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ASIAN DEVELOPMENT BANK PCR: PRC 30082

PROJECT COMPLETION REPORT

ON THE

CHENGDU-NANCHONG EXPRESSWAY PROJECT (Loan 1638-PRC)

IN THE

PEOPLE’S REPUBLIC OF CHINA

December 2004

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY)

At Appraisal At Project Completion (19 July 1998) (20 August 2004)

CNY1.00 = $0.1208 $0.1208 $1.00 = CNY8.2768 CNY8.2768

ABBREVIATIONS AADT – annual average daily traffic ADB – Asian Development Bank BME – benefit monitoring and evaluation EIA – environmental impact assessment EIRR – economic internal rate of return FIRR – financial internal rate of return GDP – gross domestic product ha – hectare ICB – international competitive bidding km – kilometer LCB – local competitive bidding LIBOR – London interbank offered rate MTE – medium truck equivalent MOC – Ministry of Communications NTHS – national trunk highway system O&M – operation and maintenance PCR – project completion report PRC – The People’s Republic of China PRCM – Asian Development Bank Resident Mission in the People’s

Republic of China SCELLC – Sichuan Chengnan Expressway Limited Liability Company SPCD – Sichuan Provincial Communications Department SPG – Sichuan Provincial Government TA – technical assistance VOC – vehicle operating cost WACC – weighted average cost of capital

NOTE

In this report, "$" refers to US dollars.

CONTENTS Page

BASIC DATA ii

MAPS vii

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs and Financing Plan 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 6 I. Performance of Consultants, Contractors, and Suppliers 7 J. Performance of the Borrower and the Executing Agency 7 K. Performance of the Asian Development Bank 8

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

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12 A. Overall Assessment 12 B. Lessons Learned 13 C. Recommendations 13

APPENDIXES 1. Chronology of Major Events in the Project's History 15 2. Summary of Civil Works Packages 16 3. Details of Packages for Civil Works and Equipment 17 4. Project Costs and Financing Plan 19 5. Projected and Actual Contract Awards and Disbursements 20 6. Appraised and Actual Implementation Schedule 21 7. Sichuan Chengnan Expressway Limited Liability Company Organization Chart 22 8. Status of Compliance with Loan Covenants 23 9. Socioeconomic Development in Project Impact Areas 28

10. Traffic Analysis and Forecast 33 11. Sichuan Chengnan Expressway Limited Liability Company

Actual and Projected Financial Performance 38 12. Financial Reevaluation 43 13. Economic Reevaluation 45 14. Poverty Impact Evaluation 48 15. Evaluation of Land Acquisition and Resettlement Activities 52

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BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

People’s Republic of China 1638-PRC Chengdu-Nanchong Expressway Project People’s Republic of China Sichuan Provincial Communications Department $250 million PCR: PRC 842

B. Loan Data 1. Appraisal - Date Started - Date Completed 2. Loan Negotiations - Date Started - Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness - In Loan Agreement - Actual - Number of extensions 6. Closing Date - In Loan Agreement - Actual - Number of Extensions 7. Terms of Loan - Interest Rate - Transformation Date - Transformation Amount - Maturity - Grace Period 8. Terms of Relending - Interest Rate - Maturity - Grace Period - Second-Step Borrower

6 July 1998 18 July 1998 12 October 1998 14 October 1998 10 November 1998 23 February 1999 24 May 1999 24 August 1999 1 31 December 2003 30 April 2004 1 Pool-based variable lending rate transformed toLIBOR-based (Floating) 31 July 2002 $86,258,768.26 24 years 4.5 years Pool-based variable lending rate transformed toLIBOR-based (Floating) 24 years 4.5 years Sichuan Provincial Communications Department

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9. Disbursements a. Dates Initial Disbursement

20 December 1999

Final Disbursement

24 August 2004

Time Interval

56 months

Effective Date

24 August 1999

Original Closing Date

31 December 2003

Time Interval

52 months

b. Amount ($ million)

Category or Subloan Original Allocation

Last Revised

AllocationAmount

CanceledNet Amount

Available Amount

Disbursed Undisbursed

Balance

Civil Works 178.9 192.9 0.0 192.9 192.9 0.0 Equipment 24.0 18.7 0.0 18.7 18.7 0.0 Consulting Services and

Training

1.2

1.3

0.0

1.3

1.3

0.0 Provincial and County

Roads

3.9

3.6

0.0

3.6

3.6

0.0 Interest and Commitment

Charges

33.0

33.5

0.0

33.5

33.5

0.0 Unallocated 9.0 0.0 0.0 0.0 0.0 0.0 Total 250.0 250.0 0.0 250.0 250.0 0.0 Sources: Asian Development Bank, Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

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

C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual

Foreign Exchange Cost 317.0 301.1 Local Currency Cost 350.2 471.1 Total 667.2 772.2 Sources: Asian Development Bank, Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

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2. Financing Plan ($ million)

Appraisal Estimate Actual

Cost Foreign Exchange

Local Currency

Total Cost Foreign

Exchange Local

Currency Total Cost

Implementation Costs Borrower-Financed 67.0 280.9 347.9 51.1 251.5 302.6 ADB-Financed 217.0 0.0 217.0 216.5 0.0 216.5 Other External Financing 0.0 60.0 60.0 0.0 166.0 166.0 Subtotal 284.0 340.9 624.9 267.6 417.5 685.1 IDC Costs Borrower-Financed 0.0 9.3 9.3 0.0 53.6 53.6 ADB-Financed 33.0 0.0 33.0 33.5 0.0 33.5 Other External Financing 0.0 0.0 0.0 0.0 0.0 0.0 Subtotal 33.0 9.3 42.3 33.5 53.6 87.1

Total 317.0 350.2 667.2 301.1 471.1 772.2 ADB = Asian Development Bank, IDC = interest during construction. Sources: Asian Development Bank. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People's Republic of China for the Chengdu-Nanchong Expressway Project. Manila. Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company. 3. Cost Breakdown by Project Components ($ million)

Appraisal Estimate Actual Component Foreign

ExchangeLocal

CurrencyTotal Cost

Foreign Exchange

Local Currency

Total Cost

A. Base Cost 1. Expressway Civil Works 211.0 235.5 446.5 244.0 291.4 535.4 2. Expressway Equipment 24.0 0.0 24.0 18.7 0.0 18.7 3. Provincial and County Roads 9.0 21.0 30.0 3.6 31.5 35.1 4. Land Acquisition and Resettlement 0.0 32.2 32.2 0.0 87.8 87.8 5. Consulting Services and Training 1.2 6.6 7.8 1.3 6.8 8.1

Subtotal (A) 245.2 295.3 540.5 267.6 417.5 685.1 B. Contingencies 1. Physical contingencies 19.6 23.7 43.3 0.0 0.0 0.0 2. Price Escalation 19.2 21.9 41.1 0.0 0.0 0.0 Subtotal (B) 38.8 45.6 84.4 0.0 0.0 0.0 C. Interest During Construction 33.0 9.3 42.3 33.5 53.6 87.1 Total (A+B+C) 317.0 350.2 667.2 301.1 471.1 772.2 Sources: Asian Development Bank. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People's Republic of China for the Chengdu-Nanchong Expressway Project. Manila. Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

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4. Project Schedule

Item Appraisal Estimate Actual

Date of Contract with Consultants September 1999 September 2000 Completion of Detailed Designs September 1998 September 1998 Civil Works Contract Date of Award June 1999 October 1999 Completion of Work June 2003 December 2002 Equipment and Supplies First Procurement January 2002 November 2000 Last Procurement December 2002 April 2003 Completion of Equipment Installation June 2003 December 2003 Start of Operations Completion of Tests and Commissioning June 2003 December 2003 Beginning of Startup June 2003 December 2003 Sources: Asian Development Bank, Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

December 1998–July 2004 Satisfactory Satisfactory Source: Asian Development Bank. D. Data on Asian Development Bank Missions

Name of Mission Date No. of Persons

No. of Person-Days

Specialization of Members

Fact-Finding Apr 1998 6 66 a, b, c, d, e Appraisal Jul 1998 5 55 a, b, c, d, f Inception Apr 1999 1 4 a Review 1 May 2000 2 9 a Review 2 May 2001 2 16 a, g Review 3 Jun-Jul 2002 1 8 a Handover1 Nov 2002 3 6 a, b Review 4 Nov 2003 3 14 a, b Project Completion Review2 Aug 2004 6 40 a, b, h, i Note:

a = engineer, b = financial analyst, c = economist, d = program officer, e = environment specialist, f = counsel, g = procurement consultant or specialist, h=disbursement analyst, i= staff consultant.

1 The Chengdu-Nanchong Expressway Project was transferred to the Asian Development Bank Resident Mission in the People’s Republic of China (PRCM) for administration on 15 December 2002.

2 The Project Completion Review Mission consisted of K. Sridhar, mission leader, head, Infrastructure and Portfolio Management, PRCM; Wen Zhang, project officer (Transportation), PRCM; Fang Wang, finance officer, PRCM; Yanli Gao, assistant disbursement analyst, PRCM; a transport economist and financial analyst (staff consultant); and a poverty impact and resettlement specialist (staff consultant). Scott Ferguson, resettlement specialist, and Wenlong Zhu, project officer (resettlement), PRCM, provided desk reviews of the project resettlement aspects. Wen Zhang, Fang Wang, and Yanli Gao prepared the project completion report under the guidance of K. Sridhar.

Source: Asian Development Bank.

I. PROJECT DESCRIPTION

1. Since 1990, the People’s Republic of China (PRC) has developed highways rapidly. Highway mileage increased from 1.03 million kilometers (km) in 1990 to 1.81 million km in 2003. Expressways increased from 500 km in 1990 to 29,745 km in 2003. Despite this rapid develop-ment, the PRC’s transport capacity relative to its population or area is still among the lowest in the world. The swift economic growth of the PRC, and the consequent high transport demand, are straining the country’s transportation system. Although the Government has tried to increase transport capacity, serious constraints and bottlenecks remain, especially in the road sector. The Government's principal strategy for managing the development of the road sector is a long-term development plan (1991–2007) for a national trunk highway system (NTHS), which envisages about 35,000 km of inter-provincial expressways and highways. This plan also calls for strengthening access from less developed communities and disadvantaged areas to the economic mainstream, particularly developed coastal regions and economic centers in the PRC. A series of road projects financed by the Asian Development Bank (ADB), beginning in 1991, helped alleviate constraints in the system by supporting (i) construction of the NTHS, (ii) institutional development, and (iii) key technical and policy issues in the road sector.

2. The Chengdu-Nanchong Expressway Project (the Project) was one of the priority sections of the NTHS (Map 1 and Map 2). As envisaged, the expressway would run from Chengdu, the capital of Sichuan Province, to Nanchong in the poorer, eastern part of the province. In a strategic shift of ADB’s involvement in expressway development in the PRC, the Project aimed to promote economic and social development in southwestern PRC. In the early 1990s, ADB provided substantial assistance for expressways in the northeast transport corridor, extending from Beijing to Heilongjiang Province. After completion of that corridor, ADB reoriented its lending to focus more on development in the central and southwestern part of the PRC. This shift in the focus of ADB's operations to poor interior provinces was in line with its strategic objective of reducing poverty in inland provinces. The Project was designed to promote economic and social development in the eastern part of Sichuan by improving (i) road infrastructure in the Chengdu-Nanchong corridor, and (ii) access to poor communities and disadvantaged areas. Better roads were expected to reduce transport costs and travel times, facilitating economic development. The Project also was designed to promote sector reforms initiated under earlier ADB-financed projects. Finally, it aimed to support human resource development and strengthening of institutions responsible for highway operation and maintenance (O&M), traffic safety, quality assurance, enterprise reform, social impact evaluation, and environmental monitoring and mitigation measures.

3. In December 1996, the Sichuan Provincial Communications Department (SPCD) carried out a feasibility study for the Project. ADB approved a project preparatory technical assistance (TA) in April 19971 to review and assess the Project's technical feasibility and financial viability, including the environmental impact and resettlement issues. Completed in February 1998, the TA confirmed the technical, financial, and economic viability of the Project, and the adequacy of the environmental and social measures to be implemented concurrently with the Project. After the Fact-Finding and Appraisal Missions found the proposed investment suitable for ADB financing, ADB’s Board of Directors approved a loan for $250 million for the Project in November 1998. The Loan Agreement was signed on 23 February 1999 and was declared effective on 24 August 1999.

1 ADB. 1997. Technical Assistance to the People’s Republic of China for Chengdu-Nanchong Expressway Project.

Manila (TA 2777-PRC, for $600,000, approved on 7 April 1997).

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4. At appraisal, the Project comprised four components:

(i) civil works for (a) construction of about 208 km of controlled access toll expressway2 from Chengdu to Nanchong, and (b) upgrading approximately 300 km of provincial and county roads;

(ii) procurement of equipment for traffic monitoring and surveillance, toll collection, axle load testing, and road maintenance and inspection;

(iii) land acquisition for civil works, demolition and removal of structures, and resettlement of 9,646 people because of housing loss, and transfer of 576 workers to non-agricultural occupations due to farmland loss; and

(iv) consulting services for construction supervision and training.

5. Appendix 1 presents a chronology of major events in the Project's history.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

6. Because of the increased importance of road transport in a market economy, ADB has focused its lending to the road sector on (i) the NTHS, a high-quality system of inter-provincial expressways and high-grade highways; (ii) strategic principal highways that improve the access of less developed communities and rural areas to regional market centers; and (iii) selected urban transport projects. The design and formulation of the Project was consistent with ADB’s country strategy and road sector strategy for the PRC. The Project’s selection was consistent with ADB's strategic priorities of shifting and increasing its lending to the poorer, interior provinces, and promoting economic growth by removing transport constraints. Measures to increase the poverty-reduction impact, improve road safety, and promote environmental protection were incorporated into the project scope by (i) constructing the 208 km expressway with an optimized alignment that traversed major local cities and towns to provide more economic benefits, and incorporated environmental protection measures into the detailed design; (ii) upgrading the access roads between interchanges of the expressway and five cities and counties to promote social sustainability in those areas, and increasing access to markets and employment opportunities, social and educational services, and basic health care; and (iii) upgrading approximately 300 km of county roads in Nanchong Municipality to support socioeconomic development and reduce poverty in the officially designated poverty counties. These objectives were achieved during project implementation.

B. Project Outputs

1. Civil Works

a. Expressway

7. As completed, the expressway consists of (i) an 18 km, six-lane expressway from the Luoshiba Interchange in Chenghua District to Liaojiachang in Jintang District; (ii) a 190 km, four-lane expressway from Liaojiachang to the Mingjian Interchange in Nanchong; (iii) 41 super large 2 The first 18 km from Luoshiba interchange to Liujiachang was to be constructed to six lanes. The remaining 190

km was to be constructed to four lanes.

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and large bridges; (iv) 134 medium and small bridges; (v) 14 interchanges; (vi) 1,069 culverts and underpasses; (vii) 2 tunnels; and (viii) 85 pedestrian overpasses. The expressway construction began in November 1999 and was completed in December 2002. Procurement of traffic engineering facilities started in January 2002 and was completed in December 2002. The landscaping component began in November 2001 and was completed in December 2002. The construction of building and subsidiary facilities started in May 2002 and was finished in June 2003. The expressway was opened to traffic on 23 December 2002, 6 months ahead of the appraisal schedule. Appendix 2 provides details about the expressway and the country roads. Details of civil works and equipment contract packages are presented in Appendix 3.

8. The expressway is of good quality with surface roughness within the international roughness index for a comfortable ride (The international roughness index for the expressway is 1.4). The interchanges were constructed well and provide convenient links with the local road network. The expressway and its drainage system are maintained well. The slopes are protected by reinforced concrete retaining walls, open lattice blocks, netting, concrete spread, anchorage, and grass turf. Tunnels were constructed well and have sufficient lighting. Planting and measures for environmental protection were integrated with the natural terrain. Traffic safety signboards provide safety guidance to road users and emergency telephones along the expressway were functioning well. Additional guardrails were installed to ensure that small openings at guardrails and retaining walls were covered seamlessly.

b. County Roads

9. ADB partially financed the county roads. In the designated poverty counties in Nanchong Municipality, 302 km of unclassified roads (about 3 m wide and unpaved) were upgraded to class III standard with 6–7 m width and asphalt pavement. The alignment of county roads was improved to provide more gradual slopes and smoother turns. After about 3 years of operation, county roads were observed to be in good condition and providing a comfortable ride. With these improved roads, public buses can now operate even into smaller villages. This service provided villagers with better access to markets for their products, and allowed them to obtain other social benefits and services.

2. Equipment

10. Equipment procured under the Project included those needed for (i) toll collection, traffic monitoring, and communications; (ii) road maintenance and rehabilitation; and (iii) inspection, supervision and safety vehicles. Equipment was procured under 23 contract packages, comprising (i) 6 packages for construction equipment; (ii) 16 packages for maintenance, inspection, supervision and safety equipment; and (iii) 1 package for toll collection, communication, traffic monitoring, and surveillance systems. The construction equipment were in addition to what was envisaged at appraisal. All these equipment are standard equipment for expressway operation & maintenance (O&M). Equipment procurement was completed by the end of 2003, about 6 months later than expected due to differences in the procurement procedures of the Government and ADB, and the outbreak of SARS in the middle of 2003. The equipment was installed and is fully operational.

11. During a visit to the Project in October 2003, the ADB Board Group observed that some construction equipment—such as bulldozers, track excavators, etc.—were idle in an open spot near the expressway. ADB was informed that, according to the PRC Customs Law, the equipment could not be used for other construction projects until 5 years after procurement unless customs duty was paid. After the Board Group visit, a new shelter was built for the

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equipment to prevent rusting in the open air. This equipment is being maintained periodically to ensure it remains in good working condition.

3. Consulting Services and Training

12. An international consulting firm was engaged under the Guidelines on the Use of Consultants by the Asian Development Bank and its Borrowers for 32.5 person-months, compared to an estimate of 30 person-months at appraisal and 41 person-months contracted. The consulting firm was to provide expertise on (i) construction supervision, (ii) material testing, (iii) quality control, (iv) traffic engineering, (v) road safety, and (vi) environmental and social benefit monitoring. Domestic consultants were engaged for 10,392 person-months, double the appraisal estimate of 5,700 person-months, for (i) construction supervision, (ii) quality control, (iii) structural engineering, (iv) material inspection and control, (v) measurement and payment, and (vi) resettlement monitoring and evaluation. The significant increase in person-months was mainly due to the increased volume of civil works caused by differences between the preliminary design used in the bid documents and the detailed design. Other factors included SPCD’s commitment to ensure high quality of construction through intensive supervision, and the extension of the defect liability period for civil works to 2 years.

13. The international consultants organized and conducted overseas training for 45 staff in (i) pavement technology, (ii) road construction and maintenance, (iii) expressway operation and management, (iv) road safety, and (v) the design and management of toll and monitoring system. Upon completion of a combined 48 person-months of training, the trainees submitted reports to ADB. The training arranged by the international consultants helped SCELLC implement the Project in a more professional manner, meeting international standards. The trained staff continue to work for SPCD and SCELLC. SPCD also invited Chongqing Communications Institute to provide comprehensive training to domestic consultants on the technical aspects of the Project.

C. Project Costs and Financing Plan

14. The overall project cost was $772.2 million, $105.0 million (or 15.7%) higher than the $667.2 million estimate at appraisal. The foreign exchange cost was $301.1 million, lower than the appraisal estimate of $317.0 million. The local currency cost was $471.1 million, significantly higher than the appraisal estimate of $350.2 million. The increase in project costs was mainly due to design changes that resulted in additional civil works ($88.9 million, of which $84.4 million was covered by contingency). Other factors contributing to the higher-than-expected project costs were (i) acquisition of additional land due to the adjustment in the alignment under the detailed design, and higher compensation rates ($55.6 million); (ii) higher cost for county roads under the final design ($5.1 million); (iii) higher consulting services and training costs due to an increase in person-months ($0.3 million); and (iv) an increase in interest during construction due to the large amount of domestic loans, as well as an increased short-term borrowings ($44.8 million). Civil works costs increased due to contract variations caused by differences between the preliminary design used in bid documents and the detailed design for construction, use of modified asphalt pavement not envisaged at appraisal, additional civil works due to landslides from unforeseen adverse geological conditions, design optimization of an interchange, and additional overpasses and underpasses. Land acquisition costs increased due to acquisition of additional land, and the provisions in the ADB-supported 1998 Land Administration Law that stipulated higher compensation payments. Under the Project, 1,909 hectares (ha) of land were acquired, exceeding the 1,314 ha estimated at appraisal. The actual

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equipment cost was $18.7 million, $5.3 million lower than the appraisal estimate as international competitive bidding (ICB) and exchange rate variations lowered prices.

15. Under the financing plan envisaged at appraisal, ADB was to provide $250.0 million (37% of the project cost) to finance 79% of the foreign exchange cost. The Sichuan Provincial Government (SPG) was to finance the remaining 21% of the foreign exchange cost ($67.0 million equivalent). The local currency cost of $350.2 million equivalent was to be financed by $180.0 million equivalent in grants from the Ministry of Communications (MOC), SPG contributions totaling $110.2 million equivalent, and a China Development Bank (CDB) 3 loan for $60.0 million equivalent.

16. Upon project completion, the ADB loan for $250.0 million covered 32% of the actual project costs and 83% of the actual foreign exchange costs. SPG financed the remaining foreign exchange cost. The local currency costs ($471.1 million equivalent) were financed by a grant from MOC ($141.0 million equivalent), a grant from SPG ($164.1 million equivalent), and loans from CDB ($69.0 million equivalent) and the China Construction Bank ($97.0 million equivalent). The domestic funds were mobilized on time. Appendix 4 presents the project costs and financing plan.

D. Disbursements

17. The full loan amount of $250.0 million was disbursed. The disbursements started in December 1999, peaked in 2001, and finished in August 2004. Civil works were paid through reimbursement, while equipment and consultant billings were handled by direct payment. Commitment Letter4 procedure was used for imported equipment. SCELLC was satisfied with the payment procedures. The actual interest and commitment charges totaled $33.5 million. At the request of SPCD, the Project’s Executing Agency, the loan balance of $86.3 million was converted from a pool-based to LIBOR-based loan on 31 July 2002. The projected and actual contract awards and disbursements are shown in Appendix 5.

E. Project Schedule

18. The Loan Agreement was signed 3 months after approval. Loan effectiveness required an additional 6 months as fulfilling the conditions took longer than expected. On 17 July 1998, ADB approved advance action for procurement and recruitment of consultants for construction supervision, which enabled SPCD to begin early prequalification for civil works. The prequalification documents were issued on 10 September 1999, and the prequalification proposals were received on 10 November 1999—the date of loan approval by ADB. Land acquisition and resettlement started in October 1998, and were completed within 12 months. Civil works commenced in November 1999, and were completed in December 2002. Consulting services and training began in September 2000, and finished in December 2003. Procurement for expressway maintenance equipment started in March 2001, and was completed in November 2003. Upgrading county roads commenced in October 1999, and was completed about 18 months ahead of schedule in October 2001. The expressway opened to traffic on 23 December 2002, 6 months ahead of the appraisal schedule. There was some delay in the procurement of toll collection, communication, and monitoring systems which started in February 2002. The installation of this equipment was completed in December 2003. Thus, although the expressway was opened to traffic earlier than scheduled, the Project was 3 Previously known as State Development Bank. 4 Where ADB, at the borrower's request, provides an irrevocable undertaking to reimburse a commercial bank for

payment made or to be made to a supplier against a letter of credit.

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completed 6 months late. The appraised and actual implementation schedules are shown in Appendix 6.

F. Implementation Arrangements

19. As envisaged at appraisal, SPCD was the Executing Agency. SCELLC, a separate company established on 28 July 1998, was responsible for implementing and operating the expressway. SCELLC, a limited liability company with 97.5% of its shares owned by SPCD,5 has its own board of directors. Four local project coordination units were established at Chengdu, Daying, Suining, and Nanchong. During implementation, the counties, municipalities, and districts along the expressway set up local coordinating teams with representatives from the local governments to assist in land acquisition, resettlement and relocation, environmental protection, and coordination with local governments.

20. SCELLC has 114 staff in nine divisions at its headquarters and three local administration branches at Chengdu, Daying, and Nanchong. Each administration branch manages toll stations under its jurisdiction. SCELLC's organization chart is shown in Appendix 7.

G. Conditions and Covenants

21. Most loan covenants were complied with. However, the covenant on resettlement monitoring reporting was only partly complied with, and the equity contribution from SPG was not fully subscribed. SPCD carried out the Project efficiently and diligently. The project progress reports, including monthly, quarterly, and annual reports as well as audited project accounts and financial statements, were submitted as required. Appropriate road safety measures were adopted. Vehicle weighing equipment was installed to prevent overloading. The county roads were completed ahead of schedule. Two Project Benefit Monitoring Reports were submitted in October 2002 and April 2004, respectively. Full benefit monitoring and evaluation (BME) will be undertaken after 2007. In June 2004, SCELLC submitted its own project completion report (PCR) to ADB. Appendix 8 presents the status of compliance with loan covenants.

H. Consultant Recruitment and Procurement

22. International consultants financed by the loan were recruited according to Guidelines on the Use of Consultants by Asian Development Bank and its Borrowers. SPCD engaged the consultants promptly, and ADB processed the recruitment expeditiously. Domestic consultants for design, construction supervision, and procurement were recruited under local procedures that were satisfactory to ADB.

23. In accordance with the Guidelines for Procurement Under Asian Development Bank Loans, ICB procedures were used to award 13 civil works contracts for the expressway. ICB procedures were conducted efficiently, and the quality of the bidding documents was satisfactory. No major issues were encountered in the bidding and execution of the contracts. Local competitive bidding (LCB) procedures were used to award five contracts for upgrading county roads. The civil works contracts for county roads financed by ADB were awarded without prior ADB approval, contravening a requirement in the Loan Agreement. ADB approved the awards after the fact since LCB procedures acceptable to ADB had been followed in the bidding process. All five contracts were awarded to the lowest priced and substantially responsive 5 The Sichuan Province High-Grade Roads Construction and Development Group Co. (SPHRCD) holds the

SCELLC shares on behalf of SPCD. The remaining shares are held by Chengdu Jintang Transport Company and Suining Chuanzhong High-Grade Roads Limited Corporation.

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bidders. Contracts for equipment financed by ADB were procured through ICB or international shopping procedures.

I. Performance of Consultants, Contractors, and Suppliers

24. The international and domestic consulting firms engaged to assist in project implementation performed satisfactorily and established good working relationships with SCELLC. The international consultants organized the external training program efficiently. Carefully arranged presentations and site visits familiarized the trainees from SPCD and SCELLC with international practices on expressway design, construction, and management. The international consultants also provided expertise on environment protection and expressway safety measures, and helped integrate these measures into the Project. The toll collection, traffic surveillance, and communication equipment and systems were appropriate and met the requirements for efficient and effective expressway operation and management. The civil works contractors performed well, completing the expressway 6 months ahead of schedule and with good quality.

25. On 22 December 2002, SPCD and Sichuan Provincial Highway Engineering Quality Inspection Agency conducted an acceptance mission for the Project. The acceptance mission concluded that the expressway achieved excellent standards. The Project's high quality was confirmed by MOC’s Quality Inspection Station in August 2003.

J. Performance of the Borrower and the Executing Agency

26. SPCD and SCELLC implemented the Project in a timely and efficient manner. Appropriate internal controls were in place to ensure effective use of funds. Domestic funds were mobilized on time, avoiding any fund shortage during project implementation. Land acquisition and resettlement were completed on time and to the satisfaction of those affected, according to village interviews. However, more attention should have been paid to monitoring of resettlement implementation. As the State Environment Protection Administration confirmed in the August 2004 project environment protection completion review, environmental protection measures were instituted with proper quality assurance. The Project took a lead in the successful application of ecological protection. In 2004, the Ministry of Water Resources designated the Project as one of the National Model Projects on Water and Soil Preservation. The performances of the Borrower and SPCD were satisfactory.

27. In April 2000, a corruption case was filed against a senior SPCD official, who had participated in the loan negotiations with ADB for the Project. To the credit of SPG, the case was investigated fully, the corrupt official was punished, and the case was publicized. In this context, SPCD advised that the Project was free of corruption. In the wake of this case, SPCD instituted a number of steps to prevent corruption in the road sector in the province: (i) a group of officials from the Provincial Discipline Unit and Supervision Department was resident in project offices for bidding, construction, and operations; (ii) a supervisory watchdog body was established to prevent interference in the bidding processes; (iii) a two-contract system was enforced that required the winner of a civil works contract to sign an anticorruption contract with the employer; (iv) a system of regular liaison meetings between SPCD and the Provincial Prosecutor's Office was established where warnings about, or information on, corrupt practices could be discussed; and (v) contractors were inspected at mid-year and the end of the year to ensure procedures on fund withdrawals and settlements were followed.

8

K. Performance of the Asian Development Bank

28. ADB's supervision of the Project, which included a loan review mission every year, generally was adequate. However, ADB’s supervision of the resettlement was inadequate. SCELLC appreciated the assistance the ADB missions provided. ADB processed procurement cases expeditiously, except for one equipment package, where SPCD felt ADB took a long time to review and approve the bid document. ADB also processed disbursement requests expeditiously, and loan disbursements were made on time. SPCD expressed satisfaction with the transfer of the Project to ADB’s Resident Mission in the PRC (PRCM) for administration from 15 December 2002. SPCD felt that this improved its communications with ADB, and facilitated smooth implementation of the Project. ADB’s performance during project implementation was satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

29. The Project formed part of the Government’s NTHS. It was in line with the Government strategy to (i) connect major areas of economic growth, (ii) foster regional and international trade, and (iii) provide better access to less developed and disadvantaged areas. With the completion of the sections under the NTHS from Chengdu to Shanghai, the Project will help to provide Sichuan with direct road access to the major seaport and center of economic activity on the east coast. The Project was also in line with ADB’s operational strategy for the PRC’s road sector, namely to resolve transport bottlenecks in poor interior provinces. The Project will help reduce poverty by lowering transport costs and linking poor counties and cities in eastern Sichuan with Chengdu. The Project will help facilitate social and economic development. The Project introduced modern approaches to commercial business management practices for expressways, supported improved governance in the road sector, strengthened institutions to increase the commercial orientation and management efficiency of expressway corporations6. SCELLC, which was established as a separate company to implement and operate the Project, now has a pool of qualified staff trained in expressway O&M. ADB's operational strategy for the road sector also was designed to improve highway planning, design, construction, and safety standards. The Project was built to meet advanced expressway technical standards. SCELLC carried out construction supervision and quality control in accordance with internationally accepted practices. ADB's strategy in the road sector includes adoption of appropriate pricing policies that promote cost recovery from users, optimum utilization of road transport capacity, and private sector participation at an appropriate time in the future. ADB also promotes road safety, and network integration that provides better access for provincial and county people living in poorer areas. About 302 km of county roads were upgraded in the designated poverty counties in the project impact area. Poorer people in these counties now have safer and more economical means of transport to access markets, employment, education, health, and other social services. The Project was assessed as highly relevant.

B. Efficacy in Achievement of Purpose

30. The transport network in Sichuan Province has improved significantly in the past few years, particularly the high-grade highways. By the end of 2003, the province had 112,543 km of highways, of which 1,501 km were expressways. Rural roads have improved also. At the end of

6 Examples of improved management and governance practices include outsourcing expressway maintenance work,

the adoption of ICB procedures for procurement, and anti-corruption measures in the road sector.

9

2003, 98.8% of the townships and 85.6% of the administrative villages in the province were connected by roads. The length of the expressways in the province will increase to 2,500 km by 2010. With the opening of the project expressway, the traveling distance between Chengdu and Nanchong was reduced by about a third and the traveling time was cut from 8 hours to 2 hours. As part of the Project, 302 km of county roads were upgraded to provide better access to the poor rural areas of Nanchong Municipality.

31. The Project contributed to the economic development and improved the living standards in the project areas by (i) shortening traveling time—a roundtrip between Nanchong to Chengdu in a half day is now possible—which has changed people’s traveling habits, particularly those living in Suining and Nanchong; (ii) increasing economic, social, and cultural exchanges between local people and outsiders; (iii) boosting investment and the number of industrial projects; (iv) developing many new tourist attractions, and linking the tourist spots with roads; (v) expanding the service sector (e.g., transportation, accommodation, restaurants, and commercial and retail establishments); (vi) accelerating urbanization; (vii) transforming the structure of the agriculture sector with the development of market-oriented cash crop planting such as cotton, edible oil, sugar, fruits, vegetables, and livestock etc.; and (viii) integrating the local road network better through the construction of county roads under the Project. The Project has also enabled skills development opportunities more accessible to farmers and the poor, thus improving their employment options in towns and cities. Appendix 9 presents the details of the socioeconomic development in project impact areas.

32. The Project included safety measures, such as continuous metal guardrails in the median strip with hedging and flower plants, reflective road signs, emergency telephones, and pedestrian bridges and underpasses. The traffic police were equipped with radar speed detectors, mobile weighbridges, breath analyzers, and mobile cameras with speed recorders. Three highway patrol units, under the Public Security Bureau, were stationed in Chengdu, Daying, and Nanchong. The traffic surveillance systems installed in the SCELLC headquarters and at three regional administration divisions monitor and provide traffic information at all tollgates and key locations along the expressway. The information includes road visibility, vehicle speed, emergency telephone usage, speed limit signs, and message board. The number of traffic accidents on the expressway increased from 692 cases (246 injuries and 50 fatalities) in 2003 to 390 cases (with 30 fatalities) in the first 6 months of 20047. Major causes of the road accidents were speeding, drunken driving, overloaded vehicles, driver fatigue, poorly maintained vehicles, and local residents trespassing on the expressway. SCELLC encourages the use of seatbelts, and warns against dangerous and drunken driving. When SCELLC receives a report of a traffic accident through emergency telephone, or when patrol units find the accident during patrol, emergency teams are sent to the accident site to attend to any accident victims and guide traffic. The objective of removing serious congestion and deteriorating safety standards on the existing road (G318) between Chengdu and Nanchong has been realized.

33. The training provided by the international consultants helped SPCD and SCELLC implement the Project in accordance with advanced expressway technical standards. The establishment of SCELLC as a separate company to implement the Project, with appropriate delegation of authority in decision-making, was very effective. The Project was efficacious.

7 Since the traffic volume grew by 22% in the first 6 months of 2004 over 2003, the accident rate has actually fallen.

10

C. Efficiency in Achievement of Outputs and Purpose

34. With a population of 87 million people at the end of 2003, Sichuan Province ranked as the third-largest province in the PRC. Sichuan has undergone robust socioeconomic development in the past 20 years. Since 1997, when ADB approved the project preparatory TA, the economy has grown on average 8.7% per year. In 2003, provincial GDP reached CNY546 billion. The rapid economic expansion underpinned the growing demand for road transport. However, GDP per capita in Sichuan was only CNY6,272 in 2003, 69% of the national average of CNY9,030 and 25th among PRC provinces. After opening the expressway, traffic increased rapidly. However, the traffic volume was lower than projected at appraisal by about 30% in 2003 and 20% so far in 2004. Under the revised traffic forecast made during the PCR mission, a sharp increase in traffic is expected when the remaining NTHS sections between Chengdu and Shanghai are completed by 2007. Two other expressways—one from Suining to Chongqing, the other from Nanchong to Chongqing—also are expected to contribute to higher traffic volumes when they are opened in 2005. The revised forecast indicates that the traffic on the expressway will reach average annual daily traffic of about 32,717 passenger car units by 2022, which would be higher than the appraisal projection. Appendix 10 presents the assumptions and methodology used for the revised forecast. The expressway was designed and constructed in accordance with modern highway design standards. The pavement was designed to handle traffic loads for 15 years. After 20 months of operations, the surface conditions were observed to be good and without cracks and without any major repair. The riding quality was comfortable, even at speeds exceeding the design speed of 120 km per hour.

35. Based on the current toll rates and the actual and projected traffic flow, the financial internal rate of return (FIRR) for the Project was recalculated at 5.7% (after corporate tax)—lower than the 8.3% estimated at appraisal. The drop in FIRR was due to lower traffic flow and lower toll level in the initial years of operation, and higher-than-expected project costs. However, the reevaluated FIRR was higher than the 4.6% weighted average cost of capital. Appendix 12 presents the financial reevaluation.

36. The economic internal rate of return (EIRR) was reevaluated using a methodology similar to that at appraisal, but incorporating actual and updated data. Four types of benefits were recalculated, including saving in vehicle operating costs, passenger time savings, and avoided road accident costs. The freight time savings and existing road maintenance cost savings which were included in the appraisal analysis were not considered in the reevaluation. The exclusion of these savings will not affect the Project benefits significantly, because these benefits are minor compared with others. The recalculated EIRR was 15.8%, compared with 21.9% at appraisal. The lower EIRR reflected the increase in capital costs and lower-than-projected traffic in the initial years of operation. The recalculation also used revised unit vehicle operation costs (VOC), which lowered VOC savings. However, the recalculated EIRR still was higher than the social discount rate of 12%. Appendix 13 presents the economic reevaluation.

37. Based on this analysis, the Project was rated as efficient in achieving its outputs and purpose.

D. Preliminary Assessment of Sustainability

38. The project expressway forms part of the NTHS, linking Chengdu and Shanghai. Providing direct access to Shanghai, the expressway is a vital road link for the eastern part of Sichuan Province. According to SPCD’s road development plan, CNY15 billion will be invested in the road sector in the province in 2004. The traffic and the toll revenues increased

11

significantly in the first half of 2004, and they are expected to continue growing with full integration of the expressways and local roads in this region.

39. Appendix 11 presents the actual and projected financial performance of SCELLC, and the assumptions used. SCELLC is forecast to go through some financial difficulties from 2004 to 2007 due to the low toll level, low traffic volumes, and the large loan principal and interest payments. However, after these 4 years, SCELLC’s financial performance is expected to improve with the growth in traffic. From 2008 to 2010, SCELLC will have a stable and sound financial performance and improved cash flow, and it will comply with the required financial covenants. From 2011 onwards, SCELLC is forecast to make contributions to the road construction in Sichuan Province through dividend payments.

40. Through institutional strengthening and restructuring, SCELLC is also making efforts to improve its organizational efficiency. SCELLC has been exploring the feasibility of attracting funding from non-government sources to increase its equity and improve the current capital structure. The Project was assessed as most likely sustainable.

E. Environmental, Sociocultural, and Other Impacts

41. During project appraisal, SPCD prepared an environmental impact assessment (EIA) with the assistance of a domestic environmental consulting firm. Based on this, a summary EIA was prepared with the assistance of international consultants and circulated to ADB's Board of Directors and made public. The final alignment was selected to minimize construction costs, resettlement costs, and environmental damage. During implementation, environmental monitoring and mitigation measures were carried out in accordance with the EIA and summary EIA. Measures to minimize environmental damage included (i) taking the lead among expressways in applying solid ecological protection to the works; (ii) replanting borrow pits and disposal areas, protecting the slope foot with mortar block stones, and seeding and planting trees along slopes to prevent erosion; (iii) channeling surface runoff to sedimentation ponds to minimize the entry of eroded soil and toxic elements into natural waterways, and to facilitate the containment of accidental spills of toxic materials; (iv) installing emergency telephones and hazard warning signs to minimize the risk of accidents; and (v) installing noise barriers to protect a residential block adjacent to the expressway. The Sichuan Provincial Environmental Monitoring Center, which monitored noise, air, and water conditions, regularly advised SCELLC of its findings. Noise level at representative noise sensitive points met class IV standards (National Standard 3096-1993). Nitrous oxide, carbon monoxide, and suspended particles near the expressway increased slightly due to vehicle emissions. However, the air quality still met class II national standard. The water quality monitoring results showed that the discharge of drains or channels along the expressway did not have any significant impact on the water quality of the receiving rivers. Under the Project, $23.6 million was spent on environment-related works, including planting and landscaping works. From 2000 to 2003, SPCD submitted four annual environmental compliance monitoring reports to ADB.

42. The Project involved substantial land acquisition and resettlement. At appraisal, the acquisition of an estimated 1,314 ha of land was envisaged for the construction of the expressway. In addition, an estimated 293,050 square meters of buildings would be demolished. At project completion, 1,909 ha of land were acquired permanently for road construction, while an additional 102 ha were acquired temporarily. Land acquisition affected 34,196 people, double the appraisal estimate of 17,517 people. Housing demolition affected 23,089 people, compared with 9,646 people estimated at appraisal. These significant increases were caused by adjustments in the detailed design. For upgrading county roads, about 1,820

12

mu (1 mu = 0.0667 hectare) of land was acquired and 17,200 square meters of houses were demolished. A few ethnic minorities, who had moved in from the neighboring provinces by way of marriage, were affected by the project. Since they lived together with Han people, they have similar production and living patterns. As members of Han families, those ethnic people were affected by the Project in same ways as the Han. No ethnic group-specific measures were necessary to mitigate specific adverse impacts. Land compensation and resettlement costs rose from $32.2 million at appraisal to $87.8 million. This was due to increased land acquisition and house relocation, higher compensation rates based on provisions in the Land Administration Law introduced in 1999, and increased cost for restoring affected infrastructure. The new houses were larger and better than previous dwellings. The new houses were two-storey, concrete brick houses with electricity and water supply. The affected persons interviewed said they had a better and more comfortable life than before, and expressed satisfaction with the land and housing compensation.

43. Land acquisition and resettlement were carried out in 1998 and 1999. By 2001, all land acquisition and resettlement was completed, and the infrastructure facilities affected had been restored or reconstructed. SPCD was responsible for land acquisition and resettlement. District and county resettlement offices were established by the respective district and county governments to handle resettlement matters, including conducting group discussions with affected persons and surveys within their jurisdictions. SCELLC allocated resettlement and compensation funds to the affected district and county offices. Those funds were distributed to the affected village groups and households through the township financial divisions. Overall, the resettlement was implemented satisfactorily. A domestic consultant with the assistance of international consultants prepared a resettlement monitoring report, which was submitted to ADB in July 2001. SPCD had engaged the domestic consultant as an external monitor.

44. The domestic consultant with the assistance of international consultants prepared and submitted two BME reports to ADB in October 2002 and April 2004, respectively, as required under the loan covenants. The BME reports discussed social and economic benefits, local traffic, traffic forecast, economic evaluation, and financial analysis.

45. The expressway and the five county roads funded under the loan have contributed to the economic development in the project areas by providing better and faster access to markets, jobs, schools, hospitals, and other social services. During project implementation, the construction of county roads generated 1.1 million person-days of local labor and CNY22 million in wages. Expressway construction generated 13 million person-days of local labor and CNY216 million in wages. In addition, about 720 people living in the villages near the expressway were employed in low-skilled jobs, such as road cleaning. The poverty impact evaluation is discussed in Appendix 14, while an evaluation of land acquisition and resettlement is in Appendix 15. The overall socioeconomic impact of the Project was positive.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

46. The Project was assessed as successful. The Project realized its main objectives of reducing the cost of transport and traffic congestion in eastern Sichuan Province, thus promoting economic growth and poverty reduction in the project area. Though the project costs increased due to design changes, these changes were considered appropriate. Such changes allowed smoother traffic flow along the expressway and better access to public services for the poor and rural population in the project areas. The expressway and feeder roads were

13

completed ahead of schedule, and the training provided enabled SCELLC to implement and manage the Project in an effective and efficient manner.

47. The traffic level in 2003 was lower than the appraisal estimates due to higher traffic forecast at appraisal and outbreak of SARS. However, traffic is forecast to increase steadily when the remaining sections between Chengdu and Shanghai and between Chengdu and Chongqing are completed in 2005. The continued economic development in the project area also is expected to boost traffic volumes. The financial performance of SCELLC will improve with increased toll and other revenues. The satisfactory FIRR (5.7%) and the EIRR (15.8%) confirm the financial and economic viability of the Project.

B. Lessons Learned

48. The preliminary design document was used in the bidding documents. The detailed design used during project construction included significant variations that increased project costs. Based on this experience, and similar experience with some of the previous road projects, ADB had been suggesting conducting more detailed geological investigations before finalizing bidding documents. ADB's request has been incorporated in MOC's new regulations on bidding process. Now both ADB and domestic financed projects start bidding after detailed design is completed.

49. The international consultants and SPCD cooperated well during the implementation of the Project. The international consultants were sensitive to the local needs and practices. They also acted as a communication bridge between ADB and SPCD, explaining ADB's procedures and requirements, especially in procurement. The approach adopted by the international consultants in their working relationship with the EA under this Project can be taken as a worthy example.

50. The implementation of resettlement activities under the Project provided many lessons. A detailed Resettlement Plan, which should be updated after a measurement survey, is necessary to assess if adequate provisions and cost adjustments were made. ADB should supervise resettlement more effectively to stay informed of the progress and to ensure that the implementation is in compliance with the resettlement plan. More attention should be given to resettlement monitoring and submission of monitoring reports on time. Systematic data collection requirements should be established so that basic data about resettlement is collected in time. This would enable a more comprehensive review and assessment of resettlement during project completion review.

C. Recommendations

1. Project Related

51. SCELLC, SPCD and SPG should closely monitor the toll levels and, revise these levels when necessary, to ensure the financial health of SCELLC. SPG should ensure its full contribution to the equity of SCELLC.

52. SCELLC and SPCD should closely monitor SCELLC's compliance with covenanted financial ratios. SPCD should consider requesting ADB to delay the dates for compliance with the covenants on (i) working ratio from 2004 to 2005, and (ii) debt service ratio from 2004 to 2008.

14

53. SCELLC should continue its efforts to reduce accidents. More efforts aimed at educating drivers and pedestrians should be initiated.

54. SCELLC should actively pursue private sector participation in the expressway at a stage when traffic growth and financial performance are sufficient to attract the private sector.

55. ADB's project performance audit report should be prepared in 2008 by which time the project will have been fully operational for more than 3 years and when its traffic, toll level, physical condition and benefits may be better assessed.

2. General

56. The project loan became effective 6 months after loan signing, because completing the relending and onlending agreements took longer than expected. As this has become a frequent occurrence in projects in the PRC, the Government should streamline procedures for completing these agreements.

57. The mismatch between the Government and ADB procedures caused some delays in the procurement of equipment, requiring the extension of the loan closing date by 4 months. As PRCM recommended in its procurement reviews8, harmonization of Government and ADB procurement procedures should be considered.

58. In view of the procurement of civil works for upgrading county roads that did not follow ADB's requirements in the loan document, increased training and awareness is needed when local agencies that are inexperienced in ADB procedures are involved in procurement.

59. The loan component for local roads should be retained by the provincial communication department instead of being passed on to the expressway company. This will reduce the financial burden on the expressway company and increase provincial ownership of the local roads component.

8 PRC Procurement Review 2001, December 2001, PRCM; PRC Procurement Review 2002, May 2003, PRCM.

Appendix 1 15

CHRONOLOGY OF MAJOR EVENTS IN THE PROJECT'S HISTORY 7 April 1997 Approval of project preparatory technical assistance 28 January 1998 Establishment of the Sichuan Chengnan Expressway Limited

Liability Company 19–30 April 1998 Fact-Finding Mission fielded 22 June 1998 Management Review Meeting held 6–18 July 1998 Appraisal Mission fielded 21 September 1998 Staff Review Committee meeting 12–14 October 1998 Loan negotiations held 20 October 1998 Board circulation 10 November 1998 Loan approval 23 February 1999 Loan Agreement signing 19–23 April 1999 Inception Mission 24 August 1999 Loan effectiveness 14 October 1999 First civil works contracts approved 1 November 1999 Start of civil works 20 December 1999 First disbursement 24–30 May 2000 First Loan Review Mission 25 August 2000 First contract for consulting services approved 11 October 2000 First contract for road maintenance equipment approved 15 December 2000 Contracts for upgrading of provincial and county roads approved 8–16 May 2001 Second Loan Review Mission 1 October 2001 County roads completed 23 June–1 July 2002 Third Loan Review Mission 17 December 2002 First loan reallocation approved 23–24 November 2002 Joint Loan Review and Handover Mission 15 December 2002 Transfer of the project administration to Asian Development

Bank’s Resident Mission in the People’s Republic of China 23 December 2002 Completion and opening of the expressway for trial operation 23 June 2003 Second loan reallocation approved 15 October 2003 First repayment of loan principal 26 September 2003 Vice-President (Operations 2) visits the Project 25 October 2003 The Board Group visits the Project 4–10 November 2003 Fourth Loan Review Mission 31 December 2003 Original loan closing date 3 February 2004 Extension of loan closing date granted 15 April 2004 Second repayment of loan principal 24 August 2004 Final disbursement and actual loan closing date 13–20 August 2004 Project Completion Review Mission

SUMMARY OF CIVIL WORKS PACKAGES 16 Appendix 2

Table A2.1: Expressway

Super and Large

Bridges Medium and Small

Bridges No. Sections Length (km)

No. Length (m) No. Length (m)

Culvert and Underpass Overpass Tunnel

(m) Inter-

change

1 E1 (K0+000 – K21+200) 18.3 1 126.1 18 1,041.7 105 12 0.0 1 2 E2 (K21+200 – K40+310) 19.1 7 1,339.5 11 689.7 88 3 0.0 1 3 E3 (K42+600 – K64+100) 21.5 1 147.0 13 585.2 131 10 0.0 1 4 E4 (K64+100 – K86+100) 23.3 1 229.0 10 432.4 107 16 888.0 1 5 E5 (K86+100 – K109+800) 23.7 0 0.0 8 1,014.8 133 7 0.0 2 6 E6 (K109+800 – K130+200) 20.8 4 701.6 8 348.4 105 13 0.0 1 7 E7 (K134+800 – K164+000) 23.6 8 1,300.5 17 856.8 123 7 674.7 1 8 E8 (K164+000 – K182+700) 18.7 7 1,433.8 10 667.3 103 4 0.0 2 9 E9 (K182+700 – K203+400) 20.7 4 568.1 13 946.8 74 2 0.0 0 10 E10 (K208+276 – K215+590) 7.3 3 312.8 9 343.8 45 2 0.0 1 11 B1 (K40+310 – K42+600) 2.0 1 689.6 3 177.6 22 0 0.0 1 12 B2 (K130+200 – K134+800) 4.6 2 1,807.6 7 616.4 17 3 0.0 1 13

B3 (K203+400 – K208+270)

4.9 2 2,808.1 7 299.9 16 6 0.0 1

Total 208.5 41 11,463.7 134 8,020.8 1,069 85 1,562.7 14km = kilometer, m = meter, No. = number. Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

Table A2.2: County Roads

No. Project Scope Length (km) 1 Shengshui Town to Dahe Town in Nanbu County 57 2 Panlong Town to Lidu Town in Jialing District 47 3 Yilong County to Pingchang County Boder 84 4 Luoshi Town to Bailin Town in Yingshan County 74 5 Xichong County to Shehong County Border

40

Total 302

km = kilometer, No. = number. Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

DETAILS OF PACKAGES FOR CIVIL WORKS AND EQUIPMENT

Table A3.1: Expressway Civil Works

Final Approved Contract Amount

No. ContractorMode of Procure-

ment Contract

Date CountryOriginal Contract Amount (CNY)

Variation Amount (CNY)

Price Adjustment

(CNY) (CNY)

$ Equivalent (ADB-

financed portion)

E1 Guangxi Highway & Bridge Engineering Co. ICB 27 Oct 99 PRC 224,621,490 39,246,799 22,459,825 284,673,107 13,460,433

E2 The Highway Co. Ltd. of Sichuan Road & Bridge (Group) Co. ICB 27 Oct 99 PRC 317,388,269 39,630,265

23,385,632 390,404,948 18,431,335

E3 The 4th Engineering Construction Dept. of the 5th Engineering Construction Bureau of MOR

ICB 27 Oct 99 PRC 260,962,075 37,091,413 21,601,254 324,613,191 15,321,814

E4 The 3rd Engineering Dept. of the 18th Engineering Bureau, MOR ICB 27 Oct 99 PRC 345,786,984 27,078,848 27,028,541 414,546,952 19,556,382

E5 The 15th Engineering Bureau, MOR ICB 27 Oct 99 PRC 365,361,993 43,357,119 27,584,245 455,270,207 21,492,288

E6 No. 2 Construction Company of Sichuan Road & Bridge Engineering Co.

ICB 27 Oct 99 PRC 312,864,568 8,433,540 24,321,525 347,538,622 16,377,438

E7 No. 3 Engineering Dept. of the 11th Engineering Bureau, MOR ICB 27 Oct 99 PRC 361,634,850 46,276,000 21,045,238 430,642,549 20,328,490

E8 Sichuan Road & Bridge (Group) Co. Ltd. ICB 27 Oct 99 PRC 365,213,708 (18,590,690) 22,960,584 390,037,276 18,338,035

E9 Guizhou Provincial Bridge Engineering Co. ICB 27 Oct 99 PRC 395,447,006 750,089 21,389,672 427,092,294 20,107,524

E10 15th Metallurgical Construction Co. ICB 27 Oct 99 PRC 139,489,704 10,762,688 12,075,231 167,887,330 7,920,501

B1 Panzhihua Bridge Engineering Company ICB 27 Oct 99 PRC 55,122,190 4,653,519 2,727,037 60,309,243 2,844,528

B2 Sichuan Provincial Highway Bureau Bridge Engineering Co. Ltd. ICB 27 Oct 99 PRC 164,997,672 28,724,216 6,028,533 189,109,092 8,936,135

B3 Sichuan Provincial Highway Bureau Bridge Engineering Co. Ltd. ICB 27 Oct 99 PRC 178,010,976 37,327,729 4,586,524 207,872,841 9,826,032

Total 3,486,901,485 304,741,535 237,193,841 4,089,997,652 192,940,935

Appendix 3 17

ADB = Asian Development Bank, CNY = yuan, Co. = corporation, Dept. = department, ICB = international competitive bidding, Ltd. = limited, MOR = Ministry of Railways, No. = number, PRC = People's Republic of China. Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

Table A3.2: Equipment

No. ItemMode of Procure-

ment Date of

Contract Country of

Procurement Contractor Original Contract Amount

$ Equivalent

1. Mobile Sign Car ICB 14 Nov 00 Japan JAL Trading Inc. $180,000 180,000 2. Bulldozer ICB 14 Nov 00 Hong Kong, China Hoi Tung Marine Machinery ¥315,047,620 2,576,730 3. Track Excavator ICB 14 Nov 00 PRC Chengdu Construction Machinery

(Group) Co. $1,269,643

1,269,643

4. Grader ICB 14 Nov 00 Hong Kong, China Boma Equipment Machineries $709,449 709,449 5. Concrete Pump ICB 14 Nov 00 Hong Kong, China EKPAC International Ltd. $447,000 447,000 6. Single Drum Vibratory

Roller ICB 7 Feb 01 Germany Bomag GMBH & Co. DM1,031,932 458,532

7. Medium HeavyRecovery Vehicle

ICB 23 Aug 02 Canada SYSTEQ Instruments $498,953 498,953

8. Trailer ICB 18 Feb 03 PRC China Communications Import and Export Co.

$307,032 307,032

9. Medium Duty Recovery ICB 18 Feb 03 PRC Guangdong Yuehai Vehicle Co., Ltd. CNY1,308,080 158,039 10. Mini Sweeper ICB 18 Feb 03 Hong Kong, China Planters & Company, Ltd. SwF 472,660 354,565 11. Bridge Inspection Units ICB 18 Feb 03 Hong Kong, China New Motion Ltd. $408,200 408,200 12. Asphalt Distribute Truck ICB 18 Feb 03 Hong Kong, China Earth Products China, Ltd. $505,696 505,696 13. 9M Elevator Pole ICB 18 Feb 03 PRC Ingersoll-land Mach (Shanghai) $29,700 29,700 14. 20M Elevator Pole ICB 18 Feb 03 Japan JALUX Inc. $329,460 329,460 15. High Pressure Washing

Equipment ICB 18 Feb 03 PRC China Shipping International Trading

Co. EUR113,526 140,692

16. Heavy Duty Recovery

ICB 18 Feb 03 PRC Guangdong Yuehai Vehicle Co. CNY2,809,220 339,405 17. Multi-Functional

Maintenance Vehicle ICB 18 Feb 03 Hong Kong, China BOMA Equipment & Machinery

Supplies Ltd. $676,500 676,500

18. Mobile Signal Vehicle ICB 18 Feb 03 Canada RPM International Ltd. $230,328 230,328 19. Cold Planer ICB 18 Feb 03 Hong Kong, China Wirtgen Hong Kong Ltd. EUR680,000 780,87120. Grane ICB 18 Feb 03 Germany Damag Mobile Granes GMBH KG EUR1,084,050 1,241,43221. Grane ICB 18 Feb 03 Germany Liebherr-Werk Ehingen GMBH EUR1,271,000 1,487,73122. Diesel-Electric Set ICB 18 Feb 03 Hong Kong, China Pramac (China) Ltd. $260,000 260,000

23. Surveillance, Communication, and Tolling System

ICB 2 Apr 03 PRC China Harbor Eng. Co. $2,337,086 and CNY29,390,557.55

5,887,990 Total 19,277,948

18 Appendix 3

Co. = Corporation, CNY = yuan, DM = Deutche Mark, Eng. = engineering, EUR = Euro, ICB = international competitive bidding, Inc. = incorporated, ¥=Japanese Yen, Ltd. = limited, M = meter, MOR = Ministry of Railways, No. = number, PRC = People's Republic of China, SwF = Swiss Franc. Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

Appendix 4 19

PROJECT COSTS AND FINANCING PLAN

Table 4.1: Appraised and Actual Project Costs ($ million)

Appraised Actual

Project Component Foreign Exchange

Local Currency

Total Cost

Foreign Exchange

Local Currency

Total Cost

A. Base Cost 1. Expressway Civil Works 211.0 235.5 446.5 244.0 291.4 535.4 2. Expressway Equipment 24.0 0.0 24.0 18.7 0.0 18.7 3. Provincial and County Roads 9.0 21.0 30.0 3.6 31.5 35.1 4. Land Acquisition and Resettlement 0.0 32.2 32.2 0.0 87.8 87.8 5. Consulting Services and Training 1.2 6.6 7.8 1.3 6.8 8.1

Subtotal (A) 245.2 295.3 540.5 267.6 417.5 685.1 B. Contingencies 1. Physical contingencies 19.6 23.7 43.3 0.0 0.0 0.0 2. Price Escalation 19.2 21.9 41.1 0.0 0.0 0.0 Subtotal (B) 38.8 45.6 84.4 0.0 0.0 0.0 C. Interest During Construction 33.0 9.3 42.3 33.5 53.6 87.1

Total (A+B+C) 317.0 350.2 667.2 301.1 471.1 772.2

Sources: Asian Development Bank, Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

Table A4.2: Financing Plan ($ million)

Appraised Actual Sources

Foreign Exchange

Local Currency

Total Cost

Foreign Exchange

Local Currency

Total Cost

Asian Development Bank 250.0 0.0 250.0 250.0 0.0 250.0

Ministry of Communications 0.0 180.0 180.0 0.0 141.0 141.0

China Development Bank 0.0 60.0 60.0 0.0 69.0 69.0

China Construction Bank 0.0 0.0 0.0 0.0 97.0 97.0

Sichuan Provincial Government 67.0 110.2 177.2 51.1 164.1 215.2

Total 317.0 350.2 667.2 301.1 471.1 772.2 Sources: Asian Development Bank, Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company. .

20 Appendix 5

PROJECTED AND ACTUAL CONTRACT AWARDS AND DISBURSEMENTS

Table A5: Projected and Actual Contract Awards and Disbursements ($ million)

Contract Awards Disbursement Year

Projected Actual Actual/Projected(%) Projected Actual Actual/Projected

(%) 1999 70.0 168.5 240.7 15.0 17.0 113.2

2000 8.0 11.6 145.0 60.0 57.6 96.0

2001 0.0 0.5 0.0 70.0 73.7 105.3

2002 10.0 0.5 5.0 47.0 56.3 119.8

2003 13.0 12.9 99.2 39.5 39.5 100.0

2004 0.0 0.0 0.0 5.9 5.9 100.0

Total 101.0 194.0 192.1 237.4 250.0 105.3 Sources: Loan Financial Information System, Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

Figure A5.1: Projected and Actual Contract Awards

0.0

50.0

100.0

150.0

200.0

1999 2000 2001 2002 2003 2004

Year

Am

ount

($ m

illio

n)

Projected Actual

Source: Loan Financial Information System.

Figure A5.2: Projected and Actual Disbursements

0.0

20.0

40.0

60.0

80.0

1999 2000 2001 2002 2003 2004

Year

Am

ount

($ m

illio

n)

Projected Actual

Source: Loan Financial Information System.

APPRAISED AND ACTUAL IMPLEMENTATION SCHEDULE M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

Fact-finding ×Appraisal ×Board Consideration ×Loan Effectiveness ×A. Preconstruction 1. Pre-qualification/Eval

2. Tendering

3. Bid Evaluation

4. Contract Award

B. Land Acquisition and ResettlementC. Civil Works 1. Earthworks and Subs s

2. Bridgeworks

3. Pavement

4. Traffic Engineering

5. Building and Services FacilitiesD. Equipment 1. Toll Collection, Traffic Monitoring & Commu 2. Maintenance Equipm

E. Consulting Services a Training

Appraised

F. Expressway Operatio ××

G. Provincial/County Ro

Actual

2003Item 2001 20021998 1999 2000

Appendix 6

Sources: Sichuan Prov ommunications Department and Sichuan Chengnan Expressway Limited Liability Company.

uation

tructue

and

nicationent

nd

n

ads

incial C

21

SICHUAN CHENGNAN EXPRESSWAY LIMITED LIABILITY COMPANY

22 Appendix 7

ORGANIZATION CHART

Vice General Manager Vice General Manager

uman R ources

(4)

Resettlement and

Relocation (1)

Road Asset Management

(6)

Investment Development

(8)

Toll and Monitoring

(17)

Administra-tion (8)

Engineering (9)

Finance (9)

Maintenance(6)

Board of Supervisors

Vice General Manager

Chengdu Administration

Branch (16)

Daying Administration

Branch (13)

Nanchong Administration

Branch (13)

General Manager

Board of Directors

Note: mbers in brackets show the number of staff in the division. Sourc : Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

Hes

Nues

Appendix 8 23

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan Documents

Status of Compliance

1. EA will carry out the Project with due diligence and efficiency, and in conformity with sound administrative, financial, engineering, environmental, and expressway construction, operation, and maintenance practices.

LA Section 4.01(a) and PA Section 2.01(a)

Complied with.

2. EA will make available to the Corporation, promptly as needed, the funds, facilities, services, equipment, land and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project.

LA Section 4.02, PA Section 2.02

Complied with.

3. EA will ensure that the activities of its departments and agencies, including the departments and agencies of the Province, with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA Section 4.03 Complied with.

4. EA will enable ADB's representatives to inspect the Project, the goods financed out of the proceeds of the Loan, and any relevant records and documents.

LA Section 4.05 PA Section 2.10

Complied with.

5. EA shall employ competent and qualified consultants and contractors, acceptable to the Bank, to an extent and upon terms and conditions satisfactory to the Bank.

PA, Section 2.03 (a)

Complied with.

6. The Province and the Corporation shall (i) maintain separate accounts for the Project and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statement) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditor whose qualifications, experience and terms of reference are acceptable to the Bank; and (iii) furnish to the Bank, promptly after their preparation but in any event not later than nine months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement), all in the English language.

PA, Section 2.09 (a)

Complied with up to 2004.

7. Working and Debt-Service Ratios To ensure financial sustainability of the Project facilities, SCELLC will maintain a working ratio of not more than 15 t d d bt i ti f t l th 1 2

PA, sections 2.16 and 2.17

Due by the end of 2004.

Continued on next page

24 Appendix 8



15 percent and a debt service ratio of not less than 1.2 for fiscal year 2004 and thereafter.

8. Counterpart Financing The Government and SPCD will ensure that the investors in SCELLC perform their obligations under the investment agreement and make their equity contribution to SCELLC as required by the Project implementation schedule.

LA, Schedule 6, para. 4

Not fully complied with. Equity contribution from SPG was not fully subscribed.

9. Construction Quality SPCD will ensure that the Project expressway is constructed in accordance with the MOC’s Technical Standards of Highway Engineering. SPCD will also ensure that construction supervision, quality control and contract management are performed in accordance with internationally accepted practices.


Complied with.

10. Road Safety In accordance with MOC procedures, SPCD will ensure that road safety enhancement measures are incorporated in the design of the Project and implemented, including (a) incorporating axle weighing stations at the expressway entrances; (b) installing internationally accepted road signs, reflectorized line markings, and other traffic delineation features; (c) providing safety barriers on embankments and central reservation; (d) training SPCD staff in road safety and traffic engineering; and (f) other measures recommended during any subsequent safety audit. In addition, the expressway will be adequately patrolled by the operator to mitigate against illegal use of the facility.


Complied with.

11. Human Resources Development and Training SPCD will develop a human resources development plan that addresses recruitment and training needs. Prior to undertaking international training to be financed under the loan, SPCD will, in conjunction with the consultants, prepare for the concurrence of the bank: (a) a training plan, training program, and a list of nominated candidates for training; (b) a workshop program to be delivered at the SPCD head office by those trained overseas; and (c) a list of training equipment and training aids required to strengthen and implement training programs. Upon Completion of each workshop, SPCD will provide the Bank with its evaluation of the workshop and identify those subjects that are appropriate for formal incorporation into SPCD’s regular staff training curriculum.


Complied with.


Appendix 8 25



12. Tolls The toll for the Project expressway will be set at a level sufficient to fully satisfy the debt-service obligations, the operation and maintenance costs, and depreciation in excess of debt service; and to generate a reasonable return on the investment as adjusted for inflation from time to time. SCELLC, in cooperation with SPCD, will prepare and submit to the Bank for review and approval a report on the proposed toll levels and structure for the Project expressway six months prior to the start of commercial operation of the expressway, and before prior to submission for approval by SPG. For the first five years of operation, SPCD will review the toll structure and levels annually, and report to the Bank. If an adjustment in the toll levels is required in accordance with the above-mentioned principle, SPCD will submit the toll adjustment plan for ADB’s approval before prior to finalizing and submitting the plan to SPG.


Not yet due. The Project expressway is still under trial operation. The Sichuan Provincial Price Bureau approved the current toll level and structure for the trial operation in 2002, based on the standard of the expressway, toll levels of adjacent expressways, and social affordability in the Province. Annual review on toll level is to be monitored as to verify that the toll-setting principle is followed.

13. Non-Government Financing Six months prior to opening the expressway, SPCD will analyze the feasibility of attracting non-government investment funds on the basis of the Project’s facilities, and report its conclusions to the Bank.


Complied with.

14. Corporate Governance At the mid-term review and Project completion, SCELLC will submit to the Bank a report on measures taken and a plan of proposed actions to strengthen corporate governance in areas including board composition, board committees, and the preparation and disclosure of financial and corporate information.


Complied with.

15. Strategic and Financial Planning At the mid-term review and Project completion, SCELLC will submit to the Bank a report on measures taken and a plan of actions to strengthen strategic and financial planning. Such a report will include a set of physical and financial criteria for SCELLC to continually assess its corporate performance.


Complied with.

16. Environment SPCD will ensure that any adverse environmental

LA, Schedule 6,

Complied with.


26 Appendix 8



impacts arising from the construction and operation of the Project facilities will be minimized by implementing the mitigation measures, environmental monitoring program and other recommendations presented in the EIA.

para. 14

17. Land Acquisition and Resettlement SPG and SPCD will ensure that all land and rights of way required for the Project are made available on a timely manner. SPG and SPCD will ensure that the resettlement agreed with the Bank is carried out promptly and efficiently in accordance with the Bank’s Policy on Involuntary Resettlement. SPG and SPCD will also ensure that all persons affected by the acquisition of land required fro the Project are compensated in a timely manner and resettled in accordance with the resettlement plan such that they will be at least as well of as they would have been in the absence of the Project. With respect to the expressway links, SPG and SPCD will carry out promptly and efficiently the agreed upon resettlement plan, compensation arrangements, and monitoring program, in line with the Bank’s Policy on Involuntary Resettlement.

LA, Schedule 6, para. 15-18

Partly complied with. Resettlement monitoring reports were not submitted on time.

18. Gender and Development SPG and SPCD will follow the principles of the Bank’s Policy on Gender and Development during implementation of the Project, including all necessary actions to encourage women living in the Project area to participate in implementing and planning Project activities, including the resettlement. SPG and SPCD will monitor Project effects on women during Project implementation through Project monitoring and evaluation and the PRA assessment of Project impacts in poverty counties, in consultation with the All-China-Women’s Federation.


Complied with.

19. Health Risks SPG and SPCD, together with the appropriate government authorities, will ensure that contractors disseminate information on the risks of socially transmitted diseases to those employed during Project implementation.


Complied with.

20. Benefit Monitoring and Evaluation The Province shall, through SPCD, conduct monitoring and evaluation to ensure that the Project facilities are managed effectively and the benefits are maximized. SPCD shall collect data agreed with the Bank prior to the commencement of Project implementation, at Project completion, and then five years later.

LA, Schedule 6,] para. 21

Being complied with. Full benefit monitoring and evaluation will be undertaken after 2007.


Appendix 8 27



21. Axle Loads

SPCD will take appropriate measures to prevent overloading of the Project expressway by installing vehicle axle weighing equipment at stations at entry points at each end of the expressway. Prior to commercial operation of the Project expressway, SPCD will submit to the Bank a statement indicating legal axle load limits and penalties for their infringement, and the plan for operation of the vehicle weigh station.


Not yet due. The Project expressway is still under trial operation.

22. Access Roads The Government will ensure that the social and economic benefits form the Project are adequately extended to the rural communities in the hinterland of the Project expressway by implementing a program of provincial and county access roads during 1999 to 2003. This program will include upgrading of about 300 km of provincial and county access roads.


Complied with.

23. Link Roads SPCD will ensure that the Chengdu link road connecting the Project to the Second and Third Chengdu ring roads and the Suining and Nanchong link roads will be designed to accommodate the traffic forecast to/from the Project and opened to traffic prior to, or simultaneously with, commercial operation of the Project expressway.


Complied with.

ADB = Asian Development Bank, EA = executing agency, EIA = environment impact assessment, km = kilometer, LA = Loan Agreement, MOC = Ministry of Communications, PA = Project Agreement, para. = paragraph, PRA = participatory rural appraisal, SCELLC = Sichuan Chengnan Expressway Limited Liability Company, SPCD = Sichuan Provincial Communications Department, SPG = Sichuan Provincial Government.

28 Appendix 9

SOCIOECONOMIC DEVELOPMENT IN PROJECT IMPACT AREAS

A. Socioeconomic Development of Sichuan Province

1. Sichuan Province is in the southwest of the People’s Republic of China (PRC). With a population of 87 million at the end of 2003, Sichuan was the third-largest province in the PRC. Sichuan has undergone robust socioeconomic development in the past 20 years. Since 1997, when the Asian Development Bank (ADB) approved the project preparatory technical assistance, the province’s gross domestic product (GDP) grew at an average rate of 8.7% per year. The rural economy also developed, increasing rural per capital income from CNY1,158 in 1995 to CNY2,230 in 2003. However, Sichuan remains a comparatively poor province. GDP per capita was CNY6,272 in 2003, which was much lower than the national average of CNY9,030. Sichuan ranked 25th among all provinces in per capita GDP.

Table A9.1: Sichuan Province Socioeconomic Indicators Indicators Unit 1990 1995 2000 2001 2002 2003

Population million 78.93 81.61 84.08 84.37 86.73 87.00 GDP CNY billion 89.10 250.50 401.03 442.18 487.51 545.63 Fiscal Revenue CNY billion 11.98 12.11 23.39 27.11 29.19 33.66 Foreign Trade $ billion 1.36 4.33 2.55 3.10 4.47 5.64 GDP per capita CNY/person 1,134 3,081 4,784 5,250 5,766 6,418 Rural Net Income CNY/person 505 1,158 1,904 1,987 2,108 2,230 GDP growth rate % 107.0 110.8 109.0 109.2 110.6 111.8 Price Indexa % 103.1 117.0 97.7 100.8 99.4 101.7

CNY = yuan, GDP = gross domestic product. a over previous year. Sources: Sichuan Statistics Bureau, 2003, Sichuan Statistical Yearbook, Beijing: China Statistical Publishing House; Sichuan Statistics Bureau, 2004, Sichuan Statistical Abstracts, Chengdu: Sichuan Statistical Publishing House. 2. Sichuan Province is in a basin and surrounded by mountains, a location that makes transport conditions very difficult. The transport network in the province improved in the past few years, particularly with the construction of high-grade highways. In 2003, the length of highways in the province totaled 112,543 kilometers (km), including 1,501 km of expressways. Expressway length in the province ranked sixth among all provinces. Several more expressways are under construction, which will increase the total expressway length to 2,500 km by 2010. Rural roads also have improved. By the end of 2003, 98.8% of the townships and 85.6% of the administrative villages were connected by roads.

Table A9.2: Highway Development in Sichuan Province (km)

Road Classification 1990 1995 2000 2001 2002 2003 Expressway — — 1,000 1,144 1,501 1,501 Class I 116 550 906 1,435 1,480 1,516 Class II 989 2,326 7,451 8,332 8,612 9,190 Class III 5,657 7,219 11,078 12,667 12,179 13,356 Class IV 47,401 49,612 49,288 48,485 49,171 49,727 Unclassified 43,959 41,017 21,152 36,661 37,955 37,253 Total 98,122 100,724 90,875 108,724 111,898 112,543

— = not available, km = kilometer. Sources: Sichuan Statistics Bureau, 2003, Sichuan Statistical Yearbook, Beijing: China Statistical Publishing House; Sichuan Statistics Bureau, 2004, Sichuan Statistical Abstracts, Chengdu: Sichuan Statistical Publishing House.

Appendix 9 29

B. Socioeconomic Development in the Project Impacted Areas

3. The project expressway traverses four municipalities in the hilly and poverty areas in the eastern part of Sichuan: Chengdu, Deyang, Nanchong, and Suining. Before the Project, National Highway G318—a class III road about 82 km longer than the project expressway—was the main highway. The completion of the expressway significantly changed the transport conditions in this area. The travel time between Chengdu and Nanchong was reduced from 6–8 hours to 2 hours. The significant reduction in travel time and travel costs transformed the geo-economic positions of Nanchong and Suining Municipalities, stimulating socioeconomic development. Traffic on the expressway increased about 22% in the first half of 2004, compared with the annual average daily traffic of 2003. Completion of the Nanchong-Guangan-Lingshui expressway in 2004 extended the project benefits to remote areas in Sichuan. Several other expressways in the Province are under construction, including Lingshui to Dianjiang, Suining to Chongqing, and Nanchong to Chongqing. A more complete expressway network will be formed in 2–3 years. The Government's plan also calls for the local highway network to be substantially improved in the same period. As part of this Project, 302 km of county roads were upgraded to provide better transport facilities to the poverty counties in Nanchong Municipality.

Table A9.3: Socioeconomic Development in the Project Impacted Areas

Item Municipality 1990 1995 2000 2001 2002 2003 Chengdu 9.20 9.72 10.13 10.20 10.28 10.44 Deyang 3.58 3.68 3.79 3.79 3.80 3.81 Suining 3.48 3.62 3.71 3.72 3.73 3.77

Population (million)

Nanchong 6.87 7.04 7.09 7.10 7.14 7.18 Chengdu 19.41 71.37 131.30 149.20 166.71 187.09 Deyang 5.20 16.17 26.01 28.60 31.51 35.54 Suining 2.64 8.24 11.80 12.82 14.06 15.92

GDP (CNY billion)

Nanchong 4.99 10.28 17.68 20.01 21.91 25.03 Chengdu — 112.5 110.7 113.1 113.1 113.0 Deyang — 112.0 109.6 109.7 110.8 112.3 Suining — 112.7 107.2 108.0 110.1 111.7

GDP Growth Rate (%)

Nanchong 127.6 109.6 110.7 110.7 110.6 112.2 Chengdu 2,123 7,388 13,020 14,676 16,277 17,915 Deyang 1,459 4,409 6,889 7,541 8,300 9,338 Suining 791 2,286 3,169 3,451 3,773 4,227

GDP per Capita (CNY)

Nanchong 729 1,465 2,492 2,820 3,077 3,496 Chengdu 2.04 2.97 5.47 7.19 7.83 10.83 Deyang 0.30 0.62 0.80 1.18 1.12 1.58 Suining 0.17 0.27 0.44 0.43 0.38 0.48

Fiscal Revenue (CNY billion)

Nanchong 0.32 0.49 0.67 0.72 0.79 0.92 Chengdu — — 2,926 3,101 3,377 3,656 Deyang — — 2,413 2,485 2,630 2,790 Suining — — 1,894 1,944 2,057 2,187

Rural Net Income (CNY/person)

Nanchong — 893 1,669 1,766 1,887 2,037 — = not available, CNY = yuan, GDP = gross domestic product. Sources: Sichuan Statistics Bureau, 2003, Sichuan Statistical Yearbook, Beijing: China Statistical Publishing House; Sichuan Statistics Bureau, 2004, Sichuan Statistical Abstracts, Chengdu: Sichuan Statistical Publishing House.

30 Appendix 9

4. With the completion of the Project, the socioeconomic development in the project area is expected to accelerate in the coming years. The local governments in the project area have made plans for long-term socioeconomic development by restructuring industries, and are implementing a package of incentives for attracting external investment.

C. Project Impacts in Nanchong Municipality

5. Nanchong, an economic center in northeast Sichuan, is the largest municipality in this area. Under the provincial development plan, Nanchong will be developed into one of the eight central cities in Sichuan. In 2003, its GDP was CNY25 billion. The economy of Nanchong has grown at 8.9% since 1997. The opening of the project expressway has impacted Nanchong in several ways: (i) a sharp increase in land prices has spurred urban development, with total number of urban citizenship was increased from 0.84 million in 1997 to 1.45 million in 2003; (ii) business activities have picked up; (iii) investment has increased, with 1,230 projects financed by external funds in 2003 and fix asset investment was increased from CNY 1.22 billion in 1997 to CNY4.13 billion in 2003; (iv) tourism has developed rapidly, with 3.25 million tourists visiting Nanchong in 2003 (an increase of 46% over the previous year); (v) social and cultural activities have increased; and (vi) higher educational development has attracted students from other places. For 2004, the Nanchong Municipal Government has targeted increases of 12%–13% in GDP, 12% in fiscal revenues, and 22% in external investment.

6. The opening of the project expressway changed the economic condition of Nanchong. The travel time from Nanchong to Chengdu was reduced substantially. The local highway and road network was improved. Several main highways in Nanchong were or will be upgraded to high-grade highways. Eight of the nine counties and/or districts in Nanchong will be connected by Class I highways in 2006. By then, the traveling time to each county from Nanchong will be less than an hour. A large-scale program to improve county and township roads is being implemented. The five county roads improved under the Project are in the nationally designated poverty counties of Nanchong Municipality.

7. After opening of the project expressway, long distance transport service improved significantly, especially long distance passenger bus service. The travel time by bus from Nanchong to Chengdu was about 8 hours using the old national highway G318. The project expressway cut that time to 2 hours. The reduced travel time and lower transport costs also stimulated the development of long distance bus services. Bus companies purchased high-quality buses to provide express services on the expressway. The Nanchong Bus Company now has 10 high-quality buses with 410 seats serving the express route from Nanchong to Chengdu. Meanwhile, four buses serve the Nanchong-Suining route, and two buses serve the Nanchong-Pengxi route. About 100 buses run between counties by using the project expressway. From Nanchong, about 34 bus services a day run to Chengdu. A large long distance bus station was built near the Nanchong toll station of the project expressway. Nanchong also established the largest freight transport logistic center in northeast Sichuan.

8. Nanchong has several famous tourist spots, including the Langzhong Ancient City and several San Guo culture attractions. The opening of the project expressway provided a fast and safe transport facility for tourists, and stimulated tourism development. In 2003, 3.25 million tourists (including 2,026 foreign tourists) visited Nanchong, generating CNY1.08 billion in tourism revenue. The number of tourists grew 46.3% from 2002, while tourism revenue climbed 47.1% from the previous year. To maintain the growth of the tourism industry, the Nanchong Municipal Government plans to accelerate tourism-oriented development, including improving the infrastructure at several major tourist attractions.

Appendix 9 31

D. Project Impacts in Suining Municipality

9. Suining, which has more than 1,700 years of history, became a municipality in 1985. In 2003, the population was 3.77 million and the GDP reached CNY15.9 billion, an increase of 11.7% over 2002. The opening of the project expressway affected the socioeconomic development of Suining significantly. The municipal government plans to develop Suining as a transport and trade center in central Sichuan. The objectives are to (i) accelerate socioeconomic development, with average annual GDP growth of 10% from 2003 to 2005; (ii) restructure the industries by enhancing tertiary industry development; (iii) create more jobs; and (iv) enhance natural resources conservation and environment protection.

10. Suining is connected mainly by the project expressway, national highway G318, and provincial highway S205. At the end of 2003, the length of highways totaled 2,474 km, with 98 km of expressway in the municipality. An expressway from Suining to Chongqing is under construction. A highway network development plan also is being implemented, which includes (i) 310 km of expressway, (ii) 1,346 km of trunk highways, and (iii) improvements to township and village roads. About 500 km of township roads will be upgraded, and 4,000 km of township and village roads will be paved by 2010. The opening of the Suining-Chongqing expressway, anticipated in 2006, will attract a large amount of traffic from the Chengdu-Chongqing expressway. This new expressway will be about 50 km shorter than the Chengdu-Chongqing expressway, and the toll for the traffic from Chengdu to Chongqing will be less than that of Chengdu-Chongqing expressway. Suining Municipality also is planning to construct an expressway connecting Suining with Mianyang.

11. After opening the project expressway, the travel time between Chengdu and Suining was cut from 5 hours to 2 hours. The passenger transport volume between Chengdu and Suining increased by about 50%. The long distance bus service also improved significantly. The number of buses serving the Suining-Chengdu route dropped from 160 to 90. However, better quality buses with increased frequency of service were introduced. About 10,000 people travel between Suining and Chengdu daily.

12. Following the opening of the project expressway, Suining considers the tourism sector a development priority. The municipality is trying to accelerate tourism development by attracting more external investment and developing tourist attractions. In 2003, 2.13 million tourists visited Suining, an increase from 1.58 million tourists a year earlier. Similarly, tourism revenue increased from CNY346 million in 2002 to CNY503 million in 2003. In the first 5 months of 2004, the number of tourists reached 1.2 million, generating revenue of CNY480 million. The project expressway has spurred tourism development in the area.

E. Project Impacts in Chengdu and Deyang Municipalities

13. Chengdu, the capital of Sichuan Province with a population of 10.4 million in 2003, is a political, commercial, and cultural center in the province and the southwestern part of the PRC. In 2003, Chengdu’s GDP grew 13.9% from a year earlier to CNY187.1 billion. GDP per capita was CNY17,915, much higher than in other municipalities in the project area. Sichuan Province has 17 expressways, with most of them passing through Chengdu. Four ring roads have been constructed in the urban area connecting these expressways. The project expressway is part of the national trunk highway system (NTHS), which connects Chengdu with Shanghai over a span of 2,970 km. This will be the main transport corridor connecting Chengdu with the eastern part of the PRC. In 1993, the State Council designated Chengdu as an inland open city to highlight its importance as a major business and commercial center in the southwestern part of the PRC.

32 Appendix 9

The opening of the project expressway will promote domestic trade between Sichuan and the coastal provinces, as well as foreign trade. The project expressway passes through several municipalities in the eastern part of Sichuan, including Nanchong and Suining municipalities. Thus, the project expressway has enabled closer relations between Chengdu and these municipalities, and will contribute to stimulating the socioeconomic development in these areas. Chengdu is also a famous tourist spot in the PRC with numerous historical and cultural attractions for domestic and international tourists. The opening of the project expressway established a high-grade transport facility for tourists coming from the eastern part of the PRC. The expressway covers 68.6 km in Chengdu Municipality, of which 18.3 km is a six-lane expressway. The traffic in 2003 on that section was much higher than the expressway as a whole. The project expressway has been linked with the Chengdu ring roads to provide convenient entry and exit from the city.

14. Deyang, an industrial city with a population of 3.81 million in 2003, is north of Chengdu. The project expressway passes through the southern part of Deyang Municipality at Zhongjiang County. Deyang’s GDP grew 12.3% from a year earlier to CNY35.54 billion in 2003. GDP per capita was CNY9,339 in 2003. The project expressway has a 29.2 km section in Deyang Municipality. Socioeconomic development in Deyang is relatively weaker than in the other municipalities in the project areas.

Appendix 10 33

TRAFFIC ANALYSIS AND FORECAST

A. Background

1. The project expressway runs through the eastern part of Sichuan Province, connecting Chengdu with Nanchong. The expressway is one section of the 2,970 kilometer (km) national trunk highway system (NTHS) from Chengdu to Shanghai. Before the expressway’s construction, National Highway G318—a Class III road, 82 km longer than the project expressway—was the main traffic route from Chengdu to Nanchong. In addition, a 450 km railway line in this transport corridor connects Chengdu to Da County in the eastern part of Sichuan via Nanchong. The railway competes with the project expressway for traffic. Opened to traffic on 23 December 2002, the expressway has changed transport conditions in the project area significantly by reducing travel costs and travel time. It has brought socioeconomic benefits to these areas. The entire highway network, with different class highways and roads, is being significantly improved. In the project area, a completed highway network with expressways and high-grade highways is being formed, which includes (i) several expressways opened to traffic, including Nanchong to Guangan, Guangan to Linshui, and Chongqing to Da County; (ii) several expressways under construction, including Suining to Chongqing, Nanchong to Chongqing, and Linshui to Dianjiang (Chongqing border); (iii) additional planned expressways, including Suining to Mianyang, and Nanchong to Guangyuan; and (iv) improved local roads to extend the benefits of the expressway to poverty counties.

B. Appraisal Forecast and Actual Traffic

2. At appraisal in 1998, annual average daily traffic (AADT) was projected to be 6,499 passenger car units1 (PCU) in 2003, rising to 19,172 PCU in 2022. In 2003, international consultants financed under the Project developed a revised traffic forecast for the project expressway based on the actual traffic volume in 2002 and part of 2003, as well as economic growth trends, car ownership trends, and highway network improvements. According to this revised forecast, AADT was forecast to be 5,832 PCU in 2003, increasing to 25,160 PCU in 2022—higher than the appraisal estimates in later years. During the Project Completion Review (PCR) Mission, the traffic data for 2003 and 2004 were analyzed. The actual AADT on the expressway was 4,523 vehicles in 2003 and 5,496 vehicles in the first half of 2004 (converted to 5,214 PCU in 2003 and 6,517 PCU in 2004), a 22% increase from the 2003 AADT. The main reasons for this increase in traffic were (i) the lower than appraisal estimated traffic level in 2003 due to higher traffic forecast at appraisal and outbreak of SARS; (ii) more expressways opened to traffic in 2004—including Nanchong to Guang’an, Guang’an to Linshui, and Chongqing to Da County via Linshui—which increased traffic to the project expressway; (iii) the networking of the toll collection system for the five expressways in eastern Sichuan, which resulted in more accurate traffic records; and (iv) the socioeconomic development in the project area, which generated higher traffic demand.

1 During appraisal in 1997, unit of AADT was Medium Truck Equivalent (MTE), which was converted from actual

number of vehicles. After new conversion factors between PCU and number of vehicle were introduced in 2003, MTE was abolished. In this context, unit traffic data was converted to PCU accordingly, except with specific reference in vehicle.

34 Appendix 10

Table A10.1: Chengdu — Nanchong Expressway Actual Traffic Volume by Vehicle Types

Number of Vehiclesa Year Type 1 Type 2 Type 3 Type 4 Type 5 Totalc

2003 (AADT) 3121 (69%)

995 (22%)

317 (7%)

45 (1%)

45 (1%)

4523 (100%)

2004b (AADT) 3792 (69%)

1209 (22%)

385 (7%)

55 (1%)

55 (1%)

5496 (100%)

a Figures in brackets give % composition. b For the first 6 months of 2004. c Non-tolled traffic was not included. Type 1 = Car or Small Truck, Type 2 = Small Bus or Medium Truck, Type 3 = Large Bus or Large Truck, Type 4 = Super Large Bus or Super Large Truck, Type 5 = Trailer. Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

C. Updated Traffic Forecast

3. The PCR Mission prepared the traffic forecast based on the development of the road network in eastern Sichuan, actual traffic in the 2 years since commencement of expressway operations, and traffic development trends. The traffic growth rates on the project expressway were assumed to be 25% in 2004, 22% in 2007, 16%–8% from 2008 to 2011, and 8%–4% from 2012 to 2022. The vehicle distribution pattern also was adjusted to reflect the trend of more passenger cars, large trucks, and container trucks in the future. The future traffic was converted to PCU using the new highway conversion standards. The revised traffic forecast showed that the AADT on the expressway will be 10,966 PCU in 2007, 15,595 PCU in 2010, 22,721 PCU in 2015, and 32,717 PCU in 2022. This is consistent with the highway standard for a four-lane expressway, which are based on an AADT between 25,000 and 55,000 PCU. The revised traffic forecast is shown in Table A10.2. New traffic conversion factors from vehicles to PCU is given in Table A10.3.

4. The actual and revised traffic in PCU was lower than the appraisal traffic forecasts in the first few years after the expressway opening. However, traffic is expected to grow rapidly. During project preparation in 1997 and 1998, conservative traffic growth rates were adopted. Part of the reason was the PRC had only 3,422 km expressway in 1996, and a lack of experience and available data made precise traffic forecasts difficult. However, the PRC had 29,745 km of expressways in 2003. With the completion of 35,000 km NTHS, the PRC will have an integrated system of expressways. When NTHS and Western Transport Corridors in the southwest of the PRC are completed by 2007 and 2010 respectively, traffic on the project expressway will grow significantly. Ministry of Communications (MOC) traffic statistics show that ADDT in NTHS was 7,765 vehicles in 2003, 17.6% higher than in 2002. AADT over 29,745 km of expressways was 15,327 PCU. According to a national survey conducted by MOC in 2003, the actual traffic on the new expressways was generally lower than estimated in the initial years after opening. However, the traffic grew rapidly within 3–5 years for most expressways in the

Appendix 10 35

PRC, except for those in remote regions. ADB-financed road projects showed similar trends.2 In the case of project expressway, a sharp increase in traffic can be assumed in the next few years with the completion of an integrated expressway network. One component of that network will be the project expressway and the balance sections of the NTHS from Chengdu to Shanghai. A comparison of the appraised traffic forecast and the revised forecasts is in Tables A10.4 and Figure A10.1.

2 Loan 1484-PRC: Jiangxi Expressway Project (ADB. 1996. Report and Recommendation of the President to the

Board of Directors on a Proposed Loan to the People's Republic of China for the Jiangxi Expressway Project. Manila), actual traffic increased by 56%, 16% and 17% in 2001, 2002 and 2003; Loan 1387-PRC: Hebei Expressway Project (ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the People's Republic of China for the Hebei and Liaoning Expressways Projects. Manila), actual traffic increased by 27%, 29% and 10% in 2001, 2002 and 2003; Loan 1470-PRC: Chongqing Expressway Project (ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and a Technical Assistance Grant to the People's Republic of China for Chongqing Expressway Project. Manila), actual traffic increased by 49% in 2003 for Tongjiayuanzi-Jieshi Section.

Table A10.2: Revised Traffic Forecast for Project Expressway 36 Appendix10

(AADT, vehicles) Type 1 Type 2 Type 3 Type 4 Type 5 Non-toll

Year Car Small

Truck Small Bus

Medium Truck

Large Bus

Large Truck

Super Large Bus

Super Large Truck

Trailer Car TruckTotal

2003 2,317 740 493 493 123 197 25 25 49 394 49 4,930 2004 3,020 801 616 616 154 247 31 31 62 493 62 6,163 2005 3,772 887 666 666 185 296 74 37 74 592 148 7,395 2006 4,230 895 651 732 244 325 81 41 81 651 163 8,135 2007 5,161 893 794 893 298 397 198 99 198 794 198 9,924 2008 6,101 1,036 806 921 460 460 230 115 230 921 230 11,512 2009 6,900 1,022 894 1,022 511 639 256 128 256 1,022 128 12,778 2010 7,590 828 828 1,104 690 690 414 138 276 1,104 138 13,801 2011 8,347 894 894 1,192 745 894 447 149 447 745 149 14,905 2012 9,090 797 957 1,116 797 957 478 319 478 797 159 15,948 2013 9,727 853 853 1,195 853 1,024 683 341 512 853 171 17,064 2014 10,491 724 724 1,085 1,085 1,085 724 543 543 904 181 18,088 2015 11,312 767 767 1,150 1,150 959 767 575 575 959 192 19,174 2016 11,878 604 805 1,007 1,208 1,208 1,007 604 805 805 201 20,132 2017 12,683 634 634 1,057 1,268 1,268 1,057 634 846 846 211 21,139 2018 13,318 444 666 888 1,554 1,332 1,110 888 888 888 222 22,196 2019 13,850 462 693 923 1,616 1,385 1,154 923 923 923 231 23,084 2020 14,404 480 480 720 1,680 1,680 1,200 960 1,200 960 240 24,007 2021 15,230 499 499 499 1,748 1,748 1,248 999 1,248 999 250 24,967 2022 15,839 519 519 519 1,818 1,818 1,298 1,039 1,298 1,039 260 25,966

AADT = annual average daily traffic. Source: Asian Development Bank estimates.

Table A10.3: Conversion Factors (1 vehicle = number of PCU)

Item Car Small Truck

Small Bus

Medium Truck

Large Bus

Large Truck

Super Large Bus

Super Large Truck Trailer

Old 1 1 2 2 2 2 3 3 3New 1 1 1 1 1.5 1.5 2 2 3

PCU = passenger car unit. Source: Ministry of Communications.

Appendix 10 37

Table A10.4: Comparison of Traffic Forecast Traffic Volume

(AADT, PCU) Annual Growth Rate

(%) Comparison

(%) Year Appraisal

Estimates in 1998

Estimates by International Consultants

in 2003

PCR Forecast in August

2004

Appraisal Estimates

1998

Estimates by International Consultants

in 2003

PCR Forecast in August

2004

PCR/ Appraisal Estimates

PCR/ Estimates by International Consultants

2003 6,499 5,832 5,214 — — — (20) (11) 2004 6,964 6,291 6,517 7 8 25 (6) 4 2005 7,441 6,793 7,894 7 8 20 6 16 2006 7,953 7,328 8,663 7 8 10 9 18 2007 8,502 9,805 10,966 7 34 22 29 12 2008 9,073 10,552 12,778 7 8 16 41 21 2009 9,668 11,321 14,248 7 7 11 47 26 2010 10,286 12,156 15,595 6 7 8 52 28 2011 10,924 13,012 17,215 6 7 8 58 32 2012 11,582 13,883 18,580 6 7 7 60 34 2013 12,262 14,824 20,051 6 7 7 64 35 2014 12,961 15,838 21,525 6 7 6 66 36 2015 13,681 16,860 22,721 6 6 6 66 35 2016 14,428 17,895 24,561 5 6 5 70 37 2017 15,195 19,004 25,790 5 6 5 70 36 2018 15,984 20,096 27,412 5 6 5 71 36 2019 16,795 21,258 28,508 5 6 4 70 34 2020 17,628 22,500 30,249 5 6 4 72 34 2021 18,393 23,784 31,459 4 6 4 71 32 2022 19,172 25,160 32,717 4 6 4 71 30

AADT = annual average daily traffic, PCU = passenger car unit, PCR = project completion review. Sources: Sichuan Chengnan Expressway Limited Liability Company and Asian Development Bank estimates.

0

5

10

15

20

25

30

35

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Thou

sand

s

Appraisal Estimates Estimate by Intl. Consultants in 2003 PCR Forecast in Aug 2004

Aug = August, Intl.= international, PCU = passenger car unit, PCR = project completion review. Sources: Sichuan Chengnan Expressway Limited Liability Company and Asian Development Bank estimates.

Figure A10.1: Comparison of Traffic Forecast (PCU)

38 Appendix 11

SICHUAN CHENGNAN EXPRESSWAY LIMITED LIABILITY COMPANY ACTUAL AND PROJECTED FINANCIAL PERFORMANCE

A. General

1. Sichuan Chengnan Expressway Limited Liability Company (SCELLC) was established on 28 July 1998. SCELLC is responsible for the construction, operation, and management of the expressway. The company has three shareholders—Sichuan Province High-Grade Roads Construction and Development Group Co. (SPHRCD), Chengdu Jintang Transport Company, and Suining Chuanzhong High-grade Roads Limited Corporation. However, SPHRCD owns 97.5% of SCELLC’s share capital.

2. The expressway started trial operation in December 2002. During preparation of the Project Completion Report (PCR), the expressway had been in trial operations for 1.5 years. In consultation with SCELLC, the PCR Mission prepared the financial projections for SCELLC based on the initial performance during trial operation and assumptions highlighted in this appendix. The financial projections in current terms are presented in Table A11.2 and Table A11.3, along with the actual financial statements for 1998–2003.

B. Assumptions for Financial Projections

3. The major assumptions underlying the financial projections included:

(i) Domestic inflation rates are 3.0% for 2004, 2.7% for 2005, and 3.0% for 2006 and thereafter. The exchange rate between dollar and CNY is 8.28.

(ii) The toll level and structure for the expressway, which were approved by the Sichuan Provincial Price Bureau in 2002, are forecasted to increase by 3% in real terms in 2005 and by 15% every 5 years in current terms to offset the impact of domestic inflation. However, the toll rate for large truck is assumed to remain at the current level for 2005–2009, consistent with the Government’s efforts in curbing overloaded trucks. Table A11.1 shows the current and projected toll rates for the expressway.

Table A11.1: Toll Rates for Chengdu-Nanchong Expressway (CNY per vehicle-km)

Period Car Small Truck

Small Bus

Medium Truck

Large Bus

Large Truck

Super Large Bus

Super Large Truck

Trailer

Current Rate 0.32 0.32 0.60 0.60 1.14 1.14 1.61 1.61 2.02 2005–2009 0.37 0.37 0.71 0.71 1.34 1.14 1.90 1.61 2.02 2010–2014 0.43 0.43 0.81 0.81 1.54 1.31 2.19 1.85 2.33 2015–2019 0.49 0.49 0.94 0.94 1.77 1.50 2.51 2.13 2.67 2020–2022 0.57 0.57 1.08 1.08 2.04 1.73 2.89 2.45 3.08

CNY = yuan, km = kilometer. Note: Current rates are actual rates from Sichuan Chengnan Expressway Limited Liability Company.

(iii) Non-toll revenue is assumed to be 5% of toll revenue. Currently, non-toll revenue comes from associated services, including advertisement, transport services in parking areas and petrol stations, and leasing of communication facilities. In the future, SCELLC will explore ways to increase the revenues from associated

Appendix 11 39

services, including providing passenger and freight transport, and other logistic services along the expressway.

(iv) The maintenance costs were estimated in consultation with SCELLC, and based on the experience of other expressways in Sichuan Province. Maintenance costs comprise costs for routine maintenance, major rehabilitation, and large-scale re-pavement. Major rehabilitation and large-scale re-pavement costs were based on the experience in other expressways in the Sichuan Province and were treated as capital costs. Based on the pavement life and traffic projected volume, large-scale re-pavement is scheduled in 2011 and 2020, and will be carried out within 4 years. Routine maintenance costs were forecasted to increase by 5% every 3 years in real terms. Operation costs include toll collection staff costs, material and utility costs, and management costs. No real increase was assumed for operating costs. All cost items were escalated by domestic inflation rate.

(v) Depreciation expenses were calculated using the straight-line method, assuming 30 years of economic life for civil works and 10 years for equipment.

(vi) The business tax is 5.5% on gross revenue. The income tax rate is 33% on taxable income.

(vii) Repayment of the Asian Development Bank loan is based on the prescribed schedules for the pool-based and the London interbank offered rate (LIBOR)-based portion respectively, starting from 2003 with completion in 2022. The interest rate is assumed to be 6.7% for the pool-based loan portion, and 2% for the LIBOR-based loan portion. The domestic loans comprise loans from the China Development Bank (CDB) and loan from the China Construction Bank (CCB). SCELLC has completed the negotiation on rescheduling the loans with CCB, including converting the short-term loan of CNY220 million to a long-term loan, to reduce the pressure of loan repayment in the early years of operation. These long-term domestic loans will be repaid during between 2003 and 2018 with an interest rate of 5.76%.

(viii) Replacement of equipment is expected to take place in 2012 and 2021.

(ix) The Sichuan provincial government will contribute the remaining committed equity of CNY1,155 million from 2005 to 2007, with which SCELLC will prepay a portion of its long-term loans to reduce its interest expenses.

(x) Dividend payments will be made from 2011 onward, when the debt service ratio is at a satisfactory level and the return on equity is more than 15%. The dividends will contribute to road expansion in Sichuan Province.

C. Projected Financial Performance

4. Financial ratio covenants for SCELLC include a working ratio of not more than 15% and debt service ratio of not less than 1.2 from 2004 onwards. Based on the revised traffic forecast and other assumptions, the financial projections indicate that SCELLC will comply with the working ratio covenant, except in 2004. However, the company will not comply with the debt service coverage ratio covenant until 2008. SCELLC will also experience operating losses during its initial years of operation. The main reasons include the low traffic volume in the early

40 Appendix 11

years of the expressway’s operation, and large loan principal and interest payments that will stretch the internally generated cash flows in this period. The current toll level is lower than the CNY0.35 per ton-km proposed at appraisal, which also will contribute to the difficulties of SCELLC in its initial years of operation. The financial projection also indicates that SCELLC’s financial performance will become increasingly better as traffic grows. From 2011 onwards, SCELLC will contribute to the road construction in Sichuan Province through dividend payments.

5. To improve the financial performance from 2004 to 2007, SCELLC will need to (i) control its operating costs, while ensuring an adequate allocation for maintenance of the expressway; (ii) explore ways to generate more non-toll revenues from associated services; (iii) diversify the shareholder composition to acquire more nongovernment equity investment; and (iv) rationalize the capital structure through the conversion of debt to equity. The provincial government should ensure the full contribution of equity to SCELLC that was envisaged for project implementation. The Sichuan Provincial Communications Department and the Sichuan Provincial Government also should consider making reasonable adjustments to the expressway toll level, so SCELLC can comply with the debt service coverage ratio covenant in its early years of operation.

Appendix 11 41

Table A11.2: Sichuan Chengnan Expressway Limited Liability Company Financial Statements—Past and Projections

(CNY million)

1998 1999 2000 2001 2002 2003 2004 2005 2006 INCOME STATEMENTS Actual Projected Operating Revenues Toll Revenue 0 0 0 0 0 165 206 284 312 Other Revenues 0 0 0 0 0 3 10 14 16 Total Operating Revenues 0 0 0 0 0 168 216 298 327 Less: Business Tax 0 0 0 0 0 9 12 16 18 Net Operating Revenue 0 0 0 0 0 160 205 281 309Operating Expenses Operation Costs 0 0 0 0 0 33 34 35 36 Maintenance Costs 0 0 0 0 0 8 8 8 9 Depreciation 0 0 0 0 0 127 201 201 201 Total Operating Expenses 0 0 0 0 0 168 243 244 246Operating Income 0 0 0 0 0 (8) (39) 37 63 Total Interest Expenses 0 0 0 0 0 107 209 192 164Income before Income Tax 0 0 0 0 0 (115) (248) (155) (101)Income Tax 0 0 0 0 0 0 0 0 0Net Income 0 0 0 0 0 (115) (248) (155) (101)CASH FLOW STATEMENTS

Cash Flow from Operation 0 0 0 0 0 12 (47) 46 100 Net Income 0 0 0 0 0 (115) (248) (155) (101) Depreciation 0 0 0 0 0 127 201 201 201 Cash Flow from Financing 400 983 1,080 1,348 2,004 979 529 385 385 ADB Loan 0 140 477 610 467 332 44 0 0 Domestic Loans 373 741 187 370 200 329 484 0 0 Equity Contribution 28 102 191 367 787 319 0 385 385 Short-term Loan 0 0 225 0 550 0 0 0 0Total Sources of Funds 400 983 1,080 1,348 2,004 991 482 431 485 Capital Expenditures 266 371 1704 990 1808 965 0 0 0 Principal Repayment 0 0 0 75 0 494 329 417 445 ADB Loan 0 0 0 0 0 12 39 343 367 Domestic Loans 0 0 0 0 0 2 70 74 78 Short-term Loan 0 0 0 75 0 480 220 0 0 Increase in Working Capital 14 430 (486) 114 (47) (307) 88 52 31 Dividends Paid 0 0 0 0 0 0 0 0 0Total Application of Funds 280 801 1,218 1,179 1,761 1,151 417 469 475Net Cash Flows 121 182 (138) 168 243 (160) 65 (38) 10Cash Opening Balance 0 121 302 164 333 243 83 148 110Cash Closing Balance 121 302 164 333 576 83 148 110 120BALANCE SHEETS

Current Assets 134 752 464 596 928 381 152 116 126 Cash 121 302 164 332 575 83 148 110 120 Accounts Receivable 14 449 300 259 352 12 4 6 6 Others 0 1 0 6 1 285 0 0 0 Fixed Assets 0 2 2 2 2 3,776 6,104 6,104 6,104 Accumulated Depreciation 0 0 0 0 0 127 328 529 729 Net Fixed Assets 0 2 2 2 2 3,649 5,776 5,575 5,374 Work in Progress 266 636 2,341 3,330 5,139 2,043 0 0 0Total Assets 400 1,391 2,807 3,929 6,069 6,072 5,928 5,691 5,501 Current Liabilities 0 7 568 343 1,029 516 200 150 120 Accounts Payable 0 7 343 193 329 296 200 150 120 Short-term Loans 0 0 225 150 700 220 0 0 0 Long-term Loans 373 1,254 1,918 2,898 3,565 3,878 4,297 3,880 3,436 Equity 28 130 321 689 1,476 1,679 1,431 1,661 1,945 Paid-in Capital 28 130 321 689 1,476 1,794 1,794 2,179 2,564 Retained Earnings 0 0 0 0 0 (115) (363) (518) (619)Total Liabilities and Equity 400 1,391 2,807 3,929 6,069 6,072 5,928 5,691 5,501Ratios: Return on Equity (%) - - - - - - (17%) (9%) (5%) Working Ratio (%) - - - - - - 21% 15% 15% Debt Service Coverage - - - - - - 0.5 0.4 0.4 CNY = yuan. Sources: Financial Statements of 1998–2002 are from Audited Financial Statements submitted to ADB; 2003 financial statements were provided by SCELLC. Projections are Asian Development Bank and consultant estimates.

42 Appendix 11

Table A11.3: Sichuan Chengnan Expressway Limited Liability Company Financial Statements—Past and Projections

(CNY million)

2007 2008 2009 2010 2011 2012 2013 2014INCOME STATEMENTS ProjectedOperating Revenues Toll Revenue 411 480 544 703 806 876 955 1,038 Other Revenues 21 24 27 35 40 44 48 52 Total Operating Revenues 432 504 571 738 847 920 1,003 1,090 Less: Business Tax 24 28 31 41 47 51 55 60 Net Operating Revenue 408 476 540 697 800 869 948 1,030Operating Expenses Operation Costs 37 38 39 41 42 43 44 46 Maintenance Costs 9 10 11 11 11 12 12 13 Depreciation 201 201 201 201 204 213 216 220 Total Operating Expenses 247 249 251 252 257 268 273 278Operating Income 161 227 289 445 543 601 675 752 Total Interest Expenses 136 115 101 87 76 68 59 50Income before Income Tax 25 113 188 358 467 533 616 702Income Tax 8 37 62 118 154 176 203 232Net Income 17 76 126 240 313 357 413 470CASH FLOW STATEMENTS Cash Flow from Operation 218 276 327 440 517 570 629 690 Net Income 17 76 126 240 313 357 413 470 Depreciation 201 201 201 201 204 213 216 220 Cash Flow from Financing 385 0 0 0 0 0 0 0 ADB Loan 0 0 0 0 0 0 0 0 Domestic Loans 0 0 0 0 0 0 0 0 Equity Contribution 385 0 0 0 0 0 0 0 Short-term Loan 0 0 0 0 0 0 0 0Total Sources of Funds 603 276 327 440 517 570 629 690 Capital Expenditures 0 0 0 0 90 289 96 99 Principal Repayment 456 208 220 212 135 148 151 154 ADB Loan 368 120 122 114 27 30 33 36 Domestic Loans 88 88 98 98 108 118 118 118 Short-term Loan 0 0 0 0 0 0 0 0 Increase in Working Capital 120 1 1 3 2 1 1 2 Dividends Paid 0 0 0 0 300 300 300 400Total Application of Funds 576 209 221 216 527 738 548 654Net Cash Flows 27 67 106 225 (11) (168) 81 35Cash Opening Balance 120 147 214 319 544 533 366 447Cash Closing Balance 147 214 319 544 533 366 447 482BALANCE SHEETS

Current Assets 155 223 330 558 549 383 466 503 Cash 147 214 319 544 533 366 447 482 Accounts Receivable 8 10 11 14 16 17 19 21 Others 0 0 0 0 0 0 0 0 Fixed Assets 6,104 6,104 6,104 6,104 6,194 6,483 6,579 6,678 Accumulated Depreciation 930 1,131 1,332 1,533 1,737 1,950 2,166 2,386 Net Fixed Assets 5,173 4,973 4,772 4,571 4,458 4,533 4,412 4,292 Work in Progress 0 0 0 0 0 0 0 0Total Assets 5,329 5,196 5,102 5,130 5,008 4,917 4,879 4,795 Current Liabilities 2 2 2 3 3 3 3 3 Accounts Payable 2 2 2 3 3 3 3 3 Short-term Loans 0 0 0 0 0 0 0 0 Long-term Loans 2,979 2,771 2,551 2,339 2,204 2,056 1,905 1,751 Equity 2,347 2,423 2,549 2,788 2,801 2,858 2,971 3,041 Paid-in Capital 2,949 2,949 2,949 2,949 2,949 2,949 2,949 2,949 Retained Earnings (602) (526) (400) (161) (148) (91) 22 92Total Liabilities and Equity 5,329 5,196 5,102 5,130 5,008 4,917 4,879 4,795Ratios: Return on Equity (%) 1% 3% 5% 9% 11% 12% 14% 15% Working Ratio (%) 11% 10% 9% 7% 7% 6% 6% 6% Debt Service Coverage 0.6 1.2 1.3 1.8 2.8 3.0 3.3 3.6

CNY = yuan. Sources: Financial Statements of 1998–2002 are from Audited Financial Statements submitted to ADB; 2003 financial statements were provided by SCELLC. Projections are Asian Development Bank and consultant estimates.

Appendix 12 43

FINANCIAL REEVALUATION

A. Basic Assumptions

1. The financial internal rate of return (FIRR) was reevaluated based on financial and operational information from Sichuan Chengnan Expressway Limited Liability Company (SCELLC) and certain revenue and cost assumptions. Capital cost was based on actual expenditures incurred for the Project, excluding interest and other financial charges during construction. All revenues and expenses were expressed in 2004 prices with official domestic and international inflation rates. The calculation period covered the construction phase and 20 years of operation after the start of trial operations in 2003. Based on a 30-year economic life of the civil works, the residual value of the Project was assumed to be 30% of the project capital cost, including the cost of the re-pavements and equipment replacement during the calculation period.

2. Project revenues comprised toll revenues and non-toll revenues. Current toll levels, which are presented in Table A12.1, were assumed to increase by 3% in 2005 and remain constant in real terms for the rest of the calculation period. The traffic volume projection is described in Appendix 10. Non-toll revenue was assumed to be 5% of toll revenue. Maintenance and other operating costs were based on the actual figures and assumptions detailed in Appendix 11. Business tax and income tax were excluded from the net benefits of the Project.

Table A12.1: Expressway Current (2004) Toll Levels (CNY per vehicle-km)

Expressway Length Vehicle Types and Toll Rates Lanes Km Type 1 Type 2 Type 3 Type 4 Type 5

6 lanes 18 0.40 0.76 1.44 2.04 2.56 4 lanes 190 0.30 0.57 1.08 1.53 1.92

Average Toll Level 0.32 0.60 1.14 1.61 2.02 CNY = yuan, km = kilometer. Type 1 = Car or Small Truck, Type 2 = Small Bus or Medium Truck, Type 3 = Large Bus or Large Truck Type 4 = Super Large Bus or Super Large Truck, Type 5 = Trailer. Average Toll Level is the weighted average toll of the Project Expressway. Source: Sichuan Chengnan Expressway Limited Liability Company.

B. Financial Internal Rate of Return

3. The FIRR after income tax was recalculated as 5.7% (Table A12.2), compared with 8.3% estimated at appraisal. This variation was mainly because of (i) the higher-than-expected capital costs for the Project, (ii) lower traffic volumes in the early years of operation, (iii) higher operation and maintenance (O&M) costs, and (iv) lower toll rates compared to those estimated at appraisal. The current base toll rate of CNY0.32 per vehicle-km is lower than the appraisal estimate of CNY0.35 per vehicle-km. However, the current toll, which was approved by the Sichuan Provincial Government, is in line with the tolls of other similar, recently completed Asian Development Bank financed expressways in the PRC.

4. The after-tax weighted average cost of capital (WACC), in real terms, was calculated using the actual capital mix and cost of various sources financing. The revised WACC was 4.6%. Since the Project’s recalculated FIRR was higher than the WACC, the Project is considered financially viable.

44 Appendix 12

5. A sensitivity analysis was conducted to test the impact of variations in traffic, O&M cost, and toll levels. The Project would remain viable with a 10% decrease in traffic volume, or a 20% increase in O&M expenses, or a 10% decrease in toll level.

Table A12.2: Financial Internal Rate of Return (CNY million)

Costs Revenues Year

Capital O&Ma Total Toll Non-toll Total Business

Tax Net

Cash FlowIncome

Tax Net Cash

Flow After Income Tax

1998 230.2 — 230.2 — — — — (230.2) — (230.2) 1999 323.9 — 323.9 — — — — (323.9) — (323.9) 2000 1,519.7 — 1,519.7 — — — — (1,519.7) — (1,519.7) 2001 893.2 — 893.2 — — — — (893.2) — (893.2) 2002 1,641.5 — 1,641.5 — — — — (1,641.5) — (1,641.5) 2003 871.5 41.0 912.5 165.0 8.3 173.3 9.5 (748.8) — (748.8) 2004 0.0 41.0 41.0 206.1 10.3 216.4 11.9 163.5 — 163.5 2005 — 41.0 41.0 254.3 12.7 267.0 14.7 211.3 0.0 211.3 2006 — 41.4 41.4 279.5 14.0 293.5 16.1 235.9 0.0 235.9 2007 — 41.4 41.4 371.5 18.6 390.1 21.5 327.2 0.0 327.2 2008 — 41.4 41.4 433.3 21.7 455.0 25.0 388.6 24.2 364.4 2009 — 41.8 41.8 492.7 24.6 517.4 28.5 447.1 48.0 399.1 2010 — 41.8 41.8 552.6 27.6 580.2 31.9 506.5 72.1 434.4 2011 73.5 41.8 115.3 638.7 31.9 670.6 36.9 518.4 78.6 439.8 2012 227.9 42.3 270.2 696.4 34.8 731.2 40.2 420.8 46.1 374.7 2013 73.5 42.3 115.8 759.1 38.0 797.1 43.8 637.5 119.5 518.0 2014 73.5 42.3 115.8 827.3 41.4 868.6 47.8 705.1 143.7 561.4 2015 — 42.7 42.7 864.2 43.2 907.4 49.9 814.8 182.9 631.9 2016 — 42.7 42.7 970.1 48.5 1,018.6 56.0 919.9 220.6 699.3 2017 — 42.7 42.7 1,013.8 50.7 1,064.5 58.5 963.2 238.0 725.2 2018 — 43.2 43.2 1,097.3 54.9 1,152.2 63.4 1,045.6 268.7 776.9 2019 — 43.2 43.2 1,141.2 57.1 1,198.3 65.9 1,089.2 285.3 803.9 2020 73.5 43.2 116.7 1,224.9 61.2 1,286.1 70.7 1,098.7 288.9 809.8 2021 227.9 43.7 271.6 1,268.1 63.4 1,331.5 73.2 986.7 252.3 734.3 2022 (1,868.9) 43.7 (1,825.2) 1,318.9 65.9 1,384.8 76.2 3,133.9 344.7 2,789.2

FIRR: (before Income tax) 7.1% (after Income tax) 5.7%

CNY = yuan, FIRR = financial internal rate of return, O&M = operation and maintenance. a Repavement costs are treated as capital costs. Source: Asian Development Bank and consultant estimates.

Table A12.3: Sensitivity Analysis Case FIRR (%) Base Case 5.7 Traffic, –10% 5.1 Operation & Maintenance Cost, +20% 5.6 Toll, –10% 5.1 FIRR = financial internal rate of return. Source: Asian Development Bank and consultant estimates.

Appendix 13 45

ECONOMIC REEVALUATION

A. General

1. The economic reevaluation of the Project was conducted, based on actual data and updated forecasts, for two scenarios—“with” and “without” the Project. In the “without” the Project case, the roads would be used until their traffic carrying capacities were exceeded, increasing traffic congestion and accidents. In the “with” the Project case, users in the project corridor would utilize the new expressway extensively, because of the lower vehicle operating cost (VOC), shorter travel distance and travel times, and more conformable and safer travel. The economic reevaluation was based on discussions with the Sichuan Provincial Communications Department (SPCD) and Sichuan Chengnan Expressway Limited Liability Company (SCELLC) during the Project Completion Review (PCR) Mission.

B. Costs

2. The project cost consists of capital cost, and operation and maintenance (O&M) cost. The actual project capital cost was about 15.7% higher than the appraisal estimate mainly due to increases in costs of civil works, land acquisition, and resettlement. The O&M costs were revised based on the actual project costs and estimates for future years. The large-scale re-pavement of the project expressway is scheduled to be carried out in the 9th and 18th years after the start of expressway operations. Replacement of equipment will take place in 2012 and 2021. Financial capital costs were converted into economic costs using a standard conversion factor of 0.99. Economic costs were estimated in constant 2004 prices.

C. Traffic

3. This project expressway is an important section of national trunk highway system (NTHS) for the Chengdu-Shanghai corridor. During the first 18 months of operations, the actual traffic was about 20% lower than estimated at appraisal. However, traffic on the expressway is increasing rapidly after the opening of Nanchong-Guangyuan-Lingshui expressway in early 2004. The annual average daily traffic (AADT) grew about 22% in the first half of 2004 compared with the AADT a year earlier. The remaining section of the NTHS in Sichuan Province—from Lingshui to Dianjiang (Chongqing border)—is under construction, and will be opened to traffic by early 2007. Two other expressways in the project area—Suining-Chongqing and Nanchong-Chongqing—are under construction. The completion of the expressway network will increase traffic significantly. The traffic on the project expressway will increase by 22% in 2007. Traffic will continue to grow for several more years after that, and then the rate of growth will slow. According to the revised forecast, the AADT on the expressway would reach 10,966 passenger car unit (PCU) in 2007, 15,595 PCU in 2010, 22,721 PCU in 2015, and 32,717 PCU in 2022. This revised traffic forecast was used in the economic and financial reevaluations.

D. Benefits

4. Four types of benefits were recalculated: (i) VOC savings of expressway traffic due to better road conditions and higher speed, (ii) VOC savings due to the shorter travel distance, (iii) travel time savings for passengers, and (iv) savings due to fewer accidents. The freight time savings and existing road maintenance cost savings, which were included in the appraisal analysis, were not considered in the reevaluation. The exclusion of these savings will not affect the project benefits significantly, because these benefits are small compared with others.

46 Appendix 13

5. The VOC savings were estimated using the unit VOC data for different types of vehicles under different speeds. These unit VOCs were used for similar recent road projects financed by ADB in the PRC, and were adjusted for the Project. The average vehicle speed is 80–110 kilometers (km) per hour on the project expressway, and 40–50 km per hour on the existing highway for the “without” the Project case. The VOC savings per vehicle-kilometer were estimated to be between CNY0.22 and CNY0.62 for expressway traffic, depending on the vehicle type. Only diverted traffic was considered in the VOC saving calculation. The project expressway is about 82 km shorter than the existing road. VOC savings from the reduced travel distance was calculated accordingly.

6. Passenger travel time savings were estimated for different types of passenger vehicles. The average passenger traveling time costs were derived from the gross domestic product (GDP) per capita of Sichuan Province in 2003. The time value of car passengers and small bus passengers were estimated at 2 times and 1.5 times that of large bus passengers, respectively. The incremental rates of increase for passenger time costs were between 10% and 4% for 2004–2022, consistent with the anticipated GDP growth rate. This was used as a proxy for increasing real incomes. Factors taken into account in the recalculation also included average vehicle load, percentage of working trips, and speed for “with” and “without” the Project cases by different types of passenger vehicles.

7. An analysis of traffic accident statistics on the expressway and adjacent roads in recent years found that the accident incident rate per billion vehicle-km is lower on the expressway than on other classes of roads. Using the formula issued by the Ministry of Communications with further calibration based on real accident data on the project expressway, the value of lower accident costs attributed to the expressway traffic was estimated. The average economic loss was CNY14,000 per accident for the project expressway and CNY5,000 per accident for the existing roads.

8. The VOC savings generated by the project expressway account for the major share of total benefits. However, this share will decline from 64% to 55% of the total benefits over the calculation period. The passenger time cost savings will increase from 36% to 45% of the total benefits over the same period. The benefits of accident cost savings form a minor share of total benefits.

E. Economic Internal Rate of Return Reevaluation

9. The reevaluated economic internal rate of return (EIRR) for the Project expressway was 15.8%, compared with the 24.9% estimated at appraisal. The lower EIRR was due to higher-than-expected capital costs of the Project, and lower traffic during the first a few years of expressway operations (Table A13.1). The reevaluated EIRR did not include the VOC savings and passenger travel time savings from reduced congestion on the existing road. Still, the reevaluated EIRR was higher than the social discount rate of 12%. Thus, the Project is considered economically viable.

10. A sensitivity analysis was carried out to test the impact of (i) an increase in O&M costs, (ii) a decrease in benefits, and (iii) a combination of these two scenarios (Table A13.2). According to this analysis, the Project will continue to be economically viable under these conditions. The Project EIRR is more sensitive to changes in benefits, compared with changes in O&M costs. The EIRR would be 13.3% if the benefits decrease by 20%. Combining a 20% increase in O&M costs and a 20% benefit reduction, the EIRR would be 13.2%—still higher than the social discount rate.

Appendix 13 47

Table A13.1: Economic Reevaluation (CNY million)

Costs Benefits Year

Capital O&M Total E.VOC D.VOC P.Time Accident Total Net Benefits Present Value

1998 228 — 228 — — — — — (228) (203) 1999 321 — 321 — — — — — (321) (256) 2000 1,505 — 1,505 — — — — — (1,505) (1,071) 2001 884 — 884 — — — — — (884) (562) 2002 1,625 — 1,625 — — — — — (1,625) (922) 2003 863 41 903 181 110 155 6 452 (452) (229) 2004 0 41 41 227 137 197 7 567 527 238 2005 0 41 41 273 164 238 8 683 642 259 2006 0 41 41 300 179 285 9 773 732 264 2007 0 41 41 361 219 365 10 955 914 294 2008 0 41 41 419 253 427 12 1,111 1,070 308 2009 0 41 41 464 283 478 13 1,238 1,196 307 2010 0 41 41 498 306 545 14 1,363 1,321 303 2011 73 41 114 528 331 625 15 1,498 1,384 283 2012 226 42 267 561 353 674 15 1,604 1,336 244 2013 73 42 115 600 379 730 16 1,725 1,611 263 2014 73 42 115 632 402 780 17 1,831 1,716 250 2015 0 42 42 675 424 833 18 1,951 1,909 248 2016 0 42 42 692 445 959 19 2,115 2,073 241 2017 0 42 42 732 466 985 20 2,202 2,160 224 2018 0 43 43 757 490 1,066 21 2,335 2,292 212 2019 0 43 43 787 510 1,109 22 2,428 2,385 197 2020 73 43 116 809 527 1,119 23 2,477 2,362 174 2021 226 43 269 842 546 1,220 23 2,631 2,362 156 2022 (1850) 43 (1,807) 876 568 1,268 24 2,736 4,543 267

Economic Internal Rate of Return: 15.8% Net Present Value (million CNY): 1,490

Benefit/Cost Ratio: 1.33 Break Even Years: 17.9 Discount Rate: 12%

CNY = yuan, D.VOC = VOC savings due to shorter distance, E.VOC = VOC savings of traffic on expressway, O&M = operation and maintenance, P.Time = passenger traveling time cost savings, VOC = vehicle operating cost. Source: Asian Development Bank estimates.

Table A13.2: Sensitivity Analysis Test

O&M Cost Benefits EIRR (%) Base Case 15.8

+10% 15.7 +20% 15.6 -10% 15.9 -20% 16.0

+10% 17.1 +20% 18.1 -10% 14.6 -20% 13.3

+10% -10% 14.6

Changes (+/-)

+20% -20% 13.2 EIRR = Economic Internal Rate of Return, O&M = Operation and Maintenance. Source: Asian Development Bank estimates.

48 Appendix 14

POVERTY IMPACT EVALUATION

A. Project Impacted Areas

1. The Project comprised the construction of a 208-kilometer (km) expressway connecting Chengdu and Nanchong, and upgrading about 300 km of provincial and county roads in designated poverty counties in Nanchong Municipality. The direct and indirect project impact areas are listed in Table A14.1.

Table A14.1: Project Impact Areas

Category Municipality County or District Population ('000)

Expressway impact areas Chengdu Chenghua 540 Longquanyi 490 Qingbaijiang 400 Xindu 600 Jintang 840 Deyang Zhongjiang 1,410 Suining Daying 520 Chuanshan 1,420 Pengxi 750 Nanchong Jialinga 660 Gaoping 560 County roads impact areas Nanchong Nanbu 1,290 Yilong 970 Yingshan 860 Xichong 630 Indirect impact areas Nanchong Other countiesb 2,120 Suining Other countiesb 1,040 Guangan All the counties 4,410 Guangyuan All the counties 3,030 Bazhong All the counties 3,500 Dazhou All the counties 6,230 Chongqing Counties in northwestern

Chongqing 4,300 a also a county road impacted area. b excluding the population in direct impact areas. Sources: Sichuan Provincial Communications Department, Sichuan Chengnan Expressway Limited Liability Company and Sichuan Statistics Bureau, 2003, Sichuan Statistical Yearbook, Beijing, China Statistical Publishing House. B. Stakeholder analysis

2. Stakeholders include residents along the expressway and county roads and their peripheral areas, governments at various levels, and agencies providing services. The main stakeholders are:

Appendix 14 49

(i) Urban people unaffected by resettlement. The Project provides more entrances and exits to counties and cities, and fosters passenger and freight movement. Transport costs are lower and service quality is better. With an improved investment environment, the local economy has grown faster. Urban residents have gained more jobs;

(ii) Rural people unaffected by resettlement. The Project has provided cheaper and better transportation. Improved transport has provided more opportunities to grow and market cash-crops, thus improving the income of farmers. More information and better services are now available; and

(iii) People affected by land acquisition and/or house relocation. These people have been compensated and resettled through the implementation of the Resettlement Plan. During project construction, they obtained more jobs. The living conditions of the relocated households improved. The Project has increased market opportunities for agriculture and sideline products. Better transportation has increased access to income-earning opportunities.

C. Nationalities within the Project Impact Areas

3. In the project impact areas, the dominant nationality is Han. Only a few ethnic minorities, such as Miao and Hani have moved in from neighboring provinces by way of marriage. Since they live together with the Han people, they have the similar living patterns. As members of Han families, those ethnic minorities were affected by the Project in same way as the Han. No ethnic group-specific measures were necessary to mitigate specific adverse impacts.

D. Gender

4. Women in rural areas mostly did household and farm work, and had limited opportunities to get off-farm employment. Since many young males seek work opportunities outside of their home village, women remain at home to work on the farm and bear all the responsibility for looking after the family and house. Women are responsible for family work, bringing up their children, education, cooking, cleaning, washing, and other household work. Their agriculture work is nearly the same as men, involving tilling, seeding, carrying fertilizer, harvesting, and raising livestock etc. In general, women’s workload was higher than that of men. However, better roads have improved their situation. Many women, especially young women, now seek off-farm employment outside their villages.

E. County Roads

5. Five county roads with a length of 302 km were upgraded in five counties under the Nanchong Municipality. The five counties were designated national- or provincial-level poverty counties. The construction of county roads began in October 1999 and was completed in October 2001. The cost for the upgrading the county roads was CNY31.8 million. Table A14.2 shows the details of the county roads.

50 Appendix 14

Table A14.2: County Roads

Scope Length (km)

Original Class

Present Class

Cost for Upgrading(CNY million)

Location

Dahe to Shengshui 57 Unclassified III 6.0 Nanbu County Lidu to Panlong 47 Unclassified III 4.9 Jialing District Yilong to Pingchang 84 Unclassified III 9.2 Yilong County Luoshi to Bailin 74 Unclassified III 7.6 Yingshan CountyXichong to Shehong 40 Unclassified III 4.1 Xichong County

Total 302 31.8 CNY = yuan, km = kilometer. Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

6. About 1,820 mu (mu is a unit of area used in the PRC, 1 mu = 0.0667 hectare) of land, including 310 mu of cultivated land, was acquired for upgrading the five county roads. This was mostly uncultivated land because the bulk of the upgrading work was carried out along the same alignment. In addition, 17,200 square meter (m2) of houses were demolished. Table A14.3 shows the detailed information on land acquisition and resettlement for county roads.

Table A14.3: Land Acquisition and Resettlement for County Roads

Scope Acquired

Cultivated Land (mu)

Acquired Uncultivated Land

(mu)

Demolished Houses

(m2) Dahe to Shengshui 68 283 3,200 Lidu to Panlong 72 242 4,000 Yilong to Pingchang 76 450 3,000 Luoshi to Bailin 62 419 3,000 Xichong to Shehong 32 116 4,000

Total 310 1,510 17,200 1 mu = 0.0667 hectare, m2 = square meter.

Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

7. The cultivated land within the affected village groups was redistributed after land acquisition. The affected households were provided with replacement land. Since only a small part of the cultivated land was acquired for county roads, the cultivated land holding of the affected farmers generally did not decrease after land redistribution. The demolished houses were compensated following the local standards, though the acquired land was not compensated by the communications departments. However, the villages readjusted the land to ensure that no households lost significant land. The house demolition and private assets for the county roads cost CNY11 million.

8. The county roads provided better transport to local communities. Transport services, which had been available only to townships, were extended to villages. Farmers have better

Appendix 14 51

access to markets and social services by bus with low fares. With better county roads, farmers in remote areas can travel round trip to cities in a few hours. Before the Project, a one-way trip took a day.

F. Poverty Reduction

9. Poverty is defined not only by low incomes, but also the lack of access to opportunities. The project expressway and county roads improved transportation in the project impact area. Many impact areas that were once considered remote are now considered conveniently close to major centers, such as Chengdu and Nanchong. The time required to reach these cities has been reduced substantially by the Project. The improved transportation conditions provide better access to (i) health care, (ii) bigger markets, (iii) training and education resources, (iv) regional transportation hubs, and (v) places with job opportunities.

10. During project implementation, 1.1 million person-days of local labor were generated for the construction of county roads. These workers received payment of CNY22 million. Expressway construction generated 13 million person-days of local labor and payments of CNY216 million as wages. To undertake cleaning and other low-skilled labor for the expressway, 720 people in the villages near the expressway were employed.

11. The population of the villages did not change much over the 5 years of project implementation. However, rural labor working outside the villages increased significantly in most villages, particularly in the remote or poorer villages where jobs are limited. The main reasons for the increased number of people working outside the village were:

(i) experience and skills learned from employment during expressway construction;

(ii) limited land available for agricultural and cash crops;

(iii) more information available on opportunities through better transport; and

(iv) easier access to employment markets and convenient travel.

12. These factors were a direct result of the expressway and improved county roads. With more rural labor working outside their villages and sending remittance home, the income in the project impacted areas increased. Rural net income in Nanchong grew by an average of 11.4% from 1997 to 2002, according to sample villages selected in a participatory rural appraisal in 1997 and visited in 1997, 2002, and 2003.1 During that same period, rural net income grew 7.1% in Sichuan Province. The annual growth rate of average per capita income from 1997 to 2003 in the 22 sampled villages was also 11.4%. A few of the 22 sample villages in the project impacted areas achieved annual income growth rates of 20%. In 2003, 5.8% of the households in the sample villages had income below poverty line, compared with 13.8% in 1997. In Sichuan Province, the poverty incidence fell from 8.3% to 3.2% during the same period.

13. The Project contributed to poverty reduction and improvements in socioeconomic development of poor residents in the project impacted areas through (i) increased income from agriculture and small industries, including the production of aggregates, coal brickettes, clay tiles, and carpentry products; (ii) better access to educational facilities; and (iii) improved access to healthcare facilities, clean drinking water, and public services.

1 A participatory rural appraisal survey conducted by the international consultants selected 22 villages, about 10% of

the villages directly affected by the project expressway, and 3 villages directly affected by the county roads.

52 Appendix 15

EVALUATION OF LAND ACQUISITION AND RESETTLEMENT ACTIVITIES

A. Background

1. The counties and districts along the 208-kilometer (km) expressway connecting Chengdu and Nanchong include Chenghua, Longquanyi, Qingbaijiang, Xindu, Jintang, Zhongjiang, Daying, Chuanshan, Pengxi, Jialing, and Gaoping. The Project also included the upgrading of 302 km of county roads, which took place mainly on the same alignment with minor adjustments for some difficult terrain.

2. In December 1997, international consultants prepared a Resettlement Plan (RP). The RP, which the Asian Development Bank (ADB) subsequently approved, provided a basis for resettlement implementation, monitoring, and evaluation.

B. Scope of Land Acquisition and Resettlement

3. Land acquisition for the Project totaled 1,909 hectares (ha), 45% more than the 1,314 ha in the RP. The main reason for this increase was that RP estimates were based on the feasibility study, while the actual land acquisition was based on the detailed design. The actual temporary land occupation was 102 ha, which was 56% less than the 233 ha estimated in the RP. The contractors completed civil works by acquiring less temporary land than was estimated in the feasibility study. Table A15.1 provides a comparison of the data between the planned and the actual rehabilitation activities.

Table A15.1: Comparison Between Resettlement Action Plan and Resettlement as Implemented

Item Unit RP (1997)

Actual (2001) Difference %

1. Land Acquisition

Permanent ha 1,314 1,909 595 45

Temporary ha 233 102 (131) (56)

2. Building Demolition

Housing Demolition m2 293,050 866,033 572,983 196 Demolition of Buildings Belonging to

Factories and Institutions m2 0 160,561 160,561

3. Affected People

Land Acquisition number of persons 17,517 34,196a 16,681 95

Housing Demolition number of persons 9,646 23,089 13,443 139

ha = hectare, m2 = square meter, RP = resettlement plan. a The actual number of people affected directly by land acquisition was not available. This has been taken as

equivalent to the number of people who were supposed to have lost all of their contracted cultivated land. Sources: Sichuan Provincial Communications Department, Sichuan Chengnan Expressway Limited Liability Company and Resettlement Action Plan. 4. Table A15.2 shows permanent land acquisition, temporary land occupation, and people resettled due to land acquisition.

Appendix 15 53

Table A15.2: Land Acquisition and Resettlement

County/Districts Per Capita Cultivated

Land Holding (mu/person)

Permanent Land

Acquisition (mu)

People Affected by Land Acquisition

(persons)

Temporary Land

Occupation (mu)

Chengdu City: Chenghua District 0.38 551 1,441 0 Longquanyi District 0.59 1,559 2,645 378 Qingbaijiang District 0.93 2,876 3,088 455 Xindu District 0.88 47 53 30 Jintang County 0.99 4,273 4,320 0

Deyang City: Zhongjiang County 0.84 3,903 4,640 229

Suining City: Daying County 0.79 3,884 4,901 0 Chuanshan District 0.90 2,132 2,378 268 Pengxi County 0.88 3,458 3,930 78

Nanchong City: Jialing District 0.94 4,536 4,850 52 Gaoping District 0.73 1,417 1,950 42

Total 28,636 34,196 1,532 1 mu = 0.0667 hectare. Sources: Sichuan Provincial Communications Department and Sichuan Chengnan Expressway Limited Liability Company.

5. The affected buildings can be divided into two categories according to ownership type: dwellings, and buildings owned by factories or public institutions. Demolished housing totaled 866,033 square meters, about three times the RP estimates. The reason for this increase was basically the same as those for the land acquisition: changes in the detailed design compared to feasibility study. The demolition of housing affected 23,089 people, 239% higher than the 9,646 persons estimated in the RP. Demolished buildings owned by factories and public institutions totaled 160,561 square meters. The RP did not provide an estimate for this. The RP was based on the feasibility study rather than the final expressway alignment. Therefore, buildings owned by factories and public institutions that were to be demolished could not be identified.

C. Applied Laws and Regulations, and Compensation Standards

6. Before 1 January 1999, land acquisition and resettlement of the Project was implemented according to the following laws and regulations:

(i) The Law of Land Administration of the People’s Republic of China (passed by the 16th session of the 6th National Congress in June 1986, revised by the 5th session of the 7th National Congress in December 1988);

(ii) The Sichuan Province Implementation Regulations of the Law of Land Administration of the People’s Republic of China (passed by the 26th session of the 6th Sichuan Provincial Congress on 2 July 1987, revised first by the 12th session of the 7th Sichuan Provincial Congress on 15 November 1989, and revised second by the 15th session of the 8th Sichuan Provincial Congress on 20 June 1995); and

54 Appendix 15

(iii) The Compensation Method for land acquisition and house relocation for the construction of the Chengdu to Nanchong Expressway (issued by the Sichuan Provincial Government, No. 87 of 1998).

7. On 1 January 1999, the amended Land Administration Law, which was formulated with ADB assistance, took effect. As a result, land acquisition and resettlement for the Project after this date was implemented according to the following:

(i) The Land Administration Law of the People’s Republic of China (revised by the 4th session of the 9th National Congress in August 1998 and took effect from 1 January 1999); and

(ii) The Sichuan Province Implementation Regulations of the Land Administration Law of the People’s Republic of China, which went into effect from December 1999.

8. The amended Land Administration Law required higher compensation standards for land acquisition compared with the old law. The law stipulated that the compensation and the resettlement subsidy for cultivated land shall be 6–10 times and 4–6 times, respectively, of the average annual production value per mu during the previous 3 years. The corresponding rates in the old law were 3–6 times and 2–3 times, respectively.

9. The RP did not contain specific compensation rates for the categories of affected land. The compensation for all types of land was budgeted at the rate of CNY9,764 per mu. Project authorities were to pay the compensation as a lump sum to each resettlement office, and each resettlement office would then compensate the affected collectives at different rates for different land categories.

10. The county resettlement offices followed different standards in paying compensation paid for land to the affected villager groups. Table A15.3 shows the compensation rates.

Table A15.3: Compensation Rates (CNY)

Item Compensation Rate in RP

Compensation Rate Before 1 January 1999

Compensation Rate After 1 January 1999

Cultivated Land

4,200–10,000 per mu plus 8,000–10,000 per person

through award of town citizenship resettlement

7,000–11,500 per mu plus 10,000 per person through award of town citizenship

resettlement

Non-Cultivated Land

9,764 per mu on average

2,100–5,000 per mu 3,500–5,750 per mu

Brick Concrete Structure 80–210 per m2 80–210 per m2

Brick Timber Structure 60–120 per m2 60–120 per m2

Timber Tile Structure

100 per m2 on

average

40–80 per m2 40–80 per m2

CNY = yuan, 1 mu = 0.0667 hectare, m2 = square meter. Sources: Sichuan Provincial Communications Department, Sichuan Chengnan Expressway Limited Liability Company and field visits.

11. Based on the land acquired and compensation paid, the actual average land compensation rate was CNY14,688 per mu—higher than the average rate in the RP. The actual

Appendix 15 55

average compensation rate for demolished housing calculated according to the Resettlement Monitoring Report was CNY97.6 per m2. This was almost the same as the corresponding figure in the RP.

D. Resettlement Organizations

12. The Sichuan Provincial Communications Department (SPCD), the Executing Agency for the Project, established the Sichuan Chengnan Expressway Limited Liability Company (SCELLC), to implement and operate the Project expressway. The resettlement division under SCELLC was responsible for the land acquisition and resettlement.

13. The main responsibilities of city resettlement officers were coordination and administration of land acquisition and resettlement. The county (district) resettlement offices were established to carry out resettlement in their jurisdictions. Each county (district) resettlement office administrated affected townships, and every township office administrated villages and individuals. Staff in every township were designated to process land acquisition and resettlement matters. Administrative villages and concerned villager groups carried out resettlement activities.

E. Resettlement Budget and Payment

14. The actual cost of land acquisition, house relocation, and affected electric and telecommunication facilities was $87.8 million, 173% higher than the $32.2 million estimated in the RP. The actual cost included $36 million for land, $15 million for non-agricultural resettlement, $8 million for houses, and $29 million for other facilities and infrastructure. The resettlement budget and actual payments are shown in Table A15.4.

Table A15.4: Resettlement Budget Estimate and Actual Payment ($ ‘000)

Item RP Estimate in 1997

Actual Payment in 2001 Difference Increase

(%)

Land 23,920 50,800 26,880 112 Houses 3,540 8,450 4,910 139 Other facilities and infrastructure 400 28,510 28,110 7,028

Total 27,860a 87,760 59,900 215 RP = resettlement plan. a contingency and administration costs not included. Sources: Sichuan Provincial Communications Department, Sichuan Chengnan Expressway Limited Liability Company and Asian Development Bank estimates. 15. SCELLC allocated the resettlement funds to each county (district) resettlement office. The funds were then paid to affected villager groups and households via a township financial office.

16. The compensation for temporary land occupation was paid directly to the affected households by each civil construction contractor. The cost for temporary land occupation varied. According to site investigations, the contractors paid about CNY1,300 per mu per year for temporary land occupation.

56 Appendix 15

F. Resettlement Implementation

17. In August 1998, the measurement of land to be acquired and buildings and facilities on the land commenced. In October 1998, the acquisition of land and relocation of housing and buildings began. The compensation contracts were signed during the same period. Most of the land acquisition and housing relocation work was completed by April 1999, and most of the affected infrastructure was rehabilitated or reconstructed by that time. With the progress of the civil construction, a small amount of sporadic land acquisition and house demolition continued until 2002.

18. Resettlement activities for land acquisition were implemented at the villager group level. After land acquisition, if the per capita cultivated land holding in a villager group was below 0.4 mu, some laborers in the villager group were awarded town citizenship (non-agricultural household registration status). An additional resettlement subsidy between CNY8,000 and CNY10,000 per person was paid to these people. Among the people who lost their land, 12,375 persons were resettled through non-agricultural arrangements, i.e., they were changed from agricultural to non-agricultural status in the household registration system and provided with an additional resettlement subsidy. This option was preferred by households because they received more compensation and received entitlement for public services, such as education, health, and social security in the town. Table A15.5 shows the people resettled through non-agricultural arrangements in each county and district.

Table A15.5: People Resettled Through Non-Agricultural Arrangements

County/Districts People awarded town citizenship and provided

with additional resettlement subsidy (persons)

Chengdu City: Chenghua District 1,325 Longquanyi District 1,704 Qingbaijiang District 789 Xindu District 44 Jintang County 605 Deyang City: Zhongjiang County 718 Suining City: Daying County 1,261 Chuanshan District 1,202 Pengxi County 1,735 Nanchong City: Jialing District 1,932 Gaoping District 1,060 Total 12,375

Sources: Sichuan Provincial Communications Department, Sichuan Chengnan Expressway Limited Liability Company and field visits.

19. After some laborers in the seriously affected villager groups (with per capita cultivated land holding below 0.4 mu after land acquisition) were awarded town citizenship and handed in their contracted land to the villager groups, cultivated land was redistributed in most of the affected villager groups. Some of the affected villager groups decided to give the compensation for cultivated land and resettlement in cash equally to all the villagers. Some affected villager groups used part of the cultivated land fees for collective purposes, such as reclaiming and

Appendix 15 57

cultivating wasteland, orchard planting, livestock breeding, and infrastructure at the village level. The method for distributing the payments usually followed the opinion of the majority of the villagers, which led to general satisfaction among the villagers about how the payments were handled. The compensation for non-cultivated land usually was given to the villager groups. The villager groups either used the funds for collective purposes, or provided cash to all the villager group members, depending on the opinion of the majority of the villagers.

20. The old houses were demolished during October–December 1998. The new housing plots were provided by the villages or villager groups free of charge. The style of new houses met the expectations of the relocated households. Field investigations determined that the building of the new houses usually was completed 3 months after demolition. However, since compensation requirements for transitional and moving allowances were not stipulated in the RP, most counties and districts did not provide transitional or moving allowances to the relocated households.

21. The size and quality of the new houses were better than the old houses, and improved the living conditions of those relocated. The villagers generally preferred to enlarge the house size and/or raise the house quality by using part of their savings or borrowing from their relatives and friends to supplement the housing compensation funds.

22. The enterprises and public institutions affected by the Project were mainly village schools, small clinics, and small township- and village-owned enterprises. Detailed consultations were conducted on the compensation for the demolished buildings owned by factories or public institutions. Payments covered the compensation fee, additional compensation for affected structures and attachments, moving costs, replacement land costs, and other losses. This compensation was paid directly to the affected factories or public institutions. For instance, the Luojiagou Village School in Daying County received CNY183,600 for 300 square meters of demolished houses and other losses, including moving and transitional allowances. The old single-story brick timber houses were demolished in August 1999. The new two-story brick concrete houses, 500 square meters in size, were finished in February 2001. Because of the selection of the appropriate school site, the school experienced a transitional period of 1.5 years, during which the school rented villagers’ houses. The village leaders in charge of the school were satisfied with the compensation they received.

G. Assessment of the Quality of the Resettlement Implementation and Rehabilitation

23. After land acquisition, the farmers in the seriously affected villager groups were provided additional subsidies between CNY8,000 and CNY10,000 per person to restore their incomes. The farmers in other villager groups had options for income restoration, such as receiving cash rather than additional land.

24. Site visits and investigations during the Project Completion Review (PCR) Mission found that the affected households were relocated in their original villager groups to maintain their social and economic relationships. The size and structure of the new houses were better. Necessary infrastructure, such as village roads and house plots, were built free of charge. Most relocated households were satisfied with the relocation arrangement.

25. For affected factories and public institutions, additional assistance above the standard compensation was provided. Extra funds were provided to enable these institutions, especially for public institutions such as schools, to rebuild better buildings. For affected infrastructure,

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additional compensation above the budgeted compensation in the RP was paid so the infrastructure could be rehabilitated or reconstructed on time.

26. More than half of the rural labor sought better jobs outside their villages, or engaged in non-agricultural tasks in townships and villages or in private enterprises in the same village. On an average, each of those villagers earned at least CNY6,000 per year since 1999. With more than 70% of farmers’ household income coming from non-agricultural sources, working outside has become the most important source of their income. Land acquisition did not cause any marked decrease in household incomes. Compensation for land used by the collective provided affected farmers with replacement land, improved agricultural conditions, and cash crop planting opportunities. Compensation for land given to the affected farmers in cash provided them with new opportunities (orchards, agriculture, etc.). Contractors provided employment opportunities for low-skilled labor, such as earth works, to the affected farmers. The average daily wage was CNY20. This construction employment helped to increase the income of the affected people.

27. According to the Benefit Monitoring and Evaluation (BME) Report prepared by the consultants, 22 villages directly affected by the expressway (about 10% of the total) and three villages directly affected by the county roads were selected as samples for the Participatory Rural Appraisal (PRA) survey conducted by the consultants. In each village, about 10–15 households were selected for visits and interviews. The BME Report found that the annual rural net income in Nanchong grew by 11.4% from 1997 to 2002, faster than the corresponding figure of 7.1% for Sichuan Province. The annual growth rate of average per capita income from 1997 to 2003 in the 22 sampled villages was also 11.4%. In some sampled villages, the annual growth rate of average per capita income reached 20% during the same period. The incidence of poverty among households in the sampled villages in 2003 was 5.8%, compared to 13.8% in 1997.

H. Consultation, Monitoring and Evaluation

28. In August 1998, before the resettlement implementation, resettlement mobilization campaigns were held at all affected villages and villager groups. During the resettlement implementation, land compensation allocation programs were settled through consultation with affected villagers. The resettlement sites and methods of the relocated residents and enterprises and institutions were identified after consultation.

29. The RP included selection of an independent monitoring organization as a pending action. In July 2001, the consultants completed a resettlement monitoring report and submitted it to ADB. The monitoring report described the resettlement organizations, legal framework, consultation, resettlement impacts, compensation, and rehabilitation. However, the monitoring report did not provide enough information about the weaknesses during resettlement preparation and implementation. In addition, a baseline survey was not conducted for comparison. The consultants prepared two BME reports and submitted them to ADB in October 2002 and March 2004, respectively. The BME reports covered the social and economic benefits, local traffic, traffic forecast, economic evaluation, and financial analysis.

I. Conclusion and Lessons Learned

30. Based on the findings of the PCR Mission, the resettlement was implemented according to the resettlement plan, though the compensation standards for land and houses in the resettlement plan were not specific. The objectives of the resettlement plan were achieved.

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31. The resettlement activities were carried out by a well-established resettlement organization system at provincial (project level), city (prefecture level), district/county, township, village, and villager group level. The system closely linked resettlement to project construction, and encouraged cooperation from local governments. The agencies involved in resettlement were well coordinated and operated well.

32. Before and during resettlement implementation, affected people were informed about the compensation policies through consultation and participation. Their options in resettlement implementation were taken into consideration.

33. Compensation was paid to the affected collectives and individuals. Households affected by the house relocation that wished to build new houses rebuilt their houses with the necessary infrastructure free of charge. The affected facilities and infrastructure were rehabilitated or reconstructed.

34. Through efforts by the resettlement offices at all levels and local governments, the farmers in the seriously affected villager groups were provided with a special resettlement subsidy. Farmers in other villager groups were compensated according to the preferred option of most villagers. Since 1999, an increasing number of people from remote villages got non-agricultural jobs outside. Since agriculture generated only a small part of their income, the land acquisition did not reduce their income significantly. Their incomes generally improved, and their income-earning capacity was strengthened.

35. For ADB, the main lessons from the resettlement activities under Project were:

(i) the resettlement plan should be adequately detailed and updated by the executing agency. A high-quality resettlement plan, which should be updated after a detailed measurement survey, is necessary to assess if adequate provisions and cost adjustments are made. However, despite a significant increase in resettlement impacts under this Project, it is commendable that additional funds were provided in a timely manner;

(ii) ADB should supervise resettlement more effectively to stay informed of the resettlement progress and to ensure that the implementation is in compliance with the resettlement plan. In this Project, no supervision was provided by a social specialist (neither an ADB official nor a consultant) during resettlement implementation. ADB also should pay more attention to the resettlement monitoring and evaluation to ensure that professionals are recruited to carry out monitoring activities, and that the monitoring reports are submitted on time;

(iii) the resettlement plan should stipulate specific compensation standards for each of the affected categories, especially for important items such as land and housing. Without such standards, judging whether actual compensation standards were in line with the agreement reached between ADB and the Borrower is difficult;

(iv) a special resettlement plan should be prepared for the provincial and county roads programs, or the resettlement for the access roads should be incorporated into the main resettlement plan. The resettlement implementation of the access roads also should be monitored and managed; and

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(v) systematic data collection requirements should be established for any resettlement, so that the basic data is collected on time. The basic data include (a) area and type of land acquisition, (b) area and type of affected dwellings and affected buildings, (c) number of households and persons affected by permanent land acquisition and temporary land occupation, (d) dwelling relocation, and (e) number and type of other affected land attachments and infrastructure. Such an approach would enable a more comprehensive review and assessment of resettlement during the PCR Mission.