Completion Report

Project Number: 39153-013 Loan Number: 2481 June 2016

People’s Republic of China: Chongqing–Lichuan Railway Development Project This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – yuan (CNY) At Appraisal At Project Completion (3 November 2008) (3 March 2015)

CNY1.00 = $0.1462 $0.1594 $1.00 = CNY6.8395 CNY6.2732

ABBREVIATIONS

ADB – Asian Development Bank CIECC

CLR – –

China International Engineering Consulting Corporation Chongqing–Lichuan Railway

CLRC – Chongqing–Lichuan Railway Company CRC – China Railway Corporation DMS

EIA – –

detailed measurement survey environmental impact assessment

EIRR – economic internal rate of return EMP – environmental management plan FIDIC

FIRR – –

International Federation of Consulting Engineers financial internal rate of return

GDP – gross domestic product ICB – international competitive bidding MEP

MIS MOR

– – –

Ministry of Environmental Protection management information system Ministry of Railways

MOT – Ministry of Transport O&M

PPTA – –

operation and maintenance project preparatory technical assistance

PRC – People’s Republic of China SEPP – soil erosion protection plan SDAP

TA – –

social development action plan technical assistance

WACC – weighted average cost of capital

WEIGHTS AND MEASURES

km – kilometer m2

m3 – –

square meter cubic meter

mu pass-km ton-km

– – –

Chinese unit of measurement (1 mu = 666.67 m2) passenger-kilometer ton-kilometer

NOTES In this report, "$" refers to US dollars unless otherwise stated.

Vice-President S. Groff, Operations 2 Director General A. Konishi, East Asia Department (EARD) Director H. Sharif, Resident Mission in the People’s Republic of China, EARD Team leader W. Zhang, Senior Project Officer, EARD Team members J. Li, Associate Project Analyst, EARD

N. Li, Project Officer (Environment), EARD F. Wang, Senior Project Officer (Financial Management), EARD H. Xia, Procurement Officer, EARD W. Zhu, Senior Safeguards Officer (Resettlement), EARD

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

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2

A. Relevance of Design and Formulation 2 B. Project Outputs 2 C. Project Costs 4 D. Disbursements 5 E. Project Schedule 5 F. Implementation Arrangements 5 G. Conditions and Covenants 6 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 7 K. Performance of the Borrower and the Executing Agency 8 L. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Effectiveness in Achieving Outcome 9 C. Efficiency in Achieving Outcome and Outputs 9 D. Preliminary Assessment of Sustainability 10 E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 13 C. Recommendations 14

APPENDIXES 1. Design and Monitoring Framework 16 2. Chronology of Major Events 19 3. Project Costs and Financing Plan 20 4. Projected and Actual Contract Awards and Disbursements 21 5. Appraisal and Actual Project Implementation Schedule 22 6. Organization Charts 23 7. Compliance with Loan Covenants 24 8. Summary of Contract Packages 31 9. Economic Reevaluation 33 10. Financial Reevaluation 38 11. Social Impact and Poverty Reduction 42 12. Land Acquisition and Resettlement 48 13. Environmental Impact Analysis 54

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 2481-PRC Chongqing–Lichuan Railway Development Project People’s Republic of China China Railway Corporation1 (formerly the Ministry of Railways) $150 million PCR: PRC 1564

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 – Maturity (number of years) – Grace Period (number of years)

4 September 2007 13 September 2007 8 October 2008 9 October 2008 8 December 2008 26 August 2009 24 November 2009 23 November 2009 1 30 June 2015 3 March 2015 0 London interbank offered rate-based 26 years 6 years

1 In 2013, the Ministry of Railways was dissolved and its duties taken up by the Ministry of Transport (safety and

regulation), State Railways Administration (inspection), and China Railway Corporation (railway operations).

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8. Disbursements a. Dates

Initial Disbursement

28 March 2011

Final Disbursement

10 December 2014

Time Interval

44.4 months

Effective Date

23 November 2009

Original Closing Date

30 June 2015

Time Interval

67.3 months

Source: Asian Development Bank.

b. Amount ($)

Category Original Allocation

Last Revised Allocation

Amount Canceled

Net Amount Available

Amount Disbursed

Equipment and Materials 142,840,000 149,800,000 4,647,496 145,152,504 145,152,504 Consulting Services 200,000 200,000 200,000 0 0 Unallocated 6,960,000 0 0 0 0 Total 150,000,000 150,000,000 4,847,496 145,152,504 145,152,504 Source: Asian Development Bank. C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 150.00 145.15 Local Currency Cost 2,921.11 4,408.51 Total 3,071.11 4,553.66 Sources: China Railway Corporation; Chongqing–Lichuan Railway Company.

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual Asian Development Bank 150.00 145.15 CRC and CMG 1,535.56 2,530.80 Domestic Banksa 1,385.55 1,877.71 Total 3,071.11 4,553.66 CRC = China Railway Corporation, CMG = Chongqing Municipal Government. a Funds at completion were from the State Development Bank, the China Construction Bank, an internal loan from

the CRC, and a railway bond. Sources: China Railway Corporation; Chongqing–Lichuan Railway Company.

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3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual A. Base Cost

1. Railway Civil Works and Track Work 1,819.42 2,823.38 2. Electric Power and Traction 144.25 177.87 3. Buildings and Facilities 77.77 175.47 4. Safety Component 41.67 60.44 5. Signaling, Communication, and MIS 115.63 125.94 6. Land Acquisition and Resettlement 69.93 497.15 7. Environmental Protection 40.66 60.44 8. Consulting Services, Administration, and Training 180.26 223.17 9. Temporary Facilities and Transitional Work 23.76 31.88

10. Other Equipment and Facilities 77.85 156.02 11. Taxes and Duties 46.26 77.30

Subtotal (A) 2,637.46 4,409.04 B. Contingencies

1. Physical Contingencies 147.49 0.00 2. Price Contingencies 115.70 0.00

Subtotal (B) 263.19 0.00 C. Interest During Construction and Commitment Charge 170.46 144.62 Total (A+B+C) 3,071.11 4,553.66 MIS = transport management information system. Note: Numbers may not sum precisely because of rounding. Sources: Asian Development Bank, China Railway Corporation, Chongqing–Lichuan Railway Company.

4. Project Schedule Item Appraisal Estimate Actual Completion of Engineering Designs December 2010 December 2010 Civil Works Contract Date of Award May 2009 December 2008 Completion of Work December 2012 June 2013 Equipment and Supplies Dates First Procurement April 2009 October 2010 Last Procurement December 2012 January 2013 Completion of Equipment Installation December 2013 October 2013 Start of Operations Completion of Tests and Commissioning December 2013 October 2013 Beginning of Trial Operations January 2014 December 2013

Sources: China Railway Corporation, Chongqing–Lichuan Railway Company. 5. Project Performance Report Ratings

Implementation Period Ratings

Development Objectives Implementation Progress From 8 December 2008 to 31 May 2009 Satisfactory Satisfactory From 1 June 2009 to 31 July 2009 Satisfactory Unsatisfactorya From 1 August 2009 to 31 May 2010 Satisfactory Satisfactory From 1 June 2010 to 31 December 2010 Satisfactory Highly Satisfactory From 1 January 2011 to 3 March 2015 Satisfactory Satisfactory a The unsatisfactory rating was due to a 3-month delay in the signing of the loan agreement. Source: Asian Development Bank.

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D. Data on Asian Development Bank Missions

Name of Mission Date No. of

Persons No. of

Person-Days Specialization of

Membersa Fact-Finding 22–30 March 2007 3 24 a, b, c Appraisal 17–18 July and 4–13 September 2007 2 20 a, d Inceptionb 17–20 May 2010 2 6 a, e Review 1 11–15 July 2011 5 20 e, f, g, h, i Special Review 27–28 September 2011 3 3 e, g, j Midterm Review 30 July–3 August 2012 3 12 e, f, i Review 2 20–22 May 2013 4 8 e, f, h, k Review 3 24–27 May 2014 2 6 i, k Project Completion Review

9–13 November 2015 4 16 e, f, k, l

No. = number. a a = senior transport specialist, b = counsel, c = young professional, d = resettlement specialist, e = senior project

officer (financial management), f = senior safeguard officer (resettlement), g = senior financial control officer, h = senior project officer (environment), i = project analyst, j = procurement officer, k = senior project officer (transport), l = safeguard officer (environment).

b Project administration was transferred to the Asian Development Bank’s Resident Mission in the People’s Republic of China on 20 May 2010.

Source: Asian Development Bank.

I. PROJECT DESCRIPTION

1. The rapid economic growth occurring in the People’s Republic of China (PRC) since 1978 has been accompanied by an increased demand for transportation. Railway transport in particular has played a crucial role in promoting sustainable economic growth and social development in the PRC. In 2008, the modal splits for freight ton-kilometers (ton-km) and volume of million tons were 23.80% and 3,310.00 for railways, 61.81% and 2,970.00 for inland waterways and sea-to-shore shipping, 12.32% and 18,170.00 for roads, 1.96% and 450.00 for pipelines, and 0.11% and 4.08 for civil aviation. That same year, road traffic accounted for 54.06% of total passenger-kilometers (pass-km) and 22,070 of every million passengers, railways for 33.28% and 1,460, civil aviation for 12.33% and 190, and coastal and inland waterways for 0.32% and 240. In 2015, the modal splits for freight ton-km and million tons were 13.39% and 3,360.00 for railways, 51.49% and 6,140.00 for inland waterways and sea-to-shore shipping, 32.67% and 31,500.00 for roads, 2.33% and 710.00 for pipelines, and 0.12% and 6.25 for civil aviation. That same year, road traffic accounted for 35.75% of total pass-km and 16,190 of every million passengers, railways for 39.81% and 2,530, civil aviation for 24.20% and 440, and coastal and inland waterways for 0.24% and 270. 2. Since 2008, railway freight volume has increased slightly, indicating the ongoing structural reform of the economy, and railway passenger volume has increased 173% while that of other modes (e.g., roads and waterways) has decreased or seen low growth. The sustained increase in demand for railway transport (particularly that of passengers) has helped meet socioeconomic demands and positively impacted government development priorities. The Government of the PRC has been investing in railway transport capacity, particularly passenger-dedicated lines, to meet economic and social development needs. The Chongqing–Lichuan Railway (CLR) Development Project was part of the Medium–Long Term Railway Network Master Plan approved by the State Council in January 2004. The CLR was also included as a priority project in the PRC’s Eleventh Five-Year Plan. 3. The project is located in the center east of Chongqing municipality, in the west of Hubei province. The project aims to promote sustainable economic growth by constructing 259 kilometers (km) of railway between Chongqing and Lichuan in Hubei province. The project area is largely mountainous, with abundant natural reserves of coal, natural gas, nonferrous materials, and tourist sites. Nonetheless, poverty is high and the economic growth necessary to reduce rural poverty has been limited due to high transport costs and inadequate services. The project was designed to remove these constraints by providing an efficient and affordable railway system, which will support the development of local resources, stimulate tourism, and generate employment and income-enhancing opportunities. 4. The railway—which includes national, joint-venture, and local railways—is the primary long-distance and bulk cargo mode of transport. The PRC’s railway operation mileage was 78,000 km in 2007 and 121,000 km in 2014 (including 19,000 km of high-speed rail lines). The China Railway Corporation (CRC), which succeeded the Ministry of Railways in 2013,1 operates the state-owned national railway as an integrated system. The joint-venture and local railways, which comprise regional lines within provincial boundaries, are constructed under the sponsorship of provincial governments or the CRC to serve local needs and provide interconnections to the national railway network. However, despite its size, the railway network has struggled to serve the country’s population and regions adequately, particularly in the west.

1 In 2013, the Ministry of Railways was dissolved and its duties taken up by the Ministry of Transport (safety and

regulation), State Railways Administration (inspection), and CRC (railway operations).

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5. ADB approved a loan of $150 million on 8 December 2008 from its ordinary capital resources to finance the project. The loan agreement was signed on 26 August 2009 and became effective on 23 November 2009 with an original closing date of 30 June 2015. The loan was closed on 3 March 2015, nearly 4 months ahead of the original loan closing date. At appraisal, the project consisted of seven components: (i) the construction of 259 km of double-track, electrified, standard gauge class I railway lines from Chongqing to Lichuan; (ii) the construction of eight new railway stations and related facilities; (iii) the carrying out of safety initiatives, including the provision of modern technology and equipment to enhance safety; (iv) the introduction of signaling, communication, and management information systems (MISs); (v) the provision of training on the use and maintenance of modern equipment; (vi) the provision of consulting services for construction, supervision, monitoring, evaluation, marketing, and business development; and (vii) the strengthening of institutional capacity. The project framework is in Appendix 1 and the chronology of major events is in Appendix 2.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

6. The project design aligned fully with government development priorities and the Asian Development Bank’s (ADB’s) country strategy. As a priority project in the plan, the project contributed to the PRC’s Western Development Strategy, which aims to narrow development disparities between western and coastal regions. ADB’s country strategy sought to promote pro-poor economic growth by enabling the poor to access the benefits of economic prosperity to a greater extent. In the railway sector, ADB’s country strategy focused on helping to (i) expand the railway system by constructing new lines in unserved, less-developed areas; (ii) modernize and increase capacity to improve efficiency on key national railway routes; (iii) commercialize railway operations to improve efficiency; and (iv) increase the competitiveness of railways in the transport sector through restructuring and reform. The project was one of several ADB-financed railway development assistance programs and projects in less-developed inland provinces. 7. The project design was sound. During preparation, the project alignment was assessed based on construction costs and environmental and socioeconomic considerations, such as access to natural resources, the impact of land acquisition and resettlement, and the preservation of cultural relics, historical sites, and protected areas. The design standards took into account the need to integrate the CLR with other railway lines in the region. The interface (including physical connections, signaling, and communications) was designed to ensure uninterrupted transit for both freight and passenger trains. Train dispatching, ticket reservation, and other MISs complied with national railway standards. The CLR’s operational performance during 2014–2015 confirmed that these design considerations were appropriate. B. Project Outputs

8. Railway infrastructure and associated facilities improved along the Chongqing–Lichuan railway corridor. Construction of the CLR commenced on 28 December 2008 and all physical works were completed by 30 June 2013. The CLR completed all subsequent integrated testing and commissioning by October 2013 and began commercial trial operations on 28 December 2013. Prior to operation, the CLR completed (i) 28.3 million cubic meters (m3) of earthworks and rockworks for subgrade; (ii) 197 bridges with a cumulative length of about 59.9 km; (iii) 63 tunnels with a total linear length of 182.9 km; (iv) 255 culverts with a lateral linear length of 10.6 km; (v) 675.3 km of track with 46 track switches; (vi) the installation of safety equipment for signaling, communications, power supply, e-operation, MISs, and track

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maintenance; (vii) 210,286 square meters (m2) of railway buildings and 10 railway stations; and (viii) 36.3 km of access roads connecting 10 railway stations with nearby counties, and 248.3 km of local roads in the project area. 9. The project design followed the CRC’s class I technical standards and used a design speed of 200 km per hour (km/h). The design was modified to enhance railway safety and mitigate environmental impacts during implementation. The CLR is of satisfactory quality and meets the normal operational speed requirement of 200 km/h. The International Federation of Consulting Engineers (FIDIC) named the project one of the “FIDIC Outstanding Projects of the Year 2015”,2 highlighting innovative components such as (i) the route selection scheme for disaster alleviation in the Karst area, (ii) a railway bridge with a high pier and long span in a dangerous mountain area, and (iii) backfill reclamation work in the Xienanxi valley in Fengdu county. The project also won a national consulting achievement prize, created seven world records, and registered 26 national patents. These credits on the project’s achievements confirmed the project’s sound and innovative technical design and successful implementation in accordance with prevailing national and international technical standards and best practices. By mid-2014, a preliminary acceptance inspection committee organized by the CRC concluded that the project construction fully complied with the relevant policies, codes, regulations, and mandatory standards of the government and CRC. Final approval is expected in mid-2016. 10. The CLR has been integrated into the national railway network, linking the project area with Sichuan in the west and Shanghai in the east. Travelling from Chongqing to Lichuan takes more than 4 hours by road but only around 2 hours by train. Rail fares are also significantly lower than bus fares. Consequently, rail travel has become the preferred mode of transportation for local people. 11. At appraisal, the project was designed to introduce double-stack container operation on an electrified track to reduce land use, increase carrying capacity by 60% on the same track, improve energy and environmental efficiency by 40%–60%, and move cargo more safely and efficiently. As planned, the CRC funded and constructed two extra-large container terminals at Chongqing (in November 2009) and Wuhan (in September 2010) to (i) attract high-value traffic, (ii) promote intermodal traffic, and (iii) encourage private sector shippers and freight forwarders to use the facility to export and import cargo to other parts of the PRC, including ports in the east and Sichuan in the west. As of the completion review, 48 passenger train pairs were being operated daily. Freight transportation was not launched until strict safety and efficiency issues were fully addressed for the operation of mixed traffic, i.e., a passenger traffic design speed of 200 km/h and freight traffic design speed of 110 km/h. 12. Employment opportunities generated for poor and vulnerable groups to raise income and living standards and reduce poverty. Local employment was promoted during the CLR’s construction. According to external monitoring reports, as of December 2013, railway construction had provided 93,118 person-years of work of which 14,300 person-years, or 15.4%, (mainly unskilled labor) came from the local labor market. Of the unskilled labor, 8,022 person-years (56.1%) went to laborers from poor households and 2,088 person-years went to women. With daily wages at CNY110–CNY140 from 2009 to 2013, a total of CNY339.4 million in wages was disbursed to poor local households during the construction period. Of this, CNY78.2 million was paid to women, thus contributing to gender development as well as

2 International Federation of Consulting Engineers. FIDIC Awards 2015—Results.

http://fidic.org/2015_Award_Results

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poverty reduction in the project area. Since the CLR became operational, the Chengdu railway administration has offered around 1,400 new jobs including locomotive and vehicle operation, electrical engineering, maintenance, and repair. There are also over 300 new railway station jobs for such positions as security guards, attendants, ticket conductors, and janitors. The project implementation contributed to poverty reduction, for example, annual rural incomes from 2007 to 2014 increased from CNY3,027 to CNY8,679 in Fengdu county and from CNY3,002 to CNY8,828 in Shizhu county. 13. Corporate governance promoted. The project company, Chongqing–Lichuan Railway Company (CLRC) was established on 19 February 2008 with three shareholders. Although the CLRC is an independent company, operation of the CLR has not been separated from that of the CRC as anticipated at appraisal. Operation of the CLR was assigned to the Chengdu railway administration under the CRC for the section between Chongqing and Liangwu, with the Lichuan station operated by the Wuhan railway administration. The operation is governed by an agreement between the CRC and CLRC under which the CLRC owns the project assets, assumes responsibility for debt payment, and gains revenues from and pays the costs of the passenger operations conducted by the railway administration. The operating costs include all operation and maintenance (O&M), rolling stocks, and CLRC management costs. According to the CLRC, these arrangements have been carried out smoothly and the CLRC has demonstrated high operational efficiency. The CLRC had developed a market plan to attract more passengers and support the local tourism industry. To meet growing traffic demands, especially with more tourism sites being developed in the counties along the CLR, the number of daily passenger train pairs was increased from 10 in December 2013 to 39 in May 2015 and 48 in September 2015. The design speed of 200 km/h was reached in the commencement year. 14. Institutional capacity strengthened. At appraisal, a component for institutional strengthening was included to enhance the project company’s institutional, marketing, and business development functions. The CLRC engaged a national consultant to help build capacity in the areas of marketing strategy and development, business operation, the application of advanced technologies, safety, and emergency response. The CLRC also organized a number of site trainings for concerned staff, supervision engineers, and contractors during the construction period on tunnel construction, contract management, land acquisition and resettlement, environmental protection, etc. C. Project Costs

15. The project cost at completion was CNY28.6 billion, 36% higher than the appraisal estimate of CNY21.0 billion. The project cost in US dollars increased from $3,071 million to $4,554 million, including the 8.3% appreciation of the yuan against the US dollar during implementation.3 This increase was mainly due to (i) conservative cost estimates at appraisal, which were lower than the approved cost estimate of CNY27.1 billion at the time of the feasibility study and the approved engineer’s cost estimate of CNY26.9 billion at the time of the project preliminary design; (ii) the increased length and height of bridges and the treatment of complicated geo-technical difficulties involving wall rocks during tunneling (46%); (iii) the increased size and capacity of passenger stations with more passenger handling facilities (106%); (iv) increased land acquisition and resettlement (374%); (v) increased application of state-of-the-art safety and operation equipment and facilities (83%); and (vi) increased environmental protection measures, such as the application of more noise abatement measures

3 The exchange rate was $1.00 = CNY6.8395 at appraisal and $1.00 = CNY6.2732 at completion. All project costs

(including their detailed breakdowns) were converted into the local currency for comparison purposes.

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(36%). The total cost of consulting services, administration, and training increased by 14% due to the engagement of more consulting services for construction quality control, improved construction safety, and the resolving of key technical challenges. The cost increase was financed by an additional equity contribution and loans from domestic banks. 16. The original financing plan included an ADB loan of $150.0 million representing 4.9% of the total project cost, a loan of $1,386 million from a domestic bank (45.1% of the project cost), and equity inputs of $1,536 million (50.0% of the project cost). Upon project completion, ADB financed $145.15 million (3.1% of the project cost). Actual counterpart funds included an equity investment of $2,531 million (55.7% of the project cost), and loans and railway bonds from domestic banks and the CRC of $1,878 million (41.2% of the project cost). The CRC and CLRC provided sufficient counterpart funds to complete the project as scheduled. The project costs and financing plan are in Appendix 3. D. Disbursements

17. All ADB-financed contract packages were procured following international competitive bidding (ICB) procedures for materials and equipment. The CRC and CLRC formed a capable team to process and prepare withdrawal applications in accordance with ADB’s Loan Disbursement Handbook, and the overall disbursement control was satisfactory. The total amount of awarded contracts is $145,152,503.96. The project had loan savings of $4,847,496.04, which were canceled on 3 March 2015. The initial disbursement was made on 28 March 2011, and the final disbursement on 10 December 2014. The executing agency applied the appropriate disbursement procedures and ADB’s disbursement process was efficient. The loan closing date was not extended and the loan account was closed on 3 March 2015, nearly 4 months earlier than the original closing date of 30 June 2015. The projected and actual contract awards and disbursements are in Appendix 4. E. Project Schedule

18. At appraisal, the CLR was envisaged as being implemented over 6 years, with civil works commencing in May 2009 and being completed by mid-2014, and trial operations beginning in January 2014, about 1 year before commercial operations. The project was implemented smoothly well ahead of the original schedule. Construction of the civil works began on 29 December 2008 and was completed on 30 June 2013. Track laying for the main line commenced by sections in June 2013 and was completed in October 2013. The installation of telecommunications, signaling, and electrification equipment was completed in October 2013. Land acquisition and resettlement activities began in December 2008; around 95% of these were completed by the end of 2010, and the rest in October 2013. The trial operation commenced on 28 December 2013, earlier than originally planned. The appraisal and actual project implementation schedule is in Appendix 5. F. Implementation Arrangements

19. The implementation arrangements were appropriate. The CRC was the project executing agency responsible for overall project implementation. The CRC’s material department was tasked with project management and was responsible for procurement, withdrawals, and reporting to ADB. The CLRC, which was set up on 26 December 2008 with headquarters at Chongqing, implemented the project. The CLRC (i) managed the construction of the project railway and operated it after its construction, and (ii) developed and implemented adequate business development mechanisms and accounting and reporting systems. The

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CLRC is headed by a general manager assisted by an adequate number of suitably qualified professional staff with experience in railway engineering, financial and administrative matters, and project implementation financed by international financial institutions. The company established on-site construction management offices along the project route. During construction, the CLRC comprised six departments—general administration, engineering, safety and quality control, material and equipment, and finance and accounting. The organization chart is in Appendix 6. 20. The CLRC was responsible for environmental management and supervision during implementation. Effective institutional arrangements were established to implement the environmental management plan (EMP). During construction, the engineering management unit under the CLRC coordinated environmental management matters and supervised contractors with regard to project compliance with environmental safeguards as required in the EMP. An environment protection steering team led by a deputy general manager of the CLRC was established to supervise the implementation of the EMP. Each contractor and construction supervision company designated site management staff to deal with environmental issues. The CLRC issued and implemented environmental management rules and procedures. Monitoring and mitigation measures were included in the covenants of the civil works contracts. Local environmental monitoring stations were engaged to monitor onsite surface water, air quality, and noise. A national consultant was engaged to monitor soil erosion induced by construction activities. Independent companies were engaged to supervise the implementation of the soil erosion control plan, oversee the overall project environmental monitoring, and periodically submit a monitoring report to ADB. G. Conditions and Covenants

21. All covenants were complied with, other than the financial covenants, which were partially complied with. The project railway was built in accordance with the national technical standards, as assessed during the preliminary acceptance in November 2013. Tariffs were set in consultation with the CRC. Connecting railway lines either have been completed or are being constructed. Access roads connecting 10 railway passenger stations to nearby counties or townships were constructed and made operational. Five connecting railway lines including the Yichang–Wanzhou, Chongqing–Huaihua, Xiangyu, Chunqian, and Yushui lines were completed and made operational during the construction of the Lanzhou–Chongqing railway. Two extra-large container terminals were built in Chongqing and Wuhan. Covenants related to safeguards requirements were followed, and the project’s reporting requirements were generally complied with, including the submission of quarterly progress reports and external monitoring reports for environment, resettlement, and socioeconomic impact. The project accounts were audited annually by the China National Audit Office in accordance with auditing standards acceptable to ADB, and six good-quality audit reports were submitted on time. The compliance with loan covenants is in Appendix 7. 22. The loan agreement required the CLRC to maintain, after the second full year of the project railway’s commercial operations, (i) an operating ratio of not more than 75%, (ii) a debt-service coverage ratio of at least 1.2, and (iii) a debt–equity ratio of not more than 65:35 to ensure operating efficiency and financial sustainability. The operating ratio was significantly higher than the criterion of 75% during 2014–2015 due to high fixed costs and low traffic volumes. This ratio is expected to drop below 75% by 2018 due to increased revenues and the effective control of operating costs. The company will be able to comply with the debt–equity ratio since the initial ratio of about 46:54 is already more favorable than the covenanted criterion and will continue to decrease along with the scheduled debt repayments. However, the debt-

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service coverage ratio will remain below 1.2 until 2020. Restructuring the CLRC’s debt to extend the terms of interest and adjust the repayment schedule should be considered. H. Related Technical Assistance

23. ADB-financed project preparatory technical assistance (TA) of $500,000 equivalent was provided on a grant basis from ADB’s TA Special Funds to help the government assess the project’s technical, environmental, financial, economic, social, and institutional feasibility.4 The TA helped the government review and strengthened the feasibility study, the environmental impact assessment (EIA), and the resettlement plan to satisfy the requirements for ADB financing of the project. The TA started in March 2006 and was completed in November 2007. The performance of the TA consultants was satisfactory. I. Consultant Recruitment and Procurement

24. Financed by counterpart funds, five domestic supervision companies and four institutes with a total contract value of CNY677.64 million were engaged for (i) design and survey; (ii) the supervision of the civil works contracts, electrification and signaling engineering, and environmental protection measures; and (iii) the independent monitoring of environment safeguards and resettlement implementation. In addition, 60 various consulting service assignments—including materials testing, terrain survey, design review, risk assessment, geotechnical drilling, and testing and commissioning—were entrusted or outsourced to national design institutes, consultants, and relevant institutes during project implementation. In total, CNY832.92 million in domestic funds was earmarked for consulting services and supervision. Consultant engagement was timely and followed procedures acceptable to ADB. 25. ADB-financed procurement packages followed the ICB method and ADB's Procurement Guidelines (1999, as amended from time to time). Relevant sections of ADB's anticorruption policy were incorporated in the bidding documents and contracts. The CRC was responsible for the procurement of ADB-financed contracts and engaged a national procurement agent to assist with procurement activities. ADB financed 43 ICB contracts in the amount of $145.15 million. All civil works were financed by counterpart funds, covering (i) 6 contracts for subgrade, bridges, culverts, tunnels, and track works; and (ii) 191 material and equipment contracts for bridge bearings, fasteners, steel H shape steel poles, overhead cables, communications, signaling, electric power, traction works, etc. Civil works contracts were procured following the national competitive bidding process. All bids were processed on time within the project implementation schedule. The ADB-financed packages are listed in Appendix 8. J. Performance of Consultants, Contractors, and Suppliers

26. The overall performance of consultants, contractors, and suppliers was satisfactory. The preliminary and engineering design was completed on time and in accordance with national railway standards. On-site supervision, internal and external monitoring, and periodic inspections were conducted effectively. Civil works contractors performed well and successfully constructed challenging tunnels and bridges. Risk management was exercised and systematic measures taken to ensure worker safety at construction sites. Material and equipment suppliers also performed well and all equipment was installed and commissioned as required. The project

4 ADB. 2005. Technical Assistance to the People’s Republic of China for Preparing the Railway Development

Project. Manila.

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passed the CRC’s preliminary construction quality check on 8 December 2013. The CLR is fully operational for freight and passenger transport and the design speed has been achieved. K. Performance of the Borrower and the Executing Agency

27. The overall performance of the borrower and the executing and implementing agencies was satisfactory. The CRC provided guidance throughout the process, assisted with project implementation, and cooperated closely with ADB and the government agencies. The CLRC was established in accordance with the loan agreement and became operational upon project implementation. The borrower and executing and implementing agencies fulfilled their obligations during project implementation. The project was completed and became operational ahead of schedule. External monitoring of environmental protection and resettlement was adequate. The project accounts were audited annually by an independent auditor in accordance with auditing standards acceptable to ADB. The CRC constructed new lines and expanded the capacity of railway lines connected to the CLR to maximize traffic. Container terminals and container handling facilities were also constructed to the design capacity, promoting intermodal traffic and private sector participation. L. Performance of the Asian Development Bank

28. ADB’s performance was satisfactory. ADB demonstrated strong commitment to the project and cooperated with the executing agency in facilitating the project implementation by providing timely advice and approvals. During implementation, procurements were processed efficiently and the loan proceeds disbursed in a timely manner. The project was administered and supervised by the PRC Resident Mission beginning in 2010. Besides the project completion review mission, a total of eight loan review missions (including a midterm review) were fielded during implementation, with cumulative total inputs of 111 person-days. These missions and ADB’s frequent communications with the CRC and CLRC resolved problems encountered during implementation. ADB effectively strengthened the safeguards supervision and provided guidance mitigating imminent risks and addressing major issues. The CRC and CLRC were satisfied with ADB’s performance.

III. EVALUATION OF PERFORMANCE

A. Relevance

29. The project was highly relevant to the government’s Western Development Strategy and Railway Development Plan, which sought to scale up investment in railway network expansion in the PRC’s western regions. It was consistent with ADB’s country and sector strategies, which focused on expanding the railway system by constructing new lines in unserved and less-developed areas, and commercializing railway operations to improve efficiency. The project forms a vital part of the shortest east–west corridor linking Shanghai, Qingdao, Wuhan, Yichang, and other major cities and ports in the east to Chongqing and Chengdu in the west. The CLR alignment shortened the existing route between Shanghai and Chengdu by 369 km. Traversing Hubei province and Chongqing municipality, the CLR connects with the Shanghai–Wuhan–Yichang–Lichuan lines in the east, the Chongqing–Huaihua line in the southeast, the Lanzhou–Chongqing5 and Xi’an–Chongqing main lines under construction in the north and northwest, and the Chongqing–Chengdu line in the west. The project significantly promoted pro-poor economic growth and poverty reduction along the railway line and in the region, confirming its rationale.

5 Lanzhou-Chongqing Railway Development Project (Loan 2471-PRC).

9

The project represented a continuation of ADB’s sustained involvement in the sector. The project aligned with ADB’s country strategy and program for the PRC, both at the time of approval and for the current period, which has prioritized inclusive growth and balanced development. B. Effectiveness in Achieving Outcome

30. The project was effective in achieving its intended outcome to develop an efficient, safe, reliable, affordable, and environment-friendly railway transport system in the corridor to improve access and reduce transport costs in the project area. 31. The project directly promoted local economic development through the provision of employment opportunities and the procurement of local goods, raw materials, and services. Upon project completion, transport capacity had been expanded in the corridor by 12 million tons per year for freight and 120 passenger trains pairs per day. Travel time was reduced from 6 hours to 2 hours from Chongqing to Lichuan, and from 32 hours to 15 hours from Shanghai to Chengdu. The cost of train travel decreased from CNY0.35 per km in 2007 to CNY0.30 per km in 2016, while the bus fare for the same route was CNY0.42 per km. The number of traffic accidents in Chongqing decreased by 12.1% from 2012 to 2014. The 2015 statistics communique of the Ministry of Transport (MOT) indicated that railway’s carbon dioxide emissions for the whole route network of 121,000 km decreased by 9.2% from 2014 to 2015. According to the Chongqing municipal government’s 2014 communique, 650,000 jobs were generated in Chongqing during 2008–2012, compared with 200,000 jobs during 2003–2007. All poor villages along the alignment were provided with road access, drinking water, and telephone access by 2014. According to the social and poverty reduction monitoring report, project investment during 2009–2013 stimulated local industrial development, particularly in construction materials, energy, and services. The project used local construction materials valued at CNY6,978 million, and construction workers spent about CNY242 million in the consumption of food and services, of which CNY95 million was provided by poor families. The consumption of material supplies and services stimulated local economic development, provided job opportunities, and increased the income of poor families in the project area. Furthermore, after the opening of the railway, new towns and residential areas were developed and private businesses such as groceries, shops, restaurants, hotels, and taxi services proliferated. 32. At appraisal, no railway services were available in the Chongqing–Lichuan corridor. Road travel to Chongqing usually took one day including transfer from car to boat. The project significantly reduced travel time and costs. People in the project area can now easily travel to major cities in the PRC by train. Travelling by train is safer, punctual, more convenient, and less costly, and has become the preferred mode of transportation for people frequently traveling out of the project area and between counties and townships. C. Efficiency in Achieving Outcome and Outputs

33. Economic and financial reevaluation rated the project efficient. 34. The reevaluated economic internal rate of return (EIRR) is 14.4%, lower than the 16.7% estimated at appraisal. Besides the higher capital cost, the main reason for this was the absence of economic benefits related to freight operation, lower initial passenger traffic, and the reduction of other unverifiable benefits compared with appraisal estimates, although higher unit value of time based on the latest average wage of residents contributed positively. The project

10

is considered economically viable. A sensitivity analysis was carried out to test the impact of (i) a decrease in forecasted traffic, and (ii) an increase in O&M costs. According to the sensitivity analysis, the project will continue to be economically viable with a 10% decrease in passenger traffic or 20% increase in O&M costs. A 20% benefit reduction will reduce the EIRR to 12.0%.The economic reevaluation is in Appendix 9. 35. The financial internal rate of return (FIRR) after tax was recalculated at 3.03%, lower than the 5.48% estimated at appraisal. This is mainly due to the higher capital cost, lack of freight operation, and lower initial passenger traffic, although the actual applied tariff exceeded the appraisal estimate. The after-tax weighted average cost of capital (WACC) in real terms was calculated using the actual capital mix and costs of various financing sources. The WACC was recalculated at 3.01%, slightly higher than the appraisal estimate. The FIRR is higher than the WACC, and the project is considered financially viable, but with a small margin. The sensitivity analysis indicated that adverse changes in O&M costs or revenue levels would reduce the FIRR below the WACC. The project shall consider a tariff adjustment;6 assuming a tariff increase of 5% in real terms in 2018, the after-tax FIRR will improve to 3.62%. The financial reevaluation is in Appendix 10. D. Preliminary Assessment of Sustainability

36. The project is rated likely to be sustainable. The CLR is the shortest route between the Chengdu–Chongqing–Wuhan–Shanghai corridors because it saves 369 km of travel distance compared with the existing route, reducing travel time from 32 hours to 15 hours. The CLR will definitely attract more freight and passenger traffic from both the east and west due to time and cost savings. The railway’s capacity and competitive advantages over road and waterway transport make it the preferred mode of transportation for passengers, break-bulk raw materials such as coal and mineral ores, and containerized commodities. Seven adjacent rail lines were completed and two large container yards built in Chongqing and Wuhan. The project was designed using proven technologies, used good-quality construction, and was provided with adequate capacity to accommodate demand. The CLRC has the necessary capacity to efficiently operate and maintain the project facilities. Operation of the CLR has been integrated into the national railway network through established railway administration bureaus that demonstrate the capacity to operate efficiently, provide adequate rolling stock, and maintain assets in good condition. As a joint venture railway, the CLRC enjoys a special freight tariff that is higher than the national level. These factors will foreseeably support the sustainability of the CLR. Moreover, Chongqing’s robust economic growth over the past decade will trigger demand for more inter-provincial transportation, which will further enhance project sustainability. Local counties and districts along the project line are developing more industrial sidings and connecting to the CLR. The CLR’s convenient access to freight handling facilities and 10 stations serves a growing local demand for both passenger and freight transportation. To ensure long-term cost recovery, the CLRC will (i) maintain an adequate tariff level by exercising a new policy for the CRC to set tariffs and adopting other measures (para. 56), (ii) exercise broader marketing, and (iii) achieve sound corporate governance. Passenger and freight traffic are expected to grow steadily and the CLRC’s profitability to improve. 37. In early 2013, the government announced institutional reform measures in the railway sector, including (i) the dissolution of the MOR; (ii) the merging of the MOR’s planning and policymaking functions with the MOT; (iii) the establishment of the State Railway Administration

6 In December 2015, the National Development and Reform Commission issued a notification granting the CRC the

autonomy to set the tariff for high-speed trains based on the market situation.

11

under the MOT, which was made responsible for developing railway standards and supervising transport safety; and (iv) the establishment of the China Railway Corporation. The reform aims to separate government functions from business operations, improve transport planning and railway safety, diversify investment channels, speed up railway construction, and advance modern logistics development. These reforms will positively impact the long-term sustainability of the project. E. Impact

38. Socioeconomic impact. The project has had a significant impact on regional socioeconomic development. The project passed through seven mountainous counties and districts in Chongqing municipality and Hubei province. With a total project investment of CNY28.57 billion in the project area from 2009 to 2013, the local economy and industries saw substantial development particularly in construction materials, energy consumption, and services. The statistical data also showed changes in the overall socioeconomic development of the project area. From 2007 to 2014, the gross domestic product (GDP) growth rates in the project area ranged from 157% to 355% while government fiscal revenue growth rates ranged from 163% to 733%. 39. Rapid socioeconomic growth and increased fiscal revenues have significantly improved living standards and local income, particularly for the poor. Per capita income for farmers increased by 148%–221% in counties and districts along the railway alignment during 2007–2014. Trend analysis of rural income growth in the counties and districts along the railway alignment indicated that rural income grew faster in poor areas than other areas from 2007 to 2014, gradually narrowing the income gap and balancing the economic development of the project area. 40. Local employment was promoted during construction. As of project completion in December 2013, railway construction had provided 93,118 person-years of work, of which 14,300 person-years (15.4%, mainly unskilled labor) came from the local labor market. Of this, 8,022 person-years (56.1%) went to laborers from poor households and 2,088 person-years went to women. With daily wages at CNY110–CNY140 from 2009 to 2013, a total of CNY339.4 million in wages was disbursed to local poor households during the construction period. Of this, CNY78.2 million was paid to women, contributing to gender development as well as poverty reduction in the project area. Since its operation, the railway has provided 1,400 new permanent jobs, including locomotive and vehicle operation, electrical engineering, maintenance, and repair. There are also over 300 new railway station jobs for such positions as security guards, attendants, ticket conductors, and janitors. 41. In addition to the 248 km of access roads built by the project for construction purposes, which continue to benefit local communities, the government also provided road connections, drinking water, telecommunication services, and electricity to the villages along the alignment. This improved infrastructure spurred a tourism boom in the project counties. Tourism revenues in the project area, which totaled CNY22.2 billion in 2013, increased by26% to CNY27.8 billion in 2014 and 49% to CNY32.9 billion in 2015. In addition to providing more opportunities to poor households and women, continuous local development also enabled wider coverage of social services and primary education. In 2015, the mandatory education enrollment rate of girls in Chongqing remained at more than 99%, while the maternal mortality rate decreased from 8.61 per million in 2000 to 2.80 per million.

12

42. The CLR has provided an affordable, time-saving, and safer transport service for local people as well as migrant laborers. The cost of train travel is 60% that of bus travel, and travel times are lower. Passenger fares from Chongqing are CNY37 by bus versus CNY20 by train to Chongshou, CNY50 versus CNY27 to Fuling, CNY65 versus CNY40 to Fengdu, CNY93 versus CNY54 to Shizhu, and CNY137 versus CNY82 to Lichuan. 43. The socioeconomic status of the ethnic Tujia people, who account for 14.2% of the total population in the project area, is similar to that of the Han people and they enjoy preferential policies. Adverse impacts of land acquisition and mitigation measures for the Tujia were included in the resettlement plan, and the project benefits enhancement measures were prepared in the social development action plan (SDAP). During the construction of the CLR and implementation of the resettlement plan and SDAP, local governments and the CLRC took measures as agreed in the resettlement plan and SDAP to mitigate adverse impacts and ensure that Tujia communities received equal project benefits. A detailed assessment of the social and poverty reduction impacts is in Appendix 11. 44. Land acquisition and resettlement impact. The project permanently acquired 11,154 mu of land, 5% more than estimated in the resettlement plan.7 A total of 602,024 m2 of buildings were demolished (52% more than estimated), 5,982 persons were displaced (13% more than estimated), and 9,958 mu of land (2% less than estimated) was temporarily used during construction. The estimated area of building demolition differed from the actual numbers mainly because (i) the estimations in the resettlement plan were based on the feasibility study report, not on the detailed measurement survey (DMS) conducted after the engineering design; (ii) some new buildings were constructed between project preparation and implementation; and (iii) additional buildings beyond the red line of the railway were relocated during construction due to geographical hazards or safety considerations. The actual number of persons affected by permanent land acquisition is less than that estimated in the resettlement plan mainly because the estimate assumed an average loss of 15% along the alignment and an average loss of 25% at station sites. Further analysis of these changes between Chongqing and Hubei indicated that the actual loss at station sites exceeded 25%. This project was prepared in 2008; updating the resettlement plan based on the DMS is now a mandatory requirement according to the ADB Safeguards Policy Statement, effective for projects approved after January 2010. 45. Total land acquisition and resettlement costs amounted to CNY2.56 billion, 374% more than the CNY541 million estimated in the resettlement plan. This significant increase was mainly due to increased land compensation rates and incremental costs for house and building relocation, including the construction of concentrated resettlement sites and new housing subsidies. Local governments initiated the “Sunshine Program” to provide trainings to affected villagers, including women, to improve their skills and help affected people find jobs in various enterprises. The external monitor observed that local governments also improved the quality of low-productivity farmland and promoted the development of modern agriculture including milk cows, vegetables, and fruits. In addition, social insurance for land-loss farmers is being implemented in the project area. Since 2008, the Chongqing municipal government issued a basic pension insurance package for land-loss farmers in seriously affected villages to provide affected households with (i) a basic living allowance for urban residents in the PRC, (ii) pension insurance, (iii) skills training, and (iv) job opportunities. The household sampling survey conducted by the external resettlement monitor indicated that the income of affected households increased after the project. The detailed evaluation of land acquisition and resettlement activities is in Appendix 12. 7 A mu is a Chinese unit of measurement (1 mu = 666.67 square meters).

13

46. Environmental impact. The project implementation complied adequately with the EMP, which was based on the domestic EIA and soil erosion protection plan. The environmental impacts of project construction have been mitigated and/or remedied effectively. Environmental monitoring was conducted adequately and in line with the monitoring program stipulated in the project EIA. Ten environmental monitoring reports were prepared and submitted to ADB, all of which were disclosed on ADB’s website. Mitigation measures have been taken during the railway’s operation to safeguard the environment and ensure compliance with relevant regulations. The railway uses only electric locomotives and involves no direct sources of air pollution. During operation, all stations were equipped with electrical or solar energy-supported equipment, which emits no direct pollutants. Construction vibration affected 57 sensitive points, which have been resettled with necessary compensation in accordance with the resettlement plan. The project is expected to generate environmental benefits by reducing emissions and improving energy efficiency. The environmental impact analysis is in Appendix 13.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

47. The project is rated successful. The project was (i) highly relevant to the development strategies of the government and ADB, (ii) effective in achieving outcomes, (iii) efficient in achieving outcomes and outputs, and (iv) likely sustainable. The project formulation and design were technically sound and highly relevant to the development strategies of the government and ADB. The project was successfully implemented and made fully operational ahead of schedule. It achieved its main objective of providing an efficient, safe, reliable, affordable, and environment-friendly railway transport system in the region, and supported the PRC’s Railway Development Plan and Western Region Development Strategy. Improved railway connectivity has contributed to rapid socioeconomic development and poverty reduction in the project area. 48. The project is economically and financially viable. The reevaluated FIRR (3.03%) and EIRR (14.4%) confirmed the project’s financial and economic viability. Despite the similarity of the FIRR to the WACC, the CLR can potentially increase its tariff based on the market situation in line with the flexible tariff policy, which will greatly improve its financial performance. B. Lessons

49. The project costs at completion differed significantly from the processing estimates. Despite various factors during construction and the significant increase in land acquisition and resettlement costs, processing estimates should be updated in accordance with the approved feasibility study and preliminary design. The cost estimates also affected the financial and economic evaluation results. Due to improved project readiness, more precise project cost estimates based on the approved feasibility study or preliminary design are now available during processing. 50. The project was named the “FIDIC Outstanding Project in 2015”, acknowledging its wide application of prevailing international construction and operation technology and more environmentally friendly solutions (para. 9). The recognition also demonstrated that the project’s innovative and advanced approach achieved cost effectiveness, efficiency, safety, and sustainability.

14

51. Sufficient consultation and participation with stakeholders helped promote ownership, responsibility, and the dissemination of project benefits. During processing and implementation, consultation meetings with stakeholders at various levels were held on the project’s design, construction, safeguards, job opportunities, and gender and social impacts. These meetings included hundreds of participants at the village, town, county, and city levels. Local government along the project alignment associated more economic development activities with the project including tourism, urbanization and town zoning, and the creation of more employment opportunities. Extensive, continued consultations during project implementation promoted participants’ sense of ownership and responsibility for the project, and helped to improve the project design further. 52. The traffic forecast for initial commercial operations was optimistic at appraisal, particularly for freight transport because it requires not only physical infrastructure but also coherent operational arrangements. For example, low-speed break-bulk freight traffic requires increased safety inspections of tracks and facilities when high-speed passenger traffic operates on the same line. In future projects, mixed traffic arrangements for both passenger and freight transportation should be reviewed carefully for efficiency and safety to avoid underutilizing capacity. 53. The lessons learned from the CLR’s land acquisition and resettlement activities include the following: (i) land acquisition and resettlement costs, including potential increases in compensation rates, resettlement site construction costs, and adequate contingency for unexpected land acquisition and house demolition impacts should be budgeted adequately; (ii) land acquisition and resettlement funds should be fully incorporated in the project’s overall financial management (local governments currently raise and use land acquisition and resettlement funds directly8); (iii) the planning and preparation of concentrated resettlement sites, especially those close to railway stations, should commence as early as possible; and (iv) adequate funds for external resettlement monitoring activities should be provided. 54. The construction and operation of the CLR significantly contributed to regional socioeconomic development and poverty reduction by (i) contributing to GDP and government revenue growth, increased rural income, and reduced poverty incidence in the project area; (ii) creating jobs through the construction and operation of the railway and development of tourism; (iii) providing safer, faster, and more affordable mobility for local people and migrant laborers; and (iv) improving gender and ethnic minority development due to expansion of local economic development. C. Recommendations

1. Project Related

55. The CRC and CLRC should expedite the scheduling of freight transportation (particularly container service) when safety and efficiency factors have been fully addressed, thereby maximizing project impacts and generating robust revenue. 56. Financial sustainability. The CLRC should (i) consider restructuring its loans from domestic banks to extend the tenor and adjust the repayment schedule for the initial years before traffic increases; (ii) consider a tariff increase and apply a flexible tariff policy according to the market situation; (iii) focus on controlling operational costs while improving efficiency; (iv)

8 CLRC and local governments agreed to treat LAR cost as equity in project shares.

15

explore potential business growth opportunities, optimize service standards, and enhance mutual cooperation with business partners in the project area; and (v) monitor the project’s financial performance, including traffic growth, the operating ratios, the tariffs, and other factors affecting the financial status of the project. 57. Timing of the project performance evaluation report. It is recommended that the project performance evaluation report be prepared in 2019 by which time the project will have been in full operation for at least 5 years and it should be possible to make a thorough assessment of the project’s operational performance.

2. General

58. The implementation of railway projects is usually divided into two stages: earthworks construction and the installation of equipment. Since ADB financing for railway projects is mostly earmarked for goods and equipment, the disbursement ratio of loan proceeds was higher during the second stage than the first stage, resulting in a lower loan usage during the initial period (the project’s first disbursement occurred 16 months after loan effectiveness). Thus, it is suggested that future project designs carefully review the project scope, financing arrangements, and related implementation schedule to balance the loan financing better over the loan term. 59. Due to the nature of a railway project, an appropriate financing plan is necessary to achieve its anticipated financial performance. Adequate equity and government assistance shall be provided and debt kept at reasonable level. It is necessary to covenant the debt–to-equity ratio, and the ratio shall be closely monitored during implementation. 60. In the future, actions supporting efficient operation, market-oriented institutional reforms and seamless intermodal transportation shall remain key fields for policy dialogue between ADB and the government to reduce railway operation costs, maximize railway sector competitiveness, and improve network-wide operational efficiency to improve railway performance and sustainability.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators Data Sources/Reporting

Mechanisms Assumptions

and Risks At Appraisal At Completion

Impact Improved transport system in the Shanghai–Chengdu corridor that supports socioeconomic development and the Western Development Strategy

Route-network length in the western regions increased from 24,000 km in 2005 to 40,000 km by 2020.

Route-network length in the western regions increased to 48,000 km by the end of 2015. An annual GDP growth rate of 157%–355% in the project area during 2007–2014.

MOR statistics

Assumption • Government

investment projects are implemented as planned.

An annual GDP growth rate of 6% for Chongqing and Hubei provinces and 7%–8% for the project area during 2010–2020.

Provincial and county or city statistics offices

• The government is committed to reducing poverty in the western region, according to the Western Development Strategy.

Per capita rural income in the project area increased from CNY3,291 in 2005 to CNY4,281 by 2012 and CNY4,654 by 2020.

Per capita rural income in the project area from 2007 to 2014 increased from CNY2,205 to CNY7,091 in Lichuan and from CNY3,002 to CNY8,828 in Shizhu.

Project performance management system at inception, completion, and 3 years after, with an emphasis on socioeconomic improvement impact

Poverty incidence in the project area is reduced from 10.7% in 2007 to 5.0% by 2015.

By 2015, poverty incidence was reduced to 0.32%–3.90% in five counties and districts in the project area, and to 7.40%–26.50% in two other counties based on new poverty line level, which was raised by 180% in 2011.

• Complementary activities are implemented.

From 2008 to 2015, 50% more shops, tourist centers, hotels, and small businesses are established in the vicinity of stations.

From 2008 to 2015, more than 100% new shops, tourist centers, hotels, and small businesses had been established in 10 stations, nearby towns, and tourist sites. Tourism revenues in the project area grew 26% in 2014 and 49% in 2015, as compared with 2013 revenues.

Annual reporting by the project company

• Local governments undertake planned tourism and local area development.

Outcome An efficient, safe, reliable, affordable, and environment-friendly railway transport system in the region

By 2014, transport capacity is expanded in the corridor by 7 million ton-km for freight and 13 billion passenger-km for passengers.

By 2013, transport capacity was expanded in the corridor by 12 million tons per year for freight and 120 passenger train pairs

MOR statistics and operating data before and after the project

Assumptions • Traffic

forecasts for the CLR are realized.

• Passengers and freight

Appendix 1 17

Design Summary

Performance Targets/Indicators Data Sources/Reporting

Mechanisms Assumptions

and Risks At Appraisal At Completion

per day. operators realize the benefit of using the railways.

Travel time is reduced (i) from 6 hours to 3 hours from Chongqing to Lichuan; and (ii) from 32 hours to 18 hours from Shanghai to Chengdu.

Travel time was reduced (i) from 6 hours to 2 hours from Chongqing to Lichuan; and (ii) from 32 hours to 15 hours from Shanghai to Chengdu.

Project administration missions and project completion report

Cost of travel is reduced from CNY0.35 per km in 2007 to CNY0.15 per km by 2014.

In 2016, travel cost was reduced to CNY0.30 per km by train compared with CNY0.42 per km by bus.

Post-evaluation surveys and reports from the MOR

Number of accidents is reduced by 10% from 2010 to 2014.

Number of traffic accidents in Chongqing was reduced by 12.1% from 2012 to 2014.

Accident statistics from public security bureaus and hospitals

Fuel savings of 0.3 mtoeand CNY204 million are achieved by 2014; and yearly CO2 emissions are reduced by 136,000 tons by 2014, and 424,000 tons by 2033 (a total reduction of 5.1 million tons from 2014 to 2033).

The MOT’s 2015 statistics communique indicated that railway’s CO2 emissions were reduced by 9.2% from 2014 to 2015 for the whole route network of 121,000 km.

Statistics from local environmental protection bureaus, communication bureaus, and the MOR

In the 5 years after construction starts, employment generated in the project area increases by 20% from 2006.

According to the 2014 Chongqing government communique, 650,000 jobs were generated in Chongqing during 2008–2012, increased by 225%.when compared with 200,000 during 2003–2007.

Local government statistics

Risk • Local

governments may not have an adequate budget to implement the local area development plan.

All poor villages along the alignment are provided with road access, drinking water, and telephone access by 2014.

All villages in Chongqing were provided with telephone services in 2009. All poor villages along the alignment were provided with road access and drinking water by 2014. Chongqing will provide

18 Appendix 1

Design Summary

Performance Targets/Indicators Data Sources/Reporting

Mechanisms Assumptions

and Risks At Appraisal At Completion

broadband internet services to all villages by June 2016.

Outputs 1. Railway

infrastructure and associated facilities improved along the CLR corridor

259 km of railway line and 8 railway stations are constructed, and equipment for train operations is procured and installed.

264 km of railway line and 10 railway stations were constructed, and equipment for train operations was procured and installed by December 2013.

PAM and PCR

Assumption • Adequate

economic activity enables traffic forecasts to materialize.

Freight traffic volume increases from 31 million tons in 2014 to 85 million tons by 2033.

Freight traffic is pending due to the government’s dispatch arrangement.

PAM, progress reports, and PCR

Risk • Intermodal

competition may create market risks.

2. Employment opportunities generated for poor and vulnerable groups to raise incomes and living standards, and reduce poverty

The project generates 119,000 person-years of construction-related employment, and 50% of unskilled labor jobs are taken by the poor, including women.

The project generated 93,118 person-years of construction-related employment, of which 14,300 came from local labor, and 56.1% of unskilled labor jobs are taken by the poor, including women.

Monitoring by the project company and external monitoring agency, PAM, progress reports, and PCR

Assumption • The poor are

sufficiently qualified to take advantage of these job opportunities.

3. Corporate governance promoted

A project company is established.

The CLRC was established on 19 February 2008.

PAM, progress reports, and PCR

An effective marketing program to attract passengers and tourists along the CLR is developed by 2013.

The project company established the market-asset management department in December 2015, which is responsible for market development and asset management.

Risk • Not enough

funds are invested in marketing.

4. Institutional capacity strengthened

8 person-months of international consulting services are provided for capacity development, business development and marketing, and institutional strengthening.

A national consultant provided capacity building to the project company.

Progress reports Assumption • Trained staff

are deployed in areas where they were trained.

ADB = Asian Development Bank, CO2 = carbon dioxide, CLR = Chongqing–Lichuan Railway, CLRC = Chongqing–Lichuan Railway Company, CNY = yuan, GDP = gross domestic product, km = kilometer, MOR = Ministry of Railways, MOT = Ministry of Transport, mtoe = million tons oil equivalent, PAM = project administration memorandum, PCR = project completion report. Sources: ADB; CLRC.

Appendix 2 19

CHRONOLOGY OF MAJOR EVENTS Date Milestone Event 29 September 2005 Project preparatory technical assistance approved 20–30 March 2007 Fact-finding mission fielded 30 April 2007 Management review meeting held 17–18 July and 4–13 September 2007

Loan appraisal mission fielded

19 October 2007 Staff review meeting held 19 February 2008 Chongqing–Lichuan Railway Company established 8–9 October 2008 Loan negotiations held 8 December 2008 Loan approval 26 December 2008 Chongqing–Lichuan Railway Company business license

obtained 29 December 2008 Civil works construction commenced 26 August 2009 Loan and project agreements signed 23 November 2009 Loan effectiveness 17–20 May 2010 Inception mission fielded 20 May 2010 Project administration transferred to the Asian Development

Bank Resident Mission in the People’s Republic of China 9 January 2011 All nine tunnels completed 28 March 2011 First disbursement 11–17 July 2011 Review mission fielded 27–28 September 2011 Special review mission fielded 6 June 2012 Track laying begun 30 June 2013 Physical works completed 30 July–3 August 2012 Midterm review mission fielded 4 March 2013 The China Railway Corporation succeeded the Ministry of

Railways 20–22 May 2013 Review mission fielded 19 July 2013 Last track laid 11 October 2013 Testing of entire line started 30 November 2013 Ten stations completed and made operational 8 December 2013 Preliminary acceptance opinion of the project issued by

China Railway Corporation 28 December 2013 Trial operation of the project railway 31 December 2013 Chongqing North Station made operational 24–27 May 2014 Review mission fielded 10 December 2014 Final disbursement 3 March 2015 Actual closing date of loan account and partial cancellation

of loan proceeds 9–13 November 2015 Project completion review mission fielded

Source: Chongqing–Lichuan Railway Company.

20 Appendix 3

PROJECT COSTS AND FINANCING PLAN

Table A3.1: Project Costs ($ million)

Items At Appraisal At Completion A. Base Cost 1. Railway Civil Works and Track Work 1,819.42 2,823.38 2. Electric Power and Traction 144.25 177.87 3. Buildings and Facilities 77.77 175.47 4. Safety Component 41.67 60.44 5. Signaling, Communication, and the MIS 115.63 125.94 6. Land Acquisition and Resettlement 69.93 497.15 7. Environmental Protection 40.66 60.44 8. Consulting Services, Administration, and Training 180.26 223.17 9. Temporary Facilities and Transitional Work 23.76 31.88 10. Other Equipment and Facilities 77.85 156.02 11. Taxes and Duties 46.26 77.30 Subtotal (A) 2,637.46 4,409.04

B. Contingencies

1. Physical Contingencies 147.49 0.00

2. Price Contingencies 115.70 0.00

Subtotal (B) 263.19 0.00

C. Financing Charges During Construction 170.46 144.62

Total (A+B+C) 3,071.11 4,553.66 Note: Numbers may not sum precisely because of rounding. MIS = transport management information system. Source: Chongqing–Lichuan Railway Company.

Table A3.2: Financing Plan ($ million)

Source Appraisal Estimates Actual MOR and CMG 1,535.56 2,530.80 ADB 150.00 145.15 Domestic Banka 1,385.55 1,877.71 Total 3,071.11 4,553.66 ADB = Asian Development Bank, CMG = Chongqing municipal government, MOR = Ministry of Railways a Funds at completion were from the State Development Bank, China Construction Bank, internal loan from the China Railway Corporation, and a railway bond.

Source: Chongqing–Lichuan Railway Company.

Appendix 4 21

PROJECTED AND ACTUAL CONTRACT AWARDS AND DISBURSEMENTS ($ million)

Year Contract Awards Actual/Projection

(%) Disbursement Actual/Projection

(%) Projection Actual Projection Actual 2010 49.3 50.4 102 0.0 0.0 2011 0.0 0.0 7.8 12.5 160 2012 50.0 74.4 149 15.0 26.1 174 2013 40.7 20.3 50 45.0 72.1 160 2014 10.0 0.0 58.0 34.5 60 2015 0.0 0.0 24.2 0.0 Total 150.0 145.2 97 150.0 145.2 97

Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank.

APPRAISAL AND ACTUAL PROJECT IMPLEMENTATION SCHEDULE

Activities 2009 2010 2011 2012 2013 2014 2015

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 1. Detailed Design, Engineering, and Documentation

2. Prequalification and Tendering

3. Land Acquisition and Resettlement

4. Civil Works and Buildings

5. Track Laying

6. Telecommunications and Signaling

7. Trial Operations

Appraisal: Actual: Source: Chongqing–Lichuan Railway Company.

22 A

ppendix 5

Appendix 6 23

ORGANIZATION CHARTS

Figure A6.1: Organization Chart of the Chongqing–Lichuan Railway Company During Construction

Source: Chongqing–Lichuan Railway Company.

Figure A6.2: Organization Chart of the Chongqing–Lichuan Railway Company During Operation

Source: Chongqing–Lichuan Railway Company.

Board of Directors

General Manager

Deputy General Manager

Chief Engineer

Comprehensive Department

Material and Equipment Department

Engineering Department

Safety and Quality Control Department

Asset Management Department

Planning and Financial Department

Board of Directors

General Manager

Deputy General Manager

Chief Engineer

Comprehensive Department

Asset Management Department

Planning and Financial Department

24 Appendix 7

COMPLIANCE WITH LOAN COVENANTS

Covenants Reference Status Implementation Arrangements The MOR, as the Project Executing Agency, shall be responsible for overall implementation of the Project. The FCTIC shall (i) coordinate the Project management activities; (ii) undertake the procurement of the Goods, Works, and consulting services; (iii) apply for Loan withdrawals, (iv) monitor utilization of Loan proceeds; and (v) report to ADB.

LA, Schedule 5, para. 1

Complied with. The China Railway Corporation (the successor of the MOR) is the executing agency.

The Borrower, through the MOR, shall cause the Project Company to be responsible for day-to-day implementation of the Project, and to (i) assist in the construction of the Project Railway; (ii) manage and operate the Project Railway after its completion; and (iii) develop and implement transparent business development mechanisms, and accounting and reporting systems. The Borrower, through the MOR, shall cause the Project Company to employ suitably qualified professional staff experienced in railway engineering, financial and administrative matters, and implementing projects financed by international financial institutions.

LA, Schedule 5, para. 2

Complied with.

Construction Quality The Borrower shall cause the MOR and the Project Company to ensure that the Project Railway is constructed in accordance with the Borrower's national technical standards, and that construction supervision, quality control, and contract management are carried out in a periodic and satisfactory manner.

LA, Schedule 5, para. 3

Complied with. The project was named one of the “FIDIC Outstanding Projects of the Year 2015”.

Railway Line Connectivity The Borrower shall cause the MOR and the Project Company to ensure that (i) capacity enhancement operations for the connecting railway lines are completed prior to the commencement of commercial operations of the Project Railway; and (ii) necessary measures are promptly taken to mitigate any capacity constraint on connecting railway lines that may be identified during the operation of the Project Railway.

LA, Schedule 5, para. 4

Being complied with. Five connection railway lines including the Yichang–Wanzhou, Chongqing–Huaihua, Xiangyu, Chunqian, and Yushui lines were completed and in operation; the Lanzhou–Chongqing (ADB Loan 2471) railway is being built and will be completed in 2017.

Container Traffic The Borrower shall cause the MOR to construct extra-large container terminals at Chongqing and Wuhan prior to the commencement of commercial operations of the Project Railway.

LA, Schedule 5, para. 5

Two extra-large container terminals were built, at Chongqing in November 2009 and at Wuhan in September 2010.

Supply of Rolling Stock The Borrower shall cause the MOR and the Project Company to provide sufficient rolling stock at all times for effective

LA, Schedule

Complied with.

Appendix 7 25

Covenants Reference Status

operation of the Project Railway. 5, para. 6

Safety The Borrower shall cause the MOR and the Project Company to (i) ensure safety on the Project Railway in accordance with relevant laws and regulations of the Borrower; and (ii) formulate and implement, in cooperation with the local prefecture, city, and county governments, and appropriate public safety campaigns through media, public announcements, households, and schools, to familiarize people living along the Project Railway route with safety issues related to railways.

LA, Schedule 5, para. 7

Complied with. Local governments proactively made the general public aware of safety issues during construction and operation.

Station Access and Link Roads Prior to the commencement of commercial operations of the Project Railway, the Borrower, through the MOR, shall cause local prefecture, city, and county governments to (i) construct station access roads, and (ii) comply with ADB's safeguard policies in constructing these roads.

LA, Schedule 5, para. 8

Complied with. 36.3 km of access roads connecting 10 railway stations with nearby counties and 248.3 km of local roads in the project area were constructed. ADB safeguard policies were complied with during the construction of these roads.

Tariffs (a) The Borrower shall ensure that the MOR and the

Project Company set the tariffs, with respect to the Project Railway, at rates sufficient to ensure full cost recovery including management costs, working (operation and maintenance) costs of the Project Railway, depreciation, debt service, taxes, and a reasonable profit.

(b) Six months prior to the trial operation of the Project Railway, the Borrower shall ensure that the Project Company, in consultation with the MOR, carries out a tariff study, and advises ADB of the tariffs applied during the trial operation.

LA, Schedule 5, para. 9

Complied with. Tariffs in the trial operation period followed the CRC’s prevailing tariff level. Complied with. Complied with. Six audit reports were submitted on time. Partially complied with. The operating ratio was significantly higher than the criterion of 75% during 2014–2015 due to high fixed costs and low levels of initial traffic. The ratio is

Financial Ratios The Borrower, through MOR, shall cause the Project Company to establish and maintain Project accounts and have such accounts audited annually to be submitted not later than six (6) months after the end of each related fiscal year.

(a) Except as ADB may otherwise agree, the Borrower; through the MOR, shall cause the Project Company to maintain, for each fiscal year after the second fiscal year of commercial operations of the Project Railway, (i) an operating ratio of not more than 75%, (ii) a debt-service coverage ratio of at least 1.2, and (iii) a debt–equity ratio of not more than 65:35 to

LA, Article (IV), 4.05 (a) LA, Schedule 5, para. 10

26 Appendix 7

Covenants Reference Status

ensure operating efficiency and financial sustainability.

(b) For the purpose of this section,

(i) the "operating ratio" shall be calculated by dividing "total operating expenses" by "total operating revenues"; (ii) the term "total operating expenses" means all expenses related to the Project Railway operations, including administration, adequate maintenance, and provision for depreciation and major repairs; (iii) the term "total operating revenues" means revenues from all sources related to the Project Railway operations; (iv) the "debt-service ratio" shall be calculated by dividing the total amount of "internally generated funds" by the total amount of "debt-service requirements"; (v) the term "internally-generated funds" means total operating revenues and net non-operating income from all sources less operating expenses and business tax, but before provisions for depreciation and major repairs, other non-cash charges and interest, and other charges on debt; (vi) the term "debt-service requirements" means the aggregate of principal repayments and interest and other charges on debt; (vii) the term "debt" means any debt of the Project Company maturing more than 1 year after the date on which it was originally incurred; (viii) the term "net non-operating income" means the difference between:

(a) revenues from all sources other than those related to operations; and (b) expenses including taxes and payments in lieu of taxes incurred in the generation of revenues in (vii)(a) above;

(ix) the "debt–equity ratio" shall be calculated by dividing "total debt" by "total equity"; (x) the term "total debt" means the aggregate of all interest-bearing debt of the Project Company; and (xi) the term "total equity" means the aggregate of paid-in capital and reserves and retained earnings or losses of the Project Company.

(c) The Borrower, through the MOR, shall cause the Project Company to establish and maintain an internal audit unit to undertake a timely audit of Project accounts in accordance with generally accepted accounting principles.

expected to fall below 75% by 2018. The debt-service coverage ratio is expected to reach 1.2 in 2020.The initial debt–equity ratio of about 46:54 is already more favorable than the covenanted criterion and will continue to decrease along with the scheduled debt repayments. Complied with.

Appendix 7 27

Covenants Reference Status

Reform Measures The Borrower shall undertake necessary measures to continue the implementation of its Railway Development Plan (2004) including the separation of core railway operations from non-core transportation business operations and the rationalization of staff, and shall cause the Project Company to outsource select activities.

LA, Schedule 5, para. 11

Complied with. The CRC was established in 2013 to continue to implement railway sector reform.

Anticorruption Measures Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. The Borrower shall ensure, and cause the MOR and the Project Company to ensure, that all contracts financed by ADB in connection with the Project shall include provisions specifying ADB’s right to audit and examine the records and accounts of the MOR, the Project Company, and all contractors, suppliers, consultants, and other service providers as they relate to the Project.

LA, Schedule 5, para. 12

Complied with. ADB’s anti-corruption requirements were complied with and incorporated in the bidding documents. Domestic prevailing anti-corruption measures were adopted during project implementation.

The Borrower shall ensure, and cause the MOR to ensure, that (i) a supervisory body is established for the prevention of undue interference in business practices, and that adequate resources are made available for its effective operation; (ii) a leading group of officials from the supervision division of the MOR is located in offices involved in the bidding, construction, and other operational activities under the Project; and (iii) periodic inspections of the contractor's activities related to fund withdrawals and settlements are carried out. The Borrower shall also cause the MOR and the Project Company to initiate liaison meetings with the prosecutor's office as needed, where any warnings about, or information on, alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project can be discussed.

LA, Schedule 5, para. 13

Complied with.

Environmental Measures The Borrower shall cause the MOR, CMG, HPG, and the Project Company to ensure that (i) the Project is designed, constructed, operated, and maintained in accordance with the environmental laws and regulations of the Borrower and ADB's Environment Policy (2002); (ii) the environmental management plan and the mitigation measures included therein, as specified in the EIA, are properly implemented; (iii) the environmental management plan is updated at the engineering design stage and incorporated into bidding documents and civil contracts; (iv) all environmental permits, licenses, and clearances are obtained in a timely manner; (v) any adverse impact on the environment that may arise from the Project implementation activities is promptly mitigated or minimized in accordance with the environmental management plan; and (vi) the implementation of the environmental management plan, including any safety breaches, violation of environmental standards, or corrective measures taken in respect thereof are reported semi-

LA, Schedule 5, para. 14

Complied with. Ten environmental monitoring reports were submitted and disclosed on the ADB website. The government conducted the project environmental completion acceptance review by the end of 2015, and the environment completion report is expected to be issued in mid-2016. During construction, all of the contractors fulfilled their obligation to protect the environment and implement mitigation

28 Appendix 7

Covenants Reference Status

annually to ADB.

measures. This minimized the adverse effects of project construction on the surrounding environment. No rare natural resources were affected as a result of the project. During operation, the impacts on the ambient environment have been minor. The operation of the railway will provide environmental benefits by reducing emissions and improving energy efficiency. Generally complied with. The actual compensation rates were higher than those in the draft resettlement plan and paid prior to displacement. Funds were provided in a timely manner to address all cost increases. Contractors complied with all resettlement requirements during the project construction period. Local governments initiated the “Sunshine Program” to provide training for affected villagers to improve their skills and help affected people find jobs in various enterprises. Social insurance for land-loss farmers is being implemented in project area. Eight external monitoring reports were submitted. Details are given in Appendix 12.

Land Acquisition and Resettlement The Borrower shall ensure, and cause the MOR, CMG, HPG, and the Project Company to ensure, that (i) prior to the commencement of land acquisition, the RP is updated if necessary, disclosed to the affected people, and submitted to ADB for approval and disclosure on ADB's website; (ii) the RP is implemented promptly and efficiently in accordance with its terms, all applicable laws and regulations of the Borrower, and ADB's Involuntary Resettlement Policy (1995); (iii) all affected people are given adequate opportunities to participate in resettlement planning and implementation; (iv) those affected are compensated and assisted prior to displacement from their houses, land, and assets so that they will be at least as well off as they would have been in the absence of the Project; (v) adequate and appropriate support is provided for enterprise relocation; (vi) affected people receive priority for employment in Project construction; (vii) special measures are implemented for ethnic minorities and vulnerable groups; (viii) civil works contracts under the Project include requirements to comply with the RP; (ix) implementation of the RP is monitored internally by the Project Company and the respective local governments, and externally by an independent institute; (x) reports are submitted to ADB and the MOR as stipulated in the RP; and (xi) affected people have an opportunity to express grievances at the appropriate levels, and local officials are instructed to resolve disputes and implement measures promptly.

LA, Schedule 5, para. 15

The Borrower shall ensure, and cause the MOR, CMG, HPG, and the Project Company to ensure, that funds needed for land acquisition and resettlement, including those for cost overruns, are allocated and disbursed in a timely manner.

LA, Schedule 5, para. 16

Complied with.

Gender and Development The Borrower shall cause the MOR and the Project Company to (i) implement the Project in accordance with the SDAP agreed upon by the Borrower and ADB, and take all

LA, Schedule 5, para. 17

Complied with. The SDAP was implemented. During

Appendix 7 29

Covenants Reference Status

necessary actions to encourage women living in the Project area to participate in planning and implementation; (ii) ensure that civil works contractors comply with all applicable laws relating to gender equality; and (iii) monitor the effects of the Project on women through the collection and compilation of gender-disaggregated data where relevant, including in the RP, the SDAP, and the Project performance monitoring system.

construction, a total of 14,300 person-years of unskilled labor jobs were generated for local people including 2,088 person-years for women. Two external monitoring reports were submitted and disclosed. Details are given in Appendix 11.

Health Risk The Borrower shall cause the MOR and the Project Company to ensure that (i) contractors involved in Project implementation disseminate information on the risks of socially transmitted infections, including HIV/AIDS, to the workers employed under the Project and to local communities through public awareness campaigns; and (ii) adequate health and treatment facilities are made available in the Project area. The Borrower shall cause the MOR, CMG, HPG, and the Project Company to ensure that similar information is disseminated, in consultation with the relevant health bureaus, to railway operators.

LA, Schedule 5, para. 18

Complied with.

Change in Ownership In the event that the MOR or the Project Company plans to (i) make any change in the ownership of the Project facilities or the Project Company; or (ii) sell, transfer, or assign the MOR's or the Project Company's direct or indirect interest in the Project Railway; or (iii) lease or contract out, or otherwise modify, the Project Company's responsibilities for the construction, operation, and maintenance of the Project Railway, the Borrower shall, at least 6 months prior to the implementation of such a transaction, consult with ADB and obtain ADB's consent. The Borrower shall ensure that this transaction is implemented in a legal and transparent manner.

LA, Schedule 5, para. 19

Complied with. Ownership remains unchanged.

Project Performance Monitoring and Evaluation The Borrower shall cause the MOR and the Project Company to monitor and evaluate the Project impact through a Project performance monitoring system acceptable to ADB. The Borrower shall cause the MOR and Project Company to establish baseline and target values for a set of indicators (disaggregated by gender and ethnic group) for evaluating the Project performance, as agreed between the Borrower and ADB, and measure the Project indicators at the inception of the Project, on its completion, and 3 years thereafter.

LA, Schedule 5, para. 20

Generally complied with. Most indicators were collected except mtoe, which was not available at the project level; thus, country level data were used at completion.

Project Reports Without limiting the generality of Section 7.04 of the Loan Regulations, the Borrower shall cause the MOR and the Project Company to submit progress reports in a format acceptable to ADB concerning the use of Loan proceeds,

LA, Schedule 5, para. 21

Complied with. Progress reports were generally submitted on time. The project

30 Appendix 7

Covenants Reference Status

and Project implementation. The reports shall include (i) quarterly progress reports, and (ii) a Project completion report to be submitted no later than 3 months after Project completion.

company’s project completion report was submitted to ADB in July 2014 and the completion report updated in October 2015.

Project Review ADB, the MOR, and the Project Company shall jointly carry out reviews, including a midterm review, of the Project covering institutional, administrative, organizational, technical, environmental, social, poverty reduction, resettlement, economic, financial, and other relevant aspects that may have an impact on the Project performance. The reviews shall also examine progress in sector reforms, policy development, and compliance with the terms of this LA.

LA, Schedule 5, para. 22

Complied with. Regular missions were conducted. A mid-term review mission was conducted in May 2013.

ADB = Asian Development Bank, CMG = Chongqing municipal government, CRC = China Railway Corporation, EIA = environmental impact assessment, FIDIC = International Federation of Consulting Engineers, FCTIC = Foreign Capital and Technical Import Center, HPG = Hubei provincial government, km = kilometer, LA = loan agreement, MOR = Ministry of Railways, mtoe = million tons oil equivalent, para. = paragraph, PPMS = project performance management system, PRC = People’s Republic of China, RP = resettlement plan, SDAP = social development action plan. Sources: ADB; Chongqing–Lichuan Railway Company.

Appendix 8 31

SUMMARY OF CONTRACT PACKAGES

Table A8: ADB-Financed Contract Packages

PCSS No. Contractors

Mode of Procurement

ADB Financing (CNY)

0001 China National Electric Import & Export ICB 62,612,375.65 0002 China Railway Materials Import & Export ICB 67,006,503.00 0003 Shandong Machinery Import & Export Group ICB 65,389,032.00 0004 CCECC International Trading ICB 61,536,275.00 0005 Beijing Golden Fuli Electro-Mechanics Development ICB 32,494,032.00 0006 Shandong Machinery Import & Export ICB 27,869,614.49 0007 China Railway Material Limited Liability ICB 5,336,444.00 0008 Wenzhou Cereals, Oils & Foodstuffs Foreign Trade ICB 43,788,619.96 0009 NKT Cables (Changzhou) ICB 58,101,631.50 0010 Shenyang Beiheng New Material ICB 78,761,463.22 0011 Wenzhou Cereals, Oils & Foodstuffs Foreign Trade ICB 8,692,497.00 0012 CCECC International Trading ICB 22,460,900.00 0013 World Tender Industrial ICB 17,606,610.00 0014 Shaanxi Feilun High-Speed Railway Equipment ICB 16,665,739.90 0015 Shaanxi Feilun High-Speed Railway Equipment ICB 8,450,412.40 0016 Shaanxi Feilun High-Speed Railway Equipment ICB 5,666,710.00 0017 World Tender Industrial ICB 21,531,000.00 0018 Jinmao Tech Engineering (Wuhan) ICB 40,178,800.00 0019 China National Electric Import & Export ICB 8,935,384.59 0020 China National Electric Import & Export ICB 1,083,241.32 0021 Shandong Royway Import & Export ICB 1,550,700.00 0022 Shandong Royway Import & Export ICB 3,066,280.00 0023 Beijing Dongqiao Mechanical Electrical & Chemical

Equipment ICB 3,437,530.00

0024 XJ Group ICB 5,306,800.00 0025 Beijing Golden Fuli Electro-Mechanic Development ICB 7,964,019.00 0026 Shanghai Revzone Industry ICB 4,769,851.00 0027 Beijing Golden Fuli Electro-Mechanic Development ICB 15,292,906.00 0028 Beijing Golden Fuli Electro-Mechanic Development ICB 10,310,971.00 0029 Beijing CAG Material & Equipment Technology ICB 28,957,510.00 0030 Beijing Hollysys ICB 15,395,800.00 0031 CASCO Signal ICB 7,706,181.00 0032 China National Electric Import & Export ICB 18,714,000.00 0033 Beijing Golden Fuli Electro-Mechanics Development ICB 6,752,907.36 0034 Wenzhou Cereals, Oils & Foodstuffs Foreign Trade ICB 7,389,076.00 0035 China National Electric Import & Export ICB 5,977,309.14 0036 Xi’an XD Cable ICB 13,771,334.78 0037 Jiaozou Railway Cable Limited Liability ICB 28,760,475.98

32 Appendix 8

PCSS No. Contractors

Mode of Procurement

ADB Financing (CNY)

0038 Jiangsu Tongding Optic-Electronic Technology ICB 35,840,361.52 0039 Jiangsu Zhongtian Technology ICB 0.00 0040 Beijing Golden Fuli Electro-Mechanics Development ICB 3,071,230.77 0041 Qingdao TGOOD Electric ICB 3,343,300.00 0042 Qingdao TGOOD Electric ICB 8,966,700.00 0043 Qingdao TGOOD Electric ICB 11,248,200.00 ADB = Asian Development Bank, CAG = China Automation Group, CASCO = Chinese-American Signal Company, CCECC = China Civil Engineering Construction Corporation, CNY = yuan, ICB = international competitive bidding, PCSS = procurement contract summary sheet. Source: ADB.

Appendix 9 33

ECONOMIC REEVALUATION

A. General

1. The Chongqing–Lichuan Railway (CLR) was constructed as a China Railway Corporation (CRC) class I electrified railway with a design speed of 200 kilometers (km) per hour. The route length is 264.6 km, 5.6 km longer than the appraisal length. Civil works construction commenced on 28 December 2008 and was completed along with all subsequent equipment installation and commissioning on 30 June 2013. Ten new stations were constructed, and all are open for passenger operation. The project railway trial operation began on 28 December 2013. The reevaluation used with- and without-project scenarios, in accordance with the Asian Development Bank (ADB) Guidelines for the Economic Analysis of Projects.1 Under the without-project scenario, travelers and shippers would continue to rely on the parallel expressway (G318) and national roads (S303, S302) in the corridor and on longer railway routes that existed before the CLR project. This would result in growing traffic congestion, higher transport costs, and longer travel times. In the with-project scenario, users would take advantage of the CLR’s lower transport costs, shorter travel distances, and improved service level. Congestion of national roads is alleviated to some extent, and stress on the capacity of alternative railway routes is also reduced by the diversion of traffic to the project railway. The reevaluation covered the 2009–2014 implementation period and the 2015–2033 operation period. B. Costs

2. The project costs comprised capital costs, operation and maintenance (O&M) costs, and the costs for equipment replacement and infrastructure rehabilitation undertaken during the evaluation period. The incremental cost of rolling stock was annualized and formed part of the unit operating costs based on the experience of the Chengdu railway administration, which is responsible for the O&M of the CLR, and standards issued by the CRC. Financial costs were converted to economic costs following the same factors as at appraisal. C. Traffic

3. The traffic forecast was based on the actual performance of the CLR during 2014–2015, taking into consideration the impacts of the expressway, national roads, waterways, and alternative rail routes in the region. The construction impacts of connecting rail lines were also considered. Other factors included expected economic growth, local investment plans, and the prospects for tourism development. 4. The CLR is an important link along the Chengdu–Chongqing–Shanghai transport corridor, connecting the western regions of the People’s Republic of China (PRC) with the east, and linking major cities such as Shanghai, Qingdao, Wuhan, Yichang, Chongqing, and Chengdu. The CLR connects with the Yichang–Wanzhou railway line in the east, the Chongqing–Huaihua line in the center, and the Chongqing–Chengdu line in the west. Several railway lines are being constructed to connect with the CLR, including the Lanzhou–Chongqing, Zhengzhou–Wanzhou, and Xi’an–Chongqing lines, which are expected to be completed during 2017-2020. These lines are the CLR’s major sources of transit traffic. Experience from the ADB-financed Yichang–Wanzhou railway and other projects indicated that opening connecting railway lines will significantly boost a project’s traffic levels.

1 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.

34 Appendix 9

5. In 2015, 48 passenger train pairs operated on the CLR every day. The number and type of trains by section are provided in Table A9.1. From 2014 to 2015, the number of passenger-km (pass-km) carried by the CLR increased 44% from 2.36 billion to 3.41 billion. Diversion from existing railways to this line was significant as the CLR is 369 km shorter than the existing route between Shanghai and Chengdu. The model shift from road transport reflects the obvious decision to take advantage of time savings of at least 2 hours and the significantly superior safety and reliability of rail service. 6. Despite the significant increase in number of passengers from 2014 to 2015, actual traffic fell far below the appraisal estimate of 8.38 billion pass-km by 2014. This is mainly because the train service capacity of the North Chongqing Station is expected to reach its design capacity when the Lanzhou–Chongqing railway is completed by 2018. According to the CRC’s master plan, all east–west inbound and outbound passenger traffic for the Lanzhou–Chongqing, Shuiling–Chongqing, Chongqing–Huaihua, and Chongqing–Lichuan lines, plus additional through traffic will be dispatched from the North Chongqing Station.

Table A9.01: Train Pairs/Day on the Chongqing–Lichuan Railway by Section, 2015

Section Chongqing–Fulingbei Fulingbei–Shizhu Shizhu–Lichuan HST “G” 6 6 6 HST “D” 25 25 22 Express Train “Z” 3 3 3 Normal Train “K” 14 3 3 Total pairs 48 37 34 Note: HST “G” refers to trains with a maximum design speed of 300–350 kilometers per hour, and HST “D” to trains with a maximum design speed of 250 kilometers per hour. The number of train pairs shows only for scheduled trains. Source: CRC train ticket booking website. www.12306.cn. 7. Passenger traffic is expected to reach 4.48 billion pass-km in 2016. A major factor in this is that the connecting high-speed Chongqing–Chendu line became operational in December 2015 and the impact of channeling significant additional traffic to the CLR will materialize in 2016. CLR traffic will continue to grow rapidly, reaching 12.39 billion pass-km in 2021, with an average growth rate of more than 24% during 2017–2021. This is because several major connecting lines—including the Lanzhou–Chongqing, Zhengzhou–Wanzhou, and Xi’an–Chongqing lines—are expected to be completed during this period. Traffic will become stable with a growth rate of about 3% after 2023, and will reach 19.40 billion pass-km by 2033. 8. These growth rates are considered reasonable given that (i) the CLR forms a major east–west corridor connecting several economic centers, which will continue to provide robust passenger traffic; (ii) Chongqing has maintained an economic growth rate far above the national level; (iii) the Yangtze River Economic Belt initiative identified as a national strategy in the Thirteenth Five-Year Plan will bring development momentum; (iv) the fact that the average railway travel ratio of the Chongqing and Sichuan population in 2014 (1.16/person) was below the national level (1.72/person) shows that the CLR has the potential to attract a large number of local passengers; and (v) the forming of a high-speed railway network has greatly supported passenger mobility. In 2015, passenger traffic on high-speed CRC railways reached 961 million, a 36.6% increase from 2014 and accounting for 37.9% of all passengers carried by national railways. According the CRC, more high-speed trains will be scheduled in May 2016.

Appendix 9 35

9. The updated passenger traffic forecasts are lower than the appraisal forecast, which anticipated lower overall growth rates but a significantly higher level of initial traffic.2 Freight traffic was significantly overestimated and, contrary to the anticipation at appraisal, freight operation on the CLR has not yet begun. According to the CRC, this is because (i) the Shanghai–Wuhan–Chengdu corridor, of which the CLR forms a section, has become a major east–west high-speed passenger transport corridor; (ii) the joint operation of passenger and freight transportation poses an operational safety risk; (iii) the remaining capacity for freight transportation is limited due to the intensive operation of passenger trains; and (iv) current demand for freight transport is insufficient. It is unclear whether freight service will be introduced in the CLR. Although a few express cargo trains may be operated at night, this was not taken into account in the reevaluation. D. Benefits

10. The reevaluation quantified the economic benefits of (i) user cost savings for passenger traffic; (ii) time savings for passenger traffic diverted from buses, trucks, and other rail lines; (iii) generated passenger benefits, which were estimated at one-half of the benefits of diverted traffic; (iv) tourism; and (iv) energy savings. These benefits were quantified with updated information following the same appraisal methodology. Other benefits identified at appraisal but not included in the reevaluation are those related to (i) freight operation (due to the lack thereof [para. 9]); (ii) shipper savings from increased railway competition, pollution reduction, energy savings, and national productivity (due to concerns about double-counting benefits); and (iii) avoided road infrastructure and maintenance costs and road accidents (due to a lack of reliable statistics for evaluation). 11. For passenger traffic diverted from road use, the user cost saving is the fare difference in fares between roads (CNY0.1212/pass-km) and the CLR (CNY0.1129/pass-km). There are no user cost savings for passenger traffic diverted from other railway lines after applying the difference in route distance (369 km) to the economic cost of passenger travel of the CLR and conventional rail. 12. Passenger traffic time savings were computed for diverted traffic. The value of time was estimated based on the annual average wage of Chongqing residents. For work-related time, the average wage was divided by 2,000 working hours per year to produce CNY23.97 per hour in 2014. For non-work related time, half of the work-related value was adopted. While no data indicated which trips were related to work and which to non-work, it was assumed that 50% would be work-related. The resulting overall economic value of time per hour per person was CNY17.98.3 This is a conservative estimate because high-speed train travelers generally have comparatively higher average incomes. 13. The tourism benefits attributable to the CLR were updated based on recent tourism development in the region after the CLR was opened. Assuming that 30% of tourism revenues is value added in the tourism sector, the net value added is CNY150 per tourist.4 A conservative downward adjustment made by applying 15% to the generated passenger traffic to calculate the proportion attributable to the CLR was consistent with the appraisal estimate. 2 At appraisal, the CLR’s passenger volume was forecasted to grow from 8.38 billion pass-km in 2014 to 25.78 billion

pass-km in 2033, with an average annual growth rate of 6.4%. Freight traffic on the CLR corridor was forecasted to increase from about 7.16 billion ton-km in 2014 to 20.13 billion ton-km in 2033, or 5.9% per year.

3 The average real wage was forecasted to increase 6% per year through 2020 and 3% per year afterward. 4 This figure was estimated from the latest statistics issued by Shizhu county, which reported 5.03 million tourists and

CNY2.515 billion in tourism income in the first 10 months of 2014.

36 Appendix 9

14. Energy and pollution benefits included only the anticipated carbon dioxide (CO2)

emission impact. The unit value followed the appraisal estimate, which was savings of 25.4 tons of CO2 per million pass-km as a result of diverting road traffic to the CLR. The price of CO2 emissions was updated to CNY80 per ton. 15. The appraisal anticipated various cost avoidances related to road infrastructure and maintenance, truck shipping charges, and road accidents in the absence of the CLR. These were not included in the reevaluation due to a lack of reliable statistics for valuation and a lack of verifying evidence concerning road and expressway construction in the region during the project period. E. Economic Internal Rate of Return Reevaluation

16. The reevaluated economic internal rate of return (EIRR) is 14.4%, lower than the 16.7% estimated at appraisal. This was due to the absence of economic benefits related to freight operation, lower initial passenger traffic, and the reduction of other unverifiable benefits as compared with the appraisal estimates. As the EIRR is higher than 12%, the project is considered economically viable. 17. A sensitivity analysis was carried out to test the impacts of (i) a decrease in traffic from the forecasted volumes, (ii) an increase in projected O&M costs, and (ii) a decrease in benefit valuation (Table A9.3). According to this analysis, the project will remain economically viable with a 10% decrease in traffic or 20% increase in O&M costs. The EIRR will decrease to 12.0% with a 20% benefit reduction, and will be 14.1% with all other benefits excluded.

Table A9.2: Economic Reevaluation (CNY million)

Year Capital Cost

O&M Cost

Benefits Net

Benefits Passenger

s Others Total

2009 4,803.66 - - - - (4,803.66) 2010 7,524.03 - - - - (7,524.03) 2011 3,565.01 - - - - (3,565.01) 2012 3,018.82 - - - - (3,018.82) 2013 5,436.25 - - - - (5,436.25) 2014 550.99 513.54 1,174.34 123.02 1,297.36 232.83 2015 787.78 556.74 1,716.59 115.62 1,832.21 487.70 2016 797.55 614.43 2,311.80 121.45 2,433.25 1,021.28 2017 - 785.15 3,160.17 128.51 3,288.68 2,503.53 2018 - 977.94 4,370.53 137.25 4,507.78 3,529.84 2019 - 1,178.38 5,572.14 149.69 5,721.83 4,543.45 2020 798.97 1,402.46 6,973.29 166.68 7,139.97 4,938.54 2021 - 1,726.16 8,860.99 177.13 9,038.12 7,311.96 2022 - 1,816.76 9,706.43 188.01 9,894.45 8,077.69 2023 - 2,042.92 11,246.90 199.83 11,446.73 9,403.81 2024 - 2,112.49 11,875.96 212.69 12,088.66 9,976.17

Appendix 9 37

Year Capital Cost

O&M Cost

Benefits Net

Benefits Passenger

s Others Total

2025 - 2,191.34 12,705.52 226.06 12,931.58 10,740.24 2026 - 2,270.20 13,557.25 230.22 13,787.47 11,517.27 2027 798.97 2,349.06 14,448.73 234.46 14,683.19 11,535.16 2028 1,886.77 2,427.92 15,381.59 238.77 15,620.36 11,305.67 2029 - 2,506.78 16,357.51 243.17 16,600.68 14,093.90 2030 - 2,474.05 16,628.61 247.65 16,876.26 14,402.21 2031 - 2,552.91 17,673.47 252.21 17,925.68 15,372.77 2032 - 2,631.77 18,766.17 256.85 19,023.02 16,391.25 2033 (7,945.23) 2,710.63 19,908.62 261.58 20,170.20 25,404.80

EIRR = 14.4%, NPV at 12% = 5,986.90 ( ) = negative, CNY = yuan, O&M = operation and maintenance, EIRR = economic internal rate of return, NPV = net present value. Source: Asian Development Bank estimates.

Table A9.3: Sensitivity Analysis

Scenario Change by

(%) EIRR (%)

NPV at 12% (CNY million)

1. Base case 14.4 5,987 2. Passenger traffic (10) 13.3 3,063 3. O&M cost 20 14.0 4,902 4. Benefits (20) 12.0 39 5. Without other benefits 14.1 5,228

( ) = negative, CNY = yuan, EIRR = economic internal rate of return, O&M = operation and maintenance, NPV = net present value. Source: Asian Development Bank estimates.

38 Appendix 10

FINANCIAL REEVALUATION A. Basic Assumptions

1. The financial internal rate of return (FIRR) for the Chongqing–Lichuan Railway (CLR) Project was reevaluated on the basis of financial and operational information obtained from the Chongqing–Lichuan Railway Company (CLRC) and several revenue and cost assumptions. The 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 2015 prices. The calculation period and evaluation at appraisal covered the construction and operation periods, 2009–2033. Costs of equipment replacement and infrastructure rehabilitation expected to occur during the evaluation period were included, and residual value was calculated based on the economic life of fixed assets. 2. The operation of the CLR was assigned to the Chengdu railway administration under the China Railway Corporation (CRC). It is governed by an agreement between the CRC and the CLRC under which the CLRC owns the project assets, is responsible for the debt payment, and gains revenues from and pays the costs for the railway administration’s operations. 3. Project revenues consisted mainly of CLR passenger revenues. No freight traffic is yet operating on the CLR, although freight facilities were provided at several stations. It is unclear when freight operation will be introduced as originally envisaged. The CLR is required to apply the national passenger tariff—CNY0.15 per passenger-kilometer (/pass-km) for conventional trains, CNY0.29/pass-km for high-speed trains at speeds of 200–250 kilometer per hour (km/h), and CNY0.52/pass-km for high-speed trains at speeds of 300–350km/h. These actual tariffs compare favorably with the appraisal estimates, which assumed an average tariff of CNY0.158/pass-km. Other revenues, including fees for loading and unloading, warehouse storage, and parcel service in train stations, amount to 5% of passenger revenue. 4. The CLR’s revenue generating capacity is closely related to the type and number of scheduled trains. Based on the composition of these trains, the actual composite tariff level for 2014–2015 ranged from CNY0.24/pass-km to CNY0.26/pass-km. In response to the demand for high-speed trains over conventional trains, more high-speed trains will be routed to the CLR, resulting in a higher composite tariff level of CNY0.28/pass-km by 2016 and CNY0.34/pass-km by 2021, when three major connecting railway lines will be completed. 5. It should be noted that the CLRC’s actual revenues for 2014–2015 were lower than the amount calculated based on the composite tariff level. This implies that the revenues generated by the CLR and indicated in its financial statements may have been underestimated due to the revenue clearance system that the CRC uses to allocate passenger revenues. The analysis is provided in Table A10.1. For the projection period beyond 2015, the impact of the CRC’s revenue clearance system was not taken into account.

Table A10.1: Revenue Analysis of the Chongqing–Lichuan Railway Company for 2014–2015

Year

Revenues Allocated to the CLRC (CNY million)

Traffic (billion pass-km)

Average Revenue by pass-km

(CNY/pass-km) Composite Tariff (CNY/pass-km)

2014 209.15 2.36 0.089 0.249 2015 779.56 3.41 0.229 0.259 CLRC = Chongqing–Lichuan Railway Company, CNY = yuan, km = kilometer, pass-km = passenger-kilometer. Sources: CLRC financial statements for 2014–2015; Asian Development Bank staff estimates.

Appendix 10 39

6. To be conservative, no increase in current tariffs in real terms was assumed in the base case of the financial reevaluation. However, according to passenger surveys conducted by the former Ministry of Railways, a significant number of passengers are willing to pay a 50% surcharge for high-speed services, compared to conventional rail. In December 2015, the National Development and Reform Commission issued a notification to grant the CRC the autonomy to set the tariff for high-speed trains based on the market situation. Thus, there is room for a CLR tariff increase. The reevaluation also calculated the FIRR to test the case in which the tariff is increased by 5% in real terms in 2018. 7. The operating costs included all operation and maintenance (O&M), rolling stock-related, and CLRC management costs. Operating costs in the reevaluation were based on the actual costs for 2014–2015 provided by the CLRC, and operating cost standards were provided by the CRC for railways with a design speed of 200km/h as follows: (i) fixed costs excluding a depreciation of CNY1.8 million per route-kilometer, and (ii) a passenger variable cost of CNY0.14/pass-km. Periodic track-laying maintenance and infrastructure rehabilitation will be required every 7 years of operation at a cost of CNY3.05 million per route-kilometer; electric power and catenaries will be replaced every 15 years at a cost of CNY1.115 million; and signaling, communications, safety and other equipment will be replaced every 20 years at a cost of CNY790 million. A business tax of 5% of revenues and 25% income tax were excluded from the net benefits. The FIRR calculation excluded depreciation and interest costs.

B. Financial Internal Rate of Return

8. The after-tax FIRR was recalculated at 3.03%, lower than the 5.48% estimated at appraisal (Table A10.2). This difference was mainly due to the lack of freight operation on the CLR and lower initial passenger traffic, and a higher capital cost than the appraisal projection, despite higher tariffs. The after-tax weighted average cost of capital (WACC) in real terms was calculated using the actual capital and cost mix of various financing sources, including (i) the applicable 10-year fixed swap rate, plus a provision for the 0.5% spread used for Asian Development Bank (ADB) loans; (ii) interest rates of 6.6% for loans from domestic banks and 4.8% for railway bonds; and (iii) an 8% cost of equity. The WACC was recalculated at 3.01%, close to the appraisal estimate of 2.80%.

Table A10.2: Financial Internal Rate of Return (CNY million)

Year Capital Costs

Working Expenditures

Operating Revenue

Business Tax

Income Tax

Net Cash Flow Before Income

Tax After Income

Tax 2009 4,852.18

- - - (4,852.18) (4,852.18)

2010 7,600.03

- - - (7,600.03) (7,600.03) 2011 3,601.03

- - - (3,601.03) (3,601.03)

2012 3,049.31

- - - (3,049.31) (3,049.31) 2013 5,491.16

- - - (5,491.16) (5,491.16)

2014 556.55 518.73 209.15 0.25 - (866.38) (866.38) 2015 795.73 562.36 779.56 0.93 - (579.47) (579.47) 2016 805.61 620.63 1,315.22 65.76 - (176.78) (176.78) 2017 - 793.08 1,702.20 85.11 - 824.01 824.01 2018 - 987.81 2,309.00 115.45 - 1,205.74 1,205.74 2019 - 1,190.28 2,830.00 141.50 - 1,498.22 1,498.22 2020 807.04 1,416.63 3,456.14 172.81 - 1,059.67 1,059.67

40 Appendix 10

Year Capital Costs

Working Expenditures

Operating Revenue

Business Tax

Income Tax

Net Cash Flow Before Income

Tax After Income

Tax 2021 - 1,743.59 4,176.68 208.83 - 2,224.26 2,224.26 2022 - 1,835.11 4,295.67 214.78 - 2,245.78 2,245.78 2023 - 2,063.56 4,815.28 240.76 - 2,510.96 2,510.96 2024 - 2,133.82 5,007.83 250.39 457.40 2,623.62 2,166.21 2025 - 2,213.48 5,222.11 261.11 488.38 2,747.53 2,259.15 2026 - 2,293.14 5,436.40 271.82 519.36 2,871.44 2,352.08 2027 807.04 2,372.79 5,650.68 282.53 550.34 2,188.32 1,637.98 2028 1,905.83 2,452.45 5,864.96 293.25 581.32 1,213.44 632.13 2029 - 2,532.10 6,079.25 303.96 612.30 3,243.18 2,630.89 2030 - 2,499.04 6,011.30 300.57 604.42 3,211.70 2,607.27 2031 - 2,578.69 6,225.58 311.28 635.40 3,335.60 2,700.20 2032 - 2,658.35 6,439.85 321.99 666.38 3,459.51 2,793.13 2033 (8,025.48) 2,738.01 6,654.12 332.71 697.35 11,608.89 10,911.54 FIRR = 3.84% 3.03% ( ) = negative, CNY = yuan, FIRR = financial internal rate of return. Source: Asian Development Bank estimates.

9. A sensitivity analysis was conducted to test the impact of variations in traffic, O&M costs, and revenue levels (Table A10.3). Since the FIRR in the base case is marginally higher than the WACC, the adverse changes tested all yielded an FIRR lower than the WACC. As explained in para. 6, there is room for a CLR tariff increase. Assuming a 5% tariff increase in real terms in 2018, the after-tax FIRR will improve to 3.62%.

Table A10.3: Sensitivity Analysis

Scenario Change

(%) FIRR (%)

1. Base case 3.03 2. Passenger traffic decrease (10) 1.90 3. Working expenses increase 10 2.45 3. Working expenses increase 20 1.82 5. Tariff increase 5 3.62 ( ) = negative, FIRR = financial internal rate of return. Source: Asian Development Bank estimates.

C. Compliance with Financial Loan Covenants

10. The loan agreement required that, after the second full year of commercial operations, the CLRC must maintain (i) an operating ratio of not more than 75%, (ii) a debt-service coverage ratio of at least 1.2, and (iii) a debt–equity ratio of not more than 65:35 to ensure operating efficiency and financial sustainability. 11. Based on the CLRC’s actual performance during 2014–2015 and projections over the operational period, the company will be able to comply with the debt–equity ratio covenant since the initial debt–equity ratio of about 46:54 is more favorable than the covenanted criterion, and the ratio will continue to decrease along with the scheduled debt repayments. However, the debt-service coverage ratio will remain below 1.2 until 2020. The CLRC will require additional

Appendix 10 41

financing for interest payments for the first three years and will be unable to finance principal repayments until 2018. Restructuring the CLRC’s debt to extend the term of interest and adjust the repayment schedule should be considered. 12. The project revenues covered its working expenditures in 2015 but not depreciation and interest payments. This situation is expected to continue until 2018 if the tariff remains unchanged. The operating ratio was significantly higher than the criterion of 75% during 2014–2015 due to the high fixed capital cost and low levels of passenger and freight traffic. The ratio is expected to fall below 75% by 2018 due to increased revenues and effective control operating costs.

42 Appendix 11

SOCIAL IMPACT AND POVERTY REDUCTION A. Introduction 1. Construction of the Chonging–Lichuan Railway (CLR) commenced in December 2008, and it was opened to traffic in December 2013. The CLR is an important part of the planning and construction of the Shanghai–Wuhan–Sichuan corridor. The CLR traverses seven mountainous counties and districts in Chongqing municipality and Hubei province. The project area belongs to one of 14 contiguous poverty areas in the PRC. The social impact and poverty reduction analysis conducted during project preparation indicated that the construction of the CLR would reduce poverty by (i) facilitating economic development and job creation; and (ii) improving access to markets, employment, advanced education, medical facilities, new knowledge and information, families working or studying in other regions, and other social and economic services. Improved access to markets opens up opportunities for the expansion of locally produced goods and services, while incoming passengers and tourists generate additional demand for these goods and services. A social development action plan (SDAP) was prepared during project preparation to enhance the project benefits. B. Sustainable Socioeconomic Growth in the Project Area 2. Construction of the CLR has contributed to regional socioeconomic development. A total of CNY28.566 billion in project investments in the project area during 2008–2013 has stimulated local industrial development, particularly in construction materials, energy, and services. The statistical data shows that socioeconomic conditions in the project area have improved rapidly in recent years. From 2007 to 2014, gross domestic product (GDP) growth rates in the project area ranged from 157% to 355% (Table A11.1), while government fiscal revenue growth rates ranged from 163% to 733% (Table A11.2).

Table A11.1: Gross Domestic Product Growth in the Project Area (CNY billion)

Municipality /Province

District /County 2007 2008 2009 2010 2011 2012 2013 2014

Growth (%)

Chongqing Yubei 24.5 39.8 45.9 66.6 76.8 87.9 100.2 111.5 355.1 Jiangbei 17.9 21.9 32.5 44.0 51.7 52.8 54.7 60.5 238.0 Changshou 12.5 14.4 16.2 26.5 31.8 33.6 37.4 42.0 236.0 Fuling 19.2 30.1 35.5 43.5 55.7 61.1 69.0 75.7 294.3 Fengdu 4.8 5.7 6.6 8.4 10.0 10.6 11.7 13.5 181.3 Shizhu 3.6 4.8 5.5 6.5 8.2 9.3 10.7 12.0 233.3

Hubei Lichuan 3.5 3.9 4.4 5.8 6.5 7.3 8.2 9.0 157.1 Total 86.0 120.6 146.6 201.3 240.7 262.6 291.9 324.2 277.0 CNY = yuan. Sources: Chongqing Statistics Yearbook, 2007–2014; Lichuan Statistics Yearbook, 2007–2014.

Appendix 11 43

Table A11.2: Government Fiscal Revenue Growth in the Project Area (CNY billion)

Municipality/Province

District /County 2007 2008 2009 2010 2011 2012 2013 2014

Growth (%)

Chongqing

Yubei 1.9 2.3 2.7 3.8 3.9 4.2 4.5 5.0 163.2 Jiangbei 2.1 3.0 3.7 5.2 7.0 8.1 8.7 9.5 352.4 Changshou 1.5 1.7 3.0 4.1 5.5 5.8 6.6 7.3 386.7 Fuling 1.4 2.3 2.6 2.9 3.3 3.8 4.5 5.0 257.1 Fengdu 0.3 0.4 0.6 0.9 1.2 1.8 2.0 2.5 733.3 Shizhu 0.3 0.4 0.6 1.0 1.5 1.7 1.9 2.0 566.7

Hubei Lichuan 0.4 0.6 0.7 0.9 1.1 1.2 1.4 1.5 275.0 Total 7.9 10.7 13.9 18.8 23.5 26.6 29.6 32.8 315.2

CNY = yuan. Sources: Chongqing Statistics Yearbook, 2007–2014; Lichuan Statistics Yearbook, 2007–2014. 3. Construction and operation of the CLR present an obvious advantage for local governments to attract external investment. New industrial parks have been constructed close to the railway. In particular, the amount of external investment in project area with no previous railway connections increased significantly (Table A11.3). If freight operations commence in the near future, the CLR will further enhance industrial development in the project area by (i) promoting enterprises in capital, resources, talent, technology and other aspects; (ii) optimizing the allocation of social resources; and (iii) enhancing the competitiveness of enterprises.

Table A11.3: External Investments in the Project Area (CNY billion)

Municipality /Province

District /County 2007 2008 2009 2010 2011 2012 2013 2014

Chongqing

Yubei 5.6 7.2 14.4 8.6 9.4 11.0 17.9 67.6 Jiangbei 3.1 3.3 5.5 6.3 50.3 46.6 40.6 36.6 Changshou 9.2 12.0 12.2 12.7 19.1 23.9 19.5 26.5 Fuling 2.6 3.1 6.6 9.1 17.7 19.8 20.6 26.0 Fengdu – – 3.5 11.8 11.8 21.0 24.0 25.2 Shizhu 0.6 2.5 3.1 6.5 9.5 11.2 12.5 14.1

Hubei Lichuan 0.3 0.7 0.5 1.0 1.3 1.9 2.2 2.6 – = data not available, CNY = yuan. Sources: Local government statistics bulletins, 2007–2014. C. Increased Rural Income and Poverty Reduction 4. Rapid economic growth and increased fiscal revenues of local governments has significantly improved living standards and the income of local people, particularly for the poor. According to statistics provided by county governments, farmers’ per capita incomes grew at a rate of 148%–221% in the project area from 2007 to 2014 (Table A11.4). A trend analysis of rural income growth from 2007 to 2014 in the counties and districts along the railway alignment indicates that rural income grew faster in poor areas than in other areas, thus gradually narrowing the income gap and balancing economic development in the project area.

44 Appendix 11

Table A11.4: Rural Income Per Capita in the Project Area (CNY/person)

Municipality /Province

District /County 2007 2008 2009 2010 2011 2012 2013 2014

Growth (%)

Chongqing

Yubei 4,385 5,217 5,803 6,774 8,319 9,375 10,575 12,458 184.1 Jiangbei 5,693 6,734 7,444 8,698 10,473 11,864 12,736 14,125 148.1 Changshou 4,158 4,901 5,651 6,410 7,897 8,971 9,725 10,863 161.3 Fuling 3,499 4,167 4,652 5,548 6,858 7,942 8,998 9,963 184.7 Fengdu 3,027 3,591 3,992 4,766 5,991 6,946 7,850 8,679 186.7 Shizhu 3,002 3,579 3,998 4,765 5,981 6,848 7,765 8,828 194.1

Hubei Lichuan 2,205 2,555 2,814 3,435 3,930 4,536 5,195 7,091 221.6 CNY = yuan. Sources: Local government statistics bulletins, 2007–2014.

5. Poverty incidence has also been reduced in the project area. A comparison of poverty incidence rates in two phases using the new poverty line (CNY2,300/person) issued by the government in 2011 is provided in Table A11.5. The statistics in both phases demonstrate that the rate of poverty reduction is higher in the project area than in remote and poor counties close to Chongqing city.

Table A11.5: Poverty Incidence Rate in the Project Area (%)

Municipality /Province

District /County 2007 2008 2009 2010

Variation (2007–2010) 2011 2012 2013 2014 2015

Variation (2011–2015)

Chongqing

Yubei 1.2 0.9 0.8 0.7 -0.5 0.8 0.7 0.6 0.5 0.3 -0.4 Jiangbei 1.5 1.4 1.2 1.0 -0.5 1.3 1.2 0.9 0.8 0.6 -0.6 Changshou 2.2 2.0 1.7 1.5 -0.7 5.4 4.1 3.0 2.1 1.5 -2.6 Fuling 6.1 5.5 5.0 4.5 -1.6 6.1 5.0 4.1 3.2 2.6 -2.4 Fengdu 8.3 7.9 7.1 6.4 -1.9 8.1 7.5 6.3 5.2 3.9 -3.6 Shizhu 12.2 11.1 10.0 9.0 -3.2 13.7 12.1 11.0 9.7 7.4 -4.7

Hubei Lichuan 16.2 15.5 13.6 11.7 -4.5 39.2 37.8 30.1 29.9 26.5 -11.3 Note: Poverty line (2007–2010): CNY1,274/person; poverty line (2011–2015): CNY2,300/person. CNY = yuan. Source: Local government poverty alleviation offices. D. Tourism Development 6. The project area is rich in tourism resources. The opening of the CLR offered basic transport infrastructure for tourism development. Tourism resources along the CLR include four national key cultural relics protection units, four national 4A and 5A tourism spots, and one national historic cultural town. Statistics show that tourism income in the project area, which amounted to CNY22.2 billion in 2013, increased 26% to CNY27.8 billion in 2014 and 49% to CNY32.9 billion in 2015 (the railway was opened to traffic in December 2013) (Table A11.6).

Appendix 11 45

Table A11.6: Tourism Income in the Project Area

Municipality /Province

District /County

Tourism Income (CNY billion)

Variation (%)

2013 2014 2015 (2013–2014) (2013–2015)

Chongqing

Yubei 3.4 4.7 5.3 38.2 55.9 Jiangbei 5.5 6.6 7.5 20.0 36.4 Changshou 2.9 3.5 4.2 20.7 44.8 Fuling 3.1 3.9 4.8 25.8 54.8 Fengdu 2.3 2.7 4.0 17.4 73.9 Shizhu 2.3 2.6 2.9 13.0 26.1

Hubei Lichuan 2.7 3.8 4.2 40.7 55.6 Total 22.2 27.8 32.9 26.0 49.0 CNY = yuan. Sources: Local government statistics bulletins, 2013–2015. E. Job Creation 7. Local employment was promoted during the construction of the CLR. According to the external monitor, as of December 2013, the project had provided 93,118 person-years of construction work, of which 14,300 person-years (15.4%, mainly unskilled labor) came from the local labor market.1 Of this, 8,022 person-years (56.1%) of work went to laborers from poor households and 2,088 person-years (14.5%) went to women. With daily wages at CNY110–CNY140 from 2009 to 2013, a total of CNY339.4 million in wages was disbursed to poor local households during the construction period. Of this, CNY78.2 million was paid to women, thus contributing to gender development as well as poverty reduction in the project area (Table A11.7). Since the CLR became operational, the Chengdu railway administration has offered 1,400 new permanent jobs including the operation of locomotives and vehicles, electrical engineering, maintenance, and repair. There are also over 300 new railway station jobs, including positions for security guards, attendants, ticket conductors, and janitors.

Table A11.7: Labor Employment during Construction

Year

Employed Laborers (Person-Year) Average Daily

Salary (CNY)

Wages to the Poor

(CNY million)

Wages to Women

(CNY million) Total Local ％

in which: The Poor ％ Women ％

2009 35,277 5,051 14 2,356 47 657 13 110 95.9 24.4 2010 32,070 5,157 16 3,827 74 958 19 120 159.3 35.6 2011 25,655 4,075 16 1,834 45 472 12 130 84.0 18.1 2012 109 17 16 5 27 1 8 140 0.2 0.1 2013 7 – – – – – – – 0 0

Total 93,118 14,300 15 8,022 56 2,088 15 125 339.4 78.2 – = data not available, CNY = yuan. Sources: Social and poverty monitoring reports. 8. Locally procured construction materials and supplies also provided considerable job opportunities in the project area. According to the social and poverty monitoring reports, total expenditures on locally purchased construction materials were CNY6.98 billion, including

1 This was much lower than anticipated because there was greater mechanization of construction equipment, which

required skilled workers and eliminated much of the need for unskilled labor. This shift was faster than expected.

46 Appendix 11

CNY1.01 billion for sand, CNY1.43 billion for cement, CNY0.59 billion for stone, CNY3.06 billion for steel, and CNY0.89 billion for other construction materials. Contractors and construction workers also spent around CNY242 million on personal consumption. Local families sold a total of around CNY734 million in construction materials and CNY95 million in living goods. Material procurement and personal consumption stimulated local economic development, provided indirect job opportunities, and increased the income of local people, including poor families in the project area. F. Safe and Affordable Mobility 9. The CLR has provided affordable, timesaving, and safer transport services for local people as well as migrant laborers. The cost of train travel is around 60% that of bus travel and the train fare for a round trip from a project county to Chongqing is only around 4.6% of the poverty line. Lower prices and reduced travel time are encouraging travelers to choose rail over bus travel. According to the Chongqing Transportation Administration, passenger fares by bus and by train from Chongqing are CNY37 and CNY20 to Chongshou, CNY50 and CNY27 to Fuling, CNY65 and CNY40 to Fengdu, CNY93 and CNY54 to Shizhu, and CNY137 and CNY 82 to Lichuan (Table A11.8). In addition to cheaper fares, the CLR also provides a timesaving, more comfortable, and safer transport service, particularly in the rainy season and in winter. These fares are affordable for most local people, but for the poor all long distance travel remains expensive so they cannot travel regularly.

Table A11.8: Travel from Chongqing City (Downtown) to Project Counties and Districts

CNY = yuan, km = kilometer. Sources: Chongqing Transportation Administration; China Railway Corporation railway ticket booking website. www.12306.cn. G. Gender Development 10. The construction and operation of the CLR has promoted gender development in the project area. A total of 2,088 person-years in labor went to women during the CLR construction period. The women were mainly engaged in cleaning and maintaining trucks and other equipment, cooking for construction teams, and performing sanitation work at the construction sites. A total of 600 permanent jobs have been provided to women since the railway became operational. Women’s wages were equivalent to those of men for similar job types. The CLR also facilitated external investment and enterprises established in the project area, and girls and women are increasingly working in nearby enterprises. Rail travel also enables women to increase their income by working outside their region as migrant laborers. The counties around Chongqing have a more than 99% compulsory education enrollment rate for girls, and the maternal mortality rate decreased from 86.1 per 100,000 in 2000 to 28 per 100,000 in 2015.

Destinations

Distance (Train/Bus)

Train Price

Train Time

Bus Price

Bus Time

Drive Cost

Drive Time

(km) (CNY) (minutes) (CNY) (minutes) (CNY) (minutes) Changshou 65/80 20 28 37 85 70 65 Fuling 102/120 27 36 50 110 108 95 Fengdu 145/170 39.5 53 65 145 150 136 Shizhu 191/230 53.5 130 93 198 210 180 Lichuan 274/321 81.5 226 137 276 290 251

Appendix 11 47

Eight women’s and children's activity centers were completed, and 41.5% of women had basic medical insurance by the end of 2015. H. Ethnic Minority Development 11. Ethnic minorities account for 14.2% of the total population in the CLR project area. Most of these people are Tujia who live in Shizhu and Lichuan. The other ethnic groups are few and located in urban centers and were not adversely affected. The socioeconomic status of minority people is similar to that of Han people and they enjoy a series of preferential policies specifically issued for minority people by the government. The adverse impacts of land acquisition and mitigation measures for the Tujia were included in the resettlement plan, and the project benefit enhancement measures were prepared in the SDAP. During the construction of the CLR and implementation of the resettlement plan and SDAP, local governments and the CLRC took measures as agreed upon in the resettlement plan and SDAP to mitigate adverse impacts and ensure that minority communities received equal project benefits in a culturally appropriate manner. The CLR’s impact on local economic development will continue to benefit the Tujia people in Shizhu and Lichuan, which had previously been very isolated due to the lack of transportation. I. Monitoring and Evaluation 12. A national consultant, the China International Engineering Consulting Corporation (CIECC) Overseas Consulting, was engaged as the external agency to monitor and evaluate the project’s social and poverty reduction impacts. The CIECC prepared and submitted the first social monitoring report to ADB in October 2009, and six subsequent social monitoring reports from 2010 to 2015. These reports confirmed that the construction and operation of the CLR have greatly contributed to regional socioeconomic development, poverty reduction, gender development, and ethnic minority development. J. Conclusions and Actions 13. In general, the construction and operation of the CLR has had significant positive impacts on regional socioeconomic development and poverty reduction, including (i) contributing to GDP and government revenue growth, increased rural income, and decreased poverty incidence in the project area; (ii) creating jobs in railway construction and operation, as well as tourism; (iii) providing safer, faster, and more affordable mobility for local people and migrant laborers; and (iv) improving gender and ethnic minority development. Since freight operations have not begun, the CRC and the CLRC are advised to consult with local governments and enterprises to speed up the construction of necessary industrial sidings and freight yards. The CLR is expected to contribute further to socioeconomic development in the project area once freight operations begin for local communities and enterprises.

48 Appendix 12

LAND ACQUISITION AND RESETTLEMENT A. Scope of Land Acquisition and Resettlement 1. The resettlement plan for the Chongqing–Lichuan Railway (CLR) Development Project was prepared by the Ministry of Railways (MOR) with a project preparatory technical assistance consultant and submitted to the Asian Development Bank (ADB) in September 2007. The resettlement plan showed that construction of the railway would involve land acquisition, building demolitions, and the resettlement of affected persons. The total land acquisition was estimated at 711.2 hectares (ha) (10,669 mu1), including land required for constructing the railway line and railway stations. Permanent land acquisition was estimated to have at least a partial effect on the livelihoods of 34,968 persons across 84 villages. It was estimated that a total of 395,513 square meters (m2) of buildings would be demolished, relocating about 5,314 people. In addition, for construction purposes, the project would temporarily occupy about 674.2 ha (10,113 mu) of land. This is mostly wasteland designated for use by work camps and for holding waste from tunnel construction. 2. According to the Chongqing–Lichuan Railway Company (CLRC), land acquisition and resettlement commenced in December 2008 and were completed by the end of 2014. In total, 11,154 mu of land was permanently acquired, 5% more than the plan estimate, and 21,818 persons were affected by land acquisition, 38% less than the plan estimate, although the degree of impact on households was relatively greater than anticipated. A total of 602,024 m2 of buildings were demolished, 52% more than the plan estimate, and the number of displaced persons was 5,982, 13% more than the plan estimate. In addition, 9,958 mu of land were used temporarily during the CLR construction, 2% less than the plan estimate. Table A11.1 presents the actual project impacts as compared with the plan estimates.

Table A12.1: Project Land Acquisition and Resettlement Impacts Item Unit Chongqing Hubei Total A. Permanent Land Acquisition

RP mu 9,680 989 10,669 Actual mu 9,908 1,246 11,154

Actual vs RP % 102% 126% 105%

B. Temporary Land Use RP mu 8,241 1,872 10,113

Actual mu 9,018 940 9,958

Actual vs RP % 109% 50% 98%

C. Building Demolition RP m2 363,402 32,111 395,513

Actual m2 551,948 50,076 602,024

Actual vs RP % 152% 156% 152%

D. Affected Persons

D1. By Land Acquisition RP persons 32,693 2,275 34,968

Actual persons 19,376 2,442 21,818

Actual vs RP % 59% 107% 62%

D2. By House Demolition RP persons 5,118 196 5,314

Actual persons 5,480 502 5,982

Actual vs RP % 107% 256% 113%

m2 = square meter, RP = resettlement plan. Sources: Resettlement Plan; Chongqing–Lichuan Railway Company; ninth external resettlement monitoring report.

1 The mu is a Chinese unit of measurement (1 mu = 666.67 square meters).

Appendix 12 49

3. The actual area of demolished buildings differed from the plan estimates mainly because (i) the estimates were based on the feasibility study report rather than the detailed measurement survey (DMS), (ii) some new buildings were constructed between project preparation and implementation, and (iii) additional buildings beyond the red line of the railway were relocated during the railway construction stage due to geographical hazards or railway safety considerations. The actual number of persons affected by permanent land acquisition is less than that estimated in the resettlement plan mainly because the plan estimate assumes an average loss of 15% along the alignment and 25% at station sites. Further analysis of changes in the actual number between Chongqing and Hubei indicated that the actual loss at station sites exceeded 25% but much less than 15% along the alignment.. The project was prepared in 2008. The updating of the resettlement plan based on the DMS is now a mandatory requirement in the ADB Safeguards Policy Statement, which applies to projects approved after January 2010. Nonetheless, the loan covenant had a provision for updating “if necessary”, but for CLR did not feel this was necessary. B. Resettlement Policy and Compensation Rates 4. Land acquisition and resettlement was implemented based on the resettlement plan, the 2004 Land Administration Law, Decree No. 28 issued by the PRC State Council in 2008, and the following government rules, regulations, and agreements: (i) agreements on the CLR’s construction among the MOR, Chongqing municipal government, and Hubei provincial government (April 2005); (ii) Circular No. 45 for the adjustment of the land acquisition and resettlement policy issued by the Chongqing municipal government in 2008; (iii) Circular No. 52 for increasing the land acquisition and resettlement funds of six railway projects issued by the Chongqing municipal government in 2009; (iv) Circular No. 241 for financing the planning and fund management of railway construction issued by the Chongqing municipal government in 2009; (v) Circular No. 16 for the CLR’s land acquisition and house relocation compensation rates issued by the Enshi municipal government in Hubei province; and (vi) relevant circulars detailing land acquisition and house relocation compensation rates issued by local governments along the railway alignment in 2008 and 2009. 5. Table A12.2 compares the actual land compensation rates under the project with the rates in the resettlement plan. These rates increased significantly mainly due to a nationwide resettlement policy reform in 2008. However, as compensation rates for brick-and-wood and brick-and-earth buildings were lower than the plan estimates, the CLRC and local governments provided an incremental budget for bonuses, infrastructure costs for resettlement sites, and new house subsidies to help affected people relocate to new houses in resettlement compounds with better environments and facilities. These improved policies led to a significant increase in land acquisition and resettlement costs.

Table A12.2: Compensation Rates2

Item Unit Chongqing Hubei

RP Actual RP Actual

A. Permanent Land Acquisition

Jiangbei CNY/mu 24,000–26,500 50,600–55,800

Yubei CNY/mu 23,000–26,500 51,300–55,900 Changshou CNY/mu 24,500–27,000 44,100–46,600 Fuling CNY/mu 19,000–21,000 43,900–46,800

2 The compensation rates in the resettlement plan estimated by project preparatory technical assistance consultants were provided in budget tables in Annex 1 of the resettlement plan.

50 Appendix 12

Item Unit Chongqing Hubei

RP Actual RP Actual Fengdu CNY/mu 19,000–25,000 40,200–43,300

Shizhu CNY/mu 20,000–22,000 35,900–45,500 Lichuan CNY/mu

19,000 18,100–30,000

B. House Demolition House with a Tile Roof CNY/m2 300–320 204–380 325 220–380

Brick-and-Wood Building CNY/m2 240–260 135–240 260 150–210 Brick-and-Earth Building CNY/m2 200 85–190 200 130–190

Note: The mu is a Chinese unit of measurement (1 mu = 666.67 square meters). CNY = yuan, m2 = square meter, RP = resettlement plan. Sources: Resettlement Plan; Chongqing–Lichuan Railway Company; ninth external resettlement monitoring report. C. Resettlement Measures and Income Restoration 6. The resettlement approaches of house relocation and new house rebuilding varied in different local contexts. Displaced persons moved into new houses constructed either by themselves in the villages or by local governments in the concentrated resettlement sites. In addition to cash compensation, displaced households also received relocation subsidies, transitional allowances, and additional assistance in rebuilding new houses. Of the 1,473 households physically displaced by the construction of the CLR, 629 were relocated to 10 concentrated resettlement sites (9 in Chongqing and 1 in Hubei) (Table A12.3). The CLRC and local governments provided an additional budget for the construction of resettlement sites and new house subsidies to help affected people relocate to new houses or apartments in resettlement compounds with better environments and facilities. Affected households were appropriately resettled and they are reported to be satisfied with their new apartments or houses.

Table A12.3 Concentrated Resettlement Sites in the Project Area

Municipality /Province

County /District

Concentrated Resettlement Sites

Name

Project-Affected

Households

Total Resettled

Householdsa Resettlement

Date

Chongqing

Jiangbei Yuzui Town, Shuanxi Village 80 80 October 2010 Changshou Lezhi Zaishuiyifang Community, 300 6,000 June 2012 Fuling Bishui Village 12 12 November 2011 Fengdu Shuanlu Town, Huayuan Village 27 80 September 2011

Shizhu

Xialu Town Railway Station 75 75 July 2011 Nanbin Town, Jinshen Village 37 60 April 2013 Nanbin Town, Wujiayuanzi Village 14 500 November 2013 Xialu Town, Zaibao Villag 13 30 October 2012 Nanbin Town, Ganxizi Village 39 39 April 2014

Subtotal 597 6,876 Hubei Lichuan Xingsheng Village, Wangying Town 32 32 December 2011

Subtotal 32 32

Total

629 6,908 October 2010 to

April 2014 a Concentrated sites were sometimes designed to resettle people affected by various projects. Source: Chongqing–Lichuan Railway Company; ninth external resettlement monitoring report. 7. The affected villages were aware of the new land compensation rates, and received the correct compensation. Affected villagers decided the allocation of land compensation funds themselves in meetings of village representatives. In the Chongqing area, a few villages readjusted the ownership of the remaining lands to ensure that affected persons owned the same area of land as the others. These villages used the land compensation funds and resettlement subsidies for collective purposes or distributed the funds equally to all villagers. In

Appendix 12 51

most other affected villages in the Chongqing area and all affected villages in the Hubei area, affected households were provided with cash compensation for lost land. These households used the funds in the income generation program of their choice. 8. Local governments initiated the “Sunshine Program” to provide training to affected villagers to improve their skills and help them find jobs in various enterprises. The external monitor observed that local governments also improved the quality of low-productivity farmland and promoted modern agricultural development including milk cows, vegetables, and fruits. In addition, social insurance for land-loss farmers is being implemented in the project area, mainly for persons significantly impacted at station sites. Fortunately, there are good income-generating activities in these areas. Since 2008, the Chongqing municipal government has issued basic pension insurance packages to land-loss farmers in seriously affected villages to enable affected households to receive pension insurance, the basic living allowance for urban residents in the People’s Republic of China (PRC), skills training, and job opportunities. The household sampling survey conducted by the external resettlement monitor indicated that the incomes of affected households increased after the project (Table A12.4). Much of this income growth came from migrant labor and locally based non-farm activities. Farm income has also increased although its relative importance has decreased.

Table A12.4: Income Restoration of Affected Households Sample

Item

2009 2014 Net income Percentage Net income Percentage

(CNY/person) (%) (CNY/person) (%) 1. Agriculture 761.7 14.9 1,127.5 12.3 2. Forestry 286.3 5.6 319.4 3.2 3. Animal husbandry 245.4 4.8 359.3 3.6 4. Fishery 10.2 0.2 49.9 0.5 5. Other business 547.0 10.7 1,127.7 11.3 6. Local labor 644.1 12.6 1,686.6 16.9 7. Migrant labor 2,617.3 51.2 5,209.6 52.2 Annual net income per capita 5,112.0 100 9,980.0 100 CNY = yuan. Source: Ninth external resettlement monitoring report. D. Land Acquisition and Resettlement Costs 9. The actual amount disbursed cost of compensation for land acquisition, building relocation, and affected facilities was CNY2.56 billion, 374% more than the plan estimate of CNY541 million. This significant variation was mainly due to increased land compensation rates and incremental costs for house and building relocation, including the construction of concentrated resettlement sites and new house subsidies (Table A12.5).

Table A12.5: Land Acquisition and Resettlement Costs (CNY million)

Item RP Actual Costs

Total Chongqing Hubei Compensation for land acquisition 229.74 1,185.49 1,146.41 39.08 Compensation for standing crops 17.93 Compensation for temporary land use 19.97 298.76 284.85 13.91 Cost for building relocation 137.22 884.36 860.95 23.41

52 Appendix 12

Item RP Actual Costs

Total Chongqing Hubei Allowances and additional subsidies 16.38 Relocation of infrastructure and utilities 16.07 Administrative fee 26.25 76.11 75.90 0.21 Farmland reclamation fee and taxes 39.90 118.74 114.64 4.10 Subtotal 503.46 2,563.47 2,482.76 80.71 External monitoring cost 1.62 0.51 0.51 Internal monitoring cost 0.60

Training 1.35 Physical contingency (5.6%) 28.21 – – –

Price contingency 6.11 – – – Total 541.35 2,563.98 2,483.27 80.71

CNY = yuan, RP = resettlement plan. Notes: 1. Actual land compensation also includes standing crops, land costs of concentrated resettlement sites, and

development costs for state-owned land. 2. Actual costs of building relocation include house allowances and subsidies. 3. The actual administration fee includes internal monitoring and training costs. Sources: Resettlement Plan; Chongqing–Lichuan Railway Company; ninth external resettlement monitoring report. E. Institutional Arrangement 10. The resettlement and coordination office under the CLRC was responsible for coordinating and internally monitoring and evaluating the land acquisition and resettlement implementation. Five full-time staff worked in Chongqing and Hubei respectively. Local governments along the railway alignment also established resettlement and coordination offices and working groups. In Chongqing, a provincial-level CLR construction support headquarters was established in May 2001, and county-level railway support leading groups were set up in the relevant cities, counties, and districts along the alignment. A similar resettlement institutional arrangement was made in Hubei province. The resettlement and coordination offices and working groups under the governments at various levels along the alignment were responsible for implementing land acquisition, house demolition, and relocation. F. Monitoring and Evaluation 11. CIECC Overseas Consulting was recruited as the external resettlement monitoring and evaluation agency for the CLR. The CIECC prepared and submitted the baseline resettlement monitoring report to ADB in July 2009, and seven subsequent resettlement monitoring reports from 2009 to 2015. In March 2016, the CIECC submitted the ninth and final resettlement monitoring report to ADB, and most of these reports were disclosed on the ADB website. In general, these reports were prepared to identify key issues during the implementation of land acquisition and house relocation, but surveys assessing the restoration of income to affected households were relatively weak. This may be due to an inadequate monitoring fund provided by the CRC. G. Participation and Information Disclosure 12. During the preparation and implementation of land acquisition and resettlement, consultation and participation activities were conducted, including a detailed measurement survey, the selection of resettlement sites, house rebuilding, the allocation of land compensation funds, and the disclosure and consultation of project information and of the resettlement policy and standards. In general, affected people along the CLR alignment were primarily concerned

Appendix 12 53

about (i) the allocation and utilization of land compensation funds, (ii) job opportunities and income restoration, and (iii) resettlement sites or housing plots. 13. Meetings were held in affected villages to discuss the allocation of land compensation funds, and its use for community resources and facilities. A village financial watchdog was elected to monitor the use of collective compensation funds. Detailed expenditures were disclosed within the village. These measures ensured the full participation of all villagers, the security of community compensation funds, and the willing compliance of most villagers as to their use. With regard to job opportunities and income restoration, land adjustments were accepted by affected villagers in some remote areas, but affected people in suburban areas preferred cash compensation, since most had jobs in enterprises or hoped for more job opportunities in enterprises or the service sector. In terms of resettlement sites or housing plots, affected households in both urban and rural areas expressed serious concerns about such issues as (i) the distance of these sites from farmland, highways, and markets; and (ii) the conditions of the facilities, such as water supply, electricity, and access roads. A large number of concentrated resettlement sites were constructed on the basis of extensive consultation and participation. Although the project area included some less developed counties, all were experienced in resettlement from the Three Gorges Project. Consequently, resettlement policies, standards, procedures, and the capacity of local officials to implement these in a consultative manner were quite good, enabling the resettlement to be completed in a relatively smooth and timely fashion. H. Lessons 14. The following lessons learned from the land acquisition and resettlement implementation of the CLR may benefit future railway projects: (i) the resettlement plan should be updated in a timely fashion and land acquisition and resettlement costs should be budgeted adequately, including potential increases in compensation rates, resettlement site construction costs, and adequate contingency for unexpected land acquisition and house demolition impacts; (ii) the land acquisition and resettlement fund should be fully incorporated in the project’s overall financial management (local governments currently raise and use this fund directly for land acquisition and resettlement); (iii) the planning and preparation of concentrated resettlement sites should commence as early as possible, particularly for sites close to railway stations; and (iv) an adequate fund for external resettlement monitoring activities should be provided.

54 Appendix 13

ENVIRONMENTAL IMPACT ANALYSIS

A. Introduction 1. The Chongqing–Lichuan Railway (CLR) Development Project constructed an electrified, double-track, class I railway with a total length of 264.603 kilometers (km) linking the provinces of Chongqing and Hubei, and constituting a western section of the planned Shanghai–Wuhan–Chengdu (Hu–Han–Rong) passenger transport corridor in the People’s Republic of China (PRC). The project also constructed eight new passenger and freight stations and rehabilitated two existing passenger and freight stations on the alignment. The project conducted substantial civil works on bridges and tunnels, which accounted for 90.93% of the total railway length. It constructed 197 bridges with total length of about 59.9 km, and 63 tunnels with a total length of 182.9 km. In line with the Asian Development Bank’s (ADB’s) Environmental Policy (2002) and Environmental Assessment Guidelines (2003), the project was classified as category A for environment. 2. The Second Survey and Design Institute of Chengdu prepared the domestic Environmental Impact Assessment (EIA) report and Soil Erosion Protection Plan (SEPP) for the project using methodologies and standards consistent with relevant guidelines provided by the State Environmental Protection Administration (formerly the Ministry of Environmental Protection [MEP]) and Ministry of Water Resources. The State Environmental Protection Administration approved the project’s EIA report in March 2008, 1 and the Ministry of Water Resources approved the SEPP in March 2008. The summary EIA report was prepared based on information contained in the approved domestic EIA and SEPP and was disclosed on the ADB website on December 2007. The SEIA concluded that the project would have environmental benefits by mitigating air pollution and improving energy efficiency. Potential adverse environmental impacts were to be minimized to acceptable levels by implementing adequately funded environmental management activities.

3. Following national regulations, the SEPP’s completion and acceptance review was conducted in June 2015 and approved by the MEP in August 2015. The Sichuan Academy of Environmental Sciences prepared the completion and acceptance review report for environmental protection and submitted it to the MEP in September 2015 for further approval. The completion and acceptance field review is scheduled to be undertaken by the MEP in mid-2016. The government has scheduled the completion technical reviews of soil erosion and environment protection for local roads in the second half of 2016. B. Environmental Management System 4. During construction, the Chongqing–Lichuan Railway Company (CLRC) coordinated the implementation of the project environmental management plan (EMP). The CLRC issued a set of rules and procedures on environmental management. All contractors had a unit or office responsible for environmental protection, and supervision contractors oversaw environmental protection works at the construction sites. Beijing Oasis-Water Environmental Technology was engaged to supervise the EMP implementation. The project management office submitted nine semiannual environmental monitoring reports (EMR) to ADB and these were uploaded to the ADB website. Training on environmental management was conducted for project management staff, contractors, and engineers. Now that the CLR is operating, environmental management mainly involves the maintenance of protective structures, the treatment of wastewater and solid 1 Huanshen. 2008. Approval for Chongqing-Lichuan Railway Project EIA. Issue Number 21.

Appendix 13 55

waste from stations and maintenance facilities, and environmental monitoring. The engineering management unit of the Chengdu railway bureau coordinates these activities. Mitigation measures have been undertaken to remedy the adverse environmental impacts detected in the monitoring results. 5. Environmental and soil erosion control specification clauses have been prepared in the contract signed by the implementing agency and contractors during construction. Guidelines were set for the acquisition of temporarily occupied land, and the transportation and storage of waste material. C. Environmental Monitoring 6. Environmental monitoring was carried out adequately and in accordance with the monitoring program stipulated in the project EIA. A detailed monitoring plan was developed at an early stage to guide the implementation of monitoring activities, including the monitoring parameters, required contents and frequency, and institutional responsibilities. Environmental monitoring was undertaken at two levels: (i) regular monitoring of on-site project impacts by contractors and construction supervision companies; and (ii) periodic environmental compliance monitoring by external monitors, who took samples for analysis in accordance with environment standards and technical codes. 7. During implementation, local environmental monitoring stations undertook compliance monitoring of noise pollution, ambient air quality, and surface water quality along the railway alignment. The Soil and Water Conservation Monitoring Center of the Yellow River Commission was engaged to monitor soil erosion. Beijing Oasis-Water Environmental Protection Technology was engaged as the external environmental monitor to oversee the EMP implementation. The external monitor visited the work areas regularly and inspected environmental mitigation measures. The external monitor prepared 10 environmental monitoring reports, which were disclosed on the ADB website. D. Implementation of Mitigation Measures 8. During project preparation, including preliminary preparation and detailed design, the project’s alignment was carefully screened, taking into account the ecological and socioeconomic environment. The engineering design was improved to minimize environmental impacts. 9. During implementation, environmental monitoring and mitigation measures were carried out according to the EMP and SEPP. The following measures have minimized adverse environmental effects: (i) reusing 10,468,000 cubic meters (m3) of spoil from tunnels and other excavations for embankment filling; (ii) minimizing excavation and potential erosion by optimizing the design of bridge substructures; and (iii) rehabilitating three borrow pits and 147 spoil dumps using excavated topsoil. 10. During tunnel construction, the project applied the most advanced drilling machine which can detect any geo-technical issues within 150 meters. The construction did not encounter any major underground water, pond and reservoir. There were some coal related geo-technical issues during tunneling and the project took sound measures to prevent possible gas explosion. 11. According to the CLRC’s completion report, the actual total investment for environmental protection and mitigation measures was CNY379.136 million, more than the CNY292.731

56 Appendix 13

million estimated at appraisal. These costs included investments for slope stabilization, ecological rehabilitation, embankment protection, and the planting of vegetation along the railway.

a. Ambient Air Quality

12. The impact on air quality during construction mainly came from dust from construction traffic, which was mitigated by frequently wetting the roads, as required in the EMP. Gas emissions from transport vehicles were minor and temporary. The CLR has no immediate mobile sources of air pollution because it uses electric locomotives in its operations. During operation, electrical or solar-energy supported equipment, which emits no direct pollutants, was installed in all stations.

b. Noise, Vibration, and Electromagnetic Radiation 13. During construction, noise impacts mainly came from (i) maintenance workshops; (ii) blasting in tunnels or quarries; and (iii) the operation of vehicles, plants, and earthmoving equipment. These impacts were limited due to the remote locations of major construction activities. Noise from blasting machinery and earthmovers was mitigated by using low-noise equipment during designated working hours. During project preparation, 88 sensitive points were identified. To avoid noise impact, the alignment was adjusted. Construction vibration affected 57 sensitive points, which were resettled with necessary compensation in accordance with the resettlement plan. The noise from passing trains operated by the CLR was mitigated by the installation of 5,940 square meters of sound-insulating windows and sound barriers at two noise-sensitive locations within 1,956 square meters. To minimize potential electromagnetic radiation impacts on television reception for residents along the alignment, cable television has been installed where geographic conditions allow.

c. Surface and Ground Water

14. During construction, adverse impacts on surface water were mainly due to siltation and wastewater from construction sites and workers’ camps. All proposed mitigation measures were undertaken appropriately. The major potential pollution source from the CLR’s operations is wastewater from shops, maintenance facilities, and stations. Ten wastewater treatment facilities were built to ensure that all discharge complies with national standards.

d. Solid Wastes

15. During construction, construction disposal was the main source of solid waste. The project used 3 borrow pits for 899,000 m3 of soil and used 147 spoil or disposal sites for a total of 44.3 million m3 of construction disposals. The borrow pits and disposal sites have been restored and rehabilitated through the use of retaining structures, drainage systems, and vegetation. After restoration, 3 borrow pits or grounds and 18 disposal sites were reused for railway station project sites or urban infrastructure construction sites. Domestic solid waste from stations during operation will be collected and disposed of according to domestic regulations.

e. Soil Erosion

16. Soil erosion during construction was caused by runoff during rainy seasons and occurred mainly at terrain cuts and embankments along the rail route, at borrow and disposal sites, and at temporary access roads. Erosion control measures were undertaken effectively

Appendix 13 57

and according to the SEPP’s specifications. Protective engineering structures included retaining walls, drainage systems, intercepting ditches, topsoil management, and slope stabilization works. Vegetative cover measures were also applied to enhance the engineering structures’ effectiveness. All borrow pits and disposal sites have been restored and rehabilitated.

f. Nature Reserves 17. With regard to ecological environmental reserves, the project alignment was adjusted to avoid impacts at the Xingdou Mountain National Reserve, the Chongqing Dafengbao and Nantianhu provincial nature reserves, and the Zhanguanbaoyan and Tieshanping forest parks. No construction activities, disposal sites, or borrow sites were set in or near the nature reserves.

g. Other Impacts

18. The engineering design considered potential impacts from seismic activities. Mitigating measures included slope extensions, the widening of subgrade surfaces, and dual-direction geotechnical gratings in the crushed stone layer. Exhaust fans were installed in tunnels to lower the interior gas level. Tunnel gas is regularly monitored to ensure tunnel safety.

E. Environmental Benefits 19. Recent research2 indicates that the diversion of traffic from roads to railways in the PRC has yielded energy savings of 169 kilograms of coal equivalent per 1,000 passenger-kilometers of passenger transportation and 1,259 kilograms of coal equivalent per 1,000 ton-kilometers of freight transportation. The project has triggered a significant shift from road to rail transport, generated energy-saving benefits, and reduced air pollution. F. Conclusion 20. During construction, all contractors fulfilled their obligation to protect the environment and implement mitigation measures, minimizing the adverse effects of project construction in the surrounding environment. No rare natural resources were affected as a result of the project, and its impacts on the ambient environment during operation have been minor. The operation of the railway will provide environmental benefits by reducing emissions and improving energy efficiency.

2 China Academy of Railway Sciences. 2011. The research report. Beijing.