ASIAN DEVELOPMENT BANK TAR:PRC 33470

TECHNICAL ASSISTANCE

TO THE

PEOPLE’S REPUBLIC OF

FOR PREPARING THE

GANSU ROADS DEVELOPMENT PROJECT

November 2003

CURRENCY EQUIVALENTS (as of 10 October 2003)

Currency Unit – yuan (CNY) CNY1.00 = $0.1208 $1.00 = CNY8.27

ABBREVIATIONS

ADB – Asian Development Bank DFR – draft final report EA – executing agency EIA – environmental impact assessment EIRR – economic internal rate of return GDP – gross domestic product GPCD – Provincial Communications Department HIV/AIDS – human immunodeficiency virus/acquired immune deficiency syndrome IPSA – initial poverty and social assessment NH – national highway NTHS – National Trunk Highway System PRC – People’s Republic of China TA – technical assistance TFYP – Tenth Five-Year Plan

WEIGHTS AND MEASURES ha – hectare km – kilometer km2 – square kilometer

NOTES

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

This report was prepared by H. Sakurai.

I. INTRODUCTION

1. During the 2002 Country Programming Mission of the Asian Development Bank (ADB), the Government of the People’s Republic of China (PRC) confirmed its request for technical assistance (TA) to prepare an integrated roads development project (the Project) in Gansu Province. The Fact-Finding Mission comprising two domestic consultants visited the project area in June and July 2003, carried out an initial poverty and social assessment (IPSA), and collected necessary information. ADB’s Reconnaissance Mission1 was fielded in August 2003 to discuss with the officials of Ministry of Communications , the Gansu Provincial Government, and the Gansu Provincial Communications Department the final report and findings during the Fact-Finding Mission, and economic, social, and other project-specific issues. This paper is based on the understandings reached on the objectives, scope, costs, consultants’ term of reference, and implementation arrangements for the TA, and the Mission’s observations in the field. The TA is included in ADB’s 2003 program for the PRC,2 and proposed loan is included in the 2005 program. The TA framework is attached in Appendix 1.

II. ISSUES

2. The PRC had about 1.76 million kilometers (km) of roads at the end of 2002. This is the world second largest road network, next to 6.3 million km of roads in the United States. The PRC’s 25,130 km of the expressway network is also second after the United States (about 88,800 km). However, the PRC road network is still underdeveloped in quality and size, and the road density is among the lowest in the world (17.7 km per 100 square kilometers [km2]). The PRC faces constraints and bottlenecks in road transport. Road networks are poorly developed and do not provide access to large parts of the country, particularly in the poorer inland regions. Vehicle numbers are growing at 2–3 times the rate of population, and the urban population has increased from 190 million in 1980 to 360 million in 2001. By 2010, an estimated 700 million people will live in major activity centers. The vehicle and population growth, together with the considerable volume of slow-moving nonmotorized vehicles, contribute to numerous road accidents, hamper traffic flow and cause congestion, and inhibit socioeconomic development.

3. The Government's policies for the road sector are based on (i) constructing expressways to expand the national trunk highway system (NTHS) and link all cities with a population of more than 500,000; (ii) developing secondary roads, particularly those that will help reduce poverty in the rural areas; and (iii) building roads that will support regional cooperation with neighboring countries in the southwest, northeast, and northwest. The NTHS is the heart of the road network, a system of interprovincial expressways and highways of about 35,000 km. It will be complemented by the development of national, provincial, county, township, and village roads. Most of the remaining NTHS sections will be completed together with 195,000 km of interprovincial highways and 150,000 km of rural roads during the Tenth Five Year Plan (TFYP:2001–2005).3 The TFYP will accelerate the road network development on the NTHS and will focus on the major corridors in the western region. The Government views road development as a key component of its strategy to improve access to activity centers and support socioeconomic development particularly in less developed regions with a lower road density. The western development strategy adopted by the Government in February 20004 will (i) facilitate economic and social development in the western region, (ii) link the western

1 Due to the spread of severe acute respiratory syndrome, ADB staff were banned from traveling in the PRC during the fact-finding period. 2 The TA was first listed in ADB Business Opportunities (Internet version) on 13 May 2002. 3 ADB assisted the Government in identifying road sector investment and policy reforms in the southwestern PRC through TA 3086-PRC (ADB. 1998. Technical Assistance to the People’s Republic of China for the Regional Road Sector Study. Manila. 4 Covering the following 12 provinces, autonomous regions, and municipality: Chongqing, Gansu, Guizhou, Inner Mongolia, , Qinghai, Shaanxi, Sichuan, Xinjiang, Xizang, and Yunnan. The three prefectures included in the western development strategy are in Hubei, Hunan, and Jilin. 2 region with the central and eastern regions, (iii) provide the western region with trade outlets at the southern and eastern seaports, and (iv) promote regional cooperation with neighboring countries.

4. The link between transport development and poverty reduction is generally recognized.5 An ADB-financed study in the southwest region6 concluded that poor quality road infrastructure and inadequate transport services in poor areas are major obstacles to economic growth and poverty reduction. The greater the road development, the higher the per capita income.7 The Government has been supporting poverty reduction through road sector investments in several ways. First, the focus on NTHS construction has shifted from the east coast to the central and southwest regions, which have a higher incidence of poverty, and where road density is about 10.5 km/100 km2 compared with 35 km /100 km in the east. Second, the vehicle purchase fee, which has financed about 13% of road sector expenditures, has been allocated largely to financing road investments in poorer provinces. Third, Ministry of Communications grants and provincial communications department resources supplement local government budgets to improve county and township roads. Fourth, through the separate budgeting of poverty reduction funds, road improvements are carried out to link an increasing number of villages to the road network, with corresponding improvement in the quality of transport services. The Government’s measures and road development objectives will contribute significantly to poverty reduction in the western region.

5. ADB’s overarching objective, poverty reduction, has been emphasized in the road sector. The location of ADB-financed road projects has shifted from the northeast and coastal areas to the poorer central and southwest regions. Improving road infrastructure will help create an environment that facilitates economic growth and private sector development in the poorer interior provinces. To enhance poverty reduction impact, the scope of recent road projects has been broadened to integrate local roads with expressways, thus providing better access to poor counties and townships. ADB’s operations strategy supports (i) constructing roads that connect major growth centers and provide access to the western and central regions; (ii) integrating the network so that the NTHS is supported by a system of local roads, particularly those that provide access to poor areas; (iii) promoting road safety and vehicle emission reductions; (iv) strengthening the corporatization and commercialization of expressway organizations; (v) adopting appropriate pricing policies to ensure optimum use of road transport capacity; (vi) addressing traffic safety and environmental issues; and (vii) using alternative methods of investment financing, including private sector participation.

6. Gansu Province is one of the PRC’s five northwest provinces. It is on the upper reaches of the Yellow River and is bordered by Inner Mongolia Autonomous Region; Ningxia Hui Autonomous Region; Xinjiang Uygur Autonomous Region; and Qinhai, Shaanxi, and Sichuan provinces. Gansu’s eastern part won the Loess Plateau; its western part is in the Hexi Corridor known as the ancient Silk Road; its southern part is mountainous and its northern part is marked by the Alasan Plateau and Badanjilin Desert. Remote and isolated in harsh natural conditions, Gansu is one of the PRC’s least developed provinces. In 2001, Gansu’s per capita gross domestic product (GDP) was CHY4,165, the 30th among the PRC’s 31 provinces and autonomous regions, only 55% of the national average. The average rural per capita income was only CNY1,500—63% of the national average of CNY2,366, and 28th among the 31 provinces and autonomous regions. About 50% or more of Gansu’s rural population are living below the poverty line of CNY1,000 per capita per year,

5 ADB. 1998. Technical Assistance to the People's Republic of China for Study on Ways to Support Rural Poverty Reduction Projects. Manila. Also, Fan, S., Zhang, L., and Zhang, X. 2000. Growth, Inequality, and Poverty in Rural China: The Role of Public Investments. Washington, DC: International Food Policy Research Institute. 6 ADB. 1998. Technical Assistance to the People's Republic of China for the Regional Road Sector Study. Manila. The study covered Chongqing Municipality; Gansu Zhuang Autonomous Region; and Guizhou, Sichuan, and Yunnan provinces. 7 ADB. 2002. Road Sector Impact Study: Beijing-Tongjiang Expressway Route in the People's Republic of China. Manila. 3 compared to 3% nationwide8. Most of the poor are in the Loess Plateau and the mountains, and many of them live in abject poverty in a harsh environment.

7. Gansu has 14 municipalities and prefectures that further administer 87 counties and districts and 1,660 townships and subdistricts, including 7 autonomous counties and 40 ethnic minority townships. Gansu’s total land area is 454,430 km2, of which 26% mountainous; 29% plateau; 30% plain and 15% is Gobi Desert. The total population in 2001 was 25.75 million, and about 9% belonged to minorities. Agriculture is the major economic activity. Of its total population, 68% are rural residents. The province has relatively rich land resource and the per capita arable and mountain land areas of rural Gansu were 0.163 hectares (ha) and 0.047 ha, respectively in 2001: 123% and 254% of the national averages. Most of major agricultural products require fast transportation to the markets, especially markets in the eastern and coastal regions. Gansu is abundant in mineral resources, with proven reserves of 81 minerals, including coal, oil, and natural gas. Gansu’s mineral-based industries9 are relatively advanced compared with other northwest provinces. The export of raw material, mineral-based products, and agricultural outputs strongly supported the economic growth of the region. To increase trading capacity, however, its transport infrastructure needs to be further developed. The proposed Project could also help to foster tourism. Gansu was a historic focal point of cultural, social, economic, and commercial exchange between Europe and As ia. It has several tourism sites, cultural relics, scenic desert spots, and the Tibetan pastures. These sites, if combined with those in Ningxia and Shaanxi, could form a primary tourism route in the northwest PRC.

8. The proposed Project is in eastern Gansu, which is part of the drought-prone and heavily eroded Loess Plateau (Map). The alignment is generally parallel to national highway 312, on which traffic volume is reaching its physical capacity and the accident rate is increasing. Among the three alternative roads in the Xi’an- corridor, the combination of national highway 312 and the project expressway would provide the best option for topography, travel time, and safety. The project expressway will be about 232 km long, with 39 medium and large bridges, 5 tunnels, and 9 interchanges. The project facilities are estimated to require a total of 1,072.6 ha. The alignment will start in Luohandong, as the east end (some 30 km from the provincial border between Gansu and Shaanxi) to (70 km southeast of the provincial capital, Lanzhou), as the west end. The Project may include a feeder road upgrading component. The project expressway traverses five counties and districts (Anding, Huining, Jingchuan, Jingning, and Kongtong) in three municipalities, while the project influence area will include five additional neighboring counties and districts. Out of 10 counties and districts, 5 are key working counties for poverty reduction and development. A total of 25,750 km 2 of land with 3,864,200 people will be under the Project’s direct socioeconomic influence. The per capita GDP in these areas was CNY2,392 in 2001, which is far lower than the national and provincial averages of CNY7,543 and CNY4,165, respectively. The population is largely rural, with 89% of people engaged in agriculture. Ethnic minorities, (mostly Hui) comprise 9% of Gansu’s population and 5% of the population in the project area.

9. The lack of rural road access to markets is a serious impediment to increasing agricultural productivity, particularly in the project area. Over 50% of rural townships do not have paved road access to either the county center or to nearby national and provincial highways all such townships are in the mountains. Many mountain villages do not have road access. Poor farm-to-market roads raise both handing costs and post-harvest losses, further depressing returns. While farmers are offered incentives to raise cash crops, poor road access precludes shift. Due to lack of employment opportunities, migration for jobs is quite common in the project area. The proposed Project will (i) create some 73,988 person-years of nonfarm employment locally through the construction of the project expressway, thereby providing the farmers with capital;

8 Estimated by the Provincial Poverty Reduction Development Office. The available official figure of below CNY865 is 36.7%. 9 Including metallurgy, coal mining, petrifaction, and electric power and construction material industries. 4 (ii) absorb surplus local labor, and (iii) improve their standard of living. The Project will help promote the overall social and economic development of eastern Gansu and reduce the widespread poverty in the project area. The Project is listed in the Government’s TFYP and is consonant with ADB’s operational strategy for the PRC and with the western development strategy.

10. The project preparatory work by the Government is well advanced. The English language version of the project feasibility study, prepared by the Gansu Design Institute, was submitted to ADB in August 2003. The final endorsement of the feasibility study by the State Development Reform Commission is expected in December 2003 and the preliminary engineering design will be completed in January 2004 as per Ministry of Communications standards. The environmental impact assessment (EIA) and a draft resettlement plan are scheduled to be completed in December 2003. The IPSA and rapid environmental assessment carried out during fact-finding helped identify the social and environmental issues that will need to be addressed during project preparation, and reviewed the need for a comprehensive assessment of the social context in line with ADB policies and guidelines on social dimensions. The rapid environmental assessment and IPSA are in Appendix 2. The IPSA concluded that key social issues to be analyzed further during project preparation are resettlement and project impacts on poor and minority people.

III. THE TECHNICAL ASSISTANCE

A. Purpose and Output

11. The TA will help the Government prepare an integrated roads development project to support pro-poor economic growth and reduce poverty in the project area.

B. Methodology and Key Activities

12. The TA will assist the Gansu Provincial Communications Department (GPCD) to (i) refine the feasibility study, including the EIA and summary EIA, resettlement plan, and poverty impact analysis for the proposed Project, in conformity with ADB’s requirements; (ii) review the project design and scope to make the project more pro-poor including the need to integrate a local roads and feeder roads component into the Project; (iii) identify important socioeconomic indicators and the monitoring mechanisms; (iv) confirm the technical, economic, and financial viability of the proposed investments; (v) review and update transport and road profiles; (vi) review the organizational structure of road projects financed by the World Bank and ADB and compare the organizational structures of approaches with and without corporatization; and (vii) discuss the major policy issues, assess the poverty impact of the Project (including the poverty impact ratio), and propose measures for maximizing the positive impacts on the poor population in the project area.

C. Cost and Financing

13. The total cost of the TA is estimated at $650,000 equivalent, comprising $294,300 of foreign exchange cost and $355,700 equivalent of local currency cost. ADB will provide $500,000 equivalent to cover the entire foreign exchange cost and a portion of the local currency cost amounting to $205,700 equivalent. The TA will be financed on a grant basis by ADB's TA funding program. GPCD will finance the remaining $150,000 equivalent to cover the costs of office accommodation and support services, communications, local transport in Lanzhou, office supply, and other facilities and services required for the implementation of the TA. The detailed cost estimate is in Appendix 3. The Government has been advised that approval of the TA does not commit ADB to finance any ensuing project.

5 D. Implementation Arrangements

14. A team of international consultants in association with domestic consulting firm(s) will be engaged using the simplified technical proposal procedures based on the quality- and cost-based selection method and in accordance with ADB’s Guidelines on the Use of Consultants and other arrangements satisfactory to ADB for the selection and engagement of domestic consultants. The TA will require a total of 23 person-months of consulting services, including 9 person-months of international and 14 person-months of domestic consultancy, to carry out the study as defined in the outline terms of reference (Appendix 4). The international consultants will provide expertise in (i) highway and traffic engineering, including geotechnical assessment and bridge and tunnel design and construction; (ii) traffic forecast analysis; (iii) transport economics; (iv) expressway management and institutional analysis; (v) financial and investment analysis; (vi) resettlement planning; (vii) poverty and socioeconomic analysis; and (viii) environmental aspects. The domestic consultants will have expertise in (i) highway and structure engineering; (ii) transport economics and financial analysis; (iii) resettlement planning; (iv) environment protection and conservation; and (v) social development and poverty reduction. Equipment to be provided for the consultants under the TA will be procured by the consultants in accordance with ADB’s Guidelines of Procurement.

15. GPCD will be the Executing Agency for the TA and will be responsible for supervision and monitoring of TA activities, and liaison with government agencies and organizations. GPCD will also provide office accommodation and transport arrangement within Lanzhou. The TA will start in January 2004 when the consultants are scheduled to be fielded. The consulting services will be carried out over a 4-month period, with the TA due to be completed at the end of April 2004. GPCD will provide ADB and the consultants with the feasibility study; engineering studies; EIA; resettlement plan; and any other materials, recent studies, and reports required for the implementation of the TA. The consultants will maintain close relationships with the Government and GPCD, and inform them of progress and findings. A tripartite meeting involving the Government, ADB staff, and the consultants will be held in April 2004 in the PRC to provide advice and guidance to the consultants and review their reports.

16. The consultants will submit the following reports (i) inception report including a survey implementation plan with a proposed questionnaire for socioeconomic, resettlement and poverty reduction impact, 3 weeks after commencement of services; (ii) interim report, 7 weeks after commencement of services; (iii) draft final report, draft EIA, summary EIA, draft resettlement plan, and the draft social and poverty assessment report, 11 weeks after commencement of services; and (iv) final report, EIA and summary EIA, resettlement plan, and social and poverty assessment report 2 weeks after receiving comments from ADB, the Government, and GPCD. Two copies of each report in the English and Chinese languages are required for each of the following organizations: MOF, NDRC. MOC, SEPA, and GPCD. ADB requires five copies of each report in English and two copies of each report in Chinese (except for the final report for which eight copies are required in English and three copies in Chinese.

IV. THE PRESIDENT'S DECISION

17. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $500,000 on a grant basis to the Government of the People’s Republic of China for preparing the Gansu Roads Development Project, and hereby reports this action to the Board. 6 Appendix 1

TECHNICAL ASSISTANCE FRAMEWORK

Design Summary Targets Monitoring Risks/Assumptions Performance Indicators Mechanism Goal 1. Promote pro-poor · Economic growth for · Annual economic economic growth and impacted counties and reporting at the national social development in townships. and provincial level, Gansu Province. · Increased trade volume by and provincial and road. county statistics. · Increased in domestic and foreign direct investment in the project area. · Per capita incomes, number of poor people, and access to 2. Reduce poverty in the social services in the project project area. area. · Results of project · Decreased adult illiteracy, performance infant mortality rate, and management system. maternal mortality rate. · Employment generation · Project completion during project implementation report and project and operation, and decline in performance audit the number of poor people. report. Purpose 1. To remove road · Provide about 232 kilometer · Technical assistance · Government cooperation in transport constraints of expressway to link (TA) reports that are providing TA consultants on the economic and Luohandong and Dingxi in accepted by Asian with sufficient information social development in Gansu Province. Development Bank and data. the project area. (ADB) and the · Adequate progress on policy Government. issues. 2. To improve access of · Prepare a local road · Local road component the rural population to component as part of the that is accepted by ADB · Provision of adequate the mainstream Gansu Roads Development and Government, and counterpart financing for economy. Project. adequacy of the local roads and other component to provide complementary sufficient linkage with investments. · Development of (i) a the expressway. participatory monitoring and · Monitoring and · Installation and evaluation plan together with evaluation of the key maintenance of the key key performance indicators, indicators to be indicators databas e, and and (ii) a mechanism for developed during the continued efforts in monitoring during TA, including technical monitoring and evaluation. construction and operation. design. · Adequate Government · Assessment of the with funding and plans. and without project benefits, and comparison with impact of the opening of current road. · Review missions and consultant’s reports. Outputs 1. Refine and improve the Project feasibility study improved · Consultant’s draft final · High quality services Government’s to a level suitable for ADB report (DFR) provided by the international feasibility study financing. · Updated feasibility and domestic consultants. and preliminary design study report, and · Sufficient information and for the Project in resettlement plan to be data made available for TA conformity with ADB endorsed and accepted implementation. requirements. by ADB. Appendix 1 7

Design Summary Targets Monitoring Risks/Assumptions Performance Indicators Mechanism 2. A feasibility study to A local road component · Review of the DFR. Continued Government identify local roads for proposed and justified. · Local road component initiatives to reduce poverty. linking poor counties accepted by ADB and and townships to the the Government. road network. 3. Review the · Findings from the review of Review of the DFR during Sufficient data and information Government’s the EIA included as part of the tripartite meeting provided by the Government. environmental impact the DFR. involving the Government, assessment (EIA) and · Summary EIA prepared. ADB, and consultants. prepare a summary EIA in accordance with ADB guidelines. 4. Strengthen private · Private sector financing · Review of the DFT Capacity and capability of the sector participation in modalities that may be · Discuss with the World provincial government and the the Project and assess considered for the Project. Bank project executing agency to undertake such possibilities for · Suitable cost recovery implementation unit re private sector transactions. the project design. mechanism for toll roads. the performance. 5. Prepare a social · Social analysis included as · Review of the DFR Sufficient information and analysis of the Project part of the DFR. during the tripartite assistance provided by the and design a · Impacts on poverty reduction, meetings. Executing Agency. monitoring system. land acquisition, and · DFR accepted by ADB involuntary resettlement and the Government. addressed. · Social impact monitoring system. 6. Prepare a resettlement · Resettlement plan indicating · DFR. · Consistency of Government plan for the Project. the socioeconomic impacts of · Tripartite meetings. policies on land acquisition the Project and impact of and resettlement. involuntary resettlement, including on minorities. Activities and Inputs 1. 9 person-months of Timely recruitment of consultants · Evaluation of Timely management approval of international consulting in accordance with ADB consultant’s proposals. the TA. services and 14 guidelines. · Contract negotiations. person-months of · Review missions. domestic consulting services. 2. Information and data, · Nomination of efficient TA review missions and Good cooperation of necessary facilities, counterpart staff and delivery performance of the TA Government agencies and and assistance of funds as required. consultants; quality of the Executing Agency; availability of provided by the · Timely submission of DFR and TA qualified counterpart staff. Executing Agency and information and data. implementation. Government agencies concerned. 3. Good quality ADB Timely review of TA Inception mission, TA Close monitoring of TA supervision of the TA. implementation and appropriate review mission, and implementation by ADB and guidance provided by ADB. tripartite meeting. timely fielding of review missions. 4. TA financing of · TA paper approved by ADB. Internal review of the TA $500,000 on a grant · TA letter signed by the ADB paper. basis by ADB's TA and the Government. funding program.

ADB = Asian Development Bank, DFR = draft final report, EIA = environmental impact assessment, TA = technical assistance.

8 Appendix 2

SOCIAL AND ENVIRONMENTAL ASSESSMENTS

A. Rapid Environmental Assessment

1. Table A2.1 shows the result of rapid environmental screening.

Table A2.1: Environmental Screening Answer Screening Questions Remarks Yes No Project Siting

Is the Project area adjacent to or within any of the following ecologically sensitive areas? Protected Area X Kongtong Mountain, a natural Wetland X conservation area, is a well- Mangrove X known tourism spot. Estuarine X Buffer zone of protected area X Special area for protecting biodiversity X Potential Environmental Impacts Will the Project cause…

Encroachment on historical/cultural areas: X

Disfiguration of landscape by road embankments, cuts, X fills, and quarries?

Encroachment on precious ecology (e.g., sensitive or X Only local sensitive protected areas)? ecology that can be mitigated

Alteration of surface water hydrology of waterways X crossed by roads?

Increased sediment in streams affected by increased X Possible impacts will be soil erosion at construction site? minimized

Deterioration of surface water quality due to silt runoff X Measures will be taken to and sanitary wastes from worker's camps and prevent pollution chemicals used in construction?

Increased local air pollution due to rock crushing, X Minor impacts that can be cutting and filling works, and chemicals from asphalt avoided or mitigated processing?

Noise and vibration due to blasting and other civil X Minor impacts that can be works? avoided or mitigated

Other social concerns relating to inconveniences in X living conditions in the project areas that may trigger upper respiratory problems and stress?

Hazardous driving conditions where construction X Possible, needs mitigation interferes with preexisting roads?

Appendix 2 9

Answer Screening Questions Remarks Yes No Poor sanitation and solid waste disposal in construction X Mitigation may be considered. camps and work sites?

Possible transmission of communicable diseases from X More awareness and workers to local populations? preventive campaign should be considered. Creation of temporary breeding habitats for mosquito X Minimal, but mitigation may be vectors of disease? considered.

Dislocation and compulsory resettlement of people X Significant impact; full living in right -of-way? resettlement plan required

Accident risks associated with increased vehicular X Road safety program may traffic leading to loss of life? need to be developed.

Accidental spills of toxic materials? X Design considerations and emergency response plan may need to be prepared. Increased noise and air pollution resulting from traffic X Noise impacts will be minimal; volume? vehicle emissions will be reduced Increased risk of water pollution from oil, grease, and X With road safety programs, fuel spills, and other materials from vehicles using the risks will be mitigated. road?

2. The proposed ensuing Project will likely fall into environmental category A and if so, a full environmental impact assessment (EIA) will be needed. Further, a summary EIA will be needed and must be circulated to the Asian Development Bank’s Board of Directors 120 days prior to its consideration of the loan Project. The terms of reference of the summary EIA should include examination of the Project's impacts on (i) land use and protected areas, (ii) noise and air quality, (iii) water, (iv) traffic safety, (v) local community disturbances, and (vi) cultural relics, among other things. The terms of reference should also ensure that appropriate mitigation measures and management procedures are specified and their costs are estimated and included in the civil works contracts in conformity with the Asian Development Bank's guidelines.

10 Appendix 2

B. Summary Initial Poverty and Social Analysis

3. Tables A2.2, A2.3, and A2.4 present the poverty and social information.

Table A2.2: Summary Analysis

1. Linkages to the Country Poverty Analysis Sector identified as a national priority in Sector identified as a national priority in country poverty analysis? Yes country poverty partnership agreement Yes

Contribution of the sector/subsector to reduce poverty in the People's Republic of China: The transport sector and the road subsector contributes to poverty reduction directly through improved access to market, employment opportunities, and social services, and indirectly by stimulating economic development.

2. Poverty Analysis Proposed Poverty Classification: Others

Out of the total 87 counties and districts in Gansu, 43 are national and 8 are provincial level poor counties. (Starting in 2001, currently it is named key working counties for poverty reduction and development. Prior to 2001, they were referred as state designated poverty-stricken counties.) At the lower level of administrative units, Gansu has 919 poor townships out of its total of 1,533 townships, and 8,790 poor villages among 17,834. About 36.7% of the rural people live under CHY865 (the national standard for poor, per capita rural income per annum, in 2000 prices) in Gansu in 2001. About 50% of rural people are living under CHY1,000 in 2001. Table A2.3 summarizes the overall poverty situation of Gansu and the project area.

The project area includes 5 national level poor counties among its 10 counties. The area includes about 1.26 million rural poor, 37.3% of the total rural population, who earn under CHY865 (national standard for poor, per capita rural income per annum, in 2000 prices) in 2001. About 50% of rural people are living under CHY1,000.

The average rural per capita income per annum ranged from CHY1,165 () to CHY1,893 (Kongtong ) among the 10 project counties and districts in 2001. The rural income in the project area as a whole was just CHY1,387 per person in 2001, far lower than the provincial average of CHY1,500. In (the regional urban center of the Municipality) and Huating County (the coal-mining area), where there are more employment opportunities, the rural per capita income was higher than the provincial average. The rural poor are almost exclusively concentrated in mountains where drought is the most striking constraint. In addition to extreme drought, other causes of poverty include limited access to markets and employment opportunities, and poor distribution of services and inputs. The Project will help the rural residents to overcome these constraints.

Urban poverty is also widespread in the project area. The urban poverty incidences, shown in Table A2.4, range from 7.0% to 20.7% in the five counties that the fact-finding mission visited. Lack of employment opportunities, together with the competition from rural migrants, are the main causes of urban poverty.

The Project will greatly facilitate the urban expansion of Kongtong and Anding districts; therefore it will create more employment opportunities and thus help reduce poverty. The Project will also help extend the coal marketing coverage of Huating County to as far as to Dingxi and Lanzhou cities, thus increasing its mining capacity and absorbing some urban poor and more rural migrants. Encouraged by this Project, the local coal mining authority has planned to increase its production from the current 8.9 millions tons to 15 million tons in 3–5 years. Over 90% of coal marketing has to be dependent on road transportation.

3. Participation Process Stakeholder Analysis. Public consultation and consultations with nongovernment and government organizations will be carried out by the Executing Agency, local government officials, a research institute, and other institutes during preparation of the feasibility study, poverty assessment, environmental impact assessment, and resettlement plan. Participation Strategy Required? Yes Appendix 2 11

4. Potential Issues Significant/ Not Plan Required Significant/ Strategy to Address Issues Uncertain/ None Resettlement Plan will be prepared following the Land Full Resettlement Significant Administration Law and Asian Development Bank policy. The plan will be disclosed to the public and affected people. Internal and external monitoring arrangements will be put in place. A road development project of this kind is normally None Gender Not gender neutral. Asian Development Bank policy on Significant gender and development will be followed by the Executing Agency during project preparation and implementation. Gansu Province’s toll policy and strategy will be reviewed None, but issues Affordability Not during the project preparatory technical assistance. Toll will be studied Significant setting needs to take into account affordability, historical further. local economic growth and prospects, pricing of other transport modes, and economic costs and benefits of the project expressway. Expressway construction and new transportation services None Labor Not will generate employment, particularly for the poor. The Significant local labor departments will help identify available labor, with priority given to people from poverty blocks. The project area includes 4.6% minority people (of which Possibly Indigenous Uncertain over 95% are Hui, which are almost identical to the People/ majority Han. ) A few Hui communities in the Kongtong The resettlement Ethnic Minorities District will be affected by land acquisition but they will be plan will include a compensated under the resettlement plan. section on ethnic minorities.

Impact on Tourism. The project area is being developed None, but issues Other Risks/ Not as a major tourist attraction. The Project will greatly will be studied Vulnerabilities Significant enhance the expansion of tourism. Mitigation measures further. to protect the ecology and cultural heritage will be included in the environmental impact assessment. Impact on HIV/AIDS. The Project is not expected to None, but issues increase the incidence because there is a well- will be studied established epidemics prevention system. The system further. was strengthened and functioned effectively during the nation-wide anti-severe acute respiratory syndrome campaign in 2003. The system will help carefully address this public issue.

12

Table A2.3: Poverty Data of Gansu and the Project Area, 2001 Rural National Poor Poor Poor County/ Poor Villages a Municipality Townships Villages Population Level Poor Townships (< CNY865) (< CNY1000) Appendix 2 District (‘000) Qty % Qty % Qty % Qty (‘000) % Qty (‘000) % Dingxi Anding 26 306 388 1 19 73.1 134 43.8 127.6 32.9 — — Huining 33 348 562 1 24 72.7 212 60.9 218.9 39.0 — —

Pingliang Jingning 30 392 444 1 27 90.0 215 54.8 196.5 44.3 — — Kongtong 21 252 307 — 9 42.9 123 48.8 91.1 29.6 — — Jingchuan 18 215 309 — 9 50.0 102 47.4 81.9 26.5 — — Huating 12 117 129 — 4 33.3 58 49.6 46.9 36.4 — — Chongxin 10 79 82 — 5 50.0 41 51.9 35.1 42.9 — — Lingtai 16 227 206 — 8 50.0 108 47.6 135.7 65.8 — — Zhenyuan 24 269 476 1 14 58.3 92 34.2 169.1 35.5 — — Ningxian 23 317 486 1 6 26.1 38 12.0 160.7 33.1 — — Project 10 213 2,522 3,389 5 50.0 125 58.7 1,123 44.5 1,263.5 37.3 — 50.0 Area Gansu 87 1,553 17,834 20,395 43 49.4 919 59.2 8,790 49.3 7,487.9 36.7 — 50.0 Province Dingxi 7 165 2,043 2,639 7 100.0 109 66.1 989 48.4 876.8 33.2 — 50.0 Municipality Baiyin 5 79 816 1,358.0 1 20.0 31 39.2 276 33.8 450.8 33.2 — 50.0 Municipality Pingliang 7 130 1,714 1,879.8 2 28.6 79 60.8 902 52.6 745.4 39.7 — 50.0 Municipality Qingyang 8 146 1,489 2,222.2 5 62.5 68 46.6 490 22.7 886.6 39.9 — 50.0 Municipality a Estimation made by the provincial poverty reduction and development office. — = not available. Source: County/district governments.

Table A2.4: Urban Poverty Data of Selected Project Counties, 2003 County/ Subdistrict Urban Urban Urban Ppoor Poverty Line Municipality District (or Urban Communities Population Wards) Qty % CNY/capita/month Dingxi Anding — 11 61,233 9,558 15.6 117a Baiyin Huining — — 5,820 5,348 20.7 104 Pingliang Jingning — 4 27,963 2,516 9.0 104 Kongtong 3 — 166,836 27,528 16.5 117a Huating 1 15 55,900 3,894 7.0 104 a Urban center of the municipality. — = not available. Source: County/district governments. Appendix 3 13

COST ESTIMATES AND FINANCING PLAN ($'000)

Foreign Local Total Item Exchange Currency Cost A. Asian Development Bank Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 207.0 0.0 207.0 ii. Domestic Consultants 0.0 98.0 98.0 b. International and Local Travel 36.0 5.0 41.0 c. Reports and Communications 2.0 15.5 17.5 2. Equipmentb 20.0 0.0 20.0 3. Surveys, Miscellaneous Administration, Transportation Cost Outside Lanzhou, 2.5 73.0 75.5 and Support Costs 4. Representative for Contract Negotiationsc 5.5 0.0 5.5 5. Contingencies 21.3 14.2 35.5 Subtotal (A) 294.3 205.7 500.0

B. Government Financing 1. Office Accommodation and Transport 0.0 100.0 100.0 2. Remuneration and Per Diem 0.0 35.0 35.0 of Counterpart Staff 3. Others 0.0 15.0 15.0 Subtotal (B) 0.0 150.0 150.0 Total 294.3 355.7 650.0 a Financed by ADB’s TA funding program. b Including 6 sets of computer hardware and software, 1 photocopier, 1 scanner, 1 binding machine, 1 facsimile machine, and accessories to be procured under the consultants’ contract and whose ownership will be transferred to the Government. c Includes cost of travel to Manila and per diem for government’s observers attending consultants’ contract negotiations at ADB headquarters. Source: Asian Development Bank estimates .

14 Appendix 4

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

1. The services to be provided by the consultants will cover, but not be limited to, the following areas.

A. Highway and Structural Engineering (international and domestic consultants for 1 person-month each) 2. Review all technical aspects presented in the feasibility study and preliminary engineering designs of the expressway component of the proposed Project. Based on design route, review the alignment alternatives (specifically the section crossing the urban Kongtong District) and the geometric design, including horizontal and vertical profiles. Review the provision for extra lanes for slow moving vehicles if necessary, pay attention to a connecting point at the border with the Ningxia Hui Autonomous Region, and recommend design changes. Review the soils and geotechnical investigation reports; review feasibility study and preliminary design of tunnel profiles; location of tunnel portals, structures, initial and permanent tunnel ground support, waterproofing and drainage, ventilation and fire fighting and safety aspects, and planned construction methods; and recommend design and construction method improvements.

3. Review bills of quantities, unit prices, and costs of (i) civil works for expressway construction and relevant relief road construction, and (ii) equipment and other facilities to be procured under the Project. Prepare the project cost estimate, using the COSTAB software. Review the proposed contract packaging for works, equipment, and services to be procured under the Project. Recommend the appropriate number and scope of contract packages to be procured through international bidding procedures in accordance with the Asian Development Bank (ADB) requirements. Review construction supervision requirements, recommend appropriate international and domestic supervision consultant inputs, and estimate the associated costs. Prepare a project implementation schedule covering all project components, including the expressway and relief road construction and local road development program, procurement of equipment, and consulting services for construction supervision.

4. Identify an improvement program for secondary and tertiary road networks, including county and township roads with particular attentions to roads in poor counties and to poor townships in this component. Review the current road safety statistics available in Gansu. The review should cover the entire Gansu road network including provincial, county, and township roads. Prepare for the project area a specific road safety plan to reduce accident on the existing roads. Recommend road safety improvement measures.

B. Transport Economics (international and domestic consultants for 2 person-months each) 5. Review the current status and future plans (2001–2010 plan) for road development in Gansu Province and the project area (prepare maps). Prepare a comprehensive economic profile of the project area. In collaboration with a financial analysis expert, describe the current road development and maintenance system including programming, human resources, and financing sources, at the province, municipality, county, township, and village levels. Review the provincial government revenues and expenditures of the road sector by type of roads, and forecast the same over 2004–2010. Determine whether the increase in expressway expenditures is crowding out expenditures for the construction and maintenance of other types of roads. Assess the alternative routes from Xi’an and Lanzhou in terms of design standards (class), distance, travel time, traffic volume, construction plan, etc. Also assess the demand for transit traffic between Xi’an and Lanzhou and local traffic in the Gansu-Ningxia area. Review and update traffic counts and origin-destination surveys. Analyze traffic data and obtain information on the traffic patterns by vehicle type and transport mode in Gansu and the project area. Assess the capacity of the road network in the project area. Review the vehicle operating Appendix 4 15 costs by vehicle type, and evaluate them on the existing road and the proposed expressway. Assess travel time saving, changes in travel pattern and efficiency of traffic flow movements, transport-cost savings, and any other project benefit, using appropriate shadow prices.

6. Assess the without-project situation. In addition to the maintenance cost of the existing roads, indicate any expenditure that would have to be made without the Project to accommodate the anticipated traffic increase. Review and update parameters used for computation of diverted traffic from existing roads and other transport modes. Assess the diverted traffic depending on toll charges and capacity constraints of existing roads along the National Highway 312. Prepare detailed expressway traffic forecasts for each type of vehicle for normal, generated, and diverted traffic, and assess the anticipated average annual daily traffic. Assess the impact of toll charges on the traffic forecasts. Select major local commodities and estimate how the impact of reduced transportation cost on the production of each such commodity in with- and without project scenarios. Describe the cases for typical beneficiaries (small farmers and manufacturers). The reduction of transportation cost should be examined for inbound and outbound traffic. Assess quantitatively how much production/benefit can incrementally be generated.

7. Undertake the economic evaluation of the Project, according to the Guidelines for Economic Analysis of Projects of the Asian Development Bank (ADB), by comparing the with- and without-project cases. Value project costs and benefits in economic prices. Tentatively, a standard conversion factor of 0.926 or a shadow exchange rate factor of 1.08 should be used. Calculate relevant economic prices for different types of project labor. Calculate the net present value of each project component using a discount rate of 12%. Calculate the economic internal rate of return (EIRR) for the expressway and the local roads, and for the Project as a whole. Undertake sensitivity analysis by identifying the most critical factors and determine the impact of such factors on the EIRR, including, but not limited to, varying project costs, benefits, toll rates, implementation period, traffic, and a combination of these factors. Indicate the toll levels for which the EIRR falls under the cutoff rate of 12%. Calculate switching values and compare the results with those obtained for ongoing or completed expressway projects in Gansu. Carry out a risk analysis (using the Monte Carlo method) by considering the possible values for key variables based on the past records, and their occurrence probability. Carry out the risk analysis in accordance with ADB's Handbook for Integrating Risk Analysis in the Economic Analysis of Projects. Recommend ways by which project risks may be reduced.

8. In collaboration with the social and poverty analysts, (i) identify types of traffic that will benefit the poor; (ii) identify a systematic way to track down project benefits to the poor and identify linkages between the project and poverty reduction; (iii) define a set of criteria for selection of the local roads, to be agreed upon with the executing agency (EA); (iv) prepare a local road component to complement the expressway, considering local road development plans and the economic and social benefits of roads; (v) carry out a distribution analysis of project benefits, and calculate the poverty impact ratios for the expressway component alone and the Project, including the local road component, in accordance with ADB'S Guidelines for the Economic Analysis of Projects (appendixes 25 and 26), and Handbook for Incorporating Poverty Impact Analysis into Economic Analysis of Project; (vi) analyze how improved road transport facilities and services will contribute to the social and economic development of the province and the project area; (vii) assess the impact of the Project in supposing pro-poor growth and poverty reduction in the project area, in terms of a share of benefits accruing to the poor (monetary value and headcount ratio); (viii) examine structural and other constraints that inhibit inclusive growth and how they may be addressed in this Project and other complementing investment operations; and (ix) assess the role of the Project in promoting interprovincial trade, developing domestic markets, and generating direct and indirect

16 Appendix 4 employment opportunities. Propose monitoring and evaluation schemes, including major monitoring indicators.

C. Financial Analysis (international and domestic consultants for 1 person-month each)

9. Review and update the financing plan for the proposed Project including ADB and domestic bank loans, financing from Ministry of Communications, Gansu Communications Department, and other sources. Review and evaluate the current and proposed toll collection procedures and government regulations for determining toll charges. Undertake a financial evaluation of the Project in accordance with ADB's Guidelines for the Financial Governance and management of Investment Projects Financed by the ADB (2001). Calculate the financial internal rate of return in real term based on the anticipated traffic and the proposed toll rates. Justify and propose appropriate toll rates by types of vehicles. Undertake sensitivity analysis by varying the toll rates using the Ministry of Communications-ADB's Toll Diversion Model Application Manual.

10. Prepare in current values the financial projections for the proposed expressway operating entity over a 10-year operation period. Calculate the debt ratio and working ratio, and assess financial sustainability. Review the internal control, accounting, and auditing practices for existing expressways, and recommend improvements. To support good governance in the subsector and based on the ongoing expressway securitization processes in Gansu Province, recommend a corporate structure and appropriate schedule to achieve sound and sustainable commercialization of the expressway operating entity. Review the current status of private sector participation in expressway development and operation in Gansu Province. Assess the possibility of adopting public-private partnership or private sector financing modalities such as build-operate-transfer, leasing, and/or cooperative joint ventures into the project design. Assess the financial and operating performance of the completed World Bank project in Gansu and describe any lessons learned and the possibility of introducing private sector investment in the World Bank project. In collaboration with transport economist, analyze the elements that support provincial road investments and prepare the outlook of such elements as sustainable fund sources. Analyze the cost recovery mechanism of toll roads in Gansu Province and recommend modalities suitable for the project expressway to apply cost recovery principle. Assess fiscal impact on road investments in Gansu Province. Examine the financial sustainability of rural and local roads by different class in comparison with each corresponding investment. List the organizational type of the EA for the major ADB-financed and the World Bank financed projects in the People’s Republic of China (PRC). Analyze the organizational structure of the Gansu Provincial Communications Department and prepare an organization chart showing each function.

C. Social and Poverty Analysis (international consultant for 2 person-months, domestic consultants for 4 person-months) 11. Prepare socioeconomic and poverty profiles of Gansu and the project area at the municipality, county and district, and township levels. Information should include, but not limited to population, ethnic minorities, average income level by population type, health, education, housing, and access to infrastructures. The poverty profile should follow the classification agreed upon between ADB and the Government. Information is to be obtained from statistical records, and field survey using participatory assessment techniques. Prepare a detailed field survey plan for ADB approval. Develop a profile of quantity, quality, and prices of transport facilities and services available to the poor in the project area, with particular attention to accessibility and safety issues associated with transport activity.

12. Following the initial poverty and social assessment (IPSA), undertake a social and poverty analysis in accordance with ADB's poverty reduction strategy and Guidelines for Appendix 4 17

Incorporation of Social Dimension in Projects.1 Based on secondary data sources and the additional primary data collected during the field survey, review and analyze the income distribution and establish the income distribution patterns. Assess the poverty incidence based on nonincome criteria in accordance with the methodology developed under an ADB technical assistance2. The poverty and social analysis will include (i) identifying the potential urban and rural beneficiaries and the population likely to be affected adversely, (ii) assessing the affected populations' needs and demands and ways by which their participation may be ensured; (iii) identifying potential social risks of the Project, (iv) examining gender issues and potential health impacts separately for the project implementation and operation phases, (v) consulting with minority peoples living in the project area as identified in the IPSA and assessing the impact of the project on them, and (vi) identify measures to prevent the spread of sexually transmitted diseases in construction camps and during expressway operation.

13. Assess the impact of the Project on poverty reduction both from qualitative and quantitative aspects and prepare the poverty impact matrix. Describe the poverty situation in the project area using a selection of indicators, including those used by Millennium Development Goals and the PRC Leading Group of Poverty Reduction. Consider macro effects resulting from economic growth as well as micro impacts resulting from improved access. Demonstrate how economic growth will be relevant to, and can be made even more relevant to and inclusive of, the poor and minority populations. Based on an analysis of the poverty reduction spec ific to the project area, identify which factors need to be modulated, and how, so that effective complementarity with road infrastructure development is achieved and accelerates the poverty reduction and social development impact in the project area. Assess the economic impacts of the local roads development program on the poor population and minority people. Assess the prospects for generating incomes for poor communities through direct and indirect employment creation in project construction and operation. Based on the outcomes of the social and poverty analysis, recommend key issues to be addressed in preparing, designing, and implementing the Project, including monitoring and evaluation systems. Recommend (i) a set of income and nonincome indicators to monitor the poverty reduction impact of the project, and (ii) appropriate time-bound framework and mechanisms for monitoring the socioeconomic impacts.

14. Review the government's policy and ongoing and planned programs for poverty reduction in Gansu and the project area. Analyze how the Project will complement these efforts to reduce poverty. Identify and describe ongoing and planned poverty reduction activities in the project area. Identify potential complementary projects for ADB’s poverty reduction funds and, if necessary, help the local governments prepare or refine their proposals to make them suitable for such poverty funds. Suggest specific complementary activities, possibly through a participatory approach, to enhance the positive impact of the Project on poverty reduction. Identify nongovernment organizations and private sector partners that may contribute to poverty reduction through their participation in project design and implementation. Review the public consultation processes implemented throughout the project design phase by the EA and local government agencies regarding route selection, environment, and resettlement, and identify complementary means of information dissemination, including public media and the Internet. Conduct public consultation as part of the participatory assessment.

D. Environmental Impact Assessment (international and domestic consultants for 1 person-month each) 15. Review, update, and modify, if necessary, the environmental impact assessment (EIA) in accordance with ADB's Environmental Guidelines for Selected Infrastructure Projects (1993)

1 See also the ADB’s Handbook on Poverty and Social Analysis. 2 ADB. 2000. Small Scale Technical Assistance to the People's Republic Of China for Preparing a Methodology for Development Planning in Poverty Blocks under the New Poverty Strategy of ADB.Manila.

18 Appendix 4 and Environmental Assessment Requirements (1998). Prepare a summary EIA, based on ADB's format, for the expressway and the local road component. Assist the EA in ensuring adequate public participation. Assess temporary and permanent impacts on the environment in the project area, including (i) the impact on the protected Kongtong Mountain and other historical and cultural monuments and values, (ii) the impact of construction and mitigation measures on erosion and formation of new gullies, and (iii) negative environmental impacts resulting from industrial activities and road traffic. Analyze the likely impact of vehicle emissions and suggest appropriate mitigation measures. Review the Government's policy and regulations to reduce motor vehicle emission. Determine incremental (implementing) costs of the proposed environmental mitigation measures or other measures to minimize the adverse environmental impacts. Assess the expected environmental benefits where possible, in a quantifiable manner. Based on the EIA and in consultation with the provincial environmental protection bureau, prepare an environmental monitoring and management plan to be incorporated in the project performance management system, and estimate the cost of the same. Discuss with the Ningxia Environmental Protection Bureau the environmental impacts in the western part of the project route in Ningxia Autonomous Region, and assess the sites for indirect, secondary, or cumulative impacts from the neighboring project alignment in Gansu. If such impacts are identified, prepare recommendations and mitigation measures to be taken and describe how such impacts will be monitored by the Ningxia environmental authorities.

E. Resettlement Planning (international consultant for 2 person-months, domestic consultants for 4 person-months) 16. Consult with the affected people, local traders, project proponents, and those who may be opposed to the Project to assess their concerns and consider possible changes in the project design in response to these concerns. Review the adequacy and consistency of the government-prepared resettlement plan with ADB's Policy on Involuntary Resettlement, Handbook on Involuntary Resettlement, and Guidelines for Resettlement Plans in the People's Republic of China. Assess the government's approach and methodology in preparing the resettlement plan, in particular with regard to (i) census survey and asset inventories that identify villages that may be more severely affected (i.e., losing 20% or more of the agricultural land); and (ii) poor people and minorities.

17. Conduct a socioeconomic survey to assess (through household interviews in severely affected and poor villages, minority villages, particularly Hui communities in Kongtong District) the relocated or affected people's income levels, expenditure patterns, landholdings, skill base, preference and aspirations, and asset inventory to develop income replacement strategies. The sample size will be discussed and agreed with ADB based on an estimated number of affected people. Prepare a summary resettlement plan. Document the degree to which the plan has been made public and the degree of consultation with the affected people. Assess the plan's consistency with the 1998 Land Administration Law and relevant provincial regulations. Identify special measures to help the poor and vulnerable affected people improve their status. Consistent with poverty reduction initiatives, recommend income generation and gender measures in poor communities, taking due account of minority and gender disaggregated data. Develop a system for independent monitoring and evaluation of resettlement activities, including a baseline survey of 10% of the affected people along with annual updates during implementation, on completion, and 1 year after completion of the resettlement. Sufficient respondents should be carefully selected so that the information gathered qualifies as the first 10% baseline survey.