Document of The World Bank Public Disclosure Authorized
Report No: 21909-CHA Public Disclosure Authorized
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$100 MILLION
TO THE
PEOPLE'S REPUBLIC OF CHINA
Public Disclosure Authorized FOR A
THIRD INLAND WATERWAYS
PROJECT
May 24, 2001
Transport Sector Unit East Asia and Pacific Region Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective January 1, 2001) Currency Unit = Yuan Yuan 1.00 = US$0.12 US$1.00 = Yuan 8.30
FISCAL YEAR January I -- December 31
ABBREVIATIONS AND ACRONYMS
CNAO China National Audit Office MBD Model Bidding Document CQ Consultants' Qualification MERR Modified Economic Rate of Return EA Environmental Assessment MOC Ministry of Commnunication EAP Environmental Action Plan MOF Ministry of Finance EIA Environmental Impact Assessment NCB National Competitive Bidding EPO Environmental Protection Office NPV Net Present Value EPS Environmental Protection Sections OED Operations Evaluation Department ERR Economic Rate of Return PAP Project Affected Person FIRR Financial Internal Rate of Return PHRD Policy and Human Resources GDP Gross Domestic Product Development GOC Government of China PIP Project Implementation Plan GPN General Procurement Notice PRC People's Republic of China HPCD Hunan Provincial QCBS Quality and Cost-Based Selection Communications Department RAP Resettlement Action Plan HPFB Hunan Provincial Finance Bureau RIB Resettlement Information Booklet HPEPC Hunan Provincial Electric Power SDPC State Development Planning Company Commission HXNCDC Hunan Xiangjiang Navigation SOE Statement of Expenditure Construction and Development SOE State-owned Enterprises Corp. Ltd. SPN Specific Procurement Notice ICB International Competitive Bidding TA Technical Assistance IWT Inland Waterway Transport TOR Terms of Reference IWW Inland Waterway WBOB World Bank Office in Beijing Kwh Kilo-watt-hour
Vice President: Jemal-ud-din Kassum, EAPVP Country Director: Yukon Huang, EACCF Sector Director: Jitendra N. Bajpai, EASTR Task Team Leader/Sr. Port Engineer: Toshiro Tsutsumi, EASTR CHINA THIRD INLAND WATERWAYS
CONTENTS
A. Project Development Objective Page
1. Project development objective 2 2. Key performance indicators 2
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 4
C. Project Description Summary
1. Project components 5 2. Key policy and institutional reforms supported by the project 6 3. Benefits and target population 7 4. Institutional and implementation arrangements 7
D. Project Rationale
1. Project alternatives considered and reasons for rejection 8 2. Major related projects financed by the Bank and other development agencies 8 3. Lessons learned and reflected in proposed project design 9 4. Indications of borrower commitment and ownership I 0 5. Value added of Bank support in this project 10
E. Summary Project Analysis
1. Economic 10 2. Financial I1 3. Technical 11 4. Institutional 12 5. Environmental 13 6. Social 15 7. Safeguard Policies 17
F. Sustainability and Risks
1. Sustainability 17 2. Critical risks 18 3. Possible controversial aspects 19 G. Main Loan Conditions
1. Effectiveness Condition 19 2. Other 19
H. Readiness for Implementation 21
I. Compliance with Bank Policies 21
Annexes
Annex 1: Project Design Summary 22 Annex 2: Detailed Project Description 26 Annex 3: Estimated Project Costs 32 Annex 4: Cost Benefit Analysis Summary 34 Annex 5: Financial Summary 42 Annex 6: Procurement and Disbursement Arrangements 53 Annex 7: Project Processing Schedule 61 Annex 8: Documents in the Project File 62 Annex 9: Statement of Loans and Credits 64 Annex 10: Country at a Glance 68 Annex I1: Summary of Environmental Assessment and Action Plan 70 Annex 12: Summary of Resettlement Action Plan 80 Annex 13: Review of Financial Management System 84 Annex 14: (Draft) Terms of Reference for Study of Containerization Development Along 91 Xiangjiang River Annex 15: The Power Demand Assessment 94 Annex 16: Poverty Alleviation Impact 96
MAP(S) IBRD 31205, May 2001 IBRD 31206, May 2001 CHINA Third Inland Waterways Project Appraisal Document
East Asia and Pacific Region EASTR Date: May 24, 2001 Team Leader: Toshiro Tsutsumi Country Director: Yukon Huang Sector Director: Jitendra N. Bajpai Project ID: P056199 Sector(s): TP - Ports & Waterways Lending Instrument: Specific Investment Loan (SIL) Theme(s): Transport Poverty Targeted Intervention: N Program Financing Data [X] Loan [ ] Credit E ] Grant ] Guarantee [ Other: For Loans/Credits/Others: Amount (US$m):$100.00 Proposed Terms (IBRD): Variable Spread & Rate Single Currency Loan (VSCL) Grace period(years): 5 Yearsto maturity:20 Commitmentfee: 0.75% Front end fee on Bank loan: 1.00% FinancingPlan (US$m): Source Local Foreign Total BORROWER 120.22 0.00 120.22 IBRD 0.00 100.00 100.00
Total: 120.22 100.00 220.22 Borrower: PEOPLE'S REPUBLIC OF CHINA Responsibleagency: HUNAN PROVINCIAL GOVERNMENT EXECUTED BY HIUNANXIANGJIANG NAVIGATION CONSTRUCTION AND DEVELOPMENT CORPORATION LTD. (HXNCDC) Address: 286 West Wuyi Road, Changsha, Hunan Contact Person: Mr. Li Jun Tel: 0731-2252233 Fax: 0731-2252299 Email: [email protected]
Estimateddisbursements ( Bank FY/US$m): FY 2002 2003 2004 2005 2006 2007 2008 Annual 2.50 10.00 21.00 28.00 21.00 15.00 2.50 Cumulative 2.50 12.50 33.50 61.50 82.50 97.50 100.00 Project implementation period: May 2001 - June 30, 2007 Expectedeffectiveness date: 11/21/2001 Expectedclosing date: 12/31/2007 DCS -A -Rl RV -aE 200 A. Project DevelopmentObjective
1. Project development objective: (see Annex 1) The objective of the Third Inland Waterways Project is to reduce transport and energy bottlenecks by:
(a) improving market access of the remote inland areas of Hunan Province; (b) providing more efficient and economic inland waterway transport (IWT); and (c) generating power to supplement the needs of the remote areas.
2. Key performance indicators: (see Annex 1) Key perfornance indicators are proposed in accordance with the project's major objectives:
ProjectObjectives Outcome/ImpactIndicators PerformanceIndicators
1. Improve marketaccess The freighttariff for IWT is lower than for WaterwayTraffic ('000) (Zhuzhou of remote inland areas railway and highway. IWT will remain Section) competitivemode and the traffic will increase. ContainerTraffic (teus)
2. Providemore efficient Economicand financialcosts in ton-kmwill AverageBarge Size (dwt) at the and economicinland decrease with the increaseof inland water ZhuzhouShiplock Section waterwaytransport vesselsize along the XiangjiangRiver.
InlandWaterway Agency, Hunan Xiangjiang FinancialPerformance NavigationCconstruction and Development (a) WorkingRatio (%) CorporationLtd. (HXNCDC),is financially (b) Self-financingRatio (%) sustainable. (c) Debt ServiceCoverage Ratio (%)
3. Generatepower to Annual power output and sales:(a) Output Power Output of ZhuzhouDam (MWh) supplementthe needs 640.5 millionkwh/year; (b) Utilization4,575 of the remote areas hours/year;and (c) Sale price 0.27 Yuan/kwh.
B. StrategicContext 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: R98-107 (CAS Progress Report) Date of latest CAS discussion: 05/28/98 The CAS, which reflects the Bank's strategic goal to foster growth and reduce poverty, identifies infrastructure improvement as a key area to support China's development agenda, particularly in inland provinces. The proposed project, a combination of navigation and hydropower, aims to ameliorate the economic well-being of the majority of families along Xiangjiang River in Hunan Province (5.9 million inhabitants) with below dollar per day average income (Annex 16). The project will remove dangerous shoals, upgrade 157 km channel, create a deeper channel along Xiangjiang River to enhance safety and productivity of the IWW system. These improvement will facilitate transition to a more efficient mix of vessel sizes using the waterways (from 40-300 dwt to 1000 dwt), and reduce their travel time by up to 2.5 hours. In addition, almost 640.5 million kwh power will be produced annually for Hunan Province to reduce the incidence of outage.
-2 - The sector specific goals supported by the project are:
* to promote growth by reducing infrastructure bottlenecks in transport and power deliveries; * to improve transport accessibility of inland poor regions; and * to strengthen governance and competitiveness of IWT through improved waterway management and planning.
2. Main sector issues and Government strategy: The main issues and Government strategy in China's inland water transport are as follows:
(a) Competitive development of IWT sector
Investment in waterways infrastructure over the last half century has been insignificant compared with the investment in other transport modes. The waterways infrastructure is presently inadequate, and thus it prevents IWT from contributing fully to support economic development. Railway and highway infrastructure have steadily improved, and is now close to allowing these sectors' operations to be cost-effective and user-friendly. In contrast, waterways infrastructure has improved little, and in the last three Five-Year Plans, its share of investment has been significantly less than its share of ton-kms. Although some waterway services are efficient, most are operated by inefficient companies that have small vessels with high operating costs.
(O) Decentralization and institutional reform of IWW
Although the inland waterways sector has been significantly decentralized, and some institutional responsibilities have been commercialized, further restructuring and commercialization are needed to make the agencies that oversee inland waterway transport more responsive to users' needs. Lack of coordination between agencies representing different users of the waterways (irrigation, power generation, water supply, and transport) has seriously impeded development of waterway transport. In addition, separation of responsibilities for waterway and railway transport between different ministries impedes the cooperation and coordination needed for both sectors to fulfill their roles. Because most potential inland waterway freight requires another mode of transport at the beginning or end of its journey, greater facilitation of multimodal freight transport is necessary for waterways to increase their share of traffic.
(c) Deregulation offreight tariff
A long period of controlled tariffs that lasted until 1998 hampered the competitiveness of the IWT sector. Under the regulated tariff, operators had no significant advantage in operating larger and more cost-effective vessels, so they had also no incentives to replace smaller vessels with larger ones. Most waterway vessels are powered barges that operate as independent units rather than in convoys. The lack of serious competition between waterway transport companies and the lack of cost-consciousness by users have contributed to the failure of waterway operations to become more efficient. The greatest impediment to increased operating efficiency and increased modal share has been the lack of any incentive to increase vessel sizes and therefore reduce costs. Since most freight tariffs were deregulated, there is a growing awareness of the advantages of larger, more cost-effective vessels and in particular of push-tow convoys (especially the push tow convoys that have proved so effective in other parts of the world which are used little in China).
-3 - (d) Provision of investment funds
Most provinces with large waterway systems have implemented some form of direct user charges, typically including a channel maintenance fee, a channel construction fee and charges for use of shiplocks. The revenues from channel maintenance and construction fees were expected to cover the amortization of charges of loans for waterway development. A new system is being considered to replace these charges with a uniform fuel price surcharge. Under this system, the fees would be collected by the company supplying the fuel, then passed on to the agency responsible for admninisteringthe charge. The Government of China (GOC) utilizes loans from the World Bank for waterway investment and then lends the funds to the provinces to cover about 40 percent of project costs. The remainder comes from the provinces' own resources. The resulting level of cost recovery from users is one of the highest cost-recovery levels for waterway investment and maintenance in the world. (In comparison, in the United States which is considered a good example, cost-recovery levels are 20 percent overall -- 100 percent for new investment and 0 percent for maintenance.)
(e) Policy guidelines for modernization of IWTfleet
While waterway transport has the potential to provide the lowest transport cost for a wide range of products over a range of travel distances, these low costs are very dependent on vessel size. There are many family-owned barges in operation -- in some provinces, more than 90 percent of all vessels are individually owned. Family businesses do not have access to sufficient financing to invest in larger and more efficient vessels and are too small to implement the integrated logistics systems that are necessary to take advantage of the lower operating costs that come push-tow operations allow. The few commercial fleets presently in operation are owned mostly by companies in which provincial or municipal governments have a controlling interest. Until now, these companies have had little incentive to become more efficient. MOC has realized the critical importance of vessel size on operating costs and is undertaking studies to find the best way to bring about a rapid increase in average vessel size.
3. Sector issues to be addressed by the project and strategic choices: (a) Competitive development of IWT sector
Modal competition exists in the Xiangjiang River corridor. Generally, high-value cargo is transported by highway or railway, while low-value bulk cargo is transported by waterway. It is important for cargo to be transported by larger vessels to enable IWT to become more economic and efficient. Under the proposed project, a section of the waterways will be upgraded from Class V - (3) to Class III - (3). This upgrade will allow 1,000-dwt vessels (four barges, in two lines of two barges, plus one push tow unit) to navigate year round from Hengyang to the confluence of the Xiangjiang and Yangtze Rivers, and upstream to Chongqin, and downstream to Shanghai.
(b) Decentralization and institutional reform of IWW
Hunan Province has benefited from MOC's decentralization of waterway transportation responsibilities and has evolved institutional systems for dealing with the joint use of waterway facilities for transport and energy purposes. But these institutions continue to suffer from lack of coordination with other transport agencies. This lack of coordination prevents the stimulation of multimodal transport, permits the building of bridges over the waterways that inhibit the passage of large vessels, and makes extracting water for irrigation accessible. Under the proposed project, Hunan Province will strengthen its decentralized waterway transportation agencies, expand the use of commercial incentives in the operation of their
- 4 - subagencies, implement better coordination measures with other provincial transport agencies and seek to work more closely with agricultural users of the waterways.
(c) Provision of investmentfunds
The previous under-investment in the waterways will be vigorously addressed by the investments proposed under the project. Hunan Province has already begun to address the problem of under-investment in its waterways and has almost completed the first Bank-financed IWW project in China (IWW1--Loan 3910-CHA). The IWWl project also involves the construction of a dam/shiplock with power generating capability. The state-owned enterprise (SOE) responsible for project (HXNCDC) is eventually expected to become financially sustainable; it will provide part of the investment funds for the proposed project. A second dam/shiplock will contribute to the faster realization of provision of investment funds, while allowing large vessels to use an extensive part of the provincial waterway network.
Dayuandu (Hunan) Shiplock under IWW 1 Dayuandu Dam under IWW I
(d) Policy guidelinesfor modernization of IWTfleet
The principal transportation benefit from the upgraded waterways will be realized by the use of larger vessels. At the present rate of replacement of vessels, however, these benefits will take a long time to be realized. To address a similar situation in Jiangsu Province, a vessel modemization study is being implemented under the Second Inland Waterways Project. This study will indicate the measures necessary to accelerate the replacement of vessels to maximize the benefits of the project. During the preparation of the proposed project, support was given to MOC to develop guidelines for provinces nationwide on how to build up and maintain a database of vessels and the freight they transport, how to implement a waterway management system, and how to stimulate a rapid evolution of vessel fleets.
C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The proposed project will include:
A. Construction of Zhuzhou Shiplock; B. Construction of Zhuzhou Dam and Powerhouse (a dam about 15 m high) with a capacity of 140 megawatts of hydroelectric power generation primarily to increase upstream water depth for navigation and power supply, and to provide a highway bridge over the Xiangjiang River in Hunan Province; C. Construction of access roads;
-5 - D. Construction of river bank protection; E. Upgrading the Xiangtan - Zhuzhou channel section by dredging; F. Strengthening of sector management and further commercialization of HXNCDC, the IWT agency, through: (a) training, (b) technical assistance, and (c) enhancement of its financial capacity; and G. Resettlement.
Indicative Bank- % of Component Sector Costs % of financing Bank- (US$M) Total (US$M) financing A. Construction of Zhuzhou Shiplock Ports & 23.34 10.6 11.81 11.8 Waterways B. Construction of Zhuzhou Dam and Hydro 117.52 53.4 76.82 76.8 Powerhouse C. Construction of Access Roads Highways 6.97 3.2 3.27 3.3 D. Bank Protection Ports & 31.54 14.3 5.51 5.5 Waterways E. Channel Improvement (Zhuzhou - Ports & 2.00 0.9 0.00 0.0 Xiangtan Section) Waterways F. Technical Assistance and Training Institutional 9.78 4.4 1.59 1.6 Development G. Resettlement Resettlement 9.75 4.4 0.00 0.0 Total ProjectCosts 200.90 91.2 99.00 99.0 Interest during construction 18.32 8.3 0.00 0.0 Front-end fee 1.00 0.5 1.00 1.0 Total Financing Required 220.22 100.0 100.00 100.0
2. Key policy and institutional reforms supported by the project: The project will support the following GOC policy of making IWT more efficient:
Modernization of inland water vessels. During the preparation and implementation of the ongoing Bank-financed IWW projects, MOC became aware of the importance of grea.ter average vessel size to making transport by waterway competitive with transport by rail and road. IWT has a long history in China, but its evolution has stagnated because of the under-development of the waterways and the consequent continuing use of very small and inefficient vessels. MOC has begun to develop a policy to stimulate an increase in average vessel size. The proposed project will support the development and implementation of the recommendations of this policy study.
Commercialization of IWT agencies. Through the two ongoing IWT projects, the Bank has supported the GOC's policy of commercializing IWT agencies by creating financially autonomous entities supported by revenue-generating dams and shiplocks that provide electrical energy and make IWW transportation more efficient. The proposed project will build on the experience gained in these projects to extend the same strategy to inland waterways and land-locked provinces.
Improvement of navigational channels. The project will support policy to make IWT more efficient by improving a 157-kin section of Xiangjiang River to enable four 1,000-dwt barges up to navigate to Hengyang City, 439 km upstream of the river.
- 6 - Increasing the competitiveness ofIWTfor multimodal transportation. Container transport on the Yangtze River and other waterways has recently emerged as a potentially competitive transport mode. Zhuzhou port downstream of the proposed dam/shiplock is no exception. Zhuzhou port (see picture below) is investing in container terminal construction utilizing private sector financing. HXNCDC would like to assess further development potential of IWW transport, including interrnodal transportation, under the project. The Bank's involvement to support and assist the proposed technical assistance will be essential.
(Container Operation at Zhuzhou Port)
3. Benefits and target population: The project will have an indirect impact on the poverty dimensions of Hunan Province. It will directly influence the earning potential of vessel operators, shipping companies, and those manufacturers and producers in the nearby cities and counties that are within the project service area. Increases in wages and profits of navigation community and other waterways dependent businesses will raise their consumption and in turn stimulate the economic life in counties adjacent to the Xiangjiang River. In addition, future use of large size vessels will provide a better living environment for families of small vessel owners and crew (See Annex 16), who presently live aboard small vessels and are deprived of any formal education and decent social life.
It is expected that the population that will benefit from the project comprises 5.89 million inhabitants with less than one dollar per day average income of Zhuzhou, Hengyang, Chanzhou and Leiyang Cities, and Zhuzhou, Hengdong, Hengshan and Hengnan Counties (please see Annex 16 for details). And about 62.6 rnillion inhabitants of Hunan Province will experience indirect benefits of the project.
4. Institutional and implementation arrangements: The proposed project will be carried out by Hunan Province. The implementing agency will be HXNCDC in accordance with the Subsidiary Loan Agreement between Hunan Province and HXNCDC. HXNCDC is a State-Owned limited liability company, established in November 1994 by HPCD and authorized by Hunan Province to implement IWWI.
Financial management and disbursement. The financial management aspects of the project are to be handled by the Finance Department of HXNCDC and by Hunan Provincial Finance Bureau (HPFB). Specifically, the HXNCDC finance department will be responsible for bookkeeping, collecting and maintaining supporting documents, preparing withdrawal applications, monitoring project payments and preparing project financial statements. HPFB will be responsible for maintaining, monitoring and reconciling the special account to be set up for the project, and reviewing, verifying and approving withdrawal applications prepared by HXNCDC before submitting them to the Bank for withdrawal processing.
-7 - In terms of disbursement technique, the project will disburse using traditional disbursement techniques and will not be using Project Management Report- (PMR) based disbursements, in accordance with Bank and MOF policies.
Auditing Arrangements. As with other Bank-financed projects in China, the Foreign Investment Audit Bureau of the China National Audit Office (CNAO), established in 1983 under the name of the State Audit Administration, will have overall responsibility for auditing project accounts. The Hunan Provincial Audit Bureau will conduct the fieldwork and issue audit reports. The Bank currently accepts audits performed under the supervision and responsibility of CNAO. Audits of the financial statements of the project, and the audit of the Special Account and Statement of Expenditures will be submitted to the Bank within six months of the end of the financial year. The audit reports of the project will also include opinions on whether the project was in compliance with financial covenants, if any.
D. ProjectRationale 1. Project alternatives considered and reasons for rejection: To make the river navigable by I ,000-dwt vessels, the altemative to building dams with shiplocks would have been to deepen the river through dredging, then to maintain the new depth by continuous maintenance dredging. This would have been very difficult technically because of the solid-rock river bed, and much more expensive as well. Dredging also would have limited river flow in dry season, and would not have had the revenue-generating capability of the dams.
What is more, given the projected shortage of generating capacity in Hunan, the altemative to the hydroelectricity generated by the dam (totaling 140 MW) would have been coal-fired power stations in other provinces. This altemative would have been more expensive and much less reliable and would have involved emission of pollutants.
2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project I (PSR) Ratings I (Bank-financedprojects only) Implementation Development Bank-financed Progress(IP) Objective(DO) Remove transport bottleneck by IWW I and IWW2 S S improving IWT facilities Construct dam/shiplock with power IWW I S S generating capability Commercialization of IWW agency IWW1 and IWW2 S S Other developmentagencies Develop intermodal transportation Netherlands Technical along the Yangtze River Assistance
IP/DORatings: HS (Highly Satisfactory), S (Satisfactory),U (Unsatisfactory),HU (Highly Unsatisfactory)
- 8 - 3. Lessons learned and reflected in the project design: Although the proposed project will be the third IWT project in China (the First and Second projects are ongoing), Bank experience in this subsector is very limited. China's two projects are progressing satisfactorily both in physical and institutional terms. Short-term financial viability for the cross-subsidy from the power generation and sale of electricity has been proven, but long-term sustainability has not yet been tested. Major contracts for both civil works and procurement of equipment have been awarded without any significant delays. Implementation is also being carried out close to schedule. This is due mainly to the strength of China's executing agencies in preparing engineering design and handling the bidding process. The major institutional reform has been achieved by establishing SOEs for damlshiplock operation and by separating these SOEs from the Provincial Communication Departments (in Hunan and Guangxi Provinces). Implementation of resettlement action plans and environmental action plans has also been satisfactory. Executing agencies pay close attention to the conditions of resettlement, as well as to progress achieved.
In terms of dam construction under IWW agencies, however, engagement of experienced consultants with particular expertise in designing and constructing dam will be essential. Drawing on experience gained from the first two projects, the IWW agency identified and appointed qualified consultants to carry out the preparation of the proposed project. Because China has greater expertise in waterway and small hydro-dam design and construction than other countries, and because the experience from the first two projects was satisfactory, local design will be used for the proposed project. Local experience in waterway construction and dredging from the previous projects was also satisfactory. Although Hunan Province used international competitive bidding (ICB) to contract its dam construction under the first project, Guangxi Province used domestic national competitive bidding (NCB) financed locally. Both results were satisfactory, although the Hunan outcome was slightly better. Local supervision consultants for all civil works components (financed locally) have been satisfactory and will be used again in the proposed project. Power generators were procured under ICB and installed locally. This proved acceptable to the provinces and the Bank and had a satisfactory outcome, and this course of action will be followed again.
The Operations Evaluation Department's (OED) analysis of 35 Bank-financed projects completed between 1980 and 1992 in the port subsector (not only in China) indicated two major problems: (a) long implementation periods due to the underestimation of the time needed for procurement and civil works construction; and (b) lower-than-expected benefits due to over-optimistic traffic projections. To minimize the first of these problems in the proposed project, engineering design has been substantially completed, and procurement procedures have been agreed and are similar to those used before. Because the project does not include complicated or unfamiliar civil works, delayed project execution is unlikely. The Bank has carefully reviewed the provinces' traffic forecasts and reduced them to levels compatible with current Bank expectations of national, regional and provincial economic development.
China's highway experience in some Bank-financed projects indicates: (a) inadequate quality of construction, and (b) cost overruns. Although the proposed project would not require advanced technology for civil works construction, the project will take into account the need to use experienced and competent contractors and supervision consultants, as well as careful determination of project cost estimates.
-9- 4. Indications of borrower commitment and ownership: The State Development Planning Committee (SDPC), Ministry of Finance (MOF), and MOC fully support the proposed project. SDPC has authorized the final feasibility study. Provincial project components have already been included in the 10th Five-Year Plan. HPCD has committed to providing counterpart funds as a grant to HXNCDC.
The Provincial Power Bureau agreed in principle to include Zhuzhou dam in its network, which indicates its commitment to purchase generated power from the proposed project. Zhuzhou City has already committed to purchase electricity from the proposed project.
5. Value added of Bank support in this project: Bank involvement in the project will provide further IWT policy reform. Through preparation of the project, the Bank is assisting MOC in developing and implementing national policy guidelines for modernizing the IWT fleet. The Bank, under the ongoing second Inland Waterways project, is also assisting Jiangsu Province in drawing up a provincial policy for modernizing the IWT fleet. It is expected that the proposed project will integrate China's policy guidelines on fleet modernization.
The proposed project will also assist commercialization of HXNCDC. The IWW I project implementation provided inland provinces, including Hunan Province, opportunities to learn competitive and transparent procurement processes, as well as institutional capacity development. The proposed project will assist HXNCDC in providing a development strategy for Xiangjiang IWT, including containerization of waterway transportation. In addition, the proposed project will assist institutional development of HXNCDC, including strengthening its financial management to ensure that the proposed project is financially sustainable.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): e Cost benefit NPV=US$225 million; ERR = 18.8%, MERR 14.5 % (see Annex 4) o Cost effectiveness O Other (specify)
This is a multi-purpose project, with quantified benefits coming from deferring the need to build a coal-fired power station, reducing the costs of navigation on the Xiangjiang River, reducing road transport costs for vehicles that will cross the bridge to be built over the dam, reducing irrigation costs, increasing agricultural output, and increasing output from fishing in the Xiangjiang River. The quantified benefits are distributed among the various sources in the following proportions:
Navigation: 69.2% Energy: 18.3% Agriculture and fisheries: 7.1% Road transport: 5.5%
The benefits were assessed using the avoided investment and operating costs of the best alternative investment (for the energy component of the project), the cost savings to transport activities that would accrue whether or not the project were to be completed, the net value added of additional agricultural and fishing activity, and the reduced cost of irrigation compared with what would be incurred without the project.
- 10- Additional, unquantified benefits come from a reduced risk of vessel navigation and flooding for residents of communities close to the river banks, and increased potential economic output from the regions of Hunan Province along the upper Xiangjiang River resulting from improved waterway access.
2. Financial(see Annex4 and Annex 5): NPV=US$ 18 million; FRR = 6.8 % (see Annex 4)
The financial analyses will focus on the consolidated financial capacity of HXNCDC as well as the financial impact on HXNCDC of the proposed Zhuzhou dam/shiplock. HXNCDC's main revenue will come from the sale of power from Dayuandu and Zhuzhou dams/powerhouses. The company is planning to use the revenue to cover its operating costs, including loan amortization charges. Although the company will generate enough total revenue over the loan period, with a standard amortization schedule, it will have cash deficits from 2002 to 2005 when it begins to repay the first Bank loan in 2001. These annual deficits can be covered by transferring reserve funds from previous years. The financial internal rate of return (FIRR) for the project is expected to be 6.8 percent. The expected financial net present value (NPV) of excess revenue after all maintenance and operating costs and loan repayments have been met is equivalent to Yuan 149.1 million (US$18.0 million) at a 5.9-percent discount rate. A detailed assessment is provided in Annex 5.
Fiscal Impact: The project task team determined that counterpart funds for the project will certainly be available because the expenditures for the proposed project constitute only a small fraction of GOC, HPCD and HXNCDC's funding flow. The successful implementation of the similar, larger IWW1 project has confirmed counterpart fund availability. The risk of lack of counterpart funds therefore is assessed as negligible.
3. Technical:
The task team carefully and thoroughly reviewed the technical aspects of the project, including the waterway channel, dam/shiplock, and power generation design, and found them sound. Experienced, first-class consultants were engaged to prepare the project. Technical coordination among the Central and Provincial Governments, Municipalities, related dam operators (in particular upstream of the Xiangjiang River), stakeholders (shipping companies, port operators, Zhuzhou city and others) and HXNCDC has been established. The consultants to prepare the technical aspects of the project are:
(a) Hunan Provincial Communication Planning, Survey and Design Institute (for the shiplock design); (b) Mid-South Design and Research Institute for Hydraulic Projects (for the reservoir design and resettlement); (c) Hunan Environmental Protection Research Institute (for environmental assessment); (d) Hunan Provincial Water Resources and Hydropower Design Institute (for the dam and powerhouse design); (e) Changsha Communications University (for overall model tests); and (f) Tianjin Research Institute for Water Transport Engineering (for the hydraulic laboratory model test for the shiplock).
China has extensive experience in designing and constructing large hydraulic dams. The size and scale of the proposed dam is small for China. HXNCDC has successfully implemented a similar project, including a larger dam (the Dayuandu Dam/Shiplock complex) under the IWW1 project. No technical difficulties are
- 11 - expected. In addition, a dam safety panel has been established, according to the terms of reference reviewed by and acceptable to the Bank, to ensure safety in design, bid tendering, construction, operation and maintenance. The panel of experts held its first meeting on February 20, 2001. About half of the experts have participated in IWW 1.
4. Institutional:
4.1 Executing agencies: HXNCDC will be the executing agency. It is a wholly-owned state company under HPCD. HXNCDC has proven its capacity by conducting a highly satisfactory implementation of the IWWI project. The team detemnined that HXNCDC has sufficient capacity to prepare and implement the proposed project, which is similar in nature to IWWI and somewhat smaller. HXNCDC has four departments -- General Administration, Technical, Dayuandu Operation, and Port Construction and Administration. The General Administration department has four sections -- Administration, Personnel, Finance, and Security/service; the Technical department has three sections -- Environment, Planning and Development, and Reservoir; the Dayuandu Operation department has five sections -- Administration, Navigation, Power Generation, Hydraulic, and Maintenance; and the Port Construction and Administration department has two sections -- Zhuzhou and Hengyang.
Forty staff members are currently assigned to the Dayuandu Operation department. About 40 staff members are being recruited to create a new department, the Zhuzhou Dam/Shiplock department, to implement the proposed project. Experience from the IWW1 project will be shared and put to use. 4.2 Project management: HXNCDC will be responsible for the implementation of the proposed project. It has carefully prepared and will follow the Project Implementation Plan (PIP), in which all implementation arrangements and responsibilities have been clearly defined. HXNCDC will select an experienced local consulting firm, of which qualification satisfies the Bank, for construction supervision. The same arrangement was carried out under the IWW I, and the result was satisfactory.
Implementation of resettlement will be carried out by municipal and county governments, which have sufficient experience in resettlement. To ensure that resettlement follows the agreed resettlement action plan (RAP) policy, the task team worked very closely with the government agencies carrying out this work before appraisal, as well as with the relevant department of HXNCDC.
The selected dam safety panel of experts will ensure safety in design, bid tendering, construction, operation and maintenance.
Environmental monitoring will be entrusted to municipal and county environmental protection offices, which are staffed with experienced and capable staff. 4.3 Procurement issues: A procurement assessment, a summary of which is presented in Annex 6, was performed during project preparation. HXNCDC has highly satisfactorily implemented the Hunan component of the IWW1 project and has proven its strong capability in managing procurement. HXNCDC is familiar with Bank procurement guidelines, its improved capacity is reflected in the preparation of the proposed project.
- 12 - HXNCDChas been registeredSOE to implementthe project.The responsibilityand ethicscode for each levelof the agencyand its staff are spelledout in job descriptionsfor the proposedproject. HXNCDC willretain the procurementstaff from IWW1 for the proposedproject. HXNCDCis expectedto fulfillits procurementfunction and administerprocurement in an efficientand transparentway. HXNCDChas committedto strictlyfollow the Bank'sprocurement rules, policy and guidelines. All works and equipment willbe procuredthrough competitive bidding. There will be no force account. HXNCDChas appointedChina National ChemicalConstruction Corporation International Tendering Company(CNCCCITC) and CMC InternationalTendering Company for ICB civil works and goods, respectively.Both companieshave extensiveexperience in carryingout internationalcompetitive bidding underBank-financed projects, as well as projects financedlocally or by other internationalinstitutions.
4.4 Financialmanagement issues: The task teamhas conductedan assessmentof the adequacyof the project financialmanagement system (see Annex 13). Theassessment concluded that the project meetsminimum Bank financialmanagement requirements.The task team will continueto be attentiveto financialmanagement matters during project supervision.The projectwill produceproject financial management reports in line with the formatand contentagreed to betweenthe Bank and China.See Annex 13:Project Financial Management System, Section IV: Financialand AccountingSystem, and SectionVI: ReportingRequirements, for details.
No auditsor audit issuesare outstandingwith the executingagency involved in the proposedproject. See Annex 13:Project Financial Management System, and SectionVII: Audit Arrangement,for further informnation. 5. Environmental: EnvironmentalCategory: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. The project complies with the requirements of OD 4.01. The project is classified Category A since it includes involuntary resettlement, channel dredging and construction of a dam.
Preparation of EIA and EAP. After the pre-feasibility study report for Zhuzhou Navigation and Hydropower Project was completed, the environmental assessment works for this project started in 1999 with the appointment of the Hunan Environmental Protection Research Institute as Environmental Assessment (EA) consultant. The EA was prepared according to the Chinese national procedures and the World Bank's OP 4.01. The Environmental Impact Assessment (EIA), Environmental Action Plan (EAP) and EA Summary reports for this project were reviewed by the Bank and discussed with HPCD during the pre-appraisal mission in December 2000. The final draft EIA, EAP and EA Summary were submitted to the Bank in January 2001, and were found satisfactory. During the EA work, the local people in the project area were intensively consulted, and their opinions have been reflected in the project design and environmental mitigation measures, as appropriate. The relevant information and documents were provided before each consultation. The final EA reports were disclosed locally on January 19, 2001 with an advertisement in the local newspaper, and were sent to the World Bank's InfoShop for disclosure on January 22, 2001. The major findings and discussions are sumrnarized below. More detailed information is given in Annex 11.
Potential Impacts and their MitigationMeasures. Major potential impacts during the construction phase include: noise, air and water pollution due to construction works; vegetation loss; soil erosion; and pollution due to dredging. Potential impacts during the operation phase include: inundation of land; impedance of fish migration; and water pollution in the reservoir.
- 13 - Two options for the dam site were studied to minimize the adverse impacts at the design state, and no distinct differences in environmental impacts were found except for the inundation of farmland. The site selected for the dam provokes inundation of 30 percent less farmland and generates 30 percent more electricity than the other site. In addition, this project, compared with the no-project option, will provide environmental benefits in two ways. First, the dam's generation of hydropower will emit fewer air pollutants than a thermal power plant, which would be built in a no project scenario. Second, the project will relieve traffic congestion on highways by shifting cargo transport from highway to inland waterway. The EA has ascertained that the area affected by the project has no critical natural habitat, no environmentally protected areas, no rare fauna or flora, and no cultural relics. To minimize the inundation of farmland, project design includes construction of drainage channels downstream, the raising of the level of farmland, and construction of pump stations. These measures will reduce the inundation area by 86 percent to 186 ha. What is more, given that the release of fry at Dayuandu Dam, located 96 km upstream and constructed under IWWI project, has been successful in mitigating the dam's impact on fishery resources, this project will also employ the same measure. 5.2 What are the main features of the EMP and are they adequate? The major aspects of the EAP include the integration of appropriate mitigation measures in the engineering design and technical specifications for the project. The EAP involves practical and cost-effective measures necessary to mitigate the project-related impacts by incorporating them in the design and by implementing them during the construction and operation phases. The EAP specifies the appropriate mitigation measures, environmental monitoring plans, training, institutional arrangements, implementation schedule, and budget needs necessary to implement it.
To mitigate environmental impacts during construction, the EAP identifies certain measures, including prohibiting blasting at night, watering construction roads, and collecting and treating wastewater and solid waste in construction sites and camps. In particular, to prevent pollution from dredging, the quality of dredged sediments will be monitored beforehand. The disposal plan will be developed, reviewed and approved by local environmental protection authorities Dredged sediments will be disposed of on land, and the disposal sites will be covered with soil and planted with trees and grasses.
To mitigate the deterioration of water quality in the reservoir after the dam is put into operation, the relevant environmental protection authorities with prime responsibility for water quality protection will enforce comprehensive pollution control measures. In support of these activities, the Waterway Navigation Bureau will also implement measures to minimize water pollution from navigation activities, including: (a) strictly enforcing national regulations preventing disposal of oily water and other wastes from vessels; (b) establishing waste oil processing facilities and garbage collection stations at all dock sites along the Xiangjiang River to collect waste oil and domestic garbage from vessels; and (c) establishing contingency plans and units to handle accidental leakage of toxic substance from vessels. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: January 2001 The Bank reviewed the terms of reference (TOR) of the EIA in March 2000. The first draft of the EIA and EAP were submitted to the Bank and reviewed in October 2000. During the pre-appraisal mission in December 2000, the Bank reviewed the second draft of the EA reports. The Bank received the third and final draft of the EIA, EAP and EA Sumrnary in January 2001, and found them to be satisfactory. These were sent to the Bank's InfoShop for disclosure on January 22, 2001.
- 14 - 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Project-affected people, local villagers, were intensively consulted. A two-stage public consultation was carried out according to the World Bank's guideline: (a) shortly after environmental screening and before the terms of reference for the EA were finalized (July 1999); and (b) after the draft EA report was prepared (July 2000). The consultation was conducted by meeting with local people at project-affected towns and analyzing the public opinion questionnaire. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? During the construction and operation phases, environmental monitoring will be carried out to verify the project's actual impact on the environment, identify unexpected environmental problems at an early stage, and adjust environmental measures as appropriate. Environmental monitoring will be entrusted to local environmental monitoring centers. A semi-annual and an annual monitoring report will be furnished to the Bank by December 31 and June 30 of each year starting in 2001. Environmental monitoring plans are provided in Annex 11, Table 2. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. OD 4.30 on Involuntary Resettlement applies to this project. The key social impact of the project relates to involuntary resettlement. Without protective works, the project would have affected 90 villages -- 1,342 ha of land, most of which are farmland, and 68,737 square meters of houses -- largely by inundating land and demolishing structures. Extensive efforts have been devoted to minimizing adverse impacts and different alternatives have been compared. As a result, protective works have been chosen and designed, and are detailed in the RAP (see Annex 12). The protective works as designed will protect 45 villages from losing land. These works reduce the amount of farmland to be inundated from 1,342 ha to 186 ha -- a decrease of 86 percent. Similarly, the number of people losing land will be reduced to 2,189, and the number of people relocating will be reduced from 1,205 to 280.
The impact assessment indicates that the run-off nature of the reservoir and the minimization efforts will keep project impacts scattered and relatively small. Of the 45 villages losing farmland, three villages will lose more than 20 percent of their land holding, one will lose 16 percent, nine will lose from 5 percent to 10 percent, and 32 will lose less than 5 percent. Under the village land-sharing arrangements, no one is losing all their farmland. The land to be inundated is low-yielding and subject to annual flooding. The socioeconomic survey indicates that the income structure of the affected farmers is quite diverse, and on-farm income accounts for only 26 percent of their household income.
Resettlement planning for the project started in May 1999. Planning activities included the development of topographic maps (1:2000 scale), a detailed census of the affected population, the inventory of affected assets, a sample socioeconomic survey, consultations on resettlement and rehabilitation strategy, as well designs of the protective works. On the basis of these activities, an RAP was prepared in line with local laws and World Bank OD 4.30 on Involuntary Resettlement. Because the number of relocating households is small, they will all be relocated within existing villages. For those affected by farmland acquisition, the rehabilitation strategy is land- and agriculture-based, and includes land reallocation and land and fish pond development. The RAP contains details on the following aspects of resettlement: (a) the census; (b)
- 15- inventory; (c) analysis of impacts; (d) the legal framework and resettlement principles; (e) rehabilitation action plan; (f) reconstruction of affected infrastructure; (g) design of protective works; (h) resettlement and rehabilitation budget; (i) institutional arrangements; () consultation and participation of the affected people; (k) grievance mechanisms; (1)monitoring arrangements; and (m) training of resettlers, and preferential policies. 6.2 Participatory Approach: How are key stakeholders participating in the project? The project conceptualization is based on extensive consultation with stakeholders, including different levels of governmental departments, port and navigation management agencies, shipping companies, industrial and commercial business, and private sectors that will benefit from the project.
All the affected households and comnmunitieshave been identified through the census and inventory. Project information was provided to the affected communities and local governments through newspapers, posters and public meetings. Focus group discussions and extensive key informant interviews were conducted with local government officials and the affected communities to: (a) further disseminate project information; (b) collect people's concerns and needs; and (c) consult the affected people on the resettlement and rehabilitation strategy. People's needs and concems have been incorporated into the RAP. The affected population participated actively in the resettlement planning process, particularly in the census, inventory and the formulation of the relocation and rehabilitation programs. The RAP was placed in the Bank's InfoShop on January 22, 2001 and in all project county and city libraries on February 14, 2001. Availability of the RAP was advertized in local newspapers on February 19, 2001.
Information dissemination and consultation are designed to continue during the project implementation. A resettlement information booklet, including the detailed entitlements of each household, compensation and entitlement policies and grievance procedures will be distributed to the affected people before resettlement implementation. The affected communities will play the key role in finalizing and implementing their livelihood restoration programs. Both internal and independent monitoring of the resettlement program will be conducted regularly during project implementation. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? The Mid-south Hydro-electric Survey and Design Institute was contracted to carry out the resettlement planning in collaboration with the project offices. The entire process of resettlement planning has been participatory. Extensive consultations took place with local commnunitiesto solicit views and concerns that have been already incorporated into the RAP. The Second Navigation Survey and Design Institute has been identified to conduct independent monitoring of the resettlement program. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The project office has successfully implemented its component under IWWI project. Its institutional setup for resettlement planning and implementation has been maintained at both the project and county level. Much experience has been accumulated in implementing the resettlement program under IWWI. The same resettlement offices will continue to operate for the resettlement program under the proposed project. Zhuzhou County, not included in IWW 1, has already set up its resettlement office. For the project, the Resettlement Management Office of the Hunan Provincial Government, responsible for all reservoir projects within the province, has assumed the supervision and monitoring responsibility. Its involvement has further strengthened the institutional setup for resettlement implementation.
- 16 - 6.5 How will the project monitor performance in terms of social development outcomes? An independent external monitor has been identified and will be appointed to monitor the implementation of the resettlement action programs. Monitoring will take place twice a year during project implementation, and reports will be submitted to the Bank for review. An internal monitoring mechanism has been designed as part of the resettlement management setup as well. Internal monitoring will continue throughout the implementation period.
7. Safeguard Policies: 7.1 Do any of the following safeguard policiesapply to the project?
.______Poli -- _ _ _ _ _ Ap l c b i EnvironmentalAssessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 No Naturalhabitats (OP 4.04, BP 4.04, GP 4.04) 0 Yes * No Forestry(OP 4.36, GP 4.36) 0 Yes * No Pest Management(OP 4.09) 0 Yes * No CulturalProperty (OPN 11.03) 0 Yes * No IndigenousPeoples (OD 4.20) 0 Yes * No InvoluntaryResettlement (OD 4.30) 0 Yes 0 No Safety of Dams (OP 4.37, BP 4.37) 0 Yes C No | Projects in InternationalWaters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in DisputedAreas (OP 7.60, BP 7.60, GP 7.60) 0 Yes 0 No
7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. During the identification mission in December 1999, the Bank's environmental and social specialists visited the proposed project sites and determined that the risk associated with the Bank's safeguards policies was low. To meet the environmental safeguard policies of the Bank, HPCD hired an independent consulting firm, the Hunan Environmental Protection Research Institute, to prepare the EIA reports. At both TOR and draft EIA stages, the consultant, in cooperation with HPCD held public consultations and incorporated the comments from the public in the EIA.
It was concluded that the project will not affect indigenous people by reviewing the statistical data and socioeconomic survey and screening for ethnic mninorityin the project area.
A Panel of Experts for Dam Safety, comprising five domestic experts in hydraulic structures, engineering geology, hydropower and resettlement, and port/waterway engineering, has been established, according to the terms of reference reviewed and accepted by the Bank. The first meeting was held on February 20, 2001 and the Panel will continue to review the safety of the dam during construction and operation periods, according to the scope of works provided in terms of reference.
F. Sustainabilityand Risks 1. Sustainability: The benefits of the proposed project are likely to be sustainable. The traffic along the Xiangjiang River is steadily increasing, indicating that inland waterways offer a competitive transportation mode. Under the IWWI project, Xiangjiang traffic and vessel size have increased and it is expected that IWT on the
- 17- Xiangjiang River will be more competitive after 1,000-dwt vehicles can navigate up to Hengyang (from Shanghai or Wuhan on the Yangtze River) during the dry season. Siltation along Xiangjiang has been minor and would not be changed in future.
2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk MitigationMeasure FromOutputs to Objective MOC's policy guidelines for vessel M MOC is using technical assistance (TA) funded modemization are not established by the Policy and Human Resources Development (PHRD) to develop a policy to modemize barge vessel by September 2001. The Bank will monitor implementation of the above policy.
Financing will not be available to upgrade M Shipping companies will financially benefit from vessel size. the project and have an incentive to upgrade vessels resulting in improved efficiency. In addition, guidelines for a financing system will be provided by GOC to the shipping companies in the PHRD TA.
IWT traffic will not increase as expected. M Largely extemal risk. The sensitivity analysis shows that at least 12 percent of IRR would be insured without any increase.
Port facilities will not be improved for N The Bank will review the current planned port larger vessels. facilities. Port development along the Xiangjiang River is in accordance with the proposed waterway development.
Railway subsidy will be increased. N A rail subsidy increase is not likely given the Govemment thrusts to commeTcializedrail operators. However, a Bank-financed railway project is promoting cost-based tariff setting procedure.
There is long shiplock waiting time. N Shiplock operators are properly trained and equipment is maintained.
Design and maintenance of equipment is N The project will appoint experienced engineering not as expected. consultants and properly trained power operators.
Development of altemative power N If an altemative hydraulic power plant is built generation is carried out. outside of Hunan province, transmission cost of altemative services will be very high.
- 18 - From Componentsto Outputs Qualified Dam Safety Panel, adequacy of N The Bank will conduct a critical review of the engineering designs, qualified contractors, qualifications of the Panel of Experts on Dam and quality of supervision and Safety, engineers, consultants and contractors, satisfactory implementation of RAP will and will give prior agreement to the RAP not be in place. implementation arrangements.
Overall Risk Rating M Risk Rating- H (High Risk), S (SubstantialRisk), M (Modest Risk), N(Negligibleor Low Risk)
3. Possible Controversial Aspects: There are no controversial aspects.
G. Main Loan Conditions 1. Effectiveness Condition The only condition for effectiveness, other than the legal opinions, is the execution of a subsidiary loan agreement by Hunan Province and HXNCDC, satisfactory to the Bank.
2. Other [classify according to covenant types used in the Legal Agreements.] 2.1 Agreement Reached with the Government:
The Borrower will ensure that the proceeds of the loan are onlent to Hunan Province, which will on-lend to HXNCDC on the same terms and conditions as the Bank loan, with HXNCDC bearing the foreign exchange risk.
2.2 Agreement Reached with the Beneficiary:
(a) Financial Conditions:
(i) IHXNCDC'sworking ratio not to exceed 20 percent from 2001 through 2010; (ii) HXNCDC to provide each year a 5-year rolling business plan for the Bank's review and implement such plan; and (iii) HXNCDC to sign Power Sales Agreement acceptable to the Bank by July 2006.
(b) Overseas Training: By December 31 of each year starting in 2001, HXNCDC to provide to the Bank for review an annual training program, and implement such program.
- 19- (c) Environment,Land Acquisition and Resettlement:
(i) HXNCDCto carry out the EAP and RAP, in a manner satisfactoryto the Bank, and furnish any proposedrevision of these plans to the Bankfor its approval;
(ii) HXNCDCto maintainadequate policies and procedures,in accordancewith indicators acceptableto the Bank to enable it to monitorand evaluateon an ongoingbasis the implementationof EAP and RAP; and
(iii) underterms of referenceacceptable to the Bank, HXNCDCto prepare and furnishto the Bank:(a) semi-annualreports and annual environmentalmonitoring reports startingDecember 31, 2001 and ending on December31, 2006;(b) by June 30, and December31 of each year, startingDecember 31, 2001 untiltwo years after completionof the Project, an internal resettlementreport preparedby agenciesof HunanProvince responsible for resettlement activitieson the implementationand results of suchactivities during the precedingsix-month period; and (c) by March 31 and September30 of eachyear, starting March 31, 2002 until two years after completion of the Project, an external resettlement report prepared by an independent entity acceptable to the Bank, on the implementation and results of the resettlementactivities during the same six-monthperiod referred to in clause (b) above.
(d) Dam Safety Panel: HXNCDC to: (a) during the period of implementation of the project, continue to employ a panel of qualified experts under termnsof reference and with resources acceptable to the Bank, to review the adequacy of the design and construction procedures of the darn and its associated structures; and (b) prepare, in a manner and according to a timetable satisfactory to the Bank, detailed plans for: (i) construction supervision and quality assurance; (ii) instrumentation; (iii) operation and maintenance; and (iv) emergency preparedness; and (c) carry out periodic safety inspections of said dam after its completion.
(e) Reporting,monitoring, and auditing:
Using guidelines acceptable to the Bank and based on the agreed performance indicators, HXNCDC to furnish to the Bank:
(i) quarterly progress reports on implementation of all project components;
(ii) an annual monitoring report, in a form satisfactory to the Bank, that assesses the degree to which implementation and development goals were achieved for all components, by March 31, of each year, beginning in 2002 and ending in 2007;
(iii) information or other arrangements required for an Implementation Completion Report within the timing to be agreed during implementation of the project;
(iv) audited accounts for the project, statements of expenditures and special accounts prepared by independent auditors acceptable to the Bank, within six months at the end of each fiscal year; and
(v) audited consolidated financial statements of HXNCDC (including, but are not limited to, income statement, cash flow statement and balance sheet) within six months after the end of each financial year.
- 20 - H. Readinessfor Implementation 2 1. a) The engineeringdesign documents for the first year's activitiesare completeand ready for the start of project implementation. 0 1. b) Not applicable.
Z 2. The procurementdocuments for the first year's activitiesare completeand ready for the start of project implementation. O 3. The ProjectImplementation Plan has been appraisedand foundto be realistic and of satisfactory quality. 0 4. The followingitems are lackingand are discussedunder loan conditions(Section G):
Detaileddesign and bidding documentsfor constructionof accessroads (proposedto be procuredthrough NCB) have been completedand submittedto the Bank for review in March2001. Bidding documentsfor river bank protection(proposed under NCB) have been completed.
Pre-qualificationdocuments for major civil works (constructionof shiplockand dam/powerhouse)under ICB have been submittedto the Bank for review.
.. Compliancewith Bank Policies Z 1. This project complieswith all applicableBank policies. El 2. The followingexceptions to Bank policiesare recommendedfor approval. The project complieswith all other applicableBank policies.
(A __ __ A74 ToshiroTsutsumi Jitendra N. Bajpai ukanHhmig TeamLeader SectorDirector CountryDim r
- 21- Annex 1: ProjectDesign Summary CHINA: Third Inland Waterways KeyPerformance Hierarchyof Objectives Indicators Monitoring& Evaluation CriticalAssumptions Sector-relatedCAS Goal: Sector Indicators: Sector/ countryreports: (fromGoal to Bank Mission) Reduce transport and energy IWT traffic (in tons) will Transport Sector Report Transport development bottlenecksby improvingIWT increase every year at the stimulateseconomic sub-sectorand constructing same rate as economic development,and thus helps hydropower-generating developmentalong the alleviatepoverty. facilities XiangjiangRiver. Energy demand in the project Energy Sector Report areas will increase.
ProjectDevelopment Outcome / Impact Project reports: (fromObjective to Goal) Objective: Indicators: Improve market access The freight tariff for IWT is Monitor tariff in three modes IWT providesgood service lower than for railway and (IWW, rail, and road) standard in transportation. highway: For door-to-door transportationof the major coal users along the Xiangjiang, River IWT tariff should be 10%and 30% lower than rail and highway, respectively.
Provideefficient IWT Economic and financialcosts Monitor vessel size (a) The transport industry, in in ton-km will decreasewith particular, shipping the increase of inland water companies,modernize their vessel size along the fleets; and (b) freight tariff is XiangjiangRiver (from an not regularized. average of 175 dwt in 1998 to 300 dwt in 2010).
Generatepower to supplement Annual power output and Financial statement will Hydro-electricityhas lowest the needs of the remote areas sales: assess: marginal cost; local demand will exceed local supply. Output: 640.5 million (a) expectedoutput; (b) actual kwh/year output; (c) output sold; and Utilization:4,575 hours/year (d) revenue. Sale price: an average higher than 0.27 Yuan/kwh
- 22 - KeyPerformance Hierarchyof Objectives Indicators Monitoring& Evaluation CriticalAssumptions Outputfrom each Output Indicators: Project reports: (from Outputsto Objective) Component: Upgrade Xiangjiang IWW Survey and updated Navigation charts (a) MOC's policy guidelines (Zhuzhou - Dayuandu section) navigation charts are for vessel modernization are to Class III - (3) (1,000 dwt) completed. Navigable limits established; are marked and waterway (b) financing is available to category is reclassified. upgrade vessel size; (c) IWT traffic increases as expected; (d) port facilities for larger vessels are improved; and (e) railway subsidy is not increased.
Zhuzhou Shiplock is Cycle-time of shiplock Monitoring report There is no shiplock waiting completed and operating operation (not more that one time. efficiently. hour) and shiplock traffic
Power generating facilities are Availability of turbine: firm Production report Design and maintenance of properly operating. output is 90% turbines are as expected.
Price of "imported" electricity remains high.
- 23 - Key Perfornance Hierarchyof Objectives Indicators Monitoring& Evaluation CriticalAssumptions ProjectComponents Inputs:(budget for each Projectreports: (fromComponents to Sub-components: component) Outputs) Constructionof Zhuzhou US$23.3million Progress Report and Bank (a) The quality of engineering shiplock supervision designs and supervisionof consultantsis sufficient,and consultantare qualified; and (b) EAP and RAP are implementedsatisfactorily.
Constructionof Zhuzhou US$117.5million Progress Report and Bank (a) ExperiencedDam Safety dam/powerhouse supervision Panels are appointed;(b) the quality of engineeringdesigns and supervisionof consultants is sufficient,and contractors are qualified;and (c) EAP and RAP are implemented satisfactorily.
Constructionof access roads US$7.0million ProgressReport and Bank (a) The quality of engineering supervision designs and supervisionof consultantsis sufficient,and contractorsare qualified;and (b) EAP and RAP are implementedsatisfactorily.
Constructionof river bank US$31.5million ProgressReport and Bank (a) The quality of engineering protection supervision designs and supervisionof consultants is sufficient,and contractorsare qualified;and (b) EAP and RAP are implementedsatisfactorily.
Channelimprovement US$2.0million Progressreport and Bank (a) The quality of engineering between Zhuzhouand supervision designs and supervisionof Xiangtan consultants is sufficient,and contractors are qualified; and (b) EAP and RAP are implementedsatisfactorily.
Institutionaldevelopment for US$1.5million Progress report and Bank High-qualityconsultants with Hunan Province supervision extensiveknowledge of international and local conditions and economy are hired. Technicalassistance for US$0.1 million ProgressReport and Bank High quality consultantswith aContainerization Study supervision extensive knowledgeof local conditions and economy. Resettlement US$9.8 million Monitoringreport and Bank RAP is implemented supervision satisfactorily.
- 24 - Performance Indicators
1998 2003 2005 2010 Attainmentof Project 1st Objectives Operational ______Baseline Benchmark Year Benchmark 1. Improve marketaccess in WaterwayTraffic ('000) 4,700 5,600 6,300 7,400 remote inland remote areas (ZhuzhouSection)
ContainerTraffic (teus) 12,000
2. Providemore efficientand AverageBarge Size (dwt) at 175 220 250 300 economicinland waterway the Zhuzhou Shiplock transport Section
FinancialPerformance (a) WorkingRatio (%) 6.70 11.80 13.50 14.80 (b) Self-financingRatio (%) 10.20 1.00 0.29 1.00
(c) Debt Service Coverage 1.38 1.84 1.39 Ratio (%)
3. Generatepower to PowerOutput of Zhuzhou none none 250,000 640,500 supplementthe needs of the Dam (MWh) remote areas
Implementation Indicators
______FY2002 FY2003 | FY2004 FY2005 FY2006 FY2007 % of civil works completed 5 30 65 85 90 100
% of equipment contracted 5 65 75 85 100 100
% of training (person) completed 10 30 50 70 90 100
% of resettlement comDleted 20 20 50 75 100 100
- 25 - Annex 2: Detailed Project Description CHINA:Third InlandWaterways
1. The Xiangjiang River is a tributary of the Yangtze River. It connects the cities between Chenglingji (at the confluence of the Xiangjiang and Yangtze Rivers) and Hengyang in Hunan Province. The three-stage development plan of the GOC for the Xiangjiang River will result in the river being navigable by vessels of up to 1,000 dwt, Class IU - (3) standard (four 1,000-dwt barges -- in a two-by-two formation -- plus one push tow). The 257 km section of the Xiangjiang River from Chenglingji to Zhuzhou was completed in 1994, except for the channel between Xiangtan and Zhuzhou which is still in Class III - (4) (two 1,000-dwt barges - one line, two barges - plus one push tow), and the 62 km upstream section from Hengyang to Dayuandu, which is partly funded through the IWW I project and will be completed by the end of 2001.
2. The proposed project will comprise the final 96-km section from Zhuzhou to Dayuandu where currently only 300-dwt vessels can navigate. This project will help remove the navigational bottleneck between Zhuzhou and Dayuandu. After the project is complete, four 1,000-dwt barges will be able to navigate as far as Hengyang from the Yangtze River, and as a result, inland waterway transportation costs will decline. The larger vessels will have operating costs about half of those at present. The main products among the 3.5 million tons now transported through Dayuandu are coal, salt, iron/steel, timber, mineral ores, and construction materials. At Zhuzhou Port (just downstream of the proposed dam and shiplock), regular container transport services by barge have started.
3. The proposed project will include: (a) construction of the Zhuzhou shiplock, dam and powerhouse; (b) power-generating capability (five units of 28 MW, for a total of 140 MW); (c) upgrading the Xiangtan- Zhuzhou section of the Xiangjiang river by dredging; and (d) technical assistance for: (i) development of containerization along the Xiangjiang River and (ii) training.
By Component:
ProjectComponent I - US$23.34million A. Zhuzhou Shiplock
Al. Construction of Shiplock: One lane of a shiplock designed for a Class III - (3) channel will be constructed beside the dam to enable vessels to navigate the 10-m difference in water levels between upstream and downstream of the dam. The shiplock will have the same dimensions as the shiplock at Dayuandu--23 m wide, 180 m long and 3.5 m deep at the sill-and the same annual traffic capacity of 15.6 million tons dwt to satisfy the demands of an estimated 10.4 million tons of traffic in 2030. One operation cycle of the shiplock is expected to take about 40 minutes.
A2. Shiplock Gates and Hoists: One set of miter gates at the upstream and downstream of the shiplock will be provided at the shiplock. The miter gates will be operated by hydraulic hoist, with two 630 kN (upstream) and two 1,000 kN (downstream). The upstream and the downstream gates will have design heads of 5.2 m and 10.3 m, respectively.
ProjectComponent 2 - US$117.52million B. Construction of Zhuzhou Dam and Powerhouse
B 1. Major Civil Works: The Zhuzhou dam and powerhouse will be constructed at the Kongzhou Island section of Xiangjiang River 24 km upstream from Zhuzhou City and 96 km downstream from
- 26 - Dayuandu. The dam/powerhouse will have three sections -- right and left of Kongzhou Island and an island section. The dam/powerhouse is connected to the shiplock section at the right side of the river. The total length of the dam/powerhouse is 982.5 m. The dam will have five intakes for powerhouse and 26 sluice bays in total, 12 bays on the left and 14 bays on the right of the island. Each sluice bay is 20 m wide and is equipped with a sluice gate to control river flow. A Class II bridge (12 m wide and 1,230 m long) will also be constructed as part of the dam to connect both sides of the Xiangjiang River. Construction will follow two phases, including the first phase cofferdam connecting between the left bank and Kongzhou Island, and the second phase cofferdam between the right bank and Kongzhou island.
B2. Supply and Installation of Turbines and Power Generators: Five bulb-tubular turbine-and-generator units, each with a capacity of 28 MW, will be procured and installed in the powerhouse. Maximum, minimum and rated water heads are 10.56 m, 3.0 m and 6.9 m, respectively. The runner's diameter will be 7.5 m. The powerhouse will have both fixed and movable roofs, with the operation floor at an elevation of 35.5 m. Each machine hall is 19 m wide and 41.7 m high. Each generation unit will be installed at 22.15 m of elevation, with 21.4 m between units.
B3. Sluice Gates and Hydraulic Hoist, Cranes, Trash Screens, Roof Cover and Other Small Equipment: A metal radial sluice gate (12.5 m high and 20 m wide) will be installed in each of the 26 sluice bays. Each sluice gate will have one set of two hydraulic hoists (2,200 kN each) with a 7.8 m traveling arm to operate the sluice and a stoplog. The elevation of the sluice bed is 28.5 m. The dam will be provided with the following equipment: one 2,000-kN gantry crane for installing and maintaining turbine and generator units, one overhead double-beam crane for powerhouse small equipment, one small gantry crane (2 x 250 kN) for trash rack and screen, and one small gantry crane (2 x 400 kN) for tail gates. Small equipment such as elevators, water pumps, and power cable breakers also will be provided.
B4. Transformers and Switch Yard: Two step-up transformers of 63 MW and 90 MW will be provided at the 10.5 kV side of the generators. Two generators will be connected to a 63-MW transformer. A switch yard for 220 kV (74 m by 62 m) will be located on the upstream bank of the dam along the left bank at an elevation of 48.8 m.
B5. Transmission Lines: The Zhuzhou power plant will be connected to the Zhuxi substation by two 220-kV circuits of LGJ-300. Transmission lines will have two lines 30 km long and a 70 MW capacity under normal operation. However, both lines will have a maximum transmission capacity of 140 MW in case the other line has any problems.
- 27 - Key Particulars of Zhuzhou Dam/Powerhouse
Hydrology Total catchmentarea 94,660 km2 Catchment above dam site 65,220 km2 Annual average runoff 53,000 million m3 Maximum design flood 22,200 m3/second Reservoir levels (normal pool level -- NPL) 40.50 m Reservoir surface area at NPL 58.90 km2 Reservoir capacity at NPL 474.30 million m3 Dam Sill elevation 28.50 m No. of bays 26.00 bays Dimension of bay 20 m (W) x 19.7 m (H) Total sluice length 612.50 m Power generation No. of units 5 units Rated output of unit 28.00 MW Rated speed 65.20 rpm Max. water head 10.56 m Min. water head 3.00 m Rated water head 6.90 m Rated voltage of generators 10.50 kV Powerhouse machine hall 146.1 m (L) x 19 m (W) x 42 m (H) Annual average energy output 640.50 Gwh Annual utilization hours 4,575 hrs
ProjectComponent 3 - US$ 6.97 million C. Access Roads
This component includes (a) access roads from existing roads to the project site and (b) access roads within the project complex, mainly between the dam complex to Kongzhou Island.
Cl. Construction ofAccess Roads to Outside: A Class III highway standard was selected according to the estimated traffic density during construction and after the project. The west bank will connect to Provincial Highway No. 1815 (6.04 km long), and the east bank will connect to the Beijing-Zhuzhou Expressway (8.09 km long). The access road will be 8.5 m wide and 14.13 km long in total.
C2. Construction ofAccess Road within Zhuzhou Complex: This temporal component is for transporting construction materials. It includes roads (3.7 km long) and three landing stages for waterway transportation. One landing stage is for unloading heavy equipment such as power generating equipment, and the two landing stages, one at each side of the river, are for construction materials. One access bridge from the dam bridge to Kongzhou Island (276 m long and 8.5m wide) and an overpass bridge (90m long and 8.5 m wide) for the Sanmen discharge channel will also be included.
Project Component4 - US$31.54million D. Bank Protection Works
D 1. Xiangjiang River Bank Protection: The left river bank (1,900 m long) and the right (2,630 m long) river bank will be protected. The elevation of the banks will be 42.0 m - 46.5 m.
D2. Kongzhou Island Bank Protection: Kongzhou Island is about 1,800 m long and 200 m wide. The entire island will be protected with rock masonry to an elevation of 46.5 m.
- 28 - D3. Reservoir Area Protection: The elevation of the reservoir protection is planned at 41.5 m (40.5-m water level plus 1.0 m). Slope protection and wall protection of a total length of 24.1 km will be constructed along both sides of the reservoir.
ProjectComponent 5 - US$2.00million E. ChannelImprovement between Zhuzhou and Xiangtan
The 37-km-long section between Zhuzhou and Xiangtan currently is a Class-III - (4) channel (60 m wide and 2.0 m deep, for one line of two 1,000-dwt barges and one push tow). Under the project, this section will be upgraded to Class III - (3) (90 m wide and 2.0 m deep) by removing eight shoals through (a) dredging (270,350 m3); (b) rock blasting (4,000 m3); and (c) constructing groins (44,700 m3) along 439 km of the Xiangjiang waterway between the Yangtze River and Hengyang.
ProjectComponent 6 - US$9.78million F. TechnicalAssistance and Training
In order to strengthen institutional capacity, a forward-looking waterway management strategy will be developed and construction quality will be ensured. The project will include training, a containerization study and construction supervision.
Fl. Training: Domestic training (354 staff-months) and overseas training (143 staff-months) will be provided under the project. Training topics will include: (a) waterway management; (b) intermodal container transportation; (c) the environment; (d) shiplock and port operation and management; (e) World Bank guidelines; (f) project management; (g) procurement; (h) engineering design; (i) construction supervision; (j) financial management; (k) management information systems; (I)operators; and (m) English language.
F2. Containerization Development Study: While container traffic at China's deep-sea ports has increased quite sharply, IWT container traffic, except on the Yangtze River, has not increased significantly. Because the Xiangjiang is a tributary of the Yangtze, Zhuzhou port launched regular container operations, and potential container traffic appears to be substantial. HXNCDC will implement a study to review and assess IWT containerization along the Xiangjiang River.
F3. Construction Supervision: This component will be financed locally. The IWW1 project has proven the capacity of the domestic consultants in supervising a similar and even larger project. Qualified domestic consultants selected though a competitive process will implement this component.
ProjectComponent 7 - US$9.75million G. Resettlement, shiplock and port operation and management
This component will include land acquisition, compensation for resettlement, cleaning of the reservoir area and other resettlement related activities.
- 29 - Table A: Training Program
Domestic Overseas Implementation Nature of Training Number Duration Number Duration Timing of Person (month) of Person (month) t. Policy Support Inland Waterway Management 8 1 2002 Environmental and Monitoring 12 1 2003 & 05 Operation and Management for Shiplock and Port 12 0.5 9 1 2004 & 07 Intermodal Transportation 6 0.7 2003 Subtotal 12 35
2. Implementation Support Bank Loan Procedures 20 0.3 2001 Procurement and Contract 16 1 2001, 03 & 04 Waterway Engineering Design 16 0.7 2002 & 03 Construction Supervision 30 1 16 1 2001, 02 & 03 Subtotal 50 48
3. Institutional Development Economic Analysis and Evaluation 9 1 2002 Project Management 16 1 2004 & 05 Financial Management 4 1 12 1 2003, 04 & 06 Management Information System 18 1 2003 & 05 Operators 45 5 16 1 2006 & 07 English 6 3 2001 Subtotal 55 71
Grand Total 117 154
- 30 - Table B: Overall ImplementationSchedule
2001 2002 2003 2004 2005 2006 2007 GeneralProcurement Notice (March 31, 2001, No. 555)
1. AccessRoad
2. ZhuzhouShiplock
Civil works T _ _ _
Equipment r _ _ _ l -
3. Zhuzhou Dam/Powerhouse
Civil works 1 _ _ 1
Power generators _ _ _
Sluice gates r J i
4. Transformerand switch yard _ _ _ _
5. Bank Protection -
6. Reservoir Protection El _
7. ChannelImprovement _ _ (Xiangtiang - Zhuzhou Section)
8. Training 1011111111111I
9. Study _ _ _
Preparation of bidding documents/TOR Prequalification Bidding process/Shortlist and selection of consultants Implementation of contract
- 31 - Annex 3: EstimatedProject Costs CHINA:Third Inland Waterways
Pr~oj~tCpts~yompRent us $ O00S~OQ U$Q A. Zhuzhou Shiplock 9,402.86 10,145.85 19,548.71 1. Shiplock Construction 9,402.86 9,138.85 18,541.71 2. Shiplock Gates 0.00 1,007.00 1,007.00
B. Zhuzhou Dam and Powerhouse 32,412.41 64,589.72 97,002.13 1. Major Civil Works 21,452.98 19,234.73 40,687.71 2. Power Generating Equipment 1,325.30 35,372.16 36,697.46 3. Sluice Gates and Small Equipment 0.00 8,799.83 8,799.83 4. Transformer and Switch Yard 0.00 1,183.00 1,183.00 5. Transmission Lines 9,634.13 0.00 9,634.13
C. Access Roads 3,046.97 2,816.50 5,863.47 1. Inside Road 1,865.72 1,830.50 3,696.22 2. Outside Road 1,181.25 986.00 2,167.25
D. Bank Protection 19,148.07 4,759.00 23,907.07 1. Inundation Protection 14,176.17 0.00 14,176.17 2. Drainage for Sanmen 2,484.95 2,547.70 5,032.65 3. Kongzhou Bank Protection 2,486.96 2,211.30 4,698.26
E. ChannelImprovement 1. Zhuzhou-Xiangtan WW 1,464.27 0.00 1,464.27
F. TA and Training 6,604.30 1,590.00 8,194.30 1. Design 4,087.97 0.00 4,087.97 2. Supervision Consultants 2,516.33 0.00 2,516.33 3. Training 0.00 1,510.00 1,510.00 4. Container Study 0.00 80.00 80.00
G. Resettlement (excluding D. 1. and D.2.) 9,750.00 0.00 9,750.00
Total Baseline Cost 81,828.90 83,901.07 165,729.96
Physical Contingency 8,182.89 8,231.15 16,414.04 Price Contingency 11,888.48 6,867.78 18,756.26
Total ProjectCosts 101,900.26 99,000.00 200,900.26 Interest during construction 18,324.41 0.00 18,324.41 Front-end Fee 0.00 1,000.00 1,000.00 Total FinancingRequired 120,224.67 100,000.00 220,224.67
- 32 - Local Foreign Total ProiectCosts By Component us V00Q US$'000 -$DQ! Goods 13,769.25 55,347.55 69,116.80 Works 70,190.72 42,062.45 112,253.17 Services 8,190.29 80.00 8,270.29 Training 0.00 1,510.00 1,510.00 Resettlement 9.750.00 _ 0.00 _ 9.750.00 Total Project Costs 101.900.26 99,0000 200,900 Interest during construction 18.324.41 0.00 18,324.41 Front-end Fee 0.00 000.00 L.oonOM Total FinancinQ Required 120.224.67 100 000.00 220.224.67
- 33 - Annex4: Cost BenefitAnalysis Summary CHINA:Third InlandWaterways
Summary of Benefits and Costs:
1. The economicrate of return of the projectis estimatedat 18.8percent, with a modifiedeconomic rate of returnof 14.5percent. The net present value is estimatedat US$98 million,using a standard discountrate of 12 percent.
Distribution of Benefits by Source
Sourceof Benefit NPV Shareof Benefits US$ million Navigation 96.4 42.8% Energy 59.1 26.3% Road transport 57.8 25.7% Agricultureand Fishing 11.7 5.2% Total 225.0 100.0% ERR 18.8% MERR 14.5%
Main Assumptions:
2. It was originallyintended that the dam at Dayuanduwould allow the upgradingof the Xiangjiang Riveras far as Chenglingjito Class III standards(permitting the navigationof four I ,000-dwtconvoys), but the flow of water over the dam wouldnot be sufficientfor this. It was then intendedthat the 19 shoals between Dayuanduand Kongzhou,with a total length of 33.7km, could be blasted and dredged,but this provedunfeasible from an engineeringperspective. Given the severeshortage of electricpower in Zhuzhou area,the constructionof a multipurposefacility including a dam, shiplockand power stationwas proposed as the most cost-effectivesolution to the two problemsto upgradethe sectionbetween Dayuandu and Kongzhouto Class III.
3. Althoughthe projectis aimedprimarily at aidingnavigation on the XiangjiangRiver, the cost of the dam and shiplockis so high that benefitsfrom improvednavigation alone are not sufficientto justifythe project. However,building the dam createdthe opportunityto providea hydro-powerstation and a new bridge acrossthe river at a small marginalcost. The hydroelectricityand the additionalbenefits of increasedagricultural and fishingoutput and lowerirrigation costs allowthe sum of the benefits to exceed costs by a marginsufficient to demonstratethe economicfeasibility of the project.
- 34 - GDP and Traffic GrowthRates
1998 to 2009 2010 to 2030 GDP in Hunan 4.0% 3.0% Elasticity of demand with respect to GDP Waterway transport 0.75 0.75 Road transport 1.25 1.25 Waterway transport growth rate 3.0% 2.25% Road transport growth rate 5.0% 3.75%
4. The rate of growth of the economy of Hunan Province, and particularly of the region in which the project is located, is the most fundamental assumption. During the 1990s, the GDP of Hunan Province increased at an average rate of almost I I percent, while that of the project hinterland increased slightly faster. The output of industrial production grew at about 20 percent in both Hunan Province and hinterland, while agricultural output grew at only about 6.6 percent in the province and 7 percent in the hinterland. The projections of waterway and road transport both assume a GDP growth rate of 4 percent until 2010 and 2.5 percent thereafter. Because Hunan Province and its hinterland already suffer from a shortage of electric power, it was not necessary to assess the impact of future GDP growth on the demand for elasticity. Because most short-term projections of GDP growth are significantly higher than those used here, the principle alternative value used in the probability analysis is 2 percent throughout the evaluation period.
5. The elasticity of inland waterway transport with respect to GDP growth was assumed to be 0.75 while that for road transport was assumed to be 1.25. It was further assumed that the markets for waterway, road and rail transport were largely independent and that investments and improvements to services in one mode would have a negligible effect on demand for services in other modes.
Navigationbenefits
6. The project will generate two types of navigational benefits. First, all vessels using the section of river upstream of the dam will be able to navigate at a higher speed, as the width and depth of the navigation channel will increase. Second, the increased dimensions of the channel will allow larger vessels and convoys to operate. There would be fewer vessels and the average size would increase less than proportionally.
7. The 96-km river section from Dayuandu to Kongzhou is a 40-m-wide Class V channel with a maximum vessel size of 300 dwt. The next 24-km section from Kongzhou to Zhuzhou is a 90-m-wide Class III - (3) channel allowing for convoys of up to four 1,000-dwt vessels, but the 37-km section from Zhuzhou to Xiangtan is a 60-m-wide Class III - (4) channel allowing only two 1,000-dwt convoys. The channel from Xiangtan to the confluence of the Xiangjiang and Yangtze rivers is Class III - (3), with a 90-m width allowing the passage of convoys of up to four 1,000-dwt barges. Both the river sections upstream from Dayuandu to Hengyang and downstream from Xiangtan to Chenglingji allow convoys of up to four 1,000-dwt barges to operate. So the section of the river between Hengyang to Chenglingji, and particularly the section between Dayuandu and Kongzhou, creates a bottleneck in the 439-km waterway. The project is intended to eliminate this bottleneck and allow efficient operation of larger vessels along the entire 439-km section of the river.
- 35 - 8. The operationof convoysup to four 1,000-dwtvessels throughout this 439-kmlength of waterway will not only reduce convoy operating costs, but will also make it possible to reduce the fleet size, as the operationof largerconvoys will allow a higherratio of barges to poweredvessels. The benefits will extend beyond Chenglingji, because the Yangtze River allows for convoys of up to twelve 2,000-dwt vessels, as well as single vessels of up to 5,000 dwt.
9. Only major freight flows over relatively long distances between ports with adequate berthing facilities will be able to take advantage of the capacity for larger convoys. Approximately 30 percent of currentfreight tonnage passing throughthe site of the proposeddam and shiplockmeets these conditions. Althoughmore freightflows willbe able to take advantageof the increasedcapacity for largervessels betweenZhuzhou and Xiangtan,about half the freightthat passesthe site of the proposeddam and shiplock will continue to be transported in vessels of less than 120 dwt and will benefit from neither the capacity for larger vessels nor the increase in maximum speed.
Characteristics of Sections of the Xiangjiang River
Length Class Width Maximum Section of River kms Meters Convoy Hengyang to Dayuandu 62 Class III - (3) 90 4 x 1000 dwt Dayuanduto Kongzhou 96 Class V 40 300 dwt Kongzhou to Zhuzhou 24 Class III - (3) 90 4 x 1000 dwt
Zhuzhou to Xiangtan 37 Class III - (4) 60 2 x 1000 dwt Xiangtanto Chenglingji 220 Class III - (3) 90 4 x 1000 dwt Total 439
Freight volume
10. In 1998 about 5.21 million tons of freight were transported on the section of the Xiangjiang River betweenHengyang and Zhuzhou,with about3 milliontons passing the dam and shiplocksite at Kongzhou. This traffic is expectedto grow by about 4 percent per year until 2010, and then by about 3.5 percentper year until the end of the evaluationperiod in 2030, by which time it will have reachedabout 10.4million tons. The averagetrip length for freightthat would benefitfrom the increasein vessel sizeis about236 km.
Reduction in transit time
11. The reduction in transit time with the project would be about 2.45 hours, taking into account an average lock time of about 45 minutes, and an increase in vessel operating speed from 8.6 km/hr to 10.5 km/hr. For the average trip distance, the without-project transit time would be about 33.2 hours. The with-project reduction in transit time represents about 7 percent of the without-project transit time.
Vesselfleet
12. More than 65 percent of freight passing Kongzhou currently is transported in vessels of less than 100 dwt. This percentage is expected to decrease to about 50 percent by 2020 whether or not the project is completed. Limitations on vessel size now result in 25 percent of freight being transported in vessels of between 100 dwt and 300 dwt, and 10 percent in convoys of four 300-dwt vessels. With the project, about
- 36 - 13 percent of freight would be transported in convoys of four 1,000-dwt vessels, and a further 10 percent in convoys of two 1,000-dwt vessels. Vessels of between 100 dwt and 300 dwt would transport the remaining 25 percent of freight. It is expected that the average vessel size, presently about 175 dwt tons, would increase to about 453 dwt by 2030 without the project, but to about 845 dwt with the project.
Operating and capital costs
13. The changes in the vessel fleet would reduce the average operating cost from the equivalent of about US$0.074 (US 7.4 cents) per ton-km to about US$0.064 (US 6.4 cents) per ton-kin, a reduction of about 13 percent. Furthermore, because larger vessels have a lower unit capital cost than smaller vessels, and because to transport a given volume of freight fewer vessels will be needed with the project than without the project, costs will decline even more. With the project, average vessel size will almost double by 2030. The number of vessels will decline in proportion to the increase in vessel size, and replacement costs will decline to about 37 percent of what they would be without the project. The savings in vessel capital cost represents about 20 percent of the total of navigation benefits.
Energy savings
14. The hydro-power station that is part of the project will have a capacity of 140 MW and a net output of about 591 million kwh, taking into account efficiency and transmission losses and the impact of periods of a reduced head of water in the reservoir. A coal-fired power station of about 70 MW would produce about the same net output, but the output would be more evenly distributed throughout the year. The benefit of the hydro-power station is estimated by calculating the avoided capital and operating costs of a coal-fired power station of this size. Although the calculations are not necessary for the overall economic evaluation of the project, the hydro-power station's share of the project cost amounts to about US$127 million. Using standard unit costs, a coal-fired station would cost about USS42 million. However, the operating cost per kwh of the hydro-station will be only about US 0.2 cents compared to US 2.2 cents for the coal-fired station (both excluding capital costs). About 80 percent of the cost of the coal-fired station would represent the cost of the coal itself.
Comparison of Hydro- and Coal-Fired Power Stations
Units Hydro-power Coal-fired Station Station Capacity MW 140 95 Investment cost US$ million US$127 million US$42 million Operating Hours/year 7,200 hours/year Gross output kwh 622 million 643 rnillion Net output kwh 591 mnillion 591 million Unit cost US cents/kwh 0.2 2.2
Road transport savings
15. Road traffic that crosses the Xiangjiang River in the vicinity of Zhuzhou must detour about 33 kms to Xiangtan or use one of two ferries. At present, about 550 vehicles cross on the ferries each day. These and an estimated additional 800 vehicles per day that use the bridge at Xiangtan would use a bridge built at Kongzhou. At the projected annual growth rates of 5 percent for the next ten years and 4 percent thereafter,
- 37 - traffic crossingthe bridgewill reach about 5,300 medium-truckequivalents per day by 2030. Savingabout 33 km in distanceand about 1.2 hours in travel time will provideseveral benefits, including reduced vehicle operatingcosts, a smallertruck fleet, and slightlyreduced value of freightin transit.There would be savings in operatingthe ferriesand additionalsavings in accidentcosts, but these have not been valued. These benefitswould be offsetby the costs to improvethe accessroads to the dam site and to build a new road across the dam. The 14.1km of accessroads will be built to a Class III standard,while the new road acrossthe dam itself will be built to a Class II standard.
Agriculturaland fishingbenefits
16. The costs of irrigationusing waters of the XiangjiangRiver will decline as the waterlevel rises, bringingabout an increaseof 290 ha in the area of irrigatedland on the left of the river and 280 ha on the right bank.This additionalirrigated land could be used for rice productionat a net value of about 13,860 yuan/ha,and a further 530 ha on the right bank could be convertedto orchards.The surfacearea available to fishingwill increaseby about 200 ha, bringingthe overallannual yield from increasedagriculture and fishing activitiesto about 28 million yuan.
Sensitivityanalysis / Switchingvalues of criticalitems:
17. Becausethere are severalsources of benefitsof the project,the economicevaluation is susceptible to a largerthan usualnumber of assumptions.The most importantwere includedin the followingtable in a compoundprobability evaluation using a Monte Carlo simulationmodel (CrystalBall).
- 38 - Range of Values of Principal Variables
Variable Low value Median value High value Type of distribution
GDP growth rate in Hunan 2% reducing 4% reducing to 5% reducing to Nonnal to 3% after 3% after 2010 4% after 2010 2010 Elasticity of waterway 0.50 0.75 1.00 Nonnal transport with respect to GDP 2
Elasticity of road transport 1.00 1.25 1.50 Normal with respect to GDP
Necessary output of 453 m 591 m kw/hr 700 m kw hr Normal electricity to satisfy demand kw hr in 2005
Cost of an equivalent 90 US$36.9 m US$42.6 m US$57.6 m Lognornal MW coal fired power station
Unit operating cost of US 1.5 cents US 0.02 cents US 0.03 cents Nornal producing hydro-power kw/hr kw/hr kw/hr
Unit cost of producing US 1.5 cents US 2.2 cents US 2.5 cents Normal coal-fired power station knm/hr km/hr kw/hr
Average vessel size with 700 dwt 845 dwt 925 dwt Negative project ' exponential
Reduction in ship operating 5% 7% 10% Normal cost with project
Road traffic on bridge in 3,000 MTE 4,700 MTE 6,000 MTE Negative 2030 exponential
FeasibilityStudy, Report, Hunan, August 2000, based on submissionto Tenth Five-YearPlan. The averageGDP growth rate for the last ten years has been in excess of 8%. An analysisof waterway ton-km and GDP at a nationallevel over the last ten years indicates an elasticityof about 0.8. Most estimatesf the GDP elasticityof road freightin China, as in most developingeconomies, are excessof 1.2. FeasibilityStudy Report, Hunan, August 2000. World Bank estimatesbased on assumedreplacement rate of 7% of the fleet each year and implementationof scheme to financepurchase of larger vessels.
- 39 - 18. The results of this evaluation show (Figure 1) a wider than usual distribution of benefits because of the relatively small impact of each of a large number of variables. The figure also shows that there is a negligible probability that the net present value will be less than Y400 million or more than Y I billion.
Figure 1: Frequency Distribution of Net Present Value of Project
Forecast:net presentvalue 1,000Trials FrequencyChart I Outlier .031- 31 P R F 0 .023...... _.._.._. l .. .23.25 R B E AQ
I B ...... 7 NC -1.75 T y .008 l* ll*l *l|ill | !77
.000 $400.00 $575.00 $750.00 $925.00 $1,100.00
19. Although the number of assumptions is larger than for a project with a single source of benefits, this also makes the outcome of the project more robust against a change in any one of the assumptions or benefit sources. For example, whereas the benefits of a coal fired power station would be highly sensitive to the price of coal, as the power output of a multipurpose dam only represents about a 26% of the benefits, the sensitivity to coal price is much less (and in this case in the opposite direction, since an increase in the price of coal would increase the benefits rather than reduce them). Similarly, the benefits of a highway projectwould be highlysensitive to assumptionsabout changes in vehicleoperating costs, but in this case, the benefitsof the road bridgealso representonly 26% of the total,so the impactof the assumptionof level of vehicle operatingcots is much less. This particularproject is especiallyrobust in front of assunptions relatingto any particularbenefit source,since even if any one of the principalsources producedzero benefits,the others would still contributesufficient to make the projecteconomically viable. So the switchingvalue of most variablesin zero. An exceptionis the constructioncost, and this could increaseby 75% withoutproducing an unacceptablerate of return.
ERR and MERRif benefit Sourceof Benefit from this source reducedto zero Navigation 12.0% 12.0% Energy 14.4% 13.0% Roadbridge 14.7% 13.1% Agricultureand fishing 17.9% 14.2%
- 40 - 20. However,all the benefits exceptthose fromthe road bridgeare susceptibleto a reductionin the flow of waterin the river. This would reducethe amountof energy that could be produced,restruct navigationdownstream of the dam and reduce the volume of wateravailable for irrigationand fishing.The flow of water is a particularlysensitive issue, as it is the lack of water flowingover the upstreamdam at Dayuanduthat mrakesit necessaryto build this dam at Zhuzhou.For the overallbenefits of the projectto reduceto below 12%,the volume of water passing downstreamfrom Dayuanduwould have to be just 43% or less than that now projected.This is consideredto be extremelyunlikely.
-41 - Annex 5: Financial Summary CHINA: Third Inland Waterways Preface
1. The financial evaluation of the project is comprised of two parts. Part I is the overall financial evaluation of HXNCDC, and Part II is the financial evaluation of the proposed project, including the sensitivity analysis and probabilistic risk analysis. Except for the World Bank loan, HX-NCDC does not have any outstanding long-term debt. To measure the opportunity cost of capital for the local grants, an overall average of 5 percent is applied. The financial cost of the project is calculated on the basis of the weighted average cost of the various sources of funds. The weighted average financial cost of the capital is estimated to be 5.9 percent (45.4 percent from the Bank at 7 percent and 54.6 percent from local grants at 5 percent).
PART I: FINANCIAL EVALUATION OF HXNCDC
2. HXNCDC was established in 1994. Invested by HPCD, this state-owned company was formed for the construction and operation of the Dayuandu dam under the IWWTIproject. It is the sole owner of both the Dayuandu facilities and the Zhuzhou facilities (for the proposed project). The financial evaluation will focus on the consolidated financial capacity of the company. The main financial revenue of the company is the income from power sales, and power sales price is strictly regulated by the government.
3. The construction of the Dayuandu dam is nearly completed. The trial operation started in 1999 and the dam was fully operational in 2000. The major operational features of the company can be summarized below:
(a) A financially independent company. During the construction period, MOC and HPCD will provide the financial grants to HXNCDC. After the project is completed, neither MOC nor HPCD will provide any funds for the company's daily operations. The company will pay all its operating costs, including its financial obligations, i.e., repayment of interest and principal of the loans.
(b) Shiplock operations. HPCD has decided not to collect shiplock fee from the project.
(c) Delivery network. The company does not have its own power delivery network. It must sell power to the provincial power company and use that company's delivery network.
(d) Power sales contract. Under the supervision of the provincial government, a power sales contract, including a formula to determrinethe power price, was signed between HXNCDC and the provincial power company. The power sales price will be reviewed every year.
FinancialObjective
4. HPCD advised that the main purpose of operating revenue will be to repay the Bank loan and cover operating and non-operating expenses and routine and major maintenance instead of to maximize the financial rate of return on the investment. Currently, the contracted year-round power sales price is YO.348 /kwh. It is assumed that the power sales price will increase once for each of the five years and grow 10 percent for the first five years (or 1.9 percent per year), and 15 percent (or 2.8 percent per year) for the subsequent five years.
- 42 - Past and PresentFinancial Performance
5. HXNCDC, in its present configuration, has a very short period of business practice (less than two years of full operational experience), and no single set of financial statements fully presents historical results on a basis comparable with current and projected future results. For this purpose, a pro-forma consolidation has been made with data extracted from the limited past financial statements. The salient points of HXNCDC's results for 1999-2000 appear in the following table.
HXNCDCIncome Statement 1999 2000 Power sales (Gwh) 189.0 380.0 Total operating revenue(Ymillion) 31.56 119.09 Operating costs,taxes and expenses(Y million) 33.65 115.47 Net cash surplus(Y million) (2.09) 3.62 Working ratio (%) 6.9 6.7
6. The overallfinancial performance of HXNCDCin 2000, the first full year of operations,is good. Net cash surplus (or net profit after tax) improved greatly from 1999, the trial period. The working ratio (operational efficiency of the company) is in a very comfortable range of 6.7 percent. The depreciation reserve (Y 72.0 million) is more than 10 times the total working cost (Y 6.78 million), which generates a strong internal cash flow. The return on average net fixed assets (the profitability of the company) was low (0.2 percent), mainly because the project investment is also included in the construction of the shiplock facilities. HXNCDC will have to start repaying the Bank loan for the IWW1 project in 2001. These financial obligations will affect the company's income statement, which may produce negative figures between 2002 and 2005, although the amount is relatively small (in average, under 3 percent of total revenue) (Table 1: Incorme Statement).
7. The current low profit margin will not affect the daily operations of the company. This is because the large sum of the depreciation reserve will provide sufficient funds for the company. However, the low cash reserve in 1999 will affect the current ratio (the liquidity of the company) in 2000. In addition, because of borrowing from the Bank, the self-financing ratio will not be sound, particularly during the construction period and early operating years of the Zhuzhou facilities. The pressure of the self-financing ratio of the company is expected to be fully relieved after 2006 (Table 2: Sources and Applications of Funds).
8. Except for the current ratio in 2000, the financial indicators of HXNCDC are sound. The shortage of cash in 2000 will affect the current ratio in that year, which was estimated to be 0.9 (to avoid short-term solvency problems, the current ratio should be more than 1.0). The strong internal cash generation from the depreciation reserve will be able to limnitthe shortage of cash during 2000 only. The financial leverage of the company, debt/ (debt plus equity) ratio,is in a very comfortable range because of the large amount of equity. The balance sheet, summarized for 1999 and 2000, is presented in Table 3.
- 43 - HXNCDC Balance Sheet (million Yuan) 1999 2000 Assets: Fixed assets / a 1,629.00 1,901.43 Current assets 9.15 40.10 Other assets -- -- Total 1,638.15 1941.53 Equity 895.09 1,149.86 Long-term debts 740.02 748.7 Current liabilities 3.04 42.97 Other liabilities -- -- Total 1,638.15 1941.53 Current ratio 3.0 0.9 Debt/ (debt +-equity) rafio 45.13 39.4 /_a: Net value.
Future Financial Performance
9. The power market in the project area has two special characteristics. First is the steady market demandfor electricity. Zhuzhou city (the project area) is a heavy industrial center. About 70 percent of local electricity is imported from outside of Zhuzhou city. Even with the imported electricity, in 2000, supply met only about 65 percent of demand. The shortage of electricity in Zhuzhou city indicates a strong demand for electricity. Second is power sales. The government of Zhuzhou city has released an official document to the Bank expressing its intention to purchase all the electricity generated from the project.
10. Operating practices of the Dayuandu facilities allow the operating costs of HXNCDC to be categorized in the following way: working cost [(a) wage and benefits, (b) fuel and power, (c) material and equipment, (d) maintenance, and (e) others)], and operating cost (working cost plus depreciation). All other expenses, such as taxes, administration, and interest payments on the Bank loan, are included in the calculation of the profitability of HXNCDC. The major financial assumptions are in Table 4.
11. In 2001, HXNCDC will receive its full operational revenue from the IWWI project. With the completion of the proposed project (Zhuzhou) in 2007, HXNCDC's revenue will double. The proposed project is scheduled to be put into trial operation in 2005 and in full operation in 2007.
12. The large amount of government grants (about 59 percent in total average, of which 63 percent for Dayuandu and 55 percent for Zhuzhou) will generate a large supply of equity for the company. The relatively low liabilities combined with higher depreciation reserve cause the debt/ (debt plus equity) ratio and working ratio to be in a healthy range during construction as well as operating periods of the company. It is estimated that from 2000 through 2010, the debt/ (debt plus equity) ratio will be in the range of 33 to 53 percent and the working ratio from 7 to 15 percent.
- 44 - PART II: THE FINANCIALEVALUATION OF THE PROJECT
FinancialInternal Rate of Return(FIRR)
13. The calculationof the FIRR focuses on the Zhuzhoufacilities (the project)only, and not on the entire HXNCDC.The low profit marginand the low power price escalationassumptions, which are based on the government'sstrategy, may not generatemuch financialdifficulty in the daily operationsof HXNCDC,although it will producea large financialimpact on the FIRR. The FIRR of the project is estimatedat 6.8 percent,as summarizedbelow:
FIRR and Net PresentValue FIRR(in %) 6.8 NetPresent Value (Y million, 5.9%) 149.1
SensitivityAnalysis
14. The sensitivityanalysis tested the differentscenarios on the bases of the changesin somemajor parameters.HXNCDC does not plan to collecta bridge toll or shiplockfee from users, the but their impact on the financialevaluation of the projectis minimalin any case. For the purposesof the sensitivity analysis,the bridgetoll is assumedto be 10 yuan/MTE(based on 75 percentof the total vehicle operating cost savings)and the shiplockfee is assumedto be 0.5 yuan/ton(based on the currentshiplock fee in Hunan province).
15. The principalendogenous and exogenousparameters that could affectthe project's financialresults are: power salesprice, working costs,total capitalcost, bridgetoll, shiplockfee and delay of the opening year by one year. The results show that: (a) an increasein total workingcosts has the least effecton the financialevaluation; (b) collectionof bridgetoll and shiplockfee also has littleeffect on the project(if they were collected,the FIRR would increaseby only 0.4 percent); and (c) a project cost overrunand/or a delay in openingthe facilitiesby one year could affectthe financialresults the most. The financialresult sunimaryby differentscenarios for 2007 is shownin the followingtable.
FINANCIALSENSITIVITY ANALYSIS SUMMARY (in %) Base Powersales Working Total Collect Collect Combine Delay case price costs costs bridge ship lock (a) and one (-15%) (+15%) (+15%) toll (a) fee (b) (b) year FIRR 6.8 5.9 6.6 5.3 7.1 6.9 7.2 5.3 Profitability: Retum on ANFA /1 2.3 0.9 2.1 1.7 2.6 2.4 2.7 0.6 Workingratio 12.6 14.8 14.5 12.6 12.3 12.5 12.1 12.9 Operating ratio 38.3 45.0 40.2 42.1 37.2 37.8 36.8 44.9 Liquidity: Currentratio 9.7 9.3 9.4 9.8 10.0 9.8 10.1 3.9 Leverage: Debt service coverage ratio 1.46 1.27 1.44 1.48 1.50 1.47 1.50 1.24 Debt! (debt+ equity) ratio 51.2 52.6 51.4 52.4 50.8 51.0 50.6 553 I_1: Average net fixed assets.
- 45 - Project Risks
16. The sensitivity test shows that a project cost overrun and/or delay in opening the facilities by one year will have a large financial impact on the project. Based on the experiences learned from the IWWI project, it is expected that the risk due to the delay and cost overrun to the proposed project, which is similar to the first one, is negligible. In addition to the sensitivity analysis for each factor, a Monte Carlo probability risk analysis was carried out to estimate the degree of uncertainty.
Probabilistic Risk Analysis
17. To determine the degree of uncertainty for the project, a probabilistic risk analysis using Monte Carlo techniques was carried out. In a Monte Carlo analysis, each uncertainty factor is allowed to vary at random between set limits and all uncertainty factors are allowed to change simultaneously. Monte Carlo simulation provides probability distributions of the potential outcomes of decisions. By analyzing these distributions, we can assess the risk associated with making various decisions (or probabilistic risk analysis). The product of the analysis is a judgment on the possible range of the decision variable, and on the likelihood of each value within this range.
18. For the proposed project, six uncertain factors that may affect the result of financial evaluation have been identified: (a) power generation, (b) power sales price, (c) total working costs, (d) power sales price escalation, (e) capital investment, and (f) delay in opening the facilities by one year. The result of financial probabilistic analysis reveals that the most likely FIRR for the project is 6.4 percent, while the worst and the best FIRR are 5.8 percent and 7.2 percent, respectively. The details of the FIRR and NPV are in Table 5 and summarized as follows:
Summary of Financial Probabilistic Analysis Range of FIRR & NPV Most Likely FRR &NPV Std. Error of the Mean FIRR (in %) 5.8% - 7.2% 6.4% 0.0% NPV (5.9%, Y million) - 23.2 - 233.0 94.9 7.6
Financial Performance Indicators
19. To ensure that the project is financially successful, an assurance was obtained from HXNCDC that beginning in June 2002, HXNCDC will prepare annually a rolling five-year financial plan that will include the projected revenue and capital expenditure costs and discuss the plan with the Bank.
20. The financial performnanceindicators are: operating ratio, self-financing ratio and debt service coverage ratio. The Bank will closely monitor these financial performance indicators during project supervision. A variance of less than plus or minus 15 percent will be considered acceptable. HXNCDC will be required to improve its financial performance in the following year by increasing tariffs or reducing costs or capital expenditures if the selected targets (three indicators) are not achieved.
- 46 - FinancialPerformance Indicators (in %) Workine Ratio (%) Self-financine Ratio Debt Service Coveraee Ratio 2000 6.7 0.17 -- 2001 10.2 0.28 1.56 2002 11.2 0.74 1.39 2003 11.8 1.00 1.38 2004 12.4 0.15 1.37 2005 13.5 0.29 1.84 2006 12.3 0.85 2.96 2007 12.8 1.00 1.45 2008 13.4 1.00 1.43 2009 14.1 1.00 1.41 2010 14.8 1.00 1.39 Notes: Working ratio = Total working costs/(Operating revenue - Business taxes) Self-financingratio = Averagethe last three years' total investments/(Netprofit + Depreciation) Debt servicecoverage ratio = (Net profit + Depreciation+ Interest + Foreign exchange risk) / (Principal+ Interest + Foreign exchange risk)
- 47 - Table 1: Income Statement (Y million, year ending December 31)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 PowerGeneration (Gwh) 193 414 560 560 560 560 752.15 1072.4 1200.5 1200.5 1200.5 1200.5 Power Sales(Gwh) 189.0 380.0 500.0 500.0 500.0 500.0 678.7 976.5 1095.6 1095.6 1095.6 1095.6 OperatingRevenue 31.56 119.09 174.00 174.00 174.00 174.00 236.18 373.90 419.50 419.50 419.50 419.50
Business Taxes /1 Value-addedtax 3.90 16.02 27.84 27.84 27.84 27.84 37.79 59.82 67.12 67.12 67.12 67.12 City constructiontax 0.19 0.80 1.39 1.39 1.39 1.39 1.89 2.99 3.35 3.35 3.35 3.35 Educationlevy 0.12 0.48 0.84 0.84 0.84 0.84 1.14 1.80 2.01 2.01 2.01 2.01 Total 4.21 17.30 30.07 30.07 30.07 30.07 40.82 64.61 72.48 72.48 72.48 72.48
Net Sales 27.35 101.79 143.93 143.93 143.93 143.93 195.36 309.29 347.02 347.02 347.02 347.02 Operating Costs: Salaries,wages and benefits 0.31 0.84 1.62 1.70 1.78 1.87 3.65 3.83 4.02 4.22 4.43 4.65 Fuelandpower 0.26 0.60 1.10 1.16 1.22 1.28 1.64 2.25 2.58 2.71 2.85 2.99 Materialand equipment 1.18 1.60 5.51 6.18 6.48 6.81 9.07 12.89 14.94 15.70 16.48 17.31 Maintenance 0.13 1.80 4.41 4.90 5.15 5.40 8.70 14.40 17.35 18.21 19.12 20.07 Others - 1.94 2.10 2.21 2.32 2.44 3.29 4.73 5.50 5.77 6.06 6.37 1.88 6.78 14.74 16.15 16.95 17.80 26.35 38.10 44.39 46.61 48.94 51.39 Total working costs______Depreciation 27.00 72.00 72.00 72.00 72.00 72.00 117.54 120.26 120,41 120.57 120.74 120.92 Totaloperating costs 28.88 78.78 86.74 88.15 88.95 89.80 143.89 158.36 164.80 167.18 169.68 172.31 OperatingProfit: (1.53) 23.01 57.19 55.78 54.98 54.13 51,47 150.93 182.22 179.S4 177.34 174.71 Administrativeexpenses 0.56 0.96 1.01 1.06 1.11 1.17 1.98 2.08 2.18 2.29 2.40 2.52 Financialcharges - 18.43 51.83 49.72 47.47 45.07 42.49 39.73 94.29 88.79 82.89 76.58 Foreign exchange loss (gain) - - - 9.71 9.71 9.71 9.71 9.71 21.35 21.35 21.34 21.35 Non-operating expenses (net) ------ProfitBeforeTaxes (2.09) 3.62 4.35 (4.71) (3.31) (1.82) (2.71) 99.41 64.40 67.41 70.71 74.26 Incometax /2 ------21.25 22.25 23.34 24.50 Other taxes - -
NetProfitAfterTax (2.09) 3.62 4.35 (4.71) (3.31) (1.82) (2.71) 99.41 43.15 45.16 47.37 49.76 Return on Average Net Fixed Assets -0.1% 0.2% 0.2% -0.2% -0.2% -0.1% -0.1% 2.9% 1.3% 1.3% 1.4% 1.5% WorkingRatio 6.9% 6.7% 10.2% 11.2% 11.8% 12.4% 13.5% 12.3% 12.8% 13.4% 14.1% 14.8% OperatingRstio 105.6% 77.4% 60.3% 61.2% 61.8% 62.4% 73.7% 51.2% 47.5% 48.2% 48.9% 49.7%
/_I: Tax rates: Value- Added Tax (VAT)= 16% of total revenue, city construction tax = 5% of VAT and education levy = 3% of VAT. /_2: Income tax rates = Starting 2007, 33% of profit before taxes.
- 48 - Table 2: Sources And Applications of Funds (Y million, year ending December 31)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: Net profits - - - - (2.09) 3.62 4.35 (4.71) (3,31) (1.82) (2.71) 99.41 43.15 45.16 47.37 49.76 Depreciation - - - - 27.00 72.00 72.00 72.00 72.00 72.00 117.54 120.26 120.41 120.57 120.74 120.92 Government contribution 140.20 236.20 220.10 339.54 201.99 96.20 143.46 266.94 274.48 175.14 115.21 59.95 - - - - Borrowing: - IBRD - 89.50 92.03 300.87 257,62 8.68 45.23 139.68 224.59 276.79 100.72 42.99 -Local Others ------Subtotal 140.20 325.70 312.13 640.41 48452 180.5 345.04 573.92 667.77 622.13 350.75 322.60 163.56 165.73 168.11 170.68 Applications: Capital expenditures 104.67 301.78 359.68 587.13 557.29 189.48 232.79 409.23 501.81 454.80 218.93 106.10 6.40 6.72 7.04 7.40 Other expenditures ------Loan repayments:- IBRD ------30.47 31.58 33.83 36.23 38.81 41.57 77.26 82.76 88.66 94.97 - Local ------Change in working capital 6.93 (57.73) 7.32 34.46 123 5.28 3.57 6.18 1.04 1.11 2.12 5.13 2.21 1.62 1.72 1.80
Subtotal 111.60 244.05 367.00 621.59 558.52 194.76 266.83 446.99 536.68 492.14 259.86 152.80 8587 91.10 97.42 104.17
Net Funds Flow 28.60 81.65 (54.871 18.82 (74.00) (14.26) 78 21 126.94 131.10 129.99 90.89 169.80 77.69 74.63 70.69 66.51 Opening Balance - 28.60 110.25 55.38 74.20 0.20 (14.06) 64.15 191.09 322.18 452.17 54306 712.86 790.55 865.18 93587 Closing Balance 28.60 110.25 55.38 74.20 0.20 (14.06) 64.15 191.09 322.18 452.17 543.06 712.86 790.55 865.18 935.87 1002.38 Debt Service Coverage Ratio ------1.56 1.39 1.38 1.37 1.84 2.96 1.45 1.43 1.41 1.39 Self financing Ratio ------0.05 0.17 0.28 0.74 1.00 0.15 0.29 0.85 1.0 1.00 1.00 1.00
- 49 - Table 3: Balance Sheet (Y million, year ending December 31)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Assets: Fixed Assets At cost [656.00 2000.43 2066.43 2069.50 2072.72 2076.10 3459.59 3545.66 3554.26 3563.27 3572.73 3582.67 Less: depreciation 27.00 99.00 171.00 243.00 315.00 387.00 504.54 624.80 745.21 865.78 986.52 1107.44
Subtotal 1629.00 1901.43 1895.43 1826.50 1757.72 1689.10 2955.05 2920.86 2809.05 2697.49 2586.21 2475.23
Current Assets Cash 0.20 (14.06) 64.15 191.09 322.18 452.17 543.06 712.86 790.55 865.18 935.87 1002.38 Inventory 0.00 0.00 2.76 3.09 3.24 3.41 4.54 6.45 7.47 7.85 8.25 8.66 Receivables 8.95 54.16 20.00 26.68 28.01 29.41 37.11 54.85 62.63 65.74 69.03 72.51
Subtotal 9.15 40.10 86.91 220.86 353.43 484.99 584.71 774.16 860.65 938.77 1013.15 1083.55
Other assets ------13.34 14.37 14.61 14.84 15.05 15.25
TotalAssets 1638.15194L.53 198234 204736 2111.15 217J4 .2 37039 37.3. 3631Ml 3614.41 3574.03
Liabilities & Equity
Equity-Statefunds 895.09 1149.88 1176.13 1171.88 1169.05 1167.74 1771.53 1911.23 1956.52 2004.14 2054.07 2106.50
L-Tdebts 740.02 748.70 763.46 871.56 1062.32 1302.88 1364.79 1366.21 1288.95 1206.19 1117.53 1022.56
Current liabilities 3.04 42.97 8.00 8.83 9.27 9.73 16.44 30.96 37.55 39.42 41.39 43.48
Other liabilities ------0.31 0.96 1.26 1.32 1.39 1.46
Total Liabilities & Equity 163815 194851 UU2.34 20473.6 211115 2174.09 3 9 3s04.1 36Lo 3614.41 3574.03
Current Ratio 3.0 0.9 10.9 25.0 38.1 49.8 35.6 25.0 22.9 23.8 24.5 24.9 Debt/(debt +equity) Ratio 45.3 39.4 39.4 42.7 47.6 52.7 43.5 41.7 39.7 37.6 35.2 32.7
/_-: Fixed assets: Including the construction in processing;
- 50 - Table 4: Major Financial Assumptions
1. Power Generation and Sales As in income statement. 2. Power Sales Price: 0.348 Y Ikwh with an increase once every 5 years; The first five years is 10% and 15% thereafter. 3. Toll and fee: Bridge toll Nil Ship lock fee Nil 4. Business Taxes: Value-added tax (VAT) 16 % of operation revenue. City construction tax 5 % of VAT. Education levy 3 % of VAT. 5. Operating Costs: 5 % increase per year. Salaries, wages and benefits Total 120 persons, 10,000 Y/person/year and 40% for benefits. Fuel and power 0.2 % of total equipment cost. Material and equipment 0.01 Y/kwh/year. Maintenance 0.55 % of the project investment. Others 0.0038 Y/kwh/year. 6. Depreciation 30 years straight- line method. 7. Administrative Expenses 62.3% of the salaries. 8. Income Tax Starting 2007, 33% of profit before taxes. 9. Capital Expenditures (after completion): Annual 0.004 Y /Kwh/year plus 0.33% of salary. Medium Once every 5 years and 2 times higher then the normal year. Major Once every 10 years and 4 times higher then the normal year. 10. Loan: -IBRD 7 % LIBOR-Based signal currency in USD loan and 20 year maturates including 5 year grace. -Domestic Nil
- 51 - Table 5: FIRR Simulation and Probabilistic Risk Analysis
Summary: Display Range is from 2.0% to 10.0% (in %) Entire Range is from 2.7% to 10.3% (in %) After 1,000 Trials, the Std. Error of the Mean is 0.0%
Statistics: Value Percentiles: Trials 1000 Mean 6.5% Percentile (in %) Median 6.4% 0% 2.7% Mode --- 10% 4.8% Standard Deviation 1.3% Low Scenario 20% 5.3% Variance 0.0% 30% 5.8% Skewness 0.05 Most Likely 40% 6.1% Kurtosis 2.61 50% 6.4% Coeff. of Variability 0.21 High Scenario 60% 6.8% Range Minimum 2.7% 70% 7.2% Range Maximum 10.3% 80% 7.6% Range Widtlh 7.6% 90% 8.3% Mean Std. Error 0.04% 100% 10.3%
Forecast: Zhuzhou Dam - FIRR (2006)
1,000 Trials Frequency Chart 2 Outliers p 029 29 R F R 0 .022 21.75 E B A B .015 ...... ------14.5 u I ~~~~~~~~~~~~~~~E L N
T Y y -000 0 2.0% 4.0% 6.0% 8.0% 10.0% (in %)
Assumptions
Power Generation Power Sales Prices Normal distribution with parameters: Normal distribution with parameters: Mean 100% Mean 100% Standard Dev. 10% Standard Dev. 10% Selected range is from -Infinity to +Infinity Selected range is fiom -Infinity to +Infinity Mean value in simulation was 100% Mean value in simulation was 100%
Total Working Cost Power Prices Growth Rate Triangular distribution with parameters: Triangular distribution with parameters: Minimum 90% Minimum 90% Likeliest 100% Likeliest 100% Maximum 110% Maximum 110% Selected range is from 90% to 110% Selected range is from 90% to 110% Mean value in simulation was 100% Mean value in simulation was 100%
Total Capital Investment Triangular distribution with parameters: Minimum 90% Likeliest 100% Maximum 110% Selected range is from 90% to 110% Mean value in simulation was 100%
- 52 - Annex 6: Procurementand DisbursementArrangements CHINA:Third Inland Waterways
Procurement
Summary of Agency's Procurement Capacity Assessment
I. A procurement capacity assessment of the project executing agency was carried out during preparation of the project, and the Procurement Capacity Assessment Report of November 2000 is in the project file. This annex summarizes the findings and assessment of the report.
2. HXNCDC will be responsible for all project-related procurement activities. HXNCDC has implemented the first Bank-financed Inland Waterways Project (Hunan component), and proven its procurement capacity by handling procurement in accordance with the Bank procurement guidelines. HXNCDC comprises about 80 staff, of which 40 staff will be allocated to the proposed project. About 10 experienced procurement staff, the same as for the IWW1 project, will be in charge of the proposed project.
3. HXNCDC has appointed China National Chemical Construction Corporation International Tendering Company (CNCCCITC) and CMC International Tendering Company for international competitive bidding (ICB) civil works and goods, respectively. They have extensive experience in carrying out ICB under Bank-financed projects as well as under other intemational financing institutions and domestically financed projects. They also are familiar with national competitive bidding on World Bank-financed projects. This procurement arrangement is also the same as in IWW1I.
4. The assessment confirmed that HXNCDC is fully capable of satisfactorily managing all procurement activities. HXNCDC staff have been involved with the IWWI project and have increased their familiarity with the Bank's requirements during the process of preparing the proposed project by selecting consultants and preparing the retroactively financed contract and other contract documents.
5. While China's domestic procurement procedures do not fully comply with the Bank's procurement guidelines, such as permitting bracketing and a merit point system for bid evaluation, GOC, Hunan Province and HXNCDC have fully committed to strictly following the Bank's guidelines. If any discrepancies arise between domestic policy and Bank guidelines, the Bank's policy and guidelines prevail. For this purpose, a supplementary letter to the Loan Agreement will be signed by Hunan Province. The letter specifies that the following procedures will be followed: (a) all invitations to prequalify or to bid shall be advertised in a newspaper of national circulation in China; (b) such advertisement shall be made in sufficient time for prospective bidders to obtain prequalification or bidding documents and prepare and submit their response; and in any event a minimum of 30 days shall be given to bidders between the date of advertisement and the deadline for submission of bids, and the advertisement and bidding documents shall specify the required form and amount of any security; (e) the time for opening of all bids shall be the same as the deadline for receipt of such bids; (f) all bids shall be opened in public; all bidders shall be afforded an opportunity to be present (either in person or through their representatives) at the time of bid opening, but bidders shall not be required to be present at the bid opening; (g) no bid may be rejected solely on the basis that the bid price falls outside any standard contract estimate, or margin or bracket of average bids established by Hunan Province; and (h) each contract shall be awarded to the lowest evaluated bidder, that is to say, the bidder who meets the appropriate standards of capacity and resources and whose bid has been determined (i) to be substantially responsive to the bidding documents and (ii) to offer the lowest evaluated
- 53 - cost. The winning bidder shall not be required, as a condition of award, to undertake responsibilities for work not stipulated in the bidding documents or otherwise to modify the bid as originally submitted.
Procurementmethods (Table A)
6. Procurement will be carried out as shown in Tables A and A3. Procurement of goods and works will be executed according to the World Bank's "Guidelines Procurement under IBRD Loans and IDA Credits" (January 1995, revised January and August 1996, September 1997 and January 1999) and the" Guidelines Selection and Employment of Consultants by World Bank Borrowers" (January 1997, revised September 1997 and January 1999) for services. Chinese Model Bidding Documents (MBD), which were standardized for local conditions by the Chinese government and the Bank on the basis of standard bidding documents, will be used for procurement under the project. All consultant assignments will follow the Standard Request for Proposals - Selection of Consultants (July 1997, revised April 1998 and July 1999). Where no MBD exists, Bank standard documents will be used. The General Procurement Notice (GPN) for the project was published in UN Development Business on March 31, 2001, issue No. 555. 7. Works (US$ 112.3million, including contingencies). Civil works contracts over US$10 million per contract will be procured through the ICB procedure. Two contracts of an aggregate estimated amount of US$67.3 million will follow ICB. Prequalification of contractors for ICB will also be required. For civil works to cost over US$ 10 million, invitation for prequalification will be advertised as Specific Procurement Notice (SPN) in the UN Development Business, in addition to the advertisement in at least one newspaper of national circulation in China. 8. Other works, including construction of access roads to the site and minor bank protection works, each contract to cost below US$10 million, will be procured through an NCB procedure acceptable to the Bank. Because these contracts will be relatively small, labor-intensive and geographically scattered, no foreign bidders are expected to be interested. However, eligible foreign bidders may participate. Four contracts with an aggregate amount of US$18.5 million will follow the NCB procedure. Works totaling US$26.4 million for channel improvement between Zhuzhou and Xiangtan.inundation protection, and other small works will be financed locally (not-Bank-Financed -- N.B.F.). 9. Equipment (US$ 69.1 million, including contingencies). Contracts for goods and equipment for over US$300,000 per contract will be procured through ICB. An estimated aggregated contract amount of US$53.6 million will be through ICB. Domestic manufacturers competing under ICB will be eligible for a margin of preference in the comparison of bids of 15 percent for goods, or the prevailing customs duties, whichever is lower. Contracts of between US$300,000 and US$100,000 per contract will be procured through NCB acceptable to the Bank. Because goods are available locally at prices below those on the intemational market, no foreign bidders are expected to be interested. However, eligible foreign bidders may participate in NCB bids. An estimated aggregate contract amount of US$0.55 million will be under NCB procedure. Other items or groups of items covering small maintenance equipment (readily available off-the-shelf goods or standard specification commodities) estimated to be under US$100,000 per contract package, with an aggregate amount not exceeding US$1.2 million (amount rounded), will be procured following national shopping procedures on the basis of comparison of price quotations solicited from at least three suppliers under the Bank Guidelines for Procurement. Transmission Lines and Installation of Bulb Turbine and Generator Units, estimated aggregate amount of US$13.8 million, will be financed locally (N.B.F.). 10. Consultants (US$ 9.78 million, including contingencies). All consultants required for technical assistance and studies, and staff training to be implemented under the project will be selected and employed under terms and conditions acceptable to the Bank according to Guidelines on the "Selection and Employment of Consultants by World Bank Borrowers" (January 1997, revised in July 1997 and January
- 54 - 1999). Details of staff training, technical assistance and studies are presented in the project files. For consultants services, the Standard Request for Proposals (July 1997, revised in April 1998 and July 1999) will be used. Under the project no consulting services estimated to be over USS100,000 are expected. Services that are estimated to cost less than the specified threshold per contract, may, with the Bank's prior agreement, be procured by Consultants' Qualification (CQ) according to paras. 3.1 and 3.7 of the guidelines. CQ procedure was proposed for training contracts and a small study for which the need for preparing and evaluating a competitive proposal is not justified. The estimated aggregate amount under CQ procedure is US$1.59 million. Consultants services totaling US$8.19 million for construction supervision, an independent panel of experts for the dam safety, and technical design will be financed locally (N.B.F.).
Table A: Project Costs by ProcurementArrangements (US$ million equivalent)
ProcurementMethod ExpenditureCategory ICB NCB Other N.B.F. Total Cost 1. Works 67.33 18.51 0.00 26.41 112.25 (33.28) (8.78) (0.00) (0.00) (42.06) 2. Goods 53.61 0.55 1.19 13.77 69.12 (53.61) (0.55) (1.19) (0.00) (55.35) 3. Services 0.00 0.00 1.59 8.19 9.78 (0.00) (0.00) (1.59) (0.00) (1.59) 4. Resettlement 0.00 0.00 0.00 9.75 9.75 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Interest during 0.00 0.00 0.00 18.32 18.32 construction (0.00) (0.00) (0.00) (0.00) (0.00) 6. Front-endfee 0.00 0.00 1.00 0.00 1.00 (0.00) (0.00) (1.00) (0.00) (1.00) Total 120.94 19.06 3.78 76.44 220.22 (86.89) (9.33) (3.78) (0.00) (100.00) Figures in parenthesisare the amountsto be financedby the BankLoan. All costs include contingencies. 2 Includes civil works and goods to be procured throughnational shopping,consulting services,services of contracted staff of the project managementoffice, training,technical assistanceservices, and incremental operating costs related to: (i) managing the project; and (ii) re-lendingproject funds to local government units.
- 55 - Table Al: ConsultantSelection Arrangements (US$ millionequivalent)
Consultant ServicesScetnM bo Expenditure QCBS QBS SFB LCS CQ WteNABF i!
A. Finns 0.00 0.00 0.00 0.00 1.59 0.00 8.19 9.78 (0.00) (° °°? (0 °°) (0.00) (1.59) (° °°' (0.°°? (1.59A B. Individuals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.nn0 .o) (0.°°! (° °°) (°0°!0 (0 oo) (0 °0) (0.00) Total 0.00 0.00 00 0.00 1.59 0.00 8.19 9.78 (0.00) (0.00) (0.00) (0.00) (1.59) (0.00' (0.00) (1.59) LL:Including contingencies
Note: QCBS = Quality- and Cost-BasedSelection QBS = Quality-basedSelection LCS = Selectionunder a Fixed Budget CQ = SelectionBased on Consultants'Qualifications Other = Selectionof individualconsultants (per Section V of ConsultantsGuidelines), CommercialPractices, etc.
N.B.F.= Not Bank-financed Figure in parenthesisare the amountsto be financed by the Bank Loan
TableA2: ProcurementSchedule for ConsultingServices
Activity &W~1dvIu!eoctien EsiiAe os cb4l
1. Overseas Training Firm CQ US$1.51 million 2001-2006
2. Container Study Firm CQ US$0.8 million 2002-2004
- 56 - Table A3: ProcurementPackage Plan (Months in parenthesis indicate the targeted timing for issuing bidding documents) Civil Works ICB 1: 1-1 Construction of Zhuzhou Shiplock (August 2001) 1-2 Construction of Zhuzhou Dam/Powerhouse (August 2001) NCB 1: Construction of Access Roads (June 2001) NCB 2: Construction of Kongzhou Bank Protection (June 2001) NCB 3: Inundation Protection at Sanmen (August 2002) NCB 4: Construction of Bridge and Access to Kongzhou Island (September 2002)
N.B.F. (not Bank-financed) Reservoir Resettlement Temporary Works Zhuzhou - Xiangtan Waterway Improvement Goods ICB 1: Bulb Turbine and Generator Units and Auxiliaries (September 2001) ICB 2: Hydraulic Hoist Equipment (March 2002) ICB 3: Dam Crest Crane (May 2002) ICB 4: Metal Structure (November 2002) 4-1 Sluice Gates 4-2 Shiplock, including mitergates and valves 4-3 Maintenance Gates for Power House, and Trash Rack ICB 5: Transformer and Switch Yard 5-1 Transforner (October 2003) 5-2 Switch Yard Equipment (October 2003) NCBI: 1-1 Roof Covers (August 2003) 1-2 Crane for trash cleaner (August 2003) 1-3 Crane for tail gates (August 2003) Shopping
Item Type of Equipment Shopping Procedure I Elevator NS 2 Plant service diesel generator NS 3 Powerhouse bridge crane32t/5t NS 4 DC Power system NS 5 Distribution boards NS 6 Pumps NS 7 Local transformer NS 8 Dry type transformer NS 9 Power cable NS 10 Control cable NS 11 Cable tray NS 12 Circuit breaker NS 13 Micro-wave telecommunication NS 14 Programmable exchanger NS 15 Carrier-wave equipment NS Total US$1,190,000 NS: National Shopping
N.B.F. (not-Bank-financed) Installation of power generation units
- 57 - Prior reviewthresholds (Table B)
11. Prior review.Prior reviewprocedures would be used for:
(a) civil works contractswith an estimatedcost of more than US$2.0million (US$85.8million);
(b) equipmentwith an estimatedcost of more than US$500,000per contract(US$54.8 million);
(c) consultingassignments for firmswith an estimatedcost of more than US$S100,000per contract (US$0 million);and
(d) consultingassignments for individualswith an estimatedcost of more than US$50,000per contract (US$0 million).
12. Prior review will apply to 100percent of the total contractvalue of works financedby the Bank and 99% of the total contractvalue of goods financedby the Bank. For contractsbelow the above-mentionedlimits, post-review procedures will be followed.The samplingratio for contractssubject to post review will be 25 percent.
Table B: Thresholdsfor ProcurementMethods and Prior Review
Contract Value Contracts Subject to Threshold Procurement Prior Review ExpenditureCategory (US$ thousands) Method (US$ millions) 1. Works >10,000 ICB 2 contracts,67.33 <10,000 NCB 4 contracts, 18.51 2. Goods >300 ICB 8 contracts,54.78 <300 NCB (for over US$500,000) <100 Shopping 3. Services >200 QCBS <100 CQ 4. Miscellaneous 5. Miscellaneous 6. Miscellaneous
Total value of contractssubject to prior review: $140.62 million
Overall ProcurementRisk Assessment
Average
Frequency of procurement supervision missions proposed: One every 6 to 8 months (includes special procurementsupervision for post-review/audits)
Thresholdsgenerally differ by country and project. Consult OD 11.04"Review of Procurement Documentation"and contact the RegionalProcurement Adviser for guidance.
- 58 - Disbursement
Allocationof loanproceeds (Table C)
Table C: Allocationof Loan Proceeds
ExpenditureCategory Amount in USSmillion FinancingPercentage Works 36.00 49 Goods 45.50 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 75% of local expenditures for other items procured locally Technical Assistance and Training 2.00 100 Unallocated 15.50
Total Project Costs 99.00 Interestduring construction 0.00 Front-endfee 1.00
Total 100.00
Table Cl: EstimatedDisbursement Schedule (US$ million)
BankFY Absolute native % P Projectsin China FY2002 July - Dec 2001 1.0 1.0 Jan - June 2002 1.5 2.5 2.5 16
FY2003 July - Dec 2002 4.0 6.5 Jan - June 2003 6.0 12.5 10 22
FY2004 July - Dec 2003 9.0 21.5 Jan - June 2004 12.0 33.5 21 22
FY2005 July - Dec 2004 13.0 46.5 Jan - June 2005 15.0 61.5 28 18
FY2006 July - Dec 2005 11.0 72.5 Jan - June 2006 10.0 82.5 21 22
FY2007 July - Dec 2006 8.0 90.5 Jan - June 2007 7.0 97.5 15
FY2008 July - Dec 2007 1.5 99.0 Jan - June 2008 1.0 100.0 2.5
- 59 - Use of statementsof expenditures(SOEs): 13. Withdrawals from the loan account will be made on the basis of SOEs for the following expenditures:
(a) civil works contracts of less than US$2.0 million;
(b) goods contracts of less than US$500,000;
(c) services provided by consulting firms with contracts of less than US$100,000;
(d) services provided by individual consultants with contracts of less than US$50,000; and
(e) all training activities.
Specialaccount:
14. Authorization, allocation and operation of the special account. To facilitate disbursements, a special account will be opened with an authorized allocation of US$5 million, the estimated average total expenditures for a four-month period.
Retroactivefinancing:
15. Retroactive financing of up to US$I 0 million may be applied to expenditures made after January 1, 2001 for the procurement of one NCB contract for access road construction, Kongzhou bank protection, Sanmen Island drainage works, consultant services and training. For these procurements, prior Bank review will be required and the relevant Bank guidelines will be followed.
- 60 - Annex 7: ProjectProcessing Schedule CHINA:Third InlandWaterways
ProjectSchedule Planned Actual Timetaken to preparethe project(months) 17 FirstBank mission (identification) 02/20/2000 02/20/2000 Appraisalmission departure 03/26/2001 03/26/2001 Negotiations 05/16/2001 05/16/2001 PlannedDate of Effectiveness 11/21/2001
Prepared by: Hunan Provincial Communication Department and Hunan Xiangjiang Navigation Construction and Development Corp. Ltd. (HXNCDC)
Preparationassistance: Japanese PHRD Fund TF025395 and TF025699
Bankstaff who worked on the projectincluded: Name Speciality Toshiro Tsutsumi Task Team Leader/Ports Engineer/Procurement Robin Carruthers Transport Economics Han-Kang Yen Financial Analysis Chaohua Zhang Social Assessment Soichiro Seki Environmental Assessment Takeshi Kikukawa Hydraulic Power (Bank Staff up to Pre-appraisal Stage) Hoi-chan Nguyen Legal Simon Bradbury Disbursement Yang Dawei Procurement Chau-Ching Shen Financial Management Zhao Jianping Power Specialist Teresita Ortega Program Assistant Barry Trembath Power Engineer/Peer Reviewer Dirk De Bruin Inland Water Transport Specialist/Peer Reviewer (Bank Staff up to PCD Stage) Marc Juhel Lead Transport Specialist/Peer Reviewer
- 61 - Annex 8: Documents in the Project File* CHINA: Third Inland Waterways
A. Project ImplementationPlan 1. Project Implementation Plan, HXNCDC, January 2001 2. Procurement Program of Goods and Works, HXNCDC, August 2000 3. Implementation Institution, HXNCDC, August 2000 4. Financial Management Program, HXNCDC, August 2000 5. Personnel Training Program, HXNCDC, August 2000
B. Bank Staff Assessments 1. Procurement Capacity Assessment Report, January 2001 2. Aide Memoire, December 19, 2000
C. Other Feasibility Studies
1. Prefeasibility Study Report (2 volumes), Hunan Provincial Communications Planning, Survey and Design Institute, July 1999 2. Feasibility Study Report (2 volumes), Hunan Provincial Communications Planning, Survey and Design Institute, August 2000
Environment
1. Environmental Action Plan, HPCD, January 2001 2. Environmental Assessment Summary, Hunan Environmental Protection Research Institute, January 2001 3. Environmental Impact Assessment, Hunan Environmental Protection Research Institute, January 2001
Resettlement
1. Resettlement Action Plan, HXNCDC, November 2000 2. Promotion on Backward Economy of Hunan Province, HXNCDC, August 2000
Terms of Reference
1. Dam Safety Panel, HXNCDC, December 2000 2. Containerization Along Xiangjiang, HXNCDC, January 2001 3. A Comprehensive Strategic Study of Navigation Development Along Xiangjiang, HXNCDC, January 2001
Dam Safety
1. Construction Supervision and Quality Assurance Plan, HXNCDC, February 2001 2. Complex Operation and Maintenance Plan, HXNCDC, February 2001 3. Security Contingency Measures, HXNCDC, February 2001
- 62 - Other
1. CalculatedUnit Cost: ZhuzhouHydropower Station and Other PowerStations in Province, HXNCDC,January 29, 2001 2. ConstructionSupervision and QualityAssurance Plan, HXNCDC,February 2001 3. ComplexOperation and MaintenancePlan, HXNCDC,February 2001 4. SecurityContingency Measures, February 2001
*Includingelectronic files
- 63 - Annex 9: Statement of Loans and Credits CHINA:Third Inland Waterways May-2001 Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Revd POs6516 2001 WATERCONSERVATION 74.00 0.00 0.00 0.00 74.00 4.60 0.00 P056596 2001 SHIJIAZHUANGURBAN TRANSPORTPROJECT 100.00 0.00 0.00 0.00 100.00 0.00 0.00 P047345 2001 CH-HUAIRIVER POLLUTION CONTROL 105.50 0.00 0.00 0.00 105.50 0.00 0.00 P045915 2001 URUMQIURB.TRANSP 100.00 0.00 0.00 0.00 100.00 3.73 0.00 P058843 2000 GUANGXIHWY Proled 200.00 0.00 0.00 0.00 192.00 13.67 0.00 P042109 2000 CH-BEIJINGENVIRONMENT 11 349.00 0.00 25.00 0.00 373.02 37.22 0.00 P058844 2000 3RD HENAN PROV HWY 150.00 0.00 0.00 0.00 142.50 -4.83 0.00 P056424 2000 TONGBAIPUMPED STCRA 320.00 0.00 0.00 0.00 320.00 15.23 0.00 P045264 2000 SMALLHLDRCATTLE DEV 93.50 0.00 0.00 0.00 83.24 21.24 0.00 P049436 2000 CN-CHONGQINGURBAN ENVIRCNMENT 200.00 0.00 0.00 0.00 200.00 7.00 0.00 P045910 2000 CH-HEBEIURBAN ENVIRONMENT 150.00 0.00 0.00 0.00 142.52 0.52 0.00 P064730 2000 YangtzeDike StrengtheningProject 210.00 0.00 0.00 0.00 198.90 26.40 0.00 P050036 1999 ANHUI PROVINCIALHWY 200.00 0.00 0.00 0.00 139.88 17.72 0.00 P051705 1999 FUJIAN II HWY 200.00 0.00 0.00 0.00 175.44 55.94 0.00 P043933 1999 CH-SICHUANURBAN ENVIRONMENT 150.00 2.00 0.00 0.00 101.90 14.77 0.00 P0s51s6 1999 ACCNTGREFORM&DEV 27.40 5.60 0.00 0.00 25.61 20.14 0.00 P049665 1999 ANNINGVALLEY AG.DEV 90.00 30.00 0.00 0.00 77.08 4.74 0.00 P041268 1999 NAT.HWY4-HUBEflHUNAN 350.00 0.00 0.00 0.00 271.10 30.77 0.00 P046051 1999 CN-HIGHEREDUC. REFORM 20.00 50.00 0.00 0.00 39.45 25.32 0.00 P046829 1999 RENEWABLEENERGY DEVELOPMENT 100.00 0.00 35.00 0.00 100.00 17.50 0.00 P046564 1999 WESTERN POVERTYRED 60.00 100.00 0.00 0.00 128.42 25.17 0.00 P051888 1999 GUANZHONGIRRIGATION 80.00 20.00 0.00 0.00 80.79 24.24 0.00 P041890 1999 LIAONINGURBTRANSP 150.00 0.00 0.00 0.00 117.48 49.98 0.00 P058308 1999 CN-PENSIONREFORM PJT 0.00 5.00 0.00 0.00 4.68 4.19 0.00 P036953 1999 CN-HEALTHIX 10.00 50.00 0.00 0.00 52.68 7.92 0.00 P057352 1999 CN-RURAL WATERSUPPLY IV 16.00 30.00 0.00 0.00 40.79 9.42 0.00 P056216 1999 LOESSPLATEAU II 100.00 50.00 0.00 0.00 119.52 40.25 0.00 P060270 1999 ENTERPRISEREFORM LN 0.00 5.00 0.00 0.00 4.80 6.22 0.00 P003653 1999 CONTAINERTRANSPORT 71.00 0.00 0.00 3.13 59.83 60.93 0.00 P042299 1999 TEC COOP CREDITIV 10.00 35.00 0.00 0.00 40.38 -2.37 0.00 P063123 1999 YANGTZEFLOOD EMERGY 40.00 40.00 0.00 0.00 10.00 8.95 7.62 P045788 1998 TRI-PROVINCIALHWY 230.00 0.00 0.00 0.00 143.19 63.43 0.00 P036414 1998 CH-GUANGXIURBAN ENVIRONMENT 72.00 20.00 0.00 0.00 83.93 32.16 0.00 P035698 1998 HUNAN POWERDEVELOP. 300.00 0.00 0.00 0.00 297.00 159.50 0.00 P036949 1998 NAT.HWY3-HUBEI 250.00 0.00 0.00 0.00 131.77 5.11 0.00 P046563 1998 TARIMBASINII 90.00 60.00 0.00 0.00 99.27 43.04 0.00 P051735 1998 E. CHINAIJIANGSUPWR 250.00 0.00 0.00 0.00 193.59 184.73 127.30 P003591 1998 STATE FARMSCOMMERCI 150.00 0.00 0.00 80.91 8.45 40.63 2.61 P003566 1998 CN-BASICHEALIH (HLTH8) 0.00 85.00 0.00 0.00 60.88 18.62 0.00 P037859 1998 EGY CONSERVATIONPRO 0.00 0.00 22.00 0.00 10.99 18.93 0.00 P040185 1998 CH-SHANDONGENVIRONMENT 95.00 0.00 0.00 0.00 50.57 32.07 0.00 P003539 1998 SUSTCOASTRESDEV 100.00 0.00 0.00 0.00 67.95 22.13 0.00 P049700 1998 IAIL-2 300.00 0.00 0.00 0.00 160.14 34.40 0.00 P003614 1998 GUANGZ.CITYCRT.TRP 200.00 0.00 0.00 0.00 130.81 105.43 0.00 P046952 1998 FOREST.DEV. POOR AR 100.00 100.00 o.0o 0.00 142.21 -2.91 47.84 P003619 1998 2ND INLANDWATERWAYS 123.00 0.00 0.00 0.00 107.50 60.50 0.00 P003606 1998 ENERGYCONSERVATON 63.00 0.00 22.00 0.00 57.08 10.08 0.00 P038988 1997 HEILONGJIANGADP 120.00 0.00 0.00 0.00 45.83 26.13 0.00 P003654 1997 HUNAN/GUANGHWY2-NH2 400.00 0.00 0.00 0.00 169.60 109.60 0.00 P036405 1997 WANJIAZHAIWATER TRA 400.00 0.00 0.00 75.00 103.69 79.36 4.36 P034081 1997 XIAOLANGDIMULTI. II 430.00 0.00 0.00 0.00 158.23 165.22 0.00 P035693 1997 FUEL EFFICIENTIND. 0.00 0.00 32.80 0.00 11.20 32.79 0.00 P044485 1997 SHANGHAIWAIGAOQIAO 400.00 0.00 0.00 0.00 349.21 12436 27.09 P003643 1997 XINJIANGHWY8I 300.00 0.00 0.00 60.00 111.11 145.45 0.00
- 64 - Differencebetween expected OriginalAmount in US$ Millions and actual ______disbursements' ProjectID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd P003637 1997 CH-NAT1ONALRURALWATERIII 0.00 70.00 0.00 0.00 41.42 27.32 21.58 P003590 1997 QINBA MTS. POVTYRED 30.00 150.00 0.00 0.00 97.85 75.67 0.00 P003650 1997 TUOKETUOPOWERIINNER 400.00 0.00 0.00 102.50 226.04 290.68 7.34 P036952 1997 CN-BASICED. IV 0.00 8500 0.00 0.00 5.24 -1.33 0.00 P003635 1997 CN-VOC.ED. REFORMPROJ 10.00 20.00 0.00 0.00 2.88 2.34 0.00 P040513 1996 2NDHENAN PROVHWY 210.00 000 0.00 0.00 129.66 105.33 0.00 P036950 1996 CN-BASICED. POORIII 0.00 100.00 0.00 0.00 0.46 8.34 0.00 P003646 1999 CNLCHONGOlNGND PO1CT 170.00 0.00 0.00 164.82 3.88 159.03 36.70 P003563 1996 ANIMAL FEED 150.00 0.00 0.00 127.50 4.82 132.32 4.82 P003569 1996 SHANGHAI-ZHEJIANGHi 260.00 0.00 0 00 53.34 22.98 76.32 15.37 P003599 1996 CH-YUNNAN ENVIRCNMENTPROJECT 125.00 25.00 0.00 0.00 118.39 82.37 13.97 P003638 1996 SEEDSSECTOR COMMER. 90.00 20.00 0.00 9.40 28.90 26.17 0.00 P003589 1996 CN-DISEASEPREVENTION(HLTH7) 0.00 100.00 0.00 0.00 24.16 34.39 0.00 P003594 1996 GANSU HEXI CCRRIDOR 60.00 90.00 0.00 0.00 101.95 49.60 0.00 P003602 1996 CH-HUBEIURBAN ENVIRONMENT 125.00 25.00 0.00 28.32 70.28 96.44 22.22 P034618 1996 CN-LABORMARKET DEV. 10.00 20.00 0.00 0.00 15.82 18.12 0.00 P003652 1996 2ND SHAANXIPROV HWY 210.00 0.00 0.00 0.00 66.62 62.62 0.00 P003507 1996 ERTANHYDRO II 400.00 0.00 0.00 0.00 6.69 12.33 0.00 P003648 1996 CH-SHANGHAISEWERAGEPROJECT II 250.00 0.00 0.00 0.00 114.92 106.65 0.00 P003649 1996 SHANXI POVERTYALLEV 0.00 10000 0.00 0.00 18.56 14.61 0.00 P003600 1995 TECHNOLOGYDEVELOPME 200.00 0.00 0.00 3.02 54.49 49.41 0.00 P003603 1995 CH-ENTERPRISEHOUSING&SOCSECREF 275.00 75.00 0.00 20.00 115.99 134.75 28.40 P003598 1995 CH-LIAONINGENVIRONMENTPROJECT 110.00 0.00 0.00 0.00 30.44 3034 0.00 P003402 1995 NATURERESERVE MGMT 0.00 0.00 0.00 0.00 1.27 2.56 0.00 P003493 1995 INLANDWATERWAYS 210.00 0.00 0.00 15.00 6.41 21.41 4.01 P003571 1995 RAILWAYSVI) 400.00 0.00 0.00 29.00 204.42 192.92 100.15 P003585 1995 SHENYANGIND REFORM 175.00 0.00 0.00 0.00 46.21 43.21 0.00 P003596 1995 YANGTZEBASIN WATER 100.00 110.00 0.00 0.00 4.49 5.62 0.00 P003634 1995 CN-MATERNALCHLD HEALT(HLTH6) 0.00 90.00 0.00 0.00 6.78 10.06 0.00 P003639 1995 SOUTHWESTPOV. REDUC 47.50 200.00 0.00 0.00 34.38 55.16 0.00 P003642 1995 ZHEJIANGPOWER DEVT 400.00 0.00 0.00 0.00 72.22 55.06 0 00 P003647 1995 ECONOMICLAW REFORM 0.00 10.00 0.00 0.00 4.93 5.65 0.00 P036947 1995 SICHUANTRANSMISSICN 270.00 0.00 0.00 65.00 45.50 110.50 10.50 P036041 1995 FISCAL&TAXREF. & 25.00 25.00 0.00 0.00 6.23 9.65 0.79 P003586 1994 CH-SHANGHAIENVIRONMENT PROJECT 160.00 0.00 0.00 0.00 40.93 40.93 5.49 P003626 1994 FUJIAN PROVHIGHWAY 140.00 0.00 0.00 0.00 32.02 32.02 25.70 P003641 1994 YANGZHOUTHERMALPOW 350.00 0.00 0.00 0.00 16.95 16.95 -3.71 P003540 1994 LOESSPLATEAU 0.00 150.00 0.00 0.00 5.22 -6.94 0.00 P003557 1994 FORESTRESOURCE DEV 0.00 200.00 18.40 0.00 7.65 11.63 -24.09 P003644 1994 XIAOLANGDIRESETTLEMENT 0.00 110.00 0.00 0.00 16.69 14.92 0.00 P003609 1994 SICHUAN GAS DEV & CONSERVATION 255.00 0.00 10.00 0.00 60.44 57.98 0.00 P003595 1994 RED SCILSII DEVELOP 0.00 150.00 0.00 0.00 16.82 12.54 10.37 P003404 1994 SICHUANGAS DEV.CON 0.00 0.00 10.00 0.00 0.21 0.96 0.00 P003593 1994 SONGLIAOPLAIN ADP 0.00 205.00 0.00 0.00 7.74 2.39 0.00 P003623 1993 FINANCIALSECTOR T.A 0.00 60.00 0.00 0.00 19.13 13.73 13.27 P003473 1993 CH-ZHEJIANGMULTICITIES DEVELCPMENT 0.00 110.00 0.00 0.00 10.23 10.26 7.50 P003616 1993 TIANHUANGPINGHYDRO 300 00 0.00 0.00 17.00 25.30 38.80 0.00 P003559 1993 AGRIC.SUPPORTSERVI 0.00 115.00 0.00 0.00 2.95 -2.72 0.00 P003627 1993 GRAINDISTRIBUTIONP 325.00 165.00 0.00 0.00 111.39 112.22 58.89 P003632 1993 CN-ENVIRONMENTlTECHASS 0.00 50.00 0.00 0.00 7.53 829 7.97 P003592 1993 REF. INSTL& PREINV 0.00 50.00 0.00 0.00 4.78 5.39 0.00 P003597 1993 TAIHUBASIN FLOODCO 100.00 100.00 0.00 0.00 4.71 0.40 0.40 P003580 1993 CH-SO.JIANGSU ENVMTPROT. 250.00 0.00 0.00 6.49 1.26 9.69 0.00 P003570 1993 RAILWAYVI 420.00 0.00 0.00 2.62 19.61 22.43 10.79 P003624 1992 CM-INFECTIOUSDISEASES(HLTH5) 0.00 129.60 0.00 0.00 4.95 1.38 1.34
Total: 15101.90 3597.20 175.20 865.25 846739 4565.23 596.57
- 65 - CHINA STATEMENT OF IFC's Held and Disbursed Portfolio May-2001 In Millions US Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1999/00 Bank of Shanghai 0.00 3.84 0.00 0.00 0.00 3.84 0.00 0.00 1996 Beijing Honnel 3.57 0.50 0.00 3.30 3.57 0.50 0.00 3.30 1998/00 CIG HoldingsPLC 0.00 3.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 CaltexOcean 21.00 0.00 0.00 40.91 21.00 0.00 0.00 40.91 1998 Chengdu Chemical 7.40 3.20 0.00 0.00 0.00 0.00 0.00 0.00 1998 Chengxin-IBCA 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 1987/92/94 China Bicycles 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1994 China WaldenJV 0.00 3.86 0.00 0.00 0.00 3.86 0.00 0.00 1994 China WaldenMgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1994 Dalian Glass 0.00 2.40 0.00 0.00 0.00 2.40 0.00 0.00 1999 Dujiangyan 25.59 0.00 0.00 30.00 0.00 0.00 0.00 0.00 1995 DupontSuzhou 17.13 4.15 0.00 26.00 17.13 4.15 0.00 26.00 1994 Dynamic Fund 0.00 10.01 0.00 0.00 0.00 8.35 0.00 0.00 2000 Elkem Carbon 6.30 1.70 0.00 6.00 0.00 0.00 0.00 0.00 1999 Hansom 0.00 16.10 0.00 0.00 0.00 16.10 0.00 0.00 1996 Jingyang 40.00 0.00 0.00 92.31 40.00 0.00 0.00 92.31 1998 Leshan Scana 6.10 1.35 0.00 0.00 4.50 1.35 0.00 0.00 1996 Nanjing Kumho 9.74 3.81 0.00 27.68 9.74 3.81 0.00 27.68 2001 New China Life 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 Newbridge Inv. 0.00 2.13 0.00 0.00 0.00 2.13 0.00 0.00 1997 Ningbo 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 Orient Finance 12.38 0.00 0.00 15.48 12.38 0.00 0.00 15.48 1997/00 PTP Holdings 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 1997 PTP Hubei 12.63 0.00 0.00 25.38 12.63 0.00 0.00 25.38 1996 Pacific Ports 0.00 3.64 0.00 0.00 0.00 3.64 0.00 0.00 1998 RabobankSHFC 1.58 0.00 0.00 1.58 1.58 0.00 0.00 1.58 2000 SSIF 0.00 6.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 ShanghaiKrupp 30.00 0.00 0.00 68.80 0.00 0.00 0.00 0.00 1999 Shanxi 19.00 0.00 0.00 0.00 8.30 0.00 0.00 0.00 1993 ShenzhenPCCP 3.76 0.99 0.00 0.00 3.76 0.99 0.00 0.00 1995 Suzhou PVC 18.33 2.48 0.00 18.50 18.33 2.48 0.00 18.50 1998 WIT 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 Weihai Weidongri 3.03 0.00 0.00 0.00 3.03 0.00 0.00 0.00 1993 Yantai Cement 10.39 1.95 0.00 5.54 10.39 1.95 0.00 5.54 1998 Zhen Jing 0.00 2.00 0.00 0.00 0.00 2.00 0.00 0.00 Total Portfolio: 252.93 104.21 0.00 361.48 166.34 81.27 0.00 256.68
- 66 - Approvals Pending Comnitment FY Approval Company Loan Equity Quasi Partic 2000 SBCF I 0.00 0.00 15.00 0.00 2001 Sino-Forest 25.00 0.00 0.00 0.00 2000 Wan Jie Hospital 15.00 0.00 0.00 0.00 2000 CIG Zhapu 6.00 5.00 0.00 0.00 2000 CIMIC Tile 15.00 5.00 0.00 15.00 1997 Chinefarge 12.80 0.00 0.00 20.00 2000 Jinfeng 9.00 0.00 0.00 7.30 1998 Orient Fin A Inc 3.33 0.00 0.00 0.00 1998 PTP Hubei BLINC 0.00 0.00 0.00 1.50 Total Pending Comnitment: 86.13 10.00 15.00 43.80
- 67 - Annex 10: Country at a Glance CHINA:Third Inland Waterways East Lower- POVERTY and SOCIAL Asta & middle- China Pacific income Developmerit diamond'
Population. rmiidvear(millions) 1,253.6 1.837 2.094 Life expectancy GNP per capita (Atlas method, US$) 780 1,000 1,200 GNP (Atlas method, USS billions) 9778 1.833 2.513 Average annuat growth, 1993-99 Population (%) 1.0 1.2 1.1 Labor force (%) 1.0 13 1t2 GNP Gross per primary Most recent estimate (latest year available. 1993-99) capita enrollment Poverty t% of population below national poverty line) 5 Urban population (% of total population) 31 34 43 Life expectancv at birth (Vears) 70 69 69 Infant mortalitv (per 1 000 live births) 31 35 33 Child malnutrition (% of children under 5) 16 22 15 Access to safe water Access to improved water source (% of pooulation) 83 84 86 Illiteracy (% ofpopulation age 15+) 17 15 16 Gross primary enrollment (% of school-aoe population) 123 119 114 - China Male 123 121 114 Lower-middle-income group Female 123 121 116
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1979 1989 1999 99 Economic ratios' GDP (USS billions) 175.6 342.3 938.3 996.3 Gross domestic investment/GDP 36.S 36 0 38.8 38.3 Trade Exports of goods and services/GOP 6.4 12.7 21.9 22.1 Gross domestic savings/GDP 35.3 35.3 43.2 41.2 Gross national savings/GDP 35.5 35.4 41.9 39.9 Current account balance/GDP -1.4 -0.9 3.1 1.6 Domestic Interest pavmentsiGDP 0.0 0.7 0o6 0.6 IInvestment Total debt/GDP 1.2 13.1 16.5 12.8 Savings Total debt servicelexports 0.4 9.6 8.5 5.8 Present value of debt/GDP 14.4 Present value of debt/exports 63.3 Indebtedness 1979-89 1989-99 1998 1999 1999-03 (average annual growth) GOP 10.3 10.5 7.8 7t 7.2 - China GNP per capita 8.9 9.0 6.7 6.3 6.2 Lower-middle-income group Exoorts of goodsand services 19.6 14.0 7.3 13.9 105
STRUCTURE of the ECONOMY 1979 1989 1998 1999 Growth of Investment and GDP (%) (% of GDP) 30 Aariculture 31.2 25.0 18.6 17.3 _ Industry 47.4 43.0 49.3 49v7 20 Manufacturina 40.2 34.5 37.6 37.8 1n Services 214 32.0 32.1 32.9 Private consumption 49.5 52.7 44.7 45.8 94 95 96 97 98 v9 General government consumption 15.2 12.0 12.1 12.9 _ GDIG J GDP Imports of ooods and services 7.5 13.5 17.5 19.1
1979-89 1989-99 1998 1999 Growth of exports and imports (%) (average annual growth) Agriculture 6.0 4.4 3.5 2.8 0 Industry 11.3 14.2 8.9 8.1 Manufacturinq 10.5 13.6 8.7 7.7 20 Services 14.0 9.0 8.3 7.5 Private consumption 10.1 8.7 6.2 8.3 General government consumption 9.9 9.8 8.4 7.9 o Gross domestic investment 11.0 12.0 7.6 3.8 94 95 96 97 9S 99 Imports of goods and services 20.4 12.2 3.0 20.7 - E.ports sIrnpoans Gross national Product 10.5 10.2 7.8 7.3
Note: 1999 data are preliminary estimates. The diamonds show four key indicators in the countrv (in boid) compared with its income-CrouD averane. If data are missinq. the diamond will be incomDlete.
- 68 - China
PRICESand GOVERNMENTFINANCE 1979 1989 1998 1999 Inflation(%) Domesticprices (% change) 30 Consumerprices .. 18.0 -0.8 -1.4 20 Implicit GDPdeflator 3.9 8.8 -2.4 -2.2 Govemmentfinance o _-_ _ (% of GDP,includes currentgrants) 996 97 98 9 Currentrevenue .. 19.3 13.0 14.2 -10 Currentbudget balance .. 2.8 1.4 1.2 - GDPdeflator -- CPl Overallsurplus/deficit -3.4 -0.9 -1.2 -2.1
TRADE (USS millions) 1979 1989 1998 1999 Exportand Importlevels (USS mill.) Total exports (fob) 13,658 52,551 183,529 194,931 2000 Food ., 6,145 10,619 10,459 Fuel .. 4,321 5,181 4,646 10,000 Manufactures .. 37,460 163,157 175,003 Total imDorts(cif) .. 59,140 140,166 165,718 100000 Food .. 4,192 3,793 3,618 50 -IuhgI9 Fuel and energy .. 1,650 6,773 8,912 Capital goods .. 18,207 56,768 69,469 93 94 95 96 97 98 99 Exportprice index(1995=100) 25 38 88 81 1 Import priceindex (1995=100) 24 38 89 84 * Exports * Imports Termsof trade (1995=100) 104 100 99 97
BALANCEof PAYMENTS 1979 1989 1998 1999 Currentaccount balance to GDP(-) (US$ -i/lloans) Exportsof goodsand services 15,046 57,101 207,586 218,711 4 Importsof qoodsand services 17,842 60,655 165,899 189,799 Resourcebalance -2,796 -3,554 41,687 28,912 2 Net income -319 229 -16,645 -17,973 Net currenttransfers 626 381 4,278 4,943 Current accountbalance -2,489 -2,944 29,321 15,882 "i 990 96 lU97 96 99 Financingitems (net) 2,489 2,386 -23,073 -7,377 Changesin net reserves 0 558 -6,248 -8,505 -2 Memo: Reservesincluding qgold (US millions) .. .. 149,811 158,337 Conversionrate (DEC,IocallUS$) 2.3 4.9 8.3 8.2
EXTERNALDEBT and RESOURCEFLOWS 1979 1989 1998 1999 (USSmillions) Compositionof 1999debt (USSmill.) Total debt outstandingand disbursed 2,183 44,932 154,603 127,639 IBRD 0 2,330 9,644 10,639 G:4 A:10,639 IDA 0 2,296 8,693 8,907 Total debt service 61 5,650 18,186 13,204 IBRD 0 223 941 1,161 ,2 IDA 0 14 97 118 Compositionof net resourceflows Officialgrants -30 143 91 201 E:24,238 Officialcreditors 199 2,277 2,288 3,913 F. 79,576 Private creditors 1,580 3,801 1,642 -2,945 Foreign directinvestment 57 2,613 41,118 38,752 Portfolioequity 0 -180 -3,927 -9,836 World Bank program Commitments 0 1,760 2.636 2,311 A- IBRD E - Bilateral Disbursements 0 1,111 2,066 1,780 B-IDA D-Othermulblateral F-PrPvate Principalrepayments 0 62 434 558 C- IMF G - Short-term Net flows 0 1,049 1,632 1,222 Interestpayments 0 175 604 720 Net transfers 0 874 1,028 502
DevelopmentEconomics - 69 - Additional Annex11
Summary of Environmental Assessment and Action Plan
CHINA: Third Inland Waterways
A. Background
1. The Environmental Assessment (EA) for this project was carried out by the Hunan Environmental Protection Research Institute. The draft EA documents were reviewed by the Bank and discussed with Hunan Provincial Communications Department (HPCD) during the pre-appraisal mission in December 2000. The final draft Environmental Impact Assessment Report (EIA), Environmental Action Plan (EAP) and EA Summary were submitted to the Bank in January 2001 and found to be satisfactory.
2. During the EA work, the local people in the project area were intensively consulted, and their opinions are reflected in the project design and environmental mitigation measures, as appropriate.
3. The national policy and administrative requirements for environmental assessment of development projects in China were followed during preparation and evaluation of the EA, as was the Bank's OP 4.01 on Environmental Assessment. The following major laws and regulations applied to the EA of the Third Inland Waterways Project.
(a) Environmental Protection Law of the Peoples' Republic of China (PRC); (b) Water Pollution Control Law of PRC; (c) Water and Soil Conservation Law of PRC; (d) Atmospheric Pollution Control Law of PRC; (e) Environmental Noise Control Law of PRC; and (f) Circular on Strengthening Environmental Impact Assessment Management for Construction Projects Financed by International Financial Organizations.
B. Brief ProjectDescription
4. The navigability of the Xiangjiang River has been upgraded to accommodate 1,000 dwt vessels (Waterway Class III), thus providing improved commercial transportation from Hengyang in the center of Hunan Province to coastal ports. The Bank-financed Dayuandu Shiplock/Dam under the IWWI project, located 120 km upstream of Zhuzhou, has been completed, enabling the accommodation of 1,000 dwt between Dayuandu and Hengyang. The proposed project aims to improve the remaining section of the Xiangjiang River for 1,000 dwt vessels.
5. The proposed Third Inland Waterways Project includes the following components for which environmental assessments are required: (a) construction of a shiplock, dam and 140-MW hydropower station at Zhuzhou, creating a reservoir with a normal capacity of some 470 million m3; and (b) dredging the Xiangtan-Zhuzhou section for 37 km downstream of the proposed dam site to upgrade to Waterway Class III. Although the construction of a new terminal at Hengshan is not included in the project, it is subject to the environmental assessment as a related component.
- 70 - C. Baseline Environmental Description
6. Geography and Meteorological Conditions. The Xiangjiang River is the biggest river in Hunan Province and a first-grade tributary of the Yangtze River. It runs through Hunan Province from south to north and pours into the Yangtze River. It has a total length of 969 km and a basin area of 94,660 km2. The proposed dam site is located 24 km upstream from Zhuzhou City, 158 km downstream from Hengyang City and 96 km downstream from the Dayuandu Navigation and Power Complex--constructed under the Bank-financed IWW1 Project.
7. The project areas belong to the sub-tropical zone, with an annual average temperature of 16-18 'C and annual average precipitation of 1,400 mm. Almost half the annual rainfall occurs between April and June, while little rain falls from October to March. The flow of the Xiangjiang River varies accordingly.
8. Socioeconomic Situations. The proposed project involves a 182-km section of the Xiangjiang River from Hengyang to Zhuzhou, extending to four cities--Hengyang, Zhuzhou, Changsha and Xiangtan, with a combined area of 43,560 km2 and a population of about 19 million. While industries such as coal, chemical, machinery and steel are developed in the centers of these cities, agriculture prevails outside of these centers. In particular, the agricultural economy is flourishing around the reservoir, accounting for half the total income. The people in the project area are all Han (race) and no national minority groups live there.
9. Ecological Environment. The project areas lie mainly in agricultural land where grain and vegetable production is dominant. The EA has ensured that there are no critical natural habitats, no environmentally protected areas, and no rare flora or fauna in the project area. Subtropical evergreen broad-leaf forests grow on the hilly areas along the banks of the reservoir. The dominant plants are cultivated pine, china fir and cypress. No big wild animals are observed in the project area
10. In the Xiangjiang River, there are some 150 kinds of fish, including four commercially important carps. Fishery resources of the Xiangjiang River have declined seriously due to excessive fishing. The phytoplankton is mainly composed of green algae and diatom. The zooplankton mainly consists of Rotifera and protozoa. The dominant population of benthos is arthropod.
11. Noise and Air Quality. The noise level is generally low around the proposed dam site, meeting Class I standard except for some traffic noise. Air quality is good and meets the standards.
12. Water Quality. The major effluent into the reservoir will include domestic wastewater from Hengshan County and Shiwan Town as well as industrial wastewater from pesticide, fertilizer and ceramics factories. Four water intakes exist in the reservoir area, two for waterworks and two for industrial use. Water quality in the Xiangjiang River was monitored in low- and high-water periods at six points between Dayuandu Dam and the proposed dam site for such parameters as pH, SS, DO, COD, BOD, phenol, oil, total phosphorus, ammonia, sulfide and heavy metals. The monitoring data demonstrate that water quality is generally good, meeting the ambient water quality standards for Class 2 or 3, except for oil, total phosphorous and ammonia. The monitoring results of heavy metal content in fish show that fish are less polluted and meet relevant food standards.
13. Bottom Sediment. The quality of bottom sediment was monitored for total-Cr, Pb, Cd, Cu and total-Hg during the low-water period of 1999 at the same points as for the water quality monitoring. The
- 71 - monitoringresults show that all of the elementsmeet the nationalsludge controlstandards, except for Cd at the mouthof the MishuiRiver (tributaryof the XiangjiangRiver), which is 35 percenthigher than standard. The monitoringwas also carriedout at fivepoints betweenZhuzhou and Xiangtanwhere dredgingis planned. The results show that all monitoringpoints except for Xiawan meet the standards. Xiawansection is not includedin the dredgingarea.
14. CulturalRelics. Accordingto the on-siteinvestigation and data collected,there are five cultural relics or historic sites around the project area, of which three are located far from the Xiangjiang River, one grave is located 300 m from the river bank of the upper end of the reservoir, and one temple is located 1 km downstream of the dam site. Therefore these cultural relics and historic sites will not be affected by the project.
D. PotentialEnvironmental Impacts and TheirMitigation Measures
ZhuzhouDam/Shiplock and a separateproject - HenashanDock Component
Design Phase
15. Alternatives Analysis. During the preparation of the project, two possible dam sites, Gantian and Kongzhou, were studied. The two sites are considered to have no distinct difference in terms of environmental impact except for the extent to which the dam will cause inundation of farmland. Because the Kongzhou site will inundate 30 percent less than the Gantian site and is expected to generate 30 percent more electricity, Kongzhou was recommended as the proposed dam site.
16. Analysis of the no-project option indicates that although dam construction has some adverse impact on water quality and the ecosystem, the dam also brings benefits by (a) reducing air pollutants through hydropower generation-pollutants that would otherwise be emitted from a thermal power plant, and (b) relieving traffic congestion on existing highways, thus improving the environment along the highways, by shifting the transport of cargo from highway to inland waterway.
17. Inundation of Farmland. The following three measures will be taken to minimize the inundation of farmland: (a) construct a drainage channel downstream of the dam; (b) raise the level of farmland; and (c) construct pump stations to drain water. Implementing these measures will protect 1 ,156 ha of the 1,342 ha of farnland threatened by the construction of the dam.
18. Impedance of Fish Migration. The upper reaches of the Xiangjiang River above Dayuandu are known as important fish spawning areas, in particular for various kinds of carp. Under the IWW1 project, fry breeding and release in the river were carried out to mitigate the impedance of fish rnigration at the Dayuandu Navigation Complex. Because these measures have been successful at the Dayuandu Reservoir since 1999, this project will undertake the same measures to mitigate the impedance of fish migration.
ConstructionPhase
19. Noise. Heavy machinery operation and other construction activities will cause adverse impacts on the acoustic environment in the populated project areas. Strict regulations on the schedule of construction works will be implemented to minimize such adverse impacts. Blasting will be prohibited between 6:00 p.m. and 7:00 a.m.
- 72 - 20. Air Pollution. Fugitive dust during the construction work was identified as a major environmental impact at this stage of the project. Concrete mixing plants and cement piling areas will be located at least 300 m from residential areas on the leeward. Temporary construction roads will be regularly sprayed with water.
21. Water Pollution. Wastewater from construction sites and camps will be discharged into the river after being adequately treated. Domestic solid wastes from construction sites and camps will be regularly collected and disposed of in an appropriate manner. Waste soil and stones in construction sites will be moved to the designated waste yards where sedimentation facilities will be installed.
22. Vegetation and Soil Erosion. Construction will occupy land, including 8.3 ha of forest, and will damage vegetation there. After the completion of construction, temporarily occupied lands and temporary construction roads will be leveled and planted with trees and grasses to minimize soil erosion. Retaining walls and a drainage system will be developed at waste yards.
23. Cultural Relics. It is not anticipated, but if any cultural relics are found during construction, excavation will be stopped immediately, and the local cultural authority will be informed of the discovery. Excavation will not resume until the cultural relics have been identified by the authorized institution and necessary preservation measures have been taken.
Operation Phase
24. Water Pollution. After the dam is put into operation, water will stagnate in the newly created reservoir, thus imposing adverse impact on water quality. Future water quality in the reservoir was forecasted on the basis of the predicted pollution loads to be generated around the reservoir area. The forecast indicates that water quality in termnsof COD will deteriorate some, but will still meet the standard in 2015, even in the worst-case scenario--discharge of wastewater without treatment in a low-water period. Oil pollution--mostly caused by the oil discharge from vessels and presently exceeding the standard--was also predicted. The forecast indicates that oil pollution will not worsen by 2015 if increasing numbers of vessels treat oil waste according to regulations. However, if more vessels discharge oil waste without treating it, oil pollution will worsen to a considerable degree. To mitigate the impact on water quality, water pollution control measures for both vessels and stationary sources must be strictly implemented, and strengthened as appropriate.
25. The Environmental Protection Bureaus--the Hunan Provincial Environmental Protection Bureau, Zhuzhou Municipal Environmental Protection Bureau and Hengyang Municipal Environmental Protection Bureau--have primary responsibility for protecting the reservoir water from pollution. They have implemented and will strengthen various measures such as: (a) outlining functional water areas; (b) preparing control measures regarding pollution-sources; (c) closing factories with serious pollution emissions; (d) preparing a general water quality control plan for the Xiangjiang River; and (e) conducting regular water quality inspections and directly supervising the performance of environmental protection installations at the pollution discharging units.
26. In support of these activities, the Hunan Waterway Navigation Bureau will strengthen the implementation of various regulations and measures to minimize water pollution from navigation activities, including: (a) strictly enforcing national regulations preventing disposal of oily water and other wastes from vessels; (b) establishing waste oil processing facilities and garbage collecting stations at all dock sites along the Xiangjiang River to collect waste oil and domestic garbage from vessels; and (c) preparing and establishing contingency plans and units to handle accidental leakage of toxic substances from vessels.
- 73 - 27. To prevent waterpollution in the resettledareas, wastewatertreatment facilities will be installed and domesticsolid wastes will be collectedand properlydisposed of
28. Vegetation. The reservoirwill inundate 7 ha of forest, involvingfruit trees, timber trees and bamboo. No rare plant is included. The impact of inundationon vegetationis limited.
29. AquaticOrganisms. Evidencefrom the existingdam in HunanProvince indicates that the communitystructure of aquatic organismswill changefrom river type to lake type after the dam retains water. The quantityof plankton and aquaticplants will increase. The reservoirwill providehabitat to fishes,and thus the fish populationis expectedto increase,although the makeupof the fish populationmay change. Becausethe dam impedesthe migrationof fish, fry bred in nearby ponds will be released periodicallyinto the reservoir.
30. Soil Erosion. To prevent soil erosionduring operation,trees and grasseswill be planted on all dykes and hillsidesin the reservoirarea. Farmlandon both sides of the reservoirwill be returnedto forest where the slopeis greaterthan 25 degrees. Barrenmountains and wastelandwill be graduallyafforested.
Zhuzhou-Xian-tan Waterway Dredging Component
31. Dredgingoperations will bring aboutan increasein suspendedsolids. However,the impactwill be temporaryand short-term. In addition,given the alkali water body, heavymetals in bottom sedimentstay stable. Five water intakesexist in the dredgingsection. To protect drinkingwater from pollution, constructionand wastewaterdischarge will be prohibitedwithin the designatedsanitary zone for drinking water sources. Water qualitymonitoring for drinkingwater sourceswill be strengthened.
32. The qualityof bottom sedimentsto be dredgedwill be monitoredbefore dredging starts. On the basis of the monitoringresults, appropriatemeasures to preventwater pollutionfrom dredgingwill be identifiedand implemented.The disposalplan for dredgedsediments will be developed,and reviewedand approvedby local environrnentalprotection authorities. Waste materials from the dredgingproject, such as sandand rocks if they are not contaminated,can be filleddirectly into the nearestdeep-water areas or the dam site, while wastematerials from dredging,such as silt,will be transportedto the waste disposalsites on the banksand stockpiledthere. The disposalsites will be coveredwith soil and plantedwith trees and grasses. The IWW1 and IWW2 projects demonstratethat dredgedmaterials have been reused or disposed of properlyaccording to plan.
E. Environmental Monitoring
33. Duringthe constructionand operationphases, environmental monitoring will be carried out to verifythe project's actual impact on the environment,identify unexpected environmental problems at an early stage,and adjust environmentalmeasures as appropriate. Environmentalmonitoring will be entrusted to local environmentalmonitoring centers. A semi-annualreport and an annual monitoringreport will be fumishedto the Bank by December31 and June 30 of each year startingin 2001 during the construction phaseuntil December31, 2006. Environmentalmonitoring plans are summarizedin Table 2.
F. Institutional Arrangements and Training
34. HPCDhas assignedthe implementationof this project to HXNCDC,a wholly-ownedsubsidiary company.HXNCDC has implementedthe DayuanduNavigation Complex under the IWWI projectand
- 74 - has alreadyset up an EnvironmentalProtection Office (EPO) at headquartersand Environmental ProtectionSections (EPS) at project sites. To deal with environmentalissues for this project,HXNCDC will strengthenEPO to five staff,and set up EPSsat the ZhuzhouDam site and HenshanDock with five staff.
35. The EPO and EPSs are responsiblefor environmentalsupervision of the constructionactivities, implementationof appropriatemitigation measures, environmental monitoring, and coordinationand managementof the environmentalprotection during construction and operationphases.
36. To enhanceenvironmental protection knowledge and skill,all the staff,including construction workers,will receive environmentaltraining at least once. In addition,key environmentalprotection staff will receiveintensive training. The trainingprogram includes lectures by experts,site visits to similar projects,and periodicnational or internationaltraining. A trainingbudget has been allocated,including US$96,000for 12 person-monthsoverseas training.
H. Public Consultationand InformationDisclosure
37. Public Consultation and Feedback The localpeople were consultedextensively during EA work. A two-stagepublic consultationwas carriedout accordingto Bankguidelines: (a) shortlyafter enviromnentalscreening and beforethe terms of referencefor the EA were finalized(July 1999),and (b) after the draft EA report was prepared(July 2000). The followingapproaches were adoptedfor public consultationunder this project:consultation meetings with localpeople at project-affectedtowns, and analysisof public opinionquestionnaires.
38. Apart fromthe resettlement-relatedissues, the public showedconcerns about inundationof fannland,environmental protection during construction,and reductionof fish resourcesin the river; and requestedthat adequatemitigation measures be taken. Their feedbackis reflectedin the engineering designs and the EAP.
39. InformationDisclosure. The final EIA,EAP and EA Summarywere submittedto the Bank in January2001. Followingthe Bank's receipt of a letter of agreementfrom HPCD on releasingthe documents,they were sent to the InfoShopfor disclosureon January22, 2001. The relevantEA documents were releasedlocally to the publicbefore consultation.The final EIA and EAP were made public locally on January 19, 2001, with an advertisementin the localnewspaper that they were availableat the Zhuzhou EnvirornmentalProtection Bureau and HXNCDC.
- 75 - Table 1: Summary of Potential Impacts and Mitigation Measures
Zhuzhou Dam/Shiplock Component
Potential Impacts MitigationMeasures
A. Design Phase
Inundationand flood control Careful considerationis given to dam locations and designs, and flood control dike reinforcementto minimizethe extent of inundated area. Constructionof drainagechannel, raisingthe level of farmland, and constructionof pumping stationswill be carried out to minimizethe inundationof fannland.
Fish migration Fry will be bred and released into the reservoir to mitigate the impedance of fish migration.
Impact on ecosystem Afforestationwill be promoted, and no ecologicallyimportant sites are affected.
Cultural relics No cultural relics and histonicalsites are affected.
B. ConstructionPhase
Noise Low-noiseconstruction machinery will be used. Strict regulationsof scheduleof constructionworks will be implemented to minimize noise pollution from constructionactivities. Blasting will be prohibited between 6:00p.m. and 7:00 a.m.
Air pollution Concrete mixing plants and cement piling areas will be located at least 300 m from residential areas on the leeward. Temporary constructionroads will be sprayed regularlywith water.
Water pollution Wastewaterfrom constructionsites and camps will be discharged into the river after it is adequately treated. The machinerepair yard will be located downstream of the constructionsite, and an oil/water separator will be installed there. Domestic solid wastes from constructionsites and camps will be collected regularlyand disposed of in an appropriate manner. Waste soil and stonesin constructionsites will be moved to the designatedwaste yards where sedimentationfacilities will be installed.
Soil Erosion Side slopes will be reinforced.Excavated siteswill be compacted and filled back immediately. After the completionof construction,temporarily occupied lands and temporary constructionroads will be leveled and planted with trees and grasses to minimize soil erosion. Retainingwalls and drainage systems will be developed at waste yards.
Cultural relics If any culturalrelics are found during construction,excavation will be stopped immediatelyand the local cultural authoritywill be informed of the discovery. Excavation will not resume until identificationof cultural relics by the authorized institution is completed and necessary preservationmeasures are taken.
Safety of navigation Navigation managementwill be strengthened. Illuminatedsailing marks will be set up and heightenedto guide vessels safely and efficiently.
C. OperationPhase
- 76 - Noise Ship and boat inspection will be strengthened. Any ship whose noise does not reach the standard will not be serviced.
Water pollution The environmentalprotection bureaus will strengthenmeasures such as: (a) to line out functionalwater areas; (b) prepare controlmeasures regardingpollution-sources; (c) close factorieswith seriouspollution; (d) prepare general water quality control plan for the XiangjiangRiver; and (e) conduct regular water qualityinspections and directly supervise the performanceof environmentalprotection installationsat the pollution discharging units. In support of these activities, the NavigationBureau will strengthenthe implementationof various regulations and measuresto minimizewater pollution from navigation activities; including:(a) strictly enforce national regulationspreventing disposalof oily water and other wastes from vessels; (b) establishwaste oil processing facilitiesand garbage collectingstations at all dock sites along the XiangjiangRiver to collect waste oil and domesticgarbage from vessels; and (c) prepare and establish contingencyplan and units to handle accidentalleakage of toxic substancesfrom vessels.
Accidentalleakage Safety educationwill be strengthenedto those engaged in loading and unloading. Emergencymeasures will be taken accordingto the plan when accidental leakageoccurs. Incidents will be reported to relevant authorities.
Soil erosion Trees and grasses will be planted on all dykes and hillsides in reservoir the area. The farmlandon both sidesof the reservoir will be returned to forest where the slope is greater than 25 degrees. Barren mountainsand wasteland willbe gradually afforested.
Fishery resources Fishery resources managementwill be strengthened. Electric and explosive fishing methods will be strictly prohibited. Fry will be periodically released into the reservoir. Sluice gate opening time will be properly prolongedduring the peak time of fish reproduction.
Public Hygiene Vector controlwill be strengthened. Domesticwastes will be collected and treated.
Zhuzhou-Xian2tan Waterway Dredgin2 Component
PotentialImpacts MitigationMeasures
A. Design Phase
Disposal site and structure The disposal site for dredged material will be selected to raise dredging efficiency and protection benefit flood protection. Riverbank structureprotection will arrangedto avoid bank flushing.
B. ConstructionPhase
- 77 - Water pollution and disposal Proper dredge boats will be selected and the operating procedure will be optimnized.If of dredged materials necessary,sand-proof curtains will be set. Water quality monitoringwill be strengthenedfor the downstreamwaters, especially at the intakes of drinking water sources. Priorto dredging, the quality of sedimentswill be monitored.Suitable dredging and disposal plans will be worked out accordingto the results of monitoring. These plans must be reviewed and approved by local environmentalprotection departmentsbefore dredging starts. Waste materials from dredging such as sand and rocks, if not contaminated,can be filled directly into the nearest deep-water areas or dam site, while waste materials such as silt will be transportedto the waste disposal sites at the banks and stockpiled there. The disposal sites will be covered with soil and planted with trees and grasses.
Fish Dredgingwill be done in the drought period in winter. Furthernore, only shoals, which are not the roost of fish, will be dredged. Dredging and shoal blasting therefore will not imperil the survival of fish.
Safety of navigation A navigationnotice stating blast times must be made. Signals and warning lines also must be set to guarantee the safetyof navigation
HeneshanDock Component(a separateproject)
PotentialImpacts Mitigation Measures
A. Design Phase
Overall impacts The site was selected to minimize environmentalimpacts. The dock structure will be suitable for flood contml. Plantation will be well designed.
B. ConstructionPhase
Noise Low-noiseconstruction machinery will be used and will operate only in daytime.
Air pollution Constructionsites will be sprayed regularlywith water to prevent dust pollution.
Water pollution Wastewaterfrom constructionsites and camps will be properly treated. Solid wastes from constructionsites and camps will be collected regularly and disposed of in an appropriate manner.
C. OperationPhase
Noise Ship and boat inspectionwill be strengthened. Any ship whose noise does not reach the standard will not be serviced.
Water pollution An oily wastewatertreatment facility will be installed. Substances imposing adverse impacts on water quality such as pesticide and fertilizer will not be handled here to avoid possible water contaminationat the upstream water intake.
Accidental leakage See dam component.
- 78 - Table 2: Summary of Environmental Monitoring Plans
Stage MonitoringSite MonitoringItems MonitoringFrequency
Water Construction Sewage outlet in pH, SS, DO,COD, Twice a year Quality Phase constructionsite BOD,total phosphorus
KonglingSection pH, SS, DO,COD, Once during the dry season permanganateindex, NH3-N, and once during the rainy petroleum, total phosphorus season for three consecutive days.
Operation Domesticsewage pH, SSDO,COD, Twice a year Phase outlet BOD, totalphosphorus
Drinking water pH, SS, DO,COD, Once a season for the first intake in Hengshan BOD,N-NH3, total three years. Then, once a Countyand Shiwan phosphorus, year. Town petroleum
Bottom Construction Dredging sites Hg, Cd, As, Pb, Cu, Zn Before the initial stage of Sediment Phase each dredging.
Air Quality Construction Concretemixing TSP Twice a year for three Phase station, consecutivedays, once in the air sensitive points morning and once in the inside construction afternoon. site boundary (within 300m), roads seriously pollutedby dust in constructionsite
Noise Construction Boundaryof Noise Once a month,one day (each Phase constructionsite, at daytime and night) noise sensitive points inside the boundaryof constructionsite (within 150m)
Ecology Construction Dam site and stone Vegetation Once before construction Phase yard
Operation ReservoirArea Fish Resources Once a season for the first Phase three years, then once a year
- 79 - Additional Annex 12
Summary of Resettlement Action Plan (RAP)
CHINA: Third Inland Waterways
ProjectDescription
1. Theproposed project includesthe constructionof a navigationcomplex on XiangjiangRiver in Hunan Province. The project will create a run-offreservoir on the river with a total storagecapacity of 470 millionm3 of water and a total reservoirarea of 58.9 km. The project is scheduledto start in 2001 and be completedin 2007.
ResettlementPlanning
2. Resettlementplanning started in May 1999. The projectresettlement office contracted the Mid-southHydro-electric Planning and DesignInstitute (the Mid-South Institute) for resettlementplanning. The census,inventory and socioeconomicsurveys were conductedfor the reservoirarea and the dam site from July to October2000. Local communitiesand governmentsparticipated in the baselineactivities and signed off on the surveyresults. From October 1999 to March 2000, the Mid-southInstitute, together with local communitiesand governments,developed the strategyand action plan for livelihoodrehabilitation, reconstructionof infrastructureand protectiveworks.
3. These resettlementplanning activities provide a detailedrecord of the project's adverse impacts, includingland, house,industries, institutions and the number of people affected. The socioeconomicsurvey was conductedsimultaneously through interviews and focus group discussions. They provide a baselineof the socioeconomicenvironment and living standardsand facilitatedthe consultationprocess with key stakeholdersin the resettlementplanning process. The stakeholders'feedback was incorporatedin the developmentof the RAP.
ProjectImpacts
4. With the originaltechnical design, the projectwould have affected90 villageslargely through land inundationand structuredemolition. The project wouldhave affected1,407 ha of land, most of which is farmland,and the demolitionof 68,737m of housing. In order to minimizeadverse impacts, the project officesexplored and compareddifferent alternatives and designedprotective works as part of the project. The protectiveworks bring about a reductionin the amountof farmlandto be inundatedfrom 1,341ha to 185ha--with a decreaseof 86 percent. The protectiveworks will protect 45 villages from losing farmland. Similarly,the numberof peopleto be relocatedhas been reduced to 280 individualsin 70 householdsfrom 1,205people.
5. An impact assessmentwas conductedas part of the project planningeffort. The assessment indicatesthat, given the run-offnature of the reservoirand efforts,the adverseimpacts of the projectare scatteredand relativelyminor. First, with the protectiveworks, the numberof villageslosing land is down to 45 from 90. Of the 45 villagesthat will lose land, three villageswill lose more than 20 percentof their land, one will lose 16 percent,nine will lose from between5 and 10 percent,and 32 villageswill lose less than 5 percentof their land. Second,under the land sharingarrangements, no one will lose all their
- 80 - farmland. Furthermore, the land to be inundated is low-yielding, subject to annual flooding and yields only one crop a year. Third, the socioeconomic survey indicates that the income structure of the affected farmers is quite diverse and on-farm income accounts for only 26 percent of their household income.
Legal Framework
6. The RAP was prepared in line with relevant Chinese laws and regulations and World Bank OD 4.30 on Involuntary Resettlement. A project-affected person (PAP) is defined to include all whose income or livelihood is adversely affected as a result of the project. The following basic principles were adopted for resettlement planning:
* Adverse impacts must be reduced to the minimum and different alternatives explored towards this end. * Resettlement planning must be based on sound analysis of local resources and their capacity for resettlement. * All affected infrastructure must be rehabilitated to its previous standard and function. * The rehabilitation strategy should be land- and agriculture-based * The objective of resettlement is to enable PAPs to improve or at least restore their living standard. * Compensation will be paid at replacement cost without depreciation. - Land compensation will be paid before acquisition. HHouse compensation will be paid before construction of the new house. - Lack of legal title will not bar a PAP from his or her entitlements.
Rehabilitation Strategy and Action Plan
7. The livelihood rehabilitation strategy is land- and agriculture-based, and depends on village collectives for livelihood restoration. Village-wise land and agriculture development schemes have been planned and detailed in the RAP. All affected farmers will be allocated farmland and fishponds within the village. Part of the land compensation fund will be used for the planned land development schemes and part of it will be used in the village for agriculture and sideline development. These include land development, on-farm irrigation, agro-processing and small non-farm industries. Investment schemes will be identified and developed for each village by the affected villagers. A budget for resettler training has been set aside and a detailed training program will be developed during project implementation.
8. The total number of households to be moved is 70 spread over 45 villages and the number of households to be relocated in each village is small. They all will be provided new sites within their own village. No resettler household is expected to move away from their current village. The resettlers will construct their own houses with house compensation. The protective works will be financed separately from the compensation budget and is also included in the project budget.
9. The RAP also contains a preliminary design for the protective works. All plots that can be protected have been identified and mapped. Specific protective engineering measures have been proposed by plot. Technical standards, measures and engineering quantities are detailed in the RAP. Detailed designs will be developed later for construction and implementation.
Management Organization
10. A multi-level organization has been established to implement the RAP. This organization includes Hunan Provincial Resettlement Office, Xiangjiang Project Office, two prefecture resettlement offices, and
- 81 - five county resettlement offices and town resettlement offices. Hunan Provincial Resettlement Office is responsible for all reservoir projects within the province, with experienced resettlement staff. It will manage and supervise the RAP implementation on behalf of the provincial government. Xiangjiang Project Resettlement Office, established for the IWW1 project, has accumulated rich experience in implementing resettlement. This office will coordinate resettlement implementation. The county resettlement offices are in the process of being established. The RAP contains detailed descriptions of the organization and their responsibilities. A training program is also proposed for resettlement officers. An independent monitor has been selected for resettlement implementation.
Public Consultationand Participation
11. Public consultation and participation has played a key role in the formulation of the RAP. The affected farmers, village leaders and local governments participated in the census, inventory and formulation of the livelihood rehabilitation strategy. Their feedback was incorporated in the RAP.
12. Public consultation and participation will continue during RAP implementation. Affected farmers will play a key role in farnland allocation, formulating village investment plans of land compensation funds, new site identification and new house construction. Project information will be provided to the affected farmers through television and radio broadcasts, newspapers, and posters. The RAP will be summarized in a resettlement information booklet (RIB) and will be distributed to every affected household. Regular consultation meetings will be held in villages. The RAP was placed in the Bank's InfoShop on January 22, 2001 and in all county libraries on February 14, 2001. The availability of this report in these libraries was advertised in local newspapers on February 19, 2001.
GrievanceRedress Mechanism
13. A mechanism was designed for redressing grievances that arise from the project. All grievances can be filed in either written or verbal forms. The redress channel lies within the project management systems at village, township, county and project resettlement offices. Recording and timeframe requirements for resolving grievances have been established. The grievance-redress mechanism will be disclosed in the RIB.
ResettlementImplementation Monitoring
14. Independent monitoring was designed as part of the resettlement scheme. The project resettlement offices will carry out internal monitoring of the RAP implementation and an external monitor has been contracted for independent monitoring of the RAP implementation. Independent monitoring will cover the physical progress of RAP implementation, including compensation payments, allocation of residential sites, farnland allocation, and restoration of infrastructure. The independent monitor will also review the public consultation process, operation of the resettlement project offices, grievance-redress mechanisms and restoration of livelihood of the affected farmers. The RAP contains a plan for independent monitoring, and the terms of reference for independent monitoring will be developed later.
Compensationand ResettlementBudget
15. The RAP contains compensation rates corresponding to various impacts. Different rates were developed for different types of land in line with the Chinese Land Administration Law. The RAP contains detailed calculation tables and the different compensation rates. Compensation rates for structures are calculated for replacement costs. Unit rate analysis was conducted for the replacement cost of different
- 82 - types of houses, and is detailed in the RAP. The affected infrastructure will be compensated for reconstruction, and the compensation budget was finalized through negotiation with the owning government agencies. A separate budget is developed for the protective works based on the technical designs.
16. The RAP contains a detailed resettlement budget that covers all basic resettlement costs, management costs, construction of protective works, contingencies and taxes. The basic resettlement cost includes compensation for land, house, other structures, standing crops and trees, reconstruction of affected infrastructure and reservoir clearance. Management cost, including independent monitoring, is included in the budget as well. The total resettlement budget is estimated at Yuan 302.34 million, equivalent to US$36.43 million, including inundation protection and drainage works.
- 83 - Additional Annex13
Review of Financial Management System
CHINA: Third Inland Waterways
Preamble
I . The development objectives of the proposed project are to help reduce infrastructure bottlenecks and minimize inland waterway transportation costs by improving navigability of the Xiangjiang River between Zhuzhou and Dayuandu. The objectives would be pursued by:
* improving market access in the remote inland areas of Hunan province; * providing more efficient and economic inland waterway transport; and * generating sufficient power supply to the remote areas.
2. The main components of the project include:
* construction of the Zhuzhou dam and shiplock complex; * provision of power-generating capability; * upgrading the Xiangtan-Zhuzhou section of the Xiangjiang River by dredging; and * technical assistance for development of containerization along Xiangjiang River and training.
3. The total estimated project cost is US$220 million, including IBRD funds of US$ 100 million.
1. Background
4. This report is the result of a fnancial management review and analysis of the project conducted by Tony Shen, Senior Financial Management Specialist, EACCF, to determine whether the project will have in place an adequate financial management system as required by Bank OP/BP 10.02. The review was performed in accordance with the following:
* The Guide for Review and Design of Accounting and Reporting Systems for World Bank Projects (Central Operational Services Unit, East Asia and Pacific Region, December 1997) * Review of Financial Management System (Annex II, LACI Implementation Handbook) * Project Financial Management Manual (Loan Department, The World Bank)
5. The review included procedures considered necessary and appropriate to the project's circumstances, including site visit, discussion and observation. The task team discussed and reviewed procedures and guidelines for establishing a sound project financial management system with HXNCDC. The procedures and guidelines cover staff training, accounting, internal control, reporting requirements, auditing and budgeting.
- 84 - II. Organizationof ProjectFinancial Management i. Structure of projectfinancial management
6. HXNCDC, under the guidance of the Hunan Provincial Communication Bureau, will assumnedirect and ultimate responsibility for implementing the project. HXNCDC has also been involved with the implementation of the IWWI project.
The Finance Department of HXNCDC will be held accountable for managing financial aspects of the project and keeping track of all project financial activities. The same Finance Department has also been involved in the financial management and record keeping for the IWWI project. ii. Loan disbursement arrangement
7. The project will disburse in accordance with the traditional disbursement techniques and will not use PMR-based disbursements, in accordance with the agreement between the Bank and Ministry of Finance.
8. One special account will be set up for the project. The special account will be managed by HPFB, as was done with the IWWI project. Funds will flow from the Bank to HPFB and HXNCDC and/or contractors and suppliers through loan and on-lending arrangements.
9. HPFB has managed special accounts for several Bank financed projects, including IWW I, National Highway IV, and Yangtze Flood Emergency rehabilitation projects and has acquired extensive experience in the management of special accounts. HPFB is also familiar with Bank disbursement procedures and requirements, and will pass on its disbursement-related experience to the project to ensure efficient and accurate fumdmanagement and timely disbursement. In addition, when needed, the Bank will provide training and assistance in preparing withdrawal applications.
10. Discussions showed that the Finance Department in general is familiar with the Bank's financial management policies and requirements. The Finance Department will be responsible for bookkeeping and verifying the accuracy and eligibility of expenses submitted and progress reported. Withdrawal applications and supporting documents will be compiled and prepared by the Finance Department and then submitted to HPFB for further review and approval before HPFB sends the documents to the Bank for reimbursement processing.
III. Staffingand Training
11. The same financial and accounting team that has managed the financial aspects of IWWI project will be responsible for the financial management of the proposed project. Discussions and observations revealed that the financial staff have the right educational background and work experience, and have been performing financial and accounting work since 1995. The task team further noted that all financial staff received overseas and domestic training on financial management during the implementation of the IWW I project. The task team reviewed the training schedule prepared by the project and noted that financial management training is planned for the staff when the proposed project begins.
12. Although the financial staff has experience with Bank-financed projects, they are not familiar with recently issued or revised Bank policies on project financial management and disbursement requirements.
- 85 - Well-designed and -focused training needs to be provided before project implementation to ensure a sufficient degree of familiarity with Bank requirements. The task team plans to re-address some of the critical aspects of project financial management during the project launch workshop.
13. With the full operation of IWW1 project and the implementation of the proposed project, we foresee a potential shortage of financial staff, based on current staffing level and expected workload. We discussed the issue with the project management, who assured that: (a) one additional qualified accounting staff will be added to the financial management team before the end of April 2001; and (b) another accounting staff will be recruited by the end of 2001, when the project commences. This will bring the total number of the financial and accounting staff to seven. Based on the implementation of IWWI and expected workload of the project, staffing for the project will then be considered adequate.
14. To further strengthen project management and provide guidance in accounting practices and financial information preparation and reporting, the task team recommended that well-defined roles, job descriptions and operational procedures be documented in a Project Financial Management and Accounting Manual (Manual) and made easily accessible to all staff. Although the project has some guidelines on financial management, these guidelines lack the required detail and require revision. The task team has provided the project with a sample copy of the Manual to be tailored to the specifics of the project. The task team noted that the draft Manual received in late March 2001 covers major operation areas with the required information on policies and procedures. The final copy will be issued to relevant staff before the project becomes effective. See section V of this annex for further information on the Manual.
IV. Financial and Accounting System
15. The administration, accounting and reporting of the project will be set up in accordance with the following regulations and circulars issued by MOF:
(a) In line with other Bank financed projects in China, the project will use the Temporary Regulations on Financial and Accounting Management for Projects Financed by the World Bank (Circular no. 127 issued in 1993) by MOF as a basis for bookkeeping and preparation of project financial statements and management reports. Accrual accounting and a double-entry bookkeeping basis will be adopted.
(b) Circular No. 12, Regulation for the Submission of Withdrawal Applications issued in December 1996 by MOF includes detailed procedures for preparing and submitting withdrawal applications and retention of supporting documentation.
(c) Circular No. 6, Temporary Regulations on Financial Management Reporting for Projects Financed by the World Bank, issued by MOF in January 1997 dictates the format and content of project financial reporting for Bank-financed projects and provides detailed instructions on report preparation.
(d) Circular No. 13, Accounting Regulations for World Bank Financed Projects" issued in January 2000 by MOF provides in-depth instructions for the accounting treatment of project activities and covers the following:
- Chart of account - Detailed accounting instructions for each project account - Standard set of project financial statements
- 86 - - Instructions on the preparation of project financial statements
The standard set of project financial statements mentioned above has been agreed to between the Bank and MOF and applies to all Bank projects appraised after July 1, 1998. These statements include the following:
- Balance sheet - Statement of source and use of fund - Statement of implementation of credit/loan agreement - Statement of special account
This standard set of project financial statements supersedes the one prescribed by Circular No. 6.
16. Circulars No. 127 and No. 13 are simplified versions of the Accounting Standards for State-owned, Infrastructure Oriented Projects (the "Standards") that take into consideration the unique characteristics of Bank projects. The Standards are modeled after the principles of Intemational Accounting Standards and provide detailed guidelines on accounting for project activities in an infrastructure project.
17. The Finance Department of HXNCDC will manage, monitor and maintain project accounts and will maintain original supporting documents for project activities. Periodic project financial statements will also be prepared by the Finance Department and will be submitted to the Bank for review on a timely basis.
V. Internal and Other Controls
18. A well-designed intemal control system (both administration and accounting) is critical to the success of a project. We noted that the project has prepared general guidelines in the following areas:
* Project financial management * Training program * Disbursement management * Project execution plan
The task team reviewed the financial management guidelines prepared by the project and noted that adequate controls have been built into the financial management system for the major areas of project activity. The guidelines have the following features:
* A system of authorization, verification, reconciliation, recording procedures and project reporting adequate to provide reasonable control over project costs, security of assets, schedules and technical performance * Delegation and segregation of duties * Timely and accurate financial reporting
19. The guidelines require improvement to provide operational procedures in financial management and accounting activities. We have strongly recommended to the project management that the following topics also be included in the Manual:
* Project accounting and reporting requirements * Cash management * Asset management
- 87 - * Audit arrangements
Project management has committed itself to abide by the procedures and guidelines described in the Manual until the project is successfully completed.
VI. Reporting Requirements
20. As indicated in Se_tion IV of this annex, the Bank and MOF have agreed to a standard set of project financial statements applicable to all projects appraised after July 1, 1998. The unaudited project financial statements will be submitted twice a year (by October 1 and April 1) to the Bank and will include the following:
* Balance Sheet * Statement of Sources and Uses of Funds by Project Activity * Statement of Implementation of Loan Agreement * Statement of Special Account
VII. Audit Arrangements
21. The Bank requires the project to have its annual project financial statements audited in accordance with standards acceptable to the Bank. As with other Bank financed projects in China, the project will be audited in accordance with the Government Auditing Standards of the People's Republic of China (1997 edition). The Hunan Provincial Audit Bureau has been identified as auditors for the project.
Audit reports on annual project financial statements will be due to the Bank within six months of the end of each reporting year, with a separate opinion on statements of expenses and the special account.
VIII. Budgeting
22. The Planning Department of HXNCDC will prepare an annual budget based on the progress of construction and funding needs and will submit it to the HPCB and HPPDC for further review and approval. The budget will be compared to actual costs on a semi-annual basis by both the Planning and Finance Departments, and any subsequent major change to the original plan must be reviewed, evaluated and approved by the Bank.
IX. Proposed Actions
23. Training. As noted above, to familiarize financial staff with recently issued Bank policies on project financial management, project financial and accounting staff will receive training at the project launch workshop or in a separate training before project implementation. The training will cover the following topics:
(a) Bank procedures and requirements on the withdrawal of Bank funds; (b) format and content of standard set of project financial statements and timing of submission; (c) Project Financial Management System Manual; and (d) project audit requirements.
24. Financial Management System Manual. As noted in Section III of this annex, a draft Manual prepared by the project has been received by the task team and was considered appropriate and sufficient.
- 88 - The final copy will be issued to all relevant staff before project becomes effective.
See below for the proposed action plan.
X. Conclusion
25. The task team has detennined that if the recommended actions are implemented, the project will satisfy the Bank's financial management requirements stipulated in OP/BP 10.02. The project management is expected to have in place an adequate project financial management system that can provide, with reasonable assurance, accurate and timely information on the status of the project in the reporting format agreed with the project and required by the Bank.
Proposed Action Plan
Description Borrower Bank Target Responsibility Responsibility Date
A. ProjectFinancial Management and AccountingManual
1. Draft Manual availablefor Bank's Finance Dept. FMS, WBOB Completed review HXNCDC
2. FinalizedManual to be issued to Finance Dept. FMS, WBOB Before relevantstaff HXNCDC effectiveness
B. Staffing
1. One additional accountingstaff to be HXNCDC FMS, WBOB By end of April recruited 2001 (completed)
2. Second additional accountingstaff to be HXNCDC FMS, WBOB By end of 2001 recruited
C. Training
1. Project launch workshop or financial HPFB, HXNCDC FMS, WBOB Before managementseminar completed for effectiveness all related staff
a) Bank proceduresand requirementson withdrawalapplications
b) Format and contentof standard set of project financial statementsand timingof submission
c) Project FinancialManagement and AccountingManual
d) Project audit requirement
- 89 - D. SpecialAccount
1. Obtain domestic clearance for HPFB, HXNCDC Disbursement Before opening SA Officer, WBOB Withdrawal of Initial deposit
2. Open corresponding RMB bank HPFB, HXNCDC Disbursement Before account Officer, WBOB Withdrawal of Initial deposit
3. Submit authorized signature to MOF MOF, HPFB, Disbursement Before and then to the Bank HXNCDC Officer, WBOB Withdrawal of Initial deposit
- 90 - Additional Annex14
(Draft) Terms of Reference for Study on Containerization Development Along Xiangjiang River
CHINA: Third Inland Waterways
1. Introduction
Inland waterway container traffic increased sharply in 2000, especially in the Changjiang (Yangtze) River delta, with the center of the increase at Shanghai Port. The water traffic volume of the Changjiang River delta accounted for about 50 percent of total Chinese water traffic. The Xiangjiang River is the economic center of Hunan Province. Five industrial cities--Hengyang, Zhuzhou, Xiangtan, Changsha and Yueyang-lie along the river, and together constitute 70 percent of total product value of Hunan Province. Container traffic is expected to continue to grow when China enters the WTO and the upgrading of the Xiangjiang River channel is completed under the proposed Third Inland Waterways project. It is important to assess potential container development and provide measures to promote economic development in Hunan Province by providing better services in intermodal transportation between Xiangjiang and Changjiang.
2. Objectivesof the Study
Inland waterway container transport development along the Xiangjiang River has a strategic importance for Hunan Province. Objectives of the study will be:
(a) to estimate potential development of inland waterway container traffic through the assessment of the current shipping pattem, and to prepare an estimate for future investment requirements;
(b) to provide measures to promote inland waterway container traffic along the Xiangjiang River under improved channel conditions;
(c) to provide short- and long-term plans in the following areas to increase water transport efficiency and economic benefit:
(i) port; (ii) channel improvement; (iii) inland waterway vessel development; and (iv) application of advanced technology; and
(d) to provide recommendations to: (i) central and provincial governments, (ii) related enterprises; (iii) individuals; and (iv) investors.
3. Scopeof Study
3.1 Assessment of the current situation of container transportation in Hunan province, including:
(a) review of the current procedure of container transportation in Hunan province;
- 91 - (b) the percentage of container transportation among freight transported on the Xiangjiang River; and (c) issues of current container transportation.
3.2 Assessment of inland waterway traffic volume, including:
(a) the industrial distribution and development plan in the Xiangjiang River area; (b) current and future of container transportation on the Xiangjiang and Changjiang rivers; (c) impact on foreign trade, especially in inland areas of China' entering the WTO; (d) forecast of container traffic in the Xiangjiang and Changjiang drainage areas; and (e) forecast of container traffic in Xiangjiang River.
3.3 Current and future Origin and Destination of traffic at:
(a) Changsha port; (b) Zhuzhou port; (c) Xiangtan port; (d) Yueyang port; and (e) Hengyang new port.
3.4 Assessment of Transhipment of container traffic, including:
(a) the rapid growth of container transportation at Shanghai port; (b) possible relocation of the transhipment port from Shanghai port; and (c) feeder service to Shanghai port.
3.5 Assessment of the impact of international liner services to Hunan province, including:
(a) North America line; (b) Europe and Mediterranean line; (c) South Asia line; (d) Japan line; (e) Australian line; and (f) Africa and South America line.
3.6 The study of the type of container vessels, including:
(a) standard of the container vessels on the Changjiang River; (b) the type of container vessels on the Xiangjiang after its improvement and its connection with the Changjiang; and (c) recommendations on desirable types of container vessels.
3.7 Assessment of competitiveness of container transportation on the Xiangjiang River, including:
(a) the analysis of competitiveness with other methods of transportation (including railway and highway); and (b) type and volume of container traffic.
3.8 Inland waterway container transport operations along Xiangjiang River:
- 92 - (a) shippingoperation for containertraffic; and (b) the estimationof economicbenefit.
3.9 Analysisof ownershipof containervessels and theiroperation:
(a) the currentsituation of vessel ownershipin containertransportation; and (b) the futuresituation of vessel ownershipin containertransportation.
3.10 Recommendationson the managementand developmentof intemationalcontainer transportation along the Xiangjiang,which include:
(a) the laws and regulationsto feedercontainer liner; (b) managementof feedercontainer liner in HunanProvince; (c) customsclearance at the inlandports, especiallyin feeder linerports; (d) promotionof fair competitionbased on marketeconomy; (e) the infornation system of intemationalcontainer transportation in Hunanprovince; (f) the futureinternational logistic service; and (g) monitorthe developmentof containertransportation in Hunanprovince.
4. Timetableand ReportingRequirements of the Study
(a) finalizationof TOR: October2002; (b) shortlistof consultants:October 2002; (c) start of the consultants'services: October 2003; (d) InceptionReport: January2004; (e) InterimReport: May 2004; (f) Draft Final Report: September2004; and (g) Final Report: December2004.
- 93 - Additional Annex 15
The Power Demand Assessment
CHINA: Third Inland Waterways
1. The proposed project is located in Hunan Province. In 1999, the installed capacity in Hunan was 10,260 MW, of which 5,710 MW was hydropower, and 4,550 MW was coal-fired thermal power. The total energy supply was 34.85 TWh-18.27 TWh from hydropower and 16.58 TWh from thermal power. The balance of power exchange with other provinces was 2.8 TWh. Total energy consumption amounted to 37.66 TWh and the maximum system demand stood at 7,000 MW.
2. Based on the most recent load forecast prepared by Hunan Provincial Electric Power Company (HPEPC), the peak demand for the province is projected to increase from 7,000 MW in 1999 to 9,850 MW in 2005, and 12,600 MW in 2010, growing at an average annual rate of 5 percent between 2000 and 2010. Electricity consumption is expected to increase from 37.66 TWh in 1999 to 49.8 TWh in 2005, and 62.5 TWh in 2010, growing at an average annual rate of 4.5 percent between 2000 and 2010. These growth rates are considered moderate and are likely to be exceeded.
3. Hunan Province is rich in hydropower resources. Future development will focus on medium and large hydropower stations with seasonal regulating capabilities. The power plants that are already comrnmittedand will be put into commission before 2010 are considered firm, including the proposed project. A number of small and medium-sized coal-fired power plants which are scheduled for retirement before 2005 are considered for future energy balance. The capacity balance for the province during the period 2005 to 2010 is shown in Table 1.
4. Table 1 indicates that the system will fall short of capacity in both dry and wet seasons during the period 2005 to 2010 even if all the committed projects, including the proposed project, are put into operation on schedule. The available capacity of the proposed project is clearly needed. In fact, the system must bring additional power capacity on line to meet projected demand.
5. After 2005, when the Three Gorges project is partly commissioned, the Hunan power system will become even more hydro-dominated, with hydropower accounting for about 65 percent of system capacity. Most of the hydro projects have the capability to provide daily peaking, but very few can provide seasonal and yearly peaking. Even if the available capacity could meet the maximum demands in both the wet and dry seasons, the seasonal energy distribution would still pose a problem. Excess wet energy that could not be transferred into dry energy would have to be spilled.
6. Based on the expected operation of the proposed project, about 60 percent of its total energy output will be produced in the non-wet seasons (November to April). During these seasons, whether the proposed project is operated as a medium or peaking plant, its energy output will be fully absorbed by the system. During the wet season (May to October), the proposed project is able to produce energy at full dependable capacity up to 22 hours per day (during the wettest month). But during the off-peak period when all thermal capacity is operating at minimum workable capacity, the energy from the proposed project will have to be spilled. One calculation indicates that about 25 percent of the wet energy, about 10 percent
- 94 - of the total energy output,from the proposedproject will have to be spilled.This is basedon the assumptionthat the project has no operationalconstraints. If the project has operationalconstraints such as minimumflow, a firther 5 percentof the total energyoutput shouldbe consideredas spilled.
SystemDemand and CapacityBalance of HunanPower Grid (2005-2010)
(Unit: MW) Year 2005 2006 2007 2008 2009 2010
Season Wet Dry Wet Dry Wet Dry Wet Dry Wet Dry Wet Dry
Peak Demand 9,850 8,964 10,350 9,420 10,870 9,892 11,410 10,380 11,980 10,900 122,600 11,460
Reserve Capacity 2,176 1,972 2,277 2,072 2,391 2,176 2,510 2,284 2,636 2,398 2,772 2,526
System Requirement 12,026 10,936 12,627 11,492 13,261 12,068 13,920 12,664 14,616 13,298 15,372 13,986
Available Capacity 11,520 10,490 12,430 11,440 12,780 11,530 12,930 11,670 13,100 11,820 13,960 12,510
Capacity Balance -506 -446 -197 -52 -481 -538 -990 -994 -1,516 -1,478 -1,412 -1,476
- 95 - Additional Annex 16
Poverty Alleviation Impact
CHINA: Third Inland Waterways
A. Income Level of the Project Area
I. The incomelevel of urbanresidents in Hunan Provinceis below the nationalaverage. In 1999, Hunan's annualper capitaincome of urban residentswas 5,856 Yuan, a little lowerthan the national averageof 5,889 Yuan. Shanghaiwas the highest at 10,989Yuan,and Shanxi was the lowest at 4,362 Yuan.
2. While the proposedproject has no directpoverty alleviationcomponent, the project is consideredto have significanteconomic development impact on nearby cities and countiesthrough the implementation and operationof the project.
3. It is estimatedthat the cities and countiesalong the XiangjiangRiver upstreamof the proposed projectwill receive significantimpact fromthe project.It is expectedthat they will receivemajor benefit from improvedwaterway transportation and generatedelectricity. The largelyimproved navigational conditionsand ever-developingnavigation industry will significantlycontribute to economicdevelopment. The affectedcities and countiesare ZhuzhouCity, HengyangCity, ZhuzhouCounty, Hengdong County, HengshanCounty, Hengnan County, Chenzhou City and LeiyangCity. In particularly,Chenzhou and Leiyang,which producethe majorityof coal and non-ferrousmetal in Hunan,will receive directbenefit from the more efficientwaterway transport. Their incomelevel (per day per capita) and populationin 1999are shown below:
Per DayPer CapitaIncome Citiesand Counties (in US$) Population ZhuzhouCity 1.102 730,516 HengyangCity 1.042 789,068 ZhuzhouCounty 0.857 446,618 HengdongCountyO.86 0 656,484 HengshanCounty 0.868 401,235 HengnanCounty 0.823 1,025,269 ChenzhouCity 0.859 618,878 LeiyangCity 0.825 1,221,956 Total 0.901 (weightedaverage) 5.90.023
4. The project is expected to affect the development of the cities and counties downstream and along the tributaries of the Xiangjiang River through improved inland waterway transportation. They are Changsha City, Xiangtan City, Yueyang City, Changsha County, Xiangtan County, Liling City, Liuyang City, Changning County, Wangcheng County, Xiangyin County, Chaling County, You County, Shuangpai County and Yongzhou City. Their income level (per day per capita) and population in 1999 are shown below:
- 96 - Per Day Per Capita Income Cities and Counties (in US$) Population Changsha City 1.309 1,691,772 Xiangtan City 1.129 657,700 Yueyang City 1.092 880,614 Changsha County 1.047 743,974 Xiangtan County 0.840 1,129,768 Liling City 0.920 1,009,321 Liuyang City 0.954 1,337,582 Changning City 0.808 843,370 Wangcheng County 0.940 717,476 Xiangyin County 0.713 683,564 Chaling County 0.752 585,665 You County 0.929 742,117 Shuangpai County 0.714 167,707 Yongzhou City 0.736 1,042,646 Total 0.957 (weighted average) 12.233.276
- 97 - Cities and Counties along Xlangliangl River Legend: 0.71: Incomelevel (US$ per day per capita) (0.68): Populationin million ioWuhan
2n~~~~g City /
Xiangiru (088 0.71 (0.68)1
0.94 , Cangsha C . .05 (0.72) J (0.74) (JChangsha Cftye \7 ~~~~1.31/ (1.69) /LuyangCt t / 0~~~~~~.92 (1-0~1)\ {' /\_ XiigtanC;t
Xianl mCo. \ (.6 0.8 >Zhuz ou 1/ (1113) <1.1 (0.73)r
ZhuzE m/hiploc I9 Co.9
.HiengshanCo. / Hean a £ ~ Yon zv ueiy *gCity 0.74 1 , Q404 0.83 1.22) /Channing City \ 0-81(0-84) 7 huagA ChensihuCt \ 0.71 (0172i - 98- B. Socio-economicImpacts and Benefit 5. While the proposedproject does not have a specificcomponent to alleviatepoverty, the projectwill significantlyimprove the incomesof vesseloperators, shipping companies, and those manufacturersand producersin the nearby citiesand countiesadjacent to the project's servicearea. The improvementsto navigationwill directly,and indirectly,make life for vessel operatorsand their family safer, more profitable,and provide a life- style considerablybetter than they currentlyexperience. 6. There is a considerabledisparity in the salaries of vessel operatorswho navigatethe Xiangjiang River. The principaloperators of the small 30-60 dwt vesselsearn only about 900- 1,100Yuan per month, while the Captainof the 500-800dwt vesselsand tows can earn as much as 1,300Yuan per month. Vessel Captainsof ships and tows in the 800-1,000dwt class can earn as much as 2,500 Yuan per month. Wages for crewmembers will also improve,moving from 900 Yuan for vesselssmaller than 60 dwt, to 1,300for vessels and tows 500-800dwt, and 1,600Yuan for those 800-1,000dwt. 7. By permittingvessels in the 800-1,000dwt class to navigateon the deeperchannel provided by the project,the mix of vessel sizes changesdramatically by the year 2030. Currently 1,345vessels, or 62 percent of the inlandfleet which navigatesthe projectimpact area, are 50 dwt or less in size. The total number of vesselswhich served this marketin 1998 will remainat about the same,those in the 50 dwt and below will drop to about 17.7percent of the fleet. This providesopportunities for the introductionof largervessels and higherwages. It is estimatedthat the averagewage of the senior operatorof a vessel in this fleet in 1998was 1,023Yuan; by the year 2010, this averageshould reach (in constantdollars) approximately1,171 Yuan, and by 2030, it is expectedto climbto 1,414Yuan. Bonusesfor the Captain and crew are typically30 percent of theirannual salarywhere profits permit. 8. The reductionin the use of the smallerclasses of vesselsalso providesa better social and educationalenvironment for the familiesand crew. Conditionsare difficultfor the familiesof the smallest of these vessels,often living aboardthese boats with childrenand family members. It has been estimated that up to 40 percentof these childrenwill go withoutany type of formaleducation. Life on these small boats is dangerousand often lackingin outside socialcontact. Althoughsome small craftswill still be neededfor conimoditiessuch as sand, coal,grain, and other commodityshipments on the smallertributaries of the XiangjiangRiver, movements will be shorter,permnitting more familiesto live on shore and for the childrento attend regularschool and socializewith their peers. Governmentpolicies will supportthis transitionto the use of largervessels and the reductionof distancestraveled by the smallervessels in the fleet. Governmentassistance in the purchaseof new and larger vesselswill also accommodatethis transition,to the benefit of the individualoperators and vessel operatingcompanies. 9. Companies,and their employees,will also benefitdirectly from the project. Shippingcosts are expectedto be reducedby 50 percentor more as larger vessels,particularly push-tows, can carry larger and larger pay-loadsat only a marginalincrease in operatingcost. Shippershave estimatedthat their transportationcosts will be reducedby 30-50 percentof their currentlevels. They go on to specifythat approximately30 percentof these savingswill be passed on to theiremployees; the remainderto be investedin new vessels, equipmentand port facilities. New industrieswill begin to locate on shoresnear the XiangjiangRiver to utilizethe lowercost transportation.Even beforeits initiation,one electrical generatingplant has plans for the constructionof a new facilitywhich will employ 300 additional employeeswithin 2-3 kilometers downstreamof the project site. Manufacturersand producersin the project area expect to increaseoutput and expandtheir markets, especiallytheir exportmarkets in grains and metalproducts, allowed by lowershipping costs. - 99 - 10. Steel fabricationshould greatly benefit from the transitionfrom small,obsolete vessels to push-towsand barges. Projectionsof the transitionto push-towtransportation in the project impact area over the next 30 years shows a need for some 2,450new barges. Employmentin the fabricationof steel plates for the constructionof barges and hatch covers wouldmean thousandsofjobs for the Hengyangand Jiangsuareas, as well as for barge and vessel constructionin Changdeand Yiyang Shipyards. Tow-boats greater than 500 dwt will also bring employmentin Wuhanand NanjingShipyards located alongthe Yangtze River. The useful life of a barge is approximately25-30 years, leavinga steadydemand for their replacementover the years and requiring3-4 thousandadditional workers. This could serve as a base for shipbuildingand repair industryfor the regionwhich couldbring high- paying,stable employmentinto the regionfor decadesto come. 11. Vesseloperating companies, are expandingport facilitiesto acconmmodatethe growthin inland waterbomecommerce. The old, dilapidatedand obsoletevessels of the fleet can be replacedwith new and largervessels. Employeesare being trainedto operatethe larger, safer,and more advancedequipment. Projectionsshow a definitetransition to push-towsand away fromthe smaller self-propelledvessels. As this transitionprogresses, the inlandwaterway fleet becomesmore of a purely commercialoperation, with familiesno longerbeing required to live on board. Few vesselsgreater than 500 dwt, or tow-boatsof similarsize, allow familiesto be housedon board. 12. The generatedpower of about 640.5 millionkwh/year will supportpeople's life and industries directlyin ZhuzhouCity and adjacentcounties, and indirectlyin HunanProvince. The per capitaincome level of urban residentsin Hunan Provinceis approximately5,856 Yuan; slightlylower than that of the nation. Transportationcan make up a significantportion of the final cost of a product,particularly exports. The proposedproject will allow manufacturersand grain producersto pass much of these savings on to theirworkers and farmersof the area. As wages and profits increasein the navigationcommunity, so do expenditureson goods and servicesby this same population. It is expectedthat the countiesadjacent to the XiangjiangRiver will experiencean inflowof additionalrevenue, improving the per capitaincome of the entireregion. - 100 - MAP SECTION IBRD31205 SW RUSSIAN FEDERATION KAZAKHSTAN Hi r.'-_ ) gHEILONGJIANG / '*/~S J v~ *, \ 4 t , UZBEKISTAN gaSTAN J ~~~~~~~~M ON G O L I A ' ,KYRGYZ j7 -' R'EPUBLIC -- A.. L~~~~~ =: ~ ~~~~~~~~~~~~~~~~~~~~~~ D CHINJA N e. RE' v THIRDINLANDWATERWAYS PROJECT GU~~~~~~~~~~~~~~~ztAXI el1 4.t RIVERPORTS 0X PROVINCECAPITALS YNNAN , 3SEA PORTS @ NATIONALCAPITAL rw . \> ._¢>s^aor*J : ? rHN , @) BANK FINANCEDSEAPORTS - - PROVINCEBOUNDARIES L -\tWHONGKN IENMF;iD MAJORROADS - - INTERNATIONALBOUNDARIES E {x \e. ) VITA zb nl 30 10 20.30 40 50IENA 25 2D° t LAO PEOPLE'S -' ,i , OU 0 200 400 600 RODKILOMETERS 0 DEM. 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