Report and Recommendation of the President to the Board of Directors

Project Number: 39655 November 2007

Proposed Loan People’s Republic of China: Xinjiang Regional Road Improvement Project (Korla–Kuqa Section)

CURRENCY EQUIVALENTS (as of 8 November 2007)

Currency Unit – yuan (CNY) CNY1.00 = $0.1342 $1.00 = CNY7.451

The exchange rate of the yuan is determined under a floating exchange rate system. In this report, a rate of $1.00 = CNY7.60, the rate prevailing at the time of loan appraisal of the Project, is used.

ABBREVIATIONS

AAOV – annual average output value ADB – Asian Development Bank CAREC – Central Asia Regional Economic Cooperation EIA – environmental impact assessment EIRR – economic internal rate of return EMDP – ethnic minority development plan EMP – environmental management plan FIRR – financial internal rate of return FYP – Five-Year Plan GDP – gross domestic product HSEP – highway safety enhancement program IA – implementing agency ICB – international competitive bidding ICT – information and communication technology LIBOR – London interbank offered rate MOC – Ministry of Communications NCB – national competitive bidding NPV – net present value PPMS – project performance management system PRC – People's Republic of China PSB – public security bureau SEIA – summary environmental impact assessment TA – technical assistance XCCAB – Xinjiang Communications Construction Administration Bureau XCD – Xinjiang Communications Department XHAB – Xinjiang Highway Administration Bureau XUARG – Xinjiang Uygur Autonomous Regional Government WACC – weighted average cost of capital WRDP – Western Region Development Plan

NOTES

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

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

Team leader E. Oyunchimeg, Transport Specialist, EARD Team members S. Athukorala, Financial Analysis Specialist, EARD S. Ferguson, Senior Social Development Specialist (Resettlement), EARD H. Masood, Senior Transport Specialist, EARD A. Maxwell, Environmental Specialist, EARD S. Miah, Counsel, Office of the General Counsel X. Yang, Senior Financial Analysis Specialist, EARD T. Yokota, Transport Specialist, EARD S. Yoon, Transport Economist, EARD

CONTENTS

Page

LOAN AND PROJECT SUMMARY i

MAPS

I. THE PROPOSAL 1

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2

III. THE PROPOSED PROJECT 6 A. Impact and Outcome 6 B. Outputs 6 C. Special Features 6 D. Project Investment Plan 9 E. Financing Plan 10 F. Implementation Arrangements 10

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 13 A. Traffic Forecast 13 B. Economic Analysis 13 C. Financial Analysis 13 D. Poverty Reduction and Social Strategy 14 E. Land Acquisition and Resettlement 15 F. Environmental Assessment 16 G. Risks 16

V. ASSURANCES 16 A. Specific Assurances 16 B. Condition for Disbursement 20

VI. RECOMMENDATION 20

APPENDIXES 1. Design and Monitoring Framework 21 2. Problems and Constraints Analysis 23 3. Road Sector Analysis and Policy Reforms Matrix 24 4. External Assistance to the Road Sector 29 5. Local Roads Development 32 6. Improvement of Freight Terminal Operations 34 7. Improving Rural Transport Services 36 8. Road Safety Improvement 39 9. Capacity Development of Xinjiang Communications Department 41 10. Detailed Cost Estimates by Financiers 43 11. Implementation Schedule 44 12. Procurement Plan 45

13. Economic Analysis 47 14. Financial Analysis and Projections 50 15. Summary Poverty Reduction and Social Strategy 56 16. Summary Ethnic Minority Development Plan 58 17. Summary Resettlement Plan 60

SUPPLEMENTARY APPENDIXES (available on request)

A. Outline Terms of Reference of Consultants B. Financial Management Assessment C. Monitoring of Socioeconomic and Poverty Impacts D. Economic Analysis E. Ethnic Minority Development Plan F. Resettlement Plans G. Summary Environmental Impact Assessment

LOAN AND PROJECT SUMMARY

Borrower People’s Republic of China (PRC)

Classification Targeting classification: General intervention Sector: Transport and communications Subsector: Roads and highways Themes: Sustainable economic growth; regional cooperation. Subthemes: Promoting economic efficiency and enabling markets, cross-border infrastructure.

Environment Category A. An environmental impact assessment was Assessment undertaken. The summary was circulated to the Board on 13 March 2007 and made public through the Asian Development Bank (ADB) website on 14 March 2007.

Project Description The countries participating in the Central Asian Regional Economic Cooperation (CAREC) program are working together to improve the region’s transport infrastructure and reduce the cost of trade across regions. The Project is located in the Xinjiang Uygur Autonomous Region (Xinjiang), in the northwestern corner of the PRC. The Urumqi–Kashgar road in Xinjiang is part of a key CAREC transport corridor connecting Xinjiang with Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan, and Pakistan. It also forms part of the Asian Highway 4 (AH-4) corridor designated by the United Nations Economic and Social Commission for Asia and the Pacific. The Korla–Kuqa section is part of the Urumqi– Kashgar road, which is becoming heavily trafficked. The Project will upgrade the 296.5 kilometer (km) Korla–Kuqa section of the existing two-lane, class II national highway (G314) to a four-lane, access-controlled tolled expressway to enhance the flow of goods and passengers through the region and reduce travel times and costs. The Project also includes (i) the improvement of three priority local roads totaling 193 km in Kuqa and Qiemo counties to class III or IV, as these provide access to remote and poorer areas of Xinjiang; (ii) improved efficiency in freight terminals by introducing a web-based transport logistics system in freight terminals in Urumqi; (iii) improved rural transport services by pilot testing of bus route licensing reforms in Kuqa county through the provision of consulting services; (iv) improved road safety through (a) conducting a safety audit for the project roads, (b) developing an action plan to ensure the safe operation of the expressway, (c) installing modern traffic safety devices along the project roads, (d) increasing public awareness through training, and (e) providing a traffic surveillance monitoring system for ensuring road safety during winter and for controlling speeds on the project expressway; and (v) enhanced capacity of the Xinjiang Communications Department (XCD) through the provision of consulting services, equipment, and training.

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Rationale The CAREC Transport and Trade Facilitation Strategy will support the CAREC goal of accelerating economic growth and poverty reduction by upgrading key transport corridors across the CAREC region. The strategy seeks to improve the region’s competitiveness and expand trade among the CAREC economies and with the rest of the world. Key elements of the strategy are coordinated improvements to transport infrastructure and logistics, and trade facilitation, including harmonized cross-border regulations, procedures, and standards along six priority transport corridors. The proposed Project will support this strategy. The Korla–Kuqa expressway will serve as an important transport corridor ensuring efficient and safe movement of goods and passengers, and will play a critical role in furthering trade and regional cooperation. The Project will foster economic development and promote interregional trade, thereby supporting the key objective of poverty reduction through sustainable development.

The Project supports the Government’s Western Region Development Plan and National Expressway Development Plan of building expressways to provide stronger links with the eastern provinces and improve accessibility for the western region’s population, which is spread over a large area. The project expressway is part of one of eight major road corridors under the Western Region Development Plan and one of 34 expressways under the National Expressway Development Plan. The Project also supports the Rural Roads Construction Program and provides financing for the upgrade of selected rural roads in the poorest and remotest areas of Xinjiang. The Korla–Kuqa expressway will be connected to these local roads via recently completed highways, and will also serve as the main access for tourists visiting the historical sites in the project area.

Impact and Outcome The impact of the Project is to develop a more efficient national and regional transport system which supports sustainable economic growth in Xinjiang. The outcome of the Project is to improve transport capacity and safety of the regional road corridor and the local roads in southern Xinjiang.

Project Investment Plan The investment cost of the project is estimated at $594 million, including taxes and duties of $13 million. Financing Plan Total Source ($ million) % Asian Development Bank 150 25 Ministry of Communications 197 33 China Development Bank 188 32 Xinjiang Regional Government 59 10 Total 594 100 Source: Asian Development Bank estimates.

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A loan of $150 million from ADB’s ordinary capital resources will be provided under ADB’s London interbank offered rate (LIBOR)- based lending facility. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.35% per annum, and such other terms and conditions set forth in the draft loan and project agreements.

Allocation and Relending The ADB loan proceeds will be made available by the Terms Government to the Xinjiang Uygur Autonomous Regional Government (XUARG), and will be onlent to XCD on the same terms and conditions as those of the ADB loan, with XCD bearing the exchange rate and interest rate variation risk.

Period of Utilization Until 31 December 2012

Estimated Project 30 June 2012 Completion Date

Implementation The project management office established within the Xinjiang Arrangements Communications Construction Administration Bureau (XCCAB) will be responsible for the overall implementation of the Project.

Executing Agency Xinjiang Communications Department

Procurement All procurement of goods and works financed by the ADB loan will be carried out in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million will be procured using international competitive bidding procedures. Contracts for goods and contracts for works estimated to cost equal to or less than the above-mentioned international competitive bidding values, but more than $100,000, will be procured on the basis of national competitive bidding procedures in accordance with the PRC Tendering and Bidding Law (1999), subject to modifications agreed to with ADB. More details are provided in the procurement plan.

Consulting Services The ADB loan will finance 52 person-months of international consulting services for (i) the supervision of construction, (ii) improving road safety, (iii) establishing a project performance management system, (iv) improving freight terminal operations, (v) implementing pilot testing of policy reforms to improve rural transport services, and (vi) enhancing XCD’s capacity building. The international consultants will be recruited based on the quality and cost-based selection method in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). In addition, XCD will engage and finance 5,510 person-months of national consulting services, primarily for construction supervision. The national consultants will be recruited in accordance with government procedures acceptable to ADB.

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Project Benefits and The upgrading of the G314 national highway from Korla to Kuqa Beneficiaries to an expressway, and improvement of local roads, will remove road transport bottlenecks, resulting in significant reductions in transport times and costs and an increase in the flow of goods through the region. Better road transport will encourage the production and export of local products and higher-value cash crops, and promote domestic tourism. The Project will benefit 1.06 million people, including 0.6 million people involved in agriculture, of whom 16.6% are poor. The economic internal rate of return for the Project is 20.5%. The financial internal rate of return is 5.06%, which is higher than the real weighted average cost of capital. The upgrade of local roads will facilitate easier and safer access to schools, hospitals, and markets for about 50,000 rural people, consisting mainly of poor and ethnic minorities. The construction of the expressway and rural roads will also provide direct employment and training benefits for local people. About 10.3 million person-days of employment (8,500 laborers for 4 years), generating CNY400 million in wages, will benefit the local communities, who will also benefit from the provision of materials and services during construction.

Risks and Assumptions The Project has been designed taking into consideration the potential financial and social risks. The financial risks relating to construction and operations of the expressway will depend on (i) the actual level and composition of traffic, (ii) the capital cost, (iii) XCD capacity, and (iv) the tolls charged. To control the financial risks (i) the Project will receive significant injections of equity from central and provincial governments, (ii) XCD will ensure smooth expressway operations, and (iii) an appropriate toll structure will be adopted. The social risks involve resettlement, communicable diseases, and ethnic minorities affected by the Project. To mitigate the social risks, appropriate measures have been taken in the resettlement plans and ethnic minority development plans.

Map 1

o o 57 00'E 78 00'E

XINJIANG REGIONAL ROAD IMPROVEMENT PROJECT (KORLA-- KUQA SECTION)

RUSSIAN FEDERATION Petropavlovsk RUSSIAN FEDERATION o 50 00'N Kokshetau Kostanai Makinsk Siletiteniz Lake Pavlodar

Oral Ulaanbaishint Semey MONGOLIA ASTANA Olgiy 50 o 00'E Aktobe Temirtau Zaisan Lake Hovd Tengiz Lake Karaghandy Altay Ayakoz Akshatau Bulgan Takeshiken Yarant Kul’sary Zhezkazghan Atyrau Shalkar Balkhash

Aral Guishad Alakol Lake KAZAKHSTAN Druzba Balkhash Lake Baikonyr Khorgos Urumqi Saryozek Aral Sea Kyzyl Orda Turpan C Aktau

a Lake Sarez

s Kara Balta Almaty Hosud

p Muynak

i Korla Taraz Balykchy a Kungrad Lake Issyk-Kul

n Nukus BISHKEK Kuqa

Uchkuduk

Shymkent KYRGYZ REPUBLIC S Karakul

e Jalal-Abad Aksu

a Urgench UZBEKISTAN Kyzyl-Kaya Andijan Uzgen XINJIANG UYGUR TASHKENT Turkmenbashi Djizzak Osh Artux AUTONOMOUS REGION Ruoqiang Kum-Das TURKMENISTAN Bukhara Sary Tash Irkeshtam PEOPLE’S REPUBLIC Kizyl-Arvat Kashgar Samarkand Nurobod Dzhirgatal OF CHINA Turkmenabad DUSHANBE TAJIKISTAN Yecheng Gasan-Kuli ASHGABAT Dangara Murgab Hotan Mary Kurgan-Tyube Khorog Termez Kulyab Kunjirab Andkhuouy Hairatan Shirkhan Bandar Mazar-e-Sharif Pul-e-Khumri Qaisar Dara-i-Suf National Capital Torghundi Yakaulang KABUL Provincial Capital Herat Mughab Mansehra Bamian City/Town Islam Qala Torkham Ghazni Peshawar Regional Transport Corridor Khost ISLAMABAD Bannu ADB Project Completed, Ongoing, and Proposed AFGHANISTANGhulam Khan Pindi Bhattian I R A N Delaram Other Primary Road Kandahar D.I. Khan Mughal Kot Major Road (Under Construction) Zob Spin Boldak Faizalabad Zaranj Qila Saifullah Railway Chamman Kanewal Muslim Bagh International Boundary Quetta Waigu Nushki Muzzaffargarh Boundaries are not necessarily authoritative. Sibi Taftan Dalbandin Dadhar PAKISTAN Kalat Jacobabad Nok Kundi Basima Khuzdar Sukkur Nag Ratodero

Dadu Pangjur 26 o 00'N o Hoshab Uthal I N D I A 26 00'N Ormara Hyderabad Gwadar Jiwani N Karachi Port Qasim

0 100 200 300 400 500

Kilometers A R A B I A N S E A

o 57 o 00'E 78 00'E

PRC 07-2034a HR o o 78 00'E RUSSIAN 93 00'E FEDERATION XINJIANG REGIONAL ROAD IMPROVEMENT PROJECT

(KORLA-- KUQA SECTION) Olgiy IN THE PEOPLE'S REPUBLIC OF CHINA Hovd Altay

Provincial Capital 216 City/Town Tacheng M O N G O L I A Expressway (Ongoing/Completed) K A Z A K H S T A N o Project Expressway 217 o 46 00'N Takeshiken 46 00'N Project Local Road Yarant National Road Karamay National Road under Construction Bole Alataw Shankou 216 Other Road Sayram Lake Railway to Almaty Sailimu Dahuangshan Korgas Kuytun River Yining Urumqi 218 Provincial Boundary 312 216 International Boundary Hami 218 Xiaocahu 217 Boundaries are not necessarily authoritative. Proposed Toksun Turpan Hosud Expressway 314 Luntai to X Kuqa 314 inxi to Bishkek ngx Osh ia Aksu Local Road 1 Korla KYRGYZ REPUBLIC Torugart GANSU 218 to Dushanbe Wuqia 314 Sary Tash Artux Aral Irkeshtam XINJIANG UYGUR Kashgar AUTONOMOUS REGION

Tazong Ruoqiang TAJIKISTAN Kalasu 315 315 314 Qiemo o o 38 00'N 38 00'N

315 QINGHAI Kunjirab Hotan Minfeng Local Road 3 AFGHANISTAN Local Road 2

219 N

0 50 100 150 200 250

Kilometers 0

7 XIZANG M - 2 0 3 a 4 p c

o o H 78 00'E 93 00'E 2 R o o 78 00'E RUSSIAN 93 00'E FEDERATION ASIAN HIGHWAY AND CAREC CORRIDORS IN XINJIANG

IN THE Olgiy PEOPLE'S REPUBLIC OF CHINA Hovd Provincial Capital Altay City/Town 216 CAREC 1 Tacheng M O N G O L I A CAREC 2

Asian Highway AH 4 K A Z A K H S T A N 217 Yarant o Takeshiken o 46 00'N CA 46 00'N CAREC 4 CARE REC C 1a CAREC 5 4 Karamay Local Road Bole Alataw Shankou 216 National Road Sayram Lake to Almaty National Road under Construction CAREC 1b Sailimu Dahuangshan Korgas Kuytun Other Road Yining Urumqi 218 Railway 312 216 River Turpan Hami 218 Xiaocahu Provincial Boundary 217 Proposed Toksun International Boundary Expressway Hosud 314 Luntai to X Boundaries are not necessarily authoritative. CA inxi Kuqa 314 CACA RE ngx RERE C 1 ia Osh to Bishkek C 2 Aksu Local Road 1 Korla C 5 CAREC 1c KYRGYZ REPUBLIC Torugart Sary Tash GANSU 218 to Dushanbe Wuqia 314 CAREC 2 Artux CAREC 5 Aral Irkeshtam XINJIANG UYGUR Kashgar AUTONOMOUS REGION

Tazong Ruoqiang TAJIKISTAN Kalasu 315 315 314 Qiemo o o 38 00'N 38 00'N

315 QINGHAI Kunjirab Hotan Minfeng Local Road 3 H 4 AFGHANISTAN A Local Road 2

219 N

0 50 100 150 200 250

Kilometers 0

7 XIZANG - M 2 0 3 a 4 b p

o o H 78 00'E 93 00'E 3 R

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of China (PRC) for the Xinjiang Regional Road Improvement Project (Korla–Kuqa Section). The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. Recognizing the need for rapid development of the transport sector to meet the demands of high economic growth, the Government of the People’s Republic of China has been investing heavily in transport infrastructure and services over the last two decades. Since 1990, the demand for passenger transport has grown at an annual average rate of 7.8%, and freight transport has grown at 7.6%. This has led to an increase in the modal share of roads, particularly for passenger traffic; by 2006, road transport carried 52.8% of passenger traffic and 11.1% of freight traffic.

3. To address the major road infrastructure needs, the Government has taken several initiatives. In 1990, the National Trunk Highway System was introduced, aimed at the construction of 12 high-standard key highways extending 35,000 kilometers (km) along the major road transport corridors. In 1998, the Western Region Development Plan (WRDP) was initiated to, among others things, develop eight road corridors (18,000 km) in the western provinces to link with the eastern PRC and the neighboring countries in the west. In 2005, the Government unveiled the National Expressway Development Plan to construct 34 expressways all over the country,1 covering a total of 85,000 km and providing access to the majority of the PRC’s population. In addition, the Government initiated a national Rural Roads Construction Program under the 11th Five-Year Plan (11FYP) 2006–2010 to address the issues of lagging rural development and widening rural-urban income disparities.

4. By the end of 2006, the total road network in the PRC had grown to 3.46 million km, consisting of 45,300 km of expressways, 45,300 km of class I roads, 262,270 km of class II roads, 354,700 km of class III roads, 1,574,800 km of class IV roads, and 1,174,100 km of unclassified roads. In 2006, the total annual investment in road development reached CNY623 billion, which is an increase of 13.6% over 2005. During the 11FYP, construction of 24,000 km of expressway is planned, taking the total to 65,000 km by 2010. In addition, 46,000 km of major roads and 130,000 km of paved access roads will be constructed in the counties, and 280,000 km of major rural roads and 540,000 km of paved access roads will connect the villages.

5. The WRDP, involving 12 provinces and/or regions,2 addressed the needs of the less- developed western region. While aiming to reduce the imbalance in economic development, the WRDP played an important role in promoting cooperation of the western region with neighboring countries and integration with the rest of the country. Among other things, the WRDP addressed the need for development of the road network in the western region to provide access to its population spread over a large area, and stronger links with the eastern provinces. An estimated $84 billion was to be spent over 10 years. Road development under the WRDP includes (i) improving eight road corridors linking western provinces to the eastern region, (ii) rehabilitating .and upgrading 180,000 km of inter- and intraprovincial roads, and

1 Also called the 7918 network, which includes 7 expressways radiating from Beijing, 9 north–south expressways, and 18 east–west expressways. 2 The western region consist of Chongqing, Gansu, Guangxi, Guizhou, Inner Mongolia, Ningxia, Qinghai, Shaanxi, Sichuan, Xinjiang, Xizang (Tibet), and Yunnan.

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(iii) improving 150,000 km of local roads. Implementation of the WRDP continues under the 11FYP, and all major road corridors are planned to be completed by 2010.

6. Road transport dominates surface transport in Xinjiang, accounting for 96% of the total passenger traffic (65% of the total passenger km) and 82% of the total freight (39% of the total tons per km). This is higher than the national average and the demand is increasing. In 2005, the demand for passenger transport grew by 8.9%, and for freight transport by 12.2%. By the end of 2005, the total road network in Xinjiang was 89,530 km, which included 541 km of expressways, 885 km of class I roads, 6,993 km of class II roads, 23,880 km of class III roads, and 57,233 km of class IV and unclassified roads. There are eight national highways connecting Xinjiang with the neighboring provinces of Gansu, Qinghai, and Xizang in the east and south, and to the Central Asian countries and Mongolia in the west and north. During the 11FYP, the Xinjiang Uygur Autonomous Regional Government (XUARG) plans to construct 657 km of expressways, 6,357 km of class I and II roads, 2,866 km of class III and unclassified roads, and 32,000 km of major rural roads.

B. Analysis of Key Problems and Opportunities

7. The economic development in eastern PRC has significantly outpaced development in other regions. This is partly due to the fact that 70% of the population is concentrated in the east, but it is more because industrial output has resulted in major increases in per capita income. The western region mainly relies on supplying of raw materials. Situated in the northwestern corner of the PRC and farthest from the economically developed eastern provinces, Xinjiang has a land area of 1,665,000 square km (km2), which is one sixth of the PRC. The Tianshan mountain range in the north, the Kunlunshan mountain range in the south, and the large Tarim desert in the southern half are the main geographical features of Xinjiang. The province is made up of five autonomous prefectures, two prefecture-level cities, seven administrative offices, 20 cities, 68 counties, and 999 townships and towns. The total population of 20.2 million (2005) is widely distributed, and this increases the isolation and remoteness of the communities. Over 60% of the population (12.6 million) is engaged in agriculture. Xinjiang is one of the less-developed provinces. The net income per capita for farmers is CNY2,482, or 76% of the national average. The poverty incidence is 18% (2005), higher than the national average of 10%, and is concentrated in southern Xinjiang, where 80% of the poor population resides and where the Project is located.

8. XUARG relies upon the Ministry of Communications (MOC) and loans from international financial institutions and local commercial banks for financing the expressways. The Xinjiang Communications Department (XCD) manages construction and operations of the expressways through its two bureaus, the Xinjiang Communications Construction Administration Bureau (XCCAB) and the Xinjiang Highway Administration Bureau. The toll income is used to service the loans and cover operation and maintenance costs. However, reliance on these traditional sources to meet the long-term demand of road infrastructure development in Xinjiang is not sustainable. XCD still has a long way to go in transforming itself into a market-oriented institution when compared to the other provinces, particularly in the eastern region where the provision of transport infrastructure and services has gradually shifted to independent enterprises with private sector involvement in financing and operations.

9. While the PRC has achieved rapid economic development, the rural areas have lagged behind, leading to widening income inequalities. One reason for this disparity is the lack of access in rural areas. The rural roads development targets under the 11FYP include the provision of a paved road connection to (i) all townships and administrative villages in the eastern region, (ii) all townships and 80% of administrative villages in the central region, and

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(iii) 90% of townships and 50% of administrative villages in the western region. The major issues in implementing the 11FYP rural roads development targets are (i) inadequate financing; (ii) capacity constraints at county, township, and village levels; (iii) the absence of appropriate design standards for low-volume roads; and (iv) lack of maintenance. XUARG has developed a 5-year plan (2006–2010) for development of rural roads in Xinjiang. This involves construction, rehabilitation, and improvement of 65,000 km of rural roads at an estimated cost of CNY16.1 billion.

10. Major reforms have been undertaken in the PRC to improve road transport services. Freight transport has been deregulated since the mid-1980s, allowing the market to set service standards and freight tariffs. Similarly, under the existing regulatory arrangements governing road passenger services, the quality of long-distance services between county-level and township-level centers has improved considerably. However, for township-to-village and village- to-village bus routes, there are several shortcomings, mostly related to the strict regulatory regime. The major problems are (i) poor road conditions preventing the issuance of route license, (ii) the requirement for the existence of a township or village bus terminal before transport services can commence, (iii) extensive licensing restrictions for operators and routes, and (iv) restrictions on the type of vehicle which can be used.

11. As part of developing Urumqi as a regional transport hub and logistics center, MOC and XUARG signed the Urumqi Road Transport Hub Terminal Development Program agreement in November 1997. According to this program, six freight terminals, six passenger terminals, an international freight and passenger terminal, and an administration terminal were planned; these are in various stages of development. The trade volume imbalance between exports and imports, and the cyclical nature of agricultural produce in Xinjiang, adversely affects the efficiency of freight terminal operations. Trucks looking for back loads wait 10–14 days on average, or return unloaded. In some cases, drivers are willing to accept lower rates in order to secure a cargo and then increase the rates on the return journey, while in other cases increases in the freight rates on cargo to destinations with back-loading problems are being considered. As a direct result of the lower vehicle utilization rate, transport costs have increased. Although the program includes a plan to establish an integrated terminal system, which would connect the administration center and freight terminals through a web-based logistics information exchange system, there is a lack of the information and communication technology (ICT) expertise needed to implement such a system. The problem and constraints analysis is in Appendix 2.

12. Two of the eight major road corridors under the WRDP are in Xinjiang: the Altay–Kyutun corridor, and the Xiaocahu (near Urumqi)–Hotan corridor. The Korla–Kuqa project expressway is part of the Xiaocahu–Hotan corridor. It traverses east–west along the southern foot of the Tianshan mountains and passes through Korla city and Luntai county (in Bayangol Mongol Autonomous Prefecture) and Kuqa county (in Aksu administrative office). The expressway is part of the traditional Silk Road and is a major trade link to the Central and South Asian countries (Map 1). The expressway connects the capital city of Urumqi with Kashgar city, which connects to (i) the Kyrgyz Republic through border crossings at Irkeshtam and Torugart, (ii) Pakistan through the border crossing at Kunjirap, and (iii) to Tajikistan through the border crossing at Kalasu. The expressway also serves as the main access for tourists visiting the historical sites in the project area. Most importantly, the expressway connects the less- developed southern part of Xinjiang via recently completed class II highways from Kuqa county to Hotan administrative office, and from Luntai county to Minfeng and Qiemo counties (Map 2).

13. Xinjiang’s economy is growing steadily; gross domestic product (GDP) grew by 11% in 2006. Although agriculture remains significant, it has declined from 31% of GDP in 1990 to 20% in 2005. Current economic growth is dominated by secondary industry, which includes the

4 supply of power, water, and gas, and construction. It constituted 44% of GDP in 2005, compared to 31% in 1990. Tertiary industry (including transport and storage, finance, real estate, retail and wholesale, education, healthcare, community services, and public administration) is the second-most important sector, accounting for 36% of GDP in 2005. Improvement of transport infrastructure will contribute significantly to trade and industry, exports, agriculture production, tourism, and the overall economic development of Xinjiang.

14. External assistance to the road sector in the PRC has come mainly from the Asian Development Bank (ADB), the Japan Bank for International Cooperation, and the World Bank. Since 1991, ADB has extended 36 loans and 64 technical assistance (TA) projects. Project completion reports prepared for 18 road projects concluded that 17 were highly or generally successful and one was partly successful.3 The advisory TA projects have addressed policy and institutional issues, including (i) highway planning, (ii) road safety, (iii) human resource development, (iv) socioeconomic assessment, (v) transport pricing, and (vi) mobilization of nongovernmental financial resources. ADB coordinates closely with both these organizations in the selection of corridors for financing and to ensure a unified approach in pursuing the sector reform agenda with the Government (Appendix 4).

1. Government and ADB Strategies

15. Under the 11FYP, the Government aims to provide balanced, equitable, and sustainable development. There is strong emphasis on rural development and the Government pledges to increase farmers’ incomes, improve infrastructure, and enhance public services in the countryside. Road development has been a high priority as an effective means of promoting economic growth and reducing poverty. The WRDP focuses on reducing regional disparities by (i) linking the western provinces with the central and eastern regions, (ii) providing access to trade through corridors to sea and land ports, and (iii) promoting regional cooperation with neighboring countries.

16. ADB’s operational strategy in the PRC for the road sector gives high priority to removing infrastructure constraints and supporting policy and institutional reforms. ADB supports (i) building roads that connect major growth centers, and improving access in the western and central regions; (ii) integrating the road network so that the national trunk highway system is supported by a system of secondary and tertiary roads, particularly those that provide access to poor areas; (iii) promoting road safety and reducing vehicle emissions; (iv) strengthening corporatization and commercialization of expressway organizations; (v) adopting appropriate pricing policies to ensure optimum use of road transport capacity; and (vi) using alternative methods of investment financing, including private sector participation. ADB road sector assistance targets the poor western provinces and regional economic corridors. The Project is consistent with the PRC’s development priorities and ADB’s strategy. A road sector analysis and policy reform matrix is in Appendix 3.

2. Lessons Learned

17. XCD has implemented three World Bank-financed highway improvement projects 4 during the period 1994–2007; the last one is nearing completion. The lessons from the first two

3 The “partly successful” rating is mainly due to inadequate safety facilities and enforcement. Remedial actions were taken to rectify the issues. The Project was rated “successful” in the project performance audit report after the remedial measures were taken. 4 World Bank. 1994. Loan 3787-CHA: Xinjiang Highway I Project; Turpan–Urumqi–Dahuangshan High-grade Highway Project. Washington; 1996. Loan 4099-CHA: Second Xinjiang Highway II Project: Urumqi–Kuytun Expressway Project. Washington; 2002. Loan 7143-CHA: Third Xinjiang Highway Project: Kuytun–Sailimu High- grade Highway Project. Washington. WB.

5 projects include the following: (i) there is a need for improved traffic forecasting on tolled roads, (ii) road safety should be addressed at the national level as part of the policy dialogue with the Government, (iii) institutional and capacity-development activities should complement the execution of major tasks under the Project, and (iv) toll rates should be affordable. In addition, past ADB-financed projects have highlighted the need for proper management of social safeguard issues, particularly relating to ethnic minorities.

18. Extensive traffic analysis (including growth of traffic on the existing expressways developed with the World Bank’s assistance and in operation since 1999) has been carried out for the project expressway to ensure that the traffic projections are realistic. Road safety is part of the ongoing policy discussions with the Government, and several initiatives have been undertaken at the national level towards the development of an effective and sustainable framework for improving road safety.5 The Project continues with the capacity development initiated under the World Bank projects and ensures that it reflects the current needs. XUARG carried out the toll-rate analysis for each new road. Based on the findings that the rates differed only slightly between roads, XUARG decided that it was administratively more convenient to adopt uniform toll rates for all toll roads. XCD has assured that the toll rates currently applicable on the other expressways will be applied to the project expressway. With regard to social safeguards, XCD has good management and experience, and during project implementation its staff will liaise regularly with local government officials.

3. Policy Dialogue

19. Encouraging Private Sector Participation. XCD has been seeking private sector involvement in expressways from experienced operators. However, there is little interest due to relatively low traffic volumes and high risks. Discussion is ongoing with XCD to (i) introduce corporatization of expressway operations as a first step towards private sector involvement; and (ii) introducing innovative instruments for private sector participation, such as annuity-based concessions, to share the potential risk posed by low traffic volumes. An international expert will be engaged under the Project to develop a strategy for private sector participation, including an action plan identifying the steps needed to encourage private sector involvement.

20. Rural Road Development. An ADB-financed TA project6 has addressed major issues (para. 9) in implementing rural road development programs and the major recommendations include (i) raising local government revenues through a levy on property tax and collecting a road maintenance fee from vehicles that are currently exempted; (ii) incorporating new class V roads and village roads in the highway law; (iii) making provincial governments responsible for capacity development of the staff at county, township, and village levels; (iv) improving databases; and (v) introducing a pavement management system and contract maintenance. MOC supports the recommendations and is working closely with ADB in developing a framework for implementation (Appendix 5).

21. Improving Rural Transport Services. In the PRC, rural transport services for township- to-village and village-to-village bus routes are costly, unreliable, and unsafe. The major shortcomings, mostly related to the strict regulatory regime, are (i) poor road conditions which prevent the issuance of route licenses, (ii) the requirement for the existence of a township or village bus terminal before transport services can commence, (iii) extensive licensing restrictions for operators and routes, and (iv) restrictions on the type of vehicle which can be

5 ADB. 2005. Technical Assistance to the People’s Republic of China for Road Safety Improvement. Manila. 6 ADB. 2006. Technical Assistance to the People’s Republic of China for Rural Roads Development Strategy. Manila.

6 used. Under an ADB-financed TA project,7 these issues have been addressed. The proposed reforms involve (i) changes in the definition, licensing, and regulation of rural buses, rural bus routes, rural bus operators, and rural bus terminals to encourage more demand-responsive, township-based operators and give them the freedom and flexibility to offer efficient services which are more capable of responding to users’ needs; and (ii) corresponding measures to clarify the role and strengthen the capacity of county-level road transport administrations in relation to the recommended regulatory changes. MOC supports these recommendations and has agreed to implement them on a pilot basis in selected road projects in the provinces.

22. Enhancing Road Safety. Road safety is a major issue in the PRC, especially in Xinjiang. In the PRC in 2005, there were 567,753 road accidents, resulting in 451,810 injuries and 99,217 fatalities. In Xinjiang, during the period from 1996 to 2005, over 25,000 people were killed and over 75,000 people injured in road traffic accidents. Fatalities increased from 1,863 in 1996, to 2,491 in 2000, and 2,588 in 2006. In 2006, the estimated economic losses from road accidents and fatalities in Xinjiang exceeded CNY16.63 million. The Ministry of Public Security, which is responsible for enforcement of traffic laws and regulations, is committed to reducing accidents through improved safety of vehicles, driver training, and improved traffic management. Road safety is given high priority in Xinjiang, but there is still a lot of work required to achieve safe road travel.

III. THE PROPOSED PROJECT

A. Impact and Outcome

23. The impact of the Project is to develop a more efficient national and regional transport system that supports sustainable economic growth in Xinjiang. The outcome of the Project is to improve transport capacity and safety of the regional road corridor and the local roads in southern Xinjiang.

B. Outputs

24. The Project has the following outputs: (i) upgrading the 296.5-km Korla–Kuqa section of the existing two-lane class II national highway (G314) to a four-lane access-controlled tolled expressway; (ii) rehabilitating three priority local roads totaling 193 km in Kuqa and Qiemo counties to class III or IV, providing access to remote and poorer areas of Xinjiang; (iii) improving operational efficiency of freight terminals in Urumqi by introducing a web-based transport logistics system; (iv) improving rural transport services by pilot testing of bus route licensing reforms in Kuqa county; (v) improving road safety through (a) conducting a safety audit for the project roads, (b) developing an action plan to ensure safe operation of the expressway, (c) installing modern traffic safety devices along the project roads, (d) increasing public awareness through training, and (e) providing a traffic surveillance monitoring system for ensuring road safety during winter and for controlling speeds on the project expressway; and (vi) enhancing XCD capacity through the provision of consulting services, equipment, and training.

C. Special Features

25. Strengthening Regional Cooperation. As a gateway of the PRC to the Central Asian countries, Xinjiang is considered an important part of the land bridge linking Asia and Europe. Xinjiang shares a 5,600-km border with eight neighboring countries which are mostly members

7 ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila.

7 of the Central Asia Regional Economic Cooperation (CAREC) program,8 and is working with these countries to improve the region’s transport infrastructure and reduce the cost of trade across the region. The CAREC Transport and Trade Facilitation Strategy9 is being developed and aims to (i) accelerate economic growth and reduce poverty by upgrading key transport corridors across the CAREC region, (ii) improve the region’s competitiveness, and (iii) expand trade among the CAREC economies and with the rest of the world. Key elements of the strategy are the coordinated improvement of transport infrastructure along the six priority transport corridors; the Project supports this strategy. The Urumqi–Kashgar road in Xinjiang is part of three among four CAREC transport corridors connecting Xinjiang with Kazakhstan, the Kyrgyz Republic, Mongolia, and Tajikistan; it also forms part of Asian Highway 4 (AH-4) (Map 3). The Korla–Kuqa section is part of the Urumqi–Kashgar road, which is becoming heavily trafficked. The Project will upgrade the existing Korla–Kuqa highway to a four-lane expressway and improve the operational efficiency of freight terminals to (i) increase the flow of goods through the region, (ii) reduce travel times and costs, and (iii) increase vehicle utilization. Together with other financial institutions, ADB is assisting CAREC member countries to improve their regional road connections with Xinjiang. With ADB assistance, the upgrading of the Sary Tash–Nimich road (which links the Kyrgyz Republic and Tajikistan), the Torugart–Bishkek road in the Kyrgyz Republic, and the Guzar–Dautata (Kazakhstan border) road in Uzbekistan are all planned with the same time frame as the Project in Xinjiang. The Korla–Kuqa expressway will link these countries to Mongolia and the Russian Federation via the highway in northern Xinjiang and the proposed road in western Mongolia. The Government will also rehabilitate the 110-km Torugart– Kashgar border road through its own funding during the implementation period of the Project. With these connections, the Korla–Kuqa expressway will help to foster economic development and promote interregional trade, and will serve as an important transport corridor ensuring efficient and safe movement of goods and passengers. The expressway plays a critical role in furthering trade and regional cooperation, which will also benefit from the CAREC Transport and Trade Facilitation Strategy.

26. At the national level, four major road sections in Xinjiang are planned under the National Expressway Development Plan. Two of these four road sections form part of the east–west corridor between Irkeshtam, on the border with the Kyrgyz Republic, and Xinxingxia, on the border of Xinjiang and Gansu provinces. The project expressway is part of the Irkeshtam– Xinxingxia corridor; an expressway from Korla to Turpan has been completed and the civil works from Turpan to Xinxingxia are ongoing, with completion scheduled for 2010. XCD plans to complete the remaining section from Kuqa to Irkeshtam by 2020 and has recently completed a feasibility study for the 250-km Kuqa–Aksu section .

27. Local Roads Improvement. The Project will improve three priority local roads totaling 193 km to meet class III or IV standards: (i) the reconstruction of the 30-km Wuqia township– Dunkuotan township road in Kuqa county, (ii) the 73-km G315 road between New Long March Bridge and Aqiang township road, and (iii) the 90-km G315 road between Suntang Maintenance Office and Aoyiyalake township in Qiemo county. The selection of road priorities, carried out in accordance with the local road management regulations, initially identified 17 local roads from XCD’s plan. At the end of a screening process, based on criteria that included (i) serving poorer areas, (ii) the number of villages served, (iii) poor road condition, (iv) connectivity to an existing network, (v) access to social services, (vi) traffic levels, and (vii) environmental and resettlement

8 CAREC is an alliance of eight countries: Afghanistan, Azerbaijan, the People’s Republic of China, Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan, and Uzbekistan; and six multilateral institutions: the Asian Development Bank, the European Bank for Reconstruction and Development, the International Monetary Fund, the Islamic Development Bank, the United Nations Development Programme, and the World Bank. 9 The draft CAREC Transport and Trade Facilitation Strategy including six key transport corridors to be established across the CAREC region have been endorsed at the 6th Ministerial Conference on CAREC held in Dushanbe, Tajikistan on 3 November 2007.

8 considerations, three local roads were selected: one in Kuqa county (mixed class III and IV) and the other two in Qiemo county (both class IV). These local roads are connected to the expressway through the national highway network that will bring both transport and economic benefits to the local poor and minority groups.

28. Improving Efficiency of Freight Terminals. To accommodate the need to improve the efficiency of freight terminal operations and to integrate individual terminals for better administration, a web-based logistics information system is proposed under the Project so that Urumqi can be developed as a transport hub not only for Xinjiang but also between the PRC and the CAREC countries.10 The Project will assist XCD in the introduction of ICT through the provision of international and national consulting services and software (Appendix 6) to facilitate an efficient, secure pick up and delivery service. A web-based system will increase efficiency in terminal operations by providing not only better visibility over the location of cargo and available freight forwarders but also the ability to track consignments to the point of delivery. In turn, improved terminal operations will generate substantial long-term economic returns to the regional economy through savings in vehicle operating costs and time, and increasing vehicle utilization by providing real-time information. This component will also benefit from the recommendations of the ongoing TA project for logistics development and capacity building in Xinjiang.11

29. Implementation of Bus Route Licensing Reforms. As many as 11 townships and 3,036 remote administrative villages in Xinjiang have no regular bus services, and rural travelers rely on motorized three-wheeled vehicles, agricultural tractors, and animal-powered vehicles. Passenger bus productivity in Kuqa county is very low in terms of the average length of service per bus per day. This results in long waits for passengers at bus stations and an inability to rotate buses onto other routes. The Project will provide consulting services to implement pilot bus-route licensing reforms in Kuqa county and monitor the effects. Experience gained from the pilot activity will be applied to other areas in Xinjiang (Appendix 7).

30. Improving Road Safety. The Project supports XCD efforts to improve road safety through (i) conducting a road safety audit for the project roads; (ii) developing an action plan to ensure safe operation of the expressway; (iii) providing modern traffic safety devices along the project roads; (iv) enhancing the institutional capacity of XCD through the provision of winter maintenance equipment and training; (v) improving public awareness, particularly in rural areas; and (vi) providing traffic surveillance monitoring systems for ensuring road safety during winter and for speed warning (Appendix 8).

31. Capacity Development. XCD has received training through three World Bank projects12 focused on (i) strengthening XCD and its jurisdiction units, and (ii) training XCD staff to satisfy the needs for construction and management of high-grade highways in Xinjiang. To further strengthen organizational capability and improve staff quality and work efficiency, the Project includes a capacity-development component which will enhance XCD’s capacity to (i) gradually move towards private sector participation in expressway financing and operations, (ii) effectively undertake road maintenance management, (iii) improve rural transport services, (iv) improve road safety, and (v) effectively regulate freight terminals. Better utilization of allocated funding for maintenance is an issue in Xinjiang. Under World Bank projects, XCD has received

10 This is recommended under ADB’s TA 6203-REG: Regional Trade Facilitation and Customs Cooperation Program (Phase II) for Xinjiang Uygur Autonomous Region Trade Facilitation and Logistics Development Research Project, June 2006. 11 ADB. 2006. Technical Assistance to the People’s Republic of China for Logistics Development and Capacity Building in Xinjiang Uygur Autonomous Region. Manila. 12 Through three highway improvement projects during the period 1994–2007, the World Bank has provided loans totaling $600 million. Capacity development was included under all these projects.

9 equipment, systems, and training to develop its road maintenance capacity. However, there is a need to build on this effort to address the gap between the road network needs and institutional capacity of XCD, particularly at the local government (county, township, and village) levels. In order to (i) continue the XCD capacity-development efforts, (ii) address weak capacity in maintenance planning by county and township communication bureaus, and (iii) facilitate implementation of some of the recommendations provided by an ADB-financed TA project for a rural roads development strategy (footnote 8), the Project will provide consulting services and related training. The staff trained under the Project will develop and implement a plan for capacity development of the staff of selected counties and townships in road planning, development, and asset management (Appendix 9). XCD also assured that expressway maintenance will be undertaken by XHAB, and local road maintenance by Qiemo and Kuqa county communication bureaus. The maintenance equipment to be procured under the Project will be distributed to these bureaus. The vehicle weighing stations were installed at terminals along the highway network and regular checks are being carried out to prevent road pavement damage due to use by overloaded trucks. During checks, excess goods are unloaded and authorization to continue their journey is given to truck drivers. However, cases have been recorded where, after receiving the authorization, drivers reload the excess goods. In an effort to prevent this practice, XCD is implementing effective enforcement through random checking of trucks on the road. An additional weighbridge will be procured under the Project and its use will enhance XCD’s ongoing effort. XCD will determine the appropriate location for the weighbridge during project implementation, and through XHAB will enforce load limits. Road condition testing equipment to be purchased under the Project will be allocated to XCCAB to facilitate better planning of maintenance activities based on road conditions.

D. Project Investment Plan

32. The project investment cost is estimated at $594 million, including taxes and duties of $13 million. A detailed cost estimate by financiers is in Appendix 10.

Table 1: Project Investment Plan Item Total ($ million) A. Base Costa 1. Civil Works Expressway 443.86 Local Roads 15.09 2. Equipment 7.83 3. Land Acquisition and Resettlement 16.40 4. Consulting Services and Training 7.89 5. Project Administration 24.50 Subtotal (A) 515.57 B. Contingencies 1. Physical Contingenciesb 13.74 2. Price Contingenciesc 30.87 Subtotal (B) 44.61 C. Financing Charges During Constructiond 33.82 Total (A+B+C) 594.00 a In 2007 prices. b Physical contingencies are computed at 3% of civil works cost. c Price contingencies are computed at 2.2% per annum for 2008, and 3% per annum thereafter for local currency costs and 0.8% per annum for foreign exchange cost during 2008–2011. d Includes interest during construction, commitment charges. Interest rate computation is based on the prevailing US dollar 5-year swap rate plus a spread for the ADB loan and prevailing interest rate for the China Development Bank. It also includes a commitment charge of 0.35% for ADB loan. Source: Asian Development Bank estimates.

10

E. Financing Plan

33. The Government has requested a loan of $150 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.35% per annum, and such other terms and conditions set forth in the draft loan and project agreements. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. The ADB loan will finance 25% of the total project cost (Table 2). The Government, through MOC, XUARG, and a domestic bank (China Development Bank) will finance the remaining project cost. The China Development Bank has appraised the Project and provided a commitment letter to XCD. MOC and XUARG have made budgetary provisions for the counterpart funds. The ADB loan proceeds will be made available by the Government to XUARG, which will onlend to XCD on the same terms and conditions as those of the ADB loan, with XCD bearing the exchange rate and interest rate variation risk.

Table 2: Financing Plan Source Total ($ million) % Asian Development Bank 150 25 Ministry of Communications 197 33 China Development Bank 188 32 Xinjiang Uygur Autonomous Regional Government 59 10 Total 594 100 Source: Asian Development Bank estimates.

F. Implementation Arrangements

34. Project Management. XCD will be the Executing Agency and will be responsible for the overall implementation of the Project. The director general of XCD will be the project director. XCCAB will be the implementing agency (IA) and will be responsible for all project components. XCCAB has implemented three similar projects financed by the World Bank, and thus has the technical, management, and staff capacity to undertake this Project. XCCAB has already established a project management office to coordinate activities on project implementation including (i) loan disbursement, (ii) procurement of civil works and equipment, (iii) hiring of consultants, (iv) overseeing contract administration, (v) submitting progress and audit reports to ADB, and (vi) organizing a supervision mission. XCCAB has appointed a project manager for the day-to-day management of project implementation. The project director will chair regular meetings every 3 months, or more often if necessary, to review implementation, resolve coordination issues, and to provide guidance for timely completion of the project activities.

35. Implementation Period. The implementation period of the Project is from June 2007 to June 2012. The implementation schedule is in Appendix 11.

36. Procurement. All procurement of goods and works financed by the ADB loan will be carried out in accordance with ADB's Procurement Guidelines (2007, as amended from time to time). Contracts for goods estimated to exceed $1.0 million and contracts for works estimated to exceed $10.0 million will be procured using international competitive bidding (ICB) procedures. Contracts for goods and contracts for works estimated to be equal to or less than the above- mentioned ICB values, but more than $100,000, will be procured on the basis of national competitive bidding (NCB) procedures in accordance with the PRC Tendering and Bidding Law (1999), subject to modifications agreed with ADB. More details are provided in the procurement

11 plan (Appendix 12). The expressway civil works will be divided into 18 packages, 11 of them (subgrade, pavement, bridges, and intersections) will be financed by ADB and procured under ICB procedures. Out of these, nine will be procured with prequalification and two will be without prequalification where advance contracting is applied. The three local road sections financed by ADB will be procured through NCB. Expressway maintenance equipment will be divided into 15 packages, five of which will be financed by ADB and procured through NCB. All other packages, including traffic engineering, building and ancillary facilities, and planting and landscaping (including road condition survey equipment and maintenance equipment) will be financed by the Government and procured under government bidding procedure acceptable to ADB.

37. Consulting Services. The Project will finance 52 person-months of international consulting services. Of this, 45 person-months will be used for the expressway involving (i) a deputy chief supervision engineer and international team leader (42 person-months), (ii) a road safety expert (2 person-months), and (iii) a project monitoring and evaluation expert (1 person- month). The remaining 7 person-months will be used for (i) a private sector specialist (1 person- month), (ii) a freight terminal specialist (2 person-months), and (iii) a rural transport specialist (4 person-months). All consultants to be financed under the ADB loan will be selected and engaged based on a full technical proposal using the quality and cost-based selection method13 in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time). In addition, XCD will engage and finance about 5,510 person-months of national consultants for (i) construction supervision of project roads, (ii) implementation of the environmental management plan (EMP), resettlement plans, and ethnic minority development plans (EMDPs), (iii) monitoring of social and poverty impacts under the project performance monitoring system (PPMS), and (iv) assisting international consultants in (a) the introduction of ICT for freight terminals, (b) the improvement of rural transport services, (c) road safety improvement, and (d) XCD’s capacity development. The national consultants will be recruited in accordance with government procedures acceptable to ADB. Experienced domestic institutions will be engaged for external monitoring of environmental mitigation, resettlement, and EMDPs. The chief supervision engineer will be responsible for overall project supervision, assisted by two deputies, one of whom will be the team leader of the international consultants. Outline terms of reference for consultants are in Supplementary Appendix A.

38. Advance Contracting and Retroactive Financing. ADB approved advance contracting on 6 June 2007; this includes prequalification of contractors, bidding, bid evaluation, and contract awards.14 The advance contracting will be undertaken in accordance with the ADB’s Procurement Guidelines. ADB also approved the requested retroactive financing not exceeding 20% of the total ADB loan, or $30 million, on 2 July 2007 for two expressway civil works contract packages and international consulting services to be awarded in the beginning of 2008. The Government has been advised that approval of the advance contracting and retroactive financing does not commit ADB to finance the Project. The expenditure must have been incurred before loan effectiveness but, generally, no earlier than 12 months before the date of signing of the Loan Agreement.

39. Disbursement Arrangements. The loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). To facilitate project implementation and funds flow, an imprest account will be set up upon loan effectiveness and will be managed by the Xinjiang Finance Department, and the flow of funds will be from the Xinjiang Finance Department to the IA’s project account. The financial management assessment determined that XCD and the IA have adequate financial management, accounting

13 The quality–cost ratio is 80:20. 14 Advance contracting was reported in the 10 July 2007 internet edition of ADB Business Opportunities.

12 and internal control capacity and can provide accurate and timely information on financial status. (Supplementary Appendix B). The initial advance to be deposited to the imprest account will not exceed either 6 months of estimated expenditure or 10% of the loan amount, whichever is lower. Direct payment procedures will apply for the large works contracts. If the government initially funds eligible expenditures from its own resources, the reimbursement procedure will be used. To expedite funds flow and simplify the documentation process, the statement of expenditures procedure will be used for liquidation and replenishment of the imprest account and reimbursement of eligible expenditures not exceeding $200,00015 per individual payment. Payments in excess of the statement of expenditures ceiling will be reimbursed, liquidated, or replenished based on full supporting documentation.

40. Accounting, Auditing, and Reporting. XCD and XCCAB will maintain separate accounts for the Project and related financial statements for the expressway and local road components, and will have them audited annually in accordance with appropriate auditing standards consistently applied by external auditors whose qualifications, experience, and terms of reference are acceptable to ADB. XCD and XCCAB will submit to ADB within 6 months of the end of each fiscal year, certified copies of audited project accounts and financial statements, and an auditor’s report on the Project, in both English and Chinese. A separate audit opinion on the use of the imprest account and statement of expenditures, if any, will be included as part of the auditor’s report. The Government was advised of ADB’s requirement of timely submission of audited project accounts and financial statements, and the suspension of disbursement of the proposed ADB loan in case of noncompliance with the requirement. XCCAB has established an internal audit unit in 2006, under the ongoing World Bank project, to ensure that internal controls and checks on the construction cost and operations are effective. This unit will undertake independent tests on day-to-day transactions for the Project, prior to referring them to the external auditors. During project implementation, XCCAB will submit quarterly progress reports. XCD and XCCAB will submit a project completion report to ADB within 3 months of the completion of the Project.

41. Anticorruption Policy. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the central and provincial governments. Consistent with its commitment to good governance, accountability and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of XCD and XCCAB, and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

42. During the project implementation, XCD and XCCAB will ensure that (i) officials from the Discipline and Inspection Bureau monitor bidding, construction, and operations; (ii) a two- contract system is adopted where the winner of a civil works contract will also sign an anticorruption contract with the employer; and (iii) periodic inspection of contractors is undertaken to ensure that funds withdrawal and settlement procedures are followed. XCD and XCCAB will initiate liaison with the prosecutor’s office, on an as-needed basis, to discuss any warnings about, or information on, any corrupt, fraudulent, collusive, or coercive practices.

43. Project Performance Monitoring and Evaluation. XCD will engage a national external monitor to provide 16 person-months of services for developing the PPMS indicators,

15 In line with the adequate financial capability of XCD and the IA and based on the financial management assessment, the ceiling of the statement of expenditure is identified at a higher level to facilitate disbursement.

13 establishing baseline values and updating them during project implementation, and reporting. The key indicators and assumptions outlined in the design and monitoring framework (Appendix 1) and monitoring of socioeconomic and poverty impacts (Supplementary Appendix C) will be used for the PPMS. XCD will measure the indicators for project evaluation and report the key findings to ADB on project inception, during the midterm review, at completion, and annually for 3 years after project completion.

44. Project Review. About 2 years after the Project starts, XCD, XCCAB, and ADB will carry out a midterm review of the Project, covering all aspects of the Project that may have an impact on its performance and continuing viability. The review will examine the progress in implementing the various components, policy reforms, progress in social and environmental safeguard compliance, and compliance with assurances in the loan and project agreements.

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Traffic Forecast

45. The Project will increase the existing highway capacity to meet transport demand and will reduce transport costs and travel times. The annual average daily traffic on the project expressway is projected to grow from the current volume of 3,100 vehicles per day to 14,300 vehicles per day by 2030. The annual traffic growth rate is estimated to decrease from about 9.5% in the 2006–2011 period to about 5% in the 2021–2030 period. To ensure the traffic projections used to assess feasibility of the Project are realistic, the projected traffic growth was compared with the actual traffic growth of the expressway that was completed with the World Bank’s assistance and has been in operation since 1999. The traffic volumes indicate that the average annual growth of traffic compares well with the traffic growth figures for the project expressway.

B. Economic Analysis

46. The project’s economic internal rate of return (EIRR) was estimated by comparing with- project and without-project scenarios. The economic costs are (i) the cost of capital including land acquisition and resettlement, and (ii) the operations and maintenance costs including replacing depreciated equipment. The economic benefits are (i) savings in vehicle operating costs, (ii) time savings for road users, and (iii) savings in road accident costs. The EIRR for whole Project is 20.5%, indicating that the Project is economically viable. The EIRR is 20% for the expressway and 35% for the local roads.16 Results of a sensitivity analysis confirm the robustness of the project’s economic viability. The extended economic analysis to examine the distribution of project net benefits shows that road users will receive the largest share of net benefits, accounting for 76% of the total net benefit (Appendix 13 and Supplementary Appendix D).

C. Financial Analysis

47. The financial analysis was undertaken in accordance with the ADB’s Financial Management and Analysis of Projects (2005).17 The financial internal rate of return (FIRR) was calculated based on the capital cost of the Korla–Kuqa expressway, the traffic projections, and the proposed toll rates.18 The calculated FIRR is 5.06% after taxes. The FIRR is higher than the

16 The improved 193-km local road through a very small investment injection ($80,000 per km) will lead to significant savings in vehicle operating costs and travel times. 17 ADB. 2005. Financial Management and Analysis of Projects. Manila. 18 In Xinjiang a uniform toll rate is applied to all expressways in accordance with the provincial government’s policy.

14 weighted average cost of capital (WACC) of 3.21%, and therefore the Project is considered financially viable. Sensitivity analysis indicates that conditions causing the project’s viability to fall below the WACC would only occur in the unlikely scenario that capital costs of the project escalate by 29.1% and traffic is 21.4% below what is forecast (Appendix 14).

D. Poverty Reduction and Social Strategy

48. Socioeconomic Profiles. Xinjiang is one of the less-developed provinces in the PRC, with a per capita GDP figure of CNY8,802 in 2005. The per capita rural income in 2005 was CNY2,482, or 76% of the national average. In 2005, the poverty incidence was 18% higher than the national average of about 10%, and about 80% of the poor in Xinjiang live in the southern part where this Project is located. In the project area, the economy is dominated by agriculture and oil and gas development. The main agricultural products include wheat, cotton, fruit, and livestock. The project areas have very good ecological and cultural tourism potential. Rural poverty stems from (i) the remote and isolated location, (ii) limited access to irrigated farmland, (iii) natural disasters, (iv) the lack of modern technology and equipment, (v) low education levels and technical skills, and (vi) poor local roads. Poverty is extreme in Qiemo county and quite severe in Kuqa county.

49. Social Benefits. By increasing transport capacity on national highway G314, the Project will provide the basis for lowering transport costs and increasing the flow of goods and people within and through the region, thereby supporting the poverty reduction strategy. The Project will benefit 1.06 million people, including 0.6 million people involved in agriculture, of whom 16.6% are poor.19 Upgrading of local roads will facilitate better transport services, lower fares, and safer access to schools, hospitals, and markets for about 50,000 rural people who are mostly poor people and/or ethnic minorities. The construction of the expressway and rehabilitation of local roads will also provide direct employment and training benefits for local people. About 10.3 million person-days (8,500 laborers for 4 years), amounting to CNY400 million in wages, will benefit the local communities. They will also benefit from the provision of materials and services during construction. The summary poverty reduction and social strategy is included in Appendix 15.

50. Ethnic Minorities Development. Ethnic minorities in the project area comprise 63.1% of the total population and most of the absolute poor. The main ethnic group is the Uygur, who are Muslims. Ethnic minorities will be one of the primary beneficiaries of the Project, but due to their vulnerability they also bear some of the social risks. The Uygur will be targeted for enhancement measures, including priority for construction employment and provision of services, small business promotion, and skill training. Enhancement measures are specified in the EMDPs and resettlement plans; priority will be given to women to enhance direct and indirect project benefits and to ensure that social risks, including community impacts, health, and road safety, are minimized. Consultation has been carried out to formulate the EMDPs and more intensive consultation and participation will take place during implementation. The summary EMDP is included in Appendix 16 and the EMDPs are in Supplementary Appendix E.

19 Xinjiang uses an official rural poverty line based on a net income of less than CNY882 per person per year. However, ADB has used CNY1,200 per person per year for Xinjiang due to the harsh climatic conditions which increase basic expenditures (including housing, foodstuffs, heating, and cooling). Xinjiang statistics use unique definitions for urban–rural split, so “agricultural persons” has been used as a more accurate figure to use in order to estimate rural poverty.

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51. Control and Mitigation of Communicable Diseases. The size of the construction workforce for this Project is not that large when compared to existing seasonal migration,20 so this influx can be managed by the existing health services. However, it will be necessary to utilize existing programs to ensure that the local population is specifically targeted to raise their awareness of, and provide access to, communicable-disease prevention measures. The following measures are included in the EMDPs: (i) health screening of contract and migrant workers and locally hired workers for HIV/AIDS and other transmittable diseases (e.g., tuberculosis), (ii) awareness programs for construction workers and the local communities, (iii) monitoring of workers and possible cases of communicable disease during construction, (iv) culturally sensitive HIV/AIDS-awareness program targeted at women in the local communities, and (v) an awareness campaign targeted at high-risk groups at the start of the expressway operation. Therefore, health awareness, screening, prevention, and treatment requirements, as stipulated in the standard contract bidding document, will be monitored regularly for compliance. Health awareness information will be bilingual and provided in service stations and bus passenger stations.

52. Beneficiary Participation. More than 1,650 people were interviewed during the course of public opinion surveys, social and environmental assessments, and resettlement planning. Overall, the local residents believe the Project will improve market access, economic development, transport connectivity, and access to education and health care, and will facilitate agricultural diversity. The consultation and participation process has influenced the project design and alignment and the formulation of the EMP, resettlement plans, and EMDPs, including measures to address some of the needs of the poor and women.

E. Land Acquisition and Resettlement

53. This is an involuntary resettlement category A project. XCD has prepared a resettlement plan for the expressway component and one short resettlement plan for upgrading the local road in Kuqa. The local roads upgrading in Qiemo will not have resettlement impacts. The summary resettlement plan is in Appendix 17 and the resettlement plans are in Supplementary Appendix F. XCD has already prepared resettlement action plans for two of the expressway civil works contract packages which it plans to award at the end of 2007. The project expressway will cross 29 villages and two state farms in Korla city, Luntai county, and Kuqa county. Although 1,145 hectares (ha) of land will be permanently acquired, only 7 ha (0.6%) is farmland; the number of people affected by partial land loss is 255. An estimated 35,287 square meters (m2) of houses will be demolished, which requires relocation of 124 households (559 persons). Construction will also require the demolition and relocation of 29 household businesses, 6 factories and 15 service stations. The local road in Kuqa county only requires 4 ha of land to be acquired, and this is collectively owned grassland; no structures will be demolished. Resettlement information booklets were distributed to affected village committees and affected households in November 2006. XCCAB, in conjunction with the local land administration bureaus, will be responsible for implementing resettlement for the expressway and the local road in Kuqa county. During project implementation, XCCAB will be responsible for internal supervision and monitoring, and will prepare resettlement completion reports. In addition, an independent monitor will be contracted by XCCAB to carry out external monitoring and evaluation.

20 The construction of this expressway does not require any tunneling, which is labor intensive. The Project will not directly cause a significant influx of interregional migrants. The maximum number of paid positions over the construction period will be 12,000, with at least 50% being employed locally. In contrast, every year, tens of thousands of migrant workers come to harvest cotton, and others come for the expanding oil and gas development (e.g., between 1995 and 2000, more than 3.5 million people migrated to Xinjiang).

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F. Environmental Assessment

54. The Project is classified as ADB environmental category A. There are no protected environmental areas along the alignment of the project roads. The detailed environmental impacts and proposed mitigation measures are in the EMP of the summary environmental impact assessment (SEIA) report (Supplementary Appendix G). The SEIA was circulated to the Board on 13 March 2007 and was made public through the ADB website on 14 March 2007. The major potential environmental impacts includes (i) noise and dust during construction, which may impact adjacent residential areas, and is mitigated through restricted working hours, noise barriers, dust suppression, and prevention activities; (ii) three designated county-level historic protection sites on the Korla–Kuqa expressway that will require close construction supervision and barriers to mitigate impacts; and (iii) possible soil erosion during construction, particularly at the active earthworks areas requiring mitigation through standard engineering erosion control measures. The temporary and permanent environmental protection measures are included in the civil works contracts. Implementation of the EMP and monitoring plan included in the environmental impact assessment (EIA) and SEIA are part of the consulting services, and will ensure compliance with the environmental guidelines and procedures of ADB and the Government.

G. Risks

55. The Project has been designed, with consideration given to potential financial and social risks. The financial risks relating to construction and operations of the expressway will depend on the actual level and composition of traffic, the construction cost, XCD capacity, and the tolls charged. To control the financial risks, the project expressway will receive significant subsidy from the Government, XCD will ensure smooth expressway operations, and an appropriate toll structure will be adopted. The social risks involve resettlement, communicable diseases, and ethnic minorities affected by the Project. Appropriate mitigation measures have been taken in the resettlement plans and EMDPs.

V. ASSURANCES

56. In addition to the standard assurances, the Government, XUARG and XCD have given the following assurances, which will be incorporated in the legal documents.

A. Specific Assurances

57. Rural Transport Services. XUARG, through XCD will ensure (i) the pilot implementation of bus route licensing reforms to improve rural transport services in Kuqa county, Xinjiang and monitoring of impacts by 2010, and (ii) the replication of successful experience in other areas in the province subsequently.

58. Private Sector Participation. XUARG, through XCD will explore the possibility of attracting private sector participation in expressway financing and operations by experienced operators in close collaboration with ADB, and will report to ADB at least 6 months prior to the expressway opening to traffic.

59. Road Maintenance. XUARG will cause XCD to ensure that (i) adequate funding is provided for the project roads, (ii) the existing road maintenance management system is strengthened to cover the entire Xinjiang network including local roads; and (iii) winter maintenance is improved. XCD will take lead in capacity development of the local governments at the county, township and village levels in road planning, development and maintenance management.

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60. Project Financing. In the event of any shortfall or disruption in the financing of the Project caused by, inter alia, the lack, inadequacy, or delay of counterpart funding or local bank’s debt financing or project cost overruns, XUARG, through XCD will promptly provide adequate funds as may be necessary for successful implementation of the Project.

61. Environment. XUARG, through XCD and XCCAB will ensure that (i) the Project is designed, constructed, implemented and operated in accordance with national and local environmental regulations and with ADB’s Environment Policy (2002); (ii) the EIA, SEIA and the mitigation measures included therein, as specified in the EIA and the SEIA, as applicable, are properly and promptly implemented; (iii) the EMP and mitigation measures included therein are updated, at detailed design stage, and incorporated into the bidding documents and civil works contracts; (iv) any adverse impact that may arise from project implementation activities is promptly mitigated or minimized in accordance with the EMP; (v) major incidents, including safety breaches, violation of environmental standards, and corrective measures taken thereto, are reported forthwith to ADB; (vi) at least semiannual reports on the implementation of the EMP are submitted to ADB, and that ADB is allowed to conduct annual environmental reviews

62. Good Governance and Anticorruption. XUARG will ensure that all contracts financed by ADB in connection with the Project will include provisions specifying the right of ADB to audit and examine the records and accounts of XCCAB, and all contractors, suppliers, consultants, and other services providers as they relate to the Project.

63. During the project implementation, XUARG, through XCD will cause XCCAB to comply with ADB’s Anticorruption Policy (1998, as amended to date). XUARG, through XCD will cause XCCAB to ensure that (i) officials from the discipline and inspection bureau will monitor bidding, construction and operations; (ii) a dual-signing system will be adopted where the winner of the civil works contract also signs an anticorruption contract with the employer; (iii) periodic inspections on the contractors’ activities will be undertaken to ensure that fund withdrawals and settlements procedures are followed; and (iv) the status of procurement and awards of contracts will be published on XCD’s website in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time).

64. Land Acquisition and Resettlement. XUARG shall, through XCD, ensure and cause XCCAB to ensure that (i) the full resettlement plan (RP) for the project expressway and the short RP for the local roads are implemented promptly and efficiently in accordance with their terms; and with all applicable Government’s laws and regulations, and ADB’s Involuntary Resettlement Policy (1995); (ii) prior to the commencement of civil works, all land and rights-of-way required by the Project shall be made available in a timely manner, including land use approvals and agreements with APs (iii) compensation and resettlement assistance shall be given to the APs prior to their dispossession and displacement and commencement of civil works, (iv) all the APs are given adequate opportunity to participate in resettlement planning and implementation; (v) the APs are at least as well off as they would have been in the absence of the Project. XUARG shall (i) timely provide counterpart funds for land acquisition and resettlement activities and (ii) promptly meet any obligations in excess of the RP budget estimates.

65. XUARG, through XCD will ensure and cause XCCAB to ensure that (i) both resettlement plans are updated upon the completion of the detailed design and detailed measurement survey and submitted to ADB for approval prior to commencement of civil works, and (ii) any material changes in the project scope or other causes are reflected in the resettlement plans; (iii) updated resettlement plans are disclosed to the affected persons; (iv) civil works contractor specifications in contracts include requirements to comply with the resettlement plans, and entitlements for permanent and temporary impacts to the affected persons; (v) the contractors are supervised to

18 ensure compliance with requirements of the resettlement plans, the Borrower’s applicable laws and regulations, and ADB’s Involuntary Resettlement Policy; and (vi) contractors are required to give preference to the affected persons specifically women, for employment during construction, and this requirement is specifically monitored and reported to ADB.

66. XUARG through XCD will ensure and cause XCCAB to ensure that (i) adequate staff and resources are committed to supervising and monitoring the implementation of the resettlement plans, and providing to ADB with quarterly reports on implementation and a resettlement completion report; (ii) an independent national external monitor acceptable to ADB is engaged by XCCAB to carry out investigations to monitor progress semiannually and to evaluate results through annual survey updates for 2 years after completion of resettlement, and forward reports to ADB and XUARG simultaneously; (iii) data is disaggregated by gender, and monitoring includes gender impacts and vulnerable groups; and (iv) a summary of the final government audit of resettlement disbursements and expenditures is provided to ADB.

67. Project Performance Monitoring System (PPMS). XUARG, through XCD will ensure the establishment of the project performance monitoring system acceptable to ADB within 6 months of loan effectiveness.

68. Monitoring and Evaluation. XUARG, through XCD ensure and cause XCCAB to monitor and evaluate impact of the Project, through the PPMS to ensure that the project facilities are managed effectively and the benefits, particularly to the poor, are maximized. XCCAB shall (i) recruit qualified international and national consultants to carry out the monitoring activities; (ii) collect the data to measure the indicators contained in the PPMS prior to and during project implementation, at project completion and for 3 years thereafter; and (iii) submit to ADB the reports summarizing the key findings of monitoring and evaluation.

69. Gender and Development. XUARG, through XCD will ensure and cause XCCAB to follow ADB’s Policy on Gender and Development (1998) during project implementation and take necessary steps to encourage women living in the project area to participate in planning and implementing the Project, including causing the contractors on maximizing their employment of women in connection with the Project. XUARG, through XCD will monitor the project’s effects on women during project implementation.

70. Ethnic Minorities Development. XUARG, through XCD will ensure and cause XCCAB to ensure that (i) the two EMDPs are implemented in accordance with their terms and ADB’s Policy on Indigenous Peoples (1998); (ii) EMDPs are disclosed to affected persons, (iii) ethnic minorities in the project areas are consulted and provided with an opportunity to participate in the implementation of the EMDPs; (iv) sufficient budget for implementation and monitoring of each EMDP is made available in a timely manner; (v) any significant change to the EMDPs is submitted to ADB for approval; (vi) an external independent monitoring organization acceptable to ADB is engaged to carry out regular monitoring and evaluate the implementation and results of these actions every year, and submit reports to XCD and ADB annually until the completion of the Project, (vii) data are disaggregated by gender, and monitoring includes gender impacts and vulnerable groups, and (viii) the targeted ethnic minorities benefit from the Project and are at least as well off as they would have been in the absence of the Project.

71. Poverty Reduction. XUARG, through XCD will ensure and will cause the contractors involved in the project implementation to maximize the employment of local poor people, including ethnic minorities, who can meet the job and efficiency requirements for construction and maintenance of the project roads. Such workers will be provided with adequate on-the-job training.

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72. Labor Standards. XUARG, through XCD will ensure and cause XCCAB to ensure that all employment and labor standards provided in the applicable laws and regulations of the PRC are complied with, and in particular, that all civil works contractors engaged under the Project (i) provide timely payment of wages, on at least a monthly basis and safe working conditions to all workers including male and female workers, with such requirements being included in the civil works contracts and monitored by the construction supervision consultants; (ii) provide employment opportunity to women and ethnic minorities, where appropriate, and pay equal wages to the male and female employees for equivalent works; and (iii) do not employ child labor in the project works.

73. Health Risks. XUARG through XCD will ensure and cause XCCAB, in coordination with the Xinjiang Health Department and its local agencies to disseminate information on the risks of socially and sexually transmitted diseases, including HIV/AIDS, to their employees, subcontractors and families during project implementation. XUARG, through XCD will cause the appropriate agencies to disseminate similar information to transport operators and to local communities living in the project area during project implementation and operation of the project facilities. XUARG, through XCD will cause and have XCCAB to cause contractors to (i) ensure their workers have regular health checks; and (ii) monitor health risk control according to the Implementation Methods of Epidemic Prevention Law of the Government (1991) and in accordance with the methods specified in the EMDPs.

74. Capacity Development. XUARG, through XCD will prepare a capacity development plan for Component 6. Before undertaking international training, XCD will prepare for ADB’s concurrence a detailed training plan, including (i) the objective of the training activities, (ii) a detailed schedule, (iii) the number of training participants, (iii) duration, (iv) cost estimates, and (v) the expected skills to be acquired or developed by the participants. On completion of each international training, XUARG, through XCD will submit to ADB an evaluation of the training.

75. Construction Quality. XUARG, through XCD will ensure that (i) the project expressway and local roads are constructed in accordance with the MOC’s technical standards; and (ii) the project construction supervision, quality control, and contract management are conducted in accordance with national standards and internationally accepted practices.

76. Road Safety. Prior to construction and operation of expressway, and local roads, XUARG will cause XCD to ensure that the independent road safety audits are carried out and recommendations of these audits are taken into account during project construction and operations. XUARG will cause XCD to ensure that safe road facilities with adequate signage, communication, traffic monitoring, and traffic management scheme are provided. At least 6 months prior to the opening of the expressway, XCD and Xinjiang Public Security Department will develop and implement a plan to ensure safe operation of road infrastructure facilities.

77. Change in Ownership. In the event that XUARG, XCD or XCCAB (i) plan to make any change in ownership of the project facilities, (ii) make any sale, transfer, or assignment of XCD’s or XCCAB’s interest in the project expressway, or (iii) lease out, contract out, or otherwise modify XCD’s or XCCAB’s responsibilities for operation or maintenance of the project expressway, XUARG will, at least 6 months prior to the implementation of such plan, consult with ADB and obtain ADB’s consent. XUARG will ensure that such change is made in a lawful and transparent manner.

78. Toll Rates. At least 6 months prior to the opening of the expressway, XUARG, through XCD will propose the appropriate toll rates for the expressway in accordance with the Highway Law (which requires that at a minimum the toll rates be set at levels sufficient to fulfill the debt

20 service obligations of the Project as well as maintain sound operation, management, and maintenance practices for the Project). The proposed toll rates and any subsequent changes will be reported to ADB for information.

B. Condition for Disbursement

79. The disbursement of any portion of the loan proceeds for the Project will be conditional upon receipt by ADB of the Government’s certification, in form and substance acceptable to ADB, that the relending agreement for the Project, including the terms and conditions consistent with those provided in the Loan Agreement, has been duly executed by and delivered on behalf of XUARG and XCD and has become effective and binding upon the parties thereto in accordance with its terms.

VII. RECOMMENDATION

80. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve the loan of $150,000,000 to the People's Republic of China for the Xinjiang Regional Road Improvement Project (Korla–Kuqa Section) from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)- based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Jin Liqun Vice President (Operations 1)

20 November 2007

Appendix 1 21

DESIGN AND MONITORING FRAMEWORK

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks Impact Assumptions A more efficient national and • GDP for Xinjiang continues Xinjiang Statistics • The Government is regional transport system to increase at 9–10% per Yearbook. committed to supports sustainable annum until 2020. implementing the economic growth in Xinjiang. Western Region Development Plan.

• Per capita rural income in Provincial and county • Assumed nonfarming project area increases from statistics data. business materialized. CNY7,244 in 2005 to CNY18,000 in 2015 and to CNY30,000 in 2020.

• Cross-border trade in Xinjiang Statistics • Continued commitment of Xinjiang will rise from Yearbook. CAREC member $5.5 billion annually in 2005 countries to implement by 12% by 2020. agreed actions.

Outcome Assumptions Road transport capacity and • Traffic volume on the Actual traffic data on the • Assumed economic safety improved in the expressway increases by expressway by XCD. growth rates materialize. regional road corridor and 8% per year during 2011– the local roads in southern 2015, by 6% per year Xinjiang. during 2016–2020, and by 5% per year during 2021– 2030. • Travel time between Korla Traffic counts and travel • Passenger and freight and Kuqa is reduced from time survey by XCD. operators realize the current 6 hours to benefits of using the 3.75 hours by 2012. expressway. • Road accidents Accident statistics from Risks (214 fatalities and the Public Security • Nationwide road safety 241 injuries in 2005) in the Bureau. program may not be project area are reduced by implemented effectively. 5% annually during 2012– 2020.

• Rural passenger transport Township and county • Successful rural transport services will be provided to statistics offices, village reforms replicated in 2,280 currently unserved surveys by consultants. other parts of Xinjiang. villages by 2014.

Outputs 1. National highway G314 296.5 km of Korla–Kuqa Review missions, improved and related expressway opened to traffic in progress reports, and facilities provided. 2011 and effectively operated. PCR. Assumption

2. Local roads improved in 193 km of rural roads Review missions, • Road maintenance the project area. reconstructed in 2010 and progress reports, and equipment will be maintained. PCR. procured as planned.

3. Rural transport services Bus route licensing reform is Review missions, Risk improved in the project implemented in Kuqa county progress reports, and • Transport administration area. by 2010. PCR. officials fail to permit additional route licenses.

Bus network coverage in pilot Bus operator and terminal project area increases from records. 21% of villages in 2007 to 50% of villages by 2014.

22 Appendix 1

Design Performance Data Sources/Reporting Assumptions Summary Targets/Indicators Mechanisms and Risks 4. Operational efficiency of Time for looking for truck back Records of transport Risk freight terminals loads reduced from 10 days in operators and XTAB • Internet-based system improved in Urumqi. 2006 to 2 days in 2013. records. may not be introduced as planned.

5. The capacity of XCD At least 41 person-months of Review missions, strengthened in road international and 145 person- progress reports, and transport development, months of national training PCR. operation, road safety, provided to XCD and local and road maintenance county and township management. authorities.

Road condition survey carried Records from local road Assumption out and data collection maintenance bureaus. • Road condition survey increased from 30% of the equipment procured in network in 2006 to 80% by 2010. 2013.

Number of counties using road Regular monitoring by Risk asset management system project consultants. • Lack of financial increased from 18 in 2007 to resources for carrying out 40 in 2013. road condition surveys.

Activities with Milestones Inputs

1. Expressway civil works contract packages awarded by January 2007 and completed by Asian Development Bank: September 2011. $150 million: $145.97 million for civil 2. Local roads civil works contract packages awarded by August 2008 and completed by works August 2010. $1.66 million for equipment 3. Bus route licensing reforms implemented and monitored in Kuqa county by 2010. $2.37 million for consulting services and 4. Internet-based logistics system introduced in freight terminals in Urumqi by 2010. training

5. Equipment procured and commissioned by June 2011. Ministry of Communications: $197 6. Consultants recruited by February 2008 and their work completed in June 2012. million

7. Overseas and in-country trainings conducted by May 2012. Xinjiang Uygur Autonomous Regional 8. Resettlement completed in July 2008. Government: $59 million

9. Minority development plans implemented throughout the implementation period. China Development Bank: $188 million ADB = Asian Development Bank, CAREC = Central Asia Regional Economic Cooperation, GDP = gross domestic product, km = kilometer, PCR = project completion report, XCD = Xinjiang Communications Department, XTAB = Xinjiang Transport Administration Bureau.

Appendix 2 23

PROBLEMS AND CONSTRAINTS ANALYSIS

Problems • The northwestern province of Xinjiang does not benefit from (i) the rapid economic development in eastern PRC, and (ii) the strategic location of sharing border with eight neighboring countries. • Economic development in Xinjiang is constrained by lack of access to remotely located poor areas.

Major Cause Poor transport infrastructure and services

Benefits to Constraints Local Economy and • High transport and logistics costs Population • Poor access to rural areas and public Direct transport services Benefits to National • Jobs for construction/ Economy operation Direct • Improved local • Lower transport cost. transport services and better services • Safer, cheaper local Activities • Upgrade 296.5 km Korla–Kuqa • Shorter transport time travel and distance in a Indirect expressway • Rehabilitate 193 km local roads major corridor • Access to social Indirect services • Provide ICT for freight terminals in Urumqi • Increased regional • Access to non-local trade, investment and work • Implement bus route licensing reform in Kuqa county resulting economic • Promotion of local growth econom • Provide consulting services, • Better supply for goods • Investment climate equipment, and training and services change • Lower fares and freight • Lower fares and freight rates rates Outputs • More labor mobility • Improved national highway G314 and access to job • Improved local roads market • Improved rural transport services Risks • Improved operational efficiency of • Inadequate business freight terminals in Urumqi environment for • Strengthened capacity of XCD Risks investment • Inadequate toll • Unsafe travel on rural strategy and roads maintenance planning • Lack of competition in • Adverse impact on transport markets Outcome Road transport capacity and safety affected people improved in the regional road corridor and the local roads in southern Xinjiang. Mitigants • Local governments' capacity and Mitigants commitment • Strengthened institutional capacity • Public awareness Impact campaign A more efficient national and regional • Ethnic minority • Policy reform in rural transport system supports sustainable development plans, transport services economic growth in Xinjiang. and resettlement plans

ICT = information and communication technology, PRC = People’s Republic of China, XCD = Xinjiang Communications Department. Source: Asian Development Bank estimates.

24 Appendix 3

ROAD SECTOR ANALYSIS AND POLICY REFORMS MATRIX

A. Road Network and Financing

1. Since 1990, in People’s Republic of China (PRC) the demand for passenger transport has grown at an annual average rate of 7.8%; for freight transport the figure is 7.6%. This has led to an increase in the modal share of roads, particularly for passenger transport. The Government of the PRC has been investing heavily in transport infrastructure and services over the last two decades. In 2006, road transport carried 52.8% of passenger traffic and 11.1% of freight traffic.

2. To address the road infrastructure needs, the Government started several initiatives. In 1990, the National Trunk Highway System was introduced, which aimed to construct 12 high- standard key highways of a total length of 35,000 kilometers (km). In 1998, under the Western Region Development Program, plans were initiated to develop eight road corridors (18,000 km) in the western provinces to link with the central and eastern regions and the neighboring countries in the west. In 2005, the Government unveiled the National Expressway Development Plan to construct 34 expressways all over the country,1 covering a total of 85,000 km and providing access to the majority of the country’s population.

3. Since 1995, the PRC’s road network has been growing at 20% per annum and reached 3,457 million km in 2006. The bulk of financing is provided by the provincial governments and loans from domestic banks. In 2006, 41% of the resources were provided by local loans, 33% from the provincial and local governments, 16% from the state budget (particularly the vehicle purchase tax revenues), 9% from the private sector and other sources, and 1% from foreign loans. To meet the massive road development targets, efforts are being made to increase participation of the private sector and to explore use of the capital market instruments.

B. Rural Roads Development

4. While the PRC has achieved rapid economic development, rural areas have lagged behind, leading to widening income inequalities between urban and rural areas. One reason for this disparity is the lack of access in rural areas. A National Rural Roads Development Program was unveiled in 2005. The rural roads development targets under the 11th Five-Year Plan (11FYP) includes paved road connection to (i) all townships and administrative villages in the eastern region, (ii) all townships and 80% of administrative villages in the central region, and (iii) 90% of townships and 50% of administrative villages in the western region. In the 11FYP a total of 900,000 km of rural roads will be constructed or improved. This consists of 500,000 km of rural roads to be paved and 400,000 km of new access roads to villages that do not have any access. The major issues in implementing the 11FYP rural roads development target are (i) inadequate financing; (ii) capacity constraints at county, township, and village levels; (iii) the absence of appropriate design standards for low-volume roads; and (iv) a lack of maintenance. An Asian Development Bank (ADB)-financed technical assistance (TA) project2 has addressed these issues and the major recommendations include (i) raising local government revenues through a levy on property tax and collecting a road maintenance fee from vehicles that are currently exempted, (ii) incorporating new class V roads and village roads in the highway law,

1 Also called the 7918 network, it includes 7 expressways radiating from Beijing, 9 north–south expressways, and 18 east–west expressways. 2 ADB. 2006. Technical Assistance to the People’s Republic of China for Rural Roads Development Strategy. Manila.

Appendix 3 25

(iii) making provincial governments responsible for capacity development of the staff at county, township, and village levels, (iv) improving databases, and (v) introducing a pavement management system and contract maintenance.

C. Rural Transport Services

5. To supplement rural roads development under the 11FYP, the Government plans to improve the rural transport system. Accordingly, almost all townships in the eastern region, the more developed parts of the central region, and 70% of townships elsewhere in the central and western regions, will have at least class V bus terminals, and almost all townships and villages with road access will have formal bus services. About 15,000 township terminals will be built under the 11FYP, with the total subsidy expected to be CNY2.5 billion.

6. Freight transport has been deregulated since the mid-1980s, allowing the market to set service standards and freight tariffs. Frequent, regular, and often high-quality services meet the needs of most users at affordable cost. However, for township-to-village and village-to-village bus routes there are several shortcomings, mostly related to the strict regulatory regime, the major ones being (i) poor road conditions preventing the issuance of route license, (ii) the requirement of the existence of a township or village bus terminal before transport services can commence, (iii) extensive licensing restrictions for operators and routes (iv) restrictions on the type of vehicle, and (v) low commercial viability. Under an ADB-financed TA project,3 these issues have been addressed. The proposed recommendations are aimed at lowering the restrictions and allowing flexibility in operations, and encouraging local operators to participate.

D. Road Safety

7. Road safety continues to be a major issue in the PRC. The road-accident related fatalities exceeded 100,000 annually in the early 2000s. In 2004, the Ministry of Communications launched the highway safety enhancement program (HSEP) to address this situation. The HSEP is aimed at the adoption of best practices from other countries. This has involved improvement in road designs, safety audits, removal of black spots, improved road signage, and speed control. By 2006, the total number of fatalities was reduced to 89,455 and the number of fatalities per 1,000 vehicles was reduced to 3. However, with the rapid increase in the number of vehicles and improvements in the quality of roads, road safety remains a serious problem. In addition to implementing the HSEP, the focus of road safety activities have now expanded to include enforcement of traffic laws and public awareness programs.

E. Xinjiang Road Network and Financing

8. By the end of 2006, the total road network in Xinjiang was 143,735 km, which included 541 km of expressways, 1,337 km of class I roads, 7,984 km of class II roads, 22,688 km of class III roads, 37,373 km of class IV, and 73,812 km unclassified roads. There are eight national highways connecting Xinjiang with the neighboring provinces of Gansu, Qinghai, and Xizang in the east and south, and to the Central Asian countries and Mongolia in the west and north. During the period 2001–2005 (10FYP), a total of 35,319 km of new roads were constructed. This included 259 km of expressways, 885 km of class I roads, 4,898 km of class II roads, and 29,277 km of class III and unclassified roads. The total investment in road development during 2001–2005 was CNY32.9 billion, which was three times the level of

3 ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila.

26 Appendix 3 investment during the period 1996–2000. During the 11FYP, Xinjiang plans to construct an additional 657 km of expressways, 6,357 km of class I and II roads, 2,886 km of class III and underclass roads, and 32,000 km of rural roads. The priority remains meeting the 11FYP development targets under the National Expressway Development Plan, Western Region Development Plan, and the Rural Roads Construction Program. The total number of registered vehicles in Xinjiang in 2006 was about 720,000, with an annual increase of 20.3% (Table A3.1).

Table A3.1: Number of Vehicles Registered in Xinjiang Province Vehicles 2004 2005 2006 Change (%) Passenger Vehicles 269,482 334,702 383,680 14.6 Large 18,864 19,121 21,457 12.2 Medium 19,182 18,934 20,815 9.9 Small 210,167 273,040 316,687 16.0 Mini 21,269 23,607 24,721 4.7 Trucks 201,470 204,578 214,450 4.8 Large 55,486 56,142 56,178 0.06 Medium 41,361 41,906 42,754 2.0 Small 83,851 94,974 105,514 11.1 Mini 20,772 11,556 10,004 (13.4) Others 29,787 57,019 119,240 109.1 Total 500,739 596,299 717,370 20.3 ( ) = negative. Source: Xinjiang Annual Statistical Yearbook, 2007.

9. Road development and operations and maintenance responsibilities for the network are distributed between the Xinjiang Communications Construction Administration Bureau and the Xinjiang Highway Administration Bureau. The county communication bureaus are responsible for local roads in the respective counties. The major sources of maintenance funding are the toll revenues and the road maintenance fee. In 2006, the revenue collected in Xinjiang from road maintenance fees was CNY2,145 million, and from toll revenues CNY1,388 million. Though the revenues generated for road maintenance are adequate, effective utilization is an issue. Road asset management systems were introduced under the World Bank-financed projects4 however, their application is confined to the higher-class roads. It is the rural roads that suffer most due to lack of capacity of the local governments to undertake maintenance.

F. Policy Reform

10. ADB has been working with the Government of the People’s Republic of China, particularly the Ministry of Communications, to address a variety of issues in the road sector. This effort is supported by the other development partners. Some success has been achieved, but there remains a lot to be accomplished. The policy reform matrix (Table A3.2) provides an overview of the efforts to date and how this Project will contribute towards achieving the reforms.

4 World Bank (WB) 1994. Loan 3787: Xinjiang Highway I Project; Turpan–Urumqi–Dahuangshan High-grade Highway Project. Washington; 1996. Loan 4099: Second Xinjiang Highway II Project: Urumqi–Kuytun Expressway Project. Washington; 2002. Loan 7143: Third Xinjiang Highway Project: Kuytun–Sailimu High-grade Highway Project. Washington.

Appendix 3 27

Table A3.2: Road Sector Policy Reform Matrix Actions Taken by ADB Actions Taken under Initiative Issues Outcomes/Status and the Government the Project 1. Poverty All projects Promoting pro-poor To enhance development XCD’s 11th Five- impact financed by the equitable and inclusive impact, the scope of the Year Plan (11FYP) Asian growth has been ADB’s project includes emphasizes Development primary goal in the PRC. components on rural accelerated Bank (ADB) in the The Government is roads and rural transport development of rural People’s Republic implementing the services for the poor infrastructure. of China (PRC) Western Development areas. are in poorer Plan to improve the central and economic condition of western regions. the less-developed western provinces. 2. Rural road Rural roads are Rural road development The project includes XCD 11FYP target: development largely in poor strategy proposed under upgrading of 193 km of paved road will condition. TA 4671-PRCa is being local roads in remote and reach all townships considered by the poorer areas of Xinjiang. and 50% of villages Government. The project will assist in in Xinjiang. XCD implementing some of the plans to rehabilitate recommendations given and improve under TA 4671-PRCa 60,500 km rural study. roads during 2006– 2010 at a cost of CNY16.1 billion. 3. Rural Low vehicle MOC concurs with the To increase rural mobility, The proposed transport utilization, high rural transport services the project includes a reforms will be services operating costs, reforms proposed under component under which tested in Kuqa and inefficient bus TA 4806-PRCb and has pilot bus route licensing county before being routes because of agreed to pilot test the reforms will be tested at adopted province- restrictive recommendation under township/village level. wide. regulations ADB projects. affecting rural transport. 4. Road safety Poor safety Assistance is being The Project will address In 2006, there were design, lack of provided to improve the issues through 7,427 road accidents sufficient attention safety and efficiency of (i) increasing public in Xinjiang that to safety, and road transport awareness in road safety, resulted in inadequate traffic operations and (ii) conducting safety 2,588 fatalities and enforcement and strengthen traffic law audits, (iii) capacity 8,843 injuries. driver training enforcement under TA building, and (iv) contribute to poor 4698-PRC.c providing modern traffic safety record. safety devices on the project roads. 5. Overloading Overloading of An interministerial Under the Project, Vehicle overloading of trucks trucks has committee, coordinated weight-based tolling will has been reduced; adverse impacts by MOC, was be introduced on the further reduction is on pavement established to develop expressway to enhance expected after conditions, traffic and implement special XCD’s effort in combating implementing the flow, and safety. measures to enforce overloaded trucks. One proposed actions for regulations nationwide more weighbridge will the Project. on overloaded trucks. also be purchased and Vehicle weighing installed on the stations were installed at expressway to carry out terminals along the random checking. highway network in Xinjiang and regular checks are being carried out. Random checking is also being carried out on the roads.

28 Appendix 3

Actions Taken by ADB Actions Taken under Initiative Issues Outcomes/Status and the Government the Project 6. Road pricing Tolls are The toll diversion Toll rates currently These rates will be structured so that manual was applicable on the other reviewed to ensure users pay for cost disseminated under TA expressways will be that tolls (i) are recovery for toll 3102-PRCd in 2000. The applied to the project affordable, (ii) do not roads in most manual will be updated expressway. deter potential users provinces. by December 2008. and compromise Xinjiang carried out a toll economic objectives, rate analysis for each and (iii) meet cost new road, and, based on recovery the findings, has decided requirements for to establish uniform toll debt and O&M rates. costs. Six months prior to expressway opening, XCD will submit to ADB for review the proposed toll structure and levels. 7. Private Private sector Private sector financing The project will provide XCD has not been Sector financing of road of road infrastructure assistance to XCD to successful in Participation infrastructure investment accounts for (i) encourage private engaging PSP due investment 10% of the PRC’s total sector participation, and to relatively low accounts for a commitment to the road (ii) explore innovative traffic volumes and fraction of the sector since the 1980s. financing mechanisms high risks. total financing. including use of capital markets. ADB = Asian Development Bank, FYP = five-year plan, km = kilometer, MOC = Ministry of Communications, O&M = operation and maintenance, PRC = People’s Republic of China, PSP = private sector participation, XCD = Xinjiang Communications Department. a ADB. 2005. Technical Assistance to the People’s Republic of China for Rural Road Development Strategy. Manila. b ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila. c ADB. 2005. Technical Assistance to the People’s Republic of China for Road Safety Improvement (Cofinanced by the Global Road Safety Partnership). Manila. d ADB. 1998. Technical Assistance to the People’s Republic of China for Chongqing–Guizhou Expressway Project. Manila. Source: Asian Development Bank estimates.

Appendix 4 29

EXTERNAL ASSISTANCE TO THE ROAD SECTOR

Table A4.1: Asian Development Bank-Financed Loans Loan Express- Local Loan Date PCR PPAR No. Number Loans way Road Amount Approved Rating Rating (km) (km) ($ million) 1 1082-PRC Shanghai Nanpu Bridge — — 70 28 May 1991 S GS 2 1168-PRC Shenyang–Benxi Highway 75 — 50 2 Jul 1992 GS S 3 1188-PRC Shanghai Yangpu Bridge — — 85 17 Nov 1992 HS — 4 1261-PRC Hunan Expressway 52 — 74 9 Nov 1993 GS — 5 1262-PRC Jilin Expressway 133 — 126 9 Nov 1993 GS HS 6 1324-PRC Heilongjiang Expressway 350 — 142 29 Sep 1994 PS S 7 1325-PRC Yunnan Expressway 200 — 150 29 Sep 1994 HS — 8 1387-PRC Hebei Expressway 200 179 220 28 Sep 1995 HS — 9 1388-PRC Liaoning Expressway 110 203 100 28 Sep 1995 GS — 10 1470-PRC Chongqing Expressway 89 — 150 27 Sep 1996 S — 11 1483-PRC Shenyang–Jinzhou Expressway 192 291 200 19 Nov 1996 HS — 12 1484-PRC Jiangxi Expressway 134 253 150 19 Nov 1996 S — 13 1617-PRC Hebei Roads Development Project 140 340 180 18 Jun 1998 HS HS 14 1638-PRC Chengdu–Nanchong Expressway 208 300 250 10 Nov 1998 S S 15 1641-PRC Changchun–Harbin Expressway: Hashuang Expressway 101 — 170 27 Nov 1998 S S 16 1642-PRC Changchun–Harbin Expressway: Changyu Expressway 161 — 220 27 Nov 1998 S HS 17 1691-PRC Southern Yunnan Road Development 147 540 250 24 Jun 1999 S — Project 18 1701-PRC Shanxi Road Development Project 176 418 250 30 Sep 1999 S — 19 1783-PRC Chongqing–Guizhou Roads: Leichong Expressway 50 122 120 21 Nov 2000 — — 20 1784-PRC Chongqing–Guizhou Roads: Chongzun 200 Expressway 127 704 21 Nov 2000 — — 21 1838-PRC Shaanxi Roads Development 176 627 250 30 Aug 2001 — — 22 1851-PRC Guangxi Roads Development 179 507 150 30 Oct 2001 — — 23 1918-PRC Southern Sichuan Roads Development 160 558 300 20 Sep 2002 — — 24 1967-PRC Shanxi Road Development II Project 65 70 124 12 Dec 2002 — — 25 2004-PRC Ningxia Roads Development Project 182 400 250 11 Sep 2003 — — 26 2014-PRC Western Yunnan Roads Development Project 77 294 250 28 Oct 2003 — — 27 2024-PRC Xi'an Urban Transport Project 71 16 270 27 Nov 2003 — — 28 2089-PRC Hunan Roads Development II Project 173 517 312.5 9 Sep 2004 — — 29 2094-PRC Guangxi Roads Development II Project 188 750 200 21 Oct 2004 — — 30 2125-PRC Gansu Roads Development Project 231 470 300 13 Dec 2004 — — 31 2181-PRC Central Sichuan Roads Development Project 244 678 600 22 Sep 2005 — — 32 2219-PRC Hunan Roads Development III Project 64 129 208 15 Dec 2005 — — 33 2247-PRC Heilongjiang Road Network Development Project — 598 200 26 Jul 2006 — — 34 2295-PRC Southern Gansu Roads Development Project 134 357 300 18 Dec 2006 — — 35 2339-PRC Eastern Sichuan Roads Development 143 430 200 17 Jul 2007 — — Project 36 2345-PRC Western Guangxi Roads Development 177 1,060 300 14 Aug 2007 — — Project Total 4,909 10,811 7,371.5 — = not available, GS = generally successful, HS = highly successful, km = kilometer, No. = number, PS = partly successful, PCR = project completion report, PPAR = project performance audit report, PRC = People’s Republic of China, S = successful, U = unsuccessful. Source: Asian Development Bank estimates.

30 Appendix 4

Table A4.2: Asian Development Bank-Financed Technical Assistance Amount Date No. TA No. Technical Assistance Type ($’000) Approved 1 1049-PRC Huangpu Bridge PP 95 24 Oct 1988 2 1152-PRC Design Review of the Nanpu Bridge PP 100 26 Apr 1989 3 1509-PRC Ningguolu Bridge PP 100 18 Apr 1991 4 1517-PRC Toll Bridge Operation and Management AD 760 28 May 1991 5 1533-PRC Design Review of the Yangpu Bridge AD 100 10 Jul 1991 6 1664-PRC Shenyang–Benxi Highway PP 100 22 Jan 1992 7 1533-PRC Design Review of the Yangpu Bridge (supplementary) AD 416 28 Apr 1992 8 1724-PRC Institutional Strengthening for Highway Operation and Management Improvement AD 500 2 Jul 1992 9 1725-PRC Jilin Province Highway Network Study PP 600 2 Jul 1992 10 1728-PRC Changsha–Xiangtan Expressway PP 100 9 Jul 1992 11 1785-PRC Comprehensive Toxic and Hazardous Chemicals Transport Management Plan in the Huangpu River Basin AD 600 17 Nov 1992 12 1940-PRC A study of Efficiency Improvements in Road Transport AD 550 25 Aug 1993 13 1972-PRC Institutional and Policy Support in the Road Sector AD 1,200 9 Nov 1993 14 1975-PRC Policies for Strategic Development of Transport and Communications Infrastructure AD 100 11 Nov 1993 15 1981-PRC Heilongjiang and Yunnan Expressways PP 320 16 Nov 1993 16 2155-PRC Sichuan Expressway PP 350 16 Sep 1994 17 2177-PRC Preparation of a Road Safety Program AD 600 29 Sep 1994 18 2178-PRC Provincial Highway Network Planning AD 600 29 Sep 1994 19 2195-PRC Hebei and Liaoning Expressways PP 560 31 Oct 1994 20 2212-PRC Beijing Urban Transport AD 715 28 Nov 1994 21 2302-PRC Symposium on Urban Transport AD 100 22 Feb 1995 22 2409-PRC Appraisal Methodologies and Restructuring Highway Financing in Hebei Province AD 740 28 Sep 1995 23 2482-PRC Liaoning and Jilin Expressways PP 400 18 Dec 1995 24 2486-PRC Jingxi Highway PP 250 20 Dec 1995 25 2573-PRC Review of Highway Design Standards AD 420 24 May 1996 26 2649-PRC Facilitating the Build-Operate-Transfer Modality in the Highway Sector AD 1,100 27 Sep 1996 27 2663-PRC Hebei Roads Development PP 600 16 Oct 1996 28 2777-PRC Chengdu to Nanchong Expressway PP 600 7 Apr 1997 29 2846-PRC Changchun–Harbin Expressway PP 600 22 Aug 1997 30 2952-PRC Corporatization, Leasing, and Securitization in the Road Sector AD 1,000 17 Dec 1997 31 3033-PRC Shanxi Expressway PP 570 24 Jun 1998 32 3039-PRC Yunnan Road Environmental and Social Analysis PP 150 7 Jun 1998 33 3086-PRC Regional Road Sector Study AD 1,180 13 Oct 1998 34 3102-PRC Preparing the Chongqing–Guizhou Expressway PP 900 26 Nov 1998 35 3220-PRC Preparing the Guangxi Highway PP 540 7 Jul 1999 36 3248-PRC Preparing the Shanxi and Shaanxi Roads PP 640 30 Aug 1999 37 3341-PRC Capacity Building Safety, Planning, and Management AD 600 14 Dec 1999 38 3546-PRC Preparing the Southern Sichuan Roads Development PP 800 16 Nov 2000 39 3569-PRC Jiangsu Highway BOT Project AD 555 12 Dec 2000 40 3642-PRC Preparing the Western Yunnan Roads Development PP 770 20 Mar 2001 41 3376-PRC Preparing the Ningxia Roads Development PP 600 16 Nov 2001 42 3900-PRC Socioeconomic Assessment of Road Projects AD 250 12 Aug 2002 43 3907-PRC Preparing the Xi’an Urban Transport Project PP 750 27 Aug 2002 44 3929-PRC Preparing the Hunan Roads Development PP 600 23 Sep 2002 45 4119-PRC Preparing the Guangxi Roads Development II PP 500 23 May 2003 46 4142-PRC HIV/AIDS on Road Projects in Yunnan Province AD 800 28 Oct 2003 47 4211-PRC Preparing the Gansu Roads Development PP 500 5 Nov 2003 48 4274-PRC Preparing the Central Sichuan Roads Development PP 700 18 Dec 2003 49 4322-PRC Poverty Impact of Area Wide Road Networks AD 1,000 26 Mar 2004 50 4351-PRC Policy Reform in Road Transport AD 500 24 Jun 2004 51 4384-PRC Preparing the Hunan Roads Development III PP 500 2 Sep 2004 52 4592-PRC Preparing the Heilongjiang Road Network Development PP 500 2 Jun 2005 53 4639-PRC Preparing the Western Roads Development PP 800 30 Aug 2005

Appendix 4 31

Amount Date No. TA No. Technical Assistance Type ($’000) Approved 54 4650-PRC Evaluating Poverty Impacts of Transport Projects SS 150 21 Sep 2005 55 4671-PRC Rural Road Development Strategy AD 350 21 Oct 2005 56 4698-PRC Road Safety Improvement AD 1,000 24 Nov 2005 57 4773-PRC Preparing the Xinjiang Regional Road Improvement PP 600 21 Mar 2006 58 4782-PRC Preparing the Central Yunnan Roads Development PP 500 28 Apr 2006 59 4792-PRC Preparing the Guangxi Longlin–Baise Expressway Project PP 500 26 May 2006 60 6321-REG Fighting HIV/AIDS in Asia and the Pacific (Subproject 7: HIV/AIDS Prevention and Road Transport Sector) RETA 500 5 Jun 2006 61 4806-PRC Sustainable Rural Transport Services AD 400 28 Jun 2006 62 4877-PRC Resource Optimization in Road Sector AD 600 29 Nov 2006 63 4970-PRC Preparing the Western Yunnan Roads Development II Project PP 400 28 Sep 2007 64 4991-PRC Transport Information System AD 500 15 Nov 2007 AD = advisory, km = kilometer, No. = number, PP = project preparatory, PRC = People’s Republic of China, REG = regional, RETA = regional technical assistance, SS = small scale, TA = technical assistance. Source: Asian Development Bank estimates.

Table A4.3: Other Funding Sources No. of Road Length Loan Amount Loans Organization (km) Unit Total 38 World Bank 10,598 $ million 7,109 16 Japan Bank for International Cooperation 1,695 Yen million 219,036 km = kilometer, No. = number, PRC = People’s Republic of China. Source: Asian Development Bank.

32 Appendix 5

LOCAL ROADS DEVELOPMENT

A. Background

1. While the People’s Republic of China (PRC) has achieved unprecedented rapid economic progress, development in rural areas has lagged behind, resulting in widening urban- rural income inequalities. In view of this growing concern, under the 11th Five-Year Plan (11FYP) the Government has outlined its vision of “building a new socialist countryside” that involves accelerated development of rural infrastructure, particularly rural roads. Accordingly, the Ministry of Communications (MOC) launched the Rural Roads Construction Program to be implemented under the 11FYP. One of the program targets is that by 2010 all townships and villages in the eastern region, all townships and 80% of villages in the central region, and 90% of townships and 50% of villages in the western region will be connected with a paved road network. The program also involves provision of access to currently unserved villages. These targets are translated into rehabilitation and upgrading of 500,000 kilometers (km) of paved roads and 400,000 km of access roads to villages. MOC plans to provide the provinces with CNY100 billion for paved roads and CNY40 billion for access roads.

2. During the 10FYP period, total investment in rural road construction in Xinjiang province amounted to CNY5.1 billion, almost seven times the investment during the 9FYP period. Since 2003, CNY4.94 billion has been spent (i) building 18,588 km of rural roads, (ii) making 1,100 administrative villages accessible by bitumen paved roads, (iii) improving the accessibility of 178 townships, and (iv) connecting 410 inaccessible villages by roads, which has benefited almost 3.5 million people. By the end of 2006, the total length of road open to traffic in Xinjiang was 143,735 km, of which classified roads made up 69,923 km (48.6%) and unclassified roads 73,812 km (51.4%).

B. Rural Roads Administration and Planning

3. The selection of road priorities is carried out in accordance with the local road management regulations which set out the requirements for planning of local road development. The Xinjiang Communications Department (XCD) provides the plans and programs for work to be completed in the following year. Funding for road maintenance is raised by XCD in collaboration with the local governments. Within the funding allocations, XCD will provide subsidies for routine maintenance for county and township roads. The prefecture is responsible for the administration of construction and maintenance works and for initial planning within its jurisdiction. It prepares project proposals and provides information to XCD on project implementation and execution. The Xinjiang Highways Administration Bureau is responsible for the review of design documentation for projects and acts on behalf of XCD by seeing projects through to completion.

4. In general, the selection of local roads for improvement is based upon (i) road condition, (ii) traffic, (iii) poverty in the area, (iv) access to markets and social services such as schools and clinics, (v) environmental impacts, (vi) resettlement considerations, and (vii) location on major bus routes.

C. 11th Five-Year Plan Targets

5. The main objectives of the 11FYP are to (i) extend the road network to unserved areas, (ii) improve the service level of roads, and (iii) provide all-weather access. By the end of the 11FYP (2006–2010), all townships will have road access, and the percentage of villages having

Appendix 5 33 road access will increase from 90% to 99%. Townships having paved roads will increase from the current 66% to 90%.

6. During the 11FYP, 60,500 km of rural roads will be rehabilitated or constructed in Xinjiang at a cost of CNY16.1 billion. Of this, the major rural roads account for 13,300 km with an estimated cost of CNY8,600 million, access roads account for 24,900 km with an estimated cost of CNY2,900 million, and paved roads to villages account for 22,300 km with an estimated cost of CNY4,400 million. A total of 50 townships and 1,600 villages will be connected with paved road. In addition, 2,820 villages will be provided with access roads.

D. Rural Roads Development Program for 2006–2007

7. In 2006, XCD constructed (i) 2,008 km of rural roads with MOC subsidy of CNY80 million, (ii) 3,700 km of access roads with MOC subsidy of CNY370 million, and (iii) 5,000 km of paved roads to villages with CNY200 million government credit.

8. In 2007, XCD plans to develop (i) 109 major rural roads with a total length of 2,306 km and MOC subsidy of CNY800 million, and (ii) 526 access roads with a total length of 5,300 km and MOC subsidy of CNY530 million. Each prefecture plans to borrow CNY530 million from the government for paved roads to villages, with a total length of 5,301 km. The details are in Table A5.

Table A5: Xinjiang Rural Road Development Targets (2006–2007) (km) Name of Ordinary Rural Road Projects Prefecture Major Rural Road Projects Access Project Paved Road to Village and City 2006 2007 2006 2007 2006 2007 Yili 174.00 296.26 343.34 420.90 570.90 559.56 Hami 125.00 105.50 180.00 101.90 202.60 210.82 Turpan 116.00 97.74 139.00 56.00 172.70 587.35 Changji 169.00 232.45 359.32 404.30 578.50 916.13 Urumqi 22.00 74.68 101.00 0.00 175.90 46.00 Shihezi 50.00 38.00 0.00 0.00 0.00 0.00 Karamay 37.00 22.55 0.00 0.00 0.00 0.00 Tacheng 111.00 163.26 209.70 260.10 503.70 260.51 Altay 114.00 141.05 267.29 387.50 380.90 628.71 Bole 81.00 27.14 123.54 182.40 0.00 32.00 Bazhou 145.00 187.79 559.66 223.50 508.00 627.00 Aksu 190.00 194.60 430.59 496.30 959.50 736.29 Kezhou 114.00 120.89 125.60 266.30 283.00 0.00 Kashgar 336.00 356.19 489.58 1,671.70 0.00 0.00 Hotan 224.00 218.08 371.40 829.10 664.30 696.90 Source: Xinjiang Communications Department.

34 Appendix 6

IMPROVEMENT OF FREIGHT TERMINAL OPERATIONS

1. Current Situation. The Xinjiang Uygur Autonomous Region (or Xinjiang) is located in the northwestern corner of the People’s Republic of China (PRC). It has a land area of 1,665,000 square kilometers (km2), which is one sixth of the total area of the PRC, and a population of 20.2 million. It borders eight countries, most of which are members of the Central Asia Regional Economic Cooperation program. In 2006, Xinjiang had a total gross domestic product (GDP) of CNY139.9 billion, an increase of 11.1% compared to 2004. Road transport dominates surface transport in Xinjiang, accounting for 82% of the total freight (39% of the total tons per km), which is higher than the national average.

2. In 1960, Xinjiang had four border posts with neighboring countries and a total trade volume of $13 million. After the collapse of the Soviet Union and the formation of the new Central Asian republics in the early 1990s, cross-border trade grew rapidly. Currently there are 15 border ports and the trade volume in 2005 had grown to $5.5 billion (consisting of exports of $3.8 billion and imports of $1.7 billion) with an average annual growth rate of 16.3% during the 2001–2005 period.

3. Development of Freight Terminals. In line with the growth in cross-border trade and in Xinjiang’s economy, freight distribution and logistics centers have also expanded significantly in Urumqi. To accommodate the surging logistics demand, the Ministry of Communication and Xinjiang Communications Department approved the General Layout of Urumqi Road Transport Hub Terminal Development Program in November 1997 to construct 14 terminal facilities in Urumqi. These facilities consist of six passenger terminals, six freight terminals, one administration center, and one international passenger and freight terminal.

4. Of the freight, administration, and international terminals, so far the administration facility and three freight terminals are completed; others are under construction. There is no special funding source for freight terminal development; the Xinjiang Communications Department is only responsible for investment in preparatory work, while 90% of the funds for freight terminal development comes from the private sector. There are also freight terminals at each of the border ports; these are usually simple storage yards developed by private freight transport operators.

5. Terminal Efficiency Improvements. The trade volume imbalance between exports and imports and the cyclical pattern of agricultural crop production in Xinjiang are some of the factors adversely affecting the efficiency of freight terminals and transport operations. According to a recent survey, 1 trucks looking for back loads wait 10–15 days on average, thereby increasing the unit freight cost. Up to 60% of trucks return empty due to lack of information and coordination. Although the terminal development program includes establishment of an integrated transport terminal system by connecting the administration center with the passenger and freight terminals, lack of funds prohibits its implementation. The absence of a logistics platform, outdated technology, and a lack of management diminishes the efficiency of the terminal operations.

6. The proposed establishment of an integrated logistics information exchange system with information and communication technology under the Project will improve the efficiency of terminal operation and management and will reduce transportation logistics costs. It will give

1 ADB. 2006. Technical Assistance to the People’s Republic of China for Xinjiang Regional Road Improvement Project. Manila.

Appendix 6 35 freight forwarders the ability to provide a secure intracity pick up and delivery service to their customers in a cost-effective, flexible, and efficient manner. This web-based secure system will authenticate third-party delivery agents and will reduce the costs of intracity pick up and delivery for the transport industry. This system will increase efficiency in the industry by providing road transport operators with real-time information to help operators search for freight as well as giving cargo owners the ability to not only locate suitable operators but also to track their consignment to the point of delivery, including international destinations.

7. The main activities to achieve the goals are (i) implementing an web-based logistics information system, and (ii) enhancing capacity development on human resource development and improving the efficiency of private sector operations. The first goal consists of two subcomponents: (i) the facilitation of terminal operation software, and (ii) improvement of terminal efficiency through the integration of systems managed by terminal and logistic operators. The second goal consists of the following subcomponents: (i) human resource development, including training in terminal operation techniques; and (ii) harmonization and simplification of private sector operational procedures.

8. Improvements in operational efficiency in individual terminals can generate substantial long-term economic returns throughout the region. Reduced distribution costs and improved logistics permit reductions in the cost of products, and provide more reliable access to supplier markets, boosting competitive opportunities. The direct benefits from improved operational efficiency are (i) improved visibility over the transportation network; (ii) increased vehicle utilization, thereby lowering vehicle operating costs; and (iii) increased flow of goods across the region. These integrated terminals may become pivotal points in the regional transport network, which will create levels and types of employment previously not available in the region, and will facilitate cross-border trade.

9. The Project is proposed to provide (i) terminal operation software, and (ii) 2 person- months of international consultancy assisted by national consultancy to facilitate the information exchange system and train the Xinjiang Transport Administration Bureau staff responsible for operations.

36 Appendix 7

IMPROVING RURAL TRANSPORT SERVICES

A. Rural Transport Issues in Xinjiang

1. Under the 11th Five-Year Plan (11FYP), the Xinjiang government aims to establish a high-quality passenger transport service connecting the cities, townships, and villages. There are currently 485 passenger terminals of different categories, including 2 class I, 29 class II, 98 class III, and 98 class IV terminals, and 267 bus stops. However, the findings of a recently completed ADB-financed technical assistance (TA) project1 indicated that rural access by road in Xinjiang is poor. There are as many as 11 townships and 3,036 remote administrative villages that are inaccessible by regular bus services, where rural travelers rely on motorized three- wheeled vehicles, agricultural tractors, and animal-powered vehicles. This is primarily due to the region’s vast area, sparse population, and underdeveloped economy, and the high construction and maintenance costs of rural roads. Where public transport services are available, they are often inefficient and unsafe. Public transport efficiency in Kuqa county, where the Project is located, is very low in terms of the average length of service per bus per day. This results in a long wait for passengers at bus stations and an inability to rotate buses onto other routes. There is a need to extend bus services to remote townships and villages as well as to reduce the cost of providing services by improving vehicle efficiency and providing more frequent services.

B. International Good Practice

2. International good practice in rural transport services based on the findings of the above- mentioned TA project suggests that

(i) uncontrolled competition should be avoided; instead, operators should be educated in basic principles and a regulatory framework should be applied; (ii) a flexible approach to regulatory control should be maintained if costs are to be minimized and any subsidies are to be cost effective; operators should be allowed the freedom to tailor their services to meet the needs of users; (iii) the regulations should not stifle initiative, such as the use of unconventional vehicles or variations in quality and capacity in response to demand; (iv) rather than being consolidated into larger companies, localized services should be encouraged to play a greater role in meeting local needs—their costs are lower and they are more aware of the community’s requirements; and (v) terminals are not always necessary to achieve safe boarding and alighting of passengers and interchange between routes.

3. The TA project has recommended reforms to improve the provision of road passenger transport services to rural areas in the People’s Republic of China. These involve (i) changes in the definition, licensing, and regulation of rural buses, rural bus routes, rural bus operators, and rural bus terminals to encourage more demand-responsive, township-based operators and give them the freedom and flexibility to offer services that are efficient and better capable of responding to users’ needs; and (ii) corresponding measures to clarify the role and strengthen the capacity of county-level road transport administrations in relation to the recommended regulatory changes.

1 ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila.

Appendix 7 37

C. Pilot Project

4. In order to improve rural transport services in Xinjiang, it was agreed with the Xinjiang Communications Department that some of the recommendations proposed under the TA project will be initially implemented on a trial basis in Kuqa county, before introducing them province- wide. Accordingly, the following pilot reforms were developed.

5. Objectives and Overview. The bus route licensing reforms in Kuqa county will be demonstrated, tested, monitored, and adjusted to ensure that they are workable before being extended throughout Xinjiang. The pilot reform will involve the establishment of at least one village bus operator to operate a number of village bus routes, and will provide

(i) a demonstration of how the proposed reforms to village bus services will operate; (ii) an opportunity to involve all stakeholders in designing and monitoring the effectiveness of the village bus service system; (iii) model drafts of all documents and procedures needed to plan, license, operate, and monitor operations under the recommended system; (iv) the training plans and materials needed to establish and maintain the necessary planning and regulatory skills in the county-level road transport administration and appropriate management, planning, and operational skills in the chosen village bus operator; and (v) an opportunity to identify any problems and shortcomings, and to adjust the proposed arrangements based on the practical experience.

6. The holder of the village bus route license(s) will be a local company or cooperative formed perhaps by local bus and minibus owners who previously worked as subcontractors for a larger company. The pilot project will assist with the formation of this group and provide training for the new operators in basic management techniques, bus service management, and safety, as well as training for the staff of a village bus division to be established in the county road transport administration.

7. Key Activities. The main activities will include

(i) helping to establish a project implementation group, chaired by the Kuqa county communications bureau, to oversee the reform activities; (ii) briefings and consultations with all parties affected, including existing bus and taxi operators, informal operators, local business groups, local leaders, and their communities; (iii) drafting the necessary decrees and dispensations to enable the pilot reform to proceed and to authorize the participation of the public sector stakeholders concerned; (iv) selecting a suitable local group to operate as village bus operator, and briefing them on the proposals, helping to carry out demand surveys, and providing training and simple management tools; (v) in consultation with operators, selecting the routes to be included in the village bus route network, and defining stopping places and minimum service frequencies as necessary; (vi) drafting the village bus route license conditions based on the proposals of the TA project, and helping to get temporary licenses issued to the group chosen to operate the route(s);

38 Appendix 7

(vii) drafting the conditions for a village bus license, and helping to get temporary licenses issued to the vehicle owners who wish to join the group holding the village bus route license(s); (viii) clarifying the role and procedures of the communications bureau in relation to the village bus services, including (a) planning and designing village routes; (b) canvassing for interest from potential groups and helping with the formation of village bus operators; (c) setting conditions for village bus route licenses; (d) calling for and evaluating proposals for village bus route licenses (and bids where there are competing potential operators); (d) administering the village bus, village bus route, and village bus operator licensing system, including supervision and inspection arrangements designed to secure public safety and the interests of users, operators, and the general public; (e) adjusting route structures and operations, if necessary; and (f) monitoring operations to ensure that the objectives of the pilot project are met; and (ix) evaluating the results of the pilot reform, circulating these for discussion to county and provincial communication bureaus, and drafting detailed guidelines and draft amendment to existing regulations and decrees to enable implementation throughout Xinjiang.

8. Implementation Arrangements. Two rural transport specialists—one international (4 person-months) and one national (8 person-months)—will be recruited under consulting services contracts to carry out the tasks described in the above key activities. The Xinjiang Communications Construction Administration Bureau will be the Implementing Agency and the day-to-day management of the pilot reform will be the responsibility of the Kuqa county communications bureau. Overall direction will be given by a project director.

Appendix 8 39

ROAD SAFETY IMPROVEMENT

A. Issues

1. Rapid economic development accompanied by increasing vehicular growth in Xinjiang has resulted in rising level of traffic, increased pressure on the road system, a substantial number of road accidents, and large loss of life. During the period 1996–2005, over 25,000 people were killed and over 75,000 people injured in road traffic accidents. Fatalities have increased from 1,863 in 1996 to 2,491 in 2000, and to 2,588 in 2006 (Table A8). In 2006, the estimated economic losses from road accidents and fatalities in Xinjiang exceeded CNY 16.63 million.

Table A8: Road Accidents in Xinjiang (2000–2005) Item 2000 2001 2002 2003 2004 2005 2006

Fatalities 2,491 2,539 2,563 2,643 2,892 3,111 2,588 Injuries 7,976 9,295 9,199 10,044 8,918 10,437 8,843 Source: Statistical Year Book (2006).

2. The total number of vehicles owned in Xinjiang in 2006 was 717,370 with an annual increase of 20.3%. Based on the total population of 20.2 million in 2005 with a growth rate of 2.40%, the fatality rate in Xinjiang was 22 per 10,000 vehicles and 15 per 100,000 people, which is higher than the national average.

3. On the existing Korla–Kuqa expressway, in 2005 65% of deaths and 62% of accidents occurred in rear-end collisions. A common factor in rear-end accidents has been the inability of the driver of the rear vehicle to see or accurately determine traffic conditions ahead (degraded perception). Harsh weather conditions like snow, fog, rain, and ice clearly increase the risk of rear-end collisions during long winters when the average temperature falls to –12° celsius (C) and can go down to as much as –30° C. The risk of traffic accidents and breakdown of vehicles is strongly related to this harsh weather. The risk can be reduced by providing necessary and timely information to drivers.

4. The fatality rate on class I highways in Xinjiang is 37.5% higher than on class II highways. Similarly, when rural roads are upgraded, the increased traffic accidents mainly involve pedestrians or users of nonmotorized transport and public buses. Local people need to be aware that traffic will be moving faster and the volume of traffic will increase when local roads are improved. Therefore, there is a need to increase awareness of the rural population about road improvement and increasing vehicle speeds to minimize any negative impact of road development.

B. Road Safety Improvement

5. The road safety improvement component includes (i) conducting a safety audit for the project roads, (ii) developing an action plan for safe operation of the expressway, (iii) institutional capacity development of the Xinjiang Communications Department and increasing public awareness in road safety, and (iv) utilizing information technology for road safety and the installation of traffic safety devices along the project roads.

6. Road Safety Audit and Action Plan. For the Korla–Kuqa expressway, the safety audits will be undertaken at the detailed design and pre-opening stages, and for local roads at the

40 Appendix 8 detailed design stage. The consultants to be engaged under the Project will develop an action plan to ensure safe operation of the expressway.

7. Institutional Capacity Development and Public Awareness. As part of institutional capacity development and to increase public awareness, the following activities will be carried out:

(i) capacity development on design, safety audit, and maintenance for safety; (ii) capacity development on enforcement of traffic law; and (iii) community awareness (community-based road safety program).

8. This subcomponent will be executed through partnership between the Xinjiang Communications Construction Administration Bureau, the Xinjiang Public Security Bureau (PSB), local governments of Korla, Luntai, and Kuqa, and other stakeholders.

9. Under an Asian Development Bank-financed technical assistance project 1 in the People’s Republic of China and jointly undertaken with the Ministry of Public Security, a number of training opportunities are offered to the provincial PSB. The training involves (i) traffic enforcement, (ii) accident investigation, (iii) accident data and publicity, and (iv) driver’s licensing examiner issues. The training is planned to take place during 2007 and 2008 at the Traffic Management Research Institute of the Ministry of Public Security in Wuxi city. Various road safety audit, black-spot treatment, publicity, and enforcement materials and guidelines will be provided to the traffic police and communications departments. Selected traffic police officers from Xinjiang PSB will also benefit from this training.

10. Utilizing Information Technology for Road Safety. The Intelligent Transport Systems2 will be introduced for the project expressway and will provide a traffic surveillance monitoring system to alert drivers and prevent rear-end collisions. The traffic surveillance system will monitor traffic and road conditions and send real-time information and/or messages to road users to alert them to foreseen snow, rain, ice, and traffic. Speed warning systems will be also installed to make drivers aware of their speed.

1 ADB. 2006. Technical Assistance to the People’s Republic of China for Road Safety Improvement. Manila. 2 The application of information technology to surface transportation is called “Intelligent Transport Systems (ITS)”. ITS provides the ability to gather, organize, analyze, use, and share information about transportation systems.

Appendix 9 41

CAPACITY DEVELOPMENT OF XINJIANG COMMUNICATIONS DEPARTMENT

1. To meet the transport sector development targets under the 11th Five-Year Plan and to provide a sustainable, affordable, and clean transport system in Xinjiang, the Xinjiang Communication Department (XCD) is keen to expand its capacity. The length of high-grade highway within Xinjiang is more than 1,000 kilometers (km), and the number of staff engaged in the high-grade highway work is also being increased. XCD staff have received training under three World Bank projects.1 Training mainly focused on (i) strengthening XCD and its jurisdiction units, and (ii) training XCD staff to satisfy the needs for construction and management of high- grade highways in Xinjiang. Training programs in more than 20 different fields were conducted in Xinjiang, in other parts of the People’s Republic of China, and abroad. By training abroad, the trainees learned about current development policies, advanced technologies, and construction management experiences of high-grade highways and expressways in foreign developed countries.

2. After detailed analysis of what has been done in the past and what results XCD had obtained from previous training, the training plans (both overseas and in-country) to be implemented under the Project were developed (Tables A9.1 and A9.2). The purpose of these plans is to further strengthen organizational capability and improve staff quality and work efficiency to improve the entire technological and management level of highway sectors in Xinjiang. These plans are proposed to commence in 2008 and be completed in 2011. The estimated training cost is $710,000, of which about $700,000 is for international and $10,000 is for in-country training. The plan can be adjusted according to the needs during project implementation.

Table A9.1: Overseas Training Plan

Training Abroad Study Tour Abroad Year Training Content No. of Person- Estimated No. of Person- Planned Persons Months Amount Persons Months Amount (Total) ($) (Total) ($) 2008 1. Highway 8 8 96,500 Construction Management 2. Environmental 6 6 85,500 Protection and Monitoring 2009 1. Traffic Engineering 6 3 51,000 Design 2. Highway Financing 6 6 85,500 and Risk Control 2010 1. Regulating 8 4 62,000 Passenger and Freight Transport 2. Highway Safety 6 6 85,500 3. Road Asset 8 4 62,000 Management 2011 1. Intelligent Transport 8 4 62,000 System Unallocated 80,000 30,000 Total 26 26 433,000 30 15 267,000 Source: Xinjiang Communications Construction Administration Bureau.

1 Under three highway improvement projects during the period 1994–2007, the World Bank has provided loans of $600 million. Capacity development was included under all these projects.

42 Appendix 9

Table A9.2: Domestic Training Plan Number of Person- Year Training Field Persons Months 2008 1. Project Financing and Risk Control 20 10 2. Regulating of Passenger and Freight Transport 20 10 3. Highway Construction and Management System 30 15 2009 1. Traffic Administrative Law Enforcement 50 25 2. Ecological Highway Construction and Environmental Protection 20 10 3. Foreign-Concerned Transportation 20 10 2010 1. Modern Logistics Technology 20 10 2. Information Communication Technology Construction and 20 10 Management 3. New Standards, New Specification, and New Technology of 20 10 Highways 2011 1. Expressway (Bridge) Maintenance 30 15 2. Expressway Toll Collection and Operation Management 20 10 3. Road Safety 20 10 Total 290 145 Source: Xinjiang Communications Construction Administration Bureau.

3. The proposed training programs will enhance XCD’s awareness not only of advanced technology in highway construction, traffic engineering, and Intelligent Transport System,2 but also of the best practices and techniques in environmental protection and monitoring, road maintenance management, road financing and risk sharing, and road transport regulating. The knowledge gained from the proposed trainings and study tours will increase XCD’s capacity in road transport development, operation, road safety, and road maintenance management by efficient staff who are better able to provide guidance to their customers.

2 The application of information technology to surface transportation is called “Intelligent Transport Systems (ITS)”. ITS provides the ability to gather, organize, analyze, use, and share information about transportation systems.

DETAILED COST ESTIMATES BY FINANCIERS ($ million)

CostADB Government and Domestic Bank Item Amounta % of Cost Category Amount % of Cost Category A. Base Cost 1. Civil Worksb a. Expressway Sub-grade 76.01 29.27 38.5 46.74 61.5 Pavement 138.77 53.42 38.5 85.35 61.5 Bridges and Structuresc 80.03 30.80 38.5 49.23 61.5 Traffic Engineering and Communications 6.03 6.03 100.0 Intersections and Road Facilities 73.25 28.65 39.1 44.60 61.9 Other Civil Worksd 56.77 56.77 100.0 Taxes and Duties 13.00 13.00 100.0 Subtotal Expressway 443.86 142.14 32.0 301.72 68.0 b. Local Roads 15.09 3.83 25.4 11.26 74.6 2. Equipmente 7.83 1.66 21.2 6.17 77.8 3. Land Acquisition and Resettlement 16.40 16.40 100.0 4. Consulting Services and Trainingf 7.89 2.37 30.0 5.52 70.0 5.Project Administrationg 24.50 24.50 100.0 Subtotal (A) 515.57 150.00 29.1 365.57 70.9 B. Contingencies 1. Physical Contingencyh 13.74 13.74 100.0 2. Price Contingencyi 30.87 30.87 100.0 Subtotal (B) 44.61 44.61 100.0 C. Interestj and Other Charges During Implementation 33.82 33.82 100.0 Total Project Cost 594.00 150.00 25 444.00 75 % Total Project Cost 100 25 ADB's share 75 Government's share Exchange rate: $1 = CNY7.60. a Amount of ADB loan proceeds allocated to the cost category. b

At 2007 prices. 10 Appendix c Includes administration buildings. d Includes landscaping and water training structures. e Includes (i) $5.49 million of expressway maintenance, (ii) $0.39 million of maintenance of local roads, and (iii) $0.57 million of pavement testing. f Includes international training for $700,000 and in-country training for $10,000. g Includes cost of survey and engineering design. h At 3% of civil works cost. i

At 2.2% per annum for 2008, and 3% per annum thereafter for local currency costs and 0.8% per annum for foreign exchange cost during 2008–2011. 43 j Interest rate computation is based on the prevailing US dollar 5-year swap rate plus a spread for the ADB loan and prevailing interest rate for the China Development Bank. It also includes a commitment charge of 0.35% for ADB loan. Source: Asian Development Bank estimates.

IMPLEMENTATION SCHEDULE 44

Appendix 11 Item 2007 2008 2009 2010 2011 2012

JFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJFMAMJJASONDJF MAMJ JASONDJF MAMJ JASOND

I. Project Processing Feasibiliity Approval Loan Approval Loan Effectiveness II. Land Acquisition and Resettlement III. Expressway (i) Civil Works (Contract A07 and A08) Bidding and Contract Award Mobilization and Construction (ii) Civil Works for Other Contracts Prequalification Bidding and Contract Award Mobilization and Construction (iii) Traffic Engineering Bidding and Contract Award Construction (iv) Buildings and Ancilliary Facilities Bidding and Contract Award Construction (v) Planting and Landscaping Bidding and Contract Award Construction IV. Equipment Bidding and Contract Award Purchase and Commissioning V. Local Roads Bidding and Contract Award Construction VI. Consulting Services (i) International Consultants Bidding and Contract Award Consulting Services and Training (ii) Domestic Consultants Bidding and Contract Award Consulting Services VII. Training Source: Asian Development Bank estimates. Appendix 12 45 PROCUREMENT PLAN

Table A12.1: Project Information Country People’s Republic of China Name of Borrower Ministry of Finance Project Name Xinjiang Regional Road Improvement Project (Korla-Kuqa Section) Loan Reference To be determined (tbd) Date of Effectiveness tbd Amount US$ (total from all financiers): $594 million, from which $197 million, $188 million and $59 million will be financed by Ministry of Communications, China Development Bank and Xinjiang Uygur Autonomous Regional Government, respectively. Of which Committed, US$ $594 million Executing Agency Xinjiang Communications Department Approval Date of Original Procurement Plan 8 November 2007 Approval of Most Recent Procurement Plan tbd Publication for Local Advertisement 21 September 2007 Period Covered by this Plan 2007–2011

Table A12.2: Threshold for Procurement Procurement Method Threshold (US$) ICB Works Equal or more than 10 million NCB Works Equal or more than 0.1 million and less than 10 million NCB Goods Equal or more than 0.1 million and less than 1 million Shopping Goods Less than $100,000 Quality and Cost Based Selection (QCBS) At least $200,000

Table A12.3: Contract Packages (Civil Works) Expected Pack- Procure- Date of age Length ment Prequali- ADB Advertise- No. Description (km) Method fication Review ment Comments A. Subgrade, Pavement, Bridge and Intersections (Financed by Asian Development Bank) A01 K457+500~K480+000 22.50 ICB With A Nov 2007 A02 K480+000~K519+000 39.00 ICB With A Nov 2007 A03 K519+000~K547+076 28.08 ICB With A Nov 2007 A04 K547+076~K566+200 19.12 ICB With A Nov 2007 A05 K566+200~K590+000 23.80 ICB With A Nov 2007 A06 K590+000~K610+000 20.00 ICB With A Nov 2007 A07 K610+000~K635+200 25.20 ICB Without A Sep 2007 Retroactive A08 K635+200~K654+717 19.52 ICB Without A Sep 2007 financing is applied A09 K654+717~K684+000 29.28 ICB With A Nov 2007 A10 K684+000~K721+000 37.00 ICB With A Nov 2007 A11 K721+000~K754+000 33.00 ICB With A Nov 2007 Subtotal A 296.5 B. Traffic Engineering (Financed by Government) B01 Tolling, Telecommunication, GP NR Feb 2010 and Traffic Monitoring C. Buildings and Ancillary Facilities (Financed by Government) C01 Administration and GP NR Mar 2009 Maintenance Building C02 Administration and GP NR Mar 2009 Maintenance Building, Toll Station, and Service Area in km 557+000 C03 Administration and GP NR Mar 2009 Maintenance Building, Toll Station, and Service Area in km 707+000 C04 Administration and GP NR Mar 2009 Maintenance Building C05 Administration and GP NR Mar 2009 Maintenance Building, and Monitoring Center

46 Appendix 12

Expected Pack- Procure- Date of age Length ment Prequali- ADB Advertise- No. Description (km) Method fication Review ment Comments D. Planting and Landscaping (Financed by Government) D01 Planting and Landscaping GP NR Mar 2010 E. Local Roads (Financed by Asian Development Bank) E01 Wuqia Township–Dunkuotan 30 NCB B Apr 2008 Township in Kuga County E02 G315 at New Long March 73 NCB B Apr 2008 Bridge–Aqiang Township in Qiemo County E03 G315 of Suntang 90 NCB B Apr 2008 Maintenance Office– Aoyiyalake Township in Qiemo County Subtotal E 193

Table A12.4: Contract Packages (Maintenance and Testing Equipment) Pack- Expected age Procurement ADB Date of Number Description Mode Review Advertisement A. For Expressway (Financed by Asian Development Bank) G1 Multi-functional excavator NCB B Apr 2010 G2 Wheel Excavator NCB B Apr 2010 G3 Multifunctional Operation Car NCB B Apr 2010 G4 Pavement Miller NCB B Apr 2010 G5 Filling and Sealing Machine NCB B Apr 2010 For Expressway (Financed by Government) G6 Maintenance Equipment GP NR Apr 2010 G7 Maintenance Equipment GP NR Apr 2010 G8 Maintenance Equipment GP NR Apr 2010 G9. Maintenance Equipment GP NR Apr 2010 G10. Maintenance Equipment GP NR Apr 2010 G11 Maintenance Equipment GP NR Apr 2010 G12 Maintenance Vehicles GP NR Apr 2010 G13 Obstacles Removing Vehicles GP NR Apr 2010 G14 Weighbridge GP NR Apr 2010 G15 Service Vehicles GP NR Apr 2010 B. For Local Roads (Financed by Government) H16 Maintenance Equipment GP NR Apr 2010 C. Testing Equipment for XCCAB (Financed by Government) I17 Road Condition Survey Equipment GP NR Apr 2010

Table A12.5: Consulting Services Number Description Selection Method Type of Proposal ADB Review S01 International Consulting Services for QCBS FTP A Construction Supervision and Related Services S02 Domestic Consulting Services for GP NR Construction Supervision FTP = full technical proposal, GP = government procedure, ICB = international competitive bidding, NCB = national competitive bidding, No. = number, QCBS = quality- and cost-based selection method. Notes: ADB Review: A = For ICB invitations for bids, invitation for prequalification, draft prequalification documents, draft bidding documents, prequalification and bid evaluation reports are to be submitted to ADB for prior review and approval. B = For NCB, the first draft English language version of the procurement documents should be submitted for ADB review and approval regardless of the estimated contract amount. ADB-approved procurement documents should be used as a model for all NCB procurement financed by ADB for the project, and need not be subjected to further review. ADB will review the bid evaluation report (BER) and award of contract on a post-review basis. NR = ADB Review not required. For international consulting services, the quality–cost ratio is 80%:20%

Appendix 13 47

ECONOMIC ANALYSIS

1. Introduction. The analysis is based on the actual and forecast data on traffic volume, vehicle operating costs, user’s time savings, reduction in accident costs, and economic project cost. The economic analysis includes (i) the Korla–Kuqa expressway (296.5 kilometers [km]), and (ii) three local roads in Qiemo and Kuqa counties (193 km). The parameter values used in the economic analysis include (i) a discount rate of 12%, (ii) a 20-year period after construction (4 years for the expressway and 3 years for the local roads), (iii) a shadow exchange rate conversion factor of 1.03, (iv) an economic conversion factor of 0.67 for local unskilled labor, and (v) 50% of the construction cost as the residual value for the project roads.

2. Traffic Projections. A summary of the average daily traffic projections based on recent data is presented in Table A13.1. The current average daily traffic volume on the national highway is in the range of 2,700–3,100 vehicles (5,200–6,100 passenger car units) per day, consisting of about 52% to 55% of trucks and 45% to 48% passenger vehicles (cars and buses). The projections are based on a 10-year analysis of economic output, population growth, and growth in passenger and/or freight traffic. The traffic growth rates will remain at 8% in the short term, and will decline over the medium to long term as economic growth and investment in the region reaches maturity. These traffic growth rates have been applied to the traffic volume data collected in August 2006, and used to forecast annual average daily traffic volumes from 2010 to 2030 with 5-year intervals.

Table A13.1: Summary of Traffic Forecast for the Project (passenger car unit) Item 2006 2011 2015 2020 2025 2030 A. Expressway Traffic without the Project Cars 1,104 1,575 2,355 3,312 4,321 5,542 Buses 224 320 455 614 779 971 Trucks 1,574 2,269 3,118 4,113 5,095 6,203 Total 5,700 8,200 11,500 15,300 19,200 23,700 Annual traffic growth rate (%) 9.52 7.00 5.88 4.65 4.30 Traffic with the Project Cars 1,747 2,721 3,866 5,098 6,722 Buses 353 523 713 913 1,170 Trucks 2,372 3,386 4,506 5,636 7,050 Total 8,450 12,450 16,850 21,400 27,300 Annual traffic growth rate (%) 8.06 6.24 4.90 4.89 Real Gross Domestic Product growth forecast (%) 10.00 8.75 8.75 7.75 7.50 B. Local Roads a. Wuqia Township–Dunkuotan Township 15 34 97 128 163 209 b. New Long March Bridge–Aqiang Township 38 88 250 331 423 540 c. Suntang Maintenance Office–Aoyiyalake Township 82 187 533 706 902 1,151 Total 135 309 879 1,166 1,488 1,899 Annual Average Growth Rate (%) 25 3 3 2 2 Source: Asian Development Bank estimates.

3. Expressway. The upgrading of the existing highway to a tolled expressway has been determined to be economically viable at a 12% discount rate. The expressway economic internal rate of return (EIRR) is estimated at 20.0% and the net present value (NPV) of project benefits at CNY3.6 billion.

4. As a proportion of the project’s total benefit, normal traffic benefits included (i) vehicle operating cost benefits (70.4%, CNY6,472.8 million), (ii) generated traffic benefits as a total of all benefit categories (23.6%, CNY2,168.9 million), (iii) accident savings (0.8%, CNY69.2 million), and (iv) time saving benefits (5.2%, CNY479.6 million).

48 Appendix 13

5. Sensitivity Analysis of Expressway. A series of sensitivity tests was undertaken based on the following considerations: (i) construction costs increase by 10.0% of base traffic growth levels; (ii) construction costs increase by 20.0% of base traffic growth levels; (iii) benefit growth reduces by 10.0% of base construction costs; (iv) benefit growth reduces by 20.0% of base construction costs; (v) road maintenance costs increase by 10.0%; (vi) appreciation of the yuan by 20.0%; (vii) a combination of i and iii; (viii) a delay in construction by 1 year, and (ix) a worst-case scenario (i+iv+v+vi).

6. The sensitivity analysis results show that the project remains economically viable under adverse scenarios tested. The economic viability is considered to be quite robust as the EIRR values are well above 12.0% in the sensitivity analysis cases. The results presented indicate that in a worst-case scenario situation (which is very unlikely to occur) the Project would return an EIRR of 13.8%. In addition to these tests, the switching values for construction costs and traffic growth for each option were calculated. The results suggest that costs would need to increase by 97.9% to reduce the EIRR to 12%, while benefits would need to be reduced by 47.5% to reduce the EIRR to the same level.

7. Local Roads. The economic evaluation of the proposal to rehabilitate 193 km of three local roads has been determined to be economically viable at a 12% discount rate. The local road’s EIRR was estimated at 35.0%1 and the NPV at CNY413.2 million.

8. Sensitivity Analysis of Local Roads. The sensitivity analysis was undertaken based on the risks listed in para. 5. All these risks were analyzed through sensitivity tests and the evaluation results were found to be robust for all of them. For the project component to be unacceptable (i.e., an EIRR lower than 12% or a zero NPV at 12% discount rate), the benefits would have to fall by less than 79.9% of those in the base case with no change in costs, or the costs would have to increase to more than 235.4% of the base costs. The EIRR under a worst- case scenario is 19.7%.

9. Overall Economic Evaluation. The overall EIRR of the project, including the expressway and the local roads, is 20.5% with an NPV of CNY4.0 billion at a 12% discount rate. The details of the overall cost and benefit stream are presented in Table A13.2, and are summarized in Table A13.3.

1 The EIRR is estimated at 39.6% for the Wuqia–Dunkuotan township road, at 45.4% for the New Long March Bridge–Aqiang township road, and at 32.6% for the Suntang Maintenance Office–Aoyiyalake township road.

Appendix 13 49

Table A13.2: Summary of Economic Analysis of Consolidated Projects (CNY10,000) Project Economic Cost Project Economic Benefits Project Capital Total Local Net Year Cost Maintenance LAR Cost Expressway Road Total Benefit 2008 89,492 0 12,464 101,956 (131,920) 2009 127,740 93 0 127,833 0 0 (135,741) 2010 167,613 93 0 167,705 1,432 1,432 (153,246) 2011 41,497 1,654 0 43,151 51,911 1,942 53,852 8,818 2012 0 1,654 0 1,654 59,931 2,603 62,534 60,880 2013 0 1,654 0 1,654 69,206 3,468 72,674 71,020 2014 0 1,654 0 1,654 79,934 4,610 84,544 82,890 2015 0 1,654 0 1,654 92,346 6,126 98,472 96,818 2016 0 1,654 0 1,654 101,818 8,148 109,966 108,312 2017 0 2,757 0 2,757 112,284 10,858 123,142 120,385 2018 0 1,654 0 1,654 123,850 11,437 135,288 133,634 2019 0 12,419 0 12,419 136,637 12,046 148,683 136,265 2020 0 12,419 0 12,419 150,776 12,688 163,463 151,045 2021 0 1,654 0 1,654 164,375 13,363 177,739 176,085 2022 0 1,654 0 1,654 179,232 14,076 193,309 191,655 2023 0 1,654 0 1,654 195,466 14,688 210,155 208,501 2024 0 1,654 0 1,654 213,209 15,325 228,535 226,881 2025 0 1,654 0 1,654 232,605 15,989 248,595 246,941 2026 0 1,654 0 1,654 254,401 16,681 271,082 269,428 2027 0 2,757 0 2,757 278,278 17,402 295,680 292,923 2028 (5,506) 12,326 0 6,820 304,438 18,155 322,593 315,774 2029 0 12,326 0 12,326 333,106 18,941 352,047 339,722 2030 (186,737) 1,561 0 (185,175) 364,527 18,941 383,468 568,643 Net Present Value at 12%: 732,668 51,706 784,374 402,493 Economic Internal Rate of Return: 20.5% ( ) = negative, LAR = Land Acquisition and Resettlement. Source: Asian Development Bank estimates.

Table A13.3: Overall Economic Evaluation Project Component EIRR (%) NPV (CNY million at 12%) Korla–Kuqa Expressway 20.0 3,623.6 Local Roads 35.0 413.2 Consolidated investment 20.5 4,024.9 EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank estimates.

10. Distribution Analysis. In terms of the distribution of benefits between passenger and freight traffic for the project area and the region as a whole, the benefit–cost ratio is estimated at 2.36:1.

11. Risk Analysis. The gain from the risk analysis on the Project provides useful information on how vulnerable the project’s viability is in terms of responding to external shocks. When the original data is adjusted with probability distribution, the mean of the project EIRR falls to 19.1% (from the original 20.0%). The risk analysis shows that the project’s EIRR ranges from 16.8% to 21.2% with 90% probability. The lowest value of EIRR in the probability distribution (the EIRR under the worst situation) is still higher than the 12% threshold rate of return.

50 Appendix 14

FINANCIAL ANALYSIS AND PROJECTIONS

A. Introduction

1. A financial evaluation has been undertaken in accordance with the Asian Development Bank’s (ADB’s) Financial Management and Analysis of Projects (2005).1 The financial internal rate of return (FIRR) was calculated based on the capital cost of the Korla–Kuqa expressway, the latest traffic forecasts, and proposed toll rates. Sensitivity tests were conducted by varying the project costs, traffic volumes, toll rates, and a combination of these factors.

B. Major Assumptions

2. The FIRR calculations are in constant 2007 prices, covering about 4 years of construction and 20 years of operation. The total project capital cost was estimated to be $594.00 million (CNY4,514.5 million),2 which covers the costs for civil works, equipment, land acquisition and resettlement, consulting services, trainings, project administration, physical and price contingency, and interest during construction.

3. The forecast of future traffic on the Korla–Kuqa expressway is based on the feasibility study and latest traffic survey carried out during project preparation. The forecast traffic was converted into the annual average daily traffic by vehicle type, which is consistent with the current expressway tolling system in Xinjiang. The forecast traffic indicates that the traffic level on the project expressway will initially be low but will increase over the evaluation period. The project expressway will be open for regular traffic in mid-2011.

4. Xinjiang is applying uniform toll rates to all expressways in accordance with provincial government policy. These toll rates are given in Table A14.1. The toll rates were developed according to the Xinjiang government toll road policies and by considering the construction cost, road user affordability, loan repayment and neighboring province toll rates. Based on the existing toll rates, the estimated weighted average toll collection per passenger car unit would be CNY50 for the Korla–Luntai section and CNY30 for the Kuqa–Luntai section. For the purpose of the FIRR calculation, these toll rates were held constant throughout the calculation period.

Table A14.1: Toll Rates Based on Vehicle Classifications(CNY per vehicle-km) Vehicle Type Factor Rates 1 Trucks < 2 tons 1 0.25–0.30 2 Trucks > 2 tons < 5 tons 1.5 0.38–0.45 3 Trucks > 5 tons < 10 tons 2 0.50–0.60 4 Trucks > 10 tons < 15 tons 3.6 0.90–1.08 5 Trucks > 15 tons 4.2 1.05–1.26 6 Passenger vehicles < 7 seats 1 0.25–0.30 7 Passenger vehicles > 8 seats < 19 seats 1.5 0,38–0.45 8 Passenger vehicles > 20 seats < 39 seats 2 0.50–0.60 9 Passenger vehicle > 40 seats 3.6 0.90–1.08 Source: Asian Development Bank estimates.

5. The routine and periodic maintenance costs estimate were based on maintenance cost for other similar expressways in Xinjiang Province. Routine maintenance cost was estimated at CNY50,000 per kilometer per year, which covers road cleaning, landscaping, minor road surface repair, traffic sign maintenance and replacement, and expressway facility maintenance.

1 ADB. 2005. Financial Management and Analysis of Projects. Manila. 2 The exchange rate used in this analysis is $1.00 = CNY7.60 which prevailed at the time of loan appraisal of the Project.

Appendix 14 51

The periodical maintenance is required every 8 years and was estimated at CNY1.00 million per kilometer.

6. Two types of taxes were considered in the financial evaluation: business tax of 5.5% on gross revenue and corporate income tax of 33% of net profit according to the national and provincial taxation law. The FIRR was calculated with and without the corporate income taxes (before and after corporate income tax). Corporate income taxes were calculated using constant prices for both costs and toll revenues, after deducting depreciation expenses and interests.

C. Financial Analysis

1. Weighted Average Cost of Capital

7. A critical element of financial analysis is to determine whether the FIRR is at least equal to the weighted average cost of capital (WACC). The project WACC was calculated in line with ADB guidelines. The 5-year fixed swap rate plus a provision for ADB’s spread of 0.6% is used as the cost of ADB financing. The cost of equity was assumed to be 8% and the estimated interest cost of the domestic loan is 6.39%. The WACC calculation is shown in Table A14.2.

Table A14.2: Project Weighted Average Cost of Capital (%) ADB Loan Domestic Loans MOC Grant Total a. Amount ($ million) 146.17 188.00 244.74 578.91 b. Weighting (%) 25.00 32.00 42.00 c. Nominal cost 5.67 6.39 8.00 d. Tax rate 33.00 33.00 e. Tax adjusted nominal rate [C x (1 - D)] 3.80 4.28 8.00 f. Inflation rate 0.80 3.00 3.00 g. Real cost [(1 + E)/(1 + F) - 1] 2.98 1.24 4.85 h. Weighted component of WACC (G x B) 0.75 0.40 2.05 3.21 ADB = Asian Development Bank, MOC = Ministry of Communications, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.

2. Financial Internal Rate of Return

8. The FIRR was calculated using the Korla–Kuqa expressway capital cost (excluding local roads cost), the base-case traffic forecast, and existing toll rates. All calculations are made in 2007 prices. The calculated FIRR is 5.06% after tax. The cash flows are shown in Table A14.3. The FIRR after tax is higher than the WACC (3.21%) and therefore the project is considered financially viable. The FIRR of the Korla–Kuqa expressway is similar to the FIRRs of other ADB-financed expressway projects in the People’s Republic of China.

52 Appendix 14

Table A14.3: Financial Evaluation of the Project (CNY million) Revenue Net After Inflow Capital O&M Total Business Business Corporate (After Net Free Year Investment Cost Outflow Revenue Tax Tax Tax Tax) Cashflow 2008 783 — 783 — — — — — (783) 2009 1,175 — 1,175 — — — — — (1,175) 2010 1,567 — 1,567 — — — — — (1,567) 2011 392 10 401 116 6 110 - 110 (292) 2012 — 25 25 250 14 236 - 236 211 2013 — 26 26 272 15 257 - 257 231 2014 — 27 27 294 16 277 2 275 249 2015 — 28 28 317 17 300 9 290 263 2016 — 28 28 335 18 316 14 302 274 2017 — 29 29 356 20 336 30 306 277 2018 — 30 30 378 21 357 36 321 291 2019 148 31 179 402 22 379 48 331 152 2020 148 32 180 427 23 403 57 346 166 2021 — 33 33 448 25 423 78 345 312 2022 — 34 34 469 26 443 83 360 327 2023 — 35 35 493 27 466 88 378 343 2024 — 35 35 515 28 487 98 388 353 2025 — 36 36 540 30 510 109 401 365 2026 — 38 38 568 31 536 121 416 378 2027 — 39 39 595 33 562 126 437 398 2028 148 40 188 624 34 589 144 446 258 2029 148 41 189 654 36 618 154 463 274 2030 (1,958) 42 (1,916) 687 38 649 159 490 2,406 WACC 3.21% NPV 906 FIRR 5.06% ( ) = negative, FIRR = financial internal rate of return, NPV = net present value, O&M = operation and maintenance, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.

3. Sensitivity Tests

9. Sensitivities on the FIRR were tested considering an increase or decrease in the project’s capital cost, operation and maintenance cost, expressway revenue, and combinations of these assumptions. Results of the sensitivity tests are shown in Table A14.3. It can be seen that the FIRR is sensitive to the capital cost and revenue. However, even if the capital cost is increased by 20%, the projected FIRR is higher than the WACC. If the traffic volumes decrease by 21.4%, the FIRR will be on a par with the WACC. Similarly, if the capital cost increases by 29.1%, the FIRR will be on a par with the WACC. In the most adverse case (case F in Table A14.4), the FIRR falls below the WACC, but it is considered an unlikely event.

Appendix 14 53

Table A14.4: Results of Sensitivity Tests Case FIRR (%) a. Base Case 5.06 b. Capital cost up by 10% 4.37 c. Capital cost up by 20% 3.79 d. Increase in Operation and Maintenance costs by 20% 4.90 e. Traffic decrease by 20% 3.33 f. Combination of C, D and E 2.11 g. One year delay in project implementation 4.86 FIRR = financial internal rate of return. Source: Asian Development Bank estimates.

D. Financial Statements

10. In accordance with ADB guidelines, financial statements for the project expressway were prepared for a 24-year period, including 4 years for construction and 20 years for operation. The financial statements include (i) an income statement, (ii) a cash flow statement, and (iii) a balance sheet. A set of financial indicators was also derived from these financial statements. These financial statements and indicators are shown in Tables A14.5, A14.6, and A14.7.

11. An income statement was prepared for the project expressway, in which the operation revenue was calculated using expressway toll revenue and other revenues. The net operation revenue was calculated by deducting business tax (5.5%) from total operation revenue. The total operation expenses were calculated by summarizing operation expenses, maintenance expenses, and asset depreciation. The net incomes were calculated for before and after corporate income tax (33% of the operation income). According to the projection, the revenues are adequate to cover the operation and maintenance cost and loan repayments.

12. The net income is negative in the first 4 years of expressway formal operation due to high depreciation costs and high bank loan interest payments. From the 5th year onwards, the income statement shows a healthy net income and operating ratio. In the cash flow projections, the cash inflows comprise project financing and net operation incomes; cash outflows comprise project construction expenses and bank loan principle repayments. Projections show a positive cash flow throughout the operation.

13. These calculations confirm that the Korla–Kuqa expressway is a financially viable project and will have sufficient funds for its operations, maintenance, and repayment of borrowings by the implementation agency. The expressway project financial projections show that the Project could contribute positively to its equity investor with the accumulation of financial reserves over a period of time.

Table A14.5: Income Statement (CNY million) 54 Item 2011 2012 2013 2014 2015 2016 2020 2025 2030 Operating Revenues Appendix 14 Appendix Toll Revenue 123 264 299 342 370 390 576 860 1,264 Other Revenue 1 3 6 7 7 8 12 17 25 Total Operating Revenue 124 266 305 349 377 398 587 877 1289

Business Tax 7 15 17 19 21 22 32 48 71 Net operating revenue 117 252 289 330 356 376 555 829 1,218 Operating Expenses Operating Cost 3 12 13 14 16 17 25 37 54 Maintenance 8 17 18 18 19 19 22 25 29 Depreciation 78 139 139 139 139 139 126 105 119 Total Operating Expenses 89 168 170 172 174 176 173 167 202 Net Operating Surplus/(Deficit) 28 83 119 158 182 200 382 662 1,016 less Project-related Interest Costs 76 152 152 149 146 143 128 103 69 Net Surplus/(Deficit) before Tax (48) (69) (34) 9 36 57 255 560 947 less Corporate Tax 3 12 19 84 185 312 Net Surplus/(Deficit) after Tax (48) (69) (34) 6 24 38 171 375 634 Retained Earnings (48) (116) (150) (144) (120) (82) 413 1901 4,560 Operating Ratio (%) 77 69 61 55 52 50 35 24 21 ( ) = negative. Source: Asian Development Bank estimates.

Table A14.6: Cash Flow Statement (CNY million) Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020 2025 2030 Cash Inflows Total Operating Revenue 124 266 305 349 377 398 587 877 1289 Cash Inflows from Financing ADB Loan 222 333 444 111 Domestic Loan 286 429 572 143 Government Grants and Inputs 389 584 778 195 Total Cash Inflows 897 1346 1794 572 266 305 349 377 398 587 877 1289 Cash Outflows Project Expenditures Construction and Rehabilitation 872 1309 1745 436 217 Interest and Fees during Construction 18 56 112 76 Loan Principal Repayments ADB Loan 21 22 24 25 31 41 54 Domestic Loan 27 29 30 32 41 56 77 Loan Interest Payments 76 152 152 149 146 143 128 103 69 Cash Outflows from Operations 11 29 31 33 35 37 47 62 83

Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020 2025 2030 Tax payments (business and corporate) 7 15 17 22 33 41 116 233 383 Total Cash Outflow 890 1365 1857 605 195 247 255 267 277 580 495 667 Net Cash Flows 7 (19 (63) (33) 71 58 94 109 120 7 382 623 Opening Cash Balance 7 (12) (75) (108) (37) 20 115 224 682 1885 3708 Closing Cash Balance 7 (12) (75) (108) (37) 20 115 224 345 690 2267 4330 Debt Service Coverage Ratio 1.5 1.3 1.5 1.6 1.7 1.5 3.8 5.7 ( ) = negative. Source: Asian Development Bank estimates.

Table A14.7: Balance Sheet (CNY million) Item 2008 2009 2010 2011 2012 2013 2014 2015 2016 2020 2025 2030 Assets Cash 7 (12) (75) (108) (37) 20 115 224 345 690 2,267 4,330 Net Fixed Assets 872 2,181 3,926 4,284 4,145 4,005 3,866 3,726 3,587 3,469 2,945 2,956 Total Assets 879 2,169 3,851 4,176 4,107 4,026 3,980 3,950 3,931 4,159 5,212 7,286 Liabilities and Equity Liabilities ADB Loan 222 555 1,000 1,111 1,111 1,090 1,067 1,044 1,019 903 719 476 Domestic Bank Loan 295 756 1,394 1,394 1,394 1,367 1,339 1,308 1,276 1,125 874 533 Equity Paid-in Capital 371 899 1,565 1,684 1,684 1,684 1,684 1,684 1,684 1,684 1,684 1,684 Retained earnings (48) (116) (150) (144) (120) (82) 413 1,901 4,560 Total Liabilities and Equity 889 2,210 3,959 4,141 4,073 3,991 3,946 3,916 3,897 4,124 5,178 7,252 (9) (42) (108) 35 35 35 35 35 35 35 35 35 Ratios Debt Equity Ratio (%) 58:42 59:41 60:40 60:40 62:38 62:38 61:39 60:40 59:41 49:51 31:69 14:86 Return on Equity (%) (4) (2) 0 2 2 8 10 10 Average Return on Equity (%) (4) (3) (2) (1) 0 3 5 7 ( ) = negative. Source: Asian Development Bank estimates.

Appendix 14 Appendix

55

56 Appendix 15

SUMMARY OF POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national ; Yes Is the sector identified as a national ; Yes priority in country poverty analysis? No priority in country poverty partnership No agreement? Contribution of the sector or subsector to reduce poverty in the People’s Republic of China (PRC):

The Project was developed in a participatory manner and to plan sustainable transport improvements which lead to economic development in a more socially inclusive manner in the project area. The Project involves (i) the construction of a 296.5 kilometer (km) expressway between Korla city in the Bayangol Mongol Autonomous Prefecture and Kuqa county in the Aksu administrative office, (ii) the upgrade of a 30-km local road in Kuqa county, and (iii) the upgrade of two local roads (166 km) in Qiemo county of the Bayangol Mongol Autonomous Prefecture. The local road improvements are designed to link poor townships to the counties. Another important component for local communities is improvement in rural transport services and road safety.

B. Poverty Analysis Targeting Classification: General Intervention What type of poverty analysis is needed?

The main strategy for poverty reduction in the project area has been diversification into cash crops, and urbanization supported by growth in the energy sector. The project expressway and local roads will support this strategy by improving the local transport network, which reduces the travel costs and times to Urumqi. The Project enforces the Asian Development Bank (ADB) road sector operational strategy for the PRC by removing infrastructure constraints and supporting policy and institutional reforms. The Project is in line with the Government’s western region development strategy to provide the poor western region with better infrastructure to address its remoteness, thereby creating conditions necessary for improving the investment environment and people’s living conditions. Despite considerable investments, the road network in the project area is still inadequate and does not provide efficient transport access to markets and social services such as education and health. The quality of access to many villages remains unsatisfactory, with low-standard and poorly maintained roads. Between villages and townships, small buses operate, but travel is mostly by small trucks, 3-wheeled vehicles, or horse-drawn carts. Local road improvements and provision of better bus services to these communities are vital elements in ensuring an affordable rural transport system, due to low rates of vehicle ownership.

The poverty analysis demonstrates how the Project overall will have a significant impact on the rural poor. Relative poverty (which is defined as people with a per capita income of less than CNY1,200) in the project area constitutes 16.6% of the rural population (about 100,000 persons). Most of the poor are ethnic Uygur. The poverty analysis shows that, in areas where the local roads and transport services are improved, the Project will have significant impacts on rural people, including improved access to education, health, and markets. The benefits to the poor will increase further if agricultural productivity can be improved.

C. Participation Process Is there a stakeholder analysis? ; Yes No

The stakeholder analysis is described in the social and poverty analysis, and the recommendations of stakeholders have been incorporated into the ethnic minority development plans (EMDPs). The analysis revealed that all government stakeholders (transport, agriculture, poverty alleviation development office, ethnic minorities, education, tourism, and water resources) support the Project because it will facilitate overall economic development. Some of these agencies (poverty alleviation development office, ethnic minorities, and agriculture) believe the Project will also greatly assist with sustainable poverty reduction. Village-level perceptions were somewhat different. Nonpoor Uygur men and women and all non-Uygur people support the Project because they argue it will facilitate overall economic development. However, only nonpoor Uygur males believe the Project will assist in sustainable poverty reduction. All rural stakeholders considered the Project will improve access to education and healthcare, and poor females think the Project could contribute to greater gender empowerment. The private sector had a mixed response because improved access and lower transport costs may attract new competitors. Larger, more export-oriented companies welcome the Project, as does the tourism sector.

Is there a participation strategy? ; Yes No

The road construction, the resettlement plans and the EMDPs will follow a consultative approach and will encourage collaboration with local communities during implementation. Village leaders (formal and nonformal) and other stakeholders will be involved in monitoring the project’s progress. The project strategy is to maximize employment benefits from increased road construction; increased job opportunities will also benefit the poor. Women stated they would support and actively participate in the road safety component that focuses on rural people.

Appendix 15 57

G. Gender Development Strategy to maximize impacts on women:

The Project will have no significant adverse impacts on women. The resettlement plans have been prepared to ensure women are adequately compensated for any losses they incur and are assisted with relocation and livelihood rehabilitation. The EMDPs contain measures for a culturally sensitive HIV/AIDS awareness program during the construction phase to ensure that the risks of communicable diseases are minimized. Women are expected to gain from new opportunities in both improved agricultural productivity and through the establishment of small businesses. Girls will be provided with more opportunities to access distant middle schools and senior middle schools. All women will benefit from better access to healthcare facilities not available in villages and some of the poorer townships. Fifty percent of the stakeholders consulted during the social and poverty survey were women. Many women in the project area are road users, although few are directly involved in the transport sector. However, during focus-group discussions and interviews with key female informants, it was found that women do see real benefits in improved local roads; their main worry is road safety issues.

Has an output been prepared? ; Yes, see EMDPs No Gender issues were assessed in the social and poverty analysis and actions are included in the EMDPs.

E. Social Safeguards and other Social Risks

Significant/Not Plan Item Significant/None Strategy to Address Issues Required One full resettlement plan and one short resettlement plan have ; Significant been prepared in accordance with the laws and regulations of the ; Full Resettlement Not Significant PRC, including those of the Xinjiang Uygur Autonomous Region, None and ADB’s Involuntary Resettlement Policy (1995). Information Short booklets have been distributed to local official and affected people. None Affordable tolls will be charged for the expressway but no user Significant fees will be applied to the upgraded local roads which will be used Yes Affordability ; Not Significant more frequently by local rural people in the project area. None ; No Labor law and contractors’ provisions require equal pay for equal Significant work and prohibit child labor. Project construction will generate Yes Labor ; Not significant many part-time employment opportunities for local people. None ; No Ethnic minority groups comprise 63.1% of the beneficiaries in the Indigenous ; Significant project area. The Uygur community constitutes 98% of the ethnic ; Yes Peoples Not significant minority population. Measures to enhance or improve the None livelihoods of the Uygur are found in the EMDPs and resettlement No plans. During the construction phase, the influx of construction workers Significant will increase the risk of HIV/AIDS and other communicable Other Risks ; Not Significant diseases. This risk will be mitigated by (i) employing as much Yes and/or None local labor as possible, (ii) developing a culturally appropriate Vulnerabilities HIV/AIDS awareness program, and (iii) requiring contractors to ; No screen workers and ensure prevention measures are taken. These measures are included in the EMDPs and bidding documents. EMDPs = ethnic minority development plans.

SUMMARY ETHNIC MINORITY DEVELOPMENT PLAN 58

Implementation Investment Funding No. Impacts/Benefit Measures Target Groups Unit(s) (CNY’000) Sources Timing 16 Appendix Korla– Qiemo Kuqa Avoidance or Mitigating Measures (Task A) A1. Minimize land Optimization of design scheme to reduce 29 villages Project owner, Included in acquisition land acquisition and house demolition. (80% Uygur) design unit 1,000 — project cost 2007

A2. Land acquisition Resettlement plan to restore the 171households, Local and house productive and living standard of the with 135 Uygur government, 300 Included in 2008 relocation affected persons. households project owner — project cost

A3. Construction Site and construction management 29 villages Contractors, Included in 2008– disturbance measures to avoid or mitigate impacts. (80% Uygur) local government 2,000 — project cost 2010 A4. Ease of Increase grade separation and 29 villages Design unit, movement passages. Building connecting lines (80% Uygur) project owner, 319,500 Included in 2008– across highway (11.9 km) and service roads (70.2 km). contractors — project cost 2010 A5. Bilingual All road signs (temporary and Chinese–Uygur permanent) will be bilingual (Chinese All project roads Project owner, 12,000 Included in 2008– road signs and Uygur). contractors 190 project cost 2010 A6. Ecological Construction according to the design environment scheme and environment protection Areas adjacent Contractors, 6,000 Included in 2008– measures. to project roads EPBs — project cost 2010 A7. Restoration of Project will avoid or minimize impacts 29 villages local and restore damaged roads, water (80% Uygur) Contractors, 14,040 Included in 2008– infrastructure supply, etc. related agencies — project cost 2010 A8. Public hygiene Prevention and enhancement measures All construction Contractors, Included in 2008– and sanitation to protect public hygiene and health. camps health bureaus 1,000 project cost 2010 A9. HIV/AIDS and Contractors are required to take other preventive measures for all their staff, All construction Contractors, transmittable construction workers, dependents, and workers and health bureaus 500 Included in 2007– diseases subcontractors. Local health bureaus will 29 villages 575 project cost 2010 increase community awareness and (80% Uygur) monitor health conditions. A10. Women’s Encourage women to participate in Local involvement project preparation and implementation, 29 villages government, labor 100 6 Included in 2008– and give priority to women as laborers. (80% Uygur) bureau, ACWF, project cost 2010 contractors A11. Support to the Give support in house construction, 135 Uygur vulnerable relocation, and living allowance to needy households Local government 283 — Included in 2008– groups households. project cost 2010

Implementation Investment Funding No. Impacts/Benefit Measures Target Groups Unit(s) (CNY’000) Sources Timing Korla– Qiemo Kuqa Strengthening Measures (Task B) B1. Forest protection Tree planting and greening over 482 mua 29 villages of woodland. (80% Uygur) Forestry 1,928 — Included in 2008– department project cost 2010 B2. Farmland Land reclamation for over 121 mu.a 29 villages Land and development (80% Uygur) resources 243 — Included in 2009– department project cost 2010 B3. Tourism Putting up signs and giving out tourism Local development handbooks in service areas and bus Project counties Local government government After stations; arrange jobs for the poor and and Uygur and departments 800 — and tourism 2008 women. villages department B4. Employment Offering technical training for breeding 2,000 Uygur Local government opportunities and planting of trees (about 2,000 households and departments 139 200 Included in 2007– persons or times). project cost 2010 B5. Improving Development of bilingual education, 2,000 Uygur The local Local After language ability holding language training classes. households government 400 — governments 2007 B6. Consultation with The contractors provide bilingual the Uygur people interpreters, at least 1–2 interpreter(s) All contractors Contractors 50 2 Included in 2007– for each contractor. project cost 2010 Beneficial Measures (Task C) C1. Increase project Using local building materials, such as benefits cement, steel, sand, and stone, and Uygur villages Contractors, 1,500 320 Included in 2008– transportation resource. in project areas local government project cost 2010 C2. Construction Absorbing the local laborers to employment participate in the project construction, Uygur villages Contractors, Included in 2008– the local laborers account for over 50% in project areas local government 1,000 project cost 2010 of total. C3. Other Local government will facilitate residents employment in setting service facilities at the places Uygur villages Local government — — Business 2008– opportunities with concentrations of construction in project areas businesses operators 2010 workers to provide employment and/or opportunities in the service trade. individuals C4. Other measures Organize village liaison team, support supplemental construction of local road, Uygur villages Local — — Included in After 16 Appendix and combine with local social and in project areas governments project cost 2007 economic development plan. Total Budget 363,783 1,293 — = not applicable, ACWF = All China Women’s Federation, EMP = environmental management plan, EPBs = environment protection bureaus, km = kilometer. 59 a 1 mu = 666.6 square meters.

60 Appendix 17

SUMMARY RESETTLEMENT PLAN

1. Background. The Xinjiang Regional Road Improvement Project (Korla–Kuqa Section) will finance upgrading of (i) the existing 296.5 kilometer (km) section of class II highway between Korla city and Kuqa county to four-lane tolled expressway, and (ii) three local roads with a combined length of 193 km. The Xinjiang Communication Department (XCD) is the Executing Agency and the Xinjiang Communications Construction Administration Bureau (XCCAB) is the Implementing Agency. Only one of the proposed local roads will cause any resettlement impacts; the other two involve paving of a dirt track in desert areas which cause no impacts on farmland or housing. Therefore, resettlement plans have been prepared for (i) the expressway component, and (iii) the local road in Kuqa county. In order to avoid or minimize land acquisition and resettlement, there was close consultation with the local officials and affected people and village committees during the preliminary design and resettlement plan preparation.

2. Resettlement Impacts. The proposed expressway component will affect 3 counties, 13 townships, 29 villages, and 2 state farms. About 1,145 hectares (ha) of land will be permanently acquired, of which 7 ha (0.6%) is cultivated land, 736 ha (64.3%) is wasteland, and 344 ha (30.0%) is grassland. Land acquisition will affect 50 households (255 persons). The scope of land for temporary use during construction has not been finalized yet, but there is plenty of wasteland to utilize so farmland can be avoided. Residential house demolition (35,287 square meters [m2]) will require the relocation of 124 households (559 persons). Construction will also require the demolition and relocation of 29 household businesses (1,461 m2), 6 factories (1,664 m2) and 15 service stations (12,315 m2).

3. The proposed local road upgrading in Kuqa county involves the resurfacing of the existing paved road, with minor adjustments in the alignment. It will affect two townships, nine villages, and two state farms. About 4 ha of natural grassland will be permanently acquired; this is owned by collectives, so no people are directly affected. No structures will be demolished. Cash compensation will be paid to the collectives for the lost land and trees.

4. Policy and Legal Framework. The primary objective of the land acquisition and resettlement program is to ensure that the affected persons improve their standard of living, or at least are not made worse off because of the Project. This objective is consistent with the laws and regulations of the People’s Republic of China (PRC) and the Asian Development Bank’s (ADB) Involuntary Resettlement Policy (1995). The resettlement plans are based on the provisions of the Land Administrative Law of the PRC. In addition, the following associated laws and regulations also apply to resettlement under the Project: (i) the State Council Decision to Deepen Reform and Strictly Enforce Land Administration (Document 28 dated November 2004), (ii) Implementation Rules of Xinjiang Uygur Autonomous Region on Land Administrative Law, (iii) Rules for Land Acquisition and House Demolition of High-Grade Highway of Xinjiang Uygur Autonomous Region (No.191) (1996), and (iv) relevant specifications in Document 500 (2001) issued by the Xinjiang Uygur Autonomous Region Developing and Reforming Committee and Financial Department.

5. Based on consultations with local governments and those affected, a set of compensation standards, based on replacement cost, have been adopted. The resettlement principles established for the Project are that (i) land acquisition and involuntary resettlement should be avoided or minimized where feasible by developing and comparing a series of design alternatives; (ii) compensation and entitlements provided are based on market value or replacement value, and must be adequate to allow those affected to at least maintain their pre-

Appendix 17 61 project standard of living, with the prospect of improvement; (iii) land temporarily occupied and the period for disruption are to be kept to a minimum; (iv) the per capita landholding after land acquisition will be sufficient to maintain the previous livelihood standard; (v) where land allocation per capita is not sufficient to maintain the previous livelihood standard, other income- generating activities will be provided for; (vi) a preferential policy will be provided to vulnerable groups in such things as compensation, housing assignment, transfer, and employment; (vii) all those affected will be adequately informed about eligibility, compensation rates and standards, livelihood and income restoration plans, and project timing; and (viii) close monitoring and timely actions will be carried out to identify and resolve any problems.

6. Specifically, the compensation for permanent cultivated land acquisition is set at six times the annual average output value (AAOV) in the past 3 years, and this is combined with a resettlement subsidy. The resettlement subsidy will be 10 times the AAOV when the per capita land holding is above 0.133 ha and 13 times the AAOV when the per capita land holding is below 0.133 ha. For temporary land occupation (if required), the contractor will sign the contracts with affected villages or households and restore the land to the original condition. Land compensation will be paid to the affected village committee for public uses, and the resettlement subsidy will be paid to affected households, who may choose to acquire rights to available farmland to invest in for their own livelihood restoration.

7. Housing compensation will be based on replacement cost including transition allowances. There will be no deduction for depreciation, and people will be allowed to salvage materials from their old houses. Relocation will provide an opportunity to improve current housing conditions. These rural households will be relocated to another site within their original village. All infrastructure, facilities, and other assets will be compensated for at replacement cost to allow full reconstruction by the concerned departments.

8. For enterprises, compensation will be paid to owners. The payment will be made in cash according to the appraised value of the property. Compensation for standing crops, auxiliaries, and other assets will also be paid directly to affected farmers. Income losses resulting from reduced production and/or sales and wages caused by the Project will be compensated for in cash.

9. Resettlement and Rehabilitation. The resettlement strategy includes the restoration of living condition, livelihoods, production, and incomes. Since the project impacts are not large, the losses suffered by affected persons are not very serious and can be compensated for, mitigated, and replaced. Even in the most affected village, the land to be acquired is only 2.4% of the total land in the village. Therefore, all affected people will remain in agriculture, and they will be provided with (i) replacement land, either from the village reserve land or by individual land readjustment; or (ii) cash compensation. The affected households have the right to choose compensation options. In addition, agricultural measures include such things as improving irrigation works, upgrading low-yielding farmland, and provision of training in agricultural technology will also be applied.

10. Based on the survey results, only a few vulnerable households have been identified. To ensure maximum protection of the vulnerable households, the following special provisions will be taken: (i) physical help in housing construction and free relocation, and (ii) a special subsidy will be paid to enable them to maintain their living standards while constructing their houses. The specific amount for such assistance will be determined according to the actual condition and their needs. For this purpose, XCD agreed to set aside a special fund which will be used to provide direct and needed help for those vulnerable people.

62 Appendix 17

11. Resettlement Cost and Fund Management. The total cost estimate for land acquisition and resettlement is CNY124.66 million ($16.4 million), including contingencies, taxes, and fees for resettlement administration. These resettlement costs will be included as part of the total project cost. The payment and use of compensation funds will be carried out under the supervision of the internal monitoring agencies, with regular review by the external monitor. Detailed measurement surveys will be conducted in each village and enterprise, and the compensation contracts will be negotiated and signed with village committees, households, and enterprises.

12. Information Disclosure, Participation, and Grievance. The people affected have been notified about the key elements of the resettlement plans. On various occasions during meetings, interviews, focus-group discussions, public consultation workshops, and community consultation meetings, local representatives have participated in the planning and concerns have been integrated into the resettlement plans. The draft resettlement plans or Resettlement Information Booklet were disseminated to affected villages and households in November 2006, and resettlement plans were made available to the public through the ADB website on 6 September 2007.

13. When grievances arise, the affected persons may submit an oral or written complaint first to the village committee or township resettlement office. If they can not solve the issue, it can be taken to the county resettlement office. If any affected person is not satisfied with the response, or if the complaint is serious, the resettlement office will try to solve the problem. If the grievance is still not resolved satisfactorily, as a last resort, final redress may be sought in the civil courts, in accordance with the Civil Procedure Act.

14. Institutional Responsibilities. The project resettlement office will be set up by XCD and the Xinjiang Land and Resources Department and will coordinate the planning, implementation, internal monitoring and evaluation, financing, and reporting of land acquisition and resettlement. XCCAB will be responsible for daily supervision on behalf of XCD. The city and/or county resettlement offices will be set up for implementing the resettlement plans. The resettlement offices will work closely with relevant township offices and village committees, which will be responsible for (i) delivering entitlements, (ii) selecting new housing sites, (iii) monitoring the development of replacement land, (iv) coordinating livelihood training, and (v) implementing other economic measures.

15. Monitoring and Evaluation. XCD, with the support of relevant local government agencies, will take full responsibility for internal monitoring to ensure that the project implementation complies with requirements set out in the resettlement plans. An independent monitor will be engaged by XCD to undertake resettlement supervision, monitoring, and evaluation for the Project. External monitoring will be undertaken every 6 months during implementation, and annually thereafter for 2 years. At the end of each monitoring investigation, a report will be prepared and submitted to XCD and ADB.

16. Resettlement Implementation. Resettlement implementation will be scheduled to precede the project component construction schedules. Land acquisition procedures will be carried out in the second half of 2007, and house demolition activities will occur in the first half of 2008.