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Eastern Sichuan Roads Development Project

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Eastern Sichuan Roads Development Project Report and Recommendation of the President to the Board of Directors Sri Lanka Project Number: 37490 June 2007 Proposed Loan People’s Republic of China: Eastern Sichuan Roads Development Project CURRENCY EQUIVALENTS (as of 31 May 2007) Currency Unit – yuan (CNY) CNY1.00 = $0.1308 $1.00 = CNY7.6458 The exchange rate of the yuan is determined under a floating exchange rate system. In this report, a rate of $1.00 = CNY7.73, the rate prevailing at the consultation mission for the Project, was used. ABBREVIATIONS ADB – Asian Development Bank BOT – build-operate-transfer EARD – East Asia Department EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environmental management plan FIRR – financial internal rate of return HIV/AIDS – human immunodeficiency virus/acquired immunodeficiency syndrome ICB – international competitive bidding ITS – intelligent transport system JBIC – Japan Bank for International Cooperation LIBOR – London interbank offered rate MOC – Ministry of Communications NCB – national competitive bidding O&M – operation and maintenance PCR – project completion report PRC – People’s Republic of China SDAP – social development action plan SDEC – Sichuan Dashaan Expressway Company Limited STI – sexually transmitted infection PPMS – project performance management system SPCD – Sichuan Provincial Communications Department SPG – Sichuan provincial government TA – technical assistance VOC – vehicle operating costs NOTES (i) The fiscal year of the Government and its agencies ends on 31 December. (ii) In this report, "$" refers to US dollars. Vice President C. Lawrence Greenwood, Jr., Operations Group 2 Director General H. S. Rao, East Asia Department (EARD) Director N. C. Rayner, Transport Division, EARD Team leader M. Ojiro, Principal Transport Economist, EARD Team members S. Ferguson, Senior Social Development Specialist (Resettlement), EARD K. Jraiw, Senior Transport Specialist, EARD Y. Li, Urban Economist, EARD S. Noda, Transport Specialist, EARD T. Oi, Social Development Specialist, EARD X. Peng, Principal Counsel, Office of the General Counsel X. Yang, Senior Financial Analysis Specialist, EARD CONTENTS Page LOAN AND PROJECT SUMMARY iii MAPS I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2 C. Policy Dialogue 4 D. Lessons 6 E. Rationale 7 III. THE PROPOSED PROJECT 8 A. Impact and Outcome 8 B. Outputs 8 C. Special Features 8 D. Project Investment Plan 9 E. Financing Plan 10 F. Implementation Arrangements 10 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 13 A. Traffic Forecast 13 B. Economic Analysis 14 C. Financial Analysis and Projections 14 D. Poverty Reduction and Social Strategy 15 E. Environmental Assessment 16 F. Land Acquisition and Resettlement 16 G. Risks 17 V. ASSURANCES 18 VI. RECOMMENDATION 20 APPENDIXES 1. Design and Monitoring Framework 21 2. Road Sector Analysis 24 3. Sichuan Road Sector Revenue and Expenditures: 2001–2010 28 4. External Assistance to the Road Sector 29 5. Rural Road Development and Local Road Component 31 6. Rural Road Maintenance 33 7. Detailed Cost Estimate by Financier 36 8. Implementation Schedule 37 9. Summary Procurement Plan 38 10. Monitoring of Socioeconomic and Poverty Impacts 40 11. Traffic Forecast 42 12. Economic Analysis 44 13. Financial Analysis and Projections 48 14. Summary Poverty Reduction and Social Strategy 52 15. Small Business Development in the Project Area 54 16. Social Development Action Plan: 2006–2010 56 ii 17. Stakeholder Participation and Consultations 58 18. Summary Resettlement Plan 59 SUPPLEMENTARY APPENDIXES (available on request) A. Draft Concession Framework Agreement B. Private Sector Involvement in the PRC Road Sector C. Road Safety and Vehicle Emissions D. Transport Services E. Intelligent Transport System and Asset Management F. Financial Management Assessment G. Organization Charts of the Executing Agency H. Procurement Plan I. Terms of Reference for Consultants J. Poverty Reduction and Social Strategy K. Environmental Review and Assessment Procedures for Local Roads L. Resettlement Plans LOAN AND PROJECT SUMMARY Borrower People's Republic of China (PRC) Classification Targeting classification: General intervention Sector: Transport and communications Subsector: Roads and highways Theme: Sustainable economic growth Subthemes: Promoting economic efficiency and enabling markets, fostering physical infrastructure development Environment Category A. An environmental impact assessment was Assessment undertaken, a summary of which was circulated to the Asian Development Bank’s (ADB’s) Board of Directors and uploaded to the ADB website on 16 May 2006. Project Description The Project is in Sichuan province in the poor southwestern region of the PRC. In 2005, the per capita gross domestic product of Sichuan was only 61% of the national average. The Project will support the Government’s strategy by building an important section of the western region corridor connecting two growth centers—Chongqing and Xi’an—by (i) constructing an expressway across mountainous terrain; (ii) improving the local roads that service poor counties and townships; and (iii) providing consulting services and training to build capacity at the local communications bureau and improve construction quality, road safety, and project monitoring and evaluation. Rationale Despite considerable investments in the road sector, the PRC road network still does not provide efficient transport to large parts of the country—particularly to poorer inland regions like Sichuan. Better transport links are necessary to (i) improve economic efficiency, (ii) foster domestic and international trade, (iii) facilitate interregional integration, and (iv) reduce poverty. The provinces of western PRC lack high-class road infrastructure. The road network must be improved to facilitate sustainable economic development and ensure that the social and economic benefits of investments in the region reach poor rural areas. To enhance economic development and reduce poverty in western PRC, the Government is implementing the Western Region Development Strategy, which aims to reduce development disparities between the western and coastal regions. The Project will support this strategy. It will be the fourth road project in Sichuan to be financed by ADB. It will complement three completed or ongoing ADB- financed projects in Sichuan that likewise concentrate on developing the Xi’an-Kunming road corridor. iv Impact and Outcome The impact of the Project is to develop an integrated road transport system that supports sustainable economic growth in Sichuan province. The outcome of the Project is improved road transport efficiency and safety in the project area. The Project will (i) reduce traffic accidents and vehicle operating costs; (ii) improve access between Chongqing and Xi’an, two major growth centers in western PRC; (iii) provide additional transport capacity to accommodate growing traffic volume; and (iv) provide improved access to markets and social services in a poor area. The Project has the following outputs: (i) construction of a 143-kilometer (km), four-lane, access-controlled toll expressway from Dazhou to Wanyuan, including access roads, interchanges with toll stations, tunnels, bridges, administrative stations, and service areas; (ii) upgrading of 430 km of local roads to improve access to poor remote areas; (iii) promoting corporate governance by separating expressway construction and operations from the provincial government; and (iv) building capacity in project management, quality control, road safety, and monitoring and evaluation. To realize these outputs, the following key activities are needed: civil works for the expressway and local roads, equipment, resettlement, consulting services, and training. Project Investment Plan The investment cost of the Project is estimated to be $1.425 billion, including taxes. Financing Plan Financing Plan ($ million) Source Total % Asian Development Bank 200.0 14 China Development Bank 556.0 39 Ministry of Communications 229.0 16 Sichuan Provincial Government 440.0 31 Total 1,425.0 100 Source: Asian Development Bank estimates. A loan of $200 million from the ordinary capital resources of ADB will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate determined in accordance with ADB’s LIBOR-based lending facility, a commitment charge of 0.35% per annum, and such other terms and conditions set forth in the draft loan and project agreements. Allocation and Relending The ADB loan proceeds will be made available by the Borrower to Terms Sichuan provincial government (SPG), and through SPG, to the Sichuan Dashaan Expressway Company Limited (SDEC) on the same financial terms and conditions as those of the ADB loan. The SDEC will bear the interest rate variation and foreign exchange risks. v Period of Utilization Until 31 December 2012 Estimated Project 30 June 2012 Completion Date Implementation The Sichuan Provincial Communications Department (SPCD) will Arrangements be responsible for overall implementation of the Project while SDEC will be responsible for the physical implementation activities on a day-to-day basis, including the ADB-financed portion of the local road component. The SPCD will provide guidance to the local communications bureaus for carrying out the local roads component of the
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