Completion Report

Project Number: 30081 Loan Number: 1691 February 2006

People’s Republic of China: Southern Yunnan Road Development Project

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion (1 May 1999) (18 July 2005)

CNY1.00 = $0.1208 $0.1233 $1.00 = CNY8.2790 CNY8.1080

ABBREVIATIONS

ADB – Asian Development Bank EIA – environmental impact assessment EIRR – economic internal rate of return FIRR – financial internal rate of return GMS – Greater Mekong Subregion LAO PDR – Lao People’s Democratic Republic LIBOR – London interbank offered rate MTE – medium-truck equivalent O&M – operation and maintenance PCR – project completion review PRC – People’s Republic of China VOC – vehicle operating cost YMEC – Yunnan YuanMo Expressway Corporation YPCD – Yunnan Provincial Communications Department YPSD – Yunnan Public Security Department

WEIGHTS AND MEASURES

mu =1/15 of a hectare

NOTES

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

Vice President Operations Group 2 Director General H. S. Rao, East and Central Asia Department (ECRD) Director N. C. Rayner, Transport and Communications Division, ECRD

Team Leader X. Yang, Financial Specialist, ECRD Team Members S. Ferguson, Senior Resettlement Specialist, ECRD S. Noda, Project Specialist (Roads), ECRD W. Zhu, Resettlement Specialist, ECRD

CONTENTS Page

BASIC DATA i

MAPS v

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 5 G. Conditions and Covenants 5 H. Consultant Recruitment and Procurement 6 I. Performance of Consultants, Contractors, and Suppliers 7 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Asian Development Bank 7

III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Efficacy in Achievement of Purpose 8 C. Efficiency in Achievement of Outputs and Purpose 10 D. Preliminary Assessment of Sustainability 11 E. Environmental, Sociocultural, and Other Impacts 12

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons Learned 15 C. Recommendations 15

APPENDIXES 1. Project Framework 16 2. Chronology of Major Events 21 3. Project Engineering Evaluation 23 4. Feeder Road Program in the Project Area 26 5. Project Costs and Financing 29 6. Projected and Actual Disbursements 30 7. Implementation Schedule 31 8. Organizational Chart of Yunnan YuanMo Expressway Corporation 32 9. Status of Compliance with Loan Covenants 33 10. Contract Packages at Appraisal and Actual Packages 38 11. Contract Details for Civil Works, Equipment, and Consultants 39 12. Traffic Analysis and Forecasts 43 13. Economic Evaluation 47 14. Financial Evaluation 50 15. Environmental Impact Analysis 55 16. Evaluation of Land Acquisition and Resettlement 57 17. Social and Poverty Impact Analysis 62 18. Evaluation of the Ethnic Minorities Development Plan 66

BASIC DATA

A. Loan Identification

1. Country People’s Republic of China (PRC) 2. Loan Number 1691-PRC 3. Project Title Southern Yunnan Road Development Project 4. Borrower PRC 5. Executing Agency Ministry of Finance 6. Amount of Loan $250.0 million 7. Project Completion Report Number PCR: PRC 913

B. Loan Data 1. Appraisal – Date Started 1 March 1999 – Date Completed 11 March 1999

2. Loan Negotiations – Date Started 18 May 1999 – Date Completed 20 May 1999

3. Date of Board Approval 24 June 1999

4. Date of Loan Agreement 24 January 2000

5. Date of Loan Effectiveness – In Loan Agreement 24 April 2000 – Actual 18 May 2000 – Number of Extensions None

6. Closing Date – In Loan Agreement 31 March 2004 – Actual 5 January 2005 – Number of Extensions 2

7. Terms of Loan1 – Interest Rate Pool-based variable lending rate for US dollars – Maturity (number of years) 24 – Grace Period (number of years) 4

8. Terms of Relending (if any) – Interest Rate Pool-based variable lending rate for US dollars – Maturity (number of years) 24 – Grace Period (number of years) 4 – Second-Step Borrower Yunnan YuanMo Expressway Corporation

1 A total of $92,232,239.10 was transformed to LIBOR-based loan in November 2002. ii

9. Disbursements

a. Dates Initial Disbursement Final Disbursement Time Interval

17 August 2000 5 January 2005 52 months

Effective Date Original Closing Date Time Interval

18 May 2000 31 March 2004 46 months

b. Amount ($) Category or Original Last Revised Amount Amount Undisbursed Subloan Allocation Allocation Available Disbursed Balance Civil Works 171,200,000 205,262,574 205,262,574 205,262,574 0 Equipment: Expressway 21,000,000 9,608,159 9,608,159 9,608,159 0 Equipment: Feeder Road 4,800,000 3,280,190 3,280,190 3,280,190 0 Consulting Services 2,000,000 1,453,524 1,453,524 1,453,524 0 Interest During Construction 36,000,000 30,395,553 30,395,553 30,395,553 0 Unallocated 15,000,000 0 0 0 0 Total 250,000,000 250,000,000 250,000,000 250,000,000 0

10. Local Costs (Financed) - Amount ($) 0 - Percent of Local Costs 0 - Percent of Total Cost 0

C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 343.1 379.1 Local Currency Cost 427.2 606.4 Total 770.3 985.5

2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs ADB-Financed 214.0 219.7 Ministry of Communications 102.2 102.2 Ministry of Finance 3.0 3.0 Yunnan Provincial Government 238.9 414.5 China Development Bank 156.6 156.6 Subtotal 714.7 896.0 IDC Costs ADB-Financed 36.0 30.3 Yunnan Provincial Government 19.6 59.2 Other External Financing 0.0 0.0 Subtotal 55.6 89.5 Total 770.3 985.5 ADB = Asian Development Bank, IDC = interest during construction. iii

3. Cost Breakdown by Project Component ($ million)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Component Exchange Currency Exchange Currency A. Base Cost Expressway Civil Works 245.5 325.4 570.9 318.6 422.4 741.0 Equipment 25.8 0.0 25.8 28.7 0.0 28.7 Land Acquisition and Resettlement 0.0 22.0 22.0 0.0 44.0 44.0 Consulting Services and Training 2.0 9.7 11.7 1.5 38.6 40.1 Feeder Roads 6.8 15.9 22.7 0.0 42.2 42.2 Subtotal (A) 280.1 373.0 653.1 348.8 547.2 896.0 B. Contingencies 27.0 34.6 61.6 0.0 0.0 0.0 C. IDC 36.0 19.6 55.6 30.3 59.2 89.5 Subtotal (B + C) 63.0 54.2 117.2 30.3 59.2 89.5 Total 343.1 427.2 770.3 379.1 606.4 985.5 IDC = interest during construction.

4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants August 1998 15 June 2000 Completion of Detailed Engineering Designs May 1999 24 January 2000 Civil Works Contract Date of Award October 1999 23 May 2000 Completion of Work (including local road) September 2003 31 December 2004 Equipment and Supplies Dates of First Procurement June 2000 26 September 2000 Last Procurement January 2002 24 June 2003 Completion of Equipment Installation April 2003 15 November 2003 Start of Expressway Operation 1 October 2003 28 October 2003

5. Project Performance Report Ratings Ratings

Implementation Period Development Implementation Objectives Progress From 1 January 2002 to 31 March 2002 S S From 1 April 2002 to 30 June 2002 S S From 1 January 2003 to 30 June 2003 HS S From 1 July 2003 to 31 December 2003 HS S From 1 January 2004 to 30 June 2004 S S From 1 July 2004 to 30 September 2004 S S From 1 October 2004 to 31 December 2004 S S From 1 January 2005 to 30 September 2005 HS S S = successful, HS = highly successful.

iv

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Members Fact-Finding Mission 19 Oct–6 Nov 1998 6 70 a, b, c, f, g, h Appraisal Mission 1–11 Mar 1999 7 70 a, b, c, d, e, g, h Inception Mission 7–15 Dec 2000 2 16 a, i Loan Review 1 11–18 Dec 2001 1 7 a Midterm Review 10–18 Dec 2002 3 24 a, b, i Loan Review 2 20–25 Nov 2003 1 5 f Loan Review 3 17–21 Jan 2005 2 8 b, j Project Completion Reviewa 18–29 Jul 2005 4 27 a, b, i, j a - engineer, b - financial analyst, c - counsel, d - economist, e - procurement consultant or specialist, f - control officer, g - programs officer, h - environment specialist, i - assistant project analyst. a The project completion report was prepared by X. Yang, financial specialist/mission leader assisted by S. Noda, Project Specialist (Roads); S. Ferguson, Sr. Resettlement Specialist; W. Zhu, Project Officer (Resettlement); M. Tordecillas, Project Analyst; and a Transport Specialist (staff consultant). o 98 00'E 108 o 00'E 99o 00'E 104o 00'E SOUTHERN YUNNAN ROAD DEVELOPMENT PROJECT X I Z A N G TRUNK HIGHWAY NETWORK IN YUNNAN PROVINCE IN THE YUNNAN PROVINCE PEOPLE'S REPUBLIC OF CHINA 24o 00'N o OF THE PRC 24 00'N

MYANMAR Daguan o o LAO PDR 28 00'N 28 00'N Gulf of Zhongdian S I C H U A N Tonkin 2 2 Zhaotong THAILAND Lijiang ADB-financed VIET NAM Yunnan Exressway Project Lanping CAMBODIA

2 ADB-financed Western Gulf of Yunnan Roads Development Project Huize 10 o 00'N Thailand 10 o 00'N G U I Z H O U South Dongchuan Daipu Andaman China Sea Sea Fuyuan Luquan 2 Xiangyun E o 98 o 00'E 108 00'E Dali E Qujing E KUNMING Bao Shan Lianghe E Yanglin Chuxiong E 2 E Anning 2 Lunan Longling Shizong 1 E R e Yuxi M YA N M A R Southern Yunnan Road d Mile Ruili R i Development Project v e r E Xunjiansi r

Lin Cang e

v

i

R Yuanjiang Jing Gu E G U A N G X I 1 Kaiyuan Funing g Jianshui Yanshan n E o 2 k e M Gejiu Pu'er

E Mohei Simao JiIangcheng Road Class (current or after ongoing/planned upgrading): E Provincial Capital Xiaomengyang E Expressway o City/Town o 24 00'N V I E T N A M 1 Class I Highway 24 00'N National Road N Jinghong 2 Class II Highway E Provincial Road Railway Existing Expressway Mohan 0 50 100 150 River Completed Road Project Provincial Boundary Highway Being Upgraded 0

5 Kilometers - International Boundary Highway Open to Traffic M 2 LAO PEOPLE'S 9 2

DEMOCRATIC REPUBLIC a

3 Boundaries are not necessarily authoritative. Planned Expressway a p

H o o 99 00'E 104 00'E R 1 101o 30'E SOUTHERN YUNNAN ROADS DEVELOPMENT PROJECT IN THE PEOPLE'S REPUBLIC OF CHINA (as completed)

Zhenyuan Yaojie Heping Yangwu

Daqiao Pingzhang Tuantian Mosha 1 2 Jinggu 3 Qinglongchang Jianxing 4

Gucheno 5 Dong'e Tianba Yangchajie Fengshan N 6 Longtan Xinfu Mengnong Yuanjiang 7 Xin'an Wazhi 0 10 20 30 Jinggu Meizi 8 9 Kilometers Zhongshan Jingxing Bixi 10 Mili Shuanglong 11 De'an Yangjie 12 o 13 Mojiang o 23 30'N 14 Yinyuan 23 30'N 15 Nano 17 16 Zhongaiqian Zhengxing Longba 18

Mengli Tongguan Sancun Diema Babian Yayi Prefecture Capital Yizhi Mohei Yutang City/Town County Naha Longtan Sinanjiang 7 Civil Works Contract Number Puer Fengyang Interchange Baliu Yuanjiang-Mohei Expressway Mengxian Wenwu Dehua Puyi Class II Highway Tongxin National Road Provincial Road Access Road Constructed under the Project County Road River Simao Liming Prefecture Boundary 0 5 M - Boundaries are not necessarily authoritative. 2 9 a 2 3 p b

H o

101 30'E 2 R

I. PROJECT DESCRIPTION

1. With the national economy of the People’s Republic of China (PRC) averaging an annual growth rate exceeding 8% over the last decade and growing at a higher rate since 2003, the demand for transport services is growing rapidly. Despite Government efforts to increase the supply and efficiency of transport, constraints and bottlenecks affect all modes of transport. The development and improvement of the national trunk highway system and the elimination of infrastructure bottlenecks have been cornerstones of the Government’s development strategy since 1988. Since 1991, this strategy has been supported by Asian Development Bank (ADB)- financed road projects that have focused on alleviating constraints in the transport system through construction and improvement of the national trunk highway system and on institutional development and initiatives to help resolve key technical and policy issues in the road subsector. Poverty reduction has been a guiding force in the design of these projects.

2. The Southern Yunnan Road Development Project is located in Yunnan, a poor, interior, landlocked province where average gross domestic product and rural income per capita are two thirds of the national average. The Project is part of the 704-kilometer (km) Kunming to Mohan expressway whose central section (147 km) connects Yuanjiang with Mohei (the Yunnan YuanMo expressway). The objectives of the Project were to support economic and social development in the southern part of Yunnan province by removing a major road transport bottleneck between Yuanjiang and Mohei and helping to create the conditions necessary to reduce poverty by providing poor communities with better access to the economic mainstream. The Project was also designed to promote and extend sector reforms initiated under previous ADB-financed projects in areas related to (i) improved design standards and construction quality, (ii) road safety, (iii) pricing policy and road users, and (iv) nongovernment financing. A long-term objective of the Project is to promote regional economic cooperation in the Greater Mekong Subregion (GMS) by improving a section of the road linking Kunming in the PRC and Chiang Rai in Thailand and facilitating cross-border trade.1 The Project was classified as an economic growth project. Poverty reduction was listed as a secondary objective. The project framework is presented in Appendix 1.2

3. At appraisal, the Project was expected to be completed by September 2003. Toll road operations actually started on 28 December 2003, about 3 months later than expected. The training component was completed in December 2004. The loan was subsequently closed on 5 January 2005. Appendix 2 provides a chronology of major events.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

4. ADB’s operational strategy at the time of appraisal supported (i) the construction of expressways and highways that connected major growth centers and promoted linkages with hinterland economies; (ii) the promotion of further institutional strengthening to increase the commercial orientation and managerial efficiency of expressway organizations; (iii) the improvement of highway planning, evaluation techniques, and safety standards; (iv) the adoption of appropriate pricing policies to ensure optimum utilization of road transport capacity; (v) the use of alternative methods of investment financing, including private sector participation,

1 Despite the Project’s name, it will help link Thailand and Singapore with all destinations in the PRC, including Lanzhou, the capital of Gansu province, and Beijing, via the Lao’s People’s Democratic Republic. 2 The Project Framework attached in Appendix 1 is based on the template at appraisal. 2 to meet the huge financing requirements of the highway development program; (vi) the promotion of road safety; and (vii) the integration of the road network so that the national trunk highway system is supported by a system of feeder roads, particularly those that provide access from poor local areas to the main economic centers. The country strategy also emphasized the important catalytic role that ADB can play in terms of regional cooperation in the GMS by financing strategic studies, project preparation studies, and projects and promoting the inflow of international capital into Yunnan province. The Project was fully in line with that strategy.

5. The Project was largely prepared by the Yunnan provincial government through the Yunnan Provincial Communications Department (YPCD). The Government’s feasibility study was based on experience gained in preparing feasibility studies for other expressways in Yunnan province using nationally developed analytical tools acceptable to ADB.3 International consultants were engaged to assist with social issues, particularly land acquisition and resettlement. These works, although preliminary, were considered adequate for appraisal.

6. The Project did not introduce any new generic policy issues, but extended sector reforms initiated under previous ADB-financed projects and technical assistance. The various policy initiatives were relevant at appraisal and continue to be relevant.

B. Project Outputs

1. Yunnan YuanMo Expressway

7. At appraisal, 147 km of four-lane, access-controlled, toll expressway were expected to be constructed from Yuanjiang to Mohei, including nine interchanges,4 large and medium bridges totaling about 25,300 linear meters, tunnels totaling about 12,300 linear meters, and upgrading of about 540 km of feeder roads. The actual completed length of expressway is 147 km, including nine interchanges as planned at appraisal, large and medium bridges totaling about 31,409 linear meters, and tunnels totaling about 12,764 linear meters. The length of total large and medium bridges and tunnels was 17% more than the appraisal estimate. Originally the Project included a total of five service areas, but only three service areas were constructed as two were considered unnecessary.5 The Project’s engineering features are shown in Appendix 3.

8. The project expressway was constructed in accordance with technical standards for highway engineering issued by the Ministry of Communications in January 1998. ADB- supported technical assistance contributed to the new design standards, which were appropriate and beneficial in many respects, particularly with regard to environmental protection, road safety, and integrated highway development.6 The quality of construction of the Yunnan YuanMo expressway is good, with the average pavement roughness index of 0.75 falling well within the international roughness index for an expressway. This provides for a

3 Project preparatory technical assistance was not considered necessary for project preparation, but small-scale technical assistance (TA 3039-PRC: Yunnan Road Environmental and Social Analysis) was used to prepare an environmental impact assessment and the ethnic minority development plan, and to carry out social analysis. 4 As a result of community consultations, and despite low traffic flow projections, five interchanges (in addition to the original four interchanges) were added to the Project at appraisal to maximize project benefits to the poor. This was one cause of the increase in project costs. 5 The decision not to construct the Yuanjiang service area was reasonable because of the construction of the Ganzhuang service area on the Yuxi–Yuanjiang expressway near Yuanjiang, which made a new service area at Yuanjiang redundant. The Babian service area at the southern end of the Yunnan YuanMo expressway was unnecessary because of the proximity (18 km) further south of the Huangzhuang service area. 6 ADB. 1996. Technical Assistance to the People’s Republic of China for Review of Highway Design Standards. Manila. 3 comfortable ride and efficient vehicle operation. Safety facilities included a continuous median barrier with landscaping or antiglare shields, guardrails, reflective road signs, more than 160 emergency telephones, hard shoulders, and overpasses and underpasses. Lane widths ranged from 3.50 to 3.75 meters with the provision of 3.5 meters for climbing lanes7 in hilly areas to facilitate the passage of heavy vehicles. Speed limits were set for all tunnels, even though these were not mandatory in the 1998 highway design manual. Other specific safety measures taken to improve road safety included nine emergency escape lanes,8 which were constructed in 2004, and the placement of antiskid pavements in tunnels, which have prevented more than 30 potentially major accidents caused by brake failures, mechanical breakdowns, and skidding. A police contingent has been assigned to the expressway and constantly patrols its entire length.

9. The Project also provided for the procurement of equipment for traffic engineering, toll collection monitoring, quality control, road maintenance and safety, and tunnel and feeder road upgrading. Telecommunications and surveillance systems monitor and provide information on traffic and weather conditions, vehicle speeds, and allow changes to be made to electronic speed limit signs and message boards. The toll collection and control system provides timely and accurate information. All the equipment procured is functioning well and is being used for its intended purpose.

2. Feeder Roads

10. During project preparation, a total of about 538 km of feeder roads were identified as needing improvement after consultations with provincial and local authorities. At project completion, a total of 556.7 km of feeder roads had been improved. In addition, counties had improved an additional 319.0 km of connecting roads, giving a total of 875.7 km improved feeder roads (Appendix 4, Table A4.1). The planning and design of feeder road improvements was the responsibility of respective county communication bureaus. For construction administration, each bureau established township road construction units, each of which employed private and semiprivate firms, institutes, and contractors to design, construct, and supervise feeder road improvements.

3. Institutional Capacity Building

11. The Yunnan Industrial and Commercial Administration approved the registration of Yunnan YuanMo Expressway Corporation (YMEC) on 16 October 1998 as a state-owned investment corporation, with YPCD as the sole investor. YMEC is responsible for toll collection and for operation and maintenance (O&M) of the project expressway as well as the Yuxi– Yuanjiang expressway (112 km). The training conducted during project implementation provided YMEC staff with modern knowledge of highway construction and O&M for highways. YMEC staff is applying the lessons learned and experiences gained under the Yunnan YuanMo Expressway Project to the Simao–Xiaomengyang expressway (97 km) and the Xiaomengyang– Mohan highway (189 km), which are under construction and for which YMEC has been asked to help with project supervision. Almost all the staff trained by the Yunnan YuanMo project has been retained and has contributed to smooth implementation of the Simao–Xiaomengyang and Xiaomengyang–Mohan highways.

12. YMEC staff received on-the-job training on subjects pertinent to implementation, such as contract management and construction quality, in a timely manner from the international and

7 Climbing lanes are built in addition to overtaking and driving lanes. 8 An additional four emergency escape lanes will be constructed for the Yuxi–Yuanjiang section. 4 local consultants. In addition, YMEC employees received overseas training that improved their skills in expressway construction and operation, toll collection management, contract management, financial management, structural engineering, tunnel engineering, and expressway maintenance. The loan closing date was extended to December 2004 to accommodate the training.9 The courses were considered successful and much of the knowledge acquired is being applied to the O&M of the Project and to work on the Simao– Xiaomengyang and Xiaomengyang–Mohan expressways.10 There are also regular ongoing training programs on road safety and O&M.

C. Project Costs

13. The 147 km project expressway goes through rugged, mountainous terrain, with elevations ranging from 500 to 1,700 meters, and includes 32 km of bridges and 13 km of tunnels. The actual cost of the Project was $985.5 million equivalent, compared with the appraisal estimate of $770.3 million, a 28% increase. The actual cost of civil works amounted to $741.0 million, a 30% increase over the appraisal estimate. The increase in the cost of civil works was due mainly to the appraisal estimate being based on preliminary engineering which had then been modified during the detailed engineering design, and to the Project having to cross extremely rugged terrain, which involved a high degree of uncertainty in terms of the civil works required. Other factors contributing to the higher than expected cost were (i) better quality pavement than that specified in the design has been used in actual construction, (ii) five interchanges were added during the construction phase, (iii) complexity and unstable geological conditions such as landslides were encountered during construction which requires additional work for land slope protection, and (iv) additional overpasses ad underpasses to mitigate community and farmland severance impacts, in response to public concerns and consultation during the construction time. The actual cost of equipment was $28.7 million, or $2.9 million more than expected at appraisal, mainly because of a need for increased tunnel equipment such as lighting and ventilation. The actual cost of land acquisition and resettlement was $44.0 million, double the estimate at appraisal. This was primarily due to the acquisition of additional land required for landslides treatment and slope protection and changes in land classifications because of the revaluation of lands and new items such as compensation for trees, taxes, administration, and contingencies. The feeder road component came in at $42.2 million, compared with the appraisal estimate of $22.0 million, because of the inclusion of additional kilometers of feeder roads. Finally, the cost of consulting services and training amounted to $40.1 million, or $28.4 million more than the appraisal estimate, because of increases in the costs of detailed engineering designs, local consultants,11 laboratory work, and construction supervision. A comparison of actual project costs with those estimated at appraisal is provided in Appendix 5.

14. The financing plan envisaged at appraisal included $250.0 million from ADB (32.5% of the total project cost) to finance about 72.9% of the foreign exchange cost. The remaining 27.1% was to be financed by the Yunnan provincial government. The entire local currency requirement of $427.2 million was to be covered by the Ministry of Communications, the Ministry of Finance, the Yunnan provincial government, and the China Development Bank. On completion, the total cost of the Project had increased to $985.5 million, with the Yunnan

9 The first overseas training was to begin in September 2001, but was put on hold following the 11 September 2001 terrorist attacks, the SARS outbreak, and then the war in Iraq. Accordingly, in consultation with ADB, this was finally carried out during September 2003–December 2004. 10 A total of 90 people took part in training courses. 11 A total of about 11,660 person-months of local consultants were required, compared with an estimated 10,600 person-months. 5 provincial government financing the additional amount. Actual financing and the financing as envisaged at appraisal are shown in Appendix 5.

D. Disbursements

15. The initial disbursement was made in 2000 and the final payment was made on 5 January 2005, which was also the loan closing date. Appendix 6 compares projected and actual disbursements. Disbursements were generally made in the form of reimbursements, although some direct payments were made for equipment, consulting services, and training. Disbursements generally followed the schedule developed at appraisal.

E. Project Schedule

16. The loan was approved on 24 June 1999 and became effective on 18 May 2000. During a fact-finding mission, YMEC, the executing agency, asked ADB to approve advance procurement action for the recruitment of consultants and the award of civil works contracts. ADB approved such advance action on 2 December 1998, which YMEC promptly made use of, helping project procurement to get started at an early date with minimal delays. Civil works construction was originally scheduled to start in December 1999 with 18 civil works contracts, but actually started concurrently with loan effectiveness on 18 May 2000. Despite the 6-month start-up delay, at 43 months, the pace of construction was faster than the appraisal estimate of 46 months. The expressway was opened to traffic on 28 December 2003, compared with the end of September 2003 as expected at appraisal. Feeder road improvements were completed in 2004, about a year behind schedule, mainly because of local government funding constraints and the increased length from 538 km to 556.7 km. Resettlement proved to be a lengthy process, with land acquisition and house relocation largely completed by December 2002 rather than July 2001 as anticipated; however, compensation and rehabilitation occurred mainly in subsequent years, and a few issues have still to be resolved and some funds to be disbursed. Appendix 7 compares the implementation schedule prepared at appraisal and the actual work program.

F. Implementation Arrangements

17. YMEC was the executing agency responsible for planning, implementing, and operating the expressway project. County governments implemented the feeder road component under the auspices of the Yunnan provincial government. Local governments in each of the three counties along the expressway alignment set up project steering committees consisting of officials from various agencies. The committees helped facilitate land acquisition, resettlement, and environmental protection measures. YMEC set up three project implementation units with a total staff of 70 people, which, with the assistance of local consultants, supervised the day-to- day implementation of the civil works and liaised between contractors, suppliers, and project steering committees. Each of the project implementation units reported directly to YMEC headquarters. YMEC was also assisted by an international consulting firm that provided technical advice, quality control, and training. Once the expressway was operational, YMEC adjusted its organizational structure to better meet its operational needs (Appendix 8).

G. Conditions and Covenants

18. The Loan Agreement stipulated three conditions for loan effectiveness: (i) the Loan Agreement had to have been approved by the State Council, (ii) the Government and the Yunnan provincial government had to have signed a subsidiary loan agreement satisfactory to 6

ADB, and (iii) the Yunnan provincial government and YMEC had to have entered into a satisfactory on-lending agreement. The loan was declared effective on 18 May 2000, about 4 months after the Loan Agreement was signed or about 1 month later than the normal 90 days. No covenants were modified or waived during implementation. Compliance with major loan covenants is presented in Appendix 9. All major covenants were complied with or are being complied with, particularly those relating to implementation arrangements, construction quality, and environmental protection. The covenants related to land acquisition and the Resettlement Plan were not fully complied with given the delay in compensation payments, but the situation was essentially rectified before the end of 2004. All audited accounts and audited financial statements were submitted to ADB, and there were no qualified audit opinions.12

H. Consultant Recruitment and Procurement

19. The international consultants were engaged in accordance with ADB’s Guidelines on the Use of Consultants and their services13 were successfully concluded in March 2004. In April 2000, YMEC engaged nine domestic consulting firms in accordance with Government procedures that were acceptable to ADB. The domestic consulting firms were each assigned an average of two civil works packages to supervise. Each consultant contract package included having a resident engineer on site aided by about 41 technical and administrative support personnel.

20. The expected civil works contract packages at appraisal and actual packages are shown in Appendix 10. The contract packages for the civil works anticipated at appraisal were procured using international competitive bidding in accordance with ADB’s Guidelines for Procurement as envisaged, with the award of all 18 civil works contracts approved by ADB in May 2000. Contracts for buildings and ancillary facilities followed local competitive bidding procedures. The traffic engineering packages were also procured following local competitive bidding procedures as agreed at appraisal. International competitive bidding or international shopping procedures were expected to be used for equipment procurement, and these procedures were followed except for the purchase of tunnel equipment, such as lighting and ventilation, and for telecommunications equipment, which were procured following Government procedures acceptable to ADB. Other equipment, including feeder road upgrading equipment, maintenance equipment, and quality control equipment, were all purchased in accordance with appraisal expectations with two exceptions.14 Details of contract packages are given in Appendix 11.

21. The result of the international competitive bidding was generally satisfactory; however, the bid evaluation process lasted a relatively long time. The main reason for this was the differential treatment of low-price bids. Domestic procurement guidelines permit the rejection of low-price bids within a certain margin specified by engineering estimates, but ADB does not allow the rejection of low-price bids. Therefore even after getting approval from pertinent state

12 YMEC’s performance is audited periodically by the China National Audit Office at the provincial and national levels. The office has the right to check, review, and examine the Project each year and conduct a spot check at any time to determine if project implementation is in full compliance with national laws and regulations and to take corrective action, if necessary. 13 The consultants’ tasks were as follows: (i) to ensure that all works associated with the Project were carried out in full compliance with the designs and specifications; (ii) to ensure that the designs were implemented in accordance with international engineering standards; (iii) to ensure that environmental programs were implemented in accordance with the recommendations of the environmental impact analysis and that poverty, resettlement, and ethnic minorities programs were implemented in accordance with the planning studies; and (iv) to train YMEC staff to undertake project implementation effectively. 14 The two exceptions included one road paver and a mixing plant, which were not procured as these were already available and adequate for the project works. 7 tender committee agencies, YMEC had to revise the evaluation report twice before receiving ADB approval. All procurement financed by ADB was carried out in accordance with ADB’s Guidelines for Procurement.

I. Performance of Consultants, Contractors, and Suppliers

22. The international consultants engaged under the Project performed well. The short-term specialist provided by the international consultants contributed to the technical quality of the Project. The nine domestic consulting firms responsible for construction supervision and quality control also performed quite well. The contractors who won the bids were reported to have performed their respective contracts smoothly without any significant problems. Although delays occurred in the beginning, the contractors were able to complete the expressway in a satisfactory manner just slightly behind the appraisal schedule. Their performance can be considered extremely satisfactory. In its project completion report, YMEC reported that equipment procurement proceeded smoothly and that all contract obligations and expectations were met.

J. Performance of the Borrower and the Executing Agency

23. The Borrower, represented initially by the People’s Bank of China and later by the Ministry of Finance, the Ministry of Communications, and YPCD performed satisfactorily. YPCD was familiar with ADB’s procedures and practices from a previous ADB-financed expressway project. YMEC, the executing agency, was well staffed with about 90 personnel during project implementation. The Project was implemented with due concern for construction quality without sacrificing speed. No particular procurement issues appear to have arisen except for the lengthy tender evaluation process (para. 21). Land acquisition was a protracted process because of (i) the lack of local government funding, and (ii) the need to acquire significantly more land than initially expected because of design considerations in precipitous terrain where slope protection was especially difficult. Environmental protection measures complied with requirements. YMEC was extremely cooperative with ADB at all stages of project design and implementation. It is a highly efficient and well–organized entity. Overall, YMEC’s performance may be considered highly satisfactory.

K. Performance of the Asian Development Bank

24. ADB’s performance was satisfactory. The concept of having a highway corporation responsible for project implementation and operation was introduced during project preparation. The concept was adopted and has proven to be an efficient vehicle for highway design, implementation, and operation. ADB fielded a total of five review missions, including a midterm review mission, or once a year excluding 2004. The missions usually lasted a week. Given that the Project progressed relatively smoothly with minimal initial delays and was of good quality and that YMEC prepared timely and thorough monthly progress reports, mission coverage was adequate. However, ADB did not identify resettlement problems or issues that stemmed from a lack of local government financing. These could have been detected and resolved by the missions if a resettlement specialist had participated in some of them.

25. The Government’s project completion report made some observations about ADB’s performance that noted that ADB’s continuous concern and support laid a solid foundation for the Project’s success. It referred to ADB’s timely approval of works variations and equipment procurement and indicated that ADB’s review missions succeeded in resolving problems and difficulties that occurred during project implementation. At the same time, YMEC staff felt that 8

ADB asked for many reports but did not give sufficient feedback on them. YMEC staff also thought that the inception mission could have been more comprehensive and could have explained ADB’s reporting requirements more thoroughly. Overall, ADB’s performance can be considered satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

26. The rationale for the Project was sound, as it focused on the social and economic development of Yunnan province, which is a poor province in general, and especially in the south, the location of the Project. The design included the provision of feeder roads to help ensure that the benefits of improved transport were readily available to the general public. It also recognized the potential for the future integration of the GMS economies, as the Project expressway will provide a direct link with the Lao People’s Democratic Republic (Lao PDR), Singapore, and Thailand along with readier access to Beijing. In addition, the Project maintained ongoing policy dialogue in the transport sector and further strengthened internationally accepted conditions of contract and design. The Project is assessed as highly relevant.

B. Efficacy in Achievement of Purpose

27. Traffic and Road Performance. The Project has provided major support for the economic and social development of southern Yunnan province. The highway serving the corridor between Yuanjiang and Mohei (previously designated as NH213 but now referred to as NH323) was originally constructed in 1952 and was a narrow, rough, winding, two-lane class III/IV15 road meant for low traffic volumes and serving local communities. For medium trucks to cover the 214 km between Yuanjiang and Mohei took 7 to 8 hours, corresponding to an average speed of less than 30 km per hour. As such, the highway was inefficient, dangerous, and highly polluting. The project expressway has a total of nine interchanges serving towns and cities along its length. This is supplemented by a network of improved rural feeder roads totaling 875.7 km that ensure that the rural population has access to the benefits of both improved local roads as well as access to the expressway. The average annual daily traffic on the project expressway in 2004 was less than forecast at appraisal, 2,597 medium-truck equivalents (MTEs), compared with the estimated 5,064 MTEs or about 49% less than that forecast at appraisal. However, the project expressway has attracted more than 90% of the traffic from NH323 and caters to long-distance traffic. About 3,895 MTEs were recorded in the first half of 2005. With the rapid increase in heavy truck traffic, toll revenues increased by 60% between the first half of 2004 and the first half of 2005 (Appendix 12).

28. Travel Times, Speeds, and Transport Costs. The project expressway reduced the distance by 67 km (from 214 km to 147 km) and travel times by 60 to 70%. It reduced the travel time for a medium truck from 8.0 hours to 2.0 to 2.5 hours. Traffic speeds are efficient, with cars able to travel at about 80 to 95 km per hour and trucks at about 65 to 80 km per hour. Freight transport has been deregulated. Freight prices are negotiable because of extensive competition and the reduction of vehicle operating costs in the corridor and a faster traveling speed. Bus transport service is still regulated, but private operators own more than 80% of passenger buses. More passenger transport services are being provided to the public than in the past because of the decrease in vehicle operating costs and a faster traveling speed in the corridor. For example, in 1999, a bus took 12 hours to drive from Kunming to Simao, but this time has

15 Only about 11.5 km were class III and the remaining 202.5 km were class IV. 9 now been reduced to less than 6 hours. In the Kunming bus terminal, the project completion review (PCR) Mission observed that 15 buses were scheduled to make trips from Kunming to Simao between 8 AM and 9 PM every day, compared with 2 to 5 before. Bus service prices remain the same as before the expressway opened to traffic, which means that in real terms, they have decreased.16 Long-distance and intercity bus services are generally profitable without any government subsidies. In Mojiang, a new county bus station started operating at the same time as the expressway opened to traffic and mainly serves small towns and villages. Passenger transport services in rural areas are reported to be unprofitable because of short journeys and low demand and do not attract investment from private enterprises. Some loss- making rural services are provided by the Kunming Transport Corporation with cross-subsidies from more profitable subsidiaries. Overall, the Project contributed to an improvement in road infrastructure and a reduction in transport costs.

29. Indirect Impacts on Poverty Reduction. A basic project performance monitoring and evaluation framework was not constructed for the Project to permit a definitive assessment of the actual benefits. However, as most traffic has been diverted to the expressway, this has increased capacity on the parallel road. As a result, delivery times for agricultural inputs and production have been reduced by more than 50%. The project expressway has indirect impacts on poverty reduction in the project area as a result of changed cropping patterns, as farmers have shifted to higher-value crops and companies have shifted investments to poor regions because of the improved roads. For example, tobacco production was traditionally located near Yuxi city in north Yunnan, which had good transport infrastructure. Some of the tobacco growers shifted to higher-value crops such as flowers. As a result, after the opening of the expressway, the tobacco company has moved its investment focus from the north to the south of the province. Following a few years of cash crop production, poverty has been reduced in some previously poor areas.

30. Road Safety. The Yunnan Public Security Department (YPSD) and YMEC made concerted efforts to improve road safety. YPSD reported that the most significant causes of accidents on the Yunnan YuanMo expressway were speeding, overloading, insufficient space between moving trucks, and fatigue. To deal with overloading, three weigh stations are in operation along the Kunming–Mohei highway corridor, the first at the entrance to Kunming, the second at the endpoint of expressway (Huangzhuang), and the third in Pu’er. Overloaded trucks are required to offload excess freight before entering the expressway. Estimates indicate that now only 5 to 10% of trucks using the expressway are overloaded.

31. Since the expressway opened to traffic, YMEC has been taking the steps necessary to minimize accidents. Traffic and weather conditions are constantly monitored at the central control station, which provides speed and weather advisories via electronic signs along the expressway, and reduced speeds are required in the tunnels. Most trucks are equipped with water-cooled brakes and water stations are located at strategic points along the expressway to service them. Water-cooled braking has a downside: it causes wet pavements, especially in the numerous tunnels where serious accidents due to skidding have occurred in the past. To rectify this, YMEC is putting antiskid pavements in the tunnels. In addition, to help ensure safety on steep gradients, emergency escape lanes have been provided and nine emergency escape lanes have been put in place, with more planned. Driver fatigue is often a cause of accidents. The traffic police are constantly on the lookout for erratic driver behavior, especially early in the morning. YMEC is considering putting rumble strips at the outer edges of the expressway to

16 A passenger pays about CNY112 to CNY131 to travel from Kunming to Simao. Other buses schedules and prices are listed at http://www.yunnan-trans.com. 10 alert drivers that they are drifting off the road. Other traffic safety features are also in place (para. 8). Finally YPSD, along with YMEC’s Highway Property and Rights Administration, provides safety leaflets to drivers entering the expressway and holds educational sessions in villages near the expressway to teach people about basic safety and demonstrate how the expressway can benefit them. Yunnan YuanMo highway administration officers ensure that vehicles’ dimensions, loads, and specifications meet requirements.

32. About 90% of the traffic in the corridor is now using the expressway. This has significantly eased congestion on NH323, and accidents on that road have fallen since the expressway opened. Sufficient data were available to ascertain that the fatality rate per 100 million vehicle-km has decreased steadily from around 22 in 1999 on NH323 alone to about 17 in the corridor (expressway and NH323 combined) in 2004, the first year the expressway opened to traffic. The figure fell to 4 in the first six months of 2005. The number of accidents has also decreased substantially.

33. Nongovernment Financing. The use of nongovernment financing options did not materialize during the construction of the Yunnan YuanMo expressway, but experimentation is taking place along the international corridor from Kunming to Mohan. Prior to the construction of the Kunming–Yuxi (Kunyu) expressway (map 1),17 the Yunnan provincial government sold 80% of the shares (more than CNY2 billion) to a local company18 that then undertook the construction and operation of the expressway. At 85.7 km long, it served Kunming and the industrial town of Yuxi. Traffic volumes are high and the expressway is reportedly quite profitable. This example aside, one constraint to private sector participation is the lack of a legal basis for some financing schemes, such as build-operate-transfer. Considering the huge need for infrastructure, access to financial alternatives needs to be liberalized and supporting legislation needs to put in place soon.

34. Following construction of the Yunnan YuanMo expressway, YMEC has made several efforts to improve its revenues through involvement of the private sector, including via concessions and advertising. In an innovative step, YMEC even sold the right to name the world’s highest, continuous, ridged-structure bridge (the bridge over the Red River) to the highest bidder at CNY6.19 million. YMEC is looking for ways to generate additional revenues and encourage private sector initiatives.

35. Institutional Capacities. YMEC has established management, evaluation, inspection, and accountability systems. In order to enhance maintenance skills, relevant employees have participated in technical training organized by the Association of Road Construction and undergo continuous training. The internal network for the office management system has been set up to realize automatic office administration. This has reduced costs and increased management efficiency. The Project is rated as highly efficacious.

C. Efficiency in Achievement of Outputs and Purpose

36. Achievement of Outputs. The Borrower and YMEC were effective in ensuring efficient project implementation and O&M. The planned outputs were achieved as scheduled. The Project has achieved its primary purpose of supporting the economic and social development of the southern part of Yunnan province by reducing congestion and improving road safety on a key section of NH323 as well as on the expressway. The secondary objective of the Project,

17 The expressway section is located north of the Yuxi–Yuanjiang and Yunnan YuanMo expressways. 18 Hongta Industry Limited is the majority (80%) shareholder of the Kunyu expressway. 11 contributing to poverty reduction by providing improved access to poor and disadvantaged communities, was exceeded (para. 29). Finally, the Yunnan YuanMo expressway is a critical link in the road improvements scheduled for the Chiang Rai–Kunming highway (the northern economic corridor) and will contribute to the economic integration of the corridor and help reduce poverty.

37. Economic Reevaluation. The PCR Mission re-estimated the economic internal rate of return following the same methodologies used at appraisal, but adjusted to reflect actual project costs and benefits (Appendix 13). The recalculated economic internal rate of return was marginally lower than assessed at appraisal (16.8% versus 17.4%) because of the initial lower traffic volumes and the higher costs. Benefits considered included diverted traffic and generated traffic (including local and international cross-border traffic).

38. Toll Policy. The expressway toll is charged on the basis of vehicle type and distance traveled. No toll is charged on NH323. The current toll charges19 for the different types of vehicles are listed in Appendix 14 (Table A14.1). The basic toll rate proposed at appraisal was used as a reference in formulating the toll prices for the project expressway.20 Giving due consideration to affordability by road users and other social and economic impacts, the existing weighted, average toll rates are lower than those proposed at appraisal: CNY0.92 per km–MTE compared with CNY1.97 per km–MTE. From users’ point of view, the toll rates are considered affordable because of improved vehicle operating efficiency. Discussions are ongoing on further reforms of the toll structure according to actual weight and distance to destination. The PCR Mission recommended implementing this measure on the project expressway and adjoining sections to further cut down on overloading and to increase toll collection efficiency. The PCR Mission also explained that ADB’s policy on expressway toll levels requires a market-based approach with regular reviews of toll levels to ensure the recovery of O&M costs and debt service plus the generation of additional funds for replacement and improvements.

39. Financial Reevaluation. The financial internal rate of return was recalculated using the major assumptions given in Appendix 14. The recalculated financial internal rate of return, in constant prices, is lower than that calculated at appraisal (4.1% versus 8.0%) because of the higher costs, significantly lower tolls rates, and lower initial traffic volume than expected. The recalculated weighted average cost of capital, in constant prices, is 2.7%. The PCR Mission confirmed that YMEC could provide adequate road maintenance services and funds in the future and maintain the project roads in good condition. The re-evaluation shows that the Project is financially viable. The major increase in toll revenues in the first half of 2005 confirms this position. Based on the foregoing analyses, the Yunnan YuanMo expressway is rated as efficient.

D. Preliminary Assessment of Sustainability

40. The completion of the Yunnan YuanMo expressway and associated rural roads has relieved congestion in the corridor and has improved the efficiency of road transport in the province. Since the opening of the expressway, traffic has rapidly diverted to the expressway, and recent exploitation of the large mineral deposits near Jinghong and Monglong means that truck traffic is increasing rapidly. The opening of adjoining expressway sections along the

19 The tolls are slightly higher than the rates on adjoining expressway sections, Kunming–Yuxi and Yuxi—Yuanjiang, (but lower than the Kunming–Shilin toll rate). 20 CNY0.35 per vehicle-km in 1999 prices was proposed as the base toll rate for a small passenger car. The actual toll collected for a small passenger car was CNY0.38 per vehicle-km in 2004. 12 corridor, combined with the growth of local economies and cross-border trade, will ensure that traffic continues to grow and contribute substantially to expressway revenues and positive economic and social development impacts.

41. Based on the PCR Mission’s observations, routine preventive maintenance of the expressway appears to be adequate, with the surface roughness falling within the international roughness index. A clear system of responsibility and accountability has been established in YMEC. A rapid response system consisting of traffic police and the highway property administration has functioned well with respect to traffic control, blockage removal, pavement cleaning, and repair of traffic safety facilities. Specific areas at the entrance and endpoints of the project expressway were reserved for overloaded trucks to offload excess freight before entering the expressway. YMEC needs to monitor the presence of overloaded vehicles closely to reduce accident risks, pavement damage, and maintenance costs. YMEC is committed to the Project and has adjusted its organizational structure to increase its focus on O&M. The training received by YMEC employees was welcomed and is considered to have contributed significantly to their operational knowledge. Further capacity strengthening is being pursued under follow-on projects financed by the Ministry of Communications and YPCD.

42. YPCD and local governments are committed to the development and maintenance of the feeder roads networks. Road surface deterioration had occurred on one of the local roads in Pu’er visited by the PCR Mission. The main reason is the increased traffic volumes caused by the ongoing construction of a hydropower station. Once the hydropower station has been completed in 2006, the local government has assured ADB that the local road will be rebuilt.

43. The precipitous project site and steep slopes made the protection of slope stability difficult. The slopes are protected by a combination of reinforced concrete retaining walls, open lattice blocks, netting, concrete spread, anchorage, and grass turfing. An ongoing advisory study on slope protection financed by the Ministry of Communications ($1.2 million) was timely and beneficial. This technical assistance has provided YMEC with specialist advice to resolve the challenging slope protection tasks. In addition, preventive checks of the drainage system have reduced the occurrence of landslides on the high slopes during the rainy season. The PCR Mission noted that since completion of the Yunnan YuanMo expressway, no landslides have occurred and deeply rooted bushes within the open lattice blocks are maturing, thereby helping to ensure stable slopes in the future.

44. Toll levels and their periodic review are important for the financial viability of the expressway and the provision of timely maintenance. The projected financial statements (Appendix 14) indicate that toll revenues will be sufficient to cover O&M costs, income taxes, and debt service to ADB and to provide a reasonable rate of return over the long term. Cash flow is likely to be vulnerable for the first few years of operation, and YPCD has been closely monitoring YMEC’s financial position and provided adequate support on time.21 In addition, YMEC is promoting income generation from expressway-related activities, such as service concessions and rentals. The sustainability of the Project is rated as likely.

E. Environmental, Sociocultural, and Other Impacts

45. Environmental Impact. An environmental impact assessment was prepared for the Project, and its recommendations and requirements were incorporated in the project design and

21 In 2003, the ADB loan principal became due before the expressway opened to traffic. Future projects should have an adequate grace period that reflects the need for an expressway to have a mature cash flow. 13 implemented to mitigate adverse environmental impacts. The environmental impact assessment identified the excavation of material during construction and the disposal of spoil material as the main potentially negative environmental impacts. These were minimized by incorporating proper mitigation measures in the construction contract documents. The designs also included the maximum efficient use of cut and fill principles to minimize wastage: when excess material was available, it was used to cover unusable lands to make them productive for farm use. The level of local air pollution was reduced on the parallel road, as virtually all truck and bus traffic has diverted to the expressway. Similarly, as the expressway is a much more efficient and shorter route, air pollutants have been reduced overall. Preliminary independent evaluations of environmental and water conservancy measures have concluded that the mitigation measures were effective. Appendix 15 provides a detailed environmental impact analysis.

46. Resettlement. YMEC’s land acquisition and resettlement completion report estimated that 18,314.7 mu (1 mu = 1/15 of a hectare) of land were permanently acquired under the Project, a 18% increase over the estimates in the Resettlement Plan. The number of households that lost some farmland was 5,147, but for most of these households the income loss was not serious. Building demolition required the relocation of 542 households, 204 more than estimated in the Resettlement Plan. Temporary land acquisition for construction was 8,462 mu, much more than originally estimated. As a result, the total cost of land acquisition and resettlement doubled from $22.0 million to $44.0 million.22 Land acquisition and house demolition was started in 1999 and was largely completed by December 2002. The main concern in relation to the implementation of resettlement was the lack of funding, which delayed compensation payments. Compensation was paid in a timely manner for house demolition and reconstruction, but payments for land losses were delayed by 1 to 2 years. At the time of appraisal, ADB agreed that local governments would fund resettlement costs and would later be reimbursed by YMEC after completion of the expressway. However, the financial position of the affected counties is weak. Nevertheless, despite the funding shortfall, the local governments and YMEC put a great deal of effort into the resettlement and rehabilitation of affected households by using other local government programs for rural infrastructure, poverty reduction, and livelihood training. Fees for farmland reclamation that YMEC paid to the Yunnan Provincial Land and Resources Department have already been invested to create 7,900 mu of farmland in the project area and two neighboring counties. Most of those affected are now better off than they were before because of the support from local governments and the opportunities generated by expressway construction and operation. The assessment of incomes and livelihood restoration was done by the external monitor. Even though the methodology used for income assessment was simple, the results indicated that 96% of 215 households surveyed are equally as well off or better off. The PCR Mission also conducted a small survey, which verified local governments’ opinions that people were satisfied and generally better off. The impacts are assessed as moderate. Appendix 16 provides a detailed analysis of land acquisition and resettlement implementation and the results of a socioeconomic survey of affected households.

47. Socioeconomic Impact. Positive social impacts under the Project (Appendix 17) included (i) increased employment and income through sales of local materials during project construction and operation, (ii) increased labor mobility, (iii) enhanced agricultural development induced by lower transport prices for inputs and better access to markets, (iii) enhanced tourism, and (iv) upgraded local community development. During project implementation, particular attention was paid to improving the lives of ethnic minorities in the project area (Appendix 18). The growth rate in average annual gross domestic product per capita for Yunnan

22 This figure is still subject to audit and excludes about $3.25 million for temporary land acquisition, which was paid for by contractors as part of the civil works costs. 14 province as a whole during 1999–2003 was 6.2%, compared with 20.1% in Mojiang county and 8.4% in Pu’er and Yuanjiang counties, the three counties through which the expressway passes. A new city is being developed in Mojiang county near the expressway. External trade between Yunnan and its three neighboring counties has grown rapidly, growing by 7.4% in 2002, 14.1% in 2003, 25.0% in 2004, and 50% in the first half of 2005. In the absence of the expressway and local feeder roads, such high growth rates may not have been possible.

48. Regional Cooperation in the Greater Mekong Subregion. As part of a road project that involves a direct link between Chiang Rai in northern Thailand and Kunming in Yunnan province, the Yunnan YuanMo expressway, which totals 147 km of the 704 km highway between Kunming and Mohan, is an integral part of the GMS initiative.23 The roads in Thailand are in good condition and no immediate improvements are needed, whereas the 228 km link through the Lao PDR is being improved through a cooperative arrangement between the governments of PRC, Lao PDR, and Thailand and ADB. The purpose of the project is to help integrate the economies of the three countries and thereby help reduce poverty. The entire road to Chiang Rai is expected to be completed by 2007 and a new bridge connecting Lao PDR with the PRC is expected to be completed by 2009. The travel time will be reduced from 4 or 5 days to about 2 days, including border formalities, which are being streamlined. Many initiatives to encourage trade and economic development in the corridor are under way, both through the GMS initiative and by the private sector. Overall, the impacts of the Project are rated as significant.

IV. OVERALL ASSESSSMENT AND RECOMMENDATIONS

A. Overall Assessment

49. The Project has been implemented as planned with minor changes in scope that mainly involved the decision to defer the construction of two user service areas that were not needed. The main objectives of the Project (para. 2) have been achieved. The Project has also extended sector reforms initiated under previous ADB-financed projects, including commercializing expressway operations, introducing toll pricing policies to improve cost recovery, enhancing highway design standards and construction quality, and improving road safety. The longer-term objective of the Project—to promote regional cooperation in the GMS by improving a section of the road link between Kunming in Yunnan province in the PRC and Chiang Rai in Thailand—is being achieved.

50. The quality of the construction is good. The road has significantly reduced congestion on NH323, and with the improvement of about 876 km of feeder roads in the poorer townships, accessibility by the poor has substantially improved. Some of the expressway’s operations have been commercialized, and YMEC is realizing revenues from these activities. The financial analysis reveals that the Project is financially viable over the long term, while the economic analysis shows that the Project remains economically viable. Progress on the GMS cross- border agreement has been impressive, with the framework agreement signed and most of the protocols and annexes being prepared or having been agreed and expected to be finalized and signed by the end of 2005. Overall, the Project is rated as successful.24

23 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to Lao People’s Democratic Republic for the Greater Mekong Subregion Northern Economic Corridor Project. Manila. 24 This PCR is part of a sample of PCRs independently reviewed by the Operations Evaluation Department. The review has validated the methodology used and the rating given. 15

B. Lessons Learned

51. Key lessons learned from the Project include the need for (i) adequate and timely funding for resettlement and closer supervision, earlier identification, and resolution by ADB of potential resettlement issues; (ii) sufficient geological investigations for projects that are in difficult, mountainous terrain to ensure more accurate assessments of designs and costs; (iii) more conservative traffic projections for the initial years of operation;25 (iv) a basic monitoring framework constructed during project preparation and baseline values for the indicators are established, where available, during project preparation and updated at project inception; and (v) more in-depth review to reconfirm with the executing agency the exact nature of ADB’s requirements concerning benefit monitoring and evaluation and other expectations during project implementation.

C. Recommendations

52. YMEC should continue its efforts to ensure road safety, infrastructure planning, financing, commercial business management practices, and efficient O&M. In this precipitous project site, YMEC and YPCD should start planning how to increase the capacity of their portion of the Chiang Rai–Kunming corridor after it has been fully completed by 2009, as the existing expressway will reach capacity in about 15 years.

53. ADB should continue to monitor the actions being taken by YMEC and local governments to complete resettlement activities, including ensuring that (i) YPCD and YMEC reimburse funds to local governments, (ii) local governments make all remaining payments to collectives (mainly for forest land) and state-owned entities, and (iii) local residents are considered for job opportunities. The EA and local governments are taking steps to address the issues, and ADB will continue to follow up with the EA in 2006.

54. The full benefit monitoring and evaluation report should be submitted to ADB 5 years after the opening of the expressway to allow ADB to evaluate improvements in social and economic conditions in the project area. Reviews of the toll structures and levels are to be submitted to ADB on an annual basis up to 5 years following project completion, as required in the Loan Agreement.

55. The project performance audit report should be prepared in 2010 or later. By that time the Project will have been fully operational for more than 5 years and its traffic, maintenance, physical condition, attainment of benefits, and impact on resettlement and poverty reduction can be better assessed.

25 The initial actual traffic was lower than anticipated at appraisal. This pattern has been observed in other ADB-financed expressways, However, in the longer term, traffic on most of ADB-financed expressways has subsequently grown faster than the forecast. 16 Appendix 1

PROJECT FRAMEWORK

Performance Targets Design Summary Appraisal Actual Data Source Assumptions Impact 1. To promote Increase economic Average growth rates of Yunnan Statistical • Continued economic economic growth growth in counties gross domestic product per Yearbooks 1999– growth in the PRC and poverty and townships capita in the counties of 2003 and in Yunnan reduction in during 2004–2014 Mojiang, Pu’er, and province Yunnan province. Yuanjiang were 8.4%, 8.4%, and 20.0%, respectively, in 1999–2003

Improve per capita After the expressway A new bus station • Continued economic incomes, opened to traffic, more bus was opened in growth; stable expenditure levels, transport services were Mojiang at same time passenger and and freight and provided to local as the expressway freight rates passenger flows in communities at the same serving mainly local poorer price (in real terms, the traffic communities price declined) YMEC traffic counts, toll booth records, and increasing use of rural roads

2. Support Increase cross- External trade between the Statements made at • Regional road links regional border trade and PRC and Lao Democratic the second Greater completed; cross- cooperation in the traffic People’s Republic, Mekong Subregion border agreements Greater Mekong Myanmar, and Viet Nam summit in Kunming in brought into effect Subregion has increased by 60%, July 2005 12%, 53%, respectively, compared with 2003– 2004

Cross-border trade between the PRC and Lao Democratic People’s Republic, Myanmar, and Viet Nam has increased by 23%, 25%, and 24%, respectively, compared with 2003– to 2004

Outcomes 1. Lower Remove serious More than 90% of traffic YMEC traffic counts; • Passenger and transport costs by congestion and has diverted to the PCR Mission freight rates remain improving road deteriorating safety expressway observations; traffic stable infrastructure and standards on the police records increasing road existing road by Many safety features have • Road facilities are capacity constructing a been included in the expanded to handle controlled-access, design and operation of the increasing traffic four-lane, toll expressway expressway

Reduce average Travel distance has YMEC records • Traffic will grow travel time between decreased by 67 km and faster than expected Yuangiang and travel times have been PCR Mission and congestion once Mohei from 8.0 reduced from about 8.0 observations again slows vehicle hours to 2.5 hours hours to 2.0 to 2.5 hours speeds

Improve road Safer roads as indicated by Traffic police records • Traffic safety is de- safety as indicated a decrease in the death emphasized Appendix 1 17

Performance Targets Design Summary Appraisal Actual Data Source Assumptions by a decrease in rate of more than 26% by • Driver qualifications the death rate of at 2004 compared with1999 are reduced (unlikely) least 10% by 2010 and a further significant reduction in the first half of 2005

The traffic police and ADB PCR Mission • Traffic grows faster YMEC are taking observations than expected appropriate measures to decrease the potential for YMEC reports accidents

2. Provide Reduce traffic More than 90% of the YMEC traffic records improved access congestion on traffic on NH323 has to townships existing roads and diverted to the County government officially upgrade 540 km of expressway; NH323 now records of road designated as feeder roads mainly serves local traffic improvements poor The rural population’s YPCD and YMEC accessibility has been records improved through the upgrading of about 876 km ADB estimates of rural roads.

Reduce delivery Delivery time was reduced Survey results times for by more than 60% agricultural inputs and production within the project area by at least 50% following the opening of the expressway

3. Strengthen Prepare a training A training plan acceptable YMEC and ADB • The training of YMEC YMEC’s human plan to develop to ADB was prepared, but records staff is an ongoing resources YMEC’s human implementation was process resources and delayed because of the 11 YMEC PCR report enhance the September 2001 terrorist corporation’s attacks on the United capacity in the field States, SARS, and the war of contract in Iraq management YMEC considered the training to be successful and useful, particularly in relation to expressway operations and maintenance

4. Act as a Creation of YMEC YMEC was created and is YMEC PCR report • The process of catalyst in the which will be responsible for the corporatization and corporatization of responsible for the operations and commercialization will expressway implementation and maintenance of the continue agencies and in operation of the expressway and other • The process of the creation of project expressway sections of road as attracting private sector conditions that will delegated by YPCD investment will continue attract private sector investment

18 Appendix 1

Performance Targets Design Summary Appraisal Actual Data Source Assumptions YMEC has attracted private sector investment in relation to naming rights for the world’s highest pier bridge and other concessions and advertising Outputs 1. Civil Works and Equipment

1.1 Construct 147 Traffic on the Traffic on the expressway YMEC traffic control • Continued economic km of access- expressway grows started at a low level but is center counts growth in the controlled from 5,064 to increasing rapidly; traffic is Yuanjiang–Mohei expressway and 19,204 medium- projected to grow from ADB PCR Mission corridor upgrade about truck equivalents 3,895 medium-truck estimates 540 km of feeder per day between equivalents to 18,893 roads 2003 and 2023 medium-truck equivalents per day between 2005 and 2023

Pavement Pavement roughness YMEC records • Additional feeder roughness indexes indexes lowered to 0.75 roads will be lowered to less constructed than 2. • The counties develop good road maintenance capabilities

540 km of feeder A total of about 876 km of YPCD and county • Training and budget roads upgraded rural roads were improved road improvement for these activities in the project counties records keep pace with needs

1.2 Procure Expressway These systems are in YMEC project equipment for management, toll place. completion report traffic engineering, collection toll collection, accounting, and ADB PCR Mission quality control, road and bridge observations road maintenance maintenance and safety, management tunnels, and established feeder road upgrading

2. Consulting Services and Training 2.1 Provide 56 Adoption of These practices were YMEC project These skills are retained person-months of international adopted and 54 person- completion report and enhanced through international practices in months of international continuous training and consulting contract consulting services were Project administration study of good services in management and used; YMEC considered missions international practices construction construction the training to be supervision and (FIDIC) successful and relevant monitoring and supervision, evaluation and 66 materials testing, person-months of quality control, training traffic control, traffic Appendix 1 19

Performance Targets Design Summary Appraisal Actual Data Source Assumptions engineering, road safety enhancement, and monitoring and evaluation

Development of a YMEC is pursing comprehensive continuous training and training program study of good practices

2.2 Establish and Operation and Operation and YMEC financial • Allocation of upgrade operation maintenance costs maintenance costs for statements sufficient funds for and maintenance and are adequate 2004 are considered operation and systems with good quality adequate ADB PCR Mission maintenance observations Routine maintenance appears adequate.

2.3 Establish Field surveys to The ADB PCR Mission Survey results • YPCD and YMEC monitoring and monitor traffic reminded YMEC of its have the requisite evaluation volumes, obligation to submit these Independent organizational skills methodologies passenger fares reports to ADB consultants’ reports and freight rates; social impact of the expressway; impact on resettled, relocated, and indigenous peoples; environmental impact; and upgrading and maintenance of feeder roads for 5 years following project completion

3. Resettlement and Compensation 3.1 Acquire about Land acquisition A total of 1,221 ha of land YMEC reports • Allocation of 998 ha of land and resettlement was acquired sufficient funds for plan Local government resettlement reports implementation

3.2 Resettle 334 Compensation A total of 538 households YMEC reports households; loss levels for were relocated; of 490 ha of permanent losses compensation was paid to Local government farmland will affect of farmland, rehabilitate 5,167 reports 5,376 rural people housing, and other households that lost some along the assets farmland Monitoring and expressway evaluation reports alignment

4. Environment

Design Improve efficiency Mitigation measures taken YMEC environmental • YPCD and YMEC environmental in implementing are effective and water have implemented mitigation mitigation conservancy EIA report. measures as part measures Special measures were protection reports 20 Appendix 1

Performance Targets Design Summary Appraisal Actual Data Source Assumptions of the EIA report. Revise the design taken to protect the YMEC report Take special care and downgrade the Xishuangbanna Nature in dealing with the planned Reserve during road Xishuangbanna expressway construction Nature Reserve through the Xishuangbanna Nature Reserve

Activities – Milestones Inputs 1. Provide adequate counterpart funds • Ensure that adequate funds are allocated by the MOC, YPCD, and domestic banks.

2. Recruit domestic and international consultants • Prepare terms of reference • Prepare shortlist for approval • Invite proposals • Evaluate proposals • Sign contracts and mobilize consultants

3. Carry out survey and design • Prepare final designs

4. Award contracts • Prepare bid documents • Obtain ADB approval • Prequalify bidders • Obtain ADB concurrence • Issue invitations to bid • Evaluate bids • Award contracts

5. Construct and upgrade selected road sections • Mobilize contractors • Have contractors begin civil works

6. Supervise construction, installation, and on-the–job-training • Select and retain supervision consultants • Prepare supervision plan and assignments • Undertake civil works supervision • Make arrangements for on-the-job training

7. Provide training courses to develop the skills of YMEC staff • Prepare training plan • Determine suitable venues for training • Determine the appropriate time for training • Make detailed training arrangements, including the selection of staff to be trained

8. Acquire land, restore livelihoods, and replace lost assets • Implement compensation standards • Ensure the availability of sufficient funds • Acquire land, resettle those affected, and disburse compensation • Replace lost assets and income

9. Review and revise expressway alignment to incorporate • Be aware of possible environmentally environmental mitigation measures sensitive areas during the detailed design phase • Make appropriate changes to alignment to mitigate negative effects ADB = Asian Development Bank, EIA = environmental impact assessment, FIDIC = International Federation of Consulting Engineers, ha = hectare, km = kilometer, MOC = Ministry of Communications, NH = national highway, PCR = project completion review, PRC = People’s Republic of China, YMEC = Yunnan YuanMo Expressway Corporation, YPCD = Yunnan Provincial Communications Department. Source: ADB estimates. Appendix 2 21

CHRONOLOGY OF MAJOR EVENTS

Year Date Event

1998 5 March Project proposal approved by the State Council 1998 20 August Project feasibility study approved by the State Council 1998 16 October YMEC obtained a business license to construct and operate the project expressway 1998 19 October Fact-Finding Mission 1998 19 November Preliminary project design approved by the Ministry of Communications 1998 2 December Advance procurement action approved by ADB 1998 4 December Policy on land acquisition and resettlement approved by the Yunnan provincial government 1999 1 January New Land Law became effective 1999 5 January Public advertisement on prequalification posted 1999 20 January President of ADB approved circulation of the summary environmental impact assessment to the Board 1999 23 February Management review meeting 1999 1 March Appraisal Mission fielded 1999 25 March YPCD provided an initial estimate of land acquisition and resettlement to ADB 1999 31 March Bidding documents submitted 1999 19 April Prequalification evaluation report for 18 international competitive bidding civil works contracts submitted 1999 28 April Staff Review Committee meeting held 1999 13 May Foreign fund utility report approved by the State Planning Commission 1999 18 May Loan negotiations held 1999 28 May Bidding documents for 18 civil works contracts approved 1999 10 June Prequalification evaluation report approved for 18 civil works contracts 1999 24 June Board approved the Project 1999 17 August Civil works bidding opened 1999 22 November International consulting service evaluation report approved by ADB 2000 10 January Agreement between YPCD, YMEC, and local governments on advance payment of resettlement funds signed 2000 24 January Loan Agreement signed 2000 14 March Contract awards approved 2000 15 March Disbursement letter sent to the Ministry of Finance 2000 20 March Subsidiary loan agreement signed between the Ministry of Finance and the Yunnan provincial government 2000 28 April On-lending loan agreement signed between the Yunnan provincial government and YMEC 22 Appendix 2

Year Date Event 2000 18 May Loan became effective and construction started 2000 7 December Inception Mission fielded 2001 10 July Overseas training plan submitted 2001 31 August First variation request for civil works submitted 2001 31 September Project audit report submitted by the Yunnan Provincial Audit Department 2001 22 October Detailed construction drawing budget approved by YPCD 2001 11 December First loan review after Inception Mission 2002 7 January Substitute for international consultant team leader approved 2002 28 January Project audited by the National Audit Administration 2002 10 September Notice of transformation from pool-based loan products to LIBOR-based loan issued 2002 10 December Midterm review started 2002 15 December Transformation to LIBOR-based loan occurred 2002 31 December Resettlement activities completed 2003 22 May Contract awards for traffic engineering and building and ancillary facilities approved 2003 2 November Fourth loan review undertaken 2003 28 December Commercial operations started 2004 1 March People’s Republic of China’s new technical standards for highway engineering took effect 2004 31 March Original loan closing date 2004 20 September First extension of closing date 2004 31 December Second extension of closing date 2004 5 January Actual loan closing date and final disbursement 2005 17 January Final loan review 2005 10 April Receipt of YMEC project completion report 2005 19–29 July Project Completion Review Mission

ADB = Asian Development Bank, YMEC = Yunnan YuanMo Expressway Corporation, YPCD = Yunnan Provincial Communications Department.

Appendix 3 23

PROJECT ENGINEERING EVALUATION

A. Introduction

1. The project expressway between Yuanjiang and Mohei crosses through three counties in the southern part of Yunnan province: Mojiang and Yuanjiang in Yuxi prefecture and Pu’er in Simao prefecture. The climate is tropical to subtropical, with hot and rainy summers and mild winters. Annual rainfall varies from 805 millimeters to 1,406 millimeters, of which 86% is concentrated in the May through September rainy season. Frost and occasional snowfall are limited to the highest elevations.

2. The northern beginning point of the expressway is in Yuanjiang county, and it then proceeds southwest a toward Pu’er county before crossing the western part of the Yungui plateau and the rugged Nanyan Mountains. The expressway is in the seismically stable Mojiang fold-fault zone. The geology of the area is complicated, with many crustal folds and faults. The rocks and soils vary considerably and consist mainly of metamorphic sedimentary sandstone, metamorphic granite, sandstone, conglomerate, and fourth-period sediments.

3. In high mountainous areas, the alignment and design standard often required unavoidable and large cut sections, where substantial slope protection is needed to avoid landslides. Similarly, where cut sections were not practical, tunnels and viaducts were constructed. As most expressway sections were a good distance away from the parallel road (NH323), access roads, bypasses, and service bridges were constructed.

B. Expressway Technical Features

4. The expressway was constructed in accordance with the technical standards for highway engineering issued by the Ministry of Communications in January 1998. The standards were appropriate in many respects, particularly with regard to environmental protection and road safety. The expressway’s geometric design employs two basic design grades, one for rolling terrain, which provides for a design speed of 100 kilometers (km) per hour and four 3.75-meter lanes, and the other for mountainous terrain, which provides for a design speed of 60 km per hour and four 3.5-meter lanes. Whenever appropriate, particularly near tunnels and large bridges and in steeply sloping areas, the alignment was designed separately because of terrain requirements. Climbing lanes were built in addition to the driving lane and the overtaking lane where required. Geological factors for alignment design were selected in accordance with the design speeds. Appropriate antiseismic standards were used depending on the location. Structures were designed to carry the heaviest vehicle type, while large bridges were designed for 1 in 300-year floods and shorter bridges for 1 in 100-year floods. Table A3 shows the main technical standards for the Yunnan YuanMo expressway.

5. As for the final alignment, approximate alignment proposals based on engineering and cost considerations were discussed with local residents and analyzed in terms of their social and environmental impacts before the final choices were made. Five interchanges were added to the construction and they were located at natural and social central points. The location of the other four interchanges were determined by operational considerations such as linkages with other highways and expressway sections.

24 Appendix 3

Table A3: Technical Standards for the Yunnan YuanMo Expressway

Min. Length Length Length Width Width Width Int’l Flat of of of of of of Rough- Curve Road Section Bridges Tunnels Subgrade Lanea Shoulder ness Grade Radius Section (meters) (meters) (meters) (meters) (meters) (meters) Index (%) (meter) Terrain Yuanjiang Bei– Yuanjiang 6,740.06 2,116.1 1,214.0 22.5 2 x 3.5 2.5 0.87 (2.82) 150 Mount.

Yuanjiang– Hongguang 7,616.61 1,462.1 0.0 22.5 2 x 3.5 2.5 0.73 1.44 150 Mount.

Hongguang –Nanxi 24,256.95 3,441.6 930.0 22.5 2 x 3.5 2.5 0.85 4.5 150 Mount.

Nanxi–Bixi 9,818.00 4,094.9 3,579.8 22.5 2 x 3.5 2.5 0.76 (3.8) 150 Mount.

Bixi– 8,618.21 2,121.1 642.5 26.0 2 x 3.75 2.5 0.74 (1.0) 150 Rolling Mojiang

Mojiang– Zhong’ai 28,553.33 5,635.8 4,204.7 22.5 2 x 3.5 2.5 0.69 (1.6) 150 Mount.

Zhong’ai– Tongguang 14,833.36 4,278.8 1,610.5 22.5 2 x 3.5 2.5 0.74 4.5 150 Mount.

Tongguang –Babian 28,590.78 4,039.5 290.0 22.5 2 x 3.5 2.5 0.70 (2.2) 150 Mount.

Babian– Choushui 7,739.65 2,648.0 292.0 22.5 2 x 3.5 2.5 0.69 1.5 150 Mount.

Choushui– Huang- Zhuang 10,122.02 1,571.7 0.0 22.5 2 x 3.5 2.5 0.74 1.8 150 Mount. Total 146,888.97 31,409.0 12,764.0 Int’l. = international, Min. = minimum, mount. = mountainous a 2 X means two lanes. Source: Yunnan YuanMo Expressway Corporation.

6. A seismic survey system, which was developed in Switzerland, was used to determine the geological situation and the extent and strength of supporting structures for tunneling. During construction of the tunnels, a real-time stress and strain measuring system was used to ensure that supporting structures were appropriate and safe.

7. The civil works costs, estimated at $570.9 million during project preparation, increased by 30% or $170.1 million. Overall, construction was conducted with well-organized supervision teams, and when a specific problem was identified that was out of the ordinary, experts were called in for advice and suggestions. Overall, civil works for the expressway have been completed successfully.

Appendix 3 25

C. Quality Control Management

8. Quality control management units were established that consisted of the contractor’s management unit and the project management unit. Related quality management roles, determined by the Yunnan YuanMo Expressway Corporation as early as engineering bidding and procurement, were incorporated in contract documents during the contract negotiation.

9. The quality control for bridges and tunnels used advanced inspection instruments and methods. The sound wave penetration method was used on all bridge piles to determine their wholeness, length, diameter, and concrete homogeneity. The auto balance method was used to determine the bearing strength of piles. An advanced geological detector was used prior to tunnel excavation to determine actual geological structure to ensure the safety and cost- effectiveness of tunnel excavation and lining.

10. In relation to quality control of landslide prevention works, the Yunnan YuanMo Expressway Corporation conducted a detailed survey of landslide-prone areas. Three or four prevention methods were selected based on geological data and were compared to determine the most reasonable method based on safety and cost-effectiveness principles.

11. Special asphalt formulas were used on asphalt concrete pavement to increase the stability of pavement under conditions of high temperatures and plentiful rainfall.

26 Appendix 4

FEEDER ROAD PROGRAM IN THE PROJECT AREA

1. The feeder road component of the Project was included to help provide the benefits of improved access to people in rural areas, especially in the poorer townships. Feeder roads are planned and implemented as follows. At the central Government level, the Ministry of Communications provides guidance and technical support to local governments by setting national policies, regulations, and design and construction standards and providing guidance in relation to their application. Provincial highway bureaus, which fall under the auspices of provincial communications departments, provide guidance and support for the provincial highway network. The provincial highway bureaus also supervise rural roads through prefectural communications bureaus and their county communications bureaus. The organizational chart for the feeder road component is given in Figure A4.1.

Figure A4: Organization Chart of Feeder Roads Implementation Under the Project

Ministry of Communications

YPCD (Plan Division, Construction Division)

YPHB (Plan Division, County and Township Division)

Simao Prefecture Yuxi Prefecture Communications Bureau Communications Bureau

Yujiang County Mojiang County Pu’er County Communications Bureau Communications Bureau Communications Bureau

Yuanjiang–Nanhun, Mojiang–Mengnong, Choushui–ManLian (Enle) – Zhega–Langshu, Mojiang–Longba, Mohe–Puzhi, Yuanjiang–Wazhi, Tuantian– Mengxian–Liming, Yuangjiang–Manlai- Tongguan–Wenwu Babian Economic Road Yangchajie–Jinkuang, Yuanjiang–Longtan

YPCD = Yunnan Provincial Communicaions Departments, YPHB = Yunnan Provincial Highway Bureau. Source: Yunnan Provincial Communications Department.

2. During project preparation, a total of about 538 kilometers (km) of feeder roads were identified after consultations with provincial and local authorities. At project completion, 556.7 km of feeder roads had been improved under the Project. At the same time, the counties improved an additional 319 km of connecting roads, giving a total of 875.7 km of improved feeder roads (Table A4.1). The respective county communications bureaus were responsible for the planning and design of the feeder roads. For construction administration, each county communications bureau established township road construction units, each of which employed private firms, institutes, and contractors for the design, construction, and supervision of the feeder road improvements.

Table A4.1: Characteristics of Improved Feeder Roads Pavement Cost Original Improved Distance Road Width (CNY Construction Pavement Pavement Maintenance Route (km) Jurisdiction Classification (meters) million) Period Structure Structure Unit A. Segments Financed Under the Project 1 Yuanjiang–Nanhun 44.0 County and Class III 6.0 177.75 Jun 2002 – Sand and Asphalt township Dec 2004 mud YLMA surfacing 2 Yuanjiang–Wazhi 49.7 County and Class IV 4.5 14.58 Sep 2000 – Sand and Cobble township Mar 2002 mud stone YLMA surfacing surfacing 3 Yuanjiang–Manlai–Yang 73.0 County and Class IV 6.0 55.38 Dec 2001 – Sand and Cobble Chajie–Jinkuang township Apr 2003 mud stone YLMA surfacing surfacing 4 Mojiang–Mengnong 76.0 County and Class IV 6.0 21.54 Nov 2002 – Sand and Asphalt township Sep 2004 mud MLMA surfacing 5 Mojiang–Longba 32.0 County and Class IV 6.0 6.21 Nov 2000 – Sand and Cobble township Dec 2001 mud stone MLMA surfacing surfacing 6 Tuantian–Tongguan– 166.0 County and Class IV 6.0 53.38 Nov 2002 – Sand and Cobble Wenwu township Dec 2004 mud stone MLMA surfacing surfacing 7 Mohe–Puzhi 49.0 County and Class IV 6.0 9.64 Nov 2001 – Sand and Cobble township May 2003 mud stone PLMA surfacing surfacing 8 Mengxian–Liming 67.0 County and Class IV 6.0 10.97 Nov 2001 – Sand and Cobble township May 2003 mud stone PLMA surfacing surfacing Subtotal A 556.7 349.45 Segments Not B. Financed Under the Project 9 Zhega–Langshu 66.0 County and Class III 6.0 37.06 Mar 2001 – Sand and Asphalt township May 2003 mud YLMA surfacing 10 Yuanjiang–Longtan Road 25.0 County and Class IV 6.0 18.53 Oct 2000 – Sand and Cobble Township Nov 2001 mud stone YLMA surfacing surfacing 11 Choushui–Manlian (Enle) 111.0 County and Class III 6.9 Feb 1999 – Sand and Cobble

township 309.50 Aug 2003 mud stone PLMA 4 Appendix surfacing surfacing 12 Babian Economy Road 117.0 County and Class IV 6.0 82.26 Jan 2002 – Sand and Cobble township Jun 2004 mud stone PLMA surfacing surfacing Subtotal B 319.0 447.35 Total 875.7 796.80

MLMA = Mojiang local maintenance agency, PLMA = Pu'er local maintenance agency, YLMA = Yuanjiang local maintenance agency. 27 Source: Yunnan Provincial Communications Department. 28 Appendix 4

3. County communications bureaus are also responsible for maintaining the feeder roads. The Yunnan provincial government, through its provincial highway bureaus, provides a subsidy for maintaining local roads in line with national and provincial maintenance expense regulations. A review of the staffing and equipment available to the counties shows that they both appear to be adequate (Table A4.2).

Table A4.2: Characteristics of County Maintenance Units

Corresponding Feeder Main Maintenance Maintenance Unit Roads Road Maintenance Staff Equipment Yuanjiang County • Yuanjiang–Nanhun Total of 159 staff (10 5 loaders, 3 road rollers, Communications • Zhega–Longshu managers, 15 specialized 1 bulldozer, 24 Bureau, Local technicians, 9 mechanical automobiles, 1 set of • Yuanjiang–Wazhi Highway operations staff, 125 asphalt mixing equipment Management • Yuanjiang–Manlai– maintenance workers) and paving equipment, 1 Section Yangchajie–Jinkuang organized into 5 highway laboratory, and • Yuanjiang–Longtan maintenance teams 5 highway patrol vehicles for taking road inventory

Mojiang County • Mojiang–Mengnong Total of 85 staff (6 3 loaders, 2 road rollers, Communications • Mojiang–Longba managers, 9 specialized 1 bulldozer, 9 Bureau, Local technicians, 6 mechanical automobiles, 1 set of • Tuantian–Tongguan– Highway operations staff, 64 asphalt mixing equipment Wenwu Management maintenance workers) and pavement Section organized into 3 equipment, 1 highway maintenance teams laboratory, 3 highway patrol vehicles for taking road inventory

Pu’er County • Choushui–Manlian Total of 194 staff (10 4 loaders, 4 road rollers, Communications (Enle) managers, 5 specialized 2 bulldozers,15 Bureau, Local • Mohei–Pushi technicians, 11 automobiles, 1 set of Highway mechanical operations asphalt mixing and • Mengxian–Liming Management staff, 168 maintenance paving equipment, 1 Section • Babian economic road workers) organized into 5 highway laboratory, 5 maintenance teams highway patrol vehicles for taking road inventory Source: Yunnan Provincial Communications Department.

Appendix 5 29

PROJECT COSTS AND FINANCING

Table A5.1: Appraised and Actual Project Costs ($ million)

Appraisal Current Components Foreign Local Total Foreign Local Total Exchange Currency Cost Exchange Currency Cost A. Base Costs 1. Expressway Civil Works 245.5 325.4 570.9 318.6 422.4 741.0 2 Equipment 25.8 0.0 25.8 28.7 0.0 28.7 3. Land Acquisition and Resettlement 0.0 22.0 22.0 0.0 44.0 44.0 4. Consulting Services and Training 2.0 9.7 11.7 1.5 38.6 40.1 5. Feeder Roads 6.8 15.9 22.7 0.0 42.2 42.2 Subtotal (A) 280.1 373.0 653.1 348.8 547.2 896.0 B. Contingencies 1. Physical Contingencies 14.0 18.7 32.7 0.0 0.0 0.00 2. Price Escalation 13.0 15.9 28.9 0.0 0.0 0.00 Subtotal (B) 27.0 34.6 61.6 0.0 0.0 0.00 C. IDC and Other Charges 36.0 19.6 55.6 30.3 59.2 89.5 Total 343.1 427.2 770.3 379.1 606.4 985.5 IDC = interest during construction. Sources: Asian Development Bank and Yunnan Yuanmo Expressway Corporation.

Table A5.2: Appraised and Actual Financing ($ million)

Appraisal Actual Source Foreign Local Total Foreign Local Total Exchange Currency Cost Exchange Currency Cost ADB 250.0 0.0 250.0 250.0 0.0 250.0 Ministry of Communications 0.0 102.2 102.2 0.0 102.2 102.2 Ministry of Finance 0.0 3.0 3.0 0.0 3.0 3.0 Yunnan Provincial Government 93.1 165.4 258.5 129.1 344.6 473.7 China Development Bank 0.0 156.6 156.6 0.0 156.6 156.6 Total 343.1 427.2 770.3 379.1 606.4 985.5 ADB = Asian Development Bank. Sources: Asian Development Bank and Yunnan Yuanmo Expressway Corporation. 30 Appendix 6

PROJECTED AND ACTUAL DISBURSEMENTS

Table A6: Disbursement Schedule ($ million)

Cumulative Year Appraisal Actual Appraisal Actual

1999 8.0 0.0 8.0 0.0 2000 25.0 30.5 33.0 30.5 2001 75.0 82.9 108.0 113.4 2002 80.0 50.0 188.0 163.4 2003 37.0 55.2 225.0 218.6 2004 25.0 30.7 250.0 249.3 2005 0.0 0.7 250.0 Total 250.0 250.0 Sources: Asian Development Bank and Yunnan YuanMo Expressway Corporation.

Figure A6: Cumulative Disbursement

300.0 250.0 200.0 Appraisal 150.0 Actual

$ million $ 100.0 50.0 0.0 1999 2000 2001 2002 2003 2004 2005 Year

Sources: Asian Development Bank and Yunnan YuanMo Expressway Corporation. IMPLEMENTATION SCHEDULE 1998 1999 2000 2001 2002 2003 2004 2005 Item IVII IIIII IV IIII II IV III III IV IIIII IV I II III IV II I III I IV II III IV A. Land Acquisition Final Audit and Resettlement B. Civil Works 1. Expressway a. Prequalification b. Bidding Defect Liabili ty Period c. Mobilization 2. Feeder roa ds d. Construction

a. Bidding b. Mobilization 3. Building and ancillaryc. Construction facilities

a. Bidding Defect Liabili ty Period b. Mobilization C. Equipmen t 1. Quality con trolc. Construction

a. Bidding 2. Feeder roa ds b. Supply c. Delivery and installation

3. Tunne l (procurea. dBidding by GP) b. Supply c. Delivery and installation W arrant Period

4. Maintenance a. Bidding b. Supply c. Delivery and installation 5. Opera tion (procure d by GP) a. Bidding b. Supply c. Delivery and installation W arran t Period Appendix 7 Appendix

D. Consu lting Serva. iBiddingces an d Training b. Supply c. Delivery and installation

isal actua l a. Shortlisting appra b. Bidding

31 c. Mobilization d. Services and training

I = first quarter, II = second quarter, III = third quarter, IV = fourth quarter. Sources: Yunnan YuanMo Expressway Company and Yunnan Provincial Communications Department. ORGANIZATIONAL CHART OF YUNNAN YUANMO EXPRESSWAY CORPORATION（DURING PROJECT OPERATION） 8 Appendix

BOARD OF DIRECTORS 32

GENERAL MANAGER Highway Property and Rights Administration

Head Office

Engineering Testing and Networks Operation and Administration Finance and Toll Office Contract HRD and Inspection Monitoring Development and Safety Asset and Develop- Environment. Division Center Division Office Division Planning ment Division Office

Site Management Office

Engineering Section Finance and Asset Section Administration Section Monitoring Center

Yuanjiang Toll Sation Yuanjiang Tunnel Station Mojiang Service Area Yuanjiang Monitoring Subcenter

Mojianng Toll Station Laocangpo Tunnel Station Huanzhuang Service Area

Huangzhuang Toll Station Dafengyakou Tunnel Station

Source: Yunnan YuanMo Expressway Corporation. Appendix 9 33

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Reference in Loan/Project Covenant Agreement Status of Compliance 1. Implementation Arrangements. The Yunnan province Loan Complied with. Three shall have overall responsibility for the execution of the Agreement county-level PIUs with feeder roads upgrading program and the county Schedule 6, a total of 70 staff were governments shall implement the upgrading of feeder roads para. 2 established and were in their respective counties as follows: operational in the three counties. Project (i) A PIU will be established within YMEC and three county- steering committees level PIUs shall be established in the counties of were also established Mojiang, Pu’er and Yuanjiang, and included (ii) With the assistance of the construction supervision representatives of land consultants, the YMEC PIU shall be responsible for day- resource, forest, to-day implementation of the Project and shall liaise communications, and between contractors, suppliers, district PIUs, YMEC, and water resources ADB. bureaus. (iii) A project steering committee shall be established in each of the counties along the project expressway alignment made up of local officials from various agencies.

2. Counterpart Financing. The Borrower and the Yunnan Loan Complied with. provincial government shall make equity investments in Agreement YMEC, as required and in a timely fashion, to enable YMEC Schedule 6, to implement, operate, and maintain the project expressway para. 3 and such investment shall be in accordance with the financing plan for the Project as agreed to with ADB.

3. Construction Quality. YMEC shall ensure that Loan Complied with. Agreement (i) the project expressway is constructed in accordance with Schedule 6, the technical standards for highway engineering issued para. 4. by the Ministry of Communications in January 1998 and as may be amended from time to time; (ii) the construction supervision, quality control, and contract management are performed in accordance with internationally accepted practices; and (iii) the tunnel design and construction methods are reviewed by the international consultants at the beginning of the Project.

4. Road Traffic Safety. YMEC shall ensure that measures Loan Complied with. Axle to enhance road safety are included in the design of the Agreement weighing stations are Project and implemented, including (i) incorporating axle Schedule 6, installed at the weighing stations at expressway entrances; (ii) installing para. 5 Yuanjiang–Mohei internationally accepted road signs, reflective lane markings, corridor ending points and other traffic delineation features; (iii) providing safety and at the entrance to barriers on embankments and along the central reservation; the Kunming–Yuanjiang (iv) installing emergency telephones along the alignment; expressway in and (v) training YMEC staff in road safety and traffic Kunming. engineering. In addition, the Yunnan provincial government and YMEC shall ensure that the expressway will be adequately patrolled to prevent illegal use of project facilities. YMEC shall also ensure that safety audits are carried out at 34 Appendix 9

Reference in Loan/Project Covenant Agreement Status of Compliance the time of expressway design completion and prior to the commencement of expressway operations.

5. Axle Loads. YMEC shall use the axle weighing stations Loan Complied with. YMEC installed at the project expressway entrances and take other Agreement also plans to install an suitable enforcement measures to reduce the incidence of Schedule 6, automatic weighing overloading on the expressway. Prior to the commercial para. 6 system at all major toll operation of the project expressway, YMEC shall provide stations by 2007. ADB with a statement indicating legal axle limits, frequency of testing, and penalties for infringement.

6. Human Resource Development and Training. Prior to Loan Complied with. undertaking overseas training to be financed under the loan, Agreement YMEC shall, with the assistance of the international Schedule 6, consultants, prepare for ADB’s agreement (i) a training plan, para. 7 a training program, and a list of candidates nominated for training; (ii) a workshop program to be delivered at YMEC’s head office by those trained overseas; and (iii) a list of training equipment and training aids required to strengthen and implement training programs. Upon completion of the workshops, YMEC shall provide ADB with an evaluation of the workshops and identify those subjects that are appropriate for formal incorporation into YMEC’s regular staff training curricula.

7. Tolls. The tolls for the project expressway shall be set at Loan Being complied with. a level sufficient to fully meet debt-service obligations, Agreement YMEC submitted a operation and maintenance costs, and depreciation in Schedule 6, review of toll structure excess of debt service and to generate a reasonable return para. 9 and levels to ADB in on the investment as adjusted for inflation from time to time. August 2004. YMEC Six months prior to the opening of the project expressway was reminded of its and prior to the submission of an application for toll levels to obligation to review the the Yunnan provincial government, YMEC will prepare and structure and level of submit to ADB for review and approval a report on the tolls on an annual basis proposed toll structure. For the first 5 years of operation, and submit a report to YMEC shall review the toll structure and levels annually and ADB each year until report its findings to ADB. If an adjustment in the toll levels is 2008. required, YMEC will submit the toll adjustment plan for ADB approval prior to finalizing and submitting the plan to the Yunnan provincial government.

8. Nongovernment Financing. Six months prior to the Loan Complied with. opening of the project facilities, YMEC shall submit to ADB a Agreement report analyzing the feasibility of attracting private sector Schedule 6, participation in the project facilities and outlining the para 10. approach for achieving this objective.

9. Corporate Governance. During the midterm review, Loan Complied with. YMEC shall provide ADB with a report on measures taken Agreement and a plan of actions proposed to strengthen corporate Schedule 6, governance in such areas as board composition, board para. 11. committees and their composition, and preparation and disclosure of financial and corporate information. Appendix 9 35

Reference in Loan/Project Covenant Agreement Status of Compliance 10. Strategic and Financial Planning. During the midterm Loan Complied with. review, YMEC shall provide ADB with a report on measures Agreement taken and a plan of actions proposed to strengthen strategic Schedule 6, and financial planning that will include a set of physical and para. 12. financial criteria against which YMEC will continuously assess its corporate performance.

11. Environmental Measures. YMEC shall ensure that any Loan Complied with. adverse environmental impacts arising from the construction Agreement and operation of the Project shall be minimized through Schedule 6, timely and effective implementation of the environmental para. 13 mitigation, monitoring, and management measures as prescribed in the environmental impact assessment, summary environmental impact assessment, Environmental Management Plan, and related environmental documents, including the initial environmental examination of the feeder roads. During construction, YMEC shall include a description of environmental mitigation measures, monitoring results, and any outstanding environmental issues as part of project progress reports.

12. Land Acquisition and Resettlement Plan. The Yunnan Loan Complied with. provincial government and YMEC shall Agreement Schedule 6, Complied with though (i) ensure that all land and rights-of-way required for the para. 15. county governments. Project are made available in time for construction; (ii) YMEC and the prefectures of Simao and Yuxi shall carry Partially complied with out the Resettlement Plan; and because of delays in (iii) shall make every effort to deliver compensation and compensation other entitlements to those affected directly and to do so payments, but the in a timely manner. situation was essentially rectified before the end of 2004.

YMEC shall Loan (i) provide prefectural and county resettlement offices with Agreement Complied with. the relevant resettlement plans for affected persons in Schedule 6, Chinese language at least 3 months before the start of para 16. construction; (ii) receive and address the comments of those affected; (iii) engage a qualified, independent agency, acceptable to ADB, to monitor resettlement entitlements, prepare annual reports during resettlement implementation, and evaluate the achievement of resettlement objectives at completion and 1 year later; (iv) submit these reports to ADB for its review; (v) report on resettlement through quarterly reports, on completion of resettlement, and 1 year later; and (vi)ensure that people displaced by the Project will improve, or will at least maintain, the living standards they had before project commencement in line with ADB’s policy on involuntary resettlement.

36 Appendix 9

Reference in Loan/Project Covenant Agreement Status of Compliance The Yunnan provincial government and the Yunnan Loan Complied with. Provincial Communications Department shall address any Agreement resettlement effects in relation to the feeder roads Schedule 6, improvement program under the same resettlement para. 17. entitlements as set out in the Resettlement Plan.

13. Gender and Development. YMEC shall monitor the Loan Complied with. Project’s effects on women during implementation through Agreement gender-disaggregated data in the Resettlement Plan, the Schedule 6, Minority People’s Development Plan, and participatory rural para. 19. appraisal, all as agreed to with ADB. YMEC shall consult with the All-China Women’s Federation at local levels during project implementation and shall ensure that the principles of ADB’s policy on gender and development are followed during project implementation.

14. Health Risks. YMEC shall ensure that measures are Loan Complied with. taken to reduce the risks of communicable diseases, Agreement including HIV/AIDS, in cooperation with the Provincial Schedule 6, Government Leader Group Office for AIDS Control and para. 20 Prevention. YMEC shall ensure that all contract workers are provided with adequate training in health issues. YMEC, together with the appropriate authorities, shall ensure that information about the risks of sexually transmitted diseases is developed and disseminated to road construction workers and transport operators.

15. Monitoring and Evaluation. YMEC shall monitor and Loan Being complied with. evaluate the Project’s effects to ensure that the Project’s Agreement The baseline facilities are managed effectively and that its benefits are Section 6, monitoring and maximized. YMEC shall collect data agreed on with ADB para. 21 evaluation report has prior to the commencement of project implementation, at been submitted to ADB. project completion, and 5 years later. YMEC was reminded of its obligation to submit monitoring and evaluation reports as required.

16. Feeder Roads. The Borrower and the Yunnan provincial Loan government shall Agreement Schedule 6, (i) ensure that the county governments implement the feeder para 22. Complied with. roads upgrading program as agreed with ADB; (ii) provide, in a timely manner, adequate funds to Complied with. implement the feeder roads upgrading program as well as to implement the social and environmental mitigation measures for the program; and (iii) cause the county governments to adequately operate Being complied with. and maintain the equipment for upgrading feeder roads to be financed out of the proceeds of the loan.

Appendix 9 37

Reference in Loan/Project Covenant Agreement Status of Compliance 17. Working and Debt-Service Ratios. To ensure the Project Partly complied with. financial sustainability of the project facilities, YMEC will Agreement The working ratio is maintain a working ratio for the project facilities of not more Sections 2.16 expected to meet than 10% and a debt-service ratio for the project facilities of and 2.17 minimum requirements not less than 1.2. from 2008 onward. The debt-service ratio is expected to meet the target from 2010 onward.

18. Audited Accounts. YMEC shall (i) maintain separate Project Complied with. accounts for the Project and its overall operations; (ii) have Agreement such accounts and related financial statements (balance Section 2.09 sheet, statement of income and expenses, and related statements) audited annually in accordance with appropriate auditing standards; and (iii) furnish to ADB, promptly after their preparation, but in any event no later than 9 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. ADB = Asian Development Bank, HIV/AIDS = human immunodefiency virus/acquired immunodeficiency syndrome, LA = loan agreement, PA = project agreement, PIU = project implementation unit, YMEC = YuanMo Expressway Corporation,

38 Appendix 10

CONTRACT PACKAGES AT APPRAISAL AND ACTUAL PACKAGES

Appraisal Number of Procurement Project Component Contracts Mode

A. Contract Packaging at Appraisal

1. Expressway Civil Works a. Civil Works Contracts 18 ICBa b. Building and Ancillary Facilities 3 LCBa c. Traffic Engineering Contracts 3 LCBa 2. Equipment a. Tunnel Equipment: Ventilation, Lighting, 1 ICB Cableline b. Feeder Road Equipment 7 ICB(2)/IS(5) c. Operation Equipment:Traffic Monitoring, 1 ICB Telecommunication, Toll Collection Facilities d. Maintenance Equipment 8 ICB(2)/IS(6) e. Quality Control Equipment 5IS 3. Consulting Services and Training International 1 ICB Subtotal (A) 47

B. Contract Packaging at Actual 1. Expressway Civil Works a. Civil Works Contracts 18 ICBa b. Building and Ancillary Facilities 4 LCBa c. Traffic Engineering Contracts 3 LCBa 2. Equipment a. Tunnel Equipment: Ventilation, Lighting, 3 LCBb Cableline b. Feeder Road Equipment 4 ICB(2)/IS(2) c. Operation Equipment:Traffic Monitoring, 1 LCBb Telecommunication, Toll Collection Facilities d. Maintenance Equipment 12 ICB(7)/IS(5) e. Quality Control equipment 10 IS 3. Consulting Services and Training International 1 ICB Subtotal (B) 56 ICB = international competitive bidding, IS = international shopping, LCB = local compititive bidding. a 30% financed from the Asian Development Bank's loan. b 100% financed from the Executing Agency's resources. Sources: Asian Development Bank and Yunnan YuanMo Expressway Corporation. CONTRACT DETAILS FOR CIVIL WORKS, EQUIPMENT, AND CONSULTANTS

Final Value Contract Contract Contractors/Suppliers/ Proc. ADB Portion Package Description Signing Consultants Mode (CNY) (USD) (USD) Completion A. Civil Works 6,134,407,173 740,959,919 205,262,572 1. Expressway and Bridges 5,841,829,361 705,620,167 201,601,460 Contract 1 Yuanjiangpo 25 Apr 00 No. 2 Engineering Office of ICB 219,589,551 26,523,681 7,570,207 Dec 2003 No. 15 Engineering Contract 2 Yuangjiang Large Bridge 25 Apr 00 CHEC 2nd Navigation ICB 176,722,654 21,345,894 6,245,205 Dec 2003 Engineering Bureau Contract 3 Hongguang 25 Apr 00 1st Engineering Bureau of MOR ICB 164,679,548 19,891,237 5,819,572 Dec 2003 Contract 4 Chahe 25 Apr 00 Yunnan No. 1 Highway ICB 480,750,395 58,068,655 16,198,579 Dec 2003 and Bridge Contract 5 Nanxi 25 Apr 00 Yunnan Highway and ICB 488,678,836 59,026,312 17,001,405 Dec 2003 Bridge Engineering Division Contract 6 Dafengyakou Tunnel 25 Apr 00 The 14th Construction Bureau ICB 375,676,963 45,377,094 12,300,480 Dec 2003 Water Contract 7 Bixi 25 Apr 00 China Yunnan Highway ICB 336,967,069 40,701,422 11,399,434 Dec 2003 and Bridge Contract 8 Mojiang 25 Apr 00 15th Metallurgical Construction ICB 273,180,838 32,996,840 9,380,723 Dec 2003 Corporation Contract 9 Bulongqing 25 Apr 00 2nd Construction Division of ICB 291,152,244 35,167,562 9,663,184 Dec 2003 Tunnel Bureau Contract 10 Lushuijing 25 Apr 00 Sichuan Tunnel Eng. Co., Ltd. ICB 239,839,402 28,969,610 8,475,643 Dec 2003 Contract 11 Laocangpo 25 Apr 00 1st Construction Division of ICB 411,363,178 49,687,544 14,537,131 Dec 2003 Tunnel Bureau Contract 12 Amojiang Large Bridge 25 Apr 00 2nd Enginneering Department, ICB 209,048,221 25,250,419 6,604,251 Dec 2003 2nd Highway Engineering Appendix 11 Contract 13 Shengou 25 Apr 00 China Genzhouba Construction ICB 687,388,350 83,027,944 24,291,402 Dec 2003 Group Contract 14 Tongguan 25 Apr 00 2nd Highway and Bridge ICB 216,587,057 26,161,017 7,436,275 Dec 2003 Engineering Corporation Contract 15 Yongma Dagou 25 Apr 00 5th Highway Engineering ICB 473,170,875 57,153,143 16,721,175 Dec 2003 39 Division of Yunnan Contract 16 Qiaotou 25 Apr 00 1st Highway Engineering ICB 224,722,343 27,143,658 7,732,142 Dec 2003 Corporation of MOC Final Value 40 Contract Contract Contractors/Suppliers/ Proc. ADB Portion Package Description Signing Consultants Mode (CNY) (USD) (USD) Completion

Contract 17 Babian 25 Apr 00 China Road and Bridge ICB 278,403,286 33,627,647 9,838,358 Dec 2003 Appendix11 Corporation Contract 18 Mohei 25 Apr 00 Yunnan No. 4 Highway and ICB 293,908,551 35,500,489 10,386,294 Dec 2003 Bridge Engineering 2. Building and Ancillary Facilities (toll station, 63,574,908 7,679,056 1,899,497 expressway management station, service area, shelter, toll gore, monitoring room, tunnel management station, tunnel substation) Package 1 Yuanjiang Section 09 Jun 03 3rd Yunnan Construction Eng. LCB 9,824,883 1,186,723 338,315 Jan 2004 Package 2 Mojiang Section 09 Jun 03 3rd Yunnan Construction Eng. LCB 23,033,400 2,782,148 801,480 Jan 2004 Package 3 Tongguan Section 09 Jun 03 8th Yunnan Construction Eng. LCB 22,062,112 2,664,828 759,702 Jan 2004 Package 4 Government Section GP 8,654,513 1,045,357 0 3. Traffic Engineering/Safety Facility 51,157,912 6,179,238 1,761,615 Package 1 Yuanjiang Section 09 Jun 03 Yunnan Road and Bridge LCB 15,565,171 1,880,079 535,984 Dec 2004 Technical Limited Package 2 Mojiang Section 09 Jun 03 Hebei Wuan Communication LCB 17,074,056 2,062,333 587,942 Dec 2004 Safety Equipment Package 3 Tongguan Section 09 Jun 03 Kaitong Communication LCB 18,518,685 2,236,826 637,688 Dec 2004 4. Planting Engineering Limited 47,497,543 5,737,111 0 Median GP 17,080,521 2,063,114 0 Sep 2003 Road Side GP 30,417,022 3,673,997 0 Sep 2003 5. Connecting Roads 130,347,448 15,744,347 0 Zhongai GP 17,575,052 2,122,847 0 Aug 2003 Yuanjian GP 67,159,977 8,112,088 0 Aug 2003 Heijian GP 1,985,302 239,800 0 Aug 2003 Babian GP 1,970,005 237,952 0 Aug 2003 Jinjie GP 41,657,112 5,031,660 0 Aug 2003 B. Equipment Crawler Hydralulic Excavator 237,563,396 28,696,310 12,621,892 1. Tunnel Equipment: ventilation, lighting, cableline 55,274,533 6,678,088 0 May 2003 2. Feeder Road Upgrading Equipment 27,150,133 3,279,398 3,279,398 (1) Crawler Hydralulic Excavator 20 Sep 00 ECI Metro Investment ICB 13,110,768 1,583,617 1,583,617 Oct 2000 Company, Limited (2) Wheel Loader (10 sets) 20 Sep 00 ECI Metro Investment ICB 8,111,460 979,763 979,763 Oct 2000 Company, Limited (3) Vibratory Roller (5 sets) 05 Dec 00 Svedala Compacion IS 3,683,265 444,892 444,892 Jan 2001 Equipment - AB (4) Grader (2 sets) 05 Dec 00 Boma Equipment and IS 2,244,640 271,125 271,125 Jan 2001 Machineries Final Value Contract Contract Contractors/Suppliers/ Proc. ADB Portion Package Description Signing Consultants Mode (CNY) (USD) (USD) Completion Paver Cancelled IS 0 0 0 Cancelled Mixing plant Cancelled IS 0 0 0 Cancelled 3. Operation Equipment:Traffic Monitoring, GP 58,465,916 7,061,954 0 Sep 2003 Telecommunication, Toll Collection Facilities 4. Manitenance Equipment 58,079,553 7,015,286 7,015,286 (1) Wheel Loader(10), 03 Dec 02 Leibherr-Export AG ICB 11,407,618 1,377,898 1,377,898 Jan 2003 (2) Hydraul. Excavator(10) 02 Dec 02 ECI Metro Investment ICB 10,310,576 1,245,389 1,245,389 Jan 2003 Company, Limited (3) Crane(1) 29 Nov 02 Tadano South China ICB 2,135,466 257,938 257,938 Jan 2003 Compnay, Limited (4) Road Block-Clearing 15 Jan 03 Systeq Instruments ICB 2,896,942 349,914 349,914 Jan 2003 Wrecker (2) Canada, Incorporated (5)a Asphalt Conrete Mixing Plant(1) 29 Nov 02 Earth Products China, Limited ICB 11,407,618 1,377,898 1,377,898 Jan 2003 (5)b Aspaht Dummed-Off Funance1 ICB (6)a Road Miller-Planer2 03 Dec 02 Schneider Equipment, Limited ICB 6,168,368 745,062 745,062 Jan 2003 (6)b Concrete Groover 2 ICB (7) Hot Aspalt Recycled Pacther 2 15 Jan 03 Dynaore Recycling International ICB 2,913,504 351,915 351,915 Jan 2003 Limited (8) Roller (5 sets) 26 Apr 02 Svedala Compaction Equipment IS 3,000,413 362,412 362,412 Jun 2003 (9) Bitumen Concrete Paver(1) 26 Apr 02 Svedala Strassenfertiger GMBH IS 2,438,993 294,600 294,600 Jun 2002 (10) Concrete Slab Inspection 01 Mar 02 New Motion Limited IS 2,367,222 285,931 285,931 Jun 2002 Vehicle(1) (11) Pavement Cleaning 26 Mar 02 Gentech Vehicle Engineering IS 2,151,995 259,934 259,934 Jun 2002 Vehicle (2sets) (12) Diesel Generator (2 sets) 27 Apr 02 Hong Kong Kingwell Company IS 880,838 106,394 106,394 Jun 2002 Appendix 11 (13) Concrete Mixing Plant Cancelled ICB 0 0 0 Cancelled 5. Quality Control Equipment 19,266,956 2,327,208 2,327,208 (1) High-speed Integrated Road 06 Jun 01 Earth Products China, Limited IS 2,065,939 249,540 249,540 Oct 2001

Detecting 41 (2) Various Instruments 06 Jun 01 Earth Products China, Limited IS 1,765,650 213,269 213,269 Oct 2001 (3) Bump Integrator Trailer 20 Jun 01 Techtrend International Limited IS 1,330,776 160,741 160,741 Oct 2001 (4) Various Instruments 20 Jun 01 Techtrend International Limited IS 2,481,688 299,757 299,757 Oct 2001 (5) Tunnel Seismic Predictor 05 Apr 01 Techtrend International Limited IS 3,807,420 459,889 459,889 Jun 2001 Final Value 42 Contract Contract Contractors/Suppliers/ Proc. ADB Portion Package Description Signing Consultants Mode (CNY) (USD) (USD) Completion (6) Macrotexture Profiling unit 07 Jun 01 Earth Products China, Limited IS 2,027,865 244,941 244,941 Oct 2001 Appendix11 (7) Various Instruments 07 Jun 01 Earth Products China, Limited IS 724,238 87,479 87,479 Aug 2001 (8) Infrared Tunnel Profile Detector 05 Apr 01 Techtrend International Limited IS 595,944 71,983 71,983 Jun 2001 (9) Patrolling Cars for Road 20 Jul 01 Systeq Instruments IS 3,297,590 398,308 398,308 Oct 2001 Contruction Canada, Incorporated (10) Flat Bed Trailer 20 Jul 01 Systeq Instruments IS 1,169,846 141,303 141,303 Oct 2001 Canada, Incorporated 6. Other Equipment GP 19,326,304 2,334,377 0

C. Consultants and Management 332,063,467 40,109,128 1,453,524 Construction Supervision and Training 15 Jun 00 Italconsult S.P.A. ICB 12,033,725 1,453,524 1,453,524 May 2005 Local Consultants GP 5,314,983 641,984 0 Management, Testing, and Design GP 314,714,759 38,013,620 0

D. Local Roads GP 349,447,000 42,208,842 0

E. Resettlement 364,040,000 43,971,494 0

Total Base Cost 7,417,521,036 895,945,693 219,337,988 Interest During Construction 740,710,000 89,468,535 0 Total Project Cost 8,158,231,036 985,414,228 219,337,988 Eng = engineering, GP = governmental procedure, ICB = international competitive bidding, IS = international shopping, LCB = local competitive bidding, MOC = Ministry of Communications, MOR = Ministry of Railways, Proc = procurement. Source: YuanMo Expressway Corporation and Yunnan Provincial Communications Department. Appendix 12 43

TRAFFIC ANALYSIS AND FORECASTS

A. Background

1. The road between Yuanjiang and Mohei, designated at appraisal as NH213 but now referred to as NH323, was originally constructed in 1952. It was a two-lane, class III/IV road with steep slopes and sharp turns on which vehicles could travel only at low speeds, and was the only north-south road in the Yuanjiang–Mohei corridor. Traffic was heavily congested and accidents occurred frequently.1 Medium trucks took 7 to 8 hours to drive the 214 kilometers (km) between Yuanjiang and Mohei, corresponding to an average speed of less than 30 km per hour.

2. The project expressway (the Yunnan YuanMo expressway) is a four-lane, controlled access, toll road that starts in the city of Yuangjiang and finishes in Mohei county, where it connects with the Mohei–Simao class II highway. The expressway is 147 km long, 67 km shorter than NH323, and saves a considerable amount of time, with the average travel time for medium-sized trucks reduced to 2.5 hours. It has the capacity to carry about 22,000 medium- truck equivalents (MTEs) at an average speed of 80 km per hour. The average pavement roughness index is less than 1.

B. Base Year Traffic

3. At appraisal, average annual daily traffic along the proposed Yunnan YuanMo expressway in 2003, the first year it would be in use, was estimated at 5,064 MTEs, and was projected to grow to 8,565 MTEs by 2010 and 19,204 MTE by 2023. Actual traffic was 2,597 MTEs in 2004, about 49% lower than that forecast at appraisal; however, by the first half of 2005, the volume of traffic had grown to 3,895 MTEs. Traffic has been rapidly diverting from the parallel local road, NH323, with average annual daily traffic on NH323 declining from 870 MTEs in 2004 to 309 MTEs in 2005. One major reason for the increase in traffic is the rapid growth of industrial areas south of Kunming and the development of traffic that was previously suppressed by the relative inconvenience of the old road to and from Kunming (para. 5).

4. Based on data and observations, the Project Completion Review (PCR) Mission updated traffic forecasts taking into account actual traffic on the project expressway and NH323, prevailing economic activity and future economic growth projections, and road network development in the project area. At appraisal, the ratio of passenger to freight vehicles per day on the project expressway was expected to be 36:64, whereas the actual ratio was 52:48. The higher proportion of passenger traffic is an outcome of rapid growth in the number of passenger cars and of tourism in the corridor.2 The ratio will change over time, with passenger traffic increasing more in conjunction with further development of economic and leisure travel.

C. Traffic Growth and Forecasts

5. The Kunming–Mohan expressway is one of eight important highways that are part of the western area development strategy and is one of the components of a key national road: the Lanzhou (Gansu province) to Mohan (Yunnan province) highway. The Yunnan YuanMo expressway is part of this major artery, which has a significant, positive impact on the region’s

1 An average daily traffic volume of more than 3,000 medium-sized truck equivalents, which is greater than the design capacity of 2,800 medium-truck equivalents, was recorded on some sections of the road in 1998. 2 In Yunnan province, the number of vehicles is growing more rapidly than gross domestic product. The latter grew at an average annual rate of 13.4% during 1999–2003, while that number of cars grew at 21.0% and the number of trucks at 9.1%.

44 Appendix 12 economic development. In addition to expressways from Kunming to Yuxi, Yuxi to Yuanjiang, and Yuanjiang to Mohei (the project expressway), officials from the Yunnan Provincial Communications Department informed the PCR Mission that the Mohei to Simao road (72 km, class II) would be upgraded to an expressway by the end of 2008 and that the Simao to Xiaomengyang highway (97 km) is currently under construction and is scheduled to open by June 2007. In addition, the two-lane Xiaomengyang to Mohan road (175 km, class II) will also be upgraded to an expressway by the end of 2007. The Lao People’s Democratic Republic (Lao PDR) portion of the Chiang Rai–Kunming road is expected to be completed by 2007 and will result in an increase in cross-border traffic.

6. Revised traffic projections for 2005–2025 were based on expected growth in macroeconomic parameters for cities and counties along the alignment and within the expressway’s area of influence. The forecast traffic growth rates are higher than those forecast at appraisal because of actual and anticipated high economic growth rates, 3 further development of the road network (para. 5), and rapid growth in vehicle ownership. During the project period (2005–2025), the elasticity of road transport demand to economic development was forecast to decrease from 1.10 to 1.05 for passenger traffic and from 0.80 to 0.70 for freight, which is reasonable given the dynamic economic development in the project area. The PCR Mission estimated that traffic growth rates would range from 8.0% in 2005–2010, to 10.0% in 2011–2020, and to 7.5% in 2021–2025.

7. The project expressway has greatly improved road transport conditions in the southern part of Yunnan province and will generate additional traffic. Elasticities with respect to the generalized cost plus toll used in the analysis were -0.3 for passengers and -0.2 for freight, which are conservative estimates.

8. The corridor has no competing railway or waterway routes. Asian Development Bank diversion curves were used to compute the diversion rates from NH323, the results of which, at 80 to 90% for both passenger and freight traffic reflect actual traffic diversion from NH323 to the expressway in the first half of 2005.4 Given actual results for the first half of 2005, the lack of alternative routes, and the large vehicle operating cost and time savings when using the project expressway rather than NH323, the diversion assumption is reasonable.

9. The opening of the expressway has encouraged the exploitation of significant mineral resources in Jinghong and Monglong5 and hydropower construction in the corridor.6 The PCR Mission observed a large number of iron ore trucks traveling from areas near Jinghong to the Kunming and Yuxi steel plants. A considerable amount of steel is also being transported from steel plants to hydropower plants under construction in the southern part of Yunnan province. In addition, the fertilizer plant in Yunnan needs its major input, potash. A pilot potash plant has been established in Lao PDR, which is rich in this natural resource. If the pilot plant succeeds, then large quantities are expected to be imported to Yunnan province. Given their size, these three industries alone are expected to significantly contribute to economic growth and traffic growth in the corridor between Kunming and the southern prefectures.

3 Per capita growth rates of gross domestic product in the project area were 8.4% in Pu’er and Yuanjiang counties and 20% in Mojiang county during 1999–2003, higher than anticipated at appraisal. 4 The actual diversion rate in 2004 was about 73%. 5 The potential for further exploitation of high-grade iron ore and other mineral deposits is significant in the project area (http://www.yn.xinhuanet.com). 6 Hydroelectric power stations are currently under construction and will attract energy-consuming industries.

Appendix 12 45

10. Both the Yunnan province expressway system to the border with Lao PDR and the road connecting Lao PDR with Thailand and Yunnan province are expected to be completed by the end of 2007. The road bridge across the Mekong River connecting Lao PDR and Thailand is expected to be completed by 2009, but is still in the planning stage and could be delayed. Various estimates have been made for the initial volume of cross-border traffic and seem to agree that total numbers will range from 300 to 350 vehicles per day from both Lao PDR and Myanmar based on data available during 2000–2002. In relation to the project expressway, the PCR Mission assumed that Jinghong would be the initial destination, as trade patterns between Lao PDR and Thailand via the Mekong River have already been established there. The PCR Mission also assumed that Kunming would be the primary destination for about 7% of the cross- border traffic and that the proportion would increase by about 10% of the total traffic per year as business connections and tourist attractions become increasingly known to users of the Chiang Rai–Kunming highway. For 2004, cross-border vehicles bound for Kunming via the Yunnan YuanMo expressway were estimated at 25 MTEs.

11. The Free Trade Agreement between the People’s Republic of China and the Association of Southeast Asian Nations was signed in November 2002 and the Agreement on Trade in Goods took effect on 1 July 2005. Preferential customs duty rates have been granted on 7,000 industrial products imported from members of the Association of Southeast Asian Nations into the People’s Republic of China since July 2005. The Greater Mekong Subregion countries have already adopted the Cross-Border Transport Agreement, a milestone agreement on customs procedures, passage rights, vehicle and load specifications, and transit and user fees. Full implementation of the Cross-Border Transport Agreement is expected in 2007. These agreements service across borders in the Greater Mekong Subregion. The PCR Mission estimated the average annual daily traffic on the project expressway generated by the increase in cross-border traffic to be about 181 MTEs in 2010, 409 MTEs in 2015, and 587 MTEs in 2020.

12. The revised traffic forecast for the project expressway is 5,896 MTEs in 2010 and 18,893 MTEs in 2023, which is less than forecast at appraisal, mainly because of lower than expected initial traffic volumes. The appraisal forecast is shown in Table A12.1 and the revised traffic forecast is given in Table A12.2. Traffic forecasts for the corridor as a whole, including NH323 and the expressway, are shown in Table A12.3.

Table A12.1 Traffic Forecast at Appraisal for the Yunnan YuanMo Expressway, Selected Years

Average Annual Daily Traffic Growth Passenger Freight Total Rate Year (in vehicles) (in vehicles) (in vehicles) (in MTEs) (%) 2003 2,127 3,836 5,963 5,064 2005 2,529 3,899 6,428 5,451 7.8 2010 3,683 6,486 10,169 8,565 7.8 2015 5,088 8,931 14,019 11,806 6.6 2020 6,930 12,120 19,050 16,040 6.3 2023 8,335 14,493 22,828 19,204 6.3 MTE = medium-truck equivalent. Note: 1 passenger car or minibus=0.5 MTE, 1 large bus or medium truck=1 MTE, one large truck and trailer=1.5 MTEs. Source: ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People’s Republic of China for the Southern Yunnan Roads Development Project. Manila.

46 Appendix 12

Table A12.2 Traffic Forecast by the PCR Mission for the Yunnan YuanMo Expressway, Selected Years (average annual daily traffic)

Passenger Freight Total Growth Year (in vehicles) (in vehicles) (in vehicles) (in MTEs) Rate (%) 2005 2,633 2,391 5,025 3,895 2010 4,012 3,536 7,547 5,896 8.6 2015 6,583 5,653 12,237 9,560 10.1 2020 10,559 8,813 19,372 15,247 9.8 2023 13,272 10,344 13,616 18,893 7.4 MTE = medium truck equivalent, PCR = project completion review. Note: 1 passenger car/minibus=0.5 MTE; 1 large bus and medium truck=1 MTE; a large truck and trailer=1.5 MTE. Source: Yunnan YuanMo Expressway Corporation and Asian Development Bank estimates.

Table A12.3: Traffic Forecast by the PCR Mission for the Yunnan YuanMo Expressway With Project Scenario, 2002–2025 (average annual daily traffic in MTEs)

Generated Traffic Normal Cross- Total Year Traffic Normal Border Subtotal Total NH323 Corridor 2002 0 0 0 0 0 2,940 2,940 2003 0 0 0 0 0 3,205 3,205 2004 2,335 262 0 262 2,597 870 3,467 2005 3,501 394 0 394 3,895 309 4,204 2006 3,778 427 25 452 4,230 376 4,606 2007 4,078 462 54 516 4,594 452 5,046 2008 4,401 500 90 590 4,991 538 5,529 2010 5,128 587 181 768 5,896 744 6,640 2012 6,192 706 307 1,013 7,206 776 7,982 2013 6,805 775 337 1,112 7,917 787 8,704 2014 7,478 851 372 1,223 8,700 792 9,493 2015 8,218 933 409 1,342 9,560 791 10,352 2016 9,031 1,024 440 1,464 10,495 783 11,279 2017 9,925 1,124 473 1,597 11,522 767 12,289 2018 10,908 1,234 508 1,742 12,649 740 13,389 2019 11,988 1,354 546 1,900 13,887 701 14,588 2020 13,175 1,486 587 2,073 15,247 647 15,895 2021 14,158 1,601 617 2,218 16,376 771 17,146 2022 15,215 1,726 648 2,374 17,589 908 18,497 2023 16,352 1,861 680 2,541 18,893 1,060 19,953 2024 17,576 2,006 714 2,720 20,296 1,230 21,525 2025 18,892 2,163 750 2,913 21,805 1,418 23,223 MTE = medium-truck equivalent, PCR = project completion review. Sources: Yunnan YuanMo Expressway Corporation and Asian Development Bank estimates.

Appendix 13 47

ECONOMIC EVALUATION

A. Evaluation Approach and Assumptions

1. The economic evaluation of the Yuanjiang–Mohei expressway followed the methodology used at appraisal, which compared costs and benefits with and without the Project. As the Project has been completed, the reevaluation was able to take into account homogenous road sections. In the without project scenario, the existing road would be used well beyond its practical capacity, resulting in increasing traffic congestion and impaired road safety. The without project case consists of minimum improvements to the existing parallel road to maintain a volume to capacity ratio of 1.0. In the with project scenario, the project expressway would be used by long-distance traffic because of the shorter travel time and the reduced trip distance.

2. The economic analysis was conducted in 2005 constant prices in yuan using a domestic price numeraire. A shadow exchange rate factor of 1.013 was used to convert the financial prices of traded goods to economic prices. The costs of unskilled labor are calculated using a shadow wage rate of 0.67. This was intended to reflect the low productivity of unskilled labor drawn specifically from poor areas. The economic opportunity cost of 12% is used as the social discount rate for the economic evaluation. The economic analysis covers 26 years from 2000 to 2025.

B. Project Costs and Benefits

3. The Project’s financial costs were converted into economic costs by using shadow pricing for each input item. A shadow wage rate factor of 0.67 was used to convert the financial wage rate to an economic opportunity cost of unskilled labor. The shadow price of land was calculated on the basis of the opportunity cost of farmland along the alignment, namely, CNY12,000 per mu (1 mu = 1/15 of a hectare).

4. Benefits derived from the Project consisted mainly of (i) savings in vehicle operating costs (VOCs), (ii) savings in passengers’ time, (iii) avoided road accident costs, and (iv) benefits of additional trips made as result of lower costs and the stimulus given to cross-border trade by the project (generated traffic).

5. Savings in VOCs and passengers’ time account for the bulk of project benefits (79.6% and 10.4%, respectively). The expressway shortens the route between Yuanjiang and Mohei by 67 kilometers, and is more than 30% shorter than the existing parallel road. Traffic diverting to the expressway enjoys higher speeds on a smoother riding surface with better vertical and horizontal alignments, less congestion, and shorter travel time. Traffic continuing to use the existing parallel road also benefits from the reduction in the volume of traffic and congestion.

6. The unit VOC applicable to the Project were estimated on the basis of vehicle type, class of road, terrain, geometric parameters of alignment, and level of congestion. Without the project, normal traffic would continue using the existing road. With the project, about 90% of traffic on the existing road has transferred to the expressway and only local traffic continues to use the existing road. Based on traffic projections, savings in VOCs were calculated for each forecast year by comparing the total economic value of VOCs of all vehicles traveling on the expressway and the existing road for the with project and without project scenarios.

7. The value of passengers’ time savings was calculated based on the average number of passengers per vehicle (3 per car and 22 per bus), the percentage of business trips (70% for car trips and 25% for bus trips), and the average passenger incomes (CNY12,000 for those traveling by car and CNY6,000 for those traveling by bus). The hourly time value per person was estimated at about CNY9.59 for car passengers and CNY1.71 for bus passengers. Time 48 Appendix 13 savings were calculated for each forecast year by comparing the total time value for all vehicles in the with and without project scenarios.

8. Avoided road accidents were attributable to the improved vertical and horizontal alignment and safety facilities. Savings in road accident costs were calculated based on the average direct cost per accident (personal injuries and fatalities), which is about CNY35,000, with the indirect costs of accidents being four times the direct costs.

9. The benefits to generated traffic were approximated as half of the savings accruing to normal traffic. Estimates of generated traffic were made by calculating the generalized cost savings accruing to all traffic attracted to the expressway and then applying the price elasticity of –0.3 for passengers and –0.1 for freight.

C. Results of the Economic Evaluation

10. A sensitivity analysis to assess the risk level is shown in Table A13.1. The Project is more sensitive to a change in benefits than in operation and maintenance costs. The results of the sensitivity test show that benefits would have to decrease by 42% before the Project’s economic internal rate of return (EIRR) reaches 12%. The analysis indicates that a combination of circumstances that would make the Project economically unviable is extremely unlikely.

Table A13.1: Sensitivity Analysis

EIRR Sensitivity Item (%) Net Present Value Indicator 1. Base Case 16.8 3,403.4 2. Increase in O&M Costs by 10% 16.8 3,394.5 0.03 3. Increase in O&M Costs by 20% 16.8 3,385.5 0.03 4. Decrease in Benefits by10% 15.8 2,597.1 2.37 5. Without Cross-Border Traffic 16.4 3,061.7 Worst Case (2 + 3 + 4) 14.3 1,499.6 EIRR = economic internal rate of return, O&M = operation and maintenance. Source: Asian Development Bank estimates.

11. The recalculated EIRR of the Yuanjiang–Mohei Expressway was 16.8% (Table A13.2), compared with 17.4% at appraisal, due mainly to lower traffic than anticipated in the first few years that the expressway was open to traffic. The EIRR calculation was conservative, as the costs and benefits of the improved feeder roads were not included because of the unavailability of evaluation data. The calculated EIRR is higher than the cutoff rate of 12%. The Project can be considered to be economically viable.

Table A13.2 Economic Internal Rate of Return, Constant 2005 Economic Prices Domestic Price Numeraire, 2000–2025 (CNY million)

Operation Without Capital and Incremental VOC VOT VOA Generated Total Net Year Project Investment Maintenance Costs Savings Savings Savings Traffic Benefits Benefits 2000 0.00 635.60 0.00 635.60 0.00 0.00 0.00 0.00 0.00 (635.60) 2001 0.00 1,469.85 0.00 1,469.85 0.00 0.00 0.00 0.00 0.00 (1,469.85) 2002 0.00 1,691.99 0.00 1,691.99 0.00 0.00 0.00 0.00 0.00 (1,691.99) 2003 0.00 1,361.12 0.00 1,361.12 0.00 0.00 0.00 0.00 0.00 (1,361.12) 2004 7.23 1,560.25 14.03 1,581.51 263.13 20.25 33.26 17.30 333.93 (1,247.57) 2005 (7.58) 0.00 19.43 11.85 394.50 30.35 49.86 25.94 500.65 488.80 2006 (7.93) 0.00 20.48 12.55 467.40 38.91 53.72 30.18 590.22 577.67 2007 (8.28) 0.00 21.71 13.43 552.79 49.73 57.86 35.13 695.50 682.07 2008 (8.65) 0.00 22.94 14.29 652.70 63.37 62.31 40.88 819.25 804.97 2009 (9.04) 0.00 24.27 15.22 769.51 80.56 67.08 47.57 964.72 949.49 2010 (9.45) 0.00 25.60 16.14 905.97 102.20 72.19 55.35 1,135.71 1,119.56 2011 (9.92) 0.00 27.30 17.38 1,061.71 124.01 79.34 62.26 1,327.32 1,309.94 2012 (10.42) 0.00 29.10 18.68 1,242.19 150.39 87.18 70.02 1,549.78 1,531.10 2013 (10.94) 0.00 31.00 20.06 1,451.18 182.28 95.77 78.76 1,807.99 1,787.93 2014 (11.49) 0.00 32.99 21.50 1,692.98 220.83 105.19 88.58 2,107.58 2,086.08 2015 (12.06) 260.60 35.08 283.61 1,972.56 267.41 115.51 99.63 2,455.10 2,171.49 2016 (12.67) 0.00 37.35 24.69 2,295.59 323.67 126.81 112.05 2,858.13 2,833.44 2017 (13.30) 0.00 39.72 26.42 2,668.59 391.61 139.19 126.03 3,325.43 3,299.01 2018 (13.96) 0.00 42.38 28.41 3,099.03 473.64 152.75 141.75 3,867.18 3,838.77 2019 (14.66) 0.00 45.12 30.46 3,595.49 572.65 167.61 159.43 4,495.17 4,464.70 2020 (15.39) 0.00 47.97 32.57 4,167.76 692.11 183.87 179.31 5,223.06 5,190.49 2021 (16.16) 0.00 50.53 34.36 4,388.21 747.43 197.13 200.06 5,532.83 5,498.47 2022 (16.97) 0.00 53.28 36.30 4,611.63 806.96 211.34 223.22 5,853.15 5,816.85 2023 (17.82) 0.00 56.12 38.30 4,836.38 871.02 226.56 249.05 6,183.01 6,144.71

2024 (18.71) 0.00 59.16 40.44 5,060.41 939.90 242.85 277.87 6,521.03 6,480.59 Appendix 13 2025 (19.65) (3,250.00) 62.28 (3,207.36) 5,281.24 1,013.93 260.30 310.03 6,865.50 10,072.87 Economic Internal Rate of Return 16.80% VOA = value of accident, VOC = vehicle operating cost, VOT = value of time. Source: Asian Development Bank estimates.

49

50 Appendix 14

FINANCIAL EVALUATION

A. General

1. The Yunnan YuanMo Expressway Corporation, established on 16 October 1998, is responsible for the construction, operation, and maintenance of the project expressway. The Yunnan Provincial Communications Department (YPCD) is the sole shareholder. The expressway started operations on 28 December 2003. Local inflation rates were assumed as 3.6% for 2005, 3.2% for 2006, and 3% for 2007 and thereafter.

B. Financial Projections

2. Operating revenues from tolls were projected based on future traffic forecasts and a base toll rate of CNY0.38 per small passenger car per kilometer (km). The toll level and structure for the expressway were approved by the Yunnan Provincial Price Bureau, the Yunnan Provincial Planning Commission, and the Yunnan Provincial Financial Department in 2003 (Table A14.1). The toll charges were assumed to increase in current terms once every 5 years to keep up with inflation, and there are no assumed real increases in toll rates and changes in toll structure.

Table A14.1: Current Toll Rates in the Kunming–Mohei Corridor (CNY per vehicle-km)

Yuanjiang– Multiplier of Type of Vehicle Mohei Section Base Toll Rate Freight: up to and including 1 ton 0.38 1.0 Passenger: up to and including 10 seats 0.38 1.0 Freight: more than 1 ton to 3 tons 0.57 1.5 Passenger: 11–30 seats 0.68 1.8 Freight: more than 3 tons to 6 tons 0.99 2.6 Passenger: more than 30 seats 1.25 3.3 Freight: more than 6 tons to 9 tons 1.52 4.0 Freight: more than 9 tons to 12 tons 1.90 5.0 Freight: more than 12 tons 2.28 6.0 Source: Yunnan Provincial Communications Department.

3. The current expressway tolls for the Yuanjiang to Mohei section were reviewed by the PCR Mission in conjunction with the Asian Development Bank’s (ADB’s) diversion curves, which were appropriate. Other income (from fuel sales, rental income, and so on) amounts to 2% of toll revenues.

4. Annual incremental operation and maintenance costs were calculated based on actual 2004 costs. Toll operation costs totaled CNY9.94 million in 2004 (410 staff with average annual wages and other costs). Labor costs will grow at a rate of 5% per year in real terms, and staff numbers will increase with traffic flows using an elasticity of 0.05. Routine maintenance costs are estimated at CNY50,000 per km per year and will increase in line with traffic flows using an elasticity of 0.4. All incremental operating and maintenance costs are projected to increase annually in line with domestic inflation rates. In addition, periodic maintenance would be required after 10 years of operation at a cost of CNY1.4 million per km in 2005 prices.

5. Depreciation is calculated on a straight-line method, with the economic life of each asset type classified under Ministry of Communications guidelines. The depreciation period for those Appendix 14 51 assets varies from about 50 years for the main expressway structure to 15 years for pavement components and equipment. A residual value for the project expressway (which is equal to the undepreciated value of capital investment) based on a weighted depreciation value of 2.5% per year was included as a benefit of the financial internal rate of return (FIRR) calculation.

6. Applicable business taxes at a grossed up rate of 5.5% are charged on revenues. Corporate income tax at 15% is paid on income after deducting business taxes,1 depreciation and interest charges, operating expenses, and any prior year losses carried forward.

7. The Project was funded by equity or grants (45%) and long-term loans (55%). The China Development Bank loan will be repayable over 20 years, including a 5-year grace period. Repayments of the loan are based on an agreement between YPCD and the China Development Bank. Repayment of the ADB loan started in 2003 and repayments are based on the amortization schedules stipulated in the amended Loan Agreement for the pool-based loan portion and the US dollar LIBOR-based loan portion, respectively.

8. The financial performance of the project expressway is presented in Table A14.2, including actual financial statements during 2000–2003, 2 years of trial operations,2 and 20 years of full operations thereafter. The financial performance of the project expressway is considered sound and sustainable over the long term. Cash flow is likely to be vulnerable for the first few years of operation, during which YPCD has been closely monitoring the Yunnan YuanMo Expressway Corporation’s financial position and provided adequate support on time. After traffic picks up substantially around 2015, the cash flow from the project expressway alone will be sufficient to fulfill its financial obligations and sustain sound operations.

C. Financial Analysis

9. The major assumptions used to calculate the FIRR were as follows: (i) all calculations were made in 2005 prices and for the period 2005–2025; (ii) capital costs included all incremental capital expenditures related to the construction of and equipment for the expressway, but excluded price contingencies and interest during construction; (iii) operation and maintenance included all annual incremental expenses incurred in operating the expressway, but excluded depreciation and debt repayment provisions; (iv) operating revenues from tolls used in the financial projections were also adjusted to 2005 prices; (v) weighted depreciation value of 2.5% per year was used to estimate the residual value of the expressway.

10. The estimated weighted average cost of capital, after taxes, in real terms, was calculated using the estimated capital mix and cost of funds. Costs were considered as follows: (i) the applicable 10-year fixed swap rate plus a provision for ADB’s spread of 0.6% was used for ADB debt; (ii) the estimated interest costs of 5.76% per year were used for the domestic loan funds; and (iii) the cost of equity was assumed to be 8%. The cost of debt was also adjusted to reflect the impact of income tax of 15%. The nominal cost of debt was converted to the real cost of debt by applying domestic and international average inflation rates for debt denominated in domestic and foreign currency, respectively.

1 This is a concessionary rate for qualifying western region companies, including expressways. 2 The defect liability period for the project expressway covers 2004–2005 (Appendix 7).

52

Table A14.2: Financial Statements for the Year Ending 31 December 2000 through 31 December 2011 (CNY million) 14 Appendix

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 A. Income Statement

Operating Revenue Toll Revenue 0.0 0.0 0.0 0.0 102.6 164.9 192.2 223.9 275.6 321.4 374.9 430.3 Nontoll Revenue 0.0 0.0 0.0 0.0 5.7 9.2 10.7 12.4 14.5 16.9 19.7 22.6 Less Business Taxes 0.0 0.0 0.0 0.0 6.1 9.7 11.4 13.2 16.2 18.9 22.1 25.4 Net Operating Revenue 0.0 0.0 0.0 0.0 102.2 164.3 191.5 223.1 273.9 319.4 372.5 427.6

Operating Expenses 0.0 0.0 0.0 0.0 14.7 20.5 22.0 24.0 26.2 28.5 31.0 34.1 Less Depreciation Charge 0.0 0.0 0.0 0.0 0.0 0.0 195.2 195.2 195.2 195.2 195.2 195.2 Earnings Before Interest/Taxes 0.0 0.0 0.0 0.0 87.5 143.8 (25.7) 3.9 52.5 95.7 146.3 198.3 Long-Term Interest 0.0 0.0 0.0 64.9 92.9 194.5 188.5 182.3 175.9 169.1 162.0 154.6 Short-Term Debt 0.0 0.0 0.0 0.0 0.0 16.4 16.0 23.2 29.3 33.2 35.0 34.2 Pretax Earnings 0.0 0.0 0.0 (64.9) (5.4) (67.1) (230.2) (201.6) (152.7) (106.6) (50.7) 9.5 Corporate Income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Post-tax Profit/(Loss) 0.0 0.0 0.0 (64.9) (5.4) (67.1) (230.2) (201.6) (152.7) (106.6) (50.7) 9.5

B. Cash Flow Statements

Source of Funds a. Internal Cash Generation Revenue 0.0 0.0 0.0 0.0 102.2 164.3 191.5 223.1 273.9 319.4 372.5 427.6 Less Operating Costs/Taxes 0.0 0.0 0.0 0.0 14.7 20.5 22.0 24.0 26.2 28.5 31.0 34.1 Working Capital Changes (539.2) 308.7 375.8 107.3 (251.9) 0.4 0.1 0.2 0.3 0.2 0.3 0.3 Total Cash Generation (539.2) 308.7 375.8 107.3 (164.4) 144.2 169.6 199.3 247.9 291.1 341.8 393.8 b. Project Financing 1,600.6 1,692.1 1,255.0 1,953.7 1,615.8 172.5 144.9 121.3 77.3 37.0 0.0 0.0 Total Sources of Funds 1,061.4 2,000.8 1,630.8 2,061.0 1,451.4 316.7 314.6 320.6 325.2 328.2 341.8 393.8 Application of Funds a. Infrastructure 751.9 1,712.1 1,965.3 1,676.6 1,704.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 b. Debt Service ADB Subloan 0.0 0.0 0.0 78.9 126.8 160.4 162.3 164.8 167.0 169.8 172.3 175.2 Domestic Loan 0.0 0.0 0.0 0.0 0.0 139.5 135.8 132.0 128.3 124.6 120.8 117.1 Short-Term Debt 0.0 0.0 0.0 0.0 0.0 16.4 16.0 23.2 29.3 33.2 35.0 34.2 Total Debt Service 0.0 0.0 0.0 78.9 126.8 316.3 314.1 320.1 324.6 327.5 328.1 326.5 c. Repayment of Short-Term Loan 0.0 0.0 0.0 0.0 0.0 180.0 0.0 0.0 0.0 0.0 16.0 70.0 Total Fund Application 751.9 1,712.1 1,965.3 1,755.5 1,830.9 496.3 314.1 320.1 324.6 327.5 344.1 396.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cash Flow Surplus (Deficit) 309.5 288.7 (334.5) 305.5 (379.6) (179.6) 0.5 0.6 0.6 0.6 (2.3) (2.7) Cash Beginning of Year 0.0 309.5 598.2 263.7 569.2 189.6 10.0 10.5 11.1 11.6 12.3 10.0 Cash End of Year 309.5 598.2 263.7 569.2 189.6 10.0 10.5 11.1 11.6 12.3 10.0 7.2

C. Balance Sheet Assets a. Current Assets Cash 309.5 598.2 263.7 569.2 189.6 10.0 10.5 11.1 11.6 12.3 10.0 7.2 Accounts Receivable 706.6 337.4 29.7 17.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Current Assets 1,016.1 935.6 293.4 586.5 189.6 10.0 10.5 11.1 11.6 12.3 10.0 7.2 b. Fixed Assets 751.9 2,464.0 4,429.3 6,105.9 7,810.0 7,810.0 7,810.0 7,810.0 7,810.0 7,810.0 7,810.0 7,810.0 Less Cumulative Depreciation 0.0 0.0 0.0 0.0 0.0 0.0 195.2 390.4 585.6 780.8 976.0 1,171.2 Total Fixed Assets 751.9 2,464.0 4,429.3 6,105.9 7,810.0 7,810.0 7,614.8 7,419.6 7,224.4 7,029.2 6,834.0 6,638.8 Total Assets 1,768.0 3,399.6 4,722.7 6,692.4 7,999.6 7,820.0 7,625.3 7,430.7 7,236.0 7,041.5 6,844.0 6,646.0 Liabilities and Equity a. Current Liabilities Taxes Payable 0.0 0.0 0.0 0.0 0.5 0.8 0.9 1.1 1.4 1.6 1.8 2.1 Short-Term Debt 0.0 0.0 0.0 0.0 327.4 319.9 464.8 586.1 663.4 700.4 684.5 614.4 Accounts Payable 167.4 106.9 175.0 269.9 0 0.2 0.2 0.2 0.3 0.3 0.3 0.3 Total Current Liabilities 167.4 106.9 175.0 270.0 328.0 320.9 466.0 587.5 655.0 702.3 686.6 616.8 b. Long-Term Debt ADB Subloan 251.1 935.7 1,349.2 1,788.8 2,004.1 1,963.1 1,918.1 1,868.1 1,813.1 1,753.1 1,687.1 1,614.1 Domestic Loan 1,296.5 1,296.5 1,296.5 1,296.5 1,296.5 1,232.1 1,167.6 1,103.0 1,038.6 973.4 908.3 843.6 Total Long-Term Debt 1,547.6 2,232.2 2,645.7 3,085.3 3,300.6 3,195.2 3,085.7 2,971.1 2,851.7 2,726.5 2,595.4 2,457.7 c. Equity 53.0 1,060.5 1,902.0 3,337.1 4,371.0 4,303.9 4,073.6 3,872.0 3,719.3 3,612.7 3,562.0 3,571.5 Total Liabilities and Equity 1,768.0 3,399.6 4,722.7 6,692.3 7,999.6 7,820.0 7,625.3 7,430.6 7,236.0 7,041.5 6,844.0 6,646.0

D. Ratios Average Toll Rate (CNY per MTE-km) 0.0 0.0 0.0 0.0 0.86 0.92 0.99 1.06 1.14 1.22 1.31 1.36 Traffic volume (million MTE-km per day) 0.0 0.0 0.0 0.0 0.36 0.54 0.59 0.64 0.7 0.76 0.82 0.91 Working Ratio (%) — — — — 14.00 12.0 11.0 11.0 10.0 9.0 8.0 8.0

Debt Service Coverage Ratio — — — — — 0.5 0.6 0.7 0.8 1.0 1.2 1.3 14 Appendix — = data cannot be calculated, ADB = Asian Development Bank, km = kilometer, MTE = medium-truck equivalent. Source: Yunnan YuanMo Expressway Corporation and ADB estimates (2005–2011).

53 54 Appendix 14

11. The FIRR for the Project, computed on an after tax basis, is 4.1%. This compares favorably with the weighted average cost of capital, also computed on an after tax basis, of 2.7% (Table A14.3). The Project is considered both financially viable and sustainable. Sensitivity tests indicate that conditions that would cause the Project's viability to fall below the weighted average cost of capital are unlikely to occur. The sensitivity of the project's financial indicators to cost and revenue variations are shown in Table A14.4.

Table A14.3: Financial Internal Rate of Return (CNY million) Net Cash Flow Capital Operation and Project Business Corporate After Income Year Investment Maintenance Costs Revenues Tax Income Tax Tax 2000 668.7 0.0 0 0.0 0 (668.7) 2001 1,546.4 0.0 0 0.0 0 (1,546.4) 2002 1,780.1 0.0 0 0.0 0 (1,780.1) 2003 1,432.0 0.0 0 0.0 0 (1,432.0) 2004 1,641.5 4.7 108 6.1 0 (1,554.0) 2005 0.0 0.5 170 9.5 0 139.7 2006 0.0 1.6 193 10.8 0 160.4 2007 0.0 2.9 219 12.3 0 183.8 2008 0.0 4.2 262 14.7 0 223.2 2009 0.0 5.6 298 16.7 0 255.6 2010 0.0 7.0 339 19.0 0 292.8 2011 0.0 8.8 375 21.0 0 325.1 2012 0.0 0.7 415 23.2 0 360.9 2013 0.0 2.7 456 25.5 0 398.0 2014 0.0 4.8 502 28.1 0 439.0 2015 260.6 37.0 552 30.9 0 223.5 2016 0.0 9.4 607 34.0 49 484.8 2017 0.0 1.9 667 37.3 62 525.4 2018 0.0 4.7 733 41.0 74 572.5 2019 0.0 7.6 805 45.1 88 624.5 2020 0.0 0.6 885 49.5 93 691.3 2021 0.0 3.3 959 53.7 106 746.7 2022 0.0 6.2 1,040 58.3 120 806.3 2023 0.0 9.2 1,128 63.2 134 872.1 2024 0.0 2.4 1,224 68.5 149 943.7 2025 (3,420.0) 5.7 1,326 74.3 164 4,441.9 FIRR before corporate tax = 4.5% FIRR after corporate tax = 4.1% FIRR = financial internal rate of return. Source: Asian Development Bank estimates.

Table A14.4: Sensitivity Analysis FIRR Sensitivity Item (%) Indicator Base Case 4.1 1 Revenues Decrease by 10% 3.4 2.91 2 O&M Increase by 10% 4.0 0.19 3 O&M Increase by 20% 3.9 0.38 4 Without Cross-Border Traffic 3.7 5 Worst Case (1 + 2 + 4) 3.0 FIRR = financial internal rate of return, O&M = operation and maintenance. Source: Asian Development Bank estimates.

Appendix 15 55

ENVIRONMENTAL IMPACT ANALYSIS

A. Introduction

1. The Yunnan Provincial Communications Department prepared the environmental impact assessment (EIA) for the Project in October 1996 based on a preliminary design for the Project, and the State Environmental Protection Agency approved the EIA on 26 June 1997. The EIA covered not only the expressway, but also the borrow sites and access roads for construction. The design for the feeder roads component was done after the EIA in accordance with measures specified in EIA.

2. Anticipated environmental impacts listed in the EIA and summary EIA were disease transmission, sanitation, road safety, air quality, noise, transportation of toxic and hazardous materials, soil erosion, vegetation, and groundwater and surface water quality. Dust suppression during construction and lead concentration in soils and crops were also covered. During preparation of the detailed design and during construction, measures were identified and taken to prevent negative impacts. Of these impacts, soil erosion was the main one, but adverse effects were minimized by measures to prevent soil erosion undertaken during construction. The total environmental conservation costs, except for water and soil protection, were CNY54.65 million.

3. The expressway alignment was selected after the consideration of five major alternative routes and several minor alignment options. The selection process included discussions of alternative alignments with residents to ensure that the expressway would result in the least possible disturbance to local land use and assets. The alignment does not pass through any areas of old-growth forest or other sites with known ecological, cultural, or archeological value. The risk of possible indirect environmental impacts, such as significantly increased exploitation of forest resources, is considered to be low, because strong logging regulations are in force, backed by a system of staffed checkposts along major roads to ensure compliance. Initial EIAs for the feeder road upgrading program found that potential impacts could be readily mitigated through good engineering practices and that full EIAs would not be required. The Project Completion Review Mission noted no evidence of logging or of the movement of logs in the Yuanjiang–Mohei corridor.

4. In line with the EIA and other regulations applicable in the People’s Republic of China, environment monitoring was conducted by an outside institute, the Chongqing Transport Technology Research Institute. Water conservation and erosion control measures are being monitored by the Yunnan Water Conservatory and Environmental Monitoring Control Station.

B. Water and Soil Conservation

5. The total volume of earthworks during construction was 64 million cubic meters and the affected area was 13.32 hectares (ha), of which the construction area accounted for 9.47 ha and the rest included borrow sites and areas adjacent to these sites. The water and soil conservation plan was established and applied to the area in accordance with pertinent laws and regulations. The cost of water and soil conservation is shown in the table.

56 Appendix 15

Table A15: Cost of Water and Soil Conservation (CNY million)

Item Cost Budget for Water and Soil Conservation 958.47 Ordinal Conservation Measures 430.18 Special Measures (to treat landslides and slope protection) 528.29 Included in Civil Works Contracts 430.18 Total Cost 1,388.65 Source: Yunnan Provincial Communications Department.

C. Flora and Fauna

6. The Project affected 4.65 ha of vegetation, of which 4.46 ha, or 96.05%, was recovered as vegetation after construction, 32.5% of which consists of trees or shrubs. The requirements of the EIA, 95% and 30%, respectively, have therefore been satisfied. No old-growth forest areas or protected areas existed along the expressway alignment. Similarly, the fauna along the alignment had already been depleted and were therefore not significantly affected.

D. Water Quality

7. Water quality was monitored during and after construction. Three main water systems are found in the project area. The Yuan River and the Babian River are categorized as grade IV, which is used mainly for agriculture and industry. The Amo River is categorized as grade III, which is used for fisheries. The results of monitoring have indicated that the water quality requirements of each category have been satisfied.

E Noise

8. Noise levels in areas adjacent to the expressway are currently in accordance with national regulations.

F Conclusion

9. No adverse environmental impacts are reported. Even though many landslides occurred during construction, the soil and water conservation measures have been effective in limiting further erosion. The other protection measures have been applied well and in accordance with the law and with the EIA. Further monitoring of noise and water quality will be conducted as set out in the EIA. Appendix 16 57

EVALUATION OF LAND ACQUISITION AND RESETTLEMENT

1. The project expressway passes through 10 townships, including Bixu, Lianzhu, Shuanglong, Tongguang, and Zhonag’aiqiao in Mojiang county; Baibian and Mohei in Pu’er County; and Dong’e, Lijiang, and Yangchajie in Yuanjiang county. According to the land acquisition and resettlement completion report prepared by the Yunnan YuanMo Expressway Corporation (YMEC), a total of 1,221 hectares (ha) (18,315 mu) of land was permanently acquired under the Project, an 18% increase compared with the estimates in the Resettlement Plan. The number of households that lost some farmland was 5,147, affecting a total of about 19,300 people. In the Resettlement Plan, the estimate of 1,103 households affected by land loss was calculated based on 100% loss on average landholding. In reality, road projects tend to result in partial losses of land to households. For this Project, the average impact was a 17% loss of cultivated land per capita. This, plus the 18% increase in land acquisition, explains the difference in the number of households affected. The Project had to demolish 70,825 square meters of housing, which required the relocation of 542 households (2,029 people), 208 more households than estimated in the Resettlement Plan. Temporary land occupation for construction was 8,462 mu, much more than originally estimated. Table A16.1 summarizes resettlement impacts in the three counties affected.

Table A16.1: Summary of Resettlement Impacts by County

Item Yuanjiang Mojiang Pu’er Total Permanent Land Acquisition (mu), of which 5,612 10,488 2,215 18,315 Farmland (mu) 4,354 6,312 1,730 10,814 Number of Households Losing Land 1,700 2,300 1,147 5,147 Number of People Losing Landa 6,252 8,480 4,568 19,300 Building Demolition (square meters) 11,349 36,577 22,900 70,826 Number of Households Relocated 127 256 159 542 Number of People Relocated 459 931 639 2,029 Temporary Land Occupation (mu) 4,623 3,700 139 8,462 a Farmland includes cultivated land; vegetable, tea, and fruit gardens; and fish ponds. Sources: County land administration bureaus and Yunnan YuanMo Expressway Corporation.

2. The scope of resettlement changed because of the refinement of estimates during implementation and the increased land required for the alignment and construction activities. Compared with the approved Resettlement Plan, the actual amount of permanent land acquisition increased by 22% from 998.4 ha to 1,221.0 ha. During expressway construction, additional land was required because of landslides and related slope stabilization work. The amount of land to be acquired temporarily was not well estimated before construction, because contractors are responsible for this, consequently the amount of temporary land acquisition increased 11-fold from 50 ha to 564 ha. The area of buildings demolished also increased by 40%, from 50,429 square meters to 70,825 square meters.

3. The number of people affected by land acquisition was 19,300 and farmland losses amounted to 720 ha. Thus the average loss of farmland per person was 0.037 ha, or a 17% loss of farmland. The loss of paddy was more significant at 33%; however, farmers retained a good deal of dry land that they could use as a basis for restoring production and income through more intensive land use or by switching to cash crops.

58 Appendix 16

4. In December 1998, the Yunnan provincial government approved a policy that stipulated that the Project would follow the standards of the Yuxi–Yuanjiang expressway and that prefectural and county governments affected by the Project would pay compensation in advance and be reimbursed by YMEC after the Project had become operational. These standards and procedures were incorporated into the Resettlement Plan, which the Asian Development Bank (ADB) approved in June 1999. Subsequently, each county formulated its own set of standards and procedures for compensation based on the provincial standard and the agreed budget. Table A16.2 compares rates in the Resettlement Plan and those actually used during implementation. Mojiang and Yuanjiang counties used the provincial standards, but also adopted more detailed categories to reflect variations in land and housing quality, hence the range of compensation standards shown. Pu’er county had built a class II highway in 1998 and decided to adopt the same compensation standards, which were slightly lower than the provincial standards, but as the county’s resettlement budget was based on the provincial standard, it adopted more indirect measures to assist those affected, for example, livelihood rehabilitation support, local infrastructure restoration, and housing development costs.

Table A16.2: Land Compensation Rates in the Resettlement Plan and Actual Rates by County

Resettlement Plan Rate Actual Rate Rate Variation County Land Type (CNY/mu) (CNY/mu) (%) Yuanjiang Dry 12,000 8,000–12,000 (33.3)–0 Paddy 24,000 20,000–33,000 (16.7)–37.5 Vegetable 26,400 20,000–26,400 (32.0)–0 Mojiang Dry 12,000 10,000–12,000 (16.7)–0 Paddy 24,000 20,000–53,000 (16.7)–54.7 Vegetable 26,400 20,000–24,000 (32.0)–(10.0) Pu’er Dry 12,000 8,000–12,000 (33.3)–0 Paddy 24,000 13,000–24,000 (45.8)–0 Vegetable 26,400 16,000–24,000 (39.4)–(10.0) Source: County land administration bureaus.

5. In the Resettlement Plan, the compensation standards for house demolition and relocation were set in line with those used for the Yuxi–Yuanjiang expressway. Buildings were classified as various types and a standard rate was set for each type. While Pu’er county used lower rates, this was offset by indirect payments for house plot preparation and by the provision of services. Overall, the rates used in Yunnan province were quite generous compared with those in other provinces.

6. Land acquisition and building demolition began in 1998 and peaked during 1999–2001. Some land acquisition was ongoing until 2004 because of landslides and construction activities. However, land compensation payments to affected villages were delayed because the affected counties are relatively poor and the county governments had limited financial resources to compensate those affected in a timely manner. By the end of 2001, only 18% of resettlement funds had been paid to affected villages. Fortunately, the number of households to be relocated was relatively small, so the funds to compensate those households were adequate and were paid in a timely fashion. By the end of 2003, 44% of compensation had been paid. In 2004, the proportion had increased to 79% because the first repayment from YMEC was made. Outstanding amount will be paid by December 2006 once the final audits have been completed. Cash compensation for temporarily acquired land was paid to villages or individuals by the contractors in a timely manner.

Appendix 16 59

7. Those affected were familiar with compensation rates and approaches. Mojiang and Yuanjiang delivered compensation to affected people via township resettlement teams, while Pu’er established bank accounts for affected people and directly transferred funds to their accounts. About 70% of compensation and 80% of resettlement subsidies were paid to affected families without farmland readjustment and the remaining funds were used for public facilities. Only one village readjusted farmland equally among group members.

8. The extent of house demolition and relocation was relatively small for this Project, with a total of 542 relocated households scattered among 3 counties and 11 townships. A total of 275 households (50.7%) were relocated together, while 267 households were individually relocated within their villages. Most relocated households built new houses that were larger and of better quality than their old houses. Compensation based on replacement value was provided directly to affected households along with various relocation and rehabilitation assistance. For new house construction, village infrastructure was provided as follows: land leveling, water supply, electric power supply, access road, broadcasting and television connections, and improved access to clinics and schools.

9. After resettlement in 2004, the average farmland per household was reduced to 0.25 ha. from 0.30 ha. On average, each affected household lost 17% of its farmland and 32% of its paddy. Those affected generally used two strategies to cope: (i) they increased the cultivation of cash crops; and (ii) they sought more nonfarm activities, such as seasonal labor. Households’ incomes from seasonal labor and from cash crops increased significantly, while their incomes from grain declined. Some households used the compensation to engage in small businesses, including transportation businesses. Many of those seeking nonfarm activities were provided training to develop new skills.

10. County governments in the project area also took several measures to help the affected people restore their livelihoods: various kinds of training in cash crop production, health, and legal knowledge were provided, and some poverty alleviation activities were targeted to affected people, like biogas, rural roads, and reforestation. The Sloping Land Conversion Program also targeted the affected people, for example, Sangongqing village now receives grain subsidies in exchange for reforestation of slope land. The line agencies in the three counties also implemented poverty alleviation projects to enhance community facilities, land productivity, working capital, health care, primary schools, and nonfarm skills. In addition, Mojiang county provided minimum living guarantees for one member of each of the 789 affected households.

11. The indirect mitigation measures provided by local governments to address resettlement included (i) relocating living quarters as close as possible to highways or to town development centers; (ii) finding acceptable new employment for those whose jobs were lost or severely affected by means of training courses and organizing the resettlers to work outside the township; (iii) restoring affected productive resources, such as land, workplaces, trees, and infrastructure; (iv) educating affected people on how to use the compensation to develop household businesses; (v) providing improved infrastructure, such as piped water, electricity, village roads, livestock sheds, and better toilets; (vi) supporting the restoration of affected private and public enterprises; (vii) restoring adversely affected cultural or common property, such as sacred forests and trees; and (viii) having relevant personnel from county agriculture technical stations provide technical training in agriculture. These measures increased the quality and output of crops and the number of animals, which led to improved incomes for those affected. The Yunnan YuanMo expressway also employed about 20% of local families from the villages as unskilled laborers during construction and for supplying materials and providing other services. Unskilled workers were paid about CNY15 to CNY30 per day.

12. The ADB consultant conducted a sample survey of 50 households. The results showed that the percentage of families earning more than CNY5,000 per year increased from 44 to 60 Appendix 16

64%, while those with annual incomes of less than CNY1,000 decreased from 12 to 2%. Steel and concrete and brick and concrete houses accounted for 80% of houses in 2004, compared with only 11% in 1999. Families also acquired more assets, especially televisions and telephones. Nevertheless, 20 to 30% of households were still under the poverty line and some of them were in debt following house construction.

13. Resettlement costs doubled from $22 million to $44 million because of the increased scope of impacts, new administration fees, modifications of alignment and service areas, and land needed for landslide control. Actual cost may increase further due to pending claims for farmland degradation. Land acquisition accounted for 65% of the costs.

14. The overall process of preparing and implementing the Resettlement Plan was transparent not only to the affected population, but also to other local residents. A number of interactive consultation and discussion meetings were held with all affected communities with the participation of various government agencies. All resettlement-related information was made public. Overall, planning and implementation were highly consultative and participatory.

15. Most of those affected were Hani. Other ethnic nationalities included Dai, Hani, Hui, Lahu, and Yi. About 70% of affected people were ethnic minorities who have some distinctive customs and traditions, but who have lived in harmony with Han for a long time. To avoid any disruptions of affected people’s customs and social relationships and so as not increase the distance they had to travel to farm their fields, all affected people were relocated or rehabilitated within their communities. YMEC consulted with local people regarding sacred and religious sites and was advised by county-level officials of the Religious Affairs and Nationalities Department.

16. The Project has established a grievance redress system to deal with any complaint pertaining to project activities. Around 50% of inquiries and complaints were about compensation standards and delays in payments. Villagers also raised issues relating to community facilities, unconvertible temporarily used land that cannot be restored to farmland, and damage to land because of construction debris.

17. YMEC prepared a resettlement completion report and submitted it to ADB in February 2005. The report identifies that compensation rates that were lower than those in the Resettlement Plan and delayed compensation payments must be fully audited and reported.

18. The independent evaluation report was provided to ADB in July 2005. The findings showed that 94% of affected households had restored or significantly improved their incomes. Based on this evidence plus a verification survey of 50 households, the Project Completion Review Mission was able to conclude that despite delays in payments, the final outcome of resettlement was successful. This appears to have been achieved because of good support from local government and YMEC officials and the resourcefulness of those affected in deriving benefits from project construction and from their remaining land resources or outside employment. Affected people indicated that they were satisfied with the results.

19. The main concern in relation to resettlement implementation was the lack of funding, which resulted in serious delays in land compensation payments. Compensation was paid in a timely manner for house reconstruction, but payments for land losses were delayed for 1 to 2 years. YMEC has agreed with local governments to take the following actions to:

(i) Investigate and resolve the shortfall in funding and speed up the reimbursement of funds by YMEC. A national audit of resettlement costs was to be completed by 31 December 2006. By 31 December 2006, YMEC has to prepare a schedule of repayment and submit it to ADB for its concurrence; and

Appendix 16 61

(ii) Provide job opportunities for local residents. YMEC is considering the possibility of establishing agricultural markets at three service centers along the expressway to allow local farmers to retail their farm produce.

20. A number of lessons have been learned from experience with the resettlement component of the Project, namely:

(i) Local governments should not be required to pay compensation in advance because few have the fiscal ability to do so. In addition, the executing agency must transfer compensation funds to local governments on time and the latter must provide compensation to those affected on time.

(ii) External monitoring and evaluation need to be enhanced as does regular supervision by ADB staff. ADB should seriously consider providing partial or full funding for external monitoring and evaluation rather than requesting the executing agency to finance all these costs.

(iii) Resettlement funds should not have to be financed by local governments, especially for counties with poor fiscal situations. Instead, the Project should pay the total cost directly to local governments in a lump sum prior to project commencement and local governments should have adequate contingencies to address unforeseen items.

(iv) Land acquisition and resettlement funds should be paid to affected communities and people on time. In addition, in remote areas those affected, especially ethnic minorities and the poor, should be educated on how to use such a large amount of money to best restore their livelihoods.

62 Appendix 17

SOCIAL AND POVERTY IMPACT ANALYSIS

A. Introduction

1. The project area runs through three counties—Mojiang, Pu’er, and Yuanjiang—with a total population of 728,600 people, of whom 88% live in rural areas and 69% are members of ethnic minorities. At the beginning of project implementation in 1999, about 61% of the total population in the project area lived below an absolute poverty line of less than CNY625 per person per year. The major reason for the extent of poverty was that some 98% of the project area is mountainous, which makes production, transport, and communications difficult. The Project was strategically designed to improve the access of poor people in isolated areas to major economic and social activities and services by including feeder roads linked to the expressway in the scope of the Project. The project was expected to contribute to poverty reduction by (i) improving the flow of goods, services, information, and tourists; (ii) enhancing agricultural development induced by reduced costs of transport and inputs and better access to markets; (iii) promoting greater economic diversification; and (iv) increasing labor mobility. Expected indirect social benefits were increased primary and secondary school attendance rates and improved access to health facilities and Government services.

2. The Project played a catalytic role in the Government’s ongoing poverty reduction and social development efforts and the development of Western region. From 1999 to 2004, the Government implemented a number of activities in the project area aimed at poverty reduction to complement the Project’s poverty reduction and social impacts. These included (i) improving infrastructure, such as water, electricity, roads, and irrigation facilities, and social services, such as medical facilities; (ii) providing financing and training for cash crop production and livestock development; (iii) encouraging seasonal job opportunities and providing information about such opportunities; (iv) providing training for employment in urban areas; and (v) development of biogas as energy source. In 2000, the Yunnan Provincial Poverty Alleviation Office identified 148 target village committees in the project area for these activities. The Government has supported each target village committee with CNY600,000 in poverty alleviation activities during 2001–2005. As a result of these concerted efforts, the absolute incidence of poverty was reduced from 61% at appraisal in 1999 to 23% in 2004 at project completion. Average annual income per capita for farmers increased by 32% in 12 towns and townships along the expressway between 2000 and 2004.

B. Project Impacts

1. Improved Flow of Goods, Services, and Information

3. Increased Trade of Produce to Market. Because of the improvement in transportation, markets have become more efficient and the trading and shipping of fruit grown by the poor has expanded. Based on the sample village surveys, completion of the expressway greatly facilitated the outward transportation of wild mushrooms, eggs, grain-raised chicken, and many kinds of fruit. The sales volumes of mushrooms and chickens increased significantly and the prices received by farmers improved by more than 50%. Yuanjiang county took advantage of the convenience of expressway transportation and is planning to build a large-scale fruit market at the expressway exit. Furthermore, given the need to transport produce from farmers to the expressway interchange areas where large trucks collect and transport such produce along the expressway, new local businesses involving small truck delivery services between farmers and collection points at interchanges have developed.

Appendix 17 63

4. Increased Inflow of Tourists. According to the Tourist Bureau of Yuanjiang county, the number of tourists coming to Yuanjiang has increased by about 30%, or 40,000 to 50,000 people, per year since the expressway operations began in 2004. During the winter and the fruit season, many residents of Kunming drive to Yuanjiang for the weekend. Poor households have benefited mainly by selling fruit to the tourists and working in the service industry.

5. Improved Flow of Services and Information. The Project facilitated Government activities in providing facilities, services, and information under poverty reduction and social development programs in the project area, and the improved transportation provided by the project expressways and feeder roads enhanced efficiencies in accessing and delivering such services and facilities. As a result, many poor communities have improved access to (i) infrastructure such as water, electricity, and roads; (ii) food supplies and social services, such as medical facilities; (iii) training for income-generating activities; (iv) information about job opportunities; and (v) training for employment in urban areas.

2. Enhanced Agricultural Development and Better Access to Markets

6. Of 100 households surveyed in the project area by the PCR Mission, 77% of those with higher incomes believed that easy access to transport was the greatest benefit and 33% had benefited from the reduced costs of transporting goods. The corresponding figures were 23% and 19%, respectively, among middle-income farmers, and 35% and 6%, respectively, among poor households. Given the reduced costs of transport and better access to markets, farmers increased their production of cash crops such as tea and tobacco and of fruit trees. Nonpoor households increased production slightly more than poor households on a per household basis. The enhanced agricultural development also relates to the increased trade of produce to markets (para. 3) and the improved agricultural training, finances, and information provided by the Government (paras. 2 and 5).

3. Enhanced Economic Diversification

7. Among the nine villages surveyed, shares of seasonal migrant work as a source of income ranged from 2 to 40% in 2004, an increase from 0 to 20% in 1999. In addition, villages have increased shares of income from businesses or other activities, starting with virtually none in 1999. Consequently, the shares of income from agricultural activities, including cash crop production, were reduced in most villages. Nevertheless, agricultural activities are still the dominant sources of income for most villagers and the absolute value of agricultural incomes has not necessarily been reduced.

4. Increased Migrant Labor

8. During 1999–2004, the increased mobility brought about the Project facilitated an increase in the number of migrants as well as in the type of migratory work. For example, in Banzhong village, migrant workers increased from 108 migrants in 1999, mostly construction workers, small vendors, and porters, to 301 migrants in 2004, mostly construction workers, tea sellers, salespeople, home decorators, drivers, and fruit pickers. In addition to the more convenient transportation now available, other major reasons for the increased number of people seeking migrant work were (i) the reduced demand for roadside businesses along NH323 released some workers previously engaged in such businesses, and (ii) the farmers who had participated in road construction acquired the skills and confidence to work as migrant laborers.

64 Appendix 17

5. Primary School Attendance Rates and Access to Health Facilities and Services

9. Primary education enrollment rates stayed high, around 99%, during 1999–2004. Secondary school enrollments rates were not available. All the villages have clinics except one whose residents have easy access by road to a township clinic 15 kilometers away.

6. Employment and Income-Generating Opportunities During the Project

10. During construction of the expressway, the Yunnan YuanMo Expressway Corporation provided local residents with 1.08 million person-months of job opportunities, paying a total of CNY1,080 million in wages. The average local resident did 116 days of construction work, earning CNY13.82 per day or a total of CNY1,603. Total earnings per person ranged from CNY200 to CNY9,800, depending on the type and duration of work.

11. Construction of the expressway also provided residents with opportunities to supply materials and services. About 600 to 700 farm households grew vegetables and raised chickens and pigs for supplying the construction workers. These households included 200 households in Yuanjiang county, whose average income from these activities ranged from CNY2,000 to CNY4,000 per household; 300 to 400 households in Mojiang county, with an average income of CNY2,000 to CNY3,000; and about 100 households in Pu’er country, with an average income of about CNY5,000. About 40 to 50% of these households were poor. In addition, more than 100 mostly nonpoor households provided the construction workers with recreational and catering services, with some of them hiring workers from poor households to assist them.

7. Gender

12. As the expressway was being built, women’s federations conducted a series of economic and social training activities to improve women’s skills in such areas as tobacco production in mountainous areas and cultivation of tea, coffee, and other cash crops and to educate women about women’s social status, domestic violence, abduction prevention, and legal assistance options. These training activities aimed at enabling women to take advantage of the opportunities brought about by improved access to transport and to realize economic and social benefits as a result of the Project.

13. The project impact survey found that women still received somewhat less education than men, with women accounting for 59% of the illiterate in the sample villages. Women dominated in the fields of retailing, tailoring, and processing, while men dominated in other fields, especially intervillage communications. During the off-farming season, more men than women became migrant laborers, although the number of migrant women seemed to be increasing. Male migrants tended to work in such areas as construction or as carpenters, while women were more likely to work in service industries or in related jobs. In the villages, women were responsible for household work and for deciding when men should become migrant laborers.

14. Despite slow progress in promoting gender equality, construction of the expressway and feeder roads strengthened communication between the villages and the outside world. Improved access to a range of economic and social activities helped women increase their knowledge and build their skills and confidence.

Appendix 17 65

8. Malaria and HIV/AIDS1

15. Construction of the expressway increased the risk of spreading contagious diseases, including sexually transmitted infections and malaria, and the county health bureaus focused on measures to prevent the spread of such diseases. Their prevention activities targeted service and construction workers and small private clinics. Yuanjiang county found and treated 500 to 600 cases of malaria. The three project counties established disease control centers to monitor the diseases. To effectively control the spread of sexually transmitted infections, construction workers were required to undergo regular physical examinations, and if they were found to be sick, they were treated immediately. The health bureaus disseminated knowledge about disease prevention and treatment and distributed medicines and medical supplies. They provided training to doctors and condoms to target groups. In relation to HIV/AIDS, the health bureaus (i) established HIV/AIDS offices aimed at preventing and treating HIV/AIDS, (ii) publicized information about HIV/AIDS prevention measures, (iii) periodically tested workers for HIV/AIDS, and (iv) provided target groups with condoms. In addition, the Sino-British AIDS Cooperation Project and the Red Cross and other international organizations participated in HIV/AIDS prevention during construction mainly by means of information dissemination, training, and condoms.

16. The health bureaus tested all pregnant women for HIV/AIDS. During construction, no HIV-positive case was found among pregnant women, which indicated that the HIV/AIDS control system was basically successful, especially among the local population. The Project helped the three counties set up their disease control centers, and these centers played a vital role during the SARS epidemic and are continuing to do so during the avian flu outbreak.

C. Conclusion

17. The expected benefits envisaged at appraisal in relation to poverty reduction and social and economic development were realized as follows: (i) reduced transportation costs have benefited local residents; (ii)residents along the road increased their incomes by supplying the Project with labor, materials, and services during construction of the expressway; (iii) some poverty alleviation and social projects located in poor villages along the expressway were facilitated by the expressway, resulting in increased incomes and income diversification among poor and nonpoor households; and (iv) improved access to economic and social facilities and services will have a long-term impact on development. The current strategy of ADB-financed road projects to include feeder roads linking rural areas to expressways in the scope of projects was also validated.

1 Human immunodeficiency virus/acquired immunodeficiency syndrome.

66 Appendix 18

EVALUATION OF THE ETHNIC MINORITIES DEVELOPMENT PLAN

A. Introduction

1. All three counties in the project areas are ethnic minority autonomous counties. About 70% of people in the project area are ethnic minorities, including 156,000 people accounting for 79% of the local population in Yuanjiang county, 260,000 people accounting for 74% in Mojiang county, and 92,000 for 50% in Pu’er county. The majority of those affected were Hani. The other ethnic nationalities included Bai, Bulan, Dai, Lahu, and Yi. The ethnic minorities were often concentrated in villages. These nationalities have lived alongside the Han majority for a long time and natural relationships are harmonious.

2. At appraisal, the Yunnan YuanMo Expressway Corporation prepared and submitted to the Asian Development Bank (ADB) a minority peoples development plan. The plan, which ADB approved in 1998, is based on the requirements of ADB’s policy on indigenous peoples. The economic development strategies for ethnic minorities were well integrated into the counties’ economic development plans and focused mainly on poverty alleviation and on constructing roads and other infrastructure.

3. The external monitoring of the plan’s implementation was entrusted to an international consultant. Investigations of the impact of the plan on project beneficiaries were conducted in 2001, 2002, and 2003 and reports were submitted to ADB.

B. Objectives and Proposed Measures

4. The plan identified the following three goals: adequate resettlement and rehabilitation, poverty alleviation, and economic development of minority areas. These goals were to be achieved through several strategies, namely:

(i) involving local residents in expressway construction, (ii) intensifying the use of farmland, (iii) shifting from farming to the business and service sectors, (iv) readjusting farmland and allocating to those losing land, (v) resettling people in other areas, (vi) undertaking long-term measures to promote sustainable livelihoods, and (vii) drawing up development plans for remote villages.

5. The table compares expected and actual impacts on ethnic minorities.

Table A17: Expected and Actual Impacts on Ethnic Minorities

Expected Project Impacts Actual Impacts Direct Benefits Improved Access to Transport and Less Congestion Achieved Reduced Transportation Costs Achieved Improved Investment Environment Being achieved Increased Local Incomes During Achieved Construction Improved Local Roads Achieved, but more villages want improved roads Adverse Impacts Loss of Farmland Losses were significant and were aggravated by payment delays, but strategies to diversify incomes through cash crops Appendix 18 67

Expected Project Impacts Actual Impacts and nonfarm businesses were successful.

Decline in Businesses and Incomes This impact was serious and no effective mechanisms were along NH323 adopted to avoid or mitigate losses, thus many businesses had to close or move elsewhere

Damage to or Loss of Irrigation Systems Damage and losses were mitigated as part of the compensation paid for land and rehabilitation of infrastructure

Splitting Up of Landholdings by the Additional compensation is being calculated to offset this Expressway impact House Demolition Adequate compensation was provided on time and people were able to construct better homes Expected Indirect Benefits Poverty Alleviation Economic activities increased as a result of the expressway Development in Remote Minority Villages Some local roads benefited remote villages; tourism opportunities have increased

C. Project Impacts

6. County ethnic minority and religious affairs bureaus are responsible for protecting ethnic minority cultures. The measures taken to conserve and develop ethnic cultures included the following: (i) organizing traditional festivals for communities whose sacred forests were occupied by the Project; (ii) documenting ethnic cultural practices, publishing ethnic annals, and collecting ethnic folklore and songs; (iii) collecting ethnic cultural relics and costumes; and (iv) promoting ethnic cultures through the development of tourism.

7. The local governments are increasingly giving attention to conserving ethnic cultures, because this has resulted in economic returns to villagers. Although they had their own beliefs and customs, after many years of development, some of their cultures and customs were gradually becoming integrated with those of the Han culture; however, in recent years, because of the rapidly growing tourism industry in Yunnan, local governments realized that diversity in ethnic minority cultures is an advantage. People started to pay attention to and rediscover their ethnic cultures, as reflected mainly by festivals and rituals.

8. The Project had several benefits, including (i) improving people’s ability to sell cash crops to more distant markets, (ii) helping people promote their ethnic cultures through tourism, (iii) increasing the number of people traveling to the area during holidays and festivals, (iv) providing job opportunities during project construction, and (v) increasing interaction with outsiders who gave local people new ideas for businesses and travel. Some of the negative aspects of the Project included (i) the decline in roadside businesses along the old highway, (ii) the land acquisition and resettlement impacts, and (iii) the localized flooding and landslides caused by expressway construction.

D. Mitigation Measures

9. During the course of expressway construction, local ethnic minority cultures and customs were respected. During the course of designing the expressway, the alignment was to try to avoid occupying sacred places. If this was unavoidable, the Project relocated such sacred places. 68 Appendix 18

10. Local governments supported ethnic minorities in increasing the planting of cash fruit trees such as longan fruit trees and coffee through microcredit schemes and special funds. Training courses were provided to local farmers to enhance their ability to adopt scientific farming methods.

11. During the construction of civil works, priority was given to employing members of affected ethnic households. Those employed were paid CNY500 to CNY600 per person-month, which was much more than they would earn from farming. Some villagers participated actively in expressway construction, while other preferred to stick with more traditional ways of life.

E. Resettlement

12. To avoid any disruption of ethnic minorities’ customs and social relationships and so as not increase the distance they had to travel to farm their fields, all those affected were relocated or rehabilitated within their same communities.

13. Resettlement implementation experienced some delays in land compensation payments because of local governments’ funding shortages. However, local officials worked closely with affected villages to resolve problems and minimize economic losses. When the funds were paid, the villagers were able to expand their agricultural production, because they had already restored their incomes through their own means, including by growing cash crops, working in construction, setting up local businesses, or migrating outside the area to work. Resettlement was eventually deemed to have been successful because of the indirect support measures undertaken by the local governments.

F. Lessons Learned

14. The majority of project beneficiaries were ethnic minorities, but ascertaining differences in special measures and project benefits between ethnic minorities and Han was difficult. Local communities are well integrated. Some villagers continue to observe different traditions, but this relates more to their remote locations and to poverty rather than to ethnicity.

15. The social integrity of ethnic minorities was safeguarded primarily by means of institutions and relationships that already existed in the project area and are widespread throughout Yunnan province. Thus no special measures were required, although ADB policy did help highlight the concern that local people’s rights, community property, customs, and sacred places should be fully respected during project construction. This was achieved.

16. If special measures are required, the minority peoples development plan should include a specific action plan and a budget, otherwise agencies such as minority affairs bureaus may not have the resources to make the required investments.

17. Overall, better efforts should have been made to offset losses to businesses along NH323. This impact was identified early on, but no effective mitigation measures were formulated and implemented.