Documentof The World Bank FOROFFICIALUSEONLY ReportNo: 29067 PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUS$200MILLION TO THE PEOPLE'S REPUBLIC OF CHINA FORA SECONDNATIONAL RAILWAYS PROJECT May 28,2004 Transport SectorUnit East Asia andPacific Region This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective April 1,2004) Currency Unit = RMB RMB 1.00 = US$ 0.12 US$ 1.00 = RMB 8.28 FISCALYEAR January 1 - December31 ABBREVIATIONSAND ACRONYMS CAAC Civil Aviation Authority o f China MOR Ministryo fRailways CAS Country Assistance Strategy NCB National Competitive Bidding CFAA Country Financial Accountability Assessment NDRC National Development & Reform Commission CITC China InternationalTendering Company NPV Net Present Value CNAO China National Audit Office ocs Overhead Catenary System CQ Consultants' Qualifications P M O Project Management Office CR China Railways FMR Financial MonitoringReport DaQin Datong-Qinhuangdao PRC People's Republic o f China EL4 Environmental Impact Assessment QCBS Quality- and Cost-Based Selection ERR Economic Internal Rate o f Return RA railway administration EMP Environmental Management Plan RAP Resettlement Action Plan EMU Electric Multiple Unit S A Special Account FCTIC Foreign Capital & Technical Import Center SBD Standard BiddingDocument FFAAD Foreign Funds Application Audit Department SEPA State Environmental ProtectionAdministration FIRR FinancialInternal Rate o f Return SOE Statement o f Expenses FMS FinancialManagement System SSDI Second Survey & Design Institute FYP Five Year Plan TA Technical Assistance ICB InternationalCompetitive Bidding TMD Track MaintenanceDepots MBD ModelBiddingDocument UNDB UnitedNations Development Business MOF MinistryofFinance Zhe-Gan line Hangzhou-Zhuzhou railway line V i c e President: Jemal-ud-din Kassum, EAPVP Country ManagerDirector: YukonHuang,EACCF Sector Manager: Jitendra N.Bajpai, EASTR Task Team Leader: GrahamSmith, EASTR CHINA FOROFFICLALUSEONLY Second NationalRailwaysProject CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 1. Country and sector issues.................................................................................................... 1 2 . Rationale for Bank involvement ......................................................................................... 1 3. Higher level objectives to which the project contributes.................................................... 2 B . PROJECTDESCRIPTION ................................................................................................. 2 1. Lending instrument............................................................................................................. 2 2. Project development objective and key indicators.............................................................. 2 3. Project components ............................................................................................................. 3 4. Lessons learned and reflected inthe project design............................................................ 5 5. Alternatives considered andreasons for rejection.............................................................. 6 C . IMPLEMENTATION .......................................................................................................... 7 1. Institutional and implementationarrangements.................................................................. 7 2. Monitoring andevaluation o foutcomes andresults ........................................................... 7 3 . Sustainability....................................................................................................................... . . . 7 4. Critical risks and possible controversial aspects................................................................. 8 5. Loan conditions and covenants........................................................................................... 9 D APPRAISALSUMMARY . ................................................................................................. 10 1. Economic and financial analyses...................................................................................... 10 2 . Technical........................................................................................................................... 11 3. Fiduciary ........................................................................................................................... 12 4 . Environment...................................................................................................................... 12 5. Social................................................................................................................................. 14 6. Safeguard policies............................................................................................................. 16 7. Policy Exceptions andReadiness...................................................................................... 16 Annex 1:Transport Sector Background .................................................................................. 17 Annex 2: RelatedProjectsandTechnicalAssistance .............................................................. 24 This documenthas a restricteddistributionandmay be usedby the performance of their official duties Its contents may not be otherwise disclosed without WorldBankauthorization . . Annex 2a: Major RelatedProjects Financedby the Bank and other Agencies ....................... 24 Annex 2b: Recent and PlannedTechnical Assistance under World Bank Projects ................ 25 Annex 3: Results Framework and Monitoring ........................................................................ 26 Annex 4: Detailed Project Description ...................................................................................... 28 Annex 5: Project Costs ............................................................................................................... 34 Annex 6: ImplementationArrangements ................................................................................. 35 Annex 7: FinancialManagement and DisbursementArrangements ..................................... 36 Annex 8: Procurement ................................................................................................................ 40 Annex 8: Procurement -Attachment 1:Procurement Plan Summary ..................................... 45 Annex 8: Procurement- Attachment 2: Procurement Plan...................................................... 46 Annex 9: Economic and Financial Analysis ............................................................................ 54 Annex 9a: Economic Analysis o f Zhe-Gan Line Speed-raising and Electrification ............... 54 Annex 9b: Financial Analysis ofthe Zhe-Gan Line................................................................ 60 Annex 9c: Economic Evaluation o f Track Maintenance and Renewal Machinery.................63 Annex 9d: Tables ..................................................................................................................... 65 Annex 10: SafeguardPolicy Issues ............................................................................................ 69 Annex loa: Environment Assessment Summary..................................................................... 69 Annex lob: Resettlement Impacts and Resettlement Action Plan Summary .......................... 82 Annex 11: Project Preparation and Supervision ..................................................................... 87 Annex 12: Documents inthe Project File ................................................................................. 88 Annex 13: Statement of Loans and Credits .............................................................................. 89 Annex 14: Country at a Glance ................................................................................................. 93 MAPS IBRD33201 SecondNational Railway Project IBRD33202 Second NationalRailway Project. RailwayLine Zhe-Gan CHINA SECOND NATIONALRAILWAYSPROJECT (ZHE-GA PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC EASTR Date: May 28,2004 Team Leader: Graham Smith Country Director: Yukon Huang Sectors: Railways(100%) Sector MangedDirector: JitendraN.Bajpai Themes: Infrastructure services for private sector development (P);Administrative and civil service reform(S) Project ID: PO75602 Environmental screeningcategory: Full I LendingInstrument: Assessment Specific Investment Loan Safeguard screening category: Limitedimpact For Loans/Credits/Others: Total Bank financing (US$m.): 200.00 ProDosedterms: VSL INTERNATIONAL BANKFOR RECONSTRUCTIONAND Borrower: PEOPLE'S REPUBLIC OF CHINA China ResponsibleAgency: Ministry ofRailways, Foreign Capital & Technical Import Center 10FuxingRoad Beijing China Tel: 86-10-51841895 Fax: 86-10-51841845 Project implementationperiod: Start August 1,2004 End: July 31,2007 Expected effectiveness date: September 15, 2004 Expected closing date: January 31, 2008 Does the project depart from the CAS incontent or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bankpolicies? Re$ PAD D.7 [ ]Yes [XINO Have these been approvedby Bank management? [[ ]Yes [XINO ]Yes [ IN0 I s approval for any policy exception sought from the Board? Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ]No Project development objective Re$ PAD B.2, TechnicalAnnex 3 The project aims to (a) improve services provided to customers o f the "Zhe-Gan" railway line; and (b) upgrade the quality o f track maintenance on heavily usedportions o f China Railway's network. Project description [one-sentence summary of each component] Re$ PAD B.34 Technical Annex 4 1.Zhe-Gan line, speed-raising andelectrification; 2.Modernizing track maintenance technology; and 3Strengthening MOR'Scapacity inplanning, management and technology through advisory services Which safeguard policies are triggered, ifany? Re$ PAD D.6, TechnicalAnnex 10 Environmental Assessment (OP/BP/GP 4.01) Involuntary Resettlement (OP/BP 4.12) Significant, non-standard conditions, if any, for: Re$ PAD C.7 Boardpresentation: None Loadcredit effectiveness: The legal opinion shall confirm that the Resettlement Action Plan (RAP)Arrangements entered into between MOR and each of the provinces o f Hunan, Jiangxi and Zhejiang for the purpose of causing the RAP to be carried out, are legally bindinguponthe parties. Covenants applicable to project implementation: 1. MOR shall, not later than August 1,2006, enter into agreements withpower suppliers or the relevant Provinces, to ensure adequate electric power supply for the electric traction on the Zhe- Ganrailway line; 2. M O R shall exchange views with the Bank on the acquisition andutilization o fthe electric multiple unit trains, and shall, by December 31,2004, furnishto the Bank, a timetable for the acquisition and utilization of such trains; 3. M O R shall, not later than August 1,2006, furnishto the Bank the rules o f operation for the upgraded Zhe-Gan Line; 4. MOR shall submit twice-yearly financial monitoring reports, andyearly reports o fresults using agreed performance indicators. A. STRATEGIC CONTEXT AND RATIONALE 1. Countryandsector issues China is inthe process o f making two historic transitions -from a rural, agricultural society to an urban, industrialized society, and from a centrally planned economy to an integrated market- based economy. To this end the principal goals o f China's strategy for the transport sector are to: (a) expand the transportation infrastructureto serve the needs o fthe economy (b) address the mobilityneeds ofthe poorer and disadvantaged people andregions; and (c) facilitate a more environmentally sustainable development process. The Ministry ofRailways (MOR), China's largest state-owned enterprise, currently operates rail services reasonably efficiently andprofitably ina growing market. Mounting competition from the expanding highway system andinternalpressure to increase service quality while maintaining profitability and adding capacity has ledto the need to improve business processes. This project, like the Bank's previous railprojects, will help to facilitate the process o f change. It will also improve the transport connectivity o f southwestern China to the east by upgrading an important rail line linking Zhejiang andHunan provinces, thereby helpingto address the needs o f poorer and disadvantaged regions. Inaddition, the conversion o fthis line from diesel to electric traction (generated from hydropower sources) will yield environmental benefits. 2. Rationalefor Bankinvolvement The rail system inChina i s essential to the continuing economic development o f China and as a keytransportationchoice for goods andpassengers. Over the past two decades ChinaRailways havebeenconspicuously successful inexpanding their network and serving growing volumes o f business, both freight and passengers. CR has been gradually shiftingfrom the management habits o f a national monopoly toward those o f a modem transport enterprise competing for business with other modes o f transport that are also modernizing and growing rapidly. Inrecent years CR has generated sufficient revenues to cover not only all operating expenditures but also a substantial part o f its large investment program. This sets China Railways apart from every other railway to which the Bank lends. The Chinese government wants the railway to be largely self-sufficient infinancing its expansion. Budget financing i s limited to contributions towards extension o f the network to open up western regions. The Bank supports this policy o f substantial financial self-sufficiency. The Government also wants to encourage the railway to continue adapting to the challenges o f operating ina competitive transport market, and looks to the Bank to advise -on the strength o f its experience with railways around the world- on the gradual change process that this requires. For its part, MOR wishes to continue borrowing from the World Bank and the Asian Development Bankbecause it will only succeed infinancing its very large investment program for the coming decade by expanding its sources o f financing, and it i sjudicious to combine borrowing from both domestic and international banks. C R also looks to the international banks to facilitate its access to internationaltechnology andbest practice inplanningand management 1 approaches. The World Bank's perspective i s that its international experience does indeed equip itto addvalue regardingthe options andprocess for changing from a centrally-planned operator to a market-friendly service provider, andCR's scale o f operations i s so large that its performance can have far-reaching impacts on the Chinese economy. Inparallelwithpreparationandappraisal ofthis project, the Bank hasbeenconducting a dialogue with MOR on the broad objectives and approach for a long-term lending program to support railway modernizationanddevelopment. It i s intended that this parallel dialogue will allow the parties to agree on the mainpriorities inCR's investment program and related institutional developments to be supported by future Bank loans. 3. Higher level objectivesto whichthe projectcontributes (a) Move development westward to inland provinces. (b) Upgrade infrastructure to serve the rapidly evolving needs o f the economy. (c) Attract the movement o fpeople and goods to an environmentally friendly mode o f transport. B. PROJECTDESCRIPTION 1. Lendinginstrument The Project involves construction o f large-scale infrastructure; the loan funds will be disbursed mostly against goods procured through international competitive bidding. For this purpose a Specific Investment Loanwas selected as the most appropriate lending instrument. MOR prefers a variable-spread loanbecause its cost i s slightly lower thanthat of a fixed spread loan, and MORmightnot tap the flexibility providedbythe fixed-spread loan inthe foreseeable future. 2. Projectdevelopmentobjectiveandkey indicators The project development objectives are: (a) improve services provided to customers ofthe Zhe-Gan railway line; and (b).upgrade the quality o ftrack maintenance onheavily usedportions ofChinaRailways' network. Project outcomes will be measured by three groups of indicators: Zhe-Gan Line (a) The transit time per trip i s to be decreased by: 0 freight trains: 15% 0 ordinary passenger trains: 50% 0 express passenger trains: 40% (b) The unit operating cost is to be decreased by: 2 e freight trains: 45% e passenger trains: 4% Track Maintenance e average track downtime (minutes per day) reducedby 50% 3. Projectcomponents The project consists o f the following components andsub-components and i s described indetail inAnnex 4. ProjectComponents 1. Zhe-Gan Line Improvements n 1A SpeedRaising 1B Signaling and Communications 1c Electrification ~ 1D Land Acquisition andResettlement 2 Modernization of Track MaintenanceTechnology 13 I Technical Assistance (i)Zhe-GanLineImprovements A keyeast-west link inthe Chinese railnetworkis the linebetweenHangzhouinZhejiang province near Shanghai and Zhuzhou inthe center o f China inHunanprovince. This line, known as Zhe-Gan', is the only existing major east-west link connecting the coastal regions in the Yangtze River delta inthe East to the industrial region inthe center o f China andthrough to Chongqing and Chengdu inthe West andKunminginthe Southwest. Existing east-west links are all operating at or near capacity. Passenger traffic on the Zhe-Ganline exceeds 20 million passengersper year on most sections and freight traffic ranges between 33 and 57 million tons. Coal, steel, mineral ores and buildingmaterials are the maincommodities carried (more than two-thirds o f total tonnage). The Zhe-Gan line is an integral part o f the China Railways 2003-2007 Development Planthat calls for raising the speeds and improvingthe quality o fpassenger services on the major railway corridors nationwide. Under this planthe maximum operating speed of express passenger trains i s to be raised to 200 km/h. The Zhe-Gan line i s 942-km long, double track, diesel-powered, and allows a maximum speed of 120km/h. MOR plans to install new signaling, realign sharp curves andcarry out other civil works needed to permit higher speeds. The track is to be upgraded on manyshort sections totaling about halfo fthe track length. The line will also be electrified throughout. Once it is upgraded, the 200 km/hexpress trains will be operated by electric multiple units (EMUS),while slower passenger and freight trains will be operated with electric locomotives. `The "Zhe" inthe name is short for Zhejiang Province and "Gan" is the Chinese abbreviation for Jiangxi Province, through which the line passes. 3 The civil works for speed-raising beganinearly 2004 and are to be completed by September 2005. The electrification will overlap by several months and be completed by August 2006; after a period o f testingthe new electrified services will beginearly in2007. End-to-end trip times will be cut by 3-4 hours. The new signaling and communications equipment will allow design headway between trains to be reduced from the current 8 minutes to 7 minutes, increasingthe line capacity by 13%. Electrification will allow the maximum gross weight o f freight trains to be raised from 3,300 tons to 4,000 tons. (ii)Modernizingoftrackmaintenancetechnology MORalso wishes to acquire additionalhighlymechanized, high-capacity equipmentfor replacingw o m rail and switches, renewingballast, and other maintenance tasks on heavy-traffic lines. Such technology i s more cost-effective that traditional labor-intensivemaintenance practices, as the track needs to be closed to traffic for shorter periods and the quality o f finish i s far better. Consistent, high-quality and frequent maintenance directly improves passenger safety. MOR first introducedthis technology inthe late 1990s. At present MOR's 19track maintenance depots arepart o fthe 14RailwayAdministrations. MOR anticipates, though the timetable has not been set that eventually, the heavy track maintenance equipment will be rolled out to cover MOR's entire territory and the track maintenance depots (TMDs) will become independententities, subsidiaries o f a single group company. TMDs at present cover approximately 40,000 track-km. With additional capacity they will, by 2005, cover a total o f 67,000 track-km o f the system, about halfthe total track-km. The intention is that TMDs should service all main trunk lines and all high-density mainroutes that have traffic volumes greater than 25 milliontons per year. (Such volumes are uncommon except inChina, NorthAmerica and parts o f Russia.) MORalso wishes to acquirerail-based mobile cranes that canbe deployedrapidly to sites of accidents and derailments, to enhance its capacity to clear accidents andrestore normal operations quickly on heavy-traffic lines. (iii)AdvisoryservicestostrengthenMOR'splanning,managementandtechnology capacity MORwill hire consultants to analyze, andmake recommendations on, various issues for improving business processes. M O R has proposedthe following topics: 0 Traffic forecasting methods 0 Policy framework for resettlement and environmental protection 0 Planningand equipment standards for electrified network 0 Managemento f construction supervision MOR will indicate additional topics for technical assistance (TA) at a later date. 4 (iv) ProjectCost Estimate The project cost estimate i s summarized below: Item ' Total Cost Bank financed l (US$ million) (US$ million) I 1. Zhe-Gan Line Improvements 1A Speed Raising 1,089.8 I 0 1B Signaling and Communications 161.5 39.2 1C Electrification 166.3 I 81.7 1D 1 LandAcquisition andResettlement 79.3 0 pubtotal Zhe-Gun Line 1,496.9 120.9 2 kfodemization o f Track Maintenance Technology 75.0 75.0 3 Technical Assistance 2.3 2.1 ~ Interest duringconstruction 83.0 0 pee 2.0 2.0 Total 1,755.5 200.0 4. Lessonslearnedandreflectedinthe projectdesign The client and the Bank have drawn valuable lessons from preparing and implementingpast railway projects and these lessons have beentaken into account inthe preparation o f this project. First, a project should not include components to which the client i s not fully committed. This can leadto the restructuring o f the project, as was the case with Railways VII. Second, including too many components ina project (as was the case inRailways VI andVII) affects implementationnegatively, because boththe client and the Bank have limited resources for supervision andimplementation. Third, when designingandimplementingproject components, the project office, railway staffin MOR inBeijing, andrailway staff inthe regional administrationsneedto work with each other closely to implement the project efficiently. Fourth, client commitment to Bank guidelines andprocedures i s essential. Problems arose with regardto resettlement and environmental issues inRailways VI and VII. However, inrecent years the Chinese Government has intemalized concem over environmental impacts and resettlement to a far greater degree, and domestic safeguards are converging to the standards requiredbythe international financial institutions. M O R has recently appointeda resettlement coordinator inits headquarters inBeijing. Fifth,the progress o fChina Railwaystowards improving businessprocesses andpolicy reform has been steady and generally ina directionthat the Bank supports. M O R has continued to shed non-core activities and recently separated from MOR its four design institutes, Railway Communications Company, the material supply company, and several hospitals and educational institutions. It also set up three special-purpose companies (wholly owned byMOR) that will 5 handle transportationo f containers, special cargoes andparcels. The Bank's support in improving the management o f China Railways and its business processes has been effective and shouldbe continued. 5. Alternatives considered and reasons for rejection Zhe-Gan Line Improvements: Speed-raising M O R has been raising speeds o f its passenger trains since 1997 and has implemented four speed- raisings so far. As a result the maximum speed o f trains has increased from 120km/hto 140 and thento 160km/hon several corridors. As part ofits long-term strategy andthe development plans for 2003-2007, M O R has decided to improve the quality o fpassenger services on its main corridors. The planincludes operation o f express trains at a maximum speed o f 200 km/h. The facilities insuch trains would also be upgraded to provide greater comfort. The raising o f speeds on the Zhe-Gan line along with four other routes (Beijing-Shanghai, Beijing-Guangzhou, Beijing-Kowloon and Lianyuangang-Lanzhou) i s part o fthe system-wide strategy. The alternative o fnot raising the speedwas, therefore, not considered (other than as the `do-nothing' alternative for calculating the economic and financial retums). Zhe-Gan Line Improvements: Electrification I/yhy electvzjkation? The connecting routes to the Zhe-Gan line already are or soon will be electrified. Electrification o f Hangzhou-Shanghai to the northeast i s approved and is to be completedby 2007. Electrifying the section betweenHangzhou and Zhuzhou will result ina fully electrifiedlinebetweenKunmingand Shanghai. Electrifying this section provides the potential for extensive network effects: locomotives can inprinciple runfrom Shanghai to Kunmingwithout any operationalneedfor change o flocomotives. Higher speeds andthe potential to runlonger (heavier) trains increase the capacity o f the line. Environmental benefits also accrue from the change infuel. The highcapital cost o fbuyingnew electric locomotives i s more than offset by savings inoperating costs and the avoided investment that would otherwise be requiredfor renewal and expansion o f diesel equipment. Deployment o f more powerful diesel locomotives to haul longer and heavier trains was not considered viable, since the rest o f the corridor will soon be electrified. Traffic i s particularly heavy on a 100-km stretch between Xiangtang and Yingtan (inJiangxi) that also constitutes part o f the major north-south route connecting Fuzhou to Nanchang and points north. One possible alternative could be to electrify only that section o f the line. The economics o f doing so would be favorable, probably more so than electrifying the whole line. However, we endorse MOR'Sstrategic thinkingunderlying the decision to electrify the entire Hangzhou-Zhuzhouline for the reason already stated: realizing the operational benefits andnet cost reductiono f a through electrified line from Shanghai to Kunming. Modemization o f Track Maintenance Technology _. M O R i s inthe process o f changing over from track maintenance by manual labor and light machines to the use o f heavy track machines through its 19 track maintenancedepots. The benefits o f the latter are better quality, reduced labor, and increases inthe intervals between maintenance. Further, track under intensive use cannot be maintained properly unless rapid, 6 high-capacitymachines are employed. Taking the track out o fuse for longperiods to carry out labor-intensive repairs is very disruptive to train operations andtraffic. MOR'Splanto eventually make its track maintenance depots independent ofthe regionalrailway administrations will help maximize the depots' efficiency andproductivity. Inlight o fthe clear merits o f this restructuring no other alternative was considered. C. IMPLEMENTATION 1. Institutionalandimplementationarrangements The central Railway Ministrywill be responsible for procuring all Bank-financed items, through anindependent procurement agent (tendering company). The Zhe-Gan linepassesthrough the territory o f three regional railway administrations: Shanghai, Nanchang and Guangzhou. Project management offices inthese three Administrations will manage procurement of the MOR- financed parts o f the Zhe-Gan component. Among other contracts, they will, through competitive bidding,.hire independent contractors to carry out the Zhe-Gan civil works and to install all equipment, including that financed by the Bank. The regional PMOSwill also be responsible for supervising the construction and installation. (See Annexes 7 and 8.) 2. Monitoringand evaluationof outcomesand results The MORmaintains sufficient data collection activities to allow satisfactory reporting and monitoring o f the outcomes andresults o fthe project. Theresults o fthis project will not be measurable untilthe project is complete. The performance o f the electrification, for example, will be measurable only after the infrastructure i s inplace, electric locomotives are put into service, and operations resumed. The same applies to the other project components. Therefore, to properly evaluate the project's impact, it i s imperative that % post-project monitoring is maintained for the Zhe-Ganline and the system as a whole. This cannot be achieved muchbefore the closing date o f the proposed loan, so will require special arrangements. 3. Sustainability The physical sustainability o f the proposedinvestments is sound. Experience from completed and on-going Bank-financed railway projects inChina confirms Chinese Railways' commitment to the physical implementation o f its projects. CR has the ability to build and operate the assets andhas providedtimely and sufficient maintenance funding for existing infrastructure. Traffic volumes on CR are expected to continue to grow. EIRR calculations o f completed railways projects inChina at the time of loan closing --when the line financed bythe loan has been inoperation for one or two years- frequently show higher values than at project appraisal. 7 4. Critical risksand possible controversial aspects Sufficient electric power may not be available for electric traction. China is experiencing electric power shortages incertain areas, as growth ingenerating capacity is not keepingpace with growth indemand dueto sustained economic growth o faround 10percent annually. A year before the Zhe-Gun electrification is due to start operating, MOR will confirm to the Bank that it has concludedfirm agreements withpower suppliers or provincial governmentsfor adequate electricpowerfor traction on the line. Procurement of EMUtrains through domestic funding may be delayed. The planned number o ftrains to be operated at the maximum speed after the Zhe-Gan line is upgraded will require ten EMUtrain sets. All are to be financed locally. Any delay intheir deliverywould cause implementation o f the full 200 km/htimetable to be postponed. Before the end of 2004 MOR will exchangeviews with the Bank on the EMU train sets and confirm the timetablefor their acquisition andputting into operation. The China Railways development plans are rapidly evolving. Early in2004 MORannounced a Mid- and Long-Range Investment Plan approved inprinciple by the State Council. It sets China Railways on an aggressive growth path that also includes elements o f continued business process improvement andpolicy reform. The investments' economic and financial justification, their source o f financing, and the nature o f the associatedbusiness process improvements and policy reform are beingestablished. It i s expected that the Bank will be asked to assist in financing the development plan. I t is hoped that the Bank's dialogue with Chineserailway specialists, together with consulting servicesprovided under its on-goingprojects and the proposed project, will help MOR to enhance the efficiency and effectiveness of these investments. This dialoguefocuses on defining a lendingprogram that will meet China Railways' developmentobjectives while embodying thegoals of the Bank's Country Assistance Strategyfor China. It also seeks ways to speedup and simplify loanprocessing. Without changes in work rules, some of the economic and financial benefits of electrification will not be realized. The potential benefits o f electrification will be realized only ifcertain changes are made inwork rules, such as longer service schedules for electric locomotives, including runninglocomotives from end to end o fthe Zhe-Gan Line, and operating more long-distance and unit trains on the Zhe-Gan line that would skip one or more marshalling yards. At least ayear before the start of electrlJed operations, MOR will inform the Bank of the new operating rules to be applied. Shock waves caused by high-speed trains intunnels. At 200 km/htrains entering tunnels trigger shock waves that can hurt the ears o fpassengers. When two such trains pass ina tunnel the phenomenon i s especially acute. Options for mitigatingthe effect include (a) buildingwider- bore tunnels, (b) imposing speed restrictions for passingthrough tunnels, or (c) usingsealed air- conditioned coachespressurized to keep the internal air pressure above the ambient pressure. At the time the loan was submittedfor approval MOR was studying this issue. I n the meantime mitigation measures,such as reducing speedprior to entering a tunnel, were in effect. 8 5. Loan conditions and covenants Condition o f effectiveness 1. The legal opinion shall confirm that the Resettlement Action Plan (RAP) Arrangements2 entered into betweenMOR and each o fthe provinces o fHunan, Jiangxi and Zhejiang for the purpose o f causing the RAP to be carried out, are legally bindingupon the parties. Other covenants 1. MOR shall: (a) take, or cause to be taken, all necessary actions to minimize to the extent possible any involuntary loss by persons o f shelter, productive assets or access to productive assets or o f income or means o f livelihood, temporarily or permanently; (b) carry out, or cause to be carried out, the EMP, the RAPandthe RAPArrangements, in a manner satisfactory to the Bank; and (c) furnish, or cause to be furnished, any proposed revision to the EMP, the RAPSand the RAPArrangements to the Bank for its approval. 2. MORshall, bynot later than August 1,2006, enter into agreements withpower suppliers or the relevant Provinces, to ensure adequate electric power supply for the electric traction on the Zhe-Gan railway line. 3. MORshall exchange views with the Bankon the acquisition and utilization ofthe electric multiple unittrains, and shall, by December 31,2004, furnish to the Bank, a timetable for the acquisition and utilization o f such trains. 4. MORshall, not later than August 1,2006, furnishto the Bank the rules o foperationfor the upgraded Zhe-Gan Line. 5. Incarrying out the proposedtechnical assistance, the MORshall: (a) carry out the studies inaccordance with terms o freference acceptable to the Bank; (b) not later thanFebruary 15 ineachyear, commencingFebruary 15,2005, furnishto the Bankfor comments the recommendations ofthe studies carried out inthe precedingyear; (c) not later than July 31ineach year, commencingJuly 31,2005, prepare action plans for implementingthe recommendations o fthe studies carried out inthe preceding year, takinginto account the comments ofthe Bankon such recommendations, ifany; and (d) promptly thereafter, carry out eachof such actionplans. "RAP Arrangements" means the contractual arrangements entered into between MOR and the three provinces for the purpose of causing the RAP to carried out. 9 6. MOR shall: (a) submit twice-yearly financial monitoring reports that document the sources and uses o f funds for the Project duringthe previous six months; describe physicalprogress in Project implementation; andrecordthe status of procurement; (b) submit such reports to the Bankwithin 45 days after the end ofthe first halfyear after the loan becomes effective andat 6-monthly intervals thereafter; (c) maintain policies andprocedures adequate to enable it to monitor and evaluate on an on- going basis, inaccordance with indicators acceptable to the Bank (see Annex 3), the carrying out o f the Project and the achievement o f its objectives; (d) furnish to the Bank, onor about March 1ineachyear, commencingMarch 1,2005, and untilcompletion o fthe Project, areport integrating the results o fthe above monitoring and evaluation activities, on the progress achieved incarrying out the Project duringthe period preceding the date o f each such report andsetting out the measures recommended to ensure the efficient carrying out o f the Project and the achievement o f its objectives duringthe period following such date; and (e) review with the Bank, by April 1ineach year, commencingApril 1,2005, and until completion o f the Project, each o fthe above reports and thereafter take all measures required to ensure the efficient completion o f the Project and the achievement o f its objectives, based on the conclusions and recommendations o f each report and the Bank's views on the matter. D. APPRAISAL SUMMARY 1. Economicand financial analyses Zhe-Gan Line Improvements: Most economic benefits o f the electrification and realignment of the Zhe-Gan line fall into two categories: the operating cost savings attributable to switching from diesel to electric traction and the capital cost savings resulting from not havingto acquire diesel locomotives; and the time savings associated with shorter passenger trip times. In addition, without the project the railway will have to tum away some freight traffic inthe outer years for lack of capacity. Avoiding the diversion o f such traffic to roads or more circuitous railway routes will give the project some benefits, but they will be small relative to the other categories. Furthermore, a reduction inenvironmental pollutioncan be anticipatedboth as electric is substituted for diesel traction and as highwaytraffic is diverted to the railway. But no monetary value has beenput on this benefit. Overall, this component i s expected to yield a net present value at 12 percent o f about $900 million andto achieve an economic rate ofreturn o f about 19percent (see Annex 9a), the financial rate o fretumo f this component i s estimated at 11percent (see Annex 9b). Modemization of Track Maintenance Technoloay: The larger track machines are far more efficient than their predecessors. Therefore, the greatest benefit resulting from their use i s 10 directly related to the reduced amount o ftime that a line needs to be out o f service for maintenance. With the additional time that i s available, a greater number o f trains canbe accommodated, and therefore, the volume of traffic that can be handledon the line i s substantiallyenhanced once the largertrack maintenance equipment is deployed. Basedon an actual use case study, the economic benefits of this component are substantial, andthe economic retum thus is high-more than 50 percent (see Annex 9c). N o financial analysis was undertaken for this component. 2. Technical Zhe-Gan Line Improvements: The speed-raising to 200 W h and the electrification o f the Zhe- Ganline are closely linked. Realignment andupgradingo fthe track is needed at about 245 locations covering about 900 kmo f track length(about 50 percent of track on this line) to increase the radius o f curves. Track radius would be increasedto 2,800m innormal sections and 2,200m indifficult sections for 200 W h speed. After realignment the line will be 3% shorter (from the current 942 kmto 916). To minimizethe social impact o fthe civil works tighter curves and hence lower maximum speeds will be tolerated over about 127 kmo ftrack. Maximum grade would be limitedto 7.2 per thousand. Inall 109bridges (26.8 kmtotal length), including 12extralongbridges (15.0 kmlength) would be constructed and 26 existing bridgesimproved. The section has 29 tunnels (12.2 km). In addition, 24 double-track (9.5 km) and 4 single-track (1.8 km)new tunnels will be built. The tumouts (points) on the maintrack at stations where speeds o f 140km/hor 200 W h are permittedwill bereplacedwith suitable high-speed tumouts. For safety the entire line will be fenced to keep people off the track, andbridgesto carry roads over or under the line will replace level crossings. Inorder to enhance safety cab signaling and train radio system will be provided. The existing communication system will be retained. However, to provide reliable channels, new access network equipment, digital dispatching system and on-line optical fiber monitoring systems will be set up for the entire line. Further, passenger train display andbroadcast equipment will be set up at new stations (built as a result o f displacement due to curve realignment). An intelligent centralizedtrain control system to provide automatic operating command will be provided. A four-aspect automatic block system with speed difference and frequency shiftingnon-isolated track circuit will be usedon sections where speed is raised. A train over-speed protection system will beprovided. Power supply for electric traction is at 25 kV, single phase, 50 hertz. Traction substations will be set up at 21 locations. Four switching stations and six section posts will be set up. Three power dispatching stations at Hangzhou, Nanchang and Changsha will be used. The overhead catenary system will use silver-copper alloy contact wire for the maincontact system. Twenty-four catenary sections will be set up. The total installed capacity oftraction sub-stations will be 614,000 kVA and energy consumption inyear 2010 i s estimated as 1,527 millionkWh. MOR has been asked toprovide evidence confirming thatpower supply companies will meet the required electrical load. 11 Ten locomotive depots will bemodifiedto handle electric locomotives. Two diesel locomotive depots will no longer be usedfor east-west traffic, but will remain inuse onnon-electrified lines that runnorth-southacross the Zhe-Gan. Works for water supply, sewage, buildings, air-conditioning and fire fighting will be carried out. Thetotal buildingareato bebuiltwill be 174,800 m2.New landrequisition will be 19.4 million m2and another 5.3 millionm2willbeacquired for temporaryuse. After electrification the 200 km/hsuper express trains will beoperated byEMUtrains, eachof 14cars. SS9 and SS4 locomotives would be utilized for slower passenger and freight trains respectively. 115 electric locomotives and 10 EMUtrains would replace 264 diesel locomotives. The stronger electric locomotiveswould be able to pullheavier freight trains (maximum train weight raised from 3,300 tons to 4,000) and at higher speeds. The average speed o f super express trains would increase from 86 km/hto 150km/h, that o f express passenger trains f7om 68 to 125 km/h, ando f freight trains from 36 to 43 km/h. The number o fpassenger trains would increase from 41 pairs in2002 to 54 in2010 and 64 in2015. 3. Fiduciary As noted elsewhere (Annexes 2, 7 and 8) MOR has considerable experience over the past two decades o f implementing investments financed partly by loans from the World Bank andAsian DevelopmentBank. The arrangements for the proposedproject are essentially the same as those usedon earlier projects, andare long established andwell tested. A central Project Management Office (PMO) has been established under FCTIC. Separate PMOs also have been set up inthe three railway administration bureaus (Shanghai, Nanchang and Guangzhou). All Bank-financed procurement and disbursement o four loanwill behandledbyFCTIC, while the three regional PMOs will manage non-Bank financed contracts, including those with civil works contractors who will install the Bank-financed equipment. N o Bank funds will be directed to the regional PMOs. Considering this substantial track record, the project team assesses the risks associated with procurement as average. The procurement agent hiredby FCTIC i s also experienced with World Bankprojects. Staff o fthe Bank's Beijingoffice will beprovidingsome training inprocurement through workshops, to make sure that the procurement agent is fully up to date with the Bank's latest Guidelines and standard biddingdocuments. For details see Annex 8. Likewise the risk associated with financial management is assessedas average. Staff o f the Bank's BeijingOffice will be updating the PMOs' FMstaff through project launch workshops. For details see Annex 7. 4. Environment The originalproject proposed for Bankfinancing was the electrification o fthe existing Hangzhou-Zhuzhou (Zhe-Gan) line. Category BIS2 was assigned to the project duringthe PCD safeguards review meeting inFebruary2003. Designwork was under way when the Zhe-Gan line was chosen as one o f the lines for speed-raising under MOR'Splans. Since the two 12 investments are closely linkedintime, place and function, the Task Team advised M O R that CategoryA would be triggered. The environmentalimpactassessments (EIAs) were prepared accordingly. According to these reports, the project area is predominantly cultivated landwith secondary vegetation and some wasteland. Due to long andintensive human activity along the line as well as the longperiod o f operation o f the existing railway, there are no wildlife, rare animals or rare plantsthat need special protectioninthe project areas. The major safeguard issues associated with the project are: (a) increased noise impact on sensitive sites such as schools, hospitals, and households near the rail line; (b) social severance due to total-enclosure operation after speed-raising; (c) selection o f optimal alternative sections to avoid and minimize impacts on villages and communities along the alignment; (d) increasedwaste water andsolid waste from stations and service facilities; (e) adequate public consultation; and (0 integrationofthe proposedenvironmentalmitigationmeasures inthe Environmental ManagementPlan(EMP). The environmental impact assessment report found that the realignment works would not affect ecologically sensitive or natural protection areas, andthat its construction and operation would have no significant impact on the environment, provided the mitigation measures giveninthe EMPare implementedproperly. Dueto the change from diesel to electricity, upon operationthe project would have significant net positive impact byreducing emissions o f SO2 by 71%, NOx by87%, andsmoke anddust by 87%. The environmental impacts likely to occur duringthe construction include: construction noise, potential increase insoil erosion, and generation o f dust during construction and transport o f materials, interference with the local community and traffic, waste water and solid waste from construction andcamp sites, impacts on local hydro-geological regimes, impacts on the local ecology andirrigation system, and the health and safety o fworkers. Ecological protection at borrow sites and safe disposal o f spoils will require close attention and supervision during construction. The traffic noise and vibration, waste water and solid waste from train stations and service areas, and social severance are the potential adverse impacts duringthe operation period. Though the speed-raising project i s mainly to upgrade the.existingline, there are sections where analternative alignment has been evaluated with integratedconsiderationo f environment, social and engineering aspects. The final alignment was chosen based on a series o f technical, environmental and social criteria, i.e. avoidance o f environmentally sensitive areas and cultural properties, less social interference, shorter length, less land occupation, and compatibility with local master planning. The final alignment is 26.6 km shorter than the existing line and avoids the Donghuashan-Shitatou Tombs o f the HanDynasty, a county-level site protected for its historical and cultural value. 13 A stand-alone EMPhasbeenprepared. Itspecifies the appropriate environmental management andsupervision set-up, mitigation measures, environmentalmonitoring plans,training plans and budget allocation necessary to implement the mitigation measures and strengthen the borrower's capacity. Major mitigation measures include: 0 watering to prevent dust, 0 installation o fnoise barriersand soundinsulation windows to protect against excess noise, 0 installatiodrenovationo fwaste water treatment facilities to minimize water pollution, 0 installation o fcontinuous welded rail andhigh-quality overhead catenary to minimize electro-magnetic frequency interference, 0 safe disposal and reclamation o f excess waste materials, and 0 design o f adequate passageways for pedestrians and farm vehicles to minimize social severance. The EMP also includes extensive re-vegetation and re-plantation plan for borrow/disposal areas and sub-grade slopes. This will be the tenth World Bank project to be implementedbythe MOR andthe second for the railway administrations inZhejiang, Jiangxi andHunan; the Zhe-Gan second track was built under the FifthRailway Project. Therefore, the borrower has developed ample in-house capacity to implement, supervise andmonitor both the EMPand the RAP. The key project stakeholders are the M O R and its administrations inthe three provinces, the local people who may lose land and livelihoods, villagers and communities that may be displaced, divided, or impactedbecause o f the alignment passing through or near their villages; and hospitals, schools, and individual households that may be affected by the upgrading and operation o f the railway line. Three rounds o fpublic consultation were carried out with the affected people and communities, local government and environmental experts (April 2002, May-June 2002 and September 2003), and the relevant information and documents were provided at the public meetings. A total o f 2,580 people were consulted, and the EIAswere placed inthe public libraries o f 10 cities along the line inJanuary 2004. Inaddition, the reports' summaries and major findings were published inthree provincial newspapers and made available at the information center o f the Bank's Beijing Office. 5. Social The Zhe-Gan Line passes through three provinces o f Hunan, Jiangxi, andZhejiang. O fthe three, HunanandJiangxi arerelatively poor, as are the provinces to the west ofHunanthat also use this line to reach their markets inthe Shanghai area. Increased capacity and shortenedjourney times for passengerswill provide safer andmore reliable transportation to the millions o fmigrant workers who work inZhejiang, Shanghai and other parts o f the Yangtze River deltaregion. Theproject will requirethe takingo f some land and structures that will affect the livelihood o f some. Minimizing andmitigating these impacts has been a major consideration inthe selection o fthe alignment for the project design (see Annex lO(a)). MOR has considered different alternatives inorder to minimize land impacts. 14 MORhas prepared a resettlement action plan for each o fthe three provinces, summarized below anddescribed indetail inAnnex lO(b). It involvedmapping o f affected production teams (farmgroups), inventory o fimpacts, takinga censuso fdisplaced persons by gender andage, remaining landcapacities after project landrequisition andreallocation, and categories o f land resources remaining at the level o fproduction teams. A feasibility study has beenprepared for landredistribution amongthe production teams and the villages. Alternative plans have been drawn up to mitigate the impacts o f land acquisition. Farmers have been consulted regarding land-based livelihood restorationand household-based land resources, and the impact o f land requisition. According to government statistics, there are no ethnic minority communities inthe project areas. Duringthe resettlement inventory survey and livelihoodrehabilitation planning a form o f social assessment screened a corridor on average 2 kmwide -1 kmeither side o f the proposed railway alignment-- to identify whether ethnic minorities would be affected. The affected villages vary insize. Focus group discussions andproject key information interviews proved to be a good instrument for broad consultation as part o fthe strategy to disseminate project information, collect people's concerns, needs and recommendations, and consult the affected people about the resettlement andrehabilitation strategy. Fieldfeedback has been incorporated into the project design and RAP documentation. The resettlement impact survey and focus group discussions indicatedthat no minority community would be affectedbythe project. All the affectedhouseholds andvillages havebeenidentifiedthrough the careful detailed resettlement inventory survey. Project information has been provided to the affected villages and local governments through newspapers, posters andpublic meetings. It is intendedthat information disseminationand consultation will continue duringproject implementation. A resettlement information booklet, including the detailed entitlements o f each household and compensation and entitlement policies and grievance procedures, will be distributed to the affected people before resettlement is carried out. The affected communities will play a key role infinalizing andimplementing their livelihoodrestorationprograms. Both internal andindependent monitoring o f the resettlement has been designed inthe draft Resettlement Action Plans for project implementation. The draft Resettlement Action Plans have beenplacedinlocal libraries and their availability has been advertised inlocal newspapers. MORhas accumulated much experience inpreparing andimplementingthe on-going (first) National Railways Project. It will establish a similar institutionalset-up to implement the proposed project. The arrangements for resettlement implementation are detailed inthe RAPS. The designwill berefined firther andrelatively minor design changes are likely to continue until implementation starts. Typically, final designs result inmarginal decreases inlandacquisition andstructuraldemolition, as well as changes inproportion among categories o faffected landand structures. The resettlement entitlement matrix applies to the resettlement implementation and the area affectedby the changes inproject design. East China Survey andDesign Institute was contractedto conduct the resettlement social assessment exercise, which has contributed to the project design. The same institute, which is independent o fMOR, may be hired to conduct the independent monitoring o f the resettlement 15 program. The project will bemonitoredtwice a year andthe livingstandards o fthe project- affected peoplewill be evaluatedthroughout project implementation. The monitoringresults will bereportedregularly and, ifnecessary, remedialactions willbe designed. 6. Safeguard policies Safeguard Policies Triggered by the Project Yes No EnvironmentalAssessment (OPIBPIGP4.01) Natural Habitats (OPIBP 4.04) PestManagement(OP 4.09) Cultural Property(OPN 11.03, beingrevisedas OP 4.11) InvoluntaryResettlement (OPBP 4.12) IndigenousPeoples (OD 4.20, beingrevisedas OP 4.10) Forests (OP/BP 4.36) Safety ofDamscOP/BP 4.37) ProjectsinDisputedAreas (OP/BP/GP 7.60) Projectson InternationalWaterways (OP/BP/GP 7.50) 7. Policy Exceptions and Readiness w *n This projectdoes not require any exceptionsfrom Bankpolicies. n I 2 _ - / GrahamSmith JitendraBajpai ' u TeamLeader ' Sector sector Director Yukon'Huang Yukon Huang 1 Country Direcfor 16 Annex 1:Transport Sector Background CHINA: Second National Railways Project 1. BriefDescription of the Transport Sector Duringthe last decade there havebeenmanychanges affecting the transport sector inChina. Since the early 199Os, the economy has moved from a centrally planned environment to one which is more commercialized and competitive; the degree of openness has increased; patterns o ftransport demand have changed; passenger and freight traffic has grown rapidly, puttingheavy demands on infrastructure; and the role o fthe private sector has substantially increased. Roads. China has, inthe past, underinvested inroads; its road network still ranks among the sparsest inthe world relative to geographic area andpopulation. China's road network in2002 extended roughly 1.76 millionkm, including 25,130 kmof expressways and about 27,468 kmo f other high-grade highways. Yet inrecent years, governments at all levels have embarked on major highway investment programs. At the core of this program i s the National Trunk Highway System (NTHS), a 35,000 kmnetwork composed o f 12majorhighways (five north-south corridors and seven east-west corridors with an estimated cost o f $150 billion, connecting all provincial capitals and cities with populations exceeding 500,000 inhabitants (100 major cities). All sections o fthe NTHS will match U S Interstate or Europeanmotonvay standards. By 2002 roughly 27,000 km, or 77 percent, hadbeen completed. About 5,000 kmare under construction now, while the remaining 3,000 km are yet to bebuilt. The original target completion date for this program was 2020, but the Government has since decided to push up the deadline to 2007. Traditional funding resources are inadequate to meet the increasing demands that a growing economy places on road infrastructure. Financingfor NTHS construction relies heavily on tolls to repay loans. The government's cash contribution has been raised from three earmarked road- user charges: the vehicle purchase tax ($4.5 billionin2002), the road maintenance fee ($10 billion), and the highwaytransport management fee ($2.5 billion). But altogether the charges only covered one-quarter of new construction expenditures in2002. The road maintenance fee i s inefficient, expensive to administer, easy to evade, and currently generates less than 40 percent o f its potential. Ofthe revenue collected, only 60 percent is actually used for road maintenance; the remainder i s spent on new construction. The 1999 authorization o f a fuel tax has yet to be implemented. Relative to most other countries inthe world, private sector participation inthe growth o f China's highway system is extensive. Over the last decade, some 80joint venture transactions betweenHongKong and mainland developers andtheir mainland-counterpart highway agencies in 14provinces haveraisedanadditional $9 billionfromprivate sources. Further, asset securitization (the sale o f highway equity through initial public offerings and private placements, as a substitute for long-term debt financing) raised another $2 billion through 19 transactions by 2001. Altogether, though, private financing has contributed less than 10 percent o f China's total commitment to new construction since the early 1980s. 17 Railways. Bythe end o f 2000, China's rail system reached 68,000 km. The nation constructed 5,600 kmo fnew rail duringthe NinthFive-Year Plan (FYP, 1996-2000), representing an 8 percent increase over the five-year period. Duringthis time, $29 billion was invested inrailway infrastructure construction--28 percent more than duringthe EighthFYP (1991-99, which itself had set records for railway investment. The nation's Tenth FYP (2001-05) proposes to expand the size o f the rail network, speedingup railway construction inwestem China andadding capacity inthe main corridors o f the eastem network--notably to link Beijing and Shanghai. By 2005, the length o f the national railway i s expected to reach 75,000 km, increasingrail inwestemregions bymore than 2,000 km.The projects should create roughly 14,000 kmo fhigh-speed track--that is, with maximum speeds o f 200-250 kmper hour--across the nationalnetwork, about 25,000 kmo f double-track lines, and 20,000 kmo f electrified lines. After careful analysis o finternational experience, the PRC government has adopted strategic goals for the national railway system, aimingto make it more responsive to market needs. The railway i s spinningo f fnon-transport subsidiaries as independent companies, and incertain regions has initiatedpilot operations where passenger services are set up as profit centers separate from freight. Waterways. Chinahas large navigable rivers--especially incentral andsouthem China--that linkmanyofits major cities. Moreover China's geography andthe locationofits population are exceptionally favorable to inlandwater transport. These features create the potential for inland water transport to claim a larger share o f China's inlandtransport market, which today makes up roughly 10percent o f freight intons and, because ofthe more efficient use o f existing waterways, makes up 27 percent o fthe freight ton-km. Many rivers carry large volumes o fbulk cargo that are hauled from rural to urbanareas for processing. Onthe rivers' upper sections, limitedwater depth prevents safe year-round access by vessels with capacity o f more than 100 tons. But at a relatively modest cost, the navigation channels on these rivers could be deepened enoughto enable much larger vessels to reach far upstream. An added advantage i s that inland water transport has less impact on the environment than rail or road transport. Accordingly, to ease the pressure of demand for new roads and improvedrailways, the government has recently increased investment inwaterways to deepen navigation channels and upgradenavigational aids. Air transport. Although central responsibility for airport developmentremains with the Civil Aviation Authority o f China (CAAC), China's provinces are increasingly involved indetailed planning,construction, operation, and financing. CAAC will support between20 and60 percent o fthe total airport development cost, depending on the airport's role inthe national hierarchy. Air navigationis stillthe exclusive domain o fCAAC andis likelyto remain so for the foreseeable future. Although a plan for the development o f air navigation facilities exists, there is no overall strategy for airport development. Instead, eachproposal is considered on its merits. The NinthFYP aviation policy emphasized safety and regular quality service. To achieve this, substantial additions to capacity are being built at international airports inBeijing, Shanghai, and Guangzhou, as well as inmanyprovincial capital airports, and improvements infacilities for 18 airport management, flight control, fuel supply and maintenance are under way. Good airfreight facilities are important inattracting fast growing, highvalue-added industries. The smaller and newer airports that can offer better services are growing faster than the larger ones. Beijingand HongKonghave experienced highgrowthrates, despite the opening o f competing airports in Macau, Zhuhai, and Guangzhou, and massive investmentinupdating freight facilities at Shanghai. Multimodaltransport andlogistics. Chinahas for years maintainedahierarchical culture that resists crossingjurisdictional boundaries. This culture makes it difficult to take advantage o f opportunities that require "horizontal" interaction--such as multimodal transport. Multimodal transport requires cooperationbetweenproviders of road transport andrailways, which come under separate ministries and rarely interact. This may help explain why in 1999 China's logistics costs were estimated at 18 percent of GDP, highincomparison with the US share o f 9.5 percent inthe mid-1 9 9 0 but~ ~ about average for a transition economy. Transactions that are lengthy and costly to complete, highinterest charges, and inefficient transport systems have contributed to China's highlogistics costs. Indeveloped economies, transport costs account for roughly one-quarter o ftotal logistic costs, while China's transport costs in 1999 totaled roughly one-half o f its logistics costs. Since 1999, big improvements have beenmade inboth transport infrastructure and services inthe coastal provinces, but the inland provinces are still lagging. Urbantransport. The Chinese cities are experiencingrapidgrowthas workers migratefrom rural to urbanareas. The substantial growth ofmanufacturing and consumer-based industries has also sped up the process o f urbanization. Most large and mediumcities inChina are already facing serious traffic congestion problems generated by crowded anddisorderedtraffic. Inthe early 80s, there were only 28 citieswith over 1millionpeople, butby2002these have increased to 36, o fwhich 9 are metropolitan areas with a population ofmore than 2 million. As for the medium-size cities with half a million to one million people, the number increased to 45 duringthe last two decades. The trendofurban expansionis continuing characterized bythe expansion o f the urbanboundary, the creation o f large regional cities, andthe development of suburban areas. Under these circumstances, even thoughinthe last decade Chinese cities investedmassively in buildingandimproving urbanstreet networks, they canhardly keep pace with the growth rate o f vehicles. The traditional passenger public transport cannot meet the demands o fmoderncities, for rapid, on time, and frequent service, andpassengers inmost cities heavily rely on bus and trolley systems that generally fail to meet the need o f the local residents. A large number o f bicycles are still used for daily travel to work, sharing streets with motor vehicles. The mixing o f fast andslow traffic causes traffic disorder andhighaccident rates and slows down the average vehicle speeds, resulting inless efficient and poor-quality public transport services. 2. MainIssues To reduce risks and bottlenecks inits transport sector, China needs to address several key issues. 19 Governmentand administration.Through aprocess o fdecentralization, the State government has limitedits powers over provinces and, as o f yet, has not established a single, national ministry responsible for all transport modes and therefore the degree o f administrative reform varies from province to province. Improved cross-border cooperation o f China's de-centralized government bodies will be required to meet the demandso f their new roles as regulators. Regionaldisparities.Provinces along China's eastern seaboardhavebenefitedfrom logistical accessibility andwell-developed infrastructure, andhave grown more quickly than their western counterparts and the Northeast, seat o fmucho f China's early heavy industry. Current PRC government efforts aim to narrow the widening wealth and income disparities among these three regions by attracting more domestic and foreign investment to the interior. ShiftinPmarketneeds, Shippers andpassengershavemore options now than ever before and are requiring faster and higher-quality services. Currently, however, some shippers resort to expensive and inefficient measures, such as operatingtheir own truck fleets, to ensure quality service. As users demand better services, not only will infrastructure and other assets have to improve, but so also will the capacity o f operating companies to integrate services across transport modes andjurisdictions. Specifically, road and waterway freight transport will take market share from rail--road transport because it canprovide better door-to-door service and waterway transport because it is potentially cheaper for bulk products. Rail andbuses' share o f the passenger transport market will also shrink, as private car ownership andpassenger air services grow. Demand for container transport services will increase since containers andmultimodal transport reduce transport costs, facilitate global supply chains, andprovide the reliable services and delivery that exporters and foreign investors depend on. Roadtransport. The PRC government faces manynew challenges concerning the nation's highways. While continuing to expand the expressway system, Chinawould do well to focus on overall road network management and maintenance. Other key cross-jurisdictional coordination issues include improving the transport standards o f western provinces and the management o f entries andexits to cities, road safety, logistics, and landuse. China's road investment in2002, including construction andmaintenance, totaled roughly $45 billion. This highlevel o f investment, which represents about 3.5 percent o fthe nation's GDP and has been maintained duringthe last five years, i s exceptional (few countries spend more than 2 percent o ftheir GDP on transportation). Yet fundingfor maintenance and construction o fthe secondary and tertiary networks remains inadequate. Additionally, the private sector's share o f highway financing i s unlikely to increase inthe future. China, therefore, needs to introduce more efficient and sustainable modes o f financing, such as a surcharge on auto fuel. (The State Council approvedthe gas surcharge concept inprinciple in 1999,but implementing legislation has yet to be passed because o f strong objections from many stakeholders. This reform will entail a far-reaching restructuring o f several major tax revenue sources, public spendingpowers, andthe balance betweennational andprovincialmandates.) 20 Railways. The performance o f China's rail systemis, byinternational standards, very good, but the system needs to expandits capacity further, to keep raising the quality o f services, and to acquire modemtechnology to remaincompetitive inthe future. Inthe past, PRC rail management has tendedto emphasize maximizing volumes carried rather than generating revenue or improvingthe value o f services. But attitudes are changing. The PRC government may find it useful to address these longer-term strategic questions: How muchcompetition should be allowed among companies offering rail transport services (private or otherwise)? Can pricing be made flexible enough so that it reflects costs more accurately, permits fees on a service-by-service basis, and allows carriers and customers to enter into contracts that cover price and service quality? And what i s the best way to handle surplus labor as information technology eliminates the need for manyjobs? China opened its rail freight market to new privatejoint ventures inspecialized markets, such as container services, as part o f its World Trade Organization entry. Waterways. As China's economy matures and shifts toward manufacturing high-value intermediate and finished products, the primary sector (farming, fishing, forestry, andmining) andconstructionwill decline inrelative importance, shrinking the market for inlandwater transport. The coastal provinces will feel this transition first. But inland water transport may continue to thrive for bulk cargoes, oversized loads, or dangerous cargo; it may even prosper in the coastal provinces--especially inriver deltas--where no road or rail altemative is readily available. A niche market for containers may also develop inplaces where road andrail service is deficient. Taken together, the demand for transport on China's major rivers i s likely to remain substantial for at least the next couple o f decades. To increase inlandwater transport efficiency, continuing channel upgrades and fleet modemization includingthe use o f separatebarges andpusher units insteado f self-powered small vessels, will be necessary. Private fundingmay be crucial inmeeting China's water transport demands, but further commercialization may be difficult because it implies an end to family-operated vessels, which are an important source o f employment. Air transport. Eventhough air transport makes up the smallest share o f China's total freight transport, it is the fastest growing mode, with more than 2 million tons transported in2002, compared with only 100,000 tons in 1980. And airfreight is important for China's international trade since it allows quick access to China's two major markets--Europe and the UnitedStates. Chinese officials are aware that the rapid growth inair travel creates a need for strong infrastructure investment inthe sector. Most government resources have been allocated to finance new runways. But as runway use and aircraft size increase, medium- and long-term investments will shift toward passenger terminals. Inthe past, most fundinghas been allocated to finance new airports, terminals, and other facilities to serve large cities incoastal provinces. Since the Great Westem Development Strategy began in2000, the government's attentionhas shifted to the needs o f China's interior. 21 Modernization o f air traffic control inthe coastal air corridors has begunineamest. The next step will be expanding air routes as the demand for intemal flights increases. Urbantransportinfrastructure. Population growth andincreasedvehicle use are severely straining China's urbantransport infrastructure. The last decadehas thus seen a decline in mobility for most classes o f urbantransport--especially bicycling andwalking. As fast as ring roads are built, traffic expands to fillthem. And the urbaninfrastructure planningprocess i s neither comprehensive nor systematic. China's urbanization andmotorization growth rates have skyrocketed. The central government's current policies support bothtrends, which are expected to continue into the foreseeable future. According to UnitedNations forecasts, China's urban population will increase from 30.2 percent o fthe population (3 19 million) in 1995 to 49.1 percent (712million) in2020. Car ownership i s projectedto increase tenfold from an average o f 10 cars per 1,000 residents to 100 cars per 1,000 residents duringthe same period. It is hopedthat traffic management andprovisions for non-motorized traffic will be facilitated by implementation o f a new road traffic safety law that took effect inM a y 2004. It creates a formal mechanism for coordination among the many government agencies with an interest inroad safety. 3. MainPolicyRecommendations Transportationwill be increasingly vital inChina as the nation's economy continues to change from a planned, centralized system to one that i s market-based and decentralized. To satisfy the rapidly changing needs o ftransport users, provide the necessary conditions for economic growth, improve access andmobility among the poor, and protect the environment, China will need to design, and fund, appropriate transport strategies. Inthe short andmedium termthe Chinese governmentneedsto implement anumber ofpolicies to improve the performance o f its transport sector. The Bank recommends that the Government give priority to the following: Strengthen coordinationbetweenroad and rail systems by creating a government entity at the ministerial level that covers all transport modes, develop an effective institutional and regulatory capacity, and assist government to adapt to the role o fplanner and regulator. Identifyand create sustainable financing sources, includinga fuel tax. Create a more favorable environment for private sector investments. Support market-based initiatives for the provision o f infrastructure and services to enable China to take full advantage o f globalization through improved transport logistics and trade facilitation. Support modal reforms and facilitate the introduction o fmarket-based transport operations and services that offer more flexible pricing. Choose investments that will improve accessibility for lagging provinces, andwill reduce regional disparities through the provision o f critical links between eastern and westem China. 22 0 Support direct investments inpoor communities through the completion o fprovincial roadnetworks that improve accessibilityto poor andremote areas. 0 Strengthen management o f sector externalities such as pollution, health, and safety and integrate urban transport planning and management. Manyo fthese objectives are already reflectedinthe Government's Tenth Five Year Planfor the transport sector to support economic growth andspread its benefits to lower-income populations. These plans call for continued efforts to improve networks--mainly through capacity increases in infrastructure--andto develop transport services further. PRC authorities are committed to continue construction o f the National Trunk Highway System to complete the 35,000 kmnetwork by 2007; to improve transport to and within China's western regions; and to improve accessibility to low-income populations everywhere inChina. This long-term planinvolves extendingthe East-West and North-Southhighways (which today total roughly 18,000 km) to link the interior regions to the coast and to connect western provinces together. It also involves rehabilitating and upgrading technical standards on about 180,000 km o fthe western roadnetwork and developing roughly 150,000 kmo frural access road. The Government has announced that it attaches importance to developing and implementing logistics concepts--particularly for container transport withinthe seven corridors leading to the interior from major ports; improving road safety; anddeveloping market mechanisms in infrastructure construction andoperation and inthe provision o f transport services. Further reform o f transport sector institutions andthe continued development market regulations will facilitate effective implementation o f logistic concepts. According to recent international experience, the Government would do well to follow a number o f general principles when formulating its transport sector policies. Except incases o f clear market failure, rely more on the market and less on the government to allocate resources; allocate public expenditures inthe transport sector more efficiently; and set standards andregulations for consulting firms, construction companies, and for freight andpassenger transport services. These standards should include minimumconditions for market entry that are consistent with gradual improvements inservice and safety quality, and should include regulations for transporting hazardous materials and other special transport. Inthe short term, ifthe Government improves coordinationbetweenChina's transport modes by creating a Ministry o f Transport, develops an effective institutional and regulatory capacity, and creates a sustainable financing source (including a fuel tax), it will achieve the ambitious goals defined inits current transportationplans. Inthe medium term, ifChina succeeds inmaintaining highlevelsofinvestmentintransport infrastructure andselectsinvestments that will improve accessibility for lagging provinces, it will reduce the regional disparities between eastern and western China. But inthe long term, only through improved transport logistics andtrade facilitation, anddirectly supporting market-based initiatives for the provision o f infrastructure and services, will China create a more favorable environment for private sector investments and be able to take f i l l advantage o f globalization. 23 Annex 2: RelatedProjectsandTechnicalAssistance CHINA: SecondNationalRailways Project Annex 2a: Major RelatedProjectsFinancedby the Bank andother Agencies Sector Issue Project Latest Supervision (PSR) Ratings Implementa- Development Bank-financed tion Progress Objective 1. Address railway capacity Railways I-incl. items 1, 2 bottlenecks through construction, (completed) double-tracking, electrification, and RailwaysII-incl. items 1,2 the introduction of moderntechnology (completed) Railways III-incl. items 1, 2 2. Technical assistance/training, (completed) transfer of new technology concepts to Inner Mongolia Railway Project- improve efficiency o f railway incl. items 1,2 (completed) operations and railways' financial Railways IV-incl. items 1, 2 condition (completed) Railways V-incl. items 1,2 3. Institutional strengthening and (completed) training inrailway reformissues and Railways VI-incl. Items 1,2, 3 S S introductionof tools neededfor (completed) making decisions ina socialist market Railways VII-incl. items 1, 2, 3 S S economy (on-going) National Railways --incl. items 1, 3 S S (on-going) Ratings: H S (Highly Satisfactory), S (Satisfactory), U(Unsatisfactory), HU(Highly Unsatisfactory) ~~~ Asian Development Bank (ADB) -Hefei-Jiujiang Railway Completed -Jing-Jiu Railway Technical Enhancement Completed -Daxian-Wanxian Railway Completed -Shenmu-Yanan Railway Completed -Guizhou-Shuibai Railway Completed -Xian-Hefei Railway On-going -Ganzhou-Longyan Railway On-going -Yichag-Wanzhou Railway On-going -Dali-Lijiang Railway Planned -Zhengzhou-Xi-an Railway Planned 24 JapanBank for International -Nanning-Kunming Railway (completed) Completed Cooperation (JBIC) -Hengyang-Shangqiu Railways (completed) Completed -Xi'an-Ankang Railway ConstructionProject (111) On-going -Guiyang-Loudi Railway Construction Project (II)On-going -Chongqing-Huaihua Construction Project Planned Kreditanstalt fk Wiederaufbau -Chongqing-Huaihua Construction Project Planned (KfW) Annex 2b: Recent andPlannedTechnicalAssistanceunder WorldBankProjects Project Topic Status SeventhRailway Railway LegalFramework Completed 2003 ImprovingRailway Productivity Completed 2003 Subsidiesfor Public Service Obligations Completed 2003 Studytour on Traffic Management Info System Completed 2003 Railway Investment Planning System, Phase 3 Completed 2004 (RIS-3) Passenger Tickets andFreightWaybills On-going ICollection andAnalvsis Svstem Environmental Management Training IOn-going NationalRailway Freight Pricing, Regulation & Intercompany Completed 2002 Settlement Mechanisms (workshop) Expansionof Traffic Management Info System Planned Integrationof Planning Tools Planned Railway Investment Strategy Planned DangerousGoods Handling Planned Noise Prediction Model Planned 25 Annex 3: Results Frameworkand Monitoring CHINA: Second NationalRailways Project Results Framework PDO Outcome Indicators Use of Outcome Informatior Zhe-Gan Line - Improve the (a) The transit time per trip i s Feed into evaluation o f the railway services provided to decreased by: overall China Railways customers o f the Zhe-Gan .freight: 15% development program. railway line. .passenger: 50% *express passenger: 40% (b)The unit operating cost is decreased by: .freight: 45% .passenger: 4% Network Maintenance - Upgrade Average track downtime Evaluate impact on improved the quality o f track maintenance (minutes per day) reduced by quality o f maintenance service. on heavily used portions o f China 50%. Railways' network Zhe-Gan L i n e Intermediate Results Results Indicators for Use of Results Components One per Component Each Component Monitoring Component One: Civil Works for The speed o f passenger Express passenger trains Realization o f maximum Speed Raising express trains is operate at a maximum ultimate speed increased. speed o f 200 kmper hour. ComponentTwo: Electrification The transportation The traffic volume is Determine the effect o f capacity i s enhanced. increased by: electrification on the freight: 10% capacity enhancement. passenger: 20% ComponentThree: Signaling and The number o f trains per The design headway i s Evaluate the effect o f Communication unito ftime is increased. reduced from 8 minutes to ' improved signaling and Improvements minutes. communication on headwav. 26 d g 0d d d E g g 4B td i- a" 3 3 3 'S .e g8 i- a 0 d g d 8 w 00 0 m 0 b 0 c1 ~ ~ N PI % N l- 0 0 3 e4 3 0 % 0 3 0 W Annex 4: DetailedProjectDescription CHINA: SecondNationalRailways Project Component1: Zhe Gan LineImprovements.The line (known as the `Zhe-Gan' line) between Hangzhou inthe east o f China within the province o f Zhejiang andnear Shanghai to Zhuzhou in the center o f China within the province o f Hunan near the city o f Changsa i s a key east-west link (existing double track, 942 km). The Zhe-Gan line is the only existing major east-west link connecting the coastal regions inthe Yangtze Riverdelta inthe East to the industrialregion in the center o f China and through to ChongqingKhengdu andKunminginthe West. Existing east- west links are all operating at or near capacity. This project will improve the Zhe-Gan line through speed-raising civil works, improvements in signaling andcommunications, and electrification o f the line. The improvements will reduce the ideal minimumtravel time for express passenger trains from 628 to 336 minutes. For freight trains the corresponding reduction will be from 918 to 778 minutes. Other benefits include a small increase incapacity (largely due to reduced headways made possible by upgraded signaling) and lower operating costs (due to energysavings and better utilization o f locomotives and rolling stock). Beneficiaries would include customers inthis important east-west corridor, not only inthe three provinces through which the line passes (Zhejiang, Jiangxi and Hunan) but also provinces to the west from which long-distance traffic originates or to which it i s destined. It is expected that such improved transport services will encourage economic growth inthe region by attracting new manufacturingindustries, while contributing to the efficiency andimproved financial performance o f China Railways generally. It will also help reduce environmental pollution by replacingpolluting diesel with clean electric locomotives; hydro-electricity contributes a large part o ftotal power supply inthe corridor. Component1: Zhe-GanLineImprovements, 1A: SpeedRaising. The Zhe-Gan line is representative o fthe China Railways 2003-2007 Development Plan that calls for raising the speeds and improving the quality o fpassenger services on selected railway corridors nationwide. Under this planthe maximumoperating speed o f express passenger trains would be raisedto 200 km/h.MORwould carry out civil works relatedto physical infrastructure neededto permitspeed increases on the Zhe-Gan line with its own funding. The track is to be realigned and upgraded at about 245 locations covering about 900 kmof track length (about 50 percent o ftrack on this line) to increase the radius o f curves that would permit higher operating speeds. Track radius would be increased to 2,800m innormal sections and 2,200m indifficult sections for 200 km/h speed. After realignment the track length would reduce from the current 943 to 916 km. Inall 109bridges (26.8 kmtotal length), including 12 extra-long bridges(15.0 km length) would be constructed and26 existing bridges improved. The section has 29 tunnels (12.2 km). In addition, 24 double-track (9.5 km) and 4 single-track (1.8 km)new tunnels will be built. The turnouts (points) on the maintrack at stations where speeds o f 140km/hor 200 km/hi s to be permitted will be replacedwith suitable high-speedturnouts. MOR will self-finance the civil works required for speed-raising. 28 Component1:Zhe-Gan LineImprovements,1B: SignalingandCommunications. The project will finance the procurement o f signaling and communication equipment that would be installedto upgrade signaling and communications systems. The design headwaybetweentrains wouldbe reduced from the current 8 minutesto 7 minutes. For safety the entire linewill be fenced to keep people o f f the track andbridgesto carry roads over or under the line will replace level crossings. Other measures to enhance safety of train operation, such as cab signaling, train radio communication; installation o f hot-box detectors andtrain over-speed detection devices would also be taken. The Bank loan would finance procurement o f equipment. Component1:Zhe-Gan LineImprovements, 1C: Electrification. The electrification o fthis diesel-operated line would closely follow the realignment o f track for raising the maximum operating speed. The loan will finance procurement o f equipment for overhead catenary, traction substations andpower supply for electrification. The electrification would lower the railway's operating costs and increase its capacity, allowing it to carry goods andpassengers it would otherwise have to turn away. The following equipment would be requiredto operate the electrified Zhe-Ganline: 0 10 electric multiple-unit (EMU) trains 0 34 SS9 electric locomotives for passenger trains 0 81 SS4 electric locomotives for freight trains After electrification the 200 km/h super express trains would be operated by the EMUs, while slowerpassenger and freight trains would be operated with the electric locomotives. The 115 electric locomotives and 10EMUtrains would replace 264 diesel locomotives. The stronger electric locomotives would be able to pull heavier freight trains (maximumtrain weight raised from 3,300 tons to 4,000) and at higher speeds. The average speed o f super express trains would increase from 86 to 150 Whythat o f express passenger trains from 68 to 125 km/h, and that o f freight trains from 35.8 to 43 km/h. The number o f passenger train pairs would increase from 41 in2002 to 54 in2010 and64 in2015. M O R will self-finance all the locomotives andEMUs. 105 passenger and 159 freight existing diesel locomotives would be released from service on this line. Component2: Modernizationof Track MaintenanceTechnology. This project will finance the acquisition o fheavy equipment for renewal and maintenance of rail andtrack roadbed. The procurement o fthese heavy track machines i s part o f anon-going modernization and reform project, whose goal i s to set up adequately equipped specialized entities to handle track maintenance on the entire China Railways route network (Track Maintenance Depots - TMD). .M O R i s augmenting the capacity o f TMDs by acquiring additional heavy track machines. TMDs are at present covering about 40,000 track-km. With additional capacity they would cover a total o f 67,000 track-km o f the system (about halfthe total track-km). The intentioni s that TMDs should service all mail trunk line tracks andall high-density main routes that have traffic volume greater than 25 million tons per year. The project will also finance the procurement o f rail-basedmobile cranes to allow faster response times for clearing the tracks after accidents andderailments on the mainlines. 29 Track maintenance i s divided into three activities: (a) Daily management and maintenance covers safety inspections andlight spot repairs carried out manuallyor with small track machines; (b) Overhaul andmaintenance oftrack with largemachines covers periodic tamping, stabilization and overhaul; and (c) Inspectionandmaintenance o f track usingspecial engineering equipment such as track inspectioncars and crack detection cars. MORhas retaineddaily maintenance with the operationalentity (Administrations) andhas separated the other activities --(b) and (c) above-- and assigned them to TMDs. Inorder to ensure quality, the work carried out by TMD i s accepted by a quality assuranceteam (acceptance team). The acceptance team i s located withinthe user administration. At present a TMD serves only the administration inwhich it is located. The price for track work carried out is either negotiated or there is a lump sum payment for an agreed output o f track work for each year. Bonus is paidifthe output exceeds the initialtargets. The saving inrailway employees engaged on track maintenance andoverhaul is o f the order o f 20 percent with the change over to heavy machine maintenance. In1992, MOR deployed 345,322 permanent way staff for maintenance of 106,000 track km(3.25 persons per km). With the progressive introduction o fheavytrack machines, in2001 it deployed 316,601 permanent way staff for maintenance o f 127,000 track km(2.49 persons per km). Thebenefits o fchange to employing heavy track machinemaintenance system over the light machine maintenance are restorationo fnormal operational speeds relatively quickly after heavy maintenancehepair, better quality, reduced labor and increase inintervalbetween maintenance. For example, the yearly maintenance will be extended to 18 months when heavy machines are used. The overhaul interval, however, remains the same at 7-8 years. Further, track under intensive use cannot be maintained properly unless heavy track machines are deployed. MORproposes to separate its 19track maintenance depots, which are at present part o fthe 14 Railway Administrations, into independent entities. Eventually, they would be subsidiaries o f a single Group Company. The timetable for the separation o fthe track maintenance depots has yet to be established. Component 3: Technical Assistance. Consulting services will be hired for strengthening MOR'Splanning, management and technology systems. The loanwill finance 91% ofthe cost. MORhasproposedthe following subjects for TA, andwill define more subjects later on. a) Traffic Analysis and Forecasting Methods Forecast o f traffic is an essential input for evaluating a railway investment project. M O R wishes to strengthen andmodemize the approach andprocedure for forecasting traffic inorder to meet the rigorous requirements o fNDRC for project appraisal. This will call for use of modem scientific methods for estimating freight as well as passenger traffic between origin and destination pairs. 30 It is proposedto study the approach andmethodology for railway traffic forecasting employedby developed countries and then adapt it to suit China's environment. A suitable computer-based methodology will be developed to obtainrelatively better and more reliable estimates for traffic. The TA will include the development o fnecessary computer programs. The output o fthis TA will include: 0 A "Railway Traffic Forecasting Handbook" which describes the altemative forecast models, conditions and parameters to be considered, methodology employed, and procedures to check the reliability o fresults. 0 Developing an information system anddatabase for the important parameters. 0 Technical training to concemed staff. b) PolicyFrameworkfor ResettlementandEnvironmentalProtection To meet the growing transportationdemand, China intends to utilize capital from the World Bank and the Asian Development Bank to expand and improve its railway network. Compliance with national laws as well as safeguard policies o f the lending agencies relatedwith environmental and social issues such as resettlement o f affectedpersons i s important to ensure smooth preparation, appraisal and implementationo fprojects. It is, therefore, essential that M O R develop policies and procedure for managingthe safeguards-related issues in an expeditious and effective manner. The proposedTA will survey and review the current policies andpractices for resettlement and environment for railway projects inboth China and foreign countries. It will also review the requirements o f state laws and the policies o fmultilateral agencies as well as o f other countries inrespect ofsafeguards. The objective willbethat safeguard issues are dealt withexpeditiously andthese should not, as i s the casenow, become critical activities inproject preparation as well as implementation. Concerned departments and safeguards experts o f multilateral agencies and those of developed countries will also be consulted. Based on the above, the study team will prepare a draft paper that lays down the norms and procedures for handlingenvironmental and resettlement-related work and assign responsibilities to specific agencies. Responsibilities o f relevant departments will be defined. Suitable measures and responsibility for ensuring compliance with standards andprocedures will also be included. The document will then be submitted for review and approval o f MOR. MORproposes to retain domestic as well as international consultants for this TA. c) EquipmentStandardsfor Planningof ElectrifiedNetwork The total operating length o f electrified railway inChina is 18,758 km. Except for lines o f Guangzhou-Shenzhen, Harbin-Dalian and Qinghuangdao-Shenyang, which are equippedwith imported technology and designed for speed o f 200 km/h, the maximum speed allowed on the rest o f the electrifiednetwork i s 160krdhor less. This TA will help develop design and equipment standards for 2001- km/hspeed overhead catenary system (OCS). 31 The objective o fthe TA i s to study international standards o f high-speed electrified railways and develop a set o f standards for designing, construction, installation andtestingas well as operatingmaintenance inreference to railways in China. These standards will pay special attentionto safety aspects o f OCS. The study will be carried out inthree phases. Phase Iwill consist o f data and information gathering inrespect o f design, construction, installation, testing, operating andproblems on quality control o f OCS indeveloped countries. A comparisonwill be made o f experience with respect to factors such as cost o f equipment and installation, operating costs, maintenance requirements, reliability and safety. Special attentionwill be paidto identifying problems encountered with particular designs and equipment. InPhase11,the studyteamwillmaketechnical visits to OCS installations, construction sites, testing facilities, operating equipment and factory workshops. Differences on standards and performance will be identified through discussions with international experts. InPhase111,basedonthe information gathered andadvice received, draft standards willbe prepared for designing, construction, installation and testing as well as operating maintenance o f high-speed electrical OCS. The draft document will cover the following areas: 1. Designunder special environment ( e g catenary at bridges, tunnels, stations andyards); 2. Standardized design drawings for traction power supply stations; 3. Standardized design for catenary; 4. Measures for quality assurance; 5. Recommendations for new equipment, spare parts, materials, maintenance tools, and raising staff productivity for maintenance; 6. Application o f new technology for electrifiedrailways (testing o fpantograph and catenary, automatic neutral section insulating device, etc.); 7. High-efficiency work methodology for maintenance. A workshop will beheldinChina to discuss the draft document and arrive at recommendations for approval byMOR. M O R proposes to hire local as well international consultants for this TA. d) Managementof ConstructionSupervision The demands for railway transportation, both intraffic volumes and inservice quality, have been growing steadily inChina. M O R is planningto build or upgrade a railway network composed o f eight east-west corridors crossedby eight north-south trunk lines. The western railroad network will also be expanded. Upgrading and capacity expansion o fthe existing railways andthe raising o ftrain speeds is also a highpriority target. Duringimplementation o f the lothand 1lth Five-Year Plans (2001-2010), MOR will construct several newrailway lines including the Beijing-Shanghai DedicatedPassenger Railway and the Northwest and the Southwest Cross- Border Railway Corridors. 32 Railway construction on such a large scale will pose a serious challenge to the railway's construction industry. M O Rproposes to engage a consultant for training and the development o f project management techniques for effective supervision and quality assurance o f large construction activities. M O R has already concluded a contract with an international consultant for training o frailway managers with respect to environmental protection andmanagement duringrailway construction. The consultant will review the current procedures and techniques used for managingrailway civil engineeringprojects. Management procedures at two major construction sites will be studied to determine the improvementsthat are requiredto be incorporatedto bringthe project management and supervision inChina to international standards. Based on the above review the consultant will prepare a one-week training program and training material for managers o f MOR. The consultant will then hold a one-week classroom training program for about 20 participants in China. At the conclusion o f the classroom training, the consultant will accompany the trainees on a field trip to one or two major construction sites inChina to review the project management techniques andprocedures inuse for showing practical examples. The expert will prepare a guidebook inEnglish language for project management techniques for large railway civil engineering projects. This guidewill cover all major aspects o fproject management and include intemationally accepted techniques. The Bank will explore the availability o f grant funding for the Management o f Construction Supervision technical assistance. 33 h hl Ual 0 S Y Y U v) c v) Q) Annex 6: ImplementationArrangements CHINA: Second NationalRailwaysProject The organizational set-up for implementing the project i s explainedinAnnex 7 (Financial Management). Procurement arrangements are set out inAnnex 8 (Procurement). Arrangements for implementing the environmental action planare set out inAnnex lO(a), Section H(Environmental Management Plan). Arrangements for implementing the resettlement action plan are summarized inAnnex lO(b) (RAP Summary). Reporting MORwill monitor and evaluate the progress ofthe projecton a six-monthly basis. MORwill prepare, under terms satisfactory to the Bank, by February 15 and August 15 ineach year, commencingFebruary 15,2005, and untilcompletion o f the Project, a comprehensive Project Progress Report integrating the results o fthe monitoring and evaluation activities, on the progress achievedinthe carrying out o fthe Project duringthe period preceding the date o f each said report and setting out the measures recommendedto ensure the efficient carrying out o f the Project and the achievement o f its objectives duringthe period following such date. Shortly after receipt o f the project progress report the Bank will review, together with M O R and at a date mutually agreed, the progress o f the project. The February 15,2006 report will be a Mid-Term Project Progress Report that reports the progress o f the project to date. A mid-term review will shortly follow receipt ofthe Mid-Term Project Progress Report. The dates o f the progress reports andreview meetings are listed below. No. ProgressReport ProgressReview Meeting Description I 2 I Februarv15,2005 1 15.2005 Feb-Mar 2005 Initial Review August I Aug-Sept 2005 1 Semester Review 3 February 15,2006 I Feb-Mar 2006 I Mid-Term Review ~ ~ 4 August 15,2006 Semester Review Semester Review d , 6 August 15,2007 Aug-Sept 2007 Semester Review 7 February 15,2008 Feb-Mar 2008 FinalReview (unless the project is extended) 35 Annex 7: FinancialManagementandDisbursementArrangements CHINA: SecondNationalRailwaysProject 1. Summary of the FinancialManagementAssessment The Bankteam assessedthe adequacy o f the financial management system for the Project. The assessment, based on guidelines issued by the Financial Management Sector Board inJune 2001, concludedthat the Project meets minimumBank financial management requirements, as stipulated inBP/OP 10.02. This project bears many similarities to the (first) National Railway Project currently nearingcompletion andwill be usingthe same FMarrangement as before (e.g., internal controls and reporting), which were previously assessedand determined to be acceptable. Inthe team's opinion, the project will have inplace an adequate financial management system that can provide, with reasonable assurance, accurate and timely information on the status o f the project inthe reporting format requiredby the Bank and agreed with the client. The loanwill be disbursed using the traditional disbursement techniques and will not be using PMR-based disbursements, inaccordance with the agreement between the Bank and MOF. N o outstanding audits or audit issues exist with any o fthe implementing agencies involved. The task team however will continue to be attentive to financial management matters and audit covenants duringproject supervisions. CountryIssues: To date, no Country Financial Accountability Assessment has beenperformed for China, though dialogue with the Government inrespect of such an exercise i s underway. The Bankhasreliedona similar exercise carried out bythe AsianDevelopment Bank in2000 for reference. However, based on observations o f developments inthe areas o f public expenditures, accounting andauditing, andBank experience with Chinaprojects for the past few years, we note that substantial progress has beenmade inthese areas and further improvement i s expected inthe next few years. As economic reform further unfolds, the Government has come to realize the importanceo f establishing andmaintaining an efficient and effective market mechanism to ensure transparency and accountability, and minimize potential fraud or corruption. ImplementingEntities:For the proposedproject, all Bank-financedprocurement and disbursement functions will be handledby the Ministry o fRailway's Foreign Capital and Technology Import Center (FCTIC). Similar to previous Bank railwayprojects, a central Project Management Office (PMO) has been established under FCTIC. Separate PMOSalso have been set up inthe three railway administration bureaus (Shanghai, Nanchangand Guangzhou). They will awardMOR-financed contracts and supervise their implementation; no Bankfunds will be directed to them. 36 Central PMO Shanghai Nanchang Guangzhou Strengths and Weaknesses (1) Strengths: MOR is ahighly centralized ministryinChina's government system. The organizational arrangement is simple andthe division of responsibilities is clear. FCTIC and the PMOs involved have extensive experience with Bank projects. I Weaknesses Resolution 1. Some financial staff are new to Strong assistanceand training program will be provided by FCTIC. Bank's projects and are short of relevant experience. 2. FCTIC's knowledge on Bank FCTIC's financial staff will better familiarize themselves with project financial management Bank's requirementson project financial management. RequiredFM requirements needs to be updated. procedures are beingdocumented in a financial manual. project transaction FCTIC should consider the possibility of using accounting software accounting treatment may be to processtheir transactions. Necessary internal controls will be manually processed. maintainedto ensure the accuracy of accounting records if transactions continue to be processedmanually. FundsFlow: The Bank loanwill be signedwiththe People's Republicof China through its MinistryofFinance(MOF) andon-lent to MOR. TheBankloanproceedswill flow from the Bank into the project special account to be set up at and managedby FCTIC and finally to contractorsor suppliers. Counterpart funds will follow domestic procedures. Staffing: Adequate project accounting staffwith educational background and work experience commensuratewith the work they are expectedto perform is one of the factors critical to successful implementation of project financial management. Basedon discussions, observation andreviewofthe educational background andwork experienceofthe staff identifiedfor financial and accounting positions inthe PMOs, the task team notes that they are qualified and appropriateto the work they are expectedto perform. To strengthen financial management capacity andachieve consistent quality of accounting work, MORhas drafted a project financial management manual. Itprovides detailed guidelines on financial management, internalcontrols, accounting procedures, fund and asset managementand withdrawal applications. 37 AccountingPoliciesandProcedures: The administration, accountingandreportingo fthe project will be set up inaccordance with the Circular #13: "Accounting Regulations for World Bank FinancedProjects" issued inJanuary 2000by MOF. The circular provides in-depth instructions on accounting treatment o fproject activities and covers the following: 0 Chart of accounts 0 Detailed accounting instructions for each project account 0 Standard set o f project financial statements 0 Instructions on the preparation o fproject financial statements The above standard set o fproject financial statements hasbeen agreedbetweenthe Bank and MOF andapplies to all Bankprojects appraisedafter July 1, 1998 and includes the following: 0 Balance sheet 0 Statement o f sources and uses o f funds 0 Statement o f implementation o f loan agreement 0 Statement o f special account EachPMO will bemanaging, monitoring and maintaining its respective project accounting records. Original supporting documents for project activities will be retainedby the PMOS. ReportingandMonitoringandFormatof FinancialStatements: Each PMOwill prepare the above four financial statements, which will thenbe reviewed, approved and consolidatedby FCTIC before being sent to the Bank for review andcomment on a regular basis. Inline with the newly issued Financial MonitoringReport (FMR) guidelines, the un-auditedproject consolidated financial statements will be submitted as part o f each FMRto the Bank on a semi-annual basis (prior to August 15 and February 15 o f the following year). InternalAudit: Although MORhas its own internal audit department, it does not perform audit procedures on its subsidiaries on an annual basis. Furthermore, we have not and will not assess the competency o f the internal audit department due to the costibenefit o f doing such work. Reliancewill therefore not be placed on work performed by them. InformationSystems: The accountingtreatment o fproject transactions o f all the previous railway projects were manually processed. Although accounting software developedby MOR has been usedby FCTIC, it i s only for domestic reporting purposes and it i s impossible to integrate the project transactions into this system. The Bank team discussed with FCTIC the possibility o f developing a new system or purchasing existingsoftware to process the project transactions. The team will review the adequacy of their financial accounting andreporting software ifFCTIC decides to adopt such an information system. Otherwise ifthey insist on continuing with a manual system, a soundinternal control should be maintained to ensure that complete and accurate financial information can be provided ina timely manner. SupervisionPlan: A detailed supervisionplan for this project will be included as part o fthe China Audit Strategy document which i s currently inprocess. This planwill take into consideration the size o f the project and the risk identified. 38 2. Audit Arrangements The Bank requires that project financial statements be audited inaccordance with standards acceptable to the Bank. Inline with other Bank-financed projects inChina, the project will be auditedinaccordance with Intemational Standards for Auditing and the GovernmentAuditing Standards o fthe People's Republic o f China (1997 edition). The Foreign FundsApplication Audit Department (FFAAD) o fCNAO has beenidentifiedas auditors for the project. Annual audit reports will be issued inthe name o f FFAAD. The annual audit reports on the project consolidated financial statements will be due to the Bank within 6 months o fthe endo feach calendar year. Inaddition, annual audit reports on the financial position andoperating results o f China Railways (MOR) will be due to the Bank within 6 months o f the end o f each calendar year. 3. DisbursementArrangements Bank loan proceeds would be disbursed against eligible expenditures as inthe following table. Category Amount ofthe PercentageofExpenditures LoanAllocated to be financed (inUS$million) (1) Goods 100% o f foreign expenditures, 100% of local expenditures (ex-factory cost) and 75% o f local expenditures for other items procured locally (2) Consultant's services I 2.10 91% II(3) Front-end Fee 2.00 Amount due under the Loan Agreement TOTAL II 200.00 II II Disbursement methods, such as replenishment, direct payment and special commitment, are available for the project. The SOE limitswill be set up inline with the procurement post-review threshold, as follows: (i) contracts for goods estimated to cost the equivalent o f $100,000 or all less; (ii) consultant contracts estimated to cost $100,000 (firm) /$50,000 (individual) or less. One special account (SA) will be established inFCTIC. Its authorized allocation i s proposed to not exceed $20 million (initially $12 million, raisedto the full amount once disbursements reach $50 million). From the SA, the Bank funds would be disbursed to the special account set up at FCTIC, andthento supplier and contractors. FCTIC will be directly responsible for the management, monitoring, maintenance and reconciliationo fthe SA activities of the project. Supporting documents requiredfor Bank disbursements will be prepared by FCTIC before sendingto the Bank for further disbursement processing. 39 Annex 8: Procurement CHINA: SecondNationalRailwaysProject 1. Duringappraisal the projectteam assessedthe implementing agency's procurement capacity. The assessment report was archived inthe project files andi s summarizedbelow. 2. This will be the tenth Bank-financed railway project inChina. The Foreign Capital and Technical Import Center (FCTIC) o f the Ministry o fRailways (MOR) will be responsible for coordination andoversight o fthe Bank-financed procurement under the project. FCTIC has engaged China InternationalTendering Company as the procurement agent to actually carry out all Bank-financedprocurement activities. CITC has undertaken many Bank-financed projects including several railway projects inChina. 3. The team assessedthe overall risk o f the procurement process as average and confirmed the capacity and capability o fFCTIC andthe procurement agent to satisfactorily manage the project procurement activities. Staff members who were involved inprevious Bank-financed railway projects are familiar with the Bank`sprocurement procedures. Duringthe assessment the need was identified for strengthening the agencies' procurement capacity and an actionplanwas discussed and agreed. It includes the preparation and dissemination o f a project-specific procurement manual, measures to be taken to improve the quality o fbiddingdocuments, and procurement seminars andworkshops to be organized for staff of the involved agencies. 4. The assessment also identified the main ways inwhich the Tendering and BiddingLaw o f China differs from the Bank Guidelines. However, under the Project there will be no Bank- financed procurement using national competitive biddingrules, so no waivers for such procurement needbe incorporatedinto the procurement schedule o fthe LoanAgreement. ProcurementArrangements 5. ProcurementPlan: A procurementplandated April 23,2004 has beenagreed with FCTIC (see Attachment 1andAttachment 2 to this Annex). The plancovers all the Bank- financed procurement under the proposedproject. It will be updated annually or as needed throughout the duration o fthe project inaccordance with Article 1.16 o f the Procurement Guidelines. The procurement slicing andpackaging has been decided considering the prospective sources o f supply inChina and from abroad. For each group o f similar contracts within eachcategory o f goods, there willbe a single Invitation for Bidsto be advertised. Bidders may bidfor one or any combinations o f the contracts under such an invitation. Discounts offered for award o fmultiple contracts will be evaluated to arrive at the lowest evaluated cost to the purchaser. 6. Procurementprocedures: The following Bank guidelines will governthe Bank- financedprocurement under the project: Fur goods. Procurement under lBRD Loans and IDA Credits (dated January 1995 and revised in January and August 1996, September 1997, 1999, and May 2004) 40 For the selection of consultants. Selection andEmployment o f Consultants by World Bank Borrowers (dated January 1997 and revised September 1997, January 1999, May 2002, andMay 2004) 7. Formatof the Documentation: The following formats will apply: Evaluation reports. The Bank's Standard BidEvaluationForm, Procurement o f Goods or Works (dated April 1996), and Sample Formo f Evaluation Report for Selectiono f Consultants (dated October 1999). Model Bidding Documents. The Bank-approved Chinese ModelBiddingDocuments (MBD) (dated M a y 1997, prepared by the Ministry o f Finance based on the Bank's Standard Bidding Documents (SBDs)) will be adopted for all ICB procurement o f goods. The latest modifications o f the SBDs will be incorporated into MBDs whenbiddingdocuments are prepared. Requestfor Proposals. Bank standard Request for Proposals (July 1997, revisedApril 1998 and July 1999) will be used for consultant assignments above US$200,000. 8. DomesticPreference: For goods contracts, domestic preference will be appliedin accordance with Appendix 2 o f the Bank procurement guidelines. 9. Advertisement: A General Procurement Noticehas beenpublished inthe United Nations Development Business (UNDB) inpaper form andDevelopment Gateway Market (dgMarket). A Specific ProcurementNotice for each ICB procurement will be publishedin UNDBonline andthe dgMarket, andinat least one newspaper o fnational circulation, allowing at least 45 days for bidpreparation (75 days for contracts above $15 million). Invitations for expressions o f interest for each consulting service contract will be published inat least one newspaper o f national circulation or inan electronic portal o f free access at least 14 days before the deadline for response, and inUNDB online and the dgMarketifthe contract i s estimated to cost $200,000 equivalent or more. Short lists o f consultants for services estimated to cost less than $300,000 equivalent per contract may consist entirely o f national consultants in accordance with the provisions o fparagraph 2.7 o fthe consultant guidelines. 10. ProcurementMethods(Table A): A total o f$196 million o f equipment is expected to be financed by the project, using the followingprocedures: ICB. 48 contracts for supply o fequipment for telecommunication and signaling systems, electrification, power supply, traction substations and track maintenance etc. will be procuredunder I C Bprocedures. This represents about 100% o f total goods to be procuredwith Bank fimding. Most o f the contracts are estimated to be above $1million andtwo contracts are above $15 million. Shopping. Although the current procurement plandoes not include contracts awarded under shoppingprocedures, this procurement method is provided inthe LoanAgreement, i.e. contracts estimated to cost less than $100,000 each would be awarded following the shopping procedure stated inArticle 3.5 o f the Bank procurement guidelines. 41 11. Consulting Services: Consulting services for about $2.3 millionwill carry out studies to strengthen MOR'Smanagement systems andplanningcapacity. Contracts, each estimated to cost $100,000 or more, will beprocured under Quality- and Cost-Based Selection (QCBS) procedures. Although the current procurement plandoes not include contracts to be awarded under Selection Basedon Consultants' Qualifications (CQ) procedures, this selection i s included inthe LoanAgreement, i.e.; contracts estimated to cost less than $100,000 eachwouldbe awarded following the procedure stated inArticle 3.7 and 3.8 o fthe Bank consultant guidelines. Also, although the current procurement plan does not include contracts to be awarded under Selectiono f Individual Consultants (IC) procedures, this procedurei s includedinthe Loan Agreement, i.e.; contracts estimated to cost less than $50,000 each would be awarded following the procedure stated inArticle 5.1 through 5.4 o f the Bank consultant guidelines. 12. Retroactive financing: Retroactive financing o f up to $20 million may be applied to expenditures made after October 1,2003 for the procurement o f goods and equipment. 13. Overall Procurement RiskAssessment: The project has been givenan overall procurement riskassessment of "average". Basedupon an average overall procurement risk assessment, aprior review threshold o f $500,000 for goods contracts was recommended. Whenthe preliminaryplan was agreedwith the Borrower a review threshold o f $100,000 was adopted, as MOR preferredto carry out most o f the Bank-financed procurement under the project following ICB procedures. 14. Frequency of procurement supervision missions proposed: A procurement supervisionmission, timed with the project progress review meetings, will be held every 6 months (includes special procurement supervision for post-review/audits). Procurement specialists will manage procurement activities out o f the Beijingoffice. 42 Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Expenditure Category Procurement Method' ICB NCB OtheP N.B.F. 'otal Cost 1..Works 0 0 0 1,149.74 1,149.74 (0) (0) 2. Goods 195.90 0 0 224.75 420.65 (195.90) (0) (195.90) 3. Services 0 0 2.3 1 0 2.3 1 (2.10) (0) (2.10) 4. Miscellaneous local costs 0 0 0 180.85 180.85 resettlement, design and construction supervision (0) (0) 5. Front-end fee 0 0 2.00 0 2.00 (2.00) (0) (2.00) Total 195.90 0 4.3 1 1,555.34 1,755.55 (195.90) (0) (4.10) (0) (200.00) 1/ MORtakes responsibility for financing contingencies. Figures inparentheses are the amounts to be financed by the Bank loan and do not include contingencies. All other values include contingencies. 2/ Includes goods to be procured through shopping, consulting services. Selection Method ConsultantServices ExpenditureCategory QCBS QBS SFB LCS CQ Other N.B.F. Total Cost1 A. Firms 2.3 1 0 0 0 0 0 0 2.31 (2.10) (2.10) B. Individuals 0 0 0 0 0 0 0 0 1 Total 2.31 0 0 0 0 0 0 2.31 (2.10) (2.10) Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ SelectionBased on Consultants' Qualifications = Other = Selection of individual consultants (per Section V of Consultants Guidelines), etc. N.B.F.=Not Bank-financed Figures inparentheses are the amounts to be financed by the Bank Loan. 43 Table B: Thresholdsfor ProcurementMethodsand Prior Review ~ ExpenditureCategory Contract Value Procurement ContractsSubject to Threshold Method Prior Review (US$ millions) 1.Works Not Bank financed 2. Goods >$loo <$loo ICB, PriorReview $195.9 (48 contracts) Shopping, Post Review $0 3. Services Firms:>$lo0 QCBS, PriorReview $2.3 (4 contracts) Firms:<$lo0 CQ, PostReview 0 I Individual:<$50 IC, PostReview 0 Total value of contracts subject to prior review: $198.2 million 44 Annex 8: Procurement-Attachment 1: ProcurementPlanSummary Summary of ProcurementEstimate BankFinanced - I Description Estimate (us$ooo) Component1:Zhe-Gan LineImprovements 120,900 1A: Speed Raising 1B: Signalingand Communications 1C: Electrification lC.l. Catenaries 1C.2 Traction TransformationEquipment IC.3 Power SupplyDepotEquipment 1D:LandAcquisitionandResettlement Component2: Modernizationof TrackMaintenanceTechnology Component3: TechnicalAssistance llcontingencies I II I I 011 IlTotal II 45 uY 33 7- I n m m 5 U ? ? 4 i 4u n 8 n8 v) %. 8 .-M n B iij E 8 f Y 48 d I ? 3 Y Q) - L e 0 $2 d I&.. c.l Y 5m!3E 4I Y se Y Q) L aE .. 5 Y 00 42 L CI 0 c N n 0 0 W 0 3 r-4 r-4 N N I l- 111 111 4 ? 8 c m % p9 g W W 0 9 W 4 n3 vl 3 n 3 2 3 E 3 B 1 1 1 1 1 1 1 1 1 n vl n 8L 0 0 0 4& 2 4 L g ? d d Q B z9 z4 E9 1 1 1 1 1 1 1 1 1 m Y - 0 N 111 - 00 m c W 2 E S Y F30 8 v1 b a - 0 a 0 z e, - g- XI m 0 t- 3 d W N 0 m 0 m 0 m m I W Ps W cr Pz W W W g? g? W W 9 W W E$ E2 E 4 4 42 /$ 9 2 $ 3 2 2 2 & & & m 0 0 m 0 m 0 m n m m Q & & $ 0 m 5 3 9 0 $ 5 E E E Z E E E E z E 2 ; m m ? n ? m 9 4 m d 4 $9 29 24 m m v ) m 4 9 4 m m - 3 3 d - N N N c-) m e, w p0 g w 9 9 9 w w g 9 V I V I 0 0 & & v, 0 E E 9 9 9 4 9 9 V I V I v , v , v , V I 29 g9 g? V I " I d 0 /tn I" Y m T '7" - E: T m W - w Y --I-- m 2 -- - 0 0 M 3 m N d F -- - m N W N N r- N * VI Q) I l- II 4ws 2z w '-r w w O h ? E Z e V I v l 0 $ 0 0 E E 9 v l V I 0g 4 4 $4 44 $3 $4 m m m m 3 m v, 2 - 3 3 N - 3 c: e Y cI1 a, Q 0 3 m 50 m Ip - D ? 0 3 ? z 3 33 E - N IA Annex 9: EconomicandFinancialAnalysis CHINA: Second NationalRailways Project Annex 9a: EconomicAnalysis of Zhe-GanLineSpeed-raisingandElectrification A. Introduction This annex presents the results o fthe economic evaluation o fthe electrification and realignment o fthe railway line between Hangzhou and Zhuzhou (hereafter the Zhe-Gan line). As explained fbrther and as reflectedinTable 9.1,the component i s expected to yield a net present value of over RMB7 billion and to achieve an economic rate ofreturn o f 19percent. B. Traffic andCapacity The Zhe-Gan line constitutes a part o f the major east-west railway artery that links areas west o f Zhuzhou with the eastern coastal region centered inShanghai. Indeed, the line will be a critical part ofthe "Shanghai-Kunming (Chengdu) corridor" -one o f the so-called "eight horizontals" and "eight verticals" that will comprise the backbone o f the China railway network. These corridors, the development of which will be the centerpiece of the railway construction program inthe TenthFive-Year Plan, willbethe "best equipped, withthe highest degree of modernizationand [the] largest carrying capacities. They are also the important carriers o fthe future modern rail networks, e.g. the fast passenger train network, container transportation network, et^."^ Today, the Zhe-Gan line primarily handles freight movements. Measuredinterms o f converted ton-kms (where one passenger-km is considered equal to one ton-km), over three-fifths o f the traffic consists of freight. Looking to the future, however, passenger travel i s expected to account for most o f the growth. As o f 2015 (the benchmark long-term year inMOR's projections), passenger volume is expected to be more than 15 percent larger than it was in2000. Bycontrast, over this same 15-year period, freight traffic is anticipatedto grow byonly about ninepercent. As aresult, by2015 the passenger share oftotal convertedton-kms will exceed40 percent. Thus, inassessing the costs and benefits o f the proposed Zhe-Gan component, attention properly i s focused on the passenger ~ e c t o r . ~ The enhanced prospect for personaltravel over the Zhe-Gan line is consistent with recent nationaltrends. After more than two decades o f intermittent gain and decline, the volume of inter-city passenger traffic being handledby CR has grown substantially. Between 1996 and 2002 (the latest year for which complete data are available), railwaypassenger traffic (as measured inpassenger-km) has increased at an average annual compound rate o fnearly 7%. This iswell inline with overall traffic trends by all transport modes. As a result --and incontrast "Major Progress inRailways, Science and Technology," Chinese Railways (Vol. 9, No. 2, 2001, Issue 17) at p. 26, Although MOR's "with project" traffic forecasts are heldconstant after 2015, the analysis here extends the increasesassumedfor the 2010-2015 period out to the year 2027. Thus freight traffic increases at 644 millionton- kmsper year (about 700,000 tons) while passengervolume grows at 223 millionp-kmsper year (242,000 persons annually). Annual historical and forecast freight and passengertraffic data are inthe Project File. 54 to prior periods-- the railway share o ftotal (all modes) traffic has stabilized at between 35%-37% since 1996. To attract andretainthe expected increase inpassenger business, MOR i s inthe process o f substantially reducing travel times byraising the maximumtrain speeds over the Zhe-Gan line as well as over the other "horizontals" and "verticals." Comparedto diesel traction speeds o fno more than 140km/h, the top speed over the realigned and electrified Zhe-Ganroute i s expected to be 200 km/h. As a consequence, the travel time between Hangzhou and Zhuzhou will be reduced. Inaddition to present users, this consumer benefit is expected to attract two other types o fpassengers: those who are utilizing other, slower railway routes (incremental traffic) as well as new intercity travelers. Over time, the combined impact o f greater volumes and faster speeds on the capacity o fthe Zhe- Ganlinewill be substantial. Today, the capacity o fthe line stands at 176train pairsper day. Completion o f the proposed electrification and realignment project, however, would expand this figure to 188 train pairs per day (a 7% increase). Set against this i s the anticipated demand considered here interms o f factored train pairs - a measure that provides a rough indication of the impact on capacity o f different types o fpassenger and freight operations. The demandcapacity implications o f going forward with the project comparedwith a do nothing, "without project" scenario canbe quantified. If90 percent i s employed as a benchmark o fwhen traffic would be turned away due to lack o f track capacity, it i s evident that inthe "without project" case by the year 2010 problems will arise only inthe Yingtan-Xiangxi section andto a lesser extent at the eastern end o fthe route; by 2015, however, almost all o fthe line will be at or over capacity ifthere is no project. Inthe "with project'' scenario, the data confirm that all of the line will be able to handle the projected demand in2010 although some difficulties will begin to emerge inthe Yingtan-Xiangxi section and at the east endby 2015. c. costs Direct Project Costs. MOR advises that almost 9 percent o f total project costs relate to labor outlays (infinancial prices, RMB 1.0 billion out o f an overall amount o f RMB 12.4 billion). For purposes o f economic analysis, labor expenses are shadow pricedto account for non-wage benefits (housing, education, health care, etc.). Applyingthe shadow price factor o f 1.6 utilized inprevious railways projectsto these labor outlays, results ina somewhat highertotal project cost figure for the purposes o f economic analysis o f about RMB 13 billion (see Table 9.1). Complementary Costs. Three types o f complementary costs are accounted for inthe analysis: the investment outlays for electric locomotives and rolling stock; the generating costs associated with the electric power that will berequired; and the further operating expenses required for maintenance of electrical equipment. Each o f these i s reflectedinTable 9.1. ~ ~~ Inthe "with project" scenario, there is little likelihoodthat traffic wouldbe turnedaway due to capacity constraints. With respect to passenger traffic, for example, MOR assumes on average a load factor o f about 50 percent. A modest increase inthis percentage will accommodate the additional demand after 2015. As for freight, improvements intrain operations are likely to absorb the added "with project" volume post-2015, but evenifthis traffic was to be re-routed over adjacent railway lines, the added costs inthis out-year periodwould have an insignificant affect onbottom-line NPV (on the order o f five percent or less). 55 Electric Locomotives and Rolling Stock. The proposed project necessarily requires the acquisition o f electric traction locomotives for both freight andpassenger service. M O R indicates that in2006 it will purchase 81 SS4 units for freight service at a unit cost o fRMB 8.7 million.Forpassengertrains, 34 SS9 locomotives will beobtained at aunit cost o fRMB 9.0 million along with 10 EMU(electric multiple-unit) trains each with 14 coaches at a unitcost of RMB 100million. Assuminga service life o f 16 years, anidentical set ofunitswill be acquired inthe out years ofthe estimate period. (The avoidedcost ofpurchasingwhat willbecome unneeded diesel locomotives i s treated as a benefit- see below.) Electric Power Generation. MOR estimates that the installed electrical capacity required for the Zhe-Gan line is 614,000 kVA (kilovolt-amperes) and that the annual price o f electrical power will amount to RMB 156per kVA. Thus, the electric power generation costs will amount to about RME3 95.8 millionper year. Electric Equipment Maintenance. There are two cost items inthis category. The first deals with catenary maintenance, which MOR calculates to be about RMB 6.7 million per year. In addition, MOR estimates the annual cost o ftraction substation maintenance at RMB 2.7 million. The associated yearly labor outlay for these items i s expected to be RMB 11.1million. Taken together, the complementary electric equipment maintenance costs equal RMB20.6 million per year. D. Benefits The benefits o f the electrification and realignment ofthe Zhe-Gan line fall into three major categories: the time savings associated with faster personal trip times (the benefits ofwhich are obtained by the railway's customers); the operating cost savings attributable to switching from dieselto electric traction (these productionbenefits are accorded to CR); andthe capital cost savings resulting from not having to acquire diesel locomotives (a benefit also gained by CR). These benefits (along with the total costs andthe benefit-cost ratio) are summarized inthe accompanyingtable, which makes it apparent that passengertransport will be the overwhelming beneficiary o f the project. Each o f these benefits will be discussedinturn. RMB(millions) Time Operating Avoided Savings Savings Loco. Costs Total Percent Passenger 60,794 18,437 2,512 81,743 91.1% Freight 5,919 2,039 7,958 8.9% Total 60,794 24,357 4,551 89,701 100.0% Percent 67.8% 27.2% 5.1% 100.0% Total Costs 23,803 Benefitkost 3.77 ratio 56 Time Savings. The major benefit o fthe proposed Zhe-Gan electrification and alignment i s the reductionintravel time that will accrue to passenger traffic. For through travelers, MOR indicates that the anticipated"ideal" trip time savings approximate five hours, but commercial operation-including idle time at stations, acceleration andbraking, etc. -- is more likely to lower total passenger trip time savings to about three hours, the figure utilized here. (As an illustration, the commercial time for express service over the length o f the line i s expected to be 10 hours compared to today's 13 hours.) To value these savings, MOR utilized a recent PlanningDepartment study of the nearby Beijing- Shanghai highspeed line that surveyed travelers over the 2000-2001 time period. This study yielded separate estimates for business and non-business users (RMB 20 per hour and RMB 14 per hour, respectively). For Zhe-Gan, it is assumed that the business/non-business mix will be 50 percent. Hence the initial weighted average monetary savings is RMB 17 per hour, an amount that is increased at 6.5 percent annually to reflect expected growth inpersonal income perhead. Based on the above, the calculatedtravel time savings are reflected inTable 9-1. Operatiny Cost S a v i n ~ s .By converting to electric traction, operating cost benefits will be ~ obtained from savings infuel costs, lower freight locomotive maintenance outlays, reduced labor expenses, and greater efficiencies inwagon utilization produced by faster electric-powered freight trains. The methodologies by which these savings were derived are described inthis section. Fuel. Inorderto calculate fuel cost savings, isfirst necessaryto express thetraffic volume in it terms o f gross ton-kms. Inthis way, boththe net weights o f the cargo (and passengers) as well as the tare weight o f the locomotives andwagons are comprehended. For freight traffic, annual net ton-kms (no project scenario) were multipliedby a factor o f 1.5 to derive gross ton-kms, while for passenger traffic (no project scenario), a factor o f 1.3 was used. As o fthe year 2000, MORprovided information indicatingthat the rate o f diesel fuel oil consumption by freight locomotives was 2.19 kgper 1,000 gross ton-kms; for passenger locomotives the comparable figure was 3.43 kg. With regard to electric power, the consumption rate infreight andpassenger service was 10.7 kWhand 14.4kWhper 1,000 gross ton-kms, respectively. However, because EMUtrain sets will handle about 10 percent o f the passenger traffic -and due to the fact that these faster trains use about twice as muchpower as SS9 locomotives -the weighted average consumption rate for passenger traffic has beenincreased by 10percent, to 15.9 kwhper 1,000 gross ton-kms. For unit costs, a figure o f RMB3,000 ($362) per ton was deemed reasonable for diesel oil. Recognizing what MOR as a large user i s now payingfor electric power on electrified sections Incremental passenger traffic is assumedto be re-routed from other railway lines and the factors used to calculate the time savings are the same as those utilized for the base traffic. Generated traffic is estimated to be 30 percent o f "without project" passenger volume. ' Data values and calculations are inthe Project File. 57 near to the Zhe-Ganline, the likely downward impact on such prices resultingfrom the Three Gorges hydroelectric project as well as the deregulation o f the power sector generally, a unit price of RMB 0.32 (3.9 U S cents) per kwhis assumedto be appropriate here. Taking all o fthese factors into account, he1savings for both freight andpassenger service o f about RMB 390 million are projected by the year 2010 and more than RMB424 millionby 2015. Locomotive Maintenance (non-labor). Primarilydue to a longer maintenance cycle, the upkeep andrepair o felectric as compared with diesel locomotives usedfor hauling freight results in further operating savings. Thus, while the unit cost for electric locomotives tends to be somewhat higher, the service needs for electric units are typically muchlower. Multiplying these respective values provides the cost per millionkilometers for each traction type and each maintenance category. After determining the annual volume o f locomotive kilometers for all of the freight units to be utilized on the Zhe-Ganline inboth the "electric -- with project" and "diesel -- without project" scenarios, the annual cost savings o f freight locomotive maintenance can be determined. For freight service, these yearly benefits arejust under RMB43 million in 2010 andalmost RMB48 millionby2015 (values for the intervening years have been derivedby interpolation). Savings inthis area also are obtained for passenger locomotives when SS9 units are substituted for diesels, but these are outweighed by the higher maintenance outlays attributable to EMUtrain sets.8 Therefore, operating costs for passenger locomotive maintenance actually are expected to increase by about RMB 59 million in2010 and almost RMB 53 millionby 2015. Locomotive andMaintenance Personnel. The conversion to electric traction also will yield benefits with respect to labor cost savings intwo major categories: on-board locomotive workers andmaintenance andrepair personnel. Pursuant to MORregulations, there are seven train operators per locomotive unit. Because the changeover from diesel will reduce the number of Zhe-Gan line locomotives, there will be a reduction inon-board employees. Inthe area o f maintenance, most o f the savings are due to cutbacks infreight locomotivemaintenance, as the added maintenance requiredby EMUSwill mitigate the effects insofar as passenger units are concemed. Based on the experience o f electrifying the Baoji-Chengdu line, MOR believes that a saving o f RMB20,000 per employee can be realized. By 2010, this yields freight benefits o f about RMB 16 million per year and a passenger benefit ofjust over RMB 0.6 million annually. Wagon Cost Savings. MOR data indicate that the rental cost of freight wagons is RMB 3.3 per wagon-hour. With electrification, freight trains on the Zhe-Ganline will be longer (50 wagons as contrasted with 41 wagons indiesel service) and also will travel faster (trains pulled by electric locomotiveswill traverse the line about 2 hours quicker than when diesels are utilized). As a consequence, the railway will be able to reduce the number o f wagon-hours required to hau a given volume o f freight traffic. Assuming a gradual increase inthe number o f daily 50-wagon trains, freight wagon rental savings will range from RMB 7 million to more than RMB 8 million annually. To illustrate: the unit costs for overhaul of anEMUis RMB 8 million, whde the comparable figure for an SS9 passengerlocomotive is RMB 2.2 million. 58 For passenger coaches (which the regional railway administrations own) faster travel times yield an even greater benefit because their value i s considerably higher than that o f freight wagons. In the absence o f detailed figures for the existing coach fleet, it i s assumed here that the value i s at least double that o f freight wagons or RMB 6.6 per coach-hour. For passenger trains, the time savings (incommercial terms) will amount to 3 hours. Inaddition, the number o f train pairs will rise from about 33 today to 47 by 2010 andto 56 by 2015. Most passenger trains will continue to consist o f 18 coaches. Taking all these factors into account, annual coach savings are estimated to range from RMB337 million to RMB 816 million by 2015. Diesel Locomotive Savinps. Because o f the conversionto electric traction, MOR will be able to avoid the capital costs o f the diesel locomotives that otherwise would be required for Zhe-Gan line operations. MOR indicates that the unit cost of the DF4 model utilized for freight service on the line i s equal to RMB 4.35 million, while the comparable figure for the DF11version that hauls passenger trains is RMB7.6 million. Based on these unit costs and the yearly acquisition schedule for each o fthese models, the locomotive capital costs that are saved are as indicated in Table 9.1. E. EconomicRate ofReturn and SensitivityAnalyses Net benefits are calculated for the period 2004-2027 to derive estimates o f ERR andNPV (a discount rate of 12percent was used). As reported inTable 9.1, the estimated NPV i s about RMB7billionin2002 prices andthe EIRRis 19percent. Adjustments were made inthree o f the base case assumptions inorder to test the sensitivity o f these results. The first adjustment assumes that the cost o f electricity doubles thus reducing the amount o f operating cost savings. Under these conditions, the NPV would decline to RMB 5 billion andthe EIRRwould fall to 17 percent. The second adjustment postulates that ifdirect project costs increase by 20 percent, the resulting NPV would equal more than RMB 5 billion andthe associated EIRRwould be 17percent. To parallel an alternative assumptioninthe financial analysis, the third adjustment here examines the impact o f a passenger fare increase of 60 percent. This would result inthe elimination o f generated traffic, thus reducing the ERRto 18 percent and the NPV to RMB6 billion. All o f these adjustments result inacceptable NPV and EIRRoutcomes. Inadditionto these adjustments, the analysis also reports the switching values for all ofthe benefits categories (switching values indicate what the value o f benefits would be at which the ERRbecame equal to the discount rate (12 percent) andthe NPVbecomes zero). This result would obtain iftotal benefits were to fall by more than 36 percent. Inaddition, existing diesel unitsnowusedonthe Zhe-Gan line will bereleasedfor service elsewhere inthe railway system. Consisting of 159 SS4 freight locomotives and 105 SS9 passengerunits,this equipment will be released inthe fxst year of electric operation. MOR assumesthat more than two-thirds o f the economic life of these locomotives remain and has valued the release at more than RMB 917 million (see Feasibility Study at para 16.1.4). This amount is includedinTable 9.1 for the year 2007. 59 Annex 9b: FinancialAnalysis of the Zhe-Gan Line A. Background MORwill beresponsible for implementationo fthis project andwill mobilize all o fthe financing andrepay all borrowed funds. Therefore, the financial analysis focuses on two subjects: first the financial soundness o f the project itself, and second, the financial viability and debt servicing capacity o f MOR. Representing the Government o f China, MOR i s the sole owner o f the Zhe-Can line. The project along with the rolling stock and locomotives will be financed usingintemal funds, loans obtained from domestic banks (the State Development Bank) as well as from the World Bank amounting to RMB 14.6 billion intotal. O fthis sum, about RMB 6.9 billion (47 percent) represents equity funds from MOR, about RMB 6.8 billion (47 percent) will be obtained from domestic banks, andthe remainingRMB0.9 billion (6 percent) will be fundedby the proposed Bank loan. The Shanghai, Nanchang, and Guangzhou regional railway administrations ( U s ) will be responsible for operating the sections o f the line intheir respective geographical jurisdictions. Revenues obtained from operations will be forwarded to MORbythe RAs; and MOR, intum, will compensate the R A s for costs incurred, allocate a profit/loss to the R A s through the railway resettlement system, andpay interest andprincipal on both domestic and foreign loans. B. Cash Inflows O fthe total increase incash inflows, the largest share is attributable to the incremental revenue obtained. Unitrevenue for freight is assumed to be RMB0.0755 per ton-km; the comparable figure for passenger traffic i s RMB 0.10 per pass-km. Incrementalrevenue from other sources i s calculated at 15 percent o f the sum o f incremental freight andpassenger revenues. Inaddition to revenues, another category o f cash inflows traces to an allowance for the value o f diesel locomotives formerly used on the Zhe-Gan lines but now available for use elsewhere inthe railway system. Consisting of 159 freight and 105 passenger units, the remaining economic life o fthis equipment was valued byM O R at more than RMB917 million. Finally, MOR assumptions with respect to the residual values o f electric locomotives, land, and current funds in the out years o f the analysis comprise the remainder o f the cash inflows (see Table 9.2). C. CashOutflows The initial category o f cash outflows is the project investment outlays. As noted inthe economic analysis, direct project costs including amounts for intangible deferred assets equal RMB 12.4 billion. To this must be added the capital costs o f the electric locomotives and rolling stock (RMB4.7 billionover the life o ftheproject). Otherrelatively minor outflows include amounts for working capital (supplied byMOR), as well as net non-operating costs (at the rate o f RMB 2.09 per 1,000 converted incremental ton-km) and miscellaneous taxes (calculated at 3.2% of incrementaloperating revenue). 60 As the economic analysis also indicates a significant benefit o fthe project stems from the greater efficiencies and lower operating costs associated with transportingthe traffic by electric rather thandieseltraction over therealignedline. Fromtheperspective ofthe financial analysis, these savings reduce the cash outflow substantially, even after allowing for the added costs o f catenary maintenance andelectric power generation. (The particular annual calculations for these items are the same as those inthe economic analysis.) D. Financial Rate ofReturnand SensitivityAnalyses Net cash flows are calculated for the period 2004-2027 to derive estimated NPV and FIRR. The NPV at a cost ofcapital o f6 percent (slightly higherthan MOR's current borrowing rate o f5.6 percent) i s RMB 6.9 billion andthe FIRR is 11percent (see Table 9.2). Apart from the operating savings already considered inthe economic analysis, the stream o f benefits stemming from incremental revenues has the most impact on the NPV and FIRR. If,for example, incremental revenues declined by 61 percent, the switchingvalues (FIRR equal to the discount rate o f 6 percent and a nilNPV) would obtain. Alternatively, an increase inrevenues can be postulated. To illustrate: ifthere was an increase inunit passenger revenues on the order o f 60 percent, the financial results would improve. While the newly-generatedtraffic no doubt would be discouraged by an inability to pay the higher transport price, the monetized savings in personaltravel time for all o f the other passenger traffic would compensate almost totally for the increase infare outlays. (At RMB 17 per hour, a three hour time savings would yield an overall benefit o fRMB 51 or about the same as the assumed incrementalprice o f ajourney over the line -RMB0.06/pax-km over921kms-aboutRMB55.) Undertheseconditions, theNPVwould approximate RMB 24 billion andthe FIRRwould be 20 percent. E. MOR's FinancialViability To assess its financial viability, a review o f MOR's Sources and Applications Statements over the recent past is instructive. As summarized inTable 9.4, over the five year period ending in 2002 (the latest year for which audited data are available), annual average total sources approximatedRMB 100billion. Ofthat amount, internally generated funds (RMB 57.2 billion) accounted for 57 percent, while loans and other sources made up the remaining 43 percent. Juxtaposed against these sources, Table 9.4 shows that total applications amounted to an average o f RMB 91.8 billion over the period. Here, capital investments - includingequipment replacements - averaged RMB66.4 billion or an overwhelming 72 percent o fthe total. Debt service and a modest transfer to the Government o f funds for other purposes represented the other 28 percent o f applications. Two key financial ratios are o finterest. The self-financing ratio, a measure o fMOR's ability to fundits capital needs, has exhibited some improvement over the period, risingfrom 0.43 to a highof0.57, but, as of2002, still stands onthe low side ofacceptability averagingonly 0.50. At the same time, the debt service ratio, an indicator o fMOR's capacity to cover borrowings from domestic sources, is satisfactory, thoughwith the exception o f 2001 it has been generally trendingdownward from 2.4 in1998 to 2.1 in2002. 61 Lookingto the future, MOR's plans for a substantial increase incapital outlays necessarily must ' be acknowledged. InJanuary 2004, MOR's "Mid-and Long-Range Plan" for railway development received "in principle" approval by the State Council. This plan calls for capital expenditures over a 16-year period (2004-2020) o f more than RMB 1.6 trillion (US$200 billion). This equates to an annual average o f about RMB 100billion (US$ 12billion). Put in context o fthe recent spending levels, this RMB 100billion amount represents a 50 percent increase over the RMB 66.4 billion figure noted above. IfMORisto sustainthisRMB33.6 billionincrease, ithasseveral sourcesto whichit canturn. 0 Internally generated funds. IfM O R i s to derive more inthe way o f bottom-line profitability, the railways will have to record a significant improvement inits operating ratio (operating expenses divided by operatingrevenues). Excluding the Construction Surcharge revenues (thus yielding a better measure of financial efficiencies), the operating ratio has remained virtually unchanged at 0.90 over the last five years. Obviously, this means more inthe way o f freight and passenger revenue per traffic unit, or a less rapid increase inunit operating expenses, or a combination o fthe two. 0 Borrowed funds. MORcould increase its level o f localborrowings ifdomestic development banks remain willing to lend. However, any significant increase ininterest costs will work at cross purposes with improvements inthe operating ratio indicated above. 0 Private Sources. Ultimately, MOR may find it necessary to attract more inthe way o f private capital. Conceptually, this approach could take a number o f different forms - investment inspecialized rolling stock, operation o f dedicated commodity, container, or passenger trains, even particularized equity opportunities. Resort to the private capital markets, it should be recalled, is not unprecedented, as evidencedby the Guangshen Railway Corporation's successful listing on both the Hong Kong andNew York stock exchanges. While there is little doubt regardingMOR's financial viability, it i s apparent that meeting the needs o fthe Mid- and Long-Term Planposes a significant challenge. 62 Annex 9c: Economic Evaluation of Track Maintenance and Renewal Machinery A. Introduction As a part o fthe proposed loan, MORis requesting funds for the procurementofvarious types of track maintenance andrenewal equipment. For the purpose o f economic evaluation, this Annex examines the two representative applications o fthese machines: a case study o fthe Datong- Qinhuangdao (DaQin) coal line where larger track overhaul and maintenance equipment o f the type contemplatedhere has been substitutedfor lighter, smaller permanent way machinery. In addition, the annex looks at the costs andbenefits involved with the contemplated use o fthe rail grindingmachinesthat also are includedinthe proposedlist o fgoods to be procured. As will be seen, the economic rate o f returnassociated with these track maintenance functions is substantial. B. Costs Maintenance and overhaul o fthe DaQin coal line involves the quantity and types o f larger track machinery. Basedon the indicated unit prices, the total cost o f the machines that are required here amounts to just over RMB 175 million (see the Project File for details). The evaluation o f the rail grindingequipment is based one set o f such machinery valuedat RMB 83 million. It assumes that this set will be deployedover a given 600-km distance o f track once every two years. Thus one set can service 1,200 kmo f track over a two-year cycle. Withregardto boththe rail grindingmachinery andthe large track maintenance equipment, the labor costs inthe "with project" case are lower than inthe "without project" scenario. Consequently, these savings are treated as a benefit (see below). C.Benefits Because the larger track machines are far more efficient than their predecessors, the greatest benefit resulting from their use is directly relatedto the reduced amount o f time that a railway line needs to be out o f service for track maintenance. With the additional time that is available, a greater number o ftrains can be accommodated, and therefore, the volume o ftraffic that can be handledon the line is substantially enhanced, once the larger track maintenance equipment is deployed. This canbe quantifiedby examining the experience o fthe 1,300-km DaQincoal line. Here, the use o f the larger machinery has resulted ina longer maintenance cycle (16 monthsvs. 9 months), a smaller maintenance window (less thanone hour vs. 2.5 hours per day), and, on an annual basis, far fewer hours when the line needs to beblockedto permit the requisite track work to be completed (96 hours vs. 250 hours). The net result i s that on the DaQin line some 3,835 additional trains per year have been able to traverse the route since larger maintenance machinery was introduced. Allowing for the empty return, this means that 1,918 additional coal- bearingtrains moved from the mines to the Qinhuangdao port annually. With each train consisting o f 60 wagons each o fwhich can handle 60 tons o f lading, the increment incoal 63 volume under the more efficient track maintenance regime amounts to about 6.9 milliontons annually. Ifthe value-added o f coal i s RMB 20 per ton," thenthe benefit stemming from the additional traffic madepossible by the more productive track maintenance machinery i s equal to about RMB 138 million per year. Inadditionto the enhancedtrainvolume, the more efficient largetrack machinery also produces a saving inlabor costs. Based on the experience o f the DaQin line, MOR data show that the introductiono fthe larger maintenance machines permitted a reduction inemployment o f 180 persons per year. With the annual outlay per employee estimated at RMB 30,000, this yields a cost saving (infinancial terms) o f RMB 5.4 million per year. After shadow pricing for labor costs (see the economic analysis inpart a o f this annex), the annual savings here amount to over RMB 8.6 million(see Table 9.3). As for the rail grindingmachinery, the quantified benefit results from the fact that properly carried out, the procedure doubles the useful life o frail and hence reduces byhalfthe cost outlays associated with rail replacement. Specifically, MOR indicates that the cost of 60-kg rail is RMB 360,000 per track-km. With labor costs estimated at RMB 64,000, the overall cost per track-km i s RMB424,000. Ifthe rail i s ground twice, its useful life i s extended from 16 years to 32 years. On an annualized basis, therefore, the saving associated with avoiding rail replacement is RMB26,500 per track-km. Since, as indicated above, a set o frail grindingmachines can service 1200km, the overall savings as reflected inTable 9.3 amounts to RMB 31.8 millionper year. D.EconomicRateofReturn andSensitivityAnalyses Taken together, the economic benefits o f employing largertrack maintenance machinery are quite considerable, as Table 9.3 indicates. Assuming that only halfo f the benefits are attained in the first year, the Table shows that the NFV at 12%i s approximately RMB 934 million and the ERRexceeds 100percent. As constructed here, the analysis is quite sensitive to the value added for coal. Thus, a decline o f 50 percent invalue added would lower the NPV and ERR to RMB484 millionand 54 percent, respectively. Similarly, an increase o f 10percent would raise these figures to I2MB 1billion and yield an EIRRo f over 118 percent. Inthis context, it i s worth noting that a higher value traffic mix that incontrast to coal was less susceptible to commodity price fluctuation, would sustain the economic merit o f this component. ~~ lo According to MOR, the delivered price at Qinhuangdao of Datong domestic coal is about RMB 290 per ton (RMB 205 per ton at the mine head plus RMB 85 per ton for railway transportation). Applying MOR'Soverall revenue to variable cost ratio of 130%to this delivered price yields an operating profit o f RMB20 per ton. 64 A .-E0 v) .--E .-a E 3 Q 3 C 4 C E N sa3 rc 0 .-cm=I E 0 -m> W .-0E 0 W 0 .. r h EQ c d m ~ b w ~ O - N m d m w I - c o ~ O - N m d m ( D I - 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 r ~ ~ ~ ~ ~ r r r r N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N .-C .-C Q) m b ,I 2.. m b I- I 2c n ' I I I Table 9-3: Economic Evaluationof the Large PermanentWay Track Machinery Component (RMB in millions) MachineryCosts Benefits Net Year DaQin Line Grinding Total DaQinValue Added DaQin Labor Grinding Total Benefits 1 175 83 258 69 4 16 89 -169 2 138 9 32 178 178 3 138 9 32 178 178 4 138 9 32 178 178 5 138 9 32 178 178 6 138 9 32 178 178 7 138 9 32 178 178 8 138 9 32 178 178 9 138 9 32 178 178 I O 138 9 32 178 178 11 138 9 32 178 178 12 138 9 32 178 178 13 138 9 32 178 178 14 138 9 32 178 178 15 138 9 32 178 178 16 138 9 32 178 178 NPV@12%= 934 EIRR= 67 0 m 0 b : Ln CY 2 0 s (v 0 0 (v 6 8 0 0 0 (v a a z W al z cvi C a, cEm c v) I- Annex 10: SafeguardPolicyIssues CHINA: SecondNationalRailwaysProject Annex loa: EnvironmentAssessment Summary A. ProjectBackground The Zhe-Ganrailway line is a state-level Class Iline andthe most important westward running artery southo f the Yangtze River. Itis an important component of anational backbonenetwork of eight longitudinal (north-south) and eight latitudinal (east-west) mainlines. It starts from Hangzhou inZhejiang province, runs through Jiangxi Province and ends at Zhuzhou inHunan province. Its total lengthi s 942.6 km. The engineering feasibility study for its upgrading was completed inOctober 2001 andthe preliminary design of the Project inNovember 2003, while the final designofthe construction drawings is expectedto be finishedbyApril 2004. The EIA was compiled byBeijingOASIS Environmental Technology Co. andthe Second Survey & Design Institute o f China Railways (SSDI). The TOR of the EIA were prepared inApril 2002 and approvedby the StateEnvironmental Protection Administration (SEPA) inMay 2002. In December 2002, the Environmental Impact Report was completed andpassedthe technical review performed by SEPA inJanuary 2003. Dueto changes intechnical standards anddesign proposals, the revised EIA report was worked out inNovember 2003 and passedthe technical review of SEPA on December 6-7,2003, SEPA gave formal approval on May 20,2004. The project originally proposed for Bank financing was the electrification o fthe existing line. Category B/S2 was assignedto the project duringthe PCD safeguards review meeting in February 2003. While the electrification was being prepared, the Zhe-Gan line was selected as one of the lines for speed-raisingunder anation-wide campaign ofMOR, requiringrealignment of parts ofthe line to ease tight curves. Suchworks will be carried out inadvance of the electrification with domestic funds. Considering the two improvements are closely linked in time, place andfunction, they are henceforthtreatedas a single project. For the speed-raising, sections of the line will berenovatedand rebuilt to updatedtechnical standards. The project will leadto suchproblems as increaseinnoise, landoccupation, interference with the ecosystem, community severance, soil andwater loss, andresettlement. Therefore, the Task Team advised MOR that Category A would be triggered, and EA documents havebeenpreparedaccordingly. B. Basisof the EnvironmentalAssessment Regulatory, policy and administrative requirements for environmental assessments of developmentprojects inChina were followed duringthe preparation and evaluation of the EA. Major laws andregulations applied to the EA are as follows: (1) Environmental Protection Law o fthe P.R. China; (2) Environmental Impact Evaluation Law o fthe P.R. China (October 2002); (3) Law o f Water and Soil Conservation (June 1996); (4) Law o fPrevention and Control of PollutionFromEnvironmentalNoise (October 1996); (5) Law o fPrevention andControl of Air Pollution (August2000); (6) Law o fPrevention and Control of Water Pollution (May 1996); (7) 69 Law of Preventionand Control of Environmental Pollutionby Solid Waste (October 1995); (8) State Council Order No. 253; Ordinanceof Environmental Management for the Construction Projects (November 1998); (9) Circulation on StrengtheningEnvironmental Impact Assessments for Construction Projects Receiving International Financing (June 1993); (10) Technical Guidelinesfor Environmental Impact Assessment. O fthe ten Bank Safeguard Policies, Environmental Assessment (OP/BP/GP4.01), Involuntary Resettlement(OP/BP 4.12) and Information Disclosure (BP17.50) are applied inthe EA. Relevant international environmental agreementsinwhich China is a signatory have also been consulted where appropriate. C. ProjectDescription The Zhe-GanRailwayruns east-to-west. It starts from Hangzhou City o f Zhejiang Province in the east, crossesthrough Yiwu City, Jinhua City, Quzhou City o f Zhejiang Province and ShangraoCity, Yingtan City, Nanchang City, Xinyu City, Yichun City andPingxiang City of Jiangxi Province, and ends at Zhuzhou City o fHunanProvince. The existing line i s 942.6 km long. After reconstruction, the line will have a total lengthof 916.1 kmwith design speed of 140- 200 km/h. There will be 29 tunnels to be usedor built with a total length of 11,222 meters, 109 bridgestotaling 26,774 meterswill bebuilt, including 12extra-large bridges of 15,019 meters long, 86 large or mediumbridges of 11,421 meters and 11small bridges o f 333 meters long. 1,439 culverts totaling 32,390 meters will bebuilt. A total o f43,310 muo f landwill be occupied, including 29,077 munewly acquired. Total investment for the project i s RMB 13.94 billion. Table 10.1: Main TechnicalStandards I/Classification- I I Item 1Existing Design Standard I '1 1Class I Class I ~ Number ofTracks 1DoubleTrack 1 DoubleTrack Limiting grade 7.2%0 1 7.2 %o ~ 1 1I Minimum curve 1 ' 1400m 200 km/h:2,800m (min2,200m); radius (33 curves <400m, 160km/h: 1,600m; 140km/h: 1,200m; i I ~min=332m) ,i1120km/h: 8OOm. I Type of Traction i Diesel 1 Electric I Type oflocomotion Passenger locomotive:EMU, SS8; ' Tractionload ND2yDF4 ~ Freight locomotive: SS4 I ~ 3,500t 4,000t I 1 Passingloop active length 850m 850m 1 ~ 1 Type ofblocking 1 Automatic blocking I Automatic blocking I 70 D. BaselineEnvironment The areas along the Zhe-Gan Railway line belong to a semi-tropical region with a continental climate. The climate is warm and humidwith abundantrainfall; mean yearlyrainfall being between 1,500 and 2,300" that is mainly concentrated inthe monthsfrom April through June. Mean annual wind speed is 2.0-3.5ds. The EA Team identified 113 villages/townships, 39 schools and 5 hospitals about 15-260m from the railway central line, as the environmentally sensitive receptors through field survey and investigation. According to the environmental assessment report, the project area has a complex o fvegetation, most o f it i s secondary vegetation (forest coverage is about 40%), cultivated land andsome waste land. Due to the longhistory o fhumansettlement andintensive activity along the line, as well as the longperiod o f operation o f the existing railway, there are no wildlife or rare animals or rare plantsneeding specialprotection inthe project areas within the three provinces. Baseline noise monitoring has been conducted for all 157 sensitive sites identified. Itwas found that there are occurrences o f substantial standard exceedance on both sides o f the existing railway line. This i s mainly due to the longperiod o f operation o f the existing railway and intensive humanactivity along the line over the years. Current air quality inregions andcities along the line was assessedbased on monitoring data o f regional environmental monitoring centers. It was concludedthat air quality along the line could basically satisfy the level I1standards o f ambient air quality with the exception o fjust a few locations. The mainpollutants are: TSP, S02, andNOx with increasingtrend o f SO2 andNOx. The project areabelongs to the national control area for acid rain. For surface water, the main rivers crossed by the Line(the Puyang, Jinhua, Qu,Xin, Gan, Yuanshui, Lushui andXiang) can barely meet relevant standards due to rapid economic development inthe region. The water pollution sources o fthe railway are production wastewater and sewage from depots andpassenger stations. Monitoringo f wastewater discharge was conducted duringJuly and August 2002 at five major locomotive depots, tumaround depots and passenger stations. Wastewater discharge from other depots along the line was assessedbased on routine monitoring data. Itwas concluded that waster water discharged from treatment facilities of depots and stations can basically meet the discharge standard. One direct receiving surface water for North Zhuzhou Turnaround Depot was also monitoredindicating 88% and38% exceedance o f COD and oil above the applicable standard. According to the field survey andthe information from cultural property departments, the Donghuanshan-Shitatou Tombs o f the HanDynasty (a county-level Cultural Property Protection site) are locatedinLongyouCounty, Quzhou City, ZhejiangProvince beneath and adjoining the existing line at K228+000-K232+000. Theproject area (Le. the railway line andthe impact zone on either side) crosses the cities o f Hangzhou, Shaoxing, Jinhua, Quzhou, Shangrao, Yingtan, Nanchang, Xinyu, Yichun, Pingxiang andZhuzhou with total landarea o f 115,000 km2andpopulationof40,586,900. The GDP for 2002 was RMB421 billionwith a per capita GDP of RMB 10,376 (about US$1,250). The 71 project will directly affect the above-mentioned 113 villages, 39 schools and 5 hospitalsbecause o f their proximity to the line. E. EnvironmentalImpacts The project will occupy 43,3 10 muo f land (including 3,119 muto be acquired temporarily for borrow sites and spoil disposal areas), ofwhich 75% are paddy fields and dry farm land, 10%are barren lands, 8% are woodland andeconomic tree landand7% are others. The basic farmland occupiedbythe project accounts for 0.025-0.34% o fthe total basic farmland o f the cities along the line. Generally speaking, the project will cause little impact to the area's agricultural production. There are no valuable andrare plants protected by the government within the project scope. About 1,130,600 trees inthe areas will be cut down andremoved, most o f which are planted trees. However, the loss o fvegetation cover will be o f short duration since extensive re- vegetation is plannedfor borrow and disposal areas, sub-grade slopes and landoccupied temporarily, to restore the ecological loss. Duringrailway construction, soil andwater loss mayoccur dueto damage to andinterference with the original surface vegetation and soil. The soil erosion areas include deep excavationand highbackfillsections, borrow sites, spoil yards, temporary construction camps, special geological sections andother surface soil interference sections. According to a model calculation result, the soil loss o f the entire project duringthe construction phase would be nearly 6 milliontons ifno proper measures were adopted, more than the existing intensityo f soil erosion. Duringthe initial several years o f operation, soil erosion phenomena will continue to occur untilthe vegetation is fully restored. The noise duringconstruction phase will be mainly from the construction equipment. The forecasted result from noise modeling shows that the national standard can bemet for areas more than60mdistant indaytime and 120mat night. Residences closer to the linewill beaffected by constructionnoise, especially ifconstruction is allowed at night. The environment assessment team forecasted the noise level for the 113 villages, 39 schools and 5 hospitals in2011(short-term operation period) and 2016 (long-term operationperiod). Inthe villages ("concentrated residential areas") the short-term noise level at locations 30m from centerline o f the railwaywill be 63.2-71.ldB indaytime and 56.9-70.5dB at night. The long- term noise level will be slightly louder: 63.9-71.9dB indaytime and 57.5-71.2dB at night. As for the schools andhospitals, the short-term noise level will be similar at 57.0-71.3dB indaytime and 55.4-70.6dB at night, exceeding the standard by 0-11.3 and 5.4-20.6dB and0-11.8 and6.1- 21.2dB for long-term. The reason i s the noise caused bypassingtrains, road traffic noise, and social noise. It is also predicted that vibration will be felt up to 30m away from the center line on both sides, at 81-84dB insub-grade sections. This is 1-4dB higher than the standard. This effect will be 74-79dB inbeam-type elevated line sections, which meets the standard. The primaryimpacts on the water environment duringthe construction phase include discharge of sanitary sewage from constructioncamps, surface run-off from camps, storage areas, and bridge construction. The camps are expected to generate about 2-3 tons o f sanitary sewage per daywhich, ifnot treated properly, would affect the water quality ofthe receiving streams. 72 Bridge construction could result inthe suspension o friver sediments, and create risk o f oil contamination from leaks and spills. Solid wastes from camps, service areas, storage areas, if not handledproperly, could also create pollution problems. Inthe operation period, the sewagesourceswill bemainlylocomotive depots, wastewater that contains oil discharged from production sections, and domestic wastewater discharged from passenger stations. The total wastewater will increase to 77,453 m3/year. Since electric locomotiveswill be adopted, the pollutants such as CODcr, BOD5, andSS inwastewater discharged from productionorganizations will bereduced. However, because o fthe expected increase inrailway staff and passengers, pollutants such as oil inwastewater discharged from each station will increase. The main source o f air pollution duringthe construction phasewill be construction dust. The dust i s mainly from the uncompletedroad foundation, storage sites and access roads. The scope o f impact can extend 150-200m from the construction site on both sides o f the line. The replacement o f diesel locomotives by electric locomotives will cause the pollutant discharging quantityto be less than the existingrailway (no-project scenario), with smoke emissions reduced bymore than 87%, SO2bymorethan 70%, NOx bymore than 87% andCO bymore than 80%, which will contribute to improved air quality along the railway. Duringthe operationperiod, the domestic solid waste andtrain waste generated from each station and section will also increase by about 23,700 t/a and25,575 t/a respectively. The train waste will be disposed o f after it i s bagged at Jinhua, Quzhou, Shangrao, Yingtan, Xiangtang, Nanchang, Xinyu, Yichun, Pingxiang and Zhuzhou passenger stations. The waste from passenger trains andrailway stations and sections will be transported to designated locations for disposal after collection. Therefore, there will be no obvious impact on the environment along the railway. Once electric-powered trains start operating, a new environmental impact will occur: electro- magnetic interference. When electric locomotives runat highspeed, sparks occur when the locomotive's pantograph loses contact with the overhead catenary, forming electromagnetic radiation. Its formation is hardto predict, and this high-frequency radiationwill affect TV reception within 40m from the railway (mainly within 20m). According to site investigations, all the towns and villages along the line have installed closed-circuit cable television systems through a nation-wide "Village Linkup" campaign o f China Broadcasting and Television Ministry. Therefore, electromagnetic interferenceafter completion ofthe Projectwillbe minimal. After train speeds are raised, the risk to pedestrians walking across or along the tracks will be even greater thantoday. For this reason the line will be fully fenced throughout. The fencing may isolate villages and fields on both sides o f the railway. A total o f 145 villages and residential areas will be affectedby the restrictedaccess to their farmland, markets, schools and social services o fthe community. As noted above, the Donghuanshan-Shitatou Tombs o fthe HanDynasty are locatedon the existing line inLongyou County, Quzhou City, Zhejiang Province. Ifno alternative were considered, the upgrading o f the existing line would affect the site. 73 Healthrisks are primarilyrelatedto increased temporary population duringconstruction and operationperiods. The increase inthe temporary population could potentially bring and spread infectious diseases inthe project area, including HIV/AIDS. The MORwill disseminate knowledge on the prevention o f disease among constructionworkers. The safety risk is primarily inthe constructionphase with the local residents, particularly children who have little awareness o f construction site safety inthe linear construction sites that often do not have any fencing or control measures. The use o f explosives for cutting deep sections andtunnels could result inflying stones, not to mention the explosions themselves, that will be potential safety hazards to the residents livingnear the construction sites. The constructionworks may damage the landscape, mainly from interferencebetween the existing natural landscape, railway landscape and landscape environment. The main works that will cause environmental impacts are deep excavationandhighbackfill sections that will interfere with the surface landscape. Especially acute interference will be from largebridges, spoil yards, borrow sites and large buildingsthat are not compatible with the surrounding environment. However, most o fthese impacts are o f a temporary nature, such as borrow sites andspoil yards that canberestored through well plannedlandscaping. Other visual impacts can be given full consideration duringthe design phase to be harmonized into the background landscape andreduce the visual sensitivity to the maximumextent possible. Off-setting the above adverse impacts, the project will bringmore convenient transportationfor the areas along the railway, promote the passenger and goods flow as well as information flow, and benefit the circulation o f the local industrial and agricultural products to the outside world. The construction and operation periods o f the Project will provide many work opportunities, which will increase income o f the residents and the local farmers along the railway. More convenient transportation will bringtourists to local areas. The improvement o f the infrastructure conditions will help attract foreign investment. All o f these will help improve the local economy along the railway. F. AlternativesAnalysis Alternative analysis was conducted for two aspects: (1) diesel locomotive vs. electrification; (2) alternative alignments at various sections. For diesel locomotive/electrification: Although adoptinghigh-powered diesel locomotives could also raise the transport capacity and satisfy the near and long-range demands for passenger and freight transport, it is not recommendeddue to various disadvantages: Highdependency onpetroleum for which Chinaisbecomingthe largest importing country. Meanwhile, the current West-to-East Power DeliveryProject will take the uninterruptedclean energy from the Three Gorges and ErtanHydropower Stations to the areas o f East China. Not compatible with railwaynetwork. The Zhe-Gan Line is part o f the Shanghai to Kunmingand Shanghai to Chengdu corridor. The westempart o fthis corridor (from Zhuzhou) has already been electrified. The eastem section, Shanghai to Hangzhou, i s currently carrying out electrificationrenovations. 74 0 Higher operation cost and much more environmental pollution. Alternative a l i m e n t s at various sections: Though the speed-raising mainly involves upgrading the existing line, there are sections where alternative alignments have been evaluated with integratedconsideration o f environment, social and engineering aspects. The final alignment has been chosen based on a series of technical, environmental and social criteria, i.e. avoidance o f environmentally sensitive areas and cultural properties, less social interference, shorter length, less land occupation, and compatibility with local master planning. The mainalternative sections assessedinclude: Zhuji Section (K66+400-K93+500): The existing railwaypasses through the built-up area o f Zhuji City and i s 27.1 km long. Two options were considered: renovating the existing line (described as Proposal A) and a new straightened alignment (Proposal B). Compared with ProposalByProposal A would result ina large number o fpeople needing resettlement, significant noise impact to dense communities and serious social severance because of fully-fenced operation. Therefore ProposalB was recommended. Under ProposalBytwo short sub-sections are also considered: Proposals I(5.8 km)andI1(6.5 km). The ambient environment for Proposals IandI1is the same, except that ProposalI1is closer to the existing Hang-Jin-Qu Highway. For that reason Proposal I1was selected, as it will take less landthat couldhave alternative high-value uses. Longyou Section (K222+600-K238+380): The existing railwaypasses through the built-uparea o f Longyou County and this section o f the line is 15.8 kmlong. Two options considered were: renovating the existing line (Proposal A) anda new alignment (Proposal B). Proposal A passesthrough the densely inhabitedcity area, as well the Donghuashan-Shitatou Tombs. Proposal Bbypasses the outskirts o f the city and country districts with dispersed inhabitants and avoids the tombs. It i s also compatible with the Master Plano f Longyou County. Onthe other hand, Proposal B will occupy a large amount o f cultivated landandrequire a larger investment. After comprehensive comparison, the assessment team recommendedProposal B. Quzhou Section (K258+770-K270+000) The existing railway passes through the built-up area o f Quzhou City andhas a length o f 11.23 km. A new alignment (Proposal B)was comparedwith renovatingthe existing line (Proposal A). Proposal Bythoughinvolvingmore landacquisition andinvestment, was selectedbecauseo f avoidance o f dense urban areas, less resettlement, less noise impact, easy construction, less social severance andcompatibility with the local master plan. Dongxiang Section (K529+900-K539+100) The existing railway passes through the edge o f the DongxiangCounty built-up area andi s 9.2 kmlong. Two alignmentswere considered: renovationwith the existingDongxiangstation (Proposal A) andrenovation with construction o f a new Dongxiang Station (Proposal B). Proposal Bythough requiring more landacquisition and investment, was selected because o f avoidance o fmany sensitive receptors, less resettlement, and avoidance o f disturbance o f current 75 development o f the Dongxiang Economic Development Zone. It is also compatible with the local master plan and supported by the local government. Luxi Section (K835+100-K848+700) The existing railway passes through the edge o f the Luxi Countybuilt-up area and i s 13.6 km long. Two alignments were considered: renovationwith the existing Luxi station (Proposal A) andrenovationwith constructiono fa new LuxiStation (Proposal B). ProposalBythough involvingmore land acquisition andinvestment, was selected because o f less resettlement, less social severance, easy construction and compatibility with the local master plan. Baiyuan to North Pingxiang Section (K855+000-K858+300) The existing line is 3.3km long. Its curves cannot satisfy the radius requirements o fthe speed targets and so the line mustbe straightened. Three alignments were comparedwith target speeds o f 200 km/h(Proposal A), 140km/h(Proposal B) and 120kmk (Proposal C). Proposal A and ProposalBbothpass through part o fthe miningzone o f the Baiyuan Coal Mine, which poses potential safety hazards and adds to the difficulty o f construction. After comprehensive comparison, Proposal C was chosen. LilingSection (K889+000-K899+000) The existing railway passesthough the built-uparea of Liling City and is 10 km long. Two options considered were: a new alignment usingthe existing Liling East Station (Proposal A) and a new alignment with construction o f a new LilingEast Station (Proposal B). Proposal By though requiring more land acquisition and investment, was chosen because o f avoidance o f dense urbanareas, less resettlement, less impact on the LuRiver and easy construction. G. MitigationMeasures The EA report includes a series o f measures to avoid, minimize, mitigate or otherwise compensate the negative impacts from the Project. These measures are summarized below. Design Phase The railway alignment was carehlly selected to avoid occupying the sensitive ecosystems. The excavated earth will be used as backfill where at all possible andminimize the occupation o f farmland, cultivated landandwoodlands. Locations o fthe borrow sites and soil disposal areas as well as other landthat will be temporarily occupied were carefully chosen. Concrete and stone pitching will be used for highbackfillingand deep cuttingo f the slopes. The borrow sites will be restored with extensive landscaping, tree planting andreclamation. The spoil disposal areas will adoptretaining walls, drainage systems as well as re-vegetationmeasures. Local plants andtrees will be carefully selected for the landscapingandre-vegetation. The entire line will adopt continuous welded rail, reinforced concrete cross-ties (sleepers) (Type 111),elastic clip fasteners (Type 11)andClass Iballast sub-grade to reduce noise andvibration impacts. Several mitigation measures to minimize noise were incorporated into the design for 71 76 sensitive receptors at which the noise level i s predictedto exceed the applicable standards. These measures include noise barriers, double-glaze windows andtree-planting. To treat domestic wastewater from each station or line section, batch activated sludge method (SBR), anaerobic bio-filter chambers or septic tankshavebeen designed. For wastewater discharged byproduction units, sedimentation tanks, oil separation by tilted board, air floatation (adsorption) or filtering will be applied. The technology is well-developed and appropriate. The proposed wastewater processing can meet national discharge standardsas well as the provincial andmunicipal standards along the line. Inall493passageways and298 overpassbridgeshavebeendesigned, toreducethesocial severance impact on various towns, villages and residential areas, taking into account the requirements o f various agricultural vehicles. On average, there i s one passage every 650m, or 3.4 passagesfor each village. For the discovered cultural property and historical sites, namely, the Donghuanshan-Shitatou Tombs (see above), the line has beenrelocatedinthe design stage inorder to keep away from it. Methods for protecting cultural property have been drafted incooperation with the cultural property departments and listed inthe Design Schedule. A procedure for handling "chance finds" has also beenincludedincontract specifications for the construction stage. The design has adopted high-tension catenary and'continuously weldedrails to minimize the incidence o f generation o f EMF, and a budget has beenearmarked to compensate residents whose TV signal, upon monitoring, would be affectedduring operation. Construction Period The landthat is temporarily usedwill be re-stored promptly following its use. For construction activities near woodlands, the forest authority will be notified first. Where necessary, protective zones will be defined together by the local forest authority andconstruction unit or protection walls/slopes will be built duringthe initialphase o f construction. Other mitigation measures duringconstruction include careful selectionofborrow sites and spoil yards locations, temporary drainage ditches, retaining walls and culverts to reduce soil erosion and the impact o f local irrigation regimes, and close supervision and inspection o f the construction. The operationo fhigh-level noise construction will be 200 meters distant from the residential areas, and low-level noise equipment will be used. The mainconstruction activities will be strictly controlled during daytime. Temporary sound-insulation facilities will be usedto decrease the mechanical noise. Construction vehicles will be arranged to steer clear of the residential areas wherever possible. At the same time, such vehicles will be forbiddento go through the residential areas at night. Inorder to lightenthe negativeimpactsonsurface water duringthe constructionperiod, the cofferdam methodwill be adopted during construction of the major-bridge piers. The constructiono f river crossing structures will be timed for the low water seasonwhenever possible. Domestic wastewater from the construction camps will be periodically drawnoff for treatment or treated by septic tanks. Solid waste from the camps will be collected and transported to municipal landfill sites for proper disposal. 77 Watering will be carried out for temporary roads twice a day (once inthe moming and again in the afternoon) to keep dust down. The frequency o fwatering will be increased indry or blustery weather. Covering canvas will be used for the transportation o f cement, sand, lime and so on. Temporary construction roads will stay away from the existing residential areas wherever possible. Before construction begins, the contractors will be notified o f the procedure for treating and reporting on cultural property and historical sites that may be encountered duringthe construction. The contractors will berequiredto stop their construction immediately andwait for the investigation and appraisal byprofessionalarchaeologists. The construction can be resumed when approval has been obtained from the department incharge o f cultural property. Construction workers will receive education on basic knowledge o f disease control, especially some infectious diseases. Necessary self-protection devices, such as safety helmets, earplugs and other safety protection devices, will be provided to workers. Enclosures at construction sites andother dangerous placewill beestablished to prevent accessbythe public. Environmental protection consciousness and environmental management system will be taken as a basis for bidevaluation. The Environmental Management Planwill be incorporated into the biddingdocuments so that its implementationwill be anobligation o fthe contractors. Relevant environmental protection training on environment policies and laws, possible environmental impacts, mitigation measures, routine monitoring, reporting systems, emergency treatment, etc., will beconductedfor all accepted contractors andconstruction supervision engineers prior to commencement o f construction. Operation Period The operationunits will enhance the maintenance, service and administrationo fvarious protectionworks. Fieldsupervision on the ecological environment along the line will be enhanced andthe potential negative geological hazards will be identified in a timely manner for mitigation. Residential buildings, schools, hospitals or other noise sensitive receptors will not be newly constructed within 30m o f the line. Concentrated residential areas will not be newly constructed within 30-120mo fthe line. All railway departments will strengthen management ontrain operations, maintain good traffic andreduce blocking as well as reduce randomwhistling whenever possible andimprove the environmental protection consciousness o f crew members at the same time. They will also strictly obey MOR'Swhistle regulations. H. EnvironmentalManagementPlan A stand-alone Environmental ManagementPlanhas beendevelopedwhich specifies policies, regulations and applicable environmental standards, environmental management system, mitigation measures and environmental monitoring programs for the construction and operation phases. The EMPwill be implementedby contractors and supervised by the Project 78 Management Offices o f the three railway administrations (Shanghai, Nanchang, and Guangzhou Railway Group) during construction andby the Environmental Departments o f these administrations during operation. An independent environmental supervision consultant will be hiredbyMORto supervise andmonitor implementationo fthe EMP. The EMP includes environmental monitoring programs for bothconstruction andoperation phases. The monitoring content includes soil andwater loss, noise, dust, and degradation o f water quality, river sedimentation, solid waste treatment and electromagnetic radiation. During the construction phase, environmental monitoring will be conducted intwo approaches: daily androutine monitoring consisting o fmainlyvisual observations andlimitedequipment measurements andperiodic monitoringby accredited professionals using standard methods. Monitoringreports will be compiled at intervals o f once every six months, summarizing the findingso fthe monitoring. The reportswillbe submittedto projectproponents as well as relevant organizations andthe Bank. Duringthe operationphase, monitoring will be conducted once after project completion and then twice each year for the first three years after completion; water quality will be monitored once every year. Inorder to ensure the environmental performanceo fthe Project, the EMPparticularly emphasizes institutional capacity buildingand strengthening. It developedtraining programs for personnel at the various management and supervision organizations that are involved inthe Project. The environmental training for contractors and construction supervisors will be held prior to the commencement of construction. The training will cover the basic knowledge o f environmental protection andpollutioncontrol, the results o fthe EIA andrequirements o f the EMP, the methodology for site environmental management andmonitoring, andreporting requirements. The training for the various railway bureaus (groups), regional railway administrations, management sections o f the various stations andrailway sections as well as the environmental organizations will cover environmental management, management organization, applicable environmental standards, mitigation measures, environmental policies and pollution control technologies. I. PublicConsultationandInformationDisclosure Two rounds o fpublic consultationwere carried out duringthe EA: the first round when the EA Outline was beingpreparedbefore April, 2002 andthe second round to review draft EA reports betweenMay/June 2002 and September o f 2003. Various techniques were used inpublic consultation, including survey questionnaires, public meetings, and interviews with affected groups and individuals as well as small discussion groups. The people consulted included mainlythose who will be affected directly by the Project, relevant government and non- government organizations and environmental as well as other experts. Intotal, 2,580 people participated inpublic consultations. The primary concerns o f the public include the noise and impacts to traffic duringthe operation period. The EA team responded to the public concerns by ensuring that adequate passageways are included for the convenience o f farm vehicles and to mitigate impacts on daily farm work and communication (inall 493 underpasses and 298 overpasses will be providedat an average spacing o f 650m, or 3.4 passageways for each village); planning o f 109bridges and 1,439 new culverts to minimize disturbance to irrigation; design o fnoise barriers and sound insulation windows to minimize the impacts o f noise from the railway for 77 sites with a total budget 79 allocation o f about US$ 10million. Other responsesinclude the full fencing o f the railway line for traffic safety, welded rails to minimize vibratiodnoise and EMFimpact, andprovision o f employment opportunities duringconstruction. IncompliancewithEIAprocessrequirementsoftheChinese government andtheBank, the completedEA documents were disclosed inpublic places along the line where the concerned public canhave access to, andreview, the reports. Inaddition, the project information and feasibility reports were advertised inprovincial and municipal daily newspapers along the line as well as onbroadcasting stations, television stations, Xinhua Net andNational Traffic Net (www.eroute.com.cn). They were also posted on the websites o fthe Foreign Capital Center o f MOR, the Second Survey & DesignInstituteo fChinaRailways andthe World Bank (China). J. EstimatedInvestmenton EnvironmentProtection The estimated environment protection cost for the Project is RMB 434.1 million($52.4 million) andthe total project construction cost is RMB 1352billion. Thus the environmental protection cost accounts for 3.2% o f the total project investment. Table 10.2 :PublicConsultation Content 1 Investigator, Informant Time ILocation Bank Policy Environment Railway Academy of Sciences, Resident homes, offices program, group of villages and towns, discussion, individual Institute o f Chma Railways 1 Second Survey and Design ischooloffices, visit, public meeting (project group), residents, April-May, 2002 administration OP4.01 ~ ' government staff Environmentreport Railway academy of sciences, 'Residenthomes, offices first draft' Second Survey and Design o f villages and towns, meeting, special visit Institute o f China Railways June-July, school offices, and group discussion, ' school teacher, doctors, nurses 1 the organization offices along and inhospitals and railway ~ organization offices OP4.01 field investigation schoolhospitals doctors, nurses 2002 teacher, and along questionnaire and^ and in (project group), residents, administration ~ the railway 1government staff Resident homes, offices o f villages and towns, September- school offices, October, administration OP4.01 field investigationand questionnaire andin hospitals and government staff 80 Table 10.3: InformationDisclosure Time Location Disclosure content -Libraries inQuzhou, Jinhua and ZhujiCities in 1 January, 2004 Zhejiang Province, Nanchang, Shangrao, Yingtan, Xinyu, Yichun andPingxiangCities inJiangxi , DraftEA 1 'I Province, and ZhuzhouCity inHunanProvince Reference libraries of ShanghaiRailway Bureau, Environment Assessment Summary, January, 2004 NanchangRailway Bureau, Guangzhou Railway Environment Management Plan and Group, Zhe-Gan Railway Construction directorate^ Environment Assessment Report February, I 2004 Zhejiang Daily, Jiangxi Daily, Hunan Daily Advertising ~ I February, 2004 World Bank Office Beijing EA Summary, EIA and EMP Table 10.4: EstimatedInvestmenton EnvironmentProtection j ' IEnvironmental ProtectionItems Stages Cost (RMB million) I1 Translation and edition cost of EIA 1PreparatiodDesign 0.55 1 1report ~ 1 Staff training jConstructiordoperation I 0.25 1Environmentmonitoring and Constructiordoperation 2.35 1 ~ 1supervision I Resettlement Action Plan and 1PreparatiodConstruction 0.66 monitoring Ii I , Total 1 434.09 I ~ 81 Annex lob: ResettlementImpactsandResettlementAction PlanSummary LandAcquisitionandResettlement-RelatedImpacts The purpose o fthe project is to upgrade the Zhe-GanRailway line (943 kmlong), connecting Zhejiang, Jiangxi andHunan provinces from near the east coast to the center-west o f China. The design for the upgradingwill be refined further inaccordance with the preliminary technical design and resettlement impacts analysis. From September, 2003 to March, 2004, MOR engaged Huadong Institute to guide the field survey work on resettlement inventory aspects and planning, consisting o f local officials, representatives o f villagers. The LandResources Administration Departments and local governments also participated inthe census of displaced people and inventory o f affected assets. The census and various different categories o f impacts were identified andrecorded intabular format for each household and village. They were verified and signed o f fby the village committees, the head o f each household andthe investigationteam. The property assetswill be reconfirmed through broad consultation andnegotiation when land and structures are required. Socio-economic Survey The current resettlement planis basedon the preliminary design, a census o fthe displaced population, an inventory of impacted assets, a socioeconomic survey, a social assessment and continuous consultations with the displacedpopulation. The socio-economic survey conducted byMORis to analyze the project impacts, understand the socio-economic backgroundinthe project-affected areas as the basis for resettlement planning, andto consult the displaced people for their feedback on the resettlement planning. The project starts at the east coast city o f Hangzhou, capital o f Zhejiang. It traverses Jiangxi and ends at Zhuzhou, the border city for Jiangxi and Hunan. The rural population i s relatively dense, with landholdings averaging about 0.5 muper capita inZhejiang, 1.2 muinJiangxi and 0.8 mu inHunan. Plantingisthemainagricultural activity andcrops include corn andrice. Average yields are comparatively highinZhejiang and low inJiangxi andHunan. Animal husbandry i s also another important rural activity. Inthe project areas along the line, farmers' non-farm income i s generally higher. The resettlement income sampling survey indicated that 87% o f farmers' family income comes from non-farm activity inZhejiang, 59% inJiangxi and 85% in Hunan. Non-farm activities havebecome animportant source offamily income. Farmers normally go out as wage laborers, some long-term and some seasonal. ProjectImpact According to the project RAP, the project will affect 560 villages in 133 townshipsin3 provinces along the 943 kmo f railway line to be upgraded. The project will require the permanent requisition o f 26,668 mu(1,778 hectares) o f land. This includes 18,667 mu(1,245 hectares) o f collective agricultural land, 418 mu(28 hectares) o f orchard land, and 4,057 mu (270 hectares) of timber forest land. Duringthe construction period 6,439 muo f landwould be usedtemporarily. 82 The project would affect 49,102 people, including 45,853 persons affectedby landrequisition and 2,666 households with 9,401 inhabitants subject to structure demolition. 6,152 people would be affectedbyboth landrequisition and structure demolition. The designwill be refined further to reflect the resettlement impact analysis. Relatively minor design changes are likely to continue untilimplementationstarts. Typically, final designs result inmarginal decreasesinlandrequisitionandstructuraldemolition, aswell as changes in proportion among categories o f affected land and structures. LegalFramework The project followed local as well as World Bankpolicies on land acquisition. Policy principles followed indeveloping the Resettlement Action Plan were: e Allpossiblemeasures willbe exploredto minimize adverse impacts, including engineering, technical, environmental and economic measures. e The objective o f resettlement planningis to increase or at least restore the living standard o f the affected population. e All affected assetswill be compensated at replacement cost without depreciation. e The affectedpeople andlocal governments will be consultedover the compensation rates. e Compensation fundwill be paid 3 months before requisitionof the assets. e Resettlement will be land-based, with non-farm industrial employment and self- employment as complementary measures. e The affectedpeople andthe host population will be encouraged to participate in resettlement planning. e Resettlers will be relocatedwithin existing villages or production teams. CompensationStandards The project office consults and negotiates the compensation with the three involved provinces. The actual compensation rates will be basedon replacement cost for various categories o f affected assets. For the land compensation, it will be based on the highest average annual output value per muamong the same kindof land inthe affected counties. Ineach case, however, compensation rates meet or exceed legal requirements, andmeet or exceed replacement cost valuation. The project also will affect public infrastructure. Compensationbased on replacement value will be paidto the relevant government agencies or local governments to restore the affected infrastructure and services. ResettlementBudgetandDisbursement The RAPScontain detailed compensation rates for all impacted assets. They were arrived at in accordance with the above principles and after consultationwith local governments and the affected people, Detailed unit rate analysis was conducted to determine the replacement costs 83 for different types o f houses. They are described inthe RAPS.Compensationfor affectedpublic facilities was estimated at reconstructioncost. A detailedresettlement budgethasbeendeveloped based on the inventory o fvillages andthe developed compensation rates. This budget includes the base cost, management fees and contingencies. The base cost includes compensation fund for land, standing crops, houses, attached structures, facilities, landacquisition tax, resettlement subsidy, fund for land leveling, training andmonitoring. The management fee i s about 3% o f the base cost. Contingency i s estimated at 20% o f the base cost for physical resettlement activity. The total resettlement budget i s RMB773 million, including RMB 116 million o f contingency and RMB75 million o f tax. Resettlement will be financed entirely from counterpart (Le. MOR) funds. Resettlement h d s will be disbursed from the Ministryo fRailways to entitled units through provincial landbureaus and county landbureaus. Landcompensation will be paidto the villages from the county land bureaus. MORwill supervise the relevant landbureaus to allocate land compensation andprivate compensation 3 monthsbefore the village landrequisition andprivate assets requisition. Compensation for affectedpublic facilities will bepaidto the owners o f government agencies or entitled units. Livelihood Restoration Relocation o f households. The villages will provide new residential plots and the specific house sites will be finalized through consultation with the affectedhouseholds. Farmers will build their ownnew houses with cash compensation. All relocating households will be servicedwith existing public facilities andinfrastructure. No need for additional village infrastructure i s anticipated. Rehabilitation ofpublic facilities. The infrastructure facilities impacted are mainly irrigation canals, power and telecommunication lines, and transport facilities. For these facilities, compensation based on the replacement cost will be paidto the respective owners. The affected irrigation canals andunderpasses will be reconstructed by the project construction contractors andbe supervised by the affectedvillages. The other ownerddifferent government departments o f the facilities will be responsible for their reconstruction. Livelihood restoration. Since the proposedrailway alignment passesthrough mainlyrural areas, resettlement planning has included review o f impacts on incomes, based on village impact analysis. Among the 560 villages affected, 32 will be substantially affected by the land requisition, inthat they will lose more than 10%o f total village farmland. Livelihoodrestoration for farmers losing agricultural land will follow a land-based and agricultural development-based strategy. All affected farmers will get cultivated land through the redistributiono f the village collective land. Resettlement subsidyfunds and landcompensationwill be usedto provide assistance to self- employment, improve agriculturalproductivity through landreclamation and irrigation development, soil improvement, and other activities. Also, a village-based development plan was undertaken inthe substantially affected villages. There as inother villages, land redistribution will be undertaken so that wherever possible all village members retain access to land, and compensation payments will be usedby the village to improve agricultural production. 84 Incaseswhere affectedvillagers are losingtheir landandothers arenotwilling to redistribute their landto the affectedpeople, further consultations have resulted invillage-specific strategies for livelihood development andvillage-specific income-generating measures will be developed. InstitutionalArrangements Each o fthe three provinces involved has established a resettlement leading group chaired by the Vice Governor, and relevant prefectures andcounties have been grouped. Meanwhile, the project office has set up a multi-level organizational frameworkto supervise resettlement implementation. Other relevant government agencies are also involved, including planning, finance, communications and land administration at different levels. The RAP also sets out a detailedtraining program for capacity buildinginthe project offices. ImplementationSchedule Landredistribution anddevelopment are likely to start from September 2004 (except for a few small sites where work began already inJanuary 2004 to set up camps and give access to the line). Consultations with the displacedvillages on livelihood development have begun. Resettlement will observe the followingprinciples for the schedulingo f its implementation: House demolition will be phased and civil works can not start before the relocating households move into their new houses. Demolition notice must be served at least three months before relocation, andrelocating households will be given at least three months for new house construction. Civil works can not start before compensation payment and landacquisition are completed. Redistribution o f landwill be carried out duringthe season-breaks. Village-specific livelihood restoration measures will be developed at the same time as landredistribution. Reconstructionand rehabilitation o f affected public facilities and infrastructure will be completedbefore civil works start. PublicConsultationandGrievanceRedress The RAP was prepared with active participation o f the displaced population. Local governments, village leaders and the affectedpopulationparticipated inthe census, the inventory, the finalization ,ofthe alignment, the compensation rates, andthe relocation and livelihood development schemes. From September, 2003 to March, 2004, project information andresettlement policies were disseminated among them before andduringthe consultation process. The affectedpopulation was systematically consultedthrough the social assessment and their feedback hasbeenincorporatedinthe RAP. The draft final RAPhas beenplacedinlocal libraries andits availability was announced inthe mainprovincial newspapers on February4, 2004. MOR i s preparing a Resettlement Information Booklet and will distribute it to all displaced households after the project appraisal. MOR has designed a grievance redress mechanism. Any grievances will beredressed through the resettlement management at different levels. The RAP contains detailed procedures and a 85 timeframe for grievance redress. This mechanismwill be described inthe the Resettlement Information Booklet. ResettlementMonitoring To ensure the smooth and successfbl implementationo fthe RAP, MOR has designed both internal and independent monitoring mechanisms for RAP implementation. Internal monitoring will beconductedthroughthe resettlement offices at various railway bureaus. Itwill mainly focus on physical progress of the RAP implementation. Independent monitoringwill be carried out byHuadongDesign Institute, the same entity that performed the survey. Its independent monitoring will be conducted every six months. Apart from physical progress, it will evaluate livelihood restoration efforts andtheir effectiveness. The RAP describes indetail monitoring purpose, responsibility, indicators, methodology, procedures and reporting requirements. 86 Annex 11: Project Preparation and Supervision CHINA: Second National Railways Project Planned Actual PCNreview 02/20/2003 InitialPID to PIC 04/23/2003 Initial ISDS to PIC 04/23/2003 Appraisal 03/29/2004 Negotiations 04/22/2004 Board/RVP approval 06/24/2004 Planneddate o f effectiveness 09/15/2004 Planneddate o fmid-termreview 02/15/2006 Plannedclosing date 01/31/2008 Keyinstitutions responsible for preparationofthe project: 1. Ministryof Railways 2. SecondRailway Survey andDesign Institute Bankstaffandconsultantswho worked onthe project included: Name Title 'unit GrahamSmith Lead Transport Specialist/ EACCF Task TeamLeader John Scales Sr. Transport Specialist EASTR KarinNordlander Lead Counsel LEGEA Robert O'Leary Sr. Finance Officer LOAG3 Katerina Baxevanis Program Assistant EASTR PeishenWang Environmental Specialist EACCF Xiaoping Li Procurement Specialist EACCF Zhefu Liu Social Dev. Specialist EACCF Yi Dong Financial Mgt. Specialist EACCF XinChen Program Assistant EACCF Louis Stanley Thompson Consultant Jitendra Sondhi Consultant Richard Spero Consultant Bank finds expendedas ofMay 26,2004 on project preparation: 1.Bankresources: $268,253 2. Trust funds: 0 3. Total: $268,253 EstimatedApproval and Supervision costs: 1.Remaining costs to approval: $5,000 2. Estimatedannual supervision cost:$65,000 87 Annex 12: Documentsinthe ProjectFile CHINA: SecondNationalRailwaysProject A. ProjectImplementationPlan Project ImplementationPlan*, (English version is available on March 16, 2004) B. BankStaffAssessments AideMemoire, December 9,2002 Aide Memoire, March 12,2003 Aide Memoire, July 18, 2003 Aide Memoire, November 4,2003 AideMemoire, November 25,2003 Aide Memoire, March5, 2004 C. Other Proposal on Zhe-Ganline, January 2003 Revisedeconomic and financial data, November 10,2003 Organizational Chart, March 16,2003 Environment 1. Executive Summary ofEnvironmental Assessment", SecondRailway Survey and Design Institute, Ministry ofRailways, February 20, 2004 2. Environmental Impact Assessment (EIA)*, the SecondRailway Survey andDesign Institute, Ministryof Railways, February20, 2004 3. Environmental Management Plan (EMP)", the SecondRailway Survey andDesign Institute, Ministryof Railways, February 20,2004 4. Executive Summary of Environmental Assessment*, SecondRailway Survey and DesignInstitute, Ministryof Railways, March9, 2004 5. Environmental Impact Assessment (EIA)", the SecondRailway Survey and Design Institute, Ministryof Railways, March9,2004 6. Environmental Management Plan(EMP)", the SecondRailway Survey and Design Institute, Ministryof Railways, March 9, 2004 Resettlement 1. ResettlementAction Plan*, MinistryofRailways, February 19, 2004 2. ResettlementAction Plan(Chinese version), MinistryofRailways, March9, 2004 3. ResettlementAction Plan, Ministry of Railways, May 20,2004 * Includingelectronic files 88 Annex 13: Statementof LoansandCredits CHINA: SecondNationalRailwaysProject 29-Apr-2004 Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO66955 2004 CN-ZHEJIANGURBAN ENVMT 133.00 0.00 0.00 0.00 133.00 0.00 0.00 PO65463 2004 CN Jiangxi integratedAgric. Modern. - 100.00 0.00 0.00 0.00 100.00 2.25 0.00 PO65035 2004 CN-Gansu 8 Xinjiang PastoralDevelopment 66.27 0.00 0.00 0.00 65.61 5.16 0.00 PO73002 2004 CN-Basic EducationInWestemAreas 100.00 0.00 0.00 0.00 100.00 0.00 0.00 PO77615 2004 CN-GEF-Gansu8 Xinjiang PastoralDevelop 0.00 0.00 10.50 0.00 10.50 0.90 0.00 PO77137 2004 CN-4th InlandWaterways 91.00 0.00 0.00 0.00 91.00 0.00 0.00 PO69652 2004 CN-Wuhan UrbanTransport 200.00 0.00 0.00 0.00 200.00 26.65 0.00 PO67337 2003 CN-2nd GEF EnergyConservation 0.00 0.00 26.00 0.00 14.60 17.15 0.00 PO40599 2003 CN-TIANJIN URB DEV II 150.00 0.00 0.00 0.00 148.50 -1.50 0.00 PO58647 2003 CN-3rd.Xinjiang Hwy Project 150.00 0.00 0.00 0.00 106.13 12.38 0.00 PO66058 2003 CN-Yixing Pumped Storage Project 145.00 0.00 0.00 0.00 133.25 -4.90 0.00 PO76714 2003 CN-Anhui Hwy 2 250.00 0.00 0.00 0.00 247.50 14.75 0.00 PO70441 2003 CN-HubeiXiaogan Xiangfan Hwy 250.00 0.00 0.00 0.00 156.78 -16.22 0.00 PO70191 2003 CN-SHANGHAIURB ENVMT APLI 200.00 0.00 0.00 0.00 190.00 -10.00 0.00 PO71147 2002 CN-TuberculosisControl Project 104.00 0.00 0.00 0.00 90.28 -13.72 0.00 PO60029 2002 CN-Sustain. ForestryDev(Natura1Forest) 0.00 0.00 16.00 0.00 14.11 3.40 0.00 PO64729 2002 CN-SUSTAINABLEFORESTRYDEV. PROJECT 93.90 0.00 0.00 0.00 76.07 3.91 0.00 PO56846 2002 CN-Natl Railway Project 160.00 0.00 0.00 0.00 34.62 0.87 0.00 PO70459 2002 CN-Inner Mongolia Hwy Project 100.00 0.00 0.00 0.00 85.84 4.64 0.00 PO68049 2002 CN-HubeiHydropower Dev in PoorAreas 105.00 0.00 0.00 0.00 67.68 15.18 0.00 PO56199 2001 CN-3rd inland Watenvays 100.00 0.00 0.00 0.00 79.60 7.10 0.00 PO51859 2001 CN-LIAO RIVER BASiN 100.00 0.00 0.00 0.00 70.70 30.30 0.00 PO56845 2001 Jiangxl IIHwy 200.00 0.00 0.00 0.00 127.20 6.20 0.00 PO45915 2001 CN-UrumqiUrbanTransport 100.00 0.00 0.00 0.00 52.54 48.64 0.00 PO47345 2001 CN-HUAI RIVER POLLUTIONCONTROL 105.50 0.00 0.00 0.00 87.16 -18.32 0.00 PO56596 2001 CN-ShijiazhuangUrbanTransport 100.00 0.00 0.00 0.00 85.41 54.31 0.00 PO56516 2001 CN -WATER CONSERVATION 74.00 0.00 0.00 0.00 37.49 7.59 0.00 PO64924 2000 CH-GEF-BEIJINGENVMT iI 0.00 0.00 25.00 0.00 23.32 19.26 3.52 PO45264 2000 CN-SMALLHLDRCATTLE DEV 93.50 0.00 0.00 0.00 11.60 5.95 0.00 PO64730 2000 CN .Yangtze Dike StrengtheningProject 210.00 0.00 0.00 0.00 109.29 97.29 0.00 PO45910 2000 CN-HEBEi URBAN ENVIRONMENT 150.00 0.00 0.00 0.00 119.36 48.86 0.00 PO49436 2000 CN-CHONGQINGURBAN ENVMT 200.00 0.00 0.00 3.70 152.28 64.58 0.00 PO58643 2000 Guangxi Highway 200.00 0.00 0.00 0.00 100.22 47.22 0.00 PO42109 2000 CN-BEIJINGENVIRONMENTII 349.00 0.00 25.00 0.00 286.54 185.32 0.00 PO58644 2000 3rd HenanProv Hwy 150.00 0.00 0.00 0.00 55.56 24.58 0.00 PO56424 2000 CN-TONGBAIPUMPEDSTOW 320.00 0.00 0.00 100.00 146.71 96.21 0.00 PO50036 1999Anhui Provincial Hwy 200.00 0.00 0.00 9.60 32.99 34.79 0.00 PO57352 1999CN-RURAL WATER IV 16.00 30.00 0.00 0.00 21.42 16.26 9.69 PO56216 1999CN LOESS PLATEAUII - 100.00 50.00 0.00 0.00 22.35 24.46 0.00 PO51888 1999CN GUANZHONG iRRlGATlON 60.00 20.00 0.00 0.00 28.59 22.68 0.00 ~ PO51856 1999ACCOUNTING REFORM8 DEVELOPMENT 27.40 5.60 0.00 0.00 17.89 17.86 0.00 89 PO58308 1999CN-PENSIONREFORM PJT 0.00 5.00 0.00 0.00 1.77 1.75 0.00 PO51705 1999Fujian IIHighway 200.00 0.00 0.00 0.00 65.73 63.73 0.00 PO49665 1999CN-ANNINGVALLEY AG.DEV 90.00 30.00 0.00 0.00 19.19 11.38 0.00 PO36953 1999CN-HEALTH IX 10.00 50.00 0.00 0.00 34.47 21.83 0.00 PO60270 1999CN-ENTERPRISEREFORM LN 0.00 5.00 0.00 0.00 2.71 4.29 4.07 PO38121 1999CN-GEF-RENEWABLEENERGY DEVELOPMENT 0.00 0.00 35.00 0.00 23.09 27.86 8.34 PO41268 1999CN-Nat Hwy4/Hubei-Hunan 350.00 0.00 0.00 0.00 59.72 40.72 0.00 PO03653 1999CN-ContainerTransport 71.00 0.00 0.00 18.61 3.16 21.74 0.46 PO41890 1999CN-Liaoning UrbanTransport 150.00 0.00 0.00 0.00 33.14 33.14 0.00 PO46829 1999RENEWABLEENERGY DEVELOPMENT 100.00 0.00 0.00 0.00 12.87 99.87 10.40 PO46564 1999CN - Gansu & Inner MongoliaPoverty Red. 60.00 100.00 0.00 13.30 37.89 28.93 -10.99 PO46051 1999CN-HIGHEREDUC. REFORM 20.00 50.00 0.00 0.00 5.70 7.31 0.00 PO03606 1996ENERGYCONSERVATION 63.00 0.00 22.00 0.00 33.80 17.68 0.00 PO35698 1998HUNAN POWER DEVELOP. 300.00 0.00 0.00 145.00 31.45 174.20 -14.46 PO03614 1998CN-GuangzhouCity Transport 200.00 0.00 0.00 20.00 100.31 120.31 100.31 PO03619 1998CN-2nd InlandWaterways 123.00 0.00 0.00 37.00 16.35 52.12 5.79 PO03566 1998CN-BASICHEALTH (HLTH8) 0.00 85.00 0.00 0.00 36.95 23.71 0.00 PO03539 1998CN SUSTAINABLECOASTALRESOURCESDE ~ 100.00 0.00 0.00 2.06 45.61 45.18 37.80 PO51736 1998E. CHINNJIANGSU PWR 250.00 0.00 0.00 86.00 44.95 130.95 10.36 PO49700 1998CN - IAIL-2 300.00 0.00 0.00 0.00 3.97 3.97 1.26 PO46952 1998CN - FOREST. DEV. POOR AR 100.00 100.00 0.00 0.00 29.62 -71.11 11.24 PO46563 1998CN TAlM BASIN II ~ 90.00 60.00 0.00 2.67 7.14 9.54 0.00 PO45786 1998Tri-Provincial Hwy 230.00 0.00 0.00 0.00 16.51 14.21 0.00 PO36949 1998CN-Nat Hwy3-Hubei 250.00 0.00 0.00 0.00 21.15 21.15 0.00 PO03637 1997CN-NAT'L RURAL WATER 3 0.00 70.00 0.00 0.00 0.56 3.77 3.35 PO03590 1997CN - QINBA MOUNTAINSPOVERTYREDUCTIO 30.00 150.00 0.00 0.00 13.16 16.34 1.39 PO03650 1997TUOKETUO POWEWINNER 400.00 0.00 0.00 102.50 30.47 132.97 23.19 PO44485 1997SHANGHAI WAlGAOQlAO 400.00 0.00 0.00 0.00 73.66 46.51 38.21 PO36405 1997CN - WANJlAZHAl WATER TRA 400.00 0.00 0.00 75.00 22.58 97.58 15.00 PO38986 1997CN - HElLOffiJlANG ADP 120.00 0.00 0.00 0.00 7.60 7.60 5.26 PO35693 1997FUEL EFFICIENT IND. 0.00 0.00 32.80 0.00 6.74 32.81 0.00 PO03654 1997Nat HwyllHunan-Guangdong 400.00 0.00 0.00 0.00 48.52 48.52 24.66 PO03602 1996CN-HUBEIURBAN ENVIRONMENT 125.00 25.00 0.00 28.32 39.72 70.08 35.08 PO03599 1996CN-YUNNANENVMT 125.00 25.00 0.00 19.48 35.68 56.92 11.13 PO03646 1996CN-SHANGHAISEWERAGEII 250.00 0.00 0.00 0.00 32.67 32.67 2.54 PO03594 1996CN GANSU HEXI CORRIDOR * 60.00 90.00 0.00 0.00 73.92 61.33 0.00 PO03589 1996CN-DISEASEPREVENTION(HLTH7) 0.00 100.00 0.00 0.00 1.87 10.93 0.00 PO34618 1996CN-LABORMARKET DEV. 10.00 20.00 0.00 0.00 5.56 7.67 0.00 PO40513 19962nd Henan Prov Hwy 210.00 0.00 0.00 19.00 12.88 31.88 20.88 PO03571 1995CN-7th Railways 400.00 0.00 0.00 119.00 10.28 129.28 20.28 PO03639 1995CN-SOUTHWESTPOVERTYREDUCTION PROJE 47.50 200.00 0.00 0.01 1.21 25.36 25.36 PO03647 1995China Economic Law Reform-LEGEA 0.00 10.00 0.00 0.00 0.50 0.83 0.00 PO03603 1995CN-ENT HOUSING& SSR 275.00 75.00 0.00 57.46 37.16 92.53 2.19 P003596 1995CN-YangtzeBasin Water Resources Project 100.00 110.00 0.00 1.92 0.21 4.60 4.60 PO03540 1994CN-LOESSPLATEAU 0.00 150.00 0.00 0.00 0.93 0.27 0.00 PO03632 1993CN-ENVIRONMENTTECH ASS 0.00 50.00 0.00 0.00 1.02 1.58 1.26 Total: 12010.07 1722.60 214.30 862.02 5117.15 2896.09 466.91 90 CHINA STATEMENT OF IFC's HeldandDisbursedPortfolio InMillionsofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2004 China I1 28.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 ChinaRe Life 0.00 15.41 0.00 0.00 0.00 15.29 0.00 0.00 1994 ChinaWalden Mgt 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00 1995 Dupont Suzhou 7.79 0.00 0.00 0.00 7.79 0.00 0.00 0.00 1994 Dynamic Fund 0.00 8.05 0.00 0.00 0.00 6.40 0.00 0.00 2003 Great Infotech 0.00 3.50 0.00 0.00 0.00 2.80 0.00 0.00 1999 Hansom 0.00 0.08 0.00 0.00 0.00 0.08 0.00 0.00 2002 HuarongAMC 9.00 3.00 0.00 0.00 9.00 0.49 0.00 0.00 2004 rB 0.00 52.18 0.00 0.00 0.00 0.19 0.00 0.00 2002 IEC 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1998 Leshan Scana 5.21 1.35 0.00 0.00 3.61 1.35 0.00 0.00 2001 MaanshanCarbon 9.00 2.00 0.00 0.00 9.00 2.00 0.00 0.00 2001 MinshengBank 0.00 23.50 0.00 0.00 0.00 23.50 0.00 0.00 2001 NCCB 0.00 26.58 0.00 0.00 0.00 26.46 0.00 0.00 1996 Nanjing Kumho 0.00 3.81 0.00 0.00 0.00 3.81 0.00 0.00 2001 New ChinaLife 0.00 30.70 0.00 0.00 0.00 23.32 0.00 0.00 1995 NewbridgeInv. 0.00 1.95 0.00 0.00 0.00 1.95 0.00 0.00 1997 Orient Finance 6.67 0.00 0.00 8.33 6.67 0.00 0.00 8.33 2003 PSAM 0.00 1.93 0.00 0.00 0.00 0.00 0.00 0.00 1997100 PTP Holdings 0.00 0.03 0.00 0.00 0.00 0.03 0.00 0.00 2001 PeakPacific 0.00 0.00 25.00 0.00 0.00 0.00 0.00 0.00 2003 SAIC 12.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2004 SBTS 0.00 0.08 0.00 0.00 0.00 0.00 0.00 0.00 2000 SSIF 0.00 4.50 0.00 0.00 0.00 1.02 0.00 0.00 1998 ShanghaiKrupp 27.50 0.00 0.00 61.43 27.50 0.00 0.00 61.43 1999 ShanghaiMidway 0.00 16.02 0.00 0.00 0.00 16.02 0.00 0.00 1993 Shanxi 15.36 0.00 0.00 0.00 12.81 0.00 0.00 0.00 2002 ShenzhenPCCP 3.76 0.00 0.00 0.00 3.76 0.00 0.00 0.00 2001 Sino Gold 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 1995 Sino-Forest 23.33 0.00 0.00 0.00 18.33 0.00 0.00 0.00 2000 Suzhou PVC 0.00 2.48 0.00 0.00 0.00 2.48 0.00 0.00 1996 Wanjie Hospital 13.64 0.00 0.00 0.00 13.64 0.00 0.00 0.00 2004 Weihai Weidongri 0.73 0.00 0.00 0.00 0.73 0.00 0.00 0.00 2003 Wumart 0.00 6.48 0.00 0.00 0.00 6.48 0.00 0.00 1993 XACB 0.00 19.93 0.00 0.00 0.00 0.00 0.00 0.00 2003 Yantai Cement 4.73 0.00 0.00 0.00 4.73 0.00 0.00 0.00 2002 Zhengye-ADC 15.00 0.00 0.00 7.00 6.14 0.00 0.00 2.86 2002 Zhong Chen 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 2003 ASIMCO 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 2003 Anjia 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00 91 1999/00/02 BCIB 0.00 0.00 11.60 0.00 0.00 0.00 0.00 0.00 2002 Bank of Shanghai 0.00 24.67 0.00 0.00 0.00 24.67 0.00 0.00 2003 CDH ChinaFund 0.00 15.17 0.00 0.00 0.00 2.09 0.00 0.00 CSMC 0.00 12.00 0.00 0.00 0.00 9.60 0.00 0.00 Total Portfolio: 212.50 311.86 36.60 83.80 134.49 188.96 0.00 79.66 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic 2002 ASIMCO 0.00 5.00 0.00 0.00 2004 CCB-MS NPL 0.00 0.00 3.00 0.00 2003 Cellon 0.00 0.00 5.70 0.00 2004 Colony China 0.00 0.00 50.00 0.00 2002 Darong 10.00 0.00 1.50 8.00 2002 HuarongAMC 15.00 0.00 0.00 0.00 2002 IEC 0.00 5.00 0.00 0.00 2002 KHIT 0.00 0.00 3.00 0.00 2004 NCFL 0.00 0.00 17.88 0.00 2004 Nanjing Kumho Ex 34.00 0.00 6.00 0.00 2003 PeakPacific 2 0.00 0.00 10.00 0.00 2004 SIBFI 0.26 0.00 0.00 0.00 2002 SML 1.oo 0.00 0.00 0.00 2002 SinoMining 5.00 0.00 0.00 5.00 2002 Zhong Chen 0.00 0.00 0.00 32.00 Total PendingCommitment: 65.26 10.00 97.08 45.00 92 Annex 14: Country at a Glance CHINA: SecondNationalRailways Proiect East Lower. I POVERTY and SOCIAL Asia & middle- China Pacific income 1 Development diamond' 2002 I Population, mid-year(millions) 12810 1,838 2,411 Lifeexpectancy GNIpercapita (Atlas method, US$) 950 950 1390 T GNI(Atlas method, US$ billions) 128.1 1740 3B52 Average annual growth, 1996-02 Population(%) 0.8 10 1.0 0.9 12 12 1 Labor force (%) GNiI GN Gross M o s t recent estimate (latest year available, 1996-02) per PnmaV capita nroilment Poverty(% ofpopulationbelownationalpovertyline) 5 I capita Urbanpopulation (%oftotalpopulation) 38 38 49 ~ Life expectancyat birth(years) 71 69 69 1 Infant mortality (per l000 livebiIihs) 30 33 30 Chiid malnutrition (%ofchildrenunder5) 0 a 11 Access to improved ratersource Access to an improvedwater source (%of population) 75 76 81 I illiteracy (%ofpopulation age 759 14 73 U Gross primaryenrollment (%ofschooCagepopuiation) 0 6 0 6 Ill ' -China Male 0 5 0 5 in lower-middle-incomegroup Female 0 8 0 6 10 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1962 1992 2001 2002 Economic ratios. GDP (US$ billions) 2215 454.8 1167.1 1232.7 Gross domestic investmentlGDP 332 36.2 38.5 410 Exports of goods andserviceslGDP 8.9 8.5 25.5 29.5 Trade Gross domestic savings/GDP 34.8 37.7 40.9 44.0 Gross national savings/GDP 35.1 38.0 40.0 43.8 Currentaccount balancelGDP 2.4 19 15 2.9 Domestic interest paynentslGDP 0.2 0.6 0.5 0.5 savings Investment Total debtiGDP 3.8 15.9 14.6 t?.6 Total debt servicelaxports 8.0 8.6 7.7 6.1 I Present value of debtlGDP 14.1 1 Present value of debffexports 518 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (average annualgrowfh) GDP 9.7 9.0 7.5 8.0 7.5 -China GDP percapita 8.1 8.0 6.7 7.2 6.6 Lower-middle-incomeQ~OUP ~ STRUCTURE o f the ECONOMY 1982 1992 2001 2002 i Growth of investment and GDP (%) (%of GDP) Agriculture 33.3 218 5.8 14.5 ,toT industry 45.0 43.9 50.1 517 Manufacturing 37.3 33.1 34.2 44.5 Services 217 34.3 34.1 33.7 Private consumption 50.7 49.2 45.7 42.5 97 88 88 00 01 02 Generalgovernment consumption 14.5 0.1 u.4 0.5 Imports of goods and services 7.3 16.0 23.1 26.5 -GO1 &GDP I 1982-92 1992.02 2001 2002 Growth o f exports and imports (averageannualgrowfh) I ( O h ) Agriculture 4.6 3.7 2.8 2.9 '40 - industry 11.6 113 8.4 9.9 Manufacturing 11.2 0.4 9.0 8.1 Services 117 8.4 8.4 7.3 I Privateconsumption 114 8.1 2.8 19 Generalgovernment consumption 9.9 8.4 0.5 7.O - 87 88 88 00 01 Gross domestic investment 9.5 9.7 73.9 14.9 I Importsof goods and services 9.7 P.8 0.8 27.5 -Exports --lrIprts O2 93 China P R I C E S and GOVERNMENT FINANCE 1982 1992 2001 2002 D o m e s t i c prices I Inflation (%) I (%change) Consumerprices 60 6.4 0.7 -0.8 Implicit GDP deflator -0.2 7.9 12 -2.6 ~ o v e r n m e nfinance t (%of GDP, includescurrentgranfs) Current revenue 22.9 14.7 l7.I l7.9 Current budget balance 2.0 11 0.0 Overall surplus/deficit -0.3 -to -4.7 -3.0 T R A D E (us$millions) 1982 1992 2001 2002 i Export and import levels (US$ mill.) Total exports (fob) 22,321 84,940 266,155 325,565 ~400,000T Food 2,908 8,309 PJ80 14,623 Fuel 5,314 4,693 8,420 8,372 Manufactures a271 67,936 239,802 297,085 Total imports @if) 8.285 80,585 243,610 295,203 Food 4201 3.146 4,980 5,237 Fueland energy 8 3 3,570 l7,495 8,285 Capital goods 3,204 31312 2)7,040 137,030 ~xportprice index(W95=WO) 41 85 83 78 96 97 98 99 00 01 02 Import price index(895=WO) 71 95 91 86 Ii IExports Inports Terms o f trade (W95=X)O) 58 89 91 90 BALANCE of PAYMENTS I 1982 1992 2001 2002 (us$millions) i Current account balance to GDP (YO) Exports of goods and services 24,906 94,88 299,409 365,395 5 - Imports of goods and services 20,555 86.752 271325 328,013 Resourcebalance 4,350 7.446 28,084 37.383 Net income 376 249 -8,l74 -14.945 Net current transfers 486 1155 8,492 P.984 Current account balance 5 2 P 8,850 l7,401 35,422 Financing items (net) -995 -10,952 30,046 40,085 Changes in net reserves -42R 2.102 -47,447 -75.507 96 97 98 g9 00 01 02 I Memo: Reserves includinggold (US$ millions) 24,842 220,051 297,721 Conversion rate (DEC,local/US$) 2A 5.9 8.3 8.3 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 (us$millions) 2002 :omposition o f 2002 debt (US$ mill, Total debt outstanding anddisbursed 8,358 72,428 .VO,lll 135.678 IBRD 0 3,752 11550 P,051 IDA 1 4287 8,654 8.729 A: 12,051 Total debt service 2,P5 8,68 24297 23.688 IBRD 0 460 1,550 1631 IDA 0 30 131 175 Composition of net resourceflows Officialgrants 47 327 240 Officialcreditors 657 2,343 2,156 -839 privatecreditors -P2 8,949 -4,Ol7 -13,593 Foreigndirect investment 430 11156 44,241 49,308 portfolio equity 0 1243 3,OE 2,286 F 62,x)3 World Bank program Commitments 330 1,865 782 563 ,- I8RD E- Bilateral Disbursements 1 1331 1791 1733 #-IDA D-Otherrmltilateral F-Private Principalrepayments 0 8 7 904 1'67 :-IMF G- Short-[err 94