Gansu Roads Development Project

Completion Report

Project Number: 33470 Loan Number: 2125 June 2013

People’s Republic of China: Gansu Roads Development Project

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion (15 August 2004) (31 Dec 2012) CNY1.00 = $0.1210 $0.1587 $1.00 = CNY8.2700 CNY6.3026

ABBREVIATIONS

AADT – annual average daily traffic ADB – Asian Development Bank EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan FIRR – financial internal rate of return GCHC – Gansu Changda Highway Co. GDP – gross domestic product GPEAB – Gansu provincial expressway administration bureau GPG – Gansu provincial government GPHAB – Gansu provincial highway administration bureau GPTD – Gansu provincial transportation department ICB – international competitive bidding KMPNR – Kongtong Mountain Provincial Nature Reserve M&E – monitoring and evaluation MEP – Ministry of Environmental Protection MOT – Ministry of Transportation NCB – national competitive bidding NTHS – national trunk highway system O&M – operation and maintenance PAM – project administration manual PCR – project completion report PPMS – project performance management system PR – progress report PRC – People’s Republic of China SDAP – social development action plan SEIA – summary environmental impact assessment SEPP – soil erosion protection plan TA – technical assistance VOC – vehicle operating cost WACC – weighted average cost of capital

WEIGHTS AND MEASURES ha – hectare km – kilometer m2 – square meter m3 – cubic meter mu – Chinese unit of measurement (1 mu = 666.67 m2) pcu – passenger car unit

NOTE

In this report, “$” refers to US dollars, unless otherwise stated.

Vice-President S. Groff, Operations 2 Director General R. Wihtol, East Asia Department (EARD) Director H. Sharif, People’s Republic of China Resident Mission (PRCM), EARD

Team leader G. Xiao,Senior Project Officer (Transport), PRCM, EARD Team members H. Hao, Project Analyst, PRCM, EARD F. Wang, Senior Project Officer (Financial Management), PRCM, EARD W. Zhu, Senior Project Officer (Resettlement), PRCM, EARD N. Li, Environment Consultant, PRCM, EARD

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

CONTENTS

Page

BASIC DATA i I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Output 3 C. Project Cost 5 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 7 K. Performance of the Borrower and the Executing Agency 8 L. Performance of the Asian Development Bank 8 III. EVALUATION OF PERFORMANCE 8 A. Relevance 9 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Output 9 D. Preliminary Assessment of Sustainability 10 E. Impact 11 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 13 C. Recommendations 14 APPENDIXES 1. Design and Monitoring Framework 15 2. Chronology of Major Events in the Project’s History 19 3. Project Costs and Financing Plan 20 4. Projected and Actual Contract Awards and Disbursements 22 5. Appraisal and Actual Implementation Schedules 24 6. Organization Charts 25 7. Status of Compliance with Loan Covenants 27 8. Details of Expressway Civil Works and Equipment Packages 39 9. Economic Reevaluation 41 10. Financial Reevaluation 45 11. Land Acquisition and Resettlement 49 12. Social Impact and Poverty Reduction 54 13. Environmental Impact Analysis 60

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China 2. Loan Number 2125 3. Project Title Gansu Roads Development Project

4. Borrower People’s Republic of China 5. Executing Agency Gansu provincial transportation department

6. Amount of Loan $300.0 million 7. Project Completion Report Number PCR: PRC 1392

B. Loan Data 1. Appraisal - Date Started N/A - Date Completed N/A

2. Loan Negotiations - Date Started 8 November 2004 - Date Completed 10 November 2004

3. Date of Board Approval 13 December 2004

4. Date of Loan Agreement 24 March 2005

5. Date of Loan Effectiveness - In Loan Agreement 22 June 2005 - Actual 30 June 2005 - Number of extensions 0

6. Closing Date - In Loan Agreement 30 June 2010 - Actual 17 July 2012 - Number of Extensions 1

7. Terms of Loan - Interest Rate ADB’s Loan interbank offered rate (LIBOR)– based

- Maturity 25 years - Grace Period 5 years

8. Terms of Relending - Interest Rate ADB’s Loan interbank offered rate (LIBOR)– based - Maturity 25 years - Grace Period 5 years - Second-Step Borrower Gansu provincial government

9. Disbursements

a. Dates

Initial Disbursement Final Disbursement Time Interval

15 September 2005 5 April 2012 79 months Effective Date Original Closing Date Time Interval

30 June 2005 30 June 2010 60 months

b. Amount ($ million)

Last Original Revised Amount Net Amount Amount Undisbursed Category or Subloan Allocation Allocation Canceled Available Disbursed Balance Civil works (expressway) 251.2 265.1 0.4 264.7 0.4 Civil works (local roads) 10.0 10.0 0.0 10.0 0.0 Equipment 7.5 6.0 0.0 6.0 0.0 Training 0.3 0.3 0.0 0.3 0.0 Consulting services 1.2 1.1 0.0 1.1 0.0 Interest and commitment 19.8 17.5 0.0 17.5 0.0 charges Unallocated 10.0 0.0 0.0 0.0 0.0 Total 300.0 300.0 0.4 299.6 0.4 Source: ADB’s Loan Financial Information System.

10. Local Costs (ADB-Financed) - Amount ($) 0.00 - Percentage of Local Costs 0.00 - Percentage of Total Cost 0.00

C. Project Data

1. Project Cost ($ million)

Appraisal Estimate Actual Appraisal Estimate Actual Cost ($ million) ($ million) (CNY million) (CNY million)

Foreign exchange cost 394.0 299.6 3,261.0 1,825.2 Local currency cost 488.0 1,041.4 4,039.0 6,626.8 Total 882.0 1,341.0 7,300.0 8,452.0 Sources: ADB and Gansu Changda Highway Co.

iii

2. Financing Plan ($ million)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total

Cost Exchange Currency Cost Exchange Currency Cost Implementation costs Borrower-financed 80.8 438.1 518.9 0.0 918.1 918.1 ADB-financed 280.2 0.0 280.2 282.1 0.0 282.1 Subtotal 361.0 438.1 799.1 282.1 918.1 1,200.2 IDC costs Borrower-financed 13.2 49.9 63.1 0.0 123.3 123.3 ADB-financed 19.8 0.0 19.8 17.5 0.0 17.5 Subtotal 33.0 49.9 82.9 17.5 123.3 140.8 Total 394.0 488.0 882.0 299.6 1041.4 1341.0 ADB = Asian Development Bank, Sources: ADB. 2004. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of China for the Gansu Roads Development Project. Manila; and Gansu Changda Highway Co.

3. Cost Breakdown by Project Component ($ million)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Component Exchange Currency Cost Exchange Currency Cost A. Base Cost 1. Expressway civil works 254.7 280.1 534.8 264.7 680.2 944.9 2. Equipment 45.5 2.5 48.0 6.0 32.2 38.2 3. Land acquisition and resettlement 0.0 34.2 34.2 0.0 131.5 131.5 4. Consulting services and training 1.5 29.4 30.9 1.4 22.0 23.4 5. Local roads 21.3 31.8 53.1 10.0 52.2 62.2 Subtotal (A) 323.0 378.0 701.0 282.1 918.1 1,200.2

B. Contingencies 1. Physical contingencies 26.3 30.2 56.5 0.0 0.0 0.0 2. Price escalation 11.7 29.9 41.6 0.0 0.0 0.0 Subtotal (B) 38.0 60.1 98.1 0.0 0.0 0.0 Interest and Commitment Charges C. 33.0 49.9 82.9 17.5 123.3 140.8 during Construction Total 394.0 488.0 882.0 299.6 1,041.4 1,341.0 Note: Figures may not add up to the totals given because of rounding. Sources: ADB. 2004. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of China for the Gansu Roads Development Project. Manila; and Gansu Changda Highway Co.

4. Project Schedule

Item Appraisal Estimate Actual Date of contract with consultants Oct. 2004 Mar. 2006 Completion of detailed design 2006 Civil works contract Date of award Aug. 2005 Jan. 2006 Completion of work Dec. 2009 Dec. 2009 (west section) and Dec. 2011 (east section) Equipment and supplies First procurement Aug. 2008 Nov. 2010 Last procurement Dec. 2008 Feb. 2011 Completion of equipment installation Dec. 2009 Mar. 2011 Start of operations Completion of tests and commissioning Dec. 2009 Dec. 2009 (west section) and Dec. 2011 (east section) Beginning of start-up Dec. 2009 Dec. 2009 (west section) and Dec. 2011 (east section) Sources: Asian Development Bank and Gansu Changda Highway Co.

5. Project Performance Report Ratings Rating

Development Implementation Implementation Period Objectives Progress

1 December–31 December 2004 Satisfactory Satisfactory 1 January 2005–31 May 2005 Satisfactory Satisfactory 1 June 2005–30 November 2005 Satisfactory Highly Satisfactory 1 December 2005–31 December 2005 Satisfactory Satisfactory 1 January 2006–31 December 2006 Satisfactory Satisfactory 1 January 2007–31 December 2007 Satisfactory Satisfactory 1 January 2008–31 December 2008 Satisfactory Satisfactory 1 January 2009–31 December 2009 Satisfactory Satisfactory 1 January 2010–31 December 2010 Satisfactory Highly Satisfactory

Source: Asian Development Bank.

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Members

Fact-finding 21 June–2 July 2004 7 84 a, b, c, d, e, f Appraisal N/A Inception 23–26 November 2005 2 8 a, g Review 1 4–8 September 2006 2 9 a, g Review 2 2–11 July 2007 3 26 a, f, g Review 3 13–21 October 2008 3 27 a, g, h Midterm review 20–29 September 2009 5 27 f, g, h, i, j Review 5 8–15 September 2010 4 20 a, g, h, k Review 6 22–29 September 2011 4 19 a, d, f, g

Project completion review 14–22 January 2013 5 36 a, e, h, j, k a = engineer, b = financial analyst, c = economist, d = environment officer, e = counsel, f = resettlement officer, g = project analyst, h = procurement officer, i = staff consultant, j = finance officer, k = disbursement officer. Note: The Gansu Roads Development Project was transferred to the People’s Republic of China Resident Mission (PRCM) of the Asian Development Bank for administration on 16 October 2006. Source: Asian Development Bank.

I. PROJECT DESCRIPTION

1. With the rapid economic growth that has taken place in the People’s Republic of China (PRC) since the 1980s, vehicle ownership and demand for road transport infrastructure have substantially increased. Fast growth and structural change in the economy and efforts to reduce economic imbalances between the coastal provinces and the inland regions have resulted in a shift in the factors of production from the coastal regions to the interior. Labor-intensive industries are relocating inland, generating strong demand for least-cost and direct flow of freight and traffic between regions. In 2000, the volume of road freight transport in PRC was 597.3 billion ton-kilometers (ton-km) and that of passenger transport was 660.0 billion passenger-kilometers (passenger-km). By 2011, road freight transport had increased to 5,137.5 billion ton-km and passenger transport to 1,676.0 billion passenger-km. Since 2009, the PRC has replaced the United States as the world’s largest automotive market: 13.6 million vehicles were sold that year, 17.6 million in 2010, and 18.5 million in 2011. To cope with the fast-growing number of vehicles in both the urban and the rural areas, increasing traffic pressure on the road network, rising demand for better roads, and anticipated higher levels of transport services, the government in 1988 embarked on a long-term strategy of creating a national trunk highway system 35,000 kilometers (km) in total length. By 2004, this strategy had evolved into a plan for an 85,000 km national expressway network, to be fully completed by 2020. All major economic centers and municipalities will then be connected by expressways and by a supplementary nationwide network of local roads.

2. The Asian Development Bank (ADB) has supported the government’s efforts to expand and improve national and local road networks since 1991. To meet the growing demand for transport infrastructure and services, from 2006 to 2011 the government mobilized CNY5,313.2 billion from its budget, domestic funds, and external sources to build new roads and improve the deteriorated highway network. By the end of 2011, the road network in the PRC totaled 4,019,100 km - 85,000 km of expressways, 64,400 km of class I roads, 308,700 km of class II roads, 388,000 km of class III roads, 2,469,500 km of class IV roads, and 703,500 km of underclass roads1. However, the PRC’s road network density of 41.75 km per 100 square kilometers is only about half that of the United States and one-eighth that of Japan. The government’s road sector policy, as reflected in its Twelfth Five-Year Plan for 2011-2015, involves (i) expanding the road network, improving road quality and technical standards, and increasing the total length of the country’s highways to 4.5 million km; (ii) increasing the total length of expressways to 108,000 km and connecting 90% of the cities with at least 200,000 residents to the national expressway network; (iii) increasing the total length of roads of class II and higher technical standards to 650,000 km; and (iv) achieving a total road length of 3.9 million km in the rural areas.

3. Gansu province is one of the northwestern region’s least developed provinces, remote, isolated and with harsh natural conditions. Limited road links with neighboring provinces and local economic centers constrain traffic, and a still-undeveloped transport network has slowed economic growth in the province. Its per capita gross domestic product (GDP) in 2003 was CNY4,984, only 55% of the national average of CNY9,057. In 2011, GDP per capita was CNY19,628, still 55% of the national average and third lowest among the provinces. At appraisal, 1.6 million project beneficiaries, or 36% of the population in the project area, lived on less than CNY900 per year in the rural areas or the minimum living standards in the urban areas.

1 PRC road standards include expressway and 4 classes of roads. Expressways are multi-lane, high speed national highways. Class I roads are multi-lane national and provincial highways. Class II roads are two-lane main roads. Class III roads are two-lane roads, mostly used for local connections. Class IV roads are two-lane or single-lane feeder roads.

Despite considerable investment, the road network is still inadequate and does not provide efficient access to large parts of the province. Better transport links are needed to improve economic efficiency, promote domestic and international trade, facilitate interregional integration, and contribute to poverty reduction.

4. The principal objectives of the project were to promote economic growth and reduce poverty in eastern Gansu province by lowering the cost of transport, easing traffic congestion, and improving access in the project area. The project, as designed, would (i) reduce the frequency of road crashes and lower vehicle operating cost (VOC); (ii) improve access between Lanzhou and Xi’an, two major growth centers in northwestern PRC; (iii) provide additional transport capacity to accommodate growing traffic; and (iv) improve access to markets and social services in poor areas. The project framework is in Appendix 1.

5. A feasibility study of the project was prepared by the Gansu provincial communications department in 2003 and was approved by the government in November 2004.2 ADB approved project preparatory technical assistance (TA) on 23 September 2002 for a review and assessment of the project’s technical feasibility and financial viability, including its environmental and resettlement impact. The TA was completed in July 2004, and its outcome confirmed the technical, financial, and economic viability of the project and the adequacy of its environmental and social measures. Subsequently, the loan fact-finding mission verified compliance with ADB’s country operational strategy and sector policy.3 ADB’s Board of Directors approved a loan of $300.0 million on 13 December 2004. The loan took effect on 30 June 2005 and was originally set to close on 30 June 2010 but the closing date was extended to 31 December 2011 to allow the completion of one local road and the procurement of maintenance equipment. The loan account was closed on 17 July 2012. Appendix 2 provides a chronology of major events.

6. At appraisal, the project comprised (i) the construction of a 231 km, four-lane, access-controlled toll expressway from Luohandong to Dingxi, including access roads, interchanges with toll stations, tunnels, bridges, administrative stations, and service areas; (ii) the upgrading of 470 km of local roads to improve access to remote poor areas, and to roadside stations; (iii) the procurement of equipment for road maintenance, toll collection, surveillance and communications, tunnel operation facilities, vehicle weighing stations, road safety, and office administration; (iv) land acquisition and resettlement; and (v) consulting services for construction supervision, road safety audit, monitoring and evaluation, and capacity building.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

7. ADB’s country strategy for the PRC’s road sector at the time of appraisal supported (i) the construction of roads connecting major coastal growth centers with the interior regions; (ii) the integration of the road network so that the national trunk highway system would be supported by a system of local roads, in particular roads providing access to poor areas; (iii) the promotion of road safety; (iv) institutional strengthening to increase the financial and managerial efficiency of expressway operations; (v) the adoption of appropriate pricing policies to optimize road transport capacity; and (vi) the use of alternative methods of investment financing. The

2 The Gansu provincial communications department was renamed the Gansu provincial transportation department (GPTD) on 1 June 2009. 3 ADB. 1997. Country Operational Strategy Study: People’s Republic of China. Manila; ADB. 2001. Country Strategy and Program Update: People’s Republic of China, 2002–2004. Manila.

3 strategy was intended to foster the economic development of the western region and minimize development gaps between the western and coastal regions. The road sector is thus an important part of the strategy for strengthening economic links between the two regions.

8. The Western Region Development Strategy was a key theme of the 10th Five-Year Plan (2001–2005), which was aimed at reducing the development disparities between the western region and the coastal region. The project would support the government’s development strategy for the western region by providing a vital link in the important Xi’an–Lanzhou corridor. The 231 km expressway would shorten the distance between Pingliang and Dingxi by 30 km and reduce the travel time by 2–3 hours, offering a considerably faster and safer alternative. By lowering transport costs and improving the frequency and level of transport services, the project was expected to spur economic activity and interregional trade, and thereby reduce poverty in the project area.

B. Project Output

1. Expressway

9. The 231 km project expressway consisted of two broken sections requiring a connecting expressway section in Ningxia Autonomous Region (NAR), which has administrative jurisdiction. The eastern part of the section in Ningxia (37 km) was implemented under the ADB-financed Ningxia Roads Development Project4 and was opened to traffic in December 2011, while the western part (30 km) under government financing was implemented far behind schedule. The two fully completed expressway sections in the project cannot be connected until the Ningxia section is completed in 2015. Civil works for the project expressway consisted of (i) 16 international competitive bidding (ICB) packages for the construction of subgrade, including bridges and tunnels; (ii) six ICB packages for pavement works; (iii) eight national competitive bidding (NCB) packages for traffic engineering; (iv) three NCB packages for toll collection, telecommunications, and surveillance systems; and (v) six NCB packages for buildings and ancillary facilities. The completed expressway includes 67 large bridges, 33 medium-sized bridges, 11 interchanges, 18 toll stations, and four service areas.

10. The procurement of subgrade packages started in November 2004 and construction began in March 2006, 6 months behind the original schedule. The delay was caused by lengthy domestic approvals and clarifications on bid evaluation reports. After necessary and effective measures were taken, including the application of advanced construction technologies widely used in other countries, and large and efficient equipment for earthworks and pavement construction, the 130 km west section of the project expressway was completed and opened to traffic in December 2009, while the 101 km east section was completed and opened to traffic in December 2011.

2. Local Roads

11. At appraisal, seven local roads with a total length of 470 km were to be improved under the project. The five local roads that were financed with domestic funds were upgraded or improved in 2005 and 2007. Of the two local roads financed by ADB, the improvement of the pavement for the 73 km Dingxi–Longxi road was completed in December 2007 while the 118 km Jingyuan–Huining road was opened to traffic in January 2011. The delay in the construction of

4 ADB. 2003. Loan to the People’s Republic of China for Ningxia Roads Development Project. Manila(Loan 2004- PRC, approved on 11 September 2003)

4 the Yellow River Bridge in the Jingyuan–Huining road led to an 18-month extension of the loan closing date, from 30 June 2010 to 31 December 2011.

12. The upgraded roads were of cement or asphalt pavement, with all-weather features meeting national standards and specifications. The improved Jingyuan–Huining highway shortened travel time from more than 5 hours to 2 hours and resulted in significant improvements in local accessibility. Transport services for townships and villages improved because of the upgraded road conditions. Moreover, the improvement of the local roads has enabled the benefits brought by the expressway project to trickle down to remote areas.

3. Equipment

13. Three equipment packages under the project were financed by ADB. These involved the procurement of (i) road safety equipment, (ii) road maintenance equipment, and (iii) road maintenance and testing survey equipment. The procurement was implemented through ICB and completed in March 2011. The procurement of traffic engineering and toll collection equipment packages financed with domestic funds was completed in March 2011. Delay in the procurement of equipment also contributed to the need to extend the loan closing date.

4. Consulting Services and Training

14. An international consulting firm was hired to provide 61 person-months of international consulting services for a contract amount of $1.2 million. As planned, the international consultants (i) helped with project management during the construction period; (ii) provided expertise in tunnel and bridge construction; (iii) conducted a safety audit of the project design, and made recommendations to ensure the safety of the completed construction works; (iv) set up and implemented quality control procedures; (v) monitored the environmental impact of the project, provided guidance in the implementation of environmental mitigation measures, and developed capacity for reducing vehicle emissions; (vi) implemented a corporate development plan; (vii) helped draft a human resource development and training program; and (viii) established and implement a project performance management system. The international consulting team comprised a team leader and highway engineer, a pavement engineer, a tunnel engineer, a vehicle road safety specialist, an environmental monitoring specialist, a social poverty and monitoring and evaluation (M&E) specialist, and an operation and maintenance (O&M) concession specialist. The international consultants were mobilized on May 2006 and worked closely with the Gansu Changda Highway Co. (GCHC, the project implementing agency for the project expressway) and the national consultants to ensure technology transfer and engineering quality, particularly in the fields of contract management, road safety, materials testing, and quality control. The international consultants concluded their services in November 2011 after providing 56.87 person-months of assistance.

15. Construction supervision was the responsibility of a supervision unit of GCHC, under a chief engineer. A national resident engineer team, assisted by technical and administrative staff, was responsible for each civil works and pavement contract package. GCHC hired 28 national consultants to supervise the construction of subgrade, pavement, buildings and ancillary works, and toll and tunnel system.

16. At appraisal, a total of 34 person-months of consulting services and 10 training sessions were envisaged. At completion, the consulting services totaled 25.5 person-months and seven training sessions had been held—70% of what was originally planned. Proposals for the three other planned training sessions, for 52 participants, were approved by the Gansu provincial

5 department of finance but were not completed because of the strict domestic restrictions on overseas study tours. Training groups submitted training reports to ADB as required. The feedback from participants was generally positive, indicating that they had gained valuable skills and knowledge relevant to their respective fields. GCHC also organized 39 on-the-job training courses for staff covering specific subjects including quality control, project management, pavement construction, and safety and engineering. A total of 2,733 persons participated in these training courses.

C. Project Cost

17. The total project cost at project completion was CNY8.452 billion ($1.341 billion) — CNY1.152 billion ($459.0 million) higher than the CNY7.300 billion ($882.0 million) estimated at appraisal. Although the cost of equipment decreased by CNY156.0 million, consulting services and training by CNY108.0 million, and improvement of local roads by CNY48.0 million, the higher costs of materials, labor and civil works, and the larger amount of land acquired with the increased compensation rates for the affected people all contributed to the overall increase in project cost. The actual cost of the expressway civil works was about CNY5.955 billion against the appraisal estimate of CNY5.239 billion (including contingencies). The cost of land acquisition and resettlement of CNY864.3 million was 227% higher than the estimate of CNY229.0 million in the resettlement plan. In US dollar terms, of the 52% cost overrun, 36% was attributable to the appreciation of the yuan against the dollar over the implementation period, and 16% was due to changes in the prices and volume of materials, labor, civil works, and land acquisition. The counterpart funds were sufficient to cover the cost increases.

18. At appraisal, ADB was to provide $300.0 million from its ordinary capital resources to finance about 34.6% of the total project cost and the Gansu provincial government (GPG) was to finance $123.3 million, the Ministry of Transportation (MOT) $195.3 million, and domestic banks $263.4 million. The ADB financing remained unchanged but because of variations in the foreign exchange rate and the increase in the total cost, ADB’s share of the total project cost was reduced to 24.7%. The MOT and GPG contributions were made available as planned. The balance was financed with loans from domestic banks, resulting in an increase in the total debt financing of this project from 64% to 72% of the total project cost. Counterpart funds for the project were provided on time and according to the implementation schedule. Domestic funds were also mobilized on time. Appendix 3 presents the details of the project cost and the financing plan.

D. Disbursements

19. Of the $300.0 million in loan proceeds, $299.6 million was disbursed in 2006–2012. Three types of ADB disbursement procedures were used: reimbursement procedure for civil works, direct payment for consulting services, and commitments for equipment. Disbursement control procedures were satisfactory. Of the ADB loan proceeds that were disbursed, $264.7 million went to civil works for the project expressway, $6.0 million to equipment, $1.1 million to training and consulting services, and $10.0 million to local roads improvement, and $17.5 million was capitalized to cover interest during construction and commitment charge. The loan closing date was extended once, from 30 June 2010 to 31 December 2011, and the loan account was closed on 17 July 2012, at which time loan savings of $447,649.39 were canceled. Projected and actual contract awards and disbursements are set out in Appendix 4.

E. Project Schedule

20. The project was designed to be implemented over a period of about 5 years, from September 2005 to November 2009. The local road component was to be implemented at the same time as the expressway construction. The expressway construction began in March 2006, after a delay of about 6 months caused by lengthy domestic approvals and clarifications on bid evaluation reports. Effective measures were taken to secure the completion of the west section of the project expressway and its opening to traffic in December 2009, and the east section in December 2011. Of the seven local road subprojects, six were completed before 2007 but one was completed in January 2011 mainly because of the longer period of construction of the Yellow River Bridge. The appraisal and actual project implementation schedules are in Appendix 5.

F. Implementation Arrangements

21. The GPTD was the project executing agency, responsible for the overall administration of project implementation. Its overseas funds administrative office supervised and coordinated the project implementation activities. GCHC, a state-owned enterprise with independent legal identity established in February 2001, was the implementing agency for the project expressway component. At the time of the project, GCHC had an implementation staff of 148. A supervision office, consisting of GPTD’s representative, the chief engineer, and international consultants, was created to provide construction supervision and quality control. This office had engineering, contract management, and supervision divisions, and a central laboratory. The local roads component, on the other hand, was implemented by the Gansu provincial road administrative bureau, under GPTD’s overall guidance. GCHC conducted on-the-job training and study tours and participated in other training programs organized by GPTD. When the project expressway was opened to traffic in 2009, GCHC signed a franchise agreement with GPTD, authorizing the Gansu provincial highway administration bureau (GPHAB) to operate the project expressway and the Gansu provincial expressway administration bureau (GPEAB) to operate the toll collection function. The project organization charts are in Appendix 6.

G. Conditions and Covenants

22. All covenants were relevant. No covenants were modified or waived during implementation. All loan covenants due were complied with or were being complied with in December 2012 except for the corporatization covenant. Project accounts and financial statements were audited by the Gansu provincial audit office and the audited reports were submitted on time. These reports were useful in identifying and addressing issues and weakness in project implementation. The financial-ratio covenants for the project involved maintaining (i) a debt-to-equity ratio of not more than 65:35 from the third year of operation; (ii) a working ratio (ratio of annual O&M cost, excluding periodic maintenance cost, to revenue) of not more than 15%; and (iii) a debt service coverage ratio of not less than 1.2 from the third year of operation. Due to the significantly higher percentage of debt financing, GCHC will be able to comply with the covenant targets only by 2020. The corporatization covenant was also not fully complied with. Gansu Changda Highway Co. was established for the construction of the expressway. Under current expressway operation system in Gansu province, all expressways are operated and maintained by GPHAB and GPEAB. When the project expressway was opened to traffic in 2009, GCHC signed a franchise agreement with GPTD, in which GPHAB was authorized to operate the project expressway and GPEAB to perform the toll collection function. Compliance with the loan covenants is set out in Appendix 7.

H. Related Technical Assistance

23. ADB provided a project preparatory TA for the project, specifically to help the government prepare an integrated road development project that would support pro-poor economic growth and reduce poverty in Gansu province. The TA was focused primarily at (i) refining the feasibility study, including the environmental impact assessment (EIA), the summary EIA (SEIA), the resettlement plan, and poverty impact analysis for the proposed project, according to ADB’s requirements; (ii) broadening the scope of the project to make it more pro-poor by including a local road component; (iii) confirming the technical, economic, and financial viability of the proposed investments; (iv) reviewing and updating the transport and road sector profiles; and (v) providing the basis for further policy dialogue in such areas as the poverty impact of road projects, vehicle emissions, nongovernment financing, expressway corporatization and commercialization, road safety, and pricing policies for road users. The TA covered 54 person-months of international and 98 person-months of national consulting services. It began in March 2004 and was completed in July 2004, producing the required outcome. Subsequent loan processing was based on the findings and recommendations of the TA.

I. Consultant Recruitment and Procurement

24. An international consulting firm, financed under the loan, was recruited on 5 March 2006. The international consultants were fielded on 6 May 2006, and their services ended in November 2011. The national consultants for design, construction supervision, and procurement, financed by the government, were recruited on time, following the recruitment procedures acceptable to ADB.

25. ICB procedures were used in the procurement of civil works for the expressway construction, and NCB procedures for buildings and ancillary facilities and the upgrading of local roads with financing from the borrower. All 16 ICB subgrade contracts were awarded in 2006, and three ICB equipment packages were awarded in 2010 and 2011. A national procurement agent was hired by GCHC to assist in the handling of procurement-related activities. Relevant sections of ADB’s anticorruption policy were incorporated in the bidding documents and contracts, and complied with. Contracts for equipment financed by ADB were procured following ICB procedures. The project contract packages are shown in Appendix 8.

J. Performance of Consultants, Contractors, and Suppliers

26. The international consultants who were hired to assist in project implementation performed satisfactorily and established good working relationships with both GPTD and GCHC. They provided the required services in accordance with the terms of reference. The national consultants hired by GCHC also provided satisfactory services during project implementation.

27. The civil works contractors performed well and completed the construction according to the schedule and as stipulated in their contracts. The domestic design institute designed the expressway, incorporating prevailing international practice. The civil works for the expressway, comprising bridges and pavement, were well implemented and were of satisfactory quality. O&M equipment was supplied, installed, and commissioned as scheduled. The environmental monitoring conducted by the national consultants during construction was also satisfactory. Overall, the performance of the consultants, contractors, and suppliers was satisfactory.

K. Performance of the Borrower and the Executing Agency

28. GPTD implemented the project effectively and efficiently. Project management during the preparation and construction phases was efficient and effective. Expressway construction and maintenance conformed to international standards. A systematic project management system was put in place to ensure the effective use of funds. Domestic funds were mobilized on time. The submission of withdrawal applications was timely, and contractors were promptly paid. The land acquisition and resettlement activities were completed on time and to the satisfaction of the affected people. Overall, the performance of the borrower and GPTD was satisfactory.

L. Performance of the Asian Development Bank

29. ADB conducted regular loan review missions during project implementation and provided effective advice to GPTD and GCHC on project implementation, monitoring, and procurement matters. ADB reviewed and processed procurement documents and GPTD’s requests efficiently. Withdrawal applications were processed and loan funds were disbursed on time. GPTD and GCHC expressed satisfaction with the transfer of project administration to ADB’s PRC Resident Mission, which facilitated closer and more efficient communications. However, for various reasons, the mission leader was changed frequently, affecting the effectiveness of communications with GPTD and GCHC. Overall, ADB’s performance during project implementation was satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

30. The project was highly relevant. It was highly relevant to the government’s road sector development policy of expanding the National Trunk Highway System (NTHS) and developing secondary roads to help promote rural economy and reduce poverty. The project expressway component developed the link from Pingliang to Dingxi, which is part of the G22 (Qingdao– Lanzhou) highway. The east section between Luohandong and Yanchuanzi is part of the G70 (Fuzhou–Yinchuan) highway. The project expressway, a top-priority project in the government’s Western Region Development Strategy, provided an alternative high-capacity route in the existing transport corridor, mainly comprising Highways G312, G309, and G310. Its goal was to promote economic growth and reduce poverty in the eastern Gansu province by lowering the cost of transport, relieving traffic congestion, and improving access in the project area. The project achieved these objectives by (i) decreasing road crashes in Gansu province by 79% and realizing VOC savings of CNY0.72 per vehicle-kilometer for freight; (ii) cutting travel time between Pingliang and Dingxi by over 50%; (iii) increasing transport capacity to 55,000 passenger car units (pcus) per day; and (iv) improving 470 km of local roads and thereby helping to reduce the incidence of poverty from 36% in 2003 to 8.82%5 in 2011.

31. The project was also consistent with ADB’s strategy for the PRC road sector, both at appraisal and at project completion. This strategy involved (i) building roads to connect major growth centers, improve links with hinterland economies, and promote regional cooperation; (ii) integrating the road network to support the NTHS and to provide access to poor areas; (iii) promoting road safety and reductions in vehicle emissions; and (iv)strengthening regional

5 The poverty standard was increased from CNY625 to CNY2300 per year in 2011. The standard used here is CNY625 per year. Further analysis of impacts for the new poverty line is provided in Appendix 12, Table A12.4.

9 cooperation in transport. The project was consistent with ADB’s country partnership strategy for assistance in developing the Lanzhou–Xi’an–Taiyuan section of the NTHS.

B. Effectiveness in Achieving Outcome

32. The project was effective. The outcome envisaged at appraisal—more efficient and safe transport in the project area as a result of improvements in the expressway and in local roads— was substantially achieved. The project expressway was opened to traffic on schedule and is 32 km shorter than the old route, Highway G312. The annual average daily traffic (AADT) on the project expressway has been higher than projected, at 8,823 pcus in 2010, 10,387 pcus in 2011, and 10,604 pcus in 2012. The expressway allows safer, more efficient movement of passengers and freight at lower cost. Traffic congestion and transport costs on G312 have been reduced significantly as more vehicles now use the expressway. The AADT on G312 decreased by 70% from 5,715 pcus in 2009 to 3,883 pcus in 2010, when the expressway was opened to traffic. The improvement of local roads provided easier road access for people and goods, thereby benefiting the poor in the project area. In the counties covered by the improved local roads, the increase in annual passenger traffic varies between 14% and 57%, and the increase in annual freight traffic between 23% and 94%.

33. Traffic speeds on the project expressway are efficient, at between 85–95 km per hour for cars and 65–80 km per hour for trucks. Travel time on the expressway has been reduced from 6.5 hours to 3 hours. Travel time saved on the improved local roads varies. On the Jingyuan– Huining local road, travel time was reduced by over 50% after the completion of the Yellow River Bridge in Jingyuan county. The VOC savings on the expressway range from CNY0.28 to CNY1.67 per vehicle-km, depending on the type of vehicle. Less congestion on the G312 has also resulted in VOC savings of CNY0.15–CNY0.67 per vehicle-km.

34. Road safety audits were conducted during project design and construction. All road safety management measures have proven effective. There were 40 accidents and 26 fatalities on the expressway in 2011, compared with 227 accidents and 67 fatalities on the G312 at appraisal. As a result of measures taken by GPTD to minimize accidents on the road networks in Gansu province, the number of road crashes in Gansu province was reduced from 13,403 in 2003 to 2,753 in 2012, while the number of road fatalities in the province was reduced from 1,837 persons to 1,265.

35. To encourage safe driving, enhance the flow of benefits from infrastructure improvement to local communities, and promote community development, four roadside stations, each one with shops, restaurants, toilets, a clinic, an information center, and an accident rescue center, were put up along the local roads. The possibility of bus stops along the expressway was also explored. In 2010, however, GPTD submitted a report to ADB indicating that bus stops were not feasible on the access-controlled expressways because of safety risk.

C. Efficiency in Achieving Outcome and Output

36. On the basis of the economic and financial reevaluation, the project is rated efficient. Affected by the delayed implementation of the expressway section in Ningxia, traffic volumes in the west section have so far been lower than the appraisal estimates. However, in parts of the G22 and G70 national trunk roads, traffic volumes in the east section have been much higher than projected, contributing to higher-than-projected weighted traffic volumes on the expressway in the early years of operation. An increase in traffic volumes is foreseen after the Ningxia expressway section is completed in 2015.

37. The reevaluated economic internal rate of return (EIRR) for the project expressway is 15.0 %, lower than the appraisal estimate of 16.1%. The lower EIRR is due mainly to the increased capital cost, higher O&M costs, and the delayed completion of the Ningxia section. But the reevaluated EIRR is higher than the cutoff rate of 12%, and the project is therefore considered economically viable. A sensitivity analysis was carried out to test the impact of (i) an increase in O&M costs, (ii) a decrease in benefits, and (iii) a combination of these two scenarios. According to the analysis, the project would still be economically viable under all tested conditions. Appendix 9 shows the recalculated EIRR with the supporting assumptions.

38. The recalculated FIRR, 4.6%, is lower than the appraisal estimate of 6.1%. The decrease is due mainly to the increased capital cost, higher O&M expenses, and the lower toll rate compared with the appraisal estimates. The calculation of the weighted average cost of capital (WACC) in real terms used the actual capital mix and the cost of various financing sources. The revised WACC is 3.4%, higher than the appraisal estimate of 2.9%, mainly because of the significantly higher percentage of debt financing. The recalculated FIRR is higher than the revised WACC, and the project is considered financially viable for that reason. A sensitivity analysis was conducted to test the impact of variations in O&M costs and revenues. The results indicated that the project would remain financially viable under various sensitivity tests. The FIRR would exceed the WACC in the tests, but not if revenues were 20% less and O&M costs were 20% higher than the base-case estimates. The financial reevaluation is in Appendix 10.

D. Preliminary Assessment of Sustainability

39. The project is likely to be sustainable. The completion of the project expressway and local roads removed a bottleneck in the NTHS, relieved traffic congestion in the project area, and improved the efficiency of road transport services in the corridor and the project area. It provided convenient and safer direct road access to poorer remote villages in the area. Since the opening of the project expressway, a significant amount of traffic has been diverted from the G312. The expressway and the improved local road network have contributed to higher GDP growth in Pingliang and Dingxi, and to poverty reduction through robust economic growth and road network integration. The delayed implementation of the section in the Ningxia Hui Autonomous Region, delaying connecting the two sections of the project expressway until 2015, has, however, affected traffic growth, especially in the west section of the expressway. The Ningxia section began construction in 2011 and is expected to be completed by 2015. Continued economic growth in the project area, with the help of the remaining expressway section to be completed in Ningxia, will ensure a steady income from toll revenues, bringing positive economic and social development to the area. Though the project expressway is expected to comply with the financial ratio covenants only by 2020, the overall debt level for the toll roads in Gansu province is still about 53% and the overall working ratio for expressways in the province is still 14%. Such a financial position provides reasonable assurance of the sustainability of the expressway.

40. The project expressway passes through a collapsible loess region with a geotechnically difficult and complex terrain. At the time of the project, subbase subsidence and slope collapse had occurred in some sections of the expressway following the unprecedented heavy rains in 2010 and 2011. To cope with the technical difficulties and challenges, GCHC initiated three technical studies relating to the treatment of road base and slope protection in the region. The use of sound engineering technology in construction and maintenance, according to prevailing international standards, and the well-developed technical capacity of both GPTD and GCHC for

11 good project management and sound financial administration, will ensure the physical sustainability of the expressway.

41. GPTD and the local governments are committed to developing and maintaining the local roads and rural road networks. In October 2005, the State Council issued a new rural roads administration policy aimed at improving institutional arrangements, budgeting, and local government capacity for road management through outsourcing and market-oriented O&M. GPTD, through the local highway bureaus, responded to the government’s call with proactive sustainability measures for the local roads and rural road networks in the province. This commitment and the priority assigned to local and rural road development, with steady budget support and multilevel input, will ensure the sustainable development of local and rural roads, and thereby provide remote and poor areas with easier access and greater connectivity.

E. Impact

42. Gansu province has experienced robust economic development. GDP grew by 9.2% in 2003 and by 12.5% in 2011. In 2011, after the opening of the project expressway, GDP growth rates in the project’s area of influence reached 12.6% in Baiyin (from 11% in 2009), 13% in Dingxi (from 10% in 2009), and 14% in Pingliang (from 10.8% in 2009). The higher growth rates in these areas confirmed the project’s economic impact in spurring fixed-asset investment and attracting service and secondary industries. The construction and operation of the expressway gave the local governments significant opportunity to attract external investments and thus contribute to local industrial development along the expressway. New industrial parks have been built close to the expressway, and more enterprises have started operating along the expressway alignment. Statistics show that a total of 374 enterprises with CNY20.7 billion in investments were established in five counties or districts along the alignment from 2008 to 2011. The operation of the expressway and the improved local roads has promoted tourism development in the project area. A total of 2.35 million tourists visited Kongtong in 2011, 31.4% more than the number of tourists in 2010, and tourism revenue reached CNY1.15 billion in 2011, 50.8% more than the 2010 total.

43. The socioeconomic growth and increased employment opportunities in the project area have improved the living standards and income of the local people, particularly the poor. The annual rural per capita income of farmers in the five counties and districts along the alignment increased by 86%–99% from 2005 to 2011. During the same period, 226,000 poor people in the area, or 43% of its poor population, were lifted out of poverty, and poverty incidence decreased from 16.4%–33.97% in 2005 to 0.97%–20.1% in 2010.

44. Temporary jobs totaling 222,250 person-months were created during expressway construction. Of this total, 17,060 person-months went to local minorities, 23,080 person-months to people affected by land acquisition, 30,490 person-months to women, and 41,210 person-months to the poor. A total of CNY444.5 million in wages was paid during expressway construction. The operation of the expressway has also created regular job opportunities for local people. Staff currently working in expressway operations total 854 (52% female)—131 managerial personnel, 659 toll collectors and service workers, and 64 cleaners. The local procurement of construction materials and supplies, including 155,472 ten thousand tons of steel, 1,509,127 ten thousand tons of cement, 47,068 cubic meters (m3) of timber, 141,010 tons of asphalt, and 6,539,986 m3 of aggregate, also provided a large number of employment opportunities in the project area.

45. The project permanently acquired 23,689 mu (1,579 hectares [ha]) of land, 37.6% more than the area estimated at appraisal. Buildings totaling 213,814 square meters (m2) in area were demolished, 284.5% more than projected. A total of 45,821 people were affected by land acquisition and 5,453 people by house demolition. The significant changes in the extent of land acquisition and house demolition were due mainly to the exclusion in the resettlement plan of project impact beyond the expressway redline. For instance, a total of 470 affected households along the alignment in Jingchuang county and Kongtong district were relocated during the implementation at the request of the households, which would be separated from their communities and would have reduced access to local markets once the expressway was fenced. The number of people who were affected by the land acquisition was significantly larger than anticipated. The estimate in the resettlement plan was based on the number of households that were foreseen to lose one-third of their land on average. But most of the affected people lost less than 10% of their land, indicating that the impact on individual households was much less than estimated in the plan. A detailed evaluation of land acquisition and resettlement is provided in Appendix 11.

46. The population in the project area includes about 140,000 Hui people (3.6% of the total). The Hui are mainly in Kongtong and Huating counties, and are not vulnerable by virtue of ethnicity. The project has not had major adverse impact on Hui people, other than land acquisition and resettlement. Hui people have benefited as much as the Han from the project and have not been disproportionately disadvantaged. The adverse effects of land acquisition were addressed during the implementation of the resettlement plan. The implementation of the social development action plan (SDAP) also improved the socioeconomic status of Hui people.

47. The project significantly spurred regional social development and poverty reduction in the project area, as evidenced by (i) a sizable increase in per capita GDP and farmers’ incomes; (ii) a significant decrease in poverty incidence; (iii) increased employment and income for the poor during construction and operation; (iv) improved road conditions, enabling local women, particularly those living in remote areas, to gain access to better medical services; and (vi) the opening of many clinics in the rural areas. In addition, once the expressway section from Pingliang to Dingxi opens, the project expressway will contribute further to socioeconomic development and poverty reduction in the project area and in the interprovincial region comprising Gansu and Ningxia. The project’s 1.6 million beneficiaries indicate that its impact on social economic development and poverty reduction has been quite positive. The social impact and poverty reduction report is in Appendix 12.

48. The project’s environmental management plan (EMP) and monitoring program were implemented effectively. The environment and resettlement office of GCHC oversaw the EMP implementation. On-site mitigation measures were supervised and inspected by the supervision institutions under GCHC. During implementation, environmental monitoring and mitigation measures were carried out according to the EMP and the soil erosion protection plan (SEPP). Adverse environmental effects have been minimized through the following measures: (i) reusing spoil from tunnels and other excavations for embankment filling; (ii) minimizing excavation and potential erosion by optimizing the design of bridge substructures; (iii) applying integrated revegetation and structural methods to recover 2,424,100 m2 of cutting slopes and embankments; (iv) rehabilitating 85.05 ha of borrow pits and 84.34 ha of spoil dump by using excavated topsoil; (v) installing wastewater collection and treatment facilities in 14 toll stations and four service areas to reduce water pollution; and (vi) installing high-energy-efficiency boilers that meet national emission standards (13271-2001) in 14 toll stations and four service areas to reduce emissions of air pollutants.

49. According to the technical review report on the environment that was prepared by GPTD at project completion, the adverse environmental impact was mitigated adequately in conformity with the project EMP and there was no substantial environmental damage during construction. The impact on the ambient environment was minor and within the scope of the SEIA. Contractors complied with the EMP in protecting the environment and implementing mitigation measures in their construction schemes. During operation, environmental management involved the maintenance of slope protection works, landscape vegetation, the collection and treatment o wastewater and solid waste from service areas, and monitoring. These tasks were coordinated by the environment and resettlement office of GCHC and supervised by the environmental management office of GPTD. The environmental impact analysis is in Appendix 13.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

50. The project was successful. It was (i) highly relevant to the government’s and ADB’s development strategies, (ii) effective in achieving outcomes, (iii) efficient in achieving outcomes and output, and (iv) likely to be sustainable. The project was successfully implemented and it achieved its main objectives of promoting economic growth and reducing poverty in Gansu and the project area. Transport efficiency and safety in the project area improved as a result of the expressway and local road improvements. Implementation was effective and efficient. The project expressway was completed as planned and most local roads, except one, were upgraded on schedule. The quality of work on the project expressway and the local roads was satisfactory. During implementation and operation, sound technical solutions and environmental mitigation measures were widely applied in strict compliance with national and local regulations and guidelines. The improvements made in local roads enabled the project benefits to trickle down to rural and poor areas, and rural transport services to reach remote and poor areas. Institutional capacity was strengthened through the implementation of the human resource development plan. The knowledge gained during the project and capable staff resources were shared with other ongoing expressway projects. Substantial direct and indirect employment opportunities were created during implementation and the subsequent expressway O&M.

51. The volumes of traffic on the east and west expressway sections vary greatly because of the delayed implementation of the section in the Ningxia Hui Autonomous Region. There is less traffic than projected on the west section but much higher traffic on the east section, contributing to a slightly higher weighted traffic amount for the expressway than forecast during appraisal. The through traffic is expected to achieve higher growth momentum after the section in Ningxia is completed. The significant improvements in road conditions and transport capacity in this transport corridor, leading to economic development in the project’s area of influence, will continue to boost traffic volumes in Gansu and Ningxia. The reevaluated FIRR of 4.6% and EIRR of 15.0% confirm the financial and economic viability of the project.

B. Lessons

52. Roadside stations were introduced to promote community development along the local roads covered by the project by linking the roads with local community activities. However, in the current institutional arrangement GPTD does not have enough resources, including staff and funds, to operate the roadside stations. This brings their sustainability into question. Keeping in mind the poorly maintained and underused roadside station built under a previous donor-funded project in the project area, GPTD sought to design multipurpose roadside stations to be constructed and managed by the private sector. In 2011, a road station, including a petrol

14 station, shops, a restaurant, toilets, a clinic, an information center, and an accident rescue center, was built under the project by a petrol dealer, who signed a contract with GPTD for its operation. Although the roadside station was physically completed in 2011, the Gansu provincial development and reform commission issued the operating license only in 2013. To comply with the requirements in the loan agreement GPTD eventually utilized existing facilities along the local roads in establishing four more roadside stations before the loan closing date. GPTD will continue exploring opportunities to attract private sector participation in the operation of the roadside stations through concession agreements.

C. Recommendations

1. Project Related

53. Although fewer road crashes (in million vehicle-kilometers) occurred on the project expressway in 2010–2012, after the improvements were made, the government must continue its road safety efforts by taking all applicable engineering and management measures, as well as by educating drivers and local people. GCHC and GPTD, in cooperation with the concerned government agencies, should maintain high safety standards and performance on the expressway and be ready to deal with safety issues.

54. In a deviation from the corporatization target set at appraisal, the O&M and toll collection functions for the project expressway reside in different government agencies. As a result, integrated financial statements have not been prepared for the operation of the project expressway. To achieve and maintain high standards of corporate governance, management practices, and financial reporting, GPTD, GCHC, and the relevant departments should provide integrated financial statements for the expressway operation, and closely monitor compliance with the covenants agreed on at appraisal.

55. It is recommended that the project performance evaluation report be prepared in 2015 or later. By that time the project will have been fully operational for more than 5 years and the Xi’an–Lanzhou corridor will have been connected for more than 3 years. Therefore, project traffic, maintenance, physical condition, benefits attained, and impact on resettlement and poverty reduction can be better assessed.

2. General

56. The project expressway is bisected by the section in Ningxia Hui Autonomous Region which was not part of the project because of administrative jurisdiction. The transport corridor between Pingliang and Dingxi will be finished only in 2015, after the section in Ningxia Hui Autonomous Region is completed. Thus, the economic and regional integration benefits from the transport corridor are still to be fully realized. In future projects planned as part of a main transport corridor, the PRC authorities should conduct initial screening by assessing corridor connectivity and appropriate scheduling for each section.

Appendix 1 15

DESIGN AND MONITORING FRAMEWORK

Performance Indicators and Targets Design Monitoring Summary At Appraisal At Completion Mechanisms

Impact

1. Economic growth Gross domestic product (GDP) GDP growth rate GDP and other related in Gansu and the is forecast to increase during data through periodic project area 2009–2016 at 4.5% to 5.4% In Gansu province: reporting by the per annum for Gansu province 2009: 10% statistics office at the 2. Reduced poverty and at 6.6% to 7.4% per 2010: 11.5% provincial and county in the project area annum for the project area. 2011: 12.5% levels

In Baiyin: 2009: 11% 2010: 12% 2011: 12.6%

In Dingxi: 2009: 10% 2010: 9.96% 2011: 13%

In Pingliang: 2009: 10.8% 2010: 11.3% 2011: 14%

Per capita rural income will Per capita rural income in increase from CNY1,673 in 2011 was CNY3,870. 2003 to CNY3,000 in 2013.

Poverty incidence in the Poverty incidence in 2011 PPMS at Inception, project area will be reduced completion, and 3 from 36% in 2003 to 15% in Gansu province: 8.82% years after, with 2013. Baiyin: 8.58% emphasis on Dingxi: 9.06% socioeconomic Pingliang:8.72% improvement impact

Social indicators, including School enrollment rate in Social development school enrollment and infant Gansu: action plan mortality rates, will improve. 2003: 98% 2011: 99.45%

Infant mortality rate in Gansu:

2003: 9.28‰ 2011: 8.28‰

16 Appendix 1

Performance Indicators and Targets Design Monitoring Summary At Appraisal At Completion Mechanisms

Outcome

Improved transport Traffic volume on the Traffic volume on the Traffic counts by efficiency and expressway will increase from expressway in 2010 was GPTD and PPMS safety in the project 7,600 pcus in 2010 to 15,100 8,823 pcus. area as a result of pcus in 2020 and 25,600 pcus the expressway in 2029. and local road improvements Travel time for the expressway Travel time is 3 hours. Traffic counts and reduced from 6.5 hours before travel time survey for the project to 3 hours after the the expressway by project. GPTD

Bus fares and freight rates will VOC saving for bus in 2012 Monitoring of fares and be reduced by 10% by 2015. was CNY0.77 per vehicle-km rates by GPTD (decreased by about 20%)

By 2015, there will be a 20% In Gansu in 2012: Accident statistics from reduction in the number of Public Security Bureau road accidents (from 13,403 in Road accidents: 2,753 and hospitals 2003) and traffic fatalities (from (reduced by 79%) 1,837 in 2003) in Gansu Traffic fatalities: 1,265 province, and in the number of persons (reduced by 31%) . road accidents (from 227 in 2003) and traffic fatalities (from 67 in 2003) on the existing On the expressway in 2011: national road. Road accidents: 40 (reduced by 82%) Traffic fatalities: 26 persons (reduced by 61%)

Bus services will become more Achieved Monitoring of bus- frequent and reliable, and new related data by GPTD bus services will be introduced.

Output

1. Improved road The construction of a 231 km Achieved PPMS and PCR infrastructure and expressway will increase road associated capacity to 55,000 pcus per equipment and day by the expressway facilities along the opening in 2011. expressway between VOCs for cars will be reduced VOC for cars in 2012 was Direct GPTD Luohandong and from CNY1.48 per vehicle-km CNY1.26 per vehicle-km. measures regarding Dingxi in 2008 to CNY1.01 per VOCs for trucks, vehicle-km by 2015. buses, and cars

Safety audits will be implemented during design Achieved PRs and PCR and construction.

Appendix 1 17

Performance Indicators and Targets Design Monitoring Summary At Appraisal At Completion Mechanisms

Equipment will be procured Achieved PAMs, PRs, and PCR and installed for road safety, toll collection, communications, traffic management, and vehicle weigh bridges.

The land acquisition and The resettlement plan Resettlement resettlement plan will be covered 25 villages monitoring by an implemented. About 1,150 ha (developing area) in 5 independent institute of land will be acquired, counties, including 114 hired by GPTD adversely affecting about administrative villages, 1,208 13,150 persons, including relocated households, and about 2,350 who will have to 9,887 land acquisition be resettled. households, totaling 45,821 people.

The welfare of those resettled Sample households along Monitoring by an will be reestablished to at least the highway: independent institute the same level as before land Annual per capita income: engaged by GPTD acquisition. Income restoration 2005: CNY2,391 during resettlement, at strategies and compensation 2008: CNY3,482 completion, and 2 awards will be implemented. 2009: CNY4,081 years after 2010: CNY4,395

Sample households along the local roads: Annual per capita income: 2008: CNY2,871 2009: CNY3,588

Implementation and monitoring Completion of 8 Environmental plan based on the environmental monitoring. monitoring reports, environmental impact Environmental protection PAMs, and PCR. assessment (EIA) and measures were included in summary EIA as agreed by the construction contract. GPTD and Asian Development Bank (ADB). Mitigation measures included in civil works contracts.

2. Improved road 470 km of local roads Achieved. PPMS and PCR. infrastructure and upgraded in the project area. associated facilities for the five local roads in the project Four roadside stations Achieved. PPMS and PCR. area developed along the local roads.

Road capacity increased to Achieved. PPMS and PCR. 4,000 pcu per day at opening for the local roads.

18 Appendix 1

Performance Indicators and Targets Design Monitoring Summary At Appraisal At Completion Mechanisms Implementation of monitoring Achieved. PPMS report, PAMs, and evaluation for the local and PCR. road component.

3. Better corporate Expressway operations Gansu Changda Highway Co. Midterm review governance in separated from the provincial was established for the missions and PCR. expressway government functions by construction of the operations in establishing GCHC by 31 expressway. When the Gansu province December 2007. project expressway was opened to traffic in 2009, GCHC signed a franchise agreement with GPTD, in which GPHAB was authorized to operate the project expressway and GPEAB to perform the toll collection function.

A concession framework GCHC signed a franchising Midterm review agreement will be signed by 30 framework agreement with missions and PCR June 2008. A corporate GPTD. development plan will be implemented by 31 December 2008.

A debt-to-equity ratio of not A pro forma analysis Financial statements of more than 65:35, a working indicates that the debt–to- GCHC; midterm review ratio of not more than 15%, a equity ratio will be achieved report and PCR debt service coverage ratio of after 2020; the debt service not less than 1.2, and a coverage ratio can be financial internal rate of return achieved from 2018; and the of 6.1% will be achieved. working ratio will be achieved from 2015.

4. Strengthened 34 person-months of Completed training totaled Report from capacity for project international training will be 30.35 person-months. international management, provided to GPTD staff. consultants on the quality control, road National consultants will be capacity-building safety, monitoring trained on the job by the component, including and evaluation in international consultants. participants, subject GPTD and national areas, and feedback consultant from participants GCHC = Gansu Changda Highway Co., GDP = gross domestic product, GPEAB = Gansu provincial expressway administration bureau, GPHAB = Gansu provincial highway administration bureau, GPTD = Gansu provincial transport department, ha = hectare, km = kilometer, PAM = project administration manual, PCR = project completion report, pcu = passenger car unit, PPMS = project performance management system, PR = progress report, VOC = vehicle operating cost. Source: ADB and Gansu Changda Highway Co.

Appendix 2 19

CHRONOLOGY OF MAJOR EVENTS IN THE PROJECT’S HISTORY

5 November 2003 Approval of project preparatory technical assistance 21 June–2July 2004 Fact-finding mission 13 August 2004 Management Review Meeting 24 September 2004 Staff Review Committee meeting 8–10 November 2004 Loan negotiations 17 November 2004 Board circulation 13 December 2004 Loan approval 24 March 2005 Loan agreement signing 30 June 2005 Loan effectiveness 15 September 2005 First disbursement 23–26 November 2005 Inception mission 22 December 2005 First civil works contract approved 1 February 2006 First contract for consulting services approved 15 March 2006 Start of civil works 4–8 September 2006 First loan review mission 16 October 2006 Transfer of the project administration to the People’s Republic of China Resident Mission of the Asian Development Bank 2–11 July 2007 Second loan review mission 14 April 2008 Approval of increase in percentage of ADB financing of civil works for the project expressway 13–21 October 2008 Third loan review mission 28 October 2008 First loan reallocation approved 20–29 September 2009 Midterm review mission 23 December 2009 Completion and opening of the west section of expressway for trial operation 10 March 2010 First repayment of loan principal 30 June 2010 Original loan closing date 8–15 September 2010 Fifth loan review mission 12 November 2010 First contract for equipment approved 22–29 September 2011 Sixth loan review mission 16 December 2011 Second loan reallocation approved 5 April 2012 Final disbursement 17 July 2012 Actual loan closing date 18 months Extension of loan closing date granted 14–22 January 2013 Project completion review mission

20 Appendix 3

PROJECT COSTS AND FINANCING PLAN

Table A3.1: Appraisal Estimate and Actual Project Costs ($ million)

B. Contingencies 1. Physical contingencies 26.3 30.2 56.5 0.0 0.0 0.0 2. Price escalation 11.7 29.9 41.6 0.0 0.0 0.0 Subtotal (B) 38.0 60.1 98.1 0.0 0.0 0.0 C. Interest and Commitment Charges 33.0 49.9 82.9 17.5 123.3 140.8 during Construction Total 394.0 488.0 882.0 299.6 1,041.4 1,341.0 Sources: ADB and Gansu Changda Highway Co.

Table A3.2: Appraisal Estimate and Actual Project Costs (CNY million) Appraisal Estimate Actual Component Foreign Local Total Foreign Local Total Exchange Currency Cost Exchange Currency Cost A. Base Cost 1. Expressway Civil Works 2,108.9 2,319.2 4,428.1 1,605.3 4,350.0 5,955.3 2. Equipment 376.5 20.7 397.2 37.8 203.4 241.2 3. Land Acquisition and Resettlement 0.0 283.2 283.2 0.0 828.7 828.7 4. Consulting Services and Training 12.4 244.1 256.5 8.8 138.9 147.7 5. Local Roads 176.3 263.2 439.5 63.0 329.0 392.0 Subtotal (A) 2,674.1 3,130.4 5,804.5 1,714.9 5,850.0 7,564.9

B. Contingencies 1. Physical contingencies 217.6 250.4 468.0 0.0 0.0 0.0 2. Price Escalation 96.7 247.5 344.2 0.0 0.0 0.0 Subtotal (B) 314.3 497.9 812.2 0.0 0.0 0.0 Interest and Commitment Charges C. During Construction 272.6 410.7 683.3 110.3 776.8 887.1 Total 3,261.0 4,039.0 7,300.0 1,825.2 6,626.8 8,452.0 Sources: ADB and Gansu Changda Highway Co.

Appendix 3 21

Table A3.3: Financing Plan ($ million)

At Appraisal Actual Foreign Local Total Foreign Local Total Source Exchange Currency Cost Exchange Currency Cost Asian Development Bank 300.0 0.0 300.0 299.6 0.0 299.6 Ministry of Transportation 0.0 195.3 195.3 0.0 255.1 255.1 Gansu provincial government 0.0 123.3 123.3 0.0 123.8 123.8 Domestic banks 94.0 169.4 263.4 0.0 662.5 662.5 Total 394.0 488.0 882.0 299.6 1,041.4 1,341.0 Sources: ADB and Gansu Changda Highway Co.

22 Appendix 4

PROJECTED AND ACTUAL CONTRACT AWARDS AND DISBURSEMENTS

Table A4.1: Projected and Actual Contract Awards and Disbursements ($ million)

Contract Awards Disbursements Actual/Projected Actual/Projected Year Projected Actual (%) Projected Actual (%) 2004 0.0 0.0 0.0 0.0 0.0 0.0 2005 0.0 2.2 220.0 0.0 0.1 110.0 2006 200.0 199.7 99.9 36.0 25.2 70.0 2007 45.0 0.0 0.0 70.0 69.6 99.4 2008 55.0 86.2 156.7 70.0 75.2 107.4 2009 0.0 0.0 0.0 62.0 70.6 113.9 2010 0.0 0.0 0.0 30.0 37.9 126.0 2011 0.0 6.2 620.0 0.0 17.3 1730.0 2012 0.0 0.0 0.0 0.0 3.7 370.0 Total 300.0 294.3 268.0 299.6 Source: ADB’s Loan Financial Information System,

Figure A4.1 Projected and Actual Contract Awards 250

200

150 Projected Actual 100 Amount ($million) 50

0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: ADB’s Loan Financial Information System. Figure A4.2: Projected and Actual Disbursements 80 70 60 50 Projected 40 Actual Amount ($million) 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: ADB’s Loan Financial Information System.

Appendix 4 23

Table A4.2: Cumulative Projected and Actual Contract Awards and Disbursements ($ million)

Contract Awards Disbursements

Year Projected Actual Projected Actual 2004 0.0 0.0 0.0 0.0 2005 0.0 2.2 0.0 0.1 2006 200.0 201.9 36.0 25.3 2007 245.0 201.9 106.0 94.9 2008 300.0 288.1 176.0 170.1 2009 300.0 288.1 238.0 240.7 2010 300.0 288.1 268.0 278.6 2011 300.0 294.3 268.0 295.9 2012 300.0 294.3 268.0 299.6 Total 300.0 294.3 268.0 299.6 Source: ADB’s Loan Financial Information System.

Figure A4.3 Cumulative Projected and Actual Contract Awards 350 300 250 200 Projected Actual

Amount 150 ($ million) 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: ADB’s Loan Financial Information System.

Figure A4.4 Cumulative Projected and Acutal Disbursement 350 300 250 200 Projected 150 Actual 100 Amount 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: ADB’s Loan Financial Information System.

APPRAISAL AND ACTUAL IMPLEMENTATION SCHEDULES

2004 2005 20062007 2008 2009 2010 2011 24 Item Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

A. Loan Processing 5 Appendix 1. TA Final Review • 2. A ppraisal (waived ) • 3. Board Consideration •

• 4. Loan Effectiveness • • B. Land Acquisition and Resettlement

1. Land Ac quisition and Resettlement

C. Civil Works

1. Earthworks, Bridges, and Pavement a. Prequalification b. Bidding c. Mobilization

d. Construction

(i) Earthworks

(ii) Bridge Work

(iii) Tunneling

(iv) Pavement 2. Traffic Installation Facilities gs and Ancillar y Facilities 3. Buildin 4. Local Roads

D. Equipment and Supply Contracts 1. Bidding 2. Deliver y and Installation

E. Consulting Services and Training 1. Shortlisting 2. Selection

3. Services and Trainin g

Appraisal

Source: Gansu Changda Highway Co. Actual

Appendix 6 25

ORGANIZATION CHARTS

Organization Chart of Gansu Changda Highway Co. During Construction Period

Gansu Provincial Transportation Department

Gansu Changda Highway Co.

Committee of Supervision Committee Board of Directors Communist Party Production Safety Supervision Audit Inspection Department Audit Inspection Office of the Chief Engineer Office Engineering Departmen Financial Management Administration Office Office Administration Asset Management Human Resources De Department Department Department p artment t

Wuguan Yingshuang Lanyong Chengwu Pingding Expressway Expressway Expressway Expressway Expressway PMO PMO PMO PMO PMO

PMO = project management office. Source: Gansu Changda Highway Co.

26 Appendix 6

Organization Chart of Pingding Expressway During Operating Period

Fengxiang Toll Station

Zhangguan Toll Station

Xiaojin Toll Station

Station Xifeng Toll

Administration Xifengbei Toll Station

Xifengnan Toll Station

Sishilipu Toll Station

Jingchuandong Toll Station

Pingliang Expressway Administration Section Section Administration Pingliang Expressway Luohandong Toll Station Station

Administration Jingchuan Toll Toll Jingchuan Changqingqiao Toll Station Gansu Changda Highway Co. Co. Highway Changda Gansu

Baishui Toll Station

Pingliangdong Toll Station Gansu Provincial Expressway Administration Bureau Bureau Administration Expressway Provincial Gansu

Kongtong Toll Station Kongtong Toll Kongtong Toll

Administration Station Administration

Xigongyi Toll Station

Dashanchuan Toll Station

Station Jingning Toll Station Huining Toll Huining Administration Dingxi Expressway Administration Section Siqiao Toll Station

Source: Gansu Changda Highway Co. Appendix 7 27

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Status of Covenant Reference Compliance 1. GPTD shall be the Project Executing Agency LA,Schedule 6, Complied with. responsible for overall implementation of the para. 1, PA, Project. Schedule, para.1

2. Prior to 31 December 2007, Gansu LA, Schedule 6, Complied with. expressway company shall be established in para. 2, PA, GCHC, established accordance with paragraph 21 of the Schedule, para. in February 2001, Schedule to the Project Agreement and shall 2 was the be the Project Implementing Agency implementing responsible for the operation and agency for the maintenance of the Project expressway in project expressway accordance with the Concession Framework component. Agreement.

3. Counterpart Funds: Without limiting the PA, Schedule Complied with. generality of Section 2.02 of this Project para. 3 Counterpart funds Agreement, Gansu shall ensure, and cause for the project were GPTD to ensure, that all necessary provided on time counterpart funds are provided on a timely and according to the basis for the successful construction and implementation operation of the Project expressway. Gansu schedule. GPHAB is shall ensure, through GPTD, that the responsible for responsible local government upgrading, operating communications units in the Project area and maintaining the can successfully upgrade, operate and local roads in maintain the local roads. Gansu.

4. Construction Quality: Gansu shall cause PA, Schedule, Complied with. The GPTD to ensure that the Project is para. 4 design standards, constructed in accordance with the 2004 construction technical standards of the Ministry of supervision and Communications (MOC) for highway quality control engineering. Gansu shall ensure that review followed the national of highway design standards and standards. The construction supervision and quality control outputs of the under the Project follow national standards technical studies for and internationally accepted practices. roads in collapsible loess region were applied in the project.

28 Appendix 7

Status of Covenant Reference Compliance 5. Road Safety: Prior to construction and PA, Schedule, Complied with. Road operation of the Project expressway and the para. 5 safety audits were local roads, Gansu shall cause GPTD to conducted during ensure that road safety audits are carried project design and out and the recommendations of these construction. The audits are taken into account during Project road safety construction and operations. With respect to management the construction and operation of the Project measures have expressway, Gansu shall also cause GPTD proven effective with to (i) implement the road safety signage, significantly reduced communication, hazard barriers, traffic number of road monitoring, and vehicle weighing systems in crashes on project accordance with MOC regulations and expressway and other relevant regulations and standards; local roads. and (ii) cooperate closely with the Gansu Public Security Bureau to implement necessary road safety measures. Before opening of the Project expressway, Gansu shall cause GPTD, in consultation with the Gansu Public Security Bureau, to submit a report on the emergency response plan to ADB for review and comments.

6. Roadside Stations and Transport Services: PA, Schedule, Complied with. Prior to completion of the local roads para. 6 GPTD utilized component under the Project, Gansu shall existing facilities cause GPTD to establish four roadside along the local roads stations to facilitate community development in establishing four by linking such roads with community roadside stations activities. Facilities to be provided at such including shop, roadside stations such as parking areas; bus restaurant, toilet, terminals; gasoline stations; information clinic, information centers about roads, road safety, tourism center, and accident and HIV/AIDS; local specialty markets; rescue center. In restaurants; and agro-processing facilities consultation with shall be reviewed by GPTD prior to the bus operators, the Midterm Review. GPTD shall also assess operation of bus prior to the Midterm Review the possibility of along the project providing bus stops along the Project expressway was expressway in consultation with bus considered not operators. feasible due to safety issues.

7. Tolls: In determining the toll rates, Gansu PA, Schedule, Complied with. The shall take into account rates sufficient to para. 7 requested report on allow Gansu expressway company to toll structure and maintain a minimum debt service coverage levels covering the ratio of 1.2. Gansu shall ensure that six period from the months before the Project expressway is physical completion

Appendix 7 29

Status of Covenant Reference Compliance opened, GPTD seeks ADB’s concurrence on to end of 2011 was the proposed toll structure and levels prior to submitted to ADB in seeking Gansu’s approval of such toll December 2011. structure and levels. During the first five years of operation of the Project expressway, Gansu shall cause GPTD to review the toll structure and levels annually, and to submit a report to ADB for each year. If toll rates need to be adjusted during the first five years of operation, Gansu shall ensure that GPTD seeks ADB’s concurrence before submitting any application for toll adjustment to Gansu.

8. Vehicle Emissions: Gansu shall cause PA, Schedule, Complied with. The GPTD and the Gansu Environmental para. 8 report on the Protection Bureau (GEPB) to cooperate in measures for controlling vehicle emissions on the Project enforcement of the expressway and the local roads. Prior to national vehicle commercial operation of the Project emission standards expressway, Gansu shall cause GPTD to were submitted to provide to ADB the national emission ADB in September regulation limits and the penalties for 2010. infringement of such limits. Gansu shall ensure that GEPB, GPTD, the Gansu Public Security Bureau and other relevant agencies enforce the national vehicle emission standards, and fulfill requirements of the government strategies, at least six months prior to the opening of the Project expressway.

9. Axle Loads: Gansu shall cause GPTD to PA, Schedule, Complied with. install vehicle axle-weighing equipment at para. 9 Vehicle weighing selected entry points and to make suitable stations were arrangements for operation of such established and equipment. Before opening of the Project operated on the expressway, Gansu shall cause GPTD to project expressway submit to ADB the plan for operation of the and local roads. The vehicle weigh stations, including the requested plan was prescribed axle-load limits and penalties for submitted to ADB in infringement. September 2010.

10. Human Resource Development and PA, Schedule, Complied with. Training: Gansu shall cause GPTD to para. 10 prepare a human resource development and training plan. Before undertaking international training, GPTD shall prepare, for ADB’s concurrence, (i) a training plan and

30 Appendix 7

Status of Covenant Reference Compliance a list of nominated candidates, (ii) a program of workshops to be delivered at GPTD by those trained internationally, and (iii) a list of training equipment and aids required to strengthen GPTD’s domestic training programs. Upon completion of each workshop, GPTD shall submit to ADB an evaluation of the international training and the workshop.

11. Health Risks: Gansu shall cause the Gansu PA, Schedule, Complied with. The Department of Health and GPTD, together para. 11 requirements were with the appropriate authorities, to ensure included in the that contractors disseminate information on bidding documents the risks of socially transmitted diseases, and civil works including HIV/AIDS, to those employed contracts. Similar during Project implementation. Such information was requirements shall be included in the bidding disseminated to documents and civil works contracts. Gansu transport operators shall ensure that the Gansu Department of during operation of Health and GPTD disseminate similar the project information to transport operators during expressway and operation of the Project facilities. roadside stations.

12. Environment: Gansu shall cause GPTD to PA, Schedule, Complied with. The ensure that the Project is designed, para. 12 environment and constructed and operated in accordance resettlement office with the relevant environmental laws, of GCHC oversaw regulations and rules of the Borrower and the EMP Gansu Province and ADB’s Environmental implementation. On- Policy (2002). Gansu shall also ensure that site mitigation GPTD (i) implements the mitigation and measures were monitoring measures set out in the EIA and supervised and Summary EIA, including the Environmental inspected by the Management Plan, to mitigate any adverse supervision environmental impacts arising from the institutions under Project and ensures that such mitigation GCHC. measures are incorporated in the bidding documents and civil works contracts; (ii) redemarcates the boundary of nature reserves in accordance with the relevant regulations and procedures of the Borrower and Gansu Province; and (iii) submits semiannual reports to ADB on implementation of the Environmental Management Plan.

Appendix 7 31

Status of Covenant Reference Compliance

13. Land Acquisition and Resettlement: Gansu PA, Schedule, Complied with. The shall (i) implement the RP in accordance para. 13 actual compensation with its terms, (ii) ensure that all land and rates were higher rights–of–way required by the Project are than the rates in the made available in a timely manner, (iii) RP because of ensure that the provisions of the RP, incremental including compensation and entitlements for resettlement costs. affected persons (APs), will be implemented The government in accordance with all applicable mobilized additional government laws and regulations and ADB’s resources to fill the Policy on Involuntary Resettlement (1995) gap, and ensured and Policy on Indigenous Peoples (1998), timely compensation (iv) ensure compensation and resettlement and resettlement assistance are given to the APs prior to assistance to the dispossession and displacement, (v) ensure affected people. the timely provision of counterpart funds for land acquisition and resettlement activities, (vi) meet any obligations in excess of the RP budget estimate, and (vii) ensure that the APs will be at least as well off as they would have been in the absence of the Project.

14. Gansu shall also ensure that (i) adequate PA, Schedule, Complied with. An staff and resources are committed to para. 14 external consultant supervising and monitoring the was hired for implementation of the RP and providing external quarterly reports on such implementation to resettlement ADB, (ii) an independent agency acceptable monitoring and to ADB is engaged by GPTD to carry out evaluation. ADB monitoring and evaluation, and forward received seven reports to ADB as specified in the RP, (iii) external data are disaggregated by gender, and resettlement M&E monitoring focuses on gender impacts and reports for the vulnerable groups, and (iv) a summary of expressway and two Gansu audits of resettlement disbursements M&E reports for the and expenditures is provided to ADB. local roads.

15. Gansu shall ensure that GPTD updates the PA, Schedule, Complied with. The RP (i) upon the completion of the detailed para. 15 project impact measurement survey for both the Project section of the plan expressway and local roads components, as was updated after described in the RP, and prior to the preliminary design, commencement of civil works, submit any but changes in the such modifications to ADB for its plan arising from concurrence; and (ii) as necessary to reflect project impact any significant material changes in Project beyond the project scope or other causes, and submit any such redline were made changes to ADB for its approval. With quite often during

32 Appendix 7

Status of Covenant Reference Compliance respect to any updated RP, Gansu shall construction, at the ensure that GPTD discloses such updated request of local RP to APs. Gansu shall cause GPTD to (i) communities along ensure that civil works contractor the alignment. specifications include requirements to comply with the RP and entitlements for permanent and temporary impacts to APs, and (ii) supervise the contractors to ensure compliance with requirements of the RP, applicable laws and regulations, and ADB’s Policy on Involuntary Resettlement (1995).

16. Gansu shall ensure that (a) any land PA, Schedule, Complied with. acquisition carried out by county para. 16 communications units for the local roads component of the Project will also be implemented in accordance with the RP, and (b) adequate resettlement compensation funds are available and property utilized.

17. Ethnic Minorities Gansu shall cause PA, Schedule, Complied with. The GPTD to implement the special actions set para. 17 implementation of out in the SDAP and the RP to ensure that SDAP has (i) ethnic minorities benefit from the Project enhanced the in at least an equitable manner and in sharing of project accordance with ADB’s Policy on Indigenous benefits with local Peoples (1998); (ii) ethnic minorities in the communities, as well Project area are consulted and provided with as Hui people. full opportunity to participate in the Tongji University implementation of the SDAP and RP; (iii) was hired to monitor sufficient budget for implementation and and evaluate SDAP, monitoring of the special actions are made and submitted four available in a timely manner; (iv) any monitoring reports to significant changes to the SDAP are ADB. submitted to ADB for approval; (v) implementation of the SDAP is monitored and evaluated by an independent agency, in accordance with procedures acceptable to ADB, and reported annually to ADB; and (vi) ADB is informed of the progress on SDAP implementation on an annual basis.

18. Poverty Reduction: Gansu shall carry out the PA, Schedule, Complied with. The SDAP in a timely manner. Gansu shall para. 18 project significantly ensure that GPTD causes the contractors to spurred regional (i) maximize the employment of local poor social development persons who meet the job and efficiency and poverty requirements for construction of the Project reduction in the expressway or local roads, and (ii) provided project area, as

Appendix 7 33

Status of Covenant Reference Compliance on-the-job training for such persons. GPG evidenced by (i) a shall extend the coverage and quality of sizable increase in public utilities, basic health, and basic per capita GDP and education in the Project area to enhance the farmers’ incomes; poverty reduction impacts. Gansu shall (ii) a significant ensure that the Poverty Alleviation Office, in decrease in poverty consultation with GPTD, monitors the incidence; (iii) impacts on poverty with the assistance of a increased designated local institute based on a set of employment and indicators and submits annual monitoring income for the poor reports to ADB. during construction and operation.

19. Gender and Development: Gansu through PA, Schedule, Complied with. GPTD shall follow ADB’s Policy on Gender para. 19 and Development (1998) during Project implementation, and take all necessary actions to encourage women to participate in planning and implementation of the Project. Gansu through GPTD shall monitor the effects on women during Project implementation through gender- disaggregated data, where relevant, in the RP and the monitoring and evaluation system.

20. Monitoring and Evaluation: Gansu through PA, Schedule, Complied with. GPTD shall monitor and evaluate impacts para. 20 through a project performance management system (PPMS) to ensure that facilities are managed effectively and benefits are maximized. GPTD shall, together with ADB, finalize the baseline indicators at Project inception, and collect data agreed upon with ADB before implementation, at Project completion, and three years later. A full time staff of GPTD shall be designated to undertake monitoring and evaluation with the consultants during Project implementation, and for three years following Project completion.

21. Corporatization: By 31 December 2007, PA, Schedule, Complied with. A GPTD shall establish Gansu expressway para. 21 Concession company to operate and manage the Project Agreement between expressway. By 30 June 2008, the legal GPTD and GCHC responsibility for management, maintenance was signed and and operation of the Project expressway submitted in shall be transferred to Gansu expressway September 2009

34 Appendix 7

Status of Covenant Reference Compliance company pursuant to a Concession during the midterm Framework Agreement in form and review mission. substance acceptable to ADB. Details on the creation of Gansu expressway company and transfer of assets and debt service obligations from GPTD to Gansu expressway company, including Gansu expressway company’s financial statements for the Project, shall be submitted for ADB’s approval six months prior to establishment of Gansu expressway company. Gansu through GPTD shall ensure that Gansu Expressway company implements a corporate development plan acceptable to ADB by 31 December 2008 to improve the standard of its corporate governance, management practice, and financial reporting. Gansu shall also ensure the concept of an interprovincial expressway corporation is reviewed by GPTD prior to Project completion.

22. Concession Framework Agreement: Gansu PA, Schedule, Partially complied shall cause GPTD to ensure that among para. 22 with. GCHC was others, the Concession Framework established for the Agreement set forth the following provisions: construction of the expressway. When (i) Gansu expressway company shall the project bear the responsibilities of operation, expressway was maintenance and management of the Project opened to traffic in expressway in accordance with the 2009, GCHC signed relevant engineering, technical, a franchise environmental, and highway operation and agreement with maintenance standards; GPTD, in which GPHAB was (ii) the management of the Project authorized to expressway shall follow the required financial operate the project requirements, including the financial expressway and performance ratios stipulated in paragraphs GPEAB to perform 23 and 24 below; the toll collection function. (iii) Gansu expressway company shall be obligated to meet the debt repayment obligations, particularly to satisfy the debt repayment obligations for the Loan for the Project expressway;

(iv) Gansu expressway company shall perform the obligations in the Loan

Appendix 7 35

Status of Covenant Reference Compliance Agreement and this Project Agreement to the extent applicable to it;

Gansu and GPTD shall ensure that the autonomy of Gansu expressway company is maintained in operating, maintaining and managing the Project expressway; and

(vi) Gansu expressway company, set up as a state-owned limited liability company under the Company Law of the Borrower, shall have the corporate governance structure as required by the Company Law and follow corporate governance practices acceptable to ADB.

23. Financial Performance Ratios: To ensure PA, Schedule, Being complied with. financial sustainability, Gansu shall cause para. 23 (Pro forma analysis Gansu expressway company to maintain (i) indicates that the a debt-to-equity ratio of not more than 65:35 debt–to-equity ratio commencing from the third year of Project will be complied with expressway operation; (ii) a working ratio after 2020; and the (annual O&M cost, but excluding periodic working ratio from maintenance cost, to revenue) of not more 2015 onward.) than 15 percent; and (iii) a debt service coverage ratio of not less than 1.2 commencing from the third year of Project expressway operation.

24. (a) Except as ADB shall otherwise agree, PA, Schedule, Being complied with. Gansu shall cause GPTD to ensure, through para. 24 (The debt service the Concession Framework Agreement, that coverage ratio can Gansu expressway company shall not incur, be complied with for each fiscal year commencing from the from 2020.) third year of the full operation of the Project expressway, any debt unless reasonable forecast of the revenues, and the expenditures of Gansu expressway company shows that its estimated net revenues for each fiscal year during the term of the debt to be incurred shall be at least 1.2 times its estimated maximum debt service requirements for any succeeding fiscal year on all of its debt, including the debt to be incurred

(b) For the purposes of this Section:

36 Appendix 7

Status of Covenant Reference Compliance

a. The term “debt” means any indebtedness of Gansu expressway company and maturing by its terms more than one year after the date on which it is originally incurred.

b. Debt shall be deemed to be incurred: (a) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument; and (b) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into.

c. The term “net revenues” means the difference between:

i. the sum of revenues from all sources adjusted to take account of Gansu expressway company’s toll rates in effect at the time of the incurrence of debt even though they were not in effect during the twelve- month period to which such revenues related and net non- operating income; and

ii. the sum of all expenses, including operation administration, adequate annual maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt.

d. The term “reasonable forecast” means a forecast prepared by Gansu expressway company not earlier than twelve months prior to the incurrence of the debt in question, which both ADB and Gansu expressway company accept as reasonable and

Appendix 7 37

Status of Covenant Reference Compliance as to which ADB has notified Gansu expressway company of its acceptability, provided that no event has occurred since notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of Gansu expressway company. e. Whenever for the purpose of this paragraph it shall be necessary to value, in terms of the currency of the Borrower, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange

25. Private Sector Development: Six months PA, Schedule, Complied with. In prior to the opening of the Project para. 25 August 2010, the expressway, Gansu through GPTD shall requested report analyze the feasibility of attracting private was submitted to sector investment funds for future road ADB. sector investment, including private sector participation in operation and maintenance of the Project expressway, and report its conclusions to ADB.

26. Change in Ownership. In the event that PA, Schedule, Complied with. Gansu or Gansu expressway company para. 26 plans to (a) make any change in ownership of the Project facilities, (b) carry out any sale, transfer, or assignment of Gansu’s or Gansu expressway company’s interest in the Project expressway, or (c) lease, contract out, or otherwise modify Gansu expressway company’s responsibilities for operation and maintenance of the Project expressway, Gansu shall take the necessary actions so that the Borrower can, at least 6 months prior to implementation of such plan, consult ADB and obtain ADB’s consent. Gansu shall also take the necessary measures to ensure that any such action is carried out in a legal and transparent manner

27. Labor Standards: Gansu through GPTD PA, Schedule, Complied with. shall ensure that civil works contractors para. 27

38 Appendix 7

Status of Covenant Reference Compliance comply with all applicable labor legislation. Bidding documents shall include a clause on the prohibition of child labor, as defined in national legislation, for construction and maintenance activities, as well as a clause ensuring equal pay for men and women for work of equal value. Compliance with these provisions shall be strictly monitored during Project implementation.

28. Gansu shall ensure that GPTD (i) maintains PA, Section Complied with. separate accounts for the Project and for its 2.09(a) overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnishes to ADB, promptly after their preparation but in any event not later than six months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement), all in the English language. Gansu shall cause GPTD to furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Source: ADB and Gansu Changda Highway Co.

Appendix 8 39

DETAILS OF EXPRESSWAY CIVIL WORKS AND EQUIPMENT PACKAGES Table A3.1: Civil Works

Mode of Contract Contract Amount Contract Amount No. Contractor Procurement Date Country (CNY) ($ Equivalent) LD1 Huaxiang International Engineering ICB 16 Jan. 2006 PRC 241,400,167.00 38,301,679.78 Co. of Road & Bridge Group LD2 Fujian Construction Engineering ICB 16 Jan. 2006 PRC 207,295,529.00 32,890,478.37 Group Co. LD3 The 3rd Bureau Enginnering Co. of ICB 16 Jan. 2006 PRC 166,730,224.00 26,454,197.32 Road & Bridge Group LD4 Gansu Zhongda Construction ICB 16 Jan. 2006 PRC 183,179,291.00 29,064,083.24 Engineering Co. LD5 Gansu Hongwei Construction Group ICB 16 Jan. 2006 PRC 129,589,130.00 20,561,217.59 LD6 The 2nd Engineering Co. of the 20th ICB 16 Jan. 2006 PRC 422,561,790.00 67,045,630.37 Bureau Group of Zhongtie LD7 Gansu Road & Bridge Construction ICB 16 Jan. 2006 PRC 372,630,232.00 59,123,255.80 (Group) Co. LD8 Yueyang Tongquxinglu Co. ICB 16 Jan. 2006 PRC 182,569,714.00 28,967,364.90 LD9 Qinghai Road & Bridge Construction ICB 16 Jan. 2006 PRC 202,555,407.00 32,138,388.44 Co. LD10 Zhongtie the 5th Bureau (Group) Co. ICB 16 Jan. 2006 PRC 344,847,444.00 54,715,108.69 LD11 The 3rd Engineering Co. of the 2nd ICB 16 Jan. 2006 PRC 186,338,418.00 29,565,325.10 Bureau of Road & Bridge Group LD12 Gansu Tiandi Road & Bridge ICB 16 Jan. 2006 PRC 256,862,765.00 40,755,047.92 Engineering Co. LD13 China 15 Metallurgical Construction ICB 16 Jan. 2006 PRC 221,113,459.00 35,082,895.79 Co. LD14 Antong Construction Co., Ltd ICB 16 Jan. 2006 PRC 250,475,192.00 39,741,565.70 LD15 Shaanxi Tongda Highway ICB 16 Jan. 2006 PRC 253,273,555.00 40,185,567.07 Construction (Group) Co. LD16 Gansu Yuanlong Road & Bridge ICB 16 Jan. 2006 PRC 136,678,882.00 21,686,110.81 Mechnical Highway Engineering Co.

Total 3,758,101,199.00 596,277,916.90

ADB = Asian Development Bank, ICB = international competitive bidding, PRC = People’s Republic of China. Source: Gansu Changda Highway Co.

40 Appendix 8

Table A3.2: Equipment

Mode of Contract Procure- Date of Country of Contract Amount Amount No. Item ment Contract Procurement Contractor (CNY) ($ equivalent) 1. Road maintenance ICB 19 Nov. 2010 PRC Shaanxi Kingflying Trade Co. CNY5,212,518.00 827,042.49 equipment

2. Road maintenance ICB 15 Feb. 2011 PRC Gansu Fortune Complete CNY19,020,807.00 3,017,930.22 equipment Equipment Co. 3. Road maintenance ICB 19 Nov. 2010 PRC Gansu Provincial Import & $2,168,816.00+ 2,378,244.59 equipment Export Trading Group CNY1,319,944.60

Total CNY25,553,269.60+ 6,223,217.30 $2,168,816.00

ICB = international competitive bidding, PRC = People’s Republic of China Sources: Gansu Changda Highway Co. and Hunan provincial transportation department.

Appendix 9 41

ECONOMIC REEVALUATION

A. General

1. The project comprised a four-lane, access-controlled toll expressway of about 231 kilometers (km) from Pingliang to Dingxi, and the upgrading of about 470 km of local roads. The economic reevaluation was done for the expressway component, using with- and without- project scenarios in accordance with the Asian Development Bank’s Guidelines for the Economic Analysis of Projects (1997). Without the project, corridor traffic would use the existing roads, which would then be more congested. Vehicle operating costs (VOCs) would go up, travel time would increase, and there would be more road crashes. The project was foreseen to expand corridor transport capacity, allowing vehicles on the project expressway to drive shorter distances and at faster speeds and lower operating costs. Congestion on the existing roads would ease, shortening travel time and lowering VOCs and the accident rate on those roads. In the corridor, better transport condition and lower operating costs would lead to more traffic generated. The evaluation period covered the implementation period from 2005 to 2010 and the operation period from 2010 to 2029. Constant 2012 prices were used in the analysis.

2. The economic costs were derived from financial costs, excluding taxes, duties, and financing charges. A shadow wage rate of 0.5 was applied to the unskilled labor cost used at appraisal, and border prices were converted into domestic economic prices using a shadow exchange rate factor of 1.013.

B. Revised Traffic Forecast

3. The project expressway traversed the eastern part of Gansu province, connecting the provincial capital, Lanzhou, with Xi’an in Shaanxi province. It is the main part of the national expressway network from Qingdao to Lanzhou, and from Fuzhou to Yinchuan. It is expected to provide Gansu province with important access to Shanxi and Ningxia provinces. The project expressway offered an alternative high-capacity route in the existing transport corridor, mainly comprising National Highways 312 (G312), 309 (G309), and 310 (G310). The east section of the expressway was opened to traffic in December 2009, and the remaining section in December 2010. Before the expressway was opened to traffic, several sections of these national highways were congested and road crashes were common because of the long and steep slope. The traffic analysis was based on actual traffic data for the period 2009–2012, from the Gansu expressway administration bureau. The impact of other expressways connected to the project expressway was taken into consideration. The impact of railways in the region in diverting expressway traffic was reviewed. The composition of the traffic, future socioeconomic development in the project area, and overall future transport demand in the corridor were also considered.

4. The project expressway and the G312 constituted the main transport corridor in the project area. Before the project expressway started operating, there was significant traffic congestion on G312 because of its poor condition and frequent accidents. The annual average daily traffic (AADT) on the G312 in 2009 was 5,715 passenger car units (pcus). It decreased by nearly 70%, to 3,883 pcus/day in 2010, when the expressway was opened to traffic. The actual AADT on the project expressway in 2010–2012—8,823 pcus in 2010, 10,387 pcus in 2011, and 10,604 pcus in 2012—was higher than projected at appraisal. A section of about 30 km bisects the project expressway as it crosses Ningxia province. This section is to be completed and opened to traffic in 2015. Its opening will significantly increase traffic on the project expressway as a large proportion of traffic between Lanzhou and Xian transfers from other expressways and

42 Appendix 9

roads to the project expressway because of its shorter distance and better road condition. Table A9.1 compares the traffic forecast at appraisal with the actual and projected traffic at project completion.

Table A9.1: Updated Traffic Forecast (average annual daily traffic, in passenger car units) At Appraisal At Project Completion Year Expressway Expressway G312 Total 2010 7,621 8,823 3,883 12,706 2020 15,130 18,792 6,082 24,874 2029 25,562 25,481 8,191 33,672 Average Annual Growth Rate 2010–2011 7.8% 17.7% 6.1% 2012–2015 7.8% 5.0% 4.5% 2016–2017 6.4% 15.0% 4.0% 2018–2029 6.4%–6.0% 5.0%–3.0% 4.0%–3.0% Source: ADB. 2004. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of China for the Gansu Roads Development Project. Manila; Gansu Changda Highway Co.; and ADB estimates.

C. Benefits

5. The following economic benefits were quantified at appraisal: (i) VOC savings resulting from the reduction in travel distance and the improvement in road conditions, (ii) savings in passenger time and in freight tie-ups in transit, (iii) savings resulting from the decrease in accidents, (iv) benefits from generated traffic, and (v) savings in capital and operation and maintenance (O&M) costs for the G312. These benefits were reevaluated on the basis of updated information, except for the benefits related to the decrease in road accidents because not enough data on accident rates on the expressway and on the G312 before and after opening of the expressway were available. Savings in capital and O&M costs for the G312 were not considered in the reevaluation in view of the additional capital input and O&M improvements in this national highway during the same period of project implementation.

6. VOC savings were the main source of economic benefits. Unit VOC savings for each type of vehicle under different road and traffic conditions were calculated on the basis of the consumption of fuel and lubricating oil, the use of tires and spare parts, vehicle maintenance labor costs, vehicle crew wages, vehicle depreciation, and average travel speed as a function of the geometry and condition of the road. Unit VOC savings were estimated to be CNY0.28– CNY1.67 per vehicle-km for the different types of vehicles on the expressway. VOC savings from the reduction in travel distance were also calculated. VOCs for traffic on the G312 likewise decreased as a result of decongestion. The calculated unit VOC savings for G312 traffic amounted to CNY0.15–CNY0.67 per vehicle-km. Table A10.2 shows the unit VOC savings by vehicle type on the expressway and on the G312.

Appendix 9 43

Table A9.2: Vehicle Operating Costs (2012 prices, CNY per vehicle-km) Medium- Super- Small Size Large Size Item Car Bus Truck Truck Truck Truck Expressway 1.26 3.07 1.61 2.13 3.24 5.18 G312 (with the project) 1.39 3.38 1.76 2.50 3.60 6.19 G312 (without the project) 1.54 3.84 1.93 2.95 3.95 6.86 Savings (expressway) 0.28 0.77 0.32 0.82 0.72 1.67 Savings (G312) 0.15 0.46 0.17 0.45 0.36 0.67 G312 = National Highway 312, km = kilometer. Sources: Gansu Changda Highway Co.

7. Savings in passenger travel time were estimated for different types of passenger vehicles. The average value was derived from the per capita gross domestic product (GDP) of Gansu province in 2010 and 2011, and assumed to increase by 10% to 5% in 2012–2029, consistent with the anticipated GDP growth rates. Other factors considered in recalculating the savings in travel time were average vehicle load, percentage of work-related trips, travel distance, and speeds for the with- and without-project scenarios.

8. The local road component comprised the upgrading of 470 km of roads in five counties. As envisaged at appraisal, the principal benefit from the local road improvements was the reduction in VOCs due to the improvements in road condition. This was confirmed at completion but the benefits could not be quantified as there were no systematic traffic counts on these local roads. The local road component also had a positive effect on poverty reduction in the project area and contributed to the rapid growth of per capita income. For lack of reliable information, however, such changes could not be attributed with certainty to the project. The benefits from the local road component contributed only a small portion of the total benefits and had a minimal effect on the overall economic viability of the project.

D. Recalculation of Economic Internal Rate of Return

9. The recalculated economic internal rate of return (EIRR) for the project expressway of 15.0% is below the appraisal estimate of 16.1%. It is lower, despite the higher-than projected traffic volumes in the early years of operation, mainly because of the increased capital cost, higher O&M costs, and the delayed completion of the Ningxia section. But the recalculated EIRR is higher than the cutoff rate of 12%, and the project is therefore considered economically viable. The result of the economic reevaluation is provided in Table A9.3.

10. A sensitivity analysis was carried out to test the impact of (i) an increase in O&M costs, (ii) a decrease in benefits, and (iii) a combination of these two scenarios. According to this analysis, the project will continue to be economically viable under all sensitivity tests. The project EIRR is robust under all sensitivity scenarios. The results of the sensitivity analysis are presented in Table A9.4.

44 Appendix 9

Table A9.3: Economic Reevaluation of the Project (constant 2012 prices, CNY million) Costs Benefits VOC Time Net Year Capital O&M Total Savings Savings Total Benefits 2005 308 308 (308) 2006 937 937 (937) 2007 1,757 1,757 (1,757) 2008 1,074 1,074 (1,074) 2009 1,816 1,816 0 (1,816) 2010 826 45 871 287 28 316 (556) 2011 258 46 46 360 41 401 97 2012 57 57 378 62 440 382 2013 58 58 430 77 506 448 2014 59 59 494 95 589 529 2015 61 61 563 120 683 622 2016 62 62 693 163 857 795 2017 63 63 859 218 1,077 1,014 2018 64 64 993 270 1,263 1,199 2019 94 66 160 1,157 335 1,492 1,333 2020 94 67 161 1,355 419 1,775 1,614 2021 69 69 1,599 528 2,127 2,059 2022 70 70 1,902 665 2,567 2,497 2023 72 72 2,255 832 3,087 3,016 2024 73 73 2,704 1,054 3,758 3,685 2025 75 75 3,293 1,355 4,648 4,572 2026 77 77 4,087 1,774 5,862 5,784 2027 79 79 5,211 2,366 7,577 7,498 2028 81 81 6,902 3,272 10,174 10,093 2029 (3,360) 83 (3,276) 9,846 4,180 14,025 17,302 Economic Net Present Value 2,124 Economic Internal Rate of Return 15.0% ()=negative, O&M = operation and maintenance, NPV = net present value, VOC = vehicle operating cost. Sources: ADB estimates.

Table A9.4: Sensitivity Analysis Change in O&M Cost Benefits EIRR Base case 15.0% Change(+/−) +20% 14.9% −10% 14.1% −20% 13.2% +20% −20% 13.1% EIRR = economic internal rate of return, O&M = operation and maintenance. Sources: ADB estimates.

Appendix 10 45

FINANCIAL REEVALUATION A. Introduction

1. The financial reevaluation conformed to the Asian Development Bank’s Guidelines for the Financial Management and Analysis of Projects (2005). The project had both revenue and nonrevenue components. The financial reevaluation was conducted only on the revenue-generating component—the four-lane expressway from Pingliang to Dingxi, 231 kilometers (km) in length. The reevaluation period covered the implementation period 2005–2010 and the operation period 2010–2029.

B. Basic Assumptions

2. The capital cost used in recalculating the financial internal rate of return (FIRR) was based on actual expenditures incurred for the expressway, excluding interest during construction. The actual capital cost, denominated in local currency, was about 15.7% higher than the appraisal estimate. Operation and maintenance (O&M) expenses for the project expressway were the actual O&M expenses in the 2 years preceding the recalculation, according to data from the Gansu provincial expressway administration bureau and the Gansu provincial highway administration bureau. The O&M expense estimates for the expressway were based on the number of operation and administration staff members, average salary level, routine maintenance of CNY96,000 per km per year, and other cost amounting to CNY90,000 per km per year. Periodic maintenance was assumed to occur in the 10th and 11th years (2019 and 2020), with an estimated expenditure of CNY991,000 per km, given the average expenditure for periodic maintenance of expressways in Gansu province in 2011. In view of the high O&M cost, no increase in real terms was assumed. Depreciation was calculated on the basis of average annual depreciation of 4%. Depreciation expenses were excluded from the FIRR calculation.

3. The actual toll revenues for 2010–2012 were included and future toll revenues were assumed to increase in line with traffic growth. Current toll rates have been applied to the expressway since 2009 (Table A10.1). The base toll level of CNY0.35 per km was 13% lower than the appraisal estimate of CNY0.4 per km. No increase in real terms in the toll level was assumed. Nontoll vehicles, including trucks carrying fresh agricultural products, accounted for 5% of total traffic. Toll revenues were exempted from taxes except for the construction tax of 3% charged by the provincial government. All revenues and expenses in the FIRR recalculation were expressed in 2012 prices. The residual value of fixed assets was based on the economic life of the expressway facilities.

Table A10.1: Toll Rates for the Project Expressway (CNY per vehicle-km) Vehicle Standards Vehicle Type Freight Vehicle Passenger Vehicle Toll Rates Type 1 N≤6 0.35 Type 2 M≤2t 6

46 Appendix 10

C. Financial Internal Rate of Return

4. The recalculated FIRR of 4.6% (Table A10.2) was lower than the appraisal estimate of 6.1% because the capital cost and O&M expenses were higher and the toll rate was lower than estimated at appraisal. The actual capital mix and the cost of various financing sources were used in calculating the weighted average cost of capital (WACC) in real terms. The revised WACC was 3.5%, higher than the appraisal estimate of 2.9%, mainly because of the higher proportion and cost of debt financing. The project’s recalculated FIRR was higher than the revised WACC. The project was therefore considered financially viable.

5. A sensitivity analysis was conducted to test the impact of variations in O&M costs and revenues. The project’s FIRR would be less than the WACC if the revenues were to fall short of the base-case estimates by more than 17% or if revenues were to decrease by more than 15% and O&M costs were to increase by more than 15%. The results of the sensitivity analysis are shown in Table A10.3. Table A10.2: Financial Internal Rate of Return (CNY million) Cost Net Cash Year Capital O&M Cost Subtotal Revenues Flow 2005 343 343 (343) 2006 1,042 1,042 (1,042) 2007 1,778 1,778 (1,778) 2008 1,019 1,019 (1,019) 2009 1,786 1,786 (1,786) 2010 918 58 976 273 (703) 2011 286 60 346 329 (17) 2012 60 60 363 303 2013 72 72 381 309 2014 72 72 400 328 2015 72 72 420 348 2016 72 72 483 411 2017 72 72 556 484 2018 72 72 584 512 2019 104 72 176 613 436 2020 104 72 176 643 467 2021 72 72 676 604 2022 72 72 709 638 2023 72 72 731 659 2024 72 72 752 681 2025 72 72 775 703 2026 72 72 798 727 2027 72 72 822 750 2028 72 72 847 775 2029 (3,586) 72 (3,514) 872 4,386 FIRR = 4.6% WACC= 3.5% NPV = 1,055 ()=negative, FIRR = financial internal rate of return, NPV = net present value, O&M = operation and maintenance, WACC = weighted average cost of capital. Source: ADB estimates.

Appendix 10 47

Table A10.3: Sensitivity Analysis Scenario FIRR Base case 4.6% Revenues decrease by 10% 4.0% Revenues decrease by 17% 3.5% O&M costs increase by 20% 4.5% O&M costs increase by 15% and revenues decrease by 15% 3.5% FIRR = financial internal rate of return, O&M = operation and maintenance. Source: ADB estimates.

D. Operation and Management of the Project Expressway

6. It was anticipated at appraisal that the Gansu provincial transportation department (GPTD) would set up a company to operate and manage the project expressway, that GPTD would transfer the assets and debt service obligations of the expressway to the company, and that GPTD would enter into a concession framework agreement with the company to ensure the autonomy of the company’s operations, encourage the establishment of road performance indicators, and facilitate future refinancing of road sector assets. These anticipated arrangements did not transpire. Instead, Gansu Changda Highway Co. (GCHC) was established in April 2001 to implement foreign-financed expressway projects in Gansu province, including this project. When the project expressway was opened to traffic in 2009, GCHC signed a franchise agreement with GPTD authorizing the Gansu provincial highway administration bureau (GPHAB) to operate and maintain the project expressway and the Gansu provincial expressway administration bureau (GPEAB) to assume responsibility for toll collection. In place of the expected corporatization, therefore, the O&M function for the project expressway was distributed between different government agencies. In addition, GPTD committed in a letter to ADB to assign responsibility for the payment of the ADB loan to GCHC, an autonomous corporation.

7. The project agreement required the project expressway to maintain (i) a debt-to-equity ratio of not more than 65:35 from the third year of operation; (ii) a working ratio (ratio of annual O&M cost, excluding periodic maintenance cost, to revenue) of not more than 15%; and (iii) a debt service coverage ratio of not less than 1.2 from the third year of operation. Because the O&M and toll collection functions for the expressway were institutionally separate, integrated financial statements have not been prepared for the operation of the project expressway. Pro forma analysis indicated that the debt-to-equity ratio would be complied with only after 2020, the debt service coverage ratio only in 2018, and the working ratio only in 2015. The noncompliance was mainly due to the significantly higher proportion of debt in the capital cost (about 72%) compared with the estimate at appraisal (64%).1

8. To make the project expressway more accessible and improve its financial performance, the missing section in Ningxia province should be completed as soon as possible. GPTD should take measures to improve the institutional arrangements for the O&M of the project expressway to improve the efficiency of the O&M work and reduce cost.

1 The overall level of debt for the toll roads is still 53% and the overall working ratio for expressways in Gansu province is still 14%.

48 Appendix 11

LAND ACQUISITION AND RESETTLEMENT

A. Background

1. A resettlement plan was prepared for the project and approved by the Asian Development Bank (ADB) during loan processing in 2004. According to the resettlement plan, 17,222 mu (1,148 hectares [ha]) of land,1 62.7% of which was farmland, would be acquired permanently under the project, and 13,149 people, or 2,829 households, would be affected by the permanent land acquisition. A total of 55,612 square meters (m2) of houses or buildings would be demolished and 520 households with 2,351 people would have to be relocated. In addition, the project would acquire about 1,532 mu of temporarily borrowed land for construction purposes. The land acquisition and resettlement cost estimate of CNY229 million was included in the project cost estimates. The land acquisition and resettlement for the expressway began in 2005 and most activities were completed by December 2009.

B. Scope of Land Acquisition and Resettlement

2. According to the resettlement completion report prepared by the Gansu Changda Highway Co. (GCHC), the project permanently acquired 23,689 mu (1,579 ha) of land, 37.6% more than the area estimated in the resettlement plan. A total of 213,814 m2 of buildings were demolished, 284.5% more than estimated. A total of 45,821 people were affected by land acquisition and 5,453 by house demolition. The significant changes in the extent of land acquisition and house demolition were mainly due to the noninclusion in the resettlement plan of project impact beyond the expressway redline, such as the fencing of the expressway and the construction of additional access roads requested by local communities. For instance, a total of 470 households along the alignment in Jingchuang county and Kongtong district, which would be separated from their communities by the fencing of expressway and have reduced access to local markets were relocated at their request during the implementation. The number of people who were affected by the land acquisition was significantly larger than anticipated because the estimate in the resettlement plan was based on the number of households that were foreseen to lose one-third of their land on average. Most of the affected people (37,491, or 82% of the total) lost less than 10% of their lands, indicating that the impact on individual households was much less than estimated in the plan. Table A11.1 presents the actual project impact versus the impact estimated in the resettlement plan.

Table A11.1: Land Acquisition and Resettlement Impact of Expressway

Impact Variation Item Unit RP Actual Quantity Percentage Permanent land acquisition mu 17,222 23,689 6,467 37.6% Farmland mu 10,803 17,108 6,305 58.4% Temporary land use mu 1,533 1,533 0 0.0% Building demolition m2 55,612 213,814 158,202 284.5% Population affected By land acquisition persons 13,149 45,821 32,672 248.5% households 2,829 9,887 7,058 249.5% By building demolition persons 2,351 5,453 3,102 131.9% households 520 1,208 688 132.3%

1 A mu is a Chinese unit of measurement (1 mu = 666.67 m2).

Appendix 11 49

( ) = negative, m2 = square meter, mu = 666.67 m2, RP = resettlement plan. Sources: Resettlement plan and Gansu Changda Highway Co.

3. A total of 460 kilometers (km) of local roads would be financed under the project. Of these, Jinghui road (117.6 km) would require land acquisition and resettlement. A resettlement plan was prepared for Jinghui road and submitted to ADB in 2008. The other local roads were upgraded within the original right-of-way, without any land acquisition or resettlement impact. The resettlement completion report shows that 537 mu (35.8 ha) of land was permanently acquired and 4,858 m2 of buildings had to be relocated to make way for the construction of Jinghui road. A total of 1,042 people, or 285 households, were affected by land acquisition and 173 people, or 37 households, were affected by house demolition. The total cost of land acquisition and resettlement for the local roads component was CNY18.26 million.

C. Resettlement Policy and Compensation Rates

4. Land acquisition and resettlement were implemented in accordance with the Land Administration Law (1998) of the People’s Republic of China (PRC), ADB’s Involuntary Resettlement Policy (1995) and Policy on Indigenous Peoples (1998), and the Implementation Measures for the Land Administration Law of the PRC in Gansu Province (2003). In late 2005 and early 2006, the Gansu province communication department and GCHC signed land acquisition agreements with Gansu province land and resources department, as well as with the municipal governments of Pingliang, Baiyin, and Dingxi.

5. The PRC government updated its land compensation policy in 2004, during the implementation of the project. The updated policy required local governments to increase the compensation rates for land acquired for development projects. The compensation rates for land that was permanently acquired for the expressway construction, as well as for the Jinghui local road, were therefore much higher than those in the resettlement plan. The actual compensation rates for house demolition were also increased to allow for inflation. (See Tables A11.2 and A11.3.)

Table A11.2: Compensation Rates for Land Acquisition and House Demolition of Expressway

Item Unit RP Actual (2006) Land acquisition Irrigated land CNY/mu 12,036 21,534–22,888 Flat dry land CNY/mu 6,000 14,560–16,235 Slope dry land CNY/mu 6,000 14,560–16,235 Wasteland CNY/mu 468 1,402 Residential CNY/mu 6,000 13,920–17,720 Forest CNY/mu 1,872 7,070–7,475 House demolition Brick-concrete CNY/m2 350–460 384–500 Brick-wood CNY/m2 200–300 304–470 Earth-wood CNY/m2 200 208–398 Simple CNY/m2 100–150 30–180 m2 = square meter, mu = 666.67 m2, RP = resettlement plan. Sources: Resettlement plan and Gansu Changda Highway Co.

50 Appendix 11

Table A11.3: Compensation Rates for Land Acquisition and House Demolition for the Jinghui Local Road

Item Unit RP Actual (2008) Land acquisition Irrigated land CNY/mu 12,000 20,192–27,520 Flat dry land CNY/mu 5,000–6,000 13,704–19,392 Sloped dry land CNY/mu 5,000–6,000 11,216–19,392 Wasteland CNY/mu 6,000 6,000 Residential CNY/mu 6,000 13,804–19,392 House demolition Brick-concrete CNY/m2 384 384–848 Brick-wood CNY/m2 304 304–599 Earth-wood CNY/m2 208 260–518 m2 = square meter, mu = 666.67 m2, RP = resettlement plan. Sources: Resettlement plan of Jinghui Road and Gansu Changda Highway Co..

D. Rehabilitation and Income Restoration

6. The compensation for house demolition was delivered directly to the affected households to support the construction of new houses. In villages where only a few households were affected, these were relocated nearby and new housing plots close to their original houses were allocated by the villages. In villages with many displaced households, these were usually relocated in a concentrated resettlement site within the village. The housing plots in resettlement sites were allocated in a transparent manner, on the basis of consultation with the affected households. Local governments also mobilized additional resources from the New Countryside Construction program to help with the construction of resettlement sites and new houses for displaced households. All affected households moved to new and better housing, with good supply of water and electricity, and access roads.

7. The affected villages and households all received land compensation. But land compensation practices varied between villages. In some affected villages in Jingning and Jingchuang counties and Kongtong district, the affected people received the replacement land through land readjustment within the group and the land compensation was distributed among the villagers in the group. In other affected villages in other counties and districts, all compensation funds were delivered directly to the affected families but there was no land readjustment. Most affected families still had sufficient farmland left after land was acquired for the project. In addition, local governments took measures to help restore the incomes of affected households, including (i) encouraging contractors to hire affected people for the construction of the expressway; (ii) conducting skill training for affected people, such as training in cash crops, livestock farming, and other nonagricultural activities; and (iii) providing special subsidies to affected vulnerable groups along the expressway alignment. The survey conducted by the external monitor showed that the income of affected households increased after resettlement. (See Table A11.4.)

Appendix 11 51

Table A11.4: Restoration of Incomes of Affected Households (CNY/person)

No. of County or Households District in Sample 2005 2008 2009 2010 Jingchuan 28 2,662 3,769 4,081 4,393 Kongtong 26 2,815 3,651 3,670 3,995 Jingning 26 2,635 3,595 4,548 4,860 Huining 42 2,223 3,589 4,256 4,640 Anding 11 1,878 2,506 2,894 3,013 Sources: External resettlement monitoring report and project completion report prepared by Gansu Changda Highway Co..

E. Resettlement Cost

8. The implementation of land acquisition and resettlement for the expressway cost CNY864.3 million including contingencies, 227% more than the CNY229 million in the resettlement plan. (See Table A15.5.) Resettlement costs increased significantly mainly because more land was acquired than previously anticipated; more houses were demolished; compensation had to be paid to auxiliaries and for facilities and fruit trees that were torn down; and compensation rates were generally higher. The resettlement cost represented 10.2% of total project cost.

Table A11.5 Land Acquisition and Resettlement Costs (CNY)

Difference % Increase Item RP Actual Amount or Decrease Compensation for land 88,762,240 417,513,698 328,751,458 370% requisition Compensation for houses 15,724,750 78,035,746 62,310,996 396% Compensation for auxiliaries 1,690,100 44,865,794 43,175,694 2,555% Relocation assistance and 208,000 2,108,895 1,900,895 914% allowance Compensation for felled 2,811,295 45,955,240 43,143,945 1,535% trees Compensation for affected 14,497,810 156,045,056 141,547,246 976% Facilities Local road component 21,374,000 18,266,900 (3,107,100) −15% Other cost and taxes 83,942,342 101,537,223 17,594,881 21% Total 229,010,537 864,328,551 635,318,014 277% ( ) = negative, RP = resettlement plan. Source: Project completion report prepared by Gansu Changda Highway Co.

F. Information Disclosure, Consultation, and Participation

9. A total of 19 key documents or minutes were disclosed or disseminated to affected communities and affected people from December 2004 to November 2009. The documents included, among others, a resettlement information booklet, detailed compensation policies and rates formulated by local governments along the alignment, and minutes of key consultation

52 Appendix 11

meetings. During the implementation of land acquisition and resettlement, the GCHC and county governments along the alignment made efforts to address the issues and requirements raised by the affected people through meaningful consultations with them. Officials from the key projects management office of Gansu province visited the expressway project area twice a year to supervise land acquisition and resettlement, and coordinate with local governments in addressing the issues identified. In March 2011, GCHC signed an agreement with Pinglaing municipal government to resolve the remaining issues, such as affected irrigation and drainage systems, access roads, and restoration of temporary land use, which cost a total of CNY20 million. A total of 400 consultation meetings were organized by the Dingxi, Baiyin, and Pinglian municipal governments, particularly in the Fengmei section of Pingliang municipality. These satisfactory consultation and participation efforts ensured the smooth implementation of land acquisition and resettlement for the project.

G. Institutional Arrangement

10. The land acquisition office established under GCHC was responsible for the overall supervision of land acquisition and resettlement. Leading groups and resettlement offices were also established in the five county and district governments and the three municipal governments along the alignment. The township governments also set up resettlement working groups. Each resettlement office or working group recruited six to eight full-time staff members. Country and district governors took full responsibility for land acquisition and resettlement for the project. The county and district resettlement offices were required to disclose resettlement policies and information, consult with affected communities and affected people, and deliver compensation funds with the assistance of township working groups.

H. Monitoring and Evaluation

11. Tongji University was hired for the external monitoring and evaluation (M&E) of land acquisition and resettlement. ADB received seven external M&E reports on resettlement for the expressway project from December 2005 to December 2010, and two M&E reports for Jinghui local road in December 2008 and January 2010. The M&E reports provided timely information about the resettlement progress, actual project impact, implemented resettlement policies, compensation rates, implemented resettlement measures, relocation and reconstruction, resettlement costs, and recommendations. In addition, the external monitor conducted a household survey and evaluated income restoration among affected households.

I. Conclusion and Lessons

12. The survey conducted by the external monitor showed that the income of affected households increased after the implementation of resettlement plan. The following were among the lessons learned from the land acquisition and resettlement: (i) the significant adverse impact of the fencing of the expressway should have been incorporated into project design, particularly to guide decisions on the route; (ii) the concentrated housing development sites were very beneficial, but planning and construction, which require more time, should have started well before the households were displaced, and (iii) funding was provided in a timely manner to address the significant increase in resettlement costs.

Appendix 12 53

SOCIAL IMPACT AND POVERTY REDUCTION

A. Introduction

1. The social and poverty analysis conducted during project preparation showed that poverty in the project area was caused by land degradation, a lack of water resources, a weak environment for the private sector, and poor infrastructure and access. In the rural areas, poor and seasonally accessible roads prevented the timely delivery of goods and services, and discouraged cash crop production. There was a need for off-farm work and labor migration, which were among the main factors that were seen to be important in lifting the poor out of poverty. In the urban areas, the main cause of poverty was the lack of employment opportunities. The project area had the potential to develop cash crops such as fruits, as well as livestock, tourism, and coal mining. The project expressway and local roads were supposed to improve access and contribute to the removal of these development constraints and promote social and economic development. The project expressway, other main highways, and rural roads were expected to spur investment and business activities in the project area and help develop its economic and social potential. More employment would be created during and after project construction, either directly in construction and roadside service jobs or indirectly through economic development in the project area. A social development action plan (SDAP) was prepared to enhance the project benefits to the poor and ethnic minorities along the alignment and the broader project area.

B. Socioeconomic Growth in the Project Area

2. The construction of the project expressway began in late 2005 and the expresssway was fully opened to traffic in 2010. A total of CNY8.2 billion was invested in expressway construction. The income, employment, and business opportunities generated, and the potential to attract external investment, have contributed significantly to regional socioeconomic growth in the project area and in Gansu province as a whole. In addition, the construction and operation of expressway have contributed to the growth of local government revenues, which can be used to improve social services and invest in economic development activities. The statistics show that annual per capita gross domestic product (GDP) in the counties and districts along the expressway alignment increased by 103%–180% from 2005 to 2011, and that government revenues increased by 60%–336% during the same period. (See Table A12.1.)

Table A12.1 Growth of GDP and Government Revenue in the Project Area (CNY/person)

Project County or Per Capita GDP Government Revenue District 2005 2011 Growth 2005 2011 Growth Jingchuan 4,910 12,832.3 161% 27.08 69.06 155% Kongtong 8,332 16,917.4 103% 140.13 224.68 60% Jingning 2,376 5,758.8 142% 26.00 65.50 152% Huining 2,609 7,311.7 180% 13.44 58.55 336% Anding 3,469 7,435.3 114% 46.24 183.09 296% Gansu province 7,432 19,577.3 163% 25,456.65 93,361.65 267% GDP = gross domestic product. Sources: 2006 and 2012 statistical yearbooks of project counties and Gansu province.

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3. The construction and operation of the expressway has given the local governments a significant opportunity to attract external investments that can contribute to local industrial development along the expressway. New industrial parks have been constructed close to the expressway, and more enterprises have started operations along the expressway alignment. In addition, the booming industrial parks play an important role in providing employment to local people. The statistics show that a total of 374 enterprises with CNY20.7 billion of investments were established in the five counties and districts along the alignment from 2008 to 2011 (Table A12.2).

Table A12.2: New Enterprises and Investment in the Project Area

Project County or District Unit 2008 2009 2010 2011 Total Jingchuan Enterprises number 32 21 11 16 80 Investment CNY million 236 310 367 480 1,393 Kongtong Enterprises number 18 8 15 19 60 Investment CNY million 375 207 4,213 3,699 8,494 Jingning Enterprises number 16 15 14 12 57 Investment CNY million 299 368 406 535 1,609 Huining Enterprises number 14 16 20 30 80 Investment CNY million 1,200 870 1,200 2,000 5,270 Anding Enterprises number 13 21 39 24 97 Investment CNY million 320 675 1,351 1,617 3,963 Total Enterprises number 93 81 99 101 374 Investment CNY million 2,430 2,430 7,537 8,331 20,729 Sources: Merchant bureaus of the project counties and districts.

4. The operation of the expressway and of the improved local roads has promoted tourism in the project area. There are many scenic spots and tourism resources in the project area, including Kongtong Mountain, the Red Army Museum, and the Chengji Ancient Town Ruins. The opening of the expressway has attracted more and more tourists. According to the Kongtong district government, a total of 2.35 million tourists visited Kongtong in 2011, a 31.4% increase over the 2010 figure, and the tourism revenue in 2011 totaled CNY1.15 billion, 50.8% more than that the total in 2010.

C. Poverty Reduction

5. With the socioeconomic growth and increased employment opportunities in the project area, the living standards and income of local people, particularly the poor, have improved. The statistics show that the annual rural per capita income of farmers increased by 86%–99% from 2005 to 2011 in the counties and districts along the alignment (Table A12.3).

Table A12.3: Growth of Per Capita Income of Farmers in Project Area (CNY/person) Project County/District 2005 2011 Growth Jingchuan 1,890 3,756 99% Kongtong 2,378 4,670 96%

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Project County/District 2005 2011 Growth Jingning 1,581 3,112 97% Huining 1,575 2,987 90% Anding 1,670 3,101 86% Sources: 2006 and 2012 statistical yearbooks of the project counties and Gansu province.

6. The rural poor population and poverty incidence in the project area have also been significantly reduced. According to the poverty reduction offices in the counties and districts along the expressway alignment, 227,000, or 43% of the poor in the five counties and districts along the alignment, were lifted out of poverty from 2005 to 2010, and poverty incidence decreased from 16.4%–33.97% in 2005 to 0.97%–20.1% in 2010 (Table A12.4). The poverty lines used until 2010 focused on extreme poverty. In 2011, the PRC government raised the poverty line considerably to bring it more in line with international standards. Consequently, the number of poor people increased to 822,000.

Table A12.4: Poverty Reduction in the Project Area

Project County or District Unit 2005 2010 Reduction 2011a Jingchuan Poverty line CNY/person 1,096 1,096 2,300 Poor population persons 51,400 24,100 27,300 118,700 Poverty incidence % 16.40 7.60 9 37.48 Kongtong Poverty line CNY/person 956 1,196 2,300 Poor population persons 65,800 31,700 34,100 73,500 Poverty incidence % 20.80 0.97 20 22.45 Jingning Poverty line CNY/person 956 1,196 2,300 Poor population persons 136,700 80,902 55,798 234,600 Poverty incidence % 31.30 17.96 13 52.08 Huining Poverty line CNY/person 1,068 1,274 2,300 Poor population persons 198,100 117,500 80,600 244,700 Poverty incidence % 33.97 20.10 14 41.70 Anding Poverty line CNY/person 942 1,274 2,300 Poor population persons 72,900 43,700 29,200 150,000 Poverty incidence % 19.40 12.00 7 41.30 Total Poor population persons 524,900 297,902 226,998 821,500 a: The new poverty line announced by the PRC government in November 2011 (CNY2,300/person) resulted in a significant increase in the poor population. Sources: Poverty reduction offices of project counties and districts.

D. Labor and Employment

7. According to external monitoring report, a total of 222,250 person-months of temporary jobs were created during expressway construction. Of this total, 17,060 person-months were provided to minority people, 23,080 person-months to people affected by land acquisition, 30,490 person-months to women, and 41,210 person-months to the poor. A total of CNY444.5 million in wages were paid during the expressway construction (Table A12.5).

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Table A12.5: Employment during Expressway Construction

Employment (person-months) Affected Poor Wage Income Contractor Total Minorities Persons Women People (CNY’000) LD01 6,330 230 370 900 210 12,660 LD02 12,650 880 820 1,970 3,760 25,300 LD03 5,190 710 960 1,260 1,130 10,380 LD04 6,420 730 0 430 280 12,840 LD05 8,200 320 400 300 0 16,400 LD06 7,330 1,280 100 40 110 14,660 LD07 5,580 0 0 1,000 0 11,160 LD08 12,480 410 1,680 5,140 3,600 24,960 LD09 3,600 0 550 990 300 7,200 LD010 3,390 0 1,360 760 580 6,780 LD011 21,630 970 1,090 1,430 2,150 43,260 LD012 31,660 200 300 1,280 1,440 63,320 LD013 11,720 330 0 0 11,440 23,440 LD014 20,600 9,150 11,210 6,160 11,330 41,200 LD015 32,540 910 1,850 2,090 0 65,080 LD016 3,310 0 870 850 2,940 6,620 Pavement 01 8,760 140 150 730 1,410 17,520 Pavement 02 3,120 190 1,150 770 430 6,240 Pavement 03 1,160 150 110 80 40 2,320 Pavement 04 1,180 160 110 110 60 2,360 Pavement 05 9,400 200 0 3,100 0 18,800 Pavement 06 6,000 100 0 1,100 0 12,000 Total 222,250 17,060 23,080 30,490 41,210 444,500 Source: 4th Social Development Monitoring and Evaluation Report.

8. The operation of the expressway has also created regular job opportunities for local people. The staff members currently working in various aspects of expressway operations number 854 (52% are females), including 131 managerial personnel, 659 toll collectors and service workers, and 64 cleaners. Most of the toll collectors and cleaners are poor people from the surrounding area. Their monthly salaries are as follows: CNY1,937 for toll collectors, CNY1,428 for service workers, and CNY864 for cleaners, for an average income of CNY1,844.

9. Locally procured construction materials and supplies, including 155,472 ten thousand tons of steel, 1,509,127 ten thousand tons of cement, 47,068 cubic meters (m3) of timber, 141,010 tons of asphalt, and 6,539,986 m3 of aggregate, also provided a large number of employment opportunities in the project area. . F. Gender Development

10. The operation of the expressway and the improved local roads has eased traffic pressure along the project alignment. Women, especially those in the rural areas, benefit from easier and timely access to medical and other services. Improved accessibility has contributed to a decrease in the mortality rate, and protected the health and safety of women and children. The statistics show that the rural maternal mortality rate in Gansu province decreased from 0.6263‰ in 2007 to 0.3072‰ in 2011, and the newborn mortality rate decreased from 13.76‰ to 6.78‰.

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11. The improvement of transport infrastructure has accelerated urbanization and industrialization in the project area. An increasing number of rural women now work in the city, mostly in industries such as textiles, housekeeping, hairdressing and hair care, and footbath. This has been advantageous not only to the income growth of rural women and the improvement of their quality of life but also to their establishment of their own businesses, using the skills and technologies learned in the city. The Gansu provincial government and women’s federations at all levels attach great importance to gender development. They have strengthened rural women’s skills training and helped rural women to update their ideas, cultivate legal awareness, improve their employability, and enhance self-employed ability.

G. Ethnic Minority

12. The population in the project area includes about 140,000 Hui people (3.6% of the total). The Hui are mainly found in Kongtong and Huating counties, and are not vulnerable by virtue of ethnicity. The project was classified as category B with respect to its impact on indigenous people. It did not have any significant adverse impact on Hui people, other than land acquisition and resettlement. On the other hand, Hui people have benefited equally with the Han from the project. The adverse impact of land acquisition was addressed during the implementation of the resettlement plan. The implementation of the SDAP also enhanced the socioeconomic status of the Hui people.

13. According to the social development monitoring and evaluation report, around 557 Hui people, 4% of all affected people, were affected by land acquisition. The external monitor conducted a survey in Wangping Hui village in 2011. A total of 153 mu of farmland, 4.8% of total farmland in the village, was acquired for the project. Fifty-eight households were affected by house demolition. The land compensation fund was allocated among the villagers, and the rest of the farmland in the village was redistributed to the villagers to ensure that affected households had the same amount of farmland as those not affected. Each relocated household received 240 square meters (m2) of housing plot to build new house in the concentrated resettlement site with assistance provided by local government. The infrastructure and facilities of resettlement sites were constructed by local government. All the affected Hui people have been resettled in the concentrated resettlement sites within their villages.

14. The survey of four sample affected households in Wangping Hui village conducted by the external monitor indicated that the total income of the four households increased by 72% from CNY31,000 in 2005, before land acquisition, to CNY53,500 in 2010,. The affected households used the house compensation funds they received to construct new houses within the village. Some of them built bigger houses. The new houses have a total area of 511.5 m2, compared with 309.74 m2 before relocation, and all are brick-concrete structures (Table A12.6).

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Table A12.6: Sampling Survey in Wangping Hui Village Liu Huang Feng Item Unit Shengcheng Jinlu Bai Sufu Wenen Subtotal Family Population 6 5 5 5 21 member Labor 3 2 3 3 11 2005 CNY 7,000 5,000 11,000 8,000 31,000 2008 CNY 12,000 8,000 15,000 12,000 47,000 Annual 2009 CNY 12,000 10,000 12,000 15,000 49,000 Income 2010 CNY 13,000 12,000 12,500 16,000 53,500 Growth CNY 6,000 7,000 1,500 8,000 22,500 Cultivated 2005 mu 0.67 0.6 2.17 0.85 4.29 land 2008 mu 0.5 0.43 1.87 0.85 3.65 B-wood B-concrete B-wood B-wood 2005 66m2 111.7m2 66m2 66m2 309.7m2 House B-concrete B-concrete B-concrete B-concrete 2008 115.5m2 115.5m2 115.5m2 165m2 511.5m2 B-wood = Brick-wood, B-concrete = Brick-concrete. Source: The 4th Social Development Monitoring and Evaluation Report.

H. Monitoring and Evaluation

15. Tongji University was hired as the external agency to monitor and evaluat social impact and poverty reduction, as well as the implementation of the SDAP for the project. The university prepared and submitted four socioeconomic monitoring and evaluation reports to ADB from 2006 to 2011. These reports concluded that the expressway and the local roads, through their construction and operation, have contributed to regional socioeconomic development, poverty reduction, employment, better health, and gender development.

F. Conclusions and Lessons Learned

11. The project significantly spurred regional social development and poverty reduction in the project area, as evidenced by (i) a significant increase in per capita GDP and farmers’ incomes; (ii) a significant decrease in the incidence of poverty; (iii) increased employment and income for the poor during construction and operation; (iv) improved road conditions, enabling local women, particularly those living in remote areas, to gain access to better medical services; and (vi) the opening of many clinics in rural areas. In addition, the implementation of SDAP has enhanced the sharing of project benefits with local communities, as well as Hui people.

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ENVIRONMENTAL IMPACT ANALYSIS

A. Introduction

1. The Gansu Roads Development Project constructed a four-lane controlled-access expressway, 232.036 kilometers (km) long, from Luohandong to Dingxi 1 and upgraded 452 km of seven local roads in the eastern area of Gansu province. In line with the Environmental Policy and Environmental Assessment Guidelines of the Asian Development Bank (ADB), the project was classified under environmental category A. 2. The summary environmental impact assessment (SEIA) report circulated to ADB in July 2004 was based on information contained in the environmental impact assessment 2 (EIA) report on the project’s expressway component prepared by Tsinghua University and the initial environmental examination (IEE) for the local road component prepared under technical assistance. 3 The SEIA concluded that implementing credible and timely environmental mitigation and monitoring programs, as stipulated in the environmental management plan (EMP), would minimize the environmental impact of the project to acceptable levels. The EIA and the IEE used methodologies and standards consistent with relevant guidelines established by the State Environmental Protection Administration (SEPA, now Ministry of Environmental Protection) and the Ministry of Communications of the People’s Republic of China (PRC), and in compliance with applicable laws and regulations. SEPA approved the EIA report in November 2004,4 and the Ministry of Water Resources approved the soil erosion protection plan (SEPP) in February 2005. 3. The completion technical review of the expressway under the SEPP was undertaken by the Gansu water resources department in January 2013. At the time this report was written, government acceptance and approval of the SEPP was expected in April 2013. In May 2013 the northwest China environmental protection supervision center of the Ministry of Environmental Protection (MEP) endorsed the environmental mitigation measures for the period of trial operation of the project expressway. The completion technical review of environmental protection measures for the expressway will be undertaken by MEP in July 2013. The completion technical review of soil erosion and environment protection for the local roads component was conducted in 2010. B. Environmental Protection and Management 4. The Gansu Changda Highway Co. (GCHC), the implementing agency for the project expressway, and the Gansu provincial highway administration bureau (GPHAB), the implementing agency for the local roads component, were responsible for coordinating environmental management under the project. GCHC appointed five staff members to oversee EMP implementation, with the international consultant’s assistance, and to deal with environment issues involving contractors and local communities. Each resident engineer’s office has a designated environment engineer responsible for verifying environmental impact during construction and the defect liability period, and taking effective measures to mitigate adverse

1 The project expressway is divided into two parts by the section in the Ningxia Hui Autonomous Region, which was not part of the project for reasons of administrative jurisdiction. 2 Environmental Impact Assessment Department, Tsinghua University. 2004. Environmental Impact Assessment Report for the Luohandong–Dingxi Expressway. 3 ADB. 2003. Technical Assistance to the People’s Republic of China for Preparing the Gansu Roads Development Project. Manila. 4 Huanshen [2004] 471

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impact. Environmental and soil erosion control specification clauses were included in the contract signed by the implementing agencies and the contractors during construction. Guidelines were set for the acquisition of temporarily occupied land and for the transportation and storage of waste material. 5. During project preparation, including preliminary preparation and detailed design, the alignment of the project expressway was carefully screened, taking into account the ecological and socioeconomic environment. The engineering design was improved to minimize the environmental impact. At appraisal the cost of environmental protection and mitigation measures was estimated at CNY159.3 million. According to GCHC’s project completion report, the actual investment for environmental protection is CNY195.4 million, 2.1% of the total project investment. It includes, among others, slope stabilization, ecological rehabilitation, spoil sites revegetation, and soil and water conservation measures. C. Environmental Monitoring 6. Daily environmental monitoring activities were conducted by contractors and construction supervision companies on-site, and periodic environmental monitoring tasks were carried out by the environment monitoring specialist, who took samples for analysis in accordance with the EMP monitoring procedures and guidelines. 7. During project implementation, GCHC hired a qualified supervision entity, the Gansu Institute of Soil and Water Conservation Sciences, to supervise the implementation of the SEPP. The environmental protection monitoring center in Pingliang was hired as external environmental monitoring agency by the project management office to verify the environmental impact of the construction of the Luo–Ding expressway. Noise, air, and surface water quality in designated sites was monitored according to EMP. Six semiannual environmental monitoring reports were prepared and submitted on time by the external monitoring agencies to ADB. During construction and during operations, the EMP and the SEPP were implemented effectively in accordance with the relevant monitoring report. The monitoring results showed no significant environmental damage during project implementation. D. Implementation of Mitigation Measures 8. During implementation, environmental monitoring and mitigation measures were carried out according to the EMP and the SEPP. The following measures have minimized adverse environmental effects: (i) reusing 300,000 cubic meters (m3) of spoil from tunnels and other excavations for embankment filling; (ii) minimizing excavation and potential erosion by optimizing the design of bridge substructures; (iii) applying integrated revegetation and structural methods to recover 2,424,100 square meters of cutting slopes and embankments; (iv) rehabilitating 181.02 hectares (ha) of borrow pits and 85.28 ha of spoil dump by using excavated topsoil; (v) installing wastewater collecting and treatment facilities in 14 toll stations and four service areas to reduce water pollution; and (vi) installing high-energy-efficiency boilers that met national emission standards (13271-2001) in 14 toll stations and four service areas to reduce emissions of air pollutants. E. Environmental Impact 1. Noise 9. During construction, contractors used low-noise equipment and adopted mitigation measures to reduce noise at sensitive locations mentioned in the EIA. Two junior schools along the alignment were relocated to avoid traffic noise, in conformity with the SEIA. According to the EIA, 170 sites were identified as having potential noise problems during operation. To further mitigate the impact, 5,890 meters of sound abatement barriers were installed at 20 sites. The

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sound level from traffic will be monitored continuously by PEPMC according to the EMP over the 10–20 years of project operation, and adaptive measures will be instituted, depending on annual reviews. 2. Ambient Air Quality 10. During construction and operations, all polluted emissions met class II of the National Ambient Air Quality Standard (GB3095-1996). As only minor negative impact on air quality was predicted for project implementation, no monitoring of vehicle emissions was required, apart from vehicle emission testing, which was conducted. 3. Surface and Ground Water 11. During construction, adverse impact on surface water was limited and was caused mainly by siltation and waste from construction sites and workers’ camps. All proposed mitigation measures have been undertaken appropriately. Monitoring found that the water quality of the Dongxia water resource protection area in Jingning county was within the quality designation indicated in the EIA. During operation, roadway runoff is diverted to the drainage system. Wastewater from toll and monitoring stations is collected and treated before discharge. Soil protection works are inspected regularly to ensure the good condition and effective functioning of the network. 4. Solid Waste 12. During construction, 6.52 million m3 of excavated materials were disposed of at 66 sites. The actual volume of disposal was 36.1% less than the envisaged 10.21 million m3, and the number of sites was more than the 33 provided for in the SEPP because acquiring smaller sites was more suitable than occupying a larger one. Eighty-three borrow pits were employed. All disposal sites and borrow pits have been restored and rehabilitated with retaining structures, drainage systems, and revegetation. During operation, solid waste production has been minor. Cleaners appointed by GCHC are responsible for collecting and disposing of the solid waste according to local regulations. 5. Ecological Environment 13. The project is in the experimental zone of the Kongtong Mountain Provincial Nature Reserve (KMPNR). Currently, two regulations govern the KMPNR: (i) the State Regulation for Natural Reserves (1994); and (ii) the Gansu Provincial Regulation for Natural Reserves (1999). The KMPNR management bureau is authorized to be the competent administrative department of nature reserves under the 1994 regulations.6 The KMPNR management bureau and the Gansu environmental protection board approved the construction of the project in the experimental zone of KMPNR in 2004. The KMPNR management bureau agreed that all activities approved for the expressway complied with national policies. 14. During construction, contractors carried out environmental protection in accordance with environmental protection clauses stipulated in their contracts. All sites temporarily occupied during construction were restored. Cutting surfaces, subgrades, and embankment slopes were generally stabilized using appropriate vegetative and structural measures such as retaining

6 One category of protection zones is nature reserves. PRC nature reserves normally have three zones: core, buffer, and experimental. Clause 32 of the State Regulation governing nature reserves (issued in 1994) states: “Any construction project is not allowed in the core zone and buffer zone of a nature reserve. In the experimental zone, any construction project, which pollutes the environment, destroys resources and landscape, is not allowed; other projects are allowed if their pollutant emissions do not exceed the State and local pollutant emissions standards. For the constructed project, if its pollutants’ emissions exceed the State and local emissions standards, the pollution should be controlled within a given time; if damage has been caused, remedy measures should be taken for the damage.”

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walls, riprap, antiskid piles, rock bolts, and side ditches to prevent soil erosion. Spoil banks were covered with vegetation to control erosion. 15. The project occupied 1,579 ha permanently and 102 ha temporarily. All land has been restored or those affected have been compensated. All targets for soil and water conservation have been met according to national regulations. 6. Induced Impact on the Western Part of Ningxia 16. The project road connected to Siqiao, the boundary with the Ningxia Hui Autonomous Region. On the section passing through Ningxia, the construction of a connecting road to the Ningxia expressway at Dongshanpo, about 49 km long, started in 2012. In compliance with applicable domestic laws and regulations, MEP approved the EIA report in 2010. To avoid impact on core and buffer zones of the Liupanshan Nature Reserve, a 9-km-long tunnel will be constructed to minimize the impact to acceptable levels. Because the connection road is still under construction, the project has not caused the development of industries along the expressway to a significant extent. F. Conclusion 17. During construction, contractors complied with the project EMP to protect the environment and implement mitigation measures in their construction schemes. The adverse effects of project construction in the surrounding environment were thus minimized. No rare species were reported to be affected by the project. During operation, impact on the ambient environment has been minor and within the scope of the SEIA.