Report and Recommendation of the President to the Board of Directors

Project Number: 42018 November 2009

Proposed Loan People’s Republic of China: Anhui Integrated Transport Sector Improvement Project

CURRENCY EQUIVALENTS (as of 30 October 2009)

Currency Unit – yuan (CNY) CNY1.00 = $0.1465 $1.00 = CNY6.8280

ABBREVIATIONS

ACIG – Anhui Communications Investment Group Company Limited ADB – Asian Development Bank AHAB – Anhui Highway Administration Bureau APDOT – Anhui Provincial Department of Transport APG – Anhui Provincial People's Government ATAB – Anhui Transport Administration Bureau CO2 – carbon dioxide EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan FIRR – financial internal rate of return ICB – international competitive bidding LIBOR – London interbank offered rate NCB – national competitive bidding NH – national highway O&M – operation and maintenance pcu – passenger car unit PMO – Foreign Fund Project Management Office PRC – People’s Republic of China SDAP – social development action plan TA – technical assistance toe – ton of oil equivalent VOC – vehicle operating cost WACC – weighted average cost of capital XME – Xuzhou–Mingguang Expressway XMEC – Xuming Expressway Management Company Limited

NOTES

(i) The fiscal year of the Government and its agencies ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2009 ends on 31 December 2009. (ii) In this report, "$" refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General K. Gerhaeusser, East Asia Department (EARD) Director T. Duncan, Transport Division, EARD

Team leader X. Yang, Principal Transport Economist, EARD Team members I. Ahsan, Counsel, Office of the General Counsel L. Athukorala, Senior Financial Analysis Specialist, EARD S. Ferguson, Principal Social Development Specialist (Safeguards), EARD R. Hu, Procurement Officer, People’s Republic of China Resident Mission, EARD S. Noda, Transport Specialist, EARD A. Veron, Young Professional (Transport), EARD L. Cuevas-Arce, Senior Administrative Assistant, EARD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page LOAN AND PROJECT SUMMARY i MAP I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 7 A. Impact and Outcome 7 B. Outputs 7 C. Special Features 8 D. Project Investment Plan 9 E. Financing Plan 9 E. Implementation Arrangements 10 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 14 A. Policy and Institutional Improvements 14 B. Traffic Forecast 14 C. Economic Analysis 14 D. Financial Analysis and Projections 14 E. Social Impact 15 F. Environmental Impact 17 G. Risks 17 V. ASSURANCES AND CONDITIONS 17 A. Specific Assurances 17 B. Condition for Disbursement 20 VI. RECOMMENDATION 20

APPENDIXES 1. Design and Monitoring Framework 21 2. Transport Sector Analysis 23 3. Development Coordination 28 4. Policy Dialogue Matrix 31 5. Project Description 33 6. Sustainable Transport Analysis 38 7. Strategic Vehicle Emission Reduction Plan 42 8. Detailed Cost Estimates and Financing Plan 44 9. Project Organization Chart 46 10. Implementation Schedule 47 11. Contract Packages 48 12. Economic Analysis 50 13. Financial Analysis and Projections 55 14. Summary Poverty Reduction and Social Strategy 60 15. Summary Resettlement Plan 63

SUPPLEMENTARY APPENDIXES (available on request) A. Problems and Constraints Analysis B. Fund Flow Chart C. Procurement Plan D. Outline Terms of Reference for Consulting Services E. Monitoring of Socioeconomic and Poverty Impacts F. Financial Management Assessment G. Social Development Action Plan H. Stakeholder Participation and Consultations

LOAN AND PROJECT SUMMARY

Borrower People’s Republic of China (PRC)

Classification Targeting classification: General intervention Sector (subsector): Transport, and information and communication technology (road transport) Themes (subthemes): Economic growth (promoting economic efficiency and enabling business environment, widening access to markets and economic opportunities); environmental sustainability (urban environmental improvement) Location impact: Rural (high impact), urban (medium impact)

Environment Assessment Category A. A summary of the environmental impact assessment was circulated to the Board of Directors of the Asian Development Bank (ADB) and made public through the ADB website on 4 July 2009.

Project Description The Project is located in Anhui Province, one of the poorest areas in the PRC. Its per capita gross domestic product was 64% of the national average in 2007; the province ranked 27th among the country’s 31 administrative areas. The Project is designed to promote inclusive growth and balanced development in Anhui, and improve resource efficiency and environmental sustainability.

The Project will contribute to an integrated road transport system in Anhui by (i) constructing a 139-kilometer (km) expressway and associated facilities between Xuzhou and Mingguang; (ii) upgrading, rehabilitating, and providing safety measures on 452 km of existing local roads; (iii) improving village bus services in poorer areas; and (iv) providing institutional strengthening and capacity building for the Anhui Provincial Department of Transport (APDOT), its related agencies, and Anhui Communications Investment Group Company Limited (ACIG).

Rationale The underdeveloped transport system and associated high transportation costs are major barriers to poverty reduction in Anhui. Rural poverty incidence is high in the project area, particularly in Huaibei Plain in the north and Dabie Mountain area in the south. Lower transportation costs and enhanced transport sector management will promote inter- and intraprovincial trade, encourage investment in the project area, create jobs, and increase competitiveness.

The Project will contribute to ADB's country partnership strategy for the PRC (2008–2010). It will help (i) improve connectivity, competitiveness, and balanced development in Anhui; (ii) reduce poverty by expanding affordable access to markets, services, and other job opportunities to the poor; and (iii) manage resource scarcity and environmental challenges by improving transport planning, environmental supervision, and resource optimization.

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The Project reflects ADB’s transport sector strategy, which focuses on (i) financing new roads that connect major growth centers, supported by a system of local roads; (ii) developing and improving urban transport and rural roads; (iii) promoting road safety, (iv) reducing vehicle emissions and increasing energy efficiency; (v) improving the commercial orientation and efficiency of expressway organizations; and (vi) promoting sustainable transport.

The Project is accorded priority in the Government's 11th Five- Year Plan, and forms an integral part of the planned network formulated under the Government's central region development strategy. It will strengthen regional integration and competitiveness of Anhui. It is consistent with the PRC’s development priorities to reduce regional disparities between inland and coastal regions, and between rural and urban areas.

The Project will enhance transport sector management in Anhui. It will (i) contribute to an integrated transport network across the province; (ii) initiate a comprehensive safety enhancement program to mitigate the accident risks associated with the project road improvement program; (iii) integrate a village bus services demonstration project to foster better, safer, and more responsive bus services in rural areas; (iv) promote resource optimization; and (v) improve environment, health, and safety management by appointing an independent environmental supervision team during implementation.

Through the Project, ADB is supporting APDOT in building its capacity for sound public policy choice and implementation. During project preparation, ADB provided advice on the merit of various project alternatives and this helped APDOT to improve the design of the Project. ADB helped APDOT update policies and services to deliver transport in an economically, financially, environmentally, and socially sustainable manner.

Impact and Outcome The Project will contribute to an integrated road transport system to support the Central Region Development Strategy. This will be achieved by developing an efficient, affordable, safe, and sustainable transport system to promote inclusive growth and balanced development, and improve resource efficiency and environmental sustainability.

Project Investment Plan The investment cost of the Project is estimated at $1,355.0 million, including taxes and duties of $45.7 million. Of the $200.0 million ADB loan, $118.5 million will finance the project expressway component, $80.0 million will finance the local roads, safety, and village bus services demonstration components; and $1.5 million will finance the institutional strengthening component.

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Financing Plan Amount Source ($ million) Asian Development Bank 200.0 Domestic Bank Loans 598.8 Ministry of Transport 119.1 Anhui Communications Investment Group Company Limited 320.9 Anhui Provincial People’s Government 116.2 Total 1,355.0

A loan of $200,000,000 from ADB’s ordinary capital resources will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the Loan and Project Agreements.

Allocation and Relending The ADB loan proceeds will be made available by the Terms Government of the PRC to the Anhui Provincial People's Government (APG) on the same terms and conditions as the ADB loan. APG will onlend ADB loan proceeds to APDOT. APDOT will utilize $81.5 million for the local roads, safety, and village bus services demonstration components and institutional strengthening. APDOT will further onlend $118.5 million to ACIG on the same financial terms and conditions as those of the ADB loan. APG and ACIG will bear the interest rate variation and foreign exchange risks.

Period of Utilization 31 December 2015

Estimated Project Completion Date 30 June 2015

Executing Agency Anhui Provincial Department of Transport (APDOT)

Implementation APDOT, as the Executing Agency, will be responsible for overall Arrangements implementation of the Project. The existing Foreign Fund Project Management Office (PMO) established within APDOT will be responsible for overall project implementation. Within APDOT, the project activities will be coordinated by three implementing agencies: ACIG, Anhui Highway Administration Bureau, and Anhui Transportation Administration Bureau, under the overall direction of the PMO. APDOT, through the PMO, will be responsible for implementation of institutional development and capacity building.

Procurement Goods and works financed by the ADB loan will be procured in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time). Contracts and mode of procurement iv

envisaged under the Project are indicated in the procurement plan. Prior review will be applied for all international competitive bidding contracts and the first national competitive bidding contract for works and goods, and post review for other national competitive bidding and shopping contracts. On 21 July 2009, ADB approved advance contracting and retroactive financing for eligible expenditures not exceeding $40 million.

Consulting Services The ADB loan will finance 20 person-months of international consulting services to provide advice on road safety, road asset management, village bus services, and environmental management. The international consultants will be recruited in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).

The Project will also finance national consulting services for (i) village bus services demonstration project supervision; (ii) local road traffic safety program supervision; and (iii) a road sector financing and maintenance study, each at an estimated cost of no more than $100,000. The required national consultants will be recruited in accordance with ADB's Guidelines on the Use of Consultants. In addition, APDOT will engage and finance 6,000 person-months of national consulting services. All national consultants, not financed by ADB, will be recruited in accordance with government procedures acceptable to ADB.

Project Benefits and The Project is one of the high-priority projects identified by the Beneficiaries Central Region Development Strategy. It will have a significant impact on economic development and poverty reduction in the central and western regions.

The Project will help reduce inter- and intraprovincial development disparities to promote harmonized and coordinated development. Specifically, it will provide an efficient, safe, and sustainable road transport system in Anhui to (i) reduce transport time and costs, and thereby promote inter- and intraprovincial trade and reduce regional development gaps; (ii) encourage investment in the project area, create jobs, and increase incomes for the poor; (iii) reduce vehicle emissions, traffic noise, and traffic accident rates; (iv) improve public transport services and quality of life for rural poor, and (v) strengthen sector planning and development capacity.

The Project will reduce transport time and costs. It will facilitate local urbanization, allow industry to be more economically viable along the transport corridor, add value to agriculture products through better market access, and improve access to social services including education and health care.

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The Project will reduce fuel consumption, improve transportation conditions, shorten travel time, and improve safety. It will help reduce vehicle emissions, congestion, traffic noise, and traffic accident rates.

The Project will benefit 4 million people in 14 counties, of which six counties are officially designated poverty counties. Specifically, as a result of the project transport corridor improvement, two poor counties in the northeast of the province will gain improved accessibility, with better connections to major market centers and to development opportunities in neighboring Jiangsu Province.

A substantial local road network will be improved, through selective upgrading and rehabilitation of damaged roads, so as to serve the mobility needs of local communities. It will better integrate poor and underdeveloped counties into the provincial economy.

The Project will assist APG to better manage the major challenges in the transport sector, notably through application of road safety good practices, introduction of rural village bus service reforms, and preparation of recommendations for a road maintenance financing framework to ensure sustainable road maintenance.

The Project is economically and financially justified. The economic internal rate of return for the Project is estimated at 15.8%. The financial internal rate of return for the expressway component is 6.6%, which is higher than the real weighted average cost of capital.

The Project will directly benefit road users (e.g., passengers, traders, transport providers, and bus and truck operators), as well as labor, the local economy, and the private sector. Rural households will be important beneficiaries—from increased incomes through better access to roads, services, markets, jobs, and other off-farm opportunities.

Risks and Assumptions Overall, the project risk is rated low. The Project is formulated to reduce financial, safety, and social risks. These were assessed and mitigating measures provided.

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The Project does not have any unusual technical risks. The project design considered potential financial and social risks. All local roads under the Project will be toll free. A financial analysis was conducted of provincial revenues, including availability of sufficient counterpart funds, the future maintenance and operating expenses, as well as the loan repayments. This reveals that the fiscal impact and financial risks of the Project are low. Social issues include land acquisition and resettlement, road safety, and prevention of transmissible diseases. Appropriate mitigation measures are in place in the resettlement plans, road and traffic management designs, and disease prevention awareness program.

The risk of implementation delays in timely approvals of the recommended regulatory changes of the village bus licensing system is addressed by establishing a project development group in each county to act as an implementing unit. The project development group will have authority to recommend implementation of regulatory changes. Consulting services will be provided during implementation to develop and agree on necessary procedures and documentation. Training programs will be designed for bus operators and regulators to train them in the new procedures. ADB will continue dialogue with APG and the Ministry of Transport. Any problems will be identified, and adjustments made where necessary to ensure that the new system works effectively.

APDOT has experience and has shown satisfactory performance in implementing internationally financed projects. The preparation team worked closely with APDOT to ensure that the policy and institutional improvement activities are of value to the APDOT.

o 116o 00'E 118 00'E Trunk Highway Network SHANDONG in the Corridor Lianyungang ANHUI INTEGRATED TRANSPORT Xuzhou o SECTOR IMPROVEMENT PROJECT 34 00'N Suqian 34 o 00'N Huai’an IN THE Yellow Sea PEOPLE'S REPUBLIC OF CHINA J I A N G S U Bengbu

S H A N D O N G Mingguang

Nanjing Hefei Shanghai

Xuzhou Wuhu SHANGHAI A N H U I

34 o 00'N Huaibei Minxian 34 o 00'N o X056 118 00'E Hangzhou 1 Bozhou Suzhou Shantou 119o 00'E Group 1: Lingbi Northeast Road Network H E N A N Sixian Guzhen

S304 Xiaowei Bus Terminal 2 Bengbu Wuhe Xuyi Fuyang J I A N G S U 3 Mingguang S309 Tianchang Huainan S312 4 to Y an gz Dingyuan ho u

N Chuzhou A N H U I NANJING 0 20 40 60 80 HEFEI Kilometers Longtang S105 5 Maanshan Lu'an Group 2: Heishidu Shucheng Chaohu Industrial Corridors Chao Lake Daoshichong Lujiang Wuhu 6 8 1 3 S Tongcheng Zhongjieling .) tze R 7 (Yang Xuancheng Yuexi H U B E I S209 Tongling Huaining g 8 gjian Mamiao Chan Mazusi X044 Qianshan Jingxian Group 3: Yezhai Southwest Poverty Roads Taihu Anqing Qingyang Ducun Bus Terminal Shipai Bus Terminal

Wangjiang Caijiaqiao Z H E J I A N G

Dongzhi 6 o 30 o 00'N 30 00'N Qimen G2 Local Roads 06 1 Shantou--Minxian Bainitang Tunxi 2 Wuhe--Guzhen J I A N G X I 3 Mingguang--Jiangsu Border Provincial Capital 4 Jiangsu Border--Tianchang City/Town Project Local Road 5 Longtang--Chaohu Other Road National Poverty County 6 Daoshichong--Zhongjieling Provincial Poverty County Railway 7 Yuexi--Mamiao

Project Expressway River 8 Mazusi--Yezhai Existing Expressway Provincial Boundary 6 Dongzhi--Bainitang Planned Expressway Boundaries are not necessarily authoritative.

116o 00'E 119o 00'E

09-2201 HR

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the People’s Republic of China (PRC) for the Anhui Integrated Transport Sector Improvement Project. The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

1. Inclusive Growth and Balanced Development

2. The PRC has made remarkable progress in poverty reduction since the late 1970s. However, it still has the second largest number of consumption poor in the world. In 2005, it still had 254 million people consuming less than $1.25 a day (in 2005 purchasing power parity dollars).1 Poverty is more widespread in the central and western region. Income inequality has increased significantly, and disparities remain and in some cases have grown. The task of poverty reduction continues. Government policy has been rapidly evolving in response to the challenges, and a broader poverty reduction agenda has been taking shape. In particular, inclusive growth and balanced regional development are emphasized as the long-term national development strategy to close the widening development gap between inland and coastal provinces, and between rural and urban areas.

3. Anhui Province has a population of 66.8 million—61% are classified as rural, higher than the national average of 55%. The population density of 470 people per square kilometer is significantly higher than the national average of 138. With per capita gross domestic product at 64% of the national average in 2007, Anhui ranked 27th among the country’s 31 administrative areas. It has 19 officially designated national poverty counties and 10 provincial poverty counties, accounting for 47.5% of the counties in the province. In 2007, the annual per capita net income of rural households was CNY3,556, while the annual per capita disposable income of urban households was CNY11,473, three times more than that of rural households. Rural income poverty incidence is 10.5%.2 Poverty and urban–rural disparity are the two major issues. Inadequate road infrastructure and associated high transport costs are major barriers to the reduction of poverty and disparity in Anhui.

4. Despite its strategic location, Anhui is the least developed province in central PRC. Poverty in Anhui is concentrated in Huaibei Plain in the north and Dabie Mountain area in the south. Huaibei Plain is a major grain production area; however it is flood-prone, which limits intensification of farming. The main causes of poverty in Huaibei Plain are high population density and limited nonfarm employment, which results in a large surplus of rural laborers. Because of its remoteness and isolation, the resources and income-generating opportunities of the Dabie Mountain area are limited. Lack of transport accessibility and connectivity constrain socioeconomic development of the northern and southern mountainous areas.

5. Provinces along the coastline have benefited from logistical accessibility and well- developed infrastructure, thereby growing more quickly than the central and western regions. The central region grew at a slower pace than the rest of the PRC in the 1990s. Aware of the importance of coordinated and harmonized development between eastern, central, and western

1 World Bank. 2009. From Poor Areas to Poor People: China’s Evolving Poverty Reduction Agenda. Washington, DC. 2 Rural income poverty incidence in Anhui is much higher than in eastern neighboring provinces (1%–2%) and western and southern neighboring ones (5.0%–8.6%).

2 provinces, the Government formulated the Central Region Development Strategy in 2004. Transport is one of the high priorities of the strategy. A well-developed transport network will help the central region capitalize on its strategic location and transform it into a major hub linking east and west, and north and south. Anhui is a key central region province and is well located to benefit from the strategy and spillover effects from neighboring coastal provinces.

6. The Anhui Provincial People's Government (APG) put forward its own strategy of Development to the East, aiming to promote links with the more affluent eastern provinces (Jiangsu and Zhejiang) to reduce regional development gaps. The strategy assigns high priority to eastward transport development as a way to narrow the widening regional development gaps by increasing passenger and freight movements with eastern provinces, and attracting more investment to Anhui. It will also link passenger and freight movements from western provinces to eastern provinces.

2. The Road Subsector

7. Since 1998, the PRC has invested about 5% of its gross domestic product in the transport sector, 65% of which was for roads. The growth of road assets has exceeded the growth rate of the economy; this has helped bridge the country's infrastructure gap.3 Overall, transport investments have been a constant factor in fostering and spreading growth from the eastern to the inland regions of the PRC, and facilitating poverty reduction. Development of the national transport networks has been accompanied by continuing development of the secondary and tertiary transport networks to provide improved connectivity and quality of access. From 1990 to 2006, during the period of the 8th, 9th, and 10th five-year plans, the PRC completed the construction of nearly 44,000 kilometers (km) of high-grade tolled expressways. During that period, about 400,000 km of local and rural roads were also improved.

8. Anhui, with a land area of 139,400 square kilometers, is a landlocked province in central PRC. Roads are the main transport mode.4 Between 2003 and 2007, transport demand in Anhui grew at 8.5% per annum (8.4% for freight and 8.8% for passengers). All modes of transport have experienced rapid growth in demand. Roads now carry most of the passengers (64% of passenger-km in 2007), while railways and inland waterways are the preferred modes for freight transport, especially for long-haul bulk goods. Road transport plays an essential role in the collection and distribution system (roads were used to collect and distribute 75% of cargo tonnage in 2007). Increasing demand for mobility and accessibility will require upgrading of infrastructure capacity as is reflected in long-term plans. The sector's policy and institutional development also needs to be strengthened to respond to changing and growing demand.

9. The province's road network is relatively dense but only provides low levels of service to the population. The total length of roads per capita is in line with the national average. However, the capacity and quality of the roads in Anhui is inadequate. As of 2007, the length of (i) main highways (class II or above) was 12,392 km (8.4%), lower than the national average of 10.6%; and (ii) arterial roads (class I) was 360 km; only 44% of the network is paved. The network also has an unbalanced geographic distribution. In particular, the densely populated poor northern counties and the mountainous areas in the south have only limited access to the highway networks. This lack of transport accessibility prevents a considerable portion of the population from fully benefiting from the region's ongoing development.

3 The "infrastructure gap” is the difference between the existing asset base and the asset base required by the economy. 4 In 2007, Anhui had 5,600 km of navigable waterways, 2,400 km of railways, and 148,000 km of roads. The modal split for passenger-km was 63.8% for roads, 36.1% for railways, 0.1% for inland waterways. The modal split for freight ton-km was 50.1% for railways, 27.3% for roads, and 22.6% for inland waterways.

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B. Analysis of Key Problems and Opportunities

1. Challenges and Opportunities

10. The national fuel taxation reform has been fully applied in Anhui Province since early 2009. Six categories of fees levied on drivers were abolished, including an annual tax computed by the number of seats per car and a surcharge on passengers and freight carried by boats. Tolls on class II roads were also removed in pilot provinces including Anhui. In their place, the central Government has introduced a national fuel surcharge of CNY0.8 per liter for diesel and CNY1.0 per liter for gasoline since 1 January 2009. This will bring the pricing system for roads closer to a pay-as-you-go mechanism. The additional fuel tax revenues are being used in part to maintain and manage roads and waterways, and to help compensate local governments for lost income from eliminated tolls and fees. It is an efficient mechanism to collect road user fees, and provides an incentive to lower fuel consumption and promote vehicle fuel efficiency. It will bring long-term gains to the financial and environmental sustainability of the road transport system. As the central Government collects the fuel tax, proper distribution channels and mechanisms are essential for allocating these tax revenues to the transport sector to ensure that funding is available for maintenance of the road network and debt servicing for class II roads. This reform will profoundly transform the financing framework of the sector, and enhance the transparency and accountability of road administrations.

11. Road safety remains a major issue in the PRC, with 73,500 fatalities reported in 2008 (down from 100,000 in 2000). Road accidents are the second leading cause of premature death in the PRC, and the leading cause of death in the 15–45 year age group. A road accident can take a family from self-sufficiency to poverty, especially if the victim is the family’s main breadwinner. Reducing threats to life and health is therefore accorded high priority. The introduction of the National Road Safety Law in 2004 encouraged a greater focus on road safety, and required the setting up of provincial road safety committees. The road safety situation has improved steadily but remains challenging as motorization increases. Practices and policies must be improved to reduce the number of fatalities and severity of injuries on the roads.

12. In 2008, more than 8,400 reported traffic accidents claimed 3,000 lives and more than 10,000 casualties in Anhui. The severity of accidents is high as shown by the average of 1.6 fatalities and injuries in each accident. Road safety risks on low-grade roads remain high because most were built at a time when little attention was given to safe design. Safety is of great concern to local communities. Comments received during field surveys centered on the need to apply "traffic calming" measures such as “go slow” signs and rumble devices for local roads traversing communities. Other concerns include poor road conditions, poor junction design and signage provisions, and poor pedestrian provisions.

13. Despite good progress in providing village bus services connecting townships with counties, some 3,800 administrative villages still have no formal bus service in Anhui. This is due in part to the licensing and regulatory system, which restricts the provision of service unless a number of specific conditions are met. Transport demand in these circumstances is usually met by various unlicensed transport services, often using vehicles unsuitable for the purpose, which are not properly maintained and are not always driven safely. The ADB technical assistance (TA) for Sustainable Rural Transport Services 5 outlined how the PRC could regularize the informal (unlicensed) bus operators to foster better rural bus services by setting up more flexible regulatory frameworks and reforming rural public transportation. The transport

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

4 sector analysis is in Appendix 2. The problem and constraints analysis is in Supplementary Appendix A.

2 Government and Asian Development Bank Strategies

14. The Government’s 11th Five-Year Plan (2006–2010) focuses on balanced, equitable, and sustainable development.6 The Government pledges to increase farmers’ incomes, improve infrastructure, and enhance public services in the countryside. Transport development is a high priority as it is considered essential for promoting economic growth and reducing poverty. The central region grew at a slower pace than the rest of the PRC in the 1990s. In 2004, the State Council declared the development of the central region a priority task and formulated the Central Region Development Strategy. To achieve this strategy, the Government has stepped up construction of transportation infrastructure, particularly in Anhui. Pursuant to this, the strategy of APG is to boost eastward development and rapidly integrate the economy with neighboring provinces, especially the wealthier provinces to the east. The Project will play important roles in fulfilling the Government strategy.

15. The theme of ADB’s PRC country partnership strategy for 2008–2010 is mainstreaming inclusive growth and environmentally sustainable development.7 The Project is consistent with the strategy, in particular its main strategic pillars of (i) inclusive growth and balanced development, (ii) resource efficiency and environmental sustainability, and (iii) support for the environment for private sector participation. The strategy also seeks to mainstream knowledge and innovation in projects by optimizing the use of TA.

3 Development Coordination

16. The road subsector in the PRC has received considerable external assistance. Since 1991, ADB has extended 38 loans totaling $7.7 billion to finance 5,270 km of expressways and 11,194 km of associated local road networks. Project completion reports prepared for 22 road projects conclude that 21 were “highly successful” or “generally successful,” and 1 “partly successful.”8 ADB advisory TA projects have addressed policy and institutional issues, including highway planning, road safety, socioeconomic assessment, transport pricing, and mobilization of nongovernment financial resources. The World Bank has provided about $9.4 billion, the Japan International Cooperation Agency about ¥195 billion, and the European Investment Bank and Agence Française de Développement provided cofinancing of Euro 85 million to finance road investments. ADB coordinates with these organizations to discuss progress and issues in the sector, and meets regularly with the World Bank for coordination and information sharing. A summary of development coordination to the road sector is in Appendix 3.

4. Lessons

17. Although this is the first ADB road project in Anhui, ADB has several projects focusing on railways, and the social and energy sectors. These projects have developed the capacity of APG and local governments in project implementation. The project design benefited from lessons from ADB's 2008 sector assistance program evaluation of ADB assistance for roads

6 Government of the People’s Republic of China, National Development and Reform Commission. 2006. The Outline of the Eleventh Five-Year Plan. Beijing. 7 ADB. 2008. Country Partnership Strategy (2008–2010): People’s Republic of China. Manila. 8 The “partly successful” rating was due to inadequate safety facilities and enforcement. Remedial actions were taken to rectify the issues. The Project was subsequently rated “successful” in the project performance audit report.

5 and railways in the PRC,9 as well as from the lessons of three World Bank-financed road projects in Anhui.10 The following lessons guided the design of the Project.

18. Strategic Integration of Local Roads in Project Scope. International financial institutions coupled expressway projects in the PRC with local road improvements on the basis that including local roads would increase the poverty reduction impacts. However, local roads would often have been constructed anyway, and those components complicated the institutional and financial arrangements without adding value. The project design addresses these issues. By financing a significant portion of APG's local road program in areas selected for support under the Project, the Project will enable implementation of local roads in particularly poor areas to be completed much earlier than without an ADB project. The use of existing implementation mechanisms will eliminate burdensome institutional or financial arrangements. The project’s local road program provides an opportunity for extended dialogue with APG on improving approaches to planning, designing, and financing local roads and providing bus services on local roads. It also provides a demonstration effect of improved practices in the area of planning, resource optimization, and safety enhancements.

19. Selectivity in Policy Dialogue Issues to Add Value. The institutional capacity of provincial communications departments increased substantially in 1997–2008. Many of the policy and institutional investments supported by ADB have been adopted and institutionalized. ADB should adopt more focused and in-depth engagement on features that can still add value. To gain better ownership, institutional strengthening activities and policy reforms should be linked with investment components. The project value addition components received the full support of the Anhui Provincial Department of Transport (APDOT) during project formulation.

20. Links between Advisory Work and Projects. The recommendations of several ADB TA projects were integrated in the project design, in particular: (i) the Sustainable Rural Transport Services TA provided the model for the village bus transport service reform and pilot projects (footnote 5); (ii) the resource optimization TA 11 was disseminated to APDOT (the Executing Agency for the Project) for road capacity optimization and natural resource preservation; (iii) the Resource Manual for Health and Safety in Infrastructure developed under an ADB TA12 was distributed to APDOT and will be piloted under the Project; (iv) the report of the corporatization, leasing, and securitization TA13 was distributed to APDOT and will serve as a basis for exploring private participation options in the sector during the Project; and (v) in addition to conducting project design, the project preparatory TA 14 supported some initial implementation activities of the road safety and village bus services components, which were appreciated by APG and local communities.

9 ADB. 2007. Sector Assistance Program Evaluation: Asian Development Bank Assistance for Roads and Railways in the People’s Republic of China. Manila. 10 World Bank. 1998. China: Anhui Provincial Highway Project. Washington, DC; World Bank. 2003. China: Second Anhui Provincial Highway Project. Washington, DC; World Bank. 2008. China: Anhui Highway Rehabilitation and Improvement Project. Washington, DC. 11 ADB. 2006. Technical Assistance to the People’s Republic of China for Resource Optimization in the Road Sector. Manila. 12 ADB. 2008. A Resource Manual for Health and Safety in Infrastructure. Kunming, PRC; ADB. 2003. Technical Assistance to the People’s Republic of China for Preventing HIV/AIDS on Road Projects in Yunnan Province. Manila. 13 ADB. 1997. Technical Assistance to the People’s Republic of China for Corporatization, Leasing, and Securitization in the Road Sector. Manila. 14 ADB. 2008. Technical Assistance to the People’s Republic of China for Preparing the Anhui Road Network Development Project. Manila.

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5. Policy Dialogue

21. Policy dialogue during project preparation contributed to (i) integrating a local road network program to improve accessibility to remote and low income areas, (ii) integrating resource optimization and environmental sustainability elements in project design, (iii) incorporating advisory work on establishing a sustainable financing framework, (iv) addressing road traffic safety issues, (v) initiating sustainable rural village bus service development, and (vi) facilitating private sector participation. The policy dialogue matrix is in Appendix 4.

22. Extended dialogue with the provincial government resulted in a well-balanced road configuration. The Project will build an expressway to help realize the regional economic opportunities available through expansion of interprovincial trade and socioeconomic integration with eastern provinces, and will address local road network deficiencies by including a substantial local road improvement program. The Xuzhou–Mingguang Expressway (XME) is a key element of the central region transport network and is a high-priority project in its 5-year plan. APG considers the accessibility improvements to be a key component of its provincial poverty reduction plan and a key initiative to promote integrated rural and urban development.

23. Careful consideration was given to project scale, route selection, and land acquisition. After reviewing the traffic forecasts and expected capacity required, the scope of the XME was reduced from a dual three-lane carriageway to a dual two-lane carriageway. In addition, the design of the subgrade width for the two-lane carriageway was reduced from 28 meters to 27 meters. The total cost was reduced by 30% as a result of this optimization. To achieve an environmentally acceptable alignment and minimize land acquisition, a section of the XME was realigned to avoid the Tuo Lake Nature Reserve.

24. During project preparation, the Government introduced the new fuel tax and removed various existing tolls and fees (para. 10). As part of policy dialogue, ADB shared international experiences regarding mechanisms for establishing a sustainable road financing framework, including use of road asset management systems and establishing road funds. This led to the inclusion in the Project of a study to formulate a sustainable financing framework.

25. As part of an initial demonstration phase for the rural village bus services component of the Project, APDOT agreed to introduce changes in the organization and regulation of public transport services in the selected counties. The groundwork for the demonstration project commenced in two townships (Shipai and Ducun). Formulation of this component was therefore able to take into account the reference of an initial phase of implementation, which helped to ensure that the component is realistic in its aim and adapted to the local setting. The Project will demonstrate how the reform will work, and involves stakeholders in the design of the system and in monitoring its performance once it is in operation.

26. During project preparation, the Anhui Communications Investment Group Company Limited (ACIG) expressed interest in seeking private sector participation in the XME once it is built. The Government agreed to explore options including joint venture, asset securitization,15 and bond issue.

15 The sale of highway equity through initial public offerings and private placements, as a substitute for long-term debt financing.

7

III. THE PROPOSED PROJECT

A. Impact and Outcome

27. The impact of the Project will be an integrated road transport system that supports the Central Region Development Strategy. This will be achieved through provision of an efficient, safe, and sustainable road transport system to promote inclusive growth and balanced development, and improve resource efficiency and environmental sustainability.

B. Outputs

28. The Project will benefit about 4.0 million people, of whom 90% are rural residents. The Project has three distinct locations, including eight municipalities and 14 counties and/or districts (see Map). The project description is in Appendix 5.

(i) Output 1. Improve road infrastructure in the Xuzhou–Mingguang corridor (component A). The Project will expand the road capacity in northeast Anhui by constructing a new 139 km, four-lane, access controlled XME with a design speed of 120 km/hour.16 The component is estimated to cost $995.4 million, of which ADB will finance $118.5 million.

(ii) Output 2. Improve local roads and traffic safety practices (component B). A total of 452 km of local roads will be upgraded or rehabilitated. Traffic safety design, operation, and management practices on these existing local roads will be improved. The local roads are identified either as key links for interprovincial and intercounty roads, or as critical missing links in the road networks in low-income areas. The component is estimated to cost $356.1 million, of which ADB will finance $79.8 million.

(iii) Output 3. Improve rural village bus services (component C). As suggested by the ADB TA on Sustainable Rural Transport Services (footnote 5), APDOT will introduce village bus licensing reform consisting of vehicle license, operator's license, and route license for all bus services in project townships (Shipai, Ducun, and Xiaowei). The component will (a) develop local bus operators based in the three townships, which will have the right to provide a coordinated network of bus services to the surrounding villages; and (b) amend the licensing regulations applicable to bus services between townships and villages, and between villages, to permit greater flexibility in the use of vehicles, fares charged, and type of vehicles used. The Project will also finance the setting up of small-scale bus stations, and bus shelters and stops in the three selected project townships. The component is estimated to cost $2 million, of which ADB will finance $200,000.

(iv) Output 4: Strengthen institutional capacity (component D): (a) improve maintenance financing by preparing concept, feasibility analysis, and action plan for the creation of a new financial framework for recommendation by APG; and (b) strengthen institutional capacity by providing international and on-the-job training to APDOT, its related agencies, and ACIG staff notably involved in road safety, maintenance, public transport services, private sector participation, and

16 The start point of the XME is the provincial border with Jiangsu Province in the north, with a 4 km extension to connect Xuzhou via the Xuzhou–Huai'an Expressway, and it ends at an interchange in Mingguang on the Bengbu– Nanjing Expressway in the south. Based on an agreement reached between the Jiangsu and Anhui governments on 4 May 2009, Jiangsu will finance and complete the 4 km link by 2013.

8

environment management. ADB will finance the estimated component cost of $1.5 million.

C. Special Features

29. The Project is designed according to the principles of sustainable transport to provide access to people, places, goods, and services in an environmentally responsible, socially acceptable, and economically and financially viable manner. Strategic actions and features to ensure sustainability are addressed as an integral part of the project design.

30. Reinforce Regional Integration. The Project is designed to reduce inter- and intraprovincial development disparities. It will (i) strategically integrate Anhui Province with more prosperous neighboring provinces to the east thereby supporting trade and socioeconomic integration and expanding access to economic opportunities; (ii) support more balanced development of all classes of road networks to contribute to the improvement of living conditions across the province, particularly in poverty areas; (iii) enhance transport accessibility and connectivity by integrating a network of local roads into the trunk highway system and linking to major centers, counties, and townships; and (iv) incorporate other types of facilities such as walkways and bike paths for pedestrians to benefit local communities. In particular, the Project will contribute to economic and social integration by facilitating the mobility of people, goods, and services; and attracting more investment to the interior.

31. Formulate a Sustainable Financing Framework. Efficient road asset management is essential to ensure sustainability. APDOT is committed to ensuring sufficient funding to maintain the local project roads with good or fair services. To assist APG in developing its approach to utilization of fuel tax revenues, the Project will finance a study to develop a new financing framework for road maintenance and debt repayment. It will facilitate the development of a provincial road fund. APG is committed to allocating a growing share of its road budgets to road maintenance, rehabilitation, and institutional strengthening. In parallel, APDOT will investigate options for developing private participation in the road subsector through corporatization, leasing, concessions, or securitization of its expressway assets.

32. Initiate a Comprehensive Safety Enhancement Program. To mitigate accident risks associated with local road improvement, the Project will (i) improve arrangements for traffic flow by segregating nonmotorized and vulnerable traffic, separating opposing traffic, controlling access, and ensuring grade separation; (ii) provide better junction design and introduce channelization at intersections; (iii) provide innovative road signs and markings; and (iv) provide "traffic calming" measures to reduce traffic speed in mixed traffic environments. Road safety audits will be carried out during design, implementation, operation, and evaluation. Such proactive approaches will yield significant safety gains at a cost much lower than would be incurred if problems were to be added later in "black spot" programs of remedial works at locations with high accidents.

33. Introduce the Village Bus Licensing System. Based on the reforms suggested by the ADB TA for Sustainable Rural Transport Services (footnote 5), the Project will (i) introduce a village bus licensing system comprising vehicle licenses, operator licenses, and route licenses for all bus services in project townships;17 (ii) select a suitable bus operator company for each project township; (iii) provide exclusive authority to the selected bus operator companies on all licensed routes; and (iv) approve the maximum limit of the bus fares suggested by the pricing bureaus by taking into account all cost considerations. APG will give discretion to the bus

17 Implementation has started in Shi Pai township (Huaining county) and Du Cun township (Qingyang county), and will be carried out in Xiao Wei township (Wuhe county) during project implementation.

9 operator companies to vary the fares below the maximum limit. In addition, traffic police will enforce all traffic regulations in the project townships, in particular strict restraint on running unlicensed vehicles.

34. Optimize Resources. Drawing on the findings of the ADB TA for Resource Optimization in the Road Sector (footnote 11), project preparation drew upon a sustainable transport analysis (Appendix 6) and incorporates a package of measures to better conserve resources including (i) recycle existing pavement and road base material for the local road network improvement program to reduce resource requirement and costs; (ii) reduce emissions of carbon dioxide and other pollutants by reducing fuel consumption as a result of a more optimal transport route and more efficient driving speeds (Appendix 7); (iii) reduce noise by incorporating low-noise pavement, noise barriers, and noise insulation windows in the detailed design of the XME; (iv) require measures for topsoil preservation in the construction area and soil extraction areas to conserve soil materials required for agricultural activities; (v) include development of a waste management plan to identify and reduce total waste generated during construction in the environmental management plan; (vi) implement measures to reduce water consumption and avoid water wastage during construction; and (vii) appoint an independent environment, health, and safety supervisory team to audit and provide certified reports to APDOT and ADB on environment, health, and safety aspects of the project works.

D. Project Investment Plan

35. The project investment cost is estimated at $1,355 million, including financing charges during construction and taxes and duties (Table 1). Detailed cost estimates are in Appendix 8.

Table 1: Project Investment Plan ($ million) Item Amounta A. Base Costb 1. Component A: Xuzhou–Mingguang Expressway 844.5 2. Component B: Local Roads and Safety Enhancement 305.7 3. Component C: Rural Bus Services Demonstration 2.0 4. Component D: Institutional Development and Capacity Building 1.5 Subtotal (A) 1,153.7 B. Contingenciesc 101.2 C. Financing Charges during Implementationd 100.1 Total (A+B+C) 1,355.0 a Includes taxes and duties of $45.7 million financed by the Government. b In beginning 2009 prices. c Physical contingencies are computed at 5% for all project components on average. Price contingencies computed at 1.9% for 2009, 1.0% for 2010, 0.0% for 2011, 0.3% for 2012, and 0.5% thereafter on foreign exchange costs; and 0.8% for 2009, 1.0% for 2010, 1.5% for 2011, and 2.0% thereafter on local currency costs. d Includes interest and commitment charges. Interest during construction has been computed at applicable 5-year fixed swap rate plus a spread of 0.2%. Source: Asian Development Bank estimates.

E. Financing Plan

36. The Government has requested a loan of $200,000,000 from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per annum, and such other terms and conditions set forth in the loan and project agreements. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these

10 choices were its own independent decision and not made in reliance on any communication or advice from ADB. The Government will finance contingencies and financing charges during implementation.

37. The ADB loan will finance 14.8% of the project cost. The remaining cost will be financed by the Ministry of Transport, APG, ACIG, and cofinancing through loans from the Industrial and Commercial Bank of China and Bank of China, which have appraised the Project and provided commitment letters to APDOT. The Ministry of Transport and APG have made budgetary provisions for the counterpart funds. The PRC will be the Borrower. The ADB loan proceeds will be made available to APG on the same terms and conditions as the ADB loan. The Government will ensure that (i) APG onlends the ADB loan proceeds to APDOT; (ii) APG causes APDOT to apply a portion of the loan proceeds in an amount of $81.5 million for components B, C, and D; and (iii) APG causes APDOT to onlend a portion of loan proceeds in an amount of $118.5 million to ACIG for component A. The Government will ensure that all onlending agreements will be executed upon terms and conditions satisfactory to ADB. APG and ACIG will bear the exchange rate and interest rate variation risks on the ADB loan. All onlending under the Project will be on the same financial terms and conditions as those of the ADB loan. The financing plan is in Table 2. The fund flow chart is in Supplementary Appendix B.

Table 2: Financing Plan ($ million) Local Rural Roads and Transport Capacity Share Source XME Safety Services Building Amount (%) Asian Development Bank 118.5 79.8 0.2 1.5 200.0 14.8 Domestic Bank Loans 475.6 123.2 0.0 0.0 598.8 44.2 Ministry of Transport 80.4 37.9 0.2 0.0 119.1 8.8 ACIG 320.9 0.0 0.0 0.0 320.9 23.7 APG 0.0 115.2 1.6 0.0 116.2 8.5 Total 995.4 356.1 2.0 1.5 1,355.0 100.0 ACIG = Anhui Communications Investment Group Company Limited, APG = Anhui Provincial People’s Government, XME = Xuzhou–Mingguang Expressway. Source: Asian Development Bank estimates.

E. Implementation Arrangements

1. Project Management

38. APDOT will be the Executing Agency, responsible for overall implementation of the Project. The existing Foreign Fund Project Management Office (PMO) within APDOT will be responsible for overall project implementation. Within APDOT, the project activities will be coordinated by three implementing agencies—ACIG (component A), Anhui Highway Administration Bureau (AHAB) (component B), and Anhui Transportation Administration Bureau (ATAB) (component C), under the overall direction of the PMO. APDOT, through the PMO, will be responsible for direct implementation of component D. The PMO will oversee project implementation; submit progress, audit, and other reports to ADB; and manage day-to-day activities in connection with the Project. APDOT and ACIG have experience, and shown satisfactory performance in implementing internationally financed projects.

39. ACIG will establish a wholly owned subsidiary company, Xuming Expressway Management Company Limited, to implement component A. By 28 February 2010, the company is to be duly incorporated under the Company Law of the PRC as ACIG's wholly owned subsidiary. ACIG will send the certificate of incorporation and shareholders directory to ADB upon its incorporation. ACIG will be in charge of the operation and maintenance (O&M) of the XME with possible outsourcing of related activities. AHAB will manage the O&M for local project

11 roads. The PMO will manage procurement activities on behalf of the three implementing agencies. The organization chart is in Appendix 9.

2. Implementation Period

40. The Project will be implemented over about 5 years from mid-2010 to mid-2015 (Appendix 10). Construction of the XME is expected to take 3 years. The individual local road and safety enhancement subprojects will each be implemented over 2 years, with the overall program of such improvements spread over 5 years; implementation of the rural bus demonstration project and capacity development components will take about 4 years.

3. Procurement

41. All ADB-financed procurement will follow ADB’s Procurement Guidelines (2007, as amended from time to time). The relevant sections of ADB’s Anticorruption Policy (1998, as amended to date) will be included in all bidding documents for the Project. Contracts for works estimated to cost $10.0 million or more will be procured using international competitive bidding procedures. Contracts for works estimated to cost less than the international competitive bidding threshold but more than $200,000 will be procured on the basis of national competitive bidding procedures in accordance with the PRC tendering and bidding laws, subject to modifications agreed with ADB. Contracts for works estimated to cost $200,000 or less will be procured using shopping procedures. Prior review will be applied for all international competitive bidding contracts, the first national competitive bidding contract for works and goods, and post review for other national competitive bidding and shopping contracts. Small bus stations, stops, and shelters financed by ADB will be procured through shopping procedures. Various thresholds for contract packages are set out in Appendix 11. A full procurement plan is in Supplementary Appendix C. During project preparation, ADB assessed the PMO’s capacity to handle procurement and found it to be acceptable.

4. Consulting Services

42. The Project will finance 20 person-months of international consulting services, including 5 person-months each for the following specialists: (i) road safety, (ii) rural village bus services, (iii) road asset management, and (iv) environmental management. Considering the need to continue previous work carried out and application of background studies and analysis, the international consultants engaged for preparing this Project under the project preparatory TA will be recruited using individual consultant selection to provide support for the road safety and rural village bus services components.

43. The Project will also provide $300,000 ($100,000 for each of three activities) to finance national consulting services for (i) supervision of the rural village bus services demonstration project, (ii) supervision of the local road traffic safety program, and (iii) the road sector financing study. Given the very small contract values and intensive relevant experience of the two national firms18 proposed by APDOT for the project consulting services, the two national firms will be selected using single-source selection. For the roads financing study, a consulting firm will be engaged based on a simplified technical proposal using the consultant's qualifications selection method. In addition, APDOT will engage and entirely finance 6,000 person-months of

18 Anhui Communications Vocational and Technical College undertook the preparation of the rural village bus services component under the project preparatory TA, and the terms of reference for the TA identified the related work during implementation as a continuation. The Anhui Tongtai Traffic Engineering Design and Research Institute, which started the groundwork of local road safety tasks under the TA, was identified to continue the related work during implementation.

12 national consultants in accordance with government procedures acceptable to ADB. All consultants financed from ADB loan resources will be recruited in accordance with ADB's Guidelines on the Use of Consultants (2007 as amended from time to time). Outline terms of reference for consulting services are in Supplementary Appendix D.

5. Advance Contracting and Retroactive Financing

44. Given the high priority accorded to the Project, on 21 July 2009 ADB approved advance contracting and retroactive financing to finance eligible expenditures for civil works and consulting services not exceeding $40 million incurred prior to loan effectiveness but not earlier than a maximum of 12 months before signing of the loan agreement. Advance contracting covers the prequalification of contractors, bidding, bid evaluation, and contract award. Advance contracting will be undertaken in accordance with ADB’s Procurement Guidelines. The Government was advised that approval of the advance contracting does not commit ADB to finance the Project.

6. Disbursement Arrangements

45. All disbursements under the ADB loan will be carried out in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). Since most payments will be made for large contracts, direct payment and commitment procedures will be used to withdraw the loan funds. If the Government funds are used first for eligible expenditures, ADB's reimbursement procedure will be used. To expedite funds flow and simplify the documentation process, Anhui Provincial Finance Department may establish and manage a separate imprest account as required by APDOT after loan effectiveness. Anhui Provincial Finance Department has adequate capacity to manage the funds based on financial management assessment recommendations. Disbursement from the imprest account will be supported by an appropriate withdrawal application and related documentation. The ceiling of the imprest account will be set as either the estimated expenditures to be financed through the imprest account for the next 6 months, or 10% of the loan account, whichever is lower.19 The statement of expenditures procedure may be used for reimbursement of eligible expenditures and to liquidate advances provided into the imprest account for individual payments not exceeding the equivalent of $200,000 in accordance with ADB's Loan Disbursement Handbook and detailed arrangements agreed upon by the Government and ADB.

7. Accounting, Auditing, and Reporting

46. APDOT will maintain separate accounts and records for the Project and related financial statements. The project accounts and financial statements will be maintained in accordance with sound accounting principles and practices as prescribed by the Accounting Law of the PRC. APDOT will have such accounts and related financial statements audited annually by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB, and in accordance with auditing standards that are acceptable to ADB. The audit of such financial statements will include (i) an assessment of the adequacy of accounting and internal control systems with respect to project expenditures and other financial transactions, and (ii) an assessment of compliance with loan covenants that may be agreed under the Project and ADB's requirements on project management. Within 6 months of the end of each related fiscal year, APDOT will submit to ADB the project’s audited consolidated financial statements, audited project accounts, audit reports, and management letters in both English and Chinese. A

19 The bank charges incurred in the imprest account will be financed from the loan amount, in line with the ADB Operations Manual section on cost sharing and eligibility of expenditures for ADB financing. ADB. 2008. Cost Sharing and Eligibility of Expenditures for ADB Financing. Operations Manual. OM Section H3/BP. Manila.

13 separate audit opinion on the use of the statement of expenditures and the imprest account, if any, will be included as part of the auditor's report.'

47. To ensure that internal controls and checks on the project construction costs and operations are effective, APDOT and ACIG will use its internal audit unit to carry out independent checks during project implementation. The internal audit units will independently test financial transactions of the PMO and ACIG to ensure the safe custody of the project- financed assets. APDOT will make satisfactory arrangements for reporting the progress of project implementation to ADB by submitting quarterly progress reports to ADB as well as a completion report within 3 months of the end of the Project.

8. Project Performance Management System

48. The project performance monitoring system indicators, their relevance, and monitoring practicalities were confirmed and agreed with APDOT during project preparation. The key indicators and assumptions outlined in the design and monitoring framework (Appendix 1) and monitoring of socioeconomic and poverty impacts are attached as Supplementary Appendix E, which will form the core data required for the project performance monitoring system. APDOT will measure the indicators and report the key findings to ADB on project inception, during the midterm review, at completion, and for 3 years thereafter.

9. Anticorruption Policy

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

50. APDOT and ACIG will ensure, during project implementation, that (i) officials from the Discipline and Inspection Bureau monitor bidding process, construction, and operations of the Project; (ii) the internal audit unit is strengthened in ACIG with additional staff and resources; (iii) a two-contract system is adopted where the winner of a civil works contract will also sign an anticorruption contract with the employer; (iv) periodic inspection of contractors is undertaken to ensure that fund withdrawal and settlement procedures are followed; and (v) the status of procurement and award of contracts are published on APDOT’s website. APDOT and ACIG will initiate liaison meetings with the Prosecutor's Office, as needed, to discuss any warnings about, or information on, any corrupt, fraudulent, collusive, or coercive practices.

10. Project Review

51. In addition to regular annual reviews by ADB staff, a detailed midterm review of the Project is scheduled for 2 years after the start of implementation. The review will cover all institutional, administrative, organizational, technical, environmental, social, economic, financial, and other relevant aspects that may have an impact on the project’s performance and its continuing viability. It will identify any problems or weakness in implementation arrangements, and agree on any changes needed to achieve the project objectives.

14

IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A. Policy and Institutional Improvements

52. The policy and institutional improvement activities will help APDOT (i) prepare and submit the road maintenance financing framework recommendations to APG for consideration, (ii) incorporate road safety audit recommendations in project road design to mitigate safety risks and reduce road accident rates, and (iii) implement rural village bus services licensing and operation reforms in three pilot townships and surrounding villages. The component will also help ACIG establish an independent environment, health, and safety team to provide training and information to the construction workforce, and to impartially review and audit various contractors on their environmental, health, and safety practices. These activities will help support the sustainability of the Project.

B. Traffic Forecast

53. The XME will introduce a shorter route between Xuzhou and Nanjing—two important transport hubs in the PRC. The XME will increase capacity to meet transport demand on the route, release traffic congestion, and significantly reduce transport costs and travel times. The traffic projection was prepared using a conventional four-step traffic forecast model. An independent validation of the assumption was used in the traffic modeling for the feasibility study. A "ramp-up" factor was built in to take into account experience in previous projects that traffic gradually builds up and the full potential traffic is not realized for a few years.20 Traffic on the XME is forecast to grow from an average about 12,000 passenger car units per day in 2014 to an average of about 48,000 in 2033. The traffic forecast is in Appendix 12.

C. Economic Analysis

54. The project’s economic internal rate of return was estimated by comparing scenarios with and without the Project. The project’s economic costs reflect (i) the capital cost for construction including physical contingencies, land acquisition, and resettlement; (ii) O&M costs, including replacing depreciated equipment and periodic maintenance; and (iii) environmental management and monitoring costs. The economic benefits are (i) savings in vehicle operating costs as a result of reduced road length, and improved traffic and road conditions; (ii) time savings for road users; (iii) savings in road accident costs as a result of fewer accidents; and (iv) savings in carbon dioxide emissions. The Project is economically viable. The economic internal rate of return is 15.8% for the whole Project, 15.5% for the XME, and 16.9% for the local road component. Sensitivity analysis confirms the robustness of the project’s economic viability. The economic analysis is in Appendix 12.

D. Financial Analysis and Projections

55. The project's financial analysis was prepared in accordance with ADB guidelines for the Financial Management and Analysis of Projects. 21 For the XME, the projected financial statements indicate that financial revenue will be sufficient to cover O&M costs and debt servicing in all operating years and provide a reasonable rate of return. The financial internal rate of return for the XME, computed on an after-tax basis, is 6.6% without increasing the existing toll fee. This compares favorably with the weighted average cost of capital, also computed on an after-tax basis, of 3.7%. The XME is considered both financially viable and sustainable. Sensitivity analysis indicates that the Project is viable even in adverse conditions.

20 The feasibility study conducted by APDOT assumed about 15,000 passenger car units in 2014. 21 ADB. 2005. Financial Management and Analysis of Projects. Manila.

15

ACIG is aware that the amount of expressway tolls and their regular review are important for the financial viability of the XME. Six months prior to opening the XME, ACIG will analyze the feasibility of accessing financial markets for future road sector investments, and possible private sector participation in O&M of the XME. The financial analysis and projections are in Appendix 13. The financial management assessment of APDOT and the implementing agencies found that they meet financial management requirements, and can provide accurate and timely information in the reports required by ADB (Supplementary Appendix F).

E. Social Impact

1. Poverty and Socioeconomic Impacts

56. Poverty incidence in the project area is 10.5% on average, using a $1.25 a day poverty line at 2005 purchasing power parity.22 Poverty incidence in Yuexi, which will benefit directly from the rehabilitation of a local project road (S209), is 29.5%. The XME23 and upgrading of local road X056 will directly benefit Lingbi and Sixian counties, which have poverty incidence of 19.6% and 18.0%, respectively. Six national or provincial poverty counties will directly benefit from the Project, accounting for 43% of the total project beneficiary counties. Consequently, the Project will facilitate poverty reduction. The Project will also help the rural poor to seek more nonfarm employment opportunities. Improved access to eastern provinces will attract more labor intensive industries to transfer to Anhui, which will provide additional opportunities for employment for the surplus rural labor force.

57. The Project will have a range of social and economic benefits for local people and governments including (i) transport cost and time savings; (ii) traffic accident cost savings; (iii) improved access to health care and social services; (iv) direct job opportunities during construction and operation; (v) promotion of integrated rural–urban development through provision of bypasses and road safety facilities in small towns; (vi) new countryside construction through integrating local government initiatives with the project’s resettlement work; (vii) value addition to agricultural production through better access to regional markets; (viii) tourism development; and (ix) creation of an enabling environment for private sector development, which is the core of local governments’ master plans. The summary poverty reduction and social strategy are in Appendix 14.

58. Anhui has a large surplus rural labor force, which is a main cause of low rural income. The Project will encourage the use of local labor and material supply during road construction, employing about 440,000 person-months of local unskilled labor. About 20% of this employment for unskilled labor is expected to go to the poor. This could then benefit an equivalent of some 7,350 poor laborers or households with some 31,000 people over 4 years (assuming one unskilled laborer works 3 months a year). Consequently, this would bring additional income of about CNY3,000 for a family or CNY700 for each person every year. This additional income would help a poor household gradually move out of poverty.

59. The gender assessment conducted as part of the social and poverty analysis found that the Project can contribute to increasing the social, educational, and health status of women. The Project is not expected to have any adverse effects on women. Given the history of such projects in the PRC, women have always been an integral part of project planning,

22 Using a $2 a day poverty line (at 2005 purchasing power parity), the rural poverty incidence rate was 25.2% in 2007 for the 14 project beneficiary counties, with a poverty incidence of 59.8% for Yuexi, 56.8% for Qianshan, 34.7% for Lingbi, and 34.0% for Sixian. 23 It will benefit 2.8 million people in three counties (Linbi, Sixian, and Wuhe), two of which (Linbi and Sixian) are officially designated poverty counties, and one city (Mingguang).

16 implementation, and postconstruction activities. The road safety component of the Project will largely benefit women because women, children, and the elderly are the main pedestrians. Moreover, the village bus services component will allow easy access to township centers, which enable women to access townships in less time, more cost effectively, and with greater safety. The Project will provide necessary provisions for empowering women during project implementation, and anticipates continued participation of women during planning, implementation, and postconstruction activities with assistance from the All-China Women's Federation. ADB's Policy on Gender Development (1998) will be followed.

60. The social development action plan (SDAP) was formulated based on discussions with APDOT and other relevant agencies (Supplementary Appendix G). The SDAP is designed to ensure the mitigation of potential social risks and enhancement of social benefits in an inclusive manner, especially for the poor, women, and other vulnerable groups. The SDAP specifies key actions, target groups, implementing agencies, funding source, and monitoring indicators. Key features of the SDAP include (i) road safety, including community involvement; (ii) income and livelihood recovery for resettlement of affected people; (iii) transmissible disease prevention; (iv) avoidance of community disturbance during project construction; (v) enhancement of local economic benefits from project construction; (vi) complementary poverty reduction programs; (vii) gender and development measures for women; and (viii) transport service improvements. The SDAP will be reviewed again during the loan inception mission, and some modifications could be made if necessary. ACIG, AHAB, and ATAB will be responsible for coordinating actions with other relevant agencies, as specified, and will collect monitoring data, including gender-disaggregated data, as specified in the SDAP.

61. The Project will pilot test the Resource Manual for Health and Safety in Infrastructure developed under the ADB TA for Preventing HIV/AIDS on Road Projects in Yunnan Province (footnote 12). Separate measures to prevent HIV/AIDS and other communicable diseases are included in the project design. Health, awareness, screening, and treatment requirements are stipulated in the ADB standard contract bidding document and compliance will be monitored regularly.

62. Public consultation for the Project was undertaken in three phases: initial consultations at project initiation, a first formal round of public consultation of environmental impact assessments (EIAs) and resettlement plans, and a second round of public consultation to gather opinions on environment and resettlement measures. More than 12,000 people participated in the consultation activities. The stakeholders' consultation and participation are documented in Supplementary Appendix H.

3. Land Acquisition and Resettlement

63. This is an involuntary resettlement category A project. APCD prepared resettlement plans for the XME and for three of the nine local roads that have resettlement impacts. Resettlement information booklets were distributed to affected villages in June 2009. This Project requires acquisition of 952 hectares of land. The Project will cause some land loss in 129 villages, which partially affects an estimated 17,000 households. Also, about 1,170 households will need to be relocated; the number was reduced by optimizing the XME alignment and constructing bypasses around towns for the upgraded local roads. For land compensation, the same standards have been adopted for the XME and the local roads. The four resettlement plans will be updated based on detailed design and detailed measurement surveys, and then submitted to ADB for concurrence prior to commencement of civil works. No ethnic minorities in the project area are affected. The summary resettlement plan is included in Appendix 15.

17

F. Environmental Impact

64. This is an environmental category A project. APDOT prepared an EIA report for the project expressway; Anhui Environmental Protection Department approved the report on 28 July 2009. APDOT also prepared four EIA reports for nine local project roads; Anhui Environmental Protection Department approved these on 22 June 2009. An initial environmental examination was prepared for the three bus stations. A summary EIA, including an environmental management plan (EMP) for the Project, was discussed and endorsed by APDOT, circulated to the ADB Board of Directors, and made public through the ADB website on 4 July 2009. The EIAs, the initial environmental examination, and the summary EIA assess the environmental impact of the selected alignments of the expressway, local roads, and bus stations; and prescribe environmental protection and mitigation measures costing CNY109 million. To ensure that all the potential adverse environmental impacts of the Project are mitigated, APDOT will implement the EMPs as specified in the EIAs and the summary EIA. The EMPs will be incorporated in the bidding documents and contracts for civil works; they will be monitored and semiannual reports submitted to ADB.

G. Risks

65. Overall, the project risk is rated low. The Project does not have any unusual technical risks. The project design considered potential financial and social risks. All local roads under the Project will be toll free. A financial analysis was conducted of provincial revenue, including the availability of sufficient counterpart funds, future maintenance and operating expenses, as well as loan repayments. This revealed that the fiscal impact and financial risks of the Project are low. Social issues include land acquisition and resettlement, road safety, and prevention of transmissible diseases. Appropriate mitigation measures are in place in the resettlement plans, road and traffic management designs, and disease prevention awareness program.

66. The risk of implementation delays in timely approvals of the recommended regulatory changes of the village bus licensing system are addressed by establishing a project development group in each county to act as an implementing unit. The project development group will have authority to recommend implementation of regulatory changes. Consulting services will be provided during implementation to develop and agree on necessary procedures and documentation. Training programs will be designed for bus operators and regulators to train them in the new procedures. ADB will continue dialogue with APG and the Ministry of Transport. Any problems will be identified, and adjustments made where necessary to ensure that the new system works effectively.

V. ASSURANCES AND CONDITIONS

A. Specific Assurances

67. In addition to the standard assurances, the Government and APG have given the following assurances, which are incorporated in the legal documents.

68. Asset Management. APG will provide adequate resources to ensure the project roads are maintained and operated in good condition, and that the benefits of the roads will be realized over their expected lifetimes.

69. Coordination Arrangement. The Government will ensure that (i) prior to the opening of the project expressway, the Jiangsu government will construct the section of the expressway in Jiangsu province (about 4 km) linking the project expressway to the Xuzhou–Huai'an

18 expressway in Jiangsu, to maximize the benefits of the project expressway; and (ii) such section is constructed to at least the same technical standards as those of the project expressway.

70. Sustainability and Resource Efficiency. APG will ensure that resource efficiency procedures are used in project design and construction including (i) local procurement and manufacturing of materials, (ii) use of existing materials including existing paving and road base materials, and (iii) development of a waste management plan to be included in the EMP. APG will appoint an independent environment, health, and safety supervisory team within 3 months from loan effectiveness consisting of consultants having qualifications and experience in engineering, environment, health, and safety.

71. Road Safety. APG will (i) ensure that design guidelines on road safety provided during project preparation are incorporated in the bidding documents; (ii) ensure that road safety audits are carried out and recommendations of these audits are taken into account during project detailed design, prior to opening and after opening of the roads to traffic (monitoring and evaluation); (iii) promulgate the Highway Safety Guidelines of Anhui Province within 2 years after loan effectiveness; and (iv) implement a road safety awareness program in roadside communities and encourage community participation and feedback in road and traffic safety design and operation.

72. Village Bus Licensing Reforms. APG will ensure that (i) village bus regulatory and licensing reforms are implemented in the three project townships to improve road transport efficiency; (ii) while proposing the maximum limit of permissible fares, the pricing bureaus will consider the costs of providing the service, including the costs of maintaining and replacing the vehicles plus an appropriate return on the capital invested in the vehicle; (iii) give discretion to the bus operator companies to vary the fares below the maximum limit; (iv) the traffic police enforce all traffic regulations in the project townships, in particular strict restraint on running unlicensed vehicles; and (v) promulgate the Guidelines for Village Bus Services Best Practice within 2 years after loan effectiveness.

73. Financial Ratios. APG will ensure that ACIG maintains (i) a debt–equity ratio of not more than 65:35 for the project expressway; (ii) a working ratio (annual O&M cost, but excluding periodic maintenance cost, to revenue) of not more than 15% from the first year of full operation of the project expressway; and (iii) a debt service coverage ratio of not less than 1.2 from the third year of the project expressway's full operation.

74. Tolling Plan. APDOT will prepare, with ADB's concurrence, at least 6 months prior to the opening of the project expressway, a tolling plan and submit it for the approval of APG. APG will ensure that vehicle axle-weighing equipment is installed on the project expressway, and weight-based tolls are implemented for freight traffic.

75. Private Sector Development. APG will cause ACIG to explore the possibility of attracting private sector investment by potential investors in close consultation with ADB. Furthermore, 6 months prior to the opening of the project expressway, APDOT through ACIG will analyze the feasibility of tapping the financial markets for operating and financing road sector investments, including company listing, bond issues, securitization, as well as possible private sector participation in O&M of the project expressway, and send its report on its conclusions to ADB.

76. Resettlement. APCD will ensure that (i) the resettlement plans for the Project are implemented in accordance with their terms; (ii) all land and rights-of-way required by the Project are made available in a timely manner; (iii) the provisions of the resettlement plans,

19 including compensation and entitlements for affected persons, are implemented in accordance with all the Borrower’s applicable laws and regulations and ADB’s Involuntary Resettlement Policy (1995); (iv) compensation and resettlement assistance is given to the affected persons prior to dispossession and displacement; (v) the timely provision of counterpart funds is made for land acquisition and resettlement activities; (vi) any obligations in excess of the resettlement plans budget estimates are met; (vii) the affected persons are compensated in a manner that they are at least as well off as they would have been in the absence of the Project; (viii) the resettlement plans are updated upon completion of the detailed design and detailed measurement survey, and submitted to ADB for approval prior to commencement of Works; (ix) ADB's concurrence is sought if there are any significant material changes in the project design; (x) civil works contracts include requirements to comply with the resettlement plans and entitlements for permanent and temporary impacts to affected persons; (xi) the civil works contractors are supervised to ensure compliance with requirements of the resettlement plans; (xii) adequate staff and resources are committed for supervising and monitoring implementation of the resettlement plans and satisfaction of ADB's reporting requirements; and (xiii) an independent agency acceptable to ADB is engaged by APDOT to monitor and evaluate results of implementation of resettlement plans and reports are sent to ADB and APDOT as required.

77. Environment. APDOT will ensure that (i) the Project is designed, constructed, and operated in accordance with the environmental laws and regulations of the Government, ADB’s Environment Policy (2002), and the project-specific EIAs and EMP; (ii) that the mitigation measures as specified in the project EIAs and EMP, are properly and fully implemented; (iii) the EMP and mitigation measures included therein are updated at the engineering design stage and incorporated into the bidding documents and civil works contracts; (iv) that any adverse impact on the environment that may arise from project implementation activities is promptly mitigated or minimized; (v) the project-specific EMP is implemented in full to address the environmental aspects during the construction of the Project, including actions to be taken for auditing, measuring, and monitoring the environment and safety conditions of the work, and responding to breaches in environmental or safety requirements; and (vi) ensuring that environmental and safety aspects are reported on a semiannual basis to ADB.

78. Labor Standards. APDOT will ensure that the construction contractors (i) provide timely payment of wages and safe working conditions to all workers and monitored by the PMO; (ii) provide women’s employment, where appropriate, and pay equal wages to the women and male employees for similar work; and (iii) not employ child labor as required by the relevant laws and regulations of the Borrower. APDOT will ensure that ACIG causes the contractors involved in project implementation to maximize the employment of local poor people who meet the job and efficiency requirements for construction and maintenance of the project roads. Such workers will be provided with adequate on-the-job training.

79. Social and Gender Development. APDOT will ensure the SDAP, which includes specific gender and development actions, is implemented and the results of these actions are monitored and reported to ADB annually until the completion of the Project through collection and compilation of gender-disaggregated data, where relevant. APDOT will cause ACIG, AHAB, and ATAB to encourage women living in the project area to participate in planning and implementing the Project, as set out in the SDAP. The SDAP will be reviewed during the loan inception mission and updated, if necessary.

80. Health Risks. In coordination with the local health bureaus, APDOT will cause the contractors to disseminate information on the risks of socially and sexually transmitted diseases, including HIV/AIDS, to their employees, temporary laborers and family members, and

20 subcontractors during project implementation. These requirements will be included in the civil works contracts, and be monitored and reported on semiannually.

81. Project Performance Monitoring. APDOT will, and will cause ACIG and AHAB to, monitor and evaluate project impact through a project performance monitoring system, as agreed to by APDOT and ADB, to ensure that project facilities are managed efficiently, benefits are maximized, and social impacts are monitored, including gender-disaggregated data, wherever possible. APDOT will, and will cause ACIG and AHAB to, (i) collect the necessary information and data on project performance before project implementation, at completion of the Project, and 3 years thereafter; and (ii) submit to ADB the reports summarizing the key findings of monitoring.

82. Grievance and Redress Mechanism. Within 60 days from loan effectiveness, APG will cause APDOT to develop complaint and problem management mechanisms acceptable to ADB, and establish a task force at APDOT functioning effectively to (i) review and document eligible complaints of project stakeholders; (ii) proactively address grievances; (iii) provide the complainants with notice of the chosen mechanism and/or action; and (iv) prepare periodic reports to summarize the final outcomes of the grievances and chosen actions, and make these reports available to ADB upon request. Eligible complaints include those related to the Project, any of the service providers, or any person responsible for carrying out the Project including complaints on misuse of funds and other irregularities, including grievances due to resettlement.

B. Condition for Disbursement

83. Before disbursement for component A relating to the construction of the XME, the Government will have certified to ADB that the onlending agreement, which will include the terms and conditions required under the Loan Agreement, will have been duly executed by and delivered on behalf of APDOT and ACIG, and will have become fully effective and binding upon the parties thereto in accordance with its terms.

VI. RECOMMENDATION

84. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $200,000,000 to the People’s Republic of China for the Anhui Integrated Transport Sector Improvement Project from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Loan and Project Agreements presented to the Board.

Haruhiko Kuroda President

18 November 2009

Appendix 1 21

DESIGN AND MONITORING FRAMEWORK

Data Sources/ Reporting Design Summary Performance Targets/Indicators Mechanisms Assumptions and Risks Impact Integrated road Road traffic in Anhui increased during Provincial and Assumption transport system that 2015–2020 at 6%–7% per annum for county statistical Government investment projects supports the central passenger traffic and 5%–6% per data are implemented as planned. region development annum for freight traffic. strategy Rural poverty incidence (purchasing Provincial and Assumption power parity at $1.25) reduced from county statistical The Government is committed to 19.6% in 2007 in Lingbi and from data reducing poverty in the central 18.0% in 2007 in Sixian to 10% by region, according to the central 2020 region development strategy.

CO2 emissions per unit of gross Country Assumption domestic product reduced by at least statistical The Government maintains its 20% by the end of 2015 from 2005, yearbooks commitment to energy efficiency. and further reduced by 2020 Outcome An efficient, safe, and Traffic on the XME corridor increased Travel time Assumptions sustainable transport by 7% per year during 2008–2014, survey for the Passengers and freight operators system developed in 8% per year during 2014–2021, and expressway and realize the benefits of using the the project area 5% per year during 2021–202. local roads project roads. By 2014, travel time by road reduced PCR The Jiangsu section (4 km), by at least 30 minutes between linking XME to the Xuzhou– Xuzhou and Mingguang Huai'an expressway, is completed by Jiangsu Province. By 2014, vehicle operating costs reduced to CNY2.18 per pcu-km with the Project from CNY2.52 pcu-km without the Project Traffic accident rate, measured by Accident Assumptions road accident fatalities per statistics from Traffic law enforcement is 10,000 vehicles in Anhui, reduced by Public Security effective. 10% in 2015 Department Public awareness increases. Road user behavior is good. Road maintenance and rehabilitation APDOT Assumption expenditures as percentage of annual APDOT is committed to road needs estimated by AHAB road asset maintenance. management system increased Fuel savings of 10,500 toe in 2014 Anhui Provincial Assumptions and 1.3 million toe over 20 years in Environmental Traffic forecasts for the XME are the project corridor; CO2 emissions Protection realized. reduced by 4.2 million toe over 20 Bureau years in the project corridor Vehicle emissions standards are enforced on Anhui roads. Outputs 1. Improved road 1.1 139 km of XME opened to traffic ACIG, PAMs, Assumptions infrastructure in and effectively operated by 2014 and PCR Axle-load standards are the Xuzhou– enforced. Mingguang 1.2 Road safety enhanced through ACIG, PAMs, corridor improved road safety facilities by and PCR Quality and safety assurance is 2014 adequate. 2. Improved local 2.1 452 km of local roads upgraded PAMs and PCR Assumption roads and traffic by 2015 Counterpart resources are made safety practices available on time.

22 Appendix 1

Data Sources/ Reporting Design Summary Performance Targets/Indicators Mechanisms Assumptions and Risks 2.2 Percentage of traffic accidents APSD Assumption causing fatalities and serious APDOT demonstrates strong injuries reduced on project roads ownership and APSD cooperates to promote road traffic safety. 2.3 Road safety audit PAM, progress recommendations incorporated reports, and PCR in road design. 3. Improved rural 3.1 Rural township bus stations built PAM, progress Assumption village bus and rehabilitated reports, and PCR APDOT and local governments services Length of commit to implement new 3.2 Passenger bus route licensing licensed bus regulations. and operation reforms route from implemented in three pilot APDOT Risk townships (Shi Pei, Du Cun, and APG approval of the required Xiao Wei) and surrounding Bus operator and regulatory changes of the village villages records from bus licensing system is not 3.3 The number of trips per day per APDOT timely. bus in each direction increased on selected routes 4. Strengthened 4.1 ACIG's independent PAM, progress Assumptions institutional environment, health, and safety reports, and PCR Independent environment, development and team provided training to health, and safety team is capacity building construction workforce, and established. of APDOT, its monitored reports submitted to related agencies, ADB and APDOT and ACIG 4.2 APDOT submitted the road Operations staff at provincial and maintenance financing lower levels are assigned and framework recommendations to available for the training. APG for consideration 4.3 Survey techniques are adopted Trainees have opportunity to to assess changes in work apply what they have learned in practices and behavior to their daily work. measure the effectiveness of the capacity building component Activities with Milestones Inputs 1. XME works Contracts awarded by 2010 and completed by 2014. Asian Development Bank: $200 million

2. Local road and Work completed by June 2015 Domestic Bank Loans: safety component $598.8 million

3. Rural bus services Work completed by June 2015 Ministry of Transport: demonstration $119.1 million

4. Institutional Activities completed by June 2015 ACIG: $320.9 million strengthening

5. Environmental Environmental mitigation measures implemented during APG: $116.2 million mitigation project implementation and operation, according to the environmental impact assessment

6. Resettlement Resettlement plans implemented and monitored

7. Social The social development action plan, including disease Development prevention and gender measures, implemented and monitored. ACIG = Anhui Communications Investment Group Company Limited., APDOT = Anhui Provincial Department of Transport, APG = Anhui Provincial People’s Government, APSD = Anhui Public Security Department, CO2 = carbon dioxide, km = kilometer, PAM = project administration mission, PCR = project completion report, pcu = passenger car unit, toe = ton of oil equivalent, XME = Xuzhou–Mingguang Expressway. Source: Asian Development Bank estimates.

Appendix 2 23

TRANSPORT SECTOR ANALYSIS

A. Transportation System in Anhui Province

1. Anhui Province has a comprehensive transport system framed by trunk railways, expressways, and major navigation waterways. In 2007, the province had 5,600 kilometers (km) of navigable waterways, 2,400 km of railways, and 148,000 km of highways. Transport flows in Anhui have grown at about 8.5% per annum since 2003 (8.4% for freight and 8.8% for passengers), a lower rate than the national average (13.5% for freight and 9.4% for passengers). At national level, road and inland waterway modes have been dynamic, with rates of growth at or above 10%, while railways lagged, on average below 5% per annum. Overall, the transport matrix in Anhui remains healthily balanced, with a relatively more important role of the road network than nationally. Roads carry 64% of passengers, while railways and inland waterways are the preferred modes for freight transport, especially for bulk goods. Road transport plays an essential role in the collection and distribution system, which carried 75% of tons in 2007. Figure A2 presents the trends in the production of transport modes in the province.

Figure A2: Transport Demand Trends in Anhui

Freight Transport in Anhui (t.km) Passenger Transport in Anhui (p.km)

70% 2,500 70% 1,000 900 60% 60% 2,000 800 50% 50% 700 40% 1,500 40% 600 500 30% 1,000 30% 400 p.km illion

Market share Market share 300

20% million100 t.km 20% 100 m 500 200 10% 10% 100 0% 0 0% 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Railways Waterways Highways Railways Highways Railways share Waterways share Highways share Railways share Highways share

Source: Anhui statistical yearbooks, 2003–2007.

2. Anhui's road network is relatively dense but provides poor service to the population. The total length of highways per habitant brings the province in line with the national average and above its western neighbors. However, road quality in Anhui is relatively limited: (i)12,500 km of main highways (class II or above), placing it in the bottom third of the distribution of provinces; (ii) 362 km of arterial class I roads; and (iii) 22% of the network with dual-lane asphalt or cement concrete surfacing. The network also presents an unbalanced geographic distribution (Table A2.1). For Anhui to meet its connectivity and capacity needs in the medium term, the Government estimates that the province will need to double the length of its trunk network (5,200 km of class I highways or expressways from 2,500 km in 2007).

24 Appendix 2

Table A2.1: Composition of Anhui Road Network, 2007 (km) Item National Provincial County Township Special Village Total Expressway 811 1,395 0 0 0 0 2,206 Class I 199 148 15 0 0 0 362 Class II 1,951 5929 1,875 49 13 7 9,824 Class III 143 696 12,249 414 85 261 13,848 Class IV 137 298 9,630 31,586 716 59,634 102,001 Total 3,241 8,47323,876 36,224 1004 75,554 148,372 km = kilometer. Source: Anhui Provincial Department of Transport Yearbook (2007).

B. Management and Financing of Roads

3. Anhui Provincial Department of Transport (APDOT) oversees the road subsector; it has direct authority over two agencies: Anhui Highway Administration Bureau (AHAB) and Anhui Transport Administration Bureau; it also supervises two public expressway companies, Anhui Communications Investment Group Company Limited and Anhui Expressway Company Limited. As in other provinces in the PRC, APDOT has been mostly relying until 2008 on self-financing (user fees and tolls), bank and international financial institution loan financing, as well as Ministry of Transport (MOT) grants and subgovernment contributions rather than on provincial budgets. APDOT's revenues and expenditures grew at 12% per year from 2003 to 2008, but incurred a 25% drop in 2008, as impacts of the 2008 global financial crisis initially constrained MOT and provincial government expenditures (Table A2.2).

Table A2.2: APDOT Highway Revenue and Expenditure (CNY million) Item 2003 2004 2005 2006 2007 2008 A. Revenue 1. Road maintenance fee 1,474 1,753 2,174 2,691 3,254 3,817 2. Toll revenue 1,372 1,668 5,405 5,804 6,851 7,400 3. Surcharge on passenger and freight 490 585 642 664 716 768 4. Subsidy of MOT 1,130 1,393 1,861 2,212 3,234 2,625 5. Local financial allocation 100 100 20 0 0 6. Bank loan 5,400 5,230 6,155 5,000 5,200 3,900 7. Self-prepare 1,756 2,755 4,842 5,637 5,800 1,871 8. Other funds 2,929 5,030 809 906 990 0 Total 14,651 18,514 21,888 22,934 26,045 20,381

B. Expenditures 1. Road construction or upgrade 12,212 15,940 17,199 17,700 21,525 14,430 2. Expressway rehabilitation 0 0 1,977 2,439 1,509 2,750 3. Taxes 102 110 120 128 140 115 4. Road safety 35 38 42 46 53 56 5. Major maintenance 534 567 599 634 668 710 6. Medium maintenance 458 486 514 544 598 650 7. Routine maintenance 281 294 307 316 362 400 8. Management and study 198 208 218 225 240 250 9. Repayment of interest and principal 829 871 912 901 950 1,020 Total 14,649 18,514 21,888 22,933 26,045 20,381 APDOT = Anhui Provincial Department of Transport, MOT = Ministry of Transport. Source: Anhui Provincial Department of Transport.

C. Development Plan for Roads

4. The Anhui Provincial People’s Government’s (APG) vision is to support sustained growth and poverty reduction in Anhui through the development of an integrated high-quality transport

Appendix 2 25 network. According to its 11th Five-Year Plan (2006–2010),1 the province will develop integrated transport hubs in six major cities; link all provincial cities by railway, and county towns by expressways; and provide paved access to all villages. Over those 5 years, total investment in transport infrastructure is expected to reach CNY213.5 billion: CNY70.0 billion for railways, CNY125.0 billion for highways, CNY8.5 billion for inland waterways, CNY5.0 billion for airports and CNY5.0 billion for pipelines. Expressway network length would reach 3,500 km, while class I and II highways would reach 12,500 km. The Government accelerated its infrastructure investment pace in 2008. During the second half year of 2008, as part of the PRC growth stimulus program, APDOT anticipated the construction of six expressways and one bridge that were shovel-ready. The Xuzhou–Mingguang Expressway (which the Project would finance) is a key component of the program for 2009 and 2010.

5. In parallel to expressway development, APDOT formulated a 3-year “515” program for national and provincial trunk highways. Under this plan, AHAB would invest CNY10 billion to develop 500 km of class I highways, 10,000 km of class II highways, and undertake 5,000 km of rehabilitation works. The identification and prioritization of the investments was undertaken by the APG on the basis of the prioritized criteria described in Box A2. The Project would finance nine investments (Appendix 5) considered as priority for 2010, and for which the Government identified a financing gap. The APG and ADB selected the investments with the objectives to (i) obtain a demonstration effect of improved practices in the areas of construction techniques and safety enhancement, for different classes of roads and civil works; and (ii) increase the impact of other components of the Project (e.g., feeder roads for the Xuzhou–Mingguang Expressway and rural roads in the area of impact of the village bus demonstration project).

Box A2: Selection Criteria for the 5-Year Local Roads Investment Program

1. Poverty and low-income area 2. Mountainous area, but with low alignment complexity 3. Trunk road connecting two townships 4. Road more than 8 years old and of low class 5. Average annual daily traffic > 5,000 vehicles, linking with eastern provinces 6. Local trunk road, pavement in poor condition 7. Average annual daily traffic > 500 vehicles, pavement in poor condition, and high social impact 8. High potential to stimulate economic potential of area

9. Low adverse social and environmental impacts

Source: Anhui Provincial Department of Transport.

C. Road Subsector Issues in Anhui

6. Resource Optimization. The PRC is one of the most advanced countries when it relates to optimizing the use of energy and land, and mitigating the environmental consequences of transport. ADB technical assistance (TA) supported the preparation of a handbook and guidelines on how to apply those concepts to roads.2 This notably entails reducing the length of the transport routes through better network connectivity and logistics optimization, adjusting road capacity to demand to limit land take, and factoring in the price of

1 Government of the People’s Republic of China, National Development and Reform Commission. 2006. The Outline of the Eleventh Five-Year Plan. Beijing. 2 ADB. 2006. Technical Assistance to the People’s Republic of China for Resource Optimization in the Road Sector. Manila (TA 4877-PRC).

26 Appendix 2 land and environmental resources in project planning or pricing transport in relation with marginal costs.

7. Fuel Tax Reform. The PRC Government initiated the fuel tax reform on 1 January 2009. Six transport user charges collected by provincial and local administrations were abolished. The tolls on class II roads were removed in 12 pilot provinces by May 2009, including Anhui. To compensate, the Government introduced a new fuel tax of CNY0.8–CNY1.0 per liter, collected by the central administration. The fuel tax reform has several aims: (i) improve the economic efficiency of the fee structure, now closer to a pay-as-you-go mechanism, (ii) remove inefficient tolling practices, as tolls on class II roads often barely covered operation and maintenance costs, and (iii) improve financial accountability of the sector. In 2009, AHAB expects to receive CNY2.4 billion from the central Government, through the province's finance bureau. AHAB plans to prioritize staff and maintenance expenses, while dedicating about CNY400 million to upgrading roads. AHAB will soon face important issues regarding the financing of its class I road development program and repayment of debts accumulated for the construction of class II roads.3 The reduction of maintenance and investment budgets appears to be a key medium- term risk.

8. Management of Maintenance of Local Roads. Routine and periodic maintenance has historically been undertaken by AHAB's local in-house units. With 11,300 staff and a share of nonmanagerial staff double that in other provinces in the PRC, AHAB appears currently overstaffed, a factor that limits budgets available for maintenance works. With World Bank support,4 AHAB has been strengthening its maintenance management. AHAB is currently deploying a road asset management system. It pilots the contracting out of periodic and routine maintenance through a combined 2-year contract covering a total of 120 km. Adjusting to this new framework would require institutional changes, such as creating a performance management regime, clarifying the division’s responsibilities for maintenance, emergency works, and winter operation of the road; as well as fostering the emergence of multipurpose private contractors. AHAB has limited capacity to reduce its staff and will thus face difficulties scaling-up the pilot on its network.

9. Road Safety. Road safety continues to be a major issue in the PRC. The road accident- related fatalities exceeded 100,000 annually in the early 2000s. In 2004, the Ministry of Transport launched a highway safety enhancement program to address this situation, involving improved road design, safety audits, removal of black spots, improved road signage, and speed control. By 2008, the total number of fatalities was reduced to 73,500. However, with the rapid increase in the number of vehicles and improvements in the quality of roads, road safety remains a serious problem. Table A2.3 summarizes the accident situation in Anhui. In 2008, 8,413 accidents were reported, resulting in 3,000 fatalities and more than 10,000 casualties. Expressways account for 20% of the traffic volume, but only 10% of accidents. Comparatively, class I, II, and III highways appear to be 3–5 times more dangerous.

3 In 2009, the outstanding balance of those loans in Anhui is CNY16.0 billion at the provincial level, CNY12.0 billion at the municipal level, and CNY0.6 billion at lower levels. 4 World Bank. 2008. Anhui Rehabilitation and Improvement Project. Washington, DC.

Appendix 2 27

Table A2.3: Accident Rates by Road Class in Anhui Province, 2008 Length No. of Accidents No. of Fatalities No. of Casualties Item (km) Accidents per km Fatalities per km Casualties per km Expressway 2,206 280 0.13 233 0.11 385 0.17 Class 1 362 409 1.13 181 0.50 482 1.33 Class 2 9,824 2,178 0.22 949 0.10 2,648 0.27 Class 3 13,848 1,701 0.12 650 0.05 2,100 0.15 Class 4 102,001 723 0.01 240 0.00 942 0.01 Unclassified 20,130 531 0.03 171 0.01 685 0.03 Urban roads 2,591 603 2,956 Total 8,413 3,027 10,198 km = kilometer, No. = number. Sources: Asian Development Bank; Anhui traffic police.

10. Public Transport. Many public transport services in rural areas in the PRC are provided by unlicensed operators, often using vehicles that are unsuitable for the purpose, are not properly maintained, and are not always driven safely. Most rural transport operators tend to purchase vehicles with the lowest initial cost, even though their whole-life cycle costs may be much higher than alternative vehicle types. Anhui Province is characterized by a predominance of three-wheelers or seven-seat minibuses; larger vehicles would be more cost-effective. ADB TA outlined how the development of more flexible regulatory frameworks adapted to village transportation could allow a regularization of unlicensed operators and foster better access, affordability, and safety of rural public transport.5

11. Overloading. The important production and demand for raw materials and primary products in Anhui generates incentives for truck overloading. Overloading is cited as the major cause for the deterioration of the pavement on lower classes of Anhui's road network, which were built according to light technical standards. In 2004, the APG formulated a comprehensive overloading management program, combining enforcement, weight-based tolling, and information systems upgrade. Efforts reduced the truck overloading rate from more than 80% to a current 10% on the provincial network. However, important geographic disparities remain and the situation on lower networks is poor.

12. Private Sector Participation. Anhui Communications Investment Group Company Limited used private financing to develop its trunk road network. Between 1993 and 2004, the private sector was involved in 23 projects involving bridges, highways, and expressways through build–operate–transfer or build–and–transfer concession. However, many projects incurred financial difficulties after 2004, when the banks tightened their credit, and the provincial government had to buy back several projects. Some private contractors have focused on short- term rather than long-term profitability, as they have had little security over their investments: (i) contracts are incomplete and weakly enforced, and (ii) provincial toll rates are determined by the Price Bureau on a 5-year basis, independent of the contracts.

5 ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila (TA 4806-PRC).

28 Appendix 3 DEVELOPMENT COORDINATION

1. In the road subsector, the World Bank (WB) and Japan International Cooperation Agency (JICA) have been mainly involved in expanding the capacity of national and local road networks. The WB has provided loans of about $9.4 billion to finance road investments and the JICA (provided by Japan Bank for International Cooperation) has provided about ¥195.0 billion for this purpose. The European Investment Bank (EIB) and Agence Française de Développement (AFD) provided cofinancing in the amount of Euro 85 million for road projects in the southwestern region of the PRC. ADB coordinates with these development partners to discuss progress and issues in the sector. ADB has met regularly with the WB for coordination and information sharing. The Government coordinates the activities of different development partners and has utilized ADB TA support for researching and influencing a number of policy interventions. ADB has coordinated closely with other development partners on policy dialogue and shared its development experiences with them.

Table A3: Major Development Partners: Key Activities Project Name Date Approved Amount A. Loans from the Japan International Cooperation Agency (¥ million) 1. Hainan Development Project (Road 1) 22 Jan 1991 7,100.00 2. Qingdao Development Project (Road) 28 Mar 1991 8,800.00 3. Hainan Development Project (Road 2) 4 Oct 1991 5,855.00 4. Guiyang–Xinzhai Road Project 26 Dec 1996 14,968.00 5. Wanxian–Liangping Highway Project 25 Dec 1998 20,000.00 6. Hangzhou–Quzhou Expressway Project 25 Dec 1998 30,000.00 7. Xinxiang–Zhenzhou Expressway Project 28 Mar 2000 23,491.00 8. Hainan East Expressway Expansion Project 28 Mar 2000 5,274.00 9. Liangping–Changshou Expressway Project 28 Mar 2000 24,000.00 10. Heihe–Baian Road Construction Project 30 Mar 2001 12,608.00 11. Hunan Provincial Road Project 29 Mar 2002 23,000.00 12. Gansu Provincial Road Project 29 Mar 2002 20,013.00 Total 195,109.00

B. Loans from the World Bank ($ million) 1. Highway I 14 May 1985 72.60 2. Highway II Project 12 May 1987 150.00 3. Gansu Provincial Development Project 12 May 1987 170.50 4. Sichuan Provincial Highway Development Project 09 Jun 1988 125.00 5. Shaanxi Provincial Highway Project 09 Jun 1988 50.00 6. Jiangxi Provincial Highway Development Project 07 Feb 1989 61.00 7. Shandong Provincial Highway Project 25 May1989 110.00 8. Jiangsu Provincial Transport Project 09 Apr 1991 153.60 9. Shanghai Metropolitan Transport 10 Sep1991 60.00 10. Zhejiang Provincial Highway Project 19 May 1992 220.00 11. Henan Highway Project 17 Nov 1992 120.00 12. Guangdong Provincial Highway Project 17 Nov 1992 240.00 13. Zhejiang Multicities Development Project 25 Mar 1993 110.00 14. Shanghai Metropolitan Transport II Project 14 Oct 1993 150.00 15. Fujian Provincial Highway Project 14 Dec 1993 140.00 16. National Highway I Project 07 Jun 1994 380.00 17. Xinjiang Provincial Highway Project 30 Aug 1994 150.00 18. Shanghai - Zhejiang Highway Project 01 Aug 1995 260.00 19. Shaanxi Provincial Highway II Project 21 Mar 1996 210.00 20. Henan Provincial Highway II Project 30 May 1996 210.00 21. Xinjiang Highway II Project 10 Oct 1996 300.00 22. National Highway II Project 17 Dec 1996 400.00 23. Guangzhou City Center Transport Project 29 May 1998 200.00 24. National Highway III Project 29 May 1998 250.00 25. Tri - Provincial Highway Project 23 Jun 1998 230.00 26. Anhui Provincial Highway Project 15 Dec 1998 200.00 27. Yangtze Flood Emergency Rehabilitation Project 09 Feb1999 80.00 28. Liaoning Urban Transport Project 30 Mar 1999 150.00 29. National Highway IV Project 17 Jun 1999 350.00

Appendix 3 29

Project Name Date Approved Amount 30. Second Fujian Highway Project 24 Jun 1999 200.00 31. Guangxi Highway Project 28 Mar 2000 200.00 32. Third Henan Provincial Highway Project 16 May 2000 150.00 33. Urumqi Urban Transport Improvement Project 19 Dec 2000 100.00 34. Shijiazhuang Urban Transport Project 27 Mar 2001 100.00 35. Second Jiangxi Highway Project 05 Jun 2001 200.00 36. Inner Mongolia Highway Project 06 Jun 2002 100.00 37. Xinjiang Highway III Project 05 Sep 2002 150.00 38. Hubei Xiaogan-Xiangfan Highway Project 17 Sep 2002 250.00 39. Second Anhui Highway Project 24 Jun 2003 250.00 40. Wuhan Urban Transport Project 09 Mar 2004 200.00 41. Hubei Shiman Highway Project 24 Jun 2004 200.00 42. Inner Mongolia Highway and Trade Corridor 15 Feb 2005 100.00 43. Fuzhou Nantai Island Peri-Urban Development Project 15 Dec 2005 100.00 44. Third Jiangxi Highway Project 27 Jun 2006 200.00 45. Liaoning Medium Cities Infrastructure Project 27 Jun 2006 218.00 46. Sichuan Urban Development Project 07 Sep 2006 180.00 47. Fujian Highway Sector Investment 12 Oct 2006 320.00 48. Shaanxi Ankang Road Development 13 Mar 2007 300.00 49. Guiyang Transport Project 08 Jan 2008 100.00 50. Anhui Highway Rehabilitation and Improvement Project 22 Apr 2008 200.00 51. Xi'an Sustainable Urban Transport Project 24 Jun 2008 150.00 52. Hubei Yiba Highway 31 Mar 2009 150.00 Total 9,420.70

C. Cofinancing from EIB and AFD (€ million) 1. Guangxi Roads Development Project (EIB) 9 Oct 2001 50.00 2. Western Yunnan Roads Development Project (AFD) 28 Oct 2003 35.00 Total 85.00

D. Asian Development Bank-Financed Loans Express- Local Loan Loan way Road Amount Date No. No. Loans (km) (km) ($ million) Approved 1. 1082 Shanghai Nanpu Bridge — — 70.0 28 May 1991 2. 1168 Shenyang–Benxi Highway 75 — 50.0 2 Jul 1992 3. 1188 Shanghai Yangpu Bridge — — 85.0 17 Nov 1992 4. 1261 Hunan Expressway 52 — 74.0 9 Nov 1993 5. 1262 Jilin Expressway 133 — 126.0 9 Nov 1993 6. 1324 Heilongjiang Expressway 350 — 142.0 29 Sep 1994 7. 1325 Yunnan Expressway 200 — 150.0 29 Sep 1994 8. 1387 Hebei Expressway 200 179 220.0 28 Sep 1995 9. 1388 Liaoning Expressway 110 203 100.0 28 Sep 1995 10. 1470 Chongqing Expressway 89 — 150.0 27 Sep 1996 11. 1483 Shenyang–Jinzhou Expressway 192 291 200.0 19 Nov 1996 12. 1484 Jiangxi Expressway 134 253 150.0 19 Nov 1996 13. 1617 Hebei Roads Development Project 140 340 180.0 18 Jun 1998 14. 1638 Chengdu–Nanchong Expressway 208 300 250.0 10 Nov 1998 15. 1641 Changchun–Harbin Expressway: Hashuang Expressway 101 — 170.0 27 Nov 1998 16. 1642 Changchun–Harbin Expressway: Changyu Expressway 161 — 220.0 27 Nov 1998 17. 1691 Southern Yunnan Road Development Project 147 540 250.0 24 Jun 1999 18. 1701 Shanxi Road Development Project 176 418 250.0 30 Sep 1999 19. 1783 Chongqing–Guizhou Roads: Leichong Expressway 50 122 120.0 21 Nov 2000 20. 1784 Chongqing–Guizhou Roads: Chongzun Expressway 127 704 200.0 21 Nov 2000 21. 1838 Shaanxi Roads Development 176 627 250.0 30 Aug 2001 22 1851 Guangxi Roads Development 179 507 150.0 30 Oct 2001 23. 1918 Southern Sichuan Roads Development 160 558 300.0 20 Sep 2002 24. 1967 Shanxi Road Development II Project 65 70 124.0 12 Dec 2002 25. 2004 Ningxia Roads Development Project 182 400 250.0 11 Sep 2003 26. 2014 Western Yunnan Roads Development Project 77 294 250.0 28 Oct 2003 27. 2024 Xi'an Urban Transport Project 71 16 270.0 27 Nov 2003

30 Appendix 3

Express- Local Loan Loan way Road Amount Date No. No. Loans (km) (km) ($ million) Approved 28. 2089 Hunan Roads Development II Project 173 517 312.5 9 Sep 2004 29. 2094 Guangxi Roads Development II Project 188 750 200.0 21 Oct 2004 30. 2125 Gansu Roads Development Project 231 470 300.0 13 Dec 2004 31. 2181 Central Sichuan Roads Development Project 244 678 600.0 22 Sep 2005 32. 2219 Hunan Roads Development III Project 64 129 208.0 15 Dec 2005 33. 2247 Heilongjiang Road Network Development Project — 598 200.0 26 Jul 2006 34. 2295 Southern Gansu Roads Development Project 134 357 300.0 18 Dec 2006 35. 2339 Eastern Sichuan Roads Development Project 143 430 200.0 17 Jul 2007 36. 2345 Western Guangxi Roads Development Project 177 1,060 300.0 14 Aug 2007 37. 2393 Xinjiang Regional Road Improvement Project (Korla–Kuqa Section) 297 193 150.0 13 Dec 2007 38. 2448 Central Yunnan Roads Development Project 64 190 200.0 25 Sep 2008 Total 5,270 11,194 7,721.5

E. Asian Development Bank-Financed Advisory Technical Assistance Amount Date No. TA No. Technical Assistance ($’000) Approved 1. 1517 Toll Bridge Operation and Management 760 28 May 1991 2. 1533 Design Review of the Yangpu Bridge 100 10 Jul 1991 3. 1533 Design Review of the Yangpu Bridge (supplementary) 416 28 Apr 1992 4. 1724 Institutional Strengthening for Highway Operation and Management Improvement 500 2 Jul 1992 5. 1785 Comprehensive Toxic and Hazardous Chemicals Transport Management Plan in the Huangpu River Basin 600 17 Nov 1992 6. 1940 A study of Efficiency Improvements in Road Transport 550 25 Aug 1993 7. 1972 Institutional and Policy Support in the Road Sector 1,200 9 Nov 1993 8. 1975 Policies for Strategic Development of Transport and Communications Infrastructure 100 11 Nov 1993 9. 2177 Preparation of a Road Safety Program 600 29 Sep 1994 10. 2178 Provincial Highway Network Planning 600 29 Sep 1994 11. 2212 Beijing Urban Transport 715 28 Nov 1994 12. 2302 Symposium on Urban Transport 100 22 Feb 1995 13. 2409 Appraisal Methodologies and Restructuring Highway Financing in Hebei Province 740 28 Sep 1995 14. 2573 Review of Highway Design Standards 420 24 May 1996 15. 2649 Facilitating the Build–Operate–Transfer Modality in the Highway Sector 1,100 27 Sep 1996 16 2952 Corporatization, Leasing, and Securitization in the Road Sector 1,000 17 Dec 1997 17. 3086 Regional Road Sector Study 1,180 13 Oct 1998 18. 3341 Capacity Building Safety, Planning, and Management 600 14 Dec 1999 19. 3569 Jiangsu Highway Build–Operate–Transfer Project 555 12 Dec 2000 20. 3900 Socioeconomic Assessment of Road Projects 250 12 Aug 2002 21. 4142 HIV/AIDS on Road Projects in Yunnan Province 800 28 Oct 2003 22. 4322 Poverty Impact of Area Wide Road Networks 1,000 26 Mar 2004 23. 4351 Policy Reform in Road Transport 500 24 Jun 2004 24. 4650 Evaluating Poverty Impacts of Transport Projects 150 21 Sep 2005 25. 4671 Rural Road Development Strategy 350 21 Oct 2005 26. 4698 Road Safety Improvement 1,000 24 Nov 2005 27. 4806 Sustainable Rural Transport Services 400 28 Jun 2006 28. 4877 Resource Optimization in Road Sector 600 29 Nov 2006 29. 4991 Transport Information System 400 15 Nov 2007 30. 6321 Fighting HIV/AIDS in Asia and the Pacific (Subproject 7: HIV/AIDS Prevention and Road Transport Sector)a 500 5 Jun 2006 31. 7174 Transport Efficiency through Logistics Development Policy Study 500 18 Nov 2008 32. 7308 Improving Road Safety through the Application of Intelligent Transport Systems 500 11 Jun 2009 Total 18,786 km = kilometer, No. = number, TA = technical assistance. a Regional TA. Source: Asian Development Bank estimates.

POLICY DIALOGUE MATRIX

Actions Taken by ADB and the Initiative Issues Government Actions Taken Under the Project Outcomes/Status 1. Inclusive The geography of the Promoting pro-poor equitable and Major components of the Project are The 11th five-year program of growth People’s Republic of China inclusive growth has been ADB’s located in poverty counties. To enhance Anhui Provincial Department (PRC) poses great primary goal in the PRC. Projects development impact, the project scope of Transport (APDOT) obstacles to providing basic financed by ADB in the PRC includes (i) the development of a local emphasizes the provision of road access throughout the country strategy and program focus road network to disseminate benefits of quality access to counties, country, particularly in inner on poorer central and western the expressway, and (ii) components on towns and villages. and low-income provinces. regions. rural transport services for poor areas. 2. Global Economic crisis in The Government launched in The Project will have important Project preparation was economic developed countries in November 2008 a CNY4 trillion employment impacts and support the successfully accelerated while crisis 2008–2009 decreased fiscal stimulus package including consolidation of industrial and maintaining high quality. external demand, leading important infrastructure projects. agricultural growth centers in the central to a growth slowdown and areas of the PRC. The Project was layoffs in export-oriented ADB agreed to meet with the initially programmed for 2010 and sectors. Government’s requests to bring accelerated by 1 year. forward project processing. 3. Sustainable Land, energy, and The Government is investing for The expressway project will reduce fuel Original expressway design transport environmental resource the development of a balanced consumption by cutting travel distance optimization led to the systems and constraints need to be transport matrix in the PRC and on a major transport corridor. Project preservation of a major resource factored in transport Anhui. design has been optimized to preserve natural reserve and to a optimization systems planning. environment and minimize land take. reduction of project cost by Under the Resource Optimization 30%. The existing pavement in the Road Sector TA, ADB has and road base material will be provided assistance to MOT to recycled for the local road improve sustainability of transport network. investments. 4. Integrated Poor sharing of growth due Under its 11th five-year plan, the The Project will support balanced To develop a balanced road transport to an unbalance of primary, Anhui Provincial People’s development of all classes of road network specified in the systems secondary, and tertiary Government targets to develop networks in the province and increased province road sector road network in Anhui integrated transport hubs in major rural mobility by implementing, on a development plan. Province and poor access cities by railway, highways, and pilot basis, village bus route licensing to public transport services inland waterways (if possible); and reform and providing basic service Rural village bus service in rural areas. provide paved access to all infrastructure (bus stations, shelters, reform will be demonstrated villages. Under the Sustainable and stop signs). through three pilot projects in Rural Transport Services TA, ADB three townships. 4 Appendix proposed rural transport services reform, agreed to by the Ministry of Transport. 31 5. Road To sustain the asset value, APDOT is piloting the contracting- The Project will support efforts to use RAMS data gathering maintenance need to rebalance the need out of maintenance, and the RAMS for maintenance planning completed for the whole for new construction and implements a road asset and budgeting. province in May 2009. maintenance. management system (RAMS).

32 Actions Taken by ADB and the Initiative Issues Government Actions Taken Under the Project Outcomes/Status 6. Affordable Inefficient and poor On 1 January 2009, the Toll policy on project roads was Project local road network will transport transport services in rural Government launched fuel tax reviewed to ensure affordability. not be tolled, and toll rates 4 Appendix areas. Tolling practices on reform, which led to the removal of estimated on the project low-volume roads have tolls on class II and below expressway were deemed reduced affordability of highways. affordable.

transport for the poorest. Reform of rural transport services Reform of pilot rural village bus services is expected to improve productivity should lead to better and more and competitiveness of local public affordable services in the project area. transport services. 7. Safe Poor road safety design, Assistance is being provided to The Project will address safety issues Road accidents in the PRC in transport lack of sufficient attention improve safety and efficiency of by (i) implementing comprehensive 2008 showed improvement to safety, poor public road transport operations and safety enhancement on nine highways over 2000, with transport vehicles, and strengthen traffic law enforcement for a total of 452 km, (ii) conducting 73,500 casualties instead of inadequate traffic under the Road Safety safety audits and other measures, about 100,000 at the enforcement and driver Improvement TA. (iii) preparing highway safety guidelines beginning of the decade. The training contribute to poor for Anhui Province, (iv) establishing an Anhui fatality rate per safety record. In 2004, the Government interagency road safety working group, 10,000 habitants is 20% lower introduced the National Road and (v) developing a road safety than the PRC average. Safety Law. program for APDOT. 8. Sustainable The recent fuel tax reform The Government is channeling The Project will undertake a study to The Government will take sector has a major impact on the national fuel tax revenues to assess the financial impacts of fuel tax over a share of the debt financing long-term sector provincial governments. ADB is reform on the sector, and develop a services of the province’s framework sustainable financing preparing a small-scale TA to the long-term financing framework for local roads. framework. central Government on the fuel tax maintenance, network development, reform issue. and debt repayment. 9. Private sector The road subsector needs Private sector participation Six months before project completion, The private sector has participation to continuously attract more accounts for about 10% of total APDOT will assess the possibility of participated in 23 highway, private sector participation. investment in roads since the undertaking a maintenance and expressway, and bridge 1990s. operation concession. projects since 1993 in the province. ADB supports private sector ACIG will explore the possibility of participation in its projects and has attracting private financing through provided assistance through TA listing the company, concessions, and lending programs. leasing or securitizing toll revenues when market conditions will allow. 10. Overloading Overloading of trucks has An interministerial committee was To control overloading, Anhui will Vehicle overloading has been adverse impacts on established to develop and implement weight-based tolling on the reduced from 80% to 20% in pavement condition, traffic implement special measures to expressways, install weight-based Anhui. Overloading will be flow, vehicle emissions, enforce regulations on overloaded control stations on provincial local road gradually improved with and safety. trucks nationwide. networks within the provincial special measures framework. The province will reinforce implemented nationwide. its education and enforcement program. ADB = Asian Development Bank, APDOT = Anhui Provincial Department of Transport, ACIG = Anhui Communications Investment Group Company Limited, RAMS = road asset management system, MOT = Ministry of Transport, PRC = People’s Republic of China, TA = technical assistance. Source: Asian Development Bank estimates.

Appendix 5 33

PROJECT DESCRIPTION

1. The Project has four components: (i) Xuzhou–Mingguang Expressway (XME), (ii) local roads and safety improvement, (iii) rural village bus services, and (iv) institutional development and capacity building.

A. Component A: Xuzhou–Mingguang Expressway

2. The XME is located in the northeast of Anhui Province, close to the border with Jiangsu Province. The XME will be a section of about 139 kilometers (km) of an expressway linking the Xuzhou area in Jiangsu to Mingguang in Anhui. At the Xuzhou (northern) end, it starts at an interchange on the Xuzhou–Huai’an Expressway in Jiangsu Province and ends at an interchange on the Bengbu–Nanjing Expressway in the south. The XME is a priority project of the provincial 11th five-year plan. It forms part of the planned network included in the Central Region Development Plan, which proposes a growth strategy for the six central region provinces—Anhui, Henan, Hubei, Hunan, Jiangxi, and Shanxi.

3. The alignment was chosen to minimize impacts on populations and environment, while serving future urban development centers and being cost-effective. While the most direct alignment considered would have crossed the Touhu Lake Nature Reserve, after a multi-criteria analysis of three alternatives, an alignment that completely avoids the natural reserve was chosen. The XME was originally proposed as a six-lane carriageway. After review of the traffic forecasts, it will now be the four-lane expressway standard with a design speed of 120 km per hour, and an overall formation width of 27 meters. The overall cost, including civil works, land acquisition, and environmental measures, but excluding contingencies, is $844.8 million, or an average of $6.9 million per km.

4. The starting point of XME is the provincial border with Jiangsu; construction of an additional 4 km of route is required to connect with the Xuzhou–Huai’an Expressway. The cost– benefit analysis assumes prorated costs and benefits for the additional 4 km. Brief assessments of the potential resettlement and environmental impacts of the section within Jiangsu were undertaken as it is clearly a "linked" project. Jiangsu Provincial Communications Department will finance and complete the 4 km link by 2014 under the existing interprovincial arrangements reached in early 2009.

B. Component B: Local Roads Improvement

5. Anhui Highway Administration Bureau (AHAB) is undertaking a progressive upgrade of the local road network to support the overall development objectives of Anhui Province. This program has three objectives: (i) ensure that the condition and capacity of infrastructure meets current and future demand needs; (ii) provide quality access to the trunk network to all sectors of society by developing a balanced hierarchy of roads linking all major centers, counties, and townships; and (iii) progressively bring the highway infrastructure to modern safety standards. The Project will contribute to the three objectives by financing improvements including road upgrading, rehabilitation, and safety enhancement to nine trunk and feeder sections of the network. Three of the sections are in relatively poor agricultural districts in the northeast of the province and will provide access to the XME; four are in the poor mountainous areas in the southwest of the province; the remaining two will stimulate and serve economic and industrial development in key corridors. Table A5.1 presents the roads targeted by the component.

34 Appendix 5

Table A5.1: Local and Rural Roads Improvement Component Current Cost Length Traffic (CNY EIRR No. (km) Work Type Comments pcu/day million) % S105 50.3 Upgrade (from class II Three bypasses will be provided for 10,297 982 16.8 to I) industrial corridors Zhonghan, Tongyang, and Cuozhen in the middle of the towns to facilitate nonmotorized province traffic and facilitate urbanization; key link between Hefei and the nearby city of Chaohu, with significant volume of heavy traffic.

S312 15.6 Upgrade (from class II The road improvement will assist with 7,333 268 18.7 to I) industrial corridors the integration of Tianchang into the close to Jiangsu more developed industrial area around Yangzhou in Jiangsu Province. Safety features will be incorporated.

X056 106.4 Upgrade (from class III The upgrading of X056 will create a 2,190 346 20.2 to II) northeast road new local link across the north of the network group province and provide direct access to the expressway for isolated and poor townships.

S209 73.5 Rehabilitate (class II, Poor mountainous district. Important 935 263 16.3 IV) southwest poverty local road linking three counties and road group providing access to a large hinterland of mixed agricultural and forest land.

S304 60.9 Rehabilitate (class II) Connects the proposed expressway 1,834 148 17.8 northeast road network at Wuhe to the county town of group Guzhen and will assist with the distribution of benefits from the new road and the promotion of nonfarm development potential.

S309 34.5 Rehabilitate (class II) Connects Mingguan and XuYi, a 1,818 88 18.1 northeast road network rapidly expanding industrial center in group Jiangsu Province. Increases of nonfarm employment opportunities.

S318 32.6 Rehabilitate (class II) Poor mountainous district. Key 2,819 84 20.1 southwest poverty road interprovincial link to Hubei currently group in poor condition. Increases potential to exploit tourism.

G206 62.6 Implement safety Poor mountainous district. 6,377 62 — treatment (class II) for Improvements are proposed to a southwest poverty road section of G206 where it passes group through settlements.

X044 16.0 Implement safety Poor mountainous district. Tourist 1,666 10 — treatment (class III) for access to the important site of southwest poverty road Tianzhu Shan. The road lacks group sufficient safety features, which will be treated. 452.5

EIRR = economic internal rate of return, km = kilometer, pcu = passenger car unit. Sources: Asian Development Bank; Anhui Provincial Department of Transport.

Appendix 5 35

6. A feasibility stage safety audit reveals that all road sections present significant safety hazards, notably at intersections, urban crossings, and for vulnerable traffic (Table A5.2). Also, pavement on several sections has outlived its useful life and is severely deteriorated.

Table A5.2: Safety Appraisal of Local Roads Item S105 S312 X056 S318 S304 S309 S209 X044 G206 Head-on collision * * *** * *** *** ** ** ** Lateral collision *** *** *** * ** ** * * ** Rear–front collision ** ** * * * * * * * Sideswipe ** ** * * * * * * * Pedestrians *** *** *** ** ** ** ** ** ** Nonmotorized traffic *** *** *** ** ** ** ** * ** Rollover ** ** ** *** * * *** *** *** Collision with objects *** ** ** ** ** ** ** ** ** * = low, ** = medium, *** = high. Sources: Asian Development Bank; Anhui Provincial Department of Transport.

7. All roads will receive an in-depth safety treatment (Table A5.3). Additional safety audits will be performed during detailed design, implementation, and operation. Measures will particularly target safety at intersections, roadside safety, and urban crossings. In urban areas crossed by the project roads, driving speed will be reduced by traffic-calming measures and strictly enforcing regulations. Where urban bypasses are built, the existing road sections crossing urban centers will be redesigned for local traffic. In parallel to this engineering approach to road safety, the traffic police will implement a user education program and focus traffic enforcement in the project area based on recommendations agreed during project formulation. Continued consulting services will be provided as part of the institutional strengthening component.

Table A5.3: Road Infrastructure Safety Enhancement Measures Cost Items Detailed Measures (CNY million) Intersection Channelization and speed tables. Roundabouts at cross-roads. Junction 5.9 safety signalization. T-junction median widening and channelization. Median widening treatment for direct accesses. Improvement to existing roundabouts. Forgiving Treatment for creation of clear zones. Rigid barriers. Roadside semi-rigid safety 32.4 roadside barriers. Traffic calming Gateways. Speed limit markings with colored asphalt. Nonmotorized traffic 5.7 in urban areas lanes. Streetscape improvements Improved Thermoplastic markings. Cold formed markings. Chevron markets/guideposts. 10.1 signage and Other signage. markings Miscellaneous Bus bays. Small rest areas or lay-bys. Treatment and/or cover-up of ditches at 29.1 bends and in urban areas. Reuse treatment of highway stretches abandoned after realignment. Other safety provisions. Total 83.2 Sources: Asian Development Bank; Anhui Provincial Department of Transport.

C. Component C: Rural Transport Services

8. The objective of this component is to implement on a pilot basis the recommendations of the Sustainable Rural Transport Services Study (Asian Development Bank technical

36 Appendix 5 assistance).1 The reforms proposed by the study support the provision of sustainable, safe, reliable, adequate, and affordable public transport services in rural areas without the need for government subsidy other than in exceptional circumstances. The principal strategic recommendations that could be applied under the Project are to

(i) encourage the development of local bus operators based in townships that would have the exclusive right to provide a coordinated network of bus services to surrounding villages; and (ii) amend the licensing regulations applicable to bus services between townships and villages, and between villages, to permit greater flexibility in the use of vehicles, fares charged, and type of vehicles used. This involves the creation of three new licensing arrangements: village bus operator license, village bus route license, and village bus license.

9. Three representative townships were selected to pilot the study recommendations, based on discussions with stakeholders and fields visits. Initial implementation will be undertaken in Shipai (Huaining county) and Ducun (Qingyang county), which present the double advantage of being geographically close for easier implementation of the reforms, and of having a wide variety of informal transport services. Based on the lessons of the first two demonstration projects, a third pilot will be undertaken in Xiaowei (Wuhe county). The main activities involved in the demonstration projects are

(i) establish a project development group for each township, chaired by the county administration and including all stakeholders, to oversee the Project (para. 10) (ii) provide detailed briefings for and consultations with all parties affected (several rounds of consultations were conducted during project preparation); (iii) select and support the setup of a suitable company or group to operate services under the village bus route license (iv) draft the necessary decrees and dispensations; (v) select the routes to be included in the village bus route license, and define stopping places and minimum service frequencies if considered necessary; (vi) draft the conditions attached to a village bus operation license and village bus route license, and issue temporary licenses to the village bus operator; (vii) draft the conditions attached to a village bus license, and issue temporary licenses to bus owners wanting to join the village bus operator; (viii) adjust the role and procedures of the Communications Bureau; and (ix) evaluate the results of the pilot project, and prepare for replication.

10. Two project development groups were set up, one each in Shipei and Ducun, during project preparation. The groups are chaired by the head of the county administration to oversee the Project; membership includes representatives of the Transport Administration Bureau, the head of the township administration, the bus companies operating the routes to the county center, any existing terminal operators (if separate from the county bus operator) and representatives of bus users. When the village bus operator to be assigned the future responsibility for operating the village bus route licenses is identified, its representative should be appointed to the respective project development group. The groups will have the authority to recommend implementation of regulatory changes. Continuous consulting services will be provided during implementation to develop and agree on necessary procedures and documentation.

1 ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila (TA 4806-PRC).

Appendix 5 37

11. Implementation of the Project will be supported by (i) establishment of a provincial rural transport expert working group, (ii) local and international technical assistance, and (iii) provision of needed infrastructure, such as bus terminals, bus stop shelters, and bus stop signs as highlighted in Table A5.4.

Table A5.4: Provisional Infrastructure Investment Costs ($) Shipai Ducun Xiaowei Item (Huaining County) (Qingyang County) (Wuhe County) Total Bus terminals 227,030 24,900 73,235 325,165 Temporary bus stops 10,985 0 3,662 14,647 Bus stops in villages 14,647 14,647 14,647 43,941 Shelters in villages 18,309 7,324 10,985 36,618 Inspection facilities 11,718 0 0 11,718 Total 282,689 46,871 102,529 432,089 Sources: Asian Development Bank estimates.

D. Component D: Institutional Strengthening

12. The institutional strengthening activities (Table A5.5) will be implemented as part of the Project. They essentially aim at (i) supporting implementation of the innovative features of the Project, (ii) preparing for the replication of the pilot projects to the rest of the province, (iii) further transferring international experience to Anhui, and (iv) ensuring that the impacts of the Project are sustainable. Total Asian Development Bank financing will be $1.5 million.

Table A5.5: Institutional Strengthening Activities Activity Description Inputs 1. Capacity Domestic and international training activities and studies will $800,000 for international building cover topics including public transport services, design, safety, and domestic training maintenance, management, finance, and the environment.

2. Highway This consulting service will support the Anhui Provincial $200,000: 5 person-months financing People’s Government and specifically AHAB to adjust to the international, 20 person- new sector environment: (i) identifying the financial impacts of months national consultant the fuel reform on sector actors; and (ii) preparing the concepts, feasibility analysis, and action plan for creating a new financial framework.

3. Enhanced An independent environment, health, and safety team will be ADB financed: international environmental established for the Project to provide specific training and advisers $100,000, supervision information to the construction workforce and to impartially 5 person-months. review and audit the various contractors on their The Government will finance environmental, health, and safety practices. the national consultants

4. Road safety The objectives of the consulting services are to (i) advise and $200,000: (5 person-months assist the road safety expert working group in its initial international consultant, operations, and (ii) develop a set of highway safety guidelines 20 person-months national for Anhui Province, including a road safety design toolkit and a consultant) 5-year action plan.

5. Rural public The objectives of the consulting services are to (i) advise and $200,000: (5 person-months transport assist the rural public transport expert working group, (ii) assist international, 20 person- in implementing the pilot projects, and (iii) develop a rural months national consultant) public transport toolkit for Anhui Province. AHAB = Anhui Highway Administration Bureau. Note: For activity 3, the Government will finance 180 person-months of national consultants. The cost (estimated at CNY1 million) is included in the project management activities of the project expressway. Sources: Asian Development Bank; Anhui Provincial Department of Transport.

38 SUSTAINABLE TRANSPORT ANALYSIS

Guidelines for 6 Appendix Environmentally Considerations for Development of Anhui Integrated Transport Sector No. Sustainable Transport Transport Schemes Improvement Project 1. Develop long-term future Identify national and regional strategies for The Government’s 11th Five-Year Plan 2006–2010 targets a 20%

vision of transport that is sustainable development? reduction of energy consumption per unit of gross domestic product and a sustainable for the 10% reduction of volume of major pollutant emissions. environment and health, and provides the benefits of Does the Project fall within the long-term Inadequate road infrastructure is one of the major constraints for economic mobility and access. national and regional transport strategy? development and poverty reduction.

The Project is a priority project of the Government’s 11th Five-Year Plan and forms an integral part of the planned network for the six central region provinces. It has both regional and local significance.

How much does the Project enhance mobility The Project provides benefits from enhanced mobility and access, and will and improve access in the area? improve the environment of the area.

How does the Project fit with the strategic With such improvements, living conditions in the project area will be objectives of environmental and health aspects improved, which will help lead to other improvements to infrastructure and within the province? services such as medical care, education, and sanitary conditions in the area.

2. Ensure long-term transport How sustainable is the current transport The transport matrix in Anhui is well balanced. The modal share of roads in trends are assessed; and system? ton-km is only 27% for freight as the rail and the inland waterway that health and navigation (IWT) modes dominate long-distance transport. The road mode environmental impacts, and plays an essential role for collection and distribution, notably in corridors the economic and social where rail links or IWT is not economical or feasible. implications are considered. Does the Government transport strategy Under its 11th plan, Anhui Province will progress to the completion of high- ensure that the transport system will remain as quality integrated transport infrastructure, where each mode of transport is much or become more sustainable in the dedicated to its area of natural competitive advantage. Forty percent of future? Anhui's 11th plan transport investments are for the rail, IWT, and pipeline links.

What are the alternatives to road transport that Anhui is a landlocked province with no other alternate viable transport could be viably implemented? option in the project area. Road transportation is essential between rural farming areas and markets.

What would be the situation for health and At present, Anhui is one of the least-developed provinces in the PRC and environmental impacts without the Project? poverty and urban–rural disparity is a major issue. Without improvements to the transport system, economic development will be slowed. Poverty reduction in the project area would likely remain in its present state or degrade further.

Guidelines for Environmentally Considerations for Development of Anhui Integrated Transport Sector No. Sustainable Transport Transport Schemes Improvement Project What are the economic and social benefits The Project will provide an efficient transport system, which will provide from the Project? savings in fuel consumption, improve transportation conditions, shorten travel time, and improve safety. It will facilitate local urbanization, allow industry to be economically more viable along project roads, add value to agricultural industries through better market access, promote tourism development, and improve access to local social services like education and medical care.

3. Define health and Does the Project achieve national and local The project EIAs are completed for the improvement works and conclude environmental quality environmental standards? that adverse environmental impacts associated with the Project can be objectives based on health prevented, eliminated, or minimized to an acceptable level. and environmental criteria, standards, and Will it further degrade the environment? Environmental benefits will be provided to areas that are presently sustainability requirements. subjected to unacceptable transport noise by the provision of new noise barriers and insulation. Air pollution will be reduced through a more direct transport route and better traffic flow conditions.

Does it use more resources than can be Resources will be used to construct the Project. Measures have been renewed? proposed to reduce the use of new materials through recycling of existing pavement and road base. Resources will be obtained locally.

4. Set quantified, sector- Does it have specific long-term targets for The Project will follow the national strategy for reducing air pollution specific targets derived issues such as pollutants, greenhouse gas through (i) enforcing stricter emission standards; (ii) enforcing the from the environmental and emissions, noise, and land acquisition? inspection and maintenance program; (iii) encouraging use of alternative or health quality objectives, cleaner fuels by modifying existing vehicles to dual fuel engine vehicles, and set target dates and and establishing cleaner filling stations such as compressed natural gas milestones. stations; and (iv) forcing retirement of older vehicles.

Are they based on national and local These measures are based on long-term improvements and target standards with target deadlines? timelines for implementation are described in Appendix 7.

Other environmental aspects (such as noise, land acquisition) are predicted to be within the national and local criteria with the application of effective mitigation measures.

5. Identify strategies to Is it following the long-term desirable transport Based on transport demand studies undertaken for the Project, the Project 6 Appendix achieve and combinations plans for the future in terms of movement of has been reduced in scale to expected future demand requirements to of measures to ensure goods and people and types of vehicles? achieve the present and future needs of the area. technological enhancement and changes in transport Has transport planning efficiency and demand Transport planning was considered in the scale and location of the Project activity. been considered in the planning process for and various alternative alignments were examined in the prefeasibility present and future scenarios? studies and considered (i) protection of natural reserve, (ii) minimized need

for resettlement, (iii) conservation of productive agricultural lands, (iv) 39 minimized environmental damage, (v) technical feasibility, (vi) geological

40 Guidelines for Environmentally Considerations for Development of Anhui Integrated Transport Sector No. Sustainable Transport Transport Schemes Improvement Project Appendix 6 Appendix risks, (vii) construction costs, and (viii) present and future transport requirements.

6. Identify social and Have the economic and social implications of The economic and social implications were reviewed against the “without- economic implications of the Project been considered against the project” scenario. the vision, and ensure they without-project scenario? are consistent with social and economic Have external costs, such as those related to External costs were considered, in particular for safety. The Project will sustainability. accidents, pollution, and climate change been improve the existing roads through good road design. Accidents and considered? incidents to life and injury can be reduced. Measures have also been suggested for speed control, signage, rumble strips, dividing islands, protected crossings for pedestrians, bus stops and shelters, and parking areas. These measures will be accompanied by a targeted program of selective enforcement and publicity.

Are benefits achieved from the Project with Measures are being taken in terms of national policy to address CO2 regard to such issues as time savings and emissions, which are strongly correlated to fuel consumption. Fuel savings congestion relief? were reviewed in the feasibility study report and CO2 emissions are expected to be reduced by the Project through a more direct transport route and through various improvement measures.

Does the scheme consider the needs across a The Project will have a wide spectrum of beneficiaries on a regional and wide range of society rather than just one local scale, rather than just one sector. sector (for example, does it benefit communities as well as industry)?

7. Construct packages of Have measures been reviewed to assist in The Project will support the construction of township bus stations and bus measures and instruments achieving more environmentally sustainable licensing reforms to allow operators more flexibility in customizing their for reaching transport, such as: routes to meet passenger needs in rural areas. environmentally  Pricing strategies Traffic on the Project will be tolled and as such will cover its capital and sustainable transport.  Technology policies maintenance costs. In addition, users will pay a fuel tax.  Infrastructure investment  Traffic management A series of measures are recommended for improving road safety. The  Improvements to public transport local roads improvements will improve the safety of pedestrian and cycling  Encouraging alternative transport transport, which will raise attractiveness of nonmotorized transport.  Improving road safety?

8. Develop an implementation Will the Project be implemented effectively? Performance should be assessed through a design and monitoring strategy taking into account framework; clear performance targets are set out. Environmental local, regional, and national How will performance be assessed? performance will be audited during the construction stage by an circumstances with independent environmental, health, and safety team that will report on the timetable and Project to the Executing Agency and ADB. responsibilities.

Guidelines for Environmentally Considerations for Development of Anhui Integrated Transport Sector No. Sustainable Transport Transport Schemes Improvement Project 9. Set provisions for Is a monitoring system in place for pollution Performance monitoring for the vehicle flows and splits will be assessed by monitoring implementation aspects and for transport types (e.g., vehicle collecting information from the executing and implementing agencies. and for public reporting for splits, numbers)? an environmentally sustainable transport strategy.

10. Develop broad support and Have concerned parties been consulted and The approach to public consultation is described in the project EIAs. Public cooperation for have they influenced the Project? consultation on the Project was undertaken as part of information implementing the transport disclosure on the Project in February 2009 and March 2009. It included strategy through Do they actively support and commit to the presenting information about the Project on a website and informing town comprehensive Project? government and relevant agencies, schools in the project area, and the consultation. Ensure that all people to be affected indirectly and directly by the Project through land actions are consistent with acquisition and resettlement. global responsibility for sustainable development. Has there been public education on the Project Based on feedback on the Project, primary concerns related to land and public participation? acquisition and resettlement, and environmental impacts from noise and airborne dust.

Has this covered a broad range of The implementation of measures specified in the EIAs and resettlement stakeholders and sectors (e.g., transport, plans will be essential. Confirmation of compliance with the EIAs and environmental, health, education)? resettlement plans will be monitored.

ADB = Asian Development Bank, CO2 = carbon dioxide, EA = executing agency, EIA = environmental impact assessment, IWT = inland waterway transport, km = kilometer. Source: Asian Development Bank estimates

Appendix 6 Appendix 41

42 Appendix 7

STRATEGIC VEHICLE EMISSION REDUCTION PLAN

1. The power to move a vehicle comes from burning fuel in an engine. The main products of the combustion process are carbon dioxide and water, but inefficiencies and high temperatures inherent in engine operation also produce other by-products such as hydrocarbons, oxides of nitrogen, carbon monoxide, particulate matter, and their chemical compounds. The emission of pollutants has global and regional social, environmental, and economic impacts. Excessive carbon dioxide emissions increase global warming and cause climate change; nitrogen oxides play a major role in the formation of acid rain in the atmosphere, and particulate matter damages human beings health. Vehicle emissions have a direct and adverse impact on health and the environment. Reducing vehicle emissions to improve air quality is an important challenge that must be addressed in transport projects.

2. In general, the vehicle emission from individual vehicles depends on various factors, including the maintenance of the vehicle, driving behavior, and road and traffic conditions. Reduction of emission pollutants was estimated by comparing the case with and without the Project. Without the Project, traffic will continue to use the existing road, which will be more congested, engines will consume more fuel and produce more pollutants as a result of slow- moving traffic, inefficient stop-and-go travel, and longer engine running times. With the Project, traffic will benefit from shorter distance, optimal alignment, and less congestion. Vehicles will operate efficiently without stop-and-go, which will result in lower fuel consumption and less emission of pollutants. Smooth traffic flows will raise fuel efficiency on the project roads and reduce emissions.

3. The Project will increase the efficiency of energy use, which will reduce vehicle emission per unit of transport. The estimation of vehicle emissions is based on the relationship of fuel consumption, emission of pollutants, and vehicle average speed. The average fuel saving is estimated about 65,572 tons of oil equivalent (toe) per year and carbon dioxide reduction is about 211,090 toe per year. On average, emission reductions will be the following: hydrocarbons, 2,433 toe per year; nitrogen oxides, 2,064; carbon monoxide, 4,647; and particulate matter, 50,341.

4. Anhui Provincial People’s Government is committed to adhering to the national vehicle emission control strategies and plans, which include (i) enforcing stricter emission standards by July 2010 (GB18352-3-2005 and GB17691-2005 that are equivalent to step IV of European emission standards); (ii) enforce inspection and maintenance programs for all existing vehicles, including (a) annual emission checks and random roadside testing, (b) require emission control devices to be repaired, updated, and installed if the vehicle can’t meet the standard, (c) develop a quality audit system to guarantee the quality of testing and prevent fraud and corruption, (d) upgrade vehicle testing facilities, and (e) promote environmental awareness regarding vehicle emission and fuel consumption; (iii) encourage the use of cleaner fuel; (iv) force retirement of vehicles that are more than 8–10 years old and have failed the emission inspection test three consecutive times;7 and (v) encourage retirement of old vehicles through subsidy. Table A7 provides an integrated plan developed to help agencies reduce vehicle emissions in Anhui.

7 On the vehicle emission spectrum, the older model vehicles and vehicles with poorly maintained or malfunctioning emission control equipment emit a large percentage of the pollution from on road vehicles.

Appendix 7 43 Table A7: Strategic Vehicle Emission Reduction Plan: Targets and Expected Outputs Expected Responsible Target Proposed Action Schedule Output Agency A. Vehicle Emission Standard and Vehicle Technology Implement Adopt PRC phase-IV standards equivalent to By 2010 Vehicle AEPB new PRC Euro IV emissions emission reduced by standards 30%

Retire Force retirement of vehicles that are more than Ongoing Retirement of APSD obsolete 8–10 years old and have failed the emission all obsolete vehicles inspection test three consecutive times. vehicles will be Encourage retirement of old vehicles through timely subsidy and enforcement.

B. Fuel Use taxation Owners of vehicles with engines above 4-liter Effective Reduced sales Ministry of policies capacity will pay 40% tax, double the previous 1 September of cars with big Finance rate. The tax for vehicles with engine capacities 2008 engines. of 3–4 liters will be increased from 15% to 25%.

Improve For diesel vehicles, reduce sulfur to <500 parts Ongoing MEP and conventional per million. Impose further reductions on sulfur AEPB fuels levels upon adoption of new stricter vehicle emission standards as proposed by MEP.

Introduce Encourage production of alternative fuel vehicles Ongoing By 2010, 20% AEPB alternative or or modification of existing vehicles to dual-fuel of buses and cleaner fuels engine vehicles, utilizing new Anhui gas taxies in Hefei pipelines and refinery. Promote establishment of will be CNG stations in Anhui. converted to CNG

Develop economic incentives for investment in Ongoing ADRC and gas-filling stations. AEPB

Develop economic incentives for encouraging Ongoing Ministry of the use of clean fuels. Fuel tax was adopted. Finance Other incentives are being initiated.

C. Inspection and Maintenance Program Improve Strengthen the capacity of relevant agencies to Ongoing Adequate AEPB annual provide efficient services. inspection and vehicle Require emission-violating vehicles to be maintenance testing and repaired to meet required standards before going system will be certification on-road. in place.

Upgrade the vehicle testing facilities to meet new vehicle inspection requirement according to the new standards. Develop a quality audit system for assuring the quality of vehicle emission tests and preventing fraud and corruption. Stations found with corruption or unreliable results will be penalized.

Initiate on- Initiate a random on-road check program for By 2015 APSD and road spot vehicle emissions to complement testing in fixed AEPB check stations.

D. Monitoring Strengthen Engage a qualified environmental monitoring During APSD and environmental institution to monitor ambient air quality along the operation AEPB monitoring expressway, particularly at sensitive receptors such as schools, hospitals, and residential sites; and be ready to take immediate action if standards are exceeded on more than two consecutive tests. ADRC = Anhui Development and Reform Commission, AEPB = Anhui Environmental Protection Bureau, APDOT = Anhui Provincial Department of Transport, APSD = Anhui Public Security Department, CNG = compressed natural gas, MEP = Ministry of Environmental Protection, PRC = People’s Republic of China. Sources: Anhui Provincial People’s Government; Ministry of Environmental Protection.

44 DETAILED COST ESTIMATES AND FINANCING PLAN

a

Table A8.1: Detailed Cost Estimates by Expenditure Category 8 Appendix

CNY million $ million Total Cost Total Cost Total Cost Total Cost

Foreign Local (Tax (Including Foreign Local (Tax (Including Item Exchange Exchange Separated) Tax) Exchange Exchange Separated) Tax) A. Investment Costs b 1. Civil Works 640.9 5,767.9 6,408.8 6,627.3 94.0 845.7 939.7 971.7 2. Mechanical and Equipment 13.2 119.2 132.4 161.2 1.9 17.5 19.4 23.6 3. Environment and Social 14.5 130.9 145.4 145.4 2.1 19.2 21.3 21.3 4. Land Acquisition and Resettlement 0.0 420.1 420.1 484.4 0.0 61.6 61.6 71.1 5. Project Management 0.0 440.7 440.7 440.7 0.0 64.5 64.5 64.5 6. Capacity Development 9.4 0.0 9.4 9.4 1.5 0.0 1.5 1.5 7. Taxes and Duties 0.0 311.6 311.6 0.0 0.0 45.7 45.7 0.0 Total Base Cost 678.0 7,190.4 7,868.4 7,868.4 99.5 1,054.2 1,153.7 1,153.7

B. Contingencies 1. Physical 33.4 359.5 392.9 392.9 4.9 52.7 57.6 57.6 2. Price 21.5 275.8 297.3 297.3 3.1 40.5 43.6 43.6 Total Contingencies 54.9 635.3 690.2 690. 2 8.0 93.2 101.2 101.2

C. Financing Charges 1. Interest During Construction 92.5 586.4 678.9 678.9 13.6 86.0 99.6 99.6 2. Commitment Charges 3.5 0.0 3.5 3.5 0.5 0.0 0.5 0.5 3. Front-End Fee 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Charges 96.0 586.4 682.4 682.4 14.1 86.0 100.1 100.1 Total (A + B + C) 828.9 8,412.1 9,241.0 9,241.0 121.6 1,233.4 1,355.0 1,355.0 a Includes taxes and duties of $45.7 million b In beginning 2009 prices. c Physical contingencies are computed at 5% for all project components. Price contingencies computed at 1.9% for 2009, 1.0% for 2010, 0.0% for 2011, 0.3% for 2012, and 0.5% thereafter on foreign exchange costs; and 0.8% for 2009, 1.0% for 2010, 1.5% for 2011, and 2.0% thereafter on local currency costs. d Includes interest, commitment charges, and front end fees. Interest during construction has been computed at applicable 5-year fixed swap rate plus a spread of 0.2%. d Includes interest and commitment charges. Interest during construction is computed at the 5-year forward London interbank offered rate plus a spread of 0.2% for Asian Development Bank loan and 5.94% for domestic loans. Source: Asian Development Bank estimates.

Table A8.2: Detailed Cost Estimates by Financier ($ million)

ADB DBL MOT APG ACIG % Cost % Cost % Cost % Cost % Cost Item Total Amounta Categoryb Amounta Category Amounta Category Amounta Category Amounta Category A. Investment Costs 1. Civil Works 939.7 183.1 19.5 482.5 51.3 70.7 7.5 40.3 4.3 163.1 17.4 2. Mechanical and Equipment 19.4 0.0 0.0 10.4 53.6 6.6 34.0 0.5 2.6 1.9 9.8 3. Environment 21.3 15.4 72.3 0.0 0.0 5.8 27.2 0.0 0.0 0.1 0.5 4. Land Acquisition and Resettlement 61.6 0.0 0.0 0.0 0.0 10.2 16.6 13.0 21.1 38.4 62.3 5. Project Management 64.5 0.0 0.0 41.4 64.2 16.1 25.0 4.0 6.2 3.0 4.7 6. Capacity 0.0 0.0 0.0 0.0 0.0 0.0 Development 1.5 1.5 100.0 0.0 0.0 7. Taxes and Duties 45.7 0.0 0.0 0.0 0.0 0.0 0.0 26.8 58.6 18.9 41.4 Total Base Cost 1,153.7 200.0 17.3 534.3 46.3 109.40 9.5 84.6 7.3 225.4 19.5

B. Contingencies 101.2 0.0 0.0 64.5 0.6 9.7 0.1 7.0 0.1 20.0 0.2 C. Financing Charges 100.1 0.0 0.0 0.0 0.0 0.0 0.0 24.6 0.2 75.5 0.8

Total (A + B + C) 1,355.0 200.0 14.8 598.8 44.2 119.1 8.8 116.2 8.5 320.9 23.7

% Total Project Cost 100 14.8 44.2 8.8 8.5 23.7

ACIG = Anhui Construction Investment Group Company Limited, ADB = Asian Development Bank, APG = Anhui Provincial People's Government, DBL = domestic bank loans, MOT = Ministry of Transport. a Amount of ADB loan proceeds allocated to the cost category. b The amount disbursed by ADB for eligible expenditures under a cost category will be subject to the ceiling set by the allocation of loan proceeds for such cost category. Source: Asian Development Bank estimates.

Appendix 8 Appendix 45

46 Appendix 9

PROJECT ORGANIZATION CHART

APDOT

AGENCY Foreign Fund Project PMO EXECUTING

ATAB AHAB (Subproject Manager) ACIG (Subproject Manager)

AGENCY Road Traffic IEHSS Rural Transport IMPLEMENTING Safety WG Services WG

XMEC

division UNITS UNITS g

IMPLEMENTING Plannin Maintenance division Construction division PDG 1 PDG 1 PDG 1

ACIG = Anhui Provincial Communications Investment Group Company Limited., AHAB = Anhui Highway Administration Bureau, APDOT = Anhui Provincial Department of Transport; ATAB = Anhui Transportation Administration Bureau, IEHSS = independent environmental, health, and safety supervision, PDG = project development group, PMO = Foreign Fund Project Management Office, WG = working group, XMEC = Xuming Expressway Management Company Limited.

Notes: Traffic Safety Working Group: —Deputy director general of AHAB (chair) —Senior officers of planning, construction, maintenance, highway administration, quality supervision divisions of AHAB (members) —Deputy chief, Foreign Fund Project PMO (member) —Senior officers from Provincial Central Traffic Police (member) —Senior officers of Traffic Union (member) —International and national consultants (members)

Composition of Rural Transport Services Working Group: —Deputy director general of ATAB (chair) —Senior officers of planning, finance, infrastructure, passenger transport, and safety management divisions of ATAB (members) —Deputy chief, Foreign Fund Project PMO (member) —Senior officers of Transport Administration Division of pilot counties (members) —Delegates of bus operators in pilot counties (members) —International and national consultants (members)

Source: Anhui Provincial Department of Transport.

Appendix 10 47

IMPLEMENTATION SCHEDULE

Content 2009 2010 2011 2012 2013 2014 2015 Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 A. Project Processing 1. Feasibility Study Approval h 2. Advance Action Approval h 3. Loan Approval h 4. Loan Effectiveness

B. Land Acquisition and Resettlement 1. RP Preparation and ADB Approval 2. Land Acquisition Process and Approval 3. Transfer Land and Relocate Housing 4. Livelihood Rehabilitation

C. ADB-Financed Consultants 1. Preparation and Issuance RFP 2. Proposal Submission 3. Technical and Financial Evaluation 4. Negotiation and Contract Award 5. Mobilization of Consultants

D. Institutioanl Capacity Building 1. Contract Preparation and Contract 2. Mobilization of Consultants and Training

E. XME Subgrade Contracts 1. BD Submission to ADB to Issuance 2. Bid Closing 3. TechnicalTechnical andand FinancialFinancial EvaluationEvaluation 4. Contract Award 5. Mobilization of Contractors

F. Pavement, Safety, Greening, and Building 1. Contract Preparation and Contract 2. Mobilization of Contractors

G. Local Roads and Safety Improvement 1. Accident Analysis and Road Safety Audit 1. Contract Preparation and Contract 2. Site Implementation 3. Training and Evaluation

H. Rural Transport Services Demonstration 1. Select Suitable Counties and set up PDGs 2. Formulation of Village Bus Operators 3. Introduce new licensing systems 4. Bus Terminals and Shelters. 5. Training and Evaluation ADB = Asian Development Bank, BD = bidding document, PDG = project development groups, RFP = request for proposal, RP = resettlement plan, XME = Xushan–Mingguang Expressway. Sources: Anhui Provincial Department of Transport; Asian Development Bank estimates. 48 Appendix 11

CONTRACT PACKAGES

A. Proposed Project Threshold Procurement of Goods and Works Procurement Method Threshold ICB Works ICB Works ≥ $10,000,000 NCB Works $200,000 ≤ NCB Works <$10,000,000 Shopping Works Shopping for Bus Stations and Stops <$200,000 ICB Goods ICB Goods ≥ $1,000,000 NCB Goods $100,000 ≤ NCB Goods <$1,000,000 Shopping Goods Shopping Goods <$100,000

B. ADB Prior or Post Review Procurement of Goods and Works Procurement Method Prior or Post ICB Works Prior ICB Goods Prior NCB Works Prior Shopping Works Post Shopping Goods Post Individual Consultants Prior

C. Contract Packages Procurement Prior Method Expected Date of Review Number Description (packages) Advertisement Yes/No A. Expressway Civil Works 1. K3+200.00-K16+800.00 ICB Q4 2009 A 2. K16+800.00-K30+705.00 ICB Q4 2009 A 3. K30+705.00-K40+905.00 ICB Q4 2009 A 4. K40+905.00-K52+175.00 ICB Q4 2009 A 5. K52+175.00-K53+975.00 ICB Q4 2009 A 6. K53+975.00-K62+230.00 ICB Q4 2009 A 7. K62+230.00-K73+096.82 ICB Q4 2009 A 8. K73+067.50-K87+074.00 ICB Q4 2009 A 9. K87+074.00-K101+563.00 ICB Q4 2009 A 10. K101+563.00-K104+203.00 ICB Q4 2009 A 11. K104+203.00-K105+708.00 ICB Q4 2009 A 12. K105+708.00-K116+190.50 ICB Q4 2009 A 13. K116+190.50-K119+366.50 ICB Q4 2009 A 14. K119+366.50-K134+700.00 ICB Q4 2009 A 15. K134+700.00-K142+232.041 ICB Q4 2009 A B. Local Roads Civil Works Local Road S312 Civil Works 1. K0+000-15+64 ICB Q4 2009 A Local Road S105 Civil Works 2. K0+000-17+100 ICB Q4 2009 A 3. K17+100-34+100 ICB Q4 2009 A 4. K34+100-50+340 ICB Q4 2009 A Local Road X056 Civil Works 5. K0+000-26+000 NCB Q1 2010 B 6. K26+000-52+000 NCB Q1 2010 B 7. K52+000-78+000 NCB Q1 2010 B 8. K78+000-106+365 NCB Q1 2010 B Local Road S309 Civil Works 9. K0+000-18+000 NCB Q1 2010 B

Appendix 11 49

Procurement Prior Method Expected Date of Review Number Description (packages) Advertisement Yes/No 10. K18+000-34+500 NCB Q1 2010 B Local Road S304 Civil Works 11. K20+000-40+000 NCB Q1 2010 B 12. K40+000-60+899 NCB Q1 2010 B 13. K101+000-118+000 NCB Q1 2010 B Local Road S318 Civil Works 14. K101+000-118+000 NCB Q1 2010 B 15. K118+000-133+630 NCB Q1 2010 B Local Road S209 Civil Works 16. K227+072-245+072 NCB Q1 2010 B 17. K245+072-263+000 NCB Q1 2010 B 18. K263+000-281+000 NCB Q1 2010 B 19. K281+000-300+600 NCB Q1 2010 B

20. Local Road G206 Traffic Safety NCB Q4 2009 B 21. Local Road X044 Traffic Safety NCB Q4 2009 B C. Work Contracts 1. Bus Stops in Shi Pei Shopping Q1 2010 C 2. Bus Stops in Shi Pei Shopping Q1 2010 C 3. Bus Stops in Xiaowei Shopping Q1 2010 C D. Consulting Services Contracts International Consultants 1. Road Safety Management Advisor ICS Q1 2010 A 2. Rural Transport Services Advisor ICS Q1 2010 A 3. Assess Management Specialist ICS Q1 2010 A 4. Environmental Management Specialist ICS Q1 2010 A National Consultants 1. Local Road Safety Component SSS Q1 2010 A Supervision 2. Rural Village Bus Services Supervision SSS Q1 2010 A 3. Independent Environmental, Health, and Not applicable Q1 2010 Not Safety Supervision (Government applicable financed) 4. Financing Framework Study CQS Q1 2010 A ADB = Asian Development Bank, CQS = consultant's qualifications selection, ICB = international competitive bidding, ICS = individual consulting services, NCB = national competitive bidding, No. = number, SSS = single source selection. Notes: ADB Review: A = Prior review and approval by ADB of procurement documents, bid evaluation reports, and proposed awards of contracts is required. B = The first draft English language version of the procurement documents should be submitted for ADB review and approval regardless of the estimated contract amount. ADB-approved procurement documents should be used as a model for all NCB procurement financed by ADB for the Project, and need not be subjected to further review. ADB will review the bid evaluation report and award of contract on a post- review basis. C = ADB will review the award of contract on a post-review basis. NR = ADB Review not required Sources: Anhui Provincial Department of Transport; ADB estimates.

50 Appendix 12

ECONOMIC ANALYSIS

A. Traffic Forecast

1. The proposed Xuzhou–Mingguang Expressway (XME) is located in the northeast of Anhui Province, close to the border with Jiangsu Province. The XME will be a 139-kilometer (km) four-lane expressway linking the Xuzhou area in Jiangsu to Mingguang in Anhui, thus completing a key link in the Xuzhou–Nanjing corridor. The present design includes five interchanges plus six reserve sites to connect the local road network. The design speed is 120 km per hour (km/h). The XME will be a shorter route between Xuzhou and Nanjing, two important transport hubs in the People’s Republic of China (PRC). It will provide an optimized link in the Xuzhou–Nanjing corridor to release traffic congestion in the near future. The XME is a priority project of the Government’s 11th Five-Year Plan.

2. The start point of the XME is the provincial border with Jiangsu Province in the north, with its 4 km extension to the Xuzhou–Suqian–Huai'an–Nanjing Expressway (Xusuning), and ends at an interchange in Mingguang on the Bengbu–Nanjing Expressway in the south. The XME will parallel the existing national highway (NH104), which was upgraded to class II in the late 1980s with a 12-meter width of road pavement. The pavement is generally fair, but the road is poorly aligned with substantial ribbon development. Its technical standard confines the average speed on the road and road capacity. The average daily motorized traffic in 2008 was about 6,500 vehicles and the average speed on the road less than 50 km/h. The existing road is saturated and cannot meet the rapidly increasing traffic demand.

3. The XME will provide a shorter and direct route between Xuzhou, Mingguang, and Nanjing and beyond. The distance savings are 50 km from Xuzhou–Hefei (Hehu) route via Bengbu, 28 km from Xusuning via Suqian, and 30 km from route of NH104. Traffic will be redistributed upon the project completion. By 2014, Xusuning will mainly serve the traffic to or from Huai’an and Lanyungang (an important seaport in the PRC); and the Xuhe will mainly serve traffic to or from Hefei, the capital city of Anhui.

4. The base year for establishing the road network is taken as 2008. Future road networks are derived for the project opening year of 2014 and 2020. The traffic origin–destination survey and count survey were undertaken in 2007, and updated in 2008. According to the survey and analysis results, internal traffic in the direct influence areas of the Project accounts for 50%, traffic between internal and external areas accounts for 32%, and the external cross-boundary traffic accounts for 18%. Much of the traffic on NH104 would be short- or medium-distance traffic with either an origin or destination in the immediate areas.

5. The traffic forecast for the XME uses a standard four-stage travel demand model, based on 47 zones, including 25 zones in the immediate influence areas, and remainder zones in the indirect influence areas. The model assigns traffic between each of zones to anticipated road networks for two scenarios, with and without the XME, in the series of forecast years. Traffic forecasts are based on an analysis of economic growth, population, and vehicle ownership. Traffic demand is projected separately for passenger and freight vehicle for 2014, 2021, and 2033, from the base year of origin and destination matrix and demand elasticity of 1.0 and 0.9.

6. The traffic forecasts allow for potential generated and diverted traffic as a result of (i) additional traffic generated by the Project because of the lower trip costs in the corridor; and (ii) potential diverted traffic from other road networks because of the more direct and shorter route to or from same origin and destination. Generated traffic is estimated using price elasticity

Appendix 12 51 of minus 0.3 for passenger traffic and minus 0.2 for freight traffic, and is projected to be 10% of normal passenger traffic and 8% of normal freight traffic.

7. Traffic is assigned between every pair of traffic zones. Vehicles moving from one zone to another make a choice of link paths based on their perceptions of generalized costs of travel on the expressway and its parallel route, a function of travel time, distance, associated toll cost, and affected by road conditions and traffic congestion. The diverted traffic from existing roads is calculated using multiple paths with the capacity restraints trip assignment model. The results of the analysis indicate that an average of 28% of vehicles may be diverted to the XME from the Xuhe Expressway (21% in 2022), 35% of the vehicles diverted from the Xusuning (32% in 2022), and the rest diverted from the NH104 in 2014 (47% in 2022).

8. Traffic projection considers the effect of the railway network changes. The high-speed passenger railway of Beijing to Shanghai will divert some traffic from the Xuzhou–Nanjing road corridor. According to the feasibility study of the high-speed railway, the railway origin– destination and travel distance are quite different from project expressway, and traffic diversions to the railway are limited. Analysis show that traffic diversions to the railway are 598 passenger car units (pcu) per day in the opening year and 841 pcu per day in the end of analysis year.

9. A "ramp-up" factor was built in to take into account the experience in previous projects that traffic gradually builds up and often the full potential traffic is not realized for a few years. To estimate this effect, the assumptions are made as follows: 75% of the expected flow for 2014 and 90% in 2015. Traffic on the XME is forecast to be around 12,000 pcu/day in the year of opening, and increasing to around 29,000 pcu/day by 2021. The forecast annual growth rate at the initial period of operation is 8%, dropping to 5% between 2021 and 2026, and 4% beyond. The XME will be shorter than the existing routes between Xuzhou, Mingguang, and Nanjing; it will cut travel time by up to 35 minutes for traffic diverting from existing expressways, and by up to 45 minutes for traffic diverting from the local road network. Generated traffic is expected to remain minor (Table A12.1).

Table A12.1: Traffic Volumes on the Corridor (pcu/day) Item 2008 2014 2021 2026 2033 A. Without Project Xuhe Expressway (G3) 18,770 25,560 41,975 53,551 68,430 Xusuning Expressway (Jiangsu) 11,235 17,745 31,870 40,839 53,589 G104 (Existing Road) 6,470 9,784 16,807 22,048 28,555 Total Corridor Flow 36,475 53,089 90,652 116,438 150,574 Annual Growth Rate 6% 8% 5% 4% B. With Project Xuhe Expressway (G3) 22,296 36,424 44,495 57,140 Xusuning Expressway (Jiangsu) 13,591 23,362 29,599 38,938 G104 (Existing Road) 6,832 5,766 7,288 9,622 Project Expressway (XME) 11,710 27,633 38,428 49,142 Normal traffic 10,370 25,100 35,056 44,874 Generated traffic 1,340 2,533 3,372 4,268 Total Corridor Flow 54,429 93,185 119,810 154,842 Annual Growth Rate 8% 5% 4% pcu = passenger car unit. Sources: Anhui Provincial Department of Transport; Asian Development Bank estimates.

52 Appendix 12

B. Economic Analysis

10. The cost–benefit analysis of the Project takes into account the capital costs and road maintenance costs, and benefits from road user cost savings, which are derived from a comparison of the without-project and with-project scenarios. Without the Project, vehicles will continue to use the existing road network, which will be more congested and result in increased travel time, vehicle operating cost (VOC), and road accidents. With the Project, the corridor capacity will be significantly increased and road congestion will be relieved; vehicles will benefit from faster, cheaper, and safer travels. The HDM-4 model, a comprehensive road assessment program, was used to evaluate the road user costs. The economic evaluation uses 2009 prices, expressed in CNY using the domestic price numeraire with a shadow exchange rate factor of 1.03 for foreign exchange effects. A shadow wage rate factor of 0.67, considering the lower productivity and unemployment in the project area, is applied to convert the financial costs of unskilled labor into economic costs.

11. Possible alternative interventions were considered to meet the growing transport demand in the project area. Alternative analysis reviewed various options in terms of transport modes, alignments, technical designs, timing of investments, and financing modalities. Options were evaluated in light of environmental impacts, effects on land acquisition and resettlement, traffic flow and safety, and project costs. The recommended project road location and alignment option were selected after the analysis. Alternative financing modalities were considered, including private sector investment. However, private sector investment was not found attractive due to risks associated with construction and low estimated rates of return. Hence, public financing was considered appropriate.

1. Costs

12. The economic costs include (i) capital costs, including physical contingency, land acquisition and resettlement, and environmental mitigation costs; (ii) costs of operation and maintenance; and (iii) costs for periodic maintenance and replacement of depreciated equipment. The economic costs are derived from financial costs by (i) excluding taxes and duties, (ii) converting the cost of imported items to domestic prices using the shadow exchange rate factor, and (iii) converting unskilled labor costs using the shadow wage rate.

2. Benefits

13. Project benefits result from improvements in road and traffic conditions as assessed by comparing with-project and without-project scenarios. The economic benefits include (i) savings in VOC, (ii) savings in the value of passenger time tied up in transit, (iii) savings resulting from fewer accidents, (iv) benefits to generated traffic, and (v) benefits from the reduction of carbon dioxide (CO2) emission. These benefits are considered relevant and possible to quantify with sufficient accuracy for inclusion in the appraisals.

14. VOC savings allow for differences in roughness, terrain, speed, and congestion; as well as changing vehicle compositions for passenger and freight vehicles, and improvements in the vehicle’s performance. Traffic on the project roads will enjoy higher travel speeds on a smooth road with better vertical and horizontal alignment, less congestion, and shorter travel distance. Savings in VOC is a main source of economic benefits.

15. Travel time savings are obtained when road improvements lead to an increase in vehicle speeds, thus reducing the journey times of passengers. Since the costs of driver and crew are included as a component of VOC, the time savings focus on passengers. Value time savings

Appendix 12 53 consider passenger trips that are work-related and non-work-related, combined with an average passenger load per vehicle and produces a passenger time cost per vehicle hour. The values used per passenger-hour are CNY9.1 for car passengers and CNY2.4 for bus passengers. Time savings for freight cargos were not quantified because of the lack of reliable data.

16. Accident cost savings are based in part of an analysis of national accident statistics for 2008, which were used to establish the accident rate on the expressway and part of the accident data for existing roads. The average accident rate on the expressway is 0.2–0.5 million vehicle-km and 1.0–1.2 million vehicle-km for the national highway. The economic costs of accidents are estimated in terms of direct life and property damage, and forgone income on the basis of national data for 2008. The average unit cost of accidents is CNY112,000 on the expressways and CNY86,500 on the national highway. The benefits of generated traffic are estimated at half the VOC and time savings of normal traffic as a proxy for willingness to pay.

17. Benefits from reduced vehicle emission were obtained from saving on fuel consumption. Vehicles can drive at the economic speed and shorter distances after project completion, resulting in less fuel consumption, and CO2 and harmful gases emissions. Under provisions of the Kyoto Protocol, certified emission reductions are presently valued in the PRC at approximately $10 per ton of CO2 reduced. Other pollutant reduction benefits are attributable to the Project (carbon monoxide, nitrogen oxides, hydrocarbons, and suspended particles), which are not quantified in the benefits stream.

3. Economic Internal Rate of Return

18. The Project as a whole generates an estimated economic internal rate of return (EIRR) of 15.8% (Table A12.2). The EIRR is 15.5% for the project expressway and 16.9% for the project local roads. The VOC savings are the major economic benefits (53%), followed by time savings benefits, generated traffic benefits, and other benefits. Reductions in accident costs and the value of savings in CO2 emissions are relatively small. The benefits of the local roads account for 23% of the total benefits.

4. Sensitivity and Risk Analysis

19. The results of sensitivity analysis confirm the robustness of the project’s economic viability (Table A12.3). The capital cost would have to be 64% higher than estimated for the EIRR to fall to the cutoff rate of 12%. The economic analysis model performed the risk analysis based on triangular probability distribution for the main input parameters. Under the tests conducted, if the benefits are allowed to be 50% of their most likely values, the EIRR will fall below 12%. Considering the experience of ADB in the PRC, such an increase in capital cost or reduction in benefits is unlikely.

5. Distribution Analysis

20. A distribution analysis was conducted to determine the project effects for various beneficiaries, including road users, labor, and government. Road users will receive the largest share of net benefit, accounting for 87% (50% for passenger traffic and 37% for freight traffic) of the total net benefits.

54 Appendix 12

Table A12.2: Economic Internal Rate of Return (CNY million) Costs Benefits Generated Local Net Year Capital O&M VOC Time Accident Traffic CO2 Roads Benefit 2010 813.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (813.5) 2011 2,367.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (2,367.7) 2012 1,656.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1,656.1) 2013 2,224.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (2,224.7) 2014 703.0 34.8 252.1 31.5 19.4 78.7 0.3 51.3 (304.5) 2015 0.0 51.1 357.4 53.1 34.1 86.6 0.5 241.1 721.7 2016 0.0 53.2 445.4 72.9 46.7 95.3 0.6 267.7 875.4 2017 0.0 55.4 498.6 87.8 50.6 104.7 0.7 293.7 980.8 2018 0.0 57.7 558.2 105.7 54.9 115.0 0.9 329.3 1,106.3 2019 0.0 60.1 624.8 127.3 59.5 126.4 1.0 356.3 1,235.2 2020 0.0 62.6 699.4 153.2 64.6 138.9 1.2 392.1 1,386.8 2021 182.2 65.2 782.9 184.5 70.0 152.6 1.4 433.2 1,377.2 2022 108.6 68.0 929.0 217.0 76.0 161.5 1.8 480.3 1,688.9 2023 153.7 70.8 1,102.3 255.3 82.5 170.9 2.3 530.6 1,919.3 2024 0.0 73.8 1,307.9 300.3 89.5 180.8 2.9 580.1 2,387.7 2025 0.0 76.9 1,552.0 353.2 97.2 191.4 3.6 635.1 2,755.5 2026 0.0 80.1 1,841.5 415.5 105.5 202.5 4.5 696.7 3,186.1 2027 0.0 83.5 2,051.8 471.7 110.6 209.6 5.2 765.4 3,530.6 2028 0.0 87.1 2,286.1 535.4 116.0 216.8 5.9 834.7 3,907.9 2029 0.0 90.8 2,547.1 607.8 121.7 224.3 6.8 893.9 4,310.8 2030 182.2 94.7 2,837.9 690.0 127.6 232.1 7.8 957.7 4,576.2 2031 141.7 98.7 3,162.0 783.3 133.8 240.2 8.9 995.3 5,082.9 2032 200.6 103.0 3,523.0 889.1 140.3 248.5 10.2 1,067.0 5,574.6 2033 0.0 84.7 3,925.3 1,009.3 147.2 257.1 11.7 1,189.6 6,238.3 2034 (4,435.3) 0.0 0.0 0.0 0.0 0.0 0.0 4,435.3 EIRR 15.80% NPV 2,743.4 CO2 = carbon dioxide, EIRR = economic internal rate of return, NPV = net present value, O&M = operation and maintenance, VOC = vehicle operating cost. Source: Asian Development Bank estimates.

Table A12.3: Sensitivity Analysis EIRR NPV Switching Valuea Item (%) (CNY million) Sensitivity Indicator (%) 1. Base Case 15.8 2,743.4 2, Benefits Decreased by 10% 14.7 1,889.0 3.1 32.1 3. O&M Costs Increased by 10% 15.7 2,726.0 0.1 1,613.5 4. Capital Cost Increased by 10% 15.0 2,313.0 1.6 63.8 5. Construction Delay of 1 Year 15.3 2,277.0 NPV declines by 17% 6. Combination 2, 3, 4, and 5. 13.4 1289.0 NPV declines by 53% EIRR = economic internal rate of return, NPV = net present value, O&M = operation and maintenance a Switching value indicates the percentage increase in a cost item (or decline in a benefit item) required for the NPV to become zero. Source: Asian Development Bank estimates.

Appendix 13 55

FINANCIAL ANALYSIS AND PROJECTIONS

1. The financial analysis and projections for the Project were undertaken in accordance with the Asian Development Bank (ADB) Guidelines for the Financial Management and Analysis of Projects (2005). The Project has both revenue and nonrevenue components. The revenue component consists of a toll road project, the Xuzhou–Mingguang Expressway (XME), which will be implemented by the Anhui Communications Investment Group Company Limited. Two nonrevenue components will be managed by the Anhui Highway Administration Bureau (AHAB) and the Anhui Transport Administration Bureau under the overall management of Anhui Provincial Department of Transport (APDOT).

A. Revenue Component of the Project

1. Financial Projections

2. Anhui Province uses the standard system, which sets the same toll on all expressways. The regulation on the administration of toll roads came into force on 1 November 2004, and the current toll rates have been applicable since 1 January 2005. Toll increases are under discussion and the likely increase would to be up to 15%. Financial analysis of the XME uses a conservative assumption of zero increase in the base year toll rate in 2009 (Table A13.1).

Table A13.1: Base Year Tolls for Passenger Vehicles in 2009 Prices (CNY per vehicle-km) Vehicle Class 1 2 2 4 Passenger vehicles ≤7 seats 8–19 seats 20–39 seats >=40 seats Toll rate 0.40 0.70 1.00 1.20 Source: Anhui Provincial Department of Transport.

3. Anhui Province has been implementing weight-based tolls for freight vehicles since 2005 (Table A13.2). The minimum toll rate for freight vehicles is CNY20.

Table A13.2: Base Year Tolls for Freight Vehicles in 2009 Prices (CNY per vehicle-km) Vehicle Class 1 2 3 Freight vehicles ≤10 tons 10–40 tons >40 tons Toll rate 0.08 Linear decrease up to 0.043 0.043 Source: Anhui Provincial Department of Transport.

4. Periodic maintenance and infrastructure rehabilitation will be required every 9 years. Depreciation is calculated using a straight line method with an average life of 40 years. Corporate income tax at 25% is paid on income after deducting business taxes, depreciation and interest charges, operating expenses, and any prior year losses carried forward.

5. The Project will be funded 40% by equity (32% by Anhui Communications Investment Group Company Limited and the rest by central and provincial governments) and 60% by long- term loans from Industrial Commercial Bank China and ADB. The ADB loan for the XME is for $118.5 million. It will have a 25-year term including a 5-year grace period, and be a US dollar London interbank offered rate (LIBOR)-based loan with a 0.15% commitment fee. The projected financial statements (Table A13.3) indicate that forecast revenue under the base assumptions is sufficient to cover annual recurrent costs, depreciation, and debt repayments on the ADB and domestic bank loans; and generate reasonable profits.

56 Appendix 13

2. Financial Analysis

6. The major assumptions used to calculate a financial internal rate of return (FIRR) include (i) all calculations are based on 2009 prices, covering 2010–2033; (ii) capital costs include all incremental capital expenditures related to construction and equipment for the expressway, but exclude price contingencies and interest during construction; (iii) operating costs include all annual incremental expenses incurred in operating the XME, but exclude depreciation and debt payments; and (iv) a residual value equal to the net book value of capital investment.

7. The estimated weighted average cost of capital (WACC), after-tax, in real terms, was calculated using estimated capital mix and cost of funds. Costs considered include (i) the applicable 5-year LIBOR fixed swap rate plus a provision for ADB’s spread of 0.2% is used for ADB debt; (ii) the present interest rate of 5.94% per annum is used for the domestic bank loans; and (iii) the opportunity cost of equity capital is assumed to be 8%. The cost of debt is adjusted to reflect the impact of income tax of 25%. The nominal cost is converted to the real cost by applying domestic long-term inflation rates for local currency and international inflation rates for foreign exchange denominated debt.

8. The FIRR for the Project, computed on an after-tax basis, is 6.6% (Table A13.4), which compares favorably with the WACC, computed at an after-tax basis at 3.7%. The Project is considered both financially viable and sustainable. Sensitivity tests indicate conditions causing the Project's viability to fall below the WACC are unlikely to occur. The sensitivity of the Project's financial indicators to cost and revenue variations is shown in Table A13.5.

3. Summary XME Financial Results

9. The financial projections show that even with tolls not increasing with inflation there would be no cash flow deficits and the debt service coverage ratio from the start is above the ADB norm of a 1.2 after the third year of the XME opening to traffic. Similarly, without toll increases and after tax, FIRR would be 6.6%, well above the 3.7% WACC. With an inflationary toll increase, the situation will further improve. Hence, it can be concluded that the expressway project is financially sustainable and viable.

B. Financial Analysis of Nonrevenue Components of the Project

10. Only the XME component of the Project is expected to earn revenue. Other project components are (i) upgrading and rehabilitation of local roads, to be performed by AHAB; (ii) a rural transport pilot project to be carried out by Anhui Transport Administration Bureau, and (iii) institutional capacity development. Even though class I roads in the country are generally revenue-earning, the AHAB-administered local road upgrading from class II to class I under this Project are too short to be tolled. Financial evaluation of the nonrevenue components focuses on fiscal impact on the operating entity.

11. The financial data confirm the availability of sufficient counterpart funds and the capacity of APDOT and AHAB to finance both investment in the Project, and future maintenance and operating expenses for the project roads. The analysis shows that the fiscal impact and risks are modest. The total capital required for the nonrevenue project components represents only 0.4% of past annual APDOT revenues.

12. The total project annual expenditure relating to the nonrevenue components will be only 2% of the average annual expenditure of APDOT from 2003 to 2008. This represents about

Appendix 13 57

10% of the total AHAB expenditure in 2008, corresponding to 11% of average annual expenditure of AHAB in the past 3 years. Similarly, operation and maintenance, including periodic maintenance, of the upgraded and rehabilitated local road components will represent 4.3% of AHAB’s annual historic costs for these items.

13. Full debt payments on the nonrevenue component when they become due in 2015 will be 12.4% of APDOT's total debt payments and 1% of the total revenue of APDOT in 2008. These low financial ratios indicate that the Project presents a very modest financial risk with respect to (i) availability of resources to cover the project cost; (ii) operation and maintenance needs, (iii) loan service requirements for the project roads, and (iv) financial burdens to the province.

Table A13.3: Projected Financial Statements 58 (CNY million) Item 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Appendix 13 Appendix Income Statement Toll Revenue 0.0 0.0 0.0 0.0 365.5 480.2 589.7 658.3 734.7 820.1 915.4 1,021.7 Interest Income on Cash Balance 0.0 0.0 0.0 0.0 0.1 0.9 3.7 5.8 8.2 10.7 13.6 16.7 Less: Taxes on Turnover 0.0 0.0 0.0 0.0 20.1 26.5 32.6 36.5 40.9 45.7 51.1 57.1

Total Net Gross Revenue 0.0 0.0 0.0 0.0 345.5 454.7 560.8 627.6 702.0 785.1 877.9 981.4 Total Operating Costs 0.0 0.0 0.0 0.0 29.6 31.1 32.7 34.3 36.0 37.8 39.7 41.7

Depreciation Expenses 0.0 0.0 0.0 0.0 159.1 155.4 151.8 148.2 144.8 141.4 138.1 134.9 Interest Charge: Long-Term Debt 0.0 0.0 0.0 0.0 214.7 208.4 201.8 194.8 187.5 179.8 171.7 163.2 Interest Charge: Short-Term Debt 0.0 0.0 0.0 0.0 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Corporate Income Tax 0.0 0.0 0.0 0.0 0.0 0.0 43.6 62.5 83.4 106.5 132.1 160.4 Appropriations of Net Income 0.0 0.0 0.0 0.0 0.0 50.0 109.5 156.9 209.2 267.1 331.2 402.2 Retained Earnings (Loss) 0.0 0.0 0.0 0.0 (59.7) 9.8 21.5 30.8 41.0 52.4 65.0 78.9

Balance Sheet Assets Current Assets 0.0 0.0 0.0 0.0 7.4 47.1 185.5 292.0 408.2 536.3 678 837.2 Net Fixed Assets 879.8 3,500.3 5,447.0 6,833.0 6,673.9 6,518.6 6,366.8 6,218.6 6,073.8 5,932.4 5,794.3 5,659.4 Total Assets 879.8 3,500.3 5,447.0 6,833.0 6,681.3 6,565.6 6,552.3 6,510.6 6,482.1 6,468.7 6,472.7 6,496.6 Liabilities and Equity Current Liabilities 0.0 0.0 0.0 132.5 179.3 188.4 286.2 350.0 420.1 497.2 582.1 675.8 Long-Term Liabilities 564.8 2,270.1 3,483.0 4,189.5 4,050.7 3,905.4 3,753.1 3,593.4 3,426.1 3,250.7 3,066.8 2,873.9 Equity 315.0 1,230.3 1,964.1 2,511.0 2,451.3 2,471.9 2,513.1 2,567.1 2,635.8 2,720.8 2,823.8 2,946.9 Total Liabilities and Equity 879.8 3,500.3 5,447.0 6,833.0 6,681.3 6,565.6 6,552.3 6,510.6 6,482.1 6,468.7 6,472.7 6,496.6

Cash Flow Statement Sources of Funds Total Internal Cash Generation 0.0 0.0 0.0 0.0 337.5 450.1 560.8 629.8 706.9 793.1 889.3 996.9 Total External Financing 879.8 2,620.5 1,946.7 1,386.0 37.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Source of Funds 879.8 2,620.5 1,946.7 1,386.0 374.8 450.1 560.8 629.8 706.9 793.1 889.3 996.9 Application of Funds Total Construction of Project 879.8 2,620.5 1,946.7 1,386.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Debt Service 0.0 0.0 0.0 0.0 349.0 384.5 347.2 347.2 347.2 347.2 347.2 347.2 Total Distributions 0.0 0.0 0.0 0.0 18.4 25.9 75.3 176.2 243.5 317.9 400.0 491.0 End of Year Cash 0.0 0.0 0.0 0.0 7.4 47.1 185.5 292.0 408.2 536.3 678.4 837.2

Ratio Analysis Debt-Service Coverage Ratio — — — — 0.91 1.10 1.52 1.71 1.92 2.15 2.41 2.71 Debt–Equity Ratio (%) 64 65 64 63 63 62 61 59 58 56 54 51 Working Ratio (%) — — — — 9 7 6 5 5 5 5 4 Sources: Anhui Provincial Department of Transport; Asian Development Bank estimates.

Appendix 13 59

Table A13.4: Financial Internal Rate of Return (CNY million) Net Cash Flow Capital O&M Project Business Net Cash Corporate After Income Year Investment Cost Revenues Tax Flow Income Tax Tax 2010 857.2 0.0 0.0 0.0 (857.2) 0.0 (857.2) 2011 2,494.8 0.0 0.0 0.0 (2,494.8) 0.0 (2,494.8) 2012 1,744.9 0.0 0.0 0.0 (1,744.9) 0.0 (1,744.9) 2013 1,049.6 0.0 0.0 0.0 (1,049.6) 0.0 (1,049.6) 2014 0.0 28.0 335.2 18.8 288.4 38.2 250.3 2015 0.0 28.8 431.8 24.2 378.8 53.6 325.1 2016 0.0 29.7 519.9 29.1 461.1 70.1 390.9 2017 0.0 30.6 568.9 31.9 506.4 87.8 418.6 2018 0.0 31.5 622.6 34.9 556.2 106.7 449.4 2019 0.0 32.5 681.3 38.2 610.7 127.1 483.6 2020 0.0 33.4 745.5 41.7 670.3 141.9 528.4 2021 192.0 34.4 815.8 45.7 543.7 156.3 387.4 2022 0.0 35.5 863.2 48.3 779.3 172.4 606.9 2023 0.0 36.5 913.2 51.1 825.6 189.2 636.4 2024 0.0 37.6 966.2 54.1 874.5 206.8 667.7 2025 0.0 38.8 1,022.3 57.2 926.3 218.8 707.4 2026 0.0 39.9 1,081.6 60.6 981.1 231.2 750.0 2027 0.0 41.1 1,118.1 62.6 1,014.4 243.8 770.6 2028 0.0 42.4 1,155.9 64.7 1,048.8 256.7 792.1 2029 0.0 43.6 1,194.9 66.9 1,084.3 269.9 814.5 2030 192.0 44.9 1,235.2 69.2 929.1 282.3 646.8 2031 0.0 46.3 1,276.9 71.5 1,159.1 296.1 863.0 2032 0.0 47.7 1,320.0 73.9 1,198.4 309.0 889.4 2033 0.0 49.1 1,364.5 76.4 1,239.0 322.1 916.9 2034 (3,073.3) 0.0 0.0 0.0 3,073.3 0.0 3,073.3 FIRR After Corporate Tax 6.6% WACC 3.7% ( ) = negative, FIRR = financial internal rate of return, O&M = operation and maintenance, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.

Table A13.5: Sensitivity Analysis FIRR WACC NPV Item (%) (%) (million) Base Case 6.60 3.70 2,570.00 1. Revenues decrease by 10% 5.58 3.70 1,604.00 2. O&M increase by 10% 6.55 3.70 2,526.00 3. Capital Cost increase by 10% 5.91 3.80 2,111.00 4. Construction delay of 1 year 6.35 3.70 2,153.00 5. Combination 2, 3, and 4 4.90 3.80 1,100.00 6. Combination 2, 3, 4, and 5 4.64 3.90 794.00 FIRR = financial internal rate of return, NPV = net present value, O&M = operation and maintenance, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.

60 Appendix 14 SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY Country and Project Title: PRC: Anhui Integrated Transport Sector Improvement Project

Lending/Financing Department/ East Asia Department Project Modality: Division: Transport Division

I. POVERTY ANALYSIS AND STRATEGY A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy The Project will continue engagement with the central and provincial governments in the transport sector, which is considered a key intervention area for poverty reduction in Anhui Province. Anhui, as the least developed province in the central People’s Republic of China (PRC), is a key province of the central Government for poverty reduction because of the concentration of poor in the Dabie Mountain area in the southwest and in the flood-prone Huaibei Plain in the northeast. The Project will construct an expressway in the northeast and upgrade or rehabilitate nine existing roads, of which seven are in these two poor areas. The Project will provide more reliable and safe transport services to local people, which will contribute to economic development, livelihood improvement, and indirect poverty reduction.

The Project will directly contribute to implementation of the PRC’s central region development strategy. The main strategies of the program include (i) revitalizing old industrial cities; (ii) accelerating formation of the central manufacturing area; (iii) promoting economic cooperation between the central regions; (iv) strengthening the driving effects of central city circles; and (v) constructing a growth pole in the central area by resultant force. Under the program, Anhui intends to be the priority receiver of shifting industries from the coastal region. The proposed expressway and local roads will play important roles in fulfilling all the strategies for Anhui and for the whole central region. Improved access to eastern cities will attract more labor- intensive industries.

Also, the Project is consistent with the ADB’s PRC country partnership strategy, especially pillar I—inclusive growth and balanced development. Under pillar I, the strategy states that “ADB will help the PRC build a harmonious society and boost rural development.” Operations will be concentrated in the areas where growth and development are lagging, focusing on central and western provinces. To help the PRC maximize benefits from urbanization and put the economy on a sustainable growth path, ADB will continue to assist investments in transport, including expressways and railways, needed to integrate the domestic economy and boost the services sector. B. Poverty Analysis Targeting Classification: General Intervention 1. Key Issues Anhui’s rural poverty incidence (purchasing power parity $1.25) of 10.5% in 2007 is slightly higher than the national average of 10.0%. Poverty is concentrated in the Dabie Mountain area and in Huaibei Plain. Huaibei Plain is a major grain production area, however its flood-prone nature has restricted its economic development; also, agriculture alone cannot support high income. The main causes of poverty are high population density and limited nonagriculture employment, which results in a large surplus of rural laborers. Underdeveloped transport is also considered one of the major causes of poverty, especially in the southwest. Consequently, investment in the highway and local roads network is a key intervention for poverty reduction.

The Project targets both poverty pockets of Anhui, and will significantly help local people and governments to overcome the transport barriers and improve transport services and road safety. As a consequence, it will directly and indirectly contribute to poverty reduction. Six of the 14 project beneficiary counties are designated as national or provincial poverty counties in Anhui that will directly benefit from the Project. Rural poverty incidence (based on purchasing power parity $1.25) of 14 project counties averages 10%. However, the poverty incidence in Yuexi is very high (29.5%) and will benefit directly from the rehabilitation of local road S209. Also, the expressway and upgrading of local road X056 will directly benefit Lingbi and Sixian counties, which have a poverty incidence of 19.6% and 18%, respectively. Furthermore, the percentage of people earning less than $2/day (CNY2,500) is 25.2% on average for the 14 project counties: 59.8% in Yuexi, 56.8% in Qianshan, 34.7% in Lingbi, and 34.0% in Sixian. Consequently, economic development needs to be targeted at these densely populated poverty areas.

In addition to improved transport and access conditions to and from the project area, the Project will contribute to poverty reduction, local economic growth, and social development by facilitating (i) local urbanization, (ii) industrialization in industrial parks along the future expressway, (iii) agricultural and animal production through better market access and through setting up processing enterprises, (iv) tourism development in the Dabie Mountain area; (v) employment of locals as unskilled laborers during project construction, and (vi) government social development programs and initiatives that can be integrated with the project resettlement and rehabilitation measures.

2. Design Features The highway sections crossing the township centers along the poverty roads will be properly designed with safety and other necessary facilities to enable better and safer operations of local markets. A social development action plan (SDAP) has been formulated and includes complementary poverty reduction measures that will be implemented by local government. The timing of these programs with the project interventions will accelerate the benefits for the poor. Since the Project construction will require a significant amount of unskilled labor, available surplus laborers will be identified by the labor bureaus and hiring arrangements will be made with the project contractors. Such workers will receive training and gain valuable skills that will make them more employable after the Project. These and other social development measures are presented in the SDAP to improve the inclusiveness of the Project.

Appendix 14 61 II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis Similar to many other areas in the PRC, although the project counties are basically rural, agriculture is no longer the backbone of local economies. The contribution of the primary sector or agriculture to total gross domestic product ranges from 12.3% to 50.5% among these counties. In the expressway areas, the primary sector still accounts for 40%–50% because few industries are currently located there. This could change significantly due to improved transport access, availability of abundant low cost labor, and the government policy to shift industry from the coastal areas. Twelve of the 14 project counties have per capita gross domestic product below the provincial average; 6 of the 14 project counties have rural per capita income below the provincial average.

The Project will directly benefit 4.0 million local people, of whom 90% are rural residents. No ethnic minority villages are in the project area. All government agencies, townships, villages, households, industrial park, and industrial enterprises consulted and interviewed support the Project. Three local roads to be rehabilitated will benefit three national poverty counties in the southwest. The new expressway and the upgrading of local road X056 will benefit two provincial poverty counties in the northeast.

The potential adverse social impacts from the Project include (i) land acquisition and resettlement, (ii) increased accidents due to higher speeds and mixed traffic, (iii) transmissible diseases spread by the large construction workforce, and (iv) disruption to local communities during construction. The expressway project area is densely populated, so there will be no adverse impact to businesses along the existing road network.

Regarding transport services, many informal service providers use vehicles that are consider unsafe, yet provide a source of income for many people and provide low cost transport service. To address this issue, two counties have been selected as pilot projects for transport services to improve quality and safety, and possibly permit some informal services that satisfy basic safety standards.

Since Anhui Province has more developed government services and a strong All-China Women's Federation, this Project offers potential to enhance implementation quality and project benefits through greater coordination and involvement of key agencies, such as labor and social security, traffic police, centers for disease control, and tourism. There is also potential to involve local communities in project design, implementation, and monitoring, since this region has higher education levels and greater awareness of modern transport services due to close proximity to Jiangsu and Shanghai. Also, local agencies have already adopted many of the proposed social measures, so the main issue is to determine what measures are most important and ensure they are being implemented in an adequate and timely manner.

B. Consultation and Participation 1. Provide a summary of the consultation and participation process during project preparation. About 140 villages from 40 townships in 12 project counties were consulted during the project preparatory TA in the process of the socioeconomic survey for social analysis and resettlement planning. Provincial and county government agencies consulted include transport bureaus, development and reform committees, poverty reduction offices, women’s federations, agricultural bureaus, land administration bureaus, labor and social security bureaus, civil affairs bureaus, and tourism bureaus. In addition, an industrial park and an enterprise within the park were consulted.

2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment For road and traffic safety design on two Class I roads, it is planned to have collaborative decision making with the local communities.

3. Was a C&P plan prepared? Yes No Continuous consultation will be done with stakeholders during the detailed design and construction stages led by Anhui Communications Investment Group Company Limited, AHAB, and Anhui Transport Administration Bureau. This will involve other local agencies, local communities, and affected people. For project implementation, the SDAP includes some key social measures that will require consultation and participation. Also, the four resettlement plans include C&P plans, particularly to consult with villagers on how to avoid or minimize impacts during construction. C. Gender and Development 1. Key Issues. The Project will not entail disparities and inequalities between men’s and women’s access to the project roads and transport services, to the contrary women could benefit more from the Project’s safety improvement measures in the towns and villages traversed by the Project's local roads because women, children, and the elderly are the main pedestrians. Environmentally sustainable transport services will result in additional benefits for the community especially for women and children.

Women and men have different roles and responsibilities that lead to differences in division of labor, needs, and preferences. Women and men also participate differently in various social activities. The presumption that domestic role and responsibilities are women’s primary function can cause barriers for them to participate effectively in various community activities and income-generating opportunities. This also leads to differential access to and control over facilities and services available in the community. These issues need to be addressed adequately to ensure that provision of rural roads and services will also directly benefit women.

62 Appendix 14 The Project will provide necessary provisions for empowering women throughout the project cycle, and anticipates continued participation of women during planning, implementation, and postconstruction activities.

2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures (see Gender Analysis) No action/measure

The SDAP includes measures to (i) increase women’s participation in project preparation and implementation activities; (ii) include women in the design of road and traffic safety for the local roads, (iii) encourage women to provide food service to contractors, (iv) hire women for reforestation and landscaping along roadways, (v) hire women for toll booths along the expressway, (vi) improve the cleanliness and lighting for bus stations, (vii) monitor the protection of women's rights regarding labor and re-registration of land and property rights, and (viii) improve women's awareness of transmissible diseases. The SDAP monitoring and reporting includes sex-disaggregated baseline data and gender-specific indicators that form part of the project performance monitoring system.

These measures will be supported by relevant local government agencies and the All-China Women's Federation, which already include many of these measures in their routine activities.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Issue Significant/Limited/ Strategy to Address Issue Plan or Other Measures No Impact Included in Design Involuntary Resettlement Significant. The (i) Compensation directly to Full Plans (4) expressway and three affected persons, (ii) income Short Plan local roads will acquire restoration and house Resettlement 950 hectares of land and relocation plans for seriously Framework relocate 1,170 affected villages, (iii) special No Action households. assistance to vulnerable people, (iv) rehabilitation integrated with ongoing government development programs Indigenous Peoples No Impact. Plan No ethnic minority group Other Action is in the project area. Indigenous Peoples Framework No Action Labor Limited Employment The Project will create The SDAP stipulates that Plan opportunities some employment preferences should be given to Other Action (SDAP) Labor retrenchment opportunities for local locals for unskilled labor. No Action Core labor standards people during project Enforcement of labor construction. standards will be monitored. Affordability Limited Road tolls and fuel taxes are Anhui terminated tolling deemed to be affordable. Action for most of its class II Transport services are offered No Action highways in March 2009. in a wide range of quality, so The expressway will be they will remain affordable to tolled. all groups. Other Risks and/or Limited Vulnerabilities HIV/AIDs could be a risk Awareness and prevention Plan HIV/AIDS during construction if no measures for HIV/AIDS and Other Action (SDAP) Human trafficking control measures are in other transmissible diseases No Action Others (conflict, political place. are included in the SDAP. instability, etc.), please The Project will not have specify any impact on human trafficking. IV. MONITORING AND EVALUATION Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes No The SDAP includes monitoring indicators, and annual reporting is required as stipulated in the loan assurances.

Appendix 15 63 SUMMARY RESETTLEMENT PLAN

1. The Xuzhou–Mingguang Expressway (XME) and three upgraded roads (S312, S105, and X056) will necessitate land acquisition and resettlement. Four full resettlement plans were prepared in accordance with Asian Development Bank (ADB) procedures. The other six local roads only require road resurfacing or traffic safety measures, so have no land acquisition and resettlement impacts. The three bus stations will not have involuntary resettlement impacts. The resettlement plans are based on the feasibility studies; when the detailed design of each subproject is finalized, the resettlement plans will be updated, disclosed to affected persons, and submitted to ADB for approval prior to commencement of civil works.

2. To avoid or minimize land acquisition and resettlement, consultations with local officials, village committees, and affected persons were carried out for preparation of the resettlement plan. The Project will affect 129 villages of 37 townships and/or streets in 9 counties and/or districts. The Project will permanently acquire 952 hectares (ha) of land, of which 877 ha (92%) are classified as cultivated land. This will partially affect an estimated 16,925 households, which assumes the average loss is only 15%. Another 420 ha of land will be occupied temporarily for borrow pits, spoil areas, and construction camps; the specific sites will be selected during implementation in accordance with land use and environmental regulations. Also, an estimated 108,100 square meters of residential and nonresidential structures will need to be removed, requiring the relocation of 921 households and affecting four enterprises with 45 staff.

3. For people unavoidably affected, the resettlement objective is to achieve equal or better income and living standards in accordance with the People’s Republic of China laws and regulations, as well as ADB’s Involuntary Resettlement Policy (1995). All persons affected by the Project will be eligible for compensation and assistance. A cut-off date for eligibility for compensation and assistance is the date of project feasibility study approval; notification will be given to all affected persons immediately thereafter. For land acquisition, compensation fees include a land compensation fee and a resettlement subsidy. The land compensation will be paid to the affected village or affected persons, while the resettlement subsidy will be paid to the affected persons. The land acquisition compensation is based on the comprehensive average annual output value of the land, time a multiple of 16 times. For house demolition, compensation will be paid to owners based on replacement cost without depreciation, plus relocation and transition expenses. Compensation for young crops, trees, other facilities, and temporary impacts will be paid directly to affected persons. Income losses resulting from reduced production, sales, and wages caused by the Project will be assessed and compensated.

4. Livelihood rehabilitation strategies and initial village plans for restoration and relocation are included in each resettlement plan. The main income restoration strategies and measures include cash crop planting, livestock raising, and seeking work outside the province. Assistance measures include employment in project construction, provision of skills training, advice for starting small businesses, and employment information for all affected persons. Regarding house relocation, the affected households can rebuild their houses by themselves or can select exchange housing. All displaced households will be allocated a free house plot with basic services (water, electricity, television cable, telephone, and road access). For the four enterprises, the owners will be compensated with cash at replacement cost for the lost structure; they can be moved back and rebuilt along upgraded roads.

5. Special attention will be paid to vulnerable groups for their relocation and/or rehabilitation. Vulnerable groups include the Wubao, disabled, elderly, single-parent households, poverty households, and households seriously affected by land acquisition and resettlement. Within these groups, special attention and support is also for women, who may face unique impacts or may need assistance that is more appropriate to their special needs. Vulnerable groups will receive additional assistance from the Project: (i) setting up special

64 Appendix 14 supporting funds in each component, and (ii) providing skill training and arranging employment for affected vulnerable persons.

6. The cost estimate for land acquisition and resettlement of the expressway and three upgraded local roads is CNY606.923 million including contingencies and land taxes, which is about 7% of the total project cost. The land acquisition and resettlement costs are included as part of project budget and will be funded by Anhui Provincial People's Government. The payment and usage of compensation funds will be carried out under the supervision of the internal audit agencies, with regular audit review. Detailed measurement surveys will be conducted and the compensation contracts negotiated and signed with village committees, households, and enterprises.

7. The resettlement social survey and initial consultation process were conducted. The people affected have been informed about the key elements of land acquisition and resettlement through consultation during the planning stage and information disclosure sessions with the affected people, villages, and county governments during the project preparation stage; their concerns are integrated in the resettlement plans. The draft resettlement plans will be distributed to the affected counties and townships, and resettlement information booklets will be provided to affected villages and affected persons in June 2009. Local governments will set up resettlement offices to supervise implementation, continue the public consultations, monitor progress, and deal with grievances.

8. Anhui Provincial People's Government will entrust Anhui Provincial Department of Transport (APDOT) to assume overall responsibility for resettlement management and supervision. A social, environment, and resettlement office within APDOT will coordinate the planning, implementation, financing, and reporting of land acquisition and resettlement. The implementing agency for the XME is the Anhui Communications Investment Group Company Limited (ACIG) and the implementing agency for the nine local roads is the Anhui Highway Administration Bureau (AHAB). The local headquarter offices set up under ACIG and AHAB will take primary responsibility for resettlement supervision, consultation, implementation, and timely delivery of entitlements. A training program will be organized for ACIG, AHAB, and relevant local government resettlement officers.

9. In June 2009, the Anhui Provincial Land and Resources Department approved pre- examination of land use for the XME. The formal procedures for land acquisition are expected to be approved by the Ministry of Land and Resources by June 2010. Land acquisition compensation procedures and payments will be completed 1 month prior to the start of civil works, which are scheduled for March 2010. House demolition will start in March 2010 and be completed by the end of 2010. To ensure a short transition for new house construction and resettlement site selection, government approvals and preparation of village infrastructure will commence in August 2009 so that house construction can be completed in 2010. Training and income restoration measures will be carried out from April 2010 to July 2011. Temporary land occupation will commence in March 2010; all lands should be restored before the completion of each subproject, which is scheduled in 2013.

10. Internal and external monitoring of resettlement plan implementation will be conducted in accordance with methodologies specified in the resettlement plans. The terms of reference for external monitoring and evaluation is attached to the resettlement plans. Internal supervision and monitoring will be done by ACIG and AHAB to ensure compliance with the provisions of the plans. Resettlement progress and any key issues will be included in the quarterly progress reports submitted to ADB. ACIG and AHAB will engage an independent agency for semiannual monitoring and annual evaluation of project land acquisition and resettlement activity until 2 years after the completion of land acquisition and resettlement. External monitoring reports will be submitted to APDOT and ADB for comments and follow-up actions.