Heilongjiang Road Development II Project (Yichun-Nenjiang)

Technical Assistance Consultant’s Report

Project Number: TA 7117 – PRC October 2009

People’s Republic of China: Heilongjiang Road Development II Project (Yichun-Nenjiang)

FINAL REPORT (Volume I of IV)

Submitted by:

H & J, INC. Beijing International Center, Tower 3, Suite 1707, Beijing 100026 US Headquarters: 6265 Sheridan Drive, Suite 212, Buffalo, NY 14221 In association with WINLOT No 11 An Wai Avenue, Huafu Garden B-503, Beijing 100011

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, ADB and the Government cannot be held liable for its contents. All views expressed herein may not be incorporated into the proposed project’s design.

Asian Development Bank Heilongjiang Road Development II (TA 7117 – PRC) Final Report

October 31, 2009

Ms. Erdene Oyunchimeg Transport Specialist East Asia Department Transport Division Asian Development Bank 6 ADB Avenue, Mandaluyang City 155 Metro Manila, Philippines

Re: Final Report Submission TA 7117-PRC: Heilongjiang Road Development II Project (Yichun-Nenjiang)

Dear Ms. Oyunchimeg:

In accordance with the discussions during the loan fact-finding mission and subsequent comments received, the PPTA Consultant (H&J, Inc.) has incorporated the comments and is herewith submitting the Final Report for the referenced project. The report was prepared based on the Consultant’s analysis, the evaluation of the Feasibility Study Report provided by EA, and the Terms of Reference for the project.

Should you have any question about the submission, please do not hesitate to contact me.

Very Truly Yours, H & J, Inc.

Yinbo Liu, PhD, PE Team Leader

Encl. Cc: Morgan Yang (w/o enclosure) file

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

CURRENCY EQUIVALENTS (As of 15 September 2009)

Currency Unit – yuan (CNY) CNY1.0000 = $ 0.1464 $1.0000 = CNY 6.830

ABBREVIATIONS

ADB – Asian Development Bank BOT – Build-Operate-Transfer CDB – China Development Bank CNY – Chinese Yuan CAREC – Central Asia Regional Economic Cooperation DFR – Draft Final Report DPA – Direct Project Area DSCR – Debit Service Coverage Ratio EA – Executing Agency EIA – Environment Impact Assessment EIRR – Economic Internal Rate of Return EMP – Environmental Management Plan FIRR – Financial Internal Rate of Return FSR – Feasibility Study Report GDP – Gross Domestic Product GNP – Gross National Product HLJ – Heilongjiang Province HPDRC – Heilongjiang Provincial Development and Reform Commission HPEPB – Heilongjiang Provincial Environmental Protection Bureau HRDP I – Heilongjiang Road Development Project - I HPG – Heilongjiang Provincial Government HPSDI – Heilongjiang Provincial Survey & Design Institute HPCD – Heilongjiang Provincial Communication Department HPTB – Heilongjiang Provincial Transport Bureau HLJFMB – Heilongjiang Farm Bureau HLJFRB – Heilongjiang Forest Bureau IA – Implementing Agency IPSA – Initial Poverty and Social Analysis LAR – Land Acquisition and Resettlement LIBOR – London Interbank Offered Rate MLR – Ministry of Land and Recourse MLSS – Minimum Living Standard Scheme MOF – Ministry of Finance MOT – Ministry of Transportation (communication previously) Mu – Chinese Land Measuring Unit (1 hectare = 15 mu) NDRC – National Development and Reform Commission NGO – Nongovernment Organization O&M – Operation and Maintenance PCR – Project Completion Report PCU – Passenger Car Unit PIU – Project Implementation Unit PLR – Provincial Land and Recourse Bureau PMO – Project Management Office PPMS – Project Performance Management System 3

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

PPTA – Project Preparatory Technical Assistance PRC – People’s Republic of China PSA – Poverty and Social Analysis PSB – Public Security Bureau PSP – Private Sector Participation RAMS – Road Asset Management System RP – Resettlement Plan RRP – Report and Recommendation of the President to the Board of Directors SDAP – Social Development Action Plan SEIA – Summary Environmental Impact Assessment SEPP – Soil Erosion Prevention Plan TBD – To be determined TOR – Terms of Reference

NOTES

(i) The fiscal year of the Government and its agencies ends on 31 December. (ii) In this report, “$” refers to US dollars. (iii) The exchange rate of the yuan is determined under a floating exchange rate system. In this report, a rate of $1.00 = CNY 6.830, the rate prevailing at project appraisal, was used.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table of Contents

1. INTRODUCTION ...... 11 1.1 PROJECT BACKGROUND ...... 11 1.2 HEILONGJIANG PROVINCIAL GOVERNMENT ...... 12 1.3 HEILONGJIANG HIGHWAY NETWORK ...... 13 1.4 QIANFENG FARM TO NENJIANG ROADWAY ...... 14 1.5 PROJECT IMPACT AREA ...... 15 1.6 GEOLOGICAL AND WEATHER CONDITION ...... 16 1.7 UNFAVORABLE SOIL CONDITION ...... 16 2. RATIONAL: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES ...... 17 A. Performance Indicators and Analysis ...... 17 B. Analysis of Key Problems and Opportunities ...... 22 C. Lessons Learned ...... 25 3. THE PROPOSED PROJECT ...... 25 3.1 IMPACT AND OUTCOME ...... 25 3.2 OUTPUTS ...... 26 3.3 SPECIAL FEATURES ...... 26 3.3.1 Rural Transport Improvement ...... 26 3.3.2 Road Asset Management and Maintenance ...... 27 3.3.3 Rural Bus Service Improvement Pilot Project ...... 28 3.3.4 Regional Transport and Trade Facilitation ...... 29 3.3.4.1 Regional Trade Development ...... 29 3.3.4.2 Interprovincial Connectivity ...... 31 3.3.5 Road Safety ...... 31 3.3.6 ITS Application and Weather Information System ...... 32 3.3.7 Overloading Vehicle Control ...... 32 3.3.8 Capacity Development ...... 32 3.4 PROJECT COST ESTIMATES ...... 33 3.4.1 Project Investment Plan ...... 33 3.4.2 Financing Plan ...... 33 3.5 IMPLEMENTATION ARRANGEMENT ...... 34 3.5.1 Project Management ...... 34 3.5.2 Implementation Period ...... 35 3.5.3 Procurement ...... 35 3.5.4 Consulting Services ...... 35 3.5.5 Advance Contracting and Retroactive Financing ...... 36 3.5.6 Anticorruption Policy ...... 36 3.5.7 Disbursement Arrangements ...... 37 3.5.8 Accounting, Auditing, and Reporting ...... 37 3.5.9 Project Performance Monitoring and Evaluation ...... 37 3.5.10 Project Review ...... 38 4. PROJECT BENEFITS, IMPACTS, AND RISKS ...... 38 4.1 TRAFFIC FORECAST & ECONOMIC EVALUATION ...... 38 4.2 FUEL TAX REFORM ...... 39 4.3 FINANCIAL ANALYSIS AND PROJECTIONS ...... 40 4.3.1 Financial Evaluation ...... 40 4.3.2 Private Sector Participation (PSP) ...... 40 4.4 POVERTY REDUCTION AND SOCIAL STRATEGY ...... 42 4.4.1 Socioeconomic Profiles ...... 42 4.4.2 Social Benefits ...... 42

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

4.4.3 Participation and Consultation ...... 44 4.5 RESETTLEMENT ...... 44 4.6 ENVIRONMENTAL IMPACT ASSESSMENT ...... 45 4.7 RISKS ...... 45 5. ASSURANCES ...... 46 A. Special Assurances ...... 46 B. Condition for Disbursement ...... 49 6. RECOMMENDATIONS ...... 49 7. PROJECT APPROVAL AND TIMETABLE ...... 50

APPENDIXES Appendix 1 – Design and Monitoring Framework Appendix 2 – Transport Sector Analysis and Policy Reform Matrix Appendix 3 – Policy Dialogue Matrix Appendix 4 – Sustainable Transport Analysis Appendix 5 – Vehicle Emission Reduction Plan Appendix 6 – Road Safety Appendix 7 – Rural Road Development Appendix 8 – Rural Transport Development Appendix 9 – Engineering Features Appendix 10 – Capacity Development Appendix 11 – Detailed Cost Estimates Appendix 12 – Implementation Schedule Appendix 13 – Procurement Plan Appendix 14 – Environmental Analysis Appendix 15 – Summary Poverty Reduction and Social Strategy Appendix 16 – Traffic Forecast and Economic Evaluation Appendix 17 – Road Asset Management and Road Maintenance Appendix 18 – Financial Performance and Analysis Appendix 19 – Social Development Action Plan Appendix 20 – Summary Resettlement Plan Appendix 21 – Organization Chart of Executing Agency and PIU Appendix 22 – Regional Trade Development Appendix 23 – Inter Provincial Transport Services Appendix 24 – Rural Bus Service Improvement Pilot Project

SUPPLEMENTARY APPENDIXES Volume II Supplementary Appendix A – Detailed Financial Analysis and Projects (SF1) Supplementary Appendix B – Financial Management Assessment Questionnaire (SF2) Supplementary Appendix C – Summary Financial Management Assessment (CF3) Supplementary Appendix D – Financial Analysis Attachments (CF4 – CF6) Supplementary Appendix E – Project Performance Monitoring System (PPMS) Supplementary Appendix F – Social Poverty Analysis and Assessment Supplementary Appendix G – Socioeconomic Profile and Economic Analysis Supplementary Appendix H – Regional Development Analysis

Volume III Supplementary Appendix I – Resettlement Plans Supplementary Appendix J – Road Asset Management System and Road Maintenance Supplementary Appendix K – Engineering Analysis

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Volume IV Supplementary Appendix L – Summary Environmental Impact Assessment Supplementary Appendix M – Traffic Forecast Results Supplementary Appendix N – State Farm Bureau and State Forest Farm Maps Supplementary Appendix O – Rural Road and Rural Transport Service Supplementary Appendix P – Executive Agency Questionnaire Supplementary Appendix Q – Road Safety Audit Report

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Figure 1.1 Heilongjiang Road Network and Proposed Project 8

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Figure 1.2 Heilongjiang 11th FYP Highway Network – Planned and Completed

Heilongjiang Road Development II (TA 7117) Final Report

Figure 1.3 Project Roads

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

1. INTRODUCTION 1.1 PROJECT BACKGROUND 1. Heilongjiang province is located in the northeast part of China, with Inner Mongolia in the west, Jilin and Liaoning provinces in the south, and Russian across Heilongjiang River and Wusuli River in the northeast. The region is a national base for heavy industrial, agricultural, oil, coal, mining and forest, and plays a very important role in the Northeast Asian economic cooperation. Heilongjiang is the sixth largest province in China with a total area of 454,000 km2, which accounts for 4.7% of the total country area. As the end of 2008, the population of the province reached 38.3 million and the gross domestic product (GDP) per capita was 21,727 CNY. The province is also an important national base for industrial manufacturing and petrochemical production, and the ratio among three sectors are 13.1% primary, 52.5% secondary, and 34.4% tertiary by the end of 2008.

2. The province is the national agricultural production base. Sanjiang Plain located in the southeast and Songnen Plain located in the northwest of the province are the two major farming areas, which is about 6.7% of the country’s arable land. The grain production in 2008 reached 42.3 million tons, which was about 7.9% percent of the total country grain production.

3. Daxinganling and Xiaoxinganling are among the largest forests in China with an area of 20.07 million hectares. The forest coverage is about 43.6%, and the timber reserve is about 1.4 billion m3 in 2008. For that year, the timber output was about 7.6 million m3, which accounted for 11.3% of the total national timber output.

4. The province has abundant natural resources. Daqing Oilfield is one of the largest oilfields in China. The crude oil cumulative output has reached 1.95 billion tons since 1960s. In 2007, the crude oil output was 40.2 million tons, which accounted for 23.5% of the total national yield. The coal mine is another natural resource in the province. The four major coal mining areas are Jixi, Hegang, Shuangyashan and Qitaihe. The total coal output for the province was 81.9 million tons in 2008, ranked the seventh in the entire country.

5. Heilongjiang Province is also an important national industrial base, including petrochemical industry in Daqing, heavy machinery, precision machinery and specialized steel in Harbin and Qiqihar. The heavy industrial area is concentrated along what is called Harbin- Daqing-Qiqihar industrial corridor, located in the west of the province.

6. Heilongjiang has about 3,400 kilometer inland boundary with Russia. There are 14 Class I port cities along the boundary. Among them, Suifenhe, Dongning, Fuyuan, Tongjiang and Heihe are the most important trade windows to Russia. In 2008, Heilongjiang import and export trade volume with Russia achieved 11.1 billion US dollars, which accounted for 20% of the total country trade volume with Russia. It is expected that the trade value will reach 14.0 billion US dollars by 2010, about 23% of the country’s total volume, and the timber and grain exports will account for 40 and 60 percent of the country total volume, respectively. With the further development of China-Russia economic cooperation, Heilongjiang will play more important role in the regional economic development.

7. The natural resources and industrial productions in Heilongjiang are distributed geographically. The agricultural farmland of Sanjiang Plain and coal mines are located in the east of the province, while the heavy industrial areas from Harbin-Daqing-Qiqihar corridor for machinery manufacturing and petrochemical, as well as the farming area at Nenjiang Plain, are located in the west and northwest of the province. There is no direct link between the east and west in northern part of the province due to the presence of Xiaoxinganling Mountain. The proposed Yichun-Nenjiang road development project will build the missing link between Yichun

Heilongjiang Road Development II (TA 7117 – PRC) Final Report and Bei’an, connect the east and west, and enhance the regional economic cooperation and development.

1.2 HEILONGJIANG PROVINCIAL GOVERNMENT 8. There are thirteen (13) prefectures in Heilongjiang (HLJ) Province as summarized in Table 1.1. Due to the special historical reasons, the jurisdictional organization of Heilongjiang (HLJ) Provincial Government is different from other provinces in China. In addition to the typical prefectures, cities, towns, and villages, there are several other independent jurisdictional administrative bodies under the provincial government. The two major independent jurisdictions are HLJ Farm Bureau and HLJ Forest Bureau.

9. HLJ Farm Bureau (HLJFMB) was established in 1947 in order to develop the vast uncultivated land for agricultural production. After over fifty years of development, the farm system has developed into an independent government entity with its own cities, hospitals, schools, police, etc. Currently, there are nine (9) sub-farm bureaus (Table 1.1) with a total of 104 farms. The population under HLJFMB is about 1.58 million in 2007. These farms are scattered in the province from Xiaoxinganling in the north to Songnen Plain in the west, and Sanjiang Plain in the southeast. The total land area covered by HLJFMB is 56,200 km2, which accounts for 11.9% of the total HLJ Province area. In 2007, the total gross domestic product (GDP) for the bureau was 37.2 billion CNY, and the GDP per capita was 22,558 CNY. A map showing locations of the state farm bureaus is included in Supplementary Appendix N.

10. HLJ Forest Bureau (HLJFRB) is another independent government entity, which governs the forest farms located in the provincial forest areas. The farms scatter in Xiaoxinganling, Wandashan, and Zhangguangcailing, with a total covered area of 10.06 million hectares, which accounts for one quarter (¼) of the total HLJ area. The total forest area within HLJFRB is 7.61 million hectares, which accounts for 29.3% of the national overall forest area. Currently, there are forty (40) forest bureaus in HLJ province as shown in Table 1.1. A map showing the locations of the forest bureaus is included in Supplementary Appendix N.

Table 1.1 Summary of Heilongjiang Jurisdictional Divisions

Heilongjiang Provincial Government

Prefecture (13) HLJ Farm Bureau (9) HLJ Forest Bureau (40) Harbin Baoquanling Hongxing Suiling Fangzheng Qiqihar Hongxinglong Wuyiling Tongbei Linkou Jixi Jiansanjiang Tangwanghe Zhanhe Chaihe Hegang Mudanjiang Xinji Shangganling Yabuli Shuangyashan Bei’an Hebei Wuyin Hailin Daqing Jiusa Jinshantun Meixi Weihe Yichun Qiqihar Heli Dailing Dahailin Jiamusi Suihua Nancha Wumahe Shanhetun Qitaihe Harbin Langxiang Cuiluan Dongjingcheng Mudanjiang Qinghe Youhao Muling Heihe Xinglong Dongfanghong Suiyang Suihua Shuangfeng Yinchun Bamiantong Daxinganling Taoshan Shuangyashan Tieli Huanan

Source: Consultant.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

1.3 HEILONGJIANG HIGHWAY NETWORK 11. Based on Heilongjiang Trunk Highway Network Planning (2006 – 2020), the planned highway network for Heilongjiang consists of two loops, seven radials, six north-south (NS) verticals and three east-west (EW) horizontals, which is called "2763 Network" in short. The network is shown in Figure 1.2. The solid lines represent the highways that have been built and the dotted lines are the highways to be built. The entire length of the network is about 130,000 km, including trunk road of 9,200 km and feeder/connector road of 3,900 km, respectively. The lowest road classification in the network is Class II road. In the network, the length of expressways is 4,661 km (35.5%), the length of Class I roads is 2,177km (16.6%), and the length of Class II roads is 6,276 km (47.9%). Based on the current planning, the majority of the roads in the network will be upgraded by year 2020, as outlined in Heilongjiang 11th to 13th Five Year Plan. Currently, most roads around Harbin City, including the inner ring road around Harbin (C1) and partial radial roads around Harbin (R1 to R7), have been constructed and upgraded, and the roads in far north, east and west are planned to be completed in the 12th and 13th Five Year Plan. The network as planned for Heilongjiang 11th Five Year Plan is shown in Figure 1.2, and the details for the existing and upgrading situation are summarized in Table 1.2.

Table 1.2 Existing and Planned Heilongjiang Road Network Condition Target Date for Road Planning Current Condition Completion Two Loops (C1 – C2): C1 - Harbin City Ring Road Expressway Expressway Completed C2 - Harbin Economic Zone Expressway Class III or Lower 2020 Ring Road Seven Radials (R1 – R7): R1: Harbin – Gannan Expressway Harbin to Daqing – Expwy; 2010 Daqing to Gannan – Class III or Lower R2: Harbin – Heihe Expressway Class II 2010 R3: Harbin – Jiayin Harbin to Yichun – Harbin to Suihua – Expwy Completed Expwy Suihua to Yichun – Class III 2010 Yichun to Jiayin – or Lower Class II Yichun to Jiayin – Class II Completed R4: Harbin – Fuyuan Harbin to Harbin to Jiamusi – Expwy Completed Tongjiang – Expwy Jiamusi to Tongjiang – 2015 Tongjiang to Class III or Lower Fuyuan – Class II Tongjiang to Fuyuan – Completed Class II R5: Harbin – Suifenhe Expressway Harbin to Mudanjiang – Completed Expwy Mudanjiang to Suifenhe – 2015 Class III or Lower R6: Harbin - Wuchang Expressway Class II or Lower 2020 R7: Harbin – Shuangcheng Expressway Expressway Completed Six Verticals (V1 – V6): V1: Fuyuan – Mishan Class II Partially Class III and Lower 2020 V2: Fujin – Dongning Class I and II Partially Class III and Lower 2015 V3: Hegang – Xingshan Expressway Class I and Partially Class 2015 III and Lower V4: Mingshi – Zhaoyuan Class I and II Partially Class III and Lower 2020 V5: Daqing – Zhaoyuan Expressway Class III and Lower 2010 V6: Louguhe – Tailai Expwy & Class II Partially Class III and Lower Class II – 2015 Expwy – 2020 13

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Three Horizontal (V1 – V3): H1: Loubei – Jiagedaqi Class II Class III and Lower 2020 H2: Qianfeng Farm - Expressway & Class II, Class III and Lower 2010 Nenjiang Class II H3: Raohe – Nahe Class II Class III and Lower 2010 Source: Consultant

9. The proposed project is from Yichun to Nenjiang, which is the western half of the second EW horizontal trunk highway from Qianfeng Farm to Nenjiang (H2). The proposed project will build the missing link between Yichun and Bei’an to make this second horizontal trunk highway as a cross province east-west corridor.

1.4 QIANFENG FARM TO NENJIANG ROADWAY 10. The roadway between Qianfeng Farm and Nenjiang is the planned second east-west corridor in Heilongjiang 2763 road network. Currently, only parts of the corridor are connected by roadways by different types and in different classifications. The type of roads and their conditions are summarized in Table 1.3:

Table 1.3 Summary of Qianfeng Farm – Nenjiang Roadway Length Classifica No Location Type Condition Remark (km) -tion 1 Qianfeng Farm – Fujin 109 Concrete Class II Good

2 Fujin – Suibin 10 No Bridge Ferry at at Songhua Songhua River River

3 Suibin – Mingshan 99 Concrete Class II Good

4 Mingshan – Hegang 79 Concrete Class II Good

5 Hegang – Yichun 119 Concrete Class II Good

11 Concrete Class I Good

6 Yichun – Bei'an 220 Below Partially Class III Connected

7 Bei’an – Wudalianchi 61 Concrete Class II Good

8 Wudalianchi – Nenjiang 116 Gravel Below Class III

9 Nenjiang – Provincial 13 No Road Boundary

Total 824 Source: Feasibility Study Report.

11. Due to the presence of Xiaoxinganling, there is no direct link between Yichun and Bei’an. The transport of passengers and goods between Yichun and Wudalianchi is required to take a

Heilongjiang Road Development II (TA 7117 – PRC) Final Report long detour vs. Harbin or Suihua in order to reach each other. The proposed project will build the missing link between these two cities, and reduce the travel time significantly. Based on the planning, the total length of the proposed Qianfeng Farm to Nenjiang corridor is 824km, connecting Qianfeng farm, Fujin, Suibin, Mingshan, Hegang, Yichun, Bei’an, Wudalianchi and Nenjiang. The corridor will connect Sanjiang Plain in the east, which is rich in agriculture, forest and coal mine, to Songnen Plain in the northwest with rich farming and pastoral areas, as well as heavy industry and machinery in the Ha-Da-Qi industrial corridor. For the tourism, this new link will connect the Wudalianchi National GeoPark, the forest tourism city Yinchun, and the provincial capital Harbin, forming a tourism loop so that people could make one trip to visit both Wudalianchi and Yichun, without coming back to Harbin as the people are doing today.

12. An improved Qianfeng Farm – Nenjiang corridor, which eventually reaches Mongolia, will build the shortest and important trade link between Inner Mongolia on the northwest and Fuyuan port on the border with the Russia in the northeast via an existing 86 km class II concrete road. Fuyuan is a national land port opened in 1993 and is only 63 km away from Khabarovsk City in the Russian Far East.

13. The last segment of the Project is a Class I highway from Nenjiang to the provincial boundary between Heilongjiang and Inner Mongolia, which will be part of the planned 6th vertical corridor in Heilongjiang “2763” road network, connecting Mehe, Jiagedaqi, and Qiqihar. It has been agreed that Inner Mongolia Government will be responsible to build the highway from the end of the Project at Nenjiang Bridge to Jiagedaqi in Inner Mongolia.

1.5 PROJECT IMPACT AREA 14. Along the proposed project alignment, there are numbers of cities, counties, state forest bureaus, and state farm bureaus that will be impacted. The direct impact area includes Yichun City, Suiling and Tongbei Forest Bureaus, Bei’an Farm Bureau, Bei’an City, Wudalinchi City, and Nenjiang. The influenced area includes Wudalianchi Scenery Zone and Daxinganling Region. The detailed information for each impact and influenced area including locations, population, areas, and associated agricultural and industrial developments is summarized in Table 1.4.

Table 1.4 Summary of Project Impact Area

No Name Milepost PopulationArea Agriculture & (km2) Industry 1 Yichun K00+000 1,320,000 3,3000 Forest, Tourism, Border Port 2 Suiling Forest Bureau K80 46,000 2,148 Forest 3 Tongbei Forest K165 32,900 3,098 Forest Bureau 4 Bei’an Farm Bureau K180 19,4000 8,800 Agriculture 5 Bei’an City K180 480,000 7,194 Agriculture 6 Wudalinchi City K220 340,000 8,844 Agriculture, Spring Water, Tourism 7 Wudalinchi Scenery K225 56,730 1,061 Tourism, Spring Water Zone 8 Jiusan Farm Bureau K’300 (1) 150,000 5,563 Agriculture 9 Nenjiang K’344 (1) 500,000 15,000 Transportation Hub, Agriculture, Mining 10 Daxinganling Region K’344 (1) 510,000 84,600 Forest Source: Consultant

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Note 1 – Equivalent milepost to K65 as shown in FSR on a new station numbering started at end of expressway segment (K110 for Nenjiang).

1.6 GEOLOGICAL AND WEATHER CONDITION 15. The proposed project runs across the northern half of Heilongjiang Province in east- west direction. It starts from Xiaoxinganling at Yichun, passing through the mountainous area to reach the edge of Nenjiang Plain at Bei’an and then going through the mountain to plain transition area to reach Wudalianchi, and finally reaching Nenjiang Country through Nenjiang Plain.

16. Heilongjiang Province is located in medium and cool temperate zones, a meteorologic term to describe temperature in an area. The snow precipitation is high in the mountainous area, and the snow season is long for about 120 days. Since the proposed project is stretched over 300 km, there is a big weather variation along the project alignment. The summary of weather condition in each of the major city along the project is shown in Table 1.5. The maximum snow accumulative precipitation depth is 49 cm in Yichun, 52 cm in Bei’an, and 31 cm in Nenjiang.

Table 1.5 Summary of Weather Condition in Major Cities along the Project Alignment

City Yichun Bei’an Wudalianchi Nenjiang North Cold Cold Medium Medium Climate Zone Temperate Temperate Temperate Temperate Zone Zone Zone Zone Average Annual Temperature (oC) 0.5-1.0 0.2 0-1.0 -1.5 Lowest Temperature (oC) -43.1 -42.2 -42.8 -47 Average Annual Rainfall (mm) 590-650 529 468 550-600 (Note 1) June- Summer July-August July-August Rain Season (precipitation %) August (65%) (50%) (50%) (65%) Frostless Period (day) 105-115 115 116-119 100 Maximum Snow Depth (cm) 49 52 52 31 Average wind speed(m/s) 1 3.2 3.1 2.7 Dominant Wind Direction in Winter SW - - N, NW Maximum frozen soil depth (cm) - 250 250 >252

Source: Feasibility Study Report.

1.7 UNFAVORABLE SOIL CONDITION 17. The project is located in Xiaoxinganling Mountain and its adjacent transition areas. The unfavorable geological conditions include seasonal frozen soil, permanent frozen soil (permafrost), and wetlands.

Seasonal Frozen Soil:

18. The seasonal frozen soil along the project alignment has an average frozen depth of 2.00 to 2.20 meters. The deepest frozen depth is 2.8 meters in Yichun – Bei’an segment, and 2.2 meters in Bei’an – Nenjiang segment. The top soil layer in most part of alignment has frozen and thaw condition. Considerations shall be given to design proper soil treatments to 16

Heilongjiang Road Development II (TA 7117 – PRC) Final Report prevent frost heave for roadway embankment, as well as for the substructure of bridges and culverts.

Permanent Frozen Soil (Permafrost):

19. There are several permafrost areas at Yichun – Bei’an segment. Five areas have been identified with a total length of 6,795 m. In general, the average frozen depth ranges 3 – 5 meters, and the deepest frozen depth is 12 meters. In some areas, the permafrost is overlapped by seasonal frozen soil that does not thaw due to good vegetation cover. There are four types of permafrost soils: icy frozen soil, ice-rich frozen soil, ice-saturated frozen soil and ice-soil. The region is a deteriorated permafrost zone, categorized as a high temperature permanent frozen soil zone. For the ice-saturated frozen soil and ice-soil, due to the big thawing settlement, without proper foundation treatment the road embankment in these areas might have large deformation. The icy frozen soil and ice-rich frozen soil are usually formed on sand gravel or bedrock. The thawing settlement is small. The major problem associated with the permanent frozen soil is the thawing settlement. The selection of the highway alignment shall avoid the permanent frozen areas. If it is not feasible, a proper design and treatment approach shall be implemented. For the ice-saturated frozen soil and ice-soil, the frozen soil shall be removed for embankment construction or to use bridges spanning over the frozen soil. For icy frozen soil and ice-rich frozen soil, the permanent frozen soil may be left in place for road construction. However, the use of roadside ditches shall be avoided, and the vegetation cover of the roadside areas shall be developed and maintained.

Wet Lands:

20. There are several segments of the proposed highway on wetlands, where the surface soil is consisted of detritus, sludge soil, mud, peat, etc. The soil structure is loose with high void ratio, high moisture, high compressibility, low bearing capacity, and strong thawing heave character. In general, the groundwater level is high in these areas. The soil at these areas shall not be used as road embankment and foundation. The draft Feasibility Study Report recommended that the unfavorable soil shall be replaced with gravel or sand gravel to ensure the stability and bearing capacity of the road foundation. However, in reference to the current practices in developed countries in regarding to the protection of wetland, the existing wetlands shall be protected and maintained as much as possible in order to preserve the natural ecology condition and wild life. It is recommended that the actual wetlands in these areas shall be delineated to define the boundaries of the wetlands, and a detailed wetland protection plans shall be developed with appropriate protection measures including using bridges and top-down construction method to minimize the impact to the wetlands.

2. RATIONAL: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

Socioeconomic Development of the Project Area

21. Heilongjiang Province is located at longitude 1210-1350E and latitude 430-530N, with total area of 460,000 square kilometers. It is bordered Russia by Heilongjiang River and Wusuli Rivers in the north and east with a long border line of 3,045 km. It also borders with Inner Mongolia Autonomous Region in the west and with Jilin Province in the south. Presently, Heilongjiang Province has 13 prefectures which cover 13 municipal cities, 19 county level cities, 46 counties, 69 municipal districts, and 931 townships. In addition, Heilongjiang Province has

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

10 state farms located dispersedly in its territory. The provincial capital is located at Harbin. In 2008, the total population in Heilongjiang Province was recorded as 38.3 million.

22. Heilongjiang Province is endowed with abundant natural resources. Petroleum, graphite, yellow clay, basalt of cast, gold and others have the largest reserves in 131 identified mineral resources in China. Mineral resources are widely distributed throughout the Province. Petroleum and natural gas are primarily produced in Daqing, which owns the China’s largest oilfield. Coal mines are distributed at eastern areas of the province, such as Hegang, Shuangyashan, Qitaihe, Jixi, etc. The Province is also one of the top ten coal bases in China. Nonferrous metals and ferrous metals mainly distribute in Nenjiang, Yichun and Harbin. Gold deposits are mainly located in Daxinganling Mountains, Xiaoxinganling Mountains, Yichun, Jiamusi, and Mudanjiang areas. Nonmetallic minerals are mainly in eastern and middle areas of the province. Over 40 years of development, a resource-based industrial system has been formed up. Now the Province is the country’s grain, oil, coal and wood reserve base. Grain, oil, coal, wood and other products occupy an important position in the country.

23. The GDP kept a robust increase trend in the last 30 years, with average annual increasing rate of 8.4%. In 2008, the GDP in Heilongjiang Province reached 831.0 billion CNY with annual increasing rate of 12%. The GDP scale was about 10.5 times of 1980. In the mean time, living conditions and standards have been also improved significantly. The GDP per capita in Heilongjiang Province reached 21,727 CNY per person in 2007, about 8.93 times of 1980.

24. The Project directly goes through Yichun Municipality, north part of Shuihua Municipality and south part of Heihe Municipality. As it will be served as the most important section of Qianfeng-Nenjiang transport corridor, it will significantly facilitate the regional cooperation in the middle of Heilongjiang Province. The project direct influence area also includes Qiqihar Municipality, an industrial base and located in the west part of Heilongjiang, and Jiagedaqi Prefecture, located in Inner Mongolia Autonomous Region.

Multimodal Transport Development in Project Area

25. The transport network of Heilongjiang Province is composed of five modes of railway, highway, waterway, aviation and pipeline, which takes very important role in China’s integrated transportation system. The overall layout of Heilongjiang Province’s comprehensive transport network is centered by Harbin, connecting to regional central cities as nodes, and radiating to border areas. This transport network also connects to Jilin Province in the south and Inner Mongolia Autonomous Region in the west. Within the Province, this network connect the cities of Mudanjiang and Suifenhe in east, Jiamusi and Tongjiang in southeast, Daqing and Qiqihar in west, and Yichun and Heihe in north.

26. By the end of 2007, the province’s railway operational mileage amounted 5,563 km (including 723 km of local railways), and total extended length of main lines reached 7,250 km, connecting 62.8% of the cities in Heilongjiang. Railways play an important role in the province’s economic development, especially for the transportation of energy, mineral materials and other staple cargoes.

27. In the last 30 years, the road network and facilities have been substantially improved in Heilongjiang Province. Currently, there are 4 national trunk highways, 8 national highways, 30 provincial highways, 220 county roads and numerous rural roads and special roads for oil fields, forestry and farms. By the end of 2007, the total mileage of road accumulated 140,909 kilometer, and the density of road network was 31 km per hundred square km, lower than the country’s average level. By technical classifications, there are 1,044 km expressways, 1,435 km of Class I highways, 7,443 km Class II highways, 33,207 km Class III road, and 50,883 km Class IV roads.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

28. Inland waterway in Heilongjiang Province is mainly the waterway transport in Heilongjiang River, Wusuli River, Songhua River and Nenjiang. The total navigation mileage is 5,528 km. Water ports are mainly located along Songhua River and Heilongjiang River, including the main ports of Harbin, Jiamusi, Heihe, Tongjiang and Fuyuan. Among the total operating mileage, waterways above Class III is 1,942 km with service capacity of 1,000 ton ships, accounting for 34.8% of the total navigation mileage. There are 172 passenger and freight berths, with annual freight capacity of 15 million tons, and passenger capacity of 1.8 million person-times.

29. Currently, Heilongjiang Province has five civil airports, respectively located at Harbin, Qiqihar, Mudanjiang, Jiamusi and Heihe. Of which, Harbin Taiping Airport is an international airport and also the second largest airport in the northeast of China. The Harbin Taiping Airport had a substantial expansion in 1994 and it now has a designed annual passenger capacity of 6.66 million person-times. In Heilongjiang Province, there are more than 60 air routes forming up an aviation network to all provinces of China in the south, to Russia in the north, and to Japan and South Korea in the east.

30. Along with robust socioeconomic development and significant transport infrastructure improvement, the traffic for both passenger and freight in Heilongjiang Province has also experienced a booming period. In the last 8 years (from 2000 to 2007), the total passenger traffic increased by 30% with an average annual increasing rate of 3.96%; the total passenger traffic volume increased by 55% with an average annual increasing rate of 6.67%; the total freight traffic increased by 28% with an average annual increasing rate of 3.62%; the total passenger traffic volume increased by 38% with an average annual increasing rate of 4.71%. The traffic development in Heilongjiang Province presents the following characteristics and trends:

• Optimization in transport and traffic structures. The different transport modes complement each other and play their corresponding roles to meet variety needs of transportation demands. • Despite competition among transport modes in recent years, railway transportation is still dominant in freight transportation due to its low price and high reliability. However, lots of passenger traffic of medium and short-distance have diverted away from railway to road. • The road traffic has developed sharply and actively in recent years. In 2000-2007, the road traffic increased by annual average of 4.72% and 4.03% per annum respectively for passenger and freight traffic. The road traffic volume increased by annual average of 4.03% and 9.03% per annum respectively for passenger and freight. • International transport corridors in Heilongjiang Province are still under development. The Province serves as an economic and trade frontier to Russia and other northeast Asia countries. Several international corridors have been initially established. • The transportation network is still not fully completed to meet the growing needs of robust socioeconomic development. The density of the highway network is not high; the transport convenience and security is not adequate; the layout of highway network is mainly dendrite distributed, lack of network connectivity; the expressway is still not networked; the technical standard of the highway and road is relatively low.

Road Sector Development in Heilongjiang Province

31. Heilongjiang Provincial Communication Department (HPCD) is responsible for the planning, development, maintenance and administration of the road and waterway sub-sectors on behalf of the provincial government. Ministry of Transport (MOT) provides policy guidance and technical support by issuing national policies and regulations, developing national trunk 19

Heilongjiang Road Development II (TA 7117 – PRC) Final Report and expressway network plans, and establishing design and construction standards. HPCD is mainly responsible for national and provincial highways, including its planning, financing, construction, operation and maintenance. Prefecture and county communications bureaus are responsible for construction and maintenance of local roads.

32. Under the 1998 National Highway Law, responsibility for road management is decentralized. Under the MOT’s guidelines, the provincial and autonomous region communication department is fully responsible for the planning, development, maintenance and administration of the highway network in its jurisdictional region. In the last 30 years, most of road development funds were allocated for the construction of national and provincial trunk highway networks. Substantial funds have been used for rural road development. However, road maintenance fund appears to be not adequate. In recent years, the funds for road development mainly come from domestic banks, local governments and MOT grant. Expressways are expected to cover their operating and maintenance costs and debt service charges from their toll revenues. Reliance on domestic debt has been increasing, used to finance both expressways and other road projects and repaid from toll revenues. Starting January 1 of 2009, the central government issued and implemented a new policy, which is to abolish the collection of road maintenance fee and other five types of transportation fees, and to start collection of fuel tax. For better financially supporting road development, commercial bank loan, from international and domestic banks, has been well utilized, especially for expressway development.

33. For stimulating and keeping high socioeconomic development, Heilongjiang Government approved, in June 2008, a three year plan for speeding up road development. It is planned that the government will enhance efforts and investment for road development in the period of 2008-2011. The government will invest 90 billion CNY to develop 2,207 km expressways, 731 km Class I highways, 3,252 km Class II highways, and 60,799 km rural roads. By the end of 2008, this plan was adjusted to further enhance the efforts, including a total investment increase to 100 billion CNY for constructing 2,840 km expressways, 422 km Class I highways, 2,930 km Class II highways, and 2,930 km rural roads.

34. With the rapid road sector development, there are new issues in conjunction with the road development including resource optimization, fuel tax reform, road management and road maintenance, rural transport development, road safety, overloading truck control, private sector participation, etc. A more detailed transport sector analysis and policy reform matrix is presented in Appendix 2.

Project Economic Rationales

35. Heilongjiang Province has experienced a robust socioeconomic development in the past 30 years. From 2000 to 2007, the GDP growth rate has kept at an average of 10.88% per annum. The fast economic development and transport infrastructure investment have stimulated a booming in transport demands. From 200 to 2007, the passenger traffic and freight traffic volumes have been increased by 55.2% and 37.6%, respectively. The fast growth of economic development requires an efficient and effective transport system to meet the growing demands.

36. The proposed project will build the missing link between Yichun and Nenjiang in the second horizontal corridor in Heilongjiang Planned Road Network. Heilongjiang is a national agricultural, heavy industrial, petrochemical, and natural resource base in China. There are two major development areas in the province. The Sanjiang Plain in the southeast is the major agricultural and coal mining development area, while the Songnen Plain in the west, including Harbin-Daqing-Qiqihar (HDQ) Industrial Corridor, is the major heavy industrial, petrochemical and the agricultural development area. The proposed project will connect these two major development areas to foster regional economic cooperation and promote economic growth.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

37. Heilongjiang has 3400 km long border with Russia. There are fourteen (14) national level Class I ports along the border, including Suifenhe, Dongning, Fuyuan, Tongjiang, Heihe, etc. The proposed project will provide direct access to these port cities for both Sanjiang Plain and Songnen Plain including the HDQ Industrial Corridor, especially for the port cities at the north border, such as Heihe, Tongjiang and Fuyuan.

38. In addition to complete the second cross province horizontal link in Heilongjiang, the Project will also build the currently missing link, the Nenjiang Bridge, in the planned Jiagedaqi to Harbin Highway. Jiagedaqi, located in the territory of Inner Mongolia, is the prefecture capital city of Daxinganling Region, a rich natural forest resource area in China, which is also the only prefecture capital city that does not have highway connection to the provincial capital city, Harbin. It has been agreed that Heilongjiang will build the missing link at Nenjiang River, and Inner Mongolia will be responsible for the construction of the remaining highway from Nenjiang Bridge to Jiagedaqi.

39. One of the most important objectives of the Project is to provide access to the local farmers, forest workers and local residents so that they can be benefit from the Project and improve their quality of life. The proposed project will be fully integrated with the local rural road system that will be upgraded and improved by Heilongjiang Government before the completion of the Project.

40. Wudalianchi and Yichun are two prominent tourism destinations for geological scenery and forest tourism, respectively. Due to the presence of Xiaoxinganling Mountain, currently there is no direct connection between these two tourism spots, and tourists have to take a long detour vs. Harbin or Suihua in order to visit both places. The Project will build the missing link between them to form a Harbin-Yichun-Wudalianchi loop so that tourists could visit both places in one trip thus promoting tourism development effectively.

41. During the construction, the Project will generate great amount of demands for local labors, construction materials, agriculture products and variety of services, which will substantially simulate the expansion of local socioeconomic activities and make immediate cash income for local residents. Upon completion, the Project will improve the entire transport condition and make significant changes in the socioeconomic development of the Project areas, especially in employment, education, health care, poverty alleviation, etc. By developing feeder roads, improving transport services, and implementing proper government policies, the benefits of the Project will quickly and eventually transfer to poverty population and to broader area.

42. The opening of the Project road will not only provide a high class transport infrastructure in middle of the Province, but also will significantly alleviate traffic congestions in the whole Project area. Due to higher travel speed on the Project road and relevant roads, the vehicle emission will be substantially reduced. In 2006, the MOT developed and implemented a long- term plan of energy saving in road and waterway sub-sectors1, which estimated that energy saving rate would be 15-41% through road upgrading and 7-10% through traffic congestion improvement. The Feasibility Study Report indicated that total fuel saving by the Project would be as high as about 6.5 billion litter in 20 year’s operation. The vehicle emissions would be also substantially reduced. Studies indicated that vehicle CO emission might be reduced by 20%- 30% at different travel speeds of 40 and 80 km/hour. That is, the Project will contribute considerable benefits in energy saving and environment protection.

1 “Outline of Medium and Long Term Plan for Energy Saving in Road and Waterway Sub-Sectors”, Ministry of Transport, 2006 21

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

B. Analysis of Key Problems and Opportunities Problems and Constrains

43. Heilongjiang is the sixth largest province in China with large forest cover area and agricultural farmlands. Historically timber production, agriculture, and heavy industry are three major outputs from the region, and the railroad has been one of the major transportation modes in the area with well developed railroad lines and facilities. As for the road transportation, despite the large amount of investment in recent years, including investments from ADB in road sector, the development of road network is still lagging behind in comparison to the other parts of PRC, especially in the coastal and more populated areas. The road network does not have adequate access to the vast rural and remote areas, particularly the poorer inland regions. The Heilongjiang Provincial Government has made great effort to develop the regional road network system. A comprehensive road network system has been developed and planned to be implemented in the current, 12th and 13th Five Year Plans. Currently, the construction of the planned road network is mainly concentrated around Harbin, the provincial capital, and the construction and upgrading of roads in the large rural and remote areas in the far north, east and west along the provincial border is still in the planning stage. The access to the vast rural and forest area is one of the main constrains for local poverty reduction.

44. The forest industry was used to be one of the major productions in the province. In order to preserve the natural forest resources and better protect the environment, the government has issued strict policies to limit the amount of trees can be cut in each year, as a result, the timber production from the forest industry has been reduced considerably, and the required workforce has been shrinking each year. There are lots of layoff forest workers seeking opportunities for employment in sectors other than forest industry. A promising new employment opportunity comes from the forest tourism, which provides scenery tour and recreation activities in the forest area. The forest tourism in Yichun area has been booming in recent years. The number of tourists from Harbin as well as cities in other parts of China has been growing significantly. A better road network system with access to the potential forest tourism areas will help to create more job opportunities for the local people, especially the layoff forest workers.

45. In addition to the traditional forest timber and agricultural grain productions, the development of other types of businesses and productions, such as production and export of local forest products or agricultural related processing and productions, has not been fully developed in comparison to other more developed area in PRC. Limited access and high transport cost are definitely put further restrains for the development of local businesses. A better road transportation system, especially with better access to the vast rural and forest areas, will help to promote the development of local businesses, provide more employment opportunities, and alleviate poverty in the poor areas.

46. Due to the relatively larger land area and lower population density in Heilongjiang Province, the road network system, especially in the rural and remote areas, has not been fully developed yet. In complying with the central government policies to improve the rural road system, the Heilongjiang Government has developed plan for improving rural road system, and the implementation of the plan is in progress. The goal of the plan is to provide access road to every administrative village by the end of 2010. Only when the rural roads are well integrated into the regional highway network system, the system will be more effective and can serve the local communities better. The integration of the rural roads into the regional road network is one of the important considerations for any new proposed project.

47. In addition to the construction and upgrade of road infrastructures, the improvement of transport services, both for passengers and goods, is an important part in order to better service the rural area. Currently, the bus service is still one of the major transport means for the rural area. The services are mainly provided by private transport companies and controlled by 22

Heilongjiang Road Development II (TA 7117 – PRC) Final Report the market needs. In some cases, villages with fewer passengers will not have adequate bus services. In addition to the market control, appropriate government policies are needed to regulate the rural bus services to provide incentives for the bus companies who will provide services for both populated and less populated villages.

48. There has been a huge amount of investment in road construction in China in last 20 years with a lot of roadways and bridges being built. However, in addition to the routine cleaning and maintenance, little effort has been given to the management and maintenance of the road assets, namely roads and bridges. As the infrastructures aging, the need for road asset management and maintenance will become urgent task for road safety and to manage the limited road maintenance fund efficiently. In developed countries, various road asset management systems are standard tools for both federal and state/province governments monitoring the safety of road infrastructures, recording the overall road and bridge conditions, generating the priority lists of roads and bridges requiring maintenance, and providing recommendations on using maintenance fund efficiently. In China, the MOT has directed some provinces including Heilongjiang to install CPMS (China Pavement Management System), but the system has been hardly used after the initial installation. An operable and sustainable road asset management and maintenance program will help the Heilongjiang Government to improve road safety and use the road maintenance fund more efficiently resulting considerable saving.

49. The proposed project is located in northern China with long snow covering period and very short non-frozen period for construction. The average non-frozen period in the project area is about 110 to 120 days. For road sections located in the areas where snow accumulation is severe during winter, a high fill embankment cross section has been adopted in the engineering design to avoid snow accumulation on the road surfaces during winter. An emergency road maintenance plan during snow seasons shall be developed for the road owner to ensure the timely snow removal for road safety.

50. Due to the short construction period, the construction of the project needs to be planned carefully in order to complete the project on schedule. More contractor inputs shall be required during the construction period in summer and fall so that more field work can be accomplished. A special provision regarding requirements to deal with short construction period shall be included in the contract documents.

Policy Dialogue

51. ADB policy dialogue with MOT focuses on (i) improving transport capacity and efficiency, (ii) rationalizing and consolidating the structure of road transport enterprises, (iii) promoting modern transport and information technologies, (iv) improving regulatory framework governing road transport, (v) establishing a high quality trunk road network, integrating road transport more effectively with other transport modes, and (vi) addressing global issues such as greenhouse gas emission, fuel efficiency, road safety, and private sector participation. To complement ongoing policy dialogue, the Project will support consistent, reliable, and safe transportation services and produce economic benefits; it includes an optimized package of investments, policy reform, and institutional development activities. More detailed analysis is presented in Appendix 3 Policy Dialogue Matrix.

52. Road Maintenance Funding. In the last 30 years, most of the road development funds have been used for constructing national and provincial trunk highway networks. Substantial funds have been used for rural road development. However, these funds for road maintenance were not adequate. In recent years, the funds for road development come mainly from domestic banks, local governments and MOT grants. High class highways are expected to cover their operating and maintenance costs and debt service charges from their toll revenues. Reliance on domestic debt has been increasing, it is used to finance high class highway projects and repay the debt from toll revenues. Starting from January 1 of 2009, the central government 23

Heilongjiang Road Development II (TA 7117 – PRC) Final Report issued and implemented a new policy, which is to abolish the collection of road maintenance fee and other five types of transportation fees, and to start collection of fuel tax and remove tolls on class II roads. For supporting the financing of the road development better, commercial bank loans from international and domestic banks have been well utilized, especially for expressway development.

53. Road Asset Management. The development of road network over the last few years has made maintenance and upkeep of these roads a key issue. Currently Heilongjiang does not have a proactive and systematic approach for planning and budgeting of road maintenance activities. The last attempt at a road asset management system was acquisition of the China Pavement Management System (CPMS), which was stopped in 2003 due to (i) absence of corporate commitment by government agencies, (ii) limited funding, (iii) difficulty in operating the system, and (iv) lack of knowledge how to use the CPMS. The CPMS was developed in 1991, but never took off due to the above reasons. Also several new regulations and procedures have been issued for managing of road asset; therefore MOT decided to develop a new asset management system and engaged Research Institute of Highway (RIOH) for its development. In 2009, RIOH developed Road Asset Management System (RAMS), which uses the latest technology and software, is user friendly and uses the geographic information system. To facilitate easy and reliable data collection for RAMS, RIOH has also developed a data collection vehicle. Heilongjiang expects to receive RAMS and special vehicles by November 2009. Successful and timely implementation of RAMS is crucial to road maintenance in the province. Heilongjiang has utilized road maintenance contracting on a limited basis for some periodic maintenance; however most road maintenance is undertaken through force-account work or by provincial and local government forces. The majority of roads in Heilongjiang are maintained by local jurisdictions, with some complementary funding provided by HPCD.

54. Rural Transport Services. Recognizing the increasing need to improve bus services, the Heilongjiang Provincial Government has decided to deregulate some aspects of service operation including cancellation of requirements for conventional fixed stopping points, fixed routings, and fixed service schedules. Appropriate arrangements are needed to regulate rural bus services in order to encourage bus companies to provide adequate services. The HPCD has been improving bus services at county level. It has financed and conducted a pilot project to improve bus services in Lindian County. The main achievement of this pilot project was to replace the conventional “fixed schedule, fixed route and fixed stops” rural bus service with more flexible “user needs” based services; and for services to be provided by private operators. The province aims to extend bus services reform to township and village level.

55. Road Safety. Economic development in Heilongjiang Province has been accompanied by increasing vehicular growth that has resulted in an increase of road accidents (in 2008 there were 4,528 traffic accidents resulting in 1,703 fatalities and 4,905 injuries). The Province has a long winter covered by snow for about 120 days. About 40% of the total accidents are due to the presence of ice and snow on roads because of inadequate snow clearance during the harsh winter. Elderly people, women, and children are the main road users in rural areas. Due to poor knowledge of traffic regulations, these people often become victim of traffic accidents. Other factors contributing to road accidents are inadequate road design, improper traffic safety devices, and lack of enforcement.

56. Resource-efficient and Environmentally-optimized Transport. Experience in the PRC indicates that an efficient and effective transport system is needed to support economic growth and poverty reduction. Environmentally-friendly and regionally-balanced transport development is becoming more important in the PRC. Given the limited land and energy resources, there are great pressures towards optimal resource usage in the road sector. With TA support from ADB, the Government has introduced a new emphasis on "green transport" to optimize road sector resource usage through energy resource saving and CO2 emission reduction, preservation of land resources, and improving freight transport efficiency.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

C. Lessons Learned 57. The evaluation of ADB assistance for roads in PRC2 concludes that the program has been successful overall, and ADB has the potential to formulate new focus and priorities to continue playing a significant role in the road sector. The proposed project is the 4th ADB financed road projects prepared and implemented by HPCD. All three previous projects were implemented without major problems. Lessons learned from the previous road projects in Heilongjiang and other provinces in PRC suggest the need for: (i) adequate and timely funding and well coordinated resettlement schedule, preceded by consultations with the affected parties before their relocation; (ii) sufficient geological investigations for sections located in complex geological sites to ensure adequate designs and accurate cost estimates to minimize contract variations; (iii) detailed and accurate project cost estimation in consideration of actual market prices and local conditions avoiding unhealthy bidding competition, which may result in poor construction quality and slow construction progress due to low bidding price; (iv) formulating a well prepared design and monitoring framework with baseline and target values; and (v) capacity building and effective consulting service by experienced international consultants to ensure project management and administration meeting ADB requirements. The issues have been taken into account during project preparation, including early planning for resettlement, adequate geological investigations in mountainous and forest areas review and verify bills of quantities and design documents, development of detailed design and monitoring framework, development of capacity development program and outlines of the terms of reference for consulting services.

58. Performance reviews of completed ADB financed road projects in PRC indicate that in general the projects facilitated economic growth and poverty reduction. The completed projects show that ADB’s safeguard policies were met, loan covenants were generally complied with, people’s living standards were improved, and the recent projects helped raised policy maker’s awareness of the importance of addressing road safety, vehicle emissions and other key issues.

3. THE PROPOSED PROJECT

3.1 IMPACT AND OUTCOME 59. The principle objective of the Project is to promote sustainable economic growth and reduce poverty in Heilongjiang Province. The Project will: (i) Build the missing link to improve Heilongjiang road network for better connectivity and efficiency; (ii) Enhance regional economic cooperation and development among different parts of Heilongjiang Province; (iii) Improve connectivity and accessibility for local communities and poor area and provide them with opportunities for poverty reduction; (iv) Facilitate border trade development with better access to border port facilities, including international trade development in northeast Asia including Mongolia, China and Russia; (v) Promote regional tourism development. The impact of the Project is an improved and more efficient transport system in Heilongjiang and the northeast Asia region. This will be achieved by developing an efficient, safe, and environmentally sustainable regional roadway system integrated with local road system to facilitate the movement of goods and people in northern part of Heilongjiang. The design and monitoring framework is shown in Appendix 1.

2 ADB. 2007. Sector Assistance Program Evaluation of the Asian Development Bank Assistance for Roads and Railways in the People’s Republic of China. Manila. 25

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

3.2 OUTPUTS 60. The project includes an expressway segment from Yichun to Wudalianchi, a Class II highway from Bei’an to Nenjiang, and a Class I highway from Nenjiang to the provincial border with Inner Mongolia. In addition, there are three (3) branch roads and twenty (20) bus stations. The detailed project components are comprised of: (i) Construction of 276.89 km expressway, including a 70.15 km shared expressway section with Ji-Hei Expressway at Bei’an City, which will be constructed under separate contract by Heilongjiang Government; (ii) Construction and upgrading of 134.10 km existing road from Bei’an to Nenjiang to Class II highway; (iii) Construction of 12.96 km Class I highway from Nenjiang to the province border. The detailed project roads are summarized in Table 1.6. The Project will also introduce and implement an improved road asset management system in the province for better road network management and maintenance, implement a rural bus service improvement pilot project in rural towns, and strengthen the institutional and staff capacity of the HPCD and relevant agencies of the province.

Table 1.6 Project Roads

Length No Segment Description Classification Connecting Point Remark (km) 1Yichun ‐ Bei'an Yichun ‐ Bei'an East Expressway 163.62 Zhaoguang Interchange ‐ Wudalianchi Bei'an East ‐ Bei'an Expressway 34.55 Jianhua Interchange Note 1 Bei'an ‐ Wudalianchi Expressway 43.12 Huanxinling Toll Plaza Note 2 2Bei'an ‐ Nenjiang Bei'an ‐ Zhanhe Expressway 35.60 Jianhua Interchange Note 3 Zhanhe ‐ Longzhen Class II 10.30 Zhanhe Interchange Note 4 Longzhen ‐ Nenjiang Class II 134.10 Nenjiang to Province 3Nenjiang ‐ Border Border Class I 12.96 G111 Intersection Note 5 4Branch Road Nenjiang Branch Class I 3.31 G111 Intersection Geqiushan Branch Class III 1.06 Intersection @ K40+60 Qixingpao Branch Class III 0.73 Intersection @ K51+600 Total Expressway Length = 276.89 (km) Total Construction Expwy Length = 206.74 (km) Total Project Length = 434.25 (km) Total Project Construction Length = 353.80 (km) Total Branch Road Length = 5.10 (km) Notes: 1 The proposed roadway shares with Ji‐Hei Expressway from Zhaoguang Interchange to Jianhua Interchange. 2The expressway connects to Huanxingling Toll Plaza at Wudalianchi GeoPark, which includes 11.93 km Class I road as a transition to the existing Class II road at the Wudalianchi GeoPark. 3The expressway shares with Ji‐Hei Expressway from Jianhua Interchange to Zhanhe Interchange. 4 The proposed roadway will use the existing Class II road from Zhanhe Interchange to Longzhen where the new Class II road to Nenjiang starts. 5 The segment ends at the end of Nenjiang Bridge in Inner Mongolia. The segment is built as Class I road with intention to upgrade to expressway in future.

3.3 SPECIAL FEATURES

3.3.1 Rural Transport Improvement 61. One of the project objectives is to improve the rural transport system for accessibility, connectivity, and affordability. Currently the construction of improvements and upgrades of the existing rural road system is underway by Heilongjiang Government. For the project influenced

Heilongjiang Road Development II (TA 7117 – PRC) Final Report area, it has been informed that the construction and upgrade of all rural roads will be completed by the end of 2009. The proposed project will connect to the rural road network in the influenced area by interchanges in the expressway segment, as well as intersections and branch roads in the Class I road and Class II road segments.

62. Based on the latest rural road improvement plan in HLJ, by the end of 2010, all county roads and town roads will be upgraded to Class III or Class IV roads and all administrative villages will be connected with paved roads. From 2008 to 2010, HLJ will invest 24.3 billion CNY to construct 60,799 km rural roads, and the construction lengths are 24,799 km, 15,500 km, and 20,500 km in 2008, 2009 and 2010 respectively. In 2008, a total of 24,799 km rural roads have been upgraded, 91.6% of towns and 71.9% of villages were connected with paved roads. Currently, there are 11 towns and 1,666 administrative villages are not connected with paved roads. According to the current province plan for rural road improvements, by the end of 2009, most administrative villages will be connected with paved roads with only 40 remaining administrative villages to be connected in the near future.

63. In accordance to HLJ rural road planning, a total of 42.2 billion CNY will be invested for upgrading rural roads from 2011 to 2020 with a total of 78,000 km rural roads. It is expected that by the end of 2020, a total of 183,000 km rural roads will be constructed or upgraded, including 110,000 km village roads.

64. In order to help the local people to have better access to the rural transport services, the construction of twenty (20) bus stations has been included in the Project. The bus stations, especially for those located in the poor areas, will facilitate the transport of goods and people, provide better rural transport services, improve the life of local residents, and help the economic development for the rural area.

65. A workshop on rural transport services has been conducted to introduce the major findings and recommendations from ADB Study of “Sustainable Rural Transport Services (TA 4806)”, and the current status and progress of implementing pilot projects in Anhui Province. Through the interactions and discussions between the presenters and participants, the current problems in HLJ rural transport services have been identified and confirmed. The rural bus service improvement pilot project will be implemented under the proposed project in order to explore the applicability of the proposed improvements. The details are presented in the latter section of this report.

66. Policy reform is a key to promote rural transport system. A good policy that could bring in fair market competition for better price and motivate people to provide better rural services is the most effective way to improve rural transport service. Policies reforms to introduce more market competition and financial incentives instead of government regulated rural transport services shall be provided and implemented to improve the rural transport service eventually. The implementation of the rural bus service pilot project is an important first step to initiate the policy reform in rural transport services.

3.3.2 Road Asset Management and Maintenance 67. A successfully implemented road asset management and maintenance program is an essential part for any modern roadway system. The management system is a fundamental tool for improving public safety, road management and maintenance, efficient use of maintenance funding and saving maintenance cost, and road maintenance planning. Almost all developed countries have implemented some kind of road asset management and maintenance program for road maintenance and management in order to use the available maintenance funding efficiently. In Heilongjiang, the routine road maintenance is carried out by government maintenance staff and managed by the maintenance unit at the sections where the unit is responsible. As mentioned previously, the last attempt at a road asset management system 27

Heilongjiang Road Development II (TA 7117 – PRC) Final Report was acquisition of the China Pavement Management System (CPMS), which was stopped in 2003. It might not be a big problem at the current stage because the roadways and infrastructures are relatively new and the maintenance need is minimal. However, as the aging of road infrastructures, the need for effective management and maintenance program will become necessity, especially the need for addressing structure safety which will become a critical issue. MOT decided to develop a new asset management system and engaged Research Institute of Highway (RIOH) for its development. In 2009, RIOH developed Road Asset Management System (RAMS), which uses the latest technology and software, is user friendly and uses the geographic information system (GIS). To facilitate easy and reliable data collection for RAMS. The Project will make full use of the newly developed RAMS in developing the road asset management system in Heilongjiang, and develop and implement a more systematic and scientific sound road management and maintenance program.

68. A complete road asset management and maintenance program will be developed and implemented for the project. The program will assist Heilongjiang Provincial Government: (i) Develop road asset management and maintenance policies, standards and procedures; (ii) Based on the current RAMS system to develop GIS based road asset management system; (iii) Institutional development to meet road asset management and maintenance needs; (iv) Develop field data collection and structure inspection standards and procedures; (v) Establish data management and process center; (vi) Procure and build up field data collection and structure inspection equipment; (vii) System testing and operation; and (viii) Provide training for managers, system operators; field data collectors and inspectors.

69. Any capacity building in road maintenance must address organizational structures, planning, adequate funding, prioritization based on a logical - and at network level, procurement of adequate equipment and tools, maintenance works skills development; and engagement of the private sector in maintenance. The Project aims to assist the province in three stages: (i) first stage - implementing RAMS implementation and collecting data and development of a logical approach to road maintenance planning and budgeting, (ii) second stage - draft a maintenance-by-contract standard documents and procurement of civil works, and (iii) third stage - pilot execution of major maintenance work using performance-based contract approach and execute other maintenance works using the standard contract documents developed and approved by MOT.

70. After the program being implemented and fully functional, the Heilongjiang Provincial Government can use the system to manage the maintenance of all roadway systems in the province, which includes to monitor infrastructure condition avoiding or minimizing safety incidents, efficiently use maintenance funding for the most needed work, produce priority list for maintenance, repair and upgrade needs so that the work can be planned based on the available funding, and save maintenance cost by using the available funding efficiently.

71. A designated road maintenance funding shall be allocated each year to ensure the required maintenance and repair can be provided. In order to meet the maintenance needs identified by RAMS, it is agreed that Heilongjiang Provincial Government will finance the road maintenance as identified by the RAMS.

3.3.3 Rural Bus Service Improvement Pilot Project 72. Previous studies of the ADB stress that improvement in rural transport is essential to the success of implementing government policies to reduce rural poverty. In order to complement the government effort, improvement of township and village bus services through implementing a pilot project is proposed in Bei'an County. The pilot project aims that (i) the public interest must be protected by providing flexible bus service, keeping fare at reasonable levels, ensuring vehicles in good condition; (ii) operators will seek to provide service that will maximize their revenue; and (iii) the regulators will do their work to ensure that new demands for service are 28

Heilongjiang Road Development II (TA 7117 – PRC) Final Report monitored and made known to operators. The details of the implementation of the pilot project are shown in Appendix 24.

73. The Project will encourage private bus service providers to compete for implementing the reform, and improve organizational and staff efficiency in handling transport services and increase skill of bus service providers through implementing study tour in Anhui and Xinjiang Provinces and Lindian county and conducting seminars and workshops. Once an effective approach has been established, it is expected that this will be replicated in other parts of the province.

3.3.4 Regional Transport and Trade Facilitation

3.3.4.1 Regional Trade Development Regional Trade Profile

74. Statistical data shows that trade volumes have exhibited dramatic increase from year 2000 to year 2007. Retail of consumer goods has more than doubled. County and below county levels showed a 150% growth. Sales in fuel have increased three (3) times, while sales on articles have gone up 2.4 times. Based on official statistics Heilongjiang’s total volume of import and exports in 2007 was 21.7 billion USD, which is almost 4.5 times (4.74 billion USD), compared to that in 2000 with an average increase of 46.37% annually. Exports jumped 4.5 times with an annual average increase of 50.42 %, outdoing the imports by 3.9 times and a corresponding annual average increase of 41.88 % within 7 years. This was brought about by increased trade activity and improved border crossing procedures at ports along the Heilongjiang River. On the national level, the total annual import and export values of goods from Heilongjiang grew 4.6 times, which is almost identical to China’s overall performance. Also the neighboring provinces of Jilin and Liaoning had experienced improvement in their local economies expanding to 3.6% and 3.34% respectively. For the northeast region, on the overall gross figures for the 2007 import and export values, Liaoning was the highest at 65.18 billion USD, followed by Heilongjiang at 18.4 billion USD and then by Jilin at 11.3 billion USD.

Border Ports and Project Road

75. The construction of the project roads will potentially have direct impact to the border ports near the project road, and could promote border trade development due to easy access and faster transport. There are twenty-five (25) active ports located within Heilongjiang that serves as entry-points categorized as border port and inland port. There are 15 border ports which are made up of one (1) railway port, four (4) highway ports and ten (10) waterway ports. The inland ports consist of three (3) aviation ports, one (1) railway and five (5) waterways. Five of these border ports are within a distance of 160-250kms from the Project Road. The five borders ports are located in Mingshan (Loebei County), Jiayin, Xunke, Sunwa, and Heihe. Four of these ports, except that in Sunwu, are operational and are used for freight and passenger crossing to and from Russia. The completion of the project roads could bring up the trade volume at these ports, especially for Heihe, Mingshan and Jiayin, where the project roads will link these ports to both east and west parts of Heilongjiang Province. Immigration and customs procedures are carried out to process goods and people crossing the border. Most of the border crossing facilities are provided with the necessary equipment such as computers, surveillance camera, metal detectors and X-ray scanners. The most modern and high-tech is the facility located in Heihe, which is housed in a contemporary style building, spacious lounge, parking grounds, passenger temperature scanner, multiple X-ray scanners, surveillance cameras and a classy duty free boutique. Basic facilities were found in Loebei Port consisting of surveillance camera, computers and immigration processing booths.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

76. For the Border Ports in Heilongjiang, the most active now in terms of passenger and cargo traffic is Suifenhe Port. Heihe Port is second in terms of person traffic, but third in cargo traffic. Dongning is third in passenger traffic while Tongjiang is third for cargo traffic. Freight and passenger cross border traffic data from HPCD for 2007 indicate that the highest in terms of freight is Dongning Port which is around 42% of the entire province. For the ports near the Project Road, Heihe is still the largest garnering around 14% of the provincial cross border freight traffic. As indicated, the traffic in Heihe is around 22 trucks/ day. Accordingly, Xunke will have 1 truck/ day, 1.2 trucks for Loebei, and 2.3 trucks for Jiaying. This will likely be the number of trucks that can potentially use the Project Road. This may of course increase in the future, but only Heihe’s traffic will be significant. Jianyin’s traffic is still low, but bottlenecks may occur as roads from Yichun to Jiaying will not be improved.

Port Improvement Planning

77. A Port Development Plan was produced with the general objectives of strengthening and guaranteeing quick development of trade between China and Russia. The plan also aims to revitalize cooperation strategy with Russia in various sectors including economy, business, science, technology, and improve corridors to the sea from Heilongjiang. It focuses on constructing and upgrading the infrastructure of port highways and waterways to improve capacities, link up with other transportation modes, and advocate for comprehensive and integrative port facilitation and transportation planning through formation of convenient and quick corridors for trade between China and Russia.

78. With the prevailing local and global economic and financial challenges, a number of relevant strategies can be brought forward for policymakers to consider toward revitalizing trade and improvement or provision of transport infrastructure. Within Heilongjiang the private sector should be encouraged to invest in the recognized industrial hubs and economic zones through some incentives. On matters of international trade facilitation with Russia, a number of items need to be considered by policy-makers related to border crossing, immigration and customs procedures. Part of the infrastructural improvements will be the upgrading of roads to border ports, particularly link roads from the EW2 corridor to the border crossing points. The road network that may require upgrading to facilitate access are Yichun to Jiayin, Xunke to Sunwu along G202 (Bei’an to Heihe) and Hegang to Loebei. As identified by the Port Development Plan, a number of the ports need to be upgraded in terms of terminal stations, port facility and other support infrastructure. To improve freight movement and complement road freight transport, railways need to be extended up to the border crossing port area. Areas near the border ports have potentials of developing into economic zones, industrial complexes and processing areas and so must be explored by policy-makers. Certain areas exhibiting potentials for transport nodes can be developed into logistic hubs to service the needs of Heilongjiang’s industries in terms of integrated warehousing, material sourcing, packaging, forwarding, shipping and monitoring of shipment from origin to destination.

79. In addition, certain management features need to be explored as well by both Chinese and Russian officials. Customs system harmonization should be pursued by both countries in order to eliminate bureaucratic red tapes and documentary duplications and paperwork. Both countries can establish a Single-Stop/Single-Window Processing, which is in line with systems harmonization, establishment of procedural steps or facility for one-stop processing, which cuts the waiting and delay time to practically one-half. Traders accomplish both exporting and/or importing requirements in one facility where customs officers, sanitation officers, etc. of both countries are housed in the same facility and freely exchange information in an efficient way to minimize delays. Pre-lodging system can be established and done electronically through web portals or designated offices for documentary verification. This procedure will minimize delay, avoid spoilage of perishable products and ensure in-time delivery of goods to the customers from one country to another. Periodic upgrading of systems and personnel is necessary especially data-sharing to prevent cross-border crimes and manage risks. Overall, both 30

Heilongjiang Road Development II (TA 7117 – PRC) Final Report countries should strive for more liberalized trade through bilateral treaties and other legislative measures for more collaborative work to further strengthen economic ties.

3.3.4.2 Interprovincial Connectivity 80. Inter-provincial connectivity between Heilongjiang, Jilin and Inner Mongolia is enabled by national as well as provincial roads. With Jilin the major one is the Harbin-Changchun Expressway (G010), which is part of the PRC’s national trunk highway system consisting of the Hashuang Expressway, the Heilongjiang portion; and the Changyu Expressway, the Jilin portion. In addition, there are four (4) more national roads (G203, G102, G202 and G201) and three (3) provincial roads (S221, S222, S321 and S206) that provide linkages with Jilin. Heilongjiang and Inner Mongolia are linked by two (2) national roads (G111 and G301) and three (3) provincial roads (S207, S310 and S302).

81. To get to Jilin passenger vehicles use more often G102 (Beijing – Harbin), followed by G203 (Mingshui - Shenyang) and S221 (Tailai - Zhenlai). For freight trucks into Jilin, the frequently used road is G102 (Beijing – Harbin), followed by S206 (Jixi - Tumen) and S321 (Nancun-Wangqing). For passenger inter-connectivity with Inner Mongolia, data show that G301 (Suifenhe-Manzhouli) is the mostly frequently used, followed by S207 (Jiagedaqi-Mohe) and S302 (Niazishan-Bei'an). For freight interconnectivity with Inner Mongolia, the frequently used road is G301 (Suifenhe-Manzhouli), followed by S302 (Niazishan-Bei'an) and S207 (Jiagedaqi-Mohe). The details are presented in Supplementary Appendix H.

3.3.5 Road Safety 82. The road traffic safety is a serious problem in the People’s Republic of China (PRC). In 2008, there were 265,204 traffic accidents with 73,484 fatalities and 304,919 injuries. The fatalities per 10,000 vehicles were 4.3, and the direct property loss was 1.01 billion CNY. Heilongjiang has experienced a rapid economic development in the last decade, which has been also accompanied by increasing vehicular growth resulted in rising level of traffic, increased pressure on the road system, a substantial number of road accidents, and large loss of life. In 2008, there were 1,703 road traffic fatalities with 4,905 body injuries and 4,528 traffic accidents. The direct property loss was 20.1 million CNY. In 2007, the number of fatalities per 10,000 vehicles was 6.34, which was higher than the national average value.

83. The road safety improvement can only be achieved by the participation of all involved parties, including government agencies, road users, law enforcement agencies, engineering designer and construction contractors. A successful road safety improvement program shall include all components for engineering, education, and enforcement, which sometimes are referred as “3E Program”. First of all, the roadway system shall be engineered and designed to consider all safety issues. All black spots with safety concerns shall be eliminated. The education to road users, especially for people living in rural area, is critical to promote public awareness of road safety and to learn dealing with today’s new traffic pattern and vehicle behavior. Finally, an effective law enforcement monitoring and control program shall be implemented to eliminate or reduce traffic violation for speeding, running red lights, using unsafe and unauthorized vehicles, etc.

84. The proposed road safety improvement component will includes (i) Engineering review and safety audit for the project roads, (ii) Developing an action plan for safe operation of the expressway, (iii) Institutional capacity development to increase public awareness in road safety, and (iv) Developing action plan and strategy to enhance enforcement of regulation and traffic safety laws. The details of road safety program are outlined in Appendix 6.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

3.3.6 ITS Application and Weather Information System 85. A comprehensive ITS system has been included for the proposed roads. The system consists of traffic monitoring and control system, toll collection system, and communication system. The weather information system, which is used to inform travelers about weather and snow condition, is incorporated into the traffic control system.

86. The traffic monitoring and control system includes traffic volume recording system, traffic condition monitoring system with 136 traffic cams, and variable information display system. The toll collection system adopted is a semi-automatic toll collection system, in which a toll collector operates the toll machine for toll collection, and all toll collection information is transmitted to a regional toll administration center through the fiber optical cables installed along the project roads.

3.3.7 Overloading Vehicle Control 87. Vehicle overloading inspection stations will be placed in all toll plazas to inspect and charge the toll based on the weight. All toll gate entrances will be equipped with truck gate with weight scale to monitor truck load. Trucks with overloads will be not allowed to enter the highway, and a storage area is provided at the toll plaza for the overloading truck to unload and store the extra loads so that the goods can be picked up and shipped next time. At all expressway exits, a weight station is equipped to measure the actual weight of the truck loading, and the toll fee will be collected based on the actual weight of the goods transported.

3.3.8 Capacity Development 88. In order to implement the project successfully, it is important to establish a strong project implementing unit (PIU) with all required divisions for contract management, accounting, engineering support, quality control, etc. and the staff are selected and trained with required qualifications for the job. The proposed training program will emphasize on the capacity development and institutional strengthening for PIU staff and personnel from relevant agencies who will directly overlook and involve in project management and construction, rural transport development, road safety, road asset management and road maintenance, expressway operation and management, etc.

89. A total of five (5) training study tours are proposed for the oversea training program, which include road and bridge construction technology, road safety, road asset management and maintenance, winter road maintenance and emergency response, and highway operation and management.

90. In addition to the oversea training program, a domestic training program shall be developed and implemented. The objectives of the domestic training program is to learn the advanced construction technologies and management procedures in other part of the country, especially those with ADB and World Bank project experiences. One of the proposed study tours is the rural transport service and pilot project, which is an ADB financed project to improve rural transport service. The experience and lesson learned from that project can be used directly for the implementation of the proposed pilot projects. Under the Asian Development Bank-financed technical assistance project in the People’s Republic of China and jointly undertaken with the Ministry of Public Security, a number of training opportunities are offered to the provincial public security bureau. The proposed training program for road safety shall include the participation of these training, including public awareness of rural road safety.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

3.4 PROJECT COST ESTIMATES

3.4.1 Project Investment Plan 91. The project investment cost is estimated at $998.15 million, including financing charges during construction of $81.3 million and taxes and duties of $24.9 million. The breakdown of the cost estimates is shown in Table 1.7. The details of the cost estimates are shown in Appendix 11.

Table 1.7 Detailed Cost Estimates by Expenditure Category ($ Million)

Amount A. Investment Costsa 1. Civil Works a. Expressway 486.16 b. Class I Road 38.00 c. Class II Road 80.63 2. Improving rural bus services 0.88 3. Capacity building 0.50 4. Consultancy Services 15.52 5. Equipment 18.75 6. Environment and Social Mitigation 39.74 7. Resettlement Expenses 41.90 8. Project Management 40.23 9. Taxes and Duties 24.90 Total Base Cost 787.21 B. Contingenciesb 1. Physical 58.42 2. Price 21.22 Subtotal (B) 79.64 C. Financing Charges During Implementationc 1. Interest 81.04 2. Commitment Charges 0.26 Subtotal (C) 81.30 Total Project Cost (A+B+C) 948.15 D. Improving Road Maintenance 50.00 Total Project Cost (A+B+C+D) 998.15 Source: ADB staff estimates a In early 2009 prices. b Physical contingencies are computed 8% for all civil works and 5% for other project components. Price contingencies computed at 0.8% for 2009, 1.0% for 2010, 1.5% for 2011, 2.0% and for 2012 thereafter on local currency costs; and 1.9% for 2009, 1.0% for 2010, 0.0% for 2011, and 0.3% for 2012 and 0.5% thereafter on foreign exchange costs. c Includes interest, commitment charges and front end fees. Interest during construction has been computed at the five-year forward London interbank SWAP rate offered rate plus a spread of 0.2%.

3.4.2 Financing Plan 92. The Government has requested a loan of $200 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 25-year term, including a grace period of 5 years, an interest rate determined in accordance with ADB’s London interbank

Heilongjiang Road Development II (TA 7117 – PRC) Final Report offered rate (LIBOR) based lending facility, a commitment charge of 0.15% per annum, a front- end fee of 1.00% (which will be waived), and such other terms and conditions set forth in the draft loan agreement. The Government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. All financing charges during implementation will be paid initially by the Government. The Government might decide at a later date to borrow to pay those charges.

93. Financing data provided by the PIU/PMO were based on the total costs given in the FSR. The EA later agreed to finance 100% of improved maintenance. ADB loan will finance 20.0% of the project cost including the financial charges during implementation. The China Development Bank will finance a $420 million (42.0%) of the project cost on a 20-year term, including a grace period of 4 years and bearing an interest rate of 5.94%. MOT will finance $203.56 million (20.4%) of the project cost. HPG will finance $175 million (17.5%) of the project cost. The EA has agreed to provide a commitment letter to confirm (i) timely provision of adequate counterpart funds; and (ii) provision of additional counterpart funding to cover any funding shortfalls that may occur during project implementation.

94. The financing plan of the Project is summarized in the Table 1.8. Detailed cost estimates and financing plan are in Appendix 11.

95. Financing by China Development Bank (CDB) is assured as part of a CNY 18 billion loan agreement dated 28 July 2005. To date, only CNY 9 billion has been used, leaving CNY 9 billion (some $1.3 billion). Loan interest is set monthly by the People’s Bank of China and is currently 5.94%. The PRC government is in a process of lowering rates to assist recovery from the current international crisis. Their long-run rate has been 7% or above, however. A grace period of 5 years is allowed in the agreement but is expected to be only for the 4 year construction period. The repayment period after grace will be 20 years. As with the ADB loan, the EA expects to pay interest during construction.

Table 1.8 Financing Plan

Source Express-way Share (%) National Ministry Of Transport (MOT) 203.56 20.4% Heilongjiang Provincial Government 174.89 17.5% Asian Development Bank (ADB) 200.00 20.0% China Development Bank 419.70 42.0% Total 998.15 100.0% Source: ADB staff estimates

3.5 IMPLEMENTATION ARRANGEMENT

3.5.1 Project Management 96. HPG has established a Project Steering Committee (PSC) chaired by Vice Governor of the Province to overlook the construction of all road projects that are under implementation. The Government advised that this PSC will provide guidance and resolve any major issues. HPCD will be the EA and has established a Project Management Office (PMO), which will be the Implementing Agency (IA) for construction of project roads, implementation of rural bus services and capacity building components. The PMO will be headed by a project manager, who will oversee day-to-day implementation including coordinating activities to comply with safeguard requirements, supervise procurement of the goods and services to be financed 34

Heilongjiang Road Development II (TA 7117 – PRC) Final Report under the Project, monitor utilization of the ADB loan and Government funds, prepare and review reports to be submitted to ADB and the Government, and will ensure that local concerns are addressed adequately. PMO will establish three resident supervision engineer offices for construction supervision. The chief supervision engineer’s office will be responsible for civil works supervision. The chief supervision engineer will be assisted by two deputy supervision engineers of one international and one national. International engineer will be the team leader for consulting team for construction supervision.

97. Bei'an County Transport Bureau will form a pilot project secretariat (PPS) under PMO for implementation of the pilot project to improve rural bus services. PPS will be chaired by the Pilot Project Coordinator who will (i) provide the interface between the IA and the pilot project, (ii) overlook day to day implementation of the pilot project, (ii) provide information to the PMO for decision making, (iii) supervise consultants activities to be engaged under the Project, and (iv) submit progress reports to PMO and EA. The Government advised that HPHB will be the IA for the road maintenance component and will establish a Project Implementation Unit by the end of 2009. Project management organization chart including functions of IAs is in Appendix 21.

3.5.2 Implementation Period 98. Preconstruction activities such as preparing detailed design, preparation of bidding documents, procurement of civil works are ongoing. The Project will be implemented over a period of 5 years from January 2010 to December 2014. It is estimated that the road construction will take 3.5 years. Implementation of the road maintenance component will take 4½ years including development of the road asset management system and execution of major maintenance works. The rural bus service improvement component will require 3 years for implementation. Institutional and staff capacity building activities are expected to be implemented during 2010–2012. The implementation schedule is in Appendix 12.

3.5.3 Procurement 99. The EA has stated their intention to start the construction of the project in September 2009. Based on the current project preparation progress, ADB retroactive financing shall be processed. Based on ADB policies, a retroactive financing for the eligible expenditures up to 20% of the ADB loan could be used after the loan appraisal. The effective period of the retroactive financing is up to the loan effectiveness or a maximum of 12 months before signing the loan, whichever is later. In order to be qualified for retroactive financing, all biddings and procurements must be processed strictly following ADB procurement guidelines. It is also understood that ADB approval of advance procurement for retroactive financing does not commit ADB to finance the Project.

100. All ADB-financed procurement will follow ADB’s Procurement Guidelines. ADB financed civil works for the project roads are divided into 23 contract packages. All ADB-financed contract packages will be procured through international competitive bidding (ICB). Road safety facilities, greening work, and ancillary facilities, including the administration building, will be procured using government procedure acceptable to ADB. Civil works for the road maintenance will be procured under national competitive bidding (NCB). There is one package to pilot test road maintenance using a performance based contract system. The other packages will be determined by RAMS during the implementation period. Details of procurement packages are provided in the procurement plan (Appendix 13). Procurement of contract packages using ICB procedure is being conducted using tendering companies.

3.5.4 Consulting Services 101. The Project loan will finance fourteen (14) person-months of international consulting services for construction supervision and implementation of road maintenance component; and fifteen (15) person-months of national consulting services for implementation of the rural bus 35

Heilongjiang Road Development II (TA 7117 – PRC) Final Report service improvement component. These consulting services, through QCBS, will include eight (8) person-months road engineer, two (2) person months bridge engineer and two (2) person months road safety specialists. HPCD will engage and finance around 8,000 person-months of national consulting services for construction supervision, monitoring of resettlement, monitoring of environmental and socioeconomic impact; and 18 person-months for asset management and maintenance. For the road maintenance component, eight (8) person-months international consulting services will be recruited through QCBS and (2) two person-months individual consultant will be employed through single source selection (SSS); these two contracts will be financed by ADB. Fifteen (15) person-months national consulting services will be financed by the government. The international consultants will be recruited through a firm or individual using QCBS (simplified technical proposal, with quality and cost ratio of 80:20) and single source selection method in accordance with ADB's Guidelines on the Use of Consulting Services by Asian Development Bank and Its Borrowers. The national consultants financed by ADB will be recruited through a firm using biodata proposal; while national consultants financed by the Government will be recruited in accordance with government procedures acceptable to ADB. Outline of terms of reference is in Supplementary Appendix M.

3.5.5 Advance Contracting and Retroactive Financing 102. Because project preparation was advanced, at the request of the Government, ADB approved advance contracting of civil works for 5 contract packages on 21 April 2009. The advance contracting will be undertaken in accordance with the ADB’s Procurement Guidelines. The Government has requested advance contracting for additional 18 contract packages for civil works and two ADB financed maintenance consulting services contracts; and this request is under process for approval by ADB.

103. The Government has also requested retroactive financing of the 23 civil works contract packages. In addition, it was discussed and agreed that consulting services for training for implementation of RAMS will be retroactively financed. ADB's approval for retroactive financing is expected in November 2009 not exceeding 20% of the total ADB loan, or $40 million, for the 23 civil works contract packages and all consulting services. The Government has been advised that approval of the advance contracting and retroactive financing does not commit ADB to finance the Project. The expenditure must have been incurred before loan effectiveness but, generally, no earlier than 12 months before the date of signing of the Loan Agreement. The Government was advised that the contracts proposed for retroactive financing will be undertaken in accordance with ADB’s Procurement Guidelines.

3.5.6 Anticorruption Policy 104. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Government/Borrower and Executing Agency. 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 will be/are included in the loan regulations and the bidding documents for the Project. In particular, all contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the Executing Agency and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

105. The ADB’s GACAP II removes the mandatory requirement to conduct country governance assessments but asks for country and sector specific risk assessments and management plans. GACAP II also asks project team leaders to: (a) consider project design parameters that could mitigate/manage such risks; (b) specify in RRPs: (i) the outcome of the financial management, procurement, and corruption risk assessment for the project; (ii) the specific measures taken in project design to mitigate risks; (iii) actions to be taken by the

Heilongjiang Road Development II (TA 7117 – PRC) Final Report borrower to mitigate risks during project implementation (to be included as assurances in loan agreements); and (iv) further measures to be taken by ADB during project implementation. The PPTA consultants have included, for example, additional road safety design recommendations. They also recommend covenants to provide acceptable DSCR and road maintenance condition.

3.5.7 Disbursement Arrangements 106. The loan will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2007, as amended from time to time). Direct payment and commitment procedures will be used for large contracts. If Government funds are used first for eligible expenditures, ADB’s reimbursement procedure will be followed. To expedite the flow of funds, the statement of expenditures procedure may be used to reimburse, liquidate, or replenish eligible expenditures for any individual payment not exceeding $0.5 million equivalent.

3.5.8 Accounting, Auditing, and Reporting 107. HPCD will maintain separate accounts and records for the Project and related financial statements. The project accounts and financial statement will be maintained in accordance with sound accounting principles and practices as prescribed by the Accounting Law of the PRC. HPCD will have such accounts and related financial statements audited annually by independent external 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. HPCD will submit to ADB within 6 months of the end of each related fiscal year the Project’s audited consolidated financial statements, audited project accounts, audit reports, and management letters in English.

108. To ensure that internal controls and checks on the project construction costs and operations are effective, HPCD will use its internal audit unit to carry out independent checks during project implementation. The internal audit unit will independently test financial transactions of the PMO to ensure the safe custody of the Project-financed assets and will report directly to the EA and external auditors. In addition to annual audited financial statements HPCD will submit quarterly progress reports. HPCD 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.

109. HPCD will submit quarterly progress reports (QPR). Suggested format of QPR to be submitted to ADB is in Supplementary Appendix D (CF4). A sample audit letter is in Supplementary Appendix D (CF5). Within 3 months of project completion, HPCD will submit a project completion report (PCR) to ADB, providing details about implementation, actual costs incurred in relation to cost estimates, benefits, and other information that ADB may request. Suggested contents and format of the EA’s PCR are in Supplementary Appendix D (CF6).

3.5.9 Project Performance Monitoring and Evaluation 110. The ADB Mission and HPCD discussed the Design and Monitoring Framework (Appendix 1) and a proposed project performance monitoring system (PPMS) prepared by the PPTA Consultant (Supplementary Appendix E). The PPMS includes all the indicators that relate to the Project’s impacts, outcomes, and outputs, and specifies the source and frequency for data collection. To the extent possible, some baseline values have been recorded or estimated, but these will need to be verified or updated prior to the commencement of the Project. HPCD has agreed with the PPMS and will engage a qualified national consultant for 37

Heilongjiang Road Development II (TA 7117 – PRC) Final Report collecting data, maintaining and updating the PPMS and reporting findings to HPCD and ADB at project inception (the baseline values), prior to midterm review, at project completion, and annually for 3 years after completion.

3.5.10 Project Review 111. It was agreed that ADB will carry out review missions during the project implementation period. A midterm review mission will be fielded in the third year of the project implementation and will review all institutional, administrative, organizational, technical, environmental, social, poverty reduction, resettlement, economic, financial, and other relevant aspects that may have an impact on the performance of the Project and its continuity viability. The review will examine compliance with assurances in the Loan Agreement.

4. PROJECT BENEFITS, IMPACTS, AND RISKS

4.1 TRAFFIC FORECAST & ECONOMIC EVALUATION 112. The traffic forecast was carried out by Heilongjiang Provincial Highway Survey and Design Institute (DI). A typical traffic forecast methodology (“four steps”) was used, including the traffic demand forecast, trip distribution, mode split, and traffic assignment. A commercial computer software package, namely TransCAD 4.7, was used to facilitate the traffic analysis and forecast. The comprehensive OD zones related to the Project were designed and used. Relevant OD survey data were applied. It was designed and agreed that 2008 would be the base-year for the traffic analysis and forecast.

113. According to the latest project schedule, the project will start the construction in late 2009 and complete in late 2013. It was designed that 2014 would be the first year of fully opening to traffic. The future key years for analysis include 2014, 2015, 2020, 2025, 2030 and 2033, which is consistent with the time frame of general China’s five-year socioeconomic development plans. Future road network for each key year were designed for “with” and “without” project cases. For all cases, committal and outstanding road projects had been considered and incorporated in corresponding future road networks. The traffic forecast results are shown in Table 1.9.

Table 1.9 Full Traffic Forecast Result by Sections (PCU-AADT) Section 2014 2015 2020 2025 2030 2033 Yinchun-Bei'an 8,132 9,603 14,364 20,045 25,676 29,569 Bei'an-Wudalianchi 9,517 10,665 14,619 19,322 24,225 27,645 Longzhen-Nenjiang 3,927 4,523 6,631 9,200 11,410 12,933 Nenjiang-Border 4,317 5,105 8,226 11,965 16,722 20,073 Source: The Design Institute and PPTA Consultant estimation

114. The economic analysis compared the “without project” and “with project” scenarios for four road sections, Yichun-Bei’an (Section 1), Bei’an-Wudalianchi (Section 2), Zhanhe-Nenjiang (Section 3), and Nenjiang-border (Section 4). The costs included capital costs for physical road construction, land acquisition and resettlement, environmental control and monitoring, detailed engineering design, and implementation supervision, and physical contingencies. Annualized recurring costs for road maintenance, environmental monitoring, and opportunity cost of land were also included in the analysis. The quantified network benefits included time savings for passengers and freight, vehicle operating costs, generated traffic, and reductions in traffic accidents.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

115. The net present value (NPV) for Section 1 is CNY 3,596 million which is well above zero; the EIRR is 18.97 percent which is higher than the opportunity cost of capital (12 percent) and the benefit-cost ratio (BCR) is 2.28 which is again well above the required value of 1.0. Therefore, the results of the analysis show that the project Section 1 is economically viable.

116. The NPV for Sections 2 to 4 is CNY214 million, CNY107 million and CNY809 million, respectively, which are well above zero; the EIRR is 14.06%, 13.94% and 14.29%, which are higher than the opportunity cost of capital (12 percent), and the BCR is 1.34, 1.28 and 1.37, which are again well above the required value of 1.0.

117. The NPV for the entire project is CNY4,051 million, which are well above zero; the EIRR is 17.46%, which are higher than the opportunity cost of capital (12 percent), and the BCR is 1.94, which is well above the required value of 1.0. The analysis results reveal that the entire project is economically viable.

118. Sensitivity tests were performed to examine the effect of likely cost overruns, likely benefit reductions, combinations of these, or likely construction delay one year. The test results indicate that the project economic viability is robust. The risk analysis is conducted to evaluate how vulnerable is the project viability in terms of the extreme shocks. The risk analysis result shows that the project EIRR ranges from 15.5% to 19.8% with 90% probability. The detailed traffic forecast and economic evaluation is shown in Appendix 16.

4.2 FUEL TAX REFORM 119. As part of tax reform to bring off-budget revenues and expenditures within the framework of national budget, the National People’s Congress passed amendments to the Highway Law on 31 October 1999. These amendments laid the foundation for future legislation providing for national taxes to replace provincial and local fees. The vehicle purchase fee was replaced by the vehicle purchase tax effective in January 2001.

120. Starting from January 1 of 2009, the central government issued and implemented a new policy3, which is to abolish the collection of road maintenance fee and other five types of transportation fees (waterway maintenance fee, road transportation administration fee, road passenger and freight transportation surcharge, waterway transportation administration fee and waterway passenger and freight transportation surcharge), to start collection of fuel tax, and to gradually eliminate toll collections for Class II highways. According to the new policy, the fuel tax totally turns to central government fiscal revenue. The central government will allocate the fund to each province with likely some special supports and subsidies to poverty area, development zones and transportation business. A rough estimation shows that such road development fund is much large than that from road maintenance fees, which will ensure that the road development fund is more sufficient than before and central government has more ability to provide special supports and subsidies for road and transportation development. As a general arrangement, the central government will likely allocate such fund to each province according to its amount of road maintenance fee collection in 2007 with likely 10% increase for each following year.

3 “Notice of Implementing Fuel Price and Taxation Reform”, State Council, No. 37 [2008] 39

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

4.3 FINANCIAL ANALYSIS AND PROJECTIONS

4.3.1 Financial Evaluation 121. The Project is expected to cost $998.15 million, with ADB providing $200 million, China Development Bank providing $419.70 million, Ministry of Transport providing $ 203.56 million, Heilongjiang Provincial Government will provide the remainder, $174.89 million. Using these funds, the Project will finance construction and reconstruction of 207 km of expressway, 13 km of Class I road, 134 km of Class II road, rural bus stations, and improved road maintenance on non-project roads.

122. Financial analysis done in accordance with the Guidelines for the Financial Governance and Management of Investment Projects Financed by the ADB has assessed the project’s financial viability and sustainability (Appendix 18). For the expressway, the projected financial statements indicate that higher than average tolls would be required in early years to balance the projected cash flow.

123. The financial evaluation of the expressway was undertaken in real terms using constant 2009 prices. The financial internal rate of return (FIRR) to the operator for the revenue earning project expressway, computed on an after-tax basis, is 6.22%, assuming 5 yearly inflation based toll rate increases. This compares favorable with the weighted average cost of capital (WACC), also computed on an after tax basis, of 3.59%. The expressway is considered financially viable in the longer term. Sensitivity analysis indicates that the project would remain viable in all but the most adverse conditions. EA will review the performance of the expressway regularly and monitor actual traffic levels and financial performance.

124. To maintain the upgraded and rehabilitated sections of the project roads so that they do not exceed the required international roughness indexes determined by the highway owner (a minimum index of 3.5 is recommended for the expressway sections), annual maintenance will be required along with periodic maintenance every 9 years. Including annualized periodic maintenance, the average annual cost of maintenance is anticipated to be only 0.8% of HPCD’s comparable costs. Debt payments will be a similar percentage of HPCD’s commitments. HPCD will provide necessary funds for the maintenance of the project assets.

125. Financial management assessment found that the IAs meet financial management needs and can provide accurate and timely information in the reports. The detailed financial analysis and projection is presented in Appendix 18.

4.3.2 Private Sector Participation (PSP) Present PSP Situation in Province

126. There are two tolled roads in Heilongjiang Province built and operated (BOT) by the private sector. The BOT period is 30 years including the construction period. Both roads are now owned by the same holding company. Total investment costs were CNY 944 million for a total length of 94 km. One road has both Class I and Class II sections; the other only Class I. They are not expressways and the toll is per vehicle stage. Provincial policy is that tolls on privately built roads should be about 20% higher than the province wide averages. Due to variations in stage length, it is difficult to estimate the mark-up on the two BOT roads exactly but it is more than 33%. Cash-flow details imply that the tolls provide returns on investment of 5.1% and 5.5% respectively. In spite of this, the company states that lower demand on the first road due to transport alternatives means that tolls cannot fully cover costs.

127. Apart from the two BOT roads, none of the province’s toll roads has been corporatized. To do so would require allocation of toll revenues to the road, which is not provincial policy. There are no operation or maintenance concessions now in operation in the province. A loan 40

Heilongjiang Road Development II (TA 7117 – PRC) Final Report covenant for the first Heilongjiang Road Network Development Project (Loan 2247-PRC) asks that HPG should cause HPCD to use its best efforts to enter into at least maintenance concessions when the project is operational. That is unlikely to be before 2010. HPCD say that they will discuss this covenant with ADB closer to project completion.

Future PSP Possibilities

128. The primary purposes of PSP are: (a) to lower costs through increased efficiency; and (b) to increase funds available for infrastructure by adding private funding sources. Given those aims, PRC and ADB both have policies promoting privatization and corporatization of the road sector, particularly toll roads. Privatization involves the use of the private sector directly as builder, operator or maintainer. Corporatization is a two part process. First state owned entities are organized as public companies, with the state retaining ownership but with appointed boards of directors. It is thought that this allows greater commercial freedom of action and so increases efficiency. More importantly, it allows shares in the corporation to be sold on the stock market, giving a second source of private funding in place of BOTs.

129. The ADB’s latest study4, however, notes several issues involved in privatization and corporatization of the road sector in the PRC. These can be summarized as: (a) useful but undocumented decreases in public sector debt; (b) unproven cost and efficiency gains; (c) the benefits of breaking concessions down to investment and management; (d) problems related to renegotiations; (e) items missing from standard PRC concession agreements, i.e.: (i) risk allocation matrix; (ii) toll setting policy; (iii) renegotiation procedures; (iv) performance standards; (v) publicly provided information. Regarding cost and efficiency gains, experience from other countries is naturally varied by project but does not support any generally valid conclusion that privatization lowers either investment or long-run operating costs.

130. The ADB study also notes the following: (a) project selection is hindered by institutional commitment; (b) benefits from the separation of functions between owner and operator are realized only with BOT schemes; (c) there is little evidence that alternative financing options are analyzed; (d) there is little competition for the award of concessions; (e) as a result, there is little certainty that the best value for money alternative is chosen; (f) since bidders cannot be certain about future tolls they are likely to raise risk premiums; (g) concession agreements rarely contain the detail required to minimize future problems; (h) insufficient information is available for an external review to assess the costs and benefits of privatization.

131. The uncertainty about cost/efficiency gains with privatization is matched by the private entities’ uncertainty about the likely outcome. In some cases, a feasibility study will have been performed with over-optimistic assumptions designed to justify the project’s position in the provincial plan. The above ADB study notes that estimates at time of project appraisal are often 30% above those made at time of project opening. Similarly, Standard & Poor’s reviewed privatized toll road performance in China in 1999 and found that two thirds of the roads did not meet sponsors original projections, even if based on their own traffic forecasts; in some cases revenue was only half that assumed. This is particularly important since it is illegal in China for provincial governments to guarantee any particular return to PSP operators have they have to agree to follow the province’s policy regarding toll rates.

Toll Roads

4 Toll Roads Corporatization Strategy, Towards Better Governance, ADB 2008. 41

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

132. The above comments relate to PSP in particular. There are also comments which can be made about toll roads in general. First is that the toll will decrease traffic. The ADB’s Toll Diversion Model implies that a revenue maximizing toll would lower traffic volume to only some 55% of what it would be if the road were free. Unless there is an easily available alternative, that is a direct economic loss. Second is that national investments in low-quality roads have benefit cost ratios over four times larger than those in high-quality roads; the differential effects on poverty reduction are even larger, possibly a factor of 125. The point is also made in other international studies that tolls cause trucks to divert to smaller roads, which leads to an increase in traffic accidents.

4.4 POVERTY REDUCTION AND SOCIAL STRATEGY

4.4.1 Socioeconomic Profiles 133. Heilongjiang is an agricultural and forestry province, and also an undeveloped province in China. There are 14 national level poverty counties (CNY1, 000 as a poverty line) and 7 provincial level poverty counties (CNY1, 300 as poverty line) in the province. In 2000, the province identified a total of 3,112 poverty villages (including 14 minority villages) with 2.68 million poor people or 15.2% of the total rural population when prepared Heilongjiang Rural Poverty Alleviation Development Outline (2001-2010) (Outline). By the end 2008 a total of 2,382 poverty villages have received fund supports to implement poverty alleviation of concentrated villages according to the Outline. The remaining about 760 poverty villages will be supported in year 2010-2011.

134. A total of 44,531 people or 8.7% of the total population in 48 townships/towns of the DPA along the proposed highway corridor are categorized as poverty population under MLSS. Among them the rural poor accounts for about 30,000. Most of the rural poor, 24,566 people, are living in 50 poverty villages, while the rest scatter in other non-poverty villages. The rural poor of the DPA are mainly concentrated in Bei’an and Wudalianchi cities, and Nenjiang County. Among 50 poverty villages, 25 villages have been supported by central and provincial governments according to the Outline so far, and their poverty situations are improved. In addition, 23,946 people (or 5.5% of total population), including 10,280 urban and 13,666 rural, in 12 townships/town where the proposed bus stations to be constructed, are living under MLSS. The main contribution factors for poverty are unemployment in forest industry; lack of health care and high medical cost, increase of cost of living; low education level due to high cost, and remoteness with limited access to transport system.

4.4.2 Social Benefits 135. The proposed roadway project will build the missing links, improve accessibility for local residents, shorten travel distance and travel time, and expand the capacity to transport people and goods. The overall poverty reduction role of the project include helping the transition of forest workers of forestry farms through promoting ecotourism in Wudalianchi Scenic Area and Yichun forestry ecotourism areas, providing employment during construction, better and more efficient flow of the agricultural products and Non-Timber Forest Production (NTFP) development. The indirect benefits of the poor include better market information and employment caused by macro economic development stimulated by the road.

5 Fan, S et al. 2005 Road Development, Economic Growth and Poverty Reduction in China. IFPRI Research Report 138, Washington DC. As reported in Findings from Studies of Poverty Impacts of Road Projects, Tyrrel Duncan, ADB August 2007. 42

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

136. The potential project benefits to the poor population are essentially the economic and noneconomic impacts. Economic benefit basically equates to higher incomes while noneconomic benefit includes improved living conditions and rural capacity building, to help raise the social conditions and quality of life. During construction of the proposed road and bus stations, total CNY6.767 billion will be invested and its main investment will flow into the rural townships/towns of the project area to exploit economic and social development potential.

137. The construction of the proposed roads will bring direct benefits to several groups of people, including transportation providers, who is benefit directly due to short travel distance and time, business owners due to better transport accesses, tourists and travelers, farmers for better transport means to ship agricultural products, etc. About 19,000 unskilled and skilled labors will be required during the project implementation and about 790 will be required during its operation and maintenance.

138. The Project will benefit about 1.7 million people in the 5 county level administrations6 along the proposed highway. Since the areas of some counties are quite large, the social analysis focused on the towns and townships adjacent to the highway. This "direct" project area has 512,200 direct beneficiaries, of whom 49.2% are rural, 23.3% are state farm workers, 4.8% are state forest workers, and 22.7% are urban residents. Based on 2008 data, the poverty incidence7 in the direct project area was 8.7%, with poverty conditions in the state forest farms averaging 12.8%. Among them the rural poor accounts for about 30,000. Transportation access and services will be significantly improved by building the missing link between Yichun and Bei'an and connecting existing rural roads to the new expressway at three interchanges. The Project will generate 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 healthcare and social services; (iv) direct job opportunities during construction; (v) new economic opportunities for local forest workers who have lost their jobs due to the national policy on preserving forest resources; (vi) increased demand locally for building materials, construction machinery and transport during project civil works; (vii) increased information flow; and (viii) facilitation of tourism development. The direct poverty reduction role of the Project includes promoting ecotourism in Wudalianchi Scenic Area and Yichun forestry ecotourism areas, providing employment during construction, and facilitating more efficient flow of the agricultural products and non-timber forest products to market.

139. The Project will not have major adverse social impacts except for land acquisition, which will be mitigated by implementation of the resettlement plan (RP). This Project is a Category A for involuntary resettlement and a Category B for indigenous peoples. There are 9,900 ethnic minority people in the direct project area, 1.77% of the total population. They include Hui, Manchu, Korean, Ewenke and Daur people, but none will be adversely affected by land acquisition and resettlement, or other project impacts. However, special measures have been formulated to ensure they will benefit from the project. A Social Development Action Plan (SDAP) prepared and agreed upon by HPCD; this plan will increase the inclusiveness of project benefits and avoid or mitigate any adverse social impacts, particularly for women, ethnic minorities and the poor. Key features of the SDAP include: (i) road safety awareness for rural communities; (ii) income and livelihood recovery for resettlement affected persons; (iii) transmissible disease prevention; (iv) avoidance of community disturbance during Project

6 Includes Nenjiang County, Wudalianchi City, Bei'an City, Suiling County and Cuiluan District of Yichun City. 7 Heilongjiang adopts 1300 yuan per person per year as the rural poverty line. The urban poverty threshold is 176 yuan per person per month. ADB's new poverty standard is $1.25 per day (equivalent to 1500 yuan per year). 43

Heilongjiang Road Development II (TA 7117 – PRC) Final Report construction; (v) priority hiring of local people in project construction; (vi) complementary poverty reduction programs; (vi) enhancement measures for women; and (iv) transport service improvements. The implementation of the SDAP will be closely monitored by HPCD in conjunction with the county level government agencies. The SDAP was discussed during the mission and some revisions have been made (Appendix 19).

4.4.3 Participation and Consultation 140. Extensive consultations were held with 1,600 people throughout the project preparation phase. These included 16 focus group discussions with women, men, and the vulnerable groups. Public awareness of the project is high and the residents and local governments view the construction of the project road positively. Local residents believe that the Project will (i) provide a shorter and more convenient access to markets, education and health care, (ii) increase their mobility, and (iii) facilitate agricultural diversity. The consultation process will be continued during the implementation of the project components, environment, resettlement and social development measures. A public consultation and participation (C&P) plan for project implementation has been developed and included in Supplementary Appendix F. The Qiang- Nen Highway Company Limited Project Management Office (QNPMO) will establish a mechanism for ensuring public participation in project implementation process and for addressing any concerns raised by the public.

4.5 RESETTLEMENT 141. The construction of the Project highway will permanently require 20,097 mu (include 64.1 mu for link road) of land, among which the cultivated land accounts to 7547.5 mu (include 14.3 mu for link road), the forest land accounts to 9484.5 mu, and the other land accounts to 3,015.1 mu. The percentage of cultivated land is 37.6% and forest land is 47.3%. Of which the permanently occupied land of main road is 20,032.8 mu, which are 7,533.2 mu of cultivated land, 9484.5 mu of forest land and others are 3,015.1mu.

142. The temporary land will reach 2,019mu, among which the cultivated land is 772.2mu, the forest land is 534.2 mu, and the wasteland is 712.6mu. The percentages of the three types are 38.2%, 26.5% and 35.3% respectively. The temporary land occupied by main road is 1,998.2 mu. Of which, the cultivated land is 772.2mu, the forest land is 531.4mu and wasteland is 694.6mu.

143. The construction of proposed bus station will take 26,347 m2 land, of which 6,000 m2 belongs to collective, 3,547 m2 are residential land, and 16,800 m2 are state owned land where planned for construction.

144. The permanent land acquisition will affect about 3,500 households or about 14,000 people. About 10 households and 1 enterprise will be relocated. A total of 1,936.6 m2 brick houses and 242.8 m2 storage buildings will be demolished. In addition, some productive assets, ground attachments, and public infrastructures and facilities will be affected, including electric poles, cables, high voltage towers, well, fences, toilets, roads, and trees, etc. Of the total affected population, 2,000 households or 8,000 people are rural residents, and 1,500 households or 6,000 persons are state farms workers and state forestry farm workers.

145. Among the affected villages and towns, the maximum average farmland per capital is 19.9 mu, the minimum is 4.6 mu, and the average is about 11 mu. Because the road construction will occupy only a strip of land, there is only limited land occupation for the affected families, and the impact is not big. In average, only 7.5% farmland per capital will be acquired in each affected household, and replacement farmland is available, especially on State farms. Any seriously affected households and vulnerable persons will receive training, employment arrangement and/or other assistance to ensure their livelihoods are improved and sustainable.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

146. HPCD has formulated a full resettlement plan (RP) for the highway and branch roads, and a short RP for the bus stations. The estimated resettlement cost is $48 million (CNY325.9 million), or about 4% of the total Project base cost. HPCD, in conjunction with the local land administration bureaus, will be responsible for implementing land acquisition and resettlement. Pre-examination of land use was approved by the Heilongjiang Provincial Land and Resources Department (HPLRD) in December 2008. Although the alignment was changed, the amount of land use was nearly the same, so the land use approval is still valid.

147. Internal monitoring, supervision and reporting of resettlement implementation will be conducted in PIU/QNHC and HTAB, in collaboration with each county/city, state farm, state forestry farm and township offices to ensure compliance with the provisions of the RP. HPCD will also engage a qualified domestic consultant for external monitoring, evaluation and reporting. The HPCD and ADB have agreed to a set of supervision milestones to ensure timely and effective implementation and monitoring of resettlement activities. Resettlement information booklets have been disclosed to affected villages and households. The Summary Resettlement Plan for all project components and the resettlement supervision milestones are provided in Appendix 20.

4.6 ENVIRONMENTAL IMPACT ASSESSMENT 148. The Heilongjiang Road Development II Project (Yichun-Neijiang) (the Project) is classified as environmental category A by ADB based on the potential significant adverse environmental impacts of the Project. The environmental impact assessment (EIA) report and a summary EIA have been prepared. The project impacted area is defined in two categories, direct project area (DPA) and indirect project area (IPA). The DPA is defined as the 20 km strip along both sides of the project alignment, and the IPA is the five counties/cities/districts, where the project passes through, namely Yichun, Suiling, Bei’an, Wudalianchi, and Nenjiang.

149. The EIA assessed the environmental impacts of the selected alignment of the main highway, the three rural link roads and 20 rural bus stations and it also prescribed environmental protection and mitigation measures. Since the initial proposed project went through Wudalianchi National Nature Reserve and two provincial natural reserve areas, ADB requested the EA to change the alignment of the roads to avoid these environmentally sensitive areas. The EA has changed alignments and EIA report was revised and approved.

150. The EA also ensured that the Project would be constructed and operated in accordance with applicable PRC environmental laws and regulations and ADB’s environment policy. The negative environmental impacts as identified in the EIA are mostly of a temporary nature during the construction period and mitigation measures to address them are readily available. The EA will implement the environment management plan (EMP) specified in the EIA and the summary EIA to mitigate these adverse environmental impacts from the Project. Relevant mitigation measures will be incorporated in the bidding documents and civil works contracts so they will be implemented during the construction of the Project.

4.7 RISKS 151. The project is to promote a sustainable economic development and poverty reduction in Heilongjiang province. The project is designed to coordinate with other projects, which are in progress or planning, to form a complete highway network and to provide access and link between east and west, as well as south and north of the province.

152. The project is classified as Category A for both environmental impact and involuntary resettlement. The project may lead to potential adverse environmental impacts during construction; however after implementation of the mitigation measures the residual effect will be minor. The resettlement impacts will involve a large amount of land acquisition; however, the

Heilongjiang Road Development II (TA 7117 – PRC) Final Report loss of farmland per village is quite small and very few households need to be relocated, so these can be mitigated. HPCD has prepared an EIA and resettlement plans which specify the mitigation measures and monitoring requirements. HPCD will (i) engage external monitors to check implementation of mitigation measures, advising appropriate actions, and reporting; (ii) involve the PMO and contractors through nominating full-time qualified environmental specialists to supervise the implementation of mitigation measures; and (iii) implement any agreed remedial or follow-up actions during ADB project review missions.

153. Other potential risks may include:

Coordination with the construction of Ji-Hei Expressway

154. There is about 80 km shared expressway section with the planned Ji-Hei Expressway from Bei’an east to Bei’an north. The construction of Ji-Hei Expressway started in May 2009 and will complete by 2011. It is important to coordinate the construction of the two projects so that the shared section is completed before the proposed project.

Coordination with Inner Mongolia Government for Road to Jiagedaqi

155. The end of the proposed project is at the end of Nenjiang Bridge in Inner Mongolia. Based on the agreement between Heilongjiang and Inner Mongolia, the remaining section of the Class I highway from Nenjiang to Jiagedaqi will be constructed by Inner Mongolia Government. It is important to coordinate with Inner Mongolia Government for the construction of that section of highway to be completed at the same time as the proposed project.

Solicitation of Qualified Contractors

156. It has been a trend for recent highway construction projects financed by ADB or Chinese government that the winning bid price are much lower than the contract estimated price due to fierce competition. As a result, the contractors, once mobilized, make very slow construction progress due to lack of funding, and resulting construction delay. Three preventive measures could be implemented to improve the situation: (i) Prepare more detailed bidding documents avoiding missing items. The bidding documents shall be prepared based on final design, not the preliminary design; (ii) Conduct contractor prequalification selection to eliminate contractors with bad previous record; (iii) Use modified bidding evaluation method to give a certain weighted score for contractors with good reputation and history of completion of quality work.

Elimination of Tolls on Class II Road

157. In accordance with PRC central government policy, all tolls on Class II roads will be eliminated gradually, and the funding from toll collection will be replaced by income from the fuel tax. The final details of funding from fuel tax may have impact to the financial viability projection of the project.

5. ASSURANCES

A. Special Assurances 158. In addition to the standard assurances, the PRC Government and the HPG (EA through HPCD) have given the following assurances, which will be incorporated in the legal documents:

159. HPG through HPCD will ensure a debt service coverage ratio of 1.00 in the first two years of operation and at least 1.20 thereafter.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

160. HPG through HPCD will ensure that adequate funding, human resources, and procedures are allocated to ensure that the project roads are maintained and operated in good condition.

161. HPG through HPCD will ensure that the roughness level of the expressway will be maintained below IRI 2.5 and the roughness levels of the other project roads will be maintained below 3.5.

162. HPG will ensure that (a) all local and foreign currency counterpart financing necessary for the Project will be provided in time as required to enable completion of project activities, and prompt debt repayment after project completion; (b) additional counterpart funding will be provided for any shortfall of funds or cost overruns; and (c) in each fiscal year adequate funds are allocated for O&M of the project facilities, and such facilities are operated and maintained according to sound engineering practices.

163. HPG through HPCD will ensure that PMO of HPCD will maintain a sound financial management system in accordance with ADB’s Guidelines for Governance and Financial Management of an ADB Investment Project, including the establishment of separate bank accounts and the maintenance of minimum balances to ensure smooth cash flow and the timely settlement of project construction liabilities and future debt servicing. The financial management system shall comprise (i) financial planning, budgeting, and budgetary control; (ii) accounting consistent with applicable PRC standards; (iii) internal control; (iv) data processing; and (v) financial reports.

164. Labor Standards. HPCD shall ensure that the construction contractors (a) provide timely payment of wages and safe working conditions to all workers and monitored by PIU; (b) provide women’s employment, where appropriate, and pay equal wages to the women and male employees for equivalent of equal value; and (c) not employ child labor as required by the relevant laws and regulations of the Borrower. HPCD shall ensure that the Project contractors maximize the employment of local poor people who meet the job and efficiency requirements for construction and maintenance of the project roads. Such workers shall be provided with adequate on-the-job training.

165. Social Development. HPCD shall ensure the Social Development Action Plan (SDAP) is implemented and the results of these actions are monitored annually through collection and compilation of gender-disaggregated data, where relevant. HPCD shall cause the PMO and local TABs to ensure that (i) the SDAP be implemented in accordance with its proposed actions, (ii) targeted measures for women, ethnic minorities and the poor will enhance their benefits from the Project, and (iii) civil works contractor specifications include requirements to comply with the SDAP and as a priority to provide employment to women, ethnic minorities and the poor. PMO and local TABs will ensure that (i) adequate staff and resources are committed to supervising and monitoring the implementation of the SDAP, (ii) a national consultant is engaged by HPCD to carry out investigations to monitor and evaluate progress, and forward reports to ADB and HPCD annually, and (iii) data are disaggregated by gender, and monitoring includes gender impacts. HPCD shall cause the PMO and local TABs to encourage women, ethnic minorities and the poor living in the Project area to participate in planning and implementing the Project, as set out in the SDAP.

166. Health Risks. HPCD shall ensure that the, PMO in coordination with the local health bureaus, 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 subcontractors during Project implementation. These requirements will be monitored and reported annually as part of the SDAP.

167. Resettlement. HPCD shall, and cause PMO and local TABs to, ensure that (i) the RPs for the Project be implemented in accordance with their terms, (ii) all land and rights–of–way 47

Heilongjiang Road Development II (TA 7117 – PRC) Final Report required by the Project be made available in a timely manner, (iii) the provisions of the RPs, including compensation and entitlements for affected persons (APs), be implemented in accordance with all the Borrower’s applicable laws and regulations and ADB’s Policy on Involuntary Resettlement (1995), (iv) compensation and resettlement assistance be given to the APs prior to dispossession and displacement, (v) the timely provision of counterpart funds be made for land acquisition and resettlement activities, (vi) any obligations in excess of the four RP budget estimates be met, and (vii) the APs be at least as well off as they would have been in the absence of the Project.

168. HPCD shall ensure that the PMO and local TABs update the RPs as necessary to reflect any significant material changes in the Project scope or other causes, and submit any such changes to ADB for its concurrence. HPCD shall cause the PMO and local TABs to (i) ensure that civil works contractor specifications include requirements to comply with the RPs and entitlements for permanent and temporary impacts to APs, and (ii) supervise the contractors to ensure compliance with requirements of the RPs.

169. HPCD shall, and cause the PMO and local TABs to, ensure that (a) adequate staff and resources be committed to supervising and internally monitoring the implementation of the RPs and provide ADB with key information in the Quarterly Progress Reports during resettlement implementation, and a resettlement completion report; and (b) an independent institute acceptable to ADB be contracted to carry out monitoring and evaluation, and forward reports to ADB as specified in the RPs.

170. Project Performance Monitoring. HPCD shall, and shall cause the PMO and local TABs to monitor and evaluate project impact through a project performance monitoring system, as agreed to by HPCD and ADB, to ensure that project performance indicators specified in the PPMS are monitored, including data disaggregated by gender, wherever possible. HPCD shall, and shall cause the PMO and local TABs to (a) collect the necessary information and data on project performance at project inception, prior to midterm review, at project completion, and annually for 3 years after project completion, and (b) submit to ADB the reports summarizing the key findings of monitoring.

171. Engineering. HPCD will ensure that (i) the Project is constructed in accordance with the Ministry of Transport’s technical standards of highway engineering; (ii) the road maintenance under the Project are carried out in accordance with the national standards; and (iii) project construction supervision, quality control, and contract management are conducted in accordance with national standards and internationally accepted practices.

172. Road Safety. HPG will ensure that (i) the road safety improvement recommendations provided in the engineering review will be incorporated in the final contract documents, (ii) within 6 months of opening of project road to the public, Heilongjiang Public Security Bureau (HPSB) will install traffic violation monitoring cameras on the project expressway, (iii) at the village entrances where the Class II road passes through, HPSB will install cameras for warning speed reduction and monitoring drivers behavior, and (iv) two weighbridges will be installed on the Class II road.

173. Rural Transport Services. HPG, through HPCD will ensure (i) the pilot project for improving rural bus services will be implemented; and (ii) the replication of successful experience in other areas in the province shall be conducted subsequently.

174. Private Sector Participation. HPG, through HPCD will explore the possibility of attracting private sector participation in providing bus services and major road maintenance, and will report to ADB at least 6 months prior to the project completion.

175. Project Financing. In the event of any shortfall or disruption in the financing of the Project caused by the lack, inadequacy, or delay of counterpart funding or local bank’s debt 48

Heilongjiang Road Development II (TA 7117 – PRC) Final Report financing or project cost overruns, HPG, through HPCD will promptly provide adequate funds as may be necessary for successful implementation of the Project.

176. Environment. HPCD will ensure that (i) the Project is constructed and operated in accordance with national and local laws, ADB’s environmental procedures and guidelines, and the EIA; (ii) any adverse environmental impacts arising from the Project are minimized by implementing the mitigating measures and environmental monitoring program presented in the EIA; and (iii) the implementation of the environmental management plan and any violation of environmental standards are regularly reported to ADB in accordance with the specifications set forth in the EIA. HPCD will assure the schedule of EIA approval.

177. Vehicle Emissions. At least 6 months before the highway opens, HPCD will provide ADB with (i) the regulations for vehicle emission limits and the penalties for violating emission standards; and (ii) the latest government plan, in accordance with the PRC’s new standards for vehicle emissions, to improve air quality in Heilongjiang, including cleaner fuel programs.

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

B. Condition for Disbursement 179. The disbursement of any portion of the loan proceeds for the Project will be conditional upon receipt by ADB of the Government’s certification, in form and substance acceptable to ADB, that the relending agreement for the Project, including the terms and conditions consistent with those provided in the Loan Agreement, has been duly executed by and delivered on behalf of HPG and HPCD and has become effective and binding upon the parties thereto in accordance with its terms.

6. RECOMMENDATIONS 180. These recommendations are made as a result the TA Study, discussions carried out during the TA and review of other relevant reports. The recommendations are made based on the consultant evaluation of the proposed project and consultant experience in projects in the developed countries, which may not suitable to the special local conditions. The objectives of the recommendations are to assist the local design professionals and other relevant personnel to improve the design and implementation of the project, and the information may be used with the preparation of future projects and subsequent implementation, rather than criticism of the current project preparation.

181. Road Design

• Higher design speed (100 km/h) shall be used for the expressway segment in consideration of higher transport capacity, future upgrade, and highway safety. • A flatter embankment slope of 1:2 shall be considered for more stable embankment slope, less initial investment for slope protection, and less future maintenance cost. • Permafrost treatment: the following suggestions are provided for consideration: (i) staged construction; (ii) Install drainage layer and drainage pipe under the road embankment to minimizing frost and thaw settlement; and (iii) use above ground embankment when permafrost is more than 3 meter deep. 49

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

• Backfill at structure end to avoid “Car Jump” - For all bridges, culverts, and underpasses, the structure end zone with up to 1.5 times to the backfill depth shall be backfilled with coarse aggregates. The backfill shall be placed with layers not over 200 mm and compacted up to 97% of proctor density. • Pavement Type Selection – Consider to use cement concrete pavement for expressway segment for long service life and less future maintenance cost. In US, most expressways are built with cement concrete pavement. • Road Subbase Type – Consider to use natural gravel subbase instead of cement stabilized gravel base, which tends to generate cracks.

182. Road Safety

• Guiderail End Terminals – The end of guiderail shall be terminated with proper end terminal with energy absorbing devices. Studies conducted in US reveal that guiderail ends without terminal may cause serious injuries in highway accidents. • Guiderail Transition to Bridges – Guiderails shall be connected to bridges with proper transitions. Studies in US indicate that guiderails not connected to bridges or without proper transition may cause serious injuries in accidents. • Emergency Escape Ramps – The emergency escape ramps shall be provided at long steep slopes near stations K18, K26 and K69. • Concrete Barrier – Concrete barriers shall be installed at sharp turns on cliffs.

183. Regional Development

• Border Port Infrastructure Improvements – Bridges at Heihe, Luoguhe, Raohe, and Mingshan. • Promote private investment to establish industrial hubs or economic zones in the border port cities. • Upgrade road infrastructures leading to border ports. • Coordinate with Russia to establish harmonization customs processing procedures to save time and improve efficiency. 184. Rural Road and Rural Transport Services

• Upgrade the unpaved rural roads in the project area so that the local people can benefit from the project directly. • Accelerate the program of constructing and upgrading bus stations in the project area.

7. PROJECT APPROVAL AND TIMETABLE

185. For a successful implementation of the project, it is essential to obtain all required approvals and to secure all funding sources identified in the financing plan. It is more critical that the project shall be processed following both domestic and ADB procedures.

Domestic Approvals:

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

186. There are a series of domestic actions and approvals required that may impact on the ADB loan processing. The domestic approvals and actions, both approved and to be approved with target date are shown in Table 1.10, and the timetable for PPTA and ADB processing are shown in Table 1.11. Table 1.10 Timetable for Major Domestic Actions and Approvals

No Item Approval Approval Target Date Agency Date 1 Project Identification Document & PDRC July 2008 Approval 2 Application for Land Use Certificate PLR Dec.2008 3 Environmental Impact Assessment PEPB Jan. 2009 (EIA) 4 Project Feasibility Study Report PDRC Sept. 2008 5 Resettlement Plans Municipal Dec. 2008 Governments 6 Preliminary Design PDRC Oct 2009 7 Final Design PDRC Dec. 2009 8 Land Acquisition Approval MLR Dec. 2009 9 Letter of Loan Application PFB Dec. 2009 10 Letter of Project Evaluation PFB Dec. 2009 8 Project Financial Application Report NDRC Dec. 2009 9 Project Negotiation Approval Ministry of Dec. 2009 Finance 10 Solicit International Consultant PIU Mar 2010 11 Project Bidding Preparation PIU Sept. 2009 (Retroactive)

Timeframe for PPTA and Loan Processing

Table 1.11 Timetable for PPTA and Loan Processing

No Milestone Approval Date Target Date 1 Commencement of PPTA Jan 2, 2009 2 Submission of Inception Report Jan 25, 2009 3 Inception Mission Feb 6-12, 2009 4 Summary EIA Report June 4, 2009 5 Submission of Interim Report March 7, 2009 6 Mid-Review Meeting March 17-20, 2009 7 Circulate SEIA to ADB Board October 15, 2009 8 Submit Full EIA June 15, 2009 9 Social Impact Assessment Reports June 15, 2009 10 Resettlement Plans June 15, 2009 11 Submission of Draft Final Report April 27, 2009 Sept. 11 2009 (Revision) 12 Fact-Finding Mission Sept 14 – 23, 2009 13 Submission of Final Report Oct 31, 2009 14 Management Review Meeting November 24, 2009 15 Loan Appraisal Mission December 2009 16 Staff Review Committee Meeting January 2010

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

17 Loan Negotiations February 2010 18 Board Consideration March 2010 19 Loan Signing June 2010 20 Loan Effectiveness June 2010

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Appendix 1 Design and Monitoring Framework

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DESIGN AND MONITORING FRAMEWORK

Performance Data Sources/ Reporting Assumptions and Design Summary Targets/Indicators Mechanisms Risks Impact A more balanced GDP grows 7.5% in Heilongjiang Statistics Assumptions: economic Heilongjiang and 7.5% to Yearbook development is 8.0% in the project area Government will realized in during 2013-2023 implement the 2763 Heilongjiang road network province. Average per capita rural net Village survey by development plan. income in the project area consultants increases from CNY3,350 in Assumed economic 2007 to CNY5,450 by 2017 growth rate is materialized in the The incidence of poverty in Statistics offices at the northeast region. the project area falls from provincial and county levels 8.6% in 2008 to 6.6% by Assumed non- 2018 farming business materialized. Vehicle ownership in the Statistics offices at the project area increases from provincial and county levels The shared section 3.23% in 2007 to 3.50% in under the separated 2018 contract completed as coordinated. Heilongjiang Tourism Heilongjiang Statistics revenue increases 5% by Yearbook 2018

Tourism revenue at Yichun Statistics offices at the increases from CNY 1.5 provincial and county levels billion in 2008 to CNY 3.9 by 2018

Tourism revenue at Statistics offices at the Wudalianchi increases from provincial and county levels CNY 106 million in 2007 to CNY 302 by 2018

Income from nonfarm sector Household survey by increases from 20 % of total consultants income in 2008 to 30 % by 2018

Border trade volume Heilongjiang Statistics increases 10% from 2013 to Yearbook 2018

Outcome Assumptions: A more resource The traffic volume on the Traffic counts published by efficient, safe, and project expressway and HPCD. The remaining environmentally Class II road increases to missing links in this 11,500 and 4,600 by 2020 W-E corridor as well friendly road respectively. as the connecting transport system is road in Inner developed in Travel distance between Final engineering design Mongolia are Heilongjiang Yichun and Bei’an reduces documents. completed as province. by about 400 km. planned.

Travel time between Yichun Traffic count and travel time Government policy

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Performance Data Sources/ Reporting Assumptions and Design Summary Targets/Indicators Mechanisms Risks and Bei’an reduces by about survey by HPCD. to encourage the 6 hours. development of rural and tourism Toll revenue on expressway Highway income report transport services. increases 5% annually. from HPCD Government Road density (km/km2) in the Statistics Yearbook completes the project area increases from improvement and 0.310 in 2008 to 0.340 by upgrade of rural 2018 roads as planned.

Percentage of villages with HPCD/HTAB road Government upgraded rural road construction report investment and increases from 80% in 2008 promotion to to 90% by 2012. continue developing tourism in Yichun Improved and upgraded Road construction report by and Wudalinchi. rural road mileages increase HTAB/ HPCD from 15500 km in 2009 to Government road 23700 km by 2013. safety improvement strategy effectively Number of tourists to Yichun Statistics office at county implemented. increase from 3.37 million level. person-time in 2008 to Risks: 4.51million person-time by 2013. If the toll rate is too high, more travelers Number of tourists to Statistics offices at country may choose using Wudalianchi increases from level. un-tolled road. 0.69 million person-time in 2007 to 0.98 million person- time by 2013.

Percentage of villages with Statistics offices at county bus service increases from level 80% in 2008 to 100% 2013

Number of new/ rehabilitated HPCD/HTAB bus station bus stations increase from construction report 387 in 2007 to 860 by 2013

The number of traffic Police accident data report. accident fatalities in the project area (fatalities/10k drive) reduced by 10% by 2018.

Total numbers of layoff Statistics offices at county forest workers being re- level employed by tourism industry increases by 10% from 2008 to 2018

Outputs 1. Road Construction of new Project completion report Assumptions: infrastructure and roadway and associated (PCR) associated facilities completed by 2012. Government equipment and investment in

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Performance Data Sources/ Reporting Assumptions and Design Summary Targets/Indicators Mechanisms Risks facilities along the Resettlement completed in Resettlement monitoring by Project is new 330 km 2010. independent consultant implemented as provincial highway engaged by HPCD. planned. from Yichun to the provincial border Equipment procurement Project completion report Implementing are operational. completed by 2012. (PCR). agency carries out effective Environmental protection Environmental monitoring management and measures installed by 2012. by independent consultant enforcement for engaged by HPCD. contractors to properly implement Social and poverty reduction Monitoring report by RP, EMP, SDAP, measures implemented by independent consultant and other 2012. engaged by HPCD. government and ADB required Connection to rural road Project completion report safeguard from the project completed (PCR). requirements. in 2012. Procurement will be Construction/ rehabilitation Project completion report undertaken in full of 20 bus stations completed (PCR). compliance with by 2011. ADB guidelines

2. Road RAMS is fully functional by Midterm review and PCR. maintenance is 2011. Assumptions: improved in Heilongjiang. Maintenance planning and Government Statistics and Government budgeting is based on the Progress Report. provides necessary RAMS starting in 2010. support for the successful Beginning 2011, the annual Government annual implementation of budget for updating RAMS maintenance program RAMS. and data collection is allocated.

RAMS data collection Post project evaluation procedure development and mission. equipment procurement completed in 2012.

RAMS system in operation Project completion report and field data collection (PCR). biannually.

3. Rural bus The proposed 20 bus Project completion report Assumptions: service is stations are built/ (PCR). improved in rehabilitated by 2014. HPTB and Bei’an Heilongjiang Transport Bureau The rural bus service Project completion report are committed to improvement pilot project is (PCR). implement the pilot implemented in three project. administrative villages by 2014.

4. Institutional Training seminars and study Project completion report management tours in capacity (PCR). capacity will be development program strengthened. completed by 2014.

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Performance Data Sources/ Reporting Assumptions and Design Summary Targets/Indicators Mechanisms Risks Activities with Milestones Inputs

1. Road civil works contract packages awarded by 2009 and completed by Loan from Asian 2013. Development Bank: 2. Consulting service contract for improving road maintenance management $200 million awarded in 2010 and completed in 2014. 3. Road condition data acquisition equipment and software procured in 2009. Grant from Ministry 4. Maintenance-by-contract documentation is developed in 2010 of Transportation: 5. Maintenance works contract packages awarded by December 2010, 2011, $223 million and 2012; and civil works are completed in 2013. 6. Construction and rehabilitation of the bus stations are completed by 2011. Grand from 7. Pilot rural bus service reform completed by 2012. Heilongjiang 8. Capacity development and training program completed by 2013. Provincial 9. Public awareness campaign on traffic regulation conducted in 2012. Government: $136 10. Land acquisition and resettlement implemented from September 2009 to mid million of 2010. 11. SDAP implemented from October 2009 to 2013. Loan from China 12. EMP implemented during execution of civil works. Development Bank: $547 million

EMP = environmental management plan, HPCD = Heilongjiang Provincial Communications Department, PCR = project completion report, RP = resettlement plan, RAMS=road asset management system, SDAP = social development action plan.

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Appendix 2 Transport Sector Analysis and Policy Reform Matrix

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

TRANSPORT SECTOR ANALYSIS AND POLICY REFORM MATRIX

A. Heilongjiang Transport System

1. The transport network of Heilongjiang Province takes a very important role in whole China’s integrated transport system. The overall layout of Heilongjiang Province’s transportation network is centered in Harbin, connecting to regional central cities as nodes, and radiating to the border areas. This transportation network also connects to Jilin Province in the south and Inner Mongolia Autonomous Region in the west. The transportation network is composed of five modes of railway, highway, waterway, aviation and pipeline. The transport network development by modes is listed in Table 1a.

Table 1a. Transport Network Development of Heilongjiang Province (kilometers) 2000 2001 2002 2003 2004 2005 2006 2007 Railway 5,465 5,465 5,465 5,373 5,432 5,499 5,503 5,563 Highway 50,284 62,979 63,046 65,123 66,821 67,077 139,335 140,909 Inland Waterway 5,057 5,057 5,057 5,528 5,528 5,528 5,528 5,528 Civil Aviation 112,000 123,416 117,406 108,716 127,486 116,624 138,845 208,119

Pipeline 985 985 985 985 985 985 985 985 Source: Heilongjiang Province Statistical Yearbook 2008

2. Since 2003, the freight and passenger transports in Heilongjiang have grown at about 6% and 12%, respectively. For freight transport, the railroad still dominates the market with about 75% of the total market shares, and it has been maintained for the similar share for the last 5 years. The freight transported by highways has been growing at an average annual growth rate of 15%, in comparison to 5% for that of railroad. The high market share for railroad transport is related to the concentration of heavy industry and agricultural production in Heilongjiang Province. For passenger transport, the highway transport has a little higher growing rate (11%) than that of the railroad transport (9%), and the market share for highway transport is about 52%, while the percentage for railroad transport is about 35% and it has been decreasing steadily for the last 5 years. The remaining passenger transports are by waterway transport and civil aviation. Figure 1a shows the development treads for freight transport and passenger transport in Heilongjiang for the last five years.

Figure 1a. Transport Demand Trends Freight (ton‐km) Passenger (p‐km) 1 100% 350 100% 300 km % % ‐

1 80% km 80% ‐

p 250

ton 1 60% 200 60% Share Share

0 40% 150 40% million

million 100 20%

0 20% Market Market 100 50 100 0 0% 0 0% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Railways Highways Waterways Railways Highways Civil Aviation Railroad % Highway % Waterway % Railroad % Highway % Aviation %

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

3. For the last 30 years, the road network and associated facilities have been substantially improved in Heilongjiang Province. Currently, there are 4 national trunk highways, 8 national highways, 30 provincial highways, 220 county roads and numerous rural roads and special highways for oil fields, forestry and farms. By the end of 2007, the total mileage of road accumulated to be 140,909 kilometer, and the density of road network is 31 km per hundred square km, lower than the country’s average level. By technical classification, there are 1,044 km expressways, 1,435 Class I highways, 7,443 km Class II highways, 33,207 km Class III road, and 50,883 km Class IV roads. Classed highways and roads take 66.6% of the total road mileage. In addition, there are 47,059 km out-class roads. Among these highway and roads, the mileage of paved road is 43,008 km, simple paved road is 2,031 km, accounting for 30.52% and 1.44% of the total mileage respectively, and non-paved road is 95,869 km, accounting for 68.04%. The summary of roads in Heilongjiang is shown in Table 2a.

Table 2a. Highway and Road Development in Heilongjiang Province (kilometers) 2000 2001 2002 2003 2004 2005 2006 2007 Total Length 50,284 62,979 63,046 65,123 66,821 67,077 139,335 140,909 Expressway 285 413 413 413 722 958 958 1,044 Class I 387 548 707 925 1,040 1,118 1,325 1,435 Class II 4,643 5,638 5,821 6,623 7,034 7,140 7,279 7,443 Class III 22,757 33,320 33,132 33,083 33,169 32,806 33,611 33,027 Class IV 21,551 17,842 17,809 18,555 19,339 19,669 40,373 50,883 Out of Class 661 5,217 5,164 5,524 5,518 5,386 55,789 47,059 Source: Heilongjiang Province Statistical Yearbook, 2008

4. Since 1990, the demand for passenger transport in People’s Republic of China (PRC) has grown at an annual average rate of 7.8%, and for the freight transport the figure is 7.6%. This has led to an increase in the modal share of roads, particularly for passenger transport. The Government of PRC has been investing heavily in transport infrastructure and services over the last two decades. In 2007, road transport carried 53.3% of passenger traffic and 11.2% of the freight traffic. To address the road infrastructure needs, the Government started several initiatives. In 1990, the National Trunk Highway System was introduced, which aimed to construct 12 high standard key highways with a total length of 35,000 kilometers (km). In 1998, under the Western Region Development Program, plans were initiated to develop eight road corridors (18,000 km) in the western provinces to link with the central and eastern regions and the neighboring countries in the west. In 2005, the Government unveiled the National Expressway Development Plan to construct 34 expressways all over the country, covering a total of 85,000 km and providing access to the majority of the country’s population.

5. Since 1995, the PRC road network has been growing at 20% per annum. The bulk of financing is provided by the provincial governments and loans from domestic banks. In 2006, 41% of the resources were provided by local loans, 33% from the provincial and local governments, 16% from the state budget (particularly the vehicle purchase tax revenues), 9% from the private sector and other sources, and 1% from foreign loans.

6. The road network in the People’s Republic of China (PRC) reached 3.58 million km in 2007, of which, 2.54 million km were classified roads including expressway to Class IV roads. Highways of Class II and above accounted for 10.6% of the total length. The road density was 2 37.3 km per 100 km in 2007.

7. The road network in Heilongjiang was 140,900 km in 2007, which accounted for 3.9% of the national total road network. The total classified roads are 93,850 km. Highways of Class II and above were 9,940 km, which only accounted for 7.05% of the total road length. The road

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report density was 31 km per 100 km2. Both high class roads and road density in Heilongjiang are below national average levels.

8. In 2007, there were 43.6 million trucks, cars, and buses in PRC, of which 28.8 million vehicles were privately owned. The private fleet has increased over 100 times from 0.28 million in 1985. The road passenger traffic in passenger-km had grown at an average annual growth rate of 9.1% from 1990 to 2007, and the road freight traffic in ton-km had grown at an average annual growth rate 7.4% from 1990 to 2007. In comparison to the national average, Heilongjiang has a faster growth rate. In 2007, the road passenger traffic reached 314 million- km with an average annual growth rate 11.4% from 1990 to 2007; the road freight traffic reached 29.0 billion ton-km with an average annual growth rate 9.75% from 1990 to 2007.

B. Road Sector Management and Financing

9. The Heilongjiang Provincial Communications Department (HPCD) regulates the road transport industry by licensing drivers, vehicles, and intercity bus services. Freight transport is essentially deregulated, but interprovincial bus routes require approval from the Ministry of Transportation. Private operations have increased, improving transport efficiency and quality and increasing competition. Road transport tariffs are allowed within a range of plus or minus 20% of advisory tariffs set by the local government. This flexibility, coupled with ease of market entry, will facilitate the passing on to transport users of cost reductions resulting from improved roads.

10. Expenditures for highways are financed from dedicated user charges, government grants, domestic bank loans and bonds, and foreign loans and investments. Two dedicated user charges, the road maintenance fee and the vehicle purchase fee, have provided much of the financing for the road sector.

11. Table 3a shows the road sector actual revenues and expenditures of Heilongjiang Province from 2006 to 2008, and projections for next three years, which has presented the following main characteristics: • The revenue kept a high increase rates, about 33.1% and 20.9% in 2007 and 2008, respectively. The revenue in 2006-2008 mainly came from bank loan (29.4%); tolls (19.1%) and road maintenance fee (13.8%). • In the revenue, transportation administration fee and tolls kept higher increase rates, due to active development in traffic and transport service. The participation of local government in road development also presented sharp increasing. • In the expenditure of 2006-2008, about 70.3% of the fund was spent for constructions and 15.4% was spent for loan repayment. Only 3.1% and 1.3% was used for maintenance and transportation service. • In the next three years (2009-2011), Heilongjiang Province will speed up road construction development. The fund will be mainly from bank loan (35.4%); MOT subsidy (15.9%), tolls (12.1%) and road maintenance fee (12.0%). About 53.7% of the expenditure will be for key project construction and 21.6% will be spent for general project construction.

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Table 3a. Road Sector Revenue and Expenditure (CNY million) 2006 2007 2008 2009 2010 2011 Total Revenue 15,138 20,154 24,361 31,018 37,933 26,245 1. Fee 2,952 3,234 3,551 3,438 4,253 4,565 Road Maintenance Fee 2,437 2,790 3,023 2,995 3,510 3,800 Passenger and Freight Transportation Surcharge 320 204 239 204 427 440 Transportation Administration Fee 195 240 289 239 316 325 2. MOT Subsidy 3,728 3,710 3,967 4,164 7,369 3,460 3. Tolls 2,342 2,580 2,868 3,212 3,620 4,050 4. Bank Loan 4,716 6,920 5,895 8,445 15,540 12,450 5. Provincial Government Subsidy 1,400 2,249 1,281 1,060 6. Transport Development Fund 400 900 900 500 7. Local Government 1,400 3,710 6,280 8,610 4,970 160 Total Expenditure 15,138 20,154 21,066 31,437 38,552 26,105 1. Management and Operation 600 610 658 671 700 700 2. Maintenance Engineering 595 610 669 683 1,000 1,000 3. Passenger Transportation Infrastructure Developmen 320 204 239 204 427 440 4. Transportation Service Administration 195 240 289 239 316 325 5. Construction 10,825 15,390 15,731 24,470 31,109 18,690 Key Projects 5,453 5,710 6,420 19,030 22,390 16,380 General Projects 5,372 9,680 9,311 5,440 8,719 2,310 6. Loan Repayment 2,603 3,100 3,480 3,670 4,000 4,950 Principle 1,372 1,270 1,030 1,160 1,300 1,480 Interest 1,231 1,830 2,450 2,510 2,700 3,470 7. Contingency 1,500 1,000 Balance - - 3,295 2,876 2,257 2,397 Source: Heilongjiang Province Communication Department

12. Road projects are designed by planning and design institutes at the provincial, prefecture, and county levels. The Ministry of Transportation reviews the designs of high- standard roads and associated structures. Design institutes are staffed with well-qualified personnel. City and county highway bureaus have their own construction units to carry out minor projects within their administrative districts. Competitive bidding practices were mandated by the 1999 Tendering and Bidding Law. Road maintenance is well organized and implemented by expressway companies and highway administration bureaus.

C. Recent Road Development Programs 13. For stimulating and keeping high socioeconomic development, in June 2008 Heilongjiang Government approved the three year plan for speeding up road development. It is planned that the government will enhance efforts and investment for road development in the period of 2008-2011. The government will invest 90 billion CNY to develop 2,207 km expressways, 731 km Class I highways, 3,252 km Class II highways, and 60,799 km rural roads. By the end of 2008, the plan was adjusted to further enhance the efforts, including increasing the total investment to100 billion CNY for constructing 2,840 km expressways, 422 km Class I highways, 2,930 km Class II highways, and 2,930 km rural roads. The key construction projects under the plan include: • 20 expressway projects, total 2,840 km, investment of 61.3 billion CNY. Among which 14 projects are for the development of National Expressway Network (1,744 km) • 5 Class I highway projects, total 422 km, investment of 5.6 billion CNY. • 12 Class II highway projects, total 1,930 km, investment of 7 billion CNY. • 1 highway rehabilitation project, 0.9 billion CNY.

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• Border roads, total 1,000 km, and investment of 2 billion CNY. • Rural roads, total 60,799 km, investment of 23.3 billion CNY. 14. It is planned that the fund sources for accomplishing this plan are from MOT subsidy (19 billion), provincial finance (8.7 billion), commercial bank loan (41.6 billion), local government and enterprises (30.7 billion). Up to the end of 2008, all surveys and most of feasibility studies and preliminary designs had completed. The HPCD also developed a series of institutional mechanism to ensure the projects successfully and timely implemented.

D. Road Sector Issues

15. Resource Optimization. PRC is one of the most advanced countries in optimizing the use of energy and land and mitigating the environmental consequences of transport. ADB TA 4877 supported the preparation of a handbook and guidelines on how to apply those concepts to the road sector. This notably entails reducing the length of transport routes through better network connectivity and logistics optimization, adjusting road capacity to demand to limit land take, factoring in the price of land and environmental resources in project planning of pricing transport in relation with marginal costs, etc.

16. Fuel Tax Reform. PRC Government initiated the fuel tax reform on 1 January 2009. Six transport user charges collected by provincial and local administrations were eliminated. The tolls on all class II roads had been removed in twelve pilot provinces by May 2009. To compensate the loss of revenues, the Government introduced a new fuel tax of CNY0.8 to 1.0 per liter, collected by the central administration. The fuel tax reform has several aims: (i) improving the economic efficiency of the sector fee structure, closer to a pay-as-you-go mechanism, (ii) removing inefficient tolling practices, as tolls on class II roads often barely covered O&M costs, and (iii) Improving financial accountability of the sector. HPHAB expects to receive in 2009 CNY3.0 billion (estimate) from the central government through the province's financial bureau.

17. Local Roads Maintenance Management. Routine and periodic maintenance has historically been undertaken by local government in-house maintenance units. The maintenance planning and programming is still done in a traditional government planning way without solid analysis support. In 2000 HPCD, has installed the pavement management system (CPMS) developed by MOT, However, the system has not been really put into in use due to lack of funding and an effective managing organization. There is a need to develop road asset management system, and establish corresponding management organization to direct for data collection, database update, maintenance analysis, prioritization, and planning so that the road maintenance can be conducted in a more rational way with cost saving and effective maintenance.

18. Rural Transport. While the PRC has achieved rapid economic development, rural areas have lagged behind, leading to widening income inequalities between urban and rural areas. One reason for this disparity is the lack of access in rural areas. A National Rural Roads Development Program was unveiled in 2005. The rural roads development targets under the 11th Five-Year Plan (11FYP) includes paved road connection to (i) all townships and administrative villages in the eastern region, (ii) all townships and 80% of administrative villages in the central region, and (iii) 90% of townships and 50% of administrative villages in the western region. In the 11FYP a total of 900,000 km of rural roads will be constructed or improved. This consists of 500,000 km of rural roads to be paved and 400,000 km of new access roads to villages that do not have any access. The major issues in implementing the 11FYP rural roads development target are (i) inadequate financing; (ii) capacity constraints at county, township, and village levels; (iii) the absence of appropriate design standards for low- volume roads; and (iv) a lack of maintenance. An Asian Development Bank (ADB)-financed

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1 technical assistance (TA) project has addressed these issues and the major recommendations include (i) raising local government revenues through a levy on property tax and collecting a road maintenance fee from vehicles that are currently exempted, (ii) incorporating new class V roads and village roads in the highway law, (iii) making provincial governments responsible for capacity development of the staff at county, township, and village levels, (iv) improving databases, and (v) introducing a pavement management system and contract maintenance.

19. To supplement rural roads development under the 11FYP, the Government plans to improve the rural transport system. Accordingly, almost all townships in the eastern region, the more developed parts of the central region, and 70% of townships elsewhere in the central and western regions, will have at least class V bus terminals, and almost all townships and villages with road access will have formal bus services. About 15,000 township terminals will be built under the 11FYP, with the total subsidy expected to be CNY2.5 billion. Freight transport has been deregulated since the mid-1980s, allowing the market to set service standards and freight tariffs. Frequent, regular, and often high-quality services meet the needs of most users at affordable cost. However, for township-to-village and village-to-village bus routes there are several shortcomings, mostly related to the strict regulatory regime, the major ones being (i) poor road conditions preventing the issuance of route license, (ii) the requirement of the existence of a township or village bus terminal before transport services can commence, (iii) extensive licensing restrictions for operators and routes (iv) restrictions on the type of vehicle, 2 and (v) low commercial viability. Under an ADB-financed TA project these issues have been addressed. The proposed recommendations are aimed at lowering the restrictions and allowing flexibility in operations, and encouraging local operators to participate.

20. 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 Transportation launched the highway safety enhancement program (HSEP) to address this situation. The HSEP is aimed at the adoption of best practices from other countries. This has involved improvement in road designs, safety audits, removal of black spots, improved road signage, and speed control. By 2008, the total number of fatalities was reduced to 73,484 and the number of fatalities per 1,000 vehicles was reduced to 1.7. However, with the rapid increase in the number of vehicles and improvements in the quality of roads, road safety remains a serious problem. In addition to implementing the HSEP, the focus of road safety activities have now expanded to include enforcement of traffic laws and public awareness programs.

21. The Asian Development Bank has been undertaking policy dialogue on the PRC road sector since 1991. The principal issues include the impact of road projects on poverty, design standards, construction quality, road safety, vehicle emissions, pricing policies, commercialization and corporatization, and nongovernment financial resources. The sector’s status and achievements to date are summarized in the table in the following section.

22. Overloading. The Important production and demand for raw materials and primary products in Heilongjiang as well as in other parts of PRC generates incentives for truck overloading. Overloading is cited as the major cause .for the deterioration of the pavement of lower level classes, which were built according to light technical standards. The Heilongjiang Government has formulated a comprehensive overloading management program, combining enforcement weight based tolling, information systems upgrade, and monitoring and enforcing system. Efforts reduced truck overloading rate have generate good results and cut the overloading significantly in the past three years. There remains however important geographic disparities, and the situation on lower level networks is poor.

1 ADB. 2006. Technical Assistance to the People’s Republic of China for Rural Roads Development Strategy. Manila. 2 ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila.

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23. Private Sector Participation. There are very limited number of private sector participation in road construction and maintenance work in Heilongjiang. The Heilongjiang Government encourages the private sector participations in roadway and expressway projects through build-operate transfer (BOT) or build and transfer (BT) concessions. However, some problems exist such as some private contractors have focused on short-term rather than long- term profitability, as they have had little security over their investments. Common problems include: (i) contracts are incomplete and are weakly enforced; and (ii) province wide toll rates are determined by the Government on a fixed year basis independently of the contracts, which makes some contractors cannot make a sustainable construction and operation of the highways.

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Road Sector Policy Reform Matrix

Initiative Issues Action Taken by Actions Taken Outcomes/ ADB and the under the Project Status Government 1. Poverty The geography of Promoting pro-poor The project scope Heilongjiang (HLJ) impact the People’s equitable and includes providing 11th Five Year Republic of China inclusive growth has roads in forest and Plan emphasizes (PRC) poses great been the Asian mountainous area, the accelerated obstacles to Development Bank’s improve rural development of provide basic road primary goal in PRC. transport service, rural road and access throughout Projects financed by enhance road facilities. the country, ADB are focused in safety, promote particularly in inner poorer and remote tourism and forest and low-income regions. industry provinces transformation. 2. Rural road Rural roads are Rural road The project includes HPCD set a target development largely in poor development strategy the construction/ for 2010 to pave condition. has been formulated rehabilitation of rural 55% of rural roads under Rural Road bus stations, and and to build 992 Development Strategy coordination with bus stations by technical assistance upgrading rural 2013. (TA)3 roads by HLJ Government 3. Rural road Low vehicle The Ministry of HPCD will adopt HPCD set a target transport utilization, high Transportation (MOT) applicable for 2010 to have operating costs, concurred with the recommendations of 95% villages with and inefficient bus rural road transport the Sustainable transport services. routes because of service reforms Rural Transport restrictive proposed under the Service TA to regulations. Sustainable Rural conduct pilot Transport Services projects. TA4 4. Road Poor safety Assistance is being The Project will In 2008, there safety design, lack of provided to improve address safety were 4,528 sufficient attention the safety and issues by conducting accidents with to safety, and efficiency of road the road safety audit 1,703 fatalities inadequate traffic transport operations in the early stage of and 4,905 injuries. enforcement and and to strengthening the project design so drive training. traffic law enforcement that the safety under the Road safety issues can be Improvement TA5 addressed in the final design. 5. Overloadi Overloading of An inter-ministerial The Project includes Vehicle ng of trucks trucks has adverse committee weight stations in overloading has impacts on coordinated by MOT expressway been reduced pavement has established to entrances to prohibit through strict conditions, traffic develop and overloading trucks enforcement. flow, and road implement special entering highways, Further reduction safety. measures to enforce and the weight is expected after regulations on based tolls will be more control overloaded trucks implemented. measures nationwide. implemented.

3 ADB. 2005. Technical Assistance to the People’s Republic of China for Rural Road Development Strategy. Manila 4 ADB. 2006. Technical Assistance to the People’s Republic of China for Sustainable Rural Transport Services. Manila. 5 ADB. 2005. Technical Assistance to the People’s Republic of China for Road Safety Improvement (Cofinanced by the Global Road Safety Partnership). Manila.

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6. Vehicle Vehicle emissions Vehicle testing and The Project will Adopt emissions are becoming a monitoring has been contribute to reduce performance primary source of promoted under vehicle emissions by standards air pollution in Action Plans for providing missing equivalent to Euro major cities. Reducing Vehicle links to reduce travel IV by 2010. Emission TA6 length and time. 7. Road Tolls are The toll diversion The impact of the Six months prior to pricing structured so that manual was proposed toll the opening of the users pay for cost disseminated under charges under the roadway, HPCD recovery for toll Chongqing Guizhou Project was will submit to ADB roads. High toll Expressway TA in reviewed to satisfy for review the rates deter users 2000. The manual has cost recovery and proposed toll from diverting from been updated in 2008 that they do not structures and other roads to the deter users and rates. After that, toll roads and compromise the toll rates will affect the road economic objectives. be reviewed economic and annually. financial viability. 8. Private Private sector Private sector The project will Two BOT projects sector financing of road financing of road provide assistance have been participation infrastructure infrastructure to HPCD to implemented and investment investment accounts encourage private in operation. accounts for a for 10% of PRC’s total sector participation, fraction of the total commitment to the and explore financing. road sector since innovative financing 1980s. mechanisms including use of capital markets. 9. Road Inadequate The Government has The project will A sustainable maintenance funding allocated established standard develop and RAMS to assist to road road maintenance implement a road HPCD to manage maintenance cost for difference asset management the road road classifications system (RAMS) and maintenance and and invested in road sponsor the use maintenance maintenance operation of the funding more accordingly. system for a efficiently. consecutive 3 years for the system to be sustainable. 10. Regional Inadequate The Government The project will The border ports trade and connectivity to developed road provide a cross near the project interprovincial border ports from network development province W-E road will have transport Heilongjiang and plan to improve transportation better access and other neighboring connectivity. corridor improving connection to provinces the connectivity and other parts of accessibility for Heilongjiang and border ports. other provinces. 11. Energy High energy The Government The project will The travel saving consumption and keeps investing on provide the missing distance between vehicle emission. roads to improve road link between Yichun Yichun and Bei’an condition and better and Bei’an to reduce will be reduced by accessibility to reduce travel distance and 400 km and the fuel consumption. time. time saving will be 6 hours.

6 ADB. 2000. Technical Assistance for Action Plans for Reducing Vehicle Emissions. Manila.

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EXTERNAL ASSISTANCE TO THE ROAD SECTOR Table B - Asian Development Bank-Financed Loans No. Loan Loans Express Local Loan Date PCR PPAR Number -way Road Amount Approved Rating Rating (km) (km) ($ million) 1 1082-PRC Shanghai Nanpu Bridge — — 70.0 28 May 1991 S GS 2 1168-PRC Shenyang–Benxi 75 — 50.0 2 Jul 1992 GS S Highway 3 1188-PRC Shanghai Yangpu — — 85.0 17 Nov 1992 HS — Bridge 4 1261-PRC Hunan Expressway 52 — 74.0 9 Nov 1993 GS — 5 1262-PRC Jilin Expressway 133 — 126.0 9 Nov 1993 GS HS 6 1324-PRC Heilongjiang 350 — 142.0 29 Sep 1994 PS S Expressway 7 1325-PRC Yunnan Expressway 200 — 150.0 29 Sep 1994 HS — 8 1387-PRC Hebei Expressway 200 179 220.0 28 Sep 1995 HS — 9 1388-PRC Liaoning Expressway 110 203 100.0 28 Sep 1995 GS — 10 1470-PRC Chongqing Expressway 89 — 150.0 27 Sep 1996 S — 11 1483-PRC Shenyang–Jinzhou 192 291 200.0 19 Nov 1996 HS — Expressway 12 1484-PRC Jiangxi Expressway 134 253 150.0 19 Nov 1996 S — 13 1617-PRC Hebei Roads 140 340 180.0 18 Jun 1998 HS HS Development Project 14 1638-PRC Chengdu–Nanchong 208 300 250.0 10 Nov 1998 S S Expressway 15 1641-PRC Changchun–Harbin 101 — 170.0 27 Nov 1998 S S Expressway: Hashuang Expressway 16 1642-PRC Changchun–Harbin 161 — 220.0 27 Nov 1998 S HS Expressway: Changyu Expressway 17 1691-PRC Southern Yunnan Road 147 540 250.0 24 Jun 1999 S — Development Project 18 1701-PRC Shanxi Road 176 418 250.0 30 Sep 1999 S — Development Project 19 1783-PRC Chongqing–Guizhou 50 122 120.0 21 Nov 2000 — — Roads: Leichong Expressway 20 1784-PRC Chongqing–Guizhou 127 704 200.0 21 Nov 2000 — — Roads: Chongzun Expressway 21 1838-PRC Shaanxi Roads 176 627 250.0 30 Aug 2001 — — Development 22 1851-PRC Guangxi Roads 179 507 150.0 30 Oct 2001 S — Development 23 1918-PRC Southern Sichuan 160 558 300.0 20 Sep 2002 — — Roads Development 24 1967-PRC Shanxi Road 65 70 124.0 12 Dec 2002 S — Development II Project 25 2004-PRC Ningxia Roads 182 400 250.0 11 Sep 2003 — — Development Project 26 2014-PRC Western Yunnan Roads 77 294 250.0 28 Oct 2003 — — Development Project 27 2024-PRC Xi'an Urban Transport 71 16 270.0 27 Nov 2003 — — Project 28 2089-PRC Hunan Roads 173 517 312.5 9 Sep 2004 — — Development II Project 29 2094-PRC Guangxi Roads 188 750 200.0 21 Oct 2004 — —

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Development II Project 30 2125-PRC Gansu Roads 231 470 300.0 13 Dec 2004 — — Development Project 31 2181-PRC Central Sichuan Roads 244 678 600.0 22 Sep 2005 — — Development Project 32 2219-PRC Hunan Roads 64 129 208.0 15 Dec 2005 — — Development III Project 33 2247-PRC Heilongjiang Road — 598 200.0 26 Jul 2006 — — Network Development Project 34 2295-PRC Southern Gansu Roads 134 357 300.0 18 Dec 2006 — — Development Project 35 2339-PRC Eastern Sichuan Roads 143 430 200.0 17 Jul 2007 — — Development Project 36 2345-PRC Western Guangxi 177 1,060 300.0 14 Aug 2007 — — Roads Development Project 37 2393-PRC Xinjiang Regional Road 297 193 150.0 13 Dec 07 — — Improvement Project (Korla–Kuqa Section) 38 2448-PRC Central Yunnan Roads 64 190 200.0 25 Sep 08 ------Development Project Total 5,270 11,194 7,721.5 — = not available, GS = generally successful, HS = highly successful, km = kilometer, No. = number, PS = partly successful, S = successful, U = unsuccessful, PCR = project completion report, PPAR = project performance audit report, PRC = People’s Republic of China, Source: Consultant estimates.

Table C - Asian Development Bank-Financed Technical Assistance Amount Date No. TA No. Technical Assistance Type ($’000) Approved 1 1049-PRC Huangpu Bridge PP 95 24 Oct 1988 2 1152-PRC Design Review of the Nanpu Bridge PP 100 26 Apr 1989 3 1509-PRC Ningguolu Bridge PP 100 18 Apr 1991 4 1517-PRC Toll Bridge Operation and Management AD 760 28 May 1991 5 1533-PRC Design Review of the Yangpu Bridge AD 100 10 Jul 1991 6 1664-PRC Shenyang–Benxi Highway PP 100 22 Jan 1992 7 1533-PRC Design Review of the Yangpu Bridge (supplementary) AD 416 28 Apr 1992 8 1724-PRC Institutional Strengthening for Highway Operation and AD 500 2 Jul 1992 Management Improvement 9 1725-PRC Jilin Province Highway Network Study PP 600 2 Jul 1992 10 1728-PRC Changsha–Xiangtan Expressway PP 100 9 Jul 1992 11 1785-PRC Comprehensive Toxic and Hazardous Chemicals Transport AD 600 17 Nov 1992 Management Plan in the Huangpu River Basin 12 1940-PRC A study of Efficiency Improvements in Road Transport AD 550 25 Aug 1993 13 1972-PRC Institutional and Policy Support in the Road Sector AD 1,200 9 Nov 1993 14 1975-PRC Policies for Strategic Development of Transport and AD 100 11 Nov 1993 Communications Infrastructure 15 1981-PRC Heilongjiang and Yunnan Expressways PP 320 16 Nov 1993 16 2155-PRC Sichuan Expressway PP 350 16 Sep 1994 17 2177-PRC Preparation of a Road Safety Program AD 600 29 Sep 1994 18 2178-PRC Provincial Highway Network Planning AD 600 29 Sep 1994 19 2195-PRC Hebei and Liaoning Expressways PP 560 31 Oct 1994 20 2212-PRC Beijing Urban Transport AD 715 28 Nov 1994 21 2302-PRC Symposium on Urban Transport AD 100 22 Feb 1995 22 2409-PRC Appraisal Methodologies and Restructuring Highway AD 740 28 Sep 1995 Financing in Hebei Province

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23 2482-PRC Liaoning and Jilin Expressways PP 400 18 Dec 1995 24 2486-PRC Jingxi Highway PP 250 20 Dec 1995 25 2573-PRC Review of Highway Design Standards AD 420 24 May 1996 26 2649-PRC Facilitating the Build-Operate-Transfer Modality in the AD 1,100 27 Sep 1996 Highway Sector 27 2663-PRC Hebei Roads Development PP 600 16 Oct 1996 28 2777-PRC Chengdu to Nanchong Expressway PP 600 7 Apr 1997 29 2846-PRC Changchun–Harbin Expressway PP 600 22 Aug 1997 30 2952-PRC Corporatization, Leasing, and Securitization in the Road AD 1,000 17 Dec 1997 Sector 31 3033-PRC Shanxi Expressway PP 570 24 Jun 1998 32 3039-PRC Yunnan Road Environmental and Social Analysis PP 150 7 Jun 1998 33 3086-PRC Regional Road Sector Study AD 1,180 13 Oct 1998 34 3102-PRC Preparing the Chongqing–Guizhou Expressway PP 900 26 Nov 1998 35 3220-PRC Preparing the Guangxi Highway PP 540 7 Jul 1999 36 3248-PRC Preparing the Shanxi and Shaanxi Roads PP 640 30 Aug 1999 37 3341-PRC Capacity Building Safety, Planning, and Management AD 600 14 Dec 1999 38 3546-PRC Preparing the Southern Sichuan Roads Development PP 800 16 Nov 2000 39 3569-PRC Jiangsu Highway BOT Project AD 555 12 Dec 2000 40 3642-PRC Preparing the Western Yunnan Roads Development PP 770 20 Mar 2001 41 3376-PRC Preparing the Ningxia Roads Development PP 600 16 Nov 2001 42 3900-PRC Socioeconomic Assessment of Road Projects AD 250 12 Aug 2002 43 3907-PRC Preparing the Xi’an Urban Transport Project PP 750 27 Aug 2002 44 3929-PRC Preparing the Hunan Roads Development PP 600 23 Sep 2002 45 4119-PRC Preparing the Guangxi Roads Development II PP 500 23 May 2003 46 4142-PRC HIV/AIDS on Road Projects in Yunnan Province AD 800 28 Oct 2003 47 4211-PRC Preparing the Gansu Roads Development PP 500 5 Nov 2003 48 4274-PRC Preparing the Central Sichuan Roads Development PP 700 18 Dec 2003 49 4322-PRC Poverty Impact of Area Wide Road Networks AD 1,000 26 Mar 2004 50 4351-PRC Policy Reform in Road Transport AD 500 24 Jun 2004 51 4384-PRC Preparing the Hunan Roads Development III PP 500 2 Sep 2004 52 4592-PRC Preparing the Heilongjiang Road Network Development PP 500 2 Jun 2005 53 4639-PRC Preparing the Western Roads Development PP 800 30 Aug 2005 54 4650-PRC Evaluating Poverty Impacts of Transport Projects SS 150 21 Sep 2005 55 4671-PRC Rural Road Development Strategy AD 350 21 Oct 2005 56 4698-PRC Road Safety Improvement AD 1,000 24 Nov 2005 57 4773-PRC Preparing the Xinjiang Regional Road Improvement PP 600 21 Mar 2006 58 4782-PRC Preparing the Central Yunnan Roads Development PP 500 28 Apr 2006 59 4792-PRC Preparing the Guangxi Longlin–Baise Expressway Project PP 500 26 May 2006 60 6321-REG Fighting HIV/AIDS in Asia and the Pacific (Subproject RETA 500 5 Jun 2006 7:HIV/AIDS Prevention and Road Transport Sector) 61 4806-PRC Sustainable Rural Transport Services AD 400 28 Jun 2006 62 4877-PRC Resource Optimization in Road Sector AD 600 29 Nov 2006 63 4970-PRC Western Yunnan Roads Development II Project PP 500 28 Sep 2007 64 4991-PRC Transport Information System AD 400 15 Nov 2007 65 4995-PRC Lanzhou Sustainable Urban Transport PP 800 23 Nov 2007 66 7052-PRC Asset-Backed Securitization for Expressway Financing and AD 150 11 Jan 2008 Corporate Debt Restructuring in Yunnan Province 67 7117-PRC Heilongjiang Road Development II Project (Yichun– PP 600 22 Aug 2008 Nenjiang) 68 7119-PRC Anhui Road Network Development Project PP 600 29 Aug 2008 Total 36,630

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AD = advisory, km = kilometer, No. = number, PP = project preparatory, PRC = People’s Republic of China, REG = regional, RETA = regional technical assistance, SS = small scale, TA = technical assistance. Source: Asian Development Bank estimates.

Table D - Other Funding Sources No. of Organization Road Length(km) Loan Amount Loans Unit Total 40 World Bank 10,598 $ million 7,780 16 Japan Bank for International 1,695 Yen million 219,036 Cooperation km = kilometer, No. = number. Source: Asian Development Bank.

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Appendix 3 Policy Dialogue Matrix

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POLICY DIALOGUE MATRIX

Actions Taken by ADB and the Initiative Issues Actions Taken Under the Project Outcomes/Status Government 1. Inclusive growth The geography of Promoting pro-poor equitable The Project is located in remote and rural The 11th Five-Year People's Republic of and inclusive growth has been area where the local residents have limited Program (FYP) of China (PRC) poses ADB's primary goal in the PRC. access to the regional road network system. Heilongjiang Provincial great obstacles to Projects financed by the ADB in The project scopes include (i) improvement Department of providing basic road the PRC country strategy, and of rural transport infrastructures by building Communication access throughout the program are focused in poorer 16 and upgrading 4 bus stations in (HPCD) emphasizes the country particularly In and remote regions. conjunction with Government initiative to provision of quality access inner and low-income update existing rural roadway system; (ii) to counties, towns and provinces. implementation of rural transport service villages. pilot project to explore the most effective way for rural bus service improvements. 2. Global economic Economic crisis The Government launched In The project will have positive impacts on Project preparation has crisis occurred in developed November 2008 a CNY4 billion employments from the construction of the been successfully countries in 2008 - fiscal stimulus packages and project and promote increase of internal accelerated and the 2009 has decreased ADB agreed to meet with the demands by linking the farming and trade retroactive financing has external demand, Governments' requests to bring based east Songjiang Plain to the industrial been successfully applied leading to a growth forward the project processing. and petrochemical based west Nengjiang and the contract slowdown and worker Plain, and to benefit the local economic procurement is in layoffs in export growth progress. oriented sectors. 3. Sustainable Land energy and Government is investing for the The Project will construct the missing link in The original road transport environmental development of a balanced one of the Heilongjiang east-west transport alignment was revised to systems and resources constrains transport matrix in PRC and ADB corridors, and will reduce the travel distance avoid three environmental resource need to be factored in has provided assistance to MOC by 400 km and travel time by 6 hours to cut sensitive areas as

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Actions Taken by ADB and the Initiative Issues Actions Taken Under the Project Outcomes/Status Government optimization transport systems to improve sustainability of fuel consumption. Special attentions have recommended by ADB so planning. transport investments. been given in the project preparation to as to better preserve the avoid impacts to the environmental sensitive existing natural reserve natural reserves, including Wudalianchi areas. . GeoPark, and two Natural Reserve areas. 4. Integrated Poor sharing of growth Under its 11 Five Year Plan, The Project will construct a balanced To develop a balanced transport system due to an unbalance of Heilongjiang Government targets expressway, Class I road, Class II road, and road network specified in primary secondary to develop integrated roadway branch road, and provide connecting points the province road and ternary road system with the construction of to local and rural roads to the proposed development plan. network in major trunk road network and roads. In addition to build 16 and upgrade 4 Heilongjiang province upgrade the rural road system to rural bus stations, the Project will also New rural bus stations and and poor access to provide paved access to all implement a rural bus service improvement the implementation of the public transport villages. The government also pilot project to explore the most effective rural village bus service service in rural areas. underwent a rural transport way for a safer, more accessible, flexible, improvement pilot project service reform in Lindian County better service quality, and sustainable rural in Bei’an County. to explore the service bus services. improvements using flexible on call bus services. 5. Road To sustain the asset MOT has an initiative to promote The Project includes a road maintenance Establishing RAMS, maintenance value there is a need the use of pavement component, which includes the conducting data collection to rebalance the need management system. A new development of road asset management and database upgrade, of new road version of China Pavement system (RAMS) based on MOT CPMS, and using RAMS for road construction and the Management System (CPMS) the establishment of road maintenance maintenance planning by existing road will be available by later 2009, program for prioritizing, planning and 2012. maintenance. and Heilongjiang Provincial executing the road maintenance by using Government will install the the developed RAMS.

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Actions Taken by ADB and the Initiative Issues Actions Taken Under the Project Outcomes/Status Government system in 2009. 6. Affordable Inefficient and The Government has The Project is designed in accordance with Project Class II road will transport uncompetitive established policies to provide the latest government policy to eliminate all not be tolled, and toll rates transport markets in fuel subsidy to rural transport toll gates in Class II roads. estimated on the project rural area and tolling service providers up to 50% of expressway were deemed practices on low the fuel cost to make the A rural bus service improvement pilot will be affordable. volume roads have services are more affordable. In carried out to explore the most effective way reduced afford ability 2009, the Government launched for rural transport services with better and The implementation of the of transport for the a fuel tax reform which led to the more affordable services. rural transport bus service poorest population. removal of tolls on class II and pilot project will provide below highways to further reduce recommendations for a road user cost, especially in the better and more affordable rural areas. rural service. 7. Safe transport Poor road safety Assistance Is being provided to The Project will address safety issues by: (i) Lower accident rate and design, lack of improve safety and efficiency of providing review and recommendations on fatality rate per 10,000 sufficient attention road transport operations and road safety engineering design; (ii) vehicles for the project to safety, poor public strengthen traffic law conducting safety audits at the design and roads. transport vehicles and enforcement under the Road construction completion stages for safety inadequate traffic Safety Improvement TA. improvement recommendations; (iii) enforcement\ and providing training and capacity development driver training, In 2004, the Government for road safety and for public awareness on contribute to poor Introduced the National Road road safety; (iv) enhancing traffic violation safety record Safety Law. enforcement by installing advanced ITS violation monitoring and recording system and training for road safety regulation enforcement.

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Actions Taken by ADB and the Initiative Issues Actions Taken Under the Project Outcomes/Status Government

8. Sustainable The recent fuel tax The Government is channeling The financial and economic analysis for the Tile Heilongjiang sector financing reform has a major national fuel tax revenues to Project has taken considerations of the fuel Provincial Government will framework impact on the long Provincial Governments. ADB is tax reform to evaluate the financial and use part of the fuel tax term sector preparing a small-scale TA to the economical viability of the Project, and money to fund the sustainable financing central Government on the fuel developed long-term financing framework maintenance for Class II framework. tax reform issue. for maintenance, network development and or lower roads. debt repayment. 9. Private sector The road sector needs Private sector participation The rural bus service improvement pilot Private sector participation participation to continuously attract accounts for about 10% of total project will have provisions to attract private in rural bus service pilot more private sector investment in the road sector sector participation as service providers or project, and in participation. since the 1990s. ADB supports service operators based on market maintenance contracting private sector participation in its competition. and concession projects and has provided agreement. assistances over TA and lending The road maintenance component will programs. establish the road maintenance management system, prioritize road maintenance needs, and promote PSP in road maintenance contracting and maintenance concession.

10. Overloading Over loading of trucks An inter-ministerial committee The Project will install weight stations in Weight stations installed has an adverse impact was established to develop and expressway, Class I and II road segments to in the project roads. on pavement implement special measures to control overloading. Heilongjiang The numbers of condition, traffic flow, enforce regulations on Government will implement policy for weight overloading vehicles on

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Actions Taken by ADB and the Initiative Issues Actions Taken Under the Project Outcomes/Status Government vehicle emissions and overloaded trucks nationwide. based tolling on the expressways and other the project road will safety. roads. reduce significantly.

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Appendix 4 Sustainable Transport Analysis

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SUSTAINABLE TRANSPORT ANALYSIS

Guidelines Towards Environmentally Considerations for Development of No. Sustainable Transport Transport Schemes Heilongjiang Integrated Transport' Sector Improvement Project 1 Long-term future vision • Are there national and regional • The National 11th Five--Year Plan 2005-2010 targets a 20% reduction of of transport that Is sustainable strategies for sustainable energy consumption per unit of GDP and a 10% reduction of volumes of for environment and health development? major pollutant emissions. and provides the benefits of • Does this Project fall within the • The Project is a priority project of the Government 11th Five Year Plan and mobility and access long term national and regional forms an integral part of the planned network for Heilongjiang Provinces. It transport strategy? has both regional and local significance. • How does this Project fit with the • The Project area benefits from enhanced mobility and access and will strategic objectives of improve the environment of the area. environmental and health aspects • Inadequate road infrastructure is one of the major constraints for economic within the Province? development and poverty reduction. • Will this Project work towards • With such improvements, Irving conditions in the project area will be improving the present improved which will help lead to other improvements to infrastructure and environmental and health services such as medical care, education and sanitary conditions in the area. situation? • How much does the Project enhance mobility and improve access in the area? 2 Ensuring long-term transport • How sustainable is the current • The transport matrix in Heilongjiang is well balanced. The road mode plays trends are assessed and that transport system? an essential role for collection, distribution notably in corridors where it is not health and environmental · Does the Government transport economical of feasible to have rail links or waterway transport. impacts and the economic and strategy ensure that the transport • Under its 11lh FYP. Heilongjiang Province will progress towards the social implications are system will remain as much or completion of high-quality integrated transport infrastructure, where each App 4 - 2

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considered. become more sustainable in the mode of transport is dedicated to its area of natural competitive advantage. future? • Heilongjiang is a landlocked province. There is no other alternate viable • Are there alternatives to road transport option in the project area. Road transportation is essential between transport that could be viably the rural farming and forest areas to markets. implemented? • At present, Heilongjiang is one of the least developed provinces in PRC and • What would be the situation for poverty and urban-rural disparity is a major issue. health and environmental impacts • Without improvements to the transport system, it will slow down the economic without the Project? development. Poverty reduction in the project area would likely remain in their • What are the economic and social present state or degrade further, especially due to the government policy to benefits from the Project? limit forest cutting for forest preservation. The Project will provide an efficient transport system which will provide savings in fuel consumption, improve. Transportation conditions shorten travel time and improve safety. It will also facilitate local level urbanization, allow industry to be economically more viable along project roads, add value to agricultural industries through better market access, promoting tourism development and improve access to Ideal social services like education, medical care. 3 Defined health and • Does the Project achieve national • The project EIA has been undertaken for the Project and has concluded that environmental quality and local environmental adverse environmental impacts associated with the Project can be prevented, objectives based on health and standards? eliminated or minimized to an acceptable level. environmental criteria • Will it further degrade the • The project alignment has been revised to avoid three environmental standards, and sustainability environment? sensitive areas, Wudalianchi, Numin River Natural Reserve, and Bei’an requirements. • Does it use more resources than Natural Reserve. can be renewed? • Environmental benefits will be provided to areas with reduced vehicle emission and air pollution will be reduced through a more direct transport route and better traffic flow conditions. • EMP has been developed to protect and mitigate impacts to water, soil, air quality, etc.

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4 Set quantified, sector-specific • Does it have specific long term • The Project will follow the national strategy for reducing air pollution through: targets derived from the targets for pollutants, greenhouse (i) enforcing national emission standards, (ii) enforcing inspection and environmental and health gas emissions, noise, land, take, maintenance program, (iii) encouraging use of alternative or cleaner fuels quality objective and set target etc? such as compressed natural gas and ethanol, etc, and (iv) financial incentives dates, and milestones. • Are they based on national and for old vehicles early retirement. local standard with target • These measures are based on long term improvements and there are target deadlines? timelines for implementation. • Other environmental aspects (such as water quality, soil erosion protection, noise reduction, etc) are predicted to be within the national and local criteria with the application of effective mitigation and monitoring measures. 5 Strategies to achieve and • Is it following the long term • Transport demand studies have been undertaken for the Project and based combinations of measures to desirable transport plans for the on this, the Project has been reduced in scale to expected future demand ensure technological future in terms of movement of requirements to achieve the present and future needs of the area. enhancement and changes in goods and people and types of • Transport planning has been considered in the scale and location of the transport activity. vehicles? Project and various alternative alignments were examined in the • Has transport planning efficiency I pre-feasibility study and ADB PPTA study and considered (i) protection of demand been considered in the natural reserves, (ii) minimized need for resettlement, (iii} conservation of planning process for present and productive agricultural lands, (iv) minimized environmental damage, (v) future scenarios? technical feasibility, (vi) construction costs, and (vii) present and future transport requirements. 6 Social and economic • Have the economic and social • The economic and social implications have been reviewed against without tile implications of the vision, and implications of the Project been Project case. ensure they are consistent with considered against the without • External costs have been considered, in particular for safety. The Project will social and economic project scenario? improve the integrated transport system for the project area, accidents and sustainability. • Have external costs, such as those fatalities and injury can be reduced. Measures have also been suggested for related to accidents, pollution and speed control, signage, rumble strips, dividing islands, protected crossings for climate change been considered? pedestrians, bus stations, especially speeding warning signs and video • Are there benefits that are camera violation monitoring system at rural village entrances and school

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achieved from the Project with areas. These measures will be accompanied by a targeted program of regard to time savings, congestion selective enforcement and publicity. relief, etc)? • Measures are being taken at a central policy level to address CO2 emissions • Does it take into consideration the which are strongly correlated to fuel consumption. Fuel savings were needs across a wide range of reviewed in the feasibility study report and it is expected that CO2 emissions society rather than just one sector will be reduced by the Project because of shortened driving distance by (for example does it benefit building the missing link and better road driving condition. communities as well as industry, • The Project will have a wide spectrum of beneficiaries rather than just one etc.). sector on a regional and local scale. 7 Construct packages of • Have measures been reviewed to • The Project will support the construction of township bus stations and rural measures and instruments for assist in achieving more assist in bus service improvement pilot project to allow more flexibility in customizing reaching environmentally achieving more environmentally service routes to meet passenger needs in rural areas. sustainable transport. sustainable transport such as: • Traffic on the Project expressways will be tolled and as such win cover its • Pricing strategies capital and maintenance costs. In addition, users will also pay a fuel tax. • Technology Policies • A series of measures have been recommended for improving road safety, • Infrastructure investment including engineering design improvement, road safety audit, road safety • Traffic management education and training program, and enhancement for traffic violation • Improvement to public transport monitoring and penalizing system. • Encouraging alternative transport • Improving road safety? 8 Develop an implementation • Will the Project be implemented • It has been recommended that performance should be assessed through a taking into account local, effectively? design and Monitoring Framework and clear performance targets have been regional, and national • Is there a well planned structure? set out. Environmental performance win be audited during the construction circumstances with timetable • Strategic Environmental stage by an Independent Environmental, Health and Safely Team who will and responsibilities. Assessment report on the Project to EA and ADB. • How will performance be assessed?

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9 Set provisions for monitoring • Is there a monitoring system for • Performance monitoring for the vehicle flows and splits will be assessed implementation and for pollution aspects and for transport through collecting information from the executing agency and the public reporting on the types (e.g., vehicle splits, implementing agencies. environmental sustainable numbers)? transport strategy 10 Broad support and cooperation • Have concerned parties been • The approach to public consultation has been described in the Project EIA. For implementing the transport consulted and have they Public consultation on the Project has been undertaken as part of the through comprehensive influenced the Project? information disclosure on the Project during the project preparation process. consultation. Ensure that • Is their active support and It includes presenting information about the Project and informing town all actions are consistent with commitment for the Project? government and relevant agencies, schools in the project area and the global responsibility for • Has there been public education people to be affected indirectly and directly by the Project through land sustainable development on the Project and public acquisition and resettlement. participation? • Based on feedback on the Project, primary concerns were related about land • Has this covered a broad range or acquisition and resettlement and environmental impacts to the natural stakeholders and sectors (e.g. reserves. transport. environmental, health • The alignment changes avoiding the natural reserves and implementation of education)? measures specified in the EIA and RPs will be essential. Confirmation of compliance with the EIA and RP's will be monitored. FYP = Five Year Plan, EMP = Environmental Management Plan; EIA = Environmental Impact Assessment; RP = Resettlement Plan

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Appendix 5 Vehicle Emission Reduction Plan

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VEHICLE EMISSION REDUCTION PLAN

A. Overview

1. The power to move a vehicle comes from burning fuel in an engine. The main products of combustion process are carbon dioxide (C02) and water, but inefficiencies and high temperatures inherent in engine operation also produces other by-products such as Hydrocarbons (HC), oxides of nitrogen (NOx), carbon monoxide (CO), particulate matter (PM), and their chemical compounds. The emission of pollutants has global, regional, social, environmental, and economic impacts. Excessive CO2 emissions increase global warming and cause climate change; NOx plays a major role in the formation of acid rain in the atmosphere, and PM 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 we must address in transport projects.

B. Reducing Vehicle Emissions

2. The main vehicle pollutants are CO2, CO, HC, NOx and PM. In general, the level of vehicle emission from individual vehicle depends on various factors, including the maintenance of the vehicle, driving behavior and road and traffic conditions. The reduction of emission pollutants was estimated by comparing the case of With and Without the Project. Without the Project, the 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, the traffic will benefit from shorter distance, optimal alignment, better road condition, and less congestion which will make travel more smoothly. 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 was based on the relationship of fuel consumption, emission of pollutants, and vehicle average speed. The average fuel saving is estimated about 260,365 tons oil equivalent (toe) per year and C02 reduction is about,282,500 tons per year.

4. Heilongjiang provincial government is committed to adhere to the national vehicle emission control strategies and plans, which include (i) enforcing stricter standards by July 2010 (GB18352-3-2005 and GB17691-2005 that are equivalent to step IV of European Emission Standards); (ii) enforcing an inspection and maintenance programs for all existing vehicles including (a) annual emission checks and randomly roadside testing, (b) emission control devices are required to be repaired, updated, and installed if the vehicle can’t meet the standard, (c) developing a quality audit system to guarantee the quality of testing and prevent fraud and corruption, (d) upgrading vehicle testing facilities, and (e) promoting environmental awareness regarding vehicle emission and fuel consumption; (iii) encouraging use of clean fuel; (iv) forcing retirement of vehicles that are more than 8--10 years old and have failed the emission inspection test for three consecutive times; and (v) encouraging retirement of old vehicles through subsidy. The following Table A provides an integrated plan developed to help agencies in reducing vehicle emissions in Heilongjiang.

Table A. Strategic Vehicle Emission Reduction Plan – Targets and Expected Outputs Expected Responsible Target Proposed Action Schedule Output Agency

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Expected Responsible Target Proposed Action Schedule Output Agency A. Vehicle Emission Standard and Vehicle Technology Implement Adopt PRC phase-IV standards By 2010 Vehicle HPEPB new PRC equivalent to Euro IV emissions emission further reduced standards by 30%

Retire Force retirement of vehicle that are Ongoing Retirement of all HPPSB obsolete more than 8-10 years old and have obsolete vehicles failed the emission inspection test vehicles will be three consecutive times. Encourage timely retirement of old vehicles through subsidy and enforcement. B. Fuel Use taxation Owners of vehicles with engines Effective Reduced sales Ministry of policies above 4-liter capacity will pay 40% tax 1 of cars with big Finance double the previous rate. The tax for September engines. vehicles with engines between 3 to 4 2008 liters will be up from 15-25%. Improve For diesel vehicles, reduce sulfur Ongoing MEP and conventional levels to <500 parts per million. HPEPB fuels Impose further reductions on sulfur levels upon adoption of new stricter vehicle emission standards as proposed by MEP. Introduce Encourage production of alternative Ongoing HPEPB alternative or fuel vehicles or modification of existing cleaner fuels vehicles to dual-fuel engine vehicles. Promote establishment of CNG/LNG stations In Heilongjiang.

Develop economic incentives for Ongoing Investment in gas-filling stations.

Develop economic incentives for Ongoing encouraging the use of clean fuels. Fuel Tax was adopted. Other incentives are being Initiated C. Inspection and Maintenance program Improve • Strengthen the capacity of relevant Ongoing Adequate HPEPB annual agencies to provide efficient inspection and vehicle services Maintenance testing and • Emission violating vehicles should system will be in certification be repaired to meet the required place. standards before going to road. • 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 testing and preventing fraud and corruption. The stations found with corruption or unreliable results will be penalized.

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Expected Responsible Target Proposed Action Schedule Output Agency Initiate on Initiate a random on-road check By 2015 HPPSB and road program for vehicle emissions to HPEPB spot check complement testing in fixed stations. D. Monitoring Strengthen Engage a qualified environmental During HPPSB and environmenta monitoring institution to monitor operation HPEPB l monitoring ambient-air quality along the 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. CNG = compressed natural gas, LNG = liquefied natural gas, MEP = Ministry of Environmental Protection, HPCD = Heilongjiang Provincial Communication Department, HPEPB = Heilongjiang Provincial Environmental Protection Bureau, HPPSB = Heilongjiang Provincial Public Security Bureau.

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Appendix 6 Road Safety

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ROAD SAFETY A. Road Safety Issues

1. The road traffic safety is a serious problem in the People’s Republic of China (PRC). In 2008, there were 265,204 traffic accidents with 73,484 fatalities and 304,919 injuries. The fatalities per 10,000 vehicles were 4.3, and the direct property loss was 1.01 billion CNY. The accident data for the previous three years are shown in Table 1. Due the rapid economic development, unprecedented speed of roadway construction, and fast growing of automobile vehicles, the problem for road safety has not been addressed adequately. The road safety is a complicated issue involving engineering design, traffic laws and regulations, education and public awareness, traffic regulation enforcement, etc. The government has recognized the importance of the road safety issue, and started to address these issues with various initiatives and programs, such as road safety regulations, road safety study, road safety training programs, etc. As the results, the situation of road safety has been improving in recent years, but still lagging behind in comparison to that in the developed countries.

2. Beyond the enormous economic loss, poor road safety has a substantial social impact to victims of accidents or family members of those involved in the accidents. Victims’ families suffer from an increased burden of care while facing reduced income and higher medical expenses. Consequently, loss of labor and increased medical costs often lead to poverty for affected families.

Table 1 Road Traffic Accident Data

Description 2004 2005 2006 2007 2008 Road Fatalities 107,077 98,738 89,455 81,649 73,484 Body Injuries 480,864 469,911 431,139 380,442 304,919 No of Accidents 517,889 450,254 378,781 372,209 265,204 Fatalities/10k 10.2 8.4 6.2 5.1 4.3 Vehicles Property Loss 2.39 1.88 1.49 1.20 1.01 (Billion CNY)

3. Through the efforts of the PRC Government in improving road safety, the road accident fatalities and numbers of the accidents have been declined continuously for the last three years. The numbers of fatalities per 10,000 vehicles have decreased to 4.3 in 2008. However, the number is still relatively high in comparison to these in the developed countries. The fatalities per 10,000 vehicles are 1.0 in Japan, 1.2 in Australia, 1.8 in US, and 1.0 in UK. Good practice and policies must be in place in order to reduce the number of fatalities and injuries on the roads.

4. Heilongjiang has experienced a rapid economic development in the last decade, which has been also accompanied by increasing vehicular growth resulted in rising level of traffic, increased pressure on the road system, a substantial number of road accidents, and large loss of life. In 2008, there were 1,703 road traffic fatalities with 4,905 body injuries and 4,528 traffic accidents. The direct property loss was 20.1 million CNY. In 2007, the number of fatalities per 10,000 vehicles was 6.34, which was higher than the national average value. The traffic accident data for the last three years are summarized in Table 2.

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Table 2. Summary of Traffic Accidents in Heilongjiang

Description 2004 2005 2006 2007 2008 Road Fatalities 2,463 2,164 2,146 1,906 1,703 Body Injuries 8,318 7,655 7,139 7470 4,905 No of Accidents 8,532 7,505 6,732 6715 4,528 Fatalities/10k Vehicles - 10.0 6.94 6.34 4.92 Property Loss (CNY 43.3 34.6 32.3 26.1 20.1 million)

5. The Heilongjiang Government has recognized the importance of improving road safety and has been working hard to enforce road safety in recent years. In 2007, the Government issued “Heilongjiang Road Traffic Safety Regulations”, which outlines the road traffic safety requirements for drivers, vehicles, roads, traffic safety regulations, pedestrians, accident treatments, monitoring and legal responsibilities. The government has initiated various traffic regulation enforcement programs to reduce traffic violations, fight overloading vehicle, fine the unregistered and unsafe vehicles, etc., and the road safety situation has been improving in recent years. However, there are still big gaps in road safety between China and that in the developed countries as outlined in the followings:

Road Safety Engineering

6. The full scale highway construction was not started until 1990’s. The design standards and concepts, especially in road safety, have been improved, but they are not in compliance of the latest design developments and technologies. For the project, all engineering designs for roadways are following PRC national highway design codes and standards. However, there are gaps between PRC design standards and those used in the developed countries for road safety and safety features. The advanced design concepts and technologies shall be adopted in the engineering design. Examples of road safety design concepts and road safety features used in developed countries, which are not being used in PRC, include:

7. Clear Zone Concept – the road safety design is based on the clear zone concept. The clear zone is the roadside border area from the edge of the roadway for safe use by erratic vehicles. If there is no adequate clear zone, safety features/devices such as guide rail shall be installed.

8. Guiderail End Treatment – The end of guiderail needs to be terminated with a proper energy absorbing end treatment. A guiderail end without the end treatment is a very dangerous spot when hit by an erratic vehicle. The end of guiderail may spear through the vehicle to cause significant body injuries and fatalities. An extensive researching and testing have been conducted by US Federal Highway Administration, with recommendations for guiderail end treatments that have been tested and certified for safe use in highway projects.

9. Guiderail to Bridge Transition – A guiderail is a flexible structure, while a bridge parapet is a rigid structure. The connection point between the guiderail and the bridge parapet is dangerous if hit by erratic vehicles due to the sudden change of the structure stiffness. All guiderails shall be connected to bridge parapets by a proper transition with gradually changed structure stiffness. US Federal Highway Administration has sponsored extensive research and testing programs, and the acceptable guiderail transitions have been recommended.

10. Impact Attenuator Placement – An impact attenuator is required at obstructions where there is no adequate clear zone. A good example is at the highway exit ramp where the

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report concrete barriers from the ramp and the highway form a blunt end, which is very typical in PRC highway system. The blunt end shall be eliminated or placed with an impact attenuator to protect erratic vehicles.

11. Recommendations for improving road safety design from design review as well as the road safety audit report have been provided to the design institute, PMO and EA, and the design institute has agreed to incorporate these recommendations into their final design. The implementation of these recommendations shall be reviewed by the safety specialist during the project implementation.

Public Awareness and Education Program

12. A public awareness and education program is a very important component for road safety improvement program. Currently in Heilongjiang, the development and implementation of the effective public awareness and education program is not meeting the rapid transportation development needs. It is beneficial for Heilongjiang to have ADB’s assistance in this aspect. Inputs from ADB consultants to the government initiated awareness and education program will benefit the outcomes greatly. The consultants shall review and provide inputs to the government program, and provide assistance in implementing the public awareness and education program.

13. Heilongjiang is the sixth largest province in PRC with vast agricultural and forest lands. Traffic accidents in rural area have been one of the biggest problems for the region. Due to the change of rural population structure, where most young people are left for work in cities, old people, women and children become the main road users. Because of lacking the knowledge of traffic regulations and new traffic patterns of modern roadways, this group of people is easily involved in traffic accidents. The use of unsafe types of vehicles, such as unlicensed motorcycles, motor tricycles, agricultural vehicles to transport passengers, also contributes to high accident rate.

14. Heilongjiang is located in the very north of PRC with a long period of snow covering during winter. The average snow season is more than 120 days. The snow covered roads, especially for those roads in the mountainous area, result in more traffic accidents during winter. The issue shall be addressed in the awareness and education program, as well as in the road maintenance program.

Traffic Regulation Enforcement

15. Traffic regulations shall be enforced for driving violations as well as registration and licensing. The public security bureau has a solid system to enforce the traffic violations. It would be beneficial to have ADB road safety specialist to provide evaluation of the existing enforcement system, and introduce the advanced technologies and methods used in the developed counties for traffic violation enforcement, vehicle licensing and registration, and vehicle safety inspection.

B. ADB and Government Strategy

16. The Asian Development Bank (ADB) has been implementing a series of road safety initiatives and strategies in the PRC to highlight and address the growing road safety problems. 1 It has funded advisory technical assistances to provide guidance on the national road safety strategy and strengthen capacity building in traffic safety. In addition, road safety audits have been incorporated in all road transport projects financed by ADB.

1 ADB. 1999. Technical Assistance to the People’s Republic of China for Capacity Building in Traffic Safety, Planning, and Management. Manila; and ADB. 2005. Technical Assistance to the People’s Republic of China for Road safety Improvement. Manila

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17. The PRC Government is taking steps to address road safety issues. In the past, lack of cooperation and discussion between ministries hampered efficient road safety improvement. The establishment of the first national interagency road safety committee in 2003 involving multiple ministries, and the introduction of the first Road Traffic Safety Law in the PRC which took effect on 1 May 2004 are important steps in the coordination of road safety. The Government is paying growing attention to road safety and formulated a National Science and Technology Action Plan for Road Safety on 20 February 2008. The action plan set measurable targets including (i) reducing the number of road fatalities, (ii) reducing severe road accidents, and (iii) achieving a similar rate of fatalities per 10,000 vehicles as in other middle-income countries. Dedicated resources will be allocated to address road safety.

C. Road Safety Improvement

18. The road safety improvement can only be achieved by the participation of all involved parties, including government agencies, road users, law enforcement agencies, engineering designer and construction contractors. A successful road safety improvement program shall include all components of engineering, education, and enforcement, which sometimes are referred as “3E Program”. First of all, the roadway system shall be engineered and designed to consider all safety issues. All black spots with safety concerns shall be eliminated. The education to road users, especially for people living in rural area, is critical to promote public awareness of road safety and to learn dealing with today’s new traffic pattern and vehicle behavior. Finally, an effective law enforcement monitoring and control program shall be implemented to eliminate or reduce traffic violation for speeding, running red lights, using unsafe and unauthorized vehicles, etc.

19. The proposed road safety improvement component will include (i) Engineering review and safety audit for the project roads, (ii) Developing an action plan for safe operation of the expressway, (iii) Institutional capacity development to increase public awareness in road safety, and (iv) Developing action plan and strategy to enhance enforcement of regulation and traffic safety laws..

Engineering Review and Road Safety Audit

20. An engineering review with emphasis on road safety design shall be conducted in feasibility study, preliminary design and final design stages. The review will concentrate on gaps between current engineering design in PRC and the standard safety features used in the developed countries. Recommendations on road safety design concepts, placement of road safety features, and use of ITS technologies to improve road safety will be provided. Before the completion of the final design, a road safety audit will be conducted for the project roads and the recommendations shall be incorporated in the final design.

Action Plan for Safety Operation of Roads

21. Safety consultants will be engaged to review the operation and maintenance of the roadway system, and an action plan for the safety operation of the project roads will be developed for the roadway owner so that the road system can be operated with all potential safety concerns addressed with necessary preventive measures.

Institutional Capacity Development & Public Awareness

22. A joint effort among ADB, the consultants, HPCD, the public security bureau, local governments, road users, and local communities will be required to develop and implement an institutional capacity development program to increase public awareness on road safety and to provide training on improving road safety. The activities to develop the program include:

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• Public awareness program on road safety with emphasis on rural and forest farm areas to include education program for safe use of roads. The program shall be initiated by the public security bureau with inputs from all involved parties. The public security bureau shall draft the public awareness program at the beginning of the project implementation and submit to EA before the mobilization of the road safety specialist. The road safety consultant shall review and provide input to the public awareness program and in association with the public security bureau to develop the action plan to carry out the program; • Community awareness on road safety, especially for communities along major highways. The program shall be initiated by the public security bureau with input from all involved parties. Opinions from local governments and communities shall be considered. The program shall be submitted to EA before the mobilization of the road safety specialist. The road safety specialist shall review and provide input for the community awareness program and in association with the public security bureau to develop the action plan to carry out the program; • Promote vehicle safety by implementing appropriate licensing and vehicle safety inspection program, especially for rural area. The road safety specialist will review and evaluate the current vehicle safety inspection and licensing program, and provide recommendations to strengthen the program to improve vehicle safety; • Improve rural transport service safety by promoting and implementing recommendations from ADB TA study on sustainable rural transport services, including establish licensing system for vehicles used for rural transport service, establish administration and management system for rural transport services, etc. The rural transport specialist will provide guidance in implementing the rural transport pilot project and review the safety requirement for the transport services; • Capacity development on design, safety audit, and maintenance for safety. The highway specialist and road safety specialist will provide training and workshop for design institute, public security bureau, safety personnel from government agencies, contractors, and construction supervision companies on design and construction of road safety features, road safety public awareness program, road safety maintenance; and • Capacity development on enforcement of traffic law. The road safety specialist will provide training and workshop to public security bureau, especially public security bureaus in the local counties along the proposed road, on enforcement of traffic laws, methods of enforcing traffic law and regulations used in the developed countries, as well as the system and equipment used in the developed countries.

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

Enforcement on Traffic Regulation and Law

24. In coordination with provincial and local public security bureaus (PSB), an action plan shall be develop to enhance the enforcement on traffic laws and regulations. Speeding through villages and towns shall be eliminated by install speed control devices at the village entrance roads as well as ITS traffic violation control system. Education on traffic regulation and enforcement shall be enhanced for both drivers and local road users to promote public awareness.

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Appendix 7 Rural Road Development

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RURAL ROAD DEVELOPMENT

A. Introduction

1. The total road mileage in Heilongjiang (HLJ) was 140,910 km, of which about 90% of the total roads are Class III or below, categorized as local and rural roads. Poor road conditions and inadequate access and connectivity have been one of the major problems for rural road in PRC. In 2000, China National Development and Reform Committee (NDRC) and Ministry of Transportation (previously Communication) issued policies to accelerate the improvements and development of rural roads. In accordance with the national policies, HLJ developed the 11th Five Year Plan (FYP) to include the development of rural roads. The plan set goals to be achieved by 2010, including: i) all towns and administrative villages are connected; ii) all towns and 55% of administrative villages are connected by paved roads; iii) 95% of administrative villages are with transport services, etc.

B. Rural Road Network

2. Based on the latest rural road improvement plan in HLJ, by the end of 2010, all county roads and town roads will be upgraded to Class III or Class IV roads and all administrative villages will be connected with paved roads. From 2008 to 2010, HLJ will invest 24.3 billion CNY to construct 60,799 km rural roads, and the construction lengths are 24,799 km, 15,500 km, and 20,500 km in 2008, 2009 and 2010 respectively. In 2008, a total of 24,799 km rural roads have been upgraded, 91.6% of towns and 71.9% of villages were connected with paved roads. Currently, there are 11 towns and 1,666 administrative villages are not connected with paved roads.

3. In accordance to HLJ rural road planning, a total of 42.2 billion CNY will be invested for upgrading rural roads from 2011 to 2020 with a total of 78,000 km rural roads. It is expected that by the end of 2020, a total of 183,000 km rural roads will be constructed or upgraded, including 110,000 km village roads.

C. Connectivity to Project Roads

4. The proposed project area covers Yichun, Suihua, Bei’an, Wudalianchi, and Nenjiang. The eastern part of the project is located in Xiaoxinganling Mountain, where the area population is low with only scattered forest farms and few towns and villages. As the project road approaches Bei’an, the density of population increase with more towns, villages and forest farms.

5. Because of the geological formation of Xiaoxinganling Mountain and its river system running mainly in north-south direction, most local roads are in northeast-southwest direction with limited access in east-west direction. The proposed project road, which is part of the provincial east-west transport corridor, will provide the urgently needed east-west road access for the local communities, and improve the transport services in the project area greatly. The connections to the local roads are provided through interchanges in the expressway segment and level crossings in the Class II segment.

6. Eight three-legged interchanges are included in the expressway segment to provide access to the local roads as shown in Table 1, of which three will be build under the proposed project, and the other four will be constructed simultaneously under other contracts. For the Class I and II segment, intersections are provided at all crossings with local roads, which will serve the local communities directly.

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Table 1 Three Legged Interchanges Interchange to be No Interchange Connect to Built Under

1 Yaohe National road G222 Yichun-Suihua Expwy

2 Jianxing Highway to Suiling and Tongxiang The Project

3 Qianjin Highway from Tongbei to Qianjin The Project

4 Zhaoguang Suihua-Bei’an Highway The Project

5 Wudalianchi Highway from Bei’an to Wudalianchi Ji-Hei Expressway

6 Bei’an East Suihua-Bei’an Highway Suihua- Bei’an

7 Bei’an North Suihua-Bei’an highway Suihua-Bei’an

8 Zhanhe National road G202 Ji-Hei Expressway

D. Rural Bus Stations

7. There are 899 towns, 105 farms in HLJ province. According to HLJ rural road development planning, HLJ will build 992 rural bus stations between 2004 and 2013. The planned construction schedule and investment are summarized in Table 2.

8. In accordance to HLJ 11th FYP, a total of 760 bus stations will be built, which will cover 72% of towns in HLJ. By the end of 2007, 387 bus stations had been completed with a total investment of 155.54 million CNY. In order to meet the goal set in the 11th FYP, HLJ has planned to construct 140 bus stations in each of the next two years. The construction of rural bus station is funded by the grant from the Ministry of Transportation with 15 million CNY for each bust station.

Table 2. Rural Bus Station Planning

Period Number of Bus Stations Investment (million CNY)

2004-2008 492 166.40 2009-2013 500 155.20

9. In the project area, the construction of rural bus stations in Yichun city and Wudalianchi city had been completed by the end of 2008. The remaining bus stations to be built based on the 11th FYP are located in Bei’an and Nenjiang within the project area, as well as in Hailun and Suileng, which are at close distance from the project roads.

10. A total of 20 bus stations are included in the project, which include 16 new Class V bus stations and the rehabilitations of 4 Class III bus stations. A set of selection criteria has been developed in reference to the national design standards and the project needs. The selected bus station shall be located at town level with a minimum estimated passenger volume above 300 person-times per day, and the bus station shall be located in the vicinity of the project roads.

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Appendix 8 Rural Transport Service Development

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RURAL TRANSPORT DEVELOPMENT

A. Introduction

1. Heilongjiang (HLJ) is the sixth largest province in People’s Republic of China (PRC) with vast rural and forest areas and low population density. The rural transport demand is relatively low, especially in the project impact area located in Xiaoxinganling area where there are only scattered villages and forest farms. The agricultural and forest farms related productions are the major economic activities. Since the implementation of government policy to protect the forest resource which allows only limited timber production, the income for forest workers has been impacted considerably. People’s incomes are relatively low in general with low demand for travel. The long winter season with snow covering also limits the travel for the local residents.

2. Most transportation activities are around the local towns, where villagers or forest workers travel to the towns to get their family supplies, especially when there are markets that are scheduled at certain times and locations. Travels from villages to the market are the main travel demand for the local residents. In the other hand, the travel from the migrant labors has little impact to the local transport services. These labors travel back to home once or twice a year, mainly during Chinese New Year or summer harvest season, which creates a big pressure on transportation facilities in big cities, but little impact to the local transport system.

B. Existing Rural Transport Services

Connectivity

3. Most villages in HLJ are connected by the existing road network. Even though there are still villages connected only by unpaved roads, which may not be accessible during heavy rain or thawing in spring, the bus services can reach most villages. The central government and HLJ provincial government have put great efforts to improve the rural transport services. In general, the connectivity of bus service is quite well. By the end of 2008, the rural bus service has covered 98.9% of all the administrative villages in whole province with only 152 administrative villages without bus services. In accordance to the current HLJ planning, another 102 administrative villages will be connected by the end of 2009, with only 50 administrative villages left without bus services.

Accessibility

4. The service frequency for rural bus services is relatively low, especially in the project area. The average daily bus run per line per day is 2.38 for HLJ province, 2.13 for Yichun, 1.90 for Suihua, and 1.68 for Heihe. Usually the bus services between counties and towns are adequate because of the high travel volume; however, the service frequency at the village level is very low due to low demands, and sometimes only one bus run per day. The average trip distance is relatively long, which is 23.40 km for HLJ province, 162.43 km for Yichun, 21.74 km for Suihua, and 61.35 km for Heihe. The low travel demands and long travel distance make the bus company very difficult to be profitable, resulting even less services to the remote areas.

5. In order to promote rural bus service in the remote areas, HLJ has made efforts to improve the services including deregulation for certain requirements to boost the bus services, such as canceling the provision of conventional “fixed stopping points, fixed routings and fixed service schedules”. The rural bus services are issued with an area license so that buses can operate in any route within the area. In special case, a bus can operate as a chartered vehicle to provide door to door services. All these measures have shown positive impact to the rural bus services.

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Affordability

6. The bus fare rate is regulated by the government. The current rate was formulated 10 years ago, which is relatively low. For local passengers, the current fare is affordable. The profit for the service providers is very lower, and the recent hike on fuel price has put many providers in a very bad situation.

7. In order to attract more investment and service to rural area, HLJ government is studying the feasibility of loosing regulations on rural bus fare, suggesting that at least a 20% price floating shall be allowed. It is expected that the decision will be made in the near future.

C. Current Problem

Service Providers and Market Entry Policies

8. Most rural transport service providers are small companies or individuals. With an effective organization and regulating system, it is very difficult to control the behavior of the providers. The problems of unhealthy competition, denial of passengers, overpricing, and over loading occur very often. The use of old vehicles or vehicles without proper maintenance is very common, which may result in serious safety incidents. In event of such incidents, the individual providers usually have very low compensate-pay ability because of lack of adequate insurance, resulting big loss for both providers and victims.

9. The market entry for the rural transport service is controlled based on the actual transport loading rate surveyed in the field. If transport loading rate in a bus route is over 70%, a new license for service provider may be issued. If the transport loading rate is under 70%, indicating too many bus lines, then no new license will be issued. The system will encourage the rapid development on high demand lines, referred as hot bus lines, but discourage the development of the services in low demand rural bus lines, also referred as cold lines. The government has been trying to bind both hot and cold bus lines together as a package for the service providers so that the providers can use the profits from the hot lines to compensate the loss from the cold lines, also to encourage the provider to extend their service lines into remote rural area, but the providers are reluctant to do it due to low profits.

Type of Buses Used in the Service

10. Most vehicles used in rural transport services are medium and mini buses. Currently there are no government standards on selection of rural buses; the providers select the buses in various types of vehicles. In order to save cost, some providers will use very old buses for the cold lines. These buses are generally old and a lot of these buses are the replacement from the buses formerly used in hot lines. The comfort level is low, and more importantly that the safety conditions of these buses are not meeting the requirements for safe operation, which may result in potential safety incidents during the services.

Safety Issues

11. Most buses used in rural transport services are old and with safety concerns because of the low profits and the service providers are trying to cut cost at every possible way. For buses used in lines between villages and towns, the situation is even worse because of the low traffic demands.

12. In rural areas where transport services are insufficient, villagers sometimes take rides on other types of vehicles that shall not be used for transporting passengers, such as tractors, tri-motor-cycles, trucks etc. These vehicles are generally not safe, and are forbidden to be used for passenger transport.

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Profit for Bus Services

13. Because of the low transport demand in rural areas, the profit of rural bus service is very low, which prevents the development of rural services in a positive and sustainable mode. There were some government policies to support rural bus services, including reduction or exemption of fees and charges for vehicle registration, but after the implementation of fuel tax, these fees and charges will be waived. Currently a new policy for fuel subsidy has been issued by the government, which will relieve some financial burdens for the service providers, but it is not enough. A more effective and direct way is to reform the current regulations and policies to foster a sustainable market and to encourage private sector to invest in the service market.

Rural Bus Stations

14. In HLJ, there are still many rural bus stations to be built in the near future. There are problems on how to use the current bus stations efficiently. In some areas, especially remote areas, bus stations have not been fully used due to low traffic demands. The construction of the bus stations should be based on applicability. The station level and size should be varied based on the actual needs. In some place with low passenger volume, a bus stop will be sufficient. In some larger towns with more population, the bus station should be built in high standards.

D. Rural Transport Service Pilot Projects

15. A workshop on rural transport services has been conducted to introduce the major findings and recommendations from ADB Study of “Sustainable Rural Transport Services (TA 4806)”, as well as the current status and progress of implementing pilot projects in Anhui Province. Through the interactions and discussions between the presenters and participants, the current problems in HLJ rural transport services have been identified and confirmed. The proposed pilot projects could be implemented in HLJ in order to explore the applicability of the proposed improvements.

16. The pilot project will implement the proposed rural transport service scheme in order to explore the feasible and sustainable rural transport service reform and to improve the rural transport service for the local people. The main objectives of the pilot project are:

• Explore and demonstrate how the proposed rural transport service reform for village bus services operates in the rural area; • Provide an opportunity for all involved stakeholders to participate in refining and modifying the proposed rural transport service scheme; • Monitor and evaluate the effectiveness of the proposed improvements and to provide opportunity to further improve the proposed services; • Develop and draft the procedures and regulations for implementing rural transport service reform in regarding to planning, licensing, insurance, vehicle safety, operation and monitoring system, and regulation enforcement system; • Provide an opportunity identifying any potential problem and shortcoming for the proposed rural transport service improvements and to provide the necessary adjustments as needed. 17. Based on the recommendations from ADB TA 4806-PRC study, the implementation of the proposed rural transport pilot project and major activities will include, but not limited to the followings:

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• Review the current Heilongjiang Province overall planning in rural transport services, the current and planned rural transport service improvement plans, and the current status of rural transport services, especially in the remote rural areas. Provide evaluation and assessment of the current rural transport services in Heilongjiang Province and identify major problems and rural transport needs in the project area. • Develop the detailed pilot project for rural transport service improvements with consideration of Heilongjiang local situations and outcomes from other rural transport service studies in other parts of China and other developed countries. • Establish criteria for selecting pilot project sites based on traffic demands and market analysis, conduct field surveys and investigations to identify and determine three (3) pilot project towns. At the selected pilot project sites, work with the county government to establish a project implementation group, chaired by the county commissioner and participated by involved county government bureaus including transportation bureau, traffic bureau, public security bureau, etc. The group will be the government governing body to provide overall management and instructions for the implementation of the pilot project. • Develop training plans and prepare training materials for staff from the county transport managing agencies for developing the necessary planning and regulatory skills for managing and administrating the implementation of the pilot project. Develop and carry out public consultation and participation program to inform all involved parties for the proposed rural transport service improvements, including local government agencies, rural transport passengers, local transportation providers, current bus and taxi operators, unlicensed transport service operators, local business groups, civil groups, local communities, etc. • Develop and draft regulations and procedures in regarding to licensing, insurance, vehicle type, vehicle safety, fares and service charges, etc. for the implementation of the pilot project. Define the role and responsibilities of the county road transport administrations. • Based on traffic demands, current bus service routes, and public feedback, develop detail rural bus service routes to be included in the Village Bus Route network, and define the stopping places and minimum service frequencies as necessary • Develop procurement procedures and evaluation criteria for the solicitation of local transport service provider. The solicitation shall be based on fair market competition, the quality of the detailed implementation action plan prepared by the bidders and the understanding of the pilot project. • Carry out rural transport service pilot project, provide adjustment to address problems encountered during the project implementation, conduct monitoring and evaluation of the pilot project implementation. • Assess and evaluate the results of the implementation of the pilot project, refine and modify procedures, regulations and implementation action plan, and prepare recommendation report for the implement the rural transport reform to other parts of the province.

18. The consultant believes that some problems and issues found in HLJ could be solved by using measures proposed in the results of TA4806 Study, such as lack of regulating and monitoring system, use of unsafe vehicles, unreliable services, lack of adequate insurance, etc. For implementing the pilot projects, an action plan shall be carefully designed for the scope of the pilot project and the objectives to be achieved. In Anhui pilot project, a private company was selected to set up the only one “monopoly” rural bus service company. This doesn’t look like

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report rational. The new company should be based on “each small operator or individual has shares according to evaluated bus-value “.

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Appendix 9 Engineering Features

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ENGINEERING FEATURES

A. Introduction 1. The proposed project is the western part of the second east-west cross province corridor in the Heilongjiang Province Planned Road Network. The project starts at Yichun, crosses the Xiaoxinganling to Bei’an, then passes the Xiaoxinganling transition zone to Songnen Plain to reach Nenjiang City.

2. Heilongjiang Province is located in medium and cool temperate zones, a meteorology term to describe temperature in an area. The snow precipitation is high in the mountainous area, and the snow season is long for about 120 days. The maximum snow accumulation depth is 49 cm in Yichun, 52 cm in Bei’an, and 31 cm in Nenjiang.

B. Design Criteria 3. The proposed project is designed in accordance with Chinese national highway design standards issued by The Ministry of Transportation, including “Highway Engineering Standards”, 2003, “Highway Alignment Design Code”, 2006, and “Engineering Design Standards for Roadway” (JTG B01-2003). The major design criteria are shown in Table 1. A fill embankment is considered in heavy snow sections to minimize impact from snow accumulation.

Table 1. Summary of Design Criteria

Parameter No Description Unit Yichun- Bei’an- Nenjiang-Province Wudalianchi Nenjiang Boundary 1 Road Classification Expressway Class II Class I 2 Design Speed Km/h 80 80 80 3 Embankment Width m 24.5 12.0 24.5 4 Lane Width m 2x7.5 2x3.75 2x7.5 5 Median Width m 3 3 6 Shoulder Width m 2x2.5 2x1.5 2x2.5 7 Max Longitudinal Slope % 5.00% 4.67% 3.77% 8 Live Load Highway – I Highway – II Highway - I

Source: FSR

C. Cross Section 4. The typical highway cross sections have been designed In accordance with the national highway design standards. For the expressway and Class I road, a total of 24.5 meter wide road typical section is selected, which consists of a 0.5 meter left shoulder, two 2.75 meter lanes and a 2.5 meter right shoulder in each direction, and a 2 meter median. A 2.0% cross slope is used. The typical cross section for Class II road consists of two 3.75 meter lanes and a 1.5 meter shoulder in each side. The total roadway width is 12 meters including a 0.75 meter rounding at each side. The cross slope is at 1.5%. The typical cross sections for the expressway/Class I and the Class II road are shown in Figures 1 and 2, respectively.

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Figure 1 Typical Cross Section for Expressway and Class I Road

Figure 1 Typical Cross Section for Class II Road

D. Project Roads

5. The project includes an expressway segment from Yichun to Wudalianchi, a Class II highway from Bei’an to Nenjiang, and a Class I highway from Nenjiang to the provincial border with Inner Mongolia. Three (3) branch roads are included at Bei’an to Nenjiang segment. The detailed project components are comprised of: (i) Construction of 276.89 km expressway, including a 70.15 km shared expressway section with Ji-Hei Expressway at Bei’an City and 10.30 km Class II road, which will be constructed under separate contract by Heilongjiang Government; (ii) Construction and upgrading of 134.10 km existing road to Class II highway; (iii) Construction of 12.96 km Class I highway. The detailed project roads are summarized in Table 2.

Table 2 Project Roads

Length No Segment Description Classification Connecting Point Remark (km) Yichun - Zhaoguang 1 Bei'an - Yichun - Bei'an East Expressway 163.62 Interchange

Wudalianchi Bei'an East - Bei'an Expressway 34.55 Jianhua Interchange Note 1

Bei'an - Wudalianchi Expressway 43.12 Huanxinling Toll Plaza Note 2 App 9 - 3

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Length No Segment Description Classification Connecting Point Remark (km)

2 Bei'an - Bei'an - Zhanhe Expressway 35.60 Jianhua Interchange Note 3 Nenjiang Zhanhe - Longzhen Class II 10.30 Zhanhe Interchange Note 4

Longzhen - Nenjiang Class II 134.10 Nenjiang - 3 Nenjiang to Province Border Border Class I 12.96 G111 Intersection Note 5 Nenjiang Branch Class I 3.31 G111 Intersection Branch 4 Road Intersection @

Geqiushan Branch Class III 1.06 K59+400

Intersection @ Qixingpao Branch Class III 0.73 K70+400 Total Expressway Length = 276.89 (km) Total Construction Expressway Length = 206.74 (km) Total Project Length = 434.25 (km) Total Project Construction Length = 353.80 (km) Total Branch Road Length = 5.10 (km) Source: Design Institute Notes: 1. The proposed roadway shares with Ji-Hei Expressway from Zhaoguang Interchange to Jianhua Interchange. 2. The expressway connects to Huanxingling Toll Plaza at Wudalianchi GeoPark, which includes 11.93 km Class I road as a transition to the existing Class II road at the Wudalianchi GeoPark. 3. The expressway shares with Ji-Hei Expressway from Jianhua Interchange to Zhanhe Interchange. 4. The proposed roadway will use the existing Class II road from Zhanhe Interchange to Longzhen where the new Class II road to Nenjiang starts. 5. The segment ends at the end of Nenjiang Bridge in Inner Mongolia. The segment is built as Class I road with intention to upgrade to expressway in future.

6. There are six interchanges in the expressway segment, with two Y-shaped hub interchanges and four three-leg shaped interchanges. The two Y-shaped hub interchanges connect to other two expressways, Yichun-Suileng Expressway at Kunlunqi, and Suihua-Bei’an Expressway/Ji-Hei Expressway at Bei’an (Zhaoguang Interchange), respectively. The three-leg shaped interchanges connect to local roads.

7. There are six (6) service areas, four (4) in the expressway segment and two (2) in the Class II highway segment. Also included in the project are seven (7) toll plazas with four (4) of them located on the expressway segment, and the remaining three (3) located in Class II highway segment. There are total of eighteen (18) large bridges along the alignment with structural length longer than 100 m. The prestressed concrete girder or void slab with span length from 20 to 30 meters is used for most bridges.

8. In order to improve rural transport services, the project will build or rehabilitate twenty (20) bus stations in the towns and villages along the proposed project.

E. ITS Applications and Weather Information System

9. A comprehensive ITS system has been included for the proposed roads. The system consists of traffic monitoring and control system, toll collection system, and communication system. The weather information system, which is used to inform travelers about weather and snow condition, will be incorporated into the traffic control system.

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F. Road Safety during Winter Snow

10. For road sections located in the heavy snow accumulation areas, a high embankment fill section has been adopted in the engineering design to avoid heavy snow build up on road pavement.

11. In addition to the engineering design consideration, a comprehensive winter road maintenance plan shall be developed for the road owner before the opening of the road to ensure the winter road safety in the snow season by implementing the maintenance plan. The plan shall address the emergency response for snow removal, procurement and maintenance for snow removal equipment, purchasing and storing deicing compound and salt, and displaying road condition information by means of road ITS system.

G. Overloading Vehicle Control System

12. Vehicle overloading inspection stations will be placed in all toll plazas to inspect and charge the toll based on the weight. All toll gate entrances will be equipped with truck gate with weight scale to monitor truck load. Trucks with overloads will be not allowed to enter the highway, and a storage area is provided at the toll plaza for the overloading truck to unload and store the extra loads so that the goods can be picked up and shipped next time. At all expressway exits, a weight station is equipped to measure the actual weight of the truck loading, and the toll fee will be collected based on the actual weight of the goods transported.

H. Permafrost Treatment

13. There are seven (7) permafrost areas totaled 8.23 km along Yichun to Bei’an expressway segment. The proposed treatment is to remove the permafrost up to 3 meter maximum and backfill with sand and gravel. This is a typical permafrost treatment method used in Heilongjiang area. The construction cost of replacing up to 3 meter permafrost is relatively high, but in consideration of the small amount, the proposed method is acceptable.

I. Wetland/Soft Foundation Treatment

14. There are several segments of the proposed highway going through wetlands and organic soft soil sections. Even though in FSR, the soil is referred as wetland, it may be more appropriate referred as organic soft soil foundation, rather the wetlands in the environmental definition. The condition shall be verified by environmental wetland specialists.

15. Based on the preliminary design, there is about 10 km roadway going through wetland/soft foundation in Yichun to Bei’an segment. The proposed construction method is to remove and replace the soft soil with sand and gravel with good permeability, and build the road embankment on top of it. Culvert pipes will be installed to maintain water flow to preserve the wetland.

J. Backfill at Structures

16. The settlement at bridge ends, which is also called “car jump”, is a very common problem in China highway construction, especially at culverts and underpasses. The problem is due to (i) No lateral constrains for the embankment fill at the bridge ends; (ii) Wrong material used in the embankment backfill at the structure ends; (iii) The backfill material is not compacted to required proctor density.

17. It is recommended that for all bridges, culverts, and underpasses, the structure end zone with up to 1.5 times to the backfill depth shall be backfilled with coarse aggregates. The

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report backfill shall be placed with layers not over 200 mm and compacted up to 97% of proctor density. The recommendation will be incorporated in the final design.

K. Road Pavement

18. The pavement structure is designed in accordance to the Highway Design Code, and the results are summarized in Table 3. The asphalt concrete pavement will be used for the expressway and Class I road, and the cement concrete pavement will be use for Class II road.

Table 3 Pavement Design Pavement Expressway Class II Road Class I Road Layer Wearing 5cm Asphalt Wearing 24cm Cement 5cm Asphalt Wearing Course Course (AC-16) Concrete (AC-16） Binder 7cm Binder Course (AC-25) 7cm Binder Course (AC-25) Base 20cm 6% Cement Stabilized 20cm 6% Cement 20cm 6% Cement Stabilized Gravel Stabilized Gravel Gravel Subbase 30cm 5% Cement Stabilized 20cm 5% Cement 30cm 5% Cement Stabilized Gravel Stabilized Gravel Gravel Drainage Layer 20cm Natural Gravel 20cm Natural 20cm Natural Gravel Gravel Total thickness 62 & 82cm 64 & 84cm 62 & 82cm

L. Road Safety Features

19. Based on the preliminary design, the following safety features have been included in the design, including Traffic Signs, Pavement Marking, Guide Rails, Glare Screen, Impact Barrels, Mile Posts

20. The guide rail is one of the most fundamental safety features in highway system. The purpose of the placing guide rails is to redirect erratic vehicles from running off roadway embankment causing severe accidents. The guide rail system is designed for passenger vehicles only, not for trucks.

21. Extensive researches and studies have been conducted in US and other developed countries, and the recommendations from the studies have been used in the highway system. There are still gaps in road safety design between PRC and the developed countries. The standard road safety applications used in the developed countries shall be adopted in PRC.

22. In consideration of standard road safety features used in the developed countries, it is recommended that a guide rail transition to bridge concrete barrier shall be designed in reference to the details given in Annex 1 in the Supplementary Appendix for engineering analysis, and specified for all steel W-beam guiderail to concrete barrier connections. For guide rail ends, the anchor down end treatment as indicated in the preliminary design is acceptable, provided there is an enough clear zone between the anchor end and the edge of roadway. If site condition does not allow the use of anchor down end treatment, a proper type of guiderail end terminal similar to those presented in Annex 1 shall be used.

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Appendix 10 Capacity Development

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CAPACITY DEVELOPMENT

A. Objectives

1. The proposed project is the fourth ADB financed road projects. The management staff in Heilongjiang Provincial Communication Department (HPCD), Heilongjiang Provincial Financial Bureau (HPFB), Heilongjiang Development and Reform Committee (HDRC), and other relevant government agencies are experienced with ADB procedures and requirements for project management and project implementation. The implementing agency (IA), the project management office (PMO), was newly established for the proposed project. Most staff in PMO are new to ADB financed projects. The proposed training program will emphasize on the capacity development and institutional strengthening for PMO staff and personnel from relevant agencies who will directly overlook and involve in project management and construction, rural transport development, road safety, road asset management and road maintenance, expressway operation and management, etc.

2. The training program goals are to achieve the transfer of knowledge from expatriate personnel to the project staff. Effective training programs will assist the project personnel in obtaining advanced knowledge from the technical aspect, and more importantly, the management skills and techniques from international experts in various transportation related fields. Based on the evaluation of the current staff experience on implementing the proposed highway construction project, the road maintenance component, and new challenges and technologies involved, a capacity development program is developed for both overseas and domestic training. The purpose of the training programs plans is to further strengthen organizational capability and improve staff quality and work efficiency to improve the entire technological and management level of highway sectors in Heilongjiang, including improving rural transport service, road safety aspects, and road maintenance planning and implementation (which would include implementation of new RAMS software and road maintenance-by-contract procedures).

B. Training Method

3. The training will be delivered in classrooms and seminars, on site, and through on-the- job training working with subject matter experts. The project will also include overseas and domestic study tours. A detailed training program is described in the following sections.

C. Overseas Training Program

4. A total of three (5) study tours are proposed for the overseas training program in order to strengthen the capacity of project management staff in highway project construction technologies, road safety in design and implementation, road asset management and roadway maintenance, winter road maintenance, and highway operation and management. a. Road and Bridge Construction Technology – There are still gaps between the PRC and the developed countries in road and bridge construction technologies. The objectives of the training program are to learn new construction technologies, new materials and equipment, in highway construction so that the new technologies and procedures can be used in the proposed project. Especially, the new technologies and equipment for winter construction and the treatment for permafrost will be included in the training. b. Road Maintenance Planning – A road maintenance planning and budgeting is a standard practice to manage and maintain any road network system in the developed countries. Even though PRC has over 3.58 million km roadway, the country still does not have sound approach for planning, budgeting, and execution of maintenance works. The study tour will

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lean the best practices in road maintenance management used in the developed countries, and help to implement the proposed road asset management system for the project. c. Winter Road Maintenance and Emergency Response Plan – Heilongjiang has a long snow cover period during winter. Road maintenance during winter and emergency response for accidents occurred on highways are very important issues in order to maintain the highway operation properly. Advanced management method, ITS applications, road maintenance equipment, and procedures for road emergency response can be leaned form the study tour to highways located in areas with long snow cover period. d. Road Asset Management Systems (RAMS) –The study tour will focus on asset management practices elsewhere, data collection methods, input data and system calibration experiences elsewhere, and data interpretation and how others utilize their system and a discussion of various systems’ capacities and lesson-learned from more experienced agencies. The study tour will also provide exposure to organizational and resource impacts of implementing maintenance-by-contract. e. Maintenance-by-Contract – The province has had some experience with contracting out maintenance works, and has had some previous exposure to maintenance-by-contract and performance-based maintenance, although not hands-on experience and all-works maintenance-by-contract and performance-based contracting is not practiced in the province. Heilongjiang also has a wide range of climatic temperatures throughout the seasons, which includes very cold weather, frost and sizeable snowfalls. This study tour is intended to expose the province to practices elsewhere in contracting, administration of performance-based contracts, roles and responsibilities, and evaluation of contractor performance. It will also provide first hand experience in interacting with contractors performing road maintenance works.

5. The cost estimates for the proposed oversea training is presented below. The overseas training will be financed by ADB loan. The detailed training plan is shown in Table 1. The training program is developed based on the evaluation of the current condition of EA and PIU, as well as the project needs, and it may need to be adjusted during the project implementation.

Table 1. Overseas Training Program

Number Unit Year No Description of Days Cost Cost Persons 2011 1 Road and Bridge Construction Technology 6 10 $600 $36,000 2012 2 Road Asset Management and 6 10 $600 $36,000 Maintenance 2012 3 Winter Road Maintenance and Emergency 6 10 $600 $36,000 Plan 2010- 4 Road Asset Management (Systems) 6 10 $600 $36,000 11 2012- 5 Road Maintenance & Maintenance-by- 6 10 $600 $36,000 13 Contract Total: 30 50 $180,000 Note: Cost estimates shown above include travel, lodging, training and all travel-related costs. include

D. Domestic Training Program

6. In corresponding to the overseas training program, a domestic training program is developed as shown in Table 2. The objectives of the domestic training program is to provide training in various aspects of the project, and conduct study tours in China to become familiar

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report and learn from practices elsewhere across the country, especially those with international input and similar scope as this Project..

7. A total of eight (8) of training seminars and workshops will be provided during the implementation of the project. The first two workshops will be resettlement training, one is for the training on methods and procedures to the personnel who carry out the resettlement, and the other one is for the managers and government officials on the administrating and management of the resettlement. For the environmental protection, there will be a series of workshops (7 two-day workshops) covering different environmental protection areas including soil, water, air, noise, etc. For road safety, a seminar for engineering, regulation, and enforcement will be provided, and public awareness workshops will be held in five major city/towns along the project road to provide education to public for road safety, especially rural road safety.

8. A total of eight (8) study tours will be provided during the implementation of the project. The topics of the study tour include construction management, Bridge and road management, traffic control and emergency planning, ITS applications, road maintenance, expressway toll collection and operation, winter road maintenance and emergency plan, operation and management of highway system. .

9. The detailed training program will be developed by the consultant team leader and the EA, including the training objectives, detailed plan, cost estimate breakdown, and other required actions to facilitate the training. The TL will provide coordination during the training and prepare training summary reports.

10. All overseas training will be funded by ADB loan, and the training fund shall be included as part of the budget in the contract for the international consultant. All domestic training will be funded by the government sources.

Table 2. Domestic Training Program

No of Unit Facility Year No Description Days Cost Remark Person Cost Cost 2010 1 Construction Management 10 10 $50 $5,000 ST 2010 2 Resettlement Implementation 30 3 $50 $3,000 $7,500 SM 2010 3 Resettlement Monitoring and 10 1 $100 $1,000 $2,000 SM Management 2010 4 Environmental Protection 30 14 $50 $7,000 $28,000 SM 2010 5 Rural Transport Workshops ( 6 LS $14,400 SM total) 2010 6 Rural Transport Study Tour (3 total) LS $7,000 ST 2010 7 Maintenance‐by‐Contract 20 7 $100 $14,000 SM 2010‐ 8 Road Maintenance Practices 60 7 $100 $42,000 SM 13 2011 7 Bridge and Road Maintenance 10 15 $100 $15,000 ST System 2012 8 Traffic Control & Road Emergency 10 10 $50 $5,000 ST Planning 2012 9 Road Safety 30 1 $50 $1,000 $2,500 SM 2012 10 ITS Road Application 10 10 $50 $5,000 ST 2012 11 Public Awareness on Rural Traffic 30 5 $50 $5,000 $12,500 SM Safety 2013 12 Road Maintenance 15 15 $100 $22,500 ST

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

2013 13 Expressway Toll Collection and 10 10 $100 $10,000 ST Operation 2013 14 Winter Road Maintenance & 10 10 $100 $10,000 ST Emergency Plan 2013 15 Operation & Management of 10 10 $100 $10,000 ST Highway System ST ‐ Study Tour Total = $212,400 SM ‐ Seminar or Workshop Note: The cost estimates include lodging, meal and training facilities.

11. The implementation of the proposed training program will strengthen the capacity of the government managing agencies by introducing new concepts, technologies, practices, management skills to make the implementation of the project more efficient and effectively. The road maintenance aspects of the project are intended to facilitate a sustainable road maintenance planning, prioritization, contracting and works implementation. The program will also provide education to the public on road safety, especially in rural area, to improve road safety after the completion of the project.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Appendix 11 Detailed Cost Estimates

App 11 - 1

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

CORE APPENDIX CF1

DETAILED COST AND FINANCING ESTIMATES

1. Introduction

1. The tables given in the Draft Final Report (DFR) included alternative presentations designed to satisfy the complete range of possibilities given in: (a) the ADB’s 11 April 2008 RSDD Technical Note on the Preparation and Presentation of Cost Estimates – Request for Approval, Circulation and Printing; (b) FA and FM Write Up 2009, provided by EARD. These were discussed with the ADB and it was decided that Cost Estimates by Category and Cost Estimates by Financier were sufficient for the RRP. These are shown below as Tables CF1-1 and CF1-2, as provided by the ADB.

2. The latter is a cost table and shows all costs related to those being financed by the financier. There is however an alternative definition, which shows the detailed costs to be financed by each financier, ie the financing plan. Totals are the same but the difference is important particularly for the decision over payment of interest during construction (IDC). The first cost based table shows where this was incurred; the second where it is funded. If IDC is accumulated in the IDC period, the funders are the banks; if it is paid in order to lower later debt, it is funded by the payer (normally the EA). The result obviously affects immediate cash flow needs as well as future indebtedness.

3. If HPG were to pay all IDC as they say they will, then the overall funding limit of $175 million that they propose would allow them to finance some $40 million of other expenditure, only 37% of the amount given in the Cost Estimate by Financier table below. They could increase that to $120 million by not paying IDC but that would of course increase their later indebtedness. This is a difficult question where decision makers need all the data they can get. The following Table CF1-3, Detailed Financing Estimates by Financier, was derived assuming that: (a) HPG payments in the implementation period are limited to $175 million as shown in the first table; (b) HPG will pay CDB IDC but not pay ADB IDC. In this case HPG funding of base costs increases but only up to $49 million.

2. Cost Estimation

4. Costs have been derived directly from the base costs given in the revised FSR. Those costs were in start to mid 2008 prices. The PPTA were instructed that they were now in early 2009 prices and so need not to be increased so that the date of base year costs is within six months of Board consideration. Inflation estimates were provided by the ADB’s EARD as given below. The ADB now asks that investment costs are split as realistically as possible into foreign exchange and local currency, with no reference to the size of the ADB loan. This is accepted by NDRC. ADB asks that taxes and duties are shown separately in the cost tables.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table CF1-1: Detailed Cost Estimates by Expenditure Category

($ million) (CNY million) Item Foreign Local Total Foreign Local Total Exchange Currency Cost Exchange Currency Cost A. Investment Costsa

1. Civil Works

a. Expressway 48.62 437.54 486.16 332.00 2,987.99 3,319.99

b. Class I Road 3.80 34.20 38.00 25.95 233.55 259.50

c. Class II Road 8.06 72.57 80.63 55.06 495.56 550.62

2. Improved rural bus services - 0.88 0.88 - 6.01 6.01

3. Capacity building 0.02 0.48 0.50 0.17 3.24 3.41

4. Consultancy Services 1.07 14.45 15.52 7.30 98.67 105.97

5. Equipment 3.75 15.00 18.75 25.61 102.44 128.05

6. Environment Prrection 3.97 35.77 39.74 27.14 244.24 271.38

7. Resettlement Expenses - 41.90 41.90 - 286.14 286.14

8. Project Management 1.01 39.22 40.23 6.87 267.86 274.73

9. Taxes and Duties - 24.90 24.90 - 170.04 170.04

Total Base Cost 70.30 716.91 787.21 480.10 4,895.74 5,375.84

B. Contingenciesb

1. Physical 5.20 53.22 58.42 35.51 363.44 398.95

2. Price 1.97 19.25 21.22 13.48 131.43 144.91

Subtotal (B) 7.17 72.47 79.64 48.99 494.87 543.86

C. Finance Charges During Implementationc

1. Interest 16.59 64.30 80.89 113.30 439.10 552.40

2. Commitment Charges 0.41 - 0.41 2.80 - 2.80

Subtotal (C) 17.00 64.30 81.30 116.10 439.10 555.20

Total Project Cost (A+B+C) 94.47 853.68 948.15 645.19 5,829.71 6,474.90

D. Improved road maintenance - 50.00 50.00 - 341.45 341.45

Total Project Cost (A+B+C+D) 94.47 903.68 998.15 645.19 6,171.16 6,816.35

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report a In early 2009 prices. b Physical contingencies are computed 8% for all civil works and 5% for other project components. Price contingencies computed at 0.8% for 2009, 1.0% for 2010, 1.5% for 2011, 2.0% and for 2012 thereafter on local currency costs; and 1.9% for 2009, 1.0% for 2010, 0.3% for 2011, and 0.5% for 2012 and thereafter on foreign exchange costs. c Includes interest, commitment charges and front end fees. Interest during construction has been computed at the five-year forward London interbank SWAP rate offered rate plus a spread of 0.2%.

Source: ADB staff estimates

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table CF1-2: Detailed Cost Estimates by Financier ($ million) Item MOT HPG ADB CDB

Base Cost Total Amount % Amount % Amounta %b Amount %

A. 1 Civil Works

a. Expressway 486.16 116.17 23.9% 38.73 8.0% 149.08 30.7% 182.18 37.5%

b. Class I Road 38.00 4.62 12.2% 1.54 4.1% 5.92 15.6% 25.92 68.2%

c. Class II Road 80.63 20.96 26.0% 6.99 8.7% 26.90 33.4% 25.78 32.0%

2 Improved rural bus services 0.88 0.88 100.0% 0.00 0.0% 0.00 0.0% 0.00 0.0%

3 Capacity building 0.50 0.00 0.0% 0.25 50.0% 0.25 50.0% 0.00 0.0%

4 Consulting Services 15.52 0.00 0.0% 14.67 94.5% 0.85 5.5% 0.00 0.0%

5 Equipment 18.75 3.75 20.0% 2.81 15.0% 0.00 0.0% 12.19 65.0%

6 Environment Protection 39.74 7.95 20.0% 5.96 15.0% 0.00 0.0% 25.83 65.0%

7 Resettlement 41.90 6.94 16.6% 27.76 66.3% 0.00 0.0% 7.20 17.2%

8 Project Management 40.23 8.05 20.0% 6.04 15.0% 0.00 0.0% 26.14 65.0%

9 Local Taxes and Duties 24.90 4.85 19.5% 2.67 10.7% 0.00 0.0% 17.38 69.8%

Subtotal (A) 787.21 174.17 20.8% 107.42 18.8% 183.00 21.9% 322.62 38.5%

B. Contingencies

1 Physical Contingencies 58.42 16.30 27.9% 10.11 17.3% 0.00 0.0% 32.01 54.8%

2 Price Contingencies 21.22 0.79 3.7% 0.59 2.8% 0.00 0.0% 19.84 93.5%

Subtotal (B) 79.64 17.09 21.5% 10.70 13.4% 0.00 0.0% 51.85 65.1%

C. IDCd 81.30 12.30 20.4% 6.77 17.5% 17.00 20.0% 45.23 42.0%

Total (A+B+C) 948.15 203.56 21.5% 124.89 13.2% 200.00 21.1% 419.70 44.3%

D. Improved Maintenance 50.00 50.00 100.0%

Total (A+B+C+D) 998.15 203.56 20.5% 174.89 17.5% 200.00 20.0% 419.70 42.0%

ADB = Asian Development Bank, MOT = National Ministry Of Transport, HPG = Heilongjiang Provincial Government, CDB = China Development Bank

a Amount of ADB loan proceeds allocated to the cost category.

b The amounts 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.

d Interest During Construction

Source: ADB staff estimates

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table CF1-3: Detailed Finance Estimates by Financier

($ million)

Item MOT HPG ADB CDB

Base Cost Total Amount % Amount % Amounta %b Amount %

A. 1 Civil Works

a. Expressway 486.16 124.43 25.6% 5.52 1.1% 145.71 30.0% 210.49 43.3%

b. Class I Road 38.00 4.95 13.0% -2.68 -7.1% 5.79 15.2% 29.95 78.8%

c. Class II Road 80.63 22.44 27.8% 2.11 2.6% 26.29 32.6% 29.79 36.9%

2 Improving rural bus services 0.88 0.88 100.0% 0.00 0.0% 0.00 0.0% 0.00 0.0%

3 Capacity building 0.50 0.00 0.0% 0.26 51.1% 0.24 48.9% 0.00 0.0%

4 Consulting Services 15.52 0.00 0.0% 14.69 94.7% 0.83 5.4% 0.00 0.0%

5 Equipment 18.75 4.01 21.4% 0.65 3.5% 0.00 0.0% 14.08 75.1%

6 Environment Protection 39.74 8.51 21.4% 1.38 3.5% 0.00 0.0% 29.84 75.1%

7 Resettlement 41.90 7.43 17.7% 26.15 62.4% 0.00 0.0% 8.32 19.9%

8 Project Management 40.23 8.62 21.4% 1.41 3.5% 0.00 0.0% 30.20 75.1%

9 Local Taxes and Duties 24.90 5.19 20.9% -0.37 -1.5% 0.00 0.0% 20.08 80.6%

Subtotal (A) 787.21 186.47 23.7% 49.12 6.2% 178.86 22.7% 372.76 47.4%

B. Contingencies

1 Physical Contingencies 58.42 16.30 27.9% 10.11 17.3% 0.00 0.0% 32.01 54.8%

2 Price Contingencies 21.22 0.79 3.7% 0.59 2.8% 4.91 23.1% 14.93 70.4%

Subtotal (B) 79.64 17.09 21.5% 10.70 13.4% 4.91 6.2% 46.94 58.9%

C. IDCd 81.30 0.00 0.0% 65.07 80.0% 16.23 20.0% 0.00 0.0%

Total (A+B+C) 948.15 203.56 21.5% 124.89 13.2% 200.00 21.1% 419.70 44.3%

D. Improved maintenance 50.00 0.00 0.0% 50.00 100.0% 0.0% 0.00 0.0%

Total (A+B+C+D) 998.15 203.56 20.4% 174.89 17.5% 200.00 20.0% 419.70 42.0%

ADB = Asian Development Bank, MOT = National Ministry Of Transport, HPG = Heilongjiang Provincial Government, CDB = China Development Bank

a Amount of ADB loan proceeds allocated to the cost category.

b The amounts 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.

d Interest During Construction

Source: ADB staff estimates

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

3. ADB Costs Compared to FSR Costs

5. The original FSR costs were amended to allow for alignment changes requested by the ADB. These costs are shown below as FSR 1 and FSR 2. In order to better align with ADB needs, the PIU then separated out environmental costs included in FSR civil works. They decreased price contingencies and made other minor changes. The ADB reviewed the PIU costs, increased resettlement and taxes, increased contingencies but to less than the original level and increased IDC. Finally, after LFF, HPG agreed to include improved road maintenance, 100% financed by them. The process is shown in the following table.

Table CF1-4: FSR, PIU and ADB Cost Estimates

FSR 1 FSR 2 PIU ADB Item ($ million) Amount Amount Amount Amount A. Base Cost

1 Civil Works

a. Expressway 503.22 516.47 486.16 486.16

b. Class I Road 39.60 39.60 38.00 38.00

c. Class II Road 76.54 86.86 80.63 80.63

3 Improving rural bus services 0.88 0.88 0.88 0.88

4 Capacity building 0.50 0.50

5 Consulting Services 13.42 13.42 14.92 15.52

6 Equipment 18.66 18.66 18.75 18.75

7 Environment Protection 39.74 39.74

8 Resettlement 33.49 34.31 34.70 41.90

9 Project Management 36.87 39.43 40.23 40.23

10 Local Taxes and Duties 20.72 21.39 21.48 24.90

Subtotal (A) 743.40 771.03 775.99 787.21

B. Contingencies

1 Physical Contingencies 67.14 67.14 67.43 58.42

2 Price Contingencies 36.34 36.34 3.93 21.22

Subtotal (B) 103.47 103.47 71.36 79.64

C. Interest During Const. 54.27 54.27 54.50 81.30

Total (A+B+C) 901.15 928.77 901.85 948.15

D. 2 Improving road maintenance 0.00 0.00 50.00

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Total (A+B+C+D) 901.15 928.77 901.85 998.15

4. Funding Shares

6. Funding shares by component and category were provided by the EA. These were adjusted to allow for three needs: (a) the national Ministry of Transport (MOT) subsidy; (a) ADB loan size; (c) legislated equity requirements.

7. Funding from the national Ministry of Transport (MOT) is fixed by road type/class and length. It is CNY 5.5 million/km for the expressway; CNY 3.5 m/km for Class I and CNY 1.6 m/km for Class II. Giving a total MOT subsidy of CNY 204.5 million. MOT also subsidizes bus stations: the EA assumed 50% but did not add it to the per km subsidy. MOT subsidies for maintenance might be discussed with the EA but the assumption now is that it will be financed by HPG.

8. There was a proposal to increase the ADB loan size from US$200 million to $210 million, in order to help provide funds for priority road maintenance. The limit for summary procedure by the ADB Board is US$200 million: if that sum is exceeded the loan requires full Board consideration. The ADB and the EA have decided to keep the ADB loan to US$200 million.

9. Until recently there was a national requirement for local equity injections for transport projects of at least 35%. This was set in 1996 State Council Circular # 35. A State Council Circular dated 25 May 2009 lowered the requirement for transport projects to 25%. The EA know this but have not asked for their equity share to be lowered. The present share, MOT and HPG, is 37.9%.

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Appendix 12 Project Schedule

App 12 - 1

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Project Implementation Schedule

TA 7117-PRC: Heilongjiang Road Development II Project (Yichun-Nenjiang)

Activity 2009 2010 2011 2012 2013 AMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASONDJFMAMJ JASOND I Project Processing Feasibility Study Approval Loan Approval Loan Effectiveness Bidding for Retroactive Financing Bidding for Regular Contracts II Land Acquisition and Resettlement III Civil Work Construction Yichun - Bei'an East Expressway (A1-A14) Bei'an - Wudalianchi Expressway (A15-A18) Bei'an North - Nenjiang Class II (A19-A23) Nenjiang - Province Border (A24) Pavement Marking & Roadside Facilities Landscaping Bus Stations IV Equipment ITS & Traffic Control Equipment Maintenance Equipment Road Safety Equipment V Consulting Service Domestic Consultants International Consultants VI Training VII Project Completion

Legend: Activity Retroactive Financing Contracts Milestone

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Appendix 13 Procurement Plan

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

PROCUREMENT PLAN

Basic Data Project Name: Heilongjiang Road Development II Project (Yichun-Nenjiang) Country: People’s Republic of China Executing Agency: Heilongjiang Provincial Communication Department Loan Amount: $200 million Loan (Grant) Number: (xxx) Date of First Procurement Plan: 15 Oct 2009 Date of this Procurement Plan: 15 Oct 2009

A. Process Thresholds, Review and 18-Month Procurement Plan

1. Project Procurement Thresholds

1. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works.

Procurement of Goods and Works Method Threshold International Competitive Bidding (ICB) for Works > $10M International Competitive Bidding for Goods > $1M National Competitive Bidding (NCB) for Works Beneath that stated for ICB, Works National Competitive Bidding for Goods Beneath that stated for ICB, Goods Shopping for Works Below $200,000 Shopping for Goods Below $100,000

2. ADB Prior or Post Review

2. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the project.

Procurement Method Prior or Post Comments Procurement of Goods and Works ICB Works Prior ICB Goods Prior NCB Works Post B01 is for prior review NCB Goods Post

Recruitment of Consulting Firms Quality- and Cost-Based Selection (QCBS) Prior Quality cost ratio is Simplified Technical Proposal (STP) 80%:20%.

Recruitment of Individual Consultants Individual Consultant Selection (ICS) Prior ICB = International Competitive Bidding, NCB = National Competitive Bidding.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

3. Goods and Works Contracts Estimated to Cost More Than $1 Million

3. The following table lists goods and works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.

Contract Pre- Procure- Value qualification Advertise- General Description ment Comments ($USD of Bidders ment Date Method million) (y/n) A. Civil Works 1. Contract Packages under Retroactive Financing A15: 191+935～K202+000 17.30 ICB N Sep 2009 A16: K202+000～K212+000 20.40 ICB N Sep 2009 A17: K212+000～K222+600 24.03 ICB N Sep 2009 A18: K222+600～K234+527 17.20 ICB N Sep 2009 B08: Nenjiang River Bridge N 42.38 ICB Sep 2009 K0+000~K12+878 2. Other Contract Packages A01: K0+000～K26+000 61.10 ICB N Jan 2010 A02: K26+000～K43+000 37.11 ICB N Jan 2010 A03: K43+000～K60+000 36.74 ICB N Jan 2010 A04: K60+000～K82+000 43.99 ICB N Jan 2010 A05: K82+000～K103+841 40.19 ICB N Jan 2010 A06: K103+841～K129+000 49.50 ICB N Jan 2010 A07: K129+000～K147+000 33.97 ICB N Jan 2010 A08: K147+000～K163+023 35.66 ICB N Jan 2010 A09: K0+000～K26+000 13.26 ICB N Jan 2010 A10: K26+000～K50+858 12.74 ICB N Jan 2010 A11: K34+500～K61+000 20.56 ICB N Jan 2010 A12: K61+000～K88+000 17.73 ICB N Jan 2010 A13: K88+000～K111+427 16.99 ICB N Jan 2010 B. Bridges, Intersections, Overpasses B01: Bridges: K0+000; ADB prior 8.60 NCB N Jan 2010 K0+770-K30+000 review B02: Bridges: K52+750; 12.16 ICB N Jan 2010 K30+500-K60+000 B03: Bridges: K112+859; 10.81 ICB N Jan 2010 K60+000-K115+000 B04: Bridges:K142+613; 12.99 ICB N Jan 2010 K163+023; K115+000-K163+023 B05: Bridges: 21.19 ICB N Jan 2010 K191+935-K234+527 C. Buildings and Ancillary Facilities C01: Wudalianchi Service Area 1.71 NCB N Mar 2010 GF

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

D. Pipeline Works D01: k0+000-k43+000 1.22 NCB N Jan 2010 GF D02: k43+000-k82+000 1.10 NCB N Jan 2010 GF D03: k82+000-k129+000 1.33 NCB N Jan 2010 GF D05: k191+935-k234+527 1.09 NCB N Jan 2010 GF E. Safety Facilities E01: k191+935-k234+527 7.06 NCB N Mar 2010 F. Traffic Electrical System F01: Tolling, Power Supply and Lighting System, 4.61 ICB N May 2010 k0+000-k163+023 k191+935-k234+527 F02: Traffic Monitoring and Control System, 4.63 ICB N May 2010 k0+000-k163+023 k191+935-k234+527 F03: Telecommunication System, k0+000-k163+023 2.56 ICB N May 2010 k191+935-k234+527 G. Planting and landscaping G01: k191+935-k234+527 1.95 NCB N May 2010 ICB = International Competitive Bidding, NCB = National Competitive Bidding, GF = government financing

4. Consulting Services Contracts Estimated to Cost More Than $100,000

4. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence. Contract Recruit- International Value Advertise- General Description ment or National Comments (USD ment Date Method Assignment million) 1. Construction Supervision ZJ01: Construction Supervision 1 2.38 GP Sep 2009 National GF ZJ02: Construction Supervision 2 2.21 GP Sep 2009 National GF ZJ03: Construction Supervision 3 1.27 GP Sep 2009 National GF ZJ04: Construction Supervision 4 1.53 GP Sep 2009 National GF ZJ05: Construction Supervision 5 1.24 GP Sep 2009 National GF ZJ06: Construction Supervision 6 0.65 GP Sep 2009 National GF ZJ07 International Construction ADB 0.84 QCBS Mar 2009 International Supervision Financing 2. Studies/Capacity Building QCBS International ADB ZY01 Training and Workshops 0.39 May 2009 (STP) and national Financing ADB = Asian Development Bank, GP = Government Procedure, QCBS = Quality and Cost-Based

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Selection, STP = Simplified Technical Proposal.

5. Goods and Works Contracts Estimated to Cost Less than $1 Million and Consulting Services Contracts Less than $100,000

5. The following table groups smaller-value goods, works and consulting services contracts for which procurement activity is either ongoing or expected to commence.

Value of Procurement International Contracts / Advertise- or National (USD Recruitment ment Date Assignment General Description million) Method Comments C: Buildings and Ancillary Facilities C02: Wudalianci Toll Station 0.70 NCB Jan 2010 National GF C03: Yongfeng Toll Station 0.43 NCB Jan 2010 National GF D: Pipeline Works D04: k129+000-k163+023 0.96 NCB Jan 2010 National GF E: Safety Facilities E02: k191+935-k234+527 0.77 NCB Jan 2010 National GF H: Bus Station H01: 20 bust stations 0.88 NCB May 2010 National GF Monitoring ZX01: Environmental ADB 0.07 GP Mar 2009 National External Monitoring Financing ZX02: Resettlement ADB 0.05 GP Oct 2009 National External Monitoring Financing ADB = Asian Development Bank, GP = Government Procedure, GF = Government Financing.

B. Indicative List of Packages Required Under the Project

6. The following table provides an indicative list of all procurement (goods, works and consulting services) over the life of the project. Contracts financed by the Borrower and others should also be indicated, with an appropriate notation in the comments section.

Estimated Estimated Domestic General Value Number of Procurement Preference Description (cumulative) Contracts Method Applicable Comments Goods 16.08 6 ICB N 1.56 3 NCB N Works 598.00 22 ICB N 84.78 38 NCB N

Estimated Estimated General Value Number of Recruitment Type of Description (cumulative) Contracts Method Proposal Comments

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Consulting 9.40 8 GP Services 1.23 2 QCBS FTP/STP GP = Government procedure, GF = government financing, ICB = International Competitive Bidding, NCB = National Competitive Bidding, QCBS = Quality- and Cost-Based Selection, FTP = full technical proposal, STP = Simplified Technical Proposal.

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Appendix 14 Environmental Analysis

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SUMMARY OF ENVIRONMENTAL IMPACTS AND MITIGATION MEASURES

A. The Scope of Assessment 1. The Heilongjiang Road Development II Project (Yichun-Neijiang) (the Project) is classified as environmental category A by ADB based on the potential significant adverse environmental impacts of the Project. The environmental impact assessment (EIA) report and a summary EIA have been prepared. The project impacted area is defined in two categories, direct project area (DPA) and indirect project area (IPA). The DPA is defined as the 20 km strip along both sides of the project alignment, and the IPA is the five counties/cities/districts, where the project passes through, namely Yichun, Suiling, Bei’an, Wudalianchi, and Nenjiang.

B. Ecological Environment 2. Current Situation. The Project starts from Xiaoxinganling at Yichun, passes through several mountainous areas, plain and plain transition areas, finally reaches Nenjiang Plain. The weather condition along the alignment of the Project is categorized as an in-land seasonal windy climate. The winter season is relatively long and the average temperature is low. All the rivers in the project area belong to Songhua River drainage area including seven Category I rivers, nineteen Category II rivers and Category III branch rivers.

3. Within the project affected areas, farmland is mainly distributed in Beian, Wuddalianchi and Nenjiang plain areas. Woodland areas are mainly located in Yichun, Suiling and west of Bei′an low mountain hilly areas. Herbal shrub area mainly distributed in valley flood bed areas and other intermediate steep terraces towards hilly areas. For other road sections woodland areas are sporadically distributed. Except some 3 species of class II national protected plants, no old and endangered trees are locate in the project-affected areas.

4. Most of the affected areas of the Project have active human activities. Except some wild animals found in three nature reserves (Numinhe Nature Reserve, Bei'an Nature Reserve, and Wudalianchi National Nature Reserve) that are subjected to the national priority protection, no significant wild animals distribution is found in other sections of the project-affected areas. Due to the realignment of the Project, three nature reserves will be effectively protected.

5. Anticipated Impacts. During the construction period, the activities at the permanent land occupation area will result in damage to vegetation, loss of habitat for individual living being and the change of marsh land. Due to habitat environment disturbance or damage, the number of amphibian, bird and animals will be reduced.

6. Once the construction work is over, except impacts on the forest frogs, the environment for protected bird and amphibian is expected to be back to normal state. However, the impacts on animals caused by partition effect of the road will continuously exist, due to traffic noise, vehicle emissions, vibration, pavement runoff pollutants, etc.

7. Mitigation Measures. During the construction period, existing rural road and right-of-way area should be used to reduce temporary land use. Re-planting or seeding should be adopted to protect trees and recover damaged vegetation. Noise and vibration reduction measures and strict management will also be adopted to protect birds and other vulnerable animals. Exclusive passages will be set for wetland road sections to protect reptile and amphibian during both construction and operation periods.

C. Water Quality 8. Current Situation. For surface water, residential domestic sewage and agricultural waste water are the major water pollution sources. Based on the results of monitoring the App 14 - 2

Heilongjiang Road Development II (TA 7117 – PRC) Final Report surface water quality, the concentration of COD in the water from Nenjiang River exceeded the PRC environmental standards by 13%. The main reason is that the domestic sewage water was discharged into the water bodies by local residents

9. For drinking water sources, there are three water reserve zones that are in the project-affected areas, namely Numin river drinking water source reserve zone, Shuangquan drinking water reserve zone in Suiling County, and Nenjiang water source reserve zone.

10. Anticipated Impacts. During the construction period, the Project’s impact on the surface water is mainly from the construction activates with impact on water body. Since the bridge across the Numin river is 148.1 km away from the water intake of Numin River, no significant impacts are expected. The distance from Nenjiang bridge to the drinking water intake point is 3.5 km. The Shuanquan water intake is close to an existing road, which will be upgraded. Thus appropriate mitigation measures will be necessary to protect the Nenjiang and Shuanquan drinking water sources.

11. During the operation period, pollutants from vehicle emissions and leakage on pavement will impact surface water bodies through rainfall and pavement runoffs. Domestic sewages directly discharged from service areas and the toll station would also have negative impacts on water bodies. Hazardous goods spills due to accidents are also a potential risk for pollution of surface water.

12. Mitigation Measures. During construction period, storage sites should be properly selected, temporary settling pool and designated wastes disposal site will be built for waste water treatment and oil residual deposit. Worksites, storage and camp should be kept far from water intakes. Special foundations and cofferdam technology will be used to control environmental impacts generated by bridge construction activities.

13. During the operation period, Water catchment system should be installed to reduce runoff impacts on Numin River and Nenjiang River. Precaution measures, such as collision prevention system, catchment pool, leakage collection and sodden side ditches will be taken.

D. Air Quality 14. Current Situation. The ambient air quality in eight of the total ten cities covered by the provincial environmental monitoring system are in compliance with the national Class II air quality standards while the other cities are in compliance with the national Class III air quality standards.

15. Anticipated Impacts. During the construction period, there are great amount of earth and stone works, construction materials delivery, concrete mixing, bitumen melting, paving operation, which will produce pollutants mainly including TSP, followed by bitumen smoke, vehicle and the power supply system emissions. Major pollution impact on air quality during the operation period comes from vehicle emissions of the road traffic and emissions from service facilities from coal combustion.

16. Mitigation Measures. During the construction period, sites for lime soil mixing, bulk material storage and bitumen concrete/lime soil mixing plants will be properly selected to keep a certain distance from the sensitive spots. Other measures such as, tight cover, surface hardening or sprinkling water will also be adopted to reduce fugitive dust emissions from the materials delivery and storage.

17. During the operation period, pavement management and vehicle emission standard will be implemented to reduce emissions from road traffic. Coal fired boiler equipped with dust collection system, high quality coal and oil-smoke cleaning system will be used. App 14 - 3

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

E. Noise 18. Current Situation. There are no large-scale industrial factories and mineral enterprises in the project area. The major noise source in the local resident areas is from the existing road traffic, which has negative impact on sensitive spots at nighttime.

19. Anticipated Impacts. The noise source during the construction period mainly comes from the construction machinery vibration and the truck traffic. However, since most villages along the alignment of the Project are more than 100 m away from the construction activities, the noise from construction sites will have no conspicuous impact on the people living in these villages during the daytime, but there will be impacts on certain sensitive spots at night if there are nocturnal construction activities. Noise impacts during operation period mainly come from the traffic noise.

20. Mitigation Measures. The time schedule for construction will be properly arranged. Meanwhile, low noise leveling equipment and mixing plants will be placed to keep appropriate distance from sensitive spots. To protect workers, earplugs or ear muffs will be provided to them and exposure time will be strictly controlled. During operation period, noise forecast, assessment and analysis will be conducted to develop practical noise control measures.

F. Soil and Water Conservation 21. Current Situation. The landforms along the alignment of the Project are dominated by low hilly land from Yichun to Wudalianchi, heavy hilly and light hilly land from Wudalianchi to Nenjiang, plain and light hilly land from Nenjiang to province border sections.

22. Anticipated Impacts. The total forecast soil erosion amount is 419,600 tons, of which 33,500 tons are from the construction preparation period, accounting for 7.98% of the total; 312,200 tons during the construction period, accounting for 74.4% of the total; and 73,700 tons during the spontaneous recovery period, accounting for 17.56% of the total. Thus the soil erosion in the construction period accounts for most of the total soil erosion amount.

23. Mitigation Measures. Systematic soil erosion protection plan has been developed in all aspects of the engineering works, including main part of the projects, such as sub-grade, bridge culvert, interchange area pavement works and auxiliary engineering, such as management of earth borrowing area and wastes disposal area. Effective measures, including cofferdam/straw bale retain, rain cloth cover, reuse of topsoil for farmland rehabilitation re-farm, sand deposit pond/ sediment tank and plantation will be taken to mitigate soil erosions caused by sub-base grading. Supplemental actions, such as land regulation/slope cut, arbor/bush/grass plantation, intercepted ditch and temporary ditch, are proposed for borrow pits; spoil sites and temporary land use are planned. Design maps for borrow site protection and spoil site protection are also provided. For the operation stage, soil erosion will be gradually decreased due to a proper spontaneous recovering progress.

G. Socioeconomic Impacts 24. Anticipated Impacts. The farmland taken by the Project will have certain impacts on the project area’s agricultural productivity. Major products in the project area include soybeans, wheat, corn, rice, and sugar beets. The estimated production output losses for agricultural production for all affected areas of the Project are about 3,900 tons. Basic farmland taken is concentrated in Beian.

25. Mitigation Measures. Cultivated land reclamation will be performed to compensate for the loss of land by the Project. The earthworks outside the right-of-way, such as earthworks for

App 14 - 4

Heilongjiang Road Development II (TA 7117 – PRC) Final Report borrow pits and spoil sites, will help develop new farmland, so the negative impact on the farmland can be minimized.

H. Social Environment 26. The Project is consistent with the overall long term Regional and Municipal Development Program and compatible with the Development Plan of Heilongjiang Trunks Road Network. It will not only contribute greatly to the local economies and enhance social services, but also promote long term sustainable development of the entire provincial areas by restructuring the agricultural production system, improving education and culture development and facilitate the strategy implementation of energy-saving and green house gases emission reduction.

27. All project components are designed to be connected with local townships and the rural areas, so that the local road transport conditions will be significantly improved by road building and existing dead-end road updating. Further connection with the local road network will better meet the travel needs of the local residents. In addition, it will provide the gateways to the Inner Mongolia and to the port cities at the border with Russia. The proposed roads will contribute greatly to the trade industry and tourism industry by facilitating movement of goods and tourists.

28. Due to the fact that the existing living conditions of the local residents in the project affected areas are poor, the resettlement will improve the affected people’s living conditions by providing rational compensations and optimizing industrial structure. Moreover, the Project will increase employment opportunities and simultaneously bring along internal market demand expanding in such areas as building materials, construction machines, transport industry etc. When the Project is fully implemented, a road asset management system and relative capability strengthening will also play an important role in ensuring public safety, improving road management and optimizing the use of maintenance funding.

I. CONCLUSIONS 29. The proposed Project will have both positive and negative environmental impacts. Not only will it be an important highway from the west to the east of Heilongjiang Province and bring opportunities and economic benefits to the affected communities in the alignment of the Project, but also the anticipated adverse environmental impacts of the proposed Project can be minimized and reduced to an acceptable level, provided that the mitigation measures and monitoring actions summarized in the SEIA are implemented effectively. Furthermore, the temporary and localized impacts will be offset by the economic and social benefits this Project will bring. Detailed environmental impact assessments and mitigation measures are presented in SEIA and the environmental management plan.

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Appendix 15 Summary Poverty Reduction and Social Strategy

App 15 - 1 Heilongjiang Road Development II (TA 7117 – PRC) Final Report

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country and Project Title: PRC: Heilongjiang Road Development II Project (Yichun-Nenjiang)

Lending/Financing Department/ East Asia Department/ ADB-funded by a loan Modality: Division: Transport Division

I. POVERTY ANALYSIS AND STRATEGY A. Link to the National Poverty Reduction Strategy and Country Partnership Strategy

China’s progress in poverty reduction over the last 25 years is enviable. By China’s official poverty standard, the poverty rate (headcount ratio) in rural China fell from 18.5% in 1981 to 2.8% in 2004 and the number of rural poor declined from 152 million to 26 million. The most recent official estimate of rural poverty in China for 2007 puts the number of poor at 14.79 million, or less than 2% of the rural population. However, in terms of absolute number of poor people, China is still facing a big challenge in fighting poverty. Poor accessibility or isolation can inhibit economic and social development. The road subsector, liking these areas, is one of the most important sectors for poverty reduction. Road provide improved access for the poor to external market; employment opportunities and social services; lower transport costs of agricultural inputs and produce; improve access to, and interaction with, other regions thus providing opportunities to develop and exploit comparative and competitive advantages. Increased economic activities and urbanization of the project area can lead to increasing local employment opportunities (e.g. commercial agriculture, eco-forestry vacation bases and other special topic tourism). The proposed road will establish a direct connection between Yichun and Bei’an, and further extend to Wudalianchi and Nenjiang. Integrated with improving local road network, the road will improve largely transport between forestry area in east and agricultural area in west, promote trade of the two areas, and add economic value to their production of grains, fruits, fish, NTFP and livestock, as well as facilitate the provision of social and physical infrastructure services (e.g. health, education, water, and telecommunications), which are introduced by various poverty reduction programs. During the project construction and operation local employment opportunities, especially for the poor and women, will be available. The increased revenue from economic activities promoted by the project will enable the government to spend more on social services. B. Poverty Analysis Targeting Classification: General Intervention

1. Key Issues

The poverty analysis is based on published statistical data, socio-economic questionnaire survey of 513 households, focus group discussion and key informants interview in the Project areas. Heilongjiang is an agricultural and forestry province, and also a relevantly undeveloped province in China. There are 14 national level poverty counties (CNY1, 000 as a poverty line) and 7 provincial level poverty counties (CNY1, 300 as a poverty line) in the province. Until the end 2008 total 2,382 poverty villages among 3,112 in Heilongjiang Province have received fund supports to implement poverty alleviation of concentrated villages according to the provincial Ten-Year Rural Poverty Alleviation Development Outline since 2001. A total of 44,531 people or 8.7% of the total population in 48 townships/towns of the DPA along the proposed highway corridor are categorized as poverty population under MLSS. Among them the rural poor accounts for about 34,900. Most of the rural poor, 24,566 people, are living in 50 poverty villages, while the rest scatter in other non-poverty villages. The rural poor of the DPA are mainly concentrated in Bei’an and Wudalianchi cities, and Nenjiang County. Among 50 poverty villages, 25 villages have been received the financial support from central and provincial governments according to the Outline so far, and their poverty situations are improved. In addition, 23,946 people (or 5.5% of total population), including 10,280 urban and 13,666 rural, in 12 townships/town where the proposed bus stations to be constructed, are living under MLSS. Causes of poverty in the project area include mountainous area where rice, soybean and other profitable cash crops can not plant due to cold weather; limit of farmland; poor irrigation conditions; poor transportation conditions; and natural disasters. In state forestry farms, the main causes of poverty are laid-off increase with timber production shrink due to “natural forest logging ban” program; less farmland or non-farmland; and risks of transforming from timber production to NTFP. The improved access afforded by the proposed road and bus services will contribute to removing these constraints and promote social and economic development, together with complementary poverty reduction activities mainly carried out by the PADO, such as village road and bridge construction, wells digging, livestock technical services, cable TV, employment trainings. During construction of the proposed road and bus stations, total CNY6.767 billion will be invested and its main investment will flow into the rural townships/towns of the project area to exploit economic and social development potential. About 19,000 unskilled and skilled labors will be required during the project implementation and about 790 will be required during its operation and maintenance. The potential benefits resulted from the project will impact to about 512,196 people in 48 townships/towns/ state farms/state forestry farms in the DPA along the proposed highway corridor and to about 431,550 people in 12 townships/towns/state farms/state forestry farms where 12 bus station to be constructed. 2. Design Features.

App 15 - 2 Heilongjiang Road Development II (TA 7117 – PRC) Final Report

C. Poverty Impact Analysis for Policy-Based Lending N/A

II. SOCIAL ANALYSIS AND STRATEGY

A. Findings of Social Analysis

Stakeholder analysis has been conducted during the poverty and social assessment. The primary stakeholders of the Project area include town/township residents, state farm workers, state forestry farm workers, APs, small businesses, the executing agency (EA) and implementing agencies (IAs); and the secondary stakeholders of the Project include relevant government agencies, such as Civil Affairs Bureau, Poverty Reduction Office, Health Bureau, Women’s Federation, Religion and Minority Bureau, etc. During the project preparation, socio-economic survey of 513 households, stakeholder consultation workshops, focus group discussion, and key informant interviews were conducted to gain a better understanding of the demand, needs, and interests of the stakeholders. Several rounds of public consultations in the Project areas were carried out to prepare the environmental impact assessment (EIA) and the resettlement plans (RPs). The public consultations and information disclosure included: (i) introducing the Project components to the stakeholders; (ii) soliciting ideas, suggestions, comments on the potential social and environmental impacts of the Project; and (iii) presenting the findings of the EIA and RPs, summarizing potential social and environmental impacts and mitigation measure, and providing answers raised by workshop participants. Public consultations and information disclosure of resettlement plans were conducted during surveys, community meetings, interviews, and workshops. The results of these meetings and concerns of the affected persons, particularly the poor and women were integrated into the resettlement plans. B. Consultation and Participation 1. Provide a summary of the consultation and participation process during the project preparation.

Public consultation and participation have been the core element of the project design and will continue during project implementation, monitoring and evaluation. Ongoing consultations will also be carried out by the implementing agencies to understand and meet the evolving needs and expectations of the users as well as increase the awareness of the public, especially the beneficiaries, about the benefits of the Project, and encourage the active involvement of local communities to maximize their support to the Project.

2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowermenti

3. Was a C&P plan prepared? Yes No

The public consultation and participation will be carried out throughout the whole process of RP and EMP implementation. The consultations, including a grievance mechanism, will continue during land acquisition and resettlement so that the problems and needs of affected persons are properly addressed in a timely manner. C. Gender and Development 1. Key Issues. In the project affected area, females account for almost 50% of the total population and labor force. As indicated in the beneficiary table, the major benefits of the project include (i) general benefits from economic development, (ii) improved west-east road direct connection among the project counties/cities, and (iii) job creation. There are no adverse impacts on women, as opposed to impacts common to both men and women, were identified.

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 planii Other actions/measures No action/measure

The ADB policy on Gender and Development will be followed during construction and operation, The SDAP incorporates measures to assist in providing benefits to women. To maximize the project benefits, women will be given priority in the employment and training opportunities generated from the Project construction and operation phases. A proactive employment programs for the women will be adopted by the Implementing Agencies. Over 20 % of the employment opportunities will be filled by women during the project construction phase and 20% during the operation phase.

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS

Issue Significant/Limited/ Strategy to Address Issue Plan or Other Measures No Impact Included in Design Significant A full RP for the proposed road and a short Involuntary RP for the bus stations have been Full Plan

App 15 - 3 Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Resettlementiii prepared in accordance with the PRC Short Plan Land Administration Law (1998), the State Resettlement Council Decision to Deepen Reform and Framework Strictly Enforce Land Administration No Action (2004) and Asian Development Bank’s Policy on Involuntary Resettlement (1995) to ensure the affected people will be made better off, or at least not worse off, as a result of the Project. Limited There are 9,090 ethnic minorities (account Indigenous Peoplesiv for 1.7% of total population) living in the Plan DPA the highway corridor and 3,294 (0.8%) Other Action living in 12 townships/towns/state Indigenous Peoples farms/state forestry farms where 12 bus Framework station to be constructed, mainly including No Action Hui, Mongolia and Korea. The socio-cultural life of the minorities has been integrated into that of the Han Majority in terms of socioeconomic characteristic, religion, social status, education, employment, and other service opportunities. The minority people will benefit from the increased and improved road and transport facilities and services equally compared to the general population.

Limited The Project will create about 6,335 job Labor opportunities per year during 3-year Employment construction and about 790 during Plan opportunities operation and maintenance. Other Actionvi Labor retrenchment No Action Core labor standardsv Limited Affordability Action No Action Other Risks and/or Limited Health and safety training will be provided Vulnerabilities to the construction workers. The project Plan HIV/AIDS management office will ensure that Other Action Human trafficking contractors involved in the project No Action Others(conflict, political implementation will receive and instability, etc), please disseminate information on the health and specify safety issues. Employees involved in the Project will be protected in accordance with PRC labor laws and other regulations and guidelines issued by the EA. The SDAP contains measures to address HIV/AIDS as well as 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

App 15 - 4 Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Appendix 16 Traffic Forecast & Economic Evaluation

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

A. TRAFFIC FORECAST

1. The traffic forecast was carried out by Heilongjiang Provincial Highway Survey and Design Institute (DI). A typical traffic forecast methodology (“four steps”) was used, including the traffic demand forecast, trip distribution, mode split, and traffic assignment. A commercial computer software package, namely TransCAD 4.7, was used to facilitate the traffic analysis and forecast. The comprehensive OD zones related to the Project were designed and used. Relevant OD survey data were applied. It was designed and agreed that 2008 would be the base-year for the traffic analysis and forecast.

2. According to the latest project schedule, the project will start the construction in late 2009 and complete in late 2013. It was designed that 2014 would be the first year of fully opening to traffic. The future key years for analysis include 2014, 2015, 2020, 2025, 2030 and 2033, which is consistent with the time frame of general China’s five-year socioeconomic development plans. Future road network for each key year were designed for “with” and “without” project cases. For all cases, committal and outstanding road projects had been considered and incorporated in corresponding future road networks.

3. Passenger Car Unit (PCU) was used in the forecast procession according the general practice of traffic forecast in China. The forecast result in PCU was converted into number vehicles according to Ministry of Transport’s standard conversion factor. Future vehicle type distribution was derived from historical traffic pattern and with adjustment according to traffic development trend in Heilongjiang Province. A map of the Project and relevant roads is shown in Figure A1.

1. Traffic Zones and OD 4. Based on the regional socioeconomic development and transport network development in the Project area, traffic zones for analyzing future traffic flows in the Project area were identified and designed (see Table A1 and Figure A2). In 2008, Heilongjiang Province conducted a province-wide OD survey at 356 locations. This 2008 OD data (about 300 traffic zones) are currently well used in Heilongjiang Province for development planning and project preparation. The traffic OD survey data, especially the 2008 OD survey data, were processed and aggregated into the 18 traffic zones of the analysis.

2. Traffic Demand Forecast by OD Zones 5. As a general practice, the methodology of elasticity between socioeconomic development and traffic development was used to analyze the past traffic development and estimate future traffic demand. The GDP growth rates and traffic development rates in the period of 1991-2006 were analyzed. The elasticity of passenger traffic volume and freight traffic volume were 1.03 and 1.23 respectively. In recent years, the traffic elasticity for passenger traffic volume has kept a steady level, around 1.00 in 2004-2007. However, the elasticity for freight traffic volume (in ton-km) presented a higher level, about an average of 1.32 in the same period. It was mainly caused by implementing the Grand Plan for Revitalizing the Northeast Region, which has significantly stimulated the industrial development.

6. It was perceived that the industries, especially heavy industries in the Province would keep in a re-booming status in the next few years. This would likely generate large demand for transportation. In the Heilongjiang Province’s 11th Five-Year and Long Term Socioeconomic Development Plan1, it was planned that the gross regional product (GRP) growth rate would keep at least 10% per annum in 2006-2010. According to the statistics, the actual GRP growth

1 “Outline of 11th Five-Year and Long Term (2020) Socioeconomic Development Plan of Heilongjiang Province”, Heilongjiang Provincial Government, 2000

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report rate in 2006 and 2007 were 12.1% and 12.0% respectively, which were higher than what planned. Currently, the government is making the outline for 12th Five-Year Socioeconomic Development Plan. The primary economic development target might be slightly lower in considering the impact of global financial crisis. However, the GRP growth rate would be likely still keeping an average annual rate of 8-10% in the period of 2011-2015. In any case, the socioeconomic development would keep robust. Table A2 is the estimated annual increase rates of GRP and traffic demand.

Table A1. Traffic Zones for Analyzing the Project Traffic

No. Zone Coverage 1 Harbin Harbin and all south of Harbin 2 Daqing Daqing Municpality, Anda Municipality and Zhaozhou 3 Qiqihar Qiqihar Municipality, Fuyu, Longjiang and Nianzishan 4 Yichun Yichun Municipality, Hegang, Jiamusi, Mudanjiang, Qitaihe and Jixi 5 Tieli Tieli Municipality 6 Shuihua Shuihua, Lanxi, Wangkui, Qinggang 7 Anqing Anqing Municipality 8 Shuiling Shuiling Municipality 9 Hailun Hailun Municipality 10 Bei'an Be'an Municipality 11 Wudalianchi Wudalianchi Municipality 12 Geqiushan Farm Geqiushan Farm, Qixingba Farm, Weishan Farm, etc. 13 Nenjiang Nenjiang County 14 Heihe Heihe Municipality 15 Jagedaqi Jiagedaqi Municipality 16 Baiquan Baiquan County 17 Yi'an Yi'an County, Keshan, Kedong 18 Nahe Nahe County Source: Heilongjiang Province Highway Survey and Design Institute Table A2. Future GRP Growth Rates and Traffic Demand Rates Future GDP Increase Rates Traffic Demand Increase Rate No. Traffic Zone 2008-13 2013-15 2015-20 2020-25 2025-30 2008-13 2013-15 2015-20 2020-25 2025-30 1 Harbin 11.7 9.8 8.8 7.8 6.8 13.3 10.8 9.3 7.8 6.4 2 Daqing 11.7 9.8 8.8 7.8 6.8 13.3 10.8 9.3 7.8 6.4 3 Qiqihar 10.8 8.5 7.7 6.5 5.6 12.1 9.4 7.9 6.4 5.2 4 Yichun 12.6 10.2 9.0 7.8 6.8 14.4 11.2 9.5 7.8 6.4 5 Tieli 9.9 8.2 7.7 6.8 5.9 11.0 8.8 7.9 6.6 5.5 6 Shuihua 10.0 8.2 7.7 6.8 5.9 11.1 8.9 8.0 6.7 5.6 7 Anqing 9.9 8.1 7.7 6.8 5.6 10.8 8.7 7.8 6.5 5.1 8 Shuiling 9.9 8.1 7.7 6.8 5.6 10.8 8.7 7.8 6.5 5.1 9 Hailun 9.9 8.1 7.7 6.8 5.6 10.8 8.7 7.8 6.5 5.1 10 Bei'an 9.9 8.3 7.7 6.8 5.9 11.0 9.1 8.0 6.7 5.5 11 Wudalianchi 9.9 8.3 7.7 6.8 5.9 11.1 9.1 7.9 6.6 5.5 12 Geqiushan Farm 9.9 8.1 7.7 6.8 5.9 10.7 8.7 7.8 6.5 5.3 13 Nenjiang 9.9 8.1 7.7 6.8 5.9 11.1 8.8 7.9 6.6 5.5 14 Heihe 9.9 8.3 7.7 6.8 5.9 11.1 9.2 8.0 6.7 5.6 15 Jagedaqi 8.1 7.4 6.8 5.9 5.0 8.7 8.1 7.0 5.7 4.7 16 Baiquan 9.0 7.3 6.8 5.9 4.5 9.7 7.9 6.9 5.7 4.1 17 Yi'an 9.0 7.3 6.8 5.9 4.5 9.7 7.9 6.9 5.7 4.1 18 Nahe 9.0 7.3 6.8 5.9 4.5 9.7 7.9 6.9 5.7 4.1

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Figure A1. The Project and Relevant Roads

Source: Heilongjiang Province Highway Survey and Design Institute and Consultant

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Figure A2. Traffic Zones for Analyzing the Project Traffic

Source: Heilongjiang Province Highway Survey and Design Institute

3. Traffic Forecast 7. The traffic assignment was conducted using a commercial software package - TransCAD, and traffic assignments for each key year were calculated using incremental multi-path assignment method. Table A3 shows the traffic assignment results, including diverted from relevant roads, railway and industrial induced traffic.

Table A3. Traffic Forecast Result by Key Years (PCU, for normal, road diverted and industrial induced traffic only) Section 2014 2015 2020 2025 2030 2033 Yinchun-Bei'an 5,520 6,950 11,711 17,392 23,023 26,916 Bei'an-Wudalianchi 6,928 8,013 11,966 16,669 21,572 24,992 Longzhen-Nenjiang 3,924 4,517 6,620 9,186 11,392 12,913 Nenjiang-Border 4,310 5,087 8,198 11,924 16,664 20,004 Source: The Design Institute with adjustment by the PPTA Consultant

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

8. Induced Traffic by Tourism. Yichun and Wudalianchi are two major tourism destinations in Heilongjiang Province and also in China. Yichun’s tourism development concentrates on forest tourism. The target tourists is about 3 million person-times in 2010 and 4 million person-times in 2020. Wudalianchi is called as “natural volcano museum”. It is predicted that the total tourists will exceed 1 million in 2010. In Heilongjiang Province, Yichun, Wudalianchi and Harbin form a golden triangle for tourism development. However, it is very inconvenient currently for tourists to travel among these three places, due to that there is no road connection between Yichun and Wudalianchi. At the present, tourists from Harbin to Yinchun have to come back to Harbin and then go to Wudalianchi. Upon the completion of the Project, tourists will be able to travel among these three places much more efficient. It is estimated that tourists will save at least half of the time than now, about 3 days, for traveling between these three tourism destinations. Table A4 shows Induced Traffic by Tourism.

Table A4. Induced Traffic by Tourism (PCU-AADT, tourism induced traffic only) Section 2014 2015 2020 2025 2030 2033 Yinchun-Bei'an 2,612 2,653 2,653 2,653 2,653 2,653 Bei'an-Wudalianchi 2,589 2,653 2,653 2,653 2,653 2,653 Longzhen-Nenjiang 3 7 10 14 17 20 Nenjiang-Border 7 17 28 41 57 69 Source: The Design Institute with adjustment by the PPTA Consultant

9. Aggregated Traffic Forecast. Table A5 shows the aggregated traffic forecast for each section of the Project roads in future key years. The traffic forecast result shows that the future traffic on the Project roads would have a sharp increasing in early years of project opening. In the period of 2014-2015, the traffic annual increase rates would be about 18.08%, 12.06%, 15.18% and 18.25% per annum respectively for the sections of Yichun-Bei’an (expressway), Bei’an-Wudalianchi (expressway), Longzhen-Nenjiang (Class II highway), and Nenjiang-border (Class I road). After that, the increase rates would be slowing down. The sharp increasing in traffic was mainly caused by that the Project would substantially improve the transport infrastructure condition in the Project area, especially the sections of Yichun-Bei’an and Nenjiang-border (there are currently almost no road connection), which would significantly facilitate and stimulate the industrial and tourism as well as socioeconomic development in the Project area.

Table A5. Full Traffic Forecast Result by Sections (PCU-AADT) Section 2014 2015 2020 2025 2030 2033 Yinchun-Bei'an 8,132 9,603 14,364 20,045 25,676 29,569 Bei'an-Wudalianchi 9,517 10,665 14,619 19,322 24,225 27,645 Longzhen-Nenjiang 3,927 4,523 6,631 9,200 11,410 12,933 Nenjiang-Border 4,317 5,105 8,226 11,965 16,722 20,073 Source: The Design Institute and PPTA Consultant estimation

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

B. ECONOMIC EVALUATION

1. General

10. The economic analyses of road projects involve the comparison of costs and benefits related to the project. These costs and benefits can be quantifiable or non-quantifiable. In the case of costs, capital and maintenance costs are tangible since they can be expressed in monetary terms while social costs such as health and education benefits are difficult to quantify. The benefit side is even more difficult since there are more sources involved with non-quantifiable characteristics such as benefits to gender, children, education, health, etc.

2. Project Roads

11. There are four sections of roadways considered in the economic analysis of the study: Expressway 1 (Yichun – Bei’an), Expressway 2 (Bei’an – Wudalianchi), Class II Road (Bei’an north/Longzhen – Nenjiang), and Class I Road (Nenjiang – Border). The roads are depicted in Table B1.

Table B1: Project Roads by Section Length No Segment Description Classification Connecting Point Remark (km) 1Yichun ‐ Bei'an Yichun ‐ Bei'an East Expressway 163.62 Zhaoguang Interchange ‐ Wudalianchi Bei'an East ‐ Bei'an Expressway 34.55 Jianhua Interchange Note 1 2Bei'an ‐ Wudalianchi Expressway 43.12 Huanxinling Toll Plaza Note 2 3Bei'an ‐ Nenjiang Bei'an ‐ Zhanhe Expressway 35.60 Jianhua Interchange Note 3 Zhanhe ‐ Longzhen Class II 10.30 Zhanhe Interchange Note 4 Longzhen ‐ Nenjiang Class II 134.10 Nenjiang to Province 4Nenjiang ‐ Border Border Class I 12.96 G111 Intersection Note 5 5Branch Road Nenjiang Branch Class I3.31G111 Intersection Geqiushan Branch Class III 1.06 Intersection @ K40+60 Qixingpao Branch Class III 0.73 Intersection @ K51+600 Total Expressway Length = 276.89 (km) Total Construction Expwy Length = 206.74 (km) Total Project Length = 434.25 (km) Total Project Construction Length = 353.80 (km) Total Branch Road Length = 5.10 (km) Notes: 1 The proposed roadway shares with Ji‐Hei Expressway from Zhaoguang Interchange to Jianhua Interchange. 2The expressway connects to Huanxingling Toll Plaza at Wudalianchi GeoPark, which includes 11.93 km Class I road as a transition to the existing Class II road at the Wudalianchi GeoPark. 3The expressway shares with Ji‐Hei Expressway from Jianhua Interchange to Zhanhe Interchange. 4 The proposed roadway will use the existing Class II road from Zhanhe Interchange to Longzhen where the new Class II road to Nenjiang starts. 5 The segment ends at the end of Nenjiang Bridge in Inner Mongolia. The segment is built as Class I road with intention to upgrade to expressway in future.

3. Project Costs

12. The project costs are divided into capital and maintenance costs. Capital costs have been estimated in respect of the roads with the consideration of civil works, equipment purchasing and other associated costs. The detail is explicitly described in the engineering part.

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3.1 Shadow Pricing

13. The financial and economic analyses help to determine the viability of the project and the contribution to project developments. The costs are normally expressed in financial terms that are market prices. However, the financial prices fail to give the true picture of the economic impact of a project due to the market imperfections, the external effects and government controls. Thus, the costs in the case of public projects are expressed in economic terms. The economic term analysis means that the project is evaluated at the prices that reflect the relative scarcity of inputs and outputs. In the economic analysis, the prices actually represent the opportunity costs and reflect the actual economic value of the inputs and outputs. Both financial and economic analyses match incremental costs (capital and operating) against incremental benefits, but their approaches differ. This is because financial analysis focuses on the enterprise’s financial viability while economic analysis looks at the project’s effects on the national income.

14. Both financial and economic analyses relate to the treatment of mainly transferring payments taxes and subsidies and the valuation of input and output prices. Inputs and outputs are valued at market prices in financial analysis, but for the economic analysis, it adjusts these prices to reflect actual border prices (shadow prices). In conducting financial and economic analysis, it should be insured that operating costs and capital investment costs are fully accounted for.

15. In the project case, construction costs are the aggregates of labor and material costs. In estimating costs of labor, both skilled and unskilled labors were taken into considerations. Similarly in the case of construction materials, costs of log, lumber, steel, cement and asphalt were taken into consideration. These materials are presumed to be imported. Costs have been shadow priced. In shadow pricing, the market prices of the items were compared with CIF (cost, insurance and freight) values, including transport costs to the project site. It has been assumed that the materials will be transported on road. The following formula has been used in developing shadow prices:

SP = CIFx1.06 + Lx0.45x1.26

Where

SP = Shadow price CIF = Cost, insurance, freight L = Road length 1.06 = A factor of trade expense rate which is 6% 0.45 = Road transport cost (CNY/ton/km) 1.26 = Conversion factor coefficient for highway goods transport

16. Based on the above formula, the shadow prices were developed for comparison with market prices and for establishment of conversion factors. The land has been shadow-priced as well. It has been recognized that the price of the land should reflect the real benefits when the land is not used for the project road but for farming purposes. A wasteland and woodland is not adjusted. The land occupied by the highway is mostly dry land with major crops of corns and soybeans. Some sections occupy paddy land with major crop of rice. Corns and soybeans are considered traded goods for export and they have been calculated using the Methods and Parameters established by the Government. Table B2 shows the details in estimating shadow conversion factors and estimated construction costs, and Table B3 depicts established factors to convert financial costs into economic costs.

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Table B2-1 Shadow Pricing Factor Establishment (expressway section)

Yicun-Bei’an Section 10000 CNY

Cost Economic Financial

Estimates Cost Cost 1 Part 1. Civil Works Cost 292,857.00 277,892.58 292,857.00 2 Material Cost 64,837.74 59,294.32 64,837.74 3 Tax 9,421.00 - 9,421.00 4 Part 2. Purchasing of Equipments 8,561.00 8,561.00 8,561.00 5 Part 3. Other Constructions Cost 63,767.00 53,959.62 63,767.00 6 Land Acquisition & Resettlement 14,899.15 29,431.76 14,899.15 7 Power Supply Subsidy - - - 8 Loan interests in construction period 24,340.00 - 24,340.00 9 Part 4. Contingencies 31,565.00 31,565.00 31,565.00 10 Inflationary cost - - - 11 Total 396,750.00 371,978.19 396,750.00 12 Shadow Price Factor 0.938 Bei’an-Wudalianchi Section 10000 CNY Cost Economic Financial

Estimates Cost Cost 1 Part 1. Civil Works Cost 71,207.00 67,904.20 71,207.00 2 Material Cost 16,651.26 15,649.46 16,651.26 3 Tax 2,301.00 - 2,301.00 4 Part 2. Purchasing of Equipments 2,227.00 2,227.00 2,227.00 5 Part 3. Other Constructions Cost 15,289.00 10,837.08 15,289.00 6 Land Acquisition & Resettlement 3,260.25 4,817.33 3,260.25 7 Power Supply Subsidy - - - 8 Loan interests in construction period 6,009.00 - 6,009.00 9 Part 4. Contingencies 7,845.00 7,845.00 7,845.00 10 Inflationary cost - - - 11 Total 96,568.00 88,813.27 96,568.00 12 Shadow Price Factor 0.92

Table B2-2 Shadow Pricing Factor Establishment (Class I and II section)

Longzhen-Nenjiang Section (class II) 10000 CNY Cost Economic Financial

Estimates Cost Cost 1 Part 1. Civil Works Cost 61,452.00 57,977.52 61,452.00 2 Material Cost 7,729.14 6,237.66 7,729.14 3 Tax 1,983.00 - 1,983.00 4 Part 2. Purchasing of Equipments 1,684.00 1,684.00 1,684.00 5 Part 3. Other Constructions Cost 13,360.00 10,263.72 13,360.00 6 Land Acquisition & Resettlement 3,575.49 4,915.20 3,575.49 7 Power Supply Subsidy - - - 8 Loan interests in construction period 4,436.00 - 4,436.00 9 Part 4. Contingencies 6,079.00 6,079.00 6,079.00 10 Inflationary cost - - - 11 Total 82,575.00 76,004.24 82,575.00 12 Shadow Price Factor 0.92

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Nenjiang-Border Section (class I) 10000 CNY Cost Economic Financial

Estimates Cost Cost 1 Part 1. Civil Works Cost 27,979.00 27,022.86 27,979.00 2 Material Cost 6,780.50 6,727.36 6,780.50 3 Tax 903.00 - 903.00 4 Part 2. Purchasing of Equipments 275.00 275.00 275.00 5 Part 3. Other Constructions Cost 6,092.00 4,656.79 6,092.00 6 Land Acquisition & Resettlement 1,138.34 2,008.13 1,138.34 7 Power Supply Subsidy - - - 8 Loan interests in construction period 2,305.00 - 2,305.00 9 Part 4. Contingencies 3,031.00 3,031.00 3,031.00 10 Inflationary cost - - - 11 Total 37,377.00 34,985.65 37,377.00 12 Shadow Price Factor 0.94

Table B3 Conversion Factors

No. Road Section Conversion Factor 1 E1 Yinchun-Bei’an Expressway 0.94 2 E2 Bei’an-Wudalianchi Expressway 0.92 3 E3 Longzhen-Nenjiang Class II Road 0.92 4 E4 Nenjiang-Province Border Class I Road 0.94 Average 0.93

17. The construction period was presumed to be four years and annual construction expenditures were also presumed to be 10, 40, 30 and 20 percents during the first, second, third and fourth year respectively. Table B4 shows the project costs by section.

Table B4 Project Costs (CNY)

Length Financial Conversion Economic Costs Section (km) Costs Per Km Factor Total Per Km 1 163.62 396,750 2,425 0.94 371,978 2,273 2 43.12 96,568 2,240 0.92 88,813 2,060 3 134.10 82,575 616 0.92 76,004 567 4 12.96 37,377 2,884 0.94 34,986 2,700

18. Maintenance costs were also estimated. The costs are estimated by roads separately. There are three types of roads in consideration and they are Expressway, Class I, and Class 2 roads. Maintenance costs are estimated in respect of routine and periodic maintenance. The periodic maintenance is done every nine years in the case of roads. The maintenance costs are presumed to grow by three percent every year. Table B5 depicts the estimated financial and economic maintenance costs.

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Table B5 Maintenance Costs

Road Class Road Maintenance Costs (CNY/km) Routine Maintenance Major Maintenance Expressway 80,000 1,040,000 Class 1 65,000 845,000 Class 2 31,000 403,000

4. Project Benefits

4.1 Vehicle Operating Cost Savings

19. Different kinds of benefits have been considered in the study, including vehicle operating cost savings, time savings, accident savings. The vehicle operating cost savings are the differences in vehicle operating costs between with and without project cases. PPK2 model was utilized to estimate vehicle operating costs in both cases. Data for PPK model were collected from pertinent sources in the Province. In this respect, the following data were acquired: prices of vehicles, type of fuel and lubricants, maintenance labor cost, crew wages and annual overhead cost, annual interest rate and time value of passengers and freights. In estimating time value of passengers, GDP per-capita was used for bus passengers time value estimation; the GDP per capita is 21,727 CNY in 2008. It has been assumed that the total working hours for passengers is 2,0003 and the hourly rates have been estimated at CNY 10.86.

20. Similarly, the following data were acquired from pertinent offices regarding operating characteristics of vehicles: equivalent standard axle load factor (ESALF), passenger car equivalents (PCE), annual vehicle utilization, annual working hours of vehicles, vehicle operating tons and lives of vehicles. Tables B6 and B7 depict the details. After feeding HDM-4 with these data, vehicle operating costs were extracted for use in EXCEL in order to integrate with benefits from other sources and subsequently develop cash flows.

Table B6 Average Vehicle Operating Costs per km without Project

Small Large Small Medium Heavy Tractor Section Car Bus Bus Truck Truck Truck Trailer Yichun-Bei’an (class IV) 0.756 0.995 2.429 1.321 1.845 2.644 3.246 Bei’an-Wudalianchi 0.756 0.995 2.429 1.321 1.845 2.644 3.246 (class IV) Longzhen-Nenjiang 0.718 0.948 2.315 1.241 1.725 2.484 3.064 (Class III) Nenjiang-Border (Class 0.679 0.901 2.198 1.159 1.601 2.320 2.877 II)

2 China Study of Prioritisation of Highway Investments and Improving Feasibility Study Methodologies, World Bank, Rust PPK， 1996 3 One year, 265 days-52*2-11 holiday days=250 working days, assume 8 hours for each working day.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table B7 Average Vehicle Operating Costs per km with Project

Small Large Small Medium Heavy Tractor Section Car Bus Bus Truck Truck Truck Trailer Yichun-Bei’an (Exp) 0.659 0.876 2.137 1.116 1.536 2.234 2.778 Bei’an-Wudalianchi 0.659 0.877 2.088 1.111 1.510 2.196 2.724 (Exp) Longzhen-Nenjiang 0.679 0.901 2.198 1.159 1.601 2.320 2.877 (Class II) Nenjiang-Border (Class 0.660 0.877 2.138 1.117 1.538 2.235 2.780 I)

4.2 Accident Savings

21. Accidents were accounted for in the study. Thus, pertinent costs were acquired from insurance companies in Harbin. Accordingly, fatality, injury and property damage costs were found to be CNY100,000, CNY7,500 and CNY7,000 respectively. In 2008, the total number of accidents in Heilongjiang Province was 4,528 with 1,703 fatalities and 4,905 injuries. The property damages were estimated at CNY20.1 million. Between 2000 and 2008, there was a 31.5 percent decrease in the total number of accidents with 39.5 percent decrease in fatalities and 30.7 percent decrease in injuries.

22. In estimating benefits to accident reduction, cost per km was estimated at CNY0.0063 per vehicle-km. In the case of normal and generated traffic, 5 percent of the estimated accident cost was attributed which was then multiplied by AADT and road length in order to estimate the total accident benefits. In the case of diverted traffic, the full accident cost per vehicle-km was considered and then multiplied by AADT and reduced road length.

4.3 Passenger Travel Time Savings Benefits

23. Using the vehicle operating speeds of the traffic assignment model, the total passenger-hours have been estimated for “with” and “without” Project assumptions. The difference between the two sets of estimated hours is the passenger hours saved by the Project. In estimating time value of passengers, GDP per-capita was used for bus passengers time value estimation, the GDP per capita is 21,727 CNY in 2008. It has been assumed that the total working hours for passengers is 2,0084 and the hourly rates have been estimated at CNY 10.86.

4.4 Generated Traffic Benefits

24. The new roads will generate new traffic. The benefits of generated traffic were estimated on the basis of cost savings to generated traffic. The generated traffic benefits are estimated at one-half the VOC savings used for normal and diverted traffic. Generated traffic benefits are assumed to calculate since it is opened to traffic.

5. Results of the Analysis

4.1 Results of the Economic Analysis

25. The final analysis of the project was carried out using EXCEL Spreadsheet. All inputs were accounted and subsequently benefits and costs were calculated for the main roads. Finally,

4 One year, 265 days-52*2-11 holiday days=250 working days, assume 8 hours for each working day.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report the economic parameters i.e. net present values (NPVs), economic internal rate of returns (EIRRs), benefit-cost ratios (B-CRs). Similarly, first year rate of returns (FYRRs) were calculated.

26. As shown in Table B8, the NPV for section 1 is CNY 3,596 million which is well above zero; the EIRR is 18.97 percent which is higher than the opportunity cost of capital (12 percent) and the BCR is 2.28 which is again well above the required value of 1.0. Therefore, the results of the analysis show that the project section 1 is economically viable. The vehicle operating cost savings contributed 73.84 percent of the total discounted benefits at the opportunity cost of capital, time savings contributed 11.14 percent, accident contributed 0.34 percent, and generated benefits contributed 14.68 percent. More details are shown in Table B8.

27. The economic analysis results for other sections are shown in Table B9, B10 and B11. The NPV for sections 2 to 4 is CNY214 million, CNY107 million and CNY809 million, respectively, which are well above zero; the EIRR is 14.06%, 13.94% and 14.29%, which are higher than the opportunity cost of capital (12 percent), and the BCR is 1.34, 1.28 and 1.37, which are again well above the required value of 1.0. Table B9, Table B10 and Table B11 show the details of the analysis, and the results indicate that all sections are economically viable.

28. The economic analysis results for entire project (four sections) are shown in Table B12. The NPV for the entire project is CNY4,051 million, which are well above zero; the EIRR is 17.46%, which are higher than the opportunity cost of capital (12 percent), and the BCR is 1.94, which is well above the required value of 1.0. The analysis results reveal that the entire project is economically viable.

Table B8 Summary of Economic Analysis for Section 1: Yichun-Bei'an (CNY million)

Costs Benefits Net Year Time Accident Gen- Capital O&M Routine Major Total VOC Total Benefit Saving Saving erated 2009 372 372 ------372 2010 1116 1116 ------1116 2011 1116 1116 ------1116 2012 744 744 ------744 2013 372 372 ------372 2014 31 14 45 59 6 1 43 110 64 2015 32 15 47 108 11 2 59 180 134 2016 33 15 48 179 18 2 80 279 231 2017 34 15 49 286 27 3 108 424 375 2018 35 16 51 458 43 3 152 657 606 2019 36 16 52 730 68 4 218 1020 968 2020 37 17 54 939 89 5 257 1291 1237 2021 38 17 56 1222 122 6 309 1659 1604 2022 39 0 232 272 1438 152 7 340 1937 1665 2023 41 18 59 1679 189 8 375 2252 2193 2024 42 19 61 1998 243 9 425 2675 2614 2025 43 20 63 2329 305 10 476 3119 3057 2026 44 20 64 2622 364 11 515 3512 3448

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2027 46 21 66 2838 416 12 540 3806 3740 2028 47 21 68 3084 477 13 569 4143 4074 2029 48 22 70 3262 524 14 586 4386 4315 2030 50 23 72 3446 582 15 605 4648 4575 2031 51 0 303 355 3636 644 16 625 4921 4566 2032 53 24 77 3934 720 17 663 5334 5257 2033 -1860 53 25 -1782 4139 791 18 686 5634 7416

Economic Internal Rate of Return(EIRR): 18.97% Discount Rate: 12% Net Present Value (2009) 3,596

Table B9 Summary of Economic Analysis for Section 2: Bei'an-Wudalianchi (CNY million)

Costs Benefits Net Year Time Accident Gen- Capital O&M Routine Major Total VOC Total Benefit Saving Saving erated 2009 89 - - - 89 ------89 2010 266 - - - 266 ------266 2011 266 - - - 266 ------266 2012 178 - - - 178 ------178 2013 89 - - - 89 ------89 2014 - 7 3 - 10 1 2 1 1 4 -6 2015 - 7 3 - 10 5 2 1 2 10 0 2016 - 7 3 - 11 12 3 1 4 19 9 2017 - 7 3 - 11 21 4 1 6 31 20 2018 - 8 3 - 11 33 6 1 8 47 36 2019 - 8 4 - 12 63 9 1 15 87 76 2020 - 8 4 - 12 90 12 1 20 123 111 2021 - 8 4 - 12 125 17 1 26 168 156 2022 - 9 - 51 60 174 24 1 34 233 173 2023 - 9 4 - 13 246 35 1 46 327 314 2024 - 9 4 - 13 309 32 0 53 394 381 2025 - 9 4 - 14 427 67 0 73 568 554 2026 - 10 4 - 14 448 75 0 75 599 584 2027 - 10 5 - 15 470 83 0 78 631 616 2028 - 10 5 - 15 493 91 0 80 665 650 2029 - 11 5 - 15 517 98 0 83 698 683 2030 - 11 5 - 16 542 110 0 86 738 722 2031 - 11 - 67 78 567 121 0 89 777 699 2032 - 12 5 - 17 594 133 0 92 819 802 2033 -444 12 5 - -427 622 145 -0 96 863 1,290

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Economic Internal Rate of Return(EIRR): 14.06% Discount Rate: 12% Net Present Value (2009) 214

Table B10 Summary of Economic Analysis for Section 3: Bei'an-Nenjiang (CNY million)

Costs Benefits Net Year Time Accident Gen- Capital O&M Routine Major Total VOC Total Benefit Saving Saving erated 2009 76 - - - 76 ------76 2010 228 - - - 228 ------228 2011 228 - - - 228 ------228 2012 152 - - - 152 ------152 2013 76 - - - 76 ------76 2014 - 1 3 - 4 31 2 0 6 39 35 2015 - 1 3 - 4 31 2 0 6 39 35 2016 - 1 3 - 4 33 2 0 7 42 38 2017 - 1 3 - 4 31 2 0 8 41 37 2018 - 1 3 - 4 30 2 0 9 41 37 2019 - 1 3 - 4 30 3 0 12 45 41 2020 - 1 3 - 4 24 3 0 12 39 35 2021 - 1 3 - 4 79 8 1 40 128 124 2022 - 1 - 45 46 140 15 1 71 227 181 2023 - 1 4 - 5 219 25 1 112 357 352 2024 - 1 4 - 5 265 30 1 135 431 426 2025 - 1 4 - 5 264 32 1 136 433 428 2026 - 1 4 - 5 271 35 1 140 447 442 2027 - 1 4 - 5 279 38 1 144 462 457 2028 - 1 4 - 5 280 40 1 144 465 460 2029 - 1 4 - 6 280 42 1 145 468 462 2030 - 1 4 - 6 280 43 1 144 468 462 2031 - 1 - 59 60 279 45 1 144 469 409 2032 - 2 5 - 6 278 46 1 143 468 462 2033 -380 2 5 - -374 275 48 1 142 466 840

Economic Internal Rate of Return(EIRR): 13.94% Discount Rate: 12% Net Present Value (2009) 155

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Table B11 Summary of Economic Analysis for Section4: Nenjiang-Border (CNY million)

Costs Benefits Net Year Time Accident Gen- Capital O&M Routine Major Total VOC Total Benefit Saving Saving erated 2009 35 - - - 35 ------35 2010 105 - - - 105 ------105 2011 105 - - - 105 ------105 2012 70 - - - 70 ------70 2013 35 - - - 35 ------35 2014 - 2 1 - 3 5 1 0 0 6 3 2015 - 2 1 - 3 6 1 0 0 8 5 2016 - 2 1 - 3 9 1 0 1 10 8 2017 - 2 1 - 3 11 2 0 1 14 11 2018 - 2 1 - 3 15 2 0 1 19 15 2019 - 2 1 - 3 47 4 0 3 54 51 2020 - 2 1 - 3 62 5 0 5 72 69 2021 - 2 1 - 3 77 7 0 6 90 87 2022 - 2 - 14 17 98 11 0 8 116 99 2023 - 2 1 - 4 129 15 0 10 154 151 2024 - 3 1 - 4 135 18 0 11 164 160 2025 - 3 1 - 4 142 20 0 12 174 170 2026 - 3 1 - 4 148 23 0 12 183 179 2027 - 3 1 - 4 155 25 0 13 193 188 2028 - 3 1 - 4 161 28 0 13 203 199 2029 - 3 1 - 4 168 29 0 14 212 208 2030 - 3 1 - 4 176 34 0 15 225 220 2031 - 3 - 19 22 183 74 0 18 276 254 2032 - 3 1 - 5 191 118 0 22 332 327 2033 -175 3 2 - -170 199 167 0 26 393 563

Economic Internal Rate of Return(EIRR): 14.29% Discount Rate: 12% Net Present Value (2009) 89

Table B12 Summary of Entire Project Economic Analysis Results

Costs Benefits Net Year Time Accident Gen- Capital O&M Routine Major Total VOC Total Benefit Saving Saving erated 2009 572 572 -572 2010 1715 1715 -1715

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2011 1715 1715 -1715 2012 1144 1144 -1144 2013 572 572 -572 2014 41 21 0 61 99 12 2 50 163 102 2015 42 21 0 63 155 17 3 68 243 180 2016 43 22 0 65 235 25 3 91 354 288 2017 44 23 0 67 353 36 4 122 515 448 2018 46 23 0 69 539 54 4 169 767 698 2019 47 24 0 71 876 84 5 244 1,209 1,138 2020 49 25 0 73 1,121 109 6 288 1,524 1,451 2021 50 26 0 76 1,522 154 8 361 2,044 1,968 2022 52 0 343 394 1,882 201 9 416 2,508 2,114 2023 53 27 0 80 2,325 264 10 486 3,085 3,005 2024 55 28 0 83 2,769 323 11 555 3,658 3,575 2025 56 29 0 85 3,225 424 12 626 4,287 4,201 2026 58 30 0 88 3,554 496 12 670 4,733 4,645 2027 60 31 0 90 3,809 562 13 699 5,083 4,993 2028 62 31 0 93 4,085 636 14 731 5,466 5,373 2029 63 32 0 96 4,295 694 15 750 5,754 5,659 2030 65 33 0 99 4,511 769 16 773 6,068 5,970 2031 67 0 447 514 4,733 884 17 799 6,432 5,918 2032 69 35 0 105 5,063 1,018 18 843 6,942 6,837 2033 -2859 69 36 0 -2753 5,301 1,151 19 873 7,344 10,097

Economic Internal Rate of Return(EIRR): 17.46% Discount Rate: 12% Net Present Value (2009) 4051

4.2 Results of the Economic Sensitivity Analysis

29. The net present value (NPVs), the economic internal rate of return (EIRRs) and the benefit-cost ratios (BCRs) were calculated using the most likely forecast values in respect of traffic growth rates and other economic development scenarios. In reality however, the benefits and costs can be influenced by many factors that may change in comparison to the base case. Therefore, the sensitivity analysis has to be conducted by increasing or decreasing inputs in order to measure the magnitude of changes and the impact to the economic parameters.

30. In the project case, the sensitivity analysis was conducted by changing overall costs and benefits. In this regard, the costs were increased by 20 percent while the benefits remained the same and the economic parameters were calculated. Similarly, the benefits were reduced by 20 percent while the costs remained the same and the economic parameters were calculated. Furthermore, the costs were increased by 20 percent and the benefits reduced by 20 percent and the economic parameters were calculated. First-year rate of returns were also calculated. The results are shown in Table B13.

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Table B13: Results of Sensitivity Analysis (EIRR %) Costs Benefits Construction Base Parameters Increased Reduced A and B delay 1 year A and C Case by 20% (A) by 20% (B) (C) Section 1 18.97 15.29 15.09 15.41 22.31 20.70 Section 2 14.06 12.74 12.37 11.10 15.44 14.06 Section 3 13.94 12.48 12.13 10.75 17.03 15.64 Section 4 14.29 12.89 12.54 11.20 15.37 13.84 Entire Project 17.46 15.28 15.52 14.06 18.99 17.35

31. The above results show that the entire project is viable when the costs were increased by 20% or the benefits reduced by 20% or the costs increased by 20 percent and the benefits reduced by 20 percent.

32. The above results show that the section 3 from Wudalianchi to Nenjiang is not viable when cost were increased 20% or benefits reduced by 20%.

5.3 Risk Analysis

33. The gain from the risk analysis on the Project provides useful information on how vulnerable the project’s viability is in terms of responding to the external shocks. When the original data is adjusted with probability distribution, the mean of the project EIRR falls to 16.1% (from the original 17.4%). The risk analysis shows (Figure B1) that the project’s EIRR ranges from 15.5% to 19.8% with 90% probability. The lowest value of EIRR in the probability distribution (the EIRR under the worst situation) is still higher than 12% threshold rate of return.

Figure B1: Cumulative Distribution of EIRR on the Proposed Highway

1.000

Mean=0.161327 0.800

0.600

0.400

0.200

0.000 0.1400.15 0.17250.160 0.195 0.180 0.21750.20 0.240.22

5% .1549 .1982 5% 90%

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Appendix 17 Road Asset Management and Road Maintenance

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Road Asset Maintenance Management

A. Background

1. The lane-kilometer of roads in Heilongjiang has been increasing steadily in recent years and the growth is expected to continue. For example, in 2007 the province had approximately 140,000 kilometers of roads (all classes) and this number is expected to increase to approximately 208,000 kilometers by the end of 2010. This is a substantial growth and the province would require a much more proactive and concerted efforts in planning and maintaining its roads. Currently Heilongjiang does not have a proactive and systematic approach to prioritizing its road maintenance activities. The mid term maintenance planning provides a good opportunity in attracting the private industry’s interest and creating good skills and jobs, when proactively maintaining the roads on an ongoing basis rather than reactive rehabilitation and re-construction. In 2007 Heilongjiang spent approximately CNY 325 million in road maintenance, the 2008 estimate is approximately CNY 380 million, and the 2010 plan notes a road maintenance budget of approximately CNY 600 million. Commencing in March 2009 tolls on class II roads have been removed and a fuel tax has been implemented, which is expected to allocate additional funding for road maintenance.

2. The last attempt at a road asset management system was acquisition of the China Pavement Management System (CPMS), which was stopped in 2003 due to (i) absence of corporate commitment by government agencies, (ii) limited funding, (iii) difficulty in operating the system, and (iv) lack of knowledge on how to use the CPMS. The CPMS was developed in 1991, but never took off due to the above reasons. Also several new regulations and procedures have been issued for managing of road asset, therefore MOT decided to develop a new asset management system and engaged Research Institute of Highway (RIOH) for its development. In 2009, RIOH developed the Road Asset Management System (RAMS), which uses the latest technology and software, is user friendly and uses the geographic information system. To facilitate easy and reliable data collection for RAMS, RIOH has also developed a data collection vehicle.

3. Heilongjiang has utilized road maintenance contracting on a limited basis for some periodic maintenance; however most road maintenance is undertaken through force-account work or by provincial and local government forces. The majority of roads in Heilongjiang are maintained by local jurisdictions, with some complementary funding provided by HPCD.

B. Objective

4. Any capacity building in road maintenance must address organizational structures, planning, adequate funding, prioritization based on a logical - and at network level, procurement of adequate equipment and tools, maintenance works skills development; and engagement of the private sector in maintenance. The Project aims to assist the province in three stages: (i) first stage - implementing RAMS implementation and collecting data and development of a logical approach to road maintenance planning and budgeting, (ii) second stage - draft a maintenance-by-contract standard documents and procurement of civil works, and (iii) third stage - pilot execution of major maintenance work using performance-based contract approach and execute other maintenance works using the standard contract documents developed and approved by MOT.

5. To implement the activities under each stage of implementation, the project will provide expertise and training through consultants, and funding for road maintenance works.

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C. Implementation Schedule

6. Successful and timely implementation of RAMS is crucial to the overall success of the road asset maintenance component. The following activities will be implemented:

I. Stage one - Implementing RAMS a. Introducing RAMS i) the Government will purchase RAMS, ii) the Government organize training on the RAMs in November or December 2009, iii) An international consultant will conduct additional training on RAMS and data collection technique by March 2010, the consultant will be financed by ADB-loan and recruited through single source selection method using retroactive financing

b. RAMS data collection iv) The Government will purchase RAMS data collection vehicle in November 2009, v) data collection will commence in late 2009 and completed no later than June 2010, giving priority on class II roads, vi) Training in vehicle operation will be conducted by the Government in late 2009, vii) data collection will take place annually

c. Prioritizing maintenance works viii) It is intended that as much as possible RAMS output would be used for prioritizing road maintenance work by 2010, ix) Continue prioritization in the following years 2011 based on the updated data,

II. Second Stage – Prepare contract document and procurement i) develop performance based maintenance contract documentation including specifications for selected maintenance works by June 2010, ii) conduct training for HPCD staff as well as potential contractors interested in bidding on the pilot project contract by August 2010, iii) carry out bidding, select contractors, and award contract

III. Third Stage – Execution of the selected maintenance works . i) carry out a special maintenance (that includes routine and periodic maintenance) on the pilot basis using performance based maintenance contract during 2011-2013. Estimated contract value is $5 million. It is expected that approximately 350 kilometers of Class 2 road should be able to be maintained, ii) monitor implementation regularly and reported annually and at the end of the implementation,

A budget of $45 million has been targeted for execution of road maintenance works about 2500 km class II road over the 2010-2014 period. The scope the works will be limited to maintenance of roads and associated facilities and structures – routine maintenance, periodic maintenance, and targeted rehabilitation. This portion of the works will be procured through traditional methods, although, based on the experience

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with the maintenance-by-contract, it is encouraged that in addition to the pilot project other maintenance works are implemented through maintenance contracting.

D. Capacity Development

7. The overall intent of the capacity development is to ensure adequate expertise is developed within HPCD and others involved in road maintenance so that the experience and expertise gained through this project can be sustained. The scope of capacity development includes training programs (classroom, field, study tours and on-the-job training); institutional development and organizational reviews as related to planning, budgeting and implementation of road maintenance. The capacity development should also target staff who would be able to lead and have an organizational role in planning for and implementing road maintenance and maintenance-by-contract strategies in Heilongjiang.

i) The proposed training program is expected to include direct training of approximately 55 persons in road asset data collection; 60 persons in road maintenance practices; 20 persons in maintenance-by-contract, and others through seminars and on-the-job training. Additionally there will be two overseas study tours, each consisting of 6 persons, with a focus on road asset management, road maintenance works, and maintenance-by-contract and performance-based road maintenance.

ii) The project’s institutional development component is intended to provide recommendations in potential institutional reforms to better facilitate road maintenance planning, budgeting, finance and implementation; and have a sustainable impact on institutional capacity development facilitating better road maintenance planning, budgeting and implementation – including the performance- based road maintenance contracting.

E. Implementation Arrangement

8. HPHB will be the Implementing Agency with overall responsibility for the road maintenance component. HPHB will establish a project implementing unit (PIU). A chair person will be appointed to this unit. The PIU will have six members with the following membership configuration:

HPHB, Planning and Statistics Division – one person with knowledge of asset management systems and planning. HPHB, Maintenance Administration Division – one person with general knowledge of how the department plans and implements road maintenance. HPCD, Planning Division – one person who can assist the group in liaison with external groups (finance) and can provide input as this Division coordinates approval of maintenance budgets. County/Prefecture Maintenance Departments – two persons representing the views of local governments in regards to road maintenance planning and implementation. International Road Maintenance consultant (assisted by national consultant as required) – one person who will promote best-practices, provide expertise, and guide implementation.

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F. Procurement

9. The pilot maintenance work contract value is estimated at $5.0 million. Civil works for maintenance will be procured using national competitive bidding procedure. Number of contract packages will be determined based on the RMAS output; however value of contract packages should not be exceed $10 million.

G. Consulting services

10. The Project will engage 8 person-months international and 18 person-months national consulting services. International consultants will be financed by ADB loan. An international system management specialist with 2 person-months will be recruited through SSS and other consultants will be recruited as a team through QCBS. The Government will finance and recruit national consulting services starting in October 2009. The advance contracting and retroactive financing will be used to facilitate earlier commencement of the consulting services and prepare plan for maintenance works to be undertaken in 2011.

H. Reporting.

11. The consultants will prepare reports on their services. International and national consulting teams will prepare quarterly progress report and annual report of project progress. The reports should include activities completed previously, lessons-learned, plan for the following steps. At the end of the pilot project, international team leader will prepare draft assessment report to the EA and ADB and submit it 2 months before project completion. The draft report should reflect: project background; an assessment of effectiveness of each aspect of the project and meeting its intended goals (performance indicators); lessons-learned; and recommendations for future improvements. The report would have as its appendices any documents or manuals developed under the Project.

I. Cost Estimate

12. Total of $50.5 million is required to implement the road maintenance component. Out of which about $0.5 million is estimated for consulting services and training ($285,000 for international consulting services, $138,000 for national consulting services, and $75,000 for training). $50 million is estimated for execution of major maintenance works with 100% Government financing.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report Project Investment Plan Allocation 2009$ Number/ Duration/ Activity Persons Days Unit Cost Total $ ADB $ Local $ Comments Road Asset Management System Data collection staff training (55 persons, 2 weeks) A1 Office Training 55 7 $20 $7,700 $7,700 $0 EA share 100% A2 Field Training 55 7 $20 $7,700 $7,700 $0 EA share 100% A3 Venue, Supplies 55 14 $20 $15,400 $15,400 $0 EA share 100% Subtotal A $30,800 $30,800 $0 Contingency allowance 10% $4,200 $4,200 $0 Total A $35,000 $35,000 $0 Training B1 Domestic- Road Maintenance Practices (2010-2013) 60 7 $20 $8,400 $0 $8,400 EA share 100% B2 Domestic- Maintenance-by-Contract (contracts, administration, 2010-2011) 20 7 $20 $2,800 $0 $2,800 EA share 100% B3 Domestic Study Training- Trip (2010-2013) 18 10 $100 $18,000 $0 $18,000 EA share 100% B4 International Training- Trip 1 (2010-2011) 6 10 $600 $36,000 $36,000 $0 ADB share 100% B5 International Training- Trip 1 (2012-2013) 6 10 $600 $36,000 $36,000 $0 ADB share 100% Subtotal B $101,200 $72,000 $29,200 Contingency allowance 10% $10,800 $8,000 $2,800 Total B $112,000 $80,000 $32,000 Consulting (International and Domestic) International Consultant- Single Source Selection (RAMS) C1 Staff Fees, including perdiem 2 $20,000 $40,000 $40,000 $0 ADB share 100% C2 International Travel 2 $6,000 $12,000 $12,000 $0 ADB share 100% C3 Report Preparation & Translation 1 $5,000 $5,000 $5,000 $0 ADB share 100% C4 Communication & Miscell 1 $2,000 $2,000 $2,000 $0 ADB share 100% International Consultant- QCBS C5 Staff Fees, including perdiem 6 $20,000 $120,000 $120,000 $0 ADB share 100% C6 International Travel 9 $6,000 $54,000 $54,000 $0 ADB share 100% C7 Report Preparation & Translation 1 $20,000 $20,000 $20,000 $0 ADB share 100% C8 Communication & Miscell 1 $5,000 $5,000 $5,000 $0 ADB share 100% C9 Domestic Consultants C10 Staff Fees, including perdiem 18 $6,000 $108,000 $0 $108,000 EA share 100% C11 Local Travel 15 $400 $6,000 $0 $6,000 EA share 100% C12 Report Preparation & Translation 1 $10,000 $10,000 $0 $10,000 EA share 100% C13 Communication & Miscell 1 $1,000 $1,000 $0 $1,000 EA share 100% Subtotal C $383,000 $258,000 $125,000 Contingency allowance 10% $39,000 $26,000 $13,000 Total C $422,000 $284,000 $138,000

Total Road Maintenance Systems (A, B, C - excludes maintenance works): $569,000 $399,000 $170,000

Road Maintenance D1 Maintenance-by-Contract (year 2011/12) $5,000,000 $1,000,000 $4,000,000 ADB at 20% contribution. D2 Annual Maintenance Works (year 2011-2014) $45,000,000 $9,000,000 $36,000,000 ADB at 20%, allocated /prioritized annually Subtotal D $50,000,000 $10,000,000 $40,000,000 Contingency allowance (included in above) 0% $0 $0 $0 Total D (road maintenance works) $50,000,000 $10,000,000 $40,000,000 App 17 - 6

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Appendix 18 Financial Performance and Analysis

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CORE APPENDIX CF2

FINANCIAL PERFORMANCE AND ANALYSIS

A. Introduction

1. Financial projections and analysis have been prepared in accordance with the 2005 edition of the Guidelines for the Financial Management and Analysis of Projects of the Asian Development Bank. The Project has both revenue earning and non-revenue earning components. The revenue earning components consist of an expressway and a Class I road link. The Project also consists of a Class II road which will not earn any revenue. All three roads will be built by the Heilongjiang Provincial Communications Department (HPCD). Revenue earning and non-revenue earning components are discussed separately below.

B. Revenue Earning Expressway Component of the Project

1. Financial Projections

2. The expressway and Class I roads will be tolled. After construction these two road section will be operated and managed by the Heilongjiang Provincial Communications Department (HPCD) under its Toll Roads Administration Bureau. Toll rates are not set by the province until six months before operations begin and they will be fixed by considering cost recovery and affordability. As a result different expressways have different per kilometer tolls rates. In the meantime, on HPCD's advice, existing average tolls were used for project evaluation purpose. Tolls on Class I roads are set by stage. Stages are normally some 50 km long. The project Class I road is only 16 km and the use of the average stage toll would set the toll per km above that for expressways. To equalize the per km rates, 51% of a stage has been assumed.

3. Periodic maintenance and infrastructure rehabilitation will be required every 9 years. Depreciation is calculated on 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.

4. The Project will be funded 37.9% by equity (17.5% by HPCD and the rest by Central Government) and 42.0% by long-term loans from China Development Bank (CDB) ($419.70 million). The ADB loan towards the revenue earning project civil works will amount to $155 million, $170 million including other costs. It will have a 25-year term including a 5-year grace period, and be a US dollar LIBOR-based loan with a 0.15% commitment fee. Projected financial statements are presented in Table CF2-3 to Table CF2-5. The projected financial statements indicate that the forecast revenue under the average rate assumption, even if increased with inflation, would not be sufficient to cover cash flow costs for the first three operating years.

2. Financial Analysis

5. Following are the major assumptions used for calculation of a financial internal rate of return (FIRR): (i) all calculations are based on 2009 prices, covering 2009–2033; (ii) capital costs include all incremental capital expenditures related to construction and equipment for the revenue earning roads, but exclude price contingencies and interest during construction; (iii) operating costs include all annual incremental expenses incurred in operating the roads, but exclude depreciation and debt payments; (iv) a residual value equal to the net book value of capital investment; (v) the present average provincial tolls are assumed to increase every five years starting in 2014 in line with inflation.

6. The estimated weighted average cost of capital (WACC), after-tax, in real terms was calculated using estimated capital mix and cost of funds. Costs have been considered as

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report follows: (i) the applicable 5-year LIBOR (London interbank offered rate) fixed swap rate plus a provision for ADB’s spread of 0.2% is used for ADB lending; (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 was assumed to be 8%. The cost of debt is also adjusted to reflect the impact of income tax of 25%. The nominal cost is converted to the real cost by applying domestic and international long term inflation rates for local currency and foreign exchange denominated debt, respectively.

7. The FIRR for the Project, computed on an after-tax basis, is 6.20% (Table CF2-1), which compares favourably with the WACC, computed at an after-tax basis at 3.59%. The Project is considered financially viable but might require tolls above the present average in early years. Sensitivity tests indicate conditions causing the Project's FIRR 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 CF2-2.

3. Summary Expressway Financial Results 8. If toll rates are set at present averages increased with inflation, the debt service coverage ratio would not reach the ADB norm of 1.2 until 2017. The province through HPCD does not require individual toll roads to cover costs but is willing for one road to subsidize another. Even with un-inflated toll rates, the expressway section is financial viable in the long run.

B. Financial Analysis Non-Revenue Earning Components of the Project

1. Introduction

9. Only the expressway and linking Class I road are expected to earn revenue. Other Project components are: (a) an intermediary Class II road; (b) some 20 bus stations; (c) consulting support for major road maintenance in the province. ADB funds will not be used for the bus stations but will for the other two non-revenue earning components. Financial evaluation of the non-revenue earning components focuses on fiscal impact on the operating entity.

2. Financial Analysis

10. The financial data confirm the availability of sufficient counterpart funds and the capacity of HPCD to finance both investment in the project and future maintenance and operating expenses of the project roads. As the Class II road will not be tolled, funds for road maintenance etc will be provided from the new central government fuel tax. The analysis shows that the fiscal impact and risks are modest. The total capital required for the Class II road represents only 1.5% of past annual HPCD revenues. Similarly, operations and maintenance (O&M), including periodic maintenance, of the Class II road will represent 0.8% of HPCD’s historic costs for these items. Full debt payments on the Class II road, when they become due in 2014 will be 0.77% of HPCD's total debt payments in 2011.

11. These low financial ratios indicate that the project presents a very modest financial risk with respect to: (a) the availability of resources to cover the project cost; (b) the maintenance and operating needs, (c) the loan service requirements for the project roads, and (d) the financial burdens to the province.

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Table CF2-1 Base FIRR Calculation for Revenue Earning Project Capital Operating Operating Net Cash Flow Cost Revenues Outflows before tax after tax 2009 -249.9 0.0 0.0 -249.9 -249.9

2010 -1,750.3 0.0 0.0 -1,750.3 -1,750.3

2011 -1,999.0 0.0 0.0 -1,999.0 -1,999.0

2012 -748.6 0.0 0.0 -748.6 -748.6

2013 -249.2 0.0 -41.3 -290.5 -290.5

2014 0.0 298.2 -42.5 262.1 255.7

2015 0.0 341.3 -50.1 296.4 291.2

2016 0.0 368.0 -50.1 332.3 317.8

2017 0.0 390.2 -60.6 352.2 329.6

2018 0.0 413.4 -70.1 374.5 343.4

2019 0.0 483.7 -79.8 455.2 403.9

2020 0.0 512.5 -101.1 472.6 411.5

2021 0.0 539.7 -112.2 498.0 427.5

2022 -615.9 565.4 -123.0 -94.1 -173.6

2023 0.0 591.5 -133.5 544.8 458.0

2024 0.0 683.2 -142.3 651.5 540.9

2025 0.0 714.8 -167.2 668.6 547.5

2026 0.0 741.2 -179.4 692.2 561.8

2027 0.0 764.7 -190.3 713.3 574.4

2028 0.0 788.0 -200.6 734.9 587.4

2029 0.0 896.5 -210.8 863.0 685.7

2030 0.0 923.9 -242.1 868.7 681.8

2031 -803.6 952.1 -253.5 91.6 -105.1

2032 0.0 982.7 -265.2 919.7 717.5

2033 0.0 1,006.1 -272.7 5,317.6 5,111.7

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NPV @ WACC 3,131 2,081

FIRR 7.29% 6.22%

Table CF2- 2 Revenue Earning Project Sensitivity Analysis

Scenario FIRR Switching Value

Base Case 6.22%

Traffic Decrease by 20% 4.47% -30.1%

Project Costs Increase by 20% 4.41% 29.1%

Combination of above 2.70% 14.9%

Plus 1 Year Delay 2.48% 14.1%

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Table CF2-3 Projected Income Statement of the Revenue Earning Project (CNY million, in current prices)

2014 2015 2016 2017 2018 2019 2020 2025 2030

Operating Revenues 323.8 378.0 415.7 449.6 485.9 579.9 626.7 965.0 1,377.1

Operating Expenses 46.2 48.5 51.0 53.6 56.3 59.1 62.1 79.5 101.7

Depreciation 64.0 128.0 128.0 128.0 128.0 128.0 128.0 147.6 147.6

Corporate Tax (25%) 7.0 5.7 16.3 26.1 36.6 61.5 74.8 163.5 278.5

Net income after tax 20.9 17.0 49.0 78.4 109.7 184.5 224.3 490.5 835.6

Return on Equity 2.9% 2.4% 6.6% 9.9% 12.8% 19.0% 20.3% 34.7% 51.3%

Operating Ratio 36.2% 48.2% 47.0% 46.2% 45.4% 42.9% 42.3% 40.5% 38.3%

Source: Asian Development Bank estimates.

Table CF2- 4 Projected Balance Sheet of the Expressway (CNY million, in current prices)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030

Net Fixed Asset 0.0 0.0 0.0 0.0 5,056.9 4,928.8 4,800.8 4,672.8 4,544.8 4,416.7 4,288.7 4,383.2 3,645.2

Current Asset -49.7 -152.4 -289.0 -481.8 -529.9 -533.1 -499.8 -445.7 -367.9 -209.4 -32.0 701.1 3,512.7

Total Asset -49.7 -152.4 -289.0 -481.8 4,526.9 4,395.8 4,301.1 4,227.1 4,176.9 4,207.3 4,256.7 5,084.3 7,157.8

Current Liability 0.0 0.0 0.0 139.9 153.9 160.0 178.5 196.5 215.6 249.6 272.5 418.0 350.3

Long-term Loans 1,467.3 2,953.6 3,519.8 3,572.1 3,425.2 3,270.9 3,108.7 2,938.4 2,759.4 2,571.2 2,373.5 1,220.6 -9.2

Equity and Reserves 507.0 968.4 1,046.8 927.0 943.7 957.3 996.5 1,059.2 1,146.9 1,294.5 1,474.0 1,882.6 2,172.8

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Debt-Equity Ratio 2.9 3.0 3.4 4.0 3.8 3.6 3.3 2.9 2.6 2.1 1.7 0.8 0.0

Current Ratio -3.4 -3.4 -3.3 -2.8 -2.3 -1.7 -0.8 -0.1 1.7 10.0

Source: Asian Development Bank estimates.

Table CF2- 5 Projected Cash Flow of the Expressway (CNY million, in current prices)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 2030

Operating Cash Inflows 0.0 0.0 0.0 -44.0 277.6 329.5 364.7 396.1 429.7 520.7 564.6 885.5 1,275.4

Borrowings 1,285.4 1,486.3 566.2 192.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Equity 485.6 572.3 240.5 105.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Cash Inflow Total 1,771.0 2,058.6 806.7 253.4 277.6 329.5 364.7 396.1 429.7 520.7 564.6 885.5 1,275.4

Construction Cost 1,773.1 2,050.4 781.2 265.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Debt Service 42.3 111.0 162.1 181.0 325.7 325.7 325.7 325.7 325.7 325.7 325.7 325.7 325.8

Cash Outflow Total 1,815.4 2,161.3 943.3 446.2 325.7 332.7 331.4 342.0 351.8 362.3 387.2 472.0 584.9

Net Cash Flows -44.4 -102.7 -136.6 -192.8 -48.1 -3.2 33.3 54.0 77.8 158.5 177.4 413.5 690.5

Closing Cash Balance -49.7 -152.4 -289.0 -481.8 -529.9 -533.1 -499.8 -445.7 -367.9 -209.4 -32.0 701.1 3,512.7

Debt Service Coverage Ratio 0.0 0.0 -4.8 -1.7 0.9 1.0 1.1 1.2 1.3 1.6 1.7 2.7 3.9

Source: Asian Development Bank estimate

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Appendix 19 Social Development Action Plan

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SOCIAL DEVELOPMENT ACTION PLAN

A. INTRODUCTION

1. This Social Development Action Plan (SDAP) was prepared jointly by the HPCD and local governments, with the assistance of the PPTA Social Team and Heilongjiang Academy of Social Sciences (HASS). The SDAP was reviewed by key stakeholders including bureaus of transport, labor and social security, forestry, education, health, poverty, ethnic minority and women’s federation. Their input has been valuable in the preparation of the Plan.

B. PURPOSE

2. The purpose of the SDAP is to ensure that important social and poverty issues are addressed during the implementation of the project road and bus stations. Any adverse impacts need to be avoided or mitigated, and project benefits should be inclusive of vulnerable groups (i.e., the poor, women, ethnic minorities and others).

C. BASIS FOR THE SDAP

3. The SDAP has focused on issues related to directly affected people, vulnerable people, gender, ethnic minority and local social and small business development. Measures to address these issues have been formulated based on the Social Poverty Analysis Report and adopted based on further stakeholder consultation. These main actions can be grouped into three types: (i) project benefits and enhancement measures within the direct control of the project implementing agencies; (ii) mitigation measures to address social risks caused by the Project, and are the responsibility of HPCD and its implementing agencies, and (iii) complementary enhancement measures that can be taken by local government to increase the mutual benefits derived from the Project construction or operation. The details of the SDAP are provided in Table 1, which includes the proposed actions, target groups, implementing agencies, timing, funding source and monitoring indicators.

1. Gender Aspects

4. HPCD and the local government have agreed to take following actions to enhance project benefits for women: (i) coordinate with contractors and the local ACWF to hire woman for project construction and the road operation; (ii) hire women for highway road and bus station operation and maintenance; (iii) target women and children for road safety awareness; (iv) provide HIV/AIDS/STI awareness for women at high risk; (v) 50 percent of livelihood training for affected households will be women, (vi) promote microcredit for women, (vii) provide technical training on organic farming and tourism for women, and (viii) organize periodic consultations with woman and encourage their participation in the project implementation.

2. Ethnic Minority Aspects

5. HPCD and the local government have agreed to take following actions to enhance project benefits for 5 ethnic minority villages: (i) integrated poverty reduction, road improvement and tourism development programs, and (ii) cultural protection and development. Ethnic minority villages will benefit from the Project but there will be no adverse impacts on ethnic minorities.

3. Poverty Reduction Aspects

6. HPCD and the local government have agreed to take following actions to enhance project benefits for the poor: (i) hiring laborers from poverty villages/households, (ii) providing

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report special support for poor households affected by resettlement, (iii) integrating poverty reduction and road improvement programs, (iv) technical training programs, and (iv) promoting non-farm employment opportunities.

D. CONSULTATION AND PARTICIPATION PLAN

7. Public awareness of the project is high and generally very positive. Development of the Environmental Management Plan (EMP), EIA, RP and SDAP involved two rounds of public consultations in March and April 2009. Most stakeholders already had good knowledge of the project, due to the preparation work undertaken by design institutes and the PMO. A community/village project management/monitoring team is proposed to help select project construction labourers, conduct education on environment protection awareness, HIV/AIDS and other transmittable disease control, maintain the public security of the construction site, coordinate relations of all parties concerned, reflect opinions and advice of villagers/residents, and monitor the social action plan implementation. The public consultation and participation plan is shown in Table 2.

E. IMPLEMENTATION ARRANGEMENTS

8. The SDAP will be implemented by Qian-Nen Highway Construction Project Management Office (QNPMO) and county level Transport Bureaus, in coordination with local government agencies as indicated in Table 1. The Social and Environment Office of QNPMO will be responsible for overseeing the SDAP and implementing those actions within their direct control, as well as supervision of related activities that involve the construction contractors. For actions outside the direct mandates of QNPMO or the county level Transport Bureaus, the assigned staff will be responsible to liaise with the relevant county level government agencies under the coordination of the Vice Mayor; this will ensure appropriate measures are taken in a timely and satisfactory manner. QNPMO and the county level Transport Bureaus will also be responsible to monitor and report progress, issues and results to HPCD. A local consultant may be engaged to assist with monitoring and reporting, as deemed necessary. HPCD will then provide ADB annual SDAP Monitoring Reports for review and follow-up during loan supervision missions. If necessary, ADB and HPCD may agree to revise the SDAP to improve the effectiveness of the proposed measures.

F. FUNDING SOURCES

9. There are two main funding sources for the SDAP: (i) the Project cost (i.e., civil works, EMP or RP costs), and (ii) local government funding for transport, poverty reduction, etc. In this manner, some activities in the SDAP will part of the Project implementation and others will be integrated with ongoing government programs. The implementation will be monitored to ensure that sufficient funding is made available in a timely manner.

G. MONITORING & EVALUATION OF SDAP

10. It is proposed that comprehensive monitoring be conducted during the project construction to ensure that the project fulfils its aims and objectives. This monitoring should examine the actions proposed in the SDAP are implemented and their impacts on target people or beneficiary are evaluated. HPCD, QNPMO and TAB will be responsible for the monitoring and evaluation and reporting to ADB once each year during the project implementation. HPCD also can recruit external consultants to conduct the morning and evaluation. The external consultants should have professional experience in SDAP monitoring and evaluation for similar projects.

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Table 1: Summary Social Development Action Plan

Lead and Funding Proposed Actions Target Group(s) Supporting Timing Monitoring Indicators Requirements Agencies

A. Project Benefits and Enhancement Measures

1. Improved access to road transport • 512,000 L: HPCD, QNPMO 2010 – 2012 CNY6.767 billion of • Adequate connectivity to • Construction of Yichun-Nenjiang section of residents in the project budget the new highway Qianfeng-Nenjiang highway Direct Project S: Local TAB and • Passenger fares • Construction of 3 branch roads and 7 Area (DPA) local governments • Freight rates interchanges • 8.7% are poor • Frequency of travel by • Rebuilding sections of local roads damaged and 1.77% are local residents or cut-off by expressway construction minorities 2. Improved transport service facilities • 536,000 L: HPCD-TAB 2011–2012 CNY 7.0 million from • No. of improved township • Built 16 new township bus stations (Class 5) residents in HPCD and local bus stations • Upgrade 4 existing township bus stations to 16 townships of S: Local TAB and governments • No. of service providers Class 3 6 counties, 4 local governments • No. of passengers • Improve bus services (quality and frequency) farms • No. of new bus routes • 5.5% are poor • Passenger fares and 0.8% are minorities

3. Local employment for construction work • 19,000 people L: QNPMO 2010–2012 Included in project • No. of local people and other services during project civil works cost and employed (by gender, • Priority to local labor in general. Targets: implementation, S: Contractors, paid by contractors ethnicity and poverty • 65% local labor for unskilled work including 5,700 local labor bureaus, status) • 30% women for unskilled labor in people from local forest bureaus • No. of forest workers landscaping poverty employed • 3% minority for unskilled work households • Forest cutting quotas for • Use of forest workers for forest clearance affected forest farms and temporary road construction • Wages paid to local • - possibly increase the cutting quota people • Use of local construction materials, • Value of construction e.g., rock, gravel, clay, cement materials supplied locally

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Lead and Funding Proposed Actions Target Group(s) Supporting Timing Monitoring Indicators Requirements Agencies • Seedlings exclusively from local nurseries • Value of seedlings • Training to be provided by contractors supplied locally • Training of local workers

4. Improved and well maintained local road • 1.7 million L: Local TAB and 2009-2015 From HPCD and local • Length of township roads network residents in the 5 local governments governments competed by 2010 • Local governments will complete all township counties • Length of village roads to village roads by 2010 • 2,330 km of new S: HPDC-HAB completed by 2015 • Local government will construct more village township roads • Repair of village roads roads between 2010-2015 • 1,500 km of new new highway • Local government will improve the village roads • Quality of rural road maintenance of rural roads, including roads • Repair of 219 maintenance near the highway km of village roads near the highway 5. Road safety enhancement • 512,000 L: Local PSB 2010-2013 From PSB and local • No. of road accidents on • Road safety design features are included on residents in the governments project roads (by section) the project roads DPA, and S: HPCD, local • No. of road accidents on • Safe conditions for non-motorized vehicles targeting women government, ACWF rural roads and farm vehicles on the Class II highway and children for • Behavioral changes • Increased community awareness programs community • Ongoing driver training programs awareness

B. Mitigation Measures to Address Social Risks (Responsibility of HPCD and QNPMO)

6. Control of HIV/AIDS and sexually • All project L: QNHC and CDC 2010–2013 Awareness training • No. of manuals, posters transmitted infections (STIs) construction costs for workers are and drawing distributed • Centre for Disease Control (CDC) provides workers S: Contractors, included in contract • No. of training sessions training to worksite health promoters • HPCD, EMAB, costs. and trainees • Health promoters provide training to all • Service providers ACWF, and local CDC costs in included • No. of tests workers and managers and subcontractors • governments. in Department of • No. of HIV/AIDS/STI • CDC provides training to service providers • All communities Health budget cases

App 19 - 5

Lead and Funding Proposed Actions Target Group(s) Supporting Timing Monitoring Indicators Requirements Agencies and local communities in the DPA, • Behavioral changes • HIV/AIDS and STI counseling program and targeting women voluntary testing by health agencies at risk • Conduct participatory monitoring and evaluation by CDC • Provide manuals, posters and drawings (in minority language where required) 7. Protect local communities from • Over 25,000 L: QNPMO 2010–2012 Included in project • No. and resolution of construction disturbances and ensure persons close to cost (refer to EMP) complaints safe construction practices the alignment in S: Contractors, • Length of irrigation and • Prohibit nighttime construction and adhere to 21 villages HPCD and local drainage canals (% proposed noise standards • Class II road governments recovery) • Reconstruct irrigation and drainage systems section • Accidents on temporary • Construction safety enhancement, including construction roads temporary road traffic (e.g., safe road conditions and proper warning signage) 8. Livelihood training to assist income • 3,500 affected L: QNPMO and 2010–2012 Project and local • No. and kind of training recovery for people affected by land households, at local governments and after government funds sessions, and no. of acquisition and resettlement least 50% of (refer to RP) participants (by gender) • Training on non-farming employment skills trainees will be S: Local LSSB, • No. of forest workers • Training of women in employment skills female PADO, and ACWF trained • Training for affected forest workers • Targeted support • No. of vulnerable • Special support to poor and women for 50 vulnerable households and support (technical training, priority in employment, households received and special funds for vulnerable groups)

C. Enhancement Measures (Responsibility of Local Governments)

9. Inclusion of poverty reduction projects • 5 ethnic minority L: Local EMAB 2010–2013 CNY50,000 • Length of roads improved for ethnic minority villages to benefit villages, ethnic minority • Rented land area in the from the Project particularly the S: PADO, local development funds Daur village • Road improvements Daur minority EMAB and local (Ongoing government • Investment for ecotourism governments project with priority on

App 19 - 6

Lead and Funding Proposed Act ions Target Group(s) Supporting Timing Monitoring Indicators Requirements Agencies • Investments in ecotourism village in Daur and Mongol) • Other facilities improved • Other facility improvements Nenjiang County. 10. Integrating road improvements with • 50 poverty L: Local TAB and 20011–2013 5-year local • Agreements between poverty alleviation programs villages and PADO government plan TABs and PADO • Road improvement in administrative villages forestry farms • Length of road improved and natural villages within the DPA S: Local • PADO evaluation reports • Integrated village development plan governments and • Participatory community • Equipment and training for upgrading and forestry farms meetings maintaining village roads

11. Microcredit for small businesses Poor households L: Local 2011–2013 Ongoing government • Amount of credit • Provide loan to poor households and poor women government, PADO, project with priority on disbursed • Provide loan to poor women within the DPA, and ACWF poor and women • No. of borrowers targeting those with • Length of repayment improved transport S: Local lending period access companies • Type of businesses started and success rate • Repayment rate 12. Tourism promotion DPA towns, villages, L: Local tourism 2011–2013 Local government • Tourism development • Cultural and ecotourism development forestry farms, and bureaus budget, tourism plans • Advertising of tourism sites on expressway state farms with sector investment, • Amount of investment sign boards just prior to highway opening development S: Communities and community • No. of advertisements • Agricultural and forestry tourism potential and private sector investments • No. of tourists • Related job training for women and poor • Tourism revenues • Training and jobs by gender 13. Special support to minority villages for Focused on Daur, L: Local EMAB 2011–2012 Special fund or • Project proposals with protection and development of cultural Korea, Mongolia, budget for ethnic cost and financing plan heritage (tangible and intangible) Hui and Ewenke S: Local minorities from • No. of projects • Culturally sensitive tourism related activities villages in the governments Central government implemented (by type) • Non-tourism related activities Bei’an City and and local • No. of benefited

App 19 - 7

Lead and Funding Proposed Actions Target Group(s) Supporting Timing Monitoring Indicators Requirements Agencies Nenjiang county. governments households 14. Provide technical and management 50 poverty villages L: Local PADO 2010–2013 Ongoing government • No. of training sessions by training for organic farming for women and other poverty project with type and no. of • Provide agricultural technical training, households (i.e., S: Local bureaus of coordination of participants • Provide small business development training agricultural workers, agricultural, animal training content • Types, quality and value • Provide training on setting up and managing forest workers, husbandry, forestry, adjustment of organic products economic cooperatives women who stay at industry, and ACWF • No. and profitability of • Provide "stay at home" work skills home for farm work) economic cooperatives – 80% are women • No. of new stay at home workers by gender 15. Promote non-farming employment All people in DPA – L: Local labor 2010–2013 Ongoing government • No. of jobs created • Promote information and training on non- targeting women bureaus project • No. of new migrant farming jobs for local jobs and migrant jobs and young adults S: Local laborers • Provide education to migrant laborers on and the poor government, EMAB, • No. of employers involved labor law, contract, and right issues and PADO. • No. of migrant laborers trained Sources: ACWF = All China Women’s Federation, AP = affected person, CDC = Centre for Disease Control, DPA = Direct Project Area (48 towns/townships/farms), EMP = environmental management plan, EMAB = Ethnic Minority Affairs Bureau, HAB = Highway Administration Bureau, km = kilometer, L = lead, LSSB = Labor and Social Security Bureau, PSB= Public Security Bureau (Traffic Police), S = supporting, TA= technical assistance, PADO = Poverty Alleviation and Development Office, RP = resettlement plan, TAB = Transport Administration Bureau, QNPMO = Qian-Nen Highway Construction Project Management Office, HPCD = Heilongjiang Provincial Communication Department.

App 19 - 8

Table 2: Public Consultation and Participation Plan Responsible Stage Activity Description Methods Participants Remarks Party • Identifying team members • Selecting and managing construction labors participating in the project • The whole village • maintaining the public security of the • Community/village Community/ • Village With construction site committee Implementation village, project committee The whole assistance • Formulating policies • Community/village stage management / • PMO village of local • Environmental protection awareness project monitoring monitoring team • related local TABs education team bureau(s) • Coordinating relations of all parties concerned, reflecting opinions and advice of villagers/residents • Members involved in • Determining the jobs available from the construction, project including women, • Determining the criteria of selection of ethnic minority, project construction staff, including poor • Community/village poor families QNPMO, local With Project families, ethnic minorities and women committee • Resettled TABs and assistance construction • Monitor the payment of the land • Community/village families related local of EPB participation compensation and house demolition project monitoring • Residents/village bureau(s) ACWF and • Technical training and safety system team rs/ hosts PADO training, and environmental protection • project office awareness education • IAs • Participating in project construction • project constructor related bureau • Community/village PMO, • EMP monitoring committee • Community or With QNPMO, local Project Community/ • RP monitoring Community project village committee assistance • TABs and monitoring and village project Social Development Action Plan monitoring team, Community of EPB, • • related local feedback monitoring team monitoring including reps of poor project ACWF and bureau(s) • monitoring results reporting families, women and monitoring team PADO other special groups

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Responsible Stage Activity Description Methods Participants Remarks Party • Printing “project complaint leaflet” and issuing to each community, so that villagers/residents can With easily give feedback • Community/villag assistance Complaint • Establishing the community member QNPMO, and • Setting up a complaint e project of EPB, channel feedback system local TABs hotline at the project monitoring team ACWF, and office PADO • Community monitoring team collects advice and opinions at any time • Safety information collection and safety awareness building though posters, information signs, TVs • Community/villag With • Community/village project monitoring and Radios. Operation Project team assisting the EA in the operation e project assistance • Community/village QNPMO, and stage maintenance stage of the community-related safety monitoring team; of EPB, committee local TABs management participation issues, transport services, transport • QNPMO, and ACWF, • Meetings by facility maintenance, etc local TABs PADO Community/village project monitoring team (including poor families, women and other special groups)

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Appendix 20 Summary Resettlement Plan

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

SUMMARY RESETTLEMENT PLAN

1. The proposed Qian-Nen highway is an important corridor in the northern part of Heilongjiang Province. The total project length is 434 km, and the total project construction length is 354 km. Within the total project length, the expressway length is 277 km, and the construction expressway length is 207 km. The project will also construct 5.1 km branch road to link with town and farms. And 20 bus stations will be built or upgraded. The project will require a lot of land acquisition and some household relocation. The resettlement planning and implementation is designed to ensure that the affected persons will be better-off or at least not worse-off as a result of the Project. Overall, the land acquisition and resettlement impacts of the Project will be significant. A full Resettlement Plan for the road project and a short Resettlement Plan for the bus station construction have been prepared.

2. The impacts of the Qian-Nen Highway project are summarized in Table 1 to Table 8. The highway will permanently require 20,097 mu (including 64.1 mu for link road) of land, among which the cultivated land accounts to 7547.5 mu (including 14.3 mu for link road), the forest land accounts to 9484.5 mu, and the other land accounts to 3,015.1 mu. The percentage of cultivated land is 37.6% and forest land is 47.3%. Of which the permanently occupied land of main road is 20,032.8 mu, which are 7,533.2 mu of cultivated land, 9484.5 mu of forest land and others are 3,015.1mu.

3. The temporary land will reach 2,019mu, among which the cultivated land is 772.2mu, the forest land is 534.2 mu, and the wasteland is 712.6mu. The percentages of the three types are 38.2%, 26.5% and 35.3 respectively. The temporary land occupied by main road is 1,998.2 mu. Of which, the cultivated land is 772.2mu, the forest land is 531.4mu and wasteland is 694.6mu. 4. The construction of proposed bus station will take 26,347 m2 land，out of which, 6,000 m2 belongs to collective, 3,547 m2 are residential land, and 16,800 m2 are state owned land where it is planned for construction.

5. The permanent land acquisition will affect about 3,500 households or about 14,000 people. About 10 households and 1 enterprise will be relocated. A total of 1,936.6 m2 brick houses and 242.8 m2 storage buildings will be demolished. In addition, some productive assets, ground attachments, and public infrastructures and facilities will be affected, including electric poles, cables, high voltage towers, well, fences, toilets, roads, and trees, etc. Of the total affected population, 2,000 households or 8,000 people are rural residents, and 1,500 households or 6,000 persons are state farms workers and state forestry farm workers.

6. In order to avoid or minimize land acquisition and resettlement, close consultations with the local officials and village committees, forestry farms and state farms were conducted during the preliminary and final Feasibility Study stages.

7. The compensation of the permanent land loss is based on the Land Administration Law of PRC (1998) and the Implementation Regulations of Integrated Price for Land Acquisition Based on the Region and Location of Heilongjiang Province 2009. The house demolishment is based on the negotiation with the affected people and in reference to the local resettlement price. The RP prepared complies with PRC laws and regulation of resettlement of Heilongjiang Province and ADB’s Policy on Involuntary Resettlement. Based on the consultations with local governments and those people affected, and the integrated price in the area, a set of compensation standards were adopted by the respective city and county project management offices and implementing agencies. The resettlement principles established for the Project are (i) land acquisition and involuntary resettlement should be avoided or minimized where feasible by developing and comparing different design alternatives; (ii) compensation and entitlements App 20 - 2

Heilongjiang Road Development II (TA 7117 – PRC) Final Report provided are based on integrated land price or replacement value and must be adequate to allow those affected to maintain at least their pre-project standard of living, with the prospect of improvements; (iii) lands temporarily occupied and the period for disruption are to be kept to a minimum; (iv) the per capita landholding after land acquisition shall be sufficient to maintain the previous livelihood standard; (v) where land allocation per capita is not sufficient to maintain the previous livelihood standards, other income-generating activities shall be provided; (vi) a preferential policy will be provided to vulnerable groups as a form of compensation, such as the payment of special fund, minimum living guarantee, and employment; (vii) all people affected will be adequately informed about eligibility, compensation rates and standards, livelihood and income restoration plans, and project timing; and (viii) close monitoring and timely actions will be carried out to identify and resolve any problems.

8. The people affected will be notified about the key elements of the RP prior to ADB loan appraisal. On various occasions during meetings, interviews, group discussions, public consultation workshops, and community consultation meetings, local representatives participated in the planning, and their concerns have been integrated into the RP. The information booklet of the project will be distributed to affected villages and households. And the RP also will be provided to forestry farms, state farms, and affected villages. The respective cities and counties will establish project resettlement units for supervising the implementation, continuing public consultation, monitoring progress and responding to grievances. The grievance address procedures will be established and the explanations will be included in the resettlement information booklets.

9. For land acquisition, based on the integrated land price, 30% of the land compensation will be paid in cash to the affected villages to be used as the basic infrastructure improvement, and 70% of the land compensation will be paid to the affected households directly. For residential houses and non-residential houses to be demolished, compensation will be paid to owners. The payment will be made in cash according to the appraised value of the property. The households that have to relocate will also receive a relocation allowance. Compensation for standing crops, auxiliaries and other assets will also be paid directly to the affected units and households.

10. The resettlement strategy encompasses (i) the restoration of livelihoods and income, and (ii) the replacement of housing. For people losing housing, house demolition compensation will be paid in cash to the affected households, meanwhile, house plot for house construction also will be provided to them to construct new houses. Assistance will be provided to construct new houses or find available housing close to their original community if they prefer. The respective city or county PMO’s and local governments will provide necessary assistance for house construction and relocation during resettlement implementation.

11. Among the affected villages and towns, the maximum average farmland per capital is 19.9 mu, the minimum is 4.6 mu, and the average is about 11 mu. Because the road construction will occupy only a strip of land, there is only limited land occupation for the affected families, and the impact is not big. In average, only 7.5% farmland per capita will be acquired in each affected household. Even the affected families lose 10% of their farmland; the land acquisition would not result in serious influences in these villages because there is an abundant farmland in most affected villages. Based on the analysis, among 35 affected village groups there are only 13 village groups in which the land acquisition is over 3% of the original farmland, 8 village groups in which land acquisition is over 4%, and only 2 over 6%. It would not result in big impact to their life due to the farmland losses. On the contrary, the development opportunity brought after building road and compensation for the land acquisition can make them participate into various non-agricultural production more actively, creating the new opportunity to improve their income.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

12. The measures for economic revitalization include: (i) 70% of the land compensation will be paid to affected household, and they can use the money to hire farmland from state farms nearby; (ii) provision of employment opportunities during the project construction phase; (iii) preference policy (credit, tax, etc) will be provided to the APs by the local government to encourage them to engage other sectors, such as small businesses; (iv) agricultural technique and non-agricultural skills training will be provided by local governments. The 5 affected county or city governments all ensure that the APs will have the priority to be trained each year and the training budget will be provided by the county governments; (v) after the completion of the highway, the affected households will be given priority to be employed in the routine maintenance of the highway.

13. Based on the survey, absolute poor households were not found in the sample households. However, some of old solitary people are found in the sampling households. They are vulnerable group in communities. For these affected people, the policy of Provisional Measures of Old-Age Insurance for Peasants Involved in Land Requisition in Heilongjiang Province can be adopted to help them. Once they get the social security payment, their livelihood will be guaranteed.

14. The city, county, farm, forestry farm PMO’s will have at least 1 full-time staff responsible for land acquisition and resettlement. They will work closely with relevant village officials, land administration bureaus and will be responsible for supervision and monitoring of the resettlement.

15. The cost estimate for land acquisition and resettlement is about 48 million USD, equivalent to CNY 325.9 million in the exchange rate of 1 USD = 6.8 CNY, including contingencies (see Table 9). For bus station project, the total resettlement is 247,135 CNY (Table 10). The resettlement implementation will be scheduled to precede the project construction schedules. See Table 11.

16. Internal and external monitoring of RP implementation will be conducted. Monitoring methodologies are specified in the RP. Internal supervision and monitoring will be done by each county, city, farm, and forestry farm PMO’s to ensure compliance with the provisions of the RP. The PMO and IA have agreed to a set of supervision milestones with ADB, to ensure timely and effective implementation of resettlement activities (see Table 12). External monitoring and evaluation will be carried out by an independent agency under contract to the PMO/IA. External monitoring reports will be submitted directly to PMO and ADB.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table 1 Land acquisition areas of farms and forest farms (unit: mu) Farms and Dry Forestry Grassla Un-used Vegetable Fish Residential Old location lawn others Total forestry farms farmland land nd land garden pond land road Cuiluan forestry Yichun 25.1 1672.9 23.4 11.1 10.1 1742.6 bureau Suiling forestry Suiling 418.0 4144.6 195.8 1.1 10.1 25.5 15.8 4810.9 bureau Tongbei forestry 565.4 2641.2 587.9 1.3 43.5 3.8 3843.1 Bei’an bureau Hongxing farm 1805.6 166.1 249.7 19.5 0.5 2241.4 Fenghuangshan 199.9 20.1 220 farm Huanyuan farm 32.9 4.7 13.3 6.2 57.1 Wudalian Military farm 77.4 1.1 5.5 1.3 85.3 chi Yongfeng farm 222.5 1.6 21.5 22.1 22 40.5 330.2 Weishan farm 301.0 119.4 9.3 110.1 539.8 Geqiushan farm 75.3 137.4 1.7 2.4 294.4 511.2 Yinlonghe farm 242.2 284.4 11.1 356.4 894.1 Qixingpao farm 80.6 166 50.1 359.8 656.5 Nenjiang farm 150.5 34 40.3 0.2 4 229 Nenjiang Sishilihe forestry 168.1 24.7 29.8 1.2 5.8 1.2 230.8 farm Total 4364.6 9398 1056.9 142.3 60.3 0.2 6.0 32.2 1259.5 71.9 16392

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table 2 Land acquisition areas of towns and townships

Dry Rice Vegetable Forestry Residential Fish Old Area Town/ship Grass Un-used others Sub-total farmland paddy garden land area pond road

Haijiang 420 2 0.3 1.1 2.6 1.6 427.6 Nenjiang 157 1.1 24.7 182.8 Nenjiang Changfu 34 0.3 34.3 Sub-total 611 2 0.3 1.1 4 26.3 Shuangquan 184 5 9.1 21.4 1.1 10.8 231.4 Xinglong 1335.2 11 76.9 24.5 1447.6 Wudalianchi Xinfa 482 7 8 45.3 8 550.3 Sub-total 1919 7 24 9.1 143.6 33.6 10.8 Erjing 138.6 4.1 6 2.7 151.4 Zhaoguang 248.4 58.4 148.4 455.2 Bei’an Chengjiao 160.2 160.2 Sub-total 547.2 62.5 6 148.4 2.7 Total 3159.4 7 2 86.5 15.1 292 0.3 1.1 40.3 37.1 3640.8

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table 3 Temporary Land Use for the Main Highway

Location Land acquisition (mu) Cuiluan Forestry Bureau 52.5 Suiling Forestry Bureau 514.2 Tongbei Forestry Bureau 13.4 Nenjiang 299.9 Wudalianchi 296.7 Bei’an 98.9 Hongxing farm 722.6 Total 1,998.2

Table 4 Permanent Land Acquisition for Link Road

Location Land Title Land acquisition area (mu) Weishan Farm 14.7 Wudalianchi City Geqiushan Farm 20.5 Qixingpao Farm 14.6 Nenjiang County Haijiang Township 14.3 Total 64.1

Table 5 Temporary Land Acquisition for Linking Road

Location Land title Land acquisition area (mu)

Nenjiang County Haijiang Township 20.8

Table 6 Impact of Affected Enterprise

Enterprise Brick houses（m2） Jinzhu Hongye Ltd. 117

Table 7 House Demolition Information Brick house Storage building Town or Township (owner) （m2）（m2） Suiling Forestry Bureau 328 111 Yongfeng Main 470 Farm road Wudalianchi Shuangquan 178 Township App 20 - 7

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Brick house Storage building Town or Township (owner) （m2）（m2） Weishang 440.6 91.8 Farm Sigongli Gang of Nenjiang road 277 management station Branch Lixin Village of Nenjiang town, 126 40 road Nenjiang county Jinzhu Hongye Ltd. 117 Total 1,936.6 242.8

Table 8 Bus station land acquisition (m2)

Land Impact and Area of Parking Land Name of bus station area compensation station area ownership needed Shiquan town bus Since the 120 300 500 station of Bei’an city land Erjing town bus acquisition 120 300 500 station of Bei’an city Collective area is not Haixing town bus land large, the 120 300 500 station of Bei’an city impact will be Zhaoguang town not so critical. bus station of Bei’an 120 300 500 city Cash Aiming township compensation bus station of Hailun 130 270 434 city Zhayinhe township bus station of Hailun 110 250 384 city Donglin township bus station of Hailun 110 180 315 city Residential Haixing town bus 120 270 420 land station of Hailun city Qianjing township bus station of Hailun 120 350 494 city Shuangchahe town bus station of 190 310 500 Suiling county Geshanxiang town 190 310 500 bus station of

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Land Impact and Area of Parking Land Name of bus station area compensation station area ownership needed Suiling county Shangji town bus station of Suiling 190 310 500 county Shenglang bus station of Lanxiang 260 1200 2000 town of Tieli city Collective Shichang bus land station of Taoshan 260 1200 2000 town of Tieli city The upgrade of None Nenjiang farm bus 733 1000 2300 station The sixth management area 150 500 1500 bus station of Nenjiang farm The second management area 300 3000 3500 bus station of Qixingpao farm State-owned The upgrade of land Qixingpao farm bus 2500 planned for station construction The upgrade of Geqiushan farm bus 220 1000 2000 station The upgrade of Weishan farm bus 200 2000 4000 station Wudalianchi farm 260 1500 2000 bus station Hongxing farm bus 600 3500 4000 station Total 31347

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table 9 Resettlement Cost of Qian-Nen Road Project Compensation cost (million CNY) Item Main Link subtotal road road Compensation for permanent land 120.002 0.735 120.737 acquisition

Compensation for temporary land use 7.103 0.058 7.161

Compensation for forest land 141.283

Basic House compensation and movement I 1.173 Cost subsidy Enterprises’ house compensation and 0.055 movement subsidy Compensation for Infrastructure and 11.4998 attachments

Total of basic cost 281.9088

II Taxes and fees 22.816

III Overhead cost (1% of the basic cost) 2.8191

IV External M&E cost (0.5% of the basic cost) 1.4095

V Contingency（6% of the basic cost) 16.9145

Total 325.87

Staff Training 0.252*

*Training cost will be shared by the Local Government and related Provincial Department, not included in the total budget.

Table 10 Total Budget of Bus Station Construction Resettlement Plan Item % Budget (Yuan) Basic fee 174048 Management fee 10% 17405 Unpredictable fee 10% 17405 Tax fee 38277.6 Total 247135.6 App 20 - 10

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Table 11: The implementation schedule of Resettlement Plan

Item Scheduled progress I. Land Requisition 2009.10.1~2011.12 1. Issuance of Resettlement Information Handbook 2009.1 2. Publish compensation criteria 2009.1 3. Detailed investigation and measurement 2009. 3~4 4. Negotiation and determination of compensation amount 2009.1~10 5. Land requisition compensation payment 2009.10-2010.5 II. Rehabilitation of production losses 1. Formulate land adjustment measure and detailed plan, make 2009. 1-3 negotiation with affected people. 2. Land reclamation plan 2009.5 3. Land adjustment implemented 2009.5-2010.5 4. Other economic rehabilitation measures implemented 2009.5-2011.5 III. House removal and relocation 1. Investigation of affected assets and valuation 2009.3 2. Publish investigation results in announcement board and inform 2009.3 affected people 3. After negotiation with household, conclude a compensation 2009.3-10 agreement of house relocation 4. Select homestead land 2009.5 5. House compensation payment 2009.10 6. Level homestead land 2010.5 7. Build new houses 2010.5-10 8. Move into new houses 2010.7-10 9. Remove old houses 2010.7-10 IV. Special facilities rehabilitation 2010.5-10

Table 12: Internal M&E Schedule and Report

Time Content Status Preliminary land acquisition and August 2009 resettlement progress up to August Submitted 2009

Land acquisition and resettlement

January 2010 progress up to December 2009

Land acquisition and resettlement

April 2010 progress for the first quarter

Land acquisition and resettlement

July 2010 progress for the second quarter

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Time Content Status

Land acquisition and resettlement

January 2011 progress up to December 2010

Resettlement and income restoration

July 2011 progress

Resettlement and income restoration

January 2012 progress

January 2013 Resettlement completion report

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Appendix 21 Organization Chart for Executing Agency and Implementing Agency

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Heilongjiang Provincial Government

Headquarter Office Heilongjiang Provincial Communication Department (HPCD)

Financial Division Planning & Statistical Division

Personal Division Construct and Management Division

Tech & Education Discipline & Inspect s

r e Division Division h Ot Construct Quota China/Russia United Station Transportation Office

Quality Monitory Project Management Toll Road Admin Bureau Road Toll Admin Bureau Waterway Road Trans Admin Bureau Road Trans

Scientific Research Institute Station Consulting Company Plan Survey Design Institute Plan Survey Road Administration Bureau Waterway Public Sec Bureau Waterway Transport Information Center Information Transport Toll & Fee Inspection Bureau Toll Highway Construction Bureau Administration Policy and Regulatory Office Division

Others Toll Toll Other Toll HLJ Road -Ⅰ HLJ Road - II Other PIUs Subdivision 1 Subdivision 2 Subdivisions PIU PIU

Organization Chart Heilongjiang Provincial Communication Department (HPCD)

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Project Management Organization Chart

Heilongjiang Provincial Government

Project Steering Committee（PSC）*

Heilongjiang Provincial Communication Department (HPCD), (Executing Agency – EA)

Project Management Office (PMO) Road Maintenance Component Implementing Agency (IA) Implementation Unit (PIU), (IA) ***

Chief Planning Safeguard Rural Bus Financial Administration Support Supervision Division Coordination Service Management Division provided by Engineer’s Division Division Division HPHB Office

Yichun Site Wudalianchi Nenjiang Site Pilot Project Office Site Office Office Secretariat (PPS) in Bei’an**

*PSC Chairman: Gai Rugen, Deputy Governor of Heilongjiang Province; Vice Chairmen: Gao Zhijie, Director General, HPCD; Members: Wang Zhongren, Deputy Director General, Provincial Development Reform Commission; Liu Zhongzhi, Deputy Director, Provincial Public Security Bureau; Li Jichun, Director General, Provincial Finance Bureau, Li Dingxun, Deputy Director General, Provincial State Land Bureau; Guo Yuan, Deputy Director General, Provincial Environmental Protection Bureau; Gao Xuewen, Deputy Director General, HPCD, Han Liansheng, Director General, Provincial Forest Bureau; Yuan Zhifeng, Deputy Director General, Provincial Auditing Department. PSC will overlook the implementation of the project and provide guidance and support of the project.

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** PPS will be chaired by Pilot Project Coordinator who will be appointed by Bei'an county transport bureau. PPS will be responsible day to day implementation of the pilot project and provide interface between the IA and the pilot project. *** The Project Implementation Unit (PIU) will implement road maintenance component; it will be located in the HPHB.

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report

PRINCIPAL FUNCTIONS OF THE PROJECT MANAGEMENT OFFICE and PROJECT IMPLEMENTATION UNIT

I. PROJECT MANAGEMENT OFFICE

(i) Chief Supervision Engineer Office (5–7 professional staff): manage and coordinate with the site offices in Yichun, Wudulianchi, and Nenjiang and construction supervision team. Coordinate on the preparing, reviewing, and approving various detailed designs; review and approve change orders, contract variations; adjust and update contract schedule; and update contracts as needed.

(ii) Planning Division (3 – 5 professional staff): implement and update the procurement plan; handle procurement in accordance with the implementation schedule; coordinate with the concerned bureaus in reviewing, evaluation, and approval of procurement documents for goods and services including recruiting of consultants; conduct bidding, hold contract negotiation, and award contracts; and prepare reports. Review contractors', suppliers' and consultants' work programs for executing civil works, delivering equipment and installing, and implementing services.

(iii) Safeguard Coordination Division (5 - 6 professional staff): coordinate and monitor implementation of resettlement plan; assure that affected people are properly compensated in a timely manner; review the reports prepared by the external monitoring agencies; and prepare reports. Coordinate and monitor implementation of the Social Development Action Plan and the Environment Mitigation Plan, review environmental progress reports prepared by the external monitoring agencies, and prepare reports.

(iv) Rural Bus Services Division (2 professional staff): administrate and manage the upgrade and rehabilitation of the rural road system. Provide contract management and administration of the procurement and implementation of the bus station construction. Provide administration and management of the implementation of the rural bus service improvement pilot project. Inspect and review the progress of the pilot project implementation, review the progress reports, coordinate with the Bei'an county transport bureau, and the pilot project secretariat, and provide necessary support for the pilot project implementation.

(v) Financial Management Division (4 professional staff): project and monitor disbursements, handle accounting, undertake financial oversight, carry out internal auditing of cash flow, organize project auditing and reporting, and prepare reports.

(vi) Administration Division (3–4 professional staff): provide general support for PMO and PIU daily operation, handle interpretation/translation, manage capacity building component, provide secretarial and legal services, archive documents, and prepare reports.

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PMO will have a total of 6 divisions with 30 professional staff and 30 support staff.

II. PROJECT IMPLEMENTATION UNIT

(i) Project Implementation Unit will be staffed by 5 persons with additional input by international and national consultants. This unit will be supported by the resources of HPHB for administrative, financial, procurement and other support services. PIU will be responsible for the planning and implementation of all aspects related to Road Maintenance Component.

(ii) The PIU will have staff with expertise and responsibilities in: (i) road maintenance systems, (ii) road maintenance contracting and works, and (iii) planning. 2 persons from local highway bureau will provide input in implementation from the local level perspective.

(iii) The PIU will implement (i) RAMS acquisition, (ii) data collection, (iii) road maintenance works, (iv) development of contract documents for maintenance-by-contract, (v) domestic and international training, and (vi) financing the activities. The PIU will prepare and submit reports to the EA and ADB.

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Appendix 22 Regional Trade Development

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REGIONAL TRADE DEVELOPMENT

A. Heilongjiang Trade Development 1. The main components of the proposed project consist of new road segments between Yichun and Bei’an, Class II road from Bei’an (at Longzhen) to Nenjiang, and Class I road from Nenjiang to provincial border with Inner Mongolia. This project will provide a cross provincial east-west corridor between Nenjiang and Qianfeng Farm, and better access of major agricultural and industrial production areas to the major port cities. Sanjiang Plain in the east will have direct access to the port cities in Heihe City, Jiayin and Mingshan. The Songnen Plain in the west will have direct access to ports in Fuyuan and Suifenhe, and the national forest base. Daxinganling and Jiagedaqi will have direct Class I or II highway linked to Nenjiang after the segment of highway from Nenjiang to Jiagedaqi is completed by the Inner Mongolia Government. It is expected that the Project will further foster the trade development and bring in more traffic volume to the port cities along the Heilongjiang River and improve cross-border trade with Russia.

2. Statistical data shows that trade volumes have exhibited dramatic increase from year 2000 to year 2007. Retail of consumer goods has more than doubled. County and below county levels showed a 150% growth. Sales in fuel have increased three (3) times, while sales on articles have gone up 2.4 times. Based on official statistics Heilongjiang’s total volume of import and exports in 2007 was 21.7 billion USD, which is almost 4.5 times (4.74 billion USD) compared to that in 2000 with an average increase of 46.37% annually. Exports jumped 4.5 times with an annual average increase of 50.42 %, outdoing the imports by 3.9 times and a corresponding annual average increase of 41.88 % within 7 years. This was brought about by increased trade activity and improved border crossing procedures at ports along the Heilongjiang River. On the national level, the total annual import and export values of goods from Heilongjiang grew 4.6 times, which is almost identical to China’s overall performance. Also the neighboring provinces of Jilin and Liaoning had experienced improvement in their local economies expanding to 3.6% and 3.34% respectively. For the northeast region, on the overall gross figures for the 2007 import and export values, Liaoning was the highest at 65.18 billion USD, followed by Heilongjiang at 18.4 billion USD and then by Jilin at 11.3 billion USD.

3. The Project Road forms part of the second of the three key west–east corridors (known as the WE2) of the 2763 network in Heilongjiang. With the introduction of the Project, the WE2 will stretch a total of around 824 km from Nenjiang to Qiangfeng Farm and will become a major route connecting the Songnen Plain farm, pastoral area, and Wudalianchi GeoPark in the northwest and the Sanjiang Plain agricultural area, coal mines and wood industry in the northeast. The Project Road will be around 354 km and starts from the west at the Inner Mongolian bank of the Nenjiang River, passing through Nenjiang County, Bei’an City, Suiling County and finally into Yichun City. The project is expected to bring direct social and economic development of three prefectures namely Yichun Prefecture, Suihua Prefecture and Heihe Prefecture; four counties and/or county level cities such as Suiling County of Suihua Prefecture, Bei’an City, Wudalianchi City, Nenjiang County of Heihe Prefecture. In addition, the road alignment also traverses three forest zones under the Heilongjiang General Bureau of Forest Industry; six farms supervised by the Heilongjiang General Bureau of Agricultural Rehabilitation; three farms under Heilongjiang Judicial Authority; and two agricultural bases under the Heilongjiang Military Area. The total area of influence covers around 68,667 square kilometers, with a population of close to three million.

B. Heilongjiang Ports and Border Trade Ports 4. Russia is the biggest country bordering with China such that international trade with that country is vital. By the end of 2008, there were 43 international road transport routes including

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report passenger and freight transport developed along the border between China and Russia. Out of this, twenty-two (22) are passenger international transport routes while twenty-one (21) are freight transport routes. Correspondingly, seven (7) international road transport routes have been opened where around 38 shuttle buses operate. In Heilongjiang, freight and passenger transportation volumes of international transport reached 1.1 million tons and 2.0 million person-trips respectively, highlighting the importance of road transport as one of the most important transport modes to Russia and which are going through the border crossing points.

5. In Heilongjiang province the border is defined by the Heilongjiang River and the Wusuli River stretching to the north and east of the province respectively for around 3,038 kilometers along which, 25 cities are located. On the Heilongjiang side the most prominent border cities are Suifenhe, Heihe and Tongjiang.

6. There are twenty-five (25) active ports located within Heilongjiang that serves as entry- points categorized as border port and inland port. There are 15 border ports which are made up of one (1) railway port, four (4) highway ports and ten (10) waterway ports. The inland ports consist of three (3) aviation ports, one (1) railway and five (5) waterways. Five of these border ports are within a distance of 160-250kms from the Project Road. The five borders ports are located in Mingshan (Loebei County), Jiayin, Xunke, Sunwa, and Heihe. Four of these ports, except that in Sunwu, are operational and are used for freight and passenger crossing to and from Russia. Immigration and customs procedures are carried out to process goods and people crossing the border. Most of the border crossing facilities are provided with the necessary equipment such as computers, surveillance camera, metal detectors and X-ray scanners. The most modern and high-tech is the facility located in Heihe, which is housed in a contemporary style building, spacious lounge, parking grounds, passenger temperature scanner, multiple X- ray scanners, surveillance cameras and a classy duty free boutique. Basic facilities were found in Loebei Port consisting of surveillance camera, computers and immigration processing booths.

7. For the Border Ports in Heilongjiang, the most active now in terms of passenger and cargo traffic is Suifenhe Port. Heihe Port is second in terms of person traffic, but third in cargo traffic. Dongning is third in passenger traffic while Tongyang is third for cargo traffic. Freight and passenger cross border traffic data from HPCD for 2007 indicate that the highest in terms of freight is Dongning Port which is around 42% of the entire province. For the ports near the Project Road, Heihe is still the largest garnering around 14% of the provincial cross border freight traffic. As indicated, the traffic in Heihe is around 22 trucks/ day. Accordingly, Xunke will have 1 truck/ day, 1.2 trucks for Loebei, and 2.3 trucks for Jiaying. This will likely be the number of trucks that can potentially use the Project Road. This may of course increase in the future, but only Heihe’s traffic will be significant. Jianyin’s traffic is still low, but bottlenecks may occur as roads from Yichun to Jiaying will not be improved.

C. Trade Development Plan 8. A Port Development Plan was produced with the general objectives of strengthening and guaranteeing quick development of trade between China and Russia. The plan also aims to revitalize cooperation strategy with Russia in various sectors including economy, business, science, technology, and improve corridors to the sea from Heilongjiang. It focuses on constructing and upgrading the infrastructure of port highways and waterways to improve capacities, link up with other transportation modes, and advocate for comprehensive and integrative port facilitation and transportation planning through formation of convenient and quick corridors for trade between China and Russia.

9. The Port Development Plan also recommends some infrastructural programs and projects which can be undertaken to improve capacities and upgrade the technical levels of the border ports all over Heilongjiang. Where large numbers of passengers and freights by waterways are experienced a border bridge will be constructed for land transportation to

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report efficiently and speedily convey goods and people between China and Russia. The locations where bridges are envisioned to be built are in Heihe, Luoguhe, Raohe Wusulijiang, and Mingshan. Construction and/or upgrading of Port Passenger Station or Terminal was recommended for improvement of services, increase capacity, provide quality and internationally accepted amenities for convenient, quick, easy, safe, timely, economic and environment-friendly processing. As mentioned in the plan, the locations where Port Passenger Stations or Terminals are envisioned to be constructed are in Suifenhe, Xicheng, Dongning, Tongjiang, Minshang, Huling, Moehe, Jiayin, Fuyuan, Loubei, Raohe, and Xunxe. To improve navigability of rivers, a Waterway Development Program is proposed for places like Songhuajiang Dadingzshan Navigation and Hydropower Junction, Heilongjiang Tongjiang to Haba River-Sea Channel Renovation. Infrastructure improvement as part of the Harbor Opening and Development Program is recommended in places like Tongjiang Harbor, Heihe Harbor, and Fuyuan Harbor to better serve the needs of the port operations.

10. With the prevailing local and global economic and financial challenges, a number of relevant strategies can be brought forward for policymakers to consider toward revitalizing trade and improvement or provision of transport infrastructure. Within Heilongjiang the private sector should be encouraged to invest in the recognized industrial hubs and economic zones through some incentives. However, this should be matched by investments for more efficient infrastructure, particularly transport infrastructure, which need to be spearheaded by the public sector. With the seemingly inherent strength in various industries and the pool of expertise in the area, technological innovations will be relatively easy to achieve and thus, should be encouraged by various programs. On the other hand, the industrial activities in the province can be considered as a prime cause for industrial pollution and exhaustion of natural resources. This needs to be looked into. Also, various environmental protection and preservation programs need to be established where different governmental and non-governmental instrumentalities can collaborate.

11. On matters of international trade facilitation with Russia, a number of items need to be considered by policy-makers related to border crossing, immigration and customs procedures. Part of the infrastructural improvements will be the upgrading of roads to border ports, particularly link roads from the EW2 corridor to the border crossing points. The road network that may require upgrading to facilitate access are Yichun to Jiayin, Xunke to Sunwu along G202 (Bei’an to Heihe) and Hegang to Loubei. As identified by the Port Development Plan, a number of the ports need to be upgraded in terms of terminal stations, port facility and other support infrastructure. To improve freight movement and complement road freight transport, railways need to be extended up to the border crossing port area. Areas near the border ports have potentials of developing into economic zones, industrial complexes and processing areas and so must be explored by policy-makers. Certain areas exhibiting potentials for transport nodes can be developed into logistic hubs to service the needs of Heilongjiang’s industries in terms of integrated warehousing, material sourcing, packaging, forwarding, shipping and monitoring of shipment from origin to destination.

12. In addition, certain management features need to be explored as well by both Chinese and Russian officials. Customs system harmonization should be pursued by both countries in order to eliminate bureaucratic red tapes and documentary duplications and paperwork. Both countries can establish a Single-Stop/Single-Window Processing, which is in line with systems harmonization, establishment of procedural steps or facility for one-stop processing, which cuts the waiting and delay time to practically one-half. Traders accomplish both exporting and/or importing requirements in one facility where customs officers, sanitation officers, etc. of both countries are housed in the same facility and freely exchange information in an efficient way to minimize delays. Pre-lodging system can be established and done electronically through web portals or designated offices for documentary verification. This procedure will minimize delay, avoid spoilage of perishable products and ensure in-time delivery of goods to the customers from one country to another. Periodic upgrading of systems and personnel is necessary

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Heilongjiang Road Development II (TA 7117 – PRC) Final Report especially data-sharing to prevent cross-border crimes and manage risks. Overall, both countries should strive for more liberalized trade through bilateral treaties and other legislative measures for more collaborative work to further strengthen economic ties.

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Appendix 23 Inter-provincial Transport Services

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INTER-PROVINCIAL TRANSPORT SERVICE

A. Connectivity 1. Heilongjiang is located in the far north of China with Russia in the northeast, Inner Mongolia in the west, and Jilin in the south. The east-west inter-provincial road corridors will not only facilitate the movement of goods and people within the province, but also serve as the gateway for Inner Mongolia to reach the port cities at the border with Russia and the east coast. The north-south inter-provincial road corridors connecting to Jilin, in addition to the railroad system, serve as the major gateways for agricultural, forest and industrial products to reach the other parts of China.

2. Adopted in 2006, the Heilongjiang Province Trunk Highway Network Development Plan was developed and referred to as the "2763" Network. This network is made up of two (2) belt lines, seven (7) radial roads emanating from the capital city of Harbin, six (6) north to south lines and three (3) east to west lines. The two circumferential roads are C1: Harbin Ring Road and C2: Harbin Economic Circle Loop Line. The seven Radial roads from Harbin are R1: Harbin to Gannan, R2: Harbin to Heihe, R3: Harbin to Jiayin, R4: Harbin to Fuyuan, R5: Harbin to Suifenhe (Dongning), R6: Harbin to Wuchang, and R7: Harbin to Shuangcheng. Running north to south are the six vertical lines such as V1: Fuyuan to Mishan, V2: Fujin to Dongning, V3: Hegang to Xingshan, V4: Mingshui to Zhaoyuan V5: Daqing to Zhaoyuan and V6: Louguhe to Tailai. While the three horizontal lines stretching east to west are H1: Loubei to Jagdaqi, H2: Qianfeng Farm to Nenjiang and H3: Raohe to Nehe.

3. The Project Road from Nenjiang to Yichun is traversed by a number of national and provincial roads. National road G111 running from Jiagadeqi connects with the Project Road at Nenjiang and runs all the way to Beijing. Two provincial roads emanate from Nenjiang – S208 goes north and connects to S209 at Laodao, which runs to Huma; while S301 goes northeastward to Xiganzi near Heihe. Provincial road G202 runs from Heihe, intersects the Project Road at Bei’an, and goes down to Harbin. Provincial road S302 runs from Bei’an to Qiqihar. National Road G222 starts from Harbin and connects with the Project Road at Yichun. Provincial road S204 emanates from Yichun and goes up all the way to Jiayin. Provincial roads also connect borders ports along Heilongjiang River – S111 runs from Heihe to Sunwu, Xunke and up to Jiayin; S312 runs from Jiayin to Loebei; and a short segment of S101 from Loebei to Mingshan. These interconnecting roads will be relevant trade routes within the province as well as for international trade with Russia, especially those connecting with border ports.

B. Transport Services

4. Road public transport system in Heilongjiang is at acceptable levels. Every county/city has one state-owned passenger transport company operating with at least one passenger station for the service of passengers. Most of these bus companies have the bus routes to Harbin, county/city or township with some route linking to the villages with large enough population for regular servicing. As of 2007 there are 770,121 passenger coaches operating within the province out of which, 494,083 are privately owned.

5. Harbin, as the capital and most important city in Heilongjiang, is the transportation hub for public transport. All major cities in Heilongjiang as well as those in Jilin and Inner Mongolia can be reached by public buses from and to Harbin. In addition, major bus services between cities in Heilongjiang and including those that are adjacent to the provincial boundaries with Jilin, Inner Mongolia and places in Russia are available. Most of these bus services use national and provincial roads.

6. Within Heilongjiang there are about eleven (11) major state-owned freight corporations hauling goods both inside and outside the province. Current statistical data show that there are

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279,591 trucks in Heilongjiang, of which, 203,866 are ordinary trucks and 75,725 are Special Trucks. Also, out of the total number of trucks, 133,977 (49%) trucks are privately-owned while the rest are state-owned. Most of these trucks use major highways and are quite sensitive to fuel cost and hauling time.

7. Traffic counts and estimation of annual average daily traffic (AADT) were done for the Project Road. Based on the results, the busiest in terms of volume of vehicles is G222 or the Harbin-Yichun Road. In terms of passenger vehicle volume, the busiest is G203 (Mingshui - Shenyang), followed by S202 (Suihua – Bei’an) and G202 (Heihe - Dalian). For freight truck traffic the most favored is G222 (Harbin - Yichun), followed by S202 (Suihua – Bei’an), and G111 (Beijing – Jiagadaqi). These indicate that passenger transport terminal can be located at Bei’an as this can be a major transport node for passengers, while freight logistics services can be established in Yichun, Bei’an and Nenjiang.

C. Inter-provincial Connectivity 8. Inter-provincial connectivity between Heilongjiang, Jilin and Inner Mongolia is enabled by national as well as provincial roads. Within Jilin the major one is the Harbin-Changchun Expressway (G010), which is part of the PRC’s national trunk highway system consisting of the Hashuang Expressway, the Heilongjiang portion; and the Changyu Expressway, the Jilin portion.

9. In addition, there are four (4) more national roads (G203, G102, G202 and G201) and three (3) provincial roads (S221, S222, S321 and S206) that provide linkages with Jilin. Heilongjiang and Inner Mongolia are linked by two (2) national roads (G111 and G301) and three (3) provincial roads (S207, S310 and S302).

10. To get to Jilin, passenger vehicles use more often G102 (Beijing – Harbin), followed by G203 (Mingshui - Shenyang) and S221 (Keli - Jieji). For freight trucks into Jilin, the frequently used road is G102 (Beijing – Harbin), followed by S206 (Jixi - Tumen) and S321 (Nancun- Wangqing). For passenger inter-connectivity with Inner Mongolia, data show that G301 (Suifenhe-Manzhouli) is the mostly frequently used, followed by S207 (Jiagedaqi-Mohe) and S302 (Liajzishan-Bei'an). For freight interconnectivity with Inner Mongolia, the frequently used road is G301 (Suifenhe-Manzhouli), followed by S302 (Liajzishan-Bei'an) and S207 (Jiagedaqi- Mohe).

11. Future inter-provincial connectivity can be enhanced if these roads will be programmed for upgrading and/or rehabilitation can be considered in the succeeding five-year plans for Heilongjiang, Jilin and Inner Mongolia.

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Appendix 24 Rural Bus Service Pilot Project

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IMPROVING RURAL TRANSPORT SERVICES

A. Existing Rural Transport Services in Heilongjiang

1. Connectivity. In general, the connectivity of bus service is quite well. By the end of 2008, the rural bus service has covered 98.9% of all administrative villages in whole province with only 152 administrative villages left without bus services. Heilongjiang plans that 102 administrative villages will be connected by the end of 2009, with only 501 administrative villages left without bus services.

2. Accessibility. Bus services in the project area between counties and towns are adequate because of the high travel volume; however, the service frequency at the village level is very low due to less demand, and sometimes only one bus run per day. The average trip distance is relatively long.

3. Affordability. The bus fare rate is regulated by the Heilongjiang Government. The current rate was formulated 10 years ago, which is relatively low. For local passengers, the current fare is affordable; however the profit for the service providers is very low.

4. There are issues on how to use the current bus stations efficiently. In remote areas, bus stations have not been fully used due to low traffic demands. The construction of the bus station should be implemented based on applicability. The station level and size should be determined based on the actual needs.

B. Issues in Bei'an County

5. Bei’an county is located about 330 km north of Harbin. The city has a total area of 7,194 km2 and the population is about 471,000. The county is consisted of 9 towns or townships with a total of 62 administrative villages of which 20 administrative villages do not have formal bus services. Currently there is only bus station opened in Tongbei town in 2008 which provides formal bus services among major towns and townships in Bei'an county. The Project will provide four new bus stations in Bei'an city.

6. The rural bus service providers are small companies or individuals. Many of rural bus service problems result from the strict regulatory structures. Regulations should concentrate on safety and environmental considerations and reduce service restrictions so as to make the travel market as free and open as possible. Without efficient enforcement of regulation it is difficult to control the behavior of the service providers. The problems of unhealthy competition, denial of passengers, overpricing, and over loading occur very often. The use of old vehicles or vehicles without proper maintenance is common, which has resulted in serious safety incidents. In event of incidents, the individual providers usually have very low compensate-pays ability because of lack of adequate enforcement of insurance regulation, causing big loss for the providers and victims.

7. In rural areas where bus services are insufficient, villagers take rides on tractors, tri- motor-cycles, trucks which are forbidden to be used for passenger transport.

1 An administrative village is a group of villages. Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Because of the low fare, the profit of rural bus service providers' is low, which prevents the development of rural services in sustainable manner.

C. Pilot Project

8. Overview and Objective. Previous studies of the ADB stress that improvement in rural transport is essential to the successful implementation of government policies to reduce rural poverty. In order to complement the government effort, improvement of township and village bus services through implementing a pilot project is proposed in Bei'an county. The pilot project aims (i) the public interest must be protected by providing flexible bus service, keeping fare at reasonable levels, ensuring vehicles in good condition; (ii) operators will seek to provide service that will maximize their revenue; and (iii) the regulators will do their work to ensure that new demands for service are monitored and advised to operators.

9. The bus route licensing reforms in Bei'an County will cover one township and three administrative villages. The township and the administrative villages will be selected based on the results from field investigations and surveys to be undertaken under the Project on transport demands, quality and condition of the existing services, and availability of service providers. The pilot project will:

(i) demonstrate how bus services operates in the rural area; (ii) provide an opportunity for all involved stakeholders to participate in refining and modifying the proposed rural bus service scheme; (iii) draft the requirements for implementing procedures and regulations in regard with planning and licensing bus route and services, insurance, and inspecting vehicle safety, and (iv) monitor and evaluate the effectiveness of the proposed improvement, and provide the necessary adjustments as needed.

10. Implementation Arrangement. The Heilongjiang Provincial Communication Department (HPCD) will be the Executing Agency (EA) with overall responsibility of implementing the pilot project. Project management office will be the Implementing Agency (IA) to provide day to day management and implementation of the pilot project. Bei'an County Transport Bureau will form a pilot project secretariat chaired by the Pilot Project Coordinator who will (i) provide the interface between the IA and the pilot project, (ii) overlook day to day implementation of the pilot project, (ii) provide information to the IA for decision making, (iii) supervise consultants activities to be engaged under the Project, and (iv) submit progress reports to IA and EA. The Bei'an County Communications Bureau will provide an office for the secretariat and help the secretariat in contacting with stakeholders and obtaining information.

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11. Implementation Schedule. The duration of the project will be approximately 12 months, starting at middle of 2011 and completing by middle of 2012. The introduced bus services will be annually monitored and evaluated by the consultants for two years. The pilot project activities will be undertaken in three phases: a data collection and formulation of reform phase, an implementation phase, and monitoring and evaluation phase.

Phase 1—Analyze regulatory and licensing procedures and practices, carry out baseline survey, and formulate proposals for reform:

(i) Review and evaluate the outcomes of the rural transport service improvement project conducted in Lindian County in Daqing City, and identify areas to be improved, and propose the best practices to be introduced to the pilot project, (ii) Examine and summarize the results of pilot projects undertaken in other provinces of the country and the recommendations provided by ADB financed TA, followed by the application of the best practices, (iii) Develop and carry out training for county transport bureau staff for managing and administrating the pilot project, (iv) Carry out public consultation for county transport bureau staff, passengers, current bus and taxi operators, unlicensed transport service operators, local business groups, civil groups, local communities to inform the proposed pilot project, (v) Draft requirements for implementing regulations and procedures in regard with planning, insurance, vehicle type, vehicle safety, fares and service charges, (vi) Define the role and responsibilities of the county road transport bureau including (a) planning and designing village routes; (b) providing guidance in soliciting Village Bus Operators and establishing Village Bus Route Licenses; (c) conducting procurement of Village Bus Route Licenses based on market competition; (d) administering the Village Bus, Village Bus Route, and Village Bus Operator licensing system, including vehicle safety inspection; (e) adjusting bus routes and operations if necessary for better services; and (f) monitoring the service operations to ensure that the objectives of the demonstration project are met, (vii) Based on traffic demands, current bus service routes, and public feedback, develop and detail rural bus service routes to be included in the Village Bus Route network, and define the bus stops and minimum service frequencies. For villages in the remote area where the service demands are low and does not warrant a fixed route services, an on call service implemented in Lindan County will be considered for implementation, (viii) Develop temporary licensing regulation and procedures for service providers and vehicle operators, and seek concerned authority approval, (ix) Develop process for the solicitation of local transport service provider. The process should encourage fair market competition; selection criteria should include detailed implementation action plan that is to be prepared by the bidders..

Phase 2—Implementation

(x) Provide assistance on selecting bus service provider, and provide training on procurement process, (xi) Provide training and assistance to vehicle operators to obtain the temporary licensing to operate on the designated village bus routes, (xii) Provide assistance to the pilot project secretariat and recommend adjustment in the process of providing rural bus services, Heilongjiang Road Development II (TA 7117 – PRC) Final Report

(xiii) Conduct a workshop for bus operators and management of the Bei'an County Communications Bureau to explain the proposed changes and reach agreement on the actions to be taken, and

Phase 3—Monitoring and Evaluation

(xiv) Conduct the performance monitoring and assess the effectiveness and benefits of the pilot project, (xv) Prepare evaluation report to assess the effectiveness of the pilot project, and discuss the findings and recommendations with ADB, Bei'an county transport bureaus, Provincial Transport Administration Bureau, and Provincial Communication Department at the end of each evaluation period (2nd and 3rd years), (xvi) Prepare draft guidelines and procedures for the replication of the pilot reform in the Province including action plan. 11. Recourse Needs for Implementation Three national consultants will be recruited through QCBS using simplified technical proposal to implement the pilot project. A team of consultants, consisting of one rural transport services specialist/Team Leader (8 months), one bus service regulation specialist (4 months), and one bus passenger survey specialist (3 months), will be required to carry out the tasks described below:

12. The Team Leader (TL) will be responsible for the overall implementation of the pilot project, the development of procedures, training program, and providing training for management staff from the government agencies as well as the service providers. The bus service regulation specialist and the bus passenger survey specialist will be responsible for survey and field investigation to identify pilot project sites, solicitation of service providers, to establish and carry out licensing and recruiting vehicle operators, to establish vehicle safety standards and inspection program and provide assistance for vehicle inspections, to establish and carry out vehicle insurance requirement, implementing pilot project, monitoring and evaluating the services provided, and provide training for government managers, service providers, vehicle operators, and other relevant personnel.

D. Training and Workshops

14. Two seminars, four workshops, and three study tours in Xinjiang Region, Anhui Province, and Lindian County will be provided during the implementation of the pilot project as follows and the details are shown in Table 1:

(i) Training Seminar 1 – To be held at the beginning of the implementation for government officials to learn how to implement the pilot project, and the requirements for administrating and managing the project,

(ii) Training Seminar 2 – To be held in the early stage of the implementation for rural transport service providers to learn the procedures and requirement on how to carry out the pilot project,

(iii) Workshop 1 – Public hearing to be held in the early stage of the implementation to inform the local residents and the service users about the pilot project and to obtain their feedback for the implementation of the project,

(iv) Workshop 2 – To be held at the end of the completion of the implementation for governing agencies and ADB on the achievement of the implementation, lessons learned,

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(v) Workshop 3 – To be held at the end of second year of the implementation, i.e. the first monitoring and evaluation, for governing agencies and ADB on the effectiveness of the implementation, achievements, recommendations for larger scale implementation,

(vi) Workshop 4 – To be held at the end of the third year of the implementation, the second monitoring and evaluation, for governing agencies and ADB on the overall assessment of the implementation, and recommendations for larger scale implementation to other counties or even to the entire province,

(vii) Study Tour 1 and 2 – To be carried out in the early stage of the implementation for government managing officials to visit Xinjiang and Anhui for the implementation of rural transport improvement project to learn the experience in implementing the project,

(viii) Study Tour 3 – To be carried out in the early stage of the implementation for government managing officials to visit Lindan learning the experience of the implementation of rural transport service improvements conducted by Heilongjiang Provincial Government.

E. Reporting

15. The consultants will prepare (i) inception report - 4 weeks after the pilot project commencement, (ii) interim report - 3 months after the pilot project commencement, (iii) draft final report - 12 months after the pilot project commencement, and final report 14 months after the pilot project commencement. The Final Reports should summarize the project background, the details of implementing of the pilot project, the evaluation and assessment of the effectiveness of the pilot project, the lessons learned, the findings and recommendations to expand the implementation of the rural transport service reform to the entire province. Three copies of both English and Chinese versions of the reports will be required for the EA and ADB.

F. Cost Estimate

16. The estimated cost of $200,000 will include the consultants' expenses, travel expenses, workshop and seminars, field surveys, communication, report preparation and translation. The detailed cost estimates are shown in Table 1.

Table 1. Cost Estimate for Pilot Project No Description Unit Input Rate Cost Remuneration 1 National Rural Transport Specialist Month 15 $6,000.00 $90,000.00

Expenses 4 Per Diem at $90 per day Day 450 $90.00 $40,500.00 6 Domestic Travel TP 10 $300.00 $3,000.00 7 Local Transportation LS 8 $200.00 $1,600.00

Training and Workshop 8 Training Seminar for Government Staff LS 20 $100.00 $2,000.00 9 Training Seminar for Service Providers LS 30 $80.00 $2,400.00 Heilongjiang Road Development II (TA 7117 – PRC) Final Report

10 Public Hearing LS 50 $20.00 $1,000.00 11 Workshop 1 ‐ Complete Implementation LS 30 $100.00 $3,000.00 12 Workshop 2 ‐ First Monitoring & Evaluation LS 30 $100.00 $3,000.00 Workshop 3 ‐ Second Monitoring & 13 Evaluation LS 30 $100.00 $3,000.00

Study Tour 14 Study Tour 1 ‐ Xinjiang LS 5 $800.00 $4,000.00 15 Study Tour 2 ‐ Lindian LS 5 $100.00 $500.00 16 Study Tour 3 ‐ Anhui LS 5 $500.00 $2,500.00

Survey 17 Field Survey LS 3 $4,500.00 $13,500.00

Report Preparation & Misc Expenses 18 Report Preparation (translation) LS 1 $6,000.00 $6,000.00 19 Communication LS 1 $2,800.00 $2,800.00 20 Office Supplies, Printing and Equipment LS 1 $3,000.00 $3,000.00

Sum = $181,800.00 Contingency = $18,200.00 Total = $200,000.00

Improvement of Bus Station

17. To support Heilongjiang's effort for improving rural bus services, the Project will build 16 new bus stations and rehabilitate 4 bus stations in the project impact area including Bei’an, Hailun, Suiling, and Yichun. These bus stations were selected based on the rural transport improvement plan prepared by Heilongjiang Provincial Communication Department. The following criteria was used for choosing the bus stations (i) projected daily passenger traffic volume, (ii) the size of the town where the station will be built, and (iii) the location in relation to the proposed project roads. The civil works of these bus stations will be financed by the Government ($880,000). The list of bus stations are shown in Table 2.

App 24 - 7

Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Daily Number Current Areas Delivery Population of Number Project No. Bus Station Name Location Covered Passengers Class Admin. of bus Type (10,000) (person- (km2) Villages routes times/day)

1 Bei’an Shiquan town bus station Shiquan town of Bei’an 315 4.2 14 11 500 New V

2 Bei’an Er’jing town bus station Er’jing town of Bei’an 180 2.7 7 13 420 New V

3 Bei’an Haixing town bus station Haixing town of Bei’an 133 1.7 6 10 380 New V

4 Bei’an Zhaoguang town bus station Zhaoguang town of Bei’an 207 3.0 7 15 400 New V

5 Hailun Ai’min town bus station Ai’min town of Hailun 171 2.6 10 14 380 New V

6 Hailun Zhayinhe bus station Zhayinhe town of Hailun 260 2.9 12 13 320 New V

7 Hailun Donglin town bus station Donglin town of Hailun 220 3.6 15 22 400 New V

8 Hailun Haixing town bus station Haixing town of Hailun 157 3.0 10 32 500 New V

9 Hailun Qianjin town bus station Qianjin town of Hailun 177 3.8 15 42 500 New V

Shuangchahe town of 18 360 10 Suileng Shuangchahe town bus station 138 2.6 8 New V Suileng

11 Suileng Geshanxiang town bus station Geshanxiang town of Suileng 78 1.9 7 14 280 New V

12 Suileng Shangji town bus station Shangji town of Suileng 96 3.0 9 30 600 New V

Shenglang village of Tieli Langxiang town Shenglang bus 13 Langxiang 1226 2.1 - 5 480 New V station town of Tieli City of Yichun Heilongjiang Road Development II (TA 7117 – PRC) Final Report

Daily Number Current Areas Delivery Population of Number Project No. Bus Station Name Location Covered Passengers Class Admin. of bus Type (10,000) (person- (km2) Villages routes times/day)

Shichang village of Tieli Taoshan town Shichang bus 14 Langxiang 1681 2.6 - 6 440 New V station town of Tieli City of Yichun

15 Nenjiang farm bus station Nenjiang farm 489 1.5 21 20 130 Rebuild III

16 Qixingpao farm bus station Qixingpao farm 791 1.0 28 20 220 Rebuild III

17 Geqiushan farm bus station Geqiushan farm 269 0.95 11 18 430 Rebuild III

18 Weishan farm bus station Weishan farm 289 0.85 11 20 450 Rebuild III

19 Wudalianchi farm bus station Wudalianchi farm 189 1.1 11 16 400 New V

20 Hongxing farm bus station Hongxing farm 372 1.3 17 18 500 New V

Total

App 24 - 9