Bridge Co. ICB 13/Dec/00 104,505,508 143,440,116 17,281,942 8,915,919 Oct-2002 2. K012+40-K025+60 22.7 Jinzhong Road & Bridge Co. ICB 13/Dec/00 118,937,790 147,569,114 17,779,411 9,174,511 Oct-2002 3. K025+60-K038+80 24.4 Jincheng Road & Bridge Co. ICB 19/Dec/00 104,516,617 138,583,503 16,696,808 8,618,935 Oct-2002 4. K038+80-K052+58 26.0 Shanxi Road 1st Co. ICB 20/Dec/00 155,902,537 177,502,847 21,385,885 11,041,356 Oct-2002 5. K052+58-K061+00 26.0 China Port 2nd Bureau Co. ICB 23/Dec/00 115,360,769 135,632,067 16,341,213 7,170,554 Oct-2002 6. K061+00-K072+02 28.4 China Road & Bridge Co. ICB 21/Aug/01 139,296,138 175,036,117 21,088,689 8,658,276 Oct-2002 7. K072+21-K077+36 18.6 Gezhou Dam & Power Project Burau ICB 24/Dec/00 112,453,775 164,942,454 19,872,585 6,989,812 Set-2003 8. K077+36-K080+30 18.2 China Construction 7th Bureau ICB 22/Dec/00 137,359,224 189,354,682 22,813,817 9,541,197 Set-2003 9. K080+30-K084+40 26.0 China Rail 17th Bureau 1st Co. ICB 21/Dec/00 149,393,323 215,350,653 25,945,862 9,502,119 Set-2003 10. K084+40-K087+60 20.4 Yuncheng Road & Bridge Co. ICB 18/Dec/00 123,809,931 209,973,382 25,297,998 11,350,072 Set-2003 11. K087+60-K088+27 23.4 Large Bridge Bureau 3rd Co. ICB 23/Dec/00 109,815,823 121,607,116 14,651,460 6,825,890 Set-2003 12. K087+25-K090+51 16.8 China Rail 19th Bureau 1st Co. ICB 21/Dec/00 140,990,568 229,464,292 27,646,300 12,851,255 Set-2003 13. K090+51-K096+60 23.2 Tunnel Bureau Co. ICB 17/Dec/00 138,374,543 179,711,810 21,652,025 8,703,009 Set-2003 14. K096+60-K107+69 33.9 Hebei Road Co. ICB 23/Dec/00 199,347,784 270,310,769 32,567,563 12,390,938 Oct-2002 15. K109+00-K135+70 38.0 Shanxi Road 1st Co. ICB 22/Dec/00 230,118,984 305,617,303 36,821,362 14,303,529 Oct-2002 16. K135+70-K149+70 28.9 Jinzhong Road & Bridge Co. ICB 29/Jun/01 144,662,873 213,307,369 25,699,683 13,174,356 Oct-2002 17. K149+70-K167+75 32.5 Transport 1st General 1st Co. ICB 18/Dec/00 195,634,672 254,378,444 30,648,005 15,811,561 Oct-2002 18. K167+75-K177+67 18.1 Transport 1st General 3rd Co. ICB 18/Dec/00 119,118,949 160,381,374 19,323,057 9,977,921 Oct-2002 Subtotal (A) 447.8 2,539,599,808 3,432,163,412 413,513,664 185,001,209

B. ADB-Financed Equipment 1. Traffic Engineering 1 6.0 Shanxi Jinzhong Road & Bridge Co. ICB 20/May/02 14,240,985 14,240,985 1,715,781 1,715,781 Aug-2005 2. Traffic Engineering 2 6.0 Shanxi Yuncheng Road & Bridge Co. ICB 19/May/02 15,606,834 15,606,834 1,880,341 1,880,341 Aug-2005 3. Traffic Engineering 3 9.3 Shanxi Luchang Co. ICB 17/May/02 11,196,434 11,196,434 1,348,968 1,348,968 Aug-2005 4. Traffic Engineering 4 Shanxi Jinzhong Road & Bridge Co. ICB 20/May/02 19,000,704 19,000,704 2,289,241 2,289,241 Aug-2005 5. Traffic Engineering 5 Sahnxi Changda Traffic Equipment Co. ICB 19/May/02 13,743,514 13,743,514 1,655,845 1,655,845 Aug-2005 6. Traffic Engineering 6 Shanxi Luchang Co. ICB 19/May/02 13,713,171 13,713,171 1,652,189 1,652,189 Aug-2005 7. Traffic Engineering 7 Sahnxi Changda Traffic Equipment Co. ICB 19/May/02 13,945,917 13,945,917 1,680,231 1,680,231 Aug-2005 21.3 101,447,559 101,447,559 12,222,598 12,222,598 1. Communication, Montor, and Tol

l 17.3 China Energy Infra Industry Co. ICB 7/Nov/03 68,395,227 68,395,227 8,240,389 8,240,389 Oct-2003 11 Appendix 2. Communication, Montor, and Toll China Construction Import and Export Co. ICB 25/Feb/05 1,222,441 1,222,441 147,282 147,282 Feb-2006 3. Communication, Montor, and Toll Schmidt Intl. Co. ICB 28/Apr/05 16,170,922 16,170,922 1,948,304 1,948,304 Sep-2006 4. Communication, Montor, and Toll Shenyang North Traffic Engineering Co. ICB 25/Feb/05 3,115,937 3,115,937 375,414 375,414 Sep-2005 5. Communication, Montor, and Toll Balama Prima Engineering Co. ICB 28/Apr/05 9,699,147 9,699,147 1,168,572 1,168,572 Oct-2005 47 17.3 98,603,674 98,603,674 11,879,961 11,879,961

Appraisal Packaging and Cost Contract Final Amounts Cost Proc. Contract AmountFinal Amount Final ADB Portion 48 Packaging ($million) Contractor Mode Date (CNY) (CNY) Amount ($) Completion 1. Road Safety Equipment 2.0 Wirtgen Hong Kong Co. ICB 28/Apr/05 7,255,844 7,255,844 874,198 874,198 Aug-2005 2. Road Safety Equipment BMW International Co. ICB 28/Apr/05 2,423,203 2,423,203 291,952 291,952 Feb-2006

2.0 9,679,047 9,679,047 1,166,150 1,166,150 11 Appendix 1. Road Manintenace Equipment 2.3 Dynapak (Garmany) Co. ICB 25/Apr/05 1,978,116 1,978,116 238,327 238,327 Aug-2005 2.3 1,978,116 1,978,116 238,327 238,327 1. Road Inspection Equipment 1.1 Jiangu Sainty Intl. Group Co. ICB 25/Feb/05 3,105,049 3,105,049 374,102 374,102 Jan-2006 1.1 3,105,049 3,105,049 374,102 374,102

1. Road Management Vehicle 0.9 Xiusu Intl. Co. ICB 28/Apr/05 2,640,228 2,640,228 318,100 318,100 Dec-2005 2. Road Management Vehicle China Hebei Trade Co. ICB 25/Feb/05 2,126,968 2,126,968 256,261 256,261 Dec-2005 0.9 4,767,196 4,767,196 574,361 574,361 Subtotal (B) 44.8 219,580,642 219,580,642 26,455,499 26,455,499

C. Administration Building and Others 1. Project Administration Cost (Building and Others) GP Mar-2002 106,222,476 106,222,476 12,797,889 0 Dec-2003 Subtotal (C) 0.0 106,222,476 106,222,476 12,797,889 0

D. Provincial and County Link Road 1.0 1. Qixian-Chengzhao-Wenshui 10.2 Jinzhou Communication Construction Co. LCB 6/Jun/02 85,690,000 10,324,096 1,498,831 Dec-2002 2. Pingyao-Fenyang 9.9 Shanxi Communication Constructin and LCB 16/Jun/02 83,570,000 10,068,675 1,373,975 Dec-2002 Development & Investment Co. 3. Jiexiu-Mianshan 2.4 GP Jul-2000 20,160,000 2,428,916 Feb-2001 4. Mahe-Lingshi 5.4 Jinzhoug Communications Construction Co. LCB 6/Jun/02 45,690,000 5,504,819 751,190 Dec-2002 5. Renyi-Nanguan 2.7 Shanxi Communication Constructin and LCB 4/Aug/03 22,870,000 2,755,422 376,006 Dec-2003 Development & Investment Co. 6. Yangzao-Huozhou 2.6 GP Jul-2001 21,500,000 2,590,361 Jun-2002 7. Bozhuang 1.5 GP Jul-2001 12,500,000 1,506,024 Jun-2002 Subtotal (D) 34.6 291,980,000 35,178,313 4,000,001

E. County and Township Road 1. Zecheng 1.0 LCB Mar-2001 8,450,000 1,018,072 138,608 Nov-2001 2. Beizhai 1.3 GP Mar-2001 11,200,000 1,349,398 Oct-2002 3. Lianghekou 0.8 GP Jun-2002 6,800,000 819,277 Feb-2003 4. Baibixiang 3.5 GP Jun-2002 29,200,000 3,518,072 Feb-2003 5. Qianzhuangxiang 1.9 GP Apr-2001 15,750,000 1,897,590 Sep-2001 6. Mengshan 1.8 GP Apr-2001 15,200,000 1,831,325 Oct-2002 7. Mafangxiang 2.8 LCB Mar-2001 23,400,000 2,819,277 293,837 Jun-2002 8. Zhaigeda 1.7 LCB Jul-2001 14,430,000 1,738,554 236,700 Jun-2002 9. Qiaojiayuan 1.4 GP Apr-2001 11,400,000 1,373,494 Sep-2001 10. Shiyanhe 1.0 GP Apr-2001 8,360,000 1,007,229 Sep-2002 11. Yingzhai 1.5 GP Mar-2001 12,920,000 1,556,627 Aug-2002 12. Shicao 1.1 LCB Mar-2001 9,170,000 1,104,819 150,418 Aug-2002 13. Hongdao 0.6 LCB Apr-2001 4,910,000 591,566 80,540 Sep-2001 14. Xipingyuan 1.1 GP Apr-2001 9,120,000 1,098,795 Sep-2001

Appraisal Packaging and Cost Contract Final Amounts Cost Proc. Contract Amount Final Amount Final ADB Portion Packaging ($million) Contractor Mode Date (CNY) (CNY) Amount ($) Completion 15. Daokou 1.8 GP Apr-2001 15,200,000 1,831,325 Nov-2001 16. Jijiayuan 0.7 LCB Mar-2002 6,090,000 733,735 99,896 Oct-2002 17. Weizhuang 1.3 GP Mar-2001 10,640,000 1,281,928 Aug-2002 18. Anfen 1.2 GP Apr-2001 9,880,000 1,190,361 Oct-2001 19. Dahe 2.7 GP Apr-2001 22,800,000 2,746,988 Nov-2001 Subtotal (E) 29.1 244,920,000 29,508,434 1,000,000

F. Domestic Consulting Services 1. Civil Supervision at Office I Shanxi Road Project Engineering Consultant Co. GP Nov-2000 11,125,672 11,239,172 1,354,117 Oct-2003 2. Building Supervision at Office I Shanxi Road Project Engineering Consultant Co. GP Nov-2000 219,870 281,870 33,960 Oct-2003 3. Building Supervision at Office I Shanxi Road Project Engineering Consultant Co. GP Nov-2000 81,800 226,550 27,295 Oct-2003 4. Building Supervision at Office I Shanxi Road Project Engineering Consultant Co. GP Nov-2000 168,784 187,464 22,586 Oct-2003 5. Traffic Safety Equipment Shanxi Road Project Engineering Consultant Co. GP Nov-2000 140,000 153,514 18,496 Oct-2003 Supervsion at Office I 6. Traffic Safety Equipment Shanxi Road Project Engineering Consultant Co. GP Nov-2000 129,995 129,995 15,662 Oct-2003 Supervsion at Office I 7. Civil Supervision at Office II Hebei Tongda Project Engineering Consultant Co GP Nov-2000 2,690,000 2,829,800 340,940 Oct-2003 8. Civil Supervision Site 4 Hebei Traffic Project Engineering Consultant Co. GP Nov-2000 2,928,632 2,741,120 330,255 Oct-2003 9. Civil Supervision Site 5 Weifang City Traffic Project Engineering Center GP Nov-2000 2,890,000 2,844,649 342,729 Oct-2003 10. Civil Supervision Site 6 Shanxi Jinda Traffic Engineering Management GP Nov-2000 2,918,978 2,819,069 339,647 Oct-2003 11. Civil Supervision at Office III Beijing Hualujie Road Project Consultant Co. GP Nov-2000 2,835,327 3,126,327 376,666 Oct-2003 12. Civil Supervision Site 7 Beijing Chengmingda Management Co. GP Nov-2000 2,700,244 2,613,492 314,879 Oct-2003 13. Civil Supervision Site 8 Beijing Yucai Transport Engineering GP Nov-2000 2,993,088 2,926,648 352,608 Oct-2003 Management Co. 14. Civil Supervision Site 9 Beijing Road & Bridge Project Management Co. GP Nov-2000 2,690,200 2,592,150 312,307 Oct-2003 15. Civil Supervision Site 10 Hebei Traffic Project Engineering Consultant Co. GP Nov-2000 3,057,288 3,026,788 364,673 Oct-2003 16. Civil Supervision at Office IV China Transport Intl. Project Management Co. GP Nov-2000 2,394,299 2,365,299 284,976 Oct-2003 17. Civil Supervision Site 11 Tianjin Asia Pacific Project Management Co. GP Nov-2000 2,492,884 2,546,689 306,830 Oct-2003 18. Traffic Safety Equipment Tianjin Asia Pacific Project Management Co. GP Nov-2000 198,361 198,361 23,899 Oct-2003 Supervsion Site 4 19. Civil Supervision Site 12 China Transport Intl. Project Management Co. GP Nov-2000 2,724,367 2,802,767 337,683 Oct-2003 20. Civil Supervision Site 13 Hebei Huada Road Project Engineering GP Nov-2000 2,705,791 2,678,791 322,746 Oct-2003 Consultant Co. 21. Civil Supervision at Office V Shanxi Transport Science Road Project GP Nov-2000 8,646,358 8,599,393 1,036,071 Oct-2003 Consultant Co. Appendix 11 Appendix 22. Traffic Safety Equipment Shanxi Transport Science Road Project GP Nov-2000 187,915 187,915 22,640 Oct-2003 Supervsion Site 5 Consultant Co. 23. Civil Supervision at Office VI Shanxi Transport Construction Project GP Nov-2000 11,551,415 11,618,641 1,399,836 Oct-2003 Management Co.

24. Link Road Supervision Shanxi Yuncheng Road Project GP Nov-2000 337,247 366,397 44,144 Oct-2003 49 Management Center 25. Building Supervision Site 2 Shanxi Huatai Construction Management Co GP Nov-2000 217,950 247,110 29,772 Oct-2003 26. Building Supervision Site 3 Jinzhong City Construction Management Co GP Nov-2000 189,460 302,166 36,406 Oct-2003 27. Building Supervision Site 5 Jinzhong City Construction Management Co GP Nov-2000 98,267 244,755 29,489 Oct-2003 28. Building Supervision Site 7 Jinzhong City Construction Management Co GP Nov-2000 156,000 276,296 33,289 Oct-2003 29. Building Supervision Site 8 Jinzhong City Construction Management Co GP Nov-2000 195,200 297,688 35,866 Oct-2003

Appraisal Packaging and Cost Contract Final Amounts 50 Cost Proc. Contract AmountFinal Amount Final ADB Portion Packaging ($million) Contractor Mode Date(CNY) (CNY) Amount ($) Completion 30. Traffic Safety Equipment Shanxi Cooperation Road Project GP Nov-2000 143,000 156,514 18,857 Oct-2003

Supervsion Site 2 Management Co. 11 Appendix 31. Traffic Safety Equipment Shanxi Cooperation Road Project GP Nov-2000 121,000 134,514 16,207 Oct-2003 Supervsion Site 7 Management Co. 32. Traffic Safety Equipment Beijing Huahong Road & Bridge Management GP Nov-2000 168,772 182,286 21,962 Oct-2003 Supervsion Site 6 Consultant Co. 33. Electricity and Machinery Beijing Qinkehuacheng Technology Information GP Nov-2000 939,295 1,556,170 187,490 Oct-2003 Supervision Consultant Co. 34. Coal Mine Filling Work Hebei Construction Design Institute GP Nov-2000 450,000 692,900 83,482 Oct-2003 Supervision 35. Detailed Design and Other Design 38 Design Packages GP Nov-2000 98,145,004 98,145,004 11,824,699 Oct-2003 36. Bidding Procedure Management CMC International Tendering Co. GP Nov-2000 49,950,839 49,950,839 6,018,173 Oct-2003 37. Research and Quality Control Testing 21 Reserch Packages GP Nov-2000 16,195,300 16,195,300 1,951,241 Oct-2003 38. Office Administration GP Nov-2000 7,201,132 7,201,132 867,606 Oct-2003 Subtotal (F) 5.5 242,979,734 244,685,535 29,480,185

G. International Consulting Services and Training 1. Construction Supervision and 1.5 Jacobs Babtie Group QCBS 24/Nov/00 10,135,510 1,221,146 1,221,146 30/09/2004 Others 2. International Training Apr-2002 2,305,766 277,803 277,803 Dec-2005 Subtotal (G) 1.5 12,441,277 1,498,949 1,498,949

Total 563.3 3,108,382,660 4,551,993,341 548,432,933 217,955,658 GP = government procedure, ICB = international competitive bidding, LCB = local competitive bidding, Proc. = procurement, QCBS = quality- and cost-based selection. Sources: Shanxi Provincial Communications Department and Shanxi Qilin Expressway Company Limited.

Appendix 12 51 TRAFFIC VOLUME PROJECTION

1. Current Traffic Situation. The project expressway partly opened to traffic in November 2002 and full commercial operation commenced on 28 September 2003. Shanxi Provincial Highway Administration Bureau installed a province-wide, computer-based tolling system in 2004, and launched it in 2005. In addition to the tolling system, the system that counts traffic volume between interchanges was introduced.1 Based on the 2005 data, the actual average annual daily traffic on the project expressway was 9,775 vehicles, equivalent to 12,423 passenger car units (pcu), which is about 94% of the traffic volume (13,200 pcu)2 forecasted in the project appraisal report. Given that the project expressway's total toll revenue was CNY287.9 million in 2005, the average toll rate per pcu per kilometer (km) was about CNY0.40. Using that average toll rate, the Project’s 2004 revenue of CNY281.4 million implied total traffic of about 10,927 pcu in 2004, which is about 92% of the appraisal forecast (11,900 pcu). Thus, the traffic forecast in the appraisal report is only slightly higher than the actual traffic volume. Table A12.1 compares traffic volume forecasted at appraisal with the observed traffic volume in 2005.

Table A12.1: Traffic Volume Estimate in RRP and Actual Traffic (2005)

RRP RRP RRP New Estimate Estimate Actual Estimate Growth Estimate Growth Expressway Section 2002 2005 2005 2011 Rate 2011 Rate Chengzhao–Chengnan 16,900 22,800 16,243 41,600 10.5% 28,800 10.0% Mahe–Reni 15,300 21,100 14,880 40,400 11.4% 26,400 10.0% Renyi–Yangzao 7,500 11,200 9,137 24,750 14.2% 16,200 10.0% Mingjiang–Gaogong 4,000 5,300 9,451 9,300 9.8% 16,700 10.0% Tumen–Bozhuang 5,000 6,300 11,616 10,200 8.2% 20,600 10.0% Weighted Average 9,600 13,200 12,423 25,200 11.3% 22,000 10.0% RRP = report and recommendation of the President. Sources: Report and recommendation of the President and Shanxi Qilin Expressway Company Limited.

2. Toll Rate. The slightly lower actual traffic volume figures were mainly caused by toll rates that were 29–200% higher (depending on the vehicle class) than the rates proposed in the appraisal (Table A12.2).

Table A12.2: Toll Rates (yuan per km)

Appraisal Actual Classification Axles Wheels Height Rate Rate A: Cars 2 4 <1.3 m 0.28 0.36 B: Buses 2 4 >1.3 m 0.56 0.54 C: Light Trucks 2 6 <2.5 m 0.28 0.87 D: Medium Trucks 2 up to 8 >2.5 m 0.56 1.41 E: Heavy Trucks up to 4 up to 10 1.00 1.96 F: Heavy Trucks up to 4 up to 14 1.00 2.68 G: Heavy Trucks 5 or more 1.00 3.77 km = kilometer, m = meter. Source: Shanxi Qilin Expressway Company Limited.

1 This system was in full operation only in 2005. 2 The report and recommendation of the President measured traffic volume in terms of medium truck equivalent. However, the current standard unit for expressway traffic volume is passenger car units. Therefore, traffic volumes have been converted into passenger car units.

52 Appendix 12 3. Other Factors for Traffic. Another possible reason for the lower-than-expected traffic volume is that the project appraisal overestimated the amount of traffic that would be diverted from national highway 108 to the project expressway. Highway 108 is still preferred by many coal-shipping trucks as its travel cost—including both tolls and travel time—is perceived to be lower, while regulations on overloading are less strictly enforced. Also, a number of large industrial projects, including thermal power plants, coking plants and steel mills, have been built in the project area. These use locally produced coal and coke, reducing the demand for long- haul shipping on the project expressway.

4. Traffic Volume Reevaluation. To be conservative, the projected average traffic growth rate for 2005–2010 was revised from about 11% (appraisal figure) per year to about 10% per year. The projected average growth rate for 2010–2015 was reduced to 7% from appraisal figure. The expected annual growth rate was assumed to be about 4% (appraisal figure) for the remaining study period (2016–2021).

5. Shanxi Qilin Expressway Company Limited, with the approval of the Shanxi provincial government, is planning to test a new toll structure whereby toll rates are based on both vehicle type and weight. A progressive weight-based toll structure will be applied to freight traffic to fully recover the marginal added operation and maintenance costs caused by freight traffic. This price-discrimination strategy is based on willingness to pay, and is expected to encourage empty and partially loaded trucks to use the project expressway, thereby increasing traffic volume and the Project’s toll revenue. Experience in other provinces, such as Anhui and Shandong, showed that such a strategy could increase toll revenue by more than 50%. In addition, as the road condition of the national highway 108 continues to deteriorate, the operating costs on highway 108 will rise, most likely causing a large number of medium and heavy trucks to switch to the project expressway. Furthermore, as a majority of the project expressway was expanded from four lanes to six lanes, in the long run traffic is expected to grow faster than the appraisal forecast. To be conservative, however, these positive factors on future traffic growth were not considered in this traffic forecast. The updated average annual daily traffic forecast on the project expressway is 13,700 pcu for 2006, growing to 20,000 pcu for 2010 and 36,100 pcu for 2020—all of which are close to appraisal forecasts (14,700 pcu for 2006, 22,600 pcu for 2010, and 37,100 pcu for 2020). Traffic volume projections are given in Figure A12.

Figure A12: Weighted Average Traffic Volume Projections (in AADT pcu) 40,000

35,000

30,000

25,000

RRP 20,000

15,000 PCR

10,000

5,000

0

3 4 8 9 3 4 8 9 0 0 1 0 0 0 2002200 2 200520062007200 2 201020112012 201 2 201520162017201 201 20202021

AADT = average annual daily traffic, pcu = passenger car unit.

Appendix 13 53

FINANCIAL REEVALUATION

A. Financial Projection

1. Consolidated financial statements (income statement, cash flow, and balance sheet) cover 4 years of construction from 2000 to 2003 and 6 years of full commercial operations from 2004 to 2009 (Table A13.1). All accounts and projections are in current prices. Financial data for 2000– 2005 are from Shanxi Qilin Expressway Company Limited’s audited accounting reports; financial projections for 2006–2009 are based on the following information and assumptions.

(i) The domestic inflation rate is projected to be 2.3% in 2006, 3.0% in 2007, 3.2% in 2008, and 2.7% in 2009. The international inflation rate is assumed to be 1.9% throughout the study period. (ii) Operation revenues are estimated based on the traffic forecast and the official toll rates (Table A13.2) set by Shanxi provincial government (SPG) in 2002 to reflect actual construction and operation costs of the entire –Yuncheng expressway, of which the project expressway is an important section. It was assumed that the traffic composition will not change significantly over the study period. (iii) In line with the People’s Republic of China’s (PRC’s) newly enacted tax regulations, the business tax rate was reduced from 5.45% before June 2005 to 3.34% afterwards in order to help loan-burdened expressway companies improve their financial capacity. The corporate income tax rate1 remains 33%. (iv) Operation and management (O&M) costs have increased significantly in the last several years and are expected to increase further. For example, costs of major materials (petroleum, steel, etc.) increased by an average of 40% and labor costs increased by more than 30% (a maintenance worker’s average monthly salary was CNY800 in 2003, but had increased to CNY1,200 by 2006 despite an average domestic inflation rate of only 1-2%). Because of that, an average 20% O&M cost escalation from the appraisal forecast was assumed in the financial projection. (v) Depreciation calculation follows domestic accounting standards and uses the straight-line method. (vi) Actual total Asian Development Bank (ADB) loan proceeds are $241.1 million. The loan has a maturity of 24 years with a grace period of 4 years and a London interbank offered rate (LIBOR)-based floating interest rate. An interest-only loan of CNY400 million from the Bank of Communications (BOC) has a maturity of 10 years and a fixed interest rate of 6.12%. (vii) The grants provided by the Ministry of Communications and SPG are treated as equity capital in the balance sheet.

2. The financial projections indicate that the operation of the project expressway will be profitable from 2008. The working ratio (operating expenses, excluding depreciation, over net operating revenue) will decrease from 18.2% in 2003 to 10.6% in 2009; the debt service coverage ratio will increase from 1.1 in 2005 to 1.2 in 2009, and the return on equity will increase steadily from 2.9% in 2006 to 8.4% in 2009. The results indicate that the forecast revenue is sufficient to cover annual recurrent costs, depreciation, and debt repayments, and generate reasonable profits from 2006, 2 years after the Project’s full commercial operation.

1 For expressway companies in the PRC, if the total net profit of the previous 5 years is negative, no corporate tax will be levied. For this project, the company will start paying corporate tax from 2010.

54 Appendix 13

B. Financial Internal Rate of Return

3. The actual total project cost is $617.5 million (including $64.6 million for rural roads). Compared with the appraised $726.1 million, $108.6 million (CNY901 million), or 15.0% of the estimated total cost, was saved. If the cost of rural roads is excluded, the total cost is $552.9 million—$115.4 million, or 17.3%, lower than the appraisal. Such large savings were mainly attributed to the successful implementation of international and domestic competitive biddings that lowered the cost of civil works and equipment by more than 30%. Shanxi Qilin Expressway Company Limited’s strict enforcement of International Federation of Consulting Engineers (FIDIC) agreements and efficient project management were also keys to the cost savings. It was noted that the company had actively helped contractors lock the prices of construction materials when the market price was low, which significantly contributed to the low project cost.

4. To be comparable to the appraisal analysis, the financial internal rate of return (FIRR) was calculated applying the same methodologies and assumptions as the appraisal. Constant 1999 prices were used to adjust inflation and the Project’s net cash flows were calculated by comparing the situations with and without the Project. The study period covers 2000–2023, including 4 years of construction from 2000–2003 and 20 years of full operation from 2004 to 2023. All the costs and revenues are incremental values incurred by the construction and operation of the Project.

5. The weighted average cost of capital (WACC) was recalculated using the actual capital structure, including an ADB loan of $241.1 million, a Bank of Communications (BOC) loan of $37.2 million equivalent, and $274.6 million equivalent of grants from the Ministry of Communications SPG. Interest rate on ADB’s loan was calculated as the current LIBOR swap rate plus a spread; interest rate on the BOC’s loan was fixed at 6.12%; the PRC government’s cost of capital was assumed to be 8%. The resulting WACC, adjusted by domestic and international inflation rates and the domestic corporate income tax, was estimated to be 3.46%.

6. Given the expected incremental cost and revenue streams, the expected FIRR is 8.2%, which is lower than the appraisal forecast of 9.3%, and the net present value is CNY2,766 million, which is higher than the appraisal estimate of CNY1,756 million (Table A13.3). The lower financial return is primarily a result of the lower than expected toll revenue and higher O&M costs, while the higher net present value is a result of the revised lower capital costs. Sensitivity analysis of FIRR (Table A13.4) shows that the results of the financial analysis are robust. The traffic volume would have to decrease by 54.8%, or the O&M costs increase by 385.6%, for the FIRR to fall below the Project’s WACC. Given the PRC’s experience in implementing ADB road projects, neither situation is likely to happen. Thus, the Project is financially viable.

Appendix 13 55 Table A13.1: Actual and Projected Financial Statements a (CNY million)

For the year ending 31 December 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 INCOME STATEMENT Operating Revenue 83 281 288 362 406 458 518 Business Tax 5 15 12 12 13 14 15 Net Operating Revenue 79 266 276 351 393 444 503 Operating Expenses 103 195 279 281 285 289 293 Operation and Maintenance 15 28 41 43 47 51 55 Depreciation 88 168 238 238 238 238 238 Net Operating Income (24) 71 (3) 70 108 156 210 Interest Expense 39 72 86 141 138 135 131 Net Profit before Corporate Tax (64) (1) (89) (72) (30) 21 79 Corporate Tax Net Profit after Corporate Tax (64) (1) (89) (72) (30) 21 79 CASH FLOW STATEMENT Cash Inflows Operating Income (64) (1) (89) (72) (30) 21 79 Depreciation 88 168 238 238 238 238 238 Net Cash from Operations 24 167 149 166 208 259 317 Government Grant 275 95 82 Shanxi Provincial Government 118 615 680 770 25 ADB Loan 376 568 392 373 163 128 Bank of Communications 200 200 Subtotal Cash Inflows 318 1,466 1,343 1,268 564 312 294 208 259 317 Cash Outflows Application of Funds 107 944 1,751 1,014 628 274 Debt Service 55 58 62 65 Subtotal Cash Outflows 107 944 1,751 1,014 628 274 55 58 62 65 Net Cash Flows 211 522 (408) 254 (64) 38 239 150 197 251 Opening Balance 211 733 325 579 515 553 792 942 1,139 Closing Balance 211 733 325 579 515 553 792 942 1,139 1,390 BALANCE SHEET Current Assets 211 733 325 579 515 553 792 942 1,139 1,390 Fixed Assets 107 1,051 2,802 3,816 4,444 4,718 4,718 4,718 4,718 4,718 Accumulated Depreciation 88 256 494 732 969 1,207 1,445 Net Fixed Assets 107 1,051 2,802 3,728 4,188 4,224 3,987 3,749 3,511 3,273 Total Assets 318 1,784 3,127 4,307 4,703 4,778 4,779 4,691 4,650 4,663 ADB Loan 376 944 1,335 1,708 1,871 1,943 1,885 1,823 1,758 Bank of Communications 200 400 400 400 400 400 400 400 400 400 Equity Capital 118 1,008 1,783 2,572 2,595 2,507 2,435 2,406 2,427 2,506 Total Liabilities and Equity 318 1,784 3,127 4,307 4,703 4,778 4,779 4,691 4,650 4,663 Performance Indicators Working Ratio (%) 18.2 9.8 14.2 11.9 11.5 11.1 10.6 Equity to Debt Ratio 0.6 1.3 1.3 1.5 1.2 1.1 1.0 1.1 1.1 1.2 Debt Service Coverage Ratio 1.6 3.3 2.7 1.6 1.8 2.0 2.3 ADB = Asian Development Bank. a Data from 200–2005 are actual data and for 2006–2009 are projections. Source: Asian Development Bank estimates.

56 Appendix 13 Table A13.2: Toll Rate Structure (CNY/vehicle/km)

Actual (2003–2005) Appraisal (1999) Conversion Proposed Vehicle Toll Factor Vehicle Toll Classification a Rate (MTE) Classification Rates A 0.36 0.50 Cars 0.28 B 0.54 0.50 Buses 0.56 C 0.87 0.75 Light Trucks 0.28 D 1.41 0.75 Medium Trucks 0.56 E 1.96 1.00 Heavy Trucks 1.00 F 2.68 1.50 G 3.77 1.50 H 0.00 1.50 CNY = yuan, km = kilometer, MTE = medium truck equivalent. a: Vehicle classification is explained in Table A10.2. Source: Shanxi Qilin Expressway Company Limited.

Table A13.3: Financial Internal Rate of Return (CNY million) PCR RRP Year Capital O&M Total Total Business Corporate Net Cash Net Cash Cost Cost Cost Revenue Tax Tax Flow Flow 2000 97 97 (97) (1,179) 2001 913 913 (913) (1,428) 2002 1,698 1,698 (1,698) (1,416) 2003 946 15 962 83 5 (883) (692) 2004 430 28 458 281 15 (192) 278 2005 202 41 243 288 12 33 329 2006 43 43 362 12 307 390 2007 47 47 406 13 346 462 2008 51 51 458 15 392 502 2009 55 55 518 17 446 523 2010 57 57 543 18 32 425 600 2011 60 60 564 19 49 436 690 2012 62 62 603 20 62 459 706 2013 64 64 646 21 77 483 592 2014 67 67 691 23 92 510 739 2015 415 69 259 739 24 46 410 757 2016 71 71 791 26 126 568 776 2017 73 73 823 27 137 585 528 2018 420 75 465 855 28 20 342 814 2019 77 77 890 29 161 622 833 2020 79 79 925 31 174 641 853 2021 81 81 962 32 179 670 873 2022 83 83 1,001 33 194 691 893 2023 (2,316) 85 (2,230) 1,041 34 208 3,029 3,500 FIRR= 8.2% 9.3% NPV= 2,766 1,756 ( ) = negative, CNY = yuan, FIRR = financial internal rate of return; NPV = net present value, O&M = operation and maintenance, PCR = project completion report, RRP = report and recommendation of the President. Source: Asian Development Bank estimates.

Appendix 13 57

Table A13.4: Sensitivity Analysis

Item FIRR (%) NPV (CNY million) Switching Valuea Base Case 8.2 2,766 Scenarios: 1. 20% Decrease in Traffic Volume 6.5 1,759 (54.8) 2. 20% Increase in O&M Costs 7.9 2,626 385.6 3. Combine 1 and 2 6.3 1,635 4. 20% Increase in Traffic Volume 9.7 3,781 5. 20% Decrease in O&M Costs 8.4 2,914 6. Combine 4 and 5 9.9 3,945 ( ) = negative, FIRR = financial internal rate of return, NPV = net present value, O&M = operation and maintenance. a Switching value indicates the percentage of decrease in traffic volume (or increase in O&M cost) for the NPV to become zero. Source: Asian Development Bank estimates.

58 Appendix 14

ECONOMIC REEVALUATION

1. The Project comprises a 175.4-kilometer access-controlled expressway between Qixian and Yaodu, and 418 kilometers of rural roads. The economic analysis covers 4 years of project implementation from 2000 to 2003, and the subsequent 20 years of full operation from 2004 to 2023. The economic analysis applied the same methodologies and assumptions as the appraisal, but made adjustments to reflect (i) actual construction costs, (ii) actual operation and maintenance (O&M) costs, and (iii) actual traffic volumes in the past 3 years since the project expressway commenced operation. Comparable with the analysis in the appraisal, constant 1999 prices were used to derive real economic costs and benefits, which are expressed in local currency (CNY) using the domestic numeraire.

2. The Project’s economic costs consist of (i) the capital investment, including land acquisition, resettlement, and environmental mitigation costs; and (ii) O&M costs, including costs of replacing depreciated equipment, routine maintenance, a thorough equipment replacement 10 years after all major equipment was purchased and installed in 2005, and a thorough expressway maintenance project 15 years after commencement of the Project’s full commercial operation. The capital investment was divided into tradable materials and equipment, non-tradable materials, and skilled and unskilled labor. A composite conversion factor of 0.964 was used to project capital costs’ financial prices to their economic prices. Economic benefits include (i) vehicle operating cost savings resulting from reduced travel distance and improved road conditions, (ii) time savings for passenger and freight traffic, and (iii) accident costs savings. Because of data constraints, the economic analysis focuses on the cost–benefit analysis of the project expressway only and does not consider the rural-roads component.

3. The Project’s expected economic internal rate of return (EIRR) is 21.5% and net present value is CNY 3,069 million, higher than the appraisal forecast of 19.0% and CNY 2,926 million (Table A14.1). The higher economic return is primarily a result of lower construction costs. Economic benefits from vehicle operating cost savings, time savings, and accident cost savings are all based on traffic volumes and traffic compositions on the project expressway. As actual and forecasted traffic volumes and compositions do not differ significantly from the appraisal forecast, the total economic benefits are expected to remain similar to the appraisal results. With lower costs and similar benefits, the economic return is expected to be higher than in the appraisal.

4. Sensitivity analysis of the EIRR (Table A14.2) shows that the traffic volume would have to be 60.5% lower, or the O&M costs 1,100.3% higher, for the EIRR to fall below the cutoff rate of 12%. Given that the People’s Republic of China’s economy is projected to continue growing rapidly, and given the Government's experience in successfully implementing ADB road projects, neither situation is likely to happen. In addition, this economic analysis does not consider the benefits from economic multiplier effects, as such effects are difficult to quantify. Such benefits would further increase the economic return of the Project. Thus, the Project is considered viable in economic terms.

Appendix 14 59

Table A14.1: Economic Internal Rate of Return

Costs Benefits Operation Year Capital VOC Time Accident Generated Net RRP Net and Total Total Investment Savings Savings Savings Traffic Benefits Benefits Maintenance 2000 96 96 (96) (142) 2001 884 884 (884) (1,382) 2002 1,640 1,640 (1,640) (1,371) 2003 914 15 929 72 22 0.3 2 97 (832) (473) 2004 416 28 443 477 138 2.2 20 637 193 674 2005 197 41 238 568 148 2.6 37 756 518 785 2006 43 43 642 153 2.8 54 852 809 897 2007 47 47 715 158 3.2 70 946 899 1,008 2008 51 51 874 182 3.9 96 1,156 1,106 1,122 2009 55 55 951 189 4.3 113 1,257 1,202 1,233 2010 57 57 1,026 196 4.5 128 1,355 1,297 1,344 2011 60 60 1,067 197 4.7 133 1,401 1,341 1,449 2012 62 62 1,079 196 4.9 139 1,419 1,357 1,545 2013 64 64 1,163 210 5.1 166 1,544 1,479 1,452 2014 67 67 1,251 225 5.3 193 1,674 1,607 1,736 2015 415 69 484 1,342 241 5.5 222 1,810 1,326 1,833 2016 71 71 1,437 258 5.7 252 1,953 1,881 1,929 2017 73 73 1,491 269 5.9 275 2,042 1,968 1,627 2018 420 75 495 1,546 281 6.2 298 2,131 1,636 2,122 2019 77 77 1,601 293 6.4 321 2,221 2,144 2,219 2020 79 79 1,655 305 6.7 344 2,310 2,231 2,317 2021 81 81 1,707 318 6.9 367 2,399 2,317 2,414 2022 83 83 1,760 331 7.2 389 2,488 2,404 2,512 2023 (2,243) 85 (2,157) 1,782 345 7.5 399 2,534 4,691 5,094 EIRR = 21.5% 19.0% NPV = 3,069 2,926 ( ) = negative, EIRR = economic internal rate of return, NPV = net present value, RRP = report and recommendation of the President, VOC = vehicle operating cost. Source: Asian Development Bank estimates.

Table A14.2: Sensitivity Analysis of EIRR

Item EIRR NPV Switching Valuea Base Case 21.5% 3,069 Scenarios: 1. 20% Decrease in Traffic Volume 19.0% 2,088 -60.5% 2. 20% Increase in O&M Costs 21.5% 3,064 1,100.3% 3. Combination of 1 and 2 18.9% 2,040 4. 20% Increase in Traffic Volume 23.9% 4,153 5. 20% Decrease in O&M Costs 21.8% 3,177 6. Combination of 4 and 5 24.0% 4,218 ( ) = negative, EIRR = economic internal rate of return, NPV = net present value, O&M = operation and maintenance. a The switching value indicates the percentage decrease in traffic volume (or increase in O&M cost) necessary for the NPV to become zero. Source: Asian Development Bank estimates.

60 Appendix 15

LAND ACQUISITION AND RESETTLEMENT

A. Background

1. The Project constructed a 175.4-kilometer (km) access-controlled expressway between Qixian and Yaodu, and upgraded 418 km of rural roads. The expressway alignment goes through Jinzhong, Houzhou, Hongdong, and Linfen prefectures. The upgrading of 418 km rural roads mainly took place on the existing alignment, with some minor alignment adjustments where terrain was difficult.

2. In August 1999, a resettlement action plan was prepared by the Qilin Expressway Construction Administration Division. The resettlement plan, subsequently approved by Asian Development Bank (ADB), provided a basis for resettlement implementation, monitoring, and evaluation.

B. Scope of Land Acquisition and Resettlement

3. The total land acquisition for the Project was 1,312 hectares (ha), 9% more than the 1,208 ha stipulated in the resettlement plan. The main reason for this increase was that the resettlement plan estimates were approximate based on the feasibility study, whereas actual land acquisition was determined by the detailed design. The actual temporary land occupation was 518 ha, which was 54% less than the 1,132 ha estimated in the resettlement plan. The main reason for the lower temporary land occupation was that contractors acquired less temporary land to complete civil works than was estimated in the feasibility study. Table A15.1 below compares planned and actual resettlement activity data.

Table A15.1: Resettlement Activity Data (Resettlement Plan and Actual)

RP Actual Item Unit Difference % (1999) (2003) A. Land Acquisition 1. Permanent ha 1,208 1,312 105 9 2. Temporary ha 1,132 518 (615) (54) B. House Demolition 1. Housing Demolition M2 34,190 58,532 24,342 71 2. Demolition of Buildings belonged to Factories and Institutions M2 15,704 3,758 (11,946) (76) C. Affected People number of 1. Land Acquisition persons 10,776 10,782 6 0 number of 2. Housing Demolition persons 1,612 1,697 85 5 ( ) = negative, ha = hectare, m2 = square meter, RP = resettlement plan. Sources: Shanxi Qilin Expressway Company Limited and resettlement plan.

C. Compensation Standards

4. The resettlement plan specified different compensation standards for irrigated land, dry land, and orchard. During project implementation, the estimated average annual output values per mu (1/15 hectare) for land were changed to the actual annual output values, and the

Appendix 15 61

compensation standards for the three categories of land were changed accordingly (although the land compensation multiplier and resettlement subsidy multiplier were kept unchanged). As a result, the actual compensation rates for irrigated land were decreased 50–60% and the compensation rates for dry land were increased 7–17%. As the compensation multiplier was not changed, the actual compensation rates were sufficient for affected persons to recover their living standards and income. An interview with government officials conducted during the PCR Mission confirmed that there are no outstanding grievances stemming from land acquisition and resettlement. Another change from the resettlement plan was that different compensation standards were adopted in the affected two prefectures. Table A15.2 compares the cultivated- land compensation rates.

Table A15.2: Compensation Rates for Cultivated Land (Resettlement Plan and Actual)

Average annual Land Resettlement Item Area output value per compensation subsidy Total mu multiplier multiplier Unit yuan/mu Time Time yuan/mu Planned compensation for Whole area 970.0 8 5 12,610 irrigated land Jinzhong Implemented 489.5 8 5 6,364 prefecture compensation for irrigated Linfen land 540.5 8 5 7,027 prefecture Planned compensation for Whole area 230.0 8 5 2,990 dry land Jinzhong 245.3 8 5 3,189 Implemented prefecture compensation for dry land Linfen 269.6 8 5 3,505 prefecture Planned compensation for Whole area 970.0 8 5 12,610 orchard Jinzhong 625.0 8 5 8,125 Implemented prefecture compensation for orchard Linfen 767.0 8 5 9,971 prefecture mu = 1/15 hectare, RP = resettlement plan Sources: Shanxi Qilin Expressway Company Limited, resettlement plan, Project Completion Report Mission field visit.

5. No compensation standard comparison could be made for non-cultivated land since it was not mentioned in resettlement plan. However, the actual compensation rate for houses and housing plots was close to that stipulated in the resettlement plan. Table A15.3 compares the planned and actual compensation rates for non-cultivated land and houses.

Table A15.3: Compensation Rates for Non-Cultivated Land

Item Unit Price in RP Actual price Forestland yuan/mu Not mentioned 10,000 Housing plots yuan/mu Not mentioned Same as for irrigated land Wasteland yuan/mu Not mentioned 0 brick concrete houses yuan/m2 266–465 200–350 brick timber houses yuan/m2 200–266 150–200 m2 = square meter, mu = 1/15 hectare, RP = resettlement plan. Sources: Shanxi Qilin Expressway Company Limited, resettlement plan, Project Completion Report Mission field visit.

62 Appendix 15

D. Resettlement Organizations

6. The resettlement division under Shanxi Qilin Expressway Company Limited (SQEC) was responsible for land acquisition and resettlement. During resettlement, the division went through land acquisition formalities, signed contracts and allocated funds, trained the resettlement personnel, and conducted internal monitoring.

7. SQEC established offices in both Linfen and Jinzhong prefectures. The main responsibility of prefecture resettlement officers was coordination and administration of land acquisition and resettlement. Under the prefecture offices, county (district) resettlement offices were established to carry out resettlement under their jurisdiction. County (district) resettlement offices administrated affected townships; township offices administrated resettlement at the village and individual levels. There were designated staff members in every township resettlement office to process matters related to land acquisition and resettlement. Actual resettlement activities were carried out by villages and village groups1 of affected villagers.

E. Resettlement Budget and Actual Payments

8. The actual total cost of land acquisition, house relocation, and resettlement was CNY309.8 million, 10% lower than that the resettlement plan estimate of CNY344.5 million. The main reason for this decrease was the reduced land compensation standards (see para. 4). Table 15.4 compares the planned resettlement budget with actual payments.

Table A15.4: Comparison of Resettlement Cost

Item RP Actual Difference Change Unit (yuan) (yuan) (yuan) % Total resettlement cost 344,505,142 309,798,874 (34,706,268) (10) Major Items Permanent land acquisition 170,847,335 105,922,004 (64,925,331) (38) Temporary land occupation 8,493,370 12,691,248 4,197,878 49 Young crops 11,471,530 8,768,073 (2,703,457) (24) Houses 11,996,030 11,856,495 (139,535) (1) ( ) = negative, RP= resettlement plan. Sources: Shanxi Qilin Expressway Company Limited and resettlement plan.

9. SQEC allocated resettlement funds to each county (district) resettlement office. The funds were then paid to affected villagers and households via township resettlement offices. In general, 50% of resettlement compensation funds were paid when the contracts were signed. The rest was paid upon demolition of the old houses. For land-acquisition compensation, usually 50% of the compensation was paid when the contracts were signed, while the rest was paid about 1 year later. Compensation for temporary land occupation was paid directly to affected households by the civil works construction contractors. The actual compensation rate for temporary land use was less than stipulated in the resettlement plan; however, the total cost of borrowing land was higher because the Project occupied land temporarily for about 3 years, as opposed to the 1 year stipulated in the resettlement plan.

1 In the PRC, villagers are organized into village groups as the lowest level organizations of local governments.

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F. Resettlement Implementation

10. In September 2000, the measurement of land to be acquired and the measurement of buildings and facilities on the land commenced. In February 2001, the acquisition of land and relocation of housing and buildings commenced. Compensation contracts were signed during the same time period. Most of the land acquisition and housing relocation work was completed by the end of 2001, and most of the affected infrastructure was rehabilitated or reconstructed by that time. The civil works construction progressed into 2003, requiring a small amount of sporadic land acquisition and house demolition up until it was completed.

11. After land acquisition was completed, most affected villages formed groups to redistribute cultivated land among villagers. These village groups then used the compensation funds for collective purposes—for example, for reclaiming wasteland for cultivation, improving village infrastructure, or building schools. In a few affected villages where redistribution of cultivated land was not feasible, most of the land compensation funds were allocated to the affected households (with the rest still being used collectively).

12. Most of the demolition of old houses took place in the spring of 2001. New housing plots were provided by the villages or by villager groups free of charge. According to field investigations, the new houses were usually built within 3 months of demolition.

13. The new houses are bigger and of better quality than the old houses, providing improved living conditions for relocated households. Villagers generally preferred to further enlarge or improve their new houses using their savings or money borrowed from friends or relatives.

14. Detailed consultations were held on compensation for demolished buildings owned by factories or public institutions. Payment for such structures covered compensation fees in addition to moving costs, replacement-land costs, and compensation for other losses. For example, Nantougou Coal Mine, relocated in 2001, received CNY6 million of compensation from the Project. The coal mine is satisfied with the compensation and resettlement arrangements. Its annual output value has climbed more than six-fold since 2000, to CNY50 million yuan.

G. Quality Assessment of Resettlement and Rehabilitation

15. According to external monitoring reports, 150 households in 15 villages were selected as samples for visits and interviews, representing a sampling rate of about 7.5% of the 2,000 affected households. The reports mentioned that the per capita annual income of the sampled households grew from CNY1,529 in 2000 to CNY2,012 in 2002—a 32% increase. By comparison, per capita annual income in all of Shanxi province grew about 13% during the same period, according to official statistics.

16. Site visits and investigations during the Project Completion Review Mission found that most affected households were relocated within their original villages so as not to disrupt existing social and economic relationships. The new houses were bigger and of better structural quality. House plots were provided free of charge, and infrastructure such as village roads were built free of charge. Most relocated households were satisfied with the relocation arrangements. No reports of unsettled complaints or grievances were reported. Rather, people interviewed during the site visits expressed satisfaction with the compensation results.

17. Affected factories and public institutions received additional assistance above and beyond standard compensation. Affected infrastructure also received compensation above and beyond that budgeted in the resettlement plan to ensure timely rehabilitation of infrastructure.

64 Appendix 15

18. The field visits found that about 50% of rural laborers in affected villages had found better jobs outside their villages. On average, those villagers have been earning at least CNY6,000 per year since 2001. In addition, the field visits found that more than 70% of total farmers’ household income now comes from non-agricultural sources. Land acquisition thus did not lead to a decrease in household income, while collectively distributed compensation funds provided affected farmers with replacement land, improved agricultural conditions, and cash crop planting opportunities. In addition, project contractors provided employment opportunities for low-skilled laborers. Such work paid CNY20 per day on average, further increasing the incomes of affected persons.

H. Consultation, Monitoring, and Evaluation

19. In September 2000, before implementation of the resettlement plan, resettlement mobilization campaigns were held in affected villages and village groups. During implementation, land compensations were settled by consulting with the affected farmers. The resettlement sites and methods of relocating residents and enterprises and institutions were decided after these consultations.

20. In line with resettlement monitoring requirements, SQEC submitted land acquisition and resettlement implementation reports as internal monitoring reports in July 2001 and September 2003. SQEC also entrusted an independent resettlement monitoring agency, the Shanxi Academy of Social Sciences, to do the external monitoring work. Three resettlement monitoring reports were submitted to ADB by the consultants from 2001 to 2003. However, most of these were survey reports describing survey methodology, survey results, and some conclusions. Other resettlement information, such as information on resettlement organizations, compensation standards, factory and institution resettlement, and infrastructure restoration, was ignored in all three resettlement monitoring reports. However, no action was taken to improve the reports.

I. Rural-Roads Component

21. Chapter 11 of the resettlement plan mentioned that compensation for rural-roads components would follow the regulations of local governments. The PCR Mission found that most rural roads were constructed by county-level communications bureaus. House compensation was paid to affected households at lower rates than those that applied to the expressway component. Meanwhile, no compensation was paid for land loss. After land acquisition was completed, land redistribution within the affected village groups was organized by local governments—a common practice to resettle people affected by construction of rural roads in the PRC.

J. Conclusions and Lessons Learned

22. Based on the findings of the PCR Mission, it can be concluded that resettlement was implemented in accordance with the resettlement plan—with the exception of the compensation standards applied to cultivated land. In order to comply with ADB resettlement policies, project owners 2 should in the future demonstrate that implemented compensation standards for cultivated land are based on the actual annual average output value of the land in the 3 years before land acquisition. Otherwise, the difference should be paid according to the compensation rates stipulated in the resettlement plan.

2 For the Project, SPCD and SQEC were the project owners.

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23. The resettlement activities were carried out by an integrated resettlement organization system established at the provincial (project), city (prefecture), district (county), township, village, and village group levels. The system closely linked resettlement to project construction and encouraged the cooperation of local governments. The agencies involved in resettlement exhibited effective coordination and operation.

24. Prior to and during resettlement implementation, consultation and participation were conducted so that affected persons were informed about compensation policies. Their opinions of resettlement implementation were taken into consideration.

25. Compensation was paid to affected individuals or to collectives of affected individuals. All households affected by house relocation who wished to build new houses have done so free of charge. Affected facilities and affected infrastructure have been rehabilitated or reconstructed.

26. Since 2000, more and more remote villagers have found better jobs outside their home villages. As only a small part of their income was generated by agriculture, land acquisition has not significantly reduced their incomes. Their incomes have generally improved and their income-earning capacity has been strengthened.

27. For ADB, the main lessons from the Project are as follows:

(i) The original resettlement plan was insufficiently detailed. For instance, it did not contain a breakdown of affected land, houses, and people at the county level. Another flaw was that no detailed and accurate survey was conducted during the resettlement planning stage. This resulted in inaccurate projections of resettlement impacts and actual yearly average land output values. A high-quality resettlement plan, updated after completion of the detailed measurement survey, is a prerequisite for successful resettlement implementation. (ii) The resettlement monitoring reports should include more data, such as information on resettlement organizations, compensation standards, factory and institution resettlement, and infrastructure restoration. (iii) For local-roads components, a separate resettlement plan should be prepared and submitted for ADB’s approval, and its detailed compensation standards should be incorporated into the main resettlement plan. External monitoring should also cover implementation of the resettlement plan for local-roads components. More information on the socioeconomic living conditions of persons affected by local-roads components should be included in the resettlement plan. Implementation of local-roads resettlement plans should also be monitored and managed.

66 Appendix 16

SOCIOECONOMIC IMPACTS OF THE PROJECT

A. Introduction

1. The Project is located in two prefectures, Jinzhong and Linfen, including seven affected counties, districts, or cities. During the project preparation stage, per capita incomes in the affected areas were generally higher than the provincial average, but per capita urban incomes were lower. So the project-affected areas were characterized by urban poverty.

B. Stakeholder Analysis

2. The main project stakeholders are the residents along the expressway and its peripheral areas, governments at various levels, and agencies providing services. They are analyzed as follows:

(i) Urban people unaffected by resettlement. The Project provides improved access to link counties and cities and fosters both passenger and freight movement. Expressway transport is faster and provides more comfortable services. As the investment environment has improved, the local economy has achieved higher growth. Urban residents have gained more employment opportunities and earned higher incomes. Statistical data on affected counties indicates that the average wage of employed people increased faster in urban areas than it did in Shanxi province as a whole from 1999 to 2004.

Table A16.1: Average Wage of Employees in Urban Areas (CNY)

Area 1999 2004 Increase Rate Whole province 6,065 12,943 113% Qixian 4,860 11,053 127% Pinyao 4,547 10,459 130% Lingshi 4,301 10,761 150% Jiexiu 4,038 13,915 245% Yaodua 7,580 13,872 83% Hongtonga 6,291 11,329 80% Huozhou 6,132 16,549 170% a As the wages in Yaodu and Hongtong in 1999 were relatively high, the increase rates in Yaodu and Hongtong were lower than those in Shanxi province as a whole. Sources: Shanxi Statistical Yearbook 2000 and Shanxi Statistical Yearbook 2005.

(ii) Rural people unaffected by resettlement. The Project has provided faster and safer transportation. Better transport, in turn, has provided more opportunities to grow and sell cash crops, thus improving farmer income. More information and better services are now available. Data collected at the prefecture level shows that the average net per capita income in Jinzhong increased by 43% from 1999 to 2004, from CNY2,064 to CNY2,949. In Linfen average net per capita income increased by 48% from CNY2,012 to CNY2,976 during the same period. (iii) People affected by land acquisition or house relocation or both. During the project implementation, these people obtained more employment opportunities. Their living conditions have been improved through house relocation. The Project has increased market opportunities for agricultural products and increased

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opportunities for sideline jobs. Better transportation has increased access to income-earning activities.

C. Gender Analysis

3. Before the Project, women in the project area mostly performed household chores and farmwork and had limited employment opportunities. While many young males sought work opportunities outside their home villages, women stayed at home to work on their farms and look after their families and houses. Farmwork involves tilling, seeding, carrying fertilizer, harvesting, and raising livestock. However, with improved transport, many women, especially younger women, are now seeking employment outside their villages. The Project provided them with new income-generating opportunities. During the project implementation, many of the local laborers employed by the contractors were women. Today most employees working in the restaurants, hotels, and shops that have opened in the project area since project completion are women. About 30% of those employed by the expressway toll stations are also women.

D. Poverty Reduction

4. First and foremost, the construction of the Project provided local people with more job opportunities and increased demand for construction materials and services. According to the Executing Agency’s project completion report, during the construction of the expressway 3,000 local unskilled workers were employed, receiving combined total wages of CNY2.1 million monthly. Local people also profited from selling construction materials, opening restaurants and shops, and renting out spare houses to the construction workers.

5. According to local poverty reduction offices’ documents, in Linfen more than CNY20 million per year was invested 1 by municipal and county governments in poverty reduction. The funds were mainly used to construct basic farmland infrastructure: build small irrigation works and country roads, provide drinking water for people and livestock, and provide technical training and popularize practical agricultural techniques.

6. The Project has had a positive effect on poverty reduction in the project area. According to the project performance management system report, in 1999 and 2002 the percentage of people in the project area with annual incomes below CNY1,300 was declined 2% (from 22% to 20% of the total population); the percentage of people with incomes between CNY1,300 and CNY3,000 declined 24% (from 87% to 63%); and the people with per capita incomes above CNY3,000 increased 16% (from 1% to 17%).

E. Socioeconomic Development

7. Per capita income in the project area increased faster than it did in the province as a whole during this period as shown in Table A16.2.

1 The period of this figure is from 2001 to 2005.

68 Appendix 16

Table A16.2: Socioeconomic Statistics

Indicator Year Jinzhong Linfen Shanxi 1999 2,988.52 3,936.22 31,450.81 Total population ('000) 2004 3,065.70 4,092.00 33,350.70 Change (%) 2.58 3.96 6.04 1999 2,286.85 3,105.68 23,138.37 Agricultural population ('000) 2004 1,938.20 2,777.00 20,134.20 Change (%) (15.25) (10.58) (12.98) 1999 12,784.56 15,840.92 150,678.45 GDP (CNY million) 2004 28,172.45 44,873.98 357,140.00 1999 2,001.69 2,460.18 15,996.12 Share (%) 15.66 15.53 10.62 Primary sector (CNY million) 2004 3,302.45 3,394.61 26,180.00 Share (%) 11.72 7.56 7.33 1999 6,022.87 8,086.86 76,072.18 Share (%) 47.11 51.05 50.49 Secondary sector (CNY million) 2004 14,320.00 27,987.94 191,940.00 Share (%) 50.83 62.37 53.74 1999 4,760.00 5,293.88 58,610.15 Share (%) 37.23 33.42 38.90 Tertiary sector (CNY million) 2004 10,550.00 13,491.43 139,020.00 Share (%) 37.45 30.07 38.93 1999 4,277.90 4,024.40 5,230.00 GDP per capita (CNY) 2004 9,189.57 10,966.27 10,741.00 Change (%) 114.8% 172.5% 105.4% 1999 5,828.55 7,808.55 65,356.50 Cultivated land ('000 mu) 2004 5,165.85 6,883.80 57,506.70 Change (%) (11.37) (11.84) (12.01) 1999 1.95 1.98 2.08 Cultivated land per farmer (mu/person) 2004 1.69 1.68 1.72 Change (%) (13.60) (15.20) (17.02) 1999 1,923.75 1,914.45 16,380.45 Paddy and irrigated land ('000 mu) 2004 1,923.60 1,913.85 16,322.25 Change (%) (0.01) (0.03) (0.36) 1999 0.64 0.49 0.52 Paddy and irrigated land per farmer 2004 0.63 0.47 0.49 (mu/person) Change (%) (2.53) (3.84) (6.03) ( ) = negative, GDP = gross domestic product, mu = 1/15 hectare. Sources: Shanxi Statistical Yearbook 2000 and Shanxi Statistical Yearbook 2005.

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8. The economy of project-affected area, defined as Jinzhong prefecture and Linfen prefecture, is growing faster than the economy in Shanxi province as a whole, as shown in Figure A16. While Linfen's gross domestic product (GDP) growth rate has been consistently higher than the provincial average, Jinzhong's GDP growth rate has been more volatile because of the smaller size of its economy. As the expressway construction activities peaked in 2002 and the construction activities decreased in the next year, the growth rate of Jinzhong in 2003 was momentarily affected.2 After the Project was completed, the growth rate of project-affected area has remained higher than the provincial average.

Figure A16: GDP and GDP Growth Rate in Shanxi

DGP Growth CNY Billion Rate 450 18.0% GDP Jingzhong 400 16.0% 350 14.0% Linfen 300 12.0% Shanxi 250 10.0% GDP Growth Rate 200 8.0% Jingzhong 150 6.0% 100 4.0% Linfen 50 2.0% Shanxi 0 0.0% 2001 2002 2003 2004 2005

Sources: Statistical Analysis on Socioeconomic Development of 10th Five-Year Plan in Shanxi province, Statistical Analysis on Socioeconomic Development of 10th Five-Year Plan in Linfen prefecture, and Statistical Analysis on Socioeconomic Development of 10th Five-Year Plan in Jinzhong prefecture.

9. Per capita income in rural areas increased in Shanxi province as a whole to CNY2,590 in 2004 from CNY1,906 in 2000 as shown in Table A16.3.

2 The Asian Development Bank’s disbursements peaked in 2002 at $68.5 million. In the following year, disbursements declined to $ 47.9 million. Because the percentage of Asian Development Bank financing for the expressway civil works was 38% of total expenditure, the actual expenditure for the civil works were $180.3 million in 2002 and $126.1 million. As GDP in Jinzhong Prefecture was $1,865 million in 2002, the reduction of the expenditure, which was $54.2 million from 2002 to 2003, was more than 2% of annual GDP in Jinzhong Prefecture. For about half of the construction activities and its expenditure took place in Jinzhong Prefecture, the reduction of civil works expenditure contributed more than 1% of GDP growth rate reduction factor to the Jinzhong Prefecture.

70 Appendix 16

Table A16.3: Per Capita Income of Rural Area in Shanxi

Increase, Prefectures 2000 2002 2003 2004 2000 to 2004 Taiyuan 2,643 3,077 3,356 3,873 46.5% Datong 1,491 1,848 1,975 2,202 47.7% Yangquan 2,596 2,877 3,112 3,437 32.4% Changzhi 2,202 2,650 2,886 3,263 48.2% Jincheng 2,629 2,707 2,941 3,278 24.7% Shuozhou 2,223 2,307 2,521 2,795 25.8% Jinzhong 2,156 2,380 2,612 2,949 36.8% Yuncheng 1,961 2,157 2,321 2,587 31.9% Xinzhou 1,207 1,410 1,549 1,778 47.3% Linfen 2,195 2,465 2,666 2,976 35.6% Luliang 1,149 1,371 1,491 1,765 53.6% Province 1,906 2,150 2,299 2,590 35.9% Source: Statistical year book of Shanxi province 2005.

10. The higher GDP growth rate in the project-affected area confirmed the Project's positive economic benefits. Significant benefits were also observed in tourism. In 2000 the project- affected area had a share of 19.0% of foreign tourists in the province (Jinzhong 7.8% and Linfen 11.2%), and 12.0% of domestic tourists (Jinzhong 6.5% and Linfen 5.5%). By 2005, the project- affected area's share had climbed to 24.5% of foreign tourists (Jinzhong 17.8% and Linfen 6.7%) and 19.4% of domestic tourists (Jinzhong 10.0% and Linfen 9.4%).

Table A16.4: Number of Tourists in Shanxi Province

International Domestic Prefecture 2000 (%) 2005 (%) 2000 (%) 2005 (%) Taiyuan 47,886 27.3 100,859 23.9 860 29.6 1,408 21.5 Datong 43,273 24.7 80,109 19.0 241 8.3 716 10.9 Yangquan 19 0.0 1,170 0.3 98 3.4 358 5.5 Changzhi 979 0.6 20,298 4.8 145 5.0 537 8.2 Jincheng 1,332 0.8 10,957 2.6 192 6.6 554 8.4 Shouzhou 10,115 5.8 13,306 3.2 69 2.4 176 2.7 Xinzhou 16,686 9.5 46,200 11.0 589 20.3 620 9.5 Luliang 5,095 2.9 10,085 2.4 108 3.7 254 3.9 Jinzhong 13,600 7.8 75,101 17.8 190 6.5 652 10.0 Linfen 19,561 11.2 28,367 6.7 160 5.5 616 9.4 Yuncheng 16,564 9.4 35,006 8.3 251 8.6 653 10.0 Total 175,110 100.0 421,458 100.0 2,903 100.0 6,544 100.0 Source: Statistical analysis of socioeconomic development, 10th Five-Year Plan in Shanxi province.

F. Conclusions

11. The Asian Development Bank-funded Project has contributed to socioeconomic development in the project area by providing employment opportunities, improved social services, and faster, safer, and more comfortable access to markets. Since its completion, the project expressway transportation has been a driver of economic growth in the project area as it provides improved access to markets, employment opportunities, and social services. Socioeconomic conditions in the project area have improved and the Project’s poverty reduction objectives have been met.